Some Thoughts on the Economic History of Early Colonial Mexico

Competitive markets reward the scarce factor of production. As a result of the Spanish Conquest, Indian labor became the scarce factor of production relative to land. But the whole point of conquest was to enrich the Spaniards, not the Indians. Therefore, the Spaniards resisted the use of the market as a device to accomplish productive economic activities. The result was an inefficient allocation of resources and a suboptimal rate of growth, not to say the structural economic distortions that resulted. The development of the economy in colonial Mexico was, in effect, given over to wholesale rent-seeking, the allocation of resources by the use of political power. If there is a conceptual basis for understanding colonial development, it is this rather than dependent capitalism.