Paper short abstract:

This paper develops a comparative and connected history of the debates over transition to a market economy in West-Germany, the USA and the UK after World War II and in China during the first decade of reform under Deng Xiaoping (1978-1988). It shows that shock therapy originates from neoliberal and ordoliberal visions for the transition from a war to a peace economy which were invoke to support radical reform in China.

Paper long abstract:

This paper develops a comparative and connected history of the debates over transition to a market economy in West-Germany, the USA and the UK after World War II and in China during the first decade of reform under Deng Xiaoping (1978-1988). It shows that shock therapy originates from neoliberal and ordoliberal visions for the transition from a war to a peace economy which were invoke to support radical reform in China. At both historical moments the political aim was to reintroduce market mechanisms into a dysfunctional command economy. The question what kind of price reform this required was subject to heated debates over the nature of markets. This paper shows how the West-German 1948 currency and price reform was introduced into the Chinese reform debate by German ordoliberals and neoliberals like Friedman. It traces how the West-German case study was mystified as “Erhard Miracle” and became a metaphor for the monetarist vision of universal overnight price liberalisation in China. In contrast, the gradual transition in the UK as well as the boom-bust cycle that followed the sudden liberalisation in the USA substantiated the call for a more gradual reform. Thus the post-War experiences played a critical role in China’s pathbreaking reform debate of the 1980s.