The Political Economy of Lauchlin Currie's Land Tax Policy in Wartime China

Abstract

This article examines Lauchlin Currie's land tax policy suggestion during wartime China and its political economy. Our study, based on unpublished archival materials, aims to clarify the reasons for and outcomes of Currie's first visit to China in 1942. It is argued that Currie, acting as a sincere adviser, based his policy recommendation on extensive surveys of the political and economic conditions of wartime China. In his efforts to persuade the Chinese leader Chiang Kai-shek to implement financial reform, Currie drew on the authority of Sun Yat-sen's economic thought and the leadership analogies of Franklin Roosevelt and New Deal policies.

1. Introduction

By 1940, China had been fighting against Japan for three years. The National Government, led by Generalissimo Chiang Kai-shek, retreated to the southwest, “the Great Rear,” and made Chongqing the wartime capital. There were enormous difficulties in financing the war, with hyperinflation experienced throughout the nonoccupied areas. The grain price, for example, reached twelve times its prewar value in December 1940 (Cui 2004: 50). Although a good harvest in the Chongqing area in the summer of 1939 gave temporary respite (He 2012: 154), the cost of living rose again 3.4-fold by June 1940 (compared to 1937), then further doubled (7.79-fold) in December 1940 (Young 1965: 355). The pressure on food prices arose as a result of the increase in population as people fled to non-occupied provinces, especially Sichuan, where Chongqing was situated, as well as from the purchase of large amounts of grain required to feed troops. The hyperinflation was frustrating for Chinese economists, as hyperinflation itself was the government's principal means of wartime finance (He 2012: 154). Economists and bureaucrats generally agreed with centralized governance in wartime. He Lian, the prominent Yale-trained economist who served as a top economic official in the central government at the time, expressed concern at the implementation of a price ceiling in 1940, arguing that it would create a shortage of supply due to the control and the supply of grain by large landlords (160, 162). Chiang, however, believed the grain market could be stabilized by the coercive force of government (160), reasoning that the high price of grain came down to psychology: the higher the price of grain, the more people would panic, which would result in more hoarding on the supply side. The government must, therefore, interfere in the market to gain control of the grain supply so that supply would equal demand. Without a price ceiling, the government would not be able to purchase the grain. Chiang wrote, “At this moment of life or death, if we don't get rid of the orthodox idea of free trade of the economic doctrines, then the so-called central governance is no more than fighting only on paper. It must result in a big mistake” (translation ours).¹ When his policy did not work, Chiang blamed Communists, students, and economists for destroying faith in the currency, averring that they should consequently be held responsible for inflation.²

Meanwhile, the State Department of the United States maintained a policy known as moral aid until 1940 (Maurer 1948: 114). Then, once material and financial assistance had been facilitated, the United States began sending economic, political, and military advisers to China. These included the economists H. Merle Cochran (technical assistant to Secretary of the Treasury Henry Morgenthau), Lauchlin B. Currie, A. Manuel Fox (the American representative on the board of the Chinese Currency Stabilization Fund established by the United States, Great Britain, and the Republic of China), and William H. Taylor (alternate member of the board of the stabilization fund) among others.³ Because the tangible foreign aid was minimal and the advisers were many, this was lambasted in the US press as follows: “The U.S. Government blithely decided that all four-thousand-year-old China needed was an army of U.S. experts to put everything right: if you don't know where to send a man, you send him to China to make a survey” (Maurer 1948: 117–18). In that context, “survey” generally refers to interviews and observations. Fox and Taylor, for example, held 114 conferences interviewing more than one hundred persons during two weeks in mid-1941.⁴

Indeed, these “modern-day missionaries” usually conducted intensive surveys during a short period of time. They were sent into the field to obtain firsthand information and oversee how aid was being spent. Usually, the experts were requested by the Chinese Nationalist Government, which not only maintained a tradition of retaining foreign advisors to assist with policy decisions but also believed in the effectiveness of “personal diplomacy”—that the better the friendship, the stronger the alliance, and therefore the more aid available.

Among these experts, Currie was extraordinary.⁵ During the Second World War, he made two trips to China. His first visit to China from January 28 to March 4, 1941, resulted from the Chinese government's dual requirements of expert opinions and material aid. The experience gained on his first visit made him a leading China expert in the US government, and he was later appointed to administer the Lend-Lease Program for China, playing a critical role in China's fight against Japan. Following Pearl Harbor, Currie undertook his second trip from July 21 to August 8, 1942, in the capacity of President Franklin D. Roosevelt's personal representative to resolve the conflict between Chiang and Joseph Stilwell, the commander of US forces in China, Burma, and India (Sandilands 1990: 117). We focus only on Currie's economic policy advice during his first trip, which has been erroneously criticized by historians, particularly those unsympathetic to Chiang, the ruling Kuomintang (KMT) party, and the National Government. For example, Michael Schaller blamed Currie for twisting “the Chinese experience to fit his own vision of reform,” writing,

Roger Sandilands indicated that Schaller's ideas may have originated with John Fairbank, a Harvard historian who at the time was a representative in China of the Interdepartmental Committee for the Acquisition of Foreign Publications in Chongqing. In a letter to Sandilands, Fairbank stated that he believed that Currie was being used by Chiang, who had wanted for a long time to take over land tax from the provincial authorities and manipulated Currie into recommending precisely that, since “it was such an obvious thing [that Chiang] succeeded in getting an American sanction for it to make it more feasible.” Fairbank also believed Currie “suspected at the time, [that] he was chiefly being used” (Sandilands 1990: 111).

Another example is James Bradley's (2015) recent book, which is even more critical of Currie, twice repeating the then secretary of the Treasury Henry Morgenthau's accusation that Currie had been “half the time” on the payroll of T. V. Soong, Chiang's brother-in-law who was at the time in Washington, D.C., serving as Chiang's personal representative to the United States. Currie himself regarded this remark as “ill-humored” and untrue. Bradley is not aware that Currie quickly fell out with Soong shortly after returning from his first trip.⁶ Moreover, Bradley ignores the fact that this trip was made possible under the condition that the Chinese side paid his salary and all expenses.⁷ Bradley also inaccurately claims that Currie was favored because he “had never been to Asia and knew little about China—which was just how T. V. liked it” and that Currie “had no idea that Chiang's war was not against the Japanese but against Mao.” Regarding Currie's confidential report to Roosevelt after his first visit, Bradley characterizes it as “delusionary,” a “jumble of mirage assumptions that would eventually lead the United States down a disastrous path in Asia.” Like Schaller, Bradley portrayed Currie as a man wanting to sell the “New Deal fantasy” to China. At the same time, “no British, Russian, French, or Japanese diplomat would have believed that Chiang could become a New Deal liberal—this, too, was part and parcel of the mirage.” Moreover, Bradley claims that Currie's suggestions to Chiang on economic problems were “what Roosevelt expected Chiang to do in exchange for Lend-Lease aid: fight Japan, unite with Mao, cut military expenditures, raise land taxes, boot out the tradition-bound conservatives, and let a liberal progressive China bloom.” However, since Chiang's priority was “to kill Mao and all Communists,” these suggestions amounted to nothing. The proposed increase in land tax was seen as incredibly ridiculous: “And raising taxes? One of Mao's main attractions for the peasants was that he was reducing their onerous taxes. Trying to squeeze more out of the beleaguered Chinese peasant would only increase animosity toward Chiang's regime; he'd be playing into Mao's hands.”

These criticisms of Currie are ironically untrue of a man who was later accused of being a Soviet spy by the House Un-American Activities Committee and praised in Chinese Communist circles as having been recruited by underground Communist Ji Chaoding, an economist (PhD, economics, Columbia) at the Institute of Pacific Relations in the United States and later for the Chinese National Government. Contrary to Schaller's argument, Currie's visit was well received by politicians and policymakers in Chongqing. Bradley attacked Currie's idea of raising land tax, which was regarded by contemporaries and historians as the most important reform that Currie urged Chiang to implement (Sandilands 1990: 110),⁸ and ignored not only the context of Currie's policy suggestion but also that it was to be levied on landlords rather than peasants.

Both Schaller's and Bradley's criticisms, however, make an interesting point in framing Currie's activities as being influenced by or packaged as the New Deal ideology so as to transform the Chinese into “Keynesians” (Schaller) or “New Deal liberals” (Bradley), but perhaps employ it in the wrong direction. We argue that Currie drew upon the New Deal as an analogy to underscore the importance of strong leadership and the interdependence of political and economic reforms. Furthermore, the New Deal analogy was utilized as a tool of persuasion to encourage the Chinese government to implement such reforms.

The remainder of this article is organized as follows. Section 2 recapitulates the background of Currie's first trip. Section 3 illustrates Currie's surveys and sources of information. Section 4 describes his interviews with Chiang Kai-shek and his proposal for land taxation reform. Section 5 delineates how Currie used the New Deal as an analogy to persuade Chiang. Section 6 gives an account of the actual implementation of the policies around land taxation. Section 7 provides some concluding remarks on the political economy of Currie's suggestion of land tax policy.

2. Background

In the dire year of 1940, Chiang wanted to receive a joint group of economic and military experts from the United States and United Kingdom to cooperate in fighting Japan. Soong, in Washington, D.C., thought such cooperation was infeasible due to China's poor economy. Instead, Soong, on Chiang's behalf, requested that the White House dispatch an economist to China to analyze its economic and monetary problems. Currie was selected (Sandilands 1990: 107–8).⁹ On January 23, a press release by the White House stated that Currie would take a leave of absence in order to visit China. Currie asked Emile Despres, a senior economist in the Division of Research and Statistics of the Board of Governors of the Federal Reserve, to join him. Despres was also a Harvard alumnus and was regarded as one of America's pioneering Keynesian economists (Jones 1984). The State Department stated that the purpose of their visit was to “secure first-hand information” on the general economic situation in China and to consult with the Chinese government on matters concerning such a situation.¹⁰

Actually, this was the third time Chiang asked the White House for an “economic mission” of expert advisers.¹¹ When Currie's visit was confirmed, the Chinese government hoped that impressing Currie would precipitate a major increase in US aid. Given that the dire economic and military situations were becoming critical, Chiang desperately needed a solution, expressing a wish that Currie would dispense with courtesies and get straight down to business.¹²

However, though both sides envisaged this mission as focusing purely on economic issues, there was also a political and military dimension, especially following the battle between KMT and Chinese Communist Party (CCP) forces, known as the New Fourth Army Incident, which took place just before Currie's arrival. The White House was concerned about the potential for a large-scale civil war between the KMT and the CCP. Against this background, Currie requested an audience with the top CCP official in Chongqing, Zhou Enlai, who was officially serving as the CCP's liaison officer but was commonly regarded as a hostage (see Section 3 below); the request was granted by Chiang due to the urgent need for assistance from the United States.¹³ For these reasons, one historian noted that Currie was treated extraordinarily, even comparable to a head of state (Ch'i 2017: 361).

Currie was described by Soong to Chiang as a young and able bureaucrat who had driven important economic reforms during the preceding eight years of Roosevelt's presidency.¹⁴ Soong even regarded Currie's knowledge of the Far East as better than James M. McHugh, who was already in China as special representative of Secretary of the Navy Frank Knox to Chiang. Although Currie remembered that before his first trip to China, his only knowledge of the country was through reading Pearl Buck's Pulitzer Prize–winning novel, The Good Earth (Buck 1931).¹⁵ The positives also extended to Currie's familiarity with the Lend-Lease Program for the United Kingdom and aircraft manufacture.¹⁶ Soong laid out two further aspects of Currie's visit: first, Currie was knowledgeable and capable of being bold but cautious as the situation demanded. He would definitely help Chiang with making policy decisions. The second concerned personal diplomacy. Soong suggested that because Currie was Roosevelt's close aide and saw him daily in the White House, after returning, Currie could not only help strengthen economic aid from the United States but also could serve as a personal conduit between Roosevelt and Chiang. Soong explicitly warned Chiang that the latter should be kept secret from the Americans.¹⁷

3. Interviews and Surveys

Currie enjoyed the prestigious hospitality of Generalissimo and Madame Chiang. The Chinese government was motivated to provide whatever political, economic, and military data were available per Currie's requests. Upon Currie's arrival, the Chinese government prepared for him documents and statistical data on current economic conditions that were as accurate as possible. For instance, on February 13, Chiang asked two top bankers in Hong Kong to personally bring exact figures of foreign exchanges and currencies in the national banks, as well as the balance sheets of the Sino-British Stabilization Fund (set up in 1939) to Chongqing for Currie.¹⁸ Eventually, the Ministry of Finance prepared eighteen memoranda in four volumes.¹⁹ These memoranda were compiled by government officials and overseen by Arthur N. Young, the American economist who was a member of the Kemmerer Commission to China in 1929 but had served as the top financial advisor to Chiang's government immediately afterward.

Currie also conducted extensive interviews across a wide spectrum, including most cabinet members, leading military officials, scholars, and diplomats in Sichuan. Currie's interviewees gave him a variety of politico-economic explanations of food inflation. The mayor of Chongqing, Wu Guozhen (K. C. Wu; MA, economics, Grinnell; PhD, political science, Princeton), provided a summary of the food supply and demand: in Sichuan, peasants did not subsist on rice but rather “sundry foods”—millet, Indian corn, beans, and so on. Rice was mainly consumed by landlords, people employed in factories, the urban population, and the army. Demand for rice had increased because many famers had left their rural homes to work in factories and urban construction, and approximately one million were enlisted into the army. These subsequently began to consume rice.²⁰ Zhang Xueyan, the editor of the Christian Farmer, blamed landlords for the shortage and high prices of rice and other commodities. Yet he observed that educated and intelligentsia groups seemed to take the rise of the cost of living as a necessary price to pay for the country fighting for existence.²¹ The Reverend S. Lautenschlager, who had been in China for twenty years, also regarded landlords as a major cause of inflation. He pointed out to Currie that at least 50 percent of the crop went to the landlord. A solution could begin by raising taxes for the absentee landlords who did not live on their property and usually pay no taxes. On the problem of the rise in the cost of living, Lautenschlager contrasted with Zhang's observation, arguing that it forced the educated and intelligentsia groups to demand a solution through political actions. As a result, it made them more critical of the government and gradually drove them into the radical camp of Communism.²²

To understand the issues relating to the land and rural economy, Currie relied heavily on the expert opinions of John Lossing Buck, the husband of Pearl Buck. Buck was an American agricultural economist who had lived in China since 1915 and who was known for his efforts in establishing a program conducting extensive field surveys on agricultural economics before the war (American Journal of Agricultural Economics1976; Trescott 2007: 167–83; Chao 2022: 454). During wartime, Buck was involved in a Sichuan rural economy survey from May 1940 to April 1941, sponsored by the Farmer's Bank of China, so he had the most recent data on the food supply.²³

Currie had several inquiries for Buck, including the size of harvests during the previous few years, whether they had been sufficient to meet demand, foodstuffs that had produced a surplus or deficit for each year, and whether or not agricultural production had really increased. Currie also made a causal inquiry as to how factors such as migration and movement of armies affected food supply. In addition to providing answers to Currie's questions, Buck specifically drew attention to the major problem of collecting land tax. Similar to Lautenschlager, Buck regarded the absentee landlords as the chief evil of tenancy, not only because they relied on agents to collect rent and those agents cheated both landlords and tenants, but since they were also officials or had influence with officials, they were highly resistant to any policy change. Buck suggested that the best way to deal with the problem of absentee landlords would be to implement the Land Law enacted earlier by parliament but not yet put into operation. The key tenet of this law was to advance progressive taxation according to the amount of land owned to force the landlords to sell land eventually. Buck also pointed out that economic aid was inseparable from military and political considerations. He implied that the existence of inefficiency or, worse, corruption in government organizations would hamper aid, that the US government would consider insisting on improved governmental administration as a condition of aid, and that “the Chinese people would welcome some pressure in this direction.”²⁴

4. Interviews with Chiang Kai-shek and Proposal of Land Tax

After Chiang and Currie first met and exchanged greetings on February 7, they held extensive discussions on February 8, 10, 15, 16, 17, 21, 22, 23, and 26. The meetings lasted one to five hours, and they sometimes met twice daily (Feb. 15 and 23).²⁵ On February 16, Chiang asked Currie outright how China could avoid inflation. Currie suggested three options: cut down government expenses, increase taxes, and secure rice loans from the public. Chiang immediately rejected the first two options as impossible. While acknowledging that he would like to explore the possibility of issuing rice or money loans, Chiang repeatedly expressed his desire to secure a further loan from the United States. On February 22, Currie touched on the issue of land tax. After outlining the problems of inflation, currency, government budget, loans, and money supply using figures provided by the government, he proposed reforming land tax, for the simple reason that land and crops were the only real resources of wealth in China. Using Buck's data, Currie estimated that if land tax could be collected efficiently, it would raise at least an additional two billion Chinese Dollars in tax revenue.²⁶ Chiang was initially unimpressed, pointing out that land tax was a provincial tax and therefore out of his hands, and was reluctant to take over its administration. Currie then further suggested centralizing land tax. His proposal comprised the following institutional and organizational changes: transfer land tax from county to provincial tax bureaus and send “young, energetic, [and] patriotic” men district to district to collect tax since the current organizations were demonstrably inefficient, as provincial governments received only two million Chinese Dollars in land tax each year; enforce registration of all land by threatening confiscation of unregistered land; raise all land valuations to correspond to the increase in rice price and raise the tax rate to 1 percent, or, alternatively, substitute tax in kind for the present land tax. Currie described this as “tax reform based on equality of sacrifice.”²⁷

To ease Chiang's concerns over provincial resistance due to the long-lasting conflicts between the KMT and domestic warlords and the potential political consequences of the policy being used as CCP propaganda, Currie persuasively argued that it simultaneously represented “good economics” and “good psychology,” as in terms of wartime finance, good psychology would enhance public confidence thereby enabling increased borrowing. Moreover, given that the rise in rice price in 1940 had enormously enriched large landlords, the proposed land tax reform, which would supposedly affect only large landlords, should align with the stated goals of the CCP, taking the wind out of their sails. Currie even told Chiang that land tax reform would be symbolic for the United States in unlocking further assistance: “Land tax reform in itself will create a very good effect in Washington and will make China's economic situation more stable.”²⁸

By the end of the meeting, Chiang was convinced and determined to institute land tax reform, writing in his diary that “land taxation belonging to Central Government was exactly what I had in mind. Land tax should have been the bedrock of the Nation's financial foundation. I regretted we did not have this policy in the past (translation mine).”²⁹ By February 24, he ordered the government to study and prepare for the centralization of land tax.³⁰ While praising him as honest and enthusiastic and offering sincere advice, Chiang thought that Currie unfortunately did not fully understand what was really happening in China, as indicated by Currie's frequent opining on the political issue of the CCP.³¹

5. New Deal Analogy

To persuade Chiang to institute reform of land tax in particular, and politico-economic aspects in general, Currie repeatedly appealed to authorities that Chiang respected. Among these was Sun Yat-sen's Three Principles of People (Sanmin Zhuyi): nationalism (Mingzu), democracy (Mingquan), and people's livelihoods (Minsheng), which was firmly considered by Chiang, and the KMT he led, to be the ideological foundation of the state and policymaking. On February 15, when Currie mentioned the example of economic reform in the United States to urge Chiang to do the same, Chiang resolutely refused to countenance it because he would ensure that China was built on the foundation of the Three Principles. Chiang pointed out to Currie that the Principle of Minsheng consisted of propositions including regulating private capital by the government, land in the hands of the tillers, and equalization of land ownership, the latter meaning that the government should tax land according to its value.³² This conversation perhaps inspired Currie to convince Chiang by using Sun, who was well-known for his advocacy of land value taxation to achieve the goal of equalization of land ownership.³³ So when Currie detailed his land tax reform on February 22, he began by asking Chiang whether there was any principle in the Three Principles that would support this measure. Also, in his official reports to Chiang and Roosevelt (the portions on land tax were identical), Currie explicitly stated that his proposal of land tax reform was not only desirable on budgetary grounds but served as proof of the government's determination to “proceed along the line of social justice and equality laid down by Dr. Sun” (Sandilands 1990: 111).

At the same time, Currie often drew upon the experience of Roosevelt and the New Deal, using the analogy not only to achieve his economic goals but also to encourage political change. Aware that the Chinese government tended to attribute political causes to economic problems, Currie leveraged this to persuade Chiang to enact political change. Currie wrote that he “interpreted the whole New Deal largely in terms of making the adjustments necessitated by drastic changes in our social and economic environment.”³⁴ Currie may have sensed Chiang's admiration for Roosevelt, knowing that Chiang read every Roosevelt speech slowly and word by word,³⁵ and Chiang told Currie that of all the statesmen in the world, Roosevelt was the only one capable of shouldering the responsibility of shaping the future of mankind after the war.³⁶

Currie several times drew “an analogy between [Roosevelt's] problems and how he met them and the Generalissimo's problems.”³⁷ An example was how Roosevelt “saved capitalism” in 1933,³⁸ when he faced similar opposition within John Lewis's organized labor movement and from powerful leaders in industry and the press during his first seven years of administration. Roosevelt, in this situation, had to deal with labor, on one hand, and those counseling appeasement, on the other. Currie pointed out that Roosevelt lacked trained personnel because 80 percent of rich people refused to cooperate with him. However, in contrast to Hitler, who came to power by oppressing German people and by exaggerating poverty through publicity to win popular support, Roosevelt used the method of “cutting grounds under [the opposition's] feet by taking away the weapon with which his opponents were fighting him.” He appealed directly to the people for support and finally overcame the opposition and turned the situation around in his favor.

On another day when Currie stressed the importance of the central bank and urged Chiang to carry out reform of the banking system, Currie again used Roosevelt as the model by mentioning his speech before the American Bankers Association on October 24, 1934, whose title was “The Time is Ripe for an Alliance of All Forces Intent Upon the Business of Recovery.” Roosevelt urged the bankers to cooperate with the government on banking reform, pointing out that a true function of the head of the US government is “to find among many discordant elements that unity of purpose that is best for the nation as a whole.” This was necessary because government is essentially “the outward expression of the unity” and “the leadership of all groups” in the nation. Government, he claimed, must be the leader and the judge of the conflicting interests of all groups.³⁹ Currie stressed that Roosevelt's view was that the government was superior to the banks, and there could be no possible grounds for cooperation on equal terms. China's central bank should therefore strengthen its control over the commercial banks and individuals who could cause the circulation of a large number of notes in the market.⁴⁰

Currie's use of the term “equality of sacrifice” (see Section 4 above) predated Roosevelt's famous fireside chat on sacrifice of April 28, 1942. In this speech, Roosevelt appealed to the American people to support his policy of a $25,000 cap on executive salary with a 100 percent marginal tax rate above that level: “I know that [the American people] will gladly embrace this economy and equality of sacrifice, satisfied that it is necessary for the most vital and compelling motive in all their lives—winning through to victory.”⁴¹ Currie portrayed this idea as part of the New Deal when Chiang expressed concern about the resistance of provincial governments to land tax centralization, telling Chiang, to quote at length:

Thus, China should utilize the present national crisis to drive through land tax reform.

However, Currie did not agree with instituting a progressive taxation system, which was a principal feature of Roosevelt's wealth tax and the policy structure of Keynesian economics (Jones 1972). Just one year earlier, in March 1940, Currie had submitted to Roosevelt a memorandum on the problem of full employment, stating that its basic analysis was Keynesian, which became “the New Deal economists’ diagnosis of and prescription for our economic problem.” He recommended the development of “a truly progressive tax system” to increase national consumption relative to national income, even though it was expected to generate great political resistance (Currie 2004: 366, 368). In China, Currie had already learned from Buck's suggestion of imposing progressive land taxation, as mentioned above in Section 3, while also realizing that progressive taxation was favored by the CCP. Zhou Enlai told Currie, perhaps in an attempt to influence his views, that the CCP had complied with and initiated Three Principles democracy in rural areas; they left the landed gentry alone but imposed progressive taxation on them.⁴³ However, when Currie mentioned the example of the wealth tax to Chiang, Chiang was not committed to progressive taxation, partly because he feared it would prove practically impossible as landlords would evade the tax by splitting their lands into smaller holdings. Currie then agreed that progressive land taxation could not be carried out at this stage, and in the end, he made no specific recommendation regarding what kind of land tax system should be implemented.

6. Legislation

In the previous sections, we argued that Currie acted as an honest advisor by proposing the land tax reform to resolve China's wartime finance. Therefore, John Fairbank's remark mentioned in section 1 that Currie was being used by the KMT to achieve their own goal of land tax reform was inaccurate. However, his conjecture was understandable because there were discussions on reforming land taxation before Currie arrived. A brief history of these discussions follows. Prior to 1928, when the KMT-led government completed the Northern Expedition against the regional warlords that reunited China, land tax was administered nationally and comprised 15 percent of total national revenue. Following the Northern Expedition, at the First National Finance Conference held on July 1–10, 1928, land tax was delegated to provincial governments and became their major source of revenue, amounting to around a quarter of total provincial revenue from 1936 to 1940. The Second National Finance Conference held in 1934 enacted a reduction of surcharge added to land tax: there were 739 surcharges in Zhejiang Province alone in 1933, representing “a curse to the Chinese farmers.”⁴⁴

Since the war, the Chinese government had not considered recentralizing land tax but thought to levy land tax in kind because of the extraordinary increase in demand for crops for the military and for the reasons described by Wu Guozhen mentioned above. Given that inflation also caused a decrease in supply, the rise in food prices was out of control. The government intended to take command of the food supply by substituting land tax payments in kind for monetary payment. According to Arthur Young, there was no effective land tax anyway since Buck's survey in the mid- to late 1930s showed that around one-third of landlords were not even on the tax rolls (Young 1965: 22). In 1937, the Chinese government had begun to plan reform of land and its taxation, but the outbreak of the war prevented action (Young 1965). Later, in September 1937, Young proposed a policy of “new tax in kind,” which aimed to collect taxes, payable in foodstuffs, directly from landowners (23). Currie's recommendations regarding land tax, according to Young, “reinforce[d] the government's decision to proceed with collecting land tax in kind” (24).

Both centralization of land tax and land tax in kind were first enacted at the Eighth Plenary Session of the Kuomintang on April 3, 1941, and again at the Third National Finance Conference on June 15, going into effect in September. Chiang spoke at the conference to urge the establishment of a sounder foundation for the nation's finance and economy and reform of food and land policies. He committed to balancing the government budget and equalizing the tax burden on the people (Ministry of Finance 1941: 10). The tax in kind was levied at the rate of two shih tou (market tou; one market tou equals ten liters) of rice or its equivalent for one Chinese dollar of the old land tax (Ministry of Finance 1941: 5; Hsu 1942: 233). While Currie had suggested only centralizing land tax, the government went further, abolishing provincial public finance and authorizing direct governance by the Central Government (Ministry of Finance 1941: 4). To bring food and land under the control of the Central Government, the newly established Ministry of Food was responsible for collecting tax and distributing food, while the Ministry of Finance maintained accountability for land tax administration. The decision to create a new institution for food storage might be seen as a response to Currie's proposal to hire enthusiastic and patriotic young bureaucrats for tax collection (as mentioned in sec. 4) and his critique of H. H. Kung, who was both the minister of finance and Chiang's brother-in-law. Currie felt that Kung did not possess the necessary skills and intelligence to efficiently handle public finances.

The effectiveness of land tax in kind was perceived differently by contemporaries and historians. According to Hsu (1942), the first year's collection surpassed the original target by 3 percent, which was considered a success at the time. However, further investigation by historians revealed that the collection of tax in kind fell short of the required amount, forcing the government to purchase crops and borrow from landlords due to insufficient funds (Hou 1988: 168).⁴⁵

7. Concluding Remarks

When Chiang requested Currie to convey his desire for more political and economic advisors to Roosevelt, Currie was hesitant to comply. He responded that what China really needed was a political economist. Currie explained to Chiang that economics was originally known as political economy, indicating that economic plans cannot be carried out without considering the political background. It seems that Currie then realized that China's wartime economic problems could not be separated from the political ones, though he did try to solve China's economic woes through economics. The land tax policy was proposed because he determined land tax revenues were the only reliable resource of wartime finance, which could reduce the reliance on printing money to increase the money supply. This policy advice aligns with his historical reputation as an early advocate of the monetarist explanation of the causes and control of inflation (Sandilands 2004). His economic expertise was also evident when Chiang attributed the problems of inflation and exchange value to a loss of confidence attributable to the writings and speeches of returned Chinese economists who opposed him. Currie begged to differ, turning to economics by stressing the problem was the “mechanical facts of supply and demand.”⁴⁶

However, it was apparent from the beginning that Roosevelt wanted Currie's mission not just to focus on the economy but also on political and military affairs. This was reflected in a verbal message conveyed by Currie to Chiang, which emphasized the crucial need to prevent a civil war between the KMT and CCP. Furthermore, Currie opened his reports to Roosevelt with the status of internal unity and the level of morale in the fight against Japan, and half of the report concentrated on political and military issues.

Currie made every effort to fulfill his role as Chiang's political economist. He employed the technique of drawing analogies to the leadership of Franklin D. Roosevelt in the United States and invoked the ideological influence of Sun Yat-sen to encourage Chiang to take on the mantle of a strong reformist leader. He argued that “reform I have proposed can only be carried out by man who passionately believes in their necessity, who is determined to overcome every difficulty, who has a reputation for incorruptibility and patriotism.” If such a man can be found, then there is no need for help from foreigners. Otherwise, Currie felt “I have largely wasted my time.”⁴⁷ Thus, he rebutted Fairbank's comments that he was used by Chiang to endorse the land tax reform, saying, “The land tax was not recommended to [Currie] by Chiang. Land was the only wealth of China and the only source of revenue to help pay for Government expenses. [Currie] did not know that one such tax existed. Even if he had, he would probably have thought that it was better to have it collected by the National Government than by provincial war lords.”⁴⁸

Currie intertwined politics and economics. He attempted to solve economic problems while taking political considerations into account and vice versa. This kind of tactic was represented in his recommendation of land taxation reform. In his own words in his report to Roosevelt,

Regardless of the fact that the reform did not improve the financial situation, Currie's economic advice, as Chiang Kai-shek diarized at the end of February, was “one of the most remarkable events during the war.”⁵⁰

We would like to thank the guest editors and participants of the HOPE conference “Economists at War” for their constructive comments and suggestions. We also extend our gratitude to Roger Sandilands for his valuable feedback and for generously sharing Currie's unpublished materials with us.

Notes

References