Monday, January 5, 2009

An Interview Series on Theory, Money and Freedom-1.0

With Mr. Parth J. Shah
He is the founder-President of a New-Delhi based think-tank, Centre for Civil Society. Parth's research and advocacy work centres on the themes of economic freedom (law, liberty and livelihood campaign), choice and competition in education (fund students, not schools), property right approach for the environment (terracotta vision of stewardship), and good governance (new public management and the duty to publish). He has conceptualised and organised liberal educational programs for the Indian youth including Liberty & Society Seminars, Jeevika Livelihood Documentary Competition, and Researching Reality Internship Program. He has edited Morality of Markets, Friedman on India, Profiles in Courage: Dissent on Indian Socialism, Do Corporations Have Social Responsibility? and co-edited Law, Liberty & Livelihood: Making a Living on the Street; Terracotta Reader: A Market Approach to the Environment; BR Shenoy: Theoretical Vision and BR Shenoy: Economic Prophecies and Agenda for Change.
Sunil Aggarwal (SA):- I have been working in the interface zone of International Relations (IR) theory and International Political Economy (IPE). This is the site of some of the fundamental changes in the global distribution of power, to put it accurately the “open ranges” as Susan Strange once said about this. My choice of the research within this is regarding the conceptual framework of the currency which is nothing but a politically determined definition of money. In general, it is national but it can be regional and international too. The irony of the scene is that despite the recognition of monetary power as a fundamental form of power, there has not developed a political theory of currency in IR literature. That forced me to venture outside the conventional domain of International Politics and a broad and extensive survey made me realize that a somewhat autonomous definition of money does exist in the Libertarian thought and that was precisely the context that brought me to you, Mr. Parth. A couple of years back, John Nash, the famous proponent of the Game Theory and a controversial thinker picturized in a recent film ‘A Beautiful Mind’ came to India. He delievered some lectures on the notion of money. His lectures were focussed around the notion of “Ideal Money and Asymptotically Ideal Money” in which he criticized those who deplete/erode the value of money. In his trenchant critique, he even called the Keynesians ‘Bolsheviks’ of economics. The public response to his lectures was deadening silence then and afterwards. His focus was to maintain the purchasing power of the money as this is also the goal of a sound macroeconomic management as practised by the Central Banks but still, the entire idea almost got sidelined. How would you account for this silence in the Indian public space both at the level of discourse and popular reality?
Parth J. Shah (PJS):- When it comes to money, we are all creatures of habit. We are so used to the system that we simply cannot see any alternative to it. This monetary system is so much part of life that it is like a language to us. We may have a problem with a word but cannot even imagine having a problem with language per se. Similarly, money issued and managed by the government has become so deeply embedded in our lives that we don’t think of any system where money is not managed the same way. When I tell people about the idea of denationalized money or that of competing currencies, people simply react with sheer surprise like asking me, “Do you mean to say that I can have 4/5 different currencies in my pocket? Then, how will I decide which one to use and when to use? Won’t it be too confusing? Why not prefer single money?” I answer, “You find it confusing because you are not used to it; for example, if somebody makes it mandatory that you can have only one kind of cell phone, you will simply laugh over that. Since you are used to multiple kinds of cell phones, you cannot accept that situation.” Similarly, people are used to only one kind of money. Then, I elaborate to them about the examples of Scottish free banking period of 19th century where even illiterate people were using different currencies without any problem. As far as the records of that period are concerned including even the writings of Adam Smith in “The Wealth of Nations”, there was a good comparison between the single currency English Banking system and the Scottish system. The history shows that there were fewer banking crises and panics in Scotland and good growth as compared to that of England. But the people have short memory and hence do not change their way of thinking. Then, sometimes, I force them to understand the kind of place the credit and debit cards have made in their lives. To be honest, they are nothing but alternative forms of currencies.
SA:- The conventional Indian thinking on money is quite a mix of leftist and Keynesian thinking. It looked to me too fiscal, statist and centralist in nature. The post-independence banking studies have not focused on the social history of credit flows and the deep subaltern framework of financial networks which operated without any direct interference from the government or any imperial body. There existed a kind of common law in almost all our parts of India but these kinds of studies are utterly absent in Indian academia. This serious lack incapacitated the intellectual community and the policymakers from having non-ideological and pro-society view of money which was a natural evolution of many ages.
PJS:- They have focused but only upon the private money lender. The first guy that comes in our mind during our studies is that of greedy exploitative bania to whom the entire village is indebted. People take a loan from this person and they are never able to pay back that loan but to talk of principle not even the full interest. That is something which is not confined to just one life but over so many generations. This is the kind of image that Marxist historians have of private moneylenders. But the reality cannot be that stark and one-dimensional. The exploitative systems cannot be run over a course of generations. The role of cast is again biased. For example, take the case of Jains who dominate the diamond industry; their domain is in diamond business is because of their caste network. Their caste identity plays the role of a trust Bond that can be easily enforced through caste. The sensitivity of the trade is such that here, caste and functional efficiency get intermixed to create a viable business relationship. The caste substitutes the norms and power of a formal contract.
SA:- And this relationship is not confined to one generation rather the bond works through a series of generations e.g. in case of Marwaris who had a very strong inter-generational credit availability network but such a kind of historical approach to Indian banking, private and public is seriously absent. Instead of talking of sound money, we have developed parallel categories of capital and currency without establishing a direct link between the two. The capital is a meta-narrative term of flows of money in a global and theoretical sense while the currency is a national term for money giving the government an ultimate say in the affairs of money. The fact is that fluctuations in currency exchange rates are actually the sites of processes through which major capital movement happens but the irony is that a common man link between currency and capital is missing. Why?
PJS: - There are two different methods of looking at it. One is simply the capital theory itself like the Austrian theory of capital which is related with structure and stages of production where there is a totally different context. That is one part of the debate on capital theory. I won't go into that debate. As far as the currency is concerned, when Lenin came to into power, he thought that currency is itself a product of capitalism and it should be done away with. He even experimented with that and brought down the economy to the level of barter economy. He realised very soon that it won't work but after that, the entire issue of an autonomous definition of money got lost in the mumbo-jumbo of command economy.
SA: - In the post-1971 period of floating currency regimes, there has been a series of monetary crises which have devastated the real wealth in the hands of common people. Do you foresee any possibility of the ‘Right to Stable and Positive Purchasing Power’ being accommodated in the ‘Human Rights’ literature of the discipline?
PJS: - I think that would be an interesting way of looking at the things.
SA: - European Union may not be an alternative to the state-system or not even a full confederation but it has saved the individual citizens of member countries from unwanted currency fluctuations and currency transaction costs. But this kind of possibility is a non-starter in other parts of the world. To that, what is unique theoretical feat of the Euro and what is its limitation also?
PJS: - I think that putting Euro into the category of an achievement would be a misnomer because it is replacing national and smaller central banks with much larger regional central bank. My problem is not about how good it is rather my fear is what happens if it goes wrong. We have given the fate of millions of people into the hands of a behemoth which may be working efficiently today but it may not be true for coming days. The best way out could have been to encourage the competition between currencies so that no currency can depend upon state-sponsored anchors and retains its true value.
(The interview was conducted on 9-12-2008 at CCS, New Delhi.)


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