Chapter Fourteen: The Money House and Ill-gotten Wealth

Having made up his mind, the next step was to work out the details of execution. Sharing a drink with Old Wang and a few others was hardly conducive to quiet contemplation, but as the chief steward of the Zhen household, Wang Qun was a tremendous help to his plans—though with so many people present, it was not the time to probe deeply. It was not that Zhen Qian distrusted the others, but rather that the fewer people knew of the plan beforehand, the less likely it was to leak out inadvertently.

The elders like Wang Qun never had the habit of eating lunch; nibbling on some dishes and sipping wine was enough to keep them content, and they regaled Zhen Qian with tales of the world beyond the Zhen estate.

From Wang Qun’s words, Zhen Qian learned that the annual income of the Zhen household amounted to some ten or twenty thousand strings of cash, not including the yields from several hundred qing of land. Only then did he truly grasp the meaning of a great house with vast enterprises.

Yet, the expenditures were equally impressive. The upkeep of his own courtyard alone came to over seven or eight hundred strings a year; considering the three or four hundred people in the Zhen estate, the daily expenses alone reached over ten thousand. If one added the costs of hospitality and social obligations, even this substantial income felt a little tight.

“So, the most lucrative business for the Zhen household is the money exchange?”

Zhen Qian had initially assumed that land was their main source of income, but to his surprise, the money exchange brought in five or six thousand strings each year.

“Of course!” said Wang Peng before Wang Qun could reply. “Money exchanges are in the business of making money with money. If you lend out a string of cash, by year’s end you get back one point seven or eight with interest. If a wealthy household is desperate for funds, compounding the interest yields even greater returns. If it weren’t for the government running its own lending operations, the money exchange would be even more profitable!”

Zhen Qian’s eyes nearly popped out of his head. Wasn’t this just usury by modern standards?

No, it was far worse than usury of later times. In modern days, annual interest rates of fifteen percent would be considered extortionate even through official channels, while loan sharks charged forty or fifty percent at most. According to Wang Peng, usury in the Tang dynasty reached seventy or eighty percent per year, and even that seemed insufficient. Zhen Qian could almost bite his own tongue in disbelief.

In his previous life, Zhen Qian had worked in financial investment and had dabbled in every type of business. He fancied himself versed in both ancient and modern ways, and with capital in the tens of millions, he naturally outclassed the illegal lending companies he’d heard of.

After Wang Qun’s explanation, Zhen Qian finally understood how high-interest lending worked in the Tang dynasty.

During the Sui and Tang dynasties, the government created a fund operated by official agencies to finance public expenses and pay officials, known as the "public office capital." In the early Sui, both the capital and the provinces established such funds, lending them out for commercial purposes and collecting interest for public use. The Tang inherited this system; from the first year of the Wude era, the public office capital was managed by clerks—each bureau had nine, called "money-collecting clerks," and those of sixth rank and below were called "money-collecting sons." Each was responsible for fifty strings or more, paid four thousand in monthly interest and fifty thousand a year, which became the salaries of capital officials. Those who delivered the interest on time for a set number of years could participate in the imperial examinations for government positions.

Local prefectures and military garrisons also set up such funds, managed by clerks, to cover food expenses for minor officials and pay for their salaries.

In the early Tang, the interest from these loans was one of the main sources for officials’ salaries. The government charged seven percent monthly interest, so private lenders could hardly charge less. Such high rates made the money exchange’s lending operations immensely profitable.

It was shocking to learn that the government itself was engaged in this kind of rolling-interest lending, officially sanctioning what amounted to usury. If Wang Qun hadn’t explained it, Zhen Qian would never have believed it—the court actually competed with the people for profit, and at such exorbitant rates!

But Zhen Qian found this utterly delightful.

This wasn’t just interest—it was as if one had a license to print money! Of course, such high interest meant that only those truly desperate would borrow, which was why Wang Qun said most of the profit ended up in the hands of the government.

“This lending is certainly a rich source of income, but if, as you say, government takes most of the profit, then is the money exchange really as lucrative as you claim?”

Wang Qun, well aware that Zhen Qian had forgotten much since his illness, patiently explained, “The money exchange does more than just lending. There’s currency exchange, deposits, remittances, and more—these are just part of its daily business…”

Zhen Qian, surprised at the breadth of these operations, asked with interest, “Could you tell me more, Uncle Wang?”

“If you’d like to hear, I’ll gladly explain!” Wang Qun took a sip of wine. “Let’s start with currency exchange. Ordinary people usually have only copper coins or silk, and silk is hard to store and not safe at home, so they bring it to the money exchange to trade for coins. The fee for this is five percent. If someone brings in gold or silver, they exchange it as well, at a three percent fee—and the purity must be assessed, which adds another charge. When traveling, carrying copper coins is cumbersome, so people exchange them for draft notes valid in different regions, which again incurs a fee. All these services are profitable for the money exchange!”

Zhen Qian swallowed hard, feeling his mind reel. It wasn’t that he couldn’t understand, but rather that it was all so astonishing.

He pictured the money exchange as a great devourer of gold; whatever service you needed, you had to pay a hefty fee—whether exchanging copper for silver or vice versa, every transaction cost you. Even storing your money there incurred a fee. Wasn’t this the legendary beast that only takes in but never gives out?

“This… this…” Zhen Qian was at a loss for words to describe the Tang dynasty’s money exchanges.

From Wang Qun’s words, it was clear that the money exchange was the main source of the Zhen family’s wealth—money simply flowed in. Such a lucrative business made Zhen Qian’s eyes turn green with envy.

Seeing how absorbed he was, Wang Qun lowered his voice: “What I’ve mentioned so far are just the legitimate operations. In truth, the money exchange has an even more profitable secret, one every owner knows well: minting debased coins.”

“Debased coins! You mean privately minted copper coins?” Zhen Qian’s mind raced. He glanced at the others, but saw no shock on their faces—which startled him anew. Had private minting become common knowledge?

Wang Qun nodded. “Exactly, Master. Debased coins are simply privately cast copper coins. There’s nothing particularly shocking about it—everyone does it, but no one talks about it. Every money exchange secretly mints its own copper coins and circulates them in the market for profit.”

Zhen Qian still had questions. “If everyone knows about debased coins, why do people still use them? Doesn’t the government intervene?”

“They do! Of course they do! But can they really control it?” Wang Qun’s tone was relaxed, quite unlike his earlier caution. “The authorities know, and so do the common people. If you can trade ten official coins for eleven debased ones, who wouldn’t? As long as no one uses debased coins to pay taxes, the government simply turns a blind eye. In the markets of Zhen Ding, it’s rare to see official coins at all!”

“Bad money drives out good!”

Zhen Qian recalled what would later be termed Gresham’s Law: when two currencies of different intrinsic value circulate at the same legal rate, the higher-value currency (the ‘good’ money) will be hoarded or melted down, while the lower-value (‘bad’) money floods the market.

In the fifth year of Emperor Xuanzong’s reign, measures were taken to suppress private minting. Song Jing, a senior statesman, petitioned for a total ban on debased coins. The following year, all debased coins were ordered destroyed and replaced with new coinage. For a while, the quality of currency improved, and prices fell. But a few years later, debased coins once more became common. County officials forbade people from offering a premium for good coins, and both circulated together. Wealthy merchants and unscrupulous dealers hoarded good coins and secretly shipped them south, where they could exchange each for five debased coins, passing them off as official money for private gain.

Throughout the Tang dynasty, private minting persisted for many years. Its prevalence stemmed from several causes, chief among them the government’s policy on copper mining. According to the Tang Code, anyone could mine copper or iron and simply pay the tax; only pewter was monopolized by the state.

The government taxed private copper mining but did not force miners to sell their product to the authorities, permitting free trade instead. As a result, most copper ended up in private hands, fueling the rampant private minting and the spread of debased coins. Though the authorities repeatedly issued bans, enforcement was ineffective. By the twenty-second year of the Kaiyuan era, Zhang Jiuling even proposed abandoning the ban altogether.

Wang Qun continued, “Business in the money exchange is complex, not easily summed up. Gold and silver are not permitted for ordinary transactions, yet large deals would require vast sums in copper coins. Many foreign traders don’t trust the exchange’s draft notes, so they secretly use gold and silver for payments. Moreover, copper coins can be melted down to make vessels or Buddhist statues, earning enormous profits. The same holds for gold and silver ornaments. If everything were strictly prohibited, unintended consequences would result—sometimes it’s better to let things take their course…”

Wang Qun’s explanation gave Zhen Qian a general understanding of Tang dynasty finance. Unlike the Ming and Qing, which relied heavily on silver, the Tang and Song lacked sufficient gold and silver for large-scale trade, leading to peculiar phenomena like silk and cloth serving as currency. Though he was not particularly enamored with the money exchange, Zhen Qian saw a business opportunity. These institutions were in fact the forerunners of modern national banks—concentrated, powerful, and advanced for their time. Not to get involved in such a familiar yet undeveloped version of China’s earliest banks would be utterly unreasonable, almost a crime against heaven itself.