The morality of free markets

The morality of free markets by Sauvik Chakraverti

Posted: Thu, Jul 23 2009. 11:31 PM IST, The Mint

The moral life is pursuing one’s own economic means, and not Nehruvian socialism’s political means

The first question in economics comes from moral philosophy: What is the moral way of seeking survival? Or, deeper still: What is good and what is evil? The answers to these questions must lie at the foundation of any political order; indeed, of the rule of law itself. They are anterior to any written constitution.

In a civilized world, where there are cities and markets, one way of survival that billions have chosen for millennia is the “economic means”. They have specialized in the “social division of labour”, produced for the satisfaction of others, and from the gains obtained their own needs from yet others. This is the market order, based on peaceful, voluntary exchanges among strangers.

This is a “natural order” in that it is based on human nature, on what Adam Smith called our “natural propensity to truck, barter and exchange”. It is a natural order also to the practical world of government, for posses of armed policemen are not required to “maintain order” in any city market anywhere in the civilized world. Any conception of “civil government” must, therefore, be based on this natural order.

In which case, our opening question has been answered. We deem survival by the “economic means” to be moral. Thus, we outlaw theft, plunder, fraud—crimes against the morality of the market order. These we call “evil”. We consider profits earned in free competition to be moral and honourable. This is our idea of “good”: shubh laabh.

Philosopher Franz Oppenheimer in his classic The State identified another means of survival, which he called the “political means”. Bureaucrats fall in this category. Their wages are paid from taxes coerced from the rest of us who employ the “economic means”. Thus, if our market-based political order is to be fiscally sustainable, then the State must be small, so there are not too many people employing the political means of survival at society’s expense. And they must uphold the market order; not work, nor declaim, against it.

The greatest failure of socialism in India lies in the moral sphere, confusing ideas of good and evil.

Let us now look back at 60 years of Nehruvian socialism. To Jawaharlal Nehru, profit was a “dirty word”. He strangulated all enterprise. He called upon the best and the brightest to join the State—and in many more ways, he unleashed upon our society a dominant mode of survival using “political means”. His daughter took this evil idea further by nationalizing vast swathes of the economy. In her time, almost all Delhi University graduates ended up in government jobs. None was encouraged to be entrepreneurial. The Indian Institute of Management (IIM), Bangalore, trained managers for public sector units (PSUs) then. The whole of society was politicized. The markets were barren. The shop shelves were bare.

Yet, has much changed? If we look at Manmohan Singh’s “flagship” National Rural Employment Guarantee Act (NREGA) in the light of the above discussion, we must conclude that he is encouraging millions of poor people to seek the political means of survival. Meanwhile, our markets are still strangulated by predatory bureaucrats. Many trades are suffering. There is protectionism enforced by the customs bureaucracy. There is the excise department that strangulates the hospitality trade. And it is indeed strange that Singh should create menial jobs in villages with our money while the high-paying jobs of 70,000 dancing girls in Mumbai were destroyed by ex post facto legislative diktat. This is economic repression. Tyranny!

Something has gone terribly wrong with the great Indian dream that Nehru foisted upon his gullible followers. It has turned into a nightmare. I have only just returned from my nearest market—and this is New Delhi—and found fear and helplessness in the eyes of every hawker, vendor, chai and beediwallah (tea and cigarette vendor). They all say: “The Committee is coming!” How truly fascistic it sounds: “The Committee”. Who are these worthies? There is no market in Delhi upon which they do not prey. Is this “civil government”? If poor people are obstructed from earning their keep in the markets, what will they do but turn to crime?

The greatest failure of socialism in India lies in the moral sphere. The socialists have confused ideas of good and evil. Their ideology is such that they are unable to comprehend a world of civilized individuals freely trading among strangers: not a “community”, but a “catallaxy”. They do not comprehend this world. They have theories of “classes” in their heads. They do not see that the chaiwallah is also a capitalist, a speculator and an entrepreneur. As, indeed, is the dancing girl.

Classical liberals, from John Locke to Ludwig von Mises, believed in “civil government”. Such a government is necessarily based on the market order. Thus, in our own country, the first truly civil governments were those of the Honourable East India Company (EIC). EIC recruited the first professional “civil servants”. One history of the Honourable East India Company Service (HEICS) says of these pioneers that “Locke was their prophet”. Locke wrote his Two Treatises of Civil Government in 1690, in which he famously said that “where there is no Property there is no Justice”. The first task of HEICS was land records: the administration of property. Under the “uncivil government” of the Indian Administrative Service (IAS), our land records system has collapsed. And Singh wants ID cards for all people!

I offer Bob Marley’s prayer: “Lord, guide and protect us; when we’re wrong, please correct us.” Amen.

Sauvik Chakraverti is an author and columnist. He blogs at sauvik-antidote.blogspot.com. Comment at theirview@livemint.com