The Three Kingdoms: Hindsight is 20/20, and the Three Revivals of the Han Dynasty

Cao Xuan's concerns were understandable. Given Dong Zhuo's precedent of minting small coins, anyone who wanted to mint new coins to replace old ones had to carefully consider the consequences.

The slightest misstep could provoke widespread discontent among the people.

However, Zhuge Liang's proposal to mint coins was by no means a mere conjecture.

One reason is that he personally experienced the implementation of Liu Bazhi's 100-coin policy and its subsequent impact, and he was well aware of how to handle the aftermath.

Both of these were the hoards of Wuzhu coins belonging to powerful families and clans in the nine prefectures and three kingdoms, which had become so widespread that they severely disrupted prices. New migrants to the north, worried about the devaluation of the currency, often refused to accept coins and resorted to barter, which was extremely inconvenient.

The crux of the problem is that powerful families can exchange the grain that newcomers have worked hard for a year for simply by digging up the hoarded Wuzhu coins from their vaults; and the coins that newcomers receive depreciate before they can even be used, simply because the powerful families keep releasing their hoarded coins into circulation.

The negative consequences of currency devaluation were obvious; both the government and the new citizens suffered heavy losses when taxes were paid.

Even the more than 20 million coins obtained from the sale of Shu brocade today may depreciate by more than half in a few months after the wealthy families continue to release their hoarded coins.

In times of chaos, the amount of coins stored in the cellars of powerful families far exceeds what ordinary people can imagine.

Cao Cao's act of digging up tombs and stealing gold was precisely because the coins in the tombs could be taken and used immediately.

However, the total social output is limited, and excessive circulation of currency will inevitably lead to the collapse of currency value.

Even worse, if Cao Cao had sent men with a huge amount of Wuzhu coins to flood into the nine commanderies and three kingdoms, he could have crushed Liu Bei's economy without even having to use force.

Thinking of this, Zhuge Liang explained to Cao Xuan in detail: "What Colonel Cao said is very true. Dong Zhuo's minting of small coins is indeed a lesson from the past, and I have also taken it to heart. Your loyal reminder shows that you have thought things through carefully. However, my proposal to mint new coins today is completely different from what Dong Zhuo did, and we cannot generalize."

Cao Xuan, with a stern expression, cupped his hands and said, "I would like to hear the details."

Zhuge Liang spoke slowly, trying to slow down his pace: "Dong Zhuo minted small coins with the intention of plundering the people's wealth. He forcibly replaced the five-zhu coins with inferior ones and issued them excessively, eventually causing the coins to be as cheap as sand. A shi of grain cost tens of thousands of coins. This is the disaster of tyranny."

"The situation under General Zuo's rule was quite different: the refugees had no surplus wealth and resorted to barter, while the wealthy hoarded money, resulting in a surplus of money and a shortage of goods. This currency stagnation caused prices to soar. The overabundance of Wuzhu coins became a source of disaster. The minting of new coins required careful budgeting and strict control over issuance. In reality, the new currency was used as a dam to unclog the money flow and stabilize prices."

"Dong Zhuo implemented policies without a foundation, while Liang adopted a policy of consolidating the foundation: the new currency was based on land reclamation and irrigation, and the resettlement of displaced people. This not only relieved the treasury's financial difficulties but also benefited the people's livelihood in the long term. If the Director of the Revenue Department carefully calculated and issued the currency, the new currency could actually curb the rampant spread of the Wuzhu coin and reduce the price of grain from 200 coins to 100 coins, so that the people could benefit and focus on farming."

"This strategy is not for short-term gains, but for the long-term benefit of the nine commanderies and three kingdoms. I wish to discuss strategies with Colonel Cao to avoid the mistakes of those who came before."

After listening intently to Zhuge Liang's analysis, Cao Xuan's tightly furrowed brows relaxed slightly, but a cautious doubt still lingered deep in his eyes. After a moment of silence, Cao Xuan slowly spoke: "The strategist's words are insightful. This hoard of Wuzhu coins is like a dammed river; if new coins can act as a sluice gate, it would indeed be a good strategy. However, I still have a few concerns that I must address."

With Zhuge Liang's signal, Cao Xuan continued, "Powerful families and clans act swiftly, drawn by profit. If they take advantage of the new currency's initial circulation to sell off their stockpiled old Wuzhu coins to exchange for the new currency, while secretly driving up prices and even hoarding new coins, we risk repeating past mistakes. Wouldn't prices rise again due to the new currency?"

"Controlling the issuance of new money is easy, but controlling its amount is difficult! Resettling displaced people and building water conservancy projects require money everywhere. The people hope that the new money will benefit their livelihoods, and the government urgently needs new money to alleviate their difficulties. Balancing these benefits and solutions, and ensuring that the amount of new money issued is sufficient to support the new policies and replenish the government treasury, without exceeding the required amount and following in the footsteps of Dong Zhuo, requires not only precise calculations but also determination."

"No one is more dangerous than Cao Cao! If he discovers that I intend to introduce new currency, he only needs to secretly amass a huge amount of old Wuzhu coins and pour them into my nine commanderies and three kingdoms, creating the illusion of an immediate and extreme oversupply of currency. Merchants and common people, unaware of the situation, will surely think that my new currency has not yet cured the old problems, and that the flood has already arrived, causing prices to collapse like a snow-capped mountain! At that time, people will be in a state of panic, and their confidence in the new currency will crumble instantly. Even if we are skilled in calculation, I am afraid we will be unable to turn the tide."

"This is my humble opinion; please consider it carefully, strategist."

Zhuge Liang paused slightly with his feather fan, the candlelight in his eyes condensing into two sharp points, and calmly replied: "Commander Cao's three considerations all hit the nail on the head. I have three strategies to resolve this."

"The danger of powerful families discarding old currency for new and hoarding it should be controlled by a system of 'mutual control of old and new currency.' A ban on exchange should be imposed. In the first year of the new currency's issuance, powerful families should apply for a limited amount of exchange based on their land registers and household registers. Any amount exceeding this limit must be verified by the government, and a 30% 'savings tax' should be levied before exchange. A monetary and grain anchor should be established, with market officials and supervisors setting up 'stabilization granaries' in each prefecture. Grain should be released from these granaries simultaneously with the issuance of new currency. If a powerful family wants to exchange tens of thousands of strings of new currency, they must first purchase an equivalent value of rice and wheat from the government granaries! This method locks the new currency in with actual grain, turning their hoarding of currency into grain hoarding, and the low price of grain is a major taboo for powerful families."

"The balance between government treasury expenditures and the general benefit to the people lies in 'paying with actual production.' Based on the autumn grain reported by the military farms, 30% of the new money will be paid out annually; based on the profits from the annual salt and iron market, 20% will be paid out annually; the remainder will be tied up in debt contracts for water conservancy, new housing, and other livelihood projects. Merchants can purchase these contracts for profit, while the government will repay the debts with new taxes after the fields are ripe and the market is booming."

He then took a silk scroll and handed it to Cao Xuan, saying, "This is the 'Annual Revenue Measurement Book of the Nine Commanderies and Three Kingdoms.' This year, the maximum amount of new money to be issued is 120 million coins. If the price of grain drops to 150 coins, the issuance will be stopped. The quantity and price are linked and interdependent; how can we allow excessive issuance?"

Cao Xuan glanced at the "Annual Revenue Measurement Book of the Nine Counties and Three Kingdoms" and even though he was good at calculations, he felt his head was spinning: how could the strategist have calculated the annual revenue of the nine counties and three kingdoms in such detail?
Wait a minute, shouldn't a strategist be skilled in military strategy? How come he's so adept at governing the people?
While Cao Xuan was still in shock, Zhuge Liang suddenly composed himself and said sternly, "If Cao Cao were to squander five coins and ruin my economy, we can implement three strategies."

One method involved casting secret symbols on coins. New coins had a secret mark of the prefecture's seat engraved on the back. Coins circulating across prefectures required exchanging the symbols and seals. If Cao Cao's coins entered the country without these symbols, the market officials could immediately intercept them!

Secondly, the new people who migrated north paid taxes in new coins, while the construction of canals and the repair of cities were paid in new coins on a daily basis. Cao Cao's banditry allowed him to transport millions of old coins, but the people did not use them to exchange for grain, and they eventually became worthless!
Thirdly, the merchant alliance would encircle and suppress them. Anyone trading with unauthorized old coins would have their trade cut off by the alliance, thus severing trade routes. Cao Cao's coins would then be nothing more than scrap metal.

Cao Xuan grew increasingly alarmed as he listened, and subconsciously asked, "What if the powerful families and clans of the nine commanderies and three kingdoms are unwilling to exchange their old currency for new, or even try to use this opportunity to cause trouble?"

Zhuge Liang lightly waved his feather fan, a cold glint in his eyes: "Then it's even simpler. How can the methods of a prosperous era be applied to a chaotic one? A chaotic era must be governed by severe laws, using Confucianism as the skin and law as the bone, employing either kindness or force, benevolence or tyranny. Those who obey the Left General will prosper, and those who oppose the Left General will perish. Who would dare to cause trouble then?"

Cao Xuan suddenly realized what was happening.

Zhuge Liang never portrayed himself as a Confucian scholar who only knew how to talk about principles. There were many powerful families whose property was confiscated by Zhuge Liang based on legal principles.

When Zhuge Liang reasoned with powerful and influential families, they had to listen; otherwise...
With this in mind, Cao Xuan had no more doubts and cupped his hands, saying, "Your subordinate is willing to assist the strategist in achieving his goal!" (End of this chapter)