Chapter 40: A Genius of the Realm!

Next, Lu Beigu continued: “Dozens, hundreds, even several hundred large merchants, after purchasing the rights to transport military grain east of Kaifeng in segments, will use the water network to ship grain from the southeast, Jinghu, Huaijiang, and Shandong to Kaifeng’s northwest military grain depot. Meanwhile, merchants from Guanzhong, the Two Rivers, or the Central Plains, seeking to obtain the [Jie Salt Salt Certificates], will either buy grain themselves and transport it to the northwest, or bring their own carts and horses, pay a deposit, and take over the grain transport task from Kaifeng’s northwest military grain depot to deliver it to the northwest.”

“The reason the northwest does not require segmented bidding is that land transport differs from water transport: from Kaifeng to Luoyang to Chang’an, the entire route follows a straight western path along the southern bank of the ‘Yellow River–Wei River’ highway—there is only one road, and goods need no complex transshipment. But transporting grain from the southeast is different: grain must be collected from Jinghu, Jiangnan, and the Two Huai regions, requiring complex dispersal and transshipment via the water network.”

“The reason the previous ‘Zhong Method’ failed was that merchants had to transport grain thousands of miles from production areas to the northwest front, incurring enormous losses along the way; combined with rampant private salt in the northwest, even holding salt vouchers could not offset the losses. But under this cyclical system, merchants from different regions need only bear part of the transport distance, drastically lowering overall costs.”

Li Pan nodded slightly at this—he had served in the northwest, a region that in Han and Tang times had indeed been the fertile ‘foundation of kingship,’ but since the late Tang, it was no longer so.

Now, severe soil erosion had shrunk farmland dramatically, and with so many troops stationed there, the northwest could no longer produce enough grain to feed itself.

Added to this was the constant risk of war; since the first Song–Xia conflict, civilian grain prices had remained stubbornly high, requiring constant external grain imports to maintain stability.

The Song dynasty’s ‘Zhong Method’ was essentially no different from the Ming dynasty’s ‘Kai Zhong Method’—history proved that if a single merchant bore the full burden of grain transport, no one could afford it; the result was either policy collapse or a de facto shift to segmented contracting.

Zhao Bian asked then: “So the purpose of setting an exchange ratio between the two salt certificates is to adjust the ratio to increase or decrease, accelerate or slow down, the supply of grain to the northwest frontier?”

“Precisely.”

Lu Beigu nodded and said: “Our dynasty’s commerce is thriving, but merchants remain regionally bound: southeastern merchants may not truly come to Kaifeng to exchange their [Jing Salt Salt Certificates] for [Jie Salt Salt Certificates], and northwest merchants are the same. But if the court urgently needs to deliver grain to the northwest, merely raising the exchange ratio will draw countless middlemen racing to profit—then both ends will respond accordingly; slowing transport works the same way.”

It was a bit complex; Lu Beigu wasn’t sure whether these two senior officials had fully grasped the principle.

The principle, once explained, was simple.

Take physical goods: one bag of salt, whether from Sichuan’s Jing salt or Hedong’s Jie salt, is not inherently of equal value.

If it were only one bag, whether equal or not didn’t matter—because even if unequal, the arbitrage profit would be tiny, and transport costs were already high; there was no incentive whatsoever to travel thousands of miles for such a margin.

But what if it weren’t one bag, but one million bags?

Clearly, multiplying a small margin by a vast quantity yields enormous profit.

Still, transport costs must be considered.

—But what if it weren’t a mountain of one million physical bags of salt, but a stack of salt certificates?

Then there is only profit, with virtually no transport cost.

In fact, this was the strategy Lu Beigu devised based on historical precedent.

Historical records clearly state that as salt certificate issuance increased, the Song salt certificates quickly transcended their original function as salt redemption vouchers, acquiring monetary properties: they could offset taxes, circulate in civilian trade, and even function like ‘flying money’ for remittance.

Under such conditions, if the official exchange ratio for [Jie Salt Salt Certificates] were raised, increasing their actual value, middlemen would inevitably rush to buy them up for profit.

What would be the direct consequence?

The actual market price of [Jie Salt Salt Certificates] would rise with merchant demand; to achieve zero-transport arbitrage via these securities, merchants must buy them from those currently holding large stocks of [Jie Salt Salt Certificates].

At that point, some merchants who had previously completed land transport of grain would sell their [Jie Salt Salt Certificates] to cash out promptly.

But powerful merchants would also organize cart convoys to buy grain themselves and transport it to the northwest to exchange for [Jie Salt Salt Certificates].

More small and medium merchants would bring their own carts and horses, pay a deposit, and take over grain transport tasks from Kaifeng’s northwest military grain depot to deliver grain to the northwest in exchange for [Jie Salt Salt Certificates].

This mechanism mobilized civilian forces to rapidly deliver grain to the northwest during wartime.

Moreover, it satisfied not only the army’s grain needs but also the civilian population’s: merchants who organized their own cart convoys to buy and transport grain for [Jie Salt Salt Certificates] operated differently from those taking over military grain transport tasks—this portion of grain could, in emergencies, be released by northwest prefectures onto the market or used directly for disaster relief.

What if the actual value of [Jing Salt Salt Certificates] rose instead?

Then merchants would lose incentive to transport grain to the northwest, instead buying [Jing Salt Salt Certificates] from other merchants or purchasing them directly.

In this case, copper coin inflows from Sichuan would increase, and the issuance scale of Jiaozi would rise accordingly.

There was also an unspoken implication here: the reason for establishing salt certificate exchange offices in Kaifeng was to broaden the circle of beneficiaries under this policy, thereby reducing resistance and greatly increasing the likelihood of actual implementation.

Because in practice, a policy isn’t executed simply because it looks good—it must benefit the vast majority to be implemented.

Zhao Bian pondered again, finally clarifying every critical point.

Lu Beigu’s wildly imaginative yet tightly interlocked design left him utterly astonished.

“All of this arises from merchants’ voluntary actions, merely through the establishment of a system that guides incentives according to circumstances.”

“I never imagined statecraft and people’s welfare could be designed this way—I have learned today!”

Zhao Bian bowed respectfully to Lu Beigu.

Lu Beigu immediately rose to return the bow.

Zhang Fangping, watching Lu Beigu, also showed deep astonishment in his eyes.

He had originally believed Fan Xiang’s salt certificate system was already perfect!

But after hearing Lu Beigu’s words today, he realized it could be pushed even further!

“—A genius of the realm!”

(End of Chapter)