Click here to read the original Cautious Optimism Facebook post with comments
7 MIN READ - The Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff continues marching through imperial Chinese history, this time chronicling history’s first paper inflation during the Song dynasty (960-1279).
 |
1142: China is split in two by the Jurchen Jin and Southern
Song dynasties with the Mongols waiting in the wings |
In the last article we discussed the long, violent, painful decline and ultimate end of the Tang dynasty (618-907).As the Tang disintegrated into civil war and rebellion, power shifted away from the ineffectual capital towards its regional generals. China became divided among provincial warlords, many of whom proclaimed themselves imperial sovereigns, effectively splitting the country into competing kingdoms.
The next 53 years are known as the “Five Dynasties, Ten Kingdoms period,” and the Correspondent will skim over this episode of disunity other than mention of one of its later emperors who reunited China yet again.
Zhao Kuangyin, a military governor serving in the Later Zhou dynasty—one of the “Five Dynasties”—managed to seize his own kingdom’s throne in 960 and proclaimed the new Song dynasty, the last dynasty ever established by internal coup d’etat.
Zhao assumed the title of Emperor Taizu and over the next sixteen years he annexed neighboring kingdoms, a few by military conquest but most through dealmaking. As he assimilated more and more territory Taizu, himself a former general, wisely diminished the political influence of the military and handed administration of the state to a civilian bureaucracy. Officials were recruited and promoted by civil service examination and merit instead of military rank or aristocratic birthright. These reforms are considered crucial to explaining the future success of the Song.
The Song soon ascended to one of China’s true “golden ages.” As the Correspondent wrote in a previous column, a consensus of historians consider the Tang dynasty the greatest of China’s golden ages, but the Song did well enough that there’s a dark horse case, in theory at least, for the Song to claim “greatest golden age” title.
Some of the Song’s accomplishments include the first-ever military application of gunpowder, the expansion of woodblock printing and invention of movable-type printing, a doubling of population in 100 years, and other advances in art, literature, philosophy, science and mathematics.
From an economic standpoint the Song produced the world’s first predominantly monetary economy and, with increased Silk Road trading routes and advances in transportation, China was transformed into a wide consumer economy where for the first time citizens were producing large surpluses not so much for their own use, but for sale in distant markets. During its peak Song China was the largest and most sophisticated economy in the world.
HYPERINFLATION
However the Economics Correspondent wants to focus on what he considers more perilous aspects of the Song: monetary missteps, partial alien conquest, rebirth and renaissance, and final downfall.
The previous Tang dynasty had discovered the concept of paper money, and in its last century Tang officials began printing notes for commercial purposes. However, as Tang notes were always redeemable in copper coin the dynasty didn’t get around to producing high inflation before its end.
The Song got a head start given that paper money was already a known element in the 10th century. In 970 the Song government started printing its own banknotes, also redeemable in coin or other commodities like salt and tea. Since the notes were backed by physical goods the Song still avoided inflation for nearly a century and over that period the value of its notes remained near par with coinage—due not only to their redeemability, but also because they were accepted by the government for tax payments.
Things changed dramatically in the 1060’s. The emperor Shenzong’s influential prime minister Wang Anshi—who was also a bureaucratic philosopher and economist—started to rely less on paper money’s commodity backing and more on its compulsory acceptance for tax payments to hold its value and he ordered a sharp increase in the production of sovereign notes.
Wang was also the 11th century Song’s combination of Bernie Sanders and Hillary Clinton, launching a modern day-sounding set of reforms known as the “New Policies” (nearly a namesake to Vladimir Lenin's "New Economic Policy") by which the government...
”…massively increased taxation on large landholders, used credit and progressive taxation to redistribute landholdings, nationalized the commanding heights of the economy (tea, salt, wine), promoted paper currency over copper coins, and outlawed copper mining. He provided direct loans to peasants, monetized taxes and the corvée to bypass landlords and local authorities… …and pursued an aggressive foreign policy, increasing spending on the military and invading both the Champa Empire to the south (in modern Vietnam) and the Jurchen to the north.”
-Economist Peter St. Onge
Historian Mary Nourse summarizes Wang’s policy views as follows: "The state should take the entire management of commerce, industry, and agriculture into its own hands, with a view to succoring the working classes and preventing them from being ground into the dust by the rich” and "to manage wealth the ruler should see public and private [wealth] as a single whole."
But as any present-day economic reader other than Janet Yellen could have predicted, Wang’s convictions in the liability-free printing press were quickly shaken. By 1076 Song paper currency was trading at a discount to coin in the marketplace and in 1107 the central government’s banknotes were only accepted at 10 percent of their face value, ushering in world history’s “first recorded monetary crisis attributed to the overprinting of money.” (Goetzmann and Koll, 2005)
Many economists not only consider the late 1000’s period the world’s first bona fide paper hyperinflation, they also record that the monetary crisis sufficiently weakened the Song economy to induce its conquest by outside invasion. For example, while the population of the Song doubled during its first century, it stalled and began declining after Wang’s policies were imposed.
THE JIN-SONG SPLIT
Throughout this period the Song maintained a fragile “frenemy” alliance with the Manchurian Jurchen tribes stretching from modern-day eastern Mongolia to Chinese Manchuria. However in 1115 several Jurchen tribes rebelled against their Song-allied leaders and eventually established their own “Jin dynasty” of the north.
In 1125 the Jurchen Jin attacked Song China.
The Song, already suffering from high inflation, further accelerated its printing presses to pay for military operations against the invading Jin. The combination of an already weakened economy and more inflation atop the old inflation crippled the Song which lost its imperial capital only two years later. The Jurchens took the emperor Qinzong, many members of his family, and many imperial court officials hostage and sent them to Harbin (remote Manchuria near the Russian border) where they were stripped of titles and publicly humiliated—although Qinzong lived another 34 years as a poor and destitute peasant subject of Jin.
The Jin pushed the Chinese Song dynasty down to the Yangtze river where Song generals countered and regained some territory. Ultimately a truce was settled in 1142, dividing China into the Jurchen Jin dynasty north of the Huai river and the Chinese Southern Song dynasty south of the river. By treaty the Song also paid annual tribute making it effectively a vassal state.
The Jurchens, who numbered about 1 million with 100,000 soldiers, had defeated a nation of 100 million with 1 million soldiers—the equivalent of Barbados successfully defeating the United States and taking all territory east of the Mississippi River. Most historians blame the Song government’s mismanagement of its own economy and hyperinflation for such a lopsided defeat.
Based on the date the Jurchens captured the Song capital, 1127 marks the official beginning of the Southern Song dynasty (1127-1279) while the Jin dynasty’s official reign is dated 1115 (when the Jurchens overthrew their overlords) to 1234 which we’ll explain in a moment.
The Jin reveled in their victories and chose the city of Zhongdu (later renamed Beijing) as their capital, the first time Beijing would serve as capital of a Chinese dynasty. Over the next several decades the Jin and Southern Song eyed one another suspiciously. The Song launched some ineffective attacks but otherwise went about its business and briefly enjoyed a new renaissance.
THE MONGOLS
The Jin’s victory would only last 70 years for it soon had a bigger problem on its hands from the northwest: the rising power of Genghis Khan and the Mongols who declared war in 1211 and invaded. The Jin asked their Southern Song enemies for help, warning that after they were swallowed up the Mongols would come after the Song next.
But the Song adopted an “enemy of my enemy is my friend” approach and refused to help the Jin, even allying itself with the Mongols who they helped supply. The Mongols completed their conquest of the Jin, ending that dynasty in 1234.
One year later the son of the late Genghis Khan turned on the Southern Song, just as the Jin had predicted, and invaded although the Song proved harder to conquer.
But once again the Song helped an external enemy with its over-reliance on the printing press. The Southern Song Xiaozong emperor had already banned competing private currencies in 1162 and eventually established a government paper money monopoly by 1190. The succeeding emperor Ningzong’s (1194-1224) chancellor resurrected the Wang Anshi-inspired “New Policies” (even recycling the name) printing more paper money leading to another hyperinflation.
For what it’s worth western history is also replete with government technocrats proclaiming that heavy reliance on the printing press “will be different and more enlightened this time,” but this kind of monetary insanity—repeating the same inflation mistake and expecting a different result—clearly got its start in Song China.
Weakened by worsening government finances, internal corruption, and rampant inflation, Song officials and generals defected to the Mongols and the Southern Song fell to Genghis Khan’s grandson—the great Kublai Khan—after decades of war. Once again the larger and more populous Chinese dynasty was overrun by a smaller force—in this case about 600,000 Mongols although the latter had admittedly commandeered the resources of the former Jin dynasty to aid in its conquest.
Historians mark 1279 as the official end of the Southern Song and beginning of the Mongol Yuan dynasty (pronounced yu-ehn, but combined as one spoken syllable) and the Correspondent will write in more detail about the Yuan in another column.
However the story of the Song’s birth (960), the Jin invasion and division of China (1127) and final conquest of the Southern Song by the Mongols (1279) explains the somewhat confusing dates defining the imperial chronology of the period. In general the Song dynasty is often defined as 960-1279 while at other times a more accurate timeline records the Song ruling from 960 to 1127 and the Southern Song from 1127 to 1279.
