Visitor–General Gálvez's Plan de intendencias of 15 January 1768, described the government of New Spain as having reached a similar nadir to that of Old Spain at the time of the death of Charles II in 1700. The means of recuperation would be the establishment of Intendancies. In this way Gálvez aspired to make the government in New Spain uniform with that of the Peninsula.

Centering his attack on the Alcaldes Mayores, Gálvez explained that they doubled the Viceroy's work rather than lightening it. The real problem was that there had been no adequate authority between the Viceroy and Audiencia at the peak of the administration, and the Alcaldes Mayores in the locality. This intermediary role would be played by the Intendants, whose seats would be in the provincial capitals, such as Puebla, Oaxaca, Valladolid de Michoacan.

The problem required more than this. For, Gálvez considered, as long as the Alcaldes Mayores remained in office, no subject was safe from their oppression. Gálvez's radical solution—one that was to be much criticised—called for the total abolition of the offices of Alcalde Mayor and Corregidor, and the extirpation of their very name. One of the worst practices of all, the Visitor believed, was their custom of appointing lieutenants. Such men tended to be of low extraction, devoid of a sense of social responsibility, and unversed in the law, which it was their duty to uphold.

On to the indigenous civilisations of the Zapotecs and Mixtecs, the Castilian conquerors grafted the political and religious experience of Spain. The Aztec outpost of Huaxyacac became the centre of Spanish power and influence in the fertile Valley of Oaxaca. Through the course of the later sixteenth and seventeenth centuries, many of the indigenous areas of the province of Oaxaca fell under the spiritual control of the Dominican Order, which, from its Baroque convents and churches, exercised a theocratic authority that virtually excluded the power of the Crown. The Crown's authority emanated from the capital, the city of Antequera de Oaxaca, named after Antequera in Andalusia, which it was supposed to resemble; but in these religious centuries, often the authority of the Bishop of Oaxaca evoked a more immediate response in consciences.

Oaxaca was one of the main centres of Spanish power in the colonial period, a power whose bases were fixed more firmly into the centre and south of New Spain than in the modern Mexican Republic, which tends more strongly to the north and north-centre. The colonial Oaxaca was a region comparable with Guatemala, with Quito, and the highland regions of Peru, centres where Castilian authority influenced and permeated already well-formed indigenous cultures, and where, gradually, not without resistance, and often by means of symbols and demonstrations, the religion brought by the friars exercised a mystical fascination for the former subjects of the Aztecs, Mayas, or Incas.

After the climax period, 1769–78, the last years of the 1770s initiated the downward trend of cochineal prices which continued until 1796. The price decline was accompanied by the fall of production levels from the previous peak of between 1 million and 1 ½ million pounds to 464,625 pounds in 1781, and 537,750 pounds in 1785. These low levels were maintained—at between 430,000 and 600,000 pounds—between 1783 and 1796. They were accompanied by a price level between 15 and 17 reales per pound, or half the peak price level of 1771.

Production began to decline in 1781, with the drop to 464,625 pounds from a peak of 1,385,437½ pounds for the previous year. Such a sharp drop was the result of the reopening of war between Spain and Great Britain between 1779 and 1783. Bishop Bergoza of Oaxaca, writing in 1810, and looking back over the troubled history of the cochineal trade since the 1770s, attributed the decline to the British blockade of trade during those war years. For exports had been trapped in Oaxaca, or Veracruz, and even in Cádiz itself. The price of cochineal had slumped, with the result that the profitability of cultivating such a risky and delicate crop had declined. In consequence, the nopaleras had not been planted.

This interpretation was shared by the merchants of Oaxaca themselves, writing to Viceroy Azanza in December 1799.

During the course of the first century after the Conquest, the dye trade of Oaxaca secured a position in New Spain's export trade second only to that of silver. The scarlet cochineal dye, produced almost exclusively by the Indian population, maintained this role until well into the nineteenth century, when competition from Guatemala after 1821, and the invention of chemical dyes after the 1850s combined with the effects of the wars of Independence after 1810 to damage the Oaxaca economy to the degree that the indigenous dye trade was practically eliminated.

Prior to the discovery of the Mexican-Indian cochineal, the chief source for the scarlet dye had been the kermes insect, which had thrived in the Mediterranean basin, and had provided the European powers with their needs. The entrepôt had been Venice. However, the exploitation of the Mexican dye, produced in the early years in Tlaxcala, Huejotzingo, and Cholula, as well as Oaxaca, put on the world market a dye with ten or twelve times the propensities of the kermes. The first shipment of the Tlaxcala–Oaxaca dye into Spain occurred in 1526, and by the late 1540s cochineal was being sold in quantity in the market of Tlaxcala. In response, the local cabildo (municipal council) sought to encourage plantation of nopaleras, the cactus groves on which the cochineal insect throve. By the middle of the sixteenth century, Tlaxcala's Indians were reputed to be earning over 100,000 ducados annually from their dye sales.

The news of the fall of Godoy and Charles IV, and of the succession of Ferdinand VII reached Mexico City on 8 June 1808. A fortnight later came the news of the departure of the Royal family for Bayonne, and of the Dos de Mayo rising in Madrid against the French occupation forces. On 14 July the arrival of the Madrid newspapers brought word of the Bayonne renunciations in favour of Napoleon, and the circular order of the Council of Castile commanding recognition of French authority throughout the Spanish Indies.

The knowledge of these events led to a power struggle in Mexico City between the Creole lawyers of the Ayuntamiento of Mexico, and the Peninsular lawyers of the Audiencia, and their allies, the Peninsular merchants of the Mexico Consulado. When Viceroy Iturrigaray's unilateral suspension of the Consolidation on 9 August 1808 failed to quieten animosities, he was forced to adopt an increasingly more open position in favour of the Creoles. As the Creole lawyers, Azcárate and Verdad, began to claim that sovereignty had returned to the people in default of a king, the Peninsulares believed that the ending of Spanish Metropolitan rule in Mexico was about to take place.

Therefore, they conceived of a quick coup to remove the Viceroy and his Creole associates in the Mexico Ayuntamiento. This conspiracy centred on the Audiencia and Consulado of Mexico. It was known to the Inquisitor, Alfaro, to the Archbishop of Mexico, Lizana, and to the chief Peninsular merchants and land-owners.

One of the principal objectives of the comercio libre legislation of 1789 had been to release Spain's trade with New Spain from the traditional control of the Consulados of Cádiz and Mexico. The generation of Gálvez believed such monopolies to be a hindrance to the expansion of trade. Into that context fall the efforts of the Metropolitan Government, Viceroy Revillagigedo, and Intendants Flon of Puebla and Mora of Oaxaca to secure the full prohibition of the repartimientos issued by the Alcaldes Mayores. For they had been financed by Mexico City merchants or their local associates. That system had, thus, enabled the Mexico merchants to maintain trade monopolies within several of the jurisdictions containing large indigenous elements.

The aim of the 1786 Ordinance had been to prevent the offering of avío by the Mexico merchants to the local justices. As this measure coincided with the issue of the 1789 comercio libre reform, the Spanish Government hoped that a new generation of smaller-scale, but more enterprising and efficient merchants would compete alongside, and eventually replace, the old merchants of the Consulado of Mexico.

We have seen how, realising the imminent end of the Alcaldías Mayores, several investors, in particular, Juan Baptista de Echarri, attempted to cut their losses by withdrawing their investments from the repartimiento. Nevertheless, the whole complexity of the discussion on the interpretation of Article 12 of the Ordinance of 1786 enabled elements of the old system to creep back during the middle of the 1790s in Oaxaca.

Spain faced considerable foreign competition for the Mexican dye. For, England, France, and Holland possessed a greater capacity of consumption. As a result, the Viceroyalty of New Spain, in many respects, was a producer of bullion and primary products for the European countries with a more advanced industry than Spain. Their power, economic in character, operated behind the shadow of political control exercised by Madrid. In anxious reaction to such a detrimental situation, Spanish Governments since the constitution of the Junta de Comercio in Madrid in 1679 had been preoccupied with the recovery of national control over the Indies trade. Parallel to this commercial policy the Spanish Ministers and writers, especially after the accession of Philip V in 1700, advocated the advancement of Spanish industrial activities, especially textiles.

Until such reforms could be brought to successful fruition, the wealth of the Oaxaca merchants and their seniors in the Consulado of Mexico was secured principally not so much by trading to the Spanish national textile factories, but to those of Spain's main competitors for the export trade to the Indies. Whether through the legitimate trade to Seville or Cádiz, or through the notorious contraband trade, the merchants of New Spain were the recipients of foreign manufactures. The merchants of Seville and Cádiz, for their part, often acted as the intermediary factors in the drain of both bullion and dyes through the Spanish Peninsular entrepôt to northern Europe.