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The Craigslist of its day….

On December 27, 1530, Francisco Pizarro set out with 27 horses and 180 men for South America.  Two years later, he conquered the 800 year old Inca Empire, population 12 million or so.

A neat piece of work.

The Europeans had come in search of gold.

What they found was silver.

More than they could possibly have imagined existed.

In 1545, an Indian named Digeo Gualpa took the Spanish to a place called Cerro Rico, literally, the ‘rich hill’, and there they found a mountain literally made of the stuff.

For the Incas, sliver was an interesting metal for decoration and ornamentation. For the Spanish, it represented pure wealth.  The Incas could not understand the Spanish addiction to the metal, their seemingly endless need for it.  But they soon would.

Put to work as slave laborers, the Inca Indians would extract  more than 45,000 tons of silver from the mountain and send it back to Spain.

A stream of Spanish treasure ships sailed from South America to Spain carrying the silver from 1556 to 1783.

The Spanish thought that they had hit it big.  Silver, after all, was the essence of wealth, and in an instant, Spain was transformed into the wealthiest country in the world, bar none.  The Spanish began to mint coins, the Spanish Piece of 8 (above), which became the world standard for currency.  They built a global empire, they built the world’s biggest navy, the world’s strongest army.

Then, it all went to hell.

The Spanish economy collapsed.

No one in Spain could understand what had happened.

Today, we can.

Silver was precious in Europe because of its rarity.

Once the Spanish started to flood their markets and indeed the world with vast quantities of silver, they in effect debased the value of their own economy.  The more silver they brought to the Old World, the more common the metal became, the less valuable their treasure houses of silver became.

Karl Marx predicted that after Communism, the workers would make urinals from gold, because it was, after all, simply a metal.  Silver almost reached that point. Its vast volumes made it more and more common and hence less and less valuable.

We like to call ourselves ‘The Information Society’.  Information is the currency of our world.

There is value to information.

That is why people pay for, or at least used to pay for, newspapers.

Or watch The Evening News.

The Internet, it turns out, is the Cerro Rico of our own era. The rich hill.

It is a mountain made out of information that once mined by slaves floods our own markets with vast quantities of information that is really cheap.

And in doing so, it debases the value of information – almost to nothing.

Not so long ago, it was both rare and expensive to put a journalist in a place like Vietnam. National Geographic Magazine would spend literally tens of thousands of dollars, if not more, to send a photographer to exotic spots like… Kathmandu.

Because trips like these were so unusual, and the number of people who would go there with film camera or a typewriter was few, what they had to say and show had value.

The journalist could charge a premium for their work; the viewer or reader was willing to purchase a copy of LIFE Magazine to see the photos of Nepal.

Today, the blogosphere is awash in photos of Nepal and just about everywhere else in the world.  Want to see the War in Iraq? Just Google it.  34,900,000 hits this morning.  Photos from Nepal?  32,200,000.

Rare?

Not exactly.

Of any value?

Not much.

Want to pay anything to see them?

Not on your life.

So our journalists and photographers find themselves in possession of a skill that no longer has any value in our marketplace and they  can’t really understand what has happened.

Don’t feel bad.

Philip II of Spain couldn’t understand what had happened either.

He had vast warehouses of silver, yet he was broke.

Like The New York Times.

“I don’t get it”, Philip must have wandered around Madrid yelling all day long.

“I have everything… but I have nothing. How is that possible”.

Today, we can see how the Spanish discoveries and conquests in the Americas in fact destroyed the Spanish economy.  (And if you can’t, there is a terrific book by Niall Fergusson, The Ascent of Money, that will do that for you).

During the so-called ‘price revolution’ (and here I quote Fergusson), between 1540 and 1640, the cost of food, which had shown no sustained trend for 300 years, rose markedly.  In England, the cost of living increased by a factor of 7 in the same period.

It was Europe’s first taste of inflation.

What the Spanish had failed to understand was that the value of a precious metal was not intrinsic to the metal, but rather based upon what someone was willing to pay for it. And that was a function of its rarity. Make silver common enough, and it becomes increasingly worthless.

The same goes for information.

In a world in which information is rare and hard to come by, people will gladly pay $1 for a copy of The New York Times, online or on paper – it doesn’t matter.

But make information plentiful and cheap and easy to get, and why would anyone pay for a copy of The Times?

Or indeed why would anyone pay to send a photojournalist to Nepal…. or even Newark?

The answer is, they won’t.

It’s not a bad thing, this flooding of the world with information.

But it has an impact on the perceived value of that information, and of the people who were once paid to produce it.

Now, here is the good news:

The silver mines of El Dorado didn’t mean the end of an economic order in Europe, but it did mean the end of one way of thinking about and organizing money, and the rise of another, ironically far more robust one.

The same thing is happening to us right now.