(Li Zicheng Palace Image source: Ic Photo)
【Finance is actually very simple】
Chen Zhiwu/Wen
After understanding how the history of the United Kingdom and the United States has been different from national debt, you may think: "If China had a government bond market very early on, how good it would be!" "Yes, Chinese history may really be different! Today, we will explore "If the Ming Dynasty had a bond market, what would be the end?" "This topic.
Historians will say that official corruption leads to the demise of dynasties; at least in the long run, the proliferation of corruption caused by the loss of control of power will eventually lead to the demise of dynasties. But the question is, how long is that "long-term"? Examples of corrupt dynasties that have not collapsed for decades and decades have been in history, and there are many in the world today. By the mid-to-late 16th century, the Ming Dynasty had lasted for more than two hundred years, and by the Jiajing Dynasty (1522-1566) it was already corrupt and even more shaky after that, but if it were not for the challenge of war financing, would the Ming Dynasty really collapse? If it were not for the help of natural disasters, would Li Zicheng and Zhang Xianzhong be able to destroy the Ming Dynasty?
Li Zicheng's uprising
The fate of the Ming Dynasty ended with Li Zicheng. Li Zicheng, born in 1606, originally had a regular job in his youth, working as a pawn at a post station that delivered official documents from the imperial court. However, due to the tight finances of the imperial court, in 1628, one-third of the country's post stations were abolished, and Li Zicheng returned home unemployed and began to owe. In the same year, a major drought occurred in Shaanxi (Li Zicheng's hometown) and Shanxi, making it difficult for the people to survive, and in the winter, Li Zicheng could not repay his debts, and the defendant went to Shaanxi Mizhi Yamen. The county decreed that he "swim in the city with his weapon and will be put to death." Fortunately, his relatives and friends rescued him, and then he ran to kill the creditor, and then defected to the rebel army.
Why was there a financial crisis in the imperial court around 1628? Let's go back to the middle of the 16th century, when the Ming Dynasty was becoming increasingly corrupt, and some out-of-control spending was expected. But more importantly, according to the research of Zheng Jingyun, Xiao Lingbo, Fang Xiuqi and other scholars at the Institute of Geography of the Chinese Academy of Sciences, the climate in North China in the 1550s was generally cold and dry, and droughts became more and more frequent, which was the beginning of the so-called "Xiaoice River Period".
On the one hand, these droughts challenged the survival of the northern nomads, increased their pressure to attack the Central Plains to survive, and threatened the Ming Dynasty; on the other hand, they also made the Ming Dynasty's military fields in the north difficult to cultivate, and the yield was greatly reduced (Zheng Jingyun and other scholars examined: due to the climate crisis, Hebei produced 1168 kilograms of grain per hectare in the mid-16th century, 584 kilograms per hectare in the Wanli period, and dropped to 230-350 kilograms per hectare after 1620). The threat of force from the northern nomads and the abandonment and reduction of production not only forced the imperial court to expand its army, but also caused government finances to be used more for the army. Before 1550, military spending accounted for about 31% of the imperial court's revenue, and after 1590 it rose to 90%, and this proportion remained until the end of the Ming Dynasty. Although Zhang Juzheng's reforms during the Wanli dynasty improved finances, they were not enough to cover the rapidly rising military expenditures, so that as soon as the Chongzhen Emperor ascended to the throne in 1628, he had to reduce expenditures and abolish the post. In this sense, Li Zicheng's participation in the uprising was related to climate disasters.
The climate crisis pushed Li Zicheng into an uprising, and if it were not for more and greater droughts later, Li Zicheng might not have succeeded. His rebel army was nearly wiped out at least twice, but it was a massive drought that made him. The first time was at the end of 1633, when the peasant army led by Li Zicheng and Zhang Xianzhong was defeated by the Ming iron cavalry in Shanxi, and the remaining soldiers fled to Henan, where they were surrounded by many Ming armies between the Yellow River and the Taihang Mountains. It seemed that the rebel army could be cleared at any time, but at the end of 1633 their luck changed, because that winter in Henan was unusually cold, and the surface of the Yellow River was completely frozen, providing Li Zicheng and other troops with the opportunity to escape across the Yellow River.
Next, between 1634 and 1636, Henan and the surrounding provinces experienced a large-scale severe drought, thousands of peasants faced an existential crisis, a large number of hungry people who gave them food and food were willing to run with whom, which provided Li Zicheng and Zhang Xianzhong with large-scale recruitment opportunities, and the rebel army soon expanded to more than 600,000 people, more powerful than before 1633.
By 1636, the peasant rebel army was so large that it threatened the Ming Dynasty and forced the imperial court to intensify its efforts to quell the uprising. In August of that year, Gao Yingxiang, one of the leaders of the main peasant army, was defeated by the Ming army, and Zhang Xianzhong's army was defeated and surrendered the following year. In 1638, under the concentrated force of the Ming army, Li Zicheng's army was also defeated, and finally he hid in the Shangluo Mountains of Shaanxi with the remnants of 17 people. This is the second time that Li Zicheng has almost perished.
However, the drought of 1639-1641 was not only more severe, but also covered more provinces, and the number of hungry people was greater than before, which provided Li Zicheng with opportunities. In 1640, Li Zicheng returned to Henan again, taking in the starving people and rebuilding the rebel army. Zheng Lian described Li Zicheng's grand situation of aiding the hungry in the "Yu Changing Chronicle" as follows: "The decay of xiangzhi runs through the red chestnut, and the thief uses it to show the opening of the warehouse and help the starving people." Hungry people near and far hoes hoes, and those who respond are like flowing water, day and night, calling out millions, and their momentum is invincible. By March 1641, his rebel army had increased to more than 1 million! The drought lasted for three years, which not only caused Li Zicheng and Zhang Xianzhong to make a comeback, but also seriously interrupted the food supply of the Ming army and made the government army unable to deal with the rebel army. In 1644, the Ming Dynasty was finally defeated by Li Zicheng.
From Li Zicheng's experience, you can see that if the Ming Dynasty had insurance and other financial markets to help society solve the challenges of disaster risk, then the foundation of the uprising would not have been established, and Li Zicheng might not have been able to recruit so many peasant armies.
The Challenge of the Late Ming Dynasty
In the last few decades of the Ming Dynasty, droughts were high, especially from 1628 to 1643, the degree of drought reached the highest level in history, and Henan, Hebei, Shaanxi and other provinces were continuous droughts for many years. Since frequent droughts helped Li Zicheng and other rebels, for the imperial court, this meant that the war costs of quelling the rebellion would continue to rise, testing the financing ability of the Ming Dynasty.
As mentioned earlier, after the middle of the Ming Dynasty, the government's finances gradually tightened, and by the middle of the 16th century, the annual fiscal deficit was as much as 4 million taels of silver, and as little as one million taels. In 1567, Taicang had only 1.35 million taels of silver, which was only enough for three months.
How serious is that fiscal deficit? At that time, the annual revenue of the Ming Dynasty was between 20 million and 25 million taels of silver, accounting for about 5% of the GDP of that year - 400-500 million taels of silver. In this way, even if the fiscal deficit of the highest silver is 4 million taels, it is less than 1% of GDP at that time, far lower than the fiscal deficit of about 3% today. However, we say that China's 3% fiscal deficit today is very healthy, while the Ming Dynasty's 1% fiscal deficit is so serious that it can crush the imperial court. Why is that?
The key is that at that time, China did not have a bond market or long-term lending market for intertemporal allocation of income, and today it can not only issue bonds, but also issue perpetual bonds that mature in 30 or even 100 years, and spread out today's fiscal deficit to the next 100 years and slowly repay them gradually. Bonds are the main means by which modern governments can withstand sudden bursts of large spending.
In the absence of borrowing means, the imperial court could only find a way to survive in raising taxes, arrears, and currency. Relying on a single year of tax increases to solve the fiscal crisis, the biggest flaw is to strengthen the impact of sudden large-scale expenditure on society that year, which is equivalent to "tax shock therapy", which can easily lead to "officials forcing the people to rebel".
Since the forty-sixth year of the Wanli Calendar (1619), "the liaodong army has flourished, and the salary has increased by three million ... Three additional endowments have been added successively, and where there are 5.2 million odds, they will be the age" (Zhang Tingyu's "History of Ming", vol. 202, Zhonghua Bookstore, 1974). But these tax increases did not alleviate the Ming Dynasty's fiscal crisis. By the time Chongzhen succeeded to the throne in 1628, the fiscal deficit was 1.13 million taels. According to Mr. Wang Hao's "On the Chongzhen Emperor", in order to make up for the deficit, the Chongzhen Emperor added 3 percent to the 9 percent tax per mu during the Wanli calendar year, adding a total of 1.65 million taels of tax. This tax is added up to 6.8 million taels three times during the Wanli calendar year. However, the peasant war, with the help of climate disasters, has been gaining momentum, military spending has been rising, the harvest has continued to decline, and the fiscal deficit has continued to widen.
If too many taxes are raised, it will aggravate the momentum of officials forcing the people to rebel, and the imperial court has to default on debts such as military salaries as much as possible, and the arrears of each side in the first year of Chongzhen have reached 5.2 million taels. By the tenth year of Chongzhen (1638), the imperial court still owed military expenses to Bianzhen, causing a large number of border soldiers to join the peasant rebel army, pushing the Ming Dynasty further into collapse. Under the impact of the greater drought in the eleventh year of Chongzhen (1639), the war situation took a sharp turn for the worse, and the financial crisis further worsened, "there is no way to pacify the army without gathering troops, and there is no way to feed the soldiers without increasing the salary", and the Chongzhen Emperor had to "reluctantly obey the court and temporarily tire our people for a year" and approved the payment of 2.8 million new taxes.
According to Wang Hao's "On the Chongzhen Emperor", at that time, the Chongzhen Emperor also tried other ways to alleviate the financial crisis, including asking rich families to donate and saving palace expenses, but without success. However, in the context of the traditional Chinese imperial court only focusing on "throttling" silver instead of developing through debt, and making the "cake" bigger, the bond market certainly has no opportunity to develop in normal times, and it is impossible to establish it overnight when it is urgent to issue bonds for financing. Therefore, it is not surprising that the Chongzhen Emperor could not choose the path of debt financing. In the end, the Ming Dynasty was thus crushed by the challenge of war financing.
In fact, the demise of other dynasties in Chinese history is roughly the same: before the demise, they generally experienced abnormal climate risks such as droughts, and in the absence of a long-term lending market, the dynasties struggled to cope with the challenges of war financing brought about by climate disasters, and finally ended in the demise of the state.
However, after entering the modern society, droughts, floods and other climatic disasters and other risk events will still occur, but we are not worried about the northern nomads attacking the Central Plains, nor do we have to worry about the emergence of the next Li Zicheng. The reason, of course, is related to the increase in income brought about by the Industrial Revolution, but also because modern transport networks have opened up markets everywhere, making it easy for goods to be transported across regions to help with disaster relief, and various financial instruments have allowed people to deal with risks both before and after the event, allowing countries to allocate revenues and expenditures across periods. This is how the development of the market changes history.
Today's main points: First, historical research on various countries shows that corruption does not necessarily lead to the demise of the dynasty, but the key depends on whether the imperial court has sufficient financial means to solve the large war expenditure caused by civil strife and foreign wars. Second, in the past, the financial markets that did not avoid risks, once there was an unexpected natural disaster, especially drought, forced the people to survive through riots, including rebellions; this often forced the imperial court to face the challenge of war financing. If natural disasters were frequent or prolonged, the dynasty could eventually be defeated because it did not receive financing for the war. Finally, with the modern financial market, the people's tools to avoid the impact of disaster risk are greatly enriched, even if drought occurs, people may not face the challenge of survival; and even if there are riots or even uprising wars, forcing the government to spend a lot of money to fight, because the use of public debt financing to solve the military problem, the country may not necessarily perish. The developed financial system changed the law of dynastic succession.
(This article is the lecture text of Xiang Zhizhi's "Professor Chen Zhiwu's Finance Class")