Monday, 3 October 2011

Economic Lessons from ancient China

I was unable to sleep recently and, to combat the boredom, picked a subject (Chinese emperors) on Wikipedia and hopped from article to article pursuing it. This failed to send me to sleep but made for some interesting reading. Some time back I was fortunate enough to read a Penguin excerpted version of Sima Qian’s account of the First Emperor (not actually the first emperor per se but an immensely influential ruler. His legacies include the reunification of China after the Warring States, building the one of the first versions of the Great Wall, leaving the Terracotta Army to guard his tomb and the nearly complete destruction of all books of learning in his empire.) I would highly recommend the book and am considering purchasing the full version of Sima Qian’s monumental work.

           Anyway, as I was relatively familiar with the period of the First Emperor and the subsequent fall of his dynasty I skipped through to accounts of the rulers who followed him. After his dynasty, the Qin, collapsed in an extremely bloody civil war (that was serious enough to have possibly caused a significant drop in world population) the Chinese empire was taken over by the Han Dynasty. The empire was exhausted from the civil war and so the early Han emperors reigned with a light hand and refrained from the stupendously ambitious building projects that the Qin had attempted.

            According to the article, Emperor Wen, the fifth emperor of the Han Dynasty, reduced taxes to miniscule levels. This may have been as a result of a leaning towards Taoism, which advocates doing as little as possible to allow cosmic harmony to be maintained, but may have had other motivations. The taxes were reduced to a rate of around 1.5% to 4%. Government expenditure was curtailed and the tax was a tax on property rather than an income tax. The Chinese government was able to control the prices of basic food commodities at a local and occasionally a national level but by and large this taxation policy entailed practically no interference in trading whatsoever. It struck me that this deregulated state had similarities to some of the ideas of free-market theorists and that the Taoist ideal could have some similarities to the economic concept of the Invisible Hand. As a striking endorsement of the system the article speaks of overflowing warehouses of grain (although it should be noted that food production was not deregulated, meaning a surplus of agricultural products is not necessarily an example of laissez-faire and that the statement itself lacks citation).

            Further down the article I noted that Emperor Wen continued the practice of “heqin”. To the north of China were the Xiongnu, a powerful semi-nomadic state that was able to put capable armies in the field. Internal strife in China had allowed the Xiongnu to flourish and the Great Wall was originally intended to guard against these northern barbarians who could strike at China but whom the Chinese were unable to counterattack against. The Han Dynasty had disbanded the huge armies of the civil war and the emperors were unwilling to spend the amounts of money and manpower needed to maintain the northern fortifications. Instead they pursued a policy of diplomacy. “Heqin” was where the Chinese emperor would send a “princess” (not necessarily an actual daughter of the Emperor but more often a concubine or distant relative) to be married to the Xiongnu chieftain. This policy, combined with tactful dowries, attempted to placate the northern hordes and protect China. Emperor Wen had to send four separate wedding delegations northwards throughout his reign to maintain peace. To send these delegations was a sign that the Xiongnu were to be treated as equals (possibly more than equals as the Xiongnu seldom returned the favour) and the process could be seen as a sign of military weakness.

            Emperor Wen’s grandson, the notable Emperor Wu, grew unhappy with the policy of conciliation and the growth of power of the Xiongnu. While he initially was interested in diplomacy he eventually switched government policy to one of war and embarked on a series of massive military campaigns to deal with the clear and present danger of Xiongnu invasion. The war was a difficult one and Emperor Wu was probably more of a persistent military leader than an inspired one, but despite disasters for the Chinese military, the Xiongnu were forced onto the defensive and after the death of Wu were forced to accept Chinese dominance before settling on a policy of flight from their homeland. Emperor Wu’s reign was marked by military expansion on all fronts, which by and large were successful.

            The interesting thing is that the tax policy had changed. The laissez-faire policies of his predecessors were exchanged for tax-burdens heavy enough to provoke frequent peasant revolts. This is interesting because in today’s economic climate many people in the US and around the world are favouring a return to laissez-faire economics and minimal government regulation on trade. This parallels the policies of Emperor Wen. But to make these policies work, the lessons from Chinese history would imply that the minimalist state must not only refrain from military action but must behave in a conciliatory manner to more warlike states. If one switches to a policy of military action and regional dominance, taxes must be increased to retain solvency.

            The current conservative approach to government in the US, with little regulation, low taxes and small government would, on the basis of this historical comparison, seem to be incompatible with large military spending and overseas campaigns. Conservatives should be wary of attempting to both have their cake and eat it.

            In closing I have to specify that I am neither an expert on Chinese history nor on economics and I may well have misread the situation. I should also say that this blog will occasionally make comparisons from history to present day situations I really am more interested in history in and of itself. If you have any thoughts or ideas about this piece please leave a comment and let me know what you think.