Friday, January 9, 2009

An Interview Series on Theory, Money and Freedom- 2.0

With Mr. Sauvik Chakraverti
Sauvik Chakraverti pursued higher studies at the Department of Government, London School of Economics and Political Science. He was for long a freelance writer, contributing to leading Indian newspapers. In 1998, he joined The Economic Times editorial team. Since then, he has been writing his fortnightly column: Antidote.
He is also the author of a much acclaimed collection of essays entitled Antidote: Essays against the Socialist Indian State (Macmillan, 2000). He has edited Samuel Smiles' Self-Help, published first in the 1840s, and published in abridged form by Liberty Institute, New Delhi. He is also the author of Free Your Mind: A Beginner's Guide To Political Economics published by the Centre for Civil Society, New Delhi.
Sunil Aggarwal (SA):- 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?
Sauvik Chakraverti (SC):- I heard of this lecture immediately after that and discussed it with some friends on blogs and other internet forums. Let's take the point which is the constant debasement of money that is inflation, the Keynesian way. That is fundamentally evil because the people who print this money, then buy up the real resources at current price and the people who spend the money later receive it at the inflated prices; so this is a way of cheating everybody; it is a tax on poor people; it is inherently a corrupt idea and if it is an immoral idea, we can also call it an evil one. You are talking of the silence afterwards. The silence is because our educational system has been controlled by Marxians and Keynesians. The majority idea that has been made popular through media is actually a very statist idea of money. You can associate it in this fiscal stimulus nonsense. The whole media is in favour of lot of government money being spent to pep up the demand in economy. Everybody thinks that if government spends money, the common man in streets will benefit, but they're not able to see the evil design behind it. I will try to explain how this evil idea can be controlled.
The basic philosophy is very simple. That in a market exchange throughout history, the trade has been in real goods both ways. Nobody gave you something for paper. If you asked for a kilo of meat or fish, and you give paper in return, the guy will throw you out. You have to give copper, silver or gold in return; that means something material, in return. Now the paper money the way it developed, was actually a property title. If you had it, you could demand it from the issuer of the note the hard material money in exchange. Now, what has happened with Keynesians and the monetarists led by Federal Reserve, and the cartel of international central banks, you have a currency note, which is the property title without any property. So, I give zero property and I take property. So, I'm the issuer; it's like, if you go to a casino, and you put your gold on the table and the Casino guy gives you the chips to play with in the Casino, you play with the chips and come back with your winning chips and he gives you back more chips of a different colour. He doesn't give you back the gold. So it's an inherently corrupt practice, and the only way to remove it is to ensure that all paper notes are redeemable in hard money. Nobody should be able to issue a property title without the real property underneath.
SA:-Just coming back to the lecture of John Nash, you mentioned that you had some discussions with your friends on your blogs and other net forums. What was exactly your reaction?
SC:-I remember that we were all praising him for hitting out at the Keynesians. We were all very happy that he said those things and questioned the money. You will never find the Nobel laureate talking about money, because the Nobel Prize is itself issued by a central bank..... (Laughs)................ and this guy, the Nobel laureate, had the guts to talk about money and that was something great.
SA:-it's quite heartening to note that free money has been talked about for quite a long time now. Frederic Bastiat talked about it in 19th-century, there were number of people who attacked the idea of central bank governed money in 20th century. And now in 21st-century, when information revolution is at its peak and financial transactions are happening at the click of a button, still people are not able to de-link themselves from the statist idea of money. Why is this deeper kind of addiction still continuing?
SC:-The problem is that we are not teaching the subjects correctly. In fact, we're putting them into watertight compartments. You know, even in the era of pre-economics, take the example of Adam Smith, he wrote a book on Jurisprudence; he wrote a book called The Wealth of Nations; he wrote a book on moral philosophy; the point is we are not studying like that anymore. For example, economist study macro economics; then you have lawyers who study FERA, and they don't know each other and the political scientists are studying something else. So, a kind of integrated, holistic understanding of all the sciences is not proceeding anywhere. Maybe in Europe, they are trying to bring it back. But in America, it is not certainly going that way, nor in England, and in India, it is simply rubbish. All the time, they are studying macroeconomics, and they have no idea about the notion of money. Money starts by the way from Carl Menger, in his 1871 Book, “The theory of origin of money”. He has another book around 1893, (if I'm not mistaken) on the “Methodology in social sciences” including economics in which he gives theory of the origin of the law. Actually, you put both these theories together and you have a solution to all monetary problems. We need law to govern the money. We don't need regulation, mind you.
SA:-When I read your article “Funny Money” in the Times of India, it was an interesting reading when you distinguished between time deposits and demand deposits. There, you also suggested the legal remedy for correcting the definition of money. Do you feel that Indian system has gone too far away from that possibility, particularly in the context of the government expenditure going beyond control?
SC:-See, the thing is that I am a subversive philosopher; I don't drink to the health of the government of India; I don't drink to the health of constitution. I drink to a new Republic. Therefore, I believe in secession, making a new land of freedom, a kind of libertarian utopia somewhere sometime. The point is that one good bank is required. Today, mind you, after this one financial meltdown in America, Indian depositors are pulling out their money from multinational banks, taking their money out from stock market and spending it on the gold, which is a very sensible thing. This shows that if you have a bank anywhere in the world, which says that in my paper notes are supported 100% by specie, all deposits of the world will come to that bank and it will win in the fair competition. People will take their money and put it in a safe bank and this happened by the way in 1609 when the bank of Amsterdam was set up which David Hume and Adam Smith admired a lot. But the bank of England was not modelled after that on the same principle rather it was modelled after the corrupt bank of Sweden.
SA: So, in Indian case can we reinsert the legal distinction between time deposits and demand deposits?
SC:-See, it's a question of contract. We need to understand that the part of confusion that we have in our society and in our academia is because of the deliberate twisting of the words; they make the word change its meaning altogether. They say fixed deposits but it is not a deposit, it is a loan. So under contract, it should be a contract of loan. Demand deposits are the deposits which should be available on demand and it is a case of safekeeping. Here, the contractual terms are different. So, this will mean that the banks, which I also talked about in that article on funny money, about the Robert Peel’s banking act of 1942. In that particular act, Peel was trying to make money note convertible into gold on demand. But he did not pass any legislation on bank deposits. And now, a banker has to just issue a loan as a deposit in your account. He creates a credit out of nothing. You can read Murray Rothbard’s history of economic thought. It's in two volumes; the second one is more interesting. It contains all the debates between the currency school and the banking school during those times; how the currency school wanted to get the deposits converted into gold on demand but they did not pursue any legislation on banking deposit money. The banks kept on inflating the deposit money and the central bank had to repeatedly go back on its redemption promise until it was finally abandoned. The problem lies in a private banker having the ability to exchange nothing for something. So, there cannot be any central banking or there cannot be any cartel of banks without this fundamental fraud. On the contrary, the banks should compete with one another in the free-market regime provided they don't have the fraudulent ability to exchange nothing for something which means giving a loan. In the free banking literature, there is an option clause that a banker can delay the payment for a definite period though on a penal rate of interest. But again, it's a corrupt practice. It’s again buying something with nothing. This is the basic crux of banking mystery. Rather, it is the biggest bloody joke of the history.......... (Laughs).
SA: - Sometime back, I was talking to some friends who are from leftist background. I criticised their notion of money, which is too fiscal in nature. They are obsessed with transferring the wealth without making the transferring vehicle a stable one, which is money. They are so prone to tolerating inflation that they can't see the continuous erosion in the purchasing power that a common man should save. The hundreds of goods, a commoner has to buy in the market are purchased under the fact of eroding money. But the government and its distribution system can ensure only selective availability of selective resources, but it cannot ensure the stability of universal delivery mechanism, that is money itself.
SC:-it's all a racket, but the good news is that it is now an endgame situation today. They cannot continue it anymore because the price of money has already reached zero. See the US Federal reserve there, you can take the money at zero rate of interest and still there are no takers. Nobody wants it anymore. They want to lend forcibly to the people so that again a bubble will be created.
SA: - like in post-1971.
SC: - Yes.
SA: - In 1971, the gold was $35 to an ounce, and now it's around $890 to an ounce. So, it's around more than 24 times.
SC:-It's a disgrace to all economists. Every economist should hang his head in shame that he said nothing about the constant erosion of money. At least, I didn't do that.
SA:-Do you think there are some studies coming up from emerging groups of scholars who are really working in this direction?
SC:-There are not many. But definitely, there is one. Recently a book on ‘Money and Banking’ came from him. He is Jesus Huerta Desoto. He teaches in a Spanish university. This work on money is absolutely fantastic.
SA: - recently I was quite surprised when I see a PDF book on the notion of money from our RBI under education series. Its title is “Money Kumar and the monetary policy”. That is like a popular children book with well embellished diagrams, animations and illustrations exactly the way your book “Free your mind -a political economy reader” is compiled. I was trying to find the actual difference between the two because both have been designed in a similar way. In your book, the idea of money is libertarian and in the RBI book, the idea is exactly Keynesian. I think that our central bank knows what is important vis-a-vis manufacturing the consent of masses. And they are doing it right from childhood.
SC:-that's why they want control over the education system.
SA:-do you really feel that Web 2.0 technologies will really usher in an era of empowerment, where people can propagate their ideas with full freedom and will be able to break the monopoly of both the education system and central banking?
SC:-I have no idea about these technological things except to say that these tools are deeply empowering to the individuals, and they will one day break down the control systems. For example, blogging, this is very empowering to the individual. Imagine 10 years ago, you write in some newspaper or magazine but the editor cuts it, edits it or even delays it. That was how you had to work. Now the time has come when you can express your opinion without any control on your own blog. A reader has free choice; here she can choose to read whatever suits her. So, this empowerment of individual is something of the biggest hope of contemporary times. When intellectuals and talented people are working in an organisation, they have to live by the rules of control systems but if they are largely free and active thinking agents empowered by technology, one cannot control them. I think we in India have a historic opportunity. See, the countries that don't suffer, they don't change. For example, in America, they don't see the depth of the problem because they are not suffering. Okay, they changed Bush, brought Obama but not more than that. But countries which are suffering very badly, they will change the things. That's the big promise this country has. We also have a free press, we know English, and we have a good relationship with lots of countries. So, India is a land where there is a chance if we get our arguments straight and put it forward. We can win public acceptance for the right ideas as you said that you found ready listeners even among Marxians. Once you see that the idea of collective property is barbaric, you cannot support it; even in my local fish market where there is no government and if the fish is in front of a fellow, you believe they are his private property. You make an exchange, fill your bag with fish, give him money and that's it. The money is his property now. The whole exchange is based upon the idea of private property.
Actually, the law is a subject that we must study. The economists have actually confused everything. The study of economics yields very inadequate answers unless and until you happen to find Carl Menger which you will rarely find in any library and when I'm talking about law, I'm not talking about civil law rather I'm talking about classical liberal jurisprudence. There, you have all the answers and the solution is not really in the regulation because regulation is bureaucratic rather what I'm talking about is the rule of law. Who is the issuer of this note, if he doesn't redeem the note on demand, punish him, execute him. It's a very serious moral obligation of a banker to fulfil its promise of abiding by the contract. It's a matter of social trust. If the banking collapses, the whole society will break down. The whole society will go corrupt if the banking is based upon corrupt practices. You may not be killed for rape or murder but if it is a banking fraud, you must be executed. Desoto has given a story of Spain where a banker was executed right before his bank because he did not redeem the note he had issued.
SA:-I had come to you with a set of prepared questions but now I feel that the direction of interview is such that those prepared questions do not fit in the context. When I actually framed these questions, I was not actually focused upon the notion of free money but now I think that the idea of money should be centrally located in the whole research problem. Let me try a bit differently. The human greed to extract surplus for selfish purpose is an age-old malady. They keep twisting the definition of consumption and try to package it in selfish terms. Recently talking to a friend from International Marketing, I faced a serious retort that humans are like virus; they only travel from one level of consumption to the other level of consumption. They don’t identify the rights of non-human species as equally important rights. Human Tendency of usurping the ecological surplus is still an unsolved mystery. Do you feel that the liberty to consume is subservient to the bigger definitions of order?
SC:-No-No, the kind of words for this question are not being chosen properly. Let's try to put it in the right manner. The libertarian believes that money evolves spontaneously in a free society. Money is something which everybody accepts as money. It should not be determined by fiat; not by the government decree; not by legal tender. So, that is the libertarian idea of money. It is what we freely accept. For example, what Ron Paul calls Liberty dollar. It is something that everybody will accept as money; it has nothing to do with the government. The duty of the government is to catch the guy who doesn't fulfil his promise, who doesn't follow the rules of contract or who tries to debase the money but more than that, the government doesn't need to control the rest of monetary matters. The government doesn't and needs not produce the money. A similar thing applies on paper money which is actually a property title which should pursue the rules of a contract. It should be redeemable on demand. I'm simply discussing the legal aspect of money.
Now we come to the liberty to consume. Why do we work? Do we work because we enjoy doing bloody work? Did you enjoy teaching political science to those who are not interested in learning? You do it in order to consume the money derived out of it. So, if I give you the right to work as Manmohan Singh has done and do not give you the right to spend on the best possible goods that the market (the global market) can provide to you, of what use is your right to work? So, the right to pursue is the basic human right.
SA:-if it is a human right, can we really transform the right to stable and positive purchasing power as a fundamental human right in the international jurisprudence?
SC:-it always was. There was law merchant that was the governing international commerce. It's a private law; for merchants, for private people.
SA:-why it's not a part of human rights literature?
SC:-because this notion of human rights is a bogus government controlled notion of Law. In an earlier age, there was no such thing as human rights. What are human rights? They are guaranteed by the government and who breaks them? It's the government. So, it makes no sense. Yes, you need property rights and in an exchange, the money should be backed by the real property. On the basis of that, all trade will be free and everybody shall have the liberty to compete with everybody else; all international trade will be free and as a result, the consumption will go up and prices of all commodities shall slowly fall. The price of money shall steadily rise and you would have fall of prices for the whole of your life. If you do it today, your children will have it. What costs six Lakhs today shall cost five lakhs next year and so on-so forth. We will have an era of just the opposite of inflation. It will improve the real consumption and generate the real effective demand. So, the consumption is not an evil rather you need to free it so as to improve it. The fun lies in consumption.
SA:-but we are so used to the idea of two big evils; one is market and the other is consumerism. We find it too difficult rather almost impossible to free us of these two back thinking blocks.
SC:-I don't feel the same when I watch the current generation. They are happy with their mobile phones, coffee culture, Levi jeans, fancy cars, fancy sunglasses and computers.
SA:-who the people you feel were the ones in India who really countered the government controlled definition of money?
SC:-I don't find many though around 1994-95, I heard late Prof R K Amin talking of it. I don't think that Prof B R Shenoy talked of private money but RK Amin definitely did it.
SA:-so, the entire period of 40-50 years without any idea of free money?
SC:-it's all a government monopoly on education. RK Amin was as a Swatantra Party M.P. and a Professor. An excellent man.
SA:-let's talk something about the social history of banking and credit flows in India. In some particular groups/castes like Marwaris, Gujratis or Jains, the availability of finance is sometimes at a very low rate of interest and the chances of non-payment are rare. Even, the intergenerational flow of credit is also very prevalent. The element of financial trust within them is so strong that they are able to dominate the businesses in the remote corners of India like North-East, Calcutta, Southern India; much afar from their home-towns. Their techniques of cost control are very solid and effective. In total contrast to that, the government controlled banking is not able to generate such a highly amount of financial trust and credibility. Somehow, I feel that the grass-root history of private moneys, community controlled credit networks, local currencies and common law backed practices is an area which has remained almost untouched in the mainstream academics. Around 1849, India had 20% share of the global trade which could not have been possible without this seamless network of credit and finance but we are so used to regarding the private money lender as an exploitative person that we are not able to see beyond his ideological bondage.
SC: - See, there is either economics or applied economics which includes economic history. When the entire subject is controlled by the government, how will you get the real facts out? It will not allow you to study what's not in its own interest. It's a control system where they control your thought. We had free knowledge where freethinking scholars could compete with their ideas and win public acceptance. A scholar is an individual; it's not a university competing with another university. If a scholar feels that somebody has not studied an area of due importance, here he will take that opportunity and create a niche around it. He will study it and write about it. There are lots of unusual histories in the world which have not been discovered primarily because there is no independence of scholarship like I read a lovely history of princely states of India from a person who is a British. Nobody has ever studied that. The hundreds of princely states which might not be very important to the contemporary government influenced historians. There are lots of interesting stories even from Rajasthan. They were two castes who were called Charans and Bhatts who were very close or even considered almost equivalent to the King. The main job of one of them was the job of a guarantor who used to guarantee the implementation of a contract with a foreigner. That was why he had a very high ranking almost as close to the King because he could ask the King to use force in order to implement a contract. This was not like a central banking practice rather it was meant to uphold the rule of law. It was kind of a way to ensure the credibility of business with outsiders. The interesting thing was that this guy, Charan was also the historian of the King's family. So, at all the important functions of the state, he would recite the history of his family aloud. If some king in the family did the wrong thing, he would recite that in the next state function. So, there was a kind of moral control on the monarch from the side of business community exercised through these offices.
SA:-that's really interesting.
SC:-we have been thinking that they were totalitarians. It could not have been like that. No King could have afforded that for a longer period. So, this idea of Indian banking history as well as the economic history is very badly studied in India.
SA:-do you find any hopes?
SC:-well, I found one hope when I met one of the Vice Chancellor of a deemed university. I asked him, “why do you call it a deemed university, why simply not call it a university? Why call it deemed; it looks so stupid? He answered back, “We want to distinguish it from the doomed universities.” (Both laugh)
SA:-initially, I wanted to ask you about Euro but again, it's a kind of regulation and a bit larger kind of central banking which you have been criticising. Don't you think that the central banking argument is trying to rediscover itself through regionalisation?
SC:-these are all bad ideas and in our region, it simply can't work. In Europe, they had around 30 to 40 years of experience of working with pan –regional organisations. They tried to establish a common market, removed Visa restrictions, movement of people, stopped the wars and ensured free trade internally. In our region, it cannot happen and it should not happen rather we should move towards the idea of sound money. We are a poor country and we need to save the purchasing power by not allowing the debasement of money. At least, in America, there is one candidate, Ron Paul for sound money. Once he was a Republican candidate for president and lost out to John McCain. And the media did not cover him at all. I don't know why? He is still active and running a campaign for liberty on dollar, Liberty dollar, backed by gold. I think he will come back. Let this Obama mania be over.
SA:-you mean to say that coming of Obama is only a cosmetic change in the mainstream military industrial complex of America?
SC:-I'm afraid, but yes. And this complex is not just military and industrial it's also extend to media, banking and university. They're all part of same block.
SA: - No doubt, there is a lot of literature on the issues of free banking and alternative modes of money but the basic problem is how to disintegrate the political and monetary sovereignty from each other. The problem acquires much more serious threat when the state develops a schizophrenic mindset against the private issue of currency and the whole legal, banking and administrative system acts accordingly? Don't you think that libertarians are in a state of serious risk?
SC:-I think so. We need to be safe. It may happen that someday, some state agent comes and finishes me off assuming it to be his duty towards the state. But, what to do? You'll have to take certain risks and a certain kind of methodology to propagate the idea of sound money. You have to prepare the second line of defence. That's why I blog so that the message goes out to the maximum number of people. You educate the people and that's the best method to fight back.
(This interview was conducted at Sauvik’s residence at New Delhi 30-12- 2008.)


Anonymous said...

Great Interview! Thanks Sunil...

Anonymous said...
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