The Economics of China, Part 1 of 3: Economic Systems, GDP, and China Before 1949

This presentation is the first part of a three-part series presented by instructor Dr. Jason Dean, Associate Professor of Economics at King’s University College at Western University. Using China’s economic history as its central case study, the series helps legal professionals understand how markets, government planning and economic incentives shape public policy and long-term development. 

In 1700, China’s output per person sat at ninety-nine percent of the world average. By 1952, it was twenty-three percent. That collapse is the subject of this series, and the explanation is not the one most histories give. 

This first course builds the analytical tools before it touches the history because the argument the series makes about China cannot be judged by anyone who has not been handed the means to judge it. It opens with scarcity, opportunity cost, and the three questions every society must answer. It then compares how command and market systems answer them, and it treats the failure of central planning as a structural problem rather than a moral one. A planning board of honest, capable officials with a fast computer still fails, and the course explains precisely why through the economic calculation problem, the knowledge problem, and the arithmetic of effort and reward. It gives equal attention to what competition actually does, including the half of the price mechanism people usually forget, which is the role of losses in shutting bad ideas down. 

A short section on measurement follows, covering what GDP counts, the three ways of counting it, what it leaves out, and why real and nominal figures tell different stories.

The final part turns to China before 1949 and sets a puzzle. By the standards the course has just established, the traditional Chinese economy performs well. Markets were competitive, entry and exit were easy, land and labour were mobile, and production was efficient. It should have industrialized. It did not. Mark Elvin’s high-level equilibrium trap supplies the answer, and the closing lesson is that efficiency tells you how well you are using the technology you already have and nothing about whether you will ever get a better one.