Historical Response #9: Ellen Brown Now Says That Mass Inflation in Medieval China Produced Prosperity.
Medieval Chinese invented paper money. This paper money became mass inflation after it was separated from metal, that is, after it became fiat money -- the kind of money that Ellen Brown recommends.
Ellen Brown says in her book that fiat money in China led to prosperous centuries. I summarized her position as follows: China's Medieval Fiat Paper Money Had Centuries of Success.
I argued that the fiat money in China produced horrendous price inflation: as much as 1,000%. That is ten to one. In the case of the Mongols, the money failed completely.
I showed in my critique that in the early centuries, China's paper money was not fiat money. It was backed by metal. Ellen Brown's strategy is to talk about China's paper money as if it were fiat money. In other words, she deliberately ignores the distinction between convertible paper money and inconvertible fiat money. This is like calling an American silver certificate a Greenback in 1963.
Then she praises the prosperity of the "silver certificate" centuries and ignores the "Greenback" centuries (or shorter).
In short, she once again tries to put the shuck on the rubes. She assumes that they will not click through to my original article and read it.
Here is her response:
9. China's medieval unbacked paper money had centuries of success.Here is what I wrote:
In Mandarin China, where paper money was invented in the ninth century, this sort of fiat currency funded a long and prosperous empire.
I did not "make that up," as you suggest in your note. In fact I haven't made anything up. I always draw from sources. I may have sometimes misread them, or my sources may have been wrong, but I actually did quite exhaustive research for this book, and I've corrected errors in subsequent revisions -- more revisions than most books run to, certainly in 3 years. You have a degree in history. I have degrees in English and law. You've got a head start. I'm doing my best here. What I lack in historical training I make up for in writing skills.
Anyway, here's what Wikipedia says under "China." I don't think it contradicts my statement. I did not say China's paper money was not inflationary; I said it funded a long and prosperous dynasty. The population doubled; they needed to inflate the money supply to match:
The Song dynasty was the first government in world history to issue paper money and the first Chinese polity to establish a permanent standing navy. Between the 10th and 11th centuries, the population of China doubled in size. This growth came about through expanded rice cultivation in central and southern China, and the production of abundant food surpluses.Within its borders, the Northern Song Dynasty had a population of some 100 million people. The Song Dynasty was a culturally rich period for philosophy and the arts. Landscape art and portrait painting were brought to new levels of maturity and complexity after the Tang Dynasty, and social elites gathered to view art, share their own, and trade precious artworks. Philosophers such as Cheng Yi and Chu Hsi reinvigorated Confucianism with new commentary, infused Buddhist ideals, and emphasized a new organization of classic texts that brought about the core doctrine of Neo-Confucianism.
Let us be clear on this. She writes:
I did not say China's paper money was not inflationary; I said it funded a long and prosperous dynasty. The population doubled; they needed to inflate the money supply to match.
The population did not go up by ten to one. Prices did.
She cites the Song (or Sung) dynasty. So did I. She cites a description of the prosperous dynasty in the 10th and 11th century. That was the period I also discussed. Here is the the document that I cited regarding the paper money of the early Sung dynasty -- a paper money system based on convertibility into metal.
Second, it was not government-issued money initially. Therefore, it was not what she calls "lawful money." They were banknotes.
"Flying cash" was not meant to be currency and its circulation was rather limited. Real paper currency was not introduced until early in the Song (960-1279) dynasty, when it was utilized by a group of rich merchants and financiers in Szechuan, the same province where the art of printing had been invented. Each banknote they issued had printed on it pictures of houses, trees, and people. Red and black inks were intermittently applied; the seals of the issuing banks were affixed; and confidential marks were made on each bill. All these devices made counterfeiting extremely difficult. These banknotes could be converted into hard cash at any time in any of the issuing banks. Widely circulated, they were readily accepted for the payment in debt and other financial obligations. In 1023 these banknotes were withdrawn and only official notes printed by the government were allowed. This new adopted governmental policy was successful at first for two reasons: First, for each issue of paper notes to be put into circulation, the government provided a cash backing. Second, paper notes and standard coins were interchangeable. Moreover, a citizen could buy salt or liquor with his paper notes from the government-owned stores. In short, paper notes were as good as coined money.
Brown in her response does not mention that the paper money of this 10th century and the early 11th century was metal-backed money issued by banks. Then, for over a century, the government-issued paper money was convertible into metal, which was scarce.
I call this putting the shuck on the rubes.
Then what of the later period, when metallic backing was removed, and the currency became pure fiat money: "Greenbacks"? In a 1983 article in the professional economics journal, The Journal of Political Economy, Professor Francis Lui described what happened.
The first inflation on a national scale occurred from around 1190 to the end of the dynasty when the monetary system collapsed.
What then happened to the Southern Sung dynasty? We read on the Website of the University of Minnesota (Monkato):
This period did not last long, as in 1210 A.D. the Mongols began to assault the Song, and in 1279, the Yuan, or Mongol empire began.
Let me review. To prove that the Sung dynasty was prosperous, Ellen Brown described the prosperity of the dynasty when it had a privately issued convertible currency. She failed to mention what happened to the currency and the dynasty after the dynasty adopted a fiat currency issued by the government. As she admits, she is a lawyer, not an historian. As a lawyer, she continues to put the shuck on her readers.
The Mongols copied the Southern Sung dynasty, not the Northern. Under the Mongols, the destruction of money was total. On the website of Washington State University, we read:
Two factors led to the incitement of rebellion in the fourteenth century. The first were the racial distinctions that the Mongols introduced into Chinese government and the inequality that was built from these race distinctions. The Mongol emperors divided China into four distinct groups: Mongols, Se-mu (immigrants from Turkestan and Europeans), Han-jen (northern Chinese, Khitans, and Manchurians), and Nan-jen (southern Chinese, the population of the Southern Sung Empire). In addition to the racial distinctions, which were cause of bitter discontent, the Mongols lived luxuriously and lavishly endowed Lamaist Buddhist monasteries. In order to pay for their extravagances, they forced impossibly hard exactions on the population; this in turn caused uncontrollable inflation throughout the empire. By the end of the dynasty, the paper money of the empire had become completely worthless.
Tyranny and fiat money went together.
The thesis of her book, from cover to cover, is this: Greenbacks need not create price inflation. She says that Greenbacks will provide price stability.
I showed this: in the first case in history of "Greenbackism," meaning pure fiat paper money issued by a government, the result was hyperinflation and the destruction of the currency. In every dynasty in China prices skyrocketed after the dynasty issued paper money unbacked by metal. The failure rate of fiat money in medieval China was 100%.
She does not respond to the figures that I presented. She responds by saying that she never said that there was no inflation in China. I never said that she said there was no price inflation in China. The problem with The Web of Debt in its discussion of medieval China is that the author failed to mention that that there was mass inflation in China as a result of fiat paper money issued by the government. This price inflation undermines the central thesis of her book, namely, that pure fiat money does not lead to price inflation. It did in medieval China. Every time.
For comparison, consider the Byzantine Empire, which had an unchanging gold coin standard currency, from 325 until about 1100. Prices did not rise for 800 years. She never mentions the Byzantine Empire anywhere in her book.