The Disciplinary Role of Market Prices a Hayekian Critique of Chinese Socialist Governance Adam Frost
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Chapter 1 The Disciplinary Role of Market Prices A Hayekian Critique of Chinese Socialist Governance Adam Frost In the middle of the twentieth century, the People’s Republic of China suf- fered the largest famine in human history. The famine was not the result of natural forces, but of human engineering. In 1958 the Chinese Communist Party (CCP), under the direction of Chairman Mao Zedong, launched the “Great Leap Forward,” a mass-political campaign aimed at transforming China’s agrarian economy, virtually overnight, through rapid industrial- ization and socialist collectivization. But, instead of achieving massive gains to productivity as was envisioned, the overzealous policies and brutal systems of extraction pressed the rural Chinese population into hunger, sickness, and starvation. Though the exact death toll remains unclear, scholars have estimated that the Great Famine (1959–1961) claimed as many as 45 million lives.1 But even more surprising than the sheer quantity of deaths was the fact that this man-made disaster seems to have gone on for well over a year without China’s central government being fully aware of its magnitude or scale.2 Tens of millions of Chinese starved while the state, largely ignorant of their suffering, continued to tax farmers and export grain abroad. More than a half-century later, scholars still struggle to explain how a famine of such massive scale and scope was ever possible. Historian Frank Dikötter (2011) and journalist Yang Jisheng (2012) have each taken great pains to assign the blame squarely with China’s Great Helmsman, Mao Zedong. Both scholars inculpate Mao for his dictatorial style of rule, his misguided utopianism, and the violent state apparatus which he presided over and designed.3 Other China scholars, such as Gail Hershatter (2011), have 13 Boettke et al._9781786605634.indb 13 5/2/2018 9:36:24 PM 14 Adam Frost focused more on the role of ideology in the production of misinformation, arguing that it was the competitive frenzy to achieve increasingly unreal- istic production targets combined with the social pressure to blindly pursue utopian goals that ultimately precipitated systemic food shortages. While these scholars have each deepened our understanding of the multivalent factors which contributed to the Great Famine as well as the social and politi- cal contexts in which it occurred, they have largely failed to address the more fundamental question of why the Chinese state, in its supposedly expansive capacity, was not fully aware of the existence of widespread famine within its sovereign territory. If Maoist China was, as these scholars suggest, a Fou- cauldian society in which state power permeated the most basic of human activities, why then did the central government lack information about the dire conditions in rural society? Economist Amartya Sen (1989) perhaps came closest to tackling this knowledge problem in the development of his entitlement approach. Sen argued that China’s Great Famine, like other major catastrophes, resulted from dire maldistributions of resources made possible by a lack of free press and democratic institutions. If China had been democratic rather than socialist, Sen’s theory goes, then people would have spoken up, information would have flowed, and there never could have been a Great Famine. For, as Sen (1999) boldly claims, “no substantial famine has ever occurred in a democratic country—no matter how poor.” Yet, even if we accept Sens argument as true, the absence of democracy alone seems an insufficient answer. In the example of China’s imperial past, we find that even though the structures of governance put into place by pater- nalistic rulers were far from democratic, officials were acutely aware of the many famines which occurred within their governed territory. Their Maoist counterparts, it seems, were not. Even though the Chinese empire lacked a free press, democratic institutions, and modern communication technologies, it was not until the mid-twentieth century that China faced this type of knowl- edge problem. Clearly, something changed. In this chapter I will argue that the root cause of the inability of the Maoist state to understand the changing conditions of Chinese society can be found in neither the charismatic despotism of Mao Zedong nor the oppressive authoritarianism of Maoist politics. Rather, it arose from the suppression of agrarian markets and the gradual breakdown of competitive systems of information aggregation. Drawing upon Hayek’s notion of competition as a procedure for the discovery of information, I will attempt to show that the Maoist state effectively blinded itself to the food shortages caused by its own misguided actions by eliminating the primary mechanism for knowledge discovery: market prices. Boettke et al._9781786605634.indb 14 5/2/2018 9:36:24 PM The Disciplinary Role of Market Prices 15 FAMINES, KNOWLEDGE, AND PRICES In the premodern world, food shortages were a universal fact of life. In even the most advanced of civilizations, agricultural productivity was relatively low, and the accumulation of surpluses was limited by transportation and spoilage. Any drought, flood, or civil disturbance could easily exhaust grain stores and push agrarian populations to the brink of subsistence. However, these frequently recurring declines in absolute food availability did not directly translate into famine. Generally speaking, if shortages were identi- fied in time, then they could be ameliorated by market or state actors before they led to extreme hunger, sickness, and starvation. Dire famines tended to occur only when there was a concurrent breakdown in the information systems which guided public and private grain circulation. In other words, the central problem of famine management and prevention was a knowledge problem. As Hayek showed us, human knowledge exists in a diffuse state, dispersed among all actors in society. Knowledge, Hayek (1945) argued, cannot be “given to anyone in its totality” because each constituent member of a social system possesses unique “knowledge of the particular circumstance of time and place.” And because this type of informal knowledge cannot be readily rendered into statistics, it is impossible for a single agent “to survey more than a limited field, to be aware of the urgency of more than a limited number of needs.” For this reason, Hayek cautioned governing agents against exercis- ing judgement on behalf of a great number of people. Decision making should be decentralized, left up to the multitude of individuals who know best their particular needs and circumstances (Hayek [1944] 2008, 44). From this understanding of the nature of knowledge, Hayek arrived at an even deeper insight about the use of knowledge in society: the most efficient mechanism by which individual agents can receive and communicate infor- mation is the price system. In a market economy, prices are an emergent property of the dynamics of preferences and scarcity. As individuals compete over finite resources, they are compelled to operate in social cooperation in order to achieve their ends. To buy a loaf of bread, have a tractor repaired, or travel on a train, an economic actor must engage in mutual benefit with a multitude of other actors who are working to obtain other goods and ser- vices. Prices serve as a mass communications system, disseminating relevant information to all the members of an economic system, thus enabling them to act as a coordinated whole (Hayek 1945). The market process is thus a disciplinary process, because it forces individual market participants to orient themselves toward the interests of others and thus creates the social function of the market economy (Hayek [1968] 2002). Boettke et al._9781786605634.indb 15 5/2/2018 9:36:24 PM 16 Adam Frost In addition to communicating knowledge horizontally, among the partic- ipants in an economic system, prices also enable the aggregation and vertical transmission of preferences. In society, preferences exist within individuals, and they generally go unrevealed until such time as those individuals engage in transactions. Transactions influence prices, and prices thus reflect prefer- ences. Because prices keep account of changing individual preferences and communicate these changes in an informational form, it renders local society legible. Governments and other institutional actors can thus look to prices to better understand what is happening in the economy. And, if monitored closely, prices can provide important feedback on the effects of government action in local society. As we shall see, nowhere was the price system’s capacity for information discovery more important than in the realm of fam- ine prevention and management. MENCIUS AND MARKETS Throughout China’s long imperial past, governing regimes took highly active approaches to managing grain. This was partly because in the Confucian political economy, the legitimacy of rulers was intrinsically tied to the wel- fare of their agrarian subjects. Emperors held the Mandate of Heaven only so long as they continued to fulfill certain obligations to society, the foremost of which was “nourishing the people.” Hunger and famine, it was thought, were not caused by natural or economic forces, but by improper governance. If an emperor placed too great a tax burden on his people, removed them from labor during the agricultural season, or otherwise allowed them to fall into poverty and hunger, then Heaven would rescind its Mandate, and the people would be justified in overthrowing their imposter-king.