Preface to the Mainland Expanded Edition
The first version of A. Marshall's Principles of Economics came out in 1890. Including it, there were 8 versions in total, with the last issued in 1920. The "version" mentioned here means actually edition with content changes, not reprints. Scholars studying Marshallian thoughts love to trace differences of each version, where are changed and why Maestro Marshall did that.
My own Economic Explanations were published in three volumes: Volume I The Science of Demand (first published in May, 2001); Volume II The Behavior of Supply (first published in March, 2002); Volume III The Choice of Institutional Agreements (first published in November, 2002). Versions after that were actually reprints and not a single change was made. In another word, per the Marshallian tradition, my three-volume Economic Explanations has only one version as of today.
So this revised Mainland Edition is the second version. After nearly ten years, a bunch of places requires revision, improvement or addition. Among the ten years both people and things have changed a lot, and I have had some advancement in the thinking of economic explanation, especially on economic institutions, which has been largely deepened. Revising this Mainland Edition is a huge project, Volume I and II will have minor and abundant changes, respectively, while Volume 3 will be a lot. I had considered for a very long time before I made such a plan and decisions, but when writing this preface to the Mainland Expanded Edition the revision hasn't started yet. I need compose this preface first, letting my thinking has a good start, and then I become able to make sentence-wise, paragraph-wise, page-wise, section-wise, and chapter-wise revisions.
That I mentioned Marshall's great work is because it was the economics of a century ago, an important milestone of the Great Britain tradition, and the foundation I valued the most. My own Economic Explanations stems from this; although bunches of changes have been made, it still shares the same spirit. Of course in my own opinion the changes are improvements, and others may not agree. Student readers must find a chance to read the original works of Marshall and make comparisons with this Mainland Edition Economic Explanations, to check if the way I choose to develop is still the one I picked before. I believe it is.
One friend once told me that my economics is very orthodox but not main stream anymore. He is probably right, but why does this happen? Others do have the freedom to grow their thoughts at will, but is it really possible that people develop Marshall's foundation into different theories that are nearly irrelevant? Or maybe the new stars in these four decades didn't study Marshall at all?
Well, it's quite pleasing that I've made predictions far more accurate than today's main stream! What's more, when I explain phenomena or behaviors I never divide the micro and the macro, never consider from the so-called monetary point of view, and the variation and potential I've demonstrated makes such categorizers still children (a smile on my face). This is the power of the knowledge that stems from Adam Smith and Alfred Marshall's traditional path.
Prediction and explanation effect beforehand and afterward; in science they are a same thing, though. Prediction (or inference) requires observable test conditions, and a theory that outlines behaviors; if test conditions change, the prediction must be revised. Foretelling is totally another thing, which I don't understand at all. Once you student readers have learnt economic explanation, you know economic predictions immediately.
From 1969 I decided to take my own path, to read others' work as little as possible and prefer thinking independently. But before that I had been a very good student, keen to traditional theories and heavily influenced by my teachers and friends. In classical economics I had my stress on Adam Smith, David Ricardo, and John Stuart Mill; neoclassical on Marshall, Mrs. J. Robinson, and Irving Fisher. In the 1960s, there were eight teacher and friends influenced me, and they all valued Marshall's foundation very much. In my alma mater UCLA the four were: Armen A. Alchian, Robert E. Baldwin, Karl Brunner, and Jack Hirshleifer. In UChicago there were another four, and I had already had their influences before I were there. They are R. H. Coase, Aaron Director, Milton Friedman, and George J. Stigler. With this unique school experience, I must have really been favored by fortune.
Not only valuing Smith and Marshall, the above eight but also paid great attention to economic explanation. In fact, by the leading quote from Marshall, we can see he appreciated economic explanation a lot. According to Marshall's recall, from 1867 to 1875 he often visited factories to observe the operations of industrial production. Such observations from the real world, along with his unbeatable talent, brought forth the Principles of Economics. Friedman was right, "Marshallian economics has contents!" He must intend the real world observations. However, Marshall seldom made explanations via real world validation. Actually, in those days the outstanding Great Britain tradition of economics treated real world investigations without sufficient care, which is really mysterious. Because of this, they didn't have enough material for hypothesis validations. As a follower, it's solely to feed validations for me to make all the amendments to theories of these wise.
In 1930s, Arnold Plant of LSE (London School of Economics and Political Science) was enthusiastic in real world investigations. This man influenced his student R. H. Coase. My own enthusiasm for such investigations was not influenced by Coase, as I had already written The Theory of Share Tenancy before I knew him. I was actually influence by my teacher Alchian. When advising my Share Tenancy, he didn't give me a break on referencing facts and documents, for he believed I was a rough diamond and he need treat me tough!
In 1967 I arrived at UChicago, and found the library there was the best I had ever met. Any book you cannot find there, they would quickly borrow it from other libraries. Therefore I played a game of footnote tracing there for several months, especially on the works by A. C. Pigou, the great English economist. The game went like this: after you see a footnote on some book A that says the fact or material can be referred to another book B, you go to the book B and it says the reference is from some other book C, then you turn to the book C and continue. My results suggested, most of the facts stated in the works doesn't have solid proof and some of them are even purely faked. Thus I came up with an opinion: the most foolish scholars are the noble ones that try to explain things that never happen. After that I became uninterested in ordinary books, select only the authors that I think trustable, and believe in my own observations with greater weight. My habit of running in streets and alleys for observations started ever since.
In the summer of 1969 I returned Hong Kong for a vacation, and began visiting factories (mainly looking into piecework) and frequenting courtrooms and rooftops (for the investigation of rent regulations in Hong Kong). The experience not only brought me original knowledge to the real world, but also made me feel most of the economic theories I had worked hard to learn were useless at all. Countless actual phenomena cannot be explained. How could that be possible?! At that time my price theory, which I had taught at the graduate school of UChicago, was recognized by friends in the circle, how can I not even explain those everyday experiences? Such embarrassments can never happen in natural sciences.
After thinking I came up with two solutions. One was to give up economics and choose some other career; and the other was to overhaul the theories I had learnt to make them accommodate real world phenomena. By running in streets and alleys I gained rich perfections in both theories and concepts, and it took only several years before they can generate charming explanations. Before that 1969 summer I had had enough study in traditional theories, therefore to grow my own thoughts, I felt quite ease for my time spent on street and alley experiences.
Today I have no doubt in the explicability of economic theories. The world is complex, though, I have reduced economic theories into a single Demand Theorem. On the other hand, one must grasp concepts deep enough to allow for any variations, as other so-called concepts are only transforms governed by laws of human actions. As for those theories classified into micro, macro or monetary, the fundamental is the same -- they are all knowledge about human decisions under certain constraints. What is seen on streets and alleys might no be worthy of mention, but after expansion they could be important macro phenomena. One must know enough phenomena of the real world, because the reduction of theories and grasp of concepts can only be achieved through comparisons with and validations of different phenomena.
As stated previously, the lab for economics is the entire real world, it's quite tough and one has to keep sustained observations of it. I am over seventy years old and still in it. But I believe this three-volume Economic Explanations can save the junior scholars twenty or even thirty years of time. It should be able: I once took many wrong paths and wasted a lot of time; by eliminating this and eliminating that, I've gathered the theories and concepts that today I take as reliable.
For any knowledge, there can be bunches of paths to take. So is it in doing economic explanation. Some experts thinks my explanations are not explanation, reversely, I can say as well theirs are not. To take my way or the others', or even create one's own, students please consider.
And please don't study only mine. At the starting stage students should check the others' theories; but be swift, like collecting firewood when it starts to rain. Remember, the major purpose of economics is to explain real life facts, however the investigation itself to make facts detailedly clear may require a lot of time and efforts, sometimes I even have to get myself in real businesses. On the other side, if one indulges himself in fundamental or technical developments, once he finds they are of no use, it might be too late. It's difficult to do economic explanation not only because facts are hard to find out, but also most so-called theories are just rubbish.
The three-volume Economic Explanations focused on the theories and concepts that I think are the most useful, and the reasons why I obsoleted some theories and concepts popular in the circle were also explained. It was a path that an old man had gone through, and by reading Economic Explanations you students are taking a walk with this old man. It's a through path, but not the only one. Quite characteristic in science, isn't it?
Early in 1970s, colleagues like Douglass C. North, Yoram Barzel, John S. McGee in UWashington, Seattle thought I had the capability to completely reform economic theories and encouraged me to to that. At the moment all of us were unsatisfied with the explicability of economics, but no one expected the forthcoming tool of explanation introduced by the circle would be the gaming theory that we abandoned in 60s. Unfortunately, gaming theory is among the ones that cannot be validated with facts. (Translator: I totally disagree with such an opinion on gaming theory. It does yield predictions that can be validated.)
In 1982 I left UWashington and returned Hong Kong for teaching. With the Economic Reform all over the Mainland in my eyes, I began to publish my works in Chinese. In 1989 I wrote Economic Explanations on the Hong Kong Economic Times, and after twelve issues my mother fell on the street and was heavily injured, so I had to stop to look after her. When I continued my writing on Apple Daily in 2000, my mother had passed for eight years.
From the 80s Coase had been increasingly unsatisfied with the development of western economics, and repeatedly urged me to found my economics in China. I was not a reformer, and didn't believe I had any influence power. But after the three-volume Economic Explanations were published in 2002 in Hong Kong and uploaded to the Internet, readers that downloaded it, printed it, bound it and read it were countless. I was aware the three volumes can still be greatly improved, especially the third volume The Choice of Institutions. In 2007 I drafted The Economic System of China per Coase's invitation, and climaxed my understanding of institutions to a level nobody had ever reach. China's economic development had taught me so much.
During the years thinking over The Economic System of China, I felt, that Coase wanted me to found economics he likes in China and later it could be spread to the western world, was not dreaming or illusionary at all. In the Mainland, there are so many readers interested in economics and brilliant students are countless, while the westerns begin to learn Chinese as well.
Smith's Wealth of Nations published in 1776 still has readers today. Counting works with an everliving reader span, this is the only one. Karl Marx's Capital has a reader span of 110 years, which is really terrific, and China's development has made a contribution. Next to it should be Marshall's Principles of Economics: first edition came in 1890, but readers of it after 1965 are countable. So that's seventy-five years. My three-volume Economic Explanations should be counted since 2000, and if in 2075 there are still students reading it, Coase's wish shall come true.
Steven Cheung
March 19, 2010
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