We Don't Get Fooled Again!

A Deutsche Bank report just reached me, warning of recession in the USSA. But their analysis is based on "consumer spending" - and this might suggest to many that another "stimulus" is required from the Fed.

This displays ignorance of Say's Law of Markets.

Last night, I watched a BBC programme called "The World Debate" on the current economic crisis, hosted by Nick Gowing. Of the four debaters, three were government people - Christine Lagarde, who heads the IMF; a guy from Obama's economic team; and a dude from the EU in Brussels.


Lagarde spoke of the need for the G-20 to get together and do what they did last time - and I could have cried out loud. That time the G-20 nations inflated their currencies along with the US Fed, which is what "central bank co-ordination" is all about, and which is why the crisis is so widespread today. Nick Gowing, on his part, asked for "more decisive political leadership."

This, too, displays ignorance of Say's Law of Markets.

Today, the Keynesians teach this law as follows:

Supply creates its own demand.

This incorrect formulation of this vital law makes their students believe that "monetary stimuli" create demand.


So, let us think things through: 


The supply of plasma TVs does not create the demand for plasma TVs. Yet, if cars sell, if jeans sell, if shoes sell, and if beer sells - then, and only then, will some people from these latter industries be tempted to buy a plasma TV. Thus, what Say's Law actually means is:

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.

So, if you want increased demand for your plasma TVs, don't go to The State asking for a monetary stimulus. Instead, make sure all those who do not compete with you are selling their stuff.


There is another reason for this: If you ask The State to inject a monetary stimulus, all that will happen is another boom-bust cycle - and inflation. The entire economy will be hurt, including yourself, and including all those who do not compete with you.


On the other hand, if you want those industries that do not compete with you to do well, you will NOT favour loose monetary policies based on the false idea of boosting consumption. Rather, you will realise the importance of SAVING and INVESTMENT. You will realise that these businessmen who do not compete with you will need to save and invest - in order to produce. You will favour "capital accumulation" and despise "capital consumption" - which is Keynesian-welfarism-inflationism. You will champion "sound money."  


That is, you will realise that production of goods and services boosts demand - not the production of money. Indeed, not even the production of gold boosts demand. All that happens then is that the price of gold falls - look at the history of Spain and Portugal when they brought gold and silver back to Europe from South America. Spain and Portugal never got rich. And there was inflation throughout Europe. Britain got rich not by digging for gold and silver - but by trading in nutmeg and pepper, and tea, and opium, and tobacco, and sugar, etc.

Increased production of "funny money" is a VERY BAD IDEA.

Thus, Nick Gowing is WRONG when he asks for "more decisive political leadership." The solution does NOT lie in politics. On the contrary. The solution lies in "private money" - and "free banking under law." 


That is: the size, scope, powers and resources of The State and the politicians must be drastically cut down. Money must be given back to the people - to save and invest, to produce. That is how demand can be permanently boosted and boom-bust cycles avoided forever.


Indeed, the current crisis is BECAUSE OF POLITICS. Central banks and their member banks are collapsing. Politics lies at the root of this crisis.


So, let us NOT GET FOOLED. 


Paper notes are just a "money substitute." This is what the "promise to pay the bearer" indicates. Something "hard" is (and always was) real money - GOLD.


So, as the song goes:

I tip my hat to the New Constitution,

Take a bow for the New Revolution,

Smile and grin at the change all around me,

Pick up my guitar and play,

Just like yesterday,

Then I get on my knees and pray:

WE DON'T GET FOOLED AGAIN!

While that covers widespread miseducation in the USSA, Britain and Germany, let us now turn to our own country.


Did you know that both Amartya Sen and chacha manmohan s gandhi were students of Professor Joan Robinson in Cambridge - who was Keynes' right-hand man, and who made it her "mission to destroy Say's Law"? It was Joan Robinson who cleverly coined the "supply creates its own demand" nonsense.


And, as I wrote the other day:

Without Sound Money - what is the State 

but a band of robbers?

That should take care of Kapil Sibal's "(mis)education."


Let us now turn to Palaniappan Chidambaram, the Central State Police Minister, whose name has cropped up in the 2G scam. There is a report written by the Political Editor of The Sunday Guardian that says that in the Nira Radia tapes, A Raja told Radia that "PC got a lot of money."


The Central State's Police Minister is corrupt?


And he has been police minister since the 1980s - and there have been no police reforms. Policing has just got worse. Now, road deaths total over 2,00,000 per annum - and the police don't even possess the "knowledge" to fix things.


We must ABOLISH THIS STATE. And replace it with honest civic corporations - one in each city and town.


A Second Republic!


A Republic WITHOUT any police - like the England of old, before Peel set up the Bobby. Like India of the Company, before the Crown passed the Indian Police Act in 1861.


TORTS - which are "crimes against the individual" and for which financial compensation must be paid by the tortfeasor to the victim: this will be better than any "criminal justice system." Anyway, ours doesn't work. And the minister is corrupt. Indeed, the Entire System is Corrupt.


So let us vow to throw the whole thing out, beginning with the Central Bank, and ending with the State Police.


Liberty! Property! Justice! The Pursuit of Happiness, Subjectively Defined!

WE DON'T GET FOOLED AGAIN!

(This turned out to be a 5-part series on Say's Law. The next post can be read here.)

On The Pope... And Black Money: Take #2

Pope Benedict XVI's address before the German parliament has attracted wide attention because at the outset he quoted St. Augustine's dictum:

"Without justice – what else is the State 

but a great band of robbers?"

In our own country, all the fuss is about "black money" - or money that has evaded the tax-collector. The matter has now been referred to a specially constituted board of bureaucrats - but the news report says they are "dragging their feet." So, the issue is now before the Chief Justice of India (CJI), says another report.


But, tell you me, is not all the inflation, stock-market crash, the crises over the Euro and the US dollar all about "funny money"? Will inflation be over, will these crises be resolved for our country, if all this "black money" is unearthed and "brought back" to the Exchequer? Certainly not!

We all need Sound Money - Gold.

And St. Augustine wrote, in his City of God:

"Without justice – what else is the State 

but a great band of robbers?"

So, now that black money is before the CJI, think about Ashok Jain, KL Chugh and Rajan Pillai - how they were humiliated over black money and how two of them died. The "positive law" was FERA - the Foreign Exchange Regulation Act.


Now, as any Misesian knows, foreign exchange regulation is meant to "expropriate wealth." There is nothing "just" about such a positive law. In my book, if the central banker cannot convert his note into money desired by the bearer, it is the central banker who ought to be in prison: a debtors' prison. Savvy?


After all, the "promise to pay" on the note, signed by the central banker, is a SOLEMN CONTRACT - a contract the central banker is refusing to abide by.


And St. Augustine wrote, in his City of God:

"Without justice – what else is the State 

but a great band of robbers?"

Of course, FERA was INJUSTICE writ large, so we could rephrase the above as follows:

Without Sound Money -  what else is the State 

but a great band of robbers?

It is at this point that Murray Rothbard must be quoted, for in his Ethics of Liberty he wrote what would happen to the State if this were to be the case:

For if the bulk of the public were really convinced of the illegitimacy of the State, if it were convinced that the State is nothing more nor less than a bandit gang writ large, then the State would soon collapse to take on no more status or breadth of existence than another Mafia gang. Hence the necessity of the State’s employment of ideologists; and hence the necessity of the State’s age-old alliance with the Court Intellectuals who weave the apologia for State rule.

This "black money" nonsense is the work of State-employed ideologists, judges and bureaucrats. We, the people, must focus on the "funny money" that is the root cause of our problems.


The person with black money has only evaded taxation - which is "moral" in a nation where the State "consumes capital" and there are no good roads or highways, and 200,000 people are killed in traffic accidents every year, and many more seriously injured.


On the other hand, the funny money man is an issuer of dud currency - a "counterfeiter," as I have explained in this brief column. Throughout history, counterfeiting always attracted the death penalty.


However, the Pope did a lot more in his address: he actually challenged "legal positivism" and even quoted Hans Kelsen, who was Hayek's professor of law, and a very important German legal positivist. 


Hayek of the Law, Legislation & Liberty volumes was not Hans Kelsen's student; rather, he had been strongly influenced by Bruno Leoni, whose Freedom and the Law is a must read.


After smashing legal positivism (while maintaining that positivism is essential for the natural sciences) the Pope said:

Where positivist reason dominates the field to the exclusion of all else – and that is broadly the case in our public mindset – then the classical sources of knowledge for ethics and law are excluded. This is a dramatic situation which affects everyone, and on which a public debate is necessary. Indeed, an essential goal of this address is to issue an urgent invitation to launch one.

I echo that sentiment. Down with legal positivism. Down with positivism in the sciences of human action - like Economics.

Fiscal Independence - For Pondicherry: Take #2

:

A sweet Tamilian lady called on me this morning as I sat on my perch next to the saintly sadhu. She, too, talked about me being an Indian Police Service Officer - which is in The News - and I told her that I was in the IPS from 1984-89, after which I resigned. I added that I was also Editor of The Economic Times in Nude Elly between 1998-2002 - and that I also resigned from this position, because of grave differences over editorial content. The particular editorial I wrote, and which they rubbished, was AGAINST Sonia Gandhi.


Next, I advised her to read my books, published by Macmillan India in 2000 and 2003 and available from flipkart.com - the first titled Antidote: Essays AGAINST The Socialist Indian State; and the second titled Antidote2: For Liberal Governance. If I may add, just for the record, the latter book was originally titled "Columns For Freedom" - but the Editor of Macmillan India who suddenly replaced Joseph Mathai insisted on a change of title.


Now, the second essay in my first book is titled "State! - or Why The Socialist Indian State Is A Predator." This should be fairly obvious to us today, especially if you read Madhu Kishwar's column of just today highlighting corruption that plagues rickshaw-wallahs and street vendors throughout India.


But the political atmosphere in India in the 1940s and '50s favoured "State Socialism" as a means of "helping the poor." This, while the poor are debarred from "helping themselves."


I mean, imagine that? If our The State makes steel, the poor get rich! What FUCKING NONSENSE!


It is also IMPOSSIBLE for The Exchequer to "employ all the poor." This is LUNACY. And the "funny money" used for the purpose is a REAL CAUSE OF MASS POVERTY - because "inflationism ERODES the CAPITAL of the poor."


So, suppose a poor man tries to save 5000 rupees to buy a bunk-shop - by the time he has saved the money, the shop will cost 10,000 rupees, and he will have to save the money all over again.


The Officers of the Indian Administrative Service are all employed in this "Pork Barrel Politics." They get their Budgets from the Centre - and run a huge number of Completely Useless Departments. Like the Department of Fisheries - where the fishermen cannot even import Out-Board Motors (OBMs). I saw another van today belonging to the Department of Hindu Religious Institutions. There are so many more - like the Pondicherry Industrial Development Corporation (PIPDIC) - which surely supports "import-substitution" in a coastal city where ZERO FOREIGN TRADE occurs. 


Similarly, there is the Pondicherry Tourism Development Corporation. But Beach Road is absolutely not a "happening place" for tourism. The Traffic Police ban motor vehicles - including motor-cycles. And I wonder who bans the sale of alcoholic drinks and non-vegetarian food on Beach Road. And cigarette smoking and sales, too. This, while they are surely spending money on MGNREGA - "pork barrel politics."


Beach Road ought to be extended by 10km both North as well as South. And the entire beach opened up for the entrepreneurs and street-food wallahs of this Fair City. Remember, one single tourist creates 12 local jobs - while the MGNREGA is only "inflationary."


Then, I saw a van belonging to the Pondicherry Housing Board. Just like Nude Elly and the disastrous Delhi Destruction (Development) Authority, which has made housing out of the reach of all - especially The Poor. In Nude Elly, over 50 per cent of the population lives in SLUMS. And a second-hand DDA flat can cost 1 crore rupees (100,00,000 rupees).


There are slums near Beach Road - where I drink tea every day, and buy cigarettes. I am sure the people there have no Property Rights.


And, in Pondicherry, there are two huge drainage canals - which could easily be covered up and converted to commercial property. There is the Main Canal between the French Town and the Tamil Town. There is also a Petit Canal right here on Mahatma Gandhi Road where I work on my blogging - and around which poor people live.


This implies that Tax Money should be spent on Capital - like roads, streets, sewerage, drainage, the covering up of canals. 

NOT THIS NONSENSE!

If this is done, this Fair City will expand, and Plot Owners will build their own houses - and Pay Taxes.

Same is to do with the Education Department: they teach NONSENSE. They should be SHUT DOWN. As Ludwig von Mises wrote in his great book on Liberalism:

There is, in fact, only one solution: the state, the government, the laws must not in any way concern themselves with schooling or education. Public funds must not be used for such purposes. The rearing and instruction of youth must be left entirely to parents and to private associations and institutions.

The Good People of Pondicherry surely don't need a "Right to Miseducation."  

I am sure all you Good People of Pondicherry are also studying what is happening in the US over the US dollar. That is the illustration accompanying this post - thanks to Google Images, once again - but the same is happening in India, too.


If you have NOT been following matters in the USSA over the US Paper Dollar, I recommend this article by Robert Murphy of the Mises Institute, titled "On the Brink of Inflationary Disaster."


The solution lies in Sound Money and Free Banking Under Law in Pondicherry - which is the title of a lecture I am hoping to deliver in Pondicherry University, soon.


To conclude, the Good People of Pondicherry must realise that this BRI "funny money" is The Problem.  


When this "funny money" reaches this Fair City, the First People who get to spend it are the IAS-IPS and the Politicians. They gain - while those who spend it last, or who SAVE, lose. Borrowers gain - and all the RICH PEOPLE of India are borrowers: they borrow from shareholders; and they borrow from the banks. And this includes many Public Sector Banks - which LOSE MONEY by buying "non-performing assets."


Fiscal Independence is what this Fair City needs.


But enough for today, I will revisit this discussion tomorrow.


State tuned.

The Revenge Of Jesus

The "haunted, frightened tree of complete ignorance" in whose hollow lives sonia gandhi is entirely funded by metaphysical money. And this funny money monopoly is taught to the flower of our youth as "macroeconomics." But paper is NOT money, as the "promise to pay" printed on it and signed by the Governor of the Reserve Bank of India indicates. The paper is just a "money substitute." The Governor is thus engaged in "violation of contract." This funny money is depreciating in value with each passing day - thereby eroding the Capital of the poor. If they save, the worth of their savings is eroded by inflationism, which is "deliberate policy." The funny money monopolists are destroying the Capital of the poor. And civilisation can only advance if capital is accumulated.

Capital is cities and towns - and their roads and streets. Capital is houses - and shops. The people of India do not have these. Instead, the haunted, frightened tree of complete ignorance is hell bent of "welfarism" - which is entirely "capital consumption." It is "criminally insane" to engage in welfarism funded by inlfationism.

The immediate solution is the "de-nationalisation of money."

Money must be something hard, something tangible, like the cowries being sold in Puri, with different values for cowries of different sizes. People must be free to exchange their goods and services for monies of their choice. Gold, silver, cowries... whatever.

The question then arises about the legal rules by which commercial banking will be carried out. These should be the preserve of "private law" - that is, the Law of Contract. Depositors can then make two kinds of contracts with their bankers - either a "term deposit" or a "demand deposit." The banker must keep a 100 percent reserve against all demand deposits. He can only loan out his term deposits - and credit creation as a method of inflation will be ended. Thus, all paper notes will be redeemable on demand; further, all depositors will be secure - in private law, without any central bank.

Sound money and free banking do not need "international agreements" - no IMF-World Bank-G20 bullshit. In the good old days, the Municipal Bank of Amsterdam kept a 100-percent reserve; and the burghers of the City personally audited the gold stock every year. Prudent private bankers are the overseers of the market economy - and they are kept honest and prudent by their wise customers, who know what money is. It is NOT paper. And it is certainly not government paper.

The poor people of India would prosper with sound money. Their Capital would be preserved - and capital is the life-blood of Capitalism. Individuals possess Capital - with which they speculate depending on their own fancies. The "national economy" which supposedly grows at some "growth rate" that chacha manmohan and montek are carefully measuring is metaphysical nonsense. Fiction. In truth, these criminally insane money monopolists are destroying civilisation itself. In a country with so much extreme poverty, their insanity is even more criminal.

Also, these money monopolists know nothing about what "economic stimulus" means. They think printing more paper notes  and issuing them stimulates economic activity. Nonsense. Demand is generated and wealth is produced when goods and services are produced and exchanged - not money. When the paan-wallah sells his paan, he is possessed of resources to demand all other goods in the market, except paan, which he will not buy. In a nutshell, Jean Baptiste Say's "Law of Markets" says the sale of X gives rise to the demand for all non-X, or all "non-competing goods." But our poor people do not even possess the freedom to produce and sell goods and services peacefully amongst each other, from alcohol and ganja to music and dance. All "demand" is being destroyed by State Restrictions. This, while what they call "stimulus" is entirely inflationary, and a means of capital consumption. Criminally insane. Money must be de-nationalised immediately.


(You can read my brief column explaining Say's Law of Markets here.)

Of course, it might happen that our The State refuses to give up its money and banking monopoly. In which case a war must be waged against them - a "civil war." A war between good and evil. Between Capitalism, which is Good, because we produce goods, and Socialism, which is Evil and Anti-Social, and produces Bads. Like Bad Money.

True capitalism is all about sound money, a "medium of exchange" that people accept voluntarily. This money monopoly of The State is another instance of the "misuse of force." It must be ended forthwith.

The statue outside the gates of the Reserve Bank of India headquarters in Nude Elly is that of Yama, the God of Death. Interesting, what?

These detestable banksters ought to be nailed on crosses of gold - which is why I titled this post "the revenge of Jesus." But I was not referring to the metaphysical Christian God; rather, I was referring to the very physical Professor Jesus Huerta de Soto, whose books on money and banking have enlightened me considerably, showing me the way. His approach is theoretical, historical and legal - and, in the historical context, he tells of a King of Spain who executed a banker who failed to redeem his paper notes on demand; the fucker had his head cut off right outside his bank.

I say: Crucify them on crosses of Gold.

Private money.

Bengal - As A "Nation Of Shopkeepers"

While some have concluded, quite correctly, that the West Bengal elections were won and lost on the issue of Private Property, this blog took the point further and argued that, for the new regime, road-construction must be a top priority, because roads automatically increase the value of lands they link to. Oddly enough, the news has it that the Mamata Banerjee government has 35 ministers - but no mention is made of a roads minister!

Today, there is another piece of news from Calcutta that suggests roads must be top priority. Referring to Calcutta's street hawkers, this news report concludes with the following paragraph:

The Chief Minister said she had been holding discussions with officials concerned for improving the traffic system that would entail, among other things, widening of some roads without evicting hawkers on the pavements.

Why are there so many street hawkers in Calcutta? Two reasons: First, Calcutta is the only Big City - and so it attracts migrants like a magnet; and second, these migrants cannot afford to buy shops. How will roads help?

With roads into the surrounds, satellite towns would develop, and more and more commercial property would be built, bringing down the cost of shops. In time, more and more of these hawkers would become regular shop-owners. That is the direction in which Bengal must proceed - build roads so as to urbanise aggressively; and put an end to zoning rules so that commercial property grows without any legal restrictions.

The West was also like this. I recall visiting the ancient City of Cologne in Germany some years back, and walking about its markets with a local journalist who told me that, in the olden days, one of the legal responsibilities of the City Mayor was to oversee the smooth conduct of all business on the streets: that is, business conducted by street hawkers and vendors. 

My guide told me that in ancient times, poor people from afar would travel to Cologne to sell their wares in its markets - and the Mayor had to look after their interests. But now, said my guide, everyone owns a shop - and this legal responsibility has recently been deleted from the duties of the City Mayor. The same can happen in West Bengal - a state that has many big cities and towns apart from Calcutta. Economic progress ought to mean that street-hawkers become shopkeepers.

Of course, western cities still have informal markets and street hawkers can still be found - as in Amsterdam - but these are run by quite prosperous folk, and they rake in bigger profits than regular shopkeepers because tourists prefer to shop in such informal markets. And overhead costs in informal markets are quite low.

It is also my opinion that aiming for a Bengal that is a "nation of shopkeepers" would totally destroy the appeal of Communism, which has held the average Bengali in its thrall for decades - and encouraged him to become a government clerk: a baboo. Indeed, the very word is Bengali. 

Bengal was the first province in India to be ruled by by the British - and it was Napoleon who ridiculed the British by calling them "a nation of shopkeepers." Napoleon preferred France to be "a nation of patriotic soldiers" - but it was Britain and not France that emerged victorious. It was the nation of shopkeepers that ruled the world. Mises says something noteworthy about these shopkeepers - and the civilisation they begat:

The much abused shopkeepers have abolished slavery and serfdom, made woman the companion of man with equal rights, proclaimed equality before the law and freedom of thought and opinion, declared war on war, abolished torture, and mitigated the cruelty of punishment. What cultural force can boast of similar achievements?

The Brits built all the great markets of Calcutta - the very old "New Market" was built by Sir Stuart Hogg - and a section of it is still named after him.

Bengal has voted for poriborton - or "change." Let that change first emerge in ideology. Let Capitalism replace Communism.  The common people of West Bengal, the peasants and the workers, swallowed all the commie propaganda - and lost. Lost badly. For them, I have another noteworthy quote from Mises:

There is but one way toward an increase of real wage rates for all those eager to earn wages: the progressive accumulation of new capital and the improvement of technical methods of production which the new capital brings about. The true interests of labor coincide with those of business.

So, it not only Private Property that matters for Bengal's future. It is the entire Capitalist prescription that needs to be implemented - beginning with Free Trade, so that all the swanking new shops will have shelves overflowing with the best goods from all over the world. Calcutta Port must become a very busy port. Since this is a river port, some deep water sea ports must also be found.

And add Sound Money to the list - for the same news report quoted above talks about Mamata Banerjee's "rice for 2 rupees a kg" scheme for the poor in Jangalmahal: the area where Maoism / Naxalism is rife. This may be necessary now, for where there is no peace there can be no market. Peace is another prescription for Bengal - if she wants Capitalism.  But so long as this cheap rice is paid for by printed paper rupees, it makes no sense - for the cost of everything else rises: inflation.

Thus, the poriborton that Bengal needs is just this: 

Communism must be replaced by Capitalism.

No more a "nation of baboos."

From now on, let Bengal be a Nation of Shopkeepers!


PS: Part 2 of this post can be read here.

Mises - On Mexico's Economic Development

I spent a happy morning reading a monograph on Mexico's economic development penned by Ludwig von Mises in the early 1940s, shortly after he had moved to America, but before the end of WW2. The monograph has much of interest to other Third World nations, in Latin America, Asia and Africa, including especially India, which took all the wrong advice from all the wrong economists. Let us begin with "industrialisation."

Over 70 per cent of Mexico's population was engaged in agriculture in the 1940s - and Mises rightly asserted that the country needed to industrialise. Mises begins with a critique of the "closed door method of industrialisation": that is, which aims not at securing the nation in the "international division of labour," but which aims at the "commercial insulation" of one's own country.

This foolish path is what we followed in India, thanks to Raul Prebisch and Hans Wolfgang Singer, who had the full support of every United Nations development organisation. Prebisch and Singer had argued for "import-substitution industrialisation" - and Mises writes about how foolish the idea is, "to cheer when the statistics show a decline in imports." He rightly says:

The advantage derived from foreign trade lies entirely in importing, not in exporting. An increase in exports is only the means to increase imports. A reduction in imports is not a blessing, but a calamity.

The lesson: You must integrate your nation into the international division of labour by specialising in the export of those goods you can produce efficiently and in which you can compete - and use the proceeds to import all your needs, including especially capital goods for your factories.

Import-substitution, on the other hand, penalises domestic consumers - while also hurting foreign nations. When these foreign nations cannot sell to you, they cannot buy your exportables either. Double whammy!

Autarky, or economic self-sufficiency, is "economic suicide."

Another point that Mises makes - extremely relevant to all under-developed nations - is that they need to import Capital. Thus, policies of expropriation, taxation, currency control, and nationalisation which hurt foreign foreign investors must be done away with. If foreign investors are not secure in their investments, the nation will lose.

Today, India is holding up foreigners who wish to invest in supermarkets - and this hold-up is nonsensical, according to Mises. Indeed, there is an entire section in the monograph on "Small Business and Distribution" in which Mises champions the small shopkeeper - and says how his "eminence lies in his adaptability," while the chain store is standardised. The small shopkeepers of North America have survived chain stores and supermarkets, Mises notes, because they adapt themselves faster and better to local and personal conditions. In any case, in poor nations, people buy in small quantities - from small shops.

Mises pays great attention to transportation - favouring the privatisation of Mexico's horrible railways. He says they should be expanded with an eye on freignt and not passengers, which also means lower investments. For passenger traffic, Mises favours building roads and airports - so that civil aviation, personal automobiles, and motor buses can flourish. Indeed, this sentence, written in the early 1940s, before India gained independence, is worth quoting in the India of 2011:

Under present conditions, the construction of modern motor roads is more important than the improvement of the railways.

Mises, thus, would not have advised us to build the Konkan Railway. Rather, he would have insisted on an ultra modern coastal highway. And we would have been immensely better off. Mises waxes eloquent on Mexico's tourism potential, and also on the possibility of her "coastal regions" taking a lead in "processing industries" catering to the export market.


On currency policy, Mises praises The Banco de Mexico for allowing the free purchase of gold and advises this poor nation to refrain from inflationism - a foolish policy to which the US and Britain have "sold themselves." He points out that if the Mexican peso is pegged to gold, it will appreciate against the currencies of these great economic "powers." Then, of course, Bretton Woods was yet to happen, and a world fiat currency system was unthinkable.


On government spending, Mises was no Keynesian, writing that:

When the government spends more, the individual citizens spend less.

He advised low taxation, too.


But it is the section on education that deserves our greatest attention today, not just in India, but in the West as well. I will quote it in full:

Mexico is a country rooted in an old civilisation. Its universities are notable seats of teaching and research. It has succeeded in the last decades in the establishment of an efficient system of primary education for the masses. It is anxious to further vocational and technical schools. All foreign experts are unanimous in the praise of Mexican achievements in this field.

However, the economist must warn of the dangers of some trends in contemporary education. Germany and France were paramount in the development of teaching and instruction. But the results did not come up to expectations. Germany is today [1943] a nation of barbarians; Germany, once styled as a nation of poets and thinkers, is now a nation of gangsters. The high state of French education did not prevent a moral and political collapse.

The truth is that the French and German schools instilled in their pupils a pernicious mentality. The students were imbued with the religion of étatism [French term for "statism"]. They were taught that the State is God, that nothing counts but its power, greatness, and glory. And they were also taught to despise and to hate all other peoples. Graduates looked down upon the business of private citizens. Their only aim was to obtain jobs in the service of the government. The ideal of the Frenchman was to be a fonctionnaire, that of the German to be a Beamter. [Both words mean "civil servant" or "State functionary."] They were not eager to work; they wanted to give orders and to be paid out of funds collected by taxation. They preferred the parasitic life of a bureaucrat to the industrious life of a plain citizen. They did not care for anything other than a career in the daily increasing body of State employees.

Corrupt politicians and unprincipled civil servants have ruined the glorious civilisation of Western Europe. The institutions of learning and of education were instrumental in creating the vicious mentality that led to this disaster. It is a characteristic fact that many of the most eminent harbingers of the new barbarism were professors of the German universities or members of the Académie Française. Intellectuals have built the houses in which Hitler, Mussolini, and Laval lived at their ease. It was a real trahison des clercs ["treason of the intellectuals"] as Julian Benda stigmatised it in his well-known book.

A nation that would guard itself against such a catastrophe has to watch its educational institutions. The youth have to be protected against the arrogant self-conceit that makes them disparage ordinary business activities. It is true that one goal of learning is to train people for the correct fulfilment of duties in the civil service. But the first requirement of a government employee is due regard for the individual citizen, for the man whose work produces the means of supporting the nation and the State.

The worst outcome of the étatist superstition is the habit of considering the "State" as a mythical being, commanding inexhaustable treasures that it can lavishly spend. The State should do this, and this, they say; it should pay more and more for various purposes. It never occurs to the étatist mind that the State cannot spend except by collecting taxes or by incurring debts or by embarking upon inflation. They do not realize that "The State" that pays is the citizenry itself and not some mythical Midas.

The problem of a balanced budget and of an equilibriated economc system are not political and technical; they are moral and intellectual. If public opinion is convinced that The State has never-failing sources of income, and that the only decent way to make a living is to get salaries or subsidies from the Treasury, then even a well-intentioned government and parliament cannot succeed in making both ends meet.

One of the main purposes of education must be to dispel the superstitions of étatism.

It is a common mistake of our contemporaries to view a country's economic problems primarily as a matter of "material" factors and of technical changes. The main issue is intellectual and moral; the spirit is supreme in this field, too.

Thereafter, Mises makes some concluding remarks:


1. Civilisation depends on material well-being. The richer a nation, the better.


2. There is only one way to get richer - Production.


3. To produce more requires Capital - and the private accumulation of Capital is a blessing, not a curse.


4. Private Property and Free Enterprise are the foundations of civilisation.


The final paragraph is worth quoting in full:

The German socialist and harbinger of National Socialism, Ferdinand Lasalle, sneered disparagingly at liberal civil government as a "nightwatchman" and proclaimed, "The State is God." It is this superstitious belief in the omnipotence of government that has brought about the present crisis of civilisation.

Unfortunately, this paper is not available in PDF on the internet. You can buy the book containing this essay - and many more - in India here. And from the Mises Institute here. Well worth buying, and studying - and telling others, too.


The fact that State-employed professors in Indian universities were teaching State-worship to their students is well brought out in my old post titled "The Evil Professors of Delhi U."

Against Inflationism, For Gold

The news has it that all coins of 25p and below are being withdrawn from circulation. This is a sign of price inflation. It means that the metal in the coin is worth more than its face value. Thus, we could profit by melting them down and selling the metal. Wonder why they use metal anyway, for these coins of small denomination are just tokens - like the plastic chips you get to play with in casinos. Only, in this case, when you return your metal chips you get - nothing! Casinos are more honest than central banksters (as in "gangsters").

The entire planet is on such dishonest "funny money." And in our case, as I explained the other day, the rupee is losing value both internally as well as externally. Twenty years ago, the US dollar was worth less than 10 rupees; today, it is worth around 45 rupees - and the people, and the media, cheer, thinking we are "promoting exports."

What is the idea of promoting exports if we are simultaneously erecting tariff barriers against imports?

Actually, we enter into foreign trade only to obtain imports - that is, to obtain goods that are either not available domestically, or which are produced cheaper abroad. And we export only in order to pay for these imports. This is the rationale for engaging in foreign trade.

Now, what happens if the value of our currency keeps going down vis-à-vis that of our trading partners? The "mercantilist fallacy" consists of viewing the "correct" trade policy as that which "encourages exports and discourages imports." Thus, a depreciating currency is viewed by them as a "good thing." But this is a fallacy - as Mises explains:

What really happens is this: The country exports more than it did before, and it gets, as compensation for these increased exports, a smaller amount of foreign products. Exports are, as it were, subsidised and imports penalised to the burden of the natives. The inflation is, by and large, tantamount to a tax imposed upon the domestic consumers in order to cheapen the consumption of domestic products by foreigners.

Such a policy is - strictly speaking - "anti-national." Perhaps the powers-that-be engage in such anti-national activities because their own assets are denominated in foreign exchange, and not in Indian rupees. So they gain, anyway. Nobody is a fool.

Mises goes on to explain why a Gold Standard is the best:

The main argument in favour of the Gold Standard is that it renders the formation of the monetary unit's purchasing power independent of arbitrary action on the part of governments, political parties, and pressure groups [like exporters]. It places a check on inflationary policies, and is the only standard which can possibly become an international, a world standard.

Can one country - that too, a "poor" one - shift to the Gold Standard on its own, or does this require "international co-operation"? Let us hear Mises again on this:

The nineteenth century very successfully set up the gold standard as a monetary international standard. At the beginning of our century [the 20th - this was written in 1944, and not published till 2000, well after Mises' death in 1973] almost all commercially important nations had adopted the gold standard or the gold-exchange standard as their national standard. Both of these monetary systems tied a particular country's national currency unit to a definite quantity of gold, fixed by a duly promulgated act of that country's legislature. A divergence of the purchasing power of the national currency unit from the purchasing power of its legally fixed gold-parity was effectively prevented.... International trade and commerce, international credit transactions and investments, transportation, and travelling were not hampered by any monetary friction.

This satisfactory state of affairs was not the outcome of any international treaties, agreements, or conventions, or the operations of an internationally established institution or bank. It was an achievement of the various national governments acting of their own accord and aiming at nothing else but the most convenient arrangement of their own nation's economic matters. Governments were eager to stabilise foreign exchange rates because they considered such stability as beneficial for their own people's economic well-being. A sound money policy was not designed for the benefit of foreign interests, but as a policy highly beneficial for a country's own welfare....

The maintenance of the gold standard is possible only if a nation strictly abstains from all endeavours to inflate its currency system, either by the issue of additional paper money or by bank credit expansion. Nothing else is needed....

There is but one means to keep a nation's domestic currency at par with gold and the sound currency of other countries: to abstain from credit expansion and inflation.

As I pointed out in a column advocating India's unilateral adoption of the Gold Standard:

Any nation can unilaterally revert to the gold standard whenever it chooses. If we do so, our rupee, now pegged to gold, will always appreciate against the rest of the world’s fiat papers. This will help us become big importers. And cheap imports, including of capital goods and components, will make our manufactured exports competitive in terms of technology, quality and price. Our banks will attract the world’s savings, and we will possess capital, the vital ingredient of “capitalism”. All prices will steadily fall and the consumption of the poor will rise in leaps and bounds. This is the power of “sound money”.

Note that our "consumption of imports" will increase - precisely the opposite of what is happening today. And improved consumption is what better economic well-being is all about. We will no longer be a poor country. We will be rich!

Thus, all this Anna Hazare-Kiran Bedi-Prashant Bhushan "Lok Pal" business is nonsense. The real corruption in the world - and in our own country - revolves around the "funny money." Gold is the answer.

To get there, we must disabuse ourselves of just one false idea - that increasing the supply of money "stimulates the economy." Actually, even an increase in the supply of gold does not stimulate the economy. In both cases, price inflation is the inevitable result. If the quantity of gold in circulation increases, the price of gold declines - and all prices pegged to gold rise. The only difference in the two scenarios is this: today, The State can unilaterally increase the supply of paper money. With gold, only gold miners can. 

Whom do you trust?

Remember: Private gold miners will not increase the supply of gold because they will earn less in exchange as the price of gold will drop. Gold supplies will therefore increase only marginally, and slowly. There will be monetary stability.