The Chinese economist and intellectual and social entrepreneur Mao Yushi explains the role that markets play in bringing about concord and cooperation.

Mao Yushi is founder and chairman of the Unirule Institute, based in Beijing, China. He is the author of several books and many scholarly and popular articles, has taught economics at a number of universities, established some of the very first non‐​state charities and independent self‐​help organizations in China, and is well known as a courageous champion of liberty. In the 1950s he was punished through forced labor, exile, “re‐​education,” and near starvation for saying, “If we have nowhere to buy pork, then pork prices should rise,” and “If Chairman Mao wants to meet a scientist, who should visit whom?” And in 2011, at the age of 82, he wrote a public essay that was published in Caixin online called “Returning Mao Zedong to Human Form” (把毛泽东还原成人). That essay earned him numerous death threats and a greater reputation as a voice of honesty and justice. Mao Yushi is one of the great libertarian figures in the contemporary world and has worked tirelessly to bring libertarian ideas and the experience of freedom to the people of China and the wider world.

Between the eighteenth and nineteenth centuries, Chinese author Li Ruzhen wrote a novel titled Flowers in the Mirror. The book describes a person named Tang Ao who, owing to a career setback, follows his brother‐​in‐​law overseas. During the voyage, he visits many different countries that contain fantastic and exotic sights and sounds. The first country they visit is “The Land of Gentlemen.”

All of the inhabitants of The Land of Gentlemen intentionally suffer so that they may ensure the benefit of others. The eleventh chapter of the novel describes a bailiff (Li Ruzhen here intentionally uses the Chinese character as it was understood in Ancient China, where bailiffs had special privileges and often bullied the common people) who encountered the following situation while buying goods:

The bailiff, after examining a handful of goods, says to the seller, “Friend, you have such high quality goods, yet your price is so low. How can I be at ease while taking advantage of you? If you don’t raise the price, then you will stop us from doing any further trade.”

The seller responded: “Coming to my shop is a favor to me. It has been a saying that the seller asks a price up to the sky, and the buyer responds to it by going down to earth. My price is up to the sky, but you still want me to raise it. It’s hard for me to agree. It’s better to visit another store to buy goods.”

The bailiff, after hearing the response of the seller, responded: “You have given a low price to such high‐​quality goods. Won’t this mean a loss for you? We should act without deception and with equanimity. Can it not be said that all of us have an abacus built into us?” After quarrelling for some time, the seller continued to insist that the price not be raised, while the bailiff, in a fit of anger, purchased only half of the goods he had originally intended to purchase. Just as he was about to take his leave, the seller blocked his way. At this point, along came two old men who, after assessing the situation, settled the transaction by ordering the bailiff to take 80 percent of the goods and leave.

The book next describes another transaction in which the buyer thinks the asking price for the goods is too low as the quality is high, while the seller insists that the goods lack freshness and should be considered ordinary. In the end, the buyer chooses from the worst of the seller’s goods, causing the crowd nearby to accuse him of unfairness, so the buyer takes half from the high‐​quality pile and half from the low‐​quality pile. In a third transaction, both parties begin to quarrel while assessing the weight and quality of silver. The party paying with silver sternly says that his silver is of poor quality and inadequate weight, while the party being paid states that the silver is of superior quality and weight. As the payer has already taken leave, the party being paid finds himself obligated to give what silver he thinks is extra to a beggar visiting from a foreign land.

There are two points raised in the novel that are worth exploring further.

The first is that when both parties decide to give up their share of the profits or insist that their share of the profits is too high, an argument ensues. In the arguments we encounter in real life, most stem from us pursuing our own interests. As a result, we often make the mistake of assuming that if we were to always side with the other party, such disputes wouldn’t occur. But in The Land of Gentlemen, we can see that taking the interests of others as the basis of our decisions also leads to conflict, and as a result, we still must search for the logical foundation of a harmonious and coordinated society.

Going a step further in our investigation, we recognize that in business deals in the real world both parties to a transaction seek their own gain, and through negotiations over terms (including price and quality) both sides can reach agreement. By contrast, in The Land of Gentlemen, such agreement is impossible. In the novel, the author must enlist an old man and a beggar and even resorts to compulsion to resolve the conflict. Here we encounter a profound and important truth: negotiations in which both parties are seeking their personal gain can reach equilibrium, whereas if both parties are looking towards the interests of the other party, they will never reach a consensus. What’s more, this would create a society always at odds with itself. This fact goes strongly against the expectations of most. Because The Land of Gentleman is unable to realize a balance in the relations between its inhabitants, it eventually turns into the Land of the Inconsiderate and Coarse. Because The Land of Gentlemen is geared towards looking after the interest of others, it is a breeding ground for vile characters. When the Gentlemen fail to conclude an exchange, the Inconsiderate and Coarse are able to gain advantage by leveraging the fact that Gentlemen seek profit by subverting their own interests. If things were to continue in that way, the Gentlemen would likely die out and be replaced by the Inconsiderate and Coarse.

From the above point we can see that humans can only cooperate when they seek their own interests. That is the secure foundation on which humanity is able to strive for an ideal world. If humankind were to directly and exclusively seek the benefit of others, no ideals could be realized.

Of course, using reality as our starting point, in order to reduce conflict, we must all pay attention to our fellow man and find ways to restrain our own selfish desires. But if attention to the interests of others were to become the goal of all behavior, it would generate the same conflict as Li Ruzhen described in The Land of Gentlemen. There are perhaps those who say the more comical elements of life in The Land of Gentlemen could not occur in the real world, but as the book gradually makes evident, events in the real world and those in The Land of Gentlemen have similar causes. To put it another way, both the real world and The Land of Gentlemen lack clarity regarding the principle of the pursuit of self‐​interest.

What are the motives of the inhabitants of the Land of Gentlemen? We must first ask, “Why do humans want to ex‐ change?” Whether it is primitive barter exchange or modern society’s exchange of goods for currency, the motive behind exchange is to improve one’s situation, to make one’s life more convenient and more comfortable. Without that motivation, why would individuals choose exchange over toiling on their own? All of the material enjoyments we receive, from needles and thread to refrigerators and color TVs, are only available through exchange. If people did not exchange, each individual would only be able to plant grains and cotton in the countryside, to use mud bricks to build houses, and struggle to wrest from the soil all the goods one needs to exist. In such a way one might be able to eke out a living as our ancestors did for tens of thousands of years. But we would certainly not enjoy any of the benefits offered by today’s modern civilization.

The people in The Land of Gentlemen already have a state and a market, which shows that they’ve already abandoned economic self‐​sufficiency and have instead chosen to follow the road of exchange in order to improve their material circumstances. That being the case, why is it that they refuse to think of their own interests when engaging in economic exchanges? Of course, if from the start the point of exchange is to lessen one’s own advantage and promote the advantage of others, “gentlemanly” behavior might, perhaps, occur. However, as anyone knows who participates in an exchange, or who has experience with exchange, both parties to an exchange participate for their own benefit, while those who act contrary to their own self‐​interest during the course of an exchange suffer from an incoherence of motives.

Is It Feasible to Establish a Society Based On Mutual Benefit Without Price Negotiations?

During the period in which the life and deeds of Lei Feng were being promoted in China, one could often see on television the image of one of Lei Feng’s committed and kind emulators repairing pots and pans for an assembly of people. One would then notice a long line forming in front of him, with each person holding worn‐​out utensils in need of repair. The intended message of these images was to encourage others to emulate that kind‐​hearted follower of Lei Feng, and to focus the public on his example. Notice that if it weren’t for the long line of people, the propaganda would have no power to persuade. We should also take note that those who queued to have their pots and pans repaired were not there to learn from Lei Feng; to the contrary, they were there to seek their own gain at the expense of others. While such propaganda may teach some to do good deeds for others, at the same time it is teaching even more how to benefit personally from the work of others. In the past, it was thought that propaganda calling on the people to work in the service of others without repayment could improve social morals. Yet that is most certainly a great misunderstanding, for those who will learn how to seek some type of personal advantage will greatly outnumber those who learn how to work in the service of others.

From the perspective of economic gains, a universal obligation to serve others is wasteful. Those attracted to the offer of free repair services are quite likely carrying damaged items that are not really worth repairing, perhaps even items taken directly from the trash. But because the price of fixing those items is now zero, the scarce time devoted to repairing them will increase, as will the scarce materials used for their repair. As the burden to fix these items rests on the shoulders of others, the only cost to the average person seeking a free repair is the time it takes to queue. From the vantage point of society as a whole, all of the time, effort, and materials used to repair those damaged items will yield some barely usable pots and pans. If the time and materials were instead used on more productive activities, it would certainly create more value for society. From the perspective of economic efficiency and overall wellbeing, such obligatory and uncompensated repair work almost certainly does more harm than good.

What’s more, if yet another kind‐​hearted student of Lei Feng were to offer to take the place in the queue of one of the people holding pots waiting for free repair services, thus freeing that poor person from the tedium of queuing, the line for those waiting to have his or her items fixed would become even longer. That would indeed be an absurd sight, with one group standing in line so that an additional group doesn’t have to. Such a system of obligation presupposes a group willing to be served as a precondition. Such an ethic of service cannot be universal. Obviously those who boast about the superiority of such a system of mutual service without prices have not thought this through.

The obligation to repair the goods of others has an additional unanticipated result. If those who were formerly engaged in the repair trade are crowded out by the students of Lei Feng, they will lose their jobs and suffer hardship.

In no way do I oppose the study of Lei Feng, as he helped those in need, which for society is a positive, even a necessary, activity. However, the requirement that the service of others be obligatory creates incoherence and disorder and distorts the voluntary spirit of Lei Feng.

In our society there are those who are quite cynical, and who detest a society that, in their estimation, elevates money above all else. They think that those with money are insufferable and that the rich view themselves above the rest of society, while the poor suffer for the sake of humanity. They believe that money warps the normal relations between mankind. As a result, they desire to create a society based on mutual service, free from talk of money and prices. That would be a society where peasants plant food without thought of reward; where workers weave cloth for all, also without reward; where barbers cut hair for free; etc. Is such an ideal society practical?

For an answer, we need to turn to the economic theory of resource allocation, which requires a digression of some length. To make it easier, we could start with a thought experiment. Consider a barber. Currently, men get their hair cut every three to four weeks, but if haircuts were free, they might go to the barber every week. Charging money for hair cuts better utilizes the labor of the barber. In the market, the price of the barber’s services determines the share of society’s labor devoted to that profession. If the state keeps the price of a haircut low, then the number of those seeking haircuts will increase, and accordingly the number of barbers will also need to increase and other jobs must be reduced if the total labor force is held constant. What’s true of barbers is true of other professions.

In many of China’s rural areas, the offering of free services is quite common. If someone wants to build a new house, their relatives and friends all come to help with the construction. That usually happens without payment, save for a large meal served to all those who helped. The next time one of the beneficiary’s friends builds a new house, the one who benefited the first time offers free labor as a form of repayment. Repairmen often fix electrical appliances without charging, expecting only a gift during the Chinese New Year holiday as compensation. Such non‐​monetary exchanges cannot accurately measure the value of the services offered. Consequently, the value of labor is not efficiently developed, and the division of labor in society is not encouraged. Money and prices play an important role in the development of society. No one should hope to replace emotions such as love and friendship with money. It does not follow, though, that love and friendship can replace money. We cannot do away with money just because we fear that it will erode the bonds of human emotion. In fact, prices expressed in money are the only method available for determining how to allocate resources to their most highly valued uses. If we maintain both monetary prices and our highest emotions and values, we can still hope to build a society that is both efficient and humane.

The Balance of Self‐​Interests

Suppose that A and B need to divide two apples before they can eat them. A makes the first move and grabs the bigger of the two. B bitterly asks A, “How could you be so selfish?” to which A retorts, “If it were you to have grabbed first, which one would you have chosen?” B responds, “I would have grabbed the smaller apple.” Laughing, A responds, “If that is the case, then the way I selected is perfectly in line with your wishes.”

In that scenario, A took advantage of B, as B was following the principle of “placing the interest of others above oneself,” while A was not. If only one segment of society follows that principle while others do not, the former is assured to suffer losses, while the latter will profit. If that continues unchecked, it is bound to lead to conflict. Clearly, if only some of the people put the interests of others before themselves, then in the end this system will merely generate conflict and disorder.

If both A and B look to the interest of the other party, then the above mentioned apple problem would be impossible to resolve. As both would look to eat the smaller one, a new problem would arise, just as we saw in The Land of Gentlemen. What is true of A and B would be true of everyone. If all of society, save for one person, followed the principle of explicitly benefiting others, the entire society would serve at this person’s pleasure; such a system would be possible, logically speaking. But if that person were in turn to become a practitioner of the above‐​mentioned principle of serving others, then the society would cease to exist as a society, that is, as a system of cooperation. The principle of serving others is generally feasible only under the condition that looking after the interests of the whole society could be delegated to others. But from the perspective of the entire globe, that would be impossible unless the responsibility for looking after the interests of the planet’s population could be delegated to the moon.

The reason for that incoherence is because from the vantage point of society as a whole, there is no difference between “others” and “oneself.” Of course, to a specific John or Jane Doe, “oneself ” is “oneself,” while “others” are “others,” and the former shouldn’t be confused with the latter. However, from a societal perspective, every person is at the same time “oneself ” and an “other.” When the principle of “serve others before serving oneself ” is applied to Person A, Person A must first contemplate the gains and losses of others. Yet when the same principle is adopted by Person B, Person A becomes the person whose interest is placed as primary. To members of the same society, the question of whether they should think of others first, or others should think of them first leads directly to confusion and contradiction. Therefore, the principle of selflessness in this context is logically incoherent and contradictory, and therefore could not serve the function of solving the many problems that arise in human relationships. That, of course, is not to say that the spirit animating them is never worthy of being commended, or that such other‐​regarding behavior is not commendable, but rather that it could not provide the universal basis by which members of society look to secure their mutual interest.

Those who lived through the Cultural Revolution will remember that when the slogan “Struggle Against Selfishness, Criticize Revisionism” (dousi pixiu) echoed through the country, the numbers of conspirators and careerists were at their peak. At that time, most of China’s common people (laobaixing) could actually believe that “Struggle Against Selfishness, Criticize Revisionism” could become a societal norm, and as a result they did their utmost to follow its strictures. At the same time, opportunists used the slogan as a means to take advantage of others. They used the campaign against exploitation as an excuse to raid the homes of others and place the property of others in their own pockets. They called on others to strike down selfishness, and for the sake of the revolution to admit that they were traitors, spies, or counter‐​revolutionaries and thus have a stroke added to their record of demerits. Without a thought, such opportunists would place others in a position where the lives of those others were at stake, all in an effort to secure for themselves an official government position. Thus far, we’ve analyzed the theoretical problems with the principle of “serve others before oneself,” but the history of the Cultural Revolution further proves the contradiction of that principle when it is put into practice.

The Cultural Revolution has faded into memory, but we should remember that at that time all slogans were subjected to criticism and scrutiny. That is no longer the case, for the question of what principle is best when dealing with problems in society has, it seems, been exempted from scrutiny. We still often use the old propaganda to call on the people to resolve disputes, and even when cases are heard in court, those out‐​of‐​date methods still hold considerable influence.

Those readers who are adept at thought experiments will no doubt have additional questions to ask about the above‐​mentioned problem of how best to allocate the apples between the two individuals. If we agree that “serve others before oneself ” cannot as a rule solve the problem of how best to distribute two apples, does it follow that there is no better way to do so? Recall that there is one small apple and one large apple, and there are only two individuals participating in the allocation. Could it be that even the legendary Chinese immortals would find themselves unable to devise a suitable solution?

In an exchange society, the above‐​mentioned conundrum is indeed soluble. The two individuals can first consult with one another in order to resolve the dilemma. For example, suppose that A selects the bigger apple, with the understanding that B is entitled to take home the bigger apple when they next meet; or if in return for A taking the bigger apple, B receives some form of compensation. A payment would help to resolve the difficulty. In an economy utilizing money, there would certainly be parties willing to use the latter method. Starting with an offer of a small amount in compensation (say, one cent), the amount could gradually be increased until the other party was willing to accept the smaller apple, plus compensation. If the initial sum is quite small, we can assume that both parties would prefer to take the larger apple and to pay a small amount of compensation. As the compensation increases it would reach a point where one of the two parties would accept the smaller apple plus the compensation. We can say with certainty that if both parties rationally evaluate the problem, they will find a method to solve the dispute. And this is a way to resolve peacefully the conflicting interests of both parties.

Thirty years after China’s Reform and Opening, the question of wealth and poverty has been raised yet again, with animosity towards the rich growing with each day. During the period when class struggle was emphasized, at the start of each mass movement, the suffering of the past was contrasted to the happiness of the present. The previous society was denounced, and previous exploitation was used as a seed to mobilize the hatred of the people. When the Cultural Revolution began in 1966 (a movement to sweep away the evils of the old class system), in many areas the descendants of the landowning class were buried alive, even though most of the landowners themselves were already dead. No one was spared: neither the old nor the young, nor even the women and children. People said, just as there is no love without cause, so there is no hatred without reason. Where did this spirit of enmity towards the children of the landowning class come from? It came from the fervent belief that those descendants of the landed class had relied upon exploitation to create their place in the world. Today, the gap between the rich and the poor has become more evident. And while there are admittedly those who have used illegal methods to gain wealth, in any society a gap between the rich and the poor is an unavoidable phenomenon. Even in developed countries where illegal channels are strictly limited, a gap between the rich and the poor commonly exists.

The logic behind the resentment of the rich is flawed. If one were resentful of the rich because one had not yet become rich, then the best strategy one could adopt would be first to overthrow the rich, and then wait until such a time that one had oneself become wealthy, after which one would advocate the protection of the rights of the wealthy. For a certain group of individuals, this indeed would be the most rational way forward. But for society as a whole, there is no way to coordinate this process so that all of the members of society could become wealthy at the same pace. Some will become wealthy before others; if we wait for all to become wealthy at the same rate, none will ever achieve wealth. The opposition to the rich is without justification, for the poor will only have a chance to become rich if the rights that allow anyone—and everyone—to gain wealth are guaranteed; if the fruits of one’s labor are not infringed upon; and if the right of property is respected. A society in which more and more individuals attain wealth and agree that “to get rich is glorious” is, in fact, something that can be built.

The Chinese scholar Li Ming once wrote that dividing people into two groups, “rich” and “poor,” is the wrong way to distinguish between the two. Rather, it should be those with rights and those without rights. What he meant was that in modern society, the question of rich and poor is really a question of rights. The rich have gotten that way because they have rights, while the poor don’t. What he meant by rights must be human rights, not privileges. It cannot be the case that all citizens can have access to privilege. Only a small minority can have access to privileges. If we want to resolve the question of the rich and the poor, we should first establish equal human rights for all. Li Ming’s analysis is profound and thorough.

This essay was written and published in Chinese in the 1999 book The Future of Chinese Ethics. The English version, translated by Jude Blanchette, first appeared in The Morality of Capitalism.