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Home , Beiyang Army, Cao Rulin, Cash (unit), Central Mint, Coinage Act of 1792, Coinage Act of 1834

Silver and : A Cycle of Sino-U.S. Monetary Interactions, 1873- 1937

DISSERTATION

Presented in Partial Fulfillment of the Requirements for the Degree Doctor of Philosophy in the Graduate School of The Ohio State University

By

Austin Lewis Dean

Graduate Program in History

The Ohio State University

2016

Dissertation Committee:

Christopher A. Reed, Advisor

Ying Zhang

Jennifer Siegel

Steven Conn

Copyrighted by

Austin Lewis Dean

2016

Abstract

This project examines the economic, political and diplomatic history of and the by focusing on the monetary of and gold. In the 19th century, as many countries, including the United States, went on the , China remained one of the final places in the world that stayed on the . At the same time, the United States was a major producer of silver. From the end of the (1644-1912), through the period (1912-1927) and into the

Decade (1927-1937), various Chinese governments debated how to reform its monetary system: whether to stay on silver, to go on gold or to adopt some other monetary arrangement. This dissertation argues that the period between the 1870s and 1930s represents a cycle of monetary interactions between China and the United States. During this period, the chief issues was how to change the Chinese monetary system; after the mid-1930s, the chief issue became how to support and stabilize the new , the fabi. This project contributes, chronologically and thematically, to the growing but still small number of English-language works that focus on Chinese monetary history and addresses issues of interest to historians of China, historians of the United States and economic historians.

ii

Acknowledgments

I wish to thank all of my teachers, most of all my parents.

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Vita

2006...... B.A. History, Grinnell College

2010...... M.A. History, Georgetown University

2010 to present ...... Graduate Teaching Associate, Department

of History, The Ohio State University

Fields of Study

Major Field: History

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Table of Contents

Abstract ...... ii

Acknowledgments...... iii

Vita ...... iv

List of Tables ...... viii

List of Figures ...... ix

Introduction: Following the Money ...... 1

Chapter Outlines ...... 14

Chapter 1: The Monetary System of the Qing Dynasty (1644-1912) ...... 25

The Importance of Silver and ...... 27

Financial Intermediaries ...... 38

Conclusion ...... 40

Chapter 2: The United States Trade and the Conundrum of 1873 ...... 44

The U.S. Monetary System and Early Trade with China ...... 48

Silver and the Early China Trade ...... 56

v

The Creation of the Trade Dollar ...... 60

The Circulation of the in China ...... 72

The Hinge Moment of 1876: The Circulation of in the United States.... 78

Conclusion ...... 89

Chapter 3: Provincial Minting of Silver Coins, 1887-1900 ...... 92

The Significance of the Coinage Press ...... 94

Foreign , The Leaky Wine Cup and Provincial Dragon ...... 99

The Ferracute Machinery Company and the and Wuchang Mints .. 117

An Attempt to Consolidate Minting ...... 129

Chapter 4: The Rise of Gold and Fall of Silver: The Jeremiah Jenks Mission to the

Qing Court, 1903-1904 ...... 142

The Worldwide Shift to the Gold Standard at the End of the 19th Century .... 146

The Indemnity and Gold Price of Silver ...... 155

The Commission on International Exchange ...... 163

Conclusion ...... 191

Chapter 5: The Currency Reform and Development Loan, 1910-1924...... 194

The Chinese and American Background to the Currency Reform Loan ...... 197

The Currency Loan Negotiations ...... 211

The Life of the Loan in the Early ...... 221

vi

The War Years and the Second Consortium ...... 235

The End of the Loan ...... 249

Chapter 6: The Long and Winding History of the , 1920-1933 .. 253

The Political and Economic Background ...... 255

The Early Years of the Mint ...... 265

The Early Nationalist Period and the Fall of Silver ...... 274

The Elimination of the and the Opening of the Shanghai Mint ...... 287

Conclusion ...... 301

Chapter 7: The Silver Purchase Act of 1934 and The Creation of the Fabi ...... 303

The Silver Interests in the United States and the Rhetoric of China ...... 306

The Path Towards the U.S. Silver Purchase Act in the United States and China,

March 1933- June 1934 ...... 314

The Path Toward the Fabi ...... 329

Conclusion ...... 352

Conclusion ...... 355

Bibliography ...... 365

vii

List of Tables

Table 1. Comparison of Coin Weights ...... 72

Table 2. U.S. Silver Production, 1870-1876 ...... 81

Table 3. Production, Export and Import of U.S. Trade Dollar ...... 87

Table 4. Coinage Production for the Mint ...... 109

Table 5. Mexican Silver Exports, Fiscal Years 1881-82 to 1902-03 ...... 153

Table 6. Boxer Indemnity Payments Allocated by Province ...... 159

Table 7. Annual Price of One Ounce of Silver in ...... 280

viii

List of Figures

Figure 1. : Silver-Copper Ratio ...... 31

Figure 2. Overview of the Silver-Copper Ratio in Qing Dynasty, 1644-1899 .... 36

Figure 3. Proposed U.S. Coin in Chinese Style ...... 53

Figure 4. A Chopped U.S Trade Dollar ...... 78

Figure 5. The Unfortunate Trade Dollar ...... 85

Figure 6. The Mint Facility in Guangzhou with inset of Silver dollar ...... 110

Figure 7. A Demonstration of Coinage Equipment (1897) ...... 121

Figure 8. Mint Equipment Arriving in Chengdu (1898) ...... 124

Figure 9. Janvier Stares at Rusted Equipment (1898)...... 125

Figure 10. The Installed Coinage Presses (1898) ...... 127

Figure 11. Coin Made by the Central Mint in March 1933 ...... 300

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Introduction: Following the Money

We currently live in a world in which one cannot use U.S. dollars at a shop in

China or Chinese currency at a shop in . Perhaps because “the power to become habituated to his surroundings is a marked characteristic of mankind,” we treat this state of affairs as natural.1 An may argue that “Money is like a flag; each country has to have its own.”2 But that has not always been the case.

Before the middle of the 19th century, it was common for international monies, mainly Spanish and Mexican silver dollars, to circulate around the world, particularly in

East Asia. A person could use these coins just as easily in Shanghai as he could in

Sacramento. As political scientist Eric Helleiner explains, the physical aspects of daily monetary life for most of human history, and particularly through the early part of the

19th century, differed from our own in three ways: “foreign circulated alongside domestic ones; low-denomination forms of money were not well-integrated into official monetary system and officially issued currency domestically was far from homogenous or standardized.”3 These circumstances reflected the “big problem of small

1 John Maynard Keynes, The Economic Consequences of Peace (New York: Harcourt, Brace and Howe, 1920), 1. 2 Benjamin Cohen, The Geography of Money (Ithaca: Press, 1998), 1. 3 Eric Helleiner, The Making of National Money: Territorial Currencies in Historical Perspective (Ithaca: Cornell University Press, 2003), 3. 1 change.”4 How could governments produce high numbers of low-denomination coins, at a consistent standard of quality, without losing money? For a long time they could not.

Around the middle of the 19th century, Helleiner explains, and in an “intensely political process,” emerging nation-states began to create territorial currencies, currencies bound by borders and under the control of governments: they stopped the circulation of foreign coins within their boundaries, fully integrated low-denomination coins into the currency system and created a homogenous standard.5

Helleiner sees a blend of economic and political motivations behind this trend.

First was the goal of lowering transactions costs for merchants within a certain polity.

This policy increased the “internal coherence of a country” and had the added benefit of increasing the “economy’s external territoriality by making a clear distinction between the domestic and international economy.”6 Second, governments desired to control the

“domestic supply of money for macroeconomic purposes.”7 Third, he identifies the fiscal needs of nation-states. The fiscal benefit was not solely, or, he argues, most significantly, the governments derived from creating a national money. Instead, it was

“reducing transactions costs associated with the administration of complex, modern public fiscal systems that were created for first time in the 19th and 20th centuries.”8

Finally, nation-states hoped to use territorial currencies to strengthen national identity. These motivations, paired with technological advances described later in this

4 Thomas Sargent and Francois Velde, The Big Problem of Small Change (Princeton: Princeton University Press, 2002). 5 Helleiner, The Making of National Money, 2. 6 Helleiner, The Making of National Money, 8. 7 Helleiner, The Making of National Money, 9. 8 Helleiner, The Making of National Money, 10. 2 dissertation, helped create part of the monetary world we inhabit today. In the late 19th and early 20th centuries, having a territorial currency became an important symbol of the transition to a “modern” nation-state.

This dissertation follows the evolution of the Chinese monetary system from the

1870s to the 1930s. At the broadest level, the work focuses on the quest of successive

Chinese governments to create the territorial, national money described by Helleiner. It draws on a range of Chinese- and English-language sources to argue that these six decades form a distinct period of Sino-U.S. monetary interactions.

During these sixty years, the chief monetary issue that occupied political figures such as (張之洞 1837-1909) and Key Pittman (1872-1940), such as Yinchu (馬寅初 1882-1982) and Jeremiah Jenks (1856-1929), and mint technicians like Clifford Hewitt (1869-1942) was how to change the Chinese currency system. It was a period of uncertainty and experimentation, for China as it tried to change its currency system and for the United States as it tried, often clumsily, to wield its growing economic power.

What type of monetary system should China have? Should it continue using a combination of silver and copper coins? Should China adopt the gold-exchange standard?

If it adopted the gold-exchange standard, would it link its new currency to the American dollar, British pound or ? Could China carry out a program of reform without ceding sovereignty to foreign powers? These were the questions that dominated

Sino-American monetary interactions between the 1870s and 1930s.

3

The history of Chinese currency sounds—on the surface—like a topic full of esoteric technical details and with a narrow, numismatic focus. Nothing could be further from the truth. The question of how to change the Chinese monetary system in this sixty- year period was fraught with shifting power relations between countries, political revolutions, economic depressions, personal egos, mistranslations, misunderstandings, chance and contingency. It is a dramatic story, full of human flesh and human foibles, and involves much more than simply tables of statistics.

To bring out the inherent drama of this topic, this dissertation pays special attention to highlighting the monetary thought and policies of figures often more famous for other reasons. For example, few historians of China associate Qichao (1873-

1929 梁啟超), a seminal figure in modern Chinese history, with currency issues. In fact,

Liang wrote extensively on the topic. And Liang did not simply put words on paper. In the 1910s, he actually held a position in the currency bureau of the Ministry of .

Likewise, Ma Yinchu, most famous for being the intellectual father of the “one-child policy” in the People’s Republic of China, was also one of the most voluminous, cogent and earthy writers about the Chinese monetary system in the 1920s and 1930s. Ma, like

Liang, did more than just write; he also held government posts relating to currency. By focusing on this sixty-year period and the question of how to change the Chinese monetary system, familiar figures will appear in a new light.

Moreover, by focusing on this question, the dissertation highlights both change and continuity in the goals of successive Chinese governments, the shifting nature of

Sino-American relations and provides new understandings of significant events in U.S.

4 history, such as the and the diplomacy of Woodrow Wilson (1856-

1924).

I use the phrase “interactions” in the dissertation’s title deliberately. Though this work necessarily covers many aspects of political and economic connections usually grouped under the term US-China relations, it does not pretend to be a complete history of US-China economic relations. Such a task would falter under the burden of its own ambitions. Instead, it focuses on a number of episodes and interactions in which gold and silver linked China and the United States, drove them apart, created opportunities for cooperation as well as confusion and misunderstanding, all in order to bring new perspectives and interpretations to older topics and provide preliminary insight into new ones. The Sino-American focus is not arbitrary: during this period the United States was one of the leading producers of silver and China was one of the leading consumers of the .9

In fact, physical flows of silver across the Pacific serve as the bookends of this dissertation. In 1873, the United States began to deliberately export silver to China in the form of U.S. Trade Dollars, hoping to find an outlet for large silver in Nevada and to displace the Mexican silver dollar as the coin of choice among Chinese merchants. In

1934 and 1935, however, the United States imported silver from China by paying more

9 For example, in 1897 total world production of silver stood at 177,352,836 ounces. Silver from the United States represented 56, 457, 292 ounces, accounted for 54,052,647 ounces and a variety of other countries accounted for the remainder. See Edward Sherwood Meade, “The Recent Production of Silver and Its Probable Future,” Annals of the American Academy of Political and Social Science 14 (Nov., 1899): 43.

5 per ounce than the going market rate. The goal of this silver-buying program, its advocates argued, was to alleviate the in the United States by raising the purchasing power of Chinese consumers, the most populous country still on the silver standard. At the end of 1935, the Nationalist , under the control of the Guomindang, outlawed the use of silver as and switched to a managed currency, the fabi (法幣) which the government maintained at a certain rate of exchange with the American dollar and the British pound. In world historical terms, silver, the metal that had mediated trade between China and the rest of the world from the middle of the 16th century through the first part of the twentieth, was no longer the key monetary medium linking China to the rest of the global economy.

This project is an example of transnational history. The exact scope of

“transnational history” is a source of debate. Of course, “delimiting the territory of academic tribes and explaining their customs and practices are ethnographic enterprises of formidable complexity.”10 The question of how to define transnational history is a particularly vexing one because as, Sven Beckert writes, “global, world, transnational, and international history have much in common.”11 Beckert goes on to say that

“transnational history focuses on uncovering connections across particular political units.”12 Building on this point, Chris Bayly adds that transitional history gives “a sense

10 Patrick Finney, “Introduction: What is International History?,” in Palgrave Advances in International History, ed. Patrick Finney (London: Palgrave Macmillan, 2005): 1 11 Sven Beckert, “AHR Conversation: On Transnational History,” American Historical Review 111, no. 5 (2006): 1445. 12 Beckert, “AHR Conversation: On Transnational History,” 1454. 6 of movement and interpenetration.”13 Rather than spend too much time agonizing over the definitions, demarcations, and “finer points of distinction” among transnational, global and international history, it is, as Beckert argues, best to simply get on with the empirical research.14

This dissertation traces connections, entanglements and circulations—of coins, machinery, financial advisors, monetary metals and economic ideas—around the world.

Following these circulations makes it possible to see through the eyes of individuals as they are confronted with ideas, challenges, problems and crises. In tracing these flows, other countries appear —namely England, , Mexico and —but the focus will remain on Sino-U.S. interactions.

This approach is particularly appropriate because monetary history, as one scholar writes, “should, in its general conception and arguments—to borrow the famous Gaullist strategic phrase—be tous azimuts, aimed so as to cover all directions.”15 Adopting this perspective allows the dissertation to look at the different aspects of money itself: how it is made, how it circulated, how people think about it in time and place as well as the connections between money and power.

Moreover, in charting the flows of objects, ideas and people, the dissertation is particularly concerned with showing that small decisions, events and actions have large,

13 Chris Bayly, “AHR Conversation: On Transnational History,” American Historical Review 111, no. 5 (2006): 1442. 14 Beckert, “AHR Conversation: On Transnational History,” 1446. 15 Mark Elvin, “Preface: Some Thoughts on the Nature of Money,” in Money in Asia (1200-1900): Small Currencies in Social and Political Contexts, ed. Jane Kate Leonard and Ulrich Theobald (Leiden: Brill, 2015), xiv. 7 and often unanticipated, consequences, known popularly as the “butterfly effect.”16

Though Lin Man-houng, another scholar of Chinese monetary history, employed this term as a framework for her work, many of these effects that “transformed China from the High Qing to its modern fate” actually remained offstage in her narrative.17 Lin’s focus remains on how Chinese statesmen and writers reacted to broader events—the rising price of silver and the effects of the Latin American independence movements of the 19th century. Instead, by focusing on circulations and flows of people, ideas and objects, this dissertation brings these “butterfly effects” to center stage in order to show how and why the Chinese monetary system changed from the late Qing dynasty (1644-

1912) through the Beiyang period (1912-1927) and into the Nationalist decade (1927-

1937).

At a more theoretical level, the dissertation starts with the assumption that John

Maynard Keynes was wrong when he wrote that “money is only important for what it will procure.”18 Economists “chiefly concern themselves with what money does”: it acts as a , a store of value, a unit of account.19 Historians, “and virtually everyone who lived in the past, are preoccupied by what money is—not just the concrete objects that constitute money, but also the values it represents, how it affects consciousness and culture, and how the use of money intersects with other currents of

16 Lin Man-Houng, China Upside Down: Currency, Society and Ideologies, 1808-1856 (Cambridge, MA: Harvard University Press, 2006), 1. 17 Lin, China Upside Down, 1 18 John Maynard Keynes, Monetary Reform (New York: Harcourt, Brace and Co., 1924), 1. 19 Richard von Glahn, Fountain of Fortune: Money and in China, 1000-1700 (Berkeley: University of Press, 1996), 15. 8 historical change.”20 Money, particularly in its physical form, is a kind of “black box”; the ordinary mundane and unquestioned objects of daily life have a deeper and little understood history of their own.21 Or, as David Wolman puts it, “We think about money always and never. Always: , retirement, state of the economy, college tuition, terrorism funding, trade balance with China, Goldman Sachs, and quick runs to the ATM.

Never: how it actually works.”22 This dissertation probes the “black box” of money to examine its various aspects: how it is produced, how it circulates, how it is used and how people discuss and debate it.

The creation of a standardized territorial currency that passes unquestioned from hand-to-hand and market-to-market involves surmounting technological, administrative, political, intellectual and economic problems. Seen from this angle, the creation of money relates to the basic aspects and evolution of state power: how to procure the materials necessary for coinage, how much coinage to produce, how to monitor these coins as they circulate in different markets and how to protect against counterfeiting or debasement. Likewise, debates about monetary standards reveal how people understand their own country and how their country connects to the larger world economy. I focus on the circulation of coins, machines, people and ideas between China and the United States to probe these issues.

20 Von Glahn, Fountain of Fortune, 15. 21 Bruno LaTour, “Where are the Missing Masses? The Sociology of a Few Mundane Artifacts” in Shaping Technology/Building Society: Studies in Sociotechnical Change, ed. Wiebe E. Bijker and John Law (Cambridge, MA: MIT Press, 1992), 226. 22 David Wolman, The End of Money: Counterfeiters, Preachers, Techies, Dreamers and the Coming Cashless Society (Boston: Da Capo, 2013), 2-3. 9

In focusing on monetary interactions, this project brings together a number of disparate perspectives to provide new insights on Chinese history, U.S.-China relations and several significant events in U.S. history. A numismatic study would delve into the details of the coining process but it would generally overlook interpretive debates among historians, being more concerned about the coins than the context.23 Likewise, studies of

U.S.-China relations in this period, not concerned with mundane issues of coinage, focus instead on the idea of “the China market” in the American imagination and broader U.S. strategy in Asia.24 Works that do investigate the monetary interactions of China and the

United States generally only consult English-language sources and miss the debate within

China.25 Instead, using diverse sources from China, and the United States, I bring these different perspectives together—moving in scale from the details of particular silver coins to broader economic trends and ideas.

This project contributes, chronologically and thematically, to the growing but still small number of English-language works that focus on Chinese financial and currency history. For many years, the most important debate in Chinese economic history concerned whether the economy of late imperial and Republican China was growing, and, in turn, the implications of this growth, or lack thereof, for the Communist

23 Examples of numismatic studies are Walter Breen, Walter Breen's Complete Encyclopedia of U.S. and Colonial Coins (New York: Doubleday, 1988); David Q. Bowers, Silver Dollars and Trade Dollars of the United States (New Hampshire: Bowers and Merena Galliers, 1993). 24 See John King Fairbank and Ernest May, America's China Trade in Historical Perspective: The Chinese and American Performance (Cambridge: Harvard University Asia Center, 1986); Walter LaFeber, The New Empire: An Interpretation of American Expansion, 1860-1898 (Ithaca; Cornell University Press, 1963). 25 Emily Rosenberg, Financial Missionaries to the World: The Politics and Culture of Dollar Diplomacy, 1900-1930 (Durham: Duke University Press, 2000); Emily Rosenberg, "Foundations of United States International Financial Power: Gold Standard Diplomacy, 1900-1905," Business History Review 59, no. 2 (Summer, 1985): 169-202. 10

Revolution.26 Commenting on the debate in 1991, Ramon Myers noted that future studies should focus less on statistics and disagreements about the percentage increase in agricultural productivity levels and instead on “examples of individuals and groups struggling in the marketplace, agonizing over policy discussions and playing a complex role in economic life.”27 Similarly, in 1999, Hans van de Van argued that financial affairs deserve a more prominent place in the historiography of the late Qing and the early

Republican period, “which continue to be dominated by the grand narratives of social and political revolution or cultural conflict, or by the historiographies of condemnation.”28

Despite these calls by Myers and van de Van, English-language scholarship on

Chinese monetary history today still remains limited. Working in the 1960s, Frank H.H.

King, penned an indispensable volume on Qing currency reform through 1895.29 Niv

Horesh has looked at the circulation of as well as the evolution of the Chinese currency over a much longer period of time.30 Linsun Cheng, Brett Sheehan and, more recently, Luman Wang address changes in the Chinese banking sector.31 Richard von

26 The most important works in this debate are Thomas Rawski, in Prewar China (Berkeley: University of California Press, 1989); Philip C.C. Huang, The Peasant Economy and Social Change in (Stanford, CA; Stanford University Press, 1990). Se also, Philip C.C. Huang, “The Paradigmatic Crisis in Chinese Studies,” Modern China 17, no. 3 (Jul7 1991): 299-341. 27 Ramon Myers, “How did the Chinese Economy Develop—A Review Article,” Journal of Asian Studies 50, no. 3 (Aug., 1991): 628. 28 Hans van de Ven, “ and Financial Reform in the late Qing and Early Republic,” In Caizheng yu jindailishi lunwenji, diyice [Papers on government finance and modern history] (Taibei: Zhongguo yanjiuyuan jindaishi yanjiusuo, 1999), 94. 29 Frank H.H. King, Money and Monetary Policy in China, 1845-1895 (Cambridge, MA: Harvard University Press, 1965). 30 Niv Horesh, Shanghai's Bund and Beyond: British , Issuance, and Monetary Policy in China, 1842-1937 (New Haven: Press, 2009) and Chinese Money in Global Context: Historic Junctures Between 600 BCE and 2012 (Stanford: Stanford University Press, 2013). 31 Linsun Cheng, Banking in Modern China: Entrepreneurs, Professional Managers and the Development of Chinese Banks 1897-1937 (Cambridge, Engl.: Cambridge University Press, 2007); Brett Sheehan, Trust in Troubled Times: Money, Banks, and State-Society Relations in Republican (Cambridge: Harvard 11

Glahn and Lin Man-Houng use a focus on coinage to illuminate large issues of political economy, intellectual history and the changing ways that the Chinese economy linked to and was also influenced by other parts of the world.32 This present project shares similarly diverse thematic interests.

The literature in Chinese on the subject of China’s monetary history is much larger than that in English. The Chinese-language literature divides along certain types of studies: works on the history of Chinese currency, the history of monetary thought, research that charts the fluctuations between the price of silver and copper and volumes that examine broader topics such as relations between the central and local governments on issues like taxation and budgeting.33 These are indispensable perspectives for understanding the larger political, economic and social context behind the evolution of

Chinese currency. However, these studies tend to rely on materials solely from China and overlook the foreign sources. As described above, this project is an international history

University Press, 2003); Luman Wang, “Money and Trade, Hinterland and Coast, Empire and Nation-State: An Unusual History of Piaohao, 1820-1930” (PhD diss., University of Southern California, 2014). 32 Lin Man-Houng, China Upside Down: Currency, Society and Ideologies, 1808-1856 (Cambridge: Harvard University Press, 2006). 33 For the best broad overview of Chinese monetary history, see Peng Xinwei, Zhongguo huobishi [Chinese monetary history] (Shanghai: Shanghai chubanshe, 2007) and Yang Duanliu, Qingdai huobi jinrong shigao [Draft history of the monetary and financial history of the Qing dynasty] (: Wuhan Daxue chubanshe, 2007); For a comprehensive overview of Qing financial history, see Chen Feng, Qingdai caizheng zhengce yu huobi zhengce yanjiu [Research of financial and monetary policies of the Qing dynasty] (Wuhan: Wuhan Daxue chubanshe, 2008); Zhou Yumin, Wanqing caizheng yu shehui bianqian [Late Qing finance and social change] (Shangahi: Shanghai Renmin chubanshe, 2001). For information on more specific reforms in the last two decades of the Qing, see Liu Zenghe, Cai yu zheng: qingli caizheng gaige yanjiu [Finance and politics: research into the reform of financial administration] (: Sanlian shudian, 2014). For an in depth look at the history of Chinese monetary thought, see Ye Shichang, Zhongguo huobi lilunshi [History of Chinese monetary theory] (: Xianmen Daxue chubanshe, 2003). For questions on the history of silver in China, see Dai Jianbing, Zhongguo jindai yinlian shi [History of the silver liang in modern China] (Beijing: Zhongguo shehui kexue chubanshe, 2007); Dai Jianbing, Baiyin yu jindai zhongguo jingji 1890-1935 [Silver and the modern Chinese economy, 1890- 1935] (Shangahi: Fudan Daxue chubanshe, 2005). 12 and draws on a number of government, corporate and personal archives to build on these previous Chinese-language studies.

This project charts the changing monetary goals of the Chinese state from the late

Qing dynasty through the Republican period on the eve of the Second Sino-Japanese

War: the creation of a territorial currency under the control of the central government and not linked to any other currency. When some Qing officials voiced this goal in the late

19th century, it marked a break from earlier Qing conceptions of how the dynasty should involve itself in the monetary ecosystem. The Qing and Beiyang governments, despite being under tremendous pressure from foreign governments, were able to prevent China’s currency from being linked to another country’s monetary unit while the in the 1930s was able to create a national money, at least in the territory under its control. If one important arc of modern Chinese history is a quest for wealth, power and shedding foreign influence, for many Chinese thinkers and political figures, this goal entailed increased government involvement in and control over the economy, and included changing the monetary system.34

Finally, this work has thematic connections to economic history and the history of capitalism. As such, it is ultimately concerned with several major issues in economic history: the creation and consolidation of territorial currencies as well as the gold standard, and, by association, the history of silver and . Of course, monetary and currency reform in the late 19th and early 20th centuries usually involved a discussion

34 and John Delury, Wealth and Power: China’s Long March to the Twenty-first Century (New York: Random House, 2013). 13 of the gold standard. In the large English-language literature on how the gold standard was adopted in different countries at different times, how it functioned, its benefits and drawbacks and its role in the Great Depression, China does not merit much discussion.35

Although the Qing dynasty, and the Nationalist government never adopted the gold standard, they repeatedly discussed its advantages and disadvantages for their particular situation. It is important to probe these debates about standards, because standards, be they monetary, technological or procedural, are “anything but natural” and it is “useful to view standards as the outcome of contending interests at play, the rationales for which need historical explanation.”36 In focusing on these debates, I add one small piece to the larger literature about one country’s decision to adopt the gold standard.

Chapter Outlines

This dissertation argues that the years between the 1870s and the 1930s forms a distinct period in Sino-American monetary interactions. During this time the key monetary question for Chinese officials, American economists and Chinese merchants was how to change the Chinese monetary system. In examining how different figures answered this question, this dissertation charts the flows and circulations of money, ideas

35 For general histories of the gold standard, how it functioned and its advantages and drawback see: Arthur Bloomfield, Monetary Policy Under the International Gold Standard, 1880-1914 (New York: , 1959; Barry Eichengreen, The Gold Standard in Theory and History (Princeton: Princeton University Press, 1996); March Flandreau, “The French Crime of 1873: An Essay on the Emergence of the International Gold Standard, 1870-1880,” Journal of Economic History 56, no. 4 (1996): 862-897. For histories relating to individual countries see: Steven Bryan, The Gold Standard at the turn of the Twentieth Century: Rising Powers, Global Money and the Age of Empire (New York: Press, 2010); Mark Metzler, Lever of Empire: The International Gold Standard and the Crisis of Liberalism in Prewar Japan (Berkeley: University of California Press 2006). 36 Philip Scranton and Patrick Fridenson, Reimagining Business History (Baltimore: Johns Hopkins University Press, 2013), 160. 14 and people between China and the United States. The chapters focus on different aspects of money—making it, lending it, debating it and how it circulated—as well as different

American and Chinese personalities—some famous and others obscure. In doing so, it provides new insights into Chinese history, American history and the history of capitalism.

The first chapter provides an overview of the Qing dynasty’s monetary system in the middle of the 19th century, both in terms of monetary instruments and institutions.

Though many observers at the time stressed the endless complexity of Qing monetary arrangements, this chapter emphasizes the political and economic rationale behind them.

However, it also charts how some observers, both Chinese and foreign, believed this monetary system needed reform. This debate—what type of monetary system to use, and how to implement monetary changes—was at the center of Sino-U.S. monetary interactions between the 1870s and the 1930s. Hence, this chapter lays the groundwork for the rest of the dissertation.

Chapter Two examines the start of this period of Sino-American monetary interactions by focusing on the creation of the U.S. Trade Dollar and the circulation of the coin in the 1870s and 1880s. The Trade Dollar, created as an outlet for surplus

Nevada silver, was meant to challenge and eventually replace the Mexican silver dollar as the coin of choice for Chinese merchants. From 1873 to 1876, the coin was also legal tender in the United States up to the amount of five dollars. However, as world silver production rose following the development of Nevada’s Comstock Lode in the 1860s and

1870s, the price of silver fell. The gold price of silver contained in the Trade Dollar went

15 from above one dollar to around 80 cents over a three-year period. It soon became profitable for individuals to take silver worth much less than one dollar to the U.S. Mint, pay the coinage fee, and end up with one dollar. The U.S. government stripped the coin of its legal tender quality in July 1876 and the coin was now only worth its weight at market prices, substantially less than one dollar. However, millions of these coins still circulated for more than a decade, sometimes flowing back to the United States from

China, and created confusion among the American working class as to how much they were actually worth.

In addition to arguing that this episode marks the start of the sixty-year cycle of monetary interactions between China and the United States, the chapter brings new perspectives to the Coinage Act of 1873. This law demonetized silver and put the United

States on the path to the gold standard. In the politics of the late 19th-century America, it became known as the “the crime of ’73.”37 The chapter contends that in the context of

American history, the act was a conundrum before it was a crime. The debates about whether or not the Coinage Act of 1873 was in fact a “crime,” the chapter holds, view the matter retrospectively from the perspectives of later American monetary debates.

Examining the Coinage Act of 1873 from the perspective of the circulation of Trade

Dollar coins also provides a new angle for understanding the Chinese Exclusion Act of

1882: the suspect coins, which numbered in the millions, likely touched the lives of more

American workers than the several hundred thousand Chinese laborers who were

37 The large literature on the so-called “crime of ‘73” spans the disciplines of history and economics. For an economist’s view, see , “The Crime of 73” in Milton Friedman, Money Mischief: Episodes in Monetary History (New York: Harcourt Brace, 1992). For a historian’s take, see Allen Weinstein, Prelude to Populism: Origins of the Silver Issue, 1867-1878 (New Haven: Yale University Press, 1970). 16 concentrated in only certain parts of the country, mainly California. It is only possible to see these new perspectives by taking an international approach that focuses on the circulation of these coins.

While the second chapter primarily focuses on the circulation of money, the third chapter focuses on making money. It examines the creation of Chinese provincial silver dollars from 1887 to 1900. Before the 1880s, the Qing dynasty did not mint its own silver coins, relying instead on the circulation of foreign silver coins or silver ingots (元寶 yuanbao). The chapter argues that coinage reform was an essential, and thus far overlooked, part of the Movement (Yangwu yundong 洋務運動) from

1861 to 1895. At this time, Qing officials adopted various technologies and techniques in a program of reform and self-strengthening. In particular, the chapter investigates the impetus behind the creation of provincial silver dollars and the relationship between the central and provincial governments during the late 19th century. Furthermore, the chapter argues that this period marks a shift in how Qing statesmen viewed the monetary system of China: the circulation of foreign silver dollars now became something that should be prevented.

In 1887, Zhang Zhidong, then Governor-General of the Liangguang region

(present-day and in the south of China) memorialized the throne stressing the need to reform the currency by creating a standardized silver dollar coin. In particular, he wanted to eliminate the circulation of foreign money—Spanish, Mexican and U.S. trade dollars—because he felt the use of these coins violated Chinese economic rights (利權 liquan). These plans were approved and, by the early 1890s, the world’s

17 largest mint was built in Guangzhou. Throughout the decade, the number of provincial mints increased, with steam-powered minting equipment being imported from European countries and the United States. These mints coined silver dollars, subsidiary silver coins, as well as traditional copper coins with holes in the middle of them that could be strung together, as well as copper coins without any holes in them. The central government first encouraged the growth but later tried to limit the number of mints in operation. The chapter argues that these attempts marked an important re-assertion of central government power over provincial officials.

The fourth chapter is primarily an intellectual history and examines debates in the early 1900s about whether the Qing should and could adopt the gold-exchange standard.

It focuses on the mission of Professor Jeremiah Jenks of Cornell University to China in

1903 and 1904 as part of the U.S. Commission on International Exchange. The commission hoped to convince China and Mexico to adopt the gold-exchange standard in order to stop the decline in the price of silver in the early 1900s. At the time, the Qing collected large amounts of the metal in order to purchase the gold they needed to pay the debt linked to the Indemnity (1901).

Although one American scholar views the Jenks visit “and the effort to move

China onto gold” as “total failures” and Chinese scholarship generally treats it as an episode when a foreign power tried to interfere (干涉 ganshe) in Chinese affairs, this chapter focuses more on how these ideas were understood and debated in China.38 Why

38 Emily Rosenberg, “Foundations of United States International Financial Power: Gold Standard Diplomacy, 1900-1905,” Business History Review 59, no. 2 (Summer, 1985), 191; Zhou Yumin, Wanqing 18 did Zhang Zhidong, long an advocate of currency reform, argue against the gold- exchange standard? How did it fit into his previous views and policies regarding monetary reform? Why did late Qing reformer support the outline of the plan? Disagreements over the Jenks proposal hinged on how these figures understood the term sovereignty (主權 zhuquan). Sovereignty, or zhuquan, was a slippery term in the late Qing that was “often employed at the expense of intelligibility.”39 Discussion of it remained “inconsistent” and “tentative.”40 This chapter argues that debates about the gold-exchange standard show one way in which the term zhuquan solidified and became inextricably linked to control of the monetary system. This chapter also marks an important shift: from this point forward, Sino-U.S monetary interactions focused on whether China should adopt the gold-exchange standard and, if it did, whose currency it should link to, the American dollar, the British pound or the Japanese yen.

Chapter Five continues following debates about Chinese monetary reform by charting the life of the Currency Reform and Development Loan (貨幣實業借款 Bizhi shiye jiekuan). This loan was signed by a banking consortium, under the leadership of a representative from J.P Morgan, and the Qing dynasty in April 1911. However, the loan itself was never actually made. The chapter ends when the loan was abrogated in 1924. In the intervening years, the unmade loan shaped and was shaped by international and

caizheng yu shehui bianqian [Late Qing finance and social change] (Shanghai: Shanghai Renmin chubanshe, 2000), 409. 39 Lydia Liu, The Clash of Empires: The Invention of China in Modern World Making (Cambridge: Harvard University Press, 2006), 125. 40 Stephen Halsey, “Sovereignty, Self-Strengthening and Steamships in Late Imperial China,” Journal of Asian History 48, no. 1 (2014): 83 19 imperial politics. The consortium and the loan were originally part of U.S. strategy to limit and restrain growing Japanese interests in in the first decade of the 20th century. The loan had connections with the broader program of “dollar diplomacy” by which the Taft Administration (1909-1913) attempted to advance U.S. interests abroad by encouraging American bankers to lend money to foreign governments in Latin American and Asia. By the outbreak of , with the changing strategic and economic interests of various foreign as well as the Chinese governments, the unmade loan became a political tool.

This chapter argues that, as the Chinese political situation veered towards warlordism in the late 1910s and it became less likely that any government would be able to implement a meaningful program of currency reform, the loan actually became more important politically due to increased tensions between the United States and Japan over their respective roles in the Chinese economy. Moreover, the loan marked the first time in this period of Sino-U.S. monetary arrangements that debates about currency reform caused direct conflict between competing imperial powers. Using the loan as a lens for examining this complicated period, the chapter also argues that, in studying financial history, it is important to look not just at loans that were carried out but also at those that were not. Finally, this chapter reveals incongruities of American diplomacy that stressed

Wilsonian idealism at the same time it recreated a banking consortium with its origins in imperialism.

The sixth chapter looks at the history of the Shanghai Mint from when began in 1920 to when it actually began minting coins in the spring of 1933.

20

Like the previous chapter, which uses the history of a loan as a lens into the period, this chapter focuses on the Shanghai Mint to examine the political and economic history of the 1920s and 1930s. In particular, the chapter focuses on the elimination of the Chinese tael (兩 liang) as a unit of account in favor of the (元). The liang, or tael, was a form of “ghost money” (虛銀兩 xu yinliang ) unit of account against which an amount of silver was measured to settle transactions. In order to eliminate the tael unit, there had to be a reliable, consistent and large supply of silver coinage that did not vary in or weight.

The Shanghai Mint was so important, people like economist Ma Yinchu argued, because the Shanghai tael (上海規元 Shanghai guiyuan) acted as the touchstone of

China’s financial landscape. Eliminate the Shanghai tael, they argued, and other tael units of account would fade away. However, not everyone agreed on the necessity of eliminating the tael. There was much disagreement between the Shanghai Native

Bankers’ Association (上海錢業公会 Shanghai qianye gonghui), which benefitted from the existence of the tael, and the Shanghai Bankers’ Association (上海銀行公會

Shanghai yinhang gonghui), which sought the tael’s elimination. It boiled down to a conflict over who held power in the Shanghai financial community.

This chapter first highlights how the Nationalist government built on a project from the “” period of the early 1920s, the mint itself. Next, it argues that through the elimination of the tael, the Nationalist government tried to limit the power of native banks. Finally, the story of the Shanghai Mint is shown to have represented an important assertion of the government’s control over the monetary system. The different tael units 21 of account that originated outside the control of the government were ultimately eliminated by government decree. The Nationalist government is seen to have actually carried out a reform that the Qing and Beiyang governments had debated. The story of the Shanghai Mint marks the growing assertion of the Nationalist government’s involvement in the Chinese economy.

Chapter seven begins in the spring of 1933, when the Shanghai Mint opened and, half a world away, Franklin D. Roosevelt became president. It focuses on the passage and consequences of the U.S. Silver Purchase Act of June 1934. The law’s chief advocate,

Nevada Senator Key Pittman, wanted the United States to take action to raise the price of silver in order to benefit silver producers in his state. Pittman framed his argument by claiming that raising the world price of silver would increase the purchasing power of

Chinese consumers, thus raising American exports and easing the pain of the Great

Depression in the United States. As will be shown, the law did not have the intended effect. With the U.S. paying a higher than market price for silver, silver became more valuable as bullion outside of China than as coin inside the country. The white metal flowed out of China at rapid rates in 1934 and 1935.

Eventually, in November 1935, the Nationalist government demonetized and nationalized silver, naming the new fabi as legal tender. The fabi was backed by foreign reserves and the Nationalist government pledged to maintain convertibility to the U.S. dollar and British pound at certain rates. American involvement in forcing the

Nationalists to abandon the silver standard has long been the subject of debate. Some, like Milton Friedman, see a direct link between the U.S. Silver Purchase Act of 1934 and

22 the outflow of silver from China while others, Thomas Sargent and Loren Brandt among them, question whether the outflow of silver ever existed.41

However, the chapter argues that this narrow debate about the consequences of the U.S. Silver Purchase Act and the creation of the fabi overlooks the larger historical context: The implementation of the fabi represented the end of a distinct period of Sino-

American monetary interactions. In 1873, the United States had deliberately exported silver to China in the form of the U.S. Trade Dollar. In 1934, it began deliberately to import the white metal from China. The creation of the fabi also represented the realization of a long-term goal of successive Chinese governments: the creation of an independent territorial currency, an accomplishment finally achieved by the Nationalist government.

After 1936, and particularly after the outbreak of the Second Sino-Japanese War in 1937, the main thread of Sino-American monetary interactions centered on how to stabilize the newly-created fabi, a much different question from the debates of the previous sixty years. However, the contours of the Chinese monetary system after 1936 were not the natural and inevitable result of what had gone before. Instead, what came beforehand had been a period of experimentation, for different governments in China, as they debated how the currency system could and should be changed, and for the United

States, as it tried different ways to wield its increasing financial might.

41 Milton Friedman, and Anna Schwartz, A Monetary History of the United States, 1867-1960 (Princeton: Princeton University Press), 1963; Milton Friedman, “Franklin D. Roosevelt, Silver, and China,” Journal of Political Economy 100, no. 1 (Feb., 1992): 62-83; Loren Brandt and Thomas Sargent, “Interpreting New Evidence About China and U.S. Silver Purchases,” Journal of Monetary Economics 23 (1989): 31-51; Thomas Rawski, “Milton Friedman, Silver, and China,” Journal of Political Economy 101, no. 4 (Aug., 1993): 755-758. 23

This dissertation concentrates on different types of monetary circulations: of coins, of monetary metals, of economic ideas and of economic advisors. The narrative will take us from copper mines in , to bakeries in St. Louis, mints in , to government offices in and Beijing, as well as to the faculty offices of

Cornell, Princeton and Yale universities. We will encounter Chinese statesmen,

American economists and Shanghai mint workers. Some of these figures will be familiar, others will not. We will see clashes of personalities, confusion and misunderstandings.

These places and people may seem unconnected. But in the period between the

1870s and 1930s, an important question linked them together: how should China change its monetary system? In tracing answers to this question, the dissertation will provide new insights into Chinese and American history. All we have to do is follow the money.

24

Chapter 1: The Monetary System of the Qing Dynasty (1644-1912)

Despite their privileged position in China during the latter part of the 19th century, foreigners liked to complain. One topic that drew their ire and caused much exasperation was the state of the Chinese currency system filled with different “ghost money” units of account (虛銀兩 xuyinliang), copper coins of varying quality, silver in the form of ingots and coins from Latin America as well as notes from various financial institutions. As “A

Merchant” wrote to in 1858, there was “unanimity of all parties” as to

“the inconvenience and confusion caused” by the plethora of coins and exchange rates in

China.”42

Foreigners, though, were not the only people to complain. In 1910, one Chinese student at St. John’s University in Shanghai, an institution established by missionaries to educate Chinese youths, deplored “how clumsy and how complicated the [coinage] system (if to such we apply the name system) is!” All transactions were simply “an encounter of wits” and there was “no mutual trust” between either party.43 Later, in 1915, one foreign observer wrote in The North China Herald, an English-language newspaper

42 “The Currency & Coin of China,” The Economist, June 12, 1858, 652. 43 Benjamin E. Chiu. “Chinese Student’s View of Currency Reform,” Journal of the American Asiatic Association 10, no.7 (August 1910): 210-211. 25 in China, that the “eccentricities” of the Chinese coinage system “would drive any

Occidental generation to madness in a single generation.”44

Such commentary elided or ignored several important points. Foreigners, with their clear conceit in monetary matters, overlooked the fact that, in the not so distant past, the currency systems of their own home countries were “similarly confused.”45 Though foreign observers often wrote disparagingly of the Chinese monetary system in the 19th century, commentators from the 18th century were notable for their “restraint and understanding” of the Chinese currency because of a general familiarity with the

“complexities of a metallic coinage” that fostered an “ability to cut through to the essential.”46 These complaints also ignored the political, philosophical and economic underpinnings of the monetary arrangements.

This chapter provides an introduction to the monetary system of China that stresses the rationale behind the system and serves as background for the rest of the dissertation. In order to understand why and how different Chinese and American statesmen, economists and writers debated monetary reform from the 1870s to the 1930s, it is first necessary to understand the contours of the Qing monetary ecosystem up the middle of the 19th century. With this background established, the dissertation will then examine a series of episodes in which Chinese and American figures discussed how to change the Chinese monetary system.

44 Cited in Srinivas R. Wagel, Chinese Currency and Banking (Shanghai: North News & Herald Limited, 1915), 42. 45 Frank H.H. King, Money and Monetary Policy in China, 1845-1895 (Cambridge, MA: Harvard University Press, 1965), 29. 46 King, Money and Monetary Policy in China, 25. 26

The Qing dynasty (1644-1912) amassed and governed a large territory of diverse regions with a small number of officials. Given these conditions—and without significant mobility of labor or —optimum currency area (OCA) theory suggests that the Qing should not have had a unified currency under the control of the emperor in Beijing. OCA theory is an area of research that investigates whether or not a certain region or regions should have a single currency or multiple currencies. The details of OCA, and its application to the monetary system of the Qing dynasty, will be discussed in more detail towards the end of the chapter.

Prevailing attitudes towards the political economy stressed that the government should maintain a light hand in dealing with the economy, including the monetary system. However, by the late 19th century, these attitudes began to change as some suggested that the best way for the Qing again to become prosperous and powerful (富強 fuqiang) was through greater involvement in the economy, including the currency system. Debates about how to accomplish this goal were at the center of the cycle of

Sino-U.S. monetary interactions between the 1870s and the 1930s. In order to better understand these discussions, it is important to comprehend the economic, political and social background in which they took place.

The Importance of Silver and Copper

From 1644 to 1912, the Manchu Qing dynasty was the final imperial house to rule

China. After wiping out (1368-1644) resistance in the south and southwest of the country, a series of vigorous Qing monarchs—the Kangxi (1654-1722),

Yongzheng (1678-1735) and Qianlong (1711-1799) emperors—presided over a period of

27 relative peace and stability through the end of the 18th century.47 By the end of this 150- year period, the was confident enough to spurn the British envoy Lord

Macartney (1737-1806), who sought a closer trading relationship with China, in 1793 by famously declaring that “Our dynasty’s majestic virtue has penetrated into every country under Heaven, and Kings of all nations have offered their costly tribute by land and sea…

I set no value on objects strange or ingenious and have no use of your Country’s manufactures.”48 However, the Qianlong emperor overlooked one important thing the

Qing dynasty did need from abroad: silver. As one historian writes, the Qing dynasty’s reliance on silver from abroad made it a “vulnerable empire.”49

Although paper money circulated widely at several times in Chinese history, by the early 1800s, a bimetallic system of copper and silver coins, as well as silver ingots, served as the foundation of the monetary system. Copper coins (制錢 ), with a hole in the middle so they could be strung together, originated in the (221-

206 B.C.E), and from that period onward, respective imperial governments maintained a monopoly on copper coinage, though, like other monetary regimes at the time in and , coins could be debased by the government itself or counterfeited by those in search of profits. To turn this copper into coin, the Qing maintained two mints in the

47 Throughout this work, I romanize using the system in the interests of uniformity, except when citing a work. In pinyin, the name of the last Chinese dynasty is Qing but in the Wade-Giles system, now out of date but very common throughout the 20th century, the name appeared as Ch’ing. Likewise, the name Qianlong in pinyin appears as Chi’en-lung in Wade-Giles. The name Kangxi in pinyin appears as Kang-hsi in Wade Giles. 48 Quoted in Harry Gelber, The Dragon and Foreign Devils: China and the World, 1100 BC to the Present (New York: Bloomsbury, 2007), 164. 49 Lin Man-houng, China Upside Down: Currency, Society, and Ideologies, 1808-1856 (Cambridge, MA: Harvard University Press), 29. 28

Beijing area as well as provincial mints under the supervision of bureaucratic appointees.50

Given the technological and physical constraints and the geography of the empire, it was not possible or advisable to centralize the casting of these copper coins. Provincial governors in the Qing dynasty “had at their disposal mints for the coinage of copper coins, channels to introduce or withdraw monetary instruments from market circulation, and also some degree of control over the import or export of currencies and monetary metals into or out of their province.”51 Thus, in monetary matters, the Qing system had

“structural uniformity with local variations” as provincial officials could carry out policy with varying levels of consultation with the central government that was independent of other provinces.52

Paired with these copper coins, to which I will also refer as simply or copper cash, was silver in various forms: ingots (元寶 yuanbao), smaller fragments of silver (銀

錠 yinding) as well as coins from and South American. The exact mechanism for the inflow of silver into China is a matter of debate, with some scholars holding that the favored China but others making the point that, because silver was more highly valued in China than in any other part of the world, it naturally gravitated there as

50 Beyond minting its own coinage, the Qing dynasty recognized the legitimacy of previous dynasties’ coinage. It was impractical, as well as against the laissez-faire tradition of Chinese statecraft, to bar the use of older coinage. Old and new coins circulated together. See Lin, China Upside Down, 33. 51 William Rowe, “Provincial Monetary Practice in Eighteenth Century China: Cheng Hongmou in and ,” in Chinese Handicraft Regulations of the Qing Dynasty: Theory and Application, ed. Hans Ulrich Vogel (Munich: Iudicum, 2005), 348. 52 King, Money and Monetary Policy in China, 43. For details on the arrangements of how Qing dynasty provincial mints actually worked, see Cao Jin, “Mint, Metal, and Minting in Sichuan, 1700-1900: Effects on the Regional Economy and Society” (PhD Diss., University of Tübingen, 2013). 29

European traders were not trading money for a commodity but a “commodity for a commodity.”53

The key relationship in the monetary system lay between copper cash and silver in its various forms. Copper coins were strung together and the “benchmark” was that

1,000 cooper coins, a chuan (串), equaled one Chinese ounce (兩 liang) of silver, that is,

37.3 grams of the metal. This unit was the kuping or treasury ounce (庫平).54 This one liang of silver satisfied a unit of account known as a tael, a term derived from Malay.

Going forward, I use the term liang to refer to a weight and tael to refer to a unit of account. Each individual copper coin originally weighed one (錢), which was 0.1 of one liang. So one copper coin weighing .1 liang or one qian was worth 0.001 because it was the result of multiplying 0.1 and 0.01 (the second number comes from the traditional relationship between silver and copper of 1:100). Thus, a string of one thousand copper coins could satisfy a debt of one silver liang.55

In a helpful analogy, Lin Man-houng writes that the relation of silver and copper in 19th century China should be thought of as resembling the relation between quarters and hundred-dollar bills in the modern United States. Both circulated together. For some larger purchases, one wants the convenience of a $100 bill instead of paying for the purchase in 400 quarters.56 Thus, copper cash was more widely used in smaller volume

53 For a fuller overview of this debate, see Richard von Glahn, Fountain of Fortune: Money and Monetary policy in China, 1000-1700 (Berkeley: University of California Press, 1996), 4-8. See also William Atwell, “Another Look at Silver Imports into China, ca. 1635-1644,” Journal of World History 16, no. 4 (Dec., 2005): 467-489. 54 Lin, China Upside Down, xxiii. 55 King, Money and Monetary Policy in China, 28. 56 Lin, China Upside Down, 8. 30 local trade while silver was more important for interregional trade. The idealized relationship between silver and copper is shown in Figure 1.

1 tael = 1 liang = 1 chuan = 1,000 cash

Figure 1: Silver:Copper Ratio

However, several factors further complicated these basic arrangements. First, there were a number of different tael units of account throughout the Qing empire.

Second, the relationship between copper and silver in China, unlike the relationship between quarters and hundred-dollar bills, fluctuated due to market conditions which meant that it could take more or less copper or silver to fulfill on obligation in a certain tael unit of account. The fluctuation in the price of silver had important political and economic consequences.57

In addition to the official tael described above, there were separate taels used in the administration of the Imperial Maritime Customs administration (1854-1911) as well as different tael standards used in cities and market towns. By the late Qing dynasty and into the 20th century, Dai Jianbing estimates, there were at least 170 kinds of tael standards across China.58 These taels referred to in English as “ghost money” or “abstract

57 Lin, China Upside Down, 8. 58 Dai Jianbing, Zhongguo jindai yinlian shi [History of the silver liang in modern China] (Beijing: Zhongguo shehui kexue chubanshe, 2007), 66. 31 silver taels” (虛銀兩 xu yinliang) created a “distinction between unit of account and means of payment” and the “amount to be paid when settling a debt will depend on the relationship of money to the unit of account at the time of actual payment.” 59

For example, foreign silver coins were generally accepted by the weight and value of their silver bullion. Silver coins were an important part of the monetary ecosystems along the southeastern and eastern coasts of China, especially the important commercial centers in Guangdong as well in the prosperous cities of , , and but not as common in the interior of the country. Silver dollars, depending on the tael standard, contained about 70 percent of one liang of silver. Or, in other words, according to Qing standards, one liang of silver equaled about 1.4 imported silver coins.60

However, the rate between foreign coins and a certain tael unit of account might change based on supply and demand of silver coins in a certain place. The rate between silver coins and liang was known as yangli (洋厘). For example, in the area around Shanghai, silver dollars generally increased in value during the spring because they “were popular for acquiring cocoons from the sericulture areas of and Jiangnan.”61 It was possible for foreign coins to circulate at above the value of their bullion due to the convenience of handling and exchanging them. With a number of coins in circulation, an important genre of pamphlets and advice manuals appeared that instructed merchants

59 King, Money and Monetary Policy in China, 29. 60 Lin, China Upside Down, 2. 61 Akinobu Kuroda, “Concurrent but non-integrable currency circuits: complementary relationships among monies in modern China and other regions,” Financial History Review 15, no. 1 (2008): 20. 32 how to identify different types of silver coins and how to judge if they were real.62

Akinobu Kuroda describes these basic monetary arrangements as “currency circuits.” This term did not mean there was a “segregation of markets but rather the multiplicity of interfaces.”63 The central problem was “the difficulty of harmonizing heterogeneous demands for money and uneven supplies of currency.” With different seasonal demands for different types of money, and the varying qualities of that money as well as the danger that it might be counterfeit, it made sense for different commercial centers to maintain “a unit of account with no actual substance,” the tael.64

Thus, the key to the whole system was the between copper cash and silver which depended on the supply and demand of the two monetary metals domestically and internationally. In the lexicon of Qing-dynasty political administration, silver could be expensive and copper cheap (銀貴錢賤 yingui qianjian), meaning that it took more copper coins to buy one ounce of silver; or silver could be cheap and copper expensive, producing the opposite (銀賤錢貴 yinjian qiangui) effect, taking fewer copper coins to procure one ounce of silver.65

The Qing dynasty did not explicitly try to maintain the official rate of exchange of copper to silver at 1000:1, but it did seek to maintain the stability of the exchange so that silver did not become too expensive or too cheap in terms of copper. Qing officials had

62 For more on merchant manuals, see Richard von Glahn, “Foreign Silver Coins in the Market Culture of Nineteenth Century China,” International Journal of Asian Studies 4, no. 1 (2007): 58 and Richard Lufrano, Honorable Merchants: Self-Cultivation and Commerce in Late Imperial China (: University of Press, 1997). 63 Kuroda, “Concurrent but non-integrable currency circuits,”18. 64 Kuroda, “Concurrent but non-integrable currency circuits,”18. 65 Wang Hongbin, Wanqing huobijia yanjiu [Research on the price of money in the late Qing] (Luoyang: Daxue chubanshe, 1990), 2-5. 33 several options available to address the silver-copper ratio. However, because the government only minted copper cash, that is how it approached keeping that market rate of copper and silver close to the official rate of 1000:1. The chief tool was to start or stop minting. If copper cash was dear in relation to silver, a provincial mint could make more of it or, if copper cash was expensive, they could make less of it. Furthermore, the weight of copper coins could be increased in times when the value of copper in terms of silver fell; when the value of copper rose the weight of the coin could be decreased.66

However, the Qing government was not the only monetary actor. Monetary metals could be counterfeited, melted down, trimmed, hoarded and used in cash speculation depending on the value of copper or silver as coin or bullion.67 Under a high price of copper cash, say 900 zhiqian to secure one tael of silver, copper coins were likely to be melted down (私銷 sixiao) and counterfeited (sizhu 私鑄 ), in the hopes of taking advantage of high copper prices by making, and passing off, an inferior coin. The Qing archives are filled with cases of counterfeiting operations.

The changing relationship between silver and copper had important political, economic and social consequences depending on the composition of one’s assets and liabilities. For example, in the 1820s the price of silver in terms of copper coins began to rise and later soared; in 1838 it took 1,637 copper coins to buy one liang of silver; by

1849 it could take as many as 2,355 copper coins to purchase one liang.68 Silver was

66 Hans Ulrich Vogel, “Chinese Central Monetary Policy, 1644-1800,” Late Imperial China 8, no. 2 (December 1987): 10. Lowering the amount of copper in cash coins also affected the profitability of the cash mints as copper itself had to be bought with silver and various other mint expenses were also calculated in silver. 67 Vogel, “Chinese Central Monetary Policy, 1644-1800,” 8. 68 Lin, China Upside Down, 33. 34 becoming dearer and Chinese writers of the time termed it a silver famine (银荒 yinhuang). Historians have traditionally attributed the drain of silver from China and the changing silver/copper ratio to increased Chinese purchases of but now others attribute the silver outflow to a number of causes ranging from the influence of Latin

American independence movements in the early 19th century to the way American traders paid for Chinese goods.69

This period became known as the Daoguang Depression (1820-1850). The first effect of the rise in the price of silver was the fall of prices that were expressed in the metal. Moreover, because taxes had to be paid in silver, peasants had to provide more copper cash in order to fulfill their tax obligations. Their real tax burden increased.

Causing even more trouble for taxpayers was manipulation of the silver-copper rate by officials and the so-called melting fee (火耗 huohao): different kinds of silver collected for taxes had to be melted down and formed into standard ingots. This process caused the loss of a certain amount of the metal. With this loss in mind, tax collectors demand more silver to make up for it; this was the melting fee.70 In fact, as we shall see in chapter three, part of the rationale for the Qing dynasty to mint its own silver dollars in the 1880s was to eliminate the scrooge of the melting fee.

69 Lin, China Upside Down, 22-3. The exact causal mechanism behind the rising price of silver in China is a matter of much disagreement but is not a primary focus of this work. For an overview of the outlines of this debate, see William Rowe, “Money, Economy, and Polity in the Daoguang-Era Paper Currency Debates,” Late Imperial China 31, no. 2 (December 2010): 70-72. 70 For more background on the importance of the melting fee, see Madeleine Zelin, The Magistrate’s Tael: Rationalizing Fiscal Reform in Eighteenth Century Ch'ing China (Berkeley: University of California Press, 1984), 72-116. 35

In the midst of the spike in the silver-copper ratio during the early 19th century, the Qing government relied on its customary mechanisms in order to bring the silver- copper ratio into better balance by limiting the amount of copper coinage. In fact, during this period it was very unprofitable for the Qing mints to stay open because their expenses in silver were much greater than the amount of silver the new copper coins could procure.71 Despite the dwindling supply of copper coins, the value of silver continued to rise.72 For Chinese writers and administrators of the time, the dearer price of silver, and the Qing’s reliance on market forces to procure it, created a situation in which

“the ’s sword was held by other people” and made it so that the “state and the people were economically controlled by the merchants.”73

Figure 2: Overview of the Silver-Copper Ratio in the Qing dynasty, 1644-189974

71 For more on production of copper coins in the Daoguang period see, Lin Man-Houng, “The Devastation of the Qing Mints, 1821-1850,” in Money in Asia (1200-1900): Small Currencies in Social and Political Contexts, ed. Jane Kate Leonard and Ulrich Theobald (Leiden: Brill, 2015), 155-187. 72 Lin, China Upside Down, 10. 73 Lin, China Upside Down, 2. 74 Lin, China Upside Down, 3. 36

With the customary monetary tools not working and the rising price of silver creating social tension, monetary debate flourished. The central feature of this debate unfolded between those who favored an “accomodationist” position and those who advanced an “interventionist” line of argument.75 The strongest “interventionist” was

Wang Liu (王瑬1786-1843), a personage of no other particular prominence, who argued in the 1830s that, in order to address the silver-cooper crisis, the Qing government should issue paper notes, outlawing the circulation of notes and also mint “big money” (大錢 ), whose face value was above its metallic content.76 Wang made his argument on three levels: convenience, the elasticity of the money supply, and

“patriotic or proto-nationalist appeals.”77 Wang hoped his proposal would slowly drive silver out of circulation, thus ending the silver-copper ratio as a political and economic issue. An “accomodationist” would think these policies were impractical and unrealistic.

For the first part of the 19th century, the “accommodationist” view of how to deal with crises of the silver-copper ratio held sway in the Qing court but the

(1850-1864) caused a further fiscal crisis that led to the adoption of more

“interventionist” policies.

Now, facing the problem of wartime finance, the Qing wartime resorted to debasing the copper coinage by making so-called “big money” (大錢 daqian) that were worth 10, 50, 100 or 1000 copper cash but in reality had much less copper than they

75 Lin, China Upside Down, 20. 76 Lin, China Upside Down, 20. See also Rowe, “Money, Economy, and Polity in the Daoguang-Era Paper Currency Debates,” 75. 77 Rowe, “Money, Economy, and Polity in the Daoguang-Era Paper Currency Debates,” 75. 37 should have. The Qing also printed a number of paper notes. Neither of these circulated successfully. However, after the Qing dynasty survived the Taiping Rebellion, the price of silver in terms of copper began to come down. As Lin Man-Houng argues, an “influx of silver between 1856 and 1887 provided extra commercial revenues for the Qing regime that allowed it to reinforce its rule.”78

At the same time, however, in the second half of the 19th century, there were several important but contradictory trends in the political dynamics of the Qing dynasty.

First, the power of provincial governors who had been crucial in putting down the

Taiping Rebellion increased at the expense of the imperial court. Next, confronted with a series of defeats in the Opium Wars (1839-1842 and 1856-1860), Qing dynasty statesmen debated how—and if—to adapt Western technologies and ideas. The central question for these statesmen was how the Qing dynasty could become rich and strong (fuqiang 富強).

It was, as historian Stephen Halsey labels it, a “quest for power.”79 One answer was to increase government involvement in different aspects of the economy, including the monetary system.

Financial Intermediaries

In the second half of the 19th century, no existed to oversee China’s money supply. Instead, the important financial institutions were non-governmental entities such as (錢莊), piaohao (票號) and foreign banks. Qianzhuang acted as lenders and money-changers usually based on the cities of the east coast. They took

78 Lin, China Upside Down, 22. 79 Stephen Halsey, Quest for Power: European Imperialism and the Making of Chinese Statecraft (Cambridge: Harvard University Press, 2015). 38 deposits, issued banknotes (匯票 huipiao), provided loans without collateral, and could provide service at all hours of the day.80 Piaohao houses originated in the

1820s in Shanxi as a way to transfer large amounts of money without having physically to move it, a significant problem given the expense and danger of moving large amounts of money around the country. A merchant could deposit money in one branch of a piaohao and receive a deposit slip. He could use that slip to procure cash, less a small fee, at another branch of the piaohao. By the second half of the 19th-century, the piaohao branches had spread across the country.81 These institutions played a key role in long- distance business transactions as well as in remitting government taxes.

A more recent arrival in China’s financial landscape were foreign banks, with

Hong Kong Shanghai Banking Corporation (HSBC), founded in 1865, the most important.82 The foreign banks, which until the 1890s were mainly British, could issue their own banknotes for circulation and stood at the center of trade financing, maintaining close connections with the qianzhuang. Foreign banks and merchants usually employed a

Chinese national, who acted as a liaison with Chinese financial institutions, and a shroff, a figure intimately acquainted with the intricacies of Chinese financial landscape, including the different tael standards and types of coins in circulation.

80 The best English-language overviews of Andrea McElderry, Shanghai Old-Style Banks 1800-1935: A Traditional Institution in a Changing Society (Ann Arbor: Center for Chinese Studies, University of , 1976) and Linsun Cheng, Banking in Modern China: Entrepreneurs, Professional Managers and the Development of Chinese Banks, 1897-1937 (Cambridge, Engl.: Cambridge University Press 2003), 10- 16. 81 Cheng, Banking in Modern China, 10-16. See also Yongfu, Shanxi piaohao yanjiu [Research on Shanxi banks] (Beijing: Zhongghua gongshang lianghe chubanshe, 2007). 82 See Frank H.H. King, The History of the Hongkong and Shanghai Banking Corporation: Volume 1, The Hongkong Bank in Late Imperial China 1864-1902: On an Even Keel (Cambridge, Engl,: Cambridge University Press, 1988); Geoffrey Jones, British Multinational Banking, 1830-1990 (Oxford, Engl.: Clarendon Press, 1993). 39 arranged loans from foreign banks to qianzhuang and the qianzhuang lent out those funds to Chinese merchants who imported foreign goods. A similar process worked for export of Chinese goods: a qianzhuang lent money to Chinese merchants who used the funds to procure goods from the interior of the country.83

Conclusion

The currency system in late Qing China was complex, but retained a political and economic logic. It was a system that functioned with copper coins provided by the state, silver provided by the market and with a number of financial institutions to facilitate remittance and funds and provide . Importantly, the Qing did not mint its own silver coins or print its own paper money. As economist Chen Chau-nan puts it, if the Qing could “afford to give up seigniorage from issuing , there is no reason it should insist on obtaining seigniorage from silver coinage.”84

Despite the many complaints from foreigners and the awareness among Chinese officials of its weakness, the system described above persisted. Why? Examining this question in the most general terms, the answer is that it made economic sense. A field of inquiry known as optimal currency area (OCA) theory researches whether or not a certain region or regions should have a single currency.85 As economist Paul Krugman notes, the benefits of a particular area having a “common currency are obvious, if hard to quantify: reduced transaction costs, elimination of currency risk, greater transparency and possibly

83 Yen-p’ing Hao, The in Nineteenth Century China: The Rise of Sino-Western Capitalism (Berkeley: University of California Press, 1986). 84 Chau-nan Chen, “Flexible Bimetallic Exchange Rates In China 1650-1850: A Historical Example of Optimum Currency Areas,” Journal of Money, Credit and Banking 7, no. 3 (Aug., 1975): 363. 85 Robert Mundell, “A Theory of Optimum Currency Areas,” American Economic Review 51, no. 4 (September 1961): 657-665. 40 greater competition because prices are easier to compare.”86 The disadvantages come from a loss of flexibility—a country in a is unable to keep control of its own monetary policy, forcing an adjustment of wages and prices through deflation rather than through depreciation.

Optimum currency area theory suggests that, if there is not much labor and capital mobility, and if there is not a high degree of fiscal integration, a certain region should have its own currency. Suppose a particular area suffers an economic shock that depresses economic conditions. If there is high labor mobility, people can simply move to an area with better job prospects. If there is not a high degree of labor mobility, wages and prices would have to fall in order for an adjustment to occur and OCA theory suggests that area should have its own currency. Similarly, if there is a high degree of fiscal integration, an economic shock in one area can be smoothed over by transfer payments.87

Qing dynasty economic conditions did not have either of these characteristics.

Thus, with a lack of labor mobility, it was natural for different regions or “currency circuits” to have different currencies “or what is the same thing, a flexible exchange rate.”88 It was the regions and that were “optimum currency areas” in

86 Paul Krugman, “Revenge of the Optimum Currency Area,” New York Times Conscious of a Liberal Blog, June 24, 2012. Accessed February 13, 2016. http://krugman.blogs.nytimes.com/2012/06/24/revenge- of-the-optimum-currency-area/?_r=0. The remarks originate from a speech at the annual conference of the National Bureau of Economic Research. 87 Peter Kenan, “The Theory of Optimum Currency Areas: An Eclectic View” in Monetary Problems of the International Economy, eds. R. Mundell and A. Swoboda (: University of Chicago Press, 1969). 88 Chen, “Flexible Bimetallic Exchange Rates,” 365. 41 the Qing dynasty.89 Consider also “the big problem of small change” and the monetary arrangements of the Qing dynasty make a great deal of sense.

However, OCA theory is just that, a theory. Political goals and perceived political imperatives intrude upon it because “currency areas are mainly an expression of national sovereignty.”90 In the years after the Opium Wars and Taiping Rebellion, some Qing statesmen called on the dynasty to change its relationship to the monetary system by taking a more active role, minting silver coins, establishing banks, encouraging trade, capturing a greater part of the country’s wealth through the tax system, all in order to make the country prosperous and powerful (富強 fuqiang). Chinese scholar Luo Zhitian describes this shift as a change in attitude from the idea that “If the people do not have wealth, the country cannot be governed” to the idea that “If the state itself does not have wealth, it cannot be governed.”91 In order to accomplish this goal, the dynasty had to become more active in intervening in the economy. Reform of the monetary system was one part of this broader program.

With the outlines of the monetary system in 19th-century China now established, the rest of this dissertation follows the different interactions between China and the

United States concerning how to change the Chinese currency system. For Chinese, doing so often meant protecting economic rights (利權 liquan) and sovereignty (主權 zhuquan); for Americans, it typically meant projecting the political and economic

89 Chen, “Flexible Bimetallic Exchange Rates,” 365. 90 Mundell, “A Theory of Optimum Currency Areas,” 661. 91 Luo Zhitian, “Qingmo de julian xiangxiang,” [Aggregating wealth at the end of the Qing dynasty] Nanfang zhoumo, July 9, 2015, C13. 42 interests of the United States onto what they considered the best interests of China to be.

For both, it was a period of experimentation, as successive Chinese governments discussed and debated possible changes to the currency system and the United States tried to balance its emergence as an economic and financial power on the gold standard with a politically powerful silver industry on the west coast.

The tendency of Americans to conflate their self-interest with their understanding of China’s best interests is the focus of chapter two. In 1873, the United States produced silver coins specifically to use in trade with China. Tracing the circulation of these silver dollars in China and the United States, the chapter marks the beginning of the cycle of

Sino-U.S. monetary interactions from the 1870s to the 1930s and also provides new insights on an old topic, the Coinage Act of 1873.

43

Chapter 2: The United States Trade Dollar and the Conundrum of 1873

In 1876, (容閎 1828-1912), the first Chinese graduate of Yale

University, visited the U.S. Mint in . Serving in no official government capacity, he solicited the advice of mint officials on the properties and design of his proposal for a standard that he hoped would replace copper cash in China.92

His visit began a chain of correspondence between mint officials and the U.S. Treasury about the appropriateness of Yung’s proposed coins but also about the more basic issue of whether the U.S. Mint had the authority to assist a private citizen of another country.

Henry Linderman (1825-1879), director of all branches of the U.S. Mint, wrote to

James Pollock (1810-1890) of the on March 21, 1876, to report that, after discussing the matter with the Secretary of the Treasury, “the conclusion has been reached that it will not be expedient to undertake to furnish the dies [for the proposed coin], except upon a request from the government of China, or its authorized agent.”93

Pollock relayed the news to Yung Wing in a letter of March 26th, writing “that you [Yung

Wing] will need to obtain the co-operation and consent of the Chinese Embassy at

Washington in order to warrant us in striking specimen coins” because “the making of a coin, at the national mint, is a very grave and important matter, whether it be for national

92 Using the current form of in , his name would appear as Rong but at this point in the 19th century there was no standard system for conversion. 93 to , March 21, 1876, Box 103 February to April 1876 Folder; Record Group 104; NARA Regional Archives, Philadelphia. 44 or foreign use.”94 The U.S. Mint could not be of further assistance. However, Pollock agreed with Yung Wing that China “ought to have coins of the usual standard, both silver and gold… but this is not the time or place to discuss this issue.”95

This exchange was not the first time the U. S. Mint had taken an interest in the currency of China. In fact, three years earlier, the Coinage Act of 1873 had authorized the creation of the U.S. Trade Dollar to compete with and possibly replace Spanish and

Mexican silver dollars as the coin of choice for Chinese merchants. Though not explicit in the exchange with Yung Wing, the spring of 1876 was still a period of some optimism about the success of the U.S. Trade Dollar in China. By the summer of 1876, however, increased world silver production, due mainly to the rich deposits of the white metal at the Comstock Lode in Nevada, and falling demand around the world, rendered the bullion price of the silver in the coin less than its face value of one dollar. The fall in the price of silver posed a problem because the U.S. Trade Dollar was also legal tender in the

United States in amounts up to five dollars. The period from the inflection point of summer 1876 through 1887 saw counterfeiting of the U.S. Trade Dollar in the United

States, merchants passing off the coins on unsuspecting employees as well as brokers and bankers manipulating asymmetries of information to profit from the fluctuating price of the coin.

94 James Pollock to Yung Wing, March 28, 1876; Letters Sent to the Director of the Mint; Box 5; U.S. Mint 1791-1936 General Correspondence, 1792-1899; Record Group 104; NARA Regional Archives, Philadelphia. 95 James Pollock to Yung Wing, March 28, 1876; Letters Sent to the Director of the Mint; Box 5;U.S. Mint 1791-1936 General Correspondence, 1792-1899; Record Group 104; NARA Regional Archives, Philadelphia. 45

After Congress stripped the coin of its legal tender quality in 1876, it still circulated widely for a number of years, some returning from China with “chop” marks on them, stamps of Chinese characters that attested to the coins’ authenticity. In his annual message to Congress in 1883, President Chester Arthur (1829-1886) commented that the circulation of Trade Dollars had become a “disturbing element” in the coinage system and in order that they “no longer be permitted to embarrass our currency system.” he suggested they be redeemed as bullion at a “small percentage above the current market price of silver of like fineness.”96 However, Congress did not pass a plan for redemption of the coins until 1887.

This chapter argues that this episode marks the beginning of the cycle of Sino-

U.S. monetary interactions as the United States purposely exported silver to China in the form of Trade Dollars, hoping to change the composition of the Chinese monetary ecosystem. Moreover, the chapter provides new perspectives on the Coinage Act of 1873.

Several years after its passage, the Coinage Act of 1873 that created the U.S. Trade

Dollar became known as the “The Crime of 1873.” Critics of the bill charged that it secretly, surreptitiously and purposefully eliminated bimetallism in America by doing away with silver dollar coins, placing the United States on the path to the gold standard.

Throughout the remainder of the 19th century, and in later scholarship, politicians, historians, and political scientists debated whether the Coinage Act of 1873 was a

96 Chester A. Arthur, “Third Annual Message to Congress,” December 4, 1883; The American Presidency Project, University of California Santa Barbara. Accessed, December 15, 2011. http://www.presidency.ucsb.edu/ws/index.php?pid=29524#axzz1lM5pmqbK 46 political or economic “crime.”97 Beyond whether or not there was a crime, economists also questioned whether the Coinage Act of 1873 was the right decision in monetary terms.98

However, by following the flow, circulation and use of U.S. Trade Dollars in

China and the United States, this chapter argues that the Coinage Act of 1873 created a significant conundrum, the importance of which has been ignored in the vast amount of scholarship that debate of the act was, in fact, a crime. In this way, the chapter takes no position on whether the Coinage Act of 1873 was a crime and instead analyzes another aspect of the law. As the coins circulated and became a “disturbing element” in the

American coinage system, they lacked legal tender but there was no plan for redemption.

This perspective on the Coinage Act of 1873 also changes conventional stories of U.S.-

China relations from the 1860s to the 1880s that tend to focus on conflicts in the western and eastern United States as the salaries of Chinese workers undercut Americans laborers, eventually leading to the Chinese Exclusion Act of 1882.99 Focused on the

97 See, for example, Paul O’Leary, “The Scene of the Come of 1873 Revisited,” Journal of Political Economy 68 (1960): 390-392; Milton Friedman, “The Crime of 1873, Journal of Political Economy 98, no. 6. (1990): 1159–1194; Gretchen Ritter, Goldbugs and Greenbacks: The Antimonopoly Tradition and the Politics of Finance in America (Cambridge, Engl.: Cambridge University Press, 1998); Irwin Unger, : A Social and Political History of American Finance, 1865-1879 (Princeton: Princeton University Press, 1964); Allen Weinstein. Prelude to Populism: Origins of the Silver Issue, 1867-1878. (New Haven: Yale University Press, 1970). Samuel DeCanio, “Populism, Paranoia, and the Politics of ,” Studies in American Political Development 25, no. 1 (2011): 1-26. 98 See Milton Friedman, Monetary Mischief: Episodes in Monetary History (New York: Harcourt Brace, 1994), 51-79. Friedman argues that if post-Civil War coinage laws adopted the coinage conventions of the period before the conflict, the mint ratio would have stayed at 16:1. He believes this policy would have been better for the United States because the overall price level between 1875 and 1894 would have risen. Instead, during that period the United States experienced two decades of deflation. 99 Andrew Gyory, Closing the Gate: Race, Politics and the Chinese Exclusion Act (Chapel Hill: University of North Carolina Press, 1998); Charles McClain, In Search of Equality: The Chinese Against Discrimination in 19th Century America (Berkeley: University of California Press, 1994); John Robert Soennichsen, The Chinese Exclusion Act of 1882 (Santa Barbara: Greenwood Press, 2011). 47 impact of people on U.S.-China relations, these works ignore the importance of material objects: coins. By 1880, there were fewer than 500,000 Chinese immigrants in the United

States. However, in 1883 the Director of the Mint estimated that between five and seven million Trade Dollars circulated in the United States, often landing in the pockets of the illiterate and uninformed.100 By the late 1870s and early 1880s, businesses hung signs reminding customers: “Trade Dollars not received here.”101 Americans in most parts of the country were more likely to be harmed by the Trade Dollar than by competition from

Chinese labor.

These new perspectives on the Coinage Act of 1873 become visible only by focusing on international flows and circulations. To better understand the impetus behind the Trade Dollar, it is necessary to explain the background of the United States currency system, early Sino-American trade and the influence of Civil War finance.

The U.S. Monetary System and Early Trade with China

After 1783, as the United States established itself as an independent nation, it had begun discussion about how to codify its currency. Thomas Jefferson (1743-1826) addressed the issue most succinctly in his Notes on Coinage, published in 1784, when he wrote that “if we determine that a Dollar shall be our Unit, we must say with precision what that dollar is.” Jefferson saw three chief requirements for the new dollar: it had to be easy to use in carrying out transactions, have a system of relations between coins that was easy to understand and be similar to a coin the vast majority of people were already

100 Annual Report of the Director of the Mint (Washington, D.C.: Government Printing Office), 1883, 17. 101 John Hallock, Repudiating Its Own Coin: A Protest Against Repudiating U.S. Coins-Even Trade Dollars (New York: Self-published, 1884), 45. 48 familiar with. The second requirement signaled the biggest departure from previous coinage. The colonies, of course, had first used the British, fractional system of reckoning. Spanish pieces of eight also circulated, creating a complex monetary media.

Jefferson advocated foregoing a fractional system for a decimal one because “the bulk of mankind are schoolboys through life…And even mathematical heads feel the relief of an easier, substituted for a more difficult process.”102

The ultimately defined the U.S. silver dollar as 371 and one- fourth grains pure silver, 416 grains standard silver with the addition of alloy. The act also fixed the ratio between gold and silver at 15:1 and provided for free coinage—that is to say the government would coin bullion for no fee, apart from a small charge for the cost of coinage. This policy meant that a person could bring gold or silver to the mint and, after a slight deduction, receive the appropriate number of coins. Besides the silver dollar, the law called for the minting of silver half-dollars, quarters, dimes and half-dimes that all contained bullion to the level of their face value. At higher denominations, gold coins, the quarter-eagle, and eagle, were worth $2.50, $5.00, and $10, respectively. There was no gold one-dollar coin. In 1792, the mint ratio established by the law, 15:1, reflected, almost exactly, the gold-silver price ratio on the world market.

However, over the intervening years, the U.S. mint ratio and the world market ratio would diverge, with important effects on the U.S. monetary system.

The process of setting a coinage standard relied, interestingly, on the assay,

102 All quotations in this paragraph come from C. Doris Hellman, “Jefferson’s Efforts towards the Decimilization of Weight and Measures,” Isis 16, no. 2 (Nov. 1931): 270. 49 comparison and discussion of Spanish silver coins, that is, the legendary pieces of eight.

These coins circulated widely in the United States, as they did in China and in many other parts of the world. Significantly, though, the survey relied on coins not directly from the mint but those already in circulation. Used, exchanged, rubbed, and gradually worn down as they flowed through the channels of commerce, their weight varied; when used in the survey, they already weighed less than most Spanish coins when minted.

Thus, from the start, U.S. coins were slightly underweight compared to Spanish coins.103

Although the Coinage Act of 1792 established the American coinage system, foreign money, particularly Spanish silver coins, was still legal tender in the United States and circulated domestically for much of the early 19th century.

In the early years of the United States, silver dollar coins actually flowed out of the country, causing Thomas Jefferson to order the mint to cease their production in early

1804. Although Spanish silver dollars, contained slightly more silver than the average

American silver dollar, in the West Indies the two coins traded at a 1:1 ratio. Merchants in search of a profit could export American silver dollars, trade them for Spanish pieces of eight, and take these coins to the U.S. Mint to be recoined into more American silver dollars than the merchants had originally held. To end this practice, Thomas Jefferson eliminated the coinage of silver dollars.104

For most of the next several decades, the United States did not coin any silver dollars. Only in the 1830s were they coined again. The coinage system of the United

103 Donald Taxay, The U.S. Mint and Coinage (New York: Arco Publishing, 1966), 48-49. 104 David Q. Bowers, Silver Dollars and Trade Dollars of the United States (New Hampshire: Bowers and Merena Galliers, 1993) 50

States underwent other important changes in the 1830s. In 1834, Congress slightly overvalued gold in comparison to the market rate by establishing a mint ratio of 16:1 in order to draw more specie into the country. This decision was not taken in isolation; debates about the value of gold and silver were tied closely to broader issues in the

Jacksonian political economy, including the role of specie, paper money and the Bank of the United States. The effects of the and the new ratio of 16:1 were to overvalue gold and undervalue silver. The point was to undermine the circulation of

U.S. Bank Notes and encourage the circulation of a gold currency. The result was that undervalued silver left the country to places where it was valued more highly and gold flowed into the country because the U.S. mint ratio was higher than the prevailing market rate between the two metals.105

The of the 1840s further changed the emerging coinage and monetary systems of the United States, as well as creating an interesting connection with

China. As word of the gold discoveries spread, people from around the world flocked to

San Francisco, including a large inflow of people from southern China. In the late 1840s, there were only several hundred Chinese in California but a state census in 1852 revealed that that number had already jumped to 25,000.106 The discovery of gold and the influx of workers led to an increase in gold production, which in turn led to a decline in the

105 For more background see Taxay, The U.S Mint and Coinage, 194-199; Peter Temin, The Jacksonian Political Economy (New York: Norton, 1969) and Jessica Lepler, The Many Panics of 1837: People, Politics, and the Creation of a Transatlantic Financial Crisis (Cambridge: Cambridge University Press, 2013). The essential debate here is whether or not Jackson’s policy towards the Bank of the United States created the conditions that led to the Panic of 1837. 106 Mark Kanazawa, “, Exclusion, and Taxation: Anti-Chinese Legislation in Gold Rush California,” Journal of Economic History 65, no. 3 (September 2005): 781. 51 commodity value of the metal in terms of silver. Although the market price of the metals changed, the mint ratio did not.

With these changing conditions in mind, some Americans, particularly in the western United States, called for the creation of a . Remember that according to the Coinage Act of 1792, there was no such coin under American law, only gold coins of higher denominations with silver dollars as the base unit. In 1849, Congress passed another coinage law that created two new coins, the gold dollar and the gold twenty- dollar, or the . The new gold dollar was quite miniscule. It had a diameter of only between 13 and 15 millimeters. Using the coin was not simple. Its small size made it easy to mistake for coins of smaller denomination when accepting payment or making change. By 1853, the Secretary of the Treasury wrote to the Director of the Mint that “so many complaints have been made about the size of the gold-dollar—its liability to be lost or paid through for some small coins that it would seem to be expedient to adopt some other form.”107 The Secretary of the Treasury supported a coin with a hole in the middle

(Figure 3), along the Chinese model of copper cash, that could be strung together, making it easy to carry and count a batch of these coins, and requested samples struck by the mint. The Director of the Mint, replying in May 1854, admitted that a coin with a hole in the middle would “be good for tying in bunches of a certain number as the Chinese would do” but nonetheless opposed the plan because by removing the center, the coin’s “back is broken” and because “there is no other nation, barbarous or civilized, which has thought

107 Taxay, The U.S Mint and Coinage, 210. It is interesting that some supports of the gold dollar accused the U.S. Mint of purposefully making the gold dollar coins too small in order to “provoke criticism.” 52 it worthwhile to make this sort of coin, except the Chinese.”108 Though this coin never entered circulation, its trial minting and the debates surrounding its production displays high-level policymakers’ a familiarity with the Chinese monetary system.

Figure 3: Proposed U.S. Coin in Chinese Style109

One result of the changes in U.S. Coinage laws and the discovery of vast amounts of gold deposits in California was that the silver contained in coins was now worth more as bullion than the face value of the coin. In January 1849, the market ratio of gold to silver was 15.97:1 but by 1851 it had dropped to 15.46:1.110 During this time, the U.S.

Mint ratio stood at 16:1, undervaluing silver. In fact, a silver famine followed the gold rush as very few small denomination coins circulated in the course of exchange. This mismatch led to “extraordinary events” like a run “on the post offices for silver coin.” People bought large amounts of stamps with the hopes of procuring smaller

108 Taxay, The U.S Mint and Coinage, 211. 109 Taxay, The U.S Mint and Coinage, 212. 110 Murray N. Rothbard, History of Money and Banking in the United States: The Colonial Era to World War II (Auburn: Ludwig von Mises Institue, 2002),108 53 denomination silver coins as change.111 In order to avoid giving out small coins, New

York City post offices required exact change for the purchase of postage stamps. In other areas of the country, a number of small, fractional banknotes emerged, issued by

“individuals and firms doing business which required a large amount of small change.”112

The took steps to remedy this problem, though the solution was controversial. As the Chairman of the Senate Finance Committee said at the time, the important task was to find a solution to "the rapid disappearance of our silver currency" while at the same time avoiding "the natural and, to some extent, well-founded apprehensions as to the danger of tampering at all with the standard of value.”113 The point at issue was whether to decrease the silver content of certain denominations of silver coins so that, for example, the amount of silver in two half-dollar coins, was less than the amount of the metal in the dollar. The debate surrounding the coinage issue naturally aroused the passions of those who considered possible changes to the coinage law as nothing more than a debasement of silver, the proper standard of the country. That was surely the judgment of future president (1808-1875). He protested that the proposed subsidiary silver coins were “the merest quackery.” Johnson accused proponents of the bill of thinking they had discovered “the philosopher’s stone” but had actually opened a path to continued debasements.114

111 D.A. Martin, “The End of Bimetallism in the United States,” Journal of Economic History 33, no. 4 (Dec., 1973): 833 112 Martin, “The End of Bimetallism in the United States,” 833. 113 Martin, “The End of Bimetallism in the United States,” 838. 114 Martin, “The End of Bimetallism in the United States,” 840. 54

Congress eventually passed the Coinage Act of 1853, making the face value of subsidiary silver coins about seven percent above their bullion value. These fiduciary coins had a legal tender value in amounts up to five dollars. This legislation put the

United States on a de-facto gold standard with subsidiary silver. The American coinage system in the first part of the 19th century, though a bimetallic system in name, was rarely one in practice. As mint ratios changed for practical or political purposes and market values of bullion changed due to supply and demand, gold and silver entered or left circulation.

Several years later, Congress took the important step of stipulating that foreign coins, particularly Spanish and Mexican silver dollars, were no longer legal tender within the United States. In fact, in his initial report on the creation of the in

1792, Alexander (1755-1804) argued that foreign coins in the United States should have a legal tender quality for only three years after the creation of American coins.115 However, foreign coins continued to circulate in the first part of the 19th century.

With the success of the new subsidiary coinage developed in 1853, however, the arguments for maintaining the legal tender status of foreign money quickly dissipated as full-bodied Mexican silver dollars left the country or were hoarded. Thus, by the mid

115 Hamilton had originally proposed a stepped process of taking away the legal tender qualities of foreign coins in the United States “foreign coins may be suffered to circulate, precisely upon their present footing, for one year after the mint shall have commenced its operations. The privilege may then be continued for another year, to the gold coins of , England, and France, and to the silver coins of Spain. And these may still be permitted to be current for one year more, at the rates allowed to be given for them at the mint; after the expiration of which the circulation of all foreign coins to cease.” See , “On the Establishment of a Mint,” in The Works of Alexander Hamilton, Volume IV, ed. (New York: G.P. Putnam’s Sons, 1904), 3-58.

55

1850s, the United States had essentially eliminated the circulation of foreign money within its borders. By the start of the Civil War, U.S. silver dollars of any kind had not circulated for some time because their bullion value exceeded their face value.

Silver and the Early China Trade

At the same time as debates about American coinage divided public and popular opinion in the United States, American trade with China was developing quickly.

Departing the United States in 1783 en route to China, the Empress of China carried “32 tons of , fifty tons of cordage, 500 hundred yards of woolen cloth, twelve casks of spirits, a box of beaver furs, thirty tons of ginseng and 20,000 Spanish silver coins in its hold.”116 Sailing around the Horn of Africa and arriving in Canton, the vessel returned to the United States laden with , porcelain and Nenkeens, to make trousers. Its backers, including the Revolutionary War financer Robert Morris (1734-1806), netted a profit of just above twenty-five percent.117 The news of this voyage caused

(1735-1826) to write to John Jay (1745-1829) that “There is no better advice to give to the merchants of the U.S. than to push their commerce to the as fast and as far as it will go.”118 Many listened. Between 1784 and 1812, more than 300 hundred

American vessels made the journey to China.119

However, American vessels, like British traders before them, could not cover the cost of the goods they wished to buy in China with American products alone. Even

116 Eric Dolin, When America First Met China: An Exotic History of Tea, Drugs and Money in the Age of Sale (New York: W.W. Norton, 2012), 14. 117 Dolin, When America First Met China, 86. 118 Dolin, When America First Met China, 89. 119 Dolin, When America First Met China, 90. 56 though traders brought a combination of furs, ginseng, sandalwood, fabrics and the coveted sea cucumber, meche-du-mar, they still had to rely on silver coins to purchase the balance of Chinese products in Canton, the main of trade in early 19th century

China. According to one estimate, before the year 1825 bullion and specie, usually in the forms of coins, accounted for roughly 75 percent of all purchases in Canton.120

As trade with China continued to develop, the minted American silver dollar could not compete with the Spanish and Mexican dollars for the favor of Chinese merchants. Americans were aware of this problem. Writing to a congressional committee in 1832, Director of the Mint Samuel Moore (1774-1861) judged that the American dollar is “almost insensibly inferior to the ” and “when their relation happens to be tested in the forms of bullion, to be exported, or allied in the arts, the difference become appreciable.”121 Before departing on a voyage to China, American merchants had to procure these coins rather than American silver dollars.

It was not until the 1820s that American traders began regularly to employ bills of exchange drawn on London banks to lessen, but not eliminate, the need to pack the holds of outbound with silver coins. Bills of exchange had long been used in trade within

Europe but in fact entered trade with Asia relatively late. This financial instrument allowed American merchants to obtain credit at a British bank by “drawing” a bill on

London and taking this bill to Canton instead of silver. Bills of exchange promised to pay the holder of bill a certain amount of money at a certain date in the future. Once in the

120 Dolin, When China First Met America, 167. 121 John Willem, The United States Trade Dollar: America’s Only Unwanted, Unhonored Coin (New York: Self-published, 1965), 12. 57 trading port, the merchant could use the bill to buy Chinese goods. The American merchant purchased Chinese goods on credit, sold his in the United States and sent money back to London to cover the principal and interest on this loan. With the bill of exchange in hand, a Chinese merchant could use it to purchase goods from other traders who would then redeem the bill in London.122 This system, however convenient, further cemented London’s preeminent position in global trade. In fact, the American belief that

London played an outsized role in the political economy of the Pacific trade became an increasingly important thread of American policy in the late 19th and early 20th centuries.

Despite the implementation of bills of exchange in the China trade, silver still mattered. In the early 19th century, the revolt of Spanish colonies and the establishment of young in Latin American resulted in a number of new silver coins.123 Spanish officials in Mexico City had long resisted calls to establish mints beyond the one in

Mexico City but in the turbulent years between 1811 and 1821—the height of resistance to Spanish rule—colonial bureaucrats allowed the creation of six more mints across the country.124 The Mexican Constitution of 1824 allowed provinces with mints to continue

122 Yen-p’ing Hao, The Commercial Revolution in Nineteenth-Century China (Berkeley: University of California Press, 1986): 74-76. 123 The broader and important debate about world silver flows in the first part of the 19th century links to the reasons for the perceived lack of silver and silver outflows from China in between 1800 and 1870. China, with its monetary system based on copper coins and silver, suffered as the lack of silver made Chinese pay an increasing number of copper coins for an ounce of silver. Because taxes were collected or figured in silver, the lack of silver adversely impacted most Chinese as their real tax burden increased. Lin Man-Houng traces the lack of silver to the “butterfly” effect of the Latin American revolutions decreasing production while Mexican scholar Alejandra Irigoin sees the type of supply—new, unfamiliar coins— rather than lack of total supply as the chief reasons for the falling exports of Latin American silver in the first part of the 19th century. For further overview of this debate see William Rowe, “Money, Economy, and Polity in the Daoguang-Era Paper Currency Debates,” Late Imperial China 31, no. 2 (Dec. 2010): 70-72. 124 Maria Alejandra Irigoin, “Gresham on horseback: the monetary roots of Spanish American political fragmentation in the nineteenth century,” Economic History Review 62, no. 3 (2009): 554. 58 coining. As the colonial monopoly on minting eroded, so did the prior uniformity of coins.125 By 1835, officials of the U.S. Mint observed in an assay of foreign coins "the tendency of Mexican dollars of more recent issues to deviate from their proper standard, which has been noticed in the reports on foreign coins within the last two years.”126

Besides weight and purity, the design changed as well. A picture of an eagle replaced the profile of Spanish rulers and in Chinese these eventually became known as yingyang

(鷹洋). These new coins, unfamiliar to the Chinese, traded at a discount to older Spanish ones. By the 1850s, though, the Mexican government established a more uniform and stable currency and these became common and current in both Shanghai and .

American merchants played a key role in moving them from Mexico to China, just as they had with Spanish coins in the past. In August 1859, The San Francisco Bulletin reported that “every vessel leaving San Francisco for Chinese takes a large amount of Mexican dollars.”127

By the 1860s, the role of U.S. silver dollars at home and abroad was in doubt.

Domestically, they had not circulated for nearly fifteen years. First, the gold rush made the metal in the silver dollar worth more as bullion than as coinage. Then, the Civil War put greenbacks into circulation. Internationally, the coin did not fare much better.

Director of the Mint Henry Linderman noted in the early 1870s that the standard U.S. silver dollar was “not received by the Chinese except at a discount” due the fact that

125 Irigoin, “Gresham on horseback,” 555. 126 Maria Alejandra Irigoin, “The End of a Silver Era: The Consequences of the Breakdown of the Spanish Peso Standard in China and the United States, 1780s-1850s,” Journal of World History 2, no. 2 (June 2009): 224. 127 “Trade Reports,” San Francisco Bulletin, August 14, 1859. 59

“while it is of equal fineness with the Spanish or Mexican dollar, it is about 1% less in weight” and concluded that this situation “seems to take away the last plea from continuing to coin this piece.”128 The future of the standard silver dollar was in doubt.

What did have a future, though, was the idea that the United States was destined to become an important trading nation in China and in the Pacific. An editorial in the

New York Times looked excitedly at developments linking America and Asia with an oceanic telegraph line and predicted that “our trade with what was our father’s Orient; and is our Occident has but barely begun.”129 With Americans increasingly moving to the western part of the United States and the spread of information and ideas becoming easier

“it is not exaggeration to predict that an immense steam marine will soon dart in every direction through the placid water of the Pacific, and that San Francisco will speedily become greater than Carthage in the Meridian of her glory.”130

The Creation of the Trade Dollar

The creation of the Trade Dollar took place in the aftermath of the Civil War as politicians, businessmen and the public grappled with the question of how to readjust the monetary system and, at the same time, how to realize the grand visions of growing

American trade in East Asia.

The Union had begun the war in a precarious financial state; in spring 1861, the

U.S. Treasury had a “mere $3 million balance against a total debt of almost $65

128 David Q. Bowers, Silver Dollars and Trade Dollars of the United States, Volume I (New York: Bowers & Merena Galleries, Incorporated, 1993), 804. 129 “Our Coming Trade With Asia,” New York Times, May 12, 1872, 4. 130 “Our Coming Trade With Asia,” New York Times, May 12, 1872, 4. 60 million.”131 The chief problem at the time, wrote Ohio Senator (1823-

1900), was “not whether we could muster the men, but whether we could raise the money” to fight the war.132 There was great wealth in the country, Sherman continued, but it was uncertain how it could be utilized.133 During the war, the Union passed several laws that changed the nation’s money and banking system. The Union ultimately financed the war not through increases in taxation but through debt and paper money— greenbacks and national bank notes. After the outbreak of the Civil War, banks suspended specie payments in December 1861. Soon thereafter, the first Legal Tender

Act authorized the creation of paper money that was not redeemable in gold or silver and had to be accepted for all types of private debts and taxes. Two additional Legal Tender

Acts later raised the total amount of notes the government was able to issue.134 Several banking laws followed in 1863 and 1864.

This legislation sought to stem the circulation of state bank notes and increase the federal government’s regulatory power. The acts established federally chartered banks and created a tax on the notes of state banks that did not join the national banking system.

The amount of notes under this these new federally-chartered national banks were allowed to issue was limited by the value of government bonds they kept as reserve.135

131 John Niven, Salmon P. Chase: A Biography (Oxford: , 1995), 250. 132 John Sherman, Recollections of Forty Years in the House, Senate and Cabinet (Chicago: Werner Company, 1895), 259. 133 Sherman, Recollections, 281. 134 See Michael Caires, “Rethinking the second : legal tender and national banking in the Civil War era,” Constitutional Commentary 29, no. 3 (Summer 2014): 511 135 For more on the National Banking Acts see Matthew Jaremski, “State Banks and the National Banking Acts: Measuring the Response to Increased Financial Regulation, 1860–1870,” Journal of Money, Credit and Banking 45, no. 2–3 (March–April 2013): 379-399; John A. James and David F. Weiman, “The National Banking Acts and the Transformation of New York City Banking During the Civil War Era,” Journal of Economic History 71, no. 2 (June 2011): 338-362. 61

These national bank notes, though issued by banks, were ultimately “indirect liabilities of the federal government” because in the event of a bank failure, the notes issued by the bank could be immediately redeemed by the Treasury Department.136 At the same time, the Union government also gained more control over the financial system and the money supply because the maximum possible amount of outstanding national bank notes was dependent on “federal action, either administrative or legislative.”137

During the Civil War, gold became a commodity, its value fluctuating in relation to greenbacks, its price in terms of paper money rising over time. In 1862, it took $100 dollars in greenbacks to purchase $100 in gold but by 1864 it took $203 in greenbacks to purchase the same amount of gold.138 At the same time, the value of the U.S. currency fluctuated against foreign currencies. Several factors influenced the price of gold. The gold premium that developed over the Civil War period represented, in effect, “the dollar-pound exchange rate” and was subject to all the forces that determine the value of a currency in international exchange.139 At another level, with Union victories, the greenback strengthened in terms of gold. It also fell with Union defeats. In either case a person could become more or less willing to hold assets denominated in greenbacks, which in turn affected the greenback price of gold. However, during the war, many recognized that the gold standard was “the legitimate, if temporarily dethroned,

136 Milton Friedman and Anna Schwartz, A Monetary History of the United States, 1867-1960 (Princeton: Princeton University Press, 1963), 21. 137 Friedman and Schwartz, A Monetary History of the United States, 23. 138 Robert Sharkey, Money, Class, and Party: An Economic Study of Civil War and Reconstruction (Baltimore: Johns Hopkins University Press, 1960), 51. 139 Friedman and Schwartz, A Monetary History of the United States, 58. 62 sovereign.”140 In fact, the U.S. government continued to make interest and payments on a gold basis, customs duties were still payable and gold and much of the monetary system of the West Coast was still on a specie standard.141

After the war, the role of greenbacks, either letting them circulate as before or slowly contracting their number in order to make them “as good as gold” became the

“single biggest financial problem facing the United States after 1865.”142 Immediately after the Civil War ended, Hugh McCulloch (1808-1895), Secretary of the Treasury from

1865 to 1869, and supported by other Republican voices, led the movement for contraction of the currency and a return to a specie convertibility. In his first report to

Congress as Secretary of the Treasury, his reasoning for contraction harkened back to the initial objections to the Legal Tender Acts that had created the greenbacks. He argued that “The present Legal Tender Acts were war measures, and while the repeal of those provisions that made United State notes lawful money is not now recommended…they ought not to remain in force one day longer than shall be necessary to enable the people to return to the constitutional currency.”143 Ironically, even the creator of the greenbacks, former Secretary of the Treasury Salmon P. Chase (1808-1873), who became Chief

Justice of the Supreme Court in 1864, ruled that the creation of paper money was unconstitutional.144

140 Friedman and Schwartz, A Monetary History of the United States, 58. 141 Friedman and Schwartz, A Monetary History of the United States, 27. 142 Irwin Unger, The Greenback Era: A Social and Political History of American Finance, 1865-1879 (Princeton: Princeton University Press, 1964), 16. 143 Hugh McCullough, Report of the Secretary of the Treasury (Washington D.C.: Government Printing Office, 1865), 4. 144 Niven, Salmon P. Chase: A Biography, 438-440. 63

In the first of many debates about the meaning of money in late 19th century

America, a number of Democrats from Midwestern states supported the continued circulation and possible enlargement of the number of greenbacks, opposing the contractionary policies undertaken by McCulloch after the Civil War. In January 1864, the number of greenbacks outstanding was $449 million but an April 1866 piece of legislation mandated that that amount be reduced to $356 million by the end of 1867.145

The Greenback Movement, gaining coherence in Ohio in 1867 and 1868, argued for the inflationary benefits of the greenbacks in a period of economic slowdown following the wartime boom. These debates became particularly divisive after the , with some arguing for the increase in the number of greenbacks and others for bringing the notes “nearer and nearer to the standard of gold.”146 The push and pull of this debate ultimately resulted in a 1875 bill to resume specie payments by 1879.

In the immediate aftermath of the Civil War, in these economic debates that touched on question of economics, morality and constitutionality, the position of silver dollars did not warrant much of a mention. They had been out of circulation for several decades. As John Sherman reflected at the end of the 19th century, the silver dollar was, in the period after the Civil War, “an unknown coin”; although he had been active “in business which brought under my eye different forms of money, I do not remember at that time to ever have seen a silver dollar.”147 Thus, discussions concerning the Trade

Dollar began in a context when a silver coin had not circulated in United States for many

145 Friedman and Schwartz, A Monetary History of the United States, 24. 146 Sherman, Recollections, 499. 147 Sherman, Recollections, 465. 64 years.

The first proposal for minting a silver coin for commercial purposes came after

John Jay Knox (1828-1892), Comptroller of the Currency, took a tour of U.S. mints in the late 1860s. His task was to inspect and investigate the various mint facilities, particularly those on the West Coast, and draft a bill to reform the organizational structure of coinage operations. Far away from Philadelphia and Washington, D.C. the

Carson City and San Francisco mints had reputations for a host of administrative problems, both large and small.

After returning to Washington, D.C. Knox submitted a report concerning wholesale reform of the mint’s organizational structure that became the basis of the

Coinage Act of 1873. Buried within a series of proposals that dealt mostly with administrative matters, specifically the creation of a National Director of Mint operations in Washington, D.C. to oversee the directors on individual branches, was a suggestion that the weight of the standard silver dollar be reduced. However, as Knox circulated a draft of the bill, a series of commentators, mainly Mint officials and other coinage experts, argued that standard American silver dollars should be completely eliminated.

Silver coins, as we have seen, had not circulated for some time.

A key figure in the push for the creation of a silver dollar for export was Henry

Linderman, Director of the Philadelphia Mint from 1867 to 1869. After his term in

Philadelphia expired, he was named Commissioner of the United States to the Pacific

Coast and spent significant time on the West Coast. His interaction with officials from the , silver producers and business leaders served as an impetus for

65 the creation of the Trade Dollar in 1873. He commented on a draft of the Knox bill, noting that the current silver dollar, “having no practical use whatsoever,” should be discontinued since it had a “higher bullion value than a nominal value.”148 But, he continued, there was a market for the creation of a silver dollar for commercial purposes, mainly in the trade with China. Noting that had demonetized silver at the same time as American miners had struck rich silver deposits in Nevada, he foresaw “the gradual but certain adoption of the gold standard, and consequent demonetization of silver by all commercial countries.”149 With conditions such as these, Linderman went on to argue that the “true policy” of the country should be to seek a “market in China for its silver bullion; and to do this it must be put in a form to meet favorable recognition in that country.”150

This clause is important because it not only addresses the problem of increasing

American silver supplies but also the inadequacy of the current American silver dollar in the China trade. Noting that Chinese preferred Mexican dollars to settle accounts,

Linderman stressed that, on the London and San Francisco bullion markets, these coins commanded an eight percent premium to the American silver dollar even though the

Mexican dollars “intrinsically is worth 1 and 6/10 more than our dollar of 412 ½ grains.”151 From this , the creation of the Trade Dollar solved several pressing problems. It provided an outlet for increased silver production and it relieved

148 Henry Linderman to John Jay Knox, January 25, 1870; “A Report of John Knox Giving the Correspondence of The Department Relative to the Revision of the Mint and Coinage Laws of the United States”; 41st Congress, 2nd Session; House of Representative Executive Document 307, pg. 31-32. 149 Henry Linderman, “The Production of Gold and Silver,” Bankers’ Magazine 19 (March 1873): 510. 150 Linderman, “The Production of Gold and Silver,” 510. 151 Linderman, “The Production of Gold and Silver,” 512. 66 merchants of the need to pay a premium for Mexican coin in order to engage in the China trade. Most important, he thought the coin was sure to succeed in China. After

“consulting with some of the leading businessmen of San Francisco as well as the most prominent and intelligent Chinese merchants,”152 Linderman recommended the creation of a coin with a weight of 420 grains troy, a fineness of 9 parts silver to one part alloy for a pure silver content of 378 grains troy. With a pure silver content higher than the

Mexican dollar, Linderman felt that the new American Trade Dollar might soon exchange at a premium of six to eight percent above the Mexican silver dollar, a reversal of the current situation.

In addition to Linderman, a report from the American Consul at Hong Kong also pushed the Trade Dollar forward. Working without any connection to Linderman and focused more on banking facilities, David Bailey came to a similar conclusion about the creation of the Trade Dollar. Focusing first on the need for American banks to set up branches in Asia, he lamented that “San Francisco, Shanghai and Hong Kong, facing each other on opposite shores of the Pacific go around the world to pay each other in

Lombard Street.”153 Here Bailey referred to the practice of American bankers drawing bills of exchange on London. This point is significant, not for this chapter, but for the rest of work, as American financiers and diplomatic sometimes cooperated and sometimes competed with the British financial presence in China.

152 Linderman, “The Production of Gold and Silver,” 512. 153 George Bailey, “Banking Facilities Between the United States and China,” 42nd Congress, 3rd Session House of Representatives Document No. 159, 2. 67

Beyond an increased American banking presence, Bailey also recommended the creation of a Trade Dollar with the “same intrinsic value as the Mexican Dollar” and as

“closely resembling the Mexican dollar as may be expedient.”154 In a prescient warning, he also advised that steps must be taken to prevent the coins from becoming chopped— stamped with Chinese characters that attested to their value. With all these measures in place, Bailey, like Linderman, concluded that the United States would “find a vast market for her coins in the East.”155

The bill that later became the Coinage Act of 1873 was introduced to Congress in

April 1870. This draft included a list of coins that that did not include the silver dollar from previous coinage laws. If a silver dollar were to be created, it should be a commercial dollar for export, “not a standard unit of account, and of the exact value of the Mexican dollar, which is the favorite for circulation in China and Japan and other oriental countries.” The Senate Finance Committee unanimously approved the bill and brought it to the full Senate in December 1870 where it passed after three days of debate in January 1871. However, the House of Representatives took no action on the bill during that session and it was reintroduced in 1872. The House passed a version of the bill that contained a 384 grain silver coin that was equal to two half-dollars of subsidiary silver coins and would be legal tender in amounts up to five silver dollars.156

There were now two bills, a House version containing a provision for a standard dollar of 384 grains and a Senate version with a Trade Dollar of 420 grains. In December

154 Bailey, “Banking Facilities Between the United States and China,” 3. 155 Bailey, “Banking Facilities Between the United States and China,” 3. 156 Weinstein, Prelude To Populism, 23. 68

1872, Secretary of the Treasury Sewall Boutwell (1818-1905) and Linderman attended a closed meeting of the Senate Finance Committee with Senator Sherman and urged the passage of the 420 grain Trade Dollar without any legal tender quality. However, as the bill went to a conference committee in January 1873, the proposed section stated that the

Trade Dollar would be legal tender in the United States up to five dollars. As the proposal came to a vote, Sherman denied any influence over the process, claiming that “I do not like myself to break in upon this plan or to change it in the slightest degree, but prefer to leave it to the proper offices of the Mint.”157

When the bill passed on February 6, 1873, it contained the provision for a Trade

Dollar that was legal tender in the United States for transactions up to five dollars and eliminated the standard silver dollar that had been codified by the Coinage Act of

1792.158 Building off the Coinage Act of 1853, the Coinage Act of 1873 put the United

States on the path to the gold standard by eliminating the silver dollar as a legal coin.159

Right when the United States began to produce mountains of silver thanks to the rich and seemingly endless deposits of the metal at the Comstock Lode in Nevada, silver bullion could no longer be coined into standard silver dollars. In an era of economic hardship after the Panic of 1873 that depressed prices and led to calls for increasing the money supply by minting silver coins, the act became known as a the “Crime of ’73.”

157 Weinstein, Prelude To Populism, 28. 158 A side debate in the larger silver issue is why the trade dollar was legal tender at all since its purpose was to serve in trade in China. Linderman wrote mysteriously in 1878 that it “was inadvertently made legal tender.” Henry Linderman, Money and Legal Tender (New York: G.P. Putnam’s Sons, 1877), 56. Neil Carothers says it was “deliberately included…with the idea of giving the new coin a better standing” Neil Carothers, Fractional Money (New York: Bowers & Merena Galleries, 1988), 234. 159 The United States did not resume convertibility of notes to specie until 1879. 69

The narrative surrounding “the Crime of ‘73,” obscures a significant issue: the creation of the Trade Dollar and the role of the United States in the China market. The controversy around the “Crime of ’73” has a long history. The attacks began as early as

1876 when a letter to The Boston Globe argued that the Coinage Act of 1873 was passed

“without discussion in or out of Congress and without notice or warning.”160 It was the result of a conspiracy of Eastern and European financial interests who sought to secretly depose silver from its rightful place in the U.S. monetary system. As the silver issue continued to gain prominence throughout the late 19th century, this charge intensified.

Some argued that the law was not “passed surreptitiously, or secretly, or without due consideration.”161 Others held that there was no crime because by 1873 the silver dollar was “an obsolete coin.”162 An important aspect of the debate is whether those who authored, advocated and ultimately approved the bill had foreknowledge of the impending fall of silver prices. Best expressed by supporters of silver in the 1890s and

Paul O’Leary in 1960, this view sees the Coinage Act of 1873 as “deliberately aimed at striking down the silver dollar just when it was apparent to those in a position to know that it was about to make a comeback.”163 However, it is notable that the majority of senators from western, silver-producing states, who presumably understood the monetary and mining conditions in their areas, as well as the implications of rising silver production, voted for the bill.164 In fact, the most recent evidence suggests that the “crime

160 Unger, The Greenback Era, 330. 161 Horace White, Money and Banking Illustrated by American History (Boston: Ginn and Co., 1896), 218. 162 White, Money and Banking, 219. 163 Paul O’Leary, “The Scene of the Come of 1873 Revisited,” Journal of Political Economy 68 (1960): 390-392. 164 Sherman, Recollections, 466. 70 of 1873” related to the interests of financiers in the western, not eastern, part of the country.165

However, the “Crime of ‘73” understands the Coinage Act of 1873 only in terms of its later controversy, specifically the political and economic debates of the 1890s and overlooks the optimism and urgency of 1873, when the Trade Dollar would soon enter the China market. Not long after the passage of the law, the San Francisco Bulletin reported that “Mexicans have recently put a new stamp on their silver dollar and the

Chinese are a little suspicious of it” and if the Mexican dollar “can be crowded out by the new American dollar, which is of higher intrinsic value, a point will be gained.”166 The

Philadelphia North American concluded, “the importance of the trade dollar cannot be overrated” and “by specially and carefully establishing a silver trade dollar of weight and fineness that will be recognized by the commercial nations of the world as a standard of commercial value, the United States assumes a leading place in the commerce of the east.”167 Linderman, now Director of the U.S. Mint and based in Washington, D.C. saw the moment as decisive. Telegramming James Pollock, Superintendent of the

Philadelphia Mint, on June 24, 1873, Linderman wanted to know “When will you

165 See DeCanio, “Populism, Paranoia, and the Politics of Free Silver.” DeCanio argues that Linderman and other officials and Congressmen were on the payroll and under the influence of William Ralston, president of the Bank of California. Ralston had created a business empire based on his ownership stake in the Comstock Lode Mines and the Bank of California. In fact, the foundation of the Bank of California was the profits associated with the silver mine. With the demonetization of silver in Europe he feared this metal would come to America in order to be exchanged in gold, lowering the price of silver, which was the pillar of his other business interests built on top of the Comstock Lode. Demonetizing silver in the United States would not allow Europe silver to be exchanged for American gold. However, it would also limit the market for the Comstock Lode silver, hence the importance of the proposed trade dollar. Ralston then paid Linderman to advance these positions. 166 “The New Trade Dollar,” San Francisco Bulletin, March 19, 1873, 2. 167 “The New Trade Dollar,” Philadelphia North American, October 16, 1873, 1. 71 commence coinage of the trade dollar? Mexican congress has restored the dollar [design] prior to eighteen sixty-seven. Not a moment to be lost in the issue of our dollar!”168

Following up several days later, Linderman emphasized that “it is very important that its

[the trade dollar’s] fineness average .900 and not in any single coin fall below .899” since it would have to undergo the scrutiny of merchants abroad.”169 (see Table 1)

Grains Fineness Grains Silver Value Old U.S. 412.5 900 371.25 $1 Dollar Trade Dollar 420 900 378 $1.0122 Mexican Dollar 417.83 902.77 377.25 $1.0622 Japanese Yen 416 900 374.4 $1.0085

Table 1: Comparison of Coin Weights

The Circulation of the Coin in China

In 1873 and 1874, as the coins made their way across the Pacific, many in the

United States, especially those involved in the China trade, insisted that the Trade Dollars were well received. The official assay by the Chinese government only added to these impressions. A published decree in Hong Kong stated that “the Trade Dollar” had been

“jointly assayed by officers specially appointed for the purpose,” and it “can come into general circulation.”170 Even more, as U.S. Mint officials continued to point out, given

168 Linderman to Pollock, June 27, 1873; June 24, 1873. Box 92; U.S. Mint 1791-1936 General Correspondence, 1792-1899; RG 104; NARA Regional Archives, Philadelphia. 169 Linderman to Pollock, June 27, 1873; June 27, 1873. Box 92; U.S. Mint 1791-1936 General Correspondence, 1792-1899; RG, 104; NARA Regional Archives, Philadelphia. 170 “The Trade Dollar in China,” San Francisco Bulletin, November 13, 1877, 1. 72 the “surprising carelessness” of recently produced Mexican coins whose fineness fluctuated widely, it appeared the Trade Dollar emerged at just the right time.171

Early signals appeared to vindicate those who argued for the coin’s creation.

Getting word of an increased demand for the Trade Dollar in New York in early 1874,

Linderman wrote to Pollock instructing him to “make every possible exertion to meet the

New York demand for that coin, subordinating the manufacture of other coins… One hundred thousand dollars a week in trade dollars will soon meet the demand.”172 In May

1874, The San Francisco Bulletin effused that the Trade Dollars had “gone off like hotcakes” and that “the Chinese merchant contemplates his pile of them with satisfaction.”173 A year later, the publication judged that the coin had “achieved a series of signal victories” and now had “an impregnable position in the monetary system of the

Orient.”174 Despite British attempts to exclude the Trade Dollar from Hong Kong, the article continued, “the residents of that city had followed the example of their countrymen in Canton, Foochow and other cities, and adopted the trade dollar.”175 The

Journal of American Numismatics, a journal published for and by coin enthusiasts and experts, concluded that the coin’s “bright, finished look operated as a good introduction” and has “proven the ‘open sesame’ to Chinese storehouses.”176

171 The Chief Assayar to the Director of the Philadelphia Mint, October 13, 1873; Box 94; U.S. Mint 1791- 1936 General Correspondence, 1792-1899; RG 104: NARA Regional Archives, Philadelphia. 172 Linderman to Pollock, Feb. 21, 1874; Box 95; U.S. Mint 1791-1936 General Correspondence, 1792- 1899 RG 104; NARA Regional Archives, Philadelphia. 173 “Competition for the Trade Dollar,” San Francisco Bulletin, May 4, 1874, 1. 174 “Triumph of Trade Dollar,” San Francisco Bulletin, February 6, 1875, 1. 175 “Triumph of Trade Dollar,” San Francisco Bulletin, February 6, 1875, 1. 176 American Journal of Numismatics 9, no. 3 (January, 1875): 63 73

Reaction around the world also judged the new coin a success. In fact, a number of nations began to discuss whether they, too, should make their own version of the Trade

Dollar. After passage of the Coinage Act of 1873, the Economist magazine judged it “an

American invention (and a characteristic one) to issue coin for export only.”177 Several years later, the Economist argued that the British government should create a trade dollar because it would prove “advantageous” and open up a “new outlet for our Indian silver.”178 Likewise, Germany, recently unified and not coining silver for domestic use, proposed the creation of its own trade dollar, or handels-piaster.179 Several years later,

France, under the advice of several French merchants to China, decided to coin its own trade dollar with the same fineness and weight of the American one.180 These countries sought outlets for silver as they adopted the gold standard.

International bankers also praised the Trade Dollar for its quality, value and potential. Linderman, in his annual report as Director of the Mint in 1878, included extracts from a glowing report by the Hong Kong and Shanghai Banking Corporation, today (HSBC), pronouncing that the “coin is eagerly awaited in those parts of the country where its true value is known.”181 Written by a banker based in Hong Kong, the report noted that the coin was now current by count rather than by weight throughout the south of China as well as in more broadly, from Saigon to . The banker concluded that the Trade Dollar is “the best dollar we have ever seen here and as

177 “American Silver Currency,” Economist, August 5, 1876, 915. 178 “Coinage Reform,” Economist, July 14, 1877, 820 179 “German Silver and the Eastern Absorption,” Economist, December 2, 1876, 1399 180 “France,” The Economist, May 24, 1879, 593. 181 Henry Linderman, Annual Report of the Director of the Mint (Washington D.C: Government Printing Office, 1878), 10. 74 there is no doubt as to the standard and purity being maintained, it will become more popular day by day, and, we doubt not, ultimately find its way to the north of China, where people are more prejudiced against .”182

However, rhetoric and enthusiasm for the coin at home, and in certain quarters abroad, did not necessarily match the reality of its reception and use abroad based on U.S. consular reports. In a report to Secretary of State Hamilton (1808-1893), George

Seward (1840-1910), son of the previous Secretary of State and Consul-General in

Shanghai, collected reports from American consuls in other Chinese cities about the current status and future prospects for the Trade Dollar. The results were not optimistic.

Seward doubted whether the coin could ever come “into general or extensive circulation.”183

In the north of China, American consuls and businessmen reported that the Trade

Dollar failed to circulate widely, attributing its failure to ingrained habits and interests.

The American consul in the northern port city of Tianjin, a short distance from Beijing, wrote Seward in 1878 that the “trade-dollar is not known as a circulating medium in this port.”184 The consul wrote that it was well-known that in the interior nothing but copper cash or silver ingots settled commercial business “and the same rule is observed in this port in most all transactions.”185 Thus, it was no surprise that the Trade Dollar did not circulate in the north of China because no other silver dollars did either.

182 Linderman, Annual Report of the Director of the Mint, 1878, 10. 183 “George Seward to Hamilton Fish,” Foreign Relations of the United States, 1876 (Washington; Government Printing Office), 45. Afterwards FRUS. 184 “O.N. Denyy to George Seward,” FRUS, 1878-9, 143. 185 “O.N. Denyy to George Seward,” FRUS, 1878-9, 143. 75

The situation was not much better at other important commercial ports. In

Shanghai, the local foreign chamber of commerce informed Seward that the coin “had been imported in small quantities and has failed to make its way, having always been refused at its full value.”186 At Ningbo, a treaty port a short distance south of Shanghai, the consul lamented the absence of the Trade Dollar due to local counterfeiters who were able to make excellent replicas of Mexican dollars and pass them off as real. He doubted any coin, particularly the Trade Dollar, could gain ground in the port since local bankers could effectively control exchange rates and a “defective” and “difficult” currency was in their interests, “so as to gain from those who are ignorant.”187

At the inland port of , reports did not present any optimism about the present or future circulation of the coin. The American consul, after consulting with merchants and bankers in the city, determined that “I cannot learn that an American trade dollar was ever seen in Hankou.”188 Even if it did arrive in Hankou, the city’s compradores, Chinese nationals employed by foreign firms as fixers and go-betweens, assured him the coins would be melted down for their bullion. The consul had no doubt

“that would be the case.”189 With such a gloomy outlook, he could “recommend no official actions to create or increase demand for it [trade dollars] at this particular point.”190

The situation in the south of China was more promising but not uniformly so.

186 “The Chamber of Commerce of Shanghai to George Seward,” FRUS, 1878-9, 146. 187 “Edward Lord to George Seward,” FRUS, 1878-9, 146. 188 Linderman, Annual Report of the Director of the Mint, 1878, 42. 189 Linderman, Annual Report of the Director of the Mint, 1878, 42. 190 Linderman, Annual Report of the Director of the Mint, 1878, 42. 76

Silver coins had a much wider circulation in the south and southeast of the country as a result of long-established connections. Trade Dollars generally entered through Hong Kong and moved north in the course of trade. In Fuzhou, a trading city in

Fujian, the American consul reported that the coin was and had been in circulation, although it had initially been accepted at a two percent discount to the Mexican silver dollar. Discussing the future prospects of the coin, the consul reported that if some type of official action might be taken to codify the relationship between the Trade Dollar and the Mexican dollar, that is to say that they would trade at par value, the Trade Dollar’s circulation in China would increase significantly. In Xiamen, slightly to the south of

Fuzhou, the Trade Dollar had a secure place in exchange, “though not so extensively as the Mexican.”191

An additional issue developed as the Trade Dollar circulated. Chinese assayers

“chop marked” it to certify its weight and fineness. To do so, they stamped the coin with a special personal punch, usually a single Chinese character (see Figure 4). This action served as a signaling mechanism, but it also changed the appearance, weight and fineness of the coin. Repeated chopping led to what the consul at Fuzhou called a “mutilated” coin where even the original design of the coin might be obscured.192 Of course, this repeated chopping increased the likelihood that the amount of silver in each coin would slowly decrease. The consul in Fuzhou suggested trying to influence officials at Hong Kong and

Canton to prohibit the practice of chopping. Likewise, the consul at Xiamen insisted that

191 “J.A. Henderson to Seward,” FRUS, 1878-9, 146. 192 “Mr. De Lano to Mr. Seward,” FRUS 1878-9, 144. 77 business with the consulate had to be conducted with “clean”—un-chopped—Trade

Dollars.193

Figure 4: A Chopped U.S Trade Dollar

In short, the success of the Trade Dollar was precarious at best. Although some coins came into circulation, particularly in the south and southeast, their circulation never matched the rhetoric of their success in the United States. As the consul at Xiamen noted, the real reason the Trade Dollar did not secure a firmer and more permanent circulation along the Chinese and the interior of the country was tied to “the unrestricted tendency of people who have payments to make to procure and use the worst dollar that will pass.”194 The Trade Dollar was too heavy and too fine a coin to be popular wit debtors while others likely hoarded the coin or melted it down.

The Hinge Moment of 1876: The Circulation of Coins in the United States

The Trade Dollar circulated in the United States as well as in China. Examining the circulation of Trade Dollars in America and the unintended consequences of the

193 “Mr. Henderson to Mr. Seward,” FRUS 1878-9, 146. 194 “Mr. Henderson to Mr. Seward,” FRUS 1878-9, 146. 78

Coinage Act of 1873 shows how the law created a conundrum rather than being a crime.

Moreover, following the flow of the coins provides a new angle to view U.S.-China relations in the late 19th century. In particular, it takes the focus away from rising tensions that eventually led to the Chinese Exclusion Act of 1882 and brings a new geographic perspective to the study of this time period, which traditionally pays attention to the presence of Chinese laborers on the West Coast. Workers in Louisville or Minneapolis were unlikely to see a Chinese laborer but they were not strangers to the coins.

The Coinage Act of 1873 made the Trade Dollar legal tender in the United States for any debt or obligations up to five dollars. At the time of the debate and ultimate passage of the bill, silver did not circulate in the United States except on the West Coast.

It was still more valuable as a metal than as a coin. Between 1873 and 1876, the U.S. mints at Philadelphia, Carson City and San Francisco continued to take in silver deposits and return Trade Dollars, most of which were exported.

However, the rapidly declining price of silver on the world market between 1873 and 1876 created a unique situation that ultimately led to the Trade Dollar’s demonetization as legal tender in the summer of 1876. The original purposes of the coin were to absorb increasing U.S. silver production as countries around the world went off the silver standard and win a victory for U.S. trade in China and, in the longer term, lessen the influence of London bankers. However, the deposits of the Comstock Lode, coupled with falling demand, overwhelmed the market and the price of silver began to drop (See Table Two). As Superintendent of the Philadelphia Mint James Pollock wrote to a correspondent about the history of silver in the United States, “the wheel of fortune”

79 was currently turning and silver was now being produced “more exceptionally than before.”195 As production continued to increase, the price of silver bullion on the world market quickly fell. Before the summer of 1876, the bullion value of the Trade Dollar was actually worth more than its face value of one dollar. However, the value of the silver in the coin soon dropped. This created a problem for the U.S. government.

By the summer of 1876, a person could take silver that was valued at 97 or 96 cents as bullion to the mint, pay the one half of one percent coinage fee, and receive in return a coin of legal tender worth one dollar, the Trade Dollar.196 It was an easy and risk- free way to make money. Making money by minting coinage—known as seignorage— must be reserved, officials thought, for the government, not private individuals. By July

1876, Congress decided to strip the coin of legal tender status, requiring proof of export before coining silver into Trade Dollars.197

195 James Pollock to M.R. Levenson, November 27, 1873; Box 3; Letters Sent by the Director of the Mint and Superintendent of the Mint 1866-1900; RG 104; NARA Regional Archives, Philadelphia. 196Linderman furthered outlined the problem to the Secretary of the Treasury writing that ‘The bullion or gold value of 420 grains of standard silver, which is the trade dollar, is at present say, 94 ½ cents. Add 1 ½ cents in coinage charge and we have, in cost of cost of the trade dollar to the depositor, 95 ¾ cents. In exchanging a trade dollar for a dollar in United State Currency, the gold value of which is 97 33/100 cents, depositors realize a gain of something like 1 ½ per .” H.R. Linderman to Office of the Secretary of the Treasury, October, 19, 1877. 45th Congress 2nd Senate Executive Document No. 80, 5.

80

Year Quantity in Silver (ouces) Value in dollars 1870 12,375,000 16,434,000

1871 17,789,100 25,588,300 1872 22,236,300 29,396,400

1873 27,650,400 35,881,699 1874 28,868,300 36,917,500 1875 24,530,300 30,485,900 1876 29,996,200 34,919,800

Table 2: U.S. Silver Production, 1870-1876198

This situation proved a perfect opportunity for profit seekers as employers and bullion dealers could pass off Trade Dollars as worth one dollar when they knew quite well the coins were not legal tender and were worth much less than their face value. The

Trade Dollar quickly became a poor man’s coin. In February 1878, a clergyman wrote to

The Philadelphia North American that one member of his parish informed him that a factory owner recently paid wages totaling $500 in Trade Dollars which he had bought at a discount and paid to his workers as one dollar. By this deceit, clergyman estimated that the factory boss saved $100 but someone will eventually have to “lose the difference, most likely the poor men and women into whose hands this mass of silver has been uploaded.”199

The Trade Dollar presents a classic example of asymmetric information as bullion dealers, factory bosses and the financially literate were likely to have a better idea of the

198 Table taken from Weinstein, Prelude to Populism, 10. 199 “The Trade Dollar, the Poor Man’s Money,” Philadelphia North American, February 5, 1878, 4. 81 true value of the coins than most ordinary Americans. After the summer of 1876, when

Trade Dollars lost their legal tender quality, letters from across the country arrived on the desk of the Superintendent of the Philadelphia mint inquiring about their value. A baker in Louisville wrote that he was “run over” with Trade Dollars and asked the director what they were worth. Likewise, a basket maker in Delaware noted that he had heard Trade

Dollars were worth “96 or 97 cents” on the dollar but sought clarification. Similar letters come from across the country, as far north as Minnesota and as far south as South

Carolina.200

Counterfeiters compounded the problem of demonetized Trade Dollars and asymmetries of information.201 After July 1876, counterfeiting Trade Dollars provided a good opportunity for a profit if coins could be made with cheaper materials and passed off at par, or even a discount. The San Francisco Bulletin related the story of Van

Rensselaer Abrams, who had previously served time in prison for counterfeiting and was apprehended in New York in 1882. Upon seizing him, the U.S. Secret Service searched his home and found “two hundred and nine trade dollars ready for circulation, and a small basket full of unfinished trade dollar” along with tools of the counterfeiting craft: “molds, dies, metal and acids.”202 Perhaps most fascinating is a story from the Philadelphia

200 The correspondence of the Superintendent of the Philadelphia Mint during 1877 and 1888 have a host of letters indicating similar sentiments from a wide swath of the Midwest and East Coast. Correspondents usually inquire about the value of trade dollars as well as Mexican dollars. In 1874 Congress stipulated that only American coins were acceptable legal tender in the United States. The standard response was to write a letter stating that the Mint would accept these coins at their bullion value. See particularly Boxes 113- 115; General Correspondence, 1792-1899 RG 104; NARA Regional Archives, Philadelphia. 201 For more on counterfeiting in the 19th century, see Stephen Mihm, A Nation of Counterfeiters: Capitalists, Con Men, and the Making of the United States (Cambridge: Harvard University Press, 2007). 202 “A Crafty Counterfeiter,” San Francisco Bulletin, November 2, 1882, 4. 82

North American reporting that the U.S. Secret Service believed that counterfeiters in

China were making Trade Dollars for importation back to America. According to the article, agents came to this conclusion after examining the “painstaking and accurate work” whereby a coin they obtained had been filled with solder in the middle and bound by a “rim of silver, which has been skillfully milled in exact imitation of the genuine work.”203

All these factors led to a situation that impacted the lives of American workers who may have never come into contact of competition with a Chinese laborer. The problem of what to do about Trade Dollars lingered for more than a decade. A Chicago newspaper urged readers to “stick to their trade dollars” as mounting public pressure would surely force Congress to pass an act whereby Americans could redeem their Trade

Dollars for legal tender at a one to one ratio.204 However, the issue continued to fester, with Congress taking no action through the late 1870s and early 1880s. In fact, the action

Congress did take struck another blow against those Americans holding Trade Dollars.

With the country still suffering the lingering effects of the Panic of 1873, cheap money advocates joined forces with silver interests to pass the Bland-Allison Act of 1878 over the veto of President Rutherford B. Hayes. The bill called for the Department of

Treasury to make mandatory monthly purchases of silver at the market value between two and four million dollars, some of which could be coined and some of which would be held by the government. The advocates of free silver were not satisfied because they

203 “The Counterfeit : A New Wrinkle in the Trade Dollar Industry,” Philadelphia North American, August 28, 1880, 1. 204 “Stick to your Trade Dollars” Inter-Ocean, August 31, 1878, 4. 83 believed the law did not go far enough to give silver a place in the U.S. monetary system and advocates of the gold standard saw the act as a threat. The dollars coined from this act were to be full legal tender at nominal value “except where otherwise expressly stipulated in the contract.”205 Until eventually replaced by the Sherman Silver Purchase

Act of 1890, the Bland-Allison bill set the United States on a limping bimetallic currency system.206

However, the Bland-Allison created more immediate problems for Americans holding Trade Dollars. The new standard silver dollar under the Bland-Allison Act contained only 412.5 grains of silver, the same amount of bullion contained in standard silver dollars in the 1830s and 1840s. However, the Trade Dollar had a silver content of

420 grains. Thus, the demonetized Trade Dollar actually contained more bullion than the new legal tender coins. The sentiments of a banker interviewed by The St. Louis Globe

Democrat illustrate the inconsistency of the coinage situation as he judged it “ridiculous” that “the trade dollar should fall to 90 or 95 cents, when the legal tender dollar, worth two cents less than the trade, is taken everywhere for $1.”207 (See Figure 5)

205 Eugene E. Agger, “Our Large Change: The Denominations of the Currency,” The Quarterly Journal of Economics Vol. 32, no. 2 (Feb., 1918): 262. For more background on the Bland-Allison Act see Sherman, Recollections, 544-546. 206 The Sherman Silver Purchase Act, named after Ohio Senator John P. Sherman, differed from the Bland- Allison Act in that it required the Secretary of the Treasury to purchase “four and one-half million ounces of silver bullion each month” whereas the Bland-Allison Act gave the Secretary of Treasury more discretion. Agger, “Our Large Change: The Denominations of the Currency,” 263. 207 “The Trade Dollar,” St. Louis Globe Democrat, August 26, 1878, 2. 84

Figure 5: Unfortunate Trade Dollar208

The issue of what to do with these coins—whether to redeem them for their bullion value or for the new silver coin—became more acute after the passage of the

Bland-Allison Act and the discrepancy between the the value of Trade Dollars and the new silver dollars. In his annual report to Congress in 1883, the Director of the Mint

Horatio Burchard (1825-1908) observed that the Trade Dollar had “fallen into the hands

208 “The Unfortunate Trade Dollar,” Frank Leslie’s Illustrated Newspaper, February, 23, 1878, 169. 85 of those who can least afford to suffer from the depreciation,” centered “mostly in the mining and regions of and contiguous States and in vicinity of New York, where they have been paid to workmen and laborers.”209 Burchard believed “it would seem but an act of justice” that the United States should allow these coins to be redeemed in some way.210 President Arthur, in his State of the Union address in 1883, voiced similar sentiments. The circulation of Trade Dollars, he argued, had become a “disturbing element” in the coinage system.211 In order that the coins “no longer be permitted to embarrass our currency system,” he suggested that they be redeemed by the Treasury and the Mint as bullion at a “small percentage above the current market price of silver of like fineness.”212 Actual resolution of the problem was still nearly four years away.

During the early 1880s, Trade Dollars clogged the arteries of commerce and continued to fall into the hands of those who could least suffer the loss. James Hallock, a

New York doctor who published his own letters to the Treasury Department, the

President and various newspapers urging action on trade dollar redemption, shared his own interactions with a local shoe cobbler in July 1883. The tradesman had in his possession twenty Trade Dollars he had received at par and asked Hallock what he should do with them. The doctor advised him to hold onto them until the U.S. government

209 Annual Report of the Director of the Mint, 1883, 17. 210 Annual Report of the Director of the Mint, 1883, 17. 211 Chester A. Arthur, “ Third Annual Message to Congress,” December 4, 1883; The American Presidency Project, University of California Santa Barbara. Accessed December 1, 2011.http://www.presidency.ucsb.edu/ws/index.php?pid=29524#axzz1lM5pmqbK 212 Chester A. Arthur, “ Third Annual Message to Congress,” December 4, 1883; The American Presidency Project, University of California Santa Barbara. http://www.presidency.ucsb.edu/ws/index.php?pid=29524#axzz1lM5pmqbK 86 redeemed them at face value, which would only take, he thought, “a year or two.”213

Hearing this forecast, the cobbler “smiled bitterly” because with business slow during the summer and rent to pay he had to sell the coins for 87 cents and incur a loss of $2.60 on his holdings, all the while knowing “that the Treasury had caused the loss.” 214 For

Hallock and others, the refusal of the coins by the federal government made a mockery of its duty to accept its own coin as well as the words emblazoned on the Trade Dollar, “In

God We Trust.” Hallock also related the reaction of one Chinese merchant to this phrase on the Trade Dollar who reportedly said, “If the coin is good, why you trust God.”215

Table 3: Production, Export and Import of U.S. Trade Dollars216

However, despite popular and presidential admonishment, and the number of proposals that flooded into Congress, the legislature could not agree to a solution until

1887. One reason for the delay tied to the circulation of Trade Dollars themselves. In the annual report from the U.S. mint, the Director Buchard argued that it would be easy to construct some redemption program “but for the apprehension that a large number of

213 Hallock, Refusing Its Own Coin, 54. 214 Hallock, Refusing Its Own Coin, 54. 215 Hallock, Refusing Its Own Coin, 101. 216 Willhem, The United States Trade Dollar, 103. 87 exported trade dollars would be returned to this country.”217 This fear, Bluchard held, was unfounded. His own “investigations and inquiries” had “satisfied him that the trade dollars sent to China have gone to the melting pot and become silver [ingots] or disappeared into the interior of that country.”218 Worries about floods of Trade Dollars returning to the United States from China continued for the next four years.

The second important factor that delayed congressional action was tied to the changing political calculus of the silver interests. Of course, western silver interests had initially supported the creation of the Trade Dollars. By the 1880s, however, their position had changed. When the Committee on Coinage put together a bill for the redemption of Trade Dollar in 1884, Congressman Richard Bland of Missouri (1835-

1899), the force behind the Bland-Allison Act, objected because under the proposed legislation, the purchase of U.S. Trade Dollar by the Treasury and Mint for redemption would count toward the mandatory monthly quota of silver purchases required by the

Bland-Allison Act. Forced to take in Trade Dollars, no new silver purchases would be possible for between four and twelve months. It would hurt silver producers. Bland wondered, “Do those who support silver want that? Anything just at this time that causes the fall of silver in the world markets may, and likely would, result in its final overthrow.

The decline would be pointed to as a sign that silver must cease to be regarded as a precious metal—an argument that would be hotly pressed for stopping the coinage of silver altogether.”219

217 Annual Report of the Director of the Mint, 1883, 17. 218 Annual Report of the Director of the Mint, 1883, 17. 219 Richard Bland, Committee on Coinage, Weights and Measure, February 12, 1884. 1051. 88

Congress did not take action for the redemption of Trade Dollars until 1887. The final bill stipulated that anyone holding “un-chopped” Trade Dollars had a six-month window to send the coins to the Treasury in order to be exchanged for standard silver dollars or subsidiary coinage. Nearly ten years after Congress stripped these coins of their legal tender, the circulation of trade dollars was about to come to an end. However, as

The American Numismatist noted, if one had come into possession of a Trade Dollar, willingly or not, when their bullion value was at its nadir in 1883 “and held them until passage of the redemption act, he would have lost money, as the profit on the four years investment would only be 12 cents. A larger profit than this could have been obtained by investing in government bonds.”220

Conclusion

The circulation of Trade Dollars marks the start of the cycle of Sino-U.S. monetary interactions with the United States purposely exporting coins with the hopes of replacing the Mexican silver dollars as the coin of choice for Chinese merchants.

Moreover, focusing on the circulation of the coins recasts traditional narratives surrounding the Coinage Act of 1873: rather than focusing on whether the act was in fact a crime, the chapter argues that the act created a conundrum as the demonetized Trade

Dollars continued to circulate after they ceased being legal tender. This narrative questions established geographic and political narratives that normally define U.S.-China relations during the late 19th century: the West and East coasts and the Chinese Exclusion

220 David Q. Bowers, Silver Dollars and Trade Dollars of the United States (New Hampshire: Bowers and Merena Galliers, 1993), 1081. 89

Act of 1882. Looking at the circulation of the Trade Dollar in the United States provides a new aspect to this topic. Trade Dollars, originally meant for export to China, found a way into the pockets of American workers, even after they ceased to be legal tender.

Factory mangers passed them off on workers at full value. Bullion dealers manipulated the market for quick and easy profits. In the end, it may be speculated that these coins did more direct damage to American citizens more harm than the Chinese laborers allegedly did. A baker from Louisville and a basket maker in Delaware were unlikely to face direct competition from Chinese immigrants but they did face a great deal of potential loss as they tried to determine a Trade Dollar’s value. These perspectives only become visible after adopting a transnational perspective that emphasizes flows and circulations across borders rather than strictly national economic narratives.

Next, this chapter anticipates a theme that will become more important in later sections: the relationship between American and British financiers, businessmen and diplomats in China. As the American consul in Hong Kong noted when discussing the

Trade Dollar, American banks needed to establish more of a presence in China because at the time much of American trade went through Lombard Street. As we will see, sometimes Americans cooperated with the British financial interests and other times they competed. By the 1930s and the creation of the fabi (法幣), the sense of competition between the two would be intense.

Finally, the story of the Trade Dollar reveals an important insight into the contours of Sino-U.S. monetary interactions. In the period before the passage of the

Coinage Act of 1873, congressmen, bureaucrats, business and officials interpreted the

90 interests of Chinese merchants and the Qing dynasty (1644-1912) in terms of their own personal interests. China would benefit from having such a coin; American merchants would benefit from not having to pay a premium for Mexican silver dollars and there would be an outlet for the large production of the Comstock Lode. In future episodes of monetary interactions, the United States and China would have a much closer dialogue— especially with the visits of American financial advisors and the education of Chinese economists at U.S. universities—but it would still be common for Americans to cloak their own interests in terms of what they said was also in the best interests of China.

As the U.S. Congress finally passed legislation to deal with the redemption of

Trade Dollars in 1887, in southern China, a Chinese statesman proposed that the Qing should import foreign machinery and begin making its own silver coins. He hoped this measure would drive all foreign silver dollars out of circulation and help the Qing protect its economic rights. Chapter Three follows the story of provincial minting in the Qing dynasty between 1887 and 1900.

91

Chapter 3: Provincial Minting of Silver Coins, 1887-1900

In the early 1880s, Zhang Zhidong (張之洞 1837-1909) had a reputation as a scholar rather than as an administrator. After passing the highest level of the civil service exam in 1863, he held a variety of more academic positions, eventually serving in the prestigious (翰林院 Hanlin yuan).221 He began his career in provincial administration as Governor of Shanxi in 1880, later becoming Governor-General of

Guangxi and Guangdong in 1884. From this point forward, Zhang played a key role in nearly every aspect of late Qing dynasty governance, including currency reform.

Guangdong, located close to Hong Kong, served as a key area for international trade and—unlike the interior of the Qing empire—had a large number of foreign silver coins in circulation. The special place of Guangdong in international trade was important background for Zhang’s proposal in 1887 that the Qing dynasty import equipment and begin minting silver coins.

The creation of Chinese mints that used imported equipment to produce silver coins involved technological changes as well as the shifting relationship between the central and provincial governments. From the late 1880s through the mid-1890s, the Qing central government encouraged the importation of minting equipment to produce silver

221 For More on Zhang Zhidong’s early life and career, see Wu Jianjie, Zhang Zhidong nianpu changbian [The edited chronicle of Zhang Zhidong’s life] (Shanghai: Shanghai Jiaotong Daxue chubanshe, 2009). 92 coins and traditional copper cash. Numerous provinces did so, leading to a plethora of coins with varying weights and purity. By 1899, the Qing government ordered all but two of the provincial mints to cease production of silver coins, in some cases ordering the equipment shipped to the capital.

This chapter argues that the minting of silver dollars was an important and thus- far overlooked aspect of the Westernization Movement (洋務運動 Yangwu yundong

1861-1895)/Self-Strengthening Movement (自強運動 ziqiang yundong) that involved the translation of foreign texts, the importation of foreign machinery as well as the development and training of technical workers. Though Zhu Jiaming holds that this period was not significant in Chinese monetary history,222 this chapter argues that the interplay of technological change and trends in the Qing political economy show the changing goals of the Qing state.

The circulation of foreign silver coins, Zhang Zhidong and others believed, was something that had to be stopped because it was a violation of the Qing dynasty’s economic rights (利權 liquan). One way to protect these rights was to import foreign machinery and make the Qing dynasty’s own silver coins. This shift marks an important change in how Qing statesmen thought about how their government should interact with its monetary system: In their view, the Qing needed to actively oppose (抵制 dizhi) the circulation of silver coins from other parts of the world within its borders.

222 Zhu Jiaming, “Cong ziyou dao longduan: Zhongguo huobi jingji liangqiannian” [From Laissez Faire to Monopoly: The Monetary —Past and Present] (, Yuan Liu, 2012), Vol. 1, 274. 93

However, the Qing political economy in this period was filled with tension because an important result of the Taiping Rebellion (1850-1864) was the rising power of provincial officials and the eroding power of the central government. In fact, many of the

Self-Strengthening Movement’s concrete policies took place under the leadership and supervision of provincial officials. As Stephen Halsey writes, the “paradox” of late Qing history is that “successful state-making took place within a context of partial political .”223 As Halsey notes, many of the programs undertaken by provincial officials—in transportation, weaponry and bureaucracy—ultimately strengthened the dynasty and the creation of a “military-fiscal state.” However, while the rhetoric of the

Yangwu yundong often stressed broader dynastic goals, implementation by officials at the provincial level could also work against these aims. Such was the case with coinage reform in the 1880s and 1890s.

Meant to reduce and drive out the circulation of foreign silver coins, alleviate a coinage shortage and reform the currency system, the production of provincial silver dollars further fragmented and complicated the Qing monetary system. The transfer of minting technology led to results much different than the original intent. Before discussing these themes, however, it is important to take a closer look at coining technology and “the big problem of small change.”224

The Significance of the Coinage Press

223 Stephen Halsey, Quest for Power: European Imperialism and the Making of Chinese Statecraft (Cambridge Harvard University Press, 2015), 83 224 Thomas Sargent and François Velde, The Big Problem of Small Change (Princeton: Princeton University Press, 2003). 94

Compared to other technological developments, changes in coinage manufacturing do not receive much attention for how they shaped an important characteristic of modern life: territorial money controlled by national governments and bound by borders. With the gradual introduction of new coining presses as well as the changing goals of states, the creation of a national currency under the full control of a government became a realistic goal. Moreover, the evolution of coining techniques also led, in part, to the flood of foreign silver coins into China.

During the late imperial period, Chinese dynasties cast copper coins using a method known as sand-casting that dated to at least the (581-618) and possibly earlier. First, an “ancestor coin (祖錢 zuqian)” was carved from pure copper and used to cast a “mother coin (母錢 muqian).” The muqian coins were then used to form the moulds that produced zhiqian, copper cash with a hole in the middle so that it could be strung together. These moulds were made from reinforced sand with an organic binding agent.225 This binding agent was ground-up old bricks and charcoal that helped reinforce the sand and made the characters on the coin—usually the reign name and place where it was manufactured—more distinct.226 The entire process of casting these coins was quite labor intensive and costly.

Before the application of steam power to coining techniques, European countries and empires used two other methods of coining, each with similar drawbacks. The oldest

225 Cao Jin, “Mint Metal Mining and Minting in Sichuan 1700-1900,” (PhD diss., University of Tubingen 2012), 240. 226 David Hartill, Qing Cash (London: Spink, 2012), 21. 95 and most rudimentary technique was the hammer and the pile. After metal was brought to a desired level of fineness in furnaces, a craftsman cut the resulting sheet metal into squares and then shaped the squares into circles. Another craftsmen, placed the blank— the piece of round metal—in a wooden die, wedged the entire apparatus between his legs and used a hammer to pound down on the top of the die to make the impression in the coin.227 Beyond simply being labor intensive, the process resulted in imperfect and non- standardized coins that differed by weight and appearance, making it difficult to discern real coins from fake ones.228

The most important advances from this method, but still ultimately inferior to later steam-powered presses, were the screw press and cylinder press. As the names suggest, both removed some of the process of coining from human hands. In the 1550s, the French mint featured a water-powered rolling to create smooth sheets of metal and a punching press to create blanks. The die of the screw press itself featured a segmented collar to help keep the blank in place.229 An altogether more intricate process, the screw and cylinder presses “allowed letters and grating to be placed on the edges of coins.”230 These developments represented an important advance in quality but still suffered from problems similar to those of the hammer and pile method. It was difficult to produce large numbers of standardized, high quality, low denomination coins without incurring a financial loss. Governments, without the ability to create large numbers of standardized small coins had to accept the circulation of coins from other countries as

227 Sargent and Velde, The Big Problem of Small Change, 50. 228 Sargent and Velde, The Big Problem of Small Change, 50. 229 Sargent and Velde, The Big Problem of Small Change, 54. 230 Helleiner, The Making of National Money, 49. 96 well as the circulation of token money. This quandary was, as Thomas Sargent and

François Velde term it, “the big problem of small change.”

Despite the significant imperfections of the coins produced by the screw and cylinder press, Niv Horesh points out that “from the middle of the eighteenth century better-quality European coinage could enhance trade benefits already accruing to Europe as a result of the relocation of metal to places where it had monetary utility.”231 In the longer term, some European nations’ ability to “produce better-quality (i.e. less easily falsifiable) domestic coinage at lower cost underpinned England (and Spain's) transition from full-bodied to fiduciary coinage in the first instance.”232 The final developments

Horesh mentions, however, could not take place until steam power was applied to allow for coinage production at high volume, low cost and consistent quality. Appropriately enough, the person responsible for these innovations also played an important role in the development of the steam engine itself: Matthew Boulton (1728-1809).

Boulton’s innovations allowed coins to be struck automatically with steel dies that ensured standard results. The use of steel also allowed for more intricate designs, making counterfeit coins easier to spot.233 If someone wanted to get into the counterfeiting business, there was a large capital outlay to buy or mimic the new machinery and once the equipment was set up, it was quite noisy and easily attracted attention: exactly the

231 Niv Horesh, “The Great Money Divergence: European and Chinese Coinage Before the Age of Steam,” Journal of Chinese Studies 55 (July 2012): 127. 232 Horesh, “The Great Monetary Divergence,” 136. A full-bodied coin was worth its weight in silver whereas a fiduciary coin had a face value higher than the value of its metallic content. Drawing on an example from Chapter Two, the Coinage Act of 1853 created a system of fiduciary silver coins. 233 Helleiner, The Making of National Money, 49. 97 result that counterfeiters wanted to avoid.234 If counterfeiters relied on older methods, the resulting coins were of noticeably poorer quality and lacked the rimmed edges of

Boulton’s coins that were meant to guard against wear and tear.235 This feature was particularly hard to mimic. Beyond advances in quality, the new steam-powered mint equipment substantially increased potential output. As early as 1787, Boulton noted that each steam press could make sixty thousand coins per day; by the beginning of the 19th century, the number of coins Boulton produced at his Soho mint was ten times as large as the existing royal mint.236 These innovations helped governments solve “the big problem of small change” by making it easier to produce small, fiduciary coinage with a uniform quality.

The development of new coinage technology, along with the consolidation of nation states in the 19th century and the increasing involvement of the government in economic life, served as the two important preconditions for the creation of territorial currencies. The importance of the nation state in the creation and consolidation of territorial currencies, Eric Helleiner argues, did not lead to any state theories of money: money was what the state said it was.237 Instead, Helleiner’s point is simply that technological change was a necessary but not sufficient condition for the creation of territorial currencies. Political and institutional factors were vital.

In order to make this point clearer, Helleiner uses a negative example: China. In

China, he writes, building on the observations of Jeremiah Jenks, an American economic

234 Helleiner, The Making of National Money, 49. 235 Helleiner, The Making of National Money, 50. 236 Helleiner, The Making of National Money, 49. 237 Helleiner, The Making of National Money, 43. 98 envoy to the Qing dynasty in 1904 whom we will meet in the next chapter, “the weakness and lack of authority of China’s central imperial state was a key obstacle preventing

China from creating a more homogeneous and nationally integrated monetary system.”238

Mint equipment was important, but not nearly as important as the contours of the political economy of the Qing dynasty in the 1880s and 1890s.

Foreign Machines, The Leaky Wine Cup and Provincial Dragon Dollars

After the conclusion of the Opium Wars (1839-1842 and 1856-1860) and the final defeat of the Taiping Rebellion in 1864, the Qing government undertook a variety of reform measures for self-strengthening. One key tenet of the Yangwu yundong was the importation of foreign machinery and expertise that would enable China to grow rich and strong (富強 fuqiang). The goal was to retain Chinese learning as a base while using

Western science and technology as a means to strengthen the dynasty. The importation of minting equipment shared these goals and officials thought the very creation of Chinese silver coins would lessen and hopefully eliminate the circulation of foreign silver dollars.

Though there had been short, sporadic efforts to mint silver coins earlier in the 19th century, it was not until the 1880s that the Qing government began to produce silver coins on a large scale. Several important trends were behind this decision.

First, from the 1860s to the 1880s, silver became cheap and copper expensive (銀

賤錢貴 yinjian qiangui), a reversal of the trend in the first part of the 19th century. This development created conditions which led to a money famine (錢荒 qianhuang), a

238 Helleiner, The Making of National Money, 46. 99 shortage of Chinese cash, that is the hole-in-the-center copper coins. It became increasingly difficult to secure a supply of copper at a price that made minting traditional copper cash profitable. In the 18th century, the rich copper deposits of Yunnan province in the southwest had provided plentiful raw material to make copper coins. For a variety of reasons— including laws relating to mining and a Muslim rebellion in the southwest— the amount of copper extracted from Yunnan dwindled.239

At the same time, the prices of monetary metals changed. The price of copper on the world market increased due to its use in a number of technical applications. Copper was worth more as metal outside of China than as coin inside of China. It was profitable for those aware of this fact to melt copper coins down to abroad. Such behavior increased the money famine and drew the criticism of Qing officials who blamed

“scoundrels” (奸民 jian min) for selling copper to foreign merchants (洋商 yang shang) who took the metal out of the country.240 Silver, however, became much cheaper. In the

1870s as Germany, France and the United States went on the gold standard and rich new silver mines opened up in Nevada, the supply of silver outstripped demand and its price fell. Because silver was valued more highly in China than it was in other places around the world, much of the world’s white metal moved to China.241 As Lin Man-houng

239 For further discussion regarding copper supply in the period see Frank H.H. King, Money and Monetary Policy in China, 1845-1895 (Cambridge, MA: Harvard University Press, 1965), 219-220; Ho Han-wai “Cong yinjian qianhuang dao tongyuan fanlan: Qingmo xin huobi de faxing jiqi yingxiang” [From the devaluing of silver and the scarcity of money to the oversupply of copper coinage: The issue of new currency in the late Ch’ing and its effects], Bulletin of the Institute of History and Philology, Academia Sinica 62, no. 3 (April 1993): 393-396. 240 Wang Hongbin, Wanqing huobi jia janjiu [Research on the price of money in the late Qing] (Kaifeng: Henan Daxue chubanshe, 1990), 114-115. 241 Ho Han-wai “Cong yinjian qianhuang dao tongyuan fanlan,” 398. 100 notes, “although $384 million of silver flowed out of China between 1808 and 1850,

$691 million in Mexican silver dollars flowed into China between 1856 and 1886.”242 In fact, Lin believes the renewed flow of silver into China propped up the dynasty in the second half of the 19th century.

Beyond the price of copper and silver, knowledge about Western minting practices was disseminated through both books and personal experience. In 1875, John

Fryer, a translator based at the Jiangnan Arsenal, published a translation of a book on

Western coinage techniques, Qianbi gongshu (鑄錢工術), that described the various types of coinage systems used abroad, displayed blueprints of the Royal Mint in England and provided diagrams of coinage machinery.243 At the simplest level, the decision to translate and publish such a book reveals the close connection between technology, coinage and modernization.

Zhong Tianwei (鐘天緯 1840-1900), a translator who first worked at the

Shandong Arsenal and then spent time in Europe before working again as a translator, this time in the Jiangnan Arsenal, came to similar conclusions about the necessity of making coinage reform a part of China’s modernization. Zhong drew on his travels and experiences in crafting a treatise for the Governor-General of Lianguang (兩廣) in the early 1880s; coinage reform was one of his ten suggestions for helping build the

242 Lin Man-houng, China Upside Down: Currency, Society, Ideologies, 1808-1856 (Cambridge, MA: Harvard University Press, 279. 243 John Fryer, Qianbi gongshu [The industrial art of minting coins] (Shanghai, Jiangnan Arsenal, 1875). Fryer based his translation on several volumes from England, the titles of which I have not been able to identify. 101 commercial and industrial of the country. The popularity of foreign coins, he argued, allowed foreigners undue power and profit, especially because these coins traded at a premium above the value of their silver content. The most direct remedy to this unfortunate state of affairs was for China to reform its coinage system. He advocated minting gold, silver and copper coins with a fixed relationship between them.244

Zheng Guanying (鄭觀應 1842-1922), a merchant who had significant commercial interactions with foreigners, expressed similar but sharper arguments as to why the Qing government needed to create its own silver coinage. In one section of Yiyan

(易言), published in 1880, Zheng outlined the losses China suffered by not producing its own silver coins and made the more explicitly nationalist argument that each country should have its own coin and should not use the coins of other countries (一國有一國之

寶 yiguo you yiguo zhi bao). However, in a prescient warning, Zheng argued that if the

Qing dynasty did commence minting its own silver coinage, minting must be the exclusive domain of the central government’s Board of Revenue. Individual provinces should not be allowed to mint their own coins.245 He built on these themes but in much stronger language in Shengshi weiyan (盛世危言) published in 1896 when he wrote that using the money of another country violated the rule of “rectifications of names (名不正

言不順 mingbuzheng yanbushun).” In this case, Zheng drew on a line of thinking from

244 Zhong Tianwei “Kuochong shangwu shitiao” [Ten ways to increase commerce] in Lin Qingzhang, Wanqing sibu congkan [Four collectanea from the late Qing], Volume 6 (Taizhong: Wentingge tushuguan gongsi, 2011), 151-152. 245 Xia Dongyuan, “Yiyan: Zhuyin,” Zheng Guanying ji [The Collected works of Zheng Guanying] (Shanghai: Shanghai renmin chubanshe, 1982), 192-193. 102

The Analects to make a very modern argument: each country should use only its own currency.246

In 1883, the censor Chen Qitai (陈启泰 ?-?) proposed minting five denominations of silver coins. With a set of silver coins in circulation, they could be required for tax payments with the important result that the coins’ price and how it traded in the marketplace would rise. Foreign coins would cease to circulate or, if they continued to do so, the government could institute a punishment (懲艾 chengyi) for those still using them.247 Later the same year, Long Zhanlin (龍湛霖 1837-1905 ), an official from the Hanlin Academy, argued for the creation of silver coinage from a different starting point: precedent. Long first echoed Chen by stating that the popularity of foreign coins was not tied to fineness, which did not generally exceed 90 percent, but due to the quality of their production. With an estimated ten million foreign silver coins flowing into China each year, Long argued that foreigners make one million dollars in profit because the coins only had a fineness of ninety percent but traded at a premium beyond the inherent value of their silver content. In looking at the statutes of the Qing dynasty,

Long found precedent for minting silver coins in the experience of governing ; he proposed that the Board of Revenue undertake further investigation and study of Tibetan silver coinage with the aim of minting similar types of coins.248

246 Xia, Zheng Guanying ji, 692. 247 “Chen Qizhang zhe—Qing biantong qianfa zhi yinqian” [The memorial of the censor Chen Qizhang— Change the coinage law to mint silver coins], February 15, 1883, Zhongguo jindai huobishi ziliao [Materials on the currency history of modern China, Vol. 2] (Beijing: Zhonghua shuju, 1964), 632 (Hereafter ZGJDHBSZL). 248 “Long Zhanlin pian—Jianyi fang zhu zangshi yinqian” [The writing of Long Zhanlin—Suggesting minting Tibetan-style silver coins], January 16, 1884, ZGJDHBSZL, 633. 103

By the late 1880s, the cash shortage in the capital and in other parts of the country had not improved and the instructed the provinces to buy machinery in order to coin copper cash and for these provinces to forward part of what they produced to Beijing.249 This order was not in itself revolutionary and could be explained within the existing framework of the Qing political economy in which provincial governments supplied money in their locality and the central government in

Beijing supplied money for the areas around the capital.250 Minting of copper cash ran into two problems: it was still unprofitable to do so and it was difficult to surmount the technical problems of how to punch the required hole in the middle of the coin.

In 1887, with these issues in the background, Zhang Zhidong, the Governor-

General of Liangguang, built on earlier arguments when he memorialized the throne for permission to import machinery, establish a mint and begin producing silver dollars and smaller denomination silver coins in Guangzhou. After first addressing the issue of using foreign machinery to mint copper zhiqian, Zhang observed that because foreign silver coins circulated across China, other countries received the benefits of seigniorage. For the

Qing, the circulation of foreign silver coins created a louzhi (漏卮), a metaphor describing wine leaking out of a cup that he used to imply a loss of economic privileges.

Moreover, Zhang wrote that the foreign silver dollars circulating in the Guangdong were worn-out (爛 lan), broken-down (破碎 posui) as well as mildewy and dark (霉黑 meihei).

Zhang thought the circulation of foreign silver dollars needed to be opposed (抵制 dizhi).

249 King, Money and Monetary Policy in China, 215. For primary sources on the background, timing and rationale of this decision see ZGJDHBSZL, 512-559. 250 King, Money and Monetary Policy in China, 227. 104

To rectify these far from ideal conditions, Zhang proposed buying new mint equipment and having foreign experts come to Guangdong in order to install it and train

Chinese workers so that the province could make its own silver coins. As for the coin to be minted, Zhang had specific ideas about its weight and design. Zhang proposed making the Guangdong coin slightly heavier than other foreign dollars then in circulation. He also thought the front of the coins should have information about the reign in which it was minted ( 光緒元寶 Guangxu yuanbao) in both Chinese and Manchu. The obverse should have a coiled dragon (蟠龍 panlong), ringed by information about the origin and weight of the coin written in both Chinese and English.

Finally, Zhang made two points that were seemingly at odds with each other.

First, he argued that profits from minting silver coins could be used to subsidize the production of copper cash. Thus, minting silver coins with imported foreign machinery could help accomplish one of the traditional responsibilities of Qing provincial officials: providing a supply of copper coinage. Next, Zhang connected the reform of coinage with other aspects of the Self-Strengthening Movement of the 1880s by employing the phrase ziqiang (自強). For Zhang, coinage reform was a part of this process.251 In using the language of a leaky wine cup, economic rights, and preventing the circulation of foreign silver, Zhang saw the coins to be produced by the proposed mint as “the forerunner of a

251 All citations from Zhang’s memorial come from Guangxu chao zhupi zouzhe, Volume 91 [Rescripted memorials of the Guangxu Period] (Beijing: Zhonghua shuju, 1996), 687-691. For more on the broader outlines of Zhang’s monetary thought, see Ye Shichang, Zhongguo huobi lilun shi [The history of Chinese monetary thought] (Xiamen: Xiamen Daxue chubanshe, 2003), 212. 105 national currency.”252 The language and argumentation of the memorial reveals the tension within the larger currents of the Yangwu yundong, between traditional notions of

Qing statecraft and changing ideas about how the government should relate to the monetary system.

The lengthiest response to Zhang Zhidong’s memorial came from Yan Jingming

(閻敬銘 1817-1892) , a key official in the Board of Revenue who voiced several worries about the course Zhang proposed. First, since the mining of silver within China was not well-developed, most of the silver for minting coins would have to come from abroad.

The price of purchasing the material, he worried, would increase over time and it would be difficult for the operation to be profitable in the long-term. Next was the concern, common from earlier periods, that workers in the mint (爐匠 lujiang) would use their knowledge of coin production for nefarious purposes, teaming up with unsavory characters to counterfeit coins. Third, because the coins had to have a high silver content and fineness, with precise design and lettering, the manufacturing costs would be correspondingly high and provinces might lose money on their production. If they did, it was unclear how they would make up that sum (彌補 mibu). Finally, Yan noted the gradual but consistent reduction of fineness of the silver coins circulating in China over time and warned that if the coins minted by China followed a similar path in search of profits ( 減成取利 jiancheng quli), they would not circulate.253 Despite these worries,

252 King, Money and Monetary Policy in China, 225. Ho Han-wai makes a similar point using slightly different language by arguing that the basis of Zhang proposal was economic “jingji minzu zhuyi 經濟民主主義.” See Ho Han-wai, “Cong yinjian qianhuang dao tongyuan fanlan,” 400. 253 “Yan Jingming dengwei zunyi Zhang Zhidong zou Guangdong gou ji zhu qian bing shi zhu yinyuan shi zouzhe [Yan Jingming on Zhang Zhidong’s proposal to buy machinery to mint copper cash and try minting 106

Yan still termed Zhang’s idea to mint silver coins and make them payable for all types of taxes and payments in Guangdong a good one. However, Yan stressed the importance of choosing the right people to carry out the policy and prevent any abuses.254

With his plan eventually sanctioned, Zhang selected land and contracted with an

English company to purchase machinery to coin silver dollars and copper cash. Home to over 90 coinage presses, the newly established Guangzhou Mint was the largest coinage facility in the world. By comparison, the British Royal Mint only had 16 presses and the

U.S Mint in Philadelphia only ten.255 As the factory got up and running, Zhang sent samples of five silver coins from the initial production to the throne for inspection and approval. He also addressed the concerns of the Board of Revenue expressed by Yan

Jingming.

First, on the topic of whether there was enough available silver to mint coins,

Zhang reported that the Hong Kong & Shanghai Banking Corporation (匯豐銀行

Huifeng yinhang) had agreed to sell silver to the mint. If the bank did not have enough silver, the mint could buy from other Western banks. On the subject of perfidy by workers in the mint and the adulteration of coins (攙假 chanjia), Zhang wrote that its prevention was simply a matter of good management and regulation. On the question of counterfeiting and clipping by the populace, Zhang assured the court that these crimes would be easily detectable. As far as the possibility of losing money on mint operations,

silver coins], March 29, 1887, “Wanqing gesheng zhuzao yinyuan shiliao xuanji, shang” [Selected materials on minting of provincial silver coins in the late Qing], Lishi dang’an 3, No. 1 (2003): 44-45. 254 “Wanqing gesheng zhuzao yinyuan shiliao xuanji, shang,” 213. 255 David Hartill, Qing Cash (London: Royal Numismatic Society, 2003), 132. 107

Zhang did not see it is as likely since the amount and fineness of silver in the smaller denominations coins was not very high and provided ample opportunity for seigniorage.

He also did not think debasement would be a problem. Zhang eventually lowered the weight of the proposed silver dollar so that it matched the weight of foreign silver dollars and lessened the motivation to melt down the slightly heavier coins that he had originally proposed.256

In 1890 as the Guangzhou Mint started producing a regular output of coins, it received praise from foreigners and earned a profit, but not from the production of silver dollars. In 1892, a piece in the North China Herald commented on the general efficiency of the Guangzhou Mint and noted that it was capable of producing 100,000 coins a day.

However, the newspaper reported that between May 1890 and December 1891

Guangzhou Mint had produced only 44,000 silver dollars and most of its profits came from the production of subsidiary silver coins. The fineness of the fifty-cent piece was

0.860 and the denominations below that 0.820.257 At least one observer doubted “whether these unreliable coins [silver dollars] will ever succeed in supplanting the Mexican dollar in China,” though it was still evident that “the small silver coins are now gladly taken by the Chinese in lieu of the debased ‘cash.’”258 In particular, these smaller coins were in demand along the coast of China as well as in other provinces (see Table 4).259

256 Ye, Zhongguo huobi lilun shi, 213. 257 North China Herald, March 25, 1892, 396-7. 258 Robert Chalmers, A History of Currency in the British Colonies (London: H.M.S.O, 1893), 375. 259 According to the 21st mintage report of the British Treasury as cited by Robert Chalmers, the total coinage output of the Canton Mint between May 22, 1890 and December 31, 1891 was as follows. One dollar coins: 43, 933; 50-cent pieces: 17, 847; 20-cent pieces: 5,667,381; 10-cent pieces: 16,098, 579; 5- cent pieces: 1,158, 945. Furthermore, the assay of the Canton coins by the Royal Mint found them to be below the stated levels of fineness. The fineness for the dollar, half-dollar and smaller denominations were 108

1890-2 1893 1894 1895 1896 1897 1898 1899 1 43, 14, 500 232, 672 331,750 1,233,000 437,000 570,000 217,000 yuan 933 5 17, 45, 100 52, 490 99,000 847 2 jiao 5, 667, 13, 923, 21,807,680 29,055,900 14,743,000 22,537,000 30,989,000 36,566,000 381 900 1 jiao 16, 14,216,400 12, 494, 14, 21, 538, 8, 651,000 7,721,000 3,241,000 098, 840 159,660 000 579 1 1, 158, 127,100 164,000 945

Table 4: Coinage Production of the Guangzhou Mint260

Beyond its actual output, the Guangzhou Mint was a significant symbol of the

Self-Strengthening Movement. At the end of 1890, the North China Herald printed the first-prize essay from a contest at the China Polytechnic Institute on the subject of

“Should China go about coining its own gold and silver money? Would it circulate freely? Would it be advantageous to the country or the reverse?”261 The winning essay argued that, to prevent economic loss by paying a premium for foreign dollars, the only solution was for China to begin minting silver coins. The popularity of foreign coins, the author insisted, existed only because “as yet there is no Chinese money.” He then

supposed to be .900, .860 and .820. The assay found that the dollar had a fineness of .884, the half-dollar of .848, .807 for the twenty-cent piece, .808 for the ten-cent coins and .811 for the 5-cent coin. See Robert Chalmers, A History of Currency in the British Colonies, 375. 260 Table taken from Ho Han-wai, “Cong yinjian qianhuang dao tongyuan fanlan,” 402. Ho compiled the figures based on British consular reports from Guangzhou. As Ho advises, we should not take these numbers, or any other number, regarding the extent of coinage in the late Qing as exact, but rather as an indication of the overall level of production for different types of coins. 261 “The Chinese Prize Essay on The Advantages of a Mint,” North China Herald, December 19, 1890, 760. 109 answered the objections of those opposed to more silver coinage, namely, that counterfeiting would be easy, the venality of mint officials would doom the enterprise, the difficulties in carrying the reforms out, and China’s supposed loss of prestige by imitating foreign ways. The author believed these worries were shortsighted and could be obviated by putting mint facilities under the “guidance and control of well-selected men.”262

Figure 6: The Guangzhou Mint with inset of silver dollar263

As the Guangzhou Mint began production in 1890, Zhang Zhidong was not there to oversee it: he had been made the Governor-General of and in 1889. In

262 “The Chinese Prize Essay on The Advantages of a Mint,” North China Herald, December 19, 1890, 760. 263 Hartill, Qing Cash (London: Spink, 2003), 129. 110 this new post, he undertook a number of measures that contributed to and in part defined the Yangwu yundong: setting up industrial factories, schools and training programs to educate young Chinese. Coinage, too, was a part of this broader economic and technological program.264 However, the proposal to begin minting silver coins in Hubei lacked the vocabulary of an emerging economic nationalism so obvious in Zhang’s memorial of 1887. Not once did it mention the circulation of foreign coins and the loss of economic rights (漏卮 louzhi). Instead, in an 1893 memorial, Zhang argued that, due to

Hubei’s unique position in the economic geography of the country, it must take positive steps to increase the amount of money in circulation by minting silver coins.

Hankou and Wuchang connected trade in the north and south, serving as an important center for Chinese and Western merchants in the interior of the country. As a result, Hubei had a high demand for money. However, the province had not minted copper cash since the Tongzhi period (同治 1861-1875). At that time, because the copper mines of Yunnan were not flourishing (滇銅不旺 Diantong bu wang) and the price of foreign copper (洋銅 yangtong) increased regularly, it was not economical to mint money. To combat the shortage of coinage, the previous Governor-General Yu Lu (裕祿

1844-1900) and Governor of Hubei Kui Bin (奎斌) proposed implementing a ban on the export of cash from the province.265 This suggestion was a common one for provincial

264 For more on the different projects undertaken by Zhang at this time see Chen Feng, Zhang Zhidong yu Wuhan zaoqi xiandaihua [Zhang Zhidong and the early modernization of Wuhan] (Beijing: Zhongguo shehui kexue, 2003). 265 Zhang Zhidong, Zhang Wenxianggong quan ji [The Collected Works of Zhang Zhidong], Volume 1 (Beijing: Zhongguo shudian, 1990): 398-399. The beginning of this memorial gives an overview monetary conditions in Hubei before Zhang took up this new post. 111 officials dealing with cash shortages.

Zhang Zhidong approached the problem from a different angle and argued that the best solution for Hubei was to mint money like Guangdong. Noting the success of the

Guangzhou Mint—even merchants in the surrounding provinces adopted its coins—

Zhang stressed a common argument that appeared in the final years of the 19th century: ordering coins from the Guangzhou Mint would be impractical because the cost of transporting the coins from Guangdong to Hubei would be too high. The cost of setting up a mint, however, was not prohibitive because the scale of the project would not necessarily be that large. Zhang estimated that it would cost slightly more than 40,000 taels of silver to purchase equipment, construct a factory and cover other expenses. The coins themselves would mirror those of Guangdong, with only the characters for Hubei replacing those of Guangdong. Zhang finished his argument by stressing that minting silver coins would ease the people’s trouble (紓民困 shu min kun), and provide aid for an urgent crisis, namely the lack of money circulating in the province.266

This memorial stands out for its argument and its precedent. Until this point, only the mint in Guangzhou was producing silver coins on a large scale. Soon afterwards, a number of provinces would echo Zhang’s arguments about why they too should set up a mint to make silver coins; the mints in Guangzhou and Hubei came to be held up as models. Several years later, when the Grand Council (軍機處 junjichu) issued an order to stop mints from making silver dollars, only the facilities in these two provinces were allowed to remain open.

266 Zhang, Zhang Wenxianggong quan ji, 400. 112

Around the same time, the Grand Council ordered the Northern and Southern

Intendants (北洋/南洋大臣 Beiyang/Nanyang dachen), (李鴻章 1823-

1901) and Liu Kunyi (劉坤一 1830-1902), to open mints and produce small silver coins (

小銀元 xiao yinyuan) in the same denominations and fineness as the two facilities opened by Zhang Zhidong. Interestingly, the missive from the Grand Council left the financing and operation of the mints quite flexible. Like many other enterprises in the

Yangwu yundong, the Grand Council allowed for the possibility that the mints could be overseen by the government but run by merchants (官督商辦 guandu shangban). If government funds were lacking, merchants could buy a share in the mint and share in its profits (招集股分 zhaoji gufen). This policy would make mints similar to other types of enterprises also under the guandu shangban system.267

This order brought a quick and negative response from Zhang Zhidong. He began by stating the principle that each country (國 guo) has its own rights (權 quan ); each country, in turn, has its own money and does not allow the circulation of other coins within its borders. With all the foreign silver within China, the Qing had already lost some of its economic rights and to establish mints that operate as guandu shangban would only represent a further erosion of these rights. In a remark typical of officials,

Zhang insisted that merchants seek profits and do not follow regulations. On a more practical level, Zhang maintained that the money necessary to get a mint up and running

267 “Zhang Zhidong pian—ge zhuzao yinqian qing tong guanban buzhun shangren” [The Writing of Zhang Zhidong—Do not allow merchants to have a role running the provincial mints producing silver coins], February 5, 1896, ZGJDHBSZL, 683. 113 was not prohibitive and that provincial officials should not rely on capital from merchants. Zhang also warned that merchants would continue seeking to be part of the mints operations. Liu Kunyi and Li Hongzhang might not need or sanction their participation, but Zhang feared that in other provinces their involvement in minting might be approved.268

Weng Tonghe (翁同龢 1830-1904), then head of the Board of Revenue, ultimately agreed that merchants should not be involved in financing or running the newly established mint facilities. In the midst of this discussion, province was actually implementing a mint under the guandu shangban system. Several months after the decision by Weng Tonghe, the Governor-General of Fujian, Bian Baoquan (边宝泉

1831-1898), reported on efforts to establish a new mint in the province. Originally, a merchant named Sun had asked for and received permission to construct a mint in Fujian.

With the order to stop this arrangement, the province had to rent the equipment from the merchant. Another, more technical, problem was finding an official to run the facility as the knowledge and expertise needed to operate a mint was quite varied (鑄造銀元事宜多

為領會 zhuzao yinyuan shiyiduo wei linghui).269

Though Zhang Zhidong began the move toward minting silver coins, the effort did not expand until after the Qing defeat in the First Sino-Japanese War (1894-1895).

268 “Gesheng zhuzao yinqian qing tong guanban buzhun shangren,” ZGJDHBSZL, 684. 269 Gongzhong dang’an quanzhong, Number One Archives, 04-01-35-064-1114, November 7, 1896. Materials used in this chapter are available from several places (Hereafter GZDAQZ). The ZGJDHBSZL was published in 1964, with further supplementary documents compiled by the Number One Archives and published in the periodical Lishi dang’an. In general, I adopt the practice of citing the original archival material that I checked against the published material. 114

Ho Han-wai terms the conflict and its aftermath a watershed. Before the conflict, minting of silver was limited; after the war, many other provinces established mints and imported equipment.270 There were two main reasons behind this shift: the rhetoric of nationalism and economic rights that surrounded the mints increased and mints became a source of funds for provinces. When discussing minting of silver soon after the Sino-Japanese War,

Chen Qizhang (陳其璋 ?-?) censor of Jiangxi province, echoed previous arguments and advocated that every province be allowed to mint silver dollars along the lines of

Guangdong and Hubei in order to enrich the country (裕國 yuguo) and improve people’s livelihoods (便民生 bian minsheng). Since the creation of the Guangzhou mint, Chen noted that each year the number of foreign coins imported into China had decreased significantly. As the coins produced by Guangzhou and Hubei continued to circulate, they represented a return of economic rights (收回權利 shouhui quanli). He also argued that using silver coins to pay for taxes removed opportunities for corruption because clerks who collected them did not have the opportunity to press citizens to provide a greater quantity of silver with the excuse of needing to melt down smaller chunks of the metal in order to form larger ingots.271 Expanding on the metaphor of the loss of economic rights, louzhi, Chen believed that as each province minted its own silver coins, foreign coins would become increasingly rare. This simple policy would act as a stopper to the leaky wine cup (賽漏卮 sai louzhi).272

270 Ho Han-wai, “Cong yinjian qianhuang dao tongyuan fanlan,” 401. 271 In Chinese the term for meltage fee is huohao (火耗). 272 Junjichu lufuzouzhe—huobijinrong, Number One Archives of China, (Hereafter JJCLFZJHBJR) 03- 168-07-9531-59, October 1, 1893. 115

The language and arguments of provincial officials setting up mints to make silver dollars in 1895 and 1896 was generally more mundane, revealing detailed information about the costs involved in setting up mints as well as pre-existing infrastructure in terms of equipment and expertise. province was in a better situation to begin minting money than other areas because some of the machines previously used to make cash zhiqian could be converted to make small denomination silver coins. However, the province still needed to buy some machinery, with the total cost to open a facility amounting to 10, 480 silver taels.273 In contrast, the Governor-General of Shanxi province noted that it would cost roughly 40,000 silver taels to get the mint started.274

Although provincial officials stressed that they would adhere to making coins with the same fineness and make as those of Guangzhou and Hubei, each province began with different endowments and experiences.

Not all provinces initially wanted to mint their own silver coins. The Governor-

General of , En Ze (恩擇 ?-?), observed that the province had a shortage of zhiqian but also argued it could not establish its own mint. The province simply lacked the money to buy the machinery. Instead, En Ze asked the Board of Revenue first to send the payments for the salaries of officials and soldiers in the province (官兵俸餉 guanbing fengxiang) to the mint in Hubei for coining, to be later sent to Beijing where a representative Heilongjiang would pick up the coins.275 Hunan at first followed a similar path to that of Heilongjiang. Though the province also suffered from a shortage of cash,

273 GZDAQZ 04-01-35-1374-028, April 6, 1896. 274 GZDAQZ 04-01-35-1374-039, December 31, 1896. 275 JJCLFZJHBJR, 03-168-07-9532-28, April 29, 1896. 116 its governor Chen Baozhen (陳寶箴 1831-1900) did not want to open a mint. He feared the large capital expense of the machinery, a possible shortage of silver supply and the chance that the coins would not be used that widely. To help relieve the money shortage in Hunan, Guangzhou had originally donated 600,000 small denomination coins zhenjuan (賑捐) that had been well received in the province. Chen Baozhen ultimately concluded that having money made outside the province was not as close and convenient

(近便 jinbian) as doing it in Hunan itself. With this in mind, he contacted the Liangguang

Governor-General to buy one of small-denomination coinage machines from the

Guangzhou Mint. Now, Chen was of the opinion that the expenses associated with coining were not very high.276

These memorials reveal the different economic, technological and institutional situations of provinces as they began minting silver coins. In order to more fully understand the different conditions of the mints across China that ultimately led the

Grand Council to order all but two of them to close, it is helpful to draw on the observations of an American machinist who traveled to Hubei and Sichuan to assist with construction.

The Ferracute Machinery Company and the Chengdu and Wuchang Mints

Minting equipment, like much other machinery during the Yangwu yundong, had to be bought abroad and installed by foreign experts. The static term “technology transfer” masks the complex social and cultural experience of one piece of technology

276 JJCLFZJHBJR, 03-168-07-9532-91, July 20, 1897. 117 moving to another part of the world. Charting the history of the Ferracute Machinery

Company’s involvement with creating and installing coinage equipment for the mints in

Chengdu and Wuchang brings additional depth to the technological developments of the

Yangwu yundong, revealing the varying quality of Chinese engineers and mechanics as well as the end products of the respective mints.

By the 1890s, the Ferracute Machinery Company of New Jersey was an important company in the growing business of shaping, pressing, punching and manipulating metals. Ferracute provided a number of machines for the U.S. Mint and at the turn of the new century it would become one of the key suppliers of sheet-press metal for the Ford

Motor Company.277 In 1896, Ferracute received word through the American Trading

Company of New York that several Chinese provinces were interested in buying their minting equipment.

Ferracute eventually won contracts to construct a plant for minting five types of silver coins—five, ten, twenty and fifty-cent pieces, and a one dollar coin— at Chengdu in Sichuan province. When fully operational, the mint would be able to produce 150,000 coins a day. The Chengdu Mint also contracted for the construction of machinery for minting zhiqian, copper cash with holes in the middle. The machinery designed for this part of the Chengdu mint was capable for spitting out 250,000 coins a day. Likewise,

Wuchang in Hubei province, then under the leadership of Zhang Zhidong, ordered machinery with a peak work rate of 300,000 copper cash coins a day.278 Ferracute not

277 Arthur J. Cox and Thomas Malim, Ferracute: The History of an American Enterprise (New Jersey: Cowan Printing, 1985), 49. 278 Henry Janvier and Oberlin Smith “Coining Machinery in Chinese Mints,” Cassier’s Magazine 24, no. 1 (May 1903): 3. 118 only provided coining presses themselves but all the other equipment, tools and machines necessary for running a mint.279 The company designed the buildings to house the equipment and also sent a technical advisor, Henry Janvier (1865-?), to China in order to help install the machines and instruct Chinese workers on how to operate and maintain them.

Providing machines for silver coinage was an easy task compared to the engineering challenge of designing the equipment for copper cash, which had to make the coin itself as well as punch a square hole through the middle of it. As Oberlin Smith

(1840-1926), the founder of Ferracute, observed in a lengthy discussion of this engineering problem, recent attempts to make cash experienced difficulty “in getting the square holes central on both faces of the coin with the somewhat larger square panel which stands in relief above the depressed surface thereon.”280

Smith tried a number of experiments. His first idea, to punch the hole at the same time as the blanks for the coins were cut from sheet metal, did not work because it was too difficult to feed such discs into the coining dies. The next possibility was to have square projections in the coining dies themselves that would meet each other in the middle as the coin was made. This approach, however, made the dies more expensive and since this piece of equipment had to be replaced frequently, it was not the best path forward. Another possibility was to punch the hole in the coin after it had passed through the initial coining, and then to have another that would smooth out the sharp

279 Oberlin Smith, “Minting Machinery for China,” American Machinist, October 22, 1903, 1490. 280 Smith, “Minting Machinery for China,” 1490. 119 edges around the square hole. Otherwise these sharp edges would put severe stress “upon the straws on which the Chinamen hang this ‘cash’ while wearing them as temporary necklaces after receiving their wages.”281 Eventually, though, Smith decided that it was best not to “let go of such a flimsy affair as one of these coins after once having had a good hold of it.”

He scrapped the plan to punch a hole after the initial coining. He eventually settled on the creation of a controllable dial linked to three pairs of dies set up for different tasks, the first a pair of coining dies, the second a pair of punching dies and the third a pair of counterstriking dies. The coin remained stationary as the dies rotated around it. One cycle of the machine consisted of “one complete up and down stroke of the ram with three concurrent major operations, each doing one-third of the work and performed upon three coins at a time.”282

281 Smith, “Minting Machinery for China,” 1491. 282 Smith, “Minting Machinery for China,” 1491. 120

Figure 7: Demonstration of coinage equipment to be used in China (1897)

The Ferracute Company held an exhibition displaying the equipment destined for

China and later dispatched Janvier to help with the installation in January 1898 (see

Figure 7). Janvier was a devotee of photography and packed two cameras as well as tools necessary for developing photos. Arriving in Shanghai, he met an official from the

American Trading Company, Henry Everall (?-?), who would act as his translator.283 The party went first to Wuchang to install the cash coining equipment. However, upon arrival,

Janvier did not have much work to do. The equipment was already set up. As Oberlin

Smith later reported in a later magazine article, “the Chinese engineers and mechanics had unpacked and put up the machinery in a perfectly proper way, though they had never

283 Everall would later serve as general manager of Standard ’s operations in China. See Sherman Cochran, Encountering Chinese Networks: Western, Japanese and Chinese Corporations in China, 1880- 1937 (Berkeley: University of California Press, 2000), 20 121 seen anything of the kind before.”284 The only guidance they had to go on was a set of photographs and instructions written in English by Oberlin Smith. Evidently, these had been translated, enabling the mechanics to proceed without Janvier’s help. Janvier made plans to stop in Wuchang on his way back from Chengdu in order to assist in the installation of the steam engine to power the coining presses. The rest of his journey, though, was not quite as smooth.

When Janvier and Everall finally arrived in Chengdu in April 1898, they confronted one challenge after another. Janvier first discovered that the blueprints of the buildings to house the machinery had never arrived; the local Qing administrators had

“erected a building according to their own notions, so I have to rearrange all of the machines and shafting to suit their building.”285 Instead of several large buildings to house the equipment, “the Chinese had put up a series of small unconnected structures badly suited to our purpose.”286 Despite this initial delay, Janvier optimistically guessed that, if all went well, he could leave by June 1. That was before the machinery for the mint arrived in Chengdu.

When the equipment finally reached the city, Janvier could no longer hope for an early June departure. It was to be a long summer. By the middle of April, some of the machinery had arrived but “it has been soaking in water for ‘dear knows’ how long until it had a coat of rust nearly “one thirty-second inch thick.”287 Of the twenty-five boxes that had been opened, none of the machinery was in good condition. But most of that

284 Henry Janvier and Oberlin Smith “Coining Machinery in Chinese Mints,” 7. 285 April 11, 1898, Henry Janvier Papers (HJP) Box 1. Hagley Archives, Wilmington, DE. 286 “Adventures in Money Making,” Bridgeton Evening News [New Jersey], December 10, 1939. 287 April 16, 1898, HJP, Box 1. 122 equipment was not critical for the success of the facility. If the coining presses and delicate scales that had yet to arrive were in a similarly sorry state, “the time to repair and get them in shape for running cannot be calculated.”288 The condition of the machinery also caused the first open conflict with the manager of the arsenal who insisted, and could not be persuaded otherwise, that all the equipment was not new but actually second-hand.

The arrival of the rest of the equipment brought further problems. Upon opening these containers, including some of the coinage presses, Janvier and Everall found large nests filled with rats. Although he reported that only one serious breakage had occurred, there was still much work left to do as “each press will have to be taken apart, all the parts cleaned, some made new and put together again and it is questionable whether some can be gotten apart without being broken.” There was also a rumor about why the coinage presses were in such a state of disrepair. Apparently, Janvier heard that someone in

Hankou had been arrested for stealing cases from the presses to use as firewood.289

Shipments of equipment, including the dies for the silver coins, continued to trickle into Chengdu (see Figure 8). The order Ferracute received for the mint facility was all-inclusive. The dies, the piece of machinery that held the design of the coin, in this case, a coiled dragon, was crafted in the United States. The dies, like the machinery, were in a horrid state. Janvier thought “new ones will have to be made but as it would take about five months to send the order home, have them made and sent here,” so he believed it hardly worth the trouble. The arrival of the dies caused further conflict with the arsenal

288 April 16, 1898, HJP, Box 1. 289 April 29, 1898, HJP, Box 1. 123 manager, who thought them “second-hand” and believed Janvier only sought an additional order for his company.290 However, after the presses were finally set up and began to spit out coins, these defective dies proved to be an asset, not a liability.

Figure 8: Mint equipment arriving in Chengdu (1898)

Only by late May could Janvier envision an end to his stay in Chengdu. One of the last pieces to arrive was the great E64, the press for coining dollars and half-dollars.

The process of setting it up was not without problems. After being broken down to ease from the river to the mint, the largest pieces of the equipment were put on an old cart that was pulled by a number of Chinese laborers. However, the cart broke down,

“landing on a Chinaman’s foot and mangling it so badly that it had to be amputated.”

Another man ran a rusty nail through his foot while pulling the cart and it was now twice

290 May 12, 1898, HJP, Box 1. 124 normal size.291 When the coining machine was finally installed in the mint, Janvier reported that the Chinese thought it “was great and a most wonderful production, because it contained so much .”292 The unassembled pieces of equipment awaited completion

(see Figure 9).

Figure 9: Henry Janvier stares at rusted equipment at Chengdu Mint (1898)

Janvier soon began the task of training the Chengdu residents who would actually run the mint. For someone who made “every minute count,” Janvier found it difficult to watch the workers at the mint “at their working, or more, accurately, their loafing.”293 In

June, the work rate of the factory increased exponentially as it was announced that the acting governor of the province would visit the following week: “the machinery was all

291 May 12, 1898, HJP, Box 1. 292 June 6, 1898, HJP, Box 1. 293 May 12, 1898, HJP, Box 1. 125 polished, floors cleaned, red curtains hung in all the doorways, and candles burning and other great foolish things gotten in readiness for the ‘Grand Mogul.’”294 The governor never showed but Janvier actually considered bribing him to announce that he intended to visit the factory again in order to continue motivating the workers.

Janvier also had to help the arsenal workers adjust to the sights and sounds of the steam-powered presses as well as teach them how to operate the equipment. As Janvier and Everall started the steam engine for the first time, “all observers and helpers hastily decamped and it was with great difficulty they were induced to return.”295 Janvier reported that these initial fears soon gave way to a dangerous complacency. After the

“native mechanics discovered the harmlessness of it all,” they became fascinated. But interest in the machines and sartorial convention might produce serious accidents; workers and observers stood so close to the wheels of the coining presses that “their silken robes would be drawn out with constant danger of their becoming caught in the belts.”296 This serious problem was also simple to solve: Janvier installed bamboo rails around various machines. After “breaking in” the new workers and appointing one arsenal mechanic to watch “everything that I do,” the machinery and workforce was finally ready to begin producing coins (see Figure 10).297 There was a simple worry,

“would the final product be accepted by the local Chinese governor”?298

294 June 21, 1898, HJP, Box 1. 295 Adventures in Money Making,” Bridgeton Evening News, December 10, 1939. 296 Adventures in Money Making,” Bridgeton Evening News, December 10, 1939. 297 July 12, 1898, HJP, Box 1. 298 Adventures in Money Making,” Bridgeton Evening News, December 10, 1939. 126

Figure 10: The installed coining presses in Chengdu (1898)

Before the first official coining, mint workers brought in a live chicken that was cut in half for good luck, “its blood and feathers spread over and through the trough through which the metal was supposed to run.” The larger worry, though, was the state of the coinage dies. Like most of the machinery, they had been submerged under water and seriously damaged. After the initial coining, there was “no mistaking the blisters on the faces of certain coins caused by the rust-pits on the delicate surface of the dies.”299

Despite these imperfections, Janvier had no choice but to hand the samples over to

Everall who in turn showed them to the official in charge of the mint. In a surprise, the local official approved of the coins. Everall reported that after passing his finger over one of the small blisters on the face of the coin, the official remarked “how nicely those extra marks would prevent counterfeiting.”300 Janvier and Everall both received a reward of

299 Adventures in Money Making,” Bridgeton Evening News, December 10, 1939. 300 Adventures in Money Making,” Bridgeton Evening News, December 10, 1939. 127 approximately 2,000 taels, about $245. Local officials apparently made efforts to induce

Janvier to stay in China for a period of several years to oversee the running of the mint.

Citing health reasons, he declined the offer and began the long journey back to New

Jersey. The mint was set up and producing coins but initially the coins did not take with the local merchants who stuck with “the chunk system.”301

Heading back up the Yangzi River, Janvier stopped, as previously scheduled, at

Wuchang to set up the power plant and oversee the first trial runs of cash coining. This task was meant to take a few weeks. When Janvier arrived he found that the plant was already up and running. In fact, the Chinese engineers and mechanics had already made significant and difficult modifications to the original machinery. Due to an increase in the price of copper, the authorities at the Wuchang Mint decided to shrink the size of cash.

Chinese mechanics “refitted the machines with a new set of dies, not only for coining but for punching square holes.”302 These were up and running by the time Janvier arrived and the mint leadership informed him that they had no need of his services. Reflecting on this episode several years later, Oberlin Smith concluded with an assessment of Chinese mechanical ability that would later become a cliché: “the mechanical Chinaman…showed little power of originating designs, but a remarkable capability in copying them and in adapting themselves to circumstances.”303

After Janvier returned to the U.S., his interpreter from the American Trading

Company updated him on conditions in Sichuan. The mint in Chengdu had been “shut

301 Adventures in Money Making,” Bridgeton Evening News, December 10, 1939. 302 Janvier and Smith “Coining Machinery in Chinese Mints,” 13. 303 Smith, “Minting Machinery for China,” 1493. 128 down since our departure and no one seems to know when they are going to commence operations again.” Even worse, Everall found the “machinery in a terrible state, especially the cash presses that are almost ruined by rust and dirt.” Even if the equipment was in a better state, the arsenal workers said that “no ‘cash’ will likely ever be coined because it is a losing game.” 304 Writing several months later, the Governor-General of

Sichuan memorialized that he took up his post after the machinery was installed and the workers trained. He tried to begin minting but found that funds were insufficient and so he sent the workers away.305 By the spring of 1899, the Chengdu Mint was not the only mint in China with idle equipment.

An Attempt to Consolidate Minting

The journey of Henry Janvier to Sichuan and Hubei reveals the different states of provincial mints, the skills of the workers, and the ability of the local administrators to run the facilities. The creation of mints making silver coins had originally been proposed as another way in which to alleviate general shortages of money and stem the inflow of foreign coins, helping the Qing government recover its economic rights. Several years later, there was a different problem: an increasing plethora of coins of different weights and sizes. In 1898 and 1899, the central government tried to exercise its authority— somewhat successfully—to shut down the production of silver coins at different provincial mints. If, as I have argued, the origins of provincial minting in the late 1880s

304 April 11, 1899, HJP, Box 1. 305 GZDAQZ, 04-01-35-1051-001, January 4, 1900. 129 can be explained within the traditional Qing dynasty political economy, the attempt to reign in provincial minting in the late 1890s represented a break from this model.

The foreign press was quick to notice the number of new mints springing up around the country. An article in the North China Herald lamented that the design of the provincial silver dollars “is different and their weights not uniform, not to mention the quality of the silver used varies widely.”306 According to the article, merchants—both

Chinese and foreign—still preferred Mexican dollars to provincial silver dollars. The author of the article held out hope that a “national dollar issued in many different places but with a fixed weight in uniform silver would soon become current in native and foreign trade” and put an end to the provincial competition in minting money.307

However, the plethora of provincial dollars was likely to continue “until the central government at Peking is able to control the Governor-Generals and Governors of the various provinces enough to cause them to act in concert for the good of the country.”308

Though local officials naturally claimed that their silver coins did not differ significantly from the weight and standards of the Guangzhou and Wuchang Mints, which they were instructed to mirror, internal government correspondence gives a sense of the difficulties of maintaining uniformity across the different mints. In the summer of

1898, the Governor of province, Deng Huaxi (鄧华熙 1826-1916), sent samples of coinage from the newly constructed mint to the Grand Council for review. The Grand

Council found these samples wanting. The design of the dragon was not quite detailed

306 “Mints and Railways in China,” North China Herald, October 22, 1897, 733. 307 “Mints and Railways in China,” North China Herald, October 22, 1897, 733. 308 “Mints and Railways in China,” North China Herald, October 22, 1897, 733. 130

(jingxi 精細) enough, making the coin easy to counterfeit. There were no punishments for these errors, only an exhortation to more effectively manage the facility.309 In 1899, a censor in Shanxi province memorialized that he had heard the quality of oversight at the mint in Tianjin under the control of the Northern Intendant was not nearly as exacting as in the mint in Hubei. Since Tianjin was so close to Beijing, he suggested that the Board of Revenue dispatch several officials to oversee the work in Tianjin.310

At the same time, the different denominations of silver coins circulated at a discount depending on where they were minted and where they were used. In Nanjing, silver dollars minted in the city and in Wuhan were not discounted when changing to copper coins. However, provincial dollars from Guangdong, Anhui and Fujian only exchanged for copper cash at increasing discounts. Moreover, coins made in a province could also circulate at a discount within its own borders, as was the case for Anhui dollars. Several factors were behind this discounting: most people were used to Mexican silver dollars and the fineness and quality of Chinese silver coinage varied across different regions.311

The order to close the various mints producing silver coins took place soon after the Hundred Days’ Reform Movement of 1898. From June to September 1898, the

Guangxu Emperor undertook a series of policy and institutional changes meant to reform

309 See GZDAQZ, 04-01-35-1375-007, August 30, 1898 and Junjichu Shangyudang (JJCSYD), September 10, 1898, 4th item, 1438:1. I use the citation provided by the electronic record of the Junjichu shangyudang at the Number One Archives. After the date, the citation in the database appears as follows in Chinese: 第 4 条 盒号 1438 册号 1. 310 JJCLFZJHBJR,03-168-07-9535-44, August 30, 1899. 311 Ho Han-wai, “Cong yinjian qianhuang dao tongyuan fanlan,” 405-406. 131 the dynasty. After the Qing defeat in the First Sino-Japanese War in 1895, some Chinese thinkers and officials thought that the reforms of the Yangwu yundong period—adopting

Western technology without significant institutional and political changes—did not go far enough. The , influenced by these opinions, launched a reform movement that would touch on the foundations of the Qing government: the educational and examination systems, the political and economic systems and the military. These efforts soon ran into opposition from more conservative elements of the bureaucracy and the Empress Dowager Cixi (慈禧 1835-1908), with the support of these conservatives, ultimately removed Guangxu from power.312

Debates about the monetary system were only a minor part of the Hundred Days’

Reform Movement but their influence is detectable in the 1899 order to shut down all but two provincial mints. In the middle of 1898, Liu Qingfen (刘慶汾 ?-?), a newly appointed assistant (章京 zhangjing) in the Grand Council, penned a proposal on further ways to reform the Qing coinage system. Liu, after a career as a translator in Japan and after several years working on commercial affairs around Shanghai, was a newcomer to

Beijing. He had recently been appointed to this post in the capital as the central government sought to find junior officials with diverse sets of expertise and experience.313 Liu first advocated minting copper coins with a face value significantly above the inherent value of the metal in the coins. This approach had been tried before

312 For more background see Luke S.K Kwong, A Mosaic of the Hundred Days: Personalities, Politics and Ideas of 1898 (Cambridge: Harvard University Press, 1984); Rebecca Karl and Peter Zarrow, Rethinking the 1898 Reform Period: Political and Cultural Change in Late Qing China (Cambridge: Harvard University Press, 2002). 313 Junjichu quanzong 03-5362-001 ,June 22, 1898. 132 during the Taiping Rebellion but Liu insisted that this time would be different because the minted coins would be harder to counterfeit than the coins that had been cast in the

1850s. Liu also had several proposals for improving the circulation of provincial dollars, which did not circulate around the capital and suffered from discounting outside the province where they were minted. Simply advocating the use of these coins, Liu stressed, was not enough. If the silver dollars were to circulate without impediments, the government had to shift from collecting taxes and calculating public in taels to reckoning them in silver dollars, or yuan (元). What he advocated was the elimination of various ghost units of account, anticipating debates in the 20th century. Liu also suggested the creation of a mint using steam-powered equipment in Beijing.314

A number of prominent figures commented on Liu’s ideas. Duan Fang (端方

1861-1911), the head of the Central Bureau of , Industry and Commerce (农

工商總局 Nonggongshang zongju), a bureau created during the 100 Days’ Reform period, agreed with Liu in principle while differing slightly on the details of the proposal.315 Fu Yunlong (傅云龙 1840-1901), who, after traveling around the world in the 1880s and publishing voluminous account of his journeys while working at the

Beiyang Arsenal, drew on this experiences in his response to Liu’s proposal. Other countries, he noted, usually had a head minting office (銀元總局 yinyuan zongju) in the capital and did not allow monetary authority to be spread throughout the country. Fu

314 JJCLFZJHBJR, 03-168-67-9534-61, August 30, 1898. 315 JJCLFZJHBJR, 03-168-07-9534-64, September 9, 1898. 133 believed that establishing a mint in Beijing for producing silver coins would not only benefit the capital but also help standardize regulations across the country.316

Not all responses were quite so positive. Kuang (奕劻 1838-1917), then

Minister of the Zongli (總理衙門), responded negatively to Liu’s memorial as well as to the ideas and suggestions made by the other ministers. He rejected the proposal to mint coins along the lines proposed by Liu Qingfen because of the involved.

As would be the case with later officials, he thought that undertaking coinage reform in

China would be very difficult because the size of the territory. He also disagreed with the idea that there should be a mint in Beijing. There were already so many provincial mint facilities that should the area around the capital need silver coins, it could simply rely on the mint in Guangzhou and Wuhan.317

This line of thinking was codified in 1899 after the Hundred Days’ Reform

Movement. That June the Grand Council ordered that only the provincial mints in

Guangdong and Hubei could remain open and the rest had to close. The inconveniences caused by various mints producing coinage of differing quality and fineness were now deemed to outweigh any benefits in terms of convenience or preventing the circulation of foreign coins. In addition, there had been substantial costs to setting up the mints. From this point forward other provinces could place orders at these two facilities for production of silver coins but they could no longer make their own.318

316 JJCLFZJHBJR, 03-168-07-9534-73, September 20, 1898. 317 JJCLFZJHBJR, 03-168-07-9534-81, November 15, 1898. 318 JJCSYD June 6, 1899, second item: 1442:1.

134

Upon receiving the order from the Grand Council to suspend minting, provincial officials under instructions to close their mints employed several types of arguments to convince the court that they too should be allowed to continue minting silver coins. Yu

Lu (裕绿 ?-?), Governor-General of Zhili, stressed the importance of Tianjin in the arteries of commerce, the success and uniformity of its minting efforts thus far and the impracticality of having the province’s money made in Guangdong or Hubei. Because

Tianjin was a center of Chinese and foreign commerce, the demand for money there was quite high. Since beginning to mint silver coins several years before, Yu Lu continued, the output of the mint had been accepted by the people. He insisted the quality and fineness of the coins in Zhili were not much different from those of Guangdong and

Hubei.

After receiving the Grand Council’s order that all provinces were to have their money made in Guangzhou and Wuchang, Yu Lu telegraphed the leaders of those respective provinces to inquire about ordering money. He reported that the results of these discussions were quite discouraging. The high and growing demand for coinage in

Zhili, he argued, would overburden the capacity of the Guangzhou Mint, now tasked with making money for its own region but also saddled with the responsibility of producing coinage for other provinces. The mint at Guangzhou was currently producing more than

400,000 coins a month and handling Zhili’s needs would have required purchasing additional machinery, its 90 presses notwithstanding. Yu Lu thought these purchases were not economically worthwhile (合算 hesuan). Moreover, Yu Lu foresaw problems because the mint in Guangzhou bought most of its fine silver (纹银 wenyin) from abroad

135 and he feared foreigners might hoard and speculate on the price of silver. With these problems added onto the transportation and insurance fees of moving silver from

Guangzhou and Wuhan to Zhili, he felt the new policy announced by the Grand Council would necessarily lead to shortages of coins (匱絀 guichu).319

Liu Kunyi, the Governor-General of Liangjiang, took a different approach to argue that the mint under his control should remain open. His memorial provides detail about the work process and profits of the facility in Nanjing. First, addressing the Grand

Council’s observation that the quality of the coins by various provincial mints differed significantly, Liu stressed that the facility in Jiangnan actually employed a foreign expert to test and oversee the quality of coins. Expanding this argument, Liu observed that the true test of a coin is not whether it is standardized (畫一 huayi) but whether the merchants and citizens trust and use it. Judging by this criterion, the coins of the mint were quite successful. Next, Liu addressed one of the original issues behind the creation of provincial silver dollars: decreasing the number of foreign silver dollars and preventing the loss of liquan. If the mint in Nanjing continued to idle, Liu hypothesized, the output of the facility would not be replaced by the Guangzhou and Wuhan mints but by the importation of greater numbers of foreign silver dollars, causing great harm to the

Qing’s liquan.

Liu’s final argument dealt with the economics of coinage. From the start of minting at the end of 1897 to the end of 1898, the Jiangnan mint produced over five million small and large denomination silver coins. After fees associated with minting, a

319 GZDAQZ, 04-01-35-1375-037, July 6, 1899. 136 profit of over 140,000 liang remained. Part of this sum went to paying of the loan that was necessary to procure equipment and construct the facility. With the suspension of minting, Liu was uncertain how the rest of the loan would be paid back. Most interesting, though, Liu stressed that the coinage of silver was necessary to provide a subsidy for the minting of copper cash. He noted that in the past several years the price of 100 jin of copper had increased from just over 20 silver liang to more than 30 silver liang, making the capital outlay quite heavy and the enterprise of minting copper cash unprofitable. In the past year, however, the profits made from minting silver coins subsidized copper coinage. In Liu’s expansive argument about why the Nanjing Mint should remain open, this final point addresses the traditional principle that the state should provide copper coinage. In this case, coining silver was a necessary precondition for fulfilling this responsibility.320

Two months after the initial order to halt all minting except in Wuhan and

Guangzhou, the Grand Council sent out a new set of instructions. The mints in Zhili, and Jiangnan could reopen and operate as before but all the other mints were to remain closed and no other mints could open.321 As the Grand Council reversed its decision on the closure of certain provincial mints, it also sanctioned plans to construct a mint in

Beijing.322 Instead of purchasing minting equipment from abroad, the Qing court

320 GZDAQZ , 04-01-35-1375-038, July 7, 1899. 321 JJCSYD, July 10, 1899, first item, 1442:3. The mints that were to remained closed were in Fujian, Anhui, Hunan, , and Shanxi. 322 JJCSYD, June 5, 1899, third item, 1442:1 and JJCSYD July 3, 1899, fourth item, 1442:2. 137 instructed provincial officials in Zhejiang and Anhui provinces to send their machinery to the capital.323

Zhang Zhidong also played an important role in the plans for the new mint in

Beijing. At the end of 1899, Wang Bingen (王秉恩 ?-?) one of the officials in the Wuhan

Mint was ordered to come to the capital to consult on the proposed mint. However, due to an illness in the family, he was not able to make the journey and instead Zhang Zhidong sent along an analysis of all the factors that must be considered in the creation of a mint in Beijing.324 Drawing on the experiences of the Guangzhou and Wuhan mints, the worker said that before determining the types and amount of equipment the new mint should buy, the Board of Revenue needed to estimate how much demand there would be for coins produced by the mint. He also noted that the local money shops were likely to oppose any new coinage because it cut into a key aspect of their business: profits obtained by changing different types of money. Up to that point, the only place silver coins had circulated was along the newly established railroad line from Tianjin to

Beijing.325 However, part of this circulation was due to decree. With the shortage of cash in the capital, the Grand Council had made it illegal to pay for railroad fare with copper cash or even to take cash on board the train.326

Once the Board of Revenue determined how much money to make, it was then practical to consider where and how to build the mint facility. Even though the exact

323 See GZDAQZ 04-01-35-1375-043, August 19, 1899 and JJCLFZJHBJR－03-168-07-9535-60, November 18, 1899. 324 Junjichu quanzong, 03-7417-035, February 25, 1900. 325 Junjichu quanzong, 03-6684-063, February 25, 1900. 326 JJCSYD, January 12, 1899, second item, 1440:3 138 details could wait till later, Wang identified several principles for selecting a site to make money. To ensure easy transport of materials, the mint should be near water. This condition, Wang thought, posed problems for Beijing.327 The site also needed to be at a high elevation. A facility at a lower level ran the risk of being flooded. Also, the mint should have as few gates as possible in order to make it hard to enter and exit the facility and easier to keep and eye on any suspicious activity.328

The exact circumstances of the newly established Beijing Mint—what types of coins it produced and how many of them—is a source of some controversy.329 The final fate of the Beijing Mint is not. In the summer of 1900, the Boxers entered Beijing.

Towards the end of June, they destroyed the newly established mint. A force of soldiers representing eight foreign nations arrived in Beijing in August 1900 and ended the Boxer

Rebellion. The mint in Beijing, like the various provincial mints, had several purposes: it hoped to alleviate a dearth of a circulating medium and, in a very tangible way, represented the assertion central power. The mint’s machinery had been brought in from the facilities of different provinces. This tension between central and provincial officials over monetary matters did not end here.

Conclusion

327 Perhaps Wang was not aware that the ran to Tongzhou, just to the east of Beijing. 328 Junjichu quanzong, 03-6684-064, February 25, 1900. 329 The controversy revolves around whether the current examples of silver dollar bearing the markings of Gengzi nian (庚子年) and Jingju zhizao (京局製造) were actually produced in the first months of 1901 or were made later with dies that were preserved from the ruined mint. For an overview of the debate see “Gengzi nian Jingju zhizao yinbi kao,” [An overview of the Beijing mint’s silver coinage in 1901] Zhongguo qianbi, no. 3 (1998): 32-36. The article is a translation of an English-language article by James O. Sweeny. 139

The history of provincial minting in this thirteen-year period from 1887 to 1900 represents a fulcrum between the established patterns of the Qing political economy, the nascent rhetoric of economic nationalism and a central government with the aims—if not the ability—to regulate the action of provincial officials in the monetary realm.

Moreover, this chapters shows that coinage reform, contrary to the opinion of other scholars, was an important but overlooked aspect of the Yangwu yundong.330 During this time, the circulation of foreign coins was something to be opposed and resisted. Doing that required the importation of steam-powered minting equipment to produce provincial silver dollars. As Stephen Halsey argues, many of the reforms undertaken by provincial officials during the Yangwu yundong actually strengthened the dynasty and the emergence of a “military-fiscal state” in China.331 However, in the realm of monetary affairs, this observation is not as convincing. The central and provincial governments clashed over who should make money and what kind of money it should be.

This conflict continued, and intensified, in the initial years of the 1900s. The proposals of Liu Qingfen to mint a copper coin whose face value was much higher than its copper content created a significant debate in 1898. Before the outbreak of the Boxer

Rebellion in 1900, Li Hongzhang, Governor-General of Guangdong and Guangxi, began minting just these types of coins, tongyuan, which, unlike the copper cash discussed thus far, did not have a hole in the middle so that it could be strung together.332 During the

330 Zhu, “Cong ziyou dao longduan,” Vol. 1, 274. 331 Halsey, Quest for Power, 5-7. 332 Ho Han-wai, “Cong yinjian qianhuang dao tongyuan fanlan” 416 and 423. 140 first decade of the 20th century, other provinces began minting these coins in large numbers.

The minting of copper tongyuan was not the only significant action undertaken by

Li Hongzhang in 1900. After the defeat of the Boxers that August, Li was called to

Beijing to negotiate the financial settlement with the foreign powers. The Qing ultimately agreed to pay 450,000,000 taels as an indemnity.333 This payment put a crushing burden on Qing coffers. As the next chapter shows, faced with this large indemnity on top of other debt payments and the rapidly dropping price of silver, the Qing dynasty debated whether it should adopt the gold-exchange standard. This issue linked China, the United

States and Mexico, the three countries most interested in the world price of silver.

Debates about the gold-exchange standard, however, involved much more than just a monetary standard. They also tied to Qing conceptions of China’s sovereignty and continuing tension between central and provincial officials

333 Frank H.H. King, “The Boxer Indemnity—‘Nothing but Bad’,” Modern Asian Studies 40, no. 3 (July 2006): 668. 141

Chapter 4: The Rise of Gold and Fall of Silver: The Jeremiah Jenks Mission to the Qing Court, 1903-1904

Jeremiah Whipple Jenks (1856-1929) was a new type of figure in American life at the turn of the 20th century, one whose life and career mirrored larger changes taking place in the United States. Born in Michigan, he first studied at the University of

Michigan and then, like many young American intellectuals at the time, departed for

Germany and received a doctorate in economics before returning to the United States and eventually settling at Cornell University in the 1890s. An important figure in the

Progressive Era, he penned several volumes on trusts, immigration and the political economy of the United States.334

After the turn of the century, he became intimately involved in a new facet of

American foreign policy: changing the currency systems of newly acquired territories. In

1902, he published the dense-sounding volume Certain Economic Questions in the

English and Dutch Colonies in the Orient about the gold-exchange standard. Jenks, along with a small group of financial experts, also debated how to implement currency reform in the newly acquired colonies of Puerto Rico and the . Jenks, “the suave, unassuming but thoroughly earnest professor of Cornell University, with his unexcelled

334 For more background on Jenks, see Julia Ott, When Wall Street Met Main Street: The Quest for an Investor’s Democracy (Cambridge, MA: Harvard University Press, 2011), 20-27. 142 mastery of facts and figures,” traveled to China in 1904 to convince Qing officials that

China should adopt some form of the gold standard.335

A number of political and economic considerations stood in the background of the

Jenks trip to China. First, as more countries followed Britain in adopting some form of the gold standard during the late 19th century, world demand for silver shrank as supplies of silver continued to grow, leading to further drops of the price of silver in terms of gold.

This ratio impacted the Qing dynasty (1644-1912) in particular because, after the Boxer

Rebellion (1900), the Qing had large indemnity payments at a fixed rate in gold. The declining world price of silver meant those obligations were more difficult to meet.

Mexico also suffered because silver, particularly in the form of Mexican silver dollars, was one of its important exports. The drop in demand and slow disappearance of the Mexican silver dollar—“a coin which for a very considerable period was more widely used than any other known to history”—was both an epoch-marking event as well as a very real challenge for the Mexican government and its Finance Minister José Limantour

(1854-1935).336 Faced with the declining price of silver, the Mexican government and the

Qing jointly petitioned the United States government to help stabilize the price of silver in late 1902 and early 1903. In turn, the United States created the Commission on

International Exchange with Jenks as a key member. The commission eventually recommended that both China and Mexico adopt the gold-exchange standard.

335 Robert Little, “Currency Reform in China,” , September 8, 1904. 336 Andrew Piatt, “The End of the Mexican Dollar,” Quarterly Journal of Economics 18, no. 3 (May, 1904): 321-356.

143

From the point of view of the United States, the Commission on International

Exchange, approved by Congress in spring 1903, overlapped with certain strands of U.S. policy in the late 19th century in general and its policy towards China in particular. From the 1860s to the 1890s, the United States was a motivating force behind several international conferences on bimetallism that sought to stabilize the ratio between gold and silver. The Commission on International Exchange was one way of working toward this goal without using the slogan of bimetallism. In regard to China policy, Secretary of

State John Hay (1838-1905) saw the commission as working toward the goal of maintaining an “open door” in China: making sure that no foreign country achieved a position of supremacy in Chinese affairs. Further, the work of the Commission on

International Exchange also supported the emerging desire of American diplomats to break free of a British-dominated global financial system by more closely linking the monetary system of its colonies and other countries to New York instead of London.

The proposals of the Commission on International Exchange and the visit of

Jeremiah Jenks to China did not lead to the Qing adopting the gold-exchange standard.

With this outcome in mind, and compared to the previous success of American currency reform efforts in other places, it is easy to conclude that the “Jenks mission and the effort to move China onto gold were total failures.”337 In a similar vein, Chinese scholarship

337 Emily Rosenberg, “Foundations of United States International Financial Power: Gold Standard Diplomacy, 1900-1905,”Business History Review 59, no. 2 (Summer 1985): 191. 144 sees the episode as yet another way in which foreign countries attempted to interfere (干

涉 ganshe) in Qing affairs.338

However, this chapter argues that the most instructive way to look at the Jenks mission is to move beyond “event-based change that stresses failure.”339 Instead, it is more accurate to see the Jenks mission as the beginning of an economic and political discourse about the gold standard that continued for nearly three decades. Furthermore, discussion by Qing officials about adopting the gold-exchange standard in the last decade of the Qing dynasty reveals changing notions of economic sovereignty (主權 zhuquan).

Though foreign powers had consolidated control over Chinese customs and tariff administration since the Opium Wars, Qing officials and other writers in the early 1900s saw the potential loss of control over the currency system through the appointment of a foreign advisor to oversee the reform as too great a loss of economic sovereignty. It was a problem that would continue to shape discussions of currency reform over the next decades as the United States, England increasingly came into conflict over how to change the Chinese monetary system. This point suggests that in the last decade of the Qing dynasty, notions of sovereignty were not an absolute concept but consisted of different layers of concentric circles. Where previous chapters examined the circulation and production of money, this chapter focuses on the intellectual and political debates about what money is and what it should be.

338 Zhou Yumin, Wanqing caizheng yu shehui bianqian [Fiscal administration and social change in the late Qing dynasty] (Shanghai: Shanghai Renmin chubanshe, 2000), 409. 339 Rebecca Karl and Peter Zarrow, Political and Cultural Change in Late Qing China (Cambridge, MA: Harvard University Press, 2002), 1 145

The Jenks mission to China marked the first time the United States specially dispatched an American to discuss Chinese monetary reform. It would not be the last.

Over the next several decades American involvement in Chinese currency matters grew much deeper, sometimes at the invitation of the Chinese government and sometimes due to American initiative. As Jenks would later write to his former student, Edwin

Kemmerer (1875-1945), head of a currency commission to China in the late 1920s,

“reforming China’s currency is one of the biggest tasks in that field of the world which remains to be done…Frankly, that is the one last job I should have liked to do, because I had made the start of the work a good many years ago.”340 To see why Jenks started this work in the first place, though, it is necessary to review global economic history in the late 19th and early 20th centuries and trace how these worldwide trends eventually led to the Commission on International Exchange.

The Worldwide Shift to the Gold Standard at the End of the 19th Century

Several important threads defined the global political-economy of the late 19th century: a number of financial panics, falling prices, attempts to broker a worldwide agreement on bimetallism, and, by the end of the century, a general move to the gold and gold-exchange standards. As a result, world demand for silver decreased while production remained steady or increased, leading to a continuous fall in the value of silver relative to gold. By the turn of the 20th century, Mexico and China were the two most important countries in the world economy not on some form of the gold standard:

340 “Jeremiah Jenks to Edwin Kemmerer,” October 15, 1928, Edwin Kemmerer Papers (EKP), Mudd Manuscript Collection, Princeton University, Box 103, Folder 24. 146

Mexico was one of the world’s largest exporters of silver—in the form of the Mexican silver dollar—and China was one of its biggest consumers. The fall in the price of silver had very real consequences for both countries and would ultimately lead them to ask for the help of the United States government in stabilizing the worldwide price of silver.

From the late 1860s through the early 1890s, a number of international conferences were held to discuss the adoption of worldwide bimetallism by concluding agreements that fixed the worldwide price in silver in terms of gold, arresting the white metal’s depreciation and stopping its fluctuations. The impetus behind these conferences was often silver interests from the western part of the United States who hoped to reestablish the place of silver in the monetary system, which, they argued, would increase the money supply, alleviate the fall of prices and end economic distress. In silver they saw a panacea for the world’s economic ills. Although American calls for conferences on international bimetallism resulted in part from the Panic of 1873, the falling price level and the need to increase money supply, interest in these proposals abroad, particularly in

Britain, related to how it interacted with one of its colonies that used silver, namely

India.341 Another motivation for the continued call for a type of international bimetallism in gold-standard countries was the belief that depreciated silver gave an advantage to exporters and producers and silver-standard countries by making their goods cheaper.

Despite repeated international conferences in the late 19th century, no agreements were signed and the price of silver continued to decline.

341 For a fuller explanation on the differing motivations and interests of countries taking part in these conferences on international bimetallism, see Steven P. Reti, Silver and Gold: The Political Economy of International Monetary Conferences, 1867-1892 (Connecticut: Praeger, 1998): 79-84. 147

Without any accord on international bimetallism, the gold-exchange standard evolved as a way for imperial powers to bind the gold currency of the home country with newly won territories in Asia that primarily used silver. At the simplest level, this arrangement involved the creation of “a gold standard without gold currency.”342 Instead, the “currency media used in the internal circulation are confined to notes and cheap token coins, which are made to act precisely as if they were bits of gold by being made convertible into gold for foreign payment purposes.”343 The silver token coins had a face value higher than the coin’s bullion value. The issuing government maintained the face value of the coin by controlling the number of coins in circulation. A gold-exchange fund, usually held in a foreign country, served to facilitate payments between the two places. When a merchant in the gold-exchange standard country had to make a payment in gold, he could take token silver coins to the bureau responsible for exchange and pay the number of silver token coins that were necessary to settle his debt. The exchange bureau then drew up a bill ordering the payment out of the gold-exchange fund. When a foreigner wanted to buy goods in the gold-exchange country, the opposite transactions took place and silver token coins were released in the country.344 At a broad level, the gold-exchange standard had the following principles: token coins with a higher face value than the market value of the bullion content which created seigniorage profits, the

342 J. Laurence Laughlin, “The Gold-Exchange Standard,” Quarterly Journal of Economics 41, no. 4 (Aug., 1927): 645. 343 John Maynard Keynes, Indian Currency and Finance (London: MacMillian and Co.: 1913), 12. 344 Laughlin, “The Gold-Exchange Standard,” 645-6 148 absence of free coinage, a limited quantity of coins and notes in circulation, strict convertibility of the coins into gold and a fund to back the system held abroad.345

The gold-exchange system was based on the different hierarchies of money. In the

19th and early 20th centuries first-order money in the financial system was gold itself.

Other forms of money were essentially different types of claims on gold. National bank notes were second-order money. Banks created third order money by making loans and creating bank deposits. Under the gold-exchange standard, the deposits backing the system were not held in gold but in national banknotes, American dollars or British pounds. The gold-exchange standard was another form of financial leverage that subjected countries on it to possible financial panics for the same reason that banks suffered runs: people believed the system was not stable.346

The European imperial experience in Asia formalized the gold-exchange standard at the international level. From 1835 to 1893, India had a single standard of currency, the silver rupee. From the 1870s, however, the depreciation of silver in terms of gold on the world market increased burdens on the Government of India, which received payments in silver, but had liabilities denominated in gold. The continued fall in silver made these payments more burdensome. In 1893, under the advice of the Herschell Commission, the

British government ended the free minting of silver in India, with the stipulation that if it was required by the public, the government would coin silver rupees in return for gold at a fixed ratio. This was a transition stage—the silver Indian rupee was not demonetized

345 Laughlin, “The Gold-Exchange Standard,” 660. 346 Mark Metzler, Lever of Empire: The International Gold Standard and the Crisis of Liberalism in Prewar Japan (Berkeley: University of California Press, 2006), 37-8. 149 and there was not an introduction of gold currency. As John Maynard Keynes concluded in 1914, the Government of India had “drifted” into a gold-exchange system with the codification of practice and habit, not legislation.347

The United States established a gold-exchange standard in newly acquired territories after the Spanish-American War in 1898. Puerto Rico already had silver currency, introduced by Spain in 1895, whose face value was much higher than the value of the coin’s bullion value. Accustomed to a fiduciary currency, but unattached to the recent Spanish issues, the adoption of a coinage linked to the U.S. dollar was not terribly difficult.348 The situation in the Philippines was much more complex for economic, political and administrative reasons. The monetary medium of the Philippines contained

Mexican silver dollars, Spanish and Philippine half-pesos and small coins as well as coins imported from Spain in 1897.349 Like the British Government in India, the newly established American colonial government in the Philippines faced a payments crisis, as it had to pay out money in American gold dollars but took in receipts in the cheaper

Mexican dollar. After several years, the American colonial government removed older coins from circulation, established a gold-exchange fund in New York, and created a token silver peso for circulation that was worth 50 American cents.

347 John Maynard Keynes, Indian Currency and Finance, 4. For a fuller treatment of Indian monetary history, see History of the Reserve Bank of India, Volume I, Chapter 2, accessed June 8, 2014, https://www.rbi.org.in/scripts/RHvol-1.aspx. This comes from the Reserve Bank of India’s website. 348 Rosenberg, “Foundations of United States International Financial Power: Gold Standard Diplomacy, 1900-1905,” 173. 349 E. W. Kemmerer, “The Establishment of the Gold Exchange Standard in the Philippines,” Quarterly Journal of Economics 19, no. 4 (Aug., 1905): 593. 150

Thus, adopting the gold standard or the gold-exchange standard was not solely an economic decision but also political one. If the gold-exchange standard was in some ways forced on colonies, many independent countries chose to adopt the gold standard voluntarily. Many nations ultimately adopted the gold standard not out of “fealty to

English power or English theory” but rather “the realpolitik concerns of national power, prestige and anti-English competition.”350 Several types of arguments evolved about why countries should switch from silver to gold. In the broadest sense, countries thought that moving to the gold standard would give them access to borrow at better prices on worldwide capital markets based in London to borrow at better prices, attract foreign investment in their own country and increase their trade with other gold-standard countries. As economists later described, moving to the gold standard acted as a kind of

“good house-keeping of approval”: maintaining a currency’s convertibility with gold was a measure of “financial rectitude” and a signal “that a country followed prudent fiscal and monetary policies.”351 Foreign investors need not worry because these countries would follow the rules of the game. Other economists emphasize that going on the gold standard boosted bilateral trade between countries by lowering transactions costs and minimizing exchange-rate risk.352 Though forward rate agreements did exist to hedge

350 Steven Bryan, The Gold Standard at the Turn of the Twentieth Century: Rising Powers, Global Money and the Age of Empire (New York: Columbia University, 2010), 5. 351 Michael D. Bordo and Hugh Rockoff, The Gold Standard as a "Good Housekeeping Seal of Approval," Journal of Economic History 56, no. 2, (June 1996): 390. 352 See Marc Flandreau and Mathilde Maurel, “Monetary Union, Trade Integration, and Business Cycles in the 19th Century,” Open Economies Review 16, no. 2 (2005): 135-52 and J. Ernesto pez-Cordova and Christopher Meissner, “Exchange-Rate Regimes and International Trade: Evidence from the Classical Gold Standard Era, ” American Economic Review 93, no. 1 (2003): 344-53. For a fuller analysis of explanations as to why countries went on the gold standard, see Christopher Meissner, “A new world order: explaining the international diffusion of the gold standard, 1870–1913,” Journal of International Economics 66 (2005): 385– 406. 151 exchange rate risk, these arrangements, the Commission on International Exchange later wrote, were “always expensive and unsatisfactory” and did not remove but “shifted somewhat, the speculative element” of trade between gold and silver-standard countries under falling and fluctuating silver prices.353 These explanations make it sound as though the move to gold was grounded in a clear and unquestioned economic logic and devoid of debate. In fact, the move to the gold standard by , Japan and met significant opposition but all three countries eventually went on the gold standard in “a top-down phenomenon driven by a bureaucrat-politician convinced of the nation’s needs.”354

The result of all these countries moving to a gold or gold-exchange standard was a fall in the worldwide demand for silver to produce coinage, a corresponding fall in the price of silver in terms of gold and the gradual elimination of the Mexican silver dollar as an international currency. Spanish and later Mexican silver dollars had played an

“important part in the developing relations between East and West, and at one time or another they have been employed by men of nearly every color and race.”355 During the late 19th century, the amount of silver Mexico exported, and the amount of that silver that was coined, shrunk dramatically (see Table 5). In the second part of the century, as countries across the world moved to create standardized national money within their boundaries, the main task was to displace the Mexican silver dollar as a monetary

353 Hugh Henry Hanna, Charles Arthur Conant, Jeremiah Whipple Jenks, Report on The Introduction of the Gold-Exchange Standard in China, The Philippines Island, Panama and Other Silver-using Countries (Washington D.C.: Government Printing Office, 1904), 45. Afterwards referred to as Report on The Introduction of the Gold-Exchange Standard. 354 Bryan, The Gold Standard at the Turn of the Twentieth Century, 47. 355 Piatt, “The End of the Mexican Dollar,” 322. 152 medium of choice. Creating territorial money meant cutting off the circulation of international money.

Fiscal Year Percentage of silver Percentage of exports to exports coined silver in silver exports 1881-82 54.17 73.69 1882-83 68.22 80.72 1883-84 69.40 80.45 1884-85 70.23 77.47 1885-86 66.77 75.28 1886-87 66.98 67.26 1887-88 61.93 55.39 1888-89 63.19 59.87 1889-90 60.71 60.89 1890-91 81.72 49.98 1891-92 63.63 55.48 1892-93 63.01 49.97 1893-94 56.96 38.11 1894-95 60.60 35.47 1895-96 53.67 34.50 1896-97 50.58 24.47 1897-98 49.98 26.90 1898-99 45.32 20.98 1899-1900 40.17 17.10 1900-01 45.83 22.27 1901-02 35.45 19.05 1902-03 39.22 27.21

Table 5: Mexican Silver Exports, Fiscal Years 1881-82 to 1902-03356

Faced with a shrinking market for its chief export, Mexico, at the turn of the twentieth century, confronted important questions about how its currency tied to the

356 Piatt, “The End of the Mexican Dollar,” 355. 153 global economy. Under the rule of Porfirio Díaz (1876-1910) and a group of advisors, ministers and officials known as Científicos, the Mexican political-economic elite stressed order and development. Científicos, adhering to technocratic and positivist principles common in the late 19th century, generally embraced Darwinist rhetoric about competition between nations and the need to develop economically.357 Though Mexico had immense natural resources, especially in terms of silver deposits, Científicos did not think these deposits alone made the country rich. Instead, Mexico needed to develop an industrial base in order to compete more successfully in the global economy. In order to pursue this path, however, Mexico faced the challenge of attracting foreign investment without being dominated by it. Foreign capital, the magazine El Progreso Latino, emphasized, was both “A Civilizing Agent…The Vanguard of Absorption.”358 Economic policy in this period was a delicate balancing act.

The falling and fluctuating price of silver in the 1890s and early 1900s threatened the general economic policy goals of the Profirato. First, the price of silver had uneven effects on Mexican enterprises. Beneficial for those industries that had costs in silver and profits in gold like exporters of raw materials, it hurt businesses with revenues in silver and debts payable in gold like railroads.359 Dropping silver prices also acted as “natural tariff” and as a result, “the economy grew more diverse with light industries such as manufacture, , and after 1900, some .”360 Beyond

357 Richard Weiner, “Battle for Survival: Profirian Views of the International Marketplace,” Journal of Latin American Studies 32 (2000): 648. 358 Weiner, “Battle for Survival,” 655. 359 William Schell, Jr., “Mexico's Conversion to the Gold Standard, 1905,” Mexican Studies/Estudios Mexicanos 12, no. 1 (Winter, 1996): 36. 360 Schell, “Mexico's Conversion to the Gold Standard,” 34. 154 the level of individual businesses, a growing body of opinion held that Mexico would unable to attract foreign investment, a prerequisite for development, unless the price of silver in terms of gold stabilized. When Enrique C. Creel (1854-1931), a wealthy businessman, landowner and official in the Central Bank of Mexico, went to New York in 1901 seeking a loan for the bank, a group of New York financiers informed him that foreign investments in Mexico would stop unless the country adopted the gold standard.361 At the level of government finances, depreciating silver led to fears that

Mexico would not be able to service its debt. As a debt payment approached in December

1902, Limantour instructed the National Bank of Mexico to sell small amounts of silver on a daily basis (between 50,000 and 100,000 ounces) in order to obtain gold without further lowering silver's price.362

With these measures ineffective, in late 1902, Limantour began the work of calling for an international commission to address the current problems in the world silver market by means of currency reform in China and agreements about how the world could best allocate and absorb global silver production. The Qing also suffered from the fall in the price of silver but did so under different constraints than those faced by the

Mexican government. By the end of 1902, both the Qing and Mexican governments had an interest in stabilizing the world price of silver.

The Boxer Rebellion Indemnity and Gold Price of Silver

361 Thomas P. Passananti, “The Politics of Silver and Gold in an Age of Globalization: the origins of Mexico's Monetary Reform of 1905,” América Latina en la Historia Económica 30 (2008): 76-7. 362 Passananti, “The Politics of Silver and Gold,” 82. 155

The Boxer Indemnity, with its “peculiar features, including complexity,” as well as “a self-defeating economic impact,” was “a continuing diplomatic and political nuisance” for over half a century.363 It led to confusion and controversy soon after it was signed in 1901 as questions emerged about whether the indemnity the Qing dynasty had to pay was a debt denominated in gold or silver. This question had important repercussions. If the indemnity was indeed denominated in silver, it would be easier to pay off. If it was denominated in gold, due to the falling value of silver, paying off the indemnity would be much more difficult in real terms. By the middle of 1902, the Qing government said that it was not able, nor did it think it was required, to pay the Boxer

Indemnity in gold. This initial controversy, which was not settled until 1905, also served as an impetus for the creation of the Commission on International Exchange.

As the coalition of nations that provided forces for suppressing the Boxer

Rebellion entered Beijing and the military conflict ended, discussion quickly moved to questions of a financial settlement. How much of an indemnity could the Qing dynasty pay? How much of the indemnity should each nation receive? How should the Qing pay? During the year 1901, various nations added up—often inflating—how much they thought they were owed due to military expenses, damages to property and the murder of individual citizens.

The final version of the Boxer Protocol signed in September 1901 specified the details of payment but also built the foundations of later controversy. Article VI of the

363 Frank H.H King, “The Boxer Indemnity—‘Nothing but Bad’,” Modern Asian Studies 40, no. 3 (July 2006): 664. 156

Protocol stated that, in an edict of May 29, 1901, the “ agreed to pay the Powers an indemnity of 450,000,000 Haikwan taels.” This sum was greater than the combined amount of Qing indemnity payments between 1842 and 1900.364 It was also two times the maximum amount Robert Hart, Commissioner of the Chinese Customs

Administration, thought the Qing was able to pay.365

Significantly, and the source of much later controversy, the English version of the treaty stated that the Boxer Indemnity was a “a gold debt calculated at the rate of the

Haikwan tael to the gold currency of each country.” The protocol further fixed the rate of exchange between the Haikwan tael and the currencies of individual countries, thus creating a nominal entity known as a Boxer tael. One Boxer tael was equal to 3 British shillings or 0.742 American cents.366 This clause, as foreign nations interpreted it, meant that the Qing government bore the exchange rate risk. If the market value of silver fell, it would have to pay more silver to procure the equivalent amount of gold; if the value of silver rose, it would have to procure less silver. This meant the gold debt of the Boxer

Rebellion totaled, at the time, 67 million British pounds or $333 million, or in 2015, the equivalent of over nine billion dollars.

With the terms fixed, it now became a matter of how the Qing dynasty would pay this debt. The Qing could borrow on foreign markets, a position supported by several nations, including Russia, France, Japan and Germany but opposed by England and the

364 Zhou, Wanqing caizheng yu shehui bianqian, 380. 365 King, “The Boxer Indemnity,” 668. 366 Rates between the Boxer Tael and other currencies were. 3.055 German marks, 3.595 Austrian crowns, 3.75 French Francs, 1.407 Japanese yen, 1.796 Dutch florins and 1.412 Russian rubles. 157

United States.367 Instead, the powers, as Hart advocated, “advanced the sum required against Chinese government bonds at the rate of three shillings sterling for each tael or

£67.5 million.”368 Thus, when discussing the Boxer Indemnity, it is more appropriate to talk about the Boxer Indemnity advance that settled the indemnity immediately.369

The Qing dynasty shifted most of this debt burden to provincial governments; annual payments for the Boxer Indemnity amounted to just over 20 million taels of silver.

The Board of Revenue recognized that although the payments would be very difficult to endure (堪 kan), they nonetheless had to be made.370 Though provincial officials advanced various proposals for coming up with more funds to pay the indemnity, the

Board of Revenue ultimately asked provincial leaders to memorialize the throne about how much of the new annual expense each province could pay.371 The Board of Revenue set up a payment plan after these estimates came in. Some pre-existing revenue streams flowing from the provinces to the central government would be shifted to indemnity payments but the majority of the annual payments, some 18 million taels, was forced on to provinces (摊派 tanpai) (see Table 6).372 In order to meet these new payments, provincial leaders resorted to a number of tax increases.

367 Wang Shuhuai, Gengzi peikuan [The Boxer Indemnity] (Taibei: Zhongyang yanjiushuo yanjiuyuan jindai lishisuo, 1974), 88. 368 King, “The Boxer Indemnity,” 668-669. 369 King, “The Boxer Indemnity,” 669. 370 Zhongguo diyi lishi dang’anguan bianjibu, Yihetuan dang’an shiliao, xiace [Archival Materials on the Boxer Rebellion, Volume 2] (Beijing: Zhonghua shuju, 1990), 1197-8. 371 Zhang Zhidong actually suggested issuing bonds similar to British Consuls that made interest payments in perpetuity but never repaid principal. See Wang, Gengzi peikuan, 123-124. 372 The task of allocating these expenses to provinces was similar to what the Qing court did when making payments on various loans it took about to settle the indemnity after the Sino-Japanese. See Zhou Yumin, 387. 158

Province Amount Amount Amount Amount Provinces can Board of Revenues the court order provinces actually afford orders Provinces to provinces to pay pay pay Zhili N/A 80 85.80 127.5

Shandong 50 90 99.30 135.5

Shanxi 30 90 116.30 53.8

Henan 60 90 126.80 78

Jiangsu 50 250 297.25 239.6

Anhui N/A 100 125.70 127.3

Jiangxi 60 140 216.60 151

Fujian 10 80 99.00 81.7

Zhejiang N/A 140 156.40 135.6

Hubei N/A 120 160.40 203

Hunan 20 70 100.40 69.6

Sha’anxi N/A 60 70.40 54

Gansu 12 30 30.00 34.3

Xinjiang 40 40 40.00 44.1

Sichuan 70 220 261.80 186

Guangdong 100 200 231.90 196.4

Guangxi N/A 30 30.00 47.4

Yunnan N/A 30 30.00 34.8

Guizhou 43 20 30.00 25

Total 545 1,800 2,298.05 2021.6

Table 6: Boxer Indemnity payments allocated by province. Unit is 10,000 tales.373

373 Shen Xuefeng, Wanqing caizheng zhichu zhengce yanjiu [Research on the income and expenditures in the late Qing dynasty] (Beijing: Renmin Daxue chubanshe, 2003), 92. 159

With the central government forcing so much of the payment burden on to provincial officials, it is no surprise that objections to the clause stating the Boxer

Indemnity was in fact a gold debt originated from a provincial official, Liu Kunyi (劉坤

一 1830-1902), then the Governor-General of Liangjiang, in charge of Jiangsu, Anhui, and Jiangxi. These wealthy provinces had some of the highest payment burdens.374 Under conditions of depreciating silver, if the Boxer Indemnity was denominated in silver,

China’s burden, and in turn the burdens on the provinces under Liu’s leadership, would not be as great. If the Boxer Indemnity was in fact a debt in gold, the provinces would have to procure more and more silver to settle the gold debt. Over the next three years, it was provincial officials that advocated a harder line on the payment issue while the central government maintained a more accommodating position.

Throughout the first part of 1902, Liu Kunyi peppered the central government with memorials and telegrams, relying on several arguments to explain why he believed the Boxer Indemnity was a debt in silver and not gold. First, Liu stood on precedent. All of China’s previous indemnities, he pointed out, were denominated in silver and not gold.

How could the Boxer Indemnity be different? Next, he looked at the treaty itself. In the table listing the payment schedule, there were only figures in silver taels and no schedule of payments denominated in gold. If the payment schedule said the Qing had to provide that amount of silver, why should it suddenly have to pay more? Liu also made the

160 argument that the indemnity should be interpreted as a debt in silver and not gold because of the precarious state of Qing finances and its inability to pay the higher costs associated with a gold debt.375 Other arguments that emerged during 1902 rested on similar arguments of precedent, the ambiguity of the treaty itself and fairness.376 In response to

Liu’s arguments, the Ministry of Foreign Affairs (外务部 Waiwu bu) consulted Sir

Robert Hart (1835-1911), Inspector-General of the Imperial Maritime Customs Service, who insisted that it was in fact a debt in gold.377

Discussion of these details quickly moved from an argument about principles to a real problem in the summer of 1902 when the Shanghai Daotai, Yuan Shuxun (遠樹勛

1847-1915), who was in charge of indemnity payments, said that the Qing could no longer make payments on a gold basis. On June 10, the Chinese minister in the United

States, (伍廷芳 1842-1922), cabled the Waiwubu to say the U.S. government agreed that it was a debt in silver and not gold. The next day in Beijing, the

American Minister Edward H. Conger attended a meeting of foreign ministers on the indemnity question and expressed his personal opinion that the debt was denominated in silver and not gold. He did not receive notice of Washington’s position until after the meeting, whereupon he informed the Chinese government.378 The United States was the

375 For Liu Kunyi’s correspondence and arguments see Gengzi shibian qinggong dangan huibian, 11, ed. Li Guoring [A compilation of materials from the Qing archives relating the Boxer Rebellion] (Beijing: Renmin Daxue Chubanshe, 2006), 20, 56, 65-67, 102, 107, 118. 376 Wang, Gengzi peikuan, 190-192. 377 Discussion about the silver/gold nature of the Boxer Indemnity among historians breaks down according to nationality. Frank H.H. King holds that “Regardless of other considerations, China had accepted an advance and was being required to carry the exchange risk, a normal procedure.” See King, “The Boxer Indemnity,” 674. Wang Shuhuai stresses the real ambiguity in the language and form of the Boxer Protocol. See, Wang, Gengzi peikuan, 192 378 Wang, Gengzi peikuan, 193. 161 only country to interpret the Boxer Protocol in this way. Despite the initial hard line on the payments question, there was some sympathy with the Chinese predicament and discussion began about finding ways to lessen the burden on China, either by having customs duties payable in gold or by lengthening the term of the payment.

As these discussions continued throughout the rest of 1902, the price of silver in terms of gold continued to fall and the “decline has been more rapid than anyone expected when the [Boxer] protocol was signed.”379 At the end of the year, the

Economist thought that the silver market of late had been in a “panic-stricken condition.”380 Some observers attributed the fall in price of silver directly to the payment of the Boxer Indemnity, with the Washington Post noting that “as a result of collecting large sums of silver in the empire and throwing them on the open market to raise gold to pay for the indemnity, the price of silver has been depressed by nearly 25 per cent.”381

With this logic, the price of silver would continue to decline as the Qing continually collected silver and sold it on the market for gold, in the process increasing its own debt burden.

The Boxer Indemnity, paired with the falling price of silver, acted as a “a drag on trade.”382 A Shanghai merchant, commenting on the decline of silver, remarked that currently “it is perhaps too strong a term to say that trade has become paralyzed,” but “if

379 “The Chinese Indemnity,” New York Times, April 10, 1903, 8. 380 “Mexico and the Silver Problem,” Economist, December 13, 1902, 1931. 381 “The Chinese Indemnity: Will the Creditor Nations Break Concessions, or Force China Into ,” Washington Post, January 8, 1903, 6. 382 “Battered Silver” Saturday Review, London, in Journal of American Asiatic Association 3, no.1 (February 1903), 13. 162 the exchange continues to fall the term will be in order.”383 The fall in silver hampered trade due to the “difficulty of doing business with a medium which is so constantly and violently fluctuating.”384 Under falling and fluctuating silver trade took on the “nature of gambling,” with merchants paying “undue attention to the conditions of the money market at the expense of the care he should give to his mercantile business proper.”385 By the end of 1902, a diverse coalition of government officials and merchants began to emerge in order to bring about stable rates of exchange between gold and silver using countries. With all these factors in the background, at the end of 1902 the Mexican

Minister to the United States and the acting Chinese Minister to the U.S. discussed working together to stabilize the ratio between gold and silver and possibly moving onto the gold-exchange standard.386

The Commission on International Exchange

After the Mexican and Chinese governments formally submitted letters requesting the assistance of the United States in stabilizing the ratio between silver and gold,

President , Secretary of State John Hay and the U.S. Congress approved the creation of the Commission on International Exchange. During the spring and summer of 1903, members of the commission traveled to Mexico and European countries to gauge opinion, garner support and discuss how to stabilize the price of silver,

383 Edward S. Little “The Chinese Currency Question,” Journal of American Asiatic Association 3, no.1 (February 1903): 50. 384 Little, “The Chinese Currency Question,” 50. 385 Report on The Introduction of the Gold-Exchange Standard, 45. 386 “Dui mei tichu wending yinjia” [On proposing the stabilization of silver prices to the United States], May 9, 1903, Zhongguo jindai huobi shi ziiliao [Materials on the currency history of modern China, Vol. 2] (Beijing, Zhonghua shuju, 1964), 1113-1114 (Hereafter ZGJDHBSZL). 163 ultimately proposing that China and Mexico adopt the gold-exchange standard. At the same time as the commission began its work, Qing officials began work on currency reform, which was part of a 1902 commercial treaty with England stipulating that government had to take steps toward creating a unified national currency.387 Jeremiah

Jenks met several of these Chinese officials when he traveled to China in 1904.

The initial letters from the Mexican and Chinese governments were couched in language calculated to appeal to American interests. The role of Mexico as the initiator of the request is apparent. Not only did the Mexican Minister to the United States submit his letter to the U.S. government before the Chinese chargé d’affaires, the latter’s correspondence copies large chunks of the former’s argumentative structure. The

Mexican letter first sets out why the United States should care about this issue at all.

Though the Mexican government had “the strongest desire to promote a large reciprocal trade with the United States,” the declining price of silver made American imports more expensive in Mexico.388 Next, because the United States had so many investments in

Mexico, exceeding $500 million, it, too, had an interest in stabilizing the price of silver because “the earnings of these enterprises, when remitted to American investors, have suffered a serious fall in gold value with every fall in value of Mexican money.”389

Bringing about a stable relationship between the value of Mexican money and the U.S.

387 For more background on this treaty see David Faure, “The Mackay Treaty of 1902 and Its Impact on Chinese Business,” Asia Pacific Business Review 7, no. 2 (2000): 79-92 and Dong Wang, China’s Unequal Treaties: Narrating National History (Maryland: Lexington Books, 2008). 388 Charles Conant, Hugh H. Hanna and Jeremiah Jenks, Stability of International Exchange (Washington: Government Printing Office, 1903), 40. 389 Stability of International Exchange, 40 164 dollar, would act as “a safeguard on existing investments and a stimulus towards their increase, with obvious benefits to both countries.”390

The Mexican correspondence also admitted that the most important issue at hand was not necessarily its own currency reform but China’s. Even if Mexico adopted a gold standard, it would represent an “incomplete and unsatisfactory solution to the problem of the exchanges” because it would not contribute to any way to solving similar problems in

Asia.391 The ultimate goal of Mexico, the letter stressed, was finding an agreement with

European countries “for a new coinage system in silver countries” and agreeing on a set of “recommendations for the readjustment of the fiscal and monetary relations of China with the other powers, which would permit that country to continue to be a user of silver and a purchaser of the products of the manufacturing nations.”392 Due to the falling and fluctuating price of silver, the letter ominously warned, the export trade between

European powers and the United States with China, which was won “with great military and economic sacrifices” was threatened by the “with partial paralysis, if not extinction.”393

The letter of the Chinese chargé d’affaires in Washington also played into the idea of an untapped China market that was under threat due to the continuing decline of silver. At the moment, the volume of imports into China was only 50 gold cents per capita in gold, a “slight measure of what the trade of China might become,” which would

“afford an outlet for the labor of many thousands of workers in Europe and America and

390 Stability of International Exchange, 40 391 Stability of International Exchange, 41. 392 Stability of International Exchange, 42. 393 Stability of International Exchange, 41. 165 employment for many millions of the capital of those nations.”394 Perhaps not wanting to sound too optimistic, the chargé d’affaires cautioned that establishing a stable relationship between gold and silver would not increase trade between China and the rest of the world immediately, but “it would be one of several steps in that direction which would contribute greatly to accelerate an event of such paramount importance to the capitalists and producing masses of the Old and New worlds.”395 He also decided to frame the recent indemnity controversy as an issue dwarfed by larger possibilities. The indemnity payments from China represented a “trifling portion of the benefits” that might accrue to the Western powers from trading with a China that has a “permanent and uniform monetary system.”396 In these opening letters, both Mexico and China stressed how others, not themselves, would benefit from a stable relationship between gold and silver.

In transferring these notes to President Roosevelt, who in turn sent then to

Congress asking for authorization to put together a committee, Secretary of State John

Hay echoed the benefits to trade that might come from helping establish a more stable relationship between silver and gold as well as the question of the Boxer Indemnity. Of course, both of these would be beneficial not only to the United States but “also to China herself and her future development.”397 A number of motivations stood in the background of these lines. Hay and Conger, the U.S. Minister in Beijing, thought the controversy over the Boxer Indemnity might lead Europeans to declare China in default and necessitate

394 Stability of International Exchange, 44. 395 Stability of International Exchange, 44. 396 Stability of International Exchange, 45. 397 Stability of International Exchange, 40. 166 military action, a result the U.S., with its “open door” policy, hoped to avoid.398 Not explicit in this message to Congress was the more subtle hope that “spearheading reform of China’s currency would give the United States a preeminent position in China’s financial affairs and assert its ambitions in the Pacific.”399

In early March 1903, Congress named Charles Conant (1861-1915), Hugh Hanna

(1866-1936) and Jenks as the three principal members of the Commission on

International Exchange. Conant was the most famous and most prolific of the group. A journalist and economic advisor, he actually lacked formal educational credentials and perhaps because of this remains “an underrated economist.”400 In a flurry of books, pamphlets and articles at the turn of the 20th century, however, he diagnosed the nature of economic problems in the United States—echoing the English economist J. A Hobson and Karl Marx and anticipating the views of Vladimir Lenin—by stressing the

“congested” nature of capital in developed countries as “savings accumulate beyond new demands for capital which are legitimate.”401 Under these conditions, accumulated capital moved abroad in search of legitimate projects, resulting in what Lenin called the

“highest stage of capitalism.” Conant, however, unlike Lenin, saw no conflict “between progress and imperialism” and one way to help bring about progress abroad was through the adoption of the gold-exchange standard, regulating the exchange between gold and

398 Emily Rosenberg, Financial Missionaries to the World: The Politics and Culture of Dollar Diplomacy, 1900-1930 (Durham: Duke University Press, 2004), 23. 399 Rosenberg, Financial Missionaries, 19. 400 Michael Pettis, The Great Rebalancing: Trade, Conflict, and the Perilous Ahead for the World Economy (Princeton: Princeton University Press, 2013), 4. 401 Charles A. Conant, The United States in the Orient: The Nature of the Economic Problem (New York: Houghton, Mifflin & Company, 1900), 16. 167 silver using countries.402 Conant believed that adopting the gold exchange-standard removed local producers “from the yoke of exploitative local export-oriented elites” who supported the depreciated exchange under the silver standard in order to “enrich themselves personally by increasing the difference in value between labor rates at home and international prices abroad.”403 In his support of the gold-exchange standard, Conant was “part technician and scientist, but also part evangelist and moralist.”404 From 1897-

1901, Conant was an assistant to Hugh H. Hanna, then head of the Indianapolis Monetary

Commission, an important organization behind the passage of the of

1900.405 These three men—Conant, Hanna and Jenks—set out around the world in 1903 to try to convince various European powers that Qing dynasty should go on the gold standard.

However, the Commission on International Exchange was not the only organization formed that spring to think about reforming the Chinese currency, In April,

China’s Grand Council instructed several ministers to begin their own investigations into the subject. Lamenting that the weight and fineness of coinage differed throughout the provinces, burdening merchants and the common people (商民之累 shangmin zhilei), the

Grand Council instructed Yikuang (奕劻 1838－1917) and Qu Hongji (瞿鸿禨 1850－

1918), to begin work on unifying the currency.406 Prince Yikuang, whose grandfather was

402 Rosenberg, Financial Missionaries, 29. 403 Rosenberg, Financial Missionaries, 27. 404 Rosenberg, Financial Missionaries, 24. 405 Martin J. Sklar, The Corporate Reconstruction of American Capitalism, 1890-1916: The Market, The Law and Politics (Cambridge: Cambridge University Press, 1988), 62. 406 For overview of the work of this group see Li Jingye, Caizheng cheng zouzi jiyao [A summary of fiscal administration policy] (Beijing: Guanshuju, 1906). 168 the Qianlong emperor’s 17th son, had held positions in the (總理衙門) in the 1890s, and took a generally moderate stance during the Boxer Rebellion. Yikuang was one of the Qingrepresentatives at the Boxer Protocol negotiations. Qu, who had obtained his jinshi (進士) degree at the young age of 22, had had a career in examination administration and was raised to a position on the Grand Council in the wake of the

Boxer Rebellion.

Their work faced several challenges. As a result of the provincial minting of silver dollars in the 1890s as discussed in chapter three, China was awash in coins of different finenesses and weights. The other, and newer, issue was the increase of copper coins (铜

元 tongyuan). These coins differed from zhiqian (制錢) in that that they had no hole in the middle and could not be strung together. Moreover, their face value was higher than the value of the copper in the coin themselves. After Li Hongzhang began to mint these coins in Guangzhou in 1900, other provinces followed suit.407 As one observer later noted in a report of provincial minting at the end of the Qing, at first these new coins were welcomed by the populace and held their value quite well.408 However, from 1900 to

1905 a plethora of these copper coins flooded the country, with many provinces selling the excess productions of these coins to other provinces (販賣 fanmai). An important and unresolved issue was if and how the minting of these copper coins might be restricted.

407 Huang Cheng, “Qingmo tongyuan zhidu shuing,” [Copper coinage at the end of the Qing] Zhongguo qianbi 3 (1993): 33. 408 Liang Qichao, “Gesheng lanzhu tongyuan xiaoji,” [The records of provinces minting excess copper coins] Yinbing shi heji, ce 3 (Shanghai: Zhonghua shuju, 1941). 169

Optimism greeted the announcement of the Commission on International

Exchange within the United States, but skepticism toward it and the recently formed Qing commission on monetary reform prevailed overseas, particularly in England. The New

York Times thought the American investigation into this problem “can do no possible harm, and it may do much good.”409 From the beginning, The Economist, relying on the views of J.W. Jamieson, the British commercial attaché in Beijing, was very pessimistic about the prospects of American efforts and doubtful of the work already underway in

Beijing. The publication thought the advocates of fixing the rate between gold and silver had “allowed their imagination to run away with them to a ridiculous extent.”410 Not done with its rhetorical flourishes, the magazine thought the forecast that under a fixed- exchange China would increase her imports by five times to be “such palpable nonsense as to suggest doubt as to the saneness of the proposed scheme.”411 Jamison argued it was

“futile” to discuss the gold standard in China when there was not yet a national coinage with a fixed relationship between silver and copper coins. Despite the recent formation of the Chinese group on monetary reform, “one despairs of seeing indications of a whole- hearted desire for unification.”412

Beyond all of these challenges, however, was the more abstract but important task of determining the relationship between the two commissions. Over the rest of 1903 and through 1904, the relationship between the group appointed by the Grand Council and the

Commission on International Exchange remained unclear. In the summer of 1904, Jenks

409 “China and Silver, New York Times, February 3, 1903, 8. 410 “Fixing the Value of Silver,” Economist, February 7, 1903, 244. 411 “Fixing the Value of Silver,” Economist, February 7, 1903, 244. 412 “The Currency Problem in China,” Economist, October 10, 1903, 1719-1720. 170 eventually met with a number of Chinese officials involved in monetary reform. Before setting out to China, however, the Commission on International Exchange canvassed opinion throughout the rest of the world.

The American members of the Commission of International Exchange first met with the newly arrived Chinese minister to the United States, (梁诚 1864-

1917), who had previously studied in America from 1875 to 1881 before returning to

China to hold various government posts. In reporting about these meetings to the

Waiwubu in Beijing, Liang had positive things to say about the plan as well as the commissioners themselves. Unlike later reactions, perhaps because the exact proposal was not yet fully formed, he made no objections to having a foreigner administer the proposed system. With the Qing dynasty burdened by the indemnity payment and losing in the commercial war between nations, Liang thought the Qing should not use the banner of old law to resist (抵禦 diyu) the commission’s proposal. Instead, the Qing should take the proactive step of selecting several Chinese and foreigners who inspired confidence to travel to European financial capitals to begin the work of securing a loan to implement the adoption of a gold-exchange standard. Though Liang agreed with the commissioner’s recognition that switching monetary standards would not be a simple process, it was necessary to save the Qing from the ills of a rapidly declining price of silver.413

After a short visit to Mexico, for the rest of the summer, Conant Jenks and Hanna

413 “Chushi dachen Liang Cheng zhi waiwubu zicheng—wei jingqi lai hua shi” [The minister Liang Cheng to the Foreign Ministry—On the Jenks visit to China], June 5, 1903, ZGJDHBSZL 1115-1118. 171 journeyed to European capitals drawing vaguely supportive but non-committal reaction from European government officials and bankers as well as a much stronger reactions from Chinese ambassadors stationed in European countries. Visiting Russia, Germany, the , France and Great Britain the commission first had to deal with general skepticism about its purposes and aims. At the outset, “the purposes of this commission” were not “generally understood” beyond the question of whether various countries could

“come together to steady the rates of exchange between silver and gold countries.”414 A slight fear existed that the commissioners had come on “another bimetallic errand,” hoping to secure the remonetization of silver, which had been a long-term policy goal for some Americans in the late 19th century.415 After realizing this goal was not on the table, discussion focused primarily on the specifics of how to put the Qing dynasty onto a gold- exchange standard. Should China first establish a national silver coinage, whose value would later be raised to a higher gold-parity or should the new coinage be given a gold- parity from the start?

Reaction to the commission’s plans from several Chinese ambassadors in Europe was more forceful and usually quite skeptical. The Chinese ambassador to France, Sun

Baoqi (孫寶琦 1867-1931), voiced arguments about Qing’s economic sovereignty that would be echoed repeatedly when Jenks traveled to China. In order to oversee the new coinage—to insure the quality of the silver coins themselves and to guarantee that their quantity remained limited—the Commission on International exchange said that “a few

414 “To Even Silver and Gold,” New York Times, May 14, 1903, 8. 415 “Putting China on the Gold Standard,” London Observer, September 12, 1903 in The Journal of the American Asiatic Association 3, no. 9 (October 1903), 262. 172 foreigners” would have to be employed to “organize and manage” the system.416 Sun felt that the foreign appointees, in their ability to administer the new coinage system, would be too great an imposition on Chinese sovereignty (干涉主權 ganshe zhuquan).417

At the same time as the Commission on International Exchange visited Europe, the United States tried to ascertain the exact relationship between the group of Conant,

Jenks and Hanna and the group established by the Qing dynasty under the leadership of

Prince Yikuang and Qu Hongji. In July 1903, the Acting Secretary of State telegraphed the American minister in Beijing E.H. Conger to “confidentially request Chinese government not to commit itself to any plan of monetary reform until it has received and considered the plan” to be proposed by the American group.418 By the end of July,

Conger replied that he had brought up the matter with Yikuang who said that there was no plan to interfere with the work of the commission. However, Yikuang also reported that the Qing had already decided to create a central mint with the hopes of creating a national currency with a tael unit. Conger was skeptical. He was “not sure that adopting the tael as the unit of value may not interfere with the plan which shall finally be presented by the United States as a results of the commission’s work.” However since it appeared to already be a settled decision “he did not feel authorized to suggest the issue of some other unit, or to defer all coinage matters for the present.”419 This

416 Report on The Introduction of the Gold-Exchange Standard, 111. 417 “Zhufa dachen zhi waiwubu dian—baogao jingqi zai faguo huiyi qingxing” [The Chinese Minister in France Sun Baoqi to the Foreign Ministry—reporting on the Jenks visit to France], June 18, 1903, ZGJDHBSZL, 1119. 418 U.S Department of State, Record Group 59, M92, Dispatches From U.S. Ministers to China, 1843-1906 (Afterwards Dispatches), May 14-October 31, 1903, Roll Number 124. 419 Dispatches, July 21, 1903, Roll Number 124. 173 brought little resolution concerning the exact relationship between the two groups.

By the early fall, the commission had completed its overseas tour and returned to the United States to submit its formal proposal for reforming the Chinese monetary system. In its outlines the proposal mirrored existing gold-exchange standard arrangements but a number of specifics would create controversy and confusion when

Jenks traveled to China. Under the proposal, the Qing government would first adopt a standard unit of value of a certain amount of gold. Though it should be about equivalent to 50 American cents or three British shillings, the commission recognized that as a way to exercise “their own separate sovereignty” and to “check the circulation of foreign coins of equal eight in their own country” the Qing might settle on a slightly different monetary weight.420

With this standard in place, the Qing would allow free coinage of gold coins in certain denominations as well as a number of silver coins that would be maintained at par with the standard gold unit at a ratio of about 32:1. This ratio would be the source of controversy and misunderstanding. As the commission explained elsewhere, but not entirely effectively, the ratio of 32:1 “is simply one of weight between the silver coins and the standard gold unit” and it was not an attempt at “maintaining the absolute stability of bullion at that ratio.”421 Under the gold-exchange standard, the value of silver coins comes not from this ratio, “but upon its exchangeability for gold drafts.” Setting this ratio between the weight of silver coins in relation to the gold unit was supposed to

420 Stability of International Exchange,112. 421 Stability of International Exchange,121-122. 174 help the new coinage system by allowing it to weather fluctuations in the market ratio of silver to gold. One of the largest threats to the gold-exchange standard system was that the bullion value of silver in the coin, lower than its face value under the gold-exchange standard, would rise, making it viable to ship coins out of the country as bullion and taking these coins out of circulation. The ratio was meant to provide room to absorb future changes in price of silver.422

Furthermore, to make the proposal work, the Qing would have to establish a reserve fund in a bank in either Europe or the United States. However, the commission tried to show that this would not be particularly burdensome. The commission first brought up the example of India. India maintained a gold-reserve fund of less than ten million pounds sterling, around eight percent of the total monetary circulation.423

Moreover, the commission stressed that the fund would not have to be used to settle every transaction. Instead, only when the rates of exchange went higher than the parity between the new gold monetary unit and other currencies “would it sell bills of exchange against its gold reserve for silver coins or other equivalent paid in.”424

There were several possibilities as to how the Qing dynasty could establish the reserve fund. First, the seigniorage on minting silver coins would provide a large profit since their face value would be significantly greater than their value as silver bullion.

422 Cheng-chung Lai, Joshua Jr-Shuang Gau and Tai Kuang-Ho, “Professor Jeremiah Jenks of Cornell University and the 1903 Chinese Monetary Reform,” Hitotsubashi Journal of Economics 50 (2009): 45. The researchers undertake an interesting counterfactual experiment to see how well the proposed ratio of the coins would have held up over time. They find that the system would have held from 1904 to 1916 but that the rise of the price of silver during World War I and its later fall during the 1920s would have provided arbitrage incentives. 423 Stability of International Exchange, 117. 424 Stability of International Exchange, 117. 175

Also, various European nations might agree to accept indemnity payments in silver for several years with the stipulation that China use this period to establish a gold reserve.

The commission felt that a loan would be necessary but that it would not be so burdensome, especially because the profits on seigniorage were likely to outstrip the interest paid on any loan. Even more, once established, the gold reserve fund would be deposited in an account earning interest.425

Finally, in the point that was destined to be most controversial, the Commission on International Exchange suggested that several foreigners be appointed to the office of the Comptroller of the Currency in order to oversee the new system. The comptroller and his assistants were to make “monthly reports in detail on the currency including amounts in circulation, loans, drafts on foreign credit, etc” and also have the “right of suggestion and recommendation.” The accounts of the Comptroller of the Currency (but not those of the general government) would be open at “reasonable times to inspection by accredited representatives of the powers interested in the indemnity,” provided that the Chinese government judges that such a provision would be wise in order to secure confidence in the system.” As the system developed and a national bank issued banknotes, these would also be under the supervision of the comptroller so that they could be maintained at parity with gold. Exactly what all these provisions meant and how Chinese officials interpreted this clause would led to vocal and vociferous criticism of the Jenks plan. The plan, explanations of how it would be carried out and its potential benefits were transmitted to the Chinese Ambassador in Washington, Liang Cheng, who in turn translated them and

425 Stability of International Exchange, 118. 176 sent them back to Beijing.426

Though a proposal was now in place, the relationship between the work of the

Commission on International Exchange and financial reforms undertaken by Yikuang and

Qu Hongji was still unclear and increasingly tense. Secretary of Hay instructed Jenks to proceed to China to bring about the “establishment in China of a gold-exchange monetary system.”427 Jenks was to explain the system to a wide range of Chinese officials and merchants and if it was determined that “temporary relief” in indemnity payments was necessary to bring about these currency reforms he was “authorized to endeavor to secure such relief as may be possible.”428 Significantly, though, Hay thought the Qing government had already made a commitment to adopt the gold-exchange standard. Upon receiving instructions from the Department of State in November, minister Conger composed a message to the Qing stating that the U.S. “expected” the Qing government to

“make arrangements by which its new coins will be given a fixed value in terms of gold,” a conclusion arrived at by interpreting the original Qing request for American assistance in January 1903 as well as a clause in a commercial treaty signed between the United

States and the Qing government in October 1903. This latter agreement stated that China would work towards currency reform. The United States saw a commitment; the Qing government did not.

In a letter to Conger several days later, Yikuang objected to bringing forward the

426 “Jingqi zhi zhumei gongshi Liang Chen had—Zhongguo bizhi zhi jianyi” [Letter from Jenks to Chinese Minister Liang Cheng—Recommendations for Coinage Reform], October 8, 1903, ZGJDHBSZL, 1127- 1157. 427 Stability of International Exchange, 97. 428 Stability of International Exchange, 97. 177

January request on stabilizing the ratio between gold and silver to interpret the clause on currency reform in the October treaty. “The matter of putting the coinage in order,” he maintained, “is an undertaking for the Chinese Government.” Admitting that a fixed ratio between silver and gold would be very beneficial, he also maintained that “China has already begun arrangements for the minting of her coinage, though the details have not yet been completed.”429 The Qing was not bound to go on a gold-exchange standard. In this atmosphere of ambiguity, Jenks went to China.

Jenks in China: Optimism in spite of Misunderstandings

During the first part of 1904, Jenks encountered a remarkable cross-section of

Chinese society. He had an imperial audience and he met with central government officials and provincial viceroys as well as with merchants throughout the country. With the help of his former student Shi Zhaoji, who went by the English name Alfred Sze, (施

肇基 1877－1958), Jenks prepared translations of his proposals to be printed throughout

China.430 How various Chinese officials understood, and misunderstood, his proposal created tension and opposition. Despite these setbacks, Jenks left China optimistic that he had effectively communicated the details and the benefits of the gold-exchange standard.

The promulgation of Chinese currency reform measures in 1905 showed that his optimism was misplaced.

During his imperial audience Jenks explained the motivations and purposes behind his mission. Jenks emphasized the importance of monetary reform, concluding

429 Dispatches, November 28, 1903 and December 5, 1903, Roll Number 125. 430 Sze was the first Chinese graduate of Cornell and later a prominent diplomat. 178 that “no other action can be taken by any government which will have so strong an influence toward increasing the economic welfare primarily of China, but also the whole world.” The official court response to Jenks’ statement praised him by saying that his fame “has been spread abroad” and “your present commission to China is additional proof of your friendly disposition.” The hope of the Qing court was simply that the two countries “may daily increase in prosperity and become more intimate in their relations.”431

However, in the same month that Jenks had his imperial audience, a vociferous critic emerged. Liu Shiheng (劉世珩 ?-?), an official in the Jiangnan commercial bureau (

總办江南商务局 zongban jiangnan shangwuju) who had previously studied in Japan, published a long pamphlet in opposition to the proposal put forth by the Commission on

International Exchange titled “Refuting Silver Prices” (銀價駁議 Yinjia boyi). Liu wrote that the plan focused on satisfying the indemnity powers first, and the interests of the

Qing were secondary or not even taken under consideration. Like the Chinese ambassador to France before him, Liu lashed out at having a foreigner serve as

Comptroller of the Currency. Though admitting that the Qing government was in need of foreign assistants (援助者 yuanzhu zhe) he objected to foreigners becoming chiefs ( 總理

者 zongli zhe). Liu saw a slippery slope in appointing a foreigner to such a key position.

If, he asked, the basis of a state (國 guo) was wealth (財 cai); what happens to the state when it no longer has control of its finances? Here he brought up the frightening example

431 Dispatches, February 22, 1904, Roll Number 125.

179

(悚 song) of , in which the country slowly lost its financial and political sovereignty to European dominance.432 Liu thought China risked the same fate by agreeing to allow a foreigner to reside at the center of Qing finance. Although the Jenks pamphlet said the

Comptroller of the Currency would not have access to the general accounts of the Qing,

Liu thought the figure would gain access to them after currency reform was implemented and the Comptroller of the Currency had oversight of the proposed national bank.433

Jenks spent much of the spring in a whirlwind of travel, visiting Canton,

Shanghai, Tianjin, Suzhou, Hangzhou, Hankou and Amoy. Along the way, he met with a wide variety of public officials and private merchants who, he later felt, understood the logic and benefits of the gold-exchange standard. In his discussion with bankers and merchants “a few, and only a few” believed that the China should remain on a silver standard. Those merchants who maintained that the Qing should stay on a silver standard had an interesting motivation: speculative risk and business was “more exciting when exchange is fluctuating.”434 Jenks noted that despite this personal preference for maintaining the thrills of their individual endeavors, the same group of merchants also admitted that it was much better “for business as a whole to have the rate of exchange stable.”435 Jenks might have overestimated his success in selling the merchant community on the benefits of the gold-exchange standard. That summer, the Shanghai

Daotai forwarded the thoughts of a members of the Shanghai financial community, to

432 For more of fear about Egyptization in East Asia at the turn of the 20th century see Michael Schiltz, “Money on the road to empire: Japan’s adoption of gold monometallism, 1873–97,” Economic History Review 65, no. 3 (2012): 1156. 433 “Yinjia boyi” [Refuting Silver Prices], March 1903, ZGJDHBSZL,1180-85. 434 Report on The Introduction of the Gold-Exchange Standard, 66. 435 Report on The Introduction of the Gold-Exchange Standard, 66. 180 officials in Beijing who felt the Jenks proposal was not appropriate for current Chinese circumstances (情形 qingxing).436

From late June to late August, Jenks remained in Beijing to hold meetings with various high and low-level officials who were part of the Qing’s own efforts to work toward currency reform. As Jenks later noted, the initial phase of these discussions did not go well; Qing officials “though interested in the general subject had, relatively speaking, slight interest in the specific plans” put forth by the commission.437 Jenks had his initial meeting with Lu Chuanlin (鹿傳霖 1836-1910), head of the Board of Revenue.

The interaction with Jenks, at least from the American’s point of view, was not fruitful.

The conversation focused, in part, on the contested and controversial nature of the proposed foreign advisor. Jenks stressed this position would be equivalent to the one held by Robert Hart, Inspector-General of Chinese Maritime Customs. The Comptroller of the

Currency would not have access to all materials of the Board of Revenue but only the statistics to do with coinage itself. Lu was generally evasive, saying that the Qing was in the middle of formulating its own regulations on currency reform. According to later U.S. diplomatic correspondence, Lu, apparently “showed himself so indifferent, not to say hostile, that the Government in response from complaints by Jenks, transferred him to the

Presidency of the Board of Works.”438

436 “Shanghai qianye shangye duiyu jingqi yinjia tiaoyi de yijian [Thoughts of the Shanghai financial and commercial community on the Jenks plans], June 1904, ZGJDHBSZL,1194-1195. 437 Report on The Introduction of the Gold-Exchange Standard, 16. 438 Dispatches, May 26, 1905, Roll Number 128. 181

Jenks had his most frequent sessions with a group of lower-level officials in the

Board of Revenue. During this period, he also met with Na Tong (那桐 1857-1925) who had led a group of officials to Japan in 1903 to investigate Japanese financial reforms. In these meetings, Jenks went back and forth between the details and the intent of the plan, assuring his interlocutors that he not seek to advance foreign interests (圖利益 tu liyi) and stressing the benefits that would come to the Qing through increased foreign investment.439

Jenks felt he had his most productive sessions with (趙爾巽 1844-

1927), appointed as acting head of the Board of Revenue to replace Lu Chuanlin. During his stint in the Board of Revenue Zhao showed, as the U.S. minister to China later wrote,

“the greatest aptitude for financial questions.”440 Jenks thought he “manifested immediately a great interest in the plans under discussion” and the two met together several times during the summer of 1904.441 The discussion with Zhao did reach a level of detail not present in conversations with other Qing officials. Recognizing, perhaps, the controversy around the proposal to have a foreign Comptroller of the Currency, Jenks said that the terminology used with the proposed advisor was flexible. Zhao, instead of dismissing the matter the of the foreign advisor outright, asked how many would need to be used, for how long, and how much they should be paid. Zhao also queried Jenks about whether he thought it possible the Qing could secure a loan to adopt the system without

439 “Jingqi yu hubu ji waiwubu huiyi jilu” [Records of conversation between Jenks and the Board of Revenue and Ministry of Foreign Affairs], June 28, 1904, ZGJDHBSZL,1121. 440 Dispatches, May 26, 1905, Roll Number 128. 441 Report on The Introduction of the Gold-Exchange Standard, 17.

182 any security (抵押 diya). Jenks thought the profits from seigniorage alone might be enough in the first few years that this type of loan might be possible. Continuing the hypothetical discussion of how the Qing would go about the shift, Zhao asked what steps should be undertaken first, preparing a gold-reserve fund or fixing a price for gold. Jenks replied that the first task would simply be to settle on a foreign expert to provide further advice in these decisions. Finding this person, Jenks emphasized, would be particularly important to help the Board of Revenue in countering opposition from provincial officials. In the end, Zhao stressed the need to make decisions about currency reforms deliberately and that the interests of the merchants and people (商民 shangmin) were still not clear.442

Jenks departed China optimistic that, after initial struggles and opposition, he had convinced a number of officials of the viability of the plan and the benefits it had for the

Qing. His task, as minister Edward Conger had put it, “was a very difficult one, and at first prospects were rather discouraging” but “he has practically brought the Chinese government to believe that his plan is the correct one, and, ought, if possible, be adopted.”443 Jenks, in a letter enclosed in Conger’s report, charted a similar evolution of opinion within the Qing government. Returning to Beijing after his travels he felt that his interlocutors were generally skeptical of the motivations, mission and plans of the

442 Jingqi yu hubu ji waiwubu huiyi jilu” [Records of conversation between Jenks and the Board of Revenue and Ministry of Foreign Affairs], August 24, 1904, ZGJDHBSZL, 1123-1125 and The Papers of Zhao Erxun, Number One Historical Archives of China, Roll 15. Unlike most materials in the Number One Historical Archives of China, the papers of Zhao Erxun have not been digitized and are still on microfilm. Chinese transcripts of the meeting between Jenks and Zhao are on roll 15 quanzong, 75, leijian 79. The ZGJDHBSZL only contains excerpts of these conversations. 443 Dispatches, September 7th, 1904, Roll 126. 183

Commission on International Exchange. However, over the course of time he believed

“their feelings of distrust were largely removed.” At his last meeting with the Board or

Revenue, Jenks reported that Zhao Erxun “saw no reason why the plans of the

Commission on Internal Exchange were not entirely practicable.”444

As Jenks left China at the end of August and readied to prepare his findings, some reports about the trip mirrored his optimism while others remained skeptical. There was no doubt, concluded, that “Jenks has succeeded in explaining this plan clearly to Chinese statesmen and inducing them to promise their influence to aid its adoption,” though the ultimate implementation of the plan would be “exceedingly difficult but we do not regard it as at all impossible.”445 Doctor G.E. Morrison, the

Beijing correspondent for the London Times, wrote that the Jenks mission had

“undoubtedly left its mark” and it was “regrettable” that he returned to America because

“his work was only just beginning” as “experiences teaches that between Chinese expression of approval of reform and its actual introduction, the distance is often considerable.”446 The most pessimistic evaluation of Jenks’s came from the

Economist. Relaying the reports of the British commercial attaché in Beijing, the magazine doubted whether the “the professor’s expositions of the currency problem were grasped by those whom he addressed,” despite the “lucidity and ability with which they were put forward.”447 More worrying, though, was that the scheme focused too much on international exchange and “domestic trade of China has been practically treated as non-

444 Dispatches, September 7th, 1904, Roll 126. 445 “The Chinese Currency,” New York Times, August 31, 1904, 6. 446 Report on The Introduction of the Gold-Exchange Standard, 18. 447 “China and Mexico and the Gold Standard,” Economist, October 15, 1904, 1649 184 existent.”448 Finally, the magazine questioned the timing and relation of currency to other types of reform. What was immediately necessary were reforms that made the authority of the central government “paramount throughout the empire” and to “place the finances of the country on a sound basis.” Without these prerequisites, any currency reform would be “chimerical” and “entirely futile.”449

A short time before the publication of The Economist’s skeptical take, Zhang

Zhidong (张之洞 1837-1909), still Governor-General of Hubei province and one of the key figures from chapter three, penned two memorials that criticized the Jenks plan based, in part, on a false understanding of its details. Zhang’s memorial did much to halt any momentum the gold-exchange standard proposal had gained that summer. Zhang had held two meetings with Jenks when the economist was in Hankou earlier in the spring.

Zhang objected to the plan based on politics, economics, as well as an understanding of the current and future national situation of China (情形 qingxing). Zhang first objected that the gold-exchange standard proposal would cede too much of China’s sovereignty, noting that there is no independent nation in the world that willingly gives another country the power to administer (主持 zhuchi) its financial affairs. Zhang thought the power given to the Comptroller of the Currency put all the power of the Qing’s financial administration in the hands of a foreigner. Under these circumstances, China became nothing more than a public marketplace (公共之貿易場 gonggong zhi maoyichang) with

448 “China and Mexico and the Gold Standard,” Economist, October 15, 1904, 1649. 449 “China and Mexico and the Gold Standard,” Economist, October 15, 1904, 1649. 185 no sovereignty (主權 zhuquan) whatsoever.450 Next, Zhang also objected to the Jenks plan based on a misunderstanding of the proposed 32:1 ratio between the gold unit and the weight of solver coinage, thinking that the Commission proposed to set the overall rate between silver and gold. He read the plan to imply that Chinese merchants would have to sell to the government an ounce of gold for 32 tales of silver that on the market was worth 40 taels. The mismatch in rates would drive whatever domestic stocks of gold out of the country.451

Zhang went on to admit that the low price of silver harmed indemnity payments but would be beneficial to exports. In his mind, though, the gains from increased exports would outweigh the losses due to increased indemnity payments. Perhaps most interesting, Zhang thought that the price of silver had bottomed out. Mentioning silver interests in the United States (美國用銀黨 meiguo yongyindang) which thought the decrease in the price of silver improper, he surmised that there would be no further dramatic drops in the price of the metal, and if there was it would only benefit China’s exports.452 Zhang also argued that the gold denomination of the Boxer Indemnity payments were unfortunate but not insurmountable. Adopting the Jenks proposal to fix this one problem would result in greater trouble and popular protest as the Qing handed over control of its finances to foreigners.

Despite his vociferous objections to the plan, Zhang was not opposed to the gold

450 “Xuding jinjia gaiyong jinbi buhe qingshi zhe” [A memorial on the inappropriateness of the gold- exchange standard], October 8, 1904, Zhang Wenxinag gong quanji, 2 ce (Beijing: Zhongguo shudian, 1990), 51. Afterwards cited as “Xuding jinjia.” 451 “Xuding jinjia,” 52-53. 452 “Xuding jinjia,” 54-55. 186 standard in general and took a fairly generous view of the Jenks visit and American intentions. Looking at the worldwide trend toward the gold standard, he thought China would eventually adopt this monetary system but would only be ready to do so in fifty years’ time after more . As for the proposal at hand, he did not think it represented a devious scheme by the Americans, noting that the relations between the Qing and the United States were quite good (交誼素厚 jiaoyi suhou) and that the proposal came out of a desire to help save (補救 bujiu) Qing finances. However, the plan,

Zhang reiterated, was based on a misunderstanding of China’s national circumstances.

After these magnanimous views of American intentions, he shifted tone and issued a more general warning. Zhang believed a large number of Chinese were convinced by the argument that, because foreign countries used the gold standard, China should, too. This group had to be actively opposed.453

Having outlined steps the Qing government should not take, in a separate memorial written on the same day, Zhang suggested what it should do. China, Zhang thought, first needed to become a silver-using country. Though foreigners said that China was a silver-using country, the areas of the country that used primarily copper outnumbered those that used silver ten to one. Although not explicit, Zhang made the argument that moving from a copper-standard to a gold standard essentially skips an evolutionary stop.

Zhang argued that the important mission at the present was to establish a national currency based on silver and establish a fixed ratio between the price of silver and

453 “Xuding jinjia,” 55-56. 187 copper. Reflecting on his own endeavors into coinage in Guangdong in the 1880s discussed in the previous chapter, he labeled these reforms “a temporary expedient.” The provincial dollars were not supposed to be a national coinage but instead were intended to supplant the import and circulation of foreign coins. Now, however, with various treaty commitments to create a national coinage, the question of what type of standard to use was at hand. Zhang believed the provincial dollars, which were all coined to mirror the weight of the Mexican dollar at .72 liang, were not appropriate for China’s national coinage. Anticipating a debate that was in an embryonic state and would emerge again from 1907 to 1910, Zhang thought China’s news coinage should be based on the liang/tael. New silver coins would weigh one tael instead of .72 liang. In memorializing the throne, he asked and received permission to mint one-liang silver coins for one year to see how they circulated.454

A much more positive response to the Jenks memorial came from the scholar

Liang Qichao (梁启超 1873-1929), who, during his years in exile after the 100 Days

Reform period in 1898, had devoted himself to the study of finance and economics. Liang actually approved of the Jenks proposal in its general outlines but ultimately objected based on a similar reasoning to that of Zhang Zhidong. China at that time, Liang thought, did not really have a monetary standard and the evolution of the world monetary clearly showed that the world was headed to a gold standard. Since bimetallism had proven ineffective due to different supply shocks and China could not go on a gold standard due

454 “Shizhu yiiang yinbi zhe,” [A memorial on trying to mint a silver coins weighing one liang] Zhang Wenxinag gong quanji, 2 ce, 56-58. 188 to a lack of assets, the gold-exchange standard was the best option, although on the surface it was difficult to understand.455

He then proceeded to critique Zhang Zhidong’s response by answering how it can be the case that in China the ratio between gold and silver will be 32:1 while the ratio in the rest of the world would be 40:1 Three principles make this system possible: trust

(信用 xinyong), limits on the amount of coin produced (限制 xianzhi) as well as the selling and buying of drafts on (操縱 caozong). There are no problems with the system itself, Liang argues, only with the fact that the proposals themselves were misunderstood by their fiercest critic.456

Although Liang endorsed the gold-exchange standard in its outlines, he ultimately objected to it on the grounds of economic sovereignty. His doubts centered on the exact role of the currency advisor proposed under the Jenks plan. In outlining why he was so concerned with the ability of the foreign Comptroller of the Currency to inspect the statistics on coinage he contrasted this proposed role with the role of Robert Hart. Liang thought that Hart, as head of the Maritime Customs, only had authority (利權 liquan) along rivers and in coastal areas (沿江沿海 yanjiangyanhai) but the proposed advisor on currency reform would occupy a central place in the internal affairs (內政 neizheng) of the Qing. The advisor’s every act would be enough to cause a mortal threat (死命 siming) to the government.457 This point is particularly important because it is based on the ideas

455 Liang Qichao, “Zhongguo huobi wenti,” [China’s currency problems], Yinbingshi heji, ce 6, (Beijing: Zhonghua shuju, 1941), 105-6. 456 Liang, “Zhongguo huobi wenti,” 115-120 and 124. 457 Liang, “Zhongguo huobi wenti,” 123. 189 of different layers of economic sovereignty: the issue and control of currency in this schema is closer to the core of economic sovereignty than control over customs. In order to keep control over economic sovereignty, Liang thought the Qing needed to adopt the gold-exchange standard but to administer it without the assistance of any foreign advisor.

Otherwise, because the Chinese currency system was becoming a place of competition between imperial powers, another country might force a change upon it, further eroding its economic sovereignty.458

The proposals embodied in the two memorials written by Zhang Zhidong became a subject of apparent confusion at the Qing court. In November 1904, Edward H. Conger penned a letter to Jenks with the “regret that I cannot send something less discouraging.”

At a recent meeting between Zhao Erxun and E.T. Williams of the American legation,

Zhao shared the news of Zhang Zhidong’s recent memorials. Zhao reported a convoluted series of events by which the emperor approved Zhang’s memorial requesting to undertake a one-year coinage experiment of minting one tael coins without first showing it to or discussing it with the Grand Council. Zhao himself said he had not seen or heard of the memorial until it was already approved. Zhao asked Williams to tell Jenks “not to be impatient” and that “the advantage of the system will gradually be understood.” At first, Zhao himself was very much against the monetary reform proposal put forward by

Jenks and only after his meetings with Jenks did he realize “that he entirely misunderstood the scheme.”459 Conger, too, tried to reassure Jenks that despite these

458 Liang, “Zhongguo huobi wenti,” 123-4. 459 Dispatches, November 14, 1904, Roll Number 127. 190 recent setbacks his “efforts left a great impression for good and, sooner or later, the results must be seen.” By early 1905, whatever momentum had existed for adopting the gold-exchange standard within the Qing Court had fizzled out.

Conclusion

Over the course of 1905, several of the threads motivating the Commission on

International Exchange reached temporary conclusions. In April, the Qing government took out a loan to make up for the gap in gold payments on the Boxer Indemnity that had accumulated over the past three years.460 This development represented the defeat of the position first advanced by Liu Kunyi that the Boxer Indemnity was a debt in silver and not gold. In May, Mexico adopted the gold-exchange standard, fixing the value of the peso at 49 U.S. cents. However, over the next several years, the world price of silver increased, reaching a ten-year high in 1907, and the value of Mexican coins as bullion outstripped the pegged value they had been given to gold. As coins were shipped out of

Mexico, the country faced a currency shortage.461 Mexico eventually went off the gold standard after the revolution of 1910-1911 that ended the rule of Profirio Diaz.

Toward the end of 1905, the Qing promulgated new regulations on currency. The regulations established a main mint with four branches that would be the only facilities allowed to make the new silver coins. The main unit was a silver coin that would weigh one kuping tael. There was no mention of the gold-exchange standard. When enough of these silver coins were in circulation, one regulation called for the issuing of paper notes

460 Ma, Waizhai yu wanqing zhengju, 328-329 461 Schell, “Mexico’s Conversion to the Gold Standard, 1905,” 79-80. 191 equivalent to the number of silver coins, though it was unclear what reserves would stand behind this notes. Though the new regulations restricted the number of mints for silver coinage, they allowed provincial coinage of copper coins to continue, albeit with several restrictions.

First among the restrictions, provincial mints could not add any more equipment to their existing plant in order to increase production. Next, the regulations forbade the importation of copper blanks (tongbing 銅餅) from Japan. These made coining easy but were expensive. Moreover, foreign merchants bringing tongbing into the country often brought more than was ordered in order to sell them on the private market. The regulations instructed the Customs Department to turn away any shipments of copper blanks. These new policies about the minting of copper coins marked a turning point in the final decade of the Qing.462 From 1900 to 1905, copper coins generally maintained their value with less than 100 copper cents being able to purchase a silver dollar. From

1905 to 1911, it took more and more copper coins to buy silver as the number of coins exploded.

The regulations made no mention of the proposal of the Commission on

International Exchange, the Jenks visit or adopting the gold-exchange standard. William

Woodville Rockhill (1854-1914), the new Secretary of the American Legation in Beijing, observed that these new regulations did little “to fulfill the requirements of our last treaty with China to the effect that she establish a uniform national coinage.”463 In this way, it is

462 See Li, Caizheng cheng zouzi jiyao, 17-20. 463 Dispatches, December 11, 1905, Roll 130. 192 possible to see Jenks’s mission as achieving nothing of note. Rather than treating the

Jenks mission as a “failure,” which implies a degree of finality, this chapter has argued that it is more instructive to focus on the intellectual and political debates that it created:

What is and should be money? What is the definition of sovereignty? The scope of this term in the late Qing was shifting and malleable. However, the Jenks visit shows that

Qing statesmen indentified control over the monetary system as a core sovereign right, qualitatively different from other types of economic privileges and power foreign countries might win from the Qing.

Just two years after the 1905 currency promulgations, debates about monetary standards reemerged. In fact, the Jenks episode marks an important shift in U.S.-China monetary interactions. For the next thirty years, the question of whether China should adopt the gold-exchange standard was the key issue. However, the United States was hardly the only country with an interest in establishing a link between its currency and the currency of China. China, in the early twentieth century, remained the “world’s last great silver frontier” and became a “battleground for competing for competing gold- exchange standard schemes.”464 The next chapter examines this competition for influence over the Chinese monetary system at the end of the Qing, through the 1910s and into the early 1920s by following the life of a loan for currency reform. The loan was agreed to in

1911 but was never actually made.

464 Metzler, Lever of Empire, 38. 193

Chapter 5: The Currency Reform and Development Loan, 1910-1924

Liang Qichao was not finished with financial affairs after penning his 1905 article in support of the Jeremiah Jenks plan and criticizing Zhang Zhidong’s opposition to it. In fact, while Liang was in Japan during the last years of the Qing dynasty (1644-1912), he focused his attention again on finance and economics, penning articles on budgeting, taxation and currency.465 The state of the Chinese currency was a particular concern for

Liang as Qing provincial officials used debased copper coinage and provincial note issues as a means of raising revenue. With the circulation of these debased copper coins and provincial notes, alongside provincial and Mexican silver dollars, as well as banknotes issued by domestic and foreign institutions, the state of the Chinese monetary system, according to Liang, was in a crisis. Just before the fall of the Qing dynasty and the birth of the fledging Chinese Republic in 1912, Liang wrote that debased coins and a chaotic currency system create more societal unrest than the worst of tyrants.466

After the fall of the Qing dynasty and his return to China, Liang moved from theory to practice, serving on the currency reform commission in 1913, as head of the currency bureau of the Ministry of Finance in 1914 and as Minister of Finance for the

465 For a broader overview of Liang Qichao’s economic thought, see Zhu Junrui, Liang Qichao jingji sixiang yanjiu [The economic thought of Liang Qichao] (Beijing: Zhongguo shehui kexue chubanshe, 2004). 466 Liang Qichao, “Lun bizhi banding zhi chisu xi guojia zhi cunwang,” [On the speed of promulgating currency reforms and the life and death of countries] Yinbingshi heji, ce 7 (Shanghai: Zhonghua shuju, 1941), 107. 194

Duan Qirui (段祺瑞 1865-1936) Republican government in 1917. As Minister of

Finance, he engaged with the international banking consortium, Japan and the United

States in attempts to sign loans for the reform of the Chinese currency system.

After his return to China and involvement in government in 1912, Liang worked under the influence and constraints of the Currency Reform and Industrial Development

Loan (幣制實業借款 Bizhi shiye jiekuan), signed in April 1911 by a consortium of

American, British, French and German bankers with the Qing dynasty that was meant to provide funds to reform the Chinese currency system and develop Manchuria. The loan was never made. The Qing dynasty collapsed soon after signing the agreement.

However, a clause in the loan contract stated that the option on this loan could be extended every six months and that the consortium of banks had exclusive interest in any future loans relating to Chinese currency reform. In the initial period after the Qing dynasty ended, the new Republican Chinese government under (袁世凱

1859-1916) extended the loan option as a matter of course and without much controversy.

Later, the loan became the focus of a political struggle over economic sovereignty between various Chinese governments, the Woodrow Wilson administration and different

Japanese cabinets. At stake was control, or perceived control, of the Chinese monetary system due to the ability to make the loan as well as the right of foreign bankers and diplomats to name an advisor to consult on and possibly oversee currency reform.

However, by 1924, when the loan had already had a life of more than a decade, all parties recognized the original contract was a dead letter and canceled it.

This chapter uses the life of the currency reform loan as a vehicle to examine the 195 complex financial history of the late Qing dynasty, the immediate aftermath of the Qing’s fall and World War I in order to focus on two themes. First, it follows the continued debate in China about whether to adopt the gold standard or stay on the silver standard and, if the latter, what weight of silver to adopt as the main unit of account. However, the debate about economic standards was not simply about economics but also about politics: the issue focused on what proposed currency reforms, especially the powers of a proposed foreign advisor, meant for Chinese conceptions of economic sovereignty.

Much scholarship focuses on loans between Chinese governments and foreign powers that were made.467 This chapter focuses on a loan that was not made. In doing so, it brings chance and contingency into an area of study that appears, on the surface, to be static. The history of a loan is much more than just an amortization table. Thus, the chapter pays particular attention to how different Chinese officials used the terms of the currency loan to protect the Qing dynasty’s, and later the fledgling Republic’s, economic sovereignty.

Next, the chapter follows U.S. participation in the first international banking consortium that made the currency loan, its exit from the consortium at the start of the

Wilson administration in March 1913, and its role in organizing and shaping a second international banking consortium in 1918 and 1919. In the period before World War I, the loan, from the U.S. point of view, represented an attempt to counter Russian and Japanese encroachment in Manchuria and maintain the “Open Door.” In the early Wilson

467 See, for example, Ma Linghe, Wanqing waizhaishi yanjiu [Research on foreign debt in the late Qing] (Shanghai: Fudan Daxue chubanshe), 2005; Ma Jinhua, Waizhai yu wanqing zhengju [Foreign debt and the political situation in the late Qing] (Beijing: Shehui kexueyuan chubanshe, 2011). 196 administration, the president and some of his advisors saw the loan as a distasteful legacy of President ’s Dollar Diplomacy. It thus became necessary for the

United States to leave the banking consortium. Later, during World War I (1914-1918), the loan was a mechanism for the United States to use in order to prevent Japanese domination of the Chinese monetary and financial system by rejoining the consortium.

The period at the end of World War I involved a search for a new type of world order

“after imperialism,” embodied mainly through the League of Nations.468 However, at the same time as the United States led discussions about the League, it chose to rejoin a fundamentally imperialistic institution: a consortium of European and American banks to lend money to China. This chapter points out these incongruities and shows how as it became more unlikely that currency reform on a national level would actually be carried out, the original 1911 loan became more important, not because of currency reform but because of political power. Control over currency was at the core of Chinese state- making as well as a key parts of imperial power politics.

The Chinese and American Background to the Currency Reform Loan

The path towards the currency loan winds through the various efforts at financial reform in the final years of the Qing dynasty. At the same time, American policy in the

Theodore Roosevelt (1858-1919) and William Howard Taft (1857-1930) administrations paid more attention to how the U.S. government could preserve its limited, but hopefully growing, commercial interests in Manchuria. These threads came together in the spring of

468 The phrase “after imperialism” comes from Akira Iriye, After Imperialism: The Search for a New Order in the , 1921-1931 (Cambridge, MA: Harvard University Press, 1965). 197

1910 when the Qing government announced a new set of currency reforms (國幣則例 guobi zeli) and the United States responded with a note saying it would like to assist the

Qing government in carrying out the proposed reforms. Negotiations ensued in late 1910 and early 1911. The loan signed in April 1911 included funds earmarked for reforming the Chinese currency system as well as the development of Manchuria and was secured on Manchurian tax revenue. From the beginning the loan, both the Qing dynasty and the

American government had political aims. The loan was never just about currency reform.

Debates about the gold and silver standard had continued in the final years of the dynasty after Jenks returned home in 1904. In May 1907, Zaize (載澤 1876-1929), the

Minister of Finance and an important Manchu nobleman, made his initial recommendations about currency reforms. Zaize believed the experimental one-liang coins minted in Hubei province based on the suggestions of Zhang Zhidong and the currency regulations 1905 had turned out a failure. The coins, he argued, were not circulating; they were too heavy and contained too much silver. They were quickly melted down. Zaize contended that the currency law should focus on circulation and what people were already familiar with using. The monetary standard (本位 benwei)should be silver coins that weighed .72 liang, approximately mirroring the weights of the Mexican dollars and silver provincial dollars. Moreover, because the value of the Mexican silver dollar was roughly half of the American dollar, he thought the .72 liang standard might facilitate a future shift toward the gold-exchange standard.469 For current use and future

469 “Zaize dengzhe—xian xingshi zhu tongyong qiqian erfen yinyuan yi li tuixing” [Zaize memorial on minting a silver coin of .72 taels], May 10, 1907, Zhongguo jindai huobishi ziliao [Materials on the 198 plans, a silver coin that weighed one liang was impractical. This suggestion began a debate that intensified over the last three years of the dynasty, becoming subject to larger political currents at the top level of the Qing government and carried through to the early years of the republic.

An extensive critique of Zaize’s position came from Yuan Shikai, the Viceroy of

Zhili province and future president of the Chinese Republic . Yuan opposed the .72 liang standard and endorsed the one-liang standard, advancing arguments that were both practical and abstract. He first took issue with Zaize’s facts and the claim that the one- liang coins minted by Zhang Zhidong were a failure because they had been melted down.

Yuan insisted that the coins circulated and had the confidence of merchants and the people (商民信用 shangmin xinyong). They were melted down not because of their heavy weight but due to the need to make a slightly different coin at the mint. In fact, he estimated that more than 100,000 of the one-liang coins were still in circulation.470

Yuan then proceeded to broader reasons for opposing the monetary standard of .72 liang. First, he stressed the right of every country to shape its own currency system and that China should not imitate a foreign system, coins weighing .72 liang. In a similar vein, one of the express purposes of provincial minting of .72 liang coins in the 1880s and 1890s was to oppose (抵制 dizhi) the circulation of foreign coins. However, foreign coins still proliferated. In fact, he argued that the .72 liang provincial dollars assisted the

currency history of modern China, Vol. 2] (Beijing: Zhonghua shuju, 1964), 736-737 (Hereafter ZGJDHBSZL). 470 “Zhili zongdu Yuan Shikai dengzhe—zhuzhang zhuzao yiliang zhong shizy chengse yinbi” [Yuan Shikai’s memorial advocating for minting a one-liang silver coin], August 1907, ZGJDHBZL, 742. 199 circulation of the Mexican silver dollars; he thought Zaize’s proposal would have a similar result.

Next, he focused on the problems and contradictions that would arise from a government-sanctioned standard of .72 liang in the context of the differing tael standards across the country. Codifying the .72 liang standard would not eliminate the tael as a unit of account. Under these competing standards, how would China unify the currency system? Next, and significantly, he questioned Zaize’s proposition that people were used to handling and using .72 liang coins that mirrored the weight of Mexican silver dollars.

Admitting that this statement might be true in the southeast of the country, Yuan maintained that in other areas, particularly the northwestern provinces, Mexican silver dollars made up only one percent of the monetary system. The areas that did not use silver coins were much larger than the places that did. Tax payments, business relationships, customs payments were all calculated in liang and the conversion costs, in terms of keeping accounts and daily habits, would be too great. Instead, Yuan argued for a pure tael standard ( 一两重十足成色 yiliang zhong shizu chengse).

The advocates of the one-liang standard continued to be influential throughout

1908. Zhang Zhidong and Yaun Shikai united again to advocate for the one-liang coin at the base of the monetary system standard.471 (唐紹儀 1862-1938 ), at that time a special commissioner to the United States trying to draw the American government into the defense of Manchuria, told State Department officials that China

471 “Zhuzhang yiliang shizu chengse yinyuan” [Advocating for minting a one-liang silver coin], April, 1908, ZGJDHBZL, 747-752. 200 planned to go on the gold-exchange standard in hopes of securing a loan, but in correspondence with the Qing court, he supported a one-liang silver standard and made no mention of going to gold. Tang advocated announcing the one-liang silver standard as soon as possible.472 Days after receipt of Tang’s memorial, and after it was discussed in the Zhengwuchu (政務處), the Qing government reaffirmed the one-liang silver coin as the monetary standard on October 5, 1908. In 1908, unlike in 1905, the order that codified the one-liang standard also mentioned a desire in the future to go on the gold standard but the impracticality of doing so now. It was more important to unify the currency first.473 It was a defeat for Zaize’s position on the .72 liang standard, but a temporary one.

Zaize ascribed the failure of his arguments supporting the .72 liang silver standard to the overriding political conditions, particularly the power of Zhang Zhidong and Yuan

Shikai, the two most important provincial officials at the time.474 However, Qing politics changed dramatically soon after the promulgation of the edict supporting the one-liang standard. The Guangxu Emperor (1871-1908), who had been sidelined since the 100

Days Reform Movement of 1898, and the Empress Dowager, who had been the main authority in the dynasty for several decades, died in quick succession in November 1908.

Before her death, the Empress Dowager named the Imperial Prince Zaifeng (載灃 1883-

472 “Zhuanshi meiguo dachen Tang Shaoyi zhe—qing ding yiliang yin wei benweibi” [Minister to the United States Tang Shaoyi’s memorial asking to establishing the one-liang silver standard], September 22, 1908, ZGJDHBZL, 759-760. 473 Junjichu shangyudang, October 5, 1908, Second item, 1511:5. 474 Wei Jianyou, Zhongguo jindai huobi shi [The currency history of modern China] (Anhui: Huangshan Shushe, 1986), 123. 201

1951) as regent for the next emperor. Zaifeng relieved Yuan Shikai of all his posts in

January 1909, reportedly on the deathbed order of his brother the Guangxu Emperor.475

Zhang Zhidong passed away in October. Thus, by the end of 1908, Yuan and Zhang, two of the strongest advocates of the one-liang coin as the base of the monetary system, were no longer on the scene.

Zaize took advantage of these changing political dynamics by penning a memorial in the first year of the Xuangtong Emperor (1906-1967) when the regent Zaifeng held sway at court about why the one-liang standard was inadequate.476 By the spring of 1910, the Ministry of Finance issued another set of currency regulations naming a silver coin weighing .72 liang, nine-tenths fine, as the main currency unit, along with a fifty, twenty- five and ten-cent pieces.477

Reaction to the new regulations varied depending on the position of observers.

Liang Qichao, still in Japan, had just become editor and chief contributor to the magazine

Guofengbao (國風報) and devoted a number of articles in the publication to monetary issues.478 Liang had several criticisms of the reforms promulgated in the spring of 1910, mainly that they did not adopt the gold-exchange standard. He also thought the language and order of the new regulations obfuscated what exactly the standard was, by saying that

475 Edward J. M. Rhoads, Manchus & Han: Ethnic Relations and Political Power in Late Qing and Early Republican China, 1861-1928 (Seattle: University of Washington Press, 2000), 133. 476 “Zaize zhe—yiliang bizhi reng zhiai qing zai xing tuoyi” [Zaize’s memorial on the hinderance of the one-liang standard and asking for reconsideration], February 4, 1909, ZGJDHBZL, 763-4. 477 “Bizhi niding taili” [Codifying the measures on currency regulation], May 23, 1910, ZGJDHBZL, 783- 785. 478 For a complete list of the articles Liang Qichao published of economic matters in 1910. See Ding, Wenjiang and Zhao Fengtian, Liang Qichao nianpu changbian [Edited chronicles of Liang Qichao’s life] (Shanghai: Shanghai Renmin chubanshe, 1983), 535-536. 202 the coin was to be worth .72 liang of silver but would only include .648 liang of pure silver. This made the face value of the main coin (主幣 zhubi) greater than the actual value of the silver contained in it, which was only appropriate for subsidiary coinage (輔

幣 fubi).479 In addition, he criticized the regulations for not having a clause that guaranteed the free minting of silver coins.

He also seized on an important point considering the relationship between the new coins and the various taels in existence as monetary standards across China. Liang was confused by one regulation that said in the short term, older silver coins—provincial and

Mexican silver dollars—were to circulate and be used at their market price. Liang thought this too open-ended: Was it the market price between one old coin and another old coin? Was it the market price of the newly minted coins in relationship to older ones?

Was it the market price of the new coins in terms of the monetary taels in different geographic regions? This last possibility was the most worrisome because it meant that the introduction of the new silver coins would simply add another type of coin to the plethora of ones already on the market without fundamentally changing anything.480

The reaction from the United States was more positive. The State Department was glad “to learn that China has under consideration the adoption of a new currency system, uniform for the whole Empire, in fulfillment” of the 1903 Commercial Treaty signed with the United States.481 In the fall of that year, (盛宣懷 1844-1916), a

479 Liang Qichao, “Du bizhi zelie ji duzhibu chouban zhu zheshou hou,” [Thoughts after reading the Ministry of Finance’s regulation on currency] Yinbingshi heji, ce 9 (Shanghai : Zhonghua shuju, 1941), 99. 480 Liang Qichao, “Du bizhi zelie ji duzhibu chouban zhu zheshou hou,” 102. 481 “Acting Secretary to the Chinese Minister,” June 13, 1910, Foreign Relations of the United States, 1912 Volume (Washington, D.C.,: Government Printing Office, 1912), 89. (Hereafter FRUS). 203 high-ranking official who had recently been put in charge of currency reform and previously played an important role in setting up the (中國銀行 zhongguo yinhang) in 1897, approached the new American Minister in China, William Calhoun

(1847-1916), “to ask if American bankers would be willing to undertake a loan of about fifty million taels” in order to implement currency reform.”482

Soon after this initial exchange, Sheng Xuanhuai and Zaize developed another proposition. They suggested that if American bankers “are willing to undertake a currency loan of 50,000,000 gold dollars, the Manchurian loan of 20,000,000 taels should be included therein, as they do not want an Imperial loan for Manchuria to be treated any differently from one for the rest of China.”483 Calhoun, a former corporate lawyer and friend of President William McKinley, also passed along the Qing government’s desire

“to negotiate this loan entirely with us, and I was told that it had not yet been offered to anyone else.”484

The upcoming loan negotiations brought together several threads: long-standing

American concern in Chinese monetary reform, growing worries among certain U.S. diplomats about the position of American commercial interests in Manchuria. Morvoer, the loan negotiations reveal the Qing’s desire to use American interests in Manchuria to protect their own tenuous hold on the province in the face of Russian and Japanese power. From the beginning, the currency reform loan was about more than just monetary reform; it was a way to achieve political ends.

482 “The American Minister to the Secretary of State,” October 2, 1910, FRUS 1912, 90. 483 “The American Minister to the Secretary of State,” FRUS 1912, 90. 484 “The American Minister to the Secretary of State,” FRUS 1912, 90. 204

After the Jenks Mission, the focus and tension of U.S. policy toward the Qing dynasty was not on currency reform but on the changing interpretations of Secretary of

State John Hay’s Open Door Notes and whether or not to pursue a more active policy to protect U.S. commercial interests, particularly in Manchuria. The basic question for U.S. policy was how to deal with emerging spheres of influence in China and how to protect

“limited interests in Manchuria with the limited means immediately at hand.”485 These interests were very much “future oriented” because although American trade in the area was small, some diplomats, economists and businessmen saw Manchuria as key area for the future growth of American exports that would be threatened by Russian or Japanese control of the region.486

From the period of the Boxer Rebellion in 1900 and1901 through the Russo-

Japanese War of 1904-1905 when Russia occupied large parts of Manchuria, U.S. policy, as well as one part of the Qing dynasty’s policy, was to rely on Japan to balance Russia.

In brokering the Treaty of Portsmouth that ended the Russo-Japanese War, Theodore

Roosevelt felt that “it is best that she [Russia] should be left face to face with Japan so that each may have a moderating action on the other.”487 In the treaty, Japan and Russia promised to remove troops from Manchuria, except in areas already granted to them and to return to Chinese administration areas under Russian or Japanese military control. All powers pledged not to “obstruct any general measures common to all countries, which

485 Michael Hunt, Frontier Defense and The Open Door: Manchuria in Chinese-American Relations, 1895- 1911 (New Haven: Yale University Press, 1973), 107. 486 Hunt, Frontier Defense and The Open Door, 21. 487 Hunt, Frontier Defense and The Open Door, 89. 205

China may take for the development of the commerce and industry of Manchuria.”488 The

Treaty of Portsmouth also solidified Japanese control of the southern branch of the

Russian-built Chinese Eastern Railway from Port Arthur () to Changchun.489

Railways, finance and trade came to dominate Manchurian affairs in the final years of the

Qing dynasty.

After the Treaty of Portsmouth, Francis Huntington-Wilson (1875-1937) and

Willard Straight (1880-1918), American consular and diplomatic representatives in

Manchuria, complained of Japanese discrimination against American trade through unfavorable railroad rates while Qing officials hoped to embark on a program of transportation and resource development in order to secure its tenuous control of

Manchuria. However, the Qing lacked the money to make these plans a reality.

Huntington-Wilson and Straight, who both held stridently anti-Japanese views, recommended and worked toward a more active policy of protecting perceived American interests in Manchuria and taking measures to prevent Japanese domination of the area.

These desires led Straight and Tang Shaoyi, then a provincial official in Manchuria and part of a growing group of officials in Yuan Shikai’s patronage network, to come to a tentative agreement on an American loan. Tang would use the loan funds for the creation of a Manchurian bank that would be the fiscal agent of the province as well finance development in the province, including the purchase from Russia of part of the China

Eastern Railway. The loan would be secured on remitted funds from the Boxer

488 Charles Vevier, The United States and China, 1906-1913: A Study of Finance and Diplomacy (New Jersey: Rutgers University Press, 1955), 22. 489 Vevier, The United States and China, 22. 206

Indemnity.490 In 1908, the Qing named Tang a special representative to the United States, ostensibly to thank the country for its remission of the Boxer Indemnity, but also to discuss the possibilities of using that money for the planned Manchurian bank. Other U.S. officials thought the money would be best used for educational funds because it would provide an infinitely more valuable return on the money than the “wildcat scheme” it would be used in by the proposed bank.”491

Tang arrived in Washington at the end of November 1908 and left in January

1909. He did not succeed on any front. Soon after his arrival, the State Department informed him of the Root-Takahira agreement. This accord recognized the territorial status quo in East Asia as of November 1908; the agreement helped ease simmering tensions between Japan and the United States over questions of the territorial situation of

East Asia and Japanese immigration into the United States. Likewise, Tang was unable to convince the State Department that indemnity funds should be used for the proposed

Manchurian bank. In meetings with Elihu Root (1845-1937), Tang discussed the plans for reform of Manchuria as well as plans for China to adopt a gold-exchange standard and the funds—two to three hundred million dollars—that would be necessary to implement these reforms. However, Root and the State Department were not willing to support these ideas.492 Tang’s trip to the United States, meant to accomplish much more than simply thanking the Americans for the remission of the Boxer funds, ended up doing only that.

490 Vevier, The United States and China, 48-49, 68-69. 491 Hunt, Frontier Defense and The Open Door, 173. 492 Vevier, The United States and China,” 78. 207

The shift from the Roosevelt to the Taft administration in 1909 heralded the ascendance of those who favored a more activist policy in protecting American interests in Manchuria. Besides the new Secretary of State Philander Knox (1853-1921), trained as a layer, whose views on China were unknown and inchoate, the rest of the key positions

“from Taft down to Straight, were held by men who favored a more active role for the

United States in China and Manchuria.”493 The Taft Administration began a program of dollar diplomacy meant to expand American trade, investments and interests abroad.

In East Asia, the Taft’s strategic goals led to two concrete policies: forming an

American banking consortium to take part in the Huguang Railway Loan (湖廣鐵路借款

Huguang tielu jiekuan) and a railroad neutralization scheme proposed for Manchuria. In the spring and summer of 1909, Knox and the State Department organized a group of

American bankers—J.P Morgan and Co., Kuhn, Loeb and Company; National City Bank;

First National Bank—to try to force its way into taking a share of a loan for the construction of a railroad between Hankou and Guangzhou. Previously, the State

Department and banking interests had not shown interest in the loan. In early 1909,

British, French and German interests discussed forming a consortium in order make the loan jointly as a way to prevent Zhang Zhidong, the official in charge of negotiations, from playing them off against one another to secure better terms. Negotiations were almost concluded when the Americans, as British diplomat John Jordan (1852-1925) put it, “stuck their oars in.”494

493 Vevier, “The United States and China,” 92. 494 Walter V. Scholes and Marie V. Scholes, The Foreign Policies of the Taft Administration (Columbia: University of Missouri Press, 1970), 135. 208

The move angered European and Chinese officials. In early July, English, German and French bankers signed agreements relating to their joint projects in China. Though the European bankers rejected American participation in the Huguang loan, in the longer- term, British banking interest were not opposed to American participation in the banking consortium, the Germans were against it and the French were somewhat between these two positions.495 The American banking group appointed Willard Straight to negotiate with the European bankers. To deal with Qing opposition to the American involvement at the at the last minute, President Taft took what he admitted was the “unusually direct” step of writing to Zaifeng about the “prejudicial opposition” to American involvement in the proposed loan.496 Potential American involvement and the death of Zhang Zhidong in

October 1909 delayed negotiations and the Huguang loan was not completed until May

1911.

In addition to wedging American financial interests into existing loan negotiations, Knox, led by his advisors in the State Department, proposed the neutralization of railways in Manchuria in late 1909. This plan entailed putting the

Chinese Eastern and the South Manchurian Railways under an “economic and scientific and impartial administration by some plan vesting in China the ownership of the railroads through funds furnished for that purpose by the interested powers willing to participate.”497 The loan to Qing would allow it to purchase the railways and effectively remove Japanese and Russian interests in Manchuria. However, Knox made the proposal

495 Scholes, The Foreign Policies of the Taft Administration, 142-3. 496 “President of the United States to ,” July 15, 1909, FRUS, 1909, 178. 497 Hunt, Frontier Defense and The Open Door, 204. 209 to Britain and did not consult Japan, Russia or the Qing Dynasty before making the plan public.

The results could have hardly been worse. Britain, now in an alliance with Japan, did not support the idea; Japan and Russia both objected. Moreover, the neutralization scheme brought Japan and Russia closer together. In July 1910, Japan and Russia reached an understanding that supported the status quo in Manchuria, pledged cooperation in railway affairs and committed to joint consultations in case of any threats to the status quo in Manchuria. Knox had “misjudged, at one time or other, the attitude of every government with an interest in Manchuria.”498

By early September 1910, questions about whether the bankers were working for

American interests or simply for their own profit motive came to the fore. The American

Banking Consortium, disturbed by the course of events, questioned whether and how it wanted to continue its current arrangements. Following the neutralization scheme and

Japanese and Russian rejection of it, the bankers “did not want it said with even the remotest degree of plausibility that the promotion of their interest in an investment was pushing the American nation into war with any European or Asiatic country.”499 The bankers were not opposed to making all loans. At the same time they began negotiations with the Manchurian viceroy for a $20 million developmental loan, but they did not want to take on projects that directly aroused the opposition of other powers.500 The bankers were interested in lending money, not in being a political tool. In this atmosphere of

498 Hunt, Frontier Defense and The Open Door, 225. 499 Scholes, The Foreign Policies of the Taft Administration, 192. 500 Scholes, The Foreign Policies of the Taft Administration, 193. 210 tension and mistrust, Chinese currency reform and the balance of power and Manchuria melded together.

The Currency Loan Negotiations

The loan negotiations were the last gasps of Chinese attempts to draw the United

States into Manchurian affairs to balance Japan and Russia. Likewise, they were one of the last vestiges of the active strain of American policy that flourished in the initial years of the Taft administration. Soon after the United States and China came to an initial agreement on the terms of the Currency Reform and Development Loan on October 27,

1910, the American banking group became a participating power in the formation of the international banking consortium of British, French and German banks that became known as the Four-Power Consortium. What had been a solely American loan became an international one. Further negotiations in the winter of 1910 and spring of 1911 between

Zaize, Sheng Xuanhuai, American Minister Calhoun and Willard Straight, now a

“diplomat for accountants” as the representative of the American Banking Consortium in

Beijing, resulted in a loan agreement.501

Negotiations were not easy. Secretary of State Knox called them the most

“tortuous and nerve-racking with which I have ever had anything to do,” as both sides clashed over the price of the loan, the security on which it would be based, the role to be played by a foreign currency advisor and the power of the recently formed international consortium to approve plans for Chinese currency reform.502 By the fall of 1911 when the

501 Eric Rauchway, “Willard Straight and the Paradox of Liberal Imperialism,” Pacific Historical Review 66, no. 3 (Aug., 1997): 385. 502 Department of State (DS), Record Group 59, Records of the Department of State relating to the Internal Affairs of China, 1910-1929, 893.51/481, June 22, 1911. 211 banking group approved the plan for Chinese currency reform and stated that it would go ahead with the loan, the Qing dynasty was in its final days. As the last imperial Chinese government ended, the currency loan agreement was just beginning its life.

Discussion about the initial terms for a joint loan that provided funds for currency reform and Manchurian development loan took place between September and October

1910. Zaize and Sheng Xuanhuai wanted to negotiate solely through the group of U.S. banks, which Minister Calhoun in Beijing saw as an attempt to “obtain our support and protection but also to introduce a competing element to the European banks who have hitherto enjoyed virtual monopoly.”503 Even with the expected sticking points concerning the details of the loan and the exact terms of its financial structure, the two sides came to an agreement quite quickly, with a preliminary contract signed on October

27, 1910, just several weeks after negotiations had begun. The consortium of American banks agreed to provide a loan of up to $50 million in order to “facilitate certain changes in the administration of Imperial and Manchurian Finance and to undertake certain

Industrial Enterprises in Manchuria.”504 Though the Chinese did not object to placing the bonds for the loan on markets outside the United States, they insisted that America be the sole negotiator and signer of the final contract, the negotiations for which would begin immediately. The Chinese also agreed that, if the loan went through, they would appoint an American as a currency advisor in a strictly consultative capacity.505 Since the promulgation of the currency reform edict in May, the U.S. government was very keen to

503 DS 893.51/134, October 2, 1910. 504 James V.A. MacMurray, Treaties and Agreements with and Concerning China, 1894-1919, Volume I (Washington: Carnegie Endowment for International Peace, 1921), 851. 505 Scholes, The Foreign Policies of the Taft Administration, 198. 212 see an American appointed to the role of advisor to the Qing government on monetary matters. Knox thought Jeremiah Jenks would be a good choice even though his previous trip to China had not been successful.506

The diplomacy around the final negotiations became very complicated very quickly. At the end of October, Knox informed the British, French, Russian, German and

Japanese governments that the U.S. had concluded an initial agreement for a loan to the

Qing government, the majority of the proceeds going to currency reform; he did not mention anything about the Manchurian aspect of the loan. He also told U.S. diplomats in these countries that the loan was conditioned on the Qing appointing an American currency advisor with real power to implement and oversee reforms.507 Details about the funds marked for Manchurian development did not trickle out until mid-November and early December. For Knox, the loan was still part of a strategy to assert American presence in Manchuria with the added benefit on installing an American currency advisor in a position of power in Chinese financial affairs.

The American banking consortium was not disposed to such an interpretation of the initial agreement. In May 1910, the group of American banks had been invited to join the French, British and German banking consortium. Soon after conclusion of the initial agreement concerning the currency loan in October 1910, the American bankers opened negotiations to join the European consortium of banks. They did so from a position of

506 DS 893.51/122 September 29, 1910. In June 1910, Francis Huntington Wilson and Zhang Yintang (張蔭 棠 1864-1937) had an extended conversation about Jenks and his reputation in China and advisability of making him an advisor on currency affairs. See DS 893.51/132. 507 Scholes, The Foreign Policies of the Taft Administration, 198. 213 power—they were bringing business to the table—but also of weakness: U.S. financial markets did not have the depth for the bankers to float the entire loan by themselves. In late October and November, American bankers and diplomats debated the terms of participating in the consortium of British, German and French banks and fought over how the currency reform loan would fit into the agreement: Would the Americans be the sole negotiator and signer of the final loan with the bonds placed on markets in Europe and the United States or would the final terms of the loan be jointly negotiated and jointly signed, in clear violation of Qing wishes?

The identity of the currency advisor caused debate as well. Knox, as he had before, took the most strident line: the advisor had to be American and he had to have real power.508 At stake was Knox’s desire for American policy to act as an independent and active wedge in Manchuria as opposed to the desires of other U.S. diplomats for a more conciliatory approach. This view clashed with the practical needs of American bankers who could not issue the bonds for the loan on the American market itself and were increasingly weary of the activist strain of American policy in Manchuria. On

November 8, 1910, the American banking group offered equal participation in the loan to the European bankers, provided the Qing dynasty agreed. On November 10, the

American and European groups signed a more general agreement concerning equal participation in all railway loans, including the Huguang loan.509 The four-power banking consortium was formed.

508 Scholes, The Foreign Policies of the Taft Administration, 202-3. 509 See Frederick Field, American Participation in the China Consortiums (Chicago: Institute of Pacific Relations by the University of Chicago Press, 1931), 44-45 and MacMurray, Treaties and Agreements with and Concerning China, 1894-1919, Volume I, 828-833. 214

In Beijing, Straight and Minister Calhoun undertook negotiations with Zaize and

Sheng Xuanhuai, burdened by what they saw as Knox’s unreasonable demands on the identity and power of the currency advisor and Qing officials’ displeasure about the internationalization of the loan. As Calhoun reported in November, rumors had reached

Beijing about the proposed internationalization of the loan and the Qing government was

“apparently much opposed to the majority of the bonds going to Europe.” Such a result would have negated the effect of negotiating with the American alone.510 When the news of the London agreement between the bankers reached Beijing, Calhoun wrote that

Chinese officials were “dumbfounded” and felt “that all their secrecy, and their maneuvering for American support had been ruthlessly exposed…and that their trust in

American has again been broken.”511As Sheng Xuanhuai lamented in a cable to Liang

Dunyan (梁敦彥 1875-1924), a Qing diplomat, the European powers and Japan were likely to have objections and interfere with the loan, which was not the original intent of negotiating solely with the Americans.512

The negotiations themselves focused not only on the identity of the possible currency advisor but also his powers as well as the timing of reforms. From the Qing point of view, the concerns were very much the same as those during discussion of the

Jenks plan; the worry was that the appointment of a currency advisor at the heart of the

Qing financial system would cause a fatal loss of sovereignty. Sheng Xuanhuai gave voice to these fears, saying that the authority of the proposed foreign advisor was not

510 DS 893.51/183, November 7, 1910. 511 DS 893.51/292, December 19, 1910. 512 Sheng Xuanhuai dang’an (SXHDA), Shanghai Municipal Library, 103620-2, December 21, 1910. 215 only greater than that of the Minister of Finance but greater than the authority of the emperor himself. This situation was unacceptable. It gave credence to the belief that the

United States simply wanted to install an American advisor in order to control Qing finances and force the Qing to go on the gold standard. Sheng then argued that China would carry out the currency reforms and Manchuria development on its own, albeit on a slower timetable.513

An issue related to Chinese objections about the power and scope of the advisor was how long the international consortium of banks would have to research and approve the proposed plans for currency reform. Zhang Zongyuan (章宗元 ?-?), an official in the minting department of the Ministry of Finance who had studied in the United States, wrote to Sheng Xuanhuai that the key part of the entire negotiations was a clause that called for a waiting period while the bankers reviewed the currency reform proposals. As such, the Qing dynasty would not be signing a loan for the said amount but rather signing a loan with the disbursal of funds dependent on a future and uncertain approval. This clause made the future of the loan unacceptable.

Sheng pushed the point. After all, Sheng argued, the Qing had already promulgated currency reforms months before. Why did the banking consortium insist on such a long time to study and approve of the reform? Also, what was meant by the term approve (認可 renke)？ Straight countered that the banks themselves were not all that familiar with currency questions and suggested a clause stating that there would be six months of research into the details of the currency reform and Manchurian development

513 SXHDA, 004556, March 20, 1911. 216 plans and the loan would be floated on the market three months after that. Sheng, undermining his other statement that China could undertake these reforms without the loan, albeit on a slower timetable, thought the nine-month timeline was too long and proposed that there should be a three-month period of research with the loan to be floated three months after that.514 Returning to the same issue in later negotiations, Sheng asked how it was possible that the bankers had not read and researched the currency negotiations when they had been issued and available for over a year. Straight responded that the bankers believed a formal currency advisor with certain powers would be appointed, but now that this clause was being taken out of the agreement, the banks were just beginning to study the regulations. Sheng responded to Straight’s comment that the

Qing could accept an advisor if they were the ones who were in control (zhuchi 主持) and the advisor was just there to help (bangzhu 幫助).515

Zhang Zongyuan also suggested, and Sheng later proposed, the topic of separating the two loans: one for currency reform and one for Manchurian development.516 The idea was to get the money for Manchuria development now and the loan for currency reform later. Straight thought this proposal was impossible because Russia would lean on France to object to division of the loan. These tensions ultimately resulted in Sheng Xuanhuai refusing to meet with Straight to continue negotiating.517 At the end of January 1911,

514 SXHDA, 004556, March 20, 1911. 515 SXHDA, 004555, March 9, 1911. 516 SXHDA, 022251 and 022262. Dates on these writing by Zhang Zongyuan are unclear but presumably they are also from March 1911. 517 Wu Xinbo, Jinyuan waijiao yu liangqiang zai zhongguo [Dollar diplomacy and the great powers in China] (Shanghai: Fudan Daxue chubanshe, 1997), 99-100. 217

Sheng requested a meeting with an American official to express his desire that negotiations not be broken off and that some compromise be found on the issue of the identity and power of the currency advisor.518

Changing circumstances ultimately made both sides soften their position. When

Knox learned that a consortium led by the Russo-Asiatic Bank planned to link forces with a group of Belgian banks and two banks from London in order to make loans for

Mongolian and Manchurian development, he dropped his insistence that the currency advisor be an American. Later, the French government suggested, and Knox accepted, the proposal that the bankers themselves name the advisor.519 Events also led the Qing to compromise. At the same time as ongoing negotiations, Russia requested to revise an

1881 treaty and the list of new demands for concessions and privileges that acted as a catalyst for Zaize and Sheng Xuanhaui to drop concerns about internationalization of the loan.520 By March 1911 both sides edged toward an agreement.

The final contract signed in April 1911 set the foundations for the later life of the loan. The international banking consortium agreed to a loan of ten million pounds to provide for “the reform of, and to render uniform, the Imperial Chinese currency system” and “for the promotion and extension of industrial enterprises in the three Manchurian provinces.” The loan was to be secured on and alcohol taxes in the three

Manchurian provinces “in the amount of one million kuping taels per annum”, a production tax in the three Manchurian provinces “amounting to 700,000 kuping taels

518 DS 893.51/287, January 23, 1911. 519 Scholes, Foreign Policies of the Taft Administration, 209. 520 Wu, Jinyuan waijiao yu liangqiang zai Zhongguo, 103. 218 each year,” a new consumption tax in Manchuria to raise 800,000 taels per year and a newly promulgated tax on all the provinces in China equaling 2.5 million taels per year.521 From this point forward all these revenue streams were supposed to be free from all other charges against them.

Article 8 required that, on the date the treaty was signed, the Chinese government provide detailed proposals for currency reform as well as documents with the estimated expenses for carrying out the plan.522 Crucially, from the date of the agreement and the handover of the detailed plans, the banking consortium had six months “for the consideration and planning of all matters involved.”523 This clause represented a defeat for the objections made by Sheng Xuanhuai during the negotiations.

Article 16 stated that if the Qing dynasty wished to obtain additional funds for the continuation of the tasks of currency reform or Manchurian development, “the Imperial

Chinese government will first invite the banks to undertake a loan to provide the funds required.”524 If the consortium of banks and the Qing government could not come to terms, other foreign bankers could be invited to take the loan. This clause provided the banking consortium with a right of first refusal for future loans. Finally, “the banks will be given a period of six months from the date of which they have handed to the Board of

Finance the notification” to the effect that they will proceed with the agreement “within which to issue a loan to the public.”525 However, if, at the end of the period, market and

521 MacMurray, Treaties and Agreements with and Concerning China, 1894-1919, Volume I, 842. 522 Estimated costs of currency reform was 73,333,330 taels and 40,000,000 taels for Manchurian development. 523 MacMurray, Treaties and Agreements with and Concerning China, 1894-1919, Volume I, 844. 524 MacMurray, Treaties and Agreements with and Concerning China, 1894-1919, Volume I, 848. 525 MacMurray, Treaties and Agreements with and Concerning China, 1894-1919, Volume I, 848. 219 political conditions were not favorable for issuing the loan, the consortium of banks could ask the Chinese government for “a reasonable extension of time within which to carry out this contract.”526 This final clause soon became crucial.

The text of the contract elided the identity and exact role of the currency advisor.

The topic was essentially put off for the six-month negotiating period. The international banking consortium requested the presence of Chinese officials in London by the beginning of July to further discuss the specifics of currency matters and settle on an advisor. At the end of September, the conference of bankers accepted the program of currency reform as proposed by the Qing government to reform the currency on a silver basis. The bankers also named Gerald Vissering (1865-1937), a Dutch banker, as the monetary advisor. The bankers decided to inform the Qing dynasty of this decision to proceed with the loan on October 14, 1911 and actually float the loan in the six-month period after that.527

While these negotiations concerning the international banking consortium and the loan for currency reform were taking place, Russia and Japan, debated how to react to the consortium and new loan. They opposed certain clauses of the treaty as well as an advance made for the Currency and Reform Loan in May 1911. Japan actively tried to join the newly established international consortium and Russia leaned on its ally, France, to protect its interests in Manchuria, attempted to set up its own banking consortium and

526 MacMurray, Treaties and Agreements with and Concerning China, 1894-1919, Volume I, 848. 527 DS 893.51/570, September 27, 1911. 220 also discussed joining the international banking group.528 Russia and Japan were both concerned with the £400,000 advance that the four-power consortium approved in May

1911. Both were even more anxious about the sixteenth clause in the loan, which they interpreted as shutting them out of making any future loans for Manchurian development, a huge blow to their interests. They launched a protest against the clause using American diplomacy as a : they argued the sixteenth clause violated the Open Door policy.

Debate on how to interpret this clause in Washington, London, , St. Petersburg,

Paris and Tokyo continued over the summer and early fall of 1911.

As bankers and diplomats argued over the terms and scope of the currency reform loan, the began in early October. The other loan contract finalized that spring, the Huguang Railway loan, had nationalized various provincial railway lines and increased popular discontent with the Manchu regime, acting as a catalyst for the revolution that ended the 268 year-old dynasty. With revolution and uprising sweeping across China in the fall and winter of 1911, the prospects for issuing the currency loan looked dim. At the beginning of November, the banking consortium met in London and resolved not to issue the loan until they were satisfied that there was “responsible government in China.”529 The life of the currency reform loan was just beginning.

The Life of the Loan in the Early Republic

Between the end of the Qing dynasty and the start of World War I, the currency loan entered the next phase of its life as Yuan Shikai and leaders of the Xinhai

528 For more on the dynamics of the Franco-Russian financial connections, see Jennifer Siegel, For Peace and Money: French and British Finance in the Service of Tsars and Commissars (New York: Oxford University Press, 2014), chapters 1-3. 529 DS 893.51/652, November 9, 1911. 221

Revolution struggled against each other for control in China as well as for the support of the international banking consortium. In 1912 and 1913, with many provinces refusing to remit taxes and indemnity payments to the capital, Yuan had to search for funds. He ultimately found them in the form of a loan from the international consortium that was signed without the approval of the National Assembly in the spring of 1913. The consortium itself also underwent changes during this period. Russia and Japan joined it; the United States, with the change from the Taft to Wilson administration, exited it. In the midst of the shifting politics of the immediate prewar years, Liang Qichao returned from

Japan in October 1912 and played a key role in Yuan Shikai’s early administration and became involved in currency reform. In 1914, the new Chinese Republic opted to stay on the silver standard but explicitly stated this position was only temporary. They hoped to move to gold as soon as possible. During this period, the currency loan was continuously extended in six-month increments and the banking consortium and Chinese officials discussed whether and how it should be folded into other loans.

Nineteen Twelve was a tumultuous year. The Provisional Government of

Republican China with Sun Yat-sen as its president began on January 1. The Qing dynasty fell in February. Sun Yat-sen ultimately agreed to forgo the presidency in favor of Yuan Shikai, who had brokered the terms of the Qing’s renunciation of power and commanded the important in northern China. By spring, Yuan Shikai was nominally in charge but faced the political and fiscal challenges brought about by the centrifugal forces of the Xinhai Revolution when a number of provinces declared independence from the Qing. The contours of the relationship between Beijing and the

222 provinces were still amorphous, particularly in regard to revenue streams. (

熊希齡 1870-1937), a key figure in early republican politics and finance, identified the most pressing problem for the new government as expenses that outstripped revenue.530

The central government claimed that in the first two years of the republic, provinces only contributed a total of 2,600,000 Chinese dollars for national expenses, with some honoring allotted payments for the Boxer Indemnity and others ignoring it.531 The uneasy relationship between Yuan Shikai and the Xinhai revolutionaries, the unclear relationship between the national government and provincial governments and the unequal relationship between the new Chinese government and the international banking consortium shaped the politics of this period.

During late 1911 and early 1912, the banking consortium and various governments waited to see the political outcome of the ongoing revolution. The basic line of foreign powers was to maintain neutrality. As Charles Addis (1881-1945), a key figure in the Hong Kong and Shanghai Banking Corporation, analyzed the situation, “the diminishing financial resources of the two contestants [Yuan Shikai representing the

Qing and Sun Yat-sen representing the revolutionaries] is in itself an incentive to a compromise being arrived at between them. It might be that financial assistance to Yuan

Shikai would only harden his heart and make him more inclined to be

530 “Xiong Xiling dui hubaojie tan minguo caizheng he waizhai wenti” [Xiong Xiling discusses the Republican government’s finance and foreign debt], April 26, 1912. Zhongguo renmin yinhang zhonghang canshishi, Zhonghua mingguo huobi shi ziliao, di yice [Materials on the Currency History of Republican China, Volume 1], (Shanghai: Shanghai renmin chubanshe, 1986), 71-72. (Hereafter ZHMGHBSZL) 531 Ernest Young, The Presidency of Yuan Shikai: Liberalism and Dictatorship in Early Republican China (Ann Arbor: Press, 1977), 102. 223 uncompromising.”532 After the emergence of Yuan as president of the new Chinese

Republic, the consortium backed him with a series of small advances in the hopes of making a larger loan to the new government.533

The group also expanded, with Russia and Japan formally joining the organization. The negotiations were not easy. Though the diplomats and bankers of the four countries involved in the consortium did not see any legal reasons why Russia and

Japan could be excluded and saw practical benefits to the expanded consortium, agreeing on the details was difficult. In meetings regarding the exact language of the agreement for the expanded consortium, Russia and Japan sought to include clauses that placed limits on the nature of loans the group would make. After back and forth negotiations, Russia and Japan approved an agreement with a reservation clause stating they had a right to withdrawal from the group should they disapprove of the groups’s advances or loans made to the Chinese Republic.534

All the while, the currency loan remained in the background. As Willard Straight, then working for J.P Morgan, wrote to the banking consortium in January 1911, according to the original contract, the bankers had six months to conclude the loan after the date of notification, which had been October 14, 1911. With the April 14, 1912 deadline approaching, and with China in a state of political uncertainty, it would not be possible to float the loan. He observed that the contract contained a clause allowing the banking group to apply for, and Chinese government to approve, a six-month extension.

532 DS 893.51/652, November 9, 1911. 533 Young, The Presidency of Yuan Shikai, 103. 534 Field, American Participation in the China Consortiums, 101-109. 224

In early April, the banking consortium asked for an extension of the loan but left other matters—such a new terms and a new price—to be discussed at a later date.535 With the fledgling Chinese government in need of funds for the future, there was no reason to deny the request. The rhythms of the loan were now set in six-month periods. Later that year, with Chinese political situation still unsettled, the banking consortium applied for and received another six month extension. At the same time, Gerard Vissering (1865-1937), the currency advisor selected by the banking consortium, journeyed to Beijing where he met regularly with the currency commission of the Ministry of Finance. The correct monetary standard for China—gold or silver—was once again up for debate. Visssering’s plan, like the Jenks proposal, advocated the adoption of the gold-exchange standard.536

The final report of the currency commission also endorsed this position.537

In 1913, the uneasy political accommodation between Yuan Shikai and the Xinhai

Revolutionaries shattered. The newly formed Guomindang Party under the leadership of

Song Jiaoren (宋教仁 1882-1913) and Sun Yat-sen made a strong showing in parliamentary elections. Song in particular hoped to deprive Yuan of the powers of the presidency through legislative action. Yuan saw the Guomindang victory and Song’s political goals as a threat. In March 1913, Yuan arranged to have Song killed as he boarded a train to Beijing, striking the first blow in what soon became the open conflict between Yuan and the Guomindang, known as the “Second Revolution.” Yuan ultimately

535 DS 893.51/834, April 8, 1912. 536 The banking group was not impressed with Vissering’s recommendations, calling them “disappointing” because he “evaded the whole practical problem” of whether the gold-exchange standard was workable under current Chinese political conditions. See FRUS, 1913, 195-196. 537 Ye Shichang, Zhongghou huobi liliun shi, [The history of Chinese monetary theory] (Xiamen: Xiamen Daxue chubanshe, 2003), 286. 225 prevailed. However, in order to defeat the forces seeking to undermine and eliminate his power, Yuan needed funds.

Throughout late 1912 and early 1913, the international banking consortium negotiated a large loan with the Yuan government for the purposes of reorganization, broadly defined. But why did the bankers want to support Yuan in the first place? The international consortium generally adhered to the belief that a strong central government in Beijing was beneficial—and vital—to their various financial and commercial interests.

Moreover, the imperial powers were committed, in name and for the sake of commercial interests, to the territorial integrity of China, which was threatened by the centrifugal forces of the revolution. Despite these reasons for supporting Yuan, the banking consortium demanded a steep price for granting the loan: greater foreign control over and administration of the salt tax, a key revenue stream. Thus, as negotiations continued,

Yuan faced the dilemma of “selling out some of the country’s sovereignty in order to protect it.”538 Yuan wanted to increase the power of the central government and the power of the president against what he saw as growing threat from the provinces. To accomplish this end he had to give some of the central government’s power away.

A surprise announcement came in the midst of the ongoing negotiations between the Yuan government and the international banking consortium: the United States left the banking consortium. The shift from the Taft to Wilson administration in early 1913 brought a change of personnel and policy. The previous summer, the banking consortium agreed that “in view of the extraordinary conditions now prevailing in China, each of the

538 Young, The Presidency of Yuan Shikai, 106. 226

Groups would consult its Government before concluding any loan or advance and would not entertain business to which its Government might object.”539 The American bankers grew more wary about the course of negotiations for the reorganization loan, feeling discussion were being held up on “political grounds” by Russia and Japan. Commenting on the course of negotiations for the large reorganization loans as well as the inclusion of

Russia and Japan in the consortium, Minister Calhoun wrote in the summer of 1912 that he would rather see the “group dissolved, and the American eliminated there from, than to submit to the spoliation of China by Russia or Japan.”540 Though Calhoun had been an advocate of international cooperation and participation in the consortium just one year ago, he thought that cooperation valuable when “the powers are fair to each other and fair to China,” which was now not the case.541

There was a sense that the American bankers should sign the loan before the end of the Taft Administration or decide to leave the banking consortium.542 On March 9th, the American group requested a meeting with newly appointed Secretary of State

William Jennings Bryan (1860-1925) to discuss the Department of State’s “wishes as to the future conduct of these negotiations [for the reorganization loan].”543 In a statement put out by the White House ten days later on March 19th, President Wilson announced that “the conditions of the loan [reorganization loan] seem to us to touch very nearly the administrative independence of China itself; and this administration does not feel that it

539 DS 893.51/1034, July 23, 1912. 540 DS 893.51/981, June 11, 1912. 541 DS 893.51/981, June 11, 1912. 542 DS 893.51/1342, February 20, 1913. 543 DS 893.51/1336, March 9, 1913. 227 ought, even by implication, to be a party to those conditions.”544 Though the United

States would continue to support American merchants in developing their trade with

China, the current loan went too far. This announcement was not the end of American involvement with the international banking consortium or the currency loan. Several years later the Wilson administration would enter a new consortium, in part due to concerns about concerns about Japanese proposals for currency reform in China.

A month after the American bankers left the consortium, the rest of the group signed a loan contract with Yuan Shikai known as the Reorganization Loan (善后大借款

Shanhou dajiekuan). Importantly, the loan agreement bypassed the National Assembly.

Yuan pledged that he would appoint a British national as the chief inspector of salt revenues in order to get the loan signed without legislative approval. With funds in hand,

Yuan used them to bribe Guomindang supporters in the National Assembly and to stamp out Guomindang opposition in the south of China. Yuan defeated what became known as the “Second Revolution” and Sun Yatsen soon fled to Japan. In the view of one recent historian, the loan amounted to a “last minute rescue of the Yuan Shikai government.”545

As the French consul in Shanghai observed, it was not the abilities of Yuan’s soldiers that sealed the outcome of the conflict but the “forces of British finance (la Cavalerie de Saint

Georges).”546 This result was hardly a surprise. As W.W. Yen (顏惠慶 1887-1950), the

Vice Minister of Foreign Affairs, admitted to Calhoun in 1912, the loan money would be

544 DS 893.51/1356a. March 19, 1913. 545 Hirata Koji, “Britain's Men on the Spot in China: John Jordan, Yuan Shikai, and the Reorganization Loan, 1912–1914,” Modern Asian Studies 47, no. 3 (May 2013): 916. 546 Hirata, “Britain's Men on the Spot in China,” 926. 228 used for military purposes and bribing people to get out of the way and “the foreigners ought to shut their eyes to the use of the money; it was in name of peace, order and unity; it was a political necessity, not a theory, with which Yuan Shikai has to deal.”547

After the completion of this large loan, discussion about the currency loan shifted to whether the option on it should be extended or whether it should be folded into future reorganization loans. In fact, the option on the currency loan was once again up for renewal in April 1913, in the midst of the final negotiations for the reorganization loan.

The Chinese minister in the United States Zhang Yingtang, inquired whether any arrangements had been made concerning the sale of the bonds for the currency loan of

1911.548 Willard Straight, still the representative of the American group, replied that it had been impossible to issue bonds and that with the American banks now out of the consortium, he had no position on the extension of the six-month option. Later the

American banks wrote to their European counterparts that they would support whatever decision they came to regarding extension of the loan. This time, as it had been in the past and as it would be in the future, the loan option was extended for another six months.

However, with the extension of the loan this time, the “obligations and rights” of the

American group would be assumed by the remaining parties to the loan: the British,

French and German banking groups.549

547 DS 893.51/1034, July 23, 1912. 548 “Chinese Minister the Representative of the American Group,” April 11, 1913, FRUS, 1913, 196. 549 FRUS, 1913, 197-198. See the five short telegrams between Morgan, Greenfell &Compnay, the American banking group and the U.S. department of state. 229

In the fall and winter of 1913, Yuan Shikai continued to consolidate and centralize power, setting up a Political Conference (政治會議 zhengzhi huiyi) that ultimately recommended abolishing the National Assembly. At the same time, Prime

Minister Xiong Xiling assembled a cabinet of talents, with Liang Qichao serving as

Minster of Justice as well as on another currency reform commission. That fall, Xiong and Liang both voiced their regret to E.T. Williams, American chargé d’affaires in

Beijing, that the U.S. bankers had withdrawn from the consortium and had given up their interest in the currency loan, especially considering the country’s long engagement and commitment to the issue. In fact, in another conversation, Xiong said that ideally the

Chinese government could negotiate a loan directly with the United States for currency reform. That way, another loan from the international consortium could be avoided, “a result much to be desired by the Chinese government.” This was a clear ploy, Williams thought, “due to their dissatisfaction with the pressure being exerted” by the international consortium.550

At the same time as it lamented the American absence, the Chinese government continued negotiations with the international consortium. In September, the banking group informed China that the market was not in any position to take on more debt from

China and the currency loan could not be issued.551 In October, Xiong proposed to raise another reorganization loan of 25 million pounds to use for currency reorganization purposes, using 10 million pounds for currency reform itself and 15 million pounds

550 “American Chargé d’Affairs to the Secretary of State,” FRUS, 1913, 188-190. 551 “Yinhangtuan dui caizhengbu buchang Li Shiyi de yifengxin,” [A letter from the baking consortium to the Minister of Finance Li Shiyi], September 13, 1913, ZHMGHBSZL Vol. 1, 74. 230 redeeming the various provincial notes in circulation. In fact, Xiong recommended using

Manchurian taxes as security for the new loan, just as had been the case with the original currency loan in 1911. He recognized that other revenue sources were already pledged to existing loans, were simply insufficient or, most dangerous of all, too politically sensitive, like the land tax. With the popular resistance to the Huguang railroad loan at the end of the Qing clearly in mind, Xiong did not want to provoke a similar response of popular opposition to the terms of a new loan.552

However, Japan and Russia, now full members of the consortium, objected to these proposed terms because they touched too directly on their interests in Manchuria.

Japan did not argue explicitly on these grounds but instead made the point elliptically: because currency reform was an issue that related to all of China, security for the loan should not come from one province but instead be divided more evenly. Though they were not a part of the original loan agreement, Russia and Japan sought to be included in discussion relating to these issues and were ultimately successful.553 Negotiations about the specific terms of any another loan were left unsettled at the end of 1913.

In 1914, before the outbreak of war in Europe, tensions between the National

Assembly and Yuan Shikai came to a head, with Yuan disbanding the legislative body in the beginning of the year and also calling for the dissolution of provincial assemblies. In place of the National Assembly, Yuan leaned on a group of current and former cabinet officials to formulate a document that replaced the provisional constitution and enhanced

552 “Yinhangtuan de xin” [A letter from the banking consortium], September 24, 1913, ZHMGHBSZL, Vol. 1, 75. 553 “Yinhangtuan de xin,” ZHMGHBSZL Vol. 1, 75. 231

Yuan’s powers. In the spring of 1914, under this new government structure, the government passed yet another series of currency regulations relating to monetary standards. The new regulations bore the imprint of Liang Qichao, who had served on various currency reform committees in 1913. In 1914, Liang also took up a new post: head of the Currency Bureau at the Ministry of Finance.554 However, the status of the currency loan still uncertain.

The Chinese government had provided the international banking group with a copy of the proposed regulations for the currency reform when they were still up for debate in the national assembly and before Yuan disbanded the legislative body. Charles

Addis of the Hong Kong and Shanghai Banking Corporation thought that, given the uncertain contours of the loan negotiations at the time—how to fold the existing currency loan into other agreements—it would be imprudent to promulgate these news regulations.555 Addis held that both sides had not properly exchanged views on the nature of currency reform, bringing up the same question that had dogged the original negotiations in 1910 and 1911: what type of approval and oversight would foreign bankers have over currency reform? Despite these protests, the draft of the regulations were submitted to Yuan for approval and promulgated thereafter.

The new currency law selected the silver standard, but unlike in 1907 and 1910, stressed that China should stay on the silver standard for as short a time as possible. In naming a monetary standard of .648 taels of pure silver in the yuan and calling for free

554 Ding Wenjiang and Zhao Fengtian, Liang Qichao nianpu, 682-683. 555 “Wuguo yinhang tuan daibiao zhi Xiongxiling” [A letter from the representative of the five-power banking consortium to Xiong Xiling] January 24, 1914, ZHMGHBSZL Vol. 1, 86-87. 232 minting, the regulations followed Liang’s earlier recommendations as well as his style of writing. The first section explaining the new measures stressed the inadequacy of other standards. Bimetallism is unworkable; the gold standard is a perfect one (美善 ), but is still unsuitable for China because of the expense required and the habit of Chinese to hoard precious metals; the gold-exchange standard is beneficial for maintaining the relationship between the price of silver and gold but it was only used by places that had been colonized. It was not appropriate for the new Chinese republic because of its political symbolism. The silver standard, despite all its known drawbacks, was the only realistic one. However, the government should take measures to go on the gold-standard as soon as possible.556 These regulations led to the creation of “Big Head Yuan” (Yuan datou 袁大頭) silver dollar coins that came to circulate more widely than any other single

Chinese monetary medium up to that point. However, as the new law stated, this was not the end of currency reform in China. It was intended as a standard for a transition period.

Xiong Xiling stressed this point to the banking consortium as negotiations continued throughout the spring and summer about folding the currency loan into a second reorganization loan. Writing to the banking consortium, Xiong pointed out that the regulations had a reserve clause that maintained future flexibility.557 As before, the

556 Liang Qichao, “Bizhi tiaoli liyou shu,” [Reasons for the currency regulations] Yinbingshi heji, ce 12 (Shanghai: Zhonghua shuju, 1941), 2-3. Liang’s hand in the 1914 regulations is also clear in regards to subsidiary coinage. He had objected to the 1910 coinage regulations because the silver content in these coins equaled the amount of silver in the dollar itself. For example, the amount of silver in ten ten-cent pieces equaled that of the silver in a dollar. The 1914 regulations reduced the amount of silver in these subsidiary coins so that when added together it totaled less than the amount of silver in the one-yuan coin. 557 “Guowu yuan zongli jian caizheng zongchang Xiong Xiling fu wuguo yinhangtuan shoudu daibiao” [Prime Minister and Minister of Finance Xiong Xiling to the representative of the five-country banking consortium], March 16, 1914, ZHMGHBSZL Vol. 1, 87- 88. 233

Chinese government stressed its interest in involving the United States in the currency loan to Paul Reinsch (1869-1923), the new American Minister, a driven and hard- charging former academic at the University of Wisconsin.558 Over the next several years,

Reinsch would be an important advocate for increased American financial lending to

China.

At the same time, negotiations continued with the banking consortium. In the summer of 1914, the Chinese government changed tactics. Concerned with the unusual interest the Japanese representative to the consortium, Odagiri Masunosuke (小田切万寿

之助 1868-1934 ), was showing the currency reform and worried that it would mean increased Japanese control in Manchuria, the Chinese took the currency loan off the table.559 Instead of asking for a larger loan of 25 million pounds, it instead asked for an eight million pound loan to repay domestic and foreign debt. In June, the international consortium of banks rejected this plan because they felt that it would only encourage short-term lending when the goal of the consortium, at least in the eyes and rhetoric of the bankers, was to promote long-term administrative and economic reform.560 The proposed eight million pound loan did not meet that requirement and the negotiations reached a deadlock.561

558 “Minister Reinsch to the Secretary of State,” February 6, 1914, FRUS, 1914, 62-3. 559 Sun Duanqin, Deguo waijiao wenjianzhong youguan zhongguo jiaoshe shiliao xuanze di san jian [Selections from German diplomatic documents relating to China, Volume 3] (Shanghai: Shangwu Yinshuguan, 1960), 395-6. 560 “Guobi taiaoli ji shixing ze liyou shu” [Reasons behind the currency regulations and means to carry them out] March 1914, ZHMGHBSZL Vol. 1, 91. 561 Minister Reinsch to the Secretary of State,” FRUS, 1914, 63. 234

In July, the Shanghai newspaper Shishi xinbao (时事新报) analyzed the reasons why the banking consortium rejected the smaller loan in favor of the larger one and had a much different interpretation of the ongoing negotiations. One reason for the rejection, the newspaper surmised, was profit motive. A smaller loan meant smaller profit for the bankers. More important, the article continued, the international banking consortium wanted to use the currency loan in order to exercise more control over the fulcrum (樞紐 shuniu) of the Chinese financial system. Removing the currency loan from the scope of the loan eliminated that possibility.562

Why was the life of the loan extended throughout this period? For the bankers it was an asset during their ongoing negotiations with the Yuan government for various loans. For the Chinese government, it was a burden. Early republican governments could not easily refuse to extend the loan when it was in negotiations with the consortium for other loans. The life of the currency loan became even more attached to global politics during World War I.

The War Years and the Second Consortium

World War I changed the political and economic shape of the globe as well as the politics of the currency loan. As European attention focused on the emerging conflict,

Japan, an ally of England, first struck at German holdings on the Shandong peninsula and later, trying to further its control over the Yuan Shikai administration, presented the

Chinese government with the Twenty-One Demands. Taken together, these demands

562 “Bizhi jiekuan’ zhi shiwei [The beginning and end of the currency loan], July 3, 1914, ZHMGHBSZL Vol. 1, 84-5. 235 would have given Japan decisive control of the administration and finances of the

Chinese government. After agreeing to a reduced version of these demands, Yuan Shikai did not remain in power for long. He died in the spring of 1916, soon after an attempt to revive the imperial system by naming himself emperor.

A period of uncertainty followed Yuan’s death as a number of groups vied for power, with becoming prime minister in 1917 and China entering World War

I on the side of the Allies soon thereafter. In the second part of 1917, Duan’s Minister of

Finance was Liang Qichao. Liang, still very much committed to monetary reform, tried to secure loans for currency reform from the international consortium, Japan and the United

States. At the same time, from 1917 to 1918, the Nishihara Loans to the Duan government, one of them relating to currency reform, served as part of the motivation for the United States to rejoin and reshape the international banking consortium.

For Japan, World War I was a form of “divine providence.” With the Anglo-

Japanese alliance in place at the beginning of the war, the Japanese had attacked and taken over German possessions on the Shandong peninsula, capturing in

November 1914. In this case, the Anglo-Japanese alliance “enabled rather than restrained

Japanese territorial expansion.”563 The war also led to an economic boom in Japan. The country became a creditor instead of a debtor nation. How to use these funds became an important political question. In January 1915, Japan submitted the Twenty-One Demands to the Yuan government. Divided into five groups, the demands intended to solidify

563 Mark Metzler, Lever of Empire: The International Gold Standard and the Crisis of Liberalism in Prewar Japan (Berkeley: University of California Press, 2006), 92. 236

Japan’s position in Shandong, Southern Manchuria and Eastern and prevent China from leasing or ceding bays, islands and harbors on the coast. The fifth group was most controversial. It called for China to employ “influential Japanese as political, financial and military advisers and to place certain parts of China under joint

Sino-Japanese administration, complete with Japanese police officers to oversee these areas.”

At the same time, the war years exacerbated divisions within Japanese politics, with three cabinet changes and seven different foreign ministers appearing during the conflict.564 These divisions spanned the different constituencies of the Japanese government: between elder statesmen of the Meiji Restoration, the genrō, and current government officials, between different branches of the military as well as within and between different government ministries. In the Japanese political context, the war years centered on a debate about the best means to secure “real political and economic influence” in East Asia and in the world.565 These divides eventually resulted in competing agendas for loan agreements and Japanese currency advisors in 1917 and 1918.

Confronted with the Twenty-One Demands in early 1915, Yuan adopted a strategy of delay, negotiating the different groups of demands individually instead of as a whole. He also tried to rally world opinion, particularly American opinion, by leaking the terms of the document. He wagered the United States would come to his aid and Japan

564 Noriko Kawamura, Turbulence in the Pacific: Japanese-U.S. Relations During World War I (Praeger: Connecticut, 2000), 3. 565 Michael Schiltz, The Money Doctors from Japan: Finance, Imperialism, and the Building of the Yen Bloc, 1895-1937 (Cambridge, MA: Harvard University Press, 2012), 22. 237 would not persist in the face of international opposition. Yuan and his advisors miscalculated. Japan issued an ultimatum to the Yuan government in May and the

Chinese government agreed to the demands, save for those included in the fifth group, soon after.

Around the same time, Yuan Shikai began an ill-fated attempt to re-establish an imperial system with himself as emperor. This move alienated many of his former supporters and international allies. Liang Qichao, who had worked closely with the Yuan government, penned a number of articles explaining the faults and dangers behind Yuan’s declaration. Duan Qirui, another Yuan supporter, and a key figure in the Beiyang military, also refused to support the restoration of the imperial system. Yuan aborted his plans but political and economic conditions were hardly stable in the last months of his life. In May 1916, the Bank of China and the Bank of stopped the convertibility of bank notes they had issued and also prevented withdrawal of deposits.

To fund his move to recreate the imperial system, Yuan had forced the Bank of China and to issue more money to his government and they did so by printing notes without adequate cash reserves. By April 1916, the two banks had issued more than 80 million Chinese dollars’ worth of notes backed by 36 million dollars of cash reserves.566 Soon thereafter, in June, Yuan passed away. After his death, an uneasy and temporary political accord emerged as Duan Qirui emerged as Prime Minister and recalled parliament.

566 Linsun Cheng, Banking in Modern China: Entrepreneurs, Professional Managers and the Development of Chinese Banks (Cambridge, Engl: Cambridge University Press, March 2003), 53-57. 238

Throughout 1916, U.S. financial interests negotiated several loans with the

Chinese government directly, outside of the international consortium. This action was in accord with the line Wilson took when he announced the exit of the American group from the consortium. The most significant of these loans was a $5 million agreement with the Continental of Chicago. This contract, along with several other agreements that provided funds for economic development projects, made 1916, at least in the eyes of some Japanese statesmen, the “year of American loans.”567 In the midst of the complicated war situation, Japanese government officials debated the proper scope of their interests in China and how to best carry them out after the Twenty-One demands had led to condemnation among the Chinese public and disapproval from the capitals of other allied powers.

In 1917, the United States and China formally entered World War I against the

Central Powers. In China, the path to joining the conflict was circuitous and ultimately led the country closer to civil war and warlordism. It also involved the question of which country—Japan or the United States—would lead China into the war, by proposing a number of financial incentives and aid in order to secure China’s participation. Duan

Qirui hoped to declare war in order to secure China a seat at the future peace conference and pursue political and economic goals: the return of the Shandong peninsula, alleviation from Boxer Indemnity payments and, more broadly, to “join the world community as an equal member.”568 However, the president of China, (黎

567 Schiltz, The Money Doctors from Japan, 138. 568 Xu Guoqi, China and the Great War: China's Pursuit of a New National Identity and Internationalization (Cambridge: Cambridge University Press, 2005), 1. 239

元洪 1864-1928), and the newly reconvened parliament, featuring many Guomindang supporters from the south, opposed China’s entry into the war.

In the spring, Duan brought military governors from the provinces to Beijing to support his cause, resorting to the bullying tactics of surrounding parliament with military forces. Li Yuanhong had Duan dismissed as prime minister. Soon after, China faced further disintegration. Li asked (張勳 1854-1923), a military commander who had not declared his independence from the government, to come to Beijing to help mediate the situation. Zhang asked Li to formally dissolve parliament as a precondition for his assistance. Li, in a bind, carried out this request. When Zhang arrived in Beijing he had his own agenda; he declared the restoration of the Qing dynasty by installing the last Qing emperor on the throne. Other Beiyang Army generals soon put down this restoration attempt, Li Yuanhong resigned as president, Duan Qirui once again became prime minister and China entered the war on the side of the allies several days later.569

Liang Qichao became Duan’s Minister of Finance. During the fall of 1917 and into the spring of 1918, the issue of the currency loan again came to the fore as several overlapping negotiations across the world dealt with the position of various powers in

Chinese economic affairs.

At the highest level, in the summer and fall of 1917, Secretary of State Robert

Lansing (1864-1928) and special Japanese representative to Washington Viscount

Kikujiro Ishii (菊次郎石井 1866-1945) attempted to reach some understanding

569 For more on the complicated ’s entry into World War I, see Xu, China and the Great War, chapters five and six. 240 concerning Japanese and American interests in China. The final accord, announced in early November, was “an amalgam of two incompatible ideas”: first, that Japan had special interests in China and second that both sides agreed to the principles of the “open door” as well as the administrative and territorial integrity of China.570 Ishii was under instructions to secure American recognition of Japan’s “paramount interests” in China but Wilson did not wish to promote the creation of a Japanese regional bloc; however, at the same time, some diplomats in the Department of State believed Japan might join with

Germany if the United States openly confronted Japan concerning its intentions in

China.571

The final agreement issued in November allowed for different readings depending on one’s point of view: the key clause could be the “special interest” of Japan in China based on “territorial propinquity,” or it could be the joint pledge to maintain the territorial and administrative integrity of China. It was an exercise in creative ambiguity to elide the number of important disagreements between two ostensible wartime allies. The agreement left Paul Reinsch, the American minister in Beijing, at a loss. He had not been informed about the ongoing negotiations. Chinese Minister to the United States

Wellington Koo (顧維鈞 1887-1985) met with Lansing to probe what exactly the agreement meant by the term “special interests” and declared that China “will not allow herself to be bound be any agreement entered into by other nations.”572 Breckinridge

Long (1881-1958), an Assistant Secretary of State who was already working on moving

570 Kawamura, Turbulence in the Pacific, 77-8. 571 Kawamura, Turbulence in the Pacific, 86. 572 Kawamura, Turbulence in the Pacific, 86. 241

American financial interests back into a reshaped international banking consortium, would spend the next several years trying “to kick over the Lansing-Ishii agreement.”573

At the same time the negotiations between Lansing and Ishii got underway,

Nishihara Kamezo (西原龜三 1873-1954) made a number of trips to China to negotiate loans with the Chinese government under Duan Qirui. As Lansing and Ishii debated the language of Japanese “special interests,” Nishihara gave them form. Nishihara first became acquainted with then Japanese Prime Minister Terauchi Masatake (寺內 正毅

1852-1919) and Minister of Finance Shoda Kazue (勝天 主計 1869-1948) when they all spent time together in the new Japanese territory of . When Terauchi became Prime

Minister in 1916, he did so with a very critical view of the Twenty-One Demands. His goal was to find a way to smooth over Sino-Japanese relations while maintaining

Japanese influence.574 He objected to the means of the Twenty-One Demands, not necessarily to the ends they pursued. He settled on the strategy of using Nishihara as a representative of Japanese banking interests outside of the international consortium to negotiate secret loans to the Duan government as a way to improve Sino-Japanese relations. \

Nishihara was an emerging representative of pan-Asianism, “a believer in the potential success of Asian unity and in the need for Asian peoples to work together as

573 Breckinridge Long Papers (BLP), Box 2, Diary 7 Folder, July 9, 1919. Library of Congress Manuscript Collections. 574 Frank C. Langdon, “Japan's Failure to Establish Friendly Relations with China in 1917-1918,” Pacific Historical Review 26, no. 3 (Aug., 1957): 245-246. See also Seiji Saito, “Terauchi naikaki to Nishihara Kamezo” [The Terauchi cabinet and Kamezo Nishihara] Kokusai seiji 75 (October 1983): 12-29 and Seiji Saito, “Terauchi naikaki ni okeru endan seisaku kakuritsu no keii” [The circumstances under which the Terauchi cabinet adopted the policy to assist Duan] Kokusai seiji 83 (October 1986): 143-161. 242 much as possible,” a forerunner of the “East Asian Self-Sufficient zone” that gained prominence in the 1930s.575 Of course, Japan was supposed to lead this process.

Nishihara was an imperialist, an expansionist and, most importantly for out story, a middleman. Crucially, Terauchi’s strategy ultimately created opposition in China, within different parts of the Japanese government and in the United States.

Against this background, the currency loan reemerged as a vital issue. In the early fall of 1917, Liang Qichao first asked the international banking consortium for a 20 million pound loan, 15 million of which would be used for currency reform: establishing the currency on a silver basis, redeeming depreciated silver paper in circulation and adopting the gold-exchange standard that would in fact be delayed until the end of the war. Responding to this proposal, the Japanese said they could provide half the requested sum necessary for currency reform.576 However, Nishihara and Shoda, the Minister of

Finance, did not want to see a gold-exchange standard created in China. They hoped to create a “full-fledged Yen bloc” in which the “Japanese Yen would be the sole standard against which other currencies would fluctuate.577

On September 13, the international banking consortium discussed Liang’s proposal. The English and French banking groups were unenthusiastic. With the

European conflict still raging and the appreciation of the price of silver during the war, they felt there was not a crisis in Chinese fiscal affairs. Moreover, the issue of currency reform was a complicated one that would take a long time to discuss and implement, time

575 Schiltz, The Money Doctors from Japan, 136, 142. 576 Liang Qichao nianpu, 840 and Schiltz, The Money Doctors from Japan, 146. 577 Schiltz, The Money Doctors from Japan, 146. 243 they felt no one had. In particular, the British government feared that, in the present moment, the only country to provide such a loan was Japan, “which would consequently give them a predominant position in Chinese financial matters.”578 By early October,

Reinsch wrote how French and British banking interests were “greatly alarmed at the currency loan prospects.”579 Even though they had asked for an extension on the option of the original loan falling due on October 14, they believed that Liang would not grant it, giving Japan free reign to make the loan and allowing Japan to take “final control over

China.”580

Paul Reinsch sought ways to prevent this outcome and block Japanese action.

Reinsch raised American interests in the whole history of Chinese currency reform— from the Jenks mission of 1904 to the original 1911 loan—and argued that such background gave the United States the right to consult on any potential loan regarding

Chinese monetary affairs, even though the American banking group had formally given up interest in currency loan after leaving the consortium. On October 20th, Reinsch informed the Chinese foreign minister Wang Daxie (汪大燮 1859-1929) of the continued

American interests in currency reform “that have never been abandoned” and which

“entitles it to be considered in reference to any action which the Chinese government may contemplate.”581 Around the same time, Liang Qichao met with Reinsch to discuss currency reform. Liang informed the American minister that he was “most anxious” to

578 “British Chargé d’Affairs to the Secretary of State,” August 21, 1917 FRUS, 1917, 137. 579 “Minister Reinsch to the Secretary of State,” October 11, 1917, FRUS, 1917, 148. 580 “Minister Reinsch to the Secretary of State,” October 11, 1917, FRUS, 1917, 148. 581 Beiyang waijiaobu dang’an guan (BYWJB) (Foreign Ministry Archives of the Beiyang government), Academia Sinica, Taibei, Taiwan, 03-22-005-02-004, October 20, 1917. 244 carry out his plan but recognized that Britain and France were in no position to render financial assistance at this time and ultimately agreed to extended the option on the currency loan to April 14, 1918, after which it would definitely lapse if it was not taken up.

In early November, the Minister of Foreign Affairs, after consulting with the

Minister of Finance, wrote Reinsch a broad reply that the Chinese government would

“welcome the re-entrance of the American group into the consortium.”582 The reintroduction of American banking interests into the consortium had been discussed nearly since the time they left in 1913 but now gathered momentum. Liang Qichao never had the chance to make good on his ultimatum to not grant the next six-month extension of the loan, however. He resigned his position as Minister of Finance in late 1917.

In 1918 the competing tensions and pressures over currency reform erupted between the different interests groups within Japan and between Japan and the United

States. Certain segments of the Japanese bureaucracy, particularly the Ministry of

Foreign Affairs, increasingly saw Nishihara as acting outside the confines of the international. This rift deepened after the Chinese named Baron Sakatani Yoshio (阪谷

芳郎 1863-1941) as an advisor on monetary affairs in late 1917. Sakatani traveled to

China in March 1918 and eventually submitted a report recommending the gradual adoption of the gold-exchange standard in China. At the same time, Nishihara advocated for the immediate issue of gold bills tied to the Japanese yen. After he returned to Japan,

582 “The Minister of Foreign Affairs to Minister Reinsch,” November 5, 1917, FRUS, 1917, 156. 245

Sakatani strongly opposed this plan. However, Cao Rulin (曹汝霖 1877-1966), now

Minister of Finance to Prime Minister Duan Qirui after Liang Qichao’s resignation, announced in the summer of 1918 a loan from Japanese banks, including the Bank of

Choson, that would enable the Bank of China and Bank of Communications to issue gold notes in preparation for a move to the gold-exchange standard linked closely to the

Japanese yen.583

This announcement set off an immediate reaction. The representatives of the different banking groups in Beijing sent a letter of protest stating that they considered the proposed loan to be “a serious infringement of our rights” inherent in the original currency loan treaty and raised the matter with their respective diplomats in Beijing.584

The representative of the Japanese banking interests within the international consortium, led by the , actually signed this note of protest. In the time that followed, the different legations, including the Japanese, penned their own objections to the proposed currency plan. Thus, one part of the Japanese government formally objected to the actions of another part of the Japanese government.585

In Washington, Chinese minister urged his government not to go through with the plan.586 Cao Rulin responded to the foreign diplomats that the currency regulations of August were purely a domestic matter and did not violate or reduce the

583 Metzler, Lever of Empire, 107-8 and Schiltz, The Money Doctors from Japan, 148-9. 584 “The British, French, Japanese, and Russian groups the Chinese Minister of Finance,” August 16, 1918, FRUS, 1918, 157. 585 See BYWJB, 03-22-006-02-017, September 9, 1918. 586 “Wusi aiguo yundong dangan ziliao” [Documents on the ] (Beijing: Zhongguo shehui kexueyuan jindaishi suo, 1980), 22-23. 246 rights of various banking groups under the original agreement.587 Popular resentment overcame what formal diplomatic protest could not. As the content of the different

Nishihara loans came out, a groundswell of opposition emerged within China and the proposed linkage to the Japanese yen never went forward. The Nishihara loans, amounting to 145 million Yen were never repaid and were simply used by Duan in his attempt to consolidate his power as Chinese politics continued to splinter. By that fall, political affairs degenerated to what Reinsch hoped “will prove the lowest ebb of national and political life of China…the disintegration of governmental authority and its perversion to the profit of a small clique of military leaders.”588 In Washington,

Breckinridge Long thought the whole affair of the Nishihara loans was a Japanese attempt to “master it [China] by unwholesome methods” that “bodes ill for the future.”589

In the summer and fall of 1918, the United States began the domestic and international work of rejoining and reshaping international banking consortium that it had left five years earlier. In June, a new American banking group formed, this time with over thirty members instead of the original four.590 Later, that fall, Robert Lansing wrote

France, Great Britain and Japan to discuss the formation of a new consortium based on expanded participation of domestic banks in the respective countries. The American note also stated that the newly formed American group was not created with any specific loan in mind. However, Lansing wrote that the American government would recommend to the bankers that it take part in the currency loan and that it also be prepared to take, in

587 See BYWJB 03-22-006-02-021, September 18, 1918 and FRUS, 1918, 158. 588 “Third quarterly report of conditions and events in China,” November 29, 1918,FRUS, 1918, 121. 589 BLP, Box 1, Diary 6 Folder, 131, December 31, 1918. 590 Field, American Participation in the China Consortium, 144-145. 247 tandem with Japanese banks, the shares of the loan that were originally in British and

French hands.591 Around the same time, Cao Rulin, still Minister of Finance under Prime

Minister Duan Qirui, once again extended the option on the currency loan for another six month but said that discussion on the matter needed to take place as soon as possible and if it is “protracted beyond due date, no further extension will be allowed.”592 Reinsch then urged the American group to send a representative to Beijing to take part in negotiations as soon as possible. However, Cao’s threat to end the option in April 1919 did not materialize. By then, he was no longer Minister of Finance.

Throughout 1919 and 1920, bankers and diplomats debated the scope and terms of the new international consortium. One crucial point of conflict that emerged during these negotiations concerned a clause in the new agreement stating that any existing options and preferences on loans be pulled together and shared. However, in the summer of 1920, a Japanese representative of the Yokohama Specie Bank objected to this part of the agreement, arguing that “all rights and options held by Japan in the regions of

Manchuria and Mongolia, where Japan has special interests, should be excluded.” These reservations were key in 1910 and 1911 when the currency loan first addressed the subject of loans for Manchurian development and were just as important years later.

Negotiations concerning the clause continued for more than a year.

Breckinridge Long, meeting with J.P Morgan banker Thomas Lamont who had been involved in discussion about formation of the consortium at Versailles, felt that “its

591 “Secretary of State to the French Ambassador,” October 8, 1918, FRUS, 1918, 193-6. 592 “The Minister in China to the Secretary of State,” November 8, 1918, FRUS, 118, 161. 248 formation [the new consortium] will prevent war between us and Japan in the end” and that the United States should treat Japanese reservations “very firmly” and “we should start without them if necessary.”593 Lamont eventually traveled to Japan in February and

March 1920 and helped forge a compromise on Japanese entrance into the new consortium with certain reservations that the new group would not undertake activities that touched on the South Manchurian railway and several other lines.

The End of the Loan

After the formation of the new banking consortium, it failed to lend much money to China. There were several reasons for this lack of activity. Primarily, the Chinese government did not recognize the legitimacy of the new consortium. Next, in the period after World War I, the Chinese political situation deteriorated further; in the early 1920s, competed for power; there was no clear central authority. This political meant that floating loans was an even more inherently risky business proposition than usual. They were based on uncertain foundations as well as an inherently political ones; making a loan implied the favoring of one competing authority over another. Finally, the point of the consortium was not necessarily about lending money to China, but about balancing the delicate and shifting political interactions between the United States,

Britain, France, Germany, Russia, Japan and the different governments in China. It was meant to balance these interests, maintain the shifting concept of the “open door” and limit spheres of influence.

593 BLP, Box 2, Diary 7 Folder, 190, July 9, 1919. 249

However, America’s involvement in the consortium and the currency loan created a mismatch between rhetoric and action. As one American diplomat looked back on U.S. involvement in Chinese finance, he lamented that, “we have talked of projects which totaled many hundreds of millions of dollars” but the U.S. had not “made good” on this talk in the past.594 The dilemma, as American Minister William Calhoun summarized presciently in 1910, was always that talk of these loans would lead the Chinese government—the Qing or the nascent republic—“to expect more support than our country could give.”595 The currency loan certainly fell into this category.

By the early 1920s, the United States and various Chinese governments had talked about the currency loan for more than a decade. The option on the loan lingered on for a few more years. At the end of July 1924, the Chinese finance ministry informed the banking consortium that the option on the loan would no longer be extended and the bankers agreed that the loan contract signed in 1911 was now voided.596 Even though the loan itself was never made, over the thirteen years of its life it became, at different times and to different parties, a tool, a burden and a wedge.

The history of the loan in the context of the U.S.-China relations represented a series of events in which diplomats on both sides had similar interests that did not led to concrete results. From the strictly Chinese point of view, not going through with the loan perhaps represented a small victory in that it prevented the installation of a foreign

594 “John V.A. MacMurray to Breckinridge Long,” September 19, 1919 BLP, Box 181, China Loan, July- September 1919 Folder. 595 DS 893.51/292. 596 “Yu siguo yinhangtuan suo ding ‘Bizhi shiye jiekuan hetong’ de quxiao” [Canceling the contract for the Currency Reform and Development loan with the four-power banking consortium] ZHMGHBSZL Vol. 1, 674-5. 250 advisor with broad powers. From the point of view of U.S foreign policy, the loan and

American participation in the two China consortiums represented the vestiges of imperialism in the midst of rhetoric about the League of Nations. Crucially, some

American policymakers actually saw the new consortium and the League of Nations as complementary. As Breckinridge Long put it, successful U.S. policy in China all depended on “the League of Nations and the Consortium” and a series of “ifs”: if China joined the League of Nations, if the consortium was reformed with Japan, if China resolved the Shandong question through the League, if under the Consortium China could reorganize its financial system, then “all will be in the clear.597 But, as Long admitted, there were a lot of “ifs” in that proposition.

In the context of U.S.-Japan relations, the loan was just one of many sources of tension, as American diplomats invoked the history of the loan and the Jenks mission in order to prevent Japan from issuing its own loan for Chinese currency reform. For Japan, the loan revealed the conflict between different sections of the government. The debate over whether to work through or outside of the international consortium represented broader disagreements concerning how Japan should protect its interests in China. From any angle, the loan became more important politically as the likelihood of actually implementing currency reform in China decreased.

By the time the currency loan had finally been abrogated, Liang Qichao had abandoned politics and become a professor, devoting most of his writing and research to cultural, literary and historical issues. Unlike the early 1910s, currency did not merit

597 BLP, Box 2, Diary 7 Folder, 202, July 29, 1919. 251 much of Liang’s attention in the 1920s, though he occasionally returned to the subject. In a speech to university students in Beijing during 1926, Liang looked back on his involvement in currency reform during the early years of the republic, lamenting the entire history of the subject. Trying to carry out effective measures in a time of such political turbulence was akin to building a house on foundations of sand; its stability was always precarious.598

At the same time that Liang lamented the results of China’s efforts at currency reform, another project with a similar goal, the Shanghai Mint, was in a state of half- completion. The facility had run out of money before construction was completed. We follow the story of the mint and the continued debate about monetary standards in the next chapter.

598 Liang Qichao, “Minguo chunian zhi bizhi gaige,” [Currency reform in the early republic] Yinbingshi heji, ce 15 (Shanghai : Zhonghua shuju, 1941), 11. 252

Chapter 6: The Long and Winding History of the Shanghai Mint, 1920-1933

Clifford Hewitt (1869-1942) was an unlikely figure to become involved in

Chinese monetary reform. Born in Pennsylvania, he apprenticed at a railroad before attending the Franklin Institute of in Philadelphia. He then served in the U.S. Mint for over a decade before traveling to in order to oversee the construction of the only U.S. Mint branch outside of the United States. As that work neared completion in 1920, he received an invitation from the Chinese government in

Beijing to serve as the technical advisor to the proposed Shanghai Mint.599

This invitation was not met with unanimous approval. In the fall of 1920, the

American consul general in Shanghai thought Hewitt should undertake this project in order to promote “American-Chinese interests.”600 Representatives of the American banks in the newly re-formed international banking consortium took the opposite view.

They believed the proposed plan for the mint in Shanghai was “impracticable and unsound.”601 The Chinese government in Beijing, they surmised, was “apparently planning to make a large profit from the operations of the mint.”602 Despite these objections, Hewitt took up the post of technical advisor in early 1921.

599 Biographical information on Hewitt comes from Clifford Hewitt Papers (CHP), Box 1, American Numismatics Society Archives, New York, New York. 600 Department of State (DS), Record Group 59, Records of the Department of State relating to the Internal Affairs of China, 1910-1929, 893.515/44, October 18, 1920. 601 DS 893.515/46, October 29, 1920. 602 DS 893.515/46, October 29, 1920. 253

Though work began on the Shanghai Mint in 1920, the facility did not open until the spring of 1933, and even then there were important problems. In the intervening decade, Hewitt traveled back and forth between China and the United States, leaving

Shanghai in 1925 when it appeared the mint had no future, returning after the Nationalist government gave the mint new life in 1928, and leaving again just before the mint opened in January 1933.

This chapter tells the story of Chinese financial history in the 1920s and early

1930s through the lens of the Shanghai Mint. At every point the changing conditions of the Chinese political economy and the worldwide economy reflected and refracted through the facility. By the end of 1925, equipment for the mint was sitting in a warehouse in Shanghai after the facility ran out of funds, a victim of continued political instability. In 1928, the Shanghai Mint became the Central Mint as the Nationalist government continued the now decades-long debate concerning whether China should adopt some form of the gold standard or stick with silver. When the mint finally opened in spring 1933, it came under criticism because the design of the coin featuring three birds swooping overhead looked too much like the Japanese bombers that had pummeled

Shanghai in 1932. Throughout this period, the mint was a touchstone for debates about the elimination of the tael as a unit of account (廢兩改元 feiliang gaiyuan).

The history of the Shanghai Mint also reveals connections between the early

1920s and the consolidation of the Nationalist government in 1928. It is common to view the first part of this decade as one of political disunity, chaos and warlordism. There is obvious evidence for this position. However, just as scholarship formerly emphasized

254 discontinuities across the 1949 but now focuses on continuities, a similar approach is helpful for understanding the start of the (1927-1937) in the late 1920s.

Following the history of the facility makes these continuities clear. Moreover, in tracing the history of the Shanghai Mint and the elimination of the tael, this chapter reveals the growing ambition of the government to regulate and control the Chinese financial system.

As we know from previous chapters, in the course of the 18th and 19th centuries, various

“ghost” (虛銀兩 yuxinliang) tael units of account had grown out of the natural course of trade due to the different types of silver coins and ingots in circulation. Significantly, these “ghost” units of account emerged without government involvement. However, in the 1920s and 1930s, the Nationalist government drove the elimination of the tael, just one of several steps that sought to bring the Chinese financial system more firmly under its the scope of authority.

The Political and Economic Background

In China, the period at the end of World War I was not a calm one. The

Guomindang under Sun Yat-sen established a competing government with national aspirations in the south of the country at Canton. At the end of the war, there was conflict about whether the northern government in Beijing or the southern government in Canton would represent China at the Versailles Peace conference; in the end, both attended.

When the terms of the Versailles Peace Treaty regarding the Shandong peninsula filtered back to China, they sparked the May 4th Movement that protested the terms of the treaty itself, the inefficacy of Chinese government and voiced a broader discontent with the burdens of and language.

255

Beneath the split between competing governments based in Canton and Beijing, the nominal national governments in Beijing were increasingly the subject of the shifting alliances and conflicts between provincial warlords, figures who had once nominally been tied to Yuan Shikai (袁世凱 1859-1916) but after his death consolidated their own domains. In this context, the government in Beijing became “an object of political conflict and a source of political goods” and the organs of national governments—the cabinet and various ministries—“functioned less as administrative ‘output’ institutions than as valuable resources for the conduct of political struggle.”603 Controlling the city and in turn the mechanisms of national government “held the key to a limited type of legitimacy in Chinese politics” in the early 1920s.604 The symbolism of Beijing and its reserve of political and diplomatic advantages stood at the center of many of the conflicts between competing warlords in the north of China during this period.

The increasing centrifugal forces at work in Chinese politics had important effects on finances. Although the period from 1913 to 1915 was one when Yuan Shikai was able to secure more transfers of revenue from provincial governments to the national one, this trend reversed after 1917. At the same time, the rise in the value of silver during World

War I actually created a surplus for the national government. However, as part of the reorganization loan negotiated in 1912 and 1913, foreign banks became a trustee of these funds between the time they were collected and later paid to Chinese creditors. When the funds had a surplus, money left over after the creditors were paid, foreign banks

603 Andrew Nathan, Peking Politics, 1918-1923: Factionalism and the Failure of Constitutionalism (Berkeley: University of California Press, 1976), 59. 604 Nathan, Peking Politics, 59. 256 exercised control over the use of these funds as well, releasing them to the Chinese government only with earmarked conditions for their use. However, after World War I this surplus eroded due to the fall of the price of silver.605

Though the late 1910s and early 1920s were difficult times for Chinese government finances, the war years and post-war period provided a boost to emerging

Chinese industry. With European firms focused on the conflict at home, Chinese banks and industrial concerns began to flourish. Moreover, in the absence of a strong central government, financial and industrial companies that were formerly government-owned now changed into private hands.606 It was a “golden age” for Chinese capitalists.607 This period, some historians argue, was a time when “new and inherited” enterprises in transport, communication, manufacturing as well as money and banking ushered in a period of sustained economic growth.608

Against this background, the financial institutions of the Chinese economy had a familiar but changing shape. Foreign banks in treaty ports received deposits, issued currency, dealt in foreign exchange and had a significant role in overseeing the disbursement of customs revenue. In the 1920s they remained a powerful force. Chinese banks run along Western-banking principles increased in number during this time but

605 Nathan, Peking Politics, 79-80. They key variable here was that Chinese customs revenues were denominated in silver, customs tales, but Chinese debts were in gold. 606 See Linsun Cheng, Banking in Modern China: Entrepreneurs, Professional Managers and the Development of Chinese Banks, 1897-1937 (Cambridge: Cambridge University Press, 2007), 37-67. 607 Parks Coble, The Shanghai Capitalists and the Nationalist Government, 1927-1937 (Cambridge: Harvard University Press, 1980), 26. 608 Thomas Rawski, Economic Growth in Prewar China, (Berkeley: University of California Press, 1989), xxix. The debate about whether and how fast the Chinese economy was growing is an important one in the historiography of modern China but is not the main concern of this chapter. For representative works on this topic see the Rawski volume as well as Phillip C.C. Huang, The Peasant Economy and Social Change in North China (Stanford: Stanford University Press, 1985). 257 often lacked access to funds, markets and the institutional credibility of institutions like

Hong Kong and Shanghai Banking Company. The unlimited liability native banks ( qianzhuang) continued to be important for everyday transactions and for providing finance to Chinese merchants who wanted to buy goods in the interior and sell them to foreigners or buy goods from foreigners to sell in the interior. Moreover, the qianzhuang played a key role binding together the financial system, especially in Shanghai, the most important treaty port for trade, where all clearing operations went through the native banks. Foreign and Chinese banks maintained deposits in qianzhuang for this purpose.

Qianzhuang paid out a low rate of interest on these accounts and could in turn use them to make loans at a higher rate.609 Connections between qianzhuang and modern-style banks were not just financial but personal; Chinese entrepreneurs in the manufacturing sector could also hold shares in native banks and newly established Chinese banks also found it expedient to employ those familiar with qianzhuang.610

The different sectors of the financial landscape also had their own organizations to represent their interests. The Shanghai Bankers’ Association (上海銀行公會 Shanghai

Yinhang gonghui) was established in 1915, and the Shanghai Native Bankers’

Association which represented the qianzhuang (上海錢業公会 Shanghai qianye gonghui), was established in 1917.611 Soon thereafter, both organizations developed their

609 For more on the qianzhuang’s role in clearing operations see Andrea McElderry, Shanghai Old-Style Banks 1800-1935: A Traditional Institution in a Changing Society (Ann Arbor: Center for Chinese Studies University of Michigan, 1976), 44-45 and 142. 610 On the financial and personal connections between the different sectors of the financial industry see Rawski, Economic Growth in Prewar China, 143-145. See also Li Yixiang, Jindai zhongguo yinhang yu qianzhuang yanjiu [Research on the connections between modern Banks and native banks in modern China] (Shanghai: Xuelin chubanshe, 2005), 57-111. 611 Coble, The Shanghai Capitalists and the Nationalist Government, 21. 258 own publications, Bankers’ Weekly (銀行週報 Yinhang zhoubao) by the Shanghai

Bankers’ Association and Money Monthly (錢業月刊 Qianye yuekan) by the Native

Bankers’ Association. How these commercial and financial interests cooperated and competed with each other as well as worked with and opposed various governments was a key variable in the political economy of the 1920s and 1930s.

The development of these organizations also speaks to the important role of

Shanghai in the country’s financial landscape. By the late 1910s, and throughout the

1920s, Shanghai maintained a central position in financing trade throughout the country abroad by regularly moving “currency out of regions where the trade in agricultural products was already in seasonal decline and into regions where, by contrast, it was booming.”612 Other important financial centers like Tianjin in northern China, Hankou in as well as Suzhou and Ningbo were “ markets of Shanghai.”613 The

Chinese native banks stood at the center of this network by setting the yinshe (銀折), the rate that native banks lent to each other as well the yangli (洋厘), the exchange rate between silver coins and the Shanghai tael. Next, the qianzhuang provided loans, in the form of coin or notes, for merchants to use in procuring agricultural products. Moreover, the yangli rate, how much of one Shanghai tael one silver dollar could actually procure, generally mirrored the agricultural seasons: the tea in April and the silk cocoon in May and June caused the yangli to move higher. However, at the same time,

612 Ma Junya, “Traditional Finance and China's Agricultural Trade, 1920-1933,” Modern China 34, no. 3 (July 2008): 345. 613 Ma, “Traditional Finance and China's Agricultural Trade, 1920-1933,” 346. 259 silver came into Shanghai from Hankou and Tianjin, where it was not as much in demand at that time. In this way, the financial system of Shanghai, particularly native banks, were able to “guarantee a regular supply of cash for every region as well as every trade.”614

At the level of currency itself, numerous types of money circulated: notes issued by foreign banks, by Chinese banks and by qianzhuang, Mexican silver dollars as well as currency issued by various provincial regimes. At the end of World War I, the circulation of Mexican silver dollars continued to fade and the Shanghai Native Bankers’

Association changed the way that it set the yangli. In 1915, the association stopped posting exchange rates for provincial silver dollars, saying that holders of these coins had to turn them in for Yuan Shikai silver dollars produced after 1914. After this announcement, there were separate yangli rates posted for Mexican silver dollars and

Yuan Shikai coins. By 1919, the circulation of Mexican silver dollars in Shanghai continued to fall as the rising price of silver in World War I caused many to be melted down or shipped out of the country. The death of Mexican silver dollars caused a sharp rise in yangli rate of Mexican dollars in Shanghai and led to a brief panic. In order to alleviate the situation, in July 1919 the Native Bankers’ Association said that that it would have just one rate of exchange between silver coins and the Shanghai tael, making a two-track system a one-track system. This move had the added benefit of overlapping with the surge of Chinese nationalism that accompanied that May 4th Movement by

614 Ma, “Traditional Finance and China's Agricultural Trade, 1920-1933,” 347. 260 removing the privileged place of the Mexican silver dollar in the monetary landscape of the Chinese economy.615

At the same time, though, more voices called for the elimination of the tael as a unit of account. As Su Yunshang (蘇筠尚), Chairman of the Shanghai Chamber of

Commerce, wrote in the 1917, the price movement between silver tales and silver coins created headaches; when a foreign and Chinese merchant made a contract they set the price in gold. However, the price of gold was set in silver taels but the merchant generally had income in silver coins. The price of silver in terms of gold fluctuated, as did the rate between silver coins and the tael. This two-level structure, he argued, created innumerable and avoidable problems for merchants.616

Moreover, the system of taels caused other inconveniences and material losses.

Say, for example, that a merchant wanted to remit 1,000 silver coins from Shanghai to

Hankou. The merchant was not able to remit this amount directly because funds were remitted in taels. The amount first had to be changed into Shanghai taels based on the current yangli rate, and then Shanghai taels had to be changed into Hankou tales and then into silver coins based on the yangli rate in Hankou. Given certain assumptions about yangli rates 1,000 coins in Shanghai would only translate into 995 coins in Hankou, a lose of five coins before a transfer fees.617 Moreover, the relative price of the Shanghai

615 Zou Xiaosheng, “Yinyuan zhubi liutong yu shanghai yangli xingshi de gengti” [The circulation of silver coins and changes in Shanghai yangli conditions] Shixue yuekan 8 (2006): 40-41. 616 Ye Shichang, Zhongguo huobi lilunshi [History of Chinese monetary thought] (Xiamen: Xiamen daxue chubanshe, 2003), 305. 617 “Zai lun feiliang gaiyuan wenti bingda Wu Jingxiong,” [Writing again on eliminating the liang and Responding to Mr. Wu Jingxiong] Ma Yinchu Quanji, ce 6 [Collected Works of Ma Yinchu, Volume 6] (Hangzhou: Zhejiang Renmin chubanshe, 1999), 34. (Hereafter MYCQJ) 261 and Hankou tael depended on supply and demand, which related to trade flows between the two cities so that it would take more Shanghai taels and thus more silver coins in order to change into Hankou taels.618

One of the strongest, most persistent and most colorful advocates for eliminating the tael and the role of the Shanghai Mint in that process was Ma Yinchu (馬寅初 1882-

1982). Ma, later an important advocate behind the one-child policy in the People’s

Republic of China, had studied abroad at Yale and Columbia, receiving a PhD in

Economics from the latter. In the 1920s, he served as a professor at various Chinese universities and later was an advisor to the Nationalist government. He had a gift for earthy metaphor and explained the relationship between the silver coins and silver tales like that of between a wife (主妇 zhufu) and concubine (侧室 ceshi). The position of a wife in a family—like the position of silver coins in calculating national budgets and collecting taxes—was recognized by the law. However, the role of a wife in a family, like the role of silver coins in the economy, was weak and lacked authority. The person with authority in the household was often the concubine; in the economic setting, it was the different ghost unit taels of account. Unrecognized by the law, they exercised a daily authority. The question was whether the position of silver tales should be recognized by the law and given the same status as silver coins. Ma did not think so. Concluding the

618 Rawski, Economic Growth in Prewar China, 127. For an extended example of this procedures, see “Yinjia diluo jiuji wenti,” [The problem of relieving declining silver prices] MYCQJ Volume 4, 23-25. 262 metaphor, he pondered whether that would be the same thing as raising a concubine’s place in the eyes of the law at the expense of a wife’s position.619

Ma thought the work of eliminating the tael as a unit of account had to start in

Shanghai because the Shanghai tael was the most important one in the Chinese financial system. However, eliminating the tael meant there had to be a large supply of uniform silver coins. The reason the tael persisted was due to the varied quality of silver coins produced by Chinese mints. Moreover, Ma believed that even though the Coinage Act of

1914 had called for free minting of silver coinage, it was not a reality. Instead, the power to mint money was in the hands of several government organs, the mints and banks. He thought the groups purposely contributed to the rise and fall of the yangli rate. In the grain and cotton harvesting season, silver coins were in demand in order to pay farmers and they generally increased in value from around .72 tales to .73 tales or higher. During this time period, mints in Nanjing and Hangzhou worked overtime to produce more coinage and secure profits.620 However, after the harvest demand for silver coins went down and the yangli rate followed it. In this way the system of taels, and the Shanghai tael in particular, prevented the yuan from becoming a standard (benwei).621 Here, according to Ma, was the significance of the proposed Shanghai Mint; it would provide a

619 “Zai lun feiliang gaiyuan wenti bingda Wu Jingxiong,” MYCQJ Volume 6, 36-37. Interestingly, Ma himself actually had several concubines. 620 Throughout the early 1920s there were a number of regular controversies surrounding the debasement of copper and silver coinage of the Nanjing and Hangzhou mints. See DS 893.515/37, September 8, 1919; 893.515/84, October 234, 1923; 893.515/90, December 19, 1923. For fuller reports of the different mints in existence in the 1910s and 1920s see Edwin Kemmerer Papers Box 100, Folder 11. A report from Banker’s Weekly reveals that silver sycee would be taken to the mint for coinage if the yangli rate moved above .7235. See Dai Jianbing, Zhongguo jindai yinliang shi [A history of silver taels in modern China] (Beijing: Zhongguo shehui kexueyuan chubanshe, 2007), 82. 621 “Shanghai zaobichang sheli zhi zhongya,” [The importance of establishing the Shanghai Mint] MYCQJ Volume 1, 184-5. 263 large supply of uniform silver coins that would be sufficient to end the separation between the unit of account, the tael, and the medium of exchange which would be an important step in unifying the currency system (統一幣制 tongyi bizhi).622

However, Ma was aware that important institutional interests stood in the way of eliminating the tael, namely the qianzhuang. Ma argued the qianzhuang opposed the elimination of the tael based on their own financial interests. Ma surmised that between

60 to 80 percent of qianzhuang profits came from money-changing operations between silver coins and silver taels. Qianzhuang only denominated accounts in taels but the medium of circulation was generally silver coins, thus providing a “good opportunity to squeeze their customers.”623 Eliminating the tael, and thus the yangli and the charge the qianzhuang took as commission, would eliminate a significant part their profits.624

Beyond the qianzhuang, Ma also thought the customs administration and foreign banks would oppose the elimination of the tael, the customs administration because they operated on their own unit of account, the customs tael, and the foreign banks because they did not have an opportunity to benefit from the change.625

The story of the Shanghai Mint, then, is the history of changing political landscapes, of shifting domestic and international economic conditions as well as the financial self-interest within the different sections of the Shanghai banking community.

622 “Yinjia diluo jiuji wenti,” MYCQJ, Volume 4, 26-27. 623 Cheng, Banking in Modern China, 141. 624 “Shanghai zaobichang sheli zhi zhongyao,” MYCQJ, Volume 1, 186. 625 “Shanghai zaobichang sheli zhi zhongyao” MYCQJ, Volume 1, 188. 264

The Early Years of the Mint

In light of later problems and controversies that would haunt the facility, the initial steps towards establishing the mint went quite smoothly. The Shanghai Bankers’

Association worked with the Beijing government to establish a plan, procure funds, select a technical advisor and begin construction. However, these early decisions actually created the foundations of later problems. A procurement scandal exploded as construction on the mint began. A more pressing problem arose soon thereafter. The mint soon did not have enough money to proceed with its construction.

In 1919 and 1920 the future of the Shanghai Mint looked quite bright. In the fall of 1919, foreign and Chinese merchants called for the creation of a mint in Shanghai with the ultimate purpose of eliminating the tael as a unit of account. The British Chamber of

Commerce sent a proposal to the Chinese Minister of Finance that “no measure would have a more extended or beneficial effect on the international credit of China, or on the welfare of the people and traders of China, than the prompt institution of a uniform and stable currency.”626 However, at the same time, the British Chamber of Commerce thought that a foreign expert, someone from Britain, should have oversight of the mint to insure the quality and uniformity of its output. That December, the Shanghai Bankers’

Association also submitted a plan to the Ministry of Finance for the construction of a

626 “Dean of Diplomatic Body to Chen Lu Acting Minister of Foreign Affairs Relays a message from Foreign Bankers Association in Shanghai on the creation of the Shanghai Mint, Beiyang Waijiaobu Archives (BYWJBA), February 1920, 03-46-026-09-002. 265 mint in Shanghai. In February 1920, the Ministry of Finance approved the plan.627

Organizational and logistic arrangements for the mint were originally based in the office of the Shanghai Bankers’ Association.628

Planning for the mint continued throughout 1920. That fall the government posted tender advertisements for the equipment necessary to run the facility. At the same time, the Ministry of Finance contracted Clifford Hewitt to serve as technical advisor. It is significant to note the ease of Hewitt’s appointment, especially in comparison to the controversy about the role and powers of an advisor in relation to the currency loan discussed in the previous chapter. The difference, of course, was that Hewitt’s position was limited to a very narrow range of activities. From the Chinese point of view, the proposed advisor under the currency loan had more abstract, and thus more threatening, powers. However, though Hewitt’s role was seemingly marginal, the planned role of the

Shanghai mint was not. In fact, its backers saw the mint as critical in financial reform because it would help eliminate all the different tael units of account.

Hewitt arrived in China in early 1921 as the proposed mint tried to procure something it was supposed to make but did not yet have: money. The Beiyang government in Beijing agreed to a loan contract with the Shanghai Bankers’ Association, the same group that had advocated the plan in 1919. During this time period, Chinese banks served as a key revenue source for various governments in Beijing—that were national governments in name only—because the new international banking consortium

627 Song Peiyu, “Shanghai zaobichang choujian shiwei,” [The beginning and end of the Shanghai Mint’s construction] Dang’an yu lishi 6 (2002): 36. 628 “The Central Mint of China,” Shanghai Municipal Archives (SMA) Q275-1-2827, 1935. 266 did not lend to these frequently changing regimes. In March 1921, representatives of the

Bankers’ Association signed a loan agreement with the Ministry of Finance to underwrite and market of 2.5 million Chinese dollars worth of bonds. Demand outstripped supply when the Bankers’ Association marketed the bonds. Subscriptions began on a Monday but were closed by Wednesday, a sign of the “unprecedented enthusiasm which the capitalists have shown within a short period to respond to a call of national interest.”629

These bonds were secured on the surplus revenue from the salt tax (鹽餘 yanyu), and the principal and interest of the loan was to be paid off in May 1923.630

With these loans in place, work on constructing the mint began. Hewitt, in consultation with the Bankers’ Association and the mint planning committee, selected a spot removed from the different foreign concessions but not too far away from them. The site of the mint sat on the banks of Suzhou Creek, the better for transportation of supplies by water. As Hewitt recalled later, the selection of the site had symbolic importance

“because it [the mint] is a sacred institution and belongs to the Chinese government.” The

629 “Shanghai zaobichang jiekuan yintuan yewu huiyilu,” [Notes on meetings from the banking group dealing with the Shanghai mint loan], SMA S173-1-228-1. This document is a compilation that runs from 1921-1929. This quotation comes from a newspaper clip included in this file but whose origins I have not been able to find. 630 The salt tax had been pledged as security for the Reorganization Loan of 1913 to Yuan Shikai. As part of the loan terms, a foreign national, Richard Dane, was put in charge of reforming the way the salt tax in China was collected. Under his direction, revenue derived from the salt tax increased and was placed in one central account. In the past, much of the salt tax had been siphoned at the local level. The salt surplus, yanyu, was the net revenue when all liabilities on the salt revenue—namely loan payments—had been met. When the Reorganization Loan was signed in 1913 the agreement did not consider that there would be excess salt revenues and Dane played an important role in the allocation of these funds. By the late 1910s, the salt surplus was an important source of revenue for the nominal national government in Beijing. For more on the salt tax and salt surplus see S.A.M. Adshead, The Modernization of the Chinese Salt Administration, 1900-1920 (Cambridge, MA: Harvard University Press, 1970), 97-104. Salt surpluses continued even in the late 1910s when there was more seizure of the salt tax at the local level. Andrew Nathan estimates that, in this period, $40 million a year was available in salt surplus that varied from month to month. See Nathan, Peking Politics, 78. Monthly payments on the bonds issued for construction of the Shanghai Mint amounted to 70,000 Chinese dollars. 267 mint had to be located in Chinese territory so the government “can protect its sovereign right to issue and control its own currency.”631 Over the course of 1921 construction began on the facility and by the end of the year the first floor was in place.

Procuring equipment proved to be the first of many controversies and problems that plagued the mint. In 1921, Hewitt, in his role as technical advisor, drew up a list of all the equipment the mint required. For all the non-machinery equipment—benches, boxes, cooling tubes—he chose to work with local Shanghai firms in order to save money. However, the machines involved in coining could not be made in Shanghai.

Hewitt provided very detailed instructions about what type of machinery to buy and where it should come from. All the firms he named were American. Coinage presses were to come from the Waterbury Farrell Foundry Machine Co., assaying equipment from the Denver Fire Clay Co. A substantial amount of machinery on Hewitt’s list was to come from the Ferracute Company of Philadelphia, the same concern that had provided the mint equipment for the Sichuan and Hubei provincial mints that were in chapter three.632 One would not expect such a technical matter to cause much consternation but it did.

Soon after Hewitt had submitted the list of necessary equipment, British objections poured into the Chinese foreign ministry. The British had several complaints.

First, British Minister Frances Alston (1868-1929) correctly noted that Hewitt’s procurement plans and tender offers were not the first ones advertised. A document titled

631 “Specialist in the “Making” of Good Money,” China Weekly Review, May 31, 1930, CHP, Box 1. 632 “Equipment for the Shanghai Mint” SMA Q278-1-106. This is a document written in English by Hewitt specifying what equipment was needed for the facility. Date of the document is unspecified. 268

“General Conditions For the Tendering of the Supply of a Complete Mint Plant” had been published in November 1920 and invited bids. This original invitation for bids did not name specific types of machines to be used but only stated that the mint sought

“detailed estimates of cost of a complete plant with capacity of a daily output of 400,000 finished silver dollar coins.” 633 Based on this requirement, British firms spared “neither time nor money to get out and prepare estimates.”634

Next, in sanctioning Hewitt’s new plans for machines from American companies, the mint authorities “had discriminated unfairly against British manufacturers who had incurred considerable expense and trouble in preparing plans and estimates based on the original invitation for tenders.”635 Even worse, the period between May 6, the date when

Hewitt announced the new procurement orders, and June 24, the date when tenders were due, was too tight a timeline and made it “hardly possible for British manufacturers to compete.”636 By the wording of the contract and the tight time frame, American manufacturers were sure to secure the contracts.

The procurement scandal lingered on for the next year. The Peking and Tientsin

Times called the attitude of the Chinese government “irresponsible and evasive.”637

British Minister Alston continued to pepper Chinese Foreign Minister W.W. Yen with correspondence regarding the unfair tender process. Yen insisted that the scandal was imagined; the process had been straightforward and fair. These responses only angered

633 DS 893.515/60, October 21, 1921. 634 DS 893.515/60, October 21, 1921. 635 “Francis Alston to W.W. Yen,” BYWJBA, 03-18-103-04-009, June 24, 1921. 636 “Francis Alston to W.W. Yen,” BYWJBA, 03-18-103-04-009, June 24, 1921. 637 DS 893.515/60, October 21, 1921. 269

Alston who insisted that Yen preferred to “ignore entirely” the definitive evidence he had included concerning the faulty bid process. In the beginning of 1922, Alston, frustrated by Chinese government responses, employed very undiplomatic language: “The total disregard for the elementary principle of fair dealing shown by a Chinese government department in this matter,” he complained, “has already created a most deplorable precedent.”638 As The Peking and Tientsin Times noted, there was a time when such protests “would be listened to” by the Chinese government but that time had apparently passed. The British government never received what they felt was an adequate response to their protests and by the end of 1921 and beginning of 1922, American-made machinery started to arrive in Shanghai.

However, another issue soon dwarfed the procurement scandal. The mint was running out of money. The mint authorities spent the proceeds of the loan quite quickly.

The loan itself procured only $1,955,000 dollars. Of that initial sum, nearly $837,064 had been spent on equipment, $37,593 on the purchase of land and $77,142 on the construction of the facility. The amount owed to creditors who had not received the interest payments they were due stood at $1, 607,000; it would cost another $1,121,000 to finish construction and open the mint.639 One article at the time attributed the cost overruns to faulty budgeting and the employment of too many people so that expenses quickly increased.640

638 “Francis Alston to W.W. Yen,” BYWJBA, 03-18-103-04-020, January 6, 1922. 639 “The Central Mint,” Edwin Kemmerer Papers (EKP), Box 100, Folder 10. Undated but presumabley prepared in 1928 during Kemerrer’s trip to China. 640 Xu Qiqing, “Shanghai zaobichang jiekuan wenti,” [The problem of the Shanghai mint loan] Yinghang zhoubao 6, no. 30 (1922): 4-5. 270

With quickly diminishing funds, the mint could not pay for much of the equipment it had ordered. By early 1923, a lot of the machinery had been installed at the mint and the rest had arrived in Shanghai “where it is held against payment.” For example, in contracting to purchase machinery for minting silver coins with the

American Trading Company, the Chinese government paid twenty per cent of the total price when the contract was signed, with the rest due on delivery. In due course, the machinery arrived in Shanghai but the mint authorities were unable to pay the remainder that was owed.641 As one American diplomat observed, the Bankers’ Association had the funds to pay for the equipment but did not want to do so “until the Ministry of Finance had formally allocated the portion of the salt surplus that was to serve as security for the original loan.”642 The bankers wanted the mint to move forward but they also wanted to receive the payments they were due. During the next several years, the Shanghai

Bankers’ Association tried to come to terms with different Chinese governments.

The rapidly changing and often violent political conditions between early 1922 and mid-1925 did not help secure funds for the completion of the Shanghai Mint. In April and May 1922, the First Zhili-Fengtian war ripped through the north of China. Between

June 1922 and June 1923 there were six prime ministers headeding the nominal national government in Beijing, with ministers of finance changing rapidly as well. During this period, “large groups of provinces are practically independent, Ministers [sic] are

641 DS 893.515/121, January 6, 1926. 642 DS 893.515/78, March 6, 1923. 271 resigning because they cannot get their salaries, and the conflict of military leaders shows no signs of coming to an end.”643

The security of the loan for the mint, the salt surplus, also created problems.

Because various governments in Beijing used the salt surplus as security for a number of loans, this revenue stream had always been pledged in advance. Moreover, the salt surplus could vary from month to month and there was no established schedule for what claims on the salt surplus had seniority. Even worse, starting in 1925, local seizures of the salt revenue increased and the salt revenue under the central government’s control shrank.644 In the fight over the salt surpluses, the loan for the mint did not have much priority.

As ministers of finance quickly came and went, they appointed different heads of the Shanghai mint who tried to negotiate for new loans for with the Shanghai Bankers’

Association. One proposal was for the Ministry of Finance to issue another set of $2.5 million bonds to the Shanghai Bankers’ Association, repeating the process of 1921.645

Later discussion of a loan for 3.4 million or 3.5 million Chinese dollars similarly went nowhere. Similar forces that prevented the International Banking Consortium from lending money to China in the early 1920s also influenced the Shanghai Bankers’

Association.646 Final efforts at negotiating another loan took place in early 1924 but to no

643 “China and Her Creditors,” Economist, March 31, 1923, 679. 644 Nathan, Peking Politics, 79. 645 Xu, “Shanghai zaobichang jiekuan wenti,” 5. 646 Song, “Shanghai zaobichang choujian shiwei,” 38-9. 272 avail.647 There was continued disagreement about the security on which the loan would be based.648

By the middle of the 1920s, it did not look like the Shanghai mint had much of a future. In 1925, Clifford Hewitt was on his way back to the United States. In keeping with the tenor of times, he too had not been paid his full salary and was owed over ten thousand U.S. dollars.649 As Hewitt left China, much of the machinery ordered for it sat in a warehouse on the docks of Shanghai. Even the dues on storage of the equipment were in arrears. Because the Shanghai Chinese Bankers’ Association and the governments in Beijing could not reach an agreement for another loan, the Bankers

Association took control of the title to the land, building and minting equipment. A letter from the storage house to the Bankers’ Association asked if the bankers might “kindly let us know if we may look to you for payment of the storage charges accumulated” on the equipment that had gone unpaid between June 1925 and January 1926.650

Soon afterwards, Ma Yinchu lamented that these machines did nothing but gather rust in warehouses. It was a shame. Nothing could be more important than raising another loan to finally get the Shanghai mint up and running and begin the work of unifying the

647 See “Shanghai zaobichang jiekuan wenti xuding jiekuan wenti zhi yu lunguan,” [Thoughts on renewing the loan for the Shanghai mint] Yinghang zhoubao 8, no. 5 (1924): 5-8. Also see, “Shanghai zaobichang jiekuan yinqi fengchao,” [The loan for the Shanghai mint gives rise to a tempest] Yinhang yuekan 4, no. 2 (1924): 1-3. 648 By 1924 the salt surplus revenue, which had served as security for the original loan, had been pledged to a number of other loans for many years in the future. Likewise, the Shanghai Banker’s Association was not keen to use the same revenue stream as security that had ceased to guarantee payments on the first loan. See “The Position in China,” The Economist, February 2, 1924. 649 “Hu Weide wunian hetong manqi” [The end of Hewitt’s five-year contract], BYWJBA, 03-01-002-08- 003, July 1925. 650 “Letter from Andersen, Meyer & Company Ltd. to Chinese Bankers Association,” SMA, S173-1-229, January 15, 1926. 273 currency and eliminating the silver tael. All one could do, Ma thought, was to sigh with resignation that in such troubled times no one viewed the dormant, rusting machines as a priority.651

The Early Nationalist Period and the Fall of Silver

The equipment for the mint gathered rust for several more years. However, by the middle of 1928 the situation began to change. The Warlord Period drew to a close and the

“Nanjing Decade” (1927-1937) began. The new nationalist government restructured the mint’s debt and invited Clifford Hewitt back to oversee its final construction and opening of operations. Hewitt was not the only American the new government employed. At the end of 1928 it called on “money doctor” Edwin Kemmerer (1875-1945), a Princeton

University professor, to serve as financial advisor and once again returned to the old question of whether and how China should go on the gold-exchange standard. The late

1920s, like the early 1900s, was a time of falling silver prices. By 1930, it would become clear the Shanghai Mint would open but it was not clear what types of coins it would produce. Would China go on gold or stay on silver?

In the middle of 1926, the Nationalist Party began the Northern Expedition from its base in Canton. Since 1917, the party, under its founder Sun Yat-sen, had established an alternative government in the south of China. In the early 1920s, Sun Yat-sen had shifted the organization of the party to a Leninist model by working with the Comintern and forming the first of several tenuous alliances with the nascent Chinese Communist

Party (CCP). After Sun Yat-sen died in 1925, various figures within the party

651 “Yinjia diluo jiuji wenti,” MYCQJ, Volume 4, 28-29. 274 maneuvered for power. At that time, the Guomindang “contained a disparate membership in which conservatives and communists, merchants, laborers, soldiers and scholars” that

“were held together by little more than the vague principles” of Sun Yat-sen.652

As combined Nationalist-Communist forces marched north in 1926 in an attempt to unify the country, tensions and self-interest ripped the Guomindang apart and Chiang

Kai-shek emerged as the dominant figure. When the Northern Expedition reached

Shanghai in 1927, the party was on a verge of a decisive split. First, Chiang Kai-shek initiated a brutal elimination of Communists and Communist sympathizers in the

Guomindang and in the city at large. It marked a decisive break between the Nationalists and Communists. As Chiang established a government in Nanjing that spring, he also competed with left-wing non-Communist members of the Nationalist Party in Wuhan.

Throughout the summer and early autumn, Chiang and the other bloc of the Guomindang in Wuhan continued to have a delicate relationship. In September 1927, Chiang actually resigned his post in the Nanjing government, the first of several times he would do so in order to demonstrate just how indispensable he was to the Guomindang’s future. That winter he went to Japan, married Song Meiling (宋美齡 1898-2003), whose sister, Song

Qingling (宋慶齡 1893-1981), was the widow Sun Yat-sen and a key figure in the

Wuhan government. Chiang’s new brother-in-law, Song Ziwen (宋子文 1891-1971), also known by English-speaking associates as T.V Soong, was at the time the Wuhan government’s minister of finance. In Chiang’s absence, the Wuhan government actually

652 Coble, The Shanghai Capitalists and the Nationalist Government, 4. 275 went bankrupt and Chiang returned to China in January 1928 in a much stronger position.

In the first half of 1928, the Northern Expedition continued. By the middle of the year, forces under Chiang Kai-shek reached Beijing.

However, the authority of the Nanjing government had real limits. Only several provinces on the east coast were under its control. Warlords in the north and northwest pledged loyalty to the new government but also maintained their independence. The CCP, having been purged from the Guomindang, retreated to different base camps in the countryside. Consolidation of Nationalist rule would require many things, especially money.

In the summer of 1928, Song Ziwen, now Minister of Finance for the Nanjing government under Chiang Kai-shek, convened two conferences, The National Economic

Conference and the National Finance Conference ,that brought together a number of prominent businessmen and academics. Song had complex goals in calling the two meetings. He first hoped to put the relationship between China’s commercial and financial interests on a more cooperative footing; in the period of the Northern

Expedition, Guomindang officials under the orders of Chiang Kai-shek had coerced, threatened, extorted and kidnapped wealthy Shanghai capitalists in order to secure funds for the march north. It had been a shakedown.

At the conferences, Song also sought to build a base of support. By seeking the input and advice of influential merchants, bankers and industrialists, he hoped to find

“potential allies in his political struggles within the Guomindang government.”653 Despite

653 Coble, The Shanghai Capitalists and the Nationalist Government, 48. 276

Song’s high-ranking position in the government, he did not have a powerful base of personal support in the Guomindang party apparatus or in the army. These power dynamics were an especially acute concern for Song in the late 1920s and early 1930s because one of his main goals was implementing budgetary controls and limiting military expenditures. This aim often clashed with the objectives of Chiang Kai-shek.

At the National Economic Conference, Song proposed, and the delegates ratified, a reform program that called for limitations on military spending, adoption of a budget, establishment of a central bank, and ending the tax that charged a duty on goods as they traveled through different parts of the country. The plans also called for the elimination of the tael as a unit of account as well as the establishment of a central mint.654 Ma

Yinchu attended the conference and also emphasized these two points. The conference ended by setting a goal to eliminate the tael by July 1929, one year away. It was these goals that gave new hope to the Shanghai Mint.

However, a number of messy liabilities had to be straightened out before construction of the mint could continue. At the end of July, the Ministry of Finance and the Shanghai Bankers’ and Native Bankers’ Association came to terms for a loan secured on salt and grain taxes, the main part of which went to troop disbursement. One section of the loan went to paying off money still owed to the bankers for the original mint loan in

1921 as well as payments still owed to certain equipment manufacturer’s. That fall, Song

Ziwen named a new director of the Shanghai Mint, Guo Biao (郭標 1874-1956), who

654 Coble, The Shanghai Capitalists and the Nationalist Government, 49-50. 277 asked Clifford Hewitt to return to China and continue his work as technical advisor.655 By the end of the year, one commentator felt confident enough to pen an article “On the

Hopes for the Shanghai Mint.”656 From this point forward, the mint would be known as the Central Mint (中央造幣廠 Zhongyang zaobichang).

Clifford Hewitt was not the only American the Nationalist government invited to

China and the mint was hardly the only financial issue that Song Ziwen had to address. In the fall of 1928, Edwin Kemmerer received a telegram from (孙科 1895-1973), son of Sun Yat-sen and then head of the Ministry of Reconstruction, asking him to head a financial consulting commission and recommend steps for reform.657 Kemmerer had been

Jeremiah Jenks’s PhD student at Cornell in the early 1900s and received his first experience as a “money doctor” while working on Philippines currency reform. He later undertook similar missions to countries in South America, and , served as a staff advisor on the Dawes committee about inter-allied debts in the 1920s and was president of the American Economic Association. In the interwar years, a time when the financial ruptures and imbalances of World War I had lingered on, Kemmerer was the

“money doctor” par excellence.658 The basic program he advocated did not differ much during his forays abroad: he advocated “balanced budgets, scientific collection of taxes, the elimination of corruption and subsidies, the equilibration of exports and imports, and,

655 “Guobiao jieshou zhongyang zaobichang,” [Guo Biao accepts the position as head of the central mint] Yinhang zhoubao 12, no. 50 (1928): 7. 656 “Dui shanghai zaobichang zhi xiwang,” [On the hopes for the Shanghai mint] Qianye yuebao 8, no.10 (1928): 23-27. 657 “Kemmerer to Sun Fo, October 21 and October 28, 1928, EKP, Box 102 Folder 41. 658 Marc Flandreau, “Money and Doctors” in Money Doctors: The Experience of International Financial Advising, 1850-2000, ed. Marc Flandreau (London: Routledge: 2003), 1. 278 most important of all, the creation of a independent central bank as a stepping-stone to the adoption of a currency linked to gold.”659 As Kemmerer prepared to depart for China with a stable of other financial advisors in tow, his old mentor Jenks wrote to him that it was a “a matter of great satisfaction” the Chinese government had selected the Princeton professor for the job. Though Jenks still wished he could continue the work he had started so many years ago, he was sure that Kemmerer was “clearly the logical man” for the job.660

Beyond the tensions that the new Nationalist government faced internally—

Chiang Kai-shek’s demand for funds for military purposes versus Song Ziwen’s desire for balanced budgets—another economic factor influenced Kemmerer’s mission: the falling price of silver. In this way the context of Kemmerer’s mission was very similar to

Jenks’s trip to China in the early 1900s. From 1926, the price of silver declined in terms of gold and in terms of most other commodities. During the latter part of the 1920s annual demand for silver could absorb supply produced from mines but sales of silver by the Indian and European governments pressed the price of silver downward.661 In 1921, the average price per fine ounce of silver was $.63117 but over the course of the next decade it dropped, continuously and steadily, to $.29013 by 1931 (See Table 7).662 In

659 Stephen A. Schuker, “Money doctors between the wars: The competition between central banks, private financial advisors and multilateral agencies, 1919-1931” in Money Doctors: The Experience of International Financial Advising, 1850-2000, ed. Marc Flandreau (London: Routledge: 2003), 67. 660 “Jenks to Kemmerer,” October 15, 1928, EKP Box 103, Folder 24. 661 Weiying Lin, China Under Depreciated Silver, 1926-1931 (Shanghai: The Commercial Press, 1935), 171. 662 Lin, China Under Depreciated Silver, 1926-1931, 45. 279 these conditions, Chinese debts in gold became more expensive for China to service since the governments revenue, in taxes and customs duties, was in silver.

Year Avg. annual price of one ounce fine silver in New York 1921 $0.63117 1922 .67934 1923 .65239 1924 .67111 1925 .69406 1926 .62428 1927 .56680 1928 .58488 1929 .53306 1930 .38466 1931 .29013

Table 7: Annual Price of One Ounce of Silver in New York663

Kemmerer’s trip, like Jenks’ journey before him, was also politically sensitive.

“Money doctoring” was never solely about technical matters. In fact, money doctoring, properly understood, is a “political activity that involves economic analysis” and not the other way around.664 Alfred Sze, (施肇基 1877-1958) a classmate of Kemmerer at

Cornell, a secretary to the Jenks mission in 1903, and, in 1928, head of the Chinese

Legation in Washington, told Kemmerer to eschew the title “advisor.” The term was too fraught. Better, Sze thought, was the more neutral term “Chief of the Financial

663 Lin, China Under Depreciated Silver, 1926-1931, 45. 664 Flandreau, “Money and Doctors,” 45. 280

Commission.”665 More importantly, after arriving in China, Song Ziwen told Kemmerer that Japanese interests claimed that the commission acted on behalf of the U.S. government and that British interests were likewise jealous.666 Song did not voice idle concerns. Tensions between China and Japan continued to build, particularly in

Manchuria, after the “Young Marshal,” Zhang Xueliang (張學良 1901-2001), pledged his loyalty to Chiang Kai-shek and tried to rid Japanese influence in the government of

Manchuria.

Kemmerer and his team of assistants spent the first half of 1929 conducting research and holding interviews throughout the country. Kemmerer himself concentrated mostly on currency matters but also brought along “experts in taxation, public credit, accounting and budgetary procedures, banking organization and operation and customs administration.”667 By the early fall, they submitted a number of recommendations to the

Ministry of Finance.

In the context of the falling price of silver, the commission recommended collecting customs duties on a gold rather than a silver basis. During 1929, the cost of serving debt payments denominated in foreign currency rose from $78 million Chinese dollars in 1928 to $83.5 million Chinese dollars in 1929.668 In early 1929, the Nationalist

665 “Kemmerer Interview with Alfred Sze,” November 12, 1928, EKP, Box 105, Folder 57. 666 “Kemmerer Interview with T.V. Soong,” February 12, 1929, EKP, Box 110, Folder 25. 667 “Kemmerer to Sun Fo,” October 28, 1928, EKP, Box 102 Folder 41. The financial consulting mission to China was the largest, in terms of people, that Kemmerer ever assembled during his career as a “money doctor.” The total cost the Nationalist government was a $400, 000 fee as well as payments of all travel and lodging costs. 668 Arthur Young, China’s Nation Building Effort, 1927-1937: The Financial and Economic Record (Stanford: Stanford University Press, 1971), 46. 281 government completed negotiations for regaining tariff autonomy, which had been lost in

1858.

Tariff policy had important policy had important repercussion on currency discussion. In February 1930, the Nationalist government officially switched from collecting duties in the customs tael, a silver unit, to the new customs gold unit.

Regaining tariff autonomy allowed the Nationalist government to set its own rates and the switch to the customs gold unit allowed the Nationalist government to protect itself from the fall in the worldwide price of silver. Moreover, the Central Bank of China issued customs gold unit banknotes to facilitate the payments of the duties, which some saw as the first step towards the adoption of the gold standard.669

On matters of currency, the Kemmerer Commission advocated a move to the gold-exchange standard, meaning that silver coins would be given a gold value above the value of their silver bullion. Maintaining the value of these coins would be accomplished by dismantling all mints except the one in Shanghai and limiting the privilege of note issue to three banks. The new gold currency unit, to be called the Sun, after Sun Yat-sen, was to have a gold value of approximately 40 cents U.S. currency because it was precisely the same value, in terms of gold, of many of the silver coins then in circulation.

However, the amount of fine silver in each Sun would be 222.22 grains, which meant that it would contain approximately 60 percent of the silver of coins then in circulation in

China. Like Jenks before him, Kemmerer recommended going to the gold-exchange standard directly rather than first unifying the currency on a silver basis before moving to

669 Young, China’s Nation Building Effort, 47. 282 gold.670 The Kemmerer Commission submitted the plan to Song Ziwen in the fall of 1929 and it became public in March 1930.

The objections to the Kemmerer plan were similar to those voiced during the

Jenks mission. The Economist, echoing its opinions towards similar proposals in 1904, thought the possibilities of China implementing the Kemmerer plan “extremely remote.”671 Eduard Kann (1880-1962), an important figure in the world of Shanghai finance, had a similarly negative response to gold-exchange standard proposal. Kann thought Kemmerer had decided China should adopt the gold-exchange standard even before he arrived in the country. The recommendation was based on Kemmerer’s own biases and not an accurate understanding of conditions in China.672

Interestingly, Ma Yinchu, who had been a vocal opponent of the gold-exchange standard for most of the 1920s, changed his mind after the release of the Kemmerer report. Ma had previously believed, like Zhang Zhidong before him, that proponents of the gold-exchange standard did not understand China’s national conditions (國情 guoqing). The gold-exchange standard was only practical, Ma believed, in small countries or those with a strong in order to prevent counterfeiting and maintain the price of the coins above their bullion value. Moreover, China, as an

670 “Commission of Financial Experts Memorandum on Certain Matters Relating to the Currency,” March 1929, EKP Box 108, Folder 12. The rationale here was that after the currency had been unified on a silver basis, the value of silver coins would have to be “raised” in monetary value so that it was worth approximately 1/3 more as a coin than as bullion. The process of “raising the value” of the coins would entail removing them from circulation, leading to deflation. Because any process of currency reform is not without difficulty it is best to do once rather than twice. 671 “The Price of Silver,” Economist, June 28, 1930, 1435. 672 “Qiu Aide piping Gan Weier de ‘bizhi gaige fang’an’ [Kann critiques Kemmerer’s currency proposal, ZHMGHBSZL, Volume 2, 73. 283 independent country, could not adopt a currency system associated with colonialism. Ma believed that most Chinese did not have a clear knowledge of what it meant to be on a monetary standard (無本位幣觀念 wu benweibi guannian).673 Ma still held that the prerequisite for going on the gold-exchange standard, which not enough people acknowledged, was the elimination of the tael as a unit of account. A key part of the gold-exchange standard was that bills drawn on the gold-exchange fund be accepted without any hindrance (通行無阻 tongxing wuzu). The varying yangli rates at different trading prevented the acceptance of bills of exchange without a loss. Before adopting the gold-exchange standard the dominant position of the remaining taels, namely the

Shanghai tael, had to be eliminated.

In 1930, Ma changed his mind. The period from late 1929 through 1930 saw a rapid decline in the price of silver. But silver, on its way down, also experienced substantial fluctuations. With the collapse of the American in 1929, commodity prices fell across the world. As the price of silver continued to sink, Ma observed that most Chinese capitalists sold their silver assets for foreign exchange in order to prevent their wealth from continually shrinking. If the gold-exchange standard was not adopted, he feared that all of the assets in China denominated in silver would be sold off in a streaming torrent (滔滔不绝 daodaobujue). This was not his view alone. In

673 Ma’s clearest objections to the gold-exchange standard come from “Yinjia diluo jiuji wenti,” MYCQJ, Volume 4, 11-16 and “Jingui Yinjian jiuji fangfa” [Remedies to relieve expensive gold and cheap silver], MYCQJ, Volume 5, 125-126. 284

January 1930, The Economist noted how silver prices had “tumbled sharply,” leading to new lows in the spot and forward price of silver.674

Under the declining and fluctuating price of silver, operating businesses took on the characteristics of gambling, and as the price level rose because of the falling value of the currency, those on fixed salaries like public servants and teachers suffered.675 Ma, turning again to analogy, pondered why the Guomindang had worked so hard to eliminate the lunar calendar but did not spend nearly enough effort in eliminating the country’s reliance on silver, which caused much more harm than the lunar calendar ever did.676 To those who objected that the adoption of the gold exchange standard would be slow and slow and cumbersome (曲折迂緩 quzhe yuhuan) and not as direct as putting a tax on the export of silver, he made one final metaphor in support of the gold-exchange standard: when the root of a disease is deep, the way a doctor treats it had to be slow and cumbersome; when a legal case became more complex, the way a lawyer must deal with it also became more slow and complex.677 Such was the situation in the summer of 1930.

Ma was not the only person convinced the Nationalist government would have to go on the gold-exchange standard. Clifford Hewitt held the same opinion. Construction of the mint was completed in December 1929 and it struck commemorative silver coins on

May 1, 1930.678 The delay in the opening of the mint also meant the goal of eliminating the tael in July 1929 had not been accomplished. Now finally ready to go into operation,

674 “The Foreign Exchanges,” Economist, January 11, 1930, 54. 675 “Jiuji yinhuang fei cai xujin benwei buke,” [On the necessity of the gold-exchange standard for relieving the silver famine], MYCQJ, Volume 5, 211. 676 “Jiuji yinhuang fei cai xu jinbenwei buke,” MYCQJ, Volume 5, 215. 677 “Jiuji yinhuang fei cai xu jinbenwei buke,” MYCQJ, Volume 5, 216. 678 “Specialist in the “Making” of Good Money,” The China Weekly Review, CHP, Box 1. 285 the mint had a capacity of spitting out 40,000 coins an hour, making it one of the largest minting facilities in the world.679

However, if the government was to adopt the gold-exchange standard, a number barriers stood in the way. As Hewitt wrote to the directors of the mint in April 1930, the original coinage equipment and dies ordered in the early 1920s were all for the “coinage of the Yuan dollar and its subsidiaries, all in accordance with the 1914-7 coinage laws and regulations of the Chinese Republic.” However, these were not appropriate for the coins called for under the Kemmerer plan. If the government wished to go forward with the gold-exchange standard, it would have to secure new equipment and new dies. This technical issue had important ramifications.680 However, as he noted in a follow-up letter, he wanted to know “why there has been no action taken on my Report to the Ministry of

Finance under the Date April 2, 1930 where I outlined the major engineering features that were required preparatory to the adoption of the Gold Standard.”681

From the point of view of Song Ziwen, it is easy to understand why there was not very much movement of the Kemmerer’s currency recommendations. Late 1929 and

1930 was hardly a stable time internationally, or in China: the effects of the American stock market crash and monetary policy of the Federal Reserve reverberated while in

June 1930 Chiang Kai-shek conducted extensive campaigns against provincial military governors who led a “movement to save China from Chiang’s dictatorship.”682 In such an

679 “The National Central Mint,” CHP, Box 1. 680 “Report to the Ministry of Finance,” CHP, Box 1. 681 “Report to the Ministry of Finance,” CHP, Box 1. 682 Jay Taylor, The Generalissimo: Chiang Kai-shek and the Struggle for Modern China (Cambridge: Harvard University Press, 2009), 89. 286 atmosphere, Arthur Young, a member of the Kemmerer Commission who stayed behind to advise Song, judged that “conditions for basic monetary reform were far from favorable.”683 That was an understatement. However, by the end of 1930, Chiang Kai- shek defeated the coalition opposed to him and pledged to work towards the reconstruction of “all business from agriculture to commerce” well as implement stricter financial and economic controls on government spending and work towards currency reform.684

The Elimination of the Tael and the Opening of the Shanghai Mint

If 1930 was not a calm year in Chinese politics, neither were the next several years. In the spring of 1931, a separatist movement that objected to the rule of Chiang

Kai-shek emerged and in the fall Japanese forces invaded Manchuria, causing the market in Nationalist government bonds to collapse. Chiang Kai-shek and Song Ziwen were forced to resign in December 1931 but were back in power by the beginning of 1932. At nearly the same time, the Japanese forces launched an attack on Shanghai, creating a war scare and forcing the Nationalist government to move the capital to Luoyang. It is remarkable that in the midst of all these events, the issue of currency reform still held the attention of Song Ziwen at all and even more significant that through 1931, it appeared implementing the gold-exchange standard might go forward at a time when many nations around the world were abandoning the gold standard.

683 Young, China’s Nation-Building Effort, 182. 684 Taylor, The Generalissimo, 90. 287

In early 1931, Song dispatched Clifford Hewitt to the mint in Philadelphia in order to secure dies and necessary equipment should the Nationalist government ultimately decide to adopt the gold-exchange standard. In his instructions to Hewitt, Song also stressed secrecy. He ordered Hewitt “that you should issue no public statement to the press with respect to your mission and you should keep confidential the fact that you are procuring dies at the Philadelphia Mint.” Song also provided Hewitt with a cover story.

Hewitt was to take three Chinese technicians from the Central Mint with him. If asked about the purpose of his visit Hewitt should simply respond that workers from the Central

Mint of China were undertaking a training mission to “view processes of minting with the kind permission of the U.S Mint authorities.”685

Throughout the spring and summer of 1931, a flurry of telegrams crossed that

Pacific between Hewitt, Song, and Arthur Young, ad advisor to the Kemmerer

Commission who stayed in China as one of Song Ziwen’s consultants. Even before

Hewitt arrived in Philadelphia, Young cabled Hewitt to say that Song wanted the proposed coins to have something that denoted its gold value and wanted it to say Yuan rather than Sun, as the Kemmerer Commission had suggested. The front of the coin was to have a picture of Sun Yat-sen in profile while the back was to have a Chinese junk.

What accompanied the Chinese junk became a source of controversy. Hewitt first proposed three stars to represent Sun Yat-sen’s Three Principles of the People. Song objected to this design; he also stated that the coin had to be hard to counterfeit. Hewitt responded with another design. The reverse of the coin had the characters (金本位幣壹

685 “T.V. Soong to Clifford Hewitt,” January 6, 1931, CHP Box 1. 288

圓 jinbenweibi yiyuan) on the rim around the junk, and three seagulls below the water level of the junk because they were quite artistic but also helped prevent counterfeiting.686

A short time later, Song decided that while Hewitt was in the Philadelphia Mint, he should also secure dies for making “big dollars,” coins to be used if the Nationalist government did not go on the gold-exchange standard. Young, writing on behalf of Song, instructed Hewitt that, in order to be “prepared for contingencies,” Hewitt should also secure coinage dies for this purpose, with Sun Yat-sen on the front and the national flower on the reverse. Obviously, there would also be no reference to the gold value of the coin. Although Hewitt returned to China in July 1931 with copies of the dies for gold coinage, the process was far from over.

As Hewitt, Song and Young corresponded about the look and design of the proposed gold-exchange standard coin, most of the world went off the gold standard.

After the initial shocks of 1929 wound their way through the economy, the gold-standard proved to act as “golden fetters” with central banks initially raising interest rates to attract more gold to their country to prop their reserves which only exacerbated deflation, unemployment and a slowing of business conditions.687 Over the course of 1931, fifteen countries left the gold standard.688 England departed gold in September and Japan, which had only rejoined the gold standard a year before, abandoned it in December.689

686 “Arthur Young to Clifford Hewitt,” Feb 13, 1931 and Hewitt to Young, March 23, 1931, CHP Box 1 687 The best summary of the transmission mechanisms of the Great Depression and the effects of the gold standard is Barry Eichengreen, Golden Fetters: The Gold Standard and the Great Depression, 1919-1939 (Oxford, NY: Oxford University Press, 1996): 187-257. 688 Ye, Zhongguo huobi lilunshi, 319. 689 For more details on England going off gold see Adam Tooze, The Deluge: The Great War, American and the Remaking of the Global World Order, 1916-1931, 487-510 (New York: Penguin, 2015) and for 289

Importantly, after this series of moves, the price of silver would begin to rise. The rise in the price of silver, first slight, but increasing over the next several years, ultimately led to the appreciation of the Chinese currency and falling prices. However, the rise was not an immediate cause of concern for the Nationalist government in the fall of 1931.

A dispute between Chiang Kai-shek and a growing opposition to his authority simmered throughout the first part of 1931, reaching a peak after the Japanese invasion of

Manchuria in September 1931. In May 1931, a number of Guomindang figures gathered in Canton to voice their formal opposition to Chiang as well as Song’s financial policy geared toward securing funds for the military rather than for flood relief. The Japanese attack on Manchuria led to talks between Chiang and his opposition to see if they might bridge the divide. Other forces within the Guomindang were not able to accept Chiang’s role in any government position. In the middle of December, Chiang and Song both resigned as one of the leaders of the Canton opposition, Sun Fo, entered a leadership position. However, Sun only lasted a few weeks in office due to an inability to raise funds, opposition from other forces in the party and military and the lack of support he received from senior party officials. Sun resigned on January 25, 1932 and Chiang and

Song returned to power.

However, Japanese forces attacked Shanghai just days later. On January 18, in an incident perhaps instigated by Japanese forces, Chinese citizens had beated several

Japanese monks and burnt down a Japanese factory. Chinese protestors filled the streets

details on the case of Japan see Mark Metzler, Level of Empire: The International Gold Standard and the Crisis of Liberalism in Prewar Japan (Berkeley: University of California Pres, 2006), chapters 10 and 11. 290 over the next several days as Japanese forces coalesced nearby. On January 28th, the

Japanese attacked Shanghai, ostensibly to protect Japanese industrial interests and

Japanese citizens, and over the next few weeks clashed with Chinese forces. Soon after the attack, Chiang announced the Nationalist government would move from Nanjing to

Luoyang. Negotiations for a ceasefire began in early March but were not completed until the beginning of May.690

The period between the Japanese invasion of Manchuria in September 1931 through the cease-fire agreement in spring 1932 was a “political and financial disaster for

Shanghai bankers” as well as for economic conditions more generally.691 Following the

Japanese invasion of Manchuria, the price of Nationalist government bonds plummeted and reached a low point after Chiang’s resignation at the end of 1931. Provincial officials loyal to Chiang refused to forward revenue to the Sun Fo government. By the middle of

January 1932, right before the return of Chiang Kai-shek and the Japanese invasion of

Shanghai, the Nationalist government suspended bond payments for six months. Trading soon closed on the Shanghai markets to prevent a complete collapse of bond prices and would not resume again until early May. The moratorium on bond payments also played an important role in Chiang Kai-shek and Song Ziwen returning to power after only three weeks away. But days later, the Japanese attack “brought business in the city to a halt.”692

In the midst of the fighting, Song was then able to reach an agreement with bondholders,

690 See Donald Jordan, China’s Trial by Fire: The Shanghai War of 1932 (Ann Arbor: University of Michigan Press, 2001). 691 Coble, The Shanghai Capitalists, 109. 692 Coble, The Shanghai Capitalists, 104. 291 extending the repayment period and changing the on government bonds.693

The final important development in this period was the rise in the yangli, the conversion rate between the Shanghai tael and silver dollars. Usually in the area around .72, it spiked to nearly .74. This surge in the yangli rate stemmed from the high demand for silver dollars in the midst of the Japanese invasion. The Shanghai Native Bankers’ Association called on the large banks in the city to sell part of their silver reserves to steady the market.694

However, with the end of hostilities the yangli rate quickly dropped. By the late spring, it was reported that silver coins from around the country were flooding into

Shanghai after the termination of hostilities. In the middle of 1931, there were an estimated 140 million silver coins in the banks and qianzhuang of Shanghai but by

August 1932 that number had spiked to more than 240 million.695 By the beginning of

June, the yangli rate was at 0.6905 and by the first of July it stood at 0.688, the lowest rate in history.696 The yangli rate went down due to the end of hostilities but also because of a great inflow of silver dollars to Shanghai and the quick rise and fall in rates led to gain or hardship depending on whether ones assets or liabilities were in tales or dollars.697

In fact there was a mismatch between the value of silver coins as coins and the value of

693 For an overview of the complicated interlude, see Coble, The Shanghai Capitalists, 90-109. 694 Wu Jingping, “Ping Shanghai yinqian ye zhijian guanyu feiliang gaiyuan de zhengbian,” [Debates concerning the elimination of the tael in the Shanghai financial community] Jindashi yanjiu 5 (2003): 118. 695 Wu Jingping, Shanghai jinrongye yu guomin zhengfu guanxi yanjiu [Research on the connections between the Shanghai financial community and the Republican government] (Shanghai: Shanghai Caijing daxue chubanshe, 2002), 200. 696 Wu, “Ping Shanghai yinqian ye zhijian guanyu feiliang gaiyuan de zhengbian,” 119 697 Young, China’s Nation-Building Effort, 184. 292 their silver content as bullion with the result many were melted down.698 The fall in this rate also meant that reserves of Chinese banks held in silver coins depreciated in value. In

May 1932, the head of the Shanghai branch of the Bank of China stressed the need to eliminate the tael, which had been talked about for years, but had never been accomplished. Debate about the elimination of the tael gathered momentum in the flowing months and the role of the mint of Shanghai would be vital.

Song had worried about the potential destruction of the mint during the fighting with Japan. In fact, he communicated with the American consul in Shanghai asking for his good offices to reach an agreement with the Japanese that the mint and its immediate surroundings be excluded from “the area of hostilities.” The machinery and equipment, purchased in the United States, had to be safeguarded “in the interest of its future use for coinage purposes.”699 The mint facilities, remarkably, did not suffer much damage even though fighting took place all around it.

As the hostilities ended in May, Hewitt penned a memo urging action on monetary reform in one direction or another. China should either go on gold or stay on silver. With a string of countries leaving the gold standard, the earlier plans of the

Kemmerer Commission did not make much sense. Song had decided that China should stay on silver, writing on a memo in April that it was his “considered opinion” that it was

698 Ye, Zhongguo huobi lilunshi, 319. 699 “T.V Soong to E.S. Cunningham,” February 27, 1932, Arthur Young Papers (AYP), Hoover Institution Box 48, Mint 1931-1932 Folder. There are two drafts of this letter, one that was sent and one that was held back. 293 best to reform the currency on a silver basis “instead of aiming at the gold currency immediately.”700 This position meant the final elimination of the tael.

In staying on the silver standard, Hewitt stressed that “each respective denomination of the coins have the equivalent intrinsic value of the standard dollar of

414.5 grains.” With this step as a prerequisite, the abolishment of the tael would be simple because “you have standardized the coinage and the general public will accept it for its face value.”701 Around the same time he wrote to the Director of the U.S. Mint

Robert Grant that the Chinese government wanted to change the design of the coins. The three seagulls were to be placed flying above the junk rather than below it.702 Placing the three seagulls above the Chinese junk would soon have great significance in light of the

Japanese attack on Shanghai.

Throughout the summer of 1932, the Shanghai financial community and the

Nationalist government held a number of discussions about whether and how to eliminate the tael. In June, during a joint meeting between the Native Bankers’ Association,

Bankers Association and Shanghai General Chamber of Commerce, the Native Bankers’ continuously stressed their opposition to the elimination of the Shanghai tael. At a meeting of July 9, Qin Runqing (秦潤卿 1877-1966), an important figure in the qianzhuang industry, stressed that he agreed with the goals of eliminating the Shanghai tael and other taels but noted that the government should not make such a decision rashly

700 “Memorandum for Mr. Soong,” April 5, 1932, AYP, Box 45, Currency 1932 folder. Soong’s remarks are written on the memo itself. 701 “Hewitt Memo on National Currency,” May 30, 1932, CHP Box 1. 702 “Hewitt to Robert Grant,” May 8, 1932, CHP Box 1. 294 because it was likely to have negative consequences. Without government control over the power to issue paper money, now spread between domestic and foreign banks, and a unified system of mints, demand for silver coins in excess of supply would lead to counterfeiting of printing of paper money and debased coinage.703 Qin was not the only person who was skeptical; O.C. Lockhart, another member of the Kemmerer Commission who had stayed in China to advise the Ministry of Finance, wrote that it “seems very difficult to abolish a money of account except as a new money is developed which has a general acceptability as to lead merchants to voluntarily to discontinue old money of account.”704 In general, the foreign banking community was of two minds during in the debate about the elimination of the tael. On the one hand, they had consistently called for currency reform for decades. On the other, the elimination of the tael would limit the power of foreign banks over the Chinese money supply: “they would no longer be able to import silver and foreign dollars and use them freely.”705 The position of the Shanghai

Foreign Exchange Bankers’ Association was that the tael should only be abolished “when new coin has circulated well for 10-15 years.”706 All the arguments against eliminating the tael generally stressed that it was best for the government not to take hasty measures (

貿然行事 maoran xingshi).707

In the summer of 1932, these debates took place on the pages of Shanghai’s financial newspapers. Bankers’ Weekly (Yinghang zhoubao) even created a special

703 See Wu, “Ping Shanghai yinqian ye zhijian guanyu feiliang gaiyuan de zhengbian,”131-141. 704 “Coinage at the Shanghai Mint,” April 12, 1932, AYP, Box 45, Currency 1932 Folder. 705 McElderry, Shanghai Old-Style Banks, 169. This was also a point emphasized by Ma Yinchu. 706 “Minutes of Fifth Meeting of Committee on Certain Problems in Connection with the contemplated abolition of the tael,” July 30, 1932, AYP, Box 47, Tael Abolition folder. 707 Li, Jindai Zhongguo yinhang yu qianzhuang guanxi yanjiu, 172 and 181. 295 section on the elimination of the tael that featured the arguments of prominent figures. Of course, Ma Yinchu, involved in this topic for so long, could not sit out as the debate reached a crescendo. Ma first stressed that it was an opportune time to eliminate the tael because the large-scale melting of different silver coins after the fall of the yangli rate as they because they were worth more as bullion than as coin. He estimated between 400-

500,000 silver coins were melted down each day in Shanghai, which meant the different silver purities of the coins were eliminated. With the Shanghai Mint soon to come on line and producing nearly 500,000 coins a day, the time was right to eliminate the tael.708

Here Ma was likely stretching the truth in order to advance his own argument.

Moreover, Ma repeated that objections from the Native Bankers’ Association were based on their interests because for them the tael operated as a sharp weapon (利器 liqi).709 The native banks only kept accounts in taels and when depositing silver coins they took advantage of a spread to make profits. Moreover, the qianzhuang stood at the center of the clearing business in Shanghai, meaning that other bankers had to keep deposits on hand at the qianzhuang. Eliminating the tael meant that banks could clear transactions among themselves and not rely on the qianzhuang. Finally, he stressed the familiar point that eliminating the tael would simplify daily commercial matters which in itself would save time, money and effort.710

708 “Lun feiliang gaiyuan wenti,” [On the elimination of the liang and change to the yuan), MYCQJ, Volume 6, 8-9. 709 “Lun feiliang gaiyuan wenti,” MYCQJ, Volume 6, 10. 710 “Lun feiliang gaiyuan wenti,” MYCQJ, Volume 6, 12. 296

At the same time as the debate continued on the pages of Shanghai’s financial journals, Minister of Finance Song Ziwen appointed a committee for studying the issue and making recommendations for eliminating the tael. Importantly, the committee proceeded on the assumption that the elimination of the tael would go forward; Song instructed them to focus on three points: the weight and fineness of the silver dollar, the rate at which existing tael contracts would be settled in dollars and how to explain the measures and encourage public confidence in them711 The general debate in the committee centered on whether the fineness of the new dollar should be a little lower than the silver coins already in circulation, a fineness of .880 silver compared to .890 silver in the Yuan Shikai silver dollars.712

The committee ultimately suggested that the weight of the new silver yuan be set at 26.6977 grams, 88 per cent silver and 12 percent copper for a total pure silver content of 23.493448 grams. The new coins would be worth .715 Shanghai taels so that one hundred of the new coins would be equal to 71.50 Shanghai taels. In January 1933, Song

Ziwen asked the committee to pass these formal recommendations to the Ministry of

Finance as early as possible. In early February, the Ministry of Finance announced that

Central Bank of China, Bank of China and Communications Bank of China would form a committee to oversee the transition from tael to yuan.713 On March 3, the Ministry of

Finance promulgated the rules governing the elimination of the tael. The key provision

711 “Minutes of Second Meeting of Committee on Certain Problems in Connection with the contemplated abolition of the tael,” July 20, 1932, AYP, Box 47, Tael Abolition folder. 712 “Minutes of Second Meeting of Committee on Certain Problems in Connection with the contemplated abolition of the tael,” July 20, 1932, AYP, Box 47, Tael Abolition folder. 713 Wu, “Shanghai jinrongye yu guomin guomin zhengfu yanjiu ,” 216-218. 297 was that beginning on April 6, all contracts had to be denominated in yuan and not taels.

Contracts that had been agreed to in taels would be settled at the rate of one hundred silver dollars to 71.50 Shanghai taels. Moreover, the qianzhuang would no longer publish a yangli rate and interest rates would be set in terms of dollars not taels.714

Of course, the mint was vital to this transition in order to provide a large amount of standardized coins. After a wait of more than ten years the mint, was now ready to start production on March 1, 1933. The new coins would bear the image of Sun Yat-sen on the front and Chinese junk with the three birds flying above it on the back with the rays of the sun in the background. This design had been settled on in the spring of 1932.

By the time the mint opened, Hewitt was in the United States and the new director of the facility was Mr. Z. U. Kwauk (郭承恩 1884-?) the former director of the Jiangnan

Arsenal. A large number of the mint workers also came from the recently closed arsenal, whose machinery had been sent to Nanjing or other parts of the interior for “strategic reasons.”715 However, this change of leadership was not without controversy. Hewitt and

Kwauk had been “at loggerheads” since the latter’s appointment in late 1932.716 Kwauk, who had “the reputation as being the best mechanical engineer in China…assumed that his knowledge of engineering qualifies him to determine all the details of minting.”717

Hewitt, in fact, tired of this conflict and thinking his job was done, headed to California.

In early February 1933, the three Chinese technicians who accompanied Hewitt to the

714 See ZHMGHBSZL, Volume 2, 91-94 for a complete list of regulations regarding the elimination of the liang. 715 “Central Mint Getting Up Steam,” The China Press, February 26, 1933, CHP Box 1. 716 “Young to Kemmerer,” February 20, 1933, AYP Box 48, Mint 1933 Folder. 717 “Young to Kemmerer,” February 20, 1933, AYP Box 48, Mint 1933 Folder. 298

Philadelphia Mint wrote to the Ministry of Finance complaining that the new head of the mint did not listen to their suggestions and was making changes to the physical plant of the facility that would “prevent the production of proper product.”718 The technicians actually called upon the Ministry of Finance to bring Hewitt back to China.

On March 1, a number of dignitaries visited the mint as it began producing coins.719 It immediately faced two problems. First, issues the three Chinese mint technicians warned about came to the fore: the “inexperienced staff and unskilled workman who were engaged without any proper qualification and consultation…has resulted in unwarranted breakage of appliances, a costly confusion to the operation, wastage of precious bullion and great deal of delays in the producing of proper dollars.”720 Second, when the coins finally entered circulation, and became known as the

(航洋 hangyang), they were not well-received.721 The rising sun in the right hand corner of the coin and the three birds flying overheard were “branded by Chinese as looking like a Japanese emblem and a formation of Japanese military airplanes.”722 These coins would soon go into reserve at the Central Bank and the Nationalist government ordered new dies without the sun and birds overhead (see Figure 11).

718 “Memorandum: Present Conditions Existing in the Central Mint,” February 9, 1933, AYP, Box 48, Mint 1933 Folder. 719 “Central Mint Wheels Grind Out New Cash,” China Press, March 2, 1933, CHP Box 1. 720 “Presenting Some of the Difficulties Confronting the Minting of Good and Reliable Dollar,” March 5, 1933, AYP, Box 48, Mint 1933 Folder. 721 Ye, Zhonguo huobi lilunshi, 320. 722 “Rising Sun Dollar Not ‘Good Joss’Goes into Reserve,” Shanghai Evening Post, April 21, 1933, CHP, Box 1. 299

Figure 11: Coin made by the Central Mint in March 1933.

In the midst of further turmoil at the mint, Song Ziwen and others again called on

Hewitt, now in San Diego. Just two weeks after the opening of the mint, Arthur Young telegrammed Hewitt asking, “When would your health permit returning to the mint?”723

Hewitt received a constant flow of telegrams asking him to return to China. He demurred these requests, but did help with securing new coinage dies for the Central Mint at the

U.S. Mint in Philadelphia.724 Hewitt also helped the Nationalist government secure another American technical advisor, Robert J. Grant, who had been Director of the U.S.

Mint in Philadelphia for the past ten years.

723 “Young to Hewitt,” March 14, 1933, CHP Box 1. 724 See telegrams of March 19, 21 and 25, CHP Box 1. 300

Conclusion

By the middle of 1933, the new coinage dies from the U.S. Mint arrived in

Shanghai. However, for the rest of 1933, the facility was not working at full capacity.

Over the nine months it minted 28 million silver dollars, a number that would jump to 70 million in 1934. However, the tael did not immediately disappear in April 1933. At the time, it was estimated that over 150 million tales of silver sycee sat in the vaults of

Shanghai banks and qianzhuang. Many native bankers were hesitant to turn these over to the Central Mint in for coinage because of the loss they would have to bear when the silver was melted down for coinage. The Ministry of Finance agreed to reimburse these costs but from April to December 1933 onward 20 million taels of silver sycee had been converted into the new silver dollars. In the middle of December, the Ministry of Finance said that banks and qianzhuang had one month to turn over all their silver sycee for minting. Soon thereafter, the Ministry ordered all silver-melting shops (银炉 yinlu) to be shut down.725

The long and winding history of the Shanghai Mint reveals the continuities between the period of warlordism in the 1920s and the Nanjing Decade (1927-1937).

While it has long been accepted that the People’s Republic of China built on the legacies and foundations of the Nationalist regime, historians have not adequately explored how the Nationalist Government built on the foundations of the early 1920s.

Next, the history of the mint and the elimination of the tael reveals the growing ambition of the Nationalist government to exercise greater control and oversight of the

725 Wu, “Shanghai jinrongye yu guomin guomin zhengfu guanzi yanjiu,” 216-218. 301 economy. The different tael standards emerged through commercial custom but were ultimately eliminated by administrative decree. The end of the tael marked just one policy by the Nationalist government that sought to limit the power of the qianzhuang, bringing the native banks and other financial institutions under the regulation of the state.726

The decisive increase in the Nationalist government’s control over the Chinese monetary system came two years later in November 1935 with the demonitization of silver and the creation of the fabi (法幣). The path to the creation of the fabi further linked China and the United States, creating controversy, confusion and chances for cooperation. The next chapter follows this story.

726 The Banking Law promulgated in 1931 had a number of clauses that impacted the qianzhuang. It set a floor for the minimum amount of capital a financial institutions was allowed to have (the floor was often higher than the capital of many qianzhuang); financial institutions had to register that capital and put a security of twenty percent of its capital with the Central Bank. Other regulations went as far as to address a financial institution’s working hours. However, due to the intense demands this law placed on the regulatory capacity of the bureaucracy, and a the government’s insufficient ability to meet this burden, the law was not heavily enforced, though it still drew the protests of qianzhuang. See Cheng, Banking in Modern China, 91-93 and Andrea McElderry, Shanghai Old-Style Banks, 166-168. 302

Chapter 7: The Silver Purchase Act of 1934 and The Creation of the Fabi

In early April 1933, as the Shanghai Mint finally began operations and Song

Ziwen implored Clifford Hewitt to return to China, Key Pittman (1872-1940),

Democratic senator from Nevada, held a dinner in Washington D.C. In attendance were a number of senators from silver-producing western states.

In the spring of 1933, the future of U.S. monetary policy was unclear. Not long before, Franklin Roosevelt had declared a bank holiday to prevent runs on banks. During the first months of the year, many of the senators attending the dinner party had introduced some type of law to “do something for silver.”727 Doing something for silver meant adopting measures to raise the price of the white metal.

In the early 1930s, the rhetoric and rationale Key Pittman employed to make the argument “to do something for silver” repeatedly turned to the subject of China. With the fall in the price of silver since the 1920s, China, Pittman argued, could not afford to buy

American exports. Raise the price of silver, he continued, and China would be able to import goods from America, alleviating some of the strain of the economic downturn.

This argument, paired with other political pressures, ultimately led Congress to pass the

Silver Purchase Act in 1934 which instructed Secretary of the Treasury Henry

727 John Brennan, Silver and the First New Deal (Reno: University of Nevada Press, 1969), 75-76. 303

Morgenthau (1891-1967) to embark on a massive silver-buying program, paying above market rates for the precious metal.

With this program in place, silver began to flow out of China because the United

States paid a higher price for the metal than the exchange value of the new Chinese yuan after the elimination of the tael. The yuan was worth more as bullion outside of China than it was worth as coin inside China. Many figures in the Nationalist government had warned of just such results. China, which had avoided the worst effects of the early years of the Great Depression, was soon in the grips of deflation as silver continued to flood out of the country. By November 1935, the Nationalist government announced it was going off the silver standard and onto a managed currency regime, the fabi, which the government promised to maintain at certain exchange rates against the U.S. dollar and

British pound. Foreign currency, rather than silver, backed the fabi. In the spring of 1936, the U.S. and China reached an agreement for the American government to purchase

Chinese silver so the Nationalist government could secure more foreign exchange to support the new currency.

This episode is justly famous (and infamous) in monetary history. Milton

Friedman called the Silver Purchase Act a “make-work program producing little if any useful output, if ever there was one,” as “taxpayers paid to have silver dug out of the ground, refined, coined, and shipped to be stored.”728 For China, Friedman argued, the

U.S. Silver Purchase Act “denuded its monetary reserves and drove it off silver and onto

728 Milton Friedman, “Franklin D. Roosevelt, Silver, and China,” Journal of Political Economy 100, no. 1 (Feb., 1992): 68. 304 a fiat paper standard.”729 In fact, Friedman continued, the law even harmed U.S. silver producers, supposedly one of the main beneficiaries of the act, because “it destroyed what had been a major market for their output, namely the use of silver for monetary purposes.”730

Another Nobel Prize winner, Thomas Sargent and his collaborator, Loren Brandt, take the opposite view of Friedman, arguing that “U.S. silver purchase program did not set off a chain of bad economic events which eventually forced China off silver and onto a fiat standard.”731 Instead, Sargent and Brandt belief that “the Chinese monetary system was driven off silver by its government, which wanted to increase its share of that boon

[from the higher price of silver].”732

729 Friedman, “Franklin D. Roosevelt, Silver, and China,” 63. 730 Friedman, “Franklin D. Roosevelt, Silver, and China,” 63. 731 Loren Brandt and Thomas Sargent, “Interpreting New Evidence About China and U.S. Silver Purchases,” Journal of Monetary Economics 23 (1989): 49. 732 Brandt and Sargent, “Interpreting New Evidence About China and U.S. Silver Purchases,” 49. The disagreement takes place on the grounds of economics and of epistemology. On the grounds of economics, Brandt and Sargent hold that “aggregate levels of real economic activity show that the years after 1931 were not especially depressed” (34). Friedman takes issues with the Brandt and Sargent argument for its reliance on “highly aggregated, partial, and inexact statistical data” created after the fact (78). Friedman thinks the foreign trade data that he uses is more reliable than the output data from Brant and Sargent. At another level, Brandt and Sargent rely on the work of Thomas Rawski to argue that money supply was actually growing throughout the period and that the Silver Purchase Act did not lead to a contraction of money supply. Finally, Brant and Sargent see prices and wages as sufficiently flexible that they were able to quickly to the changing value of silver. Friedman holds that it “strains credibility to suppose that prices in China were sufficiently flexible that a major deflation would have a negligible effect on real magnitudes” (77). The divide is perhaps most interesting in an epistemological sense as Friedman reveals himself to be more of a historian than an economist, writing that “I find it hard to dismiss entirely the judgments of contemporary observers on the basis of the necessarily imperfect and incomplete aggregate statistics” (76). Brant and Sargent take the opposite view, writing that their review of the “impressionistic evidence available to us” from the time period is not as convincing as the statistical data they compile (34). Friedman concludes with a hedge: he argues the new evidence does not present a real change to his previous interpretation while admitting that he “and contemporary observers may well have overestimated the real effects of the nominal deflation” (76). Interestingly, Friedman concludes his response by endorsing another explanation that focuses on what we may call an expectations spiral. American silver policy created the expectation that Nationalist government would have to abandon the silver standard, which led to exports of the metal, which only strengthened the belief that the government would abandon silver. For this explanation see Kevin Chan, “Commodity Price Shocks and International Finance” (PhD Diss, Massachusetts Institute of Technology, 1988). For more on Rawski’s argument about the growth of the 305

However, both these interpretations adopt a short-term view. Looking at the broader context of the role of silver in U.S.-China relations, the Silver Purchase Act of

1934 and the creation of the fabi in 1935 mark the end of a cycle of monetary relations that began in 1873. At that time, the United States had intentionally exported silver to

China in the form of U.S. Trade Dollars. In the intervening years, successive Chinese governments and U.S. diplomats as well as financial and technical advisors debated how to reform the Chinese currency system and create a national money firmly under the control of the Chinese government.

The result of the Silver Purchase Act of 1934 was that the United States to imported silver from China and, as a second-order effect, spurred the creation of the fabi, a national money under the control of the Nationalist government. For the rest of the

1930s and during World War II, the chief object of the Nationalist regime and the U.S. government was stabilization of the fabi whereas in the past 50 years most efforts had been on simply reforming the currency system. Finally, in world-historical terms, because the U.S. Silver Purchase Act “assured the final and all but complete demonetization of silver” it also eliminated the medium of exchange that had been a vital part of East Asian trade since the 16th century.733

The Silver Interests in the United States and the Rhetoric of China

With the United States firmly on the gold standard in the first several decades of

money supply see Thomas Rawski, “Milton Friedman, Silver, and China,” Journal of Political Economy 101, no. 4 (Aug., 1993): 755-758.

733 Milton Friedman, “Franklin D. Roosevelt, Silver, and China,” 68. 306 the 20th century, the push for bimetallism in the United States receded but did not disappear. The price of silver fell in the 1890s and early 1900s, World War I and then declined throughout the 1920s. In 1926, England placed India on the gold standard, selling off large stocks of silver and other European nations used a smaller amount of silver in their coinage. In 1928 alone, Great Britain, France and Belgium sold 40 million ounces of silver on the world market, further depressing its price.734 As the 1920s came to a close, silver interests in the United States led by Senator Key Pittman of Nevada connected the low price of silver with the decline in international trade and worsening economic conditions. The role of silver in China was a key part of the story Pittman and others told about the onset of the Great Depression and how it might end.

The most prominent advocates of silver producers in the United States were

Senators William Borah (1865-1940) of Idaho, Burton K. Wheeler (1882-1975) of

Montana and Key Pittman. All trained as lawyers, their political careers became entwined with silver interests. Pittman comes down through the historical record as uncouth, uncivilized and more often than not drunk. He maintained, however, the ability “to become suddenly, if briefly, sober when silver was mentioned.”735 This judgment was not entirely ungrounded; Pittman himself once wrote that he was a “periodical drunkard.”736

He focused so much of his attention and abilities on the issue of silver that he got the nickname “Silver Key.”737 He was also aware of this reputation, writing to a Senate colleague that “I know you are suspicious of everything that I attempt with regard to

734 Fred Israel, Nevada’s Key Pittman (Lincoln: University of Nebraska Press, 1963), 81. 735 , Money (Boston: Houghton Mifflin, 1975), 202. 736 Israel, Nevada’s Key Pittman, 42. 737 Israel, Nevada’s Key Pittman, 82. 307 silver.”738 However, he was not devoid of political skills and was often able to portray himself as more moderate on silver issues than his peers in the Silver Bloc that represented producers’ interests.

Even though Pittman, Borah and Wheeler were united in their interest in “doing something” for silver, they “argued over goals, tactics and leadership.”739 The chief divide within the Silver Bloc was between those who sought re-monitization of silver through a return to bimetallism, those who hoped to increase the price of silver through control of selling on the world market and those who wanted to see silver at a fixed price.

Silver interests split over these issues in the latter part of the 1920s and into the early

1930s. Pittman himself was against pushing for a return to bimetallism. First, he believed there was “absolutely no chance of passing through Congress a bill for bimetallism.”740 It was a settled issue and no time to return to the politics of the 19th century. Not only was bimetallism politically futile, it was politically dangerous and risked a repeat of the 1890s when the silver issue split the Democratic Party on sectional lines.741 Better, Pittman thought, to do something for silver by other means, namely though international agreements that would regulate the sale of silver on the world market and through silver- buying programs undertaken by the U.S. government.

In the years after 1929, as price levels dropped and the economic downturn spread around the country and around the world, Pittman wove a narrative that explained recent

738 “ Key Pittman to Charles Glass,” February 16, 1931 Key Pittman Papers (KPP) Box 142, D-G miscellaneous folder. 739 Brennan, Silver and First New Deal, 23. 740 Israel, Nevada’s Key Pittman, 87. 741 Brennan, Silver and First New Deal, 30. 308 economic history in terms of the volume of international trade, the price of silver and conditions in China. His solution followed similar lines. The story he constructed also aligned with the interests of his own state. In 1930, Nevada actually had “more unemployment in proportion to population than anywhere in the country.742 The low price of silver decimated producers in the state. Pittman, of course, was not the only person at the time to advance a thesis concerning the causes of the economic downturn, but, as a member of the Senate Foreign Relations Committee, he was a powerful one and in a position to act on his ideas.

In April of 1930, the Senate Foreign Relations Committee established a special subcommittee to study American trade with China in order to ascertain why American exports to the country were contracting. The initial call for the subcommittee actually made no mention of the silver issue, However, it came to dominate the body’s deliberations because Pittman continued to advance his own silver-centered interpretation of economic events. In the summer and fall of 1930, the committee interviewed economists and businessmen on the East and West Coasts. Many of these interviewed by the subcommittee stressed non-monetary reasons behind the decline of American exports to China, the Northern Expedition in 1928, destruction of infrastructure due to fighting as well as high taxes in the interiors.743 Pittman, however, did not believe these explanations.

He was never very receptive to the arguments of those who stressed how non-

742 Israel, Nevada’s Key Pittman, 70. 743 Israel, Nevada’s Key Pittman, 84. 309 silver factors influenced trade. Pittman reserved special scorn for economists. They

“know very little about the silver problem” because “they have studied under those who do not regard silver as money and were, therefore, not interested in it.”744 Pittman believed there would be no return to prosperity in the United States unless there was a build-up of “real big volume in trade movement in manufactured goods” to the common people around the world, especially to the “Oriental.”745 The key point that Pittman emphasized repeatedly was that if the price of silver was stabilized at a level “to satisfy the Oriental, then he will part with his silver and business will go on.”746 It was this interpretation that made it in the subcommittee’s final report that named “the sudden, great and unprecedented fall in the price of silver” as the “chief cause for the abnormal and sudden decrease in our commerce with China” during the last two years.747

Pittman then pushed the subcommittee to adopt two resolutions based on this silver-centered narrative. The first requested the president call an international monetary conference aimed at ending the “policy and practice of governments melting and debasing silver coins” and selling the bullion on the world market. The goal was to stabilize the price of silver. This idea was not particularly divisive, in the initial years of the depression many argued for meetings to discuss a wide-range of economic topics.

Next, and more controversially, Pittman called for the United States to melt down silver in the U.S. Treasury and loan it to China. This plan was a continuation of an idea put

744 “Key Pittman to Louis Howe,” October 28, 1933. KPP Box 142, D-G miscellaneous folder. 745 “Key Pittman to A.G. Prichard,” March 23, 1931, KPP Box 143, Hearings Folder. 746 “Key Pittman to A.G. Prichard,” March 23, 1931, KPP Box 143, Hearings Folder. 747 Israel, Nevada’s Key Pittman, 85. 310 forward by a former Senator from Utah in 1929.748 The rationale was that the loan would enable China to purchase more U.S. exports as well as stabilize the coffers of the new national government. But the proposal also had a provision that would benefit American silver producers. The U.S. Treasury would have to replace the silver leant to the

Nationalist government with purchases of domestic silver. However, despite Pittman’s resolve and his journey to China for one month in the summer of 1931, nothing came of this proposal.

Pittman’s narrative of the economic depression was a projection of what he considered to be the best interests of China, as seen through the lens of silver-producing interests and his own interests. However, his explanation, causal mechanism and proposals did not convince everyone. As Secretary of the Treasury Henry Morgenthau

(1891-1967) wrote to Pittman, it was his view that the declining price of silver was “a result and not a cause of the depression” and not an “important factor operating to produce and prolong it.”749 Morgenthau stressed that although American exports to China did drop from 1929 to 1930, from the first two months of 1931 to the first two months of

1932, they actually rose by a fifth while total exports declined by more than thirty percent.750 Morgenthau did not agree with Pittman that silver was money “to over half the world to whom we desire to sell.”751 That judgment simply overstated the importance of

China’s slice of international trade. Finally, like Pittman, Morgenthau interpreted what price of silver was in China’s best interests: a stable price for the white metal rather than

748 Brennan, Silver and the First New Deal, 41-42. 749 “Henry Morgenthau to Key Pittman,” June 9, 1932, KPP Box 142, Departments Folder. 750 “Henry Morgenthau to Key Pittman,” June 9, 1932, KPP Box 142, Departments Folder. 751 “Henry Morgenthau to Key Pittman,” June 9, 1932. KPP Box 142, Departments Folder. 311 a higher price.

At the center of the disagreement between Pittman and Morgenthau was an understanding of how international trade worked and silver’s role within it. Pittman believed that China was a buyer with silver while Morgenthau and others held that China was a buyer of silver.752 Pittman thought that China used silver primarily as money to buy goods from abroad. His critics thought that China was simply a buyer of silver as a commodity in exchange for its own exports. Pittman thought low silver prices hurt China, while others believed the lower rate of silver in terms of gold, or at least the flexible rate of exchange, actually helped China.

As a merchant intimately involved in the China trade wrote one of

Pittman’s Senate colleagues when silver first started to decline “I thought it was going to be a bad thing for China, but it turned out to be just the opposite and China today is more prosperous than it has been for more than twenty years.”753 The only sector adversely effected by the price of silver, he continued, were Chinese commodity importers and because prices abroad had sunk to such low level, these importers were not paying much more in silver for what they buy compared to several years ago.754 Cheap silver was good for China.755

The appropriate price for silver and the role of the white metal in the depression

752 Israel, Nevada’s Key Pittman, 87. 753 “L.E. Dant to Royal Copeland,” June 14, 1932. KPP Box 142, D-G Miscellaneous Folder. 754 “L.E. Dant to Royal Copeland,” June 14, 1932. KPP Box 142, D-G Miscellaneous Folder. Here Dant provides the example that in 1928 they received $32.00 gold per one thousand feet of lumber delivered in China but by 1932 his company delivered the same amount and grade of lumber for $12.00 gold. 755 For more on the details over the early years of the depression in China see Tokomo Shiroyama, China During the Great Depression: Market, State and the World Economy, 1929-1937 (Cambridge, MA: Harvard University Press, 2008), chapters 4 and 5. 312 was also a subject of deabte in China. For Ma Yinchu (马寅初 1882-1892), the silver issue was a vital one. In America, he wrote, only a few people, mainly producers, were affected by swings in silver prices but in China these changes touched everyone.756 The interests of the silver bloc of western senators, Ma reminded his readers, did not necessarily match the interests of China.757 However, unlike Key Pittman, he did not stress China’s vital role in world trade. Likewise, Ma did not see falling silver prices as the cause of the depression but rather as a result.758

Beyond identifying silver’s role in the great depression, Ma disagreed with other

Chinese economists on the benefits China received from the low price of silver. Huang

Yuanbin (黄元彬 1893-1956), a professor at University, believed that China had benefitted from the lower price of silver, not just recently, but since the 1870s when the price of silver began to decline.759 Ma objected that the decline of the last few years had gone too far, hurting China more than it helped. The declining price of silver made people unwilling to hold it, exchanging it for foreign currency; foreigners were unwilling to invest in the country due to currency risk; importers, both businesses and the government lost purchasing power.760 The argument that cheap silver benefitted China,

Ma concluded, was too optimistic and though it might appear convincing on paper it was not true in practice.761

756 Zhongguo yu yin wenti” [China and the silver problem] MYCQJ, Volume 6, 385. 757 “Zhongguo yu yin wenti” MYCQJ, Volume 6, 385 and 388. 758 “Zhongguo yu yin wenti” MYCQJ, Volume 6, 384. 759 Ye Shichang, Zhongguo huobi lilunshi [History of Chinese monetary theory] (Xiamen: Xiamen Daxue chubanshe, 2003), 330. 760 “Ping Huang Yuanbin zhi yinjian you liyu zhongguo shuo,” [Evaluating Huang Yuanbin’s argument that cheap silver benefits China] MYCQJ, Volume 6, 391-392. 761 “Ping Huang Yuanbin zhi yinjian you liyu zhongguo shuo,” MYCQJ, Volume 6, 393. 313

As debates about the causes and solutions of the depression continued, economic conditions in the United States deteriorated. In November 1932, Americans elected

Franklin Roosevelt president. On the campaign trail, Roosevelt, as was his style, offered sympathy to silver interests but few commitments. In a speech in Montana, he said he supported an international conference to come an agreement concerning the sale of silver and the need to improve the health of the mining industry but stressed that “the way out is difficult, particularly with silver and the restoration of trade in the Pacific.”762

The Path Towards the U.S. Silver Purchase Act in the United States and China,

March 1933- June 1934

However, the role and price of silver was just one economic issue among many when Franklin Roosevelt took office on March 4, 1933. In a series of decisions in March and April, Roosevelt suspended the gold standard in the United States. In May, Congress granted FDR substantial discretionary power to take further action on monetary issues. In

June, officials in London met at the World Economic Conference hoping to find some accord to relieve the depression. Although Roosevelt torpedoed the aims of the larger conference, Key Pittman, an American delegate to the conference, brokered an agreement by which other nations that had an interest in the price of silver limited how much of the white metal they would sell on the world market. This agreement was not enough and in the fall of 1933 Pittman continued a push to “do something” for U.S. silver interests. The debate about whether lower or higher silver prices benefitted or harmed China continued into 1934 and by June of that year the U.S. Congress passed, and the FDR signed, a bill

762 Brennan, Silver and the First New Deal, 58. 314 that created a worldwide silver-buying program that many in China fought against.

The early impetus of the Roosevelt administration was to prevent panic, particularly in the banking sector, and to end price deflation. In the period immediately before Roosevelt took office, gold flooded out of banks and out of the country as suspicions grew that the new president might take steps to devalue the dollar. A lack of statements on monetary policy encouraged gold withdrawals.763 Upon taking office,

Roosevelt declared a banking holiday and signed an on March

9th in order to put banks on firmer foundations. A series of moves suspended the key components of the gold standard: the export of gold from the country without first obtaining a license from the Department of Treasury and an executive order criminalizing the possession of gold. However, Roosevelt and his cabinet officials stressed these were temporary and extraordinary measures. The suspension of the gold standard did not mean it would be permanently abandoned.

Roosevelt’s decisions on the suspension of the gold standard were not the only action concerning monetary policy in the spring of 1933. A diverse coalition of silver producers from the West and agricultural interests from the South and Midwest came together in support of “free silver” and a return to bimetallisms in order to end deflation.

However, others simply advocated fiat money while some sought to reduce the amount of gold in the dollar. The interests working for price shared a similar goal but pursued it through different mechanisms. In April, Senator Wheeler introduced an

763 Barry Eichengreen, Golden Fetters: The Gold Standard and the Great Depression, 1919-1939 (Oxford: Oxford University Press, 1992), 323-328. 315 amendment to a bill that called for the return to free silver and bimetallism. On April 17th

, 33 senators voted in favor, 44 opposed the measure and 19 abstained, meaning that less than half the Senate had voted against the bill and thus favored “some form of inflation.”764

After this convincing display from the Senate supporting an inflationary program, an amendment to an agriculture bill previously offered by Elmer Thomas, senator from

Oklahoma, came to the fore. The effect of the amendment was to give Roosevelt broad and discretionary power to increase the money supply through Federal Reserve open market operations, issuing greenbacks, lowering the gold content of the dollar or authorizing the coinage at silver dollars. Roosevelt, despite the objections of some of his influential advisors, came out in favor of the Thomas Amendment. On April 19th,

Businessweek ran an article that observed “Washington and Wall Street buzz with talk of imminent inflation.”765 In the midst of these activities, the price of the dollar declined to just above the point where gold would be exported.766

That spring the Roosevelt administration also prepared for the upcoming World

Economic Conference in London. The World Economic Conference in London was “a latch ditch effort” to find some way to end the economic downturn by stabilizing exchange rates, encouraging international trade and resolving debt burdens.767 However, interpretations of the causes of the Great Depression, along with domestic political pressures, made it difficult to reach any agreement; one historian judged the whole

764 Brennan, Silver and The First New Deal, 64. 765 Eichengreen, Golden Fetters, 331. 766 Eichengreen, Golden Fetters, 331. 767 Eichengreen, Golden Fetters, 317. 316 conference “the most futile gathering of the inter-war years.”768 A key tension at the conference was between a potential international agreement that would stabilize exchange rates, which had been quite volatile since a number of countries left the gold standard, and the desire of individual governments to “maintain freedom of action” regarding policies aimed at their domestic price level.769 The second goal worked against the first. Through the month of June delegates worked on different plans for exchange rate stabilization but Roosevelt ultimately rejected these proposals. In his July

“bombshell” responding to another exchange-rate proposal he rejected “the specious fallacy” that stable exchange rates were necessary to spur economic recovery. Instead

Roosevelt wrote that the United States sought “the kind of dollar which a generation hence will have the same purchasing and debt-paying power as the dollar value we hope to attain the near future.”770 This message ended hope for concluding a wide-ranging agreement.

However, the conference continued for several weeks and Key Pittman worked towards an agreement on silver. In fact, Song Ziwen and the Chinese delegation to the

World Economic Conference had stopped in Washington in May to discuss the scope of potential agreements on silver in London. In these preliminary meetings, Song said that he was “not opposed to a somewhat higher price for silver” but that it should “rise in parallel with general price level,” “with arbitrary extreme fluctuations being hurtful.”771

768 Robert Skidelsky, John Maynard Keynes: Volume 2: The Economist as Savior, 1920-1937 (London: Penguin Books, 1995), 481 769 Eichengreen, Golden Fetters, 333. 770 Brennan, Silver and The First New Deal, 79. 771 “Memorandum of Conference at the State Department,” May 9,1933, AYP, Box 40, London Agreement Folder. 317

Beyond these general principles, Song stated that he was in favor of an agreement between the major producers and consumers of silver— the United States, , Great

Britain, Mexico and China—to regulate the sale of silver in order to stabilize the white metal’s price.772 On July 22, Pittman brokered an agreement whereby India, China and

Spain would limit their sales of silver over the next four years. India would not sell more than 35 million ounces of silver, Spain no more than 20 million and China would not sell silver “resulting from demonetized coins.” This clause was included because if China moved off the silver standard, the amount of silver melted down and sold would negate the effect of the agreement’s other clauses. Fixing the silver market would guarantee a more stable price.

Reaction to the silver agreement varied based on a person’s interests and point of view. The silver pact disappointed those in the United States who favored a return to the bimetallism and free silver. It was a half measure. Senator Wheeler objected to the terms because he felt the agreement, and Pittman, treated the white metal “as a commodity and not even as a favored commodity,” instead of an integral part of the monetary system. In

China, Ma Yinchu was quite wary. His concerns were hardly inconsequential; at the time he was the Chairman of the Economic Committee of the Legislative Yuan, the body that would ratify the London silver agreement. He first believed that efforts to stabilize (安定 anding) the price of silver did not go far enough and the agreement was a hollow one (空

772 “Memorandum of Conference at the State Department,” May 10,1933, AYP, Box 40, London Agreement Folder. 318

洞 kongdong).773 Ma thought there were other motives behind agreement: to benefit silver producers and to benefit western exports to China. Ma’s worries about American intentions towards silver only increased in the final months of 1933.

Having declared his intentions with the “July bombshell,” Roosevelt embarked on a program to raise prices in the fall of 1933. He first addressed the price of gold and then, after further pressure from Pittman, “did something” for silver. In the fall of 1933, the ideas of George Warren, agricultural economist at Cornell University, came to have an important influence on the president.774 Warren emphasized the tight correlation between the price of gold and the price of other agricultural products. Raise the price of gold,

Warren argued, and the price of other commodities would follow. With the fall of agricultural prices since July, by September Roosevelt was ready to embark on the program, first instructing that the United States would buy any newly produced domestic gold at a “price equal to the highest price in any free gold market.” The price the government paid for gold was much higher than the statutory price of $20.67 per ounce.

However, in the fall of 1933 the effects of this gold-buying program were not immediate or substantial, with much uncertainty concerning how long the program would last and if a permanent revaluation of gold was imminent.775 This policy was hardly uncontroversial, on both economic and legal grounds, and led to the resignations of

773 “‘Baiyin xieding,’ pizhun wenti,” [The problem of ratifying the silver agreement] MYCQJ Volume 7, 45. 774 Warren was also the teacher and mentor of John Lossing Buck who played an important role in establishing the field of agricultural economics at Nanjing University in the 1920s and 1930s. Beginning in 1934, the U.S. Treasury paid Buck to be a consultant, mainly providing information on the silver situation in China. See Paul B Trescott, Jingji Xue: The History of the Introduction of Western Economic Ideas into China, 1850-1950 (Hong Kong: Chinese University Press, 2007), 167-169 and 180, 340. 775 Eichengreen, Golden Fetters, 338-341. 319

Secretary of the Treasury Woodin and Undersecretary of the Treasury .776

Henry Morgenthau was Woodin’s replacement.

The push to raise prices by “doing something” for silver intensified. Key Pittman peppered Roosevelt and cabinet officials with missives on the economic and political need to embark on a silver-buying program. In September and October, Pittman argued that raising the price of silver would do more to stimulate prices and overall economic activity than the new gold-buying scheme. Pittman also stressed the politics of the situation. If Roosevelt did not do something for silver now, Pittman argued, Senators from western states would once again introduce legislation for the free coinage of silver at rate of 16:1. Pittman suggested that Roosevelt endorse a program of buying all domestically produced silver at 64 cents an ounce; its current market price was 44 cents an ounce.777 Pittman was not the only person urging action on silver.

That fall the popular and controversial Michigan Catholic priest and radio broadcaster Father Charles Coughlin repeatedly returned to the theme of raising the purchasing power of consumers in Asia. The low price of silver had “succeeded in putting China and India on the loin cloth standard of living.”778 Building off this rhetoric,

Pittman wrote to Roosevelt that he should not listen to predictions that stressed the dire consequences to China of rising silver. Pittman told Roosevelt that Song Ziwen had just

776 James Chace, Acheson: The Secretary of State Who Created the American World (New York: Simon & Schuster, 1998), 65-68. 777 “Pittman to Morgenthau,” November 5, 1933, KPP Box 142. A small detail is important here. The statutory price of silver was $1.29 but Pittman suggested that there be a fifty cents seignorage tax of on the purchases making the effective price 64 cents. This clause further angered senators from western states seeking the “free coinage” of silver. See Friedman and Schwartz, Monetary History of the United States, 483-4. 778 Brennan, Silver the First New Deal, 101. 320 written to him to say that the Nationalist government was happy with the London Silver agreement and saw “it is a step towards the enhancement in the price of silver and the purchasing power of China.”779 In late December 1933, Roosevelt approved the London agreement and embarked on a program to purchase all domestically produced silver over the next four years. It was a victory for Pittman but the silver issue, and the larger monetary issues, were hardly settled.

If monetary affairs dominated affairs in the United States in the fall of 1933, military ones stood at the center of Chinese affairs in the same period. That September, the Japanese Army invaded Manchuria. On October 25th, finance minister Song Ziwen, who had been dissatisfied with Chiang Kai-shek’s emphasis on destroying the Chinese

Communist Party before resisting Japanese encroachments in the north, submitted his letter of resignation. Official explanations for Song’s resignation named his poor health, but Song himself rejected those explanations. Instead, as one commentator wrote at the time, since the recent Japanese invasion of Manchuria, “the harmony between General

Chiang and Mr. Song has been broken.”780 Kong Xiangxi (孔祥熙 1881-1967), the

Oberlin-educated son a prominent banking family descended from , took

Song’s place. Kong, like Song, was actually Chiang Kai-shek’s brother in law, since they were both married to two of the Song sisters, the sibling of Song Ziwen. Song Ziwen, though, was not gone for long. Just a year and a half later he played a significant role in the banking coup of March 1935, an important precursor to the announcement of the fabi.

779 “Pittman to Roosevelt,” October 23, 1933, KPP Box 81, White House Folder. 780 Coble, The Shanghai Capitalists, 131. 321

Worried in China continued to grow about the final ends of American silver policy. For Ma Yinchu, it was increasingly clear that the United States wanted to raise the price of silver but the question was how high the white metal would go. If the price of silver continued to rise he feared that industrial production and agriculture would come to a halt as the as more valuable silver would lead to internal price deflation, the exact opposite of what happened in late 1920s through the early 1930s.781 More worrying still was the combination of American interests in regard to silver with the restrictions of the

London Silver Agreement: China could not sell silver from melted silver coins for the next four years. Ma thought this constrained the Nationalist government’s room for maneuver. If the price of silver continued to increase it might be attractive or necessary for China to change its monetary system, either taking advantage of rising silver by going on the gold standard or gold-exchange standard, or by reducing the amount of silver in the standard one-yuan coin. All of these actions would necessitate some melting down of silver coins to sell on the world market, violating the terms of the recently signed agreement. What Ma suggested, and what the Nationalist government eventually did, was to ratify the silver agreement with the reservation that in the case of continued rise in the price of silver it retained the freedom to take appropriate action.782

All of these tensions intensified in the first part of 1934. In January, Roosevelt sent a bill to Congress that would eventually become the , devaluing the dollar from $20.67 per ounce of gold to $35. The intent was to spur inflation by drawing

781 “‘Baiyin xieding,’ pizhun wenti,” MYCQJ Volume 7, 45. 782 “‘Baiyin xieding,’ pizhun wenti,” MYCQJ Volume 7, 48-51. For the exact language of the Chinese reservation, see Young, China’s Nation-Building Effort, 203. 322 gold from abroad as well as to confiscate gold remaining in the United States. The accumulation of gold increased the money supply and in turn lowered interest rates.

However, silver interests saw it as a time to make a final stand on the white metal.

Senator Wheeler argued for an amendment to the Gold Reserve Act that called for

American purchases of silver on the world market. He invoked familiar rhetoric and rationale: the higher price of silver would increase exports to Asia and also raise the prices of all commodities. It was the same argument George Warren made with gold applied to another metal.

Roosevelt expressed sympathy with the silver interests but did not compromise.

After all, Roosevelt argued, he already had broad authority in monetary matters thanks to the Thomas Amendment. His silver policy had just been put in place in late December and the silver agreement signed at the London Economic Conference had just taken effect. It was not the time to do something for silver. Roosevelt wanted a clean bill for the

Gold Reserve Act and he got it. However, the passage of the Gold Reserve Act actually united the disparate silver interests. With bimetallism off the table, they united behind a large-scale silver purchase program.783

In February and March, worries intensified in China that the United States might finally do something for silver. In a February letter to Roosevelt, the Shanghai Bankers’

Association wrote that “any dramatic enhancement of silver values, unless accompanied by generous extensions of credit to China, will result in a flight of silver from these

783 Brennan, Silver and the New Deal, 110-114. 323 shores and bring about credit stringency and collapse of internal commodity levels.”784

With China already beset with economic and political problems, the bankers warned of further economic deterioration brought on by rising silver prices that were “likely to bring calamity upon millions of our people.”785 In letters to Roosevelt soon thereafter, the

Shanghai General Chamber of Commerce and the Shanghai Foreign Chamber of

Commerce echoed these views.

In a speech before the Council of Foreign Relations in New York, Li Guoqin (李

國欽 1887-1961), a Chinese businessmen in New York with an import-export business, stressed that the Chinese desire for a stable price of silver is “very much misunderstood in the United States.”786 Moreover, he objected to the arguments of Pittman and Wheeler that China suffered from a low price of silver. China’s purchasing power, he insisted, was not measured “by the value of silver she possesses” but “by her productivity and capacity to export.”787 The theory of Silver Bloc senators was “economically unsound” and any effect it achieved would be short-lived because “China could not long afford to pay for

American imports of commodities with exports of silver because she needs all the silver she has for her medium of exchange.”788 In a letter to a letter to prominent Shanghai

Banker Chen Guangfu (陳光甫 1880-1976), Li, from his perspective on the ground in the

United States, thought it was useless to protest to Roosevelt because of the growing

784 “Shanghai Bankers Association Letter to President Roosevelt,” February 20, 1934, SMA, S173-1-94. 785 “Shanghai General Chamber of Commerce, Shanghai Foreign Chamber of Commerce letter to President Roosevelt,” March 5, 1934, SMA, S173-1-94. 786 “Li to Chen,” April 9, 1934, SMA, Q275-1-2414. 787 “Li to Chen,” April 9, 1934, SMA, Q275-1-2414. 788 “Li to Chen,” April 9, 1934, SMA, Q275-1-2414. 324 momentum in Congress. Instead of protestations, Li urged Chen and his associates to have a plan “to anticipate what is coming.”789 For Liu that plan might involve preparation to use the rising price of silver to set up a gold credit abroad and gold on the gold standard or to adopt a managed currency. Chen would soon be an important figure in

Chinese currency policy.

However, Pittman and others continued to lobby the president with the exact opposite point of view. Pittman wrote Roosevelt that “Chinese bankers, merchants and industrialists” opposed his position because “the rise in the price of silver will undoubtedly retard the industrial development of China by restoring, to some extent, imports from the United States and Great Britain.”790 Pittman then leaned on his interactions with Song Ziwen, whom, Pittman argued, believed that Chinese industry would suffer under a higher price but China’s credit would benefit, which would help to secure more funding for internal development projects.

Faced with these conflicting interpretations, Roosevelt had Secretary of the

Treasury Henry Morgenthau appoint Yale economics professor and New Dealer James

Harvey Rogers (1886-1939) to go to China to further study the matter. As Morgenthau explained the Rodgers mission to the press, the goal was to see what “school of thought” about China and silver was correct: one thinks “an increased price of silver will mean greater exports from U.S. to China. The other is that if the price of silver is increased

China will have to curtail her imports.”791 Senators in the Silver Bloc saw the Rogers

789 “Li to Chen,” April 9, 1934, SMA, Q275-1-2414. 790 “Memorandum for the President,” February 27, 1934, KPP, Box 142, Departments Folder. 791 James Harvey Rogers Papers (JHRP), (MS 421) Manuscripts and Archives, Yale University Library, Box 52, Folder 734. “Rainy Cancels Silver Bill Vote,” Washington Star, March 19, 1934. 325 mission as a delaying tactic as well as “stupid” “asinine” “foolish” and ‘an affront the

Senate.”792

Rogers was hardly sanguine about his journey. The results of the mission were

“apt to be disappointing.”793 The short length of his stay, the problem of compiling statistical reports and his lack of any “knowledge of the Orient” meant that he would be starting from scratch.794 Despite these worries he was off to China, arriving in Shanghai on April 10th. Rodgers spent the next two months interviewing bankers, businessmen and politicians throughout the country.

The range of opinion was quite broad. Zhang Xueliang (張學良 1901-2001), the young marshal of Manchuria, told Rodgers that he did not “understand silver and therefore had no opinion about it” but most of his interlocutors thought the higher silver prices would harm China.795 In a wide-ranging discussion with Kong Xiangxi, the

Chinese Minister of Finance revived Pittman’s earlier idea of a silver loan to China as a way to help “America’s silver problem” and be “useful” to both countries. Rogers countered that the silver loan would likely run into Japanese opposition and Kong retorted that one of the central questions of the time was “How far is the world, as well as

China, ready to allow Japan to dictate?”796

One notable exception to the general tenor of Roger’s meetings with Chinese

792 “‘Orient Study’ Move Angers Silver bloc,” Evening Journal, March 20, 1934, JHRP Box 52, Folder 734. 793 “James Harvey Rogers to Henry Morgenthau,” March 2, 1934, JHRP Box 13, Folder 160. 794 “James Harvey Rogers to Henry Morgenthau,” March 2, 1934, JHRP Box 13, Folder 160. 795 “May 12, 1934,” JHRP Box 50, Folder 713. Rogers kept a comprehensive diary during his travels that go into great detail about his meeting with various Chinese officials, their attitudes towards silver, and Rogers’ impression of them. See JHRP, Box 50, folder 713-715. 796 “May 1, 1934,” JHRP Box 50, Folder 713. 326 officials was his encounter with Song Ziwen. Song told Rogers that he thought the importance of the price of silver was “greatly exaggerated,” particularly compared with the seriousness from the growing threat of Japan and provincial instability. Chiang Kai- shek echoed this attitude, telling the Yale professor that a rise in silver prices would

“interfere very greatly with his progress” but that there were many other problems that he considered more important than the silver question, though he did not name them.797

Song also believed there was “no probability” of the United States taking action to raise the international price of silver and hence he had not taken “the [silver] movement very seriously.”798 Rogers reminded Song of the “political aspects of the problem” within the

United States but the former Minister of Finance was not convinced. Sun Fo, the offspring of revolutionary leader Sun Yat-sen, pressed Rogers to discuss the internal political dynamics in the United States but Rogers confessed that he had now been away from Washington for a month and that “as of my sailing the program was still largely undetermined.”799

Silver interests in Congress did not wait for Rogers to return. As he traveled in

China, Congress debated a bill that brought together silver, agriculture and inflationary interests. It proposed establish a special exchange “to negotiate the disposal of surpluses, to accept silver in exchange thereof at a value not to exceed 25 percent more than the world market price” and to deposit the metal with the Treasury Department so that it could be coined and silver certificates issued against it.800 It passed the House in late

797 “April 30, 1934,” JHRP Box 50, Folder 713. 798 “April 18, 1934,” JHRP Box 50, Folder 713. 799 “April 17, 1934,” JHRP Box 50, Folder 713. 800 Brennan, Silver and the First New Deal, 119. 327

March. In the Senate, Pittman and others were not enthusiastic about trading agricultural surplus for silver and the Senator from Nevada proposed an amendment that called for the Treasury Department to purchase 50 million ounces of silver a month “until silver’s world market price reached $1.29 per ounce.”801

Throughout April and May, negotiations continued in Washington, with

Roosevelt not wanting to be saddled with any legislation requiring mandatory action as well as the political calculations of an election year. Roosevelt eventually sought compromise with silver interests in Congress. The outline of a plan emerged in late May and the Silver Purchase Act passed Congress on June 11, 1934. It had two key provisions. First, the proportion of silver to gold held by the Treasury would be increased until the monetary value of silver reserves equaled one-fourth that of gold reserves. Next, the Secretary of the Treasury should purchase silver until the ratio of gold and silver in the treasury were balanced or the price on the world market reached $1.29.802

Despite the course of later events, parts of the Shanghai financial community reacted favorably to the accord between Roosevelt silver interests in Congress. The

Shanghai Times noted that “speculators have had a gay, and to many now a sad, time” in the preceding weeks as uncertainty surrounded the silver issue. Prices rose up or down depending on rumors and false reports, at times resembling “panic like conditions,” which the publication attributed to FDR’s “dilly-dallying.”803 Those days were over and calm returned to Shanghai. Several days after the passage of the Silver Purchase Act,

801 Brennan, Silver and the First New Deal, 121. 802 Brennan, Silver and the First New Deal, 131. 803 “Clearer Situation on Silver,” The Shanghai Times, May 19, 1934, JHRP Box 52, Folder 734. 328

Rogers met with Chinese officials at the Central Bank of China including several

American advisors who had stayed in China after the end of the Kemmerer’s visit.

Rogers reported that the bankers and their advisors all agreed that the stable price of silver once the American program became clear “had caused many of their worries to disappear,” as silver stopped to fluctuate widely. They were not even particularly worried about the outflow of silver that had occurred in the last week, noting that more had left

China before the announcement.804 That attitude did not last for long.

The Path Toward the Fabi

Secretary of Treasury Morgenthau was tasked with implementing the silver- buying program and did so in July 1934. By the early fall silver was flowing out of China as the bullion value of silver abroad outstripped the exchange value of the Chinese yuan and the cost of shipping. The exchange value of the Chinese yuan rose, harming exports but it did not rise as fast as the bullion value of silver on the world market. In the middle of October, after trying to discern U.S. intentions regarding future silver purchases, the

Chinese government put an equalization and export tax on silver to stem its outflow.

Throughout 1935, the Chinese government debated its future policy. The issue was not simply about economics but international politics as the United States, Japan and

Great Britain took different positions. By early November 1935, the Nationalist government announced the creation of the fabi, a paper currency-backed by foreign reserves whose value would be maintained at a specific rate to the American dollar and the British pound. The creation of the fabi signaled the end of the silver standard in China

804 “June 20, 1934,” JHRP Box 51, Folder 721. 329 but it meant that China’s new currency had to obtain foreign reserves, which it did by selling more silver to the U.S. government.

It did not take long before China felt the effects of the U.S. silver-buying program. As Arthur Young (1890-1984), American advisor to the Chinese Ministry of

Finance who played an important role in Chinese finance for nearly two decades after serving on the Kemmere Commission, wrote in the end of August, “the principal development of interest has been the considerable increase in the export of silver during the last few weeks.”805 However, Young also noted that at the end of August the amount of silver stocks in Shanghai were larger than they had been one year ago. On a purely economic grounds, he thought “a certain further drain of silver could be withstood, but the danger is psychological, namely, that the public may become frightened.”806

As summer turned to fall, the situation continued to grow more serious. Chinese

Minister of Finance Kong Xiangxi wrote to Secretary of State Cordell Hull in September hoping to secure an assurance that the American government should refrain from any action that might cause a continuation of the present silver drain from China and would cooperate to prevent the metal’s further rise. The letter also mentioned that under present circumstances, the Nationalist government might have to contemplate going on the gold standard and inquired “in principle whether the American government is willing to exchange with the Chinese government gold for silver.”807

The silver situation developed quickly in the first two weeks of October. As

805 “Arthur N. Young to Dickson Leavens,” August 28, 1934, JHRP Box 15, Folder 176. 806 “Arthur N. Young to Dickson Leavens,” August 28, 1934, JHRP Box 15, Folder 176. 807 See Letters of September 23, 1934 and October 5, 1934, AYP Box 49, Silver 1934 Folder. 330

Rogers wrote to Colonel House, one of Woodrow Wilson’s key advisor’s, the United

States needed to refrain from further purchases of silver “at least until satisfactory arrangement for meeting such a situation can be worked out with the Chinese government”; to do otherwise “approaches very nearly international irresponsibility.”808

Moreover, as General manager of Bank of China in Shanghai Zhang Jia’ao (1889-1979

張嘉璈) wrote to Rogers, the current state of the world silver market was not short of irony. If the drain of the white metal out of China continued, Zhang wrote, the country might have to go off the silver standard and “such a development would, I imagine, be very unwelcome to those who have actively supported the demand for higher silver.”809

As Arthur Young advised Kong Xiangxi, there were essentially two paths forward. First was to do nothing, which was fine in the short term “but impracticable for long because circumstances are almost certain to force the government to take some action.” Second was an export duty on silver but this policy was flawed because “any duty less than an embargo will stimulate export because people would fear a subsequent higher duty or embargo.”810 From the perspective of Kong Xiangxi, though, the option of doing nothing was not very appealing, telegramming Shi Zhaoji, Chinese minister to the

United States, that he met “increasing criticism from public and from government associates because of no action.”811

The day after sending this missive, Kong announced an export tax and

808 “Rogers to Colonel House,” October 4, 1934, JHRP Box 15, Folder 186. 809 “Zhang Jia’ao to Rogers,” October 12, 1934, JHRP Box 15, Folder 186, 810“Possible Course of Action regarding the monetary situation,” AYP Box 44, Telegrams with U.S. 1934 Silver Folder. 811 “Kong to Shi,” October 13, 1934, AYP Box 44, Telegrams with U.S. 1934 Silver Folder. 331 equalization charge to make it unprofitable to move Chinese silver abroad in order to

“protect basic silver reserves and to check the rise of exchange that was causing great difficulty.”812 The export duty and equalization charges would encourage smuggling. .

With the American silver buying program only a few months old, it had already become a

“tragic circus.”813 For the next year the question of what to do about the Chinese currency divided the governments of China, the United States, Great Britain and Japan.

In December 1934 and January 1935, Chinese and American officials danced around sensitive questions regarding silver. At the broadest level, the Chinese government saw only two possible remedies to their current predicament: “cooperation of the American government in reducing foreign silver to say 45 cents an ounce or constructive external cooperation for currency reform such as American credit possibly against deferred delivery of silver.”814 There was a lot to talk about but it was uncertain just who should do the talking.

After a conversation with Stanley Hornbeck, Chief of the Division of Far Eastern

Affairs, Shi Zhaoji informed Kong that the American official “hinted that a Chinese

Central Bank Representative should come as soon as possible.” However, Shi also reported that he heard that the State Department “takes view that further steps to help us unnecessary. With proper handling and maintenance of strict secrecy it is hopeful to get

Treasury to take further actions.”815 Shi sources were accurate. The State Department

812 Young, China’s Nation-Building Effort, 215. 813 “Rogers to Morgenthau,” October 17, 1934, JHRP Box 15, Folder 185, 814 “Young to Hornbeck and Johnson,” December 19, 1934, AYP Box 44, Telegrams with U.S. 1934 Silver Folder. 815 “Shi to Kong,” December 27, 1934, AYP Box 44, Telegrams with U.S. 1934 Silver Folder. 332 worried that a publicized visit by a prominent Chinese banker might risk exacerbating tensions with Japan. In April 1934, Eiji Amau (天羽 英二 1887-1968), a spokesperson for the Japanese Ministry of Foreign Affairs declared that Japan had special responsibilities in East Asia and opposed any “undesirable assistance to China” from

Western countries.816 How to interpret and react to the Amau Doctrine divided the State and Treasury Departments. In early January 1935, when the Chinese and American sides initially agreed the Song Ziwen should come to discuss sales of Chinese silver, both countries also agreed “he should have no title when he comes because it may raise suspicions as to its political significance.”817

In early February 1935, Kong Xiangxi sent a formal proposal to the United States that detailed how China would move off the silver standard with American assistance.

This new currency system would use “both silver and gold with a view to linking its currency to that of the United States.”818 Kong proposed selling the American government 200 million ounces of silver in the next year to enable to the transition to a new currency system with additional purchases determined later. At the same time, Song

Ziwen gave a bleak description of the Chinese currency situation and its effect on international relations in East Asia. The Chinese economy, Song wrote, was close to a collapse, and China faced the stark choice of “accepting a Japanese loan under onerous political and economic conditions or facing the emergence of provincial governments

816 Hu Shizhang, Stanley K. Hornbeck and the Open Door Policy, 1919-1937 (Connecticut: Greenwood Press, 1995), 180. For more on the Amau Doctrine see Dorothy Borg, The United States and The Far Eastern Crises of 1933-1938 (Cambridge: Harvard University Press, 1964), 46-100. 817 “Shi to Kong,” January 8, 1935, AYP Box 44, Telegrams and Negotiations with US 1/1/25 -2/28/35 Folder. 818 FRUS 1935, 533. 333 with different currencies virtually under Japanese protection.”819 With such “a view of the impending danger to China and world,” Song hoped the United States would act. On

February 14th, U.S. officials from the Department of State and Treasury Department met to discuss the proper scope of American action. Morgenthau held that the whole question was “a purely monetary matter” that could be handled “aggressively” by the Treasury department while Hornbeck stressed that there were “political factors” that could not be overlooked, namely, that Japan would oppose any action by individual countries to provide loans to China.820 With the State and Treasury so clearly divided, no action was imminent.

In March, the international dynamics of the issue came to the forefront. While the

Chinese government reached out to the Americans it made similar overtures with the

British and even suggested a joint loan from the international consortium. In the middle of February, Neville Chamberlain, then Chancellor the of the Exchequer, suggested to the

Cabinet Committee on Political Economic Relations with Japan that Britain should invite the members of China banking consortium—Japan, France and the United States, to discuss the Chinese financial situation at a conference in London. The Foreign Office, at first skeptical of Chamberlain’s activism, came around to support this position because the prospect of the West and Japan engaging in a divisive campaign to woo China, which

819 FRUS 1935, 533. 820 FRUS 1935, 536.

334 would mean ‘that all chance of a détente may be lost.’821 With the prospect that independent action by any country regarding the Chinese financial crisis might cause the quick deterioration of international relations in East Asia, the dormant institution of the

China consortium was revived. On March 1st, the British Minister to the United Stats held a meeting with Hornbeck and other State Department officials expressing the British government’s belief that “foreign loans or for China would not offer any real or lasting remedy” but also its hope to come to some international agreement that would ease tensions in the region.822

However, the chances for an agreement between these different countries soon deteriorated. On March 8, the British government informed China that it hoped to be of assistance and called for a formal meeting of the members of the China consortium with representatives of the Ministry of Finance. However, Japan objected and proposals for a formal conference soon turned into calls to send informal advisors to hold discussions in

Shanghai. The American government thought the whole conference would simply be an exercise in critiquing the American silver purchase policy and not worth participating just to be harangued.823 While the Chinese favored calling on the consortium to relieve

Japanese pressure it was also worried about the implications of involving so many other nations. As Kong wrote to Shi, the Chinese government refrained from discussing

821 Antony Best, “The Leith-Ross Mission and British Policy towards East Asia, 1934–7,” The

International History Review 35, no. 4 (July 2013): 685.

822 FRUS 1935, 545-546.

823 “Young to Hornbeck,” August 24, 1935, AYP Box 45, Currency Policy Memos 4/1/1935 to 10/31/1935 Folder. 335 currency reform at that time because the British government “would feel obliged to communicate it [the plan for currency reform] to the other nations and in such case it would almost certainly leak out and cause severe shock to the market.”824 The Chinese

Ministry of Finance wanted to maintain a strategic ambiguity about its future course of action.

As this delicate international diplomacy continued, in March, the Chinese government took an important step in the later currency reform. In a “banking coup” the

Nationalist government took control of the Bank of China and Bank of Communications.

Both of these banks had close ties to the Qing Dynasty when they were founded but had become privately owned institutions over the next two decades. From 1933 to 1935, tensions between Kong and Zhang Jia’ao, general manager of the Bank of China, continued to simmer. The Bank of China was the largest and most prestigious of the

Shanghai banks and, together with the Bank of Communications, held nearly “one-third of the funds of all Chinese banks and were three times as large as the central bank.”825

Zhang opposed the Nationalist government’s policy of deficit financing that relied on fund from the banks to purchase government bonds; he thought the government needed to

“eliminate all unnecessary and wasteful expenditure.”826 Zhang did not talk idly; from

December 1931 to December 1934 the Bank of China’s holding of government securities

824 “Kong to Shi,” April 29, 1935, AYP Box 44, Telegrams and Negotiations with US 3/1/25 -10/31/35 Folder. 825 Coble, The Shanghai Capitalists, 173. 826 Coble, The Shanghai Capitalists, 174. 336 dropped significantly, essentially denying Kong access to “nearly one-quarter of China’ banking resources.”827

In early 1935, Kong began a series of moves that brought the Bank of China and

Bank of Communications under government control without sparking a panic. Financial conditions after the American Silver Purchase Act made banks resistant to financing government bonds. The drain of silver also caused deflationary and illiquid conditions for various commercial and industrial firms. Chiang Kai-shek, supported the move to take over the bank, writing that the “nation and society are facing bankruptcy and the crucial reason is the inability to unify the money supply.” The plan had to be carried out, Chiang continued, “in order to save the party state which is on the verge of extinction.”828

Kong first urged Shanghai bankers to consolidate but then said those efforts were not enough, which served as the pretext for the banking coup. In late March, the Minister of Finance announced that the government would take over the two banks “in order to increase the credit capacity of the banks, which then could better fight the Depression.”829

The government required the two banks to issues more shares, which the government purchased with bonds totaling 100 million Chinese yuan. Kong established his brother-in- law Song Ziwen as the new head of the Bank of China. The move had the effect of

827 Coble, The Shanghai Capitalists, 174 and 175. 828 Brett Sheehan, Trust in Troubled Times: Money, Banks and State-Society Relations in Republican Tianjin (Cambridge: Harvard University Press, 2003), 165. 829 Coble, The Shanghai Capitalists, 180-181. 337

“centralizing control of the silver and foreign currencies held by banks” and “supporting the economy when the credit structure was under extreme pressure.”830

With the banking coup, the outlines of currency reform became increasingly clear but so did the obstacles to its success. That March, Chiang Kai-shek noted in his diary, which he kept religiously over the course of his life, that he had “made decisions about finance and paper money ( 決定金融與鈔幣政策 jueding jinrong yu chaobi zhengce).831

However, as Ma Yinchu wrote in a pamphlet to W. Cameron Forbes, head of an

American economic survey mission to Asia in summer 1935, he thought the Nationalist government was in an awkward position in that it could not stay on silver but it could not go on another standard, either gold or a managed currency. China, Ma thought, did not have the ability to go on a managed currency because that would call for the of silver stocks that were scattered across the country and in the vaults of foreign banks. It would also be necessary to centralize the power to issue notes, which was then granted to a number of domestic and foreign banking institutions.832 That was to say nothing as to what would back this new currency. Ma saw China stuck in an impossible situation, having already lost the ability to save itself (自救能力 zijiu nengli).833 The United States, Ma wrote to Forbes, had to take responsibility for its own

830 Young, China’s Nation-Building Effort, 223 and Coble, The Shanghai Capitalists, 182. Coble sees the Bank Coup as the final way in which the Nationalist government eliminated the Shanghai capitalists as an independent political and economic force. 831 Wu Jingping, “Zhiang Jieshi yu 1935 nian fabi zhengce de juece yushishi” [Chiang Kai-shek and the 1945 decision to carry out the fabi reforms] Jianghai Xuekan 2 (2011): 150. 832 “Woguo yinbenwei gai fanqi hu weiqi hu? Yi xiang meiguo kaochatuan jinyi zhonggao” [Should we leave silver or stay on it? A letter to the American survey group] MYCQJ, Volume 7, 419. 833 Woguo yinbenwei gai fanqi hu weiqi hu? Yi xiang meiguo kaochatuan jinyi zhonggao,” 432. 338 actions; the country that made the trouble had to end it (解鈴還須係鈴人系 jieling haixu xi lingren).834 Ma thought the U.S. silver-buying program had to end.

Others were much more optimistic about a move away from silver. In 1934 and

1935 a number of other Chinese economists advocated leaving the silver standard and adopting some type of managed system.835 In fact, as Arthur Young noted in the early fall, with the export and equalization tax on the export of silver the Nationalist government had effectively maintained a managed currency for nearly a year without much difficulty.

A modification of that system was straightforward in theory but faced challenges in practice. China, as Young wrote in September 1935, should seek to stabilize the currency through exchange operations. The rate could be maintained by selling and buying Chinese yuan and foreign currency through a reserve fund. However, this assumption raised several further questions: How should the level of exchange be set?

Should there be a link to another currency, presumably the dollar, pound or Japanese yen? Young favored stabilizing the currency at a lower rate than had prevailed for the

Chinese yuan since 1931. The lower rate of exchange would stimulate internal prices, which had fallen under the high price of silver and help Chinese exports recover. Fixing the rate of exchange at a lower lever would also encourage , another important factor in China’s national account. However, Young felt the actual decision of where to fix the level of exchange was quite difficult “in view of present world-wide uncertainties”

834 Woguo yinbenwei gai fanqi hu weiqi hu? Yi xiang meiguo kaochatuan jinyi zhonggao,” 432. 835 For an overview of these positions see Ye, Zhongguo huobi lilunshi, 359-375. 339 and should be postponed to the moment of issuing the new currency.836 The implementation of a managed currency rested on several variables: the successful nationalization of silver, particularly from foreign banks in treaty ports, the sale of that silver in exchange for foreign currency, the centralization of note issue and, in the future, stricter budgetary control so that a budget deficit did not lead to printing money.

In September and October 1935, Kong Xiangxi and Song Ziwen addressed these issues. The Young memo on currency policy had been prepared for the visit of Sir

Frederick Leith-Ross, a official who arrived in China at the end of

September. His trip was the last remnant of the moves toward international cooperation the past spring. Leith-Ross traveled to China and Japan with the goal of convincing

Kong and Song to link the new currency to sterling. The new currency would then be backed by funds from a joint Anglo-Japanese loan the Nationalist government would receive for granting diplomatic recognition to the Japanese client-sate in Manchuria.837

The British intent was to create a stronger base for sterling in East Asia and also help defuse Sino-Japanese tensions. However, the proposal was a political impossibility for the Nationalist government. Kong, Song and Leith-Ross spent much time discussing the importance of other economic reforms—namely balancing the budget—that would serve as an important basis for currency reform.838 Though Leith-Ross did not succeed in convincing the Nationalist government to adopt the goals of his mission, he ultimately became an important supporter of the upcoming currency reform, particularly in putting

836 “Outline of a Program of Financial Reform for China,” September 21, 1935, AYP Box 45, Currency Policy Memo Folder. 837 Best, “The Leith-Ross Mission,” 689. 838 Shiroyama, China During the Great Depression, 179-180. 340 pressure on British banks to hand over the silver in theirs vaults when the Nationalist government measures for currency reform.

As Leith-Ross sat in China, Kong and Song continued to work the American angle. In the beginning of September, Kong asked Shi Zhaoji to sound out the American government about whether it would be interested in purchasing 200 million ounces of silver for the purposes of currency reform. By the end of the month, this proposal was more concrete, with China offering to deliver 50 million ounces of silver within two months, 50 million more with four months and an American option to buy 100 million ounces. Kong also instructed Shi to tell Moreganthau that the proposed currency reform did not mean that China was “abandoning silver currency” and that the country would need “extensive silver coinage for years to come.”839

At the end of October, Morgenthau observed to Shi that the Leith-Ross visit had evidently been unsuccessful and asked to be provided with the exact details of China’s currency reform plan. Morgenthau, Shi wrote, was particularly worried he might come under “attack for helping China go off silver and/or attach a new currency to gold standard of another country.”840 Morgenthau also wanted assurances that the proceeds from these sales would go towards supporting the new currency and not, for example, buying ammunition. In this sense, Morgenthau hoped to make the sale a purely financial transaction and in no sense diplomatic. However, as Morgenthau related to Roosevelt concerning his recent interactions with Shi Zhaoji, this was “our chance, if they [the

839 “Kong to Shi,” October 23, 1935, AYP Box 44, Telegrams and Negotiations with US 3/1/25 -10/31/35 Folder. 840 “Shi to Kong,” Nov 3, 1935, AYP Box 44, Telegrams and Negotiations with US 11/1/35 to 2/29/36 Folder. 341

Nationalist government] are down low enough, to hook them to the dollar instead of the .”841 As the Secretary of the Treasury relayed to Roosevelt, it was very amusing for the Chinese to come to us with Leith-Ross sitting in China.”842 On

November 2, Morgenthau told Kong that he agreed to purchase 100 million ounces of silver contingent on several conditions, the most important being the new currency would be pegged to the dollar at a rate set by the United States.843

With American support—but still no signed deal—the Nationalist government announced the creation of a new currency, the fabi, effective Monday November 4, 1935.

Explaining the move, Kong Xiangxi said it was necessary to prevent “a financial catastrophe.”844 Looking back at the course of the year, Song Ziwen thought the government’s announcement of the fabi “will be generally regarded as inevitable.”845 The new currency law made it illegal for silver to circulate as money. All holders of the white metal would have to turn in silver in exchange for the new legal tender currency. From this point forward, only money issued by the Central Bank, Bank of China and Bank of

Communications would be full legal tender. Notes by other banks would be taken out of circulation and the silver reserves banks used to support these notes had to be turned over to the newly established Currency Reserve Board. The Currency Reserve Board would

841 Henry Morgenthau Diaries (HMD), Book 10, September-October 35, October 29, 1935, page180. The run of the Morgenthau Diaries from 1933-1945 are available online through the FDR Presidential Library athttp://www.fdrlibrary.marist.edu/archives/collections/franklin/index.php?p=collections/findingaid&id=53 5. 842 “October 29, 1935,” HMD, Book 10, September-October 35, 180. 843 “Shi to Kong,” Nov 3, 1935, AYP Box 44, Telegrams and Negotiations with US 11/1/35 to 2/29/36 Folder. 844 “Kong Statement on Currency Reform,” November 3, 1935, AYP Box Box 43, Leith-Ross Folder. 845 “Mr. Soong on China’s Currency Changes,” Kuo Min News Agency, November 4, 1935, AYP Box 43, Leith-Ross Folder. 342 oversee the issuance and retirement of legal tender notes and maintain reserves against the banknotes in circulations. The new fabi derived its value for being able to secure a certain amount of foreign currency.

However, the announcement of the fabi elided the issue of establishing a direct peg, with the dollar, sterling or yen. Avoiding both the language and logistics of a peg the

Nationalist government opted for a subtler policy that would be difficult to carry out: it sought to maintain the exchange rate of the new fabi to both the dollar and sterling. The

Central Bank, Bank of China and Bank of Communications would buy and sell dollars in any amount at spread of 30-29.5 cents per yuan and sterling at ½-5/8d- ½-3/8d per yuan.

These rates reflected slightly lowers levels of exchange than had been prevailing before the announcement. This arrangement was only possible because the rate between the dollar, linked to gold, and the pound, a managed currency, had been quite steady at $4.92 cents per pound. However, a change in rate between New York and London would make it more difficult to maintain the level of exchange for both the dollar and pound. Soon after the announcement of the fabi this provision caused some confusion. In a meeting in

Washington, Morgenthau insisted that it was very important that the Chinese yuan be pegged to the dollar and the Chinese minister replying that the regulations were “drafted with considerable so that yuan is attached to no currency.”846

At the same time as the new fabi regulations elided the delicate issue of the new currency’s exchange value, it also chose careful language to explain the future role of silver in the Chinese monetary system. As a pamphlet issued by the Ministry of Finance

846 “Shi to Kong,” November 9, 1935, AYP Box 44, 11/1/35 to 2/29/36 Folder. 343 explaining the new monetary system argued, the announcement of the fabi should not be construed to mean the government had gone off the silver standard. The Ministry of

Finance insisted that those advancing this interpretation were mistaken. Yes, the recently announced regulations created a new currency but the Ministry of Finance argued that it had not stopped the laws regarding silver coinage; the mint was still open and silver was in fact the foundation（基礎 jichu) of the fabi since people received new fabi based on the amount of silver their turned over.847

This argument was both disingenuous and necessary.848 In truth, the Nationalist government had technically abandoned the silver standard in October 1934 when the export and equalization charges broke the connection between the value of the Chinese yuan and the value of silver. However, it was important to maintain appearance that the country had not gone off the silver standard for domestic and international consumption: the former to ease the transition to the new system and the latter to provide political cover for Morgenthau and the Treasury Department in future negotiations to sell silver. It should not look like the United States had forced China off the silver standard. In this way, the Ministry of Finance pamphlet mirrored Kong’s telegram instructing Shi to tell

Henry Morgenthau that silver would have an important place in the Chinese monetary system for years to come.

847 The Ministry of Finance, Xin huobi zhidu shuomingshu [An explanation of the new currency system] (Nanjing, Ministry of Finance, 1935), 10-11. 848 For an extended critique of the position that China was still on a silver standard see “Zhongguo zhi xinjinrong zhengce” [China’s new financial policies], MYCQJ, Volume 10, 218-219. 344

Considering the previous doubts about the Nationalist government’s ability to carry out the this type of reform as well as the technical and rhetorical of slights of hand necessary to do so, it was quite remarkable how well system got off the ground in

November and December. On the same day as the announcement of the fabi, the British government issued a King’s Regulation instructing British banks in foreign settlements to comply with the new law and hand over their silver.849 Most foreign banks in China did so—with the exception of Hong Kong Shanghai banking Corporation and Japanese banks—and the problem of nationalizing the silver in the vaults of foreign banks was not as big an obstacle as originally thought. On November 13, the Nationalist government and the U.S. Treasury came to a formal agreement on the sale of 50 million ounces of silver. The new rates of exchange at which the three government banks promised to buy and sell dollar and pounds held steady. Most significantly, domestic prices began to rise in the final two months of 1935. Commodity prices and exports were both up. As the

Chinese Customs office judged in early 1936, “a turn for the better seems to have come with the reform.”850

Despite this initial and in some corners unexpected success, challenges remained.

Japanese banks were openly hostile to the new fabi with the Yokohama Specie Bank conducting raids on the new currency in November and December. It was crucial for the

Nationalist government to secure more foreign reserves by selling silver. In the middle of

December, Kong instructed Shi to feel out Morgenthau on the purchase of an additional

849 Sheehan, Trust in Troubled Times, 169. 850 “Annual Report of Shanghai Commodity Prices,” 14, AYP Box 49. 345

100 million ounces of Chinese silver; in order to avoid uncertainty and secure more reserves Kong wanted to conclude a large sale as soon as possible.851 Morgenthau though, complained to Shi that “you are always pressing for conclusion of a sale but when an agreement is made you are in no hurry to make delivery.”852 Throughout

December, Shi reported that Morgenthau “was not pleased” at the pace of delivery of

Chinese silver from the previous agreement and complained that he was “completely in the dark” about the exact nature of Chinese monetary reform.853 By January, Morgenthau and Shi agreed that a Chinese representative should come to Washington in order to discuss silver sales and the position of the new Chinese monetary system.

Soon a more immediate concern emerged. By the winter of 1935, many officials in Washington had become disillusioned with the U.S. silver-purchasing program. Chief among these were Morgenthau himself, who was charged with carrying out the policy, as well as some of its initial backers. In this context, there was not as much political pressure to keep the world price of silver high; as long as domestic producers continued to benefit from government purchases, that was good enough. Morgenthau also wanted to stem the tide of governments abandoning silver—Hong Kong and Mexico had done so— and also and prevent the impetus for the Japanese to smuggle silver out of China. With this constellation of factors in mind, between December 1935 and January 1936, the U.S.

851 “Kong to Shi,” December 14, 1935, AYP Box 44, 11/1/35 to 2/29/36 Folder. 852 “Shi to Kong,” December 15, 1935, AYP Box 44, 11/1/35 to 2/29/36 Folder. 853 “Shi to Kong,” December 19, 1935 and January 9, 1936, AYP Box 44, 11/1/35 to 2/29/36 Folder. 346

Treasury was not an active purchaser of silver and the price declined from 65 cents an ounce to 45 cents an ounce.854

However, if the price of silver declined below forty cents an ounce it would create an arbitrage opportunity by which it would pay to exchange silver for fabi in China and immediately exchange the Chinese currency for U.S. dollars, which the Nationalist government had pledged to sell without limit. Such a situation would drain the reserves of China and cause the new monetary system to collapse soon after it had started.855 This problem was particularly acute in December 1935 and January 1936 as the price of silver declined to “just above the point where it might be profitable to import silver to China and break down the new system.”856 The price of silver was not a boon for the Chinese government but a threat.

There was a lot to discuss. As it had done before, the State Department rejected the idea of Song Ziwen coming to negotiate further silver purchases, and in any case

Kong said he would not be able to come. The two sides eventually agreed on naming

Chen Guangfu to lead a small delegation to the United States for further negotiations. Of course, the whole enterprise was cloaked in secrecy. Ostensibly, the purpose of the trip was for Chen to attend the opening of the New York agency of the Bank of China and take care of some personal business.

854 Allen Everest, Morgenthau, the New Deal and Silver (New York, King’s Crown Columbia University, 1950), 60-63. 855 Shiroyama, China During the Great Depression, 191 and Ho Kwong Shing, “China’s Quest for American Monetary Aid: The Role of Chen Guangfu, 1935–1944” (PhD Diss, University of Hong Kong, 2010), 34. 856 “Kong to Shi,” January 21, 1936, AYP Box 44, Telegrams and Negotiations with US 11/1/35 to 2/29/36 Folder. 347

Kong Xiangxi had aggressive instructions for Chen Guangfu. The central problem, Kong wrote in instructions to Chen, was that 71% of the total note reserves under Nationalist government control in early 1936 were in silver, with 29% in gold and foreign exchange. However, the entire system of the fabi was based on maintaining convertibility at fixed rates. Kong wanted to reverse the ratio of the fabi reserves so that the majority were in the form of gold and foreign exchange. Kong told Chen that the

Chinese government was prepared to sell up to 200 million ounces of silver, leaving the exact timing and price of the sales up to Chen’s discretion as long as they were above 40 cents an ounce. If Morgenthau and the Treasury did not want to conclude additional purchases, Chen was to convince the Americans they should maintain the price of silver above 40 cents an ounce. In order to appeal to American interests, Kong said Chen should use his discretion in pledging that China would keep silver as a certain percentage of its reserves and continue to use silver in subsidiary coinage, playing to the idea that

China was not abandoning the silver standard. Finally, Kong told Chen to avoid any direct links between the American dollar and the fabi. In this period of “continuing monetary uncertainty,” China should reserve its ability to change “official” rates and be

“free of the obligations to share the vicissitudes in the future of any one currency.”

Moreover, a direct linking to another currency would have “political significance” that

Kong wished to avoid.857

The goals of the Morgenthau and Treasury officials were not the same as Kong’s.

As Morgenthau told Chen Guangfu and Minister Shi, he was not in a position to discuss

857 “Strictly Confidential Instructions,” March 14, 1936, AYP Box 44, K.P Chan Mission Folder. 348 the further purchase of silver until he was satisfied on two points. First, he wanted to be assured that the new Chinese currency was not in fact linked to sterling; second, he wanted to be satisfied as to the amount of silver China would use in the future for the purposes of “coin, currency and art.”858 These demands reflected the two pressures.

Morgenthau did not want to be seen as helping the Chinese link the fabi to sterling and pressure from the silver lobby in the United States that China maintain a sizable use of silver. From the American point of view, the worry about a linkage between the new

Chinese currency and the British pound was not an idle one, particularly since Leith-Ross was still in China and his role in the fabi reforms was unclear. In the realm of domestic politics, the Silver Purchase Act was still law and the silver lobby was still powerful. As a way to neutralize later objections to an agreement, Morgenthau included Pittman in a number of meetings with Chen Guangfu concerning the future use of silver in China.

Despite the pressures Morgenthau faced, he still had considerable leverage. The Chinese

Ministry of Finance needed to acquire foreign reserves and if he allowed the price of silver to drop further the fabi reforms were under significant threat.

Adding to the complexity of the negotiations was the fact Chen’s visit to

Washington overlapped with meetings between Morgenthau and Tomita Yutaro,

Financial Commissioner of the Japanese Government. In these meetings Morgenthau argued, in opposition to Tomita, that the fabi reforms had been quite successful. As

Morgenthau recounted to Shi, Tomita tried to find out the exact nature of the ongoing

Sino-U.S. negotiations but Morgenthau did not divulge anything and instead probed

858 ‘Chen and Shi to Kong,” April 21, 1936, AYP Box 44, Telegram 3/1/36 to 4/30/36 Folder. 349

Tomita on why Japanese banks in China refused to hand over silver to the Nationalist government.859

By May, an agreement was nearly concluded. The Chinese delegation, in consultation with Kong, agreed to keep silver as a certain percentage of reserves for the fabi, to mint silver coin in one-yuan and half-yuan denominations at the U.S. mint and to remove restrictions on the use of silver in arts in commerce that had been part of the nationalization efforts. Morgenthau agreed to purchase 75 million ounces of Chinese silver over the next several months, though he did not commit to paying 45 cents U.S. per ounce.

With these basic agreements in place, Kong made a second announcement on currency reform on May 18. He reiterated the independent position of the Chinese yuan, announced the policies regarding the use of silver for coinage, commerce and arts and also noted that “definite arrangements have been made to increase the gold and foreign exchange portion of the note issue reserve.” This was an elliptic reference to the conclusion of silver sales to the United States. In the statement, Kong also stressed that there was no agreement to link the fabi to the American dollar and the Chinese currency was not subject to the control (牽制 qianzhi) of any other currency through a peg.860

Morgenthau also released a statement concerning the conclusion of “dollar exchange for currency stabilization purposes.” Morgenthau, too, did not reveal the size of the sale of the price the Treasury would pay. A deal had been made but its terms were under wraps.

859 “Shi to Kong,” May 1, 1936, AYP Box 44, Telegram 3/1/36 to 4/30/36 Folder. 860 See telegrams dates dated May 15, May 16 and May 17, 1936. AYP Box 44, Telegram 5/1/36 to 7/23/36 Folder. 350

However, the agreement nearly came undone as soon as it was made. Pittman and

Morgenthau had sought assurances that the Chinese one-yuan coin would contain at least

.720 fine silver in order to secure a sustained market for American producers. After the conclusion of the agreement, Kong thought the proposal for silver coins .720 fine would not be practical for China. In a letter confirming the principles of the agreement, Kong omitted mention of a commitment to make coins at the U.S. mint with a fineness of .720.

As Kong explained in a telegram to the Chen and Shi, he believed China had committed to using a “minimum quantity of silver and not to .720 fineness.”861 Instead, Kong thought China should use a quaternary alloy that contained .500 silver, with the rest made up of copper and . Quaternary had the benefit of being hard to melt down, meaning it was difficult to separate out the silver.

This position shocked Chen Guangfu and Shi Zhaoji. Chen telegrammed Kong to say that Key Pittman felt this sudden proposal was “not acceptable” and if the Chinese government held firm, the whole agreement might be overthrown.862 Over the following days, Chen and Shi repeatedly cabled Kong to stress the importance of this seemingly minor issue because U.S. officials took it very seriously “and the whole agreement is at stake.”863 It was important for China to say it would at least try these coins out. With the

Chinese delegation prevailing upon him Kong, reversed his position and agreed to order the coins from the Philadelphia Mint. Kong’s reversal saved the agreement. The Treasury officials that knew about Kong’s new stance on silver and quaternary coinage had been

861 “Kong to Chen and Shi,” May 17, 1936, AYP Box 44, Telegrams 5/1 to 7/23 1936 Folder, 862 “Chen to Kong,” May 20, 1936, AYP Box 44, Telegrams 5/1 to 7/23 1936 Folder. 863 “Shi to Kong,” May 23, 1936, AYP Box 44, Telegrams 5/1 to 7/23 1936 Folder. 351

“much puzzled” by the sudden change but Morgenthau himself had “no knowledge of it” until after Kong had reaffirmed his commitment to the fineness of silver coins.864

As Morgenthau told Shi and Chen at one of their final meetings, “the U.S. wishes only for China to play fair and not to think that the American people are naïve and therefore would swallow everything given to them.”865 By early June, Chen Guangfu was on his way back to China and the first shipments of Chinese silver headed towards the United States.

Conclusion

From the end of 1935 through early 1938 the fabi remained quite stable. The

Nationalist government met heavy demand for foreign currency at the prevailing rate of exchange after the announcement of the reforms and throughout 1936.866 During all these periods, the Central Bank remained a “confident seller ” of foreign exchange.867 Thanks to the conclusion of the silver agreement, the Nationalist government had substantial resources to defend the fabi. Despite political tensions, 1936 was a good year for the

Chinese economy: prices rose and trade increased. There was confidence in the new system. The silver market was also calm in the rest of 1936; “perhaps one of the most uneventful of any since the beginning of the depression.”868

864 “Shi to Kong,” May 24, 1936, AYP Box 44, Telegrams 5/1 to 7/23 1936 Folder. 865 “Shi to Kong,” May 24, 1936, AYP Box 44, Telegrams 5/1 to 7/23 1936 Folder. 866 Shiroyama, China During the Great Depression, 193-4. 867 “Confidential Memo to Kong Xiangxi,” June 6, 1936, AYP Box 43, Exchange-Raid May-June 1936 Folder. 868 AYP Box 38, Silver Statistics, General Folder, Dickson Leavens, “Silver 1936,” Silver, Engineering and Mining Journal 138 (Feb 1937): 55. 352

In 1937, pressures on the fabi continued to mount, however. Though the Ministry of Finance claimed that the new system would avoid inflation, Ma Yinchu, sometimes part of the government, but always a gadfly, was not convinced. There were a number of scenarios that could produce inflation on the current standard, most simply the possibility of printing money to cover budget deficits. Ma wrote in a book published in June 1937 that the government calimed that budgets would soon be balanced but he saw no evidence to support this claim.869 In fact, China had entered a trap: it wanted to support the fabi by balancing the budget but because foreign conditions continued to deteriorate, government expenses increased while its receipts dwindled.870

As war broke out between China and Japan following the Marco Polo Bridge

Incident of early July. At first it was unclear whether fighting would be a localized conflict in the north of China or something much more. The Nationalist government kept the exchange level of the fabi steady through the end of1937 and into the beginning of

1938. In March 1938, the Japanese set up a puppet bank in the north of China. However, the Nationalist government implemented policies to ration foreign exchange and the fight for the Chinese to maintain, and the Japanese to undermine, the fabi began in earnest.

The shift from the silver standard to the fabi year represented the end of a cycle of monetary interactions between China and the United States. In the 1870s the United

States had purposefully exported silver to China in the form of the Trade Dollar and in the 1930s it imported the white metal from China. In the intervening years, the two

869 “Zhongguo zhi xinjinrong zhengce,” MYCQJ, Volume 10, 224-225. 870 “Zhongguo zhi xinjinrong zhengce,” MYCQJ, Volume 10, 224-225. 353 monetary metals of silver and gold brought the two countries together, drove them apart, creating opportunities for cooperation as well as confusion, resentment and misunderstanding. A central feature of these interactions was the idea that the Chinese monetary system needed to be reformed in order to become more “modern”: it needed a national money under the exclusive control of the government. For much of this time, the

United States hoped to see a Chinese monetary unit directly linked to the U.S. dollar, or at least avoid a link with another currency. Various Chinese governments aimed for the opposite, a Chinese currency independent from the dollar, pound or yen.

In 1936, both sides had achieved part of these goals. The fabi was intimately connected with the U.S. dollar through silver sales but, as Chinese officials continued to point out, it was not actually pegged to any one currency. After the creation and initial success of the fabi, the major emphasis of Sino-U.S. interactions was not on reforming the Chinese currency system but stabilizing it. Naturally, during and after World War II, this question created confusion, resentment and misunderstanding between China and the

United States, but it was a different question than had governed monetary interactions between the two countries during the preceding 50 years. From a broader perspective still, the creation of the fabi marked the end of a centuries-long period when silver served as a mechanism linking China with the rest of the world.

354

Conclusion

Silver does not matter as much as it once did. Today, the silver coins that formerly connected South America, North America and East Asia are nothing more than collector’s items. From time to time, new stashes of coins turn up to be sold. In 1987, for example, the U.S Mint held a sale of a “recently rediscovered private cache” of U.S.

Trade Dollars.871 It is a similar situation in China. In March 2016, villages in Heibei province flocked to a riverbank in order to dig up silver coins featuring the visage of

Yuan Shikai (袁世凱 1859-1916). Rumor had it there were large amounts of them buried beneath the village and that they could be worth as much as 20,000 Chinese yuan.872

Silver coins are curiosities, not an important part of world commerce.

Not surprisingly, since the coins, depending on the type and quality, can be worth substantial sums, they are actively counterfeited. Many of these large counterfeiting operations take place in China. In 2011, U.S. Customs and Border Protection Agents at

O’Hare in Chicago became suspicious after X-raying a package. Opening the parcel, they discovered hundreds of counterfeit 19th century U.S. Trade Dollars.873 The coins had originated in China. China, once the destination for much of the world’s silver

871 “America’s First Bullion Coin,” San Francisco Chronicle, November 25, 1987, A17. 872 “Hetanshang bai qunzhong wa yinyuan,” [A hundred people dig for silver coins along the river bank] Dahe bao, March 23, 2016. Accessed March 24, 2016, http://he.people.com.cn/n2/2016/0323/c192235- 27995080.html 873 Paul Biasco, “Agents Seize Fake Coins at O’Hare,” Chicago Daily Herald, April 22, 2011. Accessed December 12, 2015, http://www.dailyherald.com/article/20110421/news/704219785/. 355 coins, is now the source for them—real and fake—on the collector’s market.

This dissertation, in contrast, has focused on a time when silver was a vital element of economic history. In particular, it has argued that the period between the

1870s and 1930s forms a cycle of monetary interactions between the United States and

China bookended by physical flows of the metal. It followed the circulation of silver coins, economic ideas and monetary advisors between China and the United States. The monetary metals of silver and gold bound the two countries together, drove them apart, created opportunities for cooperation but also confusion and misunderstanding. At the time, the United States was one of the chief producers of silver and China one of the chief consumers of the metal. It is a natural pairing. Because of their respective roles in the world silver market, and the changing political dynamics of the 19th and 20th centuries, a simple question brought together a diverse range of statesmen, economists and financiers from both countries: how should China change its monetary system?

By focusing on how different figures answered this question, as well as on different types of circulations, this project advances several arguments to bring new perspectives to Chinese and American history.

First, examining the monetary thought and policies Zhang Zhidong (張之洞

1837-1909), Liang Qichao (梁啟超 1873-1929) and Ma Yinchu (馬寅初 1882-1982) allows historians to see these figures in a new light. Historians of China do not typically associate these Zhang, Liang and Ma with monetary issues. But each of them wrote extensively on the topic and also tried to put their ideas into practice. Importantly, their engagement shows that the currency question—how should China change its monetary

356 system?—was a central and inescapable issue in the state building undertaken by successive Chinese governments in the 19th and 20th centuries.

Following this central insight, the dissertation demonstrates the link between the currency question and state building in several ways. Chapter three shows how currency reforms were a key, and until now, overlooked part of the Westernization Movement (洋

務運動 Yangwu yundong 1861-1895), as provincial officials imported minting equipment to begin producing silver coins. Likewise, discussions about the Jenks mission and debates about the gold-exchange standard, chronicled in chapter four reveal changing conceptions and definitions of sovereignty. Chinese officials, writers and economists came to see control over the monetary system as vital for maintaining sovereignty, particularly with the Currency Reform and Development loan (幣制實業借款 Bizhi shiyejiekuan) discussed in chapter five. Chapter six then argued that the elimination of the tael unit in 1932 marked an assertion of government power to regulate the monetary system that had not been seen before. Finally, chapter seven showed how the cycle of

Sino-U.S. monetary interactions came to a close with the creation of the fabi (法幣) as

China went off the silver standard and onto a managed currency.

This dissertation argues that successive Chinese governments—the Qing dynasty

(1644-1912), the Beiyang Republican government (1912-1927) and the Nationalist

Republican regime (1927-1937)—shared a continuity of goals. They hoped to create a unified national currency, outside the control of any foreign country, as one in pursuit of making China rich and strong (富強 fuqiang).

357

The effort to make a nation’s money co-terminus with its borders was an important part of state building across the world and hardly unique to China. The move toward territorial money ran into different types of opposition and challenges specific to

China: from money-changers, native banking houses, disagreements between central and provincial governments and foreign pressure. The point here is not suggest, as many in the late 19th and early to mid 20th centuries did, that China was somehow “behind” because of the “backwardness” of the currency system but instead to illuminate the changing goals of different Chinese governments and to detail how they acted given the possibilities and constraints on them at the time.

In the context of American history, this dissertation stresses the quandaries the

United States faced, and the experiments it undertook, as it became a financial power. At the domestic level, many of these quandaries stemmed from the fact that after the 1870s, the United States adhered to the gold standard but was also one of the world’s largest producers of silver. The political lobby representing western silver producers often argued that the best interests of silver miners, the United States and China were one and the same, even when, as we have seen, they were not. The flows of silver that serve as the bookends of this project are manifestations of this tendency. The U.S. Trade Dollar in the

1870s, discussed in chapter two, served as an outlet for American silver deposits, and, its advocates hoped, would become the coin of choice of Chinese merchants. In the 1930s, as shown in chapter seven, Nevada Senator Key Pittman (1872-1940) argued that the low price of silver harmed American producers as well as Chinese consumers. But, as we

358 have seen, Pittman’s proposed remedy—raising the price of silver—did not work as he intended.

At the international level, the United States was unsure how to turn its economic growth in the post-Civil War period into financial power, particularly in China. Could the

United States best secure its financial interests in China by working independently or in tandem with other foreign powers? Should it cooperate with British and Japanese financial institutions or compete against them? It was easy enough to implement the gold- exchange standard in newly acquired colonies, but convincing the Chinese to do so, and

European powers to go along, was a much more difficult task. Likewise, the role of the

United States in the formation of the international consortium of banks to lend to China in 1910, its exit from the group in 1913, and the later reformation of the organization in

1919, reveals this quandary at its most fundamental level.

Of course, monetary interactions between China and the United States did not stop, as we do, in 1937. This project ends in 1937 for a specific reason. After the creation of the fabi (法幣), the central question changed. The chief issue, for both China and the

United States, was no longer how to change the Chinese currency but how to stabilize it, particularly as the Second Sino-Japanese War (1937-1941) turned into a world war. At first, doing so meant continued U.S. purchases of Chinese silver to shore up the fabi.

Support for fabi was important to show that the Nationalist government was a “going concern” as Japan took over large swaths of the country.874

874 Arthur Young, China and the Helping Hand, 1937-1945 (Cambridge: Harvard University Press, 1963), 160. 359

A full-fledged currency war developed when Japan created a Federated Reserve

Bank that issued money in the north of China in 1938. Later, ’s (汪精衛

1883-1944) puppet regime also issued a new currency. As the American treasury official

Harry Dexter White (1892-1948) remarked, all these competing currencies within China made the position of the Nationalist government’s Ministry of Finance “the really most difficult monetary job there is in the world.”875 The monetary history of this period is thus both simple and complex. The main theme is quite clear: all sides tried to undermine the support and stability of other currencies. Following the ups and downs each of the competing currencies, however, is a much more complicated question.

As the commenced in 1941, American aid to China increased, as did controversy between the two allies about how that aid should be used. At the same time, inflation began to plague the parts of China under Nationalist control as the government resorted to printing money in order to finance deficits brought on by huge war expenses.

In 1943, the Nationalist government proposed using some of the credits granted to it by the United States in order to procure gold that would later be sold in China. The hope was to use sales of gold in order to ease inflation by “mopping up” some of the vast amounts of currency floating around the country. Supporters of the idea admitted that the proposal was “unorthodox” but maintained that it should be done as a “wartime expedient.”876

Gold sales began in the fall of 1943 after the United States moved one ton of the

875 Young, Helping Hand, 154. 876 Young, Helping Hand, 317. 360 metal from New York to Miami by rail and then through “South America, Africa, the

Middle East and India to ” by air.877 However, the Nationalist government felt the U.S. Treasury was dragging its feet. Harry Dexter White doubted the efficacy of gold sales, thinking that “unaccompanied by goods, [they] would prove but a temporary palliative, and could prove harmful.”878 With the war ongoing and the Japanese blockade still in place, White believed that not much could be done to rein in inflation. U.S. officials also had concerns about corruption. They feared that the U.S. gold would end up in the hands of a privileged few in China, who could benefit from acquiring the gold at the lower official price and take advantage of the very different price.

Proponents of gold sales thought the policy helped reduce the amount of the deficit covered by the printing press. They countered that the American fears about corruption and the difference between the official price of gold and the market price of gold existed only because the U.S. Treasury had not provided the Nationalist regime with enough gold to move the prices close together. The controversy over these gold sales ultimately became an important issue of historical interpretation as authors clashed about whether or not the United States did enough to help curtail Chinese inflation in 1944 and the implications of these actions for future events, namely what some termed the “loss” of China to the (CCP).879

Inflation continued after 1945 as the world war gave way to a civil war in China.

In 1946, expenditures of the Nationalist government increased by 3.2 times and revenue

877 Young, Helping Hand, 321. 878 Robert Leon Brandfon, “The Young Thesis, the Loss of China, and United States Gold Policy,” International History Review 9, no. 2 (1987): 232. 879 Brandfon, “The Young Thesis,” 227-229. 361 covered only 37 per cent of those outlays.880 Much of this money went to military spending, which made up 60 per cent of total spending in 1946 and 55 percent in 1947.881

In late 1946 and into 1947, currency in circulation increased by ten percent a month and prices in Shanghai doubled every few months.882 Between December 1947 and June

1948, the number of fabi in circulation rose from 34 trillion to 250 trillion; then, in the next month and a half, that figure rose to between 600 and 700 trillion.883 All the while, the KMT continued to fight the CCP for control of China.

In August 1948, the Nationalist government proposed a currency conversion scheme that hoped to obtain psychological benefits, giving the government a grace period during which more fundamental reforms could be made. Others thought that if the

Nationalist government could demonstrate the ability for “self-help,” more support might be forthcoming from the United States, particularly because it appeared a Republican would win the presidency in 1948.884 Banks shut down to prepare for the adjustment and people were instructed to turn over their fabi, silver, gold and foreign currency for the new gold currency, the Gold Yuan. However, the new currency was not actually exchangeable into gold. At the same time, the government pledged to keep commodity prices at the level where they stood on August 19. The initial currency conversion went smoothly enough but the price level did not hold steady.

880 Chang Kia-Ngau, The Inflationary Spiral: The Experience in China, 1939-1950 (New York: John Wiley & Sons, 1958), 71. 881 Chang, Inflationary Spiral, 71. 882 Chang, Inflationary Spiral, 72. 883 Lloyd E. Eastman, Seeds of Destruction: Nationalist China in War and Revolution, 1937-1949 (Stanford: Stanford University Press, 1984), 173. 884 Eastman, Seeds of Destruction, 179. 362

Meant to be a national policy under the Minister of Finance Wang Yunwu (王雲

五 1888-1979), the pledge to keep prices at their August 19 level was only truly enforced by Chiang Kai-shek’s son, Chiang Ching-kuo (蔣經國 1910-1988) in Shanghai. The younger Chiang made examples of people who refused to surrender gold, silver, foreign currency and goods through arrests, punishments and even executions. Shanghai was

“more or less terrorized into a state of monetary equilibrium.”885 However, the city soon fell short of supplies for all types of goods because enforcement in other areas under

Nationalist control was not as vigorous as it was in Shanghai.

As prices in other areas continued to rise, producers and merchants refused to send goods to Shanghai. By the end of October, budget deficits continued to rise, price ceilings were ineffective and the total number of Gold Yuan in circulation was already eight times its “prescribed maximum limit.”886 In the fall of 1948, the military and financial situations deteriorated simultaneously. As the Chinese Communist Party scored a series of important victories in Manchuria, inflation took off once again in the rest of

China. This new cycle of Sino-American monetary interactions that sought to stabilize the value of the fabi ended as Chiang Kai-shek and the Nationalist Party decamped to

Taiwan in 1949, and created the in the same year.

Finally, in carrying out this project, I have stuck with the historian’s “comparative advantage.”887 As discussed in the introduction, historians are interested in what money is

885 Chang, Inflationary Spiral, 72. See also Jay Taylor, The Generalissimo’s Son: Chiang Ching-kuo and the Revolutions in Taiwan and China (Cambridge: Harvard University Press, 2000), 165-190. 886 Chang, Inflationary Spiral, 81. 887 , “Economic History and Economics,” American Economic Review 75, no. 2 (May 1985): 331. 363 and was in certain times and places. One of the main goals of monetary historians is to de-naturalize money, though in most societies the opposite tends to occur: the prevailing monetary arrangements are naturalized as the only ways things could ever be.

I tell a story full of movement, change and reversals. I have shown how small decisions and events can have large consequences. For example, making the U.S. Trade

Dollar legal tender in the United States in 1873 for amounts up to five dollars had unforeseen effects that lasted more than a decade. Likewise, a clause in the Boxer

Protocol Indemnity of 1901 began a series of events that drew China, Mexico and the

United States together, but also created misunderstanding and conflict. As such, the project avoids “flattening out the particularities of the past.”888 Just the opposite is true. It highlights personalities, ideas, beliefs and “the codes, loyalties and organizations which men create and which are just as real to them as physical conditions,” while leaving room for contingency and chance.889 As this dissertation has shown, it is in this realm that we find the historian’s comparative advantage.

888 , “Maine and Texas,” American Economic Review 75, no. 2 (May 1985): 322. 889 Solow, “Economic History and Economics,” 330. 364

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