702 REFORM OF GOVERNMENT ORGANIZATIONReliefand Loans to the Reform of 1867Since the history of the hwanja loan system has been covered elsewhere, only
the crucial features of that story need be summarized here. Far from a success-
ful reform of the hwanja system, the problems associated with it increased over
the years. The interest charged on loans were largely expropriated by the gov-
ernment for expenditures and not used to refund the reserve for loans, and cen-
tralized control over the system was abandoned altogether as individual capital
agencies, district magistrates, and provincial military garrison commanders lent
out their reserves at wi II to finance their needs through interest charges. The total
volume of loans increased astronomically by the end of the eighteenth century,
but the peasants were unable to repay their loans and interest. The unrepaid loans
accumulated on the books as the agencies of government continued to collect
interest on old loans, converting the whole system into an extra, permanent tax
on the poorest segment ofthe popUlation. Eventually, the oppression of the hwanja
otticialloans became one of the main causes of the Imsul rebellion of 1862, let
alone the Hong Kyongnae rebellion of 1812.
The rebellion delivered a major shock to the government and provided impe-
tus for reform. In 1862 Ho Pu proposed the plan Yu Hyongwon had advocated
in the mid-seventeenth century: the replacement of official loans at interest by
the ever-normal and village granary systems. Although he never cited the
source for his plan, it is quite likely that it was based on Yu's work. Ho's pro-
posal, however, was opposed by officials who felt that some portion of official
loans at interest had to be retained to provide revenues.
In the fall of 1862 the Reform Bureau proposed a plan that would have adopted
several features of Yu's plan. Bad debts were to be written off the books, and
those debts that could be repaid would be collected to refinance official relief
loans at a more modest level. Interest on loans would no longer be used for ordi-
nary government expenditures, and revenues lost by this measure would be sup-
plemented by surtax on the land tax and a government takeover of land
previously under the control of palace estates owned by princes and princesses.
The Reform Bureau rejected the adoption ofChu Hsi's village granaries, which
were supposed to be organized in conjunction with village pl1o-chia mutual-guar-
antee organizations and the community compact (hsiang-yiieh: hyangyak in
Korean) systems, because it was not deemed possible to create or recreate these
institutions under present conditions. After others opposed any drastic reduc-
tion of government loans because the interest was essential for government
finance, King Ch'olchong decided not to adopt the Reform Bureau's plan and
simply wrote olT all bad debts and set limits for loans, but he hoped that the
repayment of good loans could still provide some revenue.
By 1866 this last hope proved impossible and the government finally had to
recognize that the records of most outstanding loans were worthless, and since
it had not abolished the system of loans at interest, it realized it had to refund