Its, Hayek's Time

From Desai's article:

• "All this is so old-fashioned that it has been forgotten. On the eve of the Keynesian Revolution, Hayek was warning of mal-investments induced by the market rate of interest being below the natural rate for any length of time. This was the Wicksell model, tweaked by Ludwig von Mises and Hayek to accommodate bank credit in the Walrasian framework. It flopped spectacularly in the 1930s and was forgotten. But good ideas never die in economics. They only wait till their time comes. This is Hayek’s time.
• Sadly, in Hayek as in Marx, economics is not a policy science and there are no tool kits to fix the problem. Time will restore the equilibrium perhaps not at the old trend but a new one. When that will happen is not within economists power to predict. Just wait and see."

But it clearly shows that Mr Desai is confusing what Wicksell or for that matter Walrasian argued with that of Hayek and Mises views on regulating rate of interest at particular level in an economy. The underlying truth is that Mr Desai never got it right the original arguments of Hayek and Mises. Rather he always looks at them through the wild eyes of Keynes!

Economics is truth

"Later in life, when speaking before a group of economics students, Hayek bared his soul about this problem of the moral choices economists must make. He said that it is very dangerous for an economist to seek fame and fortune and to work closely with political establishments, simply because, in his experience, the most important trait of a good economist is the courage to say the unpopular thing. If you value your position and privileges more than truth, you will say what people want to hear rather than what needs to be said." More here.

The paradox of inequality (income)

There is a movement in the USSA for the issue of what has been the business of top 1 percent of wealthy people for the rest of the population.

I am more than reminded of the great 1955 essay by Von Mises on “Inequality ofWealth and Income”. Some excerpts: 

• Inequality of wealth and incomes is an essential feature of the market economy. It is the implement that makes the consumers supreme in giving them the power to force all those engaged in production to comply with their orders. It forces all those engaged in production to the utmost exertion in the service of the consumers. It makes competition work. He who best serves the consumers profits most and accumulates riches. 

• …country enjoys the highest standard of living ever known in history because for several generations no attempts were made toward "equalization" and "redistribution." Inequality of wealth and incomes is the cause of the masses' well-being, not the cause of anybody's distress. Where there is a "lower degree of inequality," there is necessarily a lower standard of living of the masses. 

• There is no use in fooling ourselves. Our present taxation policy is headed toward a complete equalization of wealth and incomes and thereby toward socialism. This trend can be reversed only by the cognition of the role that profit and loss and the resulting inequality of wealth and incomes play in the operation of the market economy.

Why NOT Hayek! (and Mises)

Why Mises (and not Hayek)?

Finally at Mises Institute!!!

I have not able to post any update on this blog for quite some time. The reason is simply that my research paper on liberalism and free banking ideas of Dr. B.R Ambedkar has been selected for the presentation in the Austrian Scholars Conference 2011.

I am now here to present my paper. It was great challenge for me to finally reach the Mises Institute for the Conference. Many great people have helped me in every single thing to make it this trip successful. This is my first visit to United States of America. Indeed, I am greatly thankful to all those who have helped me. I will write in detail about their individual name when I am back from the Conference.

Income inequality

Professor Angus S. Deaton says:

Coming to Third World countries such as India, do you think there is a trade-off between inequality and poverty? 

• No, not in any simple way....I do believe that growth, in its initial phases, is uneven , and doesn’t necessarily benefit everyone. I also believe that growth is necessary for (income) poverty alleviation. So to reduce poverty in the long run, we may have to put up with increasing inequality for a while. But as long as poverty is falling, I am not too worried about modest increases in inequality. 

I have already written in this blog. But still, to give you quick reference. You will get altogether different view point if you read what Austrian economist Von Mises wrote in his article on Inequality of Wealth and Incomes.

Back to blog!!

I had another great opportunity to present my paper here and meet few interesting people also. I was also away from the NET world so I could not post anything that I think is important for this blog.

Some good news:

Prof.Ken is very kind to include my few words in his For News of Jonathan Gullible and the Philosophy of Liberty. You can see me by scrolling down!!!!

The other good news is that we have new Seminar:

The Mises-Hayek-Shenoy Seminar
Economics Beyond Keynes and Friedman
February 9-10, 2011
New Delhi

If any one of you interested to participate please do write to me, or to vipin.veetil@gmail.com andghanshyamsharma1985@gmail.com

Nobel Prize for Mises!!

Prof Pete Boettke of George Mason University says that:

• Important to recognize that Mises, despite the fact that he was always a little bit out of step with the profession, he also was recognized. He was the Distinguished Fellow of the American Economics Association (AEA) in 1969; there was a large segment of people who pushed to try to get him the first Nobel Prize in economics. He won the highest medal of honor for scientific accomplishment from his own country, Austria. 

Listen the talk here. Also another one on Hayek is here.

India and Human Action by Ludwig von Mises

Years ago when I heard first time about the Professor Mises book Human Action, I wondered what Mises would have thought and probably said about India when he was writing this book. It is not surprise as the book runs about thousand pages. In the form a article I have now compiled the essential from the book Human Action to see what Mises actually wrote on India, M.K.Gandhi, Indian businessmen, British India, landlords etc.

It is quite amazing to read all those views which are very lucidly expressed and of course make you muse. The most interesting are the below seven paragraphs. Yes only the SEVEN WOUNDERS!! My favourate one is the FIRST and the SEVENTH WOUNDER!!

Mises wrote: 

1. Mahatma Gandhi disavowed his whole philosophy when he entered a modern hospital to be treated for appendicitis (p.85). 
2. A comparatively insignificant number of Britons could rule many hundred millions of Indians because the Indian princes and aristocratic landowners looked upon British rule as a means for the preservation of their privileges and supplied it with the support which the generally acknowledged ideology of India gave to their own supremacy. England’s Indian empire was firm as long as public opinion approved of the traditional social order (p.190).   
3. In the long run it is impossible to withhold the better arms from the members of the majority. Not the equipment of their armed forces, but ideological factors safeguarded the British in India (p.191). 
4. If capitalist entrepreneurs had not succeeded Lord Clive and Warren Hastings, British rule in India might one day have become such an insignificant historical reminiscence as are the one hundred and fifty years of Turkish rule in Hungary (p.650). 
5. The poverty of Asia and other backward countries is due to the same causes which made conditions unsatisfactory in the early periods of Western capitalism (p.747-748). 
6. Mere technological knowledge is of no use if the capital needed is lacking. Indian businessmen are familiar with American ways of production. What prevents them from adopting the American methods is not the lowness of Indian wages, but lack of capital (p.774). 
7. Indian nationalists take pleasure in speaking of traditional Hindu democracy! (p.842-843).

Letters in spirits erode nothing but the ‘evil’

Recently I happen to read some of articles written by Jude Blanchette. The following are some of collection of letters written to various newspapers by Professor F A Hayek and Mises and Oskar Morgenstern. in the early decades of twentieth century.

From the "Austrian Economists as Denizens of the Popular Press"

• In 1923, a 24 year old F.A. Hayek wrote a letter to the editor of The New York Times in which he detailed incipient inflationary forces in Germany that had already devalued the mark to 1/500 of its value. "It is a matter of common knowledge," the young Hayek wrote, "that Germany's middle classes, including the small merchant and manufacturer, have lost almost everything."

• In a series of letters to the editor of The New York Times, for example, Mises outlined the socialistic nature of the Nazi regime. In a 1942 letter, he wrote that in Germany, "Market exchange and entrepreneurship are thus only a sham. The government, not the consumers' demands, direct production; the government, not the market, fixes every individual's income and expenditure. This is socialism with the outward appearance of capitalism ¾ all-round planning and total control of all economic activities by the government."

• The need to overcome economic nationalism through trade and commerce, an important theme throughout the work of Mises, was the subject of a 1943 letter to The New York Times. In this letter, entitled, "Super-National Organization Held No Way to Peace," Mises writes that, "The building up of a lasting union of the peace-loving nations is not a technical problem of conventions, constitutions and bureaucratic organizations. Economic nationalism cannot be eradicated by measures of a purely institutional character. What is needed is a radical change in political mentalities and social and economic mentalities."

• In a series of New York Times op-eds published in the 1950's, Oskar Morgenstern championed the capitalism of Hong Kong and noted the failings of the "third way" in Sweden. A 1954 piece entitled "Capitalist Oasis" details the remarkable progress made by the tiny island of Hong Kong, "a paragon of capitalist freedom."

• What would be of particular interest to Austrians, and indeed was for Morgenstern, was the regulation of money, or lack thereof. "The money market is remarkable in that three private banks are still allowed to issue banknotes of their own, which constitute the local currency in circulation apart from government coins. There is no central bank, but whether because of this or in spite of this, the money system is very stable. Every currency can be transacted freely and there is no control over capital movements in and out."

• In a remarkable four-part series appearing in the Wall Street Journal beginning December 12, 1949 and ending four days later, Mises condensed his critique of socialism and addressed it to the masses. The four op-eds were published under the titles "The Socialist Society," "The Socialist Planner," "Socialism's Unique Problem" and "Socialism in Disguise."

• Hayek, for his part, took to the offensive in articulating the ideas of freedom. In a response to Professor Harold Laski, appearing in The New York Times, on the question of "Is the World going to the Left?" Hayek reiterates the need for individual thought and freedom in the face of totalitarian pressures.

• "The century from 1848 to 1948 will probably come to be known as the century of Socialist delusion, a century during which, as a result of sheer intellectual error, so much good-will was canalized into efforts which very nearly succeeded in destroying the values the people most wanted to preserve."

• In Socialism, Mises wrote that, "Only ideas can overcome ideas and it is only the ideas of Capitalism and of Liberalism that can overcome Socialism. Only by a battle of ideas can a decision be reached."

Also read:

1. Education is the Effect, Not the Cause, of Affluence by Jude Blanchette
2. Government Is Better than the Market at Producing Human Capital? by Jude Blanchette
3. We Have Enough Globalization?by Jude Blanchette

Indian Socialism 2.0

Siddharth Singh writes:

• “The traditional concept of socialism is based on state control of the means of production and intervention in pricing and production decisions in product markets. It was this version of socialism that so exercised economists such as Friedrich August Hayek, Ludwig von Mises and other critics of socialism. India never went down the Soviet road, and, as a result, avoided the worst excesses of that system. Instead of total state control, India had state-owned enterprises coupled with pervasive controls over various markets. Even this watered down version of socialism killed growth in India and led to a balance of payments crisis in 1991.”

Catallactics matters

Sauvik has great piece Catallaxy, key to an Open Society in Mint today.

Some excerpts:

• Yet, community is a bogus value in a market society, which, in order to succeed, must be urban and cosmopolitan. Community makes sense in a village comprising one caste or in a small, exclusive tribe where everyone knows everyone else. It makes no sense in a city where individuals operate, peacefully trading with complete strangers. For such a society, the appropriate political value is “catallaxy”, which means an open trading arena. But first, a little about this word.

• In the 20th century, Austrian economists alone used the word “catallactics” to denote the science of exchange. In Ludwig von Mises’ Human Action(1949), the section dealing with traditional economic issues is titled “Catallactics”. Derived from the Greek word for “exchange”, Mises mentions that catallactics was first used by the British economist and theologian Bishop Whately in the previous century, which means the word was well known to the classical political economists. Mises’ student from his Vienna years, Nobel laureate Friedrich Hayek, confessed to having “fallen in love with this word”, for which he discovered two additional meanings that the ancient Greeks ascribed to it: first, “to welcome into the community”; and second, “to turn from enemy into friend”. These connotations of the word indicate its importance to an Open Society.
  
  
• Hayek defines community as “a common recognition of the same rules”. Such rules can be religious or tribal—or they can be secular. In an open catallaxy, only one rule need be recognized by all: private property. Happily enough, as Hayek also points out, this rule has been the cornerstone of open markets for millennia. Whenever people exchange, they exchange properties. Thus, most trade takes place without legal paperwork of any kind. Hayek said that the rule of private property operates in all of us “between instinct and reason”. We follow the property rule without knowing why. We have given up the instinct to plunder, to snatch and grab—but we don’t know why.

Free market heal inequality

Reviewing Prof. Suresh Tendulkar paper on “Inequality and Equity during Rapid Growth Process” published in the “India’s Economy: Performance and Challenges: Essays in Honour of Montek Singh Ahluwalia” Mythili Bhusnurmath writes:

• “Tendulkar concludes that equity would be advanced in the normal course of market operations without government intervention for reducing inequalities if technological changes reduce the relative price of one or more necessities of life or by enhancing the supply and consumption of necessities like food. This is what happened in China during the transition from collective farming to individual household responsibility system that generated economic incentives that were instrumental in enhancing the supply and consumption of necessities like food.
• So, contrary to widespread belief, certain types of market outcomes can be equity-enhancing as opposed to the usual intellectual presumption that all market outcomes are necessarily inequitable. Now, if only the rampaging Maoists in central India were enlightened enough to read Tendulkar’s paper, growth might get a chance!”

The paper is worth reading not just Prof rejected the old theory of “Standard measures of inequality such as Gini coefficients” but makes a case to amend the notions of inequality in market and how market create equality in society. You have plenty of examples to count!! Think of tiny mobile phone to small car.

Overlooked economist provides a guide to the financial crisis

An Economist's Invisible Hand -Arthur Cecil Pigou, overlooked for decades, provides a guide to the financial crisis

Who would like to see the real Keynes in the twenty-first century?

Thanks to Lewrockwell and Mises Institute for constantly reminding us to understand the real tragedy of Keynes’s German Language and his arrogance towards Mises’s book.

The following paragraphs are from Murray N. Rothbard’s classic article. Till now I have read at least twenty times!!

• “One striking illustration of Maynard Keynes's unjustified arrogance and intellectual irresponsibility was his reaction to Ludwig von Mises's brilliant and pioneering Treatise on Money and Credit, published in German in 1912. Keynes had recently been made the editor of Britain's leading scholarly economic periodical, Cambridge University's Economic Journal. He reviewed Mises's book, giving it short shrift. The book, he wrote condescendingly, had "considerable merit" and was "enlightened," and its author was definitely "widely read," but Keynes expressed his disappointment that the book was neither "constructive" nor "original" (Keynes 1914). This brusque reaction managed to kill any interest in Mises's book in Great Britain, and Money and Credit remained untranslated for two fateful decades.
  

• The peculiar point about Keynes's review is that Mises's book was highly constructive and systematic, as well as remarkably original. How could Keynes not have seen that? This puzzle was cleared up a decade and a half later, when, in a footnote to his own Treatise on Money, Keynes impishly admitted that "in German, I can only clearly understand what I already know – so that new ideas are apt to be veiled from me by the difficulties of the language" (Keynes 1930a: I, p. 199 n.2). Such unmitigated gall. This was Keynes to the hilt: to review a book in a language where he was incapable of grasping new ideas, and then to attack that book for not containing anything new, is the height of arrogance and irresponsibility.[4]

Notes No 4:

• In view of his friendship with Keynes, Hayek's account of this episode characteristically misses Keynes's arrogance and gall, treating the story as if it were merely unfortunate that Keynes did not know German better: "The world might have been saved much suffering if Lord Keynes's German had been a little better" (Hayek [1956] 1984: 219; see also Rothbard 1988: 28).”

Forget inequality, Liberty will Triumph in its own course

In the Weekend Ruminations the Business Standard T N Ninan pose an interesting question but wrong conclusion and with wrong theory in head. So what is that question?

• “Which country would a poor person like to live in? He has two options. In Country A, the average income per head goes up by 1 per cent each year, while that of the poor goes up by 1.25 per cent. In Country B, average income goes up by 3.5 per cent each year, but that of the poor goes up by only 3 per cent. It is easy to see what will happen over time in the two countries. In A, inequality will reduce and everyone will become more equal. In B, however, poverty will reduce much faster, even though the level of inequality will increase. So which of these two countries would a poor person choose?”

The answer is known at least decades back as has been clearly pointed out by Professor Mises.

Inequality vs Liberty

Say NO to inequality because the theory of inequality is flawed in many ways. It is the socialist propagators who keep telling us that the inequality matter in a big way in a society like India. What we need is a liberty for everybody which is an ingredient and necessary condition for individual freedom, equality of right to property all these are never a sufficient condition unless there is rule of law.

Professor Mises argued in the 50s that:

• “Inequality of wealth and incomes is an essential feature of the market economy. It is the implement that makes the consumers supreme in giving them the power to force all those engaged in production to comply with their orders. It forces all those engaged in production to the utmost exertion in the service of the consumers. It makes competition work. He who best serves the consumers profits most and accumulates riches.”

Further Mises said that the country like Unities States “… enjoys the highest standard of living ever known in history because for several generations no attempts were made toward “equalization” and “redistribution.” Inequality of wealth and incomes is the cause of the masses’ well-being, not the cause of anybody’s distress. Where there is a “lower degree of inequality,” there is necessarily a lower standard of living of the masses….In the opinion of the demagogues inequality in what they call the “distribution” of wealth and incomes is in itself the worst of all evils.”

Now you can draw your own conclusion from the Professor Pranab Bardhan article “How unequal a country is India?” published in today’s BS.

This was same narrative was taught to me years ago when I was selected as a Young Scholar for a national workshop on “Social Sector in China” organized by CSDS.

Even it’s appropriate to remember what Patrick Henry said in 1775:

“Almighty God! I know not what course others may take; but as for me, give me liberty or give me death!”

In another address he said:

“That country is become a great, mighty, and splendid nation; not because their government is strong and energetic, but, sir, because liberty is its direct end and foundation.”

PS: my posting and the argument in this blog is not to win others viewpoint but aims to mere point out that look there is also alternative view. The best alternative will be the ultimate alternative which is ideal.Secondly, learning gives me immense energy to be honest, recharged, loving life in a natural way. My next post will be on why we learn?

Before that remember the following “famous lines of the poet John Donne”:

No man is an island, Entire of itself. Each is a piece of the continent, A part of the main......Therefore, send not to know For whom the bell tolls, It tolls for thee.

Some unfolding quotes

“One of the sad signs of our times is that we have demonized those who produce, subsidized those who refuse to produce, and canonized those who complain.”

-Thomas Sowell

"Education's purpose is to replace an empty mind with an open one."

-Malcolm Forbe

"The first thing a genius needs is to breath free air."

-Ludwig von Mises

‘Everywhere round about us we hear the sound of things breaking, of changes in the social, in the political and economic institutions, in the dominant beliefs and ideas, in the fundamental categories of human thought. Men of intelligence, sensitiveness and enterprise are convinced that there is something radically wrong with the present arrangements and institution…’

-S. Radhakrishnan. Religion and Society (London 1947), p. 10