Trade fairs and the silver corridor (1600–1700)
The Crown of Castile had reorganised the colonial administration several times during the sixteenth century, but the Isthmus of Panama remained the spine of the empire’s transcontinental traffic. Pacific silver from Potosí and Porco, and Andean gold from the Chocó and from New Granada, was brought by ship to the small Pacific port of Panamá, transferred by mule train along the rebuilt Camino Real through Panamá la Vieja and over the cordillera, and re-embarked at Portobelo on the Atlantic for the annual Tierra Firme fleet to Seville. The route took three to four days by mule train, and the Crown insisted on this single funnel because an alternative Pacific route, the long way around Cape Horn, was held in reserve for emergencies only. From Portobelo to Panamá the transit ran along one of two historic routes: the Camino Real, an overland trail that was sometimes impassable during the rainy season, and the Chagres River combined with the Las Cruces Trail, which followed the river to the inland terminus at Cruces and then continued overland to the Pacific city [1] [3].
Portobelo, which superseded Nombre de Dios as the Atlantic port of call after Drake burned Nombre de Dios in 1596 [3], hosted the great Feria de Portobelo (the formal Spanish trade fair that brought licensed merchants from Seville together with Peruvian traders carrying silver, and with Creole merchants carrying cacao, tobacco, and cochineal). The fair was scheduled annually and was the only legal opportunity for goods to change hands at scale. A fair might last several weeks and see hundreds of ships and merchants from both sides of the Atlantic, policed by armed galleons and shore batteries. Panama City’s role on the Pacific side was the mirror of Portobelo’s: it received the silver, the gold, and the enslaved people, and it managed the inland transfer that made the whole arrangement work [1].
The system depended on a relatively small population of Spanish administrators, a much larger population of enslaved Africans and their descendants, and the dwindling Indigenous population of the Isthmus. The 1670s brought disaster when the Welsh privateer Henry Morgan (formerly a buccaneer, then appointed by Jamaica’s governor) led a raid against Portobelo in 1668, captured Chagres (San Lorenzo) in 1670, and sacked Panama City in January 1671, forcing the relocation of the city to what is now Casco Viejo [3]. Morgan’s career and the sack of 1671 are part of why Portobelo’s fortifications were strengthened repeatedly during the eighteenth century.
The Audiencia system and Bourbon reforms (1700–1778)
The Bourbon reforms of the eighteenth century, imported from France and pursued in Spain by the minister José Patiño and his successors, reshaped Panama’s place in the empire. The Crown had moved the Isthmus between the Viceroyalties of Peru and New Granada more than once in the seventeenth century. The Audiencia of Panama itself existed three times: founded in 1538 by Charles V as the third American audiencia (after Santo Domingo and Mexico), it was decreed abolished in 1543 and replaced by the Audiencia of the Confines in Guatemala, with South American territories assigned to a new audiencia in Lima. Philip II decreed its return to Panama on September 8, 1563, and the Audiencia began functioning again on May 15, 1565; it sat, with changing jurisdictions, until it was abolished by decree of 1718, then re-established by decree of July 21, 1722, before the crown ordered its final abolition by decree of June 20, 1751, transferring its functions to a single military commander under the Viceroyalty of New Granada [2].
The 1717 creation of the Viceroyalty of New Granada, on paper, swept Panama away from Lima and into Bogotá’s orbit. That first viceroyalty lasted only until 1724; it was re-established permanently in 1740, though the Panama Audiencia’s territory was already being treated as part of the new Viceroyalty from 1739. The sources record both years for the formal transfer. The shift had administrative consequences that ran in opposite directions. On the one hand, Bogotá was geographically closer and politically closer than Lima had been; on the other, the problem that had always hung over Panama, that the Pacific-and-Caribbean double coast made it awkward to govern from either capital, became worse, because Bogotá’s governance pattern centred on Andean Colombia rather than the Atlantic-to-Pacific trade corridor [1] [2].
The 1778 Reglamento de Libre Comercio, the Crown’s decree opening most Spanish American ports to direct trade with each other and with a defined list of Spanish ports, was the more visible Bourbon reform for Panama. Portobelo’s formal trade fairs had already been declining through the late seventeenth century as contraband through Jamaica and Curaçao grew, and the 1778 decree effectively ended the monopoly framework that Portobelo represented. The fairs shrank to nothing by the 1780s; Panama’s economy, already dominated by smuggling and by-passing of the formal trade, reconstituted around long-distance smuggling routes that ran through British Jamaica and the Dutch Curaçao, with the Spanish Pacific port of Panamá serving more as a way-station than a customs house.
Smuggling, contraband, and the end of the Spanish system (1778–1821)
By the 1780s the formal Spanish commercial system in Panama was a thin veneer over a much larger informal system. Smugglers operating out of Portobelo, Chagres, and the Bay of Panamá carried cacao, tobacco, cochineal, and silver out of the Crown’s reach and brought European manufactures and enslaved Africans in from Jamaica and Curaçao. The Bourbon reforms tightened legal trade by opening new ports to direct trade, but they did not eliminate the contraband trade, which Spanish officials complained about without succeeding in suppressing it [1].
The late eighteenth century brought renewed war. The British capture of Portobelo in 1739, when Admiral Vernon captured and destroyed the earlier defenses, had been a warning; the wars that followed between Spain and Britain kept every Spanish American port on alert for British naval raids. Panama’s residents lived through recurring alarms of British naval appearances off Portobelo. The result was an Isthmus whose economy was simultaneously war-disrupted and heavily militarised [3].
The independence movements of the 1810s and 1820s, the wars of independence in mainland Spanish America, reached Panama in 1821, when Panama declared its independence from Spain on November 28 (see Independence from Spain (1821)). The transition was comparatively bloodless: the audiencia system had already lost its relevance to a colony whose main trade ran through Jamaica, and the local Creole elite, who had come to terms with contraband trade, were ready to accept arrangements that preserved the Isthmus’s role as a transit corridor. What came after the transition, the eighty-two years of being part of Gran Colombia and its successor states, is covered in the next entries [3].
The demography and labour regime of colonial Panama
The colonial Isthmian economy was unusual within Spanish America in being based on transcontinental transit rather than on extractive production. The Spanish population of the Isthmus was small (administrators, military officers, clergy, and a commercial class tied to the trade), and the labour-intensive parts of the colonial economy, above all the mule-trains that carried silver and merchandise across the Camino Real and the port operations at Nombre de Dios, Portobelo, and Panamá, were worked primarily by enslaved Africans and their descendants. The Indigenous population of the Isthmus collapsed sharply during the sixteenth century under the combined pressure of conquest, forced labour, and epidemic disease (smallpox among them), against which the native peoples had no immunity; the survivors withdrew into the rural hinterlands away from the principal Spanish towns. Runaway slave communities allied at times with the English corsairs who raided the route, and figured repeatedly in the Isthmus’s military history [3].
The slave trade into Panama was a structural feature of the colonial transit economy from the sixteenth century onward. Enslaved Africans and their descendants worked the mule-trains, the port operations, and the domestic service of the Isthmus, and over generations came to form a large share of the settled population of Panama City and the Atlantic ports. The slow shift from a slave-based to a free wage-labour transit economy shaped much of the social history of the nineteenth-century Isthmus, and is the demographic background to the rise of the Afro-Antillean migrant-worker population that built the transcontinental railroad (covered in The Transcontinental Railway (1850–1855)) and the Panama Canal (covered in Canal Construction Era: 1904–1914).
The economic decline of the Isthmus in the 19th century
The colonial Isthmian economy collapsed in the early nineteenth century as a consequence of structural change. The formal Spanish-American trade system broke apart with the wars of independence of the 1810s and 1820s; the new Latin American republics did not adopt a coherent successor trade framework, and the Isthmus’s transcontinental commerce lost much of its regulatory underpinning. British naval dominance of the Caribbean, already entrenched after the takeover of Jamaica in the seventeenth century, channelled trade toward Atlantic routes that bypassed the Isthmus. By the early nineteenth century the mule-train transit had declined from its eighteenth-century volumes, and the population of Panama City was a fraction of what it had been before the 1671 sacking. The recovery came only with the mid-century transit boom, the transcontinental railroad and the California-bound traffic it carried (covered in The Transcontinental Railway (1850–1855)), and it was built on a fundamentally different economy, a United States-backed service economy rather than the slave-based transcontinental commerce that had characterised the colonial period [1] [3].
Where to take this next
The colonial arrangement described above set the political and economic conditions for what was to follow. For the moment of independence itself and the Acta de Independencia of 28 November 1821, see Independence from Spain (1821). For the trade-fair context at Portobelo, see Portobelo Fairs. To compare the Bourbon reforms with what came immediately after the conquest, see Spanish Conquest and Settlement (1510–1600).
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