Thursday, October 18, 2012

A R J Turgot and Quantitative Easing

In the aftermath of the 2007 financial crisis, various central banks around the world have embarked on various policies to which they have given different names like quantitative easing, operation twist, LTRO, economic stimulus etc. etc. If you tear the linguistic veil surrounding these policies, then, you will find that, these policies are nothing but creation of money out of thin air i.e., inflation. Today's bankrupt mainstream economics profession, especially Keynesianism, believes that by simply printing truck load of money governments can get economies out of recession. They simply don't bother to understand that why there is this recession in the first place, and whatever explanations they offer are all wooly-minded and basically no explanations at all e.g., Keynesian 'animal spirit' argument. US Federal Reserve chairman Ben Bernanke is an epitome of this line of thinking and policy making. Despite repeated failures of his money printing policies, he is trying the same thing over and over again while expecting different results every time. You know such behavior is called, insanity. But that doesn't deter him from destroying the US and world economy via inflation.

Now, those who have studied economic history must be knowing that such inflationary policy of printing huge amount of fiat paper money is not new. The most famous case of such policy is in the early 18th century France when Scottish banker John Law created the great Mississippi bubble (more here) and destroyed the French economy. What John Law did in 18th century France, Ben Bernanke and other central bankers are doing today. John Law and various French kings tried to support their profligate expenditures via money printing and heavy borrowing, and they failed. Today's governments with the help of their central banks are trying the same - various governmental debt and money printing is going through the roof - and they will also fail in the end. But, I digress. The reason why I am writing this blog is to let you know about the brilliant French economists named Anne Robert Jacques Turgot (more here), who briefly worked as a finance minister of Louie XVI. As I just mentioned, Turgot was appointed as a finance minister of one of those ill fated French king, Louie XVI, and during his brief stint as a finance minister, Turgot tried very hard to reverse the French government's profligate policies of borrowing and spending to bring the economy back on the healthy course. He failed in his attempt, but his warnings, which comes to us via his various writings, is very relevant for today's similar events all around the world. What he said then is applicable today also, and this is the reason why it is important for all of us to know and understand what Turgot said about the consequences of such policies. Below I reproduce excerpts of his important letter to Abbe de Cice, which is famously known as the Letter on Paper Money (here, pp. 69-78). In this letter Turgot responded to the arguments in favor of John Law's paper money system and a thought that it is okay for the state to go into debt. Turgot said:

Observe, that the king derives no interest from the money he borrows: he needs it either to pay his debts, or for the expenses of the kingdom; consequently he is able to refund it only by taking from his domain, and it follows that he ruins himself if he borrows more than he owns...

The state, the king, the clergy, the provincial estates, whose needs consume their loans, necessarily ruin themselves if, every year, their revenue is not sufficient to pay, besides their current expenses, the interest and part of the principal of what they have borrowed in times of exceptional needs. (bold mine)

Tugot warned against profligate state debt, and he said, if governments will do so, then, they will ruin themselves! Today's governments are doing the same, and they will also ruin themselves and their countries in the end. Turgot warned against the replacement of Silver, the real money, with a paper money which is issued by the king. Remember today's governments have replaced gold/silver money with their phony paper money long ago in 1971. Even today they are doing nothing but printing more and more paper money creating inflation in that process e.g., various QEs. Here is Turgot:

L’Abbé Terrasson thinks very differently. According to him “the king can greatly exceed the proportion of tenfold to which merchants and private persons are bound.”...If the bill is worth money, why promise to pay? If the bill takes the place of money, it is no longer credit. Law was conscious of this, and he states that his circulating paper is really a type of money; he maintains that it is as good as that of gold and silver. “These two metals,” says l’Abbé Terrasson, “are only the tokens which stand for real wealth, i.e., commodities. An écu is a bill conceived in these terms: Any seller will give the bearer the produce or commodity which he needs to the amount of three livres, for that same value of another commodity which has been given up to me, and the effigy of the prince takes the place of a signature. Now what does it matter whether the token is silver or paper? Wouldn’t it be better to choose a material which costs nothing, which does not have to be taken out of commerce where it is used as merchandise, which is indeed manufactured in the kingdom and which does not necessarily make us dependent on the foreigners and proprietors of mines who profit greedily from the enticement  which the glitter of gold and silver holds for the other  nations; a material which one can increase according to need, without ever fearing its deficiency, which, indeed, one would never be tempted to put to any use other than circulation? Paper has all these advantages, which make it preferable to silver.” If all these reasonings were correct, this would be as good as the philosophers’ stone; for there would never be any shortage of either gold or silver to buy all sorts of goods. But was it permissible for Law to ignore that gold, like everything else, lowers its price by its increase? If he had read and studied Locke, who had written twenty years before him, he would have known that all the commodities of a State are always balanced among themselves and with gold and silver, in accordance with the proportion of their quantity and their vent; he would have learned that gold has no intrinsic value which always corresponds to a fixed quantity of merchandise; but that, when there is more gold, it is cheaper, and more of it is given for a fixed quantity of merchandise; that gold, therefore, when it circulates freely, is always sufficient to meet the needs of the State, and that it matters little whether there are 100 million marks or one million, if all commodities are purchased more dearly in the same proportion. It would, be ridiculous to imagine that money is only token wealth, the repute of which is based on the stamp of a prince.

This stamp is only there to certify its weight and standard. In their respective relation with commodities, uncoined silver is at the same price as coined silver, the legal value is purely a name. This is what Law ignored when he established the bank. (bold mine)


Turgot then goes on to discuss the effects of this inflationary policy. Unfortunately his whole letter with full analysis is lost, but whatever he has said above can be applied to the inflationary policy of Ben Bernanke and other central bankers. Ben Bernanke is also trying to convert paper currency notes into a philosophers' stone via his quantitative easing programs. He (falsely) thinks that, because economies are in trouble due to lack of aggregate demand [sic], so by printing and handing out money to people he can increase that aggregate demand, which then will bring the economy out of recession! But as Turgot said, like John Law, Ben Bernanke and other central bankers are ignoring the fact that, like everything else, paper currency will lower its price by its increase i.e., creation of money out of thin air will only reduce the purchasing power of every fiat currency note in circulation (i.e., inflation); it will buy less goods now than before various QE programs began. Overall demand and consumption won't increase as long as production is not increasing.  Later on, building upon the works of people like Turgot, Ludwig von Mises showed comprehensively that such money printing policies will ultimately result into a 'crack-up boom' and the final collapse of the whole monetary system.

Looking at today's events one feels that the history is again repeating itself. Time and again governments have resorted to money printing to fund their endless expenditures, and in that process have ruined their economies. Louie XVI and his government didn't listen to Turgot at that time, and finally the king lost his life in the bloody French Revolution. I wish things don't turn that bad today. I won't get surprised though if things get really ugly in future. I am not delusional about the realities today, and it is better to prepare ourselves for any dire eventualities.


Wednesday, October 10, 2012

The Wisdom of Étienne Bonnot, Abbé de Condillac - Part II

I finished reading Condillac's Commerce and Government last night, and what a brilliant book it is. In the second part of his book Condillac discusses the evil effects of many different kinds of government restrictions on the free trade. He brilliantly uses the economic principles developed in the first part to prove his points. His arguments are so lucid and to the point that the whole book can produce hundreds of super brainy quotes. I am reproducing some of his arguments below.

In chapter 4 of part II, Condillac discusses the harmful effects of 'war' on commerce. The Nobel prize winning economist [sic] Paul Krugman and his other Keynesian sidekicks are in love with war. He on camera has said that to bring the US economy out of recession, government can assume that some aliens are about to attack the planet, and to stave off this attack they start building a war economy via inflationary policies of money printing and spending. According to him, this big dose of monetary stimulus [sic] will increase the "aggregate demand" in the economy, which will bring the US economy out of recession! Here is Condillac exposing such silly and dangerous gibberish in 1776:

Each time they take up arms, they destroy a stock of wealth which they could have put into circulation, and which cannot be there any more. There will be fields which warfare will not allow to be sown: there will be others, where it will not allow any harvesting. Consequently, products will diminish, and the population with them.

I want some of these nations to cover themselves with glory, with that glory which the peoples, in their stupidity, attach to conquest, and which historians, stupider still, love to celebrate to the point of boring the reader: what will be their advantage? They will rule far away in countries once populous and fertile, and now in part deserted and uncultivated...

...Now, in this disorder, will the lands be as rich in products as when they were divided between a host of peaceful cities? They will be all the less so, as, with war taking away all freedom to trade, the surplus will cease to pass reciprocally from one nation to another. So it will not be consumed any more: now once it ceases to be consumed it ceases to reproduce itself.

While agriculture is damaged, many manufactures will collapse; and those which still exist will not have the same market any more. Normally they will only be able to sell to the nation in which they are established; and they will sell less to it, because that nation will itself be less rich.


Paul Krugman is not seeing the unseen effects of war destruction. He is not even seeing the seen effects of war destruction in the form of lost lives and destroyed capital base of the economies. Harboring even a thought that wars and war spending can be good for the economies is a sign of a pathological lunatic mind.

The major problem plaguing the governments around the world, especially the western world governments, today is the so-called 'sovereign debt crisis'. These governments have piled up mountains of debt, which is now threatening their economies. The illusion of prosperity - which was built around borrowed money - is now crumbling in front of their eyes. Condillac was warning against such profligate government borrowing and spending policies during his time also. In his chapter on Every Type of Government Borrowing, he said,

These loans were an endless expense for the state; an expense that was all the greater, as a part of the interest each year went abroad to foreigners who had also lent. The government did not abandon this income but it created another in the borrowings on life annuities; and to tempt greed it thought up tontines. It congratulated itself on contracting debts that snuffed themselves out, and on having found the secret of taking money from the citizens without doing violence to anyone...

...However, the state’s debts were growing, and the companies, which the government repaid poorly, could no longer keep their undertakings. Then the government put itself in their place and declared that it would pay for them, that is to say, it reduced the rate of interest on public paper from 5 to 4 per cent, to 3, to 2, finally to nothing. Then the ruin of a great many individuals, who had previously been rich, brought down with it a crowd of traders. One saw no more than bankruptcy on bankruptcy; and people learnt that it is not the same with papers, which only have a pretended value, as it is with gold and silver, which have a real value...

It was only left now for the government to bank on its own account, and it did so. When it had borrrowed from the bank to the point where it could no longer pay, it took the place of the bankers. Then it created more shares, and it did so all the more, as it believed that in future the paper would serve it in place of silver.

These shares, multiplied to excess, fell in price from one day to the next. Soon no one bought any more, and the shareholders demanded their capital. Much skill was now required. A great display of gold and silver was made. However, payment was made slowly, with the excuse that everyone could not be paid at once; and trusted persons came to receive huge sums in public which they secretly took back to the bank. But though such deceits could be repeated, they could not always succeed. The collapse of the bank in the end produced a general upheaval. (bold mine)

Not only Condillac warned against reckless government borrowing, but he also discussed the end result of such profligacy: bankruptcies after bankruptcies and final collapse of the banks producing a general upheaval. I wish people just look into the history and read the ideas of people like Condillac, but alas, I know, that is not going to happen because, as I will show below, governments will keep on repeating their silly and dangerous mistakes. The way governments are borrowing trillions of dollars today via central bank's money printing process, we are very likely to see a final collapse of the international monetary system.

Many people today, especially professional economists and other such second hand court intellectuals are clamoring for more regulations of various sectors of the economy. They are telling us, that our economies are in mess because of lack of regulations in the past; banks are in trouble because of lack of regulatory oversight in the past etc. etc. The truth which these people are hiding from all of us is, that our economies are in mess not because of lack of regulations, but because of these myriad of regulations! As Mises's analysis of interventionism informs us, that one intervention of the government in the market economy will result into myriad of problems, and to allegedly solve those problems government will intervene more and so on and so forth intervention after intervention will ultimately result in to a full fledged socialist economy. Condillac's ideas on this issue are in close proximity to Misesian analysis. Here is Condillac:

If governments had seen that these regulations were the prime cause of these disturbances they would have spared themselves a lot of trouble: they did not see it. So, to cure the ills they had produced, they placed themselves in need to make fresh ones, by making regulations on the internal circulation of grain...

So it made nothing but mistakes. It had been wrong to place itself in the position of itself having to provide for the people’s subsistence; and it made a second, even greater mistake, a consequence of the first, that of forcing open the granaries and claiming to fix the price of grain.

It was making useless attempts to settle the disorders. Its first regulations had produced them: its last regulations were bound to perpetuate them, or even to make them grow more. (bold mine)

As Condillac discussed, first governments around the world intervened in the markets via their central banks, and when that screwed up the whole system, they are again intervening to fix the problems which their first interventions itself produced! Anyone who understands the market process and government interventions' effect on this process will quickly realize that all these interventionist policies of governments around the world in the form of QE1, 2, 3, ZIRP, Operation Twist etc., are only going to result in more disasters in future.

Is there any respite from these government follies in our world? Can we expect governments to voluntarily stop their destructive policies? Can we reform our governments? Condillac provided the answer in his final chapter. He said,

Nations are like children. In general they only do what they see to do; and what they have done, they go on doing for a long time, sometimes for ever.

It is not reason that makes them change, it is whim or authority.

Whim corrects nothing: it substitutes abuse for abuse, and disorders come always in increasing number.

Authority could correct: but usually it alleviates rather than corrects. It is still remarkable for it to alleviate. It has its passions, its prejudices, its routine, and it seems that experience teaches it nothing. How many mistakes have been made! How many times have they been repeated! And they are still repeated!

However, Europe is becoming more enlightened. There is a government which sees abuses, which thinks of ways to correct them; and it would please the monarch to demonstrate the truth. So there you have the moment when every good citizen must seek out the truth. It would be enough to find it. We are no longer in a time when courage was needed to speak the truth, and we live in a reign where its discovery would not be lost.

You see. Nation states around the world are still repeating the same mistakes again and again against which Condillac and endless other such scholars warned. As he said, experience teaches them nothing, and so we must prepare ourselves for the dire eventualities of nation state's mistakes. But, as Condillas said, we should also not feel afraid of speaking the truth even if nation states today are more abusive. Only the bitter economic truth will help us all in rebuilding our societies after the coming collapse. 

Sunday, October 7, 2012

On the Road and Airport of Serfdom...

In last couple of weeks I came across few thing which again revealed the fact - with myriad of other things - that the political class is voting public's real master and the voting public, who erroneously think that they are the ones who are part of the government, is these political master class's slave population. The hype created around the word "democracy" is so powerful that people easily forget that there is no such thing as, government of the people, by the people and for the people! Government surely is not 'of' the people because, as I have mentioned in the past, the ruling elites come from handful of few families who are ruling this country since long, and the common man has no realistic chance whatsoever of becoming a prime minister or a president etc. The government also is not 'by' the people because voting is forced upon the populace by the political class e.g., Gujarat government explicitly made voting in local body elections compulsory, and above all, there is no choice of having no government! By hook or crook, they will form the government. As professor Hans Hoppe said, democracy is the god that has failed. The system actually was designed to continue the oppression of mass people by the handful of parasite minority. As brilliantly analyzed by the French philosopher and political scientist Bertrand de Jouvenel, under the guise of various nomenclatures like monarchy, democracy etc., political power has continued its unabated progression of exploitation of the common man. And one of the forms of this exploitation - major forms are taxation, inflation, political corruption scams etc. - was on display on the two hoardings, which I saw in past few weeks at various places while traveling. As you will see below, the political parasite class has not left unused any avenue of exploiting their slave public.

The first hoarding I came across while traveling on national highway no. 8 in Gujarat when I was returning from my lecture series in Ankleshwar. While approaching Surat, on this newly constructed highway, there is one highway toll booth where I saw the below posted hoarding. As you can see, the whole political parasite class, beginning from the president, is exempted from paying the toll of this highway! This is obvious because they are our masters - the list proudly declares these thugs as "dignitaries" - and they surely won't pay a dime for anything. Poor tax payers were first looted of their hard earned wealth to build this public highway by the politicians - who knows how much money they have siphoned off for themselves via highway corruption scams - and then these same tax payers will again have to pay toll to drive their vehicles, and that too compulsorily because they don't have any other choice of a better and cheap private highway. If anyone should be exempted from paying this toll, then, it is these tax payers, but slaves can't complain and they have to do exactly as their masters are ordering them to do. The political parasitic unproductive thug class can drive tax payer funded luxury cars on this, again tax payer funded, roads without paying a dime while tax payers will be screwed at every step of their life. Folks, this is the reality of your beloved "demoCRAZY"!!!    

Toll Booth Exempted Dignitaries [sic] List on National Highway 8

Second hoarding was posted by one of my students in my Facebook group. The reality of master class State is again on display here. This hoarding comes from one of the Airports of India. It is a list of so-called VVIPS/VIPS [sic] who are exempted from security checks, and they are all State officials. Murray Rothbard famously said that, the State is the gang of criminals, writ large, and it is the height of irony that these same criminal people are exempted from the security check!!! Randolph Burne said, that the war is the health of the State. These politicians are busy making wars on foreign land e.g., interventions in Afghanistan, Kashmir, Assam etc., they are busy creating riots inside the country e.g., Babri demolition, Raj Thakeray's violence in Mumbai against the outsiders etc., and they are exempted from the security checks! These political parasitic class is the biggest security risk for the whole human race, and they don't have to go through security checks! They have robbed, looted, maimed, and killed millions of people via their policies and they don't have to go through security checks! This again shows these political class's sheer arrogance, and also sheer ignorance and apathy of the slave public. 

VVIP [sic] Exemption List on India Airports
After looking at just these two evidences, if any non-political class public think that they are part of the government or the government is 'for' them, then, they surely are dreaming. If people think that "democracy" means they are the rulers of this country, then, they are just a bunch of whistling dixie. The real rulers are these politicians, bureaucrats and other government officials. And because they are rulers, they are above the law. In India there are two layers of law: one is for the common man where things like printing money is a legal offense of counterfeiting, and taking someone's money forcefully is stealing etc., and the second layer of law is for the privileged political class where money printing is monetary policy [sic], and stealing someone's wealth is taxation [sic]! There is no government of the people, by the people and for the people. There never was. This clever phrase was invented by one of the most criminal politician of all, Abraham Lincoln, to fool the public. The whole Indian society is divided between two classes: tax payers and tax consumers. This is the only reality. People have to understand and accept this reality sooner or later. They have to understand that they are the slaves of their master government. It will be better for people to accept this reality and start doing something to remove these chains of serfdom off their feet.

Saturday, October 6, 2012

The Wisdom of Étienne Bonnot, Abbé de Condillac

Étienne Bonnot, Abbé de Condillac (1714-1780)
As I mentioned in my past writing, I am right now reading French philosopher Étienne Bonnot, Abbé de Condillac's monumental work, Commerce and Government considered in their Mutual Relationship. Condillac originally published this book in 1776, just few months before Adam Smith's Wealth of Nations. Today the book is published by the Liberty fund and is available in both paper and hardback. As I am reading one chapter after another, I am astonished by Condillac's brilliant wisdom and his deep understanding of human nature. The original reviewers and translators, Shelagh and Walter Eltis rightly said that, the case for competitive market economics has rarely been presented more powerfully, and that there is continuing relevance in Condillac’s account of the difficulties that those who seek to liberalise economies still encounter. In the following paragraphs I want to briefly present some of the major ideas of Condillac and its relevance with the present day circumstances, especially the dismal status of mainstream economics.

Abbe de Condillac was a renowned 18th century french philosopher who worked mainly as a director of studies - tutor - to the prince of Parma. After finishing his duties as a tutor, Condillac decided to write Commerce and Government because he felt the need of instructing the prince about the economic matters, especially about what the king needs to do to govern his country's economy well. And the advise that Condillac gave to the prince is so precious and relevant for today's psychopathic central planners that it is worth reproducing here. Condillac said,

 Governing an economy requires a comprehensive genius who knows everything, who weighs everything, and who directs all the resources of government in perfect harmony. It would be difficult, or rather impossible to find such a genius. The best intentioned and most skilful statesmen have made mistakes through ignorance or through over hasty action, for it is difficult to see all and bring all together without sometimes falling into error. . . statesmen never do more harm than when they wish to interfere in everything. It is wisest to confine oneself to preventing abuses and otherwise to pursue a policy of laissez-faire. (Condillac, Cours d’études, 20:488) (Liberty Fund ed., p. 35)

There you are! In just one paragraph Condillac exploded the myth of a omniscient benevolent central planner(s). He recognized the fact that, even central planners are normal human beings like you and me, and if we can mistake - as central planners frequently allege to justify their intervention in the economy - then they are also prone to those same mistakes; they are also as fallible as any normal human being is. People like Manmohan Singh, Raghuram Rajan or Montek Ahluwalia are not angels that they know everything about how to run an economy. Economy is very complex and it can't be centrally run. Later on, in the 20th century, the Austrian economist F A. Hayek also made similar arguments regarding the 'knowledge problem' of the central planners. Ludwig von Mises's challenge of impossibility of socialistic calculation is the ultimate proof that centrally planned economies can never flourish than otherwise they would've in the absence of this central planning. Condillac thus advised the prince to pursue the sound economic policy of Laissez Faire i.e., Free Market Capitalism. Mises and Hayek both also advocated for the same policy for today and tomorrow.

Today's mainstream economists justify the existence of a central bank like RBI for the purpose of "price stability" e.g., RBI's one of the stated objectives is: maintaining price stability and ensuring adequate flow of credit to productive sectors. Indian government also fixes prices of myriad of economic goods for winning political votes. Condillac demolished this fallacy of "price stability" some 300 years ago, and warned against the danger of any government "price fixing". After explaining what determines the market prices i.e., exchange rations between various goods that are trading, Condillac said,

So prices will vary from market to market.

Doubtless it would be an advantage for the tribe if produce always had a determined and fixed price: because exchanges could be made without discussion, promptly and without loss. But that is not possible, because there cannot always be the same proportion between the foodstuffs, whether one considers them in the warehouses where the owners store them or in the markets to which they are carried.

If the variations are slight, they will hardly be felt. In that case they will have no disadvantages, or they would produce such small ones that it would be pointless to prevent them. It might even be impossible to anticipate them, and dangerous to try. Besides, we shall see that government deals a blow to agriculture and to commerce each time it tries to fix the price of foodstuffs. (bold mine)

As Condillac said, RBI's "price stability" is a chimerical policy. In a dynamic human economies, fix price of anything is simply impossible because the myriad of factors affecting price are constantly changing. Actually, under the guise of this propagandist "price stability" policy, RBI is creating inflation since its inception, which is resulting in a relentless rise in the prices of various economic goods! Inflation is government and banker's means of stealing common man's wealth. Condillac also mentioned the disastrous effects that government's price fixing policies will bring about. We witness these disastrous effects everyday today where government price fixing creates unemployment in the labor market, scarcity of good furnished cheap homes because of rent control laws or rapid depletion of petrol reserves because of consumption boom at the artificially suppressed subsidized price of petrol etc., etc. Condillac thus advised against any government or central bank RBI's price fixing policies. He again emphasized the importance of a free market by saying,

One sees therefore that in general prices will regulate themselves according to the respective quantities of the goods on offer for exchange.

You can see too that prices can only regulate themselves in markets, because it is only there that the assembled citizens can, by comparing the interest they have in making exchanges, judge the worth of things in relation to their needs. They can only do it there, because it is only in markets that all the goods to be exchanged are in evidence: it is only in markets that one can judge the relative abundance or scarcity of one against another; the relationship which determines their respective prices.

That is how prices constantly adjust, in the case where everyone has, as I said, freedom to bring to the market what he pleases, and in the quantity he chooses. We shall deal elsewhere with the disadvantages which will arise from a lack of freedom. (bold mine)

Another economic fallacy of our time is people considering "money" as a source of wealth. Mainstream Keynesian economists and their major employer central bankers are telling us that, if we can print a bit more money - over and above the already gargantuan amount of money that they have printed - then the economy will get out of recession and we all will be wealthy after that! Even an average man keeps on running after "money" thinking that, it is the true source of wealth. Condillac battled hard to expose this age old mercantalist fallacy even in his time. In his 6th Chapter, he said,

Wealth consists in an abundance of things which have a value, or, which comes to the same, in an abundance of things that are useful because we need them, or finally, which is again the same, in an abundance of things which are used for our food, for our clothing, for our housing, for our comforts, for our pleasures, for our enjoyment, in a word for our use.

As Richard Cantillon before him, Condillac was well aware of this eternal truth that, wealth consist in the abundant production of economic goods which are meant for our use i.e., things which are used for food (apple, orange, wheat etc.), for clothing (jeans, t-shirt, dress, suit etc.), for housing (flat, bungalow, villa etc.), for pleasure (books, paintings, music etc.) , for enjoyment (TV, video player, garden, amusement park etc.) etc. As Richard Cantillon said, money printing will only result in higher prices of various economic goods present in the economy. It can only transfer wealth from the productive class of economy to the unproductive class. Condillac also proved that, it is  impossible to create something out of nothing!

People, especially socialist and communists, speak a lot about equality. "Equity" is one of the major goals of Indian government's economic and social policies. Here is Condillac on this so-called goal of "equality",

Now, when everything is in order, all work is useful. It is true that these labours divide up wealth unequally but that is fair since they require talents that are scarcer or more common. So no one has cause to complain and everyone stays in his place. To keep the citizens in perfect equality you would have to forbid any division, ignore talent, put all their property in common, and condemn them for the most part to live in idleness. (bold mine)

And that is exactly what happened in communist soviet union and is happening in all other socialist countries including India. The goal of "equality" is in stark opposition to the reality of variety of human beings. There is nothing "equal" out there in the world, and any attempt to make things forcefully equal will result in idleness of resources and final economic ruin.

Condillac's monetary views are brilliant. Ludwig von Mises, in his monumental work The Theory of Money and Credit gave the logical proof - his money regression theorem - of why precious metals (or for that matter, any commodity which has value in the market before it assumes the role of money), which were initially used as just another merchandise in the market, can only become the common medium of exchange. This theorem of Mises exposes the fallacy of 'money is what the government says it is" kind of arguments. Money can only organically evolve in the free market, and no State can bring it into existence ex nihilo. Condillac also wrote something very similar almost 300 years ago. He said,

From all that has been said, we must conclude that metals are only merchandise because we make varied use of them, hunt them out through curiosity, and use them for ornament. Now it is because they are a commodity that they have become money. Let us see the transformation they have made in commerce. (bold mine)

This implies, that today's fiat paper currencies are not money. They are just that, currencies, which are not defined in terms of underlying unit weight of precious metal Gold or Silver. Rupee originally was a coin of Silver, but now it is just a useless piece of paper. People are forced to use it as a common medium of exchange only via government coercion in the form of legal tender laws. This government fiat paper currency has created disasters in our economies in the form of inflation, business cycles, wealth transfers, and regime uncertainty, which is hindering the smooth operation of commerce in the absence of stable monetary standard.

Condillac also demolished the wrong notion of money as an absolute measure of value of other things. Present day mainstream economists use money as such a measure of value, and based on this fallacious notion, they do all kinds of blunders like measuring inflation via price indexes (WPI, CPI etc.), measuring GDP by using market prices etc. As Condillac said, money is not an absolute measure of value of other goods which are exchanging against it. It only represents one side of the transaction, and just like other goods, money also has its own value, which keeps on fluctuating. He said,

We have noticed that, in exchanges, goods are reciprocally the price of each other. We shall note here that if money is the measure of the value of the goods one buys, the value of the goods one buys is reciprocally the measure of the value of money. For example, to suppose that with six ounces of silver one can buy a muid of corn, is that not to suppose that a muid of corn is the measure of the value of six ounces of silver?

So when money has been taken as the common measure of all value, it is solely, as we have seen, because of all tradable goods it is the most suitable for this purpose; and that does not infer that it cannot itself have, as a measure, the value of the goods against which it is exchanged. On the contrary, it is clear that the value of what one buys is always the measure of the value of the money one gives.

But once people have taken money as a common measure, they soon come to see it as an absolute measure: that is to say, as a measure that is a measure by itself, independently of any connection, or as a good which, by its nature, measures all others, and is not measured by any of them. This misapprehension could not fail to spread much confusion. It has also made us see an equal value in the goods we exchange, and we have made a principle of commerce out of this equal value.

I think this profound insight is beyond the comprehension of today's mathematical economists who are busy churning historical data in their useless dynamic stochastic general equilibrium models!

In his chapter of the circulation of money Condillac bulldozed today's prevalent idea that by printing and creating money out of thin air we can increase consumption or bring an economy out of recession. He exploded the notion, that increasing commerce requires increasing supply of money. Here is Condillac:

That money does not circulate at all at present. But it is not very important whether there is more or less in circulation; the main point is that it should circulate freely.

We have seen that money is only a measure of value because it possesses value itself; that if it is scarce, it has greater value; and that it has a smaller value if it is plentiful.
 
If there is twice the amount of money in commerce, we will give for a good two ounces of this metal instead of one; and if there is half the quantity of money, we will only give half an ounce instead of a whole ounce. In the first case, an owner who would put out his land to farm for fifty ounces, would let it for a hundred; and in the second he would let it for twenty-five. But with a hundred ounces he will only do what he did with fifty; just as with fifty he will only do what he did with twenty-five. So he would be deceiving himself if he thought himself richer in one of these cases than in the other. His income is always the same, whether the coin is smaller or greater. Whether one counts it at a hundred ounces, or fifty, or twenty-five, nothing is changed; since with these various ways of counting, one can only ever make the same consumption. (bold mine)

You can see that by printing more money, total consumption in the economy is not going to increase. This money printing is not going to make the country richer. And commerce will work smoothly with whatever supply of money that is available in the economy at a given point of time.

His chapter on Monopoly is an absolute devastation of many peoples' fear that in the absence of the State, one giant corporation will create monopoly and take over the whole world. Condillac's treatment of monopoly is in many ways a mirror image of Murray Rothbard's treatment of this same subject in his epic work, Man, Economy and State. Condillac logically proves that in a free market, no private monopoly can arise, and the main source of monopoly actually is the State! Here is Condillac:

To be the sole seller is to create a monopoly. This word which has become odious should not always be. A great painter may sell his works alone, because he alone can create them. He takes his wage to the highest point: it has no other regulation than the wealth of the admirers who are interested in his paintings.

Do you dream of being painted by him, because he makes perfect likenesses, and always in fine style? He will ask a hundred louis for a portrait, or even more, if at this price people request more than he can paint. His interest is to earn plenty, while making few portraits; to make few, so as to make them better, and that way to secure his reputation all the more.

This price may appear exorbitant. However, it is not: it is the true price. It is ruled by an agreement made freely between the painter and the sitter, and no one is hurt. Are you not rich enough to pay a hundred louis for your portrait? Do not have it made, you can do without it. Are you rich enough? It is for you to see whether you prefer to keep your hundred louis or to exchange them for your portrait.... 

.....Now sellers will multiply of their own accord when no obstacles are placed in the way. As every type of trade offers a profit, it is not to be feared that this will not happen. If one leaves it free to happen, it will happen, and the number of merchants will grow, so long as carrying on the trade concurrently, they find enough profit to subsist. If they were to multiply too much, as must sometimes happen, a portion will abandon a trade which is not profitable to them, and exactly the right number of merchants will remain. Once more one must not interfere: if there are monopolists, freedom will purge society of them.

As Condillac said, no one is hurt if one is voluntarily buying even from a monopolist. The whole scare of 'private monopoly' is just one excuse of staists to create their own "government monopoly". And as he said, in a free market economy, one person can never create a monopoly because he can't stop others from entering in his industry. He also pointed out that, the real source of monopoly is the government itself. He wrote:

Nowadays all the commerce in Europe is therefore carried on by monopolists. I do not wish to speak of the customs, tolls and exclusive privileges which impede internal trade from province to province: we shall deal with these abuses elsewhere. I am only referring to the obstacles placed in the way of commerce between nation and nation. (bold mine)

Today many people also allege, that in a free society rich people will exploit poor people. Condillac exploded this myth too by noting that free market system creates order in the society. He expounded the basic arguments of Mises's Law of Association. In a free society everyone is in a need of everybody else, but yet everyone is independent. Condillac said,

Such is in general the nature of men: the person on whom one depends wants to draw advantage from his position; and all would be despots if they could. But when, in different respects, dependence is mutual, all are forced to give way to each other, and no one can abuse the need one has of him. So interests come together: they merge: and although all men seem dependent, they are all in fact independent. There you have order: it is born from the respective and combined interests of all the citizens.

Finally, Condillac gave his precious advise for making a country richer. He said,

We may conclude that if the states of Europe persist in denying complete freedom to trade, they will never be as rich or as populous as they might be; that if one of them gave complete and permanent liberty, while the others only allowed a temporary and restrained freedom, it would be, other things being equal, the richest of all; and that finally, if all ceased to place obstacles in the way of commerce, they would all be as rich as they could be; and then their respective wealth would depend, as we have already noted, on the fertility of the soil and the hard work of its inhabitants.

So, here you have all the basic things you need to know about making India and the Indians richer. As long as the Indian government is having its stranglehold on the free market, India cannot become rich. As long as Indian people are not having total freedom, this country can not grow rich.

I am now reading the second part of Commerce and Government, which I will discuss in future writings.