Month: June 2021

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Positive and Negative Liberty

Negative liberty is the absence of obstacles, barriers or constraints. One has negative liberty to the extent that actions are available to one in this negative sense. Positive liberty is the possibility of acting — or the fact of acting — in such a way as to take control of one’s life and realize one’s fundamental purposes. While negative liberty is usually attributed to individual agents, positive liberty is sometimes attributed to collectivities, or to individuals considered primarily as members of given collectivities.

The idea of distinguishing between a negative and a positive sense of the term ‘liberty’ goes back at least to Kant, and was examined and defended in depth by Isaiah Berlin in the 1950s and ’60s. Discussions about positive and negative liberty normally take place within the context of political and social philosophy. They are distinct from, though sometimes related to, philosophical discussions about free will. Work on the nature of positive liberty often overlaps, however, with work on the nature of autonomy.

As Berlin showed, negative and positive liberty are not merely two distinct kinds of liberty; they can be seen as rival, incompatible interpretations of a single political ideal. Since few people claim to be against liberty, the way this term is interpreted and defined can have important political implications. Political liberalism tends to presuppose a negative definition of liberty: liberals generally claim that if one favors individual liberty one should place strong limitations on the activities of the state. Critics of liberalism often contest this implication by contesting the negative definition of liberty: they argue that the pursuit of liberty understood as self-realization or as self-determination (whether of the individual or of the collectivity) can require state intervention of a kind not normally allowed by liberals.

Many authors prefer to talk of positive and negative freedom. This is only a difference of style, and the terms ‘liberty’ and ‘freedom’ are normally used interchangeably by political and social philosophers. Although some attempts have been made to distinguish between liberty and freedom (Pitkin 1988; Williams 2001; Dworkin 2011), generally speaking these have not caught on. Neither can they be translated into other European languages, which contain only the one term, of either Latin or Germanic origin (e.g. liberté, Freiheit), where English contains both.

The rest of the analysis can be read here.

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The Chinese Philosopher: Huang Zongxi. A Champion for Private Property Rights

by Paul Meany

Huang Zongxi argued for a constitutional model of government designed to benefit all people, not just the ruling class, and which stressed the importance of respecting private property rights.

Many libertarians admire the Enlightenment as the time when early liberals laid down the intellectual foundations on which were built our flourishing modern world. At times, this can lead some libertarians to believe that a system which emphasizes free enterprise, constitutional government, and personal liberty can only be achieved through what is often dubbed ‘western values.’ However, the truth is more complex. The concepts of personal and political freedom were not unique to Enlightenment Europe. People from different parts of the globe, a variety of religions, and across many eras have theorized about the value of freedom and how to best preserve its benefits.

One thinker belonging to this long list of non‐​western practitioners is the Chinese philosopher Huang Zongxi. He argued for a constitutional model of government designed to benefit all people, not just the ruling class, and which stressed the importance of respecting private property rights.

HUANG’S LIFE

Huang was born in 1610 in Zhejing province in China. His father Huang Zunsu was a high ranking official of the Ming Dynasty. Thanks to his father’s high ranking position, Huang was able to study history and philosophy extensively. He was introduced to the scholar Liu Tsung‐​chou, under whom he studied for a number of years. Zunsu’s works show that he was well versed in philosophical matters and did not wholly subscribe to any particular school dogmatically. Instead, he drew from different traditions as he saw fit.

Huang’s father, Zunsu, had opposed the unchecked authority of eunuchs at the Chinese royal court. Indeed, Zunsu died after being imprisoned by his political opponents in 1626. Huang boldly protested the death of his father, at the capital city of the Ming Dynasty, he then returned home to dedicate himself to his studies.

By 1644 the ascendant Manchu Qing dynasty had taken control of the former Ming territories. Huang spent many years as part of a guerilla resistance against the Manchu Qing dynasty which he regarded as foreign invaders. Eventually, Huang abandoned the fight against the Qing dynasty, although he refused to cooperate or take any government positions that he was later offered. Instead, Huang dedicated the rest of his life to studying history, politics, and philosophy. During his retirement from public life, Huang produced arguably his finest work in 1663, Waiting for the Dawn: A Plan for the Prince, an extensive criticism of the Ming regime and a comprehensive set of proposed reforms.

THE FIRST RULERS

Huang believed that before there was any government, people tended to their affairs with no acknowledgement of the common good. This was not an idealized state of nature, but nor was it complete anarchy. According to Huang, looking after one’s own interests is entirely natural, and he deemed selflessness to be a rare and fickle virtue.

For Huang, the primary issue which plagued the Ming regime was the excessive greed of those in power. To rule is to take into account the interests of others and to selflessly pursue what other people wish for; that, however, is difficult given that “to love ease and dislike strenuous labour has always been the natural inclination of man.” The first people who ruled did so with extreme reluctance knowing how difficult it would be to rule in the common interest of all. Some even tried to quit but were forced to continue. The first rulers understood that to rule correctly was an immense effort that was, for the most part, a thankless job.

However, as time passed, new rulers decided that since they did so much for their people, it was perfectly justifiable to rule for their own benefit. They began to use the state to benefit themselves, and because of their selfishness, these rulers made their subjects miserable and downtrodden. Therefore, according to Huang, “He who does the greatest harm in the world is none other than the prince.” The solution to this miserable state of affairs is for princes to rule justly with true laws.

WHAT IS LAW?

Huang states that there has not been true law since the end of the Three Dynasties over a thousand years previously. Since then, all rulers had cared about was preserving their dynasty, they had refused to look to the common good of the people. Huang referred to the laws established after the three dynasties as “dynastic law.” But he did not believe that dynastic law could be called true law as it was narrowly based upon the interests of the rulers, that “what they called ‘Law’ represented laws for the sake of one family.” For any law to be true law it must conform to the dictates of “all under heaven” (or what can be broadly termed the will of the people). Huang writes that “in ancient times all under heaven were considered the master and the prince was the tenant.” The state existed to serve the people, not vice versa. True laws, for Huang, must not favour any particular group over another. Instead, laws must conform to a higher standard of justice which had been originally embodied by the sage kings of the past. Laws are not just, simply because a ruler has established them. If law does not conform to a higher standard of justice, it can hardly be called true law.

GOVERNANCE BY LAWS

Huang believes that first and foremost we need laws before we need leaders. By contrast, earlier philosophers such as Xunzi in the third century BC had written: “There is only governance by men, not governance by law.” To which Huang replied, “Only if there is governance by law can there be governance by men.” However, law alone is not enough; Huang had seen how knowledgeable men like his father were ousted from government positions due to entrenched and unchecked power. We cannot count on virtuous rulers alone to guide us and to preserve true law. Thus Huang believes that we need institutions to put checks on power and to stop any individual dominating all others.

Huang had no time for the idea of divine rule, and he questioned those whom he called “petty scholars” who insisted that the duty of the subject to his prince is utterly inescapable.”The sage kings of the past deserve praise and respect but the princes of today deserve little if any praise,” Huang argues, further asking, “Could it be that Heaven and Earth, in their all‐​encompassing care, favor one man and one family among the millions of men and myriads of families?” While Huang did not wish to abolish the emperorship entirely, he strove to desacralize the state. The state is neither quasi‐​divine nor should it command the total obedience of its people. As we have already seen, the relationship for Huang between sovereign and citizen is actually inverted; the people are the masters, and the state is the tenant.

REINSTATING THE PRIME MINISTER

In theory, the Ming dynasty was ruled by an emperor and supported by a court which was composed of ministers and civil service members. The reality was a departure from this ideal. Emperors resented and resisted any check upon their power. To cement their position, emperors tended to promote only those civil servants who were wholly servile, especially eunuchs, who had long been a crucial part of the Chinese government. They tended to the emperors household and his personal needs, which gave them immense influence as they were naturally intimate with the emperor and increasingly infringed upon the administration of civil affairs.

To this end, Huang argues that the previously abolished office of prime minister should be reinstated. While one man should act as prime minister, he would have multiple vice premiers, all of whom are scholars with whom he would consult. Huang had three critical reasons for arguing for the reinstatement of the premiership:

Firstly, no matter how wise or hardworking, no one man can rule alone. While Princes may have been created initially to rule, “All under Heaven could not be governed by one man alone.” To remedy this, the prime minister aids the prince. Secondly, the emperor is decided by hereditary succession. Huang states that in ancient times “succession passed, not from father to son, but from one worthy man to another.” A person being handed a position based upon their lineage is no guarantee that they will rule justly. While Huang does not specify precisely how the prime minister will be chosen, he believes that the role will act as a buffer in case the emperor is not a competent ruler given that the Prime Minister’s power will be equal to that of the emperor. Thirdly, by reviving the position of the prime minister, the government affirms the principle that no man should hold supreme power and that instead, power should be divided and shared in order to serve the people best.

Huang’s reforms aim not only to make government more effective but, by putting qualified people in power, it also serves to check the power of the emperor who, without constraints, would have little stopping him from becoming tyrannical. Thus Huang’s approach can be described as constitutional in its fundamental nature. Constitutionalism, as a broad idea, is a set of rules, principles, and norms which define the limits of government authority to avoid arbitrary despotism.

HUANG AND PRIVATE PROPERTY

For Huang, it was essential that the government did not encroach upon property rights. According to Huang, during ancient times there was no private property. The sage kings distributed land through what was known as the well‐​field system. Huang explains that during this time “land was granted by the king to the people. Therefore, such land can be called the king’s land.”

However, after the sage kings subsequent rulers no longer distributed land to the people. Instead, people acquired land through sale and purchase. By the second century, private property had been established. Because the land was purchased by the people and not granted by a king, Huang concluded that “the land is the people’s land and not the king’s land.” For Huang “all land is either official or private.” The difference between the two is that official land is owned by the state and cannot be bought or sold, while private land can be traded and belongs to individuals.

Huang argues that that private property ought to be protected since people have a moral right to keep what they own. However, Huang does not stop there. He also argues that property rights set limits on government power. By protecting property, it underpinned the principle that emperors should not view “the world as an enormous estate to be handed on down to his descendants, for their perpetual pleasure and well‐​being.” Instead, emperors should respect the rights of their subjects and refrain from appropriating property.

AGAINST REDISTRIBUTION

Not all rulers in history were selfishly trying to expropriate property. Many genuinely wished to redistribute wealth in order to help the poor. To achieve this, some believed in limiting or equalizing the distribution of property. Huang replied to this proposition saying that “doing even one act that is not right” should not be allowed. People have a right to their property and this should not be violated even in the event that the motivation is to help those in need. Huang wonders why “should one needlessly make a big thing out of causing the well‐​to‐​do to suffer?” He proposes instead that the state should redistribute official property, which had been established for the emperor’s family and allies, and should be given to the poor. For Huang, it was perfectly natural to pursue one’s own self‐​interest and to accumulate property. He supported individuals autonomously pursuing their own interests.

SIMILARITIES BETWEEN HUANG & JOHN LOCKE

Huang’s political thought bears a striking resemblance to the influential English philosopher John Locke’s Second Treatise on Government. Locke has been referred to as the Father of Liberalism, his political thought centred on his arguments for natural rights, government by consent of the people and his theory of private property has been massively influential on classical liberalism.

As we have already seen, Huang was sceptical of the claims of divinity that emperors had made throughout history. Much later, Locke would argue against divine monarchy by saying that even if God had given the right to rule to someone, such as Adam from the bible, there would be no way of determining who are his rightful descendants. Thus Locke concluded, “that in the races of mankind and families of the world, there remains not to one above another the least pretence to be the eldest house, and to have the right of inheritance.”

Huang believed true law serves the common good and does not favor any particular group. Similarly, Locke argued that the principle of “let the welfare of the people be the ultimate law” is such a fundamental rule that “he, who sincerely follows it, cannot dangerously err.” Both Huang and Locke based the legitimacy of the law upon how it served the interests of the governed not the rulers.

Huang wished to see the position of the prime minister reinstated to check the power of the emperor. Locke proposed that government ought to be composed of legislative, executive, and federative powers. This separation of powers allowed not only for a more effective government but also one which would not quickly descend into tyranny.

Finally, Huang and Locke both argued that the government ought to protect the institution of private property. Locke, like Huang, believed that property was once commonly owned but that when people mixed their labour with the land they appropriated what belonged to nature and made it their own. While Huang’s theory of how land becomes privately owned is not exceptionally robust, it is clear that, akin to Locke, he believed that people have a moral right to hold onto what is rightfully theirs.

Despite living on opposite ends of the world, Huang and Locke came to very similar conclusions on the proper ends of the state. Possibly it is because both had fathers who fought against incumbent regimes and both men lived through civil conflicts which resulted in regime changes. Huang Xongxi is an excellent example of how quite different philosophical traditions have arrived at broadly classical liberal ideas without being part of the same so‐​called ‘western tradition’ or ‘western values.’

There is much to admire in the Western tradition of philosophy, but this does not mean we cannot praise and synthesize other traditions. Thinkers like Huang remind us that all cultures, religions, and peoples have traditions which advocate for the freedom of the individual.

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What Pinochet Did for Chile

by Robert A. Packenham, William Ratliff

Pinochet directed the coup of September 11, 1973, and presided until 1990 over a military regime that violated human rights, shut down political parties, canceled elections, constrained the press and trade unions, and engaged in other undemocratic actions during its more than 16 years of rule. These facts are important and widely recounted.

A number of other important truths about the Pinochet period and its legacy are equally well documented but less well known. Indeed, they are often not acknowledged at all. (A notable partial exception to this rule was the Washington Post editorial of December 12 that bore the headline “A dictator’s double standard: Augusto Pinochet tortured and murdered. His legacy is Latin America’s most successful country.”) We will focus on the generally neglected, discounted, distorted, and sometimes falsely denied or suppressed aspects of the Pinochet legacy that have truly made Chile, despite its continuing challenges, “Latin America’s most successful country.”

What Kind of Democracy Did the Coup Displace?

The 1973 coup is often represented as having destroyed Chilean democracy. Such characterizations are half-truths at best. In the late 1960s and early 1970s, Chile’s democracy was already well on the road to self-destruction. The historian James Whelan caught its tragic essence when he wrote that Chile’s was a “cannibalistic democracy, consuming itself.” Eduardo Frei Montalva, Chile’s president from 1964 to 1970, who helped to bring in Salvador Allende as his successor, later called the latter’s presidency “this carnival of madness.” Freedoms increasingly overwhelmed responsibilities. Lawlessness became rampant. Uncontrolled leftist violence had also been escalating during the government of Christian Democrat Frei Montalva, before Allende became president and long before Pinochet played any role whatsoever in Chilean politics.

In 1970, Allende won 36.2 percent of the popular vote, less than the 38.6 percent he had taken in 1964 and only 1.3 percent more than the runner-up. According to the constitution, the legislature could have given the presidency to either of the top two candidates. It chose Allende only after he pledged explicitly to abide by the constitution. “A few months later,” Whelan reports, “Allende told fellow leftist Regis Debray that he never actually intended to abide by those commitments but signed just to finally become president.” In legislative and other elections over the next three years, Allende and his Popular Unity (UP) coalition, dominated by the Communist and Socialist parties, never won a majority, much less a mandate, in any election. Still Allende tried to “transition” (his term) Chile into a Marxist-Leninist economic, social, and political system.

Allende’s closest UP allies were the Communists, the right wing of the UP, but both were pressed to move faster than they wanted by the left wing of the UP, mainly members of Allende’s Socialist Party, and by ultraleftists (the term used by the Communists) to the left of the UP. Violence escalated rapidly, with the extreme left, including many members of the president’s own party, seizing properties and setting up independent zones in cities and the countryside, often contrary to what Allende and the Communists thought prudent. In the process Allende, his supporters, and extremists they could not control virtually destroyed the economy, fractured the society, politicized the military and the educational systems, and rode roughshod over Chilean constitutional, legal, political, and cultural traditions. Thus by July 1973, if not earlier, Chile was looking at an incipient civil war.

Pinochet’s 1973 coup was supported by Allende’s presidential predecessor and by an overwhelming majority of the Chilean people.

Many on the left had long believed that capitalism and democracy were incompatible. In a brazen demonstration of its contempt for majority wishes, and for the institutions of what it called “bourgeois democracy,” the pro-Allende newspaper Puro Chile reported the results of the March 1973 legislative elections with this headline: “The People, 43%. The Mummies, 55%.” This attitude and the actions that followed from it galvanized the center-left and right, whose candidates had received almost two-thirds of the votes in the 1970 election, against Allende. On August 22, 1973, the Chamber of Deputies, whose members had been elected just five months earlier, voted 81–47 that Allende’s regime had systematically “destroyed essential elements of institutionality and of the state of law.” (The Supreme Court had earlier condemned the Allende government’s repeated violations of court orders and judicial procedures.) Less than three weeks later, the military, led by newly appointed army commander in chief Pinochet, overthrew the government. The coup was supported by Allende’s presidential predecessor, Eduardo Frei Montalva; by Patricio Aylwin, the first democratically elected president after democracy was restored in 1990; and by an overwhelming majority of the Chilean people. Cuba and the United States were actively involved on opposite sides, but the main players were always Chilean.

Authoritarian, Not Totalitarian

The Chilean military regime from 1973 to 1990 was authoritarian, certainly, but not totalitarian. This distinction is fundamental in comparative political analysis. Totalitarian regimes legitimize and practice very high degrees of penetration into all aspects of the economy, society, religion, culture, and family, whereas authoritarian regimes do not. Totalitarian regimes have dominant single parties; coherent, highly articulated, widely disseminated ideologies; very high levels of mass mobilization and participation directed and manipulated by the regime; and a strict control over candidates, when there are any, and policies. Authoritarian regimes have mentalities more than ideologies, low levels of political participation, and limited pluralism and competition of policies and political actors (including the press), with some constraints on regime control and manipulation of the polity, society, economy, family, religion, culture, and the press.

Consider also the two types of regimes’ different propensities to enable a transition to democracy. Totalitarian systems—once in place and short of external military conquest and occupation—are much harder to change than authoritarian ones. Pinochet’s authoritarianism in Chile ended after 16 years in a peaceful and constitutional transfer of power, permitted by a constitution passed in 1980; Castro’s totalitarian regime in Cuba has lasted 48 years so far. Chile’s democracy after 1990 has been vigorous and stable. As reported by Hector Schamis in the Journal of Democracy (October 2006), Chile’s current foreign minister, Alejandro Foxley, recognized early in the first post-Pinochet democratic government that “the constitutional rules left by Pinochet had ‘somewhat ironically fostered a more democratic system,’ for they forced major actors into compromise rather than confrontation and, by ‘avoiding populism,’ increased ‘economic governability.’”

The Economic Legacy

It has become fashionable in some quarters lately to claim that Chile’s successful record of economic development in recent decades actually began in 1990, during the first civilian government since 1973. That claim is false. The historical record is clear. President Pinochet and his civilian advisers, after an elaborate and lengthy process of deliberation and decision making in 1973–1975, in which various alternative courses of action were considered, put in place the radically new set of market-oriented structures and policies that have been and remain the foundations of Chile’s subsequent three decades of economic and social development. This new model, which we call social capitalism, was adjusted, revised, and supplemented during the Pinochet years, most importantly in response to an economic crisis in the early 1980s and also in the post-1990 civilian years. But its main elements have not changed, and thus far no post-1990 government has proposed or seriously considered going back to either of the two previous, failed models, namely, state capitalism (1938–70) or state socialism (1970–73).

As the then finance minister, Alejandro Foxley, said in a 1991 interview: “We may not like the government that came before us. But they did many things right. We have inherited an economy that is an asset.” All four civilian governments since 1990 have maintained the new, more market-oriented economic and social models inherited from the military regime. Although there were changes at the margins after 1990, the point of sharpest and deepest positive change was unquestionably 1973 and immediately thereafter, not 1970 or 1990.

The Neoliberalism Myth

It is often said and widely believed that Pinochet’s economic reforms eliminated any significant role of the state in the economy. The claim is that he introduced a neoliberal model, that is, raw, savage capitalism of the kind attributed to Chile in the nineteenth century. The facts are otherwise. Chile’s largest industry and biggest foreign-exchange earner by far is copper, which was nationalized in the late 1960s and early 1970s and has remained so ever since. Domestic banks were deregulated in the late 1970s but reregulated with vigor in the early 1980s. Poverty had increased enormously during and in the wake of the UP’s disastrous economic policies, and it decreased only as a result of the state-led stabilization policies, structural reforms, and targeted social programs of the Pinochet period. Major state expenditures for direct action social programs targeted to the poorest of the poor were initiated in the middle 1980s, not after 1990. Poverty levels, as high as 50 percent in 1984, were reduced to 34 percent by 1989. They continued to fall after 1990 to 15 percent in 2005. The Concertación, the alliance of political parties of the center and left that has won the past four presidential elections, deserves some credit for the post-1990 years, but so does the Pinochet government. It created the underlying economic policies and structures in the 1970s and 1980s that the Concertación maintained and that produced jobs for the poor and an economic surplus to enable targeted state antipoverty programs.

Legacies for the World

The innovations in economic and social policy of the Pinochet government had significant influences on, and implications for, not only subsequent governments in Chile but also the rest of Latin America and the wider world. Today almost the entire globe relies on the state less and on markets more than in 1973. The first country in the world to make that momentous break with the past—away from socialism and extreme state capitalism toward more market-oriented structures and policies—was not Deng Xiaoping’s China or Margaret Thatcher’s Britain in the late 1970s, Ronald Reagan’s United States in 1981, or any other country in Latin America or elsewhere. It was Pinochet’s Chile in 1975.

What once looked like a reactionary economic model is now the standard in much of the world.

At that time the Chilean economic model was considered anathema almost everywhere—partly because of its association with Chile’s military regime but also because it was viewed (wrongly, as it turned out) as an unthinkable, reactionary model per se, especially for developing countries. (Of the many military regimes in Latin America in the sixties, seventies, and eighties, the only one to break with state capitalism was Chile’s.) But global perceptions of the Chilean economic model changed, slowly at first, more rapidly and massively after the mid-1980s. By now, the economic policies of most countries of Latin America; North America; Western, Central, and Eastern Europe; China; India; Russia and its former republics; much of Africa; and many other places around the world have followed the Chilean lead rather than fled from it.

The autumn of Two Dictators

Pinochet’s death occurred just as Fidel Castro was lying gravely ill in Cuba. Have commentators described and evaluated them with equal accuracy and fairness over the decades?

Castro killed at least as many Cubans as Pinochet did Chileans. Pinochet’s government has been justly condemned for engaging in some terrorist activities abroad, from Argentina to the United States. Amnesty International strongly supported the Chilean leader’s extradition to Spain in 1998 for a trial it thought would enact justice. But Castro trained thousands of guerrillas from countries all over the world and sent hundreds of thousands of Cuban troops to many countries on at least three continents to launch and wage wars that brought untold death and destruction. We can’t recall human rights organizations agitating for his extradition, or for his being brought to justice even posthumously in Cuba. Finally, Chile is the most successful case of economic, social, and political development in Latin America and a pioneer in the global shift to enlightened social capitalism. Cuba is a dismal, impoverished, dynastic totalitarian anachronism.

All four civilian governments since 1990 have maintained the new, more market-oriented economic and social models inherited from the military regime.

How many nations a decade or century from now will aspire to the “successes” of Fidel Castro—or of Salvador Allende? A much more positive case can be made for major parts of Pinochet’s legacy. It’s time to acknowledge that the legacies of the Pinochet years are a much better mix than they are usually said to be.

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China’s Monetary Tradition and the Origins of Money

Written by Joseph T. Salerno

In the introduction to this book, first published in English in 2010, I wrote: “The idea of sound money was present from the very beginning of modern monetary theory in the works of the sixteenth-century Spanish Scholastics….” Recent research has shown that the seeds of the theory of sound money were already present in Chinese writings centuries before the Scholastics.1

China was one of the first countries to develop a metallic money that was valued and exchanged by weight. Evidence suggests that this monetary regime originated during the Shang Dynasty (1766–1122 BC) or the Zhou Dynasty (1122–221 BC). China was also one of the first countries to use precious metals as money and may have invented coined money. The long experience with a purely metallic monetary system naturally stimulated Chinese state officials, royal advisers, and philosophers to investigate and debate the origins and functioning of such a system and the policies appropriate to its smooth operation. It is therefore not surprising that China developed a rich tradition of monetary thought, which extended over nineteen centuries (roughly 700 BC to 1200 AD). This literature on monetary theory and policy embodied ideas, insights, and controversies that would appear in European writings only centuries later. In particular, some contributors to this Chinese monetary tradition formulated the conceptual foundations of the theory of sound money, the topic of the present book.

While ideas about the development of money were expressed as early as the seventh century BC, the most prevalent view of money’s origin is attributable to a politician of the sixth century BC. Shan Qi (b. 585 BC) contended that money was invented by one of the ancient philosopher-kings to measure the value of goods. However, several Chinese writers later disputed this story and argued that money originated as a market phenomenon. Sima Qian (104~91 BC), Luo Mi (1165~1173 AD) and Ye Shi (1150~223 AD) basically argued that money grew out of the trading of commodities and could not have emerged in the absence of commodity exchange. Money was only later adopted by kings as an aid in ruling their countries. 

The first step in theorizing correctly about money is to understand that the value of money, like that of commodities, is never fixed and unchanging. Chinese philosophers who published the earlier Mohist Canons(468 BC~376 BC) grasped this crucial point. They recognized that metallic money, such as the “knife coins” then in wide circulation, was valued and exchanged by weight and argued that the real value of money, despite its fixed face value, was not stable but fluctuated inversely with the prices of commodities. When commodity prices were high, money was “light” or its purchasing power low; when prices were low, money was “heavy” or its purchasing power high. Thus, if monetary conditions were such that the nominal prices of commodities were abnormally high, the real prices of commodities were not high but rather money was “light” or depreciated.

In investigating the market conditions that determined the purchasing power of money, two eighth-century Chinese writers, Liu Zhi (734 AD) and Lu Zhi (794 AD), clearly formulated the quantity, or supply-and-demand, theory of money—eight centuries before the theory was introduced into European thought by Jean Bodin and the Spanish Scholastics. Liu Zhi argued that if population grew more rapidly than the money supply, the purchasing power of money would rise. Zhi reasoned that the growth of population would produce an increase in the labor force and, therefore, in the supply of commodities. As a result, the demand for money would grow in excess of supply and raise the purchasing power of money. He also deduced that high prices were a result of an “excess” of money and advocated a reduction in the quantity of money to increase its purchasing power. Liu Zhi’s contemporary Lu Zhi argued similarly that the quantity of money is a prime factor determining the prices of goods and the purchasing power of money. Thus, goods are cheap and money “heavy” when the quantity of money is relatively small, whereas goods are expensive and money “light” when the quantity of money is large. Lu Zhi inferred from his theory that government is therefore able to affect the height of prices by altering the quantity of money. 

Chinese monetary writers also focused on the proper institutional arrangements for coining money, because coinage affected the quantity and quality of money in the economy. At least four major debates on the coinage question occurred during the period 175 BC–734 AD. The main point at issue was whether the coining of money should be a private and decentralized business or a royal prerogative monopolized by the central government. Of great interest is the fact that in the third (457 AD) and fourth (734 AD) debates government ministers heroically proposed private coinage as a means of ridding the realm of a shortage of money.

My book is a small contribution to this great Sino-European tradition of sound monetary theory. I hope that its translation sparks interest among contemporary Chinese scholars in recovering and extending this tradition as first presented in the brilliant writings of their ancient predecessors. 

1.Zheng Xueyi, Yaguang Zhang, and John Whalley, “Monetary Theory from a Chinese Historical Perspective” (NBER Working Paper 16092, June 2010). The following discussion is drawn from this research paper.

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