King of Commerce, Yeonsan-gun Ch.16
Why Are Farmers Poor During a Bountiful Year?
At dawn, tension filled the Yongsan district port as the day began. The sun had just crossed the horizon, and roosters had been crowing for a while. Yet, the rhythm of nature could not dictate the law. The Yongsan district operated according to the capital's schedule.
Since the nation was impoverished, unlike the capital with its clock chimes, the Yongsan port used a makeshift drum, newly covered by the Military Supply Bureau, to signal the opening.
Boom- Boom- Boom- Boom-
"The Yongsan auction is open!"
As soon as the port opened, Gwigyi, a merchant from Pyongan Province, rushed to retrieve his goods stored at the official warehouse. Overnight, his cargo was safe and untouched, guarded against thieves and soldiers.
But there was a problem—nothing had changed. No transactions had occurred.
“Is...is there nothing? Not even a single price tag?”
“Hey, you there! If you want to take your goods, you need to show the voucher!”
A clerk shouted at Gwigyi, who was loitering near the warehouse.
“Sir, I do have the voucher! But there’s no price tag on my goods at all!”
“So? What’s the problem?”
“I brought these millet here the day before yesterday to sell. I left them here for the auction yesterday.”
“And?”
“I left them all day yesterday and overnight, but no one has put a price tag on my goods. Doesn’t that mean no one wants to buy them?”
The auction halls Kyung-sik established at the three ports in Yongsan, Mapo, and Seogang were hastily built from the dismantled homes of the merchants he had previously crushed. The facilities were basic: just warehouses with open spaces for auctions.
Goods to be auctioned were stored in warehouses behind the auction hall. Before the auction started, people could inspect these goods and attach wooden tags with their name and offered price.
If a price that pleased the owner was attached before the auction began, the deal could be concluded early. If not, the goods would go to the main auction.
The absence of tags on Gwigyi's millet indicated that no one had shown interest in buying them.
"Well, that’s because you’re trying to sell millet. The country had a bumper crop this year. Who’s going to rush to buy millet? Do you know how many people have brought millet or rice here to sell?”
Since Kyung-sik took over, it had been nine months—early September in the first year of Yeonsan’s reign. Contrary to the famine of the previous year, this year saw a bountiful harvest.
With the abundance, people began selling their grain. In Pyongan Province, cotton was highly sought after for winter preparations. However, Pyongan didn’t produce cotton well and had to buy it from the southern provinces at high prices.
Gwigyi had come to Seoul intending to sell his millet from Pyongan and buy cotton to sell back home at a profit.
But with the bumper crop, no one wanted millet. It overflowed everywhere in Joseon. Earlier in the year, millet prices had spiked to two-thirds the price of rice in Gyeonggi and Chungcheong provinces due to the famine but had now dropped back to one-third.
Even if Gwigyi put his millet in the main auction, he wouldn’t fetch a good price. He briefly considered taking his goods further south to sell but knew that grain prices were even lower in the southern regions.
“So, what should I do?”
“Why ask me? It’s your job as a merchant to sell your goods for a good price. If you can’t, sell them to the government. Just move your goods out quickly.”
Gwigyi sent his cousin Dol-dong to check the prices the government was offering for millet at the Treasury.
The Treasury was also buying grain through auctions and paying in currency.
“A thousand jeon! We’re buying millet for a thousand jeon starting at 200 seok!”
“250 seok!”
“300 seok!”
Hearing that the price of millet had plummeted to 300 seok for a thousand jeon, Gwigyi's face fell.
"At this rate, with the labor costs, it's not much different from selling back home in Pyongan! What a waste!"
While Gwigyi was lamenting his losses in Yongsan, the officials at the Ministry of Taxation in Seoul were shedding tears of joy.
Despite last year's famine, the national treasury had swelled over the year, and now there was a bountiful harvest. It felt like a reward for their year-long toil.
After capturing Yoon Eun-ro, the government's currency policy ramped up.
Officials, soldiers, and clerks were paid in currency, and government offices purchased necessary goods at auctions using the currency. The nationwide markets also switched to buying grain through auctions rather than fixed prices.
The three ports on the Han River—Yongsan, Mapo, and Seogang—saw the resumption of currency lending to the people on a larger scale.
The soaring value of currency plummeted, stabilizing near its original target value.
The most significant change was the official introduction of "currency tax" collected by the Ministry of Taxation from transactions at the auctions in the Han River ports.
A transaction tax of 5% was levied on sales made in currency (10% if paid in grain or cloth), bringing in tens of thousands of jeon already.
Since the King had caught them collecting public taxes in currency, causing a stir, this new revenue stream was a godsend.
Nationwide, the auction houses collected taxes on transactions involving rice, exempting millet and beans, but still, a substantial amount of tax revenue was anticipated.
The grain price disparity between famine and non-famine areas also narrowed, thanks to the King's policy of publicizing prices.
The auction houses recorded and published grain transaction prices, and these prices were compiled in Seoul and distributed nationwide, showing the grain price trends at each auction house.
Even though it took about a month for the information to travel, given the limited communication technology, it was enough to attract merchants to areas with slightly higher grain prices.
Mountainous regions without easy access and cities like Seoul, with high grain consumption, still had prices twice as high as other areas. Yet, this was the best possible scenario in a pre-modern society without adequate transportation.
The traditional public tax system was also overhauled following the crackdown on corrupt merchants. Now, the government procurement was managed by the clerks (who often doubled as merchants) within each government office.
The clerks were responsible for purchasing goods from the three Han River ports. Although officials should ideally handle this, Confucian scholars refused to engage in what they considered undignified activities like trade or haggling, leaving the task to the clerks.
However, the quality inspection was now done by officials in temporary positions (Cheajik). If goods were of subpar quality or significantly overpriced, the clerks were held accountable.
To facilitate price transparency, prices for over 200 types of goods previously collected as taxes were recorded and disseminated nationwide.
In the past, merchants relied on word of mouth, and only a significant fluctuation of about tenfold in grain prices would alert them to potential profit areas. Now, Joseon’s commercial distribution network was advancing rapidly.
Despite nearly collapsing from overwork implementing the King’s reforms, the Ministry of Taxation officials were moved to tears by the success.
Even the disgruntled provisional clerks, who initially grumbled about their demotion, sought to secure their positions in the hope of eventual promotion to county magistrate roles (Roksa), thus reducing the overall workload.
With the good news compiled into an official report, the Ministry of Taxation delivered it to the King, praising his policies: "We never realized how beneficial money could be! We’ve been missing out on half our revenue until now!"
Yet, the King’s expression wasn’t as bright as expected upon receiving the report.
"Indeed, a bountiful harvest..."
Your Majesty, please don't. When you say things like this, it makes us anxious.
The Ministry of Taxation, familiar with the King’s mannerisms, began to worry. Historically, whenever the King wore that particular look, a deluge of new tasks would soon follow, often disproportionately affecting them.
"Until now, our nation reduced its spending and conserved resources during a famine. Only during bountiful years did we restore normal spending."
"Yes, that is correct. This year, with the bountiful harvest and the proliferation of currency thanks to Your Majesty’s printing presses, the value of currency has stabilized, and the populace widely uses it.
With this year’s grain tax expected to bring in 16 million jeon, considering the current grain prices, we can purchase around 2 million seok of rice in the southern provinces. This means that our revenue has increased tenfold compared to before the reforms.
As people have access to currency and can obtain it readily, we anticipate collecting the planned currency tax without issue."
"No, that's not it. Secretary, read this petition aloud."
It was a petition from Gwigyi, the merchant from Pyongan Province, who had come to Seoul to sell his millet but found the prices too low to make any profit. He pleaded with the King to buy his millet at a higher price.
Kyung-sik valued his work-life balance, so typically, such trivial petitions would be dismissed by the senior officials. But this one related to an issue Kyung-sik was particularly concerned about.
"What do you think of this petition?"
"The Treasury is conducting auctions to purchase grain, and Pyongan Province receives higher prices for military provisions. I do not see why we should address this particular petition.
Merchants sometimes reap great profits but also suffer significant losses from poor decisions. With Your Majesty’s policy of publicizing grain prices nationwide, the merchant’s decision to come to Seoul was his own, and there’s nothing to be remedied.”
"That may be true, but what about the other people?"
"The other people, Your Majesty?"
"Consider the current millet prices. How much is it now?”
The officials had spent the past year calculating grain prices daily. The latest millet prices were well-known.
“In Seoul, it’s about 4.5 pecks for 1 jeon.”
“And the land tax, how much is it in currency terms per gyeol (unit of land)?”
“10 jeon per gyeol if paid in currency. So, if a farmer pays in millet, how much do they owe?”
“…45 pecks.”
“In the southern provinces, where millet is 6 pecks for 1 jeon, that’s 60 pecks per gyeol. How much was the previous grain tax?”
“The previous grain tax was 4 pecks of rice or 6 pecks of millet per gyeol.”
“Doesn’t that seem strange to you?”
“….”
The officials were not fools. They quickly did the math, having observed the daily grain prices across the nation. This discrepancy was already known.
But...
“Our duties from Your Majesty have been so burdensome that we couldn’t thoroughly address these issues.”
They were simply exhausted.
The Ministry of Taxation had worked tirelessly over the past year, earning a reputation as the hardest-working department in Joseon.
Their only solace was the sight of the national treasury finally filling up after years of poverty.
Although they harbored suspicions like, "How can the treasury be full during a famine?" no one dared voice it, fearing to spoil the moment.
The King’s currency policy operated on a principle akin to modern credit currency, where the essence of money is debt.
Now, the time had come to repay that "receipt" issued for funding the state’s needs.
The tenfold increase in revenue when converted into grain wasn’t some magical trick. It reflected the fundamental dynamics of agricultural prices, which fluctuate based on supply.
In a bountiful year, supply increases, driving down prices. In a famine, supply decreases, driving prices up.
This year’s bountiful harvest meant the grain prices had plummeted, just as the time approached for farmers to pay their taxes in currency.
Farmers, accustomed to ignoring market fluctuations, simply harvested their crops and rushed to sell them at the market to pay their taxes.
This sudden influx of grain caused prices to drop sharply, and with a limited supply of currency, grain prices plummeted, resulting in an effective tenfold increase in the farmers’ tax burden when converted to grain.
In essence, the grain-to-currency exchange meant that farmers were paying far more in real terms than before.
Kyung-sik’s intent behind setting a fixed currency tax on land was precisely to prevent such drastic disparities.
A fixed currency tax allows the government to stabilize its revenue despite fluctuations in agricultural prices, shifting the risk onto the farmers. In a bountiful year, farmers bear a higher tax burden, and in a famine year, their burden lessens.
In historical Joseon, the situation was the opposite. During King Heonjong and King Cheoljong’s reigns, a system called "Dohyeol" began, where taxes were received in currency, but the amount was based on rice.
Local government offices collected taxes in currency and used that to buy rice to send to the central government.
Therefore, if a tax of 20 pecks per gyeol was levied, during a famine when rice prices soared, the currency tax also increased.
This system led to massive uprisings as people protested against the unbearable tax burden.
Compared to that, Kyung-sik’s reforms represented a fairer tax system, though he was still concerned.
Even Kyung-sik hadn’t anticipated the full extent of the price fluctuations, which saw agricultural prices swing tenfold within a year due to famine and bountiful harvests.
In school, he had learned that agricultural prices could vary greatly, but he hadn’t grasped the magnitude.
“The main issue lies with five provinces: Pyongan, Hamgyeong, Hwanghae, Gyeonggi, and Chungcheong,” Kyung-sik explained.
In these provinces, particularly in the northern regions of Pyongan and Hamgyeong, farmers practiced a two-year, three-crop rotation of millet, wheat, and beans. These crops, often considered less valuable, were now at extremely low prices.
These farmers faced a disproportionately higher tax burden when converting their crops to currency.
Hwanghae, Gyeonggi, and Chungcheong were areas where the government had provided substantial loans to overcome last year’s famine.
With the current grain price drop, even those with a bountiful harvest might struggle to repay their debts.
However, the rice-producing regions in the southern provinces faced fewer issues. Rice was worth three times as much as millet.
When converting the tax to rice, it amounted to roughly 20 pecks per gyeol, about 10% of the production. Without the debt burden from last year, these farmers were in a relatively better position.
This issue also tied into the concept of a currency-based tax system.
When taxes are paid in currency, people naturally seek to maximize the value of their produce. This could lead to a shift from millet to rice cultivation or the production of higher-value cash crops.
Such a system promotes economic growth and market exchange, driving a capitalistic development.
However, this was Joseon’s first attempt at implementing a currency-based land tax, and farmers hadn’t prepared for such a system.
The only ones who had swiftly adapted were the merchants like Yoon Hyo-jung and her community, who had sold rice all the way from Haenam to Chungcheong.
To address the issues faced by these five provinces, various solutions could be considered.
Some suggested forgiving debts or distributing money freely, but such ideas missed the essence of credit currency.
In a credit currency system, all money is essentially debt.
A credit currency system operates on the assumption that money is used as a medium for exchanging goods and services.
Therefore, the existence of money in the economy is intrinsically tied to either public or private debt.
For instance, if there are 30 million jeon in circulation, then the government might owe 16 million jeon, and the private sector owes 14 million jeon, or the government owes 20 million jeon, and the private sector owes 10 million jeon.
If the total debt falls below the amount of money in circulation, it indicates an imbalance and may trigger inflation.
In this advanced currency system, any such inflation could spell disaster, leading to the collapse of Joseon’s currency system.
To stabilize the currency system and alleviate poverty in the five provinces, the government needed to engage in transactions with the people, paying them for their services or goods.
Smiling, Kyung-sik concluded his explanation to the officials.
“Isn’t it fascinating? To prevent poverty, the government must actually receive something from the people.”
The burdensome tax system that once oppressed the people and discouraged production was ending.
Now, the people would be compensated by the government for their services, incentivizing productivity.
This simple piece of paper—the currency—could fulfill the needs of the people while allowing the government to receive even more.
Through this monetary exchange system, everyone’s welfare would increase.
Footnotes:
*1: This phenomenon, where farmers become poorer despite a bountiful harvest, is not unique to the fictional Joseon. Ancient texts like the "Guanzi," believed to be from the Warring States period, discuss similar issues. The term "Shukou" (熟荒), meaning "mature and wild," reflects this paradox. However, Joseon, which clung to ideals of self-sufficient agrarian society and did not fully understand market economics, found this concept alien.
*2: This explanation simplifies the economic concept of "base money," the amount of money issued by the central bank. In reality, modern banking systems allow for "credit creation," where the money supply can exceed the base money through lending practices. In this narrative, as Joseon lacks private banking, this complexity is deferred for later exploration.
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