The Professor and the Paper Currency
Juan de Lugo. He was a professor who divided his teaching duties between the University of Salamanca and the Collegio Romano.
He viewed the Marquis’s 'grain certificates,' which were circulating in the local markets like silver coins, as nothing more than 'private currency' and an 'infringement on sovereign rights.'
“That certificate is a thing that 'must not be trusted'! Why on earth are you trading with such a thing!”
He shouted at a merchant in the market who was buying cheese with a certificate. The merchant pointed a finger at him and approached, incensed.
“Who the hell are you! Who do you think you are, causing a scene here?”
“I hold a professorship at the University of Salamanca.”
At his heavy, authoritative words, the merchant immediately bowed his head. Just as 21st-century professors could mobilize graduate students, 17th-century professors could command their students like limbs. In this era of romance, the young men attending university were essentially 'semi-extraterritorial' thugs-in-training.
“Oh, my. Professor, I didn't realize it was you.”
“Cease this trade at once. Before I call my students and tear this shop down to the ground.”
The professor’s cold, ruthless gaze aimed at the merchant like the cannons of a galleon. The merchant immediately stopped the transaction and groveled.
“I... I am so sorry!”
“Relying on such scraps of paper will lead to your ruin! Come to your senses!”
“I shall come to my senses!”
The merchant prostrated himself at the professor’s command. But the moment the professor left, they resumed their trade. The farmers were only too happy to accept a 'storage certificate' for wheat rather than hauling heavy grain, transferring ownership of the cheese with a single slip of paper.
'Simple storage contract, storage fee fixed at 1% per month, 1:1 physical reserve system.'
Officially, the Marquis did not even allow bonds for the issuance of storage certificates. He permitted no leverage whatsoever; one had to bring the physical goods or purchase them with cash at the Marquis’s warehouse. He only collected a portion of the goods as a storage fee. That was why the professor could not protest directly to the Marquis. Officially, he was merely renting out his warehouse space.
Unlike certificates for firewood, timber, stone, or iron stored in his warehouses, the 'wheat storage certificate' roamed the market as if it were a silver coin itself.
Is the guarantee structure based on the Marquis personally? Is there a succession system after he dies? Who bears the responsibility if the warehouse goes bankrupt? Does he guarantee payment in the event of grain fires or war?
Lugo was no ignorant critic of usury. 'The problem is not the interest, but the authority.'
“This cannot stand. If words do not work, then I shall use force. I will make them admit that those certificates are meaningless scraps of paper!”
Lugo viewed currency not merely as lumps of metal, but as 'credit containing the public guarantee of the sovereign.' If the 'grain certificates' issued by the Marquis were used as currency in the market, it was 'counterfeit credit without public guarantee.' It was an act of a mere Marquis usurping the seigniorage that only a monarch should enjoy. It was a capital crime that destroyed the very 'cosmic order.'
He secretly mobilized his students. He selected the poor students who followed him deeply and possessed excellent penmanship.
He had to expose the 'fictitious nature of the storage certificates' before this false currency could further disrupt the market. At the same time, he designed this operation from behind the scenes, quietly putting it into action to provide meals and books for his impoverished students.
“I will show you how easily this certificate can be shaken.”
First, he lightly circulated forged certificates through a few students. And he got a hunch from the Marquis’s willingness to take a 'loss.'
“You’re maintaining this system while taking a loss? I know exactly how much leverage you’ve used to inflate your profits while claiming otherwise.”
Since then, he had mobilized the organized students of the University of Salamanca to continuously increase the number of forged certificates. Waiting for the moment the Marquis refused to pay out the wheat so he could immediately brand him a 'fraud,' Lugo was caught off guard by the Marquis’s response.
“Issuing new certificates? This is a trap to catch us in our justice.”
Lugo tried to stop the students. But it was impossible to stop the students who were already addicted to 'money printing' via forged certificates.
After the physical copies of the new certificates appeared, it became even more explosive. Paper with a sky-blue background and intricate, impossible-to-copy curves. It was incomparable to the certificates written on existing linen paper. As the thought that this fun 'money printing' event might end gripped the students, they stopped showing up for classes and furiously worked their pens.
The students who had been moving to forge even one more 'certificate' and convert it into physical goods began to disappear at some point.
“Are you Professor Lugo?”
A youth with a delicate, ethereal face—no, a young man—spoke to the professor. He introduced himself as 'Juan Gaspar' and asked to be called Gaspar, speaking with a friendly tone.
But the men lined up behind him were not so friendly. Several men wearing the fine hats used by the Tercio and well-maintained leather boots were waiting for Lugo with solemn expressions.
“Who are you?”
They were not armed, but one could not dare to oppose them just by looking at their thick forearms and the eyes that knew war and murder.
“His Excellency the Marquis wishes to see you! Please come with us.”
As the man called Gaspar spoke, the lined-up men moved.
They did not wait for Lugo’s answer. Under their 'polite' escort, Lugo was dragged to the Marquis’s 'warehouse city.'
It was Lugo’s first time visiting the warehouse city. And only then did he understand why the merchants trusted the 'certificates.'
Low but sturdy stone warehouses stretched along the hill. Carts loaded with wheat went in and out continuously. Wood, iron, stone, and textiles were in constant motion.
“His Excellency the Marquis told me to show you this before we go up!”
The man called Gaspar guided him to a sealed warehouse where no people were entering.
There was a low warehouse, not quite twice the height of a man. When he opened the door, there were 40 earthen mounds inside. Each well-packed mound had a clay tablet, engraved with the date of sealing, the type of wheat, and the name of the person responsible for storage.
“Each underground silo holds about 500 fanegas. Five such warehouses have been built, and five more are under construction.”
“Th... this is more than the grain warehouses in Madrid...”
“Now it is time to see His Excellency the Marquis!”
Having seen the massive mountain of physical goods, Lugo was in shock and could not say a word. How is this possible? Like that unbelievable rumor, does he harvest ten or twenty grains for every one grain every year? Is that possible? Is it possible to do that every year, not just once in a lifetime?
The Marquis he faced said nothing. He simply handed over a stack of documents in front of Lugo.
Accurate ledgers written in double-entry bookkeeping. Records of entry. Records of exit.
And a list of forged certificates.
Feeling the chaos of his world falling apart, Lugo read the documents as if licking every single letter to find the 'errors' and 'contradictions' in the papers the Marquis had presented.
Lugo, who had read through the documents without a word until the sun went down, without drinking a drop of water, put them down with a hollow expression.
“Have you borne all these losses?”
“It was not a loss. Why would I do a losing business? I did everything while making a profit.”
“Could you not have made even more profit?”
“Then I would have had to sell my 'credit'.”
The Marquis said quietly.
“Professor, I have not used any leverage, including reserve requirements. I created a market without leverage, and in this world of insane leverage, people simply trusted the physical goods.”
“The reason people started using my certificates as money is because people are not stupid.”
“Professor, were you trying to protect the order of the market, or destroy it?”
Lugo let out a final death rattle in his crumbling world. A scream of his soul.
“Currency, currency is the public credit of the sovereign. Do you wish to become a monarch? Marquis. The monarch of this land raised you to this position! This is treason!”
At his words, the Marquis opened his mouth with an expression of disbelief. And with a face full of annoyance, he began to speak like a common street thug.
“Are you crazy? Why would I commit treason against the King? What kind of nonsense is that.”
“The essence of currency is whether people believe in its value. In the end, it is only credit. The money of this land? It’s already shattered. Professor, shall I tell you something interesting?”
He chuckled, then straightened his face and said.
“Too much vellon currency was released, so inflation skyrocketed, right? They re-stamped it and issued it, causing chaos, right? Do you know what the Count-Duke tried to do last year because of the skyrocketing prices?”
“He said he would cut the legal value of the vellon currency by 50%. Do you know how hard I tried to stop 'that bald guy' from doing that bullshit?”
Shit, it’s hard to believe, but it’s true. If prices skyrocket, can’t you just reduce the face value of the money? If you manipulate statistics like this, it’s not just pulling the wool over people’s eyes; it’s daylight robbery. It’s a policy direction where they would chew and swallow shit if it meant securing state finances.
Inflation can be endured by gritting one’s teeth, but the moment deflation hits, it’s hell. Even the Weimar Republic after World War I endured 500-fold inflation, but when deflation hit, it immediately evolved into the darkness of Nazi Germany. I begged and pleaded for him not to do it because everyone would want to revolt the moment that policy was implemented, and I barely managed to stop it.
“Marquis. If a bad harvest comes, will you pay out according to the storage certificates?”
“Yes.”
“Even if bad harvests repeat every year?”
“Wheat honestly contracted will be honestly released. Because that is the contract.”
At those words, Lugo blurted out a thought that was treasonous even without speaking it aloud.
“What if the King orders you to open the warehouses?”
“Stopping that is my job.”
A firm answer. Lugo knew that was the correct answer and the solution. But Lugo said something different from his inner thoughts.
“That is disloyalty.”
“No. It is loyalty.”
The Marquis said, drinking watered-down wine.
“Credit comes from the honesty of physical goods and promises. Order is formed even without a monarch’s seal. I am offering the King the 'legitimacy of governance'.”
“I am presenting the King with 'credit' and offering eternal loyalty.”
What this fucked-up empire lacks most and needs most. That is 'credit.'
And it is the 'legitimacy of governance' I promised him from the moment I first founded the company.
“The Marquis’s system relies on individual sincere nature. What if you die? What if your successor becomes corrupt? Everyone who trusted and followed only you must die holding scraps of paper.”
At my words, the professor wailed. It is true. I, too, do not trust 'human conscience in front of money.'
“You are saying that credit should belong to the system, not the individual, are you not?”
“That is correct. Marquis! That is exactly it.”
“Then can’t we just build a system?”
Why worry about what doesn’t exist? We can just build it.
Ah. My head was hurting thinking about how to build it, but this is good. As expected, when something is a headache, you just give the professor research funds and attach a slave—no, a graduate student—to him, and it gets solved.
It’s hard to find someone with such an enlightened mind in this fucked-up Spain. What if I change my plan to 'ban' him from this world forever and instead give him a 'blue armband'?
“Professor. I will provide 'research funds,' so why don’t you try designing that system? There are many excellent students at the University of Salamanca who are interested in finance and institutions.”
“Gaspar. Bring those students.”
“Yes! Your Excellency!”
Lugo was able to reunite with his missing disciples.
Their bodies were full of traces of ruthless violence. It was a barbaric and cruel appearance, different from his usual polite responses or problem-solving.
Only then could Lugo realize that the Marquis was the 'Supreme Exploration Commander of the Kingdom of Castile' and the most powerful figure in the Valladolid region.
Author’s Note
Thank you to SilverWalker, BlueCitizen, and CurryFlavorCurry for the donations! Today is the last day I can run! I will do my best!
Juan de Lugo y Quiroga (1583–1660) is a real historical figure. He will only appear in this episode and won't show up often, so I will omit detailed explanations! Since he was a theorist in his room rather than an agitator, he probably wouldn't have mobilized students, but please enjoy it as a novel!
Olivares’s monetary policy is something that actually happened. He was beyond a black magician of monetary policy; he was a necromancer...