After Tanchun gained authority over the household management, she launched sweeping reforms. Starting with Baoyu, Jia Huan, and Jia Lan, she abolished the pocket money these three uncle-and-nephews received for school snacks and stationery, earning four consecutive "bravos" from Wang Xifeng. Then she also abolished the two taels of silver the young ladies (Yingchun, Tanchun, Xichun, and Daiyu) received monthly for hair oil and cosmetics. This was the cost-cutting side.

Coming in and immediately slashing other people's benefits, offending everyone—why did she do this? One reason is that Tanchun, as a daughter of the house, had no future in the Jia family. In a couple of years she would marry out, with nothing left to lose, so she could act on her convictions without reservation. Of course, precisely because she had no future in the Jia household, her power base was extremely fragile. On one hand, she couldn't control (and actively chose not to address) the gambling in Grand View Garden, allowing the garden to descend further into chaos. On the other hand, her reforms could only produce policies, not build institutions. Everyone knew Tanchun's stewardship was temporary—before long, even if she didn't leave, her policies would lapse. Seeing this, people couldn't help but adopt short-sighted behavior to exploit Tanchun's policies. This is what we call the problem of incentive distortion.

Tanchun's reform is described as "the shrewd Tanchun promotes profit and eliminates old abuses." Slashing benefits was the eliminating-abuses part. The most profound aspect of her reform was on the promoting-profit side: implementing a responsibility contracting system in Grand View Garden.

Tanchun had visited Lai Da's family's small garden and heard that the output from their flowers, trees, fish, and insects earned about two hundred taels of silver a year. Greatly inspired, she planned to turn Grand View Garden into a productive enterprise. Tanchun was a true reformer—her first thought was about institutional mechanisms, not just economics and management. Her reform proposal was to divide Grand View Garden into categories and parcels, contracting them out to the servant women best suited to manage those operations. These women would be responsible for delivering specific outputs to supply the garden's daily needs—hair oil, cosmetics, brooms, grain, and such—while enjoying certain benefits. What benefits exactly? We'll discuss that in a moment.

This scheme was essentially a property rights arrangement. Why is Tanchun's reform considered so profoundly written? Because here Tanchun (or rather, the author) keenly perceived a problem: Grand View Garden possessed abundant factors of production—capital, land, labor—that were constrained by institutional mechanisms and could not be combined to generate economic output. As a reformer and entrepreneur, Tanchun seized upon this key issue. Through institutional reform, she united the garden's natural resources (the capital factor) with the servant women (the labor factor), thereby liberating and developing productive forces. By Baochai's estimate, the output delivered by the contracting women alone would save about four hundred taels of silver per year. In the world of Dream of the Red Chamber, this was no small sum—when Jia Yun bribed Wang Xifeng to get the tree-planting assignment in Grand View Garden, the silver he drew from the storehouse was "two or three hundred shining taels." In Schumpeterian terms, Tanchun's reform was creative destruction: she created a new production function by combining Grand View Garden's capital and labor through the contracting system, producing a gleaming four hundred taels.

So what exactly did this property rights arrangement look like? This brings us inevitably to the question of profit distribution. In modern terms, Tanchun effectively created a new form of property right called the contracting right. What benefits this contracting right actually conferred was ultimately decided by Baochai. Baochai "elevated" the economic matter with the learning of the sages: Tanchun had originally envisioned a centralized collect-and-distribute system where contracting income would be turned in and then allocated. But Baochai battered Tanchun with Zhu Xi and Confucius, and they arrived at a different scheme: the output from one's contracted parcel would belong to oneself, but one would have to share a portion of the proceeds—the exact amount unspecified—with others in Grand View Garden, to prevent them from sabotaging the operation.

We all know that the author wrote Tanchun and Baochai with great allegorical intent—what is called the "historian's brush." Tanchun is the reform party, concerned with institutional arrangements. Baochai is the conservative party, concerned with ideology (which is really just another kind of institutional arrangement). You might challenge me: wasn't Baochai's dismantling of the planned economy more thorough? How could she be the conservative? There is a profoundly important reasoning here.

Under Tanchun's design, the contracting women's output would be turned in and then distributed, forming a contractual relationship that would impose constraints on the Garden's management team (the government)—and this is the essence of property rights. For instance, if all contracting proceeds were turned in and then split seventy-thirty between the government and the contractors, the government would have an incentive to protect contracting rights in order to increase revenue. If the government suddenly became greedy and demanded one hundred percent of the output, it would quickly discover that its income dropped to zero, because no one would contract anymore. By distributing the benefits of contracted output, the government was effectively compelled to trade away certain rights. Through this institutional arrangement, the government essentially created a contract: if it violated the property rights of contractors, it would suffer a specific, quantifiable economic loss.

Please note: this logic is extremely important. It is, in fact, the very principle by which autocratic monarchies transform into states governed by rule of law and market economies.

Baochai's scheme, by contrast, generously let contractors keep all their output, merely requesting informally that they share benefits with the other, non-contracting women of the Garden. Baochai's approach was to frame this policy as a welfare benefit, not an institution. A welfare benefit, of course, is something the government can give or take at will. In the structure Baochai designed, the government would lose nothing by revoking this right, since it never participated in the distribution of output in the first place. Since it would suffer no loss from violating this property right, and the right itself was clearly valuable—how could it possibly refrain from undermining it?

In game theory, this is called credible commitment. Tanchun's scheme formed an institution; an institution is a constraint; a constraint creates property rights. Baochai's scheme embodied the absoluteness of power. Baochai's argument, like that of the Old Party in the Northern Song dynasty, was that one must speak of righteousness, not profit—or rather, one may speak of profit, but profit must be "elevated" by righteousness, exalted by it, subsumed under it. And what is the essence of righteousness versus profit? Profit is a rights relationship among stakeholders. Righteousness is a power relationship. In feudal society, "righteousness" meant that servants existed to be commanded by their masters. Tanchun's promotion of profit would create a contractual relationship in which servants and masters were bound by the distribution of interests—a relationship in which both sides were constrained. This was "unrighteous." It is precisely in this sense that Baochai was a conservative: what she defended as righteousness was the preservation of this dominant power relationship.

Additionally, Tanchun's reform involved issues of property rights marketization and externalities. Relative to the Garden's labor supply, capital was scarce—meaning contracting rights were scarce. Under Tanchun's plan, the government would decide who received them, which naturally led to rent-seeking. For example, Baochai arranged for Yinger's godmother to receive a contracting right. This godmother happened to be Mingyan's mother, which served the interests of the Crimson Pearl Court—this is the literary prototype of our East Asian crony capitalism. Later, the contracting women clashed with the junior maids over the picking of flowers and branches—this was the problem of externalities. Grand View Garden also served the function of providing recreation for the young ladies and their attendants. Now the contractors, eager to earn money, were preventing people from enjoying themselves. This was an externality. In short: unclear property rights, undefined responsibilities, soft constraints, distorted incentives.

The saying that Dream of the Red Chamber reveals the inevitable demise of feudal society should be understood largely through the lens of this confrontation between Tanchun and Baochai. Without money, nothing works. Much of the novel deals with the problem of having no money. History ultimately selects the social arrangement that can generate wealth—that is, Tanchun's arrangement.

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