WHY THE SONG DYNASTY? THE RISE OF A MERCHANT CLASS AND THE EMERGENCE OF MERITOCRACY IN CHINA

Ting CHEN∗ James Kai-sing KUNG†

This version, May 2019 Highly Preliminary, Please Do Not Cite.

Abstract In the 10th century of Song China (c. 960-1268 AD) on the heels of a commercial revolution, the merchants appealed for their children to be permitted to take the civil exam—the route to officialdom in imperial China. Using a uniquely constructed data set, we show that the variation in commercial tax in 1077 and in the average number of market towns across the 1,185 Song counties has a significantly positive effect on both the number of jinshi holders and the share of these achievers who came from a non-aristocratic background—the two variables we employ to proxy for meritocracy. To deal with endogeneity, we exploit as a natural identi- fier the boundary sharply dividing those Tang counties that effectively paid taxes and those that did not to bear upon the possibly varying commercialization outcomes. Additionally, we exploit the difference in the tax status of counties as an instrumental variable to identify the effects of commercialization on meritocracy. To cope with the growing demand for exam preparations, the merchants established many academies and printed many books—the two pertinent channels of the commercial revolution. Our empirical analysis sheds light on why a representative government failed to form in Song China despite undergoing a commercial revolution and confronting warfare like Europe did, and why meritocracy emerged so much earlier in China.

Keywords: Commercial Revolution, Merchant Class, Meritocracy, Civil Exam, Academies/Schools, Printing/Books, Social Mobility, China JEL Classification Nos.: D02, D73, N35, N45, P46

∗Ting Chen, Department of Economics, Hong Kong Baptist University, Renfrew Road, Hong Kong. Email: [email protected]. Phone: +852-34117546. Fax: +852-34115580. †James Kai-sing KUNG (Corresponding Author), Faculty of Business and Economics, University of Hong Kong, Pokfulam Road, Hong Kong. Email: [email protected]. Phone: +852-39177764. Fax: +852- 28585614. 1 Introduction

Song China (c. 960-1268 AD) experienced a commercial revolution in the 10th century. From early Song onwards, commercial taxes loomed large, and trading or market towns devoted to specialization and trading thrived. The result was the rise of a distinct merchant class. Unlike in any other dynasties, the Song merchants won the accolades and political support of scholar-officials and even the emperors, to the extent that a pro-mercantilist ideology emerged. This brought a sea change in the policy toward and accordingly the fate of the merchants. It became possible for the children of the merchants to take part in the civil exam—the bedrock of China’s officialdom and a source of utmost social prestige,1 and thus afforded them a chance to serve in the bureaucracy as political selection was based solely on merits. By allowing students from all walks of life to compete, the Song civil exam system became a meritorious or “inclusive” institution, as Acemoglu and Robinson (2012) would say. In sharp contrast to the Sui-Tang dynasties (c. 581-907) which by restricting entry to a handful of aristocrats produced just 6,522 jinshi-scholars (the highest level of achievement in the civil exam), the Song dynasty bred nearly seven times that number—or precisely 42,509 jinshi—within a similar length of time. Perhaps more importantly, a more meritocratic institution led to a sharp rise not only in the number of jinshi as a whole, but also in the number of jinshi who came from a non-aristocratic background. This not only marked the end of the aristocrats’ 700-year domination in bureaucratic politics in imperial China (Figure 1), but also resulted in upward social mobility in Song and beyond (Ho, 1962; Hymes, 1986).2

[Figure 1 about here]

In this paper we endeavor to establish the connection between the political ascent of

1Officialdom sat at the apex of the imperial society’s pecking order. One could only enter this sphere through success in the lengthy, arduous process of China’s civil exam, but those who succeeded were promised wealth and prestige. 2For the Song, more than half of the jinshi in the year 1148 (56.3%) and the year 1256 (57.9%) allegedly came from families with no forebears in officialdom (Kracke, Jr., 1947).

1 the merchant class and the emergence of a meritocratic civil exam system, by exploiting the cross-sectional variation in the commercial taxes collected in 1077 and in the number of market towns in the Song’s 1185 counties established during the entire period of 960- 1279.3 To proxy for meritocracy, we use both the number of jinshi (normalized by a county’s population) and the share of the aristocratic clans in the jinshi population, the latter using the aristocrats’ surname and place of residence as measures. Figure 2 depicts the correlations between commercial tax and the two measures of meritocracy. The correlations confirm that the larger the commercial tax in a county, the greater the number of jinshi and the lower the corresponding share of aristocrats in the jinshi population in that county. A similar pattern of correlations applies to market towns.

[Figure 2 about here]

As commercial tax is likely endogenous, we use the boundary sharply dividing those Tang counties that effectively paid taxes and those that did not, and the consequence that this divide may have borne upon commercialization, as natural identifiers within a spatial regression discontinuity (RD) framework. This boundary is arguably exogenous. After the empire lost nearly all of its territories in the north to the warlords following the An-Shi Rebellion (c. 750-763), which set in motion a mass exodus to the peaceful south, the Tang emperor was forced to expedite tax collection by introducing a fiscal reform in which the poll tax was changed to the land tax (the “twice-a-year” tax reform or “liangsui” tax). The boundary was instrumental in implementing the land tax and is relevant for identification, as the new fiscal policy had allegedly sparked off a commercial revolution beginning from the late Tang and continuing into the Song. Additionally, we further make use of the status of a county—whether it belonged to an effectively taxed area—as an instrumental variable (IV) to help identify the effect due to the exogenous variation in commercial taxes and in market towns on the two novel meritocratic features of the civil exam in the Song.

3By then, commercial tax already accounted for two-thirds of the overall taxes, up from one-third in the year 977 (Bao, 2001).

2 Our first-stage IV result finds that the counties in which the tax reform was effectively implemented (hereafter “Tang’s effectively taxed areas”) indeed paid more commercial tax and had more market towns than those where implementation was lacklustre. Our second- stage IV-RD analysis confirms that both commercial tax and market towns positively and significantly account for the number of jinshi and negatively for the share of aristocracy in the jinshi population. In the instrumental variable-regression discontinuity (IV-RD) analyses we control for a wide array of relevant historical variables in addition to the smooth functions of geographic locations. For instance, to the extent that factions of the waning Tang aristocracy would likely resist opening up the civil exam system to the merchants, we control for the share of landowners in the total population in a prefecture, as well as descendants of the Tang aristocratic clans. Moreover, to make sure that the decline of aristocracy was not caused by war, we control for the number of battles fought during the late Tang and the short- lived Five Dynasties and Ten Kingdoms (c. 907-960). Other controls include the migration destinations of the tumultuous An-Shi Rebellion, measures of economic prosperity during the transition from the Tang to the Song such as population density in the Northern Song (the number of households in each of 980, 1078, and 1102), urban centers in the Tang, agricultural suitability, and so forth. To ensure that a merchant class had indeed come of age, we examine whether commercial tax can similarly account for those scholar-advocates who supported mercantilism in the early Song, and their connections with the officials (who endorsed their support). We do so by regressing these two measures on commercial tax, and confirm their relationships.4 Regarding the channels through which the commercial revolution shaped the emerging meritocratic features of China’s civil exam system, we regress the number of academies or schools erected and the books printed by the enthusiastic merchants in the Song on

4Doing so also enables us to confirm the validity of using commercial tax as a proxy for the spatial variation in the commercial revolution.

3 commercial taxes, in the light of their phenomenal growth.5 As with the number of jinshi, commercial tax has a significantly positive effect on the number of academies and books. Finally, we test whether a more meritocratic system leads to upward social mobility, by comparing at the prefectural level the surname distribution among the 42,509 jinshi between two consecutive 50-year periods using the Kolmogorov-Smirnov statistic. The results confirm that mobility was indeed greater in the subsequent period (as indicated by the greater diversity in the surnames over time). Although our work focuses singularly on the commercial revolution and its effect on the emergence of a meritocratic civil exam system in Song China, it carries implications that go way beyond China. First, our work bears on the “political divergence” literature, which views Europe and nowhere else in the world as having developed the historical roots of the “constraints on the executive” and a representative government in as early as the 14th century (North and Thomas 1973; Levi 1988; Downing 1992; Ertman 1997; Acemoglu et al. 2005; Stasavage 2010, 2011), a time when the Chinese economy was considered to have reached its pinnacle and sharing broadly similar features with Europe. For instance, just like Europe, Song China had similarly experienced a commercial revolution and correspondingly the rising power of the merchants. Also like Europe, throughout dynasties China had been confronted with incessant warfare from the nomadic tribes along its northern frontier.6 However, unlike their counterparts in Europe who created an alliance in bargaining with the rulers over matters of taxation and representation, the merchants in China pleaded for inclusion in the government bureaucracy—a prerogative over which they had been denied previously

5Rest assured the merchants did not erect schools and print books out of altruism. Investing in an educational edifice not only benefited their own children and those of the same lineages in the civil exam, it also helped befriend retired scholar-officials whose connections may prove useful for their children’s own future career in politics. Last but not least, the provision of educational public goods has been proven instrumental in building up the reputation and political capital of those eager to become local leaders (McKnight, 1971). 6In the pertinent literature, trade and warfare are the two key explanatory factors behind the emergence of democratic roots in Western Europe. For the effect of trade on the evolution of a representative govern- ment, see Guizot (1838), Greif, Milgrom, and Weingast, (1994), and Puga and Trefler (2014), among others; for the effect of war-induced bargaining between rulers and merchants, see Blockmans (1978), Levi (1988), Tilly (1990), and Stasavage (2011). For the effect of both trade and war on the emergence of a representative government, see Angelucci, Meraglia, and Voigtl¨ander(2018).

4 for centuries. In other words, we propose that the political divergence between China and Europe was caused by not so much the absence of a merchant class as its absorption into the bureaucracy amidst the phenomenal growth in commercial activities—hence the failure of a representative government to emerge in China. Our work is also related to the puzzle of why meritocracy originated in a pre-industrial context, namely Song China, when Western Europe had to wait for nearly 700 years and only after two major revolutions—the French Revolution and the Industrial Revolution—before the very concept reached prominence (Hobsbawn, 1996).7 By examining the effect of the Song’s commercial revolution on two salient features associated with China’s evolving civil exam system, we find that the emergence of the world’s first meritocratic institution was essentially an unintended consequence of the Song emperors’ attempt to avoid usurpation by rival aristocrats in the larger context of a commercial revolution.8 Finally, by causally linking the emergence of the merchant class to the rise of the mer- itocratic civil exam institution in China, we also contribute to the literature examining the relationship between the interests of the merchant class and institutional development (Greif, Milgrom, and Weingast, 1994; Stasavage, 2014; and Puga and Trefler, 2014), as well as the literature on the historical roots of political institutions (Persson and Tabellini, 2009; Alesina, Giuliano and Nunn, 2013; Guiso, Sapienza, and Zingales, 2016). The remainder of the paper proceeds as follows. Section 2 provides the necessary his- torical background for understanding how the emergence of a merchant class (and a pro-

7Hobsbawn (1996, p. 189) describes a meritocratic society as one that “opened careers to talent, or at any rate to energy, shrewdness, hard work and greed”. More surprising perhaps is that the term only entered the Oxford English Dictionary for the first time in 1956, or 1958 if we take Michael Dunlop Young’s book The Rise of the Meritocracy, 1870-2033 as benchmark. 8With the eventual translation of Confucian texts in the age of the Enlightenment, the concept of meritocracy reached and appealed to such intellectuals as Quesnay, Voltaire, and Christian Wolff, who viewed it as a superior alternative to the traditional ancient European aristocracy in terms of governance (Ford, 1992). For example, Quesnay (1767) regarded China’s constitution as “founded upon wise and irrevocable laws”, while Voltaire (1756) praised the Chinese as having “perfected moral science”. Beyond its intellectual appeal, the concept of meritocracy was actually adopted by the British-run East India Company during the 17th century, whose managers hired and promoted employees based on competitive examinations to curb favoritism (Kazin, Edwards, and Rothman, 2010). Likewise, in 1770, Prussia implemented an administrative reform for its civil servants resembling the reform of China’s civil exam (Jacobsen, 2015).

5 mercantilist ideology), the provision of an educational infrastructure of academies and book printing, and the changes it wrought on the civil exam system are each connected to the Song’s commercial revolution, which in turn was triggered by a fiscal policy change made in response to an exogenous political and military shock. Section 3 describes the various data sources and variables used in the empirical analysis, whereas Section 4 explains the estimation strategies. The empirical results, including robustness check and extension, are presented in Section 5. Section 6 concludes.

2 Rise of Mercantilism and Emergence of Meritocracy

2.1 Tang’s Fiscal Policy Reform as a Precursor of the Song’s Com-

mercial Revolution

Historians of Song China share the consensus that the Song boasted a highly commercialized economy—one “unparalleled by neither its predecessors nor successors” (Gernet, 1995, p. 300; Bao, 2001; Elvin, 1973; Liu, 2015; Shiba, 1986). This highly commercialized economy had several defining features. First, the Song economy had become highly specialized, as evidenced by the stellar growth in commercial tax revenue the Song state had secured over time (from 12 million to 30 million Guan).9 Second, with trade expanding enormously (especially between north and south), many market towns flourished (Elvin, 1973; von Glahn, 2016; Shiba and Elvin, 1986).10 This was especially the case for the rice trade, for example, where the adoption of the high-yield champa rice from South Vietnam in the south had vastly increased agricultural productivity and formed the basis for a thriving south-to-north

9Guan is a currency unit for copper coinage in Song China. 10As Hartwell (1982) eloquently puts it, for the Song state the task was not merely how to manage a larger territory but how to manage the increasing amounts of territory that supported dense populations—clearly a new mandate arising from the unexpected flourishing of market towns beyond the boundaries of those planned for trade purposes (Golas, 2015). Figure A1 shows the regional distribution of market towns in Song, in which the commercial efflorescence was mainly driven by the lower Yangtze River Delta region on the eastern coastal seaboard.

6 grain trade (Jiang, 2002).11 But trade was not confined to just the staple crop of rice. With specialization deepened also in other areas ranging from cash crops such as tea and timber to nonfarm products like textile, lacquer, paper and pottery, Song also saw the emergence of both a nonfarm economy with some even involved in exports,12 as well as on the heels of specialization in the product market a credit market.13 In a nutshell, it is accurate to characterize Song’s economic landscape as populated by countless vendors and artisans emerging all over the country directly supplying goods to customers in various cities and market towns. But how did the Song commercial revolution come about? We trace its origin to the exogenous shock of a devastating rebellion known as the An Lushan or An-Shi Rebellion (755-763) against the Tang dynasty, which saw two long-term consequences. First, regional power was further devolved to the military warlords. Second, over 2.5 million or 5% of the existing population migrated from north to south in an attempt to escape political chaos.14 Together, these developments forced the Tang emperor to radically reform its fiscal policy—essentially from a poll tax consisting of various surcharges to a land tax system. Unexpectedly, this reform helped long-term commercial development even beyond the Tang dynasty. As its entire northern and western border was vulnerable to attack by various nomadic tribes (Khitans to the northeast, Uyghurs to the north and northwest, and Tibet to the west), the Tang Empire was forced to station troops there. Conferred the title of military commis- sioner (jiedushi), the generals were given unchecked military power over the territories they guarded. An Lushan was one such commissioner made in charge of three strategic regions

11Altogether three shipments made their way from the provinces of Zhejiang and southern Jiangsu to the capital city of Kaifeng every year. These shipments each averaged six million shi (equivalent to roughly 355 million kg). 12Merchants who specialized in textile production were also involved in the export market (e.g., in Zhangzhou of the coastal Fujian Province) and allegedly made handsome profits. 13The market for lending had also emerged on the heels of specialization in the product market. In the capital city of Kafeng alone, for example, 27,155 households were found to have borrowed money from Yaren or the moneylenders (Zeng, 2009). 14Population estimates are based on Liang (1980).

7 by the emperor. However, he later staged a rebellion and even declared himself the emperor in North China by establishing a rival Yan Dynasty. Although the rebellion was quickly sup- pressed, the Tang emperor eventually yielded to 64 of these military commissioners-turned warlords (Guo, 2017).15 Not only did the Tang lose control over more of its northern terri- tory, more devastatingly the emperor was forced to relinquish his fiscal rights, as many of these military warlords (who were no longer commissioners) claimed that the tax revenue was needed to help finance the army indispensable for defending the Tang Empire. As more areas in the north fell into the hands of these military warlords (in the so-called fanzhen—literally “foreign towns”), many fled to the more peaceful south. As a result, the share of the population in the south increased from 45% in 756 to 66% in 1080 based on the census surveys conducted in the Tang (c. 740) and the Song (c. 1080; McDermott and Shiba, 2015). Figure A2, which plots the destination prefectures (based on Wu, 1997), confirms that the southcentral region and the eastern coastal seaboard (the lower Yangtze River Delta region) indeed received the largest inflow of migrants. The loss of nearly all of its northern territory to the military warlords and the mass migration to the south combined dealt a major blow to the Tang government’s revenue. While not all military warlords were hostile to the central administration, few handed over the tax revenues they collected on the administration’s behalf. Indeed, after the An-Shi Rebellion, stable tax revenues came primarily from the peaceful south, specifically from the 49 prefectures in eight southeast provinces (Chen, 1980; Twitchett, 1963). The state coffers were further hollowed out by the mass migration. As the surcharges levied on the household were essentially a poll tax paid in grain, cloth, and corv´eelabor (zuyongdiao), the massive movement of people across such a vast distance made it practically impossible for the government to effectively collect tax (many simply abandoned their land as they fled). As a remedial measure, Emperor Dezong changed the poll tax to land tax, and monetized and collected it twice a year—hence the term “twice-a-year” tax reform or liangshui zhi (Qian,

15Although the rebellion lasted for only a few years, it spanned the reigns of three Tang emperors and thus significantly weakened the Tang’s state capacity.

8 1937; Von Glahn, 2016). To the extent that the northern warlords still refused to pay tax to the emperor, liangshui zhi would likely have been more effectively implemented in areas where the central government was able to maintain effective fiscal control prior to the reform, most notably the lower Yangtze River Delta region and the Sichuan Basin (Kegasawa, 2005). Limited historical evidence suggests that immediately after it was implemented, the fiscal reform was able to achieve the intended result, although sporadic uprisings from the military warlords continued to strip the emperor of tax revenue in the northern territory (Twitchett, 1979). Regardless of its expediency for the Tang emperors, the fiscal reform may have yielded two unintended consequences that eventually facilitated commercialization beyond the Tang. First, by taxing a household based on the amount of land it owned, the new fiscal policy sharply reduced the incentives of the rich to own more land, thereby freeing up capital for commerce. Second, the land tax may have weakened the incentives to farm, thereby freeing up much farm labor for the many nonfarm employment opportunities that later sprang up in the commercialization process.

2.2 Emergence of a Merchant Class

With more than 100,000 merchants large and small emerging in the Song (Shiba, 1986) who altogether contributed more than two-thirds of the overall tax revenue, a new “merchant class” had finally emerged in the Song dynasty (Bao, 2011).16 Whether the merchants could be considered a distinct class depends on whether they exhibited signs of identity and organization. Ebrey (2006) opines that the merchants displayed signs of “sophistication, respectfulness, and not least of which organization” (p. 89). We provide corroborative evidence in what follows. First, merchant guilds had become increasingly organized and influential and they were able to bargain and renegotiate prices with the government over

16The Song state had not only collected more taxes but also become highly capable of deriving a notable share of its fiscal revenue from activities revolving around the buying and selling of merchandise, so much so that in less than a hundred years (c. 997-1085) commercial taxes increased so sharply they accounted for more than two-thirds of the overall taxes (Bao, 2001).

9 its regulated purchases. But the most convincing evidence to bear upon the emergence of the merchants as a new elite class was the increasing political influence they wielded over their own social and political status and prerogatives. While their social status may have remained humble, the merchants contributed so immensely to the economy in generating growth and employment in addition to filling the state coffers that both scholar-officials and emperors alike began to pay them due respect. As a result, a pro-mercantilist voice articulated by two independent schools (the Yongkang School from Wuzhou and the Yongjia School from Wenzhou) emerged in the highly commercialized region of Zhejiang Province on China’s eastern coastal seaboard (Yao, 1992).17 As a good number of these prominent scholars were concurrently government officials, their pro-commerce view was thus taken seriously and became highly influential (Yao, 2013).18 Cognizant of the growing economic importance and political ambitions of the merchants in becoming a part of the bureaucracy, Emperor Taizong, Emperor Taizu’s successor, realized that it would actually be to his advantage to protect the merchants’ material interests, and the simplest way to do so was to promote their political status (at the expense of the aristocrats).19 Patently aware that the merchants had lobbied hard to recommend those with whom they were connected for selection into the bureaucracy, Emperor Taizong not only did not suppress them as his predecessors in the Sui-Tang dynasties did, he actually

17Chen Liang, a famous Confucian scholar who founded the Yongkang School in early Song, fiercely criticized the social hierarchy at the time where the merchants [shang] found themselves at the bottom (after the shi [officials], nong [farmers], and gong [artisans]). He advocated an end to the discrimination against the merchants and called for them to be treated the same as everyone else. Likewise, the Yongjia scholars from the highly commercialized Wenzhou prefecture argued that a society’s welfare depended as much on commerce as it did on industry and championed a series of policy changes to further develop commerce (Bol, 2015). 18Li Gou, a renowned philosopher-cum-scholar-official of the early Song, is a good case in point. He supported the merchant class so much he even campaigned for reducing commercial tax and freeing the merchants from unwarranted intervention by local officials. Indeed, Song was the first (and perhaps only) dynasty in imperial China during which the merchants were lauded as having made their fortunes from “talents, knowledge, and hard work” (Collection of Xujiang). 19Taizong’s brother, Taizu, the founding emperor, who came to power by dint of a coup, was well aware of the perils of military uprising that only the aristocrats (with their own military) could feasibly stage. To encourage the merchants, he thus endorsed the scholar-officials’ positive assessment of the merchants’ economic contributions; he even appealed to the local governments to treat the merchants fair and square and not to, for example, levy exorbitant taxes upon them.

10 allowed their children to take the civil exam (Twitchett, 1979; Zhang, 2015). By removing the restrictions placed upon the children of the merchants, Emperor Taizong opened the floodgate that led, if inadvertently, to the emergence of a vastly more meritocratic system not just in China but in the entire world.

2.3 Merchants as Suppliers of Public Goods: Private Academies

and Printing

That the merchants had become a distinct social class was evident not just in their newly becoming eligible for taking the civil exam, but also in the prominent role they assumed in providing the indispensable public goods of educational infrastructure—schools or academies and books. This further reflects the boldness of Emperor Taizong’s reforms because prior to this, the private sector was not permitted to run academies. With the green light now given to the private sector to operate academies, private academies flourished on the heels of a dramatic surge in the demand for sitting the civil exam.20 Not only that, these private academies were well equipped with both personnel (qualified tutors) and books (the required texts and other exam aids). The initial dominance of the private sector in funding academies was due to the tight budget of the local governments, who were deprived by the central government of fiscal revenues at the time (especially with the Qingli New Deal of 1044). With government coffers depleted, the resourceful merchants took up the slack. For instance, out of the 932 academies established in the early Song (especially the first 40 years), 720 or 77% were actually privately funded by the merchants. While public schools were subsequently established in every provincial capital and even the prefecture, a significant proportion was actually converted from private academies (Kondo, 2009). The extent to which academies or schools were erected in Song can be clearly borne out in Table 1, which also shows the numbers established in the other dynasties. Whereas the

20This must have been facilitated by the lack of quotas set on the number of jinshi for each province, which was not the case in the Ming and Qing.

11 Tang Dynasty (c. 618-907) and the Five Dynasties and Ten Kingdoms (c. 907-979) combined saw the establishment of 72 private academies, Song boasted 720.21 This was a remarkable achievement. Moreover, while the Ming and Qing had built on the Song’s tradition, both failed to surpass the Song in per capita terms (column 4), not even Qing which witnessed an explosive growth in population.22

[Table 1 about here]

With the increase in enrolment in academies, printing and thus books also became vastly more popular. Like academies, books were printed primarily through private endeavors. Thus, similar to schools, of the 5,204 book titles produced in Song, 4,855 (93%) were privately printed and published, creating what Hymes (2015) terms the “world’s first print culture”.23 Chaffee and Twitchet (2015) put the importance of printing in context: “(t)he spread of education and explosion of examination candidate numbers would not have happened without the availability of printed books, but the impact of printing went far beyond this” (p. 13, emphasis added).24 As column (4) of Table 1 also shows, the number of books published in the Song grossly outnumbered not just that in the Tang but also that in the Qing; in per capita terms only the Ming managed to publish more titles than the Song (column (5)). Providing educational infrastructure conferred both direct and indirect benefits on the merchants. Most obvious is that their children, including those belonging to the same lineages, could attend better schools and had an adequate supply of books. But that was not all. Good schools would likely attract high-caliber students from all lineages, so chil- dren could learn from peers from other lineages. Good schools would also attract retired

21In terms of geographic representation, a disproportionate number of them were located in the affluent lower Yangtze River Delta region (Zhejiang Province, 156), the southcentral region (Jiangxi Province, 224) and on the southeast coastal seaboard (Fujian Province, 85). 22Chaffee (2015) points out that its reform and the expansion of the bureaucracy would not have resulted in as big an impact as it did were it not for the development of schools or academies. 23Indeed, with the advent of woodblock printing, the scale of publishing expanded by leaps and bounds, fueling specialization in the areas of calligraphy (xiegong), sculpting (kegong), printing (yingong), and sewing (zhuangbeigong). 24The spread of printing also bore upon the level of literacy as was apparently attained during the Song. Hartman (2015), for example, finds that both government offices and private printers published huge documentary collections of laws and institutional regulations as well as collected works of individuals (wenji).

12 scholar-officials to serve as tutors, who may even help enhance their children’s future political career. But the merchants were eager to provide the above public goods for another reason. Although their social status had been enhanced, they remained constant victims of the local officials’ “grabbing hand”.25 To improve the situation, the most expedient way was to become village leaders themselves, which during the Song could be attained simply by providing village public goods such as those associated with the provision of education. For example, merchants could donate books, set up academies, or recruit good teachers. Although being a village leader conferred no official title, it did come with a set of quasi- official rights ranging from tax collection to conflict resolution and the maintenance of social order (McKnight, 1983). Such rights automatically put them in positions of de facto power free from the grabbing hand of the local corrupt officials.26 Perhaps because of their weak association with, and hence lack of interest in, land, it is highly likely that merchants of the Song had an inherent preference for a more educated labor force,27 as many new, nonfarm occupations such as tax accounting and hospitality management created by the flourishing trade and marketing activities all required distinctly higher human capital.28 This is thus another probable reason why, unlike the Tang’s aris- tocrats, who monopolized the educational resources within their own families, merchants in the Song were more willing to provide the public goods of educational infrastructure also to the children of others.

25Example of those “grabbing hand” behavior includes but not limited to invalidate those salt vouchers government sell to merchants and replace them with “new” vouchers. So that merchants need to pay double to get salt. 26Mcknight (1983) observes that the local elite in the Song was neither the aristocrat (the “hereditarily influential”) in the Tang nor the gentry (the “indoctrinated gentry”) in the Ming and Qing, but quite simply “the rich” (p. 6). 27That a new elite unconnected to land tends to desire higher human capital and mobility is emphasized in Galor et al. (2009). 28These are example occupations highlighted in Shiba (1986), but there are many others.

13 2.4 The Civil Exam System (Keju) in Song

The massive increase in academies or schools and books was met with a commensurate increase in the number of civil exam candidates. The number of scholars or literati taking the exam increased markedly from 20,000-30,000 in the early 11th century to 79,000 in the 12th century, and further surged to 400,000 by the mid-13th century (Chaffee, 1985). This inevitably led to a greater number of degree holders, given no quotas were set on the maximum number of jinshi scholars each province was allowed to produce, unlike in the Ming and Qing. For instance, from 977 onwards the number of jinshi holders grew sharply from less than a hundred each year in the past 300 years (in the Sui-Tang dynasty) to more than 400 per annum by the Northern Song (which lasted until 1127), before doubling again in the Southern Song (1127-1279) (Figure 3). In aggregate, the Song dynasty boasted 42,509 jinshi holders, vastly outnumbering the total of 6,522 jinshi in the Sui-Tang era and comparable to the number that was produced in the Ming and Qing dynasties combined which together spanned nearly six centuries (c. 1368-1911).29

[Figure 3 about here]

By allowing children of non-aristocratic origin to take part, the evolving civil exam sys- tem became more meritocratic. This resulted in greater social mobility. Indeed, in sharp contrast to the Sui and Tang when an overwhelming percentage (82%) of the jinshi were aristocrats, already more than half of them in the Song (56.3% in 1148 and 57.9% in 1256) came from families with no forebears in officialdom (Kracke Jr., 1947). Thus, the Song had not merely vastly increased the number of jinshi, but, in so doing, significantly undermined the aristocrats’ centuries-long dominance in officialdom. Indeed, to ensure that the civil exam would provide a level-playing field for all, Em- peror Taizong implemented another decisive change. Previously, government officials were

29Due to extraordinary population growth in the Qing, the Song remains the dynasty to have produced the largest number of jinshi in per capita terms (column (2), Table 1).

14 recruited mainly through a “recommendation system”, in which incumbent officials (typi- cally aristocrats) would recommend to the emperor those famous literati with whom they were closely connected for selection into the government bureaucracy. This practice easily lent itself to manipulation by the aristocrats, breeding corruption. With the sharp increase in the number of jinshi scholars, particularly those from a non-aristocratic background, Em- peror Taizong was able to further level the playing field by decreeing that from then on, all officialdom had to emerge from the civil exam instead of the recommendation system.30

3 Variables and Data Sources

3.1 Key Explanatory Variables of Commercial Revolution

Commercial Taxes. Commercial tax consisted of two parts: the so-called ad valorem taxes levied on goods transported [guosui] and goods sold [zhusui]). Consumption taxes on tea, liquor and salt accounted for a large share of these taxes. We employ two measures to proxy for the variation in the commercial revolution across the Song counties. The first is a cross-sectional measure of commercial tax across 1,186 Song counties for the year 1077, originally collected in the Song government archival records titled Song Huiyao Jigao, and reconstructed by a group of Qing scholars led by Xu Song (1781-1848). Given that the Song’s population data are available at only the prefectural level, we can only normalize the commercial taxes by a county’s population using data from Yuanfeng Jiuyuzhi (1078) or Yuanfeng Geographic Gazetteer compiled by the Song scholar Wang Cun (1023-1101). Figure 4, which depicts the geographic distribution of per capita commercial taxes collected in 1077, clearly reveals that this tax was indeed distinctly higher in the southeastern region.

[Figure 4 about here]

30The concomitant fall of aristocracy and rise of meritocracy is what the “Kyoto School” refers to as the “Tang-Song transformation” (Masayuki, 1955; Nait¯o,1914). Fukuyama (2012) neatly sums up this monumental change: “By the end of this period, Chinese government was no longer dominated by a small circle of aristocratic families but was rather ruled by a gentry elite recruited from a much broader swath of society” (p. 294).

15 Market Towns. To capture the effect of growing specialization and trade our second measure is the total number of market towns in a given Song county. As with commercial tax we also normalize this variable by the county population in 1078. Data on the number of market towns are obtained from Fu Zongwen’s (1989) Songdai Caoshizhen Yanjiu (A Study of Song’s Market Towns). We then match both of these data sets to the county GIS map constructed by the late Professor Robert Hartwell for the Harvard Yenching’s China Historical GIS project

(https://sites.fas.harvard.edu/~chgis/data/hartwell/).

3.2 Outcomes Variables

Number of Jinshi. We employ two measures to proxy for the emergence of meritocracy. The first is simply the number of jinshi, whereas the second is the share of the Tang’s aristocrats in the jinshi population. A smaller share indicates a decline in aristocratic dominance or equivalently a rise in meritocracy. Data on the jinshi are obtained from Songdai Dengkelu (The Official Directory of Song Civil Exam Graduates) compiled by Gong and Zu (2014), which enumerates such information as the name and birthplace of the highest degree holders. Altogether, the Directory contains a complete list of all the 42,509 jinshi who sat a combined 118 civil exams that took place between 960 and 1279 (a period of 320 years) across 1,185 counties. We then normalize the number of jinshi in a county by the (adjusted) prefectural population in 1078. Figure 5a shows the geographic distribution of the jinshi scholars in the Song.

[Figure 5a and 5b about here]

Share of Aristocrats in the Jinshi Population. To measure the changing dominance of the Tang aristocrats we use the 306 Tang aristocratic clans identified by Johnson (1977) and Tackett (2014) based on surname and place of birth from the medieval texts of Yuanhe Xingzhuan (Yuanhe Geneology) and the Duanhuang Wenshu (Duanhuang Text). Figure 5b

16 shows the geographic distribution of these 306 Tang aristocratic clans. By controlling the bureaucracy, these 306 aristocratic clans, who originated from the Wei and Jin dynasties (220-589 AD), were presumably able to extend their political dominance into the Song dy- nasty (Mao, 1988; Sun, 1959). We make use of the information to calculate the share of jinshi in a given county originating from these 306 aristocratic clans (after normalizing it by the overall jinshi population). In Figure 6 we further show the share of the Tang’s aristocrats in the (normalized) jinshi population in both the Tang and Song dynasties (620-1279), and confirm that not only did the size of the jinshi population increase dramatically after 960 (when the Song was founded), the share of aristocrats in the jinshi population also declined in this period. While aristocrats still accounted for nearly half of the jinshi population in the early Song, by 1100 AD their share fell precipitously to a mere 10% and never rebounded in the remaining years of the dynasty.

[Figure 6 about here]

3.3 Control Variables

We control for a number of covariates that are likely to impact on the emergence of meri- tocracy. For conceptual clarity we divide these controls into four separate dimensions, viz., resistance from aristocrats, historical economic prosperity, geography, and historical shocks.

3.3.1 Resistance from Aristocrats

For aristocrats, the status quo presents at least two distinct advantages. First, the status quo would shield them from competition from a considerably larger pool of candidates of a commoner/merchant background. Second, as a landed class the aristocrats must also have a vested interest in tying the rural laborers to the land, and thus, unlike the merchants, they were unlikely ardent supporters of mass education or institutions designed to promote human capital growth (see, e.g., Galor et al., 2009). To proxy for the possible resistance

17 from the Tang aristocrats against the establishment of a meritocratic civil exam system we employ two measures. Number of Tang Aristocratic Clans. The first measure controls for the 306 Tang aristo- cratic clans matched to the Song’s county boundary. Share of landowners. To the extent that land accumulation was the principal means by which the aristocrats in the Tang maintained their economic dominance, we employ the share of landowners in the total population to proxy for the possible resistance from the aristocratic clans. Data on the landowners are obtained from Taiping Huanyuji [976-983] (Universal Geography of the Taiping Era) compiled by the Song scholar Shi Le (930-1007).

3.3.2 Historical Economic Prosperity

Agricultural Suitability. The phenomenal rise of commercial activities in the Song dynasty notwithstanding, China was still a predominantly agrarian economy even in the heyday of the Song. For this reason we control for the variation in economic or specifically agricultural prosperity, by estimating the potential agricultural productivity (specifically yields of crops suitable for cultivation before 1500) of each county based on the Caloric Suitability Indices developed by Galor and Ozak (2016).31 Population Density in 980, 1078 and 1102. Holding other factors constant, a prefecture denser in population was also likely to produce more jinshi. We thus control for the popu- lation density in 980, 1078 and 1102; by and large these three time points cover the entire period for which our outcome variables are constructed. The data on population for these three time points are obtained from Taiping Huanyuji (Universal Geography of the Taiping Era [976-983]), Yuanfeng Jiuyuzhi (Yuanfeng [1078] Geographic Gazetteer), and Songshi Dilizhi (Geographic Gazetteer from Song History). Tang’s Urban Centers Ranking. In addition, we also employ the four-tier ranking system of the urban centers in the Tang dynasty to serve as an additional proxy for economic

31Refer to https://ozak.github.io/Caloric-Suitability-Index/.

18 prosperity prior to the Song dynasty, which we obtain from the Chinese National Historical Atlas (2013).

3.3.3 Geography

Terrain Ruggedness Index. Terrain ruggedness can have a lasting effect on long-term eco- nomic development either directly or through its interaction with key historical events (e.g., Nunn and Puga, 2012). We calculate this index based on the difference in elevation between adjacent cell grids using data provided by the United States Geographic Service (USGS).32 Distance to national and provincial capital. Counties located in close proximity to the political centers, viz. either the national capital or a provincial capital, were likely more strategically important to the emperor and/or provincial leaders, and thus may have been allocated more resources. To control for the possible political importance of counties we use distance to both the national (Kaifeng prefecture) and provincial capital as proxies.

3.3.4 Historical Shocks

Anshi Rebellion and Mass Migration. We consider only those salient historical shocks that had a lasting impact on our variables of interest. The first was mass migration to the south in the aftermath of the An-Shi Rebellion (755-763) in early Tang. To escape lingering political chaos, elites from north China migrated in droves to the south, specifically to the middle-and-lower Yangtze region, with some even to the west. This massive movement of the population significantly changed the regional distribution of talents and human capital before the Song dynasty. Based on the data compiled by Wu’s (2000) Zhongguo Yiminshi Song-Jin-Yuanjuan (Studies of Chinese Migration History Vol. 3 of Song-Jin-Yuan Period), we use county dummies to control for the effect of war-led migration on the geographic distribution of jinshi degree holders. Ravages of War. Lying between the dynastic transition from the Tang to the Song was

32The Digital Elevation Model (DEM) uses 90 m * 90 m cell grids across the entire surface of the earth on a geographically projected map.

19 the brief period of the Five Dynasties (c.908-959), during which warfare in the north was incessant. To eliminate the confounding possibility that the aristocrats went into decline due to the unrelenting wars throughout the Five Dynasties period (e.g., Sun, 1959; Tackett, 2014) rather than to the forces of commercialization, we control for the number of wars fought in a county during this period. The data on wars are obtained from Zhongguo Lidai Zhanzheng Nianbiao (The Catalogue of Historical Wars) compiled by the Nanjing Military Academy in 2002. Table 2 provides the summary statistics of the variables we use in the regressions.

[Table 2 about here]

4 Estimation Framework

4.1 Spatial Regression Discontinuity (RD) Design

Estimating the impact of the commercial revolution on both the rise of human capital and conversely the decline of aristocracy is a challenging task. An overriding concern is reverse causality, as human capital development can easily give rise to the development of com- merce instead of the other way round, biasing the OLS estimates upward. Likewise, any omitted variable will simultaneously affect the distribution of commercial activities and hu- man capital, biasing the OLS estimates either way. To overcome this problem, we exploit the differential exposure of counties in the Tang dynasty to the policy shock of the “twice- a-year” tax reform forced upon the Tang emperor (780) nearly 200 years before the Song within a spatial RD framework. Specifically, we compare counties in the southeast region, where the Tang government had successfully implemented the “twice-a-year” tax reform by maintaining effective taxation under the poll tax regime, with those counties governed by independent military (provincial) governors in the north and allegedly resisted the tax re- form (Kaisaburo, 1942, 1980). As shown in Figure 7, the thick red line marks the boundary

20 demarcating the effectively from the ineffectively poll-taxed counties. Information on the Tang’s fiscal administration is based on Chen (1980).

[Figure 7 about here]

Identification of the RD design relies on three assumptions: 1) the boundary in ques- tion impacts on the outcome variables only through commerce and not other channels; 2) the degree of commercial activities varies discontinuously across the boundary, with the treated regions collecting more commercial taxes in 1077 and boasting more market towns throughout the Song dynasty; and 3) except for the treated variable of tax reform, all other confounding factors vary smoothly at the boundary. We begin with assumption (1). Because the boundary that demarcates the effectively from the ineffectively (poll) taxed areas is an outcome of the independent military gover- nors’ decision, one may be concerned about whether the boundary thus drawn is entirely exogenous. Nonetheless, the concern that this political-institutional divide in the Tang may affect commercial development in the Song is unwarranted, as this “fanzhen” system was completely abolished by the time the Song established itself as the new ruling dynasty. Con- vinced that these autonomous warlords had caused the fall of the Tang, the Song’s founding emperor made sure to centralize its administration in virtually all spheres of operation— most notably fiscal, military and personnel—at the outset (Tanner, 2010; Kuhn, 2011). In particular, he rotated the regional governors from one outpost to another on a periodic basis to prevent them from cultivating and consolidating their power base in a specific locale. Moreover, regional officials were also stripped of the power to command the military in their jurisdictions. The thoroughgoing abolition of the fanzhen institution in the Song ensures that the boundary drawn on the basis of the effectiveness of the tax reform two centuries ago would unlikely continue to affect commercial development down the road. Perhaps a stronger claim of the boundary’s exogeneity can be made in relation to the continuing warfare fought during the Five Dynasties and Ten Kingdoms period (c. 907- 979)—the dynasty that existed briefly in the transition from the Tang to the Song and

21 which altered the Tang’s boundary (Zhou, 2017). In the first 20 years of his rule (c. 960- 979), the Song emperor had to merge as many as 299 underpopulated counties, accounting for 22% of the total number of counties (1,388) back then. This resulted in a demarcation radically different from that in the Tang (Li, 2017). As shown in Figure 7, the Tang’s boundary (effectively taxed area, the red solid line) is different from the Song’s provincial boundary (the dark grey lines), which serves as evidence to further ensure that our outcome variables of interest would unlikely be affected by the effective poll tax boundary drawn some 200 years ago. Furthermore, as the tax boundary forms a multi-dimensional discontinuity in the longitude- latitude space (more on this below), it enables us to control for the unobserved characteristics by controlling for the X, Y coordinates of a county’s geographic location (the polynomial functions), in a manner analogous to the spatial RD design in Dell (2015), Becker et al. (2016), and Dell and Querubin (2018). To further increase the rigor of our RD exercise, we restrict our comparison to a smaller number of counties closer to both sides of the boundary, e.g., within 100 kilometers, to ensure that these counties differed from each other only in terms of their degree of commercial development, which in turn was spurred by the tax reform. As befits a spatial RD regression analysis, we use the Tang’s effective tax boundary to directly proxy for the variation in commercial revolution caused by this policy shock. We can also use the Tang’s effective tax boundary as an IV to obtain the exogenous variation in commercialization using the precise measures of the Song’s commercial development as proxied by the size of commercial tax in 1077 and the number of market towns established. Equation (1) specifies the first-stage regression of this combined IV-RD regression design:

Commercec = α + βEffectiveT axc + f(GeographicLocationc) + γXc + c (1)

where Commercec refers to the two measures of commercial activities in county c, namely the size of commercial tax in 1077 and the number of market towns, both normalized by

22 the prefectural population in the Song dynasty. Our IV, EffectiveT axc, is an indica- tor variable that is equal to one if county c fell inside of the Tang’s effectively taxed ar- eas before the “twice-a-year” tax reform, and equals to zero if it lay on the opposite side. f(geographiclocationc) is the RD polynomial, which controls for the smooth functions of the geographic location. Following Dell (2015), we employ a two-dimensional RD in latitude- longitude space that employs the polynomials in latitude and longitude. Finally, Xc is a vector of control variables introduced in Section 3.3. To fully exploit the advantage in identification of the spatial RD design and estimate

the exogenous variation in Commerce\ c, we use 1) a full sample of counties, 2) a subsample of counties within 100 kilometers of the spatial threshold from the boundary of the Tang’s effectively taxed areas, and 3) a subsample of counties within the optimal bandwidth from the same boundary estimated based on Gelman and Imbens (2014). Following the standard procedure, we use a local linear RD polynomial for all baseline specifications and document robustness to a wide range of bandwidths and RD polynomials.

After obtaining the exogenous part of Commerce\ c from equation (1) based on the IV-RD estimates, we regress our outcome variables of interest on it. The second stage of our IV estimates thus assumes the following form:

Meritocracyc = ρ + σCommerce\ c + f(GeographicLocationc) + ϕXc + εc (2)

4.2 Balance Test

We then verify assumption (2) by means of a balance test. To ensure that all relevant vari- ables other than those associated with commercialization are indeed smooth at the boundary, Table 3 examines a variety of geographic, social and political characteristics associated with a county across the boundary by performing regressions specified in equation (1). For in- stance, columns (1) and (2) of Table 3, which examine elevation and slope, find that the point estimate of these variables is small relative to the mean and is statistically insignifi-

23 cant. Similarly, columns (3) and (4) show that the treatment and control areas are balanced in terms of their suitability for planting China’s two main staple crops—rice and wheat. In columns (5) and (6), we conduct a placebo test on the effect of the “twice-a-year” tax reform by regressing population density at two pre-reform time points on the dummy of the effectively taxed areas, and find no difference in economic prosperity across the boundary. We also check whether our treatment and control counties are balanced with regard to ease of transportation, for which we proxy using distance to the nearest courier route (column (7)) and distance to the nearest rivers (column (8)). Finally, the two areas are also insignif- icantly different with respect to how frequently wars were fought during the Five Dynasties and Ten Kingdoms—the transitional period between the Tang and Song dynasties. We thus believe that the boundary of the tax reform, as an instrument, would impact on the outcome variables only through the commercial revolution.

[Table 3 about here]

4.3 First-stage Results

We can verify assumption (2) with the aid of Figure 8, which examines the relationships of distance to the boundary of the Tang’s effectively taxed counties with the size of per capita commercial tax in 1077 and with the number of market towns in the Song. In Figure 8, we restrict the sample counties to only those within a 100-kilometer radius of the boundary. Panel A plots the size of commercial tax in each sample county against the shortest distance from a county’s centroid to the nearest point on the boundary, with the dashed lines marking the 95% confidence intervals. Specifically, a county with a negative value implies that it is lying outside of the effectively taxed boundary. It can be seen that the size of tax falls discontinuously at the boundary, suggesting that the Tang’s effectively taxed area does have a long-term impact on commercial development in the Song. In Panel B, we repeat the same exercise for market towns, and find a similar result; that is, the number of market towns in a county changes discontinuously at the boundary. In addition, in Figure 8 we also control for

24 the high-order global polynomials of distance (up to the 4th order), but deliberately exclude other controls in order to report the raw data in the most transparent fashion.

[Figure 8 about here]

Table 4 reports the results of the first-stage estimates using the IV-RD specification with the full spatial smooth functions based on Equation (1). Being inside the effectively taxed boundary in the Tang increases the size of per capita commercial tax in the Song for a county by 12-14% (column (1) uses all counties, while (2) and (3) use counties within 100 kilometers and the optimal bandwidth, respectively). Estimated at 38.27, 33.48 and 37.21, the F-statistics indicate a strong first-stage relationship (columns (1) to (3)). Repeating the same exercise using market towns yields similar results (columns (4) and (6)). Specifically, counties inside the effectively taxed boundary boasted a significantly larger number of market towns in the Song by 8.1%-9.4%.

[Table 4 about here]

5 Empirical Results

We now turn to examine the impact of the Song’s commercial revolution on meritocracy using the second stage of an IV approach using the boundary of the Tang’s effectively taxed area in a spatial RD setting. We begin by estimating the effect of per capita commercial tax in 1077 and that of the number of market towns on the number of jinshi and the share of the aristocratic clan in the jinshi population in the Song in Section 5.1. To ensure that our two proxies of the commercial revolution are appropriate, we assess if they can similarly account for the rise of a mercantilist ideology in Section 5.2. In Section 5.3, we examine the channels of the commercial revolution by regressing the private academies and book printing on commercial tax. Finally, in Section 5.4 we extend our analysis by examining the effect of the emergence of meritocracy on social mobility in China’s historical development.

25 5.1 Rise of Meritocracy

We examine the possible impact of commercial revolution on the emergence of meritocracy in Song China, the second-stage of our IV-RD estimates, using the specification in Equation (2). Since no quota was imposed on the number of jinshi in Song, the number of jinshi holders back then should be commensurate with the degree of commercial development, ceteris paribus. This prediction is indeed borne out in Panel A of Table 5, which shows that a 1% increase in the commercial tax in 1077 leads to a 0.64 - 0.77% rise in the number of jinshi for the Song dynasty on the whole (columns (1) - (3)). To check robustness, we single out the Northern Song (c. 960-1127), and find a comparable 0.68 - 0.76% increase (columns (4) - (6)), suggesting that the effect traces back to that era. We then examine the hypothesized effect of commercial revolution on the decline of aristocracy in Panel B of Table 5 using the logged share of aristocrats in the jinshi population as proxy. Regardless of how we measure it, we find that a 1% increase in the commercial tax in 1077 leads to a decrease in the share of the aristocratic surname by 0.71 - 0.82% (columns (7) - (9)). Once again, columns (10) - (12) show that this process of change began in the Northern Song. All regression results include the full set of local polynomials in latitude, longitude and distance to the boundary, as well as various controls at both the county and prefectural levels. Standard errors are clustered at the prefectural level; most important is that none of the significance levels in Table 5 changes, even if we cluster the standard errors at the (higher) provincial level or adjusted them for spatial dependence.

[Table 5 about here]

In China’s long imperial history, emperors were frequently overthrown and replaced by other aristocrats. This raises the concern that the Tang aristocrats, while having lost their political dominance in the Song, may simply have been replaced by those who rose to power in a new dynasty. To reduce this possibility, we construct a new measure of the Song aristocrats, whose exceptional status was granted by Emperor Taizu (960-976)—the founding emperor

26 of the Song dynasty, similarly based on surname and hometown information obtained from the History of the Song Dynasty (Songshi). Panel C regresses this measure of new aristocrats on the predicted value of commercial tax. Reported in columns (13) - (15), the results show that, the emergence of the new aristocrats notwithstanding, their share in the jinshi population similarly waned amidst the growing competition from the merchant class. Specifically, a 1% increase in commercial tax leads to a 0.51 - 0.54% decrease in the share of jinshi with an aristocratic title. As with the previous results, this effect had already begun in the Northern Song (columns (16) - (18)). Once again we check the robustness of our findings using the number of market towns as an alternative measure. Reported in Table 6, the results are consistent with those of the commercial tax, which exhibit a positive association with the number of jinshi holders and a negative association with the share of aristocracy—both old and new—in the jinshi population. In terms of magnitude, an additional market town is associated with a 0.17 - 0.24% increase in the number of jinshi (columns (1) - (3) in Panel B), a 0.33 - 0.52% decrease in the share of the Tang’s aristocrats (columns (7) - (9) in Panel B) and a 0.13 - 0.15% decrease in the share of the Song’s aristocrats (columns (13) - (15) in Panel B). Similar results are found for the Northern Song. To control for other possible but unobserved confounding factors, we replicate our regressions in Tables 5 and 6 by including respectively prefecture and province fixed effects, and find similar results (reported in Tables A1 and A2 in the Appendix).

[Table 6 about here]

5.2 Was There Really A Merchant Class?

To confirm that a merchant class did indeed emerge in the Song, and that their emergence did lead to the formation of a political ideology of mercantilism among scholar-officials, we examine whether commercial tax is a strong predictor of scholar-advocates of the two schools in support of mercantilism in the mid-Song, based on information provided in Song Yuan

27 Xue’an Dynasties (An Anthology and Critical Accounts of Neo-Confucians of the Sung and Yuan, Huang and Ch’uan, 1966). Moreover, to ensure that the officials also played a part in advocating this ideology, we further make use of data on the social network between the officials and scholars of these two schools from the China Biographical Database Project (CBDB).33 Table 7 reports the results. Columns (1) - (3) report the regression results using the number of pro-mercantilist scholars, whereas columns (4) - (6) report those using the number of connected officials, as the dependent variables. For both dependent variables we report the results based on the full sample, the 100-kilometer bandwidth and the optimal bandwidth. Without exception, we find that commercial development significantly increases the number of both pro-mercantilist scholars and officials connected to them, verifying the claim that the emergence of a merchant class is indeed intimately tied to the rise of a pro-mercantilist ideology.34

[Table 7 about here]

5.3 Commercial Revolution and Meritocracy in Tang: A Placebo

Test

One may also be concerned that the causal link between commercial revolution and emerging meritocratic practices may have already formed before the Song, i.e., that a “pre-trend” may have already existed in the Tang. We verify this by regressing the number of jinshi and share of aristocratic surnames in the jinshi population in the Tang on the number of urban centers and production centers for tea and silk, the two most popular merchandise items at the

33Initiated by the Harvard Yenching Institute based on data assembled and a software program created by the late Robert M. Hartwell (1932-1996), an eminent historian of Song China, the CBDB project is a historical database that tracks the biographical and relational information of more than 400,000 individuals during 7th - 19th century China. For further details, visit https://projects.iq.harvard.edu/cbdb. 34According to the eminent historian-cum-sinologist Yu Yingshi (2014), the pro-mercantilist ideology that originated from the Yongkang and Yongjia Schools in the early Song had had a persistently profound impact on China’s “modern ethics and merchant spirt” in the Ming-Qing dynasties and perhaps even the Republican period.

28 time, as proxies for commercial development.35 We construct the measures of tea and silk production centers from Tangdai Lishi Dili Yanjiu (Studies on Tang’s Historical Geography, Shi, 1998). The data on the Tang’s jinshi holders are extracted from Tangdai Jinshilu or An Official Directory of Jinshi in the Tang Dynasty (Tao, 2010). Table 8 reports the regression results. Columns (1) - (2) examine the effect of the Tang’s commercial development on the number of jinshi holders and columns (3) - (4) the effect on the share of aristocracy in the jinshi population. Neither proxy of commercial development is significantly correlated with the two measures of meritocracy (columns (1) and (3)). We further regress both dependent variables on our IV of the Tang’s effectively taxed areas (columns (2) and (4)), but find no significant correlation. We thus take these results as suggestive evidence that commercial development in the Tang failed to make the civil exam system more meritocratic. The transformation had to wait until the Song.

[Table 8 about here]

5.4 Channels of Meritocracy: Private Schools and Printing

Having shown the causal impact of a commercial revolution on the emergence of meritocracy in Song China, we now examine the two channels—private academies and printing—through which this effect might have occurred. To obtain information on the number of private academies in a given county in the Song dynasty, we turn to Ji’s (1996) Zhongguo Shuyaun Cidian (A Dictionary of Chinese Private Schools in History). For the number of book titles, we rely on Liu and Shen’s (1985) Xiancun Songren Zushu Zongmu (A Catalogue of Book Titles Published in Song Dynasty).36 Table 1 provides the summary statistics on the number of jinshi, private schools and book titles for six of China’s dynasties spanning the period between 618 and 1912. After

35Owing possibly to the limited development of commerce in the Tang, there were no official records on commercial tax. Likewise, we are unable to find systematic records on market or trading towns. 36Although that catalogue is reticent on the location of the publications, we are able to make use of the biographical information provided in the China Biography Database Project (CBDB) to identify the authors’ place of origin and to match this information with the specific book titles.

29 normalizing these figures by the population (in million), the number of private schools, the number of book titles, and the number of jinshi in the Song are nearly 15 times, more than 6 times, and nearly 8 times those in the Tang dynasty. Moreover, the dynasties succeeding the Song also pale in comparison along these dimensions (Gernet, 1982; Kuhn, 2009). Columns (1) - (3) of Table 9 report the results of regressing the predicted value of com- mercial tax on the number of private academies (using both the full sample and subsamples consisting of only those counties within the 100-kilometer threshold and the optimal band- width), whereas columns (4) - (6) report the results on the number of book titles. The result in column (3) shows that a 1% increase in commercial tax in 1077 leads to an 0.11% increase in the number of private schools, and a larger 0.28% in the number of book titles (column (6)). To check robustness, we replace commercial tax with the number of market towns, and find strikingly similar results (see Appendix Table A3).

[Table 9 about here]

5.5 Meritocracy and Mobility

We have demonstrated that, by increasing the number of jinshi from a broader social back- ground, the civil exam system had evolved into one that was more inclusive or meritocratic in the Song. If true, it should have positive ramifications for social mobility. Indeed, historians of China have long argued that the civil exam system, be it in the Song or the Ming and Qing, was intimately associated with distinctly greater social mobility, especially for those coming from a commoner background. For the Song, more than half of the jinshi in 1148 (56.3%) and 1256 (57.9%) came from families with no forebears in officialdom (Kracke, Jr., 1947). Likewise, in the Ming-Qing dynasties a similar percentage of those who passed the juren exam (the second-highest degree) were from families that had not bred a single scholar in the previous four generations (Ho, 1962). Evidence from both studies squarely suggests upper social mobility. To test this hypothesis with our own data, and against the constraint of the scarcity of

30 information on individual wealth and notable measures of social status, we construct a novel proxy to measure mobility across China over time by comparing the surname distribution among the elite jinshi population based on the information of 42,509 jinshi in the Song (see Clark, 2014 for a similar approach). Specifically, for each prefecture we compare the surname distribution between two consecutive 50-year periods using the Kolmogorov-Smirnov (K-S) statistic. Accordingly, a smaller K-S value implies a greater difference between the two sur- name distributions, implying greater mobility between the two periods under comparison.37 Table 10 reports the results of the mobility measure for each consecutive 50-year sub- period for the entire period of 960-1279. The results clearly show that regions with higher commercial tax in 1077 experienced a significantly higher mobility rate in the next 50-year period, confirming the hypothesis regarding the positive effect of commercial revolution on mobility.

[Table 10 about here]

6 Conclusion

The trajectory of historical development in China poses a puzzle. Heretofore much of the attention has been focused on the economic divergence between Europe and China from around 1800 onwards, but the political divergence between the two continents dating from 1400 is no less fascinating. Like Europe emerging from the “Dark Ages”, China similarly experienced a commercial revolution in the early Song, with both enjoying a boom in eco- nomic activity. Also like Europe, China was confronted with incessant warfare and the rulers needed to negotiate with merchants on matters of taxation. Unlike Europe, however, mer- chants in China failed to take advantage of their enhanced political status in negotiating with the emperors for better representation. Instead, they opted for inclusion in the bureaucracy

37The comparison is made with the assumptions that the fertility rates of the elite and non-elite popula- tions are relatively stable in the two 50-year periods, and that the probability of obtaining the jinshi degree is also broadly similar. These limitations notwithstanding, the K-S statistic nonetheless offers insights into the trend of social mobility both across space and over time.

31 via the enlargement of the civil exam, and were eager to provide the public goods required to make that happen. Drawing upon a multitude of historical sources, we constructed a unique data set to examine the causal relationship between the commercial revolution staged by a merchant class in Song China and the resulting meritocratization of the civil exam. Because the educational infrastructure of schools and books was financed by the merchants, and because no jinshi quotas were imposed on the localities, the more commercialized areas could always provide more public goods to produce more jinshi holders and also more of these scholars from a non-aristocratic background. Indeed we confirmed this key intuitive finding in a spatial RD design using the IV of the effective implementation of a fiscal policy reform that was exogenously triggered. Our empirical work thus shows that, while a representative government failed to emerge in China despite the two salient features it shared with Europe, a meritocratic civil exam institution was created in Song China. This goes a long way toward explaining why meritocracy arrived so much earlier in China than in Europe, even though neither a political nor economic revolution had taken place.

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37 Figure 1. The Rise and Fall of Aristocracy in China, 219-960 A.D.

80

60

40

20

0 % of Aristocrat and Commoner High-rank Officials

Han (196-219) Sui (581-617) Liang (502-556) Chen (557-589)Tang (618-905) Ming (1368-1644)Qing (1636-1912) Cao Wei (220-264) Liu Song (420-478) Yuan (1271-1368) Western EasternJin (265-315) Jin (317-419) Southern Qi (479-501) Northern Wei (386-530) EasternWestern Wei (534-577) Wei (534-577) Northern Song (927-1127) Southern Song (1127-1279)

Share of Aristocrats Share of Commoners Data Source: the 25 Histories

38 Figure 2. Commercial Revolution, Rise of Human Capital and Decline of Aristocracy in the Song Dynasty 39 Figure 3. Number of Jinshi from the Tang to the Qing, Normalized by Population per 100 Years 800 Sui Tang Song Yuan Ming Qing 1000 800 600 600 400 400 Number of Jinshi Number 200 200 40 0 0 0 500 1000 1500 2000 Year

Jinshi Jinshi per 100 Years/Population 100 per Jinshi Number Years, by Population Normalized Figure 4. Geographic Distribution of Commercial Tax Per Capita in 1077

41 Figures 5a and 5b. Geographic Distribution of the Song’s Jinshi and the Tang’s Aristocratic Surnames 42 Figure 6. Number of Jinshi and Share of Aristocrats in the Jinshi Population from the Tang to the Qing 100 800 80 600 60 400 40 Number of Jinshi Number Share of Share Aristocrats 200 20 0 0 620 700 780 860 940 1020 1100 1180 1260

Jinshi Aristocrat

43 Figure 7. Spatially-matched Tang’s Effectively Taxed Areas with the Song’s Counties

Source: Atlas of Chinese Historical Geography (Chen, 1980)

44 Figure 8. Fitted Values from a Local Linear Regression of Per Capita Commercial Tax in 1077 and Number of Market Towns in Song 45 Table 1. Private Academies and Book Titles from Tang to Qing Dynasties Jinshi Private Academies Book Titles Total Number Total Number Total Number Number per million Number per million Number per million Population Population Population 46 Tang (618-907) 6572 124.19 59 1.11 892 16.86 Five Dynasties (907-979) 661 34.49 13 0.68 0 0.00 Song (960-1279) 42509 909.58 720 15.41 4855 103.88 Yuan (1279-1368) 1439 24.04 406 6.78 606 10.13 Ming (1368-1644) 24737 371.44 1699 25.51 8260 124.03 Qing (1644-1912) 26840 67.28 5836 14.63 4790 12.01 Table 2. Summary Statistics of the Variables Employed in the Analysis Variable # Obs. Mean Std. Min Max Dev. Commercial Tax per Capita (Logged) 1,256 0.503 0.653 0 5.549 Number of Market Towns 1,256 1.255 1.159 0 8 Number of Jinshi (Logged) 1,256 0.789 1.107 0 8.321 Effectively Taxed Areas 1,256 0.416 0.763 0 1 Share of Tang Aristocrats 847 0.021 0.104 0 1 Share of Song Aristocrats 847 0.018 0.131 0 1 Land Inequality 1,256 0.335 0.205 0 0.925 Anshi Rebellion and Mass Migration 1,256 0.008 0.018 0 1 Population in 980 (Logged) 1,256 0.990 0.775 0.003 2.937 Population in 1078 (Logged) 1,256 1.538 1.049 0.006 3.605 Population in 1102 (Logged) 1,256 1.566 1.078 0.011 3.984 Urban Centers in Tang 1,256 0.152 0.135 1 4 Agricultural Suitability 1,256 2.576 0.936 0.465 4.325 Terrain Ruggedness Index 1,256 0.234 0.211 0.008 0.846

47 Table 3. Balanced Checks Elevation Slope Rice Wheat Population Population Distance Distance Battles Suitability Suitability Density Density to to fought in 639 in 742 Courtier River during Route the Five Dynasties

48 (1) (2) (3) (4) (5) (6) (7) (8) (9) Effectively taxed Areas -0.032 -0.073 0.005 -0.053 -0.068 -0.028 -0.025 -0.018 -0.135 (0.020) (0.098) (0.028) (0.131) (0.069) (0.103) (0.085) (0.069) (0.082) Number of Observations 1185 1185 1185 1185 1185 1185 1185 1185 1185 Adj. R-squared 0.214 0.147 0.108 0.064 0.314 0.337 0.048 0.105 0.122 Other control variables include land inequality, migration after Anshi Rebellion, wars during the Five Dynasties and Ten Kingdoms, population in 980, 1078, 1102, urban centers in Tang, agricultural suitability and terrain ruggedness index. * p<0.05; ** p<0.01; *** p<0.001. Robust standard error in parentheses. Constant added but not reported. Table 4. Tang’s Effectively Taxed Areas and Commercial Revolution in Song, First-Stage Regression Results Commercial Tax Market Towns All <100 km Optimal All <100 km Optimal Bandwidth Bandwidth (1) (2) (3) (4) (5) (6) Tang’s Effectively Taxed Areas 0.135*** 0.141* 0.121** 0.085*** 0.081** 0.094***

49 (0.035) (0.071) (0.039) (0.020) (0.040) (0.024) Control Variables Yes Yes Yes Yes Yes Yes Number of Observations 1185 347 305 1185 374 305 Adj. R-squared 0.112 0.104 0.119 0.125 0.137 0.097 F-stat 38.27 33.48 37.21 51.54 52.64 56.58 Other control variables include land inequality, migration after Anshi Rebellion, wars after Tang, population in 980, 1078, 1102, urban centers in Tang, distances to national capital, to provincial capital, agricultural suitability and terrain ruggedness index. * p<0.05; ** p<0.01; *** p<0.001. Robust standard error in parentheses. Constant added but not reported. Table 5. Merchants and Meritocracy, IV+RD Estimates All <100 km Optimal All 100 km Optimal Bandwidth Bandwidth Panel A Number of Jinshi (logged) All Northern Song (1) (2) (3) (4) (5) (6) Commercial Tax (logged) 0.635*** 0.774*** 0.681** 0.679*** 0.763*** 0.677*** (0.155) (0.158) (0.296) (0.143) (0.140) (0.101) Number of Observations 1185 347 305 1185 347 305 Adj. R-squared 0.256 0.256 0.136 0.136 Panel B Share of Tang Aristocrats (logged) All Northern Song (7) (8) (9) (10) (11) (12) Commercial Tax (logged) -0.717*** -0.821*** -0.722*** -0.5708** -0.719*** -0.727*** (0.125) (0.107) (0.128) (0.233) (0.102) (0.142) Number of Observations 847 352 266 847 352 266 Adj. R-squared 0.161 0.157 0.147 0.141 Panel C Share of Song Aristocrats (logged) All Northern Song (13) (14) (15) (16) (17) (18) Commercial Tax (logged) -0.533*** -0.541* -0.511*** -0.526*** -0.537*** -0.526* (0.108) (0.262) (0.119) (0.106) (0.112) (0.252) Number of Observations 847 352 266 847 352 266 Adj. R-squared 0.278 0.246 0.233 0.237 Control Variables Yes Yes Yes Yes Yes Yes Other control variables include land inequality, migration after Anshi Rebellion, wars after Tang, population in 980, 1078, 1102, urban centers in Tang, distances to national capital, to provincial capital, agricultural suitability and terrain ruggedness index, altitude. * p<0.05; ** p<0.01; *** p<0.001. Robust standard error in parentheses. Constant added but not reported.

50 Table 6. Market Towns and Meritocracy, IV+RD Estimates, Alternative Measure All <100 km Optimal All 100 km Optimal Bandwidth Bandwidth Panel A # of Jinshi All Northern Song (1) (2) (3) (4) (5) (6) Market Towns 0.235*** 0.174*** 0.181** 0.179*** 0.163*** 0.177*** (0.055) (0.058) (0.076) (0.043) (0.040) (0.041) Number of Observations 1185 347 305 1185 347 305 Adj. R-squared 0.154 0.102 0.067 0.086 Panel B Share of Old Aristocrats All Northern Song (7) (8) (9) (10) (11) (12) Market Towns -0.330*** -0.417* -0.515*** -0.262*** -0.374*** -0.26* (0.080) (0.201) (0.090) (0.060) (0.070) (0.012) Number of Observations 847 352 266 847 352 266 Adj. R-squared 0.061 0.057 0.174 0.121 Panel C Share of New Aristocrats All Northern Song (13) (14) (15) (16) (17) (18) Market Towns -0.127*** -0.145*** -0.147** -0.125*** -0.137*** -0.125* (0.038) (0.030) (0.048) (0.036) (0.030) (0.052) Number of Observations 847 352 266 847 352 266 Adj. R-squared 0.078 0.075 0.133 0.124

Control Variables Yes Yes Yes Yes Yes Yes Other control variables include land inequality, migration after Anshi Rebellion, wars after Tang, population in 980, 1078, 1102, urban centers in Tang, distances to national capital, to provincial capital, agricultural suitability and terrain ruggedness index, altitude. * p<0.05; ** p<0.01; *** p<0.001. Robust standard error in parentheses. Constant added but not reported.

51 Table 7. Merchants and Mercantilism, IV+RD Estimates Pro-mercantilist Scholars Officials Connected to Pro-mercantilists Scholars All <100 km Optimal All 100 km Optimal Bandwidth Bandwidth (1) (2) (3) (4) (5) (6) Commercial Tax (logged) 1.844*** 2.841*** 1.580** 2.714** 0.959* 1.661***

52 (0.484) (0.516) (0.603) (0.939) (0.376) (0.436) Control Variables Yes Yes Yes Yes Yes Yes Number of Observations 1185 347 305 1185 347 305 Adj. R-squared 0.245 0.312 0.218 0.245 0.211 0.421 Other control variables include land inequality, migration after Anshi Rebellion, wars after Tang, population in 980, 1078, 1102, urban centers in Tang, distances to national capital, to provincial capital, agricultural suitability and terrain ruggedness index, altitude. * p<0.05; ** p<0.01; *** p<0.001. Table 8. Commercial Development and Meritocracy in Tang, Placebo Test Number of Jinshi (logged) Share of Aristocracy,(logged) in Tang in Tang (1) (2) (3) (4) Urban Centers in Tang 0.057 0.012 (0.036) (0.009) Silks Centers in Tang -0.066 -0.027 (0.093) (0.127) Tea Centers in Tang -0.036 0.066 (0.072) (0.071) Tang’s Effectively Taxed Areas 0.057 0.013 (0.167) (0.013) Control Variables Yes Yes Yes Yes Province (Dao) Fixed Effect Yes Yes Yes Yes Clustering by Prefecture Yes Yes Yes Yes Number of Observations 339 339 157 157 Adj. R-squared 0.437 0.43 0.359 0.412 Control variables include population in 636, 742, , migration after Anshi Rebellion, agricultural suitability and terrain ruggedness index. * p<0.05; ** p<0.01; *** p<0.001. Robust standard error in parentheses. Constant added but not reported.

53 Table 9. Merchants, Academies, and Book Titles, IV+RD Estimates Private Academies (logged) Book Titles (logged) All <100 km Optimal All 100 km Optimal Bandwidth Bandwidth (1) (2) (3) (4) (5) (6) Commercial Tax (logged) 0.105** 0.068** 0.089*** 0.276*** 0.229** 0.212***

54 (0.049) (0.030) (0.021) (0.051) (0.086) (0.050) Control Variables Yes Yes Yes Yes Yes Yes Number of Observations 1185 347 305 1185 347 305 Adj. R-squared 0.216 0.289 0.212 0.64 0.649 0.651 Other control variables include land inequality, migration after Anshi Rebellion, wars after Tang, population in 980, 1078, 1102, urban centers in Tang, distances to national capital, to provincial capital, agricultural suitability and terrain ruggedness index, altitude. * p<0.05; ** p<0.01; *** p<0.001. Table 10. Merchants and Social Mobility, IV+RD Estimates Kolmogorov Smirnov Statistics 960-1060 1010-1110 1060-1160 1110-1210 1160-1279 (1) (2) (3) (4) (5) Commercial Tax -0.008*** -0.010*** -0.006** -0.021*** -0.022*** (0.002) (0.002) (0.003) (0.004) (0.004) Control Variables Yes Yes Yes Yes Yes 55 Province Fixed Effect Yes Yes Yes Yes Yes Clustered at Province Yes Yes Yes Yes Yes Number of Observations 612 612 612 612 612 Adj. R-squared 0.420 0.403 0.403 0.129 0.120 Other control variables include land inequality, migration after Anshi Rebellion, battles fought during the Five Dynasties, population in 980, 1078, 1102, urban centers in Tang, agricultural suitability and terrain ruggedness index, altitude. * p<0.05; ** p<0.01; *** p<0.001. Robust standard error in parentheses. Constant added but not reported. Figure A1. Geographic Distribution of Market Towns in Song (Demarcated by County Boundaries)

56 Figure A2. Migration after the An-Shi Rebellion (755-763) and Population Density in 1078 57 Table A1. Merchants and Meritocracy, IV+RD Estimates All <100 km Optimal All 100 km Optimal Bandwidth Bandwidth Panel A Number of Jinshi (logged) All (1) (2) (3) (4) (5) (6) Commercial Tax (logged) 0.343* 0.357*** 0.413*** 0.633** 0.536*** 0.514*** (0.161) (0.083) (0.136) (0.299) (0.134) (0.104) Number of Observations 1185 347 305 1185 347 305 Adj. R-squared 0.365 0.316 0.342 0.329 Panel B Share of Tang Aristocrats (logged) All (7) (8) (9) (10) (11) (12) Commercial Tax (logged) -0.632*** -0.412* -0.614*** -0.525*** -0.549*** -0.517*** (0.148) (0.203) (0.008) (0.116) (0.137) (0.127) Number of Observations 847 352 266 847 352 266 Adj. R-squared 0.219 0.349 0.301 0.355 Panel C Share of Song Aristocrats (logged) All (13) (14) (15) (16) (17) (18) Commercial Tax (logged) -0.315*** -0.319** -0.316*** -0.208*** -0.296*** 0.307*** (0.005) (0.149) (0.107) (0.103) (0.052) (0.072) Number of Observations 847 352 266 847 352 266 Adj. R-squared 0.312 0.433 0.313 0.213 Control Variables Yes Yes Yes Yes Yes Yes Prefecture Fixed Effect Yes Yes Yes No No No Province Fixed Effect No No No Yes Yes Yes Other control variables include land inequality, migration after Anshi Rebellion, wars after Tang, population in 980, 1078, 1102, urban centers in Tang, distances to national capital, to provincial capital, agricultural suitability and terrain ruggedness index, altitude. * p<0.05; ** p<0.01; *** p<0.001. Robust standard error in parentheses. Constant added but not reported.

58 Table A2. Market Towns and Meritocracy, IV+RD Estimates, Alternative Measure All <100 km Optimal All 100 km Optimal Bandwidth Bandwidth Panel A Number of Jinshi (logged) All (1) (2) (3) (4) (5) (6) Market Towns 0.142* 0.153*** 0.166*** 0.130* 0.106*** 0.114*** (0.081) (0.038) (0.042) (0.071) (0.031) (0.032) Number of Observations 1256 674 405 1256 674 405 Adj. R-squared 0.154 0.102 0.067 0.086 Panel B Share of Tang Aristocrats (logged) All (7) (8) (9) (10) (11) (12) Market Towns -0.183*** -0.189*** -0.196*** -0.160*** -0.157*** -0.178*** (0.035) (0.042) (0.037) (0.041) (0.039) (0.042) Number of Observations 847 452 366 806 412 307 Adj. R-squared 0.061 0.057 0.174 0.121 Panel C Share of Song Aristocrats (logged) All (13) (14) (15) (16) (17) (18) Market Towns -0.082*** -0.084*** -0.079** -0.085*** -0.097*** -0.085* (0.018) (0.021) (0.018) (0.016) (0.030) (0.042) Number of Observations 847 452 368 806 401 311 Adj. R-squared 0.078 0.075 0.133 0.124 Control Variables Yes Yes Yes Yes Yes Yes Prefecture Fixed Effect Yes Yes Yes No No No Province Fixed Effect No No No Yes Yes Yes Other control variables include land inequality, migration after Anshi Rebellion, wars after Tang, population in 980, 1078, 1102, urban centers in Tang, distances to national capital, to provincial capital, agricultural suitability and terrain ruggedness index, altitude. * p<0.05; ** p<0.01; *** p<0.001. Robust standard error in parentheses. Constant added but not reported.

59 Table A3. Merchants, Academies, and Book Titles, IV+RD Estimates Private Academies (logged) Book Titles (logged) All <100 km Optimal All 100 km Optimal Bandwidth Bandwidth (1) (2) (3) (4) (5) (6) Market Towns 0.083** 0.066** 0.071*** 0.106*** 0.117** 0.097***

60 (0.022) (0.021) (0.019) (0.021) (0.022) (0.017) Control Variables Yes Yes Yes Yes Yes Yes Number of Observations 1185 347 305 1185 347 305 Adj. R-squared 0.317 0.316 0.301 0.455 0.408 0.418 Other control variables include land inequality, migration after Anshi Rebellion, wars after Tang, population in 980, 1078, 1102, urban centers in Tang, distances to national capital, to provincial capital, agricultural suitability and terrain ruggedness index, altitude. * p<0.05; ** p<0.01; *** p<0.001.