Great Song Dynasty Writer

Chapter 40: The world's genius!

"Secondly," Lu Beigu continued, "dozens, hundreds, or even tens of thousands of large merchants, after purchasing the right to transport military grain east of Kaifeng in sections, will use the water network to transport grain from the southeast, Jinghu, Jianghuai, and Shandong to the Northwest Military Grain Depot in Kaifeng for storage. Similarly, merchants from Guanzhong, the two rivers, or the Central Plains, in order to obtain the [Salt Notes] issued by the Northwest, will either choose to purchase grain and transport it to the Northwest, or choose to provide their own vehicles and horses, pay a deposit, and then take over the grain transportation task from the Northwest Military Grain Depot in Kaifeng, and then transport the grain to the Northwest."

"The reason the system design didn't require separate transport for the northwest is because land transport differs from water transport. From Kaifeng to Luoyang and then to Chang'an, the entire route ran straight west along the official road on the south bank of the Yellow River and Wei River. With this single route, supplies didn't require complex transportation. Transporting grain from the southeast, on the other hand, required grain to be collected from Jinghu, Jiangnan, and Lianghuai, requiring complex, dispersed transportation via a network of waterways."

"The fundamental reason the previous 'compromise method' failed was that merchants had to transport grain thousands of miles from grain-producing areas to the northwest frontier, resulting in excessive transportation costs. Furthermore, illicit salt was rampant in the northwest, so even if they obtained salt permits, they couldn't make up for the losses. But with this circular method, things would be different. Merchants from different regions would only have to cover a portion of the transportation, significantly reducing transportation costs."

Li Pan nodded slightly after hearing this. He had been to the northwest. During the Han and Tang dynasties, that place was a "foundation of kingship and hegemony" with thousands of miles of fertile land, but it was no longer the case since the end of the Tang Dynasty.

Now soil erosion is serious, arable land has shrunk on a large scale, and with so many troops stationed there, the Northwest region is completely unable to be self-sufficient in food.

In addition, there is a risk of war at any time. Therefore, since the first Song-Xia War, the price of grain in the private sector has remained high all year round, and it is necessary to rely on external grain imports to maintain stability.

The "compromise method" of the Song Dynasty was essentially no different from the "opening method" of the Ming Dynasty. Facts have also proved that if a merchant is asked to undertake the entire transportation of grain, no one can afford it. As a result, either the policy is abolished or it is changed to actual segmented contracting.

Zhao Yan then asked, "The purpose of setting the exchange rate between the two types of salt notes is to increase or decrease, speed up or slow down the supply of food to the northwest frontier by adjusting the ratio of salt notes?"

"good."

Lu Beigu nodded and said, "The imperial court has a prosperous commerce, but merchants are also regional. Merchants from the southeast may not actually come to Kaifeng to exchange their [Well Salt Notes] for [Salt Relief Notes], and the same is true for merchants from the northwest. However, if the court needs to quickly transport grain to the northwest, just by slightly increasing the exchange rate, countless merchants in the middle will flock to it for the profit. At that time, both ends will be affected accordingly, and the same is true for slowing down grain transportation."

It was a bit confusing, and Lu Beigu wasn't sure whether these two big shots had figured out the principle behind it.

The principle here is very simple.

Let’s talk about the actual things first. The same bag of salt, whether it is Sichuan well salt or Hedong salt, is not of equal value.

If there is only one bag of salt, it doesn't matter whether it is of equal value or not, because even if it is not of equal value, the difference in resale price is very small, and the transportation cost is there. There is no need to travel thousands of miles to resell and make a profit.

But what if instead of one pack, you had a million packs?

Obviously, when the interest rate differential is multiplied by the huge amount, the profits gained are already very considerable.

However, the corresponding transportation costs must still be taken into consideration.

——But what if it’s not a mountain of one million bags of physical salt, but a stack of salt banknotes?

Then there is only profit and almost no transportation cost.

In fact, this is also the strategy formulated by Lu Beigu based on historical facts.

Historical research materials clearly record that as the issuance of salt notes increased, the Song Dynasty's salt notes would soon break through their original function of being "salt receipts" and would have monetary attributes in circulation. They could be used to offset taxes, be used for private transactions, and even have the exchange function of "flying money."

In this situation, for example, if the official exchange rate of [Jieyan Salt Notes] is adjusted and the actual value increases, then there will inevitably be middle-class merchants who purchase large quantities of them in pursuit of profit. What are the direct consequences?
That is, the actual transaction price of [Jieyan Salt Notes] will rise as merchants pursue it. If merchants want to achieve arbitrage without transportation costs through securities such as salt notes, they must purchase them from merchants who currently hold a large amount of [Jieyan Salt Notes].

At this time, there would certainly be merchants who had previously completed land grain transportation and would sell their [Jieyan Salt Notes] to cash in in time.

However, there would also be powerful merchants who would organize fleets to purchase grain on their own and transport it to the northwest in exchange for [Jieyan Salt Notes].

More small and medium-sized merchants would choose to provide their own vehicles and horses. After paying a deposit, they would take over the transportation task from the Northwest Special Military Grain Granary in Kaifeng, transport the military grain to the northwest, and then exchange it for [Jieyan Salt Notes].

This helped to mobilize civilian forces and quickly transport grain to the northwest during wartime.

Moreover, it can not only meet the food needs of the Northwest Army, but also meet the food needs of the Northwest people. The big merchants organize their own fleets to purchase and transport food to obtain [Jieyan Salt Notes]. Its nature is different from the task of transporting military food from Kaifeng. This part of the food can be put into the market or directly used for disaster relief by the Northwest states in an emergency.

So what if the actual value of [well salt and salt notes] increases?

This would result in merchants reducing their enthusiasm for transporting grain to the northwest because there was no profit to be made, and instead they would purchase [well salt and salt notes] from other merchants, or buy [well salt and salt notes] themselves.

Under such circumstances, the inflow of copper coins into Sichuan will increase, and the scale of Jiaozi issuance will also increase accordingly.

There is another unspoken meaning here, which is that the reason for setting up a salt and banknote exchange center in Kaifeng is to allow more people to benefit from the policy and reduce the resistance to the policy, which means that the probability of actual implementation is greatly increased.

Because in the actual implementation process, a policy cannot be implemented just because it looks good. Instead, it must be a policy that can benefit the vast majority of people.

Zhao Yan thought about it carefully again and finally figured out all the obstacles involved.

Lu Beigu's imaginative yet interconnected design really amazed him.

"All of this is voluntary behavior by merchants. It's just a system that was established to take advantage of the situation."

"I never imagined that the art of governing a country and benefiting the people could be so designed. I have learned from you today!"

Zhao Yan bowed to Lu Beigu with admiration.

Lu Beigu quickly stood up and returned the greeting.

Zhang Fangping looked at Lu Beigu with a look of deep surprise in his eyes.

Originally, he thought that the salt and currency law formulated by Fan Xiang was perfect enough!
But today, after listening to Lu Beigu's words, he realized that he could actually go one step further!
"——A genius in the world!"

(End of this chapter)