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Always go back to Adam Smith

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At the end of the year, all kinds of book lists are very lively, and reading has become a hot spot again. Reading has many benefits, but reading is not everything. It can even be said that reading is not the end, but only the starting point, which means that reading is not the goal; and classics and masters are always our most trustworthy reliance when we discuss problems and understand the world.

For economics, this subject has become prominent in the past, but in the final analysis, why do ordinary people study economics? Naturally, it is not for exams or grades, but the hope is to establish a framework, break knowledge fragmentation, and build an interdisciplinary general education system based on economics. Many friends talked to me about economics learning and reading. A common problem is: Maybe I have read a lot, but often I am still more confused. I have learned a lot of economics courses, but I still can’t understand economics, even financial news. I can’t understand either. Why is that? The main reason is the fragmentation of knowledge, which makes a lot of reading superficial and unable to go deep, and the connection between knowledge and knowledge is lost.

What should be done? In this sense, it is always the least labor-intensive way to start from the classics to find the context of knowledge. In fashionable terms, this is the “entropy reduction” of knowledge-entropy is a physical concept, which means the degree of chaos in the system , and entropy reduction is the process of reducing chaos. Systematizing knowledge can not only reduce anxiety, but also reduce the confusion of your brain. Standing on the shoulders of the masters, one can see the source, development and even the way of the discipline. For example, my recent publication of “Xu Jin’s Economic Thinking Course” is a kind of exploration, that is, to show the veins of economic thought from the masters and classics of economics.

What is the ultimate purpose of reading? I don’t think it’s knowledge. Everyone should finally understand a truth: knowledge points must be embedded in the system to become knowledge, otherwise, what you have can only be messy information. Thoughts must live in the forest of thoughts to have vitality. Otherwise, it is a lonely wood. The same goes for economic thinking. If it is separated from the environment in which it was born, the background at that time will be lost. Then, it loses a lot of power. You have learned, but many times you have not learned.

You may ask, as economics continues to develop, why do you need to read the classic thinking of economics or even the economic thoughts of masters? The reason is that classic ideas, being able to survive for so many years, means that they have withstood the test of time. Among all disciplines, physics is almost the most rigorous and progressive discipline. You know that Newton is the representative of the era of classical mechanics, and Einstein is the representative of quantum mechanics. However, Einstein, who proposed the “Theory of Relativity”, is said to have read Newton a lot.

Of course, it is not easy to systematically understand economic thinking. Even the famous physicist Max Planck once said that economics is too difficult to dabble in. Not to mention, there are so many schools of thought in economics that you can’t count them on your hands. People often joke that three economists have five opinions. What’s more, theory needs to be combined with reality. It is no wonder that ordinary people will inevitably be confused about the economic dynamics in reality.

To understand the thought process of economics and understand the underlying logic of economics, we must avoid the bible of economics “The Wealth of Nations”. This is one of the reasons why I think we always return to Adam Smith .

In 1776, a professor of moral philosophy wrote this book, the full title is “Inquiry into the Nature and Causes of the Wealth of Nations”. Like God said, let there be light, the Scot didn’t say so, and economics was born. He is Adam Smith, who also became the founder of economics and the first recognized economist. The later generations recognized the father of economics, but he never married, had a shy personality, and is said to have a bit of a stutter. 2023 is the 300th anniversary of his birth.

A contemporary biographer of Smith once commented that Adam Smith is the most influential economist in history, because almost all great economists have mentioned him, and all important modern economics The branch and source can be traced back to “The Wealth of Nations”. Not to mention, everyone is still citing “The Wealth of Nations” to endorse their views.

In contrast, the biographer once described Adam Smith’s personal life as “unremarkable.” Politically, he championed constitutional monarchy, religious tolerance, and personal liberty, but he remained tight-lipped about his own political views throughout his life , “He had no secret love affairs, no hidden vices, no college mischief, no adult petty blunders: Smith’s life was a featureless Sahara desert, and there was nothing to gossip about.”

What makes everyone remember Smith is not his gossip, but his thoughts. Every time the market economy is in dispute, or when the economy is at a crossroads, everyone will recall Adam Smith.

When many people in “Xu Jin Economic Man” asked what economics books they should read, I recommended Adam Smith’s “The Wealth of Nations” many times. At that time, some people felt that this book was not easy to read, and the time was relatively far away from the present, so it seemed that there was no need to read it. But the facts have proved that it is the repeated history and changes that prove the significance of Adam Smith to economics and that he discovered the core value of the market economy.

When the famous writer and Nobel Prize winner Calvino talked about classics, he said, “Classic works are such books. We hear some information from hearsay and think we understand it. When we actually read it, we will find that they are so Unique, unexpected and original. This kind of writing creates a personal relationship with the reader.”

In this sense, rereading Adam Smith, even if it is just a taste, is an experience that cannot be missed by those who expect to truly understand the flesh and blood of economics.

In economics, the concept of “invisible hand” or “rational man” that people always like to say comes from Smith. Just like the concept of “economic man”, it comes from “The Wealth of Nations”. I personally like this concept very much. Both the column and the official account are called “Xu Jin Economic Man”. I once talked about Smith with Taiwanese economist Lai Jiancheng. He said that one of Smith’s most overlooked points is the connection between The Theory of Moral Sentiments and The Wealth of Nations.

“The Theory of Moral Sentiments” is also a very important work of Smith. It talks a lot about emotional factors such as sympathy, which is actually the other side of economic man. Going back to economic thought today, we can see that the original definition of a rational person was very full, but it gradually lost this fullness in the subsequent pursuit of increasing mathematics in academic economics. Perhaps for them, doing so has gained scientificity and rigor, but what is lost may be even more precious. The rise of behavioral economics in recent years can also be seen as a return to the concept of a more comprehensive economic man.

Smith has his own understanding of everyone’s pursuit of interests. In “The Wealth of Nations” once stated, “He usually neither intends to promote the public interest, nor knows to what extent he himself promotes that interest…he only has his own interest in mind. On this occasion , as on so many other occasions, he is directed by an invisible hand to endeavor to achieve an end which he did not intend. Nor is it harmful to society because it is not intended. He pursues His own interest often enables him to promote the interest of the society more effectively than he really intends to promote.”

Bernard Mandeville, a French scholar who was earlier than Smith, once put forward a seemingly paradoxical view, that is, “private evil is public interest”—it can be said that the market seems to be anti Common sense, but in the end it is often the most in line with human nature. The exchange based on self-interest ultimately benefits society, which establishes Smith’s principle of economic human nature.

why? Precisely because everyone has egoism. Therefore, everyone’s egoism is bound to be restricted by other people’s egoism, which forces everyone to take into account the legitimate interests of others, otherwise they will not be able to pursue their own reasons, thus generating social interests.

This is an important knowledge point of economic thinking, which is why the market mechanism may be the least bad economic system. As long as there is an exchange, there is a market, that is, both parties to the transaction are willing to recognize the value of the other party. Compared with other economic operating systems, the market system may be the most reasonable system.

If we count from the publication of “The Wealth of Nations”, until today, economics was born nearly 250 years ago, among which there are countless economic thoughts and economists. I repeatedly screened and identified more than 30 key economic dimensions in different fields. From microeconomics to macroeconomics, from Austrian school to Keynesianism, from monetarism to post-Keynesianism, from mainstream economics to behavioral economics and so on.

It can be said that everyone behind these economic thinking is a landmark figure in economics. From Adam Smith to Ricardo, from Keynes to Krugman, from Hayek to Friedman, from Schumpeter to Kahneman, etc., not to mention such important figures as Greenspan and Roosevelt.

In this sense, Adam Smith is not alone, but represents a metaphor for all economic masters—to study economics and talk about the market, one must not only go back to Adam Smith, the originator of economics, but also to return to The scene of economic thought.

In the current era, more and more people like to talk about fairness, and even many young people pursue “Das Kapital” and criticize capitalists. This may not be the most popular era for Adam Smith, but his influence has always been silently present. As Calvino said, “The classics exist with the background noise of the times, even when the diametrically opposed pace dominates.” Would dare to truly ignore the classics.

In several major debates in economics, Adam Smith has become the absent protagonist or even the arbiter. Not to mention the debate between Hayek and Keynes, but also the debate between Zhang Weiying and Lin Yifu in the Chinese economics circle. The debate between Zhang Weiying and Lin Yifu was sparked by the Fudan Yang Xiaokai memorial service in 2014. I was there, and it’s interesting that they all mentioned going back to Adam Smith.

Once, Smith defined government duties in this way—first, to protect society. Second, protect every individual in society as much as possible. Third, build and maintain certain public utilities and facilities. It can be seen that Smith emphasized the “invisible hand” and also the rule of law. Regardless of the differences in industrial policies, building a market economy governed by the rule of law is the path that China should take the most. This is also the greatest consensus or the greatest common denominator of the debate between the two sides.

Through masters like Smith, we can redraw the key landmarks of economic thought one by one, and have a three-dimensional understanding of how the discipline of economics has developed. More importantly, the relationship between them is not a simple knowledge relationship, but presents a three-dimensional network of economics. Therefore, standing on the shoulders of masters, you are more likely to see the whole picture of economics and understand the present more clearly.

Of course, Calvino’s praise of classics may also come from his disappointment with reality. He also said a sentence “If you want to know how dark it is around you, you have to pay attention to the faint light in the distance”. Even if we are in the dark and filthy abyss, if we have a moment, we can look up at the splendor of human civilization. This is a kind of freedom, a freedom beyond the present.

In this sense, the ideological meaning of masters like Smith goes beyond the scope of economics. In an era of change, what remains the same? Thought, especially economic thought with a universal spirit. Economic thought is our soul-stone. This is the core dimension of understanding. With it, don’t panic.

Note: This article only represents the author’s own opinion. Xu Jin is also the manager of the public account econhomo. Part of this article comes from the book “Xu Jin’s Economic Thinking Course”, and the reader WeChat ashes-18

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