Taxation in China 1650-1911

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Professor Taisu Zhang, Yale University, gave a zoom seminar, The Ideological Foundations of the Qing Fiscal State, September 25, 2020 with commentators Professor Aziz Rana, Cornell University Law and Professor Yuhua Wang, Harvard University Government. This is for a book he's working on. The question is why taxes were so low in China under the Manchu Ching dynasty, roughly 1650-1911. They started with a total amount of official taxation at about the level of the Ming and previous dynasties. Then the population tripled, and the economy, but total tax revenue stayed the same.

I wonder about the whole situation. What were the taxes spent on? How were they administered? Did the Ching use tax farming? Were the tax farmers collecting much higher tax than actually reached the government? Was this a way to to get local support, by letting Han Chinese get rich as tax farmers? This was addressed a little, but with a lot of hand waving. It's really important to know how much the economy is paying in legal plus quasi-legal taxes. Was it a rice tax, or an income tax, or a poll tax, or a land tax? Was it a levy of X per village, or was it on the individual?

Also, were there local taxes and was most government local government? Who ran courts? Who paid for policing? Who paid for local roads? My guess-- totally uninformed-- is that there was a vast system of local government, perhaps not formalized, with substantial taxes-- tho not labelled as such. Isn't that how most pre-industrial government works? The taxes might, for example, be in the form of compulsory work on roads by peasants and on adjudicating disputes by gentry. Both might actually receive payment as "tips".

Manchu China did not increase its number of officials even as the population tripled. It must have governed less. Or, more likely, localities governed themselves. How did they pay for local courts and police? Militia and hue-and-cry and the posse are forms of in-kind tax.

Were bribes a major  form of tax used for financing administration?  See Becker and Stigler on Chicago police. Law enforcement, malfeasance, and compensation of enforcers GS Becker, GJ Stigler - The Journal of Legal Studies, 1974.  They make the point that it doesn't really matter whether you pay a $20 fine for speeding in Chicago  that is used to finance police salaries or pay a $20 bribe to the policeman who catches you speeding. The finance and incentives are close to identical (except that the policeman has an incentive to do a better job if he earns bribes by  catching speeders instead of earning a flat salary even if he spends all his time eating donuts.) 

Tokugawa Japan taxed much more lightly than Meiji, I think I was just reading. Taxes actually declined in Tokugawa Japan 1600-1868, I think, even as the amount of farmed land increased. Harold Bolitho, Harvard, chapter in Warrior rule in Japan is good on that.

The Manchus were always conscious that they were a tiny minority of foreigners running a giant country. If they taxed much less than the native dynasties, no wonder the Han were happy with them. The Ching Dynasty was very aware of Ming court excesses, and economized more. I asked what the Manchus would have done with more taxes in 1800 and you said they'd hire more bureaucrats. It's kind of a funny answer, isn't it-- we need higher taxes, because then we could have more bureaucrats? But are bureaucrats a good thing or a bad thing? Government spending is *not* good in itself. Again, recall that the emperor was Manchu. Would he really want to tax the peasants just to give Han bureaucrats useless jobs? To be sure, the extra officials might have helped somehow. How? Would the people have benefitted, or just the official class? Note that you can't trust what officials of the time were saying. Like American officials today, they believe in giving money to bureaucrats, and it's totally self-serving. Read Han Fei Tzu on this-- he is quite scathing about how the Confucian officials think the solution to everything is to give more power to Confucian officials.

You say that low taxes killed Ching China. I am highly dubious. Low taxes are extremely good for economic growth, as a direct effect. Indirectly, of course, if the government does not provide public works and national defense, that hurts the country and the economy. But was there more need for public works and national defense increasing from 1650 to 1900? To be sure, China was pushed around by the Europeans and Japanese, but was that bad for the Chinese people? They didn't lose anything from losing Port Arthur and Taiwan or the treaty ports-- indeed, they gained from having European commerce, with the big exception of opium. There was the Taiping rebellion, which was a huge disaster--- but was that due to low military spending? Were the rebels better funded than the government?

Economist today would pretty much unanimously say that when developing countries raise taxes so they can build railroads and factories, that is a disastrous policy. It is better to let private companies do those things. They do them at lower cost and with far less corruption, they don't do it to favor special interests with power in the government, and they have expertise--- even a small-time hauler is going to have more business sense than a Confucian-poet-bureaucrat who has never broken a sweat in his life.

If you imagine yourself as emperor of China in 1700, or 1800, or 1900, you would want to introduce new kinds of spending-- free schools, for example, and free medicine. But the actual emperors didn't even conceive of that as a possibility, I should think. By 1850, it was a possibility, but the people who ran the court didn't want to modernize that way. So what would they have done with higher revenue? A bigger army, probably. Would that have helped maintain the regime? Unclear. A bigger army might mean increased likelihood of a military coup, and a military coup was a much much bigger threat than foreign conquest.

In European countries, war was the big reason to have and to raise taxes. China was not interested in conquest. What would China have done with more taxes in 1800? What did European pre-industrial countries do with taxes? Military and royal lifestyle spending, and gifts to friends and political supporters.

Nowadays, governments love high taxes because they want to enrich the bureaucrats and they are insecure in power, having to take money from the opposition's voters and give it to their own voters to keep power. But the Ching emperors used their military power, and only had to worry about pleasing the army, and especially the Manchu part--- which they did worry about.

Ching China was much richer and that is the explanation for the low tax rate. You say that in 1650, the Ching tax rate was just as high as Ming. So really the puzzle is why Ching taxes were so low in 1800 and 1900.

As an explanation: how about that the Ching emperors were not militarily ambitious and were reasonably content with their level of luxury spending? Why *would* they raise taxes? How many wives does a man need? After 100, satiation sets in.

Here's a theory. The emperor's goal is to consume concubines, to use a simplified example,  which costs money. If he consumes too many,  the probability of rebellion rises. Thus, he will increase his number of concubines until  an additional concubine would raise taxes enough that the value would be balanced by the increase in the probability of rebellion and suddenly moving to zero concubines.

Suppose national wealth rises. It is reasonable to suppose that now the extra tax from a new concubine will be less likely to cause rebellion than before, since people don't mind the extra tax dollar so much if they are richer. So the emperor will increase his harem as national wealth rises. The utility of extra concubines, however, diminishes as the harem gets bigger. At some point it falls to near zero. The disutility of rebellion actually increases, though, with the size of the harem, since the fall to zero becomes a bigger and bigger loss. Thus, at some point, as the economy becomes richer, the emperor will cease to expand his harem, and taxes will remain constant.

Some formalism might help.  (Or maybe not.) The emperor's utility is U(x), where x is the amount (continuous rather than discrete 1,2,3... ) spent on concubines, and dU/dx >0 (more concubines is better) and  d^2U/dx^2<0 (dU/dx falls with x; the extra utility from extra concubine spending falls as more is spent; diminishing returns). The probability of overthrow is p(x; GDP), where dp/dx>0 (more concubines means more taxes and more taxes means mroe probability of overthrow) and GDP is national income, where also dp/dGDP<0 and d^2p/dxdGDP<0 (rebellion decreases with GDP and people don't mind extra taxes as much if GDP is bigger). The emperor's   problem is to maximize  by choice of concubine spending

(1-p(x)) U(x) I won't go further, but the result will be that the optimal choice of x will rise with GDP, but not proportionately, I think.

Perhaps the math is unnecessary. The basic point is just: Why risk rebellion by spending more on concubines when you already have plenty?

Note, too, that after 1650, the threat from nomadic invasion fell. Guns became more and more important; cavalry's importance fell. Previous Chinese dynasties always got some benefit from a bigger army. The Manchus, on the other hand, co-opted the Mongols, were the Manchus themselves, and took aggressive steps to eliminate the Turkish threat. The Europeans were too far away to be a threat. Indeed, even after 1800, though the Europeans had good ships and weapons, they were never a serious threat of conquest. The Russians were a concern, but they stopped expansion and made no attempt to expand until the late 19th century. The British could have conquered China, but they didn't want to, and the Chinese were correct in not viewing conquest by Europeans as a threat. Only after 1868 was there a real threat, from Japan and Russia, and even then it was not serious until the 1930s.

The conventional view is that China was a mess because other countries could push it around. I wonder. Opium and the Taiping rebellion were truly disasters. Foreign trade wasn't. Loss of Taiwan and Korea wasn't, at least for China (for Taiwan and Korea it was bad). Was the population still increasing 1800-1900? If so, maybe that century was actually good for China. The incompetence of the central government might have been a good thing, not a bad one, if it left room for people to improve their lives without oppression. Again, the Taiping rebellion is a massive example to the contrary-- but the problem there was that the central government couldn't maintain order and prevent local dictators from tyrannizing, which was also the problem 1911-1949.

Yuhua talked about how the early Ching were worried that if they raised taxes, they'd end up with rebellions like the Ming did. But apparently early Ching had taxes just as high as Ming, so they must not have worried much about that. What the Ching *did* worry about was Ming decadent luxury-- concubines and eunuchs. It was the emperors' bad character that killed the dynasty, not high taxes. So the Ching wanted their emperors to remember they were Manchu warriors, not Ming pansies, and not get corrupted by Chinese luxury. That meant controlling court luxury spending--- which would have been the main motivation for increased taxation. 

Professor Yuhua Wang asked: Why didn't the Ching choose higher taxes and higher oppression? That's the big question.

What would the Ching have spent extra tax revenue on in 1800? Did the emperor really want more concubines? Maybe he valued reducing the probability of rebellion more, or even valued the people's happiness more than increasing his already lavish lifestyle. Did previous dynasties have higher tax rates because they had just as big harems but a poorer economy?

You might compare with Tokugawa Japan, where I recall that the amount of rice tax did not go up even though land under production rose a lot. Same puzzle. Same lack of foreign wars too. Not Confucian either, and no local gentry worried about peasants.

Maybe it's not a puzzle at all. Why *should* taxes be high? Why should they rise just because the economy grows? Nowadays, it's because expenses rise, because the government pays for schools, medical care, taking care of the aged, and so forth. Then, the government paid for the army and public works--- which were mostly built already. So why raise taxes?

Erin Richards on Twitter says:

One piece of this, if I recall correctly, is that the bimetallic currency system got out of whack. Everyday transactions were in copper cash, while taxes were assessed in silver taels.

Conversion rate was supposed to be 1000-1, but over the 19th century reached 1600-1 or worse.

He later tweeted that that's from Platt's Imperial Twilight.

It is important to distinguish the world of being from the world of seeming. It seems Ching taxes were low. But if we measure taxes by official tax revenues in silver dollars, that might be just Seeming. If silver rose in price, then the true tax level rose. If tax collectors collected double what they reported, taxes are higher than the official measure. If most taxes were local levies, central government taxes would give the wrong picture. I do get the impression that true taxes were very low, but this needs pinning down.

Besides Tokugawa Japan, an interesting comparison would be to British India. How high was the tax rate in 1770, when it was a for-profit enterprise much criticized in the Hastings trial for oppressing India? How high was it in 1860, when it was the Raj, much more benevolent? What did government spend money on in 1800, 1850, and 1880?