Capitalism and SocialismWeek-13The (Im-)Possibility of Ratio

Capitalism and Socialism
Week-13
The (Im-)Possibility of Rational Socialism: Mises in China’s
Market Reform Debates – Isabella M. Weber
How the Austrian critique of socialist economics was mobilized
by radical Chinese reform economists to reinterpret the
meaning and content of Chinese socialism culminating in the
official designation of the new economic system as Socialist
Market Economy with Chinese Characteristics in 1992?
Many of China’s prominent promoters of Austrian economics of
the 1930s and 1940s fled to Taiwan where they pioneered the
translation of Mises, Hayek, Röpke and others and lobbied for
neoliberal economic policies. In contrast, after the Communist
revolution in 1949 Austrian economics largely vanished in the
People’s Republic except for a short revival from the viewpoint
of critique in the late 1950s and early 1960s.
The disaster of the Great Leap Forward and the catastrophe of
the Great Famine posed again the question of the right economic
system and the role of the law of value under socialism in
China’s young People’s Republic. In this context, Soviet-trained
Sun Yefang pioneered the demand for socialist markets inspired
by Oscar Lange and the Socialist Calculation Debate. In 1962
Teng Weizao translated Hayek’s (1944) The Road to Serfdom.
Teng assures that the purpose of this translation was criticism.
Yet, given the failure of the great push for collectivization that
was becoming apparent at the time, Hayek’s critique of
collectivism must have resonated with some of Teng’s readers.
Some 20 years later, this Austrian critique and Mises’ claim of
the impossibility of a rational socialist economy was embraced
by some prominent Chinese reform economists and political
leaders. It came to play a role in the redefinition of China’s

economic model in the 1980s and early 1990s.
During the Cultural Revolution, Mao had rejected the notions of
efficiency and rational economic management. In the late 1970s,
the reformers under Deng Xiaoping’s leadership elevated these
notions to highest principle. As a result, Mises’ (1920) critique
that socialism could not achieve a rational economic order came
to be debated throughout the 1980s and Chinese economists
developed their own reading of Mises and the Socialist
Calculation Debate. When market reforms were reinstated in the
1990s after having been stalled since the Tiananmen crackdown,
a history of thought review of the possibility of rational
socialism and socialist markets by Jiang Chunze helped to
justify the Socialist Market Economy with Chinese
Characteristics as the new official designation of China’s
economic system and target for reform.
How Mises Became Relevant to China’s Reform
The breaking down of the hope for a “communist dreamland”,
the collapse of the “revolution’s emancipator y promises” and
the exhaustion of the “original communist strength” that gave
way to a reorientation from Mao’s emphasis on ‘continuous
revolution’ to Deng Xiaoping’s ‘reform and opening up’. Per
capita grain output as a measure both of nutrition standards and
leeway for industrialization had stagnated and when many
Chinese officials joined delegations to tour the world under
Mao’s designated heir Hua Guofeng, they found how far
China’s material development lacked behind. This sentiment
combined with the lost hope in the revolution’s promises laid
the ground for China’s reorientation towards a primacy of
economic development and efficiency. Only when China gave
up on achieving revolution in the present and instead pursued a
rationalization of its economy did Mises’ claim of the
impossibility of a rational socialist economy become pertinent
to China’s economics discourse.
Mao had rejected Lenin’s claim that the “transition from

capitalism to socialism will be more difficult for a country the
more backward it is.” Against this Mao stated: “Actually, the
transition is less difficult the more backward an economy is.”
The doctrine of reform returned to the logic of Lenin’s dictum:
In the words of the leading party intellectual Su Shaozhi the
“less developed the country, the more difficult the transition
from capitalism to socialism.” It follows from this that
economic development is essential for the transition to
socialism. The immanent ideological shift of the first years of
reform encompassed a rejection of the Cultural Revolution line
that saw the main task to achieve socialism in revolutionizing
the relations of production. Achieving higher levels of
development of the relations of production, would in turn lead
to a progress of the forces of production. The shift from
revolution to reform meant that this causality was reversed.
Now all emphasis was on developing the forces of production.
As a result of this logic of economic determinism, the relations
of production no longer needed to be revolutionized in their
own right. Instead, they had to be redesigned to best advance
the forces of production which was in turn argued to be the
most effective way to move towards socialism
In these first years of reform, Mao’s theories of class struggle
under socialism and of continuous revolution, his impatience
and overestimation of man’s will were singled out as gravely
mistaken, utopian and unscientific.19 This assessment was
codified in the official 1981 ‘Resolution on certain questions in
the history of our party since the founding of the People’s
Republic of China’.
Two interpretations of the emergence of contradictions in the
Soviet-inspired economic model of public ownership, central
planning and distribution according to labor are: i) the relations
and forces of production are co-developing and the
contradictions are results of remnants of capitalism and

bourgeois thought in socialist society, ii) the second view which
admits the possibility of a contradiction between Soviet-style
relations of production and the development of the forces of
production and argues for a plurality of socialist economic
systems which reflect different historical conditions.
Rong stresses that this second view was sanctioned by the
Chinese Communist Party in the 1981 Resolution. This
interpretation would necessitate comparative economic systems
research to adjust China’s economic model to its stage of
historical development. The study of comparative economic
systems, in Rong’s eyes, was importantly shaped by the
Socialist Calculation Debate that began with Mises’ (1920)
contribution. Against Mises’ claim that a rational socialist
economy was impossible since central planners could not
correctly calculate all prices in the economy which left them
without a reliable standard of value, Oscar Lange had posited
the possibility of using the market mechanism to serve central
planning. Thereby, stresses Rong, Lange used bourgeois
economics. It follows that in China’s search for a new economic
model bourgeois economics constitutes a useful tool.
At the famous Wuxi conference at 1979 two economists of the
Chinese Academy of Social Science, Zhao Renwei and Liu
Guoguang, argued for the need of markets. Without making any
references to the protagonists of the Socialist Calculation
Debate, they suggested instead to promote free competition and
the regulation of prices by supply and demand within a certain
range, such as for the market mechanism to become the main
means in allocating manpower, materials and funds. Deng
Xiaoping sanctioned this view some months later when he told a
foreign journalist: It is wrong to maintain that a market
economy exists only in capitalist society and that there is only
[a] ‘capitalist’ market economy. Why can’t we develop a market
economy under socialism? Developing a market economy does
not mean practicing capitalism. While maintaining a planned
economy as the mainstay of our economic system, we are also
introducing a market economy. But it is a socialist market

economy.
Once the question of China’s political economy had been
reframed in terms of the most efficient allocation of resources
and the most effective advancement of the forces of production,
the question how the market could serve as a tool towards this
end under socialism became centerstage in debates among
Chinese economists. It also gave rise to a fierce debate among
reform economists who emphasized that China’s reform path
had to be carved out through experimentation on the ground
improving the material conditions one step at a time, and more
academic economists who sought to define a blueprint for
reform in theory to be implemented in one big package. Such a
package would have importantly involved overnight price
liberalization which is a key component of shock therapy as it
was later implemented in other socialist countries.
The first stage of China’s reform was marked by the fast pace of
the rural reforms. In 1984, the reform of the industrial -urban
economy was officially sanctioned when the “Resolution on the
Reform of the Economy System”(中共中央关于经济体制改革的决定)
was approved by the Central Committee. The Resolution
declared that socialism and a commodity economy were not
mutually exclusive. The reformers distanced themselves from
what was labeled the ‘traditional view’ that socialism should
supersede commodity relations and structure relations of
production around use not exchange values. From now on
China’s planned economy should use the law of value, that is to
say socialist production units should be turned into independent
commodity producers taking their production decisions based on
exchange values. The development of such a commodity-
producing economy was declared a prerequisite for China’s
modernization. Yet, China’s commodity economy should take a
socialist form by being planned and adhering to public
ownership.

Extending the dual-price system to the core of the urban-
industrial economy and the introduction of a new tax system
that made enterprises responsible for their own profits and
losses were important new policies implemented that year
In a longer commentary on Mises (1920) published with the
Chinese translation, Rong Jingben elaborates the editor’s take –
which might well have also been written by him. Confirming the
Austrian market universalism, Rong asserts that all socialist
countries undergoing reform would now agree on the necessity
of markets. According to Rong, markets were needed not only
for consumer goods and labor as in the Lange model but also for
the means of production and finance. Replicating Mises’ (1920)
arguments, Rong elaborates that as long as the means of
production were not evaluated on the market, there was no way
for prices to be rational. Implying a strong anti-egalitarian
message, Rong continues that given the heterogeneity of
different types of labor, it was equally impossible for labor
input to be correctly valuated without market competition.
Finally, as long as banks were all part of one big state-owned
system treating all enterprises equally, investments could not be
following rational standards of efficiency and consumer
demand. So, finance, too, had to be regulated by the market
Having established the necessity for complete markets in full
agreement with Mises, Rong turns to the question of ownership.
He suggests that a discussion based on Mises’ contribution was
needed not only on whether markets are compatible with
socialist public ownership but also on whether there might be
superior markets without public ownership. Rong asseverates
that China must stick to socialist public ownership but hastens
to add that this cannot mean pure public ownership. In reality,
China would already practice mixed ownership forms including
individual and private enterprise as well as foreign capitalist
investment. Rong ends his comment on the note that ultimately

the essence of public ownership was to facilitate the
accumulation of wealth in society whereas the purpose of
socialist reform was to build a more efficient economic system.
This is very much in line with the Dengist dictum of the time
that “poverty is not socialism” and that “the fundamental task of
socialism is to develop productivity” (Fewsmith 1995, 207). In
Rong’s Austrian inspired interpretation, socialism is reduced to
a tool for economic growth and all egalitarian ambitions and
communist visions of a life without alienation are discarded. In
sum, Rong has stretched his endorsement of Mises to the
maximum attainable degree in a journal published by the
Central Compilation and Translation Bureau under the political
circumstances at the time. The only remaining difference
between Rong and Mises, is Rong’s stress on mixed rather than
pure private ownership
Paving the Way for the Socialist Market Economy with Chinese
Characteristics
In 1986 and again in 1988 initiatives launched first by Zhao
Ziyang and then by Deng Xiaoping to liberalize the prices of
essential means of production and labor combined with far -
reaching tax and financial reform failed. If successful, these
reform pushes would have constituted a big policy step towards
the Mises-inspired vision articulated by Rong. Despite the
failure of these major policy initiatives, in 1987 a renewed
ideological re-articulation of the nature of Chinese socialism
moved Chinese reform ideology further in Mises’ direction. At
the Thirteenth National Congress of the CPC party general
secretary Zhao Ziyang officially announced that China was in
the primary stage of socialism
In 1987, declaring China to be in the primary stage of socialism
meant that China’s so-called economic backwardness served as
justification to further lift constraints on private ownership and
the market. On this basis, Zhao Ziyang promoted dropping
“planned” in the designation of China’s economy and to move

to a socialist commodity economy without further
qualifications. But the collapse of first price and then social
stability in 1988 and the political upheaval of 1989 led market
reforms to grind to a halt.
In 1990s Jiang Chunze, then deputy head of the Economic
System Division of his commission, compiled a review of the
international debate and experience of the relation between plan
and market. Jiang recapitulates Mises argument that rational
prices constitute a necessary condition for an efficient economy
and could only be achieved by the market. In contrast to Lange,
who saw the market as a trial and error mechanism to serve the
plan, Jiang argued for a full-fledged market economy as the
basic means of resource allocation. She pushes Lange’s i dea of
market socialism to a new level. If socialism can use the market
to aid planning, it can also use it as fundamental economic
mechanism. This would not prevent China from also using
macroeconomic planning, Jiang insists. Keynesians and
Neoliberals – in Jiang’s view – had come to agree that the
modern market economy is not a pure laissez faire economy and
that some extent of intervention was required. Hence, there was
no reason that China could not also combine a market economy
with macroeconomic planning and that this would be socialist
by virtue of liberating China’s forces of production
Capitalism and Socialism
Week-12
Economic Calculation In The Socialist Commonwealth –
Ludwig von Mises
The Nature of Economic Calculation
Every man who, in the course of economic life, takes a choice
between the satisfaction of one need as against another, eo ipso

makes a judgment of value. Such judgments of value at once
include only the very satisfaction of the need itself; and from
this they reflect back upon the goods of a lower, and then
further upon goods of a higher order. As a rule, the man who
knows his own mind is in a position to value goods of a lower
order. Under simple conditions it is also possible for him
without much ado to form some judgment of the significance to
him of goods of a higher order. But where the state of affairs is
more involved and their interconnections not so easily
discernible, subtler means must be employed to accomplish a
correct valuation of the means of production.
It would not be difficult for a farmer in economic isolation to
come by a distinction between the expansion of pasture-farming
and the development of activity in the hunting field. In such a
case the processes of production involved are relatively short
and the expense and income entailed can be easily gauged. But
it is quite a different matter when the choice lies between the
utilization of a water-course for the manufacture of electricity
or the extension of a coal mine or the drawing up of plans for
the better employment of the energies latent in raw coal. Here
the roundabout processes of production are many and each is
very lengthy; here the conditions necessary for the success of
the enterprises which are to be initiated are diverse, so that one
cannot apply merely vague valuations, but requires rather more
exact estimates and some judgment of the economic issues
actually involved.
Valuation can only take place in terms of units, yet it is
impossible that there should ever be a unit of subjective use
value for goods. Marginal utility does not posit any unit of
value, since it is obvious that the value of two units of a given
stock is necessarily greater than, but less than double, the value
of a single unit. Judgments of value do not measure; they
merely establish grades and scales.

In an exchange economy the objective exchange value of
commodities enters as the unit of economic calculation. This
entails a threefold advantage
In the first place, it renders it possible to base the calculation
upon the valuations of all participants in trade. The subjective
use value of each is not immediately comparable as a purely
individual phenomenon with the subjective use value of other
men. It only becomes so in exchange value, which arises out of
the interplay of the subjective valuations of all who take part in
exchange.
But in that case calculation by exchange value furnishes a
control over the appropriate employment of goods. Anyone who
wishes to make calculations in regard to a complicated process
of production will immediately notice whether he has worked
more economically than others or not; if he finds, from
reference to the exchange relations obtaining in the market, that
he will not be able to produce profitably, this shows that others
understand how to make a better use of the goods of higher
order in question.
Lastly, calculation by exchange value makes it possible to refer
values back to a unit. For this purpose, since goods are mutually
substitutable in accordance with the exchange relations
obtaining in the market, any possible good can be chosen. In a
monetary economy it is money that is so chosen.
In the narrow confines of a closed household economy, it is
possible throughout to review the process of production from
beginning to end, and to judge all the time whether one or
another mode of procedure yields more consumable goods. This,
however, is no longer possible in the incomparably more
involved circumstances of our own social economy. It will be
evident, even in the socialist society, that 1,000 hectoliters of
wine are better than 800, and it is not difficult to decide
whether it desires 1,000 hectoliters of wine rather than 500 of

oil. There is no need for any system of calculation to establish
this fact: the deciding element is the will of the economic
subjects involved. But once this decision has been taken, the
real task of rational economic direction only commences, i.e.
economically, to place the means at the service of the end. That
can only be done with some kind of economic calculation. The
human mind cannot orientate itself properly among the
bewildering mass of intermediate products and potentialities of
production without such aid. It would simply stand perplexed
before the problems of management and location.
It is an illusion to imagine that in a socialist state calculation in
natura can take the place of monetary calculation. Calculation
in natura, in an economy without exchange, can embrace
consumption goods only; it completely fails when it comes to
dealing with goods of a higher order. And as soon as one gives
up the conception of a freely established monetary price for
goods of a higher order, rational production becomes
completely impossible. Every step that takes us away from
private ownership of the means of production and from the use
of money also takes us away from rational economics.
Without economic calculation there can be no economy . Hence,
in a socialist state wherein the pursuit of economic calculation
is impossible, there can be—in our sense of the term--no
economy whatsoever. (…) All transactions which serve the
purpose of meeting requirements will be subject to the control
of a supreme authority. Yet in place of the economy of the
“anarchic” method of production, recourse will be had to the
senseless output of an absurd apparatus. The wheels will turn,
but will run to no effect.
In the economic system of private ownership of the means of
production, the system of computation by value is necessarily
employed by each independent member of society. Everybody
participates in its emergence in a double way: on the one hand

as a consumer and on the other as a producer. As a consumer he
establishes a scale of valuation for goods ready for use in
consumption. As a producer he puts goods of a higher order into
such use as produces the greatest return. In this way all goods
of a higher order receive a position in the scale of valuations in
accordance with the immediate state of social conditions of
production and of social needs. Through the interplay of these
two processes of valuation, means will be afforded for
governing both consumption and production by the economic
principle throughout. Every graded system of pricing proceeds
from the fact that men always and ever harmonized their own
requirements with their estimation of economic facts.
All this is necessarily absent from a socialist state. The
administration may know exactly what goods are most urgently
needed. But in so doing, it has only found what is, in fact, but
one of the two necessary prerequisites for economic calculation.
In the nature of the case it must, however, dispense with the
other-- the valuation of the means of production. It may
establish the value attained by the totality of the means of
production; this is obviously identical with that of all the needs
thereby satisfied. It may also be able to calculate the value of
any means of production by calculating the consequence of its
withdrawal in relation to the satisfaction of needs. Yet it cannot
reduce this value to the uniform expression of a money price, as
can a competitive economy, wherein all prices can be referred
back to a common expression in terms of money. In a socialist
commonwealth which, whilst it need not of necessity dispense
with money altogether, yet finds it impossible to use money as
an expression of the price of the factors of production
(including labor), money can play no role in economic
calculation.
Picture the building of a new railroad. Should it be built at all,
and if so, which out of a number of conceivable roads should be

built? In a competitive and monetary economy, this question
would be answered by monetary calculation. The new road will
render less expensive the transport of some goods, and it may
be possible to calculate whether this reduction of expense
transcends that involved in the building and upkeep of the next
line. That can only be calculated in money. It is not possible to
attain the desired end merely by counterbalancing the various
physical expenses and physical savings. Where one cannot
express hours of labor, iron, coal, all kinds of building material,
machines and other things necessary for the construction and
upkeep of the railroad in a common unit it is not possible to
make calculations at all. The drawing up of bills on an
economic basis is only possible where all the goods concerned
can be referred back to money. Admittedly, monetary
calculation has its inconveniences and serious defects, but we
have certainly nothing better to put in its place, and for the
practical purposes of life monetary calculation as it exists under
a sound monetary system always suffices. Were we to dispense
with it, any economic system of calculation would become
absolutely impossible.
In every great enterprise, each particular business or branch of
business is to some extent independent in its accounting. It
reckons the labor and material against each other, and it is
always possible for each individual group to strike a particular
balance and to approach the economic results of its activities
from an accounting point of view. We can thus ascertain with
what success each particular section has labored, and
accordingly draw conclusions about the reorganizatio n,
curtailment, abandonment, or expansion of existing groups and
about the institution of new ones. (…) It seems tempting to try
to construct by analogy a separate estimation of the particular
production groups in the socialist state also. But it is quite
impossible. For each separate calculation of the particular
branches of one and the same enterprise depends exclusively on
the fact that is precisely in market dealings that market prices to
be taken as the bases of calculation are formed for all kinds of

goods and labor employed. Where there is no free market, there
is no pricing mechanism; without a pricing mechanism, there is
no economic calculation.
On a first impression calculation in terms of labor also takes
into consideration the natural non-human conditions of
production. The law of diminishing returns is already allowed
for in the concept of socially necessary average labor time to
the extent that its operation is due to the variety of the natural
conditions of production. If the demand for a commodity
increases and worse natural resources must be exploited, then
the average socially necessary labor time required for the
production of a unit increases too. If more favorable natural
resources are discovered, the amount of socially necessary labor
diminishes. The consideration of the natural condition of
production suffices only in so far as it is reflected in the amount
of labor socially necessary. But it is in this respect that
valuation in terms of labor fails. It leaves the employment of
material factors of production out of account. Let the amount of
socially necessary labor time required for the production of
each of the commodities P and Q be 10 hours. Further, in
addition to labor the production of both P and Q requires the
raw material a, a unit of which is produced by an hour’s socially
necessary labor; 2 units of a and 8 hours’ labor are used in the
production of P, and one unit of a and 9 hours’ labor in the
production of Q. In terms of labor P and Q are equivalent, but in
value terms P is more valuable than Q. The former is false, and
only the latter corresponds to the nature and purpose of
calculation. True, this surplus, by which according to value
calculation P is more valuable than Q, this material sub-stratum
“is given by nature without any addition from man.” Still, the
fact that it is only present in such quantities that it becomes an
object of economizing, must be taken into account in some form
or other in value calculation.

(…) the directors of companies; in spite of the fact that they are
not the owners of the means of production, enterprises under
their control have flourished. If society, instead of company
shareholders, becomes the owner of the means of production,
nothing will have altered. The directors would not work less
satisfactorily for society than for shareholders. We must
distinguish between two groups of joint-stock companies and
similar concerns. In the first group, consisting for the large part
of smaller companies, a few individuals unite in a common
enterprise in the legal form of a company. They are often the
heirs of the founders of the company, or often previous
competitors who have amalgamated. Here the actual control and
management of business is in the hands of the shareholders
themselves or at least of some of the shareholders, who do
business in their own interest; or in that of closely related
shareholders such as wives, minors, etc. The directors in their
capacity as members of the board of management or of the
board of control, and sometimes also in an attenuated legal
capacity, themselves exercise the decisive influence in the
conduct of affairs. Nor is this affected by the circumstance that
sometimes part of the share-capital is held by a financial
consortium or bank. Here in fact the company is only
differentiated from the public commercial company by its legal
form.
The situation is quite different in the case of large-scale
companies, where only a fraction of the shareholders, i.e. the
big shareholders, participate in the actual control of the
enterprise. And these usually have the same interest in the
firm’s prosperity as any property holder. Still, it may well be
that they have interests other than those of the vast majority of
small shareholders, who are excluded from the management
even if they own the larger part of the share capital. Severe
collisions may occur, when the firm’s business is so handled on

behalf of the directors that the shareholders are injured. But be
that as it may, it is clear that the real holders of power in
companies run the business in their own interest, whether it
coincides with that of the shareholders or not. In the long run it
will generally be to the advantage of the solid company
administrator, who is not merely bent on making a transient
profit, to represent the shareholders’ interests only in every case
and to avoid manipulations which might damage them. This
holds good in the first instance for banks and financial groups,
which should not trifle at the public’s expense with the credit
they enjoy. Thus it is not merely on the prescriptiveness of
ethical motives that the success of companies depends.
The situation is completely transformed when an undertaking is
nationalized. The motive force disappears with the exclusion of
the material interests of private individuals, and if State and
municipal enterprises thrive at all, they owe it to the taking over
of “management” from private enterprise, or to the fact that
they are ever driven to reforms and innovations by the business
men from whom they purchase their instruments of production
and raw material. Since we are in a position to survey decades
of State and socialist endeavor, it is now generally recognized
that there is no internal pressure to reform and improvement of
production in socialist undertakings, that they cannot be
adjusted to the changing conditions of demand, and that in a
word they are a dead limb in the economic organism.
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1
The (Im-)Possibility of Rational Socialism:
Mises in China’s Market Reform Debate*
Isabella M. Weber, University of Massachusetts Amherst
Abstract
This paper investigates the long first decade of reform in China
(1978-1992) to show that
Mises, in particular his initiating contribution to the Socialist
Calculation Debate, became
relevant to the reconfiguration of China’s political economy
when the reformers gave up on
the late Maoist primacy of continuous revolution and adhered
instead to an imperative of
development and catching up. During the Cultural Revolution,
Mao had rejected the notions
of efficiency and rational economic management. In the late
1970s, the reformers under Deng
Xiaoping’s leadership elevated these notions to highest
principle. As a result, Mises’ critique
that socialism could not achieve a rational economic order came

to be debated throughout the
1980s and Chinese economists developed their own reading of
Mises and the Socialist
Calculation Debate. When Deng Xiaoping reinstated market
reforms in the early 1990s after
the Tiananmen crackdown, a history of thought review of the
possibility of rational socialism
and socialist markets helped to justify the Socialist Market
Economy with Chinese
Characteristics the official designation of China’s economic
system to this day.
Keywords:
Socialism; capitalism; market economy; Mises; China;
comparative economic systems;
Acknowledgements
I would like to thank Liang Junshang for invaluable research
assistance and my interview
partners Jiang Chunze, Edwin Lim and Wu Jinglian. All
remaining mistakes are my own.
*This paper is forthcoming in the Journal of the History of
Ideas, 2022.

Introduction
This essay traces the role of Ludwig Mises’ claim of the
impossibility of rational
socialism in China’s path-defining market reform debate (1978-
1992). China’s move from
revolution to reform gave rise to a surge in interest in foreign
economics as shown in a number
of recent publications.1 But little is known about Chinese
economists’ engagement with the
1 See Pieter Bottelier, Economic Policy Making in China (1949-
2016): The Role of Economists (London and
New York: Routledge, 2018); Steven M. Cohen, Competing
Economic Paradigms in China: The Co-Evolution
of Economic Events, Economic Theory and Economics
Education, 1976-2016 (London and New York:
Routledge, 2017); Julian Gewirtz, Unlikely Partners: Chinese
Reformers, Western Economists and the Making
of Global China (Cambridge: Harvard University Press, 2017);
Rebecca Karl, The Magic of Concepts: History
and the Economic in Twentieth-Century China (Durham and
London: Duke University Press, 2017); Isabella M.
Weber, “China and Neoliberalism: Moving Beyond the China
is/is not Neoliberal Dichotomy,” in The SAGE

Handbook of Neoliberalism, ed. Damien Cahill, Melinda
Cooper, Martijn Konings and David Pimrose (London:
SAGE Publications, 2018); Isabella M. Weber und Gregor
Semieniuk, “American Radical Economists in Mao’s
2
Austrian school in general and Mises in particular at this
critical juncture. This essay explores
how the Austrian critique of socialist economics was mobilized
by radical Chinese reform
economists to reinterpret the meaning and content of Chinese
socialism culminating in the
official designation of the new economic system as Socialist
Market Economy with Chinese
Characteristics in 1992.
At the dawn of reform in the late 1970s, Ludwig von Mises’
economics was by no
means new to China. Mises’ contributions had been ‘imported’,
discussed and critiqued in
China at least since the 1930s. During the time of the Great
Depression China was deeply

integrated into the global capitalist economy and Chinese
economists were intellectually and
sociologically connected to global currents of thought. Chinese
students pursued graduate
studies in economics in Japan, Europe and the US, some of them
under Friedrich Hayek’s
supervision at the London School of Economics (e.g. Zhou
Dewei, Jiang Shuojie and Wu
Yuanli).2 Foreign economists such as Augusta Wagner teaching
in China compiled textbooks
to introduce Western economics, including Mises’ and Hayek’s
critique of socialism.3 Wang
Yanang, famous as cotranslator of David Ricardo, Adam Smith
and Karl Marx trained in Japan
and an outspoken critique of Austrian economics at the time,
goes as far as to attest that in the
1930s and early 1940s China was undergoing a “wholesale
importation … of political economy
as a discipline and science” which resulted in a mechanical
application of economics principles
to China. Wang found that Austrian school idealism and
metaphysics was a key element of this
importation.4
Rebecca Karl’s reading of Wang resonates with Chinese reform

economists’
engagement with Mises half a century later. Seeing China’s
reality through the lens of Austrian
economics only left two options, argued Wang: either Austrian
economic theory was faulty in
China: From Hopes to Disillusionme nt,” Research in the History
of Economic Thought and Methodology, 37A
(2019): 31-63; Isabella M. Weber, How China Escaped Shock
Therapy: The Market Reform Debate (London
and New York: Routledge, 2020); Isabella M. Weber, “Das
westdeutsche und das chinesische
»Wirtschaftswunder«: Der Wettstreit um die Interpretation von
Ludwig Erhards Wirtschaftspolitik in Chinas
Preisreformdebatte der 1980er-Jahre,” Jahrbuch für Historische
Kommunismusforschung (2020); Isabella M.
Weber, “Origins of China’s Contested Relation with
Neoliberalism: Economics, World Bank, and Milton
Friedman at the Dawn of Reform,” Global Perspectives 1(2020);
Susanne Weigelin-Schwiedrzik and Liu Hong,
“Vergessene Partner im Reformprozess: Der Dialog der VR
China mit reform-kommunistischen Strömungen in
Osteuropa (1977–1987),” Jahrbuch für Historische
Kommunismusforschung (2020).
2 For a discussion of their intellectual formation and trajectory

in pre-revolutionary China, Taiwan and the
People’s Republic of China see Li Weisen, Feng Xingyuan and
Sun Liang, “The Diffusion of F.A. Hayek’s
Thoughts in Mainland China and Taiwan,” in The Diffusion of
Western Economic Ideas in East Asia, ed.
Malcolm Warner (London and New York: Routledge, 2017),
214-234; Paul B. Trescott, Jingji Xue: The History
of the Introduction of Western Economic Ideas into China,
1850-1950 (Hong Kong: The Chinese University
Press, 2007), 83-85.
3 Trescott, Jingji Xue, 150-1.
4 Karl, Magic of Concepts, 2-4, 81-6.
3
China’s context and China required instead empiricist
exceptionalism; or Chinese realty was
at fault for not complying with the Austrian metaphysical
universalism and required changing.
The earlier conclusion led to reducing economics to the
positivist scientific method. The latter
reinforced a wide-spread sentiment among Chinese economists
that stressed feudalism over

imperialism and argued for the need of capitalism and the
market as a progressive force.5
Followers of Mises and Hayek found the Nationalists’
collectivism as unfit to free China from
its feudalist backwardness and called for free enterprise
instead.6
Many of China’s prominent promoters of Austrian economics of
the 1930s and 1940s
fled to Taiwan where they pioneered the translation of Mises,
Hayek, Röpke and others and
lobbied for neoliberal economic policies.7 In contrast, after the
Communist revolution in 1949
Austrian economics largely vanished in the People’s Republic
except for a short revival from
the viewpoint of critique in the late 1950s and early 1960s. The
disaster of the Great Leap
Forward and the catastrophe of the Great Famine posed again
the question of the right
economic system and the role of the law of value under
socialism in China’s young People’s
Republic. In this context, Soviet-trained Sun Yefang pioneered
the demand for socialist
markets inspired by Oscar Lange and the Socialist Calculation
Debate.8 In 1962 Teng Weizao

translated Hayek’s (1944) The Road to Serfdom. 9 Teng
assures that the purpose of this
translation was criticism.10 Yet, given the failure of the great
push for collectivization that was
becoming apparent at the time, Hayek’s critique of collectivism
must have resonated with some
of Teng’s readers. As this essay shows, some 20 years later, this
Austrian critique and Mises’
claim of the impossibility of a rational socialist economy was
embraced by some prominent
Chinese reform economists and political leaders. It came to play
a role in the redefinition of
China’s economic model in the 1980s and early 1990s.
5 Karl, Magic of Concepts, 2-3.
6 Trescott, Jingji Xue, 186-7.
7 Li, Feng and Sun, “The Diffusion of F.A. Hayek’s Thoughts
in Mainland China and Taiwan,” 215-24.
8 See Cyril C. Lin, “The Reinstatement of Economics in China
Today,” The China Quarterly, 85(1981): 14-15;
Robert C. Hsu, Economic Theories in China, 1979-1988,
(Cambridge: Cambridge University Press, 1991), 145-
7; Trescott, Jingji Xue, 306. See also Chinese introduction of
Lange’s (1959) first volume of Political Economy
in Qi Hou, “(Polish) Oskar Lange’s Political Economy (Volume

1): Table of
Contents”[（波兰）奥·兰格《政治经济学》第一卷目录], Economic
Perspectives [经济学动态] 3(1961): 6-
10; Li Yining “My Understanding of the Relationship Between
Public Ownership and the Equity-Efficiency
Nexus,” [我对公有制与公平效率之间关系的认识] Reform [改革]
6(1989): 34-36.
9 Friedrich A. Hayek, The Road to Serfdom [通往奴役之路]
（Beijing: Shangwu Yinshuguan, 1962 [1944],
translated by Teng Weizao. The circulation of this translation
was restricted. For an overview of Chinese
translations of Hayek’s work see Li, Feng and Sun, “The
Diffusion of F.A. Hayek’s Thoughts in Mainland
China and Taiwan,” 230-2.
10 Li, Feng and Sun, “The Diffusion of F.A. Hayek’s Thoughts
in Mainland China and Taiwan,” 225.
4
I draw on Chinese articles published on Mises in the period
1978-1992 to show that
Mises, in particular his initiating contribution to the Socialist
Calculation Debate,11 became
relevant to the reconfiguration of China’s political economy
when the reformers gave up on

the late Maoist primacy of the revolution of the relations of
production and adhered instead to
an imperative of the development of the forces of production
and catching up.12 During the
Cultural Revolution, Mao had rejected the notions of efficiency
and rational economic
management. In the late 1970s, the reformers under Deng
Xiaoping’s leadership elevated these
notions to highest principle. As a result, Mises’ (1920) critique
that socialism could not achieve
a rational economic order came to be debated throughout the
1980s and Chinese economists
developed their own reading of Mises and the Socialist
Calculation Debate. When market
reforms were reinstated in the 1990s after having been stalled
since the Tiananmen crackdown,
a history of thought review of the possibility of rational
socialism and socialist markets by
Jiang Chunze helped to justify the Socialist Market Economy
with Chinese Characteristics as
the new official designation of China’s economic system and
target for reform.
From Continuous Revolution to Economic Determinism: How
Mises

Became Relevant to China’s Reform
The communist dreamland of liberated individuals and universal
solidarity cracked in
the People’s Republic when the regime alienated itself from the
population by
allowing bureaucratic privileges on the one hand and excessive
persecution of
opponents on the other. But it was not until the revolution’s
emancipatory promises
were broken in a ‘feudal tyranny’ toward the end of the Cultural
Revolution that
many believed that much of the original communist strength had
been destroyed. The
exhaustion was so evident that the power transition after Mao
died in September 1976
would be initiated by a ‘coup’ to remove his widow, Jiang Qing,
and her allies, an
event that had been waited for and was celebrated in the streets.
The breakthrough,
no doubt a case of political secrecy and Byzantine politics,
nevertheless brought to
the fore a broad consensus on the need of the country to open
up, liberalize, and

democratize.13
Lin Chun’s synthesis of the critical moment in the 1970s when
China shifted from late
Maoism to reform helps us to understand how Mises became
relevant to China’s
11 Ludwig Mises, “Die Wirtschaftsrechnung im sozialistischen
Gemeinwesen,” Archiv für Sozialwissenschaften
47 (1920): 86-121. For an English translation see Ludwig Mises
“Economic Calculation in the Socialist
Commonwealth,” in Collectivist Economic Planning: Critical
Studies on the Possibilities of Socialism, ed.
Friedrich A. Hayek; translated by S. Adler (London: Routledge
& Kegan, Paul, 1963), 87-130.
12 For a broad analysis of the relation between Mises work on
socialism and the Chinese reformers’ rethinking
of socialism see Weber, “China and Neoliberalism” and Weber,
“Origins of China’s Contested Relation with
Neoliberalism.”
13 Lin Chun, The Transformation of Chinese Socialism
(Durham and London: Duke University Press, 2006),
207.

5
reconfiguration of the political economy. It was this breaking
down of the hope for a
“communist dreamland”, the collapse of the “revolution’s
emancipatory promises” and the
exhaustion of the “original communist strength” that gave way
to a reorientation from Mao’s
emphasis on ‘continuous revolution’ to Deng Xiaoping’s
‘reform and opening up’. Per capita
grain output as a measure both of nutrition standards and
leeway for industrialization had
stagnated14 and when many Chinese officials joined delegations
to tour the world under Mao’s
designated heir Hua Guofeng, they found how far China’s
material development lacked
behind.15 This sentiment combined with the lost hope in the
revolution’s promises laid the
ground for China’s reorientation towards a primacy of economic
development and efficiency.
Only when China gave up on achieving revolution in the present
and instead pursued a
rationalization of its economy did Mises’ claim of the
impossibility of a rational socialist

economy become pertinent to China’s economics discourse.
A shift to a more orthodox version of historical materialism
prepared the return of Mises
and the Socialist Calculation Debate to China. The paradigm of
reform turned Mao upside
down. Mao had rejected Lenin’s claim that the “transition from
capitalism to socialism will be
more difficult for a country the more backward it is.” Against
this Mao stated: “Actually, the
transition is less difficult the more backward an economy is.”16
The doctrine of reform returned
to the logic of Lenin’s dictum: In the words of the leading party
intellectual Su Shaozhi the
“less developed the country, the more difficult the transition
from capitalism to socialism.”17
It follows from this that economic development is essential for
the transition to socialism. The
immanent ideological shift of the first years of reform
encompassed a rejection of the Cultural
Revolution line that saw the main task to achieve socialism in
revolutionizing the relations of
production. Achieving higher levels of development of the
relations of production, would in
turn lead to a progress of the forces of production. The shift

from revolution to reform meant
that this causality was reversed. Now all emphasis was on
developing the forces of production.
As a result of this logic of economic determinism, the relations
of production no longer needed
to be revolutionized in their own right. Instead, they had to be
redesigned to best advance the
14 Robert Ash, “Squeezing the Peasants: Grain Extraction, Food
Consumption, and Rural Living Standards in
Mao’s China,” The China Quarterly 188(2006): 959-998.
15 Hua Sheng, Luo Xiaopeng and Zhang Xiejung, China: From
Revolution to Reform (Houndmills and London:
Macmillan Press, 1993), 23.
16 Mao Zedong, A Critique of Soviet Economics (New York
and London: Monthly Review Press, 1977 [1967]),
50. For a discussion of this text and Mao’s critique of Soviet
orthodoxy see Maurice Meisner, “The Advantages
and Burdens of Backwardness: Some Reflections on Maoism
and Marxism at the Close of the Maoist Era,”
Asian Thought and Society 2:1 (1977): 40.
17 Su Shaozhi, “Response to Commentary, 15 January,”
Bulletin of Concerned Asian Scholars 20:1(1988): 31.

6
forces of production which was in turn argued to be the most
effective way to move towards
socialism.18
In these first years of reform, Mao’s theories of class struggle
under socialism and of
continuous revolution, his impatience and overestimation of
man’s will were singled out as
gravely mistaken, utopian and unscientific.19 This assessment
was codified in the official 1981
‘Resolution on certain questions in the history of our party
since the founding of the People’s
Republic of China’. 20 Jing Rongben, in an early contribution
on the Socialist Calculation
Debate in China’s leading economics journal, Economic
Research (经济研究),21 implicitly
shows that the fundamental ideological reorientation of the
Resolution laid the ground for
Mises’ relevance to China’s reforms. He argues it was
undeniable that contradictions emerged
in the Soviet-inspired economic model of public ownership,
central planning and distribution

according to labor. According to Rong, there were two
interpretations of the emergence of such
contradictions. The first stresses that the relations and forces of
production are co-developing
and sees contradictions as result of remnants of capitalism and
bourgeois thought in socialist
society. This would long have been the Soviet perspective. The
second view admits the
possibility of a contradiction between Soviet-style relations of
production and the development
of the forces of production and argues for a plurality of socialist
economic systems which
reflect different historical conditions. Rong stresses that this
second view was sanctioned by
the Chinese Communist Party in the 1981 Resolution. This
interpretation would necessitate
comparative economic systems research to adjust China’s
economic model to its stage of
historical development. The study of comparative economic
systems, in Rong’s eyes, was
importantly shaped by the Socialist Calculation Debate that
began with Mises’ (1920)
contribution. Against Mises’ claim that a rational socialist
economy was impossible since

central planners could not correctly calculate all prices in the
economy which left them without
a reliable standard of value, Lange had posited the possibility of
using the market mechanism
18 See Sun Yan, The Chinese Reassessment of Socialism, 1976-
1992 (Princeton: Princeton University Press,
1995), 184-87.
19 See Maurice Meisner, Marxism, Maoism and Utopianism
(Madison and London: The University of
Wisconsin Press, 1982), ix.
20 Communist Party of China, “Resolution on certain questions
in the history of our party since the founding of
the People’s Republic of China, 1981” Retrieved from
https://www.marxists.org/subject/china/documents/cpc/history/0
1.htm. For a general comparison of Mises’
understanding of socialism and that expressed in the CPC’s
1981 Resolution see Weber, “Origins of China’s
Contest Relation with Neoliberalism.”
21 Rong Jingben, “On the Comparative Study of Socialist
Economic
Models,”[关于社会主义经济模式的比较研究] Economic Research
[经济研究]12(1981): 9-16.
https://www.marxists.org/subject/china/documents/cpc/history/0
1.htm

7
to serve central planning. Thereby, stresses Rong, Lange used
bourgeois economics. It follows
that in China’s search for a new economic model bourgeois
economics constitutes a useful tool.
Rong’s emphasis on the usefulness of bourgeois economics is
representative of the
general rehabilitation of economics in the era of reform. During
the Cultural Revolution, a
study of the forces of production independent of the relations of
production was considered a
bourgeois aberration. Economics as a discipline was largely
dismissed and many economists
spend years in the countryside undergoing ‘reeducation’ through
labor or like Gu Zhun were
sent to prison.22 With the new primacy of economic
development in the late 1970s economists
and their discipline were rehabilitated.23 Catching up through
reform meant “making up lessons”
in bourgeois economics which had previously been condemned
as “capitalist poison”. China

embarked on a path of learning from foreign economists which
involved rapidly growing
exchanges.24
As the relations of production were reconceptualized under
reform as tools serving the
larger goal of growth and development, the question of whether
the market could serve
socialism rose to the top of the agenda as early as 1979. For
example, at the famous Wuxi
conference that year two economists of the Chinese Academy of
Social Science, Zhao Renwei
and Liu Guoguang, argued for the need of markets. According
to them, in the past, the socialist
countries had treated “economic planning and the market … as
being mutually exclusive, as if
there were no place for the market in a planned economy” but
“such a view” had “brought a
series of disasters” to China’s economy. Without making any
references to the protagonists of
the Socialist Calculation Debate, they suggested instead to
promote free competition and the
regulation of prices by supply and demand within a certain
range, such as for the market

mechanism to become the main means in allocating manpower,
materials and funds.25 Deng
Xiaoping sanctioned this view some months later when he told a
foreign journalist:
It is wrong to maintain that a market economy exists only in
capitalist society and that
there is only [a] ‘capitalist’ market economy. Why can’t we
develop a market economy
22 See Els van Dongen, Realistic Revolution: Contesting
Chinese History, Culture, and Politics after 1989
(Cambridge: Cambridge University Press, 2019), 123; Barry
Naughton, “Editor’s Introduction: Biographical
Preface,” in Wu Jinglian: Voice of Reform, ed. Barry Naughton
(Cambridge: MIT Press, 2013), 107-8; Carl
Riskin, China’s Political Economy: The Quest for Development
since 1949 (Oxford: Oxford University Press,
1988), 163-4.
23 See Lin, “The Reinstatement of Economics in China Today.”
24 See footnote 1.
25 Liu Guoguang and Zhao Renwei, “On the Relationship
Between Planning and Market in a Socialist
Economy,”[论社会主义经济中计划与市场的关系] Economic Research
[经济研究] 5(1979): 47-56, author’s
own translation.

8
under socialism? Developing a market economy does not mean
practising capitalism.
While maintaining a planned economy as the mainstay of our
economic system, we are
also introducing a market economy. But it is a socialist market
economy.26
It was to take another 13 years of intense political struggle and
debate until the Socialist
Market Economy with Chinese Characteristics was to become
officially the designation of
China’s economic model. But once the question of China’s
political economy had been
reframed in terms of the most efficient allocation of resources
and the most effective
advancement of the forces of production, the question how the
market could serve as a tool
towards this end under socialism became centerstage in debates
among Chinese economists.
This prompted exchanges with Eastern European (former)
market socialists such as

Włodzimierz Brus, Ota Šik and later Janos Kornai in parts
facilitated by the World Bank.27 It
also gave rise to a fierce debate among reform economists who
emphasized that China’s reform
path had to be carved out through experimentation on the
ground improving the material
conditions one step at a time, and more academic economists
who sought to define a blueprint
for reform in theory to be implemented in one big package.28
Such a package would have
importantly involved overnight price liberalization which is a
key component of shock therapy
as it was later implemented in other socialist countries. The
economists in search of a blueprint
became invested in the subdiscipline of comparative economic
systems and some studied the
historical Socialist Calculation Debate. In this context, Mises
(1920) considered as the initiator
of the Socialist Calculation Debate was frequently
acknowledged as an important contributor
to comparative economic systems. Mises entered China’s reform
debate as the economist who
had posed the crucial question of whether a rational socialist
economy was possible at a time

when Chinese leaders had declared such a rationalizati on as a
foremost goal.29
26 Deng Xiaoping, “Answers to the Italian Journalist Oriana
Fallaci, August 21 and 23, 1980,” in Selected
Works of Deng Xiaoping, 1975-1982 (Beijing: Foreign
Language Press, 1984), 327.
27 See Gewirtz, Unlikely Partners, 64-80; Liu Hong The
Eighties: Glory and Dreams of Chinese Economic
Scholars [80年代：中国经济学人的光荣与梦想](Guilin: Guanxi
Normal University Press, 2010), pp.;
Weigelin-Schwiedrzik and Liu, “Vergessene Partner im
Reformprozess“; Edwin Lim, “The Opening of the
Mind to the Outside World in China’s Reform and Opening
Process“ [中国改革开放过程中的对外思想开放],
in eds. Wu Jinglian, Fan Gang, Liu He, Justin Yifu Lin et al., 50
Chinese Economists Review the Last 30 Years
(Beijing: Zhongguo Jingji Chubanshe, 2008).
28 Weber, “China and Neoliberalism”; Weber, How China
Escaped Shock Therapy
29 For a discussion on attempts at rationalization in China’s
early years of reform see Barry Naughton, Growing
out of the Plan: Chinese Economic Reform 1978-1993
(Cambridge: Cambridge University Press, 1995) 127-30.

9
Rethinking the Market and Socialism: Chinese Economists’
Interpretation
of Mises
The first stage of China’s reform was marked by the fast pace of
the rural reforms. In
1984, the reform of the industrial-urban economy was officially
sanctioned when the
“Resolution on the Reform of the Economy System”
（中共中央关于经济体制改革的决定）was approved by the Central
Committee. This
constituted a formal commitment by the CPC to reform China’s
basic economic model.30 The
Resolution declared that socialism and a commodity economy
were not mutually exclusive.
The reformers distanced themselves from what was labeled the
‘traditional view’ that socialism
should supersede commodity relations and structure relations of
production around use not
exchange values. From now on China’s planned economy should
use the law of value, that is
to say socialist production units should be turned into
independent commodity producers taking

their production decisions based on exchange values. The
development of such a commodity-
producing economy was declared a prerequisite for China’s
modernization. Yet, China’s
commodity economy should take a socialist form by being
planned and adhering to public
ownership.31
The 1984 Resolution was a broad-brush statement of the
direction of China’s reform.
Clearly, it officially sanctioned a wide-ranging use of markets
and the price mechanism. But
the precise constitution of China’s planned commodity
economy, especially the relation
between planning and market remained open.32 Extending the
dual-price system to the core of
the urban-industrial economy and the introduction of a new tax
system that made enterprises
responsible for their own profits and losses were important new
policies implemented that year.
Numerous and diverse experiments evaluated by practically
minded economists contributed to
working out a new economic model in practice. At the same
time, the Resolution gave impetus

to a surge in theoretical studies discussing the history of
thought on socialist economic models,
often conducted by economists calling for the need of a
coordinated market reform package.33
30 See Joseph Fewsmith, Dilemmas of Reform in China:
Political Conflict and Economic Debate (Armonk and
New York: M.E. Sharp, 1994) 137-8; Naughton, Growing out of
the Plan, 178-80; Ezra F. Vogel, Deng
Xiaoping and the Transformation of China (Cambridge MA and
London: Harvard University Press, 2011) 466-
7.
31 Lin Zili, “Socialism and the Commodity Economy,” Chinese
Economic Studies 19:1 (1985): 65-7.
32 Fewsmith, Dilemmas of Reform in China, 134.
33 Fewsmith, Dilemmas of Reform in China, 163-5.
10
In this context, a wave of papers re-evaluated Mises (1920) and
the Socialist
Calculation Debate34 building on earlier contributions focused
on Mises’ socialist adversary
Oskar Lange35 and Milton Friedman’s interpretation of the

Socialist Calculation Debate in his
speeches in China. 36 This becomes apparent when surging for
Mises (米塞斯), Lange
（兰格）and economic calculation (经济计算) in China’s most
important scientific database
China National Knowledge Infrastructure (CNKI). We can
observe a general pattern with some
variations in these contributions. They broadly agree that
Mises’ question of the possibility of
a rational socialist economy poses an important and productive
challenge to the attempt at
developing socialist reform models. Yet, in the 1980s and early
1990s, Chinese economists
rejected Mises’ answer that only a private property, free market
type economy could achieve a
rational economic order but accepted his framing of the
problem. They also tend to see Lange
as too idealist and his model as unrealistic, but adopt his
emphasis on the possibility of markets
under socialism. The reviews of Mises and the Socialist
Calculation Debate serve to call for a
need to employ the tools of comparative economic systems
research to develop a blueprint for
China’s new economic model. This constitutes a form of

Hegelian “Aufhebung” where Mises’
answer to his question of the possibility of rational socialism is
initially rejected, yet his
framing of the problem of a rational economy is retained thus
pathing the way for making
China’s economic discourse commensurable with Austrian
economics.37 Let me elaborate my
reading of the Chinese reform economists’ interpretation of
Mises based on some salient
examples.
The first Chinese translation of Mises (1935 [1920]) “Economic
Calculation in the
Socialist Commonwealth” (社会主义制度下的经济计算) appeared in
1986 in Comparative
34 See for example Rong Jingben, “Thoughts on the
Relationship Between Ownership and Market in a Socialist
Economy: Economic Calculation in the Socialist
System”[社会主义经济中所有制和市场关系的思考——
谈社会主义制度下的经济计算], Comparative Economic & Social
Systems [经济社会体制比较] 2(1986): 64,
58; Jiang Chunze and Zhang Yuyan, “Several Issues on
Comparative Economic System Studies”
[关于比较经济体制学的若干问题], The Journal of World Economy
[世界经济] 10 (1987): 38-46; Guo Xibao,

“Ludwig von Mises” [卢德维·冯·米塞斯], The Journal of World
Economy [世界经济] 10 (1987): 92-93.
35 See for example Zhang Zizhuang, “A Brief Introduction to
Lange’s Socialist Economic
Model,”[兰格的社会主义经济模型简介] Economic Perspectives
[经济学动态] 11(1979): 29-36; Jing
Rongben, “On the Comparative Study of Socialist Economic
Models”; Wang Hongchang, “A Brief Introduction
to Lange’s ‘Introduction to Economic Cybernetics’”
[兰格的《经济控制论导论》简介], Economic
Perspectives [经济学动态] 11(1981).
36 See Wang Liansheng, Friedman’s Discussion of Market
Mechanism and Centrally Planned Economy
[弗里德曼谈市场机制与中央经济计划]，经济学动态，Economic
Perspectives [经济学动态] 11(1983). For
a detailed interpretation of Friedman’s speeches in China see
Weber, “Origins of China’s Contested Relation
with Neoliberalism.”
37 For a detailed account of paradigm shifts in the economics
discipline in China (1976-2016) see Cohen,
Competing Economic Paradigms in China.
11

Social and Economic Systems (经济社会体制比较).38 This new
journal had just been founded
in 1985 in response to the 1984 Resolution.39 Driving forces
and leading editors of the journal
have been Zhao Renwei, author of the 1979 paper on market and
plan mentioned earlier and
prominent reform economists, Wu Jinglian, a reform economist
in China often dubbed as
“Market Wu” due to his free market radicalism, and Rong
Jingben, trained in Russian studies
and a scholar of comparative economic systems based at the
Marxism Research Institute of the
Compilation and Translation Bureau of the Central Committee.
Wu and Rong had previously
collaborated in an attempt to publish transcriptions of speeches
by Brus and Šik during their
visits to China in 1979-80 and 1981 respectively. However, the
publication of the market
reform proposals by these two Eastern European émigré
economists was censored.40 The 1984
Resolution created a political opening that allowed for a new
push towards comparative
economics meant to path the way for a radical price, tax and
wage reform program launched

but not implemented in 1986. 41 This initiative was supported
by translations of foreign
language texts on the relation between market and socialism,
including Mises (1920).
The editor’s note introducing the translation of Mises (1920) set
the tone for subsequent
interpretations of the text and its implicit or explicit relevance
to China. First, the editor stresses
that Mises wrote his article as a critique of the planning
practice under Soviet war communism.
Thus, argues the editor, when Mises says socialism what he
really refers to is Soviet war
communism. By the mid-1980s China had largely broken with
the Soviet planning model. It
becomes implicitly clear that Mises’ analysis is only relevant to
China as regards the question
he raises on the (im-)possibility of rational socialism not the
negative answer he provides. The
Peking University economics professor and popularizer of
marginalist economics, Yan Zhijie,
made this point clear in his later analysis of Mises (1920). Yan
urges that instead of dismissing
Mises as a capitalist apologist, China’s reformers had to realize
that his criticism concerned the

38 Ludwig Mises, “Economic Calculation in the Socialist
Commonwealth” [社会主义制度下的经济计算],
Comparative Economic & Social Systems [经济社会体制比较]
2(1986): 59-63, translated by Chen Guoxiong.
39 Rong Jingben, “Review of the Launch of ‘Comparative
Economic and Social Systems’: Commemorating the
30th Anniversary of ‘Comparative Economic and Social
Systems’ [《经济社会体制比较》创刊回顾---
纪念《经济社会体制比较》创刊三十周年], Comparative Economic &
Social Systems [经济社会体制比较]
5(2015): 9-12.
40 Wu Jinglian, Interview with Author (Beijin 2016); Liu, The
Eighties.
41 Rong, “Review of the Launch of ‘Comparative Economic and
Social Systems’”; Weber, “China and
Neoliberalism”; Weber, How China Escaped Shock Therapy.
12
traditional Soviet model and that Mises had anticipated some of
the deficiencies that had
prompted China to reform the old system.42
The editor of Mises’ (1920) translation pointed out, Mises had
shown that with the

abolishment of commodities and money under socialism it
became impossible to conduct
rational calculation and thus to use planning as an efficient
economic mechanism. The editor
rejects Mises’ stance that private ownership was a necessary
condition for the market
mechanism and thus for a rational economy as too extreme. Yet,
Mises’ question, according to
the editor, had not only given rise to the Socialist Calculation
Debate of the 1920s and 1930s
but was worth pondering in the context of China’s reform. In
the 1984 Resolution the use of
money-commodity relations under Chinese socialism had been
resurrected. The editor suggests
that Mises’ contribution would be useful in rethinking the
relation between the market and
public ownership in this context. Thus, while Mises’ dismissive
stance on the possibility of
markets under public ownership was questioned, the claim of
the need for a rational economic
mechanism and efficient resource allocation was accepted as
relevant to the design of China’s
reform.

In a longer commentary on Mises (1920) published with the
Chinese translation, Rong
Jingben further elaborates the editor’s take – which might well
have also been written by him.43
Confirming the Austrian market universalism, Rong asserts that
all socialist countries
undergoing reform would now agree on the necessity of
markets. According to Rong, markets
were needed not only for consumer goods and labor as in the
Lange model44 but also for the
means of production and finance. Replicating Mises’ (1920)
arguments, Rong elaborates that
as long as the means of production were not evaluated on the
market, there was no way for
prices to be rational. Implying a strong anti-egalitarian
message, Rong continues that given the
heterogeneity of different types of labor, it was equally
impossible for labor input to be
correctly valuated without market competition. Finally, as long
as banks were all part of one
big state-owned system treating all enterprises equally,
investments could not be following
rational standards of efficiency and consumer demand. So,
finance, too, had to be regulated by

the market.45
42 See Yan Zhijie, “Market Economy and Socialism:
Recollection of a Historical Debate”
[一场值得回顾的关于计划与市场的论战], Journal of Peking University
(Philosophy and Social Sciences)
[北京大学学报(哲学社会科学版)] 30(1993): 92-99, 128.
43 See Rong, “Thoughts on the Relationship Between
Ownership and Market in a Socialist Economy.”
44 See Rong, “On the Comparative Study of Socialist Economic
Models.”
45 See Rong, “Thoughts on the Relationship Between
Ownership and Market in a Socialist Economy.”
13
Having established the necessity for complete markets in full
agreement with Mises,
Rong turns to the question of ownership. He suggests that a
discussion based on Mises’
contribution was needed not only on whether markets are
compatible with socialist public
ownership but also on whether there might be superior markets
without public ownership. Rong

asseverates that China must stick to socialist public ownership
but hastens to add that this
cannot mean pure public ownership. In reality, China would
already practice mixed ownership
forms including individual and private enterprise as well as
foreign capitalist investment. Rong
ends his comment on the note that ultimately the essence of
public ownership was to facilitate
the accumulation of wealth in society whereas the purpose of
socialist reform was to build a
more efficient economic system. This is very much in line with
the Dengist dictum of the time
that “poverty is not socialism” and that “the fundamental task of
socialism is to develop
productivity” (Fewsmith 1995, 207). In Rong’s Austrian
inspired interpretation, socialism is
reduced to a tool for economic growth and all egalitarian
ambitions and communist visions of
a life without alienation are discarded. In sum, Rong has
stretched his endorsement of Mises
to the maximum attainable degree in a journal published by the
Central Compilation and
Translation Bureau under the political circumstances at the
time. The only remaining difference

between Rong and Mises, is Rong’s stress on mixed rather than
pure private ownership.
Rong might have been the most sympathetic interpreter of Mises
at the time. For
example Jiang Chunze in an article co-authored with Zhang
Yuyan presents a more cautious
or subtle interpretation.46 Jiang, a prominent scholar of the
Soviet Union and Eastern Europe
had just returned from being a visiting scholar at the University
of Illinois, the University of
Berkeley and the Woodrow Wilson International Center where
she would have encountered
the research frontier in economics and comparative economic
systems. Jiang and Zhang couch
their analysis of Mises in a broad call for the use of the tools of
comparative economic systems
in China’s economic system reform debate. Their article
provides what was likely to be the
most comprehensive history of thought account of the socialist
calculation debate in Chinese
to that date covering Pareto, Barone, Taylor, Hayek and
Robbins, and Lange. Against the
background of the larger debate, they criticize Mises for
suggesting that there is only one

possible form of socialism modeled on the Soviet war
communism. In contrast, the experience
of socialism over half a century, they argue, had demonstrated
that in reality there is a plurality
of models with multiple arrangements of public property. Yet,
they emphasize the importance
of Mises’ framing of the problem: his insight that economic
calculation was necessary for
46 See Jiang and Zhang, “Several Issues on Comparative
Economic System Studies.”
14
rational resource allocation has proved to be profound and
should guide China’s reform. In
order to develop its own efficient system, China should empl oy
the tools of comparative
economic systems and move away from the old way of focusing
on “isms”, i.e. capitalism
versus socialism. For Jiang and Zhang and China’s proponent of
comparative economic
systems more broadly, Mises serves to reframe the question of

the reconstitution of China’s
political economy as a technical problem to be solved with the
modern tools of marginalist
economics rather than the reading of classics in Maoism-
Marxism-Leninism or fieldwork
evaluating policy experiments.
While Mises is predominantly considered by Chinese reform
economists for his
contribution to the socialist calculation debate, some first
contributions also appear in the
second half of the 1980s on his larger body of work. For
example, Guo Xibao of the Wuhan
economics department surveyed Mises’ theories of money and
the business cycle, his anti-
Keynesianism and his study of human behavior.47 Guo stresses
Mises’ influence in the West
in light of the decline of Keynesianism and the new rise of
liberalism but comes to the
conclusion that Chinese economists don’t have much to learn
from Mises. Another example is
the Chinese translation of a Japanese article titled “Is Free
Science Possible?” that introduced
discussions on the methodological and epistemological
foundations of Mises’ work including

the notions of praxeology and introspection and his rejection of
positivism.48 But clearly, the
greatest interest aroused Mises’ work on the impossibility of
rational socialism.
Most Chinese commentators dismissed Lange’s model as too
idealist and thus not
useful for China’s purposes of reform. Yet, the evaluation of
Mises’ contribution by most
Chinese economists is in agreement with that of Lange. Xiao
Xin quotes Lange to this end:49
Socialists have certainly good reason to be grateful to Professor
Mises, the great
advocatus diaboli of their cause. For it was his powerful
challenge that forced the
socialists to recognise the importance of an adequate system of
economic accounting
to guide the allocation of resources in a socialist economy.50
47 Guo, “Ludwig von Mises.”
48 K. Saeki, “Is ‘Free Science’ Possible? On Objectivism and
Subjectivism in
Economics”[自由的科学”可能吗?——
关于经济学上的客观主义与主观主义], Social Sciences Abroad
[国外社会科学] 6(1986): 27-31.

49 Xiao Xin, “The Lange Model and Its Theoretical
Significance” [兰格模式及其理论意义], The Changbai
Journal [长白学刊]，3(1987): 61-64.
50 English translation as in original. See Oskar Lange, “On the
Economic Theory of Socialism,” Review of
Economic Studies 4:1 (1936): 53.
15
By accepting Mises’ framing of the problem of socialist
economic systems, an
influential fraction of Chinese reform economists made China’s
market reform debate
commensurable with Western mainstream economics and the
global neoliberal economic
hegemony. Market socialists like Lange and his successors like
Brus and Kornai thereby served
as a bridge, consciously introduced to China by the World Bank
for precisely this purpose.51
Paving the Way for the Socialist Market Economy with Chinese
Characteristics

In 1986 and again in 1988 initiatives launched first by Zhao
Ziyang and then by Deng
Xiaoping to liberalize the prices of essential means of
production and labor combined with far-
reaching tax and financial reform failed. 52 If successful, these
reform pushes would have
constituted a big policy step towards the Mises-inspired vision
articulated by Rong. Despite
the failure of these major policy initiatives, in 1987 a renewed
ideological re-articulation of the
nature of Chinese socialism moved Chinese reform ideology
further in Mises’ direction. At the
Thirteenth National Congress of the CPC party general secretary
Zhao Ziyang officially
announced that China was in the primary stage of socialism.
This concept had initially been
rejected by the reform leaders as heresy when articulated by Su
Shaozhi and Feng Lanrui.53 In
1987, declaring China to be in the primary stage of socialism
meant that China’s so-called
economic backwardness served as justification to further lift
constraints on private ownership
and the market. On this basis, Zhao Ziyang promoted dropping
“planned” in the designation of

China’s economy and to move to a socialist commodity
economy without further
qualifications.54 Around that time and in the context of this
renewed thrust towards more
comprehensive marketisation, Murray Rothbard claims: “The
Mises Institute...where I'm vice
president, got a message from the Chinese Embassy in
Washington DC that they wanted all
the works of Ludwig von Mises, they want to figure out how to
desocialize.”55 But the collapse
of first price and then social stability in 1988 and the political
upheaval of 1989 led market
reforms to grind to a halt.
51 Edwin Lim, Author Interview (London, 2016).
52 Fewsmith, The Dilemma of Chinese Reform, 220-26; Vogel,
Deng Xiaoping and the Transformation of China,
469-73; Weber, How China Escaped Shock Therapy.
53 Su Shaozhi and Feng Lanrui, “The Question of the Stages of
Social Development,” Economic Research [经济
研究] 5(1979): 14–19.
54 Sun, The Chinese Reassessment of Socialism, 74-80.
55 Murray N. Rothbard, “The Current State of World Affairs,”
Speech at the 1989 Texas State Libertarian
Conference, retrieved from: https://mises.org/library/current-

state-world-affairs. I would like to thank Quinn
Slobodian for providing this source.
https://mises.org/library/current-state-world-affairs
16
In 1990, market reformers faced with the challenge to relaunch
their agenda mobilized
interpretations of Mises and the Socialist Calculation Debate.
The newly appointed director of
the State Commission for Economic System Reform, Chen
Jinhua, was a convinced advocate
of the need for the market to liberate and develop China’s
productive forces.56 Chen required
a theoretical analysis to justify his political agenda. He asked
Jiang Chunze, then deputy head
of the Economic System Division of his commission to compile
a review of the international
debate and experience of the relation between plan and
market.57 Drawing on her earlier work,
Jiang now revisited her evaluation of the Socialist Calculation
Debate to argue that both the

market and planning were neutral means of resource allocation.
As such they could not be the
defining feature of socialism or capitalism. Further, 20th
century history, according to Jiang,
had shown that market economies were superior in enhancing
productive forces. Thus, since a
planned economy was not a requirement for socialism, China
was best advised to transform its
economic system from a planned to a market economy.
Jiang recapitulates Mises argument that rational prices
constitute a necessary condition
for an efficient economy and could only be achieved by the
market. In contrast to Lange, who
saw the market as a trial and error mechanism to serve the plan,
Jiang argued for a full-fledged
market economy as the basic means of resource allocation. She
pushes Lange’s idea of market
socialism to a new level. If socialism can use the market to aid
planning, it can also use it as
fundamental economic mechanism. This would not prevent
China from also using
macroeconomic planning, Jiang insists. Keynesians and
Neoliberals – in Jiang’s view – had
come to agree that the modern market economy is not a pure

laissez faire economy and that
some extent of intervention was required. Hence, there was no
reason that China could not also
combine a market economy with macroeconomic planning and
that this would be socialist by
virtue of liberating China’s forces of production.58
56 Chen Jinhua, Eventful Years: Memoirs of Chen Jinhua
(Beijing: Foreign Language Press, 2008), 277; Chen
Jinhua, “Remembering the Fermentation and Establishment of
the Socialist Market Economy” [回顾社会主义
市场经济体制的酝酿和确立], Finance and Economics [财经] 27(2012).
57 See Jiang Chunze, “On an Internal Report about Plan and
Market” [关于计划与市场的一份内部报告],
China Reform Forum (中国改革讨论网): retrieved from:
http://people.chinareform.org.cn/J/jiangchunze/Article/201303/t
20130304_161859.htm; Jiang Chunze, Author
Interview (Beijing 2016).
58 See Jiang Chunze, “Plan and Market in the context of the
History of Global Debate and Recent Experience”
[计划与市场在世界范围内争论的历史背景和当代实践], A Briefing Report
to the State Commission for
Restructuring the Economy by the Deputy Head of the Foreign
Economics System Division, submitted on

September 30, 1990, first published in Reform[改革], 2(1992).
http://people.chinareform.org.cn/J/jiangchunze/Article/201303/t
20130304_161859.htm
17
Chen was impressed with Jiang’s succinct argument in line with
his marketisation
agenda and shared her report with Jiang Zemin who had
replaced Zhao Ziyang as General
Secretary of the CPC in 1989, Premier Li Peng, and Deng
Xiaoping who all endorsed the
review and added it to the reference material for the upcoming
Seventh Plenary Session of the
13th Party Central Committee. On the eve of this important
Plenum, Deng Xiaoping called a
meeting with party leaders and basically endorsed the message
of Jiang Chunze’s report. Deng
is quote to have said:
We must get clear theoretically that the difference between
capitalism and socialism
does not lie in planning or market” and may “not think that we

are following the
capitalist road for developing a market economy. ... Both
planning and market are
needed. If we do not have a market, we cannot get information
from the world and that
would be to resign ourselves to a backward status… .59
Deng failed to gain the Central Committee’s support for his line
at this time (Vogel
2011, 667-8). Several new articles delivering interpretations of
Mises and the Socialist
Calculation Debate in ways compatible with Jiang Chunze’s
report appeared in 1990-1992.60
When Deng launched his Southern Tour in 1992, preparing the
return to his vision of market
reform, he reiterated his earlier statement echoing Jiang’s
report.61 In October 1992, the 14th
CPC National Congress took the formal decision to establish a
Socialist Market Economy with
Chinese Characteristics. Jiang Zemin explained this new leading
concept. His words once more
resonated with Jiang Chunze’s and others’ ‘anything goes’
solution to Mises’ framing of the
problem of rational socialism:

Whether the emphasis was on planning or on market regulation
was not the essential
distinction between socialism and capitalism. This brilliant
thesis has helped free us
59 See Chen, Eventful Years, 292; Jiang Chunze, ““The
Background and Far Reaching Influence of Deng
Xiaoping’s
Southern Speech” (邓小平南方谈话的背景和深远影响): China Reform
Forum, online:
http://www.chinareform.org.cn/Explore/fruition/201203/t20120
309_136276.htm. 2012).
60 See for example Q. B. Yang, “Several Issues on the Socialist
Planning vs Market Debate in the Twenties and
Thirties,” [关于二三十年代社会主义计划与市场大论战的若干问题] Journal
of Shaanxi Normal University
(Philosophy and Social Sciences Edition)
[陕西师大学报(哲学社会科学版)] 20(1991): 16-22; Z. J. Yan,
“Market Economy and Socialism: Recollection of a Historical
Debate,”[一场值得回顾的关于计划与市场的论
战] Journal of Peking University (Philosophy and Social
Sciences) [北京大学学报(哲学社会科学版)]
30(1993): 92-99, 128.
61 Chen, Eventful Years, 292-3.

18
from the restrictive notion that the planned economy and the
market economy belong
to basically different social systems, thus bringing about a great
breakthrough in our
understanding of the relation between planning and market
regulation.62
The Fourteenth Congress also further eroded the primacy of
public ownership and
stressed the need for diverse ownership forms and equal
competition between state and non-
state competition thereby legitimizing foreign and private
ownership.63 To be sure, the CPC
maintained its ultimate primacy in all affairs, including the
economy, and its own logic of
economic governance distinct from the global neoliberal
mainstream.64 But by the early 1990s,
China had come a long way from Mao’s agenda of continuous
revolution in the direction of
Mises’ emphasis on rational allocation and the superiority of the
market economy.

Conclusion
A large wave of scholarly interest in Mises’ whole body of work
and Austrian
economics swept China in the late 1990s. This by far outsized
the early reform era engagement
with Mises I have analyzed in this essay. Neoliberal thinking
gained wide-spread traction when
privatization had moved to the top of China’s policy agenda and
the Chinese government
negotiated accession to the World Trade Organization. Rather
than focusing on this big tide
that has received some recent scholarly attention,65 this essay
analyzes how in the first long
decade of reform and opening up the intellectual and ideological
foundation of China’s
economic system was reconstituted in ways that made China’s
economics discourse
commensurable with the global mainstrea m.
In the 1930s, Wang Yanang diagnosed that there were only two
possible results when
applying Austrian economics to China’s reality: positivist
exceptionalism and metaphysical
universalism. The genealogy of the Socialist Market Economy
with Chinese Characteristics in

this essay leads us to read China’s market reforms as an attempt
to reconcile precisely these
two tendencies. On the one hand, China’s reformers have
subscribed to the universalism of the
market economy as only viable form of rational economic
organization and as without
62 Jiang Zemin, “Full Text of Jiang Zemin’s Report at 14th
Party Congress, 1992,” online:
http://www.bjreview.com.cn/document/txt/2011-
03/29/content_363504.htm, last
updated March 29, 2011.
63 Sun, The Chinese Reassessment of Socialism, 19.
64 Weber, “China and Neoliberalism.“
65 See for example Dongen, Realistic Revoluion, 120-1; Liu
Junning, “Classical Liberalism Catches on in
China,” Journal of Democracy, 11:3(2000): 48-57; Karl, Magic
of Concepts, 160-5; Wang Hui, China’s New
Order (Cambridge and London: Harvard University Press): 96-
115.
19

alternative in China’s attempt to escape backwardness. As such,
they have fully embraced both
Mises’ insistence on the need for a rational economic
mechanism and efficient resource
allocation as well as his claim that this could only be achieved
by a market economy. Yet, the
reformers stress China’s exceptionalism and reject Mises’
necessity of universal private
property as unfounded idealism not compatible with Chinese
reality. China’s reformers have
made wide-ranging concessions but ultimately stand firm that
China’s socialist ambition and
specific historical circumstances require a plurality of
ownership relations with a leading role
for public ownership. The tension between this embrace of
market universalism and insistence
on Chinese exceptionalism continues to this day and provides a
lens that can help us understand
some of the continuing contradictions in China’s relation with
global neoliberalism.
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