CEPII, Recherche et Expertise sur l'economie mondiale
Some Doubts about the Economic Analysis of the Flow of Silver to China in 1550-1820


Jacques Melitz

 Highlights :
  • Historically, wide geographical differences in silver/gold price ratios are far better indications of high costs of arbitrage than opportunities for profitable arbitrage.
  • If China had imported gold rather than silver in 1550-1820, its history would have been much the same.
  • Rather than implying a continuous shortage of the metal, the sustained inflow of silver into China in 1550- 1820 is better seen as providing the extra supply of the metal that was needed to keep the market in China at or near equilibrium under widely varying conditions.
  • Based on economic theory, China could have profited from the inflow of silver from monetization, quite apart from the mere increase in the quantity of money.

 Abstract :
The paper takes issue with the mainstream economic analysis of the enormous flow of silver into China in 1550-1820. First, I challenge the view that arbitrage between gold and silver in European trade with China was important except for one twenty-year spell. Next, I argue that had China imported gold, its history would have been much the same. I also dispute the idea that the persistence of the silver inflows from 1550 to 1820 implies any persistent disequilibrium, and I maintain that economic theory can easily accommodate the view that the inflow of silver into China sponsored growth in China.

 Keywords : Silver Flows into China 1550-1820 | Silver/Gold Exchange Rates | Transaction Costs in International Trade

 JEL : N1, N15, N25, F36, F60
CEPII Working Paper
N°2017-19, November 2017

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Monnaie & Finance
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