I must thank Aristotle the Geek for drawing my attention to a column written by Mythili Bhusnurmath, a very senior economic journalist, praising pmk ramadoss on his smoking ban, and calling for continuing such coercion on peaceful members of society. “This is for your own good,” kinda stuff.
Actually, 1,30,000 people die on Indian roads every year. In America it is 40,000 – and they have 850 cars per 1000. We have less than 20 cars per 1000. And this number is growing FAST. If nothing is done, many more deaths will occur on roads – a State monopoly. The government can “work” to prevent these unnecessary deaths. What Mythili is inviting is not government work, but government coercion. On people like us, smokers.
Coercion is barbaric.
The Great Ideal of the Natural Order is peaceful and voluntary exchange. No coercion – except upon outlaws. Are smokers somehow “outlaws” that require coercion – like kidnappers or rapists? Which planet is Mythili living on?
And here I am flying the Ganja Flag!
Character is Destiny.
Smoking is an achievement of a very high level of civilization. To the primitive, smoke was something to be scared of, because it meant fire. If he smelt smoke, he ran. Even after fire was tamed, smoke remained something noxious, to be avoided. It took millennia before some humans learnt the art of inhaling the smoke of certain plant products – not noxious smoke, but pleasurable smoke. The ultimate control of fire.
In India, the only smokes for many thousands of years have been ganja and charas, both derived from cannabis, and opium. Tobacco has been a very late entrant, imported from America, where the Red Indians used to smoke it in their “peace pipes.” This is how late the west learnt about smoking. It is again in this respect that we are a far older civilization.
And we all agree that the smoke from Cannabis Indica is better than the smoke from the Tata Indica, and further, that it is also superior to the smoke from India Kings.
The Market must provide us with Bhola Spliffs, advertised as Ganesh ka Baap ka Bidi.
Machine made. So no more lick and paste, no more unnecessary loss of vital body fluids.
From the continent of America we got chillies, potato, maize, cocoa and tobacco. I vote we send the tobacco back – and get the coca!
Ha ha.
I’m flying the Ganja Flag, not the tobacco flag.
Boom Shankar!
Sunday, May 31, 2009
Saturday, May 30, 2009
On Law... And Modern Economics
At the centre of our ongoing discussions on Reason and Ethics (here and here) lies the relationship between Law and Economics, the first based on the “laws of reality,” of things “out there,” their ownership, transfer, mortgage, etc.; and the second based on the “laws of thought,” of things “in there,” or how we think before acting.
In both, there are “prescriptions”: in Law, the inviolability of Private Property; in Economics, Liberty under such Law.
But what I really wanted to focus attention on was what Murray Rothbard called “laws of reality” and Ludwig von Mises, his revered teacher, called “laws of thought.”
Thinking about Law goes back millennia, but we all know that Property arose before the law. It was because there was Property that Law came about.
And now we all know that where the rules of the game were most favourable, the most conducive to Liberty and Property, the greatest flowering of the people resulted. The “common law” predates parliament. America had the “Wild West” – which was not so wild, as it was based on Private Property. But the most important ingredient was Liberty.
The prescriptive lesson to learn from this is that civilization is not in such a sorry state that it needs Law from any group of “lawmakers,” however “legal” they might be: as in the case of a written constitution that is “by law established.” Law always goes back to the past, and the best lawyers are those who know about decisions taken in similar cases of the past. There is this no need for “new law.” There are only some legal “maxims” that should guide the practical application of the Law, such as the inviolability of Property, the legitimacy of original appropriation, or homesteading, the keeping of written promises and contracts, and restitution for damages, or torts. All crimes then are crimes against Individuals. There are no “crimes against The State.” If no one is hurt, there is no crime. It is these that Rothbard has elaborated upon in his Ethics of Liberty. These are based on the “laws of reality”: of the best way to organize the world outside, our Property.
Praxeology, in its present, highly developed form, is a very young science. This modern economics is not Law, and its methods are different from the historical method of Law. Rothbard himself has penned a history of economic thought before Adam Smith, and there is much to be gained from studying it, but we must concede that the academic rigour of the moderns is a very recent phenomenon. Indeed, Rothbard ends this first volume with a severe battering of Adam Smith, whom we all consider a man on the right side, but there were serious problems within the new discipline then, like their inability to solve the “value paradox,” or how gold is more valuable than iron, although iron is more “useful”; and their hilarious “labour theory of value” was an error that had grave practical consequences, in that it lay at the foundation of all Marxist errors.
Thus, there is something uniquely fresh about modern economics, something that makes it a young science eager to capture the attention of all truth-seekers, for it is a vital science. It deals with nothing less than survival itself. It is also, in a deep sense, a moral science. But that apart, the most unique aspect of this science, in its modern form, is that it traces everything back to logical categories present in each human mind. It is based on “laws of thought.” Its method lies in “looking out from within the consciousness.” Its teachings are the fruit of western civilization, of the intellectual culture of 19th-century Vienna, and its scientific rigour. If you are ignorant about the laws that govern interpersonal exchanges in markets, you are missing out on knowledge vital to your very survival.
And if there is a “higher purpose” that lies in the earthly struggles of the pioneers, including both Mises and Rothbard, then it is this: this science must be transmitted to each human mind. There are huge errors only because of bad theories. Socialism is one such theory. Democracy is another. Praxeology and Catallactics are also theory. But they are the only valid theories on the subject. They expose the huge errors in mainstream economics, from its mathematisation to its pretty diagrams, to its fictitious “macroeconomics” and its even sillier “microeconomics” which does not enter the micro-mind, the mind of the individual micro actor, because it is not based on “laws of thought.” Mainstream microeconomics is about the “rational utility maximiser.” It is a mathematical problem.
There is more to human logic than the ability to solve mathematical problems. Indeed, all the math you need to know to successfully engage in even the biggest catallactic ventures are the simple operations of arithmetic: ask Richard Branson or Donald Trump. Serious students of the subject need to ask themselves the question: Have I come here to learn Mathematics, or have I come here to learn Economics?
We trace modern economics back to the “marginal revolution” in 1871, and to three names: Carl Menger from Vienna, William Stanley Jevons from England, and Leon Walras from Lausanne. This settled the “value paradox”: value was seen to lie in the last unit of the good in question, the so-called “marginal” unit. It was the marginal unit of gold that was being exchanged for a marginal unit of iron, and it is these marginal valuations that were the source of their respective values.
But only the Viennese Carl Menger traced value back to the mind of the acting man. His method was “subjective.” And being subjective means “looking inside the mind” for laws of thought that guide all action.
Indeed, of the three, Menger is the man to watch. For he alone inaugurated a methodological individualism combined with subjectivism, and his second book in 1883 was entirely devoted to methodological issues. Mises and Hayek have both added to this foundation, and if there is anything to learn from their works, it is that mainstream economics is cock-and-bull. Menger thus founded a “school of thought” – the Austrian School.
According to the Austrians, the real question is not the “best laws”: the real question is how the order happens on its own, based on “laws of thought” we all follow. This is the new science Menger inaugurated, which Mises called “Praxeology”: the science of human action; praxis being the Latin for “action.” At its core is the Action Axiom: that man enters into acts of peaceful interpersonal exchange. This is a basic human phenomenon, a basic social fact. Indeed, the division of labour is not a “theory” – it is datum, a historical fact.
Thus, getting back to what I was driving at: the “axioms” that Rothbard’s Ethics of Liberty is based on, like property and homesteading, are about reality, while there is something very different about the axioms that Mises listed, which are present in the logic of every individual mind that engages in peaceful inter-personal exchange. It might be expedient to call the former "maxims."
[Which reminds me: Peace is also an important prescription of this science. Its basic lesson is that war destroys, while markets are all about production.]
This is how the two disciplines of Law and Economics interact. Both are vital subjects. But they are different subjects. The first is about laws of reality; the latter about laws of thought. In both we see spontaneous order. We do not see a “common will.”
It was not Rothbard but Bruno Leoni who captured the essence of the ideal legal process when he said that the common law mimics the market in that two people who share a dispute go to two private lawyers, both entrepreneurs, both of whom study the past, and who take the matter before an impartial judge. At the core lies the individual, interacting with another individual – exactly as in the market. Leoni made a powerful case against “inflated legislation.” He showed us how we can achieve a “natural order.”
Law is the old subject, millions study Law. It is modern economics that almost everybody is ignorant of. It requires books that convey its teachings in simple forms to the interested layman. I have recently taken on the task, which I hope to complete in a year or so. Wish me luck.
And Boom Shankar 2 U 2, on this glorious Sunday.
In both, there are “prescriptions”: in Law, the inviolability of Private Property; in Economics, Liberty under such Law.
But what I really wanted to focus attention on was what Murray Rothbard called “laws of reality” and Ludwig von Mises, his revered teacher, called “laws of thought.”
Thinking about Law goes back millennia, but we all know that Property arose before the law. It was because there was Property that Law came about.
And now we all know that where the rules of the game were most favourable, the most conducive to Liberty and Property, the greatest flowering of the people resulted. The “common law” predates parliament. America had the “Wild West” – which was not so wild, as it was based on Private Property. But the most important ingredient was Liberty.
The prescriptive lesson to learn from this is that civilization is not in such a sorry state that it needs Law from any group of “lawmakers,” however “legal” they might be: as in the case of a written constitution that is “by law established.” Law always goes back to the past, and the best lawyers are those who know about decisions taken in similar cases of the past. There is this no need for “new law.” There are only some legal “maxims” that should guide the practical application of the Law, such as the inviolability of Property, the legitimacy of original appropriation, or homesteading, the keeping of written promises and contracts, and restitution for damages, or torts. All crimes then are crimes against Individuals. There are no “crimes against The State.” If no one is hurt, there is no crime. It is these that Rothbard has elaborated upon in his Ethics of Liberty. These are based on the “laws of reality”: of the best way to organize the world outside, our Property.
Praxeology, in its present, highly developed form, is a very young science. This modern economics is not Law, and its methods are different from the historical method of Law. Rothbard himself has penned a history of economic thought before Adam Smith, and there is much to be gained from studying it, but we must concede that the academic rigour of the moderns is a very recent phenomenon. Indeed, Rothbard ends this first volume with a severe battering of Adam Smith, whom we all consider a man on the right side, but there were serious problems within the new discipline then, like their inability to solve the “value paradox,” or how gold is more valuable than iron, although iron is more “useful”; and their hilarious “labour theory of value” was an error that had grave practical consequences, in that it lay at the foundation of all Marxist errors.
Thus, there is something uniquely fresh about modern economics, something that makes it a young science eager to capture the attention of all truth-seekers, for it is a vital science. It deals with nothing less than survival itself. It is also, in a deep sense, a moral science. But that apart, the most unique aspect of this science, in its modern form, is that it traces everything back to logical categories present in each human mind. It is based on “laws of thought.” Its method lies in “looking out from within the consciousness.” Its teachings are the fruit of western civilization, of the intellectual culture of 19th-century Vienna, and its scientific rigour. If you are ignorant about the laws that govern interpersonal exchanges in markets, you are missing out on knowledge vital to your very survival.
And if there is a “higher purpose” that lies in the earthly struggles of the pioneers, including both Mises and Rothbard, then it is this: this science must be transmitted to each human mind. There are huge errors only because of bad theories. Socialism is one such theory. Democracy is another. Praxeology and Catallactics are also theory. But they are the only valid theories on the subject. They expose the huge errors in mainstream economics, from its mathematisation to its pretty diagrams, to its fictitious “macroeconomics” and its even sillier “microeconomics” which does not enter the micro-mind, the mind of the individual micro actor, because it is not based on “laws of thought.” Mainstream microeconomics is about the “rational utility maximiser.” It is a mathematical problem.
There is more to human logic than the ability to solve mathematical problems. Indeed, all the math you need to know to successfully engage in even the biggest catallactic ventures are the simple operations of arithmetic: ask Richard Branson or Donald Trump. Serious students of the subject need to ask themselves the question: Have I come here to learn Mathematics, or have I come here to learn Economics?
We trace modern economics back to the “marginal revolution” in 1871, and to three names: Carl Menger from Vienna, William Stanley Jevons from England, and Leon Walras from Lausanne. This settled the “value paradox”: value was seen to lie in the last unit of the good in question, the so-called “marginal” unit. It was the marginal unit of gold that was being exchanged for a marginal unit of iron, and it is these marginal valuations that were the source of their respective values.
But only the Viennese Carl Menger traced value back to the mind of the acting man. His method was “subjective.” And being subjective means “looking inside the mind” for laws of thought that guide all action.
Indeed, of the three, Menger is the man to watch. For he alone inaugurated a methodological individualism combined with subjectivism, and his second book in 1883 was entirely devoted to methodological issues. Mises and Hayek have both added to this foundation, and if there is anything to learn from their works, it is that mainstream economics is cock-and-bull. Menger thus founded a “school of thought” – the Austrian School.
According to the Austrians, the real question is not the “best laws”: the real question is how the order happens on its own, based on “laws of thought” we all follow. This is the new science Menger inaugurated, which Mises called “Praxeology”: the science of human action; praxis being the Latin for “action.” At its core is the Action Axiom: that man enters into acts of peaceful interpersonal exchange. This is a basic human phenomenon, a basic social fact. Indeed, the division of labour is not a “theory” – it is datum, a historical fact.
Thus, getting back to what I was driving at: the “axioms” that Rothbard’s Ethics of Liberty is based on, like property and homesteading, are about reality, while there is something very different about the axioms that Mises listed, which are present in the logic of every individual mind that engages in peaceful inter-personal exchange. It might be expedient to call the former "maxims."
[Which reminds me: Peace is also an important prescription of this science. Its basic lesson is that war destroys, while markets are all about production.]
This is how the two disciplines of Law and Economics interact. Both are vital subjects. But they are different subjects. The first is about laws of reality; the latter about laws of thought. In both we see spontaneous order. We do not see a “common will.”
It was not Rothbard but Bruno Leoni who captured the essence of the ideal legal process when he said that the common law mimics the market in that two people who share a dispute go to two private lawyers, both entrepreneurs, both of whom study the past, and who take the matter before an impartial judge. At the core lies the individual, interacting with another individual – exactly as in the market. Leoni made a powerful case against “inflated legislation.” He showed us how we can achieve a “natural order.”
Law is the old subject, millions study Law. It is modern economics that almost everybody is ignorant of. It requires books that convey its teachings in simple forms to the interested layman. I have recently taken on the task, which I hope to complete in a year or so. Wish me luck.
And Boom Shankar 2 U 2, on this glorious Sunday.
Friday, May 29, 2009
On Ethics, Reason And "Natural Order"
Travelling around the crowded bazaars and haats of India, it becomes obvious to the trained mind that there exists a “natural order,” that illiterate people are ethical, that they are all “rule-following animals.” The question then arises: Where did these ethics and rules come from?
When I was a student at the LSE, one of my professors, lecturing on the market-state debate, haughtily dismissed anarcho-capitalist thinking with these words:
“Even a village fair requires a policeman.”
Yet, this admonition rings hollow in India. Here, the policeman is invariably a predator. His role in the market is far removed from what my professor at the LSE thought it should be. And it is this fact that reinforces the fundamental truth that a natural order exists. If so, we must study how it comes about. We must study how this ethical behaviour emerged.
It is precisely when we ask ourselves this fundamental question that Friedrich von Hayek’s insight into the evolution of ethics becomes crucial to any understanding of this natural phenomenon. Hayek, as I have recently blogged, wrote that our ethics lie “between instinct and reason.” What this means is that we have overcome our instinct to plunder – but have not reasoned why. These ethics that we follow in markets have evolved. They have not been objectively designed by anyone. They have been passed down from generation to generation, and learnt by imitation. Let us try and understand the process.
We must begin with the fundamental axiom – that man “acts.” We study “human action” – and that is interpersonal exchange. We must theorise as to how human beings came to be possessed of ethics that make peaceful interpersonal exchange possible. At the core of our investigation sits the truth that the “end” we pursue through our actions is always the acquisition of “desired objects.” If we had been governed by our animal instincts, we would snatch and grab all that we desire. We would not exchange. Yet, the fact remains, visible to all who care to observe, that all our illiterates carry out exchanges in the market; they do not grab and run. It is because of their ethics that there is a “natural order.”
Praxeology teaches us that the human mind possesses a logical structure, that there are “laws of thought,” that we are powered by a “sense of gain.” This implies that human minds in ages past came to the realisation that there was more to gain in social co-operation under the division of labour than under either savage barbarism or isolated self-sufficiency. The newcomer to Rome thus followed the “rules of the game” and did in Rome what the Romans do – which is exchange. But no one reasoned more than that. The newcomer, finding life in Rome better than life in the jungle, settled down to it. His children followed his example. People did whatever they thought gave them a better life, whereby they gained.
The Action Axiom does not concern itself with legal niceties like self-ownership and original appropriation of the fruits of nature. Murray Rothbard’s Ethics of Liberty refers to self-ownership and original appropriation as axioms, but these are more in the nature of legal “maxims” than fundamental praxeological axioms.
All human action in markets is directed towards “ends.” The end in question is the acquisition of desired objects. It is in this pursuit that man discovered a novel “means” – giving up something in exchange for whatever was desired. In all these exchanges, both parties gained. The exchanges occur for this reason alone. And, being win-win games, people go on repeating such actions. But no one reasons why.
Hayek’s insight that we learn these ethics by imitation is also worth noting. A child, desirous of a chocolate, will see his father buy it for him. He will learn that if he wants chocolates, or anything else, this is the way in which he must proceed. Thus, it becomes crystal clear, the natural order around us persists not because of any “objective ethics” but rather through an ethical system that lies “between instinct and reason.” Civilisation is artificial. Civilisation is learnt behaviour. And this is how it arose. This is why it persists.
Nowhere else does this conclusion ring truer than in India. Here, police stations are all located in cities and towns, never in villages. The majority of the population lives in a “natural order,” far removed from the attention of the police. And, whenever a policeman is seen ambling around an urban market, all the rule-following animals there know that a barbarian is in their midst, someone who will snatch and grab whatever he wants.
This natural order is India’s strength. It shows that we are a highly civilised people. We are not a nation of barbarians. We are all rule-followers. We all operate “between instinct and reason.” We possess a deep-rooted “commercial culture.”
Thus, liberal democracy is not the “end of history.” There is something higher on the evolutionary scale than democracy.
And that is Natural Order.
When I was a student at the LSE, one of my professors, lecturing on the market-state debate, haughtily dismissed anarcho-capitalist thinking with these words:
“Even a village fair requires a policeman.”
Yet, this admonition rings hollow in India. Here, the policeman is invariably a predator. His role in the market is far removed from what my professor at the LSE thought it should be. And it is this fact that reinforces the fundamental truth that a natural order exists. If so, we must study how it comes about. We must study how this ethical behaviour emerged.
It is precisely when we ask ourselves this fundamental question that Friedrich von Hayek’s insight into the evolution of ethics becomes crucial to any understanding of this natural phenomenon. Hayek, as I have recently blogged, wrote that our ethics lie “between instinct and reason.” What this means is that we have overcome our instinct to plunder – but have not reasoned why. These ethics that we follow in markets have evolved. They have not been objectively designed by anyone. They have been passed down from generation to generation, and learnt by imitation. Let us try and understand the process.
We must begin with the fundamental axiom – that man “acts.” We study “human action” – and that is interpersonal exchange. We must theorise as to how human beings came to be possessed of ethics that make peaceful interpersonal exchange possible. At the core of our investigation sits the truth that the “end” we pursue through our actions is always the acquisition of “desired objects.” If we had been governed by our animal instincts, we would snatch and grab all that we desire. We would not exchange. Yet, the fact remains, visible to all who care to observe, that all our illiterates carry out exchanges in the market; they do not grab and run. It is because of their ethics that there is a “natural order.”
Praxeology teaches us that the human mind possesses a logical structure, that there are “laws of thought,” that we are powered by a “sense of gain.” This implies that human minds in ages past came to the realisation that there was more to gain in social co-operation under the division of labour than under either savage barbarism or isolated self-sufficiency. The newcomer to Rome thus followed the “rules of the game” and did in Rome what the Romans do – which is exchange. But no one reasoned more than that. The newcomer, finding life in Rome better than life in the jungle, settled down to it. His children followed his example. People did whatever they thought gave them a better life, whereby they gained.
The Action Axiom does not concern itself with legal niceties like self-ownership and original appropriation of the fruits of nature. Murray Rothbard’s Ethics of Liberty refers to self-ownership and original appropriation as axioms, but these are more in the nature of legal “maxims” than fundamental praxeological axioms.
All human action in markets is directed towards “ends.” The end in question is the acquisition of desired objects. It is in this pursuit that man discovered a novel “means” – giving up something in exchange for whatever was desired. In all these exchanges, both parties gained. The exchanges occur for this reason alone. And, being win-win games, people go on repeating such actions. But no one reasons why.
Hayek’s insight that we learn these ethics by imitation is also worth noting. A child, desirous of a chocolate, will see his father buy it for him. He will learn that if he wants chocolates, or anything else, this is the way in which he must proceed. Thus, it becomes crystal clear, the natural order around us persists not because of any “objective ethics” but rather through an ethical system that lies “between instinct and reason.” Civilisation is artificial. Civilisation is learnt behaviour. And this is how it arose. This is why it persists.
Nowhere else does this conclusion ring truer than in India. Here, police stations are all located in cities and towns, never in villages. The majority of the population lives in a “natural order,” far removed from the attention of the police. And, whenever a policeman is seen ambling around an urban market, all the rule-following animals there know that a barbarian is in their midst, someone who will snatch and grab whatever he wants.
This natural order is India’s strength. It shows that we are a highly civilised people. We are not a nation of barbarians. We are all rule-followers. We all operate “between instinct and reason.” We possess a deep-rooted “commercial culture.”
Thus, liberal democracy is not the “end of history.” There is something higher on the evolutionary scale than democracy.
And that is Natural Order.
Thursday, May 28, 2009
Comparative Advantage, Clearly Explained
I continue my series on social science in Mint with my latest column on comparative advantage, published today.
Comparative advantage teaches us that free trade and free markets will benefit poor people and poor nations.
Yet, this important principle is little understood today, almost 200 years after David Ricardo first formulated it. In the column, I give the example of a student of economics who called upon me to ask whether comparative advantage still applied to the modern world. Her professors had told her it didn't.
At that time, the girl already had a BA in Economics from Bombay University, and was pursuing a master's degree in the same subject from Delhi's Jawaharlal Nehru University. There is a slight error in the column, which refers to the student as male. The story is otherwise factual - and horrifying. The error is due to last minute re-writing that the editors wanted. Haste caused the error. Sorry, Rathi.
The fault, of course, lies with Ricardo himself, and the weird way in which he presented his argument. The same argument has been parroted by economics teachers ever since. This is why no one really understands the principle involved, and its application to everyday life.
Indeed, I was prompted to write this piece explaining Ricardian comparative advantage after reading Tim Harford's bestseller, The Undercover Economist. Harford is also a Bastiat prize-winner, but his exposition of the Ricardian principle leaves much to be desired. Hence this piece.
The crux of the argument is the powerful case made for free trade, free immigration and free markets.
As far as understanding Society is concerned, comparative advantage is presented as the Law of Human Association - the first law of Sociology.
In case you have not read the earlier articles on social science, I list them below:
First, the differences between science and social science, here.
Second, the defence of Individualism, without which Society cannot be comprehended, here.
Third, on spontaneous order in Society, and how this enables money to emerge on its own, through the actions of trading individuals, here.
And fourth, on comparative advantage, here.
I will be continuing on this theme in future columns, explaining how Society actually functions, as understood by the "exact" laws of praxeology.
Stay tuned.
And keep on pushing the tempo!
Comparative advantage teaches us that free trade and free markets will benefit poor people and poor nations.
Yet, this important principle is little understood today, almost 200 years after David Ricardo first formulated it. In the column, I give the example of a student of economics who called upon me to ask whether comparative advantage still applied to the modern world. Her professors had told her it didn't.
At that time, the girl already had a BA in Economics from Bombay University, and was pursuing a master's degree in the same subject from Delhi's Jawaharlal Nehru University. There is a slight error in the column, which refers to the student as male. The story is otherwise factual - and horrifying. The error is due to last minute re-writing that the editors wanted. Haste caused the error. Sorry, Rathi.
The fault, of course, lies with Ricardo himself, and the weird way in which he presented his argument. The same argument has been parroted by economics teachers ever since. This is why no one really understands the principle involved, and its application to everyday life.
Indeed, I was prompted to write this piece explaining Ricardian comparative advantage after reading Tim Harford's bestseller, The Undercover Economist. Harford is also a Bastiat prize-winner, but his exposition of the Ricardian principle leaves much to be desired. Hence this piece.
The crux of the argument is the powerful case made for free trade, free immigration and free markets.
As far as understanding Society is concerned, comparative advantage is presented as the Law of Human Association - the first law of Sociology.
In case you have not read the earlier articles on social science, I list them below:
First, the differences between science and social science, here.
Second, the defence of Individualism, without which Society cannot be comprehended, here.
Third, on spontaneous order in Society, and how this enables money to emerge on its own, through the actions of trading individuals, here.
And fourth, on comparative advantage, here.
I will be continuing on this theme in future columns, explaining how Society actually functions, as understood by the "exact" laws of praxeology.
Stay tuned.
And keep on pushing the tempo!
Wednesday, May 27, 2009
On Reason... And "Planning"
Yesterday, I commented on the fact that we have 548 MPs but no mayors.
Today, we can add to that and say we have 79 ministers in New Delhi – but no mayors.
In other words, we have a totally centralised State.
We have no “government.”
Now, this centralised State is based on the idea that knowledge itself can be centralised – what they call “rational socialism.” This is the leitmotif of central economic planning, which Chacha Manmohan and his deputy Montek champion.
But what is “reason”? And, more importantly, what are the limits to human reason? Can human reason be used to “plan” an economy? Aristotle the Geek has a post today on reason, quoting Mises. Geek says that both Adam Smith and Friedrich Hayek “placed less emphasis on human rationality.” This confusion over reason and rationality requires thorough clarification. Let us begin with Adam Smith.
In the Wealth of Nations, Book I, Chapter 2, titled “Of the Principle which gives Occasion to the Division of Labour,” Adam Smith begins by saying:
(Read the entire chapter here.)
What Adam Smith means is that the exchange economy has evolved slowly. It was never “planned.” No great thinker thought it up. Like Topsy in Uncle Tom’s Cabin, it “just growed.”
Hayek went one step further. The first chapter of his Fatal Conceit: The Errors of Socialism is titled “Between instinct and reason.” I cannot find a pdf of this excellent book online, but as this review says:
Having understood Adam Smith and Hayek’s views on the instrumentality of reason, let us now turn to Mises. As quoted by the Geek, from Human Action, Mises says:
However, this quote does not really sow the seeds of confusion. The laws of praxeology that Mises discovered, which are laws of thought, are based entirely on the “logical structure of the human mind.” All human action is based on forethought, which uses the categories of thinking already embedded in the mind. But this mind is only capable of directing its owner towards the attainment of his own ends. This mind is incapable of thinking of an entire economic system covering all. In other words, there is no discrepancy between the views of Smith, Mises and Hayek.
Look at it this way: The logical structure of the human mind, which is reason, powers a “sense of gain.” We therefore know what makes us better off and what doesn’t – in the immediate context of our impending action. We "calculate" profit and loss, capital and income, cost and yield. However, this reason has huge limitations. Hayek’s main message is this: The market economy based on the division of labour was not created by reason, and therefore cannot be substituted for by reason. This is the “fatal conceit of reason” that socialist central planners suffer from.
Thus, Chacha, Montek and their gang of 79 ministers in New Delhi do not possess the mental capabilities required to plan an economy. Their reason cannot be used to replace what was not created by reason.
As Mises says, “The division of labour is a fundamental social phenomenon.” This fundamental social phenomenon has come about because each of us sees ourselves benefiting from social co-operation as against isolated lives engaged in mere subsistence. But this has evolved only gradually, and, what is more important, it has been severely stunted in countries like India, whose “great leaders” – from Gandhi and Nehru down to Chacha Manmohan – did not comprehend the market order correctly.
This itself is evidence that the exchange economy lies “between instinct and reason.”
Its corollary is that socialist central planners possess feeble minds.
Today, we can add to that and say we have 79 ministers in New Delhi – but no mayors.
In other words, we have a totally centralised State.
We have no “government.”
Now, this centralised State is based on the idea that knowledge itself can be centralised – what they call “rational socialism.” This is the leitmotif of central economic planning, which Chacha Manmohan and his deputy Montek champion.
But what is “reason”? And, more importantly, what are the limits to human reason? Can human reason be used to “plan” an economy? Aristotle the Geek has a post today on reason, quoting Mises. Geek says that both Adam Smith and Friedrich Hayek “placed less emphasis on human rationality.” This confusion over reason and rationality requires thorough clarification. Let us begin with Adam Smith.
In the Wealth of Nations, Book I, Chapter 2, titled “Of the Principle which gives Occasion to the Division of Labour,” Adam Smith begins by saying:
This division of labour, from which so many advantages are derived, is not originally the effect of any human wisdom, which foresees and intends that general opulence to which it gives occasion. It is the necessary, though very slow and gradual, consequence of a certain propensity in human nature which has in view no such extensive utility; the propensity to truck, barter, and exchange one thing for another.
(Read the entire chapter here.)
What Adam Smith means is that the exchange economy has evolved slowly. It was never “planned.” No great thinker thought it up. Like Topsy in Uncle Tom’s Cabin, it “just growed.”
Hayek went one step further. The first chapter of his Fatal Conceit: The Errors of Socialism is titled “Between instinct and reason.” I cannot find a pdf of this excellent book online, but as this review says:
Hayek approaches ethics from an entirely different angle from most philosophers. While philosophical ethics usually entail rationalistic system-building from certain assumptions about human nature or from bits of empirical data, Hayek’s ethics are non-rationalistic and based upon the historical process. Hayek rejects the explicit, rationalistic construction of most ethical systems because such constructions rest upon the “fatal conceit” of human reason. Reason, Hayek argues, is incapable of commanding the information necessary to design an ethical system.
Hayek believes that ethics lie somewhere between instinct and reason. Ethics—like language, the marketplace, and the common law—are a spontaneous order that, in the words of Adam Ferguson, is the product of “human action, but not human design.”
Our ethical system was not designed by anyone; it is traditional, handed down from generation to generation, and learned by imitation. Its progress and development were achieved by a process of social evolution: those cultures which adopted “good” ethical systems survived and flourished, while those with “bad” ones either floundered or adopted more successful ethical systems. This subtle process of trial-and-error has produced Western ethics, a highly successful system.
Having understood Adam Smith and Hayek’s views on the instrumentality of reason, let us now turn to Mises. As quoted by the Geek, from Human Action, Mises says:
Human action is necessarily always rational. The term “rational action” is therefore pleonastic and must be rejected as such. When applied to the ultimate ends of action, the terms rational and irrational are inappropriate and meaningless. The ultimate end of action is always the satisfaction of some desires of the acting man.
However, this quote does not really sow the seeds of confusion. The laws of praxeology that Mises discovered, which are laws of thought, are based entirely on the “logical structure of the human mind.” All human action is based on forethought, which uses the categories of thinking already embedded in the mind. But this mind is only capable of directing its owner towards the attainment of his own ends. This mind is incapable of thinking of an entire economic system covering all. In other words, there is no discrepancy between the views of Smith, Mises and Hayek.
Look at it this way: The logical structure of the human mind, which is reason, powers a “sense of gain.” We therefore know what makes us better off and what doesn’t – in the immediate context of our impending action. We "calculate" profit and loss, capital and income, cost and yield. However, this reason has huge limitations. Hayek’s main message is this: The market economy based on the division of labour was not created by reason, and therefore cannot be substituted for by reason. This is the “fatal conceit of reason” that socialist central planners suffer from.
Thus, Chacha, Montek and their gang of 79 ministers in New Delhi do not possess the mental capabilities required to plan an economy. Their reason cannot be used to replace what was not created by reason.
As Mises says, “The division of labour is a fundamental social phenomenon.” This fundamental social phenomenon has come about because each of us sees ourselves benefiting from social co-operation as against isolated lives engaged in mere subsistence. But this has evolved only gradually, and, what is more important, it has been severely stunted in countries like India, whose “great leaders” – from Gandhi and Nehru down to Chacha Manmohan – did not comprehend the market order correctly.
This itself is evidence that the exchange economy lies “between instinct and reason.”
Its corollary is that socialist central planners possess feeble minds.
Tuesday, May 26, 2009
548 MPs, But No Mayors
This might sound like obvious questions, but:
Why do we elect an MP?
What is an MP supposed to do in New Delhi in the interests of his constituency?
Can the MP build local roads and provide local water supply? Is that his role in the democratic polity?
Or should there be local bodies responsible for such things?
I ask these questions in the context of an interview published in the ToI today, of a Bengali activist-musician who has just been elected to parliament from Jadavpur, a suburb of Calcutta. He says this is the constituency of Buddhudev Bhattacharya himself. And then he delivers a shocker:
Frankly speaking, this is sheer nonsense. How can an MP provide roads and water? All he has is a seat in the Lok Sabha, from where he can ask questions, and from which he can participate in parliamentary debates and vote in them – according to the directions of his “party whip.” There is no way by which an MP can provide local roads and water supply.
These are under the jurisdiction of institutions of urban local self-government. A Mayor can provide urban roads and water supply; an MP cannot. But in India, mayors do not exist. There are a few, but they are purely ceremonial. The vital role of mayors in liberal democracy has never informed the socialists of New Delhi, obsessed with their centralised The State.
All over the world, even in China, mayors run cities and towns. In India, all talk of “local self-government” revolves around the bogus notion of panchayati raj, or village republicanism. It is this village vision that has destroyed the very idea of urban self-government.
Thus, we are forced to conclude that our socialist democratic The State is designed to fail. It is a totally centralized structure, meant for central economic planning. It is not designed for a free democratic society, where democracy diffuses power rather than concentrating it.
For such a huge country, central government can accomplish very little. Local governments (who possess local knowledge) must be given adequate powers and resources to manage local affairs, especially roads. We will never have urban roads if we all have to depend on the 548 MPs of the Lok Sabha to provide them.
This calls for a government designed on the Principle of Subsidiarity. I have blogged on this principle many times before. This is the governing principle of the EU, whereby the might of Brussels is matched by the independence of all the cities and towns.
Thus, as I stood outside the grand old mayoral building in downtown Frankfurt-am-Main, I was struck by the fact that the building had three flags flying on top. First was the flag of the EU, second was the flag of Germany, and third was the Flag of the City of Frankfurt-am-Main.
Subsidiarity implies that each city flies its own flag and manages its own affairs with its own resources. It does not depend on higher levels of government. It is this principle that we need in India today. Centralized socialism is a disaster.
Why do we elect an MP?
What is an MP supposed to do in New Delhi in the interests of his constituency?
Can the MP build local roads and provide local water supply? Is that his role in the democratic polity?
Or should there be local bodies responsible for such things?
I ask these questions in the context of an interview published in the ToI today, of a Bengali activist-musician who has just been elected to parliament from Jadavpur, a suburb of Calcutta. He says this is the constituency of Buddhudev Bhattacharya himself. And then he delivers a shocker:
Question: As an MP, what is your top priority?
Answer: No development ever took place in my constituency in the last 32 years. There's no water, no roads. Eighty out of 100 patients die on the way to the hospital. Providing water and roads are my priority.
Frankly speaking, this is sheer nonsense. How can an MP provide roads and water? All he has is a seat in the Lok Sabha, from where he can ask questions, and from which he can participate in parliamentary debates and vote in them – according to the directions of his “party whip.” There is no way by which an MP can provide local roads and water supply.
These are under the jurisdiction of institutions of urban local self-government. A Mayor can provide urban roads and water supply; an MP cannot. But in India, mayors do not exist. There are a few, but they are purely ceremonial. The vital role of mayors in liberal democracy has never informed the socialists of New Delhi, obsessed with their centralised The State.
All over the world, even in China, mayors run cities and towns. In India, all talk of “local self-government” revolves around the bogus notion of panchayati raj, or village republicanism. It is this village vision that has destroyed the very idea of urban self-government.
Thus, we are forced to conclude that our socialist democratic The State is designed to fail. It is a totally centralized structure, meant for central economic planning. It is not designed for a free democratic society, where democracy diffuses power rather than concentrating it.
For such a huge country, central government can accomplish very little. Local governments (who possess local knowledge) must be given adequate powers and resources to manage local affairs, especially roads. We will never have urban roads if we all have to depend on the 548 MPs of the Lok Sabha to provide them.
This calls for a government designed on the Principle of Subsidiarity. I have blogged on this principle many times before. This is the governing principle of the EU, whereby the might of Brussels is matched by the independence of all the cities and towns.
Thus, as I stood outside the grand old mayoral building in downtown Frankfurt-am-Main, I was struck by the fact that the building had three flags flying on top. First was the flag of the EU, second was the flag of Germany, and third was the Flag of the City of Frankfurt-am-Main.
Subsidiarity implies that each city flies its own flag and manages its own affairs with its own resources. It does not depend on higher levels of government. It is this principle that we need in India today. Centralized socialism is a disaster.
Monday, May 25, 2009
On Nazis... And Columnists
“Taking on the education Nazis” – the title of this column in today’s Mint was striking. The author says:
Yes, these Nazi’s must go. I second the motion.
But there was another column in Mint, whose title struck a negative note: “Op-eds don’t bring change.” The author advises us columnists to advise the government in a secret, shadowy manner. He says:
I would never do such a thing. The biggest weapon of the columnist is his openness to the public. There is nothing secretive or shadowy about his “politics” – unlike the politicians, bureaucrats and other back-room boys of policy-making. His is “politics as the public actions of free people.” Such people are exactly what the back-room types fear and dread.
This columnist is also not very comfortable with the State-Market dichotomy. He says:
Actually, The Market is “people.”
And The State are hominids who pretend to be people: Nazis.
It’s a Predatory State, buster.
Get that straight – and the rest, as they say, will follow.
The government must remove the qualitative, procedural and quantitative barriers to capacity expansion by abolishing the All India Council for Technical Education (AICTE), allowing for-profit schools, removing the 25% private school reservation in the Right to Education Bill, including school policy in urban planning and forming an outcome-focused regulatory body.
Yes, these Nazi’s must go. I second the motion.
But there was another column in Mint, whose title struck a negative note: “Op-eds don’t bring change.” The author advises us columnists to advise the government in a secret, shadowy manner. He says:
“… credit for success should be dedicated entirely to the political or bureaucratic masters. Intellectuals should be prepared to work behind the scenes with politicians or bureaucrats, rather than get in the front.”
I would never do such a thing. The biggest weapon of the columnist is his openness to the public. There is nothing secretive or shadowy about his “politics” – unlike the politicians, bureaucrats and other back-room boys of policy-making. His is “politics as the public actions of free people.” Such people are exactly what the back-room types fear and dread.
This columnist is also not very comfortable with the State-Market dichotomy. He says:
“…reforms couched in terms of State versus Market are doomed to fail, especially in these times. Reforms have to be framed in terms of State versus people…”
Actually, The Market is “people.”
And The State are hominids who pretend to be people: Nazis.
It’s a Predatory State, buster.
Get that straight – and the rest, as they say, will follow.
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