The case of the serial sinking Spanish ships

0:00Support for NPR and the following message come from Edward Jones. What does it mean to live a rich life? Maybe it's full of brave first leaps, tearful goodbyes, and everything in between. And with over 100 years of experience, your Edward Jones financial advisor can help. Edward Jones, member SIPC. This is Planet Money from NPR. Do you just want to read the keywords? I'm not sure I've ever seen a better set of keywords. Yeah, totally. This is economist Fernando Arteaga, one of the authors of a research paper we have become obsessed with. Yeah, corruption, rent-seeking, bribery, and shipwrecks.

0:42I mean, come on. Who's not reading that paper? Yeah, hopefully everybody. Hopefully everybody. Every once in a while, an academic paper pops up that feels like it was made for planet money. And this one reads like Agatha Christie meets Master and Commander. Yeah, yeah, yeah. Mystery meets shipwrecks. Which is kind of something that people like, generally. We love shipwrecks. Shipwrecks are fascinating, as long as your ship isn't wrecking. Yeah, that's true. I hope never to be in that situation. The shipwrecks that we are talking about begin in the 1500s. During this time period, the Spanish Empire ran arguably the most valuable shipping route in the world.

1:23Ships ran between Mexico and the Philippines. They carried silver. They carried fancy porcelain and textiles. They also wrecked at a staggering rate. One in five of the ships leaving from Manila did not make it to Acapulco. That is anywhere from three to eight times the rate of other routes at this time. But why? Why? That was the unsolved mystery. until centuries later when Fernando and a group of clever economists came up with a way to find the culprit. Hello and welcome to Planet Money. I'm Kenny Malone. And I'm Mary Childs. And today on the show, the case of the shipwrecking Spanish ships.

2:05It is a tale of Econ 101 ideas going disastrously wrong. Plus, key witness testimony from coral reefs, a typhoon-obsessed Jesuit, and ship logs about pirates.

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3:10The IRC helps refugees whose lives are disrupted by conflict and disaster, supporting recovery efforts, and responding within 72 hours of crisis. Donate today by visiting rescue.org slash rebuild. Okay, so today we have a shipwreck mystery that we are calling The Case of the Serial Sinking Spanish Ships. It is going to be a tale told in four chapters. And yeah, we're going to be using these old-timey, like mystery button-y things for all of our chapters. So buckle up. But before we get to the chapters, a brief little prologue. Think of this as a page at the beginning of the book with a map, just to get everyone situated.

3:53Ooh, yeah, that's nice. Settle in. Picture, if you will, a map of the Pacific Ocean. Asia on the left side of the map. Far, far away on the right side, the Americas. We're in the 1500s. This is considered the start of modern globalization, shipping routes all over the world. But we are focusing on Spanish ships on this one route running between Manila in the Philippines and Acapulco in Mexico. Now, in Mexico, the ship would get loaded up with silver and then sail to Manila. It took about four months. And actually, this part of the route, no unusual shipwrecking problems. Totally fine. The problem was the other direction, the return trip.

4:34Ships going from the Philippines back to Mexico were four times more likely to not make it. Pretty bad. Which brings us to... Chapter 1, The Scene of the Crime. Now imagine, if you will, you are in the 1500s at the Port of Manila. You would see in the water a massive wooden ship. It's the biggest thing anyone has ever seen. It is one of the famous Spanish galleons. Like big and tall. With massive like sails. This is economist Desiree Desierto. It was the biggest of the ships that were used during that time. So I'm picturing some combination of like Noah's Ark, Jeff Bezos' yacht, and a battleship.

5:24Am I like in the ballpark here? Yeah, maybe. Yeah. And all around this ship, all around the port, it is just buzzing. You've got Spanish sailors and merchants, but also... A lot of people from all around Asia came. Again, economist Fernando Arteaga. So they spoke different languages, they have different religions, they hated each other. And we'd see people hauling huge bales of cargo. They are loading stuff into that giant wooden ship. They're carrying porcelain, silks, textiles. Economist Mark Koyama. Lacquerware. Other goods. What is it? Lacquerware? Is it what you said? Lacquerware. Is this like 1600s Tupperware?

6:04Um, fancy it. I still can't believe you don't know what lacquerware is. I don't know what lacquerware is. What do you want? I have some. Send me a picture later, please. I will learn what this is eventually. Desiree, Fernando, and Mark are the three co-authors of this paper that has inspired this whole episode. Yeah, and in some ways, they are the three detectives in this maritime mystery. with, you know, in fact, a personal connection to this, you know, centuries-old cold case about a shipping route running from Mexico to the Philippines. Yeah, so I'm Mexican. So I'm from the state of California.

6:34And basically, the city is from the Philippines. And so she also knows a lot about basically the local aspects of the history of the Philippines. All right. So we've got our detectives. We've got our scene of the crime. We have arrived at...

6:51Nice. Chapter two, which I will admit fits a little less cleanly into the Agatha Christie mold, because here is where we would meet the person fated to an untimely end. Except we're talking about ships here, and there are really a few categories of people impacted by the eventual untimely end of these ships. Yeah, we need to look at the three key players for any given ship. First up, you've got the Spanish merchants. They are private business people trying to buy fancy stuff and ship it back to the other side of the Spanish empire. Yeah, and again, the merchants are buying things like silks and jewelry and Chinese porcelain in particular was unrivaled.

7:35Porcelain is something that requires a lot of skill and it requires a quite demanding process that only Chinese knew how to do it. If you are a merchant at this time, basically the only way to get these things out of Asia and back to Spain and Mexico was through this shipping route. But it's not like these ships were running the route all the time. You would have maybe just two ships per year, per year. Two ships per season, per year, per year. Yeah, max, max. So for the merchants, this all just added up to Econ 101. Think about goods that are high in demand and then there's just very few of them.

8:15That would really jack up the prices. If you, the Spanish merchant, got your fancy silks or porcelain onto this twice a year ship, well, your stuff would skyrocket in value when it landed back in Mexico and Spain. It would make you a fortune. So, OK, that's the merchants. Player number two here is the Spanish crown, the Spanish empire. Now, they owned the ships. They took a cut of all the business. Spain had created a couple of key rules to help protect its very expensive ships. First off, they knew one risk was overloading. Too much stuff means higher risk of sinking. So Spain created a system to make sure the ships would not get overloaded.

8:59Basically, that is what we call boletas. It means the tickets. The tickets. So to keep the amount of cargo to a safe level, Spain created a limited number of these tickets and then merchants could only put their porcelain or silks or whatever onto the ship if they had a ticket. Limited tickets means limited cargo, means prevents unsafe overloading. But what is really, really important is sailing on time, sailing before mid-July. Right. The Spanish crown had a rule that its ships had to sail before a certain date. Because we know that monsoon season is after mid-July. monsoon season. The Spanish crown did not want its very expensive ships sailing into the very dangerous rainy season.

9:42And then our final player on the ship was the captain. The captain. Yes, him. The captain, of course, was in charge of the ship, but also enforcing Spain's rules about leaving on time and loading by ticket. The captain earned a small salary, but mostly they were getting paid by getting a ticket, getting cargo space on the boat, because again, that is the most valuable thing here. It's the chance to send silks and porcelains back to a place where they were going to skyrocket in value. So you've got all these Spanish shipping players, the crown, the merchants, the captain, they all had a huge incentive to make sure these rare galleon ships didn't wreck.

10:22And yet they did. They did. So as you'll know from reading the paper, like 20%, 20 % of voyagers basically fail. Again, economic historian Mark Koyama. They're shipwrecked, but what that means is they're lost at sea, or they hit some rocks off the coast of the Philippines, or they're so damaged they've got to return to port. Meaning that the entire shipment would be a bust. And because there were so few of these ships, you know, like two a year, this was like a recession-level event. Which brings us to... Chapter three, the suspects. And for our detectives, Mark, Fernando, and Desiree, their job here was to look at all of the possible culprits for why these ships could have been sinking at this outrageous rate.

11:09So the first place, you know, my brain goes, you've got valuable cargo on the high seas. Pirates. Could this be pirates? So that is recorded as something people are concerned about, that there's no correlation between these mentions of pirates. Do we know of mentions of pirates? You had data on mentions of pirates? Yeah, so the ship logs will record if pirates are sighted or if pirates are concerned. Pirate sightings. Yeah. Yeah. Apparently, people back then were keeping logs, noting things like, there are pirates. There are not pirates. You know, basic logs. But the way Mark and his co-authors found those logs was not some museum or some maritime archival institute.

11:55It was a guy called Bruce Cruikshank, who just loves galleons and happened to have been collecting galleon reports on a website somewhere. And this is one of the things I love about this paper and this kind of historical economic research. Like, it's one thing to ask, were pirates the problem? It's another to actually go find the data that can somehow let you test that. And oftentimes the breakthrough has to be some unconventional source of data or some guy named Bruce. It could be Bruce. But yeah, so pirates were mentioned in the ship logs, but they were not the problem. They were not, you know, shooting cannonballs and sinking these ships.

12:34There's never an occasion where one of these Galleons is captured by regular pirates. Regular pirates? What are regular pirates like, Yar, give us your booty? I don't know. We're getting, well, let me get to a distinction. A distinction and our next potential suspect. Right. So during this colonial era, the British Empire and the Spanish Empire were on again, off again at war and plundering each other's giant ships, which technically is piracy. Mm hmm. It is. So Mark and his fellow authors, they also check whether being at war correlated with the rate of Spanish shipwreck. So there's some higher probability of loss during years Spain is at war?

13:18Yep. When war, ships sink. Positive correlation. But not enough to entirely account for the incredibly high rate of shipwrecks. No. More suspects, please. Which brings us to my personal favorite suspect, because it seems this would be the hardest to find data on from centuries ago. That suspect? Bad weather. So we know if there's a typhoon in the Philippines. Do we know those from the logs as well, typhoons and stuff? The typhoons are from a guy who was a Spanish Jesuit who was based in the Philippines during the Spanish period into the American period. His thing was like, I just want to document every storm that hit this place.

13:56Yeah, exactly. His book is called Charts of Remarkable Typhoons in the Philippines. Yeah, I suppose that's precisely what you guys needed, isn't it? Yeah. And just like being at war, typhoons obviously increase the rate of a ship wrecking. But again, not enough to explain this bonkers high rate. Mark and his team, they went through all kinds of other suspects. They checked, you know, regular old non-typhoon bad weather. To do that, they looked at data about old coral reefs in the Pacific, which apparently can be used as a proxy for ocean temperatures during certain years, which can then be used as a proxy for stormy or not stormy years.

14:36But that didn't seem to help explain the shipwrecks. The team also looked into the ship's captains as a possible explanation for the wrecks. A lot of those captains were inexperienced, which correlated to a higher rate of shipwreck. But again, not enough to explain the whole mystery. No, but, but, there was one variable, one suspect that seemed especially suspicious. Something that on the surface seemed like just a basic sailing mistake. but ultimately, when they scratched at it, kind of unfolded into a full-on economics crime story. That's after the break.

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16:42When our team of economic investigators looked at the sailing logs, they noticed something. Not anything that people would make movies about, like pirates or typhoons or naval warfare. No, what they noticed was dates of departure. Dates of departure, which that sort of does actually sound like a rad movie, like the final destination. But no, no, it is just the day these ships were leaving. And remember, the law was that these ships had to leave the Philippines before monsoon season, before it was, you know, just all rain and wind all the time. Yeah, so they know better. They know better. Do not sail later in this date because, like, we know that this is not, this is risky.

17:20And yet, when our detectives examined those old logs, they found that very often these ships were blowing the sail by deadline and sailing directly into treacherous waters. In fact, when our economists ran the numbers, this was the best predictor of a shipwreck. This was the culprit, leaving too late and running into monsoon season. And look, this was different than the other kinds of weather stuff they had checked. Right. This is not getting caught off guard by a random typhoon, like a hurricane in the middle of the Pacific. And this is different from getting wrecked during an unusually stormy year, you know, from the coral reef data.

18:02No, this culprit, this was ships leaving later than they are supposed to and sailing right into the predictable, regularly scheduled monsoon season. Yeah, which raises a much bigger mystery, really. Like everyone knew that sailing into the monsoon time was a bad idea. Yeah. And why would you sail then? Why would you knowingly sail over and over into shipwreck season? And the answer to that is...

18:35Our final chapter, which we are calling... We would have gotten away with it if it weren't for you meddling economists. Yes, yes. This is where Scooby-Doo unmasks the culprit. Except in this case, we pull off the mask to find a series of small economics lessons that add up to one gigantic lesson in how to get a lot of shipwrecks. They're all stacked in a trench coat. So to explain this, we're going to point out a few of the clues that were in the story all along. Clues that conveniently come with their own economic idea. So we begin with clue slash economic idea number one, protectionist trade policy.

19:15Right. Okay. So at this time, other empires ran their shipping routes like a bit more laissez-faire. So lots of ships, lots of opportunities for merchants to get their goods on a ship. But this Manila Galleon route, you will recall. You would have maybe just two ships per year, per year. Now there is a bit of a backstory there. Right. See, there were other merchants back in Spain who didn't want to have to compete with this amazing porcelain and silk coming in from Asia on these Manila ships. So the merchants on that side want to restrict that. So a lot of lobbying. Lobbying of the Spanish government by the merchants.

19:56And they got their, you know, they got their wish. Initially, you know, trade was restricted to just two ships a year. And then later on, it was restricted to just one per year. One ship making this trip per year. And yes, this meant only one boatload of amazing silks and porcelain could enter the marketplace to compete. Lacquerware. Lacquerware. Which was good for the domestic merchants. But the unintended consequence was happening back in Manila. The more this got squeezed, the more valuable it made getting stuff on this ship. If you could get your stuff onto this one ship, it would mint you a fortune.

20:36Which brings us to clue slash econ idea number two, marginal benefit. You will recall, to safely control the weight of the ship, Spain had set up a system. Basically, that is what we call boletas. A ticket system. And this is what the captain was in charge of basically overseeing. Now, imagine if you will, you are a captain. All your ticketed spots are all filled up. Say it's June 30, which is like, the weather's still good, right? And you're ready to go. The ship is already at its legal limits. But there are merchants without tickets or maybe merchants with extra cargo that didn't fit their allotments.

21:14Now, on a different shipping route, where ships are running all the time, this is no problem. If that's the case, then they're basically, oh, we'll just wait for the next ship. But not here. The protectionist lobbying meant fewer ships, which meant it was very important for those merchants to find a way to get one more load onto that boat. The marginal benefit to them was astronomical. It was the difference between a fortune and waiting until next year to ship goods. And so merchants, they start coming up to the captain with their extra cargo. Well, you take it on board. And the captain says, I've got to go.

21:50Like, you know, this is the departure date. And the merchant says, like, how much money will it take to delay the ship an extra five days so we can load my stuff? So really, with this bribe, this merchant is asking the captain to break both of Spain's anti-shipwrecking rules. It would overload the ship, of course. But also, loading more stuff takes more time. And more time means leaving later and sailing into riskier seas. Which you would think would all be big red flags to the captain who actually has to be on the ship. But here is our final clue slash econ idea. Marginal risk. Because for the captain, you know, adding one more load of stuff and leaving a little bit later, it does not guarantee a shipwreck.

22:41Right. Maybe the captain thinks the risk of shipwrecking goes up one or two percent. But this guy's offering me, I don't know, like five or ten percent more money. Maybe it's worth it. And the captain said, OK, give me more money. I will load more of your cargo. Right. There is some bribe amount that could make the math work. It could make the additional risk of shipwreck, like the marginal risk, worth taking. So in the end, it seems like the real culprit here, what really doomed the Manila galleon shipping route was kind of everyone involved. It was all of them, Mary, all of them. And it starts when merchants want to limit goods coming from Asia, lobby for fewer ships.

23:23Fewer ships means higher prices for those Asian goods that, you know, we're going to actually get onto a ship, which then leads to bribes so high that the captain is willing to take a higher and higher risk of shipwreck to overload the ship and delay it. Or at least that was our detective's theory. Because like all this economic history stuff, it is one thing to theorize that a system of incentives leading to corruption is the culprit. The challenge is always like corruption is hidden. So you have to be creative in how you try to quantify to show it. And the evidence of corruption leading to overloading and then late departures, you know, basically the smoking gun from centuries ago.

24:05This was not something that was in an unknown book of shipwreckers or collected by some typhoon-obsessed Jesuit. In this case, the evidence was literally lying on the bottom of the Pacific Ocean. So the evidence comes from the shipwrecks, a small number of which have been recovered, and the archaeologists say they estimate they're carrying three or four times the official limit. Whoa! What? So they're massively overloaded, basically. All these overloaded ships were at risk of shipwreck because they were overloaded, but also all that extra loading and the extra bribes, that took time, which delayed the departure date.

24:46This is why ships kept waiting and waiting and sailed into the dangerous season. For our detectives, actually, they didn't come into this story because of the shipwrecks and the potential for pirates. A big part of the draw here was because they are interested in corruption. Yeah. You know, there is a whole body of research in economics on bribery and corruption. In fact, this is one of Desiree Desierto's areas of study. There's this whole debate about, you know, is bribery an efficient way of allocating goods? Yeah. The argument is that bribes can function like a in the shadows, off the books auction.

25:25There's a bunch of kind of models which show that, you know, bribery is just a way of allocating the good to those who value it the most. And I'm so glad that we actually found that, no, actually it can break down and lead to inefficiency. You're saying inefficiency, but what this means in this case is a buttload of shipwrecks. Yes, it's like having the consequence of that inefficient loading leads to probably a shipwreck that is higher than normal. A boatload of shipwrecks. I should have said boatload. So for the case of the serial sinking Spanish ships, here we had a case where everyone involved had aligned incentives collectively.

26:08Namely, you know, don't wreck the ship. But the problem was, individually, they all had these different risk calculations. Right. So think about it. Like, the Spanish crown, they wanted zero risk of crash. And that is why they put rules in place to prevent late sailing and overloading. Then the desperate merchants. Each one knows that bribing their load of cargo onto the ship would increase the risk of shipwreck. But one load of cargo, not going to increase the risk that much, especially considering how much one stands to make. And then there's the captain. You know, ironically, you'd think he would want the risk of shipwreck to be as low as possible.