Trade and Civilization

Speech at the "2018 Good Book AwardsCeremony" on January 9, 2019

Sheng Hong

Trade and civilization, these two themes are very important.We are now in the context of trade wars. The US trade negotiating delegation has just arrived in Beijing recently. Everyone is concerned about whether we can reach an agreement that both parties are satisfied with.

Why is "civilization" very important? Because human civilization is hard to come by. As we all know, humans evolved from chimpanzees, and we have very cruel genes. After tens of thousands of years,especially in recent thousands of years, human beings have gradually developed a culture to overcome the cruel genes similar to chimpanzees in our human beings. When one person has another conflict of interest with another, we often tend to use violence.

But civilization is not like this. About 20 years ago, I wrote an article called "What is Civilization?" I made a definition of "civilization" at the time: civilization is a peaceful way to resolve the conflicts between people we used to solve by force. I think this is a very important change, although this sentence is very simple.

In the early days of mankind, the human violent death ratewas about 15%, which is very high; after entering civilized society, it droppedto 3% to 5%; to this day, human violent death rate is relatively low, at 1 %thefollowing. Why? It is humanity who has discovered some rules of civilization.

One of the most important rules of civilization is transaction, which is trade. So what is trade? Trade is not to fight for wealth with others through violence, but through peaceful means. In a violent way, onthe one hand, it is a zero-sum game. The result of this game does not increase the wealth of whole society. On the other hand, some of them suffer losses or even lose their lives. But the trade is very great. The great thing about trade is that the two sides of the trade negotiate peacefully in a peaceful manner and finally reach a satisfactory result. Its follow-up results are more than that, because the achievement of this transaction will make people beyond afauna and bring about a wider relationship between people, which forms a division of labor between human societies. Today is the global division of labor - thisis not a division of labor for a small group, it is a global division of labor.

Today, we don't know where the clothes or other products we wear made from; or one other person on the other side of the earth may have something to do with us, but we don't know. But everyone knows that a chimpanzee and other chimpanzees do not have a relationship beyond a natural group. So this is a very, very big difference.

As a result, trade has brought about the growth of human wealth. This kind of growth is through the division of labor, through specialization, through the cooperation between people to promote technological innovation, institutional innovation, and the emergence of huge wealth. Trade is actually a basic civilized rule. Because of this rule, human beings have come to this day, and they will not use the cruel means of the past to achievetheir goals because they want to have more wealth, but they can completely adopt peaceful means. In this sense, trade is a very important rule of civilization.

The history of mankind, these thousands of years, especially in recent centuries, due to the development of trade, the globalization of trade, the growing wealth of human beings, our lives are getting better and better, and we live happier than before. This is a very important aspect.

Therefore, we cherish this rule very much. This rule is the market rule that both China and the United States emphasize. It is the equal negotiation between people, the voluntary achievement of the transaction, and the last faithful performance of the contract. This kind of rule has almost become the golden rule, and it has been summarized by economics textbooks.

Economists are convinced of this: as long as people are free, then equal negotiations between people, and voluntary transactions, wewill have a better result, we will also get more wealth in peace.

But it should be said that this rule is not perfect.Everyone needs to know that when economics discusses free trade, it actually makes a lot of assumptions. One hypothesis is that there is basically no big difference between people, and there is not much difference between countries;the second assumption is that free trade must include other conditions. For example, there must be free flow of capital and free movement of thepopulation. Free trade can achieve the desired results only if you have thesethree freedoms at the same time. But in fact, in the real world, these assumptions do not necessarily exist at the same time. Economics assumes that when people and people trade, people are basically the same; but in reality,people and people still have differences - people have different resources interms of resource endowment, strength and so on. To give the simplest example:men and women are different.

Later, economic liberals also noticed this: if we simplytalk about economic liberalism and simply assume that everyone is equal, thatis not enough – if we only assume this, then we only have to do one thing. It is enough to strive for the best interests of yourself. But many people find that this is not the case. There is a school in economics called the Santa Fe School, which has done a computer simulation of human society: If this societyis the kind of "economic man" that economics assumes, then it willeventually collapse. Therefore, they found a problem: this society also needs a class of people who not only proceed from their own interests, but also from the perspective of the whole society, from the perspective of maintaining the civilized rules of the whole society when the rules are violated. You need to stand up and defend this rule, and you will not hesitate to sacrifice your personal interests.

The Santa Fe School manages this kind of person as a"strong reciprocator". In fact, this is the elite of society. The reason why any society is condensed into society and formed into a structure is related to the social elite. A society must have such people: on the one hand,as an "economic man", and strive to fight for their own interests; onthe other hand, they must stand up and work hard for this society, and striveto maintain the civilized rules that make this society more affluent. .At thesame time, there is another characteristic. He is not necessarily an"economic man". He may have to restrain himself. This is very important.

Hu Shi has a very good sentence: "Afraid of his wife isa man's civilization symbol." Why? I have said that men and women aredifferent. Men have an advantage over women in violent resources. But if hedoes not restrain himself, he may often beat his wife. This is not the rules ofcivilization that enable a family to exist, a marriage to exist, or a societyto exist, so he must restrain himself, so "afraid wife" is the symbolof men's civilization.

Teacher Mao Yushi is an economist and later he founded the Humanities Economics Association. This is very strange to everyone. Later, Icarefully observed his transformation. I found a problem: Teacher Mao wasoriginally an engineer. His mathematics, physics, chemistry are better. He canenter economics from a mathematical point of view, but then he went to the Humanities Economics. Why? Because he found a problem - the same as the one I just discovered: if you assume that each number is followed by a unit without asoul, then as a mathematical economist, you may be heading towards a constructivist Direction, then you really don't understand this society. This made him understand that there are many different people in this society. These different people are not equal as economics assumes.

After discovering this, Teacher Mao said a very important statement: "Liberalism is a kind of personal cultivation, and it isself-discipline that does not interfere with others' freedom." That is tosay, liberalism is self-disciplined, then this It is a moral cultivation. Justas Hu Shi said just now, "Afraid of Wife" is the same reason -"Afraid of Wife" is the self-discipline of men. So, I said this is the second rule of civilization. The second rule of civilization, I have asummary: "The true meaning of civilization is not the superiority of the technology as a production tool, but the moral power that does not abuse people's advantages when they have the advantages of resources, of technology,and of institutions." This second rule of civilization really makes our society and our world move toward civilization.

Putting this topic a little further is between countries. People are not the same, so countries are even more different. In economics, there are many dogmas about free trade, but there are actually big problems. One dogma is that equalization of factor income can be achieved through free trade; in other words, as long as we pass free trade, we can make the wages of all countries equal and the people of all countries have the same income level. This sentence should be wrong. Why? Just said, because international trade is different from domestic trade. International trade has borders between countries. There is an obstacle to the border between countries, which cannot be overcome: people cannot flow freely and cannot immigrant freely. The market economy within acountry is effective because it is free to immigrate at home.

We can recall the situation in China: Why has China changed so dramatically in 40 years, but there is no regional contradiction? Because if there is a rich place, people from other places can go there to work. We have experienced a very significant urbanization these years. What is“urbanization”? It is the moving of people in low-income places toward places with high incomes. If China is divided into two parts, one is the west and theother is the east, then we will find that the border between the east and thewest will be like the US and Mexico borders. This kind of national border restrictions on free immigration makes free trade impossible to achieve the results of the joys of all peoples.

This conclusion is also emphasized by another economist,Krugman. He is the winner of the 2008 Nobel Prize in Economics and his contribution is the "New Trade Theory." He has a very simple theory:"If two countries are big and small, and other conditions are the same,then the big country will have an advantage in free trade." Of course, thereis a very complicated theory behind this theory. I only want to say that the big congress has a larger market, and the larger market will have more demand,and then it will bring larger enterprises, larger industries, will bring abouta kind of "scale economy", which will bring about the decline of average cost, which will bring advantages in the international market competition.

From this theory, the world has large and small, all kinds of countries. According to this theory, the competitiveness of differentcountries will certainly not be the same. What's more, there are other differences between countries and countries, some are more developed, some are not developed enough, and so on.

Therefore, in this sense, when we talk about free trade, wemust pay attention to it. Until today, the world has not reached what economists call "the result of ideal free trade" because there aremany specific situations. Therefore, free trade will lead to some countries gain more income, some countries may get less income, and there will be no results to make everybody’s happy. We should pay special attention to this.

However, it should be said that human beings have beendeveloping for thousands of years. The pattern of international trade that wehave seen today is actually not seen in history. It can be found that there aremany times historically, for unbalance of trade, that people use nationalpower, use violence and force, and even create war between nations, .As long aswe look back over the past few hundred years, we can see that many wars arecaused by trade, because they compete for trade monopolies, compete for controlover trade routes, or trade imbalances. For example, China's past Silk Road is a very wealthy road, but it is often robbed by robbers, so this road needs tobe protected. Then this road may also be placed under the control of certain military groups, which are all to compete with each other.

In the West in modern times, many wars have also started because of trade. The hegemony of Western countries such as Spain, the Netherlands and the United Kingdom at sea is actually the control of trade monopoly  and trade routes. Between the East and the West, the use of state power to influence trade, and even the war between East and West countries, are actually related to trade imbalances.

 The Chinese are very smart and have a long tradition of doing business. Our very early ancestor was called "Yin Shang". At that time, the people of the time called"businessman", the word was passed down. Why are they called"businessmen" because they do trade, we actually have a very long history of trade. China is very special in history and is indeed the"biggest country" with a vast territory. In the historical development process of Zhou, Han, Tang and Song, it became a place where production was relatively leading and the country was relatively rich. So in the 16th to18th centuries, China’s trade has actually been in surplus. At the time, therewere no products in the West that could rival large-volume products such assilk, tea, and porcelain. It was not available before the Industrial Revolution. So from the 16th to the 18th century, China had always had a very large trade surplus. The main product that the West could trade with China at the time was silver. This is because the Europeans discovered the Americas and developed silver in the Americas. At that time, about half of silver in the international trade went to China.

However,in the era of precious metals, this situation has brought a lot of negativeimpacts on other countries, because the trade deficit has brought about currency out flows and deflation, which has limited economic development. For example, the United Kingdom, because the United Kingdom does not have silver,at most relying on pirate ships to grab the silver of Spanish merchant ships,but they found something - opium. Everyone knows about the Opium War. The British say this is a trade war. In this sense, it is also true. Because opiumhas caused the UK to reverse the trade deficit, China’s surplus has turned. In short, there have been many wars in history due to trade.

Inthis sense, we look back, human beings have been going to the 20th century, andtoday's WTO system is indeed more civilized than before. We must cherish such acivilized system.

There is a special phenomenon in the history of trade. Some countries with relatively advanced, rich, or large-scale, may at some time, for some reason, use the domestic market as a market for other emerging countries. These countries,including China and India in the 18th and 19th centuries, were like this, andtheir markets nurtured the industrial countries of the time. Of course, it isonly a kind of nurturing under the conditions of violent means to lower tariffs.

Ofcourse, this matter is not good for China. On the other hand, it is unfavorablefor a country to have too much deficit of trade. Such a country not only loses the development of many enterprises, but also loses its currency. As I said earlier, in the past international trade, precious metals as a currency, if it flowed out of China, then China reduced the money supply - an important point of economic development is the increase in money supply - if the precious metals flow out, then the country It is going to fall into deflation. This isalso a contradiction.

So howto solve this problem? In the 20th century, it should be said that there isstill a solution, that is, the American approach. The US approach is veryinteresting. The United States is in this era. This era is no longer the era ofprecious metals as a currency, so it uses paper money to pay for the trade deficit. Everyone knows that the modern currency has finally become a banknote.This banknote is of course issued by the central bank. It controls the interestrate and controls the quantity issued to ensure the stability of the currency value. This is exactly the same as the precious metal, just because it bringsyou some kind of trust. But at the same time, this is also very good - in thisway, the country can withstand more trade deficits. Everyone needs to know that the United States has been a trade deficit since the 1960s, and it has been more than half a century. It should be said that this on one hand has provided a market for China's rise, and on the other hand has not caused the US economyto decline. So, in this sense, it should be said that this is a very good model. But this model still has problems: the Sino-US trade war we see today is such a problem.

We humans must continue to move toward civilization, how to solve the problems in international trade - that is, such an uneven international trade, the advantages and disadvantages of different countries in international trade, it needindeed  these new rising countries thinkabout. One of the important points is the second rule of civilization that Ijust emphasized - you can't just decide your behavior with your own interests,you must jump out of the unilateral interests, and you must consider issuesfrom protecting the rules which make all human beings better, and from a global perspective. At this time, it is impossible to simply be as an "economic man" and only follow the current trade rules; but should become a very responsible country that advances the development of human civilization. If doing this, it will make a new contribution to human civilization.

(This article is the author's speech on January 9th, 2019 in the "Economic Observer Report on the 2018 Good Book Awards", which was edited by the author.)