Guanzi (《管子》)

Duke Huan asked Guanzi, “Would you please tell me the right tactics to use to secure the authority of the throne?” Guanzi replied, “Heaven uses the weather of the four seasons as tactics. The Earth uses things produced by it as tactics. Human beings use their strength as tactics. Sovereigns use edicts as tactics. If the tactics of Heaven are missed, the tactics of both human beings and the Earth will fail too.” Duke Huan asked, “What does ‘if the tactics of Heaven are missed, the tactics of both human beings and the Earth will fail too’ mean?” Guanzi replied, “During the time when Tang was in power, there was a severe drought that lasted for seven years. During the time while Yu was in power, catastrophes caused by floods lasted for five years. At that time, the common people did not have anything to eat so they were forced to sell their children for survival. Tang mint money with the metal produced by Mount Zhan to ransom children sold by their parents because they did not have enough food to support them. Yu mint money with the metal produced by Mount Li to ransom children sold by their parents, because they did not have enough food to support them. So, if the tactics of Heaven are ignored, those of the human beings and the Earth will consequently fail. Hence, if a sovereign stores three tenths of the harvest every year, grain stored for a period of a little bit longer than three years can support the whole state for one year. If this measure can be taken for thirty-three years in a row, the store of grain can support the state for ten years. Moreover, since only one third of the grain output is stored, that will do no harm to the common people and they can also be encouraged to work hard in the fields. Thus, even though the farm work might be impeded by some natural catastrophes, such as disastrous droughts or floods, the common people will not starve to death in ravines or cadge for a living. That is the right way for taking suitable measures according to the tactics of Heaven.”

Duke Huan said. “Fine. I am going to take economic policies according to these three kinds of tactics. What shall I do then?” Guanzi replied, “Qian Qian (possibly it might be a kind of red silk of very high quality) and Ye Shi (possibly it is a kind of precious stone, which is luminescent during the night) produced on the southern side of Liang Shan are unequaled all over the world.” Guanzi continued, “You can trade these things for grain. And if you can store one tenth of the grain output every year, the price of grain of the state will go up ten times in five years.” He continued, “Please issue some money. You can hire some people to mine copper at the cost of the grain stored for two years and arrange a certain place to mint money there. And be sure to regulate the prices of things according to those of other states. When the prices of things of our state are higher compared with those of other states, they will dump goods in our state. And when the prices of things of our state are lower, our goods will flow into other states. Both of these two cases are mistakes in our economic tactics. If the state cannot prevent various natural disasters such as drought and flood, the common people will have to borrow things for survival. Thus, it is somewhat the same as allowing people to enslave each other. That is both the reason for penalties and the roots for all kinds of troubles and chaos. Thus, the balance among the people will be broken, the newly enriched people will become worse compared with the time when they were poor and the resources and savings of the state will be used up. In this case, all three kinds of tactics are lost.”

. . .

Duke Huan asked Guanzi, “Would you please tell me something about the right methods for popularizing moral education?” Guanzi replied, “For people who are good at farming, reward them with one jin of gold. That is about eight dan of grain. For people who can make all the six kinds of livestock propagate well, reward them with one jin of gold. That is about eight dan of grain. For people who are clever at horticulture, reward them with one jin of gold. That is about eight dan of grain. For people who are adept in growing melons, all kinds of vegetable and fruit, reward them with one jin of gold. That is about eight dan of grain. For people who are expert in curing the diseases of others, reward them with one jin of gold. That is about eight dan of grain. For people who are familiar with the weather patterns and can forecast natural disaster and therefore tell whether the harvest of certain kinds of crops will be good or bad in advance, reward them with one jin of gold. That is about eight dan of grain. For people who are accomplished in growing mulberry trees, raising silkworms and protecting them from all kinds of diseases, reward them with one jin of gold. That is about eight dan of grain. Listen to the viewpoints of these people carefully. Make records and keep them on file. Make sure that these people will not be drafted into military service. These are the most important policies of a state. Thus, all kinds of expenditure of the state can be met and there will be enough resources to run all kinds of utilities. Then set up four limits to define the area where the circulation of goods and money can take place. Use the right price policy of either greater or less urgency according to the circumstances to regulate the prices and the circulation of all goods. Moreover, five kinds of talented officials should also be appointed and employed.”

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Duke Huan asked Guanzi。“It seems that we have taken all measures for regulating the prices and circulation and governing the state．Are these all the measures a state can take?”Guanzi said，“No．You should also make good use of the deified national treasures．”Duke Huan asked，“What does ‘make good use of the deified national treasures’ mean?”Guanzi replied．“Someone of Bei Guo found a turtle while digging the ground．Therefore，he has got one hundred square li of land because of the turtle．”Duke Huan asked，“What does ‘got one hundred square li of land because of the turtle’mean?”Guanzi replied．“This man of Bei Guo was ordered to put the turtle on a huge flat plate．Then the sovereign sent out messengers leading ten carts and carrying one hundred jin of gold as gift money to him and issued an edict as follows：‘You are conferred the rank of‘Zhong Da Fu’(the title of a position which is lower than Da Fu)，and‘The son of the god of the East Sea looks like a turtle．Now he is staying at your place．Hence，I confer you to be Zhong Da Fu during your lifetime and reward you with one hundred jin of gold．’That turtle was priceless，so it was kept on a huge platform．Every day the flesh of four cows was sacrificed to the turtle，and it was addressed as‘Wu Zi’(it means an invaluable treasure)．Four years later，military action was launched to attack the state of Gu Zhu．At that time grain stored by the Ding family was enough to support the troops of all the three armies of the state for five months．The sovereign called in the patriarch of the Dings and ordered him：‘I have a priceless treasure named Wu Zi here．And now I am going to take some very important military actions，so please allow me to present this treasure as deposit for your grain．’The Ding bowed twice towards the north and presented his grain store to the state，but did not dare accept the deposit．Duke Huan then ordered him：‘Now I am getting old，and my sons do not know how to value this treasure．Please do accept it．’The Ding went home，built another building and prepared a special mat for the turtle．Four years later，military action was launched to attack Gu Zhu，and people said that the private store of grain of the Dings had supported troops of all the three armies of the state for five months．Duke Huan issued another economic policy on administering finance by using deified turtles．It said：‘The value of the Wen Hang (the name of one turtle) amounts to seven thousand jin of gold．The value of the Nian Gui (the name of one turtle) amounts to four thousand jin of gold．The value of Hei Bai Zhi Zi (the name of one turtle) amounts to one thousand j in of gold．’The income gained by the economic policy taken on these deified turtles can be about two times higher than the value of the land of the state of Qi．Regarding the function of these deified turtles，they can be used as deposits when the state is in danger，and they can be put into circulation like other goods when the state is at peace．”

Duke Huan asked，“What is their function in circulation?”Guanzi replied．“If there are some people manipulating the market and monopolizing trade，you will not be able to popularize your economic policies and the common people will lose the means to sustain their lives．Hence，a sovereign who is good at governing the world will also take firm control over other goods besides grain and money.” Duke Huan asked，“What are goods besides grain and money?”Guanzi replied．“For a state with ten thousand chariots，the total amount of treasure saved by the state should value no less than ten thousand jin of gold．For a state with one thousand chariots，the total amount of treasure saved should value no less than one thousand jin of gold．And for a state with one hundred chariots，the total amount of treasure saved by the nation should value no less than one hundred jin of gold．Making good use of these things and issuing suitable policies to regulate prices according to the actual situation is regarded as the timely grasping of opportunities.”

(5) On Currency

I. Universal Equivalent as Medium for Commodity Exchange

Guan Zhong also had very profound ideas about currency. First of all, he knew that currency, being a universal equivalent, is the indispensable medium for commodity exchanges:

“Gold and copper coins are the medium used by people for exchange of goods.” (《《管子》轻重乙第八十一)

II. The Measure of Commodity Values

Guan Zhong, being fully aware of the various functions of currency, pointed out that the primary function of Gold was its use as the measure of commodity values:

“Gold is the measure of all financial assets.” (《管子》乘马第五)

III. Vital Means for Market Management and Protection of People’s Livelihood

In Guan Zhong’s eyes, currency functioned, more importantly, as a means for managing the market so as to protect common people’s interests and bringing about a stable order under heaven, as he said:

“Grains are the guarantee of people’s lives; Gold and copper coins are the medium used by people for exchange of goods. Ancient kings were good at regulating currency to secure supply of grains for common people so that their manpower could be brought into full play.” (《管子》轻重乙第八十一)

“Jade is produced in Yushi, gold by the Ru and Han rivers, and pearls in Chiye. They are all seventy-eight hundred li distant and cut off from Zhou’s capital by mountains and rivers not open to vehicles or vessels. Knowing that they came from afar and were not easy to obtain and hence counting on their preciousness, ancient kings designated jade and pearls as upper-grade currency and gold as medium-grade while copper coins as lower-grade currency. All these three currencies… were used by ancient kings to safeguard all material wealth as guarantee for people’s livelihood and to bring about peace under heaven.” (Ibid.)

Guan Zhong’s view of currency, besides its basic functions, as an important means for securing the livelihood of all people under heaven is so profound and advanced that it has not occurred to any leading economists of the world today, i.e., more than two thousand years after his time.

IV. Earliest Formula for Calculation of Total Demand for Money

Since currency, as the medium for commodity exchanges, is the current money, it is necessary to know how much money would be needed for a market. When Duke Huan asked about management of state finance, Guan Zhong replied:

“There need be statistics of land, population, demand, expenses and money, statistics of a township, a county, and of the whole state. Without knowing all this, it is impossible to govern the state well. [When the Duke asked how to do the statistics, Guan Zhong replied:] How much land is there in a township? How much are the usual expenses in the area? What is their grains yield total? Then, what is the population of a county? How much is its land total? How much money would be needed for circulation within the county? What should be the proper prices for grains that would match the total amount of money in circulation?” (《管子》山国轨第七十四)

This shows that Guan Zhong regarded it a must for the state to know well about its basic conditions, such as population, total size of farm land, prices of goods, and quantities of grains and cloth needed, before figuring out how much money is required for circulation on the market and what are the proper prices for goods that matches the total amount of money. In other words, Guan Zhong already had a formula for calculating the amount of money needed for circulation, which, according to him, was as follows:

Total demand for money = Total quantity of commodities x Prices for the commodities

As the circulation of goods and currency was comparatively slow under the conditions of ancient times and the impact of this slowness on economy was not obvious yet, the issue of the pace of monetary flow was not Guan Zhong’s concern. His formula about the total amount of money demand, however, was the first one of its kind in human history.