How Smithian was Sima Qian?

division of labor invisible hand system of natural liberty laissez-faire money makers han dynasty wu-wei taoism

March 24, 2021

How much can we extract modern meanings from ancient texts, and why should we beware reading too much into the past?

The great historian Sima Qian (c. 145 – c. 86 BCE) is often referred to as the Herodotus of China. Indeed, his Records of the Grand Historian (finished around 94 BCE) is probably the most important and influential historical text ever written on the history of China. Not only has it changed the way Chinese history has been written since then, it also established the way we look at some major historical figures (like Qin Shi Huang). More than 2000 years later, students in Asia who are learning Chinese still read and memorize excerpts from the Records.

The second-to-last chapter of the book, “The Biography of the Money-Makers,” is often praised for its unusually prescient view of commerce and the economy. As one of the many biographies in the Records, it mostly contains stories of how some famous merchants in Chinese history got rich and influential. As in the rest of the Records, the chapter is peppered with Sima Qian’s own opinions and commentaries, and it is from these that a number of scholars have considered him one of the earliest proponents of laissez faire. Some have pushed further and claimed that some of Adam Smith’s central ideas, like the division of labor, the invisible hand, the price mechanism, and the system of natural liberty are all in there, more than 1800 years before Smith.1

I will begin by comparing Sima Qian’s economic ideas with those of Smith, and I will argue that the two men actually had rather different visions. Following that, I will raise the question of how much one can extract modern meanings from ancient texts and why one should beware of reading too much into the past.

What Did Sima Qian Say?

Right at the beginning of the chapter, we are met with two passages that sound familiar to economists.2

Therefore the highest type of ruler accepts the nature of the people, the next best leads the people to what is beneficial, the next gives them moral instruction, the next forces them to be orderly, and the very worst kind enters into competition with them. (Watson (1993), p. 434)There must be farmers to produce food, men to extract the wealth of mountains and marshes, artisans to process these things and merchants to circulate them. There is no need to wait for government orders: each man will play his part, doing his best to get what he desires. So cheap goods will go where they will fetch more, while expensive goods will make men search for cheap ones. When all work willingly at their trades, just as water flows ceaselessly downhill day and night, things will appear unsought and people will produce them without being asked. For clearly this accords with the Way and is in keeping with nature. (Watson (1993), p. 434)

One is tempted to make all sorts of connections here. From accepting the nature of the people (pursuit of material comfort, for example) to opposing government intervention or, worse, direct competition with the people, we see where the laissez faire interpretation of Sima Qian comes from. When reading about how farmers, artisans, merchants, and extraction workers are each doing what they are good at, we cannot help but think of the division of labor as described by Smith at the beginning of the Wealth of Nations (WN). If each man is playing his part to get what he wants, if things are produced and consumed in the market without being asked, and if all such outcomes do not need government orders to happen, isn’t it what the “invisible hand” is all about? We are also reminded of the price mechanism when Sima Qian was describing how owners of cheap goods and expensive goods both search for better prices. Finally, it does not seem too much of a stretch to relate “the Way” and “nature” with the “system of natural liberty” that Smith repeatedly brings up in the Wealth of Nations.

Similarities, yes. But I would argue that it is far-fetched to claim that Smith’s major contributions are all contained in the Records. Sima Qian may have stumbled upon some of the same ideas, but he was nowhere near what Smith had achieved.

1. “System of natural liberty” and “the Way”

There is a large literature on the relationship between Taoism and laissez faire (see for example McCormick (1999)). The Taoist idea of wu-wei, or doing nothing, is evident in the passages from the Records quoted above. Let people pursue their interests; do not try to change the nature of people; do not try to impose order on the people, and most important of all, the government should not compete with the people for resources. While the comment on competing with the people is most likely a subtle critique of the nationalization policies during the early Han dynasty, the message overall is indeed laissez faire.

Isn’t it the same as Smith’s system of natural liberty? No, “do nothing” is never what Smith recommended. Let’s see what Smith said.

All systems either of preference or of restraint, therefore, being thus completely taken away, the obvious and simple system of natural liberty establishes itself of its own accord. Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men. The sovereign is completely discharged from a duty, in the attempting to perform which he must always be exposed to innumerable delusions, and for the proper performance of which no human wisdom or knowledge could ever besufficient; the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interest ofthe society. (WN, IV.ix.51)

The “system of natural liberty” cannot be interpreted out of context. As a conclusion to the attack on mercantilism, the “restraint” refers to various regulations on trade. People still need the government to provide national defense, a legal system to protect people and properties, and certain public goods. On top of that, government also has a role in providing basic education, encouraging non-governmental institutions to form the character of the people, and also maintaining some level of decency in popular entertainments (see Chapter 15 of Muller (1995)). Smith is never the complete laissez faire type.

Another difference between Smith’s “system of natural liberty” and Sima Qian’s “the Way” is the role they play in intellectual pursuit. The Taoist view on “the Way” is akin to a form of mysticism, and we can see that tendency in the above quotes from the Records. Allowing people to do what they want “accords with the Way and is in keeping with nature,” but it is left for the reader to ponder why that is the case.

Smith, much like his eighteenth-century contemporaries, also tended to equate nature with beneficial outcomes, but for him it is also important to reveal and understand the immutable laws behind the system as a scientific inquiry. Much of the Wealth of Nations is about spelling out the rules, regularities, and other constants in the marketplace, and the rest of Smith’s work likewise tries to uncover such laws in different aspects of human society.

2. The price mechanism:

“So cheap goods will go where they will fetch more, while expensive goods will make men search for cheap ones.” A commonsense reading of the sentence is simply that sellers try to search for a higher price to sell goods, and buyers try to search for a lower price to buy goods. It is just a rather ordinary observation of the marketplace which does not contain much economic analysis.

As is usually the case, the classical Chinese of the sentence has a second interpretation, which is more or less translated as: “Cheap goods are a sign that prices are going to go up, and expensive goods are a sign that prices are going to go down.” Isn’t it what Smith concluded in Chapter 7 of Book I of the Wealth of Nations?

The natural price, therefore, is, as it were, the central price, to which the prices of all commodities are continually gravitating. Different accidents may sometimes keep them suspended a good deal above it, and sometimes force them down even somewhat below it. But whatever may be the obstacles which hinder them from settling in this center of reposeand continuance, they are constantly tending towards it. (WN, I.vii.15)

According to Smith, whenever the amount of a good brought to the market exceeds the “effectual demand”, the market price of that good will be below its natural level.

Eventually labor, landowners, and stock owners will all find the returns too low and start to look for better opportunities elsewhere. Their actions result in a smaller supply of the good, and the market price is pulled up towards its natural level. In a sense, Smith’s analysis does imply that prices that are too high or too low cannot persist.

Should one then conclude that Sima Qian got the gist of the price mechanism? I think it is reading too much into a simple statement. All Sima Qian wrote was that prices had a mean-reverting tendency, which is some sort of folk wisdom that people generally have. Sima Qian did not spell out the mechanism behind this.

3. The invisible hand:

We all know the famous quote about “the invisible hand” from the Wealth of Nations.

By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectuallythan when he really intends to promote it. (WN, IV.ii.9)

While “the invisible hand” appears just this once in the Wealth of Nations (and two more times in Smith’s other work), the idea that private actions have unanticipated public (and usually positive) consequences is behind many arguments throughout the Wealth of Nations.

Sima Qian explained how when “all work willingly at their trades”, just as water flows incessantly downwards, “things will appear unsought and people will produce them without being asked.” He was merely describing how goods would still be produced even without the government directing and manipulating behind the scene, but this has no connotation of unintended consequences at all.

4. The division of labor:

Sima Qian mentioned how, if people in different industries (farmers, artisans, and merchants, and extraction workers) are each doing their best, goods are then supplied without any direction from the government. While this is indeed an example of division of labor, it is a crude form that has existed for thousands of years all over the world. It is not the kind of new phenomenon that Smith was getting at with his pin factory example.

One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head; to make the head requires two or three distinct operations; to put it on, is a peculiar business, to whiten the pins is another; it is even a trade by itself to put them into the paper; and the important business of making a pin is, in this manner, divided into about eighteen distinct operations, which, in some manufactories, are all performed by distinct hands, though in others thesame man will sometimes perform two or three of them. (WN, I.i.3)

What Smith describes is the breakdown of the production process into many small and repetitive steps, referring to what went on within one industry (mostly manufacturing). By focusing on small steps in the process, workers accumulate skills quickly, save time, and encourage technological improvements. Such a division of labor, when enabled by a large enough market, is the main source of growth of the wealth of a nation. Sima Qian was merely describing the social structure of his time, and his discussion does not contain any trace of such benefits of the division of labor.

How Far Should We Go?

A book like the Records from over 2000 years ago is terse for a good economic reason: “printing” on bamboo was expensive. From such short passages and sentences, how much meaning can one extract? For example, the line “So cheap goods will go where they will fetch more, while expensive goods will make men search for cheap ones” is only ten words in classical Chinese. Should we read into these ten words the whole mechanism of the market and natural prices that took Smith a dozen pages to explain? I do not think an educated person in 100 BCE, who was the target audience of the Records, was able to reach the same conclusion. Likewise, “the highest type of ruler accepts the nature of the people” is the translation of merely four words in classical Chinese, and it will take a lot of filling in the blanks to equate it with an allusion to the “invisible hand” of a market price system.

How Smithian was Sima Qian? I hope by now you are convinced that the answer is “not really”. He was certainly against government intervention, and he also made some interesting observations on how markets worked in his time. But that is pretty much it. Smith had a much deeper and more detailed understanding of the economy than Sima Qian.

I would like to make my point by translating a story from Han Feizi, a Chinese thinker about 100 years before Sima Qian’s time. Someone was trying to write a letter to an official, but it was too dark to see. He told his attendant: “Hold the candle.” And he accidentally wrote in the letter what he had just said. When the official got the letter, he saw the intriguing phrase “Hold the candle.” He interpreted it as an allegory that the king should pursue brightness and employ the wisest officials. The king followed the official’s insightful advice and the country was then managed better, all because of an over-interpretation!

Maybe Sima Qian was simply telling us to hold the candle.

See Hozumi (1940) and Spengler (1964) for some early discussion on the issue. Young (1996) made the connection between Smith and Sima Qian. In a recent paper, Peach (2019) argued that the pro-market, pro-business tone of “The Biography of the Money-Makers” is actually ironic. There are also a number of related studies written in Chinese and Japanese, which I choose not to list here.↩
I use the third edition of the English translation of the Records by Burton Watson (1993) for the quotations, but I mostly rely on the original in Chinese.↩

References

Hozumi, F. (1940). Ssu-ma Chien's Economic Outlook. The Kyoto University Economic Review, 15(1), 16-29.

McCormick, K. (1999). The Tao of laissez-faire. Eastern Economic Journal, 25(3), 331-341.

Muller, J. Z. (1995). Adam Smith In His Time And Ours: Designing The Decent Society. Princeton University Press.

Peach, T. (2019). Sima Qian and Laissez-Faire. The Political Economy of the Han Dynasty and Its Legacy, 175.

Smith, Adam. An Inquiry Into the Nature and Causes of the Wealth of Nations, Vols. 1–2 of The Glasgow Edition of the Works and Correspondence of Adam Smith, edited by R. H. Campbell, A. S. Skinner, and W. B. Todd. Oxford: Clarendon press and Indianapolis: The Liberty Fund (1976).

Spengler, J. J. (1964). Ssu-Ma Ch'ien, Unsuccessful Exponent of Laissez Faire. Southern Economic Journal, 223-243.

Watson, B. (1993) Sima Qian: Records of the Grand Historian in 3 Volumes (Qin, Han I and Han II) (New York: Columbia University Press).

Young, L. (1996). The Tao of Markets: Sima Qian and The Invisible Hand. Pacific Economic Review, 1(2), 137-145.