People’s viewpoints influence their understanding of their own interests. Human cognition is limited and viewpoints can be incorrect, so humans will make decisions that are disadvantageous to personal interests.
The duty of economists is to change people’s viewpoints via their own research, causing people to better recognize their fundamental interests.
The progress of ideas starts from a small group of people. If there is no true tolerance for the ideas of a small group of people, our society cannot possibly progress.1
Economics is generally understood as the study of interests. Economists believe human action is swayed by interests and rational people understand their own interests. Each person pursues his or her own interest, so all actions can be reasonably explained by “interests.” This is something I learned from economics over a long period of time. However, there was always something that baffled me: If this is the case, why do we need economists? That is to say, since with or without economists each person’s individual actions would be the same—no better and no worse—what do we want economists to do?
If economists cannot make society better, then perhaps our use of society’s resources is pointless. This economic assumption cannot explain why humanity makes as many mistakes as it does. This includes the fact that over a long period of time, one-third of the world’s population chose a type of economic system called “central planning.” This system brought tremendous hardship to those living under it. We do not even have a way to explain some basic issues within economics. For example, according to the Rational Expectations School, any expected economic policy will not succeed. If this is true, then every government official should also have rational expectations, so if they expect a policy will not work, why would they still set policies? This has perplexed me for a very long time.
Over the last few years, I have recognized more and more it is not only interests that sway human action, but also thoughts, ideas, and ideologies. That is to say, when people chose to do something, they are not only influenced by interests, but what they believe in or do not believe in. More precisely, people understand their own interests via their own viewpoints. However, people’s knowledge is limited, so viewpoints can be mistaken, thus causing them to make disadvantageous decisions.
This of course is not a new viewpoint of mine. Actually, more than two hundred years ago, Scottish Enlightenment thinker and economist David Hume said that even though men be much governed by interest; yet even interest itself, and all human affairs, are entirely governed by opinion.2 John Maynard Keynes has a very famous quote:
The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas. … But, soon or late, it is ideas, not vested interests, which are dangerous for good or evil.3
In Money, Method, and the Market Process,4 Ludwig von Mises, who stood opposed to Keynes in economics, wrote: “Everything that men do is the result of the theories, doctrines, creeds, and mentalities governing their minds. Nothing is real and material in human history but mind.” (p. 289) He also wrote: “It is generally believed that the conflict of social doctrines is due to the clash of group interests. If this theory were right, the cause of human cooperation would be hopeless.” (p. 298) In Human Action,5 Professor Mises wrote:
Action without thinking, practice without theory are unimaginable. (p. 177)
Human action is directed by ideologies. Thus society and any concrete order of social affairs are an outcome of ideologies … Any existing state of social affairs is the product of ideologies previously thought out. Within society new ideologies may emerge and may supersede older ideologies and thus transform the social system. However, society is always the creation of ideologies temporally and logically anterior. Action is always directed by ideas; it realizes what previous thinking has designed. (pp. 187–188)
In Constitution of Liberty,6 F. A. Hayek made the following comment:
The belief that in the long run it is ideas and therefore the men who give currency to new ideas that govern evolution, and the belief that the individual steps in that process should be governed by a set of coherent conceptions, have long formed a fundamental part of the liberal creed. (p. 178)
I cited these famous economists to explain human action is not only swayed by interests, but also by ideas. This is the reason many actions based on interests wave the banner of ideas. If we acknowledge this point, then economists have ample scope for their abilities. Simply put, human progress was driven by new ideas. The duty of economists is to change people’s viewpoints through scholarship in order to allow people to understand their own true interests.
For example, above I mentioned a third of the world’s population chose to live under the awful centrally planned economy for that long of a period. It was not because they did not care about their interests, it is just that they did not understand their true interests. They incorrectly believed that the planned economy could bring them the greatest benefit, but now we know that this is a terribly mistaken idea. Precisely this kind of mistaken idea has led to tremendous disasters in human history.
Since the beginning, economists have worked to change people’s viewpoints. More than two hundred years ago, Adam Smith led us to understand that the market is humanity’s most effective system of cooperation. If we have a true private property system and free competition, self-interested human behavior is not bad for society. The main contribution to society of Chinese economists over the last 30 years was to lead China towards accepting the market economy ideas that Adam Smith proposed over two hundred years ago. Chinese economists broke apart our blind faith in the people’s communes and the planned economy. They ended our belief that the egalitarian system of iron rice bowls and communal kitchens was good. Chinese economists also led the masses to believe in free competition, free prices, private property, and entrepreneurship; all of which are vital to the progress of any economic system. This propelled our reforms, causing the Chinese economy to achieve rapid development.
For economists to accomplish this task, they must have a true spirit of independence. Just as Mises said, even though humanity can cooperate, only individuals can think, society cannot. Humanity’s new ideas have always started within a small group of people. We could also say that a type of viewpoint or idea is new because the vast majority of people do not acknowledge it. Most people think according to traditional ideas.
In Human Action (1990), Professor Mises criticized faith in the masses to do the right thing. He wrote this belief “is no better founded than was belief in the supernatural gifts of kings, priests, and noblemen. Democracy guarantees a system of government in accordance with the wishes and plans of the majority. But it cannot prevent majorities from falling victim to erroneous ideas and from adopting inappropriate policies which not only fail to realize the ends aimed at but result in disaster. Majorities too may err and destroy our civilization. The good cause will not triumph merely on account of its reasonableness and expediency.” He explained further, “civilization improves and society and state render men more satisfied,” only when the majority “will finally espouse policies reasonable and likely to attain the ultimate ends aimed at.” (p. 193).
Therefore, only when an economist maintains his independent spirit and free mind are his ideas worth paying attention to. Only then can he possibly make a contribution to the progress of humanity. In economics, monopolies are a very important idea. The Anti-Monopoly Law is a major part of the body of laws. Previously, I have published articles to argue that anti-monopoly laws conflict with true competition.7 The reason for this is related to economists’ incorrect definition of competition and monopoly. I have also said that we only need to oppose one kind of monopoly, and that is the government-enforced monopoly. Free markets will not create sustained, true monopolies. However, here I must emphasize one monopoly that we must oppose. That is the monopoly of ideas. It is a type of idea that guides everything, reigns over everything; it causes us to have no way to compete with it, nor propose any idea different from it. I believe that this type of monopoly of ideas does disastrous harm to humanity. It obstructs the appearance of new ideas, thus it smothers the spark that lights the development and progress of human civilization. When freedom of thought exists during an era, humanity will attain great progress. If thought is not free, humanity’s pace of progress will stagnate.
Today, we absolutely face this kind of problem. Thankfully, even people that live in the unfree world can enjoy the technology and ideas created by the free world.8 This is the benefit that economic globalization and the Internet has brought us. We must not forget that the progress of human ideas started with a small number of people. If we cannot truly tolerate the ideas of a minority, our society cannot truly progress. China’s history has many examples to prove this point. Two thousand years ago, when Confucius was alive, his ideas were not accepted by the sovereigns of each kingdom, nor were his ideas accepted by the masses. Fortunately, at the time, the rulers of each kingdom did not try to muzzle him, so his ideas could still be spread. In the end, they became the cornerstone of Chinese culture. During the time of the First Emperor of Qin, the Burn Books and Bury Scholars Movement began, which led to a catastrophe. We ought to remember that period of history.
Footnotes
1
The original version of this chapter was written in December 2013 as the keynote speech to the NetEase Annual Economists Conference.
2
Hume, D. ([1742] 1987). “Whether the British Government Inclines More to Absolute Monarchy, or to a Republic.” in E. F. Miller (ed.) Essays, Moral, Political and Literary, Part I, Essay VII. P.51. Indianapolis: Liberty Press.
3
Keynes, J. M. (1936). The General Theory of Employment, Interest and Money. P.400. London: Macmillan.
4
Ludwig von Mises. (1990). Money, Method, and the Market Process. Selected by Margit von Mises and edited with an introduction by Richard M. Ebeling. Auburn, Ala: The Ludwig von Mises Institute, Norwell, MA: Kluwer Academic Publishers.
5
Ludwig von Mises. (1999). Human Action. Auburn, Alabama: Mises Institute.
6
F. A. Hayek. (2011 (1960)). The Constitution of Liberty. Chicago: University of Chicago Press.
7
Weiying Zhang. (2015). The Logic of the Market: An Insider’s View of Chinese Economic Reform. Chapter 4. Washington, DC: The Cato Institute.
8
This point is made by F.A. Hayek in the Constitution of Liberty. See p. 100–101.