The Federalist: Free Market Economics Spreading in China

Monday, May 4, 2015

Free Market Economics Spreading in China

"The Road to Serfdom" popular among Chinese students

In this interview, Jing Jin, Associate Dean at the China Economics and Management Academy in Beijing, discusses how Mises and Rothbard have affected her academic work, and how Austrian economics is gaining traction in China today.

Mises Institute: How did you first learn about Austrian economics and the Mises Institute?

Jing Jin: I will give you a little background of myself to provide some context of my answers. I earned my undergrad degree in China where I majored in economics. Then I earned my masters of Public Policy at Georgetown University, plus a PhD. of East Asian Studies and International Economics at Johns Hopkins (SAIS). I also worked at the World Bank Research Group in Washington D.C. as a consultant for two and half years. I came back to Asia in 2004 and worked in UBS, Lehman Brothers, and J.P.Morgan. All were based in Hong Kong. I worked in the banking industry in Hong Kong until late last year.

Several months after I had gone over to J.P. Morgan from Lehman Brothers, came the 2008 financial crisis. Obviously anyone with some degree of intellectual curiosity was curious about the true cause (you may be surprised how many sell-side analysts simply wrote it off as part of natural order of the world), and all sorts of analyzes in media and academics did not seem satisfying. I had a hunch that the cause of this crisis had more to do with the government policies rather than the reactionary behavior of the economic agents in the society.

Then I came across two research papers, which directed my attention to the term “Austrian school of economics.” The first paper discussed why the interest rate level was so much lower than real GDP growth rate in emerging markets than that in the developed ones, in particularly the case with China. Applying the Austrian theory of capital and interest appropriately, the paper provided a sensibly simple answer — higher savings rate drove down real interest rate and therefore drove up investment and capital deepening (in China household savings rate ranges from 25 to 35 percent since the start of the economic reforms). The second academic paper discussed the heterogeneous nature of capital in the Austrian school framework. all of these made total sense to me and was intuitive as well as logical.

While I no longer work for J.P. Morgan, somehow the entrepreneurial spirit inside me has been activated (I like to think this also has something to do with Austrian economics). I am currently planning to launch a business to direct international investors to invest in Chinese firms via Hong Kong, sticking to the Austrian teaching that the private sector realizes its greatest potential where the market is least hampered.

MI: Do students in China learn about Austrian economics at the universities?

JJ: The answer to this question is not as simple as it seems and certainly not a yes or no one. Also, universities by far are not representative enough in terms of the Chinese people’s exposure to Austrian economics. I therefore take the liberty to answer this question by not limiting it to university teaching.

I have the impression that Chinese readers overall are not completely unfamiliar with some of the literature of the Austrian school, but their knowledge is of an ad hoc and non-systematic fashion. The Road to Serfdom by Hayek has been widely read by several generations of Chinese students, and with the exception of the Cultural Revolution period from 1966 to 1976, it was commonly read by those who went to high school and university in the 50s, early 60s, late 70s, and 80s.

The use of Austrian economics in class varies case-by-case depending on personal preferences of the professors. I heard from a friend that some of her professors openly discussed Austrian economics in class. But I don’t recall this happened to me when I was in college. Personally, I feel that Chinese bureaucracies and mainstream teaching methods treat the Austrian school either as just a type of institutional economics, and some go as far as to understand the Austrian school as just a subset of “western economics.”

In university curricula from the 1950s to the 1990s, “Western economics” is a classification along ideological lines whereas all those non-Marxist approaches ranging from Keynes to Milton Friedman are included. I know, oddly enough, Karl Marx was a Western guy too.

The neo-classical framework has dominated Chinese universities since the first decade of this millennium, and the discussion of Austrian school thoughts seemed to subside on campus.

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Commissioned as captain in the 1st South Carolina Regiment of the Continental Army. After seeing much action, he became an aide-de-camp to General Horatio Gates. He was captured by the British at the disastrous Battle of Camden in 1780. After recovering from his wounds, he was released in a prisoner exchange. In 1781 he fought under Lafayette in Virginia. Appointed by President George Washington to be the U.S. minister to Great Britain served as Envoy Extraordinary to Spain. The Federalist Party made him a candidate in the 1796 presidential election as the intended running-mate of John Adams. Served as Congressman and Governor of South Carolina. Served as a major general in the Army during the War of 1812.

Henry Lee III, Federalist

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Frederick Frelinghuysen, Federalist

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Stephen Van Rensselaer, Federalist

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James Hillhouse, Federalist

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Oliver Ellsworth, Federalist

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Robert Goodloe Harper, Federalist

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Jacob Read, Federalist

Alexander Contee Hanson, Federalist

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William Bingham, Federalist

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Ezekiel Whitman, Federalist

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David Cobb, Federalist

Cobb studied medicine in Boston and practiced in Taunton, Massachusetts. He was a member of the Massachusetts Provincial Congress in 1775; lieutenant colonel of Jackson’s regiment in 1777 and 1778, serving in Rhode Island and New Jersey; was aide-de-camp on the staff of General George Washington; appointed major general of militia in 1786. Fought in the New York and New Jersey Campaign, the Battles of Springfield, Monmouth, Rhode Island and Shay's Rebellion. He served the Federalist Party as Lt. Governor of Massachusetts, President of the State Senate and Congressman.

Josiah Parker, Federalist

In 1775 Parker enlisted in the Continental Army. He was commissioned a major in the 5th Virginia Regiment in 1776 and became its colonel in 1778. His regiment served in Virginia under General Charles Lee and was transferred to George Washington. The regiment thereafter saw action at the Battles of Trenton, Princeton, Brandywine, Germantown, Monmouth and the Siege of Charleston. During Cornwallis's Virginia campaign in 1781, the notorious Colonel Tarleton ransacked his home. He was elected to the First US Congress from Virginia serving for twelve years.

William Stephens Smith, Federalist

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John Rutledge, Jr., Federalist

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John Sergeant, Federalist

Member of the Pennsylvania state house of representatives 1808-1810; elected as a Federalist to Congress and served from 1815, to 1823. Sergeant was a strong backer of Henry Clay's American System and the Second Bank of the United States, and even traveled to Europe to negotiate loans to the Bank. He was a strong opponent of slavery who voted against the Missouri Compromise. In 1826 he was an envoy to the Panama Congress. Elected to Congress as an Adams candidate 1827 to 1829. Failing re-election he became legal counsel to the Bank of the United States. Sergeant was the Vice Presidential running mate in Henry Clay's campaign on the National Republican ticket in 1832. Elected as a Whig to Congress serving from 1837 to 1841.

John Laurance, Federalist

Philip Barton Key, Federalist

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