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To my son,
And to his entire generation:
Now first study it and convince yourselves that you need Liberty in order to flourish.
And that without Liberty, you are doomed.
Then, put everything else aside and fight for freedom, obtain it, and carefully preserve it.
Thereafter, hand it down to those who come after you.
With these words:

© Sauvik Chakraverti, 2005

40/25, CR Park,
New Delhi – 110 019,
Phone: 91-11-51603974
Mobile: 91-11-98108 43891
E-mail: sauvikc@yahoo.com

Teach your children well…

And if I don’t make it,

You know my baby will…

If you are a big tree,

We are a small axe…

There are three things we leave behind us after we die:

Our knowledge
Our charity
And our righteous children.
Peace be upon him

May you grow up to be righteous,

May you grow up to be true…

Push the tempo



The great Bonny Thomas, on illustrations,

(Kind courtesy The Economic Times)
Our very own Dorothy Parker, Varuna Mohite, with her wicked verse,
Poornima Joshi, who created the design and layout, and

Bhuvana Anand
Priyanka Chauhan
Tappi Koppikar
Sujatha Muthaiya
Steven Rudolph
Sudha Shenoy
all of whose comments helped develop the script.



Chapter One: Know Thyself

On Kaka… and my Enlightenment!

Chapter Two: Population Causes Prosperity

Liberals Must Dump Gandhi!

May Our Tribe Increase!

On Menger’s Law… and Children

The Reverend Thomas Robert Malthus’ “Dismal Science”

Chapter Three: Why Political Markets Don’t Work

Statutory Warning! Socialist Democracy Is Very Bad For Your Health! (You’d Be Better
Off Chain Smoking!)

Chapter Four: Public Goods And State Failure

Chapter Five: The Case For Unilateral Free Trade

Weird Scenes Inside The Gold Mine: “The Wall” in Mangalore

On Scarcity… and Abundance

Chapter Six: Sound Money – 1

How Humans – And Not Governments – Invented Money

Chapter Seven: Sound Money – 2

Credit Creation And The Evil That Is Political Banking

How an important lesson was taught

Chapter Eight: Employment

Broken Windows: Anatomy Of Public Enemy #1

Caste… And The Market Economy

Chapter Nine: Poverty

Chapter Ten: Environment

Chapter Eleven: Bureaucracy And The Future Of Public Administration

Guildhalls First! Reconstructing Westminster-style Democracy

Jai Vyapari? Or Jai Jawan?

(Plus 3 great songs from the 60s – and one lesser known Floyd)

Chapter Twelve: Knowledge

Liberty First! We Don’t Need No Education!

The Book… And The Cook!

Glimpses of Real “Knowledge” Grossly Undervalued

A Man Needs A Maid

Chapter Thirteen: Public Goods – 2

How To Beat The Trap And Get Them Free

Chapter Fourteen: Morality & Secularism

Chapter Fifteen: Liberty & Equality

Freedom As The Supreme Political Value

When George Orwell Found Socialist “Equality”

Chapter Sixteen: Politics

Ten Libertarian Principles

A Prayer Before Dawn


Who is this book meant for?

This book is written for those who wish to be well-informed citizens of the world’s largest constitutional

The purpose of a constitution is to limit the powers of the government and make it function as per set
laws, so that the people are possessed of security of life, property and, most importantly, they have the
liberty to ‘pursue happiness’, as the US Constitution puts it. Indeed, the most important rights a
constitution must secure for the citizenry are Liberty and Property: the King, his officials, tax collectors,
and judges (and, of course, our fellow citizens) – none of them should be able to take away our Liberty or
our Property arbitrarily: that alone is the true purpose of The Law. The Magna Carta was originally
simply called “The Charter of Liberties” and the hapless King John, “Softsword”, as he was known, was
forced to sign on the dotted line that no taxes would be imposed ‘without the common assent of the whole
kingdom and for the common benefit’, that no one would be imprisoned or executed without the ‘legal
judgement of his peers or by the law of the land’, and that the City of London, and all other boroughs and
ports would have all their ‘ancient liberties and customs’ as well as the freedom to trade by land and sea.
From that humble beginning in 1215, which evoked basic principles of the Common Law that had just
begun evolving in England, that there eventually came about a Rule of Law Society, parliamentary
democracy of the ‘Westminster model’ and, what is more, it was this common law that went on the build
America, Canada and Australia.

Succeeding English monarchs were called upon to confirm their acceptance of the Magna Carta:
eventually it was confirmed at least 30 times before the close of the Middle Ages. Each confirmation was
an expression of the fact that the English people wished to invoke the principles of the Common Law,
which evolved out of people’s actions and the courts, under which the King would rule and they would
live: in short, the fact that, like all his subjects, the King was under The Law. Over the succeeding
centuries, even the few ‘royal prerogatives’ granted then were taken away.

The Indian constitution, however, gives unbridled powers to the government and does not even guarantee
the property rights of its citizens. Indira Gandhi could ‘nationalise’ Air India, all the banks, all the
insurance companies, the coal mines and so on simply because the Constitution of India does not protect
private property. This is ‘legal plunder’.

When you study Civics, all that you get to know are all the POWERS OVER YOU: that is, how all the
HIGH & MIGHTY OFFICES exist in The Law. There is, for example, an Article in the Constitution of
India according to which officers of the Indian Administrative Service and the Indian Police Service (and
the Indian Forest Service as well!) exist. Indians do not possess Liberty by The Law of the Land! They are
not secure in their properties either. And, judging from the fact that death lurks at every corner on the
streets and ‘highways’ of India, they are not very secure in their lives as well!

This book is written especially for young readers. Anyone around the age of 14 can understand this book,
perhaps with a little assistance. The purpose of aiming this book at the very young is to educate them
prior to their getting the right to vote.

However, this book will be useful to all citizens, be they dentists, shopkeepers or autorickshaw-wallahs:
anyone who wishes to understand how the politico-economic system works will benefit from this book. It
will be of great use to managers – who need to guide a firm’s interactions with the political world. And
teachers, who need to be conversant with the essential errors of socialism.

Why do you REALLY need to read this book?

Government-approved textbooks teach you CIVICS and INDIAN ECONOMICS. These subjects, as they
are taught today in both ICSE as well as CBSE schools, do not give you a critical understanding of
contemporary reality. They teach you what the socialist state wants you to believe.

It would benefit you if you looked at things from a different perspective: that of the free market. This is
the very opposite of state socialism. This school of thought has a very well developed critique of state
socialism, which should be of interest to all citizens.

For, above all, education must be liberal. That is, educators must teach the value of freedom. Only when
people learn why it is in their interest to be free will they value their constitutional freedoms and seek to
protect them. Freedom does not just refer to political freedom or ‘democracy’. It also refers to
ECONOMIC FREEDOM, or the freedom to earn your livelihood and keep what you earn. India is ranked
120 in the 2002 World Economic Freedom Index: “mostly unfree” is the category in which we are placed,
bare notches above the ECONOMICALLY REPRESSED. This is the most important cause of mass

A tribal in the jungles of Central India cannot eat his vote or feed it to his family; but if he has the
LIBERTY to sell the marvellous drink mahua, which is a product of his traditional knowledge, come
down to him from his ancestors, he can survive pretty well. If there was free trade, then after selling a few
gallons of mahua everyday for a few months, he could buy a second-hand Pajero. The dancing girls of
Mumbai cannot dance to earn money, but they can vote. What is more important? The vote? Or Liberty?

This book will teach you why you should be economically free and how, thereby, you yourself and the
entire country will be prosperous.

Remember: a free society rests on three pillars:

• The economic freedom of the FREE MARKET

• The political freedom of DEMOCRACY
• And LIBERAL EDUCATION: that which teaches the value of freedom.

We have, in India, just one of these pillars. 1 This book is intended to strengthen the other two.

What is so important about the knowledge in this book?

Abraham Lincoln wrote a letter to his son’s teacher in which he asked:

Teach him to listen to all men

But teach him to filter all he hears
It must be noted that the Representation of Peoples Act restricts electoral competition to socialist parties only. Liberal parties
are not allowed. This is, therefore, not a liberal democracy. It is a ‘socialist’ democracy of a very peculiar sort; and many
‘recognised’ parties like the BJP or the Shiv Sena have nothing to do with ‘socialism’. Officers of the Indian Administrative
Service have run the entire country to the ground – but are very proud of being able to conduct elections! The Chief Election
Commissioner is the only IAS officer who can lay claim to being able to do a good job! I wonder how much public money is
spent on all these elections?
On a screen of truth,
And take only the good that comes through.

This book will help your mind obtain a ‘screen of truth’ with which to ‘filter’ all the information that is
given to you – by the government. You will soon realize that much of what is taught to you as
‘knowledge’ is really nonsense.

Let us proceed to the first instance:


If you look at yourself and your friends, you will find that you have a special ability that separates you
from all other living things. It is the ability to trade. In other words, the ability to barter and exchange

This is an innate ability. Even little children who have never seen even kindergarten school, engage in
gainful trade: Give me some of your chips and take a sip of my cola. This ability to trade is a gift from
God to all human beings. No one has to be taught how to trade.

Dennis the Menace is often found running a lemonade stall with his friend, Little Joey! Without any B-
school degree, without even kindergarten in fact, the two manage to sell lemonade @ 5 cents a glass – and
make profits! On a cold and rainy night, Dennis offered Mr. Wilson a frog in exchange for a cup of hot

The ability to trade is far superior to the ability to use tools and manufacture things. Weaverbirds
manufacture excellent nests but we do not see them operating construction sites for early birds in
exchange for the worms the latter are so adept at collecting.

THE ABILITY TO TRADE MAKES US ‘ECONOMIC’. Human beings therefore have an economy. No
other creature has an economy, because no other creature has the ability to trade, although many can
actually ‘manufacture’ something or the other as, for example, weaverbirds.

We are therefore also called Homo Economicus. We are the planet’s only ‘economic’ creatures. We are,
each of us, animals specially programmed to create wealth.


A weaver bird might dine

Off caviar and wine
If he could trade his lovely nest
For gourmet food – the very best.
Alas! the little worm is his fate
For lack of just this little trait.


At what age does a human infant display the ability to trade?

Can monkeys, our closest cousins, trade? Why do monkeys steal bananas while humans pay for them?

This story dates back several years. My friends, Mr & Mrs X, had to visit Hyderabad for a few days and
asked me to mind their kids for that period. I shifted into the X residence, said goodbye to the X’s, and
inspected my temporary charges: Master X, 5; and Miss X, 2.

That afternoon, when I was curled up on the sofa with an Orwell and a beer, the little girl came up to me
and said: Kaka Aya. I understood it to imply that a certain gentleman named Kaka was at the door and
asked her to call him in. The kid looked dumbfounded at me and repeated, this time with some passion in
her voice: Kaka Aya. And again I asked her to invite Kaka in. It was when she said Kaka Aya the third
time, choking with emotion and frustration, that I got the message and hurried her into the loo and placed
her on the throne.

I was back on the sofa when Miss X shouted: Ho Gaya: It’s done. I said: Then flush and come out. But
she persisted with the Ho Gaya until it dawned on me that she was asking me to wash her up. I did the
needful and was back on the sofa when something extraordinary happened.

The very same little girl who could not perform her ablutions without foreign aid leaned over to her older
brother and said: “Bhai, give me some of your chips and I’ll give you a sip of my cola.”

I was enlightened!

I saw in a flash what Adam Smith had meant when he said that we humans are all gifted with “a natural
propensity to truck, barter and exchange”. The ability to trade is inborn: a gift from God. No one has to be
taught how to create wealth. Homo Economicus’ “natural” environment is the free market economy
where he/she can, by virtue of the ability to exchange, participate in the division of labour and create
wealth. In a flash, I saw the eternal truth in the first chapter of The Wealth of Nations. If India is poor, it
has nothing to do with population but with policies that restrict our ability to freely use our God-given
talent to create wealth for ourselves and society. We need to kill the thieving hand of the State and replace
it with the “invisible hand” of the market.

There is another observation worth making from this incident which, let me assure my reader, played a
major part in shaping my beliefs: that Homo Economicus comes equipped with a built-in moral code.
Miss X, aged only 2, believed in property rights. She understood that the chips belonged to Bhai and that
the only moral means of getting a bite was by offering something of her own in exchange. Miss X, aged 2,
was a human being. She was not a little monkey who can only snatch and steal because it cannot
exchange and hence does not require a moral code that respects property rights.

Fifty years ago, the socialists created a political and economic system that did not take note of either the
inborn talent or the inborn morality of our children. Their Constitution does not recognise property rights
and is therefore based on the immorality of thievery: what Bastiat called “legal plunder”. What else is
nationalisation? Or land reform? And their economic system places restrictions on trade at every level: we
are what Deepak Lal called a “repressed economy”, ranked 120 in the World Economic Freedom Index

We, the bhatijas of Chacha Nehru, should not allow socialism to hinder the development of our children,
who come to us equipped with Divine Faculties. Our generation’s growth – and that of our parents – were
severely stunted by socialism, and we should not allow the same fate to befall our lovely children. Very
few things are required to make India a “developed country”. Lord Bauer’s mantra is: free trade, sound
money (a freely tradeable currency of stable value) and property rights. These should be worked into a
new, liberal constitution that kicks socialism out of India and ushers in a Second Republic.

PS: Miss X is now in an elite school being taught, through state-approved textbooks, about the
“population problem”. Bhai is currently studying “the vicious circle of poverty”.


Having said that Homo Economicus is an animal programmed to create wealth, it becomes necessary to
examine the argument taught in Indian Economics that India’s huge human population is a cause of
poverty. If humans are the only species capable of creating wealth, then how can more of their numbers
cause poverty? What is the truth?

The truth is that every dot on the map, representing a city or a town, is densely populated with human
beings – and is rich. There are more millionaires, cellphones, Mitsubishi Lancers and swimming pools in
crowded Delhi than in vacant Jhoomritalaiya. Why is this so? For the answer, we must turn to Economics,
which is the study of the creation of wealth.

Because we can trade, we SPECIALISE in doing what we do best and exchange with others for the things
that they do best. Unlike animals, human beings are not self-sufficient. Instead, they tend to find
specialised niches in which to work. From these niches they produce goods and services which they
exchange in the market economy. Thus you have farmers, fishermen, goatherds, journalists, dentists,
washermen and so on. No other species specialises in this manner because they do not have our special
ability to trade – and hence no market economy to trade in. This is how wealth is created by human
beings alone, of all of God’s creatures.

Remember, when we specialize, we no longer produce for ourselves; rather, we produce for others: our
customers. The owner of a chai-shop may knock back a few cups of tea every day, but he produces
hundreds of cups for other people. He sells these to them, makes a profit over his costs, and with that
profit he gets his needs satisfied by others, like the Ganesh Beedi Company which sells him the beedis he
is so fond of. He buys rice, dal, vegetables, fish, meat, clothes, shoes, spices and so many other things
(like a little of that horrible local arrack 2 once in a while) from so many other people. All these people are
also producing for others: their customers. When we produce for others, we create a marketable surplus.
When lots and lots of people are all busy producing marketable surpluses, the markets are all full of all
kinds of goodies on offer for all of us: THAT IS WEALTH.

I don’t think anyone in any city or town produces either cotton or wool; but all of us have clothes –
because they are somebody else’s marketable surplus. We are wealthy – we have clothes – only because
of the exchange economy of the market. All other animals are naked simply because they cannot trade,
hence cannot specialize, and hence cannot produce surpluses for others of their species. They are all poor,
with no wealth whatsoever, only because they are all SELF-SUFFICIENT!

Human beings, being ‘economic’, should never be advised to be ‘self-sufficient’. Imagine your plight if
you decided to opt out of the exchange of goods and services and had to do everything yourself. Imagine
what would happen if your family became ‘self-sufficient’; and then your village, or your town. This
would mean that not only would you be compelled to grow your own food and wash your own clothes, it
would also mean that you would have to learn to build your own house and learn surgery. At no level
does self-sufficiency improve the lives of those who practice it. All it does is to divert your productive
energies from those areas which you are most competent to those where you are relatively unskilled. If it

I simply LOVE Sri Lankan arrack, which comes branded and in lovely bottles, the best ones including a velvet bag for the
bottle. This local stuff the poor people of South India drink is some complete rubbish. Another good reason for free trade.
is bad for a person, a family, a village or a town to practice self-sufficiency, surely a great nation like
India cannot gain by pursuing such a path.


A little experiment can be attempted: Go to a kindergarten class and ask the little children what they want
to be when they grow up. They will answer: actor, dancer, policeman, and so on. I’ll bet that not a single
little child will say: “I want to grow up and be self-sufficient.” If it goes against the logic of little
children, why should the entire nation practice self-sufficiency?

When we specialise in the market economy, a phenomenon occurs which economists call The Division Of



The division of labour into innumerable specialised roles is best possible in an urban area – denoted by a
dot on the map. It is extremely difficult in a rural area where there are very few people, and thus, very
little scope for being, for example, a successful dentist or even a dhobi. 4

How do we decide which specialisation to take up? Should I be a musician, doctor, engineer, or
businessman? How do human beings take this decision?

This decision is taken by each individual according to his or her own estimation of where
COMPARATIVE ADVANTAGE lies. That is, I am a very good cook, gardener and driver. But since I
have decided that my COMPARATIVE ADVATAGE lies in being a writer, I have employed a cook, a
gardener and a chauffeur. The fact is that I am a much better cook than my cook; a much better gardener
than my gardener (whom I have to constantly supervise!); and much better and safer behind the wheel
than my speed maniac of a chauffeur. I have ABSOLUTE ADVANTAGE over each of them in all three
areas. But since I have opted to write, they now possess COMPARATIVE ADVANTAGE over me in
their respective areas: they perform these jobs for me because they outcompete me, for it would cost me
far more, in terms of time lost – time that could have been spent more profitably in writing – were I to do
these jobs myself. This also shows that in a free market economy, it is not just the fittest who survive.
Everybody survives. If there is free trade, it is not just Americans who will gain. Every small African,
Asian, and Latin American will also gain. Since people and regions are differently endowed, each will
specialise in a peaceful and prosperous free global market economy and society.

While assessing his personal “comparative advantage”, it must be emphasized that VALUE IS
SUBJECTIVE. Everything is not based on “strict economic rationality”. Human beings do a zillion
diverse things, from climbing mountains to roaming the Himalayas naked and unshod (and very stoned
too!) – like our sadhus. Some women become nuns, some housewives, some hookers and some sweepers.


It will later be argued that the division of labour is accompanied by the division of knowledge.
Or washerman. The various sub-castes that exist prove that India was and is an urban civilisation. A rural world of self-
sufficient villages would not have produced sub-castes marked by the division of labour, like dhobis, mochis, toddytappers,
doms, and so on.
This is something very important to keep in mind because ONLY LIBERTY allows each and every
human being the possibility of attempting to realise whatever is his personal Utopia or Arcadia – or die
trying. As Robert Nizick put it: “The Utopian society is a society of Utopianism.” No “ideal system”,
either “political” or “economic” (like Central Planning), can replace free individual decision-making in a
free market and free society and obtain greater “happiness’ for its members. To quote the great Adam
Smith himself:

The man of system… is apt to be very wise in his own conceit 5 , and is often so enamoured with the
supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation
from any part of it…. He seems to imagine that he can arrange the different members of a great
society with as much ease as the hand arranges the different pieces upon a chessboard. He does
not consider that the pieces upon the chess-board have no other principle of motion besides that
which the hand impresses upon them; but that, in the great chess-board of human society, every
single piece has a principle of motion of its own, altogether different from that which the
legislature might choose to impress upon it.

It is sometimes alleged that Adam Smith’s “Wealth of Nations is a stupendous palace erected upon the
granite of self-interest.” As Professor Sam Fleischacker points out 6 , quoting the Nobel laureate George
Stigler as well as the above quote from Smith, that Adam Smith should be remembered more what he said
about human cognition (and its limits) than human motivation. Adam Smith was a Professor of Moral
Philosophy in an age during which it was deemed important that government take up such an education of
the common people by their “betters”. The common people were seen to be drinking too much, indulging
in frivolous spending and, of course – something that so upset the Reverend Thomas Robert Malthus that
he raised a huge alarm that is yet to subside – having too much sex!

Adam Smith thought it of the “highest impertinence” of such people to think that the common man would
head towards moral degradation and economic doom without his interference. “They are themselves
always, and without exception, the greatest spendthrifts in society. Let them look well after their own
expense, and they may safely trust private people with theirs.” Look at the budget deficits of the central
and state governments, and the losses of the PSUs – do we need The State to promote private savings?

Mark Skousen’s great new book, a history of economic thought from a libertarian perspective, The
Making of Modern Economics: The Lives and Ideas of the Great Thinkers is a delight that I recommend to
all. This simply marvellous new boon for all students of economics (and for serious laymen) has an
unusual aspect in that each thinker is introduced with a piece of classical music that best represents his
ideas. For Adam Smith Skousen recommends Aaron Copeland’s Fanfare for the Common Man. I was in
the audience when Skousen released the book in Delhi. A bust of Adam Smith graced the lectern; and he
actually played a lot of music, starting with this glorious fanfare!

[Well, there has for long been a ROCK VERSION of Fanfare for the Common Man,
by Messrs. Emerson, Lake and Palmer. Put it on real loud – the only way to hear
ROCK – and install a bust of Adam Smith in every market, in every city and town, and
even in every village haat and bazaar. Please also install alongside a bust of Peter,
Lord Bauer, for it was he who sang the same fanfare for those common people who
have been the victims of “systems” of all kinds for so long – The Common People Of
The Third World who, during the last 50 years, have had their governments,
Friedrich Hayek used the same word later to describe socialist central planners: Fatal Conceit: The Errors of Socialism.
The article is on www.econlib.org, a great online library of classic texts.
democracies and elections, bureaucracies and judiciaries and schools and colleges
and hospitals, “planning”, “healthcare”, “poverty alleviation”, “development
programmes” funded by the World Bank, and on top of that the huge United Nations
bureaucracy that has been working so hard for so long everywhere in the Third
World with tax-free dollars and Mitsubishi Pajeros – all this from the “system”, but
No Free Market! All this time, till he died in 2002, no one, save Bauer, said Natural
Liberty is what the ordinary people of the Third World need. He denied that there
was anything called a “population problem”. 7 He looked around carefully all over the
Third World, from India and Pakistan to Malaysia (in the old days) to various parts
of Africa, and detailed the beneficial effects of trade and traders, how cash crops
were a boon to all poor farmers, and the “natural propensity” of the poor in the
Third World to take sensible economic decisions with ease. He showed how every
supposedly beneficial intervention by the state, including marketing boards for cash
crops and immigration restrictions, harms the poor farmers and traders of the
Third World.]

This great discovery, that value is subjective, to each his own Utopia or Arcadia, which Adam Smith
could have easily stumbled upon, had to wait till Carl Menger a century later. In the meanwhile Marxists
propagated their “labour theory of value” to “scientifically” prove that “capitalists exploit labour” by
misappropriating the “surplus value of labour”. Such “theories” cause more harm to the organic body of
human society than even “communalism” – which the Indian Left claims to oppose strongly with its
“secularism”, which is really not even the atheism that Marx championed, but rather Devil Worship, for
they worship The State. Such “theories” tear apart the “economic body” of society by making it seem to
the working classes that economic freedom and Liberty is not something in which they can live in
harmony with those for whom they work – and they get out of the “economic body” to create “political
bodies” with something to fight for which they claim as their “rights”. They declare a “class war”. There
ensues enormous disharmony (as in West Bengal till recently) and this departure from seeking survival in
honest, industrious labour to seeking survival through political activity designed to actually “destroy
capitalism” beggars society not only economically, but also morally. Bengal in the old days bred
bhadralok. Under the Marxists it has been goonda raj: every parra in Calcutta has its mastaan.

Adam Smith was one who clearly recognised how participation in the market economy builds human
character. It is when we employ ourselves in the market as, for example, by holding on to a job, we are
not really “self-absorbed” or acting in our “selfish self-interest”; to the contrary, we have to co-operate
with many other strangers, from colleagues to customers to employers or bosses, and it this school of
practical life in the market economy – very different from the molly coddling at home or the “discipline”
in school – that both Adam Smith and Samuel Smiles after him believed to be the most important
institution that exists for the moral upliftment of Man. When Smith said that we get our lunch from “the
butcher, the baker and the brewer” – a steak, a loaf and a glass of ale – not out of their “benevolence” (it
is this quote that has always been used by those who say that the “Wealth of Nations is a stupendous
palace erected upon the granite of self-interest”) but from their “self-love”, he adds how “we address
ourselves” to seek their co-operation. That is, we do not tell them of our needs and wants; rather, we point

And the fact that Bauer was right in saying that population was not a problem has been reluctantly acknowledged by Amartya
Sen in his foreword to Bauer’s last book, From Subsistence to Exchange. As the very title suggests, Bauer thought that the
route to prosperity for the poor in the Third World lay in giving up ‘subsistence farming’, and opting for the urban exchange
economy of the global free market.
out to them how they will be of advantage in giving us what we want. In other words, we grow out of our
own “self-love” and come to appreciate the needs and wants of others, and how we can interact in
mutually beneficial ways with them: how the “other” can also gain. This is certainly not selfishness or
pure self-interest. Adam Smith called it “self-command”.

I must compliment Professor Fleischacker for pointing this out; though his notion that Adam Smith’s idea
of “public goods” would include something like “universal education” is something I will challenge in a
later chapter on public goods, as also in the one on knowledge. He is the author of On Adam Smith’s
Wealth of Nations: A Philosophical Companion (Princeton: 2004), and I look forward to reading it as
soon as I can lay my hands upon it.

While Marxists attack and even destroy the body economic with the VIOLENCE of their body politic 8 ,
ending up harming every poor worker in the long run, in reality, there is COMPLETE HARMONY in the
interests of both workers and employers in a completely free, unregulated market: The daily wage earner
is quite sure of what he will earn at the end of the day; his employer may have to wait months to receive
profits, and may even make losses. When businessmen invest in big machines in factories and
construction sites employ daily wage earners, they do not “exploit” them, nor do their machines “displace
labour”; the investments in capital actually help workers improve their productivity and thereby increase
their wages. Labour unions only benefit the select few, and they too use VIOLENCE.

When we visit a big city and gape in awe at the throngs of busy people rushing about their businesses,
what we see is only DIVISION OF LABOUR based on COMPARATIVE ADVANTAGE. Each
individual is engaged in the division of labour based on his or her own conception – a Subjective
Valuation – as to where comparative advantage lies.

Key points to note are:


(That is, liberals do not accept the ‘polylogic’ of socialism: no ‘classes’, and certainly no ‘class war’; no
‘labour’ vs. ‘capital’ scenarios.)


(That is, socialists insist there is something called ‘society’, and of course, that their ‘party’, and its
‘leader’, represent the ‘will of society’ – especially true in a democracy. Liberals reject the notion of a
monolithic society, and call for individual liberty and individual rights: the smallest minority being the
individual. How many friends do you have? Isn’t everybody else a total stranger? What is ‘society’?)


(That is, no ‘central planner’ has ‘planned’ anything about what goods will come to market, what will get
sold or bought. Each and every decision was made by separate individuals. There is no ‘mastermind’, and
certainly no need for one.)


(That is, we may make mistakes. I have myself changed professions many times before settling down to
write. Many businesses fail. But when they do so, labour and capital and land are freed up for better,

It must be noted that every Utopian idea employed by The State, and not by the free individual, is based on VIOLENCE. Mr.
Gandhi may have advocated non-violence, but prohibition in Gujarat is still enforced by The State with VIOLENCE: The
Armed Might Of The State.
profitable uses. Because I quit a sarkari job, I was free to try something else! Kanwal Rekhi, Silicon
Valley millionaire, often says that the best thing that happened to him was getting fired – for it made him
an entrepreneur!)


(that is, it is the voluntary co-operation between INDIVIDUALS in the market than enables all of
humanity to co-exist peacefully and with mutual gain in a FREE SOCIETY. The State, with democracy,
bureaucracy, politics and diplomacy claims to be THE COLLECTIVE or SOCIETY, but in reality it is
supposed to be only that part of the collective which acts against wrongdoers. In other words, it is the
Market that exists for Society, while The State exists only for the Outlaws.)


(that is, since no one is given the authority to impose his own Utopia on anyone else, each and every
Individual is free to pursue “happiness” his own way, while obeying the laws of Justice towards his
fellow-beings – and in such a scenario there will certainly be people whose ideas of “happiness” will not
be shared or even approved of by others. Drinkers will drink, smokers will smoke, and prostitutes will
prosper. In such a “Haven of Freedom”, it is Individual Responsibility that will matter. Mr. Big Brother,
The State, is not looking after you; you must look after yourself: Zara Hutt Ke, Zara Bach Ke, Yeh Hai
Bombay Meri Jaan! Further, there is no “perfect competition” either. The market is an imperfect
institution, just as humans are imperfect too. The teaching of “perfect competition model” in schools
actually distorts the student’s understanding of the market.)


It is simply because of greater division of labour that every dot on the map (representing a town or city) is
densely populated and quite rich. Wherever human beings are densely crowded, as in a city or a town,
there is greater prosperity than in any vacant countryside simply because there is greater division of

The only factor that limits the division of labour is the size of the market. For example, if you wanted to
open a Thai restaurant and you needed 100 diners a day to break even; and if one out of every 100 people
wanted Thai food on any given day, you would have to set up shop in a town where there are at least
10,000 potential customers. This is why crowded cities are rich: there is greater division of labour. This is
a universal phenomenon: Not just Delhi and Bombay, but London, Tokyo, New York and Paris are
densely populated and rich.

Cities and towns are the anthills of human colonists.

It is futile to pursue ‘development’ while cities face ruin.

The world is 50 per cent urbanised today: half the world’s population lives in towns and cities. India is
far below the world average at about 30 per cent; but the richest states of India, Gujarat and Maharashtra,
report urbanisation levels close to the world average of 50 per cent. The poorest states of India, like
Assam and Bihar, report urbanisation levels below 10 per cent.

It is important to note that the word ‘civilisation’ has its root in the Latin word civitas, which means
‘city’. The story of civilisation is the story of great cities coming up around the Mediterranean and
linking up supplying goods and services to each other: the small, safe sea providing the most efficient

means of transport through which trade could take place: ships carried much more than camels, and were
faster too.

So we see the 3T’s of Prosperity immediately: Trade, Towns and Transport.

Mohenjodaro and Harappa were great cities, linked to the Mediterranean through the port of Lothal. The
Indus was also a means of transport for these cities.

Across the world, urbanisation causes prosperity by aiding division of labour. Countries like India would
therefore be better off pursuing urbanisation as a means to prosperity instead of doing what our
government has been doing all these 50 years – spending money uselessly on ‘rural development’. A
recent Arthur Andersen-Fortune survey of cities world-wide found Indian cities to be the worst in the
world! This is not the way to become a prosperous country.

Apart from general misgovernance, one of the prime reasons for the ruination of our urban areas is the
undersupply of roads. We shall later discuss this issue in greater detail. For now, let it be understood that
there are over 400 names in the STD code-book but most of urban India (62.5 per cent by some estimates)
is focussed in a handful of huge metros, which are growing every day. Urban geographers, those who
study the geography of towns and cities, call this phenomenon primacy. Primacy occurs when the
primary city bloats up because it is not properly linked to the surrounding towns. If there had been proper
roads, (and tramways, railways and underground railways), satellite towns would have blossomed, and
each of the 400 names in the STD code-book would have become a GREAT CITY.

[There is an old Ashok Kumar song called Rail Gaadi, Rail Gaadi dating back to the
days of Black & White. In the song, many, many satellite townships of Bombay are
named, then organically linked to the main city. Railways came to India, starting with
Bombay, more than a decade before Japan had railways! The automobile was not
invented till the early 20th Century. Socialist never expanded the railways. They
never built roads. No trams or undergrounds. They made automobile ownership
almost impossible. (Even now most people ride two-wheelers.) And that is really how
they made urban property, especially in the metros, (fantastically valued properties
in absolutely lousy cities and towns!), so expensive.]

The British built many fine cities and countless ‘hill-stations’ in their time. And with so much urban
property development, getting a nice piece of urban property was within the reach of even the lower
middle classes. Everybody had a little cottage or a bungalow somewhere nice to retire in. In Poona, there
is a magnificent bungalow on Ganesh Khind Road that was built by a retired (and long expired) general.
Poona, till recently, was called a “pensioner’s paradise”. A recently retired general I met, however, has
managed for himself just a flat in a ‘complex’ of highrises not only a considerable distance from town, but
also linked to it by a really horrible road, which must be damaging his car! (Besides, during the drive he
risks his life far more than he ever did on the battle-field!)

In the last 50 years our urban areas have all been ruined. In British India, the hill-stations were all linked
to a metro: the Darjeeling-Shillong belt to Calcutta; the Poona-Mahabaleshwar belt to Bombay; the Ooty-
Coonoor belt to Madras; and the Simla-Mussoorie belt to Delhi. With such strong links to urban
metropolises, all our urban centres can become GREAT CITIES! Maybe some will even will even

Because of the under supply of roads there is urban overcrowding in India, but that does not mean the
country is ‘overpopulated’. Travel by train or plane around India and you will see vast open spaces. I
have been travelling the Konkan Coast from Mangalore to Goa, by road and by rail, and the entire area is
completely UNDERPOPULATED. Yes, the little towns, like Karwar or that horrible Gokarna, are all
overcrowded: we now know why; but just see the vast open spaces, the long, long stretches of natural
mountains untouched by man – this is a HUGE COUNTRY WITH LOTS OF SPACE FOR ALL; as they
say, Allah Has Been Bountiful!

Just stand on the beach in Karwar and look at the vast spaces available to the citizens, who are
unfortunately cramped together in an extremely ugly town built on an absolutely BEAUTIFUL spot. Or,
for that matter, look out of the window at Karwar station, which is 7 km from the town: see the open
spaces, gape at the beauty of nature, and then go and visit the ugly town. It is the headquarter of Uttar
Kannada District. An IAS officer is in charge! They are, as I said, only good at conducting elections! And
then ‘serving’ the ‘socialist’ masters they themselves have got elected! They are not ‘public servants’;
rather, they are the servants of their ministers.

India’s population density (number of people per square kilometre) is LESS than that of Japan, Germany,
Holland and Belgium. And these countries do not report urban overcrowding. The solution to urban
overcrowding lies not in birth control, but in transport connections that will allow many more towns to
come up and link up with the main city. With more urban areas – 400 Great Cities – Indians will have
sufficient living space and overcrowding will end.

Mangalore offers an excellent location for such development, because the city is already possessed of
many, many satellite towns: Moodbidri, Karkala, Manipal, and so on. This city has not yet become a
complete and total disaster like all the other metros, including the once beautiful Bangalore. It is obvious
that if excellent highways and railways and tramways were built from Mangalore to all these towns, there
would be all-round ‘development’ in the true sense, including, of course, real estate development. If this is
done RIGHT NOW, the City of Mangalore will never ever become a hell-hole like all the metros, because
population will spread out, and the main city will never, ever, get overcrowded.

Urban geographers, those who study the growth of cities and towns, predict that the Earth will be 85 per
cent urban by 2050 – living on 7 per cent of the land!



This argument therefore generates A Conflict Of Visions. Instead of seeing the future of India in terms of
thousands of self-governing and self-sufficient village republics (the Gandhi-Nehru vision), we can see
India as an urban civilisation. With 400 excellent cities, all well linked to each other by rail, road and air,
a maximum of trade can take place at the least cost. A poor transportation network makes trade slow and
expensive. A truck travels 250 km a day on Indian highways; they do more than 800 km a day in the rest
of the world!

The much-lauded Konkan Railway, for example, covers the 300 km stretch between Mangalore and Goa
in almost 6 hours – even by the ‘superfast’ Matsya Gandha. That is an average speed of a little over 50
kmph. I drove down NH 17, and it took a little longer! Suppose the government had not invested in this
19th Century technology railway, and put up a six-laned highway instead, and there was free-trade in

motor vehicles, including second-hand vehicles, would we not be able to cover the distance much, much
faster? There are no railways on the California Coast. Or the Australian coast for that matter.

It is said that ‘every great city sits like a giant spider on its transportation network’. Not a single Indian
city is GREAT only because the socialist planners ignored all the 3T’s of Prosperity:

• They did not allow us to TRADE

• They destroyed all the TOWNS (and cities), while pretending to ‘develop’ village India
• They destroyed the entire TRANSPORTATION SYSTEM – the slowest ports, the worst airports,
the most horrible roads, the impossibility of automobile ownership, the slowest trains, and the
most expensive civil aviation in the world!

As we saw with the birth of civilisation around the Mediterranean, transport and trade go together. The
economics of trade is very simple: buy where the commodity is abundant and cheap; and sell where the
same commodity is scarce and dear. There is no point buying apples in Kullu in the season (when they are
cheap) and trying to sell them in the market in Kullu itself, is there? If you desire a profit, you must
TRANSPORT the apples to a place like Bombay, where apples do not grow, and where they will
therefore be prized, and you will make a fat profit. India’s horrible transport system is a curse for all
traders, and all trades. With poor transport, the PRODUCTIVITY of every Indian is lowered. That is,
given the limited time of a working day – and time is also a ‘factor of production’ – we could produce
much more output (and hence increase our earnings), but we waste most of our time only because our
means of transport are so INEFFICIENT.

The economics of TIME is also simple: If one person keeps 60 people waiting for one minute, he has
wasted one man hour. So calculate the millions and millions of man hours wasted in India because of poor

Socialists claim to represent labour; they actually waste labour.



(A Bania can buy from a Jew and sell to a Scot and still emerge with a profit!)



It makes mothers and fathers ashamed of producing children. It makes children feel that they are not a
resource; rather, they are a problem. It makes cynics look at traffic accident statistics and say that our
unsafe roads are a means of solving ‘the population problem’.

Human beings are the world’s ultimate resource – because they all possess the human mind. You are
trying to pour knowledge into that mind. Please make sure that what you feed your mind is the truth. A
false philosophy will deaden your mind. It will not make you see that, with your mind, and your innate
ability to trade, you can generate wealth by doing what you do best in a free market economy. Instead, it
will train you to look upon yourself and your brethren as a huge problem that requires political action to
solve. To understand why political interference in the market economy is very harmful to us and our
country, let us now turn our attention to the political market.

I’m off to Bombay

Where my fortune awaits
I know jobs a-plenty are there –
I’ll be a watchman, a waiter, cop
Or film star – if ever I dare!

I’m off to Bombay

A place millions live
And where dreams a million come true.
My village is poor and has nothing to give
So what else is there to do?


Look around your town and try and find unusual instances of the division of labour. Think whether
that particular activity could be carried out profitably in a sparsely populated village. For example: An
Institute for Ear Diseases.

Try and find some poor people who make a living in the city by participating in the division of labour
(for example: a dhobi). Think whether that man would be better off in a village. Ask him too!

Per capita income is calculated by dividing the TOTAL WEALTH (or Gross Domestic Product) by
the TOTAL POPULATION (of human beings). Now, calculate what happens to the per capita income
when, a) a litter of 10 Alsatian pups is born; and b) when you and your spouse are blessed with


Adam Smith, in 1776, in the very first chapter of The Wealth of Nations, outlined how wealth is
created by human beings: through the division of labour, or specialisation. A very good example
of the division of labour is this author. What do I do for a living? I write 400 words a day – the
length of an Economic Times editorial. I enter the office at 1130 hrs, which is not too early; we
hold a meeting till 1300 hrs. Then I break for a smoke and a think. It takes me 30 minutes to write
an editorial – and on a hot summer’s day, when the world is sweating it out earning money, I am
home by 1430 hrs. I switch on the AC and am fast asleep by 1500 hrs. Although this is all the
work I do, I have a house, a car, television, food, booze, smoke and what not. I do not produce
any of these things myself. I, on my part, write just 400 words a day. With that I get money – a
medium of exchange. I exchange this money in the free market for what others produce. This is
what the exchange economy is all about, powered by the division of labour. This makes wealth
generation possible.

Note that the division of labour is the very antithesis of ‘self-sufficiency’. If I give up my
specialised vocation and attempt to produce all my needs myself, I would be much poorer and
would also lose all my leisure.

Having understood this, let us see how this principle would operate if I was the patriarch of a very
large family. Suppose I had 40 wives and 100 children and I, as the patriarch, decided that my
family would be ‘self-sufficient’. After all, we are so many, we surely do not need to pay our
good money to outsiders!

So I farm out activities to each of my wives and children. I say, “You, my good son Sunta, you
make shoes for everyone; and you, my good son Bunta, you stitch everyone’s clothes. You, my
daughter Dimple, you spin cloth for the clan; and you, my daughter Simple, you look after the
fish pond…” and so on.

In effect, I, as patriarch, would be telling my very large (and very obedient!) family that they
should never go to Connaught Place, Brigade Road, Crawford Market, Chandni Chowk or
Orchard Street. Never go to the market would be the motto of my self-sufficient family. Produce
for each other and never exchange and integrate with the large market economy outside. What
would be the result?

Actually, my family would be the poorest family in the world. And I, as patriarch, would soon get
overthrown. It is this that has to be done to Mohandas Karamchand Gandhi who, as Father of the
Nation, dreamt of an India of ‘self-sufficient villages’. Simple Economics says that self-
sufficiency is economic suicide. Simple Economics also says that the division of labour is
maximised in cities and towns: you cannot be a taxi driver, plumber, electrician, or Thai chef in a
remote, sparsely populated village. The future of India lies in 400-500 free trading cities and
towns – all the strange names in the STD codebook should become little Singapores, Hong Kongs
and Dubais. The Gandhian vision must be dumped.

[If in doubt, consider my good son Sunta, who was employed in making shoes
for my large family. After I am overthrown as patriarch – all my 40 wives
divorce me, and all my 100 children disown me – Sunta rushes to Hampankatta,
and gets a job in the Reebok shop. Is he better off or worse off? Of course
he is better off, for now he is part of the INTERNATIONAL DIVISION OF
LABOUR. Till then, he was engaged in the division of labour, yes, but on a very
small scale, in a very small “market”, if you can call it that.]

I am writing this in a particular context. I heard a talk on liberalism by Babu Joseph (who heads
the Kerala Chapter of the Indian Liberal Group). He laced his talk with innumerable Gandhian
quotations. I also attended a presentation by Jayaprakash Narayan of Lok Satta. This liberal too
had many quotes from Gandhi to buttress his views. I asked Babu whether liberals need to refer to
Gandhi who, after all, is responsible for prohibition, liquor deaths, liquor mafia, khadi (Indian
Luddism) and the village vision. Babu said we should ‘use’ him if we could. I disagree.

For one, the greatest enemy of liberalism in India is the Congress, whose ‘core ideology’ is what
liberals must demolish. Gandhianism is essential to this core. Second, we have our own heroes of
that era. A book entitled Profiles in Courage: Dissent on Indian Socialism has just been published
by The Centre for Civil Society. I think Rajaji, Masani, Piloo Mody, Shenoy – these great men of
Swatantra should be our heroes, not a corny Congressman. We do not need a Father of the Nation.
At best, the free India of the future, comprising 400-500 free trading and self-governing cities,
will need many City Fathers. We have no City Fathers today, and all our cities are in ruin. The
state keeps pursuing ‘rural development’ guided by the false Gandhian vision.

The trouble with Gandhi is that, if you leave behind you a large volume of sufficiently ambiguous
work, anyone can rummage through it and find some quotes to justify himself. A socialist, a
liberal, a communist – all can find quotes from Gandhi to justify their positions. If you go into the
archives of The Economic Times, you will find that on a Gandhi Jayanti many years ago, I too had
contributed an article entitled ‘The Forgotten Gandhi’ in which I had compiled many quotes from
Gandhi to justify liberalism. This, we should now avoid. The patriarch has failed his family. It is
time to dump him.


This is a tale of two cities. Procreatia was a happy kingdom where the ruling philosophy was
Dharma, Artha, Kama, Moksha. The words shubh laabh were inscribed on every wall and the
people were materially as well as sexually happy. They sang Aum Mani Padme Hun: The Jewel is
in the Divine Coitus. The birth of every child was an occasion of great celebration because the
Procreatians believed that God had blessed their people by whispering into the ear of their first
chief: May your tribe increase. Since they kept on procreating, their tribe sure enough increased.
This caused a problem.

Procreatia became a very crowded place. There was no place to walk, there were so many people.
The Council of Elders met and petitioned King Mahalingam to take drastic action or there would
soon be only standing room left in their fair city.

King Mahalingam was a wise man. He said that there was abundant space on Planet Earth and all
that needed to be done was to build some more cities for his people. He ordered the construction
of a wide road to a green valley 100 km from Procreatia and encouraged his people to shift there
and build another city. This they happily did, and called it Reproductia. In this way, many, many
new cities came up.

The Procreatians gave rise to a great civilisation that was rich and happy and where every child
was welcomed into the world and well looked after. With greater economic activity, women
began to work outside the house and they decided that they must control their own fertility.
Inventors came up with many ingenious devices and these were always in great demand. They
had fewer children now, but they looked after them better. They believed that their children were
their greatest wealth.

Things did not come to such a happy conclusion in neighbouring Fertilia. Here, when faced with
the problem of the city overcrowding, the King Bozo took a drastically different course of action.
He called in his top officials and ordered them to frame measures that would discourage the
people from having children. These children are a problem, he said. We must stop children
coming into this earth and crowding up the place. There isn’t enough room. How will we feed

The officials of the Bozo Administrative Service were a wicked lot, interested only in budgetary
grants for their bureaus. They saw in the King’s command a license to raid the treasury. King
Bozo had never read The Arthashastra’s warning about officials: that they were like fish
swimming in a pond, and it was impossible to estimate how much water the fish consumed. The
officials of the Bozo Administrative Service opened innumerable departments and launched a
wide variety of programmes to carry out their King’s wishes. The propaganda ministry soon made
every Fertilian look with disgust at every new-born child. The health ministry spent a fortune
equipping every Fertilian with birth control devices. The police were instructed to clear away all
sexually stimulating books and art. Cabarets were banned. A great temple built millennia ago to
celebrate the joy of the sexual union was pulled down. In this way, Fertilia became a very

unhappy place. But it remained crowded. The King had spent all the money in his treasury trying
to stop children getting born, and so he had no money left to construct wide roads into the
surrounds that would enable the city to decongest. The city was soon bursting at the seams; and it
was getting poorer. With mass poverty, their children were born into a miserable life. The
civilisation soon collapsed. It lies in ruins now, and Procreatian archaeologists are busy
reconstructing the great temple celebrating the sexual union.

If we look around at the world around us, there are many countries which followed the wise
example of the Procreatians under King Mahalingam: Japan, Belgium, Holland and Germany
have higher population density than India but suffer no overcrowding. I recently took a morning
flight from Geneva to Amsterdam. I looked down at a fantastic spread of population. When we fly
Delhi-Bombay we look down only at open spaces.

The truth is that this is a vast country. We need to spread out. We need roads, not condoms. And
may our tribe increase!


My friend Sunondo has four children. I asked him which one he loved the most and he said the
youngest one. Now, this is contrary to Carl Menger's Law Of Diminishing Marginal Utility,
which holds that the more we have of anything, the less we love it. So, if it was cake you were
consuming, the first slice would be heaven; but by the fourth you would be sick and want to
throw the rest of the cake into the bin. How come Carl Menger's Law - and Law it is - applies to
cake and to everything else we have, but not children?

I ask this question in a particular context: that of the so-called 'population problem' which has had
a host of Third World governments, including mine in India, taking out stringent policies in order
to limit the number of children people can have. Recently, in India, many states have debarred
candidates with more than two children from contesting local elections. If every succeeding child
gives us more pleasure, what sense does it make to penalize fertility?

In China, they enforced the 'one-child norm' because of which, after a few generations, there were
millions of Chinese with no brothers, no sisters, no aunts, no uncles, no cousins, two parents and
four grandparents. What is better for a child? A large family? Or a Strong State?

At the time he was writing. The Reverend Thomas Robert Malthus had many eminent classical
liberal economists opposing his predictions of doom. Jean Baptiste Say and Frederic Bastiat both
wrote tellingly on the mistake Malthus was making: assuming technology to be constant. In
modern times, Lord Bauer was a prominent critic of the 'population problem' and, after him,
Julian Simon proved convincingly that human beings are not a problem, but the world's 'ultimate
resource'. The planet Earth is bountiful. There will always be an abundance of resources,
including energy, so long as we allow human beings the freedom to utilise the Earth's bounty and
serve the needs of mankind through the free market and the price mechanism. However, Third
World governments and the United Nations are still on the side of Reverend Malthus. The Indian
parliament, in a unanimous resolution passed on the 50th year of independence, asserted that
population was India's biggest problem. That is, the representatives of the people were united in
saying that their constituents and their children were a problem! The average age of Indian
parliament is 68; the average life expectancy in India is 62 - which means we Indians are ruled by
dead people! And these dead people are saying that children are a problem!

And as for the United Nations: recently a little baby girl named Aastha was born and promptly
billed as India's billionth citizen. The United Nations Fund for Population Activities
representative in New Delhi said, in a press statement: “This is not an occasion to celebrate.”
What should we celebrate instead? The fact that tens of thousands die on our unsafe streets every

Hooray! We’re dying!

Boo! Hoo! A baby is born!

India is a hugely young country. 96 per cent of the people are below the age of 59; 74 per cent are
below the age of 39; and 34 per cent are below the age of 15. This young country is ruled by aged
rulers who believe that our babies should not have been born. What could be worse than that?
And, as far as the UN is concerned: What is its 'knowledge'?

Third World governments like those of China and India which endorse the population problem
and coerce citizens into having less children should be disgraced. As should the UN. Every
couple in the world should be free to decide how many children they can have. And every child
should be welcomed into the world. Every birth should be celebrated and every death mourned.

And it is not just additional children that give us pleasure: this pleasure is multiplied when we
have more and more grandchildren. Carl Menger may have been the Emperor of Economics, but
his Law certainly overlooked the issue of reproduction. So let us have more and more children; let
every child give us increasing marginal utility; let us have more and more grandchildren too,
where marginal utility is even higher, and let us bury the ghost of the Reverend Thomas Robert
Malthus who was, after all, a priest who disapproved of poor English people having, according to
him, simply too much sex. When he finally married, late in life, most of his friends deserted him!
He was, it is reported, “happily married”, fathering 3 children, the first of whom was born 8
months after his wedding, and hence raised many Victorian eyebrows.


The Reverend Thomas Robert Malthus used mathematics to “prove” his argument that population was a problem.
He said that food grows in “arithmetic progression” while population grows in “geometric progression”. What do
these terms mean?

An arithmetic progression @ 2 is: 1, 3, 5, 7, 9, 11, 13…

A geometric progression @ 2 is: 1, 2, 4, 8, 16, 32, 64…

To appreciate Malthus’ mistake, let us undertake a thought experiment. Take on the one hand 100 seeds of wheat,
and on the other, 50 young, married couples. If we plant the 100 seeds of wheat, how many more grains of wheat
will we have? Millions? And from the 50 married couples, how many children will be born? A little over 50 at the

Instead of 100 seeds of wheat we could take 90 hens and 10 roosters. We could take 90 goats and 10 rams. In each
and every case we will find that food grows faster than humans. Fruits and vegetables also multiply faster than
humans do.

Indeed, humans are one of the SLOWEST species in the world when it comes to reproduction. A human baby
spends 9 months in the womb, and very rarely do we have multiple births (like twins and triplets). Wheat, rice,
chickens, goats… all reproduce faster than we do. Humans reach puberty very late as well. Marriage in the modern
world comes long after puberty. In an earlier age, my grandmother was married at the age of 13, and she had her
first child at 14. Such early marriages are rare today. When my grandmother died, 9 children (out of 11) survived
her. Such fecundity is equally rare today.

Do read the chapter on Malthus in Mark Skousen’s book. Malthus was “the most abused man of his age”. He
argued AGAINST aid to the poor – as it would enable them to rear more children. It is after reading Malthus that
Carlyle dubbed Economics “the dismal science”. Where Adam Smith foresaw “universal opulence”, Malthus
predicted doom.

William Cobbett exclaimed: “How can Malthus and his nasty and silly disciples, how can those who wish to
abolish the Poor Rates, to prevent the poor from marrying; how can this once stupid and conceited tribe look the
labouring man in the face, while they call upon him to take up arms, to risk his life in defence of the land?”

It is high time Malthus’ ideas were buried. Also, with Malthus, let us bury the interference of mathematics with

Malthus was a good friend of Ricardo, who was a good friend of James Mill (father of John Stuart Mill). Ricardo’s
“Iron Law of Wages” was based on Malthusian logic. According to this “law”, wages would always remain at
“subsistence level”, for if they rose above that workers would have more children, driving wages down yet again.
Capitalist profit would also fall in the long run, because of “diminishing returns” on capital. Similarly, more land
for agriculture would imply the cultivation of less fertile lands (not “high yielding varieties” of seeds or GM crops)
bringing down agricultural productivity and causing famines. These ideas paved the way for Karl Marx, and led to
the burial of Adam Smith’s optimistic outlook of “universal opulence” under “natural liberty”. With Malthus,
Ricardo and Marx, capitalism and humanity were both doomed.

Through his connections with James Mill (who worked for the East India Company) and Ricardo, Malthus was
appointed professor of Economics at Haileybury College (where Indian Civil Service officers would later be
trained). This is probably the route through which Malthusian ideas began to occupy such a high ground in India,
especially among the elite.


Suppose you went to your town’s main market. You would find plenty of shops selling all kinds of things,
and many vendors of food. But you would have only a limited amount of money in your pocket. You
cannot buy everything on offer. Because resources are limited and wants are not, you would have to make
choices. You would have to decide whether you would prefer to spend on a bar of chocolate and forego a
milkshake or the other way around.

The central problem of Economics is Choice.

There are limited resources and unlimited wants, and so we must make choices as to how to spend these

[The freedom to choose is also the most important freedom we possess in a free
market; with protectionism and trade restrictions, we lose much of this important
freedom, and are ‘forced’ to spend our hard-earned money on goods we would
otherwise have rejected (if we had the free choice) – like Bajaj autorickshaws or
Old Monk rum or Wills Navy Cut. Do read Milton Friedman’s great book Free to
Choose, also available as a documentary.]

There are two kinds of choices we make: private choice and public choice.

Private choices are made in the private market and the main players in this market are consumers and
suppliers. This is how we buy our food, clothes, toys, music, and books.

Public choices refer to those made in the POLITICAL MARKET and the main players in this market are
our roads, our garbage clearance, our police and national defense. Remember, even in the political market,
resources are limited. If we spend more on defense we have less for education. PUBLIC CHOICE
THEORY is that branch of Economics that looks into how choices are made in the political market (in a
liberal, democratic setting).

In the private market, consumers spend their money and choose between various options. Because they
are directly affected by each choice they make – and they suffer if they make wrong choices – they take
great care to seek out information and to correct past mistakes. If you had to make an important purchase
of a consumer durable like a television, refrigerator or car, you would ask people you know about their
experiences with various makes, read product reviews, compare features mentioned in advertisements and
so on before making your purchase. You would spend your own hard-earned money very, very carefully.
Thus, in the private market, money is usually well spent. If most spending decisions were to take place
through the private market, most of society’s money would be well spent.

In the Political Market, there are certain reasons why money is not well spent, even in the best of
democracies, with the best personnel serving the State:

• Politicians are primarily interested in re-election. They will spend a lot of public money in ways
that ensure them votes. The 2 rupee per kg rice scheme in Andhra Pradesh is a good example. As
is free water and free power to farmers. The huge advertisements that inevitably appear each and
every day in the papers featuring politicians are paid for by taxpayers. Such spending cannot
possibly be in the public interest. But such spending occurs simply because politicians are more
interested in getting re-elected than they are in the public interest!

• Bureaucrats are primarily interested in Budgets. They will always attempt to ensure that their
departments get more money from the tax kitty. The Budget Deficit – which shows how much the
government spends ABOVE what it extorts in tax revenue – is not going down because
bureaucratic departments at all levels want to go on spending more money.

• Special interest groups and voters are both interested in free lunches: some gain for themselves at
a cost to others. They will look for ways that public money is spent on them – they get something
free – while the costs are borne by other taxpayers who are not politically organized. A good
example is the high import duties that protect India’s industrialists. They are few, vocal and
organized; the consumers are many, but unorganized, and they pay the duties.

It is also important to note that political spending is not directed towards the majority. It is directed
towards small and vocal minorities who are all well organized politically. The politician directs spending
in favor of these minorities, and the majority pays. A good example is agricultural subsidies in the US,
which go to 2 per cent of the population who are farmers, but the costs are borne by 98 per cent of the
people, who are unorganized. Another example is the high import duties on steel imposed in the USA
recently: it benefits a few uncompetitive American steel producers, but millions of American steel
consumers pay.

It is best to examine the difference between the way money is spent in political and private markets thus:


There are four ways of spending money:

• You can spend your own money on yourself

• You can spend your own money on others – buy gifts
• You can spend others people’s money on yourself – buy things on the ‘company account’
• You can spend other people’s money on other people: political spending (or central economic

Milton Friedman, Nobel Laureate in Economics, is one of those three great economists who, in the 1950s, said that India was
headed for disaster. The others are BR Shenoy, whom Lord Bauer called ‘hero and saint’, a Konkani, who had the courage of
conviction to pen a Note of Dissent to the Second Five Year Plan, the plan with which Nehru began ‘heavy industrialisation’
by setting up a host of steel factories. Shenoy paid for this by being hounded out of academia, and died in obscurity. The third
was Peter, Lord Bauer whose dissent on the Second Plan was even published by Popular Prakashan, Bombay, in the 1960s, but
never prescribed in Delhi University ever. Not surprisingly, because in the last chapter Bauer uses long quotes from the then
Vice-Chancellor of Delhi University, the then Director of the Delhi School of Economics, and some other “eminent”
economists of that age, to point out how their ideas will lead India to TOTALITARIANISM! Deepak Lal – Doon School, St.
Stephen’s College and the Indian Foreign Service – actually served on the Planning Commission, estimating ‘shadow prices’,
before it dawned on him that economic planning cannot work. He converted, and became a staunch advocate of free markets.
It follows that maximum reliance on people spending their own money is good for society, in that most of
society’s money is well spent. On the other hand, maximum reliance on the state as a means of spending
money – economic planning – is bad, because most of the money is not well spent.

Economic planning is some people spending other people's money on other people. This is a sure way
of spending money badly.

Private spending is better than political spending because of the 3I’s: Interest, Incentive and Information.
Consumers have the interest, incentive and information to spend money wisely. The political market
players do not. Indeed, they have an incentive to spend money unwisely!

Free power
Free water
Guess who pays for it.
Free lunches
Free schools
Make politicians a hit.
With money they don’t earn.
Free people
Free India
From those who will not learn.


What are the incentives for a voter to seek out all relevant information before casting his vote?

Are these incentives adequate? That is: Does it make sense for every voter to thoroughly check out
each candidate, each manifesto and so on? Do most voters do this?

If not, how much reliance should be placed on government, even if democratically elected?



(You’d be better off chain smoking!)

Both sides gain in trade. This is easily observable when we, say, buy a book. We say 'Thank
You' to the shopkeeper when he hands over the book; and he too says 'Thank You' when he
receives the money. The very fact that both parties thank each other shows both gained. Trade
is thus a 'positive sum game': win-win. It is the basis of wealth creation. When we buy a book we
add to our property and we contribute to the earnings of a long line of people ranging from the
shopkeeper to the printer to the publisher to finally the author. There are no losers in trade.

Contrast this with democratic politics. Since the state does not create wealth - it only taxes and
spends - democratic politics is always a 'zero sum game': some gain; others lose. It is also
usually the case that the gainers are small, organised, vocal groups - like, say, the US steel
lobby; while the losers are the large, unorganised masses. Thus, politics is usually a 'negative
sum game': there are a few gainers, but the majority loses. With trade, everyone gains; with
politics, most people lose!

Now, democrats always claim to represent the majority, so let us look at the issue of majority
representation more closely. If there is 60 per cent voter turnout and four parties share the vote
equally, the winner is the chap who gets 15.1 per cent of the total vote! Even when Rajiv Gandhi
won his landslide victory, the Congress barely received 40 per cent of the vote.

Now look at markets: In the market, there is complete and total unanimity. Since no one used
force, both sides of every deal agreed to it. In a free market, not a single buyer or seller can
complain that the decision to buy or sell was one with which he was not in complete agreement.
In politics, we see millions unhappy with decisions taken.

In the market, each decision we take is in complete sovereignty. We are always free to pick and
choose between various players. I buy a toothpaste of Brand X, a toothbrush of Brand Y and
soap of Brand Z and equip my bathroom. None of these firms can force me to take all three of
the same brand. Now contrast this with politics: In politics, we get a 'package deal'. We may like
one party's stand on religion, but its economics may appall us. We like another party's
economics, but its position on war may be frightening. We cannot pick and choose as we can in
the market.

This is because, in the market, there is 'continuous competition': every time we visit the market,
the vendors fight for our custom. In democratic politics, however, the competition is only
periodic. Once every five years we get the vote. Once we have voted, we are saddled with that
party, for better or for worse. We may have liked something about the party at election time, but
then we may be woefully unhappy with what that party does thereafter.

Finally, it must be understood that voters in a democracy do not vote with the same amount of
care and attention that they pay to market transactions. When I go to buy a television set, I
make sure I get a good one because if I do not I will directly suffer. I check out various makes
and prices, read reviews, consult friends and so on before making my purchase. When I go to
vote I do not have the incentive to take the same pains, go through every manifesto, hear all the
candidates' spiel, check their criminal records etc. Voters display what is called 'rational
ignorance': they find it rational not to know about politics. Informed voting is a 'public good'.
Smart editors have found this out and now politics no longer monopolises the front page: The
Times of India is an excellent example of this. Voters may also display 'rational absence' and
stay away from voting because they know that their one silly vote is not going to affect anything.
I have never voted in my life.

The lesson to learn is that we Indians must use democracy much less and give full room to
markets. For example: Why do we need railways from democracy? Or beershops, as in socialist
Delhi, where every liquor-shop is run by the government? Democratically elected politicians and
their democratic state should both be cut down to size. The principle of 'subsidiarity' should be
invoked and cities and towns given full freedom to conduct their own affairs. In such a scenario
the state will be but a common police force, controlled at the local level. The government of
India will be but an association of free trading cities and towns and it will look after only those
issues that the towns cannot look after themselves - like national defence. My ideal is
Switzerland. The Swiss flag is surrounded by the flags of its 26 cantons. And Swiss citizens are
proud to say that they do not know the name of their president! There is free trade, sound
money, property rights, rule of law, good policing and excellent roads. They are prosperous,
peaceful, heterogeneous, landlocked, mountainous country. If we apply their principles, we can
be far richer.

[I attended the Geneva Motor Show, 2000; the most important motor show in
Europe. The Swiss don’t make cars! They don’t make motorcycles either. They make
chocolates, watches, cheese; they have huge tourism earnings; they operate banks.
During my conducted tour of the city I passed the headquarters of the World
Trade Organization; I also passed through the ancient, well preserved market
square in the old town, where I learnt that Geneva had always been an important
market town, even in Roman times, when Julius Caesar conquered it. I also saw an
ancient cannon, bearing the City of Geneva’s own coat-of-arms. One prominent
statue in Geneva is of the founder of the International Red Cross: which means that
the Swiss are happy to encourage trade, but if you are stupid and go to war instead,
they will be quite happy to bandage you up if you survive! Free trade is their motto:
at the grand Davidoff tobacconist’s shop in Geneva, I found Mangalore Ganesh
beedis selling for 2Fr 30 a bundle. I didn’t buy them, of course; but I bought
Turkish cigarettes, Indonesian clove flavoured cigarettes and some Egyptian
cigarettes as well. Free trade means excellent shops – a must for any country
wanting to keep tourists happy. There is almost no “politics” in Switzerland, with its
unique “consociational” direct democracy. Have you ever heard of Swiss elections?
Or any Swiss political party? I inquired as to who the main street was named after,
and was told that he was a very good city magistrate long, long ago!]

"Democracy," Winston Churchill said, "is the worst form of government - except for all the
others." The point is, democracy or no democracy, it is still the government. It is still The State. It
should be restricted to its proper role, and confined to that role by law, so that citizens are
secure and free. We Indians made a horrible mistake when we installed this socialist democracy
at the commanding heights. We must now fight to liberate ourselves from this democratic state.
A second freedom struggle awaits.
Or look at it like this: You could be a citizen of East Germany, the socialist German Democratic
Republic, without a free market but with the vote, or you could be a citizen of British Hong Kong,
with the free market but without the vote – which would you choose, and why?


In classical economic theory that stressed the role of the free market and entrepreneurship, there was a
recognition of the fact that there are some things that businessmen will not be able to supply, and so it was
deemed necessary to provide these from the collective kitty: the tax revenues of the state. Those things
that the private market will not step in to supply are today called Public Goods.

As Adam Smith put it in The Wealth of Nations, Book IV, Chapter IX, published 1776:

“According to the SYSTEM OF NATURAL LIBERTY, the sovereign has only

three DUTIES to attend to:
• the duty of PROTECTING the society from the violence and invasion of
other independent societies;
• secondly, the duty of PROTECTING, so far as possible, EVERY member
of the society from the INJUSTICE and oppression of EVERY other
member of it, or the duty of establishing an EXACT administration of
• and thirdly, the duty of erecting and maintaining certain PUBLIC
WORKS and PUBLIC INSTITUTIONS, which it can never be for the
interest of any individual, or small number of individuals, to erect and

The technical term ‘public goods’ came long after Adam Smith, but this is how the Master put it, in his
own words. Note: Adam Smith, and people of his time, never ever considered education or healthcare
(which, as you will discover, are not ‘public goods’ at all) to be among ‘the duties of the Sovereign’.

It may be useful to pause for a moment to take a re-look at some of the words Adam Smith used:

• When he says ‘system of natural liberty’ he means living under the Common Law: ‘natural
justice’ is a technical term lawyers use for living under the Common Law, which is all that his
EXACT administration of JUSTICE refers to. 10

• He uses the word DUTIES, when he says that these are all the sovereign MUST do. (But, in
the Constitution of India, there is a chapter on the Fundamental Duties of the Citizen! Ha! Ha!)

• The word PROTECTING occurs twice, indicating that we have a sovereign state and The Law
for just this one reason: to PROTECT our lives and our properties better. Of course they are
worried about the US selling arms to Pakistan, but we are all dying on the streets on our 100cc
motorcycles! Are our lives and properties PROTECTED in socialist India? Remember, the
Constitution of India does not recognize property rights!

• The word EVERY also occurs twice, and indicates a concern for INDIVIDUAL RIGHTS and

• When Adam Smith refers to PUBLIC INSTITUTIONS, it should not be mistaken to imply that
when the Common Law began its long evolution, these courts were something that the King of
To know more about Common Law, see the companion volume, “Free Your Life: A Citizen’s Guide to Justice & the Law”,.
England had set up with either public or his own money. For long, royal justices were unpaid.
But the courts collected huge amounts as court fees!

• Thus, Adam Smith said that the sovereign has ‘the DUTY of erecting and maintaining certain
PUBLIC WORKS’. Roads are the best example. Is our sovereign socialist state performing
any of its DUTIES?

Professor Fleischacker, while noting what he thought Adam Smith felt would be “public goods”, gives the
completely disastrous example of “universal education”. Education is easily available in the free market,
with a wide variety of options, including even learning a phoney American accent to work in a call centre.
There are hundreds and more “edupreneurs” in Mangalore, Manipal and the surrounds. Government-
sponsored education worldwide is harmful to the mind. The added fact is that in the market economy, the
division of labour is accompanied by the division of knowledge. The knowledge of the VJ, the fashion
model, the Udipi cook and the head waiter at a restaurant are all different: they all have to learn different
things, often on the job, informally. There is nothing that can or should be universally taught: this is,
something as dangerous as the chosen few instructing the whole of humanity. The 3R’s can be learnt on
computers at home, through competing private software programmes. And the choice of language will
remain with the parent – and hopefully this will be exercised with some consideration for the child’s
aptitudes and opinions. The choice of curriculum will remain with parents and children too, and some
may drop maths or history. This issue will be further explored in the chapter on knowledge.

Getting back to the subject: A public good is one that cannot be bought and sold because its services are
available free to all those who want to use it. Examples are a public park or a public road. Everyone will
build a house for himself, but no one will individually build a road in front linking all the houses – unless
he can charge every road user. This is usually unfeasible.

Lighthouses were erroneously 11 listed as public goods in Economics textbooks, which the state must
supply because a private businessman will not build one since he cannot charge ships which see the light.
The same can be said of streetlights in our cities.

It makes sense to spend tax money on public goods because then we could increase the sum total of our
consumption. We all live in homes with all the possessions that we afford ourselves: private goods. If we
could have more public goods – broad streets of good quality; vast, and clean open market yards where
hawkers and vendors could ply their trades; and more public parks where we could roam and play and
breathe clean air – we would be better off.

It is therefore necessary to question the spending of public money on private goods like cars, steel, hotels,
and so on. These are private goods because they can be produced by private businessmen. We do not
need to spend the limited amount of tax revenue that we have on building hotels and steel plants. The
socialists have invested public money in the largely loss-making public enterprise sector. They make cars
but not roads.

India suffers from under-supply of roads: a public good. As already discussed, this has caused "primacy"
and the mal-development of our urban areas. We now proceed to discuss the "rationality" of our socialist
government that is supposedly "planning" the economy. Every Prime Minister of India is the Chairman
of the Planning Commission. What is his "rationality"?

Lighthouses in England were and are built and maintained by a private body, Trinity House, which charges fees and consults
shippers about placing navigational aids. When lighthouses were first built, the builders simply charged fees to those ships
entering the nearest port.

In Economics it is assumed that all human beings are "rational". 12 This means that they prefer gains to
losses and that they rationally pursue gains and avoid losses. Of course, this does not mean that they
always get it right. All of us make mistakes. It is better to look upon human action as ‘purposeful’ rather
than strictly rational, because strict rationality implies that we always get it right. (See Footnote for more.)

In Political Science, for the most part, it is wrongly assumed that all political society actors – politicians
and bureaucrats – are pursuing the public interest selflessly.

Political Economy, or Public Choice Theory, takes Economics into Political Science. In Economics we
assume that all players in the market are "rational" and pursue their self-interest purposefully. What
happens if we carry this assumption forward into Political Science and assume that political market
players are also self-interested? The results show that: politicians pursue re-election; bureaucrats pursue
budget-maximization and voters and special interest groups pursue free lunches. This is not to suggest
that they are corrupt. Public Choice Theory just assumes that they will act in their self-interest and
thereafter tries to assess what predictions can be drawn. If these predictions of human behavior in the
political market are proved right, the theory is valid. This is also not to suggest that human beings should
be selfish always: this is an assumption and not a prescription.

Our planned economy would be "rational" if it pursued policies that gained it maximum revenue. Does
our collective invest public money in a manner that maximizes revenue? In other words: Does our Prime
Minister invest our money such that he keeps earning more and more through taxation?

It is worth remembering that Sher Shah Suri – an Afghan soldier who conquered India with the sword –
ruled with the intention of raking in the highest tax revenue possible. He thus built roads and serais – the
Grand Trunk Road was built by him – for the simple reason that this would encourage trade, which he
would tax.

The Emperor Akbar personally took 5000 workmen with him to the Khyber Pass and made a road smooth
enough to take wheeled vehicles! Why? To tax trade, of course.

(Did the Khyber carry more armies than trade? Of course, many armies did cross, like Babar’s. But once
in control of the territory, like Akbar 13 was, there was no threatening army across the Khyber, and so,
while there was peace, which endured for a long, long time – read Tagore’s Kabuliwallah – all that
happened was trade, trade and more trade.)

It must be stressed that ‘rationality’ does NOT imply that that every decision we take is correct. We all make mistakes: to err
is human. A better word for human action than ‘rational’ is the word ‘purposeful’: that is, with imperfect information, we seek
goal-satisfaction. But the chance of error is ever present. Every decision is in reality a gamble. Marry in haste and repent at
leisure is the best example of this.
Babar must be distinguished in history from the likes of Ghazni, Ghori and Nadir Shah, whose armies plundered and left:
loot and scoot. He defeated Ibrahim Lodi’s armies, conquered, and stayed to rule – not loot. Indeed, after conquering Agra,
Babar’s generals entreated upon him to loot and get back to cooler climes, for the hot summer was simply killing them. Babar
insisted upon staying to rule. In Political Science, he makes an excellent example of a ‘Stationary Bandit”. That is, he was
NOT a “Roving Bandit”. Even William the Conqueror fits the role of “Stationary Bandit”. As does that great barbarian,
Chenghiz Khan.
Even that great barbarian, Chenghiz Khan, laid out the Silk Route for all the people in his vast territory,
conquered by the sword with brutality, to freely travel and trade!

And all roads led to Rome when Roman Emperors were pretty horrible, cruel and decadent! I was in the
ancient German City of Cologne, walking past the great cathedral with a local journalist, when I
complained of the unevenness of the footpath. He said: “These are the ORIGINAL ROMAN STONES.
We are preserving them.”

To understand why these predatory autocrats invested in public goods while democratically elected
socialist planners did not, it is useful to look at the debate between Deepak Lal and Mancur Olson on the
validity of the expression ‘predatory state’.

Deepak Lal was probably the first to coin the term ‘predatory state’, intending to classify regimes
between two poles: the Platonic Guardians and the Predatory State. George Ayittey has for
many years been writing of the ‘vampire states’ of Africa. But these analyses ran into a
stumbling block: the great political economist Mancur Olson ruled out the possibility of predatory
states existing. Since Olson is not one to look at states with rose-tinted glasses, his objection to
the term is worth recounting in detail.

Olson's analysis begins by looking at how the state emerges out of anarchy. Under anarchy,
what happens is 'uncoordinated competitive theft' by groups of 'roving bandits'. This destroys
the incentive to invest and produce. It makes sense for one of these roving bandits to destroy
the competition, set himself up as dictator, and 'rationalize theft in the form of taxes'. The state
as 'stationary bandit'!

In Olson’s words: “In a world of roving banditry there is little or no incentive for anyone to
produce or accumulate anything that may be stolen and, thus, little for bandits to steal. Bandit
rationality, accordingly, induces the bandit leader to seize a given domain, to make himself the
ruler of that domain, and to provide a peaceful order and other public goods for its inhabitants,
thereby obtaining more in tax theft than he could have obtained from migratory plunder. Thus
we have ‘the first blessing of the invisible hand’: the rational, self-interested leader of a band of
roving bandits is led, as though by an invisible hand, to settle down, wear a crown, and replace
anarchy with government.”

Olson denies that his autocrat, Mr. Stationary Bandit, can be called ‘predatory’: “[The Stationary
Bandit]… is not like the wolf that preys on the elk, but more like the rancher who makes sure
that his cattle are protected and given water. The metaphor of predation obscures the great
superiority of stationary banditry over anarchy and the advances in civilisation that have resulted
from it. No metaphor or model of even the autocratic state can therefore be correct unless it
simultaneously takes account of the stationary bandit's incentive to provide public goods at the
same time that he extracts the largest possible net surplus for himself.”

According to Olson, even a stationary bandit would find it 'rational' to invest in public goods.

Our socialist Prime Ministers have never believed in trade: that all people are capable of trade. Instead,
they restricted trade to promote "industrialization". This, today, is called cronyism. It is a politico-
economic system in which chosen industrialists – from both the private as well as the public sector –
capture an internal market and keep out foreign competition with the aid of the might of the state.

Cronyism should never be called ‘crony capitalism’, for it is pure thuggery that has nothing to do with the
morality of capitalist shubh laabh. In fact, those who speak of the blessings of the ‘invisible hand’ of the
market and call for laissez faire do not really trust businessmen, or believe that businessmen are
intrinsically moral people. Adam Smith, the great man himself, warned that ‘whenever a group of
businessmen get together they always emerge with a conspiracy against the public to raise prices’. What
is important for the public is that they do not get together, not amongst themselves or with the
government, and that they keep on competing amongst each other, including foreigners.

After disallowing trade and furthering the fortunes of their cronies, our socialist planners then invested all
the public money in private goods. They invested tax money to make cars; they did not invest in roads
and allow private businessmen to sell cars. They invested in steel plants, hotels, airlines, Modern Bread,
Scooters India, Cycle Corporation of India…!!! They called this a MIXED ECONOMY. It is really a
MIXED-UP ECONOMY. It does not make sense.

The socialists are not "rational". The manner in which we invest public money must change. Roads must
get top priority, because they are public goods. However, highways and expressways can be private
goods – through charging tolls – and here it would be better to rope in private investment. Public money
should go into funding the best urban and rural roads money can buy. This will make India prosperous.
Rural villages, which are unconnected, remote and poor, will get connected to the throbbing economic
engines of urban metropolises. Today, despite all this ‘rural development’ for 50 years, village India is
not well connected to urban India, and is therefore poor. We have been hearing the term ‘rural-urban
divide’ for over 20 years. As Arundhati Roy says: “India does not live in her villages; India dies in her
villages.” If India dumps "rural development" and pursues aggressive urbanization, cities and towns will
blossom if we focus on interconnectivity, and we will all live in large houses on broad streets as more and
more land is colonized by roads: public goods.

Remember – and this bears repetition – that Japan, West Germany, Belgium and Holland have higher
population densities (number of people per square kilometre) than India, and do not face the amount of
overcrowding we do. They also report lower prices of urban property. In India, overcrowding and
astronomically high rates of urban property are not caused by the ‘population problem’. They are the
result of the undersupply of roads. This is a huge country. Travel by rail or air and you see miles and
miles of land without a single house anywhere. This land must be colonised for human habitation. And
the way to colonize space is by transportational links, of which roads are the primary means. Connect
Village X to Town Y through a tramway – and immediately more land is made available for the citizens
of the town. Land prices come down in the city-centre and more people stay a little distance away and
commute to work.

We therefore suffer irrational government. Our socialist state spends money foolishly – without scientific
thinking behind it. This is all because of its false philosophy regarding people: it does not believe in
Homo Economicus.


Concluding that the socialist state is irrational is surely not enough. We must inquire into the character of
the state. What purposes does it seek to serve? Sher Shah Suri invested in roads and serais, but he was not
democratically elected, nor did he plan. His interest lay in raking in taxes – and he achieved this purpose.

Democratically elected socialists who ‘plan’ the economy have not shown the rationality of every brutal
STATIONARY BANDIT throughout history!

Can this government of a socialist, democratic republic, the “Pride of the Third World”, be a predatory
state like, say, Idi Amin’s Uganda? Is Bihar very far away from darkest Africa? In the capital of New
Delhi, Prime Minister AB Vajpayee, in a letter to the Lieutenant-Governor of Delhi, accepted the statistic
thrown up by Madhu Kishwar of Manushi that police and municipal functionaries there collect over 5
crore rupees monthly by extorting it from street vendors and rickshaw pullers: the smallest players of the
market economy. Kleptocracy? Do see Ms Kishwar’s short film on how cycle rickshaw pullers and street
vendors are brutalized in the capital of socialist India.

Today, it is an accepted fact that the only reason for persistent poverty and degradation is bad
government. Bad governments keep people poor. Why do kleptocracies arise?

As we saw in the case of the Afghan Sher Shah Suri, predatory states are not new to India. The Mughals
who followed Sher Shah Suri were also here to maximise their revenue collection. But these states were
rational, and they invested in public goods. The Emperor Akbar took 5000 workmen with him and made
a road over the Khyber Pass smooth enough to take wheeled vehicles! In Mughal India, trade was free, as
was immigration. Mughal Emperors called themselves Jahanpanah or ‘Refuge of the World’. This was,
of course, quite like a ‘welcome to my parlour said the spider to the fly’, but history bears enormous
evidence that a great deal of good was accomplished by predatory autocrats who, guided by nothing more
than sheer common sense, arrived at policies and laws that were best suited to making the territory
flourish. As Friedrich Hayek said, “It is in the ruler’s interest to identify his orders with the universal rules
of just conduct, found in the law.” 14 They taxed trade; and if someone left the protection of a
neighbouring King and settled down in Mughal territory the Emperor did not object: for he would collect
the taxes now. The Mughal Emperor did not consider the immigrant to be the ‘population problem’, but a
resource that would generate wealth for himself, his nation, and his Emperor. Free trade and free
immigration – along with public investment in public goods – allowed these predatory autocrats to
maximize revenue and obtain the public interest.

This is again a question of economic rationality on the part of a political ruler. The ruler, say, a small
prince, would first maximise his tax revenue by encouraging trade. Then, he would spend AS LITTLE as
possible of that revenue on the people, so that he could pocket the surplus and spend it on himself: his
palaces and his banquets. Thus, he would spend on only those things that the market cannot provide. You
will see these instances of rational spending throughout India. For example, in most of the old markets of
North India, you will find a clock-tower. This would be taken to be a public good in the days before

After British rule, India became a Common Law country. Common Law EVOLVED in England, a nation still without a
written constitution, from the decisions of the Royal Courts of the Angevin monarchs, especially Henry II, who was just
descended from a Stationary Bandit himself. It is their rationality that enabled them to FIND the just law. With just law, the
English had LIBERTY and PROPERTY – and JUSTICE. To the English, thereafter, freedom meant living under the Common
Law. In a short while, the idea emerged that even the King should be under the law: The King is under God and the Law. After
yet some more time, they began saying, “Lex, Rex”: The Law is the King!”: “The Law Makes the King”: “There is no King
where Will Rules and not the Law”. The Common Law made America, Australia and Canada what they are today: and all this
good happened simply because predatory autocrats “sought to identify their orders with the universal rules of just conduct,
found in the Law.” The Royal Courts of the Angevin Monarchs did not “legislate” law; they “found” law. They invented Writs
by the hundreds in order to secure remedies for aggrieved citizens. Thus, the Common Law obtained and still receives the
respect it does. We in India have the Common Law, yes; but we do NOT live under the FREEDOM it can afford us, and the
SECURITY and the JUSTICE. We live, instead, under LEGISLATIVE DIKTAT. To the ordinary, unlettered Englishman,
even way back then, it was apparent that legislation was the King’s instrument, the application of FORCE upon him, and that
LIBERTY FROM ARBITRARY FORCE meant living under the Common Law. In India, we must strengthen the Common
Law and get rid of all the LEGISLATIVE DIKTATS we suffer under. Do read the companion volume to this, Free Your Life:
A Citizen’s Guide to Justice & the Law.
wristwatches were made. 15 Similarly, Mughal Emperors invested a lot of money on public gardens,
another public good. In Mussoorie, on the way to the academy where IAS officers are (mis)trained, there
is an example of British spending on public goods: a public library.

[As I drove into Goa from Poona, I passed the small town of Sawantwadi. After
reading Lives of the Indian Princes by Charles Allen and Sharada Dwivedi, I
discovered that the Raja of Sawantwadi ran a model administration: that even
Gandhi, who was his Royal Guest during the Quit India Movement, a political position
that could not have endeared the Raja to the British, endorsed his regime by calling
it Ram Rajya. Gandhi’s father served briefly as the Dewan to the Raja of Porbander.
The ruler of Porbandar was always addressed by his people as Bapu. When little
Porbandar became one of the ‘basket of apples’ Mountbatten delivered to Sardar
Patel, it was “a state without illiteracy and without slums, where its culture and the
best of its ancient traditions were respected under a ruler widely regarded as an
ideal ruler.” Unlike the Gujarat of today, in little Porbandar, the mixed population of
147,000 people, belonging to many castes, tribes and religions, lived in peace and
harmony. Indeed, this was the norm in all the 650-plus Princely States, for
‘communal problems’ happened almost always in British India, especially after the
disastrous tenure of that horrible imperialist, Lord Curzon, whose policies would
never have been supported by The Honourable East India Company. Curzon divided
Bengal in 1905. The Muslim League was set up in 1906 – in Dacca. Curzon sowed the
seeds of communalism and ran away with his capital to Delhi in 1911, seeking the
grandeur of Mughal Emperors, hosting the Delhi Durbar, inviting all the Princes,
Maharajas and Nawabs, with the King-Emperor in tow: a move back from capitalism
to feudalism. The weather, of course, nearly killed them – and so we got Simla. The
hill-station Chail, above Simla, was built by the Maharaja of Patiala. He had a
dalliance with one of the Viceroy’s daughters and was banned from Simla. So he built
Chail – and soon the party shifted! These Maharajas were no sycophants.]

Of course, in British-built cities and towns, public goods were heavily invested in: the Maidan in Calcutta
and the broad Chowringhee; all the ‘Mall Roads’ in the hill stations; Marine Drive in Bombay; and all the
public gardens and broad thoroughfares that made Bangalore (in the days of yore).

[Note that public goods like broad thoroughfares and vast parks and open market
yards are the only real ‘collective property’ we need. It is these public goods alone
that are of use to all of us, including visiting foreigners. To socialists, however,
‘collective property’ only means the Public Sector Undertaking. For the suffering
street hawkers and vendors of India, what is more useful: a vast, well-laid out
market yard? Or Maruti Udyog? The latter, a PSU, is what the socialists believe to
be the best kind of ‘collective property’ to invest in!]
There is an interesting story of one Lord Mayor of London who began life in the city working in an office – but was soon
fired because he invariably turned up late. As Lord Mayor he built a magnificent clock tower atop a chapel and donated it to
the City. Big Ben came up much later in the City of Westminster.
Contrast both the Mughals and the British (and the Princely States) with the socialist democratic Indian
state which does not practice free trade (it prefers cronyism), which does not practice free immigration (it
believes migrants are part of the population problem), and which does not invest in public goods. It
spends all its tax revenue paying out salaries because it wanted to become the biggest employer in the
country. Which rational Maharaja would emerge as the biggest employer in his state? Remember, the
Maharaja would know that he does not create wealth; he only taxes and spends. Therefore, he would
allow the people the freedom to create wealth. The socialist state thinks that it is a wealth creator, and that
the best thing that can be done for the people is to recruit them into government service!

This socialist democracy is essentially TOTALLY IRRATIONAL; its character is not that of an
enlightened, benign ruler, as a socialist central planner is assumed to be. The Nobel laureate Gunnar
Myrdal, high priest of socialist planning in the Third World, had assumed that the planners would
comprise an ‘intellectual-moral elite’. They would be experts – hence an intellectual elite – and not driven
by the ugly profit motive – hence a moral elite. The very same Myrdal found the ordinary people of the
Third World incapable of taking ‘rational’ economic decisions in the marketplace and hence in need of
these planners.

However, today we must salute the spirit of Friedrich Hayek, who shared the Nobel prize with Myrdal,
who said that central economic planning was impossible. Hayek pointed out many reasons why planning
is bound to fail, but even he did not say that planners would not display the rationality of stationary

Indeed, a very rare occurrence in Political Science is taking place in India, a situation in which the
expression raison d’état or ‘reason of state’ is meaningless, because unreason guides the state!

Let us list some concrete examples of their total irrationality:

They protect inefficient local (swadeshi) businessmen in return for political favours. Just imagine
that today, when a host of multinational car companies have entered the country, our politicians
want to keep out second-hand car imports! How long will we continue to see a man, his wife, and
their two children going about courting death on a scooter? Should every Indian not own a car
some day soon? Why does India have such a huge 2-wheeler industry? China must have had a
huge cycle industry too in Mao’s times! A second-hand Toyota from Japan or Singapore would
cost less than a new Bajaj CNG autorickshaw. Which would cause less pollution? Remember,
with autorickshaws, traffic regulation becomes a mess, and traffic slows down, creating more

Also, consider the fact that with import duties of 180 per cent on second-hand automobiles, and
even higher on wine, there is NO TRADE AT ALL. Thus, there is ABSOLUTELY NO
REVENUE EITHER! So what is the government’s ‘rationality’? Morons? Who pays them to take
these stupid decisions? Who benefits? Cuo Boni?

Then, the politicians invest in public enterprises so their henchmen can get jobs and loot public
money. They are not interested in maximizing the wealth of the nation through free trade, which
they can tax. These ‘collective properties’ are all really private properties controlled by persons
claiming to represent the public who have rented it from the minister whose ministry actually
‘owns’ the PSU in the name of the People of India.

In Karnataka, for example, the government runs an enormous bus service, all across this huge state
– but there are no roads! So, in the old days, when getting a scooter took ten years, the government
invested in buses! The villagers remained with their bullock-carts. And some bureaucrat got an
extremely large, much-coveted budget for buying thousands and thousands of buses! Recently,
they announced the introduction of 100 government buses on the Mangalore-Udipi route: a two-
laned narrow, and extremely busy road, with more than enough private buses plying on it. They
didn’t think of widening the road instead with tax money.

Also, they have made a business out of giving government jobs, for most recruitment boards are
corrupt. Why pay money to get a government job – and then loot the people! Why not just get the
government out, have a free economy, and all make money honestly under the Common Law?

Almost all sarkari jobs involve the (mis)use of powers that The State has armed its personnel with
so as to enable them to INTERFERE in the free market. By performing one of these sarkari jobs, a
citizen becomes an ENEMY OF SOCIETY, and a SERVANT of The State: all the ministers, all
the babus, et. al. He is not a ‘public servant’; he is the minister’s servant. Is such employment a
good idea for anyone? Doesn’t life in the free market, earning your keep and keeping what you
earn, holding your head high a much better idea? You will possibly end up richer – and all of it
will be honest gain. Even the narco cops would be better off as ganja dealers in a free market.


We proceed to discuss the relationship between trade and manufacturing. What would happen to Indian
industry if trade were free?

Who’ll build the road?

Not I, said the state,
For that you must wait.

But I’ll build cars’ that are safe for you to drive,
Careful of that pothole!
Oops! You still alive?


Public goods are defined by two characteristics: one, no one can be excluded from their consumption;
and two, when some people consume it, there is enough for other people to consume as well. Are
education and healthcare public goods?

Make a list of pure public goods.

What are your views on privatisation of PSUs? What should be done with the money raised by selling
all the public sector enterprises?

India restricted trade for 50 years, till the World Trade Organization (WTO) forced change. For 50 years,
we could not become "dealers" for foreign manufacturers. Our shops had to stock things "Made in India”.
There are still severe restrictions on foreign trade through currency controls and stiff import duties. This
is justified by the doctrine of swadeshi, which means that we should manufacture all our needs ourselves.
We have already found that self-reliance is economic suicide for a human being. Does it make sense for a
nation to practice self-sufficiency?

Suppose trade were free and there were open currency competition, and goods from all over the world
were available in our markets, would this lead to the death of Indian industry? Or would this lead to the
real industrialization of India?

When goods are freely traded, many of these items would find loyal customers and secure firm markets
for themselves. Traders would procure more and more of these goods from overseas manufacturers and
ship them into India. The manufacturers would soon see that the Indian market is quite good, and that it
is worthwhile for them to shift manufacturing facilities here and save on transportation costs. A
manufacturing base in India could also supply cheaper goods to neighbouring markets like Pakistan,
Bangladesh and Nepal.


Traders create markets and manufacturing follows to service these markets.

From the Indian point of view, the best example is of the North-East. It is the most underdeveloped part
of India. We want it to be ‘developed’. We want it to be ‘industrialized’. How do we attempt the task?
We could close it down to the world outside and attempt to prop up domestic manufacture. Some small
factories would come up.

Or we could internationalize the economy and let our energetic trading communities flood the region with
all that money can buy. Now, the people of the North-East will soon show a marked preference for
certain things – say, instant noodles – and the manufacturers of these goods will soon put up plants there.
Traders also work both ways, and many would find overseas markets for the produce of the Northeast.

There are many examples of this in liberalized India, but perhaps the best example to take is of the
DIRECT MARKETING COMPANIES like Amway, Tupperware and Oriflame. They operate on the
assumption that each Indian is a trader and they recruit ordinary people to be their dealers and sell their
products among their friends and associates. Thus, they build an army of part-time traders. Without any
advertising, they manage to secure market shares. Today, all of them are manufacturing in India. It may
be that they have been forced to do so by the government, but even if they had been left free, they would
enter local manufacturing once the market proved itself. Further, having learnt from these overseas
players, an Indian company has begun direct marketing: Modicare. All these positive effects followed
from free trade.


This phenomenon also made itself felt in British India. The British operated a free market economy till
1914, the beginning of World War I. In 1914, India was the world’s largest importer, not of British
textiles, but British textile machinery! That is, India was becoming a major textile manufacturer!

The economic historian, Sudha Shenoy, emphatically states: “In fact, the Indian cotton industry developed
before the Japanese. The first Indian spinning mill was opened in Bombay in 1858; the Japanese
floundered around – because of government intervention – until the late 1860s. By 1914, Indian textiles
were being exported to Asian and African countries; and Indian cotton yarn supplied the Chinese hand-
weaving industry. The real value of free trade was the export of cash crops from Indian farmers: jute,
oilseeds, wheat, rice, and hides & skins. India also supplied raw cotton to the Japanese textile industry.
India and Brazil were the two largest exporters in the under-developed world. In return, Indians got a
wide range of cheap, but good quality, manufactured goods – including British cotton textiles. In fact,
there were entire industries in England geared to producing especially for the Indian market and for other

The 1919 Report of the British Trade Commissioner noted that many of the great merchant firms of
Calcutta which dealt in engineering goods manufactured in Britain had themselves started manufacturing
in India, and were now reluctant to sell the products of their principals back home. They had started off
dealing in engineering goods made in Britain, but now they had established good local markets, begun
local manufacturing, and would much rather sell what they themselves manufactured in India.

In the modern, globalizing world economy, free trade will boost India’s chances of becoming a world-
class manufacturing centre. The trend has already made itself felt, as global manufacturers seek the
cheapest production locations closest to their biggest markets. Giant toy and athletic footwear companies
are maintaining small design and marketing offices in the US and Europe but getting all their
manufacturing done by contract in the Far East. Publishers are doing editing and proof-reading at home,
leaving labor-intensive typesetting and printing to contracted parties in Taiwan and Singapore. India is a
big market. India can become a world manufacturing power. For this, all she has to do is practice free
trade and invest in her infrastructure.

The Business Process Outsourcing (BPO) boom has already made itself felt: but note that it is happening
only in those areas that do not require physical infrastructure – like highways, ports and airports. The
BPO phenomenon is restricted to those areas that require only telecom connectivity. If physical
infrastructure is built, then all kinds of manufacturing outsourcing will happen in India.

To clinch the argument, let us take the case of the laundromat. It exists in every city in the developed
world. The laundromat is equipped with a large number of heavy-duty washing machines and many
heavy-duty clothes driers. People take their dirty clothes to the laundromat, push coins into the machines,
and soon they are back home with everything clean and dry.

Now, these heavy-duty machines are not manufactured in India despite the fact that the market for
domestic washing machines is one in which there is heavy jostling between many competing players.
Instead of laundromats, Indian cities have dhobies. With free trade, including free trade in second-hand
goods, India would be flooded with laundromats and most of our dhobies would obtain credit from private
banks to own and operate them. People living in high rainfall and humidity areas would come to
appreciate the clothes drier and a market for these goods would be created. Not only would our dhobies
enter the modern world; very soon, local manufacturing of these goods would start. Today, without free
trade, local manufacture is risky. The market is uncertain. Advertising is expensive. If traders are
allowed to establish markets for manufacturers, factories would erupt all over India.

Of course we will need sound infrastructure. No one will put up a factory where there are no roads and
electricity, and where there are no efficient ports, airports and railways. Big international companies will
want to put up manufacturing plants in India because labor is cheap; but the infrastructure will make them
run away. Improving the infrastructure requires massive PRIVATIZATION and public investment in
PUBLIC GOODS like roads and law and order. Good policing, fast-acting courts, good roads and an
excellent privatized public utility sector providing electricity and water will attract the world to set up
manufacturing in India.

We do not need IMPORT RESTRICTIONS to become a world-class manufacturing country. Swadeshi is

economic suicide. We need FREE TRADE and BASIC INFRASTRUCTURE.


Free trade in agricultural products is opposed by many in the name of ‘self-sufficiency in food’ or ‘food
security’. Indian farmers are supposed to produce all of India’s needs. Is this a good idea? Or would we
be better off importing those agricultural products which we do not produce efficiently ourselves? Let us
examine the issue:

If trade were free, there would be many areas where India could gain by importing: for example, cheap
wheat from the prairies and cheap sugar from Mauritius and Java. We do not produce wheat and sugar as
efficiently as them. What would Indian farmers produce?

Indian farmers, with their small farms, would be better off producing fruits and vegetables for the world.
An apple sells for Rs. 1500 in Tokyo; a musk melon for Rs. 4000. If Indian farmers specialized in high
value fruit and vegetable production and imported wheat and sugar they would be better off. Of course,
this would require very good infrastructure, so these farmers could easily send their perishable products to
international markets.

In my travels around India, I have often found exotic fruit rotting in villages: custard apples in Karnataka;
almonds in Himachal Pradesh; peaches, plums and strawberries in Uttaranchal; litchees and mangoes in
Bihar; and pineapples in the North-East. Today, there are farmers in Jharkhand wanting to specialize in
flowers – but how do they get their flowers to the Amsterdam Flower Market, the biggest flower market
in the world? The Western Ghats are also a great place for floriculture: indeed, it has always been so
because all the women here wear flowers in their hair, and flowers must have always been a big industry
here. How will floriculture here take off to serve the world market? Just transportation.

What matters most for farmers is freedom: freedom to access urban markets and freedom to access
technology. With modern transportational systems, and freedom, free trade will enable India’s farmers,
with their small plots, to participate in the INTERNATIONAL DIVISION OF LABOUR and prosper like
never before.

Remember another thing: our farmers who produce wheat and sugarcane do so with subsidized inputs like
power, fertilizer and water. If these inputs were properly priced, they would be out of business. It makes
no sense to freely provide power, water and fertilizers to farmers who use them inefficiently. This also
damages the environment.

Indian agriculture is also ridden with extreme restrictions: farmers are not allowed to sell wherever they
please. These restrictions are extremely harmful to farmers and only benefit the KLEPTOCRACY.

As far as the Western Ghats are concerned, there is immense scope for high value cash crops. Alfonso
mangoes, cashew and coconuts are plentiful. Apart from traditional cash crops like coffee, cardamom,
pepper and arecanut, many new ones are emerging. Futures markets for these cash crops will insulate
farmers from price volatility.

As a long time smoker of cannabis, and as an activist for its legalization, I could add that the Western
Ghats can also produce some of the finest ganja in the world. If it were legal here, and hence cheap,
tourists would come in droves. You now get genetically modified ganja to deliver the highest THC
possible – and this is one GM crop that will beat the hell out of the GM cotton or the GM mustard farmers
of Gujarat and Maharashtra.

Sherlock Holmes used cocaine – but that was fiction. However, Sir Arthur Conan Doyle’s depiction of the
detective as a cocaine user implies that many gentlemen in England then were using cocaine. Sigmund
Freud used cocaine – and that is a fact. Freud even discovered its use as an eye anaesthetic. Originally,
Coca Cola was a drink using the coca leaf and the kola nut. The “pep” in the original Pepsi came from
cocaine. Today, doctors believe drinking coca leaf tea is harmless, unlike drinking umpteen mugs of
coffee. Native South Americans have been chewing coca leaves (with a little chuna, like our
paanchewers) for over 4000 years.

Uncle Sam’s “War On Drugs” has been as much a failure as all his other “wars”. In the case of both
cannabis and cocaine, Uncle Sam (and all the governments in the world that are allies of Uncle Sam in
this “war”) have overlooked both traditional practice as well as medical evidence. Just as sadhus and
peasants and rickshaw-wallahs in India – not just the hippie tourists – have always smoked ganja; native
South Americans have traditionally chewed coca.

The Western Ghats enjoy much the same agro-climatic conditions as the areas of South America where
coca is grown. It could be grown here legally – with coffee, vanilla, cardamom, pepper, tea and ganja.
Good bye “self-sufficiency in food”!

One thing very unusual I found in the Mangalore area is the widespread use of snuff. Well, there can now
be something new to put up one’s nostrils if one chooses, though the tea is what doctors recommend, not
the white powder. It must also be mentioned that neither ganja nor coca are addictive. Because Uncle
Sam’s “War on Drugs” increases the street prices of ganja and cocaine, crooks enter the market with
cheaper – but much more dangerous – highs. In India, after the criminalization of cannabis, “smack”
entered the market – and destroyed thousands and thousands of lives. Similarly, in the US, a highly
destructive and addictive “crack” was passed on to those who could not afford pure cocaine.


Free trade is also in the interest of coastal fishermen, as it will give them access to modern fishing vessels.
Today, if you walk along a beach in Goa, you see fishing boats with technology dating back to 2000 BC!
On the drive from Mangalore to Goa, I stopped at many lovely beaches – and all of them sported
mandatory Third World ancient fishing boats. At Hangarkatta, where the river just about meets the sea – a
beautiful piece of undeveloped real estate (or “unreal estate”) – I came across a small fishing harbour,
with about half a dozen little wooden trawlers. (And a small office of the Customs Department!) There
was a boatyard where one such boat was being built. And this is the best an Indian fisherman can aspire
to! No wonder, those who are in the know say, “fish die of old age in the Indian Ocean.”

Coastal fishing will also benefit hugely from good roads, so that highly perishable fish can be taken to
market in refrigerated carriers. I took some time to explore the fish market in Karwar, and picked up a
kilo of fairly large prawns for just 110 rupees or $2. If these prawns could be transported to the big city
markets, and by this I mean the INTERNATIONAL BIG CITY MARKETS, what price do you think they
would fetch? It is simply because of poor transport that seafood is scarcely available in the interiors. You
get lobsters, crabs and prawns in Kathmandu because they are flown in; the city has an airport. You don’t
get any of these in Mussoorie, Simla and a hundred other Indian cities and towns. I was in a small town in
Coorg, where I was taken to a special Kerala breakfast of pattal and fish. But the man said the fish had not
arrived from the coast – just 250 km away – and so I had to settle for eggs. The loss to the fishing industry
was a gain for the poultry farmer!

In Karnataka, fishermen get a diesel subsidy! (Note the ‘zero-sum game’ of the politician.) What do they
really need?


What is the need to join the WTO? Why do we need politicians and diplomats meeting every few years to
hold ‘trade talks’ and make trade deals?

If you pose this question to a politician, he will answer that he is ‘bargaining’ in the ‘national interest’. He
will say that he will allow foreigners to trade in India if they remove certain imperfections in their trading
systems (for example, agricultural subsidies in the US and EU), or if they, in turn, allow Indian goods into
their countries.

Politicians and diplomats are going around the world at our expense signing all kinds of ‘free trade
agreements’: Manmohan Singh just signed one with Thailand. But who wants to buy anything from
Thailand? And who wants to sell anything to the Thais, for that matter? I would rather import Chilean
wine. Do I have to wait for the prime minister and his team of diplomats to sign a free trade agreement
with Chile? And what about my Moroccan hash? I’d rather order a kilo on the Internet than wait for
Manmohan to sign a treaty with King Hassan. It will take hundreds of years to sign free trade agreements
with all the countries in the world!

Let us forget about the politicians and diplomats for a while, and let us imagine we are all shopkeepers in
a big marketplace. I own a bar which also serves non-vegetarian food. Now, the tailor-master next door is
a teetotaler and a strict vegetarian. He never gives me custom. The last 20 years that I have known him, he
has never spent a paisa in my establishment. But I always go to him to get my shirts and trousers stitched.
Am I doing something stupid? After all, he is the best tailor master in town. Should I get my new suit
stitched by that very drunken tailor, my very good customer, the last to leave my bar every night, whose
hands shake a lot?

Similarly, the government of France disallows the entry of the Pride of the Konkan: Alfonso mangoes.
Does that mean we should not benefit from being able to import French wines and cheeses? If we
unilaterally open up trade, we gain by being able to consume French wines and cheeses; and the French
lose by being forced to consume horrible mangoes from Venezuela, thanks to trade restrictions imposed
by their stupid government! If politicians and diplomats stall trade in order to ‘bargain’ in the interest of
the mango business, they will cause losses to the wine and cheese importers. The terms ‘national interest’,
‘national security’, ‘collective will’, ‘collective property’, and even the words ‘society’ and ‘socialism’
should all be viewed with extreme skepticism, for all those who use these words end up robbing the
freedoms of many, many individuals. Economics is about individual human action. And liberty under law
is also about individual rights. The collective, society, and even ‘nation’ – all reign in the mind of the
socialist. To liberals, only individuals matter. That is, of course, to say that EACH AND EVERY
Similarly, if we import Laila basmati rice from Pakistan, and allow in their delicious mangoes and other
fruit, and all the exquisite onyx Pakistan is famous for, we gain. If the Pakistani government does not
allow us to sell their people our arecanut, paan masala, tea, coffee, spices, music… it is their people who
lose, not us.

In the market economy, where we all interact is INDIVIDUALS, the word “reciprocity” is completely
meaningless. We are all free to take our custom wherever we please, with no obligation whatsoever to buy
from those who buy from us. Would you buy a Nokia mobile phone because the Nokia general manager
eats regularly in your restaurant? Can the Nokia general manager even expect you to do so, by insisting
that there exists a mutual obligation to be reciprocal in the free market?

The word “reciprocity” exists only in POLITICS, and refers to the necessary conditions for establishing
diplomatic ties. You open an embassy here, I also open my embassy there. By trying to find reciprocity in
the market, diplomats and politicians are extending their legitimate sphere, which is, in this case,
international politics, to an area which should not be their sphere, and that is the FREE GLOBAL

State Politics 16 is about COLLECTIVES, where “reciprocity” matters.

Economics is about INDIVIDUALS, where “reciprocity” is meaningless.






When free trade is mentioned, many people talk of the shortage of foreign exchange. We will find that, if
we had SOUND MONEY, we would have no reason to fear the bogey of foreign exchange shortages.

Watch Guptaji’s travelling circus,

Manoeuvring through busy streets
Higgledy-piggledy perched on a scooter
Performing incredible feats.

Watch also the state ban free imports

That would certainly make used cars cheap
And prevent poor old Guptaji’s family
From getting crushed in a terrible heap.

In a subsequent chapter, we will discuss the alternative to State Politics, and that is Free Politics.

Swadeshi would imply a cosy inter-relationship between the government and Indian manufacturing
interests. Would this relationship be honest or corrupt?

Customs duties are levied on almost all goods imported into the country. Do these taxes make any
sense to consumers?

• If the customs department was abolished (along with all internal octroi), the Indian sub-continent
would be the world’s largest duty-free trading area, and every shop – even the paan-cigarette shop –
would be a duty-free shop. Would this make Indians rich? What kind of shop would you like to open

• Do some research on the Internet and find out the budget of the US Drug Enforcement Authority. Has
it been going up steadily, or down? Try and also find data on the street prices of cocaine and
marijuana in New York City. Have these prices been rising? Or falling? What conclusions can you
draw on the benefits derived from the huge public spending on the DEA?

“The Wall” in Mangalore
Our adversaries rail at us liberals for being ‘ideological’; they say we are full of empty ‘theories’. So here
is a simple travelogue.

For some months now, I have been living in Mangalore, an ancient city on the west coast. A thirteenth
century Kannada poet has marvelled at the fact that as many as 38 different kinds of coinage circulated in
the city’s markets then. It becomes obvious that the city owes its existence to overseas trade: at the centre
of the old city is the Bunder – the port. It is another ancient trading city that came up by the sea, like
Alexandria or Venice. They were all glorious centres of civilization although there were no economists
then. In modern Asia, Hong Kong and Singapore are thriving port cities and neither has produced a single
economist of note.

The other day I was taken to a beach just beyond the New Mangalore Port Trust. What struck was The
Wall. The entire port is surrounded by a 20 ft high wall. So, because of some ‘theory’, Mangalore has
moved away from having a port open for the citizens to trade, and now possesses a walled port to which
citizens are denied entry. The gates to the walled port are manned by armed guards paid for by the
taxpayer. Also at the taxpayer’s expense are a whole lot of customs officials who do not let trade occur
without prohibitively huge exactions. All this must be justified by reams of economic ‘theory’, for there is
an Economics Department in St. Agnes’ College here: the oldest women’s college in South India. There is
a Mangalore Economics Association.

Driving along The Wall, I passed some towering examples of ‘industrialisation’: Nehru’s ‘theory’. A
phenomenal amount of prime beach-side land is occupied by a phenomenally ugly public sector iron ore
exporting plant. There is a fertilizer factory which surely survives on production subsidies. So the ‘deal’
between New Delhi and Mangalore is clear: we stop you trading and then we give you ‘industrialisation’:
big factories owned by us (but paid for by you!). There is, at the taxpayer’s employ, an entire Indian
Economic Service wedded to this ‘theory’.

[This is the Kudremukh company. They mine the ore from within the Kudremukh
National Park. They have dammed a river within the park to get water to wash the
ore; and they have exported a quite a few entire mountains – all within the ‘national
park’! To drive through the park, you need a paper from the guards of the Forest
Department. It mentions the time of entry, and their rules say that if you do not
exit the park within two hours of entry, you will be fined 100 rupees – so no picnic.
And no stopping at the small bar in the poverty-stricken village just beyond the
Kudremukh plant. There is a waterfall on the way, but forest guards charge tourists
30 rupees per head to enter the pathway leading up to it. They said it takes a 15
minute walk to get to the waterfall, which meant 30 minutes both ways. What was
the point of paying 30 rupees, walking half an hour, steep uphill and steep downhill,
and then having just 15 minutes to enjoy the spectacle. Who owns the forest? Who
owns the iron ore? The river that is being dammed? The waterfall? It is an
important question, because people who have been living within this area for
generations are denied property rights, labelled “Naxalites” by the Karnataka
government, and some of them have even been killed by the police.]
The Wall is bad for sailors as well. I was drinking toddy with a ship’s engineer when he suddenly
announced his departure, saying that if he did not return by 10 pm, he would get into trouble with the
personnel manning The Wall. He said that even an ordinary sailor spends at least 20 dollars a day while
ashore – but here The Wall keeps them on board! Mangalore is a dream city for eating and drinking out,
famous for its cuisine. Seafood is superb, and much, much cheaper than Goa. Mangalore also possesses
many establishments where what is offered might be called ‘cabaret’. If Hamburg had such port officials,
there would have been no St. Pauli’s. (And probably no Beatles either, because they got one of their first
breaks to play in a bar in St. Pauli’s.)

Surely my reader will realize that we do not need economists to know what is good for Mangalore. What
sense does The Wall make? The path to commercial success and the regaining of the city’s old glory
should be obvious even to barbers and plumbers, butchers and cooks. The citizens of Mangalore should
do to The Wall precisely what Berliners have done to theirs. Then, as with the old Bunder, they should set
up a big market there. After all, didn’t God promise Jerusalem greatness by making her ‘a mart for all
nations’? The Mayor of New Jerusalem should issue externment orders to all the customs officials and the
armed guards. The prime land occupied by the ugly iron ore plant and the fertilizer factory should be
seized and auctioned so that hotels, shopping malls and beach resorts take over the landscape. Within a
decade, this will be India’s leading city, especially considering the fact that all the others, including
Bangalore, have perished. The New Jerusalem economy will grow so fast that even the best statisticians
will not be able to measure it. Good-bye growth rate.

To unravel the sophisms in the ‘theories’ justifying The Wall, I recommend Frederic Bastiat, who did not
suffer formal education in Economics, who never taught at university, and who was just a journalist and
pamphleteer. In one essay he put the point across thus: There is this steel magnate in France. He sees
cheap steel imports coming in from Belgium and this threatens his profits. He now has two choices. One,
he can hire a posse of men and arm them with guns, with instructions to shoot anyone who brings steel
into France from Belgium. But such a course is highly inadvisable. So there is the other option: Go to
Paris and pay some politician there to do it for you. He will deploy armed men at the borders at the
taxpayer’s expense. And the two of them will share the profits, while the taxpayers who paid for the
guards will now pay out even more for steel!

After reading Bastiat I arrived at a conclusion: We don’t need the WTO; we need unilateral free trade. Get
every government out of trade. And every trade economist too.

The late Professor B R Shenoy, a classical liberal who studied under Hayek himself, was the only
economist to officially dissent with Nehru, and in writing. His daughter, Sudha Shenoy, an eminent liberal
economist 17 , in a recent interview, said that ‘nearly every economics department in the world could be
shut down without having an ill-effect on the world of ideas.’ Strong words indeed. She bemoaned the sad
fact that economists do not study the real world of human action any more; they are all lost in ‘theories’
and ‘models’ and mathematics and statistics. I entirely agree. The Wall proves it.

After reading this, Sudha protested, writing: “Please!! I *reformed over 30 years ago – saw the light and became an
economic historian!”

Ever wondered why, when we go to the capitalist west, we see supermarkets with shelves overflowing with every
possible goodie the heart may desire. This phenomenon occurs despite the fact that they have lower population
densities, and hence less customers. On the other hand, here in socialist, swadeshi India, where the density of
population is high, there are no supermarkets at all! What explains this curious phenomenon? I searched high and
wide for a possible answer – and finally found it in my good old friend, Frederic Bastiat.

Batsiat’s logic goes something like this. Whenever we go to the market as sellers of a product or service, we desire
a situation in which we do not face competition. Thus, we ask for laws that outlaw foreigners and seek high tariff
walls against them. We thereby invoke the doctrine of scarcity.

On the other hand, when we go to the market as prospective buyers of a product or service, we seek a situation in
which there are huge numbers of competing sellers of the product or service in question, so that there is keen
competition, and we can arrive at attractive bargains and thereby obtain both better prices as well as quality. In this
capacity, we welcome free trade, for it gives us the best the world has to offer. Thus, as buyers, we invoke the
doctrine of abundance.

From the preceding logic it becomes fairly clear that, if the state frames policies that are in accord with our instinct
as sellers, then there will be high tariff walls and all of us will feel happy when we go to the market with our
offerings. However, this means adherence to the doctrine of scarcity and so, after we have sold our product, when
we go to exchange what we have received to satisfy our consumption needs, we lose terribly. Thus, in the good old
days of socialism, Rahul Bajaj must have been happy to see people queue up for ten years outside his scooter
factory in what was still Poona; but when he himself went to Dorabjee’s on Main Street, Poona, to get, say, cheese,
he could buy only Amul: The Taste of India. He could forget a nice Camembert, an Edam, or an Emmentaler. 18 The
doctrine of scarcity means that, as buyers, we fail as economic agents.

The Nehruvian, socialist state wholeheartedly supported all of us in our instinct as sellers, and thereby invoked the
doctrine of scarcity. So, when we went to the market as buyers, we found nothing much. Food, toiletries, cosmetics,
wine, beer and spirits, cigarettes, clothes, shoes, motor vehicles – in every area we found shoddy swadeshi goods.
There was all round scarcity. Hence no supermarkets with overflowing shelves. Obviously, from an economic point
of view, this was a huge mistake. There are two aspects to economic achievement: one is selling; but the more
important one is buying. We produce in order to consume. If we succeed as producers and lose as consumers there
is scarcely any point. What is the point in working hard for this newspaper and not being able to use my sizeable
salary (in irredeemable rupees) to throw a lavish wine and cheese party for my friends?

The state must correct itself and now fully support our instinct as consumers – and this means free trade. That will
bring all round abundance. We will all make significant economic achievements. We will eat better, drink better,
smoke better, clothe ourselves better and also drive modern automobiles. When an American comes across us we
too will be smoking Marlboro Lights, drinking Kentucky whisky, wearing Levi’s and driving second-hand Ford
Mustangs. That is, to this American, we will not look poor; we will look like him: we will look ‘rich’. India will be
a rich country. All Indians will make superlative economic achievements as buyers – and become rich. In our
socialist heydays, when the Yankee saw us, we looked poor: smoking Charminar, driving a Bullet, eating Amul
cheese, drinking Old Monk rum and wearing Jean Junction jeans. We were poor because we failed as consumers.
This should never be allowed to happen again. Ever.

Of course, today it must be realised that these scarcity invoking policies were designed to keep clients happy. These
clients prospered while the people stayed poor. This wasn’t Economics. It was cheap, thieving politics.

Dorabjee’s in 2004, after 10 years of voodoo liberalization, does stock many exotic European cheeses. Anyone want the old
Amul: The Taste of India days back?

Money is one of the greatest inventions of the human mind. It was not invented by the state. Today, we
simply accept government paper as money and think that is all there is to money. The fact is, this
government paper is not good money. If you look closely at a rupee note, you will see that it bears a
promise ‘to pay the bearer a sum of X rupees’. But if you take a 100 rupee note to your bank and ask for
dollars in exchange, they will refuse; and if some friendly, underground ‘dealer’ does it for you, the law
of the land decrees that both of you should be jailed! To understand the difference between good and bad
money, we must look into the history of the development of money.

Money solves a specific problem in barter: THE DOUBLE CO-INCIDENCE OF WANTS. If you want
apples and you have potatoes, you must find someone with apples who wants potatoes. If you find
someone with apples who wants onions, you cannot arrive at a deal.

Money evolved naturally to solve this problem. It was not created by the government.

What happened was that certain goods were seen by all to be MOST SELLABLE. These were the goods
that moved fastest in the market; which most people would accept at a known ECONOMIC PRICE.

That is, all commodities can be ranked according to how easy it is to sell them. If you took 100 stereo
systems to market, it might take you a few weeks to sell all of them. If, on the other hand, you took 100
potatoes, or marbles, or cigarettes, you would get rid of your stock within hours. THE MOST

Many commodities have played the role of money in the past, the role of being the ‘most sellable
commodity’ as well as a ‘store of value’ with a ‘stable price’. Cowrie shells, tobacco leaves, animal skins
(the word ‘buck’ comes from that), scarab beetles, salt (the word ‘salary’ and the expression ‘not worth
his salt’), small bags of cocoa beans, and finally metals, ending with the precious metals.

And the role was simple: it transformed the DIRECT EXCHANGE of barter into INDIRECT
EXCHANGE. That is, you have apples and you want potatoes. You do not waste time looking for
someone with potatoes who wants apples, someone with the ‘direct coincidence of wants’. Instead, you
simply offload your apples for the ‘most sellable commodity’ of that market, and then, with that ‘most
sellable commodity’, you head for the guys offloading potatoes.

Money emerges naturally out of trade. I remember how, in my boarding school, glass marbles played the
role of money, and we were just kids between 6 and 8. And different kinds of marbles had different
values: the big steel ones commanding the highest price, followed by the opaque, cloudy ones, the
cheapest being the ordinary, clear glass ones. We kids invented our own money! In Nazi concentration
camps, prisoners used cigarettes as money.

This was first propounded by the great Carl Menger, for whom Skousen’s piece of music is, deservedly, The Emperor’s
Waltz. The simplicity and clarity in the works of people like Adam Smith, Bauer and Menger is a striking contrast to the hugely
complicated “theories”, “models”, and “maths” and “stats” economics students all over the world have to suffer today.
It is very important to note that all these are HARD MONEY. They are not TOKEN MONEY. The
object in question that serves the purpose of money has its own intrinsic value: the money itself is worth
something. Paper money is token money.

Paper money was invented by goldsmiths. At first, the goldsmith would stock your gold for you and give
you a signed paper receipt. So, when you had to make a purchase, you would carry that receipt to the
goldsmith, collect your gold, and head for market. Thus, this note was a PROPERTY TITLE. Hence the
promise on the note. Under the Common Law, such a promise was taken very seriously. The Writ of Debt
is one of the oldest remedies instituted by the Common Law. So, in England then, if the goldsmith did not
redeem his note, he would end up in a debtor’s prison. Of course, if the Common Law remedy of the Writ
of Debt did not exist, no note would be accepted by the public!

Operating in London with these first paper notes was cumbersome. Imagine having to head to the
goldsmith every other day through the foggy, unsafe streets of London. To solve the problem, goldsmiths
came out with BEARER NOTES. Anyone could take the note to the goldsmith whose signature was on it
and collect the gold. This made it possible for people to freely use token money. The notes were passed
around in the market, and these bearer notes of innumerable private goldsmiths were money.

There were competing private note-issuers issuing money, with no government control. This was the
period of "free money". And of course, you were free to reject the notes of a goldsmith you didn’t trust.

Government control over money issue gives rise to the problem of DEBASEMENT. To understand this
phenomenon, go back some centuries in time and imagine yourself as the King of Shangri-La.

If you were a Good King, you would mint coins of the highest purity so that your face would travel to all
parts of your Kingdom – and to the world beyond – and symbolise honesty and integrity. The Hapsburgs
of Austria minted a pure gold coin called the Reichsthaler. It was the most popular coin in circulation in
North America, and it is from the ‘thaler’ that the word "dollar" is derived. It is also perhaps not a
coincidence that it is the Austrian school of economists that is most concerned with “sound money”.

If you were a Bad King you would mix some BASE METAL like brass into your coins and / or reduce
their weight marginally. This is DEBASEMENT. The immediate effect of debasement is to increase the
number of coins you can issue. Instead of 5 tonnes of pure gold coins you would issue 6 tonnes of
debased coins. The Bad King of Shangri-La would spend his extra coins on wine, women, palaces and

History is full of examples of governments issuing bad money: The Roman Empire collapsed because of
debasement. Roman soldiers would accept their wages only in salt because they did not trust the
Emperor’s coinage. 20

In all these cases, the government acts like a gang of counterfeiters!

Debasement, by increasing the QUANTITY OF MONEY (from 5 tonnes to 6 tonnes) raises prices and
causes INFLATION. To understand how, let us travel back even further in time and imagine ourselves in

Sudha Shenoy clarifies: “After the price controls of Diocletan failed to check inflation, the emperors that followed resorted
to higher and higher taxation – including taxation in kind (like the ‘annona’ or direct delivery of grain to the tax collector). The
general result was a retreat to autarky, especially on the larger estates, where labourers were ‘tied’ to their jobs..” The money
economy ceased to exist.
a South Indian village where cowrie-shells serve as money. Now, imagine that, walking on the beach one
day, you discover an enormous trove of cowries washed up by the sea.

Suddenly, all your dreams have come true. You can go out there to the Village Square and buy all that
money can buy. You rush with your cowries to the market and spend a lot of them. You get land, a
house, food, drink and cattle… whatever you wish. But, consider the LONG-TERM EFFECT.

Your good fortune would be everyone’s good fortune. Landowners, labourers, cattle-ranchers,
agriculturists, merchants – all would rake in the money you have spent and then go out themselves,
making their own increased purchases. The DEMAND for everything would rise. SUPPLY would
remain the same. PRICES would thus rise – of everything: INFLATION.

In effect, the price of cowries would go down because there would be a greater abundance of them. If,
instead of cowries, you had found a hundred crabs and took them to market, the price of crabs – in terms
of cowries – would fall. Similarly, when you find cowries, the price of cowries – in terms of crabs (or
anything else) – falls.

Inflation is the fall in the value of money due to increases in the quantity. This is known as the "quantity
theory of money". 21

There are two characteristics of sound money: Stable value (or the absence of inflation) and free
convertibility. On both counts, the Indian rupee falls flat, as do the currencies of most Third World
countries. Nowadays we keep hearing of currency collapses. All these are currencies issued by Third
World governments. All this is unsound money.

The socialist Indian State destroyed the Indian rupee by printing it in excess. They call this DEFICIT
FINANCING. This means that, when they are short of tax revenue to meet their expenditures, they
simply print extra notes and issue them: they create property titles without property! This naturally
causes INFLATION: the quantity theory of money. The state thereby rakes in the INFLATION TAX, for
when it spends the extra money prices are as of today and the state gets real goods from people at today’s
prices. However, when these people take this money to the state, prices have risen, and the state has to
fork out less real goods. The inflation tax is a way the state cheats us out of our pension and provident
funds. We invest, say, a lakh of rupees in the Public Provident Fund at 10 per cent interest. The state
causes 7 per cent inflation. In effect, therefore, it pays out only 3 per cent interest. The rest is the
inflation tax.

Now, most of this money is spent on bureaucratic budgets, which refuse to climb down because
bureaucracies rationally maximise budgets: as already discussed. This money is also spent on the loss-
making public sector. It is not spent on public goods. But there is something worse. Our banking system
is entirely politicized. Most Indian banks are government-owned and they report huge losses. We turn to
how this affects the soundness of the rupee.

Note that when the quantity of money is increased, prices do not rise proportionately. Rather, there is put into play a slow,
step-by-step process by which the new money is expended by each successive recipient. The first guys who get to spend the
new money get goods at current prices; the last guys lost the value of their money because when they get to spend the new
money, it is already quite old, and prices have risen. There is thus a redistribution of wealth, from the last guy to the first. And
this is how the poor are ‘taxed’.
Once cowrie shells
Kingsize cigarettes
Even potatoes
Paid off your debts.

Now paper does –

Rupee, mark and pound.
But the million dollar question is:
Is the money sound?


Do some private research into the various commodities that have played the role of money throughout
human history.

Do some research also into Greek history, inquiring into the first city-state to mint coins, and study the
effects this had on the commercialisation of society.

Do some research into debasement: by the Romans for example. Are there any instances of foolish
monetary experiments in Indian history?

How many instances of ‘hyperinflation’ can you find in history? What happens to a society in times of

Construct a flow chart to explain how the inflation tax works.


Having understood the origins of money, let us proceed to CREDIT.

Creditworthiness is something real and tangible: some possess it; some don’t. When I go to my
neighbourhood market, where all the shop-owners know me, I often get credit. The fish merchant is happy
to push a big ilish on to me – even though I have not gone to buy fish – knowing well that I shall pay up
some day. The cigarette vendor knows me and gives me my cigarettes when I have no ready cash. Not
everyone gets this credit, because not everyone is creditworthy.

The same applies to a credit card. When I was a freelance journalist, no credit card company would grant
me membership; when I had a regular job they were all falling over backwards to make me a cardholder.

When credit goes to the creditworthy, all is well, and the economy gallops along. This, however, is not the
happy outcome when governments interfere in the banking system and direct the allocation of credit.
Then, credit goes to the preferred clients of the finance ministry. These are not so creditworthy. The
nationalized banking system is thus heavily burdened with NON-PERFORMING ASSETS (NPAs).
These should simply be called BAD DEBTS.

When a bank has too many bad debts, it goes bankrupt. But here, money is pumped in (as in the case of
Indian Bank) from the exchequer. This is LOOT.

When too many banks are burdened by bad debts, and the central bank has issued too much currency,
there is no choice before the government but to keep the currency inconvertible. If India wants sound
money – that which is freely convertible and of stable value – she has no choice but to privatize the
banking system and take the finance ministry out of the allocation of credit. Credit raj is worse than the
license-permit raj because it can lead to currency collapse in the case of an open economy.

Private allocation of credit is not only efficient, it promotes moral behaviour. To continue to enjoy credit
from the cigarette vendor and the fish merchant, I have to ensure that I clear all my debts in time. If I fail,
credit can be suddenly withdrawn. If I do not clear my credit card dues every month, the card-issuing
company will cancel my card. On the other hand, with political allocation of credit, money is diverted to
those who have ‘links’ with the politico-bureaucratic power structure. This promotes bribery and
corruption. It also weakens the banking system, making it prone to collapse. In the recent East Asian
currency crisis, it was CRONYISM that caused their central banks to fail. Their banks had lent heavily to
‘friends’ of those in power. When these firms collapsed, they took the entire banking system, and the
currency itself, down with them.

India’s socialists have always justified government banking on the grounds of being able to direct credit
to the needy, while at the same time portraying the private money lender as usurious and malevolent.
Even the Hindi movies were full of this in the old days. But note once again the use of VIOLENCE to
accomplish some imagined positive end. They took all the private banks BY FORCE. Private
moneylenders, however usurious they may be, use no force on anyone, and perform a very important
function in society. Small moneylenders finance the hawkers and vendors on our streets. In an extreme
emergency, I had to pawn this laptop that I am working on in Bangalore for 10,000 rupees on the
assurance that I would pick it up for 11,000 rupees a month later. I was extremely lucky that these pawn
brokers existed in that city – for they are a very rare tribe indeed today – and was very pleased to
conclude the deal with one who claimed to be “more honest than the RBI” when I told him that the laptop
contained very valuable material and he should be careful with it. Credit cards are a big boon for small
businessmen, even if the default rates of interest are extremely high.

There are thus pressing reasons for getting governments out of the banking system and the issuing of
currency. They misallocate credit and they debase currencies. Since ours is a democratic state, there is
all the more reason to take away its ability to print money and allocate credit to itself. Democratic
governments are supposed to represent taxpayers. “No Taxation without Representation” has always been
the rallying cry of democracy. But democrats cease to represent taxpayers when they have the ability to
produce money out of a hat. When they can do so, they no longer care about their taxpayers and instead
use the printed money to cultivate VOTE BANKS and CLIENT GROUPS.

The most critical problem facing the globalizing, borderless world that is emerging is that of sound
money, which naturally implies good banking. “Prudent private bankers,” said the Nobel laureate
Friedrich Hayek, “are overseers of the market economy.” The critical word to note is ‘prudent’. Bankers
who take foolish, excessive risks play havoc with the savings of the people – savings that should have
gone into productive, profit-making investment and also earned the banker some interest.

The world monetary system, as it is structured today, does not encourage such prudent banking. With
central banking in place everywhere, all bankers possess a statutory ‘lender of last resort’. The very
existence of this ‘lender of last resort’ creates, for the banker, what economists call a moral hazard: that
is, he takes extra risks simply because the central bank is there to back him up. Note that the central
banker too is relying on the International Monetary Fund to back him up if things go wrong! So the IMF
creates an ‘international moral hazard’!

Central banks like the Reserve Bank of India, administer what is called a fractional reserve system: that
is, the member banks are required to deposit a portion of their deposits with the RBI, and are free to lend
the rest, subject, of course in socialist India, to various ‘lending norms and priorities’.

To understand the pitfalls of fractional reserves, imagine yourself as a London goldsmith in the days of
yore, with free private money. In the early days, before bearer notes were invented, you would never issue
more notes than the gold you got. After all, why issue a note to anyone who hasn’t got any gold belonging
to him in your vault? Once bearer notes came about, and your note gained some amount of currency, you
were faced with a strong temptation: you could issue some extra notes to those who took loans from you –
and earn interest by just giving out pieces of paper! That is, you would issue property titles without
property! By doing this, your reserves would become a ‘fraction’ of the value of your note issue.

Of course, if many of these loans are indiscreet, you will go bust. You have not been a prudent banker.
You have also been a bit of a cheat. So how can we legally have free private banking, free private note
issue, and yet ensure banking morality?

The solution to this extremely perplexing problem was given by Professor Jesus Huerta de Soto in a paper
presented to the Mont Pelerin Society in Rio de Janeiro some years ago. The solution lies in laissez faire
banking, with the essential proviso that all private bankers, without exception, be subject to basic civil and
mercantile law. Citing many precedents in banking law, Professor de Soto recommends the treating of
bank demand deposits as cases of ‘custody’ or ‘safekeeping’ and prosecuting bankers who lend out any
portion of these as ‘misappropriation’ in law. This will lead to 100 percent reserve banking, and an end to
the fractional reserve system. All banks will be well run, and all depositors will be secure.

With fractional reserves, quite apart from the moral hazard and the ever threatening scepter of bank
collapse, what also transpires is inflation. Just as the cunning goldsmith in foggy London of yore found
out he could earn interest lending out pieces of paper, so too does the fractional reserve system create
credit out of thin air. Those who benefit from this credit are those who take the loans, when prices are
low; those who lose are the depositors who take out their money to make purchases many years later,
when prices have risen.

The legal solution offered by Professor de Soto takes care of everything, for no longer can anyone issue
property titles without property. This will end inflation forever. It will legally compel moral banking.
There will never again be either inflation or depression, and, without any IMF or any central bank,
without any ‘monetary policy’, the world economy will grow smoothly – from here to eternity.

Of course, as Professor de Soto points out, what is happening today is legal fraud.

The socialist, swadeshi arguments that free trade will affect ‘precious foreign exchange reserves’ is
complete and utter nonsense. If you gave up your gold and imported a Ferrari, the deal was worth it to
you. It is your money that went out. It is your Ferrari that proudly stands in your driveway. When
money is sound, it does not matter where it is going as long as real goods are coming in. The "precious
foreign exchange" argument is only used by those who have issued so much local currency that they do
not have reserves to back it. Our Reserve Bank is actually quite broke. Thus, laws like the draconian
FERA (Foreign Exchange Regulation Act) are immoral. When the central banker cannot convert his
paper notes into the underlying asset, as solemnly promised on the note, it is the central banker who
should go to prison: a debtor’s prison. What else is meant by the promise on each note?

To understand this better, look sometime at the vegetable vendor who takes his cart from locality to
locality. He ultimately gets rid of all his vegetables and makes off with his customers’ money. Is he a
public enemy? After all, he is making off with public money. But the answer is clearly “No”. He has
taken money, yes, but he has left vegetables behind. The customers are all better off because they prefer
possessing vegetables to money and the vendor is also better off because he prefers holding money to
vegetables. Trade is a positive sum game: both sides win.

Go to any market and you will see hordes of people coming in with money, leaving the money behind,
and walking off with a host of goods. Are all the shopkeepers in these markets enemies of society?
Certainly not. In an internationalized economy with free trade and sound money, a lot of money will go
out, but a lot of goods will come in. Both sides will gain. No one will lose.

When you go to a shop and buy something, say a book, you say “Thank you” to the shopkeeper when he
hands you the book. The shopkeeper also says “Thank you” to you when you hand him the money. The
very fact that both sides thank each other shows that both sides gain. Trade is a positive sum game.
Always remember that.

When generous loans are not returned

Nobody really cares.
They’re simply running the banks you know –
The money isn’t theirs


Examine the truth in the statement: Banks create credit.

Why are there so little repayment defaults in car and housing loans?

Try and imagine a situation when everyone has the power to issue IOUs. Whose IOUs would
you accept? What would you expect the IOUs to be redeemed in?


Most economists do not understand how free money works. Somehow, their minds are trained
to look at the world from a central banker’s perspective. As one quipped when I said private
money was the only sound money – “Then everyone will be able to issue IOUs. How will that
work?” Let me show you how.

Hassan Balakrishna Soumya is a bright girl who has just received a Master’s degree in
Economics from the Delhi School of Economics and has gone to the US to get a PhD. This
incident took place a few years ago, shortly after she had graduated in Economics from Delhi
University with a first division.

At a dinner with many students from my private seminars, I casually mentioned to

Soumya that I had a small research project in mind, and was looking for someone to do it. She
e-mailed me a few days later, volunteering to do the work. I gave her all the research material,
the necessary instructions, and offered to pay her 3000 rupees for her efforts.

A few months later, Soumya called to say that the job was done. When I went to collect
the completed project, I said that something was amiss with my finances and asked whether she
would accept IOUs worth 3000 rupees from me instead. She sounded surprised, but agreed.

I promptly wrote out 6 IOUs of 500 rupees each and handed them over to her. When she
accepted them I gave her the first lesson in monetary economics: “When you accept someone’s
note, you extend credit to that person. Always remember that.” When we accept RBI notes we
extend credit to the State. Soumya was extending credit to me by accepting my note. I asked if
she thought I was creditworthy – and she laughed!

About a month later, Soumya called to say that she had offered my IOU at a cinema hall
but was refused. She thought it all rather funny, and me rather peculiar, I guess. I told her that
even RBI Governor Jalan’s notes are not accepted almost everywhere in the world. If she had
given my IOU to someone who knew and trusted me, it would definitely have worked as money.
She hesitantly agreed.

A full three months later, I called Soumya and said that I was ready to redeem my IOUs.
What would she like me to redeem them in? I offered her gold or silver – or Governor Jalan’s
irredeemable notes. She chose silver. As I said, she’s a smart girl!

I phoned a jeweller I know and ordered 6 silver coins worth 500 rupees each. They were
to have SAUVIK BANK, FIVE HUNDRED RUPEES and 2002 engraved on them. When the
coins arrived, the jeweller inquired as to what my purpose was. I explained that I was a teacher
trying to explain to my student how private money works. He said that, in the market, plastic
coins denoting large denominations like 1 lakh rupees and above, do circulate and are
redeemed in paper.

I drove over to Soumya’s house to hand her the coins. She handed over my IOUs and I
tore them to shreds. This, I explained to her, was the destruction of credit. She had created
credit by accepting my note. Now, I was repaying, and destroying the credit. She got the point.

Next, I explained to her that, with private money, the mode of account and the mode of
redemption are separate. The rupee retains its notional value, but the hard money underlying it
could be gold, silver, platinum, or even tobacco. I could have redeemed my notes in packets of
India Kings. Any commodity acceptable to the noteholder becomes hard money when money is

The central reason why private money will work better than fiat money is because people
will choose which notes to accept. They will accept notes only of creditworthy individuals and
institutions. Beyond my immediate circle, my IOUs will not be accepted. But if Bhola Unlimited
Ltd. issues notes redeemable in packets of Bhola Spliffs, (Ganesh Ka Baap Ka Beedi!) they are
sure to be accepted. Credit will go only to the creditworthy.

Such a world will be free from inflation because no one will keep money which is
depreciating in value constantly – like Governor Jalan’s rupee. In such a world, pink newspapers
will be widely read and, just as many follow share values today, masses will follow money
values and adeptly switch between currencies. It is currency competition and choice that will rid
the world of the scourge of inflation.

Today, many continue to believe in a falling rupee as being advantageous to exporters.

This, of course, is a refrain I have been hearing from my student days, but exports are yet to
take off. The greatest utility of a falling rupee is to those who stash their money overseas. I have
some £200 in a London bank, left over from my student days. Then, in 1990, the pound was
worth less than thirty rupees and my £200 was worth less than 6000 rupees. Today, the pound
is worth 75 rupees and my £200 is worth 15,000 rupees. Those who run the economy are
switching currencies when it suits them. That is why there is hawala. Only they are benefiting
from a constantly depreciating fiat currency. The rest of us are losing – because it is the value of
our savings in rupees that is going down in terms of other, more stable currencies. Suppose I
have saved a few lakhs to send my son abroad for higher studies. When the rupee depreciates,
my savings are eroded, and are now insufficient to cover the costs of my son’s education.

It is in every person’s interest to keep as much power as possible to himself and hand
over very little to the State. The greatest economic power is that of being able to issue currency
monopolistically. This power cannot be given to the State without open currency competition:
that is, full convertibility. When fiat currencies from all over the world are competing, there is no
reason to keep private money out. There is already e-gold: an internet-based private gold
currency. Let these multiply.

The important point to note is that, if we are all free to issue notes, then we are all
theoretically able to get as much credit as we can from the market. Those who are very
creditworthy will be able to issue masses of notes; those who are not so creditworthy will be
able to issue less. But as long as people are free to accept or reject notes, sound money will
prevail. Money was not invented by governments: no King suddenly decided to issue coins.
Money was already in use when some kings decided to standardise coinage. Since then, the
state has played such havoc with the monetary system that it simply cannot be entrusted with
the task anymore. So, instead of ‘legal tender’ legislation, let the law justly recognize the
property claim that every currency note must be. Let every note legally stand for some property
to be given on demand. Once this is the legal viewpoint in society, and judges comply with this
ethic, the banking system will adjust. Today, under the leadership of central banks that issue fiat
currencies that are all irredeemable, the banking system is best described as a corrupt cartel.

With free banking there will emerge a more moral as well as responsible banking. It is such
prudent bankers who will be what Hayek called “caretakers of the market economy”.



The Government of India spends a great deal of money on EMPLOYMENT GENERATION. This is
really how a KLEPTOCRACY diverts money from public goods. Note that the money is spent by
bureaucrats on politicians’ "projects". They are spending tax money (and dishonestly printed money:
deficits) ostensibly fruitfully. The truth is that these "employment generation schemes" are nothing but
schemes by which public money is stolen by the major players of the political market.

Government spending cannot create more employment than private spending. If taxpayers had kept the
money (instead of paying taxes) and spent it, the same amount of employment would have occurred.

If taxpayers had saved the money in private banks, which then made sound commercial loans with the
money, the same amount of employment would occur.

KLEPTOCRATS, instead, print money to finance these "schemes". They rake in the INFLATION TAX.
They are not helping anyone, least of all the poor. These schemes should be stopped and all public
spending focussed on public goods. We do not need this great conspiracy of thieves called "employment

In reality, such policies of the socialist government actually hurt poor workers in the long run. The money
that the government spends comes from taxing the rich, who are the biggest savers. These savings of the
rich would definitely have gone into investments. Now when the government takes these savings away
and spreads it thin amongst masses of poor people, all the money goes into consumption, none of it is
saved, and so none invested.

Workers earn wages. Wages rise only when productivity increases, and productivity increases only when
capital is employed alongside labour. Because of these socialist ‘redistributive’ policies, investments in
capital do not occur, and wages stay low, hurting poor workers in the long run. In the short run too, the
benefits to the poor are really small – for how many poor people have really emerged from poverty thanks
to the efforts of the socialist government in the last 50 years?

The Manmohan Singh government has just passed legislation guaranteeing 100 days employment for one
in each family in all our ‘rural areas’. What a cruel joke! In Mangalore, as in ever Indian city and town,
poor people who have left their villages far behind and are gainfully self-employed as street-vendors or
hawkers, face constant harassment from the local authorities. Should we send them back to their villages
so that Manmohan Singh can give them ‘employment’ – with our tax money? All these street-vendors
categorically state that they want NOTHING from the government: no subsidies, no cheap loans,
NOTHING. All they want is to be left alone! Indeed, they survive quite well with the help of the very
small financiers who operate amongst them.

In fact, what I informed the hawkers here in Mangalore, is that they are all BIG TAXPAYERS: they pay
indirect taxes like sales tax and excise on everything they buy, including matchboxes and beedis. Further,
since they save less of their income and spend most of it as compared to a wealthy shopowner, they fork
out a GREATER PERCENTAGE of their income in taxes than the wealthy shopkeeper does.

It is time to see who are the real enemies of the poor, and how free enterprise, in a free market, under
Common Law, is in the best of the poor: especially the poor who are already so enterprising as to survive
under this goonda raj.


Most members of India’s political class wear khadi to show their allegiance to a philosophy which holds
that machines cause unemployment and, therefore, if we use LABOUR-INTENSIVE methods of
production we can maximize employment. They also believe that this method of employment creation,
through avoiding the use of modern machinery, makes sense in a country which they see as

This argument neglects PRODUCTIVITY & EFFICIENCY. Division of labour is the method of
producing wealth. It creates niches in which we operate. In each of these niches we try to produce the
most with the least application of labour: this is rational, industrious Man pursuing wealth. If it makes
sense for him to use a machine to help him in his task, why should the nation lose? Do machines cause
unemployment or do they create more wealth by producing more and more goods with less and less
effort? What is the truth? What do you think, looking around you? Would we all be better off in the
Stone Age – all gainfully employed using stone implements?

Machines produce more and thereby cause ABUNDANCE. This lowers the price of the good produced
and more and more people can afford it. The market expands and employment is finally higher than it
was at the point before the machine was introduced. When poor workers get the opportunity to work with
machines invested in by entrepreneurs, their PRODUCTIVITY increases – and they ear more and more
over time. The machine is not an enemy of the worker, but his friend, the tools of his trade, his

The best example of how machines affect workers is the automobile industry.

When Henry Ford began his assembly line method of producing cars, he pursued PRODUCTIVITY. He
produced more cars in the same amount of time using more machines and less labour. Soon, cars became
cheap and more people could afford them. The market expanded.

Today, most automobile plants, all over the world, including India, are highly automated. Yet,
employment in the automobile industry is far more than it was in Henry Ford’s day. More and more
people own cars; indeed, universal automobile ownership is well nigh. Should all the robotics in car
factories be chucked out? And replaced with pre-Henry Ford methods of manufacture?

A little joke is told about this fallacy:

One day, two workers were watching a giant earthmover scooping out mounds of earth in its giant maws.
Said one: If it were not for this machine, a thousand of us could have done this work with spades.
Said the other: Or a million, with spoons.


Employment occurs when real goods and services change hands. The government cannot create
employment: it can only tax and spend. Employment will occur, then, only if the economy is free and
people are not obstructed in their economic activities by government babus. Trade restrictions, currency
restrictions, license-permit raj – all these should go. Instead of living under LEGISLATIVE DIKTATS

Indians should just live under the Liberty of the Common Law. In a poor country, people must be free to
make money honestly, satisfying the needs of their fellow beings.

What about unemployment in ‘rural’ areas where there are lots of ‘landless labourers’ and ‘marginal
farmers’? Well, the truth is that these people are living in self-sufficiency and are doomed to remain
forever poor. They have no surpluses which they can take to market. It makes no sense to spend money
‘generating’ employment in rural India. It makes far more sense to build a nation of 500 free trading cities
and asking these poor people from the villages to migrate to the cities and take part in the greater division
of labour possible there.

The share of agriculture in national income will always decline as the country advances, and services and
manufacturing overtake agriculture. If more and more people are left dependent on agriculture, they will
be doomed to eternal poverty. They will remain peasants and serfs, cheap labour for landlords.
Urbanisation is the best thing that can be done for the rural poor.

With free trade, even if they run little roadside shops, they will find ‘employment’. Today, we have a
ministry of urban development and poverty alleviation and the system extorts money from street hawkers
and vendors. The freedom to operate in urban markets is all that the poor really need. For the sake of the
poor, the state must get out of the market.

Beaten, harassed, hounded, robbed –

The system is out to get him.
How can the hawker earn a living
When the predatory state won’t let him?


If you were the Mayor of a town, what policies would you put in place to ensure that the people were

Would you print money and spend it?

Would you start giving out a dole to the unemployed?
Or would you maximise economic freedom and let people attempt to look after

Consider the vast improvements that have taken place in textile technology. Is the khadi philosophy
good for the country?

Do some research into the Luddites who used to go about smashing textile machinery in England
during the Industrial Revolution in the belief that these machines were the enemies of the poor.

Anatomy Of Public Enemy #1

I love my car. I do not appreciate the fact that our lousy pot-holed roads damage it. I was cribbing about
the cost of a suspension overhaul the other day when an unsympathetic friend quipped: “At least the bad
roads are good for our mechanics.” What does an economist have to say about a statement like that? Let
us turn to Frederic Bastiat’s famous example of the broken window.

A hoodlum smashes a shop window. The townspeople gather, survey the damage, and conclude that their
settlement is not worse off because the town glazier has just got some business. Bastiat says this view is
complete nonsense: the townspeople are fools who do not see the economic effects of the incident on all
the town’s economic actors. They only see its immediate effect on the glazier. If a wider view of society
were taken, then the townspeople would see that the shopowner will have to forgo a new suit in order to
pay for the new window. The tailor’s loss of business is something the townspeople have overlooked.
Thus, the town is actually worse off. Property has been destroyed.
Similarly, in the case of my damaged suspension, my unsympathetic friend was missing out the numerous
CDs I would have bought if Indian roads were smooth. If I did not have to fork out huge sums at the
garage, I would have been able to indulge my passion for music to a much greater extent.


There are numerous examples of broken windows in India. All our generators,
inverters, UPSs and CVTs are broken windows: these are not industries.
Similarly, our water pumps and water storage tanks are not industries. They are
also broken windows. If electricity was of good quality in terms of voltage and
frequency, and if supply was reliable, we would have spent a lot of money on
other things: clothes, books, music, food and drink. All these industries are losing
out because of bad quality electricity. If water utilities were properly run and if
we had 24-hour supply at correct pressure, we would not have a plastic water tank
and domestic water pump industry. Instead of these broken windows many real
industries which contribute to our quality of life, would gain.

These poorly-run public utilities and our horrible roads are not promoting any
economic activity whatsoever. They are simply destroying our property. In the
case of my car, I do not take the damage lightly. As I said: I LOVE my car! I do
not wish to pay any taxes to a regime that systematically causes major damage to
my most treasured private property, earned the hard way.

Through the example of the broken window, Bastiat wanted to teach a very
important lesson to all budding economists: that they should look at the effects of
any policy on all economic actors and not just focus on the immediate benefits to
a few. Henry Hazlitt’s famous textbook, Economic in one Lesson, now in its 50th
year of publication, begins with an exposition of Bastiat’s broken windows. Yet
there are many who ignore this important lesson.

In India, the greatest example of a massive broken window is one that is actually
perpetrated by the state’s economists on the gullible public. This is the charade
known as employment generation schemes. Crores of rupees are spent in this way,
and the state’s economists, these sophists, these con-artists, would have us believe
that, by spending money in this way, gainful employment is being generated. We,
the gullible public, see a district collector spend huge funds in the countryside
ostensibly employing people in constructive activity and conclude that
employment is actually being generated. We are making a big mistake. We are
not looking at the effect of the policy on all economic actors.

If we looked at all the economic actors in society, we would quickly see through
the state’s cunning.

Somehow, in this scenario, we are missing out the taxpayer. It is his money that
the district collector is spending. Would not the same amount of employment
occur if the taxpayer had spent the money himself? We are also missing out the
fact that much of the district collector’s loose spending is financed through
deficits. We are missing out the fact that the resulting inflation will be a tax on the
poor. These schemes were originally thought of by the Congress. But the BJP
continues with the charade. Indeed, the NDA government recently announced an
additional employment generations schemes by setting up a ministry for urban


employment generation. (And they harass street hawkers!) All this is nothing by
grand larceny on a grand scale.

So, who is Public Enemy #1? I do believe I have identified him as the
Government of India. Instead of protecting our lives and properties, its minions
are actually destroying our most precious assets. The mismanaged utilities and the
corrupt public works departments force us to spend huge fortunes on repairing the
damages caused to us. And, as if this was not enough, the state spends taxpayers’
money on the politics of spoils while basic issues of governance lie neglected.

We must realise that, with socialism, we do not have a democracy; we have a

kleptocracy. True democrats represent taxpayers and see to it that tax revenues are
well invested. The socialists loot the treasury, and when that is not enough, they
print money. Public money is systematically stolen and the lives and properties of
the taxpayers are not looked after. Every scheme, every PSU, every plan is just
another way of stealing public money. This must end, and soon.



It was my first day in London, my first visit to the ‘developed’ world. I had been invited to
a pub in Leicester Square by a former girlfriend who wanted to show off her brand new
husband. So there I was, spending an evening with a completely estranged woman and
a complete stranger.

The pub was quite full but I managed a bar-stool when suddenly there entered a
handsome young man in a black suit accompanied by three extremely attractive young
women. They ordered drinks and, as luck would have it, I had to pass their glasses on
to them, being closest to the bar. I noticed that the pale yellow drink had a familiar
aroma and inquired of the man as to what he was drinking. He said, “Pernod” and
added that it was a French drink flavoured with anise (saunf).

This got us talking and the group and I exchanged pleasantries for a while. The
conversation then turned to occupation. I said I was there as a student at the LSE. The
man said he was a ‘sanitary worker’. I couldn’t get what that meant and he explained:
Every morning, he puts on his overalls, boots and gloves, gets into a truck, and goes
about collecting garbage. I understood immediately that the market could do more to
correct casteism than any amount of state action. In my country this handsome young
man would suffer caste discrimination. In Margaret Thatcher’s England he was
entertaining not one, not two, but three lovely women in a pub in Leicester Square. An
he was not drinking ‘country liquor’; he was imbibing Pernod.

I must say that I learned more Economics living in London and observing life than I did
in the classrooms of the LSE. When I lived in Hammersmith, I used to pass an
undertaker’s shop every day on my way to the tube station. I used to think: In my
country, this man would be a dom – the lowest of the low.

I moved to West Hampstead and took up a room in a house run by an Indian landlady
where many students stayed. Once a week, an English maid would come and vacuum
the entire house and clean the loos. She came in her own car. In New Delhi, anyone
in such an occupational class lives in a jhuggi and does not even dare to dream of car

A recent television debate on caste featured a Dalit leader who kept talking about
carriers of night-soil. Obviously, this is an urban phenomenon. There cannot be such a
caste in underpopulated villages, where you just go out into the fields and do it. With
open markets and urbanisation, this caste would prosper and get absorbed in the larger,
more prosperous, and more cosmopolitan society. Very few people had flush toilets in
the USA in 1900.

One good thing: the Dalit leader was making noises in favour of globalisation. I suggest
Dalit leaders get interested in the Economics of prosperity. We urban liberals dream not
just of making India prosperous; we dream of making India obscenely rich. The Dalits


will gain enormously from open markets, economic freedom and urbanisation. As they
claim, in their respective economic niches, a greater share of a rapidly growing pie, and
as they mingle with caste anonymity in bustling metropolises, they will find the old caste
equations disappearing. This is already happening: At the TV debate, when the issue
was opened up to the audience, many urbanites responded saying that caste was a
factor that never entered their lives.

The socialist state’s response to the caste question has been insincere. Politicians have
used the state’s powers of patronage to promote clientelism. By refusing to urbanise,
and by throttling urbanisation, they have reinforced and perpetuated the ‘rural-urban
divide’. There is thus an India where caste does not matter; and there is a Bharat where
caste is the basis of identity. With free markets and urbanisation, India will take the lead.

Dalit leaders should also read Thomas Sowell’s slim book: Preferential Policies: An
International Perspective. It shows how reservations have destroyed societies. And this,
from an African-American scholar. In free market India, the state will be so small that
reservations will be unnecessary. Instead of the clientelism and tokenism that
reservations represent, Dalits should opt for the prosperity that economic freedom will
bequeath to them and the caste anonymity that will certainly follow urbanisation.



For decades, Economics in India has been a study of poverty. When I started studying
Economics in college way back in 1974, the first thing I was taught was The Theory of the
Vicious Circle of Poverty. This says that poverty is inescapable. Poor people and poor nations
are doomed to remain poor. Of course, this is nonsense. If this were true, the world would still be
in the Old Stone Age. The history of biography is full of rags-to-riches stories. Bill Gates and
Dhirubhai Ambani both started of poor, as did most movie stars. J Lo claims she’s “still Jenny
from the block”. America was built by poor immigrants – as was Hong Kong. Poor people
struggle hard – and usually succeed. At least I know of one prosperous shopkeeper in Delhi’s
posh Defence Colony market who started off 20 years ago selling hot roasted peanuts from a
pushcart in that very market! MTR must have simply started of as Mavalli Tiffin Room, a small,
simple establishment I visited in 1980.

It is also a fact that rich people get lazy and hooked on to luxury: Rayees baap ka bigra beta. If
we study the history of immigrant communities in America, we see that the first generation
started off poor, worked hard, and succeeded – and, that usually by the third or fourth generation
all the wealth was frittered away! There is actually a vicious circle of prosperity!

The Theory of the Vicious Circle of Poverty is now taught in ICSE and CBSE schools. The
textbooks which contain this nonsense should be immediately discarded.

Economics is not a study of poverty. It is a study of the production of wealth. Adam Smith, in
1776, wrote An Inquiry into the Nature and Causes of the Wealth of Nations. It is the causes of
wealth that Adam Smith studied. It is this that his free market followers study today. However,
India is said to be a poor country and its poverty often calls for POLITICAL ACTION to solve.
The politicians spend crores of rupees on POVERTY ALLEVIATION. Should this continue?
Let us take a closer look at the symptoms of poverty we see, like beggars.

I often travel between Delhi and Dehra Doon by car. After Roorkee, the road passes through a
dense forest. Thousands of monkeys line the thoroughfare waiting for the scraps of food that
Hanuman worshippers throw at them. Does this prove that the forest is poor and resourceless?

Or does this show the role of INCENTIVES (or what psychologists call POSITIVE RE-
INFORCEMENT)? The monkeys have learnt that hanging around by the side of the road is an
easy mode of existence. The same is true of beggars.

Long ago, the great dissenting development economist Peter, Lord Bauer, of the London School
of Economics and Political Science, made the observation that the widespread beggary that exists
in the cities and towns of India and Pakistan is not a proof of poverty; but rather, the result of the
fact that the predominant communities in both countries, Hindus and Muslims respectively,
believe that they earn spiritual merit by giving alms to the poor. There are no Parsi, Jain and
Sikh beggars in these very countries because these communities practice charity differently and
encourage self-help.


[In Poona, just behind Dorabjee’s, there is a very big, old house bearing the title: Parsee Home
for the Parsee Poor.]

In India, there is legislation against the maiming of children for pushing them into beggary.




It is quite likely that the petty kleptocracy of municipal and police officials view beggary as an
activity that generates a good income for themselves.



We must not give to beggars; rather, we should encourage competing private charities.




How would you rather spend your money in order to help the poor in a truly useful manner:

• Pay taxes to the socialist state?

• Give alms to every beggar on the street?
• Contribute to Mother Teresa’s Missionaries of Charity?


Note that there are no Sikh or Parsi beggars in India. The Sikhs practice and encourage self-help.
Anyone who gets a free meal at a Gurudwara langar is motivated to go out, work, earn a living
and himself contribute to a langar for others some day.

Samuel Smiles’ Self-Help is a book every Indian should read. Written in the 1860s, it was
translated into Turkish, Arabic and Japanese within a few years and sold millions of copies
worldwide. In Victorian England, it was second only to the Bible in every home; and in Meiji
Japan it spread the firm belief that the Japanese could catch up with the rest of the world if they
worked hard and conscientiously, with the least government interference.

The book promotes one’s belief in oneself; only one who believes in himself will practice self-
help and thereby maximize his human potential. The notion of the WELFARE STATE does not
encourage such a point of view. It looks at the poor as hopelessly so, and in need of charity via


the state. In India, Rajiv Gandhi himself commented that 80 per cent of the money spent on
POVERTY ALLEVIATION SCHEMES do not reach the targeted poor. They are swallowed up
by the kleptocracy. “There is a hole in your bucket, dear Eliza!”

Self-help is an ethic which holds that help from outside weakens a person. It should only be
sought by the desperate – and that too, from private charity, or from friends and family. We all
have the moral sentiment of SYMPATHY and we all have the virtue of GENEROSITY. That is,
we all sympathize with those who are in suffering, and we all possess a generous and giving
disposition: that is why beggars are multiplying. They are a living and growing testament of
public sympathy and generosity. Their existence proves that well organized and well-directed
private charity is the best idea; preferable to state taxation in order to help the poor; and much
better than unorganised individual aid encouraging beggary. There is no need, in a free market
economy, for state action in aid of the poor.

Instead, there is an urgent need to spread the idea that PROSPERITY LIES IN ECONOMIC
FREEDOM. Today, the poorest of the poor players in the market economy have their lives
ridden with economic controls and are preyed upon by the petty officialdom. The transportation
industry is extremely unfree. There is, of course, exchange control; which makes every Indian
incapable of participating freely in the globalizing world economy. Indian agriculture is also
under an inordinate amount of government restrictions.

If all these controls were abolished; and if there was ECONOMIC FREEDOM, the country
would immediately prosper. There would be very few poor people, and they could be helped
through competing private charities. Beggary would be discouraged by society. The state would
tax us all minimally, and invest these proceeds in the best PUBLIC GOODS – especially roads
and law and order – and this would allow India to urbanize aggressively: the 400 free trading
cities vision. Villagers would increasingly prefer to migrate to towns and cities and participate in
the greater DIVISION OF LABOUR there. There would be no population pressure on land and
Indian agriculture would achieve greater efficiency. Land reforms and land redistribution would
be unnecessary. With private property rights under the Common Law, land – that is, the vast
territory of India – would actually become a “factor of production” – to be bought, sold,
mortgaged and leased freely – contributing not just to agriculture, but every other use as well,
from real estate to manufacturing, and from forestry to animal ranching.

We must promote the ethic of self-help by encouraging people to create wealth in freedom.
Today, we are only encouraging dependence, and hence stifling the full development of India’s
human potential. This gives an excuse to the kleptocracy to preach in favour of pro-poor
socialistic policies. These can never help the poor in any meaningful way. These should all be
abolished. No ration shops. No subsidies. Instead, free trade, sound money, public goods, the

Freedom enables people to make economic achievements without hindrance. The ethic required
is that of self-help. I help myself, and I am free to do so. I do not depend on others, least of all
the state. If every Indian thinks like this, and if every Indian is economically free, there will be
no poverty.


The MOST IMPORTANT aspect of freedom is a FREE MARKET, because that is how human
beings survive. Homo Economicus is not a hunter-gatherer or nomad tied to Nature. Homo
Economicus survives through an economy. He fails to survive only is the economy he is living in
is bad.

As Lord Bauer said:

“Poverty indicates just one thing – the absence of economic achievement.”

He then went on to add:

“Economic achievements are made in markets.”

These two lines say it all. It’s as simple as that: With a FREE MARKET there will be no poverty
as everyone will make superlative economic achievements. Adam Smith believed that the
System of Natural Liberty would yield “UNIVERSAL OPULENCE”.




Poverty of rights,
Poverty of freedom,
Poverty of truth,
Poverty of wisdom,
Poverty of good policies
Poverty of good sense
Poverty of public goods,
The poverty’s immense.


If the Theory of the Vicious Circle of Poverty is untrue, what explains mass poverty in India?
How can India become a prosperous nation?
What are the ways by which we can meaningfully help poor people?
If the unemployed got dole from the state, would this weaken or strengthen the family? Think
deeply: Would we be in need of family and friends if we were on the dole?
Do some private research on The Economic Freedom of the World Index. Compare it with
the Human Development Index which UN agencies, the World Bank, and the socialists all
talk about. What should come first: Human Development or Economic Freedom?




We have already noted that urban beggary is not a proof of poverty. Let us now look at something else
that is a blot on the urban environment: slums.

Note that there are no slums in Kathmandu, Nepal, although the per capita income is lower there than in
Indian cities. There is only one reason for this phenomenon: rent control. There is no rent control in
Kathmandu, so landlords build houses and let out rooms to poor people who cannot afford to buy or build
themselves their own houses. There is rent control in India, so private landlords do not offer cheap
housing on rent.

The poor typically rent property. They do not buy. They cannot buy. For their benefit, therefore, it is
essential to have a vibrant rental housing market: As, for example, in London, where you get furnished
rooms by the week affordable even to poor students like me. Why? Because if you don’t pay the rent or
damage the furniture the Bobby will take the side of the landlady, as will the court! Hence there are so
many landladies in London willing to rent out rooms.

Because of rent control, the cops in Bombay or Calcutta do not side with landladies, nor do the courts of
law, of course. I know, for my poor grandmother suffered 20 years of litigation to get a tenant out – and
by the time the tenant finally left, my poor grandmother had gone even further – to the next world! If this
is what happens to landladies, who will build houses and rent out rooms to anyone?

Without rental housing from the market, the urban poor are forced to go to politically sponsored
slumlords, and this adds to THE CRIMINALISATION OF POLITICS.


Why is rent control an economic evil? Because it is a GROSS VIOLATION OF PROPERTY RIGHTS.
The property belongs to the landlord. If the tenant can legally take it away, it means that the law is
promoting theft. THE LAW IS LEGAL PLUNDER.

When plunder is legal, the market cannot operate. Property rights are fundamental to the morality of the
market. Unless it is clear as to what is ‘mine’ and what is ‘not mine’, no trade, not even barter, is possible.
No rental market can come up if it is legal to plunder the landlord’s property. This must be clearly

With property rights, a big blot on the urban environment will disappear. 22

Let us now turn to another problem area: clean air.


Citing observations made in Australia, Sudha Shenoy adds: “Slums are also caused by the lack of building land
and secure title to it. Even in Australia, in the 19th century, when municipal governments refused to give secure title
to land, people built only the most appalling, ramshackle hutments. I saw one, inquired, and found out why.”


The air in our cities is not clean for a wide variety of reasons, foremost being the use of inefficient
vehicles and poor traffic management. Even a cycle rickshaw causes pollution when it occupies the bus
lane and forces the bus to swerve into the main body of traffic. Every other vehicle user has to change
gears and pollute the air. The cycle rickshaw has transferred the costs of his inefficiency onto other
vehicle owners. They have to slow down, change gears and swerve – this costs money as well – only
because the cycle rickshaw is slow and inefficient. Free trade is the cure.

With free trade in second-hand vehicles, the Indian transportation industry would arrive into the modern
age. With free trade in used vehicles, the cycle-rickshaws, auto-rickshaws, pygmy trucks and buses, the
Ambassador taxis and other polluting relics of socialism would be history. With better roads and traffic
regulation, pollution would lessen and the air would be much cleaner.

Thereafter, taxation can be used to keep the air clean. If we tax heavy polluters heavily, and impose no
taxes on clean technologies, people will be encouraged to switch to clean technologies and the air would
remain clean.

Collective action is required in traffic management, an essential part of law and order: a PUBLIC GOOD.
Socialist India has neglected both roads as well as traffic management. With better roads and scientific
traffic management, free trade in second-hand vehicles and taxation to encourage clean technologies, we
will obtain much better air in our cities

[In Poona, at least two two-wheeler deaths are reported in the papers every single
day. The air pollution must be tremendous because all the girls on scooters wear
head scarves that fully cover the entire face, leaving just the eyes – making them
look like terrorists! Poona is a student town, and all students drive two-wheelers. A
former Director-General of the Armed Forces Medical College in Poona told me
that at least two of his students had motor-cycle accidents every week. The war is
on the streets, for these army doctors! The sign outside Fergusson College says:
Established 1885. Try crossing the Fergusson College Road today: it is an extremely
risky business.]

As far as clean air for rural India is concerned, the main problem there is indoor air pollution, caused by
the domestic stoves using primitive fuels. The solution lies in modern sources of energy, like electricity or
gas. In a free market, all energy sources compete, and new ones are found. So, free power to farmers is
nonsense, for with reliable, paid-for power, it is the farmer’s wife whose lungs would be saved. Whenever
I meet farmers intent on lobbying for free power, I remind them that it is ancient Indian tradition to light a
lamp in every house at sundown. How come we are all still able to light these oil lamps but cannot obtain
light from Thomas Edison’s electric bulb? Because we pay for the oil in the lamp, while we do not pay
for the electricity for the bulb. It is as simple as that: no free lunches.


Picture our situation: the earth is made of seven parts of water, but water is scarce. The earth has very
little oil, but diesel and petrol are available in plenty. What explains this curious phenomenon?

The only reason is that there is a market for oil, but there is no market for water. The state owns all the
water and distributes it as it sees fit. Farmers in Punjab get free water with which to grow rice (which
needs 21 waterings) but water is scarce in Delhi, although there is willingness to pay.


I was in Dehra Doon once and heard complaints about water shortages. The town has the mighty Ganges
flowing on one side, and the mighty Yamuna flowing down the other. Why is there no water in Dehra
Doon? To find the answer, visit Dakpathar, an irrigation town 40 km from Dehra Doon. There you will
find that the state is damming river water and dispatching it free to Punjab farmers. The town of
Dakpathar is also a ghost town amidst beautiful landscape because the irrigation department is broke and
makes no profits from water. The townspeople of Dehra Doon would pay for water, but the state is not
interested in water markets.

The solution, again, is PROPERTY RIGHTS.

If we had shared property rights to river water and ground water we could sell surplus water in a water
market. Someone would be buying river water in Punjab and selling it in Delhi. The Punjab farmer might
also find it preferable to sell his water rather than use it to grow rice (when the water is free of cost).

The Narmada Dam agitation also showed that big dams are a technology promoted by the state. The
tribals have no property rights on river water, and the water is stolen by the state and diverted to those the
state feels need it more. If there were property rights on water, the dam owner would have to pay tribals
for the water, and he would then have to sell that water to those who need it. The absence of free water
might make big dams uneconomical. It might make desalination plants economical and, instead of big
dams, we might have hundreds of desalination plants all over the coast, huge water pipelines (like oil
pipelines) all over the place, and a general abundance of fresh, clean water that everyone would willingly
pay for.

The Vajpayee government trumpeted the case for a mammoth project to interlink all Indian rivers.
Thankfully that is now on hold. But if ever revived again, do remember what Milton Friedman once said:
“If we hand over the Sahara Desert to the government, there will be a shortage of sand in 5 years.” If the
government of India takes over all the water, no one will get any. The history of China contains many
tales of cruel Emperors who took over all the sources of water. Historians call this ‘hydraulic despotism’
for the power was used to subjugate the people. If any village or town threatened to rebel, water supply
was stopped. Government should never be given complete control over such a vital resource, for they will
definitely misuse this power. With private property rights, and innumerable private proprietors and sellers
of water, such a concentration of power is avoided.

And anyway, water is abundant on the Konkan Coast. There are innumerable perennial rivers, and rainfall
is plentiful. Agumbe boasts the second highest rainfall in India after Cherrapunji. And then there is the
vast ocean, if desalination is deemed economical by some entrepreneur. If this region thought for itself,
then it should not be bothered about the prospects of water problems, ever.




Note that tigers need state protection but goats, chickens, pigs and cattle do not. They survive and face no
threats to their survival simply because they occupy NICHES in the market economy. They are not
subject to poaching, they are governed by property rights (someone owns them) and, although they are
killed aplenty to feed human beings, they are assured of survival. Similarly, fruit and vegetable species in


use in the market economy survive. Rare plants would survive if the pharmaceutical industry could use
them, or if they could be used to decorate our gardens.

Emus and ostriches survive today on poultry farms. Crocodiles have been saved from extinction just
because they are now farmed: you can order crocodile jerky at www.gatorbob.com, and it tastes pretty
good! Crocodile meat and kangaroo steaks are becoming very popular in Europe.

Such ideas would help species survive better than the approach so far taken: having laws against trade and
placing sanctuaries under government ownership and control. For example, Veerappan could have been a
sandalwood farmer and an elephant rancher. In the Western Ghats, nature’s bounty includes not just
sandalwood, but also mahogany, rosewood, teak and ebony. But all these are state property! Hence these
woods are scarce. If they were farmed, with private property rights, these trees would be abundant – and
survive aplenty. There are more trees in Canada now than there were when the first white settlers came –
because of the timber companies!

[With state ownership of all trees, good timber is scarce and expensive. If we could
farm timber and sell it, timber would be cheap and plentiful. One extremely
unfortunate result of state ownership of all timber is what I heard has been
happening to palm trees in and around Mangalore. Since these palms are no longer
usable and profitable because of the restrictions on toddy, many are being cut down
for use as roofing rafters! A toddy palm takes ten years to mature. It is a very
useful tree. If sal was cheap, who would cut down a palm tree? Do note how
INTERFERENCE by The State dislocates all PRICES and makes people take
decisions that go so completely against economic logic. The palm tree is considered
sacred in Islam, with the Prophet forbidding its destruction even during war.]

On elephants: Zimbabwe was the only country in Africa that refused to sign the international treaty
banning the ivory trade. Instead, they simply handed over the forests, with the elephants, to the jungle
people. Soft-headed environmentalists predicted doom. But even these jungle people were smart enough
to know not to kill the goose that laid the golden egg. They allowed in hunters – with a $50,000 fee. And
when the mad big game hunters from Texas came, they made sure they shot only the old ones, or the
rogues. They farm ivory. And Zimbabwe is the only country in Africa whose elephant population is

Note that wilderness is also a commodity that can be sold for tourism and nature study and photography.
Hunting can be a sport if there are ranches which breed species and allow recreational hunting. There are
more blackbucks in Texas, USA, than the whole of India because Texans ranch blackbucks and allow
recreational hunting. I enjoyed a venison steak at the canteen of an Ikea store in Germany. And I noticed
that in their supermarkets you get rabbit, quail, partridge and other game, including wild boar. In the
Konkan, wild boar are a menace, kept out with electric fences. Freedom will allow this pest to become a

Wilderness can also be preserved as private property, of those who value wilderness. In the USA there is
a private nature conservancy organisation that collects funds from members and simply buys up millions
of acres of forest. It then preserves the wilderness as its members’ private property. Thus, those who value
wilderness ‘put their money where their mouths are’. On the other hand, when the state takes over forests,
the poorest pay the price: the tribals who have been living there for generations, or the ‘Naxalites’ in


Further, government owned sanctuaries are prone to a particular economic problem, to which we now
turn our attention:


If there is a common pasture, over which there is no ownership, and if there are a few shepherds who
graze their sheep there, theory predicts that they will each overgraze rationally and ultimately destroy the
pasture. This is because each will think that, if he does not let his sheep eat the grass, the other shepherd’s
sheep would. This sort of rational behaviour by each of them will ultimately destroy the pasture.

Or, to take another example, suppose there was a large pond with plenty of fish in it and there were a few
fishermen who lived nearby. When no one owns the pond and all the fishermen are competing for the
fish, theory predicts that they will rationally destroy the pond. Let us see how.

Suppose a fisherman were to net a small fish, ideally he should throw it back into the water. But in the
above situation he will not do so because he will think that if he does not get the fish, the other guy will.
Thus, with each fisherman thinking this way, the pond will soon have no fish left – simply because it is a
common resource, with no owner.

Property rights are essential for looking after the environment. If we could establish property rights over
forests, water, rental housing as with everything else, the environment will be better preserved because
each threatened good – housing, drinking water, plant and animal species, forests, the continental shelf –
would find a niche in the market economy and survive. Today, each is suffering from a ‘tragedy of the



It is common property – like the air, the river, the forest, the tiger – that gets destroyed or polluted.
Property rights are the cure. You can either sell the common property or else charge a fee for using it – a
tax, for example, to spew smoke from an industrial chimney or discharge effluents into a river. These
taxes would make people switch to cleaner technologies. The tragedy of the commons would be averted.


Suppose you are the King of Benares, and all the citizens are inordinately fond of Benarasi paan. They
chew paan and naturally spit all over the place. This is a problem of pollution. This is also a tragedy of
the commons: they spit in public places which no-one owns. How are we to cure it?

Choice 1 is to ban paan. But those who believe in liberty do not believe in bans. A ban would take away
freedom. We must therefore think of a better way.

(Let us also not forget that if a Maharaja of Benares were to ban Banarasi paan in Benares, there would
be a public revolt!)

The polluter pays principle says that a tax should be levied on anyone who spits paan juice in a public
place. What would happen if this tax was imposed (and collected)?


Within days, paan chewers would go around with spittoons. They would be possessed of the basic
economic rationality to adopt environment-friendly technology.

Similarly, if vehicles were taxed according to the pollution they cause, those who own old vehicles – the
relics of socialism – would be encouraged to switch to Euro II compliant new models – which should not
be taxed at all.


When people like us say that population is an obvious cause of prosperity – humans are the only species
capable of creating wealth, and every dot on the map is densely populated and rich – people like them talk
of the ‘scarcity of natural resources’. They say that more people on the planet means all the ‘scarce’
natural resources will be used up.

The question of natural resource scarcity was taken up most thoroughly by Julian Simon. He studied long-
term price trends and came up with a curious finding: that the prices of all natural resources, indexed to
wages and inflation-discounted, have been steadily falling over the past 200 years despite the fact that,
during this time, the population of human beings on the planet has more than quadrupled.

This was indeed a curious find. If the argument being doled out by those who believed that more human
beings meant a strain on natural resources was true, then the prices of all natural resources should rise, not
fall. But they were indeed falling, and that too, very steeply. For example, see copper prices over the past
200 years.


Copper is a widely used metal. It is available only in a finite quantity in nature. Human population has
quadrupled. What explains the fall in copper prices? It is after coming up with a host of price graphs (not
only for metals, but also for food items like wheat, and even going on to cotton and coal) like the one
above that Julian Simon came to an amazing conclusion: That more human beings mean more resources,
not less.

Accordingly, in 1980, Julian Simon did something very unusual for an academic: he put his money where
his mouth was and offered a bet. Select any 5 natural resources and let us make a basket worth $1000
comprising $200 of each resource. Then, let us take up the value of the basket in 1990 (after 10 years). If
the prices rise, you win. If they fall, Julian wins.

Paul Erhlich, author of The Population Bomb, accepted Julian’s bet. And lost $576.07. The combined
basket, which was worth $1000 in 1980, was worth only $423.93 in 1990. The five natural resources
Erhlich had selected were: Copper, tungsten, chrome, nickel and tin. These are all heavily used. How
come their prices fell so much?

The reason is again a ‘conflict of visions’. Erhlich is a biologist with a simple theory: the world is made
up of finite resources and if Man multiplies too much, there will be less to go around. There will be
shortages. Julian Simon, on the other hand, was an economist who carefully studied long-term price
trends. His vision was of a huge planet with abundant resources. These resources come into play only
when humans use them. Thus, the more humans there are, the more resources. Human beings are ‘the
ultimate resource’. Indeed, it is also true that although humans have quadrupled in the last 200 years, the
price of human beings – wages – has gone up! All natural resource prices have gone down, but the price
of human beings has gone up!

To understand the fatal flaws in the natural resource scarcity argument, let us take the case of oil as a
source of energy. Its prices are artificially high only because a cartel is cutting down supply, otherwise
they too would fall. Is this wise on the part of OPEC? For, after all, when oil prices are high, then
economics is on the side of those who search for substitutes. And sure enough, I saw fuel-cell cars on
display at the Geneva Motor Show, 2000. This technology will make itself felt within a decade. General
Motors has announced it will start commercial production of fuel-cells that will run offices and homes by
2006. Long before the world runs out of oil, humanity would have moved on to cheaper alternatives.

Human beings are not a problem. Human beings are resourceful. The human mind, as Julian Simon said,
is the ultimate resource. It brings in more and more resources in play from the Earth’s bounty. Take the
history of energy. When Britain began industrializing, charcoal was used to make iron. Then, whale oil
was used for lighting lamps. Whales were hunted to near extinction and whale oil prices naturally rose.
The human mind responded to the challenge by discovering oil under the ground. (So Rockefeller saved
the whale, not Greenpeace!) With the invention of pumps which could suck water out of mine shafts,
charcoal was replaced by coal. And the landowners who farmed trees for charcoal were out of business!
Then came electricity. Today, you can take coal to Newcastle. There is no mining, (after Margaret
Thatcher), but there is still coal under the ground. It has not been exhausted. There are still lots of trees
for charcoal; there are still whales; there is still a lot of peat left, which no one wants to use. Simon notes
that in Roman times there was a scare that the world was running out of flint – and in the ensuing panic to
hoard flint, the price of this common stone rose spectacularly! My Zippo lighter uses flint; there is no
shortage of flint; you can buy a pack of Zippo flints anytime, anywhere. Similarly, there will always be
oil and natural gas, for the human mind will come up with alternatives. Even these non-renewable sources
of energy will not be completely exhausted, ever. The price of energy will prompt the search for


Thus, ‘sustainable development’ is nonsense. There is no shortage of resources, including land, and there
is no ‘population pressure’. There is no need to SLOW DOWN PROGRESS in order that some future
generation can benefit – the chief ethical argument of those who call for ‘sustainable development’. We
do not need to leave the tigers and the trees and the rivers and the oil for the future. There is enough of all
of these things and if we need them today, we should use them today. The way to ensure that all of these
survive and are passed down to future generations is to ensure that the market, with property rights, be
allowed to govern resource use today. In fact, rather than conserve oil, we should actually use more of it:
if we have a real automobile revolution in India, with duty-free second-hand car imports, and every Indian
has a real car, and our oil consumption hits the roof, and the price of oil also shoots – only then will fuel-
cells become economical! And there will be a huge market for them, which will make them cheaper still
as time goes on, simply because we had used the opportunity TODAY to use resources TODAY to create
wealth TODAY so that we could buy fuel-cell cars TOMORROW. If we just hang around today, with our
Bajaj scooters, we will not create the wealth to leave behind to our children (our immediate future, not
some distant generation) so that they will be able to afford fuel-cell cars tomorrow.

Remember: we still read frequent reports in the papers about ‘new oil and gas finds’. That is, we do not
even know how much oil there really is out there! There are vast known oil basins which are not being
utilised today as they are not economic; there are also many basins which are unknown to man, which are
yet to be discovered. By the time fuel cell cars become the norm, which will not take too long, there will
still be lots and lots of oil left, which no one will even want.

So even the CLIMATE CHANGE chaps who want all countries to lower emissions are dead wrong –
especially as far as poor countries are concerned. For the poor countries, what is needed TODAY is
modern energy. Poor countries need free trade, sound money, property rights and the rule of law – and
with these they will attain prosperity, with which to harness more and more modern sources of energy
which will increasingly cause less pollution and produce less emissions – like fuel cell cars. If they have
gas and electricity, they will not use firewood.

It is also very important to note that when climatic disasters occur, like hurricanes, rich societies suffer far
less damage than poor societies. A hurricane in Haiti kills thousands; the same just across on the coast of
Florida kills just a handful. When cyclones hit Hong Kong, people hole up in the hotel bars, and survive;
while in coastal Orissa, thousands and thousands perish for, with poverty, they do not even possess
concrete buildings to seek shelter in. NGOs are going about building ‘cyclone shelters’ (just ugly concrete
building) in ‘villages’ with populations exceeding 1600 situated just 25 kms from the overcrowded
Cuttack (but no road, of course). With good roads, this ‘village’ would be real estate: lots of concrete,
including concrete bars and concrete ganja-smoking joints.

[In the village square, under a mighty banyan, I joined a group of over 20 locals
smoking ganja in big chillums: ‘smoking in a public place’? Ganja is legally sold in
Orissa, where it has been smoked traditionally by the population. But a trade
license costs 85,000 rupees, and the dealer in the village was conducting his
business “illegally”!]

The tsunami that just hit the eastern coast of south India, the Andaman and Nicobar Islands, Thailand,
Indonesia and Sri Lanka demonstrated that governments have been more concerned about imaginary
future dangers rather than real present ones. Now that we know the ocean’s fury, how can we best insure
ourselves against any such event in future? Here are two choices:

1. Ask The State to set up a warning system.

2. Clamour for a Free Market.


Right now, most Indians are choosing Option #1. What will that achieve? Simply this: Some ministers
and bureaucrats will get a “budget” to set up a warning system. Maybe it will be a very good one, who

Now examine Option #2: If we get a completely FREE MARKET, we can all make lots and lots of
money ourselves, which we can spend ourselves, on what ever we deem fit for our own preservation. We
will choose better boats to fish in, better and stronger houses to live in, and even sea walls to fortify our
own little towns. We will buy insurance policies. We will all buy radios and mobile phones and other
kinds of modern communications – and maybe entrepreneurs will come up with the service of relaying
seismic warnings in the zones that create tsunamis. So when the wave hits Indonesia, the entire eastern
coast of India will be informed.

Further, to be safe when a future tsunami strikes, we will need much more than just the early warning
from The State. We will need fast transport so we can get to safe areas – and these we will have to buy
ourselves. We will need stronger houses – and these too we shall have to build ourselves. We will have to
buy our own insurance policies too.

The great advantage of the free market is that it enables us not only to earn the wealth required, but also
the ability to choose how to apportion our money among the various heads necessary to secure our safety.
The State will think of only one area, early warning systems, and spend the money. All other areas,
equally important, will remain neglected. We will remain poor. We will die again when the next tsunami
strikes – just like the poor people of Haiti or the Philippines who are similarly affected every year.

Natural disasters happen. Some areas are prone to them – like California. But when they are rich, thanks
to a free market, they can afford earthquake-proof housing – and survive.

However, rather than fearing natural disasters, especially natural disasters 100 years hence, which the
global warming guys are all so worried about, mankind needs to urgently wake up to the fact that many,
many more people die annually from acts of The State, including war. More people have died in Iraq
since the US occupation began than died in the tsunami. How many died in World Wars I and II?
Vietnam? How many were killed to make communism happen in the USSR and China?

The columnist Swaminathan Aiyar, has taken the opposite view in his Swaminomics of January 2, 2005.
He lists huge disasters that have happened in the past, from ice ages to volcanoes to epidemics as
evidence of Nature being the biggest enemy of mankind. He lists various natural disasters waiting to
happen, including a possible comet or meteorite smashing into our planet. But surely a rich population
will be better able to handle any of these eventualities. A rich population in the modern world will easily
survive an ice age, which will not happen overnight, and will take a long time progressing, so giving us
adequate time to get everything organised to face it: it costs us 3 crores a day to keep soldiers in Siachen!
A rich population will send nuclear missiles into space and blast the comet or meteorite heading our way
into smithereens. A rich population will be better able to handle any epidemic that breaks out in the
future. Of course millions died in natural disasters in the past – mainly because they were poor nomads
and hunter-gatherers as, say, during the last Ice Age. Plague killed millions in Europe in the Middle Ages,
but in modern times it is only in a poor country that the plague strikes – as in our very own Surat a few
years ago. And since Surat is a rich city – centre of the diamond-cutting industry – it quickly recovered. I
visited Ahmedabad a year after the great Gujarat earthquake – and this prosperous city had completely
recovered from the damage. I think if we go to poverty-stricken Latur in Maharashtra today, where an
earthquake struck a few years ago, we will still find signs of devastation – because of local poverty.


Aiyar begins his column saying that the tsunami killed more than the bomb on Hiroshima. But that was
just ONE bomb! WW I and II, communism, fascism, the partition of India, and all the wars that continue
in the name of whatever great ‘value’, like democracy – all acts of The State – kill many, many more
human beings all the time, each and every bloody day.












On the Konkan coast there are virgin mountains by the thousands: mountains, mountains and even more
mountains. If roads are built and some of these mountains became hill-stations, have we ‘lost Nature’ or
have we made it possible to enjoy Nature? Coffee estate owners in Chikmagalur and Coorg complain that
the Forest Department often accuses them of ‘encroaching’ forest lands. If some estate has genuinely
done so, should we pull out the coffee bushes and let the jungle take over that land? Is there some
‘economic value’ to The Jungle?

Let tigers and lions breed on your farm

Crocodiles and antelopes too.
Endangered species will be safe from harm
(I’m not quite so sure about you).


There are no high rise buildings in Kathmandu. Can you guess how this is related to property rights

What can be done about shopkeepers who pay tiny rents for properties that are worth millions today
and therefore oppose the lifting of rent control?



Bureaucracy is a an organisational system designed to SERVE THE MINISTER: not “the

people”, nor “the Law”. Bureaucrats are not “public servants”: they are only the “minister’s

As an organizational system, bureaucracy is based on four principles:

• Hierarchy: which means that you will always work under those who are senior to you
in age, irrespective of MERIT. This promotes the RULE OF THE AGED. In
bureaucracies, youth sacrifices itself to the aged.
• Impersonality: which means that it is the desk – the BUREAU – which takes
decisions as per rules and not the officer on the basis of his personal bias. Another
word for impersonality is impartiality.
• Career: a lifelong commitment to serve the order.
• Expertise: it is supposed to provide RATIONAL, KNOWLEDGE-BASED
GOVERNMENT. Judging by the traffic in our cities, Indian bureaucrats do not
possess the knowledge with which to conduct our common affairs. This is also known

The characteristics of bureaucracy are easily remembered by the acronym HICE.

It is the chosen method of organising government services worldwide, but it has its
disadvantages, which must be understood in a KLEPTOCRACY.

Bureaucracies are careers in which youth sacrifices itself for the old. Bureaucracy therefore
promotes the RULE OF THE AGED. Since we wish to change India, it is essential that our
intelligent youth do not sacrifice themselves in careers that prop up the misrule of the aged.

There is an alternative to bureaucratic organisation: THE NEW PUBLIC MANAGEMENT OR


Free marketeers believe in very limited government, dedicated solely to the provision of

These can be provided much more easily if there were to be a sole official CONTRACTING-
OUT the job to competing private suppliers. For example: garbage collection. If we do it
bureaucratically we put an official in charge of a monopolistic DEPARTMENT which recruits
sweepers, purchases trucks and brooms and so on. We notice that the BUREAU CHIEF spends
most of his time processing BUREAU INPUTS: he looks into the personnel problems of his staff
(leave, discipline, promotions and so on); he looks into the purchase and maintenance of trucks
and brooms. He has little time to process BUREAU OUTPUT: to see to it that the town is
actually being cleaned up.


If we apply NPM and CONTRACT-OUT garbage collection, the sole official we need will
actually be able to see that the work is being carried out as per contract. Thus, we will get
efficient public services. There is also the strong possibility that, with COMPETITION AND
CHOICE, there will be many bidders for the service and the actual costs will come down. This
will help control the FISCAL DEFICIT and thereby help to usher in SOUND MONEY.

There is a lot of literature on NPM and it is a growing movement in public administration

worldwide. Young Indians who wish to work in administration in the future should explore this
PARADIGM and study further.

The essential point to note here is that it is possible to have a lean government that is not
bureaucratic and which provides public goods and services with high cost efficiency. Such a
system of public administration is what our young people should usher into India.

Sudha Shenoy, however, advises some caution: “Some Canadian cities tried contracting-out
garbage, with the result that the contractor got a virtual monopoly. US cities have several
competing services, who deal direct with the householder. The results are marvelous: dustbins
are disinfected, deodorized and perfumed, and you have a choice of three scents! Similarly, in
Britain, ‘contracting-out’ results in a cosy relationship between the official(s) involved and the

The essential point is that there is no ONE CORRECT WAY in either Public Administration or
its sister-subject, Business Management. (Just as there isn’t one correct way to make tea: as the
English say, “Not my cup of tea.” Is there one correct sambar or coconut chutney in South
India?) Perhaps competing garbage companies can deal directly with all householders. But what
about the construction of urban roads and footpaths, street-lighting, signage, sewage and other
collective needs of an urban agglomeration. What is really needed in this area is
studied by academics and the media. Such studies will not only lead to the blossoming of the
subject of Public Administration, in a woeful condition today under the IAS; such studies will
also provide BENCHMARKING: that is, comparing costs in different cities will indicate which
cities are managing their affairs well, and which are not.


The 400 free trading cities we look forward to seeing in India in the future will all require
excellent urban management systems. Instead of panchayati raj 23 nonsense, India will urgently
have to re-invent urban local self-government. These do not really exist in urban India today.

Self-governing cities and towns, the world over, are run by Mayors. The Mayor of Shanghai is a
very senior functionary of the Chinese Communist Party.

The horrible town of Gokarna is run by a panchayat! They charged me 10 rupees to drive into a town without any
roads whatsoever! I wanted to see the famous Om Beach, reputed to be the prettiest in India, but was advised that
my car would break down if I tried the road. Similarly, the little town of Kalasa is run by a panchayat. But these are
towns, not villages, and should get Mayors.


Mayoralties are a very old institution: the Lord Mayor of London was established before the
Magna Carta! The Mayor was the head of a body of sworn citizens called a commune. (So it is
interesting that the word ‘commune’, on which ‘communism’ is based, has its origins in an urban
association of businessmen!)

The history of constitutional development in Britain shows the important role played by
institutions such as that of the Lord Mayor of London. Then, the King was just a tyrant with a
sword: like, say, William the Conqueror in 1066 AD, of Viking descent. The King wanted
money: taxes. Who could pay these taxes? Apart from the feudal landlords, only the wealthy
merchants, who made money. Thus came the Magna Carta – and the merchants secured
LIBERTIES from arbitrary government and onerous taxation. Clause 13 of the Magna Carta
specifically mentions the City of London and grants it all its ‘ancient liberties’ including the
freedom to trade by land and sea.

The lesson to learn is that we must have genuine self-government of our cities and towns.
Central economic planning requires a strong centre. The free market and liberalism does not.
Centralisation has been the bane of India. For example: The budget of the Corporation of
Mangalore is about 60 crore rupees, of which about half is raised locally, from property taxes,
billboard advertising rights and so on. The rest comes from Bangalore or Delhi, and for getting
these funds, the Mayor of Mangalore has to make many long-distance calls, mail letters and
appeals, and even make personal visits. But Mangalore collects income tax every year worth 600
crores! If we add sales tax and excise duties, this city coughs up more than 1500 crores to the
exchequer every year. What is the point in sending all the money to Delhi and then waiting in
vain for Delhi to think about the plight of Mangaloreans and send some money back? (Like the
central tourism minister announced a 37 crore project the other day!) Dilli Door Ast! If 1500
crores was given to the Mangalore City Corporation, the footpaths of the city could be paved
with gold. Instead of one showpiece concrete road, every street could be re-laid to the highest
international standards of road-building. New Public Management must therefore be
accompanied by a New Public Finance, so that each city can be economically independent of
higher levels of government. The future requires self-governing cities and towns, well managed,
economically viable and independent, with Mayors using New Public Management.

To conclude: Frankfurt-am-Main began as a Freireichstadt: a free city. In Germany, there is a

long history of free cities, including the Hanseatic League cities which were self-governing and
practiced free trade amongst themselves: all these cities still call themselves Hansastadt or
‘Hansa City’, like Lübeck. The great port city of Hamburg is a Hansastadt – and the city enjoys
the full powers of a state government, or Lander! The City of Hamburg is one of the states of
federal Germany!

(Perhaps like Delhi is today. But does Delhi have a Mayor? Is the government of Delhi really
‘local self-government’ or is it arbitrary central rule and interference? Chief ministers of cities
like Delhi or small towns like Pondicherry mean nothing to urban government. Mayors will


matter if urban India is to be saved. Narayan Moorthy 24 of Infosys really put his foot in his
mouth when he suggested that all Indian cities be handed over to the central government. It is the
central government that ruined Delhi. Just as the state government of Karnataka ruined
Bangalore. Mayors running free cities is the only way out for India.)

Finally: I was standing in the great open square of the old city of Frankfurt, looking at the
impressive old building of the mayoralty: the burgermeister. I noticed three flags atop. The first
was the flag of the City of Frankfurt. The second was the flag of Germany. The third was the flag
of the European Union. Thank God they didn’t put up a flag of the United Nations too! But the
freireichstadt of old is still flying its own flag. So, my message to every city and town in India is:

Get a flag!

Then get a Mayor – a good one.

(And how do you get a Mayor? Get a Guildhall first. Read the next essay.)

Then get ahead.

When age matters - and not merit

What earthly good can come of it?
So don’t get on the bottom rung, pal,
For there’s only a very old man on top!


What are the services that you expect from your local government at the municipal level. Are
any of these services being performed satisfactorily today? How can NPM make things

If you were to become a public official – either elected or appointed – how would you deal
with the problem of massive overstaffing in government departments?

This also shows the pitfalls of relying on the views of a ‘successful’ man in business for all the problems of the
world. A more modest man would have pleaded ignorance of the subject of local self-government, refused to
comment, and thereby saved himself some ignominy.


Reconstructing Westminster-style democracy

They lie when they say we follow ‘the Westminster model of democracy’.

Let us begin in the year 1066 AD, when William the Conqueror took Britain. Of Viking
descent, William was just another Hagar the Horrible – and the English had to organize
themselves to fight absolutistm. The first to do so were the merchants of the City of
London, then just one square mile in area. Henry FitzAilwyn was the first Lord Mayor of
London, who took office in 1189: the Magna Carta was yet to come. And he and his
friends must have been really wealthy, for it is they who paid the ransom for Richard the
Lionheart when he was captured on his way back from the Third Crusade. Then, the
King very often did not have money: for example, on February 29, 1286, King Edward
had a balance of £2 8s. 1d.; and again on July 16, 1289, Edward had £2 13s. 8d.
Almost every Lord Mayor of old lent large sums of money to the Crown, and one,
William Joynier, was financially ruined by the enormous debts owed to him by the King
– so much so that he himself ended up in a debtor’s prison! Lord Mayors not only
loaned money to the Crown, they even paid the salaries of select royal servants.
Andrew Buckerel, while Lord Mayor of London, paid the expenses of the Coronation of
Queen Eleanor when she married Henry III in 1236. Mayors also held high office under
the King, serving as Royal Chamberlain and Keeper of the Exchange in charge of the
Royal Mint. Their financial expertise made then invaluable to the conduct of

What these wealthy merchants of London did way back then in 1189 offers pointers on
how our socialist democracy, which is but a kleptocracy, can be re-invented.

The merchants of the City of London organized themselves into ‘guilds’, one for each
trade. Each guild formed itself into a ‘Livery Company’. The richest Livery Companies in
London then were those of the Fishmongers, Grocers, and Fruiterers; but the Vinters,
who traded in wine, were also very rich. Dick Whittington was a Mercer.

All these ‘worshipful’ Livery Companies met once a year in Guildhall, their ‘parliament’,
to elect a Lord Mayor and two Sheriffs. To use the hallowed word ‘parliament’ for a
mere municipal assembly may shock, but the word itself was imported from France by
the Normans. It simply means ‘speaking place’, with its root in the French word parlez.

Once elections were over, it was business as usual for all Londoners, except these
public officers, who were the suckers chosen to manage collective affairs. These
gentlemen could no longer ‘mind their own business’. Monetarily, they invariably lost.
These were never ever offices of profit. Lord Mayors have always served a term of 1
year only because serving longer was unaffordable: history bears out that many elected
to the office would refuse, preferring to pay the heavy fines then imposed. When
Mansion House, which now houses the mayoralty, was built, many quipped that it was
“built for those who wanted to be Lord Mayor out of the pockets of those who did not”!


The greatest expense was on entertainment, for the Mayor was expected to keep an
open house and offer the most lavish hospitality. A year of magnificent living was
enough for even the richest man It is also on record that when men would hesitate to
take office, their wives would egg them on, for they coveted the title of ‘lady’. As
Chaucer put it:

They had the capital and revenue,

Besides their wives declared it was their due,
And if they did not think so, then they aught,
To be called ‘madam’ is a glorious thought,
And so is going to church and being seen
Having your mantle carried like a queen.

There is a simple reason why the richest merchants of London had to go on, for over
800 years, volunteering to undertake this important civic responsibility: because
feudalism demanded all this pomp and pageantry. They could certainly not impress the
King with military might; but they could certainly startle him with their Wealth. Hence the
lavish banquets, all the finery, the gold and glitter, the fabulous Lord Mayor’s Barge to
take him to Parliament by river, the great annual Lord Mayor’s Banquet, which still
continues, whose turtle soup was famous till the environmentalists, I suspect, stepped
in. The only desire of these merchants was just laissez faire: leave us well alone.

Apart from the grand scale of expenditure holding the Lord Mayoralty involved, an
added problem was that, while serving as mayor, it was impossible to ‘mind one’s
business’ for the duties of the office were onerous and time-consuming. As first citizen,
the preservation of peace and the maintenance of law and order in the City was his
responsibility. He had to supervise the work of all elected officials. He was also chief
magistrate and judge, dealing not only with law-breakers but also the most complicated
commercial cases: even under the Common Law, the burghers of the boroughs were
free to practice their own ancient laws and customs in their own courts. But if a wealthy
man gave his time and his money for the public affairs of this great city, even for just a
year, the non-monetary rewards were considerable: the Lord Mayor of the City of
London ranked as an earl ‘as well as in the King’s presence as elsewhere’. In the City
he had right of precedence over all save the King.

Now, Hagar the Horrible, and his successors, were men of the sword. Their only
comparative advantage lay in war. To get money, they needed these wealthy city
merchants – and it is in exchange for this money (taxes) that the Westminster model of
democracy eventually took shape.

(The modern form of the Westminster model did not appear until the Glorious
Revolution of 1688. When the Protestant King William, imported from Holland,
summoned parliament then, the Lord Mayor of London and all the aldermen took
separate seats in the house as the only body in the country to be possessed of
constitutional government. It is from the Magna Carta that Parliament claimed its right to
vote taxation: and that was what all it did till very recently: till recent times, Parliament in


England did little law-making, or LEGISLATION: the law of the land was the Common
Law. Much of the LEGISLATIVE DIKTAT the Western world suffers under would be
unthinkable under the Common Law.)

By 1215, it was abundantly clear that Hagar the Horrible had to be tamed. The
rebellious barons of England, along with the Londoners, without whose active support
they would not have succeeded, extracted King John’s signature on the Magna Carta,
‘the First Statute of the Realm’. Clause 13 of the charter specifically refers to the City of
London and grants it liberty to self-government as well as trade by land and sea.
Originally, the Magna Carta was simply called “The Charter of Liberties”. Willam Hardel,
Lord Mayor of London then, was on the committee of 25 barons set up to execute the
terms of the charter.

When parliament finally came into being, it was built in the City of Westminster, which
lies outside the ancient City of London. For the merchants of London, Guildhall was
their own parliament, often contemptuously referred to as ‘a parliament of shopkeepers’.
The palace of Westminster was to them the King’s parliament, where they were
represented in the House of Commons. Over centuries, we see the system evolve into
what it is today, with the House of Lords as irrelevant as the monarch. How?

Symbolism is very important to understanding feudalism. And the symbols used by the
City of London till today tell us a great deal about how these wealthy merchants, who
had no skills on the battleground – one Lord Mayor even fell off his horse at a
ceremonial and died; and another had to be supported by two servants as he rode his
ceremonial mount – could tame the King.

Back in the old days, the King traveled continuously between his various castles, closely
guarded. The Lord Mayor lived in the city, amidst the citizens. Even his title ‘Lord’ was
not granted by Royal Letters Patent; it is a title of tradition, given by the Londoners
themselves. The system of government, after 1688, came to be called ‘King-in-
Parliament’, with the King, his officials and judges, having their budgets and powers
conferred upon them by the house. While all this happened in the City of Westminster, if
by chance the King had to come to London, certain important ceremonials were
followed: the King would be received at Temple Bar by the Lord Mayor. There, the Lord
Mayor would ceremonially surrender the Civic Sword: that is, I, Lord Mayor, upholder of
the Civic Sword of the City of London, accept you as King. So, in the City, the Lord
Mayor ranks in precedence above all save the King 25 . At the grand funeral of Lord
Nelson in St. Paul’s, the King was too sick to attend, and the Prince of Wales attempted
to take precedence over the Lord Mayor but was prevented from doing so!

Observe the ceremonials held in the City of London even to this day: the Lord Mayor-
elect, in all his finery, walks in procession with the Swordbearer ahead of him holding
aloft the Civic Sword. Behind him is the Macebearer holding the Civic Mace. All these

This tradition dates back to when Henry V borrowed money from the City to go fight the Battle of Agincourt. At
his farewell, Henry asked the Lord Mayor of London to sit at his right. Since then, this position in the protocol has
been maintained.


symbols go to uphold the power of the Mayor as head of civic government. This
ceremony must be dating back to 1189! The ‘common law’ that the King of England
cannot march his army through the City of London without the permission of the Lord
Mayor is an ancient custom. When Robert Peel set up the London Metropolitan Police
in the 1830s, the ‘Bobby’ was not allowed entry into the ancient city of one square mile!
Till today, the ancient city has its own police force. That is civic independence! (And the
London ‘Bobby’ is a pretty good policeman, in a world of pretty horrible police forces:
“uniforms of brutality”.)

Feudal society of Old England believed in the theory of the ‘body politic’ which assigned
to all the classes of society their respective functions: the king was the head, giving
direction; the soldiers were the arms, providing strength; the peasants, ‘ever cleaving to
the ground’, were the feet, etc. It is only with the evolution of the institution of the Lord
Mayor of London that we see another ‘body politic’: that which is representative of
business interests in a city. That is, a ‘politician’ of capitalism, not feudalism. For the
future of India, we will need ‘politicians’ of this type, who each make up such a ‘body

With socialist democracy, ‘politicians’ are all pirates, devoid of any ‘body politic’. 26 Their
political parties are all ‘pirate ships’. The bureaucracies they run are also all ‘pirate
ships’. With mayoral politicians of the capitalist sort, all taking leave of their own vast,
honest businesses to donate some time to collective matters, we will soon be able to
distinguish the merchant ships from the pirates.

It is very easy to make out the difference between a ‘politician’ of capitalism and
socialism: the question to ask will be “How do you earn your money, Mr. Politician?”
Lord Mayors of London have been amongst the greatest businessmen in history!
Among the wealthiest men in their times! They were benefactors to their cities, apart
from fulfilling all their civic duties admirably well; they were not ‘pirates’!

The extraordinary wealth of the mayors was the stuff of legend. For example, when
Bartholomew Rede was Lord Mayor in 1502, an Italian merchant attended one of his
lavish banquets and offered him a precious stone for 1000 marks and, while making the
offer, commented that the stone was beyond the purse of the King. Rede immediately
bought the stone, had it ground to dust and drank it with his wine, telling the Italian,
“Speak honourably of the King of England, for thou hast now seen one of his subjects
drink 1000 marks in a draft.”

Valerie Hope, whose My Lord Mayor (London: Weidenfeld & Nicolson, 1989) is my
principal source, says this about these great mayors:

Their active promotion of trade and exploration and their spirit of adventure in
these matters made them instrumental in the founding of the British Empire.

Sagarika Ghose toured Amethi with Rahul Gandhi when he was there campaigning for the 2004 election and
wrote about it in The Indian Express. Amethi, which has been returning the Gandhi family for long, is a MESS!
Chikmagalur returned Indira Gandhi – so what? Any ‘body politic’?


Through their legacies they made a huge contribution to the care of the poor and
the sick and with the founding of schools they influenced the development of
education all over the country. They built chapels and churches. They provided
for road and bridge repairs, for the provision of water, for the cleansing of
ditches. They founded hospitals and almshouses.

History bears this out. Rowland Heyward, Lord Mayor in 1598, chaired the meeting held
to discuss the formation of the East India Company. Sir John Swinnerton, Lord Mayor in
1612, was one of the founder members of the East India Company in 1599, and the
Company’s offices were initially located in the house of Christopher Clitherow, Lord
Mayor in 1635. Most Lord Mayors during the days of the Empire were on the boards of
firms like the East India Company, the Muscovy Company, the Levant Company, the
Merchant Adventurers, and all the various other firms that had opened to trade with the
Far East, the Middle East and the new colonies of America. The Virginia Company, for
example, could only succeed because the Lord Mayor, Sir Humphrey Weld, ventured
seven ships.

On their role in promoting education, three examples stand out: one, the expression
“The Three R’s” was coined by a Lord Mayor of London, Sir William Curtis; two, the
case of Hugh Clopton, Lord Mayor in 1491, who hailed from Stratford-upon-Avon, and
left behind a large sum of money for the school where, 100 years later, William
Shakespeare was to study; and three, the case of Ann Radcliffe, widow of Thomas
Moulson, Lord Mayor in 1634, who was the first major donor to Harvard, and after whom
Radcliffe College is named.

Of this era of great Lord Mayors, there are three stories which speak tellingly of their
position vis-à-vis the King. One is the story of Sir Robert Vyner, Lord Mayor in 1674,
who was a goldsmith-banker and had lent considerable sums to the Crown. It is said
that at his inaugural banquet he got drunk and ‘overfond’ of the King, Charles II. When
the King got up to leave, Sir Robert seized his arm and insisted, “Sir, you shall stay and
finish t’other bottle.” Charles had to give in, but with good humour, saying, “He that is
drunk is as great as a King.”

There is also an interesting story of a Lady Mayoress: when Sir William Humfreys was
Lord Mayor during the reign of George I, he had the honour of entertaining the King and
the Royal Family at his feast. It had been a custom that the Lady Mayoress receive a
kiss from the first royal lady on this occasion, so when the Princess of Wales failed to
deliver this salutation, the furious Lady Mayoress ordered one page to pick up her train,
threw her bouquet to another, and stormed out.

Perhaps the most interesting story is of William Gill, Lord Mayor in 1789, during the
reign of George III. A great thanksgiving service was held in St. Paul’s when the King
recovered from his first attack of madness. The Lord Mayor received the King at Temple
Bar and, as is custom, surrendered the Pearl Sword. The King returned it, saying, “My
Lord, the sword cannot be in better hands.”


Between 1189 and 1789, exactly 600 years, the ‘body politic’ of Capitalism, the
merchants of London, and their ‘politician’, the great Lord Mayor of London, established
customs, traditions and mores that enabled business to be represented and consulted
in taxation and also gave these urban businessmen freedom to run their cities and their
businesses independent of royal authority. It is this task, faithfully performed through
centuries, that made it possible for businessmen to flourish in England despite
feudalism. When Simon de Montfort called representatives of the towns (merchants) for
the first time to his Parliament of 1265, it was unthinkable, even to Montfort himself, that
one day merchants would rule the land from the House of Commons. The gradual
transition from feudalism to capitalism had a lot to do with this new kind of ‘body politic’
that was emerging under the old feudal one. So let us all raise a toast to the memory of
Henry FitzAilwyn, the first Lord Mayor of London, who took office in 1189. Good man.
Businessman. Politician. Hero.

Looking back, in those days of little hard ‘knowledge’, and even less literacy, all that
FitzAilwyn & Co. really did is to get their feudal overlord to sign that they would be
possessed of Liberty. The motto of the City of London is, interestingly, Domine Dirige
Nos, which translates to “The Lord Guide Us”. When “The Lord” is our guide, there is
Liberty. When the King is the guide, as at the square outside the imposing Milagres
Church in Hampankatta, Mangalore, at a little after midnight, the little food stall that is
open for latenighters – true “social workers”, these hardworking young lads – is
FORCED to close down, with VIOLENCE. Under God, we would all be Free.

In the feudal world of status, where everyone had to have a Lord – and a ‘freeman’s’
Lord was the King – the word ‘equality’, most fortunately, did not even exist as a political
value. Thankfully, in those days, Liberty was highly valued, at least in England: Every
Freeborn Englishman Is The King Of His Own Castle! It is because FitzAilwyn & Co.
demanded Liberty, obtained it in writing, and Lord Mayors after him preserved it
carefully and faithfully all these centuries, that they achieved all the good they did.

If Indians want the real Westminster model of democracy, then they must first set up
‘guildhalls’ in every town and city. As with the caste system, urban occupations can
easily be organized into guilds, which will represent their interests better than today’s
socialist political parties, all ‘pirate ships’. Cities and towns can then elect their own Lord
Mayors and Sheriffs, uphold the Civic Sword, and then only will our very own Hagar be



The vyapari, or businessman, creates wealth, pays taxes, raises a family, and even employs other
people. He is a true social worker, satisfying our needs, honestly and honourably, never stealing,
always fair exchange.

The jawan, or foot-soldier, is a tax-consumer. His wages come from the tax revenues of the state.
Therefore his economic utility is limited. At present, jawans are serving en masse in places like
Kashmir and Manipur: fringes of the Indian Empire where the Emperor is a much hated figure.
There, the jawan is actually killing Indian people. The Kashmiris and the Manipuris do not really
like the jawan. But then, it is for the tax-payers to decide who the tax consumers should be:
should our money go to pay for jawans in Kashmir and Manipur, or to build roads, libraries,
parks and such other things?

The economic cost of holding on to Kashmir and Manipur by military might are extremely high.
For one, with a military dispensation in place, the local economy peters out and dies, and the
central government is then forced to pay not only for the army, but also for the entire civilian
administration, because the state government is unable to raise any local revenue where there is
no local economy. The Armed Forces Special Act has been in place in Manipur for over 20
years. Similarly, in Kashmir, I was informed by Muzaffar Beg, the state’s finance minister, that
90 per cent of his annual budget comes from the central government. Add to that the costs of the
army, BSF, CRPF, Rashtriya Rifles, Ladakh Scouts and the local police. Add to that the costs of
the 20 year-old high altitude war in Siachen, played at the cost of over 3 crore rupees a day, and
it would be obvious to any banker that these states are ‘non-performing assets’. Thus, the jawan
needs to question the morality of his job today: Is he a patriot? Or a mere mercenary?

There were kshatriyas and samurai. But theirs was an order of high chivalry, valour, honour and
righteousness. Today, what we have universally are “uniforms of brutality”.

The good news is that there are no samurai in Japan any more: they were told that making wealth
was the best national service they could perform. Maybe our jawans too should consider
defending their own homes and hearths, their own properties, while creating wealth in a free
market economy. It does offer a better and more satisfying life than being the smallest cog in a
mighty, mean machine.

In Karnataka, Coorgis are reputed soldiers, including very senior officers. But should they serve
in Kargil or Siachen? I have been to Kargil. The total value of private property there is close to
zero. The little town of Kalasa is much, much bigger. If we auctioned the Siachen Glacier, what
would it fetch? Zero! Wouldn’t it be better for these brave but misguided ‘officers’ to opt for
civilianship and citizenship in their lovely Coorg, so cut off by poor roads: the road from
Mangalore, the principal city of the region, to Madikeri, the capital of Coorg and District
Headquarters (IAS officer once again!) is HORRIBLE!

Similarly, retired soldiers of the Kumaon Regiment survive in Uttaranchal “villages”

unconnected by road all these years – so long treks to get anything, including the doctor – by


hawking off their subsidized army rum. What a great king to spend your life fighting for! And
what a great disaster of a kingdom as well!

Here are three songs, which anyone seeking a career in the military should hear:


By Bob Dylan, 1963
(Available in his recent MTV Unplugged album.)

John Brown went off to war to fight on a foreign shore.

His mama sure was proud of him!
He stood straight and tall in his uniform and all,
His mama's face broke out all in a grin.

"Oh son, you look so fine, I'm glad you're a son of mine,
It makes me proud to know you wear a gun.
Do what the captain says, lots of medals you will get,
We'll put them on the wall when you come home."

As that old train pulled out, John's ma began to shout,

Tellin' ev'ryone in the neighborhood:
"That's my son that's about to go, he's a soldier now, you know."
She made well sure her neighbors understood.

She got a letter once in a while and her face broke into a smile
As she showed them to the people from next door.
And she bragged about her son with his uniform and gun,
And these things you called a good old-fashioned war.

Oh! Good old-fashioned war!

Then the letters ceased to come, for a long time they did not come.
They ceased to come for about ten months or more.
Then a letter finally came saying, "Go down and meet the train.
Your son's a-coming home from the war."

She smiled and went right down, she looked everywhere around
But she could not see her soldier son in sight.
But as all the people passed, she saw her son at last,
When she did she could scarce believe her eyes.

Oh his face was all shot up and his hand was all blown off
And he wore a metal brace around his waist.
He whispered kind of slow, in a voice she did not know,
While she couldn't even recognize his face!

Oh! Lord! Not even recognize his face.

"Oh tell me, my darling son, pray tell me what they done.
How is it you come to be this way?"
He tried his best to talk but his mouth could hardly move


And the mother had to turn her face away.

"Don't you remember, Ma, when I went off to war

You thought it was the best thing I could do?
I was on the battleground, you were home . . . acting proud.
You wasn't there standing in my shoes."

"Oh, and I thought when I was there, God, what am I doing here?
I'm a-tryin' to kill somebody or die tryin'.
But the thing that scared me most was when my enemy came close
I could see that his face looked just like mine."

Oh! Lord! His face looked just like mine!

"And I couldn't help but think, through the thunder, rolling and stink,
That I was just a puppet in a play.
And through the roar and smoke, this string it finally broke,
And a cannon ball blew my eyes away."

A cannon ball blew my eyes away!

As he turned away to walk, his Ma was still in shock

At seein' the metal brace that helped him stand.
But as he turned to go, he called his mother close
And he dropped his medals down into her hand.





He's five foot-two, and he's six feet-four,

He fights with missiles and with spears.
He's all of thirty-one, and he's only seventeen,
He's been a soldier for a thousand years.

He'a a Catholic, a Hindu, an Atheist, a Jain,

A Buddhist and a Baptist and a Jew.
And he knows he shouldn't kill,
And he knows he always will,
Kill you for me my friend and me for you.

And he's fighting for Canada,

He's fighting for France,
He's fighting for the USA,
And he's fighting for the Russians,
And he's fighting for Japan,
And he thinks we'll put an end to war this way.

And he's fighting for Democracy,

He's fighting for the Reds,
He says it's for the peace of all.
He's the one who must decide,
Who's to live and who's to die,
And he never sees the writing on the wall.

But without him,

How would Hitler have condemned him at Labau?
Without him Caesar would have stood alone,
He's the one who gives his body
As a weapon of the war,
And without him all this killing can't go on.

He's the Universal Soldier and he really is to blame,

His orders come from far away no more,
They come from here and there and you and me,
And brothers can't you see,
This is not the way we put an end to war.


By Joe McDonald
Country Joe & The Fish
(Performed live at the Woodstock Festival, 1968.)

Yeah, come on all of you, big strong men,

Uncle Sam needs your help again.
He's got himself in a terrible jam
Way down yonder in Vietnam
So throw down your books and pick up a gun,
We're gonna have a whole lotta fun.

And it's One, two, Three…

What are we fighting for?
Don't ask me, I don't give a damn,
Next stop is Vietnam.
And it's Five, Six, Seven…
Open up the Pearly Gates,
Well there ain't no time to wonder why,
We're All Gonna Die.

Well, come on generals, let's move fast;

Your big chance has come at last.
Gotta go out and get those reds —
For the only good commie is the one that’s dead
And you know that peace can only be won
When we've blown 'em all to kingdom come.

And it's One, Two, Three…

What are we fighting for?
Don't ask me, I don't give a damn,
Next stop is Vietnam.
And it's Five, Six, Seven…
Open up the Pearly Gates,
Well there ain't no time to wonder why
We're All Gonna Die.
Well, come on Wall Street, don't move slow,
Why man, this is War, so go-go-go.
There's plenty good money to be made
By supplying the Army with the tools of the trade,
Just hope and pray that when they drop the bomb,
They drop it on the Viet Cong.


And it's One, Two, Three…

What are we fighting for?
Don't ask me, I don't give a damn,
Next stop is Vietnam.
And it's Five, Six, Seven…
Open up the Pearly Gates,
Well there ain't no time to wonder why
We're All Gonna Die.

Well, come on mothers throughout the land,

Pack your boys off to Vietnam.
Come on fathers, don't hesitate,
Send 'em off before it's too late.
Be the first one on your block
To have your boy come home in a box.

And it's One, Two, Three…

What are we fighting for?
Don't ask me, I don't give a damn,
Next stop is Vietnam.
And it's Five, Six, Seven…
Open up the Pearly Gates,
Well there ain't no time to wonder why
We're All Gonna Die.




It was just before dawn

One miserable morn,
In black forty four.
When the forward commander
Was told to sit tight
When he asked that his men be withdrawn.
And the generals gave thanks
As the other ranks held back
The enemy tanks - for a while.
And the Anzio Bridgehead
Was held at the price
Of a few hundred ordinary lives.

And kind old King George

Sent mother a note
When he heard that father was gone.
It was, I recall,
In the form of a scroll,
With gold leaf and all.
And I found it one day
In a drawer of old photographs, hidden away.
And my eyes still grow damp to remember
His majesty signed
With his own rubber stamp.

It was dark all around.

There was frost on the ground
When the tigers broke free.
And no one survived
From the Royal Fusiliers Company C.
They were all left behind,
Most of them dead,
The rest of them dying.
And that’s how the High Command
Took my Daddy from me.

(In the 60s, they said: Make Love Not War. Today, we could say: Make Money, Make Love and Fuck
War, which is what dharma, artha, kama, moksha is all about.)



The division of labour is the key to the production of wealth in a free market economy. This
division of labour is also accompanied by THE DIVISION OF KNOWLEDGE. This is most
visible if you pay a visit to a newspaper office or a modern hospital. In a newspaper office you
will find journalists of various types, ranging from those who report on politics to those who
write about sports, or films, or business affairs. Similarly, a modern hospital will employ a
multitude of specialized doctors. But the division of knowledge is also visible in the humdrum
world around us where dhobis, carpenters, plumbers, receptionists and so on work, each with
very different kinds of knowledge.


That is, there is a lot of knowledge that cannot be written down. For example: You buy a coconut
in the market. The product also contains the ‘knowledge’ of the man who knows how to climb
the coconut tree and harvest coconuts. Can this knowledge be codified?

If you want to be a good cyclist, swimmer, pastry chef or violinist, you cannot just read a book
and do it. You must have hands-on experience.

The market relies on each of us to bring into play his or her own special knowledge. The planner
believes he can collect this knowledge and plan the economy. Because the planner cannot collect
all the knowledge required – since much of the knowledge is uncodifiable – planning is bound to

To prove this point, I often conduct an experiment in my seminars. I ask one student to rise and
tell the class the name of a fruit that is in season that she wants to eat RIGHT NOW. So, for
example, a girl in Mangalore said, “Apple.”

I then ask her whether she will get an apple if she goes to Hampankatta RIGHT NOW.

She says, “Yes.”

I then ask: “Do any of the fruit vendors in Hampankatta know you? Do any of them love you, or
even like you? Does any apple orchard owner in Kullu know that there is a pretty girl in
Mangalore who likes apples and he should send some for her? Is there any Minister for Apples?”

Quite obviously, she replies in the negative.

So how does she never fail to get apples in the season in Hampankatta, Mangalore, so far, far
away from Kullu?



Innumerable apple orchard owners are taking independent decisions on growing apples.
Independent wholesalers are buying up these apples and transporting them to sub-wholesalers in
cities and towns all over India. These local wholesalers are then selling these to retailers and
street vendors, who are all also taking independent decisions as to how many kilos of apples to
stock vis-à-vis, say, bananas, oranges, grapes, mangoes, papayas, and so on. It is simply because
there are so many independent decision makers, with each decision based on specialized,
personal ‘knowledge’, that our student always finds the apple she is looking for. She may not
find good ones at the first vendor; she may have to ‘shop around’; but she gets the apple. And not
only the apple: when you go to a market like Hampankatta, you invariably get whatever it is you
went looking for. (The market may also surprise you with a product that you never knew existed,
and that you now decide you desperately need!) As a young lady exclaimed in Main Street,
Poona: “You get EVERYTHING here!”

Having proved how markets work, I turn to Central Economic Planning, which is based on the

(PC Mahalanobis, architect of Nehru’s 2nd Plan, was a statistician, not an economist. It is with
statistics that he thought he could collect all the knowledge necessary to plan the economy. He
set up the Indian Statistical Institute, a far more dangerous organization than the Pakistani ISI!)

I ask the same student to answer questions related to things that are being centrally planned:

• Do you want a six-laned highway to Bangalore? Or even Manipal?

• Do you want 24-hour electricity?
• Running water in your tap?

“Of course, I do!” she exclaims.

“Then why don’t you get these things?” I ask.

The whole class falls silent, and so I give the answer:


(And Mangalore is NOT on the Golden Quadrilateral: The Central Planner simply FORGOT all
about the West Coast. He also forgot about Sikkim.)





PLANNING USES POWER , FORCE AND VIOLENCE (by taxing us to finance these plans)


The complete definition of Economics is:



There are certain implications of this definition:

Economics is not a study of poverty.

Wealth is created. It did not exist before in Nature. Even the fisherman ‘creates’ fish by
extracting it from Nature. Painters, sculptors, writers, inventors all create furiously. This
implies that wealth is not “out there” to be divided equally amongst all members of
society, as socialists think. There is no “vicious circle of poverty”. With Liberty, we can
all create wealth, and there will be more and more wealth with each passing day.
Self-sufficiency or swadeshi is not Economics, because it is not based on the division of
Planning is not Economics because it is not based on the division of knowledge.

Thus, with planning, because of knowledge failure, there will be shortages: of power, of water,
of housing, of railway berths, of gas, of everything. All these shortages would disappear in a free
market which brings in ABUNDANCE.

This further implies that, for a closed economy like India’s, free trade will bring with it a
knowledge explosion as millions of our people get to learn of new products, processes,
techniques and technologies. If the country wishes to get abreast with the knowledge levels in the
outside world, it needs to practice free trade. For example: Back in the 70s, a 13-year old boy
called Raju used to take apart my Enfield in 30 minutes, give it the treatment, and put it all back
together in a jiffy. If there had been free trade, he would have done the same to a Harley or a
Motoguzzi. His ‘knowledge’ would have increased.

This is counter to the advice given by socialist economists like the Nobel laureate Amartya Sen
that the country will lose out in globalisation unless the state first takes up education of the
people. Our analysis of what constitutes KNOWLEDGE (and distinguishes it from
EDUCATION) suggests that free trade and free immigration are the best ways of allowing
knowledge to spread freely through the land. Keeping out the world through trade barriers and
promoting state education is a recipe for disaster.

It must also be noted that it is dangerous to ask the state for knowledge. The state is not a lamp of
learning: its functions are negative – the protection of life, liberty and property. The state is not
an university. There is no one in the state – in the political market – who is in the knowledge
business. The state does not possess knowledge itself. Our public administration would not be
such a mess and our economy would not be such a miserable one if the state had knowledge.
Since it is ignorant, the state cannot be allowed to take up the role of Universal Teacher. It must
be got out of the knowledge business which must be left free to those with knowledge to impart.


Note that India now exports software engineers. Note also that all these engineers were educated
by for-profit private enterprise completely unregulated by the state: firms like NIIT, Aptech and
so on. We need private firms setting up chains of schools and universities, bringing in knowledge
and disseminating it. The socialist state’s educational authorities are all failed propagandists.
Their ‘knowledge’ should be rejected in its entirety. No one should study anything prescribed by
the socialist state. The ministry of human resource development should be closed down.

With the BJP gone, ‘de-toxification’ of textbooks is on. This means that with government
control, politics invariably seeps into the textbooks: these are all ‘official’ textbooks, after all.

In the case of History textbooks, what no one has noticed is the DEATH OF HISTORY. Let us
see how: For example, every morning I wake up with a desire to know what happened the
previous day. I want to know the HISTORY of yesterday. What do I do? I read not one, not two,
but three newspapers – the pink paper for business news. I watch not one, not two, but three
separate news bulletins on television. I also listen to world radio. I still don’t know
EVERYTHING; but I know a lot. Note that all the HISTORIANS I rely on – the editors of the
newspapers, TV and radio bulletins – are all SELECTING FACTS out of a UNIVERSE OF

A newspaper editor gets facts from his reporters and correspondents, from agencies like AP and
Reuters and PTI, and other “secret” sources. But he does not put ALL THE FACTS onto his
pages. He selects a few that he deems important. For a better HISTORY OF YESTERDAY,
therefore, I consult many, many sources, because there are so many different facts that each
editor selects.

Now think how truly enormous must be the task of writing a History text-book. Further, when
we rely on 3 newspapers for yesterday’s history, how many books must we require to know
about the distant past. In a free market, including a free market for the KNOWLEDGE OF
HISTORY, there will be umpteen histories, and umpteen historians. We can then CHOOSE
which histories to read. We can choose to inquire into periods and events we are ourselves
curious about like, say, the history of Princely India. I have for long been looking for a history of
the city of Mangalore. Will any local historian study the city’s past and write a book about it; and
will any local publisher publish it – unless the local schools and colleges were free to choose
which books to recommend to students? History, historiography, historians – all will bloom with
freedom; and our understanding of the past will improve.

To have an OFFICIAL HISTORY is just like having what George Orwell called a “Ministry of
Truth”. The government’s history text-book writers are not real historians at all: they are all
bureaucrats for, even if they are called “professor” they are not academics; they are government
servants, in the employ of The State. 27 They will always serve their political bosses; not the
constituency of knowledge. Out will all their history text-books.

Manmohan Singh has now announced plans to launch a massive effort on the educational front.
For this, the government has also imposed an ‘education cess’, a new tax to fund the programme.

While I was with The Economic Times, a professor at the Delhi School of Economics sent me an article in an
envelope that said “On Government of India Service”!


We have been paying a cess on petrol and diesel for many years now, but are yet to see the roads.
Should we pay this tax too? Is education what the poor people of India really need? Are the poor
people of India completely stupid? And are there very smart people in the employ of the Ministry
of Human Resource Destruction possessed of some extremely vital ‘knowledge’ that these poor
people need? These questions are answered in the essay that follows.

All knowing,
All seeing,
Our destiny the state will plan.

Not knowing,
Not seeing,
It’s not a god, but mortal man.


Think up various examples of uncodifiable knowledge?

Consider the restaurant cook: What policies will increase his access to knowledge?
Success in the market economy depends on the division of knowledge: specialisation. What
curriculum system in schools would you recommend that would facilitate specialisation
amongst knowledge seekers?
Should political economy be specialised knowledge? Or should it be part of general



Liberty is one word Indian socialists completely avoid today, although they claim to have
fought for ‘freedom’ 50 years ago. Perhaps because Liberty is cheap, and requires no
big budget. No gigantic bureaucracy is required to ‘implement’ Liberty. No taxes have to
be paid to secure Liberty. All Liberty requires is that legislative and administrative diktats
restricting freedom be repealed and meddlesome bureaus be shut down. How will
Liberty be superior to the new mantra the socialists have united under: education? In
their unanimous opinion, the real problem of India is mass illiteracy, and the solution is
bureaucratic spending on education. To ‘implement’ their solution, we have to cough up
a new tax. My fellow citizens, do examine the cheaper option: Liberty.

To begin, little children who have never been to school are all gifted with the ‘natural
propensity to truck, barter and exchange’: Give me some of your chips and I’ll give you
a sip of my cola. No one has to be taught how to trade. The Prophet Muhammad, peace
be upon him, did not know how to read or write, yet he was not only a highly successful
trader but also a great moral leader. Illiterate Indians are great traders – but trade is not
free because the government protects its corrupt cronies. If that were not bad enough,
illiterate traders have their surpluses robbed by the Great Indian Kleptocracy. Madhu
Kishwar has produced a stomach-churning documentary on the inhuman cruelties
meted out to street vendors in the Capital itself. The Self Employed Women’s
Association organized a seminar where street vendors from every Indian city spoke of
the atrocities committed on them by kleptocrats. If you tour any Indian city or town built
in British times, you will find big covered markets wherein petty traders, fishmongers,
butchers, vegetable and fruit sellers, and the like could operate with property rights:
New Market in Calcutta was built by Sir Stuart Hogg, and one section is still called Hogg
Market; there is the vast, covered Shivaji Market in Poona Camp, which is the British-
built part of the town, where fishmongers and vegetable and fruitsellers have for long
operated with property rights. Under the socialists, these cities and towns have
quadrupled in size but not a single new market has ever been built for these, the
smallest players in the market economy. They crowd up the footpaths and are treated
as a nuisance. In ancient London, the richest Livery Companies were those of the
Fishmongers, Grocers and Fruiterers, since they sold something everyone consumed.
They were rich because they made their King sign a “Charter of Liberties”. They
certainly did not ask their King for education.

Not only do poor people possess the ability to trade, they are also possessed of vast
amounts of real knowledge that is not allowed entry into the market because of
legislative diktats which the socialists have passed. Unlettered tribals in the jungles of
central India know how to distil mahua but are not free to sell it. Mahua could take on
tequila. Do these tribals need education? Or Liberty? And what about the 2000-mile
coastline, where toddy has been brewed for millennia? Millions of poor coastal Indians
know how to climb the palm tree and brew toddy. They are poor because they cannot
sell the fruits of their traditional knowledge. In Sri Lanka, toddy is touted as the national


drink and sold in Tetrapak. No toddy is sold on Brigade Road, Bangalore: excise
department diktat. Branded Sri Lankan coconut arracks are wonderful drinks, (I prefer
them to Scotch), while arrack is a state monopoly in India, producing a horrible grog for
the poor. There are millions in Bihar and UP who can create an excellent bhang ki
thandai, but cannabis is illegal although, in the opinion of the medical community, it is
harmless and non-addictive, used traditionally in India for millennia – every sadhu
carries his chillum. Professor Devendra Mohan of the All India Institute of Medical
Sciences, who headed the Department of Psychiatry and was therefore in-charge of all
de-addiction programmes, writing in The Economic Times, said that there is no medical
reason why the traditional thandai made out of bhang should not be sold as an
alternative to alcohol. Kerala, Manipur, Manali… Indian hemp is famous, but illegal. The
Dutch, with no history of cannabis use, have legalized it. The government of India has
pushed underground a herb that has been in use here for over 4000 years: The Lord
Shiva himself is believed to have been partial to cannabis. There is no word for
“Cheers!” in any Indian language I know of, but at least in Bengali and Hindi there are
hundreds of salutations to Bhola for lighting a chillum. In Delhi, poor rehriwallahs who
walk about pushing a cart selling fruits and vegetables smoke ganja in the hot summer
days, because without it they cannot survive in the sun. Ganja is sold in every Delhi
slum – but is illegal!

Whatever little tourism we get today is actually cannabis tourism – from Goa to Manali.
If cannabis were legal, that is, if we applied principles of Common Law and threw out
these LEGISLATIVE DIKTATS, think of how much India would gain from tourism alone?
They say 1 tourist creates 12 local jobs. Tourism is the BIGGEST INDUSTRY IN THE
WORLD! It is 1000 times bigger than IT. Do we need education? Or freedom?

Similarly, millions of unlettered Indians know how to sing, dance and play musical
instruments. But they languish in poverty because the socialists have outlawed nightlife
with more legislative diktats. The poverty-stricken and long neglected North-East is full
of potential rock stars – Arun Shourie showcased many great North-Eastern bands in
Delhi recently – but where do they perform, given all the restrictions on opening bars
and clubs, serving alcohol and so on? In Bombay, entrepreneurs have invested in
thousands of dance bars which fork out crores in taxes, but kleptocrats routinely raid
bars and arrest these girls who are just trying to earn an honest living with skills they
already possess. Here in Maharashtra, legends recount the Peshwa Baji Rao I’s deep
love for the dancing girl Mastani. Today, poor Mastani would be in jail – or in a
municipal school! Tamasha is an ancient Maharashtrian form of ribald popular
entertainment, but it has been legislatively and administratively crushed, and the papers
report that tamasha artistes today survive as mistresses of corrupt local politicians.
Mujra is banned in Lucknow. In America, the blacks made it big in music. New Orleans
produced Satchmo and hundreds of jazz and blues stars not because of ‘education’, but
because of Liberty: the liberty to earn an honest living.

In India today, music and dance, including erotic dance, is something only seen on
television. So a very few women make it – the Bollywood stars. Millions of other girls
who are not so good looking or not so talented cannot make it by dancing in nightclubs


instead, for much less money than a star like Madhuri Dixit would charge. The socialist
system therefore is for the rich and against the poor. The Bollywood stars, the movie
companies, the TV stations… these alone gain. All small players, from dance bar
owners to the dancers and musicians themselves, lose.

The socialist emphasis on ‘education’ also demonstrates complete ignorance of how

‘knowledge’ operates in the market economy. Main Street, Poona, is a busy market.
Walking around, you find hundreds of small bakeries that turn out a dazzling array of
breads, buns, biscuits, rolls and so on. There are scores of small jewelers, tailors and
‘expert darners’. Many tiny establishments make picture frames. There are Irani, Parsi,
Chinese, Tandoori and Continental restaurants. Budhani’s is famous for its potato chips.
There is a popular home-made softy ice-cream joint. There is a vada-pau stall that
always has crowds of customers. There are bhelpuri and chaat-wallahs. I even saw a
group of acrobats performing for passers-by. The street is lined with hundreds of shops
selling diverse products ranging from footwear to sarees, and electronic goods to
kitchenware. This is what Friedrich Hayek called the ‘division of knowledge’: every
economic actor is operating with distinct know-how.

Important implications follow the Hayekian view of knowledge. First, that central
economic planning can never work, because knowledge cannot be centralized: “What
Cannot Be Known Cannot Be Planned”. The socialist central planner, Hayek said,
suffers from ‘fatal conceit’: he does not see the wonder and glory of knowledge, and
thinks he knows it all. It is because of knowledge failure that there are shortages of
everything that is planned, from roads to power. There are no shortages in the market

Second, Hayek showed how knowledge and ‘education’ are entirely different things.
Hayek found much of the knowledge used in the market economy to be ‘inarticulate’
and ‘uncodifiable’. The bakers, tailors, expert darners, and bhel-puri wallahs of Main
Street possess this kind of knowledge. This shows the limits of formal education as a
means to economic achievement. Formal education churns out certain types of
economic actors only: bureaucrats, managers, accountants, doctors, lawyers, engineers
and so on. The vast majority of successful economic actors get their knowledge
elsewhere. That is why VJs, DJs, sportspersons, fashion models, and hotel chefs earn
much more than professors of Economics.

Even the much touted “literacy” is no guarantee of economic success, for I always find
very poor but “literate” people typing applications for the illiterate outside courts and
police stations. Kerala has literacy – but has produced mainly typists and nurses. In our
editorial office in The Economic Times, both our secretaries were Mallus.

Indeed, ‘education’ in India is really a trap for middle class youth. Because medicine
and engineering are valued as professions here by parents, we churn out hundreds of
thousands of doctors and engineers, and the colleges that train them can charge
exorbitant fees. Similarly, today there is stress on management degrees, and so B-
Schools have mushroomed. But what is better for the youth: A free market in which to


actually run a business, or B-Schools in a closed economy? My uncle studied

automobile engineering and spent his who life making Ambassador cars for Hindustan
Motors. He could have had a more fulfilling life if he had learnt to make bhel-puri
instead. Remember, IIM Ahmedabad was set up long ago in socialist times. IIM
Bangalore was originally meant to train managers for the public sector. What good did
these institutions achieve? Similarly, the study of law in India is long and arduous, with
little reward, for the vast majority of lawyers are poorly paid. They also do not study
basic Common Law precepts, and confuse Law with Legislation. They do not see all the
‘legal plunder’ that is socialism. The youth are today misdirected and mistaught through
‘education’. They also spend a great many years dependent on their parents, pursuing
all these long studies – and all this in a closed economy where opportunities for both
jobs as well as business are limited. Since they are dependents of their parents, they
are also unfree. With a free economy, they could find financial independence, artha,
much earlier, and also the ‘knowledge’ with which to succeed in whatever they have
chosen as their calling.

I would therefore like to place on record my total disagreement with the socialist
establishment on the need for a role of the state in education. I do not see any
knowledge deficit in the poor people of India. I see them all as naturally gifted, talented,
hard-working, honest and sincere. I am of the firm conviction that all they need is
Natural Liberty. On the other hand, I find a pronounced knowledge deficit in the
kleptocratic socialist state. Given the condition of our public administration, from traffic
management to municipal organisation, it is the state that consistently shows itself off as
utterly ignorant. The Ministry of Human Resource Destruction should be closed down. It
is staffed by propagandists of a failed experiment in state socialism. There are no
genuine knowledge workers – those who actually produce knowledge – in the entire
state-owned educational system: they are all bureaucrats essentially, being permanent
government servants.

My advice to the citizenry, therefore, is to strongly oppose the imposition of the

education cess. We have been paying a cess on petrol and diesel for many years now,
but we are yet to see the roads. If there are some decent roads, like the Bombay-Pune
or Delhi-Noida expressways, the kleptocracy makes us pay tolls: double taxation. On
the drive from Goa to Mangalore, I had to pay tolls twice, for crossing two very old
bridges. I bought 60 litres of petrol in all, and paid taxes: for example, sales tax in
Karnataka is high, so petrol here cost me 43 rupees a litre while it was about 35 in Goa.
These toll-bridges were both in Karnataka.

All honest taxpayers must deeply consider what they want the state to provide in
exchange for taxes. The state seems to think we pay taxes so that politicians can feign
to be philanthropists. With our money, bureaucrats in their employ will go about helping
the poor, schooling the unlettered, feeding the hungry and so on. Let us now unitedly
call for Liberty and permanently put an end to the false philanthropy of socialism.



As a member of civil society, I often enter institutions where ‘knowledge’ in Economics

and Political Science is purportedly imparted, and make direct interventions. I call it
‘knowledge-based politics without ties to either party or state’. It is politics as ‘the public
actions of free people’. In the course of a few lectures, I expose the hollowness,
shallowness and falsity of the dead ‘theories’ the textbooks contain: like the Vicious
Circle of Poverty and the notion that our population is a ‘problem’. After one such
lecture, a student asked me an interesting question: What should we do with our
textbooks? I recount my reply for the reader.

The word ‘economics’ has its root in Greek, where it meant ‘the science of
housekeeping’. This is a sound definition, for no prudent householder would issue more
notes than he can redeem. But surely political economy is more than housekeeping,
and here the German word for Economics is more useful, for wirtshaft means ‘the
science of inn-keeping’. I prefer the German definition because, in a political economy,
we all pay taxes for services which the government, like a good inn-keeper, should
provide. Political economy is more like inn-keeping or hoteliering than just simple
householdering. If we look at Economics in this light, we can arrive at an intelligent
judgement as to what should be done to Indian Economics textbooks.

Now, suppose you went to a good hotel and ate a fantastic meal. You inquired after the
chef, and were told that he had published a book containing his recipes? Would you buy
the book? Of course you would, and it would probably be worth it.

Now suppose you went to another hotel and ordered a meal with your friends. And it
turned out to be a really horrible meal. All of you ended up very sick, and the expenses
on medication far exceeded the cost of the meal itself. You inquired after the chef – to
shoot him! – and found that this chap, too, had published a recipe book. Would you buy
it? Of course not!

Well, that is the predicament you are in, dear student. Your textbooks on ‘Indian
Economics’ are the product of a very bad inn-keeper. His recipes are all wrong, and the
curries he cooks up give guaranteed cholera, or double your money back. His kitchen is
full of rats and cockroaches – there is so much corruption. Now, if you study his recipes
– First Plan, Second Plan, Third Plan, Fourth Plan, Fifth Plan, Sixth Plan, Seventh Plan,
Eighth Plan, Ninth Plan, and now the Tenth Plan – you are not gaining any ‘knowledge’.
You are just wasting your time. You would be better off studying ‘American Economics’,
‘British Economics, ‘German Economics’ or ‘Japanese Economics’ than this crap. Better
to study the recipes of good hotel chefs, than this lousy one. Maybe you will find out, in
the end, that there is only one true Economics, and that a science has no nationality:
there is no ‘Indian Physics’ or ‘Indian Chemistry’, is there?


So, what should you do to your textbooks? I say: BURN THEM! As far as examinations
are concerned, don’t appear for them. Study other subjects and pass them, get your
degrees; but don’t study Indian Economics. If some PhD researcher into Indian
Economic History one day wants to study the Plans, let him; but everyone must not be
required to study all this rubbish as a part of a degree course in Economics. Since
Indian Economics is also taught in schools, it is all the more imperative that it be thrown
out and replaced by an enunciation of basic economic principles.

A movement within civil society is called for to end this sham education in Economics
that our children get. I went through all this myself – I topped Indian Economics in my
BA: Dr B M Bhatia was my teacher – and I would not like our children to suffer the same
fate and go through the same nonsense about our planners’ pious intentions. It is far
more important that they get an insight into the principles of market economics, and
take an interest in the underlying philosophical issues: the link between Economics and
Political Science. This is where liberalism can challenge socialism and statism.

Civil society is looking for an issue to take up: something with which to make a mark. I
would suggest: Target the Indian Economics textbook and destroy it. The tiger preys on
the weakest in the herd.



While living in Mangalore and its surrounds for so long, I have discovered that the people here possess
intellectual capital of enormous worth. Let us first speak of rice, which is something I love, being a
bhetho bangali.

If you ever attend a breakfast with Germans in Germany, either at a home or in a village inn, you will be
flustered at the table to see over 20 or even more kinds of bread on offer. The conclusion: The western
world knows a lot about baking bread from wheat.

However, they know nothing about rice. Nothing whatsoever. I recall a Punjabi lady I met in a train who
lived in Munich and said she earned a lot of money teaching German women how to boil rice!

Actually, Punjabis also know very little about rice! But even then, this lady could earn substantial sums
by teaching Germans the basic technique of boiling rice. Let us now turn to Mangalore.

All of India knows of Udipi restaurants. Udipi lies on the coast 50km north of Mangalore. But Udipi
restaurants have only popularized iddli, dosa and traditional South Indian vegetarian fare. In Mangalore,
instead of iddli, we have the great sanna, which is eaten with non-vegetarian food. The sanna is softer and
far tastier than the traditional iddli. And eating it with pork baffath is far more interesting than the “same
old potatoes and the same old beans” of sambar and chutney. Sanna was always made using toddy, which
made it ferment faster, gave it a nice smell, and also enabled it to stay soft longer. Today, toddy is
unavailable for the purpose, and yeast is used. This is an example of a very important and valuable piece
of real “knowledge” going down the drain because of the VIOLENCE against toddy – by The State.
Tapping toddy is also “knowledge” – traditionally the specialization of the Billava community in
Mangalore and its surrounds. As I was told, only a Billava knows how to climb the palm and harvest the
toddy. By killing toddy they killed this “knowledge” too. Rather than standing up for the Kannada
language, and guarding the youth against MTV, the locals here should fight for the preservation of the
traditional sanna made with toddy.

However, sanna is just one rice item from Mangalore. There are so many more. There is neer dosa, also
eaten with fish and meat curries, which I have never encountered anywhere else. It is a soft rice dosa,
white in colour, poached in water (hence neer).

There is the fantastic shevige, a kind of traditional rice noodle, that I enjoyed with mutton curry for
breakfast – something very different from ildi-sambar.

There are rice balls made with various different recipes, ranging from the “double-steamed” ones I had in
Coorg, to the marvai pundi with clam flesh in it.

I had rice dishes steamed in leaves, very different from iddlis, like moodey and kottige.

There are many varieties of dosas. Set dosa is rare outside Karnataka. And in a small town in Coorg I had
a dosa unique to the district.

There are, of course, a wide varieties of biryanis, all very different from North Indian, Hyderabadi,
Kashmiri or Mughlai biryanis.


Vegetarian rice dishes include puliyogare, or tamarind rice; pongal, a kind of khichdi; coconut and lemon
rice; bisi bele, a Karnataka khichdi; vegetable biryani and various pulaus, including the rich ghee rice.

There is also a great appreciation for boiled, unpolished rice, something that has unfortunately almost
disappeared among Bengalis, even in Bengal. Unpolished, boiled rice is a great source of nutrition, and
this is traditional knowledge widely valued here. It can challenge the pre-eminence of basmati.

Since we are on the subject of food, let us digress from rice and wander into the non-vegetarian cuisine
here, something Udipi restaurants have never sold. There are pork, fish, shellfish, and beef dishes like
sukka, pandhi curry, baffath and sorpotel that could take the world by storm. Goan pork vindaloo is
already a household word in England.

So, what do the “poor and unlettered” people of this area really need? Is it education? Or Liberty?

Last night I had a huge dinner of clams, mussels, fish, mutton, accompanied with neera dosa at an
excellent restaurant, reputed for its cuisine in a city with immense competition in the food business. I
inquired as to the salary of the chef, and was told he earns about 5000 rupees a month. What would he
earn in a London restaurant serving marvai sukka? In 1989, I had a South Indian vegetarian meal at a
Woodland’s restaurant in Leicester Square, London. Dinner for two cost 25 pounds then.

I do believe that western nations who keep the Third World out with their strict visa regimes and then
support “education” for these people do themselves as well as the poor of the Third World great
disservice. They lose by not being able to consume whatever these people can sell them with their skills
and traditional knowledge. And they themselves display their own ignorance when they think that
everyone in the Third World is somehow stupid because he or she cannot read or write too well. They
should re-listen to the rock-and-roll classic, “Johnny B. Goode”:

Never learnt to read or write too well,

But he could play his guitar like ringin’ a bell!

Economists like Amartya Sen endorse such a view of the need to “educate” the Third World poor by
promoting these ideas in the west. Sen is not a friend of either the poor or the constituency of knowledge;
rather, he is a friend of The Ministry of Human Resource Destruction, Government of India, New Delhi.
He is a socialist democrat.

I also think that paying excessive attention to India’s success in IT and software is elitist, yielding little
for the larger society. In my book, the citizens of Mangalore should proceed to showcase their city as a
culinary destination of choice. I suggest a massive festival of food, drink, music and dance 28 organized by
private entrepreneurs within civil society timed to coincide with the Christmas and New Year, when
tourists are escaping the cold north for Goa. Just 300 km down the road, with a minimum of advertising in
Goa and Bombay, such a festival can put Mangalore, and its valuable “knowledge”, on the world map –
the world tourism map. Soon, restaurateurs and hoteliers the world over will come to recruit chefs from
the region. This “knowledge” will find its “market”.
Mangalore too, like Bombay, has many “dance bars” where women dance to the music and song of a live band.
Stiff entry fee and very expensive drinks. Cops probably hassle them; and they close down pretty early. This city has
produced many Bollywood stars, including Aishwarya Rai, who earn millions dancing, and there is no reason why
women here who are not as pretty as Ash or cannot dance as well should not be allowed to enter the market in such
nightclubs. Indeed, this city has many talented musicians, singers, dancers of all kinds ranging from the above to the
South Indian classical to even one choreographed modern dance that some very talented students put up for their
college annual day. Even these talented students can perform alongside their studies and allow their talents to
develop and earn money, while also contributing positively to the total “action” in the town.


Finally, it must be mentioned that when Professor Sam Fleishchacker says that “universal education” is a
“public good” that Adam Smith would have approved of, in the article referred to above, he is assuming
that there is some “knowledge” that the whole of humanity needs to be possessed of. There is first the
belief that there are some who should be entrusted with this enormous task, with public money, and these
are those who are in possession of this very precious “knowledge”. There is the flipside assumption that,
if left to themselves, people will not find lots of useful knowledge in the world around them without any
help at all from The State. I hope Professor Fleischacker is not being racist, but many western academics,
thanks to long-term exposure to the likes of Amartya Sen, believe that people in the Third World are
devoid of “knowledge”, and hence need “education” – from The State. When Professor Fleischacker says
“universal”, it implies that he thinks it is the Third World that needs this “education”, for surely he does
not consider the people of the western world to be illiterate. Such a view is in complete ignorance of the
huge amount of real “knowledge” that exists in the Third World – denied entry into the first world by the
visa regime.

It is not only the government of India that is an enemy of its people, all the other governments of the
world, especially the developed world, are also enemies of the people of India, and other poor people of
the Third World, thanks to the visa regime.

In the companion volume on law, I will show how immigration restrictions are a gross violation of
Property Rights, and should be deemed illegal under the Common Law. For now, let us just digress a bit
to see how these restrictions on freedom also hurt the ordinary people of the first world. I am sure many
of you have American, European, Australian, Canadian and other friends. Do tell them how these
restrictions hurt them as well, so that they, as citizens, can oppose these most perverse restrictions on all
of us.

As Bob Marley sang:

Why can’t we roam,

This open country,
Why can’t we be,
What we want to be?
We want to be Free!

The World Is Our Oyster.



Mr. Neil Young, a very great cultural icon of America, sang a plaintive song long
ago, that went:

A man needs a maid,

Someone to keep my house clean,
Cook my meals,
And go away.

So, is it not ironical that over 90 per cent of Americans, who are among the richest
people on Planet Earth, cannot afford to enjoy the services of a housemaid? They
did once, as the jazz classic, “Summertime”, shows – but then, they actually
captured unwilling Africans and enslaved them for the purpose. Today, there is no
need to resort to such brutal, inhuman methods to get help in looking after the
baby. Millions of Third World women, all quite talented at housework, suffering
today under patriarchy or state oppression or worse, would jump at the chance of
going to America or Canada or Australia and working there as housemaids. Why
just women, even men would go, and every English gentleman could have a

It is only because of policies imposed by the governments of developed countries

that this happy outcome does not transpire. Government bureaucrats let in software
professionals, doctors, nurses and wealthy businessmen – they “centrally plan”
immigration. They don’t mind if Mr. Bill Gates is an employer of foreigners. But
they do not allow every American citizen to be an employer of foreigners too.
Ordinary Americans could easily enjoy the services of housemaids, chauffeurs,
gardeners, delivery boys and the like at a very affordable cost. It is only because of
restrictions imposed by Uncle Sam’s bureaucrats that tax paying, wealthy
American citizens are condemned to suffer doing their own housework, cleaning
their floors and bathrooms, washing their cars and weeding their gardens. Just as
one is better off with the consumption of more goods, so too is one better off with
the consumption of more services. With free trade, Americans consume goods that
come in from every corner of the world. With free immigration, they would also
consume much more in terms of labour services, and lead far more happy and
productive lives. As per the Principle of Comparative Advantage, wealthy, tax-
paying Americans would be able to specialize in what they do best, leaving
cooking, cleaning, driving, gardening, carrying and fetching to other people. It


would be win-win all around, as not only would the citizens of wealthy countries
be significantly better off, but, more importantly, the long-suffering people of the
Third World would get the opportunity to escape the clutches of their predatory
states, breathe the air of freedom and prosper.

Why does this not happen? Why do we see, instead, the strange sight of a wealthy
American or German or Australian housewife labouring over the clearing-up after
a great party while, with her tax money, her government has employed hordes of
bureaucrats and posted them all over the Third World to ensure that any foreigner
willing to work at her house is kept out? In New Delhi, the capital of socialist
India, the embassies of capitalist countries have prospective immigrants queuing
up from 2 am every day! American citizens pay taxes to employ an entire army to
keep friendly Mexicans, with whom they have a much publicized Free Trade
Agreement, out. It is their tax money that has paid for the very expensive, high
fence that demarcates the US-Mexico border. Are Americans stupid?

There is a T-Shirt very popular among Indian youth today which says, “I Was Born
Intelligent But Education Ruined Me”. The fault lies in the education in Economics
that the citizens of wealthy nations are receiving – much of it from their
governments. Many economists hold that what the poor of the Third World need is
education. I, for one, hold that proper education in Economics is urgently required
by citizens of the First World. It is they who need to see the benefits of open
borders, small government, low taxes and freedom. They also need to see the
dangers of big government, expensive bureaus and high taxes. It will take eons to
get the corrupt, inept governments of the Third World to reform. Indeed, this may
never ever happen. However, with proper education in Economics, the tax-paying
citizens of wealthy countries could prevail upon their democratic governments to
open their borders – and keep them open. When this happens, Third World states
will see an exodus of people – an end to the bogus ‘population problem’ they harp
endlessly about – and this will force them to reform. When their people flee, these
corrupt Third World governments will see a dramatic fall in their tax revenues and
a sharp shrinkage in their captive markets. With open borders, governments will
compete for tax payers. Corrupt and cruel dictators, socialist, communist and
military rulers – all will be brought to book when their suffering citizens ‘vote with
their feet’. Uncle Sam will not have to play Global Cop with tax dollars; instead,
Uncle Sam will be cut down to size and billions of tax dollars saved.

For proper education in Economics, I do not recommend weighty textbooks of the

kind written by Mr. Paul Samuelson that have spread economic illiteracy
worldwide for decades. Economics is a simple and enjoyable subject that delivers


worthy insights into the most important aspect of life: wealth creation, the very
basis of human survival. Economics is not so complicated and confusing as
textbooks such as Samuelson’s make it out to be, or children would not enjoy
playing Monopoly. To understand Economics and enjoy the read, I recommend
Frederic Bastiat – a Frenchman who stood up for freedom over 150 years ago,
whose works are not prescribed to Economics students anywhere in the world

In his classic essay, “Scarcity and Abundance”, Bastiat made the telling point that
whenever we go to the market as sellers of a good or service, we wish to outlaw
competition and favour closed borders. However, when we visit a market as
buyers, we demand wide choice and clamour for free trade. If the state were to
support all of us in our instinct as sellers, then borders would be closed, there
would be all-round scarcity, supermarket shelves would be empty – and we would
suffer as buyers. We would succeed as sellers, yes, but not as buyers – and that is
no great success because we produce in order to consume.

What Bastiat said about the benefits of free trade also applies to free immigration.
With immigration control, what the State is supporting is the instinct of the
citizenry as sellers of labour. Therefore, the citizens fail as consumers of labour.
Small organized labour unions like those of autoworkers and steelworkers lobby
for and support closed borders and a protected labour market. While they benefit,
the masses of ordinary citizens suffer from high labour costs and the consequent
inability to afford services they desperately need – like housemaids.

Bastiat, in another essay, explained the logic of protectionism thus: There is this
steel magnate in France. He sees cheap steel imports coming in from Belgium and
this threatens his profits. Now, he has two options. One, he could hire a posse of
men, arm them with guns, and deploy them along the Franco-Belgian border with
instructions to shoot anyone who comes in with steel. But such a course is highly
inadvisable. So there is the other option: Go to Paris and pay a politician there to
do it for you. Then the politician will deploy armed guards along the border at the
tax-payer’s expense, and the two of them will share the increased profits while the
tax-payers who paid for the guards will fork out even more for steel!

Immigration control can be viewed in exactly the same way, for tax-payers fund
the hordes of bureaucrats and armed guards who run the visa regime. This regime
is vociferously supported by small groups of labour suppliers like the autoworkers
who want their salaries protected. They gain – and the tax-payer who paid for the
immigration officialdom finds that he cannot ever afford something so basic and


important as a housemaid! He also pays more for his car, for it would have cost
much less if the labour market was free!

By reading these short and enjoyable essays of Bastiat, tax-payers all over the
developed world will be able to see the benefits of open borders – for goods as
well as for labour. They will easily see how minority pressure groups work upon
the State in order to promote their selfish interests at the expense of the rest of
society. They will also see how wasteful, meddlesome and unnecessary tax-
consuming bureaucracies multiply in order to implement the State intervention
demanded by these minority interest groups. They will realize in full how their tax
money is being totally misspent. And, in the First World, there will be a
widespread call for Natural Liberty.

Open borders in the developed world are all that the misgoverned and
impoverished nationalities of the Third World need. For over 50 years now, they
have suffered the attention of innumerable United Nations bureaus, promising
them everything from education to healthcare to ‘development’ – and all these
bureaus are funded by taxpayers of the First World. Likewise, huge aid
programmes have been embarked upon by First World governments which, as
Lord Bauer famously remarked, transfer money ‘from the poor of the First World
to the rich of the Third World’. All this false philanthropy of statism will end when
tax-payers of the First World wake up. After a few hours of enjoyable reading,
which is all that the perusal of Bastiat requires, these tax-payers will clearly see
that their own interests and those of the people of the Third World coincide
perfectly. Then, someday soon, the world will arise to a New Liberty.



We have already examined the proposition that public goods need to be supplied by the
collective, through tax revenue.

But that should not mean that the market and private entrepreneurs should not be allowed to
enter the provision of public goods. Take the case of radio or television broadcasts. They are,
according to the standard textbook definition, public goods, because no-one can be excluded
from their consumption and, further, when we consume these, we do not reduce the consumption
of others. Yet radio and television broadcasts come to us free, without state spending – because
they are combined with private goods: advertisements. You see live cricket free because various
firms want to catch your eye with their advertisements. Similarly, lighthouses were considered
public goods in modern textbooks until economic historians showed that, in England, lighthouses
came up in the private sector because they were allowed to share in the tolls charged by nearby
private ports: private goods. In this way, by combining private goods with public goods, we can
obviate the need for state monopoly on this score. A good example to take is of an underground
pedestrian subway.

Theoretically, there is no reason why a private entrepreneur should make a pedestrian subway
because there is no way he can charge all those who use it. It is possible, but it is just too
cumbersome. What is the way out?

It could be possible to develop some real estate in the subway to set up cafes and shops. These
cafes and shops would be in hot demand because there would be a lot of people walking in front
of them: potential customers. (The ‘footfall rate’ is an important term in the parlance of real
estate agents!) If private developers are allowed to set up subways with shops in them which they
can rent out or sell, this essential public good could be supplied free to pedestrians by the market.

It is important to get the private market into supplying public goods, because the political market
has too many dysfunctions. It cannot be relied upon. Take the example of the state’s investments
in pedestrian subways in Delhi. South Extension is bisected by the busy Ring Road. There are
two important markets in South Extension, one on each side of the road, but there is no
pedestrian subway; though here, one with shops in it would be a huge hit.

However, if you go to the offices of the Times of India on Bahadur Shah Zafar Marg you will
find a subway with two large shop spaces in it where the state has set up a state-owned cafeteria:
a “Media Café” run by Delhi Tourism! Does this manner of public good provision make sense?

For this reason it is important to look for ways by which public goods can come from the market.

• Localities – even entire townships – can come up where the developer and the residents
pay for the internal roads and internal security.


• Intercity expressways can be provided by private sector developers if we combine these

with real estate development – townships, supermarkets, malls, eateries, petrol stations
and billboard advertising.

In this way, we can build a MINIMALIST STATE and create a large space for FREE CIVIC

Why depend on the state

For what we need
When the private sector
Can do the deed?

Private policing,
Roads, subways and more –
We can do it all better
- Isn’t that for sure?


Think of all the public goods that can be combined with private goods and supplied by the
market: for example: street lighting, or street signs.
With a minimalist state, there would be very few tax financed services and hence very few
taxes. Can you think of all the tax financed services you would still require?
Will these be provided at the local, state or central level?



Critics of the free market economy maintain that it is inherently immoral because it is based on
GREED: the ugly profit motive. Is this a valid criticism? It is important to understand why
because public morality is extremely low under socialism – the word ‘scam’ occurs everyday –
and kleptocrats should not be allowed to get away by calling economic freedom immoral.

The free market economy is a way in which human beings co-operate with each other. When the
division of labour takes place, and we have goatherds, washermen, dentists, plumbers and
electricians, we actually find ways in which we ease the burdens of other people. We specialise
in the free market economy because we believe that by doing so we can find ways of satisfying
the needs of our fellow citizens. Of course, we also benefit. We do so for a profit. But is profit
making immoral?

Try a small experiment with your lunch. Look at what it contains. Think of those who produced
all those ingredients – the rice, the lentils, the vegetables, oils and spices – and consider whether
all these people provided you with your lunch because they loved you. Indeed, they do not even
know you. If you had to rely on their love for you – that they would, each of them, stock your
kitchen with rice, vegetables, spices and lentils – would you get your lunch? You would most
likely starve. The profit motive may sound greedy, but it works. We do not get water and
electricity because they are being charitably disposed of by the socialist state.

Now try another experiment. Think of what you do, or what you would want to do when you
grew up. Would you engage in the division of labour out of a love for humanity or out of your
own desire to succeed in this difficult world, raise a family, and possess the essential comforts of
life? Most people will answer: I specialise in the division of labour in order to extract the
maximum benefit for myself. I never refuse a pay hike. Many will answer: I will become a
doctor and go out into the wilds of Africa to cure the sick. The latter are gems beyond compare.
The free market economy definitely believes in the THIRD SECTOR: the voluntary
organisations which do so much good work. But it is mainly based on greed. This greed is a good
thing. The good doctor in the wilds of Africa would need modern drugs produced by greedy drug
companies. All voluntary work survives on donations from those who work in the market
economy and generate profits.

The free market economy is moral, even though it is based on greed. The fact is: BOTH SIDES
GAIN IN TRADE. The electrician who fixes my fuse charges me fifty rupees and gains, but I
pay him fifty rupees and gain as well. To take another example: the vegetable vendor. I buy a
kilo of potatoes from his cart outside my house. He gains. He has paid less at the wholesale
market. But if I take the trouble and expense to go to the wholesale market and get my potatoes it
will cost me far more. Thus, though the vendor gains, I gain as well.



[The famous board game, Monopoly, does not illustrate this very important
fact: In Monopoly, if you land up at someone’s hotel, it is not an act of
choice, but by the roll of dice; and when you pay up, you do not feel that you
too gained from the experience: it is like a “fine” imposed on you. However,
when you choose to go for a holiday in an exotic resort, and you thoroughly
enjoy your vacation, you do feel it was win-win all around. You even make a
mental note to return someday soon, and recommend the place to all your

In this way, the free market economy is one of the secular foundations of human morality. This
is how morality arose long before religion. In primitive times, when people went to the village
square with the little that they had to exchange – some fish, a pumpkin, some meat – they found
a moral way of interacting with each other: through GIVE AND TAKE. When they engaged in
give and take – a moral exercise since no one is stealing – they discovered that it was only
possible if some basic rules were obeyed by all the players: first, an understanding of what is
‘mine’ and what is ‘thine’: property rights; and second, some way of ensuring that anyone who
disregarded these rights – who stole – was punished and the goods returned to their rightful
owner. That is, ‘thou shalt not steal’ is the basic moral rule of the market economy.

In his great essay, Civilisation 29 , Clive Bell refers to Westermarck’s Origin and the
Development of the Moral Ideas for characteristics and attributes that we might be
tempted to call ‘civilised’ unless, from anthropological studies such as this, we were to
discover, to our unpleasant surprise, that even the most primitive of societies have been
possessed of these virtues. When listing out the virtues of primitive people,
Westermarck begins by asserting that ‘respect for property rights is not peculiar to
civilized societies’. Bell says, “Westermarck tells us that numerous savage tribes have
as nice a sense of mine and thine as any English magistrate.” Theft was unknown
amongst North American Indians before the ‘civilised’ whites came!

I lived for quite some time in a hostel in Mangalore, and my room on the ground floor was
accessible to all, the door was always open, and even when I was away, my suitcases and other
stuff were all lying open. I can say with some confidence that the respect for property rights
Mangaloreans show is perhaps not to be found in most places in the ‘civilized’ world!

The preservation and protection of private property rights must be the basic law and the essential
duty of government. The socialist Constitution of India does not guarantee the property rights of
citizens. Socialist law engages is legal plunder: nationalisation, rent control, land redistribution.

My son bought me a T-Shirt that says it best:

The Government Hates Competition

Reprinted in India by Rupa.



Having shown how the market is one of the secular foundations of human morality, it becomes
necessary to proceed further and inquire into whether the main religions of India – Hinduism and
Islam – are opposed to the free market.

Hinduism was the first religion in the world to discover the morality of the market – in just two
little words: Shubh Laabh (or profits are auspicious, profits augur well for society). This is a
great philosophical discovery of the Hindus which should be ranked higher than their discovery
of the ‘Zero’. The West had to wait for the year 1776, when Adam Smith showed how, when
rational self-interest prevails, and is free from state interference, the good of society is promoted
by an ‘invisible hand’. He showed how this makes society both prosperous as well as moral. As
Lord Acton, also a moral philosopher, later added: Power corrupts and absolute power corrupts


The fact that freedom is moral can be experienced by visiting any crowded market-place in any
city in the world: there are never hordes of armed policemen ‘maintaining order’ on London’s
Oxford Street or Delhi’s Connaught Place or Mangalore’s Hampankatta. There is ‘spontaneous
order’ in the market because all are there to play the positive-sum game of fair exchange: no one
is there to steal, rob, plunder, loot, murder or rape. (And free society can handle the occasional

If society was composed entirely of profit-seekers in a free market economy, it would be moral.
Powerful socialists have corrupted society with their economic restrictions. They imposed these
restrictions to protect us from the harmful effects of greed. But greed is better than kleptocracy.
Or, to put it another way, the greed for profit is better than the greed for power. You can satisfy
your greed for profit only by satisfying more customers; you cannot force anyone to buy from
you. But those who are greedy for power don’t want to satisfy anyone: they have the brute force
of the state and its legislative and administrative diktats to back them, and they use this power in
every possible way to enrich themselves at the expense of the citizenry.

State power is also used in the economic sphere by politicians and bureaucrats to RESTRICT
THE CHOICES OF THE CITIZENS. Like, in the old days, you could buy only a Bajaj scooter
or an Ambassador car. So, both these ‘industrialists’ were CRONIES, and shared their profits
with the state and its personnel – those who use the powers vested in them to confer upon these


businessmen their monopoly status. This continues today in many areas, most noticeably in the
alcoholic drinks trade, where toddy is kept out, beer is made expensive, and everyone is given
the “incentive” to drink hard IMFL drinks, which work out cheaper: “more bang for your buck”.
(The poor can only afford the horrible arrack sold by a state monopoly.) Hence, ‘liquor lobby’
and ‘liquor mafia’. With free trade, and no distortions because of excise duties, toddy, beer and
wine, and other low-alcoholic beverages would be cheap. Hard liquor would not be preferred.
Public health would be better looked after. Today, a small pint of beer in Karnataka is 20 rupees;
while a 60 ml large peg of rum is 14 rupees. When I lunch, I often notice that most locals in
Mangalore order a 90ml IMFL whisky or rum – and not a small beer as I do, simply because
both cost the same and the 90 ml IMFL whisky delivers a bigger “kick”.

In Delhi, a bottle of Prosecco at Ritu Dalmia’s Italian restaurant cost 1000 rupees. In Frankfurt, I
found Prosecco retailing at €1.79 or about 75 rupees. Prosecco is a sparkling Italian wine, which
is half the price, or even less, of a bottle of Old Monk rum. Ritu Dalmia told me she sells $5
wines for $30 dollars – customs duties. Indian wines cost 300 rupees or more – that is, double the
price of a bottle of Old Monk. Good wine is cheap in Europe. It is also good for the health. In
Frankfurt, the local specialty, apfelwein, sells for €0.50 a litre! Who wants an oil pipeline? Let
Mani Shankar Aiyar invest in that! I want to invest in a wine and beer pipeline! Add toddy to the
list of light alcoholic drinks available locally cheap and on tap – and let the microbrewery
business bloom too – public health will be much better promoted. These guys are actually
harming public health by RESTRICTING THE CHOICES OF THE CITIZENRY to promote
IMFL hard liquor: the liquor mafia.

In a free market composed entire of competing profit-seekers, human society will be much better
served than it is today by the players of the political market. This simple fact, that the greed for
profit serves society far better than the greed for power is all that the two words Shubh Laabh
mean. This is exactly what Adam Smith discovered when he said that, although each one of us in
a free market is pursuing his own gain, it is as if by an “invisible hand” that the whole of society
benefits. The individual did not go our there into the market seeking anything other than his own
gain, but the whole of society gains too when he succeeds. Some say that by “invisible hand”
Smith meant the hand of God. I’ll have to confirm that, but Bastiat was one who was possessed
of a very strong theological faith in the “invisible hand” (and he had definitely read Smith
thoroughly) when he cried: “To believe in Liberty is to believe in God – and have faith in his
creation, Man.” Let every man free to pursue his interest without harming others, obeying the
natural laws of justice his faith dictate – and that will be God’s world, not only my God, but your
God as well, and every other fellow’s God too. As someone quipped about religious rivalries: “It
is like saying that my imaginary friend is better than your imaginary friend!”

Islam is a religion based on the free market. The Prophet Muhammad, peace be upon him, was a
free trader, as was his wife, Khadija: they traded in myrrh and frankincense, exotic ‘spices’. The
Islamic calendar begins with an incident of free immigration: the flight from Mecca to Medina. It
is also on record that, when the poor Meccan refugees arrived in Medina, they asked of the
people of Medina only one form of aid: “Show us the way to the market and we will make our
way by working.” Islam actively encourages entrepreneurship, protects property rights, and
discovered the theory of free trade long before Adam Smith. Islam also has rules on ‘unjust


profit’. The Prophet Muhammad, peace be upon him, said: “He who makes money pleases God.”
Islam is a morality of traders, not soldiers.

The Mughals were descended from Mongols, and they adopted Islam to ape the civilization they
admired. Thus, they were soldiers from Ferghana, not traders from Mecca or Medina. Every
other Mughal Emperor was tolerant of all faiths – Akbar’s Deen-E-Ilahi is well known – and
Dara Shikoh even studied Hindu scriptures in Varanasi. Aurangzeb, who ruled for over 40 years,
turned out a zealot because Islamic zealots supported him against Dara the Akbarite, and that
was the end of their empire – and the rise and rise of the Maratthas, soldiers too.

Sikhism, Jainism and Zoroastrianism are also all pro-market. The outer compound of the Golden
Temple in Amritsar is a market, and I even saw an ATM machine there! Sikhs are hard-working
and entrepreneurial. Their ability to take risks is amply proved by their great success as
immigrants. On a TV documentary, I saw a Sardarji operating a tea-stall in Anchorage, Alaska!

Jains are all businessmen first and foremost. An ‘atheistic religion’ (or ‘non-theistic religion’ like
Buddhism), with no belief in God as such, Jainism fully endorses the Four Ends of Man:
dharma, artha, kama, moksha. The mighty Mahavira stands naked. He is not a soldier. Gandhi
found his ideal of ahimsa, or non-violence from the Jains. Only traders are non-violent; all trade
is voluntary. Note that when the government of Gujarat blocks the trade in alcohol to please
Gandhians, it uses VIOLENCE – the force of arms!

Parsee surnames are based on the urban division of labour: Screwwallah, Sodawallah,
Daruwallah and so on. Parsees are all urban businessmen, specialized in the urban division of
labour, and that is why they are well off compared to other Indian communities. Actually, India’s
Muslims are also predominantly urban: there are more Muslim businessmen than farmers.

Even among the Buddhists, we see Tibetans as hugely successful in the sweater trade conducted
on footpaths. It is reported that when poor Indians buy sweaters from the roadside vendors, they
prefer to go to the Tibetans. With their little restaurants in our cities and towns, Tibetans have
made momos a household word. And, with freedom, they will surely make chhung a hit as well!
On a visit to Kushalnagar, the Tibetan colony in Karnataka, I also noticed many establishments
specialized in ancient Tibetan crafts, from brocade-making to Tankha painting to woodwork.
Tibetans have enough skills and knowledge to succeed in a free market – that is, the global free

I wonder why Tibetans live in their refuges in India – I have visited Dharamshala too – and all
their “politics” is about getting Tibet back. Why don’t they just fight for free immigration? Why
live life looking only at the rearview mirror? Momos, thukpa, chhung and all their arts and crafts
will fetch them much more in the west. Go west, all you Tibetans!

True secularism in India cannot come about without a free market economy. The market is one
of the secular foundations of human morality. Both Hinduism and Islam believe in the free
market. Sikhs, Parsees, Jains and Buddhists too are all pro-market. All these communities will
peacefully co-exist if we stress their fundamental commonness and ignore their differences.


The notion that freedom brings about morality while power corrupts can be best understood by
participating in a little thought experiment.

Take a tray of bananas and carry it before a group of monkeys. What will happen? The monkeys
will steal your bananas.

Now take another tray of bananas and go someplace where there are no monkeys but lots of
human beings: a market: Connaught Place; Brigade Road; Chandni Chowk… What will
happen? No human being will steal your bananas. If they want them they will come up to you
and politely enquire as to how much they are worth. Man is a moral creature simply because he
has the ability to trade: to take and give in exchange. The monkey steals because he cannot give
up anything in exchange for what he takes.

Now, to see how power corrupts, hang around in the market-place a while longer and observe
who are the monkeys amongst us: you will see policemen and municipal workers extracting
goods for free – the huftha brigade. They are the extortionists who operate on the poorest of the
poor in the market. This is the cutting edge of kleptocracy.


Human beings are not only moral, they all possess what is called ‘the core of all morality’: good
manners. These manners have arisen because human beings need to co-operate with each other
in the market economy and manners aid us in mutual co-operation. Good manners are the grease
which lubricates the wheels of everyday economic exchange. Notice how shopkeepers are
always polite and government babus are inevitably rude.

In a completely free market, without any state controls, rewards will not go to those with
connections or those who use force: dadagiri. They will go to those who work hard to provide
for the needs of fellow citizens, and these people will all be well mannered – the only way to
succeed in a state of freedom. This is why Lucknow was famous for its manners once and Bengal
bred bhadraloks. All manners have been destroyed by practicing socialism for 50 years.


Morality, in the free market economy, is in the LONG-TERM INTEREST of all players. In the
short-term it may make sense to cheat and steal, but this does not work in the long-run because
cheats and swindlers are quickly found out and lose all their customers. Thus, REPUTATION is
hugely valued in the free market.

BRAND NAMES are all based on reputation. If you take home an unbranded product like, say,
loose turmeric (haldi) powder, you may find it adulterated. On the other hand, if a major brand is
guaranteeing purity, you are sure of getting value for money because the brand values its
reputation highly, and will not tarnish it for short-term gain.

Thus, to conclude, freedom brings about morality and good manners. Reputation promotes moral
behaviour as being in the long-term interest. On the other hand, power corrupts. It is excessive


power that has created our kleptocracy. These powers must be taken away and the people given
economic freedom so that our society may be moral.

This morality, based on the secular foundation of the free market, with its respect for property
rights, is one that will enable not only Hindus and Muslims, but all other faiths, to co-exist
peacefully, as all religions are agreed on the morality of the market.

All their fingers itch

To somehow get rich
The crookedest, easiest way.

Their power will flop,

And corruption will stop
When free markets come here to stay.


Conduct some private research into what India’s major religions say on entrepreneurship and

Does the argument ‘better government can be obtained by putting better people into the
government’ hold? Or is power always a corrupting influence?



Socialists also criticise the free market economy on the grounds that it tends to promote
inequalities. They believe that, with state controls, they can promote EQUALITY. This was
Jawaharlal Nehru’s grand vision of a ‘socialistic pattern of society’.

Those who believe in the market do not believe in EQUALITY. They believe in FREEDOM.


That is, let us be as close as possible to a state of nature: what Adam Smith called ‘natural
liberty’. If we look at nature, we see a wide variety of plants and animals. We see short grasses
and tall trees and all the bushes, creepers and vines that nature will support. We do not see
equality. We do not see uniformity. The socialist vision – what Nehru called the ‘socialistic
pattern of society’ – was one of uniformly trimmed hedges, with the state acting as gardener.
Today, it is obvious that the gardener is ruining the garden in pursuit of his own selfish interests.
Society would be better off without this predatory gardener. It would grow free and wild. A free
market, without state controls, provides a natural eco-system to the human species in which we
can all specialise, find niches, and survive. There will be tall trees and short grasses – and bushes
and vines. There will be some who will receive huge rewards for their skills – like Sachin
Tendulkar. Let no-one attempt to enforce artificial uniformity.

The important point to note is that FREEDOM COMES FIRST.


When we place freedom first, we are free to be what we want to be and do what we want to do. If
we place any other value (like equality) above freedom, we lose our freedoms in a fruitless quest.

The socialists never promoted equality, although they took away our freedom. They have created
a Ji Huzoor, Mai Baap, VVIP CULTURE in which everyone who is a commoner has to bow and
scrape before those in authority.

The socialists achieved this through a system of DUAL SUBORDINATION, borrowed from
their good friend Stalin. First, the prime minister, who is also party chief, commands the party
hierarchy: we often hear the term ‘party high command’. Second, the supreme leader is also
simultaneously the head of the bureaucracy, and so in complete command of the state apparatus.
Such a system of dual subordination is not even intended to achieve equality. As Roberto
Michels pointed out in 1915, in his classic book, Political Parties, “socialism will fail at the
moment of its adherents’ triumph”, for a classless society can never be ushered in by a
centralized, hierarchical political party!


Young people must also realize that a system of ‘dual subordination’ is fatal for the young, who
have no option but to begin at the bottom of one long hierarchy or the other; either in the Party;
or in the bureaucracy. Dual subordination, with rigid hierarchies in the state and party
organization, inevitably leads to THE RULE OF THE AGED. (The Vatican is a good example.)
During the Vajpayee regime, it was reported that the average age of parliament was 68 in a
country where the average life expectancy is 62! Which meant, as one wag put it, “We Are
Ruled By Dead People!”

The average age of parliament has come down somewhat after the last elections, with the
Congress fielding many youngsters: the baba log. But all of them are sons of dead Congressmen.
They are not really new, young blood. They are just what Congressmen are, and have always
been: socialists, of a very horrible kind, championing the cause of the public sector, and
government ‘help to the poor’. They all support the education cess. They all believe in ‘equality’.




As Bob Dylan put it, in My Back Pages:

A self-ordained Professor’s tongue,

Too serious to fool,
Spouted out that Liberty,
Is just Equality, in school.
Equality I spoke the word,
As if a wedding vow,
Ah! But I was so much older then,
I’m younger than that now.

Let us not utter the word ‘equality’ anymore, ‘like a wedding vow’.

From now on, let us only value Liberty.

I don’t need the state to tell me

what to do.
Mum and dad are quite enough,
thank you.


Why to we get together and form a collective like a State?

What do we seek from the State?
What political value should we uphold if we want to ensure that the State is not too powerful,
State personnel are not misusing powers, and that public morality exists?
What are the advantages of having inequalities in society?



(And how he uttered the word “Equality” just “like a wedding vow”)

Throughout my adult life, George Orwell has remained an enigma and a curious
fascination. I have always believed that his stint in the Imperial Police in Burma
(recounted in Burmese Days) made him realize what a horrible thing the State is, and
inspired him to write such masterpieces against statism as 1984 and Animal Farm. But
one question forever remained: How could such a man who could see the State so
clearly as evil, ever be a socialist? I finally found the answer during an accidental read
of an extract from Orwell’s Homage to Catalonia. Orwell had gone there to fight in the
civil war. He describes the battlefield, how the Anarchists and the Fascists and the
Socialists were shooting and bombing each other. He describes his own pitiable
condition: hunger, thirst, heat, cold, dirt and filth, lice, bad footwear and clothes, and so
on. He then says that he has no regrets, for the experience was richly rewarding to him
in one special way: it made him even more convinced about socialism. These are his
own words, with my emphases:

The workers’ militias, based on the trade unions and each composed of people of
approximately the same political opinions, had the effect of canalizing into one
place all the most revolutionary sentiment in the country. I had dropped more or
less by chance into the only community of any size in Western Europe where
political consciousness and disbelief in capitalism were more normal than their
opposites. Up here in Aragon one was among tens of thousands of people,
mainly though not entirely of working class origin, all living at the same level and
mingling on terms of equality. In theory it was perfect equality, and even in
practice it was not far from it. There is a sense in which it would be true to say
that one was experiencing a foretaste of Socialism, by which I mean that the
prevailing mental atmosphere was that of Socialism. Many of the normal motives
of civilized life – snobbishness, money-grubbing, fear of the boss etc. – had
simply ceased to exist. The ordinary class division of society had disappeared to
an extent that is almost unthinkable in the money-tainted air of England; there
was no one there except the peasants and ourselves, and no one owned anyone
else as his master…. However much one cursed at the time, one realized
afterwards that one had been in contact with something strange and valuable.
One had been in a community where hope was more normal than apathy or
cynicism, where the word ‘comrade’ stood for comradeship and not, as in some
countries, for humbug. One had breathed the air of equality. I am well aware
that it is now the fashion to deny that Socialism has anything to do with equality.
In every country in the world a huge tribe of party hacks and sleek little
professors are busy ‘proving’ that Socialism means no more than a planned
state-capitalism with the grab motive left intact. But fortunately there also exists a
vision of Socialism quite different from this. The thing that attracts ordinary men
to Socialism and makes them willing to risk their skins for it, the ‘mystique’ of
socialism, is the idea of equality; to the vast majority of people, Socialism means
a classless society, or it means nothing at all. And it was here that those few


months in the militia were valuable to me. For the Spanish militias, while they
lasted, were a sort of microcosm of a classless society. In that community where
no one was on the make, where there was a shortage of everything but no
privilege and no boot-licking, one got, perhaps, a crude foretaste of what the
opening stages of Socialism might be like. And, after all, instead of disillusioning
me, it deeply attracted me. The effect was no make my desire to see Socialism
established much more actual than it had ever been before.

As the italicized portions show, Orwell found his egalitarian Utopia among tens of
thousands of people, all peasants, who shared a ‘disbelief in capitalism’ (because they
had nothing to sell and nothing to buy anything with either), ‘where no one was on the
make and there was a shortage of everything’, where the ‘normal motives of civilized
life’ were absent, and hence there was this mystical air of Equality that so attracted him.
Here Orwell found genuine, true ‘comradeship’. However, he uses the word ‘strange’ to
describe the situation. Why did he use this word? It must have been the most apt.

Orwell also shows complete ignorance of the moral basis of market exchange, when he
refers to the ‘grab motive’. In market exchange, there is ‘give-and-take’: the only ones
who grab are the thieves (who get roundly thrashed) and the cops (who will one day
surely get thrashed as well).

Orwell uses the word ‘mystique’ to describe the goal of Equality so cherished by the
socialists. And he refers to his ideological adversaries as ‘party hacks and sleek little
professors’. As someone once told me: “They are wrong but romantic; we are right but
repulsive.” There is something seriously wrong with our packaging. Socialists have all
these romantic heroes like Che Guevara. Our ‘party hacks and sleek little professors’
have nothing romantic about them. And therein lies the tragedy, for surely the air of
freedom can be made to look far more romantic than this romp with tens of thousands
of ‘equal’ peasants. We need libertarian rock stars!

However, it must be said that chasing romantic utopias has proven to be extremely
harmful for every society that did so. Reason is cold, reasoning through is hard work,
and it involves reading fat tomes by ‘sleek little professors’. But reason is essential.
Reason prevents societies from diving headlong into disaster. Orwell’s ‘air of equality’ is
what Jawaharlal Nehru’s ‘socialistic pattern of society’ was all about. The deal was:
Give me your freedom, and I will give you Equality. It was a bad deal, to put it mildly.
We Indians only got a VVIP culture: no equality at all. We lost our freedoms in a fruitless

It is also strange that an OFFICER of THE IMPERIAL POLICE, should enjoy ‘equality’
with peasants, and not ‘know’ that he was, in many ways, ‘superior’. As an officer, you
are trained to command: to be ‘superior’. Whenever I travel in rural India, I always feel
infinitely ‘superior’ to the peasantry. That does not mean I look down upon them; just
that they look up at me!


Finally, Orwell seems to be one of those Brits with what Lord Bauer called ‘class on the
brain’. He simply hates England and its ‘money-tainted air’, and all the various classes
in society that naturally ensue. He actually hates prosperity and civilization, since it
stinks of money. He revels in a poverty of equals. He desires to establish Socialism and
put an end to all economic and social differences in one fell swoop. The goal: we are all
equally peasants; precisely what Hayek, a ‘sleek little professor’, called ‘the road to
serfdom’. In reality, Britain, with its much maligned ‘class society’ has always been a
haven for hard-working and talented members of the working classes, enabling hordes
of them to rise to giddy heights. In the 1840s, Samuel Smiles’ classic Self-Help
recounted hundreds of such instances. In modern-day Britain, Lord Bauer’s essay
“Class on the Brain” is a similar demonstration of the fact that the ‘class society’ of
Britain is a socialist myth, and that tens of thousands of perfectly ordinary people have
climbed to the top aided by nothing more than character, perseverance and ability. Like
the Beatles, who started off really poor in the back streets of Liverpool.

Therefore, another lesson to learn is that we libertarians must ensure that citizens see
the benefits of inequality. We must convince them that the socialists malign something
that is not only natural, but also beneficial. For example: Whenever a new product
emerges, it is expensive – like the first car, computer or mobile phone. Only the rich can
afford it then. It is the custom of the rich that enables these first producers of that good
to find markets, improve upon their offerings, expand production scales and bring prices
down – so that ultimately everyone can afford that product. The rich help society.

Orwell is the perfect example of the misguided intellectuals of the 1940s who
championed socialist projects at home and abroad, armed not with reason, but with
romance and ‘mystique’. Together, they destroyed half the world. Bad ideas also have



What is politics?

• Wearing a T-shirt supporting human rights is politics.

• Putting a bumper sticker on your car saying “No To Nuclear Weapons” is politics.
• Writing a ‘Letter to the Editor’ is politics.
• Giving a lecture to slum dwellers on rent control is the POLITICS OF KNOWLEDGE.


That is, active citizenship is politics. Joining a centralised, hierarchical political party and
following the dictates of a ‘leader’ is not politics: it is slavery; it is fascism.

There is no need for parties to practice free politics. It is not just about politics against the
government: it could be free politics against a polluting industry; it could be free politics against
a cheating multinational. Citizens who are active in free politics are gems beyond compare and
breathe life into democracies.

You can participate in all these kinds of politics and contribute to a healthy and vibrant

So, have faith in yourself and in the fact that you can survive best if left free to gain knowledge
and specialise in a free market economy, free to practice politics and take an active interest in the
world around you.


In India, there is law against the formation of political parties that are not SOCIALIST. Thus
there is no free market party. The democracy is restricted to socialists: we are free to choose
amongst various alternatives, all of which are socialist. There was once a Swatantra Party led by
liberals like Minoo Masani, but it was destroyed by Indira Gandhi who amended the
Representation of Peoples Act to ensure that no new free market party is allowed to legitimately
be set up.


To reiterate: There are three pillars of a free society:

• The economic freedom of the FREE MARKET. We need UNILATERAL FREE TRADE,

Professor Bernard Crick coined this definition in his widely read “In Defence of Politics”.


• The political freedom of DEMOCRACY. Here, liberals are kept out by legislative diktat,
while many weirdo, wacko parties are ‘recognised’, although they are neither ‘socialist’ nor
even ‘democratic’: they are all ‘pirate ships’.
• Liberal education: that which teaches THE VALUE OF FREEDOM. Here, state education is




Ban the bomb

Save the whale
Free Tibet
Such campaigns never fail.

Put it on a button
Stick it on your car
Take part in politics –
Age and sex no bar!


There are all kinds of political creeds: communists, socialists, and so on. Those who believe
in freedom call themselves LIBERTARIANS. What do you call yourself?

Whatever you call yourself, how can you best practice your politics?


Ten Libertarian Principles

1. The road to hell is paved with all the good intentions of the

2. Free people are not equal (in wealth), and equal people are not free.

3. What’s yours, you take care of; what belongs to everyone or no one
falls into disrepair.

4. Sound economics consists of looking at the long-run effects of an act

or policy on all groups, not simply the short-run effects on a few.

5. If you encourage something, by spending your money on it, you get

more of it; if you discourage something, by refusing to spend on it,
you get less of it: like beggars, or B-schools.

6. Nobody spends someone else’s money as carefully as he spends his

o w n.

7. The government has nothing to give anybody except what it takes

from somebody.

8. A government that’s big enough to give you everything you want is big
enough to take away everything you’ve got.

9. Some people are dissatisfied with free enterprise if it doesn’t work

perfectly and satisfied with government even if it doesn’t work at all!

10. Eternal vigilance is the price of liberty.



Amazing Grace,
How sweet the sound,
That saved a wretch like me.
I once was lost,
But now I’m found,
Was blind,
But now I see.


Comments for the back cover:

“Well written, fast paced, entertaining yet instructive, this book will
move the furniture around in your mind.”
Director-General, Institute for Economic Affairs, London.

This book is full of wisdom – but the language is simple, laced with
wit and humour. You will feel like reading it at one stretch. There
are many other books on the subject – but not one is for the layman.
This book is for everyone – students, teachers, professionals,
businessmen and even economists. Both Free Your Mind, and its
companion volume, Free Your Life: A Beginner’s Guide to Justice
& The Law, ought to be prescribed at the PU level so that well
before branching out into other areas, all students possess a
thorough grasp of the social sciences.
Head of the department of Economics,
St. Agnes’ College,