Credit, Labor, and Political Unrest: Evidence from 1930s China

Abstract

Can tight credit inflame political unrest? We study a natural experiment from 1930s China, where the 1933 U.S. Silver Purchase program acts as a shock to bank lending. We assemble a novel, hand-collected dataset of loan contracts between banks and individual firms, labor unrest episodes, and underground Communist Party penetration. We show that the Silver Purchase shock results in a severe credit contraction, and that firms borrowing from banks with a larger exposure to the shock experience increased labor unrest and Communist Party penetration among their workers. These findings contribute to understanding the socio- political consequences of credit.

Keywords: Silver Purchase program, bank lending, political unrest, financial history

JEL Classification: G01, G21, N15, N25