Great Song Dynasty Writer

Chapter 266 Weighing the pros and cons
As Lu Beigu continued his narration, Zhang Fangping, who had been wearily rubbing his temples, stopped.

Fan Xiang had already sat up straight, his eyes quickly shifting from initial surprise to focused contemplation.

"Your method does have many merits."

Fan Xiang pondered for a moment and said, “Merchants pay cash as collateral to the Salt and Iron Bureau in Tokyo. This is a deposit and also a screening process. Only those with strength and unwavering trust in the court dare to act rashly. The Salt and Iron Bureau calculates and clearly indicates the ‘preferential quota’ they can obtain on the spot, based on the amount of money they pay, the distance and risk of the Hebei prefectures and armies they choose to deliver to. This quota is directly reflected on the voucher and is clear at a glance. This ‘preferential value’ is a better way to replace the false valuation of the ‘entry into the central government’ method, and it is also an incentive for merchants to brave the dangers and transport goods to the border regions.”

"Furthermore, with this certificate, merchants can hire boats and horses and organize their own transport to deliver grain to the military granaries in Hebei Prefecture, which they have chosen. After the delivery and inspection are completed, the border officials will issue a receipt and take back the certificate. In this step, the border officials only need to verify whether the quality and quantity of the grain meet the standards, without needing to estimate the price, thus completely eliminating the possibility of collusion between them and the merchants to inflate the price. Even if the border officials use the power of the receipt to extort money from the merchants, it will only cause losses to the merchants, not to the three departments, thus greatly reducing the opportunity for corruption."

"In this way, by revitalizing the stockpiled old tea, the three departments can leverage five times their own amount of grain and fodder to enter the border. Merchants can then return to the capital with receipts and immediately redeem tea certificates at the Salt and Iron Bureau's Customs Office. These tea certificates are not like the old ones, which had no end in sight and whose value was uncertain. Because the tea certificates are backed by actual tea and are redeemed quickly, their value is stable, and small and medium-sized merchants are not easily exploited by large merchants. Given the nature of these merchants, large-scale tea certificate transactions will inevitably occur, and the pressure to redeem old tea will not be particularly great."

"If this strategy is implemented, the food shortage in Hebei can indeed be resolved."

At this moment, Zhang Fangping suddenly spoke up.

"—But there are also hidden dangers."

Zhang Fangping's expression was very solemn. Having been in officialdom for a long time and twice in charge of the empire's finances, he knew very well that there was no such thing as a perfect strategy.

"I find this strategy ingenious, but you just said that 'the total value of these silks, money, and tea is enough to cover one-fifth of the grain and fodder needed in Hebei.' Are you aware of the dangers involved?"

Zhang Fangping leaned forward slightly, his tone suddenly becoming more serious: "The success or failure of this plan hinges entirely on the word 'trust'! However, 'trust' is like a crystal vase, beautiful as it may be, it is also the most fragile!"

Zhang Fangping extended two fingers, like two sharp swords hanging in the air, pointing straight at the vital point.

"First, the danger of 'actual value'! You say 'increase its value' and set a central price. How should this price be set? If it is set too low, merchants will not make a profit and will not be willing to transport goods; if it is set too high, the burden on the court will increase, which is no different from the previous inflated valuation. Moreover, how can the distance and risk be accurately determined? The slightest difference in this matter will lead to a huge error! Once the price is set inappropriately, either merchants will be hesitant to proceed, or the court will repeat the mistake of 'entering the central government' and suffer huge losses."

"Secondly, the 'reserve' is a lie! You say that the reserve funds need to be made public to reassure merchants. However, using old tea as payment is essentially discounting existing funds in advance. If the publicly disclosed reserves are only to meet the immediate needs of 'Hebei grain and fodder,' what if the court later uses the silk, cash, or even old tea that should have been used to pay for tea permits to solve other urgent needs?"

"Once the reserves become a mere formality, or are misappropriated or depleted, merchants will have no goods to redeem, or the redemption will be significantly reduced. The court will lose its credibility, and the certificates will become worthless in an instant! At that time, not only will the grain supply in Hebei be cut off, but the entire tea and salt trade in the southeast, and even the trade routes throughout the country, will be shaken!"

"Furthermore, will the officials in the government, for the sake of political achievements, escalate the costs at each level? Today, for the military supplies in Hebei, they might increase the amount fivefold; tomorrow, for the war in the Northwest, for disaster relief, for river repairs, will they increase it tenfold or twentyfold? Eventually, the national treasury will be empty, the bonds will become worthless, prices will skyrocket, and public resentment will boil over. The disaster would be no less than a nationwide upheaval!" Zhang Fangping incisively exposed two potentially fatal flaws: the precision of pricing and the absolute reliability of credibility.

This is precisely the problem that has no solution.

Because the fundamental issue behind this is human nature.

Although Lu Beigu's method is more complex and less prone to problems, officials and merchants are greedy, and sooner or later this method will be ruined by them just like the "Entering the Central Law". Moreover, the "reserve fund" method of amplifying credit and overdrawing the future is destined to be abused by the court.

Lu Beigu felt a chill run down his spine. Zhang Fangping was indeed a capable minister; he had seen through the most fatal weakness of this "financial innovation" at a glance.

Fan Xiang was silent for a moment, then said in a deep voice, "This method is a double-edged sword. If used well, it can cut through the thorns in front of you; if used poorly, it will backfire and cause endless trouble."

To put it bluntly, this is not a technical problem, but a problem rooted in power and human nature.

These problems exist in any era, but they were even more perilous in the Northern Song Dynasty, where the system was still imperfect.

"Zhang Gong saw through everything with perfect clarity."

Lu Beigu cupped his hands, his tone frank: "'The difficulty of pricing 'actual value' and the risk of misappropriating 'reserves' are indeed the Achilles' heel of this policy, how could I not know? However, is there any method in this world that is entirely beneficial without any drawbacks? Whether any policy is feasible or not ultimately boils down to 'weighing the pros and cons.' I believe that this policy can alleviate the urgent shortage of food and supplies faced by the various military prefectures on the Hebei front due to the breach of the Liuta River with relatively little financial resources, and the benefits far outweigh the drawbacks!"

"As for the drawbacks, the former student believes that we can follow the precedent of the Northwest Salt Certificate System. The three departments should establish a detailed accounting system based on the market prices of military provisions, transportation costs, and road losses in various prefectures of Hebei over the past decades. This system should be reviewed and adjusted periodically. After the merchant selects the delivery location, the Salt and Iron Bureau's Monopoly Office should calculate the 'preferential quota' on the spot according to this system, record it on the voucher, have all three parties sign it, and archive it for future reference. In this way, although the pricing is flexible, it is based on rules and evidence, which can minimize disputes. This is to determine the 'real value' with 'clear laws'."

"The latter, on the one hand, can reduce the multiplier, for example, changing from storing one and releasing five to storing one and releasing three, in order to minimize the risk; on the other hand, it can only rely on Zhang Gong."

Lu Beigu looked intently at Zhang Fangping and said, “Just now, Lord Zhang denounced the previous officials of the Three Departments for squandering the wealth you had accumulated, resulting in an empty treasury and blocked waterways. Such a lesson is still fresh in our minds! The ‘reserve funds’ in my plan are like the dam of the Bian River. If even this dam can be breached and misappropriated at will, then the finances of our Great Song Dynasty will never have peace and will eventually collapse. Even if it does not collapse today because of this method, it will collapse tomorrow because of another method! Therefore, this plan cannot be implemented unless a righteous and upright minister is in charge of the Three Departments!”

(End of this chapter)