ESSAY COMPETITION: HOW DID THE STATE INFLUENCE ECONOMIC PROSPERITY DURING THE SONG DYNASTY (960 AD – 1279 AD)
The public governance provided by the State has consistently played a significant role in economic development throughout history. The State represents one of the most essential and indispensable institutions of economic management. Such managerial influence is magnified under the Authoritarian or Monarchist governments often encountered in ancient cultures. The Song Dynasty is commonly regarded as one of the wealthiest periods in ancient Chinese economic history with an estimated population of 100 million and a GDP per capita of $ 600 K-C dollar, accounting for estimation of 22.7% of world GDP in this historical epoch. In this work, I will identify and discuss the significance of the institutions and the reformations driving the growth and the development of the Song dynasty. The Cobb Douglas production function has been additionally employed to model the impact of institutional reform on development.
“Even the wealthy cannot ignore husbandry”. It may be safely stated that the Song Dynasty’s primary economic strengths were based upon the development of primary industry in the agricultural sector. The success of the development in the agricultural sector is chiefly attributed to the land privatization schemes introduced by the State. Compared to previous dynasties, private ownership of land became mainstream practice in the Song Dynasty with the proportion of privately held land eventually estimated to have amounted to 96 % of all land holdings. . The State largely eliminated any holdings it had of nationalized land and abolished the restrictions on the maximum land purchase permitted to individuals. A number of legal vehicles permitting the reclamation of land once held by the State were introduced.
For farmers, this represented a significant opportunity to dramatically increase their personal income and social status though the pursuit of agriculture. Such motivation served to substantially increase productivity and the total supply of labour which in turn was reflected by the fact that the total acreage of cultivated land increased by 56% between AD976 and AD1083. The new-found enthusiasm for farming was also underscored by historical records indicating that the area of newly reclaimed land dedicated to farming was greater than the entire existing area of arable land in Taizhou. With less than 1/3 of Tang dynasty’s territory, the Song Dynasty had 260,000 hectares more cultivated land than its predecessor. For wealthier households, the market mechanism meant that their investments in capital could now be fully utilized across greater acreages of arable land now that there were no longer caps on landholding. Land resources were being allocated by the price mechanism to people with the willingness and the ability to maximize usage, hence benefiting the entire agricultural industry. In addition, as a free market engendered increasing competition; existing (often larger)landowners were ‘impelled’ to raise their agricultural productivity in order to compete with the economic activity of the newer landowners. With the additional support of improving agricultural technologies which were developed a millennium later in European countries, the average production rate of each hectare in the Song dynasty was 30% higher than the counterpart figures during the Tang dynasty. To protect the rights of landowners, comprehensive reforms in the legal system were introduced, for example, even following dispossession in times of war, landowners were entitled to reclaim back land that they had once held. This policy, which would be heartily applauded by liberalist philosophers such as John Locke, successfully stabilized the land market and guaranteed security of ownership.
Furthermore, as agricultural industry expanded, profound developments occurred downstream in the secondary and tertiary sectors of the economy. As Marx stated: “Ownership of land…is the basis for the development of personal independence…”, and in the Song Dynasty increasing land productivity and the rising incidence of private ownership both satisfied fundamental demand for foodstuffs and further led to the wider emancipation of the labour force. The Song State sought to remove any social stigma held against the activities of artisans and traders which had the effect of encouraging labour to engage in crafts and trade.
This successfully led to a gradual shift of the Song dynasty from a small peasant holding subsistence economy into a more developed commodity economy where greater numbers of value-added goods were produced. According to the known data, there were 30 completely new commodity cities which arose in response to this economic transformation. This diversified the overall economic structure and prompted the economy of the Song Dynasty to greatly expand.
In terms of commercial reformations most importantly, the “Fang Market Mechanism” was abolished; this meant that market location and trading hours were no longer subject to restriction. The resulting broader geographical coverage and the longer duration of trading activity led to greater volumes of transactions and encouraged the participation of greater numbers of actors in market trade. “Night Markets” and “Rural Markets” first appeared in Chinese economic history. In terms of market management, the State relied more on the actual demand and supply instead of arbitrary values allocated by regional State authorities.
These authorities would generally only intervene when there were large fluctuations in price at which point and they would either buy in when there was a sharp fall in demand or sell stock in storage when there was a shortage in supply. A strategy which is now considered to amount to proto-Kenysianism “Offensive policy” by Zhao and Drechsler. Meanwhile, a state-supervised credit rating system was established to ameliorate problems within the credit market. Idle social capital was encouraged to be re-injected into the economy through loans that maximized their usage. The concept of “deferred payment” and “advance payment” first occurred as financial derivatives under the system in the Song Dynasty.
As transactions increased in both frequency and magnitude, the portability limitations due to the use of metal currencies became troublesome. This led to the birth of the world’s first issue of paper money “Jiao Zi”. It initially appeared in Sichuan in the form of a deposit receipt issued by a coalition of sixteen of the largest local trading consortiums. Ultimately the receipts began to function as a currency and were subsequently recognized and then formalized by regional authorities. Notably, a reserve system was established to tackle any run on the currency; the ratio of reserves to issued currency was about 28 % to 40% . The invention of paper money greatly increased the currency velocity, and based on the calculations within a Fisher equation; this increase in the velocity of the currency would have led to a corresponding rise in the number of transactions, which in turn would have fostered economic growth.
Investment in Essential Infrastructure
In order to better leverage economic growth, the Song State invested in a large number of supply-side projects. To foster domestic trade, the construction of the Beijing-Hangzhou grand canal continued which greatly improved the geographical mobility of trade between the two cities. The new waterway accelerated the delivery of products and also lowered the cost of transportation. This in turn encouraged more cross-city transaction and therefore diversified the supply of commodities in the different cities along the route of the canal.
Corresponding to the land reformation,under the Wang An Shi administration, more than ten thousand water conservation projects were pursued, further increasing agricultural productivity.
Moreover, the Song dynasty emphasized the value of education, for example, in the establishment of the imperial examination system. Technological innovation was encouraged such as the invention of the compass (which enabled long-distance marine trade); movable typography was developed which helped to facilitate the spread of information and to make the large scale-printing of paper money possible for the first time. The “de-militarization” of government and the introduction of legal studies into the educational system, led to the wider acceptance of the “rule of law” and paved the way for more predictable and impartial economic management.
In addition, the State established “Shi Bo Si” systems in several of the largest harbour cities in order to facilitate foreign trade. The Song Dynasty successfully formed stable trading relationships with more than 50 counties such as Japan, India, and the various states in the Arabian Peninsula . With the development of shipbuilding technologies, a maritime ‘silk road’ arguably existed under the Song Dynasty.
Production Function Model Analysis
Modelling the national output of the Song Dynasty against three economic variables, it may be clearly seen that the values of all three of these variables grew. The input of labour increased as land and market reform led to greater labour participation in economic activities. The flourishing economy provided the basis for a rising population to about 45 million across the empire
which further contributed to the total amount of labour available to the economy. A growing amount of capital was invested due to large numbers of innovations occurring as a result of advances in education. Overall productivity rose due to the greater working motivation taking place under market economy reformation; Increasing quality in fixed and human capitals and the greater velocity and magnitude of trade with the issue of paper money resulted in the increase of total national yield.
Looking at marginal changes, the marginal productivity of labour increased due to increments in K and the interaction of K with increasing amounts of A. The same observation may be applied to the MPK.
Further, the relationship in the proportion of the economy divided between labour and capital inputs altered, as the quality and quantity of capital investment increased due to institutional reforms in education and research. A decreasing relative price of capital encouraged greater amounts of capitals to be invested, and the proportion of capital relative to labour input greatly increased compared to the previous Tang Dynasty. The overall economy moved from a labour-intensive foundation to slightly more capital intensive foundation.
To conclude, the State contributed immensely to the economic development of the Song Dynasty. Abolishment of conservative economic policies from previous dynasties, and adoption of widespread land privatization, marketbased mechanism, the establishment of an independent financial system made a dynasty, with same or even fewer natural resources comparing to others, reaching the peak of economic prosperity in ancient Chinese history. Substantial investment was spent on improving the infrastructure necessary to sustain the growing potential for the economy. Meanwhile, Technological and social development reached one of their apexes. All of these institutional reforms contributed to the rising national output revealed in an analysis under the Cobb Douglas production model. No other changes could bring a more considerable contribution to the overall economic development, and non of the polices could be introduced without a promising state.
However, intermittent reformations and abuse of power under gradual formation of bureaucratism caused some level of inconsistency and inefficiency of policies; Extravagant government spending on “San Rong” has been continuously placing a heavy burden on fiscal balance; The national military has not been powerful enough to have resisted the later invading Mongol armies. The Song Dynasty generated vast economic prosperity and had the potential to develop into a more consummate market economy supposing the State had better coped these issues.