The decline of a credit instrument that reigned supreme: the sea loan in Spanish Atlantic world trade, c. 1740–1820

This article examines the reasons for the widespread use of sea loans in financing Spain’s transatlantic commerce before the 1780s, and for their subsequent decline. Although never in the hands of a company with monopoly rights, Spain’s colonial trade was heavily regulated before 1778. The system reduced market risk and unpredictability by operating through a single Spanish port, keeping the colonies undersupplied, and lowering the frequency of the exchanges to allow for silver accumulation in Spanish America. This afforded significant, though volatile, profit margins. Such conditions fostered the use of the sea loan because the instrument enabled the lender to reap greater returns by charging higher-than-standard interest rates while avoiding usury laws. In contrast, the 1778 free-trade regulations increased competition and unpredictability, narrowing profit margins. Trade expanded, and “marine interest” rates dropped, precipitating the end of the sea loan as the hallmark credit instrument of the Spanish colonial trade.