CONFUCIONISM

Confucian Economics: The World at Work
Author(s): Kazimierz Z. Poznanski

Source: World Review of Political Economy , Vol. 6, No. 2 (Summer 2015), pp. 208-251
Published by: Pluto Journals
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CONFUCIAN ECONOMICS:
THE WORLD AT WORK
Kazimierz Z. Poznanski
Kazimierz Z. Poznanski is Professor at the Jackson School of

International Studies at the University of Washington, Seattle, USA. He
graduated in economics at the University of Warsaw Poland. He was a
visiting professor at Northwestern University, University of Tubingen,
and Seoul National University. He consulted for the World Bank and the
United Nations. His major book publications include Poland’s Protracted
Transition by Cambridge University Press (1996) and Reform Havoc
(2001). The latter became a bestseller and was printed in Chinese in 2004.
His articles are frequently published in China (e.g., by China Cultural
Studies, Foreign Theoretical Trends, and International Critical Thought).
Email: [email protected]
Abstract: Chinese have their school of economics. Not recognized as a discipline, it can be
extracted from Confucian doctrine. Called here “Confucian economics,” it is a form of ethics.
Its seven consecutive principles are identified for the first time. They differ from and overlap
with the corresponding principles of liberal economics. People are assumed to seek posterity
rather than care for “instant gratification.” Physical resources they need are not viewed as scarce
but as abundant. To survive under abundance, people rely on their work effort rather than try
to take resources away from others. “Work ethics” and not a “profit margin” is a key motive.
People work not for themselves but for others, basically families. As a source of moral rules,
family is viewed as the main “work unit” and not the individual. Equality of income is paramount
for retaining social peace, which precedes economic efficiency. Built on Confucian principles,
economic system is basically a market system. However, it is animated not by individuals but
by families. This design is called here “Confucian system.” Rather than to build based on liberal
economics “capitalist system,” recent China is rebuilding “Confucian system.” Drawn from
ancient teachings, “Confucian economics” is China’s modernity.
Key words: Confucian economics; family structure; work ethics
Love is man
—Confucius (551–479 BC) (H. Chen [1911] 1974, 2:485)
China’s economic successes are stunning, particularly when contrasted with the
faith of other countries that used to operate the command or the Soviet-style
system. During the last two-and-a-half decades, almost simultaneously all these
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CONFUCIAN ECONOMICS: THE WORLD AT WORK 209
countries have reformed their state-based system by bringing market forces in.
Out of this group of roughly 30 countries from 1989 until 2014, China’s national
product grew by eightfold. With this rise, during this period China delivered the
greatest miracle in modern history and the surge continues. In 1989, almost the
entire rest of the group immediately fell into the world’s worst recession with losses
up to two thirds of their national product. The luckiest few, like Poland, emerged
from the slump to double national product by 2014. But after these 25 years, the
most damaged countries are still stuck below the 1989 benchmark; e.g., Ukraine is
down by one third. Many others managed only to restore the pre-recession level,
most notably Russia. In 1989, China’s national product was less than half of the
Russian, but in 2014 it was five times bigger than the Russian.
The following question arises: why is there such a striking difference? The
answer is that the countries that have failed to dismantle the state-run system and
did not fully take advantage of it, forgot a key lesson of history that modifying
their societies’ systems should be based on the ideas that spring out of their
accumulated experience, particularly when changes of the institutional setting
happen on such a large scale as in this case. Ignoring this lesson, they have fully
adopted a blueprint provided to them by the advanced Western economies, called
the Washington Consensus. Informed by the classical (or liberal) economics,
this program was centered on introducing the Western concept of free markets
leaving only a marginal role for the state agency to play in fitting reforms into
local conditions. The same majority of reforming countries have also agreed to the
liberal preference for a radical, also called a “shock-therapy,” approach, which left
little time for the states to tailor reforms to their particular needs (Poznanski 2012).
As a rare exception, China chose to pay no attention to this liberal master plan
and designed economic reforms on the basis of her alternative economics. As
vibrant and exciting as it has been, the economic debate on the reasons for China’s
producing of the greatest miracle ever makes no references to Chinese economics,
as if there was none. No such economics is recognized as a formal discipline, and
not only Western but also Chinese economists are silent on this issue. However,
while Chinese economics does not exist in a formal sense with specialized journals
and academic degrees, it exists informally as a mode of thinking by the Chinese
people. This informal status does not make Chinese economics unimportant for
the operation of China, since China has been of this mind for as far back as the
ancient times when Confucian teachings were formed. These teachings represent
the very roots of Chinese economics. For this reason, I call this alternative to
classical economics, Confucian economics.
Being a permanent feature of human societies, markets come in many versions
that address different needs. Rather than to accept the idea of “free markets” by
shifting economic authority from states to individuals, China decided to reduce
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210 KAZIMIERZ Z. POZNANSKI
excessive state controls in favor of the family—and clan—units. This was in

accordance with the Confucian belief that economy is as strong as the families
that constitute the most essential “work units.” The leaders also expected that by
reviving families in their traditional Chinese form, they will strengthen people’s
sense of responsibility or ethics. This belief was also in line with Confucian
thinking, namely that economic motivation comes from “work ethics.” Like
morality in general, “work ethics” originates from a family setting. In short, rather
than following the liberal concept of “free markets” that is absent of morality as
a variable, the Chinese followed the Confucian idea of embedded markets that
are constrained by a moral code, which in this case is Confucian. Rooted in the
Chinese antiquity, this code, and thus the related “Confucian economics,” has been
further extended through Chinese modernity.
The purpose of my inquiry is to dissect from the Confucian thought its basic
economic ideas and arrange them in the order of modern economics to match the
complexity of classical economics as a formal discipline. Judging by the structure
of classical economics, to be complete each approach to economy needs to address
certain lineup of assumptions, or—as they are sometimes called—building blocks.
Based on the classification of alternative Western schools of economics by Gilpin
(1975, 1987), my reconstruction of Confucian economics distinguishes a sequence
of seven of such “building blocks” and adopts it as a road map. At each turning
point of my complex examination of Confucianism, references are made to the
corresponding assumptions made within the classical economics. This is only to
highlight the extent to which the two kinds of economics differ from each other
but not to thoroughly probe the relative worth of both as “recipes” for the conduct
of economic life.
Introduction: Traveling to the “End of History”—Without Chinese
There is a wide-spread assertion among Western scholars that since there is only
one world to analyze, there could be only one “recipe” for any economy to enjoy a
measure of success, and it is by no means Chinese. The recipe is said to be British
and brought in over 200 years ago by liberal—also called “classical”—economics,
with Smith (1723–1791) as its father. This economics is credited with launching
led by Britain of the Industrial Revolution. It started the replacement of the feudal
system with capitalism, having the so-called “free market” at its very core. Britain
being a pioneer in building the capitalist replacement is taken as a material proof
of intensely researched Britain’s “exceptionality” as a nation (Smith 1776). As
the classical argument goes, once this historic path has been embarked upon, all
countries must eventually join it. Locked in for good, the whole world will reach
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what many liberals call the End of History (Fukuyama 1989, 1992), with a singular
classical thought and universally capitalist.
As far as the reasons for China’s recent success are concerned, liberal economists
have a fitting argument. They claim that what is taking place in the recent China is
just another example of the triumph of liberal ideas. It is asserted that after over a
100-year long failure to join the capitalist breakthrough by Britain, China started in
1978 economic reforms aimed at building or better imitating the capitalist system
from the Western early comers. But if the post-1978 success of China is a reward
for taking this turn, why would imitating of Britain credited with “introducing”
capitalism to the world allow China outperform all others, Britain included? The
liberal answer is, while China is already capitalist, her capitalism is not a carbon
copy of the ones existing in Western Europe or America. It retains Chinese “char-
acteristics” that apparently make her version of capitalism such a potent engine
of growth.
The facts are that so far China had made only attempt to become capitalist
and just once to quickly abandon it. It was during the 1911 Revolution, when
feeling humiliated by the colonial intrusions by the Western powers, Chinese
urban elites put an end to the discredited dynastic system. They proclaimed the
country a Western-style Republic using pages of the European constitutions and
“free market” regulations. The unexpected result was an utter chaos, with scores
of lawless warlords fighting over control of Beijing’s budget, national currency
crushing, and financial system falling into ruins. Weakened by the adversities,
China was invaded in 1933 and nearly lost its sovereignty. The lesson was not
that China was not yet ready to be capitalist but that capitalism is not for China.
This lesson was grasped by communists, who in 1949 restored order in China and
reversed the haphazard spread of capitalism by installing Soviet-style system that
put economic control in the hands of a one-party state.
When in 1978 the leaders decided to reform the 1949 system by reducing state
controls, they didn’t turn for guidance to classical economics again. They had at
hand an alternative—Chinese economics, as part of the ingrained in their minds
belief system provided by Confucianism. I witnessed to the power of these beliefs
when in 1993 the American delegation I was part of was received by the minister
of China’s economic affairs, and later the prime minister, Zhu. We met him to
discuss best ways to deal with the deficit-making state firms. We brought to the
table top-of-the-line classical theories of bankruptcy and sat proudly in a huge
wing of the former imperial palace with a bunch of red-dress hostesses. But this
buoyant mood lasted only until our host—with a tea cup up—took the floor. He
complemented us for the effort and explained, he can’t adopt the proposal, since
for this he would have to fire five million people in the coal mining alone. As I
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discovered later, what he said was that, in the spirit of Confucian ethics, state’s
moral responsibility to people comes before market efficiency.
What then exactly is the Chinese thinking on economy like? To answer, one
is basically confined to the ancient records left by Confucius himself (551–479
BC) and the body of writings by his many followers, among them the most
renowned Mencius (372–289 BC). There is virtually no more contemporary
literature analyzing economic contents of Confucian thought except for a single
but major work, namely a 1911 treatise written by a Qing dynasty civil servant.
His name is Chen and the book title is The Economic Principles of Confucius
and His School (H. Chen [1911] 1974). He is most likely the first to argue that
Confucianism contains a bunch of well-articulated economic ideas but stopped
short of stating that combined they constitute a complete school. The focus of the
books was the relationship between Chinese economics and the liberal school.
His task was to demonstrate not so much how the two differed but rather how
Confucian principles resembled classical ones. Incidentally, Chen cleverly used
these claimed affinities to ensure that the radical 1911 reforms don’t replace the
immense Confucian tradition with modern—by comparison almost fresh from the
drawing board—Western economics.
Some Chinese thinkers at the time were not so confident that the Confucian
economic thought would be resilient enough to withstand the march of liberalism.
Among them was the Confucian scholar by the name Lin (1938). While Chen had
a very tiny following, Lin’s publications became instant bestsellers, at least in
America where he migrated to. Like Chen, Lin was also educated both in China
and America. Similar to Chen, he wrote much of his books in the midst of the
Republican period. Lin wrote widely on Confucianism but less about its economic
principles. He was actually best known for his inquiries into differences between
Chinese and Western mentalities, or psychology. Like Chen, he fought to preserve
Confucianism from the Western advances, but he didn’t think that Confucian
economic thought had much future. In his English translations of Confucius mixed
with personal comments, he wrote,
Confucianism will probably be put out of date by the developments of modern political
science and economics. But as a system of humanistic culture, as a fundamental
viewpoint concerning the conduct of life and of society . . . it will still hold its own. (Lin
1938, 2)
My analysis, I trust, demonstrates that rather than providing some sporadic and/
or esoteric pieces of economic ideas, Confucianism supplies an exhaustive volume
of thoughts that is enough to feed a separate economic doctrine as complete as
liberalism. It also reveals that examined point by point, Confucian teachings offer
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a quite separate view of the economic world than liberalism does. This intellectual
schism goes as far back as the ancient times when Chinese and Westerners
simultaneously enjoyed the period of Great Philosophers. For a while, they both
studied ethics as the art of living and logic as the art of thinking. Eventually a
split emerged, which I prefer to call the “Great Divide.” Chinese chose to focus
their worldview on ethics and Westerners centered on logic instead. China went
along with her leading moralist Confucius, while Greece, as an unquestionable
cradle of the Western culture, sided with her greatest logician Plato (428–348 BC).
The division has continued, including their respective approaches to economics,
with the Chinese brand molded by Confucius and the liberal one fitting in the
framework left by Plato.
Studying “the art of living,” Confucian economics assumes that the nature
equips people with the will to live and provides them also with adequate, even
inexhaustible resources. All they need to survive is to work hard enough. Since
work is a moral choice, Confucians consider “work ethics” the primary factor in
creating national wealth. Within Confucian type of ethics, people are expected to
work not for themselves but rather for the sake of others. This assumption puts
Confucian economics in the category called moral economics. The reason why
work is done collectively is that the basic “work unit” in any society is family, with
work done either for family’s own sake or for the market. Family is said to be the
unquestionable axis of economic life, since family is where the strongest impulse
to work is located within. This leading impulse is a compassion for others, or more
specifically the familial love. With this emphasis on family, Confucian “moral
economics” can also be categorized as a type of family economics.
Following a different trajectory, liberal tradition assumes that material resources
are inadequate for all to survive. For the winners to secure enough resources, losers
have to give up their own resources, e.g., be forced into bankruptcy or deprived
of them by some other means. The best chance of surviving this sort of struggle
has an individual acting alone, since it is his/her preservation that is at stake. With
this theoretical simplification, liberal economics can be branded—as I call it—a
solitary economics. In this kind of analytical approach, minding own interest—or
business—by individuals means having no moral concern for the welfare of others,
not even one’s own family members. Actually, in the economic world as described
by the liberal economists acting against morals is acceptable or even desirable if
it enhances individual’s chances of survival. This particular assumption on the
instrumental role of morals makes classical approach an agnostic economics (an
extreme example being the treatment of morality by Friedman 1970).
It follows, in the liberal doctrine it is not family and morality but interest
and individual that are seen as the two governing elements. This distinction is
critical, since the choice of governing elements dictates the nature of the preferred
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economic systems. Understood as a set of “rules of the game” for the agents,
such systems are formed to assist individuals in meeting their economic goals.
Predictably, the classical thinking is that the most suitable is a social system built
around both interest and individual as governing elements. Confucian approach is
that the most effective is a system built around morality and family. The former
system is capitalism, so what would a system compatible with the Confucian
beliefs be? Since at least on these two important points these viewpoints don’t
match, such an alternative must be a reverse of “free-market” capitalism. In the
Western classifications, this opposite is often identified as state (or authoritarian)
capitalism, where markets are squeezed by the activist state.
But this is not necessarily a correct characterization, since the system compatible
with the Confucian worldview might be a more extreme departure from capitalism,
this kind or any other kind. This particular system might be “socialism” as the
opposite of capitalism. Even the just mentioned few assumptions that Confucian
economics rests upon seem to suggest that such categorization of China’s system
might be more appropriate. Confucianism and socialism seem to share the same
strong ethical outlook and a focus on the necessity of cooperation. Furthermore,
they both seem to treat labor as the main source of wealth. Such a suggestion is made
by H. Chen ([1911] 1974), who wrote that “. . . Confucians are more socialistic
than individualistic” (2:460–61). Given the ancient nature of Confucianism, to
accept such definition would make one conclude that the Confucian doctrine could
be one of the earliest forms of socialism or a sort of prototype. Yet it makes much
more sense to stay away from Western classifications. Since the Chinese economic
system rests on “Confucian economics,” rather than on the widely used Western
term socialist system, it makes more sense to call it Confucian system.
To be precise, the argument that morality and family are central for the conduct
of economic life is also advanced by some Western schools. One of them is
attached to liberalism Austrian school, also called Evolutionary economics. It
is usually associated with the two Austrians, Hayek and Schumpeter, offering
modified interpretations of capitalism. Like liberal economists, they believe
that capitalism is the most efficient system of all. Sharing the same general
approach, Hayek (1988) argues that there is no replacement for capitalism. But
Schumpeter (1942), as the main inspiration for most of my own work, is of the
view that while capitalism doesn’t have to be replaced by socialism, under certain
circumstances it may have to. This may happen if people conclude that regardless
of the relative levels of efficiency, they prefer state intervention under socialism
to market competition under capitalism. Thus, systems are subject to moral choice
between relying predominantly on one’s economic efforts as opposed to being
largely dependent on the support from state (with “socialism” defined by him very
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broadly as any system relying heavily on the state; and the Soviet-style system of
command economy is only one case in point).
While to Hayek capitalism is not replaceable, it doesn’t mean that it is
indestructible. Actually, any economic system or even a whole civilization can
fail, and many have failed in the past. This happens when based on false premises
ideas regarding foundations of economic life do prevail. To him, these foundations
are, respectively, “property” and “family,” both understood by him as economic
institutions. From its inception, these two have shaped the Western civilization.
They have withstood movements to do away with them and watched these assaults
repeatedly fail. Hayek (1988) wrote, “Among the founders . . . over the last two
thousand years, many opposed property and the family. But the only [systems]
. . . that have survived are those which support property and the family” (137).
He refers to what he perceives as failings of socialism, but Schumpeter makes
a similar statement regarding capitalism. In this theory, the primary forces of
the possible demise of capitalism from a rumbling legitimacy are the erosion of
property (due to separation of control from ownership) and collapse of family—as
the main source of ethical motivation.
Ethical criticism of liberalism originates also from outside of the liberal circles,
most notably from the Marxist economists. Among them is the widely recognized
Austrian scholar Polanyi (1994). Similar to Confucianism, but with no direct
references to its philosophy made, he assumes that “family” and “morality” are
the main dimensions of economic life. He claims that literally for thousands of
years until the advent of capitalism, societies were squarely based on these two
principles. The one that relates to “family” is the principle of house holding, i.e.,
production of goods for family’s own use. The other, related to “morality,” is the
principle of redistribution of wealth, e.g., through families and communities. By
allowing capitalist “free market” to uproot both principles of economic life, as
Polanyi writes, introduction of the capitalism system released—to use his phrase—
the most “devastating destruction” in human history. It is not so much economic
deprivation as a psychological one, relating to as he calls it “commoditization” of
people and to the loss of their sense of humanity (dignity).
To Polanyi, while all traces lead to liberalism as the cause of this “devastating
destruction,” the single most critical role of this doctrine was to bring into the
Western mind-set the theoretical or better fictitious concept of the economic
man—or rational actor. Invented by Smith, this concept defined an individual as
one who by birth—instinctively—needs “free market.” People have no choice,
since this motivation is a product of their innate “propensity to barter, truck and
exchange,” and should thus not be distracted even by ethical aspects involved.
As Polanyi argues, as a product of rationalist logic rather than a study of man’s
experience, this speculative concept has been gaining ground until the need for
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any sensible argument against has gone. Pointing to the massive dislocation
caused by the spread of liberalism, Polanyi (1994) summarized his critical account
with the following words: “. . . no misreading of the past provided [was] more
prophetic of the future” (44). And, it is only because of the periodic reversals in
the implementation of the liberal agenda that the world has been able to persevere.
Whoever is right in this broad discourse, an important question remains: how
China’s state could turn to Confucianism and use it as a blueprint for 1978 reforms?
Isn’t it true that the radical forces unleashed in 1911 and then in 1949 were openly
hostile and called for its eradication? Return to Confucianism was possible,
since this eradication actually never happened. The 1911 attempt was quickly
aborted and so the Marxist offensive launched in 1949. While the offensive had
lessened, Marxism in China has modified itself by bringing “Chinese character-
istics,” mainly some selective inferences from Confucianism (Katzenstein 2012).
These infusions should come as no surprise, since as just described Confucianism
actually shows certain affinity with Marxism as a different force for socialism.
Ironically, rather than to dissolve, under the pressures coming from the official
circles, Confucianism greatly modernized its contents and increased its political
appeal (Xi 2014).
As strange as it may sound, one of the most compelling pieces of evidence to
how resilient to the 1949 change of fortune Confucianism has been is the Chinese
painting practice. Unlike in Western tradition, where social ideas are mainly
propagated by historians, in Chinese culture this has always been left mainly to
the scholar—literati—painters and their lyrical scrolls (Binyon 1935). Their visual
is completely filled with a symbolic reference to the Confucian concept of the
world as a moral order. In 1949, universities replaced traditional-art departments
with Western-art departments devoted to the so-called social realism. Almost
as fast, the traditional painting departments were brought back to life, since too
many political leaders were fond of classical painting and interested in collecting
scrolls. While two departments continue, classical painting is thriving today. There
is practically no social realism practiced anymore. It has given in to the Western
“conceptual painting” but with a clear moral message to share (Kuspit 2004).
The facts are China’s amazing growth can be linked to various Confucian
threads of her reform approach. For sure, there is a proof that it paid off for China
to make families and their clans the backbone of economy again. The miracle had
begun with the 1978 transfer of land control (but not of legal ownership) from the
state collectives to family-based farms (Naughton 1996). The boom was extended
when peasants took advantage of relaxed regulations and began investing profits
in the local industry. Over the entire duration, the economy was helped by the fact
that the family sector pushed China’s saving rate to the highest level worldwide.
Rather than to seek money for investment through the “free market” and, say,
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use bank credit, family start-ups relied almost exclusively on cheaper—lower

cost—means of financing. They turned to the traditional ways of pooling together
savings set aside by the tightly linked family—or clan—members.
There is also ample proof that family units were able to deliver the recent
miracle due to the invigoration of traditional “work ethics,” where work is
considered a source of satisfaction rather than an unavoidable hardship. This is
why the mushrooming firms are mostly parts of households with fronts used for
business and backs serving as living quarters. And this is why regardless of age, all
family members are busy and most firms are open all day with no fixed business
hours, and taking vacations is still rather rare, even in the state—public—sector.
What stands behind this recent rise in the work ethics is the revival of a unique
Chinese family structure that seems to provide exceptionally strong motivation.
This family structure is built around the Confucian concept of filial piety that
requires children to take complete responsibility for their parents’ well-being.
As documented by studies in China and Taiwan, the strong sense of filial piety
is remarkable. It is common for children nowadays to transfer as much as one
third of their income to retired parents. Following tradition, parents typically live
under one roof with their children, a fact which explains why in China most of
the new apartments for young couples are designed with extra rooms for parents.
But it would be incorrect to view Chinese-type family as one where only children
are required to sacrifice. In fact, it is to the contrary. As much sacrifice is expected
from parents with respect to children. The major help for children is provided by
parents through sharing the burden of raising their grandchildren, which further
explains why three generations tend to live under one roof. By taking care of
their grandchildren, parents allow their own children devote more time to work
and contribute to overall wealth. Importantly, it is this family practice that allows
hundreds of millions of migrant workers—mostly as married couples—to assume
urban jobs.
That during the recent reforms China has again “missed” capitalism fits into
a broader pattern, since earlier China had also “missed” feudalism, at least in its
European form. If one is to believe liberals, feudalism should arrive in China
before capitalism, punctuated by “Industrial Revolution.” The question of whether
China is already capitalist is still hotly debated, but on the fate of feudalism in
China historians are closer to a resolution. By and large, they agree that China has
never been feudal. Examined against the findings by medieval historians, China
lacked the principal feudal institutions, such as the manorial economy, serfdom
(e.g., “ascription” to land), or the system of vassalage. The facts are that with these
two “misses” during the several centuries, China has been steadily moving along
her own path of history, which is unrelated to the European trajectory. As China’s
experience indicates, the liberal idea of the world reaching the “End of History”
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with the uniform mind seems a utopian vision. As practical as they are, like with
any other utopia, Chinese can’t take this prediction seriously.
The further evidence that counters the liberal vision of the “End of History” is
that many economies of Asia have also deviated from the presumed path leading
to the domination of “free market” capitalism. It is of great importance that this
is the case of countries where Confucianism has spread from China, i.e., Japan,
Korea, and Vietnam. Despite her economic superiority stretching over centuries,
China has never really tried to use force to impose her Confucian vision upon the
world or even just Asia. She has preferred to be left alone, and as long as other
countries presented no military threat, China let them copy from her at will. Like
China, these economies (with the possible exception of Japan) have also “missed”
feudalism, and (jointly with Japan) they all have “missed” capitalism as well. And
it happens, in our post-war times, with China included only this group of nations
delivered “economic miracles.” Adding China, all these exceptional country cases
represent a big chunk of the world, that with their own Confucian path of history
that—in the view of their people—has no unified end.
With these facts on Asia at hand, some proponents of the “End of History”
theory have qualified their pronouncements. Among them is Fukuyama (2011),
who made this concept of change into a “global” conversation. He subsequently
modified his carefully reasoned position by admitting that, used as an archetype for
judging world trends, British history is “. . . a weird experience [and] shouldn’t be
regarded as a model.” He still argues that successes of Britain may confirm benefits
of the “free market” but adds that China has no need to jump on the bandwagon. It
doesn’t, because it became the greatest recent “success story” by seriously limiting
“free markets” for the sake of the state. To him this is the most efficient state
nowadays, one with roots in the first form of the modern (or bureaucratic) state
invented by China back in the third century BC. Impressed with the recent Chinese
state, Fukuyama continues to praise benefits of “democracy” but doubts whether
at the “End of History” all countries will rely not only on capitalism but also on
democracy. As another British, rather than Western, invention “democracy” might
not be applicable in other places in the world.
Assumption # 1: Individual’s Sense of Purpose—Seeking Continuity
Similar to classical economics, Confucian economics is a behavioral science

concerned with management of wealth, i.e., anything that allows an individual to
meet its economic objectives. Judging by how the Western mainstream economics
is structured, the first “building block” for any economics to settle is the assumption
on the primary objective of economic actions, i.e., the sense of purpose (see Table
1). Ultimately, it is individuals who act, so the actual question is what motivates
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them the most. The choice for economists is that either individuals aim at “instant
gratification” or that they are preoccupied with “posterity.” Simply speaking, it is
about whether individuals are impatient and living day by day, so to say, on food
alone, or if they are deliberate and thinking primarily about what sort of legacy
they will leave behind. While classical economics assumes that individual—as the
so-called “rational actor”—is in pursuit of “instant gratification,” the Confucian
assumption is that the major concern is a “legacy.”
Since the whole content of Confucian doctrine is determined by references to
nature, for Confucians to justify their assumption nature must be examined first.
And because people are an integral part of nature, their purpose must be the same
as that of nature. In the Confucian approach, the view of the nature is that each
creation is imprinted with a life code. It consists of two elements—yin and yang—
former referring to female and latter to male. They don’t relate to genders, since
female doesn’t mean here woman, and male doesn’t mean man. These constitutive
elements are contained in each woman and man. Being a living whole, the universe
is animated by a vital energy—qi. And since the nature consists of female and male
elements, the energy comes always in two forms, qi-yin and qi-yang. They have to
be two and not one, since there is no life—and no world—without differentiation,
with each side of the “equation” having the same principal goal.
Table 1 Basic Assumptions: Confucian and Western Economics
Confucian economics Classical economics
1. Principal objective Continuity (procreation) Consumption (existence)

2. Resource condition Abundance (excess) “Scarcity” (deficit)
3. Survival strategy Earnest work Resource acquisition
4. Motivating force Moral attitude Property rights
5. Basic institution Family unit Free market
6. Income distribution Equality (no poverty) Inequality (with poverty)
7. Preferred method Common sense Theoretical models
What then this purpose is? Since, as just stated, Confucian philosophy claims
that nature presumes life, or simply speaking is life itself, there can be only one
principal purpose in nature, namely, “life itself.” To be more precise, this purpose
is the ensuring of life’s continuity by giving birth and therefore being survived by
your own blood. For this reason, the nature can be equated with birth. As Chinese
often say, the nature is “pregnant with birth” (or life). Life must be such an ultimate
purpose of all creatures, since without propagation the world would vanish.
Actually, the nature as such won’t even ever emerge. This primal drive represents
the true meaning of the “will to live” that nature equips people with, together
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with their reproductive capacity. To assume, the above makes Confucianism a

philosophy of life. As its derivative, Confucian economics is an economics of life.
Confucians understand that what comes first in life is the satisfaction of
basic needs, such as food and shelter. Such needs fall in the category of “instant
gratification,” since hunger can’t be ignored for long. While “instant gratification”
is seen by Confucian economics as a precondition of life, what matters even
more in the scheme of life is the continuity of family’s blood. To have children
is not a form of “instant gratification.” It is a lifetime experience from the day of
child’s birth to the day of parent’s departure. Actually, having your own children
goes beyond one’s lifetime, since children may have their own children and then
again, in a sequence that is stretched ad infinitum. Thus, the actual purpose of an
individual as an economic actor is not so much a one-time reproduction but rather
a projection into eternity, as in a form of securing the eternal life that—if I could
say this—Chinese are obsessed with.
Concern for biological continuity is not the only alternative to seeking “instant
gratification.” Another one is the seeking of appreciation by fellow citizens for
doing “good” things for a community. Importantly, this happens to be a major
quality of a model—virtuous—administrator as defined in the Confucian thinking.
Seeking social acceptance is identified as an alternative to “instant gratification”
by Smith, though only in his early writings. Before inventing “economic man,”
not yet as an economist but rather as a philosopher, Smith (1759) argued that the
proper—and God-given—motivation for individuals is the so-called fellowship,
i.e., earning “recognition” among one’s fellow citizens. Or, as philosopher Arendt
(1958) argues, there is an option to move beyond the private—basically family—
life and join political life for the common good (like in the ancient democratic
Greece that she finds historically a superior mode of body politics).
With the above distinction of two human objectives comes the Confucian
separation of goods into material (or physical) and “spiritual.” “Instant
gratification” involves mainly the former, and pursuit of posterity relates basically
to the latter. On the “material” goods, Confucians call for showing a restraint, like
in this quote from Mencius:
For cultivating heart, nothing is better than having few desires. If someone has few
desires, although there will be times when he does not persevere, they will be few. If
someone has many desires, although there will be times when he perseveres, they will
be few. (Norden 2009, Book 7B, 35.1)
On the “spiritual” needs, there are no limits, since they mostly involve human
relations (e.g., comfort of one’s household or familial love). “Spiritual” are
thus superior to “physical” goods, a point made by Mencius whose standing
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was captured by Norden (2009) in the following quotation: “The best life is
characterized by simple, everyday pleasures and rich relationships with family,
friends, and members of one’s community” (xvii). Incidentally, this view on
superiority of “spiritual goods” reveals the Buddhist influences on Confucianism.
As a rule, there is no perfect information, but in the case of “instant gratification,”
transactions are frequent and predicting can be relatively easy. The risk of
missing an optimum solution is thus not excessive. In these situations, risk-averse
individuals can act like liberal “rational actors.” But in the case of seeking
continuity, information required for “rational choice” is simply not available. In
this pursuit of, call it, distant gratification, couples would have to have access to
costs and benefits for the remainder of their life. Of course, this is not possible,
so if couples were acting like “rational actors” and avoid risk at any price, they
would be discouraged and would never choose children. In real life, as we all well
know, people have children, so they can’t be “rational” in the strict—classical—
sense. That this is a different kind of rationality does not mean that continuity as
an objective is not an economic issue, i.e., not for economics to seriously analyze.
Going further, for the “rational choice” to lead people to “equilibrium,” a
fine-tuned “free market” will generate full information, i.e., “free prices.” While
this condition can be met, though imperfectly, in the market for goods satisfying
instant gratification, there is no such thing like a market for procuring children
as a way to achieve posterity. Attempts have been made in Western economics to
model such a market by assuming that children are tradable like any other goods
(e.g., Becker 1981). Of course, there can be no such markets, though in places like
traditional China there were some—limited to relatives—“exchanges.” Children
are not tradable since there is no sizable supply of them; nor is there a demand for
them significant enough for a market to operate. If legacy is a common objective,
disincentives for selling ones’ offspring must be enormous. Buying is also rather
out of question, since people want children of their “blood” which they can ensure
only by breeding their own.
The lack of such markets doesn’t mean that seeking continuity is an issue
outside of the parameters of economics certainly not for Confucian economics.
Actually, all its “building blocks” relate to reproduction. The right way to look
at this doctrine is to view it as a “recipe”—and agitation—for ensuring that
people multiply. In this pro-natal doctrine, procreation is seen as an imperative,
throughout the society, with demographic expansion being a prime indicator of
economic success. At the family level, perpetuation of the lineage is the main
obligation of the man, as a family head. Having as many subjects as possible is
the greatest concern for emperors and their bureaucracy, so their policies are to
be calibrated accordingly. Interestingly, because of its advocacy of withdrawing
from active life to search for “inner harmony,” Buddhism was found as a threat
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to Chinese demography. It is on this ground that, after reaching its peak of power
under the early Tang dynasty, Buddhism was eventually marginalized by the
Confucian philosophers (Waley 1939).
Given this preoccupation with the continuity of life, one wonders how China came
up with the 1979 one-child policy. Mao himself was “Confucian” on demographic
issues and vigorously supported large-size families. The 1979 change of course
was a response to the academic prophecy on population explosion published
separately by two Western scholars, predicting that if birth is not controlled, the
earth will “collapse.” The selling fast books impressed one Chinese mathematician
who built a model to calculate that “equilibrium” population should stay close
to the existing level. That he hoped he could master such a complex issue is a
mystery. Another mystery is how, based on this study, the leaders adopted a harsh
birth control, though without the calculated plateau. No other country went along,
and the two bestsellers were quickly forgotten and so the names of their authors.
Mysteriously, there is barely any talk today about the “population explosion.”
Undeniably, restricting consumption by reducing the number of children helped
China to push upward the share of investment in the national product and accelerate
economic growth but not without an economic cost. Aging of the population has
accelerated, so that welfare payments became an increasing drag on the economy.
But there is a more relevant negative consequence, possibly a historic one. As long
as China’s history goes back, Confucianism has been China’s history, and it is
Confucianism that suffered most from the official ban on going beyond one child.
To be relevant, Confucian ethics has to be practiced, but how can it be practiced
if the objective of continuity through expansion of family can’t be pursued. This
whole ethical system is predicated on the pursuit of family’s enlargement. But
with one offspring allowed, people have had to accept a systematic shrinking of
family and thus extinction of their lineage (keeping in mind that since Chinese
lineage is paternal and on average half of the children born are males, under the
one-child policy only half of families could have male heirs).
As serious as the above threat to Confucianism is, as serious has been the
societal response to it. At the current stage of development, this is still a society
with a strong drive to have children, where males, for instance, try to marry only
if a woman is already pregnant with their child. Though being draconian on paper,
the restrictive one-child policy has never been fully implemented due to public
sentiment. It proved especially hard to enforce in rural areas that even today still
dominate China’s economy. The more conservative outlook of peasants compared
with urbanites had to be a factor. Under pressure, at all levels the state started
relaxing the regulations, so that by 1995, about half of the couples were excluded
from the limits. Payments for having a second child have been phased in. The
remarried were allowed to have an additional child as well (probably for the reason
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of increased frequency of divorces disallowed by Confucianism). Couples with a

higher level of education have been proposed to have a second child. Recently,
the state has declared preference for a two-child policy, and abandoning the policy
altogether is considered.
The Confucian claim that the principal objective of individuals is to ensure
the family’s continuity has some potentially important economic advantages.
The point is that the image of individual pursuing legacy, provided by Confucian
economics, encodes a special sense of time in individuals. Focus on continuity
blurs the difference between present and future, or to put it differently it brings
the future closer to the individual when he/she is in the process of deliberating a
course of action. When individuals view future as close by, they are more likely
to pay attention to the distant consequences of their actions. To put it differently,
since there is a cost to future reward, they must sacrifice their current—“instant”—
gratification, with the feeling that future is less distant, and a greater willingness
by individuals to make present cuts and save harder to raise future wealth (the
focus on future when rewards are greater has also the effect of making people
work harder, see Harrell 1985).
The way Confucian economics encodes time corresponds to the rules of Chinese
language, whose grammar equates the future with the present events under
consideration. In fact, there are no tenses in Chinese—Mandarin—language, so
there is no distinction between the past and the present either. In all cases, the
timing is inferred from the contents of what is written. Chinese are not restricted
in using tenses, but in a daily practice they don’t use markers of time (M. K. Chen
2013). Grammatically equating the present and the future makes users also equate
in their minds the present and the future. This way of encoding time differs, for
instance, from the British (as well as the French) practice, where users are expected
to make distinction between the present and the future. These grammatical rules
of Chinese language follow a special Chinese concept of time, and thus history. In
Western tradition with its linear concept, each moment brings events closer to an
end. But in Chinese tradition, time is a continuum, with no beginning and no end;
all activity caught in cyclical returns, exactly like it is in life.
Assumption # 2: The Underlying “Economic Condition”—Inexhaustible

Resources
After determining what the objective function of individual is, each economic
doctrine faces a choice of assumptions on what sort of economic condition
individuals face while pursuing such a goal (see Table 1). The issue here is the
availability of resources needed to create wealth seen as the only way of economic
survival. One choice, that of classical economics, is to assume that universally,
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the resources are “scarce,” meaning that they are insufficient to meet all human
needs. To put it differently, natural resources are assumed limited, and the needs
of people are unlimited or insatiable. This definition can be found in most of the
textbooks introducing classical economics, or actually almost any type of Western
economics. Interestingly, while the notion of “scarcity” is what is said to give rise
to economics as a separate discipline of social sciences, not much ink is used to
elaborate on this concept.
While there is some ambiguity about what liberals exactly mean by “scarcity,”
there is one thing that is absolutely certain, namely, that liberal economists
categorically reject the opposite to resource “scarcity,” namely, the “abundance”
of resources. It would be impossible to find any endorsement of the notion of
“abundance” written by a classical economist, going back to the first of them in
line—the founders. How then do the Confucians view the resource conditions?
The straight answer is that the liberal notion of “scarcity” is totally foreign to
them and not even comprehensible. Confucian economics assumes that, as another
manifestation of the goodness of nature, resources required for human beings to
meet their needs are actually in “abundance.” To Confucians, it is incomprehen-
sible that, as grand as it is, nature would give people a gift of life not furnishing
all of them with resources needed to hang on to life. Deeply ingrained in Chinese
mentality, this wisdom is captured by a popular proverb: “Always have children,
providence which brings them to light, will not let them perish in hunger.”
Predictably, the exact message is projected by the scrolls of the “literati”
painters. They present nature as an overwhelming whole to be captured by
vague impressions rather than renditions of the physical reality as it is perceived.
Invariably, nature is pictured as imaginary gigantic mountains with streams of
water all composed of vast vistas with no detectable end. To achieve such an
artistic effect, in their—dreamy—minimalist landscapes, they created an illusion
that there are many or infinite horizon lines, and, thus, there is actually no strict
demarcation. Unlike Western paintings, where objects are in a complete form,
Chinese works of art show each object with only partial depiction, so that the
viewer is left with a section of a tree branch or with few flowers from a bunch
(Rowley 1959). The objects are painted as if they were too big to fit the paper—
or silk—of a scroll. To further amplify a sense of the limitless, painters leave
much of the painting voided, untouched by paint, and water as its base. And, the
meager presence of people, as tiny shapes put in paintings’ remote corners, further
suggests the vastness of nature—offering to people all in excess.
The most elaborate philosophical treatment of the issue of availability of
resources comes not from Confucius but from Mencius. He argues that nature
provides for people without ever pushing them to the brink of extinction. It doesn’t
matter what the absolute population size is, since nature can support any number
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of people under the single condition. Namely, resources nature provides are not
wasted. The issue at hand is not the potential waste by failing to make more
efficient use of resources. It is simply about avoiding mistakes—human errors—
that interfere with nature as a supplier. Mencius wrote,
If one doesn’t disrupt the farming seasons with building projects, but only waits until
after the crops have been harvested, the grain will be inexhaustible. If overly fine nets
are not used in the ponds, so that sufficient fish and turtle are left to reproduce, they will
be inexhaustible. If people bring their axes into the mountain forest only in the proper
season, the wood will be inexhaustible. (Norden 2009, Book 1A, 3.3–3.4)
Mencius adds that even during the worst of times with any sort of adversity—
flood or draught—there should be enough for people to avoid death from
starvation. When people have to die during such unfavorable times, it is not for
the lack of food, but for the deprivation of food by the more fortunate individuals,
in these instances—meaning speculators. To follow the seasons also means to be
prepared for harsh weather conditions that leave people with less food than usual
or even with none at all. If during regular seasons adequate portion of supplies is
stored for the future, when floods and droughts arrive, people can draw adequate
supplies from what was stored to sustain them. This storing is considered the
primary obligation of kings, and only when kings fail to provide relief through
public and/or private sources, poor harvests become deadly: “Not to release grain
from granaries people die from starvation is killing, not the harvest is responsible
but people” (Norden 2009, Book 1A, 3.3–3.4).
Not only that the resources are found exuberant, the liberal notion that there is
always scarcity (or shortage) because human needs are limitless is disregarded by
Confucians. What comes with the notion that needs are unlimited is that people are
forced to substitute one product for another rather than enjoy benefits of both—or
all—goods equally. Confucians admit that individuals always make choices within
their finite budgets, but they don’t accept the notion that this itself makes people’s
situations “dismal.” It would be a “dismal” situation only if ethical behavior were
excluded as an option for individual. However, as Confucian economics claim,
if ethical dimension is added, there is an easy practical solution to this spending
dilemma. People can simply show necessary moral restraint and prioritize spending
without any “pains.” Mencius explained this point plainly:
I like fish, but I also like bear’s paw, but if I can’t have both at the same time, I will forgo
the fish and eat the bear’s paw. I love life, but I also love righteousness, and if I can’t have
both at the same time, I will sacrifice life to have righteousness. (Norden 2009, 260)
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Designed to deliver the Confucian vision—or image—of the living world,

Chinese pictorial language shows no need to convey that there might be such a
thing like inadequate resources. As already stated, there is a word for this condition
in Western language, and this word is “scarcity.” But as ancient as the Chinese
language is, there is no special ideogram for capturing any notion of scarcity (or
shortage) of resources. If during millenniums that have passed the Chinese have
felt no need for such an ideogram, it suggests that there was nothing in their daily
life experience that called for such a character to be ever invented. True, quite
recently, a separate ideogram has been created in the Chinese language for the
English word “scarcity.” But this is not due to some sudden belated realization
by Chinese that there is such a thing as “scarcity.” The purpose of adding such
a character was to facilitate translation of economic articles from English into
Chinese. Interestingly, this and other such characters that were more recently
adopted from Western language were produced not by pictorial representation but
by mimicking the foreign sound—a transliteration.
One wonders whether there was in the history of China as the longest lasting
civilization any memorable experience with “scarcity,” meaning excess of people
relative to resources of land and water. Certainly, the Chinese could not have
experienced a lack of resources while living on what they gathered at a primitive
stage with endless resources—actually the whole green planet—available for small
pockets of people to rely upon. Resources were not a problem when they turned
to farming either, with two major rivers and splendid soils that helped China to
become the earliest great agrarian society. Since then, China has retained the same
borders, not excluding Tibet, which is not known for offering much soil for the
farming anyway. If “scarcity” is not a term but a reality, then this reality should
at some distant point force the population to stagnate, but as we well know, it has
almost continuously multiplied. In the later centuries, China even went through
some sort of demographic revolutions like those during the period 1740–1940
when the total head count increased from 150 million to 450 million or three times..
Let’s turn to Britain, where after 1740 huge numbers of Brits immigrated,
mainly to America, which happened to be also a magnet for similar in size
immigration from Germany. The numbers of Brits leaving their households for
unknown future abroad were so high that the whole demographic phenomenon
was given by historians the name of Great Migration. Many Western economists
have concluded that this unusual mass relocation was primarily due to a mounting
land shortage. But this migration, despite her enormous size, provides no proof
of the effects of “scarcity,” since at the global level there was none. In fact, this
historical development proves the opposite, namely, that at the time in question
the total—worldwide—resources provided by nature were in excess. What else,
if in America, where British and other farmers with families went to settle there
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were areas of virgin land, representing at least a quarter of the total arable soil in
the world? Given the relatively tiny number of locals, with only a fraction of them
involved in farming, migrants certainly had no economic reason to battle them.
Various econometric methods have been used to measure whether there is
any correlation between availability—supply—of land and migration abroad by
using prices of land in various areas as an indicator of “shortage.” Mainly done
for Europe, these calculations produced no empirical support for the argument
on excess population. No measurable evidence was found for China either, who
experienced her parallel and almost equal in absolute numbers outflow of people
abroad, call it her own Great Migration. In addition to the internal migration to
the almost deserted Manchuria, multiple of farmers went abroad, mainly to South
Asia. Half of them originated from a single and rather small province named
Fukien. Like elsewhere in China, people left not out of economic desperation but
to become richer. And they came mainly from this province since it was a coastal
one and thus offering cheap travel. In addition, as the family records indicated, the
majority of those leaving boarded ships with an intent to go home when elderly.
In Fukien, the most affluent will settle on a tiny most picturesque Gulangyu Island
near the garden city of Xiamen that is so deep in my memory.
Returning to Britain, there is more material evidence that migrations through the
whole human history were not about efforts to save lives in the face of shortages,
but mainly opportunistic. Migrations were about the betterment of life by those
who were adventurous enough to leave for “greener pastures.” Demographic
statistics demonstrate that at the time of her “Industrial Revolution,” Britain
witnessed the just mentioned population boom. At the time, migration greatly
accelerated reaching about 4 million. This could be taken as a proof of “scarcity,”
if not for the fact that the size of migration paled in comparison with the additional
population that was absorbed by Britain herself. While about 4 million migrated,
the total British population increased from 17 million in 1851 to 30 million in
1901, meaning 13 million. It means that Britain had enough resources to support
the additional 13 million inhabitants. To make it perfectly clear, to accommodate
the outflow of 4 million migrants, Britain certainly didn’t need more than another
island of her size. Yet Britain still engaged in colonizing the majority of the world
to create a “naval empire.”
Assumption # 3: The Winning “Survival Strategy”—Importance of Work
The third “building block” (see Table 1) for any economic doctrine is the issue
of best strategy for dealing with the “economic condition (or problem)” that
individuals encounter while trying to meet their needs. Arguably, the circumstances
that individuals are confronted with determine the choice of most efficient type of
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responses. Turning to liberal economics first, to address this question we need

a more precise sense of what sort of hardship comes to individuals because of
“scarcity.” It can’t be a trivial one, since otherwise it won’t be sufficient as the
rationale for creating a separate discipline to study the economy. By saying
that universally—across the time and space—there is “scarcity” due to limited
resources, liberal economists are actually proclaiming that resources are always
insufficient to support all the living. Under the circumstances, the pursuit of wealth
becomes the so-called struggle for survival, where only the fittest survives. The
classical idea of “scarcity” of resources is thus inseparable from the idea of the
life-changing “struggle for survival.”
The concept of the “struggle for survival” had been given a theoretical form
already by the first liberal thinkers, who came up with the concept of oversupply
of people that—for the sake of global balance—must be removed. The prominent
predecessor to Smith, Hobbes (1588–1679) wrote, “When the world is overcharged
with inhabitants, then the last remedy of all is war . . .” (Hobbes [1651] 2012, pt. II,
chap. 30). Partly overlapping with Smith, reverend Malthus (1766–1834) proposed
a model to explain this apparent phenomenon, and that harsh remedies are a must
(Malthus [1798] 1993). Called Malthusian Trap, this model claimed that due to
their inborn instinct, people strive to multiply and have as many children as women
are capable of delivering. When for whatever reason material wealth increases, the
gains are used disproportionally to have—meaning feed—more children. Related
rise in population will outpace the change in production level. Historically, as the
theory goes, the resultant surplus of people has been dealt with either by starvation
or by war. The only way to avoid brutalities is a moral way, namely, the voluntary
reduction of the birthrate.
Admittedly, Malthusian theory was almost immediately put in question by the
classical economists themselves, and it is still widely treated as a failed theory. It
has been debunked for misrepresenting both sides of the equation, men’s fertility
and land’s (or soil’s) fertility. But for a dismissal by the profession as categorical
as in this particular case, Malthus is still doing quite well. Certainly, he still
enjoys great “name recognition.” As the first economics professor ever hired, he
is regularly mentioned in the contemporary literature. While his demography is
dismissed as counterfactual, the liberal concept of a “struggle for survival” is not
gone but is kept alive by the voices of scholars such as Dawkins (1978). In the
spirit of his economic predecessors, this British biologist proposed a most widely
received theory that in the world of “scarcity,” genes—that animate the robot-like
people—try to maximize their replicas by making individuals engage in a ruthless
struggle for survival.
Since economic life is understood by classical economists as a ruthless
“struggle for survival,” the winning strategy for individuals is to concentrate on
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“transfers,” or better “acquisitions” of resources from each other. It is through this

strategy that the winners have at least sufficient resources to support themselves
and continue living in the never ending conflict over resources with cohabitants.
Since Confucians don’t believe in the liberal notion of “scarcity” or that of related
“struggle for survival,” squeezing natural resources from others can’t be a strategy
of choice for individuals. Convinced that natural resources are in abundance,
Confucians assume that the true winning strategy for individuals is not to secure
“transfers” from each other but to labor hard enough. Not to forget, for this reason
the same nature provides them with physical and mental abilities—hands for
manual and brains for mental jobs. As Confucian economics argues, wealth is a
fruit of work, or labor, as the prime, if not the only factor of production that counts.
But isn’t it evident that any kind of work may be viewed by people as some
sort of hardship since at least comparatively speaking, there are more desirable—
rewarding—ways of allocating time, e.g., various forms of leisure. If this is how
people feel, then wouldn’t nature condemn people to hardship of work anyway
by bringing them to this world? This inference would be inconsistent with the
Confucian view of nature as extremely generous in her—if I could use this word—
“attitude” to people. If nature spares people from “scarcity” of resources, why
would it not save them from the hardship of work? The truth is that Confucians
view work as a source of satisfaction or enjoyment. Work is such a source the same
way as the fruits of work—material goods—are. As Confucius apparently said,
“Choose a job you love and you will never have to work a day in your life.” This
shouldn’t be difficult, since as already stated in Confucian ethics people work for
others—and do it out of love. The focus is not on “choice” but on “love” that one
brings to work. It must also bring joy to people that by doing work one makes use
of nature-given talents. All this explains why, as Confucians posit, people work
more than they need.
There is no escape from labor, since whether focused on profit or not, people hate
laziness. Accordingly, they have no need for anyone to work for them, certainly
not as a slave used by masters for cheap labor. As an extreme form of exploitation,
slaves survive by receiving subsistence (usually in kind) remuneration and with
no formal rights to protect them. Slavery is not uncommon in history, particularly
under tropical climate conditions, where work is said to be exhausting and posing
danger to human health, even life (see Landes 1998). However, this geographic
argument on proclivity of tropical areas for slavery doesn’t hold ground for China,
since if climate is a critical factor in determining the use of labor, how it is that
in Southern China that is very hot and humid, there has never been any slavery.
In fact, no part of China has put in use a slavery system like this found in ancient
Greece, Rome, or America before the Civil War. The only and rather rare instances
of enslaving people in China have been for criminals who were sentenced to slave
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for the families they have caused some kind of harm to (and typically “integrated”
into this very family circle).
In the Confucian approach, those who don’t work are not seen as privileged and
those who work are not seen as condemned to hardship. It is also not that those
who don’t work are superior in some fashion to those who perform work, or, going
further, that somehow those doing physical (manual) work are lesser people than
those who are engaged in mental work. Therefore, there is no justification for
the stratification of society according to people’s work status. And, as a logical
extension, Confucian economics does not provide any excuse for other kinds of
slicing of society into unequal groups having different rights from the others, even
being left without protection. For Confucians, there should also be no room for
social classes, with a division between working and leisure classes or separation
according to their ownership status (e.g., proprietary capitalists and property less
workers as distinguished by Marx in his theory of capitalism). There is also no
place for casts based on religion, ethnicity, or otherwise—with some pushed into
walled ghettos, etc.
Social differentiation is recognized in Confucian economics, but only with
respect to occupations. The lowest of the hierarchy in a society are merchants and
bankers representing the commerce. In the Confucian view, the latter move money
that they store for people who saved it, i.e., capitalists. Their contribution to the
overall wealth creation cannot be major, since it is the users of money—credit—
that create most of wealth. Bankers don’t have knowledge to manage how money
is used, and their risk can’t be higher than this taken by the money users. Banks are
like storages for money to be picked up by the owners and for storage there should
be a flat low fee. Merchants don’t produce much wealth either, since they merely
move items from one place to another, and they don’t even transport as this is left
to the shippers. The only usable service provided by them is that they bring sellers
and buyers together. Merchants are at best like a moving company using rented
equipment to safely relocate someone’s belongings.
Merchants are put at the bottom of this hierarchy not because Confucians have
contempt for making money and profit. Western economists often make this
assertion to argue that it was this contempt that explains why Chinese economy
was so late in joining British “Industrial Revolution.” Isn’t it correct—as
liberals argue—that there will not be any “Industrial Revolution,” if not for the
society-wide acceptance of money and profit that allowed a power takeover by
merchants or “bourgeoisie”? The reality is that Confucian economics is not against
money making or profit seeking. In fact, both are paramount for wealth creation
and something in which Chinese excel (Brandt, Ma, and Rawski 2014). Confucian
intention is only to prevent the levers of power to be handed over to merchants.
With their pecuniary interests, they can easily turn to practices that are subversive
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of morality. Power should stay only with those who strive mainly for moral
excellence, e.g., the so-called “gentlemen”; even more so the enlightened “sages.”
Assumption # 4: Source of Economic Motivation—Role of the Moral

Attitude
Each economic school must also decide on the fourth issue of great importance,
namely what motivates the individuals in their pursuits of wealth (see Table 1). The
liberal assumption is that an individual’s motivation is a function of the protection
of its personal wealth by the so-called property rights. They are the customary—
informal—or legal—formal—types of rights that ensure one’s exclusive control
over the application of resources as well as of the appropriation of derived
benefits. According to the liberal leaning neo-institutional theory (see North 1981;
Levy 1988), the less enforceable these rights, the higher the transaction costs (e.g.,
contracting, policing) to be incurred and thus smaller benefits collected by the
owner. At the extreme, when the “transaction costs” are prohibitive, the owners
will have no motivation and leave their resources idle. Conversely, the lower the
“transaction costs,” the stronger the interest in expanding wealth. The case in point
is that the “Industrial Revolution” happened when “transaction costs,” as North
(1981) argues, declined since intellectual property gained its first legal protection.
The Confucian economics sharply departs from liberal economics by
assuming that in their economic endeavors individuals are motivated basically
by their ethical attitude to work as a source of wealth. This characterization of
prevailing motivation follows from the Confucian assumption that, as already
explained, within the rules that govern nature the pursuit of legacy is the principal
objective. It is so, since meeting this objective can’t be ensured unless people take
responsibility for others, as the true expression of individual’s moral attitude. It is
for this very reason that people tend to work for others; meaning here mostly the
blood-related family members whom they live with. Confucius put this cardinal
assumption behind Chinese economics in the following words: “You live for
others not for yourself” By this, he largely meant, “you live for your family,” but
he clearly extended this rule to a society at large. This is also the correct meaning
of Mencius’s related general point on the ethics of life: “To use the world to care
for someone is the ultimate in care” (Norden 2009, 4.3)
People are given by nature the gift of life with resources to provide for what
they need to stay alive, but they also come to this world equipped by nature with
morals to guide them to embrace work—labor—for what it is. They are called by
Confucians moral laws, because by disobeying them even for a brief moment life
is not possible anymore, more precisely it won’t continue. Moral laws consist of a
single set of rules that are not subject to any change, since there is only one way of
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upholding life continuity. Included in this law is the principle for people to assume
responsibility for each other. In other words, nature provides individuals with
natural goodness, though they can choose to deplete it, or in extreme situation
even abandon it. As Confucius said, “Man are born upright . . . with faculties to be
good, but through habits they may differ,” meaning that through bad influence—
example or teaching—people can lose this force of natural goodness.
Thus, the following question arises: what mainly drives individuals’ behaviors?
Is it the sense of “security” over resources in his/her possession, or rather is it the
moral obligation toward others that implies sharing of wealth? Within the classical
assumptions on economic agents, one can intelligently deliberate on the issue of
property rights, their economic meaning and practical consequences. But one
wonders how within this framework, one could successfully deal with the moral
aspect of economic life. How can we explain this aspect if, as classical economics
does, individuals make no decisions on procreation—or birth—and thus lack the
experience from which, as Confucian economics claims, a human experience
morality originates? As defined, the “rational agent” of classical economics is self-
interested, so it won’t squeeze its “scarce” resources to support a child or anybody
else. Such, seemingly fictitious, agent is also assumed to be acting autonomously.
But it is not possible to bring new life—child—autonomously, since for this to
happen people need mating partners.
As described, with such a preference list, the “rational agent” of the classical
doctrine is actually a childless (better family-less) adult in a productive age,
who pursues “instant gratification.” Under such assumptions, the moral aspect
of economic life can’t be successfully debated, certainly in the context of the
universal experience of bringing a child to this world or/and maintaining family as
a reproductive unit. To address these moral dimensions, it is necessary to step away
from the classical approach and recognize that in reality, all people are subject to a
life cycle. At the initial stage of existence, one is a child, later becoming an adult,
and finally turning into an elderly. Let’s then address individual’s motivation in
the context of a family where there are these three generations—adults as parents
on one side and their children plus the elderly (or grandparents of the children) on
the other.
To make my general point on the role of morals, I will use some “stylized facts.”
I will assume that only adults can work and create wealth to support themselves
but children and the elderly can’t. For this reason to go on living, children and the
elderly need adult family members to support them with transfers of wealth. I will
further assume that each stage of the “life cycle” is of the same length. With these
assumptions, it turns out that only for 1/3 of their life when they are adult people
can be “autonomous,” but for the remaining 2/3 of their entire life people must
rely on wealth transfers. The implication is clear, the economic survival of people
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is mostly a function of the moral attitude—compassion—of the adult members

of the family that all people are at assumed length during their lives. The above
fraction 2/3 is a quantitative indicator of the superior role of moral outlook for the
management of wealth, the issue which economics is preoccupied with (and thus
how much liberal school is off the mark by abstracting from morality).
I will now assume that adults—husband and wife—who make wealth need 100
units each to provide for a comfortable life. They will be satisfied with the 200
total and seek no more goods. Let’s also assume that adult or not, each person in
a family needs the same amount of 100 units to have a comfortable life. If the two
adults are a couple with two children that they have to support, they will have to
increase their work load by 200 units, which raises the total to 400. But if they
care also for their two parents, they need another 200 units of wealth, so the total
needed is 600. In this arrangement, of the total 600 units of wealth produced,
only 2/6 of the units will go to the active—working—adults who made them, and
as much as 4/6, or twice as much, will go to the dependent family members. It
follows, 4/6 of economic life is about sharing wealth that is instigated by morality.
And, as high is the fraction of the economic life that liberal economics ignores
(this fraction also measuring its “poverty” as a discipline).
The other important lesson from this discussion of generational transfers of
wealth is that—contrary to classical economics—in real life, under the regime
a “life cycle” morality doesn’t have to interfere with economic rationality, i.e.,
increasing wealth. As offered above my simplified “model” of family transfers
implies, if not for the morality there won’t be any transfers coming to the
dependent members. The important question is how “rational” is it for the working
adult to withdraw a “life line” from family members? It would be irrational, since
the economic consequences of such behavior for the working members can be
truly dire. When the adults enter the retiree stage, they will now need assistance
from their children. But if they refuse to support their parents, this will set a bad
example for their own children. Not feeling any obligation, children will abandon
their parents and let them perish. This would make them waste 1/3 of their life
span. And, how “rational” is it for anyone to lock itself in this sort of predicament?
However, this is not to imply that property rights don’t matter in Confucian
economics. Confucians see a need for property rights and historically, China
has been quite adept in mastering property rights. At the advent of “Industrial
Revolution,” China’s ownership system was by no means less advanced than
the British (see Pomerantz 2013). But this need for protection of claims over
resources is not viewed by Confucian economics as most to essential economic
life, and certainly not with regard to the generational redistribution. As just
demonstrated, such transfers possibly constitute the greatest facet of economic
life, but nevertheless they are not regulated by the property rights. In fact, almost
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no internal relationships that hold families together are regulated by property

rights (except, for instance, wife’s “dowry”). And not in the patrimonial model
adopted in Chinese society, where as the head of a household, the father holds
legal papers. But in reality, he is only a nominal—rather than a factual—owner of
the family assets.
Going further, the Confucian doctrine makes it clear that if there would be
no attempts to violate protection of the owners, legal protection would not be
necessary. To accomplish this by fear through purely legal means would be
cost prohibitive, and thus detrimental to wealth creation that the legal system is
supposed to enhance. In this context, North (1981) mentions morality—but also
ideology and religion—as a way for reducing the costs. This is also the Confucian
position, except that according to Confucians, the purpose of societies should be
to base interactions not on legal but rather on moral rules and ideally avoid any
costs at all. If there is moral harmony and all people are morally disposed, they
will voluntarily comply. Confucius said, “The thing is we should make it our aim
that there may be no lawsuits at all, so that people who have actually done wrong
will be too ashamed of themselves to indulge in words of self-defense” (Lin 1938,
129). Thus, as the highest value in Confucian ethics the moral harmony will stop
litigations, which will bring in the End of law.
As said earlier, in Confucian economics, wealth is primarily a function of work,
with work as a function of ethics, which makes status—condition—of morality
the principal engine of national economy or nation. Given this sequence, it is
necessary to qualify the earlier made statement that Confucians recognize only
one factor of production, i.e., labor. As it transpires, what comes first is not so
much labor but morality instead. Confucians argue that there is no wealth in the
absence of morality. Meaning, work doesn’t generate wealth and it is morals that
generate it; therefore, morals are wealth. In the words of Confucius, “. . . the
material prosperity of a nation does not consist in its material prosperity, but in
righteousness” (Lin 1938, 136–37). He expressed this idea also in a shorter line:
“. . . doing the good is our only treasure” (135). This idea is echoed by Mencius
who interpreting Confucius stated, “Virtue is the root, and wealth only the result”
(see H. Chen [1911] 1974, 1:375–81).
Assumption # 5: Principal Economic Institution—Family Unit
The next, fifth, issue of great importance is that to be viable, each approach
to economics must resolve what sort of institution plays the principal role in
facilitating morally driven economic behavior (see Table 1). Institutions are
defined in economics as the rules of the game, which are designed by individuals
during their pursuit of wealth. The purpose—and benefit—of such rules is to
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help people in freeing themselves from deliberating various aspects of economic

choices that given the accumulated experience don’t need much reflection. When
so much experience is accumulated, lacking a visible pattern action by individuals
turn into—predictable—routines. This is how institutions become a reality. The
patterned rules emerge through trial and error experimentations. Such evolution
takes a considerably long period of time. Once institutions are formed, they
become a structure that shapes individual behavior. Routines that serve individuals
best in their use of resources are kept and passed from generation to generation as
a treasure to cherish.
The departure point for the classical argument on the principal institution is the
premise that the most efficient allocation of assumed “scarce” resources can be
ensured only by an individual, as a principal player. For an individual to play this
role, the best institutional arrangement must be the one that ensures conditions
of greatest autonomy for a solitary individual to act. Saying “autonomous” is
the equivalent of saying “rational,” since according to this theory one cannot be
rational without autonomy or “economic freedom.” To be able to identify optimal
solutions and reach “equilibrium” positions, an individual must be able to go over
the entire menu of options and ignore concerns other than the “bottom line.” The
institution that is said to provide the greatest autonomy is the liberal “free market,”
with “free access” for all and choices guided only by “free prices” set for players
by the supply/demand “balancing act.”
In Confucian economics, the assumption on the principal institution is very
different—it being a family or a clan. Given the logic of Confucian economics
to be the principal institution family would have to be the best arrangement in
ensuring life continuity—to repeat—through birth. Since the pursuit of posterity
depends on the sense of morality, it further follows for the family to play a leading
role among alternative types of institutions, it would have to be able to provide
a stronger commitment to others than any competing agency. Furthermore, since
Confucian economics emphasizes that the moral attitude is a function of love,
for a family to be legitimately assumed a principal economic institution it would
obviously have to be the source of the ultimate love. And what the manifestation
of the ultimate love would be if not the act of giving birth? Love and life are thus a
unity, meaning that the energy qi, which animates the whole world, is this ultimate
form of love behind the subsequent cycles of life.
It follows from the above reasoning that the experience with giving birth must
provide insight into the secrets of ultimate love. One of them is that each child is
born completely helpless and must rely exclusively on his/her mother to survive
even for a day. The mother must feed the child, but the child has no idea whether
or not the food is actually eatable or safe for the child to eat. Somehow, the mother
has to convince the child that she is carrying and that she will not hurt her child.
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They cannot communicate through words, since the child is unable to process
language. The only way to communicate is through gestures of “love” (see Morse
2001). Fortunately, love doesn’t need words to be revealed. Feeling mother’s love,
the child will accept the food he/she needs. So, in this very sense, love is life, and
life is love. This could be the meaning, or one of the meanings of the three-word
line taken from Confucius that Love is man (see H. Chen [1911] 1974, 2:485) to
open this essay.
The strongest love—that is ethical in nature rather than a form of desire—is
claimed by Confucian thinkers to originate from within the family. This is because
the individual family members share the same biological ties or roots. Of the
various relations within the family unit, the most important in terms of love is the
relation that involves parents and children. And it is not so much about how parents
treat their children but rather the reverse. What mainly holds families together is
the unconditional commitment of children to parents, called filial piety. This is
actually the highest of all the virtues that according to Confucians constitute the
nature-given natural goodness. In this uniquely Chinese concept, the dominant
position of parents within the family is not any reflection of the power balance but
of the feelings, since “filial piety” is primarily based on feelings. This wisdom is
preserved in the following passage from Confucius: “Filial piety is about pleasing
parents—by understanding them—to achieve ‘peace of mind.’”
This Confucian approach goes against the Western conventional thinking of
expecting parents to make sacrifice for their children. Due to their more advanced
age, their chances for having children are lower than it is for their own children
to reproduce. This is clearly true in physical terms. However, this being true, it
doesn’t necessarily follow that for the continuity of life children must be given
priority over the elderly—there another side to this equation being the willingness
to have children. This is the aspect that Confucians find decisive, since it is up to
a couple to sacrifice their own needs that this act requires. For them to accept it,
and give birth, they need children to be completely obedient. The main purpose
of obedience is to allow parents to teach children about their “obligations” to care
for parents, particularly when they need it most—as the elderly. Even more critical
is the need to teach children the sense and power of love—for the parents, and
also beyond.
Being so essential, the moral construct of “filial piety” needs utmost protection.
Across various societies, the reinforcement of morality is often brought by
religion through the introduction of the sacred. When a social rule is made sacred,
it is harder for people to question it on some rational basis. In the Chinese case,
there has never been a religion as understood in Western societies, one in the
public domain, with universally accepted god and church doing a gospel. Instead,
there is the so-called cult (or worship) of ancestors, which is a private—family—
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affair, adding another form of love, this for the ancestors. According to Confucius,
“When the . . . memory of remote ancestors is kept alive, a people’s virtue is at its
fullest.” To love ancestors, means to meet their wishes for the living to procreate
and ensure or extend family’s fortune (Mote 1971). Being in a way a form of
superstition, this cult brings the notion that to deny these wishes will inevitably
bring bad luck upon the trespasser.
The question is that which institution is of greatest importance, the “free market”
of liberalism or the family of Confucianism? Historically, the market might be
as old as family, but the role of family as a source of wealth has been far more
prominent for thousands of years. Through history, most of the economic activity
has concentrated in farming, which was in the hands of families. Since members
worked to meet their own needs, the unit costs—and profits—were not the make
or break issue for families. And family resources—land and water—were not
for sale since farms were a sacred inheritance from the ancestors. Mobility of
resources was limited to transfers related to marriages that required woman to
bring in a dowry. It took not an economic pressure but a use of force—politics—
to subject family farms to market dictate, like in Britain through the so-called
closures. This happened at the time of her “Industrial Revolution” and was its
main novelty (Braudel 1979).
Nowadays, though farming has largely given way to industry, as well as
services, the family unit is still the most important economic institution. To prove
this, one can look at the importance of the supply of goods coming from family
firms that operate in the “market sector” relative to what comes from other firms.
Statistics show that though not as extensive as in the less developed countries, at
least half of the national wealth (income) in the advanced economies originates
from family-owned firms. Among these are large-scale corporations, especially in
the economically thriving Germany or South Korea. This is what official statistics
about national income reveal, but the data are skewed against family-based
production since under the adopted methodology, statistics cover only wealth from
family firms active in the “formal sector,” where goods are priced and traded. But
in their households, families also generate wealth for their own sake. Calculations
based on proxy prices for such family-made goods, as a rule, show that this
non-monetized—call it informal sector—contributes much more to the overall
wealth than the monetized “market sector.”
The evidence of the greater role of the “family sector” also comes from the
comparison of efficiency of production in family and market sectors. These sectors
are best seen as complementary rather than substitutes, since the family sector
produces one kind of goods for family use and market sector provides other goods
that are made for sale. Importantly, these two types of goods happen to be of
unequal value in terms of contributing to the individual’s utility or satisfaction.
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In classical economics, there is a distinction between “inferior” and “superior”

goods. When the price for an “inferior” good goes down, rather than increase the
demand goes down, and for the “superior” goods it is the opposite, the higher the
price the higher the demand. It so happens that “family” goods are disproportion-
ate in the category of “superior.” Among these “superior” goods is, for instance,
affection that market cannot deliver, as well as teaching of most of the various
skills—collectively called human capital—that prepares for life.
There is actually a strong quantitative evidence that indeed the family sector
is tilted toward production of “superior goods.” Speaking of the “market sector,”
historically, economies increase labor productivity. As a consequence, when
workers are given higher wages, if they act as “rational actors” they should elect
to work more. But the trend has been for people to reduce their supply of labor to
the “market sector,” i.e., work less (e.g., France is down to a four-day workweek).
What people “buy” with increasing productivity is the increased time spent with
their family. As said, the time spent with family is not just about leisure, but also
about production of various “family” goods. With increasing productivity in a
“market” sector, their alternative cost of such family-provided goods goes up and
so the price, but as mentioned here, data show that demand for them goes up.
There is indeed one explanation of this paradox, namely that the goods that are
produced in the “family sector” are economically superior.
Speaking of institutions, Confucians don’t dwell on the family/market nexus.
The question that is relevant to Confucian economics is whether family or rather
state is at the base of society. The answer is that, for reasons already mentioned—it
cannot be state, but family. Almost each time when the state is mentioned, it is
stressed that the strength of the state is a function of the strength of family, and not
the other way around. This observation is captured in a quote from Mencius: “The
root of the world lies in the state; the root of the state lies in the family; the root of
the family lies in oneself” (where “oneself” meaning—a family member; Norden
2009, Book 4A, 5.1). What is meant by this specific hierarchy of power, with
family overriding the state, is that only a virtuous (uncorrupt) state can succeed,
and that the state is virtuous only when families are virtuous. This critical point
was made by Confucius himself: “when the family life is regulated, then national
life is orderly, and when national life is orderly, then there is peace in the world”
(see Lin 1938, 106).
Assumption # 6: Economic Wealth Distribution—Imperative of

Equality
The sixth “building block” to be settled by each school of economics refers to the
principles of wealth distribution or equality (see Table 1). The classical economics’
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answer is that nobody can firmly establish what pattern of distribution is “socially
just” and redistribute wealth to raise the overall level of welfare. The only solution
is to let the impartial “invisible hand” of the “free market” determine appropriate
outcomes. The role of the market is to enhance efficiency, so, left to itself, the
market will produce income differentiation. The advantage of inequality is that
there are higher stakes for individuals to play for. As long as work effort is a
function of the expected pay-off per unit of time, the broader the range of rewards
the greater efforts by individuals can be expected. Consequently, there is no need
for economics of distribution and economics of production will suffice. But this
preposition can be correct only if “free markets” could ensure that rewards are
proportional to individual’s efficiency.
The Confucian position is that the moral aspect of distribution cannot be ignored.
To address the question of optimal distribution of wealth, it is necessary to look
at the potential impact of inequality on the strength of moral attitude. Inequality
should be prevented since it can be the cause of moral erosion by encouraging
corruption. Driven by greed rather than necessity, corruption has a detrimental
impact on the overall growth of wealth since undeniably people have their sense of
social justice. The less fortunate will find accumulation of wealth in the hands of
few as evidence of unjust practices. With the resentment comes social instability
that, as stated, is identified by Confucians as the worst enemy of wealth creation.
In Confucius’ carefully spoken words, inequality is a bigger problem than poverty:
“When wealth is equally distributed, there is no poverty . . .” and adds that when
there is equality of income among people “. . . there is no dissatisfaction, [and] the
country is secure.”
Dating back to early China, Confucian economics has never called for the
complete equality of income. Exceptions were allowed but mainly to a rank
occupied within the imperial bureaucracy. This kind of differentiation of income
had to be engineered by the allocation of land. Given the imperative of equality,
supply of land had to have been uniform for average families, even though the more
fertile land should have been given to families burdened with more children. For
the people of higher ranks, the allocation had to be larger, even going to multiples
of the average. It should be also graduated, with more land provided to those of
the higher ranks. This wealth advantage is to be provided not because the people
of rank are more deserving, but because officials must administer government
affairs and pay for staff members to execute their duties. Among them is the duty
to collect taxes for the central government and keep some to pay for their part of
the job of governing.
Importantly, taxes are envisioned by Confucian economics as the only source of
income for providing state services. Taxes are set as a function of the amount of
services provided to tax-payers. The proper taxes are low taxes, since officials are
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only expected to take care of basic services that others can’t provide at the right
cost. Except for tending to their land, like regular folks, the higher ranked people
cannot engage in any economic activity for personal enrichment. This principle
forbids conflict of interest to interfere with official duties. To further prevent
corruption, the Confucian economic doctrine prohibits also inheritance of offices.
With the release of office, land must be returned. This made it difficult for an
exponential increase in the fortunes by the rank people. These types of restrictions
have been a practice throughout China’s history. By rigorously applying these
rules, the Confucian doctrine precluded the formation of an aristocratic class.
Without aristocracy, there is no feudalism, and it is by following these egalitarian
rules that China “missed” the stage of feudalism.
Confucian economic doctrine of strict equality includes also the principle that
any form of monopoly is unacceptable. The doctrine calls for the complete ban
on monopolies as a source of particularly strong social resentment. It is so, since
monopolies lead to jacking-up prices through artificial shortages. With this comes
impoverishment of lacking-choice buyers. Since people of rank—bureaucrats—
are forbidden to engage in anything else but tax collection, public monopoly is
strictly forbidden. But so is true about a private monopoly that similarly leads to
undeserved profits, i.e., rents. It is condemnation of inequality as a source of moral
erosion that makes Confucians resent profit making in general. Importantly, at the
time of Confucius, the rate of profit was particularly high, commonly threefold and
thus represented an extremely explosive issue. To safeguard even against lesser
price distortions, Confucian economics considers market interventions through
official price controls as imperative.
While a general rule—not only in the historic times in China—is that the state
should collect low taxes, not higher than a tenth of farmer’s income earned, an
exception to this rule was made when monopoly abuse is involved. Confucius
says, “Riches . . . are what men want. But if they are obtained in an improper way,
they should not be held” (see H. Chen [1911] 1974, 2:166). Mencius captured the
same consideration in the following quote:
When the ancients had markets, they were for exchanging what they had for what they
lacked. The officials merely kept order. But there were some base fellows there who
would seek for a “vantage point” and climb up on it. They would gaze left and right
monopolizing the profit from the market. Everyone thought they were base, so they
followed up by fining them. Taxing merchants had its origin in dealing with these base
fellows. (Norden 2009, Book 2B, 10.7)
Utmost concern for equality is also reflected in the already mentioned

Confucian call for the “social consumption,” i.e., sharing wealth with others.
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Position of wealth—riches—is equated with taking responsibility for others, with

giving to others that is proportional to what one is taking in. This was one of
the reasons for the never widely tried in practice ancient Confucian idea of the
eight-household entities—collectives—as the foundation of what Confucius saw
as ideally organized agrarian economy for China. The practical justification was
to make it easier for households to assist each other in time of economic stress.
There will be also a need for only one—common—well. And, it was expected
that such a collective arrangement will facilitate learning from the most advanced
households. The idea was that this will create competition between families, but
without elimination of the higher cost units and “acquisition” of their resources by
the lower cost ones.
A perfect illustration of the role of “social consumption” today is the fate of a
British investor captured on an instructional video that one day crossed my hands.
He was trying to set up a firm in a remote part of Northern China. He got into a
formal agreement with local bosses and wired a hefty amount for the construction
costs. When he arrived there a few months later to inspect the progress, there was
a banquet to his honor held in the party headquarters, but there was not a single
wall erected for him to see. He was appalled only to hear that to make money in
the town, he had to take care of the community’s needs first. He was shown a new
stretch of road in the town plus a recently finished school building, swimming
pool included. He didn’t complain about the broken contract, nor did he pack
and leave. He eventually got his factory running, and apparently made a lot of
money for himself, aware that “social consumption” is not a one-time deal but an
ongoing one.
Similar stories can be told about Chinese investors doing business in the
country, since sharing resources—or wealth—through “social consumption” is
also required of the locals. I can bring in here my own experience from Chengdu,
Sichuan. Many years ago, I befriended there a secretary in charge of culture and
a prominent traditional painter, Laizhong Qian. He introduced me to the Chinese
ink/paper painting and the philosophy behind this. Eventually, as a painter myself
I managed to exhibit my Chinese-style landscapes in three different provincial
capitals, Chengdu included. During one of my stays in the city, I was invited to
a ground-breaking ceremony for a museum of calligraphy with a noisy band and
crowd of farmers. Standing on a podium, I spotted that at a good distance from
luxurious government vehicles there are three ordinary cars with a low-key man
and a few other people looking like his associates. When I asked about him, I was
told, he is a “big time” businessman, who covers all the costs of the construction.
He was spending his money for the benefit of the community, since the party won’t
let him do so otherwise.
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With their appreciation for markets, Confucians are concerned that by its design,
“free market” can easily, if not inevitably loosen up, if not break up the relation
between reward and efficiency. The “free market” enforces efficiency by shifting
resources through bankruptcy from higher cost to lower cost producers. According
to liberals, with such “acquisitions” as the ultimate reward for the more efficient
producers, the total wealth of the society will increase as well. But, to keep in mind,
such “acquisitions” lead to concentration of production, and perfect competition
turns into a monopoly competition or even monopoly. Under the latter, rather than
being taken, prices are given—or dictated—by the dominant producer and rather
than earning profits the hard way through higher efficiency, monopolies take a
lazy way. Rather than live by cutting costs, they may restrict their supplies to fix
prices above the “free market” price level and collect above-equilibrium rents by
draining their buyers.
The “free market” with “acquisitions” leads to monopoly, but based on
different designs, markets can operate without bankruptcies and thus are not
prone for monopolization. These kinds of markets are compatible with the
principles of Confucian economics that envision an efficient economy where
strong markets operate but run mainly by families, like in the once agrarian China.
Such a family-based system precludes proliferation of monopolies, since family
resources—land and water—are the only source of their livelihood, and thus
no family would ever allow an “acquisition” of its resources by others without
retaliation. Fear of retaliation is enough of a deterrent for more fortunate families
not to forgo seeking dispossession of the weaker. Not having this option, the more
fortunate are more likely to extend a helping hand to the less fortunate. This is
why, when statistics of almost any village in China are examined, the same names
of families reappear from generation to generation, all living on the same piece of
land they cultivate.
A very famous—900 years old—painting from the Song dynasty illustrates
this Chinese concept of the harmonious market place. Copied many times under
different dynasties, this work is also known under a more appropriate title “Peace
Reigns over the River.” The gigantic scroll—on which this painting is produced—
indeed depicts such a place. It is a scene in an urban setting but with a pastoral
appeal, since everything looks so idyllic. It is a packed market, where everybody is
doing something useful. There are crowds of vendors with their joints and dozens
of craftsmen with their workshops. Buyers are offered unimaginable varieties of
goods, such as foods, baskets, and tools. Some merchandise is moved around,
including through a majestic bridge. The only reminder of the state presence
is the tax office. In this image, no one is dominating the market by outselling
others. There are no monopolists present but only small—presumably—family
businesses, where everybody is given a breathing space. A strong impression
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one gets, that already this far back in the past China had a thriving market—as a
“market economy.”
Leaving art aside, even if not fully followed, the Confucian principles of
distribution make difference today. During the post-1978 period, income
inequality has increased sharply, but no social group has been left out and took
no share of the phenomenal increase in national production. The real—corrected
for inflation—wages have not been directly linked to the growth in real national
income per capita, i.e., labor productivity (Poznanska and Poznanski 2015). But
on average, for at least the last 30 years, real wage raises that were fewfold kept
with the increases of the overall rate of labor productivity growth. This pattern
is consistent with the trends found in other Confucian economies located in East
Asia that went through their own economic miracles, the difference being that
China seems less egalitarian, especially when compared with richer Japan, whose
state was the first to adopt the economic model of the so-called shared growth. In
this model, to ensure harmony all stakeholders in a society share both the pains of
busts and gains of booms.
The picture for other reforming economies that followed the liberal “Washington
Consensus” is strikingly different in terms of division of productivity gains. Their
lackluster product growth has been combined with even more disappointing real
wage increases. In Eastern Europe alone, the highest increase during 1989–2012
was in Czech Republic, namely, 50% (a strong recovery from 35% cumulative
decline by 1992). This rate was slightly less than her rate of increase of the Czech
real national product (Podkaminer 2013). But in Poland, where the product rose
by nearly 120%, the real wages grew only by about 25%. Otherwise, during this
near 25-year-long period, wage raises in other countries hovered around 10%
and as a rule were less than increases in production. One example is Slovenia,
where national product rose 90 points but real wages 10 points. At the extreme
are Bulgaria and Lithuania where after this long period in 2012, real wages were
25% below the 1989 level (while their national products increased at this time by
a bit over 20%).
Assumption # 7: Preferred Method of Inquiry—Common Sense
The seventh and the last “building block” on the list is the preferred methodology
that each school of economics comes equipped with (see Table 1). This is a sort of
“tool box” that is provided to define the proper agenda for studying economic life
as well as explain how analytical arguments can be validated or proven “true.” As
already established, from the ancient works of Confucius the principal, if not the
only relevant, agenda—theme—for scholars to focus upon is the moral aspect, i.e.,
ethics. It can’t be otherwise, since as stated according to Confucians, the ultimate
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source of wealth is the moral attitude, which mainly originates from the family
unit. Therefore, Chinese economics can be equated with Chinese ethics or a sense
of responsibility. It also follows from this preposition that the proper methods of
studying the principles of Confucian economics must be the same as the methods
that are suitable for studying its ethics.
To be precise, in the Confucian thinking, the ethical agenda to study is narrowed
down to the general question of threats to the basic principles of morality, called
“moral laws.” Coming as a birthmark, these “moral laws” can’t be learned by
individuals but can be damaged, even irreversibly lost. Representing what is best
in every man, or the “natural goodness,” these moral laws are under threat from
two directions. One is the failure by individuals to cultivate virtuous behavior,
which is a task that can’t ever be finished. The other, by far more important, is
the submission to the ideas that are subversive to the “moral laws.” Mencius
states it clearly in the following quotation: “Moral capacity can be threatened by
‘pernicious doctrines’” (Norden 2009, Book 4A, 4.9). In his writings, he also uses
a more aggressive wording, repeatedly calling such adverse ideas evil doctrines
(e.g., the theory of “egoism” of Yang Zu [440–360 BC]). In Mencius’ view, “Evil
doctrines and cruel practices . . .” lead to political chaos, which, as said earlier,
Confucians treat as the main cause of economic misery.
According to Confucians, the method of choice for separating “benevolent”
from “pernicious” ideas is for individuals to use “common sense,” i.e., examination
of personal experience, without turning for help to specialized—theoretical—
knowledge. This follows from their belief that studying morality is fundamentally
an empirical (or factual) issue, since what is “good” in moral terms can be
determined only by checking what secures “good,” in terms of being virtuous.
Life can’t continue unless ethical dilemmas are immediately, if imperfectly,
resolved for actions to be continuously taken to sustain life. People thus have to
be able to easily comprehend the nature of moral dilemmas at stake without much
deliberating. At least the core of the ethical rules must be absorbed for life not to
reach indecision. It follows, even with a native—raw—intelligence, that people
should be able to figure it out.
Preferring inductive methods, Confucians take an openly anti-scientific stand.
They seem to have no stomach for Western-style deductive speculation on
economic fundamentals by creating “categories” and building models. Adhering
to Plato, these are rules of logic, though to Confucians, logic doesn’t guarantee
“truth,” even less “pure truth.” There should be no room for speculation or
“metaphysics,” since logic may lead to multiple conclusions that contradict each
other. Search becomes then a contest of fancy or oratory, where theories are judged
in a superficial way. Or, it becomes a clash in which one side gains the upper hand
and becomes a “mainstream.” The other is automatically questioned and becomes
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“tangential.” And when all this happens, there is no interest in further discussion
of merits anymore, and the winning arguments are accepted on the face value. All
of this is unacceptable to Confucians since it leaves the door wide open for the
moral damage by “evil doctrines” enjoying undue popularity.
To most Westerners, this anti-scientific standing is a sign of China being in a “pre-
scientific” stage ruled by superstition. This opinion was expressed by sociologist
Weber (1951), as one of the first major figures to venture into Chinese tradition.
He decided to explain why China failed to instantly join “Industrial Revolution”
to offer an indirect proof of British exceptionality. In his view, Britain gained
advantage by switching from superstition to “science.” China failed to engineer
this shift, since “In spite of the logical qualities of the language, Chinese thought
has remained rather stuck in the pictorial and the descriptive” (Weber 1951, 125).
And he continues,
The power of logos, of defining and reasoning, has not been acceptable to the Chinese . . .
Chinese philosophy did not give birth to scholasticism because it was not professionally
engaged in logic . . . based on Hellenistic thought. The very concept of logic remained
absolutely alien to Chinese philosophy . . . oriented to purely practical problems. (Weber
1951, 127)
But no amount of arguing would make Chinese economists accept, for instance,
the invented by classical economics category of the “economic man” that is
lacking functions as vital as reproduction. They would be intrigued to hear that
classical economics took inspiration for this “fictitious character” straight from
the “classical physics” crafted by Isaac Newton, a Brit. At the very time, they
were drafting their “liberal” doctrine; the prevailing sentiment among economists
(as well as other social scientists) was that the highest scientific standards are
provided by “classical physics.” It was praised most of all for its ability to
discover iron (or fixed) laws of nature that are both universally applicable and
rigorously verifiable. Accordingly, future states of the universe can be predicted
with a remarkable precision. The hope of liberals was that by imitating physics,
economics will discover similar kinds of “iron laws” to explain how the economy
works and the direction in which it is heading.
In the classical physics, the world is not an organic whole with reproducing
cells that can mate, but rather a physical order where all parts—whether planets
or atoms—perfectly fit in. Each material component that the world is built with
behaves deterministically with each part reaching an optimal position within the
general order. To emulate classical physics, the early liberal economists assumed
that there is an analogy between the world as defined by Newton and the economic
sphere that they were dealing with. These scholars elected to treat individuals as
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undifferentiated atoms in a society that works like a sort of grand mechanical

clock. But a clock cannot replicate itself, so in a world of people that operate
like the building parts of a clock there can be no life at all. The price to be paid
for taking this particular road was that liberal economics became lifeless and
remains so.
Another—second—methodological choice in protecting “moral goodness” in a
society from “evil doctrines” refers to the utilization of history as a heuristic tool.
The Chinese clearly have a great sense of history, and they greatly appreciate their
past as a source of wisdom from which to learn. Importantly, in his teachings,
Confucius himself frequently uses details and examples from history to highlight
his “ethical philosophy,” but this is not where the strength of his doctrine rests
upon. And, neither he nor his followers turned their doctrine into a “school of
history” of some kind. To them, it is the present that actually weighs most heavily
in judging social reality, since what is happening now is closer to our experience.
Mencius stresses this idea: “The best teachings are those that discuss what is near
but with significance that is far-reaching” (Norden 2009, Book 2A, 37.12).
With their distaste for “science,” when Chinese turn to history, they choose
a descriptive approach. Among Western scholars, the preference is not only for
heavy reliance on history but also for a theoretical approach. Rather than treating
history as a preservation of facts, Western historians pursue history by and large
to seek “iron laws” that with an “iron hand” govern history (Popper 1988). This is
a reflection of the same influence of physics that, as already mentioned, from the
outset shaped classical economics. Undeterred by the fact that most of the past is
indeed “shredded” by material decay and fading memory, they have a tendency to
link the past as they see it with the future as it seems to be approaching inevitably.
Since the details of the past are murky or inaccessible, arbitrary interpretations of
the past are easy for historians to generate support for some “evil doctrines” and
risk damage to “natural goodness.”
For the record, Confucians believe in the improvement of people’s life over time,
but without claiming, like liberals, that the world heads toward uniformity, where
there is a single “mode” of life, in their case—Western. Confucians distinguish
three stages, starting with a primitive stage when all people live in chaos so there is
no distinction, or differentiation in terms of civility. This is followed by the second
stage, where there is only one distinction, between the primitive and civilized (see
H. Chen [1911] 1974). And at the final, third stage, there is no distinction again,
since the whole world becomes civilized. However, this concept doesn’t imply
that one civilization—of a specific design—will prevail in history. Instead, the
Confucian argument is that the world will eventually be run by civilized people,
with their multiple civilizations. And, in this Confucian concept, the world won’t
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ever stop, at some “End of History,” since, “pregnant with life,” the world is
dynamic and there is no limit for human versatility.
The final—third—method for safeguarding against threats to “natural goodness”
is to ensure that the ideas on ethical questions come from people who have a
proven record of meeting the highest moral standards. In Confucianism, this role
is assigned to the already mentioned sages, as ones that are the most important
source of knowledge. Sages are rigorously selected from among the brightest
that went through rigorous—imperial—examination, which is both a lengthy and
solitary process. As sages, they are versed in many disciplines, but definitely not
meant to be scientists. It is their personal experience that makes them special and
not their vocational skills. Since their underlying quality is their reputation as
being virtuous, their objective as thinkers is to “seek truth for the sake of virtue.”
They are guided by the same sense of mission as their teacher—Confucius. He
was a sage, and it was the perception of him as “morally pure” that brought scores
of followers to listen to his teaching and then proselytize.
This explains why Confucius argued that only an emperor (or king) who is a
sage possesses an authority to rule a nation (Bell 2008). The ultimate of the sages
is a sage-emperor (king), a kind of ruler that due to exemplary moral behavior is
accepted—even loved—by his own people. Only then does the emperor deserve
the Mandate of the Heaven, bestowed on him not by the “heaven” but by the people
or subjects. The mandate does not make emperors a law, nor are they above the
law of the land. The same rules apply to all, since there is one “moral order” under
which life may continue. Confucius said, “Loving what people love, and hating
what people hate: this is he who is called the parent [emperor] of the people” (see
Lin 1938, 77). Throne is not subject to inheritance, since the “Mandate of Heaven”
can be withdrawn, if necessary through rebellions (possibly the main source of
political “havoc” in China’s millenniums long history).
The general principle that interpretation of nature—and its implicit moral rules—
should be left to those representing the highest virtue applies also to the “literati”
painters. As indicated, their primary role as painters—as well as calligraphers and
poets—is to turn into images the words of Confucian philosophy. Their artistic
works are less for viewing and more for “reading” their moral content. To be
precise, each painting consists of also words, namely, an obligatory poem, mostly
copied from or referenced to Confucian writings. To play this role of a conduit,
literati—like sages—must prove with their lives their moral purity, meaning that
art is categorically not for money. They can’t engage in utilitarian painting, such
as portraits of officials. Doing this will put them next to merchants at the bottom
of social hierarchy. In a gesture of humility, they can offer their artworks only
as gifts.
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Conclusion
The main point of this exploratory essay is that Chinese have their economics
that can be derived from ancient Confucian philosophy. Given the origins, this
ancient economics should be called “Confucian economics” The incredible
success of China today is not another triumph of Western liberalism. No doubt,
the recent economic surge is the result of a near 40 years of expanding market
forces. However, this fact alone doesn’t prove China endorsed liberal economics
that gives primacy to “free markets.” This time again, China followed her own
historical path. The reforms were based not on classical thinking, but on her own
Confucian economics. This particular way of thinking on economy is deeply
ingrained in Chinese minds and operates like a “second instinct.” But as powerful
a force it is, “Confucian economics” is not recognized as a formal school by the
Western and Chinese economists alike. As long as Chinese economics is not taken
to a formal stage, the underlying reasons for exceptional growth by the recent
China’s economy will not be fully understood.
To rectify the situation, this essay has distilled from Confucian thought the
principal assumptions that constitute its own kind of economics. Western scholars
often argue that there is nothing for others to contribute to the dominant Western
thinking, since liberal economists already got all of it right. Mahbubani (1998)
provocatively stated that through latest reforms, Chinese proved that they can
think. But given what transpired from my inquiry, one needs to add that not only
that they can learn from others but that they can think differently as well. The facts
at hand are that Confucian economics is diametrically different from the classical
economics. It is possible that “Confucian economics” is the one that got all of it
right. Discussing consecutive assumptions behind Chinese economics, this essay
explored the issue of how China’s recent economy could have been helped by her
separate view of economic life. Based on this preliminary inquiry, the impression
is that Confucian economics instills attitudes toward economic life that might be
more conducive to the overall wealth than the classical alternative.
Since ideas shape behavior, it should matter for China’s economy how her
home-grown “Confucian economics” defines an individual’s sense of purpose.
While liberal economics asserts that individuals are driven by the demands of
their daily life, Confucian position is that the actual goal is the continuity of family
lineage. Confucianism focuses on procreation—multiplication—which can be
advantageous, at least in part because it tends to make individuals more future
oriented. With a greatly expanded time horizon, individuals will display a stronger
propensity to save by discounting their “instant gratification” such as food in
the pot for the “distant” gains, e.g., building a house for their family. By making
the pursuit of continuity questionable, the 1979 introduction of one-child policy
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turned out to be the single worst threat to the Confucian tradition and the reason
for the policy being gradually reversed.
Confucians reject the liberal ideas of “scarcity” of natural resources and the
related idea of an apparently severe if not plainly ruthless “struggle for survival.”
Under the conditions of such understood scarcity, the best strategy for the pursuit
of “instant gratification” is for individuals to divert “scarce” resources away from
each other, and if necessary even by means of war (Wight 1992). In contrast,
under the universal state of “abundance” of resources assumed by Confucian
economics, to ensure their goal of continuity of life, individuals need only to work
at an adequate level. This alternative assumption of excess of natural resources
might give an advantage to the Chinese economy. It does not steer individuals
toward forceful dispossessions of resources that arguably on their own don’t
create wealth. Instead, living with such an assumption encourages hard work that
multiplies wealth for people to satisfy their needs.
With the Confucian emphasis on the extension—continuity—of family as the
primary economic objective comes the crucial argument that not the solitary
individuals as defined in the classical economics but the suitably structured families
represent the primary source of wealth. This Confucian assertion of course elevates
the perceived economic importance of family as a “work unit,” which might be
beneficial to the economy. There is evidence that family production displays many
advantages over an individual acting on its own. Family advantages include lower
“transaction costs” for an internally procured labor and the cost-cutting impact of
the economies of scale. And family produces most of a critical economic asset, i.e.,
the so-called human capital, including work skills and moral upbringing (this is
the fact stressed by some China specialists, e.g., Rawski 2011).
Liberals identify economics with physics, but separate economics from ethics.
In contrast, Confucian thinkers separate economics from physics but equalize
economics with ethics. Viewing economics as ethics, Chinese see the rules of
economy as those of ethics. The most critical of them is the principle of love. Love
is not understood by Confucians as being “in love,” which is the modern Western
way but as a relationship of “reciprocity” or “responsibility” for others (Fromm
1956). To accept the latter idea as something that matters could be advantageous
as well, since it encourages demographic expansion, meaning that in a world
of “abundance” of natural resources, people are not threatened with starvation.
Confucians correctly argue that with all the sacrifices involved in creating life—
birth—for this vital act to happen, love on the parents’ side is required. With each
birth as an act of love, the size of the economy is ready to further expand into the
future. And it does, since as Confucian economics posits, the flow of wealth is
primarily a function of labor, i.e., its supplies.
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For the liberals, the issue of wealth distribution is to be left to the “free market.”
Such market ensures that those who contribute more to the overall wealth receive
higher rewards, so that inequality is unavoidable. Confucian economics calls
for people to have similar—but not identical—shares of wealth, or riches, but
at the same time accepts liberal preposition that income should be linked to an
individual’s efficiency. However, Confucians don’t expect this principle to result
in substantial wealth differentiation. People do not range as much in their physical
or mental capabilities for great enough differences to appear. At the same time,
Confucians refuse to entrust the distribution of wealth to markets, for they can
degenerate into a rent-seeking monopoly. On moral grounds, people will resent
price manipulations by monopoly as “morally unjust.” To defuse related social
tensions, the state would have to confiscate such gains and thus equalize income
levels. In this narrow sense, even invasive redistribution will be beneficial for
an economy, since as Confucian thinkers assert the greatest amount of work is
expended during the times of social peace (or harmony).
Classical economists argue that morality obscures economic rationality, but
for Confucians bringing morality into calculations on the management of wealth
is rational. What they consider rational is what supports human existence and
acting morally has exactly such a positive effect. Confucian economics reminds
us in particular that being subjected to the “life cycle,” during most of one’s life,
people are children and elderly. In these roles, children and elderly can’t survive
economically on their own. They must rely on the wealth “donated” by the adult—
working—family members. Such transfers of wealth are moral acts, meaning that
economic life of each individual is to a larger degree or mostly driven by moral
forces. This means of course that moral virtue comes before economic prosperity.
How then the Confucian claim that an economy is driven by moral practice could
not benefit an economy more than the liberal—agnostic—approach to economy
that is abstracting from morality?
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Becker, G. 1981. The Treatise on Family. Princeton: Princeton University Press.
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Brandt, L., D. Ma, and T. Rawski. 2014. “From Divergence to Convergence: Reevaluating the History
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Braudel, F. 1979. Afterthoughts on Material Civilization and Capitalism. Baltimore: The Johns
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Chen, H. (1911) 1974. The Economic Principles of Confucius and His School. 2 vols. Honolulu:
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Confucian Economics: The World at Work

Author(s): Kazimierz Z. Poznanski

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Kazimierz Z. Poznanski is Professor at the Jackson School of

Key words: Confucian economics; family structure; work ethics

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excessive state controls in favor of the family—and clan—units. This was in

Introduction: Traveling to the “End of History”—Without Chinese

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use bank credit, family start-ups relied almost exclusively on cheaper—lower

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Assumption # 1: Individual’s Sense of Purpose—Seeking Continuity

Similar to classical economics, Confucian economics is a behavioral science

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Table 1 Basic Assumptions: Confucian and Western Economics

Confucian economics Classical economics

1. Principal objective Continuity (procreation) Consumption (existence)

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with their reproductive capacity. To assume, the above makes Confucianism a

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