On Kamal Nath Once Again

This is the darndest yet:

Our commerce minister, Kamal Nath, has made a public statement that the growth of India’s exports is being stymied by the ministry of finance under P Chidambaram.

K Nath is aiming at 200 billion rupees of exports – but this target cannot be achieved because of Chidambaram’s intransigence on certain policy issues.

Note that the commerce minister’s only goal is to increase exports. He does not want to increase imports – which is why he walked out of the WTO and wrecked all prospects for freer international trade.

India is actually leading a band of poverty-stricken Third World countries at the WTO – all of whom want to export everything and import nothing.

The guiding economic theory for them is a spurious “balance of payments” kind of argument: exports “improve” the BoP; imports don’t.

This is the false idea of “mercantilism” that Adam Smith refuted. Like Kamal Nath, the mercantilists also thought that exports were better than imports because they led to an inflow of gold. Imports led to a gold outflow – and surely that was bad for a nation. Mercantilists therefore attacked the Honourable East India Company, which was exporting gold in order to import and profitably sell spices – mere luxuries and fripperies, according to these critics.

Adam Smith’s central argument was that the “wealth of a nation” consisted in the properties and possessions of its people. These are best augmented through imports. The country should therefore export whatever it has an advantage in – and import the rest. He called for free trade – and this was achieved thanks to Cobden, Bright and the Manchesterites some 50 years later.

Let us understand the absurdity of the “balance of payments” doctrine. Note that there is no BoP calculation made for individuals, cities or even states. The idea becomes relevant only for the entire nation, because it is one currency area. But what is the balance of payments for New Delhi? Or Mumbai? No one knows and no one cares.

On the other hand, look at your own life. Why do you produce? Why do you work? The only answer to that is – in order to Consume. The purpose of all Production is Consumption. Indeed, the purpose of Life itself (in the strictly economic sense) is Consumption and Consumption alone. For all the other animals, this holds true. The mighty tiger hunts to consume; that is the only purpose of his life.

But since only Man produces, he has become confused over the issue. He believes production matters more than consumption. Politicians like Kamal Nath feed this delusion.

Correct understanding indicates that, just as the purpose of life is consumption, the purpose of Exports is Imports. Just as it makes no sense to Produce and Produce and not Consume, it makes no sense to Export and Export and not Import anything. If our export target is 200 billion rupees, our import target should be in that range too.

Note that this is precisely the opposite of Kamal Nath’s agenda: he only wants to Export. That is the be-all and end-all of “commerce” for him. Imports he hates.

Not that Chidambaran favours free imports either. The customs department comes under Chidambaram.

They are all in it together: sab milay huay hain.

And they are all entirely wrong: sab galat hain.

The task is therefore cut out for India’s liberals: They should champion Unilateral Free Trade.

No more export policy, no more import policy, no more balance of payments statistics.

Instead, leave all decision making to individuals – and keep the money sound.