State And Market: The Theory And Practice Of State Macroeconomic Control Under Market Economy

State macro-economic control is an important way used to regulatingeconomy by fiscal policy, financial policy and other government acts undersocialist market economy in china. Since the reform and opening up, China'snational economy has developed rapidly under the direction of the statemacroeconomic policy, and socialist market economy has made greatachievements. But China's macro-economic control system is still in the processof gradual improvement. It is significant to study the formation and developmentof state macroeconomic control theory, and the practices of developed capitalistcountries and our country.This article studied the necessity and the rationality of state macroeconomiccontrol by combining theories with practices, and the boundaries and the scope ofareas where it can play a role. It explained how to implement an appropriatebalance of state intervention and market forces to make a smooth and orderlyeconomy. These results provide resources and references for enriching ourmacroeconomic control theory, further perfecting socialist market economyoperating mechanism and macroeconomic control mechanisms.Chapter 2 of this article detailed the formation and development of stateintervention theory in Western economic theory. Classical economics theorystressed self-regulating market economy, free competition and freedom ofinternational trade.Hume and Say consider that state economic functions exist only in the areasof market failure, that is, provide public goods and services. Adam Smithproposed that monarchs should protect members from the community and society.Marshall argued that the market can efficiently allocate resources throughself-regulation, but government intervention in the economy will only damage theautomatic adjustment mechanism. Pigou advocated that national economicintervention should be limited to eliminate externalities on the economy in orderto achieve Pareto optimal, and income distribution policies can increase social welfare.Keynesian actively advocated effective government intervention in economy.They considered that the changes of effective demand will damage theequilibrium of commodity markets and labor market. Lack of consumer demandleads to excess production, inadequate investment demand increasesunemployment. It may be forming an economic crisis. The best way to solve thecrisis is direct government intervention in the economy with adopting theexpansion of fiscal policy and monetary policy to actively expand effectivedemand, and to finally implementation of full employment. After 1970s, someeconomists began to doubt State intervention theory.Hayek proposed monetaryover-investment theory that the source of the economic cycle is credit changescaused by changes in the investment, if there is a problem in the financial system,it will make the expansion of the monetary policy cannot continue. Then economywill be affected due to a lack of capital, even comes to a crisis. He believed thatcapitalism itself has a stabilizing function, against country intervention ineconomy. Friedman argued the there is a stable and tight relation betweeninflation and money supply, opposed to the financial policy as demand strategiesand government interventionism plan .Chapter 3 of this article summarized the Marxist theory of statemacro-economic regulation. Western economics focused on capitalismsocio-economic activities on imagery, run, and decision theory, etc. Marx studiedthe objective laws of development of capitalist social, and illustrated the objectivelaws of movement of modern society's economic and social system of at a higherlevel. Marxist political economy revealed that the capitalist production is theproduction of surplus value. The basic contradiction of capitalism, i.e. the socialproduction and private possession, determines that the capitalist society willinevitably produce periodic economic crisis of relative production surplus. Theonly solution is planned economy. Marxism also supposed that increased demandby the issuance of currency is not the real demand, cannot resolve thecontradictions of the supply and the demand, will bring the high inflation rate,undermine the economic order, and impact social stability. Marxist political economy argued that the government regulates aggregate demand and aggregatesupply through rational and effective plan to achieve stable economic growth.In chapter 4, it studied the practice of macroeconomic control of advancedcapitalist countries in Europe and America. Before the worldwide economic crisisin 1929, many countries adopted laissez-faire, affected by the mercantilism. Afterthe economic crisis and Keynesian economics theory, people gradually acceptedthe idea of state intervention in the economy, and the government expanded theeconomy functions. After the war, despite constantly having some financial crisisand the economic crisis, Keynes's theory helps the economy of Western capitalistcountries achieve greater development. In 1970s, because of a long-term"stagflation", neo-liberal economic replaced it. After 1980s, the most advancedcapitalist countries began to adjusted their state intervention policy, tend toneoliberal economic ideology. In response to the financial crisis in 2008, mostcountries have taken to inject huge financial liquidity, reduce the benchmarkinterest rate, launched a large-scale rescue plan and economic stimulus plan,nationalize the private enterprise. State intervention scale reached unprecedentedlevels.Chapter 5 of this article depicted Japanese practice. From 1950s, Japan andother economy, in order to catch up with Europe and US., provide industrialpolicy in view of the situations of social and economic, focused limitedresources to the key Sections, also achieved remarkable results. These experiencesprovided a very useful addition to the state macroeconomic theory.In the past three decades, Chinese macroeconomic control policy draws onthe successful experiences of developed countries in Europe and Japan inindustrial policy, is improved and reinforced constantly in practice, play adecisive role on China's economic growth. In response to the financial crisis in2008, China put out a series of macro-economic control policies, such as tenindustry revitalization plan, expanding 4 trillion fiscal expenditure, etc., will bevery important on economic development. State macroeconomic control under the Socialist market economy is verysignificant. It is an important way to maintain sustaining, coordinating, andhealthy development of economy. It is necessary to notice the relationshipbetween the market mechanism and macroeconomic control while formulatingand implementing policy. Bring into full play the advantages of fiscal policy`sobvious effects on economy, the government ought to actively adopt a variety offiscal policy instrument, such as government expenditures, tax, and to implementthem appropriately. The central bank ought to adopt more monetary policyinstrument, such as interest rates, reserve ratio, credit and open market operation,to cooperate fiscal police. The function of government is also important onrresearching and planning effective industrial development strategy to guide thefuture economic development.