Chapter 39: Lu Beigu

First, establish [Salt Notes for Well Salt] in Sichuan, requiring merchants to purchase Sichuan well salt salt notes with copper coins, and prohibiting sales beyond the original sales region of well salt.

Second, issue [Salt Notes for Xie Salt] in the northwest; the court shall issue specialized salt notes for grain procurement in each northwest prefecture, based on a fixed proportion of the annual output of Xie Salt from Hedong; merchants may redeem these salt notes at Hedong salt fields, with sales restricted to the original Xie Salt sales region.

Third, emulate the former Tang dynasty’s Liu Yan transportation strategy: instead of directly shipping southeastern military grain to the northwest, every few years, southeastern merchants shall bid for the right to transport grain in segments, based on the quantity of [Salt Notes for Well Salt] they hold.

Fourth, establish a northwest-specific military grain warehouse in Kaifeng to stockpile grain transported from the southeast; merchants may, after paying a deposit, undertake the task of transporting grain to the northwest and receive in return a quantity of [Salt Notes for Xie Salt] far less than what they would obtain by purchasing and transporting grain themselves.

Fifth, set up a salt note exchange office in Kaifeng, permitting merchants to exchange [Salt Notes for Well Salt] for [Salt Notes for Xie Salt] according to ratios prescribed by the court.

The information was overwhelming; after hearing it, Zhao Bian could not immediately sort it all out.

“Explain in detail.”

“Yes.”

Lu Beigu cleared his throat and said: “Assume this system is implemented. First, many small and medium merchants will, as before, purchase [Salt Notes for Well Salt] to obtain Sichuan well salt; but since there were previously no restrictions on payment methods, this did not alleviate Sichuan’s copper coin shortage. Now that iron coins and cloth are no longer accepted, copper inflow into Sichuan will increase significantly.”

“Of course, merely selling Sichuan well salt normally cannot bring in enough copper to relieve the coin shortage.”

“But if the rule is established that ‘every few years, merchants shall bid for the right to transport grain in segments based on their holdings of [Salt Notes for Well Salt]’, then powerful merchants will certainly compete to secure the rights to transport specific segments for profit.”

Here, an aside: ‘buying the right’ is a widespread system in Song society.

Lu Beigu’s proposal only involves auctioning the right to transport military grain in segments along the eastern route, not auctioning the entire transportation system itself.

The scope of transportation is vast: besides military grain, it carries bamboo, wood, rattan crafts, daily sundries, copper and iron wares, dragon’s blood incense, ivory, and other luxuries, local specialties and tribute goods, firewood, charcoal, and animal feed—all delivered to Kaifeng, then distributed northward from there.

So why auction off the segmental transport rights east of Kaifeng?

Because contracting merchants to handle segmental transport saves far more money than the court managing it directly!

The southeastern transportation route is not a straight line—it’s a vast network!

When the court centrally purchases grain and transports it via multiple waterways, transferring it at key junctions, the tangible and intangible costs are extremely high.

But if subcontracted to a merchant with fixed quotas, and checkpoints established at waterway junctions for inspection, upstream and downstream merchants will engage in mutual checks and balances; even the greediest merchant can only profit marginally.

Yet if the Transportation and Dispatch Offices continue managing this annually, losses would be incalculable!

These intricacies, the two senior officials surely understand.

At this point, Zhang Fangping seemed to have grasped something; he turned directly to Zhao Bian and asked:

“How does the loss compare to the original transportation system?”

Zhao Bian replied firmly: “It will be far lower than if the Transportation and Dispatch Offices continue handling northwest military grain transport.”

As Transport Commissioner of Yizhou Road, Zhao Bian had personally reformed tax collection and knew these mechanisms intimately.

Zhang Fangping’s attitude now shifted; he unconsciously sat up straighter.

Lu Beigu continued: “At this point, large merchants will need to channel large quantities of copper into Sichuan to acquire [Salt Notes for Well Salt], using them as bidding tokens in auctions. With this periodic copper inflow every few years, Sichuan’s copper shortage will gradually ease.”

“It sounds feasible—it truly could relieve Sichuan’s copper shortage.”

Zhao Bian paused, then raised the question most critical to him as Transport Commissioner: “Will merchants, driven by profit, steal, withhold, or substitute inferior grain?”

Lu Beigu explained: “When bidding, merchants must commit to delivering a fixed quantity of grain to the next segment. Some loss is inevitable, but it must be borne by the merchant. If he steals, withholds, or substitutes inferior grain, and the next segment’s merchant fails to detect it or make up the shortfall, that merchant will suffer losses or be punished. To avoid this, every merchant bidding for a segment will form a system of mutual checks with the upstream and downstream merchants.”

This does not mean merchant A, upstream on the river, buys a thousand shi of grain, delivers it to merchant B mid-river, who then carries it downstream.

Rather, merchant A, responsible for a tributary’s military grain transport, purchases a thousand shi, delivers it to the confluence of two tributaries, where inspectors verify quantity and quality; only then is it handed to merchant B. Merchant B, having independently purchased another thousand shi, must transport both batches—from the confluence—to the junction where the tributaries meet the main river, for another inspection.

The entire process resembles a tree’s root system.

At this point, a clever person might ask: if merchants cannot steal, withhold, or substitute grain to sell for profit, why would they undertake this task?

In truth, the profit from bidding for segmental grain transport appears modest on the surface.

But for merchants, it is highly profitable.

On one hand, under Song’s bidding system, merchants are guaranteed not to lose money on segmental transport; profits may be modest, but as long as they avoid extreme misfortune—such as repeated bandit raids or shipwrecks—the accumulated bidding rights over several years yield steady, low-risk returns.

On the other hand, segmental grain transport carries a hidden benefit: merchants may exploit the special nature of military grain to smuggle small, valuable goods along their route—of course, only small items, since large cargo cannot be hidden; checkpoints conduct random inspections, and while military grain transport is inspected less frequently, inspections still occur.

Overall, despite inherent operational and inspection risks, merchants will still flock to this opportunity.

And since bidding reopens every few years, even if merchants collude secretly, the high degree of uncertainty prevents the system from becoming rigid.

“Continue.”

Zhang Fangping had become utterly serious.

(End of Chapter)