I think that economics, like religion, is one of those topics that's seemingly a lot less interesting than it actually is. I think the best way for fellow history fans to get through the initial high entry barrier for these subjects, is to read books that uses them to explore a bigger question with greater appeal. For instance, the whole reason why I recommended books on the development of Jewish mythology, is not to be a douchebag but get people more interested in religion, especially how it helps shapes human cultures. That's why even though I fully admit I'm closer to being a scatter-brained dilettante than some intellectual (I'm just a dude who translates manga on the interwebz┐(￣ヘ￣)┌ ), I'm still excited to recommend books that'll hopefully get people to leave their comfort zones and explore new ideas. With that said, here are 3 economic history books that I hope some weirdos people will have fun with.
Lending to the Borrower from Hell: Debt, Taxes, and Default in the Age of Philip II
I'm quite glad that Firaxis made Philip II of Spain as one of the leaders in Civ 6, because I'm bit of a Philip-fanboy, in no small part due to Geoffrey Parker's The Grand Strategy of Philip II. It's easy to be fans of "great" leaders like Augustus or Charlemagne, so I think it's more interesting to see people liking clearly flawed leaders like Huizong or Commodus. Returning to Philip II, his 3 failures most commonly bandied about are his handling of the Dutch revolt, Spanish Armada, and his numerous bankruptcies. It's this last one that's the subject of this book. The popular view is that since more sophisticated ideas on inflation, interest rates, and credit weren't developed until the 19th century, it shouldn't be too surprising to see rulers like Edward I of England or Philip IV of France rack up debt. Thus, we get depictions of foolishly reckless moneylenders unwittingly rushing to their economic ruin by lending to a spendthrift king by historians such as Fernand Braudel (no offense, Braudel-sama, I still love ya).
But leave it to revisionists to show how fluid the study of history is. Economists Drelichman and Voth convincingly overturn the above-stated traditional view by first distinguishing between juros (long-term debt) and asientos (short-term debt) that the Spanish monarchy took, and examining both the monarchy's debt-sustainability and these contracts' profitability for moneylenders. The results? Surprise, surprise, the reports of Philip II's bankruptcies are greatly exaggerated. Basically, it turns out that Philip II never once defaulted on his juros, while the asientos he did default on were not because of straight-up insolvency, but rather illiquidity. That is to say, the Spanish state could perfectly sustain all the asientos it took, but at times, when there were unforeseen incidents that shot up spending, there weren't enough to cash or liquid assets to cover the scheduled payment. Or to put it in even simpler terms, it's as if you had a certain paycheck for $100 tomorrow, but you only have $20 in your wallet now and your friend Shylock Shekelstein is demanding you repay him $50 now.
More like "Plus Ultra Inflation," amirite?
So why does this matter, you might wonder? What bigger question does this book explore? Well there's two major questions. One is what really caused the Spanish decline? The most popular reasons are "imperial overreach" through too many wars or massive inflation due to American gold/silver. More complex explanations involve cultural and demographic factors but in any case, this book provides strong evidence to disprove the idea that these bankruptcies fatally weakened the Spanish state. The second question which may be more interesting to econ-fans is if occasional defaults are inevitable regarding government debt, what kind of lending system can maintain a borrower's incentive to pay as well as lessen the lender's incentive to punish the borrower so that defaults, rather than causing severe economic contraction, are minor speed-bumps that allow quick economic recovery?
All in all, this is a really great book, though probably too data-heavy for people who don't like numbers. Major props to all the research assistants involved who probably spent hundreds of hours poring over the details of Philip II's asientos and Spanish fiscal health to make this book possible.
Fountain of Fortune: Money and Monetary Policy in China, 1000-1700 A year ago, I read A Monetary History of the Ottoman Empire and while I found it informative, I found disappointing its lack of discussion on how Ottoman intellectuals and policy-makers conceived of money. As such, while it was heavy on the What (what happened with coinage), it was short on the Why. Richard von Glahn's Fountain of the Fortune, on the other hand, is exactly the kind of monetary history I want to read for any state. Not only does he describe how coins and money evolved through the Song to the early Qing periods, but at every step of the way, he discusses how prominent intellectuals conceived the function and the greater social utility of money, and how they influenced (or failed to influence) official state policy.
"I see you've played Knifey-Coiney before."
If what I said above doesn't pique your interests, consider the following. One, unlike typical European coins minted from precious metals, Chinese coins were minted from base metals, like copper and iron. Two, China was the first to use paper money, but China then abandoned the idea and didn't return to it until imitating European monetary systems during their period of Westernization in late-Qing dynasty. Three, the silver currency used mainly in Ming and Qing dynasties were not coined and instead used in ingot-form where their value in weight was the same as their currency value. These points, when considered individually, don't seem all that interesting but it's a whole other matter when considered together. For instance, you might simply think that China was a gold/silver-poor country so they used copper coins. But if that's the case, why didn't they use silver coins once there was a massive influx of silver from Peru and Japan during the 16th and 17th centuries? You might think the Chinese were the first to use paper money because they were such an advanced civilization. But if that's the case, why did they not only give up the idea, but didn't even bother coining their silver all the way up to the Qing dynasty? To understand these curiosities, you have to understand how the Chinese themselves understood money and not impose modern notions of how money works in today's countries.
So let's start with a brief discussion on how humans have perceived money's origin and primary function. Plato believed that the division of labour needed for a healthy state/community entailed the creation of money to facilitate the exchange of different goods (aka catallactic theory of money's origin). However, he recognized that money can lead to greed, corruption, and war. Thus, he stressed money's primary function as a medium of exchange by distinguishing between "real" and "token" money. Real money was that which had intrinsic commodity value, like gold, and should be used between states. Token money, on the other hand, was ideally something worthless but legislated by a state to serve as an exchange medium between individuals within a single state (basically, fiat money). This theory that money's value is set by the state is known as chartalism (or cartalism). Meanwhile, Aristotle believed that in order for money to be a useful medium of exchange, it had to have some intrinsic value as precious metals do. For most of Western history, it was Aristotle's views on money, not Plato's, that reigned supreme and economists generally trace the theory of metallism to him, though that's not without some dispute.
In China, however, something very interesting happened, as exemplified in the mythical origin of money as told in Guanzi:
"In the time of Tang [mythical founder of the Shang dynasty, the empire suffered seven years of drought, and in the time of Yu [founder of the Xia dynasty] it endured five years of flood. Lacking even gruel to stay their hunger, the people were compelled to sell their children into slavery. Tang used the metal of Mount Zhuang, and Yu took the metal of Mount Li, to cast money, which they employed to redeem the children from bondage."
Here, you see the powerful role of the state/ruler but no mention of a need for some neutral medium of exchange as Aristotle stressed. Perhaps this was a natural consequence to the importance that early Chinese civilization placed on the ruler and the state but in any case, this led to completely different priorities on money's value and function. Whereas Aristotle asserted that money and commodities should correspond to their intrinsic values (just price), Guanzi asserted that they simply correspond to supply and demand. Whereas Aristotle asserted that money requires intrinsic value to be useful, Guanzi rejects it by saying "The former kings used money to preserve wealth and goods and thereby regulate the productive activities of the people, whereupon they brought peace and order to the Subcelestial Realm." In short, the dominant ancient Chinese monetary theory of money was chartalistic and viewed its most critical purpose as creating social order. With this in mind, it makes sense why the Chinese were comfortable with copper coins from the onset, whereas in medieval Europe, copper coins were only reluctantly accepted once silver coins became debased so much. As von Glahn writes:
According to classical Chinese
monetary analysis, the chief virtue of bronze coin was that in contrast to
commodity monies like gold and silver the value of bronze coin was believed to
be a function of its quantity rather than its intrinsic metallic content. By
manipulating the quantity of bronze coin the state could fix or alter the exchange
value of money.
It also makes sense why the Chinese were the first to invent paper currency during the Song dynasty. It wasn't because they were smarter or just reaaaaally badly needed more money. It was also because they already had centuries of monetary thought that asserted money was a creation of the state, which made metallism's concerns trivial.
What's also fascinating is why China's great paper money experiment failed. It wasn't simply because the state recklessly printed money to cause hyperinflation. It was also due in part to the failure to understand what really creates inflation. In Europe where metallism prevailed, currency values were stabilized by the supply of precious metals as well as the ubiquitous presence of foreign exchange which enforced uniform norms on gold-to-silver ratios. However in China, whose domestic economy was so big that the influence of foreign exchanges and trade balances were an afterthought, the state sought to stabilize currency values by manipulating the quantities of goods and money. As a result, Chinese statesmen focused primarily on the exchange ratios between money and commodities. The problem with this view was when China began running multiple types of currency, as in the Song when there were copper and iron coins, in addition to paper money. Song statesmen assumed that to stabilize any specific currency, they should focus on the exchange ratios among the currency types. So if there was too much paper currency, all they had to do was make more coins so the ratio remained fixed. Very few perceived that the total stock of money could also lead to inflation. Hence, in both the Song and Ming dynasties, the depreciation of paper currency was blamed on not enough coins being circulated. Both humorously and disastrously enough, when the baochao (Ming dynasty paper currency) depreciated and price of goods inflated, the imperial court blamed too much coins and silver being used in trade. So they passed edicts banning their use and that people should give their coins to the government to be redeemed for the inflated paper currency's nominal value rather than market value! Yeah... you can guess what happened.
Now, I don't want to simplify too much why paper currency failed and was eventually replaced by silver. There were always political concerns driving economic policies as well, and the bulk of Fountain of Fortune is dedicated to examining the Chinese economy's painful transition to a silver economy and its consequences, particularly the triumph of the market over the state in setting the value of currency. There are some other very interesting ideas in the book, such as questioning the premise if China really did become a silver economy and showing the inadequacy of applying the quantity theory of money to even pre-modern economies.
I know monetary history is not the most riveting subject for many, but hopefully something in the above paragraphs caught your attention. If it did, I do highly recommend Fountain of Fortune.
Crony Capitalism: Corruption and Development in South Korea and the Philippines
Just as the friction of rising Germany rubbing against British hegemony was, in many ways, a prime mover behind the great events of the late 19th century and the first half of the 20th century, the 21st century analogue is the US-China rivalry. While I consider myself impartial to both countries (I'm neither American nor Chinese), the constant anti-Chinese sentiments I see the media bombard at the Anglosphere's public makes me want to criticize American policy more than I want to criticize Chinese policy. I have two main objections with the Chinese containment strategy, aka "Pivot to Asia" policy (sure, Hilary lost the election, but don't go thinking this is off the table). One, American proponents only ever consider two possibilities. "Would you rather live in an American dominated world or a Chinese one? Better us than them, admit it!" True, I don't want to live in a terrifying world where China has nearly 800 military bases in more than 70 countries, spends ~40% of the entire world's military budget, and treats the entire world as their play-doh. But why does it have to be one extreme or the other? Whatever happened to the balance of power theory? I can imagine some IR major interrupting me at this point to say that that theory is a crock of shit but the idealist in me hopes that just maybe it could work this time in an increasingly globalized, nuclear world...
My second main objection is that it presumes an unrestrained China will economically/militarily enslave her neighbours and undermine democracy, free markets, and general prosperity in Asia, while America would never do such a thing. Maybe this idea is seductive for some, but I can't imagine that anyone who's even read a bit of how American foreign policy has actually worked around the world would seriously believe that America can be trusted to be a staunch supporter of liberty and democracy. Surely the Cold War hasn't completely been erased from public memory, right? You know, that fun little era when the U.S. thought the far-right was better than the far-left and supported fascist, authoritarian dictatorships across the world? I'm not trying to moralize the rightness of this decision here. I'm simply pointing it out as a fact. And it hasn't exactly ended yet either, if you follow the on-goings of the Middle East.
Daughter, I am disappoint.
So why am I talking about this anyways, you might wonder. Well that's because both South Korea and Philippines are two good examples where authoritarian dictatorships were heavily supported by the good old U.S. of A, and neither autocracy, free market principles, corruption, culture, or even American dedication to "Life, Liberty, and the pursuit of Happiness" adequately explains their divergent economic outcomes, as pointed out in Crony Capitalism: Corruption and Development of South Korea and Philippines by IR and Business Professor David C. Kang.
Read this for a good overview of South Korean industrialization and the theory of
strong-state led industrialization via violation of free market principles
So some very brief background info first, since I hardly expect anyone who's not a gook or a flip to know anything about modern South Korean/Philippine history. In South Korea, the Korean War utterly devastated the country and at the close of the 1950s, it was one of the poorest countries in the world. We're talking sub-Saharan Africa levels here, at least in terms of nominal GDP, which I admit is not the best criteria to use, but just take my word when I say it was fucking poor. Then came along one of 20th century's most competent dictators named Park Chung Hee (his daughter is the currently impeached president), who basically went full state-capitalism and industrialized the country in his 20 years as dictator before being assassinated. Meanwhile, the Philippines was the Asian country poised for success after Japan, and in 1957, the World Bank concluded that its prospects for long-term growth were excellent. However, what happened was nearly 2 decades of insanely corrupt, cut-throat "democracy" that was really just a series of power struggles among the established elites. Think late Roman republican politics or blatant pork-barrel politics in 19th century America if you want loose analogies. And then came President Ferdinand Marcos who, after his re-election for a 2nd term, declared martial law in response to communist threats and subsequently ruled as dictator before being forced to flee when America no longer felt like propping up his regime. During his rule, Philippine economic growth was weak to the point of stagnancy, so that by the late '80s, South Korea's GDP per capita was more than 3 times greater than that of Philippines, despite Korea's weaker economy in the '50s.
So the prevailing view on explaining this divergent outcome is that Philippine government was simply too corrupt and inefficient compared to the centralized Korean technocracy, or that Filipinos didn't value education, patience, and hard work as much as Koreans did. In Kang's view, these are B.S. reasons, and he constructs a more nuanced model of the power-balance between private businesses and governments to explain the economic divergence (above pic). Basically, when neither businesses nor government can dominate each other, you create conditions more conducive to economic growth. When government dominates businesses, you get a predatory state where politicians are more interested in plundering it than developing it. On the other hand, when businesses dominate government, you get excessive rent-seeking, making the entire country vulnerable to economic shocks as evidenced by the Asian Financial Crisis of '97. It's quite an interesting idea, as I'd previously considered all corruption to be bad but it's undeniable that Park Chung Hee's South Korea was extremely corrupt and that didn't prevent economic growth. So you definitely do need a model of how corruption in one situation can prevent economic growth while in another situation, economic growth can occur despite corruption.
Overall, Crony Capitalism is quite straight-forward and enlightening. Clear and concise, with enough background information for people not familiar with history or economics to understand. Quite a welcome change from Kang's other book, East Asia Before the West: Five Centuries of Trade and Tribute which, while good, was quite repetitive. The youtube video above is him basically summarizing it in case you don't feel like reading it. That's it for now, I'll be back in a week to conclude my series of post for books I read in 2016.
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