2025-07-28 18:12:08
I’ve been a bit delayed on articles the last couple of weeks. I will catch up in the coming days.
What’s your staple, bread or rice?
This is a momentous fact, for it might have determined politics, culture, and wealth.
How? Well, bread comes from wheat, and rice from… rice. Here’s where they’re farmed:
Wheat and rice are not harvested in the same places. Rice and bread are the predominant food where rice and wheat are respectively the predominant crops. Here’s another way to look at the same data:
This, in turn, is determined mainly by this:
Rice crops vs rainfall, side by side:
But this doesn’t fully explain it since it also rains a lot in Ireland, for example, but nobody grows rice there. You need the heat found closer to the equator: Rice grows in hot, wet, flat, floodable areas, whereas wheat prefers cooler, drier, better drained areas.
Flooding rots wheat but can 3x the yields of rice.1 That makes wheat well adapted to hills, whereas rice can only survive on hills when they are terraced:
This sounds like just a fun fact, but it ain’t. Because rice generates twice as many calories per unit of area.
This means that rice nourishes families on half the land that wheat requires.
Which means population density in rice areas can be twice as high as in wheat areas, or four times with double cropping.2 A hectare of land can feed 1.5 families with wheat and 6 with rice.
Yet rice paddies also require a lot of work—twice as much as wheat. And that work is almost year-round: preparing paddies, raising seedlings in nurseries, transplanting every single seedling by hand into flooded fields, managing water, pumping it,3 weeding,4 harvesting, and threshing—often followed by a second rice crop or a winter crop. These tasks peak during transplanting and harvest, creating critical seasons where a huge amount of work must be done in a short window of time.
Crucially, this labor cannot be delayed—if you miss the planting window or harvest late, the crop is ruined. As a result, rice farmers developed reciprocal labor exchange: neighbors help each other transplant and harvest in time. The timeliness pressure meant rice villages became tightly cooperative communities to ensure everyone’s fields were tended before it was too late.
"If one is short of labor, it is best to grow wheat" —Shenshi Nongshu (Master Shen's Book on Agriculture, 沈氏农书), 1600s.
Wheat farming historically had a more seasonal rhythm with periods of relative quiet. Wheat is typically sown in the fall or spring and then mainly just left to grow with the rain. Aside from episodic weeding or guarding the fields, there was less continuous labor until harvest time. Harvest itself was a crunch period requiring many hands with sickles—European villages would collaborate during harvest, and farmers might hire extra reapers.
These differences made these regions diverge across politics, culture, and economy.
The fact that wheat can grow just with rain means less investment in irrigation infrastructure, so individual families could fully handle their own fields. Decentralized states were the result of that, very obvious during Europe’s Middle Ages. That was not the case for rice, which required controlled irrigation and flooding, which means irrigation canals, dikes, reservoirs… all of which require collective effort. Neighbors upstream and downstream had to coordinate water usage; entire villages synchronized planting and flooding schedules. And let’s not forget the terracing. This can more easily give rise to hydraulic societies, highly centralized states that control and coordinate the irrigation system, as we saw in How Rivers Shaped States.5
Maybe this made cultures more or less individualistic? Westerners are famously more individualistic than East Asians. Christianity emphasizes the value of every life and every soul, which leads to more individualistic societies that guarantee individual rights of property and life. Meanwhile, Confucianism, developed in China, emphasizes social duties, puts the interests of society at the forefront, and created societies that are much more sensitive to losing face. Could these differences be linked to crops? When your life depends on your relationship with your neighbors, you better develop a culture of group harmony, family loyalty, and consensus decision-making.
This is the Rice Theory of Culture. But is it true?
To test it, academics went to China,6 a country that is politically, religiously, linguistically, and ethnically uniform, but where the north has historically farmed more wheat and the south more rice. There, they found that:
In psychological tests, people coming from rice-farmed areas (“rice people”) were more culturally interdependent than wheat people (e.g., rice people self-inflate less).
Wheat people reason by focusing on individual elements, while rice people think more holistically.
Rice regions have tighter social norms than wheat regions.7
This comes with stronger social order, less crime, and less drug abuse in rice regions.
But also with less individual freedoms and less acceptance of immigrants. Rice regions are more likely to support authoritarian governments.
Outside of China:
Rice-farming nations had tighter social norms than wheat or herding nations.
People in rice-farming villages in Japan were more concerned about their social reputation than people in fishing villages.
Rice-farming societies tend to have less flexible, less mobile relationships.
Wheat people rate family as less important in life than rice people.
Wheat people are also more likely to think that parents have to earn respect from children, rather than respect being automatic.
Rice people treat their friends better but strangers worse than wheat people.
All this could just be correlation, not causation. Luckily, this paper found a quasi-random test, courtesy of the Chinese Communist government, who quasi-randomly assigned people to farm rice or wheat in two state farms that are otherwise nearly identical.
The rice farmers show less individualism, more loyalty/nepotism toward a friend over a stranger, and more relational thought style.—People quasi-randomly assigned to farm rice are more collectivistic than people assigned to farm wheat, Talhelm & Dong
Outside of harvest and planting, wheat farmers had more off-season time. This free time could be spent on other pursuits: tending livestock (common in wheat regions, since dryland grain and pasture were complementary), crafting tools or goods, or engaging in trade and markets during the winter off-season.
More importantly, wheat areas might have accelerated the Industrial Revolution and influenced the wealth of countries today.
When the Industrial Revolution really picked up, in the early 1800s, most available land in the Old World was already farmed. But not in the New World. Crucially, wheat doesn’t require many workers, so expanding farming in the US, Argentina, and Australia was extremely fast.
Since there was little land limitation, labor limitation really hurt, and that’s one of the reasons why American innovation massively contributed to farm labor automation: Automating the little work required could unlock thousands of square miles of new fields.
None of this was possible in the Old Worlds of China or Japan. The areas that could be opened up to rice farming, like in Thailand when new canals opened up the heartland, did get rice farming. But there, the requirement of labor was so massive that it was quite slow. Many Chinese farmers moved there, but that was not enough. The amount of automation needed to unlock lots of rice farming was too high. It was also much harder work to automate, as machines don’t easily deal with mud. All this meant that mechanization of rice farming came much later, that rice production didn’t increase that fast early on, that when it did it couldn’t easily fuel a new class of rich farmers, and that it did not locally accelerate the need for automation early on.
Wheat grows in drier, colder areas than rice and requires much less labor, but also produces less calories per unit of land than rice. As a result, rice areas had:
More population density
Stronger centralized states
A psychology and cultures that foster social harmony and collaboration
Meanwhile, wheat encouraged the colonization of the New World, allowed it to grow its wealth through farming fast, and accelerated the development of the Industrial Revolution, which increased the economic divergence between wheat and rice areas.
In other words, climate determined crops, which then heavily influenced our societies. Even decades after most of us have stopped farming, these effects carry into our subconscious cultures.
Does this mean these crops fully determined the history of the world? No. But they nudged it in a particular direction, like dozens of other factors that we explore in Uncharted Territories. The world is made of systems that mold us in certain ways, unbeknown to us. It’s only when we realize these influences and systems that we can reclaim them and decide where we want to take humanity.
Via this article: Dryland rice produces 1.2 tons per hectare, but flooded rice produces 5 tons (Khush, 1997). And of course, flooding eliminates weeds.
Double cropping was possible after the introduction of the Champa Rice variety, during China’s Song era, around 1000 AD. I am now connecting the dots and realizing that the population explosion that happened in China around that time, which we discussed in this China article, was at least in part caused by the introduction of this variant, as double cropping would allow for twice the amount of grain harvested! That also made the Song possible (as they only controlled the southern part of China). This population boom also caused the need for currency, which the Song solved by inventing paper money!
This great article mentions that pumping water was sometimes done by pedaling, and could take as much as 70 hours per worker. Fun fact, I once spent a summer in Burma trying to sell water pumps to farmers. We ended up building a microfinance institution.
Flooding reduces weeds, but doesn’t eliminate them all. And weeding underwater is much harder to do.
These societies were more common in high density areas like China than in low-density ones like Thailand. Also, as we saw in the article linked, it’s not the case that irrigation meant hydraulic societies. Egypt was one, whereas upstream Mesopotamia was not, because the ability to predict harvests in Egypt made taxation easy. I assume in the flat and heavy-rain areas of the Ganges, Yangtze, Yellow, Red, Irrawaddy, Mekong, and Chao Phraya river valleys, production was easy to predict, so taxation could be effectively executed, and it would lead more consistently to hydraulic societies than in the less predictable Mesopotamia. But I don’t know, so take this with a grain of salt.
This Reddit comment posits that millet was likely a more prevalent crop in China in antiquity. I don’t think it changes much, because from what I can gather, millet’s requirements and growing regions are similar to wheat’s, and northern China is mostly a wheat and bread region, while southern China is the rice country.
This is not the only, or even main determinant of tightness. Others like external threats are stronger.
2025-07-21 16:02:06
Fertility around the world is plummeting.
We’re at 2.3 children per woman, closing in on 2.1, because most countries’ fertility rate is going down, including that of virtually all high-fertility countries:1
Because of this, the population of some places is already shrinking, such as Eastern Europe, Italy, and Japan.2
South Korea is on track to lose 70% of its population every generation, so in two generations, it could go from the current 57 million people to 5 million, for a loss of 91% of the population in ~65 years.3
Globally, population will soon start to shrink:
As we noted in these articles about the future of population, this is bad because:
Fewer humans means fewer people to enjoy the world.
More old people to support means more taxation and an increasingly stagnant economy.
A shrinking population further shrinks the economy, which shrinks investments.
This means a much less innovative world: We’re used to a growing world where everything gets better, but we won’t witness that in a shrinking world. Everything will become old, stagnant. Innovation will grind to a halt. No more constant progress on things from TVs to cures to cancer.
When the economy shrinks, new economic opportunities don’t exist, so existing owners of capital tend to become rentiers and cling to their power. The envy of others translates into anger, and then into conflict.
The only upside people consider is for nature, but that positive impact won’t even be that high, because:
First, a shrinking population will barely make any positive impact on climate change.4
Second, a poorer world means a world that cares less about the environment.
Fourth, less investment also means less green investment, like slowed down solar transition and electrification of the economy.
On top of that, fertility is highly unbalanced:
Which adds another problem because some regions are still growing while others are shrinking, which means there will be population pressures, immigration, and ethnic conflict.
So low fertility is bad. It’s very bad. It ushers a world of conflict, poverty, and decline.
And yet we don’t know how to solve the problem!
Mostly, because we don’t even know what’s causing the drop in fertility!
It’s happening around the world at the same time, the transition can be dramatically fast, and the potential culprits include everything from urbanization to female education, better sanitation, later marriage, feminism, contraception, secularization, cultural expectations, the increased cost of educational signaling, increased cost of childrearing, disconnection of retirement from childrearing…
This list is not just long. It’s bad. Are we supposed to reverse feminism? Ban contraceptives? Expect abstinence? Tell parents to stop educating their children? Push people out of cities and into rural areas? Welcome diseases again? Force people to marry younger? Force religion down on them? Spend one million dollars per child? No, most of these changes are good for quality of life, and most would be impossible to revert even if governments tried.
Between the fact that we can’t diagnose the problem, and that many of these potential problems are nearly impossible to revert, the vast majority of countries that have tried to reverse this trend have failed (with Georgia as a notable exception).5
This is why so many people freak out about fertility:
These future trends in fertility rates and livebirths will completely reconfigure the global economy and the international balance of power and will necessitate reorganising societies.—co-lead author and Lead Research Scientist from IHME Dr. Natalia V. Bhattacharjee.
The decline in fertility rates is exposing us to the most serious aging in human history.—Niall Ferguson, historian
The worldwide population decline is set to begin decades ahead of expectations. Because global fertility trends are much worse than you think.—Jesús Fernández-Villaverde, Professor of Economics at the University of Pennsylvania
I used to be in this camp, but now I’d say I’m worried about fertility, rather than desperate. Why? Because of timelines and technology.
2025-07-16 22:50:28
Few people love their cities’ urbanism. There’s always a problem: Streets are ugly, dirty, expensive, inaccessible, lifeless, overcrowded… But it seems to me that they all boil down to one single problem: Who owns what?
I realized this while at Singapore’s Lau Pa Sat hawker center, a traditional dining venue with dozens of food stalls serving dishes from around Southeast Asia.
As we stood outside, a friend of mine remarked: “Look at the value of this real estate. If they tore this down and replaced it with another skyscraper, imagine the amount of value that could be created.”
Except I disagree.
I count about 25 skyscrapers surrounding this hawker center. A big part of their value is because they are close to the hawker center. This hawker center isn’t just one of the oldest Victorian structures in South-East Asia, it’s also a center of neighborhood life, where hundreds of thousands of Singaporeans get coffee and take their daily breakfasts, lunches, and dinners. This makes the skyscrapers around so much more valuable!
Replacing the hawker center with a skyscraper might make a lot of money. Let’s say adding a 26th skyscraper could add 1/26th in value to the area, or a bit less than 4%. But the surrounding buildings would all lose a lot of value—probably more than 4%. Let’s say 10% of each building’s value, or the equivalent of 2.5 skyscrapers. On balance, the area would lose the value equivalent to ~1.5 skyscrapers by adding one.
Another way to look at this is that the owners of the hawker center would be taking some value away from neighboring buildings, reducing the overall value in the process. They would basically be reducing taking one piece of the pie and reduce the overall size of the pie in the process.
This would be the result of each parcel of land having a different owner: They each optimize for the value of their own piece of land, without considering the overall value.
What’s the standard solution to this? Regulate the sh*t out of it: What any developer can build is very limited, and within those boundaries, every new building or remodel needs a million approvals. Then, another part of the municipality takes care of the trash, another the roads, another the parks… All of them are experts, but they only focus on their own narrow area of expertise.
The ones overseeing the entire thing are usually elected individuals, people who are not as accountable as the owners of specific buildings. Why? A good development can make a fortune, making or breaking the developer’s entire life, so they obsess about getting their development right. Meanwhile, a reelection depends on dozens of factors. A single development going right doesn’t matter much to politicians’ future, but if they gets bad publicity, it can definitely derail their reelection. So politicians by default will not obsess about optimizing a specific development.
This is how you end up in the US with amazing buildings but terrible commons: The developers really only care about their own buildings and nothing outside of them. The experts (trash, fire, traffic, etc.) only focus on their area of expertise. The politicians are the truly accountable people, but their accountability is lower than that of owners, diluted across many other topics, and sometimes with perverse incentives.
This problem gets worse once the developer sells all its units: Now every owner of every apartment / house fights alone for the value of their unit. They’re optimizing for their little corner, at the expense of other neighbors if that’s what it takes, and worrying little about the commons like hallways or lobbies, even if they impact the value of their homes.
They have a coordination mechanism—the HOA, Home Owners’ Association—but anybody who’s been in one knows this ain’t a holy grail. Few have the time to invest properly in the management of the HOA, and decisions are made through broken democratic mechanisms that enshrine the tyranny of the majority…
So what can we do about this?
In the article The fewer the merrier from Works in Progress, Samuel Hughes shares an alternative.
According to him, in London, some groups of buildings like the neighborhood depicted above are owned by single companies for historical reason. The result is that the companies think of the entire neighborhood experience, not only those of a single apartment or building.
They’re not going to cram huge towers there, because then nobody would want to live there. They ponder the tradeoff between more units and more value per unit, which means livability. They will build lovely streets lined up with streets, rent retail space to valuable shops at a loss to make the neighborhood more appealing,
The project above would be impossible to execute if the company didn’t own the entire thing. Municipal governments are unlikely to take this initiative, either, because the work involved is pharaonic (involving hundreds of citizens who might not agree with the new plan) while the upside would be low: Gaining just a few votes in this neighborhood is not worth the hassle.
What this means is that the coordination of the commons is so hard that it doesn’t work, so commons don’t get taken care of unless somebody owns the commons. This suggests that the size of ideal ownership is much bigger than the unit, or even the block.
We see this in malls today: When every stall belongs to a different owner, they become flashy shops trying to attract every shopper’s attention, while the alleys go dirty and lights go unrepaired.
This is why virtually every successful mall has a single owner, which makes sure the hallways are clean and welcoming, adds music, seeks anchor tenants, charges less (and even loses money) to rent space to really valuable shops that will attract more shoppers… Only a single owner can make the hard tradeoffs needed to optimize the whole rather than the parts.
So what’s the ideal size of ownership? The neighborhood level? The city level?
I don’t think the city level is optimal because the owner could become the rentier of a network effect.
Imagine some company owned all of New York City. It could probably get away with high rents, high taxes, and shitty city services, because the value of living in NYC is higher than these costs. People would endure bad management for the sake of the network effects of living with so many other amazing people. In other words, there’s not enough competition.
We saw this in Why Cities Are Fractal:
Network effects of cities are so high that they suck up the business from all around them, preventing other big cities from growing nearby. The bigger the city, the more economic activity it sucks in from a bigger area. This is why Zipf’s Law exists: There’s very few huge cities, and their number grows exponentially as the size goes down.
So network effects eliminate competition between nearby cities, making movement from one city to another really hard. But there’s competition between neighborhoods. If the company managing the Upper East Side of NYC does a poor job, dwellers might move to Greenwich Village. Therefore, each company would have a strong incentive to compete with the companies owning other neighborhoods.
You want enough neighborhoods for there to be competition, and for collusion to be really hard. My guess is this means dividing a city into at least 10 owners of neighborhoods. I’m not sure what the optimal number is: Too few, and there might be collusion. Too many, and they might have problems coordinating and the commons between them might not be optimized.
This leaves a couple of problems:
Who optimizes for the commons between the neighborhoods?
Does this make everybody into a renter instead of an owner? Isn’t that bad?
The first one is easy to answer: We can solve that the way we solve it today. Police, transportation, sewage, or main road services might remain at the city level. Others don’t, like for example, trash collection. But even for the commons that remain at the city level, they would probably get much better management, because now instead of answering to millions of people in cities like NYC, they would only have to answer to a dozen companies, who would be much better at raising concerns.
The other issue is transforming everybody into a renter. Is that bad?
I’m not actually sure this is necessary. Maybe instead of owning your house, you would own a share of the company that owns your house?
Imagine you want to live in a neighborhood with 100 identical houses, owned by RealCorp. Instead of buying your house, which costs 1/100th1 of the overall housing value of the neighborhood, you can buy one of the 100 shares of RealCorp. This share gives you the right to live in one of the houses, but now crucially you don’t own just the value of your house, but the equivalent value of the entire neighborhood. Now, suddenly, you don’t just care about your house. You care about the entire neighborhood, and you want all of it to improve in value.
Imagine, for example, that there’s an empty field nearby. Today, you’d try to block any new building there, because you’d only suffer from the cost (noise, dust), but wouldn’t get any benefit (the value created by the new building). But if you own a share in the neighborhood, you’re getting rich with this new building! You’re going to approve it in a heartbeat.
Another big difference is that now you don’t have to participate in useless HOA meetings. Now these are run by professionals, who spend their days thinking about how to increase the value of the entire neighborhood, because if they do, they make money too.
These professionals would explore the expansion of RealCorp, buying neighboring land like companies buy competitors, adding new amenities like normal companies add products and services, making sure the neighborhood experience is top notch like companies optimize their user experience…
In sum, the fundamental issue with urbanism is that incentives are misaligned: There’s a tragedy of the commons where direct home ownership creates lots of common spaces that nobody cares about. To solve this problem, we should relinquish direct home ownership and get companies to own entire neighborhoods, unleashing the power of the markets to improve our urbanism, because companies would have a vested interest (i.e., money) in making the urban experience wonderful.
In an upcoming premium article, I’m going to talk about why this is a massive deal, and probably the most underdiscussed topic in economics.
Obviously in reality not all homes would have the same value. My guess is there’s probably a bidding mechanism like a stock market that can determine how much ownership of RealCorp you get from owning any given home. I also guess that there’s a component of ownership and a component of rent, or maybe the rent is equivalent to taxes, I’m not sure. This would be worth exploring further.
2025-07-11 03:10:52
In the previous article, we saw how China exported goods like silk, porcelain, and tea to the West for thousands of years without wanting other goods in exchange. They were content receiving just money in exchange. Remember this from that article:
From 1500 to 1800, Bolivia and Mexico’s mines produced about 80% of the world's silver; 30% of that eventually ended up in China!
But why? Why spend so many centuries manufacturing stuff to only get money in return?
The Chinese government’s obsession with money is thousands of years old, and for good reason. Unique pressures pushed the Chinese to first use shells as currency, then invent the first coins, the first paper money, move to silver, back to paper money, actively drive trade surpluses to hoard silver, and eventually cause the direct fall of at least two empires. What were those pressures? Why did they affect China so much?
That’s what we’re going to explore today.
The first currency to be widely used in China was cowrie shells.
Shells have some positives:
They’re durable, so your money is not going to break into pieces.
There’s not an infinite amount of them: If people just used stones, anybody could create money and that money would be worthless.
They look broadly the same, there’s not a massive difference between two shells that would grant a higher price for it.
They’re reasonably easy to transport from one place to another.
But also some negatives, like for example:
You can’t divide shells into smaller pieces (if you break them, they’re just useless broken shells), or aggregate them into bigger pieces.
Shells were obtained from very far away, which made it hard for new shells to reach China, and this meant instability: What if for a long time no shells arrive? The economy grinds to a stop.
If some very entrepreneurial person figures out a way to harvest tons of shells, they can instantly become rich, but the massive amount of shells injected into the economy means suddenly people wouldn’t accept them as currency. Why would you sell your hard-earned wheat for some shells when there are millions of them entering the market?
Here, we’re starting to see that a good currency has some important features:
You must have enough currency for everybody to buy and sell stuff with it. If it’s not widely available, people will hoard what little there is to store their wealth, and the currency will become even scarcer. At some point there won’t be enough circulating for people to buy and sell, and they’ll have to resort to bartering, debt, or alternative currencies, all of which severely impact trade, and hence, the economy.
For example, when the Romans left Britain, the supply of bronze, silver, and gold money disappeared. Over time, the local economy lost the currency it needed to function, and people had to fall back to bartering or keeping track of debts for their exchanges.
Conversely, too much currency is also a problem. If it’s too easy to produce, you’re going to have counterfeiting and hyperinflation. So a currency needs to have just the right amount of scarcity: not too much that it’s rare, but enough that it’s not flooding the market. This usually means that supply must be controlled or be naturally scarce to prevent inflation, loss of value, or hoarding. Often, this also means it must be backed by an issuing authority (central bank) with credible monetary policy.
For example, paper money is easy to print for anybody who has a printer, so historically, paper money can be counterfeited, and this fake money can flood the market. More commonly, the government can overprint money, making it worthless. This has happened in virtually every hyperinflation of the last century or so, and some argue that it’s happening today with dollars. As we will see, this was crucial in China’s history.
A key feature of currency is that it can convey the price of goods over time and space, so that you know the equivalence between one good and another, like how many kg of wheat are equivalent to a cow. But for that you need the currency to be stable: If its value fluctuates wildly, you won’t know the cost of every good, and this will make people nervous, either hoarding the currency or getting rid of it as fast as they can. It will undermine the currency’s role as a store of value or unit of account.
This is one of the concerns about Bitcoin as a currency: Its value swings widely.
What if your gold coin is worth one pig, but you just need one chicken, which costs maybe a quarter of a gold coin? If you can easily cut the gold coin into 4 pieces, it will be more valuable than if it must remain intact.
So for example, shells were not great currency because they were not divisible: If you break them, you can’t put them back together, so the value simply vanishes. Meanwhile, you can cut a piece of metal in two, and still have two halves. You can mint them into a new coin if you want. Metal’s divisibility is good.
If your money can break, oxidize, or simply disappear, that’s not good money. It must be durable.
That’s why paper money was bad, as notes could break easily, even just by getting wet. Same thing for shells, which could shatter or be crushed. It’s also why perishable food is a horrible currency, and why grain could be used as currency more easily than fruit.
A currency must be easy to carry or transfer. If it’s too heavy or voluminous, you can’t easily move it around.
This is one of the big drawbacks of metal money, and why metals like gold, which were more valuable per gram, were preferable to others like iron: Iron is not scarce, so its value is low compared to its weight. Iron also has a durability issue: It rusts, while gold doesn’t.
Currency is fungible when each unit is identical in value and interchangeable with another of the same denomination (e.g., one $10 bill = any other $10 bill).
Imagine a time when people had to handle coins of different metals, sizes, and weights. They had to weigh each coin and value each coin differently, dramatically increasing transaction costs. If you know that every coin is exactly the same, you can just look at them and know how much value they represent.
Effective currency is universally accepted within the economy where it circulates. Usually, that means it’s backed by trust, government decree (fiat), or intrinsic value (e.g., gold).
People accept US dollars around the world because everybody else does, and because the US government says: “I accept dollars as a way to pay me, and I will forever.” People trust the US will be around for a long time. But many don’t accept Bitcoin or Ethereum yet, simply because others don’t, either.
So why did the Chinese obsess over silver so much? How did they end up prioritizing that type of currency over all others?
According to our factors, shells are not that great as currency:
Since China has always had a huge population, which grew earlier there than in most other regions, it quickly needed a better alternative:
The solution was… knives!
It’s unclear how knives became money. My guess: Knives were intrinsically valuable, and unlike shells, they were available (there are knives around, and more can be made as long as there’s metal), scarce (there aren’t infinite amounts of metal), and durable (especially if they were made of bronze). Once people started using them as a means of exchange, they standardized them, making them fungible, and eventually knives as currency became acceptable and stable, too.
The problem is that they were not divisible and were hardly portable.
Low portability came from the weight of the bronze. As for divisibility, bronze is divisible, which made it a reasonably good metal to use, but bronze in the shape of a knife was not as divisible.
So the obvious next step is to replace knives with something:
More portable
More divisible, which means different sizes representing different amounts of money. That way small and big transactions can be facilitated with different denominations.
Enter cash coins.
Cash coins could have different standardized sizes to represent different amounts of value, solving the knives’ main issue of divisibility. The standardization and centralization of supply is important, because then you can know the exact amount of precious metal you are getting in a coin. If you have coins of different sizes and different purity, you lose this.
And of course, many of the coins were smaller than knives, so they solved the problem of portability for small transactions.
You’ll notice that they have a hole in the middle. Why?
2025-07-08 20:03:08
Westerners fear their chronic trade deficits with China: How long will they last? What happens when the West owes China so much they can’t repay the debt? How should we understand the current trade war between the US and China?
What we don’t realize is that this isn’t the first time this has happened. We need only look at History: The West has had deficits with China for over 2,000 years, and they have had a massive impact on world history, from the opening of global trade routes, to the establishment of colonies, colonial policies, international wars, the emergence of nation-states, the politics of present-day China and the US…
So today, we’re going to take a fascinating trip across four commodities that drove the history of the world: silk, porcelain, tea, and opium.
Here’s how much Romans loved luxury goods:
India, China and the Arabian peninsula take one hundred million sesterces1 from our empire per annum at a conservative estimate: that is what our luxuries and women cost us—Pliny the Elder, Natural History (77–79 AD).
Of these, silk was the biggest import from China. In 14 AD the Senate prohibited the wearing of silk by men!
To pay for it, Romans traded glassware, amber, wine, carpets, and other goods,2 but they didn’t make up for the value of what Romans bought from China. And in general, Chinese traders preferred money—mostly gold and silver—over other goods. Here’s the chronicler Solinus, writing in the 200s AD about the Silk Road:
From the beginning of the [Caspian Sea] coast, we found deep snows, long deserts, cruel people and places, cannibals and the most terrible wild beasts, which make this half of the road practically impassable. After [...] crossing vast uninhabited regions, the first people we hear about are the “Seres” [Chinese]; they sprinkle water on the leaves of certain trees, to make them humid so to produce a substance that will turn into skeins similar to cotton. This is called “sericum” [silk], which we know and use, which awakens a passion in women for luxury, and with which even our men dress now, leaving their bodies on display.
The “Seres” are civilized and peaceful people, but avoid contact with other people, refusing to trade with other nations. Every time they cross the river and out of their country to do business, they do not use their language, or talk; they make an estimate with a look, and stipulate a price. They prefer, by the way, only to sell their products, but do not like to buy our goods.3
The European and Middle Eastern appetite for silk was so huge that Europeans obsessed about producing silk locally, but they didn’t know how to make it and didn’t have silkworms: China had protected its near-monopoly on silk for many centuries thanks to imperial orders to execute anybody caught trying to export silkworms or their eggs. The only way to succeed was by stealing them, and that’s precisely what two Christian monks did around 550 AD, risking their lives to smuggle silkworms hidden inside their canes.
This started silk production in the Eastern Roman Empire, which would slowly permeate through the rest of Europe.
This might have been the first time Chinese manufacturing prowess caused a trade imbalance in the West that required political intervention, but it wasn’t the last.
It’s not a coincidence the English call porcelain “china”.
The Chinese had been perfecting porcelain for thousands of years to make it thin, strong, and resonant. No other civilization could replicate this for a very long time.
But porcelain could only start reaching Europe in the 1500s,4 which is not a coincidence either: Porcelain was too heavy and fragile for overland routes, so it needed a maritime route to reach Europe. The Portuguese found a path to the Indies circumventing Africa just around 1500. It was very much their goal to bring back luxury goods to Europe, after the Ottomans had conquered Constantinople in 1453 and closed the Silk Road to Europeans.
Chinese porcelain was so much thinner, whiter and more translucent than local wares that European nobility really prized it. Its high price and scarcity were a core part of its success, too, as it gave its owners status. The most famous was the white and blue porcelain:
But there were many types, and European nobles loved hoarding them.
Of course, the high price porcelain commanded became an incentive for Portuguese merchants to increase its import. The Dutch copied them and started trading porcelain with China, too. Soon followed the English, the French, and even the Swedes—any European country with access to the Atlantic, really. Spain did the same, but via the Pacific Ocean.
Here’s a fascinating detail: You know how nowadays Westerners design some products and then they send those designs to China for manufacture?
Porcelain is another example of China manufacturing products that Europeans craved, but again it didn’t need anything Europeans produced. Except for silver. So silver flowed from Europe to China. From 1500 to 1800, Bolivia and Mexico’s mines5 produced about 80% of the world's silver; 30% of that eventually ended up in China!
Europeans hated that flow, as the silver disappeared as fast as it was produced, so they tried to stop it. Of course, the most incentivized were the countries who didn’t have access to either silver or trade with China. This is why the Italians tried to copy porcelain in the late 1500s with Medici porcelain, although they largely failed. By the early 1700s, Germans succeeded. A few years later, in 1712, the French Jesuit father Francois Xavier d'Entrecolles published the secrets of porcelain making in Europe, which he had read about and witnessed in China. In the following decades, the local production of porcelain increased and the import of Chinese porcelain fell.
But look at what happened with tea:
It started arriving in Europe in the 1600s, and by the 1700s it had become a craze, especially in Britain and its American colonies.6
The more demand for tea increased, the more its price dropped, and the more people across the empire could afford it and consumed it, which increased the overall British spend on tea.
This trade grew so much that it became a matter of political importance. Remember: It was a tea taxation incident that sparked the American Revolution. From Lewis Dartnell’s book Origins:
The British East India Company endeavoured to supply American demand, but by the late 1760s, most of the leaves consumed in the colonies were smuggled Dutch tea, encouraged by American patriots against British taxation. To undercut the price of smuggled tea, the British parliament passed the Tea Act in 1773. This allowed the company to ship tea directly from China to America, without having to pay British import duty, and granted them a monopoly on the sale of tea in America. The tea was subject to tax only in the colonies. The colonists, however, viewed this as an attempt to foist British taxes on them. They harassed East India Company consignees, refused to accept the tea and left it to rot on the dockside, or prevented the East Indiamen from landing the product. One of the most public–and famous–displays of rebellion flared in Boston Harbour, where in December 1773 protestors boarded the ships and destroyed over 340 chests full of tea by dumping them over the sides into the harbour waters. This Boston Tea Party triggered similar acts of rebellion in other ports, including New York. The situation escalated with parliament in 1774 passing the Coercive Acts–or the Intolerable Acts, as they were known in America–designed to make an example by punishing the defiance of Massachusetts, stripping the colony of self-governance and forcing the closure of Boston Harbour until the ruined cargo had been paid for. But these harsh reprisals only served to unite the colonies against the king, and tensions continued to mount until the War of Independence erupted the following spring.
The Boston Tea Party destroyed China-grown tea bought with Spanish-American silver because of British taxes.
Back in Britain, tea’s ever-escalating trade imbalance with China became a serious economic problem, so much so that the British King George III sent an envoy to the Chinese Emperor to ask for more trade liberalization. These are excerpts of the Emperor’s response:
Our Celestial Empire possesses all things in prolific abundance and lacks no product within its own borders. There is therefore no need to import the manufactures of outside barbarians in exchange for our own produce. But as the tea, silk and porcelain which the Celestial Empire produces, are absolute necessities to European nations and to yourselves, we have permitted, as a signal mark of favor, that foreign merchants should be established at Canton, so that your wants might be supplied and your country thus participate in our beneficence.7
So what did the British do to solve the trade imbalance? Two things. One is that the East India Company sent Scottish botanist Robert Fortune to China to purchase and export Chinese tea plants in the 1850s. This kick-started tea production in India, which grew over the following decades, reducing the share of Chinese tea consumed. Here we have, for the third time, a smuggling of Chinese production know-how to reduce trade imbalances.
The other thing that the British did was introduce opium.
When the British conquered India8 in the late 1700s, they were very conscious about their trade imbalance with China, so they looked for any way to reduce it. They found the right tool in opium. They devised a plan to produce it in India and sell it in China. So the British drove local farmers in eastern India out of crop production and into poppies, from which opium is derived.
Then, the British introduced opium smoking in China.9
Initially, it was considered a medicine. It was the only available pain-killer. Then, it spread among the cool and rich. From there, it spread to the rest of society. Of course, many of those who tried it became addicts.
It took off.
The Emperor Jiaqing noticed all this so he published an edict to stop it in 1810:
Opium has a harm. Opium is a poison, undermining our good customs and morality. Its use is prohibited by law.
But the government couldn’t enforce it. When the Chinese government finally cracked down on opium in 1839, the opium trade was paying for all the tea trade and then some, so the British reacted to protect the trade and attacked China; this was the First Opium War.
Britain won and bent China's arm: It would be allowed to sell opium in China. It also took over Hong Kong.
There would be another Opium War, after which the British, and then other Westerners10 could reach far inland in China to sell opium. The deficit to China became a surplus. Over the following decades, opium addiction became widespread. By 1949, 4.4% of Chinese people were addicted. Local farmers replaced their crops with opium. Governments used opium taxes to finance themselves, and this lasted until the Communist Party had a strong enough chokehold on society and culture to finally ban opium.
This is what the Chinese call the century of humiliation, when China went from the richest and most advanced nation of the world to a dirt poor backwater.11
This has many repercussions to this day. This century of humiliation is a core reason why China is so assertive about its growth and expansion today. It believes it should just get back its rightful place in the world, which was stolen by Western powers by force and subjugated through drug addiction. The Chinese CCP takes its legitimacy from ending this dark period of Chinese history. This is why it’s so sensitive to US power, why it builds up its military now, why education is so patriotic, why it wants to close that chapter by unifying with Taiwan.12
What can we expect from China based on this? To continue this buildup, to become stronger and more nationalistic, to never ask for other great powers’ help, to continue getting land buffers around it, and to try hard to unify with Taiwan.
As for trade, today, we’re back to a world where China is a net exporter.
Once again, China produces more than it consumes, which means it’s more interested in foreign money than goods. Once again, Western governments freak out about this deficit, which can’t continue forever.
If we follow history, what can we expect to happen in the future? Like for silk, porcelain, and tea, Western countries will likely try to figure out Chinese manufacturing prowess and replicate it in the West—exactly what China has been doing to Western countries for the past 45 years.
China is protecting its economy from foreign trade like it has done for thousands of years. So if the Opium Wars are a valid precedent, Western countries will do whatever they can to open up trade to China. This is the context for the trade war that Trump has started, except this time Chinese markets can’t be opened up with guns. Or can they? Will this eventually lead to war?
I think there’s one fundamental difference between today and previous instances: currency. For 2,000 years, China was obsessed about hoarding one thing: silver. Why? Why was silver so important? Why did China need it so much? Why couldn’t it produce it? Why isn’t it as important today as it was in the past? Has US debt replaced silver? These are the questions I’m going to answer in this week’s premium article.
ChatGPT tells me a sestertius is worth $2-$30 today if you compare food and wages, so 100M sesterces would be about $200M-$3B today. It also estimates the Roman Empire’s budget at 800M sesterces, so the spend on luxury goods would be equivalent to ~12% of the annual budget of the government!
In most history texts you read, these lists of goods are named in passing, but in reality this is where most of the interesting stuff lies. For example, where did that amber come from? Most of it was from the Baltic shores, near what is today Gdansk, Poland. This in turn was one of the sources of income and development for that region, starting with the Romans. Amber is a product of that region to this day.
There are several reports of that time that mention the Chinese’s refusal to meet or interact during trades. I find that fascinating.
Some porcelain arrived earlier than that, in the 1300s or so, via Constantinople, but the volume was extremely low at that time.
Mainly Potosí in Bolivia and Zacatecas in Mexico
Fun fact: part of this success that was unique to Britain was the hand of the government. From Wikipedia: “The British East India Company, at the time, had a greater interest in the tea trade than in the coffee trade, as competition for coffee had heightened internationally with the expansion of coffeehouses throughout the rest of Europe. Government policy fostered trade with India and China, and the government offered encouragements to anything that would stimulate demand for tea. Tea had become fashionable at court, and tea houses, which drew their clientele from both sexes, began to grow in popularity. The growing popularity of tea is explained by the ease with which it is prepared. ‘To brew tea, all that is needed is to add boiling water; coffee, in contrast, required roasting, grinding and brewing.’"
The letter is so arrogant, it’s really entertaining. It goes on, addressing why the British can’t take land for trade purposes, can’t trade with more ports, and can’t spread Christianism. I’m especially a fan of this sentence: “It may be, O King, that the above proposals have been wantonly made by your Ambassador on his own responsibility, or peradventure you yourself are ignorant of our dynastic regulations and had no intention of transgressing them when you expressed these wild ideas and hopes....”
And what are today India, Sri Lanka, Bangladesh, Pakistan, and parts of Afghanistan.
Opium was already known and used in China, just not widespread. The British spread its smoking, which made it more successful.
Originally just Britain and France, who fought the Chinese in the 2nd Opium War. The US and Russia would also get access to trade in China, and later other countries like the Netherlands, Portugal, Italy, Japan…
In terms of GDP per capita for sure. With 500M people in 1950, that was hardly a backwater in terms of overall GDP or power.
Or why Singapore is so aggressive against drugs today: It was founded by a Chinese majority, and the memory of the opium tragedy is still fresh.
2025-07-06 17:00:18
A few weeks ago, I shared the four layers of fashion, the reasons why we dress the way we dress: function, aesthetics, signaling, and path dependency. But it’s hard to be convinced of how universal these rules are without considering examples, so here are four key ones: suits, athleisure, jeans, and saris.
Usually a dark blue or …
