Notes on Yeager (1995): Encomienda vs Slavery in Sixteenth-Century Spanish America
The Paradox of the Encomienda
When Spaniards conquered the New World, they resorted to the encomienda, a forced-labor system in which a Spaniard (an encomendero) received a restricted set of property rights over Indian labor from the Crown.
Encomenderos could extract tribute (a portion of output) in goods, metals, money, or direct labor services.
In exchange, encomenderos provided Indians with protection and instruction in the Catholic faith, promised to defend the area, and paid a tax to the Crown.
Property rights over Indian labor were restricted in three key ways, distinguishing encomienda labor from slavery:
Indians were not owned; they could not be bought, sold, or rented to others.
Encomenderos were forbidden inheritance rights; encomiendas did not automatically transfer to future generations and would revert to the Crown after the death of the second-generation encomendero.
Indians could not be relocated from their proximate geographical area.
The Crown’s preference for the encomienda is curious because these restrictions lowered Crown revenue compared to slavery:
Inheritance restrictions gave encomenderos incentives to deplete native labor more quickly (no bequeath motive), lowering intertemporal output due to higher Indian depopulation.
Trading and relocation restrictions kept Indians in areas of initial settlement, preventing relocation to higher-revenue sites (e.g., silver mines in Mexico and Peru).
Inability to trade or rent Indians reduced economies of scale and prevented optimal adjustment of labor force size.
Despite these revenue losses, the Crown demanded the use of encomiendas, a paradox that requires explanation.
The article uses the encomienda as a case study to show how the Crown crafted institutions to strengthen its control over New World assets despite adverse consequences.
Objectives of the Crown
The Crown sought to expand and defend the Spanish empire in a cost-minimizing way.
It aimed to spread Christianity to the natives.
It sought to extract wealth from the colonies.
Each objective is treated in turn:
Expansion: conquer the native population to extend empire.
Christianity: convert natives; even if earthly life was harsh, conversion promised a favorable afterlife.
Wealth extraction: exploit native labor as the most abundant asset in the New World.
The conquest strategy is analyzed as analogous to sharecropping. The Crown considered wage, fixed-rent, and share contracts for conquests.
Wage contracts required direct Crown financing and created strong shirking incentives for conquistadores.
Fixed-rent contracts required a lump-sum payment for complete control, with efficient incentives but high risk if returns were volatile.
Share contracts were favored: the Crown contracted with caudillos (leaders of conquests), specifying the caudillo’s return (usually ) and the geographical area of authority.
The caudillo would raise capital and organize labor for the conquest; the Crown did not have to finance the expedition directly.
A range of labor systems could have followed the conquest, including various forms of wage labor and slavery; the conquest itself did not determine the subsequent labor organization, but it constrained Crown control.
The Crown sought to convert natives to Catholicism; encomenderos were required to instruct and ensure Mass attendance.
The Crown aimed to extract rents from the colonies; Indians represented the most abundant labor resource, and the Crown recognized that Indians often resisted work unless forced.
The Portuguese solved labor demand in Brazil via the “factory” system: large trading posts exchanging European goods for Brazilian dyewood, which created mutual gains and incentivized Indian labor there.
In Hispaniola and other Caribbean islands, conquistadors faced shortages of lucrative resources (e.g., gold), making forced labor more attractive as a remedy to labor shortages.
The Crown considered several forced-labor options for the New World (comparative historical context):
Slavery (abolished for Indians by the 1542 New Laws) but later used African slavery more heavily in certain regions.
Indian slavery in Brazil was legally restricted in 1574 to specific circumstances (e.g., just war, previous slave status, or cannibalism), but slavery existed prior to and alongside other arrangements.
Indentured servitude (England) as a potential solution; however, indentured Indians would not necessarily remain in the colonies after the term; indentured servitude would be temporary and insufficient to sustain long-run labor demand.
Africa-only slavery and the alternative of leaving Indians relatively unexploited would forgo considerable wealth.
The Crown faced a choice between two viable options: encomienda or slavery.
The Conquest Strategy and Labor Organization: Share Contracts, Wage, and Fixed Rent
The Crown’s conquest strategy resembled a share contract: it delegated authority to caudillos who would raise capital and organize labor, retaining a large share of the returns and securing geographic control.
The Crown did not finance expeditions directly, reducing its exposure to capital risk while maintaining strategic influence over colonial assets.
The Crown’s broader goals included religious conversion and the extraction of wealth from the colonies, which motivated its preference for a labor organization that could deliver military and economic returns with manageable risk.
The Crown’s Labor Alternatives in the New World: A Comparative Historical Context
Portugal and the Brazilian colony adopted a factory-like system that linked labor demand to trading posts and exchange of European goods for dyewood, providing a market-based incentive for Indian labor.
In the Caribbean, early exploration was hindered by a lack of lucrative resources, limiting the viability of wage labor and increasing reliance on coercive forced labor for conquest and resource extraction.
Spain faced a different set of constraints: Indian labor shortages and geographic dispersion required an organizational form that could secure rents while maintaining political control, with the encomienda offering distinct advantages despite lower revenue relative to slavery.
Elsewhere (France and England):
French: trading posts; some use of slaves, but less extensive than Spain in the colonial Americas.
English: indentured servitude became a common form of labor in the 17th century; however, Indians were scarce in North American colonies, limiting the applicability of Indian labor as a long-run solution.
Africa’s role: over time, African slavery became more prominent, altering the composition of labor in the New World and reducing the dependence on Indian labor.
A core historical question is how to extract rents from large populations of Native Americans; relying solely on African slaves would sacrifice much wealth, suggesting that the Crown had two viable options—encomienda or slavery.
The Encomienda as a Constrained Wealth-Maximizing Outcome
The Crown preferred the encomienda because the property rights granted to encomenderos reduced threats to its security compared to slavery, which offered no such protection.
There was an ideological bias against Indian slavery within the Crown; this bias did not primarily arise from Church pressure (which was weak) but from a belief that natives should be free people.
The Crown was often openly hostile toward the encomienda, since it remained a system of forced labor; the Crown preferred wage labor but was unwilling to forego wealth during the transition period.
The three main restrictions (inheritance, trading, relocation) increased the Crown’s security and aligned with its ideological stance; each restriction is treated in turn below.
Inheritance Restrictions
Diminished long-run wealth accumulation: even wealthy families could lose access to native labor by the third generation due to inheritance bans.
Easier confiscation: property rights granted to encomenderos provided a legal avenue for the Crown to reclaim encomiendas.
Strengthened bargaining position: the Crown could threaten confiscation of encomiendas from rebellious encomenderos, increasing leverage in negotiations and compliance.
Trading Restrictions
Trading restrictions limited encomenderos’ ability to reallocate labor across locations, binding labor to proximate regions rather than allowing transfers to higher-revenue sites (e.g., silver mines).
This restriction reduced the Crown’s ability to achieve scale economies and efficient allocation of labor to the most productive opportunities.
Relocation Restrictions
Indians could not be relocated beyond their geographic vicinity, preventing geographic reallocation of labor to higher productivity regions and maintaining labor supply within local areas.
These restrictions, together with inheritance and trading limits, constrained the efficiency of labor exploitation but increased Crown security and maintained political control.
Why the Crown Prefers Encomienda Despite Revenue Losses
In essence, the property-rights structure of encomienda reduces threats to the Crown’s security and aligns with an ideological preference against slavery.
The Crown’s hostility toward the encomienda reflects a preference for wage labor in the long run but a willingness to tolerate a constrained forced-labor system during the transitional period to maximize rents from Indian labor.
The combination of inheritance, trading, and relocation restrictions created a constrained yet more controllable system that yielded rents for the Crown even though it reduced potential revenue compared with slavery.
The Encomienda in a Broader Historical and Ethical Context
The Crown’s stance on slaves: while the New Laws of 1542 abolished Indian slavery, enforcement was uneven, and slavery persisted in practice in various forms.
The Crown’s ideological stance: a belief in free Indians, but a recognition that labor must be harnessed to grow and defend the empire.
The regime balanced multiple tensions: the need to expand and defend empire, the desire to convert natives, and the imperative to extract rents from colonial assets.
The paper situates the encomienda within a broader neoinstitutional framework (following North and others) that views institutions as the primary determinants of economic performance over time, shaping incentives, technology, and growth.
Connections to Foundational Concepts and Real-World Relevance
Institutions matter: the analysis demonstrates how institutional designs (inheritance, relocation, and trading restrictions) shape economic outcomes (rents, efficiency, and demographic dynamics).
Center–periphery dynamics: central Crown control versus local encomendero autonomy reveals the political economy of colonial expansion.
Ideology and policy: policy preferences (anti-slavery, pro-encomienda) reflect deeper political and ethical considerations that influence economic arrangements.
Comparative labor systems: the discussion highlights how different colonial powers approached labor demand, revealing why Spain persisted with encomienda longer and with different legal constraints than Portugal, France, and England.
Key Dates and Terms (with LaTeX-ready references)
New Laws abolishing Indian slavery:
Brazil’s 1534 settlement and the factory system in operation
Indian slavery in Brazil legally clarified in (conditions: just war, prior slave status, cannibalism)
Encomienda return share to caudillo:
General principle: enacting wage labor in the long run but using encomienda as a transitional mechanism to extract rents
Centralist tradition: Castilian institutions and centralized control inherited by Spanish America, impacting economic freedom and growth (North; Veliz; Glade)
References to Foundational Works and Context
North, Douglass C., Institutions (foundational concept for the article)
Veliz, Centralist Tradition
Glade, Latin American Economies
Yeager’s interpretation of these sources to explain the Crown’s institutional choices in sixteenth-century Spanish America
Acknowledgments and scholarly context noted in the article (e.g., reviews by Nye, Denzau, TePaske; Mokyr; Aguilar Arreola)
Summary Takeaways
The Crown faced a trade-off between different labor systems: wage labor (ideal from a long-run efficiency standpoint) vs. encomienda (which offered greater political and security advantages despite lower immediate revenue).
The encomienda’s three key restrictions—inheritance, trading, and relocation—reduced the Crown’s revenue but strengthened political control and aligned with ideological preferences against Indian slavery.
The Crown’s preference for encomienda can be understood as a constrained, wealth-maximizing outcome in a political economy framework, balancing security, ideological aims, and revenue in a colonial setting.
The broader historical narrative shows how institutional design interacts with technological progress, empire-building, and labor markets, shaping economic outcomes over the long run.
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