1493: Uncovering the New World Columbus Created (23 page)

For Coastal Surveillance Vice Commissioner Shao Pian—the late Zhu Wan’s subordinate—the last straw occurred when Fujianese traders invited three thousand Japanese and Portuguese smugglers to reoccupy the former Dutch base at Wu Island. Shao had no good options. Bled by cutbacks, the imperial navy was outgunned and outmanned by the
wokou
—indeed, for its missions it often hired smugglers, who had superior skill and experience. Worse, he could not trust many of his own officers, because they came from the merchant families involved in the smuggling. In a classic move, Shao forged an alliance with—that is, bribed—Hong Dizhen, former leader of the three thousand
wokou
at Wu Island. Hong gathered up a force in 1561 and attacked the smugglers’ largest bases in Yuegang. “Countless
wo
died,” the gazetteer states—a face-saving formulation meaning that the pirate gangs, who were allied with the entire local populace, drove Hong back with heavy losses.

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 In 1567 a new Ming emperor threw in the towel and rescinded the ban on private foreign trade.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 money is problematic, because the government does not fully control the money supply—the nation’s currency is at the mercy of random shocks. For example, at the time of Colón’s voyages cowry shells were used as currency from Burma to Benin.
⁴
Then Europeans shipped in vast quantities of shells from the cowry-rich Maldive Islands, in the Indian Ocean. Governments throughout the region were overwhelmed. A financial system that had been in place for centuries disintegrated in a flash.

This kind of external pressure has no impact on fiat money. With fiat money, the government has near-complete control over the money supply; it determines how many banknotes are needed and instructs the mints to print them. In theory, politicians can expand or contract the money supply to foster better economic conditions.

Fiat money’s greatest defect is the same as its greatest strength: the government decides how many banknotes to print. After introducing paper bills, Song emperors made a stunning discovery: they could buy things simply by stamping patterns of ink onto pieces of paper. For several decades the strategy was successful. As the use of paper money expanded throughout the empire, the nation needed to increase the supply of paper bills, and the emperor’s outlays were absorbed in the overall rise. In the early thirteenth century the emperor decided to fight enemies in the north—first the Jin, then the Mongols. To pay for supplies and troops, he turned the printing presses on “high.” Inflation was the result. The Song lost to the Mongols before they could set off monetary catastrophe. The Mongols, who became the Yuan dynasty, issued their own paper money—lots of it. To them belongs the honor of inventing hyperinflation. By the 1350s Yuan paper money was practically worthless. In the next decade the dynasty fell to the Ming uprising.

Upon taking the throne, the first Ming ruler, the Hongwu emperor, ordered that new coins be issued in his name—no more worthless paper bills! Alas, the Hongwu emperor discovered that the empire had nearly exhausted its copper mines. Naturally, the price of copper rose; bronze coins ended up costing more to produce than they were supposed to be worth. It was as if every penny cost two pennies to manufacture. Unsurprisingly, not many coins were issued. Ming coins became rarities, so rarely seen that businesspeople hesitated to accept them—merchants had too little experience with the coins to know whether they were genuine or counterfeit.

Quickly the Ming dynasty, like its predecessors, discovered the virtues of an active printing press. Again inflation exploded; the value of the paper bills fell by roughly 75 percent in about a decade. The Hongwu emperor responded by refusing to produce any more coins. Force people to use paper bills—that was the idea. It didn’t work. Shutting down the mints increased the scarcity, and hence the rarity, of the new coins, further eroding their value as currency. It also pushed up the value of old coins, which people trusted and understood. And it dramatically increased counterfeiting. The fake coins were for the most part easily distinguishable from real ones. But merchants were so desperate for some way for their customers to pay them that they accepted the counterfeits anyway, although they demanded a premium.

As businesspeople snatched up all the old and counterfeit coins they could find, the value of paper bills continued to fall. In 1394 the government banned the use of its own coins—a policy that “flouted economic realities,” wrote von Glahn, the UCLA historian, in
Fountain of Fortune
(1996), a fine history of Chinese money that I have been drawing upon here. As one would expect, the policy failed. The emperors kept trying, prohibiting coins in 1397, 1403, 1404, 1419, and 1425. Every time the ban failed, the emperors would again officially permit coins to circulate—until the next ban. Meanwhile the Ming kept printing paper notes at inflationary rates. All of this may sound completely unhinged, and it was. In the feud- and faction-ridden Ming court, government policies were often accidental by-products of ministerial intrigues, enacted with little regard for their actual effects. The result was that by the time
wokou
were terrorizing the southeast coast, the Chinese empire had no functioning currency.

I am oversimplifying. The currency
did
function—intermittently, unpredictably. Each emperor produced coins with his name stamped on the face. When he died, the succeeding ruler would quickly declare that his predecessor’s coins were valueless; only new coins minted by the new emperor would be valid currency. Merchants suddenly saw “their capital evaporate in a single day, often silently mourning their losses before committing suicide,” according to the
Ming Shi,
the official history of the dynasty.

Needing something to pay with, merchants and their customers would use old coins from earlier reigns until the new emperor’s money arrived; given the lack of copper and dynastic inefficiency, this frequently took years, even decades. Then they would use the new coins until the government suddenly banned them. The result, according to the Taiwanese historian Quan Hansheng, was a constant game of financial hot-potato, with everyone trying to use their coins until just before they lost all value—at which point they would try to unload them onto some hapless sucker.

“Virtually from morning to evening the rules change, and still there is no set policy,” moaned one sixteenth-century imperial chancellor. “The people fear that the money they get today will be useless tomorrow and they will no doubt starve. Thus the more the coins change, the more chaos ensues, and the more restrictions there are, the more people panic, so that stores dare not open for business, there is no buying or selling, and cries of anguish ring out.”

“Coins received in the morning couldn’t be used by evening,” explained a central-China gazetteer in 1606. Shopkeepers would suddenly refuse them en masse.

One person would suggest it, and everyone else would agree. Although such actions were strictly forbidden, they had no regard for the law. Before long, merchants from other regions would come to buy old coins, and they would exchange them at a ratio of three to one and cart them away. This is what you call monopolization at its extreme, the power of devious people. Wealthy merchants and powerful brokers sit back and reap heavy profits while the average person suffers. It never ends.

Were these complaints exaggerated? In 1521 the Jiajing emperor began his reign. Still a young man, he was decades away from his prostitute-fueled pursuit of immortality and fiercely determined to regain control of the nation’s money supply. He decided to issue new coins that would be of such high quality that the people would reject the old coins and counterfeits. The results were described a century later by the geographer and historian Gu Yanwu in a grandly titled compendium,
The Strategic Advantages and Weaknesses of Each Province in the Empire.
Gu looked at Zhangpu County, about ten miles south of Yuegang. As the Jiajing reign began, Gu reported, the currency preferred by county merchants was, unbelievably, coins from the Song dynasty—the Yuanfeng reign, to be precise, which had ended more than four centuries before, in 1085
A.D.
During the next decade, the Jiajing emperor established mints and punched out coins as fast as possible. The effort made not a jot of difference in Zhangpu County. Year after year, Gu wrote, the preferred money flipped arbitrarily from one Song emperor to another. After each switch, people stuck with the previously favored coins were left high and dry. Not until 1577, five years after the Jiajing emperor’s death, did Zhangpu County use legal currency. For the first time in decades, people used coins minted by the current ruler, the Wanli emperor. The reprieve was brief, Gu wrote. “Only one year later, they stopped using Wanli coins.”

Silver had long been recognized as a store of value, though rarely used for ordinary, small-scale transactions because it was too scarce and costly. But the uncertainty over bronze coins and paper money grew to the point where desperate merchants took to carrying around little silver ingots, often shaped like shallow bowls one to four inches in diameter. When traders met, they used the ingots to buy and sell, weighing them with jewelers’ scales and clipping off needed sums with special shears; to evaluate the ingots’ purity, they used
kanyinshi
(silvermasters), who charged a fee for the evaluation and routinely cheated all parties. Awkward as it was, this system was better than using coins that might lose their value at any time. By the end of the
wokou
crisis, one writer complained in 1570, coins were used in fewer than one-tenth of all market transactions. The Chinese government didn’t issue the ingots; as if in a libertarian fantasy, the money supply was effectively privatized. Anybody who could lay hands on some silver could get
kanyinshi
to certify it—instant money! Everyone was paying bills with splinters of silver.

Grudgingly and gradually, the Ming emperors adopted this system, too. China’s basic tax system—farmers paid a portion of their harvest—hadn’t changed for eight hundred years. But over time it had become encrusted with loopholes and extra levies, which created opportunities for corruption. In a series of edicts, Beijing reordered the tax rolls and ordered the citizenry to pay an ever-increasing share of their taxes in raw silver, rather than in kind. By the 1570s, as the Wanli reign began, more than 90 percent of Beijing’s tax revenue arrived as lumps of shiny metal.