American Silver Inflow and the Price Revolution in Qing China

• Published date: 01 February 2016
• Date: 01 February 2016
• DOI: http://doi.org/10.1111/rode.12206
• Author: Hongjun Zhao

American Silver Inflow and the Price Revolution in

Qing China

Hongjun Zhao*

Abstract

Employing panel data from the Northern China Plain for the period 1736–1911, this paper tests the

so-called price revolution hypothesis. It finds that American silver inflow played an important role in

raising grain prices when factors such as weather and population are controlled. This role is verified in two

dimensions: the quantity dimension of American silver inflow into China; the value dimension of silver

relative to copper coin and to gold. This paper provides the first econometric test of the so-called price

revolution hypothesis in the 18th and 19th century China and deepens our understanding of the role of

American silver inflow in late imperial times of China.

1. Introduction

Following Columbus’s discovery of America in 1492, Spain discovered one of the

richest and biggest silver ore deposits in Potosi in Upper Peru in 1545 (Clark, 1959, p.

58). After that, thousands of tons of American silver were shipped back to Spain and

it was Spain that first experienced the so-called price revolution during the next one

and a half centuries. Since silver was the main metal currency in Europe at that time,

the price level in many European countries was also greatly affected by the silver

inflow.

Among economic scholarship, Hamilton (1934) was the first study that provided

hard evidence of the causal relationship between American silver inflow and the

Spanish price revolution in the 16th and 17th centuries. Similarly, Brenner (1962),

Fisher (1989) and Hammarstrom (1957) found rich evidence of this causal relation-

ship in 16th and 17th century Sweden, England, Spain, France, Germany and Austria.

However, very few economists tried to apply similar tests in the Chinese case. One

reason is that very little historical and, in particular, numerical data are available in

China. Another is that economists are not certain whether similar mechanisms

worked in China given its distance from Europe. Nevertheless, some economic histo-

rians have done tentative and valuable studies.

For example, Quan (1957) argued that in a unidirectional trade relationship after

the 16th century, Europe imported Chinese tea, silk, spices and porcelain each year,

while it did not export the corresponding industrial goods to China. So Europeans

had to transport American silver to China to compensate for the trade deficit. After

careful analysis of rich price information for grain, silk, cloth, cotton, ginseng, land,

* Hongjun Zhao: School of Finance and Business, Shanghai Normal University, No.100, Guilin Road,

Xuhui District, Shanghai, 200234 China. Tel: +86-21-64324270-222; E-mail: hjzhao2002@163.com. The

author is grateful to two anonymous referees and participants in seminars in SUIBE, SUFE, Fudan Univer-

sity, Shanghai Jiaotong University. Financial support from National Social Science Foundation of China

(14WJ008) and Ministry of Education of China (13YJA90159) is gratefully acknowledged.

Review of Development Economics, 20(1), 294–305, 2016

DOI:10.1111/rode.12206

©2015 John Wiley & Sons Ltd