Chapter 282: Nan'ao Ocean of Silver

The shop assistant went over to attend to the customer settling his bill, smiling obsequiously: "Gentlemen, have you eaten well? The total for food and drink comes to one tael and five mace of silver."

The diner took loose silver from his bosom, set it on the table, and said with a flourish: "Keep the change as a tip."

The shop assistant's smile grew even wider as he pocketed the loose silver, then bowed and scraped as he saw the guests out the door.

It was just an ordinary bill-settling scene; everyone had seen it countless times and noticed nothing remarkable. But Lin Qian found it intriguing and called out: "Waiter, come here." Hearing the call, the shop assistant trotted over briskly and said with a smile: "Sir, you called for me?"

Lin Qian said: "Bring me the money that table of diners just paid."

"This..." The shop assistant's smile stiffened, and he looked troubled.

Geng Wu said with displeasure: "We're not taking it for nothing — we'll trade you this for it!"

With that he set a piece of loose silver on the table, nearly three taels by the look of it. That table's bill had been under two taels, so trading three taels for it was more than generous. "This gentleman is joking — even exchanging foreign silver doesn't carry such a heavy cut. Kindly wait a moment, and I'll fetch the silver for you, sir."

The shop assistant smiled and took away the loose silver, then drew out the previous table's payment from his bosom and set it on the table.

They were two silver coins — the obverse bore a cross as its design, the reverse a shield emblem, and the edges were inscribed with a great many Latin letters.

Scholar Zhou picked one up and examined it: "This looks like Luzon money — the kind called the peso."

Scholar Zhou held a high position in Nan'ao, where he scarcely had to spend his own money on food, clothing, or lodging, so he had little sense of the value of silver.

He Kai took the coin and explained: "Correct — this is Spanish silver coinage. In Zhangzhou it's called foreign silver, also known as native silver or cross money. Most of it is brought back by sea merchants trading to Luzon. One of these exchanges for seven mace and two candareens of silver."

"That can't be right — does this one really weigh seven mace?" Geng Wu picked up the coin from the table and hefted it.

He Kai said: "A full coin should weigh exactly seven mace. These two have seen long use and been worn down a bit, so they probably weigh slightly under seven mace now — but they still exchange for seven mace and two candareens of silver."

Just then, the shop assistant had arrived with a scale, on which lay clipped silver shavings. In front of Geng Wu, the assistant weighed the shavings — one tael, five mace, and six candareens.

"You gave me three taels of silver, sir. After deducting the two foreign coins, this is what remains. Please have a look."

Geng Wu was puzzled, but He Kai had already taken the loose silver, offered his thanks, and sent the assistant on his way.

After returning the silver to Geng Wu, he said: "Loose silver must be weighed, but foreign coins can be used directly. That's why merchants all prefer foreign coins. If the shopkeeper weren't so honest, anyone exchanging loose silver for foreign coins would have to pay a cut."

Geng Wu said: "It's all silver — why should the ones with stamped designs be worth more?"

He Kai shook his head: "It's not just a matter of stamped designs. Trading with loose silver is full of pitfalls — you have to weigh it, assay its purity, calculate meltage loss. Take the three taels of loose silver you just gave the assistant: they clipped pieces off to make change — what happens to the clippings? And what if someone mixes tin into the silver?

Every foreign coin is full-purity silver, unadulterated, uniform in weight and form, with intricate designs that are hard to counterfeit. How convenient it is to pay with these — that's why the common folk prefer them."

Lin Qian picked up the thread: "Exactly. This is called a credit premium. And for the issuing party, it's seigniorage."

"Seigniorage?" At the very word, even He Kai was dumbfounded.

Lin Qian took the coin and toyed with it in his hand: "This little thing is exactly what I came for today. Let me ask you — why do the Spanish mint silver coins? Why not just use weighed silver ingots like the Great Ming?"

"Er..." Everyone was left speechless.

Only He Kai ventured: "For that premium of three candareens of silver?"

Lin Qian nodded: "Correct. That premium is seigniorage. The Spanish are the first nation in the world to taste both the bitterness and the sweetness of finance — they would never do anything meaningless."

He Kai said: "If that's the case, then when the Great Ming mints its copper cash and mixes lead into the coins, is that also seigniorage?"

"That counts too, but it's killing the goose that lays the golden eggs — too stupid, too crude. Spanish silver coins are never adulterated; on the contrary, they strive to stabilize the fineness of their coinage. Because credit premium is a higher form of seigniorage — a high-grade seigniorage driven by the market rather than by administrative fiat.

This kind of seigniorage is hard for ordinary people to grasp. So if Nan'ao is to mint coins, it must mint this kind of full-value silver coinage to reap long-term returns." Hearing this, He Kai was startled: "Helmsman, you want to mint silver coins? I thought the bank was supposed to start with paper currency."

After all, when Lin Qian had interviewed He Kai, every question had been about paper currency.

Lin Qian took a sip of tea, and Ran Qiu refilled his cup.

"Silver coins and paper notes can both serve as legal tender, and both carry the attribute of credit. But silver coins have one greater advantage: they are naturally anchored in value, easy to circulate, and can spread across regions with ease — even becoming a global hard currency.

If Nan'ao mints silver coins, setting aside the benefits of convenient internal trade and serving the economy, the most direct advantage is avoiding meltage loss." In the Great Ming, meltage loss was the fig leaf behind which officials, money shops, and silversmiths joined forces to plunder the common people.

Under the pretext that the silver's fineness was poor, they charged exorbitant handling fees when exchanging silver, and levied an additional meltage surcharge when collecting taxes — all to squeeze the people at will.

But for the court, meltage loss was a real phenomenon. If policy were applied with one stroke and meltage fees were harshly banned outright, then officials would simply deduct the meltage directly from the regular tax itself.

That is why, in history, the Yongzheng Emperor's reform of returning meltage to the public treasury merely added a meltage tax on top of the regular levy, fixing the meltage into a rigid system — it could never eliminate the defects of weighed currency being constantly melted down, clipped, and adulterated.

But henceforth under Nan'ao's rule, with the silver coin as legal tender, there would be no clipping or weighing in circulation and collection, no concern over fineness, no need for remelting — naturally no meltage loss, and no possibility for officials to exploit the people through meltage fees.

Moreover, the Great Ming is a silver-poor country — virtually all its silver comes from trade with Hirado and Luzon. And Nan'ao has already formed a monopoly over foreign maritime trade; even if private sea merchants exist, they are supervised by the Nan'ao government. Like copper cash, the inflow of silver can be controlled at the source, preventing private counterfeiting. Having finished his lengthy discourse, Lin Qian looked at his tablemates and saw that some stared blankly, some sat in a daze, and one was playing with a puppy — only He Kai seemed lost in thought.

Lin Qian raised his teacup and blew on the steam: "Well? Did everyone understand?"

All shook their heads, save He Kai, who said: "This humble one is not talented — I only understood the half about meltage loss."

Lin Qian set down his teacup: "No matter. Financial knowledge is abstract in itself, and it's also deliberately complicated — the purpose being to keep ordinary people from understanding it, just like interest rate policies."

At this, He Kai nodded repeatedly. When he had first taken charge of the bank, he had been thoroughly bewildered by all manner of complex interest rate policies.

Take the simplest example of rolling interest — the rates are identical, yet how can the interest differ so much between compounding once a year and continuous compounding? And what about interest deducted up front, bullet repayment of principal and interest at maturity, and equal installment repayment of principal and interest — when the money repaid is the same and the quoted rates are the same, how can the effective rates differ by more than double?

Take seigniorage as another example: if you adulterate silver coins and pass five mace of silver off as one tael, anyone can see they're being cheated. But if you mint full-value coins and circulate them at a price slightly above their material value, people instead think you're doing pure charity.

Once Nan'ao's silver coin seizes monetary hegemony, and the issuance volume is fine-tuned to invisibly harvest the wealth of nations using the coin, seigniorage can rise even further.

Judging from Yuan Chonghuan's current closure of the passes — a foolish act that artificially manufactures deflation — this invisible harvesting method may become usable within half a year. So minting a batch of exquisite silver coins is the urgent task at hand.

Lin Qian continued: "Foreign coins have circulated in the southeast of the Great Ming for decades now, laying a solid foundation for coin circulation. The market will accept Nan'ao's silver coins very quickly.

Among the Spaniards we captured at the Cavite shipyard before, there were some who had worked in the Mexico mint. Guangzhou has a government bureau for casting copper coinage — technically, there's no problem either.

Nan'ao's silver coins will be forcibly promoted across the three provinces of Fujian, Guangdong, and Guangxi within half a year. Starting with the customs houses, we'll decree that all silver ingots arriving at Nan'ao's ports must be forcibly exchanged into silver coins before they may circulate — thereby squeezing weighed silver out of the circulation market.

This matter will be carried out by the Administrative Affairs Bureau and the bank. He Kai, produce a coinage strategy as soon as possible."

Scholar Zhou and He Kai together clasped their hands in assent.

The Nan'ao Administrative Affairs Bureau worked with great efficiency — the coin's specifications were fixed in November of that month, and by early December the master dies had been carved and struck.

The Nan'ao silver coin came in five denominations — one tael, five mace, two mace, one mace, and five candareens — each corresponding to its net weight.

All the coins were round. The obverse bore the denomination and year of minting; the reverse bore different designs — the one-tael piece showed Nan'ao's shield-and-halberd emblem, while the rest showed respectively a Fujian junk, a compass, a seagull, and a flying fish.

Along the edge of every coin ran a wave pattern hugging the rim, to prevent clipping.

At the same time, intricate and complex designs were used to prevent private counterfeiting.

The coinage method combined Chinese and Western techniques: the Great Ming's sand-casting method was used to cast the coin blanks, and Spanish die-striking was used to complete the surface impression — achieving a union of low cost and high precision.

Though it was already mid-December, merchant ships were still putting into port one after another along the coasts of Fujian and Guangdong.

Most small-time traders from Fujian and Guangdong spent generations plying a single route; men like Lin Qian, who sailed south in winter and north in summer to do business, were not many. On this day, a two-masted Fujian junk docked at Yuegang. It was a merchant vessel returning from Hirado, carrying over ten thousand taels of silver on board.

The shipowner, past forty, was known as Sea Hare. He was both shipowner and shipmaster. Among the common folk of the Great Ming, his assets already counted as those of a man above the crowd, but among sea merchants, he was but an ant at the bottom—one day he might meet wind and wave, and lose both his person and his family fortune entirely.

So he had to calculate every last copper in everything he did. Take refining silver, for instance: all the silver on this ship came from the Iwami Silver Mine as roughly smelted ingots, and he had to find a silver furnace to melt them down before they could circulate within the Great Ming.

In the old days, the private silver furnaces at Yuegang charged exorbitant melting fees, and small traders could only endure the exploitation.

But ever since the official silver furnace opened at Nan'ao, with its fair prices and the high purity of the silver it produced, merchants all preferred to refine there, and private furnaces vanished overnight.

This time, however, the refining was somewhat different. In the past, furnaces always cast silver into ingots; this time, they were casting silver coins.

Sea Hare was dubious, but the furnace clerk pointed to a notice by the door and said: "The Administration Hall has issued new regulations. From now on, within Nan'ao's jurisdiction, silver coins will gradually replace silver ingots."

Seeing Sea Hare still had doubts, the clerk said: "Wait seven days. Come back in seven days to collect them—I guarantee they'll be far better than ingots."

At the Yuegang silver furnace, over two hundred craftsmen worked in two shifts under a technique combining Chinese and Western methods, striking coins at a furious pace.

Seven days later, Sea Hare came to collect his silver. He found long paper packets neatly stacked in the silver sheaths. Opening one, he saw rows of exquisite silver coins inside. He took one out and held it up to the sunlight, and could not stop praising it—its craftsmanship surpassed even the Spanish real, and the surface was white and lustrous, clearly full-purity silver at a glance.

The clerk then brought out the ledger and said, checking against it: "The ore you brought totals thirteen thousand eight hundred fifty taels, being eighty-five-percent-purity rough silver from the Iwami Silver Mine.

The yuan-yang is ninety-percent full silver, so converted, it comes to twelve thousand three hundred ninety-two taels and one mace one candareen..."

As he spoke, the clerk clicked away at his abacus, and when he finished, pushed it over for Sea Hare to verify.

Sea Hare had traveled far and wide and knew well how to distinguish silver purity. The coin in his hand had a lustrous sheen, a comfortable weight, and a deep, lingering ring when struck—yet it had no honeycomb pores or pine-grain marks, which did not match the characteristics of ninety-percent snowflake-pattern silver. He was just wondering at this.

The clerk had already explained in advance: "Silver ingots are cast, so they have pine-grain marks and pores, but silver coins are struck, so their surface is smooth. The Administration Hall inspects the purity of coins with great care, ensuring every single one is ninety percent—no short-purity silver will ever reach the market."

As he spoke, the clerk took the coin from Sea Hare's hand, gripped it with tweezers, and held it over a candle flame. After roasting it for some time, he wiped the surface with a damp cloth. The silver remained snow-white as new, and after a moment, the scorched spot actually shone even brighter.

This was the fire test. If silver contained copper, it would turn red-black when burned; if it contained lead, blue-black; if too many impurities, it would bubble and crack. Only full-purity silver grows brighter the more it is burned.

Seeing the coin pass the fire test, Sea Hare was reassured.

The clerk continued working the abacus: "For purification, molding, and hammering losses, we take four per hundred; for the melting fee, two per hundred.

The remaining total weight of yuan-yang should be eleven thousand six hundred forty-eight taels five mace eight candareens.

This chest holds ten packets, one hundred coins per packet, eleven chests in all—eleven thousand yuan-yang in total. The remainder is in this small box."

The clerk rose and opened the remainder box. As with the full chests, the coins were wrapped in paper packets of one hundred, with the leftover loose coins set apart—everything clear at a glance.

Sea Hare was most satisfied with this transparent pricing and honest way of doing business. After a rough count and inspection, he signed the delivery receipt and had his men load the silver sheaths onto carts, then went to the customs house to pay his duties.

Under the Great Ming's rule, maritime trade taxes included permit fees, water levies, land levies, surcharges, and more; one also had to bribe the officials, pay customary fees, and pay protection money to both the guard-station navy and the sea bandits.

But now, against the backdrop of Ye Xianggao's full push for tax reform, Nan'ao's tax collection had taken on an entirely new face.

At the Yuegang customs office, Sea Hare handed over his ship permit. The customs clerk worked his abacus as he spoke: "According to your sailing records, your cargo value is forty percent silk fabric and sixty percent raw silk, Chinese medicines, white sugar, and the like.

Under the export tariff schedule, silk fabric is 3%, other primary raw materials 6%, making your export duty five hundred ninety-four yuan-yang. Aside from silver ingots, your ship also carries half a picul of Japanese Nishijin silk and thirty katana—the import duty rate on these goods is 15%, and after valuation, your import duty comes to eighty-five yuan-yang.

Total duties come to six hundred seventy-nine yuan-yang. Deducting the estimated prepayment of five hundred eighty-three yuan-yang you made when leaving port based on cargo value, you still owe ninety-six yuan-yang."

Having said this, the clerk pushed both ledger and abacus before Sea Hare for his verification.

For Nan'ao sea merchants, they needed only to pay customs duties—a single category split into import duty and export duty, each further divided into the stages of declaration, prepayment, and final settlement, with different rates for different imported and exported goods.

But in sum, the assessment and collection of duties all followed a discernible logic.

For example, manufactured goods such as silk fabric and porcelain—Nan'ao encouraged their export, so the rates were low. For high-end, complex goods like ready-made clothing and books, the rates were lower still.

Raw primary commodities, by contrast, carried high rates.

On the import side, it was the reverse: other nations' minerals and agricultural products carried low rates, while complex goods like Nishijin silk and katana were taxed the highest. Additionally, the tax base was divided between estimated sale price and actual sale price—duties were levied on the estimated value when leaving port, and upon return, adjusted against the actual cargo value, with overpayments refunded and shortfalls collected.

The tariff system sounded complicated, but everything was published in black and white, and the calculation process was visible at every collection.

Merchants, being merchants, dealt with numbers all day long and quickly grew familiar with the rules of the game.

After paying his taxes, Sea Hare had his servants transport the silver back to his residence. Of the remaining silver, he had to settle accounts with his inland suppliers and place orders for next year's goods; with the New Year approaching, he also had to stock up for the festival.

What surprised Sea Hare was that throughout the market, whether from small peddlers or mainland merchants, everyone accepted yuan-yang first, Spanish real second, and silver ingots or loose silver last.

A strange sight even appeared where a single one-tael yuan-yang coin could be exchanged for one tael three mace of loose silver.

Sea Hare's commercial instincts were sharp. He immediately had his wife dig up all the silver the family had saved over the years and send it to the furnace to be melted into coins. Even if the melting fees and deductions ran higher, it mattered not!

One tael of silver cast into coins was worth one tael three mace at resale—even if melting fees took twenty percent, he'd still net a mace of pure profit!

This was money falling from heaven, far safer than maritime trade. While few people yet knew of it, he had better bank his gains quickly. Within a few short days, the streets of Zhangzhou prefecture were conquered by yuan-yang.

The common folk were no fools—rather than spend their loose silver as-is, why not have it cast into coins?

Even the Spanish real soon vanished entirely, all of it taken to be minted.

Even though the Nan'ao furnace was bursting with business and minting required waiting in long queues, no one would spend loose silver directly anymore.

As the year's end approached, Lin Qian, accompanied by He Kai, toured the Zhangzhou silver furnace.

In the warehouse, loose silver was piled like mountains; in the workshop, furnaces burned day and night without cease. The craftsmen's hammers swung so fast they left afterimages, sending sparks flying from the dies. In the dead of winter, the workers wore thin clothing, wiping sweat as they worked; when the heat grew unbearable, they stepped to the workshop door to cool off in the cold wind, then came back to carry on.

He Kai was dumbfounded. Pushing up the spectacles on his nose, he asked: "Helmsman, did you not teach me before that bad money ought to drive out good? In my view, yuan-yang compared with Spanish real and silver ingots is the finest of good money—so why is it that here in Zhangzhou, it is the good money driving out the bad?" Lin Qian picked up a freshly struck yuan-yang coin and toyed with it as he explained: "Gresham's law has a precondition: the two currencies must have the same legal face value. But yuan-yang, Spanish real, and silver ingots are all priced by the market in Fujian and Guangdong, and that produces the opposite result—good money drives out bad. This theory is a bit abstract in economics. Take this silver furnace as an example: if all the craftsmen ate from the same communal pot, earning the same wage whether they worked hard or loafed, soon the diligent workers would leave and only the sly and lazy would remain—that is what is called 'bad money driving out good.'

But this furnace pays a base wage plus piecework. The more you do, the more you earn, and the top few coin-strikers get bonuses before the New Year—that's why everyone works like mad, creating positive incentives."

He Kai listened, and suddenly understood. He bowed all the way to the ground and said: "I have been taught."

"The commercial bank has been running well lately. It's time to prepare for establishing a central bank."

Lin Qian put the coin back in its place and walked to the workshop door. He wore a sable coat, and staying in the workshop even a short while made him break into a light sweat.

He Kai stammered: "I... I..."

Lin Qian said flatly: "It's settled. After the New Year, Nan'ao will establish a central bank. The commercial bank's successor and the central bank's membership—you should think those through in advance."

"Yuan-yang is circulating quickly in Fujian and Guangdong; under the Great Ming's rule it will circulate even faster. The crowding out of bad money and the absorption of silver will reach their peak. Seize the opportunity, Governor."

Having said this, Lin Qian tightened his coat and stepped into the cold night.

A few days later, the year's end arrived, and the Great Ming welcomed the first year of Chongzhen.

Amid wind and swirling snow, over two hundred black-hearted monks from Mount Putuo were marched to the execution ground and beheaded one after another. Monk Kongji wailed loudly—one stroke of the blade, and the crying ceased abruptly.

Even though the authorities had posted notices before the executions explaining the monks' crimes, a great crowd still gathered at the execution ground, crying out against the injustice. Whatever the people of Zhoushan thought, the fact remained that they no longer had to pay the Liaodong levy or customary fees to the officials—at last they could celebrate a proper New Year.

At the Fuzhou prisoner-of-war camp, Wang Xu, Xu Jian, Li Wending, and the others—the surrendered officers of the Zhejiang navy—looked at one another in dismay. The Nan'ao navy was teeming with talent, and there was no place for them in its ranks. But at least their lives were spared, and if they actively participated in their reformation, perhaps one day they might make something of themselves in the South Seas.

At the Governor-General's residence in Nanchang, word spread that the Chongzhen Emperor had accepted Yuan Chonghuan's explanation for the loss of Zhoushan, offering no harsh rebuke—only gently urging Yuan Chonghuan to dispatch troops as soon as possible to recover the lost territory.

Across the officialdom of Zhejiang, the directly administered prefectures, Jiangxi, and Huguang, seeing how greatly Yuan Chonghuan enjoyed imperial favor, they seized upon the occasion of the New Year to present "festival gifts," every one of them exquisite and costly.

But Yuan Chonghuan ignored the unspoken rules of officialdom and returned every single festival gift.

Visiting officials observed that Yuan Chonghuan not only refused gifts, but as a frontier commander of the highest rank, he had barely any servants at home—indeed, his household could be called shabby. In the filthy and corrupt officialdom of the Ming, maintaining integrity required more than merely refusing bribes; it demanded the courage to refuse to go along with the crowd.

In the officialdom of Jiangnan, though corruption among officials was rampant, they still knew what was right, and all deeply admired Yuan Chonghuan's clean and upright conduct.

Some even lamented privately, saying that Yuan Chonghuan was selfless and fearless, but considered his own interests far too little, and worried that he would find it hard to meet a good end.

In the common world beyond the sight of the gentry, rice prices, flour prices, and cotton prices all fell slightly, as if the common people's lives truly had improved under Governor Yuan's governance. Cheng Benzhi seized the opportunity to publish a flood of sycophantic articles in the first edition of the "Jiangxi Gazette," waving the banner for the court and buying popular support.

It so happened that Sun Chengzong, Fu Zonglong, Hong Chengchou, and others all reported victories on their respective fronts, and these victory reports were compiled and submitted by Cheng Benzhi at the earliest opportunity. For a time, the image of the Emperor and the court improved greatly in the minds of the scholars.

And in the mountain regions of northern Fujian, where no one paid any attention, while the soldiers at the passes busied themselves with New Year celebrations and relaxed their vigilance

unsold raw silk and porcelain were being carried along goat-track paths, borne on shoulders and in hands, smuggled into the province of Fujian.

On the same road, large quantities of silver ingots and loose silver scraps, mixed with a small number of Nan'ao yuan coins, were flowing in the opposite direction, pouring into the borders of Jiangxi province. Even the Jiangxi merchants involved in the smuggling had no idea what the exquisitely crafted silver yuan coins signified.

Yahei

Pink Pearl

Pen