Concerning paper currency, all solutions seem to have been tried now. How can it be rescued? The reason for the troubles is not that the use of currency inconveniences people. The reason derives from the fact that it should in principle be used in small quantities, while the current amount in circulation is large. The relative value of goods depends on their availability. If gold would be available everywhere, if it would be more plentiful than soil, and if the bark used to manufacture paper currency would be more difficult to get than gold, then the value of gold and soil relative to each other would be the opposite of what it is now. So, the issue is not that goods are expensive now in the empire, the problem is that there is too much currency and that the state is poor.

Those who are concerned with society say that they will reflect deeply on the poverty of the state and tackle the problem at its source. However, this is not what they have been doing. The unceasing discussions of higher and lower-level officials have all been focused on the policy to raise the value of paper money. How cheap!

Now, when the state is poor, it takes from the people. When the people’s resources are exhausted, the only thing left to do for the government is to economize drastically. Some participants in the debate now argue superficially that since internally there is this and that problem, we need to uphold the statutes, and that we have to strengthen our position because of this and that external problem. They add fees, but it does not suffice, and they do not know how to cut expenditure. Then, helplessly, they sit and wait for disaster to strike!

“The Regulations of the King” says, “If the state has no reserves for three years, this is turning one’s back on the state.” The original text says nine years instead of three. Liji, “Wang zhi,” in Shisan jing (Shanghai: Shangwu yinshuguan, 1914), 44. Mencius says, “If all three taxes are levied in full, families (fathers and sons) will be separated.” Cf. Legge, The Chinese Classics, vol. 2, 491. At present, the yearly income of the state does not cover the expenses of a full month. Yet, the government keeps printing more than one hundred thousand strings’ worth of paper money. This way, it can barely make ends meet. This is not just a case of having no reserves! The danger and desolation that this situation has brought about is much graver than what was described in “The Regulations of the King” and Mencius.

However, the scholar-officials are chanting the subtle words from The Great Learning about “extending knowledge” and “investigating things” haughtily and in harmony, and they speak very highly of the great plans to recover the land. This, my mind cannot grasp. Confucius said that government depended on the military, food, and trust. He argued that, of these three things, food and the military could be left out if need be. Why then can’t we cut our expenses?

During the Shaoxing (1131-1162) and Longxing (1163-1164) periods, society did not yet know how to make use of paper money. At the time, there was no deficit in the state budget and there was no hardship among the people. It has been less than seventy years since paper money began to circulate, but, because tax levies have been so extortionate, several prohibitions have already been issued. Now things have come to this extreme. Even though the empire is the same size as during the Shaoxing and Longxing periods, tax levies are double the amount levied then. Under these conditions, how can we afford not to delve into the causes for this!

Expenses have to be itemized. Among the expenses that have increased in comparison with the past, which are the most substantial? Exploitation and corruption have their causes. What kinds of malpractice have become most ingrained nowadays? What theories have given rise to extravagant waste? Which affairs have brought to light widespread malpractice? What policies can be used to remedy the current situation? If we want to economize now, how should we start? It is well-known, gentlemen, that you shoulder the study of statecraft. I hope that, in your answer, you will do your best to discuss the different points raised and to analyze them in depth. Make sure that your answer will be of benefit to your society. Do not engage in the non-sensical talk of bookish scholars that makes me sigh and grieve.

I, not gifted with a glib tongue, have been studying since I bound my hair, and have ambitions for this world. In my policy essay from 1217, I set out fully my rash thoughts. The former emperor did not reject me because of my foolishness, but passed me. I was given an assignment in the capital that exceeded the rank of my titular office. I came into conflict with the powerful and was sent off for a long time. I was ready to discuss my concerns about the current government and my worries about the emperor, but there was no channel for me to express my thoughts. I was resolved not to turn my back on the emperor and not to forget what I had learned, but I was not in a position to act. Unexpectedly, the situation turned around. I received an imperial order to sit for an examination at the Hanlin Academy.

In my reckless opinion, the honorable official has set out important contemporary issues with the hope that we discuss them separately and get at the bottom of the issues. However, the question does not go beyond the single issue of paper currency. How could it be that there are no matters more crucial than this one among the big issues of our time! Or, is the reason for this that there are differences of opinion among the high officials who have gathered at court in a debate on this issue and you would like to find a well-nigh impossible compromise solution that takes care of all the problems at once? I feel free to respond on the basis of something other than what I have heard.

I have learned that a rich state has a distinct shape and that an enduring state has a pulse. What is the shape? It is defined by the increases and decreases in the state budget. What is the pulse? It indicates the health of the body of the state. When we talk about state planning, we think about managing wealth. When we talk about managing wealth, we have to deal with paper currency. This represents the expedient policy making of later generations. However, scholars with a purpose and benevolent men have to give careful consideration to the fundamentals amidst expedient policy making.

Wealth exists in our universe. There are several expenses, thus, there must be an itemized list. We also have to distinguish between major and minor expenses. The illegal appropriation of wealth must have an origin. We also have to distinguish between the serious misappropriation of wealth and the lesser variants. If the expenses are small and the misappropriations insignificant, the government’s accounting will add up; if the expenses are large and the misappropriations serious, the check-up of the officials will run into problems. That the accounting adds up is the normal situation. If the check-up does not work out, we are faced with an irregular situation. We can discuss the normal situation in terms of increase and decrease; irregular conditions concern the major issue of order and disorder.

The official in charge of the examination was upset about the scarcity of paper money today. He observed that there are no reserves for three years as in “The Regulations of the King,” and that the situation is worse than the scenario, described in Mencius, in which three kinds of taxes are levied at the same time. He was moved to sighs and lamentations in his report. It is clear that he obtained his understanding of the history of the state budget in concentrated and deep reflection. However, in its discussion of the general regulations for state expenses in a period of thirty years, isn’t “The Regulations of the King” talking about the golden age of the Western Zhou? In his discussion of the three levies of cotton, millet and labor, isn’t Mencius talking about extreme conditions during the period of the Warring States? In Antiquity, people were not anxious to produce wealth, the state was affluent. Later on, three types of taxes were levied at the same time; yet, the state was poor. There must be reasons for this. A state is like a person’s body; there are various things that damage the body. Being lascivious is especially damaging. There are various things that drain the treasury, but militarist policies are especially wasteful. Waging war is like an axe that could cause harm to a person and poisonous weeds that could ruin a state. [An explanation comparing the differing conditions during the Western Zhou and the Warring States periods follows.] Therefore, even though 700 li of territory were lost, the levy on taxes and encouragement of production cannot wait. Even if there are 33 official casualties, it is not a thing to be angry about. However, if the granaries of the government are rich, but at the same time the old and weak are suffering, then it will definitely be something to be gravely disappointed about. So, from the perspective of those who are fond of utilitarian policies, Mencius’ words may seem very uninspired. However, those taking the pulse, diagnosing the symptoms, and attempting to remedy the serious condition of their rulers, even the likes of the famous doctors of Antiquity, Duke Cang and Bian Que, have been unable to change things.

The official in charge of the examination wrote that, currently, our annual income is insufficient for one full month’s expenses and that, in spite of this, we keep printing more than one hundred thousand strings’ worth of paper money. In the past I have also looked into the reasons for this. The manufacture of paper money began with the bills of exchange in Chengdu. During the peace, the bills did not amount to more than 150,000 strings. That was a very small amount. After the troubles on the western borders started, bills were printed in large amounts. Their value was already twenty times as much as during the peace. Afterwards, military exercises were held without stop and provisions were always short. The amount in circulation increased to more than 60,000,000 strings. At the end of the Daguan (1107-1110) reign, more and more money was printed. One bill was only worth one hundred gold coins. So, the use of paper money expanded as a result of our military problems. The decreasing value of paper money was an inevitable consequence of its wider use.

The beginning of Gaozong’s reign, after the move to the south, was chaotic. Zhang Cheng (?-1143) proposed to establish a service for paper bills in the provisional capital, but his proposal did not take effect. In the middle period of Gaozong’s reign, it was circulated and again taken out of circulation. Towards the end of his reign, a bureau charged with the printing of bills was established for the first time. Why did Gaozong attach such great importance to the printing of paper money?

By the Longxing (1163-1164) period, the first reign period of Emperor Xiaozong, paper bills were once more circulating throughout the empire. Shortly afterwards, a proposal by Chen Liangyou was adopted to the effect that money from the imperial treasury was used to retrieve paper bills. Not long after the order to retrieve the bills, Zeng Huai’s (1100-1172) arguments were heard and bills were put out once more. The amount was, however, limited to 200,000 strings. Why was Xiaozong so economical in the circulation of paper money?

Coming down to the present, the amounts are increasing every day, but the value is decreasing correspondingly. Measures intended to promote its circulation have the opposite effect. Orders intended to inspire confidence, end up raising suspicion. Consequently, prices are soaring, families are hit, finances are drained and loans are difficult to obtain. Thus farmers will be suffering. If the rates of custom duties are high, shops in large cities will have to close even during daytime, thus merchants will be suffering. If the wandering scholars all flock to the capital to seek profit as if it is what they cherish most, then scholars on their journeys will be suffering. If craftspeople have to move elsewhere to work or be frustrated by low salaries, they will be suffering at work. If the rates of custom duties are high, stores in large cities will have to close even during daytime, thus merchants will be suffering... Farmers, merchants, scholars and craftspeople all over the empire are suffering the damaging effects. Paper money was designed to convenience the people; now, it is causing them distress. Paper money was relied upon to support the state; now, it is leading to its decline. Authority was exercised by those on top; now, it is controlled below. Because real authority has been emptied out, we are now relying on a void and have lost real authority. Those who make plans for the state know the reasons for the fall of paper currency. The incursion into enemy territory during the Kaixi (1205-1207) reign was high treason. The amount printed in addition reached 140,000,000 strings. This was several times the amount before. More bills were issued during the Shaoding (1228-1233) reign when we depleted state resources by providing support to traitors. The amount then reached 290,000,000. This was double the amount of the Kaixi reign!

Officials who are concerned with the matter and scholars who discuss it have not dealt with the problems of high expenditure and far-reaching corruption. They change one order today, and modify another law tomorrow. It is just as if the Han officials Kong Jin and Sang Hongyang (152 BC-80BC) Kong and Sang were famous for their interest in managing wealth and promoting active government intervention in the economy. have reappeared on the scene. How come that the effects of their efforts are so elusive? It is because they do not go back to the root of the problems, but only regulate the side-effects. Throughout history, the wealth of the empire has been squandered on the military; this is not only the case today. The origins go far back. I would like to clarify this by using the example of the Han and Tang Dynasties...

[A discussion of the impact of military expenses on the budget during the Han and Tang Dynasties follows. The author contrasts the burden imposed on the people by the Han and Tang governments to the Song founders’ commitment to benevolent government. He illustrates in great detail the efforts of the first two Southern Song emperors, Gaozong and Xiaozong, to cut back on military expenses. He then attributes the current problems to the aggressive and wasteful government of Han Tuozhou (1152-1207) and Shi Miyuan (1164-1233), the two most powerful officials in the forty years preceding the time of writing.] (During the campaign to regain the north under Shi Miyuan) the empire’s resources were exhausted to provide for the army. It was only used to feed the exploitation of the common soldiers by the generals and to supply the amassed wealth of powerful families. By now, the soldiers and the common people are both driven to poverty, the public and the private sector are equally in difficulty. There has been no concentrated effort to provide support for them.

The total value of the paper money in circulation nowadays has, in comparison to 1219, increased to approximately 2,880,000,000 strings. Military expenses take up 50 to 60% of the total annual expenditure. Given that this is truly so, the army should be reliable and effective. However, the army is lax... The army is out of control... In their reports to the court, they (the military leaders sent to reclaim the north) distort the facts. Only one tenth of the real losses are reported. When they are fortunate enough to gain a victory, they receive enormous rewards. When they have the bad luck to lose a battle, the court bears the responsibility for the disastrous aftermath in their place. When they win, they exaggerate their achievements to take credit for the victory. Their superiors award them large amounts of money; they absolutely don’t dare to make cuts. When they are losing, they ask for emergency aid so that they can go to the court to report. Their superiors then give them large sums of money; they still don’t dare to economize. What is the benefit of this to those who are concerned with state affairs! The examiner asked, “Among the expenses that have increased in comparison with the past, which are the most substantial?” According to my argument, my answer to this question is that military expenses are the most substantial. To the question, “What kinds of malpractice have become most ingrained nowadays,” I respond, “The corruption in the army is the most serious.” Wasteful expenditure started at the beginning of the Kaixi reign. Its accumulated effects became evident after the Baoqing (1225-1227) and Shaoding reigns.

Isn’t there a policy to remedy this? In my view, if we want to raise the value of paper money, we have to begin by cutting expenses. If we want to economize, we have to begin by shrinking the army. The military has to be substantial but not excessive. Border incidents have to be stopped. In being frugal and keeping the value of paper currency high, we have to take the reigns of Gaozong and Xiaozong as our example. This is the foundation to restore the value of paper currency. [To clarify his basic argument, the author rebuts demands that the northern territories be recovered because the Jin Dynasty is on the verge of collapse. He argues that the government cannot afford a military campaign up north at this point, but needs to replenish its financial resources and strengthen the military before it can make long-term plans for the reclamation of the northern territories. He further suggests concrete ways to cut government spending. He advocates the cancellation of building and engineering projects and the rationalization of the bureaucracy through personnel and salary cuts. In order to retrieve excess bills, he proposes that all savings be recorded in registers, and that the central and local government deposit corresponding amounts of paper money in treasuries established for this purpose.]

I have heard that some court officials have asked that a land survey be held in all prefectures (to recollect paper money based on the amount of land owned by each household) and that a salt monopoly be established in the prefectures of Fujian Route. According to this proposal, a land-survey should be held and each household should return a certain amount of paper money based on the amount of land they owned. This amounted to the imposition of an extra tax. Before any orders had been issued, there was already a lot of confusion about this in the streets. If these measures were to be implemented, one can imagine the disturbance that will ensue. During the Jiatai (1201-1204) period when an order was issued that all old bills be exchanged for new bills on a ratio of two to one, the government was criticized for its untrustworthiness. Due to the strictness used in the collection of extra tax quotas, the empire suffered from the inhumanity of these policies. By giving a false meaning to “chengti”“to measure and to lift”, i.e., to adjust the relative value of currencies. While this term formerly referred to the adjustment of the value of the different currencies, monetary policies advanced during the Southern Song aimed to raise the value of paper money by imposing hidden taxes., they gave others reasons to denounce them. The empire was angered by the government’s dishonesty. If holding a land survey and establishing a salt monopoly were practical proposals, cruel ministers and officials at that time would have implemented them. Now within the realm there is a growing hope of revival, however it is yet to be fulfilled. Good policies should be implemented under this well-governed reign, not policies that were despised even by previous rulers and would lead to everyone’s disappointment.

If the land survey were indeed implemented, the propertied who can survive now would lose their occupation; while the rich would pay very little tax. Powerful local clans would conceal the truth, while the middle-class households would bear the brunt of the new levies. If larger households were formed by combining a couple of people, the poor would be driven to vagrancy when they have to pay the taxes in full. If several small households were derived from one larger family, the rich would find ways to evade taxation when the smaller households will not be charged. Because of the problem of the inequality between the rich and the poor, litigation won’t stop. This is why a land survey will cause disaffection among the people.

If a salt monopoly were indeed set up—those among the inhabitants of Dingzhou and Shaozhou who do not cultivate land are numerous. They rely on the profits of the salty soil to make a living. In past years, government officials and clerks have been competing with them too fiercely. The government and the population stood divided as enemies and order could not be easily reestablished. In the last year or so, the prohibition has been loosened, but calm has not been restored yet. If this wound were opened again, resentment will burst out all over. If the flames of cruelty were fanned again, who will be able to fight them?

[Instead of the proposals he just criticized, the author outlines four alternative measures. First, wealthy households should be forced by law to exchange their copper and silver for paper money. Their landed property should be registered accurately. Second, corrupt officials and clerks who profiteer from overcharging the people should be punished. Third, counterfeiters should be rounded up and executed. Fourth, the use of paper money should be expanded. In Guangdong, for instance, where people had become used to settle their commercial transactions with paper money, the government should allow them to pay certain taxes in paper money.]

All these suggestions imply no harm to the state and will not arouse the animosity of the people. The combination of these measures should do to realize the seemingly impossible project to solve the problems at once. However, even though I fully support the position taken by the examiner that we should not adopt a policy of border warfare but plan loyally for the state; I do not understand why he finds the teaching of “the extension of knowledge, the investigation of things, the rectification of the mind and making thoughts sincere” irrelevant. In the mind of the ruler all principles converge, all transformations spring forth from it. [The author cites examples illustrating the impact of the emperor’s moral condition on the course of history, such as emperors Xuanzong of the Tang (685-762; r. 712-756) and Huidi of the Jin (259-307; r. 290-306).] I believe that the spiritual power of the mind cannot be deceived. As soon as one thought slightly deviates, a host of perverse thoughts get mixed in. Exhausting the people’s energy on palace compounds, this is in fact caused by the mind’s conceit. Robbing people of their lives by sending them to war, this is in fact caused by hatred in the mind. Li Hang (947-1004) put it very well! He said, “The people’s sovereign should be aware of the hardships all over the empire. Otherwise, when his vital energy stiffens, he will either fix his attention on music, women, dogs and horses, or become absorbed in construction projects, war, and sacrifices.” This truth explained the importance of the emperor’s conduct, and brought about the rectification of the emperor’s mind. The Great Learning speaks very sincerely about the creation of wealth, explaining how wealth can be used to express one’s humanity and how rightness can be relied upon to gain righteous profits. How can one say that “rectifying the mind and making the will sincere” has no bearing on wealth!

[The author welcomes the very recent recognition of “the teaching of the rectification of the mind” at court. He notes, however, that recent incidents provide evidence that the commitment of high officials and censors to this teaching and the promotion of its advocates remains shaky.] So, those, resembling Yang WeiA Northern Song official who became famous for shifting his allegiance back and forth between members of Wang Anshi’s reformation party and the opposing Yuanyou faction., who are going back and forth between the position of the morally superior and that of the morally inferior, take this (the impatience with advocates of moral reinvigoration who have been put in charge but have not yet been able to bring about major changes) as an opportunity to gossip among themselves. They say, “After the adoption of Confucian learning, the empire should become affluent. Their learning has now been adopted, but the markets offer a desolate scene and the ambiance is gone. Where can we see affluence? When virtuous people are promoted, the court should gain respect. Virtuous people have now been promoted, but our foreign enemies are acting up and rebellious folk are rising. Where are the signs of respect?” Even though men of superior moral character have been promoted, their way has not yet been put in practice. Even though the morally inferior have been stopped, it remains difficult to have them reform their minds.

In the past, Lü Gongzhu (1018-1089) recommended Fan Zhongyan (989-1052) and Fan Chunren (1027-1101) for positions in the Censorate. Zhang Zihou (1035-1105)i.e. Zhang Dun presented a memorial arguing that nominating high court officials to the Censorate was not in accordance with the principles of the founding fathers of our dynasty. This shows that a morally inferior man can speak the words of a morally superior. How can we assume that there aren’t any who are backbiting now? Sima Guang (1019-1086) canceled Wang Anshi’s (1021-1086) policy of hiring clerks and reinstituted the system of commissioning subordinate personnel. Under Cai Jing’s (1047-1126) administration, this system was fully implemented and Sima Guang would have been pleased by it. This shows that a morally inferior official may welcome the ideas of a morally superior man. How can we tell that there aren’t any people like this now? Fan Chunren wanted to restore Wang Anshi’s Green Sprouts ProgramUnder this program the government used its granaries and treasuries to make low-interest spring loans of seed grain and food to farmers, repayable in the fall., because of the state’s insufficient income. This shows that a politician of high moral stature will not fail to adopt the strengths of a morally inferior one. Such things now manifest themselves in rapid succession. We could compare it to a chess game. Even though the situation has changed, some tricks inevitably stay the same as before. This is why the morally inferior cannot be made to change their minds and why the morally superior cannot be too lenient with themselves.

I wish that the high officials resolve to speak up for fairness, that the censors will take up their responsibility to protect the truth, that the people of all other occupations apply themselves with care and loyalty. We are in the same boat and should plan to make it together; We are pushing the same cart, and should focus on making it roll. This way we can make sure that our dynasty will be respected just like the nine cauldronsThis is the symbol of legitimate rulership. and that our state will be at peace like Mount TaiThis is the symbol of stability.. This is the hope of the whole realm and the main focus of morally responsible people. Otherwise, when a disaster strikes, the morally responsible may be unable to fulfill their duty. And when those presiding over state affairs are preoccupied with financial gain, morally inferior people may take the opportunity to sell their views. This shows that the budget deficit is definitely not the only matter to worry about! The Book of Songs has it, “My heart is troubled. I don’t have the leisure to lie down and rest.”Cf. Legge, The Chinese Classics, vol. 4, 338. I cannot overcome my anxiety.