Late Han Zhao Tang

Chang'an Palace, Shangshutai (Imperial Secretariat).

"In the second year, I issued an edict ordering that the taxes and corvée labor paid by the people of Jingzhou be converted into money to recruit boatmen for shipbuilding. I wonder what the situation is like?"

While reviewing documents from the Secretariat, Zhang Yu suddenly asked, "Have any officials from the Secretariat gone to the prefectures and counties to inspect the people's conditions?"

"Your Majesty, Taichung sent people to investigate twice last year. According to the reports from officials and the repair policies issued last year, the people paid off their taxes with money, which had a great impact."

Du Ji cupped his hands and said, “In these chaotic times, no one cares about the five-zhu coin. But since His Majesty issued the edict, merchants from the Central Plains have been bringing money into Jingzhou. The people first exchange grain for money, and then use the money to pay taxes. The government recruits boatmen with money, but many are unwilling to accept it. The governor had no choice but to ask our treasury to allocate supplies.”

"After discussions with the Prime Minister, we allocated one million shi of grain and one hundred thousand shi of salt to aid Jingzhou, in exchange for the five-zhu coins held by the boatmen. We also strictly ordered wealthy families to send people to exchange for grain. As a result, since last autumn and winter, the prices of coins and grain have gradually stabilized. Last autumn, people enthusiastically paid their taxes with five-zhu coins, and boatmen exchanged coins for grain, making markets and markets open and efficient."

The people of Jingzhou would certainly be willing to pay taxes with Wuzhu coins, since too many Wuzhu coins were produced during the Han Dynasty, and in the context of the chaotic times, grain was the hard currency, while the value of Wuzhu coins was decreasing.

The government levied taxes based on a relatively reasonable ratio of grain to money, and many merchants seized the opportunity to buy Wuzhu coins from the Central Plains at low prices, then resold them to the people of Jingzhou. The people of Jingzhou exchanged grain for money, which they then used to pay taxes. Through this two-stage process, the merchants made a profit, while the people of Jingzhou obtained even more money by exchanging grain for cash.

When the government received the Wuzhu coins, the common people worried that the coins would depreciate, and the boatmen were unwilling to use them as Wuzhu coins. In order to stabilize the market, the Ministry of Works transferred supplies from other regions to stabilize prices. With the government's backing, the money-to-grain ratio in Jingzhou gradually stabilized.

Last autumn, Jingzhou maintained the policy of using five-zhu coins to offset taxes, which demonstrated the policy's continuity to the people. The exchange rate between five-zhu coins and grain and salt gradually returned to the range set by the government, which generally stabilized prices.

Prices in Jingzhou have largely returned to pre-chaos levels. For example, one dou (a unit of dry measure) of salt is worth more than five dou of grain, which translates to one hundred coins. One shi (another unit of dry measure) of salt is worth one guan (another unit of dry measure). Under normal circumstances, the ratio of salt to grain was 1:5, and one shi of salt was worth eight hundred coins.

Zhang Yu pondered for a moment and then asked, "Since converting taxes into cash is feasible, I intend to promote it throughout China. What does Minister Du think?"

"inappropriate!"

Du Ji pondered for a moment and said, "Although converting taxes into coins is convenient for the government to collect taxes, grain is expensive and coins are cheap in the border prefectures. However, when Your Majesty uses five-zhu coins for expenditures and allocates military funds, the conversion of military funds will vary depending on the price of grain. Therefore, although converting taxes into coins is beneficial to the people, it is not beneficial to the court and the border people."

The system of converting taxes into currency is no different from the Single Whip Law implemented by the Ming Dynasty, except that the Ming Dynasty used silver as currency, while this system uses five-zhu coins. The drawbacks of the tax-in-currency system described by Du Ji are almost identical to those that emerged after the implementation of the Single Whip Law in the Ming Dynasty.

Using taxes in monetary form benefits regions with ample currency and stable grain prices. However, in border regions, this method might be detrimental to the local population. After all, grain prices differ between the two areas; money collected in regions with low grain prices would be spent in border regions with high grain prices, leading to a devaluation of the government's currency.

Historically, during the implementation of the Single Whip Law in the Ming Dynasty, the south had abundant silver reserves while the north lacked them. Northern people faced a shortage of money to pay taxes, leading wealthy merchants to offer silver exchange services to the populace and use this opportunity to purchase grain at low prices, thus achieving their harvesting goals.

At the government level, the imperial court received silver taxes in the southeastern region where grain prices were low, but in volatile regions with high grain prices, such as Liaodong, it was necessary to spend several times the silver price of grain in the southeast to buy grain. In Liaodong, there was even a phenomenon where silver was cheap and grain was expensive.

If one string of cash were used as tax, it could buy five shi (a unit of dry measure) of rice in Jingzhou. In Liangzhou, it might only buy four shi, representing a 20% devaluation of the currency. For the imperial court, to purchase the equivalent amount of grain, it would need to pay 1200 coins to buy five shi of rice in Liangzhou. In turbulent times, a string of cash could easily devalue by 50% or even 100%.

Therefore, Du Ji pointed out the biggest problem with Zhang Yu's attempt to promote the monetization of taxes: that prices would fluctuate in different regions.

Of course, if Zhang Yu forcibly implemented the monetization of taxes, he would have an advantage over the Ming Dynasty. This is because the Ming Dynasty lacked legal tender, and the distribution of silver was extremely uneven, unlike the Han Dynasty, which had issued hundreds of billions of Wuzhu coins as legal tender over four hundred years.

After pondering for a while, Zhang Yu abandoned the idea of ​​monetizing taxes and said, "The world is in turmoil and grain prices are fluctuating. It is not appropriate to pay taxes by paying grain with money. However, the labor service system can continue to be implemented, allowing people to pay labor service with money. Among these, hemp and silk are common materials. Now we can slightly change the taxes in Jingzhou. In addition to grain, money can be used to pay taxes by paying silk and hemp."

The monetization of taxes places extremely high demands on price stability. Currency devaluation will seriously affect the country's expenditures in the following year. Perhaps it was only in modern times, with the leap in productivity and the stability of national geopolitics, that the basis for implementing the monetization of taxes was established.

Since there was no basis for tax monetization, Zhang Yu had to settle for second best and implement monetary taxation on corvée labor and physical taxes on hemp and silk, while using grain as the sole in-kind tax.

Why is grain used exclusively for tax collection in kind?
This was because grain prices fluctuate greatly in different periods and regions, and the imperial court had enough grain to better cope with various emergencies, such as floods, droughts, wars and other catastrophic events.

If goods such as hemp, silk, and brocade were levied as in-kind taxes, extreme phenomena similar to those seen in the later Shu Han period might occur. Under Zhuge Liang's rule, Shu Han established Shu brocade as a pillar industry of the state, using it to acquire resources from Wei and Wu, and to exchange for grain from the people, forming a relatively virtuous cycle that enabled the Northern Expeditions.

However, after Zhuge Liang's death, Shu Han went to extremes, relying excessively on Shu brocade, which led to the economic collapse of Shu Han in its later years. For example, when Shu Han was destroyed, it had 200,000 bolts of Shu brocade, but only 400,000 shi of rice.

Of the 400,000 shi of rice, only enough to cover the expenses of 100,000 people for two months, it would be insufficient to supply the expenses of 20,000 soldiers for a year. Moreover, if a disaster were to occur, the value of Shu brocade would drop significantly, and it might even become unsellable.

Furthermore, the population of Shu was limited, and over-developing the Shu brocade industry would waste a large amount of manpower on textiles, leading to a decrease in the agricultural population. Therefore, the sallow complexion of the people in the later period of Shu Han, besides the chaos in the court, may also be related to its over-reliance on the Shu brocade industry.

"But according to His Majesty's words, the tax collection in Jingzhou should be changed to emphasize both money and grain?" Du Ji asked.

"allow!"

Jingzhou has a unique environment, situated in a transitional zone between north and south, with a large population and bordering Cao Cao to the south, making it a suitable experimental area for taxation. Although a differential tax system had been established, both in-kind and monetary taxes needed further experimentation to determine which was more suitable.

Setting aside the Jingzhou experimental zone, Zhang Yu then inquired, "What are Shao Ran's thoughts on the matter of the official production and distribution of Shu brocade?"

"Your Majesty, the official production of Shu brocade, after discussions with the Chancellor and the Minister of Works, is deemed feasible!"

Yu Yi said, “The world is in chaos, and Xiangyi has little brocade production, while Shu is peaceful and has little turmoil, and Shu brocade is produced in abundance every year, and the wealthy families are eager to make clothes. If our dynasty can establish a state monopoly on brocade, we can earn a considerable amount of tax revenue from it.”

"Do you have any official plans?" Zhang Yu asked.

"I believe that we could use the government's salt monopoly to purchase Shu brocade at a low price, and then have the government sell it throughout the country. The difference in price would then go to the accounting department," Yu Yi said.

Zhang Yu pondered for a moment and said, "The government should entrust the task of organizing the Shu brocade to the various prefectures, so as to prevent the Shu brocade from being reduced year by year like the old ironware after the government started organizing it."

Although the state monopoly on salt and iron enriched the national revenue, the poor quality of the salt and iron caused great suffering to the people and cut off their livelihoods.

Following numerous complaints from officials, Zhang Yu reformed the state monopoly on salt and iron at the end of last year, separating it from the prefectures and counties and adopting a model similar to later state-owned enterprises. The state-run salt and iron monopoly was directly under the Ministry of Revenue, supervised by prefectural and county officials, and operated in cooperation with local gentry and commoners, selling their products elsewhere without restricting regional distribution.

Now that the government is in charge of producing Shu brocade, Zhang Yu must allow all prefectures and counties to develop their own brocade industries in order to prevent the quality of Shu brocade from declining, thus creating a competitive market environment.

Therefore, compared to the previous rigid government-run system, Zhang Yu used the self-managed system of the Accounting Office to allow local agencies to develop industries vigorously, so as to enable local government-run agencies to compete fully.

Powerful clans and local magnates relied on local government-run institutions for profits. When these institutions encountered operational problems, political forces would urge local government departments to make changes in order to maintain the profitability of their businesses.

In this situation, although the Accounting Department's influence would be greatly increased, its government revenue would also increase significantly. However, even so, the Accounting Department still lacked local administrative power; specific political implementation needed to be handled by the Secretariat, which severely limited the Accounting Department's authority.

After considering for a moment, Yu Yi said, "I have some ideas, but for their specific implementation, I need to go to Shu to inspect the area before I can convey my plans to you!"

"good!"

Zhang Yu smiled and said, "My uncle's son-in-law, Zhuge Kongming, has just been appointed as a Gentleman of the Palace. He has the talent for military strategy. If you go south to Bashu, you may recruit him into your department."

"promise!"

Yu Yi had followed Zhang Yu for over ten years, and what Zhang Yu admired most about him was his down-to-earth approach and frequent visits to local areas for investigation. (End of Chapter)