This is part two of a two-part interview. Read the first part here.
DT: We’ve covered philosophical traditions, and some key texts about commerce. What about banking and currency? What were the media of exchange? How did they develop over time?
One thing that is striking, especially to somebody who is familiar with monetary history in the west, is that Chinese governments have been creating currency for a very long time—the oldest Chinese coins, from about 600 BCE, are roughly as old as the oldest known coins anywhere—but governments have very rarely monopolized the creation of money, and usually didn’t even try that hard to do so.
China in the 11th century had the world’s first paper money—which existed both in the form of government-issued and merchant-issued paper. This was for large transactions. Ordinary people mostly used bronze coins, but those were far too heavy for large transactions. The combination of paper and bronze, supplemented by unminted silver, worked reasonably well for a couple of centuries, even after the Song dynasty was conquered by the Mongols.
The Mongols were very concerned about promoting long-distance trade, and handled the paper money supply pretty carefully. They also tried, albeit unsuccessfully, to introduce it in Persia, even transporting printing presses and woodblocks there to make exact duplicates of Chinese notes. But in their last couple of decades, as they faced a series of crises and revenue shortfalls, they printed way too much money and undermined confidence in paper.
It was the Ming Dynasty (1368-1644) that really messed things up. The Ming founder, Zhu Yuanzhang, was profoundly anti-commercial, and had fantasies about restoring a world of closed, self-sufficient local communities, which had probably never existed. Under his rule (1368-1398), the government practically stopped issuing the copper coins people actually used. Instead, they issued and promoted an essentially worthless paper currency.
Nobody trusted the paper currency, it depreciated rapidly, and eventually the government itself wouldn’t accept it when people tried to us it for tax payments. The early Ming did a bunch of other things that were bad for the economy, and to top it off, the 1300s saw the end to a long period of warm climate (roughly 940-1350) that had coincided with the last economic upswing, plus devastating epidemics.
In the mid-1400s, the economy began to grow again, and people increasingly ignored or worked around the obstacles to commerce created by the early Ming. But that meant that, once again, people needed a reliable currency. The Ming began minting bronze again, and there were a lot of old coins still around, but that wasn’t really enough, and it certainly wasn’t enough for big transactions. And the experience of the previous century had scared people off paper money—once burned, twice shy, I guess. (And before we label that behavior “quaint,” or “irrational,” we should remember that after the over-printing of paper money by the Continental Congress, Americans didn’t really accept greenbacks from the nation’s beginning until the Civil War forced the issue, about 80 years later.)
For reasons that are unclear, China has never used gold as a monetary medium on any great scale. The demand for something much more valuable per weight than bronze and reasonably reliable led to massive demand for silver, which China didn’t produce in great quantities and therefore imported from various places in Asia.
As fate would have it, Japan has a lot of silver, and, starting in 1467, feuding Japanese warlords who controlled silver mines found that exporting the silver was a great way to finance their armies. After the silver entered China, mostly as un-coined bullion, merchants made it into units with a standard shape and size, and often stamped it with their names to show that they guaranteed its weight and purity. Silver entered China in huge quantities: first from Japan and other parts of Asia, and then, starting later in the 1500s, from the mines of Latin America. Estimates vary a lot, but it seems a good bet that about ¼ of all the silver mined in the Americas from the 1500s to the early 1800s wound up in China—and silver mined in Latin America was probably around 85% of world production over those 3 centuries.
This had enormous consequences—for China and for other places. As Latin American silver began flooding into Europe after the Spanish conquests, the economy couldn’t expand its production of real goods as fast as its money supply was growing, so one of the big effects of the silver influx was inflation, especially in Spain, but in a lot of the rest of Europe, too.
Had a big chunk of the silver supply not been drained off to China, where it procured goods that were useful like silk, porcelain, and later tea, that inflation would have been a whole lot worse. And if the value of silver had fallen enough, the Spanish Hapsburgs might have collapsed long before they did—with huge consequences for places stretching from the Netherlands to Iberia, across the Americas, and on to the Philippines.
What some people have called the “silverization” of the economy within China continued all the way through the 18th century, with an interruption in the mid-1600s, when the country was hit by peasant uprisings, the Manchu invasion, and severe epidemics, among other things. The Chinese government never did coin silver, but it began requiring it as the medium for tax payments and treating it as the money of account.
Meanwhile, small transactions among ordinary people continued to take place mostly in bronze, which meant that many ordinary taxpayers essentially earned their money in one currency and paid taxes in a different one—which theoretically exchanged at a fixed rate, but in fact exchanged at fluctuating market-based rates. The Ming never did print an adequate quantity of good quality bronze coin, but the Qing did, at least for a while.
However, the expansion of the economy in the 18th century (when population more than doubled, per capita income probably grew a bit, and the percentage of the economy that involved cash grew) was sufficiently rapid that government currency production couldn’t quite keep up, even when the mints were humming. There was a lot of counterfeiting that filled in the gap.
Remember, too, that Latin American silver (unlike the earlier flow of Japanese silver) generally arrived in the form of coins—especially Mexican silver dollars, and merchants in some big cities became expert at evaluating these coins. They knew, for instance that Carlos III pesos tended to be slightly higher quality than Carlos IV pesos, and they knew how to compare both to Dutch, English, Russian, Mughal, and many other kinds of coins. It was quite common, in fact, for a coastal merchant to stamp a coin with his own name over its existing inscription, essentially saying, “I certify that this is a genuine Carlos III peso that hasn’t had silver shaved off of it, or been damaged in some other way.” It was a phenomenally complicated system, and mostly private rather than government run, but it more or less worked, or at the very least, it was not incompatible with the development of what was, in aggregate terms, the world’s largest economy until sometime in the 19th century.
From the mid-19th century onwards, however, the system became increasingly dysfunctional, at least if judged in comparative terms. With the silver supply heavily dependent on international currents, while supply and demand for copper coins responded to more local trends, their relative prices could shift dramatically, and since ordinary people were getting much of their income in copper but owed taxes in silver, this could have huge consequences for them. For example, when the British began exporting lots of opium to China, using that rather than silver to pay for the tea they were importing, silver prices skyrocketed relative to copper. This hit ordinary people like a major tax increase and had a deflationary effect on the economy as a whole, since silver started leaving China, shrinking the money supply.
Other events that don’t make for quite as good a morality play as the opium story—slumping demand for Chinese tea in the early 1800s, Latin American revolutions that disrupted the silver mines during the same period—probably affected the monetary situation just as much. When China then suffered a massive political breakdown in the mid-19th century, unleashing a quarter century of civil wars, things got dramatically worse.
The government, which had never needed to borrow before, now desperately needed to do so. Exposure to a brutally competitive global system created needs for new kinds of projects, such as railroad-building, that required unprecedented amounts of capital and often paid off their investors only slowly. Foreign political encroachment created zones in which various foreign currencies circulated, and these were often more trusted than domestic currencies.
When things really bottomed out, political instability led to local, regional, and often short-lived regimes issuing their own money, or forcing local merchants to do so. In 1919, an English newspaper in Shanghai counted what it claimed were 115 new kinds of coins that had been issued just since the fall of the Qing dynasty in 1912, plus untold varieties of paper.
It’s that kind of mess that led many Westerners to conclude that the Chinese just didn’t know how to run a monetary or financial system. Yet, what they were looking at was the wreckage of several systems that were very different from what they were used to. While those systems did indeed need to change quite a bit to function in the 20th century, they had actually been quite sophisticated, and they still haven’t disappeared entirely, even in the 21st century.
For example, if you look at the post-Mao economic boom in China, one thing you see is that state-owned banks have often been very reluctant to lend to private entrepreneurs, who have consequently turned to all sorts of private, informal systems to raise capital. Some of those, it turns out, bear interesting resemblances to pre-revolutionary financial institutions—as do some of the informal financial institutions that helped power Taiwan’s growth, beginning a couple of decades earlier.
DT: Here at the Library you were writing a book titled “Why is China So Big?” Tell us something about this.
It is a striking fact that roughly ¼ of humanity has been included within one polity for most of the last 2,000 years, and almost all of the last 700.
Of the six states that cover 40 percent of the earth today—Russia, Canada, China, the U.S., Brazil, and Australia—five were partially shaped by what Alfred Crosby has referred to as “ecological imperialism.” Early modern settlers brought diseases, to which natives had no resistance, and plants and animals, that had no enemies in their new homes, making both conquest and colonization vastly easier.
But Chinese colonists lacked those advantages, so Chinese expansion requires other explanations. The P.R.C. can also be seen as the successor to one of several large land empires that flourished ca. 1400-1918. The others—Mughal, Ottoman, Romanov, Hapsburg, and so on—fractured into multiple states, as did Europe’s overseas empires. But China today still includes almost the entire Qing realm, despite a century of foreign incursions.
The on-going creation and re-creation of the Chinese polity has important historical and contemporary implications. Many books discuss how China was held together at specific moments, or acquired some specific piece of additional territory. But there’s been no real attempt at a synthesis since Mark Elvin’s Pattern of the Chinese Past, almost 50 years ago—and we’ve learned a lot since then.
Part I of my book goes way back in time, looking at some fundamentals: the initial formation of the empire, some basic ideas about subjects such as kinship and political legitimacy, and the gradual emergence of an idea that there was a fundamental division between a “civilized” world, based on agriculture, and a nomadic, “barbarian” one, which required that the “civilized” people should ideally all be part of one polity, partly for defense against the others. Drawing an increasingly sharp contrast with nomads also facilitated an even more important and more slowly-emerging idea: that the differences among the many settled, agricultural societies within what became “China” were minor compared to what they shared.
Part II shifts from focusing on the conquest of territory and people to how they were integrated into “China.” It also begins quite early in time, but focuses on developments after 1500, which have included major increases in inter-regional trade, mass migration initiated by ordinary people (as opposed to the forced migration that was more important in earlier periods), and other kinds of socio-economic change.
Part III, which is more cultural in focus, also begins very far back, considering, among other things the importance of having a shared written language shared by China’s elite. It then looks to the middle and late imperial periods, looking at cultural forms that reached further down into society than writing: particularly popular religion, which was powerfully influenced by the context of empire and carried with it ideas about the mutual dependence of families, local communities, and the entire realm, that have endured beyond the empire itself. The last chapter looks at the rise of modern Chinese nationalism, and the many elements of imperial thought it carries within it, even as it asserts that the central task for everyone should be pursuing “modernity” under the guidance of the state.
While at the Kluge Center, I’ve mostly been working on the early 20th century portion of the book. The Library of Congress has a terrific collection of reports and periodicals issued by Chinese provincial governments in the 1920s-1940s. This was a period when provincial governments often counted for much more than the national government, and at least some of them were doing much more than they are usually given credit for.
The Library also has a spectacular database of 20th century memoirs, oral histories, and articles by local historians called Wenshi ziliao. These are materials gathered by people all across China compiling official county, municipal, and provincial gazetteers, most of which don’t wind up included in the gazetteer itself. The gazetteer might have 2 sentences, or even nothing, about some local event (especially if the event doesn’t fit that smoothly into the current Party line), while Wenshi ziliao has 2 or 3 reminiscences by participants in the event, each 20 pages long.
So these things are fabulous, and foreign scholars have often used them in doing local or regional histories; but there are so many of these publications, and they have been published in such a scattershot fashion, that it was impractical to use them for a broad national study—you just couldn’t search effectively, because there was no comprehensive index.
The Library has the only searchable database of these articles I’ve ever seen or heard of, and it’s a goldmine. I was just beginning to get full use of it when I had to leave because of the pandemic, but I had already found a couple of priceless things about how local and regional political networks functioned during the first half of the 20th century, mentioned more or less in passing by people who were part of them.