King of Commerce, Yeonsan-gun Ch.26
For a Nation to Thrive, the Countryside Must Prosper
Kyung-sik had always been an avid reader of alternate history novels on web platforms back in the modern world.
It seemed that joint-stock companies or the "land grab" strategy were essential elements in any story set during the Joseon Dynasty.
As he approached the end of his first year as king, the thought of already attempting these essential elements filled him with a mix of anticipation and satisfaction.
Yet, there was still much to prepare: the laws and regulations governing joint-stock companies, the reorganization and training of the military, and the production of high-quality fur, which was best during the winter. Catching sables during summer when their fur was thin was only good for making brushes, and nobody wore fur in the summer heat.
Thus, any actual expedition or venture into Manchuria would start no sooner than the fall.
"Come to think of it, I managed to successfully introduce paper money in Joseon within a year... Even if I were the protagonist of an alternate history novel, that’s quite impressive, isn’t it...?"
As he indulged in this extraordinary level of self-awareness and slight narcissism, the reality of his hurriedly implemented reforms quickly caught up with him.
Spring’s Challenges
"Spring is upon us. As the barley harvest approaches, the hungry season is here. Distribute money to the people and have the Hwamyeongso sell grain to provide relief."
"Your Majesty, I have something to report on this matter."
It was Lee Geuk-gyu, the Director of the Grain Equalization Office.
"What is it, Director?"
"Despite it being the hungry season, the price of rice bought with paper currency has not even doubled."
"..."
Kyung-sik’s earlier confidence was swiftly replaced by fear and uncertainty, as every worst-case scenario flashed through his mind.
"Could it be that logistics have suddenly improved so much that grain distribution is perfectly smooth across the nation? Or did the grain production suddenly skyrocket...which seems unlikely!
Is it deflation?! How? Did someone like Yoon Eun-ro show up somewhere else? No, with tens of millions of jeon of paper money spread across the nation, a few corrupt officials can’t explain this.
Maybe the tax rates are too high? Is all the money stuck in the national treasury? Should I increase spending?
Are the interest rates too high? But in Joseon, even 10% interest is considered charity..."
For the first time, the usually confident king was visibly shaken by a policy issue, alarming the officials from the Grain Equalization Office who had never seen such behavior from him before.
Realizing his own distress was causing anxiety among his officials, Kyung-sik quickly regained his composure.
"I will devise a strategy to address this. You may withdraw for now."
The Struggle to Identify Deflation
Kyung-sik’s battle to uncover the cause of deflation began in earnest.
"Your Majesty, it is commendable to be diligent in state affairs, but you must eat your meals..."
The court lady gently admonished the king, who was still poring over records and ledgers even while dining.
"Hmm. I think today’s meal is sufficient. Take the dishes away."
The king dismissed the meal, still engrossed in his papers and records.
Even when the court ladies brought in the dinner trays, Kyung-sik was too absorbed in his documents to notice their gossip.
‘I know King Sejong didn’t put down his books even when he was sick or asleep, but this...’
‘I thought His Majesty wasn’t fond of academics, even during his time as the crown prince and now as king?’
Despite the murmurs, the king remained oblivious, focused solely on his work.
The problem was that Kyung-sik’s available data was disappointingly sparse.
Only Pyongyang and Seoul had established auction houses that tracked the prices of hundreds of items, including grains and other goods. For other regions, only grain prices recorded by the Hwamyeongso were available, and even those were often sporadic in rural areas with infrequent transactions.
‘At least the myeonpo is still used as quasi-currency. Unlike grains, which fluctuate wildly with the seasons, myeonpo provides a more stable gauge of the paper currency’s value...’
Although the chupo had disappeared from the market, oseungpo still circulated as a supplementary currency, albeit at reduced value.
And despite its depreciation, the higher-quality myeonpo maintained its value fairly well.
After piecing together the data, Kyung-sik noted that prices in Seoul hadn’t dropped significantly, but in the countryside, deflation was evident. This imbalance suggested that rural grain stocks were being funneled into Seoul, keeping prices stable there, even during the hungry season.
Hence, the market had adjusted faster than his directive to "release rice to control prices."
However, the situation was perplexing. The New Deal-like policies were designed to inject money into the rural economy. Even with the taxes and deductions, the countryside was supposed to be awash with currency, yet they were short on cash.
Although Seoul experienced a slight dip in prices, indicating a blockage in the flow of money somewhere.
While Kyung-sik wrestled with these thoughts, the officials planned to reintroduce classical texts during the royal lectures, hoping to rekindle the king’s interest in Confucian teachings.
"Your Majesty! The moral development of a ruler hinges on the royal lectures! Instead of constantly discussing policies and tactics, let us delve into the ‘Great Learning and Analects’ this time..."
"You made a good point. But first, let’s analyze why grain prices haven’t risen during this hungry season."
"Eh? Isn’t it good that rice prices aren’t rising during the hungry season?"
"No. Don’t you understand yet... Gather all the officials except for those from the Grain Equalization Office. I will personally conduct the lecture."
Kyung-sik found it exasperating to teach the concept of deflation’s adverse effects to his officials who still didn’t grasp it.
"...So, in our current system, as time passes, the debt owed to the state by each office will inevitably increase. Don’t be overly alarmed by the debts owed to the Grain Equalization Office..."
"? ?? ???"
Growing frustrated with his officials’ lack of comprehension, Kyung-sik took a moment to breathe.
To these Joseon officials, the concept of economics was entirely foreign. Teaching them ideas 500 years ahead of their time was akin to a miracle.
Even Adam Smith's "The Wealth of Nations" was centuries away. Jumping straight into credit-based currency policies without foundational knowledge was undoubtedly too rapid a leap.
‘Still, if I write economic textbooks and teach practical fiscal management at the Hongmungwan, perhaps the future generation will be better off.’
With such hopeful thoughts, he recalled his experiences from the future.
Back in modern Korea:
‘Oh, politicians are always screwing things up! The national debt is over 1000 trillion won! If they keep running the country like this, we’ll have another IMF crisis!’
‘Dad, national debt always increases over time.’
‘What are you talking about! The national debt is something you’ll have to pay off with taxes in the future! We’re old, so it doesn’t matter to us. Can you pay off 1000 trillion won?’
‘No, actually, in a credit currency system, reducing national debt is problematic. Credit currency means...’
‘Oh boy! Ever since you went to college, all you talk about is this complex stuff. Do you think the world runs the way you learned in college?’
‘No, Dad, this is crucial. We have to manage it the way I learned, or the country will go bankrupt.’
‘This kid... Just because you went to a good college doesn’t mean you can belittle your uneducated father! What good is having a son if he looks down on his father!’
‘No, Dad, that’s not what I meant...’
Reflecting on it, he realized that even in 500 years, nothing much might change.
He also recalled his paternal side of the family seemed to have a peculiar relationship with finance and economics.
‘Kyung-sik, I heard you got into a good university! Let grandma give you some money as a gift.’
‘Thank you, Grandma... Wait, why do you keep money in your wardrobe?’
‘Mother! You should keep your money in the bank. And this is such old, worn-out money!’
‘Oh, what if the bank collapses? It’s safer here.’
‘Banks don’t collapse, Mother!’
‘Don’t they? During the IMF crisis and even recently, people lost money when a bank that offered high interest rates went bust. I saw it on the news.’
‘That was a savings bank, Grandma. Not the same as a commercial bank.’
‘If a savings bank isn’t a bank, then what is it?’
Remembering these family conversations only made his head hurt more. It was a pointless trip down memory lane.
His officials might be at the level of his father, while most commoners were probably akin to his grandmother, stashing their money away in wardrobes.
When would he see a functioning monetary system in Joseon? Perhaps in the pre-modern era, achieving even a semblance of 21st-century Venezuela’s economy would be considered an achievement.
Then, a sudden realization struck him.
‘Wait a minute, stashing money in wardrobes?!’
How could he have overlooked such a simple reason? The cause of the disappearing money.
In Joseon, it made sense that things would go wrong in a distinctly Joseon way, but he had been thinking too much like a modern person.
Rural Realities
The reasons money vanished in rural Joseon were due to both the influence of people with a mindset like his father and those like his grandmother.
In Seomyeon, Dangjin-hyeon, Chungcheong Province:
The unscrupulous merchant Kim Ki-teuk, who had tried to deceive the villagers, was still around.
The villagers decided to drop their lawsuit against him because there were no other traveling merchants who visited their remote area regularly.
Instead, Kang Doo-soe, or "Dog-Head’s Father," gained more influence within the village.
Now, the people of Seomyeon didn’t rely solely on Ki-teuk for information. They would be more skeptical of his words and pay closer attention when Doo-soe said, "I saw it with my own eyes."
The previous autumn’s incident had left Doo-soe feeling bitter about his rudimentary literacy, prompting him to attend the local school to learn properly.
"I may not know all the characters, but I can recognize numbers and the character for money. The document I saw definitely..."
"Silence! Is literacy only for making money? How can you learn to write the character for money without even knowing the first lines of the Thousand Character Classic?!"
Even though he was just a local scholar, the village tutor was outraged by Doo-soe’s utilitarian approach to learning characters.
Regardless, Dangjin was one of the many places still suffering from the impact of last year’s poor harvest.
The villagers, who had learned the hard way about the value of money, carefully stashed their meager earnings in the most secretive places – under floorboards, inside wardrobes, or even buried underground.
Whenever they could, they sold their surplus grain at the local Hwamyeongso to convert it into paper money. And they dutifully repaid the loans given to them by the government at the start of the year.
Now, even during the hungry season, the prices of grain hadn’t risen dramatically, debts were repaid, and they had a small stash of jeon.
The residents of Seomyeon believed they were managing their resources wisely. Although their children sometimes complained.
"Father, we grow rice, so why do we always eat millet?"
"Listen, son, in a poor family like ours, not starving is already a blessing."
"What’s the use of the money hidden under the floor? You just look at it every day to see if it’s still there. Can’t we use it to buy some fish sauce?"
"If we spend it recklessly, what will we do in case of a bad harvest? I feel full just looking at the paper money."
"Pfft. Then why don’t you hang it from the ceiling and stare at it while we eat?"
There were many such villages across the country.
Moreover, while paying off government loans was seen as a virtue by the villagers, it posed a problem for the national economy.
Currently, in the absence of private banks, the Hwamyeongso under the Grain Equalization Office acted as a sort of central bank, lending money directly to the people.
When people repaid their loans to the Hwamyeongso, the money effectively disappeared from circulation.
So, the New Deal-like policies that were supposed to inject money into the rural economy ended up being stashed away in wardrobes or repaid to the Hwamyeongso, causing the money supply to shrink and deflation to set in again.
Understanding the Merchant Reaction
Another cause of deflation was that merchants had reacted more quickly than the government.
In its first year of issuance, paper money in Joseon was as volatile as cryptocurrency.
Its value fluctuated wildly, more like a speculative asset than a stable currency.
But now, with the implementation of paper currency for tax collection and its acceptance as a safe asset among farmers, it had gained a foothold as a reliable store of value.
Merchants were no different. They, too, began hoarding paper money.
The reason merchants started hoarding paper money was linked to Joseon’s economic structure.
There were few viable investment opportunities within the country.
As a predominantly agricultural society, the most traditional investment was, of course, land.
With grain trading being the primary market activity, buying land for farming was seen as the best option.
However, with the state intervening to standardize grain prices nationwide and everyone diving into grain trade, profitability plummeted rapidly.
Moreover, property rights over land in Joseon were not particularly stringent.
Uncultivated land was often squatted on by wandering farmers or sold off by servants entrusted to manage it. As a result, investing in land was less profitable than one might expect in an agricultural society.
Consequently, without clear investment opportunities, merchants resorted to simply hoarding their money.
The Need for Banking and Rural Development
Upon realizing the potential of rural money hoarding, Kyung-sik began drafting plans for necessary reforms.
‘First and foremost, we need private banks to keep money circulating instead of letting it stagnate in wardrobes!’
Banks, in simple terms, are institutions where people deposit and withdraw money. They earn by charging higher interest on loans than they pay on deposits.
However, this seemingly simple process has profound impacts on the economy.
For example, if someone deposits 1000 jeon in a bank, they can use checks or deposit slips for transactions.
The bank then loans out 900 jeon of the 1000 jeon, keeping a 10% reserve. The merchant uses the 900 jeon to buy goods and pay wages.
The worker, who receives 100 jeon in wages, deposits it back into the bank, which can then lend out 90 jeon of that 100 jeon.
Thus, with an initial deposit of 1000 jeon, there are now 1990 jeon circulating in the economy.
This is called the bank’s money creation process.
While this process can lead to inflation, in the current structure of Joseon, where deflation occurs naturally, stimulating inflation through such mechanisms is actually beneficial.
After explaining this to his officials, Kyung-sik asked if anyone had comprehended the concept fully.
"In an infinite iteration of this process, how many times greater than the initial amount of currency can it become?"
No one seemed to grasp the idea.
Even the officials from the Grain Equalization Office, who had previously shown some intuitive understanding of economic principles, were lost.
The officials wore expressions of 'what is this infinity concept and why are we dealing with it' as Kyung-sik realized he was delving into concepts like limits and infinity, which hadn’t been developed yet in their world.
‘...How do I even explain this? Forget it, I’m from the humanities myself. If you don’t get it, just memorize it!’
"Through such processes, the circulating paper money can potentially increase to ten times the initially issued amount."
At that moment, the officials took on the same demeanor as students in modern Korea, memorizing their lessons without truly understanding them.
They had learned from experience that asking questions only led to the teacher extending the class beyond its end time to explain more complex principles.
Especially with math, it was crucial to just get through it.
After establishing the need for private banks, the next step was to integrate farmers into the market economy more effectively.
Why were farmers hiding their paper money in wardrobes? Aside from the lack of secure places to store it, it was because trade in rural areas was rare.
Ideally, rural areas should regularly trade with cities, exchanging agricultural products for urban goods, ensuring a continuous flow of money.
If grain sales and cash hoarding only happened right after the harvest, the rural population would quickly become impoverished post-harvest, leading to a cycle of deflation and economic hardship.
This phenomenon was well-documented in history as the "expansion of tenant farming and landlordism" or the "increased prominence of absentee landlords."
So, while last year’s New Deal policies aimed to infuse money into rural areas, the goal now was to empower farmers to generate sustainable income on their own.
This historical process, known as the "rise of cash crops and market-oriented agriculture" in Joseon, provided a model for economic development.
Thus, Joseon’s needs could be summarized as follows:
- Establishment of private financial institutions that function like banks.
- Institutions that facilitate frequent trade between rural and urban areas.
- Promotion of cash crop farming.
Anyone familiar with Korea would recognize these as the primary functions of a rural cooperative bank, known as Nonghyup (농협).
Endnotes
*0: The title "For a Nation to Thrive, the Countryside Must Prosper" echoes the concluding line of the song "Nonghyup’s Anthem."
*1: This novel’s depiction of Joseon’s paper currency system is elaborated in Chapter 7, "Isekai Hero Park Kyung-sik." It resembles the "loan and deposit system" of modern central banks, where the central bank lends money to commercial banks. Since there are no private banks in the story, the central bank-like entity directly lends to the people.
*2: This issue was discussed in Chapters 8, "Let’s Do Business," and 21, "People 1." The Gyeongguk Daejeon stipulated that if land remained uncultivated for just three years, it could be claimed and farmed by others, essentially becoming their property. This regulation aimed to prevent land from being left idle but was often exploited by land-hungry nobles in the late Joseon period.
*3: For further reading on the dynamics of state loans and their impact on the economy, consider the work of Lee Sang-hyuk, "Acquisition of Ownership Through Cultivation of Unowned Land in the Joseon Dynasty," Journal of Land Law (2015).
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