Myth and Reality of China's Seventeenth-

Century Monetary Crisis

RICHARD VON GLAHN

The impact of China's demand for silver on global trade in specie and monetary
metals during the sixteenth and seventeenth centuries remains poorly understood.
Conventional wisdom postulates that seventeenth-century China became so depen-
dent on foreign silver to sustain domestic economic growth that a sharp fall in silver
imports in the 1640s led to the fall of the Ming dynasty in 1644. This hypothesis rests
on dubious theoretical and empirical grounds. The demand for silver in China was
determined by long-term changes in indigenous demand for money rather than
short-term fluctuations in the flow of silver imports.

D uring the sixteenth century the first truly global economy came into
being. Spain's plunder of Peru and Mexico unleashed torrents of gold
and silver that cascaded around the globe, joining together, however
imperfectly, its disparate economies. The economic significance of the
massive importation of "American treasure" into the European economy
during the sixteenth and seventeenth centuries remains one of the most
enduring controversies in the history of early modern Europe. On the
positive side, the flood of New World bullion dissolved the liquidity crisis
that had congealed European economic activity in the fifteenth century.
But the surge of bullion imports also fed inflation, raising the price level
across all of western Europe by 300 percent within a century, and thus
directly contributed to the economic depression underlying Europe's
"general crisis of the seventeenth century." It has long been recognized
that much of the silver extracted from Spain's American colonies—one-
third, according to Pierre Chaunu's estimate—eventually ended up in
China.1 Recently, a number of scholars have postulated that seventeenth-
century China, like contemporary Europe, suffered a serious economic
crisis because of an abrupt diminution in the flow of bullion into its
over-heated economy. Indeed, the vicissitudes of bullion flows are now
invoked as the crucial factor in a "seventeenth-century crisis" that
culminated in the fall of the Ming dynasty (1368 to 1644) in 1644.
Imports of foreign silver (claimed to range around 250 to 265 metric
tons per year in the first half of the seventeenth century) played a vital role
The Journal of Economic History, Vol. 56, No. 2 (June 1996). © The Economic History Association.
All rights reserved. ISSN 0022-0507.
Richard von Clahn, Department of History, University of California, Los Angeles, Los Angeles, CA
90095-1473.
This article draws upon my forthcoming book, Fountain of Fortune: Money and Monetary Policy in
China, 1000-1700, which will be published by University of California Press, winter, 1996.
The author gratefully acknowledges Dennis O. Flynn, Arturo Giraldez, and Ken Sokoloff for their
criticism and advice.
1
Chaunu, Les Philippines, pp. 268-69.

429
430 von Glahn

in the rise of the market economy in late Ming China. But proponents of
the "crisis thesis" contend that this flood of silver engendered negative
consequences such as "over-rapid urban growth, unbridled business spec-
ulation, and severe price inflation."2 Once primed with foreign specie, they
argue, the Chinese economy became dependent on uninterrupted infu-
sions of foreign silver. According to these scholars, the severe depression
of the Atlantic economy in the middle of the seventeenth century,
compounded by disruptions in the flow of silver from Japan and the
Philippines, caused a severe contraction in commercial activity beginning
in the late 1630s. Economic distress ramified into popular unrest, and the
beleagured Ming state lacked the fiscal resources needed to restore social
order.3 This article challenges the crisis thesis on both empirical and
theoretical grounds and proposes an alternative model for understanding
silver movements, one that emphasizes the primacy of domestic demand
rather than foreign supply.4

THE MONETARY SYSTEM OF MING CHINA

In contrast to European and West Asian states, the Chinese empire

never coined precious metals; instead, its monetary system was predicated
on bronze coin. Yet the state's inability to produce sufficient quantities of
bronze coin prompted the use of other base metals, such as iron, in coinage
and also led to the introduction of paper currency in the eleventh century.
The Ming dynasty initially based its monetary system on paper notes with
bronze coin as a subsidiary currency; to encourage the use of paper money,
the state prohibited the use of precious metals as media of exchange. But
the abject failure of Ming paper money eventually forced the court to
make a complete reversal in its monetary policy and abandon paper
currency altogether. Bronze coin once again became the basis of the
monetary system, but over the course of the fifteenth and sixteenth
centuries the Ming commuted a significant portion of its tax revenue to
payments in silver, in effect monetizing silver. Yet silver remained un-
coined, circulating in a bewildering variety of forms and degrees of
fineness. Bulky bronze coin was too cumbersome for wholesale or long-
distance trade, but silver, lacking any standard form or value, was equally
inconvenient as a means of exchange in petty, everyday transactions. Thus
the Ming monetary system evolved into a form of "parallel bimetallism" in
which uncoined silver was used for long-distance commercial transactions,
lump-sum salary payments, and tax remittances, and bronze coin was
employed chiefly in local markets for sundry purchases and payment of
daily wages.
2
Atwell, "International Bullion Flows," p. 86.
3
Adshead, "Seventeenth Century General Crisis"; Atwell, "International Bullion Flows," pp.
87-89 and "Some Observations," p. 229; and Wakeman, "China," pp. 3-4.
4
For a fuller analysis of the Ming monetary system, see von Glahn, Fountain.
 China's Seventeenth-Century Monetary Crisis 431

3,000 -

2,000 -

Yangzi Delta # ... /' /

2 1,000
Beijing^ /
-2 750
(ft
!_
Ol

£ 500
u

250

1520 1540 1560 1580 1600 1620 1640

FIGURE 1

SILVER / COIN EXCHANGE RATIOS IN CHINA, 1510-1645

Source: von Glahn, Fountain, chap. 3, table 4

Full-bodied Chinese coin contained a high proportion (generally 80 to

85 percent) of copper. The high intrinsic value of coin, although consid-
ered an admirable quality from the moral perspective of Confucian
statesmen, posed several problems. First, it was nearly impossible for the
state to extract seigniorage profit from coinage; on the contrary, the cost of
producing coin often exceeded its nominal value. Second, the weakly
centralized governments in neighboring states were incapable of issuing
their own coin, which led to a steady drain of Chinese coin to Southeast
Asia and Japan. Third, the high value and relative scarcity of coin in-
duced widespread counterfeiting. Because of these problems, the Ming
was unable to maintain an adequate supply of full-bodied coin. Between
the 1430s and the 1520s the state minted virtually no coin whatsoever
because of prohibitive costs. Although the court resumed minting in the
sixteenth century, cheap private coin continued to dominate the market.
Virtually all state-issued coin was melted down and recast by counterfeit-
ers. The massive influx of foreign silver from 1570 on, which coincided with
the state's most sustained attempt to issue full-bodied coin, brought the
silver-bronze coin exchange ratio down to unprecedented lows (Figure 1).
But after 1600 the state began to debase its bronze coin, and during the
first half of the seventeenth century the silver-coin exchange ratio rose
steadily despite even greater imports of foreign silver.
432 von Glahn

THE CIRCULATION OF SPECIE IN EAST ASIA DURING THE "SILVER

CENTURY"

Beginning in the early sixteenth century, a commercial revolution took

place in China that sharply increased the demand for money. Monetization
of public finance as well as private exchange, dissolution of servile social
relations and the emergence of free labor markets, regional specialization
in agricultural and handicraft production, rural market integration, and
the stimulus of foreign trade all contributed to the demand for money.5 In
the absence of quantitative data on money-use, scholars have cited the
rising silver revenues of the Ming state, which jumped from about 4 million
taels (equivalent to 15 tons of silver) around 1600 to 21.3 million taels (78.6
tons) in 1643, as an index of growing domestic demand for silver.6 But the
effective demand for silver came from the private economy, not the public
fisc. In 1643 a Ming official estimated that there were 250 million taels
(9,375 tons) of silver in circulation in China.7 This figure probably is too
low, but it suggests that state revenues accounted for only a small fraction
of the aggregate demand for silver.
After a silver-mining boom in the early decades of the fifteenth century
faded, China's domestic mines produced meager quantities of silver,
averaging 4 to 6 tons annually, with peak years of perhaps 20 tons,
throughout the remainder of the Ming dynasty.8 In the 1530s, however, the
discovery of abundant silver deposits in western Japan heralded the dawn
of East Asia's "silver century."9 Word of the silver strike in traditionally
silver-poor Japan spread quickly throughout the East Asian trading
network. In 1540 Chinese vessels began to arrive in Japan to procure silver
in defiance of a ban on private overseas trade dating back to the early years
of the Ming dynasty. Apart from this illicit direct trade, trade between
China and Japan—essentially an exchange of Chinese silk goods for
Japanese silver—was routed through neutral ports such as Hoi-an, in the
Nguyen (Cochin) kingdom in central Vietnam, and Macao, the Portuguese
outpost granted trading privileges by the Chinese government in 1557. The
Portuguese also shipped silver from Europe via its trading colonies in the
Indian Ocean, and the founding of Manila in 1571 opened up a direct
pipeline between the silver mines of the New World and the Chinese
market.10
5
See Fu, Mingdai Jiangnan jingji shitan; Elvin, Pattern, pp. 235-84; and Wiens, "Lord."
6
Quan Hansheng and Li Longhua, "Taicang suirude yanjiu," pp. 136-39; and Atwell, "Interna-
tional Bullion Flows," p. 80, table 2. The tael was both a fiscal unit and an actual weight of silver
(37.5 g).
7
For this and other estimates of China's money supply (ones that need to be treated with
considerable caution), see Wang, "Secular Trend."
8
von Glahn, Fountain, chap. 4.
9
Kobata, "Production"; and Innes, "Door," pp. 532-44.
lo
Kobata, "Production," pp. 252-53; Atwell, "International Bullion Flows," pp. 68-72. Iwao,
"Japanese Foreign Trade"; Whitmore, "Vietnam," p. 379; and Flynn and Giraldez, "Born With a
'Silver Spoon.' "
 China's Seventeenth-Century Monetary Crisis 433

It is important to keep in mind that in the trading network of East Asia

silver served not simply as money but as a commodity in itself. Merchants
acquired silver, like any other commodity, with the intention of reaping
arbitrage profits upon delivering it to the market in which silver was in
greatest demand: China. Thus a Dutch merchant wrote in 1587 that "the
commodity taken from Macao to Japan is silk, while only silver is brought
from Japan, the profit on silver being considerable" (my emphasis).11 The
role of silver as a commodity was cogently described by the Jesuit
missionary Borri, who resided in Cochin from 1618 to 1622: "(Foreign
merchants) bring silver to Cochin to exchange for the merchandise of the
country. These wares are not purchased, but rather bartered for this silver,
which is used here as a commodity, worth sometimes more or sometimes
less, depending whether or not it is available in great abundance, just as in
the case of silk and other commodities."12 Borri rightly recognized that
trade in silver should not be construed as a sign of a money economy.
Indeed, bronze coin, not silver, served as the domestic currency of the
Nguyen realm, despite the busy trafficking in silver that took place in its
ports. Silver, like other kinds of goods, was treated as a commodity, and its
value was determined not by any ruler's writ, but by the laws of supply and
demand.
Chinese merchants did not simply pursue bullion; they sought one
particular metal: silver. The source of profit from silver of course was the
high value silver commanded in China compared to other forms of specie.
The gold-silver ratio in China had drifted upward from its historical low of
1:4-5, achieved in the late fourteenth century, to 1:6 by the early sixteenth
century. In contrast, the gold-silver ratio hovered around 1:11-12 in
Europe, 1:10 in Persia, and 1:8 in India. Thus rials-of-eight struck in
Europe with New World silver steadily migrated eastward, to the Levant,
India, and Malacca, before being "sucked in" to China.13 While the value
of silver in China began to decline following the onset of foreign imports
in the middle of the sixteenth century, China's gold-silver ratio remained
well below the international rate until the 1640s, when a rough (and
short-lived) equilibrium was established between precious metals ratios in
China, Japan, and Europe (Figure 2). The premium silver obtained in
China made the Chinese market the final destination of world-wide silver
flows. Thus the retired Portuguese merchant Gomes Solis could write in
his Arbitrio sobre laplata, published in Lisbon in 1621, that "silver wanders
throughout all the world in its peregrinations before flocking to China,
where it remains, as if at its natural center."14
Before the sixteenth century, international exchanges of specie in East
Asia primarily consisted of exports of Chinese bronze coins to Japan in
11
Quoted in Kobata, "Production," p. 253.
12
Quoted in Manguin, Les Portugais, pp. 236-37.
13
Godinho, L'Economie, pp. 514, 524.
14
Quoted in ibid., p. 531.
434 von Glahn

20 -

15 _
France /'.' S ~'^

o 10 .'. ^ • • " /
60
9 —
8 - / \
O
7 /A ^
nit

/ \
6 \L ^
sil r pei

V^China
5 f\ / V,^—
> / ' V-Japan /^Japan
4 —'
O
its

3 _
c
D
2 -

1 1 1

1400 1450 1500 1550 1600 1650

FIGURE 2

GOLD / SILVER RATIOS IN CHINA, JAPAN, AND FRANCE, 1370-1660

Sources: Data for France are the official mint price, taken from Spooner, L'Economie mondiale, p. 339.
Data for China are a combination of official and market prices, taken from Peng, Zhongguo huobi shi,
p. 714. Data for Japan are the relative purchasing value of precious metals measured in rice, taken
from Yamamura and Kamiki, "Silver Mines," pp. 354-56.

return for Japanese gold. The prodigious growth of silver mining in Japan
after 1530 radically transformed the vectors of international bullion flows
in East Asia; henceforth silver poured into China, and gold reversed
course and migrated abroad. Ralph Fitch, who traveled in the East Indies
between 1583 and 1591, noted that silver flowed into China from both east
(Japan) and west (India), and gold traveled in the opposite directions:
When the Portugals go from Macao in China to Japan, they carry much white silk,
gold, musk, and porcelains; and they bring from thence nothing but silver. They have
a great carrack which goeth thither every year, and she bringeth from thence every
year about six hundred thousand cruzados; and all this silver of Japan, and two
hundred thousand more in silver which they bring yearly out of India, they employ to
their great advantage in China; and they bring from thence gold, musk, silk, copper,
porcelains, and many other things very costly and gilded.15
The falling value of silver in Japan encouraged a rush to gold. Moreover,
the intensifying struggle for unification and military supremacy among
Japan's warlords and the Japanese invasion of Korea in 1592 raised
15
Hakluyt, Principal Navigations, vol. 5, p. 498; spelling modernized by author.
 China's Seventeenth-Century Monetary Crisis 435

Japanese demand for gold to unprecedented heights.16 According to the

testimony of a Japanese envoy at Macao in 1590, great quantities of gold
flowed out of China to Japan and other overseas markets:
This region [China] affordeth especially sundry kinds of metals, of which the chief,
both in excellence and abundance, is gold, whereof so many pesos are brought from
China to India and our country of Japan, that I have heard say, in one and the same
ship, this present year, 2,000 such pieces, consisting of massie gold, as the Portugals
commonly call golden loaves, were brought unto us for merchandise; and one of
these loaves is worth almost 100 ducats.17

These figures translate into a scarcely-credible cargo of 750 kgs of gold.

But other observers shared the envoy's wonder at the quality and quantity
of gold in China. Pedro de Baeza, a Spanish official who served in the East
Indies for 30 years, eagerly promoted the idea that Spain should exploit the
opportunity to trade New World silver for Chinese gold in a treatise
published in 1609: "forasmuch as throughout all the kingdom of China
there is an enormous quantity of fine gold of more than twenty-two carats
touch; if this was brought to New Spain, or to Castile, a profit of 75 or 80
per cent would be made." Baeza noted that the Chinese treated gold "as
a commodity which rises and falls in accordance with the supply and
demand, and it does not have a fixed value there as here in Castile."
Describing the market at Canton in the 1590s, he stated that gold
commonly traded in China at a ratio of 1:5.5 with silver, and even when
gold was most dear the gold-silver ratio did not surpass 1:7.5, in contrast
to the prevailing ratio of 1:12.5 in Spain. By purchasing gold from the
Chinese, Baeza argued, Spain could earn sufficient profits to offset the
chronic trade deficits with China incurred in the Philippines.18
Though Baeza's plan won no converts in Madrid, Portuguese and Dutch
traders reaped enormous arbitrage profits by bringing Chinese gold to
Japan. A Portuguese memorandum on trade between Macao and Japan
dating from around 1600 declared that gold could be purchased from the
Chinese at a price of 5.4 taels and then sold in Japan for 7.8 taels, yielding
a profit of 45 percent.19 In 1622 the governor of the Dutch factory at
Batavia reported to Amsterdam that several hundred thousand taels (1,000
taels equaled 37.5 kgs) of gold could be purchased in Macao at an
exchange ratio with silver of 1:8, and then sold in Japan at a rate of 1:13.20
But the high value of gold in Japan stimulated domestic mining in the
second quarter of the seventeenth century, depressing the demand for gold
imports. In 1635 a Dutch merchant who sold 500 taels of gold in Japan
calculated his profit at 30 percent, in contrast to the 60 percent that could
be obtained in 1622. In the 1630s European merchants found that gold
16
Kobata, "Production," p. 237; and Boxer, Christian Century, pp. 112-18.
17
Hakluyt, Principal Navigations, vol. 6, p. 354; see also Boxer, Great Ship, pp. 54-55.
18
Boxer, Christian Century, pp. 425-27.
19
Boxer, Great Ship, p. 179.
20
Kobata, Kingin boekishi, pp. 47-48.
436 von Glahn

now fetched a better price in Southeast Asia than in Japan and began to
export Japanese gold to Cochin and Siam until the Tokugawa shogun,
alarmed by the drain of gold abroad, prohibited the export of gold in
1641.21
In China, too, the value of gold appreciated in the early seventeenth
century, though at a slower pace than Japan. However, Chinese merchants
exhibited no interest in gold. Antonio de Morga, a former colonial
administrator in Manila writing in Mexico around 1609, confirmed that
Chinese merchants greatly favored silver over gold, accepting only silver
coins as a means of payment: "for they do not like gold, nor any other
goods in exchange, nor do they carry any to China."22 The most succinct
statement of the Chinese appetite for silver came from the hand of the
missionary Sebastiao Manrique, who recounted that Spaniards in Manila,
where he worked from 1637 to 1638, said that in the eyes of the Chinese,
"silver is blood."23
Thus, the flow of specie in East Asia during the sixteenth century cannot
be interpreted simply as a mechanism for offsetting deficits in international
trade. Bullion flows were driven by the price differentials between sources
of supply and areas of demand.24 But Chinese desired only one particular
form of bullion: silver. Gold, a net import a century earlier, flowed out of
China during the "silver century." Silver poured into China because the
Chinese market valued it more highly than anywhere else in the world; at
the same time bronze coin and gold departed through Ming China's
porous frontiers, pulled by the magnetic power of external markets.

QUANTITATIVE ESTIMATES OF SILVER IMPORTS IN LATE MING CHINA

In the absence of any quantitative data on foreign trade in Chinese

sources, estimates of the scale of Ming China's silver imports must be
extrapolated from contemporary observations and trade data from export-
ing countries. The trade data at least allows us to gauge the magnitude of
silver imports and the degree to which the volume of silver imports
fluctuated over time. My estimates for silver imports rest on one key
assumption: China was the ultimate destination of virtually all silver that
entered the East Asian trading sphere. The rationale for this assumption
is that silver earned a higher return on the Chinese market than anywhere
else in the world during this period.25
China's primary source of silver was Japan. Although the Ming govern-
ment suspended all direct trade with Japan in 1523, smuggling flourished,
21
Ibid., pp. 48-49; and Innes, "Door," pp. 586-91.
22
Morga, Philippine Islands, p . 340.
23
Boxer, "Plata Es Sangre," p. 463.
24
O n this point, see Flynn, "Microeconomics."
25
It is possible that some silver, for example Japanese silver brought by the Dutch to Batavia, was
shipped to India instead. But on the whole I believe the assumption is a valid one. See also Flynn and
Giraldez, "Arbitrage."
 China's Seventeenth-Century Monetary Crisis 437

TABLE 1
ESTIMATES OF JAPANESE TRADE AND SILVER EXPORTS, 1604-1639
Value of Imports Value of Imports Estimate of Silver Exports3
Carrier (kanme) (kgs of Silver) (kgs)
"Vermillion-Seal" ships 298,000 1,053,750 843,000
Portuguese 216,900 813,375 650,700
Chinese 114,620 429,825 343,860
Dutch 76,332 286,245 228,996
Total 705,852 2,583,195 2,066,556
a
Estimate of silver exports is based on the approximation that silver constituted 80 percent of total
value of exports.
Note: One Japanese kanme equals 3.75 kgs.
Source: Figures are based on trade data in Innes, "Door," pp. 379-80.

and Japanese silver also reached China through trade at neutral ports like
Hoi-an and Manila. The best estimates suggest that the total quantity of
Japanese silver exported to China before 1600 was on the order of 1,200 to
1,370 tons.26 Japanese trade with China grew substantially after the
Tokugawa came to power in 1600. The Tokugawa shogun Ieyasu aggres-
sively pursued foreign trade opportunities to obtain strategic military
supplies (iron, lead, and saltpeter) and gold as well as silk goods. Ieyasu
greatly expanded the "vermillion-seal" licensing system set up by his
predecessor, which allowed merchants of any nationality to buy and sell
goods at select ports in Kyushu. Subsequently, the bulk of trade between
China and Japan was carried by "vermillion-seal" ships until the system
was abolished in 1635. In the late 1630s, the Tokugawa began to limit
foreign traders' privileges, expelling the Portuguese altogether and con-
fining Dutch and Chinese merchants to the single port of Nagasaki. The
export of Japanese silver to China had risen sharply during the heyday of
the "vermillion-seal" ships, but the volume of Japanese silver exports
reached even greater heights during the period 1636 to 1639 and remained
at a high level in the early 1640s, despite the restrictions and the expulsion
of the Portuguese. Foreign trade statistics for Japan indicate that Japan
exported approximately 2,400 tons of silver to China in the period 1604 to
1645 (Tables 1 and 2).27
In addition to exports of Japanese silver to China, a sizable volume of
New World silver reached China by diverse routes. In the first two decades
after the founding of Manila in 1571, Chinese imports of Spanish silver
remained at modest levels, probably no more than 20 tons per year. But
around the turn of the seventeenth century Spanish officials began to
register great alarm over a huge loss of silver to China via Manila, said to
26
Souza. Survival, pp. 54-58; and Yamamura and Kamiki, "Silver Mines," p. 351.
27
In my view, Yamamura and Kamiki, following earlier studies by Kobata Atsushi and Iwao Seiji,
present implausibly high estimates for Japanese silver exports, in the range of 6,000 to 7,500 metric
tons, for the first half of the seventeenth century. See Yamamura and Kamiki, "Silver Mines," p. 353,
and the discussion in von Glahn, Fountain, chap. 4.
438 von Glahn

TABLE 2
EXPORTS OF SILVER FROM JAPAN BY DUTCH AND CHINESE SHIPS, 1640-1645
Dutch
Silver Estimate of
Exports Dutch Silver Exports Chinese Exports Chinese Silver Total
Year (guilders) (kg equivalent) (kanme) Exports" (kgs) (kgs of silver)
1640 3,720,313 38,245 13,847 41,541 79,786
1641 769,500 7,910 n.a.b 50,000b 57,910
1642 1,063,050 10,928 9,922 29,763 40,691
1643 1,949,400 20,040 10,626 31,878 51,918
1644 2,089,050 21,475 15,277 45,831 67,306
1645 1,222,650 12,569 17,291 51,873 64,442
Total 111,167 250,886 362,053
a
Estimate of silver exports is based on the approximation that silver constituted 80 percent of total
value of exports.
b
In 1641 97 Chinese vessels arrived at Nagasaki (highest recorded total prior to 1686; see Iwao,
"Kinsei nisshi boeki," p. 991). By comparison, in 1645 76 Chinese ships arrived at Nagasaki. Most
likely, Chinese exports of Japanese silver in 1641 exceeded any other year in this six-year period.
Therefore, I am including what I believe is a conservative estimate of 50,000 kgs exported by Chinese
ships in this year.
Note: One Japanese kanme equals 3.75 kgs.
Sources: Dutch exports are from Gaastra, "Exports," p. 474, table 1; Chinese exports are from Innes,
"Door," p. 408.

exceed five million pesos (127.8 tons) per year, with a report of 12 million
pesos for the year 1597. However, the Manila customs duty data indicate
a far more modest level of exports from Manila to China, a mere 695 tons
for the whole period 1600 to 1645.28 Of course, the authorities in Manila
regularly complained that 50 to 90 percent of Manila's trade with Macao
went unrecorded, and Chinese merchants engaged in smuggling as well.
The sharp fall in customs revenues after 1620 probably owed to the
displacement of a large portion of the Philippine trade out of official
channels and into the hands of smugglers. In fact, the amount of silver sent
to the Philippines from Acapulco peaked during the 1620s, and a leading
authority has speculated that the drain of silver to the Philippines in the
1620s was a principal reason for the decline in remittances of New World
silver to Spain at this time.29 Thus the customs revenue data without doubt
greatly underestimates the volume of China's silver imports from the
Philippines. Most of the reports from Manila in the 1620s and 1630s
pegged the export of silver to China at roughly two million pesos (51.1
tons) annually. This figure is more than three times greater than the value
of Chinese imports extrapolated from customs duties. I favor a more
conservative estimate of 1.5 million pesos (38.3 tons) of silver exported
annually from Manila, and a total of 1,725 tons of silver for the first half
of the seventeenth century.
In addition to imports channeled through Manila, New World silver also
28
von Glahn, Fountain, ch. 4, table 8.
29
TePaske, "New World Silver," p. 439.
 China's Seventeenth-Century Monetary Crisis 439

TABLE 3
ESTIMATES OF CHINESE IMPORTS OF FOREIGN SILVER, 1550-1645
(in metric tons)

Source / Carrier 1550-1600 1600-1645 1550-1645

Japan
Portuguese 740-920 650 1,390-1,570
Chinese 450 599 1,049
"Vermillion-Seal" — 843 843
Dutch — 340 340
Smugglers — — —
Subtotal 1,190-1,370+ 2,432+ 3,622-3,802+
(1,350-1,950) (6,000-7,500) (7,350-9,450)

New World via Philippines

Chinese 584 620 1,204
Portuguese — 75 75
Smugglers — 1,030 1,030+
Subtotal 584+ 1,725 2,304+
(420) (900) (1,320)

Indian Ocean / Europe 380 850 1,230

Total 2,154-2,334+ 5,017+ 7,161-7,341 +

(1,770-2,370) (6,900-8,400) (8,670-10,780)

Note: Figures in parentheses are estimates from Yamamura and Kamiki, "Silver Mines," pp. 351-53.
Source: von Glahn, Fountain, table 13.

reached China from Europe, via the Portuguese trading network ringing
the Indian Ocean and the caravan routes that passed from the Levant
across central Asia. Artur Attman estimated the annual average outflow of
silver from Europe to eastern Asia (everywhere east of the Levant) at 1.4
million rix-dollars (equal to 36.4 tons of silver) around 1600, and 1.3
million rix-dollars (equal to 33.8 tons) around 1650.30 Although much
European silver that reached India was converted into coin, Indian rupees
also tended to migrate toward China.31 In the 1580s Ralph Fitch estimated
that Portuguese traders each year brought 200,000 cruzados (equal to 7.5
tons of silver) in trading capital from Goa to Macao.32 If even half the
silver transmitted from Europe to India passed on to China, we can
project, based on Fitch's estimate for the second half of the sixteenth
century and Attman'sfiguresfor the first half of the seventeenth, that some
1,230 tons flowed westward from Europe to China during the "silver
century."
In sum, the volume of silver exported to China in the last century of the
Ming can be crudely estimated at around 7,325 tons (Table 3), although
this figure is significant more as an order of magnitude than as a precise
measure of quantity. In the first half of the seventeenth century the
30
A t t m a n , American Bullion, p . 77.
31
C h a u d h u r i , Trading World, pp. 1 5 3 - 8 9 .
32
Hakluyt, Principal Navigations, vol. 5, p . 498.
440 von Glahn

amount of silver imported into China each year averaged 116 tons,
approximately 250 percent more than in the second half of the sixteenth
century, but considerably less than the 250 to 265 tons per annum
frequently cited in the recent scholarship on the "seventeenth-century
crisis." Moreover, the data on bullion flows assembled here does not show
any sharp decline in Chinese imports in the waning years of the Ming
dynasty. The expulsion of the Portuguese from Nagasaki and the demise of
the "vermillion-seal" ship trade in the late 1630s were followed by a
dramatic surge in Dutch and Chinese exports of Japanese silver. Similarly,
the decline in official trade between China and the Philippines after 1620
most likely was offset by a proliferation of illicit trade on a scale
comparable to the peak years of the official trade. Overall, the Chinese
economy did not experience any sudden diminution of silver imports
during the last years of Ming rule. During the period 1640 to 1645, China
received a minimum of 50 tons of silver per year from Japan and the
Philippines, exclusive of smuggling (Table 2).
Although the evidence does not bear out the thesis that China suffered
a sharp contraction in silver imports in the late Ming, the impact of foreign
silver on the late Ming economy, and on the monetary system in particular,
was indeed substantial. Domestic silver mine output stagnated at around 4
to 6 tons per year. In contrast, silver imports ranged from 46.6 tons per
year in the late sixteenth century to an annual average of 116 tons in the
early seventeenth century. With due recognition of the limitations of these
estimates, we are probably on safe ground in concluding that during the
second half of the sixteenth century silver imports were adding at least
eight times more bullion to China's stock of money than domestic mines;
in the first half of the seventeenth century, imports exceeded domestic
production by more than twenty fold.

SILVER AND THE KANGXI DEPRESSION (1660-1690)

In 1644 Manchu invaders overthrew the Ming and founded their own
Qing dynasty (1644 to 1911); by 1651, the Manchus had completed the
conquest of southern China, with minimal disruption to China's domestic
economy. Harvest failures, epidemics, and invasion had caused great
hardship and catastrophic inflation in the final years of the Ming, but the
economy stabilized by the late 1640s. The sole remaining nucleus of
resistance to Qing rule was the outlaw regime of the merchant-princes of
the Zheng clan, who continued to thrive while operating from their bases
along the southeastern coast. The Ming ban on trade with Japan lapsed
with the fall of the dynasty, but in 1661 the Qing imposed an embargo
against all maritime trade after negotiations to secure the submission of
the Zheng collapsed and the Zheng took refuge in Taiwan. The embargo
remained in effect for more than 20 years, until the Qing vanquished the
Zheng in 1683.
 China's Seventeenth-Century Monetary Crisis 441

3001

200

° 150
n
o
in
10
A °
^ 75

50

1450 1500 1550 1600 1650 1700

FIGURE 3

DECENNIAL INDICES OF RICE AND LAND PRICES IN CHINA, 1450-1700

Sources: Peng, Zhongguo huobi shi, pp. 705, 850; and Chao, Man, pp. 111-12.

It is widely believed that the ban on maritime trade during the period
1661 to 1683 wreaked havoc with China's domestic economy. Beginning
with the reign of the Kangxi emperor (1661 to 1722), China entered a
prolonged economic depression that lasted until the 1690s. During the
"Kangxi depression" of 1660 to 1690, prices for grain, cotton, arable land,
and finished cloth plunged, engendering widespread distress (Figure 3).33
Contemporaries believed that depressed prices resulted from falling
demand, but opinion differed on the causes of this reduction in demand.
Most commonly, the depression was blamed on a scarcity of silver resulting
from the embargo on foreign trade. One Qing statesman calculated that
the lost trading opportunities, particularly with Japan, cost Chinese
merchants 7 to 8 million taels (equivalent to 250-300 tons of silver) per
year. With silver no longer flowing into China from abroad, and domestic
mines yielding only negligible quantities of ore, prices and income
inevitably fell.34
Despite such testimony from contemporary statesman, the Qing em-
bargo on foreign trade probably had only a minimal effect on the import
of silver into China. Although trade between Nagasaki and the Chinese
mainland declined sharply once the ban took effect in 1662, the Zheng
regime on Taiwan emerged as the chief intermediary between the Chinese
and Japanese markets (Figure 4). The Zheng dominated the exchange of
Chinese silks for Japanese silver and were the primary suppliers of Chinese
33
For additional data on grain prices in this period, see Nakayama, " O n the Fluctuation"; and
Wang, "Secular Trend"; for land prices, see Nakayama, "Shindai."
34
See von Glahn, Fountain, chap. 7.
442 von Glahn

150

Mainland China
Southeast Asia
Taiwan

1650 1655 1660 1665 1670 1675 1680 1685 1690

FIGURE 4

ORIGINATION OF CHINESE SHIPS ARRIVING AT NAGASAKI, 1647-1700

Source: von Glahn, Fountain, chap. 7, table 25.

gold to the Dutch.35 In 1683 the Qing finally triumphed over the Zheng
and captured Taiwan. Reassured of their sovereign authority, the Qing
rescinded the ban on maritime trade in the next year. Commercial traffic
between China and Japan immediately soared, with nearly 200 vessels
embarking for Nagasaki in 1688. But we find no correlation between the
scale of silver imports and the opening and closing of Chinese ports to
maritime trade. Throughout the 1640s and 1650s, the export of Japanese
silver fluctuated around 40 tons per year, though this figure amounted to
no more than half of the level of exports attained in the 1620s and 1630s
(Tables 1 and 4). From 1650 onward, rampant silver exports and the
growing depletion of its mines finally began to put pressure on Japan's
domestic supply of silver. In the late 1650s export of silver once again
swelled, cresting at more than 117 tons in 1661 and averaging 76 tons per
year during the period 1658 to 1665 (Table 4).36 The Tokugawa, suddenly
alarmed over the flight of silver, sought to discourage exports and in 1668
took the extraordinary step of prohibiting all export of silver. The adverse
impact of this decision on foreign trade forced the Tokugawa to rescind
the ban three years later, but Japanese silver exports fell to an average of

35
Yamawaki, "Great Trading Merchants," pp. 106-16. O n the salient role of Chinese gold in the
Dutch East India Company's intra-Asiatic trade, see Gaastra, "Dutch East India Company," p . 103.
36
Virtually all of this increase can be attributed to the soaring price of Chinese silk goods, a trade
effectively dominated by Chinese merchants, that is t o say, the Zheng clan. See Tashiro, "Tokugawa
jidai no boeki," pp. 145-46.
 China's Seventeenth-Century Monetary Crisis 443

TABLE 4
JAPANESE SILVER EXPORTS, 1648-1672

Chinese Silver Dutch Silver Total Silver

Exports Exports Exports Silver Exports
Year (kanme) {kanme) (kanme) (kgs)
1648 1,794 6,222 8,016 30,060
1649 5,454 5,341 10,795 40,481
1650 6,828 3,940 10,768 40,380
1651 4,749 4,896 9,645 36,169
1652 5,687 5,719 11,406 42,773
1653 3,517 6,191 9,708 36,465
1654 8,181 3,848 12,029 45,109
1655 4,655 4,002 8,667 32,501
1656 5,241 6,190 11,431 42,866
1657 2,450 7,562 10,012 37,545
1658 11,029 5,640 16,669 62,508
1659 19,401 5,960 25,361 95,104
1660 20,151 4,269 24,420 91,575
1661 25,769 5,544 31,313 117,423
1662 12,943 5,960 18,903 70,886
1663 5,411 3,672 9,083 34,061
1664 16,664 5,572 22,236 83,385
1665 8,042 6,880 14,922 55,958
1666 7,236 3,977 11,213 42,049
1667 4,547 3,574 8,121 30,454
1668 3,415 0 3,415 12,806
1669 296 0 296 1,110
1670 395 0 395 1,451
1671 950 0 950 3,563
1672 8,964 0 8,964 33,615

Note: One Japanese kanme equals 3.75 kgs.

Sources: Innes, "Door," p. 410; and Iwao, "Kinsei nisshi boeki," p. 1002.

23.2 tons per year between 1672 and 1683.37 In 1685 the Tokugawa
imposed a ceiling on silver exports of 22.5 tons per year. In 1695 the
Tokugawa enacted the first of a series of radical debasements of its silver
and gold currency that rendered Japanese bullion entirely unpalatable to
foreign traders.38 By the turn of the century, the flood of Japanese bullion
into the Asian trading network had dwindled to a trickle.
The evidence for the flow of silver across the Pacific from the New
World after 1640 is exceedingly defective. Dennis O. Flynn and Arturo
Giraldez are undoubtedly correct in asserting that trans-Pacific trade with
Spain's colonies in the New World became the principal conduit of silver
imports into China in the second half of the seventeenth century, but the
clandestine nature of this mostly illicit trade in Spanish silver precludes any
quantitative measurement of its magnitude.39 Spanish documents from the
1620s to 1630s and the 1680s to 1690s concur in estimating the scale of the
37
Although Chinese were allowed to resume export of silver in 1671, the ban on Dutch export of
silver remained in effect. See Innes, "Door," pp. 295-315.
38
Tashiro, "Junana-juhachi-seki," p. 131; and Prakash, "Precious Metals Flows," pp. 92-93.
39
Flynn and Giraldez, "Arbitrage."
444 von Glahn

TABLE 5
ESTIMATED IMPORTS OF SILVER INTO CHINA, 1600-1700
(in metric tons)

Years Japan Philippines Indian Ocean Total

1601-1605 7 129.1 18.5 147.6+
1606-1610 124.2 197.6 18.5 340.3
1611-1615 259.2 137.3 18.5 415.0
1616-1620 256.5 80.6 18.5 355.6
1621-1625 286.7 ? 18.5 315.2+
1626-1630 201.4 39.7 18.5 259.6
1631-1635 344.5 73.0 18.5 436.0
1636-1640 495.8 58.5 18.5 572.8
1641-1645 209.0 39.6 — 248.6
1646-1650 166.4 21.3 — 187.7
1651-1655 173.7 10.5 — 184.2
1656-1660 296.6 5.9 — 302.5
1661-1665 325.5 5.3 — 330.8
1666-1670 79.1 3.3 — 82.4
1671-1675 104.1 1.8 — 105.9
1676-1680 116.0 7.3 123.3
1681-1685 116.0 12.9 — 128.9
1686-1690 13.7 29.4 — 43.1
1691-1695 13.7 33.8 — 47.5
1696-1700 13.7 73.5 — 87.2
Total 3,595.7 960.4 148.0 4,701.1

Notes: Figures for Japan for the years 1606 to 1647 are estimates based on an 80 percent value of
imports; for the years 1648 to 1672 they are based on actual exports of silver from Nagasaki. The
figures for the periods 1673 to 1684 (for Nagasaki only) and 1685 to 1697 (for Nagasaki and Tsushima)
as a whole are averaged equally per annum. All Japanese figures are converted to the international
standard (93 percent fine). Figures for the Philippines are 100 percent value of exports to China
extrapolated from customs duties. Philippine data, especially after 1620, are highly defective. Figures
for the Indian Ocean are crude estimates of Portuguese shipments of silver to Macao.
Source: von Glahn, Fountain, chap. 7, table 19.

trans-Pacific export of New World silver at roughly 50 tons per year, but we
lack any confirmation of this figure for the years between 1633 and 1688.
Official statistics on the Acapulco-Manila trade and Crown shipments of
silver from Mexico to the Philippines both show a marked cyclical decline
during 1660 to 1690, years of economic depression in China.40 The
quantity of silver smuggled from Mexico to the Philippines may also have
shrank during this period, but certainly by the end of the century China's
imports of New World silver dwarfed the amount of silver obtained from
Japan.
The sharp decline in the import of silver into China occurred in the final
third of the seventeenth century rather than the waning years of the Ming
(Table 5). The reopening of China's ports in 1684 boosted foreign trade,
but imports of foreign silver did not return to pre-1665 levels until the
second decade of the eighteenth century. Nor do we find any simple
correlation between the deflationary cycle of the Kangxi depression and
40
Chaunu, Les Philippines, vol. 1, pp. 200-05; and TePaske, "New World Silver," p. 444.
 China's Seventeenth-Century Monetary Crisis 445

the prevailing trends in bullion flows. The fall of domestic prices in China
commenced before Japanese silver exports began their long descent, and
prices began to recover in China in the absence of any surge in the inflow
of foreign silver. This lack of a close fit between bullion imports and price
movements suggests the need to reappraise the role of foreign silver in the
economy of seventeenth-century China.

THE "SEVENTEENTH-CENTURY MONETARY CRISIS" HYPOTHESIS

Having examined in brief the vicissitudes of bullion movements in China

over the period 1550 to 1700, we can now evaluate the hypothesis that
China suffered a dramatic fall in the import of silver beginning in the late
1630s, precipitating an economic crisis that sapped the vitality of the Ming
dynasty and directly contributed to its downfall in 1644. It is my contention
that the crisis hypothesis suffers from three fundamental flaws: its propo-
nents misconstrue the trends in China's silver imports; the implicit
theoretical basis of the crisis hypothesis is inadequate as an explanatory
model; and the available data on bullion flows, prices, and the exchange
ratios between silver bullion and bronze coin cannot be explained in terms
of the crisis hypothesis.
First, let me briefly restate the main arguments encapsulated in the crisis
hypothesis. In essence, the crisis theorists maintain that beginning in the
late 1630s the flow of silver into China fell sharply as a result of Japan's
seclusion policies (the suspension of the "vermillion seal" trade; the
expulsion of the Portuguese; and the restriction of Dutch and Chinese
traders to a single port); Spain's curtailment of Philippine trade with
China; and the dissolution of Portugal's alliance with Spain in 1640,
severing trade relations between Manila and Macao. These interruptions
in silver imports are said to have caused a sharp contraction in the
circulation of money in China. In response, people tended to hoard
whatever silver they possessed. Moreover, the state's escalating tax de-
mands, necessitated by internal rebellion and the menace of Manchu
invasion, resulted in the extraction of a sizable quantity of silver from the
private economy, further diminishing the quantity of silver in circulation.
The scarcity of silver slowed the commercial sector of the economy; the
textile industry was most seriously affected, but the repercussions are
believed to have extended to manufactures in general. The widening
commercial crisis rippled throughout the agrarian economy as well. The
appreciation of silver raised the real cost of taxes and loans, both
increasingly denominated in silver. As peasants found it more and more
difficult to meet these heightened obligations, many went bankrupt or fled
from tax and debt collectors. In essence, the inability of the market to
satisfy the demand for silver drove up the price of silver while the value of
446 von Glahn

goods plummeted, resulting in a severe commercial depression and

ultimately a crisis in production as well.41
The crisis theorists do not spell out the economic theory behind this
general explanatory model. Nonetheless, it is clear enough that the model
is derived, implicitly at least, from the Fisher equation of exchange. Like
Fisher, the crisis theorists emphasize the flow of money and the distinction
between idle and active money. In essence, they conclude that the
diminished influx of foreign bullion was exacerbated by a sharp contraction
in the velocity of money (through hoarding and mounting tax demands),
making money all the more "scarce."
But the utility of this version of the quantity theory for understanding
international bullion flows has been subjected to serious challenge.42
Monetary theory rejects this exclusive focus on the supply of money and
recognizes the significance of variations in the demand to hold money,
both for purposes of transactions and as an asset. In contrast to mecha-
nistic notions of the Fisher model, wherein changes in the quantity and
velocity of money automatically translate into corresponding changes in
the price level, modern monetary theory takes into account a wide range
of other factors that influence the demand for money, and hence the price
level (for example, interest rates, expectations of future inflation and
deflation; liquidity preferences, and the whole range of investment as-
sets).43 The crisis theorists entirely ignore the question of changes in the
demand for money.
Moreover, in their preoccupation with the inflow of silver, the crisis
theorists have erred in neglecting the importance of the total stock of
money. The stock of money is obviously relevant for understanding bullion
movements because the significance of new infusions of bullion will
depend on the size of the existing stock. Bullion imports will produce
inflation only if they have a significant impact on the total stock of money.
If money remains in demand, a sudden influx of bullion may have only
negligible inflationary impact. Recent scholarship on the price revolution
in early modern Europe has shown that rather than the flow of money, it
is the stock of money—or, more precisely, the stock demand for money—
that determines changes in the price level.44
But the crisis hypothesis is not simply deficient in terms of theory; it also
is contradicted by the available empirical data. The diminution in the
import of foreign silver during the late 1630s and early 1640s was not
nearly as great as the crisis theorists project. The late 1630s undoubtedly
41
Atwell, "International Bullion Flows" and "Some Observations"; and Wakeman, "China."
42
See Flynn, " U s e . "
43
See Friedman, "Quantity Theory"; Bordo, "Equation"; Laidler, Demand, pp. 55-98; and Niehans,
Theory, especially chaps. 1-3.
44
Flynn, "New Perspective"; and Fisher, "Price Revolution." See also Flynn, "Use." A recent study
of money and prices in early modern England contends that a rise in velocity correlates to economic
contraction rather than growth. See Mayhew, "Population."
 China's Seventeenth-Century Monetary Crisis 447

marked the apogee of silver imports, and the early 1640s represented a
decline only by comparison to the unusually high level of the immediately
preceding years. As Table 5 shows, the volume of imports in the early
1640s was not significantly lower than during the 1620s. Even if we take the
period 1636 to 1640 as the norm and conclude that during the period 1641
to 1645 there was a "deficit" in the influx of silver amounting to 300 tons,
this "deficit" amounted to only 4 percent of the total quantity of silver
(7,325 tons) imported during the previous century (ignoring the indige-
nous stock of bullion altogether). A 4 percent decline in the total stock of
silver could not have been significant enough to cause the drastic effects
ascribed to it.
If there had been a substantial decline in silver imports and a shortage
of money in circulation, the quantity theory of money predicts (all other
things being equal) that prices would decline. In actuality, the price of rice
soared to unprecedented heights during the 1640s (Figure 3). The price of
land increased at a more modest pace, but even this rise is significant
because it reversed what had been a trend of long-term decline. Prices of
manufactured goods such as cotton and silk textiles declined sharply in the
early 1640s but rebounded in 1646 to 1647, and reached new highs by the
early 1650s even in the absence of any dramatic increase in bullion
imports.45 In sum, price movements in the 1640s do not fit the simple
hypothesis of a dramatic shortage of money; rather, they exhibit the
characteristic features of a subsistence crisis. The catastrophic famine
conditions of 1637 to 1641 placed intense pressure on food supplies, with
the result that the price of grain skyrocketed. The high cost of food in turn
caused a shift in spending patterns. As subsistence needs soaked up a
greater portion of household income, the demand for manufactured goods
like textiles vanished, and their prices fell. But the enormous increase in
the silver-denominated price of rice hardly suggests a scarcity of silver or
a pattern of withdrawing silver from circulation.
The principal evidence for a scarcity of silver is the dramatic deprecia-
tion in the value of bronze coin relative to silver.46 However, the falling
value of coin cannot be neatly correlated to the vicissitudes of bullion
flows; the depreciation of bronze coin represented an acceleration, not a
reversal, of a secular trend (Figure 5). Changes in the silver-coin exchange
ratio are best explained not by changes in their relative quantities but
rather by changes in quality. The flight from coin in the waning years of the
Ming dynasty resulted from radical debasement of standard coin and
45
Nakayama, "Shindai," pp. 5 6 0 - 6 3 .
46
Atwell, "International Bullion Flows," pp. 8 8 - 8 9 . Atwell argues, in light of the rising price of
copper metal relative to silver, that late Ming China experienced a "long-term trend towards cheaper
silver." The rise in the price of copper is undeniable, but irrelevant. Copper was not specie, and even
though the price of copper metal appreciated during the late Ming, the value of bronze coin had been
depreciating since the turn of the seventeenth century (Figures 1 and 5).
448 von Glahn

1500 1550 1600 1650 1700

FIGURE 5

INDEX OF COIN / SILVER EXCHANGE RATIOS IN JIANGNAN, 1527-1712

Source: von Glahn, Fountain, chap. 3, table 4.

rampant counterfeiting rather than increased hoarding of silver.47 Infla-

tion was unlikely to induce hoarding. On the contrary, the runaway
inflation of the 1640s should have had the opposite effect: as prices rose,
the demand to hold money declined, and those with stocks of money,
whether silver or coin, would have been inclined to spend their money
before its value eroded any further. Nor is it correct to say that silver
collected as tax revenue was withdrawn from circulation, since the state
immediately spent this money to pay and provision its armies, thereby
returning silver to the private economy.
The argument for a scarcity of silver also is contradicted by another
trend observed in the late Ming: the falling value of silver relative to gold
(Figure 2). The value of silver in terms of gold declined steadily through-
out the first half of the seventeenth century,finallysinking to the prevailing
international level exactly at the moment the Ming dynasty fell. During the
early Qing period the value of silver in China once again rose above the
international price, suggesting that the relative demand for silver had
reached a low ebb precisely when, according to the crisis hypothesis, it
should have peaked. The movement of the gold-silver exchange ratio, like
the price movements, suggests a surfeit rather than a scarcity of silver in
the last years of the Ming.
Moreover, the crisis hypothesis becomes even less compelling when
viewed in the context of secular price trends. During the first half of the
47
von Glahn, Fountain, chap. 6.
 China's Seventeenth-Century Monetary Crisis 449

200

/ \ n t Japan (Hiroshima)

vv—~y
J
/ \ A !• '• /'"•

China (Shanghai) *
Wv ly

1620 1630 1640 1650 1660 1670 1680 1690

FIGURE 6

SILVER-CONTENT PRICES OF RICE IN CHINA AND JAPAN, 1620-1700

Sources: Wang, "Secular Trends," pp. 40-41; and Iwahashi, Kinsei Nihon, pp. 460-61.

seventeenth century, price levels rose steadily in both Europe and East
Asia. China experienced a gradual rise in prices until the 1630s, and a
sharp spike of inflation from the mid-1630s until around 1660, followed by
the protracted deflation of 1660 to 1690 (Figure 3). In Japan prices moved
roughly parallel to those in China until 1645 but in opposite directions
thereafter. The mid-century inflation spike began around the same time, in
the mid-1630s, but passed by 1645 and was followed by a trough of
deflation that lasted to the mid-1650s (Figure 6). The contrast between
price movements in China and Japan was especially striking in the period
1655 to 1670, when Japan experienced strong inflation while China
plunged into the Kangxi depression. Neither trend makes sense even in
terms of the Fisher version of the quantity theory. During this period
Japan continued to export considerable quantities of silver, straining
domestic supplies to the point where in 1668 Japanese authorities took the
extraordinary step of prohibiting all export of silver. In China, prices
tumbled beginning in the late 1650s, yet the inflow of bullion from abroad
rose substantially in 1655 to 1665, once again approaching the levels
attained in the early seventeenth century (Tables 4 and 5). Contempo-
raries blamed the deflation of 1660 to 1690 on interruptions in the
import of silver, but a pronounced deflation set in five or six years
before silver imports began to fall. Little correlation can be discerned
between the flow of silver and the price level in either China or Japan
at this time.
The disparities between price movements in China and Japan during the
second half of the seventeenth century suggest that despite the sizable
trade between the two countries, the international market in East Asia
450 von Glahn

remained weakly integrated. Competitive international markets obtained

only for a few high-value commodities, chiefly silk goods and metals. Of
course, price indices based on bulky commodities like grain do not afford
especially good evidence of market integration. But apart from the
contrasting trends in price movements, the absolute price levels in China
and Japan diverged substantially. Before the crises of the late 1630s and
early 1640s (when both China and Japan suffered catastrophic famines),
the price of rice in China was roughly 20 percent higher than in Japan.
Following the mid-century crises, though, the price level in Japan soared.
After 1663 the price level in Japan stood at two and a half to five times
greater than in China—while statesmen in both countries bemoaned a
"dearth" of silver (Figure 6). This widening gap in price levels indicates
that the domestic markets of the two countries remained essentially
discrete.
Market integration in East Asia was obstructed by institutional con-
straints and transportation costs. Both in China and Japan relatively
powerful central states subjected maritime trade to strict regulation. While
political controls on international trade were far from fully effective, they
nonetheless hindered the free play of market forces. Geographic distance
and the perils of oceanic shipping limited international trade between the
two countries to a few high-value commodities. Production and export of
goods such as silk and copper demonstrated that in a few cases domestic
production was sensitive to international markets, but changes in the
prices of these goods had only a marginal impact on the overall domestic
price level. In the absence of an integrated international market, bullion
movements and changes in the total stock of bullion did not produce the
same monetary effects within the East Asian trading sphere as they did in
Europe. The infusion of foreign silver into China did not generate an
increase in the price level comparable to that which took place in Spain,
nor did it create a glut of money that was expended through purchases of
foreign goods. On the contrary, the price level in China sank well below
that of Japan even while Japan was exporting substantial quantities of
silver to China. In short, silver behaved like a commodity rather than a
disembodied form of money.
Tempting as it is to concur with contemporary observers and ascribe the
Kangxi depression to reduced imports of foreign silver, such a conclusion
cannot be justified on either empirical or theoretical grounds. Instead, the
deflation of 1660 to 1690 should be understood in terms of a falling
demand for goods—or, what amounts to the same thing, a rising demand
for money. To understand why the demand for money rose, we must look
at other factors besides the quantity of money. Consider, for example, the
following scenario. The early years of the Qing were marked by stagnant
population growth following the demographic catastrophe of 1637 to 1641.
The falling labor-land ratio ensured high wages and low rents, making
 China's Seventeenth-Century Monetary Crisis 451

farming less profitable and landownership a less attractive investment.48

The falling value of land reflected the lack of confidence in land as an
asset. Already in the mid-1650s, it seems, confidence in economic growth
was fading. Faltering prices made holders of wealth all the more pessimis-
tic. As expectations of prosperity waned, investment in production de-
clined. Ironically, despite a "shortage" of labor, unemployment rose,
weakening consumer demand and causing prices to fall even lower.
Deflation encouraged those who had money to hold it, since the purchas-
ing power of money would only increase over time. This was true for all
hard currency, coin as well as silver: throughout the Kangxi depression, the
value of bronze coin rose in tandem with silver—indeed, in the eyes of
contemporaries, even more dramatically. Thus the Kangxi depression,
rather than providing evidence for the view that the price level was
determined by the flow of silver imports, is better explained as a
consequence of a rising demand for money, as modern quantity theory
would predict.
The depiction of China in the seventeenth century as "a silver 'junkie,'
addicted to large and steady fixes of the precious metal to maintain an
economic high" unfortunately is as widespread as it is misleading.49
Money—and silver in particular—certainly was a crucial element in the
burgeoning commercial economy of late Ming China. Yet the prevailing
consensus of a catastrophic scarcity of silver in the middle and late
seventeenth century rests on shaky theoretical and evidential foundations.
Instead, secular changes in China's imports of foreign silver were deter-
mined as much by changes in the domestic demand for silver as by
fluctuations in the supply of silver in the global market. Moreover, the case
of China's import of foreign silver shows that a full understanding of the
formation of a global economy in the seventeenth century must take into
account the changing structure of markets and demand in indigenous
Asian economies.
48
The unfavorable impact of rising labor costs on investment in land and capital-intensive farming
during the seventeenth century has been underscored by several scholars. See Wiens, "Lord," pp.
9-16; and Huang, Peasant, pp. 60-73.
49
Quotation from Eastman, Family, p. 126.

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