Chapter 246: Managing Inflation

Sun Yu responded, then hesitated.

Lin Qian said, "Is there anything else?"

"Helmsman, this subordinate would still prefer to stay at the military academy…"

Lin Qian said, "Fine, then I'll raise your brevet rank to the Mobile Corps Commander level."

"Thank you, Helmsman!"

"Go on, then."

Sun Yu had only been teaching at the military academy for one year — that was what Lin Qian had agreed to, only because he taught well and the academy was short-handed.

His willingness to stay suited Lin Qian's intentions perfectly.

In early June, the flooding in Guangzhou city and its surroundings had largely subsided.

The Nan'ao Administrative Hall allocated funds to rebuild infrastructure such as the docks, the Yudai Canal, and the Six Vein Drains, and distributed relief to affected households per family to help them rebuild their homes.

The main forces of the new army gradually withdrew from Guangzhou and marched north back to their garrisons.

As everything returned to normal, in a mountain cemetery east of Guangzhou city, not far from the army military academy, a solemn funeral was being held. Escorted by honor guards, nineteen coffins were slowly carried into the cemetery, each draped with a dark-red shield-and-halberd banner.

These were the student soldiers who had died during flood control.

Eight of them had been swept away by the floodwaters, their bodies never recovered — in their coffins lay their uniforms.

Along one side of the path, a dozen or more people were sobbing uncontrollably — these were the families of the student soldiers, brought in by ships sent by the Nan'ao Administrative Hall.

Outside the cemetery walls, several thousand commoners had gathered, holding offerings of chickens, ducks, rice, flour, incense, and candles, waiting there since early. When Guangzhou was in peril, it was these two hundred student soldiers who had stepped forward to save the people from flood and disaster, and the people remembered that debt of gratitude. Learning of their burial today, they had come of their own accord to pay their respects.

After the student soldiers were laid to rest, forty honor guards formed two ranks, loaded their matchlock muskets — without lead shot — aimed forty-five degrees skyward, and fired twelve volleys. This was the highest honor in Nan'ao military protocol.

Before the student soldiers, only the sailors of the two ships Changfeng and Yunfan had received this honor.

Hearing the sudden gunfire, the mourning commoners looked slightly startled, but quickly steadied themselves without panic.

After the volleys, all soldiers removed their hats and observed a moment of silence.

Then Lin Qian stepped forward to give a eulogy, recounting the lives and achievements of the nineteen, expressing mourning and remembrance.

He closed with the lines, "It is for such sacrifice that great aspirations arise — daring to make the sun and moon shine upon a new sky," to comfort their spirits in heaven.

Shortly after the military ceremony ended, life for Guangzhou's commoners had not yet fully recovered — some homes still awaited rebuilding.

Yet people had already spontaneously built a shrine to the martyred heroes within the city, enshrining those nineteen soldiers. Since its completion, incense had burned there day and night without cease.

When Ye Yifan learned of this, he reported it to the Nan'ao Administrative Hall, which posthumously recognized it as an official shrine.

Beyond honors for the dead, Lin Qian was also not sparing in his commendations for the living.

Acting through the Nan'ao Administrative Hall, all those who had distinguished themselves in flood resistance — from the Prefect down to petty clerks — received promotions.

For instance, the head of Guangzhou Prefecture's corvée squad was promoted directly to prison warden, a formal official post of the ninth rank, junior grade.

Under the Ming political system, rising from clerk to official — even a negligible official — was extremely rare.

Yet this time, counting the corvée squad head, fully five or six men were promoted to official status.

This sent a clear signal to the governance of Fujian and Guangdong: even as a clerk, there was room to rise. No need to keep eyeing the people's property as before — serve diligently, and there was a future!

On the military side, Lin Qian, representing the General Staff Department, conferred a collective first-class merit on the academy's student soldiers.

Army banner companies that distinguished themselves in the subsequent disaster relief also received second-class and third-class merit awards.

For individuals who performed outstandingly, Lin Qian specially had silver medals struck as commendations.

Sun Yu earned an individual second-class merit, Zhang Moye an individual third-class merit, and soldiers who died in the relief efforts were also posthumously awarded individual third-class merits. At Lin Qian's request, the medal ceremonies were conducted with great solemnity and dignity.

As Lin Qian pinned on the medals, many soldiers' bodies trembled slightly, and tears even glistened in their eyes.

A tiny medal, to a soldier, was the highest honor transcending material things, effectively strengthening the unit's cohesion.

Only at this moment was the martial spirit of the Nan'ao army truly forged complete.

Such an army — strictly disciplined, willing to sacrifice, knowing why it fought — and at the same time with ample pay and strong logistical support. What did it matter if it lacked an equipment advantage?

Lin Qian could now be certain that the corrupt and backward Ming army would never be a match for the Nan'ao forces.

Of course, a new-style army also had its disadvantage: lives were precious, and soldiers could not be lightly sacrificed.

So maintaining an equipment lead was still very necessary.

This great Guangzhou flood had also greatly affected Foshan — not only did it topple a large number of houses, but even the great shaft furnaces were blown down by the wind or flooded with water, with several dozen damaged, impacting overall production capacity to a certain degree.

The lower Pearl River relied on its dense water network for convenient transport, but once a flood struck, transport was immediately cut off, leaving Foshan and Guangzhou as two isolated islands unable to connect with each other.

After this typhoon, Lin Qian instructed the Administrative Hall to build land routes connecting the Guangzhou-Foshan-Macao corridor, ensuring transport during the heavy rain season.

In fact, this Guangzhou-Macao road had long ago been surveyed and planned.

Construction had been delayed mainly due to macroeconomic constraints.

The economic situation of Fujian and Guangdong differed from that of modern nations after the Industrial Revolution.

The economic problem of modern nations is the contradiction between surplus production capacity and insufficient consumption — so pouring money into investment can make the economy take off and society prosper.

The economic problem of Fujian and Guangdong, by contrast, is surplus demand and insufficient production capacity.

To put it concretely: low productivity, excess silver, and a distorted industrial structure.

Just like the earlier price increases in the inland prefectures and counties of Fujian.

If the Administrative Hall threw money recklessly at Fujian and Guangdong without restraint, silver would concentrate in the short term to chase limited goods, pulling up the overall price level and triggering demand-pull inflation.

Moreover, this kind of inflation was viciously iterative and unpredictable.

Simply put, the government scattered vast amounts of silver to engineering suppliers, who through consumption turned it into income for merchants and farmers.

As society's overall income expectations improved, people were more willing to spend than to save, and the velocity of silver circulation rose markedly.

This increased the number of transactions a tael of silver could complete per unit of time, generating market purchasing power far exceeding its static stock. Even more simply: give the market twice the money, and it might produce three or five times the inflation.

Such things had genuinely happened in history.

In the 16th–17th centuries, the Spanish squandered American silver across Europe, triggering severe inflation, known in history as the "Price Revolution." Earlier, the East India Company's representative, Victor, had been so poor he could barely keep his pot boiling, coming empty-handed to discuss cooperation with Lin Qian — his personal and national poverty was, to a degree, caused by this kind of inflation.

Avoiding demand-pull inflation was also one of the reasons Chinese scholar-officials advocated letting the people rest and recuperate, and opposed launching large-scale construction projects.

Of course, the scholar-officials could hardly articulate any economic principles, but by summarizing historical patterns, they had already recognized the dangers of excessive investment. Lin Qian himself had realized this as early as his first landing in Guangzhou, when he chatted with vegetable farmers and fishermen.

Guangdong's transportation was too poor, and public security and the business environment were equally bad. Meanwhile, the rapid influx of silver from maritime trade made it difficult for silver to circulate out of the province, which had already triggered inflation.

After the Nan'ao Administrative Office took over Guangdong, it did not engage in massive investment. Instead, it controlled the pace of investment and cooled down the demand side. This was not lazy governance—it was truly responsible conduct.

Lin Qian would not claim to be much of an economist, but compared with his contemporaries, he did have some insights.

To avoid demand-pull inflation, one had to work on four fronts:

1. Control the pace of investment.

2. Establish material reserves.

3. Conduct currency mediation.

4. Expand production supply.

Of these, the first item—Nan'ao was already doing it. Road construction and military-industrial investment were urgent priorities; everything else could wait.

The second item, plainly put, meant establishing ever-normal granaries to keep prices stable. On this point, the Nan'ao Administrative Office had also been making steady progress.

Among the many ever-normal granaries, the price stabilization of grain had been relatively successful.

But the price stabilization of cloth and cotton had yielded mediocre results. After all, Fujian and Guangdong did not produce cotton; most of their cotton and cotton cloth had to be purchased from the Jiangzhe region. The Nan'ao Army's massive demand for cotton uniforms and bedding further added to the burden.

As for production and construction materials—timber, metals, fuel, tung oil, hemp rope—their price stabilization was utterly impossible. These things were simply too scarce.

Building one fourth-rate ship consumed over fifteen hundred trees, and the consumption of metal and tung oil was beyond counting. Add in the materials consumed by ship maintenance, and the figure grew even larger.

The Nan'ao Administrative Office had accumulated resources for so long that it was only with great reluctance that it approved the large-scale shipbuilding plan.

One single plan had nearly exhausted the entire safety reserve surplus of production and construction materials.

Therefore, the fourth item—expanding production—became the fundamental cure.

The Nan'ao Administrative Office built roads, built irrigation works, promoted sweet potato cultivation, encouraged cattle breeding for farming, and constructed standard workshops, charcoal kilns, sugar refineries, distilleries, lumber mills, coal plants, and cement plants.

This series of investment activities was all for the purpose of expanding production.

But producing on one's own was still too slow.

This was like herding: Lin Qian had twenty sheep—how long would he have to wait for them to breed into a flock of twenty thousand on their own?

That was why Lin Qian aggressively expanded overseas, especially into Southeast Asia, establishing chartered agricultural companies.

Using Southeast Asia's grain and timber to feed the people of Fujian and Guangdong.

To continue the herding analogy: this was like Lin Qian having twenty sheep, then going to a neighbor's house to seize two hundred more to raise together—reaching twenty thousand would be much faster that way.

Taking the present moment—the fifth day of the sixth month in the eighth year of Tianqi—as the reference point:

Of these four aspects, controlling the pace of investment and establishing material reserves had already been done to the utmost.

Expanding production was not something achievable overnight.

So Lin Qian's next step was to prepare for currency mediation—to tackle the chaotic and disorderly financial system of Fujian and Guangdong.

After returning to Nan'ao Island, Lin Qian bathed and changed clothes simply, then strolled to the main hall.

A man was sitting upright in the hall. Seeing Lin Qian arrive, he immediately rose and saluted, saying: "This humble one is He Kai, paying respects to the Helmsman."

Lin Qian gave him a once-over. The man had a fair complexion, wore a plain-colored straight robe, and appeared to be around thirty-five years old—the typical look of a scholar. What was particularly distinctive was that he wore a pair of spectacles on the bridge of his nose, with tortoiseshell frames and a silver chain connecting to his collar.

Such an object was called an "aihun" in the Ming dynasty, and it was extremely rare.

There were not many myopic people in the Ming, and among the myopic, those who could obtain an aihun were as rare as phoenix feathers and unicorn horns. It seemed this man's family circumstances were indeed out of the ordinary. Lin Qian pointed at his own nose bridge: "Your eyes aren't too badly strained, are they?"

In the hearts of Zhangzhou's common folk, the Helmsman's status was as lofty as a living deity. He Kai had been nervous while waiting, but he never expected the Helmsman himself to be so affable—he immediately breathed a sigh of relief.

"Thank you for your concern. This humble one's eyes were injured from reading books—one might call it a 'disease of the wealthy.'

In daily life there's no impediment; it's just that sometimes my vision turns blurry. Today, when the Helmsman summoned me, this humble one dared not be remiss, so I wore the aihun here. I hope the Helmsman will forgive my impropriety." Lin Qian gestured for He Kai to take a seat, took a sip of tea, and said: "I won't beat around the bush. What do you think of the Yuan dynasty's Zhiyuan notes and the Great Ming Treasure Notes?" He Kai was taken aback. He had been prepared to exchange pleasantries with Lin Qian, but he never expected Lin Qian to be so direct—it caught him off guard.

He was a native of Zhangzhou, renowned in his hometown for his mastery of classical studies. In the fifth year of Tianqi, he passed the jinshi examination and entered the Ministry of Revenue. But because he was dissatisfied with the eunuch Wei's grip on power, he soon resigned from his post.

When summoned by Lin Qian today, he guessed that Nan'ao was about to employ him.

The Nan'ao Administrative Office had clean governance and served the people wholeheartedly, which suited his upright and pragmatic nature. He was also willing to contribute his efforts.

He had prepared classical responses in his mind, but he never expected the Helmsman to pose a policy question—one that happened to match exactly what he had handled during his time at the Ministry of Revenue. Thus, after a moment's hesitation, he said: "This humble one believes the two systems share three flaws: no backing, no regulation, and no trust."

In all dynasties, when notes were issued, state expenditure was treated as an insatiable pit. The treasury had no real silver, yet notes circulated like flying. The people held a piece of paper that could not be redeemed—this is what is meant by no backing.

Notes were issued in great quantity but taken back in little; there was issuance without recall. Old notes were not retired while new notes flooded in—soaring prices were an inevitable result. This is what is meant by no regulation.

A note is but paper that exchanges for the people's grain and silver, relying solely on trust. Once its value is self-destroyed, restoration becomes a hundred times harder. This is what is meant by no trust."

These words were spoken in a bookish manner. In plain speech, they meant: there was no reserve fund, no financial order was established, and ultimately the state's credit collapsed. Lin Qian nodded inwardly, thinking that the new Personnel Bureau of the Administrative Office was indeed not idle.

He had only mentioned at the start of the year that he wanted a talent in the financial field, and in less than half a year, a suitable candidate had been found.

Although He Kai's official career was brief, during his short tenure at the Ministry of Revenue, he had submitted several routine memorials petitioning for the restoration of the Treasure Notes.

He had also proposed measures such as full reserve backing, free convertibility, and tax collection recycling.

To put it bluntly, in a court where financial shortsightedness was the norm, he was already a rare man of foresight.

But being able to solve only these surface problems was not enough for Lin Qian to employ him.

Lin Qian said: "In your memorial, you mentioned that the Treasure Notes should be freely convertible with silver. Let me ask you: if someone suddenly went to Shaanxi to withdraw silver, and Shaanxi couldn't produce it, what would you do?

Even with a hundred percent reserve, there's no guarantee it would be evenly distributed. How would you avoid regional bank runs?"

"Er..." He Kai's heart sank. After thinking for a moment, he answered: "First, issue a transport announcement to calm the people; then openly transport silver from other provinces. Also establish new rules: cross-regional large-sum remittances must be booked and petitioned in advance.

At the same time, from the Taicang treasury downward, treasury silver should be divided into national treasury, provincial treasury, prefectural treasury, and county treasury, each maintaining a certain proportion of silver at all times for convenient dispatch. Transport fees would be charged according to the distance from the note's issuing location to the redemption location."

Lin Qian was fairly satisfied with this answer and asked some more basic questions.

Such as: how to promote circulation? How to handle bank runs? How to set denominations? How to prevent counterfeiting? How to assign anti-counterfeiting responsibility? How to guard against regional price arbitrage? How to conduct recycling of worn notes? And so on.

At first He Kai could still answer with ease, but by the later questions he began to ramble incoherently. Cold sweat poured from his forehead and back, and his voice grew softer. He would never have dreamed that issuing Treasure Notes involved so many detailed problems.

Take the recycling of worn notes (soiled paper currency), for instance. Before Lin Qian asked about it, He Kai had never even considered it a problem.

Wasn't it just a matter of exchanging for a new one? What was there to it?

But upon closer questioning, he realized there was a whole world of intricacy hidden within.

The redemption standard for worn notes was set too high, making it difficult for commoners to exchange them, which in turn led the market to refuse them, ultimately damaging the credit of precious-note currency.

If the standard was set too low, it increased issuance costs, and some might even deliberately cut notes to counterfeit them.

Lin Qian paid no mind and kept asking questions without end, seemingly completely oblivious to He Kai's discomfort.

As the tea in the cups was refilled five or six times, the sky outside the main hall gradually darkened.

Lin Qian still showed no sign of stopping.

Whether from hunger or guilt, He Kai began to see stars before his eyes, and resentment slowly rose in his heart.

Since the Jiajing era of the Great Ming, precious-note currency had lost its function as circulating money, and it had been fifty or sixty years since then.

In the Tianqi era, how commoners viewed precious-note currency was just like how modern people viewed grain coupons.

Although He Kai was a scholar, his family were sea merchants, and he understood commercial matters extremely well, believing that no one should understand precious-note currency better than he did.

Being repeatedly rendered speechless by Lin Qian's questions, he could not help but turn from embarrassment to anger, thinking that the helmsman, having never studied books, dared not debate classical doctrine with him, and so deliberately piled up obscure and difficult questions to make things hard for him.

Yet despite his inner dissatisfaction, the helmsman's fearsome reputation held sway, and he dared not show the slightest bit of it, only cursing inwardly without end.

At this moment, a servant came up to remind Lin Qian that it was time for the evening meal.

He Kai breathed a sigh of relief, thinking the interrogation was over, and prepared to take his leave.

Who would have expected Lin Qian to say: "Set out the meal in the main hall. I'll eat together with my guest."

"Ah?" He Kai was flattered and flustered, hastily declining.

He felt that staying for a meal on a first visit was improper, yet at the same time felt some gratitude toward the helmsman's warmth.

Lin Qian said: "We've only just skimmed the surface of the precious-note economy. Our time is limited, so there's no need for ceremony."

He Kai's mouth opened slightly, unable to speak, thinking to himself: "After all those questions, we've only skimmed the surface?"

Before long, the servants had set up tables and chairs in the main hall, and dishes were brought in one after another.

Lin Qian invited He Kai to take his seat.

On the table, the staple was rice; the main dishes were steamed sea bass, red-fermented chicken, lamb stewed in wine, and stir-fried bamboo shoots, accompanied by clam soup, a serving of pickled cucumbers, and the drink was Wuyi black tea.

There were many dishes, but the portions were all small.

For someone of the helmsman's status, this fare was already quite simple—even He Kai's own family banquets were far more lavish.

Though the helmsman's dinner used humble ingredients, the preparation methods were ingenious.

Take the tea for example: its liquor was a vivid red, deep amber in color, with leaves the hue of antique bronze, giving off aromas of pine smoke, longan, and candied dates—utterly different from the green teas popular in the Great Ming, such as Xiuning Songluo and Bijian Mingyue.

Lin Qian introduced it: "That is Zhengshan Xiaozhong, a new tea from Mount Wuyi. Its production method differs from green tea, and it can be stored longer, making it convenient for export." He Kai took a sip and praised it again and again.

Lin Qian raised his teacup and said: "Some say that expanding the variety of goods is also a way to stabilize prices.

By creating new demand, one can divert surplus currency and increase supply elasticity.

But others say that if silver floods in for speculation, driving up the price of black tea and pushing up the cost of related factors of production, it will form a new point of inflation. What do you think about this?"

He Kai was dumbfounded—how could even a cup of tea become an examination question?

What did "surplus currency" mean, what did "supply elasticity" mean, what did "point of inflation" mean—what on earth was all this?

Seeing He Kai's expression, Lin Qian smiled faintly. It wasn't that he deliberately used scholarly terms to make things difficult—it was simply that he didn't know how to express these concepts in the language of the Great Ming.

Lin Qian set down his teacup and explained each term one by one, then went through the current financial problems of Fujian and Guangdong, as well as demand-driven inflation. To be fair, Lin Qian was not much of a teacher—he lectured at breakneck speed, with no patience to check whether his student could follow.

A vast quantity of complex concepts was all explained within the time it takes to burn one stick of incense.

Looking again at He Kai, he seemed as if struck by a paralysis spell, chopsticks suspended in midair, not lowering them for a long while, until Lin Qian finished speaking and drank his tea.

Only then did He Kai snap back to his senses, awe rising in him. He hastily set down his chopsticks, rose to stand at attention, straightened his robes and cap, and made a deep bow all the way to the ground, then after straightening up, made another deep bow. In Great Ming etiquette, this was called the "rite of double bowing," second in reverence only to kowtowing.

He Kai bore the jinshi degree and did not bow before officials; even in respecting the helmsman, he had only made a clasped-hand salute.

Now performing the double-bow rite showed how solemn his regard had become.

After the bows, He Kai stood tall with a deferential bearing, chin slightly tucked, eyes fixed before Lin Qian's knees, and said: "Your student is dull-witted, and having received your instruction, sir, I am beyond grateful! Your student did not know the depth of your learning, sir, and had even secretly harbored resentment in my heart moments ago—truly not the conduct of a gentleman. I am deeply ashamed, and I beg your forgiveness, sir!" Having said this, he performed the double-bow rite once more.

He Kai came from a sea-merchant family, and after entering officialdom he had joined the Ministry of Revenue, where he came to feel deeply the accumulated ills of Great Ming finances and wished to reopen precious-note currency to ease the crisis.

Yet the practical statecraft scholarship related to precious-note currency was pitifully scarce, and he had to explore it all on his own.

By the age of thirty, he had painstakingly worked out a method of issuing notes, believing it to be unrivaled under heaven.

Only upon meeting Lin Qian did he understand what it meant to be a frog at the bottom of a well, what it meant to be a tiny mayfly seeing the blue sky for the first time!

Lin Qian's theories connected the flow of silver and money, the issuance of paper notes, credit and legal systems, the rise and fall of prices, the suffering of the people, and the strength and decline of the nation—each link interlocking with the next, rigorously logical.

Surpassing He Kai's self-devised work by a hundredfold, a thousandfold!

In the eyes of traditional literati, economics was merely a "technique," and even the lowliest of techniques—to ease a crisis and save a collapsing state, one had to rely on the "Way" of governing the state and cultivating peace. But upon hearing Lin Qian's words, He Kai understood that everyone under heaven had been wrong—the methods of economics were the true Way, the Great Way!

What Lin Qian spoke was not only a strategy for strengthening the state and enriching the people, but also a perfect answer to the classical question of the "debate between righteousness and profit."

In the heart of He Kai, a great Confucian scholar of the classics, this had risen to the philosophical height of the words of the sages!

Before entering the residence, he had only regarded Lin Qian as a man of the rivers and lakes, a leader of a righteous army.

But now, in He Kai's heart, Lin Qian was a sage who perceived the workings of the Heavenly Way.

In the span of a single stick of incense, what Lin Qian had said exceeded the total of thirty years of He Kai's own arduous contemplation!

Hearing a gentleman speak for a while surpasses reading books for thirty years.

If this was not the Heavenly Way, what was?

The people of the Great Ming revered teachers and valued their doctrines above all. Even though Lin Qian had only offered casual guidance, He Kai acknowledged this great kindness.

At the same time, considering the helmsman's high position and great power, he did not want to appear to be currying favor, so he did not perform the formal rite of taking a master, but instead served with the rites of a disciple.

Yahei

Fen Yuan

handwritten

fountain pen