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Song for our times

21 February 2012 By Edward Hadas

Angela Merkel and Mario Draghi may not know much about 10th century China, but European parallels with the period’s monetary adventures should encourage them – and all proponents of the euro – to take a lesson.

By 900, a great Chinese economic revolution was underway. As Mark Elvin explained in his classic book, The Pattern of the Chinese Past, the Middle Kingdom was on course to becoming the world’s economic leader. Elvin credits advances in technology, specialisation and trade – all made both possible and more productive by the vast country’s political unity.

The progress was threatened by the terminal decline of the Tang dynasty. In 907, the empire dissolved into many warring kingdoms, hence the subsequent five troubled decades being commonly known as the Five Dynasties and Ten Kingdoms. The new states, each as large as a big European country, struggled to capture more than its share of a limited supply of copper money. The rich states hoarded the metal; the poor states literally debased their currencies with lead and iron. Trade collapsed as governments became protectionist.

Economic renewal came about only when a unifying leader emerged – Zhao Kuangyin, the first emperor of the Song dynasty. Zhao managed to establish enough credibility over the next century to be able to issue the world’s first paper money. Inter-regional trade imbalances seem to have continued under the Song, but the central government was able to keep them from becoming politically disruptive.

Zhao had the economy on his side, because, as Elvin says “political fragmentation rather than political unity [was] the inherently unstable condition” previously. The same principle holds for Europe in the 21st century. Any new national currencies created by ejections from the single currency would be more subject to debasement than the euro. The rewards for greater national economic effort are greater inside than out of the single market. And troubled national governments would be even more subject to the whims of their creditors outside the politically-backed currency union.

Europe may not need its own Zhao or an empire of any sort, but the gains of unity should not be thrown away for the sake a few moments of local political comfort.


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