The hexagram Tai: no level without a slope; the wall falls back into the moat

In plain language: Third line, yang: there is no level ground without a slope, no going without a return; holding to what is right in hardship, there is no blame. Do not worry about being trusted; you will enjoy the blessing of an official’s stipend. The Image commentary: “No going without a return” — this is where heaven and earth meet. Top line, yin: the city wall falls back into the moat; do not use troops. Orders are issued only within one’s own town; even holding to what is right, there is regret. The Image commentary: the wall falls back into the moat because the commands have fallen into disorder (Kong Yingda’s sub-commentary reads 命 as instructions and government orders).

The hexagram Tai stands for free flow and peace. It is worth noticing that in this most peaceful of hexagrams the warnings are written precisely in the middle and at the end. The third line stands at the end of the lower trigram, about to pass into the upper one, and so it says “no level without a slope, no going without a return”; the top line stands at the end of the whole hexagram, where peace reaches its limit and the wall falls back into the moat, and the next hexagram is Pi, “obstruction”. The ancients spoke of the seeds of decline from within prosperity.

There is a structural echo here of Minsky’s “stability is destabilising”: the continuation of a boom is exactly the period in which fragility builds up (Chapter 1), and long calm makes people think that risk has gone (Chapter 2). The image of the wall falling back into the moat is especially apt: the earth for the wall was dug from the moat, so the higher the wall, the deeper the moat, and when the wall collapses it falls back to where it came from. A boom pushed up by debt, when it collapses, falls back by precisely the part that was borrowed.

But the response the hexagram gives is not timing; it is “holding to what is right in hardship, there is no blame”. The Great Commentary of the Book of Changes likewise says: “The gentleman in safety does not forget danger, in survival does not forget ruin, in order does not forget disorder” (君子安而不忘危，存而不忘亡，治而不忘乱) (王弼 注，孔颖达 疏 1999). In the context of this book, what corresponds to it is not predicting the day of the next collapse, but the spirit of the last step of the Chapter 8 checklist: checking, while it is calm, whether one’s own positions could withstand a collapse.

The Daodejing: reversal is the movement of the Way; things that grow strong grow old

In plain language: Reversal is the movement of the Way; weakness is its use. All things under heaven are born of being, and being is born of non-being. One who assists a ruler with the Way does not use arms to dominate the world; such deeds tend to come back on the doer. … Achieve the purpose and stop; do not force. Things that grow too strong grow old; this is called not following the Way, and what does not follow the Way soon comes to an end.

Both Chapter 30 and Chapter 55 contain the line “things that grow strong grow old”; in the received Wang Bi text the first has 是谓不道 and the second 谓之不道, with the same meaning. The context of Chapter 30 is the use of arms: dominating by force “tends to come back on the doer”, and what is forced turns back to harm the one who forced it.

“Reversal is the movement of the Way” is often compared with “mean reversion”, and care is needed here. Chapter 5 showed that mean reversion is a mathematical property of certain random processes (such as the Ornstein–Uhlenbeck process) and not of every market variable; a random walk has no mean reversion, and prices can stay far from any “mean” for a long time. The Daodejing states a general observation that things pushed to an extreme turn into their opposite, not a statistical law. A closer parallel may be “achieve the purpose and stop; do not force” and the mechanisms of Chapters 2 and 3: positions that “force” with leverage magnify gains in good times, and in bad times their deeds “come back on the doer”, as forced selling depresses prices and harms both themselves and others.

The Discourses on Salt and Iron: the debate on price stabilisation

In 81 BC, under Emperor Zhao of Han, scholars summoned from the provinces debated with officials led by the Imperial Counsellor Sang Hongyang the state monopolies of salt and iron, the equable-transport system and price stabilisation; Huan Kuan later compiled the debate as the Discourses on Salt and Iron (《盐铁论》).

In plain language: The Counsellor said: … We set up storehouses in the capital to gather in all kinds of goods. When prices are low we buy; when they are high we sell. In this way the government loses nothing, and merchants have no chance to profit by speculation; that is why it is called price stabilisation (平准). With price stabilisation the people do not lose their livelihoods; with equable transport their labour and rest are made even.

This is a counter-cyclical “buffer stock”: buying when prices are low and selling when they are high, to damp their rise and fall. It resembles modern stabilisation policy in one respect: when the private sector is all selling, there is one party willing to buy (what is missing in Chapter 3 when “common holders” are forced to sell is precisely such a buyer). The ideas of “light and heavy” (轻重) and of gathering in and releasing (敛散) appear earlier in the chapters of the Guanzi on light and heavy, and the officials in the Discourses carried on that line of thought.

But the Discourses are worth reading because they record the other side. In the same chapter the scholars answer the two policies separately. Of equable transport they say that the government “sets aside what people have and demands what they lack” (释其所有，责其所无): instead of taking what each region produces, it demands goods the region does not produce, so people must sell their own products cheaply to buy them, and “we have not seen the transport made equable” (未见输之均也). Of price stabilisation they say that when the government trades in the market itself it gives corrupt officials their chance: “powerful officials and rich merchants hoard goods and stockpile them to wait for times of urgency” (豪吏富商积货储物以待其急), buying cheap and selling dear, so “we have not seen prices made level” (未见准之平也) (王利器 校注 1992). The debate still echoes today: interventions that damp fluctuations have their reasons, but those who intervene also make mistakes and have interests of their own; and the “volatility paradox” of Chapter 2 suggests that flattening small fluctuations for a long time may encourage higher leverage and make the next shock larger.

The limits of the comparison

First, the Book of Changes is a book of divination and philosophy, the Daodejing a philosophy of the Way and of governing oneself and the state, and the Discourses on Salt and Iron a record of a political debate on state economic policy; none is a text about credit or market statistics. Second, “no going without a return” and “reversal is the movement of the Way” describe a general idea of cycles of rise and decline, whereas cycles in modern research are specific dynamical mechanisms or statistical regularities; and Chapter 1 showed that even within one model the outcome may be convergence rather than a cycle, while Chapter 6 showed that “when will it turn” is statistically very hard to judge in advance. Third, price stabilisation was a system in an agrarian empire in which the government itself bought and sold goods, an institutional setting very different from that of modern central banks and financial markets, so the analogy can go no further than “a counter-cyclical buffer”. The quotations and readings in this chapter follow the received texts and common commentaries, and readers may consult collected commentaries to form their own view.