Market integration in China, AD 960-1644

This chapter explores the market performance in pre-industrial China by comparing food prices and per capita money stocks in the Song (AD 960 1279) and Ming dynasties (AD 1368-1644). As recent economic research seems to show, macro-level stability based on increasing market performance is a necessary, although not sufficient, condition for pre-industrial growth. This increase in a pre-industrial economy would reduce the price volatility caused by harvest failures and promote specialization of production. All this advances agricultural productivity and improves the living standard of farmers and consumers alike. Other studies in this book have already identified a few contributing factors that help to explain market performance (i.e. lower conditional price volatility): trade, farming technology (increasing output), storage, consumption (if people started to diversify their consumption), institutions/government and monetary developments (which affect income and prices). However, in this chapter, because of the large monetary changes that occurred in China in the period under study, I focus my analysis on long-term changes in money stocks from the Song to the Ming dynasties to define and explain the performance of food markets in these nearly seven centuries.

In the following, I first present a survey of long-term changes in grain prices in late imperial China. The survey clearly indicates the existence of two different price regimes, separated by the Mongol conquest of China in the late thirteenth century and the establishment of the Ming dynasty in 1368. The average level of food prices measured in silver remained much lower during the sixteenth century when the population grew and the market expanded. However, documenting rises and/or declines in prices docs not itself explain increasing or decreasing market integration. To explain the century-long deflation and its impact on trade, I further compare the money supply between the Song and Ming eras. This comparison points to a huge decline in money stocks between the eleventh and sixteenth centuries at both aggregate and per capita levels, and it was this decline that was chiefly responsible for the lower price level in the sixteenth century.

The contraction or expansion of the market in the traditional Chinese economy essentially determines the monetary needs. I his chapter challenges the current wisdom about the transition towards a silver economy in the Ming era, which often assumes a deepening in the monetization of the economy and an enormous increase in the money supply during the transition, by providing a comprehensive measurement of the sharp decline in the money stock after the Ming dynasty was founded. The paucity of hard currencies was still felt even when China began to import silver from overseas trade. I argue that it was the anti-market policies implemented by the early Ming court (1368-1450) that substantially converted the whole economy into a barter economy and thus diminished the volume of hard currencies in circulation. The prevalence of payment-in-kind and counterfeit coins increased transaction costs and produced difficulties for long-distance trade. To test how currency affects market performance, I examine in detail the economic instability in the economy of the fifteenth and sixteenth centuries, an instability caused by the insufficient supply of hard currencies. Although this is the first time in the literature of Chinese economic history that an attempt has been made to explicitly relate long-term price movements to the quantity of money, the following analysis docs successfully demonstrate the important role that the money supply performed. In sum, the comparison reveals a regression in market integration from the collapse of the Song dynasty in AD 1279 through the Ming period.