"Every perception is to some degree an act of creation, and every act of memory is to some degree an act of imagination."
-- Gerald Edelman, Second Nature: Brain Science and Human Knowledge
5 China’s Lessons and Its Ways of Operating7 China’s Lessons and Its Ways of OperatingChina’s Lessons and Its Ways of OperatingChapter 6: The Big Cycle of China and Its Currency2020-10-09Journal
The following charts convey some information about how Chinese money and credit passed through these cycles. As I explained in Chapter 2, “The Big Cycle of Money, Credit, Debt, and Economic Activity,” there are three basic types of monetary systems in which 1) money has intrinsic value (like gold, silver, and copper coins), which I call a Type 1 monetary system, 2) money is linked to assets that have intrinsic value, which is paper money that can be exchanged for gold or silver at a fixed price (a Type 2 monetary system) and 3) money that is not linked to anything, which is called a fiat monetary system (a Type 3 monetary system). As explained, these have historically changed from one to another as the weaknesses of each become intolerable. The diagram below conveys an ultra-simplified picture of how these currency systems have rotated through China’s history since the Tang Dynasty.\[10\] In fact it was much more complicated than this as different parts of China often had different currencies and at times coins and ingots from other countries (e.g., Spanish silver dollars in the late 16th century) that changed more frequently than what is conveyed in the chart. Still the chart is broadly indicative and meant to show that they had the full range of monetary systems that worked essentially the same as elsewhere in the world, most importantly with the cycles of hard money leading to debt problems leading to the abandonment of hard money leading to high or hyperinflations leading to the return to hard money.