Chapter 328: Discussing the Logic Behind This Fiscal Breakthrough

Lately some people have been saying I have no logic at all.

I can't stand it — this is all historical material dug out of academic papers, how is there no logic at all?

Even if it really lacks logic, that's only because reality itself is far too illogical.

Let me address each point one by one:

1. First, let's talk about this fiscal philosophy.

It's actually not surprising at all — things like reserve requirements for issuing currency, and converting remittance notes into paper money, were all ideas that Ming people had already thought through.

I think if Zhang Juzheng had lived a few more years, he might well have pushed forward these reforms too.

He died far too early — he passed away just after finishing the civil service performance review system and the land survey, and many things never got carried further.

Now, the appended historical material:

In the Song dynasty, Zhang Yong governed Shu. Troubled that the iron coins of Shu were too heavy and inconvenient for trade, he established the method of pledge certificates, calling them jiaozi.

In the time of Gaozong, there were also huizi, which first used mulberry-bark paper as money, yet still took official coin as the reserve.

This is the concept of a reserve requirement.

As for the paper notes of the Jin and Yuan, they simply took the raw material from the people and no longer used official coin as the reserve. The cost of producing them was no more than three to five qian, yet they sought to sell them for goods worth a thousand qian. The people may be simple, but could they be deceived by such a thing?

Moreover, paper notes easily rot and decay, and before long they are discarded. Thus the uselessness of mulberry-bark currency can be known.

If one must implement the method of mulberry-bark currency, it must follow the system of Tang-dynasty flying cash before it can work.

Nowadays, many households need to move heavy funds to the capital. Because the roads are inconvenient, they entrust their money to wealthy merchant houses in the capital, obtain a ticket, and redeem the value upon reaching the capital — this is called a remittance note, which is precisely the surviving intent of flying cash.

It would be fitting to establish Silver Certificate Offices at each Provincial Administration Commission or major prefectural seat. The court would issue official capital, create numbered certificates, and allow traveling merchants coming and going to deposit silver and receive a certificate, then match the certificate to withdraw silver. In the course of deposits and withdrawals, a small margin for travel fees could be taken. Then traveling merchants would be free of the perils of the road, and the court would have an annual interest income — this seems quite convenient as well.

This is an approximate version of that idea of Wu Cheng'en's. I combined it with his merchant background and made modifications, turning it into a north-south matching system for remittance silver and tax silver.

— "On Coinage," Lu Shiyi

This Lu Shiyi was a man of the the Taicang treasury treasury Subprefecture in South Zhili, a scholar of the School of Principle — though he is only nineteen now and probably hasn't written this argument yet.

Separately, in the sixth month of the sixteenth year of Chongzhen, the Great Ming was on the verge of collapse.

A certain subject proposed implementing a paper currency system.

Though at that point in time, making such a proposal was truly absurd.

To refute it using what others said in the historical record:

"Now both north and south are firmly occupied by great bandits, so the places where paper currency could circulate seem to be very few. Since the notes cannot reach everywhere, the interest profit also seems rather meager. At this moment when the treasuries are utterly exhausted, to first spend two or three hundred thousand in gold and silver to create these notes that cannot circulate — before reaping a profit that is far from certain, to first spend the gold and silver presently on hand — how would that compare to keeping this gold and silver to relieve the urgent needs of the moment?"

Yet the specifications he set for issuing notes also very explicitly mention the concept of a reserve requirement.

He even had the concept of estimating the private silver stock.

"It must roughly match the amount of private silver among the people. If it exceeds this, it cannot circulate."

"If 50 million strings of notes are issued each year, in five years that is 250 million strings, at which point the private silver holdings will have been nearly entirely drawn out."

By his estimate, the Great Ming's total silver stock was roughly 250 million taels.

In those last days of the Ming when the realm was collapsing, the Ming court thoroughly cast aside ancestral institutions and tried to push through many fiscal and political reforms.

And many of the fiscal institutions for which the Qing dynasty is praised were in fact inherited directly from the Ming dynasty.

What is called "the Qing inheriting the Ming system" — in truth, much of what they inherited was that Ming of the dynasty's final years, struggling desperately to survive, struggling desperately to centralize power.

2. Now let's talk about this matter of auctioning licenses.

By the mid-to-late Wanli period, the Great Ming's salt administration had in fact already collapsed.

I won't paste the specific historical materials, but the general situation was that princely estates, ennobled merit families, and eunuchs wantonly demanded salt certificates, and the Wanli Emperor just issued and issued and issued them.

— In fact, many of the earlier emperors had much the same habit.

To some extent, the salt certificate was something that could be equated with the paper currency issued by the Great Ming.

Only its collateral was salt.

But by the mid-to-late Wanli period, salt certificates were wildly overissued. Even if you obtained a salt certificate, you still had to wait eight or ten years before you could collect the salt to sell. This was really no different from the overissuance of treasure notes — in essence, it caused the salt certificate to lose its creditworthiness and detach from the value of its collateral.

Then the Ming carried out a salt administration reform, driving the birth of the institution of the gang merchants.

What were called gang merchants:

South of the Huai, using the ten-character phrase "Sagely virtue surpasses all time, imperial grace fans the nine spheres," the merchants' salt certificates were organized into ten gangs.

North of the Huai, using the fourteen-character phrase "Heaven's cup celebrates long life equal to the Southern Peak, the Emperor's splendor shines upon the North Star," the merchants' salt certificates were organized into fourteen gangs.

In all, twenty-four houses, twenty-four trade names.

And this status was hereditary.

Then these gang merchants pooled their money and helped the Great Ming absorb all the overissued salt certificates.

Thus the entire salt tax only gradually returned to normal during the Tianqi period.

So the bank charter — the reference case is precisely this piece of historical material.

Earlier, when the patent sales were posted, some people said the Great Ming had no credibility, that doing this was wishful thinking, illogical, self-indulgent fantasy.

On the matter of chartered monopolies, the Great Ming's credibility really did exist, just a little.

3. I made some adaptations to the amounts of remittance silver.

The original amounts appear very infrequently in the historical record, surfacing only a few times after the fifteenth year of Chongzhen.

Historical material:

Now the the the Taicang treasury treasury treasury is swept clean, and external remittances surely cannot come in. The only recourse is the method of borrowing against merchant remittance notes.

Previously, having broken faith with the various merchants, I have already submitted a memorial pleading for this to stop. Now the matter is urgent; there must be a way to win their hearts.

I have examined that the large and small merchants of the three guilds all issued notes on the nineteenth day of the intercalary eleventh month, amounting to no less than two million. At present, three or four hundred thousand is not difficult to raise. I have also heard that the salt tax from the Two Huai already in transit amounts to three hundred twenty thousand, which can be used to repay.

This was in the fifteenth year of Chongzhen, when the entire North China plain was already festering in ruin, yet the annual note amount still reached two million. So my setting the annual note amount for the first year of Yongchang at around four million should not be considered too exaggerated.

Later, a similar memorial appeared again in the sixteenth year. It can be basically confirmed that notes were always issued in the eleventh month and carried back south for settlement.

If His Majesty would deign to issue a handwritten edict instructing the Ministry of Revenue to borrow, this subject begs to offer his own person as surety, and will certainly repay it with the Huai salt tax.

This subject knows that the Salt Inspector, Yang Renyuan, is upright and incorruptible and will certainly not exploit the merchants. Even if the merchants do not trust him, this subject can ride there to press and supervise them as soon as the barbarians have withdrawn.

If His Majesty, mindful that the merchants are eager to serve the public good, were to bestow a grant of a thousand taels of silver for every ten thousand taels they contribute, they would be all the more willing to comply.

This "a thousand for every ten thousand" amounts to a 10 percent premium, which is actually fairly normal. For an ordinary household, the premium among relatives and friends would be 3 percent, but this matter was exceptionally urgent — the Qing army had just invaded — so 10 percent was roughly equivalent to the standard Ming monthly interest of about 1.2 percent. It does not count as usury.

A temporary expedient; I trust this small expense will not be begrudged. For a remedy to relieve an emergency, nothing is swifter than this.

— "Draft Report of the Ministry of War on 'Heavily Recruiting Death-Defying Soldiers and Borrowing Against Guest-Station Funds and Other Matters,'" fifteenth year of Chongzhen, eleventh month, twelfth day, memorial submitted by Supervising Secretary of the Office of Scrutiny for Revenue Chen Tailai.

This Chen Tailai only passed the jinshi examination in the fourth year of Chongzhen. Right now, he has either not yet passed the provincial examination, or he has passed it and is waiting in the capital to take the next examination, haha.

4. On why we should first establish private banks rather than a central bank.

The main reason is that credibility in issuing paper currency is utterly bankrupt.

So I thought it over — the Yongchang Emperor thought it over — and concluded that we cannot follow the traditional approach: first set up a central bank, then push reforms down through every layer.

Instead, we must reverse the process: first use bank charters to draw in the merchants, then borrow the merchants' own credibility and financial networks to complete the reform of the entire silver system.

For these merchants, they stand one hundred percent on the same side as the Emperor.

If the paper-currency system can take off, the banks will take off even more.

Of course, this approach is not without its problems.

Because, in essence, it is just like the hereditary merchant system under the salt monopoly — at its core, it cedes power to the merchants.

But in this broken situation, first break the deadlock. Once we have seized the overall momentum, we can slowly turn back and fix things later.

The Great Ming is so battered and tattered that one more problem area really makes no difference.

5. The high prices bid at the auction.

I won't dwell on this; it was discussed at length a long time ago.

Wu Yangchun donated five hundred thousand taels, and many other merchants also donated large sums.

I have no idea why they were so patriotic; I too am shocked that they were so "patriotic."

But I imagine they all had reasons why they "had no choice but to be patriotic." (Except for that old man at Mount Yang Harbor — that fellow seems to have been purely patriotic.)

And the Yongchang Emperor is very skilled at manufacturing such reasons.

6. A further word on these huipiao.

Everyone, please do not think of this thing as "paper money" or a "check," all right?

It has not reached that stage yet.

The biggest difference between the two lies in this "circulating throughout the realm" aspect.

As it stands now, this thing is still nothing more than a private promissory note.

Most people also do not directly use huipiao to conduct transactions; instead, they use them as collateral, or they go to the designated location and withdraw the silver at once.

So hoping to raid corrupt officials and then find heaps of silver notes in their homes — that sort of thing is impossible.

At most, you might find some "loan notes" from money they have lent out, or, very rarely, a few "exchange notes" they were preparing to redeem at a distance.