On capitalism and the State

On capitalism and the State by Sauvik Chakraverti
Posted: Mon, Nov 30 2009. 9:17 PM IST

India’s bureaucracy is wasteful and cumbersome. Instead, we need a truly capitalist public administration

The idea of the “State” is a metaphysical concept, like the Pharaoh. Classical liberals preferred to talk about “government”, that too “civil government”. This was the subject of John Locke’s two treatises of 1690, where he famously said: “Where there is no Property there is no Justice.” In India, we just have our State; we possess nothing that could be called “civil government”. Our elite bureaucrats are part and parcel of the huge State Failure we see around us, and all the corruption. As we move away from central economic planning towards capitalism, we need to think of what kind of State as well as what kind of government we must install.

All the great classical liberals, from Locke to Adam Smith to Frederic Bastiat to Ludwig von Mises, with the sole exception of Gustave de Molinari, believed that a civil government was not just necessary but also vital. But such a government, to them, existed only to act against the lawless, and that too in full accordance with the “due process” of law. Such a law-abiding government comprised magistrates, policemen, judges, jailors and hangmen—nothing more. Yet, in India today, we also need certain services to be provided by the local government—services such as garbage removal, for instance. How would such a service be delivered in a capitalist society?

Capitalist public administration is based on the principle that the government does not “produce” the services it “provides”. Thus, it opposes bureaucratic organizations in this field. If we look at how garbage collection is being provided today by the socialist Indian Administrative Service (IAS), it is all bound up in bureaucracy. It sets up a “department” with many rungs, recruits thousands of sweepers, buys hundreds of trucks, and so on. There is probably a very big jharoo tender—jharoo being the Hindustani word for broom.

Under capitalist public administration, the entire department would be sacked. There would be just one civic official who would “contract out” the work to private companies. Thus, the market would “row” the boat; the civic officials would only “steer” it. This manner of thinking about public administration is called “new public management”, or NPM. This is now a major movement in practical public administration. There have been many successful experiments in NPM worldwide. These are not particularly new ideas either; they have been with us from the Thatcher years—what she called her “next steps programme”. Ideas of “education vouchers” and “food stamps” also fall within the ambit of NPM solutions—though I myself prefer to stress the importance of garbage collection.
In the West, NPM came to the fore at a time when government budgets needed controlling. Thatcher’s 3Es slogan for her government was “economy, efficiency and effectiveness”. We in India, too, face a spiralling government deficit. In all our cities and towns, huge bureaucracies have been set up which contribute nothing towards improving our lives or our urban environs. These must be sacked and the system of government service delivery drastically reformed. Further, if we save money by contracting out garbage collection, we will have more left over for building roads. In my book, roads and garbage collection must be top priority for all urban local governments—and both must be provided non-bureaucratically.

In my honest opinion, the IAS officials are part of the problem. Further, they control all the academies of public administration here. They are the practitioners; they are also the academics. This is intellectual incest. And they are quite clear as to what kind of ideas they will oppose: After I lectured a group of them on NPM, one IAS officer told me, nonchalantly: “We are knowledge-proof”. Theirs is one huge collective effort to ignore principles, to ignore teachings. They refuse to see their own failures. And they want to continue practising their witchcraft upon us forever. Mention must also be made of land records—the first basic task of any district administration, a task that is no longer being performed. We no longer have “a law of the land”. Our socialist public administration is, therefore, in dire need of drastic reform.

The socialists erected the huge big centralized State—while neglecting “government”. They worshipped their Pharaoh and enjoined upon all of us to do the same. We now need to demolish this metaphysical idol and think in terms of urban local self-government, one that is non-bureaucratic, economical, efficient and effective. We need to think in terms of “subsidiarity”—wherein the local government handles most things, and the central State handles just defence and international relations. In other words, we need to invert the pyramid.

Of course, while IAS sticks its head in the sand, the market is marching ahead. There are many advertisements these days of entirely new cities being built by private developers. In these “company towns” there will be no elections, nor any bureaucracy. There will only be city managers using NPM—because this is cost-effective, provides the required services excellently and maximizes profits for the developer. Competition between cities will surely result in failure for the IAS-run cities. Perhaps then they will learn.

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

A return to the gold standard

A return to the gold standard by Sauvik Chakraverti

The rupee must be anchored to a tangible commodity. For the Indian economy, the benefits would be great

Posted: Thu, Oct 15 2009. 8:44 PM IST

To classical liberals, money was gold, and gold was money. There is a letter David Hume wrote Adam Smith dated 1776, wherein Hume berates his friend for writing in his recent great book that the king of France took a seignorage of 8% for minting coins. Hume writes that if this were true, Frenchmen would take their gold to Belgium or Holland, whose monarchs minted coins for 2%. This was the limited role of the monarch vis-à-vis money then. The monarch did not manufacture money; it was a world of “private money”. In his Wealth of Nations, Smith lists the “three duties of the sovereign”; there is no mention of money. If Hume or Smith were to visit the modern world, they would consider our fiat paper system a scandal, and heap derision and scorn on our professional economists.

How did it all go so wrong? Without getting into the gross errors that have taken over economic theory, I would like to focus here on legal issues. Money has no legal definition anywhere in the world today. This was never the case before. In 1776, the King’s coin was defined as containing a specific quantity of gold of prescribed fineness. In 1776, when the constitution of the US was being drafted, the federal government was granted the power to mint coinage, not create paper money. If we look at the India of those days, Smith himself was picked to lead a Commission to Bengal—to suggest a reform of the coinage.

Our first effort today, therefore, must be towards once again defining money in law. A rupee must be so much gold. If we do not anchor money to a tangible commodity, we will forever be using a measuring rod for economic calculation that is ever-changing and flexible, thereby throwing all economic decision making astray. This means a return to gold and silver coinage. This must be the real, legal money.

Let us turn to paper notes. In Smith’s time, these were redeemable in gold on demand. Smith and Hume both admired the Bank of Amsterdam, which maintained a 100% reserve against deposits then. But neither understood fractional reserve banking or central banking —the scourge of the modern world. Yet, the common masses of those days, untutored in political economy, would never accept irredeemable paper as money. This explains Sir Robert Peel’s Banking Act of 1844, which sought to make Bank of England notes redeemable in gold on demand but failed, because neither the great prime minister nor his government understood the mystery of banking.

The extremely shallow debates of those days between the currency and banking schools have been adequately detailed in Murray Rothbard’s magisterial history of economic thought, which is exceptionally unjust to the memory of Smith; but that aside, the point that needs to be emphasized is this: Because of the deficiencies in Peel’s Banking Act of 1844, both money and banking operate outside the law today. Money has no legal definition, and banking is, therefore, a fraud. Central bankers run unaccountable and illegal monetary systems. This is fatal for the economic health of all nations, especially poor nations.

The crux of the matter is that currency has become a “property title without property”. Now, this little deception by which profits could be hugely augmented was known to the goldsmiths of yore. If their notes “gained currency”, they would lend out notes on interest, thereby rendering their gold reserves a “fraction” of their outstandings. Profits were earned by lending out paper, not gold. But this was still legal, and such notes are called “fiduciary media” in the old textbooks, or “money held on trust”. But this is how the problem of “property titles without property” first appeared. It is intimately connected with fractional reserve banking and is a practice based on fraud. If this is outlawed, we can have sound, private money, including paper, and free banking under law. It is either that or unaccountable central bankers.

This will be of great succour to the average bank customer. He can then make two kinds of contracts with his bank—“demand deposits” and “term deposits”. Against the former, the bank will have to keep aside a 100% reserve, for property has not been transferred. The latter will be a loan to the bank, earning interest, which the banker can lend out, provided he returns it at the end of the stipulated time. Without any “lender of last resort”, every bank depositor will be secure. This is actually ancient commercial law.

When paper money is a “property title without property”, and “legal tender” forces its exchange in markets for real goods and services, nothing is exchanged for something. When these propertyless notes multiply, while the real goods and services do not, there is only redistribution in society, away from savers, away from fixed-income earners, in favour of borrowers—all perverse incentives that destroy the character of society and promote “decivilization”. Unsound money is terrible.

Any nation can unilaterally revert to the gold standard whenever it chooses. If we do so, our rupee, now pegged to gold, will always appreciate against the rest of the world’s fiat papers. This will help us become big importers. And cheap imports, including of capital goods and components, will make our manufactured exports competitive in terms of technology, quality and price. Our banks will attract the world’s savings, and we will possess capital, the vital ingredient of “capitalism”. All prices will steadily fall and the consumption of the poor will rise in leaps and bounds. This is the power of “sound money”.

Sauvik Chakraverti is an author and columnist.

He blogs at sauvik-antidote.blogspot.com. Comment at theirview@livemint.com

The road to trade and growth

The road to trade and growth by Sauvik Chakraverti

Posted: Mon, Sep 21 2009. 9:45 PM IST The livemint

History shows that better transport means more prosperity. The pathetic state of India’s transport infrastructure is a major reason it still isn’t very prosperous

The history of human civilization is nothing but a story of the close links between trade, transportation and urbanization.

The Mediterranean became a cradle of civilization because the small sea served as the transportation backdrop, enabling diversely gifted cities along its coasts to easily trade among each other. This hold of the Mediterranean over trade was broken only when Venice was upstaged by the Portuguese, who found a sea route to the East, and also built and manned the ships that could carry gold out and bring nutmeg in. The honourable East India Company would have been nothing without their “tall ships”.

But this link between trade and transportation—and the growth of cities and civilization—is apparent in Indian history, too, for the Indus and the Ganges were also the best way to transport tradeables up and down the river. Mohenjo-Daro and Harappa were served by the seaside port of Lothal. And the Ganges valley cities were organically linked to the port cities at the mouth of the river. When the British came to Bengal in the early 1600s, the province was already conducting flourishing trade with the outside world.

Why is transport so important to trade?

Simple. The ancient principle of trade is “to buy in the cheapest market and sell in the dearest”. In other words, if you buy apples in Kulu there is little to gain by selling them in Manali. To book great profits, you must transport these apples to where they do not grow, where they are scarce and highly prized—to Mumbai, Kolkata and Chennai. Venice was upstaged by Europeans buying nutmeg in the Banda Islands, transporting the nutmeg home, and then selling it there. The overland route, with many intermediaries, disappeared from use. This is the power of transportation. This is proved by history.

Having said that, let us turn to transportation in present-day “centrally planned” India. Even strong words like “disaster” or “catastrophe” fail to describe the situation on the ground. Be it roads, railways, ports, airports or even fishing boats, our country is a shambles. It is this that is holding our nation down. The problem is not the illiteracy of the poor Indian; rather, it is the illiteracy of those who wield power.

Let us list the losses we suffer because of this “planned catastrophe”. Topping the list is the reduction in productivity for each of us. Productivity is measured in time. And a disaster of a transport system wastes time—the most important factor of production. The human engine can work only so many hours in a day. The more hours eaten up by transportation, the less there are left over for work and production. As Lord Peter Thomas Bauer famously remarked: “What limits growth in poor nations is not the limited capacity to export. Rather, it is the limited capacity to produce.”

The second major loss lies in the destruction of all goods that are perishable, such as fish, milk, fruit, vegetables and so on. In my travels in Coorg and Jharkhand, I was often told of the potential these regions have for exporting cut flowers. But the horrible transport system lets these regions down. In these instances, the flower farms never happen. They comprise losses that are not seen.

The third loss we face because of our nuclear disaster of a transport system is the destruction of our urban habitat. Satellite towns do not develop, primary cities face overcrowding, urban land becomes hideously expensive—all these are the result of poor transport links. The destruction of our urban habitat, of course, should be considered “de-civilization”—the very opposite of progress.

What can be done immediately to rectify the situation?

First: Look at the 7,500km coast. The open sea is the world’s biggest highway. So, declare unilateral free trade and let loose the forces of urbanization along our coasts. Build twin coastal expressways. This will, to a great extent, solve the urban habitat problem as entirely new cities and towns erupt along the twin coasts and outcompete existing ones.

Second: Build expressways in a “hub-and-spoke” pattern around every city, connecting all the outlying towns. This will allow a spread of urban population, lowering overcrowding.

Third: Empower one official in each district to look after the building and maintenance of all roads in the district. Since the price of rural land rises when connected by road, this will, along with clear property titles, increase the capital available with every rural landowner, including especially small plot-holders.

I have focused entirely on roads because markets can provide everything else. This includes tramways in small cities and towns. This includes modern ships and boats. This includes modern cars for every Indian. Indeed, the cars are already here. It is the roads that are lacking.

Our state must, therefore, think like the Roman emperors of yore, who did not teach their subjects, but constructed roads everywhere in their vast domains. The Old Roman Road is still in existence leading up to Hadrian’s Wall in the UK. And in Cologne, Germany, outside the great cathedral, I found that the old Roman stones paving the roads have been carefully preserved.

The lesson from history that transportation matters most is irrefutable. The state must build a pan-India toll-free road network as top priority.

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

Saying no to ‘social justice’

Saying no to ‘social justice’ by Sauvik Chakraverti

Posted: Wed, Sep 2 2009. 9:16 PM IST

Advocates of social welfare all have different ideas. But they invariably champion state redistribution

Michael Jackson was a very wealthy man. And there are millions without shelter, education and nutrition. Is this unjust? To answer this question we must ask ourselves another: Did Michael Jackson acquire his wealth unjustly? Of course, not. Michael Jackson thrilled billions with Thriller. They flocked to the stores to buy the album. This is how and why he got rich. There was no injustice at all.

Let us be very clear in our thinking: Justice is an attribute of individual conduct. Further, the free marketplace has nothing to do with either justice or injustice. As long as the rules of just conduct are being followed, the resultant “distribution of wealth” in a free society can only be called “natural”. This distribution can neither be called “just” nor “unjust” because individual shares are neither intended nor foreseen. There is no one “distributing” anything. And chance plays a big role.

So what about the fate of the poor? The fact is that modern capitalism is mass production for mass consumption. The masses gain as consumers. Henry Ford invented the Model T in 1908. Within 25 years, every American had a car. Very few Indians had cars 20 years ago. Or phones. Or TV sets. Since “liberalization” began, free markets have allowed Indians to succeed as consumers. None can deny the fact that free enterprise has hugely empowered the poor Indian during these last 10 years. My prescription for improving the lot of the poor is free markets. Period.

Advocates of “social justice” differ. They champion “redistribution” through state action. Thus, their ideas lead to heavy taxation and even heavier state expenditure. Whereas classical liberals conceive of a civil government that only acts against the unjust and nothing more, those who advocate social justice also advocate a role of the State that goes well beyond governance. They call themselves “socialist” but they are really étatists—worshippers of the State.

Unfortunately, heavy taxation and an overweening state are actually bad for the market economy. Savings decline. Investments decline. The poor suffer. And if the State engages in monetary inflation to fund itself, the poor lose even more. As Nobel laureate Friedrich Hayek says, “Rules of just individual conduct are as indispensable to the preservation of a peaceful society of free men as endeavours to realize ‘social justice’ are incompatible with it.”

Hayek goes further: He says, “No one has yet found even a single general rule from which we could derive what is ‘socially just’ in all particular instances that would fall under it.” Welfare is such a loose concept that “some will put it here and some will put it there”. Amartya Sen will champion nutrition, Jean Dreze employment generation, and Manmohan Singh education. A fourth person might find something else, say, healthcare. The decline of the modern West is indeed such a story, thanks to ideas of social justice, which produced the “Illfare State”.

Hayek also offers an explanation for the popularity of social justice: The idea appeals to our primitive instincts. Whereas liberalism is modern and individualistic, social justice yearns for a return to the happy days of hunter-gatherer tribes where there is the “leader” who shares the prey with all members. Yet, we emerged from primitive society only by disregarding the principles that held the old tribes together. The pioneers abandoned the old closed groups and sought unknown people they could trade with. This is how we created cities and towns, settled agriculture, and the Great and Open Society. Social justice is “atavistic”. As a theoretical concept, Hayek calls it “intellectually disreputable”.

This conclusion is strengthened by the fact that, while eminent étatists champion social justice, there is little real justice in India. The National Human Rights Commission registers 75,000 cases a year—against the State’s police! There are at least 30 million cases pending in courts. Murders and rapes go unpunished. Injustice rules the land—and these étatists wave the flag of a phoney justice, a mirage, an illusion, a trick. They must be defeated.

It is undoubtedly true that millions of Indians are miserably poor. However, their only hope lies in economic freedom, free trade, private property and an equal justice. Under these conditions, none of which exists today, each can try and improve his position. That is, the individual matters; not the State. All that a civil government can do is apprehend the outlaws and the unjust, maintain the peace, keep accurate land records, build roads, roads and more roads, and manage the cities and towns. Even if it performs these tasks tolerably, the poor will slowly but surely climb out of poverty. Recall that in the US, black slaves made it big in show business and sports. Even these avenues are not fully open to India’s poor today.

Lastly, we undermine ourselves and civil society when we do not champion the case for private charity and philanthropy. Where taxation is heavy, private charity is low. All the money is taken by the State and usually wasted. Government is not charity. It cannot “attempt to purchase the affections of the populace by gratuitous alienations of the public revenue”. Social justice is a sham. Say no to it. Loudly.

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

Austrians! The Indian Market Beckons

Austrians! The Indian Market Beckons by Sauvik Chakraverti

The LewRockwell.com August 24, 2009

India today is a nation where everyone can see and feel the benefits of private enterprise, including multinational companies; and, at the same time, everyone can see state failure writ large in each and every area where this socialist state is active. Housemaids have mobile phones; college students now own cars; but roads, electricity, sanitation, water supply – these areas of state monopoly cry out for a solution. The situation is no different in education.

A new word has been coined in India – "edupreneur." Indeed, in India, it is edupreneurs who have created the vast pool of software engineers this country now boasts of. Today, there are thousands of private institutes teaching management, medicine, engineering, hotel management and so on. We even have an institute teaching retail management although the government is yet to allow foreign retail chains to set up shop. We also have many private universities. Most of these are successful in the sense that they earn profits. But as I told the chancellor of one of these private universities, they are all engaged in "training," not "education."

Yet, the rapid growth of a vibrant private sector in education in India cannot be denied. There are glossy magazines catering to the sector. The Times of India, for over a decade now, has a weekly pullout on private education – and there are lots of advertisements.

I had the occasion to visit Manipal, a sleepy south Indian village where an edupreneur set up a medical college twenty years ago. They have expanded their operations since, covering many disciplines, and Manipal is now a bustling boom town. Students come from all over the country. I also met many foreign students.

There is another word that has gained currency in India – "educrat." So far, all these private institutes have had to seek permission from educrats. Recently, corruption was revealed. Coupled with this was a widespread realization that higher education under the state has been a failure. Delhi’s Jawaharlal Nehru University has produced the chief ideologue of the Maoists running Nepal today. It has become obvious to parents and students that state institutions are sinecures for étatists, Marxists, Keynesians and so on. To paraphrase Ludwig von Mises, these are the "intellectual bodyguards of the House of Nehru." This painful reality was apparent to all, students and parents alike. Many elite schools now offer the International Baccalaureate.

Public opinion demanded complete liberalization of higher education. No more educrats, the English press cried. We want foreign universities to set up shop here, cried the students and their parents. The education minister has just announced that his top-most educratic agency is to be closed down. There will soon be complete liberty.

Of course, our state is a wily customer. Parliament has recently passed The Right of Children to Free and Compulsory Education Act. Yet, I sincerely doubt the administrative capacity of this state to implement this evil agenda. There are already hundreds of thousands of "unrecognized" schools for poor children operating throughout India, as James Tooley’s studies have documented. Poor parents prefer to send their children to these unrecognized private schools because they see government schools as the pathway to failure in the great game of life. In time, I am confident that the state’s grip over schools will also go. Some people are suggesting voucherization – and this call has been taken up by many leading opinion makers. When I asked James Tooley about vouchers he nonchalantly replied: "The poor don’t need it. They are happy paying for the schooling their children are getting." Thus, we can visualize India soon becoming a country "where knowledge is free" – in the free market, that is.

Let me turn to education in economics. Here, the state dominates the field. No private edupreneur has ventured into this critical area, perhaps because they don’t have the knowledge. Yet, the fact that state education in economics is bogus is beginning to dawn on many bright students. As in eastern Europe, so too in India, really bright and hardworking students have turned to other sources for knowledge in economics. The two libertarian think-tanks in India, both active for more than a decade now, have done commendable work in fostering this changed intellectual climate. Mention must also be made of the activism (among the youth) of the Friedrich Naumann foundation.

Thanks to them, the philosophy of liberty has made deep inroads into the élite of the student community. A college topper recently dropped out of the Delhi School of Economics in order to pursue studies in the Austrian paradigm in Europe. And there are many others like him. Where do they go? Another student wants to apply for a PhD program in America – but cannot find any institution run by Austrians. Étatists rule the "official" academic world in the USSA.

India is a nation of over a billion people and the vast majority is young. They are witnessing the success of the market economy and they seek their future in it. Finding mainstream economics irrelevant, they turn to management institutes. But these teaching shops do not teach them any economics at all. They therefore come out "trained" as managers who cannot fathom how an economy really works. I say this from personal experience. Over the years, I have delivered lectures in many prominent management schools throughout India, and the ignorance on economics they cultivate has never ceased to astound me.

There is thus competitive space in India for a for-profit, independent institute of catallactics that offers a diploma based on its own academic standing, without anything to do with the state. I have long been thinking about this, more as a pipe-dream, but it was the anguish of the student who wanted to pursue Austrian studies in the USA but could not find a suitable institution that really energized me. This is "effective demand." And I do not exaggerate when I say that there are hundreds (if not thousands) like him. There is an opportunity here for Austrian scholars. I am told that most of these scholars today work in mainstream economics departments where they have teaching duties that include teaching much that they dislike. They have to find time off for pursuing their own studies. A new institute of catallactics can employ many such scholars and give them teaching assignments they will enjoy performing. We can build a small temple of learning.

To conclude: India is heading towards capitalism – slowly, but surely, despite political obstacles. There can never be a return to state socialism. Knowledge of catallactics, which is knowledge of how human beings act in markets, and how these markets work, has a definite demand, and this demand will only grow. I am therefore confident that Austrian economics can thrive in the Indian education market, while also contributing hugely to the nation’s knowledge pool.

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

Western ideas, Indian ends

Western ideas, Indian ends by Sauvik Chakraverti

India’s renunciation of desire can be reconciled with capitalist theory, which was developed in the West

The great classical liberal, Ludwig von Mises, who single-handedly battled the erroneous doctrines of socialism through much of the 20th century, remarked in passing that the Buddhist ideal of renunciation of desires is “vegetative”. The science of economics, he wrote, looks instead at its polar opposite—how we undertake “actions” to satisfy our desires. Economics has nothing to say on the vegetative ideal. This is the difference between Eastern and Western philosophy, he added.

Just as modern capitalism is of Western origin, its true understanding also comes from the West. What was begun by Adam Smith in Scotland culminated in the towering achievements of the School of Vienna, led by Carl Menger, whose teachings have guided his followers, and upon which they have built a truly imposing structure. Menger’s Principles of Economics is dated 1871— he was the product of a Vienna under the Hapsburgs, with its brilliant intellectual culture. Both Mises and Friedrich Hayek began their intellectual lives in Vienna. The science of modern subjectivist economics is, we must admit, decidedly of Western origin.

It is also true that in Indian philosophy, all our concerns have been with the “vegetative ideal”: the renunciation of desires. It is this, many believe, that is the pathway to moksha (release from the cycle of rebirth)—the fourth and final “end of man”, after dharma (duty), artha (management of resources) and kama (sensuality). These three are about the real world; moksha must be about the other world.

Indian civilization has never produced philosophers who investigated market phenomena

What concerns the economist is not moksha, but artha. A popular history of economic thought is aptly titled The Worldly Philosophers. Economic science is about comprehending the real world of markets, of phenomena associated with them, including prices and production, and the meaning of the concepts we use while engaging in purposive behaviour in markets, such as capital—the word that lies at the root of “capitalism”. It is this Western science that must inform India today—because artha comes first (after dharma, of course, for the idea is to pursue moral gains). Our civilization accords the pursuit of artha its much deserved pre-eminence (it is ranked above kama) but our civilization has never produced philosophers who investigated markets and market phenomena.

And the key difference is exactly as Mises found it: We thought about the renunciation of desires, while they thought of “human action” to satisfy desires. We thought of moksha; they thought of artha. We are other-worldly; they are worldly philosophers. If our civilization wants to succeed in the real world, we have much to learn from the outstanding scholars Hapsburg Vienna produced.

Let us now turn to a “development economist” who always opposed Indian planning and forever championed free markets: Lord Peter Bauer. Margaret Thatcher once directed a group of developing world leaders at a Commonwealth conference to “go read Peter Bauer”. And they should.

Lord Bauer wrote that in most parts of the developing world, he found the phenomenon of “needlessness”: Because nature had given these people all they needed, they were not required to labour. This is, of course, true wherever nature has been bountiful—as in Goa, where the motto of the people is “susegaad”, which means “relax”. It is also true in Assam, where they say “lahay lahay” or “slowly slowly”.

Yet, according to economic science, such vegetative philosophies must be seen as ruinous. As the Viennese emphasized, all human action occurs in the category of time. We must save time just as we must save labour. It makes no sense if all our highways and railways operate on the susegaad or lahay lahay principle. A thorough comprehension of the teachings of the Viennese indicates that the highest priority in India must be accorded to transportation. A revolution in transportation will improve the productivity of all Indians. This is especially true for farmers, fishermen and milk producers, whose output must reach the market within a specific time if they are to sell at all. Many cash crops such as flowers, fruit and vegetables would flourish if India’s roads were fixed.

Lord Bauer had something important to say about “needlessness”. He said the best thing to do was to unilaterally declare free trade and allow all our energetic trading communities to tempt these needless people with their offerings. Seeing a television set, the Goan villager would abandon his feni and siesta for a few days, harvest his coconuts and sell them to buy the TV set.

The lesson: Work is disutility— we do not maximize work; rather, we maximize the rewards that can be gained by work. From M.K. Gandhi to Manmohan Singh, this vital understanding has precluded us. We are still producing work out of tax revenue. Our trade minister is invariably a staunch protectionist. Public opinion sustains these schizoid policies because the public is miseducated— by the same state. We proceed from one error to another—because we do not understand “human action”.

Yet, moksha remains a destination for man. There is an age for artha, an age for kama—and an age for other things. As we learn from them, the West can learn a lot from our “vegetative” ideal, which does not imply the end of personal growth. Quite the contrary.

Sauvik Chakraverti is an author and columnist. He blogs at www.sauvik-antidote. blogspot.com. Comments are welcome at theirview@livemint.com

The advantage in comparison

The advantage in comparison by Sauvik Chakraverti

Posted: Thu, May 28 2009. 11:15 PM IST

Without comparative advantage, life in the city would be like life in the jungle: the survival of the fittest. But now the free market allows the lesser skilled to thrive 

How do atomistic individuals combine to form Society? And does this result in the “survival of the fittest”? Do weaker, lesser skilled or handicapped people face extinction in free market competition? 

The answer to all these questions lies in David Ricardo’s principle of comparative advantage, propounded in 1817. However, the manner in which Ricardo laid down this principle is flawed. It looks at nations trading, not individuals. Such abstract theorizing in economics has rightly been called the “Ricardian vice”. Yet, Ricardo’s principle is hailed by those who understand it correctly—such as the great classical liberal, Ludwig von Mises—as the law of human association, or the “first law of sociology”. There is much that misses our perception of earthly reality if this law is not firmly ingrained in the intellect. 

Recently, I was asked by a student if Ricardian comparative advantage applied to the modern world. It seemed his economics professor had questioned its continued relevance. As I groped for a quick answer, the doorbell rang and my gardener entered. I replied: “I am a better gardener than my gardener, but he has the job because he possesses a comparative advantage over me.” 

Indeed, this phenomenon of a lesser skilled individual being gainfully associated with one who has far better skills in the same area is common. The woman of the house is almost invariably a better cook than the person she hires. The owner of a car is often a better driver than his chauffeur. The only reason why these individuals with inferior skills hold jobs is because each possesses a comparative advantage. 

In a market catallaxy, each of us must specialize in our own area of comparative advantage. Among all my skills, which include gardening, cooking, driving, singing and writing, I must specialize in what the market will reward the highest. I have chosen to write. I therefore have to hire a second-rate gardener, a third-rate chauffeur and a fourth-rate cook. This is an economical arrangement because of comparative costs—I pay these people less than what it would cost me, in opportunities forgone, to do these chores myself. This is why they possess a comparative advantage over me. 

Note that I myself am not the “best writer”. Catallactic competition is different from “games” where the winner takes all. In catallactic competition, all are winners: The market merely grades them according to consumer choice. The best whisky sells alongside the worst. Life in the jungle is “survival of the fittest”. Life in the city is not. Stevie Wonder, blind from birth, is a superstar only because of free markets. 

Indeed, the law of human association is valid even in non-market situations, when individuals spontaneously specialize. My girlfriend does the cooking while I do the dishes because I am “least bad” at the latter task. She is better than me at both. But when we associate spontaneously, we both gain. I get better meals, while she gains from an extra pair of hands. Both the lesser skilled as well as the greater skilled individuals gain.

The poorer countries of the world have the most to gain by obliterating national boundaries. This means free trade, free immigration and free markets will not benefit the rich and the strong alone. On the contrary, poorer nations have even more to gain by obliterating national boundaries. By trading our poor skills, we will obtain the produce of highly skilled nations. So, by working at a call centre, a low-end skill, we can buy German cars, Finnish mobile phones, American software—all “hi-tech”. This means globalization is a good thing. Free trade will benefit the entire developing world. 

The law of human association tells us that there are eternal harmonies between all our economic relations. The rich, the poor, the unlettered, the scholars and even the blind and the lame can happily coexist in the free market—and all will gain. There are no mutual antagonisms. Rather, all dissensions are the produce of spurious ideologies, from pure xenophobia to protectionism and economic nationalism. These spurious ideologies, when translated into official policies, harm the entire world. 

A vital corollary: The personnel of the State do not associate with the rest of society according to comparative advantage. The State is but a monopoly on force, compulsion and coercion, while Society is formed by voluntary association. As Thomas Paine wrote in the opening lines of Common Sense (1776): “Society is created by our wants, and government by our wickedness; the first is a patron, the last a punisher.” The only purpose of the State is to punish outlaws. By not understanding the first law of sociology, we have also failed to understand the first law of political science—that the State must be limited by law if Society is to flourish. 

We Indians have placed the State at the “commanding heights of the economy”. This is an invitation to the misuse of coercion—the foundation of tyranny. Under an unlimited government, Society invariably collapses. The socialist confuses State with Society because he is blind to the law of human association. 

Finally, it must be realized that a great deal of mischief is being wrought in the minds of our youth by the State’s education system. We Indians are compounding our errors by also placing the State at the commanding heights of education. 

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

Social science, bottom-up

Social science, bottom-up by Sauvik Chakraverti

Posted: Wed, Apr 22 2009. 9:00 PM IST The Livemint 

There is much mystery in how human society invents words, concepts and even real things such as money. 

There are two diametrically opposed methods in social science, and only one can be correct. The first, which is common, is to look upon society as a whole and then investigate the commands issued to it by The State. This is the method of central planners, and it is included in our school and college textbooks as “Indian economics”. In this approach, society is inert. Only the commands matter. Social scientists study these commands and, at best, come up with better five-year Plans. 

The other approach, first enunciated by the great Viennese classical liberal economist Carl Menger in 1883, has nothing to do with commands and command structures. On the contrary, it finds something mysterious and worth investigating in human society precisely because there is so much that society accomplishes on its own, without any commands. The key question, then, in Menger’s own words, is this: “How can it be that institutions which serve the common welfare and are extremely significant for its development come into being without a ‘common will’ directed towards their establishment?” This quote is from his Investigations Into the Method of the Social Sciences, With Special Reference to Economics. 

For example, languages have evolved without commands from on high. Not so long ago, “hardware” was hammer and nails and “software” did not exist. How did the word “software” come about? How is it that year after year compilers of English dictionaries are adding more and more words to the list, all of which have “gained currency” without any commands from 10 Downing Street? There are mysterious forces at work within human society, and it is these that need to be investigated by social scientists, according to the Mengerian view. If only commands and command structures mattered, there is nothing to investigate. Society is lifeless and must receive all its impulses from its rulers.

What about money? Is it the creation of kings and emperors from on high, or has money emerged spontaneously from within society itself? Did cowrie shells “gain currency” in the markets of ancient India just as words do in language? Or did some wise man think it up? It was again Menger who solved this mystery. In his Principles of Economics (1871), which established him as one of the founders of the “marginal revolution”, Menger provided us with a theory of the origin of money. 

The mischief the Keynesians made with their theories was turning money into a creature of The State. 

In brief, Menger began by looking at the basic problem with barter—the “double coincidence of wants”. If you have fish and want potatoes, you must find someone who has potatoes and wants fish. If the man with potatoes wants chicken, no deal. To overcome this problem, the mind of the trading human being resorted to “indirect trade”. The central idea was to find the one commodity in the market that had the highest saleability—and exchange one’s goods for this commodity. Once this sellable commodity has been obtained, all that requires to be done is offer this same commodity to the person who is selling what you want. Thus, in the markets of ancient India, the fisherman exchanged his fish for cowries, and then obtained whatever he wanted in exchange for those cowries. No king, no wise man, thought of money. The idea emerged spontaneously from the minds of trading men. This is how cigarettes emerged as money in Nazi concentration camps. In my boarding school, we were all little boys untrained in economics and used marbles as money. Different kinds of marbles had different values.

Menger’s theory of the origin of money tells us that The State has no role to play in the supply of money. If society is left alone, money will emerge spontaneously out of trade. All that The State has to do is to punish fraud. Menger, it must be emphasized, was no anarchist. He was a bureaucrat in the Hapsburg administration and a true-blue classical liberal. He chaired a committee that advised the government on the gold standard. It is surely no coincidence that the word “dollar” comes from a pure gold coin issued by the Hapsburgs, the thaler, which spontaneously emerged as the most popular coin in the early days of the US. 

All this was well before John Maynard Keynes. The mischief that the Keynesians accomplished with their theories is precisely this: They made money a creature of The State. They created “macroeconomics” as a study of the commands and manipulations of central bankers from on high. Money was no longer what people accepted in exchange; on the contrary, it became a State subject. And the Keynesians justified this with their “aggregative theories”. Instead of looking at the minds of trading men, the method of individualism, Keynesians invented the fictitious measures of “aggregate demand” and “aggregate supply”. Thus, Keynesian macroeconomics is not very different from Indian economics: Both study the plans and commands of centralized government authorities. Neither provide any conception or understanding of economic laws and principles. And this is precisely why both have failed. 

To clear this mess, we must get The State out of education. As Frederic Bastiat, a classical liberal, wrote in his manifesto of 1842: “If you want to have theories, systems, methods, principles, textbooks and teachers forced on you by the government, that is up to you; but do not expect me to sign, in your name, such a shameful abdication of your rights.” He added: “The monopoly of teaching cannot reasonably be entrusted to any but an authority recognized as infallible. Otherwise, there is an unlimited risk that error be uniformly taught to the people as a whole.” So let us be optimistic. There is much we can achieve without The State. 

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

Demystifying Knowledge

Demystifying Knowledge by Sauvik Chakraverti 

Friday, April 10, 2009 Liberty Institute, India 

The market economy functions on the basis of what Friedrich Hayek called the “fragmentation of knowledge.” We not only trade goods; we also trade knowledge. This has serious implications for Education, especially that of poor kids. They need hope and encouragement. They should be told that they need to learn one thing only – and that they must find a real guru for the purpose. This will give them the inner strength they need. Free schools and mid-day meals offer no hope, no strength and no real knowledge either, writes Sauvik Chakraverti for the Liberty Institute.

That all our opinion makers, without exception, consented to Manmohan Singh’s “education cess” is a sign of their fatal ignorance. It means that they all agree not only that The State is in possession of knowledge, but that they must be given the resources to transmit this vital knowledge to the children of the poor. Their central proposition is that the children of the poor cannot survive without injections of knowledge from The State.  Note how this thinking fits in neatly with central economic planning, which Manmohan Singh champions, and which is also based on the assumption that The State can centralize knowledge and thereby “plan” all economic activity: “rational socialism.” Manmohan and Montek are busy putting an 11th Five Year Plan into effect. And this planning includes “education.” But do they possess the Knowledge that poor children need to succeed in the market economy?  The market economy functions on the basis of what Friedrich Hayek called the “fragmentation of knowledge.” Each and every person who trades in the market economy does so with a tiny fragment of knowledge all his own. We not only trade goods; we also trade knowledge. This knowledge is in many cases uncodifiable, and cannot be transmitted through books and classrooms – like how to drive a taxi, how to play a violin (a fretless instrument) or how to harvest coconuts. This has serious implications for Education, especially that of poor kids.  The first implication is this: the children of the poor need just one fragment of knowledge in order to succeed in the market economy. But the schooling system that has been unleashed on them is generalized, and myriad bewildering “subjects” are being taught. Such generalized education is of no use to poor kids. Rather, it is a burden. This is why they themselves prefer to opt out of schools – hence the high “dropout rate.” The State is trying to reverse this by offering free meals in schools. Yet, this is simply pouring good money after bad. We might as well close down the schools and open up government kitchens everywhere to feed the kids. This would save money; it would also leave the kids with enough free time during which they could pursue the acquisition of real knowledge – that which will enable them to succeed in market trades – by apprenticing themselves with motor mechanics, tailors, goldsmiths, beauticians, carpenters, weavers, chefs, musicians and the like.  In other words, there is no “knowledge problem” that requires State action to solve. Real knowledge is transmitted through people who practise various trades. And the fragments of knowledge that each individual needs are – with progress – getting smaller every day. In an earlier age, a village child would need to know the crops and the seasons, how to build a mud house, how to look after and milk cows, and so much more. In the modern world, a child needs only to know how to do one thing well, like play the guitar. If he succeeds as a musician in a city, he can hire a cook, a chauffeur, an architect. He can rely on the fragments of knowledge that others possess.  Amartya Sen and Manmohan Singh are therefore dead wrong when they say that The State must have a major role to play in the education of our kids – and that too, in a closed economy. If the economy were open, more knowledge would be available for all. A kid who has learnt how to be a motor mechanic can now learn how to repair a Mercedes. Free international trade, which Manmohan’s anti-commerce minister, Kamal Nath, doggedly opposes, would bring in more useful knowledge than all the government schools put together. Sen and Singh believe in central planning and state education in a closed economy. Theirs is a prescription for disaster.  Indeed, this disaster is already upon us. If we look around, we will find that we are suffering most in all those areas where The State has a monopoly – like electricity, roads and water, the bijli, sadak aur paani that all our people are crying out for. Whatever is “planned” is a failure. Why should government schools be any different?  The conclusion: The State is an ignoramus. It does not possess any worthwhile knowledge. All government schools, colleges and universities should be closed down. All government teachers should be fired. They are all, in any case, propagandists on behalf of The State. Schoolteachers in villages are all political party hangers-on. That is why every chief minister is only too happy to hire lakhs and lakhs of “teachers” – all party workers. What do they know that they presume they can teach?  I think it would be a great idea for The State to open a school on road traffic management. But even for this simple subject, it would need to import professors from abroad. The Indian police and the Indian PWD do not possess this knowledge. In this simple area too, basic to its own functions, the Indian State is totally ignorant.  What poor children really need is hope and encouragement. They should be told that they need to learn one thing only – and that they must find a real guru for the purpose. They should be told that this is not a hugely uphill task. They should be told stories of the innumerable people who have become rich and famous without going through formal education – from Bill Gates and Dhirubhai Ambani to The Beatles to the chaatwallahs ofDelhi and Bombay, many of whom are millionaires. This will give them the inner strength they need. Free schools and mid-day meals offer no hope, no strength and no real knowledge either. Nor, indeed, good nutrition.  Friedrich Hayek titled his last book Fatal Conceit: The Errors of Socialism. We in Indiamust now see The State as a conceited entity. The political elite, the civil servants – they are all prize examples of this “fatal conceit.” They should not be allowed to teach. They should be asked to learn.  Note: A shorter version of this article was published in the magazine Education World in April 2009.

This article was published in the Liberty Institute on Friday, April 10, 2009. Please read the original article here.

Author : Mr Chakraverti is the author of "Antidote: Essays Against the Socialist Indian State" and its sequel, "Antidote 2: For Liberal Governance". He blogs at www.sauvik-antidote.blogspot.com.

Education: Fatal conceit of ignorant State

Fatal conceit of ignorant State by Sauvik Chakraverti

All Indian opinion makers, without exception, consented to prime minister Manmohan Singh’s ‘education cess’ imposed by the Central government upon all income tax payers in 2004. This is a sign of fatal ignorance. It means that they all agree not only that the State is in possession of knowledge, but that it must be given the resources to transmit this vital knowledge to children of the poor. Their central proposition is that poor children cannot survive without injection of knowledge from the State. Yet does the State possess the knowledge that poor children need to succeed in the emerging market economy?

The market economy functions on the basis of what Nobel laureate Friedrich Hayek termed the “fragmentation of knowledge”. Each and every person who works in a market economy does so with a tiny fragment of knowledge all his own. We not only trade goods; we also trade knowledge. This knowledge is in many cases uncodifiable, and cannot be transmitted through books and classrooms — like how to drive a taxi, how to play a violin (a fretless instrument) or how to harvest coconuts. This marketplace reality has deep implications for education, especially of poor children.

The first implication is this: children of the poor need just one fragment of knowledge to succeed in a market economy. But the schooling system that has been imposed upon them is generalised, and myriad bewildering ‘subjects’ are taught. Such generalised education is of no use to poor children. On the contrary it’s a burden. This is why they prefer to opt out of school — the high ‘dropout rate’. The State is trying to reverse this by offering free mid-day meals in schools. Yet, this is simply pouring in good money after bad. We might as well close down government schools and open government kitchens everywhere to feed children. This would save money, and it would leave children with enough free time during which they could pursue the acquisition of real knowledge — which will enable them to succeed in the market economy — by apprenticing themselves with motor mechanics, tailors, goldsmiths, beauticians, carpenters, weavers, chefs, musicians and the like.

In other words, there is no ‘knowledge problem’ that requires State action to resolve. Real knowledge is transmitted through people who practise various trades.� In an earlier age, a village child would need to know about crops and seasons, how to build a mud house, how to look after and milk cows, and much more. In the modern world, a child needs only to know how to do one thing well, like play the guitar. If he succeeds as a musician in a city, he can hire a cook, a chauffeur, an architect. He can rely on the fragments of knowledge that others possess.

Nobel laureate Amartya Sen and his protege Manmohan Singh are therefore dead wrong when they say that the State must have a major role to play in the education of our children — and that too, in a closed economy. If the economy were open, more knowledge would be available for all. A child who has learnt how to be a motor mechanic could learn how to repair a Mercedes Benz motorcar. Free international trade, which Manmohan’s anti-commerce minister, Kamal Nath, doggedly opposes, would bring in more useful knowledge than all government schools put together. Sen and Singh believe in central planning and state education in a closed economy. This is a prescription for disaster.

Indeed, this disaster is already upon us. If we look around, we will find that we are suffering most in all the areas where the State has a monopoly — electricity, roads and water, the bijli, sadak aur pani that all people are crying for. Whatever is ‘planned’ is a failure. Why should government schools be any different?

The conclusion: the state is an ignoramus. it does not possess any worthwhile knowledge. All government schools, colleges and universities should be closed down. All government teachers should be sacked. They are all, in any case, propagandists on behalf of the State. Schoolteachers in villages are political party hangers-on. That is why every chief minister is only too happy to hire lakhs of ‘teachers’ — all party workers. What do they know to presume they can teach?

What poor children really need is hope and encouragement. They should be told that they need to learn enough for just one vocation — and they must find a real guru for the purpose. They should be informed this is not a huge, uphill task, and their inspiration should come from stories of the innumerable people who have become rich and famous without going through formal school education — from Bill Gates, Dhirubhai Ambani and the Beatles to the chaatwallahs of Delhi and Bombay, many of whom are millionaires. This will give them the inner strength they need. Free schools and mid-day meals offer no hope, no strength and no real knowledge either. Nor, indeed, good nutrition.

Friedrich Hayek titled his last book Fatal Conceit: The Errors of Socialism. We in India must now see the State as a conceited entity. The political elite and civil servants are all prize examples of this “fatal conceit”. They should not be allowed to teach. They should be asked to learn.

(Sauvik Chakraverti is an author and journalist closely associated with India’s liberal movement)

http://educationworldonline.net/index.php/page-article-choice-more-id-1696

In defence of individualism

In defence of individualism by Sauvik Chakraverti

Posted: Thu, Mar 5 2009. 12:06 AM IST

A conception of the social order based on false collective identities creates problems and not solutions 

The words “I”, “me”, “my”, and “mine” are precise words. They identify an individual and his properties. Ownership is precise. The word “we” is utterly vague. Where does it begin? Where does it end? Which is why “we, the people” usually becomes “wee—the sheeple”. 

In the civilized world of the urban market economy, “we” is utterly meaningless. Every entrepreneur is an individual, responsible only to himself for his gains and losses. He does not obey any chief—as would be the case in a tribe. Managers in a firm compete just as workers compete for the next promotion: There is no class interest. Life is competitive and individualistic. We compete as buyers; we compete as sellers. Socialism is thus atavistic—the yearning for a life led by remote tribal ancestors. 

In the urban market economy, we serve strangers and are served by strangers in turn. There is no “we” at all. And in these interactions, a natural order prevails because all of us are rule-following animals. Posses of armed policemen are not required to maintain law and order in any crowded city marketplace, anywhere in the civilized world. This implies that we need a social science that is based on an understanding of the rules that individuals are already following in market interactions. These rules must be the basis of any civilized order—that is, the extension of this urban catallaxy to more and more friendly strangers, so that the market order continuously expands, which is what the pundits call economic growth. 

In the market economy, we serve strangers and are served by strangers in turn. There is no ‘we’ at all

Note that the individual is not aware he is following rules. His participation in the urban market economy is powered by a sense of gain—and that is all. His trading activities lie between instinct and reason: He has overcome the instinct to plunder—but he has not reasoned why. He has learnt by imitation that trading is the only way of acquiring desired objects. Civilization is learnt behaviour. 

The first rule that all individuals who trade in markets follow on their own is possession indicates property. The fish in the fisherman’s net are his despite the fact that the ocean did not furnish him with a title deed to his catch. Thus, if it is Jagannath’s dog that barks outside his house, the house belongs to him, and he deserves a marketable title to his private property from the local government. 

The socialist vision of collective property is a hoax. The public sector units (PSU) is very much the private property of people who claim to represent the public—just as the minister’s official bungalow is his private property and we the people cannot party on his lawns.

Note that in urban areas the only collective property we need are public roads and public parks, which all the people, including visiting tourists, can use for free—and we do not have these. We need public squares in all our towns and cities where physical markets can be located— but we do not have these. And our roads really take the cake. 

Meanwhile, the socialist central planner’s Golden Quadrilateral is a five-city vision. India needs a hub and spokes expressway network, plus twin coastal expressways: the 1,000-city vision. 

Indeed, while the socialists refuse to privatize, villagers throughout India are crying out for sadak (road). If I had my way I would sell every PSU—and invest the public treasure in the best network of roads that money can buy: true collective property. Finish the ugly beast of socialism once and for all. And replace it with individualism. 

Remember, both pain and pleasure are subjective. Only you can feel your pain and only you can feel your pleasure. You try and avoid pain and pursue pleasure—so you must have liberty. When we chose the central planner, we chose one man to decide for a billion people: wee—the sheeple. 

Yet, classical liberals do possess an idea of limited government—but such a government, which we believe should be based on the principle of subsidiarity, would give maximum resources as well as powers to the local city or town mayor. Furthermore, the principle role of this government would be, apart from providing roads, parks, market squares, garbage collection and not much more, to inflict pain on outlaws. If this is achieved, all individuals will be possessed of liberty under law: They can freely pursue their own ends, secure in their liberties and properties. The government, which exists to inflict pain, will not interfere in the just pursuit of pleasure—the word just implying that no injury is inflicted upon any other individual. Capitalism is about individual liberty and individual rights. It is about the individual pursuit of happiness. 

There is thus a valid social science that understands society very differently from the manner in which the collectivists did. Their objective, of course, was not to pursue knowledge: Their objective was to pursue and worship state power and execute social engineering upon “wee—the sheeple”. Our society is a failure today because this philosophy is wrong. 

As a wise man once put it, no system of government can succeed if it is not based on truth and justice. A basic truth is that property is private. Another basic truth is that trade is justice while plunder is injustice. The socialists got their morality wrong by thinking profits are immoral and property is collective. They elevated their The State to the commanding heights of the economy without thinking of what just government really is. Hence the predatory state. 

What do we do now? All I can say is that I am not guilty. I am just the messenger. As an old album of Elton John was titled, Don’t Shoot Me! I’m Only The Piano Player. 

Sauvik Chakraverti is an author and a columnist. He blogs at www.sauvik-antidote.blogspot.com. Comments are welcome at theirview@livemint.com

http://www.livemint.com/2009/03/04234726/In-defence-of-individualism.html

Reinventing our social science

Reinventing our social science by Sauvik Chakraverti 

The government, at the commanding heights of education, has impoverished social science in India

Posted: Thu, Jan 15 2009. 10:28 PM IST The Mint

To understand the difference between the mind of a scientist and that of a social scientist, it is useful to contrast Newton’s fortuitous discovery of gravity with Frederic Bastiat’s “broken window fallacy”. In the former, an apple fell bang on Newton’s head; in the latter, the social scientist proceeds “from what is seen to what is not seen”. 

A hoodlum hurls a brick at a shop window and breaks it. A glazier approaches the shopkeeper and offers to install a new window. A deal is struck. The window is repaired. Everything is back to new. And so, all the passers-by conclude that the breaking of the window increased economic activity in their little town. 

This is what is seen. 

Bastiat then takes the discussion into “what is not seen”. In reality, the shopkeeper was saving to buy a new suit. His savings have all been consumed by the cost of the new glass. What is not seen is that the glazier’s gain of business is offset by the tailor’s loss of business. The town has gained nothing. Property has been needlessly destroyed.

So, the destruction of war is not beneficial because it gives a boost to the construction industry. So, government spending does not create employment—because the taxpayer is “what is not seen”. The taxpayer, if he is allowed to keep his money, could generate even more employment by spending or investing it. So, all our UPS manufacturers are not an “industry”: They repair the broken window of an erratic power supply. There is much in society that requires minds that can go beyond what is seen, to uncover hidden, long-term effects. This is social science. It is underdeveloped today.

A true science of society is based on truths that each individual finds ringing true in his own mind.

 

There are other important differences between the physical sciences and the sciences of society. In physical sciences, we investigate something “out there”—something outside ourselves. Even the anatomist investigates someone else’s body. The scientist also starts from the big picture and then goes into the components. First, there is iron; then, its molecular structure; and then there are the atoms. In social sciences, things are the other way round. 

The science of society is based on individualism. We understand society by understanding its elements—individuals such as you and me. Thus, the quest is begun not by understanding others, but by understanding oneself. We engage in introspection. We look inside rather than outside. And we then “look outside from within the consciousness”. A true science of society is based on truths that each individual finds ringing true in his own mind, as thoughts familiar to himself. 

The only thing common between all human beings is the human mind, with its uniquely human “logical structure”. The philosopher has to look into his own mind to find the “laws of thought” that he has in common with all other human beings. There is nothing to study “out there”: Everything is inside his own mind. There is also nothing to measure as in the case of physical sciences. Social science is therefore subjectivist and individualist in its methodology. Let us take some basic laws of economics to illustrate this point. 

Thus, the great law of demand is a law of thought. We think like that only. As is the parallel law of supply. And also the law of diminishing returns. These basic laws are mistaught today by those who copy the methods and language of physics. The elegant diagram with intersecting curves, all capable of being represented mathematically, is a false science. It is “scientism” and has nothing to do with the idea of a true social science that is based on an understanding of the elements, the individuals and their minds. The true and real social science is based on laws of thought common to all our minds and, unlike physics, these laws of thought require no empirical proof. They are truly a priori because anything else would appear illogical to all of us. Just as 2 + 2 = 4 requires no empirical proof. Using introspection to discover laws of thought is very different from the pseudo-scientific nature of current academic teaching. And the reason is simple: government control over all subject areas in the social sciences. 

In India, what is obvious today is that we have got our social science wrong. We have been producing great doctors and engineers, our software engineers are the world’s best, but we are a miserable failure when it comes to social science. Take economics: Our people are wretchedly poor. Take political science: Our politics and democracy are centralized. There is deep-rooted corruption. There is no local self-government. Take law: The courts system is clogged, with the government as the biggest litigant. And take public administration: Ours is a disgrace to the human race. 

Do note that in all these areas, it is the government that controls all the teaching. Just as the lawyers control all the teaching of law and the IAS controls all institutes of public administration. In India, it seems the bad news never stops. But I hope my readers will wake up to the fact that choosing the government as universal teacher is a grave error: the state at the commanding heights of education. 

A true science of society based on individualism cannot be ideologically acceptable to collectivists. For them, individuals do not matter. All that matters is the collective—the society, the nation—and these are then fused into the party and the leader.

To classical liberals, government is just an organization within society with certain functions. Commanding the heights of academia is not one of them, more so in social sciences, where the government is an interested party. The private sector must step in. 

Sauvik Chakraverti is an author and columnist. He blogs at www.sauvik-antidote.blogspot.com. Your comments are welcome at theirview@livemint.com 

http://www.livemint.com/2009/01/15222808/Reinventing-our-social-science.html