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China: House Divided

 There have been claims that China's enormous economic growth and widely shared prosperity are the result of turning to capitalism. I think this is not true; China is not capitalist. Of course, that depends on having a definition of capitalism that is clear, and that does not simply apply to all nations

Exchange Relations

  • Exchange is a means of improving the welfare of both (all) parties to an exchange, if the exchange is voluntary
  • Voluntary exchange must leave the exchangers better off
  • The bases of voluntary exchange are three: Different preferences, same endowments, same preferences
  • Division of labor and specialization that creates what looks like different endowerments, on steroids
  • If I like bananas and you like oranges, and we both have bananas and oranges, then I'll give up some of my oranges in exchange for your bananas
  • We are both better off, even with the same total amount of stuff

Market relations

  • Exchange, in the sense of barter, is cumbersome, and transaction costs can hinder all but the simplest exchanges.
  • Markets enable the degree of division of labor to reach much greater elaboration, and create much faster growth in the wealth of market participants.

Capitalism

  • Capital is the product of saving, or foregone consumption, that allows entrepreneurs to use abstract value in the form of money to give physical form to their conceptions of production
  • Ownership in a capitalist system is both the mechanism for raising liquid capital-by selling shares that are claims against the value of future profits-and a means of controlling substantial resources independent from state direction and control

Capitalism is a system for raising liquid capital and creating countervailing power centers that constrain totalitarian aspirations of government

  • As long as the Chinese state is primarily centralized and authoritarian, capitalism will be blocked
  • This means that Chinese economic growth will be strangled, as capital becomes more and more constrained

https://www.aier.org/article/china-house-divided/

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