In any enquiry into the monetary interpretation of history, the Chinese experience must play an important role. China had money, and lots of it, and from an early date. But how far did this make China into a market economy?
There were three major things about Chinese money: it was invented early, it was very extensive, and it was of low value.
Chinese money began early: indeed there even appears to have been a pre-money measure of value in the form of cowrie shells, though there is little archaeological evidence for this. The earliest money, which appeared around the seventh century BC, was in the form of spade money, that is money in the shape of miniature spades, or sometimes swords. In this it is not unlike the earliest Greek money, which was in the form of spits, or Roman money in the form of aes grave, or indeed the earliest British money, in the form of currency bars.
It was not until the second century BC that proper coins appear, but again in distinctly Chinese form, round indeed, but with a square hole in the centre from which they could be strung together by string or rope. Again unlike Greece and Rome where the coins were always intended to be of silver or sometimes gold, in China the coins were of bronze or sometimes even of iron. Moreover they were cast in moulds rather than being struck with a hammer on an anvil, which means that artistically they were far inferior. Thus they never had the head of a sovereign or other artistic representation, but instead a brief inscription, originally of two letters giving the value of the coin, though this was later expanded to four letters, giving also the date.
The earliest coins were known as the Ban Liang or half ounce coins, introduced by the Qin dynasty when it first united China in 221 BC. But in 112 BC there was a major reform, and the wuzhu (‘five grain’) coins were introduced, which were issued centrally by the government. It was a remarkably successful issue and continued with only minor inflation down to the sixth century A.D. Did this lack of inflation mean that China did not undergo the ral breakdown that Rome suffered with the inflation of the third century?
The wuzhu coinage lasted until 621 when it was replaced by a new coinage known as the kaiyuan. This proved to be even more successful, for it lasted right down to the 20th century, perhaps the most successful coinage the world has ever seen.
But this Chinese coinage differed from that in the west in that it was essentially low value. There was, it is true, the occasional silver coinage, but it would appear that for high-value payment of taxes, sacks of grain or bales of cloth were often used. Coins were bundled together in the strings of 100 or 1000 coins: it would be interesting to know how they were used, and where the cut-off point was between the use of coins for low value exchange, and the use of grain or cloth for high-value exchanges – quite the reverse of what we are accustomed to believe in the West. It appeared that the bureaucrats were often paid not in coins but in kind.
Nevertheless it is clear that the issue of base metal coins was very extensive. Thus it has been estimated that in the Han period, coins were issued an average rate of 230 million per year, which rose to 327 million bronze coins a year at one point in Tang period, and corresponding tallies of 800 million to 1.3 billion in the first century of the Northern Song period (details from Scheidel page 199)
Indeed, by the 10th and 11th century, the money economy had expanded to such an extent that paper money began to be used, at first in the form of remittance notes privately issued by merchants with a date limitation. However in 1189, official exchange notes were issued with no date limitation, making it into a proper paper money. Indeed during the Yuan Dynasty from 1206 to 1367, paper money was used exclusively and the use of copper cash was prohibited
The use of money in China is certainly extremely interesting, being in many ways the reverse of money in the West, with money being used for small transactions, while more traditional grain and textiles were used for larger transactions. There is indeed a suspicion that the state disliked the use of gold and silver because it was small and could be easily transported and thus encouraged people to travel, and travel was not something that was generally encouraged.
Nevertheless throughout this time, the value of money remained remarkably constant. There were of course a number of minor and local inflations but on the whole, the wuzhu coinage followed by the kaiyuan coinage lasted between them for nearly 2000 years with little change in value. Was this absence of inflation the secret of China’s success? Should we compare the inflation that in the third century led to the destruction of the Roman Empire and followed it with a very dark dark age, with the absence of inflation in Han China, which after a short dark age led to the golden age of the Tang Dynasty?
It merely remains to note that it was not until the 20th century that China suffered the horrors of mass inflation. One wonders whether it was inflation that finally brought down the Republican era in China and replaced it by communism: did the monetary stability that the communist regime brought, lead to its remarkable political endurance?