the Market Short
week in National Review Online, John Derbyshire warned
that China is still a dangerous nation. While doing so, he ridicules
the view "... that if we can just get China practicing free-market
economics and open trade, then parliamentary democracy, the rule
of law, and universal peace and harmony will inevitably follow."
He refers to this view as "economism."
Derbyshire might be correct in regarding China as a war-like nation
(I'm no China expert, and would not care to comment on this), he
underestimates the importance of economic freedom in generating
peaceful relationships, and at times mistakes the nature of the
market for that of game or battle.
briefly reviews the history of the conventional wisdom on the market
and command systems of social organization. Quite correctly, he
notes that many in the West viewed the command system as overtaking
the market system in terms of productivity, and, in fact, thought
it was the wave of the future. And he points out that today these
views seem ludicrous. But he underrates the difference between a
command and a free society, saying: "And in fairness it must be
said that the command economy had its triumphs. Your average urban
Russian, or Pole, or Chinese was materially better off in 1960 than
his father had been in 1930."
is not clear to me why we should try to be "fair" to systems that
killed tens of millions of their own citizens. Moreover, any advances
made by the citizens of communist countries during this period were
due to the existing market economies. The communist countries copied
the market countries' methods of production, their products, and
their technologies. Soviet planners even copied commodity prices
out of The Wall Street Journal so that they would be able
to perform economic calculation. If the Soviet Union had ever succeeded
in its plans for world domination, it simply would have hastened
its own demise!
I thought it would be interesting to see if Derbyshire even had
his facts straight. I asked around some economic discussion groups,
and was kindly sent the following analysis by Marco de Wit:
1930 Stalin's collectivization of agriculture had led to a famine.
Millions died in the early thirties. In 1960 Stalin had been dead
seven years, political power was far more divided, black markets
were extensive and private agriculture was partially allowed.
The average Russian, urban or not, was better off in 1960 than
1930 Poland was an independent country with a corporatist but
still relatively free market. The authoritarian right-wing government
persecuted some dissidents and ethnic minorities. In 1960 Poland
was a Soviet satellite with a socialist economy, though some private
land-ownership existed. Catholics and other dissidents were severely
persecuted. The average Pole, urban or not, was worse off in 1960
than in 1930.
1930 China was in a state of "anarchy" and ruled by several warlords
but (or therefore) there still was relatively free market. In
1960 communists ruled and The Great Leap had totally socialized
and destroyed the economy. There was a massive famine and millions
of people died. The average resident of China, urban or not, was
worse off in 1960 than in 1930. And vastly so. See: Jasper Becker's
Hungry Ghosts: Mao's Secret Famine on the consequences
of The Great Leap. (Reviewed by Richard M. Ebeling here.)
well, one out of three isn't that bad!
goes on to say:
[There Is No Alternative (to the market)] economics has been a great
leveller [sic]. In an open, globalized world, nations compete with
nations much more freely than ever before. Alas, in any competition
there will be winners and losers. What will decide, in the decades
to come, who wins and who loses, whose standard of living soars,
and whose stagnates? What will be the magic ingredient, the 'edge'?
Who will have it?"
is a misapprehension of the nature of the market process. Market
competition is not like sports competition. It doesn't exist to
pick "winners" and "losers": it exists to assign everyone a place
in the scheme of production in which they can best satisfy the wishes
crucial insight into the market process is that it is not a zero-sum
game. The market is a system of social cooperation. It is no less
mistaken to view international markets as pitting one nation against
another than it is to view the domestic market as pitting employees
against employers, or producers against consumers. In a market economy,
whether it is domestic or international in scope, everyone's standard
of living can rise at once. America has not "lost" if Japan (or
China) should become wealthier than the US. An increase in the standard
of living anywhere benefits all people who are economically integrated
with the area in question.
discovery of the law of comparative advantage was a great achievement
of the classical economists. It showed that any nation, no matter
how poor and backward, how lacking in natural resources, will still
benefit from trade with wealthier nations. The very nature of the
market as a network of voluntary exchanges means that each participant
must feel he is benefiting from a trade, or he would not enter into
economy, with its artificial currency, its opaque banking system,
its rust-belt state-owned legacy industries no-one dares dismantle
for fear of popular unrest, its still-ambiguous attitude to private
property, its carefree approach to environmental despoliation,
and most of all its sensational levels of corruption,
is a natural consequence of China's political system: one-party
dictatorship by an aloof nomenklatura caste who hate and fear
the common people, and know little, and care less, about their
China does not have anything close to a free-market economy. None
of the factors Derbyshire lists as holding China back would exist
under a laissez-faire regime. And it is exactly these factors that
would tend to push China into a war-like posture. Blaming foreigners
for domestic troubles is a time-honored technique employed by despots
anxious to retain power.
economists who have sought to colonize the turf of all other social
sciences are surely overreaching. We can certainly conclude that
viewing one's choice of a religion or a marriage partner as if they
were market transactions leaves something important out of the picture.
And there are many non-economic factors that might lead nations
into war. But it is equally mistaken to denigrate the importance
of the market as a system of social cooperation indeed, the only
system that can create social cooperation across vast areas and
large numbers of culturally diverse people.
market is not a panacea. It does not guarantee peace on earth, but
it does promote it. It does not eliminate all cultural differences,
but it does make human cooperation possible despite cultural differences.
It is not a means of redeeming fallen man, but it does provide a
system in which man, although fallen, may survive and even prosper.
Callahan is a regular contributor to mises.org.
© 2001 Gene