The first royal judicial body established in New Spain in 1527 was the audiencia of Mexico City. The audiencia consisted of four judges, who also held executive
and legislative powers. The crown, however, was aware of the need to create a post that would carry the weight of royal authority beyond local allegiances. In 1535
control of the bureaucracy was handed over to Antonio de Mendoza, who was named the first viceroy of New Spain (1535-50). His duties were extensive but
excluded judicial matters entrusted to the audiencia .

Viceregal power was characterized by a certain amount of independence from royal control, mainly because of distance and difficult communications with the mother
country. Viceroys were notorious for applying orders with discretion, using the maxim "I obey but do not comply." In addition, viceroys and audiencias were in
conflict most of the time, with the latter not responsible to the viceroy but reporting directly to the crown.

By the end of the seventeenth century, the Viceroyalty of New Spain reached from New Mexico to Panama and included the Caribbean islands and the Philippines.
In the most distant areas, local audiencias enjoyed greater autonomy, and viceregal authority was merely nominal. After the sixteenth-century expansion of power,
the seventeenth century was marked by a decline in central authority, even though the administrative structure transplanted to the New World remained intact.

The expansion of a colonial administrative apparatus and bureaucracy paralleled the economic reorganization. The viceroyalty was divided into audiences (audiencias), which were further subdivided into provinces or districts (corregimientos) and finally municipalities, which included a city or town, governed by town councils (cabildos), composed of the most prominent citizens, mostly encomenderos in the early years and later hacendados.

The most important royal official was the viceroy, who had a host of responsibilities ranging from general administration (particularly tax collection and construction
of public works) and internal and external defense to support of the church and protection of the native population. He was surrounded  by a number of other judicial, ecclesiastical, and treasury officials, who also reported to the Council of the Indies, the main governing body located in Spain. This configuration of royal officials, along with an official review of his tenure called the residencia, served as a check on viceregal power.

In the early years of the conquest, the crown was particularly concerned with preventing the conquistadors or encomenderos from establishing themselves as a
feudal aristocracy capable of thwarting royal interests. Therefore, it moved quickly to quell the civil disturbances that had racked Peru immediately after the conquest
and to decree the New Laws of 1542, which deprived the encomenderos and their heirs of their rights to native American goods and services.

The early administrative functions of the encomenderos over the indigenous population (protection and Christianization) were taken over by new state-appointed
officials called corregidores de indios (governors of Indians). They were charged at the provincial level with the administration of justice, control of
commercial relations between native Americans and Spaniards, and the collection of the tribute tax. The corregidores (Spanish magistrates) were assisted by
members of the native elite, who had been used by the conquerors from the very beginning as mediators between the native population and the Europeans.
Over time the corregidores used their office to accumulate wealth and power to dominate rural society, establishing mutual alliances with local and regional elites, native American functionaries, municipal officials, rural priests (doctrineros), landowners, merchants, miners, and others, as well as native and mestizo subordinates.

As the crown's political authority was consolidated in the second half of the sixteenth century, so too was its ability to regulate and control the colonial economy.
Operating according to the mercantilistic strictures of the times, the crown sought to maximize investment in valuable export production, such as silver and later other
mineral and agricultural commodities, while supplying the new colonial market with manufactured imports, so as to create a favorable balance of trade for the
metropolis. However, the tightly regulated trading monopoly, headquartered in Seville, was not always able to provision the colonies effectively. Assadorian shows
that most urban and mining demand, particularly among the laboring population, was met by internal Andean production (rough-hewn clothing, foodstuffs, yerba
mate tea, chicha beer, and the like) from haciendas, indigenous communities, and textile factories (obrajes). According to him, the value of these Andean products amounted to fully 60 to 70 percent of the value of silver exports and elite imports linking Peru and Europe. In any case, the crown was successful in managing the colonial export economy through the development of a bureaucratic and interventionist state, characterized by a plethora of mercantilistic rules that regulated the conduct of business and commerce. In doing so, Spain left both a mercantilist and export-oriented pattern and legacy of "development" in the Andes that has survived up to the present day, and which remains a problem of contemporary underdevelopment.

The philosophy of mercantilism was the force behind all overseas ventures by European colonial powers. This set of ideas emphasized that the most important
function of colonial possessions was to enrich the mother country. This accumulation of wealth was largely accomplished by the levy of the quinto (royal fifth) on all
colonial production. Trade duties protected manufacturers and merchants in Spain from competition in the colonies and placed strict restrictions on the colonial
economies. Mexico was required to supply raw materials to Spain, which would then produce finished goods to be sold at a profit to the colonies.

From the mid-sixteenth century on, some land grants were provided to Europeans willing to farm the land and raise livestock in underpopulated areas. The European
acquisition of land often encroached upon native villages. Displacement and fear of forced labor in the early seventeenth century led entire villages to flee to larger
towns, mining camps, or haciendas, where the displaced persons hired themselves out as artisans, servants, peons, or laborers. Although originally kept apart in
separate "republics," close contact of all sorts with the Spaniards was responsible for the indigenous peoples' acculturation. The mestizos, who would later play the
dominant role in Mexican society and history, could trace their origins to this period of intense assimilation of the two cultures.

Agricultural production was directed to internal markets, while exports consisted mainly of precious metals and animal hides. During the initial phase of the colonial
period, gold had been collected from the Aztec treasures and from some mining operations. However, silver soon became the dominant colonial product, followed
by the red dye cochineal, and by the late sixteenth century, silver accounted for 80 percent of all exports from New Spain. Exploration and the search for mines led
the Spaniards to the north, far beyond the Aztec empire. The rich mines of Zacatecas, Real del Monte, Pachuca, and Guanajuato in north-central Mexico were
discovered between 1546 and 1552. Silver production continued into the seventeenth century, and it employed most available labor.

During the sixteenth century, a dual economy developed in New Spain: the hacienda economy in the Valley of Mexico and the south and the frontier economy of the
silver mines to the north. By the mid-seventeenth century, however, silver production collapsed when mercury, necessary to the refining process, was diverted to the
silver mines of Potosí (in present-day Bolivia). The seventeenth-century mining crisis led to widespread bankruptcy among miners and hacendados (hacienda
owners) and also had a negative effect on transatlantic trade. However, the financial crisis did promote the production of crude manufactures and food for domestic
consumption by the growing population of New Spain.

Colonial society was stratified by race and wealth although these were not hard and fast distinctions. The three main groups were whites (European- and
American-born), castas (mestizos), and native peoples; each had specific rights or privileges (fueros) and obligations in colonial society. The major fuero was the
right of an individual to be tried by his or her peers. The church, the military, the bureaucracy, and the merchants enjoyed their set of fueros . Membership in the
upper classes was open to whites only, particularly peninsulares, whites who were born in Spain and moved to the colonies. Criollos (American-born whites, also
known as creoles) tended to marry peninsulares for reasons of upward social mobility. Nevertheless, many examples exist of race changes after birth.

The lower classes were a mixture of poor whites, castas, and native peoples who worked in the same occupations as whites or castas but who had different rights
and obligations. Indigenous groups were protected from the Inquisition (the Roman Catholic court designed to combat heresy), paid head taxes, and could not own
property as individuals but were the primary beneficiaries of social services in health and education. Mestizos were under the same obligations as whites but were not
considered for most of the jobs in the Spanish administration. These jobs were held only by peninsulares. Poor whites and mestizos often competed with native
people for the same jobs. The only unifying force in a society that was divided by race and privilege was the Roman Catholic Church. The clergy provided education
and social services to the rich and the destitute alike, and clergy also functioned as a buffer in social conflicts.