A Spanish treasure ship, a bullion fraud and a 17th century monetary crisis


Recent media reports about the discovery of the sunken Spanish galleon, the San Jose, with its estimated £1bn treasure, reminded me of one of the challenges I set myself in writing Slave to Fortune. This was to gently introduce readers to some light economics – not a classic ingredient in adventure fiction, granted, but that only added to the challenge.

hip in Barcelona

A replica Spanish galleon, spotted in Barcelona

In the novel (and be warned, this is something of a spoiler), the corsair captain Murat Reis and his renegade crew capture a Spanish galleon laden with silver bullion on its return voyage from the New World. They escort their prize ship to Algiers but, instead of honestly declaring the galleon’s cargo to the city’s customs officials – what self-respecting pirate would do that? –  Murat Reis strikes an illicit deal with the controller of customs and the treasurer of the mint. The silver is offloaded secretly and smuggled into the city’s mint. There it is turned into millions of Ottoman silver coins, known as akçe – or aspers in English, flooding Algiers with money and causing a monetary crisis.

Akçe or Asper of Sultan Murad II

Akçe or Asper of Sultan Murad II

Tom – the central character in the novel – describes how prices soar in Algiers for everyday goods and services – as the silver aspers are used for many day-to-day transactions – leading to discontent amongst the population. A further consequence is that the silver currency is devalued both against the foreign exchange offered by visiting merchants and in the unofficial exchange rate for Ottoman gold coins offered by local traders.

The financial authorities, led by Tom’s master – the Grand Treasurer of Algiers – are at a loss to understand what has happened. They know that they haven’t clipped the coins (something they have done in the past) as the purity of the coins has remained in tact. And the accounts from the mint indicate that there is the right value of bullion there – when silver and gold are both taken into account. This is because all of the additional silver bullion from Murat Reis’s captured ship has been swapped for gold in the mint at the official rate: i.e. the value of the silver smuggled into the mint exactly matched the official value of the gold that the fraudsters extracted from the mint in exchange, so the overall balance of bullion in the mint is unaffected, masking the deception.

It is Tom who eventually solves the puzzle by guessing that Murat Reis’s captured silver cargo has been secretly offloaded and minted into silver coins and that this is somehow connected with the rising prices. With his master, he establishes the truth of what happened to the silver cargo and uncovers the controller of custom’s involvement in the fraud.

They also discover that the secretly minted silver coins entered circulation in the city through the payment of workers constructing one of the city’s new mosques. Ali Bicnin, the benefactor who funded the construction of the mosque, procured the silver to pay his workers’ wages from the mint in exchange for gold. As a result of the detective work of Tom and his master, the controller of customers and treasurer of the mint are brought to stand trial.

Ali Bicnin Mosque

Ali Bicnin’s Mosque in Algiers

After the truth has been discovered, Tom and his master are able to put a halt to the rising prices by purchasing back some of the excess silver coins in circulation in the city with gold from the mint, which in this way functions as a primitive central bank. This is an elementary form of what economists call ‘sterilisation’, which is used by central banks to prevent their currencies from gaining or losing value – e.g. by mopping up excess cash. Calling coins back into the mint for exchange was not an unprecedented process as mints such as those in the Ottoman Empire were familiar with exchanging old coins (typically bearing the head of the former Sultan) with new coins (featuring that of the new Sultan).

Truth or fiction?

So was the whole affair described in the novel complete fiction? Well, not quite. Having devised this part of the plot I was interested to see whether economies in the Ottoman Empire really did suffer from inflationary shocks and currency devaluations as a result of inflows of silver from the New World.  It seems they did. According to an essay by Francis Turner entitled Money and Exchange Rates in 1632:

Money in the 17th century was primarily based on silver coins with gold used for larger transactions and smaller coins minted from copper, brass or tin. One of the reasons why there was considerable inflation in the 16th century was the vast influx of gold and silver from the Spanish looting of the New World.

To add to this, the rough ratio of gold:silver by weight gradually changed. In the medieval period the ratio was approximately 12:1 (i.e one unit of gold was worth 12 units of silver) but thanks to the vast discoveries of Latin American silver this ratio increased so that by the time Sir Isaac Newton was in charge of the Royal Mint in 1717 it was over 15:1.

Needless to say this caused significant dislocation as cunning traders were able to take advantage of the mismatch in pricing but fortunately for 17th century Europeans the majority of this dislocation had occurred during the previous century and the ratio of ~15:1 was more or less fixed. However the disruptions to trade of the Thirty Years War meant that in different places the relative abundance of gold and silver as well as copper and other metals often varied thus altering the price and in some cases the value of the coins used.  

According to Francis Turner, in the second half of the 16th century, the number of Ottoman aspers that a Venetian ducat would purchase increased from 60 to 200, illustrating the extent of the devaluation of the Ottoman coins, with the influx of New World silver likely to have been a factor alongside traditional clipping or debasement (often done to pay for wars).

And finally… did you know? 

In the latter part of the middle ages and renaissance, there were two standard international currencies in and around Europe – a gold one and a silver one. The standard gold coin was the Venetian Ducat, which similar coins such as the Guilder and Florin minted in other European countries. The silver coin was the Thaler (the origin of the word ‘Dollar’), named after the valley in Bohemia, Joachimsthal, where the silver was mined. The Thaler was the broad equivalent of the Spanish ‘peso’, the notorious ‘piece of eight’ from pirate tales in the Caribbean, so named because it was worth eight ‘reales’ – a smaller silver coin. Time will tell how many pieces of eight and other treasures were sunk on board the San Jose!