Tomoko Shiroyama's China During the Great Depression: Market, State, and the World Economy: 1929–, is part of a growing literature offering new perspectives on China during the Republican era (1911–1949). This is an important period for a variety of reasons, not least of which is that policies and institutions that emerged—especially during the 1920–1930s under the Kuomingtang (KMT)—often represent a significant departure from those of the Qing (1644–1911). Moreover, they have links with those observed after 1949 in both Taiwan and the PRC.

The focus of Shiroyama's fascinating study is the impact of the Great Depression on changing state-market relations in China. As one of the last economies whose monetary system was still tied to silver, falling silver prices and mild inflation helped insulate China from the early years of the Great Depression. However, the decisions of several countries including Great Britain to go off gold in 1931, followed by American silver policy under the Roosevelt administration, contributed to sharply rising silver prices, and for China, deflation. Shiroyama argues that under deflation, Chinese institutions ceased to function perfectly.

In her economic narrative, the key channel through which silver mattered was in terms of the money supply. Silver generally flowed into (out of) China during periods of falling (rising) global prices of silver, and through its effect on the money supply, the price level was affected. She notes, “Many factors influenced commodity prices, but the increase in the supply of silver was a major reason” (p. 35). After 1931 silver exports meant deflation, and falling prices for assets such as land. Because of their role as collateral, falling asset prices in tandem with contractual rigidities disrupted financial intermediation and the flow of credit, especially to an emerging nonagricultural sector. These difficulties were compounded by other external factors including declining export demand for commodities such as tea and silk, a global shift in the terms of trade against agriculture, and falling remittances from overseas Chinese.

The ensuing economic dislocation helped to forge consensus in China among political and economic elite regarding monetary reform, and in relatively short order, the KMT went off silver. The move to a managed currency late in 1935 represented an important point of departure for the Chinese state, which during much of the Qing had taken a relatively laissez-faire policy with respect to the currency and monetary policy. The behavior of the Qing government in the 1840s during an episode of rising silver exports is informative in this regard.

There is much to appreciate in this carefully researched book, and there are parts of the story that I am sympathetic with, notably, the role of global forces in helping to shape the Chinese economy, and the governments' difficulties in managing the external shocks of the early 1930s. Shiroyama is also right to direct our attention to the motives of the KMT during this important episode. But any assessment of the effect of rising silver prices, the reasons for silver exports, and government motivation for going off silver depend very much on one's underlying model of how China's economy functioned under the silver standard. There are alternative models and explanations (see, for example, Loren Brandt and Thomas J. Sargent, “Interpreting New Evidence About China and U.S. Silver Purchases.” Journal of Monetary Economics 23 [1988]: 31–51), and it would have been useful to try to sort out these competing stories.

Shiroyama hints at, but does not go as far as she could in discussing the more negative aspects of KMT behavior during the period of rising silver prices. The “real” effects on the economy of this external shock depended critically on government credibility. Beliefs that the Chinese government would go off silver and at terms highly unfavorable to holders of silver figure prominently here, and contributed to speculative behavior in silver that reduced liquidity in the system. Ex-post these beliefs were well-founded. The nationalization of silver late in 1935 allowed the government to capture a hefty portion of the capital gains associated with the rise in silver prices, which they then used as the reserve for a managed currency. Going off silver also freed a revenue-constrained state from the fiscal limitations imposed on them by China's free-banking version of a silver standard.

Hong Kong's economy, which was also on silver, provides a useful point of departure in terms of the impact of rising silver prices. The key difference may very well lie in the fact that the intentions of the HK monetary authorities were never questioned, and holders of silver did not worry that silver would be nationalized on the kinds of terms it was in China. HK also abandoned silver late in 1935, but for very different reasons.

In a story as complex as the one told here in which multiple economic and political factors are at work, “identification” problems and data issues compound the difficulty of assessing the contribution of any one factor. There is also the issue of how monetary-financial sector reforms described by Shinorhara relate to other policy measures taken by the KMT in the 1930s. These shortcomings however should not detract readers from an otherwise valuable contribution to our knowledge of China during the tumultuous period of the 1930s.