School of Economics of SUFE

During the Western and Eastern Han Dynasties, the commodity economy was developing rapidly and currency became the common means of conducting trans- actions. Monetary thought at the time had an evident inclination towards a Nominal Theory of Money, the main feature of which is the treatment of currency as a measure of value, not as something with its own inherent value. By issuing excess currency, the government can create inflation in order to gather wealth from the society and relieve financial crises. Under the influence of Nominal Theory, gold, silver, copper coin and textiles performed currency functions successively in the Han Dynasties, but it was copper coin that was the main circulating medium. There was no normative standard-fractional money system and no limitation of money supply, which allowed the government to create inflation more or less at will. Copper coin was to undergo a long and tortuous process of development. After ten changes in currency, it eventually formed the Wu Zhu Qian system in 113 BCE. In 205 BCE, military conflict resulted in a severe financial crisis for the nascent Western Han government, which carried out the first currency reform on the grounds, or pretext, that the Ban Liang Qian of the Qin Dynasty was too heavy to use. It therefore replaced the ban-liang (“half-tael”) 12- shu coin of the Qin with a 3- shu “elm-pod” coin, named Yu Jia Ban Liang . Also, it not only extended the right of coinage to the people but also actually ordered them to mint the new currency. This currency reform is the first time that the government tried to solve a financial crisis by reducing the weight of coins to increase the amount of currency. The government issued more currency by lowering its weight in order to stimulate market activity. This act increased the income of the government in the short term but caused serious consequences in the devaluation that ensued, with the price of one shi of rice rising from “1600 cash” (i.e. 1600 Ban Liang Qian of the Qin Dynasty) in 216 BCE to “ten thousand cash” (i.e. ten thousand Yu Jia Ban Liang ). Meanwhile, the coins minted by the public were getting lighter and lighter, and the trend of the devaluation became increasingly serious.

As for gold, in the Han Dynasty it was mainly used to perform the functions of a store of value and a means of rewarding meritorious deeds, but had not been in circulation as high denomination currency. The forms of gold mainly included golden cake, gold shaped like a horseshoe and gold shaped like the toes of a kylin (a mythical hooved creature). Golden cake was round in shape and could be used only after cutting and weighing. There were two kinds of golden cakes, one larger, the other smaller. As to the other forms, they were developed in response to reports to the emperor from local officials about “auspicious signs”. It was in order to harmonise with celestial phenomena that the emperor changed the shape of the gold to a horseshoe and a kylin’s toes. The amount of gold used for rewards reached its maximum during the reign of Emperor Wu. For example, in 119 BCE the troops led by Wei Qing (?–106 BCE) and Huo Qubing (140–117 BCE) were praised for their attack on the Xiongnu and rewarded with 500,000 catties of gold by Emperor Wu. As to the use of gold in the Eastern Han, there is little to be learnt from historical records. However, we do know that extravagance was common and that a large amount of gold had flowed out through the Silk Road. Also, elaborate funerals became popular at that time, and golden ornaments and jade clothes sewn with gold wire were prized funerary objects for the rich. Finally, the introduction of Buddhism (67 CE) led to the increasing use of gold for casting figures of the Buddha.

The Qin and Han dynasties marked the beginning of the centralised Chinese state and had a lasting influence on the development of Chinese history. The brief Qin Dynasty provided little guidance on statecraft, leaving the Han rulers to fashion the state in response to the problems of the time. The system that evolved influenced China’s development for the next two thousand years. As to the monetary system, there were various types of currency in circulation during the Western and Eastern Han, not only metallic currencies but also real goods as the mediums of exchange. Copper coin was the major metallic currency. Gold was used mostly as a store of value, while silver currency was in circulation only for a very short period of time. In the early and middle Western Han, copper coinage experienced a series of reforms. At that time, government thinking and efforts were primarily directed towards monopolising the minting of coins. Also, adherence to the Nominal Theory of Money encouraged government to cause inflation by “lightening” coin in order to gather wealth. That policy resulted in social problems as frequent price fluctuations disordered market activity. In the late Western Han, with the economy declining, shortages of goods increasing and prices rising, people realised that the underlying problem was monetary, but no suitable solution had been found. The thought of replacing metal currency with real goods started to gain in popularity. In the Eastern Han, it was common for goods to perform the role of a medium of exchange, and this continued up to the Tang Dynasty, Compared to the monetary system in western countries at the time, where the Metallic Theory of Money was dominant and regulating standards emphasised, enquiry into the standards that might be applied to issuing currency did not attract much attention.