Funny Money

Funny Money by Sauvik Chakraverti, Apr 7, 2007, 12.00am IST Times of India

Inflation is not new. In my teens, Coca-Cola was 40 paise, a pack of Wills cost a buck and petrol sold at three rupees a litre. A beer was five bucks. 

This inflation has nothing to do with either the demand or the supply of the articles of everyday consumption. 

Rather, inflation is a disease that afflicts money, being but a gradual and continuous erosion of currency value. 

Since the government is the monopoly issuer of our money, we know who the culprit is. The game that politicians and central bankers play is best understood by a parable from Ken Schooland's charming The Adventures of Jonathan Gullible. 

In the story, the people use an inconvertible government paper money called 'kayns', named after John Maynard Keynes, the economist who designed today's world monetary system after centuries of the international gold standard. 

This particular parable tells of a circus coming to town. A big tent is set up and the people gain entry by paying 10 kayns per head. 

Once inside, the show commences, with the ringmaster, every once in a while, picking one member of the audience and showering him with 1,000 kayns. 

When Jonathan remarks that the game is odd, he is told that this circus is a standing institution: it passes by every month, and all the townspeople play the game hoping they will receive 1,000 kayns someday. 

This is 'the kayns conspiracy'. The crucial thing to note is not that the game is a fraud — 'attempting to purchase public affection through gratuitous alienations of the public revenue' â” but that the money used to play the game is fictitious too. 

One can perhaps feel sorry for those who worship Mammon, but what can one say of those who chase this 'funny munny'? Mankind's collective ignorance regarding the most important regulator of the market economy, money, is truly astounding. 

And the education cess will only pay the salaries of armies of Keynesians employed in government universities. This is in addition to the battalions of Marxists already there. Catch-44. 

What is extremely important for the layman to understand is that, since real goods and services are exchanged for this 'legal tender' funny munny, inflation has losers and gainers. 

The gainers are those who get to spend the kayns first — the personnel of the government, their contractors and those cronies who get generous loans from banks. The losers are savers and the poor, who earn eroded money on a daily basis. 
There is thus a 'transfer of real wealth' that occurs alongside creeping monetary inflation, with savers and daily wage-earners losing the most. 

Further, the statistical indices used to 'measure' inflation give a false picture of a 'price level' that is rising uniformly. 

In reality, there are zillions of prices and these move up and down in a totally uncertain world. There is no price level. 

Cellphone and computer prices, for example, are falling steadily. Stock markets and real estate values, on the other hand, are rising much faster than the statistic suggests. 

Wherever the new money (and the new credit) goes, there the price effects are most strongly felt. Again, because inflation affects some prices more than others, the effects are differently felt, and some people gain while others lose. 

This is why inflation continues — because those who produce it, the kayns conspirators, gain anyway. The solution to inflation is essentially a legal one as the existing system is based on legal fiction and fraud. 

When we pick up a Rs 100 note, we see a 'promise to pay' signed by the central banker emblazoned upon it. Under the rule of law, he must redeem his notes on demand. 

This is what prime minister Robert Peel attempted to achieve through his Act of 1844, but he made a crucial error in leaving out bank demand deposits. 

A banker can increase the money supply by making a loan and opening a current account in the borrower's name with that 'money' in it. 

Bankers therefore created so much deposit money (to finance the railway boom) that the currency principle which lay at the heart of Peel's Act became unworkable, and had to be repeatedly suspended — until it was finally abandoned. 

This failure to apply good law to money and banking lies at the root of modern-day inflation, whose only cause is excessive creation of money and credit. 

A recent study of legal history reveals that, long before legislation was invented, Roman and Continental law always recognised the vital difference between a demand deposit (which is placed in the banker's custody for safekeeping) and a term deposit (which is a loan to the banker for a stipulated period). 

These two kinds of deposits were governed by two different contracts. In the first, the private banker was compelled to keep money deposited with him for safekeeping constantly available to the depositor, without being able to lend out any portion of it — a 100 per cent reserve. 

In the latter case, the banker could loan out the money, and was only bound to return it with interest at the end of the contracted term. 

Under such legal principles we can have free, competitive, private banking and sound money without central banks and their fraudulent fractional reserve system. Currency notes will always be convertible, and all depositors will be secure. 

Inflation and boom-bust business cycles will never recur. The poor will steadily accumulate capital. Prices will keep on falling. 

The writer is an economist.

A global agenda?

A global agenda? Sauvik Chakraverti

Thursday November 22 2007 16:49 IST The Newindpress,

The enormous prestige of the Nobel prize notwithstanding, the concerned citizen worried about the future of humanity should pause to reflect on the 'knowledge' credentials of Al Gore and the Inter-Governmental Panel on Climate Change (IPCC), who share this year's peace prize. 

Innumerable failures of such government-inspired 'knowledge' have occurred in the recent past — from the central economic planning of 'scientific socialism', and the centralised management of money, banking and credit of 'Keynesianism', all the way down to the 'intelligence' behind the Iraq War. Even the 'population explosion' scare which led to a UN Fund for Population Activities (UNFPA) lies totally discredited today. From each of these failures of 'government knowledge', we the people have learnt the hard way that the personnel of government are interested not in our welfare, but in their own. The wiser citizen of today should therefore view the claims of an American politician (that too, a statist Democrat) supported by an unwieldy mass of government-sponsored scientists from all the governments of the world with deep skepticism. 

Undoubtedly, this politically orchestrated scare-mongering about climate change will lead to massive funding of various government projects and, as always, wealth will be transferred from the people to their rulers, on the pretext of 'mitigating' some imaginary impending catastrophe. What is also likely is that important liberties will be lost. Edison's light bulb may be banned, barely 100 years since it was invented, and before many, many poor Indians have even been able to use one! (Laloo Yadav's election symbol is the kerosene lantern.) What is extremely unlikely is that Indians will enjoy clean and cheap energy, ever. This is because government monopoly over our automotive fuels, power supply and cooking gas will not be broken. Inefficient diesel generators will continue to pollute every city market throughout India, with noise as well as smoke. And our poor villagers will never cook on gas or electricity, but forever continue trekking for firewood. That is, our real-life problems regarding energy will lie unresolved. But lots and lots of money will change hands. 

Consider this: I was cruising along Delhi's Ring Road, and my dashboard meter reported the outside temperature as 39 degrees Celsius. Inevitably, I was stuck in a huge jam. Within minutes, the temperature zoomed to 49 degrees! Local warming? In my book, if India is to reduce her impact on climate change, she needs to knock her transportation system into shape. Our road surfaces need serious attention. Every Indian street, throughout the length and breadth of this huge sub-continent, is a potholed moonscape. This is how we waste fossil fuels. Funny how TERI, the energy NGO whose boss, the scientist R K Pachauri who heads IPCC, never makes any noises about road surfaces ever. TERI is headquartered in Delhi, with plush, centrally air-conditioned offices in the swank Habitat Centre — a government-promoted piece of real estate, whose first chairman was none other than our current prime minister, Manmohan Singh. 

The environmentalist's position on the energy debate is fatally flawed. If our poor people are to progress, they will need energy, energy and more energy. If all sources of energy are sold at competitively determined market prices, every individual energy user will choose the most cost-effective means. That is, there are serious 'economic' reasons why people use energy 'efficiently' in their own financial interest. That is why they switch off the fan or the air-conditioner whenever they leave the room. 

Now, over time, some sources of energy will dry up, causing a rise in their price. This will immediately make alternatives economical, and they will be supplied, as they always have been in the past. From 'dirty' petrol we will then move to 'clean' fuel cells, and from 'dirty' gas turbines we will move on to 'clean' electricity generation using the waves of the oceans. There is no need to 'conserve' energy. History tells us that the more energy we use, the more is produced. We have moved on from firewood, charcoal, peat and whale-oil but not by conserving any of them. 

Even if increased energy use in the Third World causes the climate to change drastically, if sea levels rise, and typhoons lash our coasts, the effects will be local, and responses must therefore be local too. For poor people in poor nations, what matters first, then, is prosperity. If they have private wealth, they will be possessed of the means to deal with any catastrophe. Hurricanes hit Florida as regularly as they hit Haiti, but Florida recovers quickly, with very few lives lost, while Haiti lies devastated for years and thousands perish. The Gore-IPCC agenda is a 'global' one, and a 'governmental' one at that. This leaves out the individual, who must be free to achieve a reasonable level of prosperity, and the locality he lives in, which must prepare itself for any foreseeable climate change. Note that when New Orleans got laid flat by a hurricane recently, almost all the residents got into their cars and headed down the highway to safety. How will coastal Indians get themselves automobiles and highways, in order to escape Nature's fury, whenever it is unleashed? 

Thankfully, the world is possessed of at least one senior statesman opposed to the hysteria of the Al Gore-IPCC camp: Vaclav Klaus, president of the Czech Republic. In a recent address to the United Nations, Klaus called for another committee on climate change, so that the monopoly of IPCC on public opinion is broken, and an open debate between IPCC and those who disagree with them can inform the world. Coming from a East European nation whose government attempted to 'mastermind' everything, with horrendous consequences, this warning should be carefully heeded in India. Klaus also delivered a fantastic parting shot: He told the UN that if they were so concerned about climate change, they should turn down the air-conditioning in their enormous building! I would add: Ditto for the Habitat Centre! 

http://www.newindpress.com/sunday/sundayitems.asp?id=SEC20071122072233&eTitle=Columns&rLink=0

The real outlaws

The real outlaws by Sauvik Chakraverti

The New Indian Express Wednesday, September 12, 2007 

Last night, I watched Parzania, a film on the Gujarat riots. This kind of organised rioting has been with us ever since ‘politics’ entered our lives around 1905. For over 100 years we have been searching for a ‘political solution’ to this and, indeed, that is why we value ‘secularism’. I will contend that we are barking up the wrong tree. It is not in politics, but in Law, that the solution lies. 

To begin with, the idea of ‘community’ is not a political one. On the contrary, it is a social concept; that too, one that is not exclusive. All our cities and towns are peopled with a mixed match of Hindus, Muslims, Christians, Sikhs, Jains and what not. They are also open to ‘friendly strangers’ from anywhere: tourists are welcome. There is regional competition for foreign tourists. What then is ‘community’? On the surface at least, it must be a far broader concept than politicians — especially religion-based politicians — would have us believe. 

The great social philosopher Friedrich Hayek offers us a dazzling insight into the idea of community: ‘‘What makes a community is the common recognition of the same rules.’’ When we go about the bazaars, gainfully trading with all kinds of foreign people, we all follow certain unwritten rules. This ‘private law’ is what makes up a community. This law has not been legislated, and so is not man-made. 

Rather, it is a product of social and cultural evolution, and is our inheritance from the past. 

We all make private law. My rental contract with my tenant is an example. My fence along my property, and my name on the gate-post with a ‘Trespassers will be shot’ sign are further examples. I live peacefully in my ‘community’ because all my neighbours and all my tenants ‘recognise’ this private law, and abide by it. I live in Goa, and I must add that even the lakhs of foreigners who descend here every winter respect this very private law. I am therefore living in peace and harmony — and all of us comprise a private law, non-political community. 

The roots of the ‘common law’ are based on the notion of separate and exclusive domains for private and public law. Till today, the King of England does not make law. This was true even among the Anglo-Saxon tribes of yore. Their ancient chieftains were warlords who never made law. When William, the Norman conqueror, took England in 1066, he was told, ‘‘We don’t want any changes in the laws of the Anglo-Saxons.’’ The English people lived in a private law community, and their laws were largely about property and possession, the performance of promises (contracts) and economic compensation for injuries (torts). There were also local customs and traditions that had to be respected: that is, there were many unwritten laws. 

If we go through the history of the common law, we find that there was zero ‘legislation’ till modern times. Throughout their history, the purpose of parliaments has been to vote on taxation that the sovereign demanded — and nothing more. That is, neither the sovereign, nor parliament, actually made law. So who did? 

Actually, no one did. Whenever there was a dispute between two people, it came up before an impartial judge who ‘found’ the facts of the case and applied his judicial mind, and his ‘sense of justice’, to it: ‘The law is not made; it is found’ was the guiding maxim. As the common law courts became the most popular avenue for justice, and the ‘legal community’ of lawyers, pleaders and so on came about, the role of the lawyers was to look into past precedents and point out to the judge as to which were in favour of their clients. The judge would either apply the precedent, or make an adjustment to it, thereby setting a new precedent, and the law would take a small step forward. This manner of decentralised law-making is an exact mirror of the decentralised decision-making individuals engage in when they trade amongst each other in markets. 

The organised rioting we see in India is ‘political’. A permanent solution to this is to entrench the ‘private law’ in which we interact in harmony as peaceable and inclusive communities. Private property, contracts and torts make up this private law. This defines who the bonafide members of the community are — and who are the real outlaws. 

It will then be realised that the outlaws are these very politicians, their political parties, and their corrupt and politicised police forces. Indeed, there are specific provisions in the Indian Penal Code against divisive politics, but these are not being enforced. 

What then is public law? The acts of parliamentary assemblies, the public law, since Roman times, have been meant to apply to the organs of government only. These are the rules that the administrative apparatus of the government have to abide by. Today, it is these that are actually ‘lawless’, in the true sense of the word. We are therefore confronted with the classic situation in constitutional history: the people live lawful lives in the private law world, but their rulers are lawless. It is precisely under such circumstances that the English people forced their sovereign to sign the Magna Carta in 1215. ‘‘The original idea behind constitutions is that of limiting government and of requiring those who govern to conform to laws and rules,’’ says the legal scholar KC Wheare. The public law must list out the ‘duties and responsibilities’ of the district officer, the superintendent of police, the roads engineer and so on. Our socialist and absolutist constitution lists out the duties of citizens! That is why there is so much lawlessness in this country. 

Parzania clearly shows that our civil communities are peaceful, inclusive and harmonious. It also shows how ugly our politics has become. We need a Magna Carta to limit politics and government. Onwards to a Second Republic! 

This article was published in the New Indian Express on September, 06, 2007.  Please read the original article here.

When freedom comes first

When freedom comes first by Sauvik Chakraverti 

Wednesday, December 19, 2007 The New Indian Express 

Today, democracy is the 'holy cow', but as a political arrangement it must ultimately rest on a 'political culture'. Where this culture is illiberal and undemocratic, western-style democracy can never thrive. This is the story of Pakistan and Nepal. Within India too, we are now perilously close to a situation in which none of the established 'political parties' – all of whom resemble criminal tribes because of their perverted political culture – can single-handedly form a constitutional government, not only at the centre, but also in states like Karnataka.  

As with Pharaohs and Caesars, no political arrangement in human history has lasted indefinitely. Monarchs have been beheaded in Europe and the new arrangements have been subject to constant revision, as they still are. Tyrants often took over the city-states of ancient Greece, and not all tyrants were unscrupulous. 

Today, democracy is the 'holy cow', but as a political arrangement it must ultimately rest on a ‘political culture’. Where this culture is illiberal and undemocratic, western-style democracy can never thrive. This is the story of Pakistan and Nepal. Within India too, we are now perilously close to a situation in which none of the established ‘political parties’ — all of whom resemble criminal tribes because of their perverted political culture —can single-handedly form a constitutional government, not only at the Centre, but also in states like Karnataka. Our socialist democratic state is in crisis. 

The doctrines of classical liberalism prescribe ‘limited government’. To the liberals of the 17th and 18th centuries, universal adult suffrage was a dangerous pipe dream of radical egalitarians. What mattered most to liberals was not how the government is formed, but what the government does. Indeed, their primary concern was with what the government is not allowed to do by constitutional law. Only under such ‘limited government’ could the people be free as also secure in their properties. This was the ideal. And all efforts were thus directed towards limiting the powers of monarchs. Liberals of those days would be horrified at the unlimited powers of modern parliaments and it is only now that some of us are beginning to realise that, just as monarchs were ‘limited’ in those days, so too must parliaments be limited today. 

In other words, the classical liberal is an enemy of all unlimited government, be that of a king, a dictator or a popular assembly. This is because, to the classical liberal, the highest political value is Liberty. There was Liberty in Hong Kong under British rule and this Libertyhas been preserved after the colony was transferred to the Chinese communists under a ‘one country, two systems’ policy. There is Liberty in Singapore under one-party authoritarianism. There is Liberty in the Emirates of the Gulf. It is this Liberty that the classical liberal emphasises, irrespective of the exact political arrangement. Any government that preserves Liberty is good government. Any government that destroysLiberty is bad government — a tyranny that must be toppled. 

In socialist democratic India, Liberty is dead. The Economic Freedom of the World Index finds us ‘economically repressed’. Hong Kong, Singapore, New Zealand, Switzerland top the list. We cannot trade with foreigners freely, we cannot change money freely, we cannot freely open businesses, our properties are insecure, we cannot grow, sell or smoke ganja — something even the Brits did not outlaw. Toddy, mahua, apong — all are illegal, wasting traditional ‘knowledge’ that could take on Mexican tequila. No Indian can open a bar freely, and heaven help them if some nautch-girls were to perform therein! The Brits patronised nautch-girls, and a Mughal prince even fell in love with one. 

So let us examine the ‘liberal’ credentials of those Indians who champion democracy inPakistan and Nepal. Nepal under a limited monarch can surely have a ‘gross national happiness’ index just as the neighbouring kingdom of Bhutan does. Similarly, if Musharraf were to limit his rule and preserve liberty, it would certainly be better for the average Pakistani than the corruption and chaos of either Benazir Bhutto or Nawaz Sharif — and their ‘political parties.’ The moot point is not whether Musharraf or King Gyanendra or Lee Kwan Yew are dictators: the real issue is what exactly are their dictates. Lee Kwan Yew, for example, grants his people total economic freedom, but bans chewing gum and hangs anyone found smoking ganja. It is this illiberality that matters most. If the dictator’s dictates are not so intrusive, and if as a result Liberty is preserved, then one dictator may indeed be preferable to a rag-tag coalition of popularly elected criminal tribes posing as ‘political parties’. Let us turn to this critical issue. 

For a Pakistani citizen, what matters most is a clear understanding as to what he is free to do and what he is not. If Musharraf spells out clearly that murder, theft, kidnapping, rape, rioting, arson and the like are illegal, and those who indulge in these will face the brunt of his coercive powers, I have no doubt that every honest, hard-working Pakistani will breathe easy. Simultaneously, Musharraf will also be sending a clear command to his forces that only if someone indulges in these illegal activities should his men in uniform intervene. Thus, the military dictator will at one stroke liberate the good people, freeing them from interference, while also establishing ‘command-and-control’ over his own forces, by providing them with clear instructions on when they must act. The good people ofPakistan will be free, while Musharraf’s own men will be on a tight leash. Musharraf will not command the economy (like Nehru did), nor ‘education’ (like Manmohan Singh); he will command his own organisation of coercive government power. 

And his commands will be ‘just’. The citizenry will operate in a free economy, a ‘spontaneous natural order’. If this happens in Pakistan, I will applaud. For what matters most is what government does. Any government that preserves Liberty is good. 

Indians who clamour for democracy in Pakistan or Nepal should look critically at their own illiberal order. Under no circumstances can our socialist democracy be called good government. Pointing the ‘democratic finger’ at Pakistan and Nepal is not only injudicious, but also insincere. Freedom comes first. The precise political arrangement is inconsequential. 

This article was published in the New Indian Express on 16 December 2007.  Please read the original article here.

Second Republic

Second Republic by Sauvik Chakraverti 

TOI 21 Apr 2007, 0000 hrs IST 

Nandigram, Naxal and Maoist insurgencies, Kashmir, Manipur, and the sealing drive in Delhi all point to the fact that we in India are living in a state of 'unlaw'. 

We are ruled by decrees, whims, diktats, military might — anything except by the rule of law. 

The reason why this great nation has come to such a sorry pass is because the founding fathers of the Republic were almost entirely socialist, and collectivist ideas on laware the root cause of disorder and injustice. 

The socialist principle fetishises collectively held properties and despises private ownership. A government by collectivists plunges headlong into the perpetration of injustices guided by these false principles. 

Sixty years down the line, the nation must see collective property as a sham, an ugly spoils system, and a fraud. 

The nation must also see its future in a legislation that makes right to private property inviolable by anyone, including the government. This calls for a new constitution, a Second Republic. 

Instead of recalling the writings of Marx, the nation must remember John Locke: "Where there is no property there is no justice" and Lord Acton: "A people averse to the institution of private property is without the first elements of freedom". 

If we want to live with liberty and justice, a new constitution is the need of the hour. There is no need for electoral politics to make this happen. 

We must take inspiration from the English who gave themselves the Magna Carta. We must pen our own charter, one that guarantees liberty, property, freedom to trade by land and sea, and civic self-government for all cities and towns. 

This statute should be above the government, something that the Parliament of the day cannot amend, whatever be the majority disposition. 

This is a necessary precondition for the rule of law. In other words, the government itself must be placed under the law if the rule of law is to prevail over the rule of arbitrary rulers. 

The 'unlaw' we suffer from today is entirely because of the fact that the sovereign's ministers, bureaucrats, judges, policemen and soldiers are above the law, and are breaking it with impunity. 

It is time now for the birth of a new league of Indian Liberals.

http://timesofindia.indiatimes.com/articleshow/1931433.cms

Second Republic: Securing Indians from the vagaries of the state by

Second Republic: Securing Indians from the vagaries of the state by  Sauvik Chakraverti

 A version of this article appeared in the Times of India, on 21 April 2007. 

We in India are living in a state of 'unlaw'. We are ruled by decrees, whims, diktats, military might – anything except by law. The government itself must be placed under the law if the rule of law is to prevail over the rule of arbitrary rulers, writes Sauvik Chakraverti. 

Nandigram, Naxalism, Maoist insurgencies, Kashmir, Manipur, the sealings of Delhi – all point to the fact that we in India are living in a state of 'unlaw'. We are ruled by decrees, whims, diktats, military might – anything except by law. The reason why this great nation has come to such a sorry pass is because the founding fathers of this First Republic were almost entirely socialist, and collectivist ideas on law are themselves the root cause of disorder and injustice. The collectivist idealises collectively-held properties and despises private property. A government by collectivists plunges headlong into the perpetration of injustices guided by these false principles. Sixty years down the line, the nation must see collective property as a sham, an ugly spoils system, a fraud. The nation must also see its future in a law that makes private property inviolable by all, including the government. This calls for a new constitution, a Second Republic. Instead of recalling the writings of Marx and Proudhon, the nation must remember John Locke: "Where there is no property there is no justice". And Lord Acton: "A people averse to the institution of private property is without the first elements of freedom." If we want to live with liberty and justice, a new constitution is a must. 

There is no need for electoral politics to make this happen. As with the English people in 1215, so too must our own capricious King John be made to affix his signature on a "First Statute of the Realm" that guarantees liberty, property, freedom to trade by land and sea, and civic self-government for all cities and towns. This Statute will thus be above the government, as something that the government cannot amend, by any majority whatsoever. By this, we will make our sovereign "bound by a law that he did not legislate", and this is a necessary condition for the rule of law. In other words, the government itself must be placed under the law if the rule of law is to prevail over the rule of arbitrary rulers. The 'unlaw' we suffer from today is entirely because the sovereign's ministers, bureaucrats, judges, policemen and soldiers are above the law, and are breaking it with impunity. A League of Indian Liberals is required.

Author : Mr Chakraverti is an economist.

 See also Liberty Institute, India