Record 30th anniversary of the publication of Principle of Optimal Allocation
Zhang Shuguang
Chairman of the Academic Committee of the Unirule Institute of Economics
This year marks the 30th anniversary of the publication of Prof. Mao Yushi’s monograph titled
Principle of Optimal Allocation. With support from concerned units, the Unirule Institute of
Economics held the 30th Anniversary of the Publication of Prof. Mao Yushi’s Monograph Titled
“Principle of Optimal Allocation” and Development of China’s Economics Conference. Over one
hundred noted scholars and entrepreneurs around the country attended this conference. We
now compile thesis papers and speeches on this conference into one volume of Unirule’s Internal
Circulation so as to benefit our readers.
The Principle of Optimal Allocation by Prof. Mao Yushi, a noted economist, is a Chinese
microeconomics. Although the theory of microeconomics has long been established by
predecessors and already been widely spread in developed countries, few people knew about
microeconomics, and even fewer understood it in China in the early thirty years of last century
due to thought control , isolation from the outside world, domination of Marxism Leninism and
limited academic freedom. Originally majored in engineering, Prof. Mao adopted the profession
of economics study later in his life. However, without any formal training in economics or
sufficient documents for reference, it is indeed something rare and deserving praise for him to
think out the principle of microeconomics and write it into the Principle of Optimal Allocation by
merely relying on his mathematical and physical basis of engineering. This book influenced the
generation of young scholars studying economics in the earlier period of the reform and
opening-up and played an active role in popularizing knowledge of microeconomics in China.
That’s why it is of great significance to commemorate the 30th anniversary of the publication of
this book, to look back at and to further promote the development of modern economics in
China.
Prof. Mao is also a renowned social activist and practitioner. In the 1990s, he set up a
microfinance institution in Shanxi and started his financial activities of poverty alleviation from
financing tree planting, thus initiating microfinance activities in China. Together with Tang Min,
he set up the Fuping Domestic Service School at the turn of this century. Through training rural
women to take up housework and domestic service management in urban families, this school
not only settled poverty problems of some rural families and practical difficulties of certain urban
families, but also built up a bridge of communication between urban and rural areas. Featured by
sharp criticism on current social evils and ease of understanding, a series of Prof. Mao’s social
commentaries evoke strong responses in society. It’s rather normal for some of his improper
formulations to attract certain critical opinions. However, the fact that some people purposely
hurled abuse at and attacked Prof. Mao on the web also exposes ignorance and rudeness of these
people. Can’t they be more civilized and rational? Although it is free to criticize and to oppose on
the web and the web also requires criticism, criticism must be based on facts, reasonable
arguments, and with logic. Abuse only illustrates one’s own rudeness, brutality, timidity and
disability.
The publication of this book is both recognition of Prof. Mao and encouragement to the late
comers. Let’s get together to work harder for the development of China’s economics and the
progress of Chinese society.
Record of the 30th Anniversary of the Publication of Prof. Mao Yushi’s Monograph Titled
“Principle of Optimal Allocation”
Qiu Feng
President of Unirule Institute of Economics
Today, we gather here in Schonbrunn Hotel in Sijiqing of Beijing for a book, which is of great
significance both in the legendary life of Prof. Mao and in the development history of China’s
economics.
This book is The Mathematical Foundation of Economics: Principle of Optimal Allocation. Prof.
Mao conceived of this book about thirty years ago. This book was firstly published by Sichuan
People’s Publishing House in 1985. Up until now, three editions of this book have been published.
In Prof. Zhang Weiying’s words, this book is an original work of microeconomics with real
significance in China. In other words, it is an original monograph of economics. If we look back at
the history of economics in China, we will find that China’s economics had just stepped out of the
dense fog of official economics and started to introduce modern western economics at that time.
Prof. Mao, however, had already started independent thinking and writing since then. It is safe to
say that this book symbolizes the restart of China’s modern economics in the 1980s in a sense.
Read by many economists, this book exerted profound enlightening influence on many
economists especially in their independent thinking on economics in China afterwards.
That’s why we gather here today to commemorate the 30th anniversary of the conception of this
book. We also would like to take this opportunity to think about the future development of
China’s economics.
I’d like to take this opportunity to express my respect and benediction to Prof. Mao by quoting a
line of Lesser Court Hymns from the Book of Songs：
“On the hills of the south is the Tai plant,
On those of the north is the Lai.
To be rejoiced in are ye, noble men,
The foundations of the State.
To be rejoiced in are ye, noble men; -May your years be myriads and without end!
On the hills of the south are the mulberry trees,
On those of the north are willows.
To be rejoiced in are ye, noble men,
The light of the State.
To be rejoiced in are ye, noble men; -May your years be myriads, unlimited!”
The Course of My Growth
Mao Yushi
Sep. 21st, 2012
Thanks everyone for sparing your precious time to attend this meeting. The meaning of this
meeting today, as Qiu Feng and Sheng Hong just said, is to review the development history of
China’s economy and economics through my individual case.
I would like to take this chance to talk about the course of my growth. Firstly, I’d like to
introduce what is optimal allocation. When driving trains in 1950, I was struck by a question, that
is, how to control the speed so as to save fuel. I supposed mathematical programming might be
able to solve this problem. Later when I had a chance to engage in research work in China
Academy of Railway Sciences, I started to learn mathematical programming for about ten years.
I worked out the principle of optimal allocation in 1979. I took a very specific example, that
is, how should I allocate 100 kilograms of chemical fertilizer on two fields so as to gain the largest
output increase? The ultimate result is that each kilogram of chemical fertilizer used on the two
fields produces equal marginal return. In Wang Guoxiang’s words, this is optimality of equal
margin. Why I call it a principle? Because it is one of the most basic principles of optimization
theory, and it could be used in many ways.
I’d like to take buckets effect as an example. As we know, a bucket is made of pieces of wood，
and how much water the bucket could hold actually depends on the shortest piece of wood. In
this case, the shortest piece produces the highest marginal contribution in water holding, while
the other pieces produce zero marginal contribution Optimal allocation digs into this matter
deeper by further considering how I should design with the limited amount of pieces of wood so
as to hold the greatest amount of water. The answer is equal margin, that is, each piece of wood
produces equal marginal contribution in water holding. In other words, all pieces of wood are of
the same length.
From the well-known buckets effect, I infer that the optimal allocation is that all pieces of
wood should be of the same length. This is the so-called principle of equal margin optimality. We
know that mathematical programming includes linear programming and nonlinear programming,
and the solution to nonlinear programming is Lagrange multiplier method. What is multiplier
method? It is a method of mathematical derivation. However, we can use the principle of equal
margin optimality to derive Lagrange multiplier method directly and immediately.
XXX
You can look at the booklet that I give out to you today, the thinnest one. In the booklet, I
introduce how to directly derive Lagrange multiplier method by using the principle of equal
margin optimality. Now let’s look at the first equation on page 6, (j=1, 2, … , m). This is our
target and it is composed of N independent variables. The N independent variables do not
change freely. They change with a limitation, that is, R equals to zero. In the case of chemical
fertilizer usage, chemical fertilizer used in two fields adds up to 100. In the case of buckets effect,
the length of all pieces conforms to one limitation which could be written into “R equals to zero”
no matter how complicated the limitation formula is. The third equation represents optimality of
equal margin. Equal margin shows optimality. If the marginal returns of Xi and Xj equal to each
other, the allocation must be optimal. Owing to the limitation of the second equation, Xi and Xj
do not change freely. If Xi increases by 0.1, Xj has to decrease by 0.1 so that R remains equal to
zero. Thus we work out the relation between the variable Xi and the variable Xj, that is, the
fourth equation. When we substitute this relation into the third equation, we get the Lagrange
multiplier method. Why we call it a principle? Because it is one of the most basic ideas in
mathematics, namely, equal margin results in optimality.
At that time, I did not know the principle of equal margin optimality, which was found by
the German economist Hermann Heinrich Gossen two hundred years ago. However, I did much
new work which was not done by Gossen after deriving the principle of optimal allocation. What
did I do? Firstly, I viewed the principle of equal margin optimality as the basis of working out the
optimal solution of nonlinear programming. The classic Lagrange multiplier method has its
economics explanation, that is, the optimal allocation of resources. Secondly, I extended the
principle of equal margin optimality to all input-output relations and viewed all economic
activities as relations of input and output. Production surely involves input and output. You input
raw materials, labor and land, and the output is your product. Consumption also involves input
and output. You input consumer goods and gain the output of your satisfaction. That’s how the
principle of equal margin optimality is used in all aspects of social and economic activities.
How to realize the optimal allocation of fertilizer is about setting a standard in terms of
marginal return. For example, if we set the standard at an increase of two kilograms of grain by
each kilogram of chemical fertilizer and request all places using this kind of fertilizer with this
standard, then farmers will automatically adjust their marginal returns to meet this standard.
I’d like to give more brief explanations. Marginal returns diminish. When allocating fertilizer,
the equal marginal return refers to how many kilograms of grain produced by each kilogram of
fertilizer, in other words, it equals to the quotient of the weight of grain and the weight of
fertilizer. If we suppose the final unified marginal return is two kilograms, this requires farms to
increase the amount of fertilizer usage until the marginal return declines to two kilograms. The
solution is to set the price of fertilizer twice as high as that of grain. Farmers definitely will
increase their fertilizer input to this amount so that one kilogram of fertilizer and two kilograms
of grain cost the same. You input this amount of fertilizer so as to get this amount of grains. The
size of this area equals to the product of the quantity and the price. Your output is this area, and
it’s your net income. Farmers will not increase fertilizer usage to this amount because the net
income will be negative that way. They will not increase fertilizer usage to that amount either
because there’s still some net income wasted. Farmers will automatically adjust fertilizer usage to
this amount. Therefore, you need to set the price of fertilizer at a standard, such as, two
kilograms of grain for one kilogram of fertilizer, so that the input amount will be the optimal
allocation.
Here we suppose farms are smart enough to know this curve. In fact, though the
experienced farms do not know this curve, they understand the rule. When prices of fertilizer
increase, they use less fertilizer. That’s exactly what this curve means. Here we take the example
of fertilizer, yet actually all things are in accordance with this rule. Fertilizer increases the output
of grain. Surely it also could increase the output of cotton. The optimal allocation will be realized
if one kilogram of fertilizer produces grain, cotton or vegetables worth two RMB. You set fertilizer
at a specific price, and then the optimal allocation will be automatically realized. That’s exactly
where we differ from Gossen. We extend the optimality of input-output and equal margin to all
economic activities.
Equal margin is a mathematical result applicable everywhere. This is like the fact that two
hydrogen atoms and one oxygen atom turn into one water molecule, which is the same
anywhere in the world. Equal margin is a mathematical result, and there’s nothing to be doubted
about it.
Optimality of resource allocation by price adds in the hypothesis of farmers’ self-interest
which supposes that farmers will adjust price to this point so as to obtain the greatest interests. I
introduced only this hypothesis, while optimality of equal margin is a mathematical result with
nothing suspicious. With the hypothesis of farmers’ desire for the greatest interests, or the
hypothesis of economic man, we are able to work out methods to realize the optimal allocation
of resources by using the tool of price. It will be nothing but a dream to realize the optimal
allocation of resources without using price. That’s why we come to the conclusion that price long
lives.
Here I said that it’s impossible to realize the optimal allocation of resources without using
the tool of price. No matter what society nature it is in the future, be it capitalist, socialist or
communist, you have to use price to allocate resources. We get the result that price long lives
while the other ideas are all Utopia. This is very important. In fact, I wrote an article titled “Long
Live Price” when I was quite young. Why price fails to play the role of realizing optimal allocation
in some society? This is because there is no human right. Sheng Hong also said to me that free
exchange leading to optimality is a fact requiring no education but letting nature take its course;
the reason why human society did not step into market economy until the nineteenth century
lies in the fact that there’s no human right, free exchange and property protection before that.
The realization of optimal allocation also requires the premise of social systems.
Sheng Hong guided me into institutional economics. The atmosphere was rather gloomy
after the Chinese protest surge which ended in the bloodshed on June 4th, 1989, and intellectuals
were all reading books. I took this opportunity to learn. I saw an article written by Sheng Hong
which stated that good men and bad men are determined by institutions and that good
institutions will turn bad guys into good men while bad institutions will turn good men into bad
guys. I was greatly inspired by this article and became interested in institutional economics. Later
we established the Unirule Institute of Economics which specialized in institutional economic
studies.
As I said just now, I used the model of equal margin optimality. This model, however, cannot
include the entire economics because economics is a theory of exchange. I used Song Guoqing’s
exchange model. This is also an example that I learned from different people. Song Guoqing
taught me a good example. There’re two men with a pile of goods. For example, I have one
hundred goods of one kind, and you have two hundred goods of another kind. We can exchange
freely. As long as both of us agree, we can both benefit. For instance, I have one hundred
bananas while you have one hundred apples. Since I have no apples and want to eat apples while
you have no bananas and want to eat bananas, I can exchange my bananas for your apples. After
the first exchange, I have ninety-nine bananas and one apple. The exchange does not stop and I
can continue. Then I exchange my second banana for your second apple. When will we stop
exchange? If we enjoy the same evaluation standard, the result will be that I have fifty bananas
and fifty apples while you have the same number of bananas and apples with me. But it’s very
possible that I like bananas better while you like apples better. Then the result may not be fifty to
fifty. When the equilibrium is reached, it must be that the marginal utilities of bananas and
apples to me are the same as those to you so that we finally stop exchange. This principle is really
fantastic.
In the previous example, there are only two men, namely, you and I, and two sorts of goods,
namely, bananas and apples. If you change the example into N sorts of goods and N people, the
conclusion will be the same. That is, free exchange improves resource allocation with the
ultimate result that everyone enjoys the same evaluation on marginal utilities of all goods.
Society reaches its optimum at this moment. Our society is actually such a society. Given the
well-recognized prices of bananas and apples and everyone’s different appetite for bananas and
apples, how could we realize the greatest utility of each individual through optimal exchange
while the total amount of materials remains unchanged? The solution is to accept the price
relations between bananas and apples and adjust everyone’s consumption amount. I can eat as
many bananas as I like until the marginal utility of bananas to me is the same as that to others in
society. This exchange theory could also be used in exchange between two countries. Since two
countries have large amounts of commodities, how should they exchange to reach optimum?
Based on free exchange, we worked out the theory of optimal exchange rate. This is also what
Song Guoqing taught me.
Wang Guoxiang and I derived the theory of optimal exchange rate almost at the same time.
To take it further, I said that there’re no exchange rates that benefit oneself at others’ cost but
only exchange rates that benefit or harm others as well as oneself. Neither China nor the U.S.
could work out an exchange rate to benefit herself at the other’s cost. There’s no such a thing.
You can only work out exchange rates that harm both the others and yourself. I suffer, and so do
you. Or you can only work out exchange rates that benefit both the others and yourself. I benefit,
and so do you. The basis of this analysis is the exchange theory which Song Guoqing told me.
汇率￥/$
出口创汇成本
外汇供给
10
收益
5
5
55
进口用汇收益
外汇需求
0
收益
5
Figure 1 The Optimal Exchange Rate
In between times, Yang Xiaokai introduced the utility theory. At that time, nobody else
0
discussed utility within our country. After seeing the utility theory, Yang Xiaokai wrote an article
about it, which I read later and felt greatly enlightened. Yang Xiaokai also talked to me on Gini
coefficient which I had no idea about at that time. He introduced to me his theory of
international division of labor which was widely known to us. Yang Xiaokai made significant
academic achievements. It’s such a pity that he passed away very early. All these things formed
the economics in my mind, with the most basic principle still being the free allocation theory. My
weakness is that I did not read most of the classic works of liberal arts.
Zhang Weiying encouraged me to learn the game theory. After the Chinese protest surge
which ended in the bloodshed on June 4th, 1989, the atmosphere was rather gloomy. Zhang
Weiying got down to reading the Game Theory, a thick original work in English. He left the
photointag of this original work to me before he went to Britain. He said to me that I should read
the Game Theory. So I did. Therefore, my knowledge is formed with the help of many people.
Zhang Weiying later wrote many articles on economics, laws and firm theories. Thus, my
knowledge is gradually completed.
The optimality of equal margin in optimal allocation which I talked about just now is a static
theory. I published my dynamic optimality theory in 1980. This issue is quite complicated. If you
are interested in this issue, you can look at the first article in this thin booklet. The twelfth
equation on page 8 is our objective which seeks the maximation of an integral or the maximation
produced in a dynamic process. This is the dynamic optimality theory. We talk about equilibrium
optimality in economics. In fact, equilibrium exists only in our imagination, and it keeps changing.
That’s why you have to solve the problem of dynamic optimality. Dynamic optimality is a highly
underdeveloped field in economics, and very few people mention this issue. However, this issue
is really of great significance. That’s why I turned to think about dynamic optimality in 1980.
I’d like to explain what dynamic optimality means. The optimality issue in my mind at that
time is the step to adjust prices. You probably still remember the biggest problem in the
beginning of China’s reform and opening-up is how to adjust prices. The vertical axis represents
price, and the horizontal axis represents time. Time T0 corresponds to this price. Price here is a
vector which represents thousands of prices. This price is distorted. For example, we want to
adjust to an undistorted price Pn in two years, from that point to this point. We can also discuss
the issue of exchange rate adjustment. The exchange rate stands here at present and it’s
distorted. My aim is to adjust it to this point in two years. How should you adjust? In this way or
in that way? There’re different ways.
Figure 2 Conditions Required for Dynamic Optimal Control (Adjustment from Po to Pn)
I want to find the optimal way. What is the optimal one? Exchange rates are related to GDP.
GDP rises when exchange rates are appropriate. Therefore, I work out an integral, that is,
𝑡
J=∫0 𝑛 𝐺𝑑𝑡, which is a function of G. We could adjust the exchange rate this way: adjust it in the
very beginning and then do not adjust it any more. What’s the problem with this way of
adjustment? The cost will be very high as the speed of adjustment is too fast. We can also make a
little adjustment each day. During this period, GDP is related to the adjustment path of exchange
rates. What exactly is J? It is a derivative of P and a function of time which represents price levels
and its changes. I maximize it, and then I work out a classic equation after studying this issue. If
you ever studied calculus of variations, you will know that the classic equation of calculus of
variations is Euler-Lagrange equation. I worked out exactly this equation through studying this
issue. You can see this in the booklet, so I will not explain it in detail.
I was very interested in this issue, and I thought I had entered a new field which might be
able to completely solve the problem of dynamic exchange rates. In addition, I felt that I had
entered the door and only needed to continue to explore it. However, many problems arose in
the national economic reform around the early 1980s, and I was increasingly interested in
economic reform issues. In the end, I decided to stop working on this book and to start research
on economic reform. So I joined in various discussions on price reforms and wrote many articles.
Zhang Weiying’s idea of double-track price system was also produced through our discussion.
Then I studied ethnics. It was Wang Guoxiang who introduced me into the study of ethnics. I
knew Wang Guoxiang long before this. He found the principle of optimal allocation even earlier
than I did. He also worked out this principle through independent thinking. That’s why Wang
Guoxiang’s economics is very penetrating. He figured it out all by himself instead of learning it
from others. He was also rather cultivated in ethnics. Originally I was quite puzzled about ethnics
because the self-interest economic man is one of the necessary conditions to realize equilibrium.
Moral principles advocated at that time, however, were about doing everything for other's
benefit and nothing for one's own and selfless dedication. How should we solve this
contradiction? Wang Guoxiang told me about an explanation in ethnics, that is, utilitarianism.
This greatly broadened my horizon. Under his guidance, I started to think about ethnical issues
from the standpoint of economics.
I started to think about this issue in the 1980s and wrote The Future of Chinese Ethics in
1987. This book, however, could not be published until over ten years later. No publishing houses
would like to publish this book because they believed that it was against Mao Zedong Thought
and Chairman Mao. It was not published until 1997 by Jinan University Press, who was rather
far-sighted. The third edition has been published, and we are about to publish the fourth edition.
The draft of the fourth edition has already been completed, but I expect that there might be
some problem with censorship.
Why did I enter the field of humanist economics? Mathematical economics I mentioned
above is mostly about mathematics. In mathematics, there’s only right and wrong, no good and
bad. Anything that agrees with the mathematical logic is right. In economics, however, there is
not only right and wrong but also good and bad, and even ethics. That’s why I think we should go
back to humanist economics. What is humanist economics? There’re several ways of expressions.
One of the expressions is mathematical economics without mathematics. It still belongs to
mathematical economics, but it makes no use of mathematics. For instance, we can explain
optimality of equal margin in different theories except mathematics. You can explain many
complicated issues quite clearly without using mathematics if you have thoroughly understood
them even if they are mathematical principles. You might say that I use common sense to explain
economics. There’s a difference between humanist economics and mathematical economics.
Mathematical economics could be called pure economics, while humanist economics is
interdisciplinary in that it emphasizes on society, politics as well as ethics. Moreover, humanist
economics is the common people’s economics, while mathematical economics is the
professional’s economics. I am not a professional. I have no degrees in economics and had never
learned economics at school. Common people may have interests in economics. This is humanist
economics or the common people’s economics, which is prepared for the non-professionals with
no degrees.
There are both similarities and differences in questions answered by humanist economics
and mathematical economics. Many basic issues in mathematical economics could also be
explained by humanist economics. I talk about the principle of general equilibrium, resource
allocation by price, and optimality of equilibrium. This solves the most fundamental problem in
microeconomics, thus being the one of the most basic issues. The status of everything reaching
equilibrium is called general equilibrium. In mathematical economics, general equilibrium is
usually put at the back because it is considered as quite a difficult theory.
Nevertheless, we can use common sense to explain general equilibrium instead of the
complicated mathematics. How should we explain? In the status of general equilibrium, money
could be used to purchase everything, and everything could be sold for money, with supply being
equal to demand. Therefore, I could use money to buy one thing worth two RMB or two things
worth one RMB respectively. This indicates that one thing worth two RMB equals to two things
worth one RMB respectively. This thing could be compared with that thing because I can use
money either to buy this thing or that thing. This is general equilibrium.
Therefore, you can compare thousands of commodities with prices. One banana, one piece
of bread could be compared with one kilowatt-hour. Since one piece of bread is worth two RMB
and one kilowatt-hour is worth 0.5 RMB, one piece of bread equals to four kilowatt-hours.
Without general equilibrium, how could one piece of bread equal to four kilowatt-hours? Now
with general equilibrium, we can add bread to electricity. That’s how we can work out GDP. GDP
could only be worked out at the status of general equilibrium. If money could not be used to
purchase this thing or that thing, money will not be money in the real sense because it could not
be used to measure value.
Ren Zhiqiang said that GDP of housing and cars could not be added up because our money
could not be used to buy housing and cars due to the policy of property-purchasing limitations.
Prior to the reform, you needed vouchers to buy whatever you wanted with money. You needed
vouchers to buy tea, soap, and any other things. You could not work out GDP because you did not
know the exchange ratio between this stuff and that stuff.
More importantly, given a firm with input and output and the status of general equilibrium,
the input and output of the firm could be compared. Through comparison of how much your
input of land and labor is worth and how much your output is worth, you will know whether your
output or input is larger. With more output than input, you make profits and create wealth for
society. If you lose money, your production makes society poorer than before. In other words,
you could know the performance of a firm and whether it does good things or bad things to
society only in the status of general equilibrium when input and output can be compared.
It’s widely believed that labor creates wealth and that you create wealth as long as you work
before the reform and opening-up. The actual status of input and output of labor, however, was
not cared at all. The most famous event is the Great Steel-Making during which the country
became even poorer with more iron and steel being produced because the people were all busy
with steel-making and the input was excessive. Our problem is that we want value rather than
products. A firm must make profits. You can compare input with output just because of the
existence of general equilibrium. All firms have to make profits. We should complain of the
unfairness to real estate developers. Some criticize real estate developers for their black hearts
desiring for nothing but profits. Actually, all production aims at making profits. People believed
that labor creates value without considering input and output before the reform and opening-up.
As a result, society became poorer and poorer under the guidance of this theory.
General equilibrium theory thoroughly answered why the exchange price rather than the
labor price should be used. Price is used for exchange. What’s its relation with labor? When
exchanges reach equilibrium, prices stand for the real value of commodities.
Thanks to general equilibrium, we could completely give up the labor price theory. In
addition, transaction costs could be explained as costs of production prices. Prices are useful, and
you cannot obtain them without costs. You have to pay for them. The ultimate conclusion is that
price long lives and human society will definitely be a society of commodity economy. A society
without exchanges, equilibrium and prices will be nothing but a Utopia.
Humanist economics also answer the important question of how wealth is produced. Adam
Smith raised this question in The Wealth of Nations. However, it seems current mathematical
economics does not discuss this issue. I think about this question for many years and my answers
keep changing. Recently I find an answer. That is, the production of wealth is about making the
best possible use of men and materials. How could we make the best use of men and materials?
That is, free exchange. Both men and materials, if being free, will automatically go to places
where they will be most efficiently used. The intersection point between the demand curve and
the supply curve in modern economics also demonstrate this principle.
Labor does not necessarily create wealth. Let’s take grain planting as an example. Labor to
plant grains is production, but it does not necessarily create wealth. Firstly, who plants grains?
Before the reform, I was sent to plant grains though I was originally an engineer. It did not make
the best use of men and wasted wealth to send teachers, doctors, engineers and governmental
cadres to plant grains. As an engineer, I’m not good at planting grains, but I can do engineers’
work. People good at planting grains should be sent to plant grains. Secondly, materials should be
made the best use of on fields, including land. We need to plant grains where they should be
planted rather than where they should not be planted. We definitely have no reason to grow
crops in the center of a large city or to grow rice between two high-rise buildings because the
cost of growing rice will be too much high in that way. That’s why I talk about the best use of land
and men. The bottom line of 1.8 billion hectare is not correct. Probably we do not need to grow
grains at all. We probably need to produce travel shoes so that we can export travel shoes and
purchase more grains with the money we earn through export. We probably should produce
travel shoes rather than grains because we have advantages in producing travel shoes rather than
growing grains. The other countries might be just opposite to our country, having advantages in
growing grains instead of producing travel shoes. Both of us will benefit if we make exchanges
because both men and materials are made the best possible use of. How could men be made the
best use of? The answer is through resource allocation. The most important point about resource
allocation is also making the best possible use of men and materials.
The function of finance is to make the best use of money. It is generally believed that the
function of the finance industry is to pool funds so as to run a project. This is not correct. It
should be said that money should be made the best use of so as to run a project well. The
finance industry makes lots of money, and it’s difficult to tell whether they make money through
exploitation or creation. We cannot answer this question as we did not figure out the issue of
making the best use of money. Lending money at usury is something that the finance industry
ought to do, but we always oppose usury and ultimately destroy the finance industry. It is
reactionary to restrict the finance industry from lending money at usury. It is correct that usury is
not good for its excessively high interests. Then what’s the reason for the excessively high
interests? It is insufficient supply. If you do not allow them to lend money at usury, the interest
rate will be even higher. On the contrary, if everyone lends money at usury, the interest rate will
naturally decline.
Humanist economics use auction and bidding to explain supply and demand. The supply
curve and the demand curve are worked out through auction and bidding. We know that the
supply curve and the demand curve are the most fundamental things in economics. Starts from
the indifference curve, we need a series of premises to derive the demand curve. However, if
using humanist economics, we do not need these complicated derivations. The vertical axis
represents price, and the horizontal axis represents quantity. Through the method of auction, we
know that the auction price will become higher and higher with more and more demanders.
That’s how we work out the demand curve. The supply curve is worked out through bidding.
When I want to buy something, I will buy it from whoever offers the lowest price. The result of
bidding is the increasingly lower price. That’s how we work out the supply curve. Ultimately,
equilibrium is reached at this point. Why equilibrium stands here? This is because the supply
equals to the demand here. The equilibrium price we get is the best price because it excludes
both demands incapable of offering reasonable prices and supplies asking for excessively high
prices. With auction and bidding, we can work out the intersection point between the supply
curve and the demand curve, which is also the optimal point of resource allocation. Humanist
economics can be used to explain many phenomena of mathematical economics.
价格
招标
拍卖
数量
Figure 3 Auctions and Bidding
The win-win market changes human history. Let’s look at the figure below . The horizontal
axis represents years starting from Year One to the present year 2012. The vertical axis on the left
represents the population, and the vertical axis on the right represents the lifespan. You can see
that both the population and the lifespan prior to 1800 are basically horizontal lines with little
changes and go up suddenly after 1800. Why the population and people’s lifespan go up after
1800? This is because of the emergence of market system which changed contradictions among
people into win-win relations.
Figure 4
world population and age
Economic globalization wipes out wars for resources. The most typical example is Japan, a
country with few resources yet still striving for development. It invaded the three Northeastern
provinces of our country for resources, but it failed in the end. After World War II, though still
being a country poor in resources, Japan becomes a country strong in economics. It can buy
almost whatever resources it wants in global market, such as, oil, iron ore, etc. That’s why wars
are no longer needed. With economic globalization, there’re no more wars for resources. The
issue of Diaoyu Islands, however, is not an issue of resources but an issue of sovereignty and
territory. No win-win strategy exists in this situation. If this piece of land is given to you, it could
not be given to me anymore. How could we both win? In terms of resources, we can both win
because we will both benefit through joint development.
Besides, one dispute about me lies in my argument of “speaking for the rich while doing
things for the poor.” This is a starting point of humanist economics rather than mathematical
economics. The reason is rather simple. If you bring down all the rich, people all over the country
will become the poor. Is such a country good? There were no other countries poorer than China
in the world in the past. Even the underdeveloped countries still owned several private cars,
while China had no cars at all with its entire people being the poor.
Another dispute about me is that I oppose using the bottom line of 1.8 billion hectares of
farmland to protect food security. Setting up the bottom line of 1.8 billion hectares is nothing but
acting the giddy goat. I would like to ask the planners, will there be sufficient food as long as the
bottom line of 1.8 billion hectares of farmland is secured? It’ll be of no use if nobody would like
to grow grains on those farmlands. So the bottom line of 1.8 billion hectares is not enough. You
still need to request at least 0.3 billion farmers to grow grains. In addition, allocation quotas are
needed in terms of who are about to work in cities and who are about to stay in rural areas to
grow grains. We can then divide the quotas into the exact number of farmers of Gansu province,
the exact number of farmers of each city, each county, and even each village. What the result will
be if you have to get approval before you can work in cities? At present, hundreds of millions of
farmers go to work in cities while food supply does not decline. How could the planners explain
this phenomenon?
Due to my opposition to the bottom line of 1.8 billion hectares, I was severely scolded as a
traitor attempting to entrust food security of our country to the U.S. Surely, now many people
begin to understand me gradually. We do not have time to discuss this issue. In terms of my
opposition to affordable housing, I said that affordable housing was the largest corruption case
since the establishment of our country. How much money was involved in other corruption cases?
Hundreds of millions? Several billions? Probably no case ever involves tens of billions. Affordable
housing, however, involves hundreds of billions. To whom those affordable housing were
allocated? State-owned assets were lost to the powerful rather than the poor. Isn’t this the
largest corruption case? At present, a few regions are still building affordable housing while most
regions have stopped doing so. I also believed that private rest rooms should not be built in
low-rent housing while public rest rooms should be built instead. It is this case in Hong Kong.
Surely I did not see the exact situation of low-rent housing in Hong Kong. But I saw this sort of
scenes in Hong Kong movies. Many people lined in queues to go to rest rooms in the morning
because the rest rooms were public rather than private ones. These problems are issues of
humanist economics instead of mathematical economics. These things seem to be some policy
issues that we think of when learning economics. There’re still many other issues, but I will not
discuss them today. That’s all of my speech today. Thanks everyone!
On Principle of Optimal Allocation by Prof. Mao Yushi
Zhang Weiying
Since the implementation of reform and opening-up policies, modern western economics
has been widely spread in China and infused new life into the development of Chinese economics.
Domestic readers got in touch with western economics mostly from comments written by
domestic scholars studying western economics. The role of these comments in spreading modern
western economics definitely should not be underestimated. But I always believe that western
economics explained by Chinese scholars often gives people the impression of scratching an itch
from outside the boot because the authors usually comment on others’ theories in the third
person without melting much freedom into it. Moreover, due to colored-spectacles in most cases,
their comments gave readers merely simple and brief explanations of certain concepts while
much important information and even academic quintessence were often removed so that
readers found it hard to grasp the crucial points of theories, much less to use them with
flexibility.
Presently, there’re quite a few translated versions of western economics originals on sale in
the market, and this naturally brings much convenience to Chinese readers. Anyway, it’s much
better for a reader determined to truly master modern economics and to engage in economic
study to read the originals than the translated versions. Unfortunately, works by western scholars
are normally written for western readers living under the market economic system, and the
authors often suppose readers not only have basic knowledge on market economy but also are
rather familiar with thinking patterns of economics. It’s rather natural that Chinese readers living
under the planned economic system find some difficulty in understanding these books. That’s
also why many domestic readers prefer comments written by domestic scholars to the originals
written by western scholars.
Therefore, Chinese readers are in particular need of Chinese books on modern economics
with them as target readers written by Chinese economics truly understanding modern western
economics. This sort of books will not only provide them with the essence of modern economics
but also inspire them to analyze economic and even social issues in China with theories they
learn. This sort of book is the original rather than the comment and written in second person
rather than in third person (this naturally requires the author to be a modern Chinese economist).
Luckily, Principle of Optimal Allocation written by Prof. Mao Yushi and published by Sichuan
People’s Publishing House could partially satisfy their needs.
Undoubtedly, it’s of great significance for current Chinese readers to master
microeconomics. The Principle of Optimal Allocation exactly illustrates microeconomics and its
mathematical foundation. Surely, the Principle of Optimal Allocation is not an ordinary
microeconomics textbook but a mathematical economics monograph discussing resource
allocation theories from the standpoint of mathematical economics. Since the end of last century,
the development of microeconomics shows the basic tendency of increasing mathematization
and formalization. At present, mathematization of microeconomics is unparalleled by any other
subject (including natural sciences), and it’s very difficult for a man knowing little about
mathematics to thoroughly master microeconomics. Prof. Mao Yushi exercised his specialty in
mathematics and made a flexible use of mathematical methods in economic studies. Each
theorem discussed in this book is derived through rigorous mathematical proof, and the proof
methods of some theorems are peculiar to the author. That’s why the academic value of this
book is significantly improved. Probably in consideration of Chinese readers’ shortage in
mathematical basics, Prof. Mao Yushi tried his best to make his mathematical proof in this book
easier to understand and added appropriate word descriptions so that readability of this book
was greatly enhanced. For a reader with certain mathematical basis, such as, calculus, yet
without much sense in how to use them in economic studies, reading this book will definitely
inspire his thinking and stimulate his progress in this respect.
It may not be difficult for a scholar studying modern western economics to write a purely
theoretical work. However, analyzing and demonstrating economic operational circumstances
specifically in theoretical descriptions is quite an uneasy thing. Analyzing specific economic issues
in a book of economics is even more difficult. Notably, the Principle of Optimal Allocation by Prof.
Mao Yushi made a commendable attempt in this respect, with almost every chapter of this book
being permeated with analysis on China’s economic issues. The author’s analysis on China’s price
distortion and its consequences as well his analysis on the relationship between planned
allocation and price signals are probably one of the most interesting contents for readers. The
author even made thorough illustrations on such social phenomenon as “volunteer services”
from the standpoint of economics, which is quite rare in modern economics books published
domestically. From this sense, this book could also be called a book of applied mathematical
economics. Theories discussed in this book are both abstract and concrete, and from this book
readers learn not only theories and research methods but also the application means of theories.
This is another feature of this book.
With a rigorous logical system starting discussion from “margin”, the cornerstone of
microeconomics, to “price”, the core of microeconomics, Principle of Optimal Allocation
systematically illustrates the basic contents of microeconomics and its mathematical foundations
with less than 170 thousand words so that readers have a complete understanding of this subject.
The whole book is divided into five chapters except the preface. The preface titled “methods of
thinking applied in economics” mainly describes the application of mathematical methods in
economics. In the first chapter titled “marginal analysis and the law of diminishing returns,”
except for normal discussion of the law of diminishing marginal returns, the author devotes
pages to discuss the difference between “the marginal analysis method” and “the average
analysis method,” which is rather illuminating for Chinese readers accustomed to average analysis.
In the second chapter titled “the principle of optimal allocation,” the author gives rigorous
mathematical proof of conditions necessary for the optimal allocation of resources, and his
analysis on the micro foundations of the macroeconomic issue of “planned and proportionate
development” is of significant theoretical value. In the third chapter titled “utility and demand,”
except for discussion of the utility function and the demand theory, the author devotes a whole
section to discussing the issue of exchange rate determination. His formulation of the exchange
rate theories is one of the clearest I ever read, and I’m sure that readers studying international
trade theories will be very interested in this section. The fourth chapter titled “production
theories” discusses the optimal production decisions, including the theory of appropriate division
of labor which could not be found in similar books. In the fifth chapter titled “price,” the author
discusses price from the standpoint of information rather than allocation lever, thus obviously
deepening readers’ understanding of price information.
Due to space constraints, it’s impossible for me to introduce the whole content of Principle
of Optimal Allocation in this short article. I write this comment aiming to recommend this book to
the following readers: a. undergraduates and postgraduates at universities and colleges majoring
in or interested in economics; b. readers with certain understanding yet lacking in thorough
understanding of microeconomics; c. staff working in practical economic departments and with
certain basis in economic theories; d. theorists wishing to study economics with mathematical
methods. It’s certain that any kind of readers hoping to truly understand this book must have
certain basis in calculus, at least the preliminary basis.
Finally, I would like to borrow a passage from the preface written by Prof. Mao Yushi himself
to conclude my comment, “Mathematical means will help us to grasp economics principles more
efficiently, more accurately, and more precisely. This is quite a shortcut for comrades aspired to
learn economics. Thus, we firmly believe that reading this book will save your time rather than
waste it, and it is something quite agreeing with principles of economics. ”
From Economic Values to Moral Values: In Honor of the 30th Anniversary of the
Publication of Principle of Optimal Allocation by Prof. Mao Yushi
Sheng Hong
Many people know Prof. Mao Yushi, yet have no idea that he wrote an economics
monograph titled Principle of Optimal Allocation which played an important role in the
development of China’s economics. The main ideas of this book originate from a paper titled
“Brief Introduction to the Principle of Optimal Allocation” which was published on Volume 12th
of the Economic Research Journal in the end of 1980. This paper proves that the core idea of this
book was worked out by Prof. Mao Yushi through independent thinking. In this paper, the author
still used “input output ratio” instead of “marginal return”; he proposed the concept of “unified
input output ratio” and pointed out that equal input output ratio corresponds to optimal
allocation scheme, which actually means the same with the conditions of Pareto Optimality, that
is, each individual's marginal rate of substitution between two goods is the same as the marginal
rate of transformation for these two goods. If we look at the table of contents of this volume of
the Economic Research Journal, we will find that most articles were on how to improve the
planned economy. Through comparison, we’ll easily see the significance of this paper and his
following monograph titled Principle of Optimal Allocation to China’s economics in that historical
context.
Prof. Mao transformed from an engineer into an economist. He’s good at mathematics,
which could easily be seen from the nice and clean data derivation in Principle of Optimal
Allocation. This background, however, may also have misguided him onto the road of
constructionism or social engineering which asserts that individual elites could design and create
a society artificially. Economic schools from countries once implementing planned economy make
similar mistakes easily. For example, though admitting the formula that marginal cost should be
equal to marginal return, Prof. Oskar Lange believed that prices could be fixed by planners
through trial and error and fantasized about replacing markets with computers.
With the same tool of mathematical derivation, Prof. Mao Yushi eventually head towards
market economy. Why? The difference lies in two different attitudes towards mathematics, that
is, rationalism attitude and humanism attitude. The former believes that only the central
planning authority or economists are rational and even unlimitedly rational so that they are
capable of knowing the marginal returns of M goods produced by N enterprises in the round and
at any time, and making adjustments rapidly enough. The latter, however, does not think so. They
do not believe any planner or economist is capable of dynamically knowing the exact derivative
of marginal returns and whether they are equal. So it’s impossible for any planner or economist
to make adjustments rapidly enough.
After working out the principle of optimal allocation, Prof. Mao naturally continued to think
about how to realize this principle. When writing the Brief Introduction to the Principle of
Optimal Allocation, he still placed on planners the responsibility of collecting information on
marginal returns of all departments and even all goods and making corresponding adjustments.
He said, “if we can establish a complete and fast-working information system which is able to
instruct the input output ratios of all resources, manpower, land and capital to all departments
and to make comparisons so as to select departments with the most urgent demand, this system
will provide us with basis to make right decisions so that each measure and efforts of each person
will play its role where it’s most needed in our country.” Obviously, the subject here still refers to
the planners.
After the completion of the book titled Principle of Optimal Allocation, the author has
completely settled this problem, that is, large amounts of dispersed economic entities are
capable of directly sensing marginal utility or marginal returns and making judgments about
whether margin utility of different goods is equal so as to make adjustments at all times. In his
book, Prof. Mao pointed out, “housewives are very clear that the optimal life arrangement should
make the marginal utility produced by each RMB equal” (Jinan University Press, 2008, p.100).
Similarly, enterprises are also fairly clear about how to allocate various resources to the state of
equal marginal return when conducting production so as to pursue the greatest rewards. The
problem then becomes very simple. In fact, the tough tasks of making judgments about whether
marginal returns of thousands of goods are equal and making adjustments when marginal
returns are not equal are automatically fulfilled by a large number of common people in their
daily life and production. Far-sighted great men with keen eyes, scholars good at working out
highly complicated mathematical formulas, and powerful calculating capacity represented by
computers are not needed any longer. This is a remarkable leap forward.
In the eyes of rationalists, there is nothing behind the mathematical formulas in economics
but the cold and lifeless elites facing these formulas, like a savior dominating the destiny of
mathematical simultaneous equations who believes by self-deception that he knows the status of
all the thousands of marginal returns and supposes that they are equal, and that he is capable of
adjust these marginal returns to equality even if they are not equal. In contrast, in the eyes of
Prof. Mao, there’s a heart behind the derivative of each marginal return, and whether all the
marginal returns are equal actually depends on the judgments and decisions of all the hearts
behind the mathematical symbols. In fact, these hearts know marginal return information better
than planners dominating mathematical simultaneous equations and automatically push the
unequal marginal returns towards equality. This is the only way to realize the principle of optimal
allocation. That’s also how Prof. Mao heads towards economic liberalism from mathematical
derivation.
The functioning of the principle of optimal allocation requires the large number of
individuals to be equal, free and able to conclude transactions at their own will. This constitutes
the basis for Prof. Mao’s later social assertions, including advocation of equal human rights,
opposition to privilege and monopoly, support of private enterprises and restraint of
governmental behaviors. More importantly, a market system should be established so as to
enable these conditions to result in the optimal allocation.
Surely, he also knows that it’s unlikely for all these conditions to be realized in the real world.
There’s market failure and even more governmental failure. Actual inequality exists among
people and countries, including inequality caused by resource advantages, technical advantages
and institutional advantages enjoyed by certain individuals or organizations. At this moment,
artificial internal restraints and obedience of moral principles are needed. In The Future of
Chinese Ethics, he pointed out, “fairness is the only feasible moral principle in dealing with
interest relations of social members with equal and symmetrical positions…due to ubiquitous
asymmetry in position, conditions and circumstances among people, sacrifice of one’s own
interests for the sake of others has become a noble and necessary moral principle to coordinate
social activities.” (Jinan University Press, 1997, p.47)
In return, Prof. Mao found that only this sort of self-restraint ethics will ultimately realize the
ideal of economic liberalism and the equality of marginal returns resulting from the truly free
choices of all individuals. In reality, asymmetry among people and countries are much more
common than our expectation. Great differences exist not only among different countries in scale
and power, but also among individuals in terms of resources, for instance, men enjoy advantages
to women in terms of violence resources. Therefore, moral self-discipline under circumstances of
asymmetry is widely needed and even indispensable for a civilized society. As Mr. Hu Shi once
said, being henpecked is the symbol of civilization for a man.
Thus, the true implication of civilization is not the superiority of technology as means of
production but the moral strength to avoid abusing advantages in freedom, technology and
institution when such advantages are possessed. Accordingly, Prof. Mao made important
supplements to liberalism. When receiving Milton Friedman Prize for Advancing Liberty, he said,
“Liberalism is one kind of self-discipline or self-restraint not to interfere in others’ merited
liberty.”
In Fivewood Study on September 20th, 2012
Prof. Mao Yushi’s Personality and His Articles
Zhao Nong
Ⅰ
It has been ten years since I first knew and worked with Mr. Mao Yushi. I feel deeply
honored to give a brief comment on his personality and articles, and I hope my limited view will
be able to help the public to know more about him.
Originally majored in engineering, Prof. Mao once worked as a train driver and an engineer.
Then he became increasingly interested in China’s social economic issues and started teaching
himself economics. He studied abroad later and finally made great achievements. By now, with
numerous works and articles, he has become a master of economic liberalism of this generation
in China, with many a few students and followers.
It’s definitely not for personal interests that Prof. Mao Yushi decided to give up engineering
and to take up social sciences. In the 1970s, It was still rather difficult to expect the exalted
position that economics now rises to in China. At that time, research and comments on social
economic issues were still politically risky. He changed his career both to find truth and out of his
strong sense of social responsibility. Like most scholars at that time, he once had a spirit of lofty
enthusiasm and devoted his youth to the fiery years of Chinese socialism construction. He also
felt confused and distressed towards the following movements such as the Anti-Rightist
Movement, the Great Leap Forward, the Great Cultural Revolution, etc. What sets him apart is
that he did not stop there. He spent his midlife in continuous reflection, study and exploration
along with poverty, depression and loneliness.
Prof. Mao’s economics ideas and methodology took shape gradually. In the beginning, he
focused his academic study on various conditions that helps to improve efficiency under the
given institutional arrangements, in other words, conditions under which a society will be able to
optimize its efficiency in resource allocation. It should be said that there was still obvious path
dependence of engineering in his academic ideas at that time. However, by cutting in from
optimal allocation and agreeing with Euler Theorem, his theory opened
a new road and
may after all be accepted as a major contribution to the development of economics. His following
ideas came naturally. Is it possible to meet or realize the various conditions required for efficiency
optimization by allocating resources through administrative means, that is, the so-called planned
economy? Further exploration into economics principles and especially reflection on the
enormous changes that took place after China’s reform and opening-up assured him that
institution is what really matters. In other words, only on the premise of sufficient economic
freedom and when market economic mechanism is relied on to the maximum extent, will the
optimum allocation of social resources be achieved. Nevertheless, when the evolution of his
theory finally completed, he has already grown old.
From Prof. Mao’s point of view, all economics issues could ultimately be attributed to
“wealth”. Why Chinese people are poor while western people are wealthy? Why Chinese people
were poor during the period of planned economy and become rich after the reform and
opening-up? These two questions dwelled in his mind. It’s safe to say that making more Chinese
people become rich has become the ultimate pursuit of Prof. Mao’s academic and social activities.
As a result, on one hand, he participated in the establishment of the Unirule Institute of
Economics, which gradually became the forefront of Chinese institutional economics in the
following years, and spared no efforts in advocating economic liberalism, especially his theory of
“free exchange creates social wealth;” on the other hand, he took pains to engage in a number of
poverty-relief social undertakings, such as, running schools, starting microfinance companies, etc.
Think before act and stick to it. This requires more universal love than will and perseverance. Prof.
Mao realized self-respect through loving the other Chinese people. Because of this, some people
may disagree with his specific ideas, criticize defects in his articles and even attack his position,
yet few would doubt his original intention or denigrate his character, at least those who have
read his articles carefully will not do so.
Ⅱ
Prof. Mao is acclaimed as Lu Hsun in the economics circle by the press. This is presumably
because he dares to comment on current malpractice and to put forward his own opinions.
Indeed, Prof. Mao raised his sharp opinion on social focus, such as, indemnificatory housing, the
red line of farmland, etc. In my opinion, he does have certain similarities with Lu Hsun in terms of
bravely facing bleak life and pleading for the people, yet he differs with Lu Hsun greatly in terms
of the style of writing. To compare Lu Hsun’s essays with Prof. Mao’s informal essays, the former
sets about in a roundabout way with an acerbic and poignant style, while the latter reads natural
and spontaneous just like streams in the mountains. It should be said that Prof. Mao’s articles are
rather matured and seasoned just like his senior age. In Chinese economics circle, Prof. Mao must
rank high among those who are able to explain complex arguments in simple language so that
the public find it rather easy to understand his arguments. That’s also why Prof. Mao has a wide
range of readers and his lectures are always warmly welcomed.
The combination of strict adherence to principles of economic liberalism and sincere
expression of his ideas has become one striking symbol of Prof. Mao’s articles. As the saying goes,
one becomes sophisticated when he gets old. Prof. Mao, however, stands far away from being
sophisticated. He writes whatever he thinks into his articles. Therefore, no master-hand is
needed to capitalize on his vulnerable points. In one of his articles on low-rent housing, he
proposed that the bathrooms shall be excluded from low-rent apartments. Others may merely
mention that low-rent apartments should be built with lower standards instead. Due to Chinese
people’s custom of cutting down the tall poppies as well as local media’s feature of highlighting
acute tension, this proposal could be magnified to even cover the entire logic of his article, thus
letting himself in for criticism. Prof. Mao took this coolly and persisted in his own ways. When
discussing the population of abnormal death after the foundation of the People’s Republic of
China, he added in those killed in the Korean War and the Sino-Vietnamese War again without
much discrimination. For him, those who died in wars should be counted in as far as abnormal
death is concerned, to say nothing that these wars took place even outside our own country.
It is widely accepted that food security is of vital importance for China, and this issue is
often associated with farmland area. That’s why “the red line of farmland” has become an
impassable consensus. Prof. Mao raised his idea of restraining polarity towards this. In his opinion,
food is surely of great importance for China with a large population of 1.3 billion, but food
security issue in China has become increasingly insignificant with China’s reform and opening-up
and development of agriculture production; though farmland is one of the input factors to
produce food, good systems, the continuous advancement of agricultural technology and
international trade of food are perfectly capable of offsetting the output effect caused by
farmland area reduction during industrialization and urbanization. Honestly speaking, as the
executive person in charge of the research team, even I myself had doubts towards his opinion in
the very beginning. However, through serious study by the research team for a whole year, I’m
deeply convinced that his opinion is reliable.
Then I wondered how exactly he had formed such a viewpoint. I finally found some clues
after a number of conversations with him. Prof. Mao was banished to the countryside to accept
transformation during the Great Famine in the 1950s and 1960s in China. He witnessed the
whole process and was starved to general dropsy. At that time, he wondered why famine still
occurred even though China had so much farmland and labor force, and why people still suffered
starvation even when playground was planted with crops. He gradually found the answer
especially when rural land contract system was implemented after the reform and opening-up
and the problem of food and clothing was completely solved. That is, even more farmland and
labor force could not ensure international food security under the economic system of unfree
production and exchange; in contrast, if free production and exchange could be ensured, the
reduced farmland area due to industrialization and urbanization will exert rather limited
influence on food production, thus making no substantial impact on national food security. Surely,
going abroad frequently also enlarged his vision. The sight that a large amount of farmland was
left fallow and grass was planted instead in western developed countries helped him to form the
judgment that world food production capacity was adequate.
Prof. Mao’s ideas and findings of the research team aroused large controversy as soon as
they were made public. There was continuous criticism and even personal abuse. Prof. Mao was
always rational and tolerant to people’s criticism. It’s just through arguments that he further
realized that the issue of food security and farmland red line in its essence is about how to
choose land allocation mechanism. Should we allocate land use for industrial purposes and
agricultural purposes through plan means or should we realize optimal allocation of land
resources through market mechanism like property rights protection and price signals? In the
long run, the answer is rather obvious. Surely, no matter whether there are still defects in his
assertion, his ideas have already posed challenges to the existing dominant social ideology and
promoted the continuous evolution of cognition and research. This is exactly what is needed by
society and the academic circle.
Ⅲ
At present, traditional Chinese Confucianism gradually becomes popular, and it might be
considered as a symbol of little learning if we say nothing about what Confucius said. In fact,
Confucianism stresses the unity of knowing and doing. Teachings of Confucius, such as, humanity,
justice, etiquette, wisdom and faith, being temperate, kind, courteous, restrained and
magnanimous, as well as heaven, earth, sovereign, parent, and teacher, have to be put into
practice. Though we rarely hear Prof. Mao discussing Confucianism classics, his behaviors soundly
conform to the conventional rules. He’s dignified and elegant in behavior, gracious and natural in
speech, and honest and gentle to others. This is the initial impression of him. If you get along
with him for quite a while, you will be able to feel clearly his sense of responsibility towards
society, care towards the people and undertakings for the future of our nation.
One must be rigorously honest and have sincere love so as to look bland and soft as a piece
of jade. It has been over ten years since I first worked with Prof. Mao, and I had never seen him
lose his temper. Such nice self-control ability really deserves our lifelong learning. However, he’s
also vulnerable to “secret plots” just because of his kindness and honesty. Things like some
organizations or individuals making use of his fame to advertise or boasting about themselves
occur sometimes. Prof. Mao is quite numb towards this sort of things. It’s the same case with his
articles. Due to his indifference towards gaming among multiple interests, it would be rather
harsh if we require him to score high in practicality and timeliness of the specific policies
proposed by him. His profound understanding of and foresight on social issues, however, far
exceeds that of normal people.
From ancient times to the present, immortals both in terms of personality and articles are
rare. Only virtue of the great masters will be accumulated as national quintessence and culture so
as to be inherited generation after generation. Prof. Mao makes a perfect combination of
universal value and personal cultivation and sets up a good example of both morality and articles
in China. It’s safe to say that such public scholars like Prof. Mao will definitely be able to win
genuine respect for the Unirule Institute of Economics, even for our nation.