China resurrects paper money in the 1700s

What if, instead of relying on silver, China resurrected paper money in the 1700s?

Would they still succumb to hyperinflation like the Song and the Yuan?
 
Hyperinflation was always about management as opposed to the medium of exchange, doesn't matter if you have gold, silver, Washingtons, or Pokemon cards if no one is willing/able to sell food in the middle of a famine, invasion, or civil war.
 
Hyperinflation was always about management as opposed to the medium of exchange, doesn't matter if you have gold, silver, Washingtons, or Pokemon cards if no one is willing/able to sell food in the middle of a famine, invasion, or civil war.

OTOH they don't have to bankrupt themselves by importing the silver from the Spanish
 
Hyperinflation was always about management as opposed to the medium of exchange, doesn't matter if you have gold, silver, Washingtons, or Pokemon cards if no one is willing/able to sell food in the middle of a famine, invasion, or civil war.
That's really not true. Temporary price hikes in the middle of a famine are hardly the same thing as hyperinflation. When your 'money' is a (relatively) fixed commodity like gold or silver, you just CAN'T have much inflation. There's a reason why 'gold standard' (as in the gold standard of legal practice, or whatever) is called that. It guaranteed a finite monetary supply.

OTOH. Once you hit the Industrial Revolution and the vast expansion of the economy with mercantile trading; plus rising living standards across large populations, gold becomes a lead weight around the neck of the economy. There's only a certain amount of gold, and while you can mine more, discoveries of gold ore just don't match expansions of the world economy.


TL;DR For a relatively static economy, precious metals work well. China was probably wise to stick with silver, really. Once you get massive global economic expansion, you need paper money or the like.

You also need a period of transition where paper notes are convenient but seen as representing 'money in the bank' (or a 'temporary' measure like Greenbacks in the ACW), so people can get used to the idea, and the money supply doesn't expand far beyond need.
 
That's really not true. Temporary price hikes in the middle of a famine are hardly the same thing as hyperinflation. When your 'money' is a (relatively) fixed commodity like gold or silver, you just CAN'T have much inflation. There's a reason why 'gold standard' (as in the gold standard of legal practice, or whatever) is called that. It guaranteed a finite monetary supply.

OTOH. Once you hit the Industrial Revolution and the vast expansion of the economy with mercantile trading; plus rising living standards across large populations, gold becomes a lead weight around the neck of the economy. There's only a certain amount of gold, and while you can mine more, discoveries of gold ore just don't match expansions of the world economy.


TL;DR For a relatively static economy, precious metals work well. China was probably wise to stick with silver, really. Once you get massive global economic expansion, you need paper money or the like.

You also need a period of transition where paper notes are convenient but seen as representing 'money in the bank' (or a 'temporary' measure like Greenbacks in the ACW), so people can get used to the idea, and the money supply doesn't expand far beyond need.

That's from the traditional theoretical explanation of pre-modern monetary policy. I'd argue that from the evidence that we have (note the western bias there, can't be helped Chinese economic history is a young field) that government action had a much larger influence than the supply of Bullion. For example, when examining the inflation of the price revolution in both Spain and England at the time the relationship between changes in price and changes in the supply of bullion lagged by 20 years with price preceding monetary supply in Spain, or in the case of England where despite the patchy records did not seem to infer to any large import of bullion but prices fluctuated long-term anyways; coinciding with government actions instead. Sure you had cases like Mansa Musa where an increase in the monetary supply was the largest factor in isolation, but in practice it was rarely just the supply of bullion. [1]

On the subject of gold and silver as legal tender I'd like to point out several disadvantages that has plagued economic historians/classical bankers:

Debasing, lacking modern metallurgy bullion was constantly worn away or debased decreasing its value compared to bills of exchange that was arguable more secure it its nominal value.
Folly of using a semi-useful metal where value was also varied by the luxury demands of the rich where high luxury demand can cause deflation by increasing the value of money and smothering economic growth (for good or bad). All of this was out of the control of government.
Along the same lines, no one was ever sure of the exact volume of bullion in the economy. As the case was with England, alot of silver went into silverware and out of the economy. With no way to account for this all the pre-modern attempts at controlling the money supply for silver/gold was worthless despite their best intentions.
Gold only worked with functioning government the same as bills of exchange, but bills gave the government more control and power so that the good times get better. Whereas poor governance meant little for holders of gold/bills, what's to stop kings from indulging in the all too common default/confiscation?

Also I'd like to point out that unlike the CSA, chinese merchants were using paper bills from the Tang times and that the government officially took over monetary control in the 12th century. By the 18th century the idea was already in use for over half a millennium.

[1]Based on the course notes of Francisco M. Gonzalez, professor of economic history of Waterloo.
 

RousseauX

Donor
That's from the traditional theoretical explanation of pre-modern monetary policy. I'd argue that from the evidence that we have (note the western bias there, can't be helped Chinese economic history is a young field) that government action had a much larger influence than the supply of Bullion. For example, when examining the inflation of the price revolution in both Spain and England at the time the relationship between changes in price and changes in the supply of bullion lagged by 20 years with price preceding monetary supply in Spain, or in the case of England where despite the patchy records did not seem to infer to any large import of bullion but prices fluctuated long-term anyways; coinciding with government actions instead. Sure you had cases like Mansa Musa where an increase in the monetary supply was the largest factor in isolation, but in practice it was rarely just the supply of bullion. [1]

On the subject of gold and silver as legal tender I'd like to point out several disadvantages that has plagued economic historians/classical bankers:

Debasing, lacking modern metallurgy bullion was constantly worn away or debased decreasing its value compared to bills of exchange that was arguable more secure it its nominal value.
Folly of using a semi-useful metal where value was also varied by the luxury demands of the rich where high luxury demand can cause deflation by increasing the value of money and smothering economic growth (for good or bad). All of this was out of the control of government.
Along the same lines, no one was ever sure of the exact volume of bullion in the economy. As the case was with England, alot of silver went into silverware and out of the economy. With no way to account for this all the pre-modern attempts at controlling the money supply for silver/gold was worthless despite their best intentions.
Gold only worked with functioning government the same as bills of exchange, but bills gave the government more control and power so that the good times get better. Whereas poor governance meant little for holders of gold/bills, what's to stop kings from indulging in the all too common default/confiscation?

Also I'd like to point out that unlike the CSA, chinese merchants were using paper bills from the Tang times and that the government officially took over monetary control in the 12th century. By the 18th century the idea was already in use for over half a millennium.

[1]Based on the course notes of Francisco M. Gonzalez, professor of economic history of Waterloo.
dude did you go to waterloo?
 
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