The Hayek Prize: In Praise of Prices

OF ALL the great crimes that societies have managed to perpetrate against themselves, the suppression of prices receives scarce attention. But not for lack of trying on the part of Friedrich Hayek, the great Austrian economist. In his most popular work, The Road to Serfdom, he wrote:

Any attempt to control prices or quantities of particular commodities deprives competition of its power of bringing about an effective co-ordination of individual efforts, because price changes then cease to register all the relevant changes in circumstances and no longer provide a reliable guide for the individual’s actions.

These words, written in 1944, may seem obviously correct to many in private business, and obviously wrong to others who believe in centralised planning. Yang Jisheng, a Chinese journalist, falls into a third category. In 1997, he stumbled upon a Chinese copy of Hayek’s work in a Beijing bookstore. It had initially been translated in 1962 but only for limited distribution among the country’s top leadership. Copies began to spread with the country’s opening—albeit with the addition of highly critical introductory essays.

For Mr Yang, the book was a revelation. In 1959, he had rushed back from boarding school to his home in a rural Chinese village after being tipped off by his friend that his own father was starving to death. He carried a tiny supply of rice but found his father too far gone to eat. What caused this misery was, at the time, beyond Mr Yang’s understanding: he accepted the government’s description of it as a natural disaster.

Reading Hayek, Mr Yang said, deepened his understanding of what really went wrong since the disastrous policies instituted by Mao under the Great Leap Forward. Mr Yang’s book on the subject, “Tombstone: The Great Chinese Famine, 1958-1962”, is a remarkably detailed, meticulously reported account of how an economic experiment led to the death of at least 36m. Along with wrenching accounts of the savagery that emerged from a horrendous misallocation of resources, Mr Yang reveals records from the National Bureau of Meteorology that refute any contention that, as the government had it, weather played a role in the shortages.

The original Chinese version of “Tombstone” is not available on the mainland but it has gone through multiple printings in Hong Kong since its release in 2008. An English-language translation was released in 2012 and on May 29th was it was recognised by the Manhattan Institute, a free-markeetering think-tank, for the Hayek prize, named in honour of the economist.

In deference to Hayek, Mr Yang had initially thought to title his book, “The Road to Paradise”. He used “tombstone” in in honour of his father; for the other 36m who died; for the system that created the famine; and for the risks he himself incurred in publishing such a book. In his acceptance speech, he noted 30 years ago it would have resulted in his death, and 20 years in his incarceration.

Now, he says, he has been marginalised at home, but nothing worse. So far. China remains, at times, a frightening place, eager to censor reports and to punish reporters. To know China at all is to know that the status of a journalist such as Mr Yang is subject to change.

Happily though, Mr Yang says a famine like the one he has described could not recur because at least one form of information has since become freely available: prices. During China’s great famine of the 1950s explicit reports of misery were squashed and the centralised economy left no room for the transmission of market signals. Since Mao’s death, markets for grains have emerged, all of them tied to prices. Any shortages would inevitably cause these to rise, providing transparency as well as incentives to increase supply. This was understood clearly by Hayek, ultimately became obvious to Mr Yang, and has since become so obvious to others that perhaps it need not be further repeated. But Mao remains a powerful presence in China, as the face on every banknote used in every exchange of cash reminds us. Mr Yang’s work is an indispensible account of what happens when Mao had the chance to do anything more with money.

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