Keynes once said: "Compared with other sciences, is economics difficult? It is not difficult. It is an easy subject, but there are very few outstanding people." I agree with this judgment. Kjeldahl believes that it is difficult to be outstanding in economics, because to a certain extent, practitioners need to be philosophers, historians, mathematicians, writers, artists... all around. I don't necessarily agree with this point of view. I think it is difficult to achieve great success in economics, mainly because the concepts are not easy to grasp, there are too many theories, and it is too complicated. The biggest difficulty is that practitioners know little or too little about the real world. People like David and Gauss don't understand or don't know much about mathematics, and don't know much about theory, but they have a full grasp of basic concepts and know enough about worldly affairs. We don't need the talent of these masters to reach the teacher level, but we need to know how to learn. I have gone through many wrong paths and gone astray several times. Fortunately, I woke up in time and turned around before going back to the right place. After trying again and again, I finally found my own way and hit it. To teach my classmates, I can only express my own experience. I think the important starting point is for beginners to know the basic theoretical structure of economics, and then to master the concepts and simple theories in this structure. Once you have the foundation, you might as well try more complex theories. People with extremely high talent can ignore complicated things, but my experience is that after attacking the complicated things for a while, you will gain new understanding when you return to the simple basics. Before I was thirty, I went back and forth several times. By the time I was thirty-five, I knew that I had a good grasp of the basic architecture and a thorough understanding of the concepts, and I no longer care about complex theories. This framework is what I mentioned before: 1. Human behavior is the result of personal choice; 2. The first axiom of choice is to maximize personal interests under limitations; 3. The value concept and limitations of measuring maximization Concepts are all important, and there can be no mistakes in grasping them; fourth, behavioral changes caused by changes in limitations must be constrained, and this constraint is mainly the law of demand. This brings about what I personally think is the most difficult part of economics. Behavioral changes brought about by changes in limitations are subject to the law of demand. The law of demand governs changes in price and quantity demanded. Therefore, to explain behavior, any change in limitations must be explicitly or implicitly translated by the person dealing with it into a change in valence. Not easy. What’s even more troublesome is that many behaviors do not go through the market, and the demand is not necessarily the items traded in the market. Fortunately, the application of the law of demand is not limited to market goods. This law can be applied to any valuable item, including reputation, friendship, belief, etc. If there is no transaction in the market, there is no market price or price. Using the law of demand can eliminate the need for market price. For non-market items, the price becomes a price, which is also a cost. "Cost" is the Chinese translation of cost, which is not quite correct. A better translation is "opportunity cost", which is a bit inappropriate, because there is no cost in economics that is not opportunity cost. The best translation would be "cost", but saying "production cost" is not easy to accept in Chinese. Compared with other sciences, economics pays special attention to concepts, and the most difficult one to master well is the concept of cost. If you know how to convert any local changes into cost changes, that is, into value changes, the application of the law of demand will pass the most difficult level. It can be quite complex: a local change can involve several aspects of demand and therefore several aspects of value changes. Learning over time, practice makes perfect. After I reached the age of forty, I became very good at it. Any changes in the scope, when I think about the needs of a certain aspect, the rise or fall of the price will be immediately known. Volume 2 of "Economic Interpretation" ("The Behavior of Supply") has a detailed explanation of costs, while Volume 3 ("Selection of Institutions") analyzes property rights and institutions, and brings them to the aspect of social costs (costs), which is also reasonable. detailed. Students should note that some values ??can be reversed and viewed as costs, such as rental value. For another example, interest is income, and from a conversion perspective, it can be viewed as a cost. Thirty years ago, I discussed a certain topic with my teacher Ai Zhiren, and we exchanged letters several times. In one of them, I wrote: "Interest is not a part of cost, but the entire cost." "whole of cost)" He wrote back with praise, obviously thinking that I had learned a lot from my master. The correct concept of cost is not easy to grasp (see "The Behavior of Supply"), and with the addition of property rights issues, transaction costs, non-market items, etc., the transformation of "cost" or "limitation" becomes even more complicated. However, to explain human behavior through the law of demand, we must translate changes in limitations into changes in price or cost.
Remember, any change, whether it is cost or behavior, must be "marginal", so explaining behavior or phenomena must start from the perspective of marginal change. This brings us to the convenience of ordinal measurement or permutation selection. Those gentlemen who criticize transaction costs as being difficult or impossible to measure and therefore useless are laymen in economic explanations. There is one thing worth mentioning. Yang Xiaokai once criticized me for not knowing marginal analysis, but Basel said that I use marginal analysis to perfection. Is there any conflict between the two? uncertain. Xiaokai is engaged in mathematical economics and has never done any empirical economic research. He has stayed in the ivory tower from beginning to end. I am engaged in empirical research. I only studied the marginal analysis of mathematics for a few days and thought it was enough (I always ranked first in the theoretical test). I ran out of the ivory tower long ago and went to the real world to get started. In the real world, marginal changes can be as small as dust or as huge as Mount Tai. Marginal analysis of mathematics and marginal processing of verification are two different things. This brings me to the point of practical economics. To explain behavior, localized changes must not be imaginary. The changes must be supported by observable facts. And if changes such as transaction costs cannot be measured minute by minute, it is possible to arrange the changes in ordinal numbers to be large or small. . However, it is difficult to understand a local change, and it is also difficult to translate it into a change in price or price. It can be done, but it's not easy. The key point here is to deal with the limited changes in the real world. Generally, it is not as simple as a change in market price. Most of them cannot be learned in the classroom, nor can they be known by sitting in the office after a doctorate. From the beginning of studying economics, students have to go out into the real world, run around in the streets and alleys, observe curiously, and constantly try out the simple theoretical explanations they have learned, that is, to try to deduce hypotheses, and then verify the observed phenomena. . If you do it more, or even do it every day, you will feel that economic theory has little explanatory power at first, but if you stick with it, there will be more and more examples of "solved crimes". After a few years, you will feel that the complex world generally has simple theoretical explanations. It is a phenomenon that is difficult to justify. In all empirical natural sciences, whether physics, biology or chemistry, students are required to do laboratory work from secondary school onwards. Economics is also an empirical science, but even if you enter university, there are no laboratory courses. The real world is the laboratory of economics, and everyone lives in it. However, university professors do not require students to observe everywhere and constantly try out explanations. Those so-called "experimental" courses just take some numbers that they don't know how to come up with. , do some statistical analysis. A true story supports my complaint. G. J. Stigler, the master of price theory in the 20th century, was an expert after Mrs. J. Robinson who used different demand elasticity coefficients to explain price discrimination. Once, when teaching price disagreement at the University of Chicago Graduate School, Stella said: "We can't find two different prices for the same item in the same store at the same time and in the same place." A man was sitting in the back row of the class. A classmate raised his hand and said, "In the movie theater near the campus, admission is two and a half cents for ordinary people and one dollar and two and a half for students. It's the same theater, the same time, the same movie, and seats are first come, first served." Stella couldn't respond. He walked up and down the podium for a few minutes and suddenly said loudly to his classmates: "Tell you what, I will burn down the movie theater tonight!" The students all knew that in any place where customers could In a haggling shop, price disagreements are an inevitable result. How could Stella, who won the Nobel Prize in Economics, not know this? In fact, from 1983 to 1985, I took my students to sell oranges on the streets of Hong Kong for three consecutive years during the New Year's Eve, and experimented with price divergence. Therefore, I knew that although different elasticity coefficients logically support the behavior of price divergence, in fact Different customers have different information costs and different bargaining time costs, and these differences in limitations are much more important in determining price disagreements than differences in elasticity coefficients. In an article that is still famous today, written in the late 1970s, the three authors provided examples of oil transportation to support their theory. They said, "Oil companies own their own pipelines and do not lease them, but oil tankers are leased and not owned." I was a consultant to several oil companies at the time and wrote to the author and said, "All oil companies own their own oil Fleet; leasing oil pipelines is popular in the industry." When the article was published, the three authors only eliminated the example of oil transportation, and the theoretical hypothesis of the original article remained unchanged! This is equivalent to Stella burning down the cinema. Bundling is a big topic, and no author really knows what it is.
Forced sales across the board are also exciting, but except for a few, no economist knows that such forced sales are limited to manufacturers or wholesalers and retailers, and must be short-lived. Signaling is also a Nobel Prize-winning subject, but its theory cannot explain the most obvious related phenomenon: original jade is sold, and buyers have to look at the stone skin to guess what is inside - the seller does not cut the original, which increases the cost of information. Look at the world with your eyes wide open. Signaling, a nonsense economic subject, will not exist. On-site observation and discussion in the real world are the most interesting aspects of economics and are also the most helpful in economic explanations. More than 200 years ago, Smith started economics in this way. Students should go back to the traditions of prehistoric times. When I wrote this last section, Friedman passed away a few days ago, and I turned seventy-one a few days later. Time flies by and time is ruthless. Today’s economics is no longer the tradition that the Buddha and I were familiar with. Looking back at the development of economics in the West, it is strange to find that works with an overall structure that can allow you to take a break or linger for a while appear only once every thirty or forty years. Arbitrary arrangements include A. Smith, The Wealth of Nations, 1776, D. Ricardo, On the Principles of Political Economy and Taxation, 1817, and J. S. Mill, Principles of Political Economy, 1848. , A. Marshall (Principles of Economics, 1890), Mrs. J. Robinson (The Economics of Imperfect Competition, 1933), M. Friedman (Price Theory, 1962), etc. My own three-volume "Economic Interpretation" was completed in 2002, exactly 40 years apart from the work of Buddha and Lao Lao, which is a traditional time gap. However, because I wrote it in Chinese, whether it can become a "resting place" may have to be done. I found out years later. Not without a chance. In the same vein, "Economic Interpretation" is an "ancient text". Although it has been improved and supplemented by many hands, it does not stand on its own and has the support of tradition. On the other hand, there are so many Chinese students studying economics, and there is strength in numbers. Maybe some of them who are interested will develop my ideas. Optimistically, although the three volumes have not yet been published in China, countless students have printed them from the Internet and read them, and many universities have designated them as required reading. Looking at it pessimistically, although it developed from tradition, today's "mainstream" is divorced from tradition and is incompatible with the knowledge I advocate. I don't want to criticize the new trendy knowledge here that I don't know much about, but I think that if economists are interested in explaining world affairs anymore, they will always come back to my side - the truth is on my side. It's not easy to understand what's going on. More than ten years ago, when I talked with some young economics professors or interviewed some economics PhD candidates seeking employment, I found that none of them had read Marshall! Presumably their teacher has not read it either. It's probably the bad influence of natural science. In natural science, when studying theory, you must learn from today's theories, regardless of what the predecessors said. When I was a student forty-five years ago, my economics teacher said something similar to me. Later, when he arrived at the University of Chicago, Stella, who was a master of price theory and a leading figure in economic thought, said that studying the history of ideas was just for fun, and that he could forget about theoretical studies for today. The problem is that although the scientific methods are the same, economics is very different from the natural sciences. For the former, there are not many theories that are actually available. It is simple to say, but it is ever-changing. It is not easy to grasp the basics thoroughly, and if there is a slight difference, it is not easy to make changes. Economic analysis is mainly about making changes. In my opinion, when we say that the previous economic masters were wrong, it is mainly because the concepts were unclear and the changes were wrong. But just because one change is wrong does not mean that all changes are wrong. Just like Ricardo, many scholars today believe that except for the law of comparative advantage, all other theories of Ricardo are wrong. Really? Thirty years ago, when I was writing about intellectual property and invention patents, I used Ricardo's "differential rent" theory, which everyone said was wrong (see "Selected English Papers of Zhang Wuchang", 582-58 Nine pages), Basel knows the goods and calls them wonderful frequently. Another example is Cournot's duopoly theory, which most scholars have long considered outdated and useless.
In 1969, I introduced the rent dissipation theory of high seas fisheries. My colleagues were all in an uproar and said it was a genius. Unfortunately, the praise was not over, but I discovered that the theory was another version of Cournot's double-headed competition (see Zhang Selected Papers on Wuchang English, pages 182-190). Economics uses simple theories to explain a complex world. Look at it this way, simple theory can lead to wonderful changes. The geniuses of people like Smith, Ricardo, Mill, and Marshall are not inferior to Friedman. Compared with today's economic rookies, the difference is more than eight thousand miles and months! I am lucky enough to know how to admire geniuses, so when I read the works of predecessors, I didn't bother to care whether they were right or wrong. I just followed their changing thinking and thought. Later, after I became a master, I boldly followed my own path, revising the analysis of my predecessors almost beyond recognition and adding my own changes wherever I wanted. Most of them came from my inspiration from observations on the streets. But because the tradition remains unchanged, I am still an ancient person today. When students read the three-volume "Economic Interpretation", you should notice that I deliberately eliminated all complex theories that I thought were of little use, and focused on using simple and indispensable ones to apply changes. I think that only in this way can students have the opportunity to learn some economic explanation techniques without having to read ancient books. This is not to say that there is no need to read the works of the ancients, but the investment cost is high, and under the "new trend" that ignores tradition, it is a bit demanding to require students to read Ricardo, or even as close as Marshall. My "Economic Explanation" insists on using observable variables to test hypotheses, and proposes a new interpretation of the concept of equilibrium. The law of demand is used from beginning to end, and concepts such as price to interest to cost to rental value are stated over and over again. The various variations of "quantity" are also constantly changing. The most important improvement is the addition of transaction fees, thereby introducing the analysis of options for contract arrangements that I created that year. This is a huge improvement, and I am afraid it will not be easy for students to accept it at once, because looking at the market from a contract perspective, it is not easy to separate the product market from the production factor market. Traditional price theory, or what is inaccurately called microeconomics, focuses on the two aspects of resource use and income distribution. What is the system? Either it is nonsense, or it is regarded as another branch of knowledge. The introduction of transaction costs is an unavoidable limitation. All institutional arrangements are caused by transaction costs. Resource use and income distribution can no longer be dealt with alone, but must be considered together with the choice of institutions. Smith knew then that this was the right way to look at the world. But with the development, in order to simplify the theoretical processing, economists have assumed, intentionally or unintentionally, that transaction costs are zero. Then there was a joke: the general equilibrium theory analysis headed by Walras clearly assumes that the auction (transaction) cost is zero. Not only is it logically impossible to have a market for production factors, but the number of types of products cannot be defined at all. Strictly speaking, this is There will be no market in the world. The equations are beautiful, but the content is empty, and they have no explanatory power at all. What Walras and his followers are doing is a work of art, and it cannot be called science. The development described above is different from the path I chose to take. They start from a complex theory and simplify it by assuming that transaction costs are zero. I started with a simple theory and complicated the changes by adding transaction costs. To me it is obvious which side of the economic explanation to take. Since the completion of "Economic Explanation", many students have asked me to continue writing about macroeconomics. However, in the economics I have mastered, there is no distinction between micro and macro. It always starts from personal choice behavior, striving for maximization under limitations, and must be constrained by the law of demand. Looking at society as a whole is the macro. We need to know how to add up the individual behaviors of social members to achieve an overall effect that can be inferred from economic theory. As for the figures that most people think of as macroeconomics, such as inflation, unemployment, economic growth, etc., my inferences over the years have been much more accurate and accurate than those of ordinary "macro" masters - my addition is obviously better than theirs. Even if I haven’t studied the currency “theory” in depth, the currency view I proposed in recent years is relatively superior to the problems caused by the RMB exchange rate. It can be seen that economics is economics, there are advantages and disadvantages, but there is no distinction between micro and macro. Macroeconomics since Keynes has done poorly for two reasons. One is that practitioners do not have enough grasp of price theory, so it is wrong to add macroscopically. Kjeldahl was undoubtedly a genius, but he knew only a little about price theory, as I said when I read his "General Theory" more than forty years ago. Looking at it today, I am afraid that most macro scholars also need to take a refresher course. Second, like the traditional "micro" theory, the macro theory ignores transaction costs and the choice of contract arrangements.
This mistake has caused great harm to the "micro" and is even more disastrous to the macro. China's experience supports my view. In the mid-1990s, Zhu Rongji controlled rapid inflation to zero, and deflation followed. Considering the sharp increase in the quality of goods, this deflation was serious. At that time, domestic real estate prices plummeted. In the spring of 1997, several think tank friends from Beijing went to Shenzhen to ask my opinion, saying that China's development seemed to be over. I said: "It is Hong Kong that will die. You are auspicious and China will continue to grow rapidly." China's system is different from that of the West. How can we use the West's macro theory of regardless of system to infer China? Nervous! Later, Hong Kong received assistance from Beijing (which can be seen as a reward for Hong Kong's assistance to China's reforms) and was unable to survive. But this is politics, and my inference did not take it into account. Gauss believes that the development of Western economics has gone astray and is hopeless. He hopes that I can provide some ideas for Chinese students and save them. The lecture topic was originally given at three universities, but it was brief and unprepared. Thinking of Gauss's words, I carefully wrote 13,000 words for five consecutive issues.