Saturday, August 23, 2014

John Ross — Deng Xiaoping - the world's greatest economist

China’s economic performance after the beginning of its 1978 reforms simply exceeded the experience of any other country in human history. To give only a partial list…
But while in one sense Deng Xiaoping "returned to Marx," he necessarily had to resolve many problems of a modern economy Marx never envisaged. Purely theoretically, a number of these had been analyzed by Keynes in the 1930s. Keynes’ fundamental conclusion was that investment played the determining role in the economy, "the fluctuations of output… depend almost entirely on the amount of current investment" (Keynes conclusion has since been comprehensively confirmed by statistics). As, in a modern economy, investment is financed by borrowing, Keynes advocated very low interest rates to incentivize investment. But Keynes judged these alone would be insufficient to stably maintain an adequate investment level. 
It was therefore necessary for the state to play a direct role in setting the level of investment: "I am… skeptical of the success of a merely monetary policy directed towards influencing the rate of interest… I expect to see the state… taking an ever greater responsibility for directly organizing investment." Keynes noted: "I conclude that the duty of ordering the current volume of investment cannot safely be left in private hands."
But if the "the current volume of investment" were to be set, Keynes realized this meant a large state investment role: "I conceive… that a somewhat comprehensive socialization of investment will prove the only means of securing an approximation to full employment."
Keynes noted such a "somewhat comprehensive socialization of investment" did not mean eliminating the private sector, but socialized state investment operating together with a private sector: "This need not exclude all manner of compromises and devices by which public authority will co-operate with private initiative… The central controls necessary to ensure full employment will, of course, involve a large extension of the traditional functions of government." Keynes, consequently, envisaged an economy in which a private sector existed but in which the state sector was sufficiently dominant to set overall investment levels.
But Keynes’ analysis remained purely theoretical. It could not be implemented in the West for an insurmountable reason – which is why the West’s "Keynesianism" bears little relation to Keynes’ own writings! Capital investment is "the means of production." If the most basic investment decisions were not taken by private capital, it would no longer be a capitalist society. Keynes had developed an incisive theoretical analysis, but which could not be implemented in the society in which he lived.
Problems which were insurmountable for Keynes were, however, no problem for Deng Xiaoping – as he did not intend to create a capitalist society! To be clear, there is no evidence Deng Xiaoping’s economic concepts were directly influenced by Keynes. But ideas Deng Xiaoping was entirely familiar with from Marx led to the same economic structure as Keynes. The state would retain ownership of large scale (i.e. socialized) economic sectors, thereby giving it the ability to regulate the investment level, while smaller scale economic sectors (non-socialized production) could be released to the private or non-state sector. The state therefore did not need to own the overall economy, just to own enough to set the overall investment level.
Online University of the Left
Deng Xiaoping - the world's greatest economistJohn Ross


Septeus7 said...

A terrible article written to deceive. The Deng Xiapend's economics wasn't Marxist or Keynesian to any degree whatsoever and to even mention any European economic philosophy with regards to Chinese development strategy is an insult.

All Deng Xiapend did was correct course back to Dr. Sun Yat Sen's nationalist economics clearly written in his book The International Development of China and away from the Anglo-American supported Maoists.

Dr. Sun Yat Sen's economics was created here in American and consisted of the greenbacker Henry C. Carey and Friedrich List.

Chinese development strategy is based on on American protectionism which isn't considered "economics" by any of the Academic School of Economics.

No developing nation has ever received any good economics from a western country in history because European "economics" from Adam Smith on was invented to suppress any economic Nationalism that would arise from the colonies in opposition to the imperialists.

Tom Hickey said...

Interestingly, the version of Ross's post at doesn't mention Keynes at all, just Marx.

Roger Erickson said...

"The state therefore did not need to own the overall economy, just to own enough to set the overall investment level."

Right. Just be democratic enough to act like a sovereign democracy.

That just requires listening to enough citizen feedback to just-adequately model what the electorate wants and needs.

This ain't rocket science. Just political economics.

Tribes can do it, using simple councils.

Bigger populations can to it too, just by using slightly altered methods to set ENOUGH consensus Desired Outcomes, and then work on achieving them.

We did better during WWII - using pencil & paper - than with all our misused computational power of today.

Tom Hickey said...

Interesting about the American economic system stemming from Hamilton v. British economic system stemming from Smith, Septeus7. Do you have references on this influencing Deng through Sun?

Here's what I came up with.

Articles at Wikipedia, American School (economics) and American System (economic plan).

Mark Calney has an article on Dr. Sun Yat Sen's economics. (It's at a LaRouche site and is written from that angle.)

Henry Carey was President Lincoln's Treasury secretary and the foremost American economist of his time.

For background and historical context, see Loren Goldner, Capitalist Development State and Class Struggle in East Asia

According to this article, Dr. Sun Yat Sen was a Georgist.

David said...

I think Septeus7 is totally on the right track here.

Tom, this looks like an interesting book:

How Asia Got Rich: Japan, China and the Asian Miracle by Edith Terry

James Fallows also has interesting things to say on this topic, generally.

Septeus7 said...

Well Tom, you can start with the references on Friedrich List's influence on Deng. (Frederick Clairmonte, "Friedrich List and the historical concept of balanced growth", Indian Economic Review, Vol. 4, No. 3 (February 1959), pp. 24-44.
Mauro Boianovsky, "Friedrich List and the economic fate of tropical countries", Universidade de Brasilia, June 2011, )

You can also see Ha-Joon Chang and Erik Reinert's stuff on Asian development.

I must confess most of my understanding is from personal discussions with Larouche's China director and there's about 32 hours of lectures from the organization on Chinese history.

I've spent a good of time checking their sources and frankly it is a pain in the ass to this research as a hobbiest.

The problem is that while Larouche is insane many of the people working for him do in fact do good research most of which buried by the organization.

They have copies of a lot of rare books, personal notes from political figures, FOIAs, etcs... You'd be impressed with the number sheer volume of their collection.

Frankly,a political personality cult shouldn't be doing this research but rather a University's history department.

I don't know why there's almost complete absence of information about the topic of influence of American protectionism in Academia. It's like an entire part of our history has been disappeared.

I simply cross checked alot of Larouche's stuff to correct his framing of issues.
He generally presents correct facts but wildly reframes to make everyone around him seem completely crazy.

I strongly suspect Larouche is a CIA disinformation project against people who actually present a counter narrative.

It wouldn't be the first time the company has done stuff like that...

I'm just getting tired of this socialism narrative of Economic liberalism versus Marxism and socialism as there are other intellectual influences on the world.

I tend to lean socialist nowadays but I simply wish we could start having a broader discussion and if I have to reference crazy (Larouche) to it so be it.

Detroit Dan said...

I strongly suspect Larouche is a CIA disinformation project against people who actually present a counter narrative. [Septeus7]

I find that fascinating, since I came up with the same thought following the 1976 presidential election. I voted for a socialist that year. The night before the election, LaRouche placed a prime time 1/2 hour spot on national TV (if I recall correctly). It was total nonsense and seemed that it could only be intended to discredit left-leaning third parties.

Ever since then, I, like Septeus7, have suspected CIA involvement in LaRouche's well-funded gibberish...