Silver Kills Paper Money: The Ming Dynasty Lesson
As mentioned in the post on China and the Global Silver Standard, China lacked significant quantities of known and recoverable silver within its own borders so most of the silver it demanded came from abroad and was acquired via trade for its then exotic and in high-demand products such as silk, porcelain, and spices. Prior to the time period from the 15th century to the 19th century when large amounts of silver started pouring into China, the country struggled to maintain enough copper and silver coins to facilitate trade within and outside of the empire. The Ming Dynasty’s answer to this was the printing of fiat paper money and the eventual outcome was as predictable as any historical use of fiat paper money: inflation, displacement, and economic ruin for many.
The Ming Dynasty, under Emperor T’ai-tsu, issued the first paper currency notes in 1374, “Ta Ming T’ung Hsing Pao Ch’ao” (Great Ming Precious Notes) they were called, and they were printed at what was known as the Precious Note Control Bureau. These initial notes were printed in denominations of 100, 200, 300, 400, 500 and 1,000 and they were not convertible to precious metal coins. During the 1389 series, China added smaller denominations including 5, 6, 7, 8, 9, 10, 20, 30, 40 and 50 to enhance trade. Inflation started to occur with the production of these notes as the government produced them as needed with no consideration for the money supply needs or the effects of flooding the money supply with paper notes not tied to any precious metals.
The Emperor that succeeded T’ai-tsu in 1403, Emperor Ch’eng-tsu, printed a new set of paper notes in a variety of denominations as low as 1 and as high as 1,000 and he was followed by the next emperor, Emperor Jen-tsung, who issued currency in amounts starting in 10, demonstrating the inflation that has occurred. European silver started to arrive in quantities material enough to change the people’s preferences and to enable the facilitation of trade, first through the Middle Eastern trade routes and later through European ships.
By the end of the 14th century, 35 strings purchased an ounce of silver and the same ounce would cost 80 strings by 1420. The rapid decrease in the value of paper notes meant an ounce of silver commanded over 1,000 strings during the mid-1400s, as Ming notes were trading at about 0.014% of their original value. Needless to say, this inflation of paper notes and their continual decline in purchasing power led to financial and economic ruin for those that did not transition to the new silver coinage entering the kingdom. Luckily for many, the change was gradual and many were able to transition out of the fiat paper currency into the silver coinage and maintain their wealth.
Analysis: The amount of currency released into the system, combined with counterfeiting problems, and most importantly of all, the competition from the arriving silver from trade with Europe, greatly reduced the demand and acceptance of the Ming notes in commerce. At one point, the notes were not accepted at all. As citizens saw silver’s demand and therefore its purchasing power rising and the paper currency’s demand falling as its purchasing power eroded, they increasingly demanded silver in exchange for goods and rejected the paper currency.
This medieval historical lesson highlights an example of the People’s preference for precious metals as a form of money for the store of value over paper currency. It’s incredibly interesting to mention that the notes tended to have pictures of precious metals on them, an attempt to tie the notes to precious metals, despite the fact that they could not be exchanged for any. This came as a result of seeing first hand that the paper currency’s stability was unreliable and that holding it was destructive to their wealth. Similarly to our current times, the U.S. Dollar has been converted to fiat and is created at will to “solve” every and any political power as well as to use for the facilitation of corruption both domestically and internationally. We are currently living in a time period where the People are starting to realize this and seek out alternative stores of value, whether they be cryptocurrency, precious metals, or hard assets like real estate and firearms.
As the anticipated hyperinflation of the U.S. Dollar inevitably arrives, this preference for alternative currencies, and especially gold and silver, will increase dramatically as more and more people wake up to what is happening and choose a hard money currency for storage of their hard earned wealth and purchasing power.
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