Chapter 291: Economics Mini-Lecture 2.0

Economics Mini-Lecture 2.0

This lesson mainly addresses questions related to seigniorage, still explained in a plain and not-so-rigorous way.

This chapter helps readers understand the significance of the protagonist minting silver coins, and how he uses financial warfare against Yuan Chonghuan and the Jianzhou barbarians.

I. Concept Analysis — Transaction cost: refers to the time spent on weighing, clipping, testing purity, and calculating wastage losses on loose silver; if you're not careful and receive counterfeit silver, you also lose money.

Currency hegemony: when all transactions in the Great Ming, the Joseon dynasty, and other countries use Yuan-yang coins.

Inflation: when there's too much money in the market, all merchants raise prices.

Coinage right: the power to define and produce legal tender.

Legal tender: when it's decreed that only the Yuan-yang is money and loose silver is not money, the Yuan-yang becomes legal tender.

II. Rapid-Fire Q&A — Q1: How does the Yuan-yang seize currency hegemony?

A: High purity, stable weight, countable by the piece, greatly reducing transaction costs — everyone is willing to accept it, and over time, good money drives out bad.

Q2: How does Nan'ao use seigniorage to harvest the leeks?

A: First, charge a handling fee during the stage when loose silver from the private sector is melted down and cast; charge little at the start, more later — that's the first harvest.

Second, Nan'ao collects seigniorage, and the loose silver accumulated in the treasury can itself be minted into silver coins to spend outward — that's equivalent to a second harvest.

Finally, Nan'ao mints coins in large quantities every year, maintaining relatively low inflation; previously issued Yuan-yang coins depreciate, which is yet another harvest (this point follows the same playbook as the US dollar harvesting leeks, except silver coins can't harvest quite as ruthlessly).

Q3: No, I can understand the first harvest, but what do you mean by minting it into silver coins and harvesting again? It's just turning silver into silver coins — how does that harvest anything?

A: One tael of silver mints one tael of silver coin, but spending it has the purchasing power of 1.3 taels of loose silver — that's where the 0.3 tael gets harvested.

Q4: Everything above is about harvesting your own people — how do foreigners, like the Jianzhou barbarians and Joseon, get harvested?

A: Same principle. Foreigners also know silver coins are good, and they'll use silver to buy silver coins — that harvests them the first time.

Nan'ao uses silver to buy foreign goods — that harvests them a second time.

Nan'ao keeps spending silver coins, causing inflation abroad — that harvests them a third time.

Q5: No, that's wrong — how could silver coins cause inflation? The silver is right there in front of you! It's not paper money!

A: Wake up — don't be fooled by the rhetoric that gold and silver are naturally inflation-proof!

Silver can inflate too; it has nothing to do with metal currency versus paper money. When the Spanish first started mining the silver mines of the Americas, didn't they inflate Europe?

Besides the value of saving transaction costs, silver coins also carry a certain credit premium because common folk believe they hold value. Over-issuing means drawing down that credit premium, thereby harvesting the leeks — and this leek-harvesting can continue until "silver coin purchasing power = silver purchasing power + minting cost."

Q6: Still wrong — isn't there a saying, "antiques in prosperous times, gold in chaotic times"? Gold and silver clearly can resist inflation!

A: That resists inflation from over-issued paper money! Over-issue silver coins or gold coins, and they can't resist it either——

Q7: Fine~ Then by your logic, Nan'ao wildly harvests foreign leeks, silver floods into Nan'ao — doesn't Nan'ao get inflation?

A: Correct, which is why banks are needed to manage it through monetary policy. In plain terms: encourage everyone to save, promote the Chinese people's natural love of saving, and stuff the silver into the ground (or deposit it in banks) — then no inflation.

Q8: What if I just don't bury it? Your methods are too thin — hard to convince anyone.

A: There are plenty of methods. You can also run insurance — life insurance, pension insurance, all of it — hand the silver to the government, which is equivalent to burying it in the ground, while also solving the social welfare problem. Two birds with one stone!

Q9: Then I'm not buying insurance either! Would the common folk of the Great Ming believe your insurance nonsense?

A: Well said! That's exactly where the power of banks and silver coins shows itself again. The government mandates that the silver coin is legal tender, loose silver exits circulation, and the coinage right stays firmly in government hands — Nan'ao can adjust how much or how little to mint. Not 100% adjustment, but at least partial.

Q10: Hahaha? Silver coins as legal tender, loose silver exiting circulation? How is that possible?

A: This is exactly why the protagonist says administrative measures are inferior to economic ones — slapping down hard decrees from the start definitely won't work.

Promoting the Yuan-yang in Min and Yue was also done step by step: first a transition period with loose silver and Yuan-yang circulating in parallel; once good money has mostly driven out bad, tighten policy gradually, and finally establish legal tender status.

Q11: That's useless — sea merchants still have massive amounts of loose silver shipping into Nan'ao. Don't forget, the Great Ming is a trade-surplus nation, a natural silver black hole!

A: There are plenty more methods: keep issuing national bonds, cut government investment, develop the stock market, guide the rich toward luxury consumption, and export currency abroad.

At the same time, the root cure is vigorously developing productive forces, increasing product supply, and improving the efficiency of commodity circulation.

Q12: How could the Great Ming possibly run a stock market for investment? You're just stretching to make up methods, aren't you?

A: It is indeed very difficult, but small-scale inflation leads to economic prosperity — the common folk earn more and more money, their willingness to spend grows, and perhaps some will consider investing.

Q13: Fine, I won't argue this with you. Your methods sound decent, but I ask you: why would the Later Jin follow your script? What can you do if they simply refuse to use the Yuan-yang?

A: Unless the Later Jin completely decouples economically from Nan'ao, as long as there's any flow of goods — even smuggling — the Yuan-yang will flow into the Later Jin, just like what happened in Jiangxi: the more it's banned, the more it rises; the more it rises, the more it's trafficked. It can't be stopped.

Did Spain push Spanish silver coins to prevail throughout the late-Ming Great Ming? No, they didn't! The common folk aren't stupid — they know what's good to use.

Q14: If that's so, why don't the Later Jin and the Great Ming just privately mint Nan'ao silver dollars? I could even make counterfeit alloyed silver dollars to destroy the Yuan-yang's credit!

A: Minting silver coins has a technical barrier. The Nan'ao Yuan-yang uses steel dies from Folangji casting, combined with the Great Ming's sand-casting coinage techniques — low cost, high precision, very hard for other nations to counterfeit.

If the Great Ming counterfeits with full purity, that just helps Nan'ao build currency hegemony; if not full purity, the market quickly discovers it, and good money drives out bad — it gets eliminated.

As for the Later Jin, it has no coinage capability at all. Its own Tianming Khan coins are so shoddy that even they don't use them, let alone counterfeiting silver coins.

Q15: What you're saying is still wrong — you can't be unaware that the Great Ming doesn't produce silver, right? If a silver-producing nation massively produces silver, can't it harvest the Great Ming in reverse? And you're still going on about coinage rights — ridiculous!

A: Coinage right ≠ mining right. Currency is currency; silver mines are commodities. Coinage right means the right to define "legal tender."

Q16: Stop being a pedant quibbling over concepts. I'm asking you: if the Spanish frantically produce silver, can't they use inflation to harvest Nan'ao?

A: Theoretically possible, but not in reality. Because historically, Spain explicitly restricted the total amount of silver exported from the Americas to Manila. Behind this lie complex factors — mercantilism, economic shortsightedness, Spain's treasury shortfalls, severe domestic inflation, and declining output from American silver mines. I won't go into detail; history has proven it doesn't work.

Q17: What about Japan then? Japan can also produce more silver and harvest Nan'ao!

A: Historically, Japan had a strong tendency toward national seclusion, and one major reason was to curb silver outflow. If the Great Ming of 1630 had actually encountered a silver-producing nation frantically churning out silver, it would probably have been overjoyed to the point of madness.

Q18: Then let me assume — assume Spain and Japan also have transmigrators, and they frantically produce silver to harvest Nan'ao?

A: The flow of silver is very hard to control through administrative means. Spain wanted to prohibit silver from flowing to England, France, and other countries — didn't that fail too?

Stepping back, even if silver could truly be delivered to Manila in large directed quantities, Manila would inflate first, silk prices would rise — that wave would be harvesting themselves.

Even if inflation became extremely severe and affected Nan'ao, Nan'ao could cut off imports, or even capture Manila and attack the galleon trade routes — wouldn't the problem be solved?

Even if someone risked everything to smuggle, smuggled loose silver isn't Nan'ao's legal tender — it can't be spent. This again proves the function of minting silver coins. The logic loops closed.

III. Closing Remarks — Writing a bit more late at night, as compensation to the shipowners who didn't want to subscribe but accidentally subscribed to the previous Economics Mini-Lecture.

Yahei

Pink Round

Pen