because the land mass of China is so large that controlling it has been more than enough to handle, because it is
has largely been self-sufficient in resources, and because they have preferred to maintain their culture with a purity
that is best achieved through isolation. Unlike other great empires that have conquered and occupied other
countries, it was relatively uncommon for China to occupy distant states. Traditionally the Chinese have
preferred to enter into relations with empires outside their borders in a manner that is similar to what one
might expect from the previously mentioned philosophies—i.e., with the parties knowing their places and
acting accordingly and with their places determined by their relative powers. For example, if China is more
powerful, which was typically the case in its region, the less powerful states typically paid tribute to China with
gifts and favors and in return typically received guarantees of peace, recognition of their authority, and trading
opportunities. These subordinate countries typically maintained their customs and experienced no interference in
how their countries were run.9
As far as Chinese money, credit, and the economy are concerned, the history is very long and complicated
and went through the full range of money/credit/economic systems and cycles that were described in
Chapter 2 and its appendix, so what happened in China is basically the same as what happened all around
the world through the millennia, though exactly when and exactly how is a bit different. More specifically,
inside China like outside China there were the various types of monetary systems used and currencies issued by all
sorts of entities with all the systems operating in the ways I described. Within China, the currency most used
through the millennia was metal (mostly copper), and debt cycles like those described in Chapter 2 took place for
the same reasons (i.e., debts created buying power so providing them made people feel richer and raised the
economy and wealth and were allowed to grow to become much greater than the amount of money needed to
service them and the amount of money grew much faster than the amount of goods and services that it could buy).
In these big debt cycles there were stable periods when debt growth wasn’t excessive, bubble periods when debt
growth was excessive relative to levels that could be sustained, debt crisis periods when there wasn’t enough
money to service debt, and printing of money periods in which money was printed to alleviate the debt crises,
which produced hyperinflations. Internationally (and sometimes domestically) silver was the main metal currency
used, though gold was also sometimes used. As for the economy’s changes, the system went from being primarily
agricultural and feudal through many manufacturing incarnations such as the Bronze Age and the Iron Age,
including various approaches to trading with foreigners/barbarians (most importantly through the Silk Road),
which built a rich merchant class that produced cycles of big wealth gaps and the wealthy having their wealth
taken away from them. Throughout China’s history private entrepreneurial businesses were sometimes allowed,
which typically also produced wealth and wealth disparities that led to redistributions of wealth and the businesses
and other assets being taking over by the government. These also occurred in big cycles. For example, there were
an untold number of changes in approaches created and destroyed for the building and the dividing of wealth.
Consistent with China being an intelligent and industrious society, there were many technological inventions
created that moved the economy forward. They occurred in the archetypical ways that were described in the earlier
chapters. While most things were the same, there were some different monetary and economic tendencies in China.
For example, there was a strong tradition of using copper coins, even after China invented paper money in the 9th
century and up until the introduction of the yuan in the late 19th century.
The following charts convey some information about how Chinese money and credit passed through these cycles.
As I explained in Chapter 2, “The Big Cycle of Money, Credit, Debt, and Economic Activity,” there are three basic
types of monetary systems in which 1) money has intrinsic value (like gold, silver, and copper coins), which I call
a Type 1 monetary system, 2) money is linked to assets that have intrinsic value, which is paper money that can be
exchanged for gold or silver at a fixed price (a Type 2 monetary system) and 3) money that is not linked to
anything, which is called a fiat monetary system (a Type 3 monetary system). As explained, these have historically
changed from one to another as the weaknesses of each become intolerable. The diagram below conveys an ultra-
simplified picture of how these currency systems have rotated through China’s history since the Tang Dynasty.10
In fact it was much more complicated than this as different parts of China often had different currencies and at
times coins and ingots from other countries (e.g., Spanish silver dollars in the late 16th century) that changed more
frequently than what is conveyed in the chart. Still the chart is broadly indicative and meant to show that they had
the full range of monetary systems that worked essentially the same as elsewhere in the world, most importantly
with the cycles of hard money leading to debt problems leading to the abandonment of hard money leading to high
or hyperinflations leading to the return to hard money.