We wish to thank Bo Chen, Lex Zhao, Kaixiang Peng, Debin Ma, IEFS China 2012 conference participants and an anonymous referee for their comments which improved the paper. All errors are our own.
Velocity of Money and Economic Development in Medieval China: The case of Northern Song
Version of Record online: 2 APR 2014
© 2014 John Wiley & Sons Ltd
Review of Development Economics
Special Issue: Issues in Asia. Guest Editor: Laixun Zhao
Volume 18, Issue 2, pages 203–217, May 2014
How to Cite
Dong, B. and Gong, J. (2014), Velocity of Money and Economic Development in Medieval China: The case of Northern Song. Review of Development Economics, 18: 203–217. doi: 10.1111/rode.12079
- Issue online: 2 APR 2014
- Version of Record online: 2 APR 2014
A Fisher's Identity model is established to study Northern Song China's (960–1126) level of velocity of money using money supply and gross domestic product (GDP) data. Results of the exercise help rationalize what is called the “bronze coin” puzzle, which is the massive amount of minted coins seemingly incommensurate with price levels. It is shown that the velocity of money was increasing and comparable to pre-industrial England levels. This paper argues that the driving forces of the short supply of money are greater than usual hoarding by the state treasury and coin outflows to Song's trading partners via smuggling. Since velocity of money is an indicator of economic development in ancient societies, this paper provides a realistic validation of the premise of the Needham puzzle.