Preface to the Original Edition
One night in 1971, I came up with some idea so irresistible that I got up from bed at midnight, walked to my desk, seated, and wrote in English on and on for several hours. After handed to my woman secretary in the morinig for typewriting, it came out to be more than twenty pages with double spacing. I titled the manuscript The Theorem of Exchange and Market Demand. Now looking back, that should be the predecessor of the Economic Explanations I am writing today.
Since I was teaching in UWashington, Seattle, I had the chance to have several colleagues that were specialized in price theory take a look at the manuscript. After reading it, they all exclaimed, "it can be this simple, why the books never say like this?" How the books say is one thing, to have me agree is another, or else I wouldn't have to get up that late. For a long time, the supply and demand relationship and the so-called equilibrium price in past books were all based on the great nineteenth century economist Marshall's "scissors" theory. When I was a student, I never got what kind of pressures the scissors were under or what they were trying to cut. Later when I became a teacher, I still didn't get it during teaching and just threw some nonsense to the students; in the end, I had to establish my own analysis.
Colleagues at UWashington knew I had always revered Marshall, but that manuscript denied his scissors, so asked me whether I had changed my opinion on him. I said I was totally subdued by Marshall, he was my mentor, but his inspections of the real world were not deep enough, and there were redundancies in his theories, so many improvements could be made. I think Marshall is of real greatness, because his economic analyses have a complete framework, and in which there are contents. He was a top master, who combined predecessors' thoughts and with his talent established the framework, without which my generation would never have a clear overview. Therefore he really deserves it if I can add some amendments to the details and contents of the framework.
R. H. Coase that had great influence on me also worshiped Marshall as well. He knew well the slightest changes among different versions of Marshall's Principles of Economics. However, Coase was against the utility concept, the sayings of long run and short run, and equilibrium and disequilibrium as well, all of which were well known due to Marshall. Appreciation, admiration, and opposition, are actually well consistent in science.
Back to the aforementioned manuscript, a colleague at UWashington included it into his textbook and noted it was my invention. After an editor of the American publisher Prentice-Hall read it, he uncovered the original and brought me a contract to write an economics textbook. That was in 1973.
The publisher's conditions were very generous, and specified that no outline, no review would be required, I can write whatever I like. It was really a nice opportunity, but I responded I had never planned to write one. However, in 1973 the economy in Great Britain was a mess due to its oil issue and price regulations, inflation skyrocketed, and I was having two babies still in swaddle, so making some extra cash was indeed realistic. I then had the publisher leave the contract and promised to think about it. He wanted a title, I wrote down on a white paper: Economic Explanation. Till the end I never wrote a word.
UCLA in early 60s was not at any key position for economics. The weird thing was, my four graduate instructors of economics, Armen A. Alchian, Jack Hirshleifer, Karl Brunner, and Robert Baldwin, all emphasized hypothesis in explaining phenomena or behaviors. At the time, except for the Chicago School, only UCLA considered to explain phenomena is the focus of economics.
Learning, to gain knowledge, has to obey first impression as well. At UCLA there was an occurrence that's unbelievable even today. Rudolf Carnap taught freshman logic in the Department of Philosophy, and it was about the methodologies of validation in science. Being a master of logic philosophy, he has no equal through out the entire twentieth century! I didn't know that then, but since classmates with high grades all yelled to take his class, I just followed. When entering the classroom, I saw at the last row of the crowded hall there was seated an old fellow. It was the professor Karl Brunner of the Department of Economics. This made me realize the course was a gold mine, so I began to be diligent. It was 1960, when Carnap was at his 69.
The term economic explanation stemmed from Carnap's teaching. His course was a clear lecturing of "explanation"; in it "scientific explanation" was mentioned many times, and the unsurmountable theory of knowledge was very gracefully introduced. With a wise man's guidance, learning can be so enchanting.
As the term suggests, Economic Explanations is to explain phenomena or human behaviors scientifically from the perspective of economics. In science's category, there'd always the final question: why? And the problem of "how" should be dealt in the scope of engineering, while "is it good" in ethics. In science we never ask the questions of "how" or "is it good".
It was no secret that I spent at least half of my time studying "welfare economics" during my first year of graduate school at UCLA, and published a prize-winning paper that I actually dislike. It was on something about "is it good". After I took my teaching post in Hong Kong and started commenting China's economic reform in Chinese, I've made a bunch of suggestions. They were about "how". Though I was quite clear I had actually no influence power at all, that I still tried to make the suggestions must be due to some human nature, so no one shall be unsettled about it. Proudly, I was always ble to make clear distinctions among different problems and never confounded.
The current book, Economic Explanations, is about "why".I began to think economics should focus on this "why" problem since 1963. At the moment, I had had Alchian's course for a couple of weeks, and then decided to take my own path in doing economics. I thought I could only make my contribution on this "why" problem. And it was proven correct. For thirty years, I have been indifferent to outside responses to the suggestions that I made about "is it good" or "how". If I took social reform as my duty, I'd never be still alive today, as so much disappointment can be really killing.
That I'd be connected with the term "economic explanation" seemed destined. In 1982 it was "Economic Explanation" that I chose as the speech title of my inauguration in Hong Kong. In 2000, Beijing was going to publish the Chinese translation of some selected papers I had written in English. When the translator asked about the title, I suggested it be Economic Explanation.
The Economic Explanations written here stemmed from my 1989 column serialized on Hong Kong Economic Times. After twelve issues, the June Fourth Student Movement broke out in Beijing; and my mother fell on street (not in Beijing) and was heavily injured, so I had to stop and later never worked up enthusiasm to continue it. Though there were only twelve issues, readers responded that they were the best of mine ever. In the following eleven years, the ones that asked me to go on with it were uncountable. I guess I might have the twelve issues too well written. Hope this time's comeback won't make the readers disappointed.
I must declare first, this Economic Explanations is never a textbook. Students studying economics can read it, and should read it, but since I don't follow norms, students may get in trouble if they use my anwsers for exams. Economics that everyone knows doesn't need me to write.
But don't mistake that I'd break norms deliberately. It's because I need focus on explaining real phenomena that some norms have to be broken. Though economics is an empirical science and aims at explaining phenomena, economists that write in that way were few. In fact, my knowledge on economics were learnt from my friends and teachers. And my contribution is just to clean out the useless, and then reorganize the remaining. Referred cases are mostly from my own observations. I love to explain the real world with simple theories. The world is complicated, without simple theories, the chance that we can explain it is zero, and this is my belief.
Though I tried to be simple, reading Economic Explanations is never effortless. This is because to make a good explanation, simple theory has to be deeply wielded. For example, the law of demand, if price falls the demand will increase, that everyone knows with economics elected in his middle school, is just repeated in different ways through out the entire book, though the term mostly appears in only Volume 1. Since it bears a lot of variations, one must comprehend it thoroughly before using it. So the readers need be prepared: a plain idea may cost me thousands of words if I deem it important.
There are two other reasons that make reading this book demanding. First is the choice of topics, as I won't step back from any tough one. I choose a topic according to its interestingness and importance and never to its easiness. Second is I decide not to use any chart or equation. Adam Smith, the founder of economics, can publish his 1776 Wealth of Nations without a single chart, why can't I do that?
His book is the greatest economic magnum opus of all ages, imitating him is definitely an honor. Today's difference is, though no charts will be used, the names of those curves still have to be mentioned. Readers with knowledge of economics will easily know what I'd be indicating. As for laymen, the curves can be ignored if they are never seen before. Reading the narrations shall be sufficient. And just don's assume its following topics are not comprehensible if you don't understand a section or a chapter. If you do meet something incomprehensible, please jump to somewhere else of the book.
Economic Explanations were published on a newspaper that sells at any Hong Kong newsstand, so definitely it's written for the common people. This is a tradition from Smith as well. I do wonder, whether today's economics, in which math equations outnumber words, can be delivered successfully in old ways. Let me take a try.
Steven Cheung
November 1, 2000
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