Tuesday, February 9, 2016

Austrian Economics in India

Recently I sat down with Mr. Jayant Bhandari - Jayant Bhandari is an investment adviser, particularly in the natural resource sector, living in Canada. He advises institutional investors. -  to discuss India, Gujarat, Narendra Modi, Liberty and Austrian Economics in India and other such relevant issues. The following is the audio podcast of our discussion.


  1. Hi Madhusudan,

    Great talk, fantastic that you are able to take initiatives to spread Austrian theories. We definitely need a change in perspective. Seems like it's this meaningless chaotic and tribal democracy for its own sake. No clarity on methods or means which leads to a prosperous society.

    Also, yes, you are right on Modi. We are repeating the same Nehruvian mistakes -- Make in India, regulatory protectionism etc. Democratically replacing politicians but repeating the same unscientific methods. Unfortunate.

  2. Great podcast! Wish it had been longer. I am sure that you must be feeling very proud that Prof Walter Block is your mentor. In it you lament that the Government has confiscated the land of the urban poor and developed it for the benefit of the wealthier class. It is true but the land has never belonged to them in the first place and they have acquired the land illegally by squatting on the same. That is the reason why, in my opinion, there is no uproar when such an act is committed. In addition, vendors selling various eatables regularly encroach footpaths and then after some time start treating this acquired piece of land as their own. I have heard of instances of vendor selling his right to squat for as high as 50,000. In addition, taxpayer's money has been used to provide them with pucca houses instead of thatched houses and BRTS has been implemented at a considerable cost to ferry them to and fro from home to work. Taxpayers have also been made to pay for land purchased at very high cost from farmers living in the vicinity of Ahmedabad. Further, if urban poor had felt that they have been short-changed then they would never have voted for Modi. But remember 60% of the electorate voted for him in May 2014. It is the taxpayers that have been duped but unfortunately they don't realize this.
    However, I agree with everything else on the podcast. I believe that everything is done in a prim and proper way where there is going to be media attention. Therefore, urban displacement is taken care of in an immaculate fashion there are glaring loopholes elsewhere!
    Kalind Pathak

  3. Thanks for Writing and complimenting Kalind.

    Now here is my short reply to your comments. In fact, the land never belonged to the government in the first place! Urban poor 'homesteaded' that previously unowned land by physically appropriating it before anybody else; that land is their property now which government is stealing from them. You are implicitly assuming that whatever is not a legal property of some private individual, i.e., unowned scarce physical resources, automatically becomes government's property! I will suggest you read Libertarian property rights literature to understand these issues of property institution; also read works of Peruvian economist Hernando de Soto. In vendors case also you implicitly assume that government is the legitimate owner of so-called public roads and so vendors are encroaching that property. Vendor issue can be easily solved by privatizing roads, footpaths, streets etc. You can read Walter Block's book, Privatizing Roads and Highways, to understand this issue. Urban poor and tax payers both are duped by the government. Someone casting his vote is not an indication that they want to be looted later on (and how do you know that in that 60%, urban poor are also involved? Voting is secret); politicians will promise everything to everyone before getting elected, and once in power they will do whatever they want to. Voting itself is no indication of anything. They may have voted BJP to power in 2014, but villages, where farmers are in trouble, have rooted them out in last local elections. BJP or Congress or AAP or any other political party is not a solution. Solution lies in a 'Private Law Society'.

    1. Thanks a lot for replying with so promptly. I introduced myself to libertarian literature by reading a blog called antidote by one Mr. Sauvik Chakraverti. Like you, he was also pro vendor . I had argued with him too but I suspect that at that time he was besieged with personal problems so did not reply. Shortly thereafter he died. Take a look at this link - http://spontaneousorder.in/a-libertarian-rock-star-that-india-never-had-sauvik-chakraverti-rip/
      Therefore, i am aware that the common property does not belong to the Government. However, I am only wondering about the fairness of the ownership as defined by first come first served protocol. What if I want to set up shop right next to this vendor? I would be pushed out if I don't pay off the new 'owners' even though I have as much right to the land as they have. However, now that you have suggested this specific book by Prof Walter Block, I will definitely study it.
      BJP polled 60% of the total votes cast both by rich and poor, urban and rural. Therefore, by the laws of statistics I thought it would be fair to assume that 60% of people barring some sampling error (which is going to be way too low for such a huge sample size) root for BJP. However, as you say they may have been duped and have now realized they have been cheated.
      Thanks again for listening patiently.

    2. Sauvik was a great thinker, but he is not enough when you are trying to understand Libertarian political philosophy. I will strongly suggest you read Libertarian theorists like Murry Rothbard, Hans Hermann Hoppe, and Walter Block. Murray Rothbard was known as Mr. Libertarian when he was alive. My mentor Walter Block carries that title today. Also read others like Tom Woodds, Stephane Kinsella etc. All these peoples' books you can freely download from mises.org site. Also daily read Lewrockwell.com site where great Libertarian thinkers contribute daily many articles.

      Once you will read and understand Libertarian ideas in the above author's books, you will start to understand my arguments also.

      Thanks for commenting and showing interest in these ideas, which are mostly neglected by the mainstream.

    3. Thank you very much for all the suggestions. I am aware of the sites and the authors that you mention and have downloaded a lot of literature. However, I am yet to study that in detail. After your encouraging words, I am motivated enough to seriously study this material.
      Thanks a lot.

  4. hai Madhusudan Raj
    Great talk. I am a money reform activist and founder of money reforms India but not an economist (www.moneyreformsindia.org , www.positivemoney.org) I would like to get your comments on the following articles.
    Does the banking system works in the same way in India also?
    Sumal Raj

    1. Hi Sumal Raj,

      Yeah the commercial banks work the same way almost everywhere around the world, including India, today under the system of paper currency standard combined with FRB (Fractional Reserve Banking). One issue which those papers cited by you are not mentioning, and this is important, is the big role of central banks in that 'out of thin air money creating process'. The central bankers first create money out of thin air, and then commercial banks pyramid more out of thin air money on basis of that base money. Those papers are totally absolving central bankers of their sins. Central banks are the root cause of inflation (and other effects of inflation like price rise, boom-bust cycles etc.) as originally, and correctly, defined as an increase in the supply of money and credit. What central bankers and commercial banks are doing is totally illegal and immoral. If you and I would do it then we surely would go to jail. But when central bankers like Rajan do it they call it "monetary policy" and get rewarded with medals and prestigious jobs!!!

      If you are a money reform activist then I would very strongly advise you to read works of Austrian Economists like Carl Menger (How Money Evolves), Ludwig von Mises (Theory of Money and Credit), Murray Rothbard (The Mystery of Banking, What Has Government Done to Our Money, 100% Gold Standard, Jesus Heurto de Soto (Money, Bank Credit and Economic Cycles), Joseph Salerno (Money: Sound and Unsound) etc. You can download all these books in soft copy freely from mises.org site.

    2. Thanks for the reply and recommendations will read all the books. Common citizen doesn't know money is created in this manner and its implications. I filed an RTI to RBI asking the two questions
      1. when a commercial bank makes a loan to a borrower does the commercial bank in effect create new money? In other words when a bank makes a loan to a borrower is that money just created out of thin air?
      2. When savers/ depositors make a deposit in his/her bank account does the saver/depositors money then become the property of the bank? that is the saver/depositor in effect makes a loan to his bank and only receives an iou in return.
      and the reply was
      What is being sought is an opinion to be formulated by us which is not "information" as defined under RTI act 2005. However we have not issued any specific instructions in this regard.
      I have send a letter to Rajan seeking answers to these question no reply was received till date. The RBI is not even agreeing that money creation power is vested with banks(public and private). I am planning to file a PIL in supreme court regarding money creation by commercial private banks. People has the right to know how banking system works in India. RBI and finance department has to give clear statements about money creation in our economy. Do you have any recommendations about any key questions that has to be asked?

    3. Dear Sumal,

      RBI will not form any opinion about it; it is the Supreme Court of India who will give the final judgement if RBI or some commercial bank sued by some defrauded customers. But let me tell you, if you know the nature of these political institutions then the answer to both your questions would be given by the powers to be in 'yes'. Like what has happened around the world in countries like Greece or Cyprus, banks will treat depositor's money as their property (in reality banks are, as the historically evolved, just custodians of that money and now way owners) and use it to bail itself out (what they now call, bail-in). And commercial bank's "money creation" process is well known subject in, even, mainstream economics. Pick-up any macroeconomics textbook and they will proudly announce in it how banks create money (of course out of thin air). RBI is wholly owned by the government of India and Rajan is just an employee of Narendra Modi government; he won't say a word about these important legal issues. The whole idea that RBI is an autonomous institution is bogus; a smoke and mirror created to fool the public.

      I will also advise you to follow Dr. Ron Paul's campaign of "End the Fed" in United States. Also read his book, "End the Fed". Dr. Paul is former Republican Presidential candidate and an Austrian Economist himself. He has single handedly waged a crusade for dismantling American central bank, Federal Reserve. Watch his YouTube videos. You will learn a lot for your own monetary reform movement in India.

      Yes, people do have right to know how banks work. I suggest you start educational programs for common folks. Filing PIL in government won't help much in educating the public. I understand that PIL is important, but don't expect much. Governments won't come clean on their own.

      The key question is the legitimacy of the RBI itself. RBI is a symbol of "monetary central planning" in India, and any kind of central planning will always fail because of impossibility of economic calculation by them. A true 'free market' will be without any central banks. It won't have useless paper currencies (rupee notes) circulating as money. What India needs is a Pure Gold standard with 100% Reserve Banking with no central bank. I know no governments will bring these "reforms" voluntarily. They are wholesale changes of the status quo. Only market forces will compel governments to make these changes in the end. Till that time our job is to educate the public to safeguard their lives.

      My best wishes to you in your mission. Thank you.

  5. Dear Madhusudan,
    Thanks for the reply. Could you suggest from where I can understand how the money system works in real Indian situations. RBI web site have very little information or we can say it is misleading.


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