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Velocity of Money and Economic Development in Medieval China: The case of Northern Song
Author(s) -
Dong Baomin,
Gong Jiong
Publication year - 2014
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/rode.12079
Subject(s) - economics , hoarding (animal behavior) , money supply , treasury , velocity of money , china , monetary economics , quantity theory of money , gross domestic product , moneyness , premise , economy , endogenous money , macroeconomics , monetary policy , history , ecology , foraging , archaeology , biology , linguistics , philosophy
A Fisher's Identity model is established to study N orthern S ong C hina'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 N eedham puzzle.