What We Owe to Chinese Classical Economics: Where Did Modern Economics Originate? History Shows That Concepts of Inflation, Regulation and the Free Market Can All Be Traced to Ancient China, Whose Ideas Were Later Refined by the Enlightenment Thinkers

By Witzel, Morgen | European Business Forum, Winter 2005 | Go to article overview

What We Owe to Chinese Classical Economics: Where Did Modern Economics Originate? History Shows That Concepts of Inflation, Regulation and the Free Market Can All Be Traced to Ancient China, Whose Ideas Were Later Refined by the Enlightenment Thinkers


Witzel, Morgen, European Business Forum


As China's economic power and importance continue to grow, the world watches to see how its economic and business culture will develop. Many are convinced that China is shedding all traces of its socialist past, already making the transition to free-market capitalism. Over the coming few decades, it is argued, globalisation will transform China, and the Chinese economy and businesses will come to be run very much on western lines.

So strong is this belief in some quarters that a dogma of 'West good, East bad' has arisen among consultants and policy-makers, in the United States in particular.

Whatever the respective merits of socialism and capitalism, those western observers may have fallen into a trap. Socialism is a western ideology grafted on to the Chinese system. Further blurring the East-West divide, one of Chinese socialism's most notable features, the state-run enterprises, colossal factories built around massive production lines and employing tens of thousands of workers, were inspired in part by western theories of scientific management.

What is more, the concept of the 'free market' we are so proud of in the West is very strongly influenced by classical Chinese philosophy. It was the impact of Chinese ideas, especially Daoism (Taoism), on the scholars of the European Enlightenment that enabled the Europeans to break down the old restrictive mercantilist system and come to a coherent vision of the free market.

The West has a long history of misunderstanding and misrepresenting Chinese views on economics and business (the reverse is also true, of course). A century ago, the sociologist Max Weber described Confucian thinking as a 'dead hand' that stifled innovation and entrepreneurship and left China economically moribund. As a Chinese observer remarked rather tartly a few years after, Weber cannot have read Confucius.

By the 6th Century BC, China already had a coherent doctrine of economic thought, long before any other state or culture. What is even more remarkable is how strongly this doctrine has persisted. Down through the centuries that followed, China's economy prospered.

Big businesses were created, such as the Tongrentang pharmacy based in Beijing but with branches all over the empire, or the Suzhou-based confectioner Caizhi Zhai, whose goods were sold in hundreds of shops across China, or the famous cluster of potteries at Jingdezhen in the Yangtze valley, which supplied the tables of Europe with dinner services for several centuries. Yet, this was also a highly regulated economy; and one, moreover, whose rulers believed implicitly in the value of regulation.

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When the system did begin to break down in the 19th Century, reformers argued that this was not the fault of the Confucian system; rather, the state had turned away from Confucian principles and was failing to regulate the economy in a virtuous manner. A return to Confucian principles would mean not only a return to economic strength, but also the beginnings of the building of a modern, perfect society.

Administering wealth

It is sometimes remarked that the classical Chinese language contained no word for 'economics'. This is not strictly speaking true. There is an ancient term, 'administering wealth', which first appears in the Yijing (Book of Changes), probably composed some time around 1000 BC. Here it is stated that to achieve a just society, three things are required; administering wealth, formulating rules and preventing people from doing wrong.

Chen Huan-chang, a classical Chinese scholar and civil servant who later took a PhD in economics at Columbia University in New York, argued that these three concepts equated to the modern ideas of economics, ethics and politics, respectively. He went on to describe at length how in the Sixth Century BC, the philosopher Confucius and his followers picked up this term and expanded it to create a coherent system of Confucian economics.

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What We Owe to Chinese Classical Economics: Where Did Modern Economics Originate? History Shows That Concepts of Inflation, Regulation and the Free Market Can All Be Traced to Ancient China, Whose Ideas Were Later Refined by the Enlightenment Thinkers
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