For Theory... Against Vikram S Mehta

It is “market day” for all of us in this pretty south Goa village – and therefore a good day to appreciate Theory. It is theory, after all, that is the crucial link between sensation and perception. We all see the same things – the sensations are the same – but we perceive differently because of the different theories in our heads.

Gandhi saw the world through his cute glasses (which have just been sold at an enormous price to, ironically, India's biggest daroowallah). He theorized that villagers like me would be better off in self-sufficiency. His theory was upheld by our The State. All our central planning and rural development has been conducted, for 60 years, based on the theory that villagers are self-sufficient, and cities and towns are unnecessary. Planners created the “rural-urban divide,” all over this vast sub-continent, by not connecting villages to cities and towns with good roads. There are no roads in India.

Let us now shift to reality. Today is “market day” for us villagers here in south Goa. But where is The Market?

Answer: The Market is in the small Town of Chaudi, on the “notional highway” #17. It is 3 km from our house. And there are roads. And we have a car.

If you go to Chaudi today, you will find it flooded with buyers from a 10km radius – that is, all these villagers depend on the Town Market. This is because of the Theory of the Division of Labour, which Gandhi sure as hell didn’t know anything about. We are NOT self-sufficient. We are all Specialized – even in a village. We buy; we sell. And for almost all our needs, we must go to the nearest Town Market. I buy fruits and vegetables, meat and fish, provisions, cloth, building material, electronic goods, medicines, gift items – almost everything – from the Town Market. In cases of “market failure” in Chaudi I have to go to the City Market.

I go to the City of Margao, 35 km away, for ground coffee, utensils, garden implements, higher order building materials, paints, shoes, fancy foods like olive oil, medical services like the dentist…

Gandhi, through his glasses, did not “see” this – only because his brain did not connect the sensations conveyed by his eyes with the correct Theory. Not only the Theory of the division of labour, but also Central Place Theory, crucial to our understanding of Urban Geography, which explains how city and town markets arise spontaneously at a place smack-bang-middle of a hinterland peopled by villagers. Roads are essential to the success of this urban market order. Without roads, no one can reach The Market. They cannot make “economic achievements.” They are condemned to poverty. And what is poverty but self-sufficiency.

India is poor because of Bad Theory.

I therefore find much to be critical of in Vikram S Mehta’s latest column in The Indian Express, entitled “A Few Wrong Men,” on the financial crisis gripping the world today, in which he talks of a new book, a historical biography of the powerful bankers and central bankers who brought the world economy down in the 1920s. In this newspaper article, Vikram S Mehta begins and ends his piece by exhorting his readers to live “without theory.”

He begins by quoting Benjamin Disraeli against Theory – and Disraeli was a political “pragmatist,” which should be a bad word. Yet, that age has gone down in history as the Golden Age of Classical Liberalism synonymous with Gladstone, Disraeli’s great rival. Disraeli is all but forgotten today. That era is now known as the Age of Gladstone, whose death in 1898 marks the end of liberalism in Britain, the end of Victorian greatness, and the rise of the Labour Party.

The central point to note is that the Classical Liberalism of Gladstone was based on solid Theory. There were Principles. It is but natural that a pragmatist like Disraeli would scoff at Theory.

Mehta, of course, contradicts himself, in the opening paragraph, where he says of the book he has just read:

“It is a narrative that communicates the enormous power of political and economic decision makers and the enduring damage that they can wreak through incompetence, short termism and a lack of understanding of how the economy operates.”

How can we understand how the economy operates Without Theory, as Mehta advises us to? The only other way is through History, including Statistics. Yet, neither history nor statistical data can be understood Without Theory.

To understand the current financial crisis, we need Austrian Business Cycle Theory. We need to know Political Business Cycle Theory too. To understand the economy and how it works we need Praxeology and Catallactics. Mehta is condemning the world economy to the unprincipled manipulations of ignoramuses when he says that decision makers should be devoid of Theory. He is calling for pragmatism - a bad word in politics.

As a Libertarian, I stand for sound Theory. And Politics Based on Principles derived therefrom.

I found Mehta’s CV here: He is currently the chairman of the Shell Group in India. He began his career as an IAS officer (1978 batch). He then re-invented himself as an oil economist in London. He returned to India to work with an oil PSU. The CV records his education as follows:

“Mr. Mehta has a BA (Hons) degree in Mathematics from St. Stephens College, Delhi University, an MA Economics from Magdalen College, Oxford University and an MA from the Fletcher School of Law and Diplomacy, Tufts University.”

Stay far away from these universities, dudes.