890 FINANCIAL REFORM AND THE ECONOMY
were close to the intrinsic values and the technology of coinage was too diffi-
cult for the counterfeiters to reproduce cheaply.
Cash in the Reunified EmpireWhen the unified empire was restored by the Sui and Tang dynasties in the late
sixth century, the reestablishment of a single central government laid the basis
for creating coinage of standard size. Yu described how Emperor Kao-tsu of the
Tang dynasty abolished the five-shu coin and minted the K'ai-yuan t'ung-pao
that weighed about seven shu each, the coin that Ch'iu Chiin had praised as hav-
ing attained the standards of the five-shu coin of the Han dynasty.
Nonetheless, the history of cash in the Tang was by no means free of prob-
lems. Emperor Kao-tsung was determined to prevent the reappearance of pri-
vate minting that been so troublesome in the Han dynasty. and in 682 he ordered
the execution by strangling of any private party who minted coins. These ruth-
less penalties failed to solve the problem, however, and Emperor Hsiian-tsung
in 734 solicited opinions from officials about the wisdom of legalizing private
minting.
Liu Chih: Price ReRulation by Ever-Normal Operations. Yu reproduced only
one of the opinions, that of Liu Chih, who introduced a sophisticated analysis
of the effect of supply and demand on prices, and of the money supply on the
value of money. He argued that if the price of agricultural products were too
low, it had a damaging effect on agriculture, presumably because peasant income
might be reduced below the cost of production. And if cash were too "light"
(probably in weight, but also low in value), it would have hurt the income of
merchants, prcsumably because they would have to pay higher prices for agri-
cultural goods or commodities.
His answer to the problem of dampening the fluctuations in prices was not
the untrammeled frce market, but the reponsibility of the state to monitor the
prices of goods and the value of currency and take steps to remedy any dise-
quilibrium that might occur in the market. His explanation was similar to the
operation of the ever-normal granary to stabilize grain prices because he rea-
soned that if the prices of goods rose and the value of cash declined, the cause
could be attributed to a surplus of cash in the market. The government then had
to devise means to collect or extract cash from the marketplace, reduce its quan-
tity, and drive its value up. If, on the other hand, cash became too valuable, the
government had to put more cash into circulation to drive its value down to some
acceptable norm. These ever-normal price stabilization operations, however,
would be frustrated if private persons were allowed to mint cash on their own
and increase the money supply.
Liu Chih: Debasement and Private Minting. The second problem in control-
ling the dependability of currency was preventing the debasement of coins. Echo-
ing the views of Chia I of the Han dynasty, Liu called for a ban on private minting
as well as counterfeiting. His concern was not, however, restricted to debasement