An Ancient Bankruptcy Law in China

By: Donald L. Swanson

Centuries ago (during the 1200’s) the Mongols ruled China.

Mongol law in China “provided for declarations of bankruptcy.”  Here are some details:

—“no merchant or customer could declare bankruptcy more than twice as a way to avoid paying debts”; and

—“On the third time he faced the possible punishment of execution.” [Fn. 1.]

Such descriptions of an ancient bankruptcy law—and a Mongolian one at that—are a surprise. The existence of a bankruptcy law tends to signify an advanced economy and an advanced legal structure. And my impression of the Mongolian Empire has always been of conquest, cruelty and plunder—not of advanced economies or laws. Such an impression is incomplete, according to the book footnoted below.

The following is a quick overview, from that book, of the context for the Mongolian bankruptcy laws of the 1200s.

The Khans and Their Empire

Genghis Kahn began life in 1162 as an insignificant child of herders and hunters on the sparsely populated, cold and dangerous steppes of Mongolia.

A century later, people across much of the known world had become subjects of his grandchildren. By then, the Mongolian Empire stretched across the entire extent of Asia’s grasslands and farmlands.

—Mongolia is a grassland. That’s what the Mongols knew. And that’s what they needed to support their war horses and to wage war most effectively: dense forests and jagged mountains were impediments.

—When the Mongols conquered a farming area, they often destroyed the crops and returned the land to grass so their war horses could better-use the area in future campaigns.

The empire reached beyond Moscow and Kiev to the west (forests and mountains of Eastern Europe are the Empire’s northwestern limit) and, from there, all the way east to the Pacific Ocean (including Beijing and Korea).

Also, since Mongolia is in the far-north of Asia, cold weather is what the Mongolians and their war horses preferred and needed.  They liked, for example, crossing rivers and lakes on ice. They suffered in the heat of southern climes. So, southern areas of Asia (like the Arabian Peninsula and India) stood beyond the reach of Mongolian conquest.

–Method of Operation

When Genghis Kahn conquered a city, he did not occupy it. He defeated the soldiers, killed the aristocracy, took the city’s valuables (including any person with special knowledge or skill) as plunder and left, expecting only future loyalty and tribute from those who remained.

Those who remained kept their religion and kept their land.  Often, they did not miss their pre-Mongol overlords. Most became loyal to their conqueror and then succeeded economically through trade. For those who did not remain loyal, Genghis Kahn returned and destroyed them.

Genghis Kahn used conquered people with special knowledge and skill to improve his war machine (e.g., creating innovative siege  engines for conquering fortresses) and to administer his growing empire (e.g., creating a pony-express system of communication throughout the empire).

–Kubilai Kahn

Genghis Kahn’s grandson, Kubilai Kahn, became the leader of China in 1260. And he succeeded greatly.

He expanded, for example, the use of paper money to enhance commerce throughout the land. People accepted and relied upon his paper money . . . and for good reason: (i) the paper money enhanced trade, and (ii) a refusal to accept his paper money would bring the wrath of Kahn upon the refuser in the form of a death penalty.

And wherever paper money is used, opportunities increase for credit and financial disaster: hence the need for bankruptcy laws.

–Universalism

Their use of money and development of bankruptcy laws evidence an important quality of the Mongolian Empire: universalism. Here’s how it happened.

Since the Mongols “had no system of their own to impose upon their subjects,” they adopted and combined systems “from everywhere.” They allowed, for example, freedom of religion and maintained religious tolerance among their subjects—as long as the subjects maintained loyalty to the Emperor’s civil authority.

Since the Mongols had no “deep cultural preferences” of their own, they “implemented pragmatic, rather than ideological solutions.”  They looked for “what worked best” and, when they found something that worked, they “spread it to other countries.” As a result, they imposed “new International systems of technology, agriculture, and knowledge” across their Empire and “broke the monopoly on thought exercised by local elites.”

–A Departure

The Mongols established freed trade as a central feature of their Empire. This is a departure from what others did. Aristocrats “from China to Europe,” for example, “disdained commercial enterprise” as “undignified, dirty, and, often, immoral” and as “beneath” the dignity of both the “the powerful” and “the pious.”

The “economic ideal in feudal Europe” was that each country and manor should be “self-sufficient.” Goods leaving the manor should be going to buy luxuries “for the aristocratic family or church”—not to be used as trade for the peasants’s benefit. In the feudal system, a reliance on imported goods “represented a failure at home.”  The Mongols changed that.

A Summary

Genghis Kahn was “the thoroughly modern man” in his “mobilized and professional warfare” and in his “commitment to global commerce and the rule of international secular law.”

“What began as a war of extinction between the nomad and the farmer ended as a Mongol amalgamation of cultures.” The vision of Genghis Kahn “matured as he aged” and as he “experienced different ways of life.”

“He worked to create something new and better for his people.”

The Empire’s End

The Mongolian Empire ended in the 1300s with the Black Death plague. Commercial systems pushing trade across the Mongolian Empire also served to spread insects carrying the plague.  What they created brought their doom.

An Aftermath: Columbus

After the Empire ended, however, vestiges of it remained for a very long time. One reason is that the demise of the Empire also ended its communication systems.

In 1492 for example, “more than a century after the last kahn ruled over China,” Christopher Columbus sold the Spanish Monarchs on the idea that he “could reestablish sea contact” and “revive lost commerce” with the Mongolian Empire. Columbus insisted to the Monarchs that, “although the Muslims barred the land route from Europe” to China, he could “sail west from Europe across the World Ocean and arrive” in the Mongolian China described in writings of Marco Polo.

When Columbus sailed in 1492, he took along “a printed copy of Marco Polo’s travels,” in preparation for “his planned arrival” at the Mongol court as “a practical guide” for meeting with the “Great Kahn’.”

When he arrived at the Western Hemisphere, Columbus “remained convinced” that the Kahn lands “lay only a little farther to the north.” Columbus believed he had arrived in India: hence, Columbus called the native people “Indians, the name by which they have been known ever since.”

Conclusion

“The Mongol armies destroyed the uniqueness of the civilizations around them by shattering the protective walls that isolated one civilization from another and by knotting the cultures together.”

“Genghis Kahn has long passed from the scene, but his influence continues to reverberate through our time.”

And bankruptcy laws in China, back then, were one of the results.

Footnote 1: All information and quotations in this article are from Jack Weatherford‘s book, Genghis Kahn and the Making of the Modern World, Broadway Books (2004).

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