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In considering what steps to take next, China’s leaders should look to their own ancient culture and rediscover the principle of spontaneous order—the central principle of a true market system.7 In the Tao Te Ching (also known as the Lao Tzu), written more than 2,000 years before The Wealth of Nations, Lao Tzu instructed the sage (ruler) to adopt the principle of noninterference as the best way to achieve happiness and prosperity:

Administer the empire by engaging in no activity. The more taboos and prohibitions there are in the world, The poorer the people will be. The more laws and orders are made prominent, The more thieves and robbers there will be. Therefore, the sage [ruler] says: I take no action and the people of themselves are transformed. I engage in no activity and the people of themselves become prosper- ous [Lao Tzu, 57; Chan 1963: 166–67].

From a public-choice perspective, the foregoing passage implies that the more the state intervenes in everyday life, the more rent seeking and corruption there will be. Alternatively, if people are left alone to pursue their own happiness, a spontaneous market order will arise and allow people to create prosperity for themselves and their country. Like Lao Tzu, China’s leaders should realize that corruption stems not from freedom but from freedom being overly constrained by government. As Nobel laureate economist Gary Becker (1996: 75) stated, ‘‘Markets grow up spontaneously, they are not organized by governments, they grow on their own. If individuals are given freedom, they will help to develop markets for products that one cannot imagine in advance.’’

Just as the principle of spontaneous order is central to economic liberalism, the principle of wu wei (‘‘nonaction’’) is fundamental to Taoism. Rulers rule best when they rule least; that is, when they take ‘‘no unnatural action.’’8 When government is limited, it can help cultivate an environment in which individuals can pursue happiness and practice virtue (te). Thus, Lao Tzu writes, ‘‘No action is under-

7Nobel laureate economist James M. Buchanan (1979: 81–82) has called ‘‘the principle of spontaneous order’’ the ‘‘most important central principle in economics.’’ It is the idea that individuals seeking their own gain in a system of private ownership and free markets bring about mutually beneficial exchanges, and that competitively determined prices coordinate economic decisions without central planning. In fact, central planning cannot lead to the market-determined outcome because no one has sufficient information to know that outcome in advance (see Hayek 1945, Lavoie 1990).

8Wing-Tsit Chan (1963: 136) notes that the principle of wu wei does not mean ‘‘ ‘inactivity’ but rather ‘taking no action that is contrary to Nature’.’’ In essence, ‘‘wu wei . . . is the embodiment of suppleness, simplicity, and freedom’’ (Smith 1991: 208).


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