Chapter 72: The Coin-Note System

Jiang Chen shot Pang Yu a white-eyed glare. "Pang Squad Leader must have snatched too much silver from Huang Wending — now you see everyone as out to rob the common folk." He turned to the others. "The so-called coin-note system is by no means blindly printing a pile of paper notes. How to set the denominations, how to manufacture the notes, how to issue and sell them, how to recover them, how to use coin and note side by side — every step has its logic. Just now Pang Squad Leader asked how to get the people to exchange for notes. Those who pay in silver and coin to buy notes may tender nine Mace and seven fen as one tael. All tax payments, fines, and confiscations must be made in notes. The common folk will naturally come rushing in."

By setting nine Mace seven fen as one tael, he meant yielding three fen of profit, using that price difference to attract the people to exchange.

Mace Bingdeng interjected approvingly, "Three fen of silver relief can indeed draw many people in, but for all the common folk to exchange willingly, the first requirement is that the paper currency has places it can be used. A note is but a square-inch scrap of paper, touched with ink and labor — decree it worth a hundred and it is worth a hundred. Yet the ignorant folk will treasure it, drawing their food and clothing from it. Why? Only because it can circulate upward. For if the authorities are happy to accept it, the people's hearts harbor no doubt, and it will naturally transfer and flow." (Note 1: From Mace Bingdeng's "Money and Coin Discussion.")

Pang Yu turned his head to look at Mace Bingdeng. He had not expected this man to possess such insight into coin and note — even if only on one aspect, he had truly touched on the key point of paper currency: it must be backed by the court's credibility as guarantor.

Sun Lin, however, voiced some doubt. "Paper notes are soft and easily ruined things — nothing more than wood pulp marked with script and symbols, originally utterly useless. Who would be willing to trade real gold and silver for a piece of paper? Even at nine Mace seven fen, its price far exceeds the paper currency's worth."

Jiang Chen refuted him without a moment's hesitation. "Considered purely as paper, it is indeed utterly useless. To make it circulate, nothing surpasses harsh laws and severe punishments. If private transactions do not use it, treat it as a violation of the law. This will naturally make all under heaven hold it in awe, and thus a useless thing can be made useful."

Pang Yu thought it over, then cautiously asked Jiang Chen, "Then how would this differ from the Grand Ancestor's Precious Notes? If we speak of harsh laws and severe punishments, I fear the Grand Ancestor's time was far harsher. Why were the Precious Notes abolished in the end?"

"The Precious Notes were abolished because of excessive issuance. That is why I say: once the people's silver is exhausted after one term, there must be no over-issuance or reckless printing. Only old notes may be exchanged for new. The total number of notes issued must roughly match the amount of silver, with no excessive deviation. This is modeled on the Song dynasty weighing and transfer method."

"Then how would Brother Jiang guarantee the court does not issue recklessly?"

Jiang Chen looked at Pang Yu, paused a moment, then said, "At the time of issuance, the total amount can be proclaimed to all under heaven."

"Over-issuance does not depend on whether it is proclaimed, but on whether the finances are balanced — whether annual revenue and annual expenditure roughly match. The court faces Tartars outside and Roving Bandits within, both rigid expenditures that brook no delay. The moment income falls short of outlay, over-issuing paper currency is no more than printing a few extra sheets of paper — a hundred times more convenient than our yamen collecting taxes from the bottom up. Why would the various dukes in the court choose the difficult over the easy?"

Jiang Chen said with some irritation, "The various dukes in the court are modest gentlemen. How could they betray the trust of all under heaven?"

Pang Yu did not press the attack relentlessly. He smiled at Jiang Chen and said, "I naturally trust the various great men in the court. But the common folk among the people lack edification — how could they comprehend the great men's moral integrity? It is simply that paper currency is more convenient to over-issue. If by chance it turns out like the Precious Notes, where one dan of rice costs several tens of strings of notes, the paper currency in the people's hands will steadily devalue. Whether or not the great men over-issue, if the common folk harbor such worries, no one will be willing to hold onto paper currency, and it will naturally be difficult to keep circulating in the market."

Fang Yizhi, seeing Jiang Chen's expression turn unpleasant, stepped in to change the subject. "When I was traveling and studying in Jiangnan, I once heard Brother Chen Zilong speak of coin and note. He said that the lack of uniformity in coin inscriptions is the greatest abuse. For coin and note to circulate, both must be issued and collected by the authorities — just as Chengzhi said a moment ago, taxes, fines, and confiscations must all be paid in notes. When coin currency is blocked, it is hoarded as grain or stockpiled as goods, with no way to balance weight and value. Paper is not coin, yet one can hold the certificate to claim coin — without the labor of transporting it far, it has the utility of heavy expenditure. In Brother Jiang's coin-note system, how have you considered the joint use of coin and note?"

Jiang Chen had prepared somewhat for this question. He said evenly, "What Brother Chen Zilong speaks of is precisely the convenience of paper notes. In my coin-note system, coin and note may be used side by side. One need only establish a separate coinage law: each Provincial Administration Commission shall open a minting bureau to cast new copper coins. For small private transactions, copper coins will suffice."

Fang Yizhi was not very familiar with currency. Hearing Jiang Chen's explanation, he could offer no particular opinion.

Pang Yu rubbed his nose. What these several men said all made sense — use the government's credibility as guarantor, then use the government's authority to expand the scope of application, ensure the paper notes' utility, restrict the circulation of metal currency, and increase the amount of paper notes held among the people. That Chen Zilong's argument even emphasized paper currency's role in promoting the circulation of goods. He had not expected that in such an era, in a tiny Ze Society in Tongcheng, several young men could possess so much understanding of currency. It truly made Pang Yu see them with new respect.

Jiang Chen drank a mouthful of wine, but then heard Pang Yu speak again. "What that Chen Zilong emphasized was not the joint use of coin and note, but taking silver and coin as the foundation, with the note as a convertible paper currency. If the common folk wished, they could exchange notes for silver and coin. If they needed convenience when traveling far, they could exchange back into notes. But Brother Jiang's coin-note system does not touch on the exchange between silver and notes. In this, it shares one feature with the Precious Notes: there are no reserves for issuance. The court, with empty hands, wants to collect all the privately held silver. As Brother Sun said, it is trading a useful thing for a useless thing. If the court had reserves and then issued notes, the common folk would naturally be willing to use them, because they are convenient and their credibility is guaranteed. Brother Jiang now wants to do the exchange in reverse — the common folk may not necessarily be willing."

Jiang Chen argued in defense, "Once the stored silver is exchanged into the court's hands, it is not that it cannot be exchanged back again. To the common folk, there is no great difference."

"If there is no great difference, then why must the court put forth paper notes and take away the silver? What benefit can the common folk obtain from it, that would drive them to hand over all their family's wealth in exchange for a few sheets of paper with writing on them?"

Jiang Chen was somewhat struggling to parry. He stared at Pang Yu and said, "How can the common folk have no benefit? Implement this coin-note system, and after deducting costs, the Inner Treasury can gain forty-three million each year. Five million in taxes can be waived each year. After four years, the Liaodong Military Tax can be abolished. After five years, the summer and autumn taxes can be abolished. All the common folk under heaven will reap the benefit, and in the end they will weep with joy and gratitude."

Pang Yu shook his head. "Brother Jiang says the Inner Treasury gains — this shows that in Brother Jiang's heart, silver is still regarded as wealth, not the paper currency. Where someone gains, someone must lose. Since the court gains, to the point that even the summer and autumn taxes can be abolished, where does this heaven-sent benefit come from?"

The several men in the pavilion were all momentarily dizzy and disoriented. Jiang Chen furrowed his brow. He had already fallen into a strange loop — notes for silver, silver for notes — in the end, everyone gained a benefit, but where the benefit came from, he suddenly could not figure out.

Pang Yu stood up and said, "It comes from the silver that Brother Jiang initially exchanged for with paper currency. All the Inner Treasury's gains are losses squeezed from the common folk. Sometimes the thinking gets muddled, but whether there is a loss is plain to see. Those with the most silver are often the great households, and they pay very little in taxes. In the end, whether great households or common folk, none will weep with joy and gratitude — they will only dig a pit and hide their silver well. Our dynasty is not the Song. All under heaven has used silver and coin for over two hundred years. The common folk regard silver and coin as the root of wealth, yet have absolutely no habit of using paper currency. Even in times of peace, implementing a coin-note system would be difficult beyond measure, let alone now, when the realm is in chaos. Gold and silver can become the universal currency of the world because they inherently possess value and have a natural safe-haven attribute. In times of turmoil, compared to a flimsy sheet of paper, I fear the common folk would rather keep their gold and silver. If Brother Jiang wants the coin-note system to work, he must first consider the reserves for issuance. Only paper currency issued in this way will have credibility, and only then can it circulate throughout the realm."

The several men in the pavilion all turned to look at Pang Yu, their eyes wide. Whether what Pang Yu said was entirely correct they could not be sure, but the logic within it was very clear. Although they had all heard some stories of Pang Yu's deeds, this was the first time they heard him speak with such eloquence, and it was indeed far removed from the image of a yamen runner they held in their minds.

Jiang Chen looked at Pang Yu with some displeasure. "In Pang Squad Leader's eyes, paper currency cannot be trusted, the various dukes in the court cannot be trusted, and the common folk cannot be trusted. Is there anything left in the world worth doing?"

Pang Yu did not take offense. He smiled warmly and said, "Trust or distrust is not important. As Young Master Fang said, things have their underlying principles — examine them in earnest. People live in this world, and wealth is the foremost matter; no one can be apart from it. Issuing notes touches closely upon one's own interests, so naturally everyone will consider their own benefit. The more one studies problems related to people, the more one should set aside emotion and reason from the angle of each party's interests, in order to remain objective. That said, I also rather admire Brother Jiang. Though the coin-note system has flaws, it can form a self-contained framework and already stands out as exceptional in this age. With further refinement, it may yet serve the state."

Only then did Jiang Chen's expression ease slightly. During the civil unrest, he had seen Pang Yu twice at the yamen. In his heart, he had somewhat disapproved of Fang Yizhi inviting a yamen runner to participate in Ze Society gatherings. Even if Pang Yu was a hero who quelled the unrest, he had not, after all, entered the stratum of the literati.

In the debate just now, although Pang Yu had been difficult to deal with, he had not made Jiang Chen lose face, always leaving room. This gave Jiang Chen a slightly improved impression of the man, but he no longer dared to underestimate Pang Yu.

Pang Yu, naturally, was merely being polite. He needed to establish an impression before the members of Ze Society, yet could not afford to offend Jiang Chen too harshly, so he gave Jiang Chen a way out. He did not actually believe that Jiang Chen's coin-note system could truly serve the state.

Jiang Chen buried his head in thought for a moment, then said, "This system is the fruit of many years of my painstaking reflection. It is merely that Pang Squad Leader does not trust the common folk. In my view, as long as the yamen at every level enforce harsh laws and handle matters diligently, raising the people's hidden silver to the court and using it for all under heaven, in the end every party will benefit — not, as Pang Squad Leader says, that where someone gains, someone must lose."

Pang Yu knew he could not convince this man. He could only smile faintly and say, "I am indeed somewhat pessimistic. Perhaps the common folk will support it one after another, the silver and coin will circulate, and in the end all trades will flourish, with both court and common folk reaping the benefit. That is also possible."

Fang Yizhi clapped his hands. "Today, Brother Jiang has voiced what others have not voiced, and Pang Squad Leader has doubted what others do not doubt. My own horizons have been broadened. What comforts Fang even more is this: we should be people who are good at doubting, never parroting others. Where there is no doubt in the principles of things, I doubt them, and I must seek deeply into their underlying reasons. With Pang Squad Leader's questioning, Brother Jiang will surely be able to refine the coin-note system, so that one day it may relieve the state's worries."

Pang Yu and Jiang Chen hurriedly cupped their hands and modestly deferred. Fang Yizhi had put a full stop to this debate, yet left both sides feeling quite gratified. One could also see that although Fang Yizhi was sometimes wild and unrestrained, his emotional intelligence was quite high — which was why he could become the leading figure within Ze Society.

Jiang Zhihuai suddenly asked in puzzlement, "Were we not supposed to be discussing military matters today? How have we been talking about Precious Notes for half the day?"

The several men all burst out laughing at once. Fang Yizhi raised his wine cup and said, "Drink first."

Sun Lin tapped the tabletop with his folding fan. "How can a Ze Society gathering be like the Restoration Society? In the Dragon Sleep Mountains, we are all wild scholars — we cannot get used to small cups."

Fang Yizhi laughed heartily and shouted toward the family servant at the doorway, "Bring out the large bowls!"

The several men switched to large bowls and drank wine right there in the pavilion. Fang Yizhi recounted his experience climbing Mount Lu and also spoke of some things he had seen and heard in the Restoration Society while traveling and studying in Jiangnan. Pang Yu listened attentively to all of it. Had he not joined a literary society of scholars, he might have spent a lifetime in the yamen without ever hearing such content. Indeed, one's circle determines one's horizons.

What surprised Pang Yu was that not only was Fang Yizhi a member of the Restoration Society, but Jiang Chen and Mace Bingdeng were also members. Jiang Chen had even paid multiple visits to the Restoration Society leader Zhang Pu and his brother, and it was said that Zhang Pu thought quite highly of him. Although Sun Lin had not yet joined, Fang Yizhi was already preparing to introduce him for membership.

When they spoke of Zhang Pu, they were all full of admiration. In both morality and literary achievement, he was a model for the entire Jiangnan scholarly world.

A tiny Ze Society today had already surprised Pang Yu considerably. He wondered how astonishing that legendary foremost society of the Ming Dynasty, the Restoration Society, must be.

The poetry gathering lasted until the afternoon. Sun Lin and the others planned to spend the night at Ze Garden. Pang Yu had drunk quite a bit of wine, but he still had to hurry back to Tongcheng. After all, the civil unrest was recent, and as the head of the Fast Squad, he could not be away from the county seat for too long.

Fang Yizhi personally saw Pang Yu out beyond the main gate. He cupped his hands toward Pang Yu and said, "In the past, I only knew Pang Squad Leader had some knowledge of miscellaneous studies. Today, hearing your lofty discourse, you have made Fang see you with new respect once again."

Pang Yu returned the salute. "I, too, am quite moved. It is a pity that Brother Fang is about to leave for Nanjing. Opportunities to meet in the future will be few — truly a regret."

"Once I have an exact address, I will have someone inform Pang Squad Leader. If Pang Squad Leader comes to Nanjing, you must visit Fang's place as a guest. At that time, Fang will take Pang Squad Leader on a tour of Jinling — another joy in life."

Pang Yu laughed heartily. "Then I shall remember that. I will certainly come to impose on Brother Fang."

The two exchanged a few more pleasantries. Finally, Fang Yizhi said to Pang Yu, "Regarding what I told you last time about Ruan Xiansheng's Zhongjiang Society — in fact, both Mace Bingcheng and I once joined that society, and later withdrew. If he invites you to join, by no means become too closely involved."

Pang Yu recalled this matter. In fact, Ruan Dacheng had already invited him to attend a Zhongjiang Society gathering the day after tomorrow. As for formally joining, no invitation had been made yet. He understood that because Fang Yizhi was about to leave, he feared no one would be left to warn Pang Yu, and so had brought the matter up repeatedly of late.

"Thank you for the guidance, Brother Fang. I understand how to handle the boundaries."

The two parted and said their farewells. Pang Yu wound his way down the mountain path. When he reached the bend at the foot of the mountain and looked back, he saw Fang Yizhi still standing in the same spot. Pang Yu cupped his hands from afar, then turned and disappeared where the mountain path ended.