brought no economic injury to China, but the reverse. This Sung policy was entirely in the interest of the gentry and of the trading community which was now closely connected with them. Undoubtedly it strengthened China. The policy of nonintervention in the north was endurable even when peace with the Kitan had to be bought by the payment of an annual tribute. From 1004 onwards, 100,000 ounces of silver and 200,000 bales of silk were paid annually to the Kitan, amounting in value to about 270,000 strings of cash, each of 1,000 coins. The state budget amounted to some 20,000,000 strings of cash. In 1038 the payments amounted to 500,000 strings, but the budget was by then much larger. One is liable to get a false impression when reading of these big payments if one does not take into account what percentage they formed of the total revenues of the state. The tribute to the Kitan amounted to less than 2 per cent of the revenue, while the expenditure on the army accounted for 25 per cent of the budget. It cost much less to pay tribute than to maintain large armies and go to war. Financial considerations played a great part during the Sung epoch. The taxation revenue of the empire rose rapidly after the pacification of the south; soon after the beginning of the dynasty the state budget was double that of the T'ang. If the state expenditure in the eleventh century had not continually grown through the increase in military expenditure--in spite of everything!--there would have come a period of great prosperity in the empire. 2 _Administration and army. Inflation_