History of Money, Banking, and Trade
A historical look at the development and evolution of money, banking, and trade. From the ancient civilizations to the present.
History of Money, Banking, and Trade
Episode 40. Ancient China's Financial Revolution
Journey through ancient China's remarkable economic evolution, from warring feudal states to a unified commercial empire that would influence global trade for millennia. This episode explores how Chinese civilization transformed between 720-221 BCE, developing innovative financial systems that paralleled—and sometimes surpassed—those of Western civilizations.
Witness the emergence of China's first bronze currencies around 600 BCE, remarkably coinciding with similar monetary innovations in Anatolia. These distinctive knife and spade-shaped coins revolutionized commerce and facilitated greater economic integration across previously fragmented territories. More fascinating still were the sophisticated price stabilization measures implemented by early Chinese states—buying grain after abundant harvests to prevent price collapses for farmers, then selling these stores during shortages to prevent inflation that would harm consumers. This early form of market intervention to reduce volatility became a cornerstone of Chinese economic policy for centuries.
The story takes a dramatic turn during the Han Dynasty, when Emperor Wu implements what modern economists might recognize as state mercantilism. By seizing control of key industries like salt and iron production, creating state monopolies that generated enormous revenue, Wu funded China's military expansions and the development of the legendary Silk Road trading network. This ambitious trade route connected China to distant markets across Eurasia, fundamentally altering the course of global economic history while facilitating unprecedented cultural exchange between East and West.
What makes these ancient economic developments particularly relevant today is how they grappled with questions we still debate: the proper balance between state control and free markets, the sustainable level of wealth inequality, and the role of government in economic activity. As we navigate our own complex economic challenges, the ingenious solutions developed by ancient Chinese states remind us that economic principles transcend time, even as their applications evolve with changing technologies and societies.
Discover how China's early economic innovations—from standardized weights and measures to sophisticated monetary systems—created the foundations for one of history's greatest civilizations, and perhaps gain insights into our own economic future.
To support the podcast through Patreon https://www.patreon.com/HistoryOfMoneyBankingTrade
Visit us at https://moneybankingtrade.com/
Visit us on YouTube https://www.youtube.com/@MoneyBankingTrade
Hi, I'm Mike Deek. This is the History of Money, Banking and Trade podcast. My goal is to expand your knowledge of the history and evolution of trade, along with money, banking and credit, from ancient civilizations to present-day market innovations. I am not a historian, but I have an MBA and more than 20 years working in various financial roles. But I have an MBA and more than 20 years working in various financial roles. I find that if I study the history of financial innovations, along with trade, complex modern international economic activities are much easier to understand.
Speaker 1:The economic transformation of China from around 720 to 221 BCE presented a fascinating case study in how societies evolved from feudal structures to complex commercial economies. During this pivotal era, China underwent remarkable changes from fragmented warring states to increasingly centralized kingdoms, from hereditary privileges to merit-based governance and from simple credit systems to sophisticated monetary systems. As we journeyed through the spring and autumn period into the Warring States era, we witnessed the emergence of China's first bronze currencies, the knife-and-spade-shaped money that appeared around 600 BCE. This coincided with similar monetary innovations in Anatolia by the Lydians. What makes this period particularly relevant to modern listeners is how these ancient Chinese states grappled with economic questions we still debate to this day. Should governments intervene in markets? How much wealth inequality is socially sustainable? What's the proper balance between private enterprise and state control? The reformer Li Kui emerged as a particularly compelling figure. Rising from a commoner to prime minister, he instituted revolutionary policies abolishing hereditary slavery. He established merit-based governance and he implemented fair taxation and allowed private land ownership. When farmers could own their own land rather than working for the nobles, productivity increased dramatically an early demonstration of how economic incentives drive behavior. Perhaps most fascinating is how these ancient states developed sophisticated price stabilization measures, with governments purchasing grain after abundant harvests to prevent price collapses and then selling stored grain during shortages to prevent inflation. This form of price smoothing to protect both producers and consumers became a fundamental feature of Chinese economic policy for centuries. China's early economic innovations, from standardized weights and measures to diverse currencies and regional specialization, created the foundations for one of history's greatest civilizations.
Speaker 1:The sudden collapse of the Qin Empire opened the door for the Han to step into the void. However, nothing much had really changed as the Han Dynasty took up where the Qin rulers left off. They preserved not only the Banglang coins but also the basic fiscal agenda for the Qin state. As his empire expanded, it introduced its own coin into newly conquered territories. In a way, it appears that they had the attitude of if it isn't broken, they don't need to fix it.
Speaker 1:Han further controlled the marketplace and the economy by ensuring that the artisans were to be assigned to government workshops, while merchants were required to conduct their business in designated marketplaces under the strict supervision of state officials. All persons who traveled away from their native locale were required to carry passports. Additionally, traveling merchants had to register with local officials to obtain permission to sell their goods in town. As such, social and economic restrictions on merchants became more stringent under the Han. Certain marketplace registers were used to seize goods for official use and to impose a broader range of legal discrimination. So, for example, merchants and artisans at times were forbidden to hold government office or own their own arable land. Furthermore, the process for land-grant allocations laid the foundation for the development of the small farm family economy with a stable economic base, but also because they believed it would incentivize small farmers, which would ultimately increase agricultural productivity for the state.
Speaker 1:The Han founders maintained the Qin tradition of rewarding soldiers fighting for them by giving them land. Ultimately, the Qin and the Han appropriated land grants to households in 100 mu units based upon their rank. In other words, the higher the rank, the more land in mu the soldier would receive. 100 mu equated to about 4.5 acres. With that being said, the state exercised direct control of the most productive assets, including foundries, workshops, mines, forests, pastures and a substantial portion of the agricultural economy. In order to do this, they had greatly expanded the state bureaucracy. In addition, the government would assume responsibilities over the slave trade, production of clothing, the production of maps, bows, chariots, boats, oxen, wine wells, markets, mortars for grinding grains, even physicians and the shamans, even physicians and the shamans.
Speaker 1:Before the Han, the Qin state governments played an active role in the overall economy. Therefore, the state initiated many infrastructure projects, which included roads, canals and defensive fortifications, including city walls and, most famously, the Great Wall along the empire's northern frontier. All this required immense amounts of labor. Anyone who violated any legal codes were subject to one to six-year sentences of hard labor. If you were sent to the Great Wall, well, that often meant a death sentence. Well, that often meant a death sentence.
Speaker 1:So while the Han were growing in size and strength, the Qi were also growing through their own reforms. In fact, they had significant victories over the Wei and the Yan. In 344 BCE, the rulers of the Qi and the Wei mutually recognized each other as kings. Up until this point, technically, the Zhao were still the puppet kings, but this meant that the Chinese were no longer even willing to acknowledge this. From this point on, all various states were locked in a fight to become the new supreme ruler of the Chinese states. The Wei were near the top of the pecking order but were clearly weakening, and it only got worse when the more powerful Qin started attacking it from the west. It suffered several defeats and was only saved when they asked for help from the Qi to stop the Qin from completely conquering it in 340 BCE. With this, the two most powerful states in ancient China became the Qin and the Qi. As a result, in 325 BCE, the ruler of the Qin proclaimed himself king as well, and soon he was followed by rulers of the Han, the Zhao and the Yan. In the next two years, this meant that all the major states were now officially kingdoms and they recognized each other. In that way, the Zhou kings were sort of hanging on by a thread at this point. In fact, in 318 BCE, the Zhou were defeated in a war by the Qin. As a result, the Zhou king of the state, had retracted his proclamation as king, returning his title to a level of a duke.
Speaker 1:By the 4th and early 3rd century, the state of Qin was clearly the most dominant in China. Not even the Chu or the Qi could top them in a direct fight. Much of this strength may have been in large part due to their geography. The land in the upper region of the Yangtze River was very fertile. This meant that the Qin had access to a productive economy, which also meant that they could provision their troops. On top of that, the mountain ranges nearby acted as a natural fortress from enemy invasion. Other states also realized this as well, so they figured diplomacy would probably be the best option to deal with the Qin. Furthermore, they also realized one-on-one fighting wouldn't work, so they devised a system of alliances to deal with the potential threat. Mind you, some got on the Chin train and allied with them, so it wasn't like it was the world against the Chin.
Speaker 1:But while all this was happening, reforms were once again occurring in the Wei, as they pivoted towards a laissez-faire attitude that allowed merchants considerable freedom from state control. Subsequently, Wei experienced dynamic commercial growth, even as its military strength faded. Meanwhile, in Qin, the state was overly reliant on its military might. Therefore, as you can imagine, the manufacturing and storage of weapons remained under the tight control of the central government. By 323, the Chu central government ceded some of its power to local officials. It granted exemptions from internal customs duties, which had to be renewed annually. It also fixed trade routes for up to 50 wagons and 150 boats. Wagons which were intended for routes along the northern frontier of the Chu state, which were intended for routes along the northern frontier of the Chu state, specifically prohibited the transport of metals, leathers and arrows. In other words, they had set up restrictions based upon national security concerns.
Speaker 1:In 307 BCE, the Qin had some sort of internal strife, which led to a weakening state. Of course, others took notice, especially King Min of Qi, who led an alliance that attacked the Qin in 298 BCE. After a few years of war, the Qin yielded to the Qi and the Qi had abandoned its alliance with the Wei and Han, but at at the same time, it had set up temporary truces with the Qin. This proved to be a fatal mistake, as the Qi suffered a total defeat soon after King Ming died. As a result, the Qi territories were occupied in 279 BCE. When they managed to regain them, the Qi were never again able to achieve its former power. The Zhao, on the other hand, made an incredible comeback after being nearly dead in the water for years, it somehow made its way back from the dead to being the most powerful state in the next decade or so, as it achieved several victories over the Qin.
Speaker 1:By 269 BCE, the king of the Qin decided to abandon its old system of alliances in favor of diplomacy, based on the idea of having alliances with people in distant lands and having war with its neighbor. This way of thinking was aimed at achieving a permanent expansion of the state, with all the new territory gains belonging solely to the king, not his general or vassals. The sole aim of the war for the Qin became territorial gain. Furthermore, he stated his policy of attacking not only the lands of the enemy, but the people as well. It feels like the ancient version of total war. This meant that, in addition to territorial gains, the ultimate goal was annihilating rival armies, so that the enemy could never have the capacity or willpower of fighting back.
Speaker 1:Campaigns subsequently lasted for years, not only a single season. Soldiers were now armed with iron weapons and armor, as it became cheaper and more durable than bronze. New military innovations were adopted, like the use of cavalry and crossbows. Forts and defensive walls around cities became the norm. Battles and sieges became long, and all remains of feudal chivalry were lost by the mid-3rd century BCE. For example, a Qin general of this era who became known as Ren Tu which meant the human butcher was responsible for killing about 900,000 enemy soldiers during his 30-year career, and the first to bear the Qin attack in 265 BCE was the Han, at this point, the weakest surviving state and the Qin's immediate neighbor.
Speaker 1:The Qin achieved a great victory in 260 BCE. Therefore, the next step for the Qin was a direct attack on the Zhou Dynasty in 256. As a result, Zhou lands were conquered and annexed by the Qin. As such, this was how the Zhou Dynasty officially ended. Despite their recent comeback, there were no more puppet kings. In 247 BCE, Zhou Jiang became the new king of the Qin. At the time, he was only 13 years old, so he had regents rule in his palace until 235, when the Qin conquered the Zhao Han and the Wei between 257 and 226 BCE. This meant a more centralized China and thus reversed the previous trends towards independence and success of the urban merchant classes of the central plain heartland.
Speaker 1:As a result of the Qin being the military superpower of China, market development in the Qin was closely related to the military-industrial complex and, to make matters worse, there was a serious concentration of wealth in the hands of the large landowners and certain merchants. Since the private markets were being diminished, the Qin relied heavily on labor statuses levied on adult men and women. Conscript labor, which was typically in the form of convict labor, was typically used for large infrastructure projects. The Qin ran a very strict society. In fact, harsh punishment was given out for somewhat minor things like lost or broken tools. So, as you can imagine, Zhou Jiang wasn't exactly the most liked emperor. But the thing was, subsequent dynasties would more or less follow his lead and adopt many of his policies. Kind of has an ancient Mesopotamian feel about it. When an ancient Mesopotamian king became powerful and expanded, the subsequent Mesopotamian kings would also look at that Mesopotamian king as the model of how to rule going forward.
Speaker 1:So in 226 BCE, the Qin took parts of the Yan, and in 225, the Wei fell as well. In 223, the Chu were conquered by the Qin. The next year the Qin conquered the remaining territories of the Yan in as well, In 223, the Qi were conquered by the Qin. The next year, the Qin conquered the remaining territories of the Yan in the north. And in 221, the last state to be conquered was the Qi. So, as a quick recap, China was divided into several kingdoms. Then, for a couple hundred years, China would experience various wars some were minor, some were major, with hundreds of thousands of casualties. It took less than 10 years for Zhao Jiang to achieve complete victory. This essentially birthed Imperial China. In fact, China took its name from the Qin, Qin China. The Warring States Period, which was from about 475 to 221 BCE, was characterized by intense warfare among the remaining larger states as they competed for dominance until the Qin state's eventual unification of China the Qin state's eventual unification of China.
Speaker 1:While war is costly in terms of lives and money, there is an unintended side effect of war that may not be so apparent at first. The thing about this constant war for 200 years was it basically sped up scientific and technological research and developments. All you need to do is look at recent past events, say during World War I, and how fast technology had moved in that four-year period. It was like someone hit the fast forward button on a time machine and innovations and technology sped up completely. What the Chinese did really well was they used their existing infrastructure for making bronze and applied that to iron technology. So what they did was use their previous knowledge to move down the learning curve and then develop economies of scale to produce iron quicker and cheaper with high quality quality. This will obviously help their ability to make strong weapons, but also they will be able to build stronger tools quicker and at lower cost, which in turn led to an increase in food production. And then you factor in the large scale irrigation projects. Another thing we see is the production of silk was improved, which marked the beginning of what we could call the textile industry. Then you factor in that transportation had improved, as small carts were replaced with stronger and sturdier wagons that had breast harnesses, which allowed horses and tow animals to pull larger weights, and they improved shipbuilding. You get strong economies of scale, resulting in the production and transportation costs being reduced in both time and expenses, which resulted in expanded trade. Then you factor in there was an introduction of new monies that were created Because much of the trade was enhanced due to the implementation of coinage and the various kingdoms in China which developed during the Warring States period.
Speaker 1:As such, the states of the Qin, Chu, the Qi and the Yan. They had restricted coinage to central mints in the state capitals. Many cities in the Jin successor states issued coins in their own name the Wei, the Han, the Zhao minted coins in local mints, usually in the same cities that had weapons workshops. Additionally, the same mints cast many different types of currencies. The Han city of Xinjiang, for example, produced the knife and spade currency and round coins, which would have attested to its connections to the qi and the qin. And because of this, China saw a great transformation as merchants became wealthier and held more important ranks of society. The Qin well, there was a lot of currencies before that, but they standardized the currencies and they standardized weights and measurements. They standardized the language and the writing system. Then add the standardization of the width of carriage axles and large-scale infrastructure projects like building roads, canals. Well, this all meant more efficient trade throughout China.
Speaker 1:But it's worth noting that the Qin initially issued bronze coins more for the ability to pay soldiers and collect taxes than to facilitate market exchanges. It's basically the same reason why the Persians issued coins as well. They didn't issue coins to facilitate market transactions. They issued coins because they had to pay the mercenary soldiers and that's all they would accept. The mercenary soldiers and that's all they would accept. Great cities were no longer just centers of political power, but were also manufacturing and trading hubs. As such, after the Warring States period, the Chinese civilization achieved a great leap forward. You could say that they had surpassed many, if not all, their contemporary cultures. The Chin also pushed further south, into modern-day Vietnam In order to fill the land with a Chinese population. They sent prisoners, exiles and poor people to assimilate the local population into the Chinese civilization, to ultimately facilitate imperial rule.
Speaker 1:But despite these victories and other reforms, the Qin emperor remained unpopular as he was seen as a dictatorial tyrant. His punishments were cruel and he showed little to no mercy. Cruel and he showed little to no mercy. To give you an idea on how bad he was, he was very much against educated intellectuals, as he murdered scholars who criticized him and burned books to deal with history and philosophies of previous eras. So when he died in 210 BCE, many of the people probably felt a sense of relief and hope going forward. It's a common playbook If you want to be a dictator, the first people you go after is you go after the intellectuals. We see it all the time in history. We're kind of seeing it now in the United States.
Speaker 1:In 206, a rebel named Liu Bang, who would become the founder of the new Han dynasty, managed to conquer the Qin capital. This would send China back into chaos, but its leadership style would have long-lasting effects on China, as it created the model on how future Chinese emperors would function. From a governing standpoint, the Qin Emperor, Zhao Jiang, was seen as a bad ruler. He lacked morality and had a violent temper, but future emperors copied his bureaucratic system. Under the new Han rule, the economy continued to grow. This was also when we see the development of the famous Silk Road that connected China with the Mediterranean through Afghanistan and Iran, which were currently ruled by former Alexander the Great generals after he had died. A key invention happened around this time that made trade even more efficient, when the Han invented ship rudders. This improved navigation technology subsequently went on to have a profound influence on the world of navigation. This ability to navigate waters in and around China helped expand its borders in basically every possible direction.
Speaker 1:It should also be noted that it wasn't just Liu Bang who rebelled against the Qin. He was more famous because he was able to reach the capital first. He also had help from Xia Yu, who was from a noble family. They were initially strong allies, but it sounds like Xia Yu grew jealous of Liu Bang's success and his prestige. But Liu also appears to have remained loyal to Xia because he was the real leader of the Qin rebellion. The end result was China was fragmented into 18 smaller kingdoms, with Xiaoyu taking the title of hegemon. So basically, China reverted back to the old system of the spring and autumn period.
Speaker 1:But things started to get messy between the two leaders. Leaders Xie Yu tried to get Liu Bang, a small and remote fiefdom, out of sight and out of mind from the Chinese, in an attempt to remove him from the political stage. Of course, Liu Bang wasn't stupid and saw right through his betrayal, and he soon rose up to challenge Xiaoyu. The end result was an open conflict between the two leaders. Kind of sounds exactly what happened when Alexander the Great died. All his generals kind of got their own pieces of land and next thing, you know, they're all fighting each other. It's just so common throughout history. It's just China's no different than every place in Europe, really, if you think about it. In 203,. Cooler heads prevailed when Li Yubang and Xie Yu agreed upon an armistice. However, this didn't last long, as a few months later, Li Yu renewed conflict. A few months later, Liu renewed conflict, and this time he managed to achieve a complete victory. Xie Yu ultimately overplayed his hand and then committed suicide.
Speaker 1:Liu Bang himself became known as Emperor Gaozhou. Gaozhou went on to unite China, but chose to follow the laws and regulations of the Qin. One difference was he lowered tax rates and reduced military levies to both help the population recover from the civil war but, more importantly, from a political standpoint, this allowed him to gain loyalty from his subjects standpoint. This allowed him to gain loyalty from his subjects. However, Xie Yang's previous decision to divide the Qin state into 18 kingdoms had great repercussions for Liu Bang, who was now going by the name of Emperor Gatsu. By 195, all but one of the 18 kingdoms were ruled by a member of the Han family. However, he had some serious concerns with the northern steppe tribes, who were united into a confederacy. Thus, his northern border kingdoms were vital for national security. Gao Tzu understood that the only way to effectively deal with them was to pay tribute. In addition, he also gave a princess the hand of marriage to their leader. This antagonized other members of the Han family, but the Han princess was quite powerful and remained in power until her death in 180 BCE. In fact, two of her grandsons managed to become king Liu Heng. Gatsu's son would become Emperor Wen.
Speaker 1:Emperor Wen ruled from about 180 to 157 BCE. He became a very popular emperor For one. He was concerned about the economic well-being of his subjects through personal prudence, minimal taxation and reframing from disputing their livelihood. In other words, he kind of took a laissez-faire approach to governing. Additionally, he established aid for people in need and he made punishments for breaking the law less severe. What he ultimately did was implement Tao liberal ideology of the central government.
Speaker 1:The thing was, Emperor Wen fully realized that a large kingdom that had vassal states reporting to it could mean that the kingdom risk instability, particularly when a king of a vassal state died but did not have a named heir set in place. But did not have a named heir set in place. We all know from history that when a situation like that happens, it is not uncommon for multiple people to claim the throne and thus set off a civil war. Emperor Wen knew this all too well. So what he did was when a situation like that happened. Well, so what he did was, when a situation like that happened, he simply absorbed the vassal state into his kingdom and thus stopped any civil war before it could get started. This policy ultimately led to a very peaceful beginning of the Han dynasty and, as such, his reign was peaceful all the way through his death in 157 BCE.
Speaker 1:While he may have had support from the general population, it's because of his leniency. The government ended up in a major budget deficit and he had less control of the outer reaches of his empire. What is kind of incredible was the fact that his son, Emperor Jing, was wise enough to continue on with his policies, and you can say he even improved upon them as he reduced taxes even more. In addition to being more humanitarian in his approach to criminal punishments, he also continued with his family's policy of consolidating the vassal state kingdoms into his kingdom. Every so often, someone would rebel, but these rebellions were typically put down pretty quickly, before they could even start or set off an expansion of the rebellion to other states. So in other words, he's put out the fire before the fire could expand into other vassal states.
Speaker 1:When you look at his father and son's policies. It's fairly evident that they typically believed in a laissez-faire approach to governing, meaning hands-off, and this hands-off approach allowed trade to flourish in and out of China. Therefore, you could say that the Chinese society had seen the pendulum swing quite a bit over a 40-year period or so. For example, by 179 BC, there were 19 commandaries and 11 relatively large kingdoms. By 143, there were about 40 commandaries and 25 smaller kingdoms, significantly increasing the authority of the central government. In addition, China's population had reached a new peak, which was estimated to be about 44 to 50 million persons.
Speaker 1:A lot of the information that we get during this time period comes from excavated documents from the Feng Shuan tombs, which gives us an insight into the society and the economy as a whole. The documents describe a partnership led by Zhang Yan involving 10 individuals who each contributed 200 coins to engage in trade. This partnership had formal agreements, including penalties for failing to fulfill obligations, which indicated an organization and regulated approach to commerce. The partnership traded items like bamboo boxes, hemp yarn, vinegar and even charcoal. The detailed records of costs, the entrusted individuals and expenditures suggest a well-documented commercial activity, albeit on a relatively modest scale.
Speaker 1:The evidence suggests that John Yang had diverse income streams income streams. He had land holdings, commercial ventures and possible roles such as tax collecting, which highlights a multifaceted economic role. The households involved had very small land holdings, averaging only 25 mule land, which was only a quarter of the previous standard of typical land ownership. In the past, a typical landowner or a cultivator had access to about 4.5 acres. This means that 25 mule of land. The farmer only harvested a little over an acre of land.
Speaker 1:This reduced land meant that there was a trend of land concentration and impoverishments among a large segment of the population, reflecting social inequality and economic hardship in the Jiangling region. According to Li Kui, who was the prime minister of the Wei, he supposedly said that the family required about 1,800 liters of grain, leaving a surplus of 45 Xi, or 900 liters of grain At the market price of 30 coins per Xi. The surplus was equivalent to between 1,300 and 1,400 coins. Community ritual observance costs about 300 coins annually and clothing for five persons a total of about 1,500 coins. Thus, the household incurred an annual deficit of about 450 coins, and this didn't include expenses for unfortunate events like illness, death or burial. The consensus among scholars is there was a growing concentration of land ownership and there was a depletion of a substantial portion of the population. In the Jingling region, Han society became more starkly polarized between magnet families and a vast pool of destitute households who had little or no choice but to surrender their independence to the great landowners.
Speaker 1:Emperor Wu, who ruled from 141 to 87 BCE, dismantled Emperor Wen's laissez-faire policies and centralized the state even more. As such, he empowered the state to seize control of private enterprise. This was unacceptable to the conservative wing of the population that saw this as a lean towards an autocratic state. His view was the reforms were needed, as he saw flaws in the Daoist ideology and in the over-dependency of the noble class, which grew strong under the rule of Wen and Jing. Emperor Wu raised revenues for the state by raising and adding taxes. He tightened up the minting process, as only the state could mint coins, and he centralized the salt production industry through the state control as well. These monopolies on these industries gave more power and wealth to the state. Additionally, his government also took an active role in the organization of transportation, and he regulated trade and prices. Wu came to understand that agriculture was the main driver of the economy, so his government set up programs to stimulate greater production without too many regulations, but that had an unintended consequence of concentrating too much wealth into bigger families, thus creating a large landowning class. People at the time could see what was happening and therefore rejected this policy because economic inequality was on the rise. But it appears that he cared little about that problem. He was only concerned with raising his treasury to fuel his military campaigns and conquests.
Speaker 1:Emperor Wu was getting reports that he needed to establish trade with faraway places that were as rich as China. Emperor Wu decided that he needed to go west and he pushed into the Goubai Desert and central China, Places like ancient Akkad and Sumer in Mesopotamia which predates Emperor Wu's reign for more than a few thousand years, which predates Emperor Wu's reign for more than a few thousand years. The people of middle and southern Mesopotamia in the settled villages, especially the farmers, feared the shepherds in the mountains and faraway places. The farmers were essentially peaceful, hardworking individuals. The shepherds' job was to find good fields for their flocks to graze. As such, the shepherds really didn't have a lot to do, unlike the farmers who constantly had to tend to their fields. Another thing was the shepherds had to defend their flocks from other animals, let alone other people, who may want to steal them or harm their flock. So the herdsmen had to be fearless and know how to use a weapon. Now factoring, the herdsmen of the steppe were probably the best horsemen in the world at the time. Well, the farmers on the frontier and even within the inner reaches of China were absolutely right to be terrified of these herdsmen as such, these herdsmen could ride into any town or farm and plunder at will.
Speaker 1:So while trade was transforming within China, the pastoral steppe nomads to the north and the west were becoming stronger. The thing about China is it is huge, Just like the United States. There are many distinguished ecological and economic zones. The steppe inhabitants largely abandoned sedentary life and began a reliance on animal husbandry to meet their needs for food, clothing, shelter and fuel. The classic steppe nomads were now developing distinct warrior aristocracies, in large part due to the spread of iron metallurgy. From there they grew into a northern frontier and organized themselves into coalitions to conduct diplomatic and commercial business with the Chinese states. Therefore, they initially had established quite a bit of trade between the nomadic peoples of the steppe and the various kingdoms within China and the various kingdoms within China.
Speaker 1:By 198 BCE. It wasn't so much trade anymore, as the nomads would just ride into town and plunder. This got to be a little bit too much for the Han, so they figured they better pacify them by offering them gifts of grain and silk. From there it basically became a system of tributary peacekeeping under which it sent annual payments of millet, gold and silk, yarn and cloth to the steppe nomads in exchange for a termination of raiding and plunder. Since these nomads were now increasing their wealth, the merchant class of China had set up markets on the frontier of which the nomads could trade.
Speaker 1:Emperor Wu had established a truce in 133 BCE and used this truce as a means to go on campaign to capture the western regions of China. He figured paying off the nomads from the steppe would be one last army he needed to defeat. In addition, he also was able to secure lucrative trade agreements from foreign trade, but instead the enormous expenditures on the distant garrisons and fortifications drained the Han treasuries. Eventually, the confederation of the steppe nomads had split into two groups in the late 1st century BCE. Even so, tribute payments persisted. These tribute payments were quite high, as they reportedly consumed 7% of total government revenues. The wealth flowing to the steppe nomads meant more military garrisons were also turning into trading posts as well. The trade mostly was limited to local exchanges of staple goods. Significant long-distance exchange across Central Asia did not emerge until the second century CE. With his treasury being refilled from tax revenue generation and the state raising additional revenue by taking over certain private sectors, he changed course and used these funds to aggressively attack the Xiongnu nomad confederacy nomad confederacy, canceling the previous policy of appeasing them with substantial gifts and trading opportunities as he pushed his Han power farther into central Asia and, 121 BCE, his army defeated the Xiongnu, which allowed the Han Chinese to establish a series of garrisons stretching more than a thousand kilometers away from the trade corridor that would become known as the Silk Road. This famous trade route, which connected China with the Parthian Empire and the Mediterranean, facilitated extensive commerce along it.
Speaker 1:The rise of the Silk Road in the 2nd century BCE marked a transformative era in Chinese foreign trade, opening vast new networks of exchange across Eurasia. Prior to this, Chinese merchants primarily engaged in commerce with nomadic tribes of the northern steppes, trading coveted silk and agricultural goods for horses, furs and other pastoral products. This earliest trade, though limited in scope, laid the groundwork for the later explosion of cross-cultural commerce along the legendary Silk Road. The establishment of the Silk Road under Emperor Wu of Han dramatically expanded China's economic horizons, connecting it to the distant markets of Central Asia, Persia and eventually even Rome, no longer confined to setting up credit systems with neighboring tribes Chinese silk Credit systems with neighboring tribes. Chinese silk, lacquerware and iron goods now flowed westward, while exotic products like glassware, spices, precious metals made their way east. This exchange not only enriched China materially, but also facilitated the spread of technologies. Materially but also facilitated the spread of technologies, religions and other ideas, forever altering the course of Eurasian history.
Speaker 1:The pre-Silk Road trade routes with the northern tribes had been localized, practical exchange which horses for military use, furs for warmth and silk as a high-status commodity. However, the Silk Road elevated Chinese commerce to a transcontinental scale, integrating China into the thriving web of global trade that would endure for centuries. This shift from regional trade to international trade routes underscores China's growing economic sophistication and its emerging role as a central player in the ancient world's economy. Trade also expanded to the south. As Wu expanded into southern territories as well. They were able to annex the northern half of Vietnam and much of the Korean peninsula. Trade was further enhanced, but Emperor Wu's military campaigns depleted the treasury and cost the state thousands of lives.
Speaker 1:Emperor Wu was deeply concerned by what he and others viewed as a collusion between satrapy rulers and wealthy merchants who were accumulating large tracts of lands Years before Cao Qu alerted others to the plight of many farming families who were nearing starvation and bankruptcy and compelled to sell their land allocations to pay off their debts. Nonetheless, Chao's effort to protect farmers through policies intended to raise grain prices had little effect, and the unchecked aggrandizements of land by the nobles and affluent merchants continued unabated. Even Sima Qiguan, a historian championed free enterprise, recognized that at the time, the enforcement of laws was weak, allowing people to amass wealth and wield power over the less fortunate, to the point that these aggrandizers, devoid of titles or official roles, harshly imposed their will on the rural population. Additional revenues were needed for the state to make up for the cost of war and conquest. So, starting around 120 BCE, the emperor's advisors initiated a restructured fiscal administration that resulted in the central government consolidating its revenues under the direct control of the exchequer and various ad hoc agencies, including the superintendent of waterways and parks. The emperor assigned his rights to the yield of the mountains and the marshes to the exchequer, which swiftly took over iron and salt production facilities, converting them into state-run enterprises. In order to run these state-controlled enterprises more efficiently, the former foundry and salt owners were recruited as managers of the new state operations.
Speaker 1:With the increasing revenues coming into the state, Emperor Wu's advisors issued a new, heavier bronze currency, the Wuzhou coin, to replace the disordered ray of banglang currencies in circulation when it was first introduced in 118 BCE. The new coins were cast in the provincial mints and varied significantly in weight. The state produced substantial quantities. Some have estimated that more than 400 million coins per year for the remainder of Emperor Wu's reign are fine wujiu coins weighing about four to four and a half grams. He even tried his hand at a short-lived experiment with a variety of fiat currencies, including the deer hide bill that was valued at about 400,000 coins. But it never caught on and he was roundly vilified for his currency experiments. But in the end, Emperor Wu succeeded in creating a unified currency and a monetary standard that lasted for centuries.
Speaker 1:The most significant intrusion of the state into commerce emerged from the implementation of the equitable delivery policy Conceived by one of China's most influential figures, Song Hanyang. At just 32 years old, he was brought into the emperor's close circle of fiscal advisors in 120 BCE. He was known for his outstanding mathematical and analytical abilities. After being appointed director of national accounts in 116 BCE, Sang aimed to enhance military logistics by reallocating tax revenues from wealthier regions to financially strained frontier territories. He also began utilizing profits from the salt and iron monopolies for this purpose. After his promotion to Exchequer, Tsang initiated an ambitious plan to integrate the equitable delivery system with the salt and iron monopolies into what became known as the balanced standard system. This policy allowed government agents across the empire to use public funds, including monopoly revenues, to stabilize price fluctuations by purchasing goods when prices were low and selling them when they rose. The accumulated goods were stored at the local level, where they then sent them to the capital as payment for taxes and distributed to the palace and imperial workshops. Most of the goods procured through this mechanism were silk and hemp textiles, which were relatively inexpensive to transport over long distances.
Speaker 1:The financial systems developed by Emperor Wu's advisors increasingly relied on indirect taxation. Estimates from state revenues compiled by Yamada Katsui using census and land registration data from 2CE revealed how tax revenues and other goods were converted into monetary values. Yamada determined that approximately half of total revenues, particularly the in-kind receipts of grain and fodder, were retained locally. Grain and fodder were retained locally. Most of the central government's income, accounting for nearly half of total revenue, came in the form of coinage. Yamada estimated total monetary revenues at 9.26 billion coins, which would have averaged about 154 coins per capita. This aligns with recently excavated revenue accounts from the Donghai commentary, which recorded cash revenues of 190 coins per capita in 13 BCE. The salt and iron monopolies generated over half the central government's revenue and about 20% of all revenues, and had become vital to the Han state. Additionally, indirect taxes paid in coin constituted the majority of revenues for the privy purse now managed by Zhang Hongyang as the exchequer.
Speaker 1:These policies were initially successful. Within a year's time, the granaries were full and the frontier camps had surpluses of grain and other goods, and the Equitable Delivery Office held about 5 billion bolts of silk. Taxes on the poor had not been increased, yet revenues meant the imperial government's expenses. The state took monopolistic control over the most profitable industries and the production of essential goods, redirecting its revenue extraction methods from in-kind taxes on agricultural products and labor to indirect taxes paid in currency. Consequently, Emperor Wu's government can be characterized as a mercantilist fiscal state. However, unlike the mercantilist states of early modern Europe, which aim to bolster and safeguard the interests of the domestic merchant class. Chinese mercantilists sought to replace private commerce with state-operated institutions led by enterprising merchants appointed to serve in government roles.
Speaker 1:As successful as these policies were for generating revenue for the state, many scholars had criticized his policies of government takeover of industry and commerce as unreasonable. Imperial Counselor Bu Xie vented his frustration, remarking that officials occupying market stalls, engaging in trade and competing for profits. Sima indirectly compared Wu's regime to the Qin Empire under the first emperor, stating that wealth of the entire world was depleted to serve the ruler. Yet he was still not satisfied. The rising costs of the frontier defense presented an insurmountable challenge to the state's financial capacity. The issue arose primarily because the newly acquired frontier territories generated lower revenues than anticipated, while proving to be exceedingly costly to maintain. As a result, the state was incurring significant greater losses than the income collected from the region. Therefore, the state would need to reallocate significant resources to the frontier region. Assets were transferred from the densely populated heartland to the garrisons responsible for colonial domination and defense along their frontier borders. The empire was essentially divided into three sectors the capital region, which shouldered the primary responsibility for provisioning the court and the capital. The second region was the interior provinces, provisioning the court and the capital. The second region was the interior provinces and the third region was the frontier provinces.
Speaker 1:The Wuzhou coin's success as a uniform monetary standard provided the Han world with a dependable means of payment. However, despite the increased production of coins, the Han economy remained much less monetized than that of the Roman Empire. In the 1st century BCE, the per capita money supply in Han China was about half that of the Roman Empire at its peak. Estimates suggest that state payments in Han China consumed 30% or more of the total coin in circulation, in contrast to probably less than 10% in Rome. Furthermore, the composition of the Han money supply differed significantly from that of Rome. By about 160 CE. Coins in circulation in the Roman Empire were valued at approximately 60% gold, 30-35% silver and about 5-10% bronze, while Han China's money supply was comprised almost entirely of low-valued bronze coins. In Han China, money played a more crucial role in state payments, whereas a larger portion of the monetary supply was allocated for trade and private savings in Rome. Unlike Rome, where only the oligarchic senatorial elites and affluent citizens could accumulate gold coins, the circulation of money in the Han society reached deeper into the lower strata. The widespread use of coins bolstered their confidence of the Han officials, who believed the state's control over the money supply was a powerful tool for managing the economy as a whole.
Speaker 1:Peng Yang and other members of Emperor Wu's financial advisory group were primarily merchants rather than philosophers. Consequently, it seems, they closely adhered to the commercial economic principles outlined in the writings of Guan Zi, which expressed a similar vision for the state management of the economy. Their political economy focused on maximizing the exploitation of agricultural, mining and manufacturing resources, while maintaining a favorable balance of trade and the accumulation of bronze and gold coin reserves. These practices enable the state to regulate prices and consumption, aligning closely with the principles of mercantilism. This framework portrays the ruler as being engaged in a continuous struggle against not only rival states, but also against merchants, moneylenders and those benefiting from noble estate revenues. These groups were depicted as parasites exploiting the populace for their own private gain.
Speaker 1:Wu's advisors aimed to increase state revenues while providing tax relief to primary producers. They advocated for an individual approach to taxation, suggesting that revenues be sourced from manufacturing and trade. Instead, they believed that direct taxes would discourage production and consumption and consumption. So, according to their idea of stabilizing state finances, they kind of came up with a five-point plan. The first point was to monopolize resources from the mountains and the marshes. The second was to produce both consumer goods and weaponry. The third point was to generate revenue from salt and iron production and trade. The fourth point was to circulate currency. And finally, the fifth point was to reserve unsuitable agricultural land as pasture for horses and cattle.
Speaker 1:Grain prices tend to fluctuate widely due to both natural disasters such as droughts, floods and pestilence, and the actions of the hoarders and speculators who stockpile grain, create artificial shortages and profit by selling to desperate consumers. In addition to enacting laws against hoarding, the rulers must seize control over the economy by building up a stockpile of grain reserves which can be released into the market to stabilize prices during times of crisis. They wanted to form a government control of grains to enable a smoothing of prices for the consumers and producers. The core issue in this monetary philosophy differs markedly from that of Greek philosophers in that it is not primarily concerned with determining a just price of goods. Instead, it focused on how the ruler can navigate the inevitable cycles of scarcity and abundance to meet the subsistence needs of the populace. The philosophy recognizes that the values of money and commodities are inversely related to their availability. Unlike grain and other goods, however, the supply of money is directly controllable by the ruler and therefore it is the ruler alone who can create the balance and stability. Nowadays it's not the ruler. In fact, the last person you want to control the money supply is the ruler or the president. Most advanced economies they want a central bank to have the rights to issue the proper amount of currency or set interest rates that would be feasible to control inflation to a point that you're not aligned for short-term gain, for political expediency.
Speaker 1:The Chinese believe that the ruler also upholds the managerial role of the state by glorifying the virtues of systemic, long-range planning in contrast to that of the short-term, survival-oriented decision-making of the individual households. So in reality, the individuals on the ground level have a much different view of the economy versus state officials in the palace. It's kind of the micro versus macro strategy that they must balance, strategy that they must balance. Sang Hongyang advised the emperor to expel the wealthy and powerful merchants and to prevent untitled power brokers from seizing control of essential goods like salt and iron for their own profits. He firmly advocated for the redistribution of wealth from the rich to the poor, stressing the importance of addressing regional disparities in goods and resources. He pointed out that the wealthiest cities in the empire derived their prosperity not from agriculture abundance but from their advantageous locations at key trade intersections. From inter-regional trade to benefit at all, the ruler must intervene to manage the distribution of goods and ensure equitable sharing of trade in grains.
Speaker 1:In response, the learned men, primarily mid-level officials, emphasized the crucial role of agriculture in the economy. They criticized profit-seeking individuals and extolled the virtues of being frugal. From their perspective, the state was benefiting at the expense of its citizens, and the focus on raising revenues diverted officials from their essential duties as protectors of the people's spiritual and material well-being. Officials who misused their enhanced authority over the markets and goods and taxes, ultimately harming vulnerable farming families. Song's critics appealed to the return of the laissez-faire regime, supported the interests of the great landowners and noble lineages of the great landowners and noble lineages.
Speaker 1:In 81 BCE, Emperor Zhao was persuaded to maintain the state monopolies on salt and iron, but abolished the wine monopoly. His most significant reforms, however, targeted labor and military conscription policies, even saying Hongyang acknowledged as detrimental to agricultural productivity. The required rotational duty for conscripts was reduced from once every five months to just once per year. Additionally, the assignment of men from interior provinces to frontier garrisons was scaled back and those stationed on the frontier were permitted to hire substitutes. And those stationed on the frontier were permitted to hire substitutes. Decades later, in 30 CE, the Han governments would abolish military conscription in the interior provinces entirely. From then on, the Han court relied on transporting convicts, nomadic mercenaries and emergency levies of the frontier populations to defend the Great Wall.
Speaker 1:Meanwhile, Tsang Hong-yang's critics found growing support among the rising class of Confucian statesmen. These reformers opposed not only the strict imperial controls over commerce and industry policies that were enacted by Emperor Wu and inherited from the Qin Empire before him, but also the very foundations of a market-driven economy. Therefore, as the Han withdrew from direct administration of the economy, socioeconomic inequality worsened and many farming families lost their independent means of their livelihood. Then factor in the foreign wars and imperial conquests in the remote frontiers of Inner Asia, Korea and even Vietnam. This essentially forced Emperor Wu to reverse the laissez-faire policies of his predecessors.
Speaker 1:In order to fill the dwindling treasury, there was at least a desire to rectify growing economic inequality. One way to fix inequality was through heavy-handed efforts to extract revenues from the wealthy through measures such as a levy on merchants and their families. However, this did not lead to the demise of the great landowners. On the contrary, the brunt of these extractions were borne by households of modest wealth. Farming families found it increasingly difficult to maintain their independence. Many fell into ruinous debts and were forced to sell. Consequently, the economic polarization between rich and poor widened. Eventually, the Han would abandon the principles of equity and universality that were the hallmarks of the state-building era. I want to thank you for taking your time to listen or watch this episode were the hallmarks of the state building era. I want to thank you for taking your time to listen or watch this episode. If you like what you hear and want to donate to the show, you can visit us at patreoncom slash historyofmoneybankingtrade or you can visit our website at moneybankingtradecom. Thank you very much. Talk to you soon.
