11.16.2018

Too Short for a Blog Post, Too Long for a Tweet 157

Here are two excerpts from a book I recently read, "The Ascent of Money: A Financial History of the World," by Niall Ferguson.



Money is not metal. It is trust inscribed.



What went wrong in China between the 1700s and the 1970s? One argument is that China missed out on two major macroeconomic strokes of good luck that were indispensable to the North-West’s eighteenth-century take-off. The first was the conquest of the Americas and particularly the conversion of the islands of the Caribbean into sugar-producing colonies, ‘ghost acres’ which relieved the pressure on a European agricultural system that might otherwise have suffered from Chinese-style diminishing returns. The second was the proximity of coalfields to locations otherwise well suited for industrial development. Besides cheaper calories, cheaper wood and cheaper wool and cotton, imperial expansion brought other unintended economic benefits, too. It encouraged the development of militarily useful technologies - clocks, guns, lenses and navigational instruments - that turned out to have big spin-offs for the development of industrial machinery. Many other explanations have, needless to say, been offered for the great East-West divergence: differences in topography, resource endowments, culture, attitudes towards science and technology, even differences in human evolution. Yet there remains a credible hypothesis that China’s problems were as much financial as they were resource-based. For one thing, the unitary character of the Empire precluded that fiscal competition which proved such a driver of financial innovation in Renaissance Europe and subsequently. For another, the ease with which the Empire could finance its deficits by printing money discouraged the emergence of European-style capital markets. Coinage, too, was more readily available than in Europe because of China’s trade surplus with the West. In short, the Middle Kingdom had far fewer incentives to develop commercial bills, bonds and equities. When modern financial institutions finally came to China in the late nineteenth century, they came as part of the package of Western imperialism and, as we shall see, were always vulnerable to patriotic backlashes against foreign influence.






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