TURMEL: David Graeber's DEBT: The First 5,000 Years Chap10
ISBN: 978-1-61219-129-4 https://www.amazon.com/Debt-Updated-Expanded-First-Years/dp/1612194192 All reports at http://SmartestManOnEarth.Ca/debt5000
P251 Chapter Ten THE MIDDLE AGES (600AD - 1450AD)
Artificial wealth comprises the things which of themselves satisfy no natural need, for example money, which is a human contrivance. - St. Thomas Aquinas
IF THE AXIAL AGE saw the emergence of complementary ideals of commodity markets and universal world religions, the Middle Ages were the period in which those two institutions began to merge. Everywhere, the age began with the collapse of empires. Eventually, new states formed, but in these new states, the nexus between war, bullion, and slavery was broken; conquest and acquisition for their own sake were no longer celebrated as the end of all political life.
JCT: Seems like the "dark ages" may not have been so "dark" at all.
DG: At the same time, economic life, from the conduct of international trade to the organization of local markets, came to fall increasingly under the regulation of religious authorities. One result was a widespread movement to control, or even forbid, predatory lending.
JCT: All lending at usury is "predatory" lending. It was an era with not predatory lending being banned but the usury that makes lending predatory.
DG: Another was a return, across Eurasia, to various forms of virtual credit money.
JCT: Makes sense. When not ordered to use this casino's chips, people will naturally create their own.
DG: Granted, this is not the way we're used to thinking of the Middle Ages. For most of us, "medieval" remains a synonym for superstition, intolerance, and oppression. Yet for most of the earth's inhabitants, it could only be seen as an extraordinary improvement over the terrors of the Axial Age...
According to the conventional wisdom, with the collapse of the empire, the cities were largely abandoned and the economy "reverted to barter," taking at least five centuries to recover. based on a series of unquestioned assumptions..
P252: Chief among them is the idea that the absence of coins means the absence of money.. at the height of the Dark Ages, people were still carefully keeping accounts in Roman money as they calculated interest rates, contracts, and mortgages.. Still, the Middle Ages proper are best seen as having begun not in Europe but in India and China, between 400 and 600 AD, and then sweeping across much of the western half of Eurasia with the advent of Islam. They only really reached Europe four hundred years later. Let us begin our story, then, in India.
Medieval India (Flight into Hierarchy) I left off in India with Ashoka's embrace of Buddhism..
P253: The next five hundred years saw a succession of kingdoms, most of them strongly supportive of Buddhism. Stupas and monasteries sprang up everywhere, but the states that sponsored them grew weaker and weaker; centralized armies dissolved; soldiers, like officials, increasingly came to be paid by land grants rather than salaries. As a result, the number of coins in circulation steadily declined.3
Here too, the early Middle Ages witnessed a dramatic decline of cities: where the Greek ambassador Megasthenes described Ashoka's capital of Patna as the largest city in the world of his day, medieval Arab and Chinese travelers described India as a land of endless tiny villages. As a result, most historians have come to write, much as they do in Europe, of a collapse of the money economy, of commerce becoming a "reversion to barter."
JCT: Sounds not so bad.
DG: Here too, this appears to be simply untrue. What vanished were the military means to extract resources from the peasants. In fact, Hindu law-books written at the time show increasing attention to credit arrangements, with a sophisticated language of sureties, collateral, mortgages, promissory notes, and compound interest.4
One need only consider how the Buddhist establishments popping up all over India during these centuries were funded. While the earliest monks were wandering mendicants, owning little more than their begging bowls, early medieval monasteries were often magnificent establishments with vast treasuries. Still, in principle, their operations were financed almost entirely through credit. The key innovation was the creation of what were called the "perpetual endowments" or "inexhaustible treasuries." Say a lay supporter wished to make a contribution to her local monastery. Rather than offering to provide candles for a specific ritual, or servants to attend to the upkeep of the monastic grounds, she would provide a certain sum of money- or something worth a great deal of money- that would then be loaned out in the name of the monastery, at the accepted 15- percent annual rate. The interest on the loan would then be earmarked for that specific purpose.5 5. Documents on the regulation of monastic affairs pay a great deal of attention to the details: how when the money was lent out, contracts would be signed, sealed, and deposited in the temple before witnesses; how a surety or pledge worth twice the amount of the loan should be turned over, how "devout lay brothers" should be assigned to manage the investment, and so forth (Schopen 1994).
JCT: Sad, seems they did not understand how their demanding people return more than they borrowed created a death-gamble mort-gage by the religion. Sad. Sure, Buddha said poverty was the goal but treasuries took over and needed foreclosure departments, no doubt.
P254 Some of these loans presumably went to individuals, others were commercial loans to "guilds of bamboo- workers, braziers, and potters," or to village assemblies.8
We have to assume that in most cases the money is an accounting unit: what were really being transacted were animals, wheat, silk, butter, fruit, and all the other goods whose appropriate rates of interest were so carefully stipulated in the lawcodes of the time. Still, large amounts of gold did end up flowing into monastic coffers.
JCT: It's the usury on sterile gold that causes the mort- gage while interest on cows or grain is payable.
P256 The creation of thousands of Hindu temples alone must have involved hundreds of thousands, even millions, of interest-bearing loans - since, while Brahmins were themselves forbidden to lend money at interest, temples were not. We can already see, in the earliest of the new law- codes, the Laws of Manu, the way that local authorities were struggling to reconcile old customs like debt peonage and chattel slavery with the desire to establish an overarching hierarchical system in which everyone knew their place. The Laws of Manu carefully classify slaves into seven types depending on how they were reduced to slavery (war, debt, self-sale...) and explain the conditions under which each might be emancipated- but then go on to say that Sudras can never really be emancipated, since, after all, they were created to serve the other castes.14 14. "A Sudra, though emancipated by his master, is not released from a state of servitude, for a state which is natural to him, by whom can he be divested?" or even "Sudras must be reduced to slavery, either by purchase or without purchase, because they were created by God for the sake or serving others (8.5.413).
JCT: Ugly to think about perpetual slavery.
DG: Similarly, where earlier codes had established a 15- percent annual rate of interest, with exceptions for commercial loans,15 15. Kautilya allowed 60 percent for commercial loans, 120 percent "for enterprises that involve journeys through forests," and twice that for those that involve shipping goods by sea.
JCT: Wow, 60% is the legal limit in Canada.
DG: the new codes organized interest by caste: stating that one could charge a maximum of 2 percent a month for a Brahmin, 3 percent for a Ksatriya (warrior), 4 percent for a Vaisya (merchant), and 5 percent for a Sudra - which is the difference between 24 percent annually on the one extreme and a hefty 60 percent on the other.16
The laws also identify five different ways interest can be paid, of which the most significant for our concerns is "bodily interest": physical labor in the creditor's house or fields, to be rendered until such time as the principal is cleared.
JCT: It sure beats having to come up with non-existing money punished by slavery, even death. Being "morted" by one's mortgage.
DG: Even here, though, caste considerations were paramount. No one could be forced into the service of anyone of lower caste; moreover, since debts were enforceable on a debtor's children and even grandchildren, "until the principal is cleared" could mean quite some time - as the Indian historian R.S. Sharma notes, such stipulations "remind us of the present practice according to which several generations of the same family have been reduced to the position of hereditary ploughmen in consideration of some paltry sum advanced to them."17 17. R.S. Sharma 1965:68. Similarly, early law-codes specified that anyone who defaulted on a debt should be reborn as a slave or even a domestic animal in their creditor's household: one later Chinese Buddhist text was even more exact, specifying that for each eight wen defaulted, one must spend one day as an ox, or for each seven, one day as a horse (Zhuang Chun in Peng 1994:244n17)
JCT: So loansharking was going on.
DG: By about 1000 AD, restrictions on usury by members of the upper castes in Hindu law-codes largely disappeared. On the other hand, 1000 AD was about the same time that Islam appeared in India - a religion dedicated to eradicating usury altogether. So at the very least we can say that these things never stopped being contested.
JCT: Lucky Islam coming across as the usury-fighters of this era of history.
P257: And even Hindu law of that time was far more humane than almost anything found in the ancient world. Debtors were not, generally speaking, reduced to slavery, and there is no widespread evidence of the selling of women or children. In fact, overt slavery had largely vanished from the countryside by this time. And debt peons were not even pawns, exactly; by law, they were simply paying interest on a freely contracted agreement. Paying the principle might take generations, but the law stipulated that even if it was never paid, in the third generation, they would be freed.
JCT: That's good news. Just 2 generations enslaved, not 3.
DG: Politically, it is never a particularly good idea to first tell people they are your equals, and then humiliate and degrade them. This is presumably why peasant insurrections, from Chiapas to Japan, have so regularly aimed to wipe out debts, rather than focus on more structural issues like caste systems, or even slavery.20 20. To be fair, one could also argue that indebted peasants are also likely to be in command of more resources, and thus be more capable of organizing a rebellion. We know very little about popular insurrections in Medieval India (though see Guha (1999). Palat (1986, 1988:205- 15; Kosambi 1996:392-93), but the total number of such revolts seems to have been relatively low in comparison to Europe and certainly in comparison to China, where rebellion was almost ceaseless.
The British Raj discovered this to their occasional chagrin when they used debt peonage - superimposed on the caste system - as the basis of their labor system in colonial India. Perhaps the paradigmatic popular insurrection was the Deccan riots of 1875, when indebted farmers rose up to seize and systematically destroy the account books of local money- lenders. Debt peonage, it would appear, is far more likely to inspire outrage and collective action than is a system premised on pure inequality.
JCT: Like everywhere throughout most of history. Usury was the root cause of the debt growth all the time.
p258: China: Buddhism (the Economy of Infinite Debt)
By medieval standards, India was unusual for resisting the appeal of the great Axial Age religions, but we observe the basic pattern: the decline of empire, armies, and cash economy, the rise of religious authorities, independent of the state, who win much of their popular legitimacy through their ability to regulate emerging credit systems.
China might be said to represent the opposite extreme. This was the one place where a late Axial Age attempt to yoke empire and religion together was a complete success. True, here as elsewhere, there was an initial period of breakdown: after the collapse of the Han dynasty around 220 AD, the central state broke apart, cities shrank, coins disappeared, and so on. But in China this was only temporary.
As Max Weber long ago pointed out, once one sets up a genuinely effective bureaucracy, it's almost impossible to get rid of it. And the Chinese bureaucracy was uniquely effective. Before long, the old Han system reemerged: a centralized state, run by Confucian scholar- gentry trained in the literary classics, selected through a national exam system, working in meticulously organized national and regional bureaus where the money supply, like other economic matters, was continually monitored and regulated. Chinese monetary theory was always chartalist. This was partly just an effect of size: the empire and its internal market were so huge that foreign trade was never especially important; therefore, those running the government were well aware that they could turn pretty much anything into money, simply by insisting that taxes be paid in that form.
JCT: How true. The Holy Grail of any community currency is getting it accepted for taxes.
DG: The two great threats to the authorities were always the same: the nomadic peoples to the north (who they systematically bribed, but who nonetheless periodically swept over and conquered sections of China) and popular unrest and rebellion. The latter was almost constant, and on a scale unknown anywhere else in human history. There were decades in Chinese history when the rate of recorded peasant uprisings was roughly 1.8 per hour.21 21. "No one knows just how many rebellions have taken place in Chinese history. From the official record there were several thousand incidents within just three years from 613 to 615 AD, probably one thousand events a year (Wei Z. AD 656: ch. "Report of the Imperial Historians"). According to Parsons, during the period 1629- 44, there were as many as 234,185 insurrections in China, averaging 43 events per day, or 1.8 outbreaks per hour" (Deng 1999:220).
JCT: Busy Loansharks.
What's more, such uprisings were frequently successful. Most of the most famous Chinese dynasties that were not the product of barbarian invasion (the Yuan or Qing) were originally peasant insurrections (the Han, Tang, Sung, and Ming). In no other part of the world do we see anything like this. As a result, Chinese statecraft ultimately came down to funneling enough resources to the cities to feed the urban population and keep the nomads at bay, without causing a notoriously contumacious rural population to rise up in arms. The official Confucian ideology of patriarchal authority, equal opportunity, promotion of agriculture, light taxes, and careful government control of merchants seemed expressly designed to appeal to the interests and sensibilities of a (potentially rebellious) rural patriarch.22
P259: One need hardly add that in these circumstances, limiting the depredations of the local village loan shark - the traditional bane of rural families - was a constant government concern. Over and over we hear the same familiar story: peasants down on their luck, whether due to natural disaster or the need to pay for a parent's funeral would fall into the hands of predatory lenders, who would seize their fields and houses, forcing them to work or pay rent in what had once been their own lands; the threat of rebellion would then drive the government to institute a dramatic program of reforms. One of the first we know about came in the form of a coup d'etat in 9 AD, when a Confucian official named Wang Mang seized the throne to deal (so he claimed) with a nationwide debt crisis. According to proclamations made at the time, the practice of usury had caused the effective tax rate (that is, the amount of the average peasant's harvest that ended up being carried off by someone else) to rise from just over 3 percent, to 50 percent.23
In reaction, Wang Mang instituted a program reforming the currency, nationalizing large estates, promoting state-run industries - including public granaries - and banning private holding of slaves. Wang Mang also established a state loan agency that would offer interest-free funeral loans for up to ninety days for those caught unprepared by the death of relatives, as well as long-term loans of 3 percent monthly or 10 percent annual income rates for commercial or agricultural investments..24 24. These loans appear to have been an extension of the logic of the state granaries, which stockpiled food; some to sell at strategic moments to keep prices low, some to distribute free in times of famine; some to loan at low interest to provide an alternative to usurers.
"With this scheme," one historian remarks, "Wang was confident that all business transactions would be under his scrutiny and the abuse of usury would be forever eradicated."25 25. Huang op cit; cf. Zhuoyun & Dull 1980:22-24. For his complex currency reforms: Peng 1994:111- 14.
Needless to say, it was not, and later Chinese history is full of similar stories: widespread inequality and unrest followed by the appointment of official commissions of inquiry, regional debt relief (either blanket amnesties or annulments of all loans in which interest had exceeded the principal), cheap grain loans, famine relief, laws against the selling of children.26 26. Generally, interest rates were set at a maximum of 20 percent and compound interest was banned. Chinese authorities eventually also adopted the Indian principle that interest should not be allowed to exceed the principal (Cartier 1988:28; Yang 1971:92- 103).
JCT: That is one great rule I had never heard of, that the interest does not exceed the principal. I'd guess that after your interest payments did hit the principal, then all payments thereafter would go against the principal. As I wish but from the start.
P260: China was for most of its history the ultimate anti- capitalist market state.28 Unlike later European princes, Chinese rulers systematically refused to team up with would- be Chinese capitalists (who always existed). Instead, like their officials, they saw them as destructive parasites - though, unlike the usurers, ones whose fundamentally selfish and antisocial motivations could still be put to use in certain ways. In Confucian terms, merchants were like soldiers. Those drawn to a career in the military were assumed to be driven largely by a love of violence. As individuals, they were not good people, but they were also necessary to defend the frontiers. Similarly, merchants were driven by greed and basically immoral; yet if kept under careful administrative supervision, they could be made to serve the public good.29 29. So, for instance, while markets themselves were considered beneficial, the government also systematically intervened to prevent price fluctuations, stockpiling commodities when they were cheap and releasing them if prices rose. There were periods of Chinese history when rulers made common cause with merchants, but the result was usually a major popular backlash (Deng 1999:146).
Whatever one might think of the principles, the results are hard to deny. For most of its history, China maintained the highest standard of living in the world - even England only really overtook it in perhaps the 1820s, well past the time of the Industrial Revolution.30 30. Pommeranz 1998, Goldstone 2002 for an introduction to the vast literature on comparative standards of living. India was actually doing rather well also for most of its history.
P261: Buddhism had arrived in China through the Central Asia caravan routes and in its early days was largely a religion promoted by merchants, but in the chaos following the collapse of the Han dynasty in 220 AD, it began to take popular roots. Nowhere was this so true as in those schools, such as the School of the Three Stages, that adopted the notion of "karmic debt" - that each of the sins of one's accumulated past lives continues as a debt needing to be discharged.
P263: There was a way to achieve that too. All that was required was to make regular donations to some monastery's Inexhaustible Treasury. The moment one does so, the debts from every one of one's past lives are instantly blotted out.
One might almost call this salvation on the installment plan - but the implication is that the payments shall be made, like the interest payments on the wealth when it is subsequently loaned out, for all eternity.
P264: If one makes a donation to the Inexhaustible Treasuries in her name, sutras will be recited for her; she will be delivered; the money, in the meantime, will be put partly to work as charity, as pure gift, but partly, too, as in India, as interest-bearing loans, earmarked for specific purposes for the furtherance of Buddhist education, ritual, or monastic life.
One practice that hovered between charity and business was providing peasants with alternatives to the local moneylender. Most monasteries had attendant pawnshops where the local poor could place some valuable possession - a robe, a couch, a mirror - in hock in exchange for low- interest loans.40 40. Chinese Buddhists did not invent the pawnshop, but they appear to have been the first to sponsor them on a large scale. On the origins of pawnbroking in general, see Hardaker 1892, Kuznets 1933. On China specifically: Gernet 1956 [1995:170- 73], Yang 1971:71- 73, Whelan 1979. In a remarkable parallel, the first "formal" pawnshops in Europe also emerged from monasteries for similar purposes: the monti di pieta or "banks that take pity" created by the Franciscans in Italy in the fifteenth century. (Peng 1994:245, also makes note of the parallel.)
DG: Finally, there was the business of the monastery itself: that portion of the Inexhaustible Treasury turned over to the management of lay brothers, and either put out at loan or invested. Since monks were not allowed to eat the products of their own fields, the fruit or grain had to be put on the market, further swelling monastic revenues. Most monasteries came to be surrounded not only by commercial farms but veritable industrial complexes of oil presses, flour mills, shops, and hostels, often with thousands of bonded workers.41 41. Gernet 1956 [1995:142- 86], Ch'en 1964:262- 65; Collins 1986:66- 71; Peng 1994:243- 45. It would seem that Taoist monasteries, which also multiplied in this period, banned making loans (Kohn 2002:76), perhaps in part to mark a distinction.
P265: At the same time, the Treasuries themselves became - as Gernet was perhaps the first to point out - the world's first genuine forms of concentrated finance capital. They were, after all, enormous concentrations of wealth managed by what were in effect monastic corporations, which were constantly seeking new opportunities for profitable investment. Already, by 511 AD, there were decrees condemning monks for diverting grain that was supposed to be used for charitable purposes to high-interest loans, and altering debt contracts - a government commission had to be appointed to review the accounts and nullify any loans in which interest was found to have exceeded principal. During the most severe, carried out in 845 AD, a total of 4,600 monasteries were razed along with their shops and mills, 260,000 monks and nuns forcibly defrocked and returned to their families - but at the same time, according to government reports, 150,000 temple serfs released from bondage. Whatever the real reasons behind the waves of repression (and these were no doubt many), the official reason was always the same: a need to restore the money supply. The monasteries were becoming so large, and so rich, administrators insisted, that China was simply running out of metal:
P266: The great repressions of Buddhism under the Chou emperor Wu between 574 and 577, under Wu-tsung in 842-845, and finally in 955, presented themselves primarily as measures of economic recovery: each of them provided an opportunity for the imperial government to procure the necessary copper for the minting of new coins.45
One reason is that monks appear to have been systematically melting down strings of coins, often hundreds of thousands at a time, to build colossal copper or even gilded copper statues of the Buddha - along with other objects such as bells and copper chimes, or even such extravagances as mirrored halls or gilded copper roof tiles. The result, according to official commissions of inquiry, was economically disastrous: the price of metals would soar, coinage disappear, and rural marketplaces cease to function, even as those rural people whose children had not become monks often fell deeper into debt to the monasteries.
DG: exchange, unless it's an instantaneous cash transaction, creates debts.
P268: this communism became the basis, in turn, of something very much like capitalism. The reason was, above all, the need for constant expansion.
The Middle Ages were marked by a general move toward abstraction: real gold and silver ended up largely in churches, monasteries, and temples, money became virtual again, and at the same time, the tendency everywhere was to set up overarching moral institutions meant to regulate the process and, in particular, to establish certain protections for debtors. As elsewhere, local shopkeepers and merchants extended credit. Most accounts seem to have been kept through the use of tally sticks, strikingly similar to those used in England, except that rather than hazelwood they were usually made of a split piece of notched bamboo. Here, too, the creditor took one half, and the debtor held the other; they were joined at the moment of repayment, and often broken afterward to mark the cancellation of the debt.48 48. Marco Polo observed the practice in the southern province of Yunnan in the thirteenth century: "But when they have any business with one another, they take a round or square piece of stick, and split it in two; and one takes one half and the other takes the other half. But before they split it, they make two or three notches in it, or as many as they wish. So, when one of them comes to pay another, he gives him the money or whatever it is, and gets back the piece of stick the other had" (Benedetto 1931:193). See also Yang 1971:92, Kan 1978, Peng 1994:320, 330, 508, Trombert 1995:12- 15. Tallies of this sort seem, according to Kan, to have preceded writing; and one legend claims that the same man, a minister to the Yellow Emperor, invented both writing and tally contracts simultaneously (Trombert 1995:13).
JCT: Makes sense writing would develop to back contracts.
50. Actually the similarity was noticed in antiquity as well: Laozi (Daodejing 27) speaks of those who can "count without a tally, secure a door without a lock." Most famously, he also insisted "when wise men hold the left tally pledge, they do not press their debtors for their debts. Men of virtue hold on to the tally; men lacking virtue pursue their claims" (stanza 79). 51. Or one might better say, turning them at one snap from monetary debts to moral ones, since the very fact that we know the story implies he was eventually rewarded (Peng 1994:100). It is probably significant that the word fu, meaning "tally," also could mean "an auspicious omen granted to a prince as a token of his appointment by Heaven" (Mathews 1931:283). Similarly, Peng notes a passage from Strategems of the Warring States, about a lord attempting to win popular support: "Feng hurried to Bi, where he had the clerks assemble all those people who owed debts, so that his tallies might be matched against theirs. When the tallies had been matched, Feng brought forth a false order to forgive these debts, and he burned the tallies. The people all cheered" (ibid:100n9). For Tibetan parallels, see Uebach 2008.
P269: Tallies weren't just used for loans, but for any sort of contract - which is why early paper contracts also had to be cut in half and one half kept by each party.52 52. Similar things happened in England, where early contracts were also broken in half in imitation of tally sticks: the phrase "indentured servant" derives from this practice, since these were contract laborers; the word actually derives from the "indentations" or notches on the tally stick used as a contract (Blackstone 1827 I:218).
With paper contracts, there was a definite tendency for the creditor's half to function as an IOU and thus become transferable. By 806 AD, for instance, right around the apogee of Chinese Buddhism, merchants moving tea over long distances from the far south of the country and officials transporting tax payments to the capital, all of them concerned with the dangers of carrying bullion over long distances, began to deposit their money with bankers in the capital and devised a system of promissory notes. They were called "Flying Cash," also divided in half, like tallies, and redeemable for cash in their branches in the provinces. They quickly started passing from hand to hand and operated something like currency. The government first tried to forbid their use, then a year or two later - and this became a familiar pattern in China - when it realized that it could not suppress them, switched gears and established a bureau empowered to issue such notes themselves.53 53. L. Yang 1971:52; Peng 1994:329- 31. Peng perceptively notes "this method of matching tallies to withdraw cash was actually an outgrowth of the process used in borrowing money, except that the movement over time of loans was transformed into a movement over space" (1994:330).
By the early Song dynasty (960- 1279 AD), local banking operations all over China were running similar operations, accepting cash and bullion for safekeeping and allowing depositors to use their receipts as promissory notes, as well as trading in government coupons for salt and tea. Many of these notes came to circulate as de facto money.54 54. They were called "deposit shops" - and L. Yang (1971:78- 80) calls them "proto- banks." Peng (1994:323- 27) notes something along these lines was already operating, at least for merchants and travelers, under the Tang, but the government had strict controls preventing bankers from reinvesting the money.
P270 The government, as usual, first tried to ban the practice, then control it (granting a monopoly to sixteen leading merchants), then, finally, set up a government monopoly- the Bureau of Exchange Medium, established in 1023- and before long, aided by the newly invented printing press, was operating factories in several cities employing thousands of workers and producing literally millions of notes.55 55. The practice began in Sichuan, which had its own peculiar form of cash, in iron, not bronze, and therefore much more unwieldy.
DG: At first, this paper money was meant to circulate for a limited time (notes would expire after two, then three, then seven years) and was redeemable in bullion. Over time, especially as the Song came under increasing military pressure, the temptation to simply print money with little or no backup became overwhelming and, moreover, Chinese governments were rarely completely willing to accept their own paper money for tax purposes.
JCT: Payable in tax is all the back-up needed. If not..
DG: - Combine this with the fact that the bills were worthless outside China, and it's rather surprising that the system worked at all. Certainly, inflation was a constant problem and the money would have to be recalled and reissued. Occasionally, the whole system would break down, but then people would resort to their own expedients: "privately issued tea checks, noodle checks, bamboo tallies, wine tallies, etc."56 56. Peng 1994:508, also 515, 833. All this is very much like the token money that circulated in much of Europe in the Middle Ages.
Still, the Mongols, who ruled China from 1271 to 1368 AD, chose to maintain the system, and it was only abandoned in the seventeenth century. This is important to note because the conventional account tends to represent China's experiment with paper money as a failure, even, for Metallists, proof that "fiat money," backed only by state power, will always eventually collapse.57 57. The most important scholarly exponent of this view is von Glahn (1994, though Peng [1994] holds to something close), and it seems the prevailing one among economists, popular and otherwise. JCT: Guess he never heard of English Tallies.
DG: This is especially odd, since the centuries when paper money was in use are usually considered the most economically dynamic in Chinese history. Surely, if the United States government is ultimately forced to abandon the use of federal reserve notes in 2400 AD, no one would thereby conclude paper money was always intrinsically unworkable. Nonetheless, the main point I'd like to emphasize here is that terms like "fiat money," however common, are deceptive.
Almost all of the new forms of paper money that emerged were not originally created by governments at all; they were simply ways of recognizing and expanding the use of credit instruments that emerged from everyday economic transactions. If it was only China that developed paper money in the Middle Ages, this was largely because only in China was there a government large and powerful enough, but also, sufficiently suspicious of its mercantile classes, to feel it had to take charge of such operations itself.
JCT: What a lot of great stuff.