Latin America Silver and Early Nineteenth-century China

Paper presented for the session ‘The World Upside Down: The Role of Spanish American Silver in China during the Daoguang Reign Period 1821-50',’ in the Third European Congress for World and Global History, April 14-17, 2011.

Man-houng Lin

The Institute of Modern History Academia Sinica e-mail: [email protected]

On the monetary crisis of the Daoguang period, Lin points at the shortfall of Spanish American exports, caused by the region's war of independence, as the driving factor in setting the contemporary currency crisis. Thus, a supply side shock that originated in a decrease in the New World’s silver production was crucial for the observed outflows in distorting the domestic price of silver relative to copper coins inside China This brought major consequences to people's lives and state finances and fuelled a variety of harms to the economy: market failure and social unrest.

Thank you to scholars who have come from various countries in the world to discuss my book, China Upside Down (Figure 1), 1 particularly on its linking Latin American silver and China in the early nineteenth-century . This book extends the linkage to the change of intellectual currents. Following the suggestion of Alejandra Irigoin, the session organizer, I shall summarize the key arguments in the economic aspect of this book in the following sections. Since this book was published in 2006, it

1

Man-houng Lin, China Upside Down: Currency, Society, and Ideologies, 1808-1856, Cambridge, MA:

Harvard University Asia Center (circulated by Harvard University Press), 2006, Total pages: 450. 1

has been discussed in more than ten book reviews and other comments. 2 In summarizing the key arguments of this book, responses to the reviews and comments will also be integrated in this presentation.

1. The Balance of Trade of Nineteenth-century China The very core of this study comes from the comparison of the balance of trade of China in the period 1808-1856 and that of 1857-1886 (Table 1). From Lin (1978), 3 I already knew that the balance of trade of China of 1857-1886 had a surplus

2

1) Georgia A. Mickey, Chinese Business History Bulletin, 17:1 (Spring 2007). 2) William T. Rowe, Enterprise & Society, 8:2 (June 2007), pp. 428-430. 格式化: 項目符號及編號

3) Dennis O. Flynn, China Review International, 14:2 (Fall 2007), pp. 505-509. 4) William S. Atwell, Journal of Chinese Studies, the Research Institute on Chinese Culture, Hong Kong, No.48 (2008),

pp.575-580. 格式化: 項目符號及編號

5) Tomioka Yasush, Toyo gakuho (Oriental studies), 89:4 (March 3, 2008), pp.469-476. 6) Chen Yixin, Chinese Historical Review, 15:1 (March 2008), pp. 184-187. 7) Kent Gang Deng, Australian Economic History Review, 48:2 (July 2008), pp. 195-205. 8) Daniel Knorr, Foundations, 3:1 (Fall 2008). 9) Harriett Zurndofer, American Historical Review, 113 (Dec. 2008), p. 1498. 10) Mio Kishimoto, International Journal of Asian Studies, 6:1 (Jan. 2009), pp. 87-102. 11) Wang Ronglin, Newsletter for Research in Chinese Studies, 28:1 (Feb. 2009, pp.43-44.

12) Richard Lufrano, Bulletin of the Institute of Modern History, Academia Sinica, No.63 (March 2009), pp.195-202. 3 Man-houng Lin,“Qingmo Taiwan yu woguo dalu zhi maoyi xingtai bijiao, yibaliuling zhi yibajiusi”(A comparative study of the trade pattern of Mainland China and Taiwan, 1860-1894). Guoli Taiwan shifan daxue lishi xuebao (Historical Bulletin of National Taiwan Normal University) 6:209-244 (1978).\, pp. 212, 242. 2

Figure 1:

Book Cover of China Upside Down

rather than a deficit as both Qing literati and modern scholars have believed. Following Cheng Yu-kwei’s study, based on G. Jamieson and C. F. Remer’s insights, a huge silver inflow into China between 1857 and 1886 was postulated. In calculating the international balance of payments, the F.O.B. (free on board) price is used for imports, while the C.I.F. (cargo, insurance, and freight included) price is used for exports. However, prior to 1887, Chinese Maritime Customs used market price to calculate China’s balance of payments. The market price of imported goods at Chongqing, for example, included insurance and freight from Shanghai to Chongqing, which should have been considered Chinese revenue, whereas the market price for export goods in Chongqing did not include insurance and freight from Chongqing to Shanghai, which should also have been calculated as Chinese revenue. Hence, the original calculations using market price 3

overestimated China’s import value and underestimated China’s export value. By making the proper adjustments, China’s balance of payments for the period 1856–86 is turned from a deficit into a surplus. (p. 94 of China Upside Down, page numbers hereafter refer to those in this book if not otherwise indicated) It is not until 1988 that I raised the question as to why China had more opium imports in the period 1857-1886 and had silver inflow due to a trade surplus, while China had less opium imports but a silver outflow due to a trade deficit in the period 1808-1856. If opium could not explain the silver flow out of and into China, the exports of China have to be examined, as China did not have much financial basis for its international balance of payments and staple commodities mainly account for the commodity account in the early nineteenth century. With regard to the balance of trade of 1808-1856, it was not until 1990 that I, following Prof. Hamashita Takeshi’s guide, obtained the London Custom Report at Hong Kong University about China’s silver inflow into India and its main exports and imports. I calculated more sophisticatedly from these data in 1993 and 2005. Together with Prof. Kishimoto Mio’s 2009 comments, which will be explained later, the silver outflow in 1808-1856 has been adjusted from 384 million dollars to 372 million dollars and China’s balance of trade in the nineteenth century is summarized in Table 1 (p.95). Nineteenth-century China’s import of opium and export of silk and tea are as shown in Figures 2, 3 and 4 (pp.88, 97).

Table 1: Estimates of Total Silver Flow In and Out of Qing China Unit: million silver dollars

Year

Inflow

1721–1740

68

1752–1800

105

1808–1856

Outflow

(384)372

1857–1866

187

1868–1886

504

4

Figure 2:

Opium Imported into China (1800–1911)

Unit: 1,000 piculs

Figure 3:

Quantity of Tea Exported from China, 1825–86

Unit: million lbs.

5

Figure 4:

Quantity of Silk Exported from China, 1825–86 Unit: million lbs.

The changes in the tea and silk markets around 1850 are not only revealed in the quantity exported but also in the prices of goods sold. In terms of value, there was more surplus from tea and silk over opium in the late nineteenth century than in the early nineteenth century. (Table 2) (p. 105) Table 2: Comparison of Exports of Tea and Silk and Import of Opium Unit: silver dollars Year

Silk

Tea

Silk and

Opium

A-B

D/C

Annual 2,641,038 17,212,297 19,853,335 13,653,122 6,200,213

Tea (A)

(B) 4

average

(C)

(1825–56) Annual 31,747,269 43,343,405 75,090,674 47,596,891 27,493,782 average

(D)

(1867–86)

A Maritime Customs Commissioner made the connection between the booming exports of tea and silk and the flow of silver back to China around 1850: As a consequence of this growing demand in other countries for the tea and silk of China, a most interesting reversal occurred in that movement of bullion which had played so large a part in deciding the Government of China in 1838 to attempt the suppression of the opium trade (p.99).

2. Decrease of Latin American Silver Supply and China’s Silver outflow Actually, both the increasing opium imports into China and the sluggish exports of tea and silk from China in the early nineteenth century were related to the Latin American silver 6

supply. Silver was the medium for both payments and the silver for this purpose came mainly from Latin America. The opium trade acted to absorb China’s silver due to a worldwide decrease in the total value of silver, and the global decrease of silver and gold provided less silver to buy China’s tea and silk.

Production 190 180 170 160 150 140 130 120 110 100 90 80 70 60 50 40 30 20 10 0

Years

Figure 5: Annual World Silver Production, 1493–1900

Unit: million ounces The silver and gold production decreased by about 50 percent in the decades 1790–99 and 1820–29, stemming from the Latin American Independence Movements and the Spanish government’s inability to support the silver mining industry in Mexico due to the Napoleonic Wars. Although world silver production gradually recovered after these political shocks, it did not return to the production level of 1800 until 1850 (Figure 5, p.111). The discovery of gold in California in 1848 and in Australia in 1851, as well as a 7

one-third increase in production from extant mines, led to a jump in world gold production, which increased about fourfold, from 1,762,000 ounces between 1841 and 1850 to 6,313,000 ounces between 1851 and 1860. The world’s silver production also picked up dramatically after 1850, so that by 1900 it was more than one hundred times what it had been in the 1820s. In addition, with European countries’ gradual change of their monetary systems to the gold-silver double standard or gold standard, more silver flowed from the West to China and India, the two main silver-using countries in the East, to buy their products. There were certainly various causes affecting China’s exports of tea and silk, but silver was ultimately needed to purchase them. Moreover, from 1857 to 1886, more silver was available to make such a purchase. The great increase in exports of tea and silk in the 1850s raises the question of why these cash crops were not devastated by the Taiping Rebellion (1850–68), which held sway over Zhejiang, Jiangsu, and Guangdong, where silk was produced for export, and also over Fujian, Jiangxi, Anhui, Hunan, and Hubei, where tea was produced. The situation can be summarized as follows: (1) some tea or silk producing areas were ruined; (2) some silk formerly produced for the domestic market went to the external market because of the civil war; (3) producing these cash crops was one way to support people who resettled on land depopulated due to fighting; (4) some urban areas were ravaged by the Taiping Rebellion, but rural areas could still develop these cash crops; (5) northern Fujian, for example, avoided transshipping its tea through Shanghai or Canton when these two ports were in danger, exporting directly through Fuzhou instead, linking with the international market using the newly-available clipper ships; and (6) Chinese military leaders encouraged the production of these crops for export in order to obtain revenues with which to pacify the enemies (pp. 102-6). The worldwide decrease of gold and silver in the first half of the nineteenth century not only decreased the purchase of tea and silk from China, it also accelerated the importation of opium into China. According to the British Blue Books, opium imports increased after 1821; 8

the difficulties in getting silver dollars were highly correlated to the abrupt increase in opium imports. In other words, the British could not find enough silver to pay for tea and silk, so opium ended up being used as the medium of exchange for them. The Latin American silver scarcity had also increased merchants’ opium imports into China. A Spanish company, which had used galleons to sail across the Pacific Ocean to exchange Latin American silver for Chinese silk or British Indian textiles in Manila since 1565, reduced its trade because of the decline of silver and gold production in Latin America. Many shareholders in this Spanish company shifted to the opium trade after 1827, the most famous among them being the Jardines and the Mathesons. With the loss of sales of Asian products to Latin America, the Spanish traders, who enjoyed immunity for their long-standing China trade, cooperated with British or American merchants, who did not have such privileges, to start the opium trade. (p.110) The worldwide decrease of gold and silver in the first half of the nineteenth century not only increased opium sales to China and decreased the world purchase of China’s tea and silk, it also decreased the arbitrage of silver in China. Dennis O. Flynn has complained that other economic historians or even economists overemphasize trade balance rather than arbitrage, in his past work and his comments on China Upside Down. However, the higher price of silver in terms of gold in China compared to other places disappeared in the early nineteenth century. As the Qing literatus Zheng Guangzu observed, China’s silver-gold exchange rate had changed, together with that of the Western countries, to 16: 1 in the Jiaqing (1796–1820) and Daoguang reigns (1821–50). The British Consul also noted in 1849 that the silver price in terms of gold in Canton was almost the same as in England. Thus the benefits of exporting silver to China due to the higher prices there disappeared as Western countries began to need silver themselves. It was also not until the late nineteenth century, when the world supplied much more abundant silver and gold, that speculative sources of silver for China resumed. In the early nineteenth century, much trade was undertaken in by means of bartering. As 9

both a commodity and a form of money, silver could be used for its own sake, to exchange with other commodities, and could also function to clear the deficit of China’s international balance of payments. As Yinghe 英和 (1771–1839), the Minister of Civil Service, said in 1814, “The Empire’s accounts (tianxia daji 天下大計) consist of both barter (yi huo yi huo 以 貨易貨) and the exchange of commodities for silver (yi ying yi huo 以銀易貨) ”. The Qing scholar-official Wang Qingyun said, “In the past, silver dollars came in as exchange for goods; today, silver goes out as exchange for goods” (p. 88). While China Upside Down elaborated the exacerbation of China’s silver crisis during the period of 1830-50, Richard Von Glahn said (as cited by William Rowe’s manuscript sent to Lin on December 2009) that the Mexican silver supply started to recover in the 1830s. In chapter 2 of China Upside Down, this question was answered. Here, the China side materials have been used to prove that, before the early 1850s, the silver circulated in the China market was barely the depleting stocked Spanish dollar coined before the Latin American Independence Movement rather than the newly obtained Mexican dollar cast after 1821. Also, the British Parliamentary Papers in India have been used to describe how the recovery of Latin American silver production was so insufficient for its flow back to Asia’s two main silver-using countries, India and China between 1830s and 1850s. (particularly on pages 112-113) The exchange bill system between 1830 and 1850 that Von Glahn pointed out is not as clear as the triangular trade system depicted by Hamashita cited on page 79 of China Upside Down. Basically, it is: Britain used exchange bills to buy US cotton and China’s tea, the US used those bills to buy China’s tea and British opium to be sold to China, China used the bills to buy British opium. The problem is that China’s sale of tea and silk could not raise enough to pay for its purchase of opium. Hence, China had to pay silver for clearance. The exchange bill system is for deferred payment rather than for no payment. Between the end of the British East India Company’s monopoly in 1833 and the start of 10

the Chinese Maritime Customs statistics, mostly after 1868, we lack sources dealing directly with the history of China’s foreign trade. Without the data provided from London Customs and the abundant economic records contained in Chinese Maritime Customs Publications and British Parliamentary Papers, it would be very difficult to perceive the global links of China’s silver outflow in the period between 1808 and 1856. Louis Dermigny and W.E. Cheong briefly mentioned the decrease of American silver supply as a cause of China’s early nineteenth-century silver outflow, but they did not have the whole period’s trade balance estimate and its contrast with that of the late nineteenth century (pp.113-114). He Liping cited David Hume, saying that trade balance could not sustain a deficit long term. 4 Actually, early nineteenth-century Chinese scholar Xu Mei also had this market self-adjustment perception (pp. 164, 196). The global silver and gold production adjustment around 1850 and its holistic impact upon China took about 30 years.

3. The Importance of Latin American Silver for China When some of the above arguments were published in Chinese in 1991 by this author, they invited Richard Von Glahn’s critique as a supply side analysis for the influence of Latin American silver upon China. 5 The demand side analysis of China’s need of Latin American silver had been provided in my 1989 dissertation. 6 Yet, with this comment, China Upside Down elaborated more on China’s demand of Latin American silver. It depicts: 1) that the

4 He Liping, “Yapien maoyi yu baiyin wailiu guanxi zhi zai jiantao (Re-examining the relationship of the opium trade and silver outflows), Shehui kexue zhanxian 2007.1: 63-80, p.76. 5 Richard Von Glahn, Fountain and Monetary Policy in China, 1000-1700(Berkeley: The University of California, 1996), pp. 256, 302. 6 Man-houng Lin, “Currency and Society: The Monetary Crisis and Political-economic Ideology of Early Nineteenth-century China,” Ph.D. Dissertation, Harvard University, 1989, pp.21-22. 11

domestic silver production was insufficient for the use of the silver-producing provinces in Southwest China, and 2) how Latin American silver replaced Japan’s silver to provide China’s silver need. 1) Insufficiency of the domestic silver: China Upside Down perceives from Qing archives that silver prices in the two provinces in Southwest China’s mountainous areas with scattered domestic silver mines within or near to their border tend to be higher than those of China’s sixteen other provinces which were almost without silver supply. As the value of silver was about two hundred-fold that of copper, weight-for-weight, in early nineteenth century China, the lighter and more valuable silver was desperately needed for exchange in the mountainous Southwest China. It resulted in the supply being less than demand in the two silver-producing provinces. Hence, silver dollars themselves, or ingots made from silver dollars in China, almost all originated from abroad and China’s silver supply from abroad from 1775 was mainly from Latin America (pp. 57-59). 2) The replacement of silver from Japan with silver from Latin America. Silver from Japan which was more important than the Latin American silver in the sixteenth and seventeenth centuries lost its dominance around 1700 and totally disappeared from China’s further silver supply after 1775. China’s silver supply from the eighteenth century onward came mainly from Latin America, mostly from Mexico. The Pacific-Philippines channel, used to convey the silver from Latin America in the sixteenth and to eighteenth centuries, was less and less important in the eighteenth century and almost totally died away in 1820. The main route to channel Latin American silver into China was the Atlantic-Indian Ocean-Southeast Asia route. Silver shipped from Latin America back to Spain or sometimes to Portugal was partly obtained by England and the United States to buy Chinese tea and silk in the eighteenth and nineteenth centuries. England’s share in providing China with silver reduced from almost 90% in the eighteenth century to about 70% in 1830 when the importance of the US increased. Chuan Han-sheng 12

and Otake Fumio had already studied the supply of Japanese silver and Latin American silver into China; China Upside Down depicts more clearly the shift of the importance of these two silver sources for China and the routes for the silver to reach China based upon several Japanese, American, and Chinese studies (pp. 59-68, also refer to Figure 6).

Figure 6: Map for Silver Circulation Route to China of the seventeenth century

4. Merchant-controlled Monetary System In most modern countries, currency is basically issued by the state. In early nineteenth-century China, private merchants supplied silver ingots or silver dollars for taxation and for large-scale or inter-provincial transactions, whereas copper coins used mostly for local retail trade were provided by the state. Private merchants also issued paper notes convertible to silver (Figure 7) or copper coins (Figure 8). Silver dollars were earned in international trade mostly managed by the merchants. The government just obtained a small share of silver by the tax proportion of GNP as 5%, as Albert Feuerwerker estimated based upon Wang Yeh-chien’s estimate (p. 133). The copper coin mintage by the state was very much affected by the silver supply, as the copper mining, copper transportation and copper 13

mintage were all mainly paid for in silver. Such a market-controlled monetary system is very different from today’s mostly state-controlled monetary system.

Figure 7:

Paper notes convertible into silver

14

Figure 8:

Paper notes convertible into copper coins

The Qing government was unique even in its own time in Asian countries. India, as another important silver-using country in Asia, had government-minted silver coinage . The Tokugawa government cast silver coins or silver by weight. The Qing state merely provided the unit standards of silver ingots to be melted; its openness to the use of coins of previous dynasties, its lack of control over either domestic or foreign private coins, and its lack of control over private issuance of notes backed up by copper coins and silver show its lack of monetary sovereignty (pp.69-70). It is also very different from the Naito Konan stereotype of 15

Qing China which had developed Oriental despotism to the extreme (pp. 29-57).

5. The Seriousness of Silver Outflow for Early Nineteenth-century China He Liping calculated the silver outflow as less than 3.6% to 6.7% of China’s silver supply to show the insignificant impact of the silver outflow. This has been cited by William Rowe for negating the great impact of silver outflow on early nineteenth-century China. He Liping’s calculation is just for the period 1817/8-1833/34, as is H.B. Morse’s. He’s calculation result is smaller than Morse’s 7% as He deducted the import opium value due some charges staying in China. The silver outflow figures, calculated in China Upside Down is for the period 1808-56, and the result of the calculation is 16.4% (revised from 18% because of Kishimoto’s criticism which will be explained later) of the silver circulating in China. China Upside Down relies on the London Custom record kept by Hong Kong University and other data to reach the following trend of silver outflow of the early nineteenth century China. With Kishimoto Mio’s criticism made in the International Journal ofAsian Studies about the miscalculation for the figures for years 1818-1826 (Figure 9), the whole quantitative development of silver flow in and out of China has been adjusted as the following curve (Figure 10) which will be published in the Chinese version of this book in the coming six months.

16

Figure 9: Total silver outflows from China, 1814–56, in millions of silver dollars

30

20

10

0

-10

-20

1814

1818

1822

Figure 10:

1826

1830

1834

1838

1842

1846

1850

1854

Total silver outflows from China, 1814–56, in millions of silver dollars 17

The whole quantitative outcome of years 1818-26 turned from a silver outflow from China to a silver inflow, but the years 1814-1817 continued to have silver outflow from China. In addition, other information already provided in China Upside Down for the years between 1808 and 1826 still needs attention. Data for silver inflow from China to India provided by John Richard, based on India’s customs record, increased from 1808 to 1810 (p.74). The India British consular reports pointed out that Western import of silver into India started to decrease in the period 1808-1814 (p.112). With regard to China, in 1809 an official in charge of Canton trade prohibited the export of silver; in 1814 the senior vice-minister of the Board of Revenue of China proposed a strict ban on merchants smuggling silver ingots abroad, and in 1822 a censor said that the supply of silver in China had decreased because of the silver outflow. In 1819, the imperial edict noted that the silver appreciation was unevenly developed across the various regions of China (pp.74-75). Hence, for the years from 1808 to the 1820s, silver outflow was developed for some years and for some places. Also, the original quantitative outcome presented in Figure 9 for the ever-increasing silver outflow in the 1830s and 1856 remains intact, and the total silver outflow calculated for the period 1808-1856 has been changed from 384 million silver dollars to 327 million dollars. While most of the previous scholars used the H.B. Morse data to end the discussion about early nineteenth-century China’s silver outflow in 1833-4, China Upside Down used the London Custom records and other materials to particularly elaborate the exacerbation of China’s silver crisis during the period 1830-50. In comparison with other periods of Chinese history in which silver was used, the early nineteenth century suffered from the most serious outflow of silver. Milton Friedman has given the highest estimate to date for the silver outflow from China during the 1930s, proposing a drop of 9–11% in the money supply, including the decrease in specie, bank notes, and deposits in bank notes in 1931–35 (11–13% for 1933–35) due to silver outflow. For 1808–56 the crude estimate we have for the outflow of China’s total silver supply is about 18

16.4%. Moreover, the silver outflow in the 1930s lasted only 5 years, while the silver outflow in the nineteenth century persisted for 30-48 years. During the seventeenth century when silver was in short supply, especially as a result of the maritime ban of 1661–83, the basic problem was a slowdown in silver imports, rather than a growing quantity of silver exports. About 173 million and 691 million silver dollars flowed into China from 1721–1800 and 1857–86, respectively. Between 1888 and 1898, the trade balance became unfavourable for China, but remittances from overseas Chinese offset this deficit and the net silver flow was still positive. Between 1899 and 1921, in addition to overseas Chinese remittances, foreign loans and investments allowed by the Treaty of Shimonoseki offset the trade deficit. Nevertheless, some 372 million silver dollars flowed out of China between 1808 and 1856 (pp. 285-287).

6.

Nationwide Impact

The early nineteenth-century silver outflow impoverished China nationwide.

A map

provided by Hsin-pao Chang shows that the area of circulation of imported opium was mainly south of the Yangzi River. However, relying on official reports at the National Palace Museum, Taipei, I reconstructed the circulation of imported opium in early nineteenth-century China and found that opium markets actually extended deep into the country’s interior (Figure 11).

19

Figure 11: Trade Routes of Imported Opium Around 1840

Source: Lin Man-houng, “Qingmo shehui liuxing xishi yapian yanjiu,” pp. 70–79.

Note: The map is that of 1820 provided by the GIS program of Academia Sinica.

The earliest records show that opium had been imported into Shanxi by 1821, Yunnan by 1822, all five northern provinces, plus Hubei, Hunan, Guangxi, and other coastal provinces such as Shandong and Hebei by 1838, Manchuria and Guizhou by 1839, Tibet and Xinjiang by 1840, and Mongolia by 1842 (pp. 90-93). As the Qing scholar Liang Tingnan (1796–1861) remarked, “At the very beginning, silver dollars were used to buy Chinese goods. Now, all this silver has been taken back. At the beginning, only the silver dollars were collected; today, they also collect silver ingots. At the very beginning, only the silver of England did not come; today, the silver of the United States 20

and country traders does not come”. This shows that the starting times differed for the outflow of silver dollars versus silver ingots. As silver dollars were more used in coastal China and silver ingots were more used in inland China, this also indicates that the spread of silver outflow was from local to nationwide (pp. 75, 79). An imperial edict of 1819, the second to last year of the Jiaqing reign, reveals that a disparity in the silver-copper coin ratio existed between the provinces, and thus it was impracticable to set a fixed ratio. It was only in 1820 that Qing scholar-officials explicitly noted the silver-copper coin crisis. This suggests that the crisis started to develop locally in the late Jiaqing period of 1808–19, and spread nationwide after 1820 (75, 120-123). There is methodological problem for He Liping’s kind of criticism. If the object of discussion is a mechanism, the 3-7% loss of weight might not be significant. For example, if you take 3-7 bricks from the top of a brick wall, the wall might not fall. If the object of discussion is an organism, the 3-7% change of the system might be fatal. For example, if an amount of poison of 3-7% of the weight of the blood was injected into a human body, it would be very harmful. China’s reliance on silver in its governmental finances and its general economy was like a human body’s reliance on blood: its significant decrease was detrimental for the whole body’s organic functions. Many scholars believe that the silver problem mainly affected the south-eastern area of China. Actually, various currencies were used to different extents in various regions of China, but every place used silver. In the early nineteenth century, for exchanges of small value, copper-coin paper notes were used more in the north and copper coin itself was used more in the south, because the south had more water routes that could sustain the transport of copper coin’s heavy weight. For exchanges of greater value, silver ingots were used more in the north and foreign silver dollars more in the south. For the south-western provinces and some of the peripheral areas within the core provinces, silver ingots were used more than copper coin, because transportation there was unsuitable for the use of the heavy copper. Qing China at 21

this time had various local economies, like the organs of the body, but silver, like the circulatory system, integrated these local economies. (pp. 37-39) What is clear is that copper coin was not used for inter-provincial trade, with the exception of some provincial mints’ provisions for neighbouring provinces or some waterways’ circulation of copper coins to other provinces. Silver’s high economic value relative to copper coin, which reached 240 times in the 1850s, helped it overcome high transportation costs and cover long distances to reach faraway markets. Within a province, the main cities supplied silver; the financial commissioner in the capital provided copper coins for the whole province. The share of silver relative to copper coin dwindled with the scaling down of urban centres, but every place was affected by silver supplied from the cities. First, the bank shops in the cities decided the exchange rate between silver and copper coin to reflect their respective demand and supply. Because the economy had been using silver for value calculation since the late eighteenth century, in the early nineteenth century the demand and supply of copper coin was affected by the supply and demand of silver. Second, even though up to 80–90% of local people in various provinces paid their taxes in copper coin; the amount of copper coin to be paid was decided by the tax amount calculated in silver and by the market exchange rate of copper coin and silver. Third, the Shanxi merchants reinforced the nationwide circulation network of silver, particularly from the late eighteenth century onward. When silver flowed out, even silver in the peripheral areas was absorbed through the nationwide trading network, which had actually been expanded due to imports of opium. Fourth, with a smaller stock of silver in the peripheral areas than in the core areas and the same obligation to pay taxes calculated in silver or to exchange silver for necessities, several peripheral areas suffered even more desperately than their core counterparts. Fifth, the ever-increasing trend of silver prices in terms of copper coin was common across the provinces. Even a region as peripheral as Xinjiang was afflicted with this problem 22

in the 1840s (10-11, 55, 69, 115-16, 163, 289-90).

6. The Unprecedented Silver Appreciation Figure 9 shows the price trend for silver ingots relative to copper coins during the Qing period. The official exchange rate was 700 wen per liang in 1645 when the Qing dynasty started to cast copper coins, but the official exchange rate soon changed to 1,000 in 1647. The market price was 100–200 wen below this official rate for most of the early Qing period (1647–1764). In the late Qianlong and early Jiaqing periods (from 1765 to 1797), it increased to around the official rate, but between 1798 and 1807, it dropped again to the rate prevailing in 1647–1764. Yet, from 1808 onward, it moved above the official rate. It took about 30 years (1808–1838) to increase by 600 wen from 1,040 to 1,637 and about another 10 years (1839–1849) to increase another 600 wen from 1,679 to 2,355. The rate gradually decreased from 2,230 in 1850 to 2,100 in 1855. Then it drastically dropped from 1,800 wen in 1856 to 1,200–1,500 wen for most of the period before 1911. The unprecedented silver appreciation relative to the copper coins posed the Qing dynasty a great threat (pp. 2-4). In one respect, the relation between silver and copper coins was like the relation between quarters and the one-hundred-dollar bill in the present American currency system. If an exchange worth US$100 is transacted using quarters, it involves too much inconvenience in counting. Hence, quarters and hundred-dollar bills circulate side by side, as did copper coins and silver in Qing China. However, in today’s American system, the government sets the exchange rate between these two denominations, and this rate is fixed as 400. In early nineteenth-century China, it was the market that determined the exchange rate between silver and copper coins, and the rate fluctuated. The exchange rate between silver and copper coins was supposed to be like the exchange rate of various international currencies today, which are determined by the supply and demand of the respective currencies. Thus if more British firms wish to invest in the United 23

States, they need more U.S. dollars to buy factories and pay workers, and this will cause an appreciation in U.S. dollars. If the British government does not want the British pound to decline in value as a result, then the Bank of England can sell U.S. dollars in its foreign reserve. Similarly, when the price of silver was up in early nineteenth-century China, the Qing government could, theoretically, have supplied more silver to the market. The problem was that silver supplies in the Qing government’s coffers at this time were decreasing. The government revenue surplus was 78 million silver liang (111.54 million silver dollars) by the end of the Qianlong reign (1736–95), whereas the imperial treasury had shrunk to 8 million silver liang (11.44 million silver dollars) by the end of the Daoguang reign (1821–1850). A policy that the Qing government had tended to adopt before this silver price hike was to reduce the copper coin supply (to lower the silver price relative to copper coins) when the silver price was high. During the silver-copper coin crisis, the government did actually reduce the copper coin supply. This decrease of copper coinage was mainly caused by two factors. First, the money used to pay for copper coinage was silver, which was now more highly valued. Second, the silver used to pay for the copper coinage cost more than the silver for which those cast coins could be exchanged in the market place. Drawing closer to 1846, the cost of casting copper coin increased to three to four times the profit from doing so. Even with the supply of copper coins reduced, the price of silver in terms of copper coins kept escalating. Silver and copper coins were used for different levels of transactions in early nineteenth-century China. This meant that different people held different currencies or different combinations of these two currencies. It is true that if the copper coin earners—such as peasants who remained in their local areas most of the time —had used copper coins exclusively, their real incomes would not have changed in the copper-coin depreciation process. The problem was that they still needed to use silver on many occasions. In addition 24

to paying taxes in terms of silver, these holders of copper coins sometimes had to buy household necessities (salt, clothes, cooking implements, ritual paper, coffins, and the like) from distant markets. These commodities could be paid for in copper coins at the local market, but the real prices were affected by the silver-copper coin conversion ratio, because merchants generally purchased these products from distant places with silver. When a merchant from Chongqing wanted to buy silk cloth from Shanghai, he had to exchange copper for silver at the bank shops in Chongqing to cover the long -distance transport costs between Chongqing and Shanghai. When a peasant near Chongqing was going to have his daughter married, he needed silk cloth. He would purchase it at a nearby market with copper coins. In the silver-copper coin crisis, even if the merchants did not intend to raise the price of silk cloth, its real cost increased as the silver prices increased. Peasants were less able to buy silk cloth as the merchants had to raise the number of copper coins charged for the same length of material. That taxes had to be pegged to silver was the most critical factor affecting the budgets of ordinary people. The magistrates in the administrative centres would have clerks and runners issue notices at the marketplace informing the peasant of how much tax he should pay according to the taxable land he owned. The tax could be paid either in silver or in copper coins calculated using the market silver–copper coins ratio. The peasant then wrapped up the appropriate amount of money to put in a tax box in the market place. With the high transportation cost of copper coins, the local officials forwarded taxes in silver to the provincial financial commissioner, who passed the payments on to the Board of Revenue in silver as well. The magistrates either recast the small silver pieces into large silver pieces or converted the copper coins into silver at the bank shops. The peasant could obtain silver himself or wait until the magistrate obtained this silver. In either case, he was subject to the market silver price (pp.8-11).

25

8. Silver Appreciation and Dynastic Decline In the early Qing dynasty, when the market rates between silver and copper coins were below the official rate and the tax was levied at the official rate, local officials had one or two hundred wen of surplus for each liang of tax to use for administrative expenses such as transportation or meltage fees. Between 1808 and 1856, when the market rate was much higher than the official rate, the local officials could not help but levy taxes at the market rate. This was the case even though the people could not afford such an increase. The officials still had to exchange silver at the market rate at the bank shops before forwarding it to superior levels of government. While taxes were more difficult to levy with the appreciating market rate, the government actually had to spend more money because of silver’s appreciation relative to copper coins. This was due to the fact that public expenditure, like the copper coinage, was mostly calculated in silver. Even the government sometimes used the copper coins cast by its own mints to pay its bills; more coins had to be exchanged in the bank shops at the appreciating silver price relative to copper coins for the same expenditure calculated in silver. This is why one contemporary said, around 1818, “The state’s revenues and expenditures fluctuated with the silver-copper exchange ratio that the bank shop merchants gave.” 7 The officially cast copper coin entered the market primarily via soldiers’ wages and public expenditures. The official rate of 1 liang of silver in exchange for 1,000 wen of copper coin was designed to be favourable for soldiers when 1 liang was exchanged for only about

7

He Changling, Huangchao jingshi wenbian xubian (Collected writings on statecraft of the reigning

dynasty), juan 58, huzheng 30, qianbi, shang (Ding Luheng, Qianbi yi): 16a–18b. 26

800 wen on the market. During the silver-copper coin crisis, however, the market rate for 1 liang was around 1,500–2,500 wen, while soldiers continued to be paid the official rate of only 1,000 wen. With the soldiers suffering greatly from this economic hardship, the state’s control of the military power naturally declined. Although officials were paid in silver and therefore maintained their regular salaries, their total income could also decrease, because some of them had invested in land or commerce, which brought in smaller returns when money became scarce. In addition, officials were often obliged to compensate for taxes that were in arrears. In the eighteenth century, when the market exchange rate had been 1 liang of silver for about 800 wen of copper coin, officials had been able to use the remaining 200 wen (from the 1,000 wen official rate of exchange for 1 liang of silver) that they collected to pay transportation, melting, and administrative fees involved in forwarding taxes. In the early nineteenth-century silver-copper coin crisis, obtaining these allowances by setting exchange rates higher than the market rate (as high as 2,500 wen of copper coin per liang of silver) only increased the burden on taxpayers and resulted in tax deficits. Also, as the officials’ own economic conditions worsened in general due to falling income and greater tax arrears their bureaucratic vigour sagged. All these problems and tensions, together with other reasons, culminated in the explosion of the Taiping Rebellion in 1850. In some studies, the series of rebellions extending from the White Lotus to the Taiping is attributed to population pressure. Other scholars have suggested instead that the impact of the early nineteenth-century economic recession was a key variable. Opium imports have also been pinpointed as the main cause of this recession, which in turn brought about the Taiping Rebellion. In fact, the main cause of the money scarcity was a combination of the increasing population, the fall-off in world demand for Chinese products and the global silver scarcity, not merely opium importation. The silver-copper coin crisis was more pertinent than the economic recession to China’s social conflict. 27

Dwight Perkins estimates that the index of farm yields declined in this period. Calculating from 100 in 1821-30, during 1831-50 it dropped to 92, and during 1851-60 the rate was 87. 8 Copper coin had become more expensive relative to goods, rather than cheaper. If S denotes silver, Cp denotes copper coin, Po denotes population, and Ag refers to agriculture, their growth rate () relation in the period 1820-1850 is very different from the period 1775-1795 in the following ways 9 : Early nineteenth-century China

S  Cp  Po  Ag  Late eighteenth-century China

S  Cp  Po  Ag  The Taiping Rebellion almost overthrew the Qing regime. Due to the tremendous military expenditure needed to pacify this uprising, the silver remaining in the Board of Revenue treasury in 1853 was insufficient even to pay the salaries of the bannermen and officials. The lack of funds to pacify the rebellion facilitated the “commoditization” of official

8

Dwight Perkins, Agricultural Development in China (Chicago: Aldine Publishing Co., 1967),

pp.26-27. 9

For period 1775-1795, cf. Man-houng Lin, “Yu Anben jiaoshou lun Qing Qianlong nianjian de

jingji” (A discussion with Prof. Kishimoto Mio on Qianlong period’s economy).

Zhongyang

yanjiuyuan jindaishi yanjiusuo jikan (Bulletin of the Institute of Modern History, Academia Sinica) 28:235-252.

Taipei: Zhongyang yanjiuyuan jindaishi yanjiusuo, 1998; for period 1820-1850, cf.

“Jia-Dao qianjian xianxiang chansheng yuanyin 'qianduo qianlie lun’ zhi shangque – haishang fazhan shenru yingxiang jindai Zhongguo zhi yi shili” . Zhongguo haiyang fazhanshi lunwenji diwuji (Maritime history).

5:357-426. Taipei: Sun Yat-sen Institute of Social Science and Humanities,

Academia Sinica, 1993.

28

positions to such an extent that another basis of the Qing monarchy, the instillation of the state’s ideology through the examination system, was almost destroyed. The monetary policies to issue big copper coins and paper notes were fruitless, but the lijin system was set up in 1853, and many other commercial taxes were created or increased. Increased foreign purchases of China’s tea and silk and increased remittances from overseas Chinese helped create a flow of silver back into China amounting to 691 million dollars in the period 1857–86. Just as the world economy had almost overturned the Qing regime, so the world economy aided the Qing restoration. In the late Ming period, taxation was been based on land. When the emperors tried to add commercial taxes, protests arose. When the government attempted to levy more land taxes, a series of rebellions erupted that eventually overthrew the Ming dynasty. Yet the Qing regime was able to implement many new commercial taxes to raise funds with which to pacify the Taiping Rebellion. At an historical juncture after 1775, when the Qing economy was already based on silver from the Western world, the Qing Empire’s destiny was more closely tied to the global silver supply than the Ming Empire.

9. Divergence between China and Japan Even though Qing China survived the Taiping Rebellion, its disadvantaged position relative to Japan in East Asian order had appeared. China not only suffered from the Opium War, but also the concomitant silver-copper coin crisis and the following civil wars that Japan did not experience. Japan’s monetary sovereignty, due to its domestic supplies of precious metals, allowed it greater isolation from the world economy than China from the eighteenth to early nineteenth centuries. From the mid-twelfth century to 1600, Japan had mainly used China’s copper coins as currency. After 1600, the deterioration of China’s copper coins, closed-door policies, and Japan’s own production of silver and gold led Japan to seek monetary independence. With coins in gold, silver, and copper, Japan started to develop its 29

own money. When Japan’s silver and copper were exported to China from the sixteenth to the eighteenth centuries and Japan’s supply of metal for making money gradually became insufficient for domestic use, a kind of managed monetary system developed as the Bakufu issued coins with face values above their intrinsic value and the daimyos issued convertible paper notes. In contrast, China’s monetary sovereignty was mainly in the hands of the international economy from the late eighteenth century onward. It is well known that even though the Opium War actually hit China, Japan was more shocked and responsive to it, but in China around the time of the Opium War, scholar-officials had been overwhelmed with the monetary issues. When they discussed the silver-copper coin crisis, they often cited eight administrations of the Zhou Institution in which economic issues ranked the most important, while diplomatic and military issues ranked last. Shen Yao, born in 1798 and died in 1855, Wang Liu, born in 1786 and died in 1843, Wu Jiabin, born in 1803 and died in 1864, all expressed they had lived in a peaceful time. Judging from the military expense of the Daoguang period which was only seven-tenths of the early Jiaqing period and half of the late Qianlong period, we can understand why the military and diplomatic threat of Western imperialism around the time of the Opium War was not as overwhelming as that of Qing empire’s late eighteenth-century military expansion for the early nineteenth-century China’s scholar-officials. The silver-copper coin crisis worsened after the Opium War had partly contributed to the rise of the Taiping Rebellion. The years when this conflict and the great civil wars that followed were finally pacified in the early 1870s, were already the years when the Meiji government replaced the Tokugawa Bakufu after a relatively short-lived and minimally destructive civil war in Japan. From the sixteenth to eighteenth centuries, Japan’s trade with China and Korea had brought Japan Chinese and Korean know-how for developing its import substitution. This laid the groundwork for Japan’s external trade dominance over China in the late nineteenth century. After the sluggish tea and silk purchases hit China in the early nineteenth century, 30

smooth sales of them in the 1850–70 spoiled her. Chinese and Western contemporaries often said that even without technological improvements, China’s products sold well. Japan, however, in order to squeeze into the world market from the 1870s onward, improved technology and left China behind in the late 1880s. Many scholars who have dealt with China’s connection to silver have emphasized the prosperity silver brought to China. Actually, China’s use of silver had structurally changed its position in the international monetary order. Japan, Korea, and Vietnam used the copper coins of Song China. Song coins in China’s early modern period were a strong East Asian currency. From the twelfth century to 1600, China was the centre of the monetary order in East Asia. However, China changed from this position to a subordinate position in the world monetary order due to its use of silver almost entirely from the Western world from the late eighteenth century. Leaving a strategic good, silver, being fully dependent upon external supply from the late eighteenth century onward foreshadowed the Qing’s drastic decline relative to Japan in the East Asian order in the modern period (pp.294-296).

10. The World Upside Down By the late Qianlong period (1736–95) not only had silver use expanded, but China’s land area and population had also doubled. Nevertheless, the extended use of silver, which came mainly from outside China, formed a kind of Achilles heel for this growing empire. The imperial state had little control over the silver supply. Bank shops rather than a government treasury monitored the flow of currency. When the silver outflow was accompanied by a more than doubled price of silver in terms of copper coins in the early nineteenth century, it presented the Qing regime with a sudden crisis in both the command sector and the market sector. In contrast to what had occurred during the silver increase in the late eighteenth century, the Qing monarchy’s control over the military, the bureaucracy, finance, and society seriously declined. 31

Even though silver was much used as money in early nineteenth-century China, supply-side economists might say that money is only a veil and that production is the key determinant for an economy. This “money is a veil” metaphor comes from the sort of managed monetary system employed by modern societies. A managed system measures how many goods and services are likely to circulate in the society, and issues a parallel amount of money to facilitate their exchange. In the 1930s, when China already had a managed monetary system, silver outflow due to the American Silver Purchasing Act was offset by modern banks’ issuance of more money to sustain economic growth. In the early nineteenth century, however, China did not yet have such a system (p.7). In early nineteenth-century China, private banks issued convertible paper notes. One grand secretary remarked in 1851 that silver paper notes denominated in silver ingot value and copper-coin paper notes denominated in copper coin value were generally supposed to be convertible in bank shops affiliated with the bank shops that originally issued them. They were different from the unsecured loans that commercial banks provided to stimulate the economy in the 1930s. Even the early nineteenth- century notes were backed up by either silver or copper coins; as the notes would not be cashed all at once, they still could to some extent ease the money scarcity during this period. When the Sichuan governor-general brought up the issue of the copper coin paper notes in 1838, the governors of Hubei and Hunan, and of Shanxi, opposed their abolition since paper notes still supplemented the money supply. Without these notes, the already tight money supply would have become even more serious. This observation implies that the paper notes issued by the private banks were also insufficient to ease the money scarcity problem in the early nineteenth century. As both paper notes and silver in early nineteenth-century China were supplied by merchants rather than by the state, especially since silver came mostly from abroad, this situation was very different from today’s central banking system, in which the state manages to control the money supply within its national boundaries (pp.7, 17, 258, 294). The monetary structure of early 32

nineteenth-century China was also more vulnerable than was the monetary structure of China in later periods or of England of the same time. Although England’s money supply in the early nineteenth century also shrank due to the worldwide decline in silver production, it was able to issue modern bank notes. Additionally, England did not use much copper coin and did not undergo the intense silver-copper coin crisis that China experienced ( pp. 285-287 ). The silver issue is particularly unique for China when compared with other East Asian countries of the time. While other East Asian countries did not need Latin American silver as much as China, the particular threat presented to China by the global shortage of silver in the early nineteenth century was crucial for her fall from leadership of East Asian order to a subordinate position, especially relative to Japan. China’s silver crisis in the early nineteenth century was described by Qing contemporaries as “the upside-down allocation of the state’s power to control economic things” (a remark of 1846). Contemporaries emphasized that the use of silver had left “the state and people economically controlled by the merchants” (tianxia zhi zhi liquanzhe zai shanggu shijing” (a remark from 1845). A metaphor for this topsy-turvy situation was: “It leaves the sovereign’s sword held by other people” (taie daochi) (a remark from 1837) 10 China Upside Down discusses how China’s great demand for silver from the world interacted with the early nineteenth-century Latin American Independence Movements and other changes in the world economy to affect Qing China’s near collapse and the start of its eclipse by Japan in the East Asian order. Kenneth Pomeranz’s The Great Divergence has stimulated much scholarly interest in how China’s great demand for silver helped the rise of Western countries in the modern world (p.1), The rise of the West and Japan as well as China’s decline, all due to China’s silver demand from Latin America, have greatly contributed to making the “World upside down.”

10

Bao Shichen, An Wu Sizhong (Four notes on the Anwu district of Anhui province), 26: 10. 33