China reminds us of what Hayek calls “The Fatal Conceit,” the belief that the government is better than markets in setting prices, that it can manage a form of “Capitalism Light.”

China’s troubling lurch back to socialism

by Weifeng Zhong


Friedrich von Hayek described in his legendary book The Road to Serfdom how economic and political freedoms go hand in hand. Socialism leads to totalitarianism. Capitalism leads to democracy. For decades, the Chinese government has acted as if it is immune to Hayek’s logic, pursuing capitalism, while maintaining a totalitarian state. But the recent slowdown in the economy finally led the Chinese government to devalue the yuan by two percent on Tuesday, the largest depreciation since 1994. Just last month, the plunge in China’s stock market sparked a massive round of government intervention, with the government poised to buy up 12 percent of all free-floating shares in the Shanghai and Shenzhen Stock Exchanges. This lurch back toward socialism is a troubling sign that the Chinese model that has been so economically successful in the past few decades may finally be, as Hayek would have predicted, breaking down.


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