By SHENG Hong, Director, Unirule Institute of Economics;
Translated by MA Junjie, Project Researcher, Unirule Institute of Economics.
Many understand that Sima Qian’s “investigate the interrelationship between the human and the universe, to generalize the rules of historical evolution and to formulate a unique historical view”(究天人之际，通古今之变，成一家之言) was to raise people’s morale. In my recent investigation, there’s more than meets the eye. This motto consists in-depth insights into history, which many have failed to grasp. For instance, in “to generalize the rules of historical evolution” (通古今之变), the evolution(变) is not simple changes, but change in the sense of evolution, instead of abrupt breakup between the old and the new. Therefore, the historical evolution is the evolution throughout history, a continuous process of changes, just like today evolving from yesterday. Countless yesterdays and todays throughout history constitute the time process, and countless minor and seemingly insignificant changes constitute the historical evolution.
As a historian, the first thing to do in order to generalize the rules of historical evolution is to understand such evolution. As an individual in the history, it means we have to “walk through” or “communicate” the historical changes. However, to our frustration, historical does not always makes sense. Therefore, when we approach human history, we have to understand and explain how history evolves, and what kind of changes are the “good” changes that lead history forward. Of course, we have to look into “bad” changes that lead to catastrophes as well. Most importantly, how we understand history will determine how we shape it. So far, mainstream theories seem to have failed to do this. That’s because what’s fascinating about history is not always the most critical, and what seems insignificant can bring about fatal changes.
The fascinating part of history are related to the big events, wars, revolution, bloodshed, and death. Or in other words, they have something to do with violence. Besides, in early history of humankind, the hobbit of recording things had not come about, which accounted for the vivid record of the most significant events of human life. That explains why most part of the history we see today is full of drama, heroism, and multiple dimensions. From an aesthetic perspective, such a history will fall in favor of the later scholars. Following some of these events, new nations may be created, or new laws may be issued, which left people with a deep impression. It seems as if new institutions are the result of violence.
Therefore, what’s become the mainstream historical perspective is that history is made of big events, and thereby divided by historic periods. It preaches that history is shaped by these symbolic events. Because of these events, great aspirations are achieved. And such aspirations are derived from smart theories which had nothing to do with history and its conventions, but mostly a lot to do with criticizing such conventions. Thusly comes the grand narrative which in turn shapes our minds, convincing us that history is only made this way. We hardly ever doubt this could be wrong, because we are filled with a passion to fight, to be a part of such an event, or to be in the center of a historical turning point.
Such a historical approach raises questions. In fact, if history’s major driving force is violence, then people could hardly discover any better institutions as a result of such violence. That is because, according to Buchanan, good institutions should be the result of consent of all the related parties. That’s the famous principle of unanimous consent. Giving consent indicates that an institutional change may benefit one or at least not put one in harm’s way. The more people give consent, the bigger the benefit will be. Unanimous consent means no one’s put in harm’s way. In Buchanan’s earlier years, he limited the legitimate process of institutional changes to the principle of unanimous consent on the basis that it would naturally bring about the “Pareto Improvement”. Apparently, giving consent implies voluntariness. Violence does not comply with this principle, and the winner of violent acts usually do not ask for the approval of the losers. An institution which brings about winners and losers is not a good institution.
The uncertain result of violent acts does not depend on whether the advantageous party of the acts are “good people”. For mortal people with limited rationality and morality, there is not a definitive line between being good and bad. In ultimate circumstances when one can decide the life and death of others, even the “good people” may lose their self control. For example, the Massacre of Lydda tells us that when the Jews are in control, their treatment of the Arabs is no better that the Nazis’ treatment of the Jews. Therefore, the good guys defeating the bad guys is merely fable. This also explains why the violent acts in modern history where people holding the righteous banners brought about bloody events and backward institutions as a result.
So, if we admit that improvements have been made till now, is it done by voting? I should say, in very rare occasions. In modern times, elections are something to watch. Public elections are rare and they are only held once a couple of years. It does not account for the continuous institutional evolution. Whereas, the unanimous consent are taking place daily among the common people. One of its most common form is the market transactions. Thanks to these transactions, or the contract as their results, the main driving force of historical change is revealed.
When it comes to study of the contract, I think Professor Steven Cheung’s contribution is by far the most important. In The Theory of Shared Tenancy, Professor Cheung wanted to prove that shared tenancy was as efficient as fixed rent tenancy. However, what he discovered was that under a certain property rights institution, there could exist various forms of contracts. And all the contracts in real life are efficient. On the other hand, in the same circumstances, the efficiency of different contract forms is different. That is to say, when the property rights institution is given, the efficiency can be improved by changing the forms of contracts to achieve a similar outcome as property rights reforms.
What does it mean? We know that there are different institutions, and there are different reforms of institutional changes. What’s more, different reforms require different costs. Sometimes, when the cost is too high, reforms can not be carried out. According to Douglas North, there are two types of institutions, the primary institution and the sub-primary institution. The former refers to the laws, and the latter usually refers to the forms of contracts. The key to contracts is the mutual consent of the consenting parties, which is easy to form. Because, if the two parties do not agree, they could simply walk away. The form of contract is a critical part of the contract. The parties can consent to the content, or the form of the contract. Therefore, changes due to the change of contract forms are more frequently observed.
In comparison, laws are different. Laws require coercion, and the formation of laws usually implies violence. Even though laws can also be made by democratic legislatures, unanimous consent is rarely achieved. But once a law is passed by the majority rule, it can endanger those in the minorities. Such groups will, in return, object the execution of the law, and laws are coercive. In a non-democratic society, the group with violent power will definitely intervene; and in democratic societies, the majority will have to mobilize violence with due process. As the change of law is the change of wealth distribution, therefore, the change of property distribution or the institution of property, such changes are hard to see through because of the resilience of interest. In other words, the cost of changes of law, or reform of the property institution is very high.
Now we are faced with two types of institutional changes. Their outcomes may be similar, but the costs vary. A rational choice is the institutional reform with lower cost. Hence, most of historical changes are in the form of changes of the contract. A recent example is China’s agricultural reform. What’s behind the collectivization of land property rights in the 1950s was the ideological backing of the then political leaders. Faced with the pandemic famine caused by the false policies of “one big and two public”(“一大二公”) and the public communes, the then minister of CPC’s Rural Ministry DENG Zihui twice met MAO Zedong, and proposed a solution of “household property rights”(“包产到户”) to mitigate the tragedy. The essence was to change the form of contract without changing the nature of collective property rights. Under the People’s Communes, farmers are basically workers who are paid wages(sometimes the wages are delayed), and the household property rights served as a contract of fixed rent lease. Unfortunately, MAO Zedong refused to listen.
After the reform and opening-up, DU Runsheng, DENG Zihui’s right-hand man, proposed this solution again. Time has changed, and the political leadership has shifted its attention to economic development. As the output of household homesteads and private homestead was usually four to five times of that of the public crop-field, DU Runsheng, with his years of working and research in rural areas, contemplated that a farmer would be able to do a year’s farm work in only 24 days.(according to GAO Wangling’s research in Reverse Behaviours of Chinese Farmers《中国农民反行为研究》) DU presented his findings to the leadership, and there were two equally effective reform measures to take, one was to change the collective land property rights to private, and the other was to adopt the household land property lease. However, the two measures have different costs. Due to the inertia of the long-lasting ideology, the former was severely refuted, and the latter took some heat, too. After compromises, the CPC Central Committee adopted that “recognition of the people’s rights to choose must be taken”. The rest is history.
This is not a rare case after all. In fact, change of the form of contracts are often the cause of major institutional changes in human history, ranging from the collapse of serfdoms, to the collapse of slavery. In Douglas North’s The Rise and Fall of the Manorial System: A Theoretical Model, the process was vividly accounted. At first, there was market emerging outside of the manors, which was countered by manorial products, resulting in the free change of consumption combinations of the owners and the accumulation of money by the serfs. In the time of the Black Death, labour was scarcer than land, which led to the raise of welfare for the serfs by the manor owners and later the compensation for the serfs were higher than that of free workers. At this point, serfs “bought” themselves freedom with their money, and change their status to free man.
Similar logics played out in the abolishment of slavery. When we talk about slavery, we tend to think of the United States. She fought a war over it after all. However, the US was an exception, according to Robert Fogel. In many other countries, slavery was abolished via transactions, that is slaves bought themselves freedom. Of course, there were laws abolishing slavery in these countries. Such edicts mostly targeted the minors among slaves, stipulating that slaves, when reaching the age of 18, 21, or 28, should be set free by their owners. These edicts also implied that before those ages, slaves could buy themselves freedom. It turned the attachment of the slaves to their owners into a contract of human labor. And there goes slavery.
Market transactions is only one form of mutual “consent”. A more general consent was imbedded in conventions. Market transactions are merely one of these conventions. Conventions are the refined form of all human interactions. There are conventions among parents and their children at home. What makes a convention is the consent of all those involved, otherwise, it can’t last for long. Therefore, for most conventions, they have to be good conventions in the first place. As conventions are the results of long-time interaction, it is a treat from nature for those who recognize that human society long for orders. For the earlier period of human society, what people usually did was to record these conventions and passed the records on.
For example, the Torah is a detailed record of codes and conducts, such as giving sacrifice, treating contagious diseases, performing marriage, and even having meals. It is very specified and detailed that it can bore people out. However, from a anthropological perspective, it was very smart of the ancient people to have recorded all these practices. As people still follow these practices and their tribes developed and flourishes, these conventions must have been good. As they are good, they are stuck to and passed on. People also know that perhaps they lack the ability to explain whey they are good in the first place, they’d better be left for future generations to dwell upon.
In China, a similarly important literature is the Book of Li(《礼记》). Similarly vivid and detailed accounts are recorded in this book, and the conventions and practices are called Li(“礼”, meaning virtues, codes). In the face value, such Li is a code for human conducts. There are requirements for almost everything in human life, even how children should do when they are dining in the presence of their parents. The fact that such codes were recorded so faithfully shows how people did not make much of a distinction as for what was necessary and what was redundant. However, they believed all these conventions were better than nothing at all. They recorded them and left them for the later generations as institutional legacy.
Later, this legacy came into effect. Intellectuals and elites contemplate and extract from these records. For example, the New Testament was more than just a record of the conduct of Jesus, but also was full of insights and illustrations of the Old Testament. The conventions and conduct in the Old Testament served as the basis for the extraction of values and principles in the New Testament. For example, God demands Abraham that circumcision should be carried out among the Jews, and this convention was reserved strictly among the Jewish people. However, the New Testament spiritualized circumcision and made it innate. Different from the Old Testament, the New Testament discussed more about deeds and conscience, speaking of righteousness by faith, instead of focusing on external conduct.
In China, a similar process was recorded in classical literature. In the Analects, Li is more than just the rituals, but internal values. Lin Fang asked Confucius about the essence of Li, and Confucius replied that, “In festive ceremonies, it is better to be sparing than extravagant. In the ceremonies of mourning, it is better that there be deep sorrow than a minute attention to observances”. In the Book of Li, besides detailed record of specific rituals and practices, comments made by Confucius constitute a major part, showcasing Confucius’ explanation of the spiritualization of the external rituals into principles and values. The utmost example would be the the Three Wu(三无), “When there is that music without sound, there is no movement of the spirit or will in opposition to it. When there is that ceremony without embodiment, all the demeanour is calm and gentle. When there is that mourning without garb, there is an inward reciprocity, and great pitifulness.” (无声之乐，气志不违；无体之礼，威仪迟迟；无服之丧，内恕孔悲。) Even without the outside sound, form, and clothing, as long as the spirit of Li is followed, people can still reach the “fundamental principles of ceremonies and music”. (礼乐之原)
This righteousness and Li eventually become general principles to guide the laws. In the West, the principles of Christianity influence the Roman law; in China, there was Chunqiu Jueyu(“春秋决狱”), that is using the values and principles in the Spring and Autumn(《春秋》, a ancient Chinese classic) to prosecute and judge. Even though laws and contracts and conventions seem a lot different from one another, what distinguishes them is whether it is forcefully executed. In fact, the values and guiding principles of laws are mostly derived from conventions.
This can be best demonstrated by the formation of the common law system in England. In the beginning, the royal circuit courts had little clue regarding handling a case. A simple solution was to consult the locals, which constituted the early juries. Different from depicted on TV or movies, the jury not only told the judge how they felt about the case, but also provided a conventional practice to enforce the judgement. It was from the juries that judges learned about local practices across areas, and later they bring with them the local practices to Westminster. Through communication with their fellow judges, common principles for the common law system emerged.
The reason why common law is still a major legal system in today’s world is that the British people believe in their conventions. Medieval England was a peripheral state across the Channel. It looked up to the advanced culture of the continent. Despite the popularity of Roman law on the continent, a great many British people believed their common law system was superior to the Roman law system. Sir John Fortescue told Henry VI that England had fared through the Romans, the Britons, the Saxons, the Danes, and the Normans and their rule, all of them “went through the norm of common law, like today. This common law, if not the best, must have been altered or abolished on the basis of righteousness or the will of the arbiter. ”(On the Laws and Governance of England)
This coincides with our analysis of conventions. The reason why conventions are mostly good is because they are not thrown away in the long period of history, but rather, they were embraced and agreed to over generations. The other reason is that conventions come from the people and their local experiences. They are rules generated in the everyday practice of common people who had their independent judgement. In The Spirit of the Common Law, RoscoePound wrote that the power of the common law comes from its settlement of specific disputes, whereas its counterpart, the Roman law, resides its power in the logical development of abstract principles. Of course, just like the development of Judaism and Christianity, and the development of Confucianism in China, the abstract concepts of the Roman Law also find their roots in conventions. It was only later that people severed the connection between the concepts and their underpinning experiences, which lead people to think that noble conceptions go without the root of convention, or against it.
When French revolutionaries talk about “natural rights,” Edmund Burke talked about “rights of man”. Natural rights sound righteous and credible, but it’s a concept without earthly roots, whereas “rights of man” is more connected to convention. Edmund Burke wrote in Reflections on the Revolution in France that “In the famous law of the third of Charles the first, called the Petition of Right, the Parliament says to the king—Your subjects have inherited this freedom (claiming their franchises) not on abstract principles as the rights of men, but as the rights of Englishmen, and as a patrimony derived from their forefathers.” He thought there was something similar in France, too. It is clear, compared to the noble slogans of the French Revolution, the horror, bloodshed, and brutality of the reality is beyond words. Many intellectuals articulated their criticism of the French Revolution, including Charles Dickens with his Tale of Two Cities, and Victor Hugo with his Ninety-Three.
Besides Burke’s observations, in The Old Regime and the Revolution, Alexis de Tocqueville criticized the French Revolution for it didn’t not usher in new institutional resources and the old regime was still utilized to achieve the goal of revolution. In The Crowd: A Study of the Popular Mind, Gustave Le Bon pointed out that the rational French gentlemen were reduced to a passionate member of an emotional-driven crowd when they joined the revolution. In On Revolution, Hannah Arendt gave an in-depth comparison of the American revolution and the French one, claiming that the lack of contractual structure and self-governing in the latter was due to the lack of convention and habit that connected people. As a result, the crowd mentality kicked in, and tragedy and brutality ensued.
On the other hand, Arendt spoke highly of the American revolution. The reason was that she thought there existed the tradition of contracts and self-governing. I think that’s because these early arriver from England still carried with them the great tradition of common law. As analyzed before, this tradition is so endurable that the ruling groups throughout history could not change it. They had to accept it. Among them was Sir Edward Coke who emphasized that the “common law was superior to the king” which later led to the limited monarchy in Arendt’s sense. As we can see, thanks to the endurance of this strong tradition, a firm base of experience that supported the common law lasted till today. In limited monarchy, contracts and self-governing got to develop. Americans drove away the British, but the creation of a nation was not the natural result of violence. It was a result of convention and traditions. Arendt summarized it in the following words:
“The colonists themselves, with a hundred and fifty years of covenant-making behind them, rising out of a country which was articulated from top to bottom- from provinces or states down to cities and districts, townships, villages, and counties- into duly constituted bodies, each a commonwealth of its own, with representatives freely chosen by ‘the consent of loving friends and neighbours’, each, moreover, designed ‘for increase’ as it rested on the mutual promises of those who were ‘cohabiting’ and who, when they ‘conjoined [them] selves to be as one Public State or Commonwealth’, had planned not only for their ‘successors’ but even for ‘such as shall be adjoined to [them] at any time hereafter’ - the men who out of the uninterrupted strength of this tradition ‘bid a final adieu to Britain’.”(On Revolution)
At last, we realize that the fascinating symbol of the American revolution was backed by the hidden conventions and traditions, and the American Constitution was not merely a collection of abstract principles but a bottom-up “increase” of them. For instance, the “due process of law” is a tradition of common law; the judicial review is also from the common law system. Sir Edward Coke once stated that acts passed by the parliament shalt be reviewed by the common law, and annulled if judged thusly. Here, the noble concepts and abstract principles do not go against conventions and habits, but they get inspired by them to achieve supreme legal authority.
However, when we follow the grand narrative, it does not make much sense to believe that we can create an ideal world by fostering symbolic violent events. China has maintained a long time tradition of freedoms and rights, including free transactions of land, free migration, self-governing in counties, and free criticism of the rulers(a tradition of Zhou, Han, Tang and Song dynasties). Compared to England at the time, China’s land institution was closer to modern market. It was until The Law of Property Act in 1925 that feudal land institution was over once and for all. For a long period of time, land in England could not be bought or sold as those who crop on these lands were dependent of the land owners. According to Xian Hongchang’s A History of British Land Laws, the British did not carry out land institutional reforms, but used other alternatives to “replace”, “reassign” or “rent and lease” in order to mobilize the land. Even though the transaction cost was as high as three years’ rent, such practices still facilitated the Industrial Revolution and urbanization.
Free transaction of land was a long time institution in China ever since the Han Dynasty. It matured in Ming and Qing Dynasties. The property rights of a piece of land is divided into “bottom rights” and “face rights”, and the owner of the face rights did not need the consent of the owner of the bottom rights to sell his face rights of a piece of land. It was a great shame that such an effective land institution was considered a great obstacle for China to develop under an abstract and radical slogan. In replacement, a new land institution that removed all property rights of farmers emerged, and that is the collective ownership of land. This change was based on an idealist Utopia. Eric Voegelin criticized that, “”(Modernity Without Restraint)
Even with political coercion, this path did not prove to be passable. The Great Famine proved it, and the decrease of agricultural productivity proved it. As discovered, the agricultural productivity from 1952 to 1978 was no higher than that in 1887, that was 1000 kilos per capita.(Agricultural Economic History of China by Cao Guanyi). In 1961, this number dropped to 674 kilo per capita. According to Gao Wangling, as farmers could not disregard the collective homestead, they poured their efforts to private homestead and expanded them in order to produce more crop, a practice dated back to three thousand years ago.
By 1978, most of the political leaders had realized that they were leading the country to the wrong future. What happened was described above. Professor Cheung discovered that there was no such concept of property rights in China, but the concept of contracts. He said that “the reform of rights can be approached by modifying the contracts. It is a great way to avoid another blood-shedding revolution, and in the same time enjoy the stable effect.” (Economic Explanations, Vol.IV) The choice of household property rights was merely a return to the tradition, without reaching the optimal result. It can be illustrated by Professor Cheung’s theory. From a philosophical point of view, Professor Cheung spoke of the hidden factor in history. Like he said, the theory of contract is the missing link of economics. I would like to add that the key cannot be found in the lamplight.
Without recognizing the contracts, or the traditions, many intellectuals thought modernization mean total denial and objection of traditions and conventions, or the denial of the Confucian spiritualization. They believe the noblest and most advanced theories and principles should be brought in from abroad, and laws should be made in this manner with due process. And voila! The education of these laws will be embraced by the Chinese society. It does not work. A country with a history of over five thousand years cannot simply be a barren land where there is no process of interaction-generated conventions, and the extraction of principles from conventions, and law making with the underpinning of such principles. What these intellectuals are doing is to sever the cultural root for the law-making. What’s sadder, the laws made in this manner are depriving us of our conventional freedoms and rights.
A lot of mistakes have been made in the name of “breaking up with traditional conceptions” during the Cultural Revolution, of “Criticizing Lin Biao and Confucius”, of modern China’s effort to take up against tradition and Confucianism, which was due to a misunderstanding of history. It was also because many Chinese intellectuals mistook Europe for the whole West without being critical as Sir John Fortescue, Sir Edward Coke, or Edmund Burke. These great thinkers saw convention as the root, and regarded tradition as the source, and used experience as the standard to judge, without being overwhelmed by smart theories. Many intellectuals believe modernization is a scientific question with only one right answer. They fail to see that a complex system like the society requires more than one answer. They also believe that the defeated civilization amounts to nothing, but they failed to see that all success and failure are relative. The winners had merely more advantages and made less errors. Besides, the military failure is also in itself a paradox in the cultural sense.
We see the winners that destroyed the ancient Greek and Roman civilizations revered their culture as orthodox, and the Jewish state defeated by the Romans did not overlook their own cultural tradition for the military failure. When I visited Israel in 2014, I was impressed by Professor Amos Oz who insisted on his Jewish tradition. He insisted to put the stuff at use in the living room while storing whatever else in the basement for future occasions. Do not discredit your tradition, that’s a smart thing to do. As I read in his book Jews and Words, I realized how the Jewish people reserved their tradition over time. Jewish classics such as the Torah and the Talmud were always placed on the dinner table so that while they eat, they discuss and read. “Reading is like prayer, like ceremony, like enlightenment. Reading is wisdom.”
As we know, reserving traditions and conventions requires more than dwelling upon the past. The spiritual values are extracted from conventions, and the moral principles are summed up from traditions. That’s the only way they surpass the external form of traditions and conventions, and that’s how we as a people are able to pursue ideals while keeping our feet on the ground. From experience, only people of this kind could pave the path of history and lead the other nations in the world. For us Chinese, there’s more to it. From the perspective of interaction, like natural forces, there are things that cannot be overthrown or altered by political dynasties, and the Shi(士) who are dedicated to the Way(志于道) will act according to these Li(礼), create cultural traditions that survive emperors and kings, and endure political forces. We need to learn from those civilizations that revere their traditions and conventions, discover the seed of the future from the past, and tread the way from history to contemporary times. It is in this change of silent contracts and conventions that the prosperity of the Chinese civilization will find root.