Guanzi (《管子》) -- Earliest Masterpiece on Political Economy in Human History (2): Non-Hegemonic Theory On Market Economy

EDITOR’S NOTE: “The moral man” vs. “The economic man” – this can be seen as one of the major differences distinguishing traditional Chinese economic thought and practice from modern Western economics. When government officials posing as champions for economic “freedom” are actually serving the interests of 1% including themselves at the expense of the 99%, they are merely politicians, being morally despicable, not noble-minded statesmen; and the value of their lives is “lighter than a feather” while that of great statesmen like Guan Zhong is “weightier than Mount Tai”, as the great classical Chinese historian Sima Qian put it.

As has been said above, Guan Zhong’s non-hegemonic political economy did not promote prosperity by robbing the people, nor by plundering other nations through colonialist and hegemonic strategies but by sticking to people-oriented state policies. One of such major policies is to manage a market economy in a non-hegemonic way.

According to Western economics, the market is a mechanism for setting prices in commodity exchange and for allocation of resources in social production. But Guanzi provided a more profound understanding of the market than this.

First of all, Guan Zhong saw the market as a place for natural resources to converge and commodities to be exchanged, a mechanism for people to make use of resources in a co-operative manner and for promoting people’s livelihood and national well-being in the right way:

“There should be a market in every Ju (聚, an administrative division -- translator). Without a market, people will suffer from shortage of necessities.” (《管子》• 乘马第五)

“The market is where all the wealth under heaven converges and all the people under heaven benefit by exchanging. This is the right way to manage things.” (《管子》• 问第二十四)

Obviously, Guan Zhong thought beyond commodity exchange and resource allocation – he raised the issue to the level of “the right way” to “benefit” “all the [not just a privileged few] people under heaven”, i.e., the people-oriented way, which places all the people’s well-being before everything else in managing the market and the state in general.

“The market is the price setter for commodities in flow. Therefore, if prices for all commodities are kept at reasonably low levels, no exorbitant profits would be made out of any transactions; Without exorbitant profits made out of any transactions, all businesses would be well managed; When all businesses are well managed, all needs would be met properly.” (《管子》• 乘马第五)

That is to say, Guan Zhong was opposed to big capital manipulating the market for exorbitant profits by selling commodities at unreasonably high prices, that is, too much higher than their real values.

Almost all Western economics textbooks and theorists would cite Adam Smith’s “invisible hand” to describe the market as a highly fair and perfect place for commodity exchange, showing, according to Paul Samuelson, harmonious compatibility between individuals’ self-interests and public interests. In other words, the market can automatically guarantee mutual benefits for all through transactions between self-interest-motivated “economic men”.

Indeed, when people are trying to make profits through transactions on the market, their self-interest motives may yield results that are beneficial to the public. This was recognized much earlier by Guan Zhong, as he said:

“The merchants are not good for nothing. They are not particular about where to live, or on which sovereign’s land to do business – they buy in commodities for making profits out of them and would not hesitate to sell them out. Hence, all resources from mountain forests of the state are used to yield profits, doubling tax revenues for the state to cover royal court expenses on all levels. Neither the sovereign nor the ministers would keep their wealth from circulating but try to make profits out of it so that common people would have jobs from which to earn a living.” “The common people do not have treasures but to try to make profits. When they do so, they are promoting circulation of commodities; when commodities get circulated, cities and states are formed.” (《管子》• 侈靡第三十五)

Obviously, Guan Zhong recognized as early as over 2000 years ago that, when merchants were seeking profits, they were sort of guided by an invisible something which would bring about mutual benefits between self and others on the market.

But on the other hand, like Adam Smith, Guan Zhong did not think that seeking self-interest would always necessarily benefit the public at large but oftentimes would hurt the interests of others or of the whole society or even threaten social stability. In other words, the market is never perfect, not unfailingly efficient. Yielding mutual benefits is only one possibility, not an absolute law of market economy. Why is that?

According to Guan Zhong, participants in the market are human beings, who have a complex nature with an instinct for seeking benefits while avoiding losses. They are neither perfectly good in nature as believed by Confucius and Mencius, nor totally self-centered in disposition as held to be by Shang Yang and Han Fei, but somewhat in between and would reveal different aspects of their nature in different circumstances. Hence, Guan Zhong Said:

“All human beings have the same disposition: They would be happy when their desires are satisfied and distressed when encountering what they dislike. This applies to all, whether high or low in social position.” (《管子》• 禁藏第五十三)

“People would get angry when they are deprived of their possessions and become happy when bestowed benefits – this is in their nature.” (《管子》• 轻重乙第八十一)

With this rounded understanding of human nature, Guan Zhong noticed that capital, especially big capital, would tend to monopolize the market and grab others’ wealth by manipulating the prices, that is, to benefit themselves at the expense of others and of the whole public. Therefore, Guan Zhong blamed the government for the following situation:

“Now the situation is like this: When merchants sell at high prices, the government follows suit so that prices cannot come down to normal; when merchants sell cheap, the government does the same so that prices would not go up to normal…” (《管子》• 揆度第七十八)

Besides helping allocate resources and set reasonable prices for commodities, the market also serves as a barometer for observing the balanced or unbalanced situation in supply vs. demand and for observing the social climate, i.e., whether the society is heading for stability or chaos, as Guan Zhong put it:

Obviously, Guan Zhong had a broader and more profound view of the market than modern Western economics, especially a sober awareness of the negative side of capital with implications for the government regarding market management.

When asked by Duke Huan of Qi, who was concerned about the fluctuations and imbalance in supply-and-demand on the market, if there should be fixed prices in order to keep a balance, Guan Zhong replied:

“No, there should not be. To keep a balance means to have prices go up and down, not to fix them…. If we fix the prices, they will stay unadjusted by changing situations; then they will remain constant at all times… Without price differences at different times, we cannot put all commodities to effective use.”

“The four seasons of the year provides four opportunities. In Spring when the peasants begin farming, sell them farm tools on credits that are mutually guaranteed among the five or ten neighboring households registered as a grass-root administrative unit. Summer is another opportunity when the peasants will be busy making silk products. Autumn is still another for harvesting grains and Winter for women to do spinning and weaving inside the house. Hence, there are four occasions for consideration, once every season. Knowing the succession of the four seasons, the state can adjust commodity prices by implementing proper policies, making them go up or down by ten or a hundred times. Hence, commodity prices cannot be fixed at a certain point all the time. So it is said that to keep a balance does not mean to keep prices at a fixed point.” (《管子》• 轻重乙第八十一)

Guan Zhong had his unique and profound view of profit-making in a non-hegemonic market economy, a view based on a lofty social moral standard, and proposed a guiding principle for the formulation of corresponding institutions:

“Set up norms and rules with non-assertiveness (虚静), i.e., letting nature take its own course, as the basic guide, timeliness as of essential importance and impartial justice as the standard – all three consistently grasped being the guarantee for long lasting effectiveness. Anything against the standard one upholds, one would not do even if it’s beneficial; any practice against the norm one believes in, one would not pursue even if it’s profitable; any gains reaped in a way running counter to one’s moral belief, one would reject. First of all comply with Nature and then follow the will of the people. Do not collaborate on whatever is not favored by people; nor follow whatever is not initiated by Nature. Then what one says will be passed on to future generations; what one accomplishes will not change with time.” (《管子》• 白心第三十八)

That is to say, Nature’s way and the interests of the people as a whole should be the core considerations in setting up regulations for market economy and other social institutions in general. What is missing in modern Western economic theory is just this social ethical factor in the above concept concerning the pursuit of profits and economic interests. This 2000-year-old thought tradition has made Guan Zhong stand out all the more prominently throughout human history，according to whom the market is not only a mechanism for resource allocation and price-setting, it also provides signals for balance or imbalance between supply and demand and for observing social ups and downs, and, finally speaking, it helps pave the right way towards people-oriented prosperity.