A Mountain of Money: On Indians, Sheep, and Inflation

An act of an Indian who discovered a mountain of money, and how this caused the elimination of the Indians in Bolivia

The story I'm going to tell you right away sounds so imaginary, that you could mistakenly think it's a fairy tale. It certainly mentions some well-known legends, such as the story of Ali Baba and the treasure cave for example. Nevertheless, this is a true story: in fact, you can get on a plane and visit the scene yourself. Moreover, legends like this one about Ali Baba usually have a happy ending. This story, however, has a particularly bleak and bitter ending.

In 1543, a South American Indian named Diego Huelva set out to graze his herd of llamas on the slopes of Mount Potosí, in present-day southern Bolivia. Suddenly Diego noticed that two llamas got away from the herd and started chasing them. The hours ticked by, and the sun began to set over the mountains. Finally he had no choice, and he had to stay and sleep on the mountain.

There are two versions of the events that happened the next morning. According to the first version, Diego was trying to hunt some animal when he suddenly slipped on the steep slope. He held on to the bush to stop his fall, and the bush was dislodged. The surprised Diego noticed silver metal lumps among the roots. According to the second version, Diego lit a fire to warm himself at night, and when he woke up in the morning he discovered a small stream of metal that had melted in the heat of the flames.
A closer inspection revealed to Diego that the mountain he was standing on was, quite literally, a mountain of money. Almost everywhere he struck with his hoof the silver metal glinted from the hole.

Diego decided, not surprisingly, to keep the discovery a secret. South America was under Spanish colonial rule, and the Europeans were notorious for their insatiable lust for gold and silver. Diego hoped to sell them the money he discovered and get rich.
But fate had other plans. At one point he brought in a number of other partners in order to establish the silver mine together with them and a dispute over the distribution of the profits resulted in one of the partners reporting on him to the Spaniards. This was the end of Diego's dreams of getting rich, and the beginning of a terrible nightmare for the Indian people.

Before I continue to describe the events of Silver Mountain, let me go back a few thousand years.
Trade is one of the oldest human activities, and many primitive economies were based on 'barter', or 'barter'. Barter, however, is inherently problematic because it assumes that both parties to the transaction are willing to accept the other's goods—which is not always true.
Suppose, for example, that I am a young doctor who works long nights in the emergency room and saves lives - and the Ministry of Finance is willing to pay me in sheep. In principle, it's a serious upgrade because the treasury doesn't like to pay - but as strange and unnatural as it sounds, it doesn't suit me to get a sheep. I don't like it, the sheep. I'm an urban type, I don't understand sheep at all. Why do I need this headache: her fur needs to be combed, she needs to be taken out to defecate, and her barking wakes up the neighbors at night.

In other words, barter is inefficient. You have to overcome quite a few difficulties to realize it: both parties have to want exactly the same goods that the other party has, and at exactly the same time. These difficulties are the reason why many cultures have replaced the barter method with what is known as the 'gift economy': a kind of barter without commitment. I give you flour today because I have plenty of it, and I trust you to give me a sheep when I need it. Gift economy is a good option, but only between friends or relatives. To trade with foreigners, you have to find another method.

The universal solution to the problem of the inefficiency of barter, in almost all human societies, was the invention of the concept - 'currency'. The word 'currency' is used here in its broadest sense - any physical object that can be used to embody 'value'. For example, in many agricultural communities sheep were a passing currency for the merchant: I would give you flour, you would give me a sheep - but I would trade the sheep for clothes, and the tailor would trade it for something else. Elsewhere sacks of grain were the local currency, or shells, or casks of rum. In prisons, as everyone knows, cigarettes are the unofficial currency.

With the invention of writing and the appearance of the first large empires in the Mesopotamia region, around three thousand years BC, the volume of economic activity and the volume of trade also increased. In such a situation, wheat and sheep cease to be good currencies: sacks of wheat are large and heavy and difficult to store. Sheep keep making obscene movements on your leg.

Precious metals like gold and silver, on the other hand, have all the successful characteristics of an efficient currency. They are portable, do not spoil or die, are easy to store, can be molded into any desired shape and most importantly - they are rare. Since there isn't much gold and silver, almost the only way to get them is through trade, which is the main reason they have value. If gold grew on the trees, there would be no point in using it as a means of payment.

The first coins, those metal circles of uniform size and weight, appeared around 600 BC in the region of present-day Turkey and Greece and the reason for their appearance was mainly practical. Each coin contained a measured and known amount of metal, thus saving the need to re-weigh it in each transaction. Stamping the face of the king or the local governor on the coin is intended to increase the public's confidence in the value of the coin, since counterfeiting the coin is not only an economic offense - but also a form of injury to the ruler's honor.

Coins made of gold and silver formed the backbone of Europe's economy for thousands of years. This is why when the Spanish heard about the 'Serro Rico', the 'Mountain of Wealth' discovered in Potosí, they were ready to do whatever it took to get their hands on this treasure.
In the first years, the Spanish paid the local Indians for the work in the silver mines, but soon the poor working conditions began to show their signs: the heavy sacks of silver, for example, had to be brought up on foot from the bottom of the mine, at a depth of two hundred meters. The miners died en masse in accidents and diseases and in a short time no one was willing to work in the mine voluntarily.

But the Spaniards did not give up. They forced the locals to work for them, and the gates of the Cerro Rico mines became the gates to hell. For two hundred years, until the end of the 18th century, millions of Indians died in the silver mines - most of them as a result of poisoning. The process of refining the raw silver required the use of mercury, and the Native Americans were the ones who had to step on the toxic mixture with bare feet to mix it. The average lifespan of a mine worker was less than six months. One of the monks wrote in 1638:

"Every peso minted in Potosí cost the lives of ten Indians killed in the depths of the mines."

Later, when there were almost no Indians left, the Spanish began importing slaves from Africa to work in the mines. Most of them served as 'human donkeys', as the Athenians who carried the mine carts usually died within two months. At least thirty thousand Africans died in Potosi.

The 'Mountain of Wealth' did produce tremendous wealth for Spain. Over the years, nearly forty-five thousand tons of pure silver were transported to Europe. The money from Potosí, combined with the large amount of gold that the Spanish looted from the Incas and the Maya, helped preserve Spain's high position in Europe. But the Spaniards did not know - or chose to turn a blind eye - to the danger inherent in flooding the European market with such huge quantities of precious metal.

Food prices in Europe were more or less constant throughout the Middle Ages. A silver or gold coin bought a known amount of goods, except in times of temporary shortages following disasters and droughts. The reason for the long-term price stability is that the amount of gold and silver mined from the earth more or less corresponded to the growth rate of the population: that is, the amount of gold coins in an average wallet did not change too much over hundreds of years.

By flooding the market with Spanish money, there were suddenly many more coins, many more wallets. What do people do with their money? They buy goods, of course. Increased demand for goods naturally creates an increase in prices - and this is exactly the definition of 'inflation': a situation where there is more and more money trying to buy the same amount of goods.

The result was that food prices in Europe jumped sevenfold within a hundred years, and this price increase neutralized much of the wealth accumulated by the Spanish Empire: the Spanish had to spend seven times more money to buy the same amount of goods they had bought a hundred years earlier. In other words, the millions of Indians who died in Potosi did so, literally, for next to nothing.

[Ran Levy is a science writer and hosts the podcast 'Making history!': about science, technology and history. www.ranlevi.co.il]