King of Commerce, Yeonsan-gun CH.18
New Deal Part 2
In the latter period of Joseon, when the Sangpyeong Tongbo currency was in circulation, a phenomenon known as jeonhwang (錢荒) occurred, which refers to a severe shortage of coins and consequent deflation.
Joseon, lacking sufficient copper resources, struggled to mint enough coins, no matter how hard the government tried to meet the demand. The resulting rapid increase in coin value led people to hoard them, exacerbating the shortage.
Kyung-sik’s reforms in Joseon faced similar challenges. With an underdeveloped financial market, bottlenecks in money flow were inevitable, most notably during the initial issuance of paper money.
However, there were two key differences from the jeonhwang of Joseon’s later period.
Firstly, in Joseon’s later period, the Dangbaekjeon coin was created in an attempt to address such monetary shortages. Despite its eventual failure due to poor supply control, Kyung-sik’s administration initially issued a variety of paper currency denominations ranging from 1 to 100 mun. Moreover, because these were issued as loans, the supply could be controlled by adjusting interest rates.
Secondly, unlike Joseon’s struggle to mint enough coins due to a lack of copper, Kyung-sik’s Joseon had developed printing presses. When the supply was insufficient, more currency could be printed. If the production of paper lagged, higher denomination notes, like the 100 mun note, were printed more extensively. This adjustment aligned with the fixed tax rate of 10 jeon per gyeol of land(*1).
The rapid increase in currency supply naturally led to a decline in its value.
Thus, many people found themselves “stuck.”
While much of the nobility in the capital had the foresight to invest in paper currency when its value was surging, the abrupt depreciation left many holding significant quantities of now less valuable currency.
In the historical Joseon, the primary investment strategy was speculative hoarding. As soon as signs of declining currency value appeared, the prudent move would have been to sell off the paper currency and switch to physical goods.
However, following the king's crackdown on hoarding, which resulted in the severe punishment of Hoarding Lord Yoon Eun-ro, few dared to engage in such activities again so soon.
While some astute nobles had already shifted to “new investments,” many were still hoarding their currency at home, waiting for a better opportunity.
The new investment opportunity that emerged for them was the purchase of Nabjeoncheop.
“Line up, everyone!”
“Hey! Why are you pushing to get to the front?”
“Do you not recognize us? We are from the household of Lord Papyung, who is eager to contribute to the nation. Shouldn’t we be given priority?”
The bonds were being issued in denominations of 1,000 jeon. The aim was to draw out the hoarded wealth of the affluent, hence the high-value denominations.
Despite this, the demand was overwhelming, with some wealthy individuals buying up tens of bonds at once.
“We initially planned to sell Nabjeoncheop in Pyongyang and Jeonju as well, but given the significant uptake in Seoul, we may not need to,” reported the Pyeongjundo Gam (the Treasury Department).
Originally, 3,000 bonds were to be sold in Seoul, with 1,500 each allocated to Jeonju and Pyongyang. However, the stock in Seoul quickly ran out.
Kyung-sik was surprised.
‘…Did Seoulites have this much money?’
Unbeknownst to Kyung-sik, Joseon had already accumulated substantial wealth. The phrase “unprocessed cloth thousand-dong” was often used to describe the wealth of affluent individuals.
A dong is a unit for counting fifty bolts of cloth, meaning some wealthy households stored as much as 50,000 bolts of cloth. Even by contemporary currency standards, a bolt of fine cloth was equivalent to about 5-6 jeon.
This meant that a prosperous Seoulite might have an equivalent of 250,000 to 300,000 jeon worth of cloth stored away.
Additionally, successful merchants often transported cargoes of up to 1,000 seok of rice at a time. Even at the current deflated rice prices, this was worth over 11,000 jeon.
‘Joseon’s financial capacity is far beyond what I imagined. If we can tap into this wealth effectively, we could achieve something remarkable.’
Joseon was only beginning its financial journey, but Kyung-sik was already envisioning a leap towards capitalism.
The construction projects targeted three main objectives:
First, building storage facilities and establishing proper grain auction markets at the warehouses (jochang) in all regions except Jeolla, Gyeongsang, and Gangwon.
Building storage at jochang was a long-standing desire of Joseon officials, and though it seemed ironic to do so just as the rice tax (seokgong) was being phased out, it was necessary.
Second, establishing auction houses similar to those in the Han River tri-bays in Pyongyang’s Daedong River ports.
As demonstrated by the case of Gwi-ji, the most crucial trade route within Joseon linked Pyongan Province and the southern regions for the trade of cotton goods, with Pyongyang serving as a central hub.
Repeated petitions from officials had highlighted the issue of merchants transporting grains from Pyongan to Seoul, depleting local reserves. Kyung-sik had addressed this by boosting grain prices in the northern regions through increased monetary supply, easing concerns about local shortages.
Establishing auction markets in Pyongyang and distributing funds to raise local prices would increase resident incomes and ensure ample grain reserves.
Third, revitalizing the private economy.
This involved hiring local residents, especially tenant farmers, as wage laborers for the construction projects near jochang, and in towns and counties.
Additionally, grain would be purchased from poor farmers at slightly above market rates to fill the new storage facilities.
This policy was sensible and straightforward by Joseon standards.
“This is my plan to enrich the nation and improve the lives of our people. I expect the officials to implement it diligently.”
However, not all officials were convinced.
An official from the Ministry of Justice raised a concern:
“Your Majesty, since the beginning of your reforms, the national treasury has indeed been abundant. Yet, despite the implementation of auction laws at the Han River tri-bays, prices in the capital remain high. Establishing similar markets in Pyongyang will surely increase local prices, burdening the populace. Furthermore, as more people pursue profit, farmland will be abandoned, and the population will flock to the markets. Can such prosperity for the state truly be sustainable?”
Hong-sik, a former Daejeong official, spoke up. He, like many, was steeped in the agrarian-centric economic views of Neo-Confucianism.
In the short term, price increases were to be expected.
The establishment of these markets was merely a formalization and exposure of existing commercial activities. Since these markets only made demand visible without increasing production capacity, prices naturally rose.
Unlike the rapid success seen in setting up the markets within a year, increasing production capacity would require years, perhaps even decades, of investment.
‘But unless I present a logical argument that breaks away from their agrarian economic views, these commercial policies won’t last long. Even if my policies continue for a short time after my death, without understanding the reasoning behind them, they may veer off course or be abandoned.’
Thus, Kyung-sik decided to reveal once more his true otherworldly knowledge.
Imagine a country with 10 people and only two types of goods: iron and rice.
Each person can produce only one type of good, and one person produces two units of their chosen good. Everyone needs one unit of iron and one unit of rice.
“In this case, if 5 people produce iron and 5 produce rice, the country can prosper,” Hong-sik replied, as if it were obvious.
This level of economic understanding was common even in pre-modern times.
Despite their failures in economics and currency, Joseon’s scholars weren’t as ignorant as some fantastical elf-like beings who couldn’t grasp basic concepts.
Hong-sik continued, feeling confident.
“That’s why the heavens divided the people into four classes:
The scholar (士) governs various affairs, the farmer (農) cultivates the land, the artisan (工) handles crafts, and the merchant (商) facilitates the exchange of goods. These roles must not be mixed.
But with the rise of markets, more people pursue profit, abandoning farming and leading to the neglect of farmland and the disruption of social order.”(*2)
“However, is our country truly in a state where ‘5 people make iron and 5 people grow rice’? Is our country prospering?”
The room fell silent. No one could deny Joseon’s pervasive poverty. The historical records were filled with lamentations about the nation’s impoverishment.
The “vicious cycle” of needing storage to collect taxes but lacking the revenue to build such storage had persisted for decades.
And the king who broke this cycle was the young King Kyung-sik.
In matters of governance, even the senior officials felt embarrassed to challenge this young king.
“Our country is more like ‘2 people make iron and 8 people grow rice.’
The nation has four units of iron and sixteen units of rice. Those who produce iron have excess to sell but need only two units of rice.
However, farmers need eight units of iron. Should they only give one unit of rice per unit of iron? They must compete, driving the price up. Even if they offer eight units of rice, they cannot afford it.
This explains our country’s poverty and why so many abandon farming.”
“Your Majesty’s explanation is sound, but currently, the number of artisans has not increased. Only those chasing profit in trade have.”
Kyung-sik sighed inwardly. It was time to reveal the modern economic principles.
A common misconception, even among modern people, was the belief that commerce was merely the transportation of goods.
Some even misinterpret the economic development of late Joseon as driven solely by surplus production from increased productivity.
But that’s not the case. Trade inherently increases productivity, even in places without exceptional resources. Desert city-states thrived through trade, not through agricultural bounty.
Joseon was no different.
Reflecting on how markets in Naju and Muan had helped overcome famine during King Seongjong's reign confirmed Kyung-sik’s understanding.
‘How could markets in famine-stricken Naju and Muan have solved the food crisis?’
The answer was simple. Commerce itself generates productivity.
Consider this example.
Two countries, A and B, each produce two types of goods: textiles and wine.
In Country A, producing one unit of textiles costs 70 units of effort, and one unit of wine costs 110 units of effort. In Country B, producing one unit of textiles costs 90 units of effort, and one unit of wine costs 80 units of effort.
The solution is clear.
If each country produces both goods, A’s total cost is 180, and B’s total cost is 170.
However, if A focuses solely on textiles and B on wine, A’s total cost drops to 140, and B’s to 160. Both benefit from trade.
This is the principle of absolute advantage, which everyone can understand. Even Joseon’s scholars, who generally scorned trade, recognized its necessity for balance.
But what about this scenario?
In Country A, producing one unit of textiles costs 100 units of effort, and one unit of wine costs 120 units of effort. In Country B, producing one unit of textiles costs 90 units of effort, and one unit of wine costs 80 units of effort.
Here, B has an advantage in producing both goods, seemingly negating the need for trade.
However, the calculations tell a different story.
If both countries produce both goods independently, A incurs a total cost of 220, and B, 170. But if A specializes in textiles and B in wine, A’s total cost drops to 200, and B’s to 160.(*3)
By this point, the officials' perspectives had shifted.
‘Simply by engaging in trade, there is profit!’
‘How can this be possible?’
Even Hong-sik, who had been staunchly opposed, found himself without a counterargument.
“This is the principle by which merchants transporting goods can enrich a nation.”
This principle, discovered by the British, paved the way for the Industrial Revolution.
“In the future, any official who wishes to challenge my governance reforms should come to the Gyeongyeon (the Royal Lecture Hall) and debate with me.
Has any of you, while receiving your salaries from the court, managed to make the national treasury more abundant than I have?”
With this challenge, the Gyeongyeon session, where the king imparted his knowledge to the officials, concluded.
Kyung-sik’s internal “New Deal” utilized the government’s existing structure for its implementation.
After a year of sweeping reforms, the expanded government machinery was finally put to good use.
For labor, the 8-gyeol per 1-bu system was employed, where one laborer was recruited for every eight gyeol of land.
In a small farming village, 48 individuals (or eight households each with 1 gyeol of land) would collectively provide one laborer for public works.
For large landowners with 40 gyeol of land, they would send five laborers, typically their household servants, to fulfill their duty.
However, this New Deal’s primary aim was to funnel money into the hands of poor tenant farmers, not wealthy landowners.
An official from the Gongjinchang (Public Granary) visited villages to recruit laborers for the public works.
“Are you the I-im (village head) here? I recall providing your village with paper money earlier this year. The government plans to undertake public works this autumn.”
The mention of public labor made I-im Kim Geom-dong shudder.
What had the government done for the people?
During last year’s famine, they provided pieces of paper instead of grain and even recorded the distribution as loans, adding to their debt.
Though merchants eagerly bought the paper money, ensuring some means of survival, Kim Geom-dong knew he would need to acquire more of this “paper money” to pay the coming year’s taxes.
After the harvest, he found that even offering two seok (60 mal) of grain couldn’t buy 10 jeon worth of paper money.
Given the looming tax payments and outstanding debts, the thought of public labor felt like another insurmountable burden.
Kim Geom-dong lamented to the official, pleading to be exempt from the labor duty.
“The government will pay 40 jeon per month to each laborer for this project.”
“We will bring the entire village to help.”
Suddenly, the government’s intentions seemed more favorable.
“No, no. You need to prepare for winter. Who will tend to the cattle if the whole village is gone?”
“Even as humble farmers, we understand loyalty. Our children and women recite the Five Relationships as diligently as any scholar-”
“Look, we don’t need that many people! Are you seriously considering bringing even the children and women?”
“We really want to go!”
“We don’t need that many!”
After much persuasion, three skilled laborers from the village were finally recruited to work on the Gongjinchang construction.
Similar scenes played out in other villages. The promise of “40 jeon” led to enthusiastic responses and long lines of volunteers.
For tenant farmers and poor laborers, 40 jeon was a significant sum. Even in Seoul, a bolt of fine cloth cost about 5 jeon, which was often too high for daily transactions.
This 6-million-jeon project was slated to be completed before winter set in, within two to three months.
Hence, the estimated labor force was about 50,000. The clarity of budget and cost calculations was another advantage of using money.
The project, aimed at providing substantial financial relief to the people, saw a flood of volunteers eager to participate.
About 50,000 individuals across five provinces eagerly enlisted to fulfill their duties, showcasing the remarkable loyalty of the Joseon populace.
*1: In Chapter 7, Isekai Warrior Park Kyung-sik, it’s mentioned that a variety of denominations would be issued: “1 mun, 5 mun, 1 jeon, 5 jeon, and 1 nyang.” The land tax is 10 jeon per gyeol, making it straightforward: one nyang note covers the tax for one gyeol of land. The text simplifies this by using jeon for consistency, though in practice, various denominations would be used.
*2: The quote is from the Annals of King Seongjong on April 15, 13th year, where Saheonbu Daesaheon Chae Soo discusses the four-class system. The early Joseon period saw Neo-Confucianism solidify, strengthening the class system and creating the stereotypical disdain for merchants and artisans. Interestingly, the Joseonbu (朝鮮賦), a book written by visiting Ming Chinese, notes this disdain as a unique trait of Joseon, suggesting that this aspect of Confucianism might not be as deeply ingrained as believed.
*3: This theory is David Ricardo's comparative advantage, a foundational concept in economics. Although counterintuitive, it remains one of the most significant principles in economics, explaining why trade can be beneficial even when one country holds an absolute advantage in all areas. Despite Joseon’s common belief that trade would only deplete resources, Kyung-sik uses this principle to transform the nation’s economic landscape.
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