Endowment Funds, Brotherhoods, and Financing Long-Distance Trade: The Case of Manila, 1668-1821

February 3, 2025 | Blog
Home > Endowment Funds, Brotherhoods, and Financing Long-Distance Trade: The Case of Manila, 1668-1821

In this post, Juan José Rivas Moreno, now a Max Weber Fellow at the European University Institute’s Department of History, introduces his research undertaken while a Economic History Society Power Fellow at University College London and the Institute of Historical Research during the academic year 2023/2024.

The advent of direct long-distance trade between Europe, Asia and the Americas after 1492 has been seen as a direct cause of the emergence of modern capital markets in Europe. According to this narrative, the challenges that long-distance trade represented (the need for unprecedentedly larger investments to be locked-in for longer periods of time) needed financial innovations that could solve liquidity constraints. To solve these challenges it was necessary to develop impersonal financial markets. Impersonality, defined by Ron Harris (2020) as a market which can draw investments from outsiders completely unrelated to the trade, has a greater capacity to mobilise resources beyond the personal networks of merchants and cultural coalitions. This advantage in scale, which Emmer and Gaastra (1996) also consider the main strength of joint-stock companies, fundamentally relies on the capacity of financial intermediaries in connecting savers with the market.

Among the Early Modern trade routes, the Pacific exchange which linked Asia with Spanish America through Manila in the Philippines between 1571 and 1815 represented the longest crossing in the Age of Sail. This exchange was voluminous and persistent. Estimations vary, but by the eighteenth century an average of 2-4 million pesos (50-100 tons of silver) are estimated to have crossed the Pacific each year. Such long-distance trade needed financing, and this was provided by the capital market that emerged in Manila.

The capital market of Manila presented different characteristics from European markets. It relied on the capital managed by lay associations of religious inspiration: brotherhoods, confraternities, and tertiary orders that administered the endowment funds opened by citizens of Manila. The participation of religious institutions in credit markets is not new. A growing literature has explored how institutions such as convents, nunneries, and confraternities evolved in the Hispanic Monarchy and the Portuguese empire to satisfy local credit demand and even participate in the public debt market (von Wobeser 2010, Irigoin & Grafe 2013, Grafe 2020, Rodrigues 2024). However, most studies have focused on local credit. The uniqueness of Manila – and neighbouring Macao – was the emergence after 1668 of endowment funds that invested directly in maritime trade through the origination sea loans.

These endowment funds, known as obras pías, functioned similarly to a trust fund. Any individual could open these funds with a principal of money, always given in cash. The funds were left to the administration of the brotherhoods or tertiary orders that founders were familiar with. The boards of management of these institutions—elected annually amongst the members—were in charge of investing the money and collecting the proceeds, which were then destined to recapitalising the fund, increasing its principle, and paying out the charity mandated by the founders. All funds were opened through a testament, regardless of whether the founder was dead or alive at the time of the establishment. This testament laid out instructions how the proceeds were to be paid into charity. Obras pías paid for a wide range of public goods, from orphanages for girls and dowries for orphaned women, to the maintenance of hospitals and universities, missionary efforts, and the celebration of masses for the souls of the departed.

What is most impressive is the speed with which these funds spread across the city. The first fund was opened in the Brotherhood of the Misericordia in 1668. By 1816 the Misericordia managed 58 such funds, and new funds were opened with over two dozen different institutions. Research has identified 264 individual funds that operated between 1668 and 1833, with many more to be discovered. Their weight in the financial market kept increasing as new funds were opened and existing funds recapitalised losses and accumulated profits. The Misericordia itself jumped from holding 577,000 pesos in obras pías in 1755 to over a million by 1783. Contemporaries estimated that in 1809, after the Pacific trade had gone into decline, the obras pías of the city could still mobilise 3 million pesos for trade.

Impersonality came from the religious institutions that bridged individuals to maritime investments, the confraternities and tertiary orders that administered funds. Obras pías were opened by all sorts of individuals. This included wealthy merchants and governors, people intimately involved with the trade. But many others were outsiders. Founders included women and nuns, as well as professors and priests, individuals that were not necessarily acquainted with trade finance, but that had a relationship with the religious corporations that shared their urban spaces. It was these brotherhoods and tertiary orders that evolved to become financial intermediaries, linking the savings of citizens to the demand for working capital from the trade. Manila represents an alternative institutional approach to solving the challenges of long-distance trade, a bottom-up approach that rested on canonical institutions, but which managed to mitigate liquidity constraints.

 

References:

Emmer, Pieter, and Gaastra, Femme (eds.), The Organization of Interoceanic Trade in European Expansion, 1450-1800 (Aldershot, 1996).

Grafe, Regina, ‘An Empire of Debts? Spain and its Colonial Realm’, in A World of Public Debts, (eds.) N. Barreyre, N. Delalande (Singapore, 2020).

Harris, Ron, Going the Distance: Eurasian Trade and the Rise of the Business Corporation, 1400-1700 (Princeton, 2020).

Irigoin, Alejandra, and Grafe, Regina, ‘Bounded Leviathan: Fiscal constraints and financial development in the Early Modern Hispanic world’, in Questioning Credible Commitment, (eds.) D’Maris Coffman, Adrian Leonard, Larry Neal (Cambridge, 2013).

Rodrigues, Lisbeth, ‘Institutional investors in the Portuguese credit market (1550-1800): The case of the Misercórdias’, Revista de Historia Económica/Journal of Iberian and Latin American Economic History (2024): 1-29.

Von Wobeser, Gisela, El crédito eclesiástico en la Nueva España. Siglo XVIII (México, 2010).

 

To contact the author:

Email: juanjose.rivasmoreno@eui.eu

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