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The Rise of a Merchant Class and the Emergence of Meritocracy in China

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The Rise of a Merchant Class and the Emergence of Meritocracy in China WHY THE SONG DYNASTY? THE RISE OF A MERCHANT CLASS AND THE EMERGENCE OF MERITOCRACY IN CHINA Ting CHEN∗ James Kai-sing KUNGy This version, May 2019 Highly Preliminary, Please Do Not Cite.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. yJames 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.
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