I posted this on the Facebook discussion board, but I figured a lot of people only check the forums and might be interested in this too. I have never heard this story before and it’s a fascinating microcosm of libertarian political theory and Austrian monetary theory in action:
“At the beginning of the 1920s Zhang transformed Manchuria from an unimportant frontier region to one of the most prosperous parts of China. He had inherited a financially weak provincial government, e.g. in 1917 Fengtian faced ten outstanding loans from foreign controlled consortia and banks totaling over 12 million yuan. Zhang chose Wang Yongjiang, who had served as head of a regional tax office, for the task of solving Fengtian’s financial problems. He was named Director of the Bureau of Finance.
A number of currencies were circulating in the province, as was the custom in China, and the paper notes issued by the provincial government had experienced a steady depreciation in value. Wang decided to switch to a silver standard and set the initial value of the new silver yuan equal to the Japanese gold yen, which was accepted throughout Korea and Manchuria. Much to the surprise of the Chinese the new currency even gained in value against the gold yen, although Japanese businessmen claimed that it was not backed up by sufficient silver reserves. Wang then used the newly gained credibility to introduce another note, the Fengtian dollar, which was not convertible into silver any more. But it was accepted by the government for the payment of taxes, a sign that the government had faith in its own currency.”
“…Manchuria was placed under martial law again, while its economy disintegrated under the burden of the insatiable war machine. Old taxes were increased and new taxes invented. Zhang demanded that more paper money was being printed out of step with silver reserves.”
( http://en.wikipedia.org/wiki/Zhang_Zuolin )
Have any Austrians written a book about the monetary history of the world? That would be a fascinating (and incredibly long) read.
