Spanish Colonial Strategy: Establishment of Extractive Institutions

Key Economic Insight

Early Spanish colonization in the Americas was driven by a desire for plunder, gold, silver, and the coercion of indigenous labor, rather than by a desire for settlers to cultivate the land themselves. Initial attempts, such as the founding of Buenos Aires in 1534, failed because the local hunter-gatherer populations, like the Charrúas and Querandí, refused to provide labor or food, and the region lacked precious metals. This led the Spanish to abandon the settlement in favor of areas with sedentary agricultural populations.

A more successful model was established with the conquest of the Guaraní in 1537, leading to the founding of Nuestra Señora de Santa María de la Asunción. The Spanish, after brief conflict, adapted existing Guaraní systems of forced labor and tribute, installing themselves as a new aristocracy. This strategy was perfected by Hernán Cortés in Mexico (1519) and Francisco Pizarro in Peru (1532), involving the capture of indigenous leaders like Moctezuma and Atahualpa, seizing their wealth (e.g., golden discs, feather head fans), and then imposing control over the native populations to extract tribute, food, and forced labor.

Key institutions of this extractive system included the encomienda, granting Spaniards indigenous peoples for tribute and labor in exchange for conversion to Christianity, as vividly criticized by Bartolomé de las Casas. The Potosí mita, adapted by Viceroy Francisco de Toledo from an Inca labor system, forced one-seventh of male inhabitants in a vast 200,000 square-mile area to work in silver mines from 1569 until 1825. Other oppressive measures included head taxes, repartimiento de mercancias (forced sale of goods), and trajin (forced carrying of loads). These institutions generated immense wealth for the Spanish elite but reduced indigenous living standards to subsistence, expropriated their land, and laid the foundation for Latin America's deep inequality and stifled economic potential.