03 June 2017

Wang, Wallace and proto-chartalism


Wang Anshi 王安石 at the Song court

Honest-to-God American Bull Moose and FDR veep Henry Agard Wallace is a name which deserves wider currency than it currently does, given that he was responsible for many of the more successful programmes of the New Deal. What is even less well-known than Wallace’s name, is that he was well-read in Chinese philosophy, and that he drank deep from the wells of New Text Confucianism in particular, by way of the Cantonese Confucian Chen Huanzhang, who in turn was a studious disciple of Kang Youwei. Wallace was particularly intrigued by the populist Green Shoots policy of Song Dynasty statesman Wang Anshi (who was himself connected in interesting ways with the New Text School). As Li Chaomin notes, not altogether uncritically:
The essence of the ideas of the American Ever-Normal Granary was from China. As Bean mentioned, however, it was supplemented with the policy of the non-recourse loan. The American Ever-Normal Granary in the Agricultural Adjustment Act (AAA) had as its goal not only the stabilisation of commodity prices, as deriving from ancient Chinese practice, but also a farm income goal overseen by the Commodity Credit Corp (CCC) and a mechanism in the form of the non-recourse loan. This amounted to a modernised version of the Ever-Normal Granary and the Green Sprout Money scheme proposed by Wang Anshi.

The mechanisms of the American Ever-Normal Granary were similar to Wang Anshi’s scheme although the goals were different. The non-recourse loan is made by collateral in terms of crops, initially applied in the American farm belt and later made available to all US farmers. Such loans to farmers were made in accordance with the AAA to stabilise food prices and farm income. The CCC loses its right to recourse the loan once it is made. In order to obtain loans, farmers contract with the CCC on area planning, using crops as collateral. Either the loans are repaid with interest or the crops are taken by the CCC if the market price is lower than the target price. For the CCC, food price stability is the primary goal, and it decreases the loan amount whenever the interest rate is low and vice versa. Therefore, the interest rate is capped and the loan risk is borne by the CCC.

Wallace paid his own glowing tribute to Wang Anshi. He said that Wang had been confronted by problems that were almost identical to those faced by Roosevelt in 1933 and that the methods Wang employed were strikingly similar. Wang Anshi’s reforms ended up being frustrated in their implementation; nevertheless, Wallace thought that Wang Anshi had left an enduring impression in the Chinese tradition of statecraft and that what was beyond the reach of paternalistic statesmanship nine centuries ago was within the reach of democratic statesmanship today.
The green sprouts policy, which was part of Wang Anshi’s reform package called the New Policies (or the One-Whip Policies by his detractors) is described here by China historian Valerie Hansen:
Although much of the debate with the historicists was phrased in terms of the Dao, or way, and how to recover it, the underlying disagreement between the two groups concerned money. Suspicious of money, the historicists wanted to limit the government’s œconomic activities. They held that the money œconomy could not grow, and they thought that the traditional relationships among the wealthy and the poor needed no alteration. Wang Anshi and his followers took a diametrically-opposed stance: the government should intervene to hasten œconomic development, create prosperity, and draw in the higher tax receipts the government so desperately needed. Wang also believed that the traditional relationships between rich and poor required massive alteration [in favour of the poor].

Wang Anshi and his followers were infatuated with the potential of [fiat] money in a way that only the first generation to encounter it could be. They loved its many advantages. Unlike cloth and grain, it could not spoil and could be stored forever. It was liquid. Best of all, it could be produced—either by minting metal coins or even more expeditiously, by
printing paper money

Many of the reforms Wang instituted, the New Policies, were linked to money. He wanted to put all government employees, even those in the lowest positions, on cash salaries to replace the pay in kind they had previously been receiving… The most representative of the New Policies was called the Green Sprouts reforms, intended to relieve the chronic debt of the poor peasants. They always had to borrow money to buy seed to plant; when the harvest came in, they had to sell their crops at low prices, earning barely enough money to pay back the moneylenders. If they could break out of this cycle of debt, Wang argued, they would extricate themselves from the clutches of the local moneylenders, or engrossers, as he referred to them. As they became more prosperous, they could serve the empire better by paying taxes and performing military service. In the Green Sprouts reforms, Wang instituted what were called ever-level granaries; the granaries loaned grain to cultivators when they were short, to be repaid after the harvest. These loans were supplemented by the Green Sprouts loans made to peasants at planting time and to be paid back, with no interest, after the harvest. Wang hoped that these loans would enable cultivators to pay their taxes.
Wang Anshi’s plans, owing to poor implementation and climactic events beyond his control, did not materialise in his own time; and his career ended ignominiously. But his ideas about financing small-volume loans at zero-to-nominal interest rates to poor farmers was indeed ages ahead of its time and motivated by a populist anger at the treatment of smallholding farmers by wealthy mercantile interests. But even more so was his idea of widening the availability of credit by expanding the money supply by government fiat. Even though his medium of choice was copper (a state-controlled commodity) rather than the paper jiaozi 交子 which had been pioneered regionally by the Song government some decades earlier, his instincts with regard to the way money was supposed to work were in fact proto-chartalist. Not only were the problems the poor peasantry of the 11th century Northern Song faced similar in ways that mirrored the problems of the impoverished inland farmers in 19th century America, but Wang’s approach to them directly foreshadowed the goals, the methods and even the œconomic reasoning of the greenback movement and the subtreasury plan of the Farmers’ Alliance. That a Midwestern agrarian-populist statesman like Henry Wallace would find much to admire in an idiosyncratic institutional Confucian reformer from nine hundred years before may seem a bit far-fetched, but the confluence of ideas makes it quite understandable.

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