Wang Anshi Economic Reforms

Cambridge Journal of Economics 2018, 42, 1239–1254
doi:10.1093/cje/bex087
Advance Access publication 4 January 2018
Downloaded from https://academic.oup.com/cje/article/42/5/1239/4788603 by Access provided by HEAL-Link (University of Athens) user on 29 June 2021
Wang Anshi’s economic reforms:
proto-Keynesian economic policy in
Song Dynasty China
Xuan Zhao and Wolfgang Drechsler*
The parallel between the economic reforms of Chinese Song Dynasty Chancellor
Wang Anshi and those associated with Keynesianism has been rather neglected so
far. However, understanding the original ideas of Wang Anshi’s economic thought
and his reform policies, and comparing those with John Maynard Keynes’, we argue
that Wang Anshi’s reforms well deserve the label of ‘proto-Keynesianism’. Both sides
reach a consensus about the importance of government’s expenditure to support ag-
gregate demand, increasing inducement to invest and state control of the economy
in order to combat economic depression, especially as regards unemployment.
Key words: Wang Anshi, Economic reform, Confucian economics, Zhouli, John
Maynard Keynes, Keynesianism, Imperial China, Song Dynasty
JEL classifications: B19, B31, N15
1. Introduction
Keynesian economic policy as we know it emerged as a reaction to the Great Depression,
proposing ‘little more than the positive relation between government expenditures and
national income, or in more sophisticated versions something closer to Abba Lerner’s
idea of “fiscal federalism” in which fine-tuning expenditure and tax policy can stabilize
the level of aggregate demand at full employment’ (Kregel, 1995, p. 261). However,
more than 800 years before John Maynard Keynes, in 1069 and 1074 AD, Wang Anshi
(1021–1086), an eminent statesman and Chinese Imperial Chancellor under Chinese
Northern Song Dynasty, developed and implemented an economic policy which
shared the same goals and approaches in one of the most important economic reform
endeavors in Chinese history. He did so by a completely different way of reasoning,
but there is a parallel that is hard not to notice and that is most interesting from today’s
perspective. Given the re-emergence of China, forays into classical Chinese economic
and social thought and policy are more relevant than they have ever been within recent
Manuscript received 28 December 2016; final version received 6 October 2017.

Address for correspondence: Xuan Zhao, History Department, School of Arts, Languages, and Cultures,
University of Manchester, Oxford Road, Manchester M13 9PL, UK; email: xuan.zhao-2@postgrad.man-
chester.ac.uk
*Davis Center, Harvard University, 1730 Cambridge St., Cambridge, MA 02138, USA. Permanent
address: Ragnar Nurkse Department of Innovation and Governance, Tallinn University of Technology,
Akadeemia 3, 12618 Tallinn, Estonia, wolfgang.drechsler@ttu.ee
© The Author(s) 2018. Published by Oxford University Press on behalf of the Cambridge Political Economy Society.
All rights reserved.
1240 X. Zhao and W. Drechsler
memory, seeing that in spite of their sophistication and complexity, they hardly form
part of any canon within the global-Western discourse (see Drechsler, 2015B).
The parallel itself is known, however; in 1944, for instance, Henry Wallace called
Wang Anshi a ‘Chinese New Dealer who lived about 900 years ago’ (Li, 2014, p. 216).
(Of course, Keynes’ thought, his policy recommendations, Keynesianism and the New
Deal are not the same, but in this paper we are concerned with rather broad brush-
strokes.) Yet, unlike the ones between Wang Anshi’s economic reforms and socialism
or ‘state socialism’ in the German Historical School sense (e.g. Gowen, 1914; Franke,
1931), the parallels with Keynesianism have not attracted much academic attention.
The current essay aims to fill that lacuna in an initial way.
Specifically, what we will try to do is to understand Wang Anshi’s economic thought
and his design of economic policy contained in the copious texts he wrote—including
poetry—as well as in the policies he actually implemented in order to sketch out what
his ideas really were, and to examine whether his was what we can call a version of the
Keynesianism that emerged centuries later—proto-Keynesianism, then, to be more ac-
curate. We will not argue for any influence of Wang on Keynes of any sort (there is no
indication that Keynes was actually aware of the Chancellor’s work)—we are looking
for parallels, not origins.
This approach was taken already by one of us in an essay on Wang’s role in mod-
ern Public Management (Drechsler, 2015A), and the current theoretical approach is
based, again, on Hans-Georg Gadamer’s hermeneutics (Gadamer, 2013; Drechsler,
2016). According to Gadamer, ‘a person who wants to understand must question
what lies behind what is said. He must understand it as an answer to a question, if
we go back behind what is said, then we inevitably ask questions beyond what is said.
We understand the sense of the text only by acquiring the horizon of the question—a
horizon that, as such, necessarily includes other possible answers’ (Gadamer, 2013,
p. 378).
Following this framework, the next section will reconstruct the questions Wang
Anshi’s economic texts tried to answer, viz. the economic crisis he faced. In the third
section, the essay will illustrate the Chancellor’s actual economic policies as imple-
mented within his reforms. The Chancellor’s economic thought and the reasoning
behind the policies will be discussed in the fourth section. And finally, on that basis,
we will examine more closely to what extent all this can be called proto-Keynesianism.
2. Context
Interwoven with complex problems regarding national defense, public service and
state finance, an economic crisis haunted mid-eleventh-century China, ruled by the
Northern Song dynasty (Smith, 2009, pp. 347–87). The Northern Song’s economy
was largely rural: government statistics show that in 1034, 80% of the empire’s popula-
tion comprised rural households (Li, 1986, p. 2780). But this system was not a closed
natural economy. Because the Chinese state had already given up its ownership and
distribution of land within villages and deregulated the market in the cities since the
mid-eighth century, the eleventh-century urban and rural economy was to a great
extent commercialized, dominated by private ownership of land, expanding urbani-
zation and widespread use of money (see McDermott and Shiba, 2015, pp. 321–98;
Golas, 1980, pp. 298–99). Actually, the global-first true paper money was invented in
the Southwestern regions of the Northern Song (Golas, 2015, p. 210).
Wang Anshi and Keynesianism 1241
Between the 750s and the 1050s, the Northern Song not only went through eco-
nomic changes, but also through profound political and social ones, such as China’s loss
of dominance in East Asia and the disappearance of the large oligarchical-literati clans
that so far had dominated the government (see Bol, 2010A, pp. 7–42). All this seemed
to make the previous mode of organizing the empire untenable, and so, encouraged
by the early success of the Northern Song’s regime, since the mid-eleventh century,
literati from different schools of thought intensively debated how the state in a changed
world should be structured (see ibid., pp. 7–8). Wang Anshi and his followers formed
one of the four most influential camps in this debate (see Liu, 1959, pp. 22–30), and
his reform can be regarded as a response to those changes (Bol, 2010A, pp. 72–77).
According to Wang Anshi, the rural part of the economic system was at the root of
this crisis:
In recent decades, farmers have always lived very hard lives. Government only puts a burden
on them but seldom relieves them. Take the capital’s suburbs as example: most of the irrigation
projects like dykes and canals have not been maintained; deserted arable lands contiguously
stretch for hundreds of square miles; family after family goes bankrupt and is forced to abandon
its village and move elsewhere. This is what the situation looks like nearest to us, so we can im-
agine what it is like in the more remote regions. Once a disaster happens, corpses of victims
of starvation are piled one upon the other, and the roads are filled with refugees. (Xu, 2014,
p. 6050; all translations are our own)
According to Wang, especially the deficient construction of irrigation projects was one
of the main causes of the farmers’ economic misery (Wang, 1959, pp. 446, 664).
It is often remarked that small farmers (the fourth and fifth ranks according to the
government’s five-rank classification of the population) constituted 40–60% of total
rural households in Northern Song China, but that they only possessed a bit more
than 20% of the cultivated lands, with which they were unable to secure sufficient
income for their families. Thus, they had to take out loans from the well-capitalized
landowners (the upper three ranks in the classification), who owned almost 80% of the
land, which often led to small farmers’ chronic indebtedness and subsequent loss of
land and bankruptcy (see Golas, 1980, pp. 299–304). The interest rate for rural loans
was very high: government set the ceiling at 100% p.a. (Li, 1986, p. 522), so we might
imagine what it usually was.
The beneficiaries of this high interest rate were ‘the wealthy landowners, many of
them officials’ (Golas, 1980, p. 302). Song officials always sought to build their eco-
nomic foundation through land acquisitions, and at that time ‘land was everyone’s
first choice for security and respectability’ (ibid., 302). Wang Anshi and his follow-
ers, but even his opponents, named them 兼并之家, literally those who annex others’
wealth, translated as ‘plutocrats’ by Williamson (1935) and ‘engrossers’—‘magnates
who preyed on the poor and usurped the fiscal prerogatives of the state’ by Smith
(2009, p. 389). We use the term ‘exploiters’, as this seems to catch the original meaning
best in contemporary English.
Most, if not all, upper three-rank rural and propertied urban households were con-
sidered exploiters (see Xu, 2014, pp. 6045, 6050). For Wang Anshi, they were a major
enemy of his reform. Some of them were the owners of large estates and rural usurers
to whom small farmers appealed for help but who ‘always take advantage of farmers’
temporary shortage of money and lend to them usuriously at an interest rate of more
than 100% p.a., so potential borrowers are often denied the funds they need’ (Xu,
2014, p. 6041). Some of them were large urban businessmen and speculators who
were responsible for the instability in the urban commercial market. But all of them
were well connected to bureaucrats and had representatives in government. As Wang
Anshi told the Emperor: ‘The exploiters are influential and powerful. They are able to
influence the attitude of literati and officials. … I am afraid Your Majesty cannot resist
their malicious opposition to our reform’ (Li, 1986, p. 5433; see Wang, 1959, p. 773).
The empire’s urban economy was suffering from an instability of the commercial
market, partially for similar reasons and with the same culprits. Wang Anshi’s urban
economic policy was mainly triggered by a report on the problems of the market of the
capital city which stated:
The commercial market in the capital is in chaos: prices are extremely unstable. The rise and fall
of prices can be multiple times that of the equilibrium price in the absence of market manipula-
tion. The well-capitalized urban exploiters take advantage of the chaos and usurp control of the
market. When the merchants come to the capital in droves and there is a surplus of goods, the
exploiters keep the price low and purchase large amounts of goods for storage. When merchants
rarely come and the goods are short, the exploiters use their storage to push up the price. In this
way, the exploiters acquire very high profits and monopolize a large amount of wealth, but the
merchants can barely make a profit, so that they become unwilling to do business in the capital
city. The residents suffer from this process and have hard lives. (Li, 1986, p. 5622)
Wang Anshi thought that the main cause of this instability was that ‘the state no longer
holds its control over the economy, so well-capitalized private actors take the chance
and control the market by themselves to serve their own interest’ (Li, 1986, pp. 5622–
23; see Weber, 1986, pp. 425–26). In his opinion, the lack of state control of the econ-
omy could not only explain the problems of the urban commercial market, but it also
was the fundamental reason why the whole national economy faced crisis: ‘we are
not administering finance and the economy with the correct method’ (Wang, 1959,
p. 417). And ‘the government allows everything to go freely as it desires, nor has any
adequate effort to determine outcomes ever been made’ (Wang, 1959, p. 446). In other
words, there was too much laissez-faire and too little state control of the economy,
which led to market failure with catastrophic effects.
3. Economic policy
What made solving the economic crisis more urgent for Wang Anshi was that the
Shenzong Emperor (1048–1085, r. from 1067), who had just ascended to the throne,
was determined to recover China’s lost territory and eliminate the ‘barbarians’ threat
to national security by conquering them, but his ambition was severely limited by the
empire’s depressed economy (Smith, 2009, pp. 351–53). In the face of all the problems
the Northern Song faced, Wang Anshi’s administration therefore prioritized curing the
economic crisis, since as he said to the Emperor: ‘The reason why we couldn’t under-
take notable military initiatives on the frontier now is because of insufficient economic
resources, so I put the proper management of the economy as the top priority… And in
managing the economy, agriculture is the most urgent; in agriculture, the most urgent
is relieving and stimulating farmers and restricting exploitation’ (Li, 1986, p. 5351).
To deal with insufficient investment and high interest rates in the rural economy,
Wang Anshi transformed the Court of Agriculture (司农寺) from a relatively ceremo-
nial and decorative central government agency into a development bank providing
low-interest loans for social relief and agricultural development and a public works
administration, as well as a rural reform agency which was in charge of three main
reform policies for the rural economy: the ‘Green Sprout Loan Act’ (青苗法), the
‘Corvée Exemption Act’ (免役法), and the ‘Agriculture Promotion Ordinances’ (农田
利害条约) (Xu, 2014, pp. 3687–89).
a) The ‘Green Sprout Loan Act’ was a social-welfare and development-finance pro-
ject. The money it used came from the government’s granaries which Wang Anshi
believed did not fully pull their weight because of stagnant management (Xu,
2014, p. 6041). According to the Act (see Xu, 2014, pp. 6041–55), when farmers
faced a temporary financial crisis, they were allowed to borrow the granary depos-
its, the coins and grains, as a loan—hence called a ‘Green Sprout Loan’. At least
five borrowing farmer households should form a mutual-guarantee unit, and that
unit should mortgage all its lands to sign a contract with government. The loan
was then issued to the unit and distributed between its members. The interest rate
for the loan should be set by the district government based on the lowest price of
grain in the past ten years in that district, and the ceiling was 20% p.a. As long
as tenant households received a guarantee from their landlords, they were also
allowed to take out a loan. After demands of rural households were satisfied, the
project could also cover propertied urban households.
In order to prevent the loan system from becoming just a source of profit for
the government, it was regulated that borrowing should be voluntary and that
the deposits of loans and their interest should be under the jurisdiction of the
Court of Agriculture, i.e. outside of the usual public finance system, making it
‘legally impossible to embezzle the loan and its interest to finance the govern-
ment’s ordinary fiscal expenditure, so that the project will only serve to relieve the
farmers’ (Xu, 2014, p. 6049). Wang Anshi believed that the farmers could thus
overcome temporary financial crises and focus on tillage; exploiters could not take
advantage of the farmers’ difficulty; and especially, farmers could be motivated to
reclaim more lands and construct more infrastructure, so that agricultural pro-
duction would be improved (see Xu, 2014, p. 6041).
The Chancellor expected that lowering the interest rate would increase the
inducement to invest in the agricultural sector. As he wrote in the act:
This is not just about disaster relief. When farmers receive the loan, they will not suffer
from the shortage of means of living between one harvest and the next, so that they can
focus on tillage. That way, the farmers could be motivated by the government to reclaim
more lands and construct irrigation projects to improve their productivity. As the result,
agriculture will be promoted automatically. (ibid.)
Later, in retrospect, he regarded himself proven correct on this point (Wang,

1959, p. 774).
b) The ‘Corvée Exemption Act’ was an institutional adjustment. At that time,

farmers were required to fulfill extensive compulsory labor service, like police
services, tax-collecting or tax transport, for local government, which was a heavy
burden on them (see Golas, 2015, pp. 167–70). According to the Act, all house-
holds could pay a fee to avoid this compulsory service, which government could
use to hire the service it needed (Wang, 1959, p. 440; Li, 1986, pp. 5521–24).
Here, Wang’s parallel with the West about monetization of corvée should be
noted, which even started at the same time—in Northwestern Europe, during
and after the eleventh and twelfth centuries, farmers could provide rents in kind
or money in lieu of their corvée duty (Ganshof and Verhulst, 1966, pp. 314–16).
However, this was to benefit the lords, whereas, e.g., the suggestion for such a
switch by J. H. G. Justi, the towering figure of Cameralism, in the eighteenth
century was focused on relieving the farmers (Klein, 1961, p. 175); likewise for
Wang Anshi.
c) The ‘Agriculture Promotion Ordinances’ were a set of detailed arrangements

to promote land reclamation and irrigation projects, and they are at the core of
Wang Anshi’s rural policy measures. According to the ordinances (see Xu, 2014,
pp. 5958–59), every county government should report to its superior district
government regarding land conditions, hydrological conditions and the condi-
tions of the irrigation facilities in their county. Meanwhile, they should draft and
report detailed proposals for reclaiming lands and for constructing, renovating
or improving irrigation facilities. After being verified and deemed worthy by the
district and provincial governments, these projects should then be carried out
by beneficiary households. If the cost was beyond their capacity, they should be
issued Green Sprout Loans. If these were not sufficient, very wealthy households
should be motivated to provide loans, for which government promised to help
collecting the debt.
For the urban commercial market, Wang Anshi’s countermeasure to instability was
to set up a nationwide buffer stock system to regulate price and demand. There were
two main reforming policies: the ‘Equitable Tribute Act’ and the ‘State Trade Act’.
According to the former (see Xu, 2014, pp. 3121–22), the empire’s rigid tribute
system, which collected pre-set types of goods from specific locations and transported
them to the capital (see Golas, 2015, p. 165), was turned into a flexible buffer-stock
project. The Commissioner of Supply, who was in charge of collecting and transport-
ing the tributes from the most prosperous six Southeastern provinces of China, was
granted a sum of government money. When collecting tribute, he would sell the col-
lected tribute goods in markets where there was a shortage and use the income to buy
goods in markets where there was a surplus.
The ‘State Trade Act’ was a further step in establishing the buffer-stock scheme
as well as an urban financial agency, implemented by State Trade Agencies in large
commercial cities and State Trade Commissions in every province (see Li, 1986,
pp. 5623–24). The State Trade Agency or Commission used government money as
principal and recruited merchants as their compradors. The compradors were usu-
ally the well-capitalized urban exploiters who benefited from market instability. The
Agency recruited them to control them. The Agency was supposed to purchase unsal-
able goods, of which the price should be set based on the equilibrium price in the
absence of market manipulation and the negotiation between compradors and sellers,
then store them and sell them when there was a shortage. In this process, the Agency
should not seek excessive profit. Merchants on the market who needed financial assis-
tance could apply to borrow goods or money from the Agency, but they should mort-
gage their property for equivalent-value loans. The annual interest of this loan would
again be 20%.
4. Economic thought
But Wang Anshi’s economic policies were not mere reactions to the vagaries of the
times and the problems of the Northern Song—in fact, they were genuine practice in
the sense of applied theory (Kant, 1923). We would argue that his economic thought
came from and is part of Confucian economics. Since what Confucianism is and what
it is not was and is even today heavily contested (see only Tu, 1991), partially be-
cause it directly addresses Chinese identity, this may be a controversial statement, but
Wang identified as a devout Confucian scholar and statesman. Contemporary rivals
and later detractors, until today, would say that he is not, but—apart from the fact that
‘Confucianism’ in his context is a highly rhetorical label denoting alignment with and
restoration of tradition—his policies and oeuvre, including economics, are a significant
and, we would argue, rather faithful and even constituent forms of Neo-Confucianism,
which is by no means monolithic (Drechsler, 2015A). As the Shenzong Emperor said
to Wang Anshi when he accepted Wang’s submission of New Interpretations of Three
Classics (三经新义), ‘Today, everyone has a different interpretation of the Confucian
classics. Then how to unify the principles of behaviour? By publishing the interpreta-
tions you wrote as the orthodoxy to unify scholars’ (Chen, 1977, p. 374).
Wang thought the best way out of the crisis in his time was to carry out the Confucian
principles manifested in the policies of ‘ancient great Confucian rulers’ (see Wang,
1959, p. 410). The eminent New Confucian economist Huan-Chang Chen (1911,
pp. 76–77, 168–75; on the difference between Neo- and New Confucianism, see
Drechsler, 2018) defined Confucian economics as meaning that the state should pro-
mote the people’s economic life, proactively enter the economy, control consumption,
production and distribution in order to equitably diffuse wealth to all, as Confucians
hold—Chen argued—that wealth is the cause of happiness, and in order to make peo-
ple equally happy, the state should enable them to enjoy wealth equally as well.
Wang Anshi believed that Zhouli was the blueprint for good government in his time
(Wang, 1959, p. 878). Since the Tang Dynasty (618–907), Zhouli has been recognized
as one of the most fundamental Confucian classics which defined what Confucianism
is (Yao, 2011, pp. 56–57). Wang’s interpretation of Zhouli differed from some previ-
ous orthodoxy, although it became an orthodox text for the Northern Song itself from
1075 (Chen, 1977, pp. 374–80). It advocated a centralized fiscal-activism role of the
state in the economy (see Bol, 2010B; Song, 2010; Wang, 1959, p. 773) in a way that
the Berlin sinologist Otto Franke later called ‘perfectly bureaucratized State Socialism’
(Franke, 1931, p. 1; meaning, basically, the Bismarckian-Prussian system, not the
Soviet Union, see Drechsler, 1997).
The basis of Wang Anshi’s own economics, in his own words, is the assumption that
‘the wealth of individual households depends on protection from the state; the state’s
wealth depends on taxes and tributes from the people; the people’s wealth depends on
extracting wealth from nature’ (Wang, 1959, p. 795). Or, to put it in another way: what
is needed is ‘to prompt all resources in the country to generate wealth for the whole
country and to collect and use that wealth to cover all expense in the country’ (Wang,
1959, p. 417). Three main components are part of this basic insight:
a) Wang Anshi saw the full exertion of productive capacity as the source of wealth
of the country. In his system, all human and natural resources should be fully
prompted to extract wealth, so that the people could be as wealthy as possible.
For this purpose, he especially valued public investment in infrastructure, which
made the full unfolding of productive capacity possible. The monsoon climate,
the river networks and the intensive cultivation in traditional Chinese agriculture
made building irrigation facilities as indispensable to agriculture as coal-mining
and iron-making during the Industrial Revolution (Needham, 1980, pp. 413–
22). Wang Anshi believed that the duty of the Office of Winter, one of the six min-
istries in Zhouli which was in charge of state-owned factories and public works,
was ‘to make the country wealthy, to cultivate and nourish the people’ (Wang,
1985, p. 10).
b) Wang Anshi emphasized that public finance should be actively used to expand the
economy. He criticized his colleagues’ austerity policy, focusing on extorting from
the people in order to maintain a short-term fiscal balance, as ‘parents trying to
earn money from their children’ (Wang, 1959, p. 795). He suggested that instead,
‘parents should teach their children how to earn money’ (Wang, 1959, p. 795),
viz. government should pro-actively spend to stimulate the economy and to focus
on long-term budget balance, based on an expanded economy to ‘enrich the state
without raising taxes’ (Chen, 1977, p. 326).
Contrary to his opponents’ opinion that ‘all wealth in the country is either kept by the
state or preserved by the people’ (ibid.), Wang Anshi believed that the economy could
expand and that fiscal policy was not a zero-sum game between people and state. As e.g.
Erik Reinert has argued, this worldview, a mental source of the economic development
of the Western world, was a key feature of Mercantilism, an economic policy Keynes
likewise referenced (see Reinert and Daastøl, 2004; Reinert and Reinert, 2005).
Interpreted from Zhouli, Wang’s fiscal theory assumes that on the one hand, the state
should invest its resources as much as possible to promote the economy to ‘attract’
more wealth to come to the treasury, and on the other hand, to ‘collect’ as little as pos-
sible to avoid extorting wealth from the people (see Wang, 1985, p. 17). As he said in
one of his poems, ‘The Fourth Out of Nine Fables’, the Ancient Great Rulers’ fiscal
policies included the following aspects:
Who can’t afford wedding and funeral
Will be granted loan for relief.
Who faced loss in bad harvest
Will be lent credit to continue undertakings.
Surplus goods will be purchased;
And sold out when it became shortage. (Wang, 1959, p. 160)
I.e., fiscal policy should be focused on positive expenditure to relieve the peo-
ple, support the investment and stabilize demand. That is why Wang Anshi urged
his colleagues to wisely utilize the ‘collection and distribution, purchase and sale’
(‘散敛开阖’) of government finance to optimize the economy (Wang, 1959, p. 512).
c) Wang Anshi specifically emphasized ‘restricting exploitation’; he did not want

to abolish wealthy landownership per se for egalitarian reasons. In fact, he was
opposed to some of his colleagues’ proposals for nationalization of land. He saw
them as neither applicable nor beneficial, because he saw the irreplaceable func-
tion of the wealthy in filling in the gaps the state left in the economy, including the
granting of loans (see Li, 1986, p. 5181), as long as this was done decently. His
problem with the exploiters was that they usurped the control of economic power
from the state and abused them for their own interest, to manipulate prices, inter-
est rates, investments and market exchange, which, for him, violated the principle
of the Ancient Great Rulers. In general, Wang Anshi’s ‘restricting exploitation’ was
primarily focused on retrieving control of the economy from the private sphere:
It is the wealth that unites the people … If the wealth cannot be administered properly,
the lowliest men living in small villages and narrow alleys in towns can take advantage of
the situation to usurp the control of economy, monopolize it and compete with the state
for control over the people in order to serve their unlimited greed. They don’t have to be
very noble and politically powerful to do so. In these circumstance, if the Emperor claims
that he doesn’t lose control of the people, it’s just words. And even if the Emperor focused
on enriching the people and worked hard, it would barely be meaningful (Wang, 1959,
p. 860–61).
His poem entitled ‘On Exploitation’ (Wang, 1959, p. 114) states:

The Ancient Great Rulers treated the people as their own sons;
Controlled all wealth, public and private.
The states controlled all economic powers,
As the pole star centers the orbit of all stars.
The state controlled all wealth-granting and -collecting;
Exploitation was regarded as a crime.
Nonetheless, this did have an egalitarian component as well, as their principles,

Wang Anshi explained, were ‘to make the have-nots have, to make the harmful
gone, to take from the rich to aid the poor’ (see Xu, 2014, p. 3122).
5. Proto-Keynesianism
5.1. The questions Wang and Keynes answered
In light of these considerations of the context, policies and theory of Wang Anshi’s eco-
nomic reforms, let us now look at those of Keynes, to see how well the two do tally,
and whether Wang Anshi did create a kind of proto-Keynesianism a millennium ago.
We will do that by looking primarily at Keynes’ major works and considering, using
with Gadamer’s approach, what questions the texts try to answer. That the problems
they faced were similar was already mentioned by Vice President Wallace in the speech
referred to supra:
It was ten years ago that I learned for the first time about … Wang Anshi. Under very great dif-
ficulties he was faced in the year of 1068 with problems which, allowing for the difference be-
tween historical periods, were almost identical with the problems met by Franklin D. Roosevelt
in 1933. The methods which he employed were strikingly similar. (Li, 2014, pp. 216–17)
If we proceed with this, we find that Lord Keynes’ ultimate concern is the realization of
full employment, viz. the maximum quantity of employment which is compatible with a
given real wage (Keynes, 1936, p. 12). Regarding the theoretical aspect, in the General
Theory, Keynes tried to discover the determinants on which the amount of employment
in an economic system depends at any time, so that a given authority can control those
determinants to realize full employment (Keynes, 1936, p. 247). And those determinants
were the propensity to consume and the inducement to invest, determined by the relation
between marginal efficiency of capital and the interest rate. In practice, the extreme case
representing the questions facing Keynes was the Great Slump, the economic depression
with its closing of plants and massive unemployment (Keynes, 1962, pp. 74–80).
According to his analysis, the fundamental cause of that massive unemployment was
the wide gulf ‘between the ideas of lenders and the ideas of borrowers for the purpose
of genuine new capital investment with the result that the savings of the lenders are
being used up in financing business losses and distress borrowers, instead of financ-
ing new capital works’ (Keynes, 1962, p. 79). The lenders universally asked for higher
terms for loans than new enterprises could afford, and so the borrowers were reluctant
to borrow because the fall in prices made those who postponed new enterprises gain
by this delay (Keynes, 1962, pp. 78–79).
Keynes was very aware that massive unemployment caused by the lack of induce-
ment to invest was not a phenomenon of his own time:
There has been a chronic tendency throughout human history for the propensity to save to be
stronger than the inducement to invest. The weakness of the inducement to invest has been at all
times the key to the economic problem. Today the explanation of the weakness of this induce-
ment may chiefly lie in the extent of existing accumulations, whereas formerly risks and hazards
of all kinds may have played a larger part. But the result is the same. The desire of the individual
to augment his personal wealth by abstaining from consumption has usually been stronger than
the inducement to the entrepreneur to augment the national wealth by employing labor on the
construction of durable assets. (Keynes, 1936, pp. 347–48)
In the Northern Song context, we see another but in the end very similar form of
unemployment: not so much that of employees, but rather that of independent small-
holding farmers. As we saw, the interest rate for loans provided by the exploiters’
households was very high and beyond the small farmers’ capability; they were therefore
always ‘denied the funds they needed’ and became unemployed and bankrupt; whereas
the investment in ‘new enterprises’ was stagnant: many lands became deserted, and the
irrigation projects were not sufficiently maintained all across the country (Xu, 2014,
pp. 6120, 6124).
This unemployment and bankruptcy of independent small farmers is relevant for our
discussion about proto-Keynesianism. Small farmers’ unemployment was not seasonal
nor due to diminishing returns of land set. Unemployed farmers were not the surplus
population spilled out from the fully exploited agriculture, where marginal output of
labor on marginal land equals its subsistence. They deserted arable land and irrigation
facilities because lack of capital and high interest rates eroded their output. Northern
Song agricultural households bankrupted and left their labourers unemployed for the
exactly same reason as Keynes’ industrial factories in the Great Slump: lenders asked
for more interest than the enterprises could afford.
In addition, in the framework of the General Theory, involuntary unemployment could
be caused by a low marginal propensity to consume and a lack of capital resources in
a non-capitalistic, non-industrialized economy dominated by self-employment (see
Dasgupta, 2003).
Besides, even in an industrialized modern economy, Keynesian involuntary
unemployment in self-employed farmer households also exists. The Grapes of
Wrath, Steinbeck’s novel about Dust Bowl farmers during the Great Depression,
is a story about involuntary unemployment in modern times (see De Vroey, 2004,
pp. 202–3). For Keynes, this American farmers’ misery was caused by the exces-
sively low price of their products (see Keynes, 1981, p. 584) and was only part of
the general price slump at that time. But in Wang’s case, agriculture was the major
problem he had.
5.2 Unemployment relief
But how to address this problem? In the General Theory, Keynes proposed that at a
given propensity to consume, the level of employment depends on the amount of cur-
rent investment, which is determined by the relation between the marginal efficiency
of capital and the interest rate of the loan (Keynes, 1936, pp. 27–28). Therefore, the
causes of unemployment lie in the weak propensity to consume and a too-high interest
rate (Keynes, 1936, p. 31). Based on this reasoning, Keynes’ general policy proposals
to solve unemployment included government spending to support aggregate demand
and lowering the interest rate (see Kregel, 1995).
Of course, as Keynes pointed out, this was not a new insight. He referred to earlier
writings that praised luxury and criticized thrift as means to attain full employment,
such as Bernard (see Keynes, 1936, pp. 358–62). And just as he was aware that un-
employment caused by the lack of propensity to consume and inducement to invest
was an old phenomenon, Keynes was also aware that older solutions to the problem
existed. He believed that Mercantilism was one of these solutions which tried to in-
crease inducement to invest in the country through increasing the trade surplus to ab-
sorb more precious metal to the country to reach a lower interest rate (Keynes, 1936,
p. 336).
The doctrine and policy of anti-usury in history provides the same case. According
to it, ‘the rate of interest is not self-adjusting at a level best suited to the social advan-
tage but constantly tends to rise too high, so that a wise government is concerned to
curb it by statute and custom and even by invoking the sanctions of the moral law’
(Keynes, 1936, p. 351). Keynes agreed with this, as:
Certain of the risks and hazards of economic life diminish the marginal efficiency of capital
whilst others serve to increase the preference for liquidity. In a world, therefore, which no one
reckoned to be safe, it was almost inevitable that the rate of interest, unless it was curbed by
every instrument at the disposal of society, would rise too high to permit of an adequate induce-
ment to invest. (Keynes, 1936, p. 351)
Of course, e.g. usury laws are neither specific for Wang Anshi nor for Keynes, but al-
together, quite a similar line of thought emerges. It may not be too far-fetched to think
that if Keynes had happened to know Wang Anshi’s reasoning, he would not have felt
any surprise but would have classified the Chancellor as his predecessor in realizing
that the state should increase the inducement to invest through increasing the volume
of capital and lowering the interest rate of loans and actively spend to support the pro-
pensity to consume.
As we saw supra, Wang Anshi learned from Ancient Great Rulers that he had to
keep the interest rate low to support the investment in people’s enterprise, which at
his time was land reclamation and irrigation, and to stabilize the commercial market.
However, in his time, just like during the time of Mercantilism (Keynes, 1936, p. 336),
the Chancellor did not have direct control of the domestic interest rate to increase
the inducement to invest. Thus, Wang Anshi had to use state money to set up a devel-
opment bank to provide loans with a much lower interest rate than the market one;
he had to use government money to directly invest in people’s enterprises and lever
private investment; he had to make the state become a trader in the commercial market
to provide stabilization when the private sector could, or better would, not. In this way,
his endeavor was as appropriate from a Keynesian perspective as Mercantilism, anti-
usury laws and the Fable of the Bees in realizing that the inducement to invest and the
propensity to consume should be increased to promote economic prosperity.
5.3 State control

The destinations to which Keynes’ employment theory leads include the ‘euthanasia
of the rentier’ (Keynes, 1936, p. 376) and the ‘socialization’ of investment (Keynes,
1936, p. 378). At the given marginal efficiency of capital, to maintain full employ-
ment, the volume of capital should be increased and the interest rate lowered to
increase the inducement to invest. In this way, the rentiers and their power based
on the scarcity of capital would inevitably be restricted and die out (Keynes, 1936,
pp. 375–76). In Keynes’ eyes, full employment is not a natural result which comes
automatically through the economic system itself, but it is the result of centralized
control and a plan, so the control of saving, investment, consumption and other eco-
nomic factors should be returned back to the state from the private realm (Keynes,
1936, pp. 377–78; 1962, p. 173).
To eliminate the scarcity of capital, of which the inevitable result is the ‘euthanasia’
of rentiers and their economic power, and to retrieve the control of economy by the
state are also ideas that are part of Wang Anshi’s approach to ‘restrict exploitation’, as
we saw supra 4. b) and c). However, while the latter is ‘vintage Wang’, the former is
not—for him, the point was not to extinguish the wealthy landlord class, but just to
make them less exploitative, both for economic and social reasons. (Strictly speak-
ing, they were not rentiers anyway; they were more similar to the landed gentry of the
Britain of Keynes’ time.) One of the key purposes of his reforms was to relieve the
farmers of the exploiters’ oppression, and his solution was to use state fiscal resources.
And he tried to make the state retrieve the control of ‘granting and collecting’ and ‘sale
and purchase’ of wealth, namely those forces controlling the circulation of wealth, like
price, interest rate, market exchange and investment, from them as well. However, as
stated supra, he saw no need to nationalize the land but regarded the rich as having an
indispensable function in the economy (Li, 1986, p. 5181). But Keynes would have
agreed with Wang that as long as the state could control those important economic
forces, it was not necessary to nationalize the instruments of production, as the initia-
tive of individuals should be respected (Keynes, 1936, pp. 377–78).
5.4. Functional finance

Wang Anshi’s view of state finance reached consensus with Keynesian principles, viz.
‘Functional Finance’ as conceived by Abba Lerner, who ‘was probably the first econo-
mist outside of Keynes’s inner circle to grasp the nature and importance of the General
Theory’ and ‘provided the logical framework (functional finance) for Keynes’s policy
recommendations’ (see Scitovsky, 1984).
Functional Finance means that fiscal policy should be undertaken with an eye on
the influence of policy on the economy rather than only focusing on the budget, and
that, during a depression, the government should apply more buying and lending and
give more money to the people to support adequate spending within the economy to
realize full employment, whereas during inflation, more selling, borrowing and taking
more money from the people should be applied to control spending (Lerner, 1943,
pp. 39–41; 1951, p. 127).
This approach—probably what most people today identify with ‘Keynesianism’—is
almost identical with Wang Anshi’s own policies based on Zhouli (see supra 4. b)–c)).
Lerner’s ‘buying-selling’, ‘lending-borrowing’ and Wang Anshi’s ‘collection and dis-
tribution, purchase and sale’ express the same treatment towards public finance. The
difference only lies in Lerner using different tools in different circumstances, but Wang
only broadly suggesting the tools to improve the economy.
5.5. Specific policy proposals

Regarding specific policy proposals, there is also consensus between Keynes and Wang
Anshi. According to Kregel (1993), Keynes’ proposals could be classified into ‘offen-
sive policy’ and ‘defensive policy’, i.e. policies drawing the economy back from de-
pression and policies preventing depression from happening (again). Wang’s policies
in rural economy were similar to Keynes’ ‘defensive policy’, whereas his improved tax
system and the ‘State Trade Initiative’ were more like Keynes’ ‘offensive policy’ in the
commercial market.
In order to support the full employment situation attained during World War II in
Great Britain, Keynes proposed his ‘defensive policy’. According to Kregel (1985,
p. 38; 1995, p. 266), it included, among others, the following features:
•• full employment in the long term required government control of investment;

•• the state budget should be divided into current account and capital account, the
latter to offset exogenous cyclical changes in investment spending;
•• investment spending should be countercyclical relative to private investment;
•• services provided by government should be ‘technically social’, i.e. those that the
private sector was either unwilling or unable to provide.
These features were similar to Wang Anshi’s reform policies in agriculture: Wang Anshi
established a ‘capital budget’ in government—the Court of Agriculture, independent from
the normal fiscal ministries; the task of the Court was to retrieve control of investment
and the interest rate from rural exploiters and to countervail the lack of inducement to
invest in the private sector; the investment projects of the Court were ‘technically social’: it
provided the ‘Green Sprout Loan’ with a very much lower interest rate than private loans
and invested in land reclamation and irrigation projects through these loans.
Keynes’s ‘offensive policy’ was the emergency measure to pull the economy out of
the depression and restore normality, for which the theoretical base is believed to be
the ‘short period equation’ Keynes proposed in A Treatise on Money how to halt the fall
in prices in commercial markets. According to the ‘short period equation’ (Keynes,
1978, pp. 125–27), the fall in prices in a market with excessive stocks could be halted
by reducing their carry costs, increasing their consumption or reducing annual produc-
tion (Kregel, 1995, pp. 263–65). The policy proposal based on this equation was the
creation of international buffer stock schemes after World War II (see Keynes, 1980,
pp. 112–22), which should set the basic price for the commodities, buy the commodi-
ties at a lower price, hold, store and sell them at a higher price, in order to stabilize the
price of commodities and cure the trade cycle.
This is, again, ‘vintage Wang’, as we have seen: purchasing surplus goods on the mar-
ket and selling them during shortage was for him an effective solution to stabilize the
market and prevent trade cycles. And one could see in Wang’s Equitable Tribute and
State Trade Acts that the essence of these measures was also to create a buffer stock for
market stabilization (Li, 1986, p. 5623).
6. Conclusion
In order to end massive unemployment and economic instability, guided by Confucian
economics, Wang Anshi forged or restored the Chinese state into a countervailing power
to the private sector in controlling investment, interest rate and consumption by increas-
ing government spending on investment and consumption and by supporting the induce-
ment to invest and the propensity to consume in the country in order to realize full
employment. All these endeavors and the thoughts behind them are directly in line with
Keynes’ economic policy and the ‘conventional Keynesianism’ based on that doctrine.
This resonance highlights that the factors influencing employment talked about
by Keynes were at least partially psychological, the psychological propensity to con-
sume, the psychological attitude towards liquidity and psychological expectations
of future yield from capital-assets (Keynes, 1936, pp. 246–47), which have no dir-
ect relationship with the technology, specific institutions or even economic systems.
Unemployment caused by the people’s will to save and hoard rather than undertak-
ing the risk to invest and to consume, and therefore high interest rates for lending
to those who dare to make those endeavors can, did and does happen in the richest
countries of the twentieth and twenty-first century, just as much as in an eleventh-
century agrarian—if sophisticated and monetized—society, and therefore, there can
be essentially similar solutions to unemployment. As Keynes stated, ‘the weakness
of the inducement to invest has been at all times the key to the economic problem’
(Keynes, 1936, pp. 347–48).
Therefore, it is not too far-fetched to give Wang Anshi the title of proto-Keynes—or
even, if things continue the way they are, soon to give Lord Keynes the title of a latter-
day Wang Anshi.
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Cambridge Journal of Economics 2018, 42, 1239–1254

Manuscript received 28 December 2016; final version received 6 October 2017.

Later, in retrospect, he regarded himself proven correct on this point (Wang,

b) The ‘Corvée Exemption Act’ was an institutional adjustment. At that time,

c) The ‘Agriculture Promotion Ordinances’ were a set of detailed arrangements

c) Wang Anshi specifically emphasized ‘restricting exploitation’; he did not want

His poem entitled ‘On Exploitation’ (Wang, 1959, p. 114) states:

Nonetheless, this did have an egalitarian component as well, as their principles,

5.3 State control

5.4. Functional finance

5.5. Specific policy proposals

•• full employment in the long term required government control of investment;

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