Using new archival sources never before used in the economic history of Pacific trade, Juan José Rivas Moreno’s new book offers the first reconstruction of the capital market of Manila and its role in the immensely lucrative trade between Asia and America from the late sixteenth to late nineteenthcentury.
The announcement of the 2024 Nobel Prize in Economics has thrust institutions back into the spotlight ofmainstream media. This marks the second Nobel Prize awarded for contributions to institutional economics, following Douglass C. North’s prize in 1993. Although North’s recognition at that time was primarily for his pioneering work in cliometrics (alongside Robert Fogel), the award underscored the significance of institutional history and theory.
Yet for historians, and especially economic historians, the topic of institutions has never truly gone out of fashion. Many questions remain regarding almost all aspects of institutions, from how to define them to how to measure them. How did institutions emerge, how did they evolve, why did they fade and – perhaps more importantly although less often asked – why some persisted?
These questions are at the heart of my recent book, The Capital Market of Manila and the Pacific Trade, 1668-1838: Institutions and Trade during the First Globalization, published in the Palgrave Macmillan Economic History Series. The book’s central problem is straightforward: how did Manila, the farthest outpost of Iberian expansion, finance the transpacific trade between Asia and America across the vast Pacific Ocean? From this arise several related questions: why did Manila’s institutions differ so significantly from those of other European merchants in Asia? How did these institutions emerge and evolve? How did they resolve the principal-agent problem across such distances? Were some institutions uniquely suited to long-distance trade finance, and if so, what made them effective?
The case of Manila’s capital market is particularly relevant given the literature on Europe’s financial revolution and the rise of joint-stock companies and impersonal capital markets to support long-distance trade. Remarkably, for 250 years Manila financed an extensive trade route, moving between fifty to a hundred tons of silver annually, without reliance on joint-stock corporations, publicly traded shares, merchant banks, or public banks.
Instead, Manileños adapted familiar institutions to the commercial realities of Southeast Asia. Beginning in 1668, legacy funds known as obras pías were repurposed to finance trade through sea loans, which distributed risk and profit among investors and traders. Obras pías, originally established as charitable trusts or pious foundations, were religiously affiliated endowments meant to fund charitable activities, but in Manila they were repurposed to support trade finance. The notary public played a crucial role in contract enforcement and information dissemination, while confraternities and religious orders managing obras pías provided governance backed by both canon and civil law. These lay organizations, embedded in urban networks of piety, facilitated the flow of individual savings into trade finance through obras pías, creating an impersonal capitalmarket infrastructure.
To understand why Manila adopted this institutional model, my book examines the capital market within the broader context of the Pacific silver trade and the Spanish Empire’s commercial political economy. The high demand for Spanish American silver in Asia—particularly in China—combined with Mexico’s monopolistic control of silver flows by a few powerful merchants, shaped a monopsonic market that influenced both the Pacific exchange’s business model and Manila’s financial model. This concentration of bargaining power extended into the political realm, shaping commercial legislation in the Spanish Empire.The book builds on the institutional history framework of economic historian Stephan R. Epstein, further developed by Alejandra Irigoin and Regina Grafe for the Hispanic Monarchy, offering a comprehensive view of institutional formation and evolution across the Pacifictrade chain.
By contrasting Manila’s institutional model with European joint-stock companies, my book explores the divergence in institutional approaches to long-distance trade finance. Manila’s experience suggests that the Anglo-Dutch model of financial revolution was not the sole path to success; alternative systems, tailored to specific market conditions, were equally effective. Ultimately, the Manila case underscores the need to assess institutions within the markets they operate, not solely by their design quality.