Late Yuan Dynasty: I am the true emperor

Chapter 393 Public Transport Economics (II)
Inside and outside the hall, everyone was listening very attentively. Some were taking notes quickly, while others were staring at the blackboard, frowning and thinking.

After everyone had digested the situation for a while, Qin Conglong spoke again and expressed his concerns.

"According to the Marshal, the problem of inflation can indeed be solved by supporting industry and commerce through banks absorbing deposits and lending, but this seems to exist only in theory. I, an old minister, am still cautious about government lending.

"Government lending has existed since the Song and Yuan dynasties. In the former Song dynasty, there was the Qingmiao Law by Wang Jinggong, which caused a stir in the country. Now, the tyrannical Yuan chieftain has set up a Wutuo Office and used the Semu Hu merchants to lend money on behalf of the King of Hell. This has also caused a stir in the country, with refugees everywhere. Usury is one of the evil policies that the Marshal has repeatedly ordered to be cracked down on. The Marshal's method is a good one, but how can we avoid repeating the mistakes of our predecessors?"

Hearing this, Lu Jin immediately laughed and said, "If you were to talk about something else, I might not be able to answer you, but as for Wang Anshi's Qingmiao Law, I actually studied it when I was young. I think that the Qingmiao Law, the Wutuo Office, and the bank are essentially different, and the differences are quite large.

"Who can tell me what the differences are between these three?"

Everyone pondered for a moment, and Yang Xian said, "I think that the original intentions of these three institutions are different. Although they are all government loans, the Hu chieftain's Wutuosuo only collects money for his own selfish interests and does not care about the lives of the people.

"Wang Jinggong's Qingmiao Law was originally intended to help small farmers and prevent people from going bankrupt and fleeing due to the shortage of crops. It was essentially an extension of the Changping Warehouse System.

"And the bank that the Lord is talking about is not for helping farmers, but for supporting industry and commerce, and for curbing the inflation problem caused by issuing banknotes. Making a little money by taking advantage of the interest rate difference is just a matter of course, and it is not the real purpose."

Lu Jin nodded. "Well said, but you are only half right. Who else would like to add?"

Yang Xian was stunned, "You're only half right?"

Everyone pondered for a moment, and Zhan Ding, who had never spoken since arriving, suddenly raised his hand and said, "I would like to say a few words."

Hearing this, Lu Jin looked over and found that it was Fang Guozhen's chief of staff. He immediately said, "Mr. Guoqi, please speak."

"Yes." Zhan Ding first bowed to Lu Jin, then clasped his fists towards Yang Xian, and then said.

"My opinion on Wutuosuo is the same as Yang Yushi's, but I have a different opinion on Wang Jinggong's Qingmiao Law. I personally think that although the Qingmiao Law is intended to support farmers, its essence is still to make money. The only difference is that Wutuosuo made money for the emperor alone, while the Qingmiao Law was for the court.

"At that time, the court of the Song Dynasty had fallen into the evil of "three redundancies" and could not extricate itself. The court spent excessively and the fiscal revenue was insufficient to cover the expenditure. It urgently needed new sources of funds, and the Qingmiao Law was part of increasing revenue and reducing expenditure. Removing redundant officials and redundant staff was a way to reduce expenditure, and government lending was a way to increase revenue."

Lu Jin commented again, "You are only half right."

Seeing everyone frowning and looking confused, Lu Jin sighed and said, "It's not that you don't understand, but you just don't dare to say it.

"Wang Anshi's Qingmiao Law does have the intention of supporting farmers and raising money for the country, but it also has the intention of suppressing the powerful and curbing land annexation, but you dare not say it."

Everyone fell silent upon hearing this.

Lu Jin continued, "The Song Dynasty had already accumulated a lot of problems, not just the three redundancies. It is said that the fiscal revenue is not enough to cover the expenditure, and it is necessary to increase revenue and reduce expenditure, but the fiscal shortage also needs to be dialectically analyzed from the perspective of 'increasing revenue and reducing expenditure'. The three redundancies are just large expenditures. The powerful have annexed land, and the number of households paying taxes to the court has decreased, resulting in a decrease in fiscal revenue. Why are you pretending not to see it?
"On the one hand, the expenditure was high, and on the other hand, the income was reduced. This forced Wang Anshi to use the Qingmiao Law to compete with the powerful for the 'lending' business, because the main means for the powerful to annex land was to lend at high interest rates, and when the common people could not pay back, they would take the opportunity to annex their land.

"If you ask me, Wang Anshi is still too timid. He only dared to use the Qingmiao Law to compete with the powerful for the right to lend money. In essence, it was to suppress mergers and acquisitions, but he did not dare to directly strike at the powerful themselves and force them to spit out all the annexed land! Of course, with the system of the former Song Dynasty that shared the world with the literati, even if he wanted to do so, he would not be able to accomplish this."

When the crowd heard this, some frowned in thought, while others nodded frequently. Qin Conglong continued, "Land annexation has led to a reduction in fiscal revenue, which is indeed a reason. That's why the Marshal established the nine-tier tax system. The purpose is to make land annexation unprofitable. In order to avoid paying heavy taxes, the powerful have no choice but to extend favors to the lower classes and take the initiative to divide the land. Although this method cannot be said to be a permanent solution, it can be said to be effective."

"Yes, this is exactly the original intention of establishing the nine-level tax tier. To suppress the powerful, curb land annexation, and stabilize the basic fiscal revenue. This is the real purpose." Lu Jin nodded, and then said again.

"Let's not talk about the step tax for now, let's talk about the success or failure of the Qingmiao Law, and the difference between the Qingmiao Law and bank lending."

As Lu Jin spoke, he turned around and wrote a few lines on the blackboard.

"The Qingmiao Law failed because it was intended to seize the right to lend money from the powerful and suppress land annexation, so it could not gain the support of the gentry officials in the court. Not only did no one support it, but those literati who always talked about benevolence and morality also tried every means to undermine it. This is the first point.

"Secondly, the original intention of the Qingmiao Law was to allow the government to lend low-interest loans to farmers, to help small farmers get through the difficult period of the lean season, and to suppress usury by the powerful. However, this so-called 'low-interest loan to help farmers' is still too high. According to the information I have found, the annual interest rate of the Qingmiao Law is as high as 20% to 40%. How can this be considered a low-interest loan?

"In my opinion, any annual interest rate of more than 20% should be considered usury. Farmers can barely make ends meet with just the little food they earn from farming, so how can they afford such high interest rates?
"Third, borrowing grain to repay money. The loan capital of the Qingmiao Law came from the imperial granary. When farmers borrowed money, they got grain, but when they repaid the loan, they had to pay money. This made the repayment easily affected by the price of grain.

"Let me give you an example. One dan is equal to ten dou. If this farmer borrowed one dan of grain, and the grain price at that time was 80 wen per dou, that means he borrowed a total of 800 wen. At an annual interest rate of 20%, he would have to pay back 960 wen next year.

"But the second year was a good year with a bumper harvest, causing the price of grain to drop sharply to 40 wen per dou. If he wanted to pay off the 960 wen, he would have to sell 24 dou of grain.

"It's clearly a 20% annual interest rate. If you borrow grain and repay it, you only need to repay 10 dou including interest if you borrowed 12 dou. But now, farmers have to bear the leverage effect caused by grain price fluctuations. It has become a 10 dou annual interest rate when you borrow 24 dou. With the fluctuation of grain prices, it has become a 20% annual interest rate. It's worse than paying a debt to the devil. Who can afford it?"

Everyone suddenly realized what was going on when they heard this. It turned out that just "borrowing food and repaying money" could have such a bad impact!

Chen Yu also grumbled, "No wonder the Qingmiao Law cannot be implemented. If we use this method of 'borrowing grain and paying back money', even if no one makes trouble and no officials engage in corruption, it is doomed to fail to be implemented."

Lu Jin continued, "Fourth, the wrong people were used! Since Emperor Wu of the Han Dynasty promoted Confucianism and abolished all other schools of thought, how many Confucian scholars have read Guanzi? And how many of them understand what economics is? Most Confucian scholars in the world don't even know how to do the math. Just from this "borrowing grain and paying back the money", it shows that the important officials of the former Song Dynasty knew nothing about economics, so that such a huge mistake occurred when the policy was formulated.

"The policy itself was wrong, but it had to be implemented by local officials. These local officials also knew nothing about economics and implemented the Qingmiao Law purely for political achievements. In order to achieve political achievements, they imposed forced levies on local residents, forcing them to borrow money regardless of whether they had any borrowing needs.

"Even those 'good officials' who never oppressed the poor, in order to achieve political achievements and to recover the principal and interest in the future and prevent the Qingmiao Law from becoming a bad debt, deliberately lent the grain from the Changping Warehouse to the rich households who were able to repay, causing the rich households to be forced to borrow money, while the poor who really needed to borrow Qingmiao wanted to borrow but could not. The above is still talking about the so-called 'good officials'.

"Fifth, corruption. Compared with the previous ones, corruption is not worth mentioning. It is nothing more than grassroots officials raising the annual interest rate of 20% to 40% stipulated by the court to 60% to 160% without authorization in order to make money. Adding the financial leverage caused by the fluctuation of grain prices, the actual annual interest rate may even reach about 300% to 400%. This is no longer a loan. To call it robbery is too kind. This is simply eating the human body and not spitting out the bones!
"In addition to the lack of a regulatory mechanism, some corrupt officials colluded with powerful gentry to take the grain from the Changping Warehouse to borrow money for their own benefit. Compared with what I just mentioned, this is even more insignificant."

Silence! Everyone present was silent. They had never expected that after Lu Jin's analysis, the Qingmiao Law would reveal so many serious problems. The loan sharking was also leveraged, and the interest of several hundred percent was scary.
Just follow the calculation that Lu Jin just mentioned, you can do the math yourself. When the price of grain is 80 wen a dou, if you borrow ten dou, the total amount borrowed is 800 wen. Based on the 160% annual interest rate imposed by corrupt officials, you will need to repay 1280 wen next year. But adding the leverage of "borrowing grain to repay money", assuming that the price of grain when repaying the money is 40 wen a dou, then the farmer will have to sell 32 dou of grain to make up the 1280 wen.

Borrow 10 dou of grain, return 32 dou, annual interest rate 320%, don't even think about paying it back in this lifetime.
Chen Yu wrote down all the five questions that Lu Jin had summarized, then he bowed and said with emotion, "My lord, your analysis is really enlightening. I am grateful for your teaching."

Lu Jin waved his hand and said, "Whether we are educated or not is not the point. The point is what lessons we can draw from the failure of the Qingmiao Law and how our banks should lend money in the future to avoid repeating the same mistakes.

“I think, first of all, the power to lend cannot be given to local officials. It is definitely not okay to let a group of Confucian scholars who do not understand the principles of economics manage banks. In addition, the administrative system is characterized by layers of additional burdens. Once grassroots local officials have the power to lend, even if they do not engage in corruption, if they regard lending as a political achievement, there will definitely be phenomena such as apportionment and forced loans.

“The right to lend should be limited to banks, and the imperial court should set up schools, such as the Imperial Academy, to train a group of professional accounting talents to manage banks.

“Considering the shortage of professional talents, we can initially open only one or two banks, such as in the capital, large port cities, or provinces with relatively developed industry and commerce and merchants with a large demand for loans.

“Once we have trained more talents and gained experience, we will gradually expand the scope of the bank. For example, we will open one bank each in North China, East China, Central Plains, Northwest China, Southwest China, and Southeast China. If it runs well and there are no problems, we will continue to promote it to one bank in each province, and then in each prefecture and county. We will advance it layer by layer according to the progress of talent training and the summary and improvement of actual experience.

“Secondly, the existing technical conditions and lack of economic and financial theories are actually not enough to support the court to personally open a small credit loan business. Yes, I am talking about this kind of unsecured small agricultural loans.

“It is a thankless job for the imperial court to do this personally, and there are so many people in the world that banks alone cannot manage them all. Therefore, bank loans should only be targeted at the industrial and commercial sectors, which are characterized by large loan amounts and corresponding collateral. Banks are required to assess the repayment ability of customers to reduce the risk of bad debts. In addition, business has both losses and gains, and merchants are generally more willing to accept risks.

"Some people may ask, then do we just ignore the borrowing needs of the common people? I can only say that for the time being, I really don't have the technical conditions to do so. This part of the borrowing demand should still be left to the people, and the court only needs to set a maximum standard for the loan interest rate to reduce the repayment pressure on farmers. Anyone who lends money at high interest rates should be punished by law. Although it may be suspected of shirking responsibility, it is the only way to do it at present.

“In response to the widespread poverty and difficulties faced by farmers, the imperial court should not think about how to lend money every day, but should find ways to solve agricultural problems.

"The biggest risk in farming is still relying on the weather. If it doesn't rain, the crops will fail. So can we build more water conservancy projects to increase the proportion of irrigated land in farmland? How many fields rely on rain? Can they be converted to artificial irrigation? If irrigation can be controlled manually, wouldn't that reduce the risk for farmers?
“This is the kind of achievement that local officials should really focus on!”

Everyone nodded frequently as they listened, and at the same time took notes quickly. Lu Jin waited until they had almost remembered everything before continuing.

"Of course, the fundamental purpose of what we said above, especially opening banks and granting loans, is not to make money. Lending is just a means to maintain the operation of banks and an economic regulation tool. Our fundamental purpose is to build banks as a tool to deal with inflation. Do you understand?

“If there are no banks, then when you face inflation, you will have almost no way to deal with it. Even if you want to manage it, you have nowhere to start. This is the essential difference between opening a bank and the Qingmiao Law of the pre-Song Dynasty!

"Let me give you an analogy. It's like I asked a blacksmith to make a sword for me in order to fight against the enemy. I usually oil the sword to prevent it from rusting. Although I don't usually need it, when I really meet the enemy, I must have this sword. Otherwise, if I don't have a weapon to defend myself, I will be killed by the enemy.

"Having a sword but not using it is different from not having a sword in your hand. Do you understand?"

"Understood!" Everyone answered in unison, and they also had a general impression of the banking system of the Xin Dynasty. Banks were opened to cope with inflation, not to learn from the Song Dynasty's ridiculous Qingmiao Law.

Of course, coping with inflation is only one aspect. Lu Jin’s real purpose is to support industry and commerce with bank loans.

Agricultural loans are all nonsense. It would be better to develop industry and then subsidize agriculture to achieve better results.

For example, the Little Glacier in the Ming Dynasty and the long-term drought in the north were solved by the development of three technologies: drip irrigation tape (rubber water pipe), degradable mulch film (straw papermaking), and deep hole irrigation wells. These technologies can save at least 70% of agricultural water. The water that could irrigate one acre of land before can now irrigate four acres of land. Even if there is no rain, pumping groundwater for irrigation can barely support one or two years, allowing farmers to tide over the difficulties.

The production of drip irrigation tapes, ground films, water pipes, drilling equipment, water pumps, and other tools all require industry to complete.

If you only rely on agricultural loans and do not have these advanced agricultural technologies, no matter how much money you lend to farmers, they will not be able to withstand the successive disasters and will eventually go bankrupt.

Instead of using the money for lending, it would be better to support a few factories that make plastic film and drip irrigation tapes, and then spend the rest of the money on agricultural subsidies to reduce the cost of using agricultural inputs, so that farmers are willing to use plastic film and drip irrigation tapes.

You are obviously a time traveler, why do you have to wait until the farmers are about to go bankrupt before lending them money? If a natural disaster comes next year, won’t they still go bankrupt? It would be better to invest heavily in technology and use technological means to reduce the losses caused by natural disasters to agriculture, so that farmers will not have to borrow money.
After talking about deflation and inflation, as well as the issues of statistics bureau and bank lending, Lu Jin told them about the possible impact of gold, silver and currency anchoring.

China itself lacks gold and silver. If it vigorously develops foreign trade, it will inevitably attract a large influx of gold and silver from abroad. In addition to causing inflation, what other impacts will it have?
This further leads to the concepts of trade surplus and import surplus, that is, trade deficit and trade surplus.

Lu Jin asked again.

“Traditional Confucian scholars believed that China was a vast country with abundant resources. I had porcelain, tea, silk, and ironware, all of which were hard currencies that could be easily sold. I did not need foreign things, I only wanted gold and silver.

"This kind of trade may work at first, but in the long run, if you keep selling goods and foreign countries keep paying real money to buy your goods, even if they have a lot of gold and silver, they will eventually run out of money and not be able to make ends meet. Because you only sell goods to them but don't buy their goods, and their gold and silver are flowing out in large quantities, what do you think will happen?"

Everyone thought about it, and Tao An was the first to speak, "Foreign trade will be difficult to sustain. Will foreign countries boycott Chinese products?"

Lu Jin nodded immediately and said, "That's a very good answer. So what kind of impact will this have on our country?"

After hearing this, everyone started thinking again.

Seeing that no one spoke, Lu Jin quoted the concept of the biological food chain to explain to them what the industrial chain was, analyzed the upstream and downstream industries, and then spoke.

"Take the ceramic industry as an example. Porcelain is a durable consumer product. If I buy a bowl, I can use it for a lifetime as long as it is well protected. The nature of this durable consumer product means that the domestic porcelain market will be saturated one day. That means every household will have porcelain, which is enough and cannot be sold.

"If domestic consumption is weak at this time and porcelain for export cannot be sold, then domestic porcelain factories will close down, and the original porcelain factory craftsmen will lose their jobs and become homeless. A large number of unemployed vagrants will flood the people, and more bandits will appear, public security will be in chaos, and people's livelihood will begin to decline, right?"

"Correct."

"That's the truth." Everyone nodded again.

Lu Jin then asked, "What if the foreign countries that have been running a trade deficit have all their gold and silver taken away by China, and you don't buy their products, and the foreign countries' military power is still stronger than China's?"

Everyone was stunned when they heard this, "How is this possible?" Liu Zhang blurted out.

Lu Jin asked, "Why not? Take the Song-Jin relationship as an example. What did the Jin have that was worth buying? In the trade between the two sides, was the Song exporting more goods than the Jin, and was the Jin more powerful than the Song?"
"Tell me, what's going to happen next?"

Everyone opened their mouths wide when they heard this.

Lu Jin then said, "If I were the monarch of a foreign country and my military force was stronger than yours, I could start a war, defeat you, and force you to open ports for trade, so that I could sell my goods in your country at will.

"In the worst case, I will attack your capital directly and force you to sign a peace treaty, and make you pay me tribute every year. Is that right?"

Everyone opened their mouths, and Chen Yu continued, "It's not that China is unwilling to buy foreign goods. Didn't the lord say that foreign countries don't have the goods we need except gold and silver? That's why we don't buy foreign goods. Even if they force trade by force, what can they sell to China?"

Lu Jin sighed, "What to sell? There are too many things to sell. If there is nothing to sell, I can also sell poison to your country. It is a kind of poison that makes people addicted. Once you get it, you can't stop. If you take it for a long time, you will die. It looks like a skeleton or a demon. I can earn back the gold and silver you took from me."

Everyone opened their mouths again, and Wang Guangyang asked in surprise, "Is there really such a thing in the world?"

Lu Jin nodded seriously, "Yes, even if it doesn't exist, I can make it. If you face such a situation, how will you deal with it?"

Isn't this how the Opium War came about? What did later generations blame the Qing Dynasty for? It was that the Qing Dynasty was more concerned about defending against the Han people than against foreigners. It was because they measured China's material resources and tried to win the favor of other countries. These Tartars and foreigners together enslaved the Han people and treated China as their common colony.

What is even more resentful is that the Qing Dynasty deliberately rejected industrialization in order to maintain its rule.

Germany and France were not the first countries to industrialize, but they actively learned and were not left far behind by Britain. On the contrary, Germany surpassed Britain in the second industrial revolution using internal combustion engines and electricity.

It is not wrong to fall behind, but it is a big mistake not to catch up after falling behind!

The Qing Dynasty had a trade surplus every year and earned so much gold and silver. You should have at least bought some British goods and let them see some return on their money. Then the Opium War would not have broken out so quickly.

I don't believe that British capitalists will not sell you anything. You can buy rails, trains, industrial equipment, or even sailing warships of that era. Do you think the British will sell them to you?
The initial railways in Germany and France were also purchased from Britain. They were willing to follow suit, but the Qing Dynasty was complacent, which was its biggest mistake.

Ultimately, the Qing Dynasty, the colonial ruler, was afraid that the Han people would become powerful and overthrow their rule.

What is the Westernization Movement? It was only after the Qing Dynasty was defeated by foreigners that domestic public opinion could no longer be suppressed, so they had to let a few high-ranking Han officials preside over the Westernization Movement, such as Zhang Zhidong's Hanyang Ironworks and Li Hongzhang's Beiyang Fleet. This was a compromise of the Qing Dynasty to the Han people.

Hearing that there is such a vicious thing in the world, Zhan Ding said without thinking, "Of course, beat it out!"

Lu Jin said, "I told you, if the foreign country's military force is stronger than yours, what if you can't defeat them?
"Well, even if you can win, it's still just treating the symptoms, not the root cause. I've said before that this war is essentially caused by the trade deficit between the foreign countries and China. As long as the trade deficit exists, one side will definitely make money and the other side will lose money. As long as there is an imbalance, there will be a war sooner or later. How do you solve it?"

Liu Zhang also spoke up, "Then we should find a way to balance it out. Let's see if the foreign countries have any commercial goods that we can use. We should buy some of them and let them make some money as well."

Chen Yu thought about it and said, "We can also reduce the amount of foreign trade, find ways to increase domestic consumption capacity, or guide those unemployed craftsmen to switch to other industries."

Papapapa, Lu Jin immediately clapped and praised, "Very good, this is a way to solve the problem, but no matter what, for a country, force is always the first means to ensure that it will not suffer losses. The most important affairs of a country are sacrifice and war.

“You must remember that the words passed down by our ancestors that have survived to this day do have some truth to them, such as the fact that barbarians fear power but not virtue.

"You can't reason with beasts. Only by beating them with whips and sticks will they sit down and listen to you. When you are not as strong as them but richer than them, it's like a child carrying gold in a busy market. They will never think of trading with you or exchanging what they have, but will directly rob you!
"You have earned so much gold and silver from the trade surplus. Why don't you use it to improve your military strength, train your troops, and build weapons? Do you have to wait until the barbarians are at the gates of your city before you pay them the annual tribute?"

Everyone nodded in agreement upon hearing this.

Lu Jin then continued, "Okay, let's talk about gold and silver. If we use gold and silver as currency, as I said before, China itself is short of gold and silver, while foreign countries have a lot of gold and silver.

"What if they manipulate the Chinese economy with the gold and silver in their hands? Or what if the foreign countries do not manipulate the Chinese economy, but simply import a large amount of gold and silver, causing domestic inflation and depreciation of goods?"

Tao An, who had just begun to learn about economics, immediately said, "Then we don't need to use gold and silver as currency, and we can decouple paper money from gold and silver.

"Currency, currency. According to the Lord, currency is just a 'general equivalent', which is used to measure the value of commodities. In this way, gold and silver should also be regarded as a commodity, not currency itself."

Lu Jin praised immediately, "Very good, then this will lead to a new question, the exchange rate, that is, the price of gold and silver for our paper money. What impact will the high or low exchange rate have on the domestic economy?"

After hearing this, everyone started thinking again.

(End of this chapter)