1493_ Uncovering the New World Columbus Created - Charles C. Mann [76]
Shao effectively capitulated. “Over ten years,” the gazetteer reported, “we lost one outpost, two smaller outposts, a prefecture, six counties and no fewer than twenty-some fortified towns.… People wailed and ghosts cried out, and the stars and moon gave off no light as the grassy wilderness itself moaned.” The world’s richest, most technologically advanced nation had utterly lost control of its borders. In 1567 a new Ming emperor threw in the towel and rescinded the ban on private foreign trade.
The government reversed course not only because it recognized its inability to stop smuggling, or because it had begun to appreciate how much Fujian’s populace depended on trade. Beijing had come to realize that the nation desperately needed the merchants’ most important good: silver.
OUT OF MONEY
Several hundred years before the birth of Christ, the Chinese state began to issue round coins made of bronze, an alloy of copper and tin. Each coin was worth its own weight in bronze and had a square hole in its center. The system had defects. Because bronze was not especially valuable, a single coin wasn’t worth much. To create units of larger value, people strung the coins together into groups of one hundred or one thousand.
The strings were heavy, bulky—and still not worth much. Asking large-scale Chinese traders to use them was like asking today’s mergers-and-acquisition bankers to buy companies with rolls of quarters. Worse, according to Richard von Glahn, a historian at the University of California at Los Angeles who specializes in the history of Chinese currency, the empire ultimately didn’t have enough copper to keep up with the demand for coins. The copper-starved Song dynasty was forced to create a “short-string” standard, in which strings of 770 coins were officially treated as if they contained a thousand.
In 1161 the Song dynasty introduced what would become the first modern paper currency: the huizi. Regional governments and powerful merchants had experimented with paper money for two centuries, but the huizi was the first nationwide, state-printed banknote. It was denominated in terms of bronze coins; the lowest-value note was worth two hundred coins and the highest was worth three thousand. (The first European banknotes appeared in 1661, five centuries later.)
Theoretically speaking, people could redeem their huizi for actual coins. In fact, the Chinese government and Chinese merchants quickly discovered that printing huizi would reduce the demand for coins, letting them export the latter to Japan, which used Chinese bronze coins for its currency, too. The more the government printed bills, the greater the number of coins that could be exported. Within a few decades of their creation, huizi notes were decoupled, as a practical matter, from coins; no matter what the bills claimed, they couldn’t be redeemed for bronze. They had effectively become what economists call fiat money.
Fiat money has no intrinsic value, and is worth something only because a government declares it is. The U.S. dollar is an example, as is the euro. As pieces of paper, dollar bills and euro bills are next to worthless. Yet because they are officially printed by government institutions, people can hand these colorful paper rectangles to grocery-store clerks and walk out with bags of food. The silver pesos that circulated in the Spanish empire, by contrast, were commodity money: valuable because they were made of a valuable substance. So were Chinese bronze coins, although the bronze wasn’t especially precious.
From a government’s point of view, commodity