Abstract
Chartalism is an influential and continuous tradition of monetary thought in ancient China. It dates back to the earliest Chinese text on monetary thought and continued into the Qing Dynasty. A vast body of related literature can be found across ancient Chinese dynasties. Chartalism in ancient China had the following main propositions. First, money originated as an invention of ancient monarchs and is a creature of the state. The second is the nominal theory of money: useless metal can function as money and become a tool of state intervention in the economy through state support. Third, the right to issue money should be monopolized by the state; otherwise, the state's monetary policy will be interfered with by other currencies. Fourth, an important monetary policy is the government's buying and selling of commodities countercyclically by issuing and receiving money, thus stabilizing prices. Fifth, the circulation process of sovereign money consists of two parts: the state's minting of coins (or issuing of paper money) and spending are the outflow of money, and levying monetary taxes (or selling goods) is the inflow of money. The state stabilizes the value of money by intervening in the circulation process.
1. Introduction
With neochartalism or Modern Monetary Theory (MMT) on the rise in public policy discussions (Wray 2015), many commentators have begun in recent years to turn their attention to the original source of such a theory, chartalism itself. To summarize chartalism in one sentence, “Money is a creature of the state” (Lerner 1947: 313) rather than, as the traditional commodity theory of money has it, a product of market transactions. MMT is the result of the post-Keynesian absorption of the history of economic thought. MMTers have interpreted chartalism and developed a heterodox macroeconomic framework, emphasizing the role of the history of economic thought and tracing MMT to the work of economists such as Georg Friedrich Knapp, A. Mitchell Innes, John Maynard Keynes, Abba P. Lerner, Hyman P. Minsky, and Wynne Godley (Wray 1998, 2014; Forstater 2006). Although MMT's interpretation of chartalism remains controversial (Juniper, Sharpe, and Watts 2014; Rallo 2020), chartalism has long existed in the history of Western monetary thought—but not there alone, for it has also long existed in the monetary thought of China. This article focuses on the history of chartalism in ancient China, which has received little attention.
Although chartalism was an influential stream of monetary thought in ancient China, its theoretical framework has not been fully explored. In the Chinese literature, several studies have been devoted to the many strands of monetary thought in this specific period (Xiao Qing 1987; Zhang Jiaxiang 2001; Ye Shichang 2022). Moreover, several works translated into English contain studies of ancient Chinese monetary thought (Peng Xinwei [1965] 2020, 1994; Hu Jichuang 1997, 2009; Yao Sui 2012, 2020). Although all of these studies have taken note of chartalism, most of the literature has been critical of it owing to the dominance of Karl Marx's commodity theory of money. Therefore, the literature has tended to shrink the scope of chartalism, sometimes even ignoring it, and has thus prevented it from “polluting” the rest of ancient Chinese monetary thought. For example, in examining the chartalist thought of Chao Cuo (晁错), Hu Jichuang's authoritative work on the history of Chinese economic thought summarizes chartalism as an abstract proposition that “the value of money was bestowed by the crown” (Hu Jichuang 2009: 235–36). Most of the Chinese literature has considered chartalism to be limited to this abstract proposition; however, how does the crown execute its monetary power? In this literature, the concrete analysis of the nature, circulation, and management of state money has been absent in discussions of chartalism, making it a castle in the air in the history of Chinese economic thought. Hu Jichuang's comment on Chao Cuo's chartalist thought is particularly harsh: “Although thinkers in ancient times were more or less inclined to such a monetary theory of value, Chao Cuo was one of the earliest and one of the most barefaced nominalists in Chinese history. All this undoubtedly proved extremely unfavourable to the progress of Chinese monetary theory” (Hu Jichuang 2009: 236; revised according to its Chinese version, Hu Jichuang 1997). This is the general attitude of the Chinese literature toward chartalism.
An exception is Peng Xinwei's ([1965] 2020, 1994) long-ago work that is neutral on chartalism and contains many insights into the history of monetary thought in ancient China. Peng (1994: xxxii–xxxiii) notes the following:
There were two main trends within Chinese monetary theory. The first was the Han Dynasty Legalists’ state determination theory. It supposed that money lacked any intrinsic value, and could only circulate because the ruler or government promoted or institutionalized it. This is very similar to the theories of such modern writers as G. F. Knapp. Western Han China's version of nominalism did, however, have a positive aspect in that its goal was the unification of the monetary system.
The other trend that Peng Xinwei refers to is the quantity theory of money, and its connection will be explained later in this article. However, Peng ([1965] 2020, 1994) mainly addresses the history of money, and his study of monetary thought is brief.
In the English literature, as noted by James L. Y. Chang (1987: 481), works “on the history of Chinese economic thought are exceedingly scarce outside China.” Horesh (2013: 373) investigates “the economic thought surrounding China's earlier use of paper money” but does not examine the relationship between these ideas and the thought tradition of chartalism. Von Glahn (1996: 15–47) provides an excellent chapter on “the fundamentals of classical Chinese monetary analysis,” which includes some of the important early monetary thinkers discussed in this article. However, the chapter is still brief compared to the long history of Chinese monetary thought. Meanwhile, while Von Glahn notes that chartalism is an important feature of ancient Chinese monetary thought, the chapter compresses and packages the whole classical monetary analysis in ancient China as a synthesis of theoretical chartalism and practical metalism (34), contrary to the Chinese literature which limits the scope of chartalism. However, this simplistic conclusion loses the pluralistic character of ancient Chinese monetary thought, and whether ancient Chinese policymakers and monetary thinkers have adhered to Schumpeter's definition of practical metalism is controversial (Schumpeter 1954; Peng Xinwei 1994; Thierry 2018).
In sum, chartalism was not a heretical idea in ancient China, and its theoretical system requires further exploration. Ancient Chinese monetary thought can be traced back to a historical record in the sixth century BC in the Guoyu (国语). This study demonstrates that chartalism was a continuous stream of thought in ancient China. Although not perfect, ancient China developed its system of chartalist thought, which included an understanding of the origins, nature, and circulation of state money and monetary policy.
This article recounts the history of chartalism in ancient China and summarizes its main propositions. Although not comprehensive—a complete treatment would require an entire book—this article focuses on some representative episodes.1 The following sections are arranged chronologically, with headings representing what are considered important themes of the period. The final section summarizes the main propositions of chartalism in ancient China.
2. The Origin and Nature of Money
It is widely believed that in Chinese monetary history, “the first object for which the monetary use is clearly established is the sea-cowrie” (Thierry 2018: 336). Thierry (2018) examines archaeological studies on the monetary role of sea-cowries during the Shang Dynasty (sixteenth century BC to 1046 BC) and the Zhou Dynasty (Western Zhou [1045–771 BC] and Eastern Zhou [770–256 BC]). As copper smelting techniques improved, various types of copper coins began to appear in China. Although the inscriptions on bones, tortoise shells, and ancient bronze objects of the Shang and Zhou Dynasties refer to sea-cowries, the earliest document identified as conveying monetary thought is a passage discussing the monetary policy of the Zhou Dynasty in the Guoyu.
The Guoyu is said to have been written by Zuo Qiumin (左丘明) during the Spring and Autumn Period (770–476 BC, a historical period of the Eastern Zhou), but it might have actually been written by someone unknown during the Warring States Period (475–221 BC) or the Western Han Period (202–8 BC). This book records the history of the late period of Western Zhou, along with the Spring and Autumn Period.
According to the Guoyu, in 524 BC, King Jing of Zhou (周景王) planned to abolish light bronze coins and issue heavy ones. During the Spring and Autumn Period, although the sea-cowrie still functioned as money, it was gradually replaced by copper coins, and copper coins of different shapes existed in different regions (Xiao Qing 1984: 44–51; Thierry 2018). The king's plan was opposed by the official, Shan Qi (单旗), and ultimately abandoned. Shan Qi argued that abolishing light coins would decrease the wealth of those who held light coins; as a result, the state would lose revenue, and people would flee the country. Shan Qi argued that the issuance of currency should follow the example of ancient kings: “In ancient times, when natural disasters occurred, ancient kings measured goods and currency, adjusted the weight of currency, and thus provided relief to the victims” (Zuo Qiumin 2019: 112).2 Therefore, Shan Qi claimed that the weight of state coins, rather than be changed to meet some arbitrary standard, should be changed only if it helped the people.
According to Ye Shichang (2022: 4–5), this earliest historical record explains the origin of money, an influential view in ancient China holding that money was first created by ancient sage monarchs.3 This claim has not been supported by archaeological evidence. However, this explanation of the origin of money was influential in ancient times. In ancient China, people valued tradition and history—especially remote antiquity. Regardless of whether a historical account was authentic or artificial, it was passed down because people used it to support their understanding of the nature of things and to rationalize their policy proposals. This is why this explanation of the origin of money was cited frequently in later chartalist texts, even if the origin of money may not be related to the monetary problems with which these texts were concerned. In this sense, this explanation of the origin of money represents a popular view on its nature: money was created by the state, should be controlled by the state, and is an instrument of the state's (or the monarch's) intervention in the economy.
The Guanzi (管子) is another of the earliest classical texts on monetary thought in ancient China, in which the explanation of the origin and nature of money is more concrete. The Guanzi is said to have been written by Guan Zhong (管仲) during the Spring and Autumn Period, but it is believed to have been gradually formed between the Spring and Autumn and Western Han Periods by people who revered Guan Zhong's thought (Hu Jichuang 2009). Guan Zhong was the chancellor (Xiang 相) of the state of Qi (齐), and his policies led to the rapid growth of Qi's wealth and power. The Guanzi was written in a conversational style, with questions posed by Duke Huan of Qi (齐桓公) and answers given by Guan Zhong. The Guanzi's explanation of the origin of money is consistent with that of the Guoyu: “During the reign of Tang, there was a seven-year drought; during the reign of Yu, there was a five-year flood. People had nothing to eat, and some sold their children. Tang used copper from Zhuang Mountain to mint coins, and Yu used copper from Li Mountain to mint coins, thus saving the victims who had no food and sold their children” (Guan Zhong 1996: 557).4
In explaining the origin of money, the Guanzi discusses the earliest nominal theory of money in China. According to this view of the nature of money, the face and intrinsic value of currency are inconsistent, because the currency material has no value as food or cloth.5 The Guanzi says that ancient kings made three kinds of money from jade, gold, and bronze, “which could neither be held for warmth nor eaten for hunger. The kings of the past used the currencies to manage the possessions, control the people, and govern the state” (Guan Zhong 1996: 550).6 The Guanzi's nominal theory of money was influential in ancient China, and this passage was often alluded to or quoted.
The Guanzi views money as a tool with which the monarch could intervene in the economy and manage the state: “Grain dominates people's lives, and money is people's means of exchange. Therefore, good rulers control the means of exchange to control the grain that dominates people's lives; therefore, they can mobilize the people to the greatest extent possible” (Guan Zhong 1996: 542).7
The Guanzi argues that the state should issue and withdraw currency to buy and sell commodities such as grain and cloth, thereby gaining revenue from price variance and maintaining price stability.8 Therefore, market prices are determined by the proportion of currency to goods. The Guanzi explains the basic rule of its macroeconomic policy, the “Light-Heavy” (轻重) theory:
Commodities are priced low when abundant and high when scarce. Selling causes the price to fall, and hoarding causes the price to increase. The monarch knows this principle, so the state controls its wealth according to the surplus and shortage of goods in the state. If food is cheap, the state buys it with money; if cloth is cheap, the state buys cloth with money. The state observes the rise and fall in prices and controls them according to this policy rule. In this way, the ruler regulates the price of goods while earning revenue. (Guan Zhong 1996: 548)9
“Therefore,” the Guanzi explains,
a good ruler sells stocks when people have a shortage of goods and buys goods when they have a surplus. When people have a surplus of goods, they are willing to sell them at a low price, so the ruler should buy them at a low price; when people have a shortage of goods, they are willing to buy them at a high price, so the ruler should sell them at a high price. By buying at a low price and selling at a high price, the ruler makes ten times the profit and adjusts and stabilizes the prices of goods. (545)10
Hu Jichuang (2009: 127) makes an insightful comparison between the Light-Heavy theory and modern equilibrium analysis:
The “light-heavy” theory is somewhat like equilibrium analysis in modern economics. According to the modern idea, however, the process occurs spontaneously, while according to Guan Zi, the equilibrium must be managed by the state. Another difference is that modern theorists take equilibrium as a desirable state to be reached, while Guan Zi saw a ceaseless pendulous movement from “lightness” to “heaviness” and back again. The theory requires constant adjustment. Every adjustment has its own specific end, whereas the end of the process as a whole is to benefit both the state and the people.
While the Guanzi viewed money as a fiscal tool and thus treated fiscal activities as monetary activities, its analysis of currency circulation was mainly confined to the state's buying and selling of goods. Later Chinese chartalists followed the Light-Heavy theory and extended the monetary analysis to other fiscal activities, such as taxation, which will be introduced in the following sections.
3. Debates over the Right of Coinage
In 221 BC, Qin (秦) defeated six other states and unified China and its currencies. The official currency of the Qin Dynasty consisted of gold and bronze coins (“Banliang” (半两) with round shape and square hole). Gold coins were only for large payments, and bronze coins were for daily circulation. In Peng Xinwei's (1994: xxvi) words, this is a parallel standard that means “that the several parallel moneys could all be employed without any limitations, and without a fixed exchange rate between them.”
The Qin Dynasty lasted only fifteen years, and the Western Han Dynasty inherited most of its currency system while changing the weight and face value of bronze coins several times (Xiao Qing 1984: 103–12; Thierry 2018). In the years that followed, at least four debates took place about the right of coinage in ancient China (Xiao Qing 1987; Zhang Jiaxiang 2001). At the beginning of the Western Han Dynasty, the government relaxed the ban on the private-sector minting of bronze coins because of a shortage of currency. Because of the proliferation of poor-quality coins and rising prices, the ban was later tightened. However, it was repealed by Emperor Wen of Han (汉文帝) in 175 BC. The policy was criticized by Jia Yi (贾谊) and Jia Shan (贾山); this was the first recorded controversy over the right of coinage in ancient China.
Jia Yi argued that the state should monopolize the right to mint coins. He proposed banning private trading and casting copper and listed seven advantages of his proposal:
(1) The number of prisoners who broke the coinage law would not increase.
(2) Counterfeit coins would not proliferate.
(3) “If the people could not own copper, mine copper, or mint coins, they would return to agriculture” (Jia Yi 2012: 94).11
(4) “The state could hold copper reserves to regulate the lightness and heaviness of the currency. When the currency depreciates, the government should levy currency through its policy, and when the currency appreciates, it should issue currency through its policy. In this way, the currency can be well managed, and the prices of commodities can be stabilized” (Jia Yi 2012: 94).12
(5) Only the monarchs would be allowed to control copper so that the social hierarchy could be protected.
(6) “With copper reserves, the government can monitor the market, regulate the quantity of goods, and make good profits. In this way, the government would become rich, and the merchant class would become poor” (Jia Yi 2012: 94).13
(7) The state could control domestic goods and thus protect itself better against foreign enemies.
According to Jia Yi, money is an instrument for state intervention in the economy, and the state's monopoly on issuing money is a prerequisite for its intervention. The state's monetary policy had broad objectives, including price stability, industrial structure, class relations, fiscal revenue, and foreign trade. In addition, point 4 shows that Jia Yi's price policy is consistent with the Light-Heavy theory in the Guanzi. Jia Yi held that the government regulated the value of money and price levels by controlling the quantity of money.14
Jia Shan's view was based on the nominal theory of money: “Although money is useless, it can be exchanged for wealth. Wealth is the means by which a monarch rules a state. If people were allowed to mint coins, they could manipulate such instruments in conjunction with the monarch, and this policy should not be maintained” (Ban Gu 2021: 3799).15
Here, “wealth” refers to real resources with use value. It is worth mentioning that in the Western Han Dynasty, nominal thinking was not limited to Jia Shan. In 168 BC, Chao Cuo (晁错) associated nominal money with state power, and both Jia Shan and Chao Cuo's points of view were recorded in Ban Gu's Hanshu. Chao recapitulated the view of the Guanzi as follows: “Jade, gold, and silver, these things cannot be used as food when we are hungry or as clothing when we are cold. People value them because the monarch uses them” (Ban Gu 2021: 1585).16
However, Emperor Wen of Han did not accept Jia Yi's and Jia Shan's advice. He not only allowed people to mint coins but also rewarded his favorite, Deng Tong, with a copper mountain. As a result, the coins minted by the king of Wu and Deng Tong circulated throughout the country, and the king of Wu accumulated a large amount of wealth. In 154 BC, the king of Wu led six other kings in a major rebellion, and after the rebellion was crushed, Emperor Jing of Han (汉景帝) banned private coinage. Later thinkers often cited Jia Yi, Jia Shan, and this rebellion to support the state's monopoly on coinage.
After Jia Yi and Jia Shan, three other debates were held over the right of coinage in ancient China. The first occurred during the Western Han Dynasty and was called the Salt and Iron Controversy (盐铁论争), with Sang Hongyang (桑弘羊) supporting the state's monopoly on the right of coinage. The second was during the Liu Song Dynasties (420–79 AD), and the supporters were Liu Yigong (刘义恭) and Yan Jun (颜竣). The third was during the Tang Dynasty (618–907 AD), and the supporter was Liu Zhi (刘秩). After the last controversy, the state's monopoly became the mainstream idea in ancient China. Because the analysis of Liu Zhi has been recorded more completely, his views are quoted here. The primary currencies during the Tang Dynasty were bronze coins and textiles. Textiles functioned de facto as money throughout the Tang Dynasty, and the state regulated the size of a standard unit of cloth (Xiao Qing 1984: 198–203). However, bronze coins and coin shortages were major concerns of monetary thought in the following quotations from the Tang Dynasty.
In the early period of the Tang Dynasty, as the monetary economy developed, currency demand increased and could not be met by the official coin supply. Therefore, in 734 AD, Zhang Jiuling (张九龄), a Xiang during the Tang Dynasty, suggested abandoning the ban on private coinage to increase the coin supply. Liu Zhi criticized this proposal by building upon the views of Jia Yi and Jia Shan, although they were nearly nine hundred years apart. His memorial to the monarch was recorded in Liu Xu's Jiutangshu. Liu Zhi quoted the Guanzi's nominal theory of money: “Holding money does not contribute to warmth, and losing money is not detrimental to satiety” (Liu Xu 1975: 2097).17
Liu Zhi listed five reasons the state should monopolize the right of coinage:
(1) “If the monarch gives the right of coinage to the people, then the monarch cannot govern the people, and the people cannot serve the monarch” (Liu Xu 1975: 2097–98).18
(2) “Those who are good at managing the country observe the price of goods and the value of money. High prices imply a low currency value. This is because there are too many currencies; in this case, the state should withdraw its currency to reduce its quantity. If there are too few currencies, the value of money will be high, and the state should distribute currency to reduce its value. This is the fundamental principle for regulating the value of money. How can this power be lent to the people?” (Liu Xu 1975: 2098).19
(3) People would use cheap metal to cast coins for profit, and this illegal act is difficult to prohibit.
(4) People would abandon agriculture, which harms agricultural production and causes famine.
(5) As in the case of the king of Wu and Deng Tong during the Western Han Dynasty, only the rich could afford to coin money; thus, this policy would widen the income gap.
Liu Zhi's thought is consistent with the Guanzi, Jia Yi, and Jia Shan, who also emphasized money as a tool for state intervention in the economy. He follows the Light-Heavy theory and explains the relationship between commodities and money. According to Liu Zhi, the value of money depends on the proportional relationship between its quantity and commodities. Therefore, the value of money and commodity prices move inversely, and the state can increase or decrease the quantity of money to adjust its value. Liu Zhi pointed out that allowing the private sector to issue money would exacerbate, rather than improve, income inequality because only the rich and nobility had the capital to coin money.
It may be appropriate to briefly discuss the relationship between the nominal theory of money and chartalism in ancient China. Starting with the Guanzi, the nominal theory of money became influential in ancient China and remained popular during the Tang Dynasty. The famous poet Bai Juyi (白居易) wrote, “Gold and silver, nothing different from dirt and dust. Serving neither as clothing nor food, helping neither the cold nor the starving” (Bai Juyi 2023: 102).20 If money is useless, then why do people still value it? According to Chao Cuo, it was because of the monarch's power; however, he does not explain how this power regulated the value of money. Does this mean that the monarch simply determined the value of money by announcing a new face value? Chartalism in ancient China follows the Light-Heavy theory to explain how fiscal activities regulate the value of money, and in this sense, the Light-Heavy theory complements the nominal theory of money in the theoretical system of chartalism. According to the Guanzi, Jia Yi, and Liu Zhi, the state can increase or decrease the quantity of money, thus changing the proportional relationship between money and commodities; thus, the state's power adjusts the value of money. However, one remaining question is how money flows from and into the government. The relationship between money circulation and fiscal activities is an important issue discussed by later chartalists.
4. Fiscal Activity and Currency Circulation
According to Peng Xinwei (1994: 291), “Beginning with Emperor Dezong's zhenyuan era (785–805), the Tang Dynasty underwent a monetary constriction that continued for some sixty to seventy years,” and the deflation was caused by several historical factors, including the reduction of the coin supply caused by the private melting of old coins and the official cutback of the production of new coins, the increase in the demand for coin caused by “the broadening of the territory within which coins were used” (Peng Xinwei 1994: 292), and the new taxation policy called Double Tax (两税法). In 780, the Tang Dynasty introduced reforms to simplify its tax system by converting taxes in kind and servitude into monetary taxes. Although this reform boosted the monetization of the ancient economy, it also caused a shortage of money and a drop in prices, fueling monetary thinkers’ concerns.
In 794, Lu Zhi (陆贽), as a Xiang, criticized the tax reform and analyzed currency circulation:
One may ask: although the officials’ salaries and army supplies can be paid with cloth and grain, the state has to use coins to buy grain according to the season and thus regulate prices; then, where does the money come from? In my opinion, this is the reason why ancient sage monarchs dug up minerals and minted coins and why the state monopolized revenue and forbade the private sector from minting coins. Commodity prices are low because there is too little money, and when there is too little money, the value of money is high. At this point, the state should mint and distribute more currency and depreciate it. Commodity prices are high because there is too much money, and when there is too much money, the value of money is low. At this point, the state should adopt a policy of withdrawing more currency, thereby appreciating it.
Therefore, the price of goods depends on the quantity of money, which, in turn, depends on state management. The state did not fulfill its responsibility but levied too much tax paid in money from the people. People were forbidden from minting coins and were forced to pay taxes. Consequently, the poor sold their assets and borrowed money from the rich; the rich saved money and secretly assumed the power to control the value of money. This policy impoverished ordinary people and harmed the state's financial power. This is probably where the current social problems lie. The state should mine copper to mint more coins and prohibit the private use of copper; if managed well, there will be no shortage of coins. The state should withdraw coins by selling salt and wine, and if this is well managed, the coins will flow back. If the state has channels for withdrawing coins, it can levy and appreciate coins. If the state has minted enough coins, it can distribute and depreciate them. (Lu Zhi 2006: 743–45)21
This long quotation shows that Lu Zhi's thought followed the tradition of chartalism and of his predecessors mentioned above. In line with the Light-Heavy theory, Lu Zhi also claims that the value of money depends on the proportional relationship between the quantity of money and the quantity of goods, and the state changes the quantity of money and thus adjusts the value of money. While in the Guanzi the monetary analysis of fiscal activities was mainly limited to the state's buying and selling of goods, Lu Zhi had a wider field of view on the state money circulation process, which included two main steps: money flows from the public sector to the private sector through government expenditure and from the private sector back to the public sector through government revenue. Therefore, Lu Zhi perceived weakness in his policy proposals: If the monetary tax was abolished, how could money flow back to the public sector? Lu Zhi suggested an alternative channel for its reflux. Since the state monopolized the sale of salt and wine, which was a policy tradition with a long history that might be traced back to Guan Zhong, Lu Zhi argued that the government could withdraw money by selling these commodities.
Another critic of the tax reform was Yang Yuling (杨於陵) (Ouyang Xiu 1975: 1360–61). Forty years after the reform, the criticism of Yang Yuling, a senior official, finally led the Tang Dynasty to convert part of its monetary taxation back into taxation in kind. According to Yang Yuling, the state could manage the value of money because “the people would certainly follow what the state valued” (1360).22 Yang Yuling's analysis of the circulation process of money showed that the shortage of money at that time was due to the following five reasons: the state collected coins but did not spend enough; the nobles stored a large amount of coins; the state minted fewer coins; coins flowed abroad; and people wore down and stored coins for various reasons. Therefore, in addition to producing more coins and limiting currency outflow and private storage, Yang Yuling advocated that the state reduce monetary taxes and increase monetary expenditures to relieve the shortage of coins; for that reason, the state should convert monetary taxes into taxes in kind.
Similar arguments were made against the reform of Wang Anshi (王安石) in the Song Dynasty (960–1279). The primary money in this period was bronze and iron coins, while the monetary role of silver increased, and textiles ceased to be money (Xiao Qing 1984: 218–22). Meanwhile, the Northern Song Dynasty (960–1127) saw the emergence of the world's earliest paper money, Jiaozi (交子). Horesh (2013) reviews the history of paper money and related monetary thought in ancient China. During the Southern Song Dynasty (1127–79), paper money such as Huizi (会子) evolved into primary money paralleled with coins.
Zhao and Drechsler (2017) analyzed the economic policy and thought of Wang Anshi's reform and considered it “proto-Keynesianism.” One important element of the reform was the Corvée Exemption Act, which replaced servitude with a monetary tax. Critics such as Sima Guang (司马光), Su Zhe (苏辙), and Zhang Fangping (张方平) argued that the reform would cause a shortage of money and therefore aggravate the burden on people. For example, the senior official Zhang Fangping (张方平) appealed to chartalism in his explanation of the origin and nature of money and supported the state's monopoly of coinage, stating that “money is a tool controlled by the monarch and not shared with the people” (Li Tao 2004: 6787).23 He analyzed the circulation of coins and concluded that the outflow channels of money included officials’ salaries, military supplies, the cost of state-operated businesses, and other government purchases, while the inflow channels included various kinds of taxes. Therefore, “the quantity of money in the private sector depends on the quantity of money flowing out of the government. The latter was insufficient, and there was a shortage of money in the private sector. In this case, how can people obtain more money to pay for the newly added tax?” (Li Tao 2004: 6789).24
After the emergence of paper money, the stability of its value and prevention of inflation became major concerns of monetary thought in ancient China. Contrary to the above controversy, monetary taxes were supported as an important channel for withdrawing money, thus maintaining the value of paper money. Ancient chartalists and other monetary thinkers often emphasize two channels of money reflux: currency reserves and monetary taxes.25 For example, Yang Guanqing (杨冠卿), an intellectual in the Song Dynasty, claimed that the monarch had the power to determine the value of money and that it should adopt two policies to stabilize it: first, taxes and the state's sales of goods should be allowed to be paid in paper money; second, the state should redeem paper money with coins when the paper money depreciates and distribute paper money when it appreciates (Yang Guanqing 1996). Yang Guanqing advocated that people should pay 50 percent of their taxes in coin and 50 percent in paper money.
Another example is Xin Qiji (辛弃疾), a famous poet from the Song Dynasty. In 1175, Xin Qiji, as an official, analyzed the reasons for the depreciation of paper money and argued that taxes were a channel for money reflux and therefore a means of maintaining the value of money:
Huizi was for people's convenience. It became fraught with ills mainly because the government's management devalued it. Why is it for people's convenience? Ordinary people think that copper has value and paper has no value, but actually the essence of copper and paper is the same. Neither copper nor paper can be used for clothing or food when people are cold or hungry. . . . Why did the government's management devalue it? The government received more copper coins and less paper money in its taxation and spent fewer copper coins and more paper money in its expenditure. (Xin Qiji 2007: 296–97)26
According to Xin Qiji, the circular movement of money was similar to an old Chinese saying: “If you want to get it, you have to give it first” (Xin Qiji 2007: 297).27 Xin Qiji advocated that the state collect more paper money in taxation, thus stabilizing its value.
Paper money served as China's official currency during the Southern Song Dynasty, the Jin Dynasty (1115–1234), the Yuan Dynasty (1271–1368), and the early Ming Dynasty (1368–1644). During this period, many discussed the importance of reflux channels—especially taxation—for stabilizing paper money: Yang Wanli (杨万里), Yuan Xie (袁燮), Wu Qian (吴潜), and Yuan Fu (袁甫) in the Song Dynasty; Xu Ding (胥鼎) and Sun Duo (孙铎) in the Jin Dynasty; Ye Li (叶李) and Lu Shirong (卢世荣) in the Yuan Dynasty; and Chen Ying (陈瑛) and Liu Dingzhi (刘定之) in the Ming Dynasty. Because their ideas are similar, we do not discuss them in detail here.
After the middle period of the Ming Dynasty, silver gradually replaced paper money as primary money. The currency system of the late Ming Dynasty and the Qing Dynasty (1636–1912) was based on bronze coins and silver. While some Chinese scholars described monetary thought during the late Ming and Qing Dynasty as stagnant (Xiao Qing 1987: 9; Zhang Jiaxiang 2001: 23), chartalist ideas were still present during this period. Some thinkers, such as Chen Zilong (陈子龙), Qian Bingdeng (钱秉镫), and Ni Yuanlu (倪元璐) in the Ming Dynasty and Wang Liu (王瑬) in the Qing Dynasty, suggested that the state resume issuing paper money to solve the economic problems of dynastic fall. We conclude our review of chartalism in ancient China with Wang Liu's ideas.
Before the First Opium War, the opium trade caused a massive outflow of silver from China, which caused social concern. Wang Liu was an ordinary intellectual, and his 1831 book is believed to be the earliest book on money theory in the history of Chinese monetary thought. He extended the book, and the second edition was published in 1837 (Wang Liu [1837] 2010a, [1837] 2010b).
Wang Liu ([1837] 2010a: 6) explained his policy goal as follows:
If you want to make people sufficient, nothing can compare to the importance of agricultural production; if you want to make the monarch sufficient, nothing can compare to the power of money. If the power of money is lost, the state will not be able to reduce taxes or cultivate farmland because of a lack of revenue. How can it stimulate agricultural production? Therefore, the priority is to make the monarch sufficient.28
According to Wang Liu, the circulation of silver in China deprived the state of this monetary power; therefore, the government should issue inconvertible paper money to replace silver as the official currency. “Silver is the same as paper money in the respect that they cannot be used as food when we are hungry or as clothing when we are cold” (Wang Liu [1837] 2010b: 78);29 Wang Liu traced his claim to many ancient thinkers mentioned earlier, such as Jia Yi, Xin Qiji, and Liu Zhi.
Against the view that paper money inevitably causes inflation, Wang Liu argued that “critics fail to understand that if the government issues new paper money and does not withdraw the old, it is not surprising that the old will become worthless. The cause of inflation is not the issuance of paper money” (Wang Liu [1837] 2010a: 14).30 Moreover, “the main problem in issuing paper money is not spending too much money, but receiving too little money. If the government manages its inflow and outflow of money well, then money can circulate on a large scale; so how can it depreciate because of excessive issuance?” (15).31
However, in attempting to gain official support for his monetary policy, Wang Liu received much criticism from his contemporaries, which was the epitome of the controversy over whether the nature of money was nominal or metallic, whether the priority of monetary policy was to satisfy fiscal needs, and whether the silver standard should be maintained (Ma Linghe 2010). According to Wang Liu, the issuance of paper money was generally successful when the political situation was stable, but the issuance was prone to failure at the end of a dynasty when under a serious budget deficit. Ironically, the latter was the historical condition in which he lived.
5. Conclusion
The retrospective in this article shows that chartalism is a long-lasting tradition in the history of monetary thought in ancient China; it dates back to the earliest records of monetary thought in ancient China and has continued into modern China. According to the historical literature, chartalism in ancient China is characterized by the following propositions.
First, money originated as an invention of ancient monarchs. Although this proposition is not supported by evidence from modern archaeology, it represents the basic view of chartalism in ancient China on the nature of money; that is, money is a creature of the state.
Second, according to the nominal theory of money, the metal in coins is useless, as it is neither clothing nor food. Only through the support of state power can this useless thing function as money and become a tool of state intervention in the economy.
Third, the state should monopolize the right to issue money. Money is a policy instrument; if the state gives up its monopoly on issuing money, other currencies (private and foreign) will interfere with its policy.
Fourth, an important component of monetary policy is that the government buys and sells commodities countercyclically by issuing and receiving money, thus stabilizing prices.
Fifth, the circulation process of sovereign money consists of two parts: the state's minting of coins (or issuing of paper money) and spending are the outflow of money, and levying monetary taxes (or selling goods) is the inflow of money. The state stabilizes the value of money through fiscal and monetary policy. If the money supply is too great (too little) relative to the quantity of goods, the value of money will fall (rise), and the state should reduce (increase) monetary expenditure and increase (decrease) monetary revenue.
This article provides a starting point for examining three further questions. First, was chartalism orthodox in ancient China? Answering this question requires a comparison of the influence of chartalism with that of other monetary ideas, such as metalism, in ancient China. It can be concluded that chartalism was not a heretical idea in ancient China but an influential and long-lasting tradition of economic thought.
Second, what are the differences between Eastern and Western chartalism? As this requires a comparison of the historical contexts and contents of these two streams of economic thought, we cannot draw conclusions here. One significant difference may be that chartalism in ancient China arose in an agrarian society where the main economic problem was a shortage of supply rather than effective demand; therefore, chartalism in ancient China placed more emphasis on stabilizing prices and the value of money than on mobilizing idle resources through fiscal expenditure.
Third, what has been the fate of chartalism in modern China? Readers may think that contemporary Chinese economic thought bears characteristics similar to the chartalism of ancient China, but this is not the case. Today, Chinese economics education is dominated by neoclassical economics (Cohen 2017), and chartalism is absent from the curriculum and research on monetary theory. The subsequent fate of chartalism is related to three major shocks to monetary thought in modern China: the introduction of foreign economic theory after 1840, the dominance of Marxist economics after 1949, and the reintroduction of mainstream Western economics after 1978. The decline of chartalism in China is an evolutionary outcome that requires further research in the history of economic thought and the sociology of science.
The author would like to thank Eric Tymoigne, Paul Dudenhefer, and two anonymous referees for their helpful and constructive comments. Any remaining errors are the responsibility of the author.
Notes
The Chinese texts quoted in the article are all translated from ancient Chinese. The quotations are from newly published versions, and I also recommend the Zhonghuaguji Database (中华古籍资源库) of the National Library of China and the Erudition Chinese Ancient Book Database (爱如生中国古籍库) for online access to these ancient books.
“古者天灾降戾，于是乎量资币，权轻重，以振救民.” For the words “adjusted the weight of currency,” the interpretations of the original words “权轻重” are at least three: (1) adjust the weight of currency; (2) use the currency to measure the prices of goods; (3) adjust the relative values of goods and currency (Zhang Jiaxiang 2001: 72–74). The first one and Zhang Jiaxiang’s (2001) opinion follow here.
However, this interpretation is still controversial. Liu Sen (1995) argues that the existence of the currency is the precondition of the ancient king’s measuring goods, and therefore this record should not be interpreted as an explanation of the origin of money.
“汤七年旱，禹五年水，民之无饘卖子者. 汤以庄山之金铸币，而赎民之无饘卖子者；禹以历山之金铸币，而赎民之无饘卖子者.” Tang and Yu were ancient monarchs in China.
However, if we had asked the nominalists in ancient China whether jade, gold, or bronze had no use value at all, they would have replied that this was not true because these things could be used for jewelry or some metal products. While no satisfying explanation for this conflicted attitude exists in the literature, Hu Jichuang (2009: 231–32) hints at a possible explanation in his interpretation of Jia Yi’s thought. While the nominalists realized that the face value and intrinsic value of currency were inconsistent, they did not go to the extreme to believe that currency material such as jade, gold, or bronze had no intrinsic value at all. On the contrary, the market value of currency material was an important factor the monarch had to take into account when managing the nominal money.
“三币握之则非有补于暖也，食之则非有补于饱也，先王以守财物，以御民事，而平天下也.”
“五谷食米，民之司命也；黄金刀币，民之通施也. 故善者执其通施以御其司命，故民力可得而尽也.”
Logically, the revenue here means real resources such as food and cloth because, if a state keeps running a fiscal surplus and accumulating the currency it issues, a shortage of currency would occur in the private sector, which would be harmful to price stability according to the Guanzi.
“夫物多则贱，寡则贵，散则轻，聚则重. 人君知其然，故视国之羡不足而御其财物. 谷贱则以币予食，布帛贱则以币予衣. 视物之轻重而御之以准. 故贵贱可调而君得其利.”
“故善者委施于民之所不足，操事于民之所有余. 夫民有余则轻之，故人君敛之以轻；民不足则重之，故人君散之以重. 敛积之以轻，散行之以重，故君必有十倍之利，而财之广可得而平也.”
“铜不布下，不得采铜，不得铸钱，则民反耕田矣.”
“上挟铜积，以御轻重，钱轻则以术敛之，钱重则以术散之，则钱必治，货物必平矣.”
“挟铜之积，以临万货，以调盈虚，以收倍羡，则官必富而末民困矣.”
It is worth mentioning that points 3 and 6 show that one policy goal of Jia Yi’s proposal was Zhongnongyishang (重农抑商), that is, to develop agriculture and suppress commerce. This was a prevailing policy idea in ancient China’s agrarian society, but it is not internally related to chartalism in ancient China. For example, Liu Zhi, a chartalist in the Tang Dynasty who will be introduced later, proposed that monetary policy should benefit both agriculture and commerce (Liu Xu 1975, 2097–99).
“钱者，亡用器也，而可以易富贵. 富贵者，人主之操柄也，令民为之，是与人主共操柄，不可长也.”
“夫珠玉金银，饥不可食，寒不可衣，然而众贵之者，以上用之故也.”
“握之则非有补于暖也，舍之则非有损于饱也.”
“陛下若舍之任人，则上无以御下，下无以事上，其不可一也.”
“故善为国者观物之贵贱钱之轻重. 夫物重则钱轻，钱轻由乎物多，多则作法收之使少. 少则重，重则作法布之使轻. 轻重之本，必由乎是，奈何而假于人？” “钱轻由乎物多” should be “钱轻由乎钱多” and this is a mistake in the original text as noticed by Xiao Qing (1987: 117). The translated words have corrected the mistake. It is unclear whether the mistake belonged to Liu Zhi or Liu Xu.
“毕竟金与银，何殊泥与尘. 且非衣食物，不济饥寒人.”
“议者若曰：吏禄军装，虽颁布粟，至於以时敛籴，用权物价重轻，是必须钱，於何取给？答曰：古之圣人，所以取山泽之蕴材，作泉布之宝货，国专其利，而不与人共之者，盖为此也. 物贱由乎钱少，少则重，重则加铸而散之使轻；物贵由乎钱多，多则轻，轻则作法而敛之使重. 是乃物之贵贱，系於钱之多少；钱之多少，在於官之盈缩. 官失其守，反求於人. 人不得铸钱，而限令供税. 是使贫者破产而假资於富有之室，富者蓄货而窃行於轻重之权. 下困齐人，上亏利柄，今之所病，谅在於斯. 诚宜广即山殖货之功，峻用铜为器之禁，苟制持得所，则钱不乏矣. 有粜盐以入其直，有榷酒以纳其资，苟消息合宜，则钱可收矣. 钱可收，固可以敛轻为重. 钱不乏，固可以散重为轻.”
“上之所重，人必从之.”
“夫钱者人君之所操，不与民共之者也.”
“民间货布之丰寡，视官钱所出之少多，官钱出少，民用已乏，则是常赋之外，钱将安出？”
The concept of Chengti (称提) was often discussed in the contemporary literature on the principle of managing paper money (e.g., Von Glahn 1996: 45; Horesh 2013: 380). However, the meaning of this concept varied over time. How it should be interpreted and whether it is an appropriate condensation of the principle of managing paper money in ancient China remain controversial (Ye Shichang 1996). This article focuses on related thoughts about chartalism and does not dive into a discussion about Chengti.
“盖会子本以便民，其弊之所以至此者，盖由朝廷用之自轻. 故耳何谓“本以便民”？世俗徒见铜可贵而楮可贱，不知其寒不可衣，饥不可食，铜楮其实一也. . . . 何谓“朝廷用之自轻”？往时应民间输纳，则令见钱多而会子少；官司支散，则见钱少而会子多.”
“将欲取之，必固予之.”
“夫欲足民，民莫如重农务穑；欲足君，莫如操钱币之权. 苟不能操钱币之权，则欲减赋而绌于用，欲开垦而无其资，何以劝民之重农务穑哉?故足君尤先.”
“言乎饥不可食，寒不可衣，则银钞皆同.”
“不知既造新钞，而不收旧钞，则旧钞不值一钱，固无足怪. 若夫物价之腾踊，原不关于行钞.”
“然亦不患其出之多，而第患其入之少. 苟收敛有术，流转于上下而无穷，奚至于多而轻哉?”
