Lao Tzu (the “Old Philosopher”) is thought to have been an older contemporary of Confucius and arguably the first libertarian. In the Tao Te Ching (“The Classic of the Way and Its Virtue”), Lao Tzu discusses the relations among the individual, the state, and nature. Like 18th‐century liberals, he argued that minimizing the role of government and letting individuals develop spontaneously would best achieve social and economic harmony.
In 81 short chapters (less than 6,000 words), Lao Tzu sets out his vision of good government and a good life. At the center of his thoughts were the principle of wu‐wei (nonaction or nonintervention) and the notion of spontaneous order. In chapter 57, he sums up the core of his liberal views:
The more restrictions and limitations there are, the more impoverished men will be.… The more rules and precepts are enforced, the more bandits and crooks will be produced. Hence, we have the words of the wise [the sage or ruler]: Through my non‐action, men are spontaneously transformed. Through my quiescence, men spontaneously become tranquil. Through my non‐interfering, men spontaneously increase their wealth.
This passage, written more than 2,000 years before Adam Smith’s call for a “simple system of natural liberty,” is a reminder that China’s greatest legacy is not the oppressive state experienced under Mao Zedong’s thought, but the potential for a free and open society embodied in Lao Tzu’s thoughts. Although Lao Tzu did not fully develop a theory of the spontaneous market order, as did F. A. Hayek, he clearly recognized the importance of limited government and voluntary exchange for wealth creation. The manifest implication of his views is that an overly intrusive government necessarily politicizes economic life and increases what Frédéric Bastiat was later to call legal plunder.
The corruption that plagues China today stems from too much, not too little, intervention. When people are free to choose within a system of just laws that protect life, liberty, and property, socioeconomic harmony naturally follow, and this spontaneous order can only evolve from decentralized market processes.
Government, to be good, must be in harmony with each person’s desire to prosper and to expand his range of choices. By emphasizing the principle of nonintervention, Lao Tzu recognized that when governments leave people alone, then, “without being ordered to do so, people become harmonious by themselves.” Thus, he understood, at least implicitly, that central planning generates social disorder by destroying economic freedom. When coercion overrides consent as the chief organizing principle of society, the natural way of the Tao and its virtue (Te) will be lost to the heavy hand of the state and its power.
Disorder arises when government oversteps its bounds—that is, when it overtaxes and denies people their natural right to be left alone to pursue their happiness, as long as they do not injure others. Lao Tzu argued that taxes, not nature, were the primary cause of famine: “When men are deprived of food,” he wrote, “it is because their kings [rulers] tax them too heavily.” Likewise, he recognized that rulers could easily destroy the natural harmony that people cherish by destroying their liberty: “When men are hard to govern, it is because their kings interfere with their lives.”
Mao’s destructive policies during the “Great Leap Forward,” which abolished private property, imposed central planning, and led to the imposition of crippling taxes on farmers in the form of compulsory grain deliveries, caused mass starvation between 1958 and 1962. The “Great Helmsman’s” disregard for private property and human rights still haunts China. Conflicts between developers and farmers over land‐use rights are the cause of much social turmoil in present‐day China. Although land‐use rights have been extended, the government has refused to allow full‐fledged privatization, which would undermine the Chinese Communist Party’s power. The internal passport (hukou) system also interferes with individual freedom and leads to economic inefficiency.
Freedom requires some boundaries or rules if it is to be socially beneficial and not lead to chaos. Lao Tzu understood the need for rules, but, unlike later liberals, he did not develop the ideas of private property and freedom of contract that undergird a liberal market order. Hong Kong’s motto “Small government, big market” is in tune with Lao Tzu’s conclusions. His advice to China’s early rulers remains pertinent: “Governing a large country is like frying a small fish. You spoil it with too much poking.”
China’s present leaders are calling for a harmonious society, but, as Lao Tzu understood, such a society is impossible without widespread individual freedom and a rule of law that limits the power of government to the protection of persons and property.
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