Abolish The Ministry Of Commerce - And The Customs Department, Too

This news report makes it apparent that our Commerce Secretary, Rahul Khullar IAS, knows NOTHING about the Science of Economics, and is essentially a "mercantilist" who believes exports are good for India and imports are bad, because he is focused on managing the "trade deficit." In this report, Khullar says that India's markets are open to foreigners, because the trade deficit is rising. Really, dude?


What about the trade deficit of Karnataka or Goa or Pondicherry? How come we never think of that?


In reality, if money were GOLD - which would be "private money" - each Individual would manage his own trades, and ensure he is not in deficit. As far as the nation-state is concerned, in such a scenario, if there was a trade deficit, and gold was being exported, domestic prices would fall - and the deficit would correct itself as exports automatically increased.


In the current scenario, Khullar is deliberately misreading the signs: our trade deficit is rising not because we are open to foreign trade - we are not - but because the prices of some of our crucial imports are rising, like crude oil. Gold imports are also showing a steep rise. Otherwise, we are a closed nation: the ports of the West Coast export iron ore of low grade - and import nothing. This is mercantilism. Mercantilists look upon a positive balance of trade as "good," whereas the Science of Economics looks upon imports as the most beneficial thing about foreign trade - because what we import we cannot produce domestically at the same advantage.


International trade is best understood through the Law of Human Association - a law that has been developed by a correct reading of David Ricardo's famous Law of Comparative Advantage (or costs). According to this law, even in non-market situations, human beings associate gainfully with each other even if one is worse than the other in all respects. Thus, although my girlfriend is a better cook than me, and she also washes dishes better and faster than I do, we both gain if I do what I am "least worst" at - which is washing dishes. 


This law of human association, when taken into market situations, is even more telling - like the case of a surgeon and the man who looks after the cleanliness of his equipment. Even if the latter is much, much slower at the job, the surgeon gains by hiring him, so that he can focus of surgery, where he earns much more. I have a column explaining this vital Law of Human Association here.


The lesson to learn is that the "international division of labour" - which means "international specialisation" - increases the wealth and productivity of the whole world, including those who are the least competent and least skilled.


Thus, there can be either free trade - or there can be barriers to trade, which is what we have around our borders: protectionism, based on mercantilist fallacies. If we opt for free trade, then the customs department and the commerce ministry can both be abolished - and not only India, the whole world will gain. Say's Law of Markets will come into play - internationally.


If you understand the theories of free trade, you understand that the whole world will gain by such a policy - and there will also be international peace.


If you are a mercantilist, you keep your own people poor, you make the whole world poorer, you wage political wars over trade - and, what is worse, you convey the false impression to your citizenry that you are somehow doing something useful for the "national economy," like looking after the "trade deficit."


Which is why my t-shirt on the right-hand bar says "Private Economies."


I do NOT believe in the National Economy - nor do I trust those who purport to be its caretakers, like Rahul Khullar, IAS.