Lao Tzu, thought to have been an older contemporary of Confucius (551-479BC), may have been the first libertarian. In writing the Dao De Jing he argued that if governments followed the principle of wu-wei (non-action), social and economic harmony would naturally emerge and people would prosper.
The essence of this liberal vision is concisely stated in Chapter 57: "The more restrictions and limitations there are, the more impoverished men will be ... The more rules and precepts are enforced, the more bandits and crooks will be produced. Hence, we have the words of the wise [ruler]: Through my non-action, men are spontaneously transformed. Through my quiescence, men spontaneously become tranquil. Through my non-interfering, men spontaneously increase their wealth."
That passage, written more than 2,000 years before Adam Smith's call for a "simple system of natural liberty", is a reminder that China's legacy is not the commands of Mao Zedong Thought but the freedom of Lao Tzu Thought.
Although Lao Tzu did not have a fully developed theory of the spontaneous market order, he clearly recognised the importance of limited government and voluntary exchange for the creation of wealth.
The corruption that plagues China today stems from too much, not too little, intervention. When people are free to choose within a system of just laws that protect life, liberty and property, then social and economic harmony will occur naturally. Top-down planning cannot impose spontaneous order; that can evolve only from decentralised market processes.
Good government must be in harmony with each person's desire to prosper and expand the range of choice. By emphasising the principle of non-intervention, Lao Tzu also recognised that when government leaves people alone, then "without being ordered to do so, people become harmonious by themselves". He thus understood, at least implicitly, that central planning generates social disorder by destroying economic freedom.
Disorder arises when government oversteps its bounds - when it overtaxes and denies people their natural right to be left alone to pursue their happiness, as long as they do not injure others.
Mao's disregard for private property and human rights still haunts China. Conflicts between developers and farmers over land-use rights are causing social turmoil today. Hong Kong's motto - "small government, big market" - is in tune with Lao Tzu Thought. His advice to China's early rulers is pertinent today: "Governing a large country is like frying a small fish. You spoil it with too much poking".
Freedom requires some boundaries or rules if it is to be socially beneficial and not lead to chaos. Lao Tzu understood the need for rules but, unlike later liberals, did not develop the ideas of private property and freedom of contract that underpin a market-liberal order.
China's present leaders are calling for a "harmonious society", but this is impossible without widespread freedom and a rule of law that limits the power of government to the protection of people and property. They could learn much from the teachings of Lao Tzu and the legacy of liberty that his precepts embody.