These last few years, when people have discussed the path of economic development for China, discussions have generally been around whether to follow a free-market path, Hayek-style, or a Keynesian government-led path. Not long ago, the government in Zhongnanhai has invited many pro-market economists, such as Zhou Qiren, Xu Xiaonian, etc, to discuss economic questions, which many people have regarded as a signal that the next stage of China’s economy might be market-oriented. Prior to that, it is generally considered that since 2008, China’s economy has been on a Keynesian, government-led path. 中国经济在 凯恩斯政府主导经济的路径上，可以说已经信马由缰，而诸如老一代的市场派经济学家如吴敬琏，据说多年来不再被中南海看重，他们的声音事实上被边缘化已经很 久很久。
This question of economic theory orientation must really be considered in light of its Chinese characteristics. One major fact must be pointed out: if you consider the path of economic development since 1978, economic theory debate in China is not actually a confrontation between Hayek and Keynes, but a choice between Adam Smith and Karl Marx.
Adam Smith was slightly autistic. He liked to talk to himself, and often went on walks alone in the evening; once he went a bit far, the sky got dark, and he almost couldn’t find his way back home. Later, people jokingly speculated that, perhaps at that precise time, Smith’s head was all full of thoughts about about how to achieve universal affluence in human society.
In fact, there is a simple point of economic history which needs to be repeated again. In the last five thousand years of human history, apart from a very small number of privileged people, the normal state of human society was actually poverty. And so, as classical economics emerged, its mission was, of course, to think how to get rid of poverty, and to think precisely what reasons led a few people about 300 years ago to finally move towards affluence. What I’m saying is, why did the UK, symbol of the industrial revolution, and the neighbouring countries which first received the impact of the industrial revolution, such as Holland and Europe, and the United States of America, first launch the process of economic growth?
These are the questions that Adam Smith considered over the years.
“It is the great multiplication of the productions of all the different arts, in consequence of the division of labour, which occasions, in a well-governed society, that universal opulence which extends itself to the lowest ranks of the people.”(“The Wealth of Nations”, First Book)
Smith seems to emphasize that wealth comes mainly from the division of labour, causing a substantial increase in production; he also says that economic growth is the result of the development of a commercial society, and in a healthy commercial society, everyone is engaged in professional activities, and accepts the order of free exchange, and society therefore prospers. But let’s not forget, before talking about division of labour, Smith adds a qualification which we cannot dismiss, in a well-governed society.
In the late 19th century the Marxist theory of economic growth began to expand globally, with a different terminology, such as commodities, capitalist, exploitation, but the overall framework did not differ significantly from Smith. Marx considered that the huge increase in production which occurred in 18th century Britain was caused by the development of a commodity production system. The word ‘system’ which Marx uses actually refers to the same thing Smith described as division of labour. The longer the chain in the division of labour, the more abundant the products, and the more links in the division of labour chain, the more opportunities for innovation. What’s interesting is, Chinese people later developed a rigorously socialist planned economy with public ownership, where economic life was based on indeology 后来中国人大搞社会主义公有制计划经济，按照意识形态表述经济生活, and terms like ‘exploitation’ and ‘surplus value’ were all the craze, until in the beginning of the 80s, some started finding this too restrictive, a few Marxist economists began to re-read Marx, and only then did they find out the elderly Marx had used the words ‘commodity economy’, 于是如获至宝，and the socialist planned economy transformed into a socialist commodity economy.
In fact, the views of Marx were slightly more comprehensive than those of his Chinese apprentices. He uses the word ‘commodity’ to point out that the capitalists conduct production for profit, not for consumption; but he agrees with Smith’s description of the division of labour, which fully extends to all levels of society, so that everyone in the market is involved in a huge production system. According to the views of Chinese economists from the fifties, the meaning of this is that everyone suffered exploitation from the capitalists, and everyone contributed surplus value for the capitalists. This world is therefore extremely unfair. This is the heart of Marx’s economic system, and therefore, he changed one word in Smith’s description of a commercial society, he called it a capitalist society, and he built a utopian ideal in opposition to the capitalist society, which is the communist or socialist society.
However, if you go beyond these 呲牙咧嘴 agressive ideological statements, you can see that Marx actually fully acknowledged that the commodity society described by Smith, with private ownership and a production system based on profit, although it has many shortcomings, can provide huge wealth to human society. On this point, Marx said the following:
“The bourgeoisie, during its rule of scarce one hundred years, has created more massive and more colossal productive forces than have all preceding generations together. Subjection of nature’s forces to man, machinery, application of chemistry to industry and agriculture, steam navigation, railways, electric telegraphs, clearing of whole continents for cultivation, canalization or rivers, whole populations conjured out of the ground — what earlier century had even a presentiment that such productive forces slumbered in the lap of social labor?”
This is what Marx and Engels actually say in the “Communist Manifesto”. He not only described the heroic scene of a booming market economy in his time, but also described future developments. Within a hundred years of his death, the material achievements of what he called capitalist society, and what Smith called commercial society, can be described as mind-blowing 气吞万里. At the beginning of the 21st century, the wealth of human society is a splendid sight; even traditional agricultural China has caught the development momentum of the market economy, and within a short 30 year span, it evolved from being a poor country on the verge of collapse to being the world’s second largest economy.
Therefore, some people say that Marx was against Smith, but this is a misinterpretation of Marx. As an economist, Marx might just have wanted to create something new. Actually, people familiar with the history of classical economics are bound to know the following striking fact: to date, whoever wants to accomplish something in the field of economics must and can only look for possibilities within the academic framework set up by Smith, which means that, whether they respect him or confront him, all subsequent economists are all students of Smith. Marx would not be an exception.
As I make such a statement, I believe many supporters of Marx won’t be happy. But this is not my fault, it’s Smith being too open, he says:
“Many of the benefits of the division of labour, are far from being the result of human wisdom, although human wisdom can predict that the division of labour will produce general prosperity, and may like to use it to achieve wider general prosperity.” (“The Wealth of Nations”, Second chapter)
What Smith means is that the development of the division of labour is slow, gradual: no-one can design this process of historical evolution, and no one even thought of designing it. It is not a king, a government or a group who designed the division of labour. 事实上是一个个独立的市场个体，在每个人的专业化的过程中获得好处，人们用各自的方式进行专业化活动，each person’s decision makes the decisions of others more effective and easier, and in this way, a commodity society slowly develops, an efficient system and an order based on free exchange, where with the gradual diminution of transaction costs, people obtain universal benefits from the market through this process.
This is the invisible hand of the market that people keep talking about. To explain it more clearly, Adam Smith likes to take currency as an example. Currency is indeed a market phenomenon that can be repeatedly analysed, it is remarably important, and yet noone can name the inventor of the currency system: it is the result of the collaboration of those who participate in exchanges within a commercial society. Such far-reaching visions from Smith result from the influence of his teacher, Adam Ferguson. Ferguson’s book, “On the History of Civil Society”, describes it like this: “Nations established the existing social system by accident, it is a result of human behaviour, not the development of any human plan. Human society has often experienced the biggest changes, but not one of these changes was planned by people, and even these self-important officials can never take the economy of the country where they want it to by following a plan.”
This set of values, seeing plans as completely detached from the human, come from the Bible 这种将计划完全从人类行为的方式中抽离出来的价值观，来自圣经。This is another detail which needs to be repeated. Ferguson and Adam Smith live under the traditional order of the Church of England, and their fear of God is almost innate. That invisible hand of the market can only be the hand of God. People, when facing God, when facing the market, apart from fear, apart from obedience, cannot do anything. Any attempt to change the design of the market order is short-sighted. Any Utopian ideology that attempts to establish the kingdom of Heaven on Earth is ignorant of human nature. And I think, only on that point can we find the real difference between Adam Smith and Karl Marx.
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