Free Markets

Readings for paper:

1. Hernando DeSoto, The Mystery of Capital.
2. Richard McGregor, The Party: The Secret World of China’s Communist Rulers.

Background

In Free to Choose, Milton Friedman makes the case that capitalism, i.e. free markets combined with governments that follow The Do Nothing Policy produce prosperity and freedom. In lecture, production possibilities frontiers were used to show the mechanism by which capitalism produces wealth, i.e. specialization according to comparative advantage and exchange. The history of the 20th century is replete with examples of countries that have followed just such a policy of free market capitalism and experienced large increases in total and per capita wealth plus created stable peaceful political societies characterized by respect for individual rights and maximizing personal freedom, e.g. Japan, Taiwan, Korea, Singapore, and, until the communist Chinese takeover, Hong Kong. In the 20th century, countries that were already prosperous and free that continued choosing capitalist systems became more prosperous, e.g. the United States, Western Europe, Canada, and Australia.

A conundrum of the “capitalism produces prosperity and freedom” policy are countries that have capitalist economies but haven’t produced much prosperity and are frequently but not exclusively characterized by bouts of politically based violence and oppressive abusive dictatorships, e.g. most middle eastern countries, most of South and Central America, Mexico, India, Russia, and until the last 20 years communist China. In The Mystery of Capital, Hernando DeSoto addresses this conundrum and points out that adopting capitalism is required but not sufficient to produce U.S. and western European levels of prosperity and freedom. DeSoto argues that adopting capitalism isn’t enough. Countries have to choose a capitalist economic system plus do something else.

A corollary of the ““capitalism produces prosperity and freedom” idea is the notion that a country can adopt capitalism and produce prosperity but an oppressive dictator can prevent prosperity from producing freedom for ordinary people. Communist China is an example.

Paper Assignment

Section 1. What is the something else that DeSoto argues is necessary for a capitalist economy to produce wealth?

Section 2. Is Communist China a capitalist economy?. To what extent does Communist China have that something else.

Section 3. In your opinion and given your answers in Part 1 and 2, will the dictators in Communist China be successful in using a capitalist system to produce prosperity but deny Milton Friedman’s thesis that prosperity will create individual freedom and the end to dictatorship?

Illustrate your answers with examples from the two books.

Notes and Submission Instructions

The paper assignment asks you to answer very specific questions. It is not a book report or an opportunity to wax eloquent on a subject of your choosing. The assignment is to produce answers to specific questions. Your score will be determined by your answer to these questions and the integration of the examples into your argument.

The paper should be no less than 1500 words. There is no maximum length.