Some Doubts about the Economic Analysis of the Flow of Silver to China in 1550-1820
Jacques Melitz
Jacques Melitz

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

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


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