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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," CEMA Working Papers 619, China Economics and Management Academy, Central University of Finance and Economics.
    • Handle: RePEc:cuf:wpaper:619
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    Cited by:

    1. Heng-fu Zou, 2025. "Institution-Based Asset Pricing: A Generalization of Consumption- and Production-Based Models," CEMA Working Papers 765, China Economics and Management Academy, Central University of Finance and Economics.
    2. Heng-Fu Zou, 2025. "Liberal Ideas and the Great Enrichment: A Theoretical Model," Annals of Economics and Finance, Society for AEF, vol. 26(1), pages 1-175, May.
    3. Qixin Zhan & Heng-Fu Zou, 2025. "The Right to Bear Arms, Private Property, and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 26(1), pages 281-309, May.
    4. Heng-fu Zou, 2025. "Institutional Volatility and the Equity Premium Puzzle: A Dynamic Asset Pricing Framework for OECD Economies," CEMA Working Papers 775, China Economics and Management Academy, Central University of Finance and Economics.
    5. Minxian Sun & Heng-Fu Zou, 2025. "A Macroeconomic Model with Property-Rights Capital," Annals of Economics and Finance, Society for AEF, vol. 26(1), pages 213-246, May.

    More about this item

    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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