Free Market

Capitalism and the Tao

The Free Market 16, no. 1 (January 1998)


China is undergoing one of the great economic transformations in human history. It has moved from communism toward what it calls “market socialism” at breakneck pace, and enjoyed double-digit economic growth as a result.

As an inevitable consequence, the grip of central state power has begun to relax. Even such draconian policies as the one-child-per-family rule are loosening in practice if not yet in law.

Sino-American relations are poised to enter a new era of cooperation and trade—if the U.S. warhawks don’t get in the way. Commentators such as A.M. Rosenthal of the New York Times call attention to the persecution of Christians in China, and no doubt there is truth here. But he wants to use this as justification for a new round of interventionism and China bashing.

Others think the U.S. should cut off trade relations as a way of pressuring the regime toward a greater recognition of human rights. Some others decry China’s “interference” in American politics, as if the U.S. hasn’t had something to say about Chinese politics in the past. Others still believe American policymakers “lost” China in the 1940s, and want to enlist Cold War tactics to get it back.

Much of the confusion stems from the tendency to think of China as an inherently collectivist society, just as some mistakenly regard Russia as inherently authoritarian. This is far from the case.

In Economic Thought before Adam Smith, Murray Rothbard noted the three essential schools of Chinese thought: Taoism, Confucianism, and Legalism, all established from the 6th to the 4th century B.C. These worldviews focus respectively on the individual, the family, and the state. Chinese history has been an ongoing, interacting tension around the points of that triad.

Confucianism stresses patriarchy and family relationships. It has not been friendly to market ideas, but, in its original form, it did not extol the state as the “father figure.” Confucius even put the military state outside the social structure, writing that “A man does not use good iron for nails, nor good men for soldiers.”

Even closer to individualist thinking is Taoism, formed by Lao Tzu, a contemporary of Confucius. He taught that individual happiness is the basis of a good society. He saw the state, with its “laws and regulations more numerous than the hairs of an ox,” as the persistent oppressor of the individual, “more to be feared than fierce tigers.” He was an opponent of taxation and war, and his students and the tradition that followed him were consistently libertarian.Natural law ideas are inherent in both the Taoist and Confucian worldviews, and the Confucian idea of sagacious judges building up a series of precedents to draw upon is nothing if not the basic concept of Anglo-American “common law.”

In contrast, the Legalism of Chin Shih Wang Ti, the first great Emperor who unified China more than two millennia ago, has much in common with Mao’s conception of Marxism and Western ideas of Positive Law. But even using mass murder and totalitarian control, the Great Unifier was no more successful than the Communists at building a Chinese religion around statism.

The statism of the Legalism tradition has always been tempered by Taoist individualism and the Confucian emphasis on the family. Together, Taoism and Confucianism form a strong cultural resistance to imperial state ambitions. With the resurgence of the market economy in China, the Tao, especially, appears to have more than nine lives.

Chinese history has also been what the Chinese call “the eternal struggle between the Imperial Dragon and the Local Snakes.” Americans ought to relate. Our own history has been a similar struggle between advocates of republican decentralization, based on natural rights concepts not unlike those of the Taoists and Confucians, and the positive-law statism of proponents of centralization and empire. The great strength of the market economy, of course, is that it is inextricably interwoven with decentralization.

In the last 150 years, Western relations with China have backed the Imperial Dragon, big governments always preferring to deal with other big governments. This had tragic consequences for people and trade relations on both sides. In the U.S., the federal government has expanded at the expense of individuals, families, localities, and states; similarly in China, the “Imperial Dragon” has grown at the expense of the “Local Snakes.”

Yet the individualist tradition owes much to China. In the early modern period, the West was fascinated by the wealth and creativity of China. It was China’s political theorists who first saw the loss of the “mandate of Heaven” as a justification for political change. This is surely a step beyond the notion of the “divine right” of kings favored by some Western conservatives.

H.G. Creel and other Sinologists have observed that Thomas Jefferson’s good ideas on education bear a striking resemblance to those of Confucius, probably acquired from French thinkers much enamored of China. And as European bureaucratization increased early in the nineteenth century bolstered by the ideas of Positivism, it was Alexis de Tocqueville who referred to its rise in France as “le system chinois.”In the 1940s, Chiang K’ai-shek’s hyper-inflationist government, despite help at various times from the U.S.S.R., Germany, Japan, and the U.S., had lost legitimacy among large numbers of the Chinese people. In 1944 the Communists, meeting in Yenan concluded that, given Stalin’s hatred toward them and help for their enemies, the best hope was to look toward the U.S.

U.S. policymakers rejected that overture, and the U.S. intervention in Korea and Vietnam brought relations with China to a low point. Ironically, it was the great “China Basher,” Richard Nixon, who initiated a rapprochement with the Communist regime.

Faced with the overwhelming reality that socialism meant bankruptcy and barbarism “and impressed by the free-market successes of the Asian tigers” reformers in the Chinese government began market reforms in 1979. These reforms have made remarkable advances despite such tragedies as Tiananmen Square.

With the Cold War over, some restless Americans urge a “get tough” policy with China. Such pressures are counterproductive when applied to individuals and even more so to a country with China’s cultural tradition.

Instead, we need to be supportive of that Taoist individualism that is thousands of years old, not just dating from the market reforms of 1979.

The important step toward the establishment of freedom and human rights—and the two are not separate—is to build up the rule of law. Traditional Chinese concepts of law are actually closer to those in the West than many realize.

One aim of the “Cultural Revolution” in the decade after 1966 was to destroy the law schools, libraries, and faculties where the Chinese were attempting to adapt their system to Western ideas of law. The more creative faculty and students were sent to work on farms or clean toilets, or put in prison or worse.

Since 1979 the Chinese have mounted a massive effort to recapture that lost ground. But law schools and legal traditions are not built overnight. We need to support those making such efforts, however, not aid their enemies by China bashing.

The Tao, with its emphasis on individualism, non-aggression, and voluntary exchange, was the progenitor of modern libertarianism and Austrian economics. It is basic to the rise of the market economy and the decline of socialism in China. Following those principles means working at the level of people to people, and business to business, getting involved with government at the local and provincial levels, if at all, and stopping the bashing and warmongering.


William Marina teaches history at Florida-Atlantic University

FURTHER READING: Joseph Needham, Science and Civilization in China: History of Scientific Thought (Cambridge University Press, 1956); Murray N. Rothbard Economic Thought Before Adam Smith (Edward Elgar, 1995); Jonathan Spence, The Search for Modern China (W.W. Norton, 1990).


Marina, William. “Capitalism and the Tao.” The Free Market 16, no. 1 (January 1998).

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