Guanzi (《管子》) -- Earliest Masterpiece on Political Economy in Human History (6): Non-Hegemonic Theory On Government

Condensed translation from Chinese (including quotations from classics if not noted otherwise) by Sherwin Lu

EDITOR’S NOTE: Guan Zhong did not only put forward theories as a scholar but more importantly helped running the state as a statesman. In both his theory and practice he had the interests of all people under heaven in his heart, not just the interests of some privileged classes. That marks the major difference between his government and many governments of today’s world (which latter only serve the interests of big capital at home and abroad). It also distinguishes the East from the West in political-ethical tradition. In view of this contrast, the issue raised by modern Western liberals about whether a government should be big or small definitely sounds false and hypocritical in that it covers up the key issue, i.e., whose interests a government should serve.

Guan Zhong’s view on the function of government in regard with the market can be summarized in a nutshell: To use a modern metaphor, the government as the visible hand should protect the market as the invisible hand.

Recognizing the positive role of the market in promoting the state’s and people’s prosperity and also recognizing that it is in human nature to draw on advantages and avoid disadvantages, Guan Zhong maintained that the state should create a favorable environment for the market and let people do business for mutual benefits without improper interference, “like birds sitting on eggs to produce young ones, without stirring or asserting, just to let the process take its own course till its completion”, as he said:

“Social order or disorder originates in the way of running public affairs. So, those good at it restrain people with threat of harm while steering them with anticipation of benefits. Whoever can make the best of advantages and disadvantages will add wealth and reduce errors. It is only human to look for benefits and avoid harms. It is in expectation of benefits that merchants would look upon a thousand li as a short distance and travel round the clock to save time. It is in the same expectation that fishermen would go a hundred li against counter currents out to sea and risk dangers in ten thousand feet deep waters day and night. In a word, wherever there are benefits, people would not hesitate to go, either up ten thousand feet high mountains or deep down abysmal sea waters. Therefore, if only a state administrator is good at showing where lies the advantages, people will accept their roles with appreciation – they will go forward without being pushed and follow without being guided, so that they can get rich without being disturbed and annoyed. This is like birds sitting on eggs to produce young ones, without stirring or asserting, just to let the process take its own course till its completion. To follow the seasons of Nature as an established custom and follow the will of the people as the law – this is the basic way to run a state…” (《管子》禁藏五十三)

This shows that Guan Zhong adopted a non-assertive policy of no-intervention towards people’s reasonable pursuit for profits, i.e., if such pursuit was also beneficial to the society at the same time, as he was well aware that government interference would reduce the profitability of people’s efforts at production or even cause losses resulting in market chaos and social crises:

“When one farmer does not grow crops, there must be some people suffering from hunger because of it. When one woman does not spin or weave, there must be some people suffering from cold because of it. If the farmers’ income reaches two times higher compared with the amount of capital they invested, the people will no longer be forced to sell their children for survival. If it reaches three times higher, the people will have enough to eat and wear. If it reaches four times higher, the people will have enough money to pay all taxes levied upon them. If it reaches five times higher, the grain surplus can be transported everywhere and funeral ceremonies for the dead can also be afforded. Nevertheless, nowadays the income of a harvest cannot match the amount of capital people invest, and the sovereign is endlessly demanding money and collecting taxes from them. Thus, people will not dare to travel alone because there might be bandits and robbers on the paths and they will not feel safe if they keep money or possessions at home. If severe penalties are used to maintain order, it will be nothing but murdering people secretly. If only three of all kinds of crops can ripen well, there will be bandits robbing others for survival in each [xiang] because they do not have enough food to support themselves. If only two of all kinds of crops can ripen well, there will be bandits robbing others for survival in each li because they do not have enough food to support themselves. If only one kind of crop can ripen well, there will be bandits robbing others for survival in every family because they do not have enough food to support themselves. The income [from] the harvest of that year reaped by the common people cannot cover the amount they invested. They have to rely on grain bought at a price forty times higher compared with the average normal price. Therefore, it is not possible for them to settle down but have to leave for other places even though they are not asked to do so by the state. Moreover, you [Duke Huan] always order the people to pay the taxes within one day after they are told．The wealthy people will pay in cash, [but] people without cash at hand will have to trade their clothes and shoes etc. for money. The farmers are forced to sell off grain at only three tenths of the normal price. Thus, when tax policy is carried out stringently, assets of the state will flow out to other states all over the world. When the sovereign demands endlessly, the common people will be out at the elbows and forced to leave their native places to live in the mountains. As a result, soldiers will not have a chance to see their parents, families will be broken up, the common people will go into exile within the state, and the intellectuals will take refuge in other states. If this is the case, the state wilI suffer a severe debacle even though no attack has been launched against it.”(《管子》轻重甲第八十。Trans. by Jiangyue Zhai)

Obviously, Guan Zhong defended people’s autonomy in production management in pursuit of normal and reasonable profits and opposed government interference in profit-seeking on the market when it benefited all parties related. In a word, according to him, the government should protect the “invisible hand” of the market with its own “visible hand”.

Guan Zhong held that people of the same occupation (scholar-officials, peasants, craftsmen, or merchants) should be arranged to live in a same area, so as to facilitate development and passing on through generations of their specific occupational skills to promote social production and stability. When Duke Huan asked about how to settle people and help them with their means of livelihood, Guan Zhong replied:

“The four groups of people, that is, scholar-officials, peasants, craftsmen, or merchants are the bedrock of the state. They should not be made to mix; people of different occupations living together do not have much in common to communicate and deal with. Therefore, the sage-kings always have scholar-officials live in quiet quarters, peasants by the open field, craftsmen close to government sites, and merchants near the market…. Let merchants live together and they will observe whether the crops of the year are good or bad, look at the conditions of the state throughout the four seasons, and make a research of local products so as to predict market prices. They will transport heavy loads by driving cattle or horses all over the state; by estimating demand for and availability of products, they calculate their prices and exchange what they have for what they have not, buying cheap and selling dear. Thus, pheasant feathers would come by without searching; while bamboo arrows are in abundance in the state, all kinds of curiosities and rarities would come from afar and converge from time to time.…” (《管子》小匡第二十)

Guan Zhong believed that the government should provide favorable market conditions to attract people to Qi for trading and investing. When Duke Huan asked how to obtain things that Qi lacked such as furs, bones, dried tendon, horns, bamboo arrows, feathers, ivory, and leather, Guan Zhong replied:

“Only by purchasing from all sources…. Please issue orders for establishing hospitality inns for merchants from other states, which should provide free meals for a guest with a four-horse chariot, free fodder in addition for the twelve horses of a guest with three such chariots, and five attendants besides all the above for each guest with five such chariots. Then, merchants will come swarming in from all other states….” (《管子》轻重乙第八十一)

Thanks to Guan Zhong’s policy of setting up a favorable environment for market investment, a huge influx of commodities, capital and human resource helped boost the prosperity of Qi market and make Lingzi, Qi’s capital, probably one of the world’s largest cities of that time, with a perimeter of 40 li, a population of 70000 households, and 0.35 million people in its inner city.

Guan Zhong was well aware that capital knew no homeland so that in critical times of war big capital would not join efforts to defend the state but on the contrary would fish in the troubled water and try to profit from the war. When Duke Huan asked about the possibility of losing control of such a situation”, Guan Zhong replied，

“If other states of the world attack us, the common people will put aside their ploughs, fetch their daggers and leave their homes to defend the state. Thus, the fields of the state cannot be cultivated. This kind of disaster is not caused by natural catastrophe but by human beings instead. Under the stressful conditions of war, the sovereign will ask all taxes to be paid on the same day the order is issued. The common people are forced to sell their assets and grain at half-price to accumulate the amount of taxes they need to pay. Merchants will take the chance to store these things. Thus, half of the total wealth of the state will be controlled in their hands. When the war is finished, the common people will go back to their old jobs again, and the prices of things will return to previous levels. The merchants will sell off goods they hoarded. In that case, a little less than one half of the money of the state will be kept by them. Thus, the value of money will be driven up by three tenths, but the prices of other items will come down by three tenths. The merchants will do business within a profit range of three tenths of the original capital they invested. As a result，all assets of the state will be controlled in their hands and the sovereign cannot do anything to change the situation. Thus, the common people will enslave one another based on the wealth they possess and the sovereign becomes helpless. In this case, the sovereign loses control of the situation because he is not able to regulate prices and supply.” (《管子》揆度第七十八。Trans. by Jiangyue Zhai)

This profound observation by Guan Zhong about the selfish and exploitative nature of capital was echoed over 2000 years later by Adam Smith in his The Wealth of Nations when he cited the “Old World” colonialists’ destructive pillage of the “New World” (Part 4, Chap. 1) and pointed out that merchants’ interests are never entirely in line with those of the public but, generally speaking, lie in cheating and oppressing the public (Chap 11) – This is Adam Smith’s actual view of capital in spite of those liberalist economists’ distortion of him. How could economists such as Nassau William Senior、James Mill、Paul Anthony Samuelson and Milton Friedman fail to notice, or did they deliberately pretend not to see, Smith’s sharp criticism of capitalists’ greediness?

Guan Zhong knew very well that capital should not be allowed to over-concentrate lest big capital should be able to usurp government power and pose as a threat to the interests of the public and the state and that, if those tycoons managed to bribe their way into the ruling circles, state policies would tend towards their interests, social wealth be further concentrated in their hands, polarization between the rich and the poor further aggravated, then social morality decline, running the state become more difficult, and soldiers refuse to fight for defense of the state. This was what he said:

“If merchants hold power in the government, wealth would flow upwards…. Then the system of punishment and award would lose credibility, people know no shame and become discontented, and soldiers hardly be willing to sacrifice their lives to defend the state.” (《管子》权修第三)

Guan Zhong went on further to warn that, even if big merchants were not yet in control of state power but if they are in possession of a larger part of the wealth in the state, they would be able to manipulate the market, thus creating a dangerous situation of “one state with two kings [so to speak]”:

“A state of ten thousand chariots must have at least one merchant whose savings are worth ten thousand jin of gold. A state of one thousand chariots must have at least one merchant whose savings are worth one thousand jin of gold. And a state of one hundred chariots must have at least one merchant whose savings are worth one hundred jin of gold. These people are in no way helpful to their sovereigns but are interfering with the authority of the throne instead. Hence, if a sovereign is not careful with his edicts, there will be two sovereigns or kings in his state…. Now you are collecting taxes directly in terms of money. The price of tens of thousands of items will come down to one half (it means that in order to be able to pay the amount of tax, the common people are forced to sell their goods at very low prices) and these goods will be hoarded by the merchants. So, there are two sovereigns or kings, within one state. Hence, the merchants will take advantage of the common people’s precarious positions to make a huge amount of profits. Accordingly, the poor people will lose their possessions, and will be doubly impoverished. The farmers will lose their grain, and they will be doubly deprived….” (《管子》轻重甲第八十。Trans. by Jiangyue Zhai)

In a word, Guan Zhong, and Adam Smith as well, while acknowledging capital’s pursuit of profits did sometimes benefit all parties, did not ignore that such pursuit often did harm to others and the public in general. Modern Western economists, however, choose to disregard Smith’s profound insight, take capital’s sometimes benefitting all parties as an axiomatic principle functioning all the time for market economy, and impose their liberalist dogmas on all others as the most rational and perfect theory, spreading their pernicious influenceall over the world.

While opposing improper interference, Guan Zhong did not mean it to be what has been advocated by modern Western liberalist economists -- the so-called laissez-faire policy. It was because he knew that disorderly competition or natural conditions might upset the balance between supply and demand from time to time, which would then cause upheavals in prices and thus require intervention. And also because he knew that capital’s selfish pursuit for profits, while sometimes benefiting all related parties, might at some other times harm the interests of others or of the general public by plundering the common people, thus creating sharp gaps between the rich and the poor, breaking supply-demand balances, and causing social crises, which would call for government action to end market abuses while protecting those activities that were beneficial to all.

In a word, Guan Zhong had the most profound understanding of the function of the market: It was not only a place for commodity exchanges, a way for resources allocation, and a mechanism for price setting, but In the final analysis, it bore upon the development of economy, the stability of the society and the fate of the state. Therefore, Guan Zhong thought it necessary, while guarding against improper interferences, to intervene into the market with a view to keeping overall balance:

“Good management lies in thoughtfulness; success in practical handling; failure in arrogant inattentiveness. No management without thoughtfulness; no success without practical handling; no failure without arrogance. So the market can tell if the state is in good order or not. It can tell if the society has plenty of materials, though it does not produce any; hence it can be managed. ” (《管子》乘马第五)

As to concrete measures for market intervention, the two major ones are macro-level regulation through the operation of state storage of grains and monetary fund, and the rule of law all over the state including the market.