This paper examines the causes and consequences of the "Daoguang Depression," named after the Daoguang Emperor whose reign spanned from 1820 to 1850, through the lens of liquidity preference. The economic downturn, which began in the early 1800s in China, is scrutinized by economic historians to understand the decline of the Qing Empire. Despite extensive research, we have yet to reach a consensus regarding the performance of the Chinese economy during the first half of the nineteenth century. However, there is significant agreement that, compared to the previous century, Chinese society was substantially poorer and the state notably weaker, despite almost undisrupted population growth until the Taiping Rebellion. The trends of commercialization, national market integration, and expanding agricultural production appear to have stalled by 1800, with signs of economic decline becoming evident in many commercial centers of the empire.
This paper offers a novel explanation for the Daoguang Depression by linking the economic and financial downturn in China during this period to inadequate investment in both the private sector and public goods. The author reconstructs the investment portfolios of government officials, landed elites, and merchant families using records of household property confiscations, family wills, and land transactions. These records reveal a pronounced shift among social elites towards holding liquid assets, primarily in the form of silver taels. This preference can be attributed to a confluence of economic, social, and political changes occurring at the time. The study further investigates the motivations behind the tendency of individuals and businesses to hoard standardized silver ingots, rather than earning returns through savings or investments, in the period leading up to the Opium War.
