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
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