Cambridge Economics & the Disputation in India’s Economic Policy

From Facebook 19 May 2013

“Manmohan and Sonia have violated Rajiv Gandhi’s intended reforms; the Communists have been appeased or bought; the BJP is incompetent”

is what I said in Sep 2007 in an op-ed in The Statesman. I have to say it again, adding Amartya Sen too for his backing of the so-called “Food Security Bill”…

But taking Sonia and Rajiv out of it all, we are left with a battle from within Cambridge economics, viz,

Sen and Singh (disciples of Joan Robinson, Kaldor, Dobb et al in the 1950s)
vs
myself … in my PhD thesis of 1981 under Frank Hahn...

PhD
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“I have a student called Suby Roy…”: Reflections on Frank Hahn (1925-2013), my master in economic theory

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1. “What was relatively weak at LSE was general economic theory. We were good at deriving the Best Linear Unbiased Estimator but left unsatisfied with our grasp of the theory of value that constituted the roots of our discipline. I managed a First and was admitted to Cambridge as a Research Student in 1976, where fortune had Frank Hahn choose me as a student. That at the outset was protection from the communist cabal that ran “development economics” with whom almost all the Indians ended up. I was wholly impecunious in my first year as a Research Student, and had to, for example, proof-read Arrow and Hahn’s General Competitive Analysis for its second edition to receive 50 pounds sterling from Hahn which kept me going for a short time. My exposure to Hahn’s subtle, refined and depthless thought as an economist of the first rank led to fascination and wonderment, and I read and re-read his “On the notion of equilibrium in economics”, “On the foundations of monetary theory”, “Keynesian economics and general equilibrium theory” and other clear-headed attempts to integrate the theory of value with the theory of money — a project Wicksell and Marshall had (perhaps wisely) not attempted and Keynes, Hicks and Patinkin had failed at.

Hahn insisted a central question was to ask how money, which is intrinsically worthless, can have any value, why anyone should want to hold it. The practical relevance of this question is manifest. India today in 2007 has an inconvertible currency, vast and growing public debt financed by money-creation, and more than two dozen fiscally irresponsible State governments without money-creating powers. While pondering, over the last decade, whether India’s governance could be made more responsible if States were given money-creating powers, I have constantly had Hahn’s seemingly abstruse question from decades ago in mind, as to why anyone will want to hold State currencies in India, as to whether the equilibrium price of those monies would be positive. (Lerner in fact gave an answer in 1945 when he suggested that any money would have value if its issuer agreed to collect liabilities in it — as a State collects taxes – and that may be the simplest road that bridges the real/monetary divide.)

Though we were never personal friends and I did not ingratiate myself with Hahn as did many others, my respect for him only grew when I saw how he had protected my inchoate classical liberal arguments for India from the most vicious attacks that they were open to from the communists. My doctoral thesis, initially titled “A monetary theory for India”, had to be altered due to paucity of monetary data at the time, as well as the fact India’s problems of political economy and allocation of real resources were more pressing, and so the thesis became “On liberty and economic growth: preface to a philosophy for India”. When no internal examiner could be found, the University of Cambridge, at Hahn’s insistence, showed its greatness by appointing two externals: C. J. Bliss at Oxford and T. W. Hutchison at Birmingham, former students of Hahn and Joan Robinson respectively. My thesis received the most rigorous and fairest imaginable evaluation from them…”

2. “Frank Hahn believed in throwing students in at the deep end — or so it seemed to me when, within weeks of my arrival at Cambridge as a 21 year old Research Student, he insisted I present my initial ideas on the foundations of monetary theory at his weekly seminar.

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I was petrified but somehow managed to give a half-decent lecture before a standing-room only audience in what used to be called the “Keynes Room” in the Cambridge Economics Department. (It helped that a few months earlier, as a final year undergraduate at the LSE, I had been required to give a lecture at ACL Day’s Seminar on international monetary economics. It is a practice I came to follow with my students in due course, as there may be no substitute in learning how to think while standing up.) I shall try to publish exactly what I said at my Hahn-seminar when I find the document; broadly, it had to do with the crucial problem Hahn had identified a dozen years earlier in Patinkin’s work by asking what was required for the price of money to be positive in a general equilibrium, i.e. why do people everywhere hold and use money when it is intrinsically worthless. Patinkin’s utility function had real money balances appearing along with other goods; Hahn’s “On Some Problems of Proving the Existence of an Equilibrium in a Monetary Economy” in Theory of Interest Rates (1965), was the decisive criticism of this, where he showed that Patinkin’s formulation could not ensure a non-zero price for money in equilibrium. Hence Patinkin’s was a model in which money might not be held and therefore failed a vital requirement of a monetary economy. The announcement of my seminar was scribbled by a young Cambridge lecturer named Oliver Hart, later a distinguished member of MIT and Harvard University.”

3.   Then there was Sraffa…I saw him many a time, in the Marshall Library… He would smile very broadly at me and without saying anything  indicate with his hand to invite me to his office.. I fled in some fear… It was very stupid of me of course… Joan Robinson cornered me once and took me into the office she shared with EAG… She came at me for an hour or so wishing to supervise me, I kept declining politely… saying I was with Frank Hahn and wished to work on money… “What does Frankie know about India?” she said… I said I did not know but he did know about monetary theory and that was what I needed for India;  I also said I did not think much about the Indian Marxists she had supervised… and mentioned a prominent name… she said about him, “Yes most of what he does can go straight into the dustbin”…

4.   “I had been attracted to Cambridge partly by its old reputation for philosophy, especially that of Wittgenstein. But I met no worthwhile philosophers there until a few months before I was to leave for the United States in 1980, when I chanced upon the work of Renford Bambrough. Hahn had challenged me with the question, “how are you so sure your value judgements promoting liberty blah-blah are better than those of Chenery and the development economists?” It was a question that led inevitably to ethics and its epistemology — when I chanced upon Bambrough’s work, and that of his philosophical master, John Wisdom, the immense expanse of metaphysics (or ontology) opened up as well. “Then felt I like some watcher of the skies, When a new planet swims into his ken; Or like stout Cortez when with eagle eyes, He star’d at the Pacific…””

5. “I went to Virginia because James M. Buchanan was there, and he, along with FA Hayek, were whom Hahn decided to write on my behalf. Hayek said he was too old to accept me but wrote me kind and generous letters praising and hence encouraging my inchoate liberal thoughts and arguments. Buchanan was welcoming and I learnt much from him and his colleagues about the realities of public finance and democratic politics, which I quickly applied in my work on India…” Hahn told me he did not know Buchanan but he did know Hayek well and that his wife Dorothy had been an original member of the Mont Pelerin Society in 1947 or 1948. Hence I am amused reading a prominent NYU “American Austrian” say about Frank’s passing “I do think economics would have been better off if the Arrow-Debreu-Hahn approach had not been taken so seriously by the profession. I think it turned out to be an intellectual straight-jacket that prevented the discussion of valuable outside-the-box ideas”, and am tempted to paraphrase the closing lines of Tractatus — “Whereof one cannot speak, thereof one must be silent/About what one can not speak, one must remain silent” — to read “Of that of which we are ignorant, we should at least try not to gas about…” Hahn and Hayek were friends, from when Hayek taught at the London School of Economics in Robbins’ seminar, and Hahn was Robbins’ doctoral student.

6. “The Hawaii project manuscript contained inter alia a memorandum by Milton Friedman done at the request of the Government of India in November 1955, which had been suppressed for 34 years until I published it in May 1989. Milton and Rose Friedman refer to this in their memoirs Two Lucky People (Chicago 1998). Peter Bauer had told me of the existence of Friedman’s document during my doctoral work at Cambridge under Frank Hahn in the late 1970s, as did N. Georgescu-Roegen in America. Those were years in which Brezhnev still ruled in the Kremlin, Gorbachev was yet to emerge, Indira Gandhi and her pro-Moscow advisers were ensconced in New Delhi, and not even the CIA had imagined the Berlin Wall would fall and the Cold War would be over within a decade. It was academic suicide at the time to argue in favour of classical liberal economics even in the West. As a 22-year-old Visiting Assistant Professor at the Delhi School of Economics in 1977, I was greeted with uproarious laughter of senior professors when I spoke of a possible free market in foreign exchange. Cambridge was a place where Indian economists went to study the exploitation of peasants in Indian agriculture before returning to their friends in the well-known bastions of such matters in Delhi and Calcutta. It was not a place where Indian (let alone Bengali) doctoral students in economics mentioned the unmentionable names of Hayek or Friedman or Buchanan, and insisted upon giving their works a hearing. My original doctoral topic in 1976 “A monetary theory for India” had to be altered not only due to paucity of monetary data at the time but because the problems of India’s political economy and allocation of resources in the real economy were far more pressing. The thesis that emerged in 1982 “On liberty and economic growth: preface to a philosophy for India” was a full frontal assault from the point of view of microeconomic theory on the “development planning” to which everyone routinely declared their fidelity, from New Delhi’s bureaucrats and Oxford’s “development” school to McNamara’s World Bank with its Indian staffers. Frank Hahn protected my inchoate liberal arguments for India; and when no internal examiner could be found, Cambridge showed its greatness by appointing two externals, Bliss at Oxford and Hutchison at Birmingham, both Cambridge men.”

7. “I have a student called Suby Roy…”  Frank sends me to America in 1980 to work with Jim Buchanan… One letter from him was all it took…

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And then five years later in 1985 he calls me “probably the outstanding young Hayekian”, says I had brought “a good knowledge of economics and of philosophy to bear on the literature on economic planning”, had “a good knowledge of economic theory” and that my “critique of Development Economics was powerful not only on methodological but also on economic theory grounds” — all that to me has been a special source of delight.

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We did not meet often after I left Cambridge but he wrote very kindly always, and finally said, hearing of my travails and troubles and adventures, “well you are having an interesting life…”…

In America, I once met Robert M Solow in a hotel elevator as we were on a  panel at a conference together; I  introduced myself as Hahn’s student… “Aren’t you lucky?” said Solow with a smile…and he was right… I was lucky…

I said of Milton Friedman that he had been “the greatest economist after John Maynard Keynes”;  Milton’s critic, Frank Hahn, may have been the greatest economic theorist of modern times.

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                                                                                                                                                        Frank Hahn (1925-2013)

My 3 Dec IIC Delhi talk “Towards Making the Indian Rupee a Hard Currency of the World Economy: An analysis from British times until the present day” & its coverage in Asian Age/Deccan Herald, GDI Impuls Zurich, Lok Sabha TV & Sunday Guardian

The article below, which is not inaccurate, is from the *Asian Age*/*Deccan Herald* of 4 December.

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There has been a Lok Sabha TV interview, 1 on One with Paranjoy Guha Thakurta,  aired on Sunday 9 Dec 10 pm, repeated Monday 9 am.

There has been an interview with GDI Impuls banking quarterly of Zurich published on 6 Dec 2012.

And there has been an interview with Delhi’s Sunday Guardian weekly newspaper dated 16 Dec 2012.

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3Dec

Pakistan’s Point of View (Or Points of View) on Kashmir: My As Yet Undelivered Lahore Lecture–Part I

Preface: Exactly a year ago, in late October-November 2010, I received a very kind invitation from the Lahore Oxford and Cambridge Society to speak there on this subject.  Mid March 2011 was a tentative date for this lecture from which the text below is dated.  The lecture has yet to take place for various reasons but as there is demand for its content, I am releasing the part which was due to be released in any case to my Pakistani hosts ahead of time — after all, it would have been presumptuous of me to seek to speak in Lahore on Pakistan’s viewpoint on Kashmir, hence I instead  planned to release my understanding of that point of view ahead of time and open it to the criticism of my hosts.  The structure of the remainder of the talk may be surmised too from the Contents.  The text and argument are mine entirely, the subject of more than 25 years of research and reflection,  and are under consideration of publication as a book by Continuum of London and New York.  If you would like to comment, please feel free to do so, if you would like to refer to it in an online publication, please give this link, if you would like to refer to it in a paper-publication, please   email me.  Like other material at my site, it is open to the Fair Use rule of normal scholarship.

On the Alternative Theories of Pakistan and India about Jammu & Kashmir (And the One and Only Way These May Be Peacefully Reconciled): An Exercise in Economics, Politics, Moral Philosophy & Jurisprudence

 by

Subroto (Suby) Roy

Lecture to the Oxford and Cambridge Society of Lahore

March 14, 2011 (tentative)

“What is the use of studying philosophy if all that does for you is to enable you to talk with some plausibility about some abstruse questions of logic, etc., & if it does not improve your thinking about the important questions of everyday life?”

Wittgenstein, letter to Malcolm, 1944

“India is the greatest Muslim country in the world.”

Sir Muhammad Iqbal, 1930, Presidential Address to the Muslim League, Allahabad

 “Where be these enemies?… See, what a scourge is laid upon your hate,… all are punish’d.” Shakespeare

Dr Roy’s published works include Philosophy of Economics: On the Scope of Reason in Economic Inquiry (London & New York: Routledge, 1989, 1991); Pricing, Planning & Politics: A Study of Economic Distortions in India (London: Institute of Economic Affairs, 1984); and, edited with WE James, Foundations of India’s Political Economy: Towards an Agenda for the 1990s (Hawaii MS 1989, Sage 1992)  &  Foundations of Pakistan’s Political Economy: Towards an Agenda for the 1990s (Hawaii MS 1989, Sage 1992, OUP Karachi 1993); and, edited with John Clarke, Margaret Thatcher’s Revolution: How it Happened and What it Meant (London & New York: Continuum 2005).  He graduated in 1976 with a first from the London School of Economics in mathematical economics, and received the PhD in economics at Cambridge in 1982 under Professor Frank Hahn for the thesis “On liberty & economic growth: preface to a philosophy for India”. In the United States for 16 years he was privileged to count as friends Professors James Buchanan, Milton Friedman, TW Schultz, Max Black and Sidney Alexander.  From September 18 1990 he was an adviser to Rajiv Gandhi and contributed to the origins of India’s 1991 economic reform.  He blogs at http://www.independentindian.com.

CONTENTS

  1. Introduction
  2. Pakistan’s Point of View (or Points of View)

(a)    1930  Sir Muhammad Iqbal

(b)    1933-1948 Chaudhury Rahmat Ali

(c)    1937-1941 Sir Sikander Hayat Khan

(d)    1937-1947 Quad-i-Azam Mohammad Ali Jinnah

(e)    1940s et seq  Maulana Abul Ala Maudoodi

(f)     1947-1950 Prime Minister Liaquat Ali Khan, 1966 President Ayub Khan, 2005 Govt of Pakistan, 2007 President Musharraf, 2008 FM Qureshi, 2011 Kashmir Day

  1. India’s Point of View: British Negligence/Indifference during the Transfer of Power, A Case of Misgovernance in the Chaotic Aftermath of World War II

(a)    Rhetoric: Whose Pakistan?  Which Kashmir? 

(b)    Law: (i) Liaquat-Zafrullah-Abdullah-Nehru United in Error Over the Second Treaty of Amritsar! Dogra J&K subsists Mar 16 1846-Oct 22 1947. Aggression, Anarchy, Annexations: The LOC as De Facto Boundary by Military Decision Since Jan 1 1949.  (ii) Legal Error & Confusion Generated by 12 May 1946 Memorandum. (iii) War: Dogra J&K attacked by Pakistan, defended by India: Invasion, Mutiny, Secession of “Azad Kashmir” & Gilgit, Rape of Baramulla, Siege of Skardu.

  1. Politics: What is to be Done? Towards Truths, Normalisation, Peace in the 21st Century

The Present Situation is Abnormal & Intolerable. There May Be One (and Only One) Peacable Solution that is Feasible: Revealing Individual Choices Privately with Full Information & Security: Indian “Green Cards”/PIO-OCI status for Hurriyat et al: A Choice of Nationality (India, Pakistan, Afghanistan, Iran).  Of Flags and Consulates in Srinagar & Gilgit etc: De Jure Recognition of the Boundary, Diplomatic Normalisation,  Economic & Military Cooperation.

  1. Appendices:

(a)    History of Jammu & Kashmir until the Dogra Native State

(b)    Pakistan’s Allies (including A Brief History of Gilgit)

(c)    India’s Muslim Voices

(d)    Pakistan’s Muslim Voices: An Excerpt from the Munir Report

1.  Introduction

For a solution to Jammu & Kashmir to be universally acceptable it must be seen by all as being lawful and just. Political opinion across the subcontinent — in Pakistan, in India, among all people and parties in J&K, those loyal to India, those loyal to Pakistan, and any others — will have to agree that, all things considered, such is the right course of action for everyone today in the 21st Century, which means too that the solution must be consistent with the principal known facts of history as well as account reasonably for all moral considerations.

I claim to have found such a solution, indeed I shall even say it is the only such solution (in terms of theoretical economics, it is the unique solution) and plan with your permission to describe its main outlines at this distinguished gathering.  I have not invented it overnight but it is something  developed over a quarter century, milestones along the way being the books emerging from the University of Hawaii “perestroika” projects for India and Pakistan that I and the late WE James led 25 years ago, and a lecture I gave at Washington’s Heritage Foundation in June 1998, as well as sets of newspaper articles published between 2005 and 2008, one in Dawn of Karachi and others in The Statesman of New Delhi and Kolkata.

Before I start, allow me for a moment to remind just how complex and intractable the problem we face has been, and, therefore, quite how large my ambition is in claiming today to be able to resolve it.

“Kashmir is in the Supreme National Interest of Pakistan”, says Pakistan.

“Kashmir is an Integral Part of India”, says India.

“Kashmir is an Integral Part of Pakistan”, says Pakistan.

“Kashmir is in the Supreme National Interest of India”, says India.

And so it goes, in what over the decades has been all too often a Dialogue of the Deaf.  How may such squarely opposed positions be reconciled without draining public resources even further through wasteful weaponry and confrontation of standing armies, or, what is worse, using these weapons and armies in war, plunging the subcontinent into an abyss of chaos and destruction for generations to come?  How is it possible?

I shall suggest a road can be found only when we realize Pakistan, India and J&K each have been and are going to remain integral to one another — in their histories, their geographies, their economies and their societies.  The only place they may need to differ, where we shall want them to differ, is their politics and political systems. We should not underestimate how much mutual hatred and mutual fear has arisen naturally on all sides over the decades as a result of bloodshed and suffering all around, and the fact must also be accounted for that people simply may not be in a calm-enough emotional state to want to be part of processes seeking resolution; at the same time, it bears to be remembered that although Pakistan and India have been at war more than once and war is always a very serious and awful thing, they have never actually declared war against the other nor have they ever broken diplomatic relations – in fact in some ways it has always seemed like some very long and protracted fraternal Civil War between us where we think we know one another so well and yet come to be surprised more by one another’s virtues than by one another’s vices.

Secondly, with any seemingly intractable problem, dialogue can stall or be aborted due to normal human failings of impatience or lack of good will or lack of good humour or lack of a scientific attitude towards finding facts, or plain mutual miscomprehension of one another’s points of view through ignorance or laziness or negligence.  In case of Pakistan and India over J&K, there has been the further critical complication that we of this generation did not cause this problem — it has been something inherited by us from not even our fathers but our grandfathers!  It is two generations old.  Each side must respect the words and deeds of its forebears but also may have to frankly examine in a scientific spirit where errors of fact or judgment may have occurred back then.  The antagonistic positions have changed only slightly over two generations, and one reason dialogue stalls or gets aborted today is because positions have become frozen for more than half a century and merely get repeated endlessly.  On top of such frozen positions have been piled pile upon pile of further vast mortal complications: the 1965 War, the 1971 secession of East Pakistan, the 1999 Kargil War, the 2008 Mumbai massacres.  Only cacophony results if we talk about everything at once, leaving the status quo of a dangerous expensive confrontation to continue.

I propose instead to focus as specifically and precisely as possible on how Jammu & Kashmir became a problem at all during those crucial decades alongside the processes of Indian Independence, World War II, the Pakistan Movement and creation of Pakistan, accompanied by the traumas and bloodshed of Partition.

Having addressed that — and it is only fair to forewarn this eminent Lahore audience that such a survey of words, deeds and events between the 1930s and 1950s tends to emerge in India’s favour — I propose to “fast-forward” to current times, where certain new facts on the ground appear much more adverse to India, and finally seek to ask what can and ought to be done, all things considered, today in the circumstances of the 21st Century.   There are four central facts, let me for now call them Fact A, Fact B, Fact C and Fact D, which have to be accepted by both countries in good faith and a scientific spirit.  Facts A and B are historical in nature; Pakistan has refused to accept them. Facts C and D are contemporary in nature; official political India and much of the Indian media too often have appeared wilfully blind to them. The moment all four facts come to be accepted by all, the way forward becomes clear.  We have inherited this grave mortal problem which has so badly affected the ordinary people of J&K in the most terrible and unacceptable manner, but if we fail to understand and resolve it, our children and grandchildren will surely fail even worse — we may even leave them to cope with the waste and destruction of further needless war or confrontation, indeed with the end of the subcontinent as we have received and known it in our time.

2. Pakistan’s Point of View (Or Points of View)

1930  Sir Muhammad Iqbal

This audience will need no explanation why I start with Sir Muhammad Iqbal (1877-1938), the poetic and spiritual genius who in the 20th Century inspired the notion of a Muslim polity in NorthWestern India, whose seminal 1930 presidential speech to the Muslim League in Allahabad lay the foundation stone of the new country that was yet to be.   He did not live to see Pakistan’s creation yet what may be called the “Pakistan Principle” was captured in his words:

“I would like to see the Punjab, Northwest Frontier Province, Sind and Baluchistan amalgamated into a single state. Self-government within the British Empire or without the British Empire, the formation of a consolidated North West Indian Muslim state appears to me to be the final destiny of the Muslims at least of Northwest India… India is the greatest Muslim country in the world.  The life of Islam as a cultural force in this living country very largely depends on its centralization in a specified territory”.

He did not see such a consolidated Muslim state being theocratic and certainly not one filled with bigotry or “Hate-Hindu” campaigns:

“A community which is inspired by feelings of ill-will towards other communities is low and ignoble. I entertain the highest respect for the customs, laws, religious and social institutions of other communities… Yet I love the communal group which is the source of my life and my behaviour… Nor should the Hindus fear that the creation of autonomous Muslim states will mean the introduction of a kind of religious rule in such states…. I therefore demand the formation of a consolidated Muslim state in the best interests of India and Islam. For India it means security and peace resulting from an internal balance of power, for Islam an opportunity to rid itself of the stamp that Arabian Imperialism was forced to give it, to mobilise its law, its education, its culture, and to bring them into closer contact with its own original spirit and the spirit of modern times.”[1]

Though Kashmiri himself, in fact a founding member of the “All-India Jammu & Kashmir Muslim Conference of Lahore and Simla”, and a hero and role model for the young Sheikh Abdullah (1905-1982), Allama Iqbal was explicitly silent about J&K being part of the new political entity he had come to imagine.  I do not say he would not have wished it to be had he lived longer; what I am saying is that his original vision of the consolidated Muslim state which constitutes Pakistan today (after a Partitioned Punjab) did not include Jammu & Kashmir.  Rather, it was focused on the politics of British India and did not mention the politics of Kashmir or any other of the so-called “Princely States” or “Native States” of “Indian India” who constituted some 1/3rd of the land mass and 1/4th of the population of the subcontinent.  Twenty years ago I called this “The Paradox of Kashmir”, namely, that prior to 1947 J&K hardly seemed to appear in any discussion at all for a century, yet it has consumed almost all discussion and resources ever since.

Secondly, this audience will see better than I can the significance of Dr Iqbal’s saying the Muslim political state of his conception needed

“an opportunity to rid itself of the stamp that Arabian Imperialism was forced to give it”

and instead seek to

“mobilise its law, its education, its culture, and to bring them into closer contact with its own original spirit and the spirit of modern times”.

Dr Iqbal’s Pakistan Principle appears here the polar opposite of Pakistan’s 18th & 19th Century pre-history represented by Shah Waliullah (1703-1762)[2] saying

“We are an Arab people whose fathers have fallen in exile in the country of Hindustan, and Arabic genealogy and Arabic language are our pride”

 or Sayyid Ahmed Barelwi (1786-1831) saying

“We must repudiate all those Indian, Persian and Roman customs which are contrary to the Prophet’s teaching”.[3]  

Some 25 years after the Allahabad address, the Munir Report in 1954 echoed Dr Iqbal’s thought when it observed about medieval military conquests

“It is this brilliant achievement of the Arabian nomads …that makes the Musalman of today live in the past and yearn for the return of the glory that was Islam… Little does he understand that the forces which are pitted against him are entirely different from those against which early Islam had to fight… Nothing but a bold reorientation of Islam to separate the vital from the lifeless can preserve it as a World Idea and convert the Musalman into a citizen of the present and the future world from the archaic incongruity that he is today…” [4]

 

1933-1947  Chaudhury Rahmat Ali

Dr Iqbal’s young follower, the radical Cambridge pamphleteer Chaudhury Rahmat Ali (1895-1951) drew a picture not of Muslim tolerance and coexistence with Hindus in a peaceful India but of aggression towards Hindus and domination by Muslims over the subcontinent and Asia itself.  Rahmat Ali had been inspired by Dr Iqbal’s call for a Muslim state in Northwest India but found it vague and was disappointed Iqbal had not pressed it at the Third Round Table Conference.  In 1933, reportedly on the upper floor of a London omnibus, he invented for the then-imagined political entity the name “PAKSTAN”, P for his native Punjab, A for Afghania, K for Kashmir, S for Sind, and STAN for Balochistan.  He sought a meeting with Mr Jinnah in London — “Jinnah disliked Rahmat Ali’s ideas and avoided meeting him”[5] but did meet him.  There is a thesis yet to be written on how Europe’s inter-War ideologies affected political thinking on the subcontinent.  Rahmat Ali’s vituperative views about Hindus were akin to others about Jews (and Muslims too) at the time, all models or counterfoils for one another in the fringes of Nazism.  He referred to the Indian nationalist movement as a “British-Banya alliance”, declined to admit India had ever existed and personally renamed the subcontinent “Dinia” and the seas around it the “Pakian Sea”, the “Osmanian Sea” etc. He urged Sikhs to rise up in a “Sikhistan” and urged all non-Hindus to rise up in war against Hindus. Given the obscurity of his life before his arrival at Cambridge’s Emmanuel College, what experiences may have led him to such views are not known.

All this was anathema to Mr Jinnah, the secular constitutionalist embarrassed by a reactionary Muslim imperialism in that rapidly modernising era that was the middle of the 20th Century.  When Rahmat Ali pressed the ‘Pakstan’ acronym, Mr Jinnah said Bengal was not in it and Muslim minority regions were absent.  At this Chaudhury-Sahib produced a general scheme of Muslim domination all over the subcontinent: there would be “Pakstan” in the northwest including Kashmir, Delhi and Agra; “Bangistan” in Bengal; “Osmanistan” in Hyderabad; “Siddiquistan” in Bundelhand and Malwa; “Faruqistan” in Bihar and Orissa; “Haideristan” in UP; “Muinistan” in Rajasthan; “Maplistan” in Kerala; even “Safiistan” in “Western Ceylon” and “Nasaristan” in “Eastern Ceylon”, etc.  In 1934 he published and widely circulated such a diagram among Muslims in Britain at the time.  He was not invited to the Lahore Resolution which did not refer to Pakistan though came to be called the Pakistan Resolution.  When he landed in the new Pakistan, he was apparently arrested and deported back and was never granted a Pakistan passport.  From England, he turned his wrath upon the new government, condemning Mr Jinnah as treacherous and newly re-interpreting his acronym to refer to Punjab, Afghania, Kashmir, Iran, Sindh, Tukharistan (sic), Afghanistan, and Balochistan.  The word “pak” coincidentally meant pure, so he began to speak of Muslims as “the Pak” i.e. “the pure” people, and of how the national destiny of the new Pakistan was to liberate “Pak” people everywhere, including the new India, and create a “Pak Commonwealth of Nations” stretching from Arabia to the Indies.  The map he now drew placed the word “Punjab” over J&K, and saw an Asia dominated by this “Pak” empire. Shunned by officialdom of the new Pakistan, Chaudhury-Sahib was a tragic figure who died in poverty and obscurity during an influenza epidemic in 1951; the Master of Emmanuel College paid for his funeral and was apparently later reimbursed for this by the Government of Pakistan.  In recent years he has undergone a restoration, and his grave at Cambridge has become a site of pilgrimage for ideologues, while his diagrams and writings have been reprinted in Pakistan’s newspapers as recently as February 2005.

1937-1941 Sir Sikander Hayat Khan

Chaudhary Rahmat Ali’s harshest critic at the time was the eminent statesman and Premier of Punjab Sir Sikander Hayat Khan (1892-1942), partner of the 1937 Sikander-Jinnah Pact, and an author of the Lahore Resolution.  His statement of 11 March 1941 in the Punjab Legislative Assembly Debates is a classic:

“No Pakistan scheme was passed at Lahore… As for Pakistan schemes, Maulana Jamal-ud-Din’s is the earliest…Then there is the scheme which is attributed to the late Allama Iqbal of revered memory.  He, however, never formulated any definite scheme but his writings and poems have given some people ground to think that Allama Iqbal desired the establishment of  some sort of  Pakistan.  But it is not difficult to explode this theory and to prove conclusively that his conception of  Islamic solidarity and universal brotherhood is not in conflict with Indian patriotism and is in fact quite different from the ideology now sought to be attributed to him by some enthusiasts… Then there is Chaudhuri Rahmat Ali’s scheme (*laughter*)…it was widely circulated in this country and… it was also given wide publicity at the time in a section of the British press.  But there is another scheme…it was published in one of the British journals, I think Round Table, and was conceived by an Englishman…..the word Pakistan was not used at the League meeting and this term was not applied to (the League’s Lahore) resolution by anybody until the Hindu press had a brain-wave and dubbed it Pakistan…. The ignorant masses  have now adopted the slogan provided by the short-sighted bigotry of the Hindu and Sikh press…they overlooked the fact that the word Pakistan might have an appeal – a strong appeal – for the Muslim masses.  It is a catching phrase and it has caught popular imagination and has thus made confusion worse confounded…. So far as we in the Punjab are concerned, let me assure you that we will not countenance or accept any proposal that does not secure freedom for all (*cheers*).  We do not desire that Muslims should domineer here, just as we do not want the Hindus to domineer where Muslims are in a minority. Now would we allow anybody or section to thwart us because Muslims happen to be in a majority in this province.  We do not ask for freedom that there may be a Muslim Raj here and Hindu Raj elsewhere.  If that is what Pakistan means I will have nothing to do with it.   If Pakistan means unalloyed Muslim Raj in the Punjab then I will have nothing to do with it (*hear, hear*)…. If you want real freedom for the Punjab, that is to say a Punjab in which every community will have its due share in the economic and administrative fields as partners in a common concern, then that Punjab will not be Pakistan but just Punjab, land of the five rivers; Punjab is Punjab and will always remain Punjab whatever anybody may say (*cheers*).  This, then, briefly is the future which I visualize for my province and for my country under any new constitution.

Intervention (Malik Barkat Ali): The Lahore resolution says the same thing.

Premier: Exactly; then why misinterpret it and try to mislead the  masses?…”

1937-1947  Quad-i-Azam Mohammad Ali Jinnah

During the Third Round Table Conference, Dr Iqbal persuaded Mr Jinnah (1876-1948) to return to India; Mr Jinnah, from being settled again in his London law practice, did so in 1934.  But following the 1935 Govt of India Act, the Muslim League failed badly when British India held its first elections in 1937 not only in Bengal and UP but in Punjab (one seat), NWFP and Sind.

World War II, like World War I a couple of brief decades earlier, then changed the political landscape completely. Germany invaded Poland on 1 September 1939 and Britain and France declared war on Germany on 3 September.  The next day, India’s British Viceroy (Linlithgow) granted Mr Jinnah the political parity with Congress that he had sought.[6]  Professor Francis Robinson suggests that until 4 September 1939 the British

“had had little time for Jinnah and his League.  The Government’s declaration of war on Germany on 3 September, however, transformed the situation. A large part of the army was Muslim, much of the war effort was likely to rest on the two Muslim majority provinces of Punjab and Bengal. The following day, the Viceroy invited Jinnah for talks on an equal footing with Gandhi…. As the Congress began to demand immediate independence, the Viceroy took to reassuring Jinnah that Muslim interests would be safeguarded in any constitutional change. Within a few months, he was urging the League to declare a constructive policy for the future, which was of course presented in the Lahore Resolution[7]…. In their August 1940 offer, the British confirmed for the benefit of Muslims that power would not be transferred against the will of any significant element in Indian life. And much the same confirmation was given in the Cripps offer nearly two years later…. Throughout the years 1940 to 1945, the British made no attempt to tease out the contradictions between the League’s two-nation theory, which asserted that Hindus and Muslims came from two different civilisations and therefore were two different nations, and the Lahore Resolution, which demanded that ‘Independent States’ should be constituted from the Muslim majority provinces of the NE and NW, thereby suggesting that Indian Muslims formed not just one nation but two. When in 1944 the governors of Punjab and Bengal urged such a move on the Viceroy, Wavell ignored them, pressing ahead instead with his own plan for an all-India conference at Simla. The result was to confirm, as never before in the eyes of leading Muslims in the majority provinces, the standing of Jinnah and the League. Thus, because the British found it convenient to take the League seriously, everyone had to as well—Congressmen, Unionists, Bengalis, and so on…”[8]

 Mr Jinnah was himself amazed by the new British attitude towards him:

“(S)uddenly there was a change in the attitude towards me. I was treated on the same basis as Mr Gandhi. I was wonderstruck why all of a sudden I was promoted and given a place side by side with Mr Gandhi.”

Britain, threatened for its survival, faced an obdurate Indian leadership and even British socialists sympathetic to Indian aspirations grew cold (Gandhi dismissing the 1942 Cripps offer as a “post-dated cheque on a failing bank”).  Official Britain’s loyalties had been consistently with those who had been loyal to them, and it was unsurprising there would be a tilt to empower Mr Jinnah soon making credible the real possibility of Pakistan.[9]  By 1946, Britain was exhausted, pre-occupied with rationing, Berlin, refugee resettlement and countless other post-War problems — Britain had not been beaten in war but British imperialism was finished because of the War.  Muslim opinion in British India had changed decisively in the League’s favour.   But the  subcontinent’s political processes were drastically spinning out of everyone’s control towards anarchy and blood-letting.  Implementing a lofty vision of a cultured progressive consolidated Muslim state in India’s NorthWest descended into “Direct Action” with urban mobs  shouting Larke lenge Pakistan; Marke lenge Pakistan; Khun se lenge Pakistan; Dena hoga Pakistan.[10]

We shall return to Mr Jinnah’s view on the legal position of the “Native Princes” of “Indian India” during this critical time, specifically J&K; here it is essential before proceeding only to record his own vision for the new Pakistan as recorded by the profoundly judicious report of Justice Munir and Justice Kayani a mere half dozen years later:

“Before the Partition, the first public picture of Pakistan that the Quaid-i-Azam gave to the world was in the course of an interview in New Delhi with Mr. Doon Campbell, Reuter’s Correspondent. The Quaid-i-Azam said that the new State would be a modern democratic State, with sovereignty resting in the people and the members of the new nation having equal rights of citizenship regardless of their religion, caste or creed.  When Pakistan formally appeared on the map, the Quaid-i-Azam in his memorable speech of 11th August 1947 to the Constituent Assembly of Pakistan, while stating the principle on which the new State was to be founded, said:—‘All the same, in this division it was impossible to avoid the question of minorities being in one Dominion or the other. Now that was unavoidable. There is no other solution. Now what shall we do? Now, if we want to make this great State of Pakistan happy and prosperous we should wholly and solely concentrate on the well-being of the people, and specially of the masses and the poor. If you will work in co-operation, forgetting the past, burying the hatchet, you are bound to succeed. If you change your past and work together in a spirit that every one of you, no matter to what community he belongs, no matter what relations he had with you in the past, no matter what is his colour, caste or creed, is first, second and last a citizen of this State with equal rights, privileges and obligations., there will be no end to the progress you will make.  “I cannot emphasise it too much. We should begin to work in that spirit and in course of time all these angularities of the majority and minority communities—the Hindu community and the Muslim community— because even as regards Muslims you have Pathana, Punjabis, Shias, Sunnis and so on and among the Hindus you have Brahmins, Vashnavas, Khatris, also Bengalis, Madrasis and so on—will vanish. Indeed if you ask me this has been the biggest hindrance in the way of India to attain its freedom and independence and but for this we would have been free peoples long long ago. No power can hold another nation, and specially a nation of 400 million souls in subjection; nobody could have conquered you, and even if it had happened, nobody could have continued its hold on you for any length of time but for this (Applause). Therefore, we must learn a lesson from this. You are free; you are free to go to your temples, you are free to go to your mosques or to any other places of worship in this State of Pakistan. You may belong to any religion or caste or creed— that has nothing to do with the business of the State (Hear, hear). As you know, history shows that in England conditions sometime ago were much worse than those prevailing in India today. The Roman Catholics and the Protestants persecuted each other. Even now there are some States in existence where there are discriminations made and bars imposed against a particular class. Thank God we are not starting in those days. We are starting in the days when there is no discrimination, no distinction between one community and another, no discrimination between one caste or creed and another. We are starting with this fundamental principle that we are all citizens and equal citizens of one State (Loud applause). The people of England in course of time had to face the realities of the situation and had to discharge the responsibilities and burdens placed upon them by the Government of their country and they went through that fire step by step. Today you might say with justice that Roman Catholics and Protestants do not exist: what exists now is that every man is a citizen, an equal citizen, of Great Britain and they are all members of the nation. “Now, I think we should keep that in front of us as our ideal and you will find that in course of time Hindus would cease to be Hindus and Muslims would cease to be Muslims, not in the religious sense, because that is the personal faith of each individual, but in the political sense as citizens of the State’. The Quaid-i-Azam was the founder of Pakistan and the occasion on which he thus spoke was the first landmark in the history of Pakistan. The speech was intended both for his own people including non-Muslims and the world, and its object was to define as clearly as possible the ideal to the attainment of which the new State was to devote all its energies. There are repeated references in this speech to the bitterness of the past and an appeal to forget and change the past and to bury the hatchet. The future subject of the State is to be a citizen with equal rights, privileges and obligations, irrespective of colour, caste, creed or community. The word ‘nation’ is used more than once and religion is stated to have nothing to do with the business of the State and to be merely a matter of personal faith for the individual.”

1940s et seq  Maulana Abul Ala Maudoodi, Amir Jama’at-i-Islami

The eminent theologian Maulana Abul Ala Maudoodi (1903-1979), founder of the Jama’at-i-Islami, had been opposed to the Pakistan Principle but once Pakistan was created he became the most eminent votary of an Islamic State, declaring:

 “That the sovereignty in Pakistan belongs to God Almighty alone and that the Government of Pakistan shall administer the country as His agent”.

 In such a view, Islam becomes

“the very antithesis of secular Western democracy. The philosophical foundation of Western democracy is the sovereignty of the people. Lawmaking is their prerogative and legislation must correspond to the mood and temper of their opinion… Islam… altogether repudiates the philosophy of popular sovereignty and rears its polity on the foundations of the sovereignty of God and the viceregency (Khilafat) of man.”

Maulana Maudoodi was asked by Justice Munir and Justice Kayani:

 “Q.—Is a country on the border of dar-ul-Islam always qua an Islamic State in the position of dar-ul-harb ?

A.—No. In the absence of an agreement to the contrary, the Islamic State will be potentially at war with the non-Muslim neighbouring country. The non-Muslim country acquires the status of dar-ul-harb only after the Islamic State declares a formal war against it”.

“Q.—Is there a law of war in Islam?

A.—Yes.

Q.—Does it differ fundamentally from the modern International Law of war?

A.—These two systems are based on a fundamental difference.

Q.—What rights have non-Muslims who are taken prisoners of war in a jihad?

A.—The Islamic law on the point is that if the country of which these prisoners are nationals pays ransom, they will be released. An exchange of prisoners is also permitted. If neither of these alternatives is possible, the prisoners will be converted into slaves for ever. If any such person makes an offer to pay his ransom out of his own earnings, he will be permitted to collect the money necessary for the fidya (ransom).

Q.—Are you of the view that unless a Government assumes the form of an Islamic Government, any war declared by it is not a jihad?

A.—No. A war may be declared to be a jihad if it is declared by a national Government of Muslims in the legitimate interests of the State. I never expressed the opinion attributed to me in Ex. D. E. 12:— (translation)‘The question remains whether, even if the Government of Pakistan, in its present form and structure, terminates her treaties with the Indian Union and declares war against her, this war would fall under the definition of jihad? The opinion expressed by him in this behalf is quite correct. Until such time as the Government becomes Islamic by adopting the Islamic form of Government, to call any of its wars a jihad would be tantamount to describing the enlistment and fighting of a non-Muslim on the side of the Azad Kashmir forces jihad and his death martyrdom. What the Maulana means is that, in the presence of treaties, it is against Shari’at, if the Government or its people participate in such a war. If the Government terminates the treaties and declares war, even then the war started by Government would not be termed jihad unless the Government becomes Islamic’.

….

“Q.—If we have this form of Islamic Government in Pakistan, will you permit Hindus to base their Constitution on the basis of their own religion?

A—Certainly. I should have no objection even if the Muslims of India are treated in that form of Government as shudras and malishes and Manu’s laws are applied to them, depriving them of all share in the Government and the rights of a citizen. In fact such a state of affairs already exists in India.”

.…

“Q.—What will be the duty of the Muslims in India in case of war between India and Pakistan?

A.—Their duty is obvious, and that is not to fight against Pakistan or to do anything injurious to the safety of Pakistan.”

1947-1950 PM Liaquat Ali Khan, 1966 Gen Ayub Khan, 2005 Govt of Pakistan et seq

In contrast to Maulana Maudoodi saying Islam was “the very antithesis of secular Western democracy”,  Prime Minister Liaquat Ali Khan (1895-1951)[11] during his first official visit in 1950 to North America was to say the new Pakistan, because it was Muslim, held Asia’s greatest democratic potential:

“At present there is no democracy in Asia which is more free and more unified than Pakistan; none so free from moral doubts and from strains between the various sections of the people.”

He told his audiences Pakistan was created because Hindus were people wedded to caste-differences where Pakistanis as Muslims had an egalitarian and democratic disposition:

“The Hindus, for example, believe in the caste system according to which some human beings are born superior to others and cannot have any social relations with those in the lower castes or with those who are not Hindus.   They cannot marry them or eat with them or even touch them without being polluted.   The Muslims abhor the caste system, as they are a democratic people and believe in the equality of men and equal opportunities for all, do not consider a priesthood necessary, and have economic laws and institutions which recognize the right of private ownership and yet are designed to promote the distribution of wealth and to put healthy checks on vast unearned accumulations… so the Hindus and the Muslims decided to part and divide British India into two independent sovereign states… Our demand for a country of our own had, as you see, a strong democratic urge behind it.  The emergence of Pakistan itself was therefore the triumph of a democratic idea.  It enabled at one stroke a democratic nation of eighty million people to find a place of its own in Asia, where now they can worship God in freedom and pursue their own way of life uninhibited by the domination or the influence of ways and beliefs that are alien or antagonistic to their genius.” [12]

President Ayub Khan would state in similar vein on 18 November 1966 at London’s Royal Institute of International Affairs:

“the root of the problem was the conflicting ideologies of India and Pakistan. Muslim Pakistan believed in common brotherhood and giving people equal opportunity.  India and Hinduism are based on inequality and on colour and race.  Their basic concept is the caste system… Hindus and Muslims could never live under one Government, although they might live side by side.”

Regarding J&K, Liaquat Ali Khan on November 4 1947 broadcast from here in Lahore that the 1846 Treaty of Amritsar was “infamous” in having caused an  “immoral and illegal” ownership of Jammu & Kashmir.  He, along with Mr Jinnah, had called Sheikh Abdullah a “goonda” and “hoodlum” and “Quisling” of India, and on February 4 1948 Pakistan formally challenged the sovereignty of the Dogra dynasty in the world system of nations.  In 1950 during his North American visit though, the Prime Minister allowed that J&K was a “princely state” but said

“culturally, economically, geographically and strategically, Kashmir – 80 per cent of whose peoples like the majority of the people in Pakistan are Muslims – is in fact an integral part of Pakistan”;

“(the) bulk of the population (are) under Indian military occupation”. 

Pakistan’s official self-image, portrayal of India, and position on J&K may have not changed greatly since her founding Prime Minister’s statements.   For example, in June 2005 the website of the Government of Pakistan’s Permanent Mission at the UN stated:

“Q: How did Hindu Raja (sic) become the ruler of Muslim majority Kashmir?

A: Historically speaking Kashmir had been ruled by the Muslims from the 14th Century onwards.  The Muslim rule continued till early 19th Century when the ruler of Punjab conquered  Kashmir and gave Jammu to a Dogra Gulab Singh who purchased Kashmir from the British in 1846 for a sum of 7.5 million rupees.”

“India’s forcible occupation of the State of Jammu and Kashmir in 1947 is the main cause of the dispute. India claims to have ‘signed’ a controversial document, the Instrument of Accession, on 26 October 1947 with the Maharaja of Kashmir, in which the Maharaja obtained India’s military help against popular insurgency.   The people of Kashmir and Pakistan do not accept the Indian claim.   There are doubts about the very existence of the Instrument of Accession.  The United Nations also does not consider Indian claim as legally valid: it recognises Kashmir as a disputed territory.   Except India, the entire world community recognises Kashmir as a disputed territory. The fact is that all the principles on the basis of which the Indian subcontinent was partitioned by the British in 1947 justify Kashmir becoming a part of Pakistan:  the State had majority Muslim population, and it not only enjoyed geographical proximity with Pakistan but also had essential economic linkages with the territories constituting Pakistan.”

India, a country dominated by the hated-Hindus, has forcibly denied Srinagar Valley’s Muslim majority over the years the freedom to become part of Muslim Pakistan – I stand here to be corrected but, in a nutshell, such has been and remains Pakistan’s official view and projection of the Kashmir problem over more than sixty years.[13]



[1] EIJ Rosenthal, Islam in the Modern National State, 1965, pp.196-197.

[2] A contemporary of Mohammad Ibn Abdal Wahhab of Nejd.

[3] Francis Robinson in  WE James & Subroto Roy, Foundations of Pakistan’s Political Economy: Towards an Agenda for the 1990s, 1993, p. 36.  Indeed Barelwi had created a proto-Pakistan in NorthWest India one hundred years before the Pakistan Movement. “In the later 1820s the movement became militant, regarding jihad as one of the basic tenets of faith.  Possibly encouraged by the British, with whom the movement did not feel powerful enough to come to grips at the outset, it chose as the venue of jihad the NW frontier of the subcontinent, where it was directed against the Sikhs.  Barelwi temporarily succeeded in carving out a small theocratic principality which collapsed owing to the friction between his Pathan and North Indian followers; and he was finally defeated and slain by the Sikhs in 1831″ (Aziz Ahmed, in  AL Basham (ed) A Cultural History of India 1976, p. 384).   Professor Robinson answered a query of mine in an email of 8 August 2005: “the fullest description of this is in Mohiuddin Ahmad, Saiyid Ahmad Shahid (Lucknow, 1975), although practically everyone who deals with the period covers it in some way. Barelwi was the Amir al-Muminin of a jihadi community which based itself north of Peshawar and for a time controlled Peshawar.  He called his fellowship the Tariqa-yi Muhammadiya.  Barelwi corresponded with local rulers about him.  After his death at the battle of Balakot, it survived in the region, at Sittana I think, down to World War One.”

[4] Rosenthal, ibid., p 235

[5] Germans

[6] Events remote from India’s history and geography, namely, the rise of Hitler and the Second World War, had contributed between 1937 and 1947 to the change of fortunes of the Muslim League and hence of all the people of the subcontinent.  The British had long discovered that mutual antipathy between Muslims and Hindus could be utilised in fashioning their rule; specifically that organisation and mobilisation of Muslim communal opinion was a useful counterweight to any pan-Indian nationalism emerging to compete with British authority. As early as 1874, long before Allan Octavian Hume ICS conceived the Indian National Congress, John Strachey ICS observed “The existence side by side of these (Hindu and Muslim) hostile creeds is one of the strong points in our political position in India. The better classes of Mohammedans are a source of strength to us and not of weakness. They constitute a comparatively small but an energetic minority of the population whose political interests are identical with ours.” By 1906, when a deputation of Muslims headed by the Aga Khan first approached the British pleading for communal representation, Minto the Viceroy replied: “I am as firmly convinced as I believe you to be that any electoral representation in India would be doomed to mischievous failure which aimed at granting a personal enfranchisement, regardless of the beliefs and traditions of the communities composing the population of this Continent.” Minto’s wife wrote in her diary the effect was “nothing less than the pulling back of sixty two millions of (Muslims) from joining the ranks of the seditious opposition.” (The true significance of Maulana Azad may have been that he, precisely at the same time, did indeed feel within himself the nationalist’s desire for freedom strongly enough to want to join the ranks of that seditious opposition.)

[7] “That geographically contiguous units are demarcated into regions which should be so constituted, with such territorial readjustments as may be necessary, that the areas in which the Muslims are numerically in a majority, as in the North-Western and Eastern zones of India should be grouped to constitute Independent States in which the constituent units shall be autonomous and sovereign”.

[8] Robinson ibid, pp. 43-44.

[9] In the “Indian India” of the Native Princes, Hari Singh and others who sent troops to fight as part of British armies (and who were nominal members of Churchill’s War Cabinet) would have their vanities flattered, while Sheikh Abdullah’s rebellion against Dogra rule would be ignored. See seq. And in British India, Mr Jinnah the conservative Anglophile and his elitist Muslim League would be backed, while the radicalised masses of the Gandhi-Bose-Nehru Congress suppressed as a nuisance.

[10] An anthology about Lahore reports memories of a murderous mob arriving at a wealthy man’s home to be placated  with words like  “They are Parsis not Hindus, no need to kill them…”

[11] An exact contemporary of Chaudhury Rahmat Ali.

[12] Pakistan, Harvard University Press, 1950.

[13] It is not far from this to a certain body of sentiments frequently found, for example, as recently as February 5 2011: “To observe the Kashmir Solidarity Day, various programs, rallies and protests will be held on Saturday (today) across the city to support the people of Kashmir in their struggle against the Indian occupation of their land.  Various religious, political, social and other organizations have arranged different programs to highlight the atrocities of Indian occupant army in held Jammu and Kashmir where about 800,000 Indian soldiers have been committing atrocities against innocent civilians; killing, wounding and maiming tens of thousands of people; raping thousands of women and setting houses, shops and crops on fire to break the Kashmiris’ will to fight for their freedom…Jamat-ud-Dawah…leaders warned that a ‘jihad’ would be launched if Kashmir was not liberated through civil agitation…the JuD leaders said first the former President, Pervez Musharraf, and now the current dispensation were extending the olive branch to New Delhi despite the atrocities on the Kashmiri people….the Pakistani nation would (never compromise on the issue of Kashmir and) would continue to provide political, moral and diplomatic support to the Kashmiri people.”

My Seventy-One Notes at Facebook etc on Kashmir, Pakistan, and, of course, India

My Seventy-One Notes at Facebook etc on Kashmir, Pakistan, and, of course, India (listed thanks to JD)

(I am afraid you need a Facebook account to see most of these, though several are in the newspapers and/or at this site too.  I will try in due course to have everything reproduced here too.)

1) Talking to my student and friend Amir Malik about Pakistan and its problems

http://www.facebook.com/note.php?note_id=10150297082781126

Tuesday, September 27, 2011

2) My thanks to Mr Singh for seeing the optimality of my Kashmir solution

http://www.facebook.com/note.php?note_id=10150271489571126

Sunday, September 4, 2011

3) Zafrullah, my father, and the three frigates: there was no massacre of the Hindu Sindhi refugees in Karachi in 1947

http://www.facebook.com/note.php?note_id=10150265008366126

Saturday, August 27, 2011

4) Conversation with Mr Birinder R Singh about my Kashmir solution

http://www.facebook.com/note.php?note_id=10150259831611126

Saturday, August 20, 2011

5) On the Hurriyat’s falsification of history

http://www.facebook.com/note.php?note_id=10150258949946126

Friday, August 19, 2011

6) Letter from a young Pashtun whose grandfathers were in the 1947 invasion of Kashmir (which the Hurriyat says never happened)

http://www.facebook.com/note.php?note_id=10150258851821126

Friday, August 19, 2011

7) More on my solution

http://www.facebook.com/note.php?note_id=10150258100876126

Thursday, August 18, 2011

8  ) A Hurriyat/Taliban Islamist emirate in the Valley subject to an Indian blockade would likely face famine.

http://www.facebook.com/note.php?note_id=10150257700231126

Wednesday, August 17, 2011

9) There is no Kashmiri nationality and there never has been in the modern era of international law

http://www.facebook.com/subyroy?sk=notes&s=20

Monday, August 15, 2011

10) Of the Flag of Pakistan, and the Union Jack, and the Flag of India — August 14-15 1947

http://www.facebook.com/note.php?note_id=10150255301456126

Sunday, August 14, 2011

11) Talking about Kashmir in 1947 to Ralph Coti

http://www.facebook.com/note.php?note_id=10150254871116126

Saturday, August 13, 2011

12) Conversation with Prof. Bhim Singh about 1947

http://www.facebook.com/note.php?note_id=10150254495896126

Saturday, August 13, 2011

13) The LOC represents the division of ownerless, sovereignless territory won by military conquest by either side…

http://www.facebook.com/note.php?note_id=10150245816611126

Monday, August 1, 2011

14) Talking to Mr Tauseef

http://www.facebook.com/note.php?note_id=10150245521131126

Monday, August 1, 2011

15) J&K had ceased to exist as an entity in international law by August 15 1947, at most by October 22 1947

http://www.facebook.com/note.php?note_id=10150244867021126

Sunday, July 31, 2011

16) Would someone be kind enough to tell me which freedoms Indian Kashmiris are being deprived of?

http://www.facebook.com/note.php?note_id=10150243323381126

Friday, July 29, 2011

17) Kunan Poshpora: I would say the evidence reported by the Verghese Committee itself was enough to indicate there had been rape 28 July 2011

18) Talking to Mr Rameez Makhdoomi about Kashmir

http://www.facebook.com/note.php?note_id=10150241973371126

Wednesday, July 27, 2011

19) And, as you well know, General Hasnain is both Muslim and Kashmiri, besides being the Commanding Officer of 15 Corps.

http://www.facebook.com/subyroy?sk=notes&s=40

Friday, July 22, 2011

20) Kashmir needs a Coroner’s Office!

http://www.facebook.com/note.php?note_id=10150238284741126

Friday, July 22, 2011

21) A slogan for Kashmir: No exaggerations, no hallucinations, no cover-ups please: Just the plain facts & accountability

http://www.facebook.com/note.php?note_id=10150238136556126

Friday, July 22, 2011

22) Towards a Spatial Model of Kashmir’s Political History

http://www.facebook.com/note.php?note_id=10150234599731126

Sunday, July 17, 2011

23) Why did Allama Iqbal say “India is the greatest Muslim country in the world…”?

http://www.facebook.com/note.php?note_id=10150233148866126

Friday, July 15, 2011

24) Conversation with Mr Arif

http://www.facebook.com/note.php?note_id=10150230793806126

Tuesday, July 12, 2011

25) Omar Qayoom Bhat: A Victim of State Repression in J&K

http://www.facebook.com/note.php?note_id=10150229389496126

Monday, July 11, 2011

26) Good and evil in Kashmir over more than a millennium…

http://www.facebook.com/note.php?note_id=10150217168656126

Sunday, June 26, 2011

27) Letter to Mr Zargar (Continued)

http://www.facebook.com/note.php?note_id=10150212034496126

June 23, 2011

28) From the Official Indian Army website re Human Rights Violations

http://www.facebook.com/note.php?note_id=10150210741356126

Wednesday, June 22, 2011

29) A Facebook Discussion on Kashmir with the Lahore Oxford & Cambridge Society

http://www.facebook.com/note.php?note_id=10150208871201126

Sunday, June 19, 2011

30) Answering two central questions on the Kashmir Problem

http://www.facebook.com/note.php?note_id=10150202054326126

Friday, June 10, 2011

31) Some articles on Jammu & Kashmir, Pakistan, Afghanistan

http://www.facebook.com/note.php?note_id=10150201498846126

Friday, June 10, 2011

32) Lar ke lenge Pakistan? Khun se lenge Pakistan?

http://www.facebook.com/note.php?note_id=10150195065706126

Thursday, June 2, 2011

33) On Pakistan & Questions of the Nature & Jurisprudence of Polities

http://www.facebook.com/note.php?note_id=10150165301016126

Saturday, April 30, 2011

34) On “state involvement” (January 2009)

http://www.facebook.com/note.php?

on Friday, April 22, 2011

35) My four main 2005-06 articles on the existence of a unique, stable solution to Kashmir

http://www.facebook.com/note.php?note_id=10150155305266126

Sunday, April 17, 2011

36) On the present state of the Pakistan-India dialogue

http://www.facebook.com/note.php?note_id=10150140448906126

Thursday, March 31, 2011

37) Mixed messages (from a Dec 2008 post on Pakistan just after the Mumbai massacres)

http://www.facebook.com/note.php?note_id=10150117696731126

Tuesday, March 29, 2011

38) New Foreign Policy? “Kiss Up, Kick Down”? (October 2006)

http://www.facebook.com/note.php?note_id=10150098854806126

Friday, March 4, 2011

39) Conversations with Kashmiris: An Ongoing Facebook Note

http://www.facebook.com/note.php?note_id=489267761125

Saturday, January 22, 2011

40) On Pakistan and the Theory & Practice of the Islamic State, 1949, 1954

http://www.facebook.com/note.php?note_id=486039761125

Saturday, January 15, 2011

41) A Modern Military (2006)

http://www.facebook.com/note.php?note_id=483556931125

Monday, January 10, 2011

42) India’s Muslim Voices: Sir Sikandar Hyat Khan (1892-1942), Punjab Prime Minister 1941

http://www.facebook.com/note.php?note_id=476020171125

Monday, December 27, 2010

43) Pre-Partition Indian Secularism Case-Study: Fuzlul Huq and Manindranath Roy

http://www.facebook.com/note.php?note_id=445015731125

Tuesday, October 26, 2010

44) A Brief Note on Bangladesh, Pakistan, India and the Pashtuns 1971-2010

http://www.facebook.com/note.php?note_id=414500306125

Wednesday, July 28, 2010

45) On the Existence of a Unique and Stable Solution to the Jammu & Kashmir Problem that is Lawful, Just and Economically Efficient

http://www.facebook.com/note.php?note_id=407478886125

Monday, July 5, 2010

46) Seventy Years Today (Sep 4 2009) Since the British Govt Politically Empowered MA Jinnah

http://www.facebook.com/note.php?note_id=407310716125

Monday, July 5, 2010

47) Justice & Afzal (Oct 14 2006)

http://www.facebook.com/note.php?note_id=393914236125

Tuesday, May 18, 2010

48) My (armchair) experience of the 1999 Kargil war (Or, How the Kargil effort got a little help from a desktop)

http://www.facebook.com/note.php?note_id=388161476125

Thursday, April 29, 2010

49) A Brief History of Gilgit

http://www.facebook.com/note.php?note_id=336081356125

Monday, March 1, 2010

50)  India-USA interests: Elements of a serious Indian foreign policy (2007)

http://www.facebook.com/note.php?note_id=299902341125

Wednesday, February 10, 2010

51) Ambassador Holbrooke’s error of historical fact

http://www.facebook.com/note.php?note_id=259713446125

Sunday, January 17, 2010

52) Of a new New Delhi myth & the success of the Univ of Hawaii 1986-1992 Pakistan project (Nov 15 2008)

https://www.facebook.com/note.php?note_id=247284116125

Sunday, 10 January 2010

53) Was Sheikh Mohammad Abdullah (1905-1982), Lion of Kashmir, the greatest Muslim political leader of the 20th Century?

http://www.facebook.com/note.php?note_id=244956301125

Friday, January 8, 2010

54) On Indian Nationhood: From Tamils To Kashmiris & Assamese & Mizos To Sikhs & Goans (2007)

http://www.facebook.com/note.php?note_id=222511821125

Friday, December 25, 2009

55) India has never, not once, initiated hostilities against Pakistan (2009)

http://www.facebook.com/note.php?note_id=194400926125

Wednesday, December 2, 2009

56) RAND’s study of the Mumbai attacks (Jan 25 2009)

http://www.facebook.com/note.php?note_id=189261716125

Wednesday, November 25, 2009

57) Memo to the Hon’ble Attorneys General of Pakistan & India (January 16 2009)

http://www.facebook.com/note.php?note_id=189251816125

Wednesday, November 25, 2009

58) On Hindus and Muslims (2005)

http://www.facebook.com/note.php?note_id=172649451125

Tuesday, November 3, 2009

59) Iqbal & Jinnah vs Rahmat Ali in Pakistan’s creation (2005)

http://www.facebook.com/note.php?note_id=171039831125

Saturday, October 31, 2009

60) Have “mixed messages” caused a “double-bind” in the US-Pakistan relationship?

http://www.facebook.com/note.php?note_id=164051251125

Wednesday, October 21, 2009

61) Pakistan’s Kashmir obsession: Sheikh Abdullah Relied In Politics On The French Constitution, Not Islam (Feb 16 2008)

http://www.facebook.com/note.php?note_id=154064436125

Thursday, October 8, 2009

62) Two cheers for Pakistan! (April 7 2008)

http://www.facebook.com/note.php?note_id=154062896125

Thursday, October 8, 2009

63) What to tell Musharraf: Peace Is Impossible Without Non-Aggressive Pakistani Intentions (Dec 15 2006)

http://www.facebook.com/note.php?note_id=153985256125

Wednesday, October 7, 2009

64) India’s Muslim Voices (Dec 4 2008)

http://www.facebook.com/note.php?note_id=153977181125

Wednesday, October 7, 2009

65) Saving Pakistan: A Physicist/Political Philosopher May Represent Iqbal’s “Spirit of Modern Times” (2007)

http://www.facebook.com/note.php?note_id=153971996125

Wednesday, October 7, 2009

66) The Greatest Pashtun: Khan Abdul Ghaffar Khan (1890-1988)

http://www.facebook.com/note.php?note_id=153812126125

Wednesday, October 7, 2009

67) Law, Justice and Jammu & Kashmir (2006)

http://www.facebook.com/note.php?note_id=152464726125

Monday, October 5, 2009

68) Solving Kashmir: On an Application of Reason (2005)

http://www.facebook.com/note.php?note_id=152462776125

Monday, October 5, 2009

69) Understanding Pakistan (2006)

http://www.facebook.com/note.php?note_id=152348161125

Monday, October 5, 2009

70) Pakistan’s Allies (2006)

http://www.facebook.com/note.php?note_id=152345826125

Monday, October 5, 2009

71) History of Jammu & Kashmir

http://www.facebook.com/note.php?note_id=152343836125

Monday, October 5, 2009

and of course, from 20 years ago,

https://www.facebook.com/photo.php?fbid=164040022284&set=a.136688412284.112038.632437284&type=3&theater

On the rot of institutions (and what an Academy might be like in the Facebook/Internet Age): Listening to the ladies….

From Facebook Aug 31 2011:

Subroto Roy has really done what he can, just about, for his country, & has been rewarded by his country’s government and its “institution of national importance” with the most despicable evil. It is a toss-up between whether my personal experience of Indian corruption and vicious state-tyranny is worse than my personal experience of bribery and perjury in the federal court system in America.

Andrea Kent Your bitterness is understandable. Patriotism is rising above appropriate anger toward individuals and continuing to love and serve the nation, even if it is infected by wicked individuals.

Subroto Roy Yes it is indeed, you are right…

Andrea Kent The history of most great nations contains examples of individuals who, though later acknowledged as heroes, were treated shabbily by their respective homelands. It is sad that you are being treated badly, but surely it is just by one institution and its envious employees, rather than by the entire country? At least, I hope this is caused by a small number of wickedly envious people rather than by an established policy of the government.;

Subroto Roy Corruption is endemic in India… the matters I exposed some years ago had to do with (a) apparent siphoning off money in building (and purchase) contracts; and (b) apparently abusing the fiduciary interest of students by stealing from their fees to pay for round the world business-class travel, etc.. No, I am not bitter, either about India or about America but yes, as I have said it is a toss-up between whether my personal experience of Indian corruption and vicious state-tyranny is worse than my personal experience of bribery and perjury in the federal court system in America.

Aletha Kuschan Andrea is right, though, that you were affected by individual actions more, I think, than by the nation as a whole in both instances. I wish that your fine work was getting the lion’s share of attention and not causing you troubles at all. But ideas have their natural audiences and all too often that audience is located in the future — as Andrea noted. Keep the faith, Suby. Truth does win out in time. And that really does matter too. Listen to the ladies, Suby …

Subroto Roy Thanks Aletha, Andrea. Aletha, re “Andrea is right, though, that you were affected by individual actions”, Individualism is of course something I know much about since my Hayek days (Frank Hahn called me 26 years ago “probably the outstanding young Hayekian”) but my experience has been mixed.

I have had quite long associations with three academic institutions, two in America, one in India. At the first, my academic work was attacked by a gang of what I have called “inert game theorists”, game theory being the prevalent fashion at the time, there was an academic freedom issue and I let it be; but on top of that arose the open and blatant sexual harassment of a woman graduate student by the department head, and my helping her, in a very minimal but essential way, contributed to the conflict. I did not fight it more than a bit and left (for BYU, where the Mormons gave me refuge and allowed me to complete my book, almost).

The second case, also in America, was one of outrageous collective targeting of my work as an academic and an economist by my national origin, even my purported race and religion, and when I did battle that, having immense faith in the American system, my adversary responded by demonstrated perjury, buying out my attorney (and getting caught doing it), and compromising the federal judge. Not good. Certainly my faith in the American system was shaken but *not* in America herself — why? because two of the greatest 20th C American economists, Milton Friedman and TW Schultz — gladly stood for me, and their testimony (ignored by the compromised judge) was far more important than anything else to me. I.e., it was these two American *individuals* (as well as several others less eminent but equally heroic) who allowed my faith in America to continue unshaken even though the personal experience of the institutions had been ghastly.

The Indian case is wholly different as it is a wholly different political culture for the most part. The issues are cheap and pathetic — fraudulent academic credentials, stealing money from the government, stealing money from students, stealing others’ property wherever possible in the knowledge you can get away with it, etc.

There is hardly anything of deep significance involved except it gives the lie to all the government and elite propaganda about how well India is doing — and in that context becomes relevant too what I did in America which came to Rajiv Gandhi through my advice to him in his last months:

Aletha Kuschan meanwhile, it was Abigail Adams’s sage advice to “remember the ladies”

Subroto Roy Indeed I do, and follow it; my best buddy, an old lady almost 86, is usually full of sage wisdom these days.

Subroto Roy What is the solution? It is, in my case. what I have said here: “A friend has been kind enough to call me an Academician, which I probably am, though one who really needs his own Academy because the incompetence, greed and mendacity encountered too often in the modern professoriat is dispiriting.”

Subroto Roy And what does such an Academy consist of in the Internet/Facebook Age? Big buildings? Naaaa…

Aletha Kuschan What would Socrates do???? WWSD — for short

Subroto Roy Quite so, what would Socrates do? His Academy today would be his Facebook profile and his blog. :)

Aletha Kuschan I get to be Plato — called it first!!

Subroto Roy LOL… Platoletha has a nice ancient ring about it…

Andrea Kent I think Aletha would be Πλάτωνίσ, and I would then be Ἀριστοτέλά, your devoted acolytes.

Subroto Roy LOL… :) I actually was given the Roman name Subius Maximus myself by my buddy Bobbus Fluhartius, aka Bob Fluharty in Charleston WVa..

“Sidney Alexander & I are really the only ones who showed the basic logical contradictions caused by positivism having penetrated economics in the middle of the 20th Century”

Subroto Roy hears from Mr Scott Peterson,

“Dear Professor Roy, I have been reading your book *Philosophy of Economics* and happened to stumble on the following paper:’Public Finance Texts Cannot Justify Government Taxation’ Walter E. Block (Loyola University New Orleans, Joseph A. Butt, S.J. College of Business) has posted Public Finance Texts Cannot Justify Government Taxation: A Critique on SSRN. Here is the abstract: ‘In virtually all economic sub-disciplines, practitioners of the dismal science are exceedingly desirous of avoiding normative concerns, at least in principle. These are seen, and rightly so, as extremely treacherous. Being only human, they do sometimes stray off the path of positive analysis; but when they fall off the wagon in this manner, if at all, it is done relatively cautiously, and infrequently. There is one blatant exception to this general rule, however, and that is the field of public finance. Here, in sharp contrast to the usual practice, not only is normative economics embraced, it is done so with alacrity, and without apology. That is, most textbooks on the subject start off with one or several chapters which attempt to justify taxation on moral, efficiency, and other grounds. This occurs in no other field.’

When I read this I immediately thought of your discussion of the normative vs positive approaches in economics. Perhaps the exception economists make regarding public finance is that most economists’ paychecks come from the public sector.

Regards,

Scott Peterson

Dear Mr Peterson, Yes indeed. Thanks for the observation. Sidney Alexander and I are really the only ones who showed the basic logical contradictions caused by positivism having penetrated economics in the middle of the 20th Century. Are you at Facebook? Feel free to join me. Cordial regards, Suby Roy

“….Meanwhile, my main work within economic theory, the “Principia Economica” manuscript, was being read by the University of Chicago Press’s five or six anonymous referees. One of them pointed out my argument had been anticipated years earlier in the work of MIT’s Sidney Stuart Alexander. I had no idea of this and was surprised; of course I knew Professor Alexander’s work in balance of payments theory but not in this field. I went to visit Professor Alexander in Boston…. Professor Alexander was extremely gracious, and immediately declared with great generosity that it was clear to him my arguments in “Principia Economica” had been developed entirely independently of his work. He had come at the problem from an American philosophical tradition of Dewey, I had done so from a British tradition of Wittgenstein. (CS Peirce was probably the bridge between the two.) He and I had arrived at some similar conclusions but we had done so completely independently.”

Professor Alexander, contemporary of PA Samuelson, tutor of RM Solow and many others, deserves far greater attention, and I will do what I can towards that.  He introduced me briefly to his MIT colleague Lester Thurow and I sent an email some time ago to Professor Thurow suggesting MIT should try to remember him better.

Silver Jubilee of “Pricing, Planning & Politics: A Study of Economic Distortions in India”

May 29 2009:

It is a quarter century precisely today since my monograph Pricing, Planning and Politics: A Study of Economic Distortions in India was first published in London by the Institute of Economic Affairs.

ppp1984

Its text is now available (in slightly rough form) at this site here.

Now in May 1984, Indira Gandhi ruled in Delhi, and the ghost of Brezhnev was still fresh in Moscow.   The era of Margaret Thatcher in Britain and Ronald Reagan in America was at its height.   Pricing, Planning & Politics emerged from my 1976-1982 doctoral thesis at Cambridge though it came to be written in Blacksburg and Ithaca in 1982-1983.   It was the first critique after BR Shenoy of India’s Sovietesque economics since Jawaharlal Nehru’s time.

The Times, London’s most eminent paper at the time, wrote its lead editorial comment about it on the day it was published, May 29 1984.

londonti

It used to take several days for the library at Virginia Tech in Blacksburg to receive its copy of The Times of London and other British newspapers.    I had not been told of the date of publication and did not know of what had happened in London on May 29 until perhaps June 2 — when a friend, Vasant Dave of a children’s charity, who was on campus, phoned me and congratulated me for being featured in The Times which he had just read in the University Library.  “You mean they’ve reviewed it?”  I asked him, “No, it’s the lead editorial.” “What?” I exclaimed.  There was worse.  Vasant was very soft-spoken and said “Yes, it’s titled ‘India’s Bad Example’” — which I misheard on the phone as “India’s Mad Example”  :D

Drat! I thought (or words to that effect), they must have lambasted me, as I rushed down to the Library to take a look.

The Times had said

“When Mr. Dennis Healey in the Commons recently stated that Hongkong, with one per cent of the population of India has twice India’s trade, he was making an important point about Hongkong but an equally important point about India.   If Hongkong with one per cent of its population and less than 0.03 per cert of India’s land area (without even water as a natural resource) can so outpace India, there must be something terribly wrong with the way Indian governments have managed their affairs, and there is.   A paper by an Indian economist published today (Pricing, Planning and Politics: A Study of Economic Distortions in India by Subroto Roy, IEA £1.80) shows how Asia’s largest democracy is gradually being stifled by the imposition of economic policies whose woeful effect and rhetorical unreality find their echo all over the Third World.   As with many of Britain’s former imperial possessions, the rot set in long before independence.  But as with most of the other former dependencies, the instrument of economic regulation and bureaucratic control set up by the British has been used decisively and expansively to consolidate a statist regime which inhibits free enterprise, minimizes economic success and consolidates the power of government in all spheres of the economy.  We hear little of this side of things when India rattles the borrowing bowl or denigrates her creditors for want of further munificence.  How could Indian officials explain their poor performance relative to Hongkong?  Dr Roy has the answers for them.   He lists the causes as a large and heavily subsidized public sector, labyrinthine control over private enterprise, forcibly depressed agricultural prices, massive import substitution, government monopoly of foreign exchange transactions, artificially overvalued currency and the extensive politicization of the labour market, not to mention the corruption which is an inevitable side effect of an economy which depends on the arbitrament of bureaucrats.  The first Indian government under Nehru took its cue from Nehru’s admiration of the Soviet economy, which led him to believe that the only policy for India was socialism in which there would be “no private property except in a restricted sense and the replacement of the private profit system by a higher ideal of cooperative service.”  Consequently, the Indian government has now either a full monopoly or is one of a few oligipolists in banking, insurance, railways, airlines, cement, steel, chemicals, fertilizers, ship-building, breweries, telephones and wrist-watches.   No businessman can expand his operation while there is any surplus capacity anywhere in that sector.  He needs government approval to modernize, alter his price-structure, or change his labour shift.  It is not surprising that a recent study of those developing countries which account for most manufactured exports from the Third World shows that India’s share fell from 65 percent in 1953 to 10 per cent in 1973; nor, with the numerous restrictions on inter-state movement of grains, that India has over the years suffered more from an inability to cope with famine than during the Raj when famine drill was centrally organized and skillfully executed without restriction. Nehru’s attraction for the Soviet model has been inherited by his daughter, Mrs. Gandhi.  Her policies have clearly positioned India more towards the Soviet Union than the West.  The consequences of this, as Dr Roy states, is that a bias can be seen in “the antipathy and pessimism towards market institutions found among the urban public, and sympathy and optimism to be found for collectivist or statist ones.”  All that India has to show for it is the delivery of thousands of tanks in exchange for bartered goods, and the erection of steel mills and other heavy industry which help to perpetuate the unfortunate obsession with industrial performance at the expense of agricultural growth and the relief of rural poverty.”…..

I felt this may have been intended to be laudatory but it was also inaccurate and had to be corrected.  I replied dated June 4 which The Times published in their edition of  June 16 1984:

timesletter-11

I was 29 when Pricing, Planning and Politics was published, I am 54 now. I do not agree with everything I said in it and find the tone a little puffed up as young men tend to be; it was also five years before my main “theoretical” work Philosophy of Economics would be published. My experience of life in the years since has also made me far less sanguine both about human nature and about America than I was then. But I am glad to find I am not embarrassed by what I said then, indeed I am pleased I said what I did in favour of classical liberalism and against statism and totalitarianism well before it became popular to do so after the Berlin Wall fell. (In India as elsewhere, former communist apparatchiks and fellow-travellers became pseudo-liberals overnight.)

The editorial itself may have been due to a conversation between Peter Bauer and William Rees-Mogg, so I later heard. The work sold 700 copies in its first month, a record for the publisher. The wife of one prominent Indian bureaucrat told me in Delhi in December 1988 it had affected her husband’s thinking drastically. A senior public finance economist told me he had been deputed at the Finance Ministry when the editorial appeared, and the Indian High Commission in London had urgently sent a copy of the editorial to the Ministry where it caused a stir. An IMF official told me years later that he saw the editorial on board a flight to India from the USA on the same day, and stopped in London to make a trip to the LSE’s bookshop to purchase a copy. Professor Jagdish Bhagwati of Columbia University had been a critic of aspects of Indian policy; he received a copy  in draft just before it was published and was kind enough to write I had “done an excellent job of setting out the problems afflicting our economic policies, unfortunately government-made problems!”

Siddhartha Shankar Ray told me when  we first met that he had been in London when the editorial appeared and had seen it there; it affected his decision to introduce me to Rajiv Gandhi as warmly as he came to do a half dozen years later.

Within a few months though, by the Fall of 1984, I was under attack by the “gang of inert game theorists”  who had come to  Blacksburg following the departure of James Buchanan.  By mid 1985 I had moved to Provo, Utah, really rather wishing, as I recall,  to have left my India-work behind me.  But by late 1986, I was at the University of Hawaii, Manoa, where the perestroika-for-India and Pakistan projects that I and WE James led, had come to be sponsored by the University and the East West Center.

The unpublished results of the India-project reached Rajiv Gandhi by my hand on September 18 1990 as has been told elsewhere.  A week later, on September 25 1990,  Rajiv appointed a small group that included myself, to advise him.  It was that encounter with Rajiv Gandhi that sparked the origins of the 1991 economic reform.  Yet in 2007 one member of the group, declaring himself close to Sonia Gandhi, brazenly lied in public saying it was Manmohan Singh and not I who had been part of the group — a group of which I had been in fact the first member!  Manmohan Singh himself has never claimed to have been present and in fact was not even in India at the time it was formed.

I have explained elsewhere here why I believe this specific  lie  came to be told by this specific liar who shared membership with me in the group that Rajiv had formed:  because I had also pleaded with  many and especially within this group that Rajiv had seemed, to my layman’s eyes, very vulnerable to assassination, and none of them had lifted a finger to  do anything about it!  Such is how duplicity, envy and greed for power make people mendacious and venal in politics!

As for Pricing, Planning and Politics, Dr Manmohan Singh received a personal copy from my father whom he had long known through the Kaul brothers, Brahma and Madan, both of whom were dear friends of my father since the War and Independence.   From a letter Dr Singh wrote to my father,  he would have received his copy in late 1986 when he was heading the Planning Commission in his penultimate appointment before retirement from the bureaucracy.

Readers of Pricing, Planning and Politics today, 25 years after it was published, may judge for themselves what if any  part of it may be still relevant to the new government that Dr Singh is now prime minister of.   The work was mostly one of applied microeconomics or the theory of value; in recent years I have written much also of applied macroeconomics or the theory of money as it relates to India.  My great professor at Cambridge, Frank Hahn, was kind enough to say in 1985 that he thought my “critique of Development Economics was powerful not only on methodological but also on economic theory grounds”; that to me has been a special source of delight.

Subroto Roy, Kolkata

Maynard Keynes on How to Be a Good Economist

From Facebook, April 11, 2011

Since the name of Keynes is back to being used somewhat in vain around the world, it may be appropriate to recall Maynard Keynes’s description of his own role-model as an economist, his master Alfred Marshall.

“The study of economics does not seem to require any specialised gifts of an unusually high order.  Is it not, intellectually regarded, a very easy subject compared with the higher branches of philosophy and pure science?  Yet good, or even competent, economists are the rarest of birds.  An easy subject , at which very few excel!  The paradox finds its explanation, perhaps, in that the master-economist must possess a rare *combination* of gifts.  He must reach a high standard in several different directions and must combine talents not often found together.  He must be mathematician, historian, statesman and philosopher — in some degree. He must understand symbols and speak in words. He must contemplate the particular in terms of the general, and touch abstract and concrete in the same flight of thought. He must study the present in the light of the past for the purposes of the future. No part of man’s nature or his institutions must lie entirely outside his regard. He must be purposeful and disinterested in a simultaneous mood: as aloof and incorruptible as an artist, yet sometimes as near the earth as a politician.”

JM Keynes “Alfred Marshall, 1842-1924″ in Memorials of Alfred Marshal, edited by AC Pigou, 1925, p. 12.

Keynes himself was trained as and always thought like a mathematician, though he invariably spoke in words about practical realities. Marshall was his master, and so too, to a lesser extent, was his father, Neville Keynes.

Two Different Models for India’s Political Economy: Mine & Dr Manmohan Singh’s (Updated Feb 24 2011)

 

From Facebook

February 24 2011

Subroto Roy does not know if he just heard Manmohan Singh say “inflation will soon come down” — excuse me Dr Singh, but how was it you and all your acolytes uniformly said back in July 2010 that inflation would be down to 6% by Dec 2010? 6%?! 16% more likely! I said. Until he explains his previous error, we may suppose he will repeat it.

January 11 2011:

Subroto Roy can stop the Indian inflation and bring integrity to the currency over time, and Manmohan Singh and his advisers cannot (because they have the wrong economic models/theories/data etc and refuse to change), but then they would have to make me a Minister and I keep getting reminded of what Groucho Marx said about clubs that would have him.

Subroto Roy does not think Dr Manmohan Singh or his acolytes and advisers, or his Finance Minister and his acolytes and advisers, understand Indian inflation. If you do not understand something, you are not likely to change it.

 

 

March 6 2010:

Subroto Roy  says the central difference between the Subroto Roy Model for India as described in 1990-1991 to Rajiv Gandhi in his last months, and the Manmohan Singh Model for India that has developed since Rajiv’s assassination, is that by my model, India’s money and public finances would have acquired integrity enough for the Indian Rupee to have become a hard currency of the world economy by now, allowing all one billion Indians access to foreign exchange and precious metals freely, whereas by the model of Dr Singh and his countless supporters, India’s money and public finance remain subject to government misuse and abuse, and access to foreign exchange remains available principally to politicians, bureaucrats, big business and its influential lobbyists, the military, as well as perhaps ten or twenty million nomenclatura in the metropolitan cities.

 

April 8 2010:

Subroto Roy notes a different way of stating his cardinal difference with the economics of Dr Manmohan Singh’s Govt: in their economics, foreign exchange is “made available” by the GoI for “business and personal uses”. That is different from my economics of aiming for all one billion Indians to have a money that has some integrity, i.e., a rupee that becomes a hard currency of the world economy. (Ditto incidentally with the PRC.)


Updates:

From Facebook:

Subroto Roy  reads in *Newsweek* today  (Aug 19) Manmohan Singh “engineered the transition from stagnant socialism to a spectacular takeoff”.  This contradicts my experience with Rajiv Gandhi at 10 Janpath in 1990-91. Dr Singh had not returned to India from his years with Julius Nyerere in his final assignment before retiring from the bureaucracy when Rajiv and I first met on 18 September 1990.

“After (Rajiv Gandhi’s) assassination, the comprador business press credited Narasimha Rao and Manmohan Singh with having originated the 1991 economic reform.  In May 2002, however, the Congress Party itself passed a resolution proposed by Digvijay Singh explicitly stating Rajiv and not either of them was to be so credited… There is no evidence Dr Singh or his acolytes were committed to any economic liberalism prior to 1991 and scant evidence they have originated liberal economic ideas for India afterwards. Precisely because they represented the decrepit old intellectual order of statist ”Ma-Bap Sarkari” policy-making, they were not asked in the mid-1980s to be part of a “perestroika-for-India” project done at a foreign university ~ the results of which were received…by Rajiv Gandhi in hand at 10 Janpath on 18 September 1990 and specifically sparked the change in the direction of his economic thinking…”

Subroto Roy notes that current Indian public policy discussion has thus far failed to realise that the rise in money prices of real goods and services is the same as the fall in the real value of money.

Subroto Roy  is interested to hear Mr Jaitley say in Parliament today the credibility of Government economists is at stake. Of course it is. There has been far too much greed and mendacity all around, besides sheer ignorance. (When I taught for a year or so at the Delhi School of Economics as a 22 year old Visiting Assistant Professor in 1977-78, I was told Mr Jaitley was in the law school and a student leader of note. I though was more interested in teaching the usefulness of Roy Radner’s “information structures” in a course on “advanced economic theory”.)





July 31 2010

Subroto Roy reads in today’s pink business newspaper the GoI’s debt level at Rs 38 trillion & three large states (WB, MH, UP) is at Rs 6 trillion, add another 18 for all other large states together, another 5 for all small states & 3 for errors and omissions, making my One Minute Estimate of India’s Public Debt Stock Rs 70 trillion (70 lakh crores). Interest payments at, say, 9%, keep the banking system afloat, extracting oxygen from the public finances like a cyanide capsule.

 

July 28 2010

Subroto Roy observes Parliament to be discussing Indian inflation but expects a solution will not be found until the problem has been comprehended.

July 27 2010:

Subroto Roy continues to weep at New Delhi’s continual debauching of the rupee.

July 25 2010:

Subroto Roy  has no idea why Dr Manmohan Singh has himself (along with all his acolytes and flatterers in the Government and media and big business), gone about predicting Indian inflation will fall to 6% by December. 16% may be a more likely figure given a public debt at Rs 40 trillion perhaps plus money supply growth above 20%! (Of course, the higher the figure the Government admits, the more it has to pay in dearness allowance to those poor unionized unfortunates known as Government employees, so perhaps the official misunderestimation (sic) of Indian inflation is a strategy of public finance!)

 

July 12 2010:

Subroto Roy is amused to read Dr Manmohan Singh’s Chief Acolyte say in today’s pink business newspaper how important accounting is in project-appraisal — does the sinner repent after almost single-handedly helping to ruin project-appraisal  & government accounting & macroeconomic planning over decades?  I  rather doubt it.   For myself, I am amused to see chastity now being suddenly preached from within you-know-where.

 

July 4 2010:

Subroto Roy does not think the Rs 90 billion (mostly in foreign exchange) spent by the Manmohan Singh Government on New Delhi’s “Indira Gandhi International Airport Terminal 3″ is conducive to the welfare of the common man (“aam admi”) who travels, if at all, mostly within India and by rail.

Subroto Roy hears Dr Manmohan Singh say yesterday “Global economic recession did not have much impact on us as it had on other countries”. Of course it didn’t. I had said India was hardly affected but for a collapse of exports & some fall in foreign investment. Why did he & his acolytes then waste vast public resources claiming they were rescuing India using a purported Keynesian fiscal “stimulus” (aka corporate/lobbyist pork)?

 

May 26 2010:

Subroto Roy  would like to know how & when Dr Manmohan Singh will assess he has finished the task/assignment he thinks has been assigned to him & finally retire from his post-retirement career: when his Chief Acolyte declares on TV that 10% real GDP growth has been reached? (Excuse me, but is that per capita? And about those inequalities….?)

Did the GoI’s MoF’s CEA certify India’s fiscal health yesterday? If so, it is a mistaken certificate

From Facebook:

Subroto Roy reads that Dr Kaushik Basu, Chief Economic Adviser to the Finance Ministry of the Manmohan Singh Government, has “expressed great confidence in the fiscal health of the economy” and says to Kaushik:

You are unaware of that of which you wish to speak.

(Yet Another) Memo to Dr Kaushik Basu

Dear Kaushik,

Apropos your reported predictions, I have had to say at Facebook:

Subroto Roy  is appalled the GoI’s Chief Economic Adviser has declared (as the PM and the PM’s Chief Acolyte had  declared in earlier months) that prices are trending downwards stochastically but amused that at least a stochastic (“fluctuating”) trend got mentioned.

Governor Subbarao has been set a small challenge the other day to release asap for public scrutiny the comprehensive macroeconomic model he says he believes the RBI has — which may be  hard if no such model may exist at the RBI.   Nor does your Ministry or anyone else in New Delhi have such a model.  So what is the Government’s precise scientific basis for predicting a slowing of inflation?  Nothing at all?

The Government needs to begin to try to understand that inflation does not slow down in circumstances where real public debt per capita and money supply have been growing exponentially for decades — to the contrary, inflation tends to rise to dangerous heights!  Debauching of  fiat money would hardly have been allowed if the rupee was a hard currency because we would have seen an honest exchange-rate crashing through the floor with this kind of inflationary finance the Government has given us over the decades. There is, sad to say, zero chance of the rupee becoming a hard currency that all one billion Indians may feel confident about so long as such inflationary finance continues unabated.

Cordially yours

Suby

(Another) Memo to Dr Kaushik Basu

From Facebook:

Subroto Roy says to Kaushik:  Dear Kaushik, Buffer-stock interventions are *microeconomic* in nature, and won’t do to control the *macroeconomic* phenomenon that is inflation. Get government accounting straight (and clean), try to raise government productivity *drastically* and try to *understand* the fiscal situation and *hence* the monetary situation. Feel free to email or phone. Cordially, Suby

A New Drachma? Thinking further on the need for a new Greek domestic currency to revive trade: Is the Greek/German Eurozone problem the mathematical dual of Gresham’s Law?

From Facebook:

Professor Nicholas Economides was a 1976 batch-mate of mine at the LSE. My view on Greece appears different. In my view, a transition to a new Drachma will be drastic but will not be any more catastrophic than the present trap Greece has put itself in.

The current path makes a fetish of the fiscal side when the problem at root has been monetary, arising from a purported monetary union, a *superficial* monetary union being created, when there were wildly different underlying fiscal histories and fiscal propensities and preferences.

Money has two main functions, being a medium of exchange and a store of value; the Euro has become too (implicitly) expensive for Greeks to be an effective medium of exchange, while the threat of a Greek default makes the Euro a risky store of value for Germans, Dutch et al. Greeks would have been hoarding Euros, reducing the velocity of circulation, and causing domestic trade to turnover more slowly and hence damaging national income; at the same time, others would have been wondering about a flight to safety outside the Euro. Introducing a soft inconvertible domestic money in Greece would allow the medium of exchange function to be fulfilled and revive domestic trade and income; it would have to be accompanied by exchange and import controls, leaving the Euro as a hard currency for external transactions. The present route being followed of trying to improve Greece’s fiscal situation by compulsion may worsen the situation without any new equilibrium path being anywhere near to be found.

The aim is to have a soft flexible inconvertible domestic currency *which facilitates, indeed stimulates, the turnover of domestic trade*, and allows equilibrium domestic relative prices to be found and adjusted towards. There would have to be a

(a) clamping down overnight on capital exports followed by forex rationing;
(b) closing the trade borders and imposing import controls (smuggling is inevitable);
(c) deciding a new price for the Drachma, say something like 500 or 1000 to the Euro (the aim is for equilibrium domestic relative prices to be adjusted towards and for domestic trade to turnover properly and expeditiously and indeed stop its collapse);
(d) exchanging all forex/Euro-denominated financial assets held by domestic residents to New Drachma-denominations at the new rate automatically;
(e) Euro-denominated liabilities incurred by domestic residents remain Euro-denominated: if it is the Government, they can negotiate how much or all if it they will repay over time; if it is private, private assets may be converted to pay it and/or there will be individual defaults or delays (restructuring) or write-offs.
(f) Exchanging all cash forex/Euro held by domestic residents to New Drachmas, through “licensed authorised dealers” as well as e.g. by ordering all commercial establishments to give New Drachma change in transactions.

Would Greece have “left the Euro”? Yes and No. It would not be part of the Euro Area but the New Drachma would be a Euro-standard currency where the Government guaranteed to buy up all Euro held by domestic residents at the fixed price in exchange for New Drachmas and held its forex reserves in Euros.

I have spent decades arguing *against* all this in the Indian case but have to say it is what Greece may need now, for a period of adjustment of half a dozen or so years.

Is the Greek/German Eurozone problem the mathematical dual of Gresham’s Law?
by Subroto Roy on Monday, 17 October 2011 at 16:13 ·
 
Money according to economic theory has two main functions, namely, being a medium of exchange and a store of value; I have been saying that I think the Euro has become too (implicitly) expensive for Greeks to be an effective medium of exchange, while the threat of a Greek default would make the Euro a risky store of value for Germans, Danes et al. If I am right, Greeks would have been hoarding Euros, reducing the velocity of circulation, and causing domestic trade to turnover more slowly and hence damaging national income; at the same time, the Germans, Danes et al would have been wondering about a flight to safety outside the Euro. Some young mathematical economist may take my idea and develop it it intelligently as the *dual* problem to Gresham’s law http://en.wikipedia.org/wiki/Gresham%27s_law inasmuch as weak fiscal positions are causing, through a common money, stronger fiscal positions to weaken…
 
Addendum Oct 25 2011
My guess has been the Euro has become a de facto hard currency for Greeks, who will then hoard it and slow the velocity of circulation, damaging the turnover of normal domestic trade and hence damaging national income; i.e. it has become too expensive as a currency to properly fulfill the medium of exchange function of money in Greece; at the same time, Germans, Dutch and others in fiscally strong economies relatively have to account for the added risk of Greek infirmity and hence find the Euro less of a store of value than otherwise, causing incentives to flee to other denominations. Introducing a soft inconvertible domestic money in Greece would allow the medium of exchange function to be fulfilled and revive domestic trade and income; it would have to be accompanied by exchange and import controls, leaving the Euro as a hard currency for external transactions. The present route being followed of trying to improve Greece’s fiscal situation by compulsion may well worsen the situation without any new equilibrium path being anywhere near to be found.
 

Thinking further on the need for a new Greek domestic currency to revive trade
by Subroto Roy on Friday, 16 September 2011 at 07:35 ·
 
Subroto Roy: Re  “it is still not clear what will actually happen”, what will happen is there will be an inevitable recognition that the introduction of the Euro was premature, probably irreversible, and likely to be catastrophic as it unwinds.
 
Edward Hugh Yes, well…. and apart from that little detail Suby, what else do you forsee. I absolutely agree, by the way, that these madmen (and women) have taken the global economy to the brink of disaster through their inability to listen.
 
Maria Tadd When words like catastrophic are used, they obviously send fear into the hearts of many. Suby and Ed, how do you envision the fall out to look like?
 
Subroto Roy    There has to be a clear way out for a currency to exit; that has never been thought out beforehand; creating a monetary union is the *final* step from a free trade area to a customs union to an economic union to a monetary union.  A purported monetary union, or rather a *superficial* monetary union was created, when there were wildly different underlying fiscal histories and fiscal propensities and preferences. Now Greece needs, as I have said over two years, an inexpensive inconvertible domestic money which allows domestic trade and savings to take place normally; the Euro would have to become a hard currency for external use.
 
Edward Hugh Do you mean like what has been happening in Croatia Suby?
Subroto Roy I am afraid I have to admit ignorance of Europe’s facts, what I am working on is my (quite sound) knowledge of monetary economics acquired from Hahn, Friedman, Walters, ACL Day, Griffths, Hicks via Miller, etc. Thinking about Greece overnight: if the Euro has become a de facto hard currency there, its velocity of circulation will fall as people tend to hoard it, causing domestic transactions & trade and hence national income to fall too; hence further the need for an inexpensive domestic currency (under capital controls) for domestic trade and transactions to be revived.
 
(Capital controls imply import restrictions and the rationing of foreign exchange so Greeks will not be big tourists in the rest of the world for a while but what the heck they have so much to see in their own country.)
 
 
From Facebook Oct 3 2011:
 Subroto Roy:
 
“What I have said for two years now is that Greece needs to introduce a soft inconvertible domestic money to facilitate domestic trade and revive growth; it would have to be accompanied by import controls and forex rationing with the Euro becoming a hard currency in Greece for external transactions. Why? Because the Euro has probably become a de facto hard currency for Greeks who would then tend to hoard it, slowing velocity of circulation and causing domestic transactions to be reduced. (At the same time, Germans, Danes and others have an incentive to leave the Euro for the safety of some other hard currency in view of a possible Greek default.) Money has two main functions, being a store of value and a medium of exchange. In present circumstances, the Euro is becoming a dubious store of value for the Germans et al while becoming too scarce to be a proper medium of exchange for the Greeks. All this is good standard monetary economics, which no one in the ECB, IMF, financial journalism etc somehow seems to be able to recall. Instead they have made a fetish of the fiscal side, and that is destined to neither address the root problem nor to bring civil peace….”

My “Reverse Euro” Model of June 1998, and my writings on a new money for Greece: letter to the Wolfson Economics Prize donors by Subroto Royon Thursday, 20 October 2011 at 18:51 ·
 

Hello,
In June 1998, I gave an invited lecture at the Institute of Economic Affairs on a “Reverse Euro” model for India, i.e., on how India could and should consider creating (under certain conditions) more than a dozen state-monies to coexist with a national currency too in the interests of a better fisc and some slight pretence to monetary integrity. In doing so, I also expressed my very grave foreboding about what the Euro was intended to be doing the following year in actual practice in Europe; I remember visiting a prominent British  Euro-optimist too and making my argument in contrast about the Euro’s arrival.

Subsequently, Milton Friedman and I corresponded too about my idea, and he found merit in it in describing an exit route for, he said, Italy for example, if that country needed such an exit route given its fiscal condition to depart from the Euro in due course. I also talked briefly about the subject at an invited lecture at the Reserve Bank of India in April 2000, as well as elsewhere.

Over the last two years, I have (and I think was the first to do so) suggested Greece needs a New Drachma, and how this should be gone about.  This has been outlined by me with many economists informally by email, as well as discussed at Facebook at some length.

I have little doubt what I am saying is broadly right — in the sense that it is the most consistent with the formal body of economic theory known as monetary economics.  I was taught monetary economics very well in the mid 1970s at the LSE by, for example, ACL Day, Alan Walters, Brian Griffiths, Marcus Miller (a student of JR Hicks) and others which came to be followed by my doctoral dissertation at Cambridge under Frank Hahn, and postdoctoral work in America with Jim Buchanan.  Plus Milton Friedman became a friend and stood for me as an expert witness in a US federal court (the only time he ever did that)!  My most recent work is a book edited with John Clark titled Margaret Thatcher’s Revolution: How it Happened and What it Meant published by Continuum in 2005 — that has an essay relevant to this subject commissioned by us and done by Patrick Minford of Cardiff.

So I do plan to write something for your prize but whatever I do write will not be worth the vast sum of money you are offering — in fact, I would say you need to break it up into little bits in due course and parcel it out to the most fruitful ideas.  The fox knows many things but the hedgehog knows one big thing… This is a fox problem, not a hedgehog one.  Perhaps you should commission a journal or a multi-essay volume or a set of volumes or monographs rather than hand out one big cheque to someone who will not deserve it. (And please say no more about the moneys the Bank of Sweden gives away every year in the name of the advancement of knowledge in economics…)  

The problem you have raised is a fundamental one and should have been raised decades ago, not merely by Eurosceptics in the occasional lecture or newspaper article but in many formal academic doctoral theses and journals all over Europe, long before the Euro came to be introduced — and note that the jump from the unification of Germany (with the 1:1 DM:Ostmark problem) was less than a decade before that.  That did not happen.  So now your belated initiative is most welcome, better late than never, better something than nothing.

Do let me know please what else I need to know to send in my theoretical thoughts on this.

Cordially

Suby Roy

From Facebook

February 21 2012

My idea has been far better (because it is based on standard monetary economics which the ECB, IMF etc bureaucrats appear to have all forgotten or never learnt) …

[Devaluation refers to exchange-rates. There are no exchange-rates, that is precisely the problem; exchange-rates are prices, and as such market signals. By getting rid of them, market signals were lost. The point I am making in my notes is that there is still an *implicit* shadow exchange-rate if you like, so the Euro being used in Greece actually has a different local price in terms of real goods and services than the same Euro being used in Germany!]

Hans Suter: A Drachma at a discount of 40% would certainly push tourism by a 20% ? That would be a 3 to 4% jump of GDP.)

Subroto Roy: A New Drachma can be at 0.1 of a Euro, or less. But at least *local* trade and business will be revived and slowly national income will grow. The Greeks will feel free and self-confident and sovereign. Yes they cannot buy any more BMWs or tour Paris or Italy any more. But they can go and visit the Taj Mahal and the Pyramids perhaps. [And they can take 100 years to repay their Euro debts instead of 50 years...]

Subroto Roy hears “If the Baltics can, then why not Greece?”, and says the Baltics are the Baltics, God Bless them, Greece is Greece… I have no idea about the Baltics. The closest I got to them was an Estonian friend in Helsinki many years ago. In Greece what I am saying is that the money that is being used, the Euro, is no longer a natural money, and for that matter, it never was a natural money — money and banking evolve naturally out of trade and commerce, and to truck, barter and exchange are natural human propensities. Creating a monetary union is the *final* step from a free trade area to a customs union to an economic union to a monetary union. A purported monetary union, or rather a *superficial* monetary union was created, when there were wildly different underlying fiscal histories and fiscal propensities and preferences. The Euro has been an artificial money that eradicated the vital market signalling function that exchange-rates played (since exchange-rates are prices). A new inconvertible soft domestic money for Greece would allow domestic transactions to turnover properly once more and hence revive trade and national income. Greece could still be “in” the Eurozone nominally in the sense of having a fixed exchange-rate with the Euro which would be used for external trade. But there would have to be capital controls and import controls and foreign exchange rationing. At least for a while, probably a long while. Greece’s Euro debt would take 100 years instead of 50 years to repay. But at least the Greeks would feel free and sovereign and self-confident again, and adjust to their domestic economic realities in peace.

From Facebook May 14 2012
Diran Majarian
“The big issue here is how to deal with the debt overhang after the drachma transition since this must apply to both assets and liabilities.”

Subroto Roy The New Drachma has to be an inconvertible soft currency and Greece has to have import controls and capital export controls. Euro denominated assets held by domestic residents become Drachma-denominated (at a fixed, not a market-determined rate, e.g. 1:500 or 1:1000); Euro-denominated liabilities incurred by domestic residents remain Euro-denominated: if it is the Government, they can negotiate how much or all if it they will repay over time; if it is private, private assets may be converted to pay it and/or there will be individual defaults or delays (restructuring) or write-offs.


May 14 2012
The famous Professor Wilhelm Buiter (Cambridge BA 1971, Yale PhD 1975) has said this? “The instant before Greece exits it (somehow) introduces a new currency (the New Drachma or ND, say). Assume for simplicity that at the moment of its introduction the exchange rate between the ND and the euro is 1 for 1. This currency then immediately depreciates sharply vis-à-vis the euro (by 40 percent seems a reasonable point estimate). All pre-existing financial instruments and contracts under Greek law are redenominated into ND at the 1 for 1 exchange rate. What this means is that, as soon as the possibility of a Greek exit becomes known, there will be a bank run in Greece and denial of further funding to any and all entities, private or public, through instruments and contracts under Greek law. Holders of existing euro-denominated contracts under Greek law want to avoid their conversion into ND and the subsequent sharp depreciation of the ND. The Greek banking system would be destroyed even before Greece had left the euro area”…

Excuse me? This from the Chief Economist at Citi bank and “Professor of European Political Economy” at my alma mater, the London School of Economics and Political Science? What a load of rubbish Professor Buiter! Whom did you learn your monetary economics from? OK, ok, I should be polite: what makes you think a 1:1 exchange-rate should be fixed? Why not 1:500? Or 1:1000? The aim is to have a soft flexible inconvertible domestic currency *which facilitates, indeed stimulates, the turnover of domestic trade*, and allows equilibrium domestic relative prices to be found and adjusted towards. And why should Greece default on its Euro debt?! It might merely take a little longer to repay it. The change in currency is a conceptually distinct problem from that of credit-worthiness. Here is what I have said instead over two years, and for free:

Reintroducing the New Drachma would require

(a) clamping down overnight on capital exports followed by forex rationing;
(b) closing the trade borders and imposing import controls;
(c) deciding a new price for the Drachma, I would say something like 500 or 1000 to the Euro (the aim is for equilibrium domestic relative prices to be adjusted towards and for domestic trade to turnover properly and expeditiously and indeed stop its collapse);
(d) exchanging all forex/Euro-denominated financial assets held by domestic residents to New Drachma-denominations at the new rate automatically;
(e) exchanging all cash forex/Euro held by domestic residents to New Drachmas, through “licensed authorised dealers” as well as e.g. by ordering all commercial establishments to give New Drachma change in transactions. Would Greece have “left the Euro”? Yes and No. It would not be part of the Euro Area but the New Drachma would be a Euro-standard currency where the Government guaranteed to buy up all Euro held by domestic residents at the fixed price in exchange for New Drachmas and held its forex reserves in Euros.

A New Drachma?
From Facebook:
 April 29 2010:
Subroto Roy thinks a New Drachma is inevitable sooner or later but remains deeply puzzled at the possible ways it may get reintroduced. The examples of such monetary reforms are all long gone from memory, in the immediate aftermath of WWII. It seems clear the Euro will become an increasingly scarce currency not suitable for fulfilling the normal medium of exchange function in domestic Greek transactions and will become a rationed hard currency under capital controls for external transactions only. It may already be hard or impossible to restrain a capital flight, perhaps underway. How will the actual transition be made? Perhaps by allowing Greek government debt denominated in a new local money, call it the New Drachma, to become tradeable? I said in my *Reverse Euro* model for India lecture in June 1998 at London’s IEA that the Eurozone could end up looking less like America’s monetary union than India’s.
 
April 8 2010:
Subroto Roy, reading “It is hard to know how to interpret this large decline in deposits”, says “Not really. The Euro is becoming a *scarce hard currency* in Greece, i.e., it is becoming too expensive to use Euros to satisfy Greece’s transactions demand for money, the medium of exchange function, hence Greece has an increasing need for a new local currency which will satisfy that function while the Euro is retained for use in Greece’s international transactions”.
 
Subroto Roy thinks the only sustainable long-term solution may be the reintroduction of a New Drachma, which will need time to stabilize behind a period of foreign exchange controls and rationing. The DM/FFr-based Euro would become a hard currency relative to a New Drachma.
 
March 24 2010:
Subroto Roy expects the US, Britain, ANZ and everyone else in the IMF who is not in the Eurozone may legitimately ask why the effective subsidy of Greece by its Eurozone partners should be transferred to the rest of the world.
Subroto Roy thinks the Europeans have enough clout in the IMF to, say, insist some of their own IMF-directed resources be directed towards Greece specifically, which would spell the unravelling of the IMF if it became a general habit.
 
Subroto Roy says “I had a very productive few months in 1993 as a high-level consultant working for Hubert Neiss at the IMF (consultants are, or at least were, very rare at the IMF unlike at the World Bank etc) when I came to understand a little of how the place works (leaving aside all the theory). The French Managing Director is a politician and not an economist or even a central banker, and I am sure France and Germany can swing some IMF money towards Greece. But of course, the IMF can by definition give no *monetary* or exchange-rate advice to Greece because there is no sovereign monetary authority in Greece any more. Hence all it can do is add the same fiscal (and political) advice and conditions as the rest of the Eurozone countries have done plus make the piggy bank larger with some IMF money. It may work once, but if France and Germany then say, right, Portugal, Spain, Italy are next in line, that is the end of the IMF, because its European members may as well be asked to pull out altogether. On the other hand, my radical advice to the IMF might have been to propose to help Greece to reintroduce the drachma and re-establish a sovereign monetary authority of its own, which would take IMF advice and expertise as a New Drachma would take time to stabilize and there would be a period of capital controls on foreign exchange transactions.”
 
Subroto Roy gave a Jun ’98 lecture at London’s IEA on why India should have a  *Reverse-Euro* model: eg 16 major states have their own (domestic) monies with a national rupee coexisting too & free currency markets everywhere. I said I feared a Eurozone may end up *looking like India* rather than the US in this. India has papered over wild fiscal mismanagement by the States by even wilder fiscal mismanagement by the Union!
 
Subroto Roy says Europe could have been a confederation & an economic union for practical purposes without individual monetary sovereignties being lost. E.g., the drachma or peso or escudo or punt or lira could each have chosen to appropriately link to some combination of the DM, FFR, sterling etc. And a Europe-wide Euro from an ECB could have coexisted as well.
 
Subroto Roy  finds Mr Constanzo mention Gresham’s Law, and says, “Certainly there might have been currency competition in Europe, and some of the smaller currencies may have chosen to go to *that* Euro — but DM would not have done, and would have been an alternative to it.”
 
Subroto Roy  thought imposing a single newly invented money on different economies a bit like imposing a single newly invented language (like Esperanto) on different peoples.
 
Subroto Roy  says India has papered over the wild fiscal mismanagement by the States by even wilder fiscal mismanagement by the Union!
 
Subroto Roy  thinks the effective subsidy French farmers et al were getting from Germany in pre-Euro days all came to be subsumed within Euro-economics; an alternative would have been to *leave* DM as it was, & perhaps FFR too, & to have introduced a Euro for smaller economies to use (presumably to save transactions costs);*that* Euro could have been linked to the DM etc. The Germans would have been happy & the problems avoided.
 
Subroto Roy  says German unification hit the Germans badly enough and they seem hardly in any mood to keep on playing Sugar-Daddy to everyone else while still having to defer to the putative victors of WWII (France and Britain) for political leadership.
 

Memo to Dr Kaushik Basu

Dr Kaushik Basu, Chief Economic Adviser, Ministry of Finance

Hello Kaushik,

Long time no see.  Happy Holi 2010.

I was glad to see the phrase “the relatively neglected subject of the micro-foundations of macroeconomic policy” mentioned in Chapter 2 of your document for the GoI a few days ago.

But I am unable to see what you could mean by it  because your chapter  seems devoid of any reference  or   allusion to the vast  discussion over decades of the  subject known as the “microeconomic foundations of macroeconomics”. Namely, the attempt to integrate the theory of value (microeconomics) with the theory of money (macroeconomics); or alternatively, the attempt to comprehend aggregate variables like Consumption, Savings, Investment, the Demand for & Supply of Money etc in conceptual terms rooted in theories of constrained optimization by masses of individual people.

It is not an easy task.  Keynes made no explicit attempt at it (recall Joan Robinson’s famous quip) and probably did not have time or patience to try.  Hicks and Patinkin failed, though after valiant efforts.  The modern period on this work began with Clower and Leijonhufvud, followed by the French (like Grandmont), and especially Frank Hahn.   Hahn’s 1976 IMSSS paper “Keynesian Economics and General Equilibrium Theory” is the survey to read, viz., Equilibrium and Macroeconomics and Money, Stability and Growth as well as of course Arrow & Hahn’s General Competitive Analysis.  You may agree that the general theory of value culminated in an important sense in the Arrow-Debreu model of the 1950s – yet that is something in which no money, and hence no macroeconomics, needs to or can really appear.  The hard part is to develop macroeconomic models for policy-discussion which allow for money and public finance while still making some pretence of being rooted in a theory of constrained optimization by individuals, i.e., in microeconomic behaviour.  (E  Roy Weintraub wrote a textbook with “Microfoundations” in its title.)

In the Indian case, I tried to do a little in my Cambridge PhD thesis thirty years ago: “a full frontal assault from the point of view of microeconomic theory on the ‘development planning’ to which everyone routinely declared their fidelity, from New Delhi’s bureaucrats and Oxford’s ‘development’ school to McNamara’s World Bank with its Indian staffers”.    Frank Hahn was very kind to say he thought my “critique of Development Economics was powerful not only on methodological but also on economic theory grounds”.  Some of the results appeared in my December 1982 talk to the AEA’s NYC meetings “Economic Theory & Development Economics” (World Development 1983), and in my 1984 monograph with London’s IEA.  Dr Manmohan Singh received a copy of the latter work in 1986, as well as, in 1993, a published copy of a work presented to Rajiv Gandhi in 1990, Foundations of India’s Political  Economy: Towards an Agenda for the 1990s.

I am glad to see from your Chapter 2 that the GoI now seems to agree with what I had said in 1984 of the need for systems that “locally include direct subsidies to those (whether in rural or urban areas) who are unable to provide any income for themselves…” Your material on the “enabling State” would also find much support in what I said there about the functions of civil government and the need for better, not necessarily more, government. On the other hand, your reliance on the very expensive (Rs.19 billion this year!)  Nandan Nilekani Numbering idea is odd as there seem to me to be insurmountable “incentive-compatibility” problems with that project no matter how much gets spent on it.

Returning to possible “microfoundations of macroeconomics” relevant to the Indian case, you may find of interest

“India’s Macroeconomics” (2007)

“Fiscal Instability” (2007)

“Fallacious Finance” (2007)

“Monetary Integrity and the Rupee” (2008)

“Growth and Government Delusion” (2008)

“India in World Trade & Payments” (2007)

“Our Policy Process” (2007)

“Indian Money and Credit” (2006)

“Indian Money and Banking” (2006)

“Indian Inflation” (2008)

“Growth of Real Income, Money & Prices in India 1869-2004” (2005)

“How to Budget” (2008)

“The Dream Team: A Critique” (2006)

“Against Quackery” (2007)

“Mistaken Macroeconomics” (2009)

These together outline an idea that the link between macroeconomic policy in India and  individual microeconomic budgets of our one billion citizens arises via the “Government Budget Constraint”.  More specifically, the continual deficit-finance indulged in by the GoI for decades has been paid for by invisible taxation of nominal assets, causing the general money-price of real goods and services to rise.  I.e., the GoI’s wild deficit spending over the decades has been paid for by debauching money through inflation.

(The  unrecorded untaxed “black economy” needs a separate chapter altogether, and it seems to me possible it provides enough real income and transactions to be absorbing some of the wilder money supply growth into its hoards.)

India cannot be a major economy of the world until and unless the Rupee  some day becomes a hard currency — for the first time in many decades, indeed perhaps for the first time since the start of fiat money.   It is going to take much more than the GoI inventing a trading symbol for the Rupee!   The appalling state of our government accounting, public finance and monetary policy, caused by the GoI over decades, disallows this from happening any time soon as domestic bank assets (mostly GoI debt, and mostly held by government banks) would inevitably be re-evaluated at world prices foreshadowing a monetary crisis.   Perhaps you will help slow the rot — I trust you will not add to it.

Cordially yours

Suby Roy

Postscript  March 1 2010:   I recalled it as Joan Robinson’s quip, had forgotten it was in fact her quoting Gerald Shove’s quip: “Keynes was not interested in the theory of relative prices. Gerald Shove used to say that Maynard had never spent the twenty minutes necessary to understand the theory of value.” (1963)

“On the blissful innocence of the RBI” (2009), plus “A Small Challenge to the RBI’s Governor Subbarao”(2010)

From Facebook:

Subroto Roy  can only sigh at the fact that while he has had to struggle for 35 years trying to grasp and then apply serious monetary economics to India’s circumstances, the RBI Governor & his four Deputy Governors appear blissfully innocent of all Hicks, Tobin, Friedman, Cagan et al yet exude confidence enough to “Waffle Away!”

see also

A Small Challenge to the RBI’s Governor Subbarao
April 21, 2010

The Hon’ble Gov of the Reserve Bank of India Shri D Subbarao

Dear Governor Subbarao,

You said yesterday, April 20 2010, that the Reserve Bank of India has a macroeconomic model which it uses but which you had personally not seen.

I have given two lectures at your august offices, one by invitation of Governor Jalan and Deputy Governor Reddy on April 29 2000 to address the Conference of State Finance Secretaries, the other on May 5 2005 to address the Chief Economist’s Monetary Economics Seminar. On both occasions, I had inquired of the RBI’s own models by which I could contrast my own but came to understand there were none.

If since then the RBI has now constructed a macroeconomic model of India’s economy, it is splendid news.

May I request the model be released publicly on the Internet at once, so its specifications of endogenous and exogenous variables, assumed coefficients, and sources of time-series data all may be seen by everyone in the country and abroad? Scientific scrutiny and replication of results would thus come to be permitted.

I would be especially interested to know the demand for money function that you have used. I well remember my meeting with the late great Sukhamoy Chakravarty on July 14 1987 at his Planning Commission offices, when he signed and gifted me his last personal copy of the famous Reserve Bank report by the committee he had chaired and of which he told me personally Dr Rangarajan had been the key author – that report may have contained the first official discussion of the demand for money function in India.

With cordial regards

Subroto Roy

Finance Minister Mukherjee deserves a cheer for connecting with economics (though half a cheer gets subtracted)

From Facebook today

Independent India’s Finance Ministers have never in 62 years referred to economic theory or the history of economic thought until Mr Mukherjee delivered the 4th Kadirgamar Memorial Lecture in Colombo yesterday, making the following academic claim:
“As students of economics would understand, economic theory is an evolutionary process and undergoes change with every major crisis. The classical theory gave way to Keynesian economics after the Great Depression of 1930s. Thereafter, there were post-Keynesian and monetarist approaches to economic problems during 1960s to 90s. The present crisis, which has also been called Great Recession, would be another watershed in the evolution of economics and is expected to bring about radical retooling of the theory. The crisis has, in the first place, conclusively established that the pursuit of individual goals do not necessarily lead to public good. Adam Smith’s ‘invisible hand’ cannot guarantee allocation of resources efficiently.”

I might rather count this as intellectual progress to the extent that it at least allows the Government of India’s economists the possibility of moving away from politically-induced dissimulation and instead begin to connect with where I was 25 years ago in my May 1984 monograph published by London’s Institute of Economic Affairs (leave aside my 1976-82 doctoral thesis under Professor Frank Hahn at Cambridge “On liberty and economic growth: preface to a philosophy for India”). As for the Finance Minister saying “The Indian economy has shown remarkable resilience to the crisis because the financial system had no exposure to the toxic assets”, I am afraid he has left unsaid that this is because (a) the rupee is not a hard currency; and (b) India’s banks hold plenty of domestic assets that are “toxic”.

Subroto Roy

An observation about official economic thought in India

From Facebook:

Subroto Roy  wonders if India’s most eminent academic economist and India’s most eminent government economist have either of them ever said anything that any member of any audience could ever have found at all disagreeable….

(let aside falsifiable in the sense of Karl Popper)

(… except that I have of course disagreed with both…)

Memo to Mr Chidambaram: On the Existence of a Unique and Stable Solution to the Jammu & Kashmir Problem that is Lawful, Just and Economically Efficient

The Honourable P. Chidambaram
Home Minister of India

Respected Sir,

You may recall our brief interaction at the residence of the late Shri Rajiv Gandhi in September-October 1990, and also my visit to you in July 1995 when you were a member of the late Shri Narasimha Rao’s Government.

I am delighted to read in today’s paper that you believe a “unique solution” exists to the grave mortal problem of Jammu & Kashmir.   I write to say that almost four years ago, I published in The Statesman my discovery of the existence of precisely such a  unique solution in the three-part article “Solving Kashmir”.

This came to be followed by “Law, Justice and J&K”, “History of Jammu & Kashmir”, “Pakistan’s Allies”, “What to tell Musharraf” and a few others.  The purpose of this open letter is to describe that solution which provides, I believe, the only just and lawful  path available to the resolution of what has been known universally as the Kashmir problem.

Very briefly, it involves recognizing that the question of lawful territorial sovereignty in J&K is logically distinct from the question of the choice of nationality by individual inhabitants.   The solution requires

(a) acknowledging that the original legal entity in the world system  of nations known as Jammu & Kashmir arose on March 16 1846 and ceased to exist on or about October 22 1947; that the military contest that commenced on the latter date has in fact resulted, given all particular circumstances of history, in the lawful and just outcome in international law;

(b) offering all who may be Indian nationals or stateless and who presently live under Article 370, a formal choice of nationality between the Republics of India, Iran, Afghanistan and Pakistan: citizen-by-citizen, without fear or favour, under conditions of full information, individual privacy and security; any persons who voluntarily choose to renounce Indian nationality in such private individual decisions would be nevertheless granted lawful permanent residence in the Indian Republic and J&K in particular.

In other words, the dismemberment of the original J&K State and annexation of its territories by the entities known today as the Republic of Pakistan and Republic of India that occurred since October 22 1947, as represented first by the 1949 Ceasefire Line and then by the 1972 Line of Control, is indeed the just and lawful outcome prevailing in respect of the question of territorial sovereignty and jurisdiction. The remaining democratic question has to do with free individual choice of nationality by inhabitants, under conditions of full information and privacy, citizen-by-citizen, with the grant of permanent residency rights by the Indian Republic to persons under its jurisdiction in J&K who might wish to choose, for deeply personal individual reasons, not to remain Indian nationals but become Afghan, Iranian or Pakistani nationals instead (or remain stateless).  Pakistan has said frequently its sole concern has been the freedom of Muslims of J&K under Indian rule, and any such genuine concern shall have been thereby fully met by India. Indeed if Pakistan agreed to act similarly this entire complex mortal problem of decades shall have begun to be resolved most appropriately. Pakistan and India are both wracked by corruption, poverty and bad governance, and would be able to mutually draw down military forces pit against one another everywhere, so as to begin to repair the grave damage to their fiscal health caused over decades by the deleterious draining away of vast public resources.

The full reasoning underlying this, which I believe to be the only lawful, just, efficient and stable solution that exists, is thoroughly explained in the following six articles. The first five, “Solving Kashmir”, “Law, Justice & J&K”, “History of J&K”, and “Pakistan’s Allies”, “What to Tell Musharraf” were published in The Statesman in 2005-2006 and are marked ONE, TWO, THREE, FOUR and FIVE below, and are also available elsewhere here. The sixth “An Indian Reply to President Zardari”, marked SIX, was published for the first time here following the Mumbai massacres.

I believe careful reflection upon this entire body of reasoning may lead all reasonable men and women to a practically unanimous consensus about this as the appropriate course of action; if such a consensus happened to arise, the implementation of the solution shall only be a matter of (relatively) uncomplicated procedural detail.

Cordially yours

Subroto Roy, PhD (Cantab.), BScEcon (London)
Kolkata, October 15 2009

ONE
SOLVING KASHMIR: ON AN APPLICATION OF REASON by Subroto Roy First published in three parts in The Statesman, Editorial Page Special Article, December 1,2,3 2005, http://www.thestatesman.net

(This article has its origins in a paper “Towards an Economic Solution for Kashmir” which circulated in Washington DC in 1992-1995, including at the Indian and Pakistani embassies and the Carnegie Endowment, and was given as an invited lecture at the Heritage Foundation on June 23 1998. It should be read along with other articles also republished here, especially “History of J&K”, “Law, Justice and J&K” , “Understanding Pakistan”, “Pakistan’s Allies” and “What to Tell Musharraf”. The Washington paper and lecture itself originated from my ideas in the Introduction to Foundations of Pakistan’s Political Economy, edited by WE James and myself in the University of Hawaii project on Pakistan 1986-1992.)

I. Give Indian `Green Cards’ to the Hurriyat et al

India, being a liberal democracy in its constitutional law, cannot do in Jammu & Kashmir what Czechoslovakia did to the “Sudeten Germans” after World War II. On June 18 1945 the new Czechoslovakia announced those Germans and Magyars within their borders who could not prove they had been actively anti-fascist before or during the War would be expelled — the burden of proof was placed on the individual, not the State. Czechoslovakia “transferring” this population was approved by the Heads of the USA, UK and USSR Governments at Potsdam on August 2 1945. By the end of 1946, upto two million Sudeten Germans were forced to flee their homes; thousands may have died by massacre or otherwise; 165,000 remained who were absorbed as Czechoslovak citizens. Among those expelled were doubtless many who had supported Germany and many others who had not — the latter to this day seek justice or even an apology in vain. Czechoslovakia punished none of its nationals for atrocities, saying it had been revenge for Hitler’s evil (”badla” in Bollywood terms) and the post Cold War Czech Government too has declined to render an apology. Revenge is a wild kind of justice (while justice may be a civilised kind of revenge).

India cannot follow this savage precedent in international law. Yet we must recognise there are several hundred and up to several hundred thousand persons on our side of the boundary in the State of Jammu & Kashmir who do not wish to be Indian nationals. These people are presently our nationals ius soli, having been born in territory of the Indian Republic, and/or ius sanguinis, having been born of parents who are Indian nationals; or they may be “stateless” whom we must treat in accordance with the 1954 Convention on Stateless Persons. The fact is they may not wish to carry Indian passports or be Indian nationals.

In this respect their juridical persons resemble the few million “elite” Indians who have in the last few decades freely placed their hands on their hearts and solemnly renounced their Indian nationality, declaring instead their individual fidelity to other nation-states — becoming American, Canadian or Australian citizens, or British subjects or nationals of other countries. Such people include tens of thousands of the adult children of India’s metropolitan “elite”, who are annually visited abroad in the hot summer months by their Indian parents and relatives. They are daughters and sons of New Delhi’s Government and Opposition, of retired generals, air marshals, admirals, ambassadors, cabinet secretaries, public sector bureaucrats, private sector businessmen, university professors, journalists, doctors and many others. India’s most popular film-actress exemplified this “elite” capital-flight when, after a tireless search, she chose a foreign husband and moved to California.

The difference in Jammu & Kashmir would be that those wishing to renounce Indian nationality do not wish to move to any other place but to stay as and where they are, which is in Kashmir Valley or Jammu. Furthermore, they may wish, for whatever reason, to adopt, if they are eligible to do so, the nationality of e.g. the Islamic Republic of Afghanistan or the Islamic Republic of Iran or the Islamic Republic of Pakistan.

They may believe themselves descended from Ahmad Shah Abdali whose Afghans ruled or mis-ruled Kashmir Valley before being defeated by Ranjit Singh’s Sikhs in 1819. Or they may believe themselves of Iranian descent as, for example, are the Kashmiri cousins of the late Ayatollah Khomeini. Or they may simply have wished to be, or are descended from persons who had wished to be on October 26 1947, citizens of the then-new British Dominion of Pakistan — but who came to be prevented from properly expressing such a desire because of the war-like conditions that have prevailed ever since between India and Pakistan. There may be even a few persons in Laddakh who are today Indian nationals but who wish to be considered Tibetans instead; there is, however, no Tibetan Republic and it does not appear there is going to be one.

India, being a free and self-confident country, should allow, in a systematic lawful manner, all such persons to fulfil their desires, and furthermore, should ensure they are not penalised for having expressed such “anti-national” desires or for having acted upon them. Sir Mark Tully, the British journalist, is an example of someone who has been a foreign national who has chosen to reside permanently in the Republic of India — indeed he has been an exemplary permanent resident of our country. There are many others like him. There is no logical reason why all those persons in Jammu & Kashmir who do wish not to be Indians by nationality cannot receive the same legal status from the Indian Republic as has been granted to Sir Mark Tully. There are already thousands of Sri Lankan, Bangladeshi and Nepalese nationals who are lawful permanent residents in the Indian Republic, and who travel back and forth between India and their home countries. There is no logical reason why the same could not be extended to several hundred or numerous thousand people in Jammu & Kashmir who may wish to not accept or to renounce their Indian nationality (for whatever personal reason) and instead become nationals, if they are so eligible, of the Islamic Republics of Afghanistan, Iran or Pakistan, or, for that matter, to remain stateless. On the one hand, their renunciation of Indian nationality is logically equivalent to the renunciation of Indian nationality by the adult children of India’s “elite” settled in North America and Western Europe. On the other hand, their wish to adopt, if they are eligible, a foreign nationality, such as that of Afghanistan, Iran or Pakistan, and yet remain domiciled in Indian territory is logically equivalent to that of many foreign nationals domiciled in India already like Sir Mark Tully.

Now if you are a permanent resident of some country, you may legally have many, perhaps most, but certainly not all the rights and duties of nationals of that country. e.g., though you will have to pay all the same taxes, you may not be allowed to (or be required to) vote in national or provincial elections but you may in local municipal elections. At the same time, permanently residing foreign nationals are supposed to be equal under the law and have equal access to all processes of civil and criminal justice. (As may be expected though from human frailty, even the federal courts of the USA can be notorious in their injustice and racism towards “Green Card” holders relative to “full” American citizens.) Then again, as a permanently resident foreigner, while you will be free to work in any lawful trade or profession, you may not be allowed to work in some or perhaps any Government agencies, certainly not the armed forces or the police. Many Indians in the USA were engineering graduates, and because many engineering jobs or contracts in the USA are related to the US armed forces and require US citizens only, it is commonplace for Indian engineers to renounce their Indian nationality and become Americans because of this. Many Indian-American families have one member who is American, another Indian, a third maybe Canadian, a fourth Fijian or British etc.

The same can happen in the Indian State of Jammu & Kashmir if it evolves peacefully and correctly in the future. It is quite possible to imagine a productive family in a peaceful Kashmir Valley of the future where one brother is an officer in the Indian Armed Forces, another brother a civil servant and a sister a police officer of the J&K State Government, another sister being a Pakistani doctor, while cousins are Afghan or Iranian or “stateless” businessmen. Each family-member would have made his/her choice of nationality as an individual given the circumstances of his/her life, his/her personal comprehension of the facts of history, his/her personal political and/or religious persuasions, and similar deeply private considerations. All would have their children going to Indian schools and being Indian citizens ius soli and/or ius sanguinis. When the children grow up, they would be free to join, if they wished, the existing capital flight of other Indian adult children abroad and there renounce their Indian nationality as many have come to do.

II Revealing Choices Privately with Full Information
For India to implement such a proposal would be to provide an opportunity for all those domiciled in Kashmir Valley, Jammu and Laddakh to express freely and privately as individuals their deepest wishes about their own identities, in a confidential manner, citizen by citizen, case by case. This would thereby solve the fundamental democratic problem that has been faced ever since the Pakistani attack on the original State of Jammu & Kashmir commenced on October 22 1947, which came to be followed by the Rape of Baramulla — causing the formal accession of the State to the then-new Dominion of India on October 26 1947.

A period of, say, 30 months may be announced by the Government of India during which full information would be provided to all citizens affected by this change, i.e. all those presently governed by Article 370 of the Indian Constitution. The condition of full information may include, for example, easy access to Afghan, Iranian and Pakistani newspapers in addition to access to Indian media. Each such person wishing to either remain with Indian nationality (by explicitly requesting an Indian passport if he/she does not have one already — and such passports can be printed in Kashmiri and Urdu too), or to renounce Indian nationality and either remain stateless or adopt, if he/she is so eligible, the nationality of e.g. Afghanistan, Iran, or Pakistan, should be administratively assisted by the Government of India to make that choice.

In particular, he/she should be individually, confidentially, and without fear or favour assured and informed of his/her new rights and responsibilities. For example, a resident of Kashmir Valley who chooses to become a Pakistani citizen, such as Mr Geelani, would now enjoy the same rights and responsibilities in the Indian Republic that Mr Tully enjoys, and at the same time no longer require a visa to visit Pakistan just as Mr Tully needs no visa to enter Britain. In case individual participants in the Hurriyat choose to renounce Indian nationality and adopt some other, they would no longer be able to legally participate in Indian national elections or J&K’s State elections. That is something which they say they do not wish to do in any case. Those members of the Hurriyat who chose e.g. Pakistani nationality while still residing in Jammu & Kashmir, would be free to send postal ballots or cross the border and vote in Pakistan’s elections if and when these occur. There are many Canadians who live permanently in the USA who cross home to Canada in order to cast a ballot.

After the period of 30 months, every person presently under Article 370 of the Indian Constitution would have received a full and fair opportunity to privately and confidentially reveal his/her preference or choice under conditions of full information. “Partition”, “Plebiscite”, and “Military Decision” have been the three alternatives under discussion ever since the National Conference of Sheikh Mohammad Abdullah and his then-loyal Deputy, Bakshi Ghulam Mohammad, helped the Indian Army and Air Force in 1947-1948 fight off the savage attack against Jammu & Kashmir State that had commenced from Pakistan on October 22 1947. When, during the Pakistani attack, the Sheikh and Bakshi agreed to the Muslim Conference’s demand for a plebiscite among the people, the Pakistanis balked — the Sheikh and Bakshi then withdrew their offer and decisively and irrevocably chose to accede to the Indian Union. The people of Jammu & Kashmir, like any other, are now bound by the sovereign political commitments made by their forebears. Even so, given the painful mortal facts of the several decades since, the solution here proposed if properly implemented would be an incomparably more thorough democratic exercise than any conceivable plebiscite could ever have been.

Furthermore, regardless of the outcome, it would not entail any further “Partition” or population “transfer” which inevitably would degenerate into a savage balkanization, and has been ruled out as an unacceptable “deal-breaker” by the Indian Republic. Instead, every individual person would have been required, in a private and confidential decision-making process, to have chosen a nationality or to remain stateless — resulting in a multitude of cosmopolitan families in Jammu & Kashmir. But that is something commonplace in the modern world. Properly understood and properly implemented, we shall have resolved the great mortal problem we have faced for more than half a century, and Jammu & Kashmir can finally settle into a period of peace and prosperity. The boundary between India and Pakistan would have been settled by the third alternative mentioned at the time, namely, “Military Decision”.

III. Of Flags and Consulates in Srinagar and Gilgit
Pakistan has demanded its flag fly in Srinagar. This too can happen though not in the way Pakistan has been wishing to see it happen. A Pakistan flag might fly in the Valley just as might an Afghan and Iranian flag as well. Pakistan has wished its flag to fly as the sovereign over Jammu & Kashmir. That is not possible. The best and most just outcome is for the Pakistani flag to fly over a recognised Pakistani consular or visa office in Srinagar, Jammu and Leh. In diplomatic exchange, the Indian tricolour would have to fly over a recognised Indian consular or visa office in Muzaffarabad, Gilgit and Skardu.

Pakistan also may have to act equivalently with respect to the original inhabitants of the territory of Jammu & Kashmir that it has been controlling — allowing those people to become Indian nationals if they so chose to do in free private decisions under conditions of full information. In other words, the “Military Decision” that defines the present boundary between sovereign states must be recognised by Pakistan sincerely and permanently in a Treaty relationship with India — and all of Pakistan’s official and unofficial protégés like the Hurriyat and the “United Jehad Council” would have to do the same. Without such a sovereign commitment from the Government of Pakistan, as shown by decisive actions of lack of aggressive intent (e.g. as came to be implemented between the USA and USSR), the Government of India has no need to involve the Government of Pakistan in implementing the solution of enhancing free individual choice of nationality with regard to all persons on our side of the boundary.

The “Military Decision” regarding the sovereign boundary in Jammu & Kashmir will be so recognised by all only if it is the universally just outcome in international law. And that in fact is what it is.

The original Jammu & Kashmir State began its existence as an entity in international law long before the present Republics of India and Pakistan ever did. Pakistan commences as an entity on August 14 1947; India commences as an entity of international law with its signing of the Treaty of Versailles on June 20 1918. Jammu & Kashmir began as an entity on March 16 1846 — when the Treaty of Amritsar was signed between Gulab Singh Dogra and the British, one week after the Treaty of Lahore between the British and the defeated Sikh regency of the child Daleep Singh.

Liaquat Ali Khan and Zafrullah Khan both formally challenged on Pakistan’s behalf the legitimacy of Dogra rule in Jammu & Kashmir since the Treaty of Amritsar. The Pakistani Mission to the UN does so even today. The Pakistanis were following Sheikh Abdullah and Jawaharlal Nehru himself, who too had at one point challenged Dogra legitimacy in the past. But though the form of words of the Pakistan Government and the Nehru-Abdullah position were similar in their attacks on the Treaty of Amritsar, their underlying substantive reasons were as different as chalk from cheese. The Pakistanis attacked the Dogra dynasty for being Dogra — i.e. because they were Hindus and not Muslims governing a Muslim majority. Nehru and Abdullah denounced monarchic autocracy in favour of mass democracy, and so attacked the Dogra dynasty for being a dynasty. All were wrong to think the Treaty of Amritsar anything but a lawful treaty in international law.

Furthermore, in this sombre political game of great mortal consequence, there were also two other parties who were, or appeared to be, in favour of the dynasty: one because the dynasty was non-Muslim, the other, despite it being so. Non-Muslim minorities like many Hindus and Sikhs in the business and governmental classes, saw the Dogra dynasty as their protector against a feared communalist tyranny arising from the Sunni Muslim masses of Srinagar Valley, whom Abdullah’s rhetoric at Friday prayer-meetings had been inciting or at least awakening from slumber. At the same time, the communalists of the Muslim Conference who had broken away from Abdullah’s secular National Conference, sought political advantage over Abdullah by declaring themselves in favour of keeping the dynasty — even elevating it to become an international sovereign, thus flattering the already pretentious potentate that he would be called “His Majesty” instead of merely “His Highness”. The ancestry of today’s Hurriyat’s demands for an independent Jammu & Kashmir may be traced precisely to those May 21-22 1947 declarations of the Muslim Conference leader, Hamidullah Khan.

Into this game stumbled the British with all the mix of cunning, indifference, good will, impatience, arrogance and pomposity that marked their rule in India. At the behest of the so-called “Native Princes”, the 1929 Butler Commission had hinted that the relationship of “Indian India” to the British sovereign was conceptually different from that of “British India” to the British sovereign. This view was adopted in the Cabinet Mission’s 12 May 1946 Memorandum which in turn came to be applied by Attlee and Mountbatten in their unseemly rush to “Divide and Quit” India in the summer of 1947.

It created the pure legal illusion that there was such a thing as “Lapse of Paramountcy” at which Jammu & Kashmir or any other “Native State” of “Indian India” could conceivably, even for a moment, become a sovereign enjoying the comity of nations — contradicting Britain’s own position that only two Dominions, India and Pakistan, could ever be members of the British Commonwealth and hence members of the newly created UN. British pusillanimity towards Jammu & Kashmir’s Ruler had even extended to making him a nominal member of Churchill’s War Cabinet because he had sent troops to fight in Burma. But the legal illusion had come about because of a catastrophic misunderstanding on the part of the British of their own constitutional law.

The only legal scholar who saw this was B R Ambedkar in a lonely and brilliant technical analysis released to the press on June 17 1947. No “Lapse of Paramountcy” over the “Native Princes” of Indian India could occur in constitutional law. Paramountcy over Indian India would be automatically inherited by the successor state of British India at the Transfer of Power. That successor state was the new British Dominion of India as well as (when it came to be finalised by Partition from India) the new British Dominion of Pakistan (Postscript: the deleted words represent a mistake made in the original paper, corrected in “Law, Justice & J&K” in view of the fact the UN in 1947 deemed India alone the successor state of British India and Pakistan a new state in the world system). A former “Native Prince” could only choose to which Dominion he would go. No other alternative existed even for a single logical moment. Because the British had catastrophically failed to comprehend this aspect of their own constitutional law, they created a legal vacuum whereby between August 15 and October 22-26 1947, Jammu & Kashmir became a local and temporary sovereign recognised only by the Dominion of Pakistan (until October 22) and the Dominion of India (until October 26). But it was not a globally recognised sovereign and was never going to be such in international law. This was further proved by Attlee refusing to answer the J&K Prime Minister’s October 18 1947 telegram.

All ambiguity came to end with the Pakistani attack of October 22 1947, the Rape of Baramulla, the secession of an “Azad Kashmir”declared by Sardar Ibrahim, and the Pakistani coup détat in Gilgit on October 31 1947 followed by the massacre of Sikh soldiers of the J&K Army at Bunji. With those Pakistani actions, Gulab Singh’s Jammu & Kashmir State, founded on March 16 1846 by the Treaty of Amritsar, ceased to logically exist as an entity in international law and fell into a state of ownerless anarchy. The conflict between Ibrahim’s Muslim communalists backed by the new Dominion of Pakistan and Abdullah’s secularists backed by the new Dominion of India had become a civil war within a larger intra-Commonwealth war that itself was almost a civil war between forces of the same military.

Jammu & Kashmir territory had become ownerless. The Roman Law which is at the root of all municipal and international law in the world today would declare that in the ownership of such an ownerless entity, a “Military Decision” was indeed the just outcome. Sovereignty over the land, waters, forests and other actual and potential resources of the erstwhile State of Jammu & Kashmir has become divided by “Military Decision” between the modern Republics of India and Pakistan. By the proposal made herein, the people and their descendants shall have chosen their nationality and their domicile freely across the sovereign boundary that has come to result.

TWO
LAW, JUSTICE AND J&K
by Subroto Roy First published in two parts in The Sunday Statesman, July 2 2006 and The Statesman July 3 2006 http://www.thestatesman.net Editorial Page Special Article

I.
For a solution to J&K to be universally acceptable it must be seen by all as being lawful and just. Political opinion in Pakistan and India as well as all people and parties in J&K ~ those loyal to India, those loyal to Pakistan, and any others ~ will have to agree that, all things considered, such is the right course of action for everyone today in the 21st Century, which means too that the solution must be consistent with the facts of history as well as account reasonably for all moral considerations.

On August 14, 1947, the legal entity known as “British India”, as one of its final acts, and based on a sovereign British decision made only two months earlier, created out of some of its territory a new State defined in international law as the “Dominion of Pakistan”. British India extinguished itself the very next day, and the newly independent “Dominion of India” succeeded to all its rights and obligations in international law. As the legal successor of the “India” which had signed the Treaty of Versailles in 1919 and the San Francisco Declaration of 1945, the Dominion of India was already a member of the new UN as well as a signatory to many international treaties. By contrast, the Dominion of Pakistan had to apply afresh to sign treaties and become a member of international organisations. The theory put forward by Argentina that two new States, India and Pakistan, had been created ab initio, came to be rejected and was withdrawn by Argentina. Instead, Pakistan with the wholehearted backing of India was made a member of the UN, with all except Afghanistan voting in favour. (Afghanistan’s exceptional vote signalled presence of conflict over the Durand Line and idea of a Pashtunistan; Dr Khan Sahib and Abdul Ghaffar Khan were imprisoned by the Muslim League regime of NWFP which later supported the tribesmen who attacked J&K starting October 22, 1947; that conflict remains unresolved to this day, even after the American attack on the Taliban, the restart of a constitutional process in Afghanistan, and the purported mediation of US Secretary of State Condoleeza Rice.)

Zafrullah Khan, Pakistan’s distinguished first ambassador to the UN, claimed in September 1947: “Pakistan is not a new member of UNO but a successor to a member State which was one of the founders of the Organisation.” He noted that he himself had led India to the final session of the League of Nations in Geneva in 1939, and he wished to say that Pakistan had been present “as part of India… under the latter name” as a signatory to the Treaty of Versailles. This was, however, logically impossible. The Treaty of Versailles long predated (1) Mohammad Iqbal’s Allahabad Address which conceptualised for the first time in the 20th Century a Muslim State in Northwest India; (2) Rahmat Ali’s invention of the word “PAKSTAN” on the top floor of a London omnibus; (3) M. A. Jinnah and Fazlul Haq’s Lahore Resolution; and (4) the final British decision of June 3, 1947 to create by Partition out of “British India” a Dominion named Pakistan. Pakistan could not have acted in international law prior to having come into being or been created or even conceived itself. Zafrullah Khan would have been more accurate to say that the history of Pakistanis until August 14, 1947 had been one in common with that of their Indian cousins ~ or indeed their Indian brothers, since innumerable North Indian Muslim families came to be literally partitioned, with some brothers remaining Indians while other brothers became Pakistanis.

Pakistan was created at the behest of Jinnah’s Muslim League though with eventual agreement of the Indian National Congress (a distant ancestor of the political party going by the same name today). Pakistan arose not because Jinnah said Hindus and Muslims were “two nations” but because he and his League wished for a State where Muslims would find themselves ruled by fellow-Muslims and feel themselves part of a pan-Islamic culture. Yet Pakistan was intended to be a secular polity with Muslim-majority governance, not an Islamic theocracy. That Pakistan failed to become secular was exemplified most poignantly in the persecution Zafrullah himself later faced in his personal life as an Ahmadiya, even while he was Pakistan’s Foreign Minister. (The same happened later to Pakistan’s Nobel-winning physicist Abdus Salaam.) Pakistan was supposed to allow the genius of Indo-Muslim culture to flourish, transplanted from places like Lucknow and Aligarh which would never be part of it. In fact, the areas that are Pakistan today had in the 1937 provincial elections shown scant popular Muslim support for Jinnah’s League. The NWFP had a Congress Government in the 1946 elections, and its supporters boycotted the pro-Pakistan referendum in 1947. The imposition of Urdu culture as Pakistan’s dominant ethos might have come to be accepted later in West Punjab, Sindh and NWFP but it was not acceptable in East Bengal, and led inevitably to the Pakistani civil war and creation of Bangladesh by Sheikh Mujib in 1971.

In August 1947, the new Dominions of India and Pakistan were each supposed to protect their respective minority populations as their first political duty. Yet both palpably failed in this, and were reduced to making joint declarations pleading for peace and an end to communal killings and the abduction of women. The Karachi Government, lacking the wherewithal and administrative machinery of being a nation-state at all, and with only Liaquat and an ailing Jinnah as noted leaders, may have failed more conspicuously, and West Punjab, the Frontier and Sindh were soon emptied of almost all their many Sikhs and Hindus. Instead, the first act of the new Pakistan Government in the weeks after August 14, 1947 was to arrange for the speedy and safe transfer of the North Indian Muslim elite by air from Delhi using chartered British aeroplanes. The ordinary Muslim masses of UP, Delhi and East Punjab were left in danger from or were subjected to Sikh and Hindu mob attacks, especially as news and rumours spread of similar outrages against Pakistan’s departing minorities.

In this spiral of revenge attacks and counter-attacks, bloodshed inevitably spilled over from West and East Punjab into the northern Punjabi plains of Jammu, though Kashmir Valley remained conspicuously peaceful. Zafrullah and Liaquat would later claim it was this communal civil war which had caused thousands of newly decommissioned Mirpuri soldiers of the British Army, and thousands of Afridi and other Frontier tribesmen, to spontaneously act to “liberate” J&K’s Muslims from alleged tyranny under the Hindu Ruler or an allegedly illegal Indian occupation.

But the main attack on J&K State that began from Pakistan along the Manshera-Muzaffarabad road on October 22, 1947 was admittedly far too well-organised, well-armed, well-planned and well-executed to have been merely a spontaneous uprising of tribesmen and former soldiers. In all but name, it was an act of undeclared war of the new Dominion of Pakistan first upon the State of J&K and then upon the Indian Dominion. This became obvious to Field Marshall Auchinlek, who, as Supreme Commander of the armed forces of both India and Pakistan, promptly resigned and abolished the Supreme Command in face of the fact that two parts of his own forces were now at war with one another.

The invaders failed to take Srinagar solely because they lost their military purpose while indulging in the Rape of Baramula. Thousands of Kashmiri women of all communities ~ Muslim, Sikh and Hindu ~ were violated and transported back to be sold in markets in Peshawar and elsewhere. Such was standard practice in Central Asian tribal wars from long before the advent of Islam, and the invading tribesmen shared that culture. India’s Army and Air Force along with the militias of the secular democratic movement led by Sheikh Abdullah and those remaining loyal units of J&K forces, fought off the invasion, and liberated Baramula, Naushera, Uri, Poonch etc. Gilgit had a British-led coup détat against it bringing it under Pakistan’s control. Kargil was initially taken by the Pakistanis and then lost by them. Leh could have been but was not taken by Pakistani forces. But in seeking to protect Leh and to retake Kargil, the Indian Army lost the siege of Skardu ~ which ended reputedly with the infamous communication from the Pakistani commander to his HQ: “All Sikhs killed; all women raped.”

Legal theory
Now, in this grave mortal conflict, the legal theory to which both the Indian and Pakistani Governments have been wedded for sixty years is one that had been endorsed by the British Cabinet Mission in 1946 and originated with the Butler Commission of 1929. Namely, that “Lapse of Paramountcy” over the “Indian India” of the “Native States” could and did occur with the extinction of British India on August 15, 1947. By this theory, Hyderabad, J&K, Junagadh and the several other States which had not acceded to either Dominion were no longer subject to the Crown’s suzerainty as of that date. Both Dominions drew up “Instruments of Accession” for Rulers to sign upon the supposed “Lapse” of Paramountcy that was to occur with the end of British India.

Ever since, the Pakistan Government has argued that Junagadh’s Ruler acceded to Pakistan and Hyderabad’s had wished to do so but both were forcibly prevented by India. Pakistan has also argued the accession to India by J&K’s Ruler was “fraudulent” and unacceptable, and Sheikh Abdullah was a “Quisling” of India and it was not his National Conference but the Muslim Conference of Ibrahim, Abbas and the Mirwaiz (precursor of the Hurriyat) which represented J&K’s Muslims.

India argued that Junagadh’s accession to Pakistan or Hyderabad’s independence were legal and practical impossibilities contradicting the wills of their peoples, and that their integration into the Indian Dominion was carried out in an entirely legitimate manner in the circumstances prevailing.

On J&K, India has argued that not only had the Ruler requested Indian forces to fight off the Pakistani attack, and he acceded formally before Indian forces were sent, but also that democratic principles were fully adhered to in the unequivocal endorsement of the accession by Sheikh Abdullah and the National Conference and further by a duly called and elected J&K Constituent Assembly, as well as generations of Kashmiris since. In the Indian view, it is Pakistan which has been in illegal occupation of Indian territory from Mirpur, Muzaffarabad and Gilgit to Skardu all the way to the Khunjerab Pass, Siachen Glacier and K2, some of which it illegally ceded to its Communist Chinese ally, and furthermore that it has denied the peoples of these areas any democratic voice.

Roman law
In June 1947, it was uniquely and brilliantly argued by BR Ambedkar in a statement to the Press that the British had made a catastrophic error in comprehending their own constitutional law, that no such thing as “Lapse” of Paramountcy existed, and that suzerainty over the “Native States” of “Indian India” would be automatically transferred in international law to the successor State of British India. It was a legal illusion to think any Native State could be sovereign even for a single logical moment. On this theory, if the Dominion of India was the sole successor State in international law while Pakistan was a new legal entity, then a Native State which acceded to Pakistan after August 15, 1947 would have had to do so with the consent of the suzerain power, namely, India, as may be said to have happened implicitly in case of Chitral and a few others. Equally, India’s behaviour in integrating (or annexing) Junagadh and Hyderabad, would become fully explicable ~ as would the statements of Mountbatten, Nehru and Patel before October 1947 that they would accept J&K going to Pakistan if that was what the Ruler and his people desired. Pakistan unilaterally and by surprise went to war against J&K on October 22, declared the accession to India “fraudulent”, and to this day has claimed the territory of the original State of J&K is “disputed”. Certainly, even if the Ambedkar doctrine is applied that no “Lapse” was possible under British law, Pakistan did not recognise India’s jurisdiction there as the suzerain power as of August 15, 1947. Altogether, Pakistan’s sovereign actions from October 22 onwards amounted to acting to annex J&K to itself by military force ~ acts which came to be militarily resisted (with partial success) by India allied with Sheikh Abdullah’s National Conference and the remaining forces of J&K. By these military actions, Pakistan revealed that it considered J&K territory to have descended into a legal state of anarchy as of October 22, 1947, and hence open to resolution by “Military Decision” ~ as is indeed the just outcome under Roman Law, the root of all municipal and international law today, when there is a contest between claimants over an ownerless entity.

Choice of nationality
Hence, the present author concluded (“Solving Kashmir”, The Statesman December 1-3, 2005) that the dismemberment of the original J&K State and annexation of its territories by India and Pakistan that has occurred since 1947, as represented first by the 1949 Ceasefire Line and then by the 1972 Line of Control, is indeed the just and lawful outcome prevailing in respect of the question of territorial sovereignty and jurisdiction. The remaining “democratic” question described has to do with free individual choice of nationality by the inhabitants, under conditions of full information and privacy, citizen-by-citizen, with the grant of permanent residency rights by the Indian Republic to persons under its jurisdiction in J&K who may choose not to remain Indian nationals but become Afghan, Iranian or Pakistani nationals instead. Pakistan has said frequently its sole concern has been the freedom of the Muslims of J&K under Indian rule, and any such genuine concern shall have been thereby fully met by India. Indeed, if Pakistan agreed to act similarly, this entire complex mortal problem of decades shall have begun to be peacefully resolved. Both countries are wracked by corruption, poverty and bad governance, and would be able to mutually draw down military forces pit against one another everywhere, so as to begin to repair the grave damage to their fiscal health caused by the deleterious draining away of vast public resources.

THREE
HISTORY OF JAMMU & KASHMIR
by Subroto Roy First published in two parts in The Sunday Statesman, Oct 29 2006 and The Statesman Oct 30 2006, Editorial Page Special Article, http://www.thestatesman.net

At the advent of Islam in distant Arabia, India and Kashmir in particular were being visited by Chinese Buddhist pilgrims during Harsha’s reign. The great “Master of Law” Hiuen Tsiang visited between 629-645 and spent 631-633 in Kashmir (”Kia-chi-mi-lo”), describing it to include Punjab, Kabul and Kandahar. Over the next dozen centuries, Buddhist, Hindu, Muslim, Sikh and again Hindu monarchs came to rule the 85 mile long 40 mile wide territory on the River Jhelum’s upper course known as Srinagar Valley, as well as its adjoining Jammu in the upper plains of the Punjab and “Little Tibet” consisting of Laddakh, Baltistan and Gilgit.

In 1344, a Persian adventurer from Swat or Khorasan by name of Amir or Mirza, who had “found his way into the Valley and in time gained great influence at the Raja’s court”, proclaimed himself Sultan Shamsuddin after the death of the last Hindu monarchs of medieval Kashmir. Twelve of his descendants formed the Shamiri dynasty including the notorious Sikander and the just and tolerant Zainulabidin. Sikander who ruled 1386-1410 “submitted himself” to the Uzbek Taimur the Lame when he approached Kashmir in 1398 “and thus saved the country from invasion”. Otherwise, “Sikander was a gloomy ferocious bigot, and his zeal in destroying temples and idols was so intense that he is remembered as the Idol-Breaker. He freely used the sword to propagate Islam and succeeded in forcing the bulk of the population to conform outwardly to the Muslim religion. Most of the Brahmins refused to apostatise, and many of them paid with their lives the penalty for their steadfastness. Many others were exiled, and only a few conformed.”

Zainulabidin who ruled 1417-1467 “was a man of very different type”. “He adopted the policy of universal toleration, recalled the exiled Brahmins, repealed the jizya or poll-tax on Hindus, and even permitted new temples to be built. He abstained from eating flesh, prohibited the slaughter of kine, and was justly venerated as a saint. He encouraged literature, painting and music, and caused many translations to be made of works composed in Sanskrit, Arabic and other languages.” During his “long and prosperous reign”, he “constructed canals and built many mosques; he was just and tolerant”.

The Shamiri dynasty ended in 1541 when “some fugitive chiefs of the two local factions of the Makri and the Chakk invited Mirza Haidar Dughlat, a relation of Babar, to invade Kashmir. The country was conquered and the Mirza held it (nominally in name of Humayan) till 1551, when he was killed in a skirmish. The line… was restored for a few years, until in 1559 a Chakk leader, Ghazi Shah, usurped the throne; and in the possession of his descendants it remained for nearly thirty years.” This dynasty marks the origins of Shia Islam in Srinagar though Shia influence in Gilgit, Baltistan and Laddakh was of longer standing. Constant dissensions weakened the Chakks, and in 1586, Akbar, then at Attock on the Indus, sent an army under Raja Bhagwan Das into Srinagar Valley and easily made it part of his Empire.

Shivaism and Islam both flourished, and Hindu ascetics and Sufi saints were revered by all. Far from Muslims and Hindus forming distinct nations, here they were genetically related kinsmen living in proximity in a small isolated area for centuries. Indeed Zainulabidin may have had a vast unspoken influence on the history of all India insofar as Akbar sought to attempt in his empire what Zainulabidin achieved in the Valley. Like Zainulabidin, Akbar’s governance of India had as its “constant aim” “to conciliate the Hindus and to repress Muslim bigotry” which in modern political parlance may be seen as the principle of secular governance ~ of conciliating the powerless (whether majority or minority) and repressing the bigotry of the powerful (whether minority or majority). Akbar had made the Valley the summer residence of the Mughals, and it was Jahangir, seeing the Valley for the first time, who apparently said the words agar behest baushad, hamee in hast, hamee in hast, hamee in hast: “if Heaven exists, it is here, it is here, it is here”. Yet like other isolated paradises (such as the idyllic islands of the Pacific Ocean) an accursed mental ether can accompany the magnificent beauty of people’s surroundings. As the historian put it: “The Kashmiris remained secure in their inaccessible Valley; but they were given up to internal weakness and discord, their political importance was gone…”

After the Mughals collapsed, Iran’s Turkish ruler Nadir Shah sacked Delhi in 1739 but the Iranian court fell in disarray upon his death. In 1747 a jirga of Pashtun tribes at Kandahar “broke normal tradition” and asked an old Punjabi holy man and shrine-keeper to choose between two leaders; this man placed young wheat in the hand of the 25 year old Ahmed Shah Saddozai of the Abdali tribe, and titled him “Durrani”. Five years later, Durrani took Kashmir and for the next 67 years the Valley was under Pashtun rule, a time of “unmitigated brutality and widespread distress”. Durrani himself “was wise, prudent and simple”, never declared himself king and wore no crown, instead keeping a stick of young wheat in his turban. Leaving India, he famously recited: “The Delhi throne is beautiful indeed, but does it compare with the mountains of Kandahar?”

Kashmir’s modern history begins with Ranjit Singh of the Sikhs who became a soldier at 12, and in 1799 at age 19 was made Lahore’s Governor by Kabul’s Zaman Shah. Three years later “he made himself master of Amritsar”, and in 1806 crossed the River Sutlej and took Ludhiana. He created a fine Sikh infantry and cavalry under former officers of Napoleon, and with 80,000 trained men and 500 guns took Multan and Peshawar, defeated the Pashtuns and overran Kashmir in 1819. The “cruel rule” of the Pashtuns ended “to the great relief of Kashmir’s inhabitants”.

The British Governor-General Minto (ancestor of the later Viceroy), seeing advantage in the Sikhs staying north of the Sutlej, sent Charles Metcalfe, “a clever young civilian”, to persuade the Khalsa; in 1809, Ranjit Singh and the British in the first Treaty of Amritsar agreed to establish “perpetual amity”: the British would “have no concern” north of the Sutlej and Ranjit Singh would keep only minor personnel south of it. In 1834 and 1838 Ranjit Singh was struck by paralysis and died in 1839, leaving no competent heir. The Sikh polity collapsed, “their power exploded, disappearing in fierce but fast flames”. It was “a period of storm and anarchy in which assassination was the rule” and the legitimate line of his son and grandson, Kharak Singh and Nao Nihal Singh was quickly extinguished. In 1845 the Queen Regent, mother of the five-year old Dalip Singh, agreed to the Khalsa ending the 1809 Treaty. After bitter battles that might have gone either way, the Khalsa lost at Sobraon on 10 February 1846, and accepted terms of surrender in the 9 March 1846 Treaty of Lahore. The kingdom had not long survived its founder: “created by the military and administrative genius of one man, it crumbled into powder when the spirit which gave it life was withdrawn; and the inheritance of the Khalsa passed into the hands of the English.”

Ranjit Singh’s influence on modern J&K was even greater through his having mentored the Rajput Gulab Singh Dogra (1792-1857) and his brothers Dhyan Singh and Suchet Singh. Jammu had been ruled by Ranjit Deo until 1780 when the Sikhs made it tributary to the Lahore Court. Gulab Singh, a great grand nephew of Ranjit Deo, had left home at age 17 in search of a soldierly fortune, and ended up in 1809 in Ranjit Singh’s army, just when Ranjit Singh had acquired for himself a free hand to expand his domains north of the River Sutlej.

Gulab Singh, an intrepid soldier, by 1820 had Jammu conferred upon him by Ranjit Singh with the title of Raja, while Bhimber, Chibal, Poonch and Ramnagar went to his brothers. Gulab Singh, “often unscrupulous and cruel, was a man of considerable ability and efficiency”; he “found his small kingdom a troublesome charge but after ten years of constant struggles he and his two brothers became masters of most of the country between Kashmir and the Punjab”, though Srinagar Valley itself remained under a separate Governor appointed by the Lahore Court. Gulab Singh extended Jammu’s rule from Rawalpindi, Bhimber, Rajouri, Bhadarwah and Kishtwar, across Laddakh and into Tibet. His General Zorawar Singh led six expeditions into Laddakh between 1834 and 1841 through Kishtwar, Padar and Zanskar. In May 1841, Zorawar left Leh with an army of 5000 Dogras and Laddakhis and advanced on Tibet. Defeating the Tibetans at Rudok and Tashigong, he reached Minsar near Lake Mansarovar from where he advanced to Taklakot (Purang), 15 miles from the borders of Nepal and Kumaon, and built a fort stopping for the winter. Lhasa sent large re-inforcements to meet him. Zorawar, deciding to take the offensive, was killed in the Battle of Toyu, on 11-12 December 1841 at 16,000 feet.

A Laddakhi rebellion resulted against Jammu, aided now by the advancing Tibetans. A new army was sent under Hari Chand suppressing the rebellion and throwing back the Tibetans, leading to a peace treaty between Lhasa and Jammu signed on 17 September 1842: “We have agreed that we have no ill-feelings because of the past war. The two kings will henceforth remain friends forever. The relationship between Maharajah Gulab Singh of Kashmir and the Lama Guru of Lhasa (Dalai Lama) is now established. The Maharajah Sahib, with God (Kunchok) as his witness, promises to recognise ancient boundaries, which should be looked after by each side without resorting to warfare. When the descendants of the early kings, who fled from Laddakh to Tibet, now return they will not be stopped by Shri Maharajah. Trade between Laddakh and Tibet will continue as usual. Tibetan government traders coming into Laddakh will receive free transport and accommodations as before, and the Laddakhi envoy will, in turn, receive the same facilities in Lhasa. The Laddakhis take an oath before God (Kunchok) that they will not intrigue or create new troubles in Tibetan territory. We have agreed, with God as witness, that Shri Maharajah Sahib and the Lama Guru of Lhasa will live together as members of the same household.” The traditional boundary between Laddakh and Tibet “as recognised by both sides since olden times” was accepted by the envoys of Gulab Singh and the Dalai Lama.

An earlier 1684 treaty between Laddakh and Lhasa had said that while Laddakh would send tribute to Lhasa every three years, “the king of Laddakh reserves to himself the village of Minsar in Ngarees-khor-sum, that he may be independent there; and he sets aside its revenue for the purpose of meeting the expense involved in keeping up the sacrificial lights at Kangree (Kailas), and the Holy Lakes of Mansarovar and Rakas Tal”. The area around Minsar village near Lake Mansarovar, held by the rulers of Laddakh since 1583, was retained by Jammu in the 1842 peace-treaty, and its revenue was received by J&K State until 1948.

After Ranjit Singh’s death in 1839, Gulab Singh was alienated from the Lahore Court where the rise of his brothers and a nephew aroused enough Khalsa jealousy to see them assassinated in palace intrigues. While the Sikhs imploded, Gulab Singh had expanded his own dominion from Rawalpindi to Minsar ~ everywhere except Srinagar Valley itself. He had apparently advised the Sikhs not to attack the British in breach of the 1809 Treaty, and when they did so he had not joined them, though had he done so British power in North India might have been broken. The British were grateful for his neutrality and also his help in their first misbegotten adventure in Afghanistan. It was Gulab Singh who was now encouraged by both the British and the Sikhs to mediate between them, indeed “to take a leading part in arranging conditions of peace”, and he formally represented the Sikh regency in the negotiations. The 9 March 1846 Treaty of Lahore “set forth that the British Government having demanded in addition to a certain assignment of territory, a payment of a crore and a half of rupees, and the Sikh Government being unable to pay the whole”, Dalip Singh “should cede as equivalent to one crore the hill country belonging to the Punjab between the Beas and the Indus including Kashmir and the Hazara”.

For the British to occupy the whole of this mountainous territory was judged unwise on economic and military grounds; it was not feasible to occupy from a military standpoint and the area “with the exception of the small Valley of Kashmir” was “for the most part unproductive”. “On the other hand, the ceded tracts comprised the whole of the hereditary possessions of Gulab Singh, who, being eager to obtain an indefeasible title to them, came forward and offered to pay the war indemnity on condition that he was made the independent ruler of Jammu & Kashmir.

A separate treaty embodying this arrangement was thus concluded between the British and Gulab Singh at Amritsar on 16 March 1846.” Gulab Singh acknowledged the British Government’s supremacy, and in token of it agreed to present annually to the British Government “one horse, twelve shawl goats of approved breed and three pairs of Kashmir shawls. This arrangement was later altered; the annual presentation made by the Kashmir State was confined to two Kashmir shawls and three romals (handkerchiefs).” The Treaty of Amritsar “put Gulab Singh, as Maharaja, in possession of all the hill country between the Indus and the Ravi, including Kashmir, Jammu, Laddakh and Gilgit; but excluding Lahoul, Kulu and some areas including Chamba which for strategic purposes, it was considered advisable (by the British) to retain and for which a remission of Rs 25 lakhs was made from the crore demanded, leaving Rs 75 lakhs as the final amount to be paid by Gulab Singh.” The British retained Hazara which in 1918 was included into NWFP. Through an intrigue emanating from Prime Minister Lal Singh in Lahore, Imamuddin, the last Sikh-appointed Governor of Kashmir, sought to prevent Gulab Singh taking possession of the Valley in accordance with the Treaty’s terms. By December 1846 Gulab Singh had done so, though only with help of a British force which included 17,000 Sikh troops “who had been fighting in the campaign just concluded”. (Contemporary British opinion even predicted Sikhism like Buddhism “would become extinct in a short time if it were not kept alive by the esprit de corps of the Sikh regiments”.)

The British in 1846 may have been glad enough to allow Gulab Singh take independent charge of the new entity that came to be now known as the “State of Jammu & Kashmir”. Later, however. they and their American allies would grow keen to control or influence the region vis-à-vis their new interests against the Russian and Soviet Empires.

FOUR
PAKISTAN’S ALLIES
by Subroto Roy First published in two parts in The Sunday Statesman, June 4 2006, The Statesman June 5 2006, Editorial Page Special Article, http://www.thestatesman.net

From the 1846 Treaty of Amritsar creating the State of Jammu & Kashmir until the collapse of the USSR in 1991, Britain and later the USA became increasingly interested in the subcontinent’s Northwest. The British came to India by sea to trade. Barren, splendid, landlocked Afghanistan held no interest except as a home of fierce tribes; but it was the source of invasions into the Indian plains and prompted a British misadventure to install Shah Shuja in place of Dost Mohammad Khan leading to ignominious defeat. Later, Afghanistan was seen as the underbelly of the Russian and Soviet empires, and hence a location of interest to British and American strategic causes.

In November 1954, US President Dwight Eisenhower authorized 30 U-2 spy aircraft to be produced for deployment against America’s perceived enemies, especially to investigate Soviet nuclear missiles which could reach the USA. Reconnaissance balloons had been unsuccessful, and numerous Western pilots had been shot down taking photographs from ordinary military aircraft. By June 1956, U-2 were making clandestine flights over the USSR and China. But on May 1 1960, one was shot or forced down over Sverdlovsk, 1,000 miles within Soviet territory. The Americans prevaricated that it had taken off from Turkey on a weather-mission, and been lost due to oxygen problems. Nikita Kruschev then produced the pilot, Francis Gary Powers, who was convicted of spying, though was exchanged later for a Soviet spy. Powers had been headed towards Norway, his task to photograph Soviet missiles from 70,000 ft, his point of origin had been an American base 20 miles from Peshawar.

America needed clandestine “forward bases” from which to fly U-2 aircraft, and Pakistan’s ingratiating military and diplomatic establishment was more than willing to offer such cooperation, fervently wishing to be seen as a “frontline state” against the USSR. “We will help you defeat the USSR and we are hopeful you will help us defeat India” became their constant refrain. By 1986, the Americans had been permitted to build air-bases in Balochistan and also use Mauripur air-base near Karachi.

Jammu & Kashmir and especially Gilgit-Baltistan adjoins the Pashtun regions whose capital has been Peshawar. In August-November 1947, a British coup d’etat against J&K State secured Gilgit-Baltistan for the new British Dominion of Pakistan.

The Treaty of Amritsar had nowhere required Gulab Singh’s dynasty to accept British political control in J&K as came to be exercised by British “Residents” in all other Indian “Native States”. Despite this, Delhi throughout the late 19th Century relentlessly pressed Gulab Singh’s successors Ranbir Singh and Partab Singh to accept political control. The Dogras acquiesced eventually. Delhi’s desire for control had less to do with the welfare of J&K’s people than with protection of increasing British interests in the area, like European migration to Srinagar Valley and guarding against Russian or German moves in Afghanistan. “Sargin” or “Sargin Gilit”, later corrupted by the Sikhs and Dogras into “Gilgit”, had an ancient people who spoke an archaic Dardic language “intermediate between the Iranian and the Sanskritic”. “The Dards were located by Ptolemy with surprising accuracy on the West of the Upper Indus, beyond the headwaters of the Swat River (Greek: Soastus) and north of the Gandarae (i.e. Kandahar), who occupied Peshawar and the country north of it. This region was traversed by two Chinese pilgrims, Fa-Hsien, coming from the north about AD 400 and Hsuan Tsiang, ascending from Swat in AD 629, and both left records of their journeys.”

Gilgit had been historically ruled by a Hindu dynasty called Trakane; when they became extinct, Gilgit Valley “was desolated by successive invasions of neighbouring rulers, and in the 20 or 30 years ending with 1842 there had been five dynastic revolutions. The Sikhs entered Gilgit about 1842 and kept a garrison there.” When J&K came under Gulab Singh, “the Gilgit claims were transferred with it, and a boundary commission was sent” by the British. In 1852 the Dogras were driven out with 2,000 dead. In 1860 under Ranbir Singh, the Dogras “returned to Gilgit and took Yasin twice, but did not hold it. They also in 1866 invaded Darel, one of the most secluded Dard states, to the south of the Gilgit basin but withdrew again.”

The British appointed a Political Agent in Gilgit in 1877 but he was withdrawn in 1881. “In 1889, in order to guard against the advance of Russia, the British Government, acting as the suzerain power of Kashmir, established the Gilgit Agency”. The Agency was re-established under control of the British Resident in Jammu & Kashmir. “It comprised the Gilgit Wazarat; the State of Hunza and Nagar; the Punial Jagir; the Governorships of Yasin, Kuh-Ghizr and Ishkoman, and Chilas”. In 1935, the British demanded J&K lease to them for 60 years Gilgit town plus most of the Gilgit Agency and the hill-states Hunza, Nagar, Yasin and Ishkuman. Hari Singh had no choice but to acquiesce. The leased region was then treated as part of British India, administered by a Political Agent at Gilgit responsible to Delhi, first through the Resident in J& K and later a British Agent in Peshawar. J& K State no longer kept troops in Gilgit and a mercenary force, the Gilgit Scouts, was recruited with British officers and paid for by Delhi. In April 1947, Delhi decided to formally retrocede the leased areas to Hari Singh’s J& K State as of 15 August 1947. The transfer was to formally take place on 1 August.

On 31 July, Hari Singh’s Governor arrived to find “all the officers of the British Government had opted for service in Pakistan”. The Gilgit Scouts’ commander, a Major William Brown aged 25, and his adjutant, a Captain Mathieson, planned openly to engineer a coup détat against Hari Singh’s Government. Between August and October, Gilgit was in uneasy calm. At midnight on 31 October 1947, the Governor was surrounded by the Scouts and the next day he was “arrested” and a provisional government declared.

Hari Singh’s nearest forces were at Bunji, 34 miles from Gilgit, a few miles downstream from where the Indus is joined by Gilgit River. The 6th J& K Infantry Battalion there was a mixed Sikh-Muslim unit, typical of the State’s Army, commanded by a Lt Col. Majid Khan. Bunji controlled the road to Srinagar. Further upstream was Skardu, capital of Baltistan, part of Laddakh District where there was a small garrison. Following Brown’s coup in Gilgit, Muslim soldiers of the 6th Infantry massacred their Sikh brothers-at-arms at Bunji. The few Sikhs who survived escaped to the hills and from there found their way to the garrison at Skardu.

On 4 November 1947, Brown raised the new Pakistani flag in the Scouts’ lines, and by the third week of November a Political Agent from Pakistan had established himself at Gilgit. Brown had engineered Gilgit and its adjoining states to first secede from J&K, and, after some talk of being independent, had promptly acceded to Pakistan. His commander in Peshawar, a Col. Bacon, as well as Col. Iskander Mirza, Defence Secretary in the new Pakistan and later to lead the first military coup détat and become President of Pakistan, were pleased enough. In July 1948, Brown was awarded an MBE (Military) and the British Governor of the NWFP got him a civilian job with ICI~ which however sent him to Calcutta, where he came to be attacked and left for dead on the streets by Sikhs avenging the Bunji massacre. Brown survived, returned to England, started a riding school, and died in 1984. In March 1994, Pakistan awarded his widow the Sitara-I-Pakistan in recognition of his coup détat.

Gilgit’s ordinary people had not participated in Brown’s coup which carried their fortunes into the new Pakistan, and to this day appear to remain without legislative representation. It was merely assumed that since they were mostly Muslim in number they would wish to be part of Pakistan ~ which also became Liaquat Ali Khan’s assumption about J&K State as a whole in his 1950 statements in North America. What the Gilgit case demonstrates is that J&K State’s descent into a legal condition of ownerless anarchy open to “Military Decision” had begun even before the Pakistani invasion of 22 October 1947 (viz. “Solving Kashmir”, The Statesman, 1-3 December 2005). Also, whatever else the British said or did with respect to J & K, they were closely allied to the new Pakistan on the matter of Gilgit.

The peak of Pakistan’s Anglo-American alliance came with the enormous support in the 1980s to guerrilla forces created and headquartered in Peshawar, to battle the USSR and Afghan communists directly across the Durand Line. It was this guerrilla war which became a proximate cause of the collapse of the USSR as a political entity in 1991. President Ronald Reagan’s CIA chief William J. Casey sent vast sums in 1985-1988 to supply and train these guerrillas. The Washington Post and New Yorker reported the CIA training guerrillas “in the use of mortars, rocket grenades, ground-to-air missiles”. 200 hand-held Stinger missiles were supplied for the first time in 1986 and the New Yorker reported Gulbudin Hikmatyar’s “Hizbe Islami” guerrillas being trained to bring down Soviet aircraft. “Mujahideen had been promised two Stingers for every Soviet aircraft brought down. Operators who failed to aim correctly were given additional training… By 1986, the United States was so deeply involved in the Afghan war that Soviet aircraft were being brought down under the supervision of American experts”. (Raja Anwar, The Tragedy of Afghanistan, 1988, p. 234).

The budding US-China détente brokered by Pakistan came into full bloom here. NBC News on 7 January 1980 said “for the first time in history (a senior State Department official) publicly admitted the possibility of concluding a military alliance between the United States and China”. London’s Daily Telegraph reported on 5 January 1980 “China is flying large supplies of arms and ammunition to the insurgents in Afghanistan. According to diplomatic reports, supplies have arrived in Pakistan from China via the Karakoram Highway…. A major build-up of Chinese involvement is underway ~ in the past few days. Scores of Chinese instructors have arrived at the Shola-e-Javed camps.”

Afghan reports in 1983-1985 said “there were eight training camps near the Afghan border operated by the Chinese in Sinkiang province” and that China had supplied the guerrillas “with a variety of weapons including 40,000 RPG-7 and 20,000 RPG-II anti tank rocket launchers.” Like Pakistan, “China did not publicly admit its involvement in the Afghan conflict: in 1985 the Chinese Mission at the UN distributed a letter denying that China was extending any kind of help to the Afghan rebels” (Anwar, ibid. p. 234). Support extended deep and wide across the Arab world. “The Saudi and Gulf rulers … became the financial patrons of the Afghan rebels from the very start of the conflict”. Anwar Sadat, having won the Nobel Peace Prize, was “keen to claim credit for his role in Afghanistan…. by joining the Afghanistan jihad, Sadat could re-establish his Islamic credentials, or so he believed. He could thus not only please the Muslim nations but also place the USA and Israel in his debt.” Sadat’s Defence Minister said in January 1980: “Army camps have been opened for the training of Afghan rebels; they are being supplied with weapons from Egypt” and Sadat told NBC News on 22 September 1981 “that for the last twenty-one months, the USA had been buying arms from Egypt for the Afghan rebels. He said he had been approached by the USA in December 1979 and he had decided to `open my stores’. He further disclosed that these arms were being flown to Pakistan from Egypt by American aircraft. Egypt had vast supplies of SAM-7 and RPG-7 anti-aircraft and anti-tank weapons which Sadat agreed to supply to Afghanistan in exchange for new American arms. The Soviet weapons, being light, were ideally suited to guerrilla warfare. … the Mujahideen could easily claim to have captured them from Soviet and Afghan troops in battle.… Khomeini’s Iran got embroiled in war (against Iraq) otherwise Kabul would also have had to contend with the full might of the Islamic revolutionaries.” (Anwar ibid. p. 235).

Afghanistan had been occupied on 26-27 December 1979 by Soviet forces sent by the decrepit Leonid Brezhnev and Yuri Andropov to carry out a putsch replacing one communist, Hafizullah Amin, with a rival communist and Soviet protégé, Babrak Karmal. By 1985 Brezhnev and Andropov were dead and Mikhail Sergeyevich Gorbachev had begun his attempts to reform the Soviet system, usher in openness, end the Cold War and in particular withdraw from Afghanistan, which by 1986 he had termed “a bleeding wound”. Gorbachev replaced Karmal with a new protégé Najibullah Khan, who was assigned the impossible task of bringing about national reconciliation with the Pakistan-based guerrillas and form a national government. Soviet forces withdrew from Afghanistan in February 1989 having lost 14,500 dead, while more than a million Afghans had been killed since the invasion a decade earlier.

Not long after Russia’s Bolshevik Revolution, Gregory Zinoviev had said that international communism “turns today to the peoples of the East and says to them, `Brothers, we summon you to a Holy War first of all against British imperialism!’ At this there were cries of Jehad! Jehad! And much brandishing of picturesque Oriental weapons.” (Treadgold, Twentieth Century Russia, 1990, p. 213). Now instead, the Afghan misadventure had contributed to the collapse of the Soviet Empire itself, the USSR ceasing to be a political entity by 1991, and even Gorbachev being displaced by Boris Yeltsin and later Vladimir Putin in a new Russia.

What resulted for the people of the USA and Britain and the West in general was that they no longer had to live under threat of hostile Soviet tanks and missiles, while the people of Russia, Ukraine and the other erstwhile Soviet republics as well as Eastern Europe were able to throw off the yoke of communism that had oppressed them since the Bolshevik Revolution and instead to breathe the air of freedom.

What happened to the people of Afghanistan, however, was that they were plunged into further ghastly civil war for more than ten years. And what happened to the people of Pakistan was that their country was left resembling a gigantic Islamist military camp, awash with airfields, arms, ammunition and trained guerrillas, as well as a military establishment enlivened as always by perpetual hope that these supplies, provisions and personnel of war might find alternative use in attacks against India over J& K. “We helped you when you wished to see the Soviet Union defeated and withdrawing in Afghanistan”, Pakistan’s generals and diplomats pleaded with the Americans and British, “now you must help us in our wish to see India defeated and withdrawing in Kashmir”. Pakistan’s leaders even believed that just as the Soviet Union had disintegrated afterwards, the Indian Union perhaps might be made to do the same. Not only were the two cases as different as chalk from cheese, Palmerstone’s dictum there are no permanent allies in the politics of nations could not have found more apt use than in what actually came to take place next.

Pakistan’s generals and diplomats felt betrayed by the loss of Anglo-American paternalism towards them after 1989.

Modern Pakistanis had never felt they subscribed to the Indian nationalist movement culminating in independence in August 1947. The Pakistani state now finally declared its independence in the world by exploding bombs in a nuclear arsenal secretly created with help purchased from China and North Korea. Pakistan’s leaders thus came to feel in some control of Pakistan’s destiny as a nation-state for the first time, more than fifty years after Pakistan’s formal creation in 1947. If nothing else, at least they had the Bomb.

Secondly, America and its allies would not be safe for long since the civil war they had left behind in Afghanistan while trying to defeat the USSR now became a brew from which arose a new threat of violent Islamism. Osama bin Laden and the Taliban, whom Pakistan’s military and the USA had promoted, now encouraged unprecedented attacks on the American mainland on September 11 2001 ~ causing physical and psychological damage which no Soviet, Chinese or Cuban missiles ever had been allowed to do. In response, America attacked and removed the Taliban regime in Afghanistan, once again receiving the cooperative use of Pakistani manpower and real estate ~ except now there was no longer any truck with the Pakistani establishment’s wish for a quid pro quo of Anglo-American support against India on J&K. Pakistan’s generals and diplomats soon realised their Anglo-American alliance of more than a half-century ended on September 11 2001. Their new cooperation was in killing or arresting and handing over fellow-Muslims and necessarily lacked their earlier feelings of subservience and ingratiation towards the Americans and British, and came to be done instead under at least some duress. No benefit could be reaped any more in the fight against India over Jammu & Kashmir. An era had ended in the subcontinent.

FIVE

WHAT TO TELL MUSHARRAF: PEACE IS IMPOSSIBLE WITHOUT NON-AGGRESSIVE PAKISTANI INTENTIONS by Subroto Roy, First published in The Statesman December 15 2006 Editorial Page Special Article, www.thestatesman.net

In June 1989 a project at an American university involving Pakistani and other scholars, including one Indian, led to the book Foundations of Pakistan’s Political Economy: Towards an Agenda for the 1990s published in Karachi, New Delhi and elsewhere. The book reached Nawaz Sharif and the Islamabad elite, and General Musharraf’s current proposal on J&K, endorsed warmly by the US State Department last week, derives from the last paragraph of its editorial introduction: “Kashmir… must be demilitarised and unified by both countries sooner or later, and it must be done without force. There has been enough needless bloodshed on the subcontinent… Modern Pakistanis and Indians are free peoples who can voluntarily agree in their own interests to alter the terms set hurriedly by Attlee or Mountbatten in the Indian Independence Act 1947. Nobody but we ourselves keeps us prisoners of superficial definitions of who we are or might be. The subcontinent could evolve its political identity over a period of time on the pattern of Western Europe, with open borders and (common) tariffs to the outside world, with the free movement of people, capital, ideas and culture. Large armed forces could be reduced and transformed in a manner that would enhance the security of each nation. The real and peaceful economic revolution of the masses of the subcontinent would then be able to begin.”

The editors as economists decried the waste of resources involved in the Pakistan-India confrontation, saying it had “greatly impoverished the general budgets of both Pakistan and India. If it has benefited important sections of the political and military elites of  both countries, it has done so only at the expense of the general welfare of the masses.”

International law

Such words may have been bold in the early 1990s but today, a decade and a half later, they seem incomplete and rather naïve even to their author, who was myself, the only Indian in that project. Most significantly, the position in international law in the context of historical facts had been wholly neglected. So had been the manifest nature of the contemporary Pakistani state.

Jammu & Kashmir became an entity in international law when the Treaty of Amritsar was signed between Gulab Singh and the British on March 16 1846. British India itself became an entity in international law much later, possibly as late as June 1919 when it signed the Treaty of Versailles. As for Pakistan, it had no existence in world history or international law until August 14 1947, when the British created it as a new entity out of certain demarcated areas of British India and gave it the status of a Dominion. British India dissolved itself on August 15 1947 and the Dominion of India became its successor-state in international law on that date. As BR Ambedkar pointed out at the time, the new India automatically inherited British India’s suzerainty over any and all remaining “princely” states of so-called “Indian India”. In case of J&K in particular, there never was any question of it being recognised as an independent entity in global international law.

The new Pakistan, by entering a Standstill Agreement with J&K as of August 15 1947, did locally recognise J&K’s sovereignty over its decision whether to join Pakistan or India. But this Pakistani recognition lasted only until the attack on J&K that commenced from Pakistani territory as of October 22 1947, an attack in which Pakistani forces were complicit (something which, in different and mutating senses, has continued ever since). The Dominion of India had indicated it might have consented if J&K’s Ruler had decided to accede to Pakistan in the weeks following the dissolution of British India. But no such thing happened: what did happen was the descent of J&K into a condition of legal anarchy.

Beginning with the Pakistani attack on J&K as of October 22 upto and including the Rape of Baramulla and the British-led Pakistani coup détat in Gilgit on one side, and the arrival of Indian forces as well as mobilization by Sheikh Abdullah and Bakshi Ghulam Mohammad of J&K’s civilians to repel the Pakistani invaders on the other side, the State of Jammu & Kashmir became an ownerless entity in international law. In Roman Law, from which all modern international and municipal law ultimately derives, the ownership of an ownerless entity is open to be determined by “military decision”. The January 1949 Ceasefire Line that came to be renamed the Line of Control after the 1971 Bangladesh War, demarcates the respective territories that the then-Dominions and later Republics of India and Pakistan acquired by “military decision” of the erstwhile State of J&K which had come to cease to exist.

What the Republic of India means by saying today that boundaries cannot be redrawn nor any populations forcibly transferred is quite simply that the division of erstwhile J&K territory is permanent, and that sovereignty over it is indivisible. It is only sheer ignorance on the part of General Musharraf’s Indian interviewer the other day which caused it to be said that Pakistan was willing to “give up” its claim on erstwhile J&K State territory which India has held: Pakistan has never had nor even made such a  claim in international law. What Pakistan has claimed is that India has been an occupier and that there are many people inhabiting the Indian area who may not wish to be Indian nationals and who are being compelled against their will to remain so ~  forgetting to add that precisely the same could be said likewise of the Pakistani-held area.

Accordingly, the lawful solution proposed in these pages a year ago to resolve that matter, serious as it is, has been that the Republic of India invite every person covered under Article 370, citizen-by- citizen, under a condition of full information, to privately and without fear decide, if he/she has not done so already, between possible Indian, Iranian, Afghan or Pakistani nationalities ~ granting rights and obligations of permanent residents to any of those persons who may choose for whatever private reason not to remain Indian nationals. If Pakistan acted likewise, the problem of J&K would indeed come to be resolved. The Americans, as self- appointed mediators, have said they wish “the people of the region to have a voice” in a solution: there can be no better expression of such voice than allowing individuals to privately choose their own nationalities and their rights and responsibilities accordingly. The issue of territorial sovereignty is logically distinct from that of the choice of nationality by individual inhabitants.

Military de-escalation

Equally significant though in assessing whether General Musharraf’s proposal is an  anachronism, is Pakistan’s history since 1947: through Ayub’s 1965 attack, the civil war and secession of Bangladesh, the Afghan war and growth of the ISI, the Kargil incursion, the 1999 coup détat, and, once or twice removed, the 9/11 attacks against America. It is not a history that allows any confidence to arise in Indians that we are not dealing with a country misgoverned by a tiny arrogant exploitative military elite who remain hell-bent on aggression against us. Like the USA and USSR twenty years ago, what we need to negotiate about, and negotiate hard about, is an overall mutual military drawdown and de-escalation appropriate to lack of aggressive intent on both sides. Is General Musharraf willing to discuss that? It would involve reciprocal verifiable assessment of one another’s reasonable military requirements on the assumption that each was not a threatening enemy of the other. That was how the USA-USSR drawdown and de-escalation occurred successfully. If General Musharraf is unwilling to enter such a discussion, there is hardly anything to talk about with him. We should wait for democracy to return.

SIX

“AN INDIAN REPLY TO PRESIDENT ZARDARI: REWARDING PAKISTAN FOR BAD BEHAVIOUR LEADS TO SCHIZOPHRENIC RELATIONSHIPS”

by Subroto Roy, December 17 2008

Pakistan President Asif Ali Zardari’s recent argument in the New York Times resembles closely the well-known publications of his ambassador to the United States, Mr Husain Haqqani. Unfortunately, this Zardari-Haqqani thesis about Pakistan’s current predicament in the world and the world’s predicament with Pakistan is shot through with clear factual and logical errors. These need to be aired because true or useful conclusions cannot be reached from mistaken premises or faulty reasoning.

1. Origins of Pakistan, India, J&K, and their mutual problems

Mr Zardari makes the following seemingly innocuous statement:

“…. the two great nations of Pakistan and India, born together from the same revolution and mandate in 1947, must continue to move forward with the peace process.”

Now as a matter of simple historical fact, the current entities in the world system known as India and Pakistan were not “born together from the same revolution and mandate in 1947”. It is palpably false to suppose they were and Pakistanis indulge in wishful thinking and self-deception about their own political history if they suppose this.

India’s Republic arose out of the British Dominion known as “India” which was the legal successor of the entity known previously in international law as “British India”. British India had had secular governance and so has had the Indian Republic.

By contrast, the Islamic Republic of Pakistan arose out of a newly created state in international law known as the British Dominion of Pakistan, consisting of designated territory carved out of British India by a British decision and coming into existence one day before British India extinguished itself. (Another new state, Bangladesh, later seceded from Pakistan.)

The British decision to create territory designated “Pakistan” had nothing to do with any anti-British “revolution” or “mandate” supported by any Pakistani nationalism because there was none. (Rahmat Ali’s anti-Hindu pamphleteering in London could be hardly considered Pakistani nationalism against British rule. Khan Abdul Ghaffar Khan’s Pashtun patriots saw themselves as Indian, not Pakistani.)

To the contrary, the British decision had to do with a small number of elite Pakistanis — MA Jinnah foremost among them — demanding not to be part of the general Indian nationalist movement that had been demanding a British departure from power in the subcontinent. Jinnah’s separatist party, the Muslim League, was trounced in the 1937 provincial elections in all the Muslim-majority areas of British India that would eventually become Pakistan. Despite this, in September 1939, Britain, at war with Nazi Germany, chose to elevate the political power of Jinnah and his League to parity with the general Indian nationalist movement led by MK Gandhi. (See, Francis Robinson, in William James and Subroto Roy (eds), Foundations of Pakistan’s Political Economy: Towards an Agenda for the 1990s.) Britain needed India’s mostly Muslim infantry-divisions — the progenitors of the present-day Pakistan Army — and if that meant tilting towards a risky political idea of “Pakistan” in due course, so it would be. The thesis that Pakistan arose from any kind of “revolution” or “mandate” in 1947 is fantasy — the Muslim super-elite that invented and endorsed the Pakistan idea flew from Delhi to Karachi in chartered BOAC Dakotas, caring not a hoot about the vulnerability of ordinary Muslim masses to Sikh and Hindu majority wrath and retaliation on the ground.

Modern India succeeded to the rights and obligations of British India in international law, and has had a recognized existence as a state since at least the signing of the Armistice and Treaty of Versailles in 1918-1919. India was a founding member of the United Nations, being a signatory of the 1945 San Francisco Declaration, and an original member of the Bretton Woods institutions. An idea put forward by Argentina that as of 1947 India and Pakistan were both successor states of British India was rejected by the UN (Argentina withdrew its own suggestion), and it was universally acknowledged India was already a member of the UN while Pakistan would have to (and did) apply afresh for membership as a newly created state in the UN. Pakistan’s entry into the UN had the enthusiastic backing of India and was opposed by only one existing UN member, Afghanistan, due to a conflict that continues to this day over the legitimacy of the Durand Line that bifurcated the Pashtun areas.

Such a review of elementary historical facts and the position in law of Pakistan and India is far from being of merely pedantic interest today. Rather, it goes directly to the logical roots of the conflict over the erstwhile State of Jammu and Kashmir (J&K) — a state that itself originated as an entity in the world system a full century before Pakistan was to do so and more than half a century before British India did, but which would collapse into anarchy and civil war in 1947-1949.

Britain (or England) had been a major nation-state in the world system recognized since Grotius first outlined modern international law. On March 16 1846, Britain entered into a treaty, the Treaty of Amritsar, with one Gulab Singh, and the “State of Jammu & Kashmir” came to arise as a recognizable entity in international law for the first time. (See my “History of Jammu and Kashmir” published in The Statesman, Oct 29-30 2006, available elsewhere here.)

Jammu & Kashmir continued in orderly existence as a state until it crashed into legal and political anarchy and civil war a century later. The new Pakistan had entered into a “Standstill Agreement” with the State of Jammu & Kashmir as of August 15 1947. On or about October 22 1947, Pakistan unilaterally ended that Standstill Agreement and instead caused military forces from its territory to attack the State of Jammu & Kashmir along the Mansehra Road towards Baramula and Srinagar, coinciding too with an Anglo-Pakistani coup d’etat in Gilgit and Baltistan (see my “Solving Kashmir”; “Law, Justice & J&K”; “Pakistan’s Allies”, all published in The Statesman in 2005-2006 and available elsewhere here).

The new Pakistan had chosen, in all deliberation, to forswear law, politics and diplomacy and to resort to force of arms instead in trying to acquire J&K for itself via a military decision. It succeeded only partially. Its forces took and then lost both Baramula and Kargil; they may have threatened Leh but did not attempt to take it; they did take and retain Muzaffarabad and Skardu; they were never near taking the summer capital, Srinagar, though might have threatened the winter capital, Jammu.

All in all, a Ceasefire Line came to be demarcated on the military positions as of February 1 1949. After a war in 1971 that accompanied the secession of Bangladesh from Pakistan, that Ceasefire Line came to be renamed the “Line of Control” between Pakistan and India. An ownerless entity may be acquired by force of arms — the erstwhile State of Jammu & Kashmir in 1947-1949 had become an ownerless entity that had been dismembered and divided according to military decision following an armed conflict between Pakistan and India. The entity in the world system known as the “State of Jammu & Kashmir” created on March 16 1846 by Gulab Singh’s treaty with the British ceased to exist as of October 22 1947. Pakistan had started the fight over J&K but there is a general rule of conflicts that he who starts a fight does not get to finish it.

Such is the simplest and most practical statement of the history of the current problem. The British, through their own compulsions and imperial pretensions, raised all the talk about a “Lapse of Paramountcy” of the British Crown over the “Native Princes” of “Indian India”, and of how, the “Native Princes” were required to “accede” to either India or Pakistan. This ignored Britain’s own constitutional law. BR Ambedkar pointed out with unsurpassed clarity that no “Lapse of Paramountcy” was possible even for a single logical moment since “Paramountcy” over any “Native Princes” who had not joined India or Pakistan as of August 15 1947, automatically passed from British India to its legal successor, namely, the Dominion of India. It followed that India’s acquiescence was required for any subsequent accession to Pakistan – an acquiescence granted in case of Chitral and denied in case of Junagadh.

What the Republic of India means by saying today that boundaries cannot be redrawn nor any populations forcibly transferred is quite simply that the division of erstwhile J&K territory is permanent, and that sovereignty over it is indivisible. What Pakistan has claimed is that India has been an occupier and that there are many people inhabiting the Indian area who may not wish to be Indian nationals and who are being compelled against their will to remain so ~ forgetting to add that precisely the same could be said likewise of the Pakistani-held area. The lawful solution I proposed in “Solving Kashmir, “Law, Justice and J&K” and other works has been that the Republic of India invite every person covered under its Article 370, citizen-by-citizen, under a condition of full information, to privately and without fear decide, if he/she has not done so already, between possible Indian, Iranian, Afghan or Pakistani nationalities ~ granting rights and obligations of permanent residents to any of those persons who may choose for whatever private reason not to remain Indian nationals. If Pakistan acted likewise, the problem of J&K would indeed come to be resolved. The Americans, as self-appointed mediators, have said they wish “the people of the region to have a voice” in a solution: there can be no better expression of such voice than allowing individuals to privately choose their own nationalities and their rights and responsibilities accordingly. The issue of territorial sovereignty is logically distinct from that of the choice of nationality by individual inhabitants.

2. Benazir’s assassination falsely compared to the Mumbai massacres
Secondly, President Zardari draws a mistaken comparison between the assassination last year of his wife, Benazir Bhutto, and the Mumbai massacres a few weeks ago. Ms Bhutto’s assassination may resemble more closely the assassinations in India of Indira Gandhi in 1984 and Rajiv Gandhi in 1991.

Indira Gandhi died in “blowback” from the unrest she and her younger son and others in their party had opportunistically fomented among Sikh fundamentalists and sectarians since the late 1970s. Rajiv Gandhi died in “blowback” from an erroneous imperialistic foreign policy that he, as Prime Minister, had been induced to make by jingoistic Indian diplomats, a move that got India’s military needlessly involved in the then-nascent Sri Lankan civil war. Benazir Bhutto similarly may be seen to have died in “blowback” from her own political activity as prime minister and opposition leader since the late 1980s, including her own encouragement of Muslim fundamentalist forces. Certainly in all three cases, as in all assassinations, there were lapses of security too and imprudent political judgments made that contributed to the tragic outcomes.

Ms Bhutto’s assassination has next to nothing to do with the Mumbai massacres, besides the fact the perpetrators in both cases were Pakistani terrorists. President Zardari saying he himself has lost his wife to terrorism is true but not relevant to the proper diagnosis of the Mumbai massacres or to Pakistan-India relations in general. Rather, it serves to deflect criticism and condemnation of the Pakistani state’s pampered handing of Pakistan’s terrorist masterminds, as well as the gross irresponsibility of Pakistan’s military scientists (not AQ Khan) who have been recently advocating a nuclear first strike against India in the event of war.

3. Can any religious nation-state be viable in the modern world?

President Zardari’s article says:

“The world worked to exploit religion against the Soviet Union in Afghanistan by empowering the most fanatic extremists as an instrument of destruction of a superpower. The strategy worked, but its legacy was the creation of an extremist militia with its own dynamic.”

This may be overly simplistic. As pointed out in my article “Pakistan’s Allies”, Gregory Zinoviev himself after the Bolshevik Revolution had declared that international communism “turns today to the peoples of the East and says to them, ‘Brothers, we summon you to a Holy War first of all against British imperialism!’ At this there were cries of Jehad! Jehad! And much brandishing of picturesque Oriental weapons.” (Treadgold, Twentieth Century Russia, 1990, p. 213). For more than half of the 20th century, orthodox Muslims had been used by Soviet communists against British imperialism, then by the British and Americans (through Pakistan) against Soviet communism. Touché! Blowback and counter-blowback! The real question that arises from this today may be why orthodox Muslims have allowed themselves to be used either way by outside forces and have failed in developing a modern nation-state and political culture of their own. Europe and America only settled down politically after their religious wars were over. Perhaps no religious nation-state is viable in the modern world.

4. Pakistan’s behaviour leads to schizophrenia in international relations

President Zardari pleads for, or perhaps demands, resources from the world:

“the best response to the Mumbai carnage is to coordinate in counteracting the scourge of terrorism. The world must act to strengthen Pakistan’s economy and democracy, help us build civil society and provide us with the law enforcement and counterterrorism capacities that will enable us to fight the terrorists effectively.”

Six million pounds from Mr Gordon Brown, so much from here or there etc – President Zardari has apparently demanded 100 billion dollars from America and that is the price being talked about for Pakistan to dismantle its nuclear weapons and be brought under an American “nuclear umbrella” instead.

I have pointed out elsewhere that what Pakistan seems to have been doing in international relations for decades is send out “mixed messages” – i.e. contradictory signals, whether in thought, word or deed. Clinical psychologists following the work of Gregory Bateson would say this leads to confusion among Pakistan’s interlocutors (a “double bind”) and the symptoms arise of what may be found in schizophrenic relationships. (See my article “Do President-elect Obama’s Pakistan specialists believe…”; on the “double bind” theory, an article I chanced to publish in the Journal of Genetic Psychology, 1986, may be of interest).

Here are a typical set of “mixed messages” emanating from Pakistan’s government and opinion-makers:

“We have nuclear weapons
“We keep our nuclear weapons safe from any misuse or unauthorized use
“We are willing to use nuclear weapons in a first strike against India
“We do not comprehend the lessons of Hiroshima-Nagasaki
“We do not comprehend the destruction India will visit upon us if we strike them
“We are dangerous so we must not be threatened in any way
“We are peace-loving and want to live in peace with India and Afghanistan
“We love to play cricket with India and watch Bollywood movies
“We love our Pakistan Army as it is one public institution that works
“We know the Pakistan Army has backed armed militias against India in the past
“We know these militias have caused terrorist attacks
“We are not responsible for any terrorist attacks
“We do not harbour any terrorists
“We believe the world should pay us to not use or sell our nuclear weapons
“We believe the world should pay us to not encourage the terrorists in our country
“We believe the world should pay us to prevent terrorists from using our nuclear weapons
“We hate India and do not want to become like India
“We love India and want to become like India
“We are India and we are not India…”

Etc.

A mature rational responsible and self-confident Pakistan would have said instead:

“We apologise to India and other countries for the outrageous murders our nationals have committed in Mumbai and elsewhere
“We ask the world to watch how our professional army is deployed to disarm civilian and all “non-state” actors of unauthorized firearms and explosives
“We do not need and will not demand or accept a dollar in any sort of foreign aid, military or civilian, to solve our problems
“We realize our economic and political institutions are a mess and we must clean them up
“We will strive to build a society imbued with what Iqbal described as the spirit of modern times..”

As someone who created at great personal cost at an American university twenty years ago the book Foundations of Pakistan’s Political Economy: Towards an Agenda for the 1990s, I have a special interest in hoping that Pakistan shall find the path of wisdom.”

My choices dated Oct 11 for the 2009 “Economics Nobel Prize”

From Facebook:

Subroto Roy announces that if he was awarding the 2009 “Economics Nobel” it would go to Frank Horace Hahn and Anna Jacobson Schwartz: each for a lifetime of contributions to economic theory and monetary economics specifically relevant to the macroeconomic crises of recent years….Hahn’s Non-Walrasian theory provides a logic to what has happened; Schwartz predicted it and has diagnosed it better than anyone else.

Certainly the appalling state of academic economics is manifest in the self-written self-serving Wikipedia entries of the many Elmer & Mrs Fudd Professors of Gobbledygook at Ivy U…. all in the hope of getting noticed by the bookies in England quoting odds… and thereby considering themselves Nobel hopefuls…. (“has been mentioned as a possible winner…”)…

My book “Philosophy of Economics” on the Internet

America has yet to play the demographic card: a few million new immigrants would happily buy up all those bad mortgages

From Facebook:

Mr Tim Cavanaugh’s clear-headed criticism of a principal government economist’s waffle seems to me apt and exactly on target. E.g. he says: “The real purpose here is Panglossian: to convince you that whatever Power does is the right thing to do, and to discredit the idea that government should ever again reduce its presence in the private sector.”

In an article dated Sep 18 2008 titled “October 1929? Not!”, I argued “that the American economy and the world economy are both incomparably larger today in the value of their capital stock, and there has also been enormous technological progress over eight decades. Accordingly, it would take a much vaster event than the present turbulence — say, something like an exchange of multiple nuclear warheads with Russia causing Manhattan and the City of London to be destroyed — before there was a return to something comparable to the 1929 Crash and the Great Depression that followed.” A few weeks later in “America’s divided economists” I said

“Beyond the short run, the US may play the demographic card by inviting in a few million new immigrants (if nativist feelings hostile to the outsider or newcomer can be controlled, especially in employment). Bad mortgages and foreclosures would vanish as people from around the world who long to live in America buy up all those empty houses and apartments, even in the most desolate or dismal locations. If the US’s housing supply curve has moved so far to the right that the equilibrium price has gone to near zero, the surest way to raise the equilibrium price would be by causing a new wave of immigration leading to a new demand curve arising at a higher level. Such proposals seek to address the problem at its source. They might have been expected from the Fed’s economists. Instead, ESSA speaks of massive government purchase and control of bad assets “downriver”, without any attempt to face the problem at its source. This makes it merely wishful to think such assets can be sold for a profit at a later date so taxpayers will eventually gain. It is as likely as not the bad assets remain bad assets.”

Restoring a worldwide idea of an American dream fuelled by mass immigration may be the surest way for the American economy to restore itself. America was at its best when it was open to mass immigration, and America is at its worst when it treats immigrants with racism and worse.

My One-Semester Microeconomics (Theory of Value) Course for Graduate Engineers Planning to Become MBAs

For a half dozen or so years from about 1996 onwards, I taught graduate engineers  a course on microeconomic theory  as part of an MBA syllabus.   The level would have been that of Varian’s undergraduate text as well as, where possible, Henderson & Quandt’s intermediate text (Postscript: and, I now recall, a little of Arrow & Hahn Chapter 2 if there was time).   It was quite successful as most students were very serious and had a more than adequate mathematical background.

Subroto Roy

Kolkata

Exchange, utility analysis and theory of demand

Rational decisions as constrained optimization

Theory of the firm, technology, profit-maximization, cost-minimization, cost curves

Market equilibrium under competitive conditions

Pricing under Monopoly, Oligopoly

Theory of games

Inter-temporal decision-making

Asset markets : arbitrage and present value

Decision-making under uncertainty

Mean-variance analysis : equilibrium in a market for risky assets

Q: What is common to swine flu, a weak monsoon, climate change, America’s financial crisis and Pakistani terrorism?

A: They are all external or exogenous factors that the Government of India’s leaders, spokesmen and other apologists adduce to explain away endogenous economic outcomes arising from bad fiscal and monetary policies, pork-barrel politics, lobbying by organised Big Business and Big Labour, political and bureaucratic corruption etc.  (And the Parliamentary Opposition is hardly any better, probably worse…)

More to come…

Subroto Roy, Kolkata

Thoughts, words, deeds: My work 1973-2010

Thoughts, words, deeds

My work 1973-2010

Subroto Roy

This is an incomplete bibliography of my writings, public lectures etc 1973-2010 including citations, reviews, comments.  I have been mostly an academic economist who by choice or circumstance over 36 years has had to venture also into science, philosophy, public policy, law, jurisprudence, practical politics, history, international relations, military strategy, financial theory, accounting, management, journalism, literary criticism, psychology, psychoanalysis, theology, aesthetics, biography, children’s fables, etc.   If anything unites the seemingly diverse work recorded below it is that I have tried to acquire a grasp of the nature of human reason and then apply this comprehension in practical contexts as simply and clearly as possible. Hence I have ended up following the path of Aristotle, as described in modern times (via Wittgenstein and John Wisdom) by Renford Bambrough.  The 2004 public lecture in England, “Science, Religion, Art & the Necessity of Freedom”, may explain and illustrate all this best.  A friend has been kind enough to call me an Academician, which I probably am, though one who really needs his own Academy because the incompetence, greed and mendacity encountered too often in the modern professoriat is dispiriting.

1-289 refer mostly to writings and publications printed on paper; 290-382 refer to  writings or items not printed on paper — as new media break space, cost and other  constraints of traditional publishing, a little repetition and overlap has occurred too. Also in a few cases, e.g., Aldous Huxley’s essay on DH Lawrence, nothing has been done except discover and republish.  Several databases have been created and released in the public interest, as have been some rare maps.  There is also some biographical and autobiographical material.  Several inconsequential errors remain in the text, which shall take time to be rectified as documents come to be rediscovered and collated.

1973

1. “Behavioural study of mus musculus”, Haileybury College, Supervised by J de C Ford-Robertson MA (Oxon). (Due to be published here 2010).

2. “Chemistry at Advanced & Special Level: Student Notes 1972-73” (Due to be published here 2010).

3. “Biology at Advanced & Special Level: Student Notes 1972-73”, (Due to be published here 2010).

4.  “Physics at Advanced Level: Student Notes 1972-73”, (Due to be published here 2010).

5. “Revolution: theoria and praxis”, London, mimeo (Due to be published here 2010).

6. “Gandhi vs Marx”, London, mimeo (Due to be published here 2010).

1974

7. “Relevance of downward money-wage rigidity to the problem of maintaining full-employment in the classical and Keynesian models of income determination”, London School of Economics, mimeo (Due to be published here 2010).

8. “Testing aircraft fuels at Shell Finland”.

1975

9. “Oxford Street experiences: down and out in London town”.

10. “SE Region Bulk Distribution Survey”, Unilever, Basingstoke.

11. “Four London poems”, in JCM Paton (ed)  New Writing (London, Great Portland Street: International Students House).  (Due to be republished here 2010)

12. “On economic growth models and modellers”, London School of Economics, mimeo. (Due to be published here 2010).

1976

13. “World money: system or anarchy?”, lecture to Professor ACL Day’s seminar, London School of Economics, Economics Department, April. (Due to be published here 2010).

14. “A beginner’s guide to some recent developments in monetary theory”, lecture to Professor FH Hahn’s seminar, Cambridge University Economics Department, November 17 (Due to be published here 2010). See also “Announcement of My “Hahn Seminar”,  published here June 14 2008.

1977

15. “Inflation and unemployment: a survey”, mimeo, Fitzwilliam College, Cambridge. (Due to be published here 2010).

16. “On short run theories of dual economies”, Cambridge University Economics Department “substantial piece of work” required of first year Research Students.  Examiner: DMG Newbery, FBA. (Due to be published here 2010).

1978

17. “Pure theory of developing economies 1 and 2”, Delhi School of Economics mimeo (Due to be published here 2010).

18. “Introduction to some market outcomes under uncertainty”, Delhi School of Economics mimeo (Due to be published here 2010).

19. “On money and development”, Corpus Christi College, Cambridge, mimeo, September.  (Due to be published here 2010)

20. “Notes on the Newbery-Stiglitz model of sharecropping”, Corpus Christi College, Cambridge, mimeo November.  (Due to be published here 2010).

1979

21. “A theory of rights and economic justice”, Corpus Christi College Cambridge mimeo. (Due to be published here 2010).

22. “Monetary theory and economic development”, Corpus Christi College Cambridge, mimeo  (Due to be published here 2010).

23. “Foundations of the case against ‘development planning’”, Corpus Christi College Cambridge, mimeo, November.   (Due to be published here 2010).

1979-1989

24. Correspondence with Renford Bambrough (1926-1999), philosopher of St John’s College, Cambridge (Due to be published here 2010).

1980

25. “Models before the monetarist storm”, New Statesman letters

26. “Disciplining rulers and experts”, Corpus Christi College, Cambridge, mimeo.  (Due to be published here 2010).

1981

27. “On liberty & economic growth: preface to a philosophy for India”, Cambridge University doctoral thesis, supervisor FH Hahn, FBA; examiners CJ Bliss, FBA; TW Hutchison, FBA  (Due to be published here 2010). 27a Response of FA Hayek on a partial draft February 18 1981.  27b Response of Peter Bauer, 1982.  27c Response of Theodore W Schultz, 1983.  27d. Response of Frank Hahn 1985.

1982

28. “Knowledge and freedom in economic theory Parts 1 and 2”, Centre for Study of Public Choice, Virginia Polytechnic Institute & State University, Working Papers.

29. “Economic Theory and Development Economics”. Lecture to American Economic Association, New York, Dec 1982.  Panel: RM Solow, HB Chenery, T Weisskopf, P Streeten, G Rosen, S Roy. Published in 29a.

1983

29a “Economic Theory and Development Economics: A Comment”. World Development, 1983. [Citation: Stavros Thefanides "Metamorphosis of Development Economics", World Development 1988.]

30. “The Political Economy of Trade Policy (Comment on J. Michael Finger)”, Washington DC: Cato Journal, Winter 1983/84. See also 000 “Risk-aversion explains resistance to freer trade”, 2008.

1984

31. “Considerations on Utility, Benevolence and Taxation”, History of Political Economy, 1984.   31a Response of Professor Sir John Hicks May 1 1984.

[Citations: P. Hennipman, "A Tale of Two Schools", De Economist 1987, "A New Look at the Ordinalist Revolution", J. Econ. Lit. Mar 1988; P. Rappoport, "Reply to Professor Hennipman", J. Econ. Lit. Mar 1988; Eugene Smolensky et al "An Application of A Dynamic Cost-of-Living Index to the Evaluation of Changes in Social Welfare", J. Post-Keynesian Econ.IX.3. 1987.]

32. Pricing, Planning and Politics: A Study of Economic Distortions in India, London: Institute of Economic Affairs, London 1984.

[Citations: Lead editorial of The Times of London May 29 1984, “India’s economy”, Times letters June 16 1984. John Toye "Political Economy & Analysis of Indian Development", Modern Asian Studies, 22, 1, 1988; John Toye, Dilemmas of Development; D. Wilson, "Privatization of Asia", The Banker Sep. 1984 etc].  See also 370 “Silver Jubilee of ‘Pricing, Planning and Politics: A Study of Economic Distortions in India’” 2009.

33. Review of Utilitarianism and Beyond, Amartya Sen & Bernard Williams (eds) Public Choice.

34. Review of Limits of Utilitarianism, HB Miller & WH Williams (eds.), Public Choice.

35. Deendayal lecture (one of four invited lecturers), Washington DC, May.

1987

36. (with one other) “Does the Theory of Logical Types Inform the Theory of Communication?”, Journal of Genetic Psychology., 148 (4), Dec. 1987 [Citation:

37. “Irrelevance of Foreign Aid”, India International Centre Quarterly, Winter 1987.

38. Review of Development Planning by Sukhamoy Chakravarty for Economic Affairs, London 1987.

1988

39. (with two others) “Introduction” to Lessons in Development: A Comparative Study of Asia and Latin America. San Francisco: Inst. of Economic Growth.

40. “A note on the welfare economics of regional cooperation”, lecture to Asia-Latin America conference, East West Center Honolulu, published 2009.

1989

41. Philosophy of Economics: On the Scope of Reason in Economic Inquiry, London & New York: Routledge (International Library of Philosophy) 1989, paperback 1991. Internet edition 2007.   [Reviews & Citations: Research in Economics, 1992; De Economist 1991 & 1992; Manch.Sch. Econ.Studs. 59, 1991; Ethics 101.88 Jul. 1991; Kyklos 43.4 1990; Soc. Science Q. 71.880. Dec.1990; Can. Phil. Rev. 1990; J. Econ. Hist. Sep. 1990; Econ. & Phil. Fall 1990; Econ. Affairs June-July 1990; TLS May 1990; Choice March 1990; J. App.Phil. 1994, M. Blaug: Methodology of Economics, 2nd ed., Cambridge, 1992;  Hist. Methods. 27.3, 1994; J. of Inst. & Theoretical Econ.,1994;  Jahrbucker fur Nationaleconomie 1994, 573:574. Mark A Lutz in Economics for the Common Good, London: Routledge, 1999, et al].  See also 339 “Apropos Philosophy of Economics”, Comments of Sidney Hook, KJ Arrow, Milton Friedman, TW Schultz, SS Alexander, Max Black, Renford Bambrough, John Gray et al.

42. Foreword to Essays on the Political Economy by James M. Buchanan, Honolulu: University of Hawaii Press 1989.

43. “Modern Political Economy of India”, edited by Subroto Roy & William E James,  Hawaii mimeo May 21 1989.  This published for the first time a November 1955 memorandum to the Government of India by Milton Friedman.  See also 43a, 53.

43a. Preface to “Milton Friedman’s extempore comments at the 1989 Hawaii conference: on India, Israel, Palestine, the USA, Debt and its uses, Erhardt abolishing exchange controls, Etc”,  May 22 1989, published here for the first time October 31 2008.

44. Milton Friedman’s defence of my work  in 1989.

45. Theodore W. Schultz’s defence of Philosophy of Economics

1990

46. “Letter to Judge Evelyn Lance: On A Case Study in Private International Law” (Due to be published here in 2010).

47-49. Selections from advisory work on economic policy etc for Rajiv Gandhi, Leader of the Opposition in the Parliament of India,  published in 47a-49a.

1991

41b Philosophy of Economics: On the Scope of Reason in Economic Inquiry, Paperback edition.

50. “Conversations and correspondence with Rajiv Gandhi during the Gulf war, January 1991”   (Due to be published here 2010).

47a. A Memo to Rajiv I:  Stronger Secular Middle”, The Statesman, Jul 31 1991.

48a “A Memo to Rajiv II: Saving India’s Prestige”, The Statesman, Aug 1 1991.

49a “A Memo to Rajiv III: Salvation in Penny Capitalism”, The Statesman, Aug 2 1991  47b-49b “Three Memoranda to Rajiv Gandhi 1990-91”, 2007 republication here.

51. “Constitution for a Second Indian Republic”, The Saturday Statesman, April 20 1991.  Republished here 2009.

52. “On the Art of Government: Experts, Party, Cabinet and Bureaucracy”, New Delhi mimeo March 25 1991, published here July 00 2009.

1992

53. Foundations of India’s Political Economy: Towards an Agenda for the 1990s Edited and with an Introduction by Subroto Roy & William E. James New Delhi, London, Newbury Park: Sage: 1992.   Citation: Milton and Rose Friedman Two Lucky People (Chicago 1998), pp. 268-269.

54. Foundations of Pakistan’s Political Economy: Towards an Agenda for the 1990s Edited and with an Introduction by William E. James & Subroto Roy, Hawaii MS 1989, Sage: 1992, Karachi: Oxford 1993.

Reviews of 53 & 54 include: Bus. Today, Mar-Apr 1992; Political Studies March 1995; Econ Times 21 March 1993; Pakistan Development Review 1992. Hindustan Times 11 July 1992. Pacific Affairs 1993; Hindu 21 March 1993, 15 June 1993; Pakistan News International 12 June 1993. Book Reviews March 1993; Deccan Herald 2 May 1993; Pol.Econ.J. Ind. 1992. Fin Express 13 September 1992;  Statesman 16 Jan. 1993.  J. Royal Soc Asian Aff. 1994, J. Contemporary Asia, 1994 etc.

55. “Fundamental Problems of the Economies of India and Pakistan”, World Bank, Washington, mimeo  (Due to be published here 2010).

56.“The Road to Stagflation: The Coming Dirigisme in America, or, America, beware thy economists!, or Zen and Clintonomics,” Washington DC, Broad Branch Terrace, mimeo, November 17.

1993

57. “Exchange-rates and manufactured exports of South Asia”, IMF Washington DC mimeo.  Published in part in 2007-2008 as 58-62:

58. “Path of the Indian Rupee 1947-1993”, 2008.

59.  “Path of the Pakistan Rupee 1947-1993”, 2008.

60. “Path of the Sri Lankan Rupee 1948-1993”, 2008.

61. “Path of the Bangladesh Taka 1972-1993”, 2008.

62. “India, Pakistan, Sri Lanka, Bangladesh Manufactured Exports, IMF Washington DC mimeo”, published 2007.

63. “Economic Assessment of US-India Merchandise Trade”, Arlington, Virginia, mimeo, published in slight part in Indo-US Trade & Economic Cooperation, ICRIER New Delhi, 1995, and in whole 2007.

64. “Towards an Economic Solution for Kashmir”, mimeo, Arlington, Virginia, circulated in Washington DC 1993-1995, cf 82, 111 infra. Comment of Selig Harrison.

1994

65. “Comment on Indonesia”, in The Political Economy of Policy Reform edited by John Williamson, Washington, DC: Institute for International Economics.

66a “Gold reserves & the gold price in anticipation of Central Bank behaviour”, Greenwich, Connecticut, mimeo. 67b. “Portfolio optimization and foreign currency exposure hedging” Greenwich, Connecticut mimeo.

1995

68. “On the logic and commonsense of debt and payments crises: How to avoid another Mexico in India and Pakistan”, Scarsdale, NY, mimeo, May 1.

69. “Policies for Young India”, Scarsdale, NY, pp. 350, manuscript.

1996

70. US Supreme Court documents, published in part in 2008 as  “Become a US Supreme Court Justice!” 70a, 70b (Due to be published in full here in 2010 as Roy vs University of Hawaii, 1989- including the expert testimonies of Milton Friedman and Theodore W Schultz.).

71. “Key problems of macroeconomic management facing the new Indian Government”, May 17.  Scarsdale, New York, mimeo.  (Due to be published here 2010).

72. “Preventing a collapse of the rupee”, IIT Kharagpur lecture July 16 1996.

73. “The Economist’s Representation of Technological Knowledge”, Vishleshlaya lecture to the Institution of Engineers, September 15 1996, IIT Kharagpur.

1997

74. “Union and State Budgets in India”, lecture at the World Bank, Washington DC, May 00.

75. “State Budgets in India”, IIT Kharagpur mimeo, June 6.

1998

76. “Transparency and Economic Policy-Making:  An address to the Asia-Pacific Public Relations Conference” (panel on Transparency chaired by CR Irani) Jan 30 1998, published here 2008.

77. Theodore W. Schultz 1902-1998,  Feb 25.

78. “The Economic View of Human Resources”, address to a regional conference on human resources, IIT Kharagpur.

79.  “Management accounting”, lecture at Lal Bahadur Shastri Academy, Mussourie,

80a “The Original Reformer”, Outlook letters, Jan 23 1998

81. “Recent Developments in Modern Finance”, IIM Bangalore Review, 10, 1 & 2, Jan.-Jun 1998. Reprinted as “From the Management Guru’s Classroom”: 81a “An introduction to derivatives”, Business Standard/Financial Times, Bombay 18 Apr 1999; 81b “Options in the future, Apr 25 1999; 81c “What is hedging?”, May 2 1999; 81d “Teaching computers to think”, May 9 1999.

82. “Towards an Economic Solution for Kashmir”, Jun 22 1998, lecture at Heritage Foundation, Washington DC.  Cf 111 Dec 2005.

83. “Sixteen Currencies for India: A Reverse Euro Model for Monetary & Fiscal Efficacy”, Lecture at the Institute of  Economic Affairs, London, June 29 1998.  Due to be published here 2010.

84. “Fable of the Fox, the Farmer, and the Would-Be Tailors”, October  (Published here July 27 2009).

85. “A Common Man’s Guide to Pricing Financial Derivatives”, Lecture to “National Seminar on Derivatives”, Xavier Labour Research Institute, Jamshedpur, Dec. 16 1998.   See 98.

1999

86. “An Analysis of Pakistan’s War-Winning Strategy: Are We Ready for This?”, IIT Kharagpur mimeo, published in part as 86a.“Was a Pakistani Grand Strategy Discerned in Time by India?” New Delhi:  Security & Political Risk Analysis Bulletin, July 1999, Kargil issue.  See also 000

80b. “The Original Reformer”, Outlook letters, Sep 13 1999.

2000

87. “On Freedom & the Scientific Point of View”, SN Bose National Centre for Basic Sciences, Feb 17 2000.  Cf 100 below.

88. “Liberalism and Indian economic policy”, lecture at IIM Calcutta,  Indian Liberal Group Meetings Devlali, Hyderabad; also Keynote address to UGC Seminar Guntur, March 30 2002.  (Due to be published here 2010).

89. “Towards a Highly Transparent Fiscal & Monetary Framework for India’s Union & State Governments”, Invited address to Conference of State Finance Secretaries, Reserve Bank of India, Bombay, April 29, 2000.  Published 2008.

90. “On the Economics of Information Technology”, two lectures at the Indian Institute of Information Technology, Bangalore, Nov 10-11, 2000.

91. Review of A New World by Amit Chaudhuri in Literary Criterion, Mysore.

2001

92. Review of AD Shroff: Titan of Finance and Free Enterprise by Sucheta Dalal, Freedom First., January.

93. “Encounter with Rajiv Gandhi: On the Origins of the 1991 Economic Reform”, Freedom First, October. See also 93a in 2005 and  93b in 2007.

94. “A General Theory of Globalization & Modern Terrorism with Special Reference to September 11”, a keynote address to the Council for Asian Liberals & Democrats, Manila, Philippines, 16 Nov. 2001.  Published as 91a.

95. “The Case for and against The Satanic Verses: Diatribe and Dialectic as Art”, Dec 22 republished in print 95a The Statesman Festival Volume, 2006.

2002

94a “A General Theory of Globalization & Modern Terrorism with Special Reference to September 11”, in September 11 & Political Freedom in Asia, eds. Johannen, Smith & Gomez, Singapore 2002.

2002-2010

96. “Recording vivid dreams: Freud’s advice in exploring the Unconscious Mind” (Due to be published here in 2010).

2003

97. “Key principles of government accounting and audit”, IIT Kharagpur mimeo.

98. “Derivative pricing & other topics in financial theory: a student’s complete lecture notes” (Due to be published here in 2010).

2004

99. “Collapse of the Global Conversation”, International Institute for Asian Studies, Leiden, Netherlands, Jul 2004.

100. “Science, Religion, Art & the Necessity of Freedom”, a public lecture, University of Buckingham, UK, August 24 2004.  Published here 2007.

2005

93a Rajiv Gandhi and the Origins of India’s 1991 Economic Reform (this was the full story; it appeared in print for the first time in The Statesman Festival Volume 2007).

101. “Can India become an economic superpower (or will there be a monetary meltdown)?” Cardiff University Institute of Applied Macroeconomics Monetary Economics Seminar, April 13, Institute of Economic Affairs, London, April 27, Reserve Bank of India, Bombay, Chief Economist’s Seminar on Monetary Economics, May 5.

102. Margaret Thatcher’s Revolution: How it Happened and What it Meant, Edited and with an Introduction by Subroto Roy & John Clarke, London & New York: Continuum, 2005; paperback 2006; French translation by Florian Bay, 2007.

103. “Iqbal & Jinnah vs Rahmat Ali in Pakistan’s Creation”, Dawn, Karachi, Sep 3.

104. “The Mitrokhin Archives II from an Indian Perspective: A Review Article”, The Statesman, Perspective Page, Oct 11 .

105. “After the Verdict”, The Statesman, Editorial Page, Oct 20.

106.   “US Espionage Failures”, The Statesman, Perspective Page, Oct 26

107.  “Waffle But No Models of Monetary Policy”, The Statesman, Perspective Page, Oct 30.

108. “On Hindus and Muslims”, The Statesman, Perspective Page, Nov 6.

109. “Assessing Vajpayee: Hindutva True and False”, The Statesman, Editorial Page, Nov  13-14″.

110. “Fiction from the India Economic Summit”, The Statesman, Front Page, Nov 29.

111. “Solving Kashmir: On an Application of Reason”, The Statesman Editorial Page

I.  “Give the Hurriyat et al Indian Green Cards”, Dec 1

II.  “Choice of Nationality under Full Information”, Dec 2

III.  “Of Flags and Consulates in Gilgit etc”, Dec 3.

2006

112. “The Dream Team: A Critique”, The Statesman Editorial Page

I : New Delhi’s Consensus (Manmohantekidambaromics), Jan 6

II: Money, Convertibility, Inflationary Deficit Financing, Jan 7

III:  Rule of Law, Transparency, Government Accounting, Jan 8.

113. “Unaccountable Delhi: India’s Separation of Powers’ Doctrine”, The Statesman, Jan 13.

114. “Communists and Constitutions”, The Statesman, Editorial Page, Jan 22.

115. “Diplomatic Wisdom”, The Statesman, Editorial Page, Jan 31.

116.  “Mendacity & the Government Budget Constraint”, The Statesman, Front Page  Feb 3.

117. “Of Graven Images”, The Statesman, Editorial Page, Feb5.

118. “Separation of Powers, Parts 1-2”, The Statesman, Editorial Pages Feb 12-13.

119. “Public Debt, Government Fantasy”, The Statesman, Front Page Editorial Comment, Feb 22.

120. “War or Peace Parts 1-2”, The Statesman, Editorial Page, Feb 23-24.

121. “Can You Handle This Brief, Mr Chidambaram?” The Statesman, Front Page  Feb 26.

122. “A Downpayment On the Taj Mahal Anyone?”, The Statesman, Front Page  Comment on the Budget 2006-2007, Mar 1.

123. “Atoms for Peace (or War)”, The Sunday Statesman, Editorial Page Mar 5.

124. “Imperialism Redux: Business, Energy, Weapons & Foreign Policy”, The Statesman, Editorial Page, Mar 14.

125.  “Logic of Democracy”,  The Statesman, Editorial Page, Mar 30.

126. “Towards an Energy Policy”, The Sunday Statesman, Editorial Page, Apr 2.

127. “Iran’s Nationalism”, The Statesman, Editorial Page, Apr 6.

128. “A Modern Military”, The Sunday Statesman, Editorial Page, Apr 16.

129.  “On Money & Banking”, The Sunday Statesman, Editorial Page, Apr 23.

130.  “Lessons for India from Nepal’s Revolution”, The Statesman, Front Page Apr 26.

131. “Revisionist Flattery (Inder Malhotra’s Indira Gandhi: A Review Article)”, The Sunday Statesman, May 7.

132. “Modern World History”, The Sunday Statesman Editorial Page, May 7.

133. “Argumentative Indians: A Conversation with Professor Amartya Sen on Philosophy, Identity and Islam,” The Sunday Statesman,  May 14 2006.  “A Philosophical Conversation between Professor Sen and Dr Roy”,  2008.  Translated into Bengali by AA and published in 00.

134. “The Politics of Dr Singh”, The Sunday Statesman, Editorial Page, May 21.

135. “Corporate Governance & the Principal-Agent Problem”, lecture at a conference on corporate governance, Kolkata May 31.  Published here 2008.

136. “Pakistan’s Allies Parts 1-2″, The Sunday Statesman, Editorial Page, Jun 4-5.

137. “Law, Justice and J&K Parts 1-2″, The Sunday Statesman, Editorial Page, Jul 2, The Statesman Editorial Page Jul 3.

138. “The Greatest Pashtun (Khan Abdul Ghaffar Khan)”, The Sunday Statesman, Editorial Page, Jul 16.

139. “Understanding Pakistan Parts 1-2”, The Sunday Statesman, Editorial Page, Jul 30, The Statesman Editorial Page Jul 31.

140.  “Indian Money and Credit”, The Sunday Statesman, Editorial Page, Aug 6.

141.  “India’s Moon Mission”, The Sunday Statesman, Editorial Page,  Aug 13.

142. “Jaswant’s Journeyings: A Review Article”, The Sunday Statesman Magazine, Aug 27.

143. “Our Energy Interests, Parts 1-2”, The Sunday Statesman, Editorial Page, Aug 27, The Statesman Editorial Page Aug 28.

144. “Is Balochistan Doomed?”, The Sunday Statesman, Editorial Page, Sep 3 2006.

145. “Racism New and Old”, The Statesman, Editorial Page, Sep 8 2006

146. “Political Economy of India’s Energy Policy”, address to KAF-TERI conference, Goa Oct 7, published in 146a.

147. “New Foreign Policy? Seven phases of Indian foreign policy may be identifiable since Nehru”, Parts 1-2, The Sunday Statesman, Oct 8, The Statesman Oct 9.

148. “Justice & Afzal:  There is a difference between law and equity (or natural justice). The power of pardon is an equitable power. Commuting a death-sentence is a partial pardon”, The Sunday Statesman Editorial Page Oct 14

149. “Non-existent liberals (On a Liberal Party for India)”, The Sunday Statesman Editorial Page Oct 22.

150. “History of Jammu & Kashmir Parts 1-2”,  The Sunday Statesman, Oct 29, The Statesman Oct 30, Editorial Page.

151. “American Democracy: Does America need a Prime Minister and a longer-lived Legislature?”, The Sunday Statesman Nov 5.

152. “Milton Friedman A Man of Reason 1912-2006”, The Statesman Perspective Page,  Nov 22.

153. “Postscript to Milton Friedman Mahalanobis’s Plan  (The Mahalanobis-Nehru “Second Plan”) The Statesman Front Page Nov 22.

154.  “Mob Violence and Psychology”, Dec 10,  The Statesman, Editorial Page.

155. “What To Tell Musharraf: Peace Is Impossible Without Non-Aggressive Pakistani Intentions”, The Statesman Editorial Page Dec 15.

156. “Land, Liberty and Value: Government must act in good faith treating all citizens equally – not favouring organised business lobbies and organised labour over an unorganised peasantry”,  The Sunday Statesman Editorial Page Dec 31.

2007

157. “Hypocrisy of the CPI-M: Political Collapse In Bengal: A Mid-Term Election/Referendum Is Necessary”, The Statesman, Editorial Page, Jan 9.

158. “On Land-Grabbing: Dr Singh’s India, Buddhadeb’s Bengal, Modi’s Gujarat have notorious US, Soviet and Chinese examples to follow ~ distracting from the country’s real economic problems,” The Sunday Statesman, Editorial Page Jan 14.

159. “India’s Macroeconomics:  Real growth has steadily occurred because India has shared the world’s technological progress. But bad fiscal, monetary policies over decades have led to monetary weakness and capital flight” The Statesman Editorial Page Jan 20.

160. “Fiscal Instability: Interest payments quickly suck dry every year’s Budget. And rolling over old public debt means that Government Borrowing in fact much exceeds the Fiscal Deficit”, The Sunday Statesman, Editorial Page, Feb 4.

161. “Our trade and payments Parts 1-2”  (“India in World Trade and Payments”),The Sunday Statesman, Feb 11 2007, The Statesman, Feb 12 2007.

162. “Our Policy Process: Self-Styled “Planners” Have Controlled India’s Paper Money For Decades,” The Statesman, Editorial Page, Feb 20.

163. “Bengal’s Finances”, The Sunday Statesman Editorial Page, Feb 25.

164. “Fallacious Finance: Congress, BJP, CPI-M may be leading India to Hyperinflation” The Statesman Editorial Page Mar 5.

165. “Uttar Pradesh Polity and Finance: A Responsible New Govt May Want To Declare A Financial Emergency” The Statesman Editorial Page, Mar 24

166. “A scam in the making” in The Sunday Statesman Front Page Apr 1 2007, published here in full as “Swindling India”.

167. “Maharashtra’s Money: Those Who Are Part Of The Problem Are Unlikely To Be A Part Of Its Solution”, The Statesman Editorial Page Apr 24.

146a. “Political Economy of Energy Policy” in India and Energy Security edited by Anant Sudarshan and Ligia Noronha, Konrad Adenauer Stiftung, New Delhi 2007.

168.  “Presidential Qualities: Simplicity, Genuine Achievement Are Desirable; Political Ambition Is Not”, The Statesman, Editorial Page, May 8.

169. “We & Our Neighbours: Pakistanis And Bangladeshis Would Do Well To Learn From Sheikh Abdullah”, The Statesman, Editorial Page May 15.

170. “On Indian Nationhood: From Tamils To Kashmiris And Assamese And Mizos To Sikhs And Goans”, The Statesman, Editorial Page, May 25.

171. A Current Example of the Working of the Unconscious Mind, May 26.

172. Where I would have gone if I was Osama Bin Laden, May 31.

173. “US election ’08:America’s Presidential Campaign Seems Destined To Be Focussed On Iraq”,  The Statesman, Editorial Page, June 1.

174. “Home Team Advantage: On US-Iran talks and Sunni-Shia subtleties: Tehran must transcend its revolution and endorse the principle that the House of Islam has many mansions”,  The Sunday Statesman Editorial Page, June 3

175. “Unhealthy Delhi: When will normal political philosophy replace personality cults?”,  The Statesman, Editorial Page, June 11.

176. “American Turmoil: A Vice-Presidential Coup – And Now a Grassroots Counterrevolution?”,  The Statesman, Editorial Page, June 18

177.  “Political Paralysis: India has yet to develop normal conservative, liberal and socialist parties. The Nice-Housing-Effect and a little game-theory may explain the current stagnation”,  The Sunday Statesman, Editorial Page, June 24.

177. “Has America Lost? War Doctrines Of Kutusov vs Clausewitz May Help Explain Iraq War”,  The Statesman, Editorial Page, July 3.

178. “Lal Masjid ≠ Golden Temple: Wide differences are revealed between contemporary Pakistan and India by these two superficially similar military assaults on armed religious civilians”, The Sunday Statesman, Editorial Page July 15

179 “Political Stonewalling: Only Transparency Can Improve Institutions”, The Statesman, Editorial Page July 20.

180. “Gold standard etc: Fixed versus flexible exchange rates”, July 21.

181. “US Pakistan-India Policy: Delhi & Islamabad Still Look West In Defining Their Relationship”, The Statesman, Editorial Page, July 27.

182. “Works of DH Lawrence” July 30

183. “An Open Letter to Professor Amartya Sen about Singur etc”, The Statesman, Editorial Page,  July 31.

184.  “Martin Buber on Palestine and Israel (with Postscript)”, Aug 4.

185. “Auguste Rodin on Nature, Art, Beauty, Women and Love”,  Aug 7.

186. “Saving Pakistan: A Physicist/Political Philosopher May Represent Iqbal’s “Spirit of Modern Times”, The Statesman, Editorial Page, Aug 13.

187. Letter to Forbes.com  16 Aug.

188. “Need for Clarity: A poorly drafted treaty driven by business motives is a recipe for international misunderstanding”, The Sunday Statesman, Editorial Page, Aug 19.

189. “No Marxist MBAs? An amicus curiae brief for the Hon’ble High Court”,  The Statesman, FrontPage, Aug 29.

190. On Lawrence, Sep 4.

191. Dalai Lama’s Return: In the tradition of Gandhi, King, Mandela, Sep 11.

192. Of JC Bose, Patrick Geddes & the Leaf-World, Sep 12.

193. “Against Quackery: Manmohan and Sonia have violated Rajiv Gandhi’s intended reforms; the Communists have been appeased or bought; the BJP is incompetent  Parts 1-2”, in The Sunday Statesman and The Statesman, Editorial Pages of Sep 23-24.

194. Karl Georg Zinn’s 1994 Review of Philosophy of Economics, Sep 26.

195. DH Lawrence’s Phoenix, Oct 3.

93b. “Rajiv Gandhi and the Origins of India’s 1991 Economic Reform”, Statesman Festival Volume.

196. “Iran, America, Iraq: Bush’s post-Saddam Saddamism — one flip-flop too many?”, The Statesman, Editorial Page, Oct 16.

197. “Understanding China: The World Needs to Ask China to Find Her True Higher Self”,  The Statesman, Editorial Page, Oct 22.

198. “India-USA interests: Elements of a serious Indian foreign policy”,  The Statesman, Editorial Page, Oct 30.

199. “China’s India Aggression : German Historians Discover Logic Behind Communist Military Strategy”,  The Statesman, Editorial Page Special Article, Nov 5.

200. Sonia’s Lying Courtier (with Postscript), Nov 25.

201. “Surrender or Fight? War is not a cricket match or Bollywood movie. Can India fight China if it must?” The Statesman, Dec 4, Editorial Page.

202. Hutton and Desai: United in Error Dec 14

203. “China’s Commonwealth: Freedom is the Road to Resolving Taiwan, Tibet, Sinkiang”,  The Statesman, Dec 17.

2008

204. “Nixon & Mao vs India: How American foreign policy did a U-turn about Communist China’s India aggression. The Government of India should publish its official history of the 1962 war.”  The Sunday Statesman, Jan 6, The Statesman Jan 7  Editorial Page.

205. “Lessons from the 1962 War:  Beginnings of a solution to the long-standing border problem: there are distinct Tibetan, Chinese and Indian points of view that need to be mutually comprehended”, The Sunday Statesman, January 13 2008.

206. “Our Dismal Politics: Will Independent India Survive Until 2047?”, The Statesman Editorial Page, Feb 1.

207. Median Voter Model of India’s Electorate Feb 7.

208. “Anarchy in Bengal: Intra-Left bandh marks the final unravelling of “Brand Buddha””, The Sunday Statesman, Editorial Page, Feb 10.

209. Fifty years since my third birthday: on life and death.

210. “Pakistan’s Kashmir obsession: Sheikh Abdullah Relied In Politics On The French Constitution, Not Islam”, The Statesman, Editorial Page, Feb 16.

211.  A Note on the Indian Policy Process  Feb 21.

212. “Growth & Government Delusion: Progress Comes From Learning, Enterprise, Exchange, Not The Parasitic State”, The Statesman, Editorial Page, Feb 22.

213.  “How to Budget: Thrift, Not Theft, Needs to Guide Our Public Finances”, The Statesman, Editorial Page, Feb 26.

214. “India’s Budget Process (in Theory)”, The Statesman, Front Page Feb 29.

215.  “Irresponsible Governance: Congress, BJP, Communists, BSP, Sena Etc Reveal Equally Bad Traits”, The Statesman, Editorial Page, March 4.

216. “American Politics: Contest Between Obama And Clinton Affects The World”, The Statesman, Editorial Page, March 11.

217. “China’s India Example: Tibet, Xinjiang May Not Be Assimilated Like Inner Mongolia And Manchuria”, The Statesman, Editorial Page, March 25.

218. “Taxation of India’s Professional Cricket: A Proposal”, The Statesman, Editorial Page, April 1.

219. “Two cheers for Pakistan!”,  The Statesman, Editorial Page, April 7.

220. “Indian Inflation: Upside Down Economics From The New Delhi Establishment Parts 1-2”, The Statesman, Editorial Page, April 15-16.

221. “Assessing Manmohan: The Doctor of Deficit Finance should realise the currency is at stake”, The Statesman, Editorial Page Apr 25.

222. John Wisdom, Renford Bambrough: Main Philosophical Works, May 8.

223.  “All India wept”: On the death of Rajiv Gandhi,  May 21.

224. “China’s force and diplomacy: The need for realism in India” The Statesman, Editorial Page May 31.

226. Serendipity and the China-Tibet-India border problem  June 6

227. “Leadership vacuum: Time & Tide Wait For No One In Politics: India Trails Pakistan & Nepal!”, The Statesman Editorial Page June 7.

228. My meeting Jawaharlal Nehru Oct13 1962

229.  Manindranath Roy 1891-1958

230. Surendranath Roy 1860-1929

231.  The Roys of Behala 1928.

232. Sarat Chandra visits Surendranath Roy 1927

233. Nuksaan-Faida Analysis = Cost-Benefit Analysis in Hindi/Urdu Jun 30

234.  One of many reasons John R Hicks was a great economist July 3

236.  My father, Indian diplomat, in the Shah’s Tehran 1954-57  July 8

237 Distribution of Govt of India Expenditure (Net of Operational Income) 1995 July 27

238. Growth of Real Income, Money & Prices in India 1869-2008, July 28.

239. Communism from Social Democracy? But not in India or China!  July 29

240. Death of Solzhenitsyn, Aug. 3

240a. Tolstoy on Science and Art, Aug 4.

241. “Reddy`s reckoning: Where should India’s real interest rate be relative to the world?” Business Standard Aug 10

242. “Rangarajan Effect”, Business Standard Aug 24

243. My grandfather’s death in Ottawa 50 years ago today  Sep 3

244. My books in the Library of Congress and British Library Sep 12

245. On Jimmy Carter & the “India-US Nuclear Deal”, Sep 12

246. My father after presenting his credentials to President Kekkonen of Finland Sep 14 1973.

247. “October 1929?  Not!”, Business Standard, Sep 18.

248. “MK Gandhi, SN Roy, MA Jinnah in March 1919: Primary education legislation in a time of protest”

249. 122 sensible American economists Sept 26

250. Govt of India: Please call in the BBC and ask them a question Sep 27

251. “Monetary Integrity and the Rupee:  Three British Raj relics have dominated our macroeconomic policy-making” Business Standard Sep 28.

252a.  Rabindranath’s daughter writes to her friend my grandmother Oct 5

252b.  A Literary Find: Modern Poetry in Bengal, Oct 6.

253. Sarat writes to Manindranath 1931,  Oct 12

254. Origins of India’s Constitutional Politics 1913

255. Indira Gandhi in Paris, 1971

256. How the Liabilities/Assets Ratio of Indian Banks Changed from 84% in 1970 to 108% in 1998, October 20

257a. My Subjective Probabilities on India’s Moon Mission Oct 21

258. Complete History of Mankind’s Moon Missions: An Indian Citizen’s Letter to ISRO’s Chairman, Oct 22.

259. Would not a few million new immigrants solve America’s mortgage crisis? Oct 26

260. “America’s divided economists”, Business Standard Oct 26

261. One tiny prediction about the Obama Administration, Nov 5

262. Rai Bahadur Umbika Churn Rai, 1827-1902,  Nov 7 2008

263. Jawaharlal Nehru invites my father to the Mountbatten Farewell  Nov 7 2008

70a. “Become a US Supreme Court Justice! (Explorations in the Rule of Law in America) Preface” Nov 9

70b. “Become a US Supreme Court Justice! (Explorations in the Rule of Law in America) Password protected.” Nov 9.

257b. Neglecting technological progress was the basis of my pessimism about Chandrayaan,  Nov 9.

264. Of a new New Delhi myth and the success of the University of Hawaii 1986-1992 Pakistan project Nov 15

265. Pre-Partition Indian Secularism Case-Study: Fuzlul Huq and Manindranath Roy Nov 16

266. Do President-elect Obama’s Pakistan specialists suppose Maulana Azad, Dr Zakir Hussain, Sheikh Abdullah were Pakistanis (or that Sheikh Mujib wanted to remain one)?  Nov 18

267. Jews have never been killed in India for being Jews until this sad day, Nov 28.

268. In international law, Pakistan has been the perpetrator, India the victim of aggression in Mumbai,  Nov 30.

269. The Indian Revolution, Dec 1.

270. Habeas Corpus: a captured terrorist mass-murderer tells a magistrate he has not been mistreated by Mumbai’s police Dec 3

271. India’s Muslim Voices (Or, Let us be clear the Pakistan-India or Kashmir conflicts have not been Muslim-Hindu conflicts so much as intra-Muslim conflicts about Muslim identity and self-knowledge on the Indian subcontinent), Dec 4

272. “Anger Management” needed? An Oxford DPhil recommends Pakistan launch a nuclear first strike against India within minutes of war, Dec 5.

273. A Quick Comparison Between the September 11 2001 NYC-Washington attacks and the November 26-28 2008 Mumbai Massacres (An Application of the Case-by-Case Philosophical Technique of Wittgenstein, Wisdom and Bambrough), Dec 6

274. Dr Rice finally gets it right (and maybe Mrs Clinton will too) Dec 7

275. Will the Government of India’s new macroeconomic policy dampen or worsen the business-cycle (if such a cycle exists at all)? No one knows! “Where ignorance is bliss, ‘Tis folly to be wise.”  Dec 7

276. Pump-priming for car-dealers: Keynes groans in his grave (If evidence was needed of the intellectual dishonesty of New Delhi’s new macroeconomic policy, here it is) Dec 9.

277. Congratulations to Mumbai’s Police: capturing a terrorist, affording him his Habeas Corpus rights, getting him to confess within the Rule of Law, sets a new world standard  Dec 10

278. Two cheers — wait, let’s make that one cheer — for America’s Justice Department, Dec 10

279. Will Pakistan accept the bodies of nine dead terrorists who came from Pakistan to Mumbai? If so, let there be a hand-over at the Wagah border, Dec 11.

280. Kasab was a stupid, ignorant, misguided youth, manufactured by Pakistan’s terrorist masterminds into becoming a mass-murdering robot: Mahatma Gandhi’s India should punish him, get him to repent if he wishes, then perhaps rehabilitate him as a potent weapon against Pakistani terrorism Dec 12.

281. Pakistan’s New Delhi Embassy should ask for “Consular Access” to nine dead terrorists in a Mumbai morgue before asking to meet Kasab, Dec 13

282. An Indian Reply to President Zardari: Rewarding Pakistan for bad behaviour leads to schizophrenic relationships Dec 19

283. Is my prediction about Caroline Kennedy becoming US Ambassador to Britain going to be correct?  Dec 27

284. Chandrayaan adds a little good cheer! Well done, ISRO!, Dec 28

285. How sad that “Slumdog millionaire” is SO disappointing! Dec 31

289. (with Claude Arpi) “Transparency & history: India’s archives must be opened to world standards” Business Standard New Delhi Dec 31, 2008, published here Jan 1 .

2009

290. A basis of India-Pakistan cooperation on the Mumbai massacres: the ten Pakistani terrorists started off as pirates and the Al-Huseini is a pirate ship Jan 1.

291. India’s “pork-barrel politics” needs a nice (vegetarian) Hindi name! “Teli/oily politics” perhaps? (And are we next going to see a Bill of Rights for Lobbyists?) Jan 3

292. My (armchair) experience of the 1999 Kargil war (Or, “Actionable Intelligence” in the Internet age: How the Kargil effort got a little help from a desktop)  Jan 5

293. How Jammu & Kashmir’s Chief Minister Omar Abdullah can become a worthy winner of the Nobel Peace Prize: An Open Letter,  Jan 7

294. Could the Satyam/PwC fraud be the visible part of an iceberg? Where are India’s “Generally Accepted Accounting Principles”? Isn’t governance rather poor all over corporate India? Bad public finance may be a root cause Jan 8

295. Satyam does not exist: it is bankrupt, broke, kaput. Which part of this does the new “management team” not get? The assets belong to Satyam’s creditors. Jan 8

296. Jews are massacred in Mumbai and now Jews commit a massacre in Gaza!  Jan 9

297. And now for the Great Satyam Whitewash/Cover-Up/Public Subsidy! The wrong Minister appoints the wrong new Board who, probably, will choose the wrong policy Jan 12

298. Letter to Wei Jingsheng  Jan 14

299. Memo to the Hon’ble Attorneys General of Pakistan & India: How to jointly prosecute the Mumbai massacre perpetrators most expeditiously Jan 16

300. Satyam and IT-firms in general may be good candidates to become “Labour-Managed” firms Jan 18

301. “Yes we might be able to do that. Perhaps we ought to. But again, perhaps we ought not to, let me think about it…. Most important is Cromwell’s advice: Think it possible we may be mistaken!” Jan 20.

302. RAND’s study of the Mumbai attacks Jan 25

303. Didn’t Dr Obama (the new American President’s late father) once publish an article in Harvard’s Quarterly Journal of Economics? (Or did he?) Jan 25.

304. “A Dialogue in Macroeconomics” 1989 etc: sundry thoughts on US economic policy discourse Jan 30

305. American Voices: A Brief Popular History of the United States in 20 You-Tube Music Videos Feb 5

306. Jaladhar Sen writes to Manindranath at Surendranath’s death, Feb 23

307. Pakistani expansionism: India and the world need to beware of “Non-Resident Pakistanis” ruled by Rahmat Ali’s ghost, Feb 9

308. My American years Part One 1980-90: battles for academic integrity & freedom Feb 11.

309. Thanks and well done Minister Rehman Malik and the Govt of Pakistan Feb 12

310. Can President Obama resist the financial zombies (let alone slay them)? His economists need to consult Dr Anna J Schwartz Feb 14

311. A Brief History of Gilgit, Feb 18

312. Memo to UCLA Geographers: Commonsense suggests Mr Bin Laden is far away from the subcontinent Feb 20

313. The BBC gets its history and geography deliberately wrong again Feb 21

314. Bengal Legislative Council 1921, Feb 28

315. Carmichael visits Surendranath, 1916, Mar 1

316. Memo to GoI CLB: India discovered the Zero, and 51% of Zero is still Zero Mar 10

317. An Academic Database of Doctoral & Other Postgraduate Research Done at UK Universities on India, Pakistan, Sri Lanka, Bangladesh and Other Asian Countries Over 100 Years, Mar 13

318. Pakistan’s progress, Mar 18

319. Risk-aversion explains resistance to free trade, Mar 19

320. India’s incredibly volatile inflation rate!  Mar 20

321. Is “Vicky, Cristina, Barcelona” referring to an emasculation of (elite) American society?,  Mar 21

322. Just how much intellectual fraud can Delhi produce? Mar 26

323. India is not a monarchy! We urgently need to universalize the French concept of “citoyen”!  Mar 28

324. Could this be the real state of some of our higher education institutions? Mar 29

325. Progress! The BBC retracts its prevarication! Mar 30

326. Aldous Huxley’s Essay “DH Lawrence” Mar 31

327. Waffle not institutional reform is what (I predict) the “G-20 summit” will produce, April 1

328. Did a full cricket team of Indian bureaucrats follow our PM into 10 Downing Street? Count for yourself! April 3

329. Will someone please teach the BJP’s gerontocracy some Economics 101 on an emergency basis?  April 5

330. The BBC needs to determine exactly where it thinks Pakistan is!, April 5

331. Alfred Lyall on Christians, Muslims, India, China, Etc, 1908, April 6

332. An eminent economist of India passes away April 9

333. Democracy Database for the Largest Electorate Ever Seen in World History, April 12

334. Memo to the Election Commission of India April 14 2009, 9 AM, April 14

335. Caveat emptor! Satyam is taken over, April 14

336. India’s 2009 General Elections: Candidates, Parties, Symbols for Polls on 16-30 April Phases 1,2,3, April 15

337. On the general theory of expertise in democracy: reflections on what emerges from the American “torture memos” today, April 18

338. India’s 2009 General Elections: 467 constituencies (out of 543) for which candidates have been announced as of 1700hrs April 21, April 21

339. Apropos Philosophy of Economics, Comments of Sidney Hook, KJ Arrow, Milton Friedman, TW Schultz, SS Alexander, Max Black, Renford Bambrough, John Gray et al., April 22.

340. India’s 2009 General Elections: Names of all 543 Constituencies of the 15th Lok Sabha, April 22.

341. India’s 2009 General Elections: How 4125 State Assembly Constituencies comprise the 543 new Lok Sabha Constituencies, April 23.

342. Why has America’s “torture debate” yet to mention the obvious? Viz., sadism and racism, April 24

343. India’s 2009 General Elections: the advice of the late “George Eliot” (Mary Ann Evans, 1819-1880) to India’s voting public, April 24.

344. India’s 2009 General Elections: Delimitation and the Different Lists of 543 Lok Sabha Constituencies in 2009 and 2004, April 25

345. Is “Slumdog Millionaire” the single worst Best Picture ever?

346. India’s 2009 General Elections: Result of Delimitation — Old (2004) and New (2009) Lok Sabha and Assembly Constituencies, April 26

347. India’s 2009 General Elections: 7019 Candidates in 485 (out of 543) Constituencies announced as of April 26 noon April 26

348. What is Christine Fair referring to? Would the MEA kindly seek to address what she has claimed asap? April 27

349. Politics can be so entertaining :) Manmohan versus Sonia on the poor old CPI(M)!, April 28

350. A Dozen Grown-Up Questions for Sonia Gandhi, Manmohan Singh, LK Advani, Sharad Pawar, Km Mayawati and Anyone Else Dreaming of Becoming/Deciding India’s PM After the 2009 General Elections, April 28

351. India’s 2009 General Elections: How drastically will the vote-share of political parties change from 2004? May 2

352. India’s 2009 General Elections: And now finally, all 8,070 Candidates across all 543 Lok Sabha Constituencies, May 5

353. India’s 2009 General Elections: The Mapping of Votes into Assembly Segments Won into Parliamentary Seats Won in the 2004 Election, May 7

354. Will Messrs Advani, Rajnath Singh & Modi ride into the sunset if the BJP comes to be trounced? (Corrected), May 10

355. India’s 2009 General Elections: 543 Matrices to Help Ordinary Citizens Audit the Election Commission’s Vote-Tallies  May 12

356. Well done Sonia-Rahul! Two hours before polls close today, I am willing to predict a big victory for you (but, please, try to get your economics right, and also, you must get Dr Singh a Lok Sabha seat if he is to be PM) May 13

357. Buddhadeb Bhattacharjee must dissolve the West Bengal Assembly if he is an honest democrat: Please try to follow Gerard Schröder’s example even slightly! May 16

358. India’s 2009 General Elections: Provisional Results from the EC as of 1400 hours Indian Standard Time May 16

359. Memo to the Hon’ble President of India: It is Sonia Gandhi, not Manmohan Singh, who should be invited to our equivalent of the “Kissing Hands” Ceremony May 16

360. Time for heads to roll in the BJP/RSS and CPI(M)!, May 17.

361. Inviting a new Prime Minister of India to form a Government: Procedure Right and Wrong  May 18

362. Starting with Procedural Error: Why has the “Cabinet” of the 14th Lok Sabha been meeting today AFTER the results of the Elections to the 15th Lok Sabha have been declared?!  May 18

363. Why has the Sonia Congress done something that the Congress under Nehru-Indira-Rajiv would not have done, namely, exaggerate the power of the Rajya Sabha and diminish the power of the Lok Sabha? May 21

364. Shouldn’t Dr Singh’s Cabinet begin with a small apology to the President of India for discourtesy? May we have reviews and reforms of protocols and practices to be followed at Rashtrapati Bhavan and elsewhere?  May 23

365. Parliament’s sovereignty has been diminished by the Executive: A record for future generations to know May 25

366. How tightly will organised Big Business be able to control economic policies this time? May 26

367. Why does India not have a Parliament ten days after the 15th Lok Sabha was elected? Nehru and Rajiv would both have been appalled May 27

368. Eleven days and counting after the 15th Lok Sabha was elected and still no Parliament of India! (But we do have 79 Ministers — might that be a world record?) May 28

369. Note to Posterity: 79 Ministers in office but no 15th Lok Sabha until June 1 2009! May 29

370. Silver Jubilee of Pricing, Planning & Politics: A Study of Economic Distortions in India May 29

371. How to Design a Better Cabinet for the Government of India May 29

372. Parliament is supposed to control the Government, not be bullied or intimidated by it: Will Rahul Gandhi be able to lead the Backbenches in the 15th Lok Sabha? June 1

373. Mistaken Macroeconomics: An Open Letter to Prime Minister Dr Manmohan Singh, June 12

374. Why did Manmohan Singh and LK Advani apologise to one another? Is Indian politics essentially collusive, not competitive, aiming only to preserve and promote the post-1947 Dilli Raj at the expense of the whole of India? We seem to have no Churchillian repartee (except perhaps from Bihar occasionally) June 18

375. Are Iran’s Revolutionaries now Reactionaries? George Orwell would have understood. A fresh poll may be the only answer Are Iran’s Revolutionaries now Reactionaries? George Orwell would have understood. A fresh poll may be the only answer  June 22

376. My March 25 1991 memo to Rajiv (which never reached him) is something the present Government seems to have followed: all for the best of course! July 12

377. Disquietude about France’s behaviour towards India on July 14 2009 July 14

378. Does the Govt. of India assume “foreign investors and analysts” are a key constituency for Indian economic policy-making? If so, why so? Have Govt. economists “learnt nothing, forgotten everything”? Some Bastille Day thoughts July 14

379. Letter to the GoI’s seniormost technical economist, May 21.July 19

380. Excuse me but young Kasab in fact confessed many months ago, immediately after he was captured – he deserves 20 or 30 years in an Indian prison, and a chance to become a model prisoner who will stand against the very terrorists who sent him on his vile mission  July 20

381. Finally, three months late, the GoI responds to American and Pakistani allegations about Balochistan July 24

382.  Thoughts, words, deeds: My work 1973-2010

M1. Map of Asia c. 1900

M2. Map of Chinese Empire c. 1900

M3. Map of Sinkiang, Tibet and Neighbours 1944

M4. China’s Secretly Built 1957 Road Through India’s Aksai Chin

M5. Map of Kashmir to Sinkiang 1944

M6. Map of India-Tibet-China-Mongolia 1959

M7. Map of India, Afghanistan, Russia, China, 1897

M8. Map of Xinjiang/Sinkiang/E Turkestan

M9. Map of Bombay/Mumbai 1909

M10-M13. Himalayan Expedition, West Sikkim 1970 – 1,2,3,4

Why did Manmohan Singh and LK Advani apologise to one another? Is Indian politics essentially collusive, not competitive, aiming only to preserve and promote the post-1947 Dilli Raj at the expense of the whole of India? We seem to have no Churchillian repartee (except perhaps from Bihar occasionally)

Yesterday the PM is reported to have been asked by someone travelling on his aeroplane from Moscow “whether he had forgiven Advani for calling him a ‘weak Prime Minister’”.

The question was absurd, almost ridiculous, typical of our docile ingratiating rather juvenile English-language press and media, as if any issue of forgiveness arises at all about what one politician says during an election campaign about another politician’s performance in office.

Dr Manmohan Singh’s answer was surprising too: “I was compelled to reply to what Advani said…On May 16 when (Advani) telephoned me, he told me that he was hurt by some of my statements. He said he was hurt and regretted his statements… I apologised to him if I have hurt him. I am looking forward to a close relationship with the Leader of the Opposition.”

So LK Advani appears to have apologised to Manmohan Singh and Manmohan Singh to LK Advani for what they said about each other during the recent general election campaign! What is going on? Were they schoolboys exchanging fisticuffs in a school playground or elderly men battling over power and policy in modern Indian politics?

What would we have done if there was a Churchill in Indian politics today – hurling sarcastic insults at domestic opponents and foreign leaders while guiding a nation on its right course during turbulent times?

Churchill once famously said his parents had not shown him “The Boneless Wonder” in PT Barnum’s circus because it was too horrible a sight but now he had finally seen such a “Boneless Wonder” in his opponent on the Treasury Benches, namely, Ramsay MacDonald. Of the same opponent he said later “He has the gift of compressing the largest number of words into the smallest amount of thought”.

When accused of being drunk by a woman MP he replied “And you are very ugly, but tomorrow I’ll be sober”. Today’s politically correct world would scream at far less. Field Marshall Montgomery told Churchill, “I neither drink nor smoke and am 100% fit,” to which Churchill replied, “I drink and smoke and I am 200% fit”. That too would be politically incorrect today.

Churchill described Prime Minister Clement Attlee as “a modest man with much to be modest about”; also about Attlee: “If any grub is fed on Royal Jelly it turns into a Queen Bee”. Yet Attlee had enough dignity and self-knowledge and self-confidence to brush it all off and instead respect and praise him. In the 1954 volume Winston Spencer Churchill Servant of Crown and Commonwealth Attlee added his own tribute to his great opponent: “I recall…the period when he was at odds with his own party and took a seat on the Bench below the Gangway on the Government side. Here he was well placed to fire on both parties. I remember describing him as a heavily armed tank cruising in No Man’s Land. Very impressive were the speeches he delivered as the international horizon grew darker. He became very unpopular with the predominant group in his own party, but he never minded fighting a lone battle.”

Stanley Baldwin, who as PM first appointed Churchill as Chancellor of the Exchequer, once said “There comes Winston with his hundred horsepower mind”. Yet Churchill was to later say harshly “I wish Stanley Baldwin no ill, but it would have been much better had he never lived.”

Of Lenin, Churchill said, he was “transported in a sealed truck like a plague bacillus from Switzerland into Russia”. Of Molotov: “I have never seen a human being who more perfectly represented the modern concept of a robot.” Of Hitler, “If [he] invaded hell I would at least make a favourable reference to the devil in the House of Commons”. Of De Gaulle, “He was a man without a country yet he acted as if he was head of state”.” Of John Foster Dulles, “[He] is the only bull who carries his china shop with him”. Of Stafford Cripps, British Ambassador to the USSR, “…a lunatic in a country of lunatics”; and also “There but for the Grace of God, goes God”.

Decades later, that great neo-Churchillian Margaret Thatcher was on the receiving end of a vast amount of sarcasm. “President Mitterrand once famously remarked that Thatcher had ‘the eyes of Caligula and the lips of Marilyn Monroe’. Rather less flatteringly, Dennis Healey described her as Attila the Hen. She probably took both descriptions as compliments.” (Malcolm Rifkind in Margaret Thatcher’s Revolution: How it Happened and What it Meant edited by Subroto Roy and John Clarke, 2005).

Politics is, and should be, grown up stuff because it deals with human lives and national destinies, and really, if you can’t take the heat please do not enter the kitchen. The slight Churchillian sarcasm that does arise within modern Indian politics comes very occasionally from Bihar but nowhere else, e.g. about the inevitability of aloo in samosas and of bhaloos in the jungle but no longer of Laloo being in the seat of power. In general, everyone seems frightfully sombre and self-important though may be in fact short of self-knowledge and hence self-confidence.

What had Manmohan Singh said about LK Advani that he felt he had to apologise for? That Advani had no substantial political achievement to his credit and did not deserve to be India’s PM. Manmohan was not alone in making the charge – Sonia Gandhi, Rahul Gandhi and numerous other spokesmen and representatives of their party said the same. Has Manmohan’s apology to Advani been one on behalf of the whole Congress Party itself?

Was Advani’s apology to Manmohan one on behalf of the whole BJP too?

What had the BJP charged Manmohan with that Advani felt he had to apologise for?  Being a “weak PM”.

Hmmm. Frankly, thinking about it, it is hard to count who has not been weak as a PM in India’s modern history.

Certainly Vallabhai Patel as a kind of co-PM was decisive and far from weak back in 1947-48.

Lal Bahadur Shastri was not weak when he told Pakistan that a Pakistani attack on Kashmir would result in an Indian attack on Pakistan.

Indira Gandhi was not weak when she resisted the Yahya Khan-Tikka Khan tyranny against Bangladesh.

Had he not been assassinated, Rajiv Gandhi in a second term would have been decisive and not weak in facing up to and tackling the powerful lobbies and special interest groups that have crippled our domestic economic policy for decades.

But the number of such examples may be counted by hand.  Perhaps VP Singh might count, riding in an open jeep to Amritsar, as might AB Vajpayee’s Pokhran II and travelling on a bus to Lahore. In general, the BJP’s charge that Manmohan was “weak” may have constructively led to serious discussion in the country about the whole nature of the Prime Ministership in modern India, which means raising a whole gamut of issues about Indian governance – about India being the softest of “soft states”, with the softest of “soft government budget constraints” (i.e., endless deficit finance and paper money creation) etc.

Instead, what we have had thus far is apologies being exchanged for no real political reason between the leaderships of the Government and the Opposition. If two or three sellers come to implicitly carve up a market between themselves they are said by economic theory to be colluding rather than being in competition. Indian politics may be revealing such implicit collusive behaviour. The goal of this political oligopoly would seem to be to preserve and promote the status quo of the post-1947 Dilli Raj with its special hereditary nomenclatura, at the expense of anonymous diffused teeming India.

Subroto Roy, Kolkata

Postscript July 15 2009: Churchill’s mature opinion of Baldwin was one of the fullest praise at the 20 May 1950 unveiling of a memorial to him.  See his In the Balance, edited by Randolph S Churchill, 1951, p. 281

Mistaken Macroeconomics: An Open Letter to Prime Minister Dr Manmohan Singh (12 June 2009, addendum 7 March 2013)

From Facebook 7 March 2013
Dr Manmohan Singh is again talking about growth-rates, so I must again say what I said in 2009…

12 June 2009
The Hon’ble Dr Manmohan Singh, MP, Rajya Sabha

Prime Minister of India

Respected Pradhan Mantriji:

In September 1993 at the residence of the Indian Ambassador to Washington, I had the privilege of being introduced to you by our Ambassador the Hon’ble Siddhartha Shankar Ray, Bar-at-Law. Ambassador Ray was kind enough to introduce me saying the 1991 “Congress manifesto had been written on (my laptop) computer” – a reference to my work as adviser on economic and other policy to the late Rajiv Gandhi in his last months. I presented you a book Foundations of India’s Political Economy: Towards an Agenda for the 1990s created and edited by myself and WE James at the University of Hawaii since 1986 — the unpublished manuscript of that book had reached Rajivji by my hand when he and I first met on September 18 1990. Tragically, my pleadings in subsequent months to those around him that he seemed to my layman’s eyes vulnerable to the assassin went unheeded.

When you and I met in 1993, we had both forgotten another meeting twenty years earlier in Paris. My father had been a long-time friend of the late Brahma Kaul, ICS, and the late MG Kaul, ICS, who knew you in your early days in the Government of India. In the late summer of 1973, you had acceded to my father’s request to advise me about economics before I embarked for the London School of Economics as a freshman undergraduate. You visited our then-home in Paris for about 40 minutes despite your busy schedule as part of an Indian delegation to the Aid-India Consortium. We ended up having a tense debate about the merits (as you saw them) and demerits (as I saw them) of the Soviet influence on Indian economic “planning”. You had not expected such controversy from a lad of 18 but you were kindly disposed and offered when departing to write a letter of introduction to Amartya Sen, then teaching at the LSE, which you later sent me and which I was delighted to carry to Professor Sen.

I may add my father, back in 1973 in Paris, had predicted to me that you would become Prime Minister of India one day, and he, now in his 90s, is joined by myself in sending our warm congratulations at the start of your second term in that high office.

The controversy though that you and I had entered that Paris day in 1973 about scientific economics as applied to India, must be renewed afresh!

This is because of your categorical statement on June 9 2009 to the new 15th Lok Sabha:

“I am convinced, since our savings rate is as high as 35%, given the collective will, if all of us work together, we can achieve a growth-rate of 8%-9%, even if the world economy does not do well.” (Statement of Dr Manmohan Singh to the Lok Sabha, June 9 2009)

I am afraid there may be multiple reasons why such a statement is gravely and incorrigibly in error within scientific economics. From your high office as Prime Minister in a second term, faced perhaps with no significant opposition from either within or without your party, it is possible the effects of such an error may spell macroeconomic catastrophe for India.

As it happens, the British Labour Party politician Dr Meghnad Desai made an analogous statement to yours about India when he claimed in 2006 that China

now has 10.4% growth on a 44 % savings rate… ”

Indeed the idea that China and India have had extremely high economic growth-rates based on purportedly astronomical savings rates has become a commonplace in recent years, repeated endlessly in international and domestic policy circles though perhaps without adequate basis.

1.   Germany & Japan

What, at the outset, is supposed to be measured when we speak of “growth”? Indian businessmen and their media friends seem to think “growth” refers to something like nominal earnings before tax for the organised corporate sector, or any unspecified number that can be sold to visiting foreigners to induce them to park their funds in India: “You will get a 10% return if you invest in India” to which the visitor says “Oh that must mean India has 10% growth going on”. Of such nonsense are expensive international conferences in Davos and Delhi often made.

You will doubtless agree the economist at least must define economic growth properly and with care — what is referred to must be annual growth of per capita inflation-adjusted Gross Domestic Product. (Per capita National Income or Net National Product would be even better if available).

West Germany and Japan had the highest annual per capita real GDP growth-rates in the world economy starting from devastated post-World War II initial conditions. What were their measured rates?

West Germany: 6.6% in 1950-1960, falling to 3.5% by 1960-1970 falling to 2.4% by 1970-1978.

Japan: 6.8 % in 1952-1960 rising to 9.4% in 1960-1970 falling to 3.8 % in 1970-1978.

Thus in recent decades only Japan measured a spike in the 1960s of more than 9% annual growth of real per capita GDP. Now India and China are said to be achieving 8%-10 % and more year after year routinely!

Perhaps we are observing an incredible phenomenon of world economic history. Or perhaps it is just something incredible, something false and misleading, like a mirage in the desert.

You may agree that processes of measurement of real income in India both at federal and provincial levels, still remain well short of the world standards described by the UN’s System of National Accounts 1993. The actuality of our real GDP growth may be better than what is being measured or it may be worse than what is being measured – from the point of view of public decision-making we at present simply do not know which it is, and to overly rely on such numbers in national decisions may be unwise. In any event, India’s population is growing at near 2% so even if your Government’s measured number of 8% or 9% is taken at face-value, we have to subtract 2% population growth to get per capita figures.

2.  Growth of the aam admi’s consumption-basket

The late Professor Milton Friedman had been an invited adviser in 1955 to the Government of India during the Second Five Year Plan’s formulation. The Government of India suppressed what he had to say and I had to publish it 34 years later in May 1989 during the 1986-1992 perestroika-for-India project that I led at the University of Hawaii in the United States. His November 1955 Memorandum to the Government of India is a chapter in the book Foundations of India’s Political Economy: Towards an Agenda for the 1990s that I and WE James created.

At the 1989 project-conference itself, Professor Friedman made the following astute observation about all GNP, GDP etc growth-numbers that speaks for itself:

“I don’t believe the term GNP ought to be used unless it is supplemented by a different statistic: the rate of growth of the average consumption basket consumed by the ordinary individual in the country. I think GNP rates of growth can give very misleading information. For example, you have rapid rates of growth of GNP in the Soviet Union with a declining standard of life for the people. Because GNP includes monuments and includes also other things. I’m not saying that that is the case with India; I’m just saying I would like to see the two figures together.”

You may perhaps agree upon reflection that not only may our national income growth measurements be less robust than we want, it may be better to be measuring something else instead, or as well, as a measure of the economic welfare of India’s people, namely, “the rate of growth of the average consumption basket consumed by the ordinary individual in the country”, i.e., the rate of growth of the average consumption basket consumed by the aam admi.

It would be excellent indeed if you were to instruct your Government’s economists and other spokesmen to do so this as it may be something more reliable as an indicator of our economic realities than all the waffle generated by crude aggregate growth-rates.

3.  Logic of your model

Thirdly, the logic needs to be spelled out of the economic model that underlies such statements as yours or Meghnad Desai’s that seek to operationally relate savings rates to aggregate growth rates in India or China. This seems not to have been done publicly in living memory by the Planning Commission or other Government economists. I have had to refer, therefore, to pages 251-253 of my own Cambridge doctoral thesis under Professor Frank Hahn thirty years ago, titled “On liberty and economic growth: preface to a philosophy for India”, where the logic of such models as yours was spelled out briefly as follows:

Let

Kt be capital stock

Yt be national output

It be the level of real investment

St be the level of real savings

By definition

It = K t+1 – Kt

By assumption

Kt = k Yt 0 < k < 1

St = sYt 0 < s <1

In equilibrium ex ante investment equals ex ante savings

It = St

Hence in equilibrium

sYt = K t+1 – Kt

Or

s/k = g

where g is defined to be the rate of growth (Y t+1-Yt)/Yt  .

The left hand side then defines the “warranted rate of growth” which must maintain the famous “knife-edge” with the right hand side “natural rate of growth”.

Your June 9 2009 Lok Sabha statement that a 35% rate of savings in India may lead to an 8%-9% rate of economic growth in India, or Meghnad Desai’s statement that a 44% rate of savings in China led to a 10.4% growth there, can only be made meaningful in the context of a logical economic model like the one I have given above.

[In the open-economy version of the model, let Mt be imports, Et be exports, Ft net capital inflows.

Assume

Mt = aIt + bYt 0 < a, b < 1

Et = E for all t

Balance of payments is

Bt = Mt – Et – Ft

In equilibrium It = St + Bt

Or

Ft = (s+b) Yt – (1-a) It - E is a kind of “warranted” level of net capital inflow.]

You may perhaps agree upon reflection that building the entire macroeconomic policy of the Government of India merely upon a piece of economic logic as simplistic as the

s/k = g

equation above, may spell an unacceptable risk to the future economic well-being of our vast population. An alternative procedural direction for macroeconomic policy, with more obviously positive and profound consequences, may have been that which I sought to persuade Rajiv Gandhi about with some success in 1990-1991. Namely, to systematically seek to improve towards normalcy the budgets, financial positions and decision-making capacities of the Union and all state and local governments as well as all public institutions, organisations, entities, and projects in general, with the aim of making our domestic money a genuine hard currency of the world again after seven decades, so that any ordinary resident of India may hold and trade precious metals and foreign exchange at his/her local bank just like all those glamorous privileged NRIs have been permitted to do. Such an alternative path has been described in “The Indian Revolution”, “Against Quackery”, “The Dream Team: A Critique”, “India’s Macroeconomics”, “Indian Inflation”, etc.

4. Gross exaggeration of real savings rate by misreading deposit multiplication

Specifically, I am afraid you may have been misled into thinking India’s real savings rate, s, is as high as 35% just as Meghnad Desai may have misled himself into thinking China’s real savings rate is as high as 44%.

Neither of you may have wanted to make such a claim if you had referred to the fact that over the last 25 years, the average savings rate across all OECD countries has been less than 10%. Economic theory always finds claims of discontinuous behaviour to be questionable. If the average OECD citizen has been trying to save 10% of disposable income at best, it appears prima facie odd that India’s PM claims a savings rate as high as 35% for India or a British politician has claimed a savings rate as high as 44% for China. Something may be wrong in the measurement of the allegedly astronomical savings rates of India and China. The late Professor Nicholas Kaldor himself, after all, suggested it was rich people who saved and poor people who did not for the simple reason the former had something left over to save which the latter did not!

And indeed something is wrong in the measurements. What has happened, I believe, is that there has been a misreading of the vast nominal expansion of bank deposits via deposit-multiplication in the Indian banking system, an expansion that has been caused by explosive deficit finance over the last four or five decades. That vast nominal expansion of bank-deposits has been misread as indicating growth of real savings behaviour instead. I have written and spoken about and shown this quite extensively in the last half dozen years since I first discovered it in the case of India. E.g., in a lecture titled “Can India become an economic superpower or will there be a monetary meltdown?” at Cardiff University’s Institute of Applied Macroeconomics and at London’s Institute of Economic Affairs in April 2005, as well as in May 2005 at a monetary economics seminar invited at the RBI by Dr Narendra Jadav. The same may be true of China though I have looked at it much less.

How I described this phenomenon in a 2007 article in The Statesman is this:

“Savings is indeed normally measured by adding financial and non-financial savings. Financial savings include bank-deposits. But India is not a normal country in this. Nor is China. Both have seen massive exponential growth of bank-deposits in the last few decades. Does this mean Indians and Chinese are saving phenomenally high fractions of their incomes by assiduously putting money away into their shaky nationalized banks? Sadly, it does not. What has happened is government deficit-financing has grown explosively in both countries over decades. In a “fractional reserve” banking system (i.e. a system where your bank does not keep the money you deposited there but lends out almost all of it immediately), government expenditure causes bank-lending, and bank-lending causes bank-deposits to expand. Yes there has been massive expansion of bank-deposits in India but it is a nominal paper phenomenon and does not signify superhuman savings behaviour. Indians keep their assets mostly in metals, land, property, cattle, etc., and as cash, not as bank deposits.”

An article of mine in 2008 in Business Standard put it like this:

“India has followed in peacetime over six decades what the US and Britain followed during war. Our vast growth of bank deposits in recent decades has been mostly a paper (or nominal) phenomenon caused by unlimited deficit finance in a fractional reserve banking system. Policy makers have widely misinterpreted it as indicating a real phenomenon of incredibly high savings behaviour. In an inflationary environment, people save their wealth less as paper deposits than as real assets like land, cattle, buildings, machinery, food stocks, jewellery etc.”

If you asked me “What then is India’s real savings rate?” I have little answer to give except to say I know what it is not – it is not what the Government of India says it is. It is certainly unlikely to be anywhere near the 35% you stated it to be in your June 9 2009 Lok Sabha statement. If the OECD’s real savings rate has been something like 10% out of disposable income, I might accept India’s is, say, 15% at a maximum when properly measured – far from the 35% being claimed. What I believe may have been mismeasured by you and Meghnad Desai and many others as indicating high real savings is actually the nominal or paper expansion of bank-deposits in a fractional reserve banking system induced by runaway government deficit-spending in both India and China over the last several decades.

5. Technological progress and the mainsprings of real economic growth

So much for the g and s variables in the s/k = g equation in your economic model. But the assumed constant k is a big problem too!

During the 1989 perestroika-for-India project-conference, Professor Friedman referred to his 1955 experience in India and said this about the assumption of a constant k:

“I think there was an enormously important point… That was the almost universal acceptance at that time of the view that there was a sort of technologically fixed capital output ratio. That if you wanted to develop, you just had to figure out how much capital you needed, used as a statistical technological capital output ratio, and by God the next day you could immediately tell what output you were going to achieve. That was a large part of the motivation behind some of the measures that were taken then.”

The crucial problem of the sort of growth-model from which your formulation relating savings to growth arises is that, with a constant k, you have necessarily neglected the real source of economic growth, which is technological progress!

I said in the 2007 article referred to above:

“Economic growth in India as elsewhere arises not because of what politicians and bureaucrats do in capital cities, but because of spontaneous technological progress, improved productivity and learning-by-doing on part of the general population. Technological progress is a very general notion, and applies to any and every production activity or commercial transaction that now can be accomplished more easily or using fewer inputs than before.”

In “Growth and Government Delusion” published in The Statesman last year, I described the growth process more fully like this:

“The mainsprings of real growth in the wealth of the individual, and so of the nation, are greater practical learning, increases in capital resources and improvements in technology. Deeper skills and improved dexterity cause output produced with fewer inputs than before, i.e. greater productivity. Adam Smith said there is “invention of a great number of machines which facilitate and abridge labour, and enable one man to do the work of many”. Consider a real life example. A fresh engineering graduate knows dynamometers are needed in testing and performance-certification of diesel engines. He strips open a meter, finds out how it works, asks engine manufacturers what design improvements they want to see, whether they will buy from him if he can make the improvement. He finds out prices and properties of machine tools needed and wages paid currently to skilled labour, calculates expected revenues and costs, and finally tries to persuade a bank of his production plans, promising to repay loans from his returns. Overcoming restrictions of religion or caste, the secular agent is spurred by expectation of future gains to approach various others with offers of contract, and so organize their efforts into one. If all his offers ~ to creditors, labour, suppliers ~ are accepted he is, for the moment, in business. He may not be for long ~ but if he succeeds his actions will have caused an improvement in design of dynamometers and a reduction in the cost of diesel engines, as well as an increase in the economy’s produced means of production (its capital stock) and in the value of contracts made. His creditors are more confident of his ability to repay, his buyers of his product quality, he himself knows more of his workers’ skills, etc. If these people enter a second and then a third and fourth set of contracts, the increase in mutual trust in coming to agreement will quickly decline in relation to the increased output of capital goods. The first source of increasing returns to scale in production, and hence the mainspring of real economic growth, arises from the successful completion of exchange. Transforming inputs into outputs necessarily takes time, and it is for that time the innovator or entrepreneur or “capitalist” or “adventurer” must persuade his creditors to trust him, whether bankers who have lent him capital or workers who have lent him labour. The essence of the enterprise (or “firm”) he tries to get underway consists of no more than the set of contracts he has entered into with the various others, his position being unique because he is the only one to know who all the others happen to be at the same time. In terms introduced by Professor Frank Hahn, the entrepreneur transforms himself from being “anonymous” to being “named” in the eyes of others, while also finding out qualities attaching to the names of those encountered in commerce. Profits earned are partly a measure of the entrepreneur’s success in this simultaneous process of discovery and advertisement. Another potential entrepreneur, fresh from engineering college, may soon pursue the pioneer’s success and start displacing his product in the market ~ eventually chasers become pioneers and then get chased themselves, and a process of dynamic competition would be underway. As it unfolds, anonymous and obscure graduates from engineering colleges become by dint of their efforts and a little luck, named and reputable firms and perhaps founders of industrial families. Multiply this simple story many times, with a few million different entrepreneurs and hundreds of thousands of different goods and services, and we shall be witnessing India’s actual Industrial Revolution, not the fake promise of it from self-seeking politicians and bureaucrats.”

Technological progress in a myriad of ways and discovery of new resources are important factors contributing to India’s growth today. But while India’s “real” economy does well, the “nominal” paper-money economy controlled by Government does not. Continuous deficit financing for half a century has led to exponential growth of public debt and broad money, and, as noted, the vast growth of nominal bank-deposits has been misinterpreted as indicating unusually high real savings behaviour when it in fact may just signal vast amounts of government debt being held by our nationalised banks. These bank assets may be liquid domestically but are illiquid internationally since our government debt is not held by domestic households as voluntary savings nor has it been a liquid asset held worldwide in foreign portfolios.

What politicians of all parties, especially your own and the BJP and CPI-M since they are the three largest, have been presiding over is exponential growth of our paper money supply, which has even reached 22% per annum. Parliament and the Government should be taking honest responsibility for this because it may certainly portend double-digit inflation (i.e., decline in the value of paper-money) perhaps as high as 14%-15% per annum, something that is certain to affect the aam admi’s economic welfare adversely.

6. Selling Government assets to Big Business is a bad idea in a potentially hyperinflationary economy

Respected PradhanMantriji, the record would show that I, and really I alone, 25 years ago, may have been the first among Indian economists to advocate  the privatisation of the public sector. (Viz, “Silver Jubilee of Pricing, Planning and Politics: A Study of Economic Distortions in India”.) In spite of this, I have to say clearly now that in present circumstances of a potentially hyperinflationary economy created by your Government and its predecessors, I believe your Government’s present plans to sell Government assets may be an exceptionally unwise and imprudent idea. The reasoning is very simple from within monetary economics.

Government every year has produced paper rupees and bank deposits in practically unlimited amounts to pay for its practically unlimited deficit financing, and it has behaved thus over decades. Such has been the nature of the macroeconomic process that all Indian political parties have been part of, whether they are aware of it or not.

Indian Big Business has an acute sense of this long-term nominal/paper expansion of India’s economy, and acts towards converting wherever possible its own hoards of paper rupees and rupee-denominated assets into more valuable portfolios for itself of real or durable assets, most conspicuously including hard-currency denominated assets, farm-land and urban real-estate, and, now, the physical assets of the Indian public sector. Such a path of trying to transform local domestic paper assets – produced unlimitedly by Government monetary and fiscal policy and naturally destined to depreciate — into real durable assets, is a privately rational course of action to follow in an inflationary economy. It is not rocket-science to realise the long-term path of rupee-denominated assets is downwards in comparison to the hard-currencies of the world – just compare our money supply growth and inflation rates with those of the rest of the world.

The Statesman of November 16 2006 had a lead editorial titled Government’s land-fraud: Cheating peasants in a hyperinflation-prone economy which said:

“There is something fundamentally dishonourable about the way the Centre, the state of West Bengal and other state governments are treating the issue of expropriating peasants, farm-workers, petty shop-keepers etc of their small plots of land in the interests of promoters, industrialists and other businessmen. Singur may be but one example of a phenomenon being seen all over the country: Hyderabad, Karnataka, Kerala, Haryana, everywhere. So-called “Special Economic Zones” will merely exacerbate the problem many times over. India and its governments do not belong only to business and industrial lobbies, and what is good for private industrialists may or may not be good for India’s people as a whole. Economic development does not necessarily come to be defined by a few factories or high-rise housing complexes being built here or there on land that has been taken over by the Government, paying paper-money compensation to existing stakeholders, and then resold to promoters or industrialists backed by powerful political interest-groups on a promise that a few thousand new jobs will be created. One fundamental problem has to do with inadequate systems of land-description and definition, implementation and recording of property rights. An equally fundamental problem has to do with fair valuation of land owned by peasants etc. in terms of an inconvertible paper-money. Every serious economist knows that “land” is defined as that specific factor of production and real asset whose supply is fixed and does not increase in response to its price. Every serious economist also knows that paper-money is that nominal asset whose price can be made to catastrophically decline by a massive increase in its supply, i.e. by Government printing more of the paper it holds a monopoly to print. For Government to compensate people with paper-money it prints itself by valuing their land on the basis of an average of the price of the last few years, is for Government to cheat them of the fair present-value of the land. That present-value of land must be calculated in the way the present-value of any asset comes to be calculated, namely, by summing the likely discounted cash-flows of future values. And those future values should account for the likelihood of a massive future inflation causing decline in the value of paper-money in view of the fact we in India have a domestic public debt of some Rs. 30 trillion (Rs. 30 lakh crore) and counting, and money supply growth rates averaging 16-17% per annum. In fact, a responsible Government would, given the inconvertible nature of the rupee, have used foreign exchange or gold as the unit of account in calculating future-values of the land. India’s peasants are probably being cheated by their Government of real assets whose value is expected to rise, receiving nominal paper assets in compensation whose value is expected to fall.”

Shortly afterwards the Hon’ble MP for Kolkata Dakshin, Km Mamata Banerjee, started her protest fast, riveting the nation’s attention in the winter of 2006-2007. What goes for government buying land on behalf of its businessman friends also goes, mutatis mutandis, for the public sector’s real assets being bought up by the private sector using domestic paper money in a potentially hyperinflationary economy. If your new Government wishes to see real assets of the public sector being sold for paper money, let it seek to value these assets not in inconvertible rupees that Government itself has been producing in unlimited quantities but perhaps in forex or gold-units instead!

In the 2004-2005 volume Margaret Thatcher’s Revolution: How it Happened and What it Meant, edited by myself and Professor John Clarke, there is a chapter by Professor Patrick Minford on Margaret Thatcher’s fiscal and monetary policy (macroeconomics) that was placed ahead of the chapter by Professor Martin Ricketts on Margaret Thatcher’s privatisation (microeconomics). India’s fiscal and monetary or macroeconomic problems are far worse today than Britain’s were when Margaret Thatcher came to power. We need to get our macroeconomic problems sorted before we attempt the  microeconomic privatisation of public assets.

It is wonderful that your young party colleague, the Hon’ble MP from Amethi, Shri Rahul Gandhi, has declined to join the present Government and instead wishes to reflect further on the “common man” and “common woman” about whom I had described his late father talking to me on September 18 1990. Certainly the aam admi is not someone to be found among India’s lobbyists of organised Big Business or organised Big Labour who have tended to control government agendas from the big cities.

With my warmest personal regards and respect, I remain,

Cordially yours

Subroto Roy, PhD (Cantab.), BScEcon (London)

Kolkata

Posted in 15th Lok Sabha, Academic economics, Academic freedom, Academic research, Adam Smith, Banking, Bengal, Big Business and Big Labour, BJP, Cambridge Univ Economics, Capital and labour, China's macroeconomics, China's savings rate, China's Economy, Congress Party, Deposit multiplication, Economic Policy, Economic Theory, Economic Theory of Growth, Economic Theory of Value, Economics of Public Finance, Enterprise and entrepeneurship, European Community, Financial Management, Financial markets, Foreign exchange controls, General equilbrium theory, Germany, Governance, Government accounting, Government Budget Constraint, Government of India, Growth rates (economic), India's Big Business, India's Government economists, India's savings rate, India's 1991 Economic Reform, India's Banking, India's Budget, India's bureaucracy, India's Capital Markets, India's corporate governance, India's Economy, India's farmers, India's Government Budget Constraint, India's Government Expenditure, India's grassroots activists, India's inflation, India's Land, India's Lok Sabha, India's Macroeconomics, India's Monetary & Fiscal Policy, India's Parliament, India's political lobbyists, India's political parties, India's poverty, India's Public Finance, India's Reserve Bank, India's Revolution, India's State Finances, India's Union-State relations, Inflation, Inflation targeting, Interest group politics, Japan, London School of Economics, Mamata Banerjee, Manmohan Singh, Margaret Thatcher, Margaret Thatcher's Revolution, Martin Ricketts, Milton Friedman, Monetary Theory, Money and banking, Non-Resident Indians, OECD savings rates, Paper money and deposits, Parliamentary Backbenchers, Political Economy, Public Choice/Public Finance, Rahul Gandhi, Rajiv Gandhi, Rajiv Gandhi's assassination, Redeposits, Siddhartha Shankar Ray. 1 Comment »

How tightly will organised Big Business be able to control economic policies this time?

The power of organised Big Business over New Delhi’s economic policies (whether Congress-led or BJP-led) was signalled by the presence in the audience at Rashtrapati Bhavan last week of several prominent lobbyists when Dr Manmohan Singh and his senior-most Cabinet colleagues were being sworn-in by the President of India. Why were such witnesses needed at such an auspicious national occasion?

Organised Big Business (both private sector and public sector) along with organised Big Labour (whose interests are represented most ably by New Delhi’s official communist parties like the CPI-M and CPI), are astutely aware of how best to advance their own economic interests; this usually gets assisted nicely enough through clever use of our comprador English-language TV, newspaper and magazine media. Shortly after the election results, lobbyists were all over commercial TV proposing things like FDI in insurance and airports etc– as if that was the meaning of the Sonia-Rahul mandate or were issues of high national priority. A typical piece of such “pretend-economics” appears in today’s business-press from a formerly Leftist Indian bureaucrat: “With its decisive victory, the new Manmohan Singh government should at last be able to implement the required second generation reforms. Their lineaments (sic) are well known and with the removal of the Left’s veto, many of those stalled in the legislature as well as those which were forestalled can now be implemented. These should be able to put India back on a 9-10 per cent per annum growth rate…”

Today’s business-press also reports that the new Government is planning to create a fresh “Disinvestment Ministry” and Dr Singh’s chief economic policy aide is “a frontrunner among the names short-listed to head the new ministry” with Cabinet rank.

Now if any enterprising doctoral student was to investigate the question, I think the evidence would show that I, and I alone – not even BR Shenoy or AD Shroff or Jagdish Bhagwati — may have been the first among Indian economists to have argued in favour of the privatisation of India’s public sector. I did so precisely 25 years ago in Pricing, Planning and Politics: A Study of Economic Distortions in India, which was so unusual for its time that it attracted the lead editorial of The Times of London on the day it was published May 29 1984, and had its due impact on Indian economic policy then and since, as has been described elsewhere here.  In 1990-1991 while with Rajiv Gandhi, I had floated an idea of literally giving away shares of the public sector to the public that owned it (as several other countries had been doing at that time), specifically perhaps giving them to the poorest panchayats in aid of their development.  In 2004-2005, upon returning to Britain after many years, I helped create the book Margaret Thatcher’s Revolution: How it Happened and What it Meant, and Margaret Thatcher if anyone was a paragon of privatisation.

That being said, I have to say I think a new Indian policy of creating a Ministry to privatise India’s public sector is probably a very BAD idea indeed in present circumstances — mainly because it will be driven by the interests of the organised Big Business lobbies that have so profoundly and subtly been able to control the New Delhi Government’s behaviour in recent decades.

Such lobbyist control is exercised often without the Government even realising or comprehending its parameters. For example, ask yourself: Is there any record anywhere of Dr Manmohan Singh, in his long career as a Government economist and then as a Rajya Sabha MP, having ever proposed before 2004-2005 that nuclear reactors were something vitally important to India’s future? And why do you suppose the most prominent Indian business lobby spent a million dollars and registered itself as an official lobbyist in Washington DC to promote the nuclear deal among American legislators? Because Big Business was feeling generous and altruistic towards the “energy security” of the ordinary people of India? Hardly.  Indian Big Business calculates and acts in its own interests, as is only to be expected under economic assumptions; those interests are frequently camouflaged by their lobbyist and media friends into seeming to be economic policy for the country as a whole.

Now our Government every year produces paper rupees and bank deposits in  practically unlimited amounts to pay for its practically unlimited deficit financing, and it has behaved thus over decades. Why we do not hear about this at all is because the most prominent Government economists themselves remain clueless — sometimes by choice, mostly by sheer ignorance — about the nature of the macroeconomic process that they are or have been part of.  (See my  “India’s Macroeconomics”, “The Dream Team: A Critique” etc elsewhere here). As for the Opposition’s economists, the less said about the CPI-M’s economists the better while the BJP, poor thing, has absolutely no economists at all!

Briefly speaking, Indian Big Business has acquired an acute sense of this long-term nominal/paper expansion of India’s economy, and as a result acts towards converting wherever possible its own hoards of paper rupees and rupee-denominated assets into more valuable portfolios for itself of real or durable assets, most conspicuously including hard-currency denominated assets, farm-land and urban real-estate, and, now, the physical assets of the Indian public sector. Such a path of trying to transform local domestic paper assets – produced unlimitedly by Government monetary and fiscal policy and naturally destined to depreciate — into real durable assets, is a privately rational course of action to follow in an inflationary economy.  It is not rocket-science  to realise the long-term path of the Indian rupee is downwards in comparison to the hard-currencies of the world – just compare our money supply growth and inflation rates with those of the rest of the world.

The Statesman of November 15 2006 had a lead editorial titled Government’s land-fraud: Cheating peasants in a hyperinflation-prone economy. It said:

“There is something fundamentally dishonourable about the way the Centre, the state of West Bengal and other state governments are treating the issue of expropriating peasants, farm-workers, petty shop-keepers etc of their small plots of land in the interests of promoters, industrialists and other businessmen. Singur may be but one example of a phenomenon being seen all over the country: Hyderabad, Karnataka, Kerala, Haryana, everywhere. So-called “Special Economic Zones” will merely exacerbate the problem many times over. India and its governments do not belong only to business and industrial lobbies, and what is good for private industrialists may or may not be good for India’s people as a whole. Economic development does not necessarily come to be defined by a few factories or high-rise housing complexes being built here or there on land that has been taken over by the Government, paying paper-money compensation to existing stakeholders, and then resold to promoters or industrialists backed by powerful political interest-groups on a promise that a few thousand new jobs will be created. One fundamental problem has to do with inadequate systems of land-description and definition, implementation and recording of property rights. An equally fundamental problem has to do with fair valuation of land owned by peasants etc. in terms of an inconvertible paper-money. Every serious economist knows that “land” is defined as that specific factor of production and real asset whose supply is fixed and does not increase in response to its price. Every serious economist also knows that paper-money is that nominal asset whose price can be made to catastrophically decline by a massive increase in its supply, i.e. by Government printing more of the paper it holds a monopoly to print. For Government to compensate people with paper-money it prints itself by valuing their land on the basis of an average of the price of the last few years, is for Government to cheat them of the fair present-value of the land. That present-value of land must be calculated in the way the present-value of any asset comes to be calculated, namely, by summing the likely discounted cash-flows of future values. And those future values should account for the likelihood of a massive future inflation causing decline in the value of paper-money in view of the fact we in India have a domestic public debt of some Rs. 30 trillion (Rs. 30 lakh crore) and counting, and money supply growth rates averaging 16-17% per annum. In fact, a responsible Government would, given the inconvertible nature of the rupee, have used foreign exchange or gold as the unit of account in calculating future-values of the land. India’s peasants are probably being cheated by their Government of real assets whose value is expected to rise, receiving nominal paper assets in compensation whose value is expected to fall.”

Mamata Banerjee started her famous protest fast-unto-death in Kolkata not long afterwards, riveting the nation’s attention in the winter of 2006-2007.

What goes for the government buying land on behalf of its businessman friends also goes, mutatis mutandis, for the public sector’s real assets being bought up by the private sector using domestic paper money in a potentially hyperinflationary economy.  If Dr Singh’s new Government wishes to see real public sector assets being sold, let the Government seek to value these assets not in inconvertible rupees which the Government itself has been producing in unlimited quantities but rather in forex or gold-units instead!

Today’s headline says “Short of cash, govt. plans to revive disinvestment ministry”. Big Business’s powerful lobbies will suggest  that real public assets must be sold  (to whom? to organised Big Business of course!) in order to solve the grave fiscal problems in an inflationary economy caused precisely by those grave  fiscal problems! What I said in 2002 at IndiaSeminar may still be found to apply: I said the BJP’s privatisation ideas “deserve to be condemned…because they have made themselves believe that the proceeds of selling the public sector should merely go into patching up the bleeding haemorrhage which is India’s fiscal and monetary situation… (w)hile…Congress were largely responsible for that haemorrhage to have occurred in the first place.”

If the new Government would like to know how to proceed more wisely, they need to read and grasp, in the book edited by myself and Professor John Clarke in 2004-2005, the chapter by Professor Patrick Minford on Margaret Thatcher’s fiscal and monetary policy (macroeconomics) before they read the chapter by Professor Martin Ricketts on Margaret Thatcher’s privatisation (microeconomics).  India’s fiscal and monetary or macroeconomic problems are far worse today than Britain’s were when Thatcher came in.

During the recent Election Campaign, I contrasted Dr Singh’s flattering praise in 2005 of the CPI-M’s Buddhadeb Bhattacharjee with Sonia Gandhi’s pro-Mamata line in 2009 saying the CPI-M had taken land away from the poor.  This may soon signal a new fault-line in the new Cabinet too on economic policy with respect to not only land but also public sector privatisation – with Dr Singh’s pro-Big Business acolytes on one side and Mamata Banerjee’s stance in favour of small-scale unorganised business and labour on the other.  Party heavyweights like Dr Singh himself and Sharad Pawar and Pranab Mukherjee will weigh in one side or the other with Sonia being asked in due course to referee.

I personally am delighted to see the New Rahul Gandhi deciding not to be in Government and to instead reflect further on the “common man” and “common woman” about whom I had described his father talking to me on September 18 1990 at his home. Certainly the “aam admi” is not someone to be found among India’s organised Big Business or organised Big Labour nor their paid lobbyists in the big cities.

Subroto Roy, Kolkata

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Letter to the GoI’s seniormost technical economist, May 21

“May 21 2009    It is wonderful to hear from you and I am honoured to find myself, perhaps accidentally, on the same list as so many of your distinguished colleagues among Government economists.

Your essay is most engaging. I am afraid I disagree with your assessment that the current problems “did not originate in the real sector of the economy” but were “triggered by the excesses of the financial system”. I have said to the contrary There is no clear path to solving the great (alleged) economic and financial crisis because no one wants to admit its roots were the overvaluation (over decades) of American real-estate, and hence American assets in general.”

There is no more real sector than real-estate itself and American real-estate has tended to be overvalued as a result of government policy since the Carter Administration; the accumulated dangers along that path came to explode in the sub-prime crisis. Here as elsewhere in economics, the financial tail has not wagged the non-financial dog but vice versa.

I have also said “(i) foreign central banks might have been left holding more bad US debt than might be remembered, and dollar depreciation and an American inflation seem to be inevitable over the next several years; (ii) all those bad mortgages and foreclosures could vanish within a year or two by playing the demographic card and inviting in a few million new immigrants into the United States; restoring a worldwide idea of an American dream fueled by mass immigration may be the surest way for the American economy to restore itself.”

Re the comparison with the Great Depression, I believe

“there are overriding differences. Most important, the American economy and the world economy are both incomparably larger today in the value of their capital stock, and there has also been enormous technological progress over eight decades. Accordingly, it would take a much vaster event than the present turbulence — say, something like an exchange of multiple nuclear warheads with Russia causing Manhattan and the City of London to be destroyed — before there was a return to something comparable to the 1929 Crash and the Great Depression that followed. Besides, the roots of the crises are different. What happened back then? In 1922, the Genoa Currency Conference wanted to correct the main defect of the pre-1914 gold standard, which was freezing the price of gold while failing to stabilise the purchasing power of money. From 1922 until about 1927, Benjamin Strong of the Federal Reserve Bank of New York adopted price-stabilisation as the new American policy-objective. Britain was off the gold standard and the USA remained on it. The USA, as a major creditor nation, saw massive gold inflows which, by traditional gold standard principles, would have caused a massive inflation. Governor Strong invented the process of “sterilisation” of those gold inflows instead and thwarted the rise in domestic dollar prices of goods and services. Strong’s death in 1928 threw the Federal Reserve System into conflict and intellectual confusion. Dollar stabilisation ended as a policy. Surplus bank money was created on the release of gold that had been previously sterilised. The traditional balance between bulls and bears in the stock-market was upset. Normally, every seller of stock is a bear and every buyer a bull. Now, amateur investors appeared as bulls attracted by the sudden stock price rises, while bears, who sold securities, failed to place their money into deposit and were instead lured into lending it as call money to brokerages who then fuelled these speculative bulls. As of October 22, 1929 about $4 billion was the extent of such speculative lending when Chase National Bank’s customers called in their money. Chase National had to follow their instructions, as did other New York banks. New York’s Stock Exchange could hardly respond to a demand for $4 billion at a short notice and collapsed. Within a year, production had fallen by 26 per cent, prices by 14 per cent, personal income by 14 per cent, and the Greatest Depression of recorded history was in progress — involuntary unemployment levels in America reaching 25 per cent. That is not, by any reading, what we have today. Yes, there has been plenty of bad lending, plenty of duping shareholders and workers and plenty of excessive managerial payoffs. It will all take a large toll, and affect markets across the world. But it will be a toll relative to our plush comfortable modern standards, not those of 1929-1933. In fact, modern decision-makers have the obvious advantage that they can look back at history and know what is not to be done. The US and the world economy are resilient enough to ride over even the extra uncertainty arising from the ongoing presidential campaign, and then some.”

These quotes are from recent publications and may be found most easily under “America’s financial crises” at my site http://www.independentindian.com.

What may be of interest to the Government of India’s economists also may be a sample of my recent short articles on India’s monetary and fiscal economics based on my research beginning with my doctoral work under Frank Hahn at Cambridge in the 1970s and followed by my work with James Buchanan and Milton Friedman in America in the 1980s and 1990s and later. One of these is even named “The Rangarajan Effect” which I first defined at a seminar invited by Dr Jadav at the RBI in May 2005!

http://independentindian.com/2008/08/24/rangarajan-effect/

http://independentindian.com/2008/09/28/monetary-integrity-and-the-rupee/

http://independentindian.com/2007/01/20/indias-macroeconomics/

http://independentindian.com/2007/02/04/fiscal-instability/

http://independentindian.com/2008/07/16/india-in-world-trade-payments/

http://independentindian.com/2007/03/05/fallacious-finance-the-congress-bjp-cpi-m-et-al-may-be-leading-india-to-hyperinflation/

http://independentindian.com/2007/02/20/our-policy-process-self-styled-planners-have-controlled-indias-paper-money-for-decades/

http://independentindian.com/2008/07/28/growth-of-real-income-money-prices-in-india-1869-2004/

http://independentindian.com/2008/07/17/growth-government-delusion/

http://independentindian.com/2008/07/09/indian-inflation-upside-down-economics-from-new-delhis-establishment/

http://independentindian.com/2008/02/26/how-to-budget-thrift-not-theft-should-guide-our-public-finances/

http://independentindian.com/2008/02/21/a-note-on-the-indian-policy-process/

With warm regards,

Cordially,

Subroto Roy, PhD (Cantab.), BScEcon(London)

Sometime Adviser to the Late Rajiv Gandhi, 1990-1991

Apropos “Philosophy of Economics”

Some reviews of Philosophy of Economics: On the Scope of Reason in Economic Inquiry (London & New York: Routledge). First published 1989. Paperback 1991.

“Dr. Roy’s book, Philosophy of Economics, which I have read in galleys, I regard as a masterpiece, not only in economic analysis but in philosophic analysis as well.” — Sidney Hook 1989

“I shall have to ponder your rejection of the Humean position which has, I suppose, been central in not only my thought but that of most economists. Candidly, I have never understood what late Wittgenstein was saying, but I have not worked very hard at his work, and perhaps your book will give guidance.”–Kenneth J. Arrow, letter to the author, 1989

“It is an extraordinarily well-written and well-thought through book that shows a wide-ranging capacity and understanding of economics as a discipline in both its macro and micro aspects.” Milton Friedman 1991. Evidence in the US District Court for the District of Hawaii.

“There is no doubt whatsoever that he has a thorough and deep understanding of the major issues that have occupied macroeconomics over the past fifty years…. It is a sign of real understanding that Roy can state these ideas not in terms of jargon, not in terms of equations or technical terms, but in straightforward English using only a minimum of specifically economic terminology. All in all, it is a very knowledgeable and sophisticated performance.” — Milton Friedman, 1989

“I had the privilege of reading early drafts of this book. I saw it emerge as an in-depth analysis of the philosophical foundations of economics. It is scholarship of a high order. It is an original contribution of major importance to economic thought.” — Theodore W. Schultz 1989

“The core of Roy’s study is devoted to the nature and grounds of economics as knowledge; it examines the basic intellectual roots of economics. It is cogent and, what is exceedingly rare these days, it is refreshingly lucid…. Roy’s book is in several important respects an original contribution, the most important being his treatment of the philosophical foundations of economics as knowledge. He is all too modest in assessing the importance of his contribution.” Theodore W. Schultz, 1983

“This is a very ambitious work directed at the foundations of normative judgements in economics. The author arrives at some conclusions very closely matching those I arrived at some years ago. It is clear, however, that Dr. Roy arrived at his conclusions completely independently…. Dr. Roy reveals a clear understanding of the methodological positivism that invaded economic policy analysis in the thirties and still dominates the literature of economics…. Following Renford Bambrough, he arrives at a position equivalent to that of the American pragmatists, especially Dewey, who insist that the problematic situation provides the starting point for the analysis of a problem even though there are no ultimate starting points. The methodological implication is the support of inquiry as fundamental, avoiding both scepticism and dogmatism.” Sidney S. Alexander, 1985

“A work altogether well written and admirably clear.” Renford Bambrough, 1985

“I like very much the courage in trying to produce a genuine philosophy of economics. Such a book is badly needed and could be very useful to economists. The fine use made of extensive readings in older as well as contemporary theorists and the splendid choice of quotations would themselves be worth the price of admission. The style maintains a fine level of clarity and emphasis.” Max Black 1985

“The discussion of Arrow’s theorem under unintended interpretations focuses our understanding on what is really fundamental to this famous result…. Roy has obviously thought much harder about the foundational and methodological problems in economics than most of his fellow-economists.” Anonymous

“Roy’s platonist view of what is the purpose of government is very odd at this stage of history. He seems to suppose that there is an objectively best state of affairs which we must simply discover. The more urgent issue in politics is generally not that of knowing what is the best thing to do but of dealing with conflicting interests. Conflict of interests is not merely disagreement over facts.” Anonymous

“The author has performed a very valuable service for economists interested in the philosophical problems and positions discussed. He has not misrepresented the positions he discusses and his account of various issues and different positions on those issues is philosophically adequate. Many economists will be stimulated as a result of reading this work to reconsider their own positions on the issues Roy addresses.” Anonymous

“The work has many strengths. It is wide in its references and its outlook. Its endorsement of objectivism is both right and timely. The chapter on mathematics in economics is particularly fine.” Anonymous

“It is very well written and I enjoyed reading it very, very much…. The account of Arrow and Sen is beautifully clear, the best I have seen, and I was delighted to follow the argument to the conclusion…. An extremely engaging and provocative work.” Peter T. Manicas.

“A new, thoroughly subtle discussion of a fundamental yet traditional problem”.  Jahrbücher für Nationalökonomie und Statistik (Germany).

“Effectively demonstrates the direct and significant links between the basic philosophical beliefs held by economists and their fundamental disagreements” Kyklos (Switzerland).

“Every rule of good argument is flouted.  Does little to grapple with the large issues to which he rightly urges us to attend.” Times Literary Supplement (UK).

“Not the book to set off the revolution in economic epistemology and it is not even a reliable introduction to the field for undergraduates.” Journal of Applied Philosophy (UK).

“Subroto Roy’s Philosophy of Economics is a formidable contribution…. The author’s aim is to steer a middle course between scepticism and dogmatism in his account of the knowledge we can have of economic phenomena, and in this he largely succeeds. The result is a most distinguished and valuable exploration of the nature of economic inquiry.” John Gray, Economic Affairs (UK).

“Interesting and well-written. Definitely worthwhile being read by any economist interested in the philosophical foundations of his subject and profession.
Journal of Institutional & Theoretical Economics (Germany).

Roy’s basic argument is that the theory of economic knowledge underlying the work of most economists is logically inconsistent… The inconsistency lies in not permitting the skepticism that undermines the analysis of normative problems to destroy the logical foundation underlying positive analysis….. This well-documented study is a worthwhile contribution to the burgeoning literature on the philosophy of economics. Choice

“The central argument of the book shows that the skepticism/dogmatism choice is a false dichotomy, that one need not embrace dogmatism in order to have objectivity or give up objectivity for freedom…. In the final section of the book Roy applies his critique… to several debates in economics. Chapter 8 presents the development of macroeconomics from John Maynard Keynes to the present through a dialogue between economists of opposing schools… Chapter 9 is a rich, wide-ranging discussion of mathematical models in economics…. Chapter 10 discusses the foundations of welfare economics… Roy shows how philosophical mistakes can lead economic thought astray, even though some of his arguments are also unsound. As a philosopher I find it encouraging to see an economist apply recent developments in epistemology to economic debates.” Journal of Economic History

Accomplished, interesting and ambitious.” Manchester School (UK).

“Perfectly sensible.” De Economist (Netherlands).

“Engaging and illuminating study. His seamless style may lull the reader into underestimating the extent and difficulty of the philosophical ground covered.” Research in History & Methodology of Economics (USA).

(Roy’s) message is for his fellow economists, urging them not to shy away from the treatment of normative issues in their discipline. – Economics and Philosophy

When Roy refers to the present received theory of economics, he means that this is the view not only of Chicago, but also of Cambridge, Massachusetts, and Cambridge, England, of Friedman, Samuelson, Myrdal, Hayek, and Joan Robinson. His coverage is broad…. In one place he states that it is precisely because it is possible for even a unanimous group of experts to be wrong that we have a reason, an objective reason, why freedom is to be valued. ‘Freedom is necessary for objectivity.’…. Whether one agrees or disagrees, one has to be impressed by the knowledge and sophistication involved in Roy’s presentation. Involved here is no run-of-the-mill carping at the economics establishment. This is a serious thoughtful work. Social Science Quarterly

Can President Obama resist the financial zombies (let alone slay them)? His economists need to consult Dr Anna J Schwartz

The wonders of the Internet continue to surprise (and yes Virginia, there was a world before SMS and before the Internet too).  In early January, in context of India’s Satyam fraud (of a size of perhaps 1 or perhaps 2 billion dollars),  I referred here  to what seemed to me the likelihood of Satyam becoming a zombie company and I said “we in India have many such zombies walking around in the organised business sector”.    I drew attention to Andrew Beattie’s astute  definition of zombies and other such ghoulish phenomena in the financial world, and also referred to John Stepek’s excellent if brief November 2008 analysis “How zombie companies suck the life from an economy”.  Today I find Ms Arianna Huffington has made reference to Mr Martin Wolf’s reference a couple of days ago to zombie companies and to his statement that President Obama needs to “Admit reality, restructure banks and, above all, slay zombie institutions at once.”  Ms Huffington has agreed, though of course all this slaying may be easier said than done.  (It is better that zombies not be created in the first place.)

Mr Wolf has pointedly asked a question that many around the world may have half-thought about but not articulated: “Has Barack Obama’s presidency already failed?”   It would be  a grave and appalling  state of affairs if it has, within less than a month of entering office.   I am grateful to find in Ms Huffington’s article a reference to an October 2008  Wall Stret Journal interview of Dr Anna Jacobson Schwartz, perhaps the most respected voice in monetary economics today.  There have been numerous people claiming to have predicted America’s financial crisis but none may have as much credibility as Dr Schwartz.   Six years ago, in a National Bureau of Economic Research study dated November 2002, “Asset Price Inflation and Monetary Policy”,Working Paper 9321 she had said with utmost clarity: “It is crucial that central banks and regulatory authorities be aware of effects of asset price inflation on the stability of the financial system. Lending activity based on asset collateral during the boom is hazardous to the health of lenders when the boom collapses. One way that authorities can curb the distortion of lenders’ portfolios during asset price booms is to have in place capital requirements that increase with the growth of credit extensions collateralized by assets whose prices have escalated. If financial institutions avoid this pitfall, their soundness will not be impaired when assets backing loans fall in value. Rather than trying to gauge the effects of asset prices on core inflation, central banks may be better advised to be alert to the weakening of financial balance sheets in the aftermath of a fall in value of asset collateral backing loans….”

Most poignantly too, Dr Schwartz was present when Ben Bernanke said  in  a 2002 speech honouring the late Milton Friedman “I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”   Dr Schwartz told the Wall Street Journal ‘”This was [his] claim to be worthy of running the Fed”.  “He was ‘familiar with history. He knew what had been done.’ But perhaps this is actually Mr. Bernanke’s biggest problem. Today’s crisis isn’t a replay of the problem in the 1930s, but our central bankers have responded by using the tools they should have used then. They are fighting the last war. The result, she argues, has been failure. ‘I don’t see that they’ve achieved what they should have been trying to achieve. So my verdict on this present Fed leadership is that they have not really done their job.’”

President Obama’s economists need to urgently consult Anna J Schwartz.

Subroto Roy, Kolkata

Postscript:  My own brief views on the subject are at “October 1929? Not!” dated September 18 2008, and “America’s divided economists” dated October 26 2008.  The latter article suggested that playing the demographic card and inducing a wave of immigration into the United States may be the surest way to move the housing demand-curve firmly upwards.

My American years Part One 1980-90: battles for academic integrity & freedom

On the Blacksburg campus February 1982, my second year in America.

I had come to Blacksburg in August 1980 thanks to a letter Professor Frank Hahn had written on my behalf to Professor James M Buchanan in January 1980.

I was in an “All But Dissertation” stage at Cambridge when I got to Blacksburg; I completed the thesis while teaching in Blacksburg, sent it from there in September 1981, and went back to Cambridge for the viva voce examination in January 1982.

Professor Buchanan and his colleagues were welcoming and I came to learn much from them about the realities of public finance and democratic politics, which I very soon applied to my work on India.

Jim Buchanan had a reputation for running very tough conferences of scholars. He invited me to one such in the Spring of 1981. We were made to work very hard indeed. One of the books prescribed is still with me, In Search of a Monetary Constitution, ed. Leland Yeager, Harvard 1962, and something I still recommend to anyone wishing to understand the classical liberal position on monetary policy. The week-long 1981 conference had one rest-day; it was spent in part at an excellent theatre in a small rural town outside Blacksburg. This photo is of Jim Buchanan on the left and Gordon Tullock on the right; in between them is Ken Minogue of the London School of Economics — who, as it happened, had been Tutor for Admissions when I became a freshman there seven years earlier.

(I must have learnt something from Jim Buchanan about running conferences because nine years later in May-June 1989 at the University of Hawaii, I made the participants of the India-perestroika and Pakistan-perestroika conferences work very hard too.)

My first rooms in America in 1980 were in the attic of 703 Gracelyn Court, where I paid $160 or $170 per month to my marvellous landlady Betty Tillman. There were many family occasions I enjoyed with her family downstairs, and her cakes, bakes and puddings all remain with me today.

A borrowed electric typewriter may be seen in the photo: the age of the personal computer was still a few years away. The Department had a stand-alone “AB-Dic” word-processor which we considered a marvel of technology; the Internet did not exist but there was some kind of Intranet between geeks in computer science and engineering departments at different universities.

It was at Gracelyn Court that this letter reached me addressed by FA Hayek himself.

Professor Buchanan had moved to Blacksburg from Charlottesville some years earlier with the Centre for Study of Public Choice that he had founded. The Centre came to be housed at the President’s House of Virginia Tech (presumably the University President himself had another residence).

I was initially a Visiting Research Associate at the Centre and at the same time a Visiting Assistant Professor in the Economics Department. I was very kindly given a magnificent office at the Centre, on the upper floor, perhaps the one on the upper right hand side in the picture. It was undoubtedly the finest room I have ever had as an office. I may have had it for a whole year, either 1980-81 or 1981-82. When Professor Buchanan and the Centre left for George Mason University in 1983, the mansion returned to being the University President’s House and my old office presumably became a fine bedroom again.

I spent the summer of 1983 at a long libertarian conference in the Palo Alto/Menlo Park area in California. This is a photo from a barbecue during the conference with Professor Jean Baechler from France on the left; Leonard Liggio, who (along with Walter Grinder) had organised the conference, is at the right.

The first draft of the book that became Philosophy of Economics was written (in long hand) during that summer of 1983 in Palo Alto/Menlo Park. The initial title was “Principia Economica”, and the initial contracted publisher, the University of Chicago Press, had that title on the contract.

My principal supporter at the University of Chicago was that great American Theodore W. Schultz, then aged 81,

to whom the Press had initially sent the manuscript for review and who had recommended its prompt publication. Professor Schultz later told me to my face better what my book was about than I had realised myself, namely, it was about economics as knowledge, the epistemology of economics.

My parents came from India to visit me in California, and here we are at Yosemite.

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Also to visit were Mr and Mrs Willis C Armstrong, our family friends who had known me from infancy. This is a photo of Bill and my mother on the left, and Louise and myself on the right, taken perhaps by my father. In the third week of January 1991, during the first Gulf War, Bill and I (acting on behalf of Rajiv Gandhi) came to form an extremely tenuous bridge between the US Administration and Saddam Hussain for about 24 hours, in an attempt to get a withdrawal of Iraq from Kuwait without further loss of life. In December 1991 I gave the widow of Rajiv Gandhi a small tape containing my long-distance phone conversations from America with Rajiv during that episode.

I had driven with my sheltie puppy from Blacksburg to Palo Alto  — through Tennessee, Arkansas, Oklahoma, Texas, New Mexico and Arizona; my parents and I now drove with him back to Blacksburg from California, through Nevada, Arizona, Colorado, Kansas, Missouri, Illinois, Indiana, Kentucky, West Virginia.  It may be a necessary though not sufficient condition to drive across America (or any other country) in order to understand it.

After a few days, we drove to New York via Pennsylvania where I became Visiting Assistant Professor in the Cornell Economics Department (on leave from being Assistant Professor at Virginia Tech). The few months at Cornell were noteworthy for the many long sessions I spent with Max Black. I shall add more about that here in due course. My parents returned to India (via Greece where my sister was) in the Autumn of 1983.

In May 1984, Indira Gandhi ruled in Delhi, and the ghost of Brezhnev was still fresh in Moscow. The era of Margaret Thatcher in Britain and Ronald Reagan in America was at its height. Pricing, Planning & Politics: A Study of Economic Distortions in India emerging from my doctoral thesis though written in Blacksburg and Ithaca in 1982-1983, came to be published by London’s Institute of Economic Affairs on May 29 as Occasional Paper No. 69, ISBN: 0-255 36169-6; its text is reproduced elsewhere here.

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It was the first critique after BR Shenoy of India’s Sovietesque economics since Jawaharlal Nehru’s time. The Times, London’s most eminent paper at the time, wrote its lead editorial comment about it on the day it was published, May 29 1984.

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It used to take several days for the library at Virginia Tech in Blacksburg to receive its copy of The Times of London and other British newspapers. I had not been told of the date of publication and did not know of what had happened in London on May 29 until perhaps June 2 — when a friend, Vasant Dave of a children’s charity, who was on campus, phoned me and congratulated me for being featured in The Times which he had just read in the University Library. “You mean they’ve reviewed it?” I asked him, “No, it’s the lead editorial.” “What?” I exclaimed. There was worse. Vasant was very soft-spoken and said “Yes, it’s titled ‘India’s Bad Example’” — which I misheard on the phone as “India’s Mad Example” :D Drat! I thought (or words to that effect), they must have lambasted me, as I rushed down to the Library to take a look.

The Times had said

“When Mr. Dennis Healey in the Commons recently stated that Hongkong, with one per cent of the population of India has twice India’s trade, he was making an important point about Hongkong but an equally important point about India. If Hongkong with one per cent of its population and less than 0.03 per cert of India’s land area (without even water as a natural resource) can so outpace India, there must be something terribly wrong with the way Indian governments have managed their affairs, and there is. A paper by an Indian economist published today (Pricing, Planning and Politics: A Study of Economic Distortions in India by Subroto Roy, IEA £1.80) shows how Asia’s largest democracy is gradually being stifled by the imposition of economic policies whose woeful effect and rhetorical unreality find their echo all over the Third World. As with many of Britain’s former imperial possessions, the rot set in long before independence. But as with most of the other former dependencies, the instrument of economic regulation and bureaucratic control set up by the British has been used decisively and expansively to consolidate a statist regime which inhibits free enterprise, minimizes economic success and consolidates the power of government in all spheres of the economy. We hear little of this side of things when India rattles the borrowing bowl or denigrates her creditors for want of further munificence. How could Indian officials explain their poor performance relative to Hongkong? Dr Roy has the answers for them. He lists the causes as a large and heavily subsidized public sector, labyrinthine control over private enterprise, forcibly depressed agricultural prices, massive import substitution, government monopoly of foreign exchange transactions, artificially overvalued currency and the extensive politicization of the labour market, not to mention the corruption which is an inevitable side effect of an economy which depends on the arbitrament of bureaucrats. The first Indian government under Nehru took its cue from Nehru’s admiration of the Soviet economy, which led him to believe that the only policy for India was socialism in which there would be “no private property except in a restricted sense and the replacement of the private profit system by a higher ideal of cooperative service.” Consequently, the Indian government has now either a full monopoly or is one of a few oligipolists in banking, insurance, railways, airlines, cement, steel, chemicals, fertilizers, ship-building, breweries, telephones and wrist-watches. No businessman can expand his operation while there is any surplus capacity anywhere in that sector. He needs government approval to modernize, alter his price-structure, or change his labour shift. It is not surprising that a recent study of those developing countries which account for most manufactured exports from the Third World shows that India’s share fell from 65 percent in 1953 to 10 per cent in 1973; nor, with the numerous restrictions on inter-state movement of grains, that India has over the years suffered more from an inability to cope with famine than during the Raj when famine drill was centrally organized and skillfully executed without restriction. Nehru’s attraction for the Soviet model has been inherited by his daughter, Mrs. Gandhi. Her policies have clearly positioned India more towards the Soviet Union than the West. The consequences of this, as Dr Roy states, is that a bias can be seen in “the antipathy and pessimism towards market institutions found among the urban public, and sympathy and optimism to be found for collectivist or statist ones.” All that India has to show for it is the delivery of thousands of tanks in exchange for bartered goods, and the erection of steel mills and other heavy industry which help to perpetuate the unfortunate obsession with industrial performance at the expense of agricultural growth and the relief of rural poverty.”…..

I felt this may have been intended to be laudatory but it was also inaccurate and had to be corrected. I replied dated June 4 which The Times published in their edition of June 16 1984:

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I was 29 when Pricing, Planning and Politics was published, I am 54 now. I do not agree with everything I said in it and find the tone a little puffed up as young men tend to be; it was also five years before my main “theoretical” work Philosophy of Economics would be published. My experience of life in the years since has also made me far less sanguine both about human nature and about America than I was then. But I am glad to find I am not embarrassed by what I said then, indeed I am pleased I said what I did in favour of classical liberalism and against statism and totalitarianism well before it became popular to do so after the Berlin Wall fell. (In India as elsewhere, former communist apparatchiks and fellow-travellers became pseudo-liberals overnight.)

The editorial itself may have been due to a conversation between Peter Bauer and William Rees-Mogg, so I later heard. The work sold 700 copies in its first month, a record for the publisher. The wife of one prominent Indian bureaucrat told me in Delhi in December 1988 it had affected her husband’s thinking drastically. A senior public finance economist told me he had been deputed at the Finance Ministry when the editorial appeared, and the Indian High Commission in London had urgently sent a copy of the editorial to the Ministry where it caused a stir. An IMF official told me years later that he saw the editorial on board a flight to India from the USA on the same day, and stopped in London to make a trip to the LSE’s bookshop to purchase a copy. Professor Jagdish Bhagwati of Columbia University had been a critic of aspects of Indian policy; he received a copy of the monograph in draft just before it was published and was kind enough to write I had “done an excellent job of setting out the problems afflicting our economic policies, unfortunately government-made problems!”  My great professor at Cambridge, Frank Hahn, would be kind enough to say that he thought my “critique of Development Economics was powerful not only on methodological but also on economic theory grounds” — something that has been a source of delight to me.

Siddhartha Shankar Ray told me when we first met that he had been in London when the editorial appeared and had seen it there; it affected his decision to introduce me to Rajiv Gandhi as warmly as he came to do a half dozen years later.

In the Autumn of 1984, I went, thanks to Edwin Feulner Jr of the Heritage Foundation,  to attend the Mont Pelerin Society Meetings being held at Cambridge (on “parole” from the US immigration authorities as my “green card” was being processed at the time). There I met for the first time Professor and Mrs Milton Friedman.

Milton Friedman’s November 1955 memorandum to the Government of India is referred to in my monograph as “unpublished” in note 1; when I met Milton and Rose, I gave them a copy of my monograph; and requested Milton for his unpublished document; when he returned to Stanford he sent to me in Blacksburg his original 1955-56 documents on Indian planning. I published the 1955 document for the first time in May 1989 during the University of Hawaii perestroika-for-India project I was then leading, it appeared later in the 1992 volume Foundations of India’s Political Economy: Towards an Agenda for the 1990s, edited by myself and WE James. (The results of the Hawaii project reached Rajiv Gandhi through my hand in September 1990, as told elsewhere here in “Rajiv Gandhi and the Origins of India’s 1991 Economic Reform”.) The 1956 document was published in November 2006 on the front page of The Statesman, the same day my obituary of Milton appeared in the inside pages.

Meanwhile, my main work within economic theory, the “Principia Economica” manuscript, was being read by the University of Chicago Press’s five or six anonymous referees. One of them pointed out my argument had been anticipated years earlier in the work of MIT’s Sidney Stuart Alexander. I had no idea of this and was surprised; of course I knew Professor Alexander’s work in balance of payments theory but not in this field. I went to visit Professor Alexander in Boston, where this photo came to be taken perhaps in late 1984:

Professor Alexander was extremely gracious, and immediately declared with great generosity that it was clear to him my arguments in “Principia Economica” had been developed entirely independently of his work. He had come at the problem from an American philosophical tradition of Dewey, I had done so from a British tradition of Wittgenstein. (CS Peirce was probably the bridge between the two.) He and I had arrived at some similar conclusions but we had done so completely independently.

Also, I was much honoured by this letter of May 1 1984 sent to Blacksburg by Professor Sir John Hicks (1904-1989), among the greatest of 20th Century economists at the time, where he acknowledged his departure in later life from the position he had taken in 1934 and 1939 on the foundations of demand theory.

He later sent me a copy of his Wealth and Welfare: Collected Essays on Economic Theory, Vol. I, MIT Press 1981, as a gift. The context of our correspondence had to do with my criticism of the young Hicks and support for the ghost of Alfred Marshall in an article “Considerations on Utility, Benevolence and Taxation” I was publishing in the journal History of Political Economy published then at Duke University. In Philosophy of Economics, I would come to say about Hicks’s letter to me “It may be a sign of the times that economists, great and small, rarely if ever disclaim their past opinions; it is therefore an especially splendid example to have a great economist like Hicks doing so in this matter.” It was reminiscent of Gottlob Frege’s response to Russell’s paradox; Philosophy of Economics described Frege’s “Letter to Russell”, 1902 (Heijenoort, From Frege to Gödel, pp. 126-128) as “a document which must remain one of the most noble in all of modern scholarship; a fact recorded in Russell’s letter to Heijenoort.”

In Blacksburg, by the Summer and Fall of 1984 I was under attack following the arrival of what I considered “a gang of inert game theorists” — my theoretical manuscript had blown a permanent hole through what passes by the name of “social choice theory”, and they did not like it. Nor did they like the fact that I seemed to them to be a “conservative”/classical liberal Indian and my applied work on India’s economy seemed to their academic agenda an irrelevance. This is myself at the height of that attack in January 1985:

Professor Schultz at the University of Chicago came to my rescue and at his recommendation I was appointed Visiting Associate Professor in the Economics Department at Brigham Young University in Provo, Utah.

I declined, without thanks, the offer of another year at Virginia Tech.

On my last day in Blacksburg, a graduate student whom I had helped when she had been assaulted by a senior professor, cooked a meal before I started the drive West across the country. This is a photo from that meal:

In Provo, I gratefully found refuge at the excellent Economics Department led at the time by Professor Larry Wimmer.

It was at Provo that I first had a personal computer on my desk (an IBM as may be seen) and what a delight that was (no matter the noises that it made).  I recall being struck by the fact a colleague possessed the incredible luxury of a portable personal computer (no one else did) which he could take home with him.   It looked like an enormous briefcase but was apparently the technology-leader at the time.  (Laptops seem not to have been invented as of 1985).

In October 1985, Professor Frank Hahn very kindly wrote to Larry Wimmer revising his 1980 opinion of my work now that the PhD was done, the India-work had led to The Times editorial and the theoretical work was proceeding well.

I had applied for a permanent position at the University of Hawaii, Manoa, and had been interviewed positively at the American Economic Association meetings (in New York) in December 1985 by the department chairman Professor Fred C. Hung. At Provo, Dr James Moncur of the Manoa Department was visiting. Jim became a friend and recommended me to his colleagues in Manoa.

Professor Hung appointed me to that department as a “senior” Assistant Professor on tenure-track beginning September 1986. I had bargained for a rank of “Associate Professor” but was told the advertisement did not allow it; instead I was assured of being an early candidate for promotion and tenure subject to my book “Principia Economica” being accepted for publication. (The contract with the University of Chicago Press had become frayed.)

Hawaii was simply a superb place (though expensive).

Professor James Buchanan won the Economics “Nobel” in 1986 and I was asked by the Manoa Department to help raise its profile by inviting him to deliver a set of lectures, which he did excellently well in March 1988 to the University as well as the Honolulu community at large. Here he is at my 850 sq ft small condominium at Punahou Towers, 1621 Dole Street:

In August 1988, my manuscript “Principia Economica” was finally accepted for publication by Routledge of London and New York under the title Philosophy of Economics: On the Scope of Reason In Economic Inquiry. The contract with University of Chicago Press had fallen through and the manuscript was being read by Yale University Press and a few others but Routledge came through with the first concrete offer. I was delighted and these photos were taken in the Economics Department at Manoa by a colleague in September 1988 as the publisher needed them.

Milton and Rose Friedman came to Honolulu on a private holiday perhaps in January 1989; they had years earlier spent a sabbatical year at the Department.

Here is a luncheon that was arranged in their honour. They had in the Fall of 1988 been on their famous visit to China, and as I recall that was the main subject of discussion on the occasion.

Milton phoned me in my Manoa office and invited me to meet him and Rose at their hotel for a chat; we had met first at the 1984 Mont Pelerin meetings and he wished to know me better. I was honoured and turned up dutifully and we talked for perhaps an hour. I recall making a strong recommendation that he write his memoirs, especially so that the rumours and innuendo surrounding eg the Chile episode could be cleared up; I also said a “Collected Works” would be a great idea; when Milton and Rose published their memoirs Two Lucky People (Chicago 1998) I wondered if my first suggestion had come to be taken; as to the second, he wrote to me years later saying he felt no Collected Works were necessary.

From 1986 onwards, I had been requested by the University of Hawaii to lead a project with William E James on the political economy of “South Asia” .I had said there was no such place, that “South Asia” was a US State Department abstraction but there were India and Pakistan and Sri Lanka and Bangladesh and Afghanistan etc. Sister projects on India and Pakistan had been sponsored by the University, and in 1989 important conferences had been planned by myself and James in May for India and in June for Pakistan.

I was determined to publish for the first time Milton’s 1955 memorandum on India which the Government of India had suppressed or ignored at the time. At the hotel-meeting, I told Milton that and requested him to come to the India-conference in May; Milton and Rose said they would think about it, and later confirmed he would come for the first two days.

This is a photo of the initial luncheon at the home of the University President on May 21 1989. Milton and India’s Ambassador to the USA at the time were both garlanded with Hawaiian leis. The first photo was one of a joke from Milton as I recall which had everyone laughing.

There was no equivalent photo of the distinguished scholars who gathered for the Pakistan conference a month later.

The reason was that from February 1989 onwards I had become the victim of a most vicious racist defamation, engineered within the Economics Department at Manoa by a senior professor as a way to derail me before my expected Promotion and Tenure application in the Fall. All my extra time went to battling that though somehow I managed to teach some monetary economics well enough in 1989-1990 for a Japanese student to insist on being photographed with me and the book we had studied.

I was being seen by two or three temporarily powerful characters on the Manoa campus as an Uppity Indian who must be brought down. This time I decided to fight back — and what a saga came to unfold! It took me into the United States District Court for the District of Hawaii and then the Ninth Circuit and upto the United States Supreme Court, not once but twice.

Milton Friedman and Theodore Schultz stood valiantly among my witnesses — first writing to the University’s authorities and later deposing in federal court.

Unfortunately, government lawyers, far from wanting to uphold and respect the laws of the United States, chose to deliberately violate them — compromising a judge, suborning demonstrable perjury and then brazenly purchasing my hired attorney (and getting caught doing it). Since September 2007, the State of Hawaii’s attorneys have been invited by me to return to the federal court and apologise for their unlawful behaviour as they are required by law to do.

They had not expected me to survive their illegalities but I did: I kept going.

Philosophy of Economics was published in London and New York in September 1989

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The hardback quickly sold out on its own steam and the book went into paperback in 1991, and I was delighted to learn from a friend that it had been prescribed for a course at Yale Law School and was strewn along an alley in the bookshop:

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The sister-volumes on India and Pakistan emerging from the University of Hawaii project led by myself and James were published in 1992 and 1993 in India, Pakistan, Britain and the United States.

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As described elsewhere, the manuscript of the India-volume contributed to the origins of India’s 1991 economic reform during my encounter with Rajiv Gandhi in his last months; the Pakistan-volume came to contribute to the origins of the Pakistan-India peace process. The Indian publisher who had promised paperback volumes of both books reneged under leftwing pressure in Delhi; he has since passed away and James and I still await the University of Hawaii’s permission to publish both volumes freely on the Internet as copyright rests with the University President.

In 2004 from Britain, I wrote to the 9/11 Commission stating that it was possible that had the vicious illegalities against me not occurred at Manoa starting in 1989, we may have gone on after India and Pakistan to study Afghanistan, and come up with a pre-emptive academic analysis a decade before September 11 2001.

To be continued in Part Two.

“A Dialogue in Macroeconomics” 1989 etc: sundry thoughts on US economic policy discourse

I have said here recently that some of the wisest advice President Obama or any leader anywhere can receive is that contained in Oliver Cromwell’s famous words “Think it possible you may be mistaken”.

This seems especially significant in context of new American macroeconomic and financial policies.  Mr Steve Clemons reports today there may be less intellectual diversity in the new President’s economic team than is possible or desirable; if so, conversation may become stifled and a greater propensity towards groupthink may arise, hence a greater likelihood of mistakes.

It is possible the directions that different people might like to see the conversation extended are different, and that would be a good sign of course!  For example, someone might think a Barro or a Mishkin could be the right addition of intellectual diversity, whereas others might suppose that to be the wrong direction towards more “market fundamentalism”.    But it would be a pity if the economic conversation within the new Administration came to be artificially or ideologically circumscribed in any direction.

Certainly I believe macroeconomic policy-discourse in the United States or elsewhere needs to proceed to a recognition of the existence of JM Keynes’s original concept of “involuntary unemployment” as well as to ask whether the actual unemployment happens to be or  not be of this sort.   (It may be “frictional” or “structural” or “voluntary” or “seasonal” etc, not the involuntary unemployment Keynes had meant.)  Furthermore, even if significant involuntary unemployment is identified, it needs to be asked whether government policy can be expected to improve or worsen outcomes.   The argument must be made either way, and, in John Wisdom’s phrase,  “Argument must be heard”.

“A Dialogue in Macroeconomics” which was Chapter 8 of my 1989 book Philosophy of Economics (Routledge,  Library of Congress HB 72.R69)  may provide some useful ballast.  The saga  that followed the  book’s publication left me unable to write about the US economy anymore, except briefly in 1992 and 1994-95 in Washington and New York, read only by a few friends.   Now in late 2008, I have published “October 1929? Not!” and “America’s divided economists” which may be of interest too, and which are republished below as well.

I have also added a couple of sundry points from an international perspective that I pointed to last September-October, namely

(i)  foreign central banks might have been left holding more bad US debt than might be remembered, and dollar depreciation and an American inflation seem to be inevitable over the next several years;

(ii) all those bad mortgages and foreclosures could vanish within a year or two by playing the demographic card and inviting in a few million new immigrants into the United States; restoring a worldwide idea of an American dream fueled by mass immigration may be the surest way for the American economy to restore itself.

Subroto Roy

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from Philosophy of Economics Routledge 1989

“Chapter 8.
A Dialogue in Macroeconomics

OUR next example is of quite a different sort, namely, the academic debate which has occurred in macroeconomics and monetary theory since Keynes’s General Theory of Employment, Interest and Money. This has of course received a great amount of attention, with innumerable commentaries having been written by many scores of protagonists and moderators around the world. Only a brief and highly simplified summary of these many conversations can be attempted here, within our limited objective of illustrating once more how it may be possible for critical discussion to be seen to proceed freely and yet objectively in economics. In the previous chapter we were fortunate to have had an actual conversation to consider; here our method shall have to be one of constructing a model of a conversation. In honour of Plato, we might name our conversants Athenian and Stranger.

ATHENIAN Tell me, have you perhaps been following the discussions among macroeconomists? I shall be interested to know what you take their present state to be.

STRANGER Indeed I have, though of course it is not possible or worthwhile to follow all of what has been said. But yes I have followed some of it, and certainly we can make it a topic of conversation.

ATHENIAN Please begin.

STRANGER Very well. Shall we do so in ‘36 with the publication of Keynes’s book? Rightly or wrongly, this must be considered a watershed in the history of modern economics, if only because most economists since have had either to admit its arguments in some measure or define and explain their disagreement. You’ll remember at one time it was said by many that Keynes had fathered a revolution in economic science.

ATHENIAN Except Chicago and the Austrians.

STRANGER Quite so. Now more recently a renewal of neoclassical thought has been under way, and many doubts have been raised about the keynesian consensus, so much so that some of the main questions of the thirties seem in modern form to continue to be at issue today.

ATHENIAN The more things change, the more they stay the same! But when you say Keynes has been a central figure, I take it you mean only that he has been among the most influential and most discussed and nothing more. It is not to preclude judgement on the merits of his book, which is itself of very uneven clarity. Besides there has been too much idolatry and hagiography.

STRANGER Yes, there is so often a rush to belief and worship. There may have been less if Keynes had survived longer. Yet I should say the broad aim of the work is not hard to see. Keynes himself clearly believes that he is starting a revolution — going so far as to suggest a comparison with contemporary physics. The first chapter says the book aims to provide a “general” theory, which will explain the traditional model as a “limiting” case. The second chapter says the theory of value has been hitherto concerned with the allocation of given resources between competing ends; Keynes is going to explain how the actual level of employment comes to be what it is.

ATHENIAN And so begs the question?

STRANGER Or does traditional theory? That seems to be at the heart of it.

ATHENIAN Go on.

STRANGER The theory will be of the short run in Marshall’s sense of taking capital as a fixed factor. Traditional theory is said to postulate about the labour market (i) that the real wage equals the marginal product of labour, so there is an assumption of profit maximization by competitive producers giving rise to a short run demand curve for labour; and (ii) that the utility of the wage at a given level of employment equals the marginal disutility of that amount of employment; i.e., the real wage is just sufficient to induce the volume of labour which is actually forthcoming. So it can account for unemployment due to temporary miscalculations, or intermittent demand, or the refusal or inability of labour to accept a job at a given wage due to legislation or social practices or collective bargaining or obstinacy, or merely a rational choice of leisure — i.e., it can account for frictional and voluntary unemployment but not for what Keynes wants to call involuntary unemployment. What it can suggest is either such things as improvements in foresight, information, organization and productivity, or a lowering of the real wage. But Keynes’s critique will not have to do with such causes of the contemporary unemployment; instead the population is said to be seldom “doing as much work as it would like to do on the basis of the current wage…. More labour would, as a rule, be forthcoming at the existing money wage if it were demanded.” But it is not being demanded, and it is not being demanded because there has been a shortfall of “effective demand”. That is why there is as much unemployment as there is.

ATHENIAN Or so Keynes claims. And he would take it the neoclassical view would be that it must be the real wage is too high; it is only because the real wage has not fallen by enough that unemployment continues.

STRANGER Right. To which there are two observations. The first has to do with the actual attitude of workers towards the money wage and the real wage respectively. The traditional supply function of labour is a function of the latter; Keynes claims that at least within a certain range it must be workers are concerned more with the former.

ATHENIAN How so?

STRANGER By the interesting and perhaps plausible claim that workers are found to withdraw labour if the money wage falls but do not seem to do the same if the price level rises. A real wage reduction caused by a fall in the money wage and the same real wage reduction caused by an increase in prices seem to have different effects on labour supply. “Whether logical or illogical, experience shows that this is how labour in fact behaves.” And he cites U. S. data for ‘32 to say labour did not refuse reductions in the money wage nor did the physical productivity of labour fall yet the real wage fell and unemployment continued. “Labour is not more truculent in the depression than in the boom — far from it.”

ATHENIAN And the second observation?

STRANGER This may be of more interest. “Classical theory assumes that it is always open to labour to reduce its real wage by accepting a reduction in its money wage… [it] presumes that labour itself is in a position to decide the real wage for which it works…” Keynes does not find a traditional explanation why prices tend to follow wages, and suggests it could be because the price level is being supposed to be determined by the money supply according to the quantity theory. Keynes wants to dispute the proposition “that the general level of real wages is directly determined by the character of the wage bargain…. For there may be no method available to labour as a whole whereby…. [it] can reduce its real wage to a given figure by making revised money bargains with the entrepreneurs.” Hence he arrives at his central definition of involuntary unemployment: if the real wage falls marginally as a consequence of the price level rising with the money wage constant, and there is greater employment demanded and supplied in consequence, the initial state was one of involuntary unemployment.

ATHENIAN You are saying then that Keynes’s intent is to establish the existence of involuntary unemployment?

STRANGER At least a major part of the intent yes. To make the concept meaningful, to argue that it refers to a logical possibility, and also that much of the actual unemployment of the time may be falling under it, and is a result of lack of “effective demand”.

ATHENIAN The neoclassicals have been said to be cavalier about fluctuations in economic activity, when in fact Wicksell and Marshall and Thornton, let alone Hawtrey or Hayek as Keynes’s own critics, certainly had profound enough theories of the cycle. Before we go further, I think we should remind ourselves of what they actually said.

STRANGER Very well.

ATHENIAN Would you agree that can be summarized, then as now, as the quantity theory of money married to the theory of general equilibrium?

STRANGER Though it may be better to speak of divorce perhaps rather than marriage, in view of the dichotomy.

ATHENIAN From Smith to Mill, political economists broadly agree the role of government should extend and be restricted to such activities as defence, civil protection, the rule of law, the provision of public goods, education, the encouragement of competition, and so on. The traditional agenda does not as a rule include direct activity to restrain or otherwise change the natural course of trade, production, or consumption, and certainly no theory of what today is called macroeconomic policy. Underlying it is a broad belief that the competitive pursuit of private welfare within the necessary and minimal framework of the institutions of government, will result in tolerable social outcomes, and any further activity may be counterproductive. The State is after all endogenous to the economy, without any resources to its own name.

STRANGER The minimal state, though not so minimal perhaps as we sometimes think.

ATHENIAN The main function of money is seen to be that of facilitating real transactions. Hence the main component of the demand for money is the transactions demand, and the broad objective of monetary policy is the maintenance of the stability of the price of money. But this is recognized to be something elusive in practice, and fluctuations in economic activity are expected to occur in spite of the best intentions of the monetary authorities.

STRANGER How so?

ATHENIAN Well we might imagine two or three distinct but related markets: one for real investment and savings determined by intertemporal preferences, resources, and technologies; one a market for investment and savings defined in terms of money; one a short term credit market. The market for real investment and savings is, as it were, unobservable to the naked eye. Yet it drives the second and third markets for nominal savings and investment in which we actually participate. Monetary equilibrium requires the observable money rates of interest to equal the unobservable real rate of return on the market for physical capital. In particular, the real or natural rate of interest determined in the equilibrium of the first market is not, and perhaps ultimately cannot be, affected by nominal or monetary disturbances in the second or third markets.

STRANGER Why call it “natural”?

ATHENIAN In the sense it is a function of the real data of intertemporal preferences, resources, and technologies being what they are. If these data changed it should be expected to change too. But given these data, it would be the rate at which intertemporal constrained maximizations by individual agents resulted in planned present consumption equaling planned present production at the same time as planned future consumption equaled planned future production.

STRANGER In other words, real planned savings equal real planned investment.

ATHENIAN Exactly. It is the real interest rate, or rather the whole structure of own-rates and cross-rates at various terms, which is the key price signal for macroeconomic equilibrium.

STRANGER “Natural” seems to me to carry a physiocratic connotation. A better nomenclature would replace it with something else — perhaps “equilibrium real rate” or just “walrasian” rate.

ATHENIAN Very well, though I for one do not bias myself against the physiocrats! Now consider how a simple business cycle might occur on wicksellian lines. From a position of full real and monetary equilibrium, an expansion of credit has its first effect on the banks, increasing reserves and inducing more lending for reserve/deposit ratios to be restored, and so lowering the loan rate. But customers are only able to perceive a lowering of this nominal rate of interest and cannot know the equilibrium real rate has not changed. As far as households know, the relative price of present consumption has fallen and there is an incentive for greater consumption and lesser savings. As far as businesses know, the relative price of the future good has risen, and there is an incentive for greater investment. Inventories are run down, and markets for both consumer goods and capital goods are stimulated and show signs of excess demand. But if there was a walrasian equilibrium initially, then the economy will now show signs of inflation; with a gold standard, there would be increased demand for imports and an external drain of reserves, and even perhaps an internal drain if there was a panic and a run on the banks. The loan rate will have to rise once more to reign in reserves, but if the rate is now raised too high relative to the still unchanged real rate, there would be the makings of a recession.

STRANGER Your point being that economists before Keynes had recognized the decentralized economy may be fluctuating continually.

ATHENIAN Surely they had done so quite fully. A first set of causes such as wars, disasters, discoveries and migrations would change the real data of the economy, while a second set would be monetary disturbances like the failure of the authorities to adequately follow the dictates of the real data of the economy, i.e., failure to observe the equilibrium real rate of interest. It may even be intrinsic to the problem that they must fail in the attempt to observe, let aside compute, the equilibrium real rate warranted at a given time by the structure of the real data.

STRANGER Hence the conclusion that they cannot hope to do better than establish a climate of monetary and fiscal stability, such as by declaring a long term policy and staying with it.

ATHENIAN Exactly. Private economic agents already face endemic uncertainty with respect to changes in the real data, and must be assumed to not want more added by government policy. You appear to have seen my point nicely.

STRANGER Very well. But you have jumped ahead as this kind of a conclusion sounds very modern to me. You made me stop all the way back at Keynes’s notion of effective demand!

ATHENIAN As I said, the more things change, the more they stay the same.

STRANGER Let us go back a little. I think we may be able to rejoin our initial route at a point which may bring us close to where we seem to have come by the route you have taken. Specifically suppose we go back to the question of the money wage and the real wage, and of the real wage being “too high”.

ATHENIAN That has been interpreted a number of ways, has it not?

STRANGER Yes it has. One would be to say Keynes was merely simple minded and assumed money illusion on the part of workers. Another would be to say Keynes assumed a short run context of fixed prices, so it would not make a difference whether labour happened to be concerned with changes in the real or the money wage. Yet a third would be to say Keynes, whether he realized it or not, had come upon a recondite truth about the sort of complex monetary economy in which we live — namely, that when transactions are quoted and made in a monetary economy, it may become difficult ipso facto for the walrasian equilibrium to be achieved. Even workers might fully recognize the real wage to be too high and be prepared to work more at a lower wage, but be unable to signal this willingness to potential employers.

ATHENIAN So involuntary unemployment becomes another sort of equilibrium outcome.

STRANGER Exactly. Not only of labour but of machines too, along with the unintended holding of inventories. It is as if firms would have sold what they had planned to if only workers had the income to buy it, which they would have done if only they had been able to sell as much labour they had planned to, which they would have done if only there had been an effective demand for it, which there would have been if firms had not cut back on production because they found themselves unable to sell what they had planned to sell. A kind of vicious circle, due to pessimistic and self-fulfilling expectations all around.

ATHENIAN An unhappy solution to a non-cooperative game you might say.

STRANGER Quite so. Keynes does not deny there may be a monetary route out of the impasse. A wage deflation would eventually lead to price deflation, raising the real value of money holdings, so via liquidity preference lead to an increased demand for bonds, raising their price and lowering money interest rates, which through the investment function would lead eventually to increased effective demand. But the fiscal route may be more direct and quicker in its effect on expectations. Trying to deflate across the board in the face of what seem to be excess supplies of goods and labour might be counterproductive, causing unexpected transfers from debtors to creditors and precipitating bankruptcies. Instead: “Government investment will break the vicious circle. If you can do that for a couple of years, it will have the effect, if my diagnosis is right, of restoring business profits more nearly to normal, and if that can be achieved then private enterprise will be revived. I believe you have first of all to do something to restore profits and then rely on private enterprise to carry the thing along….”

ATHENIAN A shot in the arm for enterprise in the hope of breaking the pessimism. But Keynes was hardly alone in such thinking.

STRANGER Quite true.

ATHENIAN And he certainly seemed to treat the opinions of others without due respect, which is to say he may have exaggerated the significance of his own. Hinting that he was the Einstein of economics set an especially bad example. Only the other day one eminence was comparing himself to Newton, and another was calling his friend Shakespeare. It will be Joyce and Pasternak next!

STRANGER Flattery and nepotism are common weaknesses, my friend. Like the rush to belief and worship.

ATHENIAN Besides you would have to assume the government to be outside the game, and only so being able to see the problem which private agents could not from inside the game. That may be too large an assumption, don’t you think?

STRANGER Yes it may. Yet it seems to me pump-priming was a possible solution being offered to a temporary problem. Many of the controversies may have come about because it became institutionalized, because discretionary fiscal policy became a permanent part of the government agenda.

ATHENIAN And a more direct route out was available too, was it not? With wealth placed in the consumption function directly, a deflation would increase the real value and affect effective demand directly. We would not have to wait for the roundabout effects through so-called liquidity preference.

STRANGER Which in a way brings us back to a central pillar of traditional theory: with given real data and given velocity of circulation, desired holding of real money balances will roughly be constant. In particular the demand for real money balances should not be seen as a function of the interest rate.

ATHENIAN The real rate or the monetary rate?

STRANGER For neoclassicals certainly the real; Keynes does not seem clear.

ATHENIAN There may lie a problem.

STRANGER The title of the book says “Employment, Interest, and Money”. No question employment is real and money is money — interest is the bridge. If you ask me to bet I would say Keynes’s agents make real responses to signals expressed as they must be in a large economy in monetary terms.

ATHENIAN Perhaps we ought to move on. Tell me, if you think Keynes’s book rightly or wrongly ranks as the most influential document of the last fifty years, would you agree it is Friedman’s address on the role of monetary policy which must rank second to it if not on a par with it?

STRANGER Certainly there can be few competitors.

ATHENIAN Well then, it appears to me the net effect of Friedman’s critique has been a restoration of the wicksellian theory and a banishment of the keynesian theory.

STRANGER Friedman of course makes his approach via a critique of the Phillips’ Curve.

ATHENIAN Yes, but it is Wicksell whom he acknowledges in advancing the notion of a natural rate of unemployment, one which has been “ground out by the walrasian system of general equilibrium equations” — in other words, one which happens to be consistent with the structure of the real data of the economy at a particular time.

STRANGER Though again we may as well speak of walrasian instead of natural.

ATHENIAN A monetary policy which tried to peg unemployment at lower than such a rate (if such a rate could be determined, which it cannot) is likely to be counterproductive. The initial effect of an expansionary policy on a walrasian equilibrium may be to increase real output. Workers assume the increase to reflect an increase in the unobservable real demand for their services, and hence they expect a higher real wage. Businesses see the same and assume it to reflect an increase in the unobservable real demand for their goods. But given there was no real excess demand in the first place for either labour or goods, the effect outside anything but the short run will be a return to the initial structure of real wages, and the temporary decline in unemployment is reversed to the walrasian rate at higher prices. If the government tries to maintain unemployment at less than the walrasian rate, it will have to concede — indeed it will have caused — accelerating inflation without any real fall in unemployment.

STRANGER And vice versa perhaps, so there would be a kind of knife-edge.

ATHENIAN Now your remark about Friedman making his approach via the Phillips Curve seems to me interesting. We may have been too hasty to make a comparison with the debate in the thirties. For the world suffers a very real and severe shock between Keynes’s book and the keynesian consensus, which is the Second World War itself.

STRANGER I am not sure I follow.

ATHENIAN Well think of the consensus afterwards on the need for macroeconomic policy — it is actually Tinbergen’s notion of a “policy-maker” which is married to what seems to be Phillips’s finding of a trade-off between inflation and unemployment. It becomes the role of the macroeconomist to advise the politician on how to minimize social disutility from inflation and unemployment subject to the Phillips Curve. Macroeconomics becomes a so-called “policy science”. Give your expert economist your social utility function, and he will tell you where to slide to on your Phillips Curve.

STRANGER The available instruments being money supply and tax rates. That is what I meant in saying Keynes’s idea became institutionalized.

ATHENIAN It seems to me this consensus is born out of the War.

STRANGER How so?

ATHENIAN Well just think of the structural problems of the time: demobilization of large armies, reconstruction, all the displaced peoples, and so on. What are democratic governments to do? Say to their voters, right, thank you very much, now could you please go home quietly? What could have been expected except an Employment Act? Governments were going to help their returning citizens find work, or at least it would have seemed irresponsible if they had not said they were going to.

STRANGER You are saying then that Friedman may have been arguing against a new orthodoxy, grown out of what might have been a sensible idea.

ATHENIAN Exactly. The world is a very different place now than in 1945, in ‘45 than in ‘33, in ‘33 than in 1914. Real shocks every time. It may be a grave mistake for us to look for a unique and universal theory which is supposed to explain all particular circumstances, all of history.

STRANGER Reminds me of the historical school.

ATHENIAN Why not? Again I hold no prejudice against them! Anyhow, consider that Lucas and others have followed Friedman to argue it is a mistake to formulate the problem as Tinbergen had done, with unemployment as a target in a social utility function along with inflation. If it ought to be assumed that people will not continually make the same mistakes in predicting policy, then a systematic employment policy is going to be discovered quickly enough and rendered either ineffective or counterproductive. This idea too has its origins in Wicksell. Examining an opinion that inflation might stimulate enterprise and free debtors, Wicksell says: “It need only be said that if this fall in the value of money is the result of our own deliberate policy, or indeed can be anticipated and foreseen, then these supposed beneficial effects will never occur, since the approaching rise in prices will be taken into account in all transactions by reasonably intelligent people.”

STRANGER Wicksell said that?

ATHENIAN Precisely that.

STRANGER It does sound very modern.

ATHENIAN Now Lucas speaks of how the advice that economists give should be limited only to “the well understood and empirically substantiated propositions of monetary economics, discouragingly modest as these may be.” What can we take him to mean? It seems to me he is sharing Friedman’s scepticism of the possibilities which had been claimed for macroeconomics by the keynesian consensus. And that surely has been a healthy scepticism, befitting good economists.

STRANGER As I said, there is so often a rush to belief.

ATHENIAN Which is really disastrous when combined with the craving for power.

STRANGER But the question remains, does it not, as to which propositions of monetary economics are to be considered “well understood and empirically substantiated”. I cannot help think the propositions taken to be well understood and empirically substantiated in Chicago may be very different from those taken to be well understood and empirically substantiated in Cambridge, or for that matter, those in the U. S. from those in Europe.

ATHENIAN I don’t see any difficulty in this. For first, it would have been granted there are propositions in economics which can be well understood and empirically substantiated. And that must be counted as progress! For something cannot be well understood if it cannot be understood at all, and where there is the possibility of understanding there must be the possibility of objective knowledge as well. And second, why should we not say the most appropriate task of economic theory or analytical economics is simply one of clarification and elucidation of the conceptual basis of economic thinking and expression? All theory ultimately is, or ought to be, “Critique of Language”. When we are faced with a particular and concrete problematic situation, the theorist is to whom we turn for conceptual guidance and criticism. If instead you take the role of the theorist to be one of searching the universe for grand and general and absolute and abstract truths, which need to be discovered before we can say anything about some concrete set of particulars, then it seems to me you will be either struck dumb by a total and debilitating scepticism or become very shrill in your dogmatism or alternate wildly between the two. To me it seems unimportant ultimately to whose flag one shows allegiance, or indeed that allegiance to any flag must be shown.

STRANGER It seems again I will not disagree. But you have sketched the critique of Friedman and Lucas and indeed the ghost of Wicksell addressed to the dogmas of the keynesian orthodoxy. And I have agreed with you this has been a healthy criticism of the sort we should expect economists to provide. But there has been serious question too of the framework used by Friedman and Lucas, hasn’t there? I am thinking especially of Tobin and Hahn.

ATHENIAN Tobin has done much to add clear and reasonable thinking about Keynes — his suggestion that a certain amount of inflation may be the only way to bring down real wages towards their walrasian rates in complex monetary economics is especially interesting; it shows how wide the common ground can be upon which the debate may occur. But you will have to tell me what Hahn’s criticisms have been. I have always found them too abstract and too caustic.

STRANGER That they tend to be, but don’t let that deter you. As I see it, Hahn argues somewhat as follows. We should grant Friedman and Lucas two important points: first, the government is itself a large economic agent whose actions and announced plans enter the calculations of private agents; secondly, erratic changes in monetary policy away from a steady k% rule may have perverse effects “by confusing signals of relative scarcity with those that arose from the monetary policy”. Also, we may accept that the assumptions sufficient for a full walrasian equilibrium with rational expectations suffice for the absence of any persistent involuntary unemployment by Keynes’s definition. But Hahn would say this may not be the relevant empirical description.

ATHENIAN In what way?

STRANGER Well for one thing the pricing axiom or the recontracting assumption of stability theory remains unexplained. It is possible traders will face quantity constraints, and this often seems so in markets for labour and credit. We may simply find prices not moving in the direction of excess demand even when a quantity constraint happens to be binding. The structure of wages may be “neither fixed, nor arbritrary, nor inflexible; it is what it is because given conjectures, no agent finds it advantageous to change it.” Moreover, it may not be plausible to suppose there will be convergence after arbitrary displacements back towards a stable equilibrium, because the conditions for stability are very stringent and uniqueness of equilibrium may also need to be postulated. Furthermore, it may be quite unsatisfactory to treat money in models which are isomorphic to the Arrow-Debreu model, because in such a world there is no logical use for money, so there must be some essential features of reality which have failed to be features of the model.

ATHENIAN You don’t think Patinkin’s integration was adequate?

STRANGER For many practical purposes perhaps, but certainly not to full logical satisfaction. If you put real money balances into the utility function and treat money just about like any other good, you have to be prepared to accept a possible equilibrium in which the price of money is zero. Lastly, if there are internal debts denominated in money as there are in fact, you may not assume equiproportional changes in all prices will not have real effects, unless you are prepared to assume away redistributions between creditors and debtors, which you can do only under another assumption that all households have parallel and linear Engel curves through the origin. Hahn’s line of argument is admittedly abstract, but you will have to admit it raises some fundamental questions.

ATHENIAN Another example we might say of the healthy scepticism of the theorist. It seems my turn to agree with you. But we can imagine replies too can we not?

STRANGER What do you have in mind?

ATHENIAN Well to argue there can be unemployment which is involuntary is not to have argued that an employment policy can be expected to remove it. This seems a premise and conclusion too frequently confounded by both keynesians and their critics, with disastrous consequences. Then, Buchanan would argue that a more thorough characterization needs to be given of the making of government policy, especially when it is proposed to supplant the market outcome. Policies are after all proposed, enacted, and put into effect by actual people — all of whom may need to be assumed to be pursuing private rewards as well in the course of their public duties. The relevant description for the economist needs to be one including this further fact that actual proposals of public policy can embody the private interests of the proposers too.

STRANGER Making it that much more difficult to determine what is in the public interest in a given case.

ATHENIAN Exactly. And so reinforcing the case for predictability and an orderliness in the framework of government.

STRANGER But we have been talking now for quite long enough my friend. I seem to feel a fear too that we have not gained anything at all in our discussions.

ATHENIAN Don’t be so pessimistic! Surely the point of reconstructing such conversations as we have done is not to hold absolutely to the matters raised in them. You and I after all have been making summary and highly simplified and unauthorized interpretations. I take the point of it to have been clarifying our thoughts, and perhaps to show ourselves how discussion can proceed between economists of different schools of thought. Arguments might come to a halt for any of a number of reasons, but they needn’t be supposed to have any logical or necessary end. Too often we let people retreat into different dogmatic positions, fostering the belief that each is starting from some set of absolute axioms ultimately irreconcilable with those of the other. We may need to keep insisting instead that the pursuit of knowledge and understanding is an open-ended activity with potentially indefinite limits. It yields conclusive results but has no absolute end. You or I might call a halt and retire from it, but that will not mean it cannot or will not continue without us.

STRANGER Perhaps so. But you are younger than I, and I have become tired by all these thrusts and parries. Besides, there has been the enjoyment of conversation itself.”

II

October 1929? Not!  by Subroto Roy / First published in Business Standard September 18, 2008

“Lehman Brothers filing for bankruptcy protection, Merrill Lynch taken over by Bank of America, Fannie Mae and Freddie Mac and now AIG being nationalised by the US Government, Bear Stearns getting a government bailout, many thousands of low-quality loans going bad … Does it all add up to an American financial crisis in the autumn of 2008 comparable to that in the autumn of 1929? Even Alan Greenspan himself has gone on record on TV saying it might.

But there are overriding differences. Most important, the American economy and the world economy are both incomparably larger today in the value of their capital stock, and there has also been enormous technological progress over eight decades. Accordingly, it would take a much vaster event than the present turbulence — say, something like an exchange of multiple nuclear warheads with Russia causing Manhattan and the City of London to be destroyed — before there was a return to something comparable to the 1929 Crash and the Great Depression that followed.

Besides, the roots of the crises are different. What happened back then? In 1922, the Genoa Currency Conference wanted to correct the main defect of the pre-1914 gold standard, which was freezing the price of gold while failing to stabilise the purchasing power of money. From 1922 until about 1927, Benjamin Strong of the Federal Reserve Bank of New York adopted price-stabilisation as the new American policy-objective. Britain was off the gold standard and the USA remained on it. The USA, as a major creditor nation, saw massive gold inflows which, by traditional gold standard principles, would have caused a massive inflation. Governor Strong invented the process of “sterilisation” of those gold inflows instead and thwarted the rise in domestic dollar prices of goods and services.

Strong’s death in 1928 threw the Federal Reserve System into conflict and intellectual confusion. Dollar stabilisation ended as a policy. Surplus bank money was created on the release of gold that had been previously sterilised.

The traditional balance between bulls and bears in the stock-market was upset. Normally, every seller of stock is a bear and every buyer a bull. Now, amateur investors appeared as bulls attracted by the sudden stock price rises, while bears, who sold securities, failed to place their money into deposit and were instead lured into lending it as call money to brokerages who then fuelled these speculative bulls. As of October 22, 1929 about $4 billion was the extent of such speculative lending when Chase National Bank’s customers called in their money.

Chase National had to follow their instructions, as did other New York banks. New York’s Stock Exchange could hardly respond to a demand for $4 billion at a short notice and collapsed. Within a year, production had fallen by 26 per cent, prices by 14 per cent, personal income by 14 per cent, and the Greatest Depression of recorded history was in progress — involuntary unemployment levels in America reaching 25 per cent.

That is not, by any reading, what we have today. Yes, there has been plenty of bad lending, plenty of duping shareholders and workers and plenty of excessive managerial payoffs. It will all take a large toll, and affect markets across the world.

But it will be a toll relative to our plush comfortable modern standards, not those of 1929-1933. In fact, modern decisionmakers have the obvious advantage that they can look back at history and know what is not to be done. The US and the world economy are resilient enough to ride over even the extra uncertainty arising from the ongoing presidential campaign, and then some.”


III

America’s divided economists by Subroto Roy First published in Business Standard October 26, 2008

“Future doctoral theses about the Great Tremor of 2008 will ask how it was that the Fed chief, who was an academic economist, came to back so wholeheartedly the proposals of the investment banker heading the US Treasury. If Herbert Hoover and FDR in the 1930s started something called fiscal policy for the first time, George W Bush’s lameduck year has marked the total subjugation of monetary policy.

In his 1945 classic, History of Banking Theory, the University of Chicago’s Lloyd Mints said: “No reorganisation of the Federal Reserve System, while preserving its independence from the Treasury, can offer a satisfactory agency for the implementation of monetary policy. The Reserve banks and their branches should be made agencies of the Treasury and all monetary powers delegated by Congress should be given to the Secretary of the Treasury…. It is not at all certain that Treasury control of the stock of money would always be reasonable… but Treasury influence cannot be excluded by the creation of a speciously independent monetary agency that cannot have adequate powers for the performance of its task…” Years later, Milton Friedman himself took a similar position suggesting legislation “to end the independence of the Fed by converting it into a bureau of the Treasury Department…”(see, for example, Essence of Friedman, p 416).

Ben Bernanke’s Fed has now ended any pretence of the monetary policy’s independence from the whims and exigencies of executive power. Yet Dr Bernanke’s fellow academic economists have been unanimous in advising caution, patience and more information and reflection upon the facts. The famous letter of 122 economists to the US Congress was a rare statement of sense and practical wisdom. It agreed the situation was difficult and needed bold action. But it said the Paulson-Bernanke plan was an unfair “subsidy to investors at taxpayers’ expense. Investors who took risks to earn profits must also bear the losses. Not every business failure carries systemic risk. The government can ensure a well-functioning financial industry, able to make new loans to creditworthy borrowers, without bailing out particular investors and institutions whose choices proved unwise.”

Besides, the plan was unclear and too far-reaching. “Neither the mission of the new agency nor its oversight are clear. If taxpayers are to buy illiquid and opaque assets from troubled sellers, the terms, occasions, and methods of such purchases must be crystal clear ahead of time and carefully monitored afterwards…. If the plan is enacted, its effects will be with us for a generation. For all their recent troubles, America’s dynamic and innovative private capital markets have brought the nation unparalleled prosperity. Fundamentally weakening those markets in order to calm short-run disruptions is desperately short-sighted.”

The House’s initial bipartisan “backbench revolt” against “The Emergency Economic Stabilisation Act of 2008” (ESSA) followed this academic argument and rejected the Bernanke Fed’s advice. Is there an “emergency”, and if so what is its precise nature? Is this “economic stabilisation”, and if so, how is it going to work? The onus has been on Dr Bernanke and his staff to argue both, not merely to assert them. Even if the House “held its nose” and passed the measure for now, the American electorate is angry and it is anybody’s guess how a new President and Congress will alter all this in a few months.

Several academic economists have argued for specific price-stabilisation of the housing market being the keystone of any large, expensive and risky government intervention. (John McCain has also placed this in the political discussion now.) Roughly speaking, the housing supply-curve has shifted so far to the right that collapsed housing prices need to be dragged back upward by force. Columbia Business School economists Glenn Hubbard and Chris Mayer, both former Bush Administration officials, have proposed allowing “all residential mortgages on primary residences to be refinanced into 30-year fixed-rate mortgages at 5.25 per cent…. close to where mortgage rates would be today with normally functioning mortgage markets….Lower interest rates will mean higher overall house prices…” Yale’s Jonathan Koppell and William Goetzmann have argued very similarly the Treasury “could offer to refinance all mortgages issued in the past five years with a fixed-rate, 30-year mortgage at 6 per cent. No credit scores, no questions asked; just pay off the principal of the existing mortgage with a government check. If monthly payments are still too high, homeowners could reduce their indebtedness in exchange for a share of the future price appreciation of the house. That is, the government would take an ownership interest in the house just as it would take an ownership interest in the financial institutions that would be bailed out under the Treasury’s plan.”

Beyond the short run, the US may play the demographic card by inviting in a few million new immigrants (if nativist feelings hostile to the outsider or newcomer can be controlled, especially in employment). Bad mortgages and foreclosures would vanish as people from around the world who long to live in America buy up all those empty houses and apartments, even in the most desolate or dismal locations. If the US’s housing supply curve has moved so far to the right that the equilibrium price has gone to near zero, the surest way to raise the equilibrium price would be by causing a new wave of immigration leading to a new demand curve arising at a higher level.

Such proposals seek to address the problem at its source. They might have been expected from the Fed’s economists. Instead, ESSA speaks of massive government purchase and control of bad assets “downriver”, without any attempt to face the problem at its source. This makes it merely wishful to think such assets can be sold for a profit at a later date so taxpayers will eventually gain. It is as likely as not the bad assets remain bad assets.

Indeed the University of Chicago’s Casey Mulligan has argued there is a financial crisis involving the banking sector but not an economic one: “We’re not entering a second Great Depression.” The marginal product of capital remains high and increasing “far above the historical average. The third-quarter earnings reports from some companies already suggest that America’s non-financial companies are still making plenty of money…. So, if you are not employed by the financial industry (94 per cent of you are not), don’t worry. The current unemployment rate of 6.1 per cent is not alarming, and we should reconsider whether it is worth it to spend $700 billion to bring it down to 5.9 per cent.”

Dr Bernanke has been a close student of A Monetary History of the United States in which Milton Friedman and Anna J Schwartz argued that the Fed inadvertently worsened the Great Contraction of 1929-1933 by not responding to Congress. Let not future historians find that the Fed, at the behest of the Treasury Secretary, worsened the Great Tremor of 2008 by bamboozling Congress into hasty action.”

IV

Would not a few million new immigrants solve America’s mortgage crisis?
October 10, 2008 — drsubrotoroy | Edit

America was at its best when it was open to mass immigration, and America is at its worst when it treats immigrants with racism and worse (for seeming “uppity”).

All those bad mortgages and foreclosures could vanish within a year or two by playing the demographic card and inviting in a few million new immigrants into the United States.  They would pour in from China, Vietnam, Thailand, Philippines, Indonesia, Mexico, South America,  South Africa, Nigeria, Egypt, Israel, Poland, Romania, Hungary, Belarus, Ukraine, Russia, Uzbekistan, Kazakhstan,  India, Sri Lanka, Bangladesh, and yes, Pakistan too, and more.  They would happily buy up all those empty houses and apartments, even in all those desolate  dismal locations.  If the USA’s housing supply curve has moved so far to the right that the equilibrium price has gone to near zero, the surest way to raise the equilibrium price would be by causing a  new wave of  immigration leading to a new demand curve arising at a higher level.   But yes, nativist feelings of racism towards the outsider or the newcomer would have to be controlled  especially in employment — racists after all are often rather “sub-prime” themselves and hence unable to accept characters who may be “prime” or at least less “sub-prime” from foreign immigrant communities.   Restoring a worldwide idea of an American dream fuelled by mass immigration may be the surest way for the American economy to restore itself.

V

122 Sensible American economists

September 26, 2008 — drsubrotoroy | Edit

“$700 billion comes to more than, uhhhm, $6,000 per income taxpayer in the USA.

I was glad to see the sensible letter of 122 American economists to US legislators regarding the Paulson-Bernanke plan to address America’s financial crisis.

Somehow, I have an inkling that foreign central banks have been left holding more bad US debt than might be remembered — which would explain the embarrassment of Messrs Paulson and Bernanke vis-a-vis their foreign counterparts… Dollar depreciation and an American inflation seem to be inevitable over the next several years.”

Could the Satyam/PwC fraud be the visible part of an iceberg? Where are India’s “Generally Accepted Accounting Principles”? Isn’t governance rather poor all over corporate India? Bad public finance may be a root cause

In a March 5 2007 article in The Statesman, I said:

“Our farmers are peaceful hardworking people who should be paying taxes and user-fees normally but should not be otherwise disturbed or needlessly provoked by outsiders. It is the businessmen wishing to attack our farm populations who need to look hard in the mirror – to improve their accounting, audit, corporate governance, to enforce anti-embezzlement and shareholder protection laws etc.”

In a September 23-24 2007 article in The Sunday Statesman I said:

“… Government, instead of hobnobbing with business chambers, needed to get Indian corporations to improve their accounting, audit and governance, and reduce managerial pilfering and embezzlement, which is possible only if Government first set an example.”

In a February 4 2007 article in The Statesman, I said:

“Financial control of India’s fiscal condition, and hence monetary expansion, vitally requires control of the growth of these kinds of dynamic processes and comprehension of their analytical underpinnings. Yet such understanding and control seem quite absent from all organs of our Government, including establishment economists and the docile financial press…. the actual difference between Government Expenditure and Income in India has been made to appear much smaller than it really is. Although neglected by the Cabinet, Finance Ministry, RBI and even (almost) the C&AG, the significance of this discrepancy in measurement will not be lost on anyone seriously concerned to address India’s fiscal and monetary problems.”

All three articles are available elsewhere here and are republished below together.  I have published elsewhere today my brief 2006 lecture on corporate governance.  (See also my “The Indian Revolution”, “Monetary Integrity & the Rupee”, “Indian Inflation”,  “The Dream Team: A Critique”, “India’s Macroeconomics”, “Growth & Government Delusion”, etc).

The fraud at Satyam amounts to it having been long bankrupt but not seemingly so.  The fact it was long bankrupt was apparently overlooked or condoned by its auditors Pricewaterhouse Coopers! This may be big news today but the response of corporate India and the Indian business media seems utterly insincere (and there has been a lot of fake pontificating on TV by some notorious frauds).  Remember the head of Satyam received awards with all the other honchos at those fake ceremonies that businessmen and the business media keep holding at this or that hotel.  (See my several articles here under the categories “Satyam corporate fraud”, “Corporate governance” etc.)

Government agencies, as enforcers of the law, must be seen in such circumstances to have greater credibility than the violators, but who can say that Government accounting and audit and corporate governance in India is not as bad as that of the private sector?    It may be in fact far, far worse.   Poor accounting, endless deficit finance, unlimited paper money creation, false convertibility of the rupee etc is what emerges from our supposedly wise economic policy-makers.

When was the last time some major businessman or top politician spoke publicly about the importance of “Generally Accepted Accounting Principles”?   The answer is never.   Government (of this party or that) has become well-oiled by political lobbyists and is hand-in-glove with organized business, especially in a few cities.  Until Government gets its own accounts straight, stops its endless deficit finance, reins in unlimited paper money-creation, creates an honest currency domestically and externally, there is no proper example or standard set for the private sector, and such scandals will erupt along with insincere responses from the cartels of corporate India.

What emerges from New Delhi’s economists seems often to have as much to do with economics as Bollywood has to do with cinema.

Subroto Roy, Kolkata

Fallacious Finance: Congress, BJP, CPI-M et al may be leading India to hyperinflation

by

Subroto Roy

First published in The Statesman, March 5 2007 Editorial Page Special Article http://www.thestatesman.net

It seems the Dream Team of the PM, Finance Minister, Mr. Montek Ahluwalia and their acolytes may take India on a magical mystery tour of economic hallucinations, fantasies and perhaps nightmares. I hasten to add the BJP and CPI-M have nothing better to say, and criticism of the Government or of Mr Chidambaram’s Budget does not at all imply any sympathy for their political adversaries. It may be best to outline a few of the main fallacies permeating the entire Governing Class in Delhi, and their media and businessman friends:

1. “India’s Savings Rate is near 32%”. This is factual nonsense. Savings is indeed normally measured by adding financial and non-financial savings. Financial savings include bank-deposits. But India is not a normal country in this. Nor is China. Both have seen massive exponential growth of bank-deposits in the last few decades. Does this mean Indians and Chinese are saving phenomenally high fractions of their incomes by assiduously putting money away into their shaky nationalized banks? Sadly, it does not. What has happened is government deficit-financing has grown explosively in both countries over decades. In a “fractional reserve” banking system (i.e. a system where your bank does not keep the money you deposited there but lends out almost all of it immediately), government expenditure causes bank-lending, and bank-lending causes bank-deposits to expand. Yes there has been massive expansion of bank-deposits in India but it is a nominal paper phenomenon and does not signify superhuman savings behaviour. Indians keep their assets mostly in metals, land, property, cattle, etc., and as cash, not as bank deposits.

2. “High economic growth in India is being caused by high savings and intelligently planned government investment”. This too is nonsense. Economic growth in India as elsewhere arises not because of what politicians and bureaucrats do in capital cities, but because of spontaneous technological progress, improved productivity and learning-by-doing on part of the general population. Technological progress is a very general notion, and applies to any and every production activity or commercial transaction that now can be accomplished more easily or using fewer inputs than before. New Delhi still believes in antiquated Soviet-era savings-investment models without technological progress, and some non-sycophant must tell our top Soviet-era bureaucrat that such growth models have been long superceded and need to be scrapped from India’s policy-making too. Can politicians and bureaucrats assist India’s progress? Indeed they can: the telecom revolution in recent years was something in which they participated. But the general presumption is against them. Progress, productivity gains and hence economic growth arise from enterprise and effort of ordinary people — mostly despite not because of an exploitative, parasitic State.

3. “Agriculture is a backward sector that has been retarding India’s recent economic growth”. This is not merely nonsense it is dangerous nonsense, because it has led to land-grabbing by India’s rulers at behest of their businessman friends in so-called “SEZ” schemes. The great farm economist Theodore W. Schultz once quoted Andre and Jean Mayer: “Few scientists think of agriculture as the chief, or the model science. Many, indeed, do not consider it a science at all. Yet it was the first science – Mother of all science; it remains the science which makes human life possible”. Centuries before Europe’s Industrial Revolution, there was an Agricultural Revolution led by monks and abbots who were the scientists of the day. Thanks partly to American help, India has witnessed a Green Revolution since the 1960s, and our agriculture has been generally a calm, mature, stable and productive industry. Our farmers are peaceful hardworking people who should be paying taxes and user-fees normally but should not be otherwise disturbed or needlessly provoked by outsiders. It is the businessmen wishing to attack our farm populations who need to look hard in the mirror – to improve their accounting, audit, corporate governance, to enforce anti-embezzlement and shareholder protection laws etc.

4. “India’s foreign exchange reserves may be used for ‘infrastructure’ financing”. Mr Ahluwalia promoted this idea and now the Budget Speech mentioned how Mr Deepak Parekh and American banks may be planning to get Indian businesses to “borrow” India’s forex reserves from the RBI so they can purchase foreign assets. It is a fallacy arising among those either innocent of all economics or who have quite forgotten the little they might have been mistaught in their youth. Forex reserves are a residual in a country’s balance of payments and are not akin to tax revenues, and thus are not available to be borrowed or spent by politicians, bureaucrats or their businessman friends — no matter how tricky and shady a way comes to be devised for doing so. If anything, the Government and RBI’s priority should have been to free the Rupee so any Indian could hold gold or forex at his/her local bank. India’s vast sterling balances after the Second World War vanished quickly within a few years, and the country plunged into decades of balance of payments crisis – that may now get repeated. The idea of “infrastructure” is in any case vague and inferior to the “public goods” Adam Smith knew to be vital. Serious economists recommend transparent cost-benefit analyses before spending any public resources on any project. E.g., analysis of airport/airline industry expansion would have found the vast bulk of domestic airline costs to be forex-denominated but revenues rupee-denominated – implying an obvious massive currency-risk to the industry and all its “infrastructure”. All the PM’s men tell us nothing of any of this.

5. “HIV-AIDS is a major Indian health problem”. Government doctors privately know the scare of an AIDS epidemic is based on false assumptions and analysis. Few if any of us have met, seen or heard of an actual incontrovertible AIDS victim in India (as opposed to someone infected by hepatitis-contaminated blood supplies). Syringe-exchange by intravenous drug users is not something widely prevalent in Indian society, while the practise that caused HIV to spread in California’s Bay Area in the 1980s is not something depicted even at Khajuraho. Numerous real diseases do afflict Indians – e.g. 11 children died from encephalitis in one UP hospital on a single day in July 2006, while thousands of children suffer from “cleft lip” deformity that can be solved surgically for 20,000 rupees, allowing the child a normal life. Without any objective survey being done of India’s real health needs, Mr Chidamabaram has promised more than Rs 9.6 Billion (Rs 960 crore) to the AIDS cottage industry.

6. “Fiscal consolidation & stabilization has been underway since 1991”. There is extremely little reason to believe this. If you