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The Chinese Market Economy, 1000-1500

Author(s):Liu, William Guanglin
Reviewer(s):Pomeranz, Kenneth

Published by EH.Net (June 2017)

William Guanglin Liu, The Chinese Market Economy, 1000-1500. Albany, NY: State University of New York Press, 2015.  xviii + 374 pp., $30 (paperback), ISBN: 978-1-4384-5568-6.

Reviewed for EH.Net by Kenneth Pomeranz, Department of Economics, University of Chicago.

William Guanglin Liu has written a valuable book on a big, important, topic: the general trajectory of the Chinese economy from roughly 1000-1650.  (The title says 1500, but the argument goes beyond that date.) The research is excellent, and the author comes up with some original and inventive ways to use his data.  At times, however, it frames its arguments in overly stark forms, and makes claims that go beyond what it can prove.  But despite these concerns, this is a book well worth reading, which will stimulate very useful debate on fundamental questions of Chinese economic history.

As a first approximation, Liu’s theses are hard to argue with.  The author shows that China experienced very impressive growth during the Song dynasty (ca. 960-1279), a period in which there was also a striking expansion of the role of markets in Chinese society.  He also show that the policies of Zhu Yuanzhang (r. 1368-1398), founder of the Ming Dynasty (1368-1644) dealt a major blow to China’s economy by trying to resurrect an idealized world of largely autarkic and demonetized villages.  It took a long time for China to recover from this: in contrast to many scholars who think that by 1500 China had returned to a market economy generating at least a Song level of prosperity, Liu argues that this did not happen until at least 1600, and quite likely not even then.  Moving beyond China, Liu then suggests that this historical case shows the centrality of market institutions for stimulating economic growth, beginning at a very low level of development.

The first three of these points — the marketization and relative prosperity of Song times, and the damaging effects of early Ming policies — are broadly accepted.  The first controversy concerns matters of degree: how prosperous? How marketized?  How big and lasting a blow did the early Ming inflict?  A second set of controversies centers on causation, and thus on the role of other factors.  For instance, Liu says very little about the many technological innovations during the Song — including the invention of gunpowder, the magnetic compass, paper money, and the importation (from Southeast Asia) of early-ripening rice — except to note that some of the most important innovations did not diffuse rapidly.  Some others would assign those innovations (and some that began in the Tang, such as printing) a good deal of credit for the growth that occurred in the Song, and continued into the Yuan (1279-1368) in some parts of the empire. While we will never have the data necessary to arrive at a precise allocation of growth to different factors, there is still room for further productive discussion about relative weights. Likewise, it is possible to show that the Mongol conquests of the mid-thirteenth century had a devastating impact in some places (especially North China and Sichuan), and very little elsewhere (the Middle and Lower Yangzi Valley, and in the far south); the relative weight of those different regional stories is still unsettled, and matters greatly in whether Liu is justified in placing an overwhelming emphasis on early Ming anti-market policies in explaining an apparent stagnation or decline in living standards between the eleventh and sixteenth centuries.

One of the book’s contributions is to concentrate in one place the arguments for transformational change concentrated in the Song period, and followed by a later reversal: a once popular view (e.g. Elvin 1973) that has lately given way to a tale of more gradual progress across several centuries (Smith and Von Glahn 2003).  Making the best of flawed data, Liu estimates population growth of 0.92% per year between 980 and 1109, a remarkable rate for a pre-modern society.  And drawing on a large body of secondary scholarship, he points to considerable evidence for changes in agriculture — capital deepening, especially in the form of massive investments in irrigation, and increasing use of oxen – which should, logically, have raised agricultural yields significantly, allowing a population that had more than tripled to eat as well or better than its forebears.

Unfortunately, however, we lack much good data on actual yields in the Song.  Liu notes that Dwight Perkins’ well-known estimates are (like most others for this period) inferences from agricultural rents, and that much of the land in question was land used to support schools; he further argues that school land was often rented out at below-market rates, depressing these inferred yields, and that the land which families donated to schools was often their least fertile property, anyway.  Meanwhile several of Perkins’ later data points come from agricultural handbooks, and probably represent optimal results.  Thus Liu argues, the impression of slow but steady growth across centuries that emerges from Perkins’ highly influential work may well be a statistical illusion. He prefers the older idea of a Song boom followed by little progress in subsequent dynasties.   Building on work by Zhou Shengchan, Liu tries to work backwards from data on population and average food consumption to estimate thirteenth century yields in the Lower Yangzi region; the results vary considerably among prefectures, but are generally near the high end of our range of estimates for any period before the arrival of modern farm inputs.  They would therefore leave little room for continued growth in the Yuan, Ming, or even Qing.

If verified, this would be a very important finding, but I have my doubts.  In part, my doubts come from personal experience, as adopting a similar methodology for estimating eighteenth century output of various crops led to extremely high estimates.[1]  There are also technical problems with some of this data (particularly in Table 7.8), though probably not big enough to change the results dramatically.[2]   The most we can say with strong confidence, I think, is that some Song farmers achieved yields near the pre-modern maximum, and more and more of their neighbors caught up over time — though whether this happened over decades or centuries remains very uncertain.

For most non-food items, we simply lack the data to generate serious estimates of per capita consumption in Song times; and while anecdotal evidence of rising consumption exists, Liu prefers not to rely on it.  Instead, he relies on an estimate of real wages for unskilled workers to show that living standards in the Song were as high as they ever got in China prior to the twentieth century.  Because we have not found for China any very long series of wages for privately-hired workers in a relatively standardized occupation in a particular place — like the long runs of wages for construction workers on European cathedrals and colleges, for instance — Liu constructs a long-run series of military wages, for which data are comparatively rich; and because we lack data for enough commodities to construct a long-run price index, he uses grain prices as the denominator for his series.  The resulting series peaks at its very beginning (in 1004) and fluctuates wildly while declining overall for the next roughly 170 years. It is then relatively stable until another steep drop in the early Ming, and recovers slightly in the late Ming before declining again in the early Qing (Figure E-1).

Liu has done us a considerable service by piecing this data series together, but as a proxy for the living standards of ordinary people it must be taken with a very large grain of salt.  Governments did not engage soldiers through a true labor market, nor did the institutional setting of military recruitment or the conditions of being a soldier (aside from the wage) remain constant over time.  Moreover, even if we had a reliable private sector wage series, it would not necessarily follow that this was a reliable basis for estimating popular living standards, much less per capita GDP, as Liu argues (p. 133).  Wage earners were never more than 15 percent of the labor force in late imperial China, and most farmers either owned their own land or had a relatively secure tenancy (especially in Qing times).  Consequently, they earned far more than unskilled laborers did — perhaps three times as much on average, according to preliminary estimates I have made for the eighteenth century (and for the early twentieth, where the data are better). (Among other things, this is confirmed by the fact that tenants and smallholders could support families, while unskilled laborers could rarely afford to marry. And for GDP per capita, we would also have to average in the earnings of well-to-do families.  Last but not least, if the ratio between wages and average farm earnings changed over time — as it might well have, given a gradual strengthening of tenant usufruct rights over the course of the late empire — even a much better wage series might not tell us what we want to know about general living standards.

But if Liu does not prove his most ambitious claims, he does succeed in proving many of his smaller empirical claims.  In particular, the evidence for relative prosperity in the Song and a sharp decline in the early Ming seems too much to explain away, even if one can raise doubts about each individual measurement.  The money supply contracted very sharply in early Ming times, followed by the introduction of government notes (for state payments) that soon became almost worthless; customs receipts (and presumably long-distance trade declined; and the wage decline between ca. 1050 and ca. 1400 is too big to be explained entirely by data problems.  A separate estimate, later in the book, suggests that per capita income in North China might have fallen by as much as half between 1121 (on the eve of the Song loss of the North) and 1420, though output per capita seems to have remained stable in the Yangzi Delta.  Liu also makes a strong case that Song people were freer than their early Ming counterparts, and perhaps even less unequal economically (though Song writing shows so much worry about inequality that one is tempted to believe there was fire behind so much smoke).

This brings us to the problem of explaining these differences.  Liu provides a straightforward answer: Song reliance on the market worked while the early suppression of it backfired.  Moreover, this represents a timeless truth, most recently vindicated by the sharp contrast between the Maoist and post-Maoist periods.  Here. I think, Liu lets his argument outrun his evidence, focusing too exclusively on one broad-brush contrast.

It would be hard to deny that the increased influence of market principles in the Song stimulated growth: above all, probably, the agricultural growth of the south, which required significant investment (especially for water management) that would surely have been more modest had earlier dynasties’ restrictions of private landowning remained in force; and given the surpluses that southern agriculture soon generate, and the relatively easy transportation that its rivers offered, impressive commercial and urban growth soon followed.  Since the coastline south of the Yangzi also has far more good sites for ports than the coastline north of the Yangzi, the southward shift of China’s economic center of gravity was also propitious for foreign trade, which boomed under both the Song and the (Mongol) Yuan.

Even in the south, however, the state provided essential infrastructure (though its role declined over time), and often played a very active role in foreign trade. In the north, meanwhile, both the enormous system of canals built by the Song government and the huge concentration of demand in the capital region were crucial, both for consumer markets and the growth of a precocious iron industry stimulated by unprecedented levels of military spending.   A variety of inventions also must have contributed something to the robust growth of the Song period.

Nor, I think, would many people deny that the early Ming attempt to return to local autarky had serious and lasting negative consequences. But we should bear in mind that the North, where Liu’s decline in estimated output between 1121 and 1420 was concentrated, suffered a number of  major shocks in this period, all of which bypassed or fell much more lightly on the south (except for Sichuan). These included conquests by three sets of northern invaders (including, most devastatingly, the Mongols); the prolonged turmoil that toppled the Mongols and brought the Ming to power; a civil war between supporters of two Ming heirs; and repeated, enormous, Yellow River floods, including two that dramatically shifted the river’s course (out of six such incidents in the last 4,000 years) and made it impossible to rebuild the Song-era canal system.   Ming policies certainly did great damage, too, but the relative size of these setbacks needs more detailed analysis before we can accept Liu’s almost exclusive emphasis on the Ming founder’s anti-market policies.

I would also caution against lumping all the parts of Ming anti-commercialism under the heading “command economy,” and comparing it to an ideal type of “market economy,” as Liu often does (e.g. pp. 1, 4-12, 134-136, 197, 199).  No pre-modern state could maintain the vigorous intervention needed to run a true command economy for long.  The Ming may have been more effective than most, but their massive redistribution of property and forced migration was over by about 1425, with land and labor again being exchanged in private markets;[3] the system of artisan conscription unraveled during the fifteenth century; foreign trade outside the official tribute system gradually returned; and so on.  This did not mark the end of Ming anti-commercialism as an attitude, or of its effects: among other problems, the dynasty never tried to provide the money supply that the private economy needed, saddling its subjects with costs that lingered for centuries.[4]   But even if this failure was originally part of an aggressive state’s attempt at command economy, it soon evolved into something else: the failure of a relatively weak state to undertake even those interventions that could have benefited both itself and the private economy.  The succeeding Qing dynasty (1644-1912) certainly had no dream of a command economy, and often (though not always) sought to encourage markets;  and the state’s share of GDP may have slipped as low as 2 percent, compared to at least 10 percent and perhaps as much as 20 percent at the peak of Song military-fiscalism.[5]  Yet the Qing provided the most stable bronze currency — the money used for most everyday transactions — China had ever known, while uncoined silver provided a reasonably adequate currency for big transactions; and it mobilized impressive resources for various physiocratic projects, from water control to grain price stabilization to promotion of best practices in agriculture and handicrafts. (That it spent much less, proportionately, on its military than the Song or Ming had facilitated this combination of low extraction and significant services.[6])  And for about a century and a half, they presided over impressive demographic and economic growth, Interestingly,  three prominent economic historians — Loren Brandt, Debin Ma, and Thomas Rawski, none of them remotely anti-market — have argued that the principal reason why Qing economic development was not even better was that the government was too minimalist: that a small government spread across a vast area was unable to prevent all sorts of local actors — from bandits to local elites employing private enforcers to rogue government clerks — from interfering with local markets and property rights.[7]  Such interference was clearly a problem in the late Ming as well, though it is not precisely measurable in either period.  It does, however, remind us that a simple contrast between “market economy” and “command economy” does not give us enough tools to understand the different relationships between state and market in imperial China, or anywhere else.

Nonetheless, the book does an impressive job of demonstrating how much dynamism the marketizing economy of the Song generated, and how much of those gains had been lost by the mid-Ming, at least in certain regions.  The author’s efforts to quantify trends that many others have been content to describe qualitatively are impressive; this is a book where the appendices are often as thought-provoking as the text.  The results are not as revolutionary or dispositive as the book sometimes suggests, but they will stimulate productive debates for years to come.

Notes:

1. Lacking data on the acreage devoted to non-grain crops in certain areas, I decided to estimate how much land must have been devoted to non-grain crops, relying on generally accepted numbers for population, grain consumption, and imports, and then multiply the acreage left over by conservative estimates of yields for the non-grain crops.  The results came out so high that I cut them in every way I could think of — including, in one case, arbitrarily reducing the estimate of non-grain acreage by half. The results I came up with were still at the high end of the existing range of estimates, or in some cases significantly beyond it.  I am not ready to toss out those estimates completely, and would be happy to see this approach vindicated; but I am inclined to be cautious here, especially since Liu has not made the same efforts to depress his results as I did.

2. The conversions from Zhou’s numbers, which mostly use Yuan dynasty measurements, is complicated. Trying to reproduce his results for one prefecture after an email exchange with me, Prof. Liu got a figure about 1 percent lower.

3. A rare set of household-level records, for instance, shows a family with modest landholdings in Huizhou engaged in no less than 18 land purchases or sales between 1391 (not long after the Ming came to power) and 1432.  See Von Glahn 2016: 291-293.

4. Von Glahn 1996 and Kuroda 2000 suggest that this was finally addressed with moderate success in the Qing.

5. Perkins 1967: 492; Wang 1973: 133 for the Qing; Golas 1988: 93-94 comes up with 24 percent for the Song, but admits that this seems unlikely.  Hartwell 1988: 79-80 suggests a bit over 10 percent.

6. On military spending compare Hartmann 2013: 29 with Zhou 2000: 36-38.

7. Brandt Ma and Rawski 2014: 60, 76, and 79.

References:

Brandt, Loren, Debin Ma and Thomas Rawski. 2014.  “From Divergence to Convergence: Reevaluating the History behind China’s Long Economic Boom,” Journal of Economic Literature 52(1):45-123.

Elvin, Mark. 1973.  The Pattern of the Chinese Past.  Stanford: Stanford University Press.

Goals, Peter, 1988. “The Sung Economy: How Big?”  Bulletin of Sung-Yuan Studies 20: 89-94.

Hartmann, Charles. 2013.  “Sung Government and Politics,” in John Chafee and Dennis Twitchett, eds., The Cambridge History of China, Volume V Part 2: Sung China, 960-1279 (Cambridge: Cambridge University Press):19-133.

Hartwell, Robert. 1988. The Imperial Treasuries: Finance and Power in Song China,” Bulletin of Sung-Yuan Studies 20: 18-89

Kuroda Akinobu. 2000. “Another Monetary Economy: The Case of Traditional China,” in A.J. H. Latham and Heita Kawakatsu, eds, Asia-Pacific Dynamism, 1500-2000 (London: Routledge): 187-198.

Perkins, Dwight. 1967. “Government as an Obstacle to Industrialization: The Case of Nineteenth-Century China,” Journal of Economic History 27 (4): 478–92

Perkins, Dwight. 1969. Agricultural Development in China, 1368-1968.  Chicago: Aldine Publishing.

Smith, Paul, and Richard Von Glahn, eds., 2003. The Song-Yuan-Ming Transition in Chinese History.  Cambridge:  Harvard Asia Center.

Von Glahn, Richard. 1996.  Fountain of Fortune: Money and Monetary Policy in China, 1000-1700.  Berkeley: University of California Press.

Von Glahn, Richard. 2016.  The Economic History of China: From Antiquity to the Nineteenth Century.  Cambridge: Cambridge University Press.

Wang Yeh-chien. 1973. Land Taxation in Imperial China, 1750-1911.  Cambridge, MA: Harvard University Press.

Zhou Yumin. 2000.  Wan Qing caizheng yu shehui bianqian (Late Qing Fiscal Administration and Social Change).   Shanghai: Shanghai renmin chubanshe.

Kenneth Pomeranz is University Professor of History at the University of Chicago.  His best known book is The Great Divergence: China, Europe, and the Making of the Modern World Economy (Princeton, 2000).  His most recent publication is “The Data We Have vs. the Data We Want: A Comment on the State of the Divergence Debate,” Pt. I and Pt II New Economics Papers (June 8, 2017) https://nephist.wordpress.com/2017/06/06/the-data-we-have-vs-the-data-we-need-a-comment-on-the-state-of-the-divergence-debate-part-ii/. Forthcoming publications include “Water, Energy, and Politics: Chinese Industrial Revolutions in Global Environmental Perspective,” in Gareth Austin, ed., Economic Development and Environmental History in the Anthropocene (forthcoming, 2017: Bloomsbury Academic).

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Subject(s):Economic Development, Growth, and Aggregate Productivity
Economywide Country Studies and Comparative History
Geographic Area(s):Asia
Time Period(s):Medieval
16th Century
17th Century