918 FINANCIAL REFORM AND THE ECONOMY
To defend his belief in the vaunted superiority of fixed cash prices and exchange
rates against this embarrassing empirical evidence, he claimed that the current
price inflation in China only represented the unfortunate result of an age of decline
produced by a government policy of unrestrained minting of cash, and an under-
supply of grain, silk, and goods in general. The best comparison ought to have
been made with earlier times, as in the Han dynasty when the price of one hu
(either five or ten malar pecks) was twenty to thirty coins, or the Warring States
period when Li K 'uei once said that one hu was worth thirty coins. In ancient
China, cash was valuable (i.e., worth something rather than nothing) and could
be exchanged for grain and silk, and there was no "stagnation" in the market,
or no interruption in the free flow of goods. Even though the money supply was
small at the time, it was more than enough to meet demand. A perfect balance
had been achieved between the supply of goods and the supply of money, so
that "the families of the people kept stores of rice and millet, and there was mutual
aid between the root and branch [agricultural production and money and mar-
ket activities]." In other words, Yu was an advocate of a hard money policy and
stable currency, an opponent of easy money and inflation.
In examining recent reports of prices in Manchuria and China in Ming times
(up to 1644) he also found that they were not as inflated as they had been in
Sung and Yiian times. He had heard that in Liao-tung Province in Manchuria I
chc'5n (.1 liang) of silver was exchanged for 60 copper coins in the past (late Ming
dynasty?), or 600 coins (mun in Korea) per yang of silver, a rate only one-third
the value of the 200 mun per yang of silver Yu wanted to establish for a new
Korean coin. The new Ch'ing rulers (after 1644) had increased the value of cop-
per coins by one-third to 400 coins per liang of silver, only 50 percent cheaper
than Yu's proposed rate.
When King Sukchong began to mint copper cash in 1678. five years afterYu's
death, he set the exchange rate of copper cash against silver at 400 coins (mun)
per yang of silver, raised its value to 200 mun in 1679, and lowered its value
again to 600 mun per yang of silver in 1680 to adjust the legal rate of exchange
to the real market rate. Although the supply, demand, and prices of copper, sil-
ver, and commodities may have differed from the Manchurian situation at time,
it appeared that the value of cash against silver in Korea was moving toward the
value in Manchuria probably because of an increase in the supply of cash in cir-
culation relative to the amount of goods for sale in the market. Yu's proposed
rate of 200 mun per yang of silver overestimated the eventual value of cash in
the market probably because he assumed that the government would be able to
constrain the money supply and keep cash at a relatively high value.
There is some ambiguity in Yu's own text about whether he intended to estab-
lish a fixed ancl unchanging exchange rate for copper cash in relation to silver,
or believed in a flexible adaptation of that rate according to economic condi-
tions. When some of his friends told him that he should have decided on an
exchange rate of 400 mun/yang, he replied that "If the value of cash declined,
there would be no reason why the exchange rate could not be adjusted to the