Chapter 269: Angel in the Front, Devil in the Back

Late at night, next to the Hexi Jiedushi's office, the large courtyard was surrounded by more than a hundred elite soldiers of the Chishui Army who patrolled everywhere; anyone suspicious was seized, taken to the Hexi Jiedushi's office for interrogation, then beaten, scolded, and detained.

Yet the grand mansion that handles Jiaozi printing remains brightly lit even after night falls.

Some craftsmen are hurriedly carving plates worth one bolt of silk, others are making ink, and still others are cutting large sheets of special mulberry paper to the size of the plates; in the innermost courtyard, Jiaozi printing is proceeding in full swing.

The air is filled with the scent of ink.

Apart from Fang Chongyong and his companion Cen Shen, there is not a single idle person here. On a northwestern spring night, the temperature is not comfortable, yet the people in the courtyard seem oblivious and continue working nonstop.

"Fang Jiedushi, can this thin sheet of paper replace silk and be used arbitrarily in the market?"

"Can it really be used to buy cattle, sheep, or even slaves?"

Cen Shen took a Jiaozi from his bosom and handed it to Fang Chongyong, asking.

"The details are too many to explain in one word; follow me to the study for a thorough discussion."

Fang Chongyong waved his hand dismissively and said.

The beast that transcends the age has already been released; whether it brings blessing or disaster is beyond his complete control.

"Know my sins, judge me; only the ages will decide." Fang Chongyong thought that judgments about him might not be proper until centuries or millennia later; pondering now is just idle chatter—just do whatever he wants.

Today Fang Chongyong witnessed the many merchants in Liangzhou City market being forced by the Chishui Army to reluctantly exchange silk for Jiaozi.

Why is the exchange one‑for‑one, instead of issuing more Jiaozi and taking less silk?

Fang Chongyong's concern is to minimize inflation, at least to avoid natural inflation at the outset. At present, Jiaozi can only be considered "domestic currency," not "international currency." To spread Jiaozi to the Western Regions, it depends on the Hexi army's expedition to Xiaobolu and its results.

Wherever the Tang troops' spear reaches, Jiaozi runs rampant there.

The two arrived at the Hexi Jiedushi's office study and sat opposite each other at the desk.

Fang Chongyong took a packet of loose tea from his chest, had a servant in the residence brew a pot, poured a cup for Cen Shen and another for himself.

"Issuing Jiaozi is of great importance; it is not merely a replacement for silk."

Fang Chongyong's face grew solemn as he said.

Cen Shen nodded slightly and said, "I am willing to hear the details."

"Suppose Judge Cen's family owns only a few dozen mu of land, must rotate crops, and can barely make ends meet as an ordinary peasant.

While someone is a Provincial Prefect.

Last year's harvest was poor, and this spring's planting has arrived; Judge Cen's household has no surplus grain and needs to buy seeds, tools, and pay rent at the market.

So what should Judge Cen do?"

Fang Chongyong sipped his tea slowly and asked.

"Naturally, one would borrow from a local wealthy household to get through the difficulty first.

However, borrowing is easy while repayment is hard; nine advances and thirteen repayments are common—who can afford that?"

Cen Shen let out a light sigh and said.

Many things are obvious; it's fine not to speak of them.

"That statement is indeed true.

Now, this Provincial Prefect, seeing the people's hardship, wants to help Judge Cen, so he, in the name of the government, loans some money from the treasury to Judge Cen.

Hmm, not a huge amount—about ten guan.

The interest can't be high, right? If it were, it would be akin to usury.

So Judge Cen received the government money, expressed endless gratitude, and left. He then used the ten guan to buy seeds and tools—no need to elaborate.

Yet this year's harvest was again poor, with nothing yielded. Judge Cen naturally had no money to repay and, fearing to defy the authority, could only pawn his children to the government.

However, for this Provincial Prefect, the treasury's wealth is accounted for; a deficit would be blamed on his official hat. So he only needs Judge Cen to repay the money. He has many servants at home and does not need Judge Cen to sell his children.

Thus Judge Cen ultimately has to sell his children to a local wealthy household, using the proceeds to settle the government's account.

Although he knows these facts, as a Provincial Prefect, the loan he gives you is from the court, not his personal money. He merely wants to delay, but that can't be delayed—does that make sense?"

Fang Chongyong smiled, asked, and took a sip of tea.

Cen Shen fell silent, because such situations are so common; self‑cultivating farmers have no means to resist natural disasters, let alone human calamities.

He inferred from Fang Chongyong's question that this person is very familiar with local administration; attaining the office of Hexi Jiedushi is largely due to his own ability and insight.

From that conversation one can see that an ordinary local official, even if he wishes to help these self‑cultivating farmers, takes huge risks and may end up with little reward.

Once the government intervenes in private lending, if a disaster strikes and a fiscal deficit appears, who will cover it?

If the ten guan loan cannot be recovered, it must be compensated from elsewhere, perhaps even by imposing an extra ten‑guan tax elsewhere!

Otherwise, the money can't just be said to come from the Son of Heaven, right?

In the feudal era, even if local governments are not corrupt and do not collude with powerful families, what they can do is still very limited!

Silk worth ten guan requires weavers; copper coins worth ten guan need copper to be cast, which consumes large amounts of firewood for smelting.

Who can make up these losses? The bankrupt farmer?

"So after circling around, the government actually can't do anything, right?"

Cen Shen gave a wry smile.

Fang Chongyong waved his hand, indicating that the other need not interject.

"Then let's phrase it another way."

Fang Chongyong took another sip of tea to moisten his throat.

"This Provincial Prefect printed ten‑guan Jiaozi and lent them to Judge Cen. As before, this year a disaster struck, the harvest failed, and those ten guan of Jiaozi are now wasted.

The one‑year term has expired, and now the government will come to collect the debt; what should this Provincial Prefect do?"

Fang Chongyong retorted.

Cen Shen thought for a moment, feeling as if a gauze were covering his eyes. This question is similar to the previous one, yet not exactly the same.

"The court could print another Jiaozi, allowing the Prefect, in the government's name, to lend this Jiaozi to Judge Cen, helping him get through this year's difficulty. Afterwards, your family should repay the two ten‑guan Jiaozi over five years.

Although this still cannot instantly save Judge Cen's family from ruin, it at least gives them hope to survive. Thus Judge Cen will not, in a situation where selling his children cannot free him, take up a hoe and become a bandit.

Is that the case?

Fang Chongyong pulled from his chest the Jiaozi worth ten bolts of silk that Cen Can had earlier given him, waved it before the other party and said.

"But the one that was printed earlier…"

Cen Can's mind hadn't turned the corner yet. Although this Jiaozi could be printed, how many could be printed was hard to say.

The two situations Fang Chongyong just mentioned differ by only a slight nuance. Yet that nuance entails a fundamental difference.

Fang Chongyong did not expose it, and quietly waited for Cen Can to think slowly.

A tiny error can lead to a thousand‑mile mistake; this saying fits perfectly here.

Before Jiaozi existed, the central government of the feudal era had no minting rights.

Or rather, minting rights were strictly restricted.

The amount of copper mined nationwide determined the capacity to issue coins. If it fell short of market demand, they had to use usable silk as a medium of exchange, which in practice was merely barter. This caused severe monetary contraction and a series of social problems.

For example, privately minted copper coins.

Taking the first example Fang Chongyong mentioned, the fiscal loss of each coin is borne by the government itself. If peasants cannot repay, it becomes an unaccounted loss, leaving the government with no buffer.

Either bankrupt peasants are driven to ruin, or the government grits its teeth and bears the loss.

After issuing Jiaozi, the central government effectively established its own central bank, able to issue Jiaozi as currency as needed.

In theory, money can be printed without any restriction! One Jiaozi becomes a bad debt, and printing another does the same! Technically there is no limit!

The ten guan of Jiaozi lent to a farmer, lost due to a failed harvest, become the bank's bad debt. The circulating M1 money turns into temporarily non‑circulating M2 money.

From freely circulating Jiaozi, it becomes a temporarily unrecoverable, perhaps forever unrecoverable, bad or dead debt.

The ten guan that the peasants spent become an "unexpected" debt circulating in society (the farmer has already spent it). It adds ten guan of inflation, with the whole nation and society bearing the consequences.

Of course, this is an ideal state, but the concrete process is roughly the same.

If the feudal central government is likened to a person's brain, then without a central bank, each loss of a coin is like a blow to that brain; fiscal collapse amounts to sentencing the person to a near‑death brain‑dead state!

But with a central bank, it can continuously issue M1 money, increase liquidity by printing Jiaozi, and alleviate the government's fiscal crisis by generating inflation. In other words, the overall inflationary consequences are borne jointly by the person's body (the state's entity).

From any perspective, the latter's resilience far exceeds the former's.

With Jiaozi, the Northern Song's "Qingmiao loan", a similar scheme, becomes easy to operate.

Of course, there are many detailed issues. As the Hexi Military Governor appointed by Ji, Fang Chongyong's policy maneuvering space is very limited. He can't yet devise many tricks. Even if he drafts a memorial, it still requires Ji's approval and Li Linfu's strong push to proceed.

"Fang Jiedushi, this Jiaozi thing is really… frightening."

Cen Can said with emotion.

He thought for a long time, still not grasping Fang Chongyong's question, but he was already clearly aware of the opportunities and risks involved.

Once Jiaozi spreads across the whole Great Tang, the resulting transformation will certainly not be underestimated.

"We can't discard this thing just because it might cause trouble. Lending Jiaozi to help small farmers acquire seeds and tools is a strategy; I call it the Qingmiao law.

I have already drafted a decree on the Qingmiao law, and it will next be promoted in Hexi's five prefectures. Local officials will lend Jiaozi to farmers; I intend to submit a memorial to the court to seek its promotion."

Fang Chongyong sighed and said.

Here in Hexi he can guarantee the decree's effectiveness, but elsewhere in Great Tang, the Qingmiao law would touch the money bags of aristocratic powerful families.

The resistance he will face needs no imagination; it will certainly cause chaos.

If the government delays the wealthy merchants controlled by the aristocratic families from offering usurious loans, then regardless of what name the Qingmiao law takes or what methods are used, it will naturally be resisted by those people.

Sure enough, Cen Can said helplessly, "The Jiedushi's idea is good, but many people live off the interest from printed money; if a disaster strikes, the populace will have to sell their children. They actually hope for calamities every year."

"Cen Magistrate, may I ask you.

Previously, buying a ready‑made set of clothes required three to ten bolts of silk. Now, having bought it with ten guan of Jiaozi, where did the silk originally intended for clothing go?"

Fang Chongyong asked Cen Can a question that seemed simple but was profoundly deep.

Cen Can is a skilled poet, but not adept at arithmetic, and cannot comprehend economic issues beyond his era. He furrowed his brow into a "river" shape, pondering the question Fang Chongyong just raised.

Indeed, the silk that originally circulated in society as "money"—where did it go after Jiaozi completely replaced it?

An obvious fact is that these silks did not simply vanish into thin air, nor were they burned away!

"I have a house for rent; yesterday I signed a contract with Party A, with a deposit of twenty guan, a one‑year term, to be returned after A vacates."

Fang Chongyong's voice rang like an explosion in Cen Can's ear.

"Later A vacated, B continued the lease, so I gave the twenty guan to B in place of A, allowing B to move in.

Then the original twenty guan that A gave me—does it remain in my hand? As long as the house is continuously rented, does that mean the deposit stays in my pocket forever?"

Fang Chongyong asked with a smile.

"Ah! Yes, yes, yes!

That's the principle! How could I not have thought of it!"

Cen Can suddenly understood; Fang Chongyong's single phrase startled the dreamer, and he finally grasped what game the other side was playing in Hexi with this wave of Jiaozi issuance.

As long as Jiaozi continues to be issued and circulate in society, the wealth previously used for barter is effectively "converted" and becomes an "extra" wealth for the whole society.

It's a magic trick that creates wealth out of thin air!

"But if Fang Jiedushi stops renting the house, or the house collapses, wouldn't one have to pull out twenty guan to fill the void?"

Cen Can suddenly thought of this almost unsolvable question.

Since it's a house, it will inevitably be damaged someday. Though the twenty guan is akin to an indefinite loan, there will still be a day to repay it.

What to do on that day?

"If I take the twenty guan to farm, run a small business, or slowly develop my family's industry, I won't have to worry about repayment later. Then the deposit is merely a small sum for me.

But if I squander the money in a gambling den and lose it all, then… Cen Magistrate, what do you think will happen in the end?"

Fang Chongyong asked meaningfully.

"I am enlightened."

Cen Can, sincerely pleased, respectfully bowed to Fang Chongyong, poured himself a full cup of tea, drank it in one gulp, inhaled deeply, and steadied his mind.

He had a hypothesis in his mind.

If the emperor accepted Fang Chongyong's suggestion and began issuing exchange notes in most parts of the Great Tang realm, especially in commercially prosperous and densely populated areas, then the "deposit effect" that Fang Chongyong spoke of would arise.

It was akin to when someone first rents out their own house and receives a large deposit.

During the issuance of exchange notes, a large amount of hard currency originally used for barter—such as grain and silk, which everyone recognizes but is inconvenient to carry—would be "replaced" by exchange notes, resulting in a huge increase in usable wealth for society.

It is tantamount to a landlord first receiving a deposit.

For the government, this is a windfall!

Of course, not everyone can enjoy the benefits in this process. But it is certain that the vast majority will profit from it, only differing in degree. The more powerful and wealthy a person is, the more benefits they can gain from it.

When exchange notes are rolled out nationwide and finally recognized by society, circulating smoothly, the "deposit effect" will disappear, and there will no longer be a windfall of wealth from nothing. At that point, it will be like A ending a lease and B renting the house—wealth undergoing an "old-for-new" exchange.

The period from when A begins renting a house to when they move out and B takes over the lease is the acceleration phase of the Great Tang's economic development. How great the development will be, how long it will last, and how fast it will proceed depend on what the ruling class, led by Brother Ji, does with this wealth after obtaining it.

Upon thinking this, Cen Shen's heart suddenly went cold.

"Jiedushi... What if, I mean, what if someday the people no longer accept exchange notes and revert to barter—what would we do then?"

Cen Shen swallowed and asked.

"Then return my twenty strings of deposit!"

Fang Chongyong gestured at Cen Shen and teased.

I can't possibly afford to pay it back.

Cen Shen gave a wry smile; they both understood what the other meant.

"If it cannot be repaid, then what will happen in the end depends on whether I want to take a knife to Judge Cen's house to collect the debt. It also depends on how many and how capable the guards you keep at home are."

In short, such a huge sum of money isn't something that can simply be written off.

Fang Chongyong sighed helplessly.

Cen Shen fell silent; many words need not be spelled out—everything is understood without being said.

I insist on giving you substantive content; I won't write boring plots.

(End of chapter)