‘Empire of Silver’ Review: Eastern Standard - WSJ 1 of 5 https://www.wsj.com/articles/empire-of-silver-review-eastern-standard-... This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers visit https://www.djreprints.com. https://www.wsj.com/articles/empire-of-silver-review-eastern-standard-11615417784 BOOKS | BOOKSHELF ‘Empire of Silver’ Review: Eastern Standard China’s centuries-long insistence on limiting its currency to silver proved disastrous over time, allowing the West to surge ahead. PHOTO: GODONG�BRIDGEMAN IMAGES By Edward Chancellor March 10, 2021 6�09 pm ET Listen to this article 7 minutes China may have been the first country to experiment with paper money, but modern finance took off in Europe rather than the Far East. In the West, banks and credit markets seeded the growth of capitalism. By contrast, China gave up on paper money long before Columbus set sail for the New World. From the 15th century through the 1930s, the Chinese were stuck with silver money. Without access to credit, the Middle Kingdom yielded economic primacy to England and later the United States. This important story is related in “Empire of Silver,” a quirky, though instructive, monetary history by Jin Xu, a Shanghai-based editor at the Financial Times Chinese. 2021-03-22, 6:56 AM ‘Empire of Silver’ Review: Eastern Standard - WSJ 2 of 5 https://www.wsj.com/articles/empire-of-silver-review-eastern-standard-... Paper money, Ms. Xu tells us, dates back to the Tang dynasty in the ninth century, when the authorities allowed merchants to exchange bronze coins for promissory notes, known as “flying cash.” Two centuries later, in the time of the Song dynasty, merchants in Sichuan were using private exchange notes in place of the cumbersome iron coinage. The Song emperor issued his own paper money against deposits of coin. The jiaozi, as these notes were called, proved so popular that they traded at a premium to cash. The convenience of paper money proved its undoing, however. The first temptation was for the Song authorities to make the jiaozi inconvertible, severing the connection with metal reserves. The next step was to increase the issue of paper money, both to feed the people and, more pressingly, to fund the fight against the Mongol invaders. The inevitable outcome was inflation, followed by the collapse of the currency. The Mongols resurrected paper money. Marco Polo, in the late 13th century, reported that Kublai Khan, the great Mongol leader, had discovered the “secret of alchemy” by making money from the bark of mulberry trees. But in time the Mongols issued too much paper and sparked a hyperinflation, as did their successors, the Ming. From the late 14th century onward, silver replaced paper money in China. The advantage of “white gold,” Ms. Xu emphasizes, was that it couldn’t be conjured up at the emperor’s command. The silver currency provided stability, a quality much prized by the mandarinate. But there were disadvantages. Lacking domestic reserves, silver had to be imported from abroad—first from Japan and then from the Americas. Massive inflows of silver promoted vigorous economic expansion in the late Ming era. In the 1630s, however, Spain stopped exporting American silver to the Far East. The money shortage in China that followed coincided with crop failures brought about by the Little Ice Age. Ms. Xu suggests that “silver was the fuse” for the collapse of the Ming dynasty in 1644. Silver retained its monetary role under the Qing—the dynasty that ruled China from the mid-17th century to the early 20th—and money shortages remained. Part of the problem was that China needed to run a trade surplus in order to increase its money supply. Imports of foreign goods, which drained silver from the country, were officially discouraged. When Lord Macartney, the British envoy, visited Peking in 1793 to open up the Chinese market to British goods, he was told 2021-03-22, 6:56 AM ‘Empire of Silver’ Review: Eastern Standard - WSJ 3 of 5 https://www.wsj.com/articles/empire-of-silver-review-eastern-standard-... by the emperor: “Our Celestial Empire possesses all things in prolific abundance. . . . There was therefore no need to import the manufacturers of outside barbarians in exchange for our own produce.” The British, unable to sell enough manufactured goods to China to pay for their imports of tea, turned to pushing Indian-produced opium. China’s opium addiction created a monetary problem alongside a public health crisis. In 1838 a senior Qing minister complained that silver currency was “being secretly wasted on the filth of foreigners.” Soon a ban on foreign opium was announced in Canton, followed by an embargo on PHOTO: WSJ British trade. Ms. Xu describes the ensuing hostilities as a “silver war.” EMPIRE OF SILVER That China’s monetary history differs By Jin Xu Yale, 374 pages, $30 fundamentally from that of the Western experience makes it of special interest. Unfortunately, the narrative of “Empire of Silver” is often confused, jumping chronologically back and forth. The text, translated from the Chinese by Stacy Mosher, is peppered with puzzling statements. (“History is a piece of windbattered paper, with misreadings and obstructions everywhere.”) One suspects that a too-literal translation is partly to blame. At times, the author seems confused as to whether silver money was responsible for China’s arrested financial development or was merely a symptom thereof. Common sense suggests the latter. There is no reason why silver shouldn’t have provided the base money for a modern credit system, performing a role similar to the one gold played elsewhere. 2021-03-22, 6:56 AM ‘Empire of Silver’ Review: Eastern Standard - WSJ 4 of 5 WSJ NEWSLETTER Notes on the News The news of the week in context, with Tyler BlintWelsh. https://www.wsj.com/articles/empire-of-silver-review-eastern-standard-... I would also like to receive updates and special o�ers from Dow Jones and af�iliates. I can unsubscribe at any time. I agree to the Privacy Policy and Cookie Notice. Enter your email SIGN UP The problem lay with China’s institutions. Capitalism first appeared in NEWSLETTER SIGN�UP countries, like Holland, where property Books rights were respected. By pursuing their Be the first to find out what's new and what's raised the nation’s wealth. Imperial good. Get the weekend book reviews before the China had no lack of hard-working private interests, Dutch merchants weekend. people, but they lived in a country without the rule of law, whose autocratic PREVIEW SUBSCRIBE rulers despised commerce. Under pressure from Western powers, China finally modernized its financial practices in the late 19th century. In 1897 the Imperial Bank of China was established, and a few years later the Bank of China emerged. Still, China remained true to silver after the Nationalists under Chiang Kai-shek came to power in 1928. This proved advantageous at the onset of the world depression, when a sharp decline in silver’s price relative to gold helped boost Chinese exports. 2021-03-22, 6:56 AM ‘Empire of Silver’ Review: Eastern Standard - WSJ 5 of 5 https://www.wsj.com/articles/empire-of-silver-review-eastern-standard-... The Americans unwittingly brought silver’s long monetary reign to an end. In June 1934, President Roosevelt signed the Silver Purchase Act, instructing his Treasury to acquire the precious metal at several times its prevailing market price. Roosevelt intended to help out U.S. silver producers, but the chief effect of his measure was to suck silver out of China. Not long after, Chiang abandoned silver, issuing a paper currency that was printed in unlimited quantities after the Japanese invasion. The result was another Chinese hyperinflation. As Ms. Xu writes in her idiosyncratic fashion: “History always knocks twice, first as comedy and then possibly as tragedy.” Mr. Chancellor is the author of “Devil Take the Hindmost: A History of Financial Speculation.” Appeared in the March 11, 2021, print edition as 'Eastern Standard.' Copyright © 2021 Dow Jones & Company, Inc. All Rights Reserved This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers visit https://www.djreprints.com. 2021-03-22, 6:56 AM
