Financial System, The Division Of Labor And Economic Growth

How to explain the economic growth or decline in the history of countries all over the world in a unified frame is an important subject of the economics research all the time. I think, the theory of division of labour and economic growth proposed by Adam Smith and developed by Yang X., which means division of labour is the main engine of growth and plays a central role in capital accumulation and technological progress; the theory of property rights and economic growth proposed by North and Olson, are more reasonable in all the explains. But Smith and Yang's research are under the condition of free exchange, neglecting predation. North and Olson did not explain the relationship between property rights and economic growth in particular. So, if we incorporate their theories into one same frame, we will offer a more overall understanding for long-run economic growth performance.Fiscal system is chosen to be the key concept to explain why the state is to be predator, how the state predates and how the predation impacts on the division of labour and economic growth., with analyzing maximizing the fiscal revenues , fiscal system , property rights structure , the status in price negotiation, division of labour and economic growth endogenously in a unified frame. The main conclusion of this paper is: the state is the outcome of predation, which maximizes its fiscal revenues by hierarchical policy of property rights, under the restriction of legitimation; fiscal system is the basic institution of the state, and there is different forms of fiscal revenues under different fiscal system, which means different property rights structure and different status in price negotiation; and these differences regulate the different distribution of the profits of the division of labor, and which determine the performance of long-run economic growth.This paper is divided into eight chapters., The question about how to explain the different economic growth performance is put forward firstly, in chapter one. Under the literature review, this paper will incorporate the theory of division of labour and economic growth and the theory of property rights and economic growth in a unified frame to explain the long-run economic growth performance. The main task of this paper is to reveal the mechanism that how the predation produced by state effects the evolution of division of labour and economic growth.In chapter two, from the "need-effort-satisfaction" model proposed by Bastiat, there are two main pathes to meet the need, one is free exchange, and the other is predation. Free exchange and predation have different influence on division of labour and economic growth, and this is the prerequisite of the following research. The essence of predation is the infringement of property rights.Chapter three reveals the reason why state is a predator. Among the research of Olson's theory about "roving bandits" and "stationary bandits" and the model of "producer-predator", we get a predatory state model. The origin of the state proves the predatoriness of state, and it also proves the aim of state is maximizing its fiscal revenues. We also revise the model of maximizing fiscal revenues proposed by Brennan and Buchanan. Then fiscal system is the key concept in this paper.The main task of chapter four is to reveal fiscal system is the basic system thatstate arranged to maximize fiscal revenues. Fiscal system determines the structure of property rights. According to the specific form revenue, we may divide fiscal system into tribute-fiscal system, rent-fiscal system, profit-fiscal system, tax- fiscal system, tariff-fiscal system and bond- fiscal system, and the structure of property rights under each fiscal system is different.Chapter five reveals how different fiscal system impacts on division of labour and economic growth. The status in price negotiation is different in different structure of property rights, which can be divided into two kinds: one is the unequal status in price negotiation under tribute-fiscal system, rent-fiscal system, profit-fiscal system, and the other is equal under tax- fiscal system. The unequal status in price negotiation changes the condition of the evolution of division of labour, changes the direction of division of labour and then damages the economic growth, when the power of the state is not limited well, the actions of pursuing privilege would lead the economy to bad balance. Though tax-fiscal system is harmonious with economic growth, but the interest groups in democratic politics can also create new privilege to benefit themselves, which would also damage division of labour and economic growth. So the best way is to limit the tax power of state well by reestablish Fiscal-Money Constitutions.In chapter six and chapter seven, we analyze the relationship between fiscal system and economic growth in Chinese economy history. Fiscal system before Qin Dynasty is looked as tribute-fiscal system, and after Qin Dynasty fiscal system is rent-fiscal system. Fiscal system after 1950 is profit-fiscal system, and after 1978, fiscal system is in the transaction to tax- fiscal system. The different fiscal systems have made different structures of property rights. China established rent-fiscal system comparatively early in the world, which caused Chinese early prosperity, and also caused Chinese stagnation afterwards. Under the double transformation of surplus, China established profit-fiscal system since 1949, which promoted Chinese quick industrialization and caused fiscal crisis at the end of 1970 decade. Then more and more resources are independent from the state in the transition to tax- fiscal system, and it combined with the continual economic growth. But the state power has not gotten effective limits in transition; the feature of rent-fiscal system is also more and more stressed. So if we want establish the foundation of continued economic growth, we should limit the state tax power effectively by fiscal-money constitutions.The main conclusion is summarized in chapter eight, and the defect of this paper is also pointed out. In the future, more effort should be made on researching on fiscal expenditure, the representative countries' history of economic growth, and applying the theory in policy.