20080314-spade coin, Zhou dynasty shnag M.jpg
Zhou dynasty spade coin
Confucianism has traditionally looked down on business and making money. An old Chinese proverb goes: “If you want one year of prosperity, grow grain. If you want 10 years of prosperity, grow trees. If you want one day of prosperity, grow people.”

Practitioners of Confucian values, the Emperors and the ruling class thumbed their noses at the merchant class and rebuffed Western attempts at trade. In 1591, a Chinese border official complained that irresponsible "news bureau entrepreneurs" had no consideration to "matters of [national] emergency."

Even so China was a leader in world commerce. In the late 1700s and early 1800s, China accounted for 30 percent of the world’s total value of goods and services. In 1830 China and India together accounted for more than half of the world’s output, with the southern coastal provinces of Guangdong and Fujian traditionally being very involved in trade.

Foreigners have harbored ambitions of striking it rich in China for some time. There is famous story about a mid 19th century Englishman who thought he could make a fortune in the textile business by convincing every Chinese person to extend the length of their shirt tails by one inch. Others felt that China was hopelessly dated. Marx developed a hypothesis on the stagnant "Asiatic Mode of Production."

Links in this Website: EARLY ECONOMIC HISTORY IN CHINA Factsanddetails.com/China ; DENG XIAOPING'S ECONOMIC REFORMS Factsanddetails.com/China ; ECONOMIC HISTORY AFTER DENG XIAOPING Factsanddetails.com/China ; GLOBAL ECONOMIC CRISIS OF 2008 AND 2009 IN CHINA Factsanddetails.com/China

Good Websites and Sources: Wikipedia articles on Economic History of China Wikipedia ; University of San Jose Article of the Economic History of China sjsu.edu/faculty/watkins ; E-Book: Introduction to the Economic History of China by Stuart Kirby (1954) books.google.com/books ; Chinese Business History Bulletin umassd.edu/cas/history/cbh/ ; Bibliography Economics in Chinese History umf.maine.edu

World's First Coins and Paper Money

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Early paper money
There is some debate as to where the world's first money came from. Some scholars say the Lydians, a 7th century B.C. culture that lived on the west coast of Asia Minor near present-day Izmir, Turkey, were the first. They made thumb-nail-size coins under King Gyges in 670 B.C. struck from lumps of electrum, a pale yellow alloy of gold and silver. Other scholars believe the world's oldest coins are spade money from Zhou dynasty China dated 770 B.C.. In the seventh century B.C. coins were minted in China with the names of towns printed on them. These coins were tiny, minted pieces of bronze shaped like knives and spades.

Paper money was first produced in China in 11th century when there was a metal shortage and the government didn’t have enough gold, silver and copper to meet the demand for money. It wasn’t long before the Chinese government was producing paper currency at a rate of four million sheets a year. By the 12th century paper money was used to finance a defense against the Mongols. Notes produced in 1209 that promised a pay off of gold and silver were printed on perfumed paper made of silk. [Source: "The Discoverers" by Daniel Boorstin]

A piece of paper money used under Kublai Khan in the 13th century was about the size of a sheet of typing paper and had a furry felt-like feel. It were made from the inner bark of mulberry trees and according to Marco Polo was "sealed with the seal of the Great Lord."

Of this money, “Marco Polo wrote, “the Khan has such a quantity made that with it he could buy all the treasure in the world. With this currency he orders all payments to be made throughout every province and kingdom and region of his empire. And no one dares refuse it on pain of losing his life...I assure you, that all the peoples and populations who are subject to his rule are perfectly willing to accept these papers in payment, since wherever they go they pay in the same currency, whether for goods or for pearls or precious stones or gold or silver. With these pieces of paper they can buy anything and pay for anything...When these papers have been so long in circulation that they are growing torn and frayed, they are brought to the mint and changed from new and fresh ones at a discount of 3 per cent."

The world's largest paper money was a 1 guan note issued by the Ming dynasty of 1368-99 that was 9 by 13-inches.

First Paper Money and Inflation

With paper money came inflation. Describing one particularly disastrous period of inflation during the Song dynasty the historian Ma Tuan-lin wrote: "After having tried for years to support and maintain these notes, the people had no longer any confidence in them, and were positively afraid of them. The payment for government purchases was made in paper. The fund of the salt manufacturers consisted of paper. The salaries of all the officials were paid in paper. The soldiers received their pay in paper...So it was natural that the price of commodities rose, while the value of the paper money fell more and more. This caused the people, already disheartened, to lose all energy. The soldiers were continually anxious lest they should not get enough to eat...All this was the result of the depreciation of paper money."

Inflation fueled resentment against of the Mongol Yüan dynasty and hastened its collapse. One of the first things the new Ming dynasty emperor did was cut back on the production of paper money as a means of stabilizing the currency.

The Chinese developed the concepts of private property, price-making markets, and networks of trade associations and banks long before the Europeans did.

First Banks in China

The first banks in China opened in the town of Pingyao in the mid 19th century. The banks were opened by merchants that suddenly became wealthy and needed a place to put their money. The banks made loans, offered remittances and checks, which made the merchants wealthier, and made it necessary for banks to open branches in other cities. At its height Pingyao had 22 banks that were instruments in the trade of silk and tea to Russia and wool and leather from Mongolia. The currency was silver ingots. But just as as quickly as whole system got started it collapsed

The banks were regarded as responsible and incorruptible. Trust among businessmen was high. Some of the routine practices’such as loosening up potential clients with prostitutes and opium---would raise eyebrows today. There was also an element of paranoia. The vaults of the banks were vertical pits dug beneath raised platforms that stored piles of silver. Sleeping mats were placed on the platforms and bank employees sat or slept on the mats around the clock. When money was moved it was watched over by guards trained in the martial arts and armed with halberds axes and maces.

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10th century market in China

Rural Industry Tradition in China

Ken Pomeranz and Bin Wong wrote: “Reform-Era China Draws on the Past: As many people know, beginning in the 1980s and well into the 1990s, the main source of economic dynamism in reform-era China came from the development of township and village enterprises, from enterprises that existed in small towns and in villages and involved people who previously were in farming.Why was the development of rural industry a smart strategy in this period? One of the reasons has to do with earlier patterns of economic activity where handicraft production was largely in the countryside. [Source: Asia for Educators, Colum University afe.easia.columbia.edu ]<|>

“This is to say that because the Chinese did not have the same pattern of urbanization and the development of urban industry as Europe did, it made sense that the development of new industrial opportunities in China in the 1980s took advantage of certain kinds of spatial and institutional patterns that drew upon older forms of economic activity, older forms of marketing, older forms of networking between peoples in different villages. Many of these resources tapped into the development of township and village enterprises. Now clearly, the development of township and village enterprises in the 1980s depended on a lot of factors. It depended on new technologies becoming available, as well as new sources of capital. And rural industrialization took place in an institutional environment that was very different from what had existed 200 years earlier. <|>

“All of that is clearly true. But what is missing in most accounts that look at township and village enterprise with an historical perspective going back to the 1950s at most is a recognition that rural industry and rural commerce called upon traditions that went back to much earlier periods in a positive way. Therefore, the success of the development of township and rural enterprises, in my opinion, depended at least in part on the repertoire of practices and possibilities that Chinese in the countryside have had for a long time. This then means that the past is not simply an obstacle. It is not simply something negative. The past includes practices that people can harness to serve new kinds of goals. <|>

Image Sources: Ohio State University; Brooklyn College; University of Washington; Nolls China website http://www.paulnoll.com/China/index.html

Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, National Geographic, The New Yorker, Time, Newsweek, Reuters, AP, Lonely Planet Guides, Compton’s Encyclopedia and various books and other publications.

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© 2008 Jeffrey Hays

Last updated September 2016

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