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


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.




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…






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.




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.




                                                                      Frank Hahn (1925-2013)


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


27 April 2015 from Twitter: “My Pakistani hosts never managed to go thru w their 2010/11 invitation I speak in Lahore on Kashmir. After ‪#‎SabeenMahmud‬ s murder, I decline”

October 2015 from Twitter: I have started a quite thorough critique under #kasuri etc at Twitter of the extremely peculiar free publicity given in Delhi and  Mumbai power circles to the dressed up (and false) ISI/Hurriyat narrative of KM Kasuri; the Musharraf “demilitarisation/borderless idea that Mr Kasuri promotes is originally mine from our Pakistan book in America in the 1980s, which I brought to the attention of both sides (and the USA) in Washington in 1993 but which I myself later rejected as naive and ignorant  after the Pakistani aggression in Kargil in 1999, especially the murder of Lt Kalia and his platoon as POWs. https://independentindian.com/2006/12/15/what-to-tell-musharraf-peace-is-impossible-without-non-aggressive-pakistani-intentions/  https://independentindian.com/2008/11/15/of-a-new-new-delhi-myth-and-the-success-of-the-university-of-hawaii-1986-1992-pakistan-project/  I have also now made clear how and why my Lahore lecture (confirmed by the Pakistani envoy to Delhi personally phoning me of his own accord at home) came to be sabotaged by two Pakistanis and two Indian politicians associated with them.

Original Preface  22 November 2011: 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


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.


Part I

  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

Part II

  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

Part I

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?


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]

Part II

  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] 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.”

“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.


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.

Furthermore…. (12 August 2013)… as Karl Georg Zinn observed in his perspicacious review:

“Either all of positive economics is attacked with just as much scepticism as anything in normative economics, or we accept one and reject the other when instead there are reasons to think they share the same ultimate grounds and must be accepted or rejected together”(p.47).

Apropos *Philosophy of Economics*

Apropos *Philosophy of Economics*

“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. That is all the more piquant to me in that the philosophical underpinning of his work is the development of philosophy in England  from the later Wittgenstein, while mine derives principally from earlier work in the United States by the pragmatists… 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. Roy develops his position with a great deal of attention to the ramifications of the problem both in philosophy and in economics. While his treatment of economic questions is ‘from the top down’ so to speak, it reveals a strong command of conventional economic analysis. He writes very well and thinks very clearly. He is certainly not afraid to tackle the big questions. His book reveals a keen mind, ready to pay almost undue respect to his forerunners, but anxious also to achieve originality….” 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

“The author intends to discuss some of the central philosophical questions facing modern economic theory. In the foreground is a disposition of the conventional problem of value-independence. Roy sees the value-independence postulate as “Hume’s Scepticism”. He defines Hume’s First and Second Laws on the basis of two signified propositions taken from R. M. Hare. (1) From positive empirical premises, no normative postulate can be derived; in order to establish obligatory propositions, at least one normative proposition is needed. (2) In a specified economic context, after all empirical and formal/logical matters are resolved, little scope exists for further intersubjectively valid answers. Valuations beyond this limit are based on the subjective feelings of the economist to the concerned problem. The scientific/theoretical attitude representative of most economists of the 20th century has been based on this characteristic Humean scepticism. To show this, the author reviews short representative quotations from some of the known names of recent economic theory: Friedman, Myrdal, Lionel Robbins, P. A. Samuelson, Hicks, Joan Robinson, Hayek, Oskar Lange, Schumpeter, Arrow, Blaug, Frank Hahn. Subsequently, the author raises the point as to what explains this scientific-theoretical approval. A cursory survey of important real and virtual historical developments since antiquity confirms that the essential reason for the reported wide acceptance of a humean position by the economic scientist indeed could have been as a defensive posture against dogmatism and political dictatorship (“It is part of the democratic reaction against medieval authoritarianism” p.45). Conditioned by their “disgust with the tyrannies and ideologies of the twentieth century”, these authorities tried to protect economic science and guarantee the objectivity of research by resort to moral scepticism. Hence the author arrives at the starting position of his actual subject: After using Hume to escape from dependence on Plato e tutti quanti, has not value-free economics gotten into a fresh dependence, namely, moral scepticism and its philosophical consequence, moral indifference? Here too a contradiction is shown to arise, namely, that each argumentation against the normative can stand its ground only through normative premises. Thus ultimately something like correct standards become necessary. This however is only a marginal problem compared to a very much more important point: whether the moral scepticism permeating the strict scientific-theoretical position, is not just part of a very much more comprehensive scepticism, which includes Hume’s own criticism of induction as well. But then the same scepticism makes positive theory dubious as well: “Either all of positive economics is attacked with just as much scepticism as anything in normative economics, or we accept one and reject the other when instead there are reasons to think they share the same ultimate grounds and must be accepted or rejected together”(p.47). The author illustrates the difficulties with radical scepticism in a continental traversal of economic theory: micro and macroeconomics, mathematical economic theory and welfare theory are stations on this tour. A solution of the problem in the strict sense is not given nor could have been expected. But Roy delivers a methodical rule which permits a more exact definition of the limits to which normative discussion can take place precisely and objectively: first, to distinguish always whether an objective answer is at all possible to certain questions, and secondly, to ask who is competent or in the best position to give an answer. For readers interested in a new, thoroughly subtle discussion of a basic yet customary problem, this book will be profitable reading. However, the author could have argued some matters slightly more elaborately and others less redundantly, and set forth the central idea more clearly through appropriate summaries.” Karl Georg Zinn, translated from the German by NB, in 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










Did Donald Trump & Bernie Sanders get their Trade Policy from my 1983 Cato talk?

In 1983 Dr James Dorn of Cato Institute invited me to come from Blacksburg to comment on the influential papers then being given by the prominent trade economist Dr J Michael Finger.  I think I might have said I  hadn’t worked on trade since LSE days a decade earlier but Jim said something sweetly persuasive like “We want to put you in the limelight” — and limelight there was, a full house in Washington (the Capitol Hill Hyatt Regency I think), with the bright camera lights of C-Span and local television.

I do not recall what current trade issues dominated the agenda, certainly it was years before NAFTA or China were being discussed, perhaps tariff removal on US textiles, probably Japanese auto-imports: Michael Finger certainly gave a devastating example of the difficulty US beef exporters had entering Japan’s beef market at the time.

But whatever I said, as a 28 year old Indian from Cambridge and India,  was very well received by that packed Washington audience. And I did not say much more than offer a Hahnian-Keynesian scepticism about textbook economic theory being divorced from ground realities.








I seemed to recall coming from Blacksburg by car to give the Washington talk, but the letter Jim Dorn sent was to Menlo Park, California, where I had been in the summer; and later in Fall 1983 I was visiting at Cornell; I have not yet been able to reconstruct how I travelled to Washington, I would be surprised if I drove from Ithaca and back but perhaps I did.  (I had just driven from Blacksburg to California and back, then up to Ithaca).  The phone conversation about “limelight” must have been in the summer.




This was the operative part of my The Political Economy of Trade Policy: A Comment http://heinonline.org/HOL/LandingPage?handle=hein.journals/catoj3&div=72&id=&page=

From Twitter 21.10.2016 et seq: I recollect three interactions after the talk, Donald J Trump or someone like him was seated midway in the hall in an aisle, introduced himself praised the talk to me, and may have said “Remember the name”! (He looked like a “preppie”, like myself.) Bernie Sanders, or someone like him made a momentary comment as he charged by at speed; a third man said I “waxed eloquent”.
(Trump sat toffishly dressed in an aisle seat, congratulated me and introduced himself, Sanders charged out at speed after a momentary word…I recall three interactions after the talk, one each with Trump and Sanders, or someone like them.)

Half a dozen years later at the University of Hawaii in March 1989 I amplified the argument a little bit as follows:

“Risk-aversion explains resistance to freer trade (and explains  protectionism during a recession)

Textbook economics suggests world trade improves material welfare: consumers are better off when imports may compete freely in the home-market.  Yet from Adam Smith’s critique of mercantilism to modern theories of rent-seeking, domestic producers in import-competing industries have been described as trying to restrict international trade by tariffs or other means.  How is it producers so often succeed in persuading governments of the social costs of imports?  Why are there not (or not as many, or not as powerful) consumer lobbies?  Certainly there are high costs of organizing consumer lobbies relative to producer lobbies, but leaving that aside, is it possible  consumers are ignorant and irrational?  J. Michael Finger (1982, 1983/84) argued that in this respect consumers are in fact ignorant of their own best interests.

Roy (1983/84) suggested that a simple Keynesian observation offers a different explanation.  A domestic household may be definitely better off by trade-liberalization on the expenditure side of its budget but the increased competitiveness of the economy accompanying liberalization may so decrease the expected value of its income that a risk-averse household would prefer the trade-protected status quo and have no incentive to lobby for trade-liberalization.  Conversely, in a recession when the expected value of a household’s income declines, households have an incentive to lobby for trade-protection despite this worsening the expenditure side of their budgets.

The simplest of examples suffices to show all this.    Let x1 be a non-traded domestic good, and x2 an imported good, and let a domestic household have preferences

U (x1, x2) = x1α . x2β

α + β < 1; 0 < α, β < 1     (1)

Let x1 be numeraire, p’ and p be the world and domestic prices of x2 respectively, and t be the tariff-rate on x2 such that p = (1 + t). p’.  Let the household’s expected income be ya in the trade-protected state and yb in the trade-liberalized state, so its budget constraint is either

ya = x1 + (1 + t).p’. x2 in the trade-protected stated  (2a)


yb = x1 + p’. x2 in the trade-liberalized state      (2b).

Maximizing (1) subject to (2a) gives a “final utility” in the trade-protected state, Ua*.  Maximizing (1) subject to (2b) gives a “final utility” in the trade-liberalized state, Ub*.

Hence   Ua* >     Ub* as

[ya/yb]  (α + β)/β >     1 + t         where  (α + β)/β  > 1.

If income is certain in the trade-protected state but uncertain in the trade-liberalized state, a household’s risk-aversion will require loss in the expected utility of income in the trade-liberalized state to be offset by a gain in final utility that it receives as a consumer due to tariff-reduction.

E.g.,  let α = β = ½ and let the household have a certain income in the trade-protected state of $20,000; let it place a subjective probability of 1/4 on being unemployed with zero income in the trade-liberal­ized state, and 3/4 on maintaining the same income of $20,000.

Then Ua* > Ub* as [4/3]2 > 1 + t.

I.e., for any tariff-rate less than about 78% with these  particular data, the household may rationally think itself better off in the trade-protected state than in the trade-liberalized state, and hence have no incen­tive to lobby for the latter.

Cooper (1987) remarked: “There should of course be a strong appeal to consumers of imported goods for removing restrictions.  For a variety of reasons, political mobilization of consumers has been difficult in most countries.  Many of these consumers also are employed in producing tradable goods, and they worry more about their jobs than about the purchasing power of a given wage. But most goods that move in international trade are not consumer goods.  They are capital goods and intermediate products, and it should be easier to appeal to buyers of these intermediate products for import liberalization, because such buyers would enjoy a reduction in their costs.”  The sentence italicized above may be consonant with the simple point made here.

Richard N. Cooper “Why liberalization meets resistance” in J. Michael Finger (ed.), The Uruguay Round, A Handbook on the Multilateral Trade Negotiations, World Bank, November 1987.
J. Michael Finger, “Incorporating the gains from trade into policy”, The World Economy, 5, December 1982, 367-78.
“The political economy of trade policy”, Cato Journal, 3, Winter 1983/84.
Subroto Roy, “The political economy of trade policy: comment”, Cato Journal, 3, Winter 1983/84″

I sent it to Economic Letters but the editor Professor Jerry Green rejected it, perhaps because it was too simple and unpretentious. And it remained unpublished until I put it on my blog in March 2009.

Yes it is relevant to the trade-problem America may face today, and yes perhaps both Mr Trump and Mr Sanders were in my audience at Cato, I do not know.

From Twitter 21.10.2016: I recollect three interactions after the talk, Donald J Trump or someone like him was seated midway in the hall in an aisle, praised the talk to me afterwards; he looked like a “preppie”, like myself. Bernie Sanders, or someone like him made a momentary comment as he charged by at speed; a third man said I “waxed eloquent”.
From Twitter 09.11.2016: Trump sat toffishly dressed in an aisle seat, congratulated me and introduced himself, Sanders charged out at speed after a momentary word…I recall three interactions after the talk, one each with Trump and Sanders, or someone like them

see too https://independentindian.com/2016/11/24/fixing-washington-on-improving-institutional-design-in-the-united-states/

How to Budget: Thrift, Not Theft, Needs to Guide Our Public Finances

How to Budget:


Thrift, Not Theft, Needs to Guide Our Public Finances


By Subroto Roy


First published in The Statesman, Editorial Page Special Article, http://www.thestatesman.net, February 26 2008


For most family households in India as elsewhere, the time for weekly or monthly budgeting and accounting is a time of sobriety ~ when reality must be faced about which goals and desires can be achieved and which cannot, about how incomings and outgoings of family resources are going to be matched. The same holds for corporations when their managements must face their boards, shareholders or workers, though individual stakeholders in large corporations may be so ignorant of the facts or so small and insignificant in size that top management can get away with a lot of bluff.


When it comes to entities the size of countries, the scope for feeding illusions to the general public becomes enormously large; hence there is need for scientific honesty in government accounting and finance, and when that is lacking as it often is in any country, there is need for intense public awareness and vigorous criticism of what the government of the day may be up to with the public purse.




Mao Zedong once said “Thrift should be the guiding principle of our government expenditure”. Those who govern fiscal and monetary processes, whether autocratically or democratically, have a general duty to be frugal or economic in using resources that have been forcibly raised from the public and which could have been spent privately in other welfare-enhancing directions.


“One must not take from the real needs of the people for the imaginary needs of the state” said Montesquieu. National Governments “take” from the people not only via direct taxation (e.g. of income) and indirect taxation (e.g. of expenditure) but also via inflation ~ invisibly reducing the purchasing power or value of paper money and other paper assets by exploiting the government’s monopoly over currency-printing (a process that economists traditionally termed “seignorage” from the debasing of metal coins that kings historically indulged in to pay for wars).


In providing public goods and services, if a government does what it need not do it may end up failing to do what it must and which only it can do. “That part of the public expenditure, which is devoted to the maintenance of civil and military establishments (i.e., all except the interest of the national debt), affords, in many of its details, ample scope for retrenchment. But while much of the revenue is wasted under the mere pretence of public service, so much of the most important business of government is left undone, that whatever can be rescued from useless expenditure is urgently required for useful” (JS Mill).


Such an idea that “whatever can be rescued from useless expenditure is urgently required for useful” was used in Gordon Brown’s 2004 rhetoric as Britain’s Finance Minister when, for example, he said 40,000 jobs would be reduced in the UK civil services to release resources to enhance “frontline” public services like schools and hospitals.


From such a practical point of view, three questions must be typically addressed by any Parliament or Government trying to optimally align public expenditure and income in a budget placed before it:

(1) Is public expenditure allocated efficiently in given circumstances, in a manner that enhances the public interest to the greatest degree possible? If not, how may it be made to do so?

(2) Can income from government operations be enhanced in given circumstances? What taxation should be imposed, raised, lowered or abolished, why so, and at what least cost to the population?

(3) If government expenditure exceeds income from taxation and operations, how should the borrowing be financed at least cost? Is the government’s existing portfolio of assets and liabilities of different liquidity and term-structure efficient, or can it be improved?


Unfortunately, we do none of this in India and have not done so for decades. Indeed New Delhi’s establishment economists and the media have not ever even been thinking on such practical lines. Instead, each bureaucratic department tries to maintain or enlarge its own size and claims on public funds every year. What New Delhi does, in a nutshell, is to allow every Ministry (especially the military) to add a 10-20% inflation-premium to its previous year’s expenditures and assert a new claim during the Budget season. (The most accurate measure of inflation in India may be that involved in growth of nominal expenditure on Government’s bureaucracy). Organised business, organised labour, exporters, importers, farmers, women, and every sundry political lobbyist then assert their claims to subsidies and concessions as well ~ and some gargantuan number comes to be added up.


To that number must be added the vast annual expenditure on interest payments by Government on the public debt accumulated from previous years and decades ~ payments which keep afloat the entire banking system in India because our nationalized banks hold such debt-instruments as their main assets where customer-deposits are their main liabilities.


A crucial question in relation to the convertibility of the rupee has to do with international valuation of that vast public debt (hence valuation of the asset side of our banking system) in the event the rupee became freely exchangeable into gold and foreign exchange for the general public, not merely city-based super-elites and NRIs.


Once interest payments have been added to other government expenditures, some humongous number comes to be reached. That number, and how it breaks down between interest expenditures, military expenditures and other expenditures, is among the key variables to look out for in Mr Chidambaram’s forthcoming Budget-Speech. From it will be subtracted the total taxation and non-tax revenues of the Government ~ each after it has been subjected to its own political lobbying process by different interest groups who have managed to obtain access to the Finance Minister. The residual (government expenditure minus government income) is the “Gross Fiscal Deficit” which is how much the Government of India says it plans to newly borrow from the (mostly captive) domestic financial markets. That residual in turn will add itself to next year’s accumulating public debt on which interest payments will have to be then made. The Finance Minister and his spokesmen typically quote the Gross Fiscal Deficit as some percentage of GDP figures; a better ratio to look for may be the size of Government interest payments per head as a percentage of tax revenues per head.




The Union Finance Ministry no longer appears to exercise effective managerial control over the budgets and accounts of the innumerable publicly funded institutions, entities and projects in the country, nor even remembers how to do so. Everyone knows that the eventual aggregate result of public financial processes will be more deficit-finance paid for by silent and unlimited money-printing. Thus, for example, we see enormous building and construction plans being requested and granted for public institutions and agencies to indulge in ~ if the private builders and developers involved in such public contracts throw in an urban apartment or two for the heads of such institutions, who are powerful enough to be making the spending decisions with their friends, what does it really matter? Deficit-finance, arising from an abysmal state of government and public sector accounting, makes government corruption quite simple and straightforward if one thinks about it.


It is sad to say that the principle guiding our public finances may have become theft, not thrift, because political and administrative decision-makers throughout the system, instead of being sober, remain drunk when it comes to spending India’s public resources.

Against Quackery

Against Quackery



First published in two parts in The Sunday Statesman, September 23 2007, The Statesman September 24 2007



Subroto Roy



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



WASTE, fraud and abuse are inevitable in the use and allocation of public property and resources in India as elsewhere, but Government is supposed to fight and resist such tendencies. The Sonia-Manmohan Government have done the opposite, aiding and abetting a wasteful anti-economics ~ i.e., an economic quackery. Vajpayee-Advani and other Governments, including Narasimha-Manmohan in 1991-1996, were just as complicit in the perverse policy-making. So have been State Governments of all regional parties like the CPI-M in West Bengal, DMK/ AIADMK in Tamil Nadu, Congress/NCP/ BJP/Sena in Maharashtra, TDP /Congress in Andhra Pradesh, SP/BJP/BSP in Uttar Pradesh etc. Our dismal politics merely has the pot calling the kettle black while national self-delusion and superstition reign in the absence of reason.



The general pattern is one of well-informed, moneyed, mostly city-based special interest groups (especially including organised capital and organised labour) dominating government agendas at the cost of ill-informed, diffused anonymous individual citizens ~ peasants, small businessmen, non-unionized workers, old people, housewives, medical students etc. The extremely expensive “nuclear deal” with the USA is merely one example of such interest group politics.



Nuclear power is and shall always remain of tiny significance as a source of India’s electricity (compared to e.g. coal and hydro); hence the deal has practically nothing to do with the purported (and mendacious) aim of improving the country’s “energy security” in the long run. It has mostly to do with big business lobbies and senior bureaucrats and politicians making a grab, as they always have done, for India’s public purse, especially access to foreign currency assets. Some $300 million of India’s public money had to be paid to GE and Bechtel Corporation before any nuclear talks could begin in 2004-2005 ~ the reason was the Dabhol fiasco of the 1990s, a sheer waste for India’s ordinary people. Who was responsible for that loss? Pawar-Mahajan-Munde-Thackeray certainly but also India’s Finance Minister at the time, Manmohan Singh, and his top Finance Ministry bureaucrat, Montek Ahluwalia ~ who should never have let the fiasco get off the ground but instead actively promoted and approved it.



Cost-benefit analysis prior to any public project is textbook operating procedure for economists, and any half-competent economist would have accounted for the scenario of possible currency-depreciation which made Dabhol instantly unviable. Dr Singh and Mr Ahluwalia failed that test badly and it cost India dearly. The purchase of foreign nuclear reactors on a turnkey basis upon their recommendation now reflects similar financial dangers for the country on a vastly larger scale over decades.



Our Government seems to function most expeditiously in purchasing foreign arms, aircraft etc ~ not in improving the courts, prisons, police, public utilities, public debt. When the purchase of 43 Airbus aircraft surfaced, accusations of impropriety were made by Boeing ~ until the local Airbus representative said on TV that Boeing need not complain because they were going to be rewarded too and soon 68 aircraft were ordered from Boeing!



India imports all passenger and most military aircraft, besides spare parts and high-octane jet fuel. Domestic aviation generates near zero forex revenues and incurs large forex costs ~ a debit in India’s balance of payments. Domestic airline passengers act as importers subsidised by our meagre exporters of textiles, leather, handicrafts, tea, etc. What a managerially-minded PM and Aviation Minister needed to do before yielding to temptations of buying new aircraft was to get tough with the pampered managements and unions of the nationalized airlines and stand up on behalf of ordinary citizens and taxpayers, who, after all, are mostly rail or road-travellers not jet-setters.



The same pattern of negligent policy-behaviour led Finance Minister P. Chidambaram in an unprecedented step to mention in his 2007 Union Budget Speech the private American companies Blackstone and GE ~ endorsing the Ahluwalia/Deepak Parekh idea that India’s forex reserves may be made available to be lent out to favoured private businesses for purported “infrastructure” development. We may now see chunks of India’s foreign exchange reserves being “borrowed” and never returned ~ a monumental scam in front of the CBI’s noses.



The Reserve Bank’s highest echelons may have become complicit in all this, permitting and encouraging a large capital flight to take place among the few million Indians who read the English newspapers and have family-members abroad. Resident Indians have been officially permitted to open bank accounts of US $100,000 abroad, as well as transfer gifts of $50,000 per annum to their adult children already exported abroad ~ converting their largely untaxed paper rupees at an artificially favourable exchange-rate.



In particular, Mr Ratan Tata (under a misapprehension he may do whatever Lakshmi Mittal does) has been allowed to convert Indian rupees into some US$13,000,000,000 to make a cash purchase of a European steel company. The same has been allowed of the Birlas, Wipro, Dr Reddy’s and numerous other Indian corporations in the organised sector ~ three hundred million dollars here, five hundred million dollars there, etc. Western businessmen now know all they have to do is flatter the egos of Indian boxwallahs enough and they might have found a buyer for their otherwise bankrupt or sick local enterprise. Many newcomers to New York City have been sold the Brooklyn Bridge before. “There’s a sucker born every minute” is the classic saying of American capitalism.



The Sonia-Manmohan 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.



Why have Indian foreign currency reserves zoomed up in recent years? Not mainly because we are exporting more textiles, tea, software engineers, call centre services or new products to the world, but because Indian corporations have been allowed to borrow abroad, converting their hoards of paper rupees into foreign debt. Forex reserves are a residual in a country’s international balance of payments and are not like tax-resources available to be spent by Government; India’s reserves largely constitute foreign liabilities of Indian residents. This may bear endless repetition as the PM and his key acolytes seem impervious to normal postgraduate-level economics textbooks.



Other official fallacies include thinking India’s savings rate is near 32 per cent and that clever bureaucratic use of it can cause high growth. In fact, real growth arises not because of what politicians and bureaucrats do but because of spontaneous technological progress, improved productivity and learning-by-doing of the general population ~ mostly despite not because of an exploitative parasitic State. What has been mismeasured as high savings is actually expansion of bank-deposits in a fractional reserve banking system caused by runaway government deficit-spending.



Another fallacy has been that agriculture retards growth, leading to nationwide politically-backed attempts at land-grabbing by wily city industrialists and real estate developers. In a hyperinflation-prone economy with wild deficit-spending and runaway money-printing, cheating poor unorganised peasants of their land, when that land is an asset that is due to appreciate in value, has seemed like child’s play.



What of the Opposition? The BJP/RSS have no economists who are not quacks though opportunists were happy to say what pleased them to hear when they were in power; they also have much implicit support among organised business lobbies and the anti-Muslim senior bureaucracy. The official Communists have been appeased or bought, sometimes so cheaply as with a few airline tickets here and there. The nonsensical “Rural Employment Guarantee” is descending into the wasteland of corruption it was always going to be. The “Domestic Violence Act” as expected has started to destroy India’s families the way Western families have been destroyed. The Arjun-DMK OBC quota corrodes higher education further from its already dismal state. All these were schemes that Congress and Communist cabals created or wholeheartedly backed, and which the BJP were too scared or ignorant to resist.



And then came Singur and Nandigram ~ where the sheer greed driving the alliance between the Sonia-Manmohan-Pranab Congress and the CPI-M mask that is Buddhadeb, came to be exposed by a handful of brave women like Mamata and Medha.



A Fiscal U-Turn is Needed For India to Go in The Right Economic Direction


Rajiv Gandhi had a sense of noblesse oblige out of remembrance of his father and maternal grandfather. After his 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. The resolution was intended to flatter Sonia Gandhi but there was truth in it too. Rajiv, a pilot who knew no political economy, was a quick learner with intelligence to know a good idea when he saw one and enough grace to acknowledge it.



Rule of Law


The first time Dr Manmohan Singh’s name arose in contemporary post-Indira politics was on 22 March 1991 when M K Rasgotra challenged the present author to answer how Dr Singh would respond to proposals being drafted for a planned economic liberalisation that had been authorised by Rajiv, as Congress President and Opposition Leader, since September 1990. It was replied that Dr Singh’s response was unknown and he had been heading the “South-South Commission” for Tanzania’s Julius Nyerere, while what needed to be done urgently was make a clear forceful statement to restore India’s credit-worthiness and the confidence of international markets, showing that the Congress at least knew its economics and was planning to take bold new steps in the direction of progress.



There is no evidence Dr Singh or his acolytes were committed to any economic liberalism prior to 1991 as that term is understood worldwide, 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, thanks to Siddhartha Shankar Ray, by Rajiv Gandhi in hand at 10 Janpath on 18 September 1990 and specifically sparked the change in the direction of his economic thinking.



India is a large, populous country with hundreds of millions of materially poor citizens, a weak tax-base, a vast internal and external public debt (i.e. debt owed by the Government to domestic and foreign creditors), massive annual fiscal deficits, an inconvertible currency, and runaway printing of paper-money. It is unsurprising Pakistan’s economy is similar, since it is born of the same land and people. Certainly there have been real political problems between India and Pakistan since the chaotic demobilisation and disintegration of the old British Indian Army caused the subcontinent to plunge into war-like or “cold peace” conditions for six decades beginning with a bloody Partition and civil war in J&K. High military expenditures have been necessitated due to mutual and foreign tensions, but this cannot be a permanent state if India and Pakistan wish for genuine mass economic well-being.



Even with the continuing mutual antagonism, there is vast scope for a critical review of Indian military expenditures towards greatly improving the “teeth-to-tail” ratio of its fighting forces. The abuse of public property and privilege by senior echelons of the armed forces (some of whom have been keen most of all to export their children preferably to America) is also no great secret.



On the domestic front, Rajiv was entirely convinced when the suggestion was made to him in September 1990 that an enormous infusion of public resources was needed into the judicial system for promotion and improvement of the Rule of Law in the country, a pre-requisite almost for a new market orientation. Capitalism without the Rule of Law can quickly degenerate into an illiberal hell of cronyism and anarchy which is what has tended to happen since 1991.



The Madhava Menon Committee on criminal justice policy in July proposed a Hong Kong model of “a single high-tech integrated Criminal Justice complex in every district headquarters which may be a multi-storied structure, devoting the ground floor for the police station including a video-installed interrogation room; the first floor for the police-lockups/sub-jail and the Magistrate’s Court; the second floor for the prosecutor’s office, witness rooms, crime laboratories and legal aid services; the third floor for the Sessions Court and the fourth for the administrative offices etc…. (Government of India) should take steps to evolve such an efficient model… and not only recommend it to the States but subsidize its construction…” The question arises: Why is this being proposed for the first time in 2007 after sixty years of Independence? Why was it not something designed and implemented starting in the 1950s?



The resources put since Independence to the proper working of our judiciary from the Supreme Court and High Courts downwards have been abysmal, while the state of prisons, borstals, mental asylums and other institutions of involuntary detention is nothing short of pathetic. Only police forces, like the military, paramilitary and bureaucracies, have bloated in size.



Neither Sonia-Manmohan nor the BJP or Communists have thought promotion of the Rule of Law in India to be worth much serious thought ~ certainly less important than attending bogus international conclaves and summits to sign expensive deals for arms, aircraft, reactors etc. Yet Rajiv Gandhi, at a 10 Janpath meeting on 23 March 1991 when he received the liberalisation proposals he had authorized, explicitly avowed the importance of greater resources towards the Judiciary. Dr Singh and his acolytes were not in that loop, indeed they precisely represented the bureaucratic ancien regime intended to be changed, and hence have seemed quite uncomprehending of the roots of the intended reforms ever since 1991.



Similarly, Rajiv comprehended when it was said to him that the primary fiscal problem faced by India is the vast and uncontrolled public debt, interest payments on which suck dry all public budgets leaving no room for provision of public goods.




Government accounts

Government has been routinely “rolling over” its domestic debt in the asset-portfolios of the nationalised banks while displaying and highlighting only its new additional borrowing in a year as the “Fiscal Deficit”. More than two dozen States have been doing the same and their liabilities ultimately accrue to the Union too. The stock of public debt in India is Rs 30 trillion (Rs 30 lakh crore) at least, and portends a hyperinflation in the future.



There has been no serious recognition of this since it is political and bureaucratic actions that have been causing the problem. Proper recognition would entail systematically cleaning up the budgets and accounts of every single governmental entity in the country: the Union, every State, every district and municipality, every publicly funded entity or organisation, and at the same time improving public decision-making capacity so that once budgets and accounts recover from grave sickness over decades, functioning institutions exist for their proper future management. All this would also stop corruption in its tracks, and release resources for valuable public goods and services like the Judiciary, School Education and Basic Health. Institutions for improved political and administrative decision-making are needed throughout the country if public preferences with respect to raising and allocating common resources are to be elicited and then translated into actual delivery of public goods and services. Our dysfunctional legislatures will have to do at least a little of what they are supposed to. When public budgets and accounts are healthy and we have functioning public goods and services, macroeconomic conditions would have been created for the paper-rupee to once more become a money as good as gold ~ a convertible world currency for all of India’s people, not merely the metropolitan special interest groups that have been controlling our governments and their agendas.

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