The idea that the Song experienced an economic (or monetary, financial, commercial) “revolution” has gained broad currency in the historiography. One key development was the monetization of the economy, including the introduction of paper currency, used along with various kinds of metal currencies for all kinds of commercial transactions and even tax payments. The role of the state was crucial, both in providing infrastructure for transportation and distribution networks and in implementing policies that supported merchant entrepreneurs and promoted the development of agriculture through the introduction of new technologies and new crops. Farmers specialized in the production of certain commodities, and ceramics, textiles, and other goods were also produced for the marketplace. Both urban and rural markets proliferated, and new kinds of merchant enterprises accompanied this commercial growth. The expansion of shipbuilding and advances in both shipbuilding and navigational technology supported the growth of maritime trade. Commercial relations with Japan and Korea in particular also fostered cultural connections: the transmission of religion, books, and other cultural commodities went along with silks, foodstuffs, metals, and aromatics. Despite ongoing political and military conflicts between them, overland border trade continued between Song and its northern nomadic neighbors to supply essential and luxury goods.

The genesis of Chinese political economy can be traced to the Warring States era (453–221 bce), which was marked on one hand by rapid economic progress (the spread of iron metallurgy, advances in agricultural productivity, the invention of coinage, and the emergence of a private merchant class) and on the other hand by the rise of autocratic states (accompanied by the centralization of political power and mass mobilization for war). The economic principles and policies that later shaped the formation of the first unified empires – what I will designate the militarist–physiocratic state – were enunciated by leading ministers of the most successful autocratic states, such as Li Kui in Wei and Shang Yang in Qin, and set down in works such as The Book of Lord Shang and Han Fei Zi.

The long transition – often marred by violence – between Tang and Song discerned by Naitō Konan marked the advent of a new world. The An Lushan Rebellion (755–763) triggered profound political and military crises that shattered the institutions of the Tang dynasty, but also set in motion the slow progression of the market economy, which the Tang leadership began to see as the necessary means to restore its fiscal authority. With the collapse of the equal-field system of state land allocations in the wake of the rebellion, the Tang abandoned the principle of uniform, in-kind taxation of farming households as the basis of its fiscal and military systems. Urgent necessity prompted the adoption of new and more flexible fiscal strategies to secure revenues from commerce and consumption. The expansion of the market economy mitigated the Confucian elite’s traditional hostility toward commerce and acted as a key catalyst for the mercantilist policies pursued by the southern kingdoms during the first half of the tenth century.

The integrity and durability of the Chinese empire over two millennia rested on the strength of its fiscal capacity. From antiquity, sovereignty was linked to the ruler’s duty to provide for the economic as well as moral welfare of his subjects. Rulers of the Bronze Age manifested and reproduced their authority through distribution of wealth among their kinsmen and noble allies. The autocratic monarchs who rose to dominance after 500 bce amassed wealth to buttress their military prowess, but they also strove to protect the independence and livelihood of the smallholder family farmers who undergirded their economic prosperity. The institutional apparatus of the fiscal state – centralized planning of taxation and expenditure to satisfy the state’s commitments to good governance – became a defining feature of the first empires, beginning with the Qin dynasty (221–206 bce). Yet at the same time the rise of a market economy also shaped the relationship between the state and its subjects. Even the command economy instituted by the Qin Empire made accommodations to markets, merchants, and money.