Chapter 169: Deflation

Liu Ruogu said respectfully, "To answer Your Excellency, the Anqing Baishun Hall bought a former gambling den — originally run by a household slave of the Luo Family — and then purchased the shop next door and expanded it a bit. Only the brothel hasn't been acquired yet. Business is better than at the Tongcheng Baishuntang, even better than before the Roving Bandits came. Profit this half-month is about four to five hundred taels."

"All the wealthy people in Anqing have come to the Prefectural City, so a temporary spike is only to be expected. But we've just opened — don't focus on how much silver we're making. Give out more benefits and draw in the gamblers from the other houses. In any one place, the people who gamble are always the same crowd; controlling the users is more important."

Liu Ruogu acknowledged and added, "What Your Excellency says is true, but Anqing has another convenience. Besides the regulars, there's the Wharf — lots of traveling merchants come and go there. There have always been Green-Skin Ruffians at the docks pulling customers to the various gambling dens, colluding with the houses to set traps and strip people of their wealth. Your subordinate was thinking…"

Pang Yu waved a hand casually. "If you have something to say, say it."

"Your subordinate was thinking, give those Green-Skins a bit more silver and have them all steer business toward Baishun Hall."

"What others can do, we can do too — just try not to cut off anyone's livelihood entirely. The business the Green-Skin Ruffians in the city pull in, the old gambling dens are used to it. If it suddenly shifts to Baishun Hall, those dens will definitely push back once. Keep a few more Da Hang men at your side."

Liu Ruogu bowed. "Someone has already come to see me, telling me to do things by Anqing's rules. They also said that if we offer more silver, then they'll offer more silver too, and in the end it only benefits the Green-Skins."

Pang Yu laughed. "They're not wrong. But the crux of this matter isn't the Green-Skins — it's the docks. Once we control the docks, if the Green-Skins want to pull work there, they'll have to listen to us. So it comes back to what we just said: wait until the storm over the Tribute Transport Opening passes, and once we control the docks, then we can operate properly."

"Then your subordinate will hold off for now. First, we'll make the name of our Baishun Hall known throughout Anqing and fight for the local gamblers. Once Your Excellency controls the docks, we'll talk about the out-of-town customers."

Pang Yu thought for a moment and said, "Speaking of out-of-town customers, are other businesses in Anqing doing well right now?"

"Business heading downstream on the Great River is about the same as before. Prices for bamboo, timber, and medicinal herbs haven't changed much, but grain prices are rising. Fewer grain merchants are coming to Anqing than before. I hear grain prices are a bit cheaper in Jiujiang and southern Huguang. Among goods coming from downstream, silk, cotton cloth, and such commercial goods are selling poorly. Right now, those cargo ships don't stop at Anqing. But ironware and the like have gone up somewhat."

"Among the ironware, it's probably mostly nails and farming tools." Pang Yu sighed. "After the Roving Bandits passed through, production can't resume. The common people have no income, so demand for consumer goods is bound to drop. Even if the people still have some savings, they'll first secure their food, then try their best to rebuild their houses. Among the things needed for a house that must be bought from elsewhere, that's ironware. All other consumption will be squeezed, and those industries will fall into depression. For goods sold downstream, bamboo and timber probably won't change much, but grain — with spring planting missed this year, prices will certainly rise when the harvest shrinks."

"But Jiujiang's prices haven't risen. Right now, all the grain merchants have gone to Jiujiang."

"If all the grain merchants go to Jiujiang, then naturally Jiujiang's prices will rise. Once prices balance with Anqing, the grain merchants will come back. Jiangnan plants high-profit cash crops, and the upstream regions supply grain to Jiangnan — this is a supply-demand balance formed over many years. Northern Huguang has already been destroyed, so the grain that can supply Jiangnan is decreasing. Now, with Anqing and Fengyang also suffering the Bandit Calamity, supply and demand are no longer in balance. So a price rise is certain; it's only a question of how much."

Liu Ruogu lowered his head and sighed. "It's already starting to rise now. I don't know if the Roving Bandits will come again. If they come once more, there truly won't even be food to eat."

"They will definitely come." Pang Yu patted the armrest. "This time they destroyed the areas along the Official Road. Anqing has been at peace for decades and has accumulated considerable wealth and goods. The Roving Bandits only need to plunder near the Official Road to obtain sufficient supplies. Next time they come, they will devastate a wider area. If we cannot exterminate the Roving Bandits, the calamity will grow more severe each time."

Liu Ruogu looked up in surprise, a trace of fear on his face. "Then will they break through Tongcheng or Anqing?"

Pang Yu said easily, "They will certainly attack. Once the countryside is destroyed to a certain degree, only the cities can provide the most supplies. When the Roving Bandits can no longer obtain sufficient provisions, they will inevitably be willing to endure heavier casualties to assault the city — because if they don't attack, they'll starve to death too. At that point, neither attacker nor defender will have any retreat. It won't be as easy as defending Tongcheng was this time."

Liu Ruogu grew somewhat nervous. He looked at Pang Yu and said, "Then if the Roving Bandits fight desperately, does Your Excellency think Tongcheng can hold? My family is still in Tongcheng. If Your Excellency feels it's not entirely secure, I will bring my family dependents to Huaining. With Your Excellency defending this place, I would be more at ease."

Pang Yu thought for a moment, then said, "Tongcheng's city walls are sturdy. But in a matter of life and death, you should bring your family to Anqing. In a true crisis, you can board a boat and escape danger."

Liu Ruogu quickly nodded. Pang Yu continued, "The Roving Bandits will attack cities out of their own survival needs. But whether they can break through depends not on whether they lack supplies, but on us. As long as we have strong troops in hand, they absolutely cannot break through Tongcheng or Anqing. So our focus should not be on what the Roving Bandits do, but on earning more silver and raising more troops. Of course, raising troops is this official's responsibility. Ruogu, the share of profits you deserve will not be shorted."

"This humble one is willing to donate to Your Excellency for raising troops…"

"Business has its own rules. You also have a family to feed. Let's not speak of this matter." Pang Yu waved his hand to cut him off. "Last time, before this official set out, I asked you to compile the historical exchange ratios between gold, silver, and copper coins. Have you finished compiling them?"

Liu Ruogu quickly took a sheet of Petition Paper from his bosom. "The task Your Excellency assigned, this humble one dared not delay in the slightest. This is the historical comparison of gold, silver, and copper coins that I have compiled."

Pang Yu took the Petition Paper and unfolded it. Liu Ruogu took the opportunity while he was reading to continue explaining, "This humble one looked through the records of pawnshops from past years. At the end of the Tianqi Emperor's reign, the gold-to-silver ratio was between one to seven or eight. In the sixth year of Chongzhen, it was one to twelve. This year, it has already reached one to thirteen. Broadly speaking, gold has become more expensive."

As Pang Yu read, he furrowed his brow. "An increase in the exchange ratio has two possible causes. Ruogu, would you say there is more silver, or less gold?"

"This… this humble one feels there is more silver."

"Oh? Why?"

"In Tongcheng, Your Excellency explained to this humble one that when currency increases while goods remain largely unchanged, prices will rise. It is my feeling that the market prices of various commercial goods have been continuously rising."

Pang Yu looked up at Liu Ruogu, then laughed in spite of himself. "Ruogu remembers quite clearly. But this time, I believe both gold and silver have decreased — at least in the sphere of circulation. Your feeling of rising prices probably comes from your daily use of copper coins."

"Please, Your Excellency, enlighten me."

Pang Yu lifted the Petition Paper slightly. "Because the currency of our Ming Dynasty is not just gold and silver, but also copper coins used for small transactions. And the ratio of silver to copper coins is rising. You recorded the Jiajing and Wanli Gold Back Coins — both of these copper coins have ceased production, so their quantity is fixed and unchanging. They can serve as a benchmark. During the Tianqi years, one tael of silver exchanged for between four hundred and seven hundred to eight hundred wen. This indicates a severe shortage of silver in the market."

Liu Ruogu was utterly confused. He stared blankly for a moment, then said, "But could that silver have simply flown away? Your subordinate reasons that if it was there before, it should still be there."

"Silver does not fly away. But a large amount of silver is exiting the sphere of circulation, while no new silver is entering. The realm is in turmoil. Gold and silver have a natural safe-haven attribute. But since silver is the circulating currency, how can it decrease so rapidly?" Pang Yu folded the Petition Paper. "Ruogu, do you know where the Ming Dynasty's silver comes from? Is it mined from the court's silver mines, or from private silver mines?"

"Your subordinate… your subordinate also does not know where that silver comes from. But the court has no real silver mines — this much, this humble one knows."

"The court has no silver mines, yet our taxes, rations, and levies are all denominated in silver." Pang Yu stroked his chin. "That means the court cannot control the currency. Since it's something they cannot control, why use it as currency?"

Liu Ruogu naturally could not answer this either. He was very puzzled by the task Pang Yu had assigned that day and could not help but ask, "Your Excellency, this exchange ratio you are examining — what use is it, exactly?"

Pang Yu tapped the folded Petition Paper lightly twice. "Naturally, it has its uses. From the situation you recorded, silver is in a state of continuous decrease, and the trend for gold is even stronger. The difficulty of obtaining gold and silver will grow greater and greater. Viewed in terms of silver, our Ming Dynasty is in severe deflation. Producing any bulk consumer goods or durable goods is probably not a good idea. Only grain is an exception. Medicinal herbs are also among the options, but after all, the volume won't be too large."

"Then what about houses? We still hold quite a few houses and fields as collateral in Tongcheng."

"When silver inflows are high, asset prices rise. In a period of deflation, asset prices are naturally hit the hardest." Pang Yu mused, "Fields are the same. The rise in grain prices probably cannot offset the effects of silver deflation. Moreover, fields must pay taxes, and taxes are denominated in silver. Add to that the matters within the yamen — which you also understand — all expenditures for rations and funds must be spread across the land tax. This makes the cost of holding land very high. When the output cannot feed a family, land becomes a negative asset. Abandoning a negative asset is human instinct. Ruan Jin returned yesterday and said the land around Fengyang lies barren, and more and more people are fleeing. If this situation continues, in the future, even if land is given away for free, no one may want it."

Liu Ruogu only felt more and more lost. His Excellency said grain prices would rise, but also said no one would want land. Wasn't grain grown from the land?

He shook his head and asked, puzzled, "But Your Excellency, where exactly did that gold and silver go? Could it be that it was all there in previous years, and then simply vanished? What is the logic behind this?"

Pang Yu laughed. "Naturally, it hasn't vanished. What I said was that it has exited the sphere of circulation. The cause is generally too great a gap between rich and poor. But this official only has a few threads of thought; much is still vague. This also makes me very curious — where exactly has all the silver of our Ming Dynasty gone?"