Glamor Economics

Chapter 36

Chapter 5, Section 8 Why did the emperor kill important ministers——Principal-agent and moral hazard
The emperor always took the important ministers' swords, and this behavior can also be explained by economics.

During the Spring and Autumn Period, King Goujian of Yue had two important ministers: Wen Zhong and Fan Li.After Gou Jian was defeated by King Wu, he was able to make a comeback thanks to the assistance of these two men.The contribution of the Chinese species is indelible.At the beginning, when Gou Jian was preparing to lead his troops to fight against Wu, Wen Zhong thought that the time was not yet ripe.It's a pity that Gou Jian insisted on going his own way and was finally defeated.Wenzhong endured the humiliation again, and went around in many ways, prompting Wu Wang Fucha to agree not to kill Goujian.As a hostage, Gou Jian stayed in the state of Wu to serve the king of Wu for three years.During this period, Wenzhong replaced Goujian in governing Yue and taking care of the government.Wenzhong has been doing his best to develop the economy of Yue State, laying a solid foundation for Yue State's subsequent hegemony.

After Gou Jian defeated Wu successfully, the resourceful Fan Li took the initiative to ask Gou Jian to sue his old man and return to his hometown.Despite Goujian's repeated persuasion to stay, Fan Li left his official seal and left without saying goodbye.Before leaving, Fan Li wrote a letter to Wenzhong, thinking of his old friendship, in which he wrote: "Do you still remember a sentence that King Wu said when Fu Chai came to visit? He said: 'The cunning rabbit If the enemy dies, the running dog cooks; the enemy country is destroyed, and the counselors die." He actually told us that you and I are very clear about the character of King Yue. He can endure humiliation and is very jealous of the achievements of others. Such a person can only Shared adversity cannot share happiness. Therefore, I advise you to retire with me, otherwise I am afraid that you will encounter misfortune in the future."

After Wen Zhong read Fan Li's letter, he didn't take it seriously. He felt that his contribution to Yue State was enough to guarantee his own safety.One day, Gou Jian went to visit Wen Zhong in person.Talking about the past, Gou Jian said to Wen Zhong: "You had seven strategies to destroy Wu back then, and I only used three of them to destroy the country of Wu. You have four remaining strategies, who are you going to use against in the future?" Wen Zhong Zhong heard that there was something in Goujian's words, but he didn't dare to answer rashly, but just bowed his head and remained silent.Gou Jian didn't say much, and when he got up to leave, he specially gave Wen Zhong a sword.

Wen Zhong took the sword and saw the word "Zhu Lou" engraved on the sword case, and then he understood what Gou Jian meant.According to the rules at the time, if the monarch gave a weapon engraved with the word "Zhu Lou" to a minister, it meant that the minister committed suicide.Thinking of Fan Li's warning, Wen Zhong could only let out a long sigh: "If you don't listen to Fan Li's advice, you finally ended up like this!" After speaking, Wen Zhong drew his sword and killed himself.

In China's thousands of years of history, the "flying birds are exhausted, and the good bows are hidden" has been repeated over and over again.Historians have their own opinions on why the emperor killed his important ministers.In fact, in economics, using the theory of information economics to analyze the relationship between important ministers and the emperor can also explain the reasons.

There is a "principal-agent" theory in information economics: Due to the asymmetry of information, there are many types of agents. The agent knows which type he belongs to, but the principal does not know. In order to show the type, the agent will choose A certain signal, the principal judges the type of the agent based on the observed signal, and signs a contract with the agent.This is the so-called signaling model.Through this economic theory, the relationship between the emperor and ministers can be regarded as a "principal-agent" relationship.As the owner of the country, although the emperor controls the ownership of the country, he cannot directly govern the country by himself. He needs to entrust one or several agents to help him govern the country.Therefore, the emperor will give high officials and generous salaries to the ministers, and ask them to work hard and serve him.Whether the ministers can work hard is an incentive mechanism. The emperor is most concerned about the loyalty of the ministers and whether they will rebel.Because the emperor has to bear the moral hazard caused by the minister's failure to abide by the agreement.

For the emperor, minimizing this moral hazard and ensuring the stability of the country is the first priority.The ministers knew the emperor and the state mechanism, and they were the most likely force to become a rebel.Of course, not all ministers will rebel, and the emperor needs to identify which ministers are most likely to rebel, so there will be a phenomenon of information asymmetry: ministers know whether they will rebel, but the emperor does not know who is loyal and who is traitor.

As a result, the emperor would fall into such a predicament: he could not separate the loyal and treacherous ministers from the ministers, but he had to ensure that his country would last forever.In order to reduce moral hazard, at this time, the emperor can only use an unconventional separation signal to identify: those who are capable of rebelling and those who are not.

Some founding ministers will still be killed after surrendering their military power, which can also be explained by economic theory.In addition to tangible assets such as positions and military power, important ministers also have intangible assets such as prestige, talent, and interpersonal relationships.Even if the tangible military power is handed over, those potential intangible assets cannot be handed over, and they still pose a threat to the emperor.Therefore, the emperor had to kill those important ministers who were capable of rebelling, and the remaining ministers had no power to rebel even if they had the heart to rebel.In this way, when the emperor faced the same dilemma, he would make the same choice: he would rather kill three thousand by mistake than let one go, in order to reduce this moral hazard.

[links to related words]

Moral hazard is a concept in the category of economic philosophy proposed by Western economists in the 20s, that is, people engaged in economic activities take actions that are not beneficial to others while maximizing their own utility, or in other words, when signing contracts When one party does not fully bear the consequences of the risk, it adopts a selfish behavior that maximizes its own utility.Moral hazard is also known as moral crisis.

(End of this chapter)