Stocks (2)
Of course, it was not as if the conversation had suddenly leapt to stocks with a cry of “Open wide—here comes a brand-new concept injection!”
First, Emperor Sungui declared that the treason suspicions hanging over Hui-yeom—suspicions that no one outside the military Pi Clan and their followers had ever seriously entertained—had been thoroughly cleared away.
Then he asked his senior ministers what reward would be fitting for Hui-yeom in return.
“In this recent crisis the Sichuan Dang Family risked their lives and fulfilled their duty to protect the realm.
“Compensation for the military provisions and matériel expended in the war will of course be granted.
“Yet for the meritorious service of standing at the very forefront, blunting the enemy’s spearhead and safeguarding the three provinces of Sichuan, Yunnan, and Qinghai—I am uncertain what is appropriate.
“What are your thoughts?”
A deep silence settled over the court.
The Dang Family’s achievements stood in a class of their own compared with the military Pi Clan, who had dithered while leading the central armies. Moreover, the present emperor already gave the impression of intending to use the Sichuan Dang Family to check the Eight Great Families of the Empire.
The Pi Clan and their followers said nothing aloud, yet they exchanged glances and ground their teeth among themselves.
‘It is only natural that the Sichuan Dang Family should defend Sichuan. But mobilizing that much manpower and resources to win merit all the way in Yunnan and Qinghai—there is clearly a political design behind it!
His Majesty will surely seize this chance to hand the Dang Family vast interests and authority, all to restrain us of the Eight Families. We must stop it!’
In particular, even though it had been wartime, the emperor had already bestowed a military command tally upon Hui-yeom.
‘Talk of military authority itself might even come up.’
They held their tongues for the moment.
“The merit was earned by the Dang Family, and the party concerned knows best what they desire. It would be proper for the Dang Family to answer.”
To Pi Jae-hyeon’s words—essentially “How high have you priced yourselves?”—Emperor Sungui answered in Hui-yeom’s place.
“I have considered the merit with which Dang Hui-yeom checked the barbarians’ agitation, and thought to grant him, even if only as an honorary post, the office of Commander-in-Chief of the Three Provinces.”
“Your—Majesty!!”
Pi Jae-hyeon, aghast, forgot all propriety and shouted; agitation rippled through the assembled ministers as well.
The “three provinces” could only mean Sichuan, Yunnan, and Qinghai—the very regions into which the Dang Family had intervened this time. Should that come to pass, even an honorary title might place the entire western half of the Central Plains in the Dang Family’s grasp.
At the emperor’s shocking remark, not only the military Pi Clan but countless high and low officials prepared to raise their voices.
At that precise moment—
“Your Majesty, when a son seeks only to protect his father, how can one speak of reward?
“This humble subject has merely done his natural duty as Your Majesty’s servant and as a commoner of the realm.”
When Hui-yeom himself stepped forward and declined the praise, the ministers who had been on the verge of speaking closed their lips again.
Emperor Sungui clicked his tongue as though dissatisfied with those same ministers, then said:
“Yet if one who has rendered service is not rewarded, some will doubt Our virtue.
“Speak what you desire.”
“In that case, this subject has newly conceived a business proposal. Should it be carried out, it will surely bring broad benefit to the realm.”
“Hah—even when We offer to bestow merit, this man thinks first of the country! Is this not the very model of a loyal subject?
“Minister of Revenue, together with the Minister of Works and the other great ministers, discuss the business proposal this man has submitted and see that it is put into effect!”
In the brief instant the ministers hesitated, the emperor and Hui-yeom had already finished their exchange concerning the reward.
Those who had been waiting only for Hui-yeom to demand something excessive found themselves momentarily dumbstruck.
‘Wait a moment. Is this… actually all right?’
‘It is neither office nor military authority—only a business. We can let it pass for now and raise objections later if problems appear.’
‘If we mean to block it we should petition for imperial attention right now…’
‘Hah, one would have to know what the business even is before one could argue for or against it.’
‘But if we block this as well and the emperor, in a fit of temper, forces through something as absurd as Commander-in-Chief of the Three Provinces again…’
‘Perhaps it is better to settle for roughly this much…’
Faced with the unexpected turn, the ministers tilted their heads, yet having no way of knowing what the “business” actually was—and being satisfied that at least the conferral of office had been averted—none stepped forward to obstruct it further.
Thus Emperor Sungui provisionally concluded the matter by granting Hui-yeom no separate reward for the time being, and the audience was dismissed.
Minister of Revenue Bang Un-taek stroked his white beard as he regarded Hui-yeom.
“You have a concrete business plan, I take it?”
“Of course. However, the materials I would present are rather voluminous, so explaining them on the spot would be difficult. If Your Excellency would name a convenient time, I shall bring the proposal documents and supporting materials when I call upon you.”
“Hrm…”
Bang Un-taek’s brow twitched faintly. He was the head of the Ministry of Revenue—arguably one of the empire’s real power-holders. Having a stripling who had only just passed the age of twenty demand that he set aside time could easily have grated.
Yet Bang Un-taek opened his mouth only to swallow the reaction without showing it.
‘Come to think of it, the way this brat turned Pi’s people around was no ordinary feat, and the Gol Clan is already making a racket because they cannot suck him like a piece of candy already in the mouth.
I might as well see just how formidable his methods really are.’
“Very well. Tomorrow after court, in the evening—come to my residence.”
“Understood.”
Having cleanly washed away the treason suspicions, Hui-yeom left the palace and set out for a certain place.
‘As for introducing stocks, I have already spoken with Emperor Sungui, and it is being framed as compensation for wartime merit, so major opposition is unlikely.
But for the affair to proceed smoothly, the groundwork beneath the surface is what matters…’
If the joint-stock company matter was to advance a little more safely, there were preparations to make before tomorrow’s talk with Bang Un-taek.
The place Hui-yeom headed for was the residence of Sama Seung.
Sama Seung, who had found it hard to contain his curiosity after watching the exchange and the shifting situation in the imperial audience, welcomed the visiting Hui-yeom and asked at once:
“Had this already been arranged with His Majesty beforehand? What sort of enterprise do you mean to launch?”
“I ask that you understand the enterprise I am about to describe, and that you assist me in it.”
Hui-yeom met Sama Seung’s eyes with a serious gaze.
The institution known as the “joint-stock company” had never once existed on the soil of the Central Plains. Naturally there was a high risk of fierce resistance from the people of this age. Therefore Hui-yeom intended not only to persuade Bang Un-taek, who held the decisive knife-handle as Minister of Revenue, but also to grease the wheels in advance so that high officials would not oppose the policy’s implementation.
Politics, in a certain light, resembles a rigged gambling table.
If the cards laid out on the table for all to see, and the exchange of the cards one holds with one’s opponent, constitute the outer face of the gamble, then the true underside is the bargaining that takes place outside the table before the game even begins:
‘Hey, today let’s fleece that sucker.’
‘If I help you with that, how much do I get cut?’
‘Seven to three—of course I take seven.’
‘You joking? Six-four or I’m out.’
‘Fine. But dinner’s on you.’
‘Call.’
Politics is a field in which this underside exerts even greater force than a rigged game of chance.
At Hui-yeom’s words, light kindled in Sama Seung’s eyes.
“Heh-heh. My nephew-in-law truly is a man who ought to hold office…”
“I must succeed to the Dang Family.”
“What a waste, heh-heh!”
Sama Seung, whose bones had grown thick in Beijing’s political circles, sincerely admired the way a youth who had only just passed twenty moved like a seasoned statesman, and he listened to the explanation.
Yet once he actually heard the details, even a brilliant and experienced high official like Sama Seung found certain parts difficult to grasp.
It went roughly like this.
“So in the end, what you call ‘stocks’ is a certificate by which one gathers pocket money, invests it in a merchant house, and purchases a portion of that house’s rights?”
“Precisely so.”
“The merchant house that receives the investment capital must, when it earns profit through trade, return a portion of it to the investors—and that is called a ‘dividend’?”
“Exactly.”
“Perhaps it is because my learning is shallow, but from what I have heard so far I cannot see how this differs from the way merchant houses presently borrow money from money-houses and pay interest.”
“It is entirely different. A loan is the act of lending money to another party; a term and an interest rate are fixed, and one is to receive the sum back accordingly.
“A stock investment certificate, by contrast, has no separate term or interest rate for the money received. It is rather like a wealthy household supporting a number of retainers.”
“Could such a system even survive? If those were the terms, I myself would simply lend the money rather than purchase those so-called stocks…”
“In exchange, stocks possess an advantage that usury does not. Namely, a stock is a certificate that allows one to buy and sell fragmented management rights.
“A shareholder who holds stock gains the ability to interfere in the merchant house’s management.
“And one who owns a majority of the stock can even steer the actual direction the merchant house will take.”
Sama Seung, who had been understanding “stocks” through the concept of corporate bonds, soon grew bewildered under Hui-yeom’s explanation.
“What—buying and selling management rights? And the business owner just sits still and watches? Does that make any sense?”
“That is exactly why, if you do not want your own business falling into someone else’s hands, you must keep half of the issued stock yourself. If it passes to others, you must regard it as having lost the business.”
“If I were the master of a merchant house, I would rather take out more loans from a money-house than raise funds on such terms…”
“Elder, merchants are a breed who will go so far as to kneel and plead even before the evil demons of hell if that is where the money-hole opens. Loans from money-houses have their limits, and in the first place a money-house will not properly lend unless there is solid collateral, a person of substance, or a reputation of some kind.
“For entrepreneurs who have nothing but a brilliant idea and bold spirit inside their heads, the path of seeking such investors may well be the place they can lean upon.
“It is rather like scholars who cherish the dream of blue clouds wandering the world in search of a lord or a person of consequence who will someday recognize them.”
“Mmm…”
Where is there ever enough capital? Even after borrowing from money-houses, money is always scarce. At the news that a new channel for drawing it in would open, Sama Seung nodded again with a cautious expression.
In particular, because he himself had a foot in various enterprises of his own house and worked in the Ministry of Revenue, his speed of comprehension was indeed swift.
Hui-yeom rapidly continued with one explanation after another; Sama Seung nodded or sighed as he gradually absorbed them.
Even so, he was thunderstruck by the concept Hui-yeom had mentioned—“after attracting investment capital, one need not repay it.”
“You borrowed money and yet need not repay it?!”
Unlike bonds or loans, stocks have no separate repayment term. One merely distributes dividends to those who own the stock.
Here the difference in perception between a pre-modern man and a modern one collided once more.
“Yes. In principle dividends differ from interest; depending on circumstances they may not be paid at all, or they may be reduced.”
“What sort of talk is that? Then who on earth would invest?”
Upon hearing of dividend suspensions and dividend cuts, Sama Seung could not suppress a shudder of horror and indignation.
—So after taking my money they might not hand over a single coin? Did the investor take a hundred-pace divine fist to the skull? Who would put money out on such terms?
To Sama Seung’s entirely reasonable concern, Hui-yeom answered.
“Elder, are you familiar with Caffe the One?”
“Nonsense—I was the one who found the site for Caffe the One here in Beijing. How could I not know of it?”
“Suppose that before I opened that Caffe the One I had come to you, offered stock, and asked for investment capital. What would you have done?”
“Ordinarily it would have been out of the question, but if the one speaking were you, I would have invested a fair amount.”
“The investment capital needed when Caffe the One first opened was a mere three guan of silver—roughly nine hundred million in modern terms.
“Yet now it has grown into a business whose name has spread even as far as Beijing. Had you invested then, you would regularly have received a share of Caffe the One’s profits and, according to the size of your investment, would have been able to take part in its management as well.”
“In other words: if the business fails you may lose the entire investment, but if the business grows you may obtain several times the original capital.”
“Correct. Interest has a fixed ceiling on what one can receive; stocks have no such upper limit.”
Using Caffe the One as an example softened Sama Seung’s previously negative attitude a little. Confirming this, Hui-yeom continued.
“Shareholders have the right to demand that the company provide appropriate compensation, and for that purpose they can insist that a general meeting of shareholders be held periodically.
“Moreover, when business is good the dividends are raised. By contrast, has anyone who borrowed money ever raised the interest just because the borrower’s business thrived?”
“That… is true enough.”
“Just as the company side may notify shareholders of a dividend reduction when business is poor, so when business is good the shareholders have the natural right to demand a dividend increase from the company. If one gives, one must also receive.”
“It… almost begins to make sense.”
“Furthermore, the core point is that stock is ultimately the right of management over that company, fragmented and divided.”
“How so?”
“If the company prospers, dividends flow in well, and then people will covet that stock certificate, will they not? It is as if a bottomless money-pot that spouts cash is already in one’s hand.”
“That would follow.”
“But only a limited number of stocks are issued. And if the number of people who want them increases…”
Sama Seung slapped his knee.
“Like precious rarities, the price will rise! The price of a debt certificate never rises, yet if one holds a stock document and the business thrives, both the price of the document itself and the dividends will climb! Truly profound!”
Lending money ends once one has taken interest and principal; buying stock in a good company means that as the company grows both the stock price and the dividends rise. Grasping this structure, Sama Seung nodded repeatedly.
“Ohh… there is… persuasive force to it!”
“It was an inadequate explanation, yet I am glad you seem to have understood.”
“Still… there will be problematic points as well.”
Sama Seung spoke in a grave tone.
“If the premise ‘when business thrives the stock price rises’ is to hold, people must be able to see at a glance when stock prices rise or fall, and the body that manages that must be unified… Wait a moment. You—surely not?”
“As expected of the blood of the Heavenly Observatory Sama.”
Hui-yeom smiled faintly.
“When I request the introduction of the joint-stock company concept, I will simultaneously present the concept of a ‘stock exchange’ where they may be bought and sold.
“As for the location, the Caffe the One site that happens to be sitting idle should prove suitable.”
“Mmm. If people can gather at that stock exchange, check the market prices of stocks, and buy and sell them, it would certainly be convenient. And the profit would be extracted through transaction fees, yes?”
“Exactly so.”
“It goes without saying, but if one suddenly converts every merchant house, money-house, and company in the world into joint-stock companies, unmanageable chaos will arrive. An intermediate process and a buffer will be needed…”
“For that purpose I have already created, on a trial basis, a state-run enterprise model—no, a specimen. That is the Beijing Railway Joint-Stock Company.”
Hui-yeom handed Sama Seung the planning documents for the Beijing Railway Joint-Stock Company.
Hui-yeom’s conception could be summarized as follows:
First, stock is the management right of a company documented and divided into a fixed number of shares.
Second, naturally, a person who holds stock is granted—though only in part—the authority to speak on the company’s management and to decide its direction.
Third, equally naturally, in a world where family management is the norm, such a thing will never be accepted without friction; therefore imperial recognition and official proclamation are required.
Fourth, if this is applied all at once to private enterprise, unmanageable chaos may ensue, so first a few companies and merchant houses must be selected for trial operation.
Fifth, the companies used for this trial must of course generate profit, be shareholder-friendly, and possess the moral character to understand stock, management rights, and dividends thoroughly and not to abuse them.
Sixth, that being the case, the only person suitable as the responsible party is ultimately Dang Hui-yeom himself, who raised the subject.
Seventh, for the pilot application of the joint-stock system, the Beijing Railway Joint-Stock Company is to be established. Its operation will be carried out by the Sichuan Dang Family.
Eighth, the Beijing Railway Joint-Stock Company shall be a state-run enterprise; half of its shares shall belong to the imperial house, and the remaining half shall be distributed among meritorious subjects.
When he had heard that far, Sama Seung started in alarm.
“Wait—then what of you and our family? Will you not have done all the hard work and gained nothing?”
“Think carefully, Elder. There may be no dividends distributed from the operating profits of the Beijing Railway Joint-Stock Company itself—but how will that Beijing Railway Company actually run?
“Where will the iron for the rails come from? Who will lay the tracks? Who will build the trains that run upon them? And who will supply the vast quantities of coal those trains will consume?”
When Hui-yeom explained with a sly grin, Sama Seung’s eyes went as wide as cannonballs.
“…Heavens. At this rate the post of Vice Minister of Revenue ought to have gone to you rather than me. So this is what they mean by having one’s nose cut off while one’s eyes are open!”
Once half the shares were taken by the imperial house and the project designated a public work, the construction costs would of course come from the imperial house. The Sichuan Dang Family would not pay them.
Conversely, the construction costs paid by the imperial house would fall intact into the hands of the Sichuan Dang Family.
On top of that, the continuously arising expenses for coal, steam locomotives, and railway maintenance would keep the Dang Family earning money indefinitely.
Sama Seung was sincerely impressed.
“You silence the mouths of those who might oppose the project by stuffing them with the sweets of stock and dividends, win their favor, and push the enterprise through—while appearing to covet none of the project’s own profits, yet scooping up enormous gains beneath the surface… Haha! If the Sama clan had possessed a successor like you…”
“I am already a son-in-law of the Sama clan; we are as good as one family, are we not?”
“The Jegal clan must be dying of regret. It feels as though a ten-year-old lump of stagnant qi has just gone down.”
“I believe you now have a rough understanding.”
“To be honest I have not fully grasped it yet… but I have the general rhythm of it.
“This long explanation cannot be delivered in open court… we shall need a natural way of drawing the ministers in. Hmmm…”
After stroking his chin and pondering a while, Sama Seung put on a mischievous expression and asked Hui-yeom:
“Young man—do you know how to gamble a little?”