Who Owes What?

Philosophically speaking, government has the power to enforce private contracts because people have collectively entrusted that power to government UNDER THE ASSUMPTION that it will facilitate a free environment in which people can fulfill their contractual obligation.

When government violates that assumption and forcefully freezes an economy without consultation from stakeholders(the public), it loses every right to enforce contracts. Not only that, officials become personally liable for compensation to individuals due to any loss arising out of that decision.

Which is why, I don’t think burden of interest for period of lockdown should fall on debtors. Or that burden of rent for the period of lockdown should fall on the tenants. Such sums should be extracted from personal income of government officials.

Mises on Marxism

The essence of Marxian philosophy is this: We are right because we are the spokesmen of the rising proletarian class. Discursive reasoning cannot invalidate our teachings, for they are inspired by the supreme power that determines the destiny of mankind. Our adversaries are wrong because they lack the intuition that guides our minds. It is, of course, not their fault that on account of their class affiliation they are not equipped with the genuine proletarian logic and are blinded by ideologies. The unfathomable decrees of history that have elected us have doomed them. The future is ours.

-Ludwig von Mises

A Rejoinder to Mr Anuraag Saxena

The purpose of what follows is to give a rejoinder to article published in Swarajyamag titled “Dharmicism: A New Economic Ideology For When Communism And Capitalism Fail” by Anuraag Saxena.

The article is almost a year old. So why bother with it now?

Upword recently posted a video in which Mr Saxena repeats the same old content. Notwithstanding the glaring nonsense it contains, it has still managed to attract some positive attention. I therefore thought it fit to clean the well of public discourse which Mr Saxena has so generously polluted.

For the purpose of analysis, I am dividing the article into three parts.
First part comprises of writer’s claim that capitalism has failed. Second part is clichéd same old fable that once upon a time India was rich and prosperous but its wealth was looted by invaders. And the third part is an argument for desi economics.

On Capitalism

In the opening statement, writer announces that “Communism has failed. Capitalism has failed. Well, at least to deliver the widespread prosperity it promised. With both these contrasting ideologies failing, any variant or hybrid is also bound to fail.”

After intense search, reader finds a single argument in support of Capitalism has failed. That comes — after skipping around 23 paragraphs — under the heading The Cost Of Capitalism.
“Stagnant wages, inhumane work conditions, rising student & homeowner debt, and plain simple misery have made capitalism a bane for the “other 99 per cent”. Communities, nations, even the planet pays the price in a winner-takes-all model.”

There are many problems with this naivety. The great Austrian heavyweight Ludwig von Mises had remarked that “Economic history can neither prove nor disprove the teachings of economic theory. It is on the contrary economic theory which makes it possible for us to conceive the economic facts of the past.” What Mises meant was that economic theory is logically a priori to economic facts. We understand economic facts from economic theory. We do not derive economic theories from empirical facts as we do in natural sciences.

Two reasons shall suffice for this.
1.) Economic facts are a results of interplay of multitude factors which cannot be isolated for experiments in a laboratory.
2.) The ultimate cause in economics is human action, which is already known to an economist. But the ultimate cause in natural sciences is not known. So while in natural sciences we run empirical tests and keep on going backwards to find the ultimate cause, in economics, the ultimate cause is already known. Therefore, our analysis moves forward. We build theories from the logic of human action. And from these theories we make sense of economic facts. [For more on this, refer “Economic Science and Austrian Method” by Hans Hermann Hoppe]

Let’s take inhuman working conditions as an example of failure of capitalism. The first question to ask ourselves is, under capitalism, what incentive does an entrepreneur have for mistreating workers? Is it in the interest of entrepreneur to ensure that his worker is least productive as possible, by making him work in inhumane condition? The answer is an obvious no. Let’s say the entrepreneur isn’t conscious of this rationale and still makes worker work in inhuman condition. Praxeology tells us that under capitalism, another entrepreneur who treats his workers well will make them more productive and will outdo that entrepreneur in no time.


If we look around, we can hardly find a successful business where workers are made to work in inhuman conditions. If inhuman working condition still exists, its either because the price at which consumers want the product doesn’t warrant the cost of a humane working environment, or, because paucity of resources warrant that condition. If resources are plenty, the situation will improve in no time.

Other objections can also be explained similarly with praxeology.

If we see matters empirically, its transparent that societies that tilt towards capitalism belong to the league of nations with highest per capita living standards in the world.
Its to the credit of capitalism that the world could support enormous growth of population never seen before.
The curve makes it clear.

In no period of history, we find any economic system, be it ‘Dharmicism’ or whatever else, which could support such enormous growth of population. If anything, this yells for unparalleled success of capitalism.

The problem is that most people don’t quite appreciate the meaning embedded in the foundation of capitalism itself.
Capitalism is based on private ownership of means of production and voluntary exchange. How does one acquire property under capitalism? By voluntary exchange. Voluntary exchange necessarily means that all the contracting parties must expect to benefit from exchange.
Therefore, those who oppose capitalism are necessarily opposing perceived consensual gain of contracting parties, in which all contracting parties win.

India’s glorious past

The fable, that India was once a golden bird is known even to a baby who has not yet been conceived in a mother’s womb.

The reality, however, is less flattering. For one must remember that claims of this kind are essentially referring to a period when nobody had indoor plumbing. Nobody owned a motor vehicle. Nobody had electricity. Nobody even owned a mechanical fan. Nobody owned a telephone. Cooking gas was unknown. Internet was unknown. People used to die of easily curable diseases.
To state matters bluntly, before 18th century everyone was poor by today’s standards. Therefore, to say that India was a golden bird in past is pure moonshine.

High living standard is a characteristic of industrial societies which emerged only after the onset of industrial revolution in England. Before that, the world had agricultural societies all over.

Fortunes of agricultural society rests on good harvest. Good harvest requires fertile soil, levelled land, availability of water and conducive climate. Indian subcontinent was naturally endowed with all four. This is what seduced invaders and migrants. Not our ‘richness,’ as we mean the word in today’s time. The fact remains that enormous wealth which industrial economies produce was not found in agricultural economies. And even today we don’t find enormous wealth in economies which are predominantly based on agriculture.

Desi Economics Model

The writer also indulges in a banal exercise of misappropriating past in a well known standard manner. It involves selecting what we today consider as good and claiming that our glorious past culture already had it. And denouncing bad characteristics of present system as exclusively belonging to that system. Thus, showing superiority of glorious past over present.

To quote a few statements:
Indian businesses have always clubbed Riddhi and Siddhi together, thereby internalizing that expertise and success cannot be decoupled.
India has suffered the consequences of command-and-control economics for decades. In contrast, the valley-state-of-mind nurtures an individual’s pursuit; the path of “seeking” (the next big opportunity, in this case) if you will.
No wonder, many valley-honchos shun Western religions and the prescriptive approach that comes with them; and instead gravitate towards Dharmic principles that encourage seeking your own path. This refusal of central authority, and openness to non-linearity makes Dharmicism a more natural fit to the rebellious nature of enterprise.

[More quotations will make this already long piece even more lengthy.]

As can be seen, the writer misappropriates individualism as a ‘Dharmic’ idea. The whole tradition of Dharmashastras is ignored, which involve exhaustive list of prescriptions for an ideal life. Dictum of Shruti, that a learned Brahmin must be referred to if one gets in a difficulty related to life, is ignored. The very idea of dharma as following set of principles is ignored. Varna-ashram dharma is completely ignored. The idea of charity, which is not exclusive to Hinduism, is touted, as if donation is prohibited under Capitalism. The idea of responsibilities is sold simultaneously with the idea of free spirit and non obeyance to central authority.
More can be said, but its not worth the effort to talk any further on this obvious nonsense.

But I will address much often repeated proposal for desi economics. That Indians must have their own economic model.
People put forth such ideas because they have basic misunderstanding of what economics is. Economics is a science of means. Not of ends. It takes value judgements as given, whatever those may be. Dharmic or otherwise. And sees whether means can attain ends sought. Once this is recognized, all arguments for desi economics collapse, because scientific inquiry of means is universal. It isn’t culture specific.

Murray Rothbard had once said that “It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a ‘dismal science.’ But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.”
Its time we begin paying heed to that advice.

Reserving Jobs for Locals

Harayana government has planned to reserve 75% of private jobs for local residents of Harayana. Apparently, the intention is to create more local jobs, so that workers of Harayana don’t have to migrate elsewhere.

But this decision, if executed, will only hurt the state.

Cost of production will go up for those doing production in Harayana. This is pretty obvious. If it were cheaper to hire locals, no producer would hire migrants. The fact that migrants are hired instead of locals tells us that this is because migrant labor is cheaper.

But the cost will not go up in other states. In fact, it will go down in UP or Delhi for example, due to more competition among laborers.
As a result, producers of those states will outsell those producing in Harayana.
Eventually, producers will move away Harayana.

Then, probably CM will keep Harayanvis employed in some government works programme.

Moral Worth of an Action

Some people believe in the idea that an action is intrinsically moral or immoral, and that we need not see its consequences. No immoral act can bring about morality as a consequence, it is argued. It suffices to see whether one is resorting to an immoral action to achieve anything.

This position is, of course, totally wrong.
And frankly, I am shocked to see people dogmatically adhering to it even in the face of all the reason and fact.

Is lying immoral?
I don’t think anyone in his/her right mind will say that lying is moral or that it is value neutral. And yet, is it moral to lie if lying can save lives of some people, or even of one person?
Not many people will say “No” as an answer. Clearly, consequence changed moral worth of an action.

Is violence immoral, no matter the consequence?
Some would say, yes it is.
But is it immoral for a woman to kick a rapist between his legs, as a form of self defense? The answer will be undoubtedly NO. Or, is it immoral to beat someone in a limited way, to paralyse him, if that person is about to murder someone?
Again, moral worth of violence changed as per the consequence.

Similarly, is it immoral for someone to forcefully take away someone else’s money? In usual cases, yes.
But is it immoral to do that IF(I reiterate that I am considering a hypothetical situation where redistribution works economically, just to see how people morally react) that money has the power to save someone from grinding poverty? The answer must be a NO. For if someone has power to eliminate grinding poverty, and one doesn’t do it out of choice, then such inaction is demonstrably immoral. Which is why it is argued that the more powerful a person becomes, the more responsible he must become socially, for his power is capable of removing much misery.

An action of taking away money doesn’t become immoral if a person’s mood swings are not taken into account to do something good. I know the next thing you’re saying in your mind. But isn’t that the argument that dictators use, that they’re violating rights of others to do a common good?

Here, an absurd leap of logic is taken by people. They say, that because ill intentioned men use common good as a justification for doing immoral acts for their own benefit, therefore, it is not possible that overall common good can be achieved at all by committing an act which is considered immoral usually. Mises didn’t believe in this absurd leap of logic. Nor did Hayek. Nor did Smith.

Mises wrote in the times of Hitler and Stalin. He thought that we cannot draw a line as to where this must stop, so, by consequentialist reasoning, he thought it will be overall better, if a line is not drawn at all.
But this conclusion is not necessarily true.
I believe it is possible to draw a line. We can debate on it. One such line is alleviating grinding poverty or starvation. Which is why Hayek argued for a minimum income below which nobody needs to fall.

If an individual is in a position of power to remove misery of many, and he doesn’t use that power towards that end, he cannot be morally excused by saying, his property, his choice.
We cannot even forgive God, if being in a position of power to alleviate misery, he chooses not to do so.

[The above principle which I have used is not my own. It is found in teachings of Lord Krishn]

Brand Blanshard’s comment on Tractatus and Wittgenstein

The view that logic tells us nothing about the nature of things and is itself a set of conventions is due to his[Bertrand Russell’s] pupil Wittgenstein, who has the strange distinction of having produced a work on logic beside which the Logic of Hegel is luminously intelligible!
In this curious work[Tractatus], it is as if a set of Sibylline oracles, scattered on flying leaves, had been gathered together, some of them extremely astute, some of them absurd, and many of them too dark to be confidently classified as either. It is full of dogmatic pronouncements, introduced abruptly and left without explanation or defence; the reader is puzzled whether its ‘take-it-or-leave-it’ manner is due to wilfulness or to expository ineptitude, and is only too likely to throw the book impatiently aside. I share the reader’s impatience with this way of writing philosophy.

-Brand Blanshard, Reason And Analysis

Economic Assessment of Syndicalism

Many people contend that when they use the word “Socialism,” they are referring to a system wherein means of production are owned and controlled by the workers, and not by the State. In the history of ideas, such a system already has a name; its called Syndicalism.

Proponents of syndicalism argue that means of production should be transferred from entrepreneurs, capitalists and landlords to the workers. Its asserted that the distribution of ‘unearned income’ of capitalists, entrepreneurs and landlords among workers will lead to a rise in income of workers — who are the only real contributors to the production process. Additionally, it is argued that ‘industrial democracy’ should be substituted for supposed dictatorship or autocracy of capitalists and entrepreneurs.

Its pertinent to note that in syndicalism, not all workers will become owners of all the means of production. Mines will be owned by miners. Factory producing automobiles will be owned by workers who work in that factory, and so on.
In such a system, citizen will be the owner of a share of certain means of production and non-owner of other means of production, and in cases where a person is unable to work, she will own no property at all.

There are two ways of carrying out syndicalist programme. One is by merely handing over ownership of the means of production to the workers while leaving the system of property of the capitalistic order unchanged.

The result of such a system will be no more than a primitive redistribution of wealth. After a short time, some would’ve squandered their shares, and others would’ve enriched themselves by acquiring the shares of the less economically efficient. Inequalities will quickly reemerge. Consequently, there must be constant redistributions in such a system, which will simply reward frivolity and waste — in short every form of uneconomic behavior. If industrious and thrifty are constantly compelled to hand over fruits of their industry and thrift to the lazy and extravagant, there will be no stimulus to the economy.

Moreover, the temporary achievement of equality of income and property will not be same for all workers. Value of means of production in different branches of production is not proportional to the number of workers employed. There are products which involve less labor and more nature and vice versa. So syndicalism will abolish one inequality and replace it with another. It may be argued that this syndicalist inequality will be more just than the inequality of the capitalistic order — but on this point, science can give no judgement.

If syndicalism is to mean more than mere redistribution of producer goods, then it cannot allow the property arrangements of capitalism to persist in regard to the means of production. Productive goods must be withdrawn from the market. Individual citizens must not be allowed to dispose of the shares in means of production which are allotted to them. The possibilities of, how, in different circumstances, these shares may be separated from worker, will be explored a bit later.

But the most serious objection against syndicalism is that it presupposes a stationary economy and pays no attention to how the system will adapt to the changes in economic conditions. Like change in methods of production, in relations of supply and demand, in technique, in population et al.

Which brings us to the question of how capitalist order solves this problem. In a capitalist order, entrepreneurs and capitalists adjust production according to changes in economic conditions through price mechanism. They reduce or increase supply of goods, direct resources from one line of production to other, change techniques of production, transfer, hire or layoff workers as per changing consumer preferences. Entrepreneurs and capitalists aren’t, as popular thinking will make you believe, sovereign unto themselves. They’re subject to the supremacy of the buying public.

But in syndicalism, sovereignty of producers is substituted for sovereignty of consumers. Production in syndicalism is not ultimately subject to consumption.

To illustrate by way of example, what happens under syndicalism when demand for a product falls? Who will be laid off? And where will the system fit in employees who are laid off? Other industries will fiercely oppose intake of such workers, because their entry will push down income of others already working in that industry. Will workers even allow improvement in techniques of production for reducing costs — resulting in unemployment of some workers in their firms?

Question also arises what will be done with the shares of laid off workers in the firm? If they’re allowed to take away value of their shares, then the principles of syndicalism will be violated. If people are not allowed to take away their shares in the firm they erstwhile worked, one wonders, as already pointed out, whether they’ll find employment elsewhere at all, since their influx will reduce shares of preexisting employees.

What about starting a new enterprise? How will a new enterprise be started in a syndicalist framework? By owning property from one’s resources? But that will involve surrendering those resources to co-workers. And surrendering fate of resources invested to the collective wisdom of workers. How many will bother to indulge in such an initiative? Is scaling of enterprise possible in such a system from scratch? Which brings yet another question, how will syndicalism absorb additional population?
With the picturization of syndicalism so far, I leave it to reader’s imagination of how syndicalism can solve this problem, if at all.

As is evident from the above analysis, Syndicalism will leave us with little or no technological innovation, no effective allocation of resources and no consumer sovereignty. Insoluble rigidities will emerge.
Wherever syndicalism will exist, economic progress will be unknown. The system, taken to its logical conclusion, is economically speaking, totally absurd.

 

P.S. – The analysis heavily borrows Mises’ insights, as stated in ‘Socialism’ and ‘Human Action.’

Economics of printing money

Using ‘price level’ indicators to justify printing currency is charlatanry, and I say this with utmost sincerity and seriousness. Such analysis hides what goes on in the economy when new money is injected.

One must first realise that prices do not increase evenly like the ‘level’ of water in a container. Some prices fall or rise more rapidly than others and such changes are not inconsequential.

When the government spends newly printed money, it DOESN’T buy ALL the commodities. It buys only FEW commodities. Prices of these commodities rise, while the prices of other commodities remain where they were(before additional money was injected into the system.)

As a result, income of the group first receiving the money rises. Members of this group benefit from inflation. They spend on commodities that they want.
Second group, producing goods for the first group, also benefits, on account of rising sales. Members of this group spend money which is received by third group.

This way, additional money reaches step by step to other groups of the population.

People to whom it reaches in the initial stages benefit from it. BUT, the groups to whom it reaches much, much later are at a loss. While their income remains more or less the same, they have to pay more than what they used to, for buying the same commodities, before additional money was injected into the system. Their real incomes fall.
By the time additional money reaches to them, they’ve already suffered loss.

In nutshell, what printing money really does is: It benefits some groups, while punishing others. But Henry Hazlitt had remarked in ‘Economics In One Lesson’ that “the art of economics consists in. . .tracing the consequences of. . .policy not merely for one group but for all groups.”

***

Excerpt from “Human Action”

Many champions of the instinct school are convinced that they have proved that action is not determined by reason, but stems from the profound depths of innate forces, impulses, instincts, and dispositions which are not open to any rational elucidation. They are certain they have succeeded in exposing the shallowness of rationalism and disparage economics as “a tissue of false conclusions drawn from false psychological assumptions.” Yet rationalism, praxeology, and economics do not deal with the ultimate springs and goals of action, but with the means applied for the attainment of an end sought. However unfathomable the depths may be from which an impulse or instinct emerges, the means which man chooses for its satisfaction are determined by a rational consideration of expense and success.

On migrant fiasco

Governments held migrants captive so that they do not spread virus in the villages.
But how many of them were tested?
How many of them were kept in isolation?
In fact, migrants were begging for government to conduct tests on them and let them go. But hardly anything significant was done.
Look at the way they’re now crowding and roaming helplessly. What did we achieve at all by holding them captive for so long? We did incur pointless heavy costs, but tell me one achievement.
Is there any accountability left in this world?

Are we going to continue licking feet of incompetent politicians or ask them tough questions?