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Liberty Capital Accumulation and Economic Growth

Author

Listed:
  • Qixin Zhan

    (China Economics and Management Academy, Central University of Finance and Economics)

  • Heng-fu Zou

    (The World Bank
    Institute for Advanced Study, Wuhan University
    Institute for Advanced Study, Shenzhen University)

Abstract

This paper delves into the theoretical underpinnings of how freedom, grounded in the rule of law and property rights, shapes wealth accumulation and economic growth. By integrating liberty into the neoclassical growth model, we introduce the innovative concepts of "liberty consumption" and "liberty capital" and define utility and production functions on them. Through theoretical analysis and simulations, we ascertain that a robust preference for liberty nurtures sustained prosperity and heightened productivity. However, in scenarios where the costs associated with liberty consumption are substantial and liberty capital depreciates rapidly—indicating an environment inhospitable or constraining to liberty —- it adversely affects economic output and overall well-being. These insights underscore the significance of examining liberty dynamics in economic growth and development. Without the presence of liberty, property rights, and the rule of law within utility and production functions, society faces the peril of descending into either a Hobbesian state of "war of all against all" or a totalitarian state ruled by a singular authority. In either case, life becomes solitary, poor, nasty, brutish, and potentially short.

Suggested Citation

  • Qixin Zhan & Heng-fu Zou, 2024. "Liberty Capital Accumulation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 25(1), pages 63-116, May.
    • Handle: RePEc:cuf:journl:y:2024:v:25:i:1:zhanzou
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    References listed on IDEAS

    as
    1. Hayek, F. A., 2022. "Law, Legislation, and Liberty, Volume 19," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226781815 edited by Shearmur, Jeremy, September.
    2. Friedman, Milton & Appelbaum, Binyamin, 2020. "Capitalism and Freedom," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226734798, September.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Liberty consumption Liberty capital; Economic growth;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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