Further Implications Of Say's Law Of Markets: Part 2

So far, I have shown how Say's Law disproves the Keynesians, the protectionists and those who oppose free immigration, like the trade unionists. Today, let us take the arguments a few steps further, and also counter the points raised by Murali yesterday - "legal and cultural objections" to free immigration.


Let us begin with the example I gave yesterday - of the bhel-puri wallah. As Say's Law reveals, once he sells his stock, he is possessed of the means to demand other stuff on the market, except for bhel-puri, of course, which he will not buy. Thus, the sale of bhel-puri creates the demand for all non-competing goods. Our bhel-puri wallah might buy a mobile phone!


There are two important aspects worth noting at this stage: first, who are his customers; and second, the fact that the bhel-puri wallah is really a "poor" man, a very small businessman, often hounded by the cops. I will examine each aspect in turn. 


First: the customers of the bhel-puri wallah are a diverse bunch of people who produce a diverse bunch of goods and services, which they have successfully sold, and which has given them the means to enjoy some bhel-puri. This shows that widespread diversity - a hugely diverse division of labour - is good for all businessmen, because there are then more and more "non-competing" goods and services on sale. In other words, the more non-competing goods on sale, the better it is for all businessmen, the greater the demand for his own produce. 


Thus, Say's Law of Markets allows us the possibility of restating Adam Smith's dictum: "The division of labour is limited by the size of the market." This could be also put in the following form: "The greater the division of labour, the greater the demand for all goods on the market." Thus, free international trade is good - because then we have the "international division of labour."


Second: We noted that the bhel-puri wallah is a very small businessman. Now, especially in a poor country like India, the bulk of the businessmen are of this variety in our cities and towns - very small businessmen. And they are victims of the police. They are hounded, robbed, and their surpluses go in paying bribes. 


Yet, capitalism is all about Big Companies. And these Big Companies are ALL producing for the "mass market." Modern capitalism is nothing but "mass production for mass consumption." Our bhel-puri wallah bought a mobile phone - and he will spend the rest of his life re-charging it. Another example: 70 percent of all shampoo sold in India comes in little 1 rupee sachets - for the poor. This has enormous implications for policy.


This shows that the bulk of demand comes from lesser off people - and, if we want prosperity, every effort must be made to ensure that these people are able to sell whatever goods and services they wish to sell.

There must be economic freedom!

And State Predation on these people must end. This is a very different approach from Keynesian "funny money" welfarism of the kind chacha manmohan s gandhi has instituted, copying the West (where it has failed most spectacularly). 


Thus, either we institute Liberty - by which we will become the world's fastest growing market for mobile phones and other gizmos; or we continue with the charade of a Predatory State pretending to be a Welfare State: free rice for all bullshit.


Murali pointed out that westerners are opposed to "illegal immigration." But what does True Law state on Private Property. Does the US Immigration Department own the United States of America? Or is there, indeed, a "patchwork" of private property? In which case, each private property owner has the full right to decide who should enter his area. If I rent a room in a US hotel, US Immigration should not be able to disallow me entry.


As far as "cultural" objections to free immigration are concerned, these are "tribal mindsets" at work - not the sort of "rugged individualism" capitalism is all about. In any case, they make zero economic sense. Immigrants from different cultures are good for a country precisely because they make the division of labour more and more diverse. In Pondicherry, for example, I met a Frenchman who has been living there for 40 years, running three French restaurants. Such immigration is for bidden in Goa. And in Pondicherry of the old days, there were lots of Vietnamese running their own restaurants - and the city is poorer because they have upped and left. Mexicans in the US have popularised their cuisine. 


There is much people of diverse cultures can successfully sell that is "non-competitive" - like handicrafts and jewellery. Would the USA be a better place with just European food, burger joints and the like? And have you ever tried Vietnamese nouc mam sauce? Isn't Britain better off with all the Indian restaurants? And I did find a Vietnamese restaurant in London! Give me a "cosmopolitan" city any day. And do note that all these diverse restaurants ADD to overall demand - unlike Keynesian funny money.


We in India should therefore consider ourselves fortunate that none of our cities are homogeneous. They are all true "catallaxies." Catallaxies, which are "open trading arenas" - open to strangers, that is - are the "key to an Open Society," something I discussed in a column once. We can either have catallaxies and open societies - based on rugged individualism - or we can have "closed communities." 


Say's Law, as I discussed yesterday, makes a strong case for rugged individualism. Our heterogeneous society is best placed to make such a world, and such an Open Society, happen.


(This series on Say's Law is continued here.)

Further Implications Of Say's Law Of Markets: Take #2

Today is the 130th birth anniversary of Ludwig von Mises. This post is written in his honour. He hated the Keynesians and he upheld Say's Law against their vicious attacks. It is Say's Law that proves the truth of Mises' words below, written for the benefit of the working classes who mistakenly support socialism, unionism and Keynesianism:

In the capitalist society there is a place and bread for all. Its ability to expand provides sustenance for every worker. Permanent unemployment is not a feature of free capitalism.

Murali's comment to my previous post - on Jean Baptiste Say's Law of Markets, and its implications on the current economic crisis, has prompted me to write another post on this vital law, this time explaining some of its other practical implications. In the world of classical liberal political economy, if you were not an adept at Say's Law, you were not considered a political economist worth your salt. It is therefore important to know all about this law of markets - a law that John Maynard Keynes thought he had disproved.


First, let me restate the law:

The sale of X gives rise to the demand for all non-X.

If X sells, it creates the demand for all non-competing goods.

Thus, if a bhel-puri wallah sells his stock, he will be possessed of the means to purchase all other, non-competing goods on the market, except bhel-puri, which of course he will not buy. This disproves the deliberately misleading Keynesian formulation of Say's Law as "supply creates its own demand." The supply of bhel-puri does not create the demand for bhel-puri. The supply and sale of all other, non-competing goods and services do.  


Now, the first objection the Keynesian will have to this formulation is that the market tends towards over-production, so without Keynesian monetary boosts, recessions are inevitable. But Say's Law says:

Markets Clear - If Prices Are Not Rigid Downwards 
(due to interventionism).

Thus, ANYTHING PRODUCED will finally be sold - even as junk, if prices are allowed to fall. There is NO OVERPRODUCTION. And there is NO CASE for any monetary boost to "stimulate consumption." 

Indeed, as the Austrian School of economists have proved with theory, and as history has proved today as well, it is this sort of monetary tinkering based on Keynesian "macroeconomics" that is the root cause of all boom-and-bust "business cycles."

Say's Law asserts the obvious: That SAVING and INVESTMENT and INCREASED PRODUCTION lead to INCREASED DEMAND for ALL GOODS AND SERVICES. This is the ONLY WAY to boost demand permanently. 


Keynesian inflationism destroys savings; erodes capital; and thereby reduces production. If at all it boosts consumption, this is during the temporary, heady and short period of the artificial boom, for inevitably the bust must follow, and this is invariably of longer duration than the boom. Further, there have been historical periods of "stagflation," when inflationism failed to boost consumption at all, and economic stagnation combined with high inflation.  

Second: Say's Law proves that all businessmen are best off if they DO NOT COMBINE in protectionist groups. Such groups, if successful, reduce the supply and sales of all non-competing goods - and this reduces demand for all businessmen who do NOT compete with these goods. Thus, whereas Amul Cheese may want protection, it makes no sense for Kingfisher Beer to support this claim, and vice versa. 


Recall that, in our protectionist heydays, there was precious little available in Indian shops - and all businesses suffered. Our markets had zero catallactic energy. 


Thus, Say's Law proves that the business interests of a particular class of traders called "importers" must be supported by all. 


Further, it makes a rock-solid case for "rugged individualism" on the part of all businessmen. It opposes mixing politics - particularly protectionist politics - with business.

The same is true with regard to immigration restrictions. These exist in the West because of a few very powerful trade unions, like the US Automobile Workers' Union. These unions demand visa restrictions because they fear that immigrants will "take away their jobs." 


But the fact remains that all immigrants are NOT competing with autoworkers. Some may come as doctors and nurses. Some may come as dishwashers and construction labourers, restaurant waiters and cooks. And some as software engineers. After all, labour is NOT a homogeneous entity. And there is therefore nothing called "unskilled labour." Further, the demand for labour is always the demand for a particular skill.

If immigration was free, Say's Law proves that overall demand would rise, because as the workers in the non-competing areas managed to sell their services, they would buy whatever they needed from that very same market. I daresay if the USSA had opened up to immigration two years ago, their crisis in the housing market would well nigh be over.

There is more: Because automobile workers' unions are so influential and powerful, the US automobile industry has collapsed. General Motors has been nationalised! Obviously, an important cause of this collapse is the high cost of domestic labour. 

So here is a third and final implication of Say's Law: That all non-competing businessmen gain the most if ALL goods and services are sold at their most competitive price, which is, of course, the LOWEST PRICE.

THIS INCLUDES LABOUR.

Thus, cheap and abundant labour is good for an economy, just as cheap and abundant coal or oil or natural gas or timber is. If labour is cheap, all businesses benefit. All costs are lowered. More goods and services are produced and there is more competition. Thus, workers in all industries gain as consumers - even though their individual wages may be lower. For example: If waiters and cooks can be hired cheap, restaurants will be cheap, there will be more of them - and more workers will be able to eat out.


Cheap labour is beneficial to other, non-competing businesses in another, vital way: consumers have more to spend on the other offerings of the market. Thus, if cars are cheap in the US, the US consumer has money left over to buy beer, jeans, CDs and books. 


This implies that free immigration and cheap labour are GOOD for all American businessmen. Further, there is NO REASON for all workers to join socialist trade unions. Karl Marx's slogan, "Workers of the world - Unite!" makes as little sense as "Businessmen of the World - Unite for Protectionism!"

So, just as Say's Law of Markets suggests RUGGED INDIVIDUALISM as the best policy for businessmen, so also does it suggest the same for workers. Trade unionism and labour market restrictions hurt all workers outside the combination - and thereby hurt all other businesses, and the workers employed in them, too. Workers must compete with each other - just as businessmen must, too. After all, workers in the same factory compete for the next promotion, don't they? As Mises put it: 

Under capitalism everybody is the architect of his own fortune.

Say's "Law of Markets" thus makes a water-tight case for free trade, for free immigration, and for laissez faire. It supports the logic of open borders and the free mobility of capital, goods and labour. It tells us what really boosts demand permanently - which is, increased production of goods and services, based on higher savings and investment. It totally explodes the Keynesian myth that monetary stimulation to boost consumption is good for an economy.

Jean Baptiste Say was known as the "Adam Smith of France." His Law of Markets is as unshakable as the Law of Gravity - despite all the efforts of the evil, lying Keynesians. Truth keeps on working, as Mises said, even if the textbooks contain lies. This law makes a logically indestructible case for free markets and free competition. It makes a solid case for rugged individualism. It opposes politics - which is what the Keynesians, Marxists, protectionists and union bosses have injected overdoses of into our lives, thereby damaging civilisation, even to the point of destroying it.

If you want to learn more about Say's Law, I suggest the late Professor WH Hutt's A Rehabilitation of Say's Law, available from the Mises Institute in PDF, as an e-book, and also as a proper book. Follow this link.


WH Hutt was an outstanding classical liberal; that too, despite being educated at the London School of Economics during the heydays of Fabian Socialism. Hulsmann reports that Hutt, while a student at the LSE, attended a guest lecture by Mises - and then he "broke on through to the other side."


Hutt was born into the British working class - which is why his works against trade unionism are all the more worth studying.


Part 2 of this post can be read here.

War or Peace? Ideology Matters Most

Our Central State Police Minister has been quoted as follows in this news report:

Home Minister P Chidambaram today said that India lives in the "most difficult neighbourhood" in the world as terrorism infrastructure in Pakistan has flourished "as an instrument of state policy".

Well, we exported Maoism to Nepal - and we also supported the LTTE in its time. Indira Gandhi created Bhindranwale - and Sikh terrorism. So we do not have a clean image either. In Chattisgarh, the Salwa Judum is State Terror.

The police minister, of course, made some noises about peace:

Given the complexity of our region, our government has a comprehensive neighbourhood strategy that is based on political engagement, especially with Pakistan, support for political stability, assistance for economic development and improved connectivity and market access for our neighbours to the Indian economy. A stable, peaceful and prosperous neighbourhood is vital for the security of the people of India. 

All I would like to point out is that the above ideas do not sit well with our governing ideologies: socialism and economic nationalism. It is because we do not believe in The Market that we have ourselves created this horrible neighbourhood. Even till today, 20 years since "liberalisation" began - and has shown such impressive results - classical liberal / libertarian political parties are disallowed in Indian politics. We are WTO-wreckers - not free traders. How, then, can our neighbourhood be peaceful?

As Ludwig von Mises wrote:

Civilization is an achievement of the bourgeois spirit, not of the spirit of conquest. Those barbarian peoples who did not substitute working for plundering disappeared from the historical scene. Civilisation is the product of leisure - and the peace of mind that only the division of labour can bring about. Society is but people trading goods and services amongst each other.

Our The State has always chosen autarky as national policy. We isolated ourselves from the rest of the world, including our neighbours. This is "economic nationalism" - a policy that seeks to aid domestic businessmen by inflicting harm upon foreigners. 

It is economic nationalism in Europe that resulted in two World Wars. It is precisely for this reason that laissez faire is best - because the State is not involved in business, does not protect anyone, and practices free trade and free immigration with all. This is the path we must take. 

This is OUR neighbourhood. It is called the INDIAN sub-continent. We must set the trend here - and export the ideology of peace, trade, free movement of people, goods and capital, and non-interference in internal affairs. So far, for 60 long years, we have been doing the very opposite.

Our police minister said the above quoted words during a meeting with the police minister of the USSA, Janet Napolitano. The USSA, in either case, is no longer "the land of the free"; she is now The Land of the Imprisoned, with the highest number of prisoners per capita in the world. Do read this article by Anthony Gregory of the Independent Institute, titled "Abolish the Police."


Further, the USSA is one nation that can rightly be called "war-mongering." Much of their war-mongering is occurring in OUR neighbourhood - and our The State is in cohorts with them.


But the USSA is fortunate to have Ron Paul - and here is Walter Block predicting that Ron might win the 2012 elections. If Ron Paul - a libertarian well versed in Austrian Economics - is in the White House, he might just set things right in OUR neighbourhood - by pulling American troops out of Af-Pak, and, more importantly, by exporting his libertarian ideology.

Yes, it is ideology that matters most. Without a coherent political and economic ideology, we are lost. As indeed we are. Our ministers make some noises - sometimes this way, sometimes that - but the same old shit continues unabated.

I conclude with what someone just back from Kabul told me:

When there is no Market Economy, what can a young fellow do but pick up a gun and join one plundering gang or the other?

Think about it. 

Ideology matters.

And we libertarians are not allowed into Indian politics because of our ideology. It must be socialism, says the Supreme Court. In which case, wars will continue, internal and external.

Think about it.

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.

Against The Passport-Visa Regime

Visa scams are a regular feature of life in India - and there are visa touts aplenty in Nude Elly - but the scam I found today in the Express occurred in the USSA, in California, and was committed by an educational institution; that too, mainly on Indian students.

On this touchy subject, my song is the one Bob Marley sang:

Oh why can't we roam,

This open country?

Why can't we be

What we want to be? -

We want to be Free.

Surely, there are better ways of proving one's identity to a foreign State official than a passport? Even an International Driving License is better. And as for the visa - why should a local cop be perturbed if a stranger in town is spending his money in the bars and pubs, and in the high-street shops, armed with a credit card called Visa that guarantees not only his identity but also his economic worth; that is, his credit-worthiness? Why do these have to be counter-checked by a tax-funded bureaucRAT (white-skinned) in an embassy? These embassy-based visa bureaucRATS - the rudest of their ilk on the planet - are the cause of all these scams.

Let us not entertain arguments over "community" and how immigrants "do not integrate" themselves into this mythical social entity. The urban market economy has nothing to do with community; rather, it is individualistic. Immigrants must integrate themselves in the "division of labour" alone, and it can never be reasonably expected of them that they must integrate themselves with a mythic host community.

Further, the chief advantage of the urban market catallaxy is that it enables gainful trades between complete strangers. As tourism is the world's largest industry these days, more strangers in every nation is a great idea, for it would give this great industry - which is all about holidays and good times - a boost.

The real reasons for the continuation of the passport-visa regime by Western nations lie elsewhere - in their desire to keep out cheap labour, in order to favour trade unions. This backfires on them - as with every single instance of interventionism - for their own citizens cannot consume labour services any more; no more gardeners and maids for them. And their exports dwindle too - because high labour costs make them uncompetitive.

If we look at the Western nations of Europe - they are all linguistically homogeneous, excepting Switzerland. This homogeneity made them nation-states, nothing else. Thus they came by nationalistic chauvinism. And proceeded to hate "outsiders." Hitler was the worst of the lot - but there are many others, from Enoch Powell (see his "rivers of blood" speech) in Britain to Jean-Marie Le Pen's Shiv Sena-like anti-outsiderism in France.

In India, every city is a melting-pot - there are multiple communities, multiple languages, multiple religions. Let us endeavour to keep things that way. In our neighbouring area, there are lots and lots of poor people, who want to come here for various reasons: to work and integrate in the division of labour - like the ubiquitous Nepali chowkidar; to obtain medical attention - as with Afghanis and Africans; or to get themselves some educational "degree" - as with many youngsters from Africa and the Middle East; and finally, as genuine tourists. I would insist that they do not hurt us in any way by coming into our country. 

So let them come freely. Let us be the first to dismantle this horrendous passport-visa regime created by the West - as an example to them. 

The Mughal Emperor was also called Jehanpanah or "Refuge of the World" - and this was "fiscally rational" policy, because if someone escaped the clutches of the Shah of Persia and settled in Mughal territory, the Mughal Exchequer would gain. What better way to tax Bangladeshis other than letting them settle freely in India? To spend tax revenues to keep prospective taxpayers out - which is what the West is doing these days - is "irrational." It is absurd. And it goes against the "sentiment" engraved upon an international monument.

The poem by Emma Lazarus inscribed on the Statue of Liberty in New York is titled The New Colossus, and goes thus: 

Not like the brazen giant of Greek fame,

With conquering limbs astride from land to land,
Here at our sea-washed, sunset-gates shall stand
A mighty woman with a torch, whose flame
Is the imprisoned lightning, and her name
Mother of Exiles. From her beacon-hand
Glows world-wide welcome, her mild eyes command
The air-bridged harbor that twin-cities frame.

"Keep, ancient lands, your storied pomp!" cries she,

With silent lips. "Give me your tired, your poor,
Your huddled masses yearning to breathe free,
The wretched refuse of your teeming shore;
Send these, the homeless, tempest-tost to me,
I lift my lamp beside the golden door!"

The Statue itself was a gift from the people of France. The money was raised through holding a public lottery - that is, it was built on gambling money.

In the meantime, The USSA is no longer the "golden door": since Nixon, the US dollar remains just paper debt piling up and losing value with every passing day. When you read debates over free immigration there, the only defenders of the regime are those who wish to avail themselves "social security benefits" while denying these to outsiders.

Reminds me of the story of the first Muslims of this world, who fled with their Prophet from Mecca to Medina. There, the local inhabitants rushed out to greet them, offering every hospitality - and even the Prophet encouraged this bonhomie, saying, "Fraternise in Allah."

But these, the first Muslims, would have none of it, and said, in one voice:

Show us the Way to the Market,

And we will make our Way by Working.

Who the fuck wants "social security" from some foreign State anyway?

Central Asia, once part of the USSR, has disintegrated today - and each nation-state has established its own passport-visa regime, thereby hurting traditional itinerant businessmen. No more "Silk Route."

Yes, the passport-visa regime must go - and Indyeah should take the lead.

Foreign Trade - Without Our Central State

The Central Ministry of Commerce controls all our international trade. Therefore, there is very little of it. I have many previous posts on the erstwhile commerce minister, Kamal D Nutt, famed as a WTO-wrecker and a staunch protectionist. Hence, on the west coast, all the ports export iron ore and import nothing. Makes perfect sense to Nude Elly, so very far away from the sea.

Today, there is an interview with the central State's commerce secretary, Rahul Khullar, IAS, in Mint, that reveals much about the deep errors in how these fellows think. The title says the man is very worried about our "trade deficit." The very term refers to a fictitious "national economy," whose exports and imports need to be "balanced" by such bureaucrats. Note that at a sub-national level, such statistics are never resorted to: like, say, the trade balance of Bombay or Goa. Such a concept only matters to individuals, who need to balance their sales and purchases; that is, their income and expenditure. Since only individuals (and individual firms) engage in trade, they alone are capable of taking rational decisions on this score: that is, how much to export and how much to import.

I have only the other day written a post on the fictional nature of the "national economy": that, in truth, there are only "private economies," billions of them, and that notions like GDP and its "growth rate" are false. Today, let me extend that discussion to the ideas expressed by our commerce secretary in the above interview. These are all entirely false ideas, designed to perpetuate bureaucratic and political control over foreign trade.

But why have we Indians set up this State? Is foreign trade regulation one of those purposes? Or should we not just demand from our The State the very same "liberty to trade by land and sea" that the English people seized from King John in 1215 AD?

To begin with, let us understand that we are all, as individuals, major importers. If I sell words - my export - then I import just about everything else into my house. The same applies to my town, in which there are neither any farms nor any factories, and everything on sale in its shops and bazaars have been imported from without - but from the land, and not from the sea, which lies 200 yards away. The question then arises: Why should the sourcing of products in our town and city markets be limited to what is produced domestically? When no individual, town or city is "self-sufficient," why should the nation be so? If a merchant ship laden with goodies draws up at my nearest port, should it be turned away?

In matters economic, one must always think like an individual and never in terms of "national economy" - a false concept designed to confuse the citizenry into thinking that the personnel of The State must plan, regulate and control economic affairs. If we think deep, as the classical liberals did, then The State is nothing but an organisation based on compulsion and coercion established to secure life, liberty and property, thereby allowing each citizen to pursue happiness freely. Thus they called for laissez faire - or "let free" - which means a clear separation of State and Market.

The State, to the classicals, comprised tax collectors, policemen, magistrates, jailors and hangmen - none of whom have anything to do with business. These ideas were lost when the concept of "national economy" took over the public mind, thanks to public education, and each nation-state, with its own fiat paper currency monopoly within its territory, began to intervene in matters economic.

While looking at our own The State in Nude Elly, we must note that this institution cannot even "balance" its own budget! It has always been in the red. It continues to be so. They live off the "perpetual irredeemable debt" - and some 3,50,000 crore rupees are being borrowed this year. Should we not ask of our The State: Hey, dude, why don't you "balance" your own budget instead of trying to fool us all with this bull about a "trade balance"?

Matters become clearer when we think about gold as money; that is, "private money" neither produced nor regulated by The State. Then, just as none think of how many rupees are travelling in and out of Bombay, none will bother about how much gold is flowing in and out of our borders. Each individual will manage his own gold hoard and freely speculate with it, and this includes speculation on imports. Then, just as the East India Company sent out its "tall ships" laden with gold to buy up all the spices in the fabled East and bring them back so as to be able to sell them domestically at a huge profit, many Indians will prefer to be importers rather than exporters. They will send out their gold and impatiently wait for their "ships to come in." Today, the commerce ministry in Nude Elly is giving out "incentives to exporters"! This, while the value of the rupee is in constant decline - thereby discouraging imports! If we adopted a gold standard, things would be the other way around, and imports would become progressively cheaper, especially if the rest of the world stuck to fiat paper money, which would always decline in value against gold. We would become big importers. And our exports would benefit too, because imports of raw materials, components, and technology would become cheaper. We would export high-tech stuff - not low grade iron ore dug out surreptitiously from State Property in the Western Ghats by politically connected "contractors."

With cheap imports, even our poor people would be able to consume foreign wines instead of the harsh grogs of IMFL - and the very idea of Indian Made Foreign Liquor is a product of "import-substitution industrialisation," another of the false theories our State universities teach.

Away with all these theories!

Let us instead use common sense - and let History be our guide. Ancient civilisation developed by the sea - the Mediterranean, in particular - only because there were huge gains from overseas trade. These civilisations flourished only because there was no ruler strong enough to control what went out or what came in - and gold was private money.

One account of the river Thames outside London in the 12th century described the scene as a "forest of ship-masts." This was about the time the Magna Carta was signed, delivering the people the "liberty to trade by land and sea."

Cochin, Mangalore, Surat, Porbandar (where Gandhi was born) - there are so many ancient ports on our shores. Let them all be free to trade with the world outside. And let many new port cities emerge.

Liberty!

Open Society & Economy - And The North-East

The plight of North-East India was brought to mind by this recent editorial in Mint recommending that the "troubled frontier", i.e. the border with Bangladesh, be "fenced and sealed." This is a recipe that will cost the taxpayer hugely - and lead to the proliferation of border guards, guns and checkpoints. The North-East is underdeveloped because it is not properly linked to the rest of India. Today, Sikkim and Arunachal are hoping to open the border with China. Will autarky be good for the North-East?

Socialism, central planning, and "balanced regional development" have all failed the North-East. So the very idea as to what constitutes "development" must change. No longer must centrally funded "projects" constitute development. Rather, development must be seen as increased "consumption" on the part of the ordinary people. Ordinary people buying mobile phones should be seen as development - and not some PSU.

When we turn the discussion to market-led development, the focus immediately shifts from politicians, planners and bureaucrats to traders and entrepreneurs. In many cases, those who undertake such trading activities will necessarily be "outsiders." These outsiders should be seen as valuable and useful - and not as easy pickings. I have for long heard horrible stories of how Bania shopkeepers who venture into the North-East are treated - especially by all the "rebel" groups. So, to begin, let us understand how these Bania shopkeepers benefit a local population.

In the small market town 3 kms from the village where I live in south Goa - the only market town in a vast, rural (and forested) district - is a Bania shopkeeper. His little shop is always crowded with poor villagers who come from miles around to buy this or that, in very small quantities. And he never fails them. I always get my carton of cigarettes from him - and he stocks hundreds of other goods. We should pause to appreciate the tremendous amount of diligence that goes into running such a shop, upon which so many rely, and how he "improves their consumption." When shops and markets close, people suffer - especially in far-flung parts of the empire. We may also note that all the mathematics the Bania uses are the four operations of Arithmetic.

The land-locked North-East, the furthest-flung part of this empire, presents to The Market the appearance of an unexplored (and unsafe) "frontier." The real foot-soldiers of The Market in this frontier are the intrepid traders. Small traders. Outsiders. Travellers. The specific purpose they serve is that they improve consumption for the local people. Thus, they should be encouraged. Just as any "trade delegation" from abroad is to be welcomed.

The alternative, "closed society" view of one state-one people-one leader - what the Nazis called ein reich, ein volk, ein fuhrer - is seen far too much in local politics these days, all over the land. This view requires fences, border guards, checkpoints and "papers." Consumption does not improve. Taxes are misspent.

Since the editorial specifically recommends a border fence between Meghalaya and Bangladesh, allow me to add something about Shillong. The British built this city, which was then the capital of the entire North-East and is today the region's educational capital. I have never visited Shillong, but I recently read a great contemporary novel set in this city, and the picture it offers is of a town with many markets, trades and professions, churches, schools and colleges - and also a very mixed population. The protagonist is a Muslim girl from UP, a college teacher, with a Manipuri boyfriend (she even eats pork momos!). There are, however, some boors who go round harassing outsiders and extorting money from shopkeepers. One shopkeeper is even shot dead. (Brings to mind a thought: A gun is a consumer durable that serves to make the consumer more durable.)

Instead of a border - fenced and sealed - between Meghalaya and Bangladesh, I suggest a great big highway running from Shillong to the Bangladesh port of Chittagong, so that container traffic can enter the North-East directly from the nearest port. Chittagong is also close to Tripura and Mizoram. The investment in the highway could well come from an entrepreneur in The Market.

There are troubled parts of the North-East - the entire border with Burma is troubled - but there will perhaps always be troubled parts on this troubled planet. All we can do is promote the market ethic. And hope it spreads. But it bears repetition that small traders are the foot-soldiers of the market economy in such "frontiers." I borrow this particular word from Peter Bauer's The Development Frontier: Studies in Applied Economics, in which he writes about Africa - and the skills of the small traders there.

These "development frontiers" of the Third World - or should I say the "socialist" Third World - present a picture that is not very different from parts of Eastern Europe in the 15th and 16th centuries, when Poland-Lithuania was underdeveloped and underpopulated. The lords of all the vast lands were poor. What saved them were the great migrations of the time, which brought urban Jews from west to east. The Polish lords responded by settling them in their own towns and letting the urban market economy develop. This is how vodka came to eastern Europe. All these urban trades "improved consumption." Bangladeshis are great migrants. They are found all over India and are hard-working and honest. It was 7 AM one morning in London when I went out looking for cigarettes. Only one little cubbyhole was open - run by a Bangladeshi.

There is lots and lots of hope for the North-East. Scotland was extremely underdeveloped compared to England in Adam Smith's time. It was trade that made Scotland flourish - a trade that was encouraged and studied in Glasgow University. In those days this university produced more useful knowledge than Oxford and Cambridge combined. There was Adam Smith, of course. But also James Watt, inventor of the steam engine that powered the next century. And there were others as well, in Physics, and in Geology. The novel I read about Shillong paints a horrible picture of the State-run higher education system today.

Like the North-East, Switzerland, too, is land-locked and mountainous - and was once poor. At a souvenir shop in Interlaken I found figurines of Swiss women carrying bundles of firewood on their heads. The Swiss have succeeded because of peace, free trade and free enterprise, urbanisation and a top-class transportation system. Goods have to physically travel. Transport is the key, not border fences.

Recommended reading: My recent column in Mint, titled "Catallaxy: Key to an Open Society."

Secession - A "Crime" Or A "Right"?

Arundhati Roy is in the news these days because of a speech she made supporting the Kashmiri people in their battle against the central State. Apparently, the Delhi Police were about to register a case against her for the "crime of sedition." Most commentators have appealed to the "right to free speech" in order to defend Roy. In this post, I seek to go further, and uphold the right of any people to secede from any State that they do not wish to be part of.

Let us begin with the basic theory of "political organisation" - which in modern times is the Hobbesian "nation-state," run on the principles of "liberal democracy." The most important aspect of this State is that the people are governed not by force, but by consent. In the case of Kashmir, or Manipur, or the areas now under the sway of Naxals and Maoists, it is obvious that "consent" has been entirely lost, and all that is being applied is "force." This is quite like the despots of yore, of whom Mises writes, in Liberalism: The Classical Tradition (pdf here):

As long as nations were ruled by monarchical despots, the idea of adjusting the boundaries of the state to coincide with the boundaries between nationalities could not find acceptance. If a potentate desired to incorporate a province into his realm, he cared little whether the inhabitants—the subjects—agreed to a change of rulers or not. The only consideration that was regarded as relevant was whether the available military forces were sufficient to conquer and hold the territory in question. One justified one's conduct publicly by the more or less artificial construction of a legal claim. The nationality of the inhabitants of the area concerned was not taken into account at all.

Alexander the Great, Julius Caesar, and the Socialist Indian State - all believe in this theory. These ideas were finally destroyed by the great classical liberal political philosophers of the 18th and early 19th centuries. As Ludwig von Mises explained the liberal ideal:

The goal of the domestic policy of liberalism is the same as that of its foreign policy: peace. It aims at peaceful cooperation just as much between nations as within each nation. The starting point of liberal thought is the recognition of the value and importance of human cooperation, and the whole policy and program of liberalism is designed to serve the purpose of maintaining the existing state of mutual cooperation among the members of the human race and of extending it still further. The ultimate ideal envisioned by liberalism is the perfect cooperation of all mankind, taking place peacefully and without friction.

This is the "international division of labour" the liberals of yore thought would be accomplished through peaceful and free international trade.

Therefore, since the essential liberal ideas are those of peace and trade between and among peoples, of Property and Liberty, with only "negative duties" for the State, it made no sense to expand territory while endangering the vital peace. After all, Property is all Private. And the idea is not that The State creates wealth, but people do - so the fatal idea of "territory" did not appeal to them at all. They did not want a State that sought "acres and revenues." The classical liberals did not believe in territory as a "collective property." Thus we see Adam Smith strongly supporting the American demand for secession. He also opposed the colonisation of India.

Following this great tradition, Mises stood for the right to secede as an essential aspect of the "right to self-determination." He wrote thus, in 1927:

The right of self-determination in regard to the question of membership in a state thus means: whenever the inhabitants of a particular territory, whether it be a single village, a whole district, or a series of adjacent districts, make it known, by a freely conducted plebiscite, that they no longer wish to remain united to the state to which they belong at the time, but wish either to form an independent state or to attach themselves to some other state, their wishes are to be respected and complied with. This is the only feasible and effective way of preventing revolutions and civil and international wars.

Remember: the goal is peace and peaceful co-operation and trade. Territory is immaterial.

Mises then added a qualification:

To call this right of self-determination the "right of self-determination of nations" is to misunderstand it. It is not the right of self-determination of a delimited national unit, but the right of the inhabitants of every territory to decide on the state to which they wish to belong.

Unfortunately, the 20th century did not see these liberal ideas victorious. This was when the planet and its peoples were divided into "nation-states," each nation behind its own tariff walls, and each operating a "national economy." This is the only reason why this century was a century of great wars engulfing the whole world. Total wars. These wars continue because of these very same stupid ideas. The only cure: Libertarianism, the direct descendant of classical liberalism.

With modern "liberal democracy" - which is essentially Hobbesian - there has come about a new kind if illiberal doctrine regarding the "right to secede." According to this doctrine, the liberal democratic nation-state is "perfectly just" because it provides each citizen with "human rights" and further dispenses to him "social justice." This adds Rousseau's "Social Contract" to Hobbes. The theory of justice is the one propounded by John Rawls.

Thus, the right to secede has been eliminated - even in America! And Abraham Lincoln is the man responsible.

This is really not "liberal democracy"; rather, it is just democracy shorn of the liberal ideals of old; it is the ritual of voting - without Liberty, without Property, and the added plunder of protectionism. It is basically "socialist," sometimes even "fascistic." It is Legislation; it is bureaucracy. It is the "politicization of economic life." It is nothing but "statism." And as for the "political parties" - I have only just written a post on these gangs of thugs.

But this was never the social theory of the classical liberals, according to which, rather than a monolithic Hobbesian central State monopolising "security," each Individual was pre-possessed of Property as well as the right to defend himself and his property. All that the classical liberals desired is a system of laws by which Life and Property could be better protected. They did not accept the "myth of national defence" and they did not desire any "social justice," nor any "redistribution." Property and Liberty were the only great ideas, then.

(You can read an excellent journal article on the Right to Secession, explaining all these ideas, here.)

In modern India, we have got the whole thing completely wrong - because of wrong ideas. There is no point in upholding "territorial integrity" when vital peace, trade and co-operation are missing. Arundhati Roy has done the right thing by supporting the struggle of the Kashmiri people. This surely cannot be a "crime."

My ideal is a world of independent, self-governing and free-trading cities and towns. Peace, Trade, Property, Liberty, Civilisation. Thus, there is no need for a Kashmiri "nation state." Rather, Srinagar, Jammu and Leh should have independent local governments running the cities, ditto for all the towns. I believe that this approach, entirely consistent with the principles of classical liberalism, is the only solution to the crisis of political organisation that faces the people of India today.

For Peace, For Trade, Against War

The 20th century will go down in history as an age of wars, wars and more wars. And these wars have not yet stopped. They continue - and threaten to continue forever. The 21st century has barely begun - and there are wars all over the place.

The 19th century was different. There was a time then when many people thought that an era of free trade between nations had dawned - an end to wars, an era of perpetual peace. This was particularly true of the "Manchesterites" led by Cobden and Bright. They led a working class movement - the first "mass movement" in history - for free trade in the 1830s and '40s. Cobden sat in Parliament but never joined government - yet, he was the most highly feted politician in Europe. It is indeed tragic that this great beginning of "liberal politics" came to an end by the time the 20th century dawned. From the 1850s, the masses became attracted to other political visions - including communism, socialism and democracy. Protectionism became the norm, and the slogan "free trade" was never uttered again. Nations retreated behind tariff walls, pursued the goals of "national economy," and international co-operation gave way to perpetual war. "When goods do not cross borders, armies will," said Bastiat, a free trader and associate of Cobden.

There is simply nothing "good" about war. Wars cause death and destruction. Huge amounts of precious Capital - including human capital - are blown away. Wars are barbaric. Civilisation, on the other hand, requires peace and trade in order to flourish. Only peaceful trade results in the accumulation of Capital - which translates into "investment." Adam Smith thought that if his "System of Natural Liberty" was put in place in every nation, the result would be "universal opulence." Half the planet is still mired in poverty - and the only cure is peaceful trade. "Foreign aid," on the other hand, is positively harmful - as Peter Bauer tellingly argued. It is in peaceful foreign trade that the salvation of humanity lies. This is the only way to save civilisation, and also to spread its benefits. "Universal opulence" - how I love that phrase!

International trade is also "win-win" - but even more so than domestic trade. Goods that come in from abroad are invariably those that are not available at home, and are therefore highly prized by all consumers. This is particularly true of India, where "firang maal" has always been treasured, despite all the "swadeshi" rhetoric. By closing our vast markets to foreign trade, we are not only impoverishing ourselves; we are also impoverishing the rest of the world. Lose-lose.

Protectionism is an anti-consumer, pro-producer philosophy. It is also "nationalistic" - with roots in "mercantilism" and "national economy." These are all extremely vile and corrupt ideas - and they end up "politicising economic life." Corrupt cronyism develops at home. Foreign trade is politicised as well. Instead of international co-operation and peace, we have the roots of perpetual international conflict. The ordinary people suffer as consumers, as taxpayers, and as soldiers. The "worst get on top."

It is often argued that trade benefits the rich nations alone. This is as false as the other argument that free markets benefit rich people alone. Just as the poor gain as consumers in an era of mass production, just as poor people gain as workers in factories employing Capital which does not belong to them - so too does international trade benefit poor countries and their people the most. Just look at Hong Kong and Singapore.

In a global free market, each of us will have to specialise in the "international division of labour." We will therefore choose our specialisations according to our own, individual "comparative advantage." Now, it is a great error to think that comparative advantage implies that only the fittest and the best will survive. In fact, if we notice spontaneous specialisation in the world around us, we will see that it is filled with instances of individuals who are better at a particular task and yet gain by associating with those who are in fact worse at the same task. For example - the owner of a car is often a better driver than the chauffeur he has hired. This principle of comparative advantage, credited to David Ricardo - but faultily explained by him - is what Ludwig von Mises called the "law of human association." It is the First Law of Sociology. It tells us that all are gainers in free association - and that this is the pathway to building a Great and Open Society comprising the whole world. This is how we can end war forever. I have written a column explaining this important law, which you can read here.

Living on the Konkan Coast for so many years, travelling up and down watching the action in all its ports, I am often overcome by a great sadness. These are almost all ancient ports. Before anyone understood "Economics," there was trade, trade and more trade. If a ship came in, loaded with goodies, everyone cheered. Nowadays, things are starkly different. Be it Mangalore, Karwar, or Mormugao - all that seems to be happening is the exportation of low-grade iron ore, and the importation of nothing. All exports; no imports. This is the Kamal D Nutt theory of international trade. This is the theory that politicises international trade. We must get politics out of trade. We must get The State out of The Market.

These politicians and "diplomats" often argue that there must be "reciprocity" in international trade - and they have a vital role to play in negotiating the terms of this reciprocity. Actually, all trades are inherently reciprocal, and that is why both the buyer and the seller agree to undertake them. Bastiat has written two wonderful, short essays against this phony doctrine of reciprocity, which you can find in my collection of his writings, here. These two essays of Bastiat's, written in the golden age of Manchesterism, give the clarion call for unilateral free trade. Free international trade - without politicians and diplomats having anything to do with it.

Trade is the health of the people. War is the health of The State.

Think about it.