breaking the planning mentality, therefore, China can learn both from its own culture and from the West.
The Tao of Adam Smith
In 1776, Adam Smith argued that, if ‘‘all systems either of preference or of restraint’’ were ‘‘completely taken away,’’ a ‘‘simple system of natural liberty’’ would evolve ‘‘of its own accord.’’ Each individual would then be ‘‘left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or group of men,’’ provided ‘‘he does not violate the laws of justice’’ (Smith  1937: 651).
In Smith’s system of natural liberty, the government would no longer have the obligation of overseeing ‘‘the industry of private people, and of directing it towards the employments most suitable to the interest of the society’’—an obligation ‘‘for the proper performance of which no human wisdom or knowledge could ever be sufficient’’ (Smith 1937: 651).
Government would not disappear under Smith’s market-liberal regime, but it would be narrowly limited to three major functions: (1) ‘‘the duty of protecting the society from the violence and invasion of other independent societies’’; (2) ‘‘the duty of protecting, as far as possible, every member of society from the injustice or oppression of every other member of it’’; and (3) ‘‘the duty of erecting and maintaining certain public works and certain public institutions’’ (Smith 1937: 651).
In the private free-market system advocated by Smith, people get rich by serving others and respecting their property rights. Thus, the system of natural liberty has both a moral foundation and a practical outcome. Private property and free markets make people responsible and responsive. By allowing individuals the freedom to discover their comparative advantage and to trade, market liberalism has produced great wealth wherever it has been tried. There is no better example than Hong Kong.
The chief architect behind the Hong Kong economic miracle was Sir John Cowperthwaite, a Scot who admired the work of Adam Smith and other classical liberals. As Hong Kong’s financial secretary from 1961 to 1971, he constantly challenged attempts to increase the power and scope of government in Hong Kong. Like Smith, he believed that free private markets would keep people alert to new opportunities by quickly penalizing mistakes and rewarding success in the use of society’s scarce resources. Sir John understood that no system is perfect