<p>I hope this layman's question is not off topic. I was not able to find guide lines as to how professional questions have to be.</p>

<p>I am trying to qualitatively understand the origins of the Tiananmen protests in China in 1989. My textbooks all very much emphasise the role of Deng Xiaoping's economic reforms. In particular they all replicate the following reasoning from <strong>Silenced Scream: a Visual History of the 1989 Tiananmen Protests. Donna Rouviere Anderson, Forrest Anderson. p. 1</strong>:</p>

<p><a href="https://i.sstatic.net/jzBXg.jpg" rel="nofollow noreferrer"><img src="https://i.sstatic.net/jzBXg.jpg" alt="enter image description here"></a></p>

<p>Now, my understanding is that, in a market with shortages, well connected individuals buy legally at low prices and sell illegally -on the black market - for high ones, which induces inflation. Is there a reason, why a two tier system should suffer from this more than a fixed price system? After all, in both cases, one has to subvert the dictated prices to reap the benefits! </p>

<p>EDIT: </p>

<p>Or did I perhaps misunderstand the envisioned process and is he not talking about black markets?</p>

<p>I would understand the claim that the fluctuating prices in the two tier system would induce inflation, but I don't understand the process described above.</p>

<p>EDIT: </p>

<p>I just found this quote explaining the nature of the two tier system a bit more:</p>

<blockquote>
  <p>A dual-price system was introduced, in which (State-owned enterprise reform 1979) state-owned industries were allowed to sell any production above the plan quota, and commodities were sold at both plan and market prices, allowing citizens to avoid the shortages of the Maoist era. </p>
</blockquote>

CC BY-SA 3.0
2016-08-21T12:40:02.963Z
So what do you mean by fixed price system? I might be able to help if I know what to compare tiered to.
VCG
CC BY-SA 3.0
2016-08-21T13:52:28.000Z
@frage_man Unfortunately, I don't have economical knowledge, My interpretation was that the government set all prices and private enterprise was absent. How close this comes to reality, I don't know. Certainly, the government set all important prices (such as rice, salt, grain) and private enterprise was very rare.
Ludi
CC BY-SA 3.0
2016-08-21T13:54:49.607Z
Okay. So the fixed price system would just lead to shortages.
VCG
CC BY-SA 3.0
2016-08-21T13:57:57.747Z
Yes, it seems both suffered from terrible shortages. The cited text claims the two tier system allowed well connected individuals to exploit these. What I don't understand is, why they could not equally exploit them under the original conditions.
Ludi
CC BY-SA 3.0
2016-08-21T14:09:25.117Z
The two-tiered system is just as bad as the fixed price in the sense that black markets could exist, but at least with the two-tiered, one tier was free market.
VCG
<inflation>
Difference between a fixed pricing system and a two tier system regarding inflation onset through illegal transactions
Ludi
# Difference between a fixed pricing system and a two tier system regarding inflation onset through illegal transactions

(Asked by: username_0 on 2016-08-12)

I hope this layman's question is not off topic. I was not able to find guide lines as to how professional questions have to be.

I am trying to qualitatively understand the origins of the Tiananmen protests in China in 1989. My textbooks all very much emphasise the role of Deng Xiaoping's economic reforms. In particular they all replicate the following reasoning from **Silenced Scream: a Visual History of the 1989 Tiananmen Protests. Donna Rouviere Anderson, Forrest Anderson. p. 1**:

[![enter image description here](https://i.sstatic.net/jzBXg.jpg)](https://i.sstatic.net/jzBXg.jpg)

Now, my understanding is that, in a market with shortages, well connected individuals buy legally at low prices and sell illegally -on the black market - for high ones, which induces inflation. Is there a reason, why a two tier system should suffer from this more than a fixed price system? After all, in both cases, one has to subvert the dictated prices to reap the benefits!

EDIT:

Or did I perhaps misunderstand the envisioned process and is he not talking about black markets?

I would understand the claim that the fluctuating prices in the two tier system would induce inflation, but I don't understand the process described above.

EDIT:

I just found this quote explaining the nature of the two tier system a bit more:

> A dual-price system was introduced, in which (State-owned enterprise reform 1979) state-owned industries were allowed to sell any production above the plan quota, and commodities were sold at both plan and market prices, allowing citizens to avoid the shortages of the Maoist era.

**Tags:** inflation
> **Comments:**
> **username_1**: So what do you mean by fixed price system? I might be able to help if I know what to compare tiered to.  
> **username_0**: @frage_man Unfortunately, I don't have economical knowledge, My interpretation was that the government set all prices and private enterprise was absent. How close this comes to reality, I don't know. Certainly, the government set all important prices (such as rice, salt, grain) and private enterprise was very rare.  
> **username_1**: Okay. So the fixed price system would just lead to shortages.  
> **username_0**: Yes, it seems both suffered from terrible shortages. The cited text claims the two tier system allowed well connected individuals to exploit these. What I don't understand is, why they could not equally exploit them under the original conditions.  
> **username_1**: The two-tiered system is just as bad as the fixed price in the sense that black markets could exist, but at least with the two-tiered, one tier was free market.  

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## 0 answers

