Unemployment Creep and Recession Statistics

As of June 2024 the official U.S. unemployment rate is 4.1%, up 0.7 points from the April 2023 post-Covid low of 3.4%.

Why is this interesting?

First of all unemployment virtually never jumps through the roof right before a recession. That always happens during the recession itself (see attached St. Louis Federal Reserve chart).

https://fred.stlouisfed.org/graph/?g=1q0rV

Preview:

However one might notice that unemployment does creep up slightly right before recessions begin. When the recession starts, other economic indicators also suggest a slump may be starting but since unemployment remains relatively low—albeit not an absolute low—debate usually rages as to whether a recession is coming or not. The debate is usually settled six months later when it's obvious to everyone.

But here’s an interesting factoid about the recent 0.7% increase in the unemployment rate:

Going back to the 1980’s, the unemployment rate has never risen 0.7% from a cyclical low without entering a recession.

Before the 2007-09 recession, unemployment bottomed out at 4.4% in May of 2007. By the time it had risen 0.7 points to 5.1% it was March 2008 and the economy had just entered recession—although the NBER didn’t make its official recession announcement until eight months later.

Before the 2001 recession, unemployment bottomed out at 3.8% in April of 2000. By the time it rose 0.7 points to 4.5% it was June 2001 and the economy had also just entered recession. Once again the NBER didn’t make its official recession announcement until six months later.

Before the 1990-91 recession, unemployment bottomed out at 5.0% in March 1989. By the time it rose 0.7 points to 5.7% it was August 1990 and the economy had just entered recession. Once again the NBER announcement came much later.

The 2020 Covid recession was unique in that it was manmade with states shutting down their economies due to Covid. However the pattern remains: by the time cyclically low unemployment of 3.5% (February 2020) had risen 0.7 points to 4.2% (4.5% one month later) the economy was in recession, although given the sudden nature of the pandemic there was no “creep up” period prior.

Unemployment bottoming out and rising 0.7 points adheres to the same predictive pattern in the 1981-82 Volcker recession, the 1980 Jimmy Carter recession, the 1973-75 OPEC recession, the 1969-70 recession, and the 1960-61 recession—basically all nine recessions going back to 1960.

The first and only exception occurs in June 1959, 65 years ago, when unemployment rose from the June low of 5.0% to 5.8% by November without an official recession, although it was close: Q3 and Q4 GDP growth in 1959 was just +0.07% and +0.28% respectively.

The pattern then resumes without exception during the recessions of 1948-49, 1953-54, and 1957-58.

Additional Fed tables indicate the pattern continues without exception during the recession of 1945, and economic historians’ unemployment estimates continue to match the 0.7% pattern during the Great Depression: in the Depression of 1937-38 and Herbert Hoover's Great Depression contraction of 1929-1933.

One last “exception” (which really isn’t an exception) was a rapid 5% increase in unemployment during 1934 after Franklin Roosevelt signed the National Industrial Recovery Act. The slump was swift, rapid, and painful, but because contraction only lasted a few months it didn’t meet the “two consecutive quarters” definition and wasn’t officially recorded as recession. i.e. contraction began the last month of Q1 but Q1 as a whole was left barely positive, there was a massive contraction in Q2 which was dizzyingly negative, and contraction the first month of Q3 was followed by two months of growth leaving Q3 also barely positive—the net result being a 2007-09 sized Great Recession compressed into a five-month period that didn’t produce two consecutive negative quarters.

But it was a recession, and a big one at that.

So the pattern holds up for 13 of the last 13 recessions going back for a century, with a single false signal in 1959. And once unemployment was 0.7 percentage points above the cyclical low, the economy was already in recession in 13 of the last century's 13 recessions.

Disclaimer: Although the Economics Correspondent thinks the U.S. economy has entered a time window where the beginning of recession is highly likely—April 2024 to December 2024—he doesn’t claim this unemployment statistic guarantees recession has begun, only that, like so many indicators we’ve seen the last year or two, it’s yet again consistent with imminent recessions of the past.

Past performance is no guarantee of future results, but if the economy doesn't enter recession in the next 12 months this particular case will be a statistical unicorn.

A Political and Economic History of China, Part 23: Sun Yat-sen and the Anticlimactic Collapse of the Qing Dynasty

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 reaches the end of China’s last dynasty (at last).

Nationalist Party flag... in China?

At the turn of the 20th century China lagged hopelessly behind the western powers and Japan. Its ruling dynasty, the Qing, was irredeemably corrupt after 256 years in power. Great Britain enjoyed control of Hong Kong and Kowloon while large swaths of Qing territory had been swallowed up and colonized by Russia, Germany, France, and Japan (the latter seizing Korea and Taiwan from China after a brief war in 1895).

For over a century ethnic Han Chinese formed secret societies dedicated to overthrowing the Qing, and in that time multiple failed rebellions broke out costing literally tens of millions of lives.

As the new century began a small, seemingly insignificant anti-Qing society—started in Hawaii of all places—was co-founded by an insurgent who would later become the unlikely hero of modern Chinese history, akin to George Washington in the United States.

His name was Dr. Sun Zhongshan, better known in the west by his Cantonese name Sun Yat-sen.

A GLANCE AT DR. SUN

Before we get into a brief account of his life we should mention that Sun Yat-sen is a nearly unique Chinese figure, revered by both the Communist Party in Beijing and the Nationalist Party in Taiwan (formerly led by Chiang Kai-shek). The two sides don’t agree on much, but they’re unified in their praise of Sun as the founding father of modern China.

Sun was born in 1866 in a poor section of Guangdong (formerly known as Canton province) in Southern China. As a child his studies focused heavily on science and in 1878 he followed his older brother to study in Hawaii. It was during these preparatory years that he learned English and, more importantly, was exposed to western political philosophy.

Afterwards he returned to Guangdong to study medicine, but during his early twenties Sun became more enamored with revolutionary politics and a hardening view that China must transform itself into a modern, democratic state.

On a side note the Correspondent remembers reading long ago passages from Sun’s personal journals about western encroachment. He disliked British colonialism in Southern China, yet he observed that Hong Kong was clean, modern, safe, and prosperous while Guangzhou, just an hour’s train ride inland and under Qing jurisdiction, was poor, filthy, disease ridden, and technologically backwards. The contrast between British-administered and Qing-administered China convinced Sun that his country had to change course and adopt many western institutions.

In 1894 Sun wrote a lengthy letter to Li Hongzhang, the Qing’s top military official and also known to be a reform sympathizer, outlining his plan to modernize China. Being a virtual nobody at the time, Sun received no response. He even traveled north to Tianjin to meet with Li who never received him.

Faced with rejection via the inside route Sun gave up medicine and devoted his life to overthrowing the Qing. He returned to Hawaii in 1895 and co-founded the Revive China Society, at that time just another insignificant one of countless anti-Qing societies agitating for revolution.

Sun used his western education and knowledge of English to travel the world and raise money for anti-Qing activities, mostly from overseas reform-minded Chinese. Once Sun felt he had raised enough he sent the money back to China with which the society sponsored two uprisings (1895 and 1900), both of which failed.

By this point Sun was on the Qing government’s enemy radar and living in exile, spending his time in Europe, the United States, Japan, and Southeast Asia. His Revive China Society merged with several other secret societies to form the larger Tongmenghui group which funded six more uprisings in 1907 and 1908, all of which failed.

All the organized attempts to overthrow the Qing fizzled out, and the situation didn’t look hopeful. Yet, in one of those many strange turns of history, another seemingly fated uprising in 1911 unexpectedly worked.

THE XINHAI REVOLUTION

The so-called Wuchang Uprising, named after the city where it took place, initially failed. But when the local Qing viceroy ordered his troops to execute captured rebels the soldiers, who had not been paid for some time, mutinied on October 10th and the viceroy fled.

Word quickly spread of the insurrection and Qing soldiers began mutinying in city after city, most of them also having worked without pay.

Although soldiers in a few cities and provinces refused to turn against the government, the Qing collapsed throughout most of China in a rapid domino fashion. It seems the Qing's hold on China was a house of cards just waiting for a breeze to knock it down and Wuchang provided it.

Mental note: history has repeatedly shown governments that don’t pay their militaries run a much higher risk of being overthrown.

The collapse of Qing authority is known as the Xinhai Revolution and it marks probably the most bloodless end of a major dynasty in Chinese history. Although the history books tally perhaps 100,000 dead in those areas where Qing soldiers were willing to fight, the death toll is insignificant when compared to the blood shed during the falls of the Qin, Han, Tang, Song, Southern Song, Yuan, and Ming dynasties (i.e. all the other big ones).

Although the Correspondent won’t rehash the details of the end of every one of those dynasties, the Qin, Han, Tang, Yuan, and Ming involved nationwide rebellions that often laid waste to China while the Song and Southern Song were both finished by bloody, outside invasion (the first by Jurchen tribes from the north, the latter by Kublai Khan and the Mongols).

October 10th is now celebrated by the Taiwan Nationalist Party as “Double Ten Day” commemorating the end of thousands of years of imperial rule in China.

Ironically, in another one of those strange twists of history, Sun Yat-sen wasn’t even in China on October 10th but rather Denver, Colorado raising money. Hearing about the Xinhai Revolution, Sun rushed back to China to capitalize on the situation before the country fell into leaderless chaos.

On January 1st, 1912 Sun Yat-sen declared the establishment of the Republic of China and one month later the Qing boy emperor Puyi officially abdicated the throne. Shortly thereafter Sun founded the Nationalist Party of China, known in Chinese as the Guomindang (gwoh-mihn-dahng).

In the 21st century the Guomindang, or Nationalist Party, remains one of the two major political parties of Taiwan although it hasn’t occupied the president’s office in Taipei since 2016.

Regarding the Nationalist Party’s name, its different Chinese romanizations are also worth discussing.

“Guomindang” is the spelling under the current PRC romanization system of pinyin. However before pinyin was invented, the older Wade-Giles system spelled it "Kuomintang" which some CO readers might recognize as KMT.

Anyone reading older history books on China and Taiwan might see references to “Kuomintang” and KMT, but even under Wade-Giles the correct pronunciation was always “gwoh-mihn-dahng,” even if journalists and politicians unfamiliar with Wade-Giles’ strange rules pronounced it (incorrectly) as “koo-mihn-tang.”

SUN’S CHINESE LEGACY

Sun’s political career after 1912 mirrored the politics of China: chaotic. We’ll get to that in upcoming chapters about the Chinese Republican and Nationalist eras. But last we’ll say a few words about his enduring legacy.

As the Correspondent noted earlier, Sun is celebrated by both the Chinese Communist Party and Taiwan's Nationalist Party, currently political adversaries and previously mortal enemies.

It’s no surprise that the Nationalists love Sun since, after all, he founded their party. The communists are a bit stranger story. Why would they worship the founder of an adversarial party who wasn’t a communist himself?

The CCP claims they venerate Sun for his work overthrowing the imperial system and writing the opening chapter of modern China. It also helps that Sun spoke about a vague form of “socialism,” although its Chinese interpretation more closely resembles “welfare of the people" and again, Sun never embraced Marxist communism.

Chinese president Xi Jinping also held a huge ceremony in Beijing for Sun’s 150th birthday, full of speeches and a giant portrait of the late revolutionary.

Whatever the reasons, the Economics Correspondent suspects the communists’ admiration for Sun is for real.

First, Mao Zedong also openly lauded Sun as a great revolutionary.

There are also Zhongshan Parks everywhere in China, borrowing Sun’s mandarin name.

And on a personal note, the Correspondent witnessed more evidence when he visited Dr. Sun’s mausoleum in Nanjing many years ago. 

After climbing up a gazillion stairs there’s a large hall with a sitting statue of Sun much like the Lincoln Memorial.

Surprisingly, painted on the ceiling of the hall is a giant blue and white Nationalist Party star, the same symbol flown on today's Taiwan flag (see photo).

Sun’s sarcophagus is in a smaller room behind the main hall, a circular rotunda with his coffin lowered in the center, visible but inaccessible to viewers who are blocked by high stone handrails. But once again, the circular rotunda ceiling is blue with the white Nationalist star.

The CCP has had 75 years to erase the Nationalist star and replace it with the CCP’s hammer and sickle but hasn’t, in the Correspondent’s far-from-perfect estimation out of respect for Sun’s legacy.

Today the outstanding outlier regarding Sun’s standing is Taiwan’s ruling Democratic Progressive Party, or DPP, which has held power for the last eight years. The DPP shares no such enthusiasm for Dr. Sun.

Since the DPP not only believes in Taiwanese independence but doesn’t even consider Taiwan to be part of China politically, historically, or culturally, they have little interest in revolutionaries who fomented political change on the mainland.

And true to form Sun’s legacy has become a tangential lightning rod in Taiwanese politics.  Along with removing Chiang Kai-shek statues all over Taiwan and renaming Taipei’s "Chiang Kai-shek airport" to “Taoyuan airport,” the DPP has also tried to remove monuments to Sun, all to howls of protest by KMT officials.

Also at least two former KMT leaders have visited Nanjing to pay their respects at Sun Yat-sen’s burial site, both times with CCP approval and major controversy in Taiwan.

The first, Lien Chan, was greeted warmly by CCP officials when he landed in 2004—in contrast to his departure from Taipei where protestors threw eggs and called him a traitor.

The second, former Taiwan president Ma Ying-jeou, visited in 2024 leading to more DPP criticism. And so Taiwan’s domestic politics rages on.

"Greedflation" Math Gets an F

Click here to read the original Cautious Optimism Facebook post with comments

4 MIN READ - The Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff calmly shreds the latest left-wing accusations of food “greedflation”... with simple math.

Lately the “greedflation” crowd (i.e. anyone who doesn’t realize inflating the money supply by 44% in two years causes inflation) has resorted to some homespun “evidence” that greedy companies are responsible for jacking up food prices in particular on American consumers.

The attached meme about General Mills is an example the Correspondent came across posted by someone trolling a free market page.

Of course none of the quoted statistics, all designed to shock readers into thinking General Mills is greedy—dividend payments, stock buybacks, CEO pay, and net income, all of which happen every year regardless of whether annual inflation is 1% or 9%—have anything to do with whether or not inflation is impacting the company’s cost and pricing structures.

Well fortunately the Correspondent has a few decades worth of experience with something the greedflationists have evidently never looked at in their lives: publicly traded companies’ SEC filed finances.

In less than 60 seconds the Correspondent retrieved General Mills’ most recent SEC-filed annual report, the 10-K. 

The company’s consolidated income statement is at this link on page 42.

https://d18rn0p25nwr6d.cloudfront.net/CIK-0000040704/5ea56bcd-aa55-4648-9181-789bf48d4b2e.pdf

Generally accepted accounting principles lay out very simply how much General Mills, or any company for that matter, is charging customers (“net sales” or “revenues”) against how much they’re paying to procure the final product they sell to the same customers (“cost of sales” or “cost of merchandise”):

FY2021 Net Sales: $18.1B
FY2023 Net Sales: $20.1B ( +11.0%)

FY2021 Cost of Sales: $11.7B
FY2023 Cost of Sales: $13.5B ( +15.4%)

Yes that’s right, during the two worst years of America’s recent inflation General Mills had to pay 15.4% more for the goods they sold their customers, but they only charged 11.0% more.

In other words, their wholesale costs rose faster than their revenues and their gross profit margins shrank.

(On a side note, companies have additional costs they must pay out of gross profits that whittle their bottom line down to a smaller net profit. A list of those other costs, and why they aren’t a good gauge for measuring the effects of inflation, is available at the end of this article.)

Also two weeks ago a Cautious Optimism reader/commenter made a similar comment about the greed of grocery stores driving food prices higher.

The accusation was that “Kroger’s profits have risen 49% since 2021 and Publix’s profits are up 45% since 2022.”

Now the identity of the commenter is not important here, and even if it was in error (it was) civil discourse still helps us all arrive closer to the truth, even when social media tries to censor it.

But once again simply checking Kroger and Publix’s SEC-filed financial statements we can get to the heart of whether “corporate greed” is to blame.

Kroger FY2023 10-K, page 56

https://d18rn0p25nwr6d.cloudfront.net/CIK-0000056873/6b0fa036-24ed-4c1e-b7de-e02ca22d356c.pdf

Publix FY2023 10-K, page 20

https://www.publixstockholder.com/financial-information-and-filings/sec-filings/sec-document/%7BBCEFD003-67A2-4D13-AC7C-9FB8F0665AD3%7D/html

For Kroger:

FY2021 Net Sales: $137.9B
FY2023 Net Sales: $150.0B ( +8.8%)

FY2021 Cost of Sales: $107.5B
FY2023 Cost of Sales: $116.7B ( +8.6%)

So Kroger’s gross margin was virtually unchanged and hardly “49% higher.”

(For the record Kroger’s gross margin rose 1/6th of one percentage point in two years)

Now for full disclosure, Kroger’s “net profit” rose more sharply. Still not “49% higher” but net income did rise from $1.66 billion to $2.16 billion or up 30%.

But there’s more, and much more important, full disclosure: 

FY2021’s net results were depressed by Kroger’s one-time unrealized $821 million loss on its portfolio of investment securities. And FY2023’s net results were inflated by Kroger’s one-time unrealized $151 million gain on its same portfolio of securities, none of which have anything to do with price-gouging or greedflation.

So backing out the volatile movements of its securities portfolio, something Wall Street analysts do regularly, Kroger’s core business net income actually *fell* by 19% from FY2021 to FY2023 ($2.48B down to $2.01B).

The Correspondent suspects the commenter wasn’t aware of the standardized accounting and probably saw the “Kroger’s profit was up 49%” shock number on an ignorant left-leaning meme somewhere, or even less reliably from MSNBC.

Lastly there’s Publix’s 10-K finances.

The Correspondent thought it odd that Kroger’s alleged profit gain was “since 2021” but Publix’s was only “since 2022,” and his suspicions about cherry-picking years to manipulate a desired result proved warranted. 

Yes, as suspected Publix had a $1.262 billion one-time loss on its 2022 securities portfolio which artificially depressed its net income, providing the perfect platform for an impressive “gain” in 2023. Further boosting the "gain" was Publix's investment loss swung to an $863 million gain a year later.

But once you back out all those volatile one-time securities portfolio movements Publix’s net income also fell by 16% from 2022 to 2023 ($4.18B down to $3.49B).

And looking again at Publix’s much more meaningful gross metrics across two full years we get:

FY2021 Net Sales: $48.0B
FY2023 Net Sales: $57.1B (+18.9%)

FY2021 Cost of Sales: $34.8B
FY2023 Cost of Sales: $42.1B (+21.0%)

Publix’s cost of merchandise also rose faster than the prices they charged.

BTW Kroger’s 2023 final net income (adjusting for securities gains/losses) generated a net profit margin of 1.3%. Publix’s was 6.1%.

Publix seems to have a higher-margin business model, but neither company’s net margin is a portrait of “greed,” especially when considering liberal favorites Google, Facebook, and Netflix—all three of whom have lobbied the federal government heavily for favorable Net Neutrality regulations—enjoyed FY2023 net profit margins of 24.0%, 29.0%, and 16.0% respectively.

(links to their 10-K financials available on request)

Now the Correspondent is sure that if some greedflation loon turns over enough rocks he might find a consumer company or two out there among hundreds that really have expanded gross margins nicely in the last two years. After all, in any given period some companies are growing margins while others are narrowing.

But the larger point is that of the three consumer companies the Left has chosen to accuse online of massive greed, which in turn they blame for rising food prices, all three are a giant fail when analyzing what the greedflationists seem to have no clue about: standard corporate accounting. The Correspondent suspects if one looks at a larger number of other retail grocers and food companies, most will show similar results.

Because as Milton Friedman settled decades ago, but which most leftists refuse to learn from:

“Inflation is always and everywhere a monetary phenomenon…”

…and (in his words) inflation is not caused by “greedy businessmen” or “grasping trade unionists” or “spendthrift consumers” because…

“None of these groups possesses a printing press on which it can turn out those multi-colored pieces of paper you call money.”
=======
(Comment from the Economics Correspondent regarding additional corporate costs):

After gross profit companies typically subtract additional costs:

-Selling, general, and administrative
-Research and development
-Depreciation and amortization
-Interest expense
-Onetime gains and losses on asset sales and investments
-Corporate income tax

Most of these metrics, and the net income that results once they are all accounted for, are typically unreliable for measuring the impact of inflation on a company’s finances because they are highly variable from year to year.

For example interest expense can rise rapidly if a company takes on new debt one year, or if it refinances at a higher interest rate. It can fall rapidly if a company pays off its debt or rolls over debt to a lower interest rate.

SG&A expense can rise or fall rapidly one year to the next if a company decides to undertake a new marketing campaign or wind down an old one.

Depreciation and amortization can rise rapidly if a company buys a lot of capital assets and suddenly has new depreciation to log.

Income tax expense can vary wildly if a company defers taxes by a year or two.

There are other examples but you get the idea.

For measuring “greedflation” there are no better metrics than topline net sales/revenues and topline gross cost of sales.

2023: San Francisco Shoppers Finding Human Waste in Downtown Mall Elevators

Click here to read the original Cautious Optimism Facebook post with comments

"Shoppers are getting a foul surprise."
-KGO Channel 7 San Francisco

"Must've been those San Francisco white supremacists again."
-Cautious Optimism Left Coast Correspondent

Admittedly this story is a year old, but the Left Coast Correspondent has visited this downtown mall many times and it's an absolutely beautiful building.

Was.

Not only is the mall now 90% vacant, an eerie ghost town inside, but evidently some locals have found the privacy of its elevators a convenient place to pay fertile tribute to San Francisco's successful left-progressive policies.

San Francisco Mayor London Breed, who defunded the police in 2020 and is now backpedaling to keep her job in November, has proposed tearing down the mall and replacing it with a soccer stadium.

At least the local tribute will be better for grass than elevator flooring.

Watch more on KGO News below.

A Political and Economic History of China, Part 22: The Boxer Rebellion of 1900

Click here to read the original Cautious Optimism Facebook post with comments

6 MIN READ - As part of his continuing history of China series, the Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff discusses a seminal upheaval during the last years of its last dynasty.

Western troops defend Beijing's diplomatic
legations from the Boxer siege

As the turn of the 20th century arrived China’s hopelessly corrupt Qing dynasty, which had ruled the country for 256 years, was in the twilight of its power. China was backwards, its economy, military, and institutions decades behind the western powers and Japan. The country was run by the reactionary, xenophobic, and corrupt Empress Dowager Cixi, and the periphery of the empire had been carved up by the likes of Great Britain, France, Germany, Russia, and Japan.

Against this backdrop a bizarre and unlikely uprising would make history: the Boxer Rebellion.

Full disclosure: the Economics Correspondent has never been that enamored with the Boxer Rebellion of 1900, but the incident has fascinated historians for over a century and Hollywood even produced a 1963 film about it starring Charlton Heston, Ava Gardner, and David Niven (“55 Days at Peking”). So regardless of the Correspondent’s lukewarm interest in the subject, the Boxer Rebellion is viewed as a major historical event and warrants a column.

THE BOXER SOCIETY ORIGINS

Of the many Chinese secret societies that emerged in the 19th century, a peculiar one known as the “Society of Righteous and Harmonious Fists” would soon gain international notoriety. This society, better known as the Boxers due to their practice of martial arts, was nearly unique in that it was dedicated not to overthrowing the Qing dynasty but instead expelling all foreigners from China.

For decades the “unequal treaties” that had ceded Chinese territory to the western powers and established western trading ports, the growing presence of westerners and their strange clothing and strange culture, legal extraterritoriality for westerners, and in particular the construction of western churches on Chinese soil all became points of resentment among the Chinese population at large. Even as a modest 100,000 Chinese had converted to Christianity, baseless rumors began circulating of Christians kidnapping Chinese babies for sacrifice rituals and even ending their ceremonies by eating the babies themselves.

By 1899 Boxer organizations began agitating for openly attacking westerners and destroying western property with the goal of driving foreigners out of China completely.

The Empress Dowager Cixi, when briefed on the growing numbers and belligerence of Boxers across China, hesitated to either suppress or support them.

Given her initial hands-off policy, Boxer aggressiveness increased and erupted into nationwide violence by 1900. Chinese Christian converts were attacked and killed by the thousands. Churches were burned down and dozens of westerners beheaded. The Boxer slogan justifying it all was “Support the Qing government and exterminate the foreigners!”

IMPERIAL SUPPORT

Soon the violence spread to the capital city of Beijing. 

Cixi, watching from her balcony in the Forbidden City, could barely contain her pleasure at the sight of smoke billowing from western churches and the sounds of chaos emanating from the surrounding city. Cixi always hated the presence of westerners in China but until now had been powerless to evict them. Seeing the Boxers as a means of finally ridding herself of the westerners she threw her full support behind the rebellion, urging the Boxers to expel the barbarians once and for all and declaring:

”The Boxers… …are men of the people… …When these troubles are over we intend to bestow on them special marks of our favor. Let these people’s soldiers still continue, with united hearts and utmost efforts, to repel aggression and prove their loyalty, without failing, to the end.”

The Boxers also claimed that their martial arts calisthenics made them impervious to western bullets.

To demonstrate their magical powers one of Cixi’s generals lined several Boxers against a wall in the Forbidden City, and when shot with rifles the Boxers predictably crumpled and died. Then, in a fatal application of the no true Scotsman fallacy, the general explained that “they must not have been real Boxers” or “the true Boxers will return from the dead and fight the foreign devils.” 

So the rebellion continued, culminating in a Boxer siege of the Beijing Legation Quarter that housed the diplomatic offices of ten western countries plus Japan.

Meanwhile the western powers, hearing reports of tens of thousands of Chinese Christians, hundreds of westerners, and dozens of priests and nuns being killed in Beijing alone, unified to defeat the Boxers and relieve the Legation Quarter from its siege. Eight nations, some of which were adversaries, joined forces to form the “Eight Nation Alliance” representing Britain, France, the United States, German Empire, Austria-Hungary, Italy, Russia and Japan.

Gathering 54 warships the Alliance landed approximately 19,000 troops in Tianjin who fought their way to Beijing. Killing thousands of Boxers and Qing army regulars along the way, the combined western armies reached the capital a month later to relieve the Legation Quarter which had successfully held out.

With the tide turning against the rebellion Cixi about-faced, declaring the Boxers had risen up without authority and the Qing government had done everything in its powers to protect foreigners. In letters to the governments of France, Germany, and the United States she portrayed herself as a victim of circumstance, opposed to the raucous Boxers whose violence had spread beyond her ability to control:

”We have repeatedly issued edicts to protect the Ministers of the different countries. We have also ordered the missionaries in the various provinces to be protected.”

Then Cixi and the imperial court fled Beijing. As they left the prisoner emperor Guanxgu’s favorite concubine Zhen, who Cixi had always hated, pleaded with her to stay in the capital to help negotiate with the western powers. Enraged, Cixi ordered the palace eunuchs to throw Concubine Zhen down a water well where she drowned. The Correspondent has visited “The Well of Concubine Zhen” in the Forbidden City along with the exhibit telling her tragic tale.

Cixi and her officials retreated deep into the western province of Shaanxi to hide from the allied armies. Only later, when she learned the allied retribution would not fall upon her personally, did Cixi return to the Forbidden City, thanking the western powers for saving both her and China from the unruly Boxers.

AFTERMATH

As with so many previous western conflicts, the Chinese defeat produced another unequal treaty. However, unlike the others China was not required to cede territory this time (although Russia had used the opportunity to seize the all-weather port of Dalian, know then as Port Arthur) but the Qing government was required to make another huge indemnity payment to all the allied powers.

The United States received a large payment of $30 million, but Secretary of State John Hay argued the reparations were too large. President Theodore Roosevelt, understanding he lacked constitutional authority to forgive debt either for foreign governments or 35-year old college grads with useless degrees, convinced Congress to return $10.8 million to China but, given the Qing government’s reputation for corruption, under the condition the money be spent to found a new, modern learning institution: Qinghua University in Beijing (Wade-Giles: Tsinghua).

Today Qinghua is arguably the most prestigious university in China and accepts only the highest echelon of students.

The Economics Correspondent has wondered if the top young minds of China are even aware that the elite school they attend was financed by the United States’ refusal to accept such a large payment during China's “century of humiliation” at the hands of the West.

Not having visited Qinghua while in Beijing but checking Qinghua’s website, specifically the “About” and “History” pages, there is no mention of American funding on either the English or Chinese language sites, only the following passage:

”Tsinghua University was established in 1911, originally under the name ‘Tsing Hua Imperial College’. The school was renamed ‘Tsing Hua College’ in 1912. The university section was founded in 1925. The name ‘National Tsing Hua University’ was adopted in 1928.”

Omitting any positive role for the United States is consistent with the propaganda strategy the Correspondent mentioned in a previous column on the ruins of Beijing’s Old Summer Palace: the CCP’s primary objective is to maintain as large a popular reservoir of animosity and resentment as possible towards western countries. Disclosing that the United States paid for the founding of China’s most prestigious university, all for the betterment of its younger generation and the nation’s modernization, counteracts that goal so it comes as no surprise that such an essential part of Qinghua’s history has been stricken from the school’s webpage.

A Political and Economic History of China, Part 21: The Empress Dowager Cixi and the Qing dynasty’s closing years (1861-1908)

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 examines the Empress Dowager who ruled China for nearly the last fifty years of the Qing dynasty's ultimate decline.

After the feeble Xianfeng emperor died age 30 in 1861, China would be ruled (officially) by three more emperors ending with the Qing dynasty’s collapse.

However none of the three ever wielded real power since all throughout China was actually ruled by Xianfeng’s widowed concubine… who was also mother of the heir to the throne.

It was no accident that the Empress Dowager Cixi gained and held onto power for 47 years. She used considerable ambition, intelligence, cunning, and ruthlessness to secure her position as supreme ruler. She also skillfully manipulated the circumstances and often resorted to illegality to hold it.

She was also very bad for China, something we’ll get to in a moment, and it’s no accident that the final decline of the Qing dynasty coincided with her reign.

But first let’s get the question of her name out of the way.

“Cixi” is one of only a handful of unintuitive pinyin pronunciations and a rare case where the old Wade-Giles romanization system is more accurate than pinyin. 

In Wade-Giles, her name is spelled “Tzu Hsi,” a better match.

Either way, the pronunciation is “tsuh shee” because the letters “ci” in pinyin are pronounced “tsuh” and “xi” is pronounced like the current CCP president, Xi Jinping; or “shee.”

Cixi was born a lesser noblewoman from a minor Manchu clan in 1835. Her first lucky break was an imperial order: report to the Forbidden City as a candidate in the selection process for the Xianfeng emperor’s empress and concubines.

The “matching” was an arranged marriage process, with the “arrangers” being court astrologers who used the stars and other propitious signs to make their selections.

Cixi didn’t fare too well, selected only concubine of the fifth rank, far below the empress and several levels of upper concubines. Her younger sister fared worse, selected as a concubine for one of the Xianfeng emperor’s half-brothers.

Even at an early age, observers noted that Cixi was highly intelligent with a strong will and ambition, and it didn’t take long before the emperor was calling on her evening company repeatedly (recorded in the book of concubine “visits” that matched subsequent pregnancies with likely dates of conception). 

Although it has never been proven, rumors swirled within the Forbidden City that Cixi bribed palace eunuchs to mention her favorably to the emperor.

However what is definitely known is the emperor enjoyed Cixi’s company since, unlike the empress and other concubines, she could converse fluently with him about politics, foreign affairs, and economics after their intimate activities were over.

Then Cixi’s really big break came. She gave birth to the emperor's first son which instantly elevated her status. Being mother of the heir to the throne, Cixi was now outranked only by the empress herself who had little head for politics and affairs of state.

During the Taiping Rebellion Xianfeng fled the Forbidden City to his autumn hunting resort where he fell into depression and drank himself to death. Cixi brought Xianfeng’s young son to his deathbed and made sure he proclaimed the boy next emperor. She had also long been plotting with high-ranking Qing officials, building a coalition of allies within the imperial court.

With the emperor now dead, Cixi left the lengthy funeral rituals a few days early, returning to the Forbidden City while the highest ranking regents completed the ceremony. Several days later when the officials entered Beijing they were surprised to learn Cixi and her allies had plotted a coup, fabricating trumped up accusations of treason leading to several of their executions.

She then declared her five-year old son the new Tongzhi emperor, but as he was too young to rule she conveniently appointed herself and Xianfeng’s widowed empress as co-regents. Of course the widowed empress was completely in over her head with affairs of state and deferred to her “co-regent,” an outcome Cixi had undoubtedly plotted from the beginning.

As the Tongzhi emperor entered his teens he gained a reputation for debauchery, drink, and visiting brothels. There were even rumors of opium use. He contracted smallpox at age 23 and died before producing an heir. 

Again, unconfirmed rumors swirled that Cixi had introduced her own son to the hedonistic lifestyle and encouraged his indulgence in the hope that he would die before having a son of his own. A male heir would have transferred power away from Cixi in favor of the new boy emperor’s mother.

And so Cixi continued with a pattern that would repeat itself to the end of her life: devising ways to strip young male emperors of power before they could produce heirs and replace them with another powerless boy emperor.

In 1875 Cixi selected her nephew (her younger sister’s son) as the Guangxu emperor, an illegal act itself that defied centuries of Qing tradition, but it kept real power in her hands.

Guangxu neither adopted hedonism nor contracted smallpox and once he came of age attempted to exert imperial power with a massive modernization/reform movement. Cixi staunchly opposed the reform movement but Guangxu made things easy for her, for the young emperor was actually quite naïve in trying to change all of China in 100 days which made him many enemies in the Qing government.

Once she had secured enough opposition to the reforms Cixi accused the young emperor of treason, staged a coup, and had him placed under house arrest where he remained until the end of his short life.

In her final years Cixi, realizing her own mortality was near, elevated another boy to emperor in 1908, the three year old Puyi who was made famous by the 1987 movie “The Last Emperor.” The Guangxu emperor died the night before Puyi was named successor and Cixi died the next day.

It’s no coincidence that Guangxu died right before Cixi. The reported symptoms, which included violent vomiting spells and blue skin color, were consistent with poisoning. A 21st century forensic study of his remains found arsenic levels 2,000 times higher than normal in his body.

Cixi had plenty of motive to order Guangxu's murder, for when she died he would finally be free from house arrest, assume the throne again, and carry out the ambitious reforms that she had so strongly opposed. Poisoning him right before she died guaranteed he wouldn’t get the chance.

CIXI’S IMPACT ON CHINA

On policy, Cixi was generally horrible for China. A staunch reactionary who viewed all foreigners as inferior and who wished to expel as many from China as possible, Cixi rejected most attempts to modernize the country, supremely confident in her belief that the inherent superiority of Manchu/Chinese culture alone could overcome all economic and military challenges posed by the foreign powers.

Cixi did have a few foresighted advisers who, through years of persistent but careful advice, convinced her to adopt a few modest reforms (the most famous being the “Self Strengthening Movement”), but she always cut them short of achieving their final goals, keeping China hopelessly behind the outside world.

Perhaps the most famous example was government funds allocated for modernizing the military. Cixi, as corrupt as she was cunning, diverted a great deal of the money to her Summer Palace resort where she built a giant “marble boat,” actually a pavilion made of wood painted to look like marble, but with fancy glass and underwater contraptions that cost a small fortune. The “boat,” which didn’t really float, was built to entertain guests and throw lavish parties, depriving the real navy of badly needed funds.

Ironically just one year later the Qing Navy was routed by the Imperial Japanese Navy at the Battle of Yalu River (actually in the Sea of Japan at the mouth of the river). After several key land defeats Qing China was forced to cede yet more territory at the Treaty of Shimonoseki (1895), this time to Japan: the Korean peninsula, Taiwan, and the Liaodong peninsula in Manchuria, although France, Germany, and Russia intervened to reverse the ceding of Liaodong.

Japan would go on to colonize and administer Korea and Taiwan until the end of World War II.

And it wasn’t just Japan that continued carving up China during Cixi’s reign. Germany got in on the action and wrestled away the peninsular province of Shandong which contains the capital city of Qingdao.

On a side note Qingdao, when romanized using Wade-Giles, is also spelled “Tsingtao” which might look familiar to some CO beer enthusiasts.

When the Germans occupied Shandong they noticed there were no beer brewing facilities around so, being Germans, they quickly built their own in the provincial capital of Qingdao: the same Tsingtao beer that some CO readers might drink today. More than a century later Tsingtao is a publicly traded company on the Hong Kong Stock Exchange whose major shareowners include, ironically enough, Japanese-owned Asahi Breweries, the Chinese government, and for a while Anheuser-Busch.

France also fought a brief war with China in the 1880’s over disputed territory in Vietnam. Although victory was slower in coming, France was finally awarded the territory which ultimately led to its expansion and complete colonization of Vietnam.

All throughout Cixi’s years in power China fell further and further behind the West, Russia, and Japan while she stymied her advisers’ efforts to modernize the country. China was slowly carved up by foreign powers which grabbed more and more of its territory, mostly on its periphery.

Historians have made some comparisons between Cixi’s reign and that of Queen Victoria: two female monarchs in an age where women rarely wielded power, both sovereigns of major world powers. Victoria sat on the throne from 1837 to 1901 (63 years) and Cixi from 1861 to 1908 (47 years).

But that’s about where the similarities end. 

Victoria deferred to representative parliamentary government which in turn embraced global trade, mass industrialization, new technologies, and forged the British Empire into a global hegemon. Cixi held singular power and with it tried to close China off from the world, overseeing the accelerating decline of what was once a great power.

In the next chapter we’ll discuss the final end of the Qing dynasty, right after the notorious Boxer Rebellion.

M2 Money Supply vs CPI Inflation

Click here to read the original Cautious Optimism Facebook post with comments

From the Cautious Optimism Correspondent for Economic Affairs: Declining M2 money supply (red) vs. rising CPI price index (blue) since January 2022.

A Political and Economic History of China: Part 20: The Taiping Rebellion of 1851-1864 (2 of 2)

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 concludes his two-part series on China’s Taiping Rebellion, the bloodiest civil war in history with a body count exceeded only by World Wars I and II.

The siege of Nanjing (1864)

Before finishing the story of the great Taiping Rebellion, the Economics Correspondent would like to recommend two sources.

First, for those who missed the opening of the greatest Chinese civil war and its early battles, you can go back to Part 1 at:

https://www.cautiouseconomics.com/2024/05/china-history19.html

Second, for anyone interested in a much more detailed account of the Taiping Rebellion the Correspondent can recommend a fantastic book.

Stephen R. Platt’s “Autumn in the Heavenly Kingdom”(2012) is not only a magnificent account of the Taiping Rebellion’s final years, it’s also one of the best books on Chinese history the Correspondent has ever read and in his opinion the most beautifully written.

With those two suggestions out of the way let’s continue with the conclusion of the civil war that from 1851 to 1864 killed at least 20-30 million Chinese.

GENERAL ZENG AND THE QING RECONSTITUTION

As fighting raged between the bizarre, erratically-led Taiping rebels and the equally corrupt, unsteady Qing dynasty many top imperial generals were killed in battle. As replacement the Qing court elevated a competent commander who had previously languished behind the Taiping’s lesser flanks in a remote province.

Zeng Guofan (pronounced “zuhng gwoh fahn”), one of the classic Confucian scholar-soldiers of that age, was a frail ethnic Han Chinese from Hunan province. Making a name for himself with several small victories in southern China, he was called upon by the Xianfeng emperor himself to assume a leading role in the war. 

Zeng had little love for the alien Manchus and hesitated at the offer. Should he go down in history as the Chinese general who squelched a rebellion of his own Chinese countrymen?

But after seeing the animalistic slaughter launched by the Taipings, their indifference to the death and destruction laying China to waste, and their bizarre religion, economics, and politics, Zeng concluded China would descend into utter chaos under Taiping rule. Zeng was particularly alarmed to see the Taipings sweep away thousands of years of Chinese tradition replaced with their freakish society, in contrast to the Qing who embraced and promoted Confucianism. He made the thorny choice to side with stability over chaos and agreed to the promotion.

The incorruptible Zeng’s reform of the dilapidated military became legend in 19th century Chinese lore, and soon his “Standard Green Army” was winning major victories against increasingly confused Taiping forces. The emperor was pleased although his advisors fretted that a powerful army under non-Manchu leadership might pose a threat to Qing rule after the war.

On a side note Zeng’s protégé, the younger general Li Hongzhang who outlived Zeng by nearly thirty years and inherited his top command, had a major impact on post-Qing China. Although we’re getting a bit ahead of ourselves, as the post-Taiping Qing fell further into disarray—losing more territory to foreign powers while hopelessly plagued by corruption—the central government lost its ability to rule China’s outer provinces. Li’s military hierarchy filled the gap when he installed regional military governors who reported directly to him.

In the chaos of the Qing's swift and unexpected 1912 collapse, eleven years after Li’s death, regional military governors exerted greater authority over their provinces and China descended into the so-called “Warlord Era.”

Known well to Chinese historians, the Warlord Era’s precursors hail all the way back to the Taiping Rebellion when, at war’s end, a fully retired Zeng handed his generalship to Li Hongzhang who in turn unwittingly molded the order that would split China into bickering fiefdoms half a century later.

WESTERN HELP FOR THE QING

Britain and her allies fought the brief “Second Opium War” against China from 1856 to 1860, the middle two years being quiet while peace negotiations dragged on. An ultimate allied victory awarded Britain new trading ports, the territory of Kowloon, the legalization of Christianity throughout all of China, and new rounds of war reparation payments.

With the new treaty signed British attitudes began to side with the Qing.

As we noted in the first installment, both the British public and Parliament quickly learned they had little in common with the allegedly “Christian” Taipings whose bizarre version of the religion more resembled the early Ottoman Empire. The Taiping’s communist economics and wholesale slaughter of civilians won them no adoration from the west either.

(Unsurprisingly Karl Marx, exiled by Germany to London at the time, wrote in the newspapers that the Taipings were fighting for revolutionary class struggle and their victory would trigger the inevitable final collapse of British capitalism—two more things he got wrong) 

Moreover Britain worried about the security of both their old and newly won treaty ports, several of which Taiping armies were menacingly close to overrunning on the eastern Yangtze.

And lastly, the Qing government had just committed to years of monetary reparations for the Second Opium War giving Britain another reason to side with the incumbent rulers. Parliament feared a new Taiping government might not honor compensation agreements made by a defunct Qing dynasty.

Britain didn’t declare outright war on the Taipings, nor did it commit large numbers of troops, but Parliament did approve material aid including the sale of modern riverfaring warships and western guns. Most famous of all was battlefield leadership under British Major Charles Gordon, the very same Gordon who had partaken in and witnessed the looting and burning of the emperor’s Summer Palace in 1860.

(Gordon is such a colorful historical figure that Hollywood made a rather average action film about his adventures in Sudan, played by a very un-English sounding Charlton Heston)

American mercenary general Frederick Townsend Ward, a hothead alcoholic commanding the Qing “Ever Victorious Army,” was killed by a Taiping bullet in 1862. The Qing, who detested Ward’s drunkenness and temper, asked Britain for a more agreeable replacement leading to Gordon’s assignment.

Gordon himself had grown a deep personal affection for China and its culture, and he was heartbroken seeing the devastation, poverty and suffering of the Chinese people that only worsened during the war. Teaching Ward’s unruly troops discipline, well-honed fighting techniques, and enforcing strict ethics (which included, ironically, orders not to loot the local population) Gordon cemented the legendary Ever Victorious Army’s reputation, capturing hundreds of Taiping-controlled cities and reportedly never losing a battle.

Qing general Li Hongzhang, who we’ve already mentioned, extolled Gordon, writing…

”It is a direct blessing from Heaven, the coming of this British Gordon. ... He is superior in manner and bearing to any of the foreigners whom I have come into contact with, and does not show outwardly that conceit which makes most of them repugnant in my sight... What an elixir for a heavy heart to see this splendid Englishman fight! ...If there is anything that I admire nearly as much as the superb scholarship of Zeng Guofan, it is the military qualities of this fine officer. He is a glorious fellow!”

At war’s end the Qing government bestowed Gordon the equivalent rank of field marshal, dressed him in full mandarin regalia, and granted him the honorary “Imperial Yellow Jacket” reserved for only forty men in all of China—namely, the emperor’s ceremonial bodyguard.

Throughout his string of military victories Gordon was offered financial gifts from royalty and merchants alike but the incorruptible Englishman always refused, writing "I know I shall leave China as poor as I entered it, but with the knowledge that, through my weak instrumentality, upwards of eighty to one hundred thousand lives have been spared. I want no further satisfaction than this." Gordon’s achievements were widely reported in the British press where he gained the nickname “Chinese Gordon.”

Maj General Charles Gordon

Between Zeng Guofan and Li Hongzhang’s reinvigorated armies, British material assistance, Charles Gordon’s direction, and a little help from American mercenaries the Qing government finally got the upper hand on the Taiping. They also got help from the Taipings themselves whose top generals, coping poorly with their reversing fortunes, turned on one another. They also turned on Chinese peasants alongside the long-plundered landlords, alienating the masses through widespread looting, scorching and burning of villages and brutally massacring innocents.

Qing forces retook strategic cities on the Yangtze River and eventually laid siege to the Taiping capital of Nanjing. After several months of starvation and disease within the city walls, Nanjing finally fell. Hong Xiuquan’s body was found dead, poisoned either from eating noxious weeds or suicide. What few Taiping officials survived were interrogated by the Qing, then tortured and slowly killed, their remains finally blown out of cannons to prevent their entering heaven.

After fourteen years and 20-30 million deaths the Taiping Rebellion was officially over, but the Qing Dynasty was forever changed and weakened.

HONG A HERO, ZENG A TRAITOR: ZENG A HERO, HONG IN LIMBO

To conclude the Taiping Rebellion story, we’ll touch on how China regards two of its key figures today.

During the Chinese Communists’ years fighting Chiang Kai-Shek’s Nationalists, Mao Zedong openly revered Hong Xiuquan who he viewed as a fellow Marxist. Hong, like Mao, was also a peasant from the south fighting the hopelessly corrupt Qing dynasty, just as the CCP was rebelling against the corrupt Nationalist government.

Although Mao complimented Zeng Guofan’s military prowess, he nevertheless condemned the general as a traitor for siding with the alien Qing imperialists against his fellow Chinese who harbored primitive but virtuous communist ideals.

In the 21st century the CCP’s views on the Taiping Rebellion have “evolved.”

Zeng Guofan is now hailed as a hero. China, according to the modern version of history, would have fallen into chaos under the Taiping rebels and Zeng made the agonizing but correct decision to side with the government to “preserve stability.”

Hong Xiuquan, on the other hand, was a strange religious mystic similar to today’s Falun Gong. His attempt to usurp the government wrought widespread devastation which in turn invited further encroachment upon China by imperialistic foreigners. Now his legacy is “debated.”

(Never mind that Mao Zedong heaved China into his own destructive chaos during the Cultural Revolution, seeking to annihilate all vestiges of Chinese history and tradition just like the Taipings. Mao also preyed upon countless young women in his Zhongnanhai government compound, paralleling Hong’s bizarre orgies in his Nanjing palace.)

Now that the corrupt establishment is no longer Chiang Kai-Shek’s Nationalists but rather the CCP, the new dynasty no longer condones troublesome insurgents. “Stability” is paramount to revolution. Hong, a hero when the communists were the rebels, is now ambiguous. Zeng, a traitor when the Nationalists were the establishment, is now a patriot.

A Political and Economic History of China: Part 19: The Taiping Rebellion of 1851-1864 (1 of 2)

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 devotes a special two part mini-series to the bloodiest civil war in history with the third greatest death toll of any conflict, trailing only World Wars I and II.

The Economics Correspondent has so far focused parts 11 through 18 of his history of China on the last imperial dynasty: the Qing (1644-1912, pronounced “ching”).

The Qing were actually not even Chinese but ethnic Manchurians who swept on horseback from the northeast to capitalize on the civil war raging between the declining, corrupt Ming dynasty and peasant rebels. After conquering China in 1644 the Qing, being alien outsiders, were disliked by their majority ethnic Han Chinese subjects. However after the enlightened rule of emperors such as Kangxi (1661-1722), Yongzheng (1722-1735), and for a while Qianlong (1735-1796) the Chinese reluctantly accepted their new masters' legitimacy.

By the 1790s rising taxes, government corruption, and a declining economy revived resentment among Chinese and several mid-sized rebellions erupted.

Complicating matters were the two “Opium Wars,” with Britain and later France and Russia, which exposed the Qing leadership as impotent in face of the “big nosed barbarians.” The ineffectual Qing was forced to cede territory including Hong Kong and Kowloon (Britain), one million square kilometers of Manchuria and Xinjiang (Russia) and foreign concessions in several port cities (all the above plus France and the United States).

As the 1840’s progressed, life for the average Chinese deteriorated further. Poverty, opium addiction, even sporadic famines were common, and Qing administration was hopelessly stymied by corruption.

JESUS’ CHINESE BROTHER

It was against this backdrop that a poor peasant from Guangxi province—extreme south China, bordering Vietnam—would see a vision that would change history.

Hong Xiuquan (pronounced “hong shiew chwen”) had applied several times for an administrative position in Qing government, at the time a good career that could raise his impoverished family’s fortunes. But the civil service examination was notoriously difficult, requiring applicants to study the Confucian classics day and night to pass the ridiculously exhaustive test.

Hong failed four times and broke under the stress of his third attempt, suffering a nervous breakdown that cast otherworldly visions, both waking and sleeping. In a repeating dream Hong saw himself before an old bearded man on a throne who complained Chinese were worshipping demons instead of himself. He handed Hong a shield and sword, ordered him to go forth and kill every Manchurian demon in China and establish a new religious Chinese dynasty. Standing beside Hong was a younger bearded man in a robe.

For several years Hong believed the old man was Confucius, but upon reading a Christian missionary pamphlet years later the meaning of his vision became clear: Hong concluded he had been commanded by the Christian God, that the younger man standing beside him was Jesus, and that he was Jesus’ younger brother.

Hong began preaching in rural Guangxi, declaring himself God’s son and promising a new Christian dynasty rid of Manchus, run by and for Chinese. He called it the Taiping Tianguo (“Great Peaceful Heavenly Kingdom”), referred by contemporaries and historians both as simply the Taiping.

The blighted landscape of poverty and Qing corruption provided fertile ground for Hong’s revolutionary crusade and tens of thousands of peasants flocked to his proclaimed holy war: the Taiping Rebellion.

QING RETREAT

Soon Qing officials heard word of a religious peasant rebellion stirring in the southern provinces and sent troops to investigate.

By 1850 the Qing armies were a shell of their former selves. No longer were they the valiant horsemen and archers who had conquered China two centuries prior. Starved for funds, corrupt, and led by incompetent officers who achieved their ranks through bribery or graft, the Qing troops were defeated time and time again by fanatical Taiping armies.

So incapable was the Qing military that upon sighting Taiping armies its troops would simply run away. After Taiping forces had vacated the area, Qing soliders would enter the villages, slaughter the local civilians, dress their corpses in Taiping clothing, and report a great victory with impressive numbers of enemy casualties.

Of course none of this quelled the rebellion and by 1853 the Taipings, now numbering millions, had conquered most of southern China and seized the ancient Ming capital of Nanjing where Hong established his heavenly kingdom’s new capital and royal palace. The Taipings also controlled most of the Yangtze River valley and with it much of China’s commerce which the Qing government relied on for tax revenues. With so much momentum on their side, Hong’s newly appointed generals (which he called “kings,” subordinate to his “heavenly emperor’s” throne) launched an audacious offensive to take Beijing itself.

Initially the Taiping armies advanced north rapidly, but they failed to secure supply lines or take any cities along the way. As they neared Beijing the hopelessly incompetent emperor Xianfeng fled north to his Manchurian autumn hunting resort, but the Taipings made a serious error diverting resources to seize Tianjin before Beijing. This gave Qing generals time to gather more troops and, after two years of stalemate, Taiping forces were pushed back from northern China.

It’s hard to convey in one article how brutal each side of the war was to the other, how indifferent both were to the suffering of the people, and the scale of the devastation wrought by nearly fifteen years of civil war. Qing troops tortured and massacred the “longhairs” (named so because they refused to shave their heads as required by Qing law), then blew their remains out of cannons to prevent them from reaching the afterlife. Taipings, believing all Manchus were literally “monsters” or “demons,” mercilessly slaughtered any in their path including civilian women and children.

As fighting raged in China’s most fertile and populated regions, the violence laid waste to food production bringing hunger, disease, and death to tens of millions of everyday Chinese. Touring the countryside British geological surveyor Thomas Kingsmill witnessed...

”During [the civil war’s] continuance smiling fields were turned into desolate wildernesses; fenced cities into ruinous heaps. The plains of Jiangxi and Zhejiang [provinces] were strewn with human skeletons; their rivers polluted with floating carcasses; wild beasts descending from their fastnesses in the mountains roamed at large over the land… …No hands were left to till the soil; and noxious weeds covered the ground once tilled with patient industry.”

During the dark years of chaos and destruction many Chinese fled the country altogether, creating a global diaspora. Mass Chinese immigration to California during the 1850’s and 1860’s was largely compelled by the violence of the Taiping Rebellion.

THE WESTERN DILEMMA

Once the Taiping secured enormous territorial gains its more enlightened officials, notably Hong’s cousin Hong Rengan who had lived among westerners in Hong Kong, made diplomatic overtures to the European powers for assistance overthrowing the Qing.

Hong Rengan envisioned a modern Chinese state with western institutions, capital markets, railroads, foreign investment, and permanent diplomatic ties to the European and American powers.

Unfortunately the Taiping Kingdom reflected little in practice of this progressive vision. Once settled in Nanjing, “God’s son” Hong Xiuquan constructed a cultish, dictatorial state based on mysticism and proto-communism. Men and women were kept separate with most contact harshly punished, even between husband and wife, while the Chinese Messiah and his highest officials secluded deep inside the imperial palace, retreating into bizarre rituals that usually involved orgies with countless servant women.

Land and property were seized from private citizens for the alleged equal betterment of all, yet Hong lived in splendor while the average Taiping citizen was no better off than under the corrupt Qing. In many respects the proto-communist Taiping presaged the twentieth century Marxist dictatorships with poor masses living under the iron boot of a police state while the political elite lived out a regal “some animals are more equal than others” existence.

Initially word got back to Britain of heroic Chinese Christians rising up against their corrupt and alien Qing conquerors. Most Parliamentary and public sentiment sympathized with the rebels and there was debate over whether Britain should intervene on the Taiping’s behalf.

However once firsthand reports began flowing in describing Taiping society in detail—their merciless massacre of civilians, their medieval dictatorship over men-women relations, their very uncapitalistic state seizure of private property, and their bizarre religious rituals that bore no resemblance whatsoever to western Christianity—public sympathy waned. The British began to feel they had far less in common with these “Christian” Chinese than originally thought.

Meanwhile the Qing, who had always treated Europeans as primitive “hairy, big-nosed barbarians,” began appealing to the western powers for some help of their own. Facing the very real prospect of their dynasty’s end, the Qing court even solicited help from American politicians in the early 1860’s, framing their struggle with insurrectionists as common cause with the Union government. 

The now-late Xianfeng emperor’s half-brother Prince Gong told U.S. minister to China Anson Burlingame:

“It appears from this… …that by the rebellion of the southern parts of the United States against their government, your country is placed very much in the same position that China is, whose seditious subjects are now in revolt against her.”

In a bid to win Abraham Lincoln’s favor the Qing even closed off ports to ships flying the confederate flag but ultimately received no military support from the U.S. government, only private volunteers and professional mercenaries.

Britain, however, wrestled with which side, if any, to take. There was no love lost for the Qing government, whose high-browed dismissal of white “barbarians” had kept them out of Chinese markets for decades and even led to the First Opium War. But London found it impossible to support the Taipings either, with their bizarre version of Christianity, brutal and wholesale slaughter of all Manchus, and communist seizure of private property.

The Second Opium War would inform their final decision which we’ll save for the concluding installment.

Postwar "Greedflation" Chart

Click here to read the original Cautious Optimism Facebook post with comments

Expanding on CO's "greedflation" post, the Cautious Optimism Economics Correspondent submits yet one more among dozens of reasons why "price gouging" is neither responsible for the Biden-era inflation nor any other inflation in history.

Photo: Hyperinflation in Weimar Germany

Click here to read the original Cautious Optimism Facebook post with comments

h/t from the Cautious Optimism Correspondent for Economic Affairs to "Free Banking." (Facebook)

Photo caption: "1923. A woman uses banknotes to light her stove during hyperinflation in the Weimar Republic (Germany)."

A Political and Economic History of China: Part 18: The Second Opium War and Burning of the Summer Palace

Click here to read the original Cautious Optimism Facebook post with comments

7 MIN READ - The Cautious Optimism Correspondent for Economic Affairs continues his series on Chinese history during the Qing dynasty and Great Britain’s razing of an imperial palace that still burns up (forgive the pun) many Chinese even today.

British and French troops loot and burn the Summer Palace

In the last column we discussed the events leading to China’s First Opium War with Britain (1839-1842).

The Qing Dynasty, hopelessly outmatched by modern British naval forces, capitulated at the Treaty of Nanjing where it ceded what London had sought for half a century: five new trading ports and less Chinese import protectionism. Britain was also granted the island of Hong Kong, monetary war reparations, the right to build Christian churches in treaty ports, and legal extraterritoriality for British subjects.

Upon hearing the news France and the United States rushed to negotiate their own separate treaties which established the so-called American and French “concessions” in treaty ports like Shanghai. Yet despite its defeat and weak position the Qing continued to resist additional contact or imports from foreigners by any means possible.

Compounding the Qing’s obstinance was a basic misunderstanding of western motives: Qing officials simply couldn’t believe that the 'big-nosed barbarians' only wanted free trade. Surely the British meant to conquer all of China and rule it themselves since, after all, that’s precisely what the Qing had done when their Manchurian ancestors swept into Beijing and conquered the Forbidden City in 1644.

Journalist Edward Behr encapsulates this misunderstanding, writing…

“The Manchu court firmly believed—in 1860—that the ‘big-nosed hairy ones’ intended to sit on the throne themselves. Only gradually did the imperial advisers realize that the British and French ‘barbarians’ merely sought trade—and a permanent diplomatic presence in Peking. Had they understood this earlier, thousands of lives… might have been saved.”

SECOND OPIUM WAR

The Qing dynasty had been exposed as a paper tiger by the First Opium War, spurring western powers to take a more aggressive approach towards China for even more favorable terms of trade.

Worsening the Qing’s position was a continued decline within its leadership. The Daoguang emperor, well meaning but generally ineffective, died in 1850 leaving the throne to his son the Xianfeng emperor, arguably the worst of any Qing emperor who ever held power. Xianfeng was only halfway concerned with governing his unsteady empire and drank himself to an early death in 1861.

In 1856 an incident broke involving Qing seizure of a Chinese merchant ship (the Arrow) which Britain claimed was sailing under its flag. Qing officials reportedly pulled down and trampled the Union Jack, providing a pretext for London to launch a second Opium War (1856-1860).

The Second Opium War was a smaller affair with fewer casualties than the first, and it quieted down in 1858 after a string of British victories motivated peace negotiations. As Britain gained additional trading ports and possession of Kowloon (across the harbor from Hong Kong) other ambitious powers joined in the talks. 

Most notably Russia, smelling blood and seeking Manchurian territory that the Kangxi emperor had denied it in 1689, won over 1 million square kilometers of outer Manchuria (see map) including nearly 1,000 miles of Pacific coastline from which Russia settled the strategic port city of Vladivostok. Russia also gained a large piece of northwest China which today is eastern Kazakhstan and Kyrgyzstan.

Russian territorial gains in Manchuria

LORD ELGIN AND THE SUMMER PALACE

The Xianfeng emperor, maintaining Chinese culture was still superior to all others, considered the treaty terms unacceptable, particularly the British legations. Regarding a permanent barbarian diplomatic presence in the capital as insulting, he refused to sign and the hostilities resumed.

Seeking to pressure the emperor into accepting the treaty terms, a British expeditionary force was sent to Beijing in 1860. Its leader, Lord Elgin, had several warships plus 10,000 British and 7,000 French soldiers at his disposal but his mission was to achieve a peaceful settlement without use of force if at all possible.

Upon reaching the mouth of the Hai River allied troops landed and began trekking up the river banks to Beijing. Having traversed only a few miles, they were received by two Qing commissioners sent by the Xianfeng emperor for talks.

The plan proposed by the Qing was as follows: the chief British negotiator, Harry Parkes, would travel ahead to Beijing along with a few journalists, a newspaper illustrator, and a handful of diplomatic personnel and Sikh guards. Meanwhile Lord Elgin’s larger, slower force would follow behind. By the time Elgin arrived in Beijing negotiations would be completed where he would attend the formal signing ceremony with the emperor.

The British agreed and their small party of negotiators, diplomats, journalists, etc… went ahead. Meanwhile Elgin’s force was thinning as he had to leave troops stationed behind to maintain supply lines back to his ships.

Once Elgin’s force had whittled down to 10,000 men they found themselves surprise ambushed on both sides by superior numbers of elite Manchu cavalry. It turns out the “negotiation settlement” had been a ruse from which the Qing plotted to destroy the British force. Elgin’s 10,000 British and French troops were charged by 50,000 Qing cavalry and infantry.

Fortunately for the allied expedition they brought along a few Armstrong cannons, a revolutionary lightweight artillery design not yet tested in battle. The Manchu charge offered ideal conditions for the cannon’s debut and it wiped out the superior Qing force with devastating accuracy and power. When the smoke cleared the Qing army was broken while the allies had suffered just five dead.

A British lieutenant reported news to his commander that “The Armstrong gun is a great success.”

Now clued in that Qing overtures of peace had been a deception, Elgin’s forces made haste to Beijing. Upon entering the city they found that Beijing’s elites and the emperor had fled, leaving his stepbrother Prince Gong with the unenviable job of making peace with the westerners.

The allies were also horrified to discover their diplomatic party had been tortured with fifteen of the twenty-six dying either in captivity or by execution including Times reporter Thomas Bowlby whose body had been thrown over a wall to be eaten by dogs and pigs. The bodies of other victims had been mutilated.

Lead negotiator Parkes had been spared, only having suffered severe beatings while others had been, according to Elgin’s secretary Henry Loch, “tied up by their wrists in cords so tight their hands turned black and swelled until, in some cases, they burst.” 

Upon hearing of the torture and deaths of their comrades, who had entered the Forbidden City under flag of truce, allied troops were enraged. Some commanders sought to exact retribution upon the entire capital city, urging Elgin to first loot and then burn down all of Beijing and hang every remaining Chinese resident.

Elgin insisted anger should not sway the allies’ decision and called for a calm, sober meeting to consider more suitable punishments. In the end he convinced British commanders that the average Chinese citizen should not bear the cost of the Qing court’s treachery which should instead fall upon the emperor himself. A decision was reached to raze the emperor’s second residence just a few miles northwest of Beijing: the Old Summer Palace.

Hence allied troops entered the largely abandoned palace of regal and ornate buildings and looted priceless art treasures, destroying those too heavy to carry back, before burning the 800-acre complex to the ground. A young Captain Charles Gordon, ironically later commander and hero of Qing forces fighting domestic Chinese rebels, recorded that:

”You can scarcely imagine the beauty and magnificence of the places we burnt. It made one's heart sore to burn them; in fact, these places were so large, and we were so pressed for time, that we could not plunder them carefully. Quantities of gold ornaments were burnt, considered as brass. It was wretchedly demoralising work for an army.”

Unbeknownst to the British and French, 300 palace eunuchs had hidden themselves within locked rooms and died in the fire.

THE CHINESE PERSPECTIVE

It’s important to note that the Second Opium War was somewhat of a sideshow for the Qing dynasty, at least until British and French troops entered Beijing. For China was preoccupied with several domestic rebellions at the same time: the Nian, second Miao, Panthay, Red Turban, and Taiping Rebellions while simultaneously fighting the British and the French.

The Taiping Rebellion dwarfed all the other conflicts combined and killed 20-30 million Chinese making the Second Opium War, which cost perhaps 8,000 Qing lives at the most, a pinprick by comparison.

After the Summer Palace was burned down the Qing court was eager to make peace with the foreigners and get on with focusing on more existential conflicts within their own borders. They also went on to build the New Summer Palace only two miles further out from the ruins of the Old Summer Palace.

Today the Chinese government has designated the Old Summer Palace ruins a major historical and cultural site which is visited by over a million people, mostly Chinese, every year. The Communist Party has also poured a great deal of money into restoring not the palace itself, but the ruins.

If this sounds like a strange decision, it’s not.

The idea is to make the ruins as accessible and presentable as possible, with plenty of displays and plaques contrasting the beauty of the pre-1860 grounds to the meticulously well-preserved rubble that tourists see today. The Old Summer Palace therefore serves a very useful propaganda purpose, fanning further the flames of Chinese resentment towards foreigners, particularly British but also American—even though no Americans participated in the burning of the palace.

The Economics Correspondent has visited the Forbidden City and Great Wall as a tourist, but not the Old Summer Palace. However he’s willing to wager the full details surrounding the decision to burn the Summer Palace—namely the Qing’s ruse of peace talks, its torture and execution of diplomats and journalists, the surprise attack on allied forces who believed they were marching to a peace ceremony, and Lord Elgin’s restraint of British commanders who wished to raze all of Beijing—are not discussed in detail within the site's exhibits.

While British society has largely come to terms with past misdeeds in Qing China, the Chinese Communist Party makes no such concessions. Maintaining a reservoir of popular acrimony towards the West comes in useful when China, now stronger and more assertive, rouses more confrontation and standoffs with the outside world. In fact, Xi Jinping has preemptively cranked up references to the Opium Wars and "Century of Humiliation" in his public statements.

Chinese tourists: Animosity is strongly encouraged

Ultimately the Old Summer Palace story is still a tragic one and it’s not difficult to find fault with both China and Britain, the latter having started the war on a flimsy pretext. As Edward Behr again summarizes:

“It is difficult to say, in the almost constant series of conflicts that marked relations between China and the outside world… … which side behaved worse.”

Postscript: According to Chinese state-run CGTN:

"The National Cultural Heritage Administration said... ...rebuilding the Old Summer Palace is unnecessary and will change the status quo of the palace. And as a pile of ruins, the relic can serve as a warning to Chinese people and remind them that they should never forget the national humiliation. After the reply, netizens began to express their excitement or frustration, with some supporting reconstruction and others strongly disapproving it..."

"[Also state run media] China Central Television, Xinhua News, Guangming Daily as well as Red Star News all voiced opposition against the reconstruction, commenting on their websites that it's time for the debate to stop forever."