Say's Law: A Summing Up

Say's Law of Markets, by making a distinction between those who compete with us and those who do not, tells us that the bulk of the market is made up of those who co-operate with us; that too, in two ways: first, by providing us with our needs, the goods and services we do not and cannot produce ourselves; and second, by providing the vital demand for the goods and services we come to the market to sell. 

The market is NOT "pitiless competition." There is more co-operation than competition - and, anyway, "competition is liberty, while the absence of competition is tyranny." There is no "Social Darwinism" in the market.

This is SOCIETY. 

This is the market society built on the principle of the DIVISION OF LABOUR, which is specialisation. This is the polar opposite of Gandhian "self-sufficiency.


Say's Law of Markets thus proves what Thomas Paine wrote in the very first paragraph of Common Sense - that "society is a patron, while government is a punisher." Society is the vast majority, and they are in the market; government is a small minority, set up to apprehend, try, and punish enemies of this market order, who are an even smaller minority. 

This is the "natural order."

To socialists, Society, State and Party are all ONE: "India is Indira." Say's Law proves this vision dead wrong.


Say's Law also tells us much about taxation - that any tax reduces demand. It suggests a minimalist State; it suggests "political economy." Giving taxes to the State hurts market demand for all. Say's Law proves many genuine experts in public finance right when they write that modern taxation is more expropriation - and that indirect taxation, including customs duties, as well as the income tax, should be outlawed by constitution. Say's Law suggests "user fees" ought to replace taxes, wherever possible.


Say's Law can also be used to analyse the effects of interventionism - the key question being how interventionism in one area will hurt non-competing industries, which is the rest of society, the rest of the market order.


Finally, Say's Law "pours lead into the Keynesian's ear" - as one of my readers put it. It shows that government is a cost, not a source of benefits, not a "stimulus to demand." It points to the real source of market demand - which is the production and sale of goods and services, backed by savings and investment. This is the pathway to civilisation. The Keynesians, with their funny money welfarism, heavy taxation and even heavier borrowing, have unleashed the forces of "de-civilisation" - which is rampant capital consumption. All welfare, it may be pointed out, is consumption; nothing is saved; nothing is invested.


As a wise man put it: "It is good if the people support the government - but all hell breaks loose if the government attempts to support the people."


To conclude: In these five posts on this vital Law of Markets  which is currently mistaught universally (the first post is here), I hope I have shown my reader the correct way to look at markets, at society, and at the State. I hope my reader will realise that Keynesian "macroeconomics" must be jettisoned in toto, and replaced by methodological individualism as the epistemology of the Science of Economics.


Thus, as Sudha Shenoy once put it in an interview with Austrian Economics Newsletter in 2003:

Almost every economics department in the world can be immediately shut down without having any ill-effect on the world of ideas. 

This is the power of Jean Baptiste Say's Law of Markets.

Higher Taxes On The Rich Hurt Society - Especially The Poor

A very bad idea is being floated around - in the USSA by Warren Buffet, and in the UK by Sir Stuart Rose - that the way out of the current economic crisis is to get the rich to pay more taxes. Since such an idea is bound to find acceptability in India, where the masses are poor, and the rich are considered fair game, I am devoting this post to shooting this horrible idea down.


First: The crisis in the West is because of government debt. That is, their The State is spending too much. The only solution is cutting State expenditure, not paying more taxes. The USSA should get out of its foreign wars - and Americans should tell Warren Buffet to go to hell.


Similarly, in the UK, and the PIGS of the Eurozone - the "Welfare State" policies of old have to go, and markets must be freed for citizens to make wealth for themselves. It is welfarism that lies at the core of the crisis in the Euro. Welfarism leads directly to a Big Spending State - and this spending is what needs to be cut. More and higher taxes will work in the opposite direction.


Classical liberals used the term "political economy" with good reason: first, their minimalist government, with very few tasks to perform, would cost very little in terms of taxes, and this was what "political economy" was all about; and second, their minimalist government would leave the citizenry maximally free, and maximum liberty was a cherished goal of their political science. It seems these ideas and ideals are all but lost in the West today. Here is a Daily Bell article on a column by Nouriel Roubini that says his ideas on solving the current crisis reveal him to be a "kind of radical Keynesian" and a "secret backer" of central banking and fiat money.


What about India? A Times of India editorial opposes higher taxation, but does not go far enough.


What we in India need to do is understand that welfarism of the kind chacha manmohan s gandhi has ushered in (on a grand scale) will be disastrous. We need to learn the lessons of classical liberal political economy outlined above for our own future: that is, very low taxation for a most minimal government with the least tasks to perform, such that Liberty is maximised. I have just written a post on how the poor of India need freedom, not education, nor welfare.


Taxing the rich even more hurts the poor, especially in poor countries like India, because only the rich can save and invest, and the poor need Capital for their incomes to grow. If the rich cannot save and invest, because of higher taxes, the poor will remain poor forever.


The Lesson: Big spending, high taxing, high borrowing governments are a curse. Classical liberal political economy got it right. Minimalist governments, low taxes and Liberty are the only antidote to these modern horrors.

Liberty - From Here To Eternity

The State does NOT create wealth; rather, it destroys it. In the England of old, the King was never rich, but the merchants of the Olde City of London were fabulously wealthy. They were not selling computers, cars and the like those days. But the fishmongers, the grocers, the vinters who imported and sold wine - these were rich beyond belief. Edward II once had only 2 shillings in his treasury. And as for Henry V, when he went to battle at Agincourt, he had to pawn his jewels with the merchants of the City to raise the necessary funds. Thus, during the send-off ceremony organised for him, the Lord Mayor sat on his right - which is why, till this day, the Lord Mayor of London is second only to the King.

In India, we think the King - or The State - will create the wealth. He will make steel. He will give us "employment." This is a great delusion. This great delusion is multiplied by the fact that The State produces the money - paper notes. Today, Mamata Banerjee is running to the Centre for funds - from Pranabda. The Centre has no funds; all they will do is print more and borrow more. Similarly, here in Pondicherry, I just read that the government of this tiny city has borrowed 4,400 crore rupees (44 billion) from the Reserve Bank of India - and cannot pay it back. With so much money, the city could be built anew. Here, there is so much commerce on the streets - too much commerce, too little street. A sum of 4,400 crore rupees could have built so many miles of broad thoroughfares. Where has the money gone?

In my view, everything begins with "self-help." We must NOT look to the Centre, to Nude Elly, for its "funny money." The merchants of London gave the King his taxes; they did not seek his assistance in running their affairs, building their streets, or other civic facilities. So, each city and town must raise its own internal resources - in gold - and elect its own Mayor, an honest and honourable man, to perform the essential tasks of maintaining a city so that commerce can transpire peacefully. The purpose of a city is commerce.

There were no "political parties" in England - not until the 17th century. In India, our political parties are all gangs of anti-socials - which is what socialism is all about. The Lord Mayors of London were all wealthy merchants themselves, among the wealthiest men in the world. But if you look at chacha manmohan, sonia gandhi, beta rahul, advani, sitaram yechury - none are creators of wealth. They are all wealth destroyers. All these parties must be abolished.

There is only ONE legal principle required to obtain Liberty for all - and that is the Inviolability of Property. If Property is violated by private persons, it is either theft or trespass. Ditto for whatever local government the people set up to run their cities and towns. The local government is established to protect Property, not to violate it. If this Principle is followed, all will be well. Perfect order will prevail along with perfect Liberty. 

The Principle of Property applies even more so to money - for money must be tangible Property and not a paper note.

As far as public thoroughfares are concerned, they are "public property" and they should not be obstructed by private persons. It is the task of the local government to ensure that all thoroughfares are kept clear of obstructions. This is not happening now. Not in Nude Elly - and certainly not in Pondicherry. Every city and town mayor must focus on this issue - roads and traffic regulation. This is much more important than the RAW and IB and their "security concerns." Over 200,000 people die on our unsafe streets every year, and many times more are injured. The IPS are as much a disgrace as the IAS. Both "services" must be abolished.

Outside the cities, lies the countryside - and here, apart from roads, what matters most is the provision of clear Property Titles. This must be done by the people through their own, new agencies, using GPS technology. The patwari system is a complete failure under IAS maladministration. It must be abolished. 

Since cities are NOT self-sufficient, and all the needs of the city come from outside, it is in the interest of the city to see that outlying farmers, for instance, can easily bring their produce to market. These arrangements can be organised by collaboration between each city and its outlying villages. In this manner, real estate development will also occur in the rural areas, benefiting all. Satellite towns will also develop.

It must be noted that England till date does NOT possess a "written constitution." Such a device is totally unnecessary. A bunch of jokers crowded into a room cannot agree on anything - and the end result is disaster for a billion people. A written Constitution is required to establish and then "limit" the government set up. This has not happened anywhere in the world - including the USSA. 

All that is required is the Principle that Private Property is Inviolable by all. If this is "public opinion" then none can use force to take away either the Liberty or the Property of anyone else.

A city mayor - and some "aldermen" or "councillors" - are not rulers. They do not "make law" as legislatures do. They are just like the governing body of a club. That is all each city and town needs. They must find their own people - because everything depends on the use of "local knowledge." If it is your city, then your people must look after it. I also believe trained and experienced city administrators can be hired from abroad - and they should.

This, in brief, is all that a "constitution of liberty" is all about. Private property, private law and private money. Liberty - and perfect order. Peace. Prosperity. Of course, foreign trade should be unilaterally freed - and the cities and towns on the coast should do this on their own. It is in their own interest to do so. The Customs Department should be abolished.

I am also of the view that all the tax arms of the socialist State should be done away with. Local taxes should be raised in each city, from owners of Property - and they alone should be entitled to vote for the mayor and aldermen. Universal suffrage is a disaster. In either case, you need Liberty more than the empty vote. No one in Nude Elly can open a beer bar - but they can vote! What sense does that make?

The motto of the Olde City of London is domini dirige nos, which translates to "Let God be our Guide." That is the motto of Liberty. They did not say "let the King be our Guide" - as we stupid Indians did.

Here in Pondicherry I awoke to the sweet sound of the muezzin's call of prayer - "Allah ho Akbar." This, too, means much the same. That God is Great, that God is our Guide, that no King and no Man can order us around. The Prophet Muhammad, peace be upon him, like the Lord Mayors of London, was a merchant, as was his wife Khadija.

With this, we can rid our nation of the pernicious disease of "politics" - and those who call themselves "politicians." Like the word "democracy," all these words are meaningless these days; or their meanings have been completely distorted. These words come from Ancient Greece, and they meant other things there.

I delivered a lecture once at the YMCA in Mangalore titled "Politics: The Root of all Corruption." When we chose Socialism and Statism, we politicised everything, and thereby corrupted everything. 

Virtue comes from The Market. When markets are free and Competition is fierce - everyone tries harder and harder to keep his customers happy. Towards this end, they "study the happiness" of the public. This is something no State ever does. All the State does is give you the Big Stick - up your ass. Get rid of that stick - and you will be free. Fix your cities and towns, free your markets, and you will slowly but surely be able to rebuild this shattered civilisation - if that word can still be applied to this sub-continent. Just keep one Principle in mind - that Property must be inviolable.

There arises the question of "unowned" things - and these should be free for "homesteading" on  a first-come-first-served basis. This includes things like radio spectrum, virgin forest lands, oil and gas fields etc. The principle here is "finder's keepers" - something all schoolchildren know only too well. 

And as for me, I have no interest in the "trappings of authority." I am awaiting for the members of my reggae band - The Ganjeras - to arrive so we can start rehearsing for an album and maybe even a show. Our first number planned is "Veeru Was A Good Man" to the tune of Bob Marley's "Johnny Was A Good Man." Let the sandalwood tree be Free! 

On Ombudsmen, Black Money, And The IAS

Anna Hazare & Co. want a Lok Pal - what the rest of the world calls "ombudsman" - to tackle corruption. And Baba Ramdev wants all the "black money" deposited by Indians overseas to return to India. In this post, I will prove that both these men are selling us delusions. First, ombudsmen.


There are already 13 Lok Ayuktas (ombudsmen) in the states. Some years ago, The Economic Times conducted a "special survey" on them, with 13 bureaus reporting, and concluded that "states nurse toothless tiger." These Lok Ayuktas have not been able to address the vast amount of corruption so deeply entrenched in our socialist, welfarist, inflationist and interventionist system. This includes Karnataka, whose Lok Ayukta, Justice Santosh Hegde, is one of the leading supporters of Anna Hazare. I myself appealed to the Karnataka Lok Ayukta for justice once, complaining of police harassment - and got nothing. Indeed, the Lok Ayukta of Karnataka was entirely staffed by policemen! Kiran Bedi, a policewoman, is all for Anna Hazare and the Lok Pal. She was also the chief of the Narcotics Control Bureau, a sworn enemy of all smokers of the Noble Herb like me.

What do ombudsmen do in other countries?

The word "ombudsman" comes from Sweden, where the office of Justitieombudsman (or JO) dates back to 1713. In this tiny nation, this long-established office exists to grant redress to any citizen who suffers an act of maladministration. Thus, even prisoners who are badly treated can send a postcard addressed to "JO" (with no address) and expect to receive redress. 

In other words, the ombudsman exists not to tackle corruption, but to address maladministration. Over the last few decades, many nations have copied the Swedish ombudsman: Denmark, 1955; Norway, 1962; 4 US states - Hawaii, Iowa, Alaska and Nebraska between 1969-75; and 8 provinces of Canada around the same time. The British too have ombudsmen now - but their Parliamentary Commissioner for Administration (PCA) can only deal with complaints routed through an MP.

There is another model available for administrative justice - the French model, designed by Napoleon himself, based on a Conseil D’État or "Council of State" -   which is staffed by an elite corps of administrative jurists. Any citizen can apply for redress against any act of maladministration he has suffered from. Mitterand added lower rungs in the districts. And the EU Court in Luxembourg is modeled after the Conseil D’État.

Jurists have long been arguing the merits and demerits of both these systems of providing administrative justice. AV Dicey, for example, thought the French system to be anti-thetical to English "common law." And there is also a disagreement between Bruno Leoni and Friedrich Hayek on the subject.

But even if we set these disagreements aside, the fact remains that ombudsmen come under the rubric of Administrative Justice - and not anti-corruption per se, which is a different matter. We in India suffer grievously from maladministration - and never is there any redress, or "accountability." And as for corruption, we have the Vigilance Commissioner, we have Vigilance Directors in all PSUs, and we have the CBI and a Prevention of Corruption Act. We also have 13 Lok Ayuktas - but nothing works. Thus, I do not believe anything will come out of the proposed Lok Pal. Maladministration will continue. And so will corruption.

In my view, what is needed is an entirely new Constitution: one that puts an end to Socialism and Statism, ends Interventionism and Inflationism, and guarantees Liberty by proclaiming Private Property to be Inviolable by all - including the State. This New Constitution should prescribe administrative duties for mayors and other elected officials, and power should be decentralised to the level of city and town. Thereafter, I will side with Leoni and advocate the Napoleonic system of administrative courts. India is too large a country for one Swedish-type JO to handle everything. After all, Napoleon was trying to administer an empire and not a little nation.

Let us now turn our attention to "black money" - which fires the fury of Baba Ramdev. In my view, it is impossible for our The State to "bring back" money stashed in foreign banks. But, since we do need Capital, the better approach would be to attract the black money of other nations to us. We could also have bank secrecy - something the Swiss no longer possess. We could shift to the Gold Standard, in which case even "white money" - the savings of foreigners - would come into our banks. If we open up our markets to foreign investment, we could attract more Capital than all the black money Indians have stashed away abroad. Note that this does not require strong State action. On the contrary, it requires cutting down the State.

Thus, Anna Hazare and Baba Ramdev are selling us delusions. They are basically political lightweights - and ignoramuses to boot. Their supporters claim to be "civil society" - but they desire to enter "political society"! The State is toying with them, trying to defuse the public discontent caused by all the recent corruption scandals.

All this goes to show the venality of the baboos of the Indian Administrative Service, who control "education"; including education in the critical subject of Public Administration. The National Academy of Administration as well as the Indian Institute of Public Administration are both headed by IAS baboons.

And you want The State to educate your children!

Ultimately, we urgently need to revamp our civilian administration - which has turned socialist and interventionist. And has thus become corrupt. These socialist administrators must be turned into accountable civil servants with constitutionally mandated duties. We suffer not only from corruption - we suffer even more because of the fact that our cities and towns have collapsed, thereby making all our lives miserable. We suffer electricity failures daily. Transportation sucks. Roads are terrible and travel slow, uncomfortable and dangerous. So much needs to be done in so many areas - leaving aside all the corruption. In the countryside, land records do not exist. In the cities, the vast majority lives in slums - without property titles.  

In short - we need a Constitution of Liberty. Nothing less will do.  

On Pornography... And Private Property

The photo alongside this post is from Khajuraho - that too, from a temple there - and my purpose is to illustrate the fact that ours used to be a sexually liberated society. Not any more. Not even in the internet age. Today, despite the internet, Playboy magazine - which once published an interview with Ayn Rand - is banned. Though thanks to "import substitution" we do have our desi version - Debonair - of which a great man like Vinod Mehta was once editor.

I was drawn to this subject by a report in the ToI which begins as follows:

Consumption of pornography is no offence. All that the law forbids is its publication or transmission. If the railway police in Mumbai could still terrorise an IIT student, just by claiming that his mobile phone stored pornographic video, they were riding roughshod over his human rights.

Once again, the only way out is the Inviolability of Private Property. It begins with the human body, and each of us is the Sole Proprietor of his or her body. We can thus display this body unclothed - if we choose to do so. Some of us do possess bodies that others consider beautiful - the "subjective" factor - and we can take advantage of this fact by posing naked for money. We can pose for stills - or for films. These stills and films will be shot in studios - which are also private property. These shots will be printed in magazines - private property once again, as are reels of film. Finally, these will be displayed in magazine shops or movie theatres, which are private property, too. The audience that buys the magazines now possesses them as private property. Similarly, those who buy tickets to see blue films possess temporary property rights to be seated in the theatre. If private property is inviolable by all, including The State, all is hunky-dory, none can interfere, and business can carry on as usual.

Now, a strange kind of man-made law like the IT Act, which allows the consumption of porn but not its production or distribution, is not unlike the Narcotics & Psychotropic Substances Act which allows smoking ganja but not its cultivation or sale. But as any ganja smoker will tell you, how can one peacefully smoke ganja if farmers cannot peacefully grow it and dealers cannot peacefully sell it? Such man-made laws are stupid - not based on any sound principle, like Private Property.

Private Property must be inviolable if we are to be completely free. Even immigration restrictions can be shown to violate property: for example, if one rents property in the US, even a hotel room, and if one is not allowed to enter the country, then the immigration authorities can be shown to have violated the property rights of both the foreigner who has rented it and the American citizen who owns it. Thus, a great deal depends on this principle - Complete Freedom.

Mises wrote something very important about Private Property:

Private property creates for the individual a sphere in which he is free of the state. It sets limits to the operation of the authoritarian will. It allows other forces to arise side by side with and in opposition to political power.

With our Socialist Constitution which glorifies "collective property," we have very little Liberty to celebrate. All we have are Air India, SAIL, ONGC et. al. What would you choose? PSUs or Liberty?

Hence, a New Constitution is an imperative. We must proceed forthwith to The Second Republic. We must be free! Liberty!

Private Property - And Public Roads

Abheek Bhattacharya, formerly of Mint and now with The Asian Wall Street Journal, has written a blog post on the recently concluded elections in West Bengal - in which the Commies were trounced by the Trinamool party. The post is titled "Property Rights Fuel Indian Politics" – and concludes thus:

Trinamool's rise is a story not just of how Indian Communism was felled by its internal contradictions. It shows that property rights occupy a pre-eminent place in Indian politics today. The country's eminent domain laws give the state too much power, while constitutional protection for property is weak. This means, barring reform, conflict is inevitable as India industrializes faster.

 

This month, Congress Party scion Rahul Gandhi was arrested in Uttar Pradesh—the state that sends most legislators to Parliament—for agitating against land acquisition. A leader of India's other national party, the Bharatiya Janata Party, went on a fast last week in support of these farmers. Clearly, both parties have learned the lesson from Trinamool's victory: If Communism's bastion in Bengal could fall, no party can afford to be on the wrong side of the land issue.

I am in full agreement with Bhattacharya - but I would like to add a point that has been missed: and that is, roads raise the price of land. Connect Village X to Town Y with a good, motorable road - and the price of land in the village will inevitably rise, while the overall price of land in the city will tend to decline because the supply of urban land has increased.

With more and more Indians owning automobiles, these people will be able to live a little distance away from the city – that too, with more space and open air – and commute to work and back.

The fact that roads raise the price of land is brought out in two stalled “expressway” projects: the first, which was mooted in the late-90s (and is yet to be completed) is the Mysore-Bangalore Expressway; and the second, of course, is the Yamuna Expressway, over which landowners are now battling the Mayawati  government in UP. In both cases, politicians have been hogging up land adjoining the expressway – which will rise in value the most once the road has been completed.

Therefore, one question that needs to be urgently addressed is: How are farmers going to be paid for the land they sell for building these roads? The Land Acquisition Bill now being discussed contains a provision that farmers owning “agricultural land” will be paid according to the prevailing price of agricultural land – and not the price of commercial land, which is what that land will end up becoming. This is cruel; this is also cheating.

If Wal-Mart buys up some mustard fields in the vicinity of Nude Elly, surely they will pay the mustard growers a price for their land that reflects its new use as a supermarket – the mustard farmers will demand it. Road builders must do the same. This applies moreso if the roads are to become “public roads.”

In the case of these expressways, this must apply all the more, because both are going to be tolled, private expressways. Thus, the new use of the land makes it many times more valuable than agricultural land. The project-affected landowners would therefore rejoice over their good fortune – instead of sabotaging the project.

Look at it this way: What is the price of land adjoining the expressway? Let us say it is Z rupees per square foot. In which case, the land on which the road is built must be worth much more – because without the road, all the adjoining land would be practically worthless. Thus, deliberately not paying farmers commercial rates for agricultural land that is to be used for other purposes is fraud – and our The Predatory State is committing this fraud; that too, with great deliberation. The bastards!

Whereas highways, expressways and truckways must be private and tolled, country roads will most probably have to be funded by taxes: local taxes on land and property. Building these roads must be the constitutional duty of the local government – and if landowners have clear titles, if property is inviolable, then these roads will add to the value of all agricultural land.

This is the direction in which we will have to proceed: make Private Property Inviolable by all, including The State; and second, make it the constitutional duty of local governments to connect all properties in their jurisdiction with a pucca, motorable road. It is these local governments who will collect property taxes, award titles in exchange, maintain up-to-date land records, and build, own and maintain local roads.

I conclude with an interesting anecdote: I have a friend who entered the USSA illegally and spent some 15 years there, during which time he took up various occupations, including that of a lumberjack. He tells the story of one forested state in which he worked felling trees, where “homesteading” was The Law.

Once he had got his job, he was told to select a site upon which he wanted to build his house, after which he was to inform the local authorities of his selection, so that they would build a road right up to his residence. The state favoured this policy as it would lead to increased settlement in their underpopulated state.

My friend selected a site a little distance away from the existing road, next to a river. The authorities then cut a swathe through his property in order to build a road right up to his door. In the process, they cut many trees – which were the Property of my friend, because they were on his homestead. He sold the trees – and with the money, built a house. So he had land, house and road completely free. He stayed there a few years, after which he sold the place for a fortune!

Get my drift? Let’s do that on the Western Ghats!

Karnataka - And A New Constitution

The shameful happenings in Karnataka politics are an occasion to reflect on India's Constitution. The BJP chief minister has already been indicted for nepotism and corruption. The governor, a CONgressman, has written to Nude Elly asking for the dismissal of the state government - and the chief minister is now threatening a mass agitation. It is CONgress vs. BJP: both corrupt, both headquartered in Nude Elly, both "socialist" - but not "secular." Hah! 

In the meantime, as anywhere else in India, all the cities and towns in the state are a mess. Bangalore has gone down the tubes - despite its wealth. And Karnataka is a huge state, possessed of immense natural resources, including a 300-mile long seafront. India's only gold mine is located here.

To begin, let us understand that over-centralisation has to go. A Second Republic must be built from the bottom - based on self-governing and free-trading cities and towns, run by mayors, independent of all higher authority: the Principle of Subsidiarity. Only those subjects that these mayors cannot handle must be handed to higher levels of government - first, the state, and then, the centre. The pyramid must be inverted.

Today, the system is "corrupt by design." What is this "political design"?

The way I look at it, if you join Indian politics, you can get elected either to the state assembly as an MLA, or to the central assembly as an MP. If your party is in office, you can try and become a minister. In which case, you will have a budget - a huge amount of "funny money" to foolishly spend. This is how you "recover your investment": everyone knows it costs a fortune to get elected, and no one spends that kind of money for nothing in return. No one is interested in "public service." This is the crux of the problem.

This problem is an India-wide problem. This is true of tiny Goa. This is true of the new "small states" - like Jharkhand, Chattisgarh and Uttaranchal. This is true of West Bengal, too, where the newly elected government will find it impossible to restore Calcutta - a great city that the Commies have destroyed. But then, Nude Elly has been destroyed too - despite the fact that the city is a full-fledged "state" of this so-called federation. Just today, I read of a report damning the Delhi Development Authority (DDA) - the land monopolist. Bangalore has a BDA - a DDA clone. Mangalore has one too. 

Note that both Bangalore as well as Mangalore fork out enormous sums in taxes - almost all of which goes to the centre. Then, from Nude Elly, the funny money "trickles down" - and these cities get nothing. There are mayors in Karnataka - six of them - but they are powerless as well as budget-less. The tenure of a mayor is just one year.

Now, it must be acknowledged that the spending priorities of Nude Elly are all wrong. Money is simply wasted by the powers-that-be in Nude Elly - from MGNREGA to the Army in Kashmir and Manipur, to all kinds of undeserved - or even foolish - subsidies. We are being sucked dry - paying road taxes on automotive fuels, and then paying tolls on "notional highways." Double taxation! And then Nude Elly wants to give free rice and wheat to "the poor" - and "free and compulsory education," too. What nonsense!

Two important points: 

First: If we Indians want to survive, we must understand that our only hope lies in a Free Market. With a free market, we can earn our keep. Without it, we are doomed. That is, we must not expect anything from our The State. Only  sycophants hang around these ministers. To that extent, we must oppose taxes. We must oppose Big Government - especially Big Government Spending. I have an earlier post on this. They do not "stimulate the economy" with their spending - which comes from taxation, borrowing and printing paper notes. Rather, they simply "consume capital." They cause inflation - which sucks us dry, too. Ludwig von Mises - and not John Maynard Keynes - ought to be our guide. As Mises wrote, quite categorically:

History does not provide any example of capital accumulation brought about by a government. As far as governments invested in the construction of roads, railroads, and other useful public works, the capital needed was provided by the savings of individual citizens and borrowed by the government.

Second: Small political units are the best. India in 1947 comprised over 650 "princely states" as well as some French and Portuguese enclaves. There was no problem. Mysore, for example, was much better run by its Maharaja. Look at it now - under either the BJP or the CONgress.

We must think, therefore, of small political units - like "free cities." The basic advantage in small political units is that these perforce have to be free trading. Anything that a free city needs must be "imported." No protectionism will be tolerated by the citizens of a free city. Europe survives pretty well with dozens of small, independent states, including "city states" like Monaco and Lichtenstein. In an earlier age, between the 13th and 17th centuries, a host of European cities formed the free-trading Hanseatic League. Arnold Toynbee called theirs an "aborted civilisation" - but here in India, such a civilisation can be reborn. Even Africa is composed of many independent nations - and some are doing rather well, like Botswana.

To me, the idea of powerful centralised states covering vast areas - ours is a sub-continent - is dangerous. Power corrupts. Ours is corrupt by design. If we want to end all this corruption, we must design everything anew. 

That is: 

First, a free market and laissez faire, laissez passer Capitalism, which must include Private Property as well as Sound Money. 

Second: Subsidiarity - so that taxes are paid to mayors for specific goods and services. 

And lastly, a "private law society." This last idea has been very well explained by Hans-Hermann Hoppe, so do read it carefully. I too have written a brief column advocating a private law society.

The problems of Karnataka politics cannot be solved by a changing of the guard - because here the fence eats the flock: Predatory State. The only solution is to get rid of this present Constitution.

A Second Republic beckons.

The Laws of Liberty... And Socialist Judges

The following was written by the philosopher Strabo around the year 40 AD:

As for the constitution of Crete which is described by Ephorus, it might suffice to tell its most important provisions. The lawgiver, he says, seems to take it for granted that Liberty is the State’s highest good and for this reason alone makes Property belong specifically to those who acquire it, whereas in conditions of slavery everything belongs to the rulers and not to the ruled.

Note: Ephorus lived in the 4^th century BC, and he was describing Crete as it had been for many centuries earlier.

So get it straight:

Private Property is Liberty.

Collective Property is Slavery.

Further, this is “pre-classical liberalism” – not “neo-liberalism.”

It is socialism, communism and collective property that are NEW – dating back to the 1850s. 

Nehru was following a “political fashion”; he had not studied the ancients and their wisdom. 

Thus, he did not know that Private Property is not only the foundation of Liberty, it is the foundation of civilisation itself.

Private Property is the basic rule all our unlettered people follow in the Natural Order of the market society. Vast masses can only “act” – that is, act to “exchange” – only where there is a clear understanding of what is “mine” and what is “yours”; and this rule alone prevents conflict.

If a Communist Mayor took over and declared everything in his City to be “collective property,” chaos would ensue, and everyone would raid every shop and every mansion to take whatever he wanted in the name of the Universal Brotherhood of Man.

It follows that the Market Society is based on Individualism, and the rights of Property belong to Individuals.

It further follows that the Market Society is not an “organisation.” It is NOT a Command Economy. Each Individual speculates with his own Property, seeking to satisfy his customers, responsible only to himself for his gains and losses.

What happens when conflicts break out and the Natural Order is disturbed?

Then, an “impartial judge” is called in to resolve the dispute.

How will this judge “discover” the Law of Liberty? Hear Hayek on this:

The distinct character of the rules which the judge will have to apply, and must endeavour to articulate and improve, is best understood if we remember that he is called in to correct disturbances of an order that has not been made by anyone and does not rest on individuals having been told what they must do. In most instances no authority will even have known at the time the disputed action took place what the individuals did or why they did it. The judge in this sense is an institution of a spontaneous order. He will always find such an order in existence as an attribute of an ongoing process in which the individuals are able to successfully pursue their plans…

In the Market Society, individuals meet and make peaceful and gainful exchanges. While doing so, they follow the Golden Rule of Property. This creates a spontaneous, “natural order.” Just as posses of policemen are NOT required to maintain order, so also the “specific commands” of Legislatures are unnecessary. The impartial judge is concerned only with the disputes between individuals  - and not the “will” of any “organisation” like The State. Let’s call in Hayek, again:

The judge, in other words, serves, or tries to maintain and improve, a going order which nobody has designed, an order that has formed itself without the knowledge and often against the will of authority, that extends beyond the range of deliberate organisation on the part of anybody, and that is not based on individuals doing anybody’s will, but on their expectations becoming mutually adjusted.

The judge thus takes into account decisions made in similar cases in the past; and, if he does set a “precedent,” he only “delimits the range of permissible actions” that will apply to unforeseen instances in the future. The judge is a servant of the Natural Order. He is not a servant of The State. He is there to “preserve the peace” – a peace that existed before conflict broke out. This is what Common Law is all about. Common law judges did not impose the monarch’s will – and the monarch never “made new law.” Common law judges “discovered the law” from the past – from custom and usage, and precedents.

Hayek says:

The efforts of the judge are thus part of that process of adaptation of society to circumstances by which the spontaneous order grows. He assists in the process of selection by upholding those rules which, like those which have worked well in the past, make it more likely that expectations will match and not conflict. But even when in the performance of this function he creates new rules [sets precedents], he is not the creator of a new order but a servant endeavouring to maintain and improve the functioning of an existing order. And the outcome of his efforts will be a characteristic instance of those “products of human action but not human design” in which the experience gained by the experimentation of generations embodies more knowledge than was possessed by anyone….

He must thus be conservative in the sense only that he cannot serve any order that is determined not by rules of individual conduct but by the particular ends of authority. A judge cannot be concerned with the needs of particular persons or groups, or with “reasons of State” or “the will of government,” or with any particular purposes which an order of actions may be expected to serve. Within any organisation in which the individual actions must be judged by their serviceability to the particular ends at which it aims, there is no room for the judge.

So, can a Socialist ever be an “impartial judge” – or will he always side with authority? Hayek notes:

In an order like that of socialism, in which whatever rules may govern individual actions are not independent of particular results [like “redistribution”], such rules will not be “justiciable” because they will require a balancing of the particular interests affected in the light of their importance. Socialism is indeed largely a revolt against the impartial justice which considers only conformity of individual actions to end-independent rules and which is not concerned with the effects of their application in particular instances. Thus a socialist judge would really be a contradiction in terms; for his persuasion must prevent him from applying only those general principles which underlie a spontaneous order of actions, and lead him to take into account considerations which have nothing to do with the justice of individual conduct [as with rent control, nationalisation, land acquisition or the war on drugs].

Hayek goes on to say what kind of judge – and what kind of justice – best suits the Natural and Spontaneous Order of the Market Society:

The difficulty many people feel about conceiving of the judge as serving an existing but always imperfect abstract order which is not intended to serve any particular interests is resolved when we remember that it is only these abstract features of the order which can serve as the basis of the decisions of individuals  in unforeseen future conditions, and which therefore alone can determine an enduring order; and that they alone for this reason can constitute a true common interest of the members of a Great Society, who do not pursue any common purposes but merely desire appropriate means for the pursuit of their respective individual purposes.

All this MUST be based on the Institution of Private Property.

Law, Liberty and Property are an inseparable trinity.

Thus, there can never be any Justice under Socialism and Socialist Judges.

And a Socialist Constitution.

Onwards to a Second Republic!

And a Private Law Society – based on Property, Contracts, and Torts.

To conclude – here is Adam Smith’s good friend, David Hume:

But, though it be possible for men to maintain a small uncultivated society without government, it is impossible they should maintain a society of any kind without justice, and the observance of the three fundamental laws concerning the stability of possessions [property], translation by consent [free exchange], and the performance of contracts. They are therefore antecedent to government.

I would insist that Torts are also antecedent to government. With Torts, “criminal justice” becomes redundant – as I have argued earlier. On this subject, do read Bruce Benson’s The Enterprise of Law: Justice Without The State.

So, dear reader, contemplate the desirability of a natural and spontaneous order in which we all can peacefully co-exist and pursue our own individual ends – under the Law.

So, its not just about Liberty.

It is Liberty Under Law.

                       

[All HAYEKsplosive quotes are from Law, Legislation & Liberty, Vol. 1, “Rules and Order”, Chapter 5 titled “Nomos: The Law of Liberty”. You can buy the book from Amazon by clicking on the icon alongside. I recommend it highly.]

Conversation With A Young German

Hearing that I propagated "radical capitalism," a young German tourist entered into a debate with me. He said he stood for "social market economy," and when I inquired as to what kind of interventionism he desired, he said German farmers needed protection. Free trade would hurt them, he said. The German State must impose high tariffs on tomato imports, he argued. I replied as follows:

If this tariff is imposed, and Germans pay more to consume locally-grown tomatoes, they will have less to spend on other goods - like beer. Thus, the move will backfire. The farmer's gain will be the brewer's loss. Consumers will lose, too.

I added that the "international division of labour" means specialisation among all nations. Thus, if Germans import tomatoes from, say, Indian farmers, and specialise in engineering, they will benefit. But if they protect inefficient tomato farmers, then Indian farmers will lose - and they will be unable to buy BMWs from Germany. Protectionism is a Lose-Lose proposition, I told him. The whole world loses. The world would be a much better place if tariffs were abolished altogether.

He hemmed-and-hawed awhile, and then took the tack that my "radicalism" was something new - a belief in a "pure capitalism" that had never been articulated before. I advised him to read Ludwig von Mises' Liberalismus - the original German edition of his Liberalism: The Classical Tradition dating back to the 1920s (which you can buy here; the PDF file of the English version is available here).

I also told him about Adam Smith's "Three Duties of the Sovereign" dated 1776, and how these duties excluded the production of money, poor relief and even the making of law. The sovereign only had to defend his subjects from internal and external foes - and undertake "certain public works" that neither businessmen nor charities would invest in, like roads. Rather than making law, the sovereign had to establish an "exact administration of justice." In Smith's immortal words:

According to the system of natural liberty, the sovereign has only three duties to attend to; three duties of great importance, indeed, but plain and intelligible to common understandings:

first, the duty of protecting the society from violence and invasion of other independent societies; 

secondly, the duty of protecting, as far as possible, every member of the society from the injustice or oppression of every other member of it, or the duty of establishing an exact administration of justice;

and, thirdly, the duty of erecting and maintaining certain public works and certain public institutions which it can never be for the interest of any individual, or small number of individuals, to erect and maintain; because the profit could never repay the expense to any individual or small number of individuals, though it may frequently do much more than repay it to a great society.

Thus, these views are neither radical, nor new. And Smith's use of the expression "Great Society" is also noteworthy. This Great Society is not a nation-state; rather, it is internationalist and world-embracing. Smith's Great Society is exactly what Sir Karl Popper meant by "Open Society." I have myself written a recent column on Open Society, which you can read here. This open or great society has nothing to do with "narrow domestic walls." Classical liberalism was about all of humanity. Smith dreamt of "universal opulence."

The young German said he was planning to pursue an MBA programme in the USSA. I advised him against it, asking him to study Economics instead - at home.

Why are Germans so sceptical of the Free Market when they have seen the failure of East Germany? The answer probably lies in the fact that their schooling is provided by their State. It is in Germany that the Welfare State was born - under Bismarck. It is in Germany that "bureaucrat-professors" proclaimed themselves to be "intellectual bodyguards of the House of Hohenzollern."

But there is hope. The Euro will fail, soon, only because of Socialism - the "social market" my young friend so stoutly defended. "Social welfare" has failed in four EU nations: Portugal, Ireland, Greece and Spain (PIGS). Soon, all of Europe will learn that welfarism is not "economically sustainable." We in India must learn this too.

What Is "Governance"?

The lead editorial in Mint today says that our Great Leader, prime minister chacha manmohan s gandhi, has "plumbed new depths." India is facing an "abysmal crisis of governance" - the editors say. This is the opening sentence:

If any confirmation of India’s abysmal crisis of governance was required, Prime Minister Manmohan Singh supplied it on Wednesday.

What is this magical "governance" that our The State is supposed to provide our society? Who are the personnel of this State who will do the job? Do politicians, bureaucrats, policemen, judges, tax collectors, customs officials, PSU chiefs, RBI governors, bureaucrat-professors and "teachers" provide us with this magical governence today? What, indeed, is "governance"?


Answer: Governance is fiction. There is no such thing. It is a dangerous word, full of Hobbesian content, which makes simple people believe that, without The State, there would ensue a "war of each against all." Hobbes was an ass - and a mathematician.


In reality, the Market Society is possessed of its own Natural Order. There must be millions of crowded bazaars all over India where millions throng to buy and sell - without any policemen "maintaining order." How does this order exist on its own?


The Market Society is all about "how to acquire desired objects." People in such a society learn from childhood that trade and exchange is the way. When doing this, they all observe the Golden Rule of the Inviolability of Private Property. Thus, while the shops are all wide open, no one goes in to plunder. Man is a "rule-following animal," as Hayek said. He added that the observance of these rules lies "between instinct and reason." In other words, while we have overcome our instinct to plunder, we have not reasoned why. Hence, we are a nation of zombies whose very Constitution violates the Golden Rule of the Inviolability of Private Property. Our "politics" is monopolised by socialist and communist "parties" whose constitutions are also violative of this Golden Rule.


Between instinct and reason, indeed.


"Civil government" - the term Locke used - is not The State. It is a classical liberal concept based on the Free Market and Private Property. The word "civil" lies at the root of "civilisation," "civility," and "civil service."


"Where there is no Property there is no Justice," wrote Locke.


Thus, with this socialist Constitution our civil servants of old have been transformed into predatory "bureaucrat administrators." The old District Collector - who took a tax in exchange for a property title - has been transformed into the District Spender. All his spending is part of the Capital Consumption our The State is engaged in. There is NOTHING he provides that may be called "governance." Not even a footpath or a zebra crossing. And property titles have been forgotten - even in cities, where millions live in slums.


The editors of Mint conclude that chacha's performance "does not augur well for the country’s governance." They contemplate a new bunch at the helm of our The State and say:

For the fact is that every new government that comes to power makes its predecessor look like an angel.

But these are not "government." These are all our The State. Everything is predatory. Tax, print, borrow, spend, regulate, legislate, protect, subsidise and "distribute the booty." Every State Government of this Federation does the same. The cities and towns are all collapsing - including Nude Elly. There are no roads. The State Police is predatory. The courts do not work. And Air India flies!


On my part, I hold that it is a very good thing that chacha manmohan has brought about this "crisis of legitimacy" that our The State is suffering from. I hope more and more people will realise that we will all be much better off if we abolished this The State altogether. This is a "good for nothing" organisation, predatory to boot.


In the classical liberal worldview, "civil government" (in cities and towns) exists only to preserve a pre-existing natural order. This order is "presumed." There can be no civil government if this order did not exist - and military government would be required. The civil government only preserves and maintains the pre-existing order.


So, avoid using the word "governance"; loaded, as it is, with statism.


And do contemplate the wonders of the Natural Order - the cosmos.