Chapter 700 — On Currency

"I couldn't think of any other name. Surely I wasn't going to slap a layer of silver foil on our house and call it 'New Silver Castle,'" he said with a chuckle and a shake of his head. "A name is just a label; all it needs to do is let people grasp the meaning at once. Even if it sounds characterless at first, once everyone's used to it for a few years, they'll take it for granted."

"Actually, there's nothing wrong with Cecil Palace," Hetty said, the corners of her mouth turning up slightly. "But at the meeting the day before yesterday, Gordon raised a point—whether this 'palace' needs to be expanded, or simply rebuilt once and for all. It's still perfectly serviceable, but as a palace, its scale is really rather disproportionate..."

Gaoyang shook his head. "No need. You said it yourself—this mansion is still perfectly serviceable, and there's no need to expand it. Its scale already seems large to me; in terms of ground area alone it's no smaller than a small castle, and it's still new. To rebuild it merely for the sake of grandeur would be to waste precious financial, material, and human resources—so many cities and roads on the Holy Spirit Plains haven't been rebuilt yet."

"I knew you would say that," Hetty said helplessly. "But as far as an empire is concerned, the imperial family's palace is not merely a place to live—it is also a functional facility for the imperial household's official business and for part of the government machinery, and all the more a symbolic mark of the nation's strength and dignity. You must consider that too."

This time Gaoyang thought it over seriously, and said slowly, frowning as he did: "There's something in what you say. As the Supreme Administrative Hall grows in scale and the organs that run the empire are reorganized, some offices will have to be moved here... But that isn't something to be done immediately, and even when it is done, it won't immediately exceed this mansion's capacity. We can make some plans for expansion in advance, but as for actually carrying it out—let's wait a while. At least until we no longer have to worry about so many people on the Holy Spirit Plains going hungry."

Hetty lowered her head. "Yes, I understand, Ancestor."

Gaoyang gave a murmur of assent, then went on: "How is the 'new currency promotion' that Patrick is leading?"

"It's gone fairly smoothly at the several pilot sites. Relying on the Administrative Hall's call and the considerable prestige you yourself carry, the people are able to accept 'paper money' as a proper token for everyday transactions—but most have not entirely given up traditional metal currency, and regard the paper money merely as a convenient supplement. Additionally, according to the survey visits, some small merchants regard the 'paper money' as a special kind of 'contractual token'..."

Gaoyang raised his eyebrows. "A contractual token?"

"Yes—like a receipt for a loan, or a receipt for exchanging gold and silver. They believe the paper money is a proof of wealth issued by the 'bank,' that every note is an IOU, and that this IOU can buy things because the IOU can ultimately be used to exchange for gold and silver at the bank..."

Listening to Hetty, Gaoyang could not help but sigh softly. "...In the end, we've still come to this stage."

"By 'this phase,' do you mean representative money?" Hedy asked curiously. "Is there something wrong with it?"

"Exactly—representative money, the very scheme Padrick is trying out. Every banknote corresponds to verified gold and silver; the total volume of currency in circulation depends on the amount of precious metal the banks hold in reserve... A plain and simple monetary rule, but it has plain and simple flaws as well," Gao Yang explained earnestly to the curious Hedy. "Its greatest hidden danger lies in this: factories can multiply the total wealth of society many times over, yet the pace of mining and producing gold and silver is finite, so the money available for circulation is finite too. The scale of investment and trade will be constrained by the amount of currency the banks can issue... and in the end, a contradiction takes shape.

"Once the contradiction between society's total wealth and the volume of currency issued sharpens past a certain point, there may be two consequences. Either development stagnates—industry enters a winter, the economy begins to contract, because in social development there is no standing still: not forward means backward. Or the banks are forced to overissue debt-backed tokens. Whatever form these debts take—special currency, bonds, what have you—they will all cause the value of money circulating in society to far exceed the value of the precious metal held in reserve.

"And once this process begins, it will not stop. After it worsens to a certain degree, the slightest social unrest—the people wanting to exchange the representative money in their hands for gold and silver—will plunge our economy into disaster... because the gold and silver held in reserve across the entire banking system will long since have fallen short of the total wealth produced by industry, to say nothing of the number of banknotes in the people's hands. Unable to redeem the representative money, even the mightiest empire could collapse overnight."

Gao Song explained as plainly and accessibly as he could, and Hedy was no fool. Having been exposed to the various new policies for so long, she grasped the workings of the whole chain almost at once, and her expression darkened in an instant: she realized this was a trap with virtually no solution.

So long as the population kept growing and people's needs for survival kept rising, society had to keep developing; and so long as the factories kept running, the pace of social development was bound to far outstrip the rate at which precious metals such as gold and silver increased. "Paper money" directly exchangeable for a fixed quantity of gold and silver would inevitably fall behind the growth of social wealth.

So long as this contradiction emerged and accumulated to a certain stage, one of two choices had to be made: stagnation and regression, or overissuance of currency.

Whichever was chosen meant disaster.

Yet if monetary reform were not carried out at all... one would likewise face the trap of stagnation—and in this world, far from peaceful and stable, that too was a disaster.

"When Padrick reported these matters to me, he looked deeply troubled," Hedy said slowly, frowning. "He said that while working out the circulation of money, he had a vague sense that there was a fatal problem lurking in it, but he could not pinpoint it... Do you think what he sensed was this trap?"

"He actually noticed it?" Gao Yang's eyes widened in astonishment, but he quickly recovered his calm and composure. "Well... these laws were summarized by people in the first place..."

"This 'trap' is too terrifying," Hedy said, still shaken. "Is there truly no way to solve it?"

"There is another form of currency... but it is hard to say which is worse," Gao Qi said, slowly shaking his head with furrowed brows. "Yet few things in this world are perfect, and things made by human hands even less so. In any case, we are still in the stage of collecting data and social verification. Let Padrick finish the acceptance review of this trial period, and at the same time wait for Daniel to gather further intelligence on the Typhonian monetary reform. Once all the information is gathered, we can discuss what comes next."

After the confrontation along the Longwind defense line, Gao Yang now felt even less psychological burden about crossing the river by feeling for Typhonian stones. Word had it that they had already entered the stage of paper money in application, and such precious data from that social experiment was not to be missed.