A panel of “experts” appointed by the Government has recommended raising fuel prices.  The panel, headed by Kirit Parikh,  recommended a hike in domestic LPG by Rs 100 a cylinder and PDS Kerosene by Rs 6 a litre. It is not certain that what the panel called for will be implemented. Rangarajan Committee and the Chaturvedi Committee reports in the past went unimplemented.  Many newspapers reported that the panel is for deregulating fuel prices. It is not at all evident that a Government orchestrated hike in prices would be a genuine deregulation. If these goods are underpriced, certainly, the hike would be a welcome move. A hike in prices will certainly reduce fuel subsidy burden.

The findings of the panel, it is said, will be unpalatable to the government battling inflation. An increase in fuel prices, however, can’t cause a general rise in prices. Only an increase in money supply would lead to “price inflation”. If fuel prices rise, people will cut down consumption of fuel or other goods. There will not be an increase in aggregate demand. There will be no “cascading effect on food prices”. When subsidies to maintain low fuel prices are removed, the prices of other goods might come down. It will also reduce the fiscal deficit. (A subsidy of over Rs 71,000 crores was given in 2008-2009, at the expense of the innocent, long-suffering tax payer.) Price controls, needless to mention, are not a solution to price rise. Government enforced price controls to deal with price rise, as several economists have noted, is like “trying to hold down expanding pressure in a boiler by manipulating the needle in the boiler’s pressure gauge”.

Unfortunately, in India, the prices of fuels and fertilizers are administered by the Government. It should be obvious that no bureaucrat has the necessary information to set the prices of these goods. Lacking profit-loss signals, the prices set by the government would only be arbitrary. It is true that sometimes the market sets the price higher or lower than necessary to clear the market, but no one has the wisdom to correct these discrepancies. The market, left to itself will set this right. If fuel prices are higher than justified, it will send out the signal that it is profitable to produce fuel. More people will enter the market. The supply of fuel will rise. This will bring down the prices. If fuel is priced lower, producers will get the signal that it is not profitable to produce it. Some producers will leave the market. Soon prices will move towards a level which will clear the market. The market is self regulating.

It is important to recognize how the profit mechanism coordinates the market if we are to understand the harmful effects of price controls. Usually, price controls are thought of as a way to curb excess profits. But, in the market there is a tendency towards equalization of profits in all sectors. No sector can be more profitable than any other in the long run. If a sector is more profitable, there will be excess investment in two forms. One, more people will invest I the sector. At the same time, people already involved in the sector will plough back the “excessive” profits.

Government price fixing has harmful, unintended consequences. If the government sets the prices below the market level, there will be chronic shortage. Such a policy fails to take in account why prices are higher. Prices can be high only when there is an increase in money supply or a decrease in supply of goods. Price controls do nothing to cure inflation, which is purely a monetary phenomenon. When prices are set low, less people will produce the goods and the shortage becomes more problematic. The product disappears from the market, and there will be immense pressure on the Government to raise prices, if it is to cure the shortage. If the Government sets the price above the market level, it would lead to unsaleable surplus.

It is true that if the Government gets out of the price fixing business, there would be a sudden rise in prices. It might be painful to most people. But such short term pain is much better than the chaos price controls create. Shortages and unsaleable surpluses are just two such consequence of price fixing. There are several other consequences. Price controls create black markets. Customers become a menace to sellers. The quality of service comes down tremendously. People will have to resort to means of production which are expensive. There will be hoarding and delays in production. People will waste time standing in queues and searching for products. Price controls lead to further controls, and may ultimately lead to socialism, which will entirely wreck the economy. In short, Government price fixing creates chaos.

Read more on it “Reason of Price Rise and Consequences of Price Control“

Uniformity of Profit

Naturally, every body works to gain profits, everybody lives to sustain and comfort his life, profit is the only motive for a free individual to put up his endeavours in production and prosperity. Yet, the laws of natural anarchy also ride profits and that is the Uniformity of Profit principle. The principle suggests the natural tendency of a free-society towards establishing a uniform rate of profit on capital invested in all the different branches of production, be it steel production, grains production, oil industry, the shoe business or whatever. Profit, obviously is the difference between the sales revenues and cost of production.

The reason for such tendency of natural uniformity is the profit seeking nature of the free-individual. Investors prefer to earn higher rates of profits on their investment rather than the lower rates. That is natural, rational behaviour of man to seek maximum possible profits. Thus, other things being equal, wherever the rates of profits are higher, investors tends to invest their additional wealth, and wherever the profits are lower, they tend to withdraw their previously invested capital from those production sectors. The additional investment that thus reaches to any high profits providing production sector tends to reduce the rate of profits in that sector.
This happens because the additional investment increases the production and hence supply and availability of the products and that brings down the selling prices of the product. As selling prices reaches closer to cost of production, profit rates comes down. On the other hand, the production sector that initially was providing lower profit rates suffers lack of investment and hence lack of production and supply, which throws the prices of the products of that sector higher. As the selling prices increases, the profit rates of that sector also increases and hence, that production sector again becomes the higher profit providing sector. This rolling up and down of investments in various production sectors tends to bring equilibrium where the rates of profit in various production sectors tends to be uniform.

Benefits of Natural Anarchy

In a free-society, as the profit rates tend to be uniform, every sector gains enough investors. As every investor is driven by his profit seeking nature, he remains alert about consumers demand and that reduces the chances of malinvestment and hence over-production or under-production. The natural anarchy thus provides a balance between the production of all the essential products for our life and progress. Anarchy not only prevents but also remedies the mistakes of over-production or under-production if committed. If at the threshold of a high profit-rates providing sector, investors commits mistake of over-investment, it tends to over-production that decreases the rates of profit and hence further investment reduces resulting in lesser production and hence providing the necessary cure to the mistake.
Because of individual freedom and uniformity of rates of profit, each sector not only gains enough investors, it also gains enough human resources in form of workers, specialists, managers, entrepreneurs and inventors and that leads to over-all increase in rate of production leading to reduce poverty and scarcity at all fronts.
As natural anarchy tends to bring the uniform rates of profit for investors, it tends to bring uniform rates of earnings, wages and increments to the producers, workers and innovators involved in various sectors of production and services and hence establish a developed division of labour. Since, the free-society tends to bring uniformity of profits and earnings, the ills of economic inequality tends to reduce to minimal¹
because of which, class clashes, casteism, racism, and other sorts of irrational discriminations are reduced and that brings the environment of natural freedom for each individual being free to use his talents and endeavour to pursue happiness by earning it honestly and freely. Thus in a free-society, natural anarchy tends to bring happiness and progressive increase in production of each individual.

Ills of Interventionism and Central Planning

The government by means of central planning or interventionism often dislocates the harmony of free-market and hence breaks the chain of progress bringing chaos to the society. In presence of government interventions in forms of subsidies, taxation, prohibitions, licensing etc, the profit motive looses its essence, and instead of learning and leading the way of natural profit seeking tendency, investors are forced to invest based on government’s dictatorial interventions. This dependence reduces the investors’ incentive to invest and hence causes lack of investment. In absence of profit motive, neither the government, nor the investors by themselves get any chance to check the threshold of investment and production and that causes loss by means of malinvestment resulting in over-production in some sectors and under-production in different. Also, by means of subsidies, stimulus packages and forced production, government creates bubbles of boom that tends to burst ultimately causing malinvestment that results in loss of production, lack of investment, depression, scarcity, wastage of resources, corruption and unemployment. As the government interventions destroy the division of labour, society suffers lack of freedom, extreme differences between classes, casteism, discriminations and overall underproduction that bring in problems of poverty.
Conclusion: In a free-society, market follows the laws of natural anarchy and that provides freedom, progress, prosperity and increase in the productivity and profits of the free-individuals tending to solve out the social ills if present along with preventing and curing the economical mistakes by means of profit motive that works as a thermostat or the invisible hand to guide the society towards cumulative production and provide the individuals means to pursue their happiness honestly and freely. Government interventions prove to be fatal, destroying the profit motive that is the only possible means of checking the malinvestment, over-production and under-production. This results in economic chaos, making the birth bed for various social-ills by destroying the division of labour.²

1. Economic inequality based on freedom of individuals to exploit their own intelligence and talent is significantly less visible than the economic inequality that results because of forced planning or government coercion. The fact is greater freedom results in greater prosperity of whole society and less extreme width of economic inequalities, Freedom Versus Egalitarianism
2. Division of labour is the essential aspect of a free, prosperous and ever improving progressive society, Division of Labour

If you are a loyal reader of this blog you know that two of the major contributor of this blog greatly disagree with each other over the issue of legitimacy of Intellectual property rights.¹² I for one am against intellectual property rights, and I have tried my share to convince my co-author towards my viewpoint. I believe that upto some extent I have managed to convince her, except for I guess patent laws for innovation in Pharmaceutical industry³. But this article is not about whether copyrights are justified or not, in this article I want to convince the readers to utilize the innovation supporting framework of Creative Commons licensing which exists within copyright framework, and release their works under this licensing.

Copyrights Model

Under the copyrights model you release a work of your labor under the Copyright license as defined by your government. Most of the copyrights licenses over the world are similar to each other, and they grant the author/creator exclusive rights to use and sell that work. If a non-copyright holder wants to utilize the the copyrighted work, for commercial or personal uses then he must take the permission from the copyright holder to use that product. For personal usage, this permission is usually granted through the sale of the individual copies of the work. For example when you buy a book you are given the right of reading that book for personal use by the author. If you want to print that book and sell it, then you will need special permissions from the author. If you want to translate that book into another language, if you want to create a movie on that book, if you want to use the characters of that book, you will need special permissions from the author.

Creative Commons Model

In the Creative Commons licensing model, you first acquire the copyright of your work(as I mentioned earlier, its a framework within a framework), and then you let go of some rights on your work. For example you could allow people to use your work as long as they attribute it to you, use it for non-commercial purposes, and release the derivative work under a similar license, or you could release a work under Attribution license which means the user must attribute the usage back to you(otherwise he could do whatever he or she wants with it). A list of these rights which can be released on their own or in a combination with others are:

• Attribution (by) – Licensees may copy, distribute, display and perform the work and make derivative works based on it only if they give the author or licensor the credits in the manner specified by these.
• Noncommercial or NonCommercial (nc): Licensees may copy, distribute, display, and perform the work and make derivative works based on it only for noncommercial purposes.
• No Derivative Works or NoDerivs (nd): Licensees may copy, distribute, display and perform only verbatim copies of the work, not derivative works based on it.
• ShareAlike (sa): Licensees may distribute derivative works only under a license identical to the license that governs the original work.

For a detailed explanation please refer to the Wikipedia entry on Creative Common licenses⁴

Choose Creative Commons over Copyright

If you are a content creator, that is you write for a living, you are an architect, you are a rising or an established music artist, then all your creations are automatically covered under copyright. As a copyright holder only you can release your creation under a CC license. I am going to cover these cases of each individual content creators as examples and their reasonings on choosing CC over Copyright mode.

1. Architect: If you are an architect, then releasing your architectural designs under CC licenses benefits you more than anything. There are a very little things which change for you. Your work can be freely copied and distributed among students and other architects, and they all will bear your name underneath it. Even if you allow commercial usage of your designs, there is little in there for another architect to benefit from your design, at max he can modify your works and charge only the derivation fees from a client. Customers can freely build based on your designs, but then who really wants to create another Sears Tower in the same city, if a customer really likes your design, and wants to build his building exactly like that, chances are he will do it in a far enough city, from the original constuction and it will only spread your name, as the building will bear “Designed by: <your name>”.
   Even if you allow the least restrictive licensing of CC(that is as long as you are attributed all the usages are allowed, including commercial and derivates), no matter who uses that design to build their own, they will need to put your name over it as “Original Design: <your name>”. If you think this will enable someone from using your design and not attributing you, well then it does not prevent anyone from using your design under a copyright license either. You are free to form any commercial deals with any individual as long as you don’t grant them exclusive rights of your design.
   Warning: If you release a design under Creative Commons license, you cannot revoke it, that designs is now a part of the public domain. If you rely on selling same design to many many individuals, then don’t expect some profits which you usually would expect in a copyright model, although if you are the only Creative Commons architect in the city, then expect the city to be mapped out only in your designs. If you have never resold a design to more than one client, then this is ok.
2. Writer: If you are a budding writer, then releasing your works under Creative Commons allows the wider audience to be able to read your works. Consider this, you are not famous, but you release your work under Creative Commons license under which the general public is able to read your works. If someone decides to use your short story for their story collection(presuming you allowed commercial use of your work) then it gives you the fame, and more people are now going to know you. If someone wants to put your novel on their website they are free to do so as long as they are not selling it(if you chose it that way),this way more and more readers will come to know about your works.
   If you are already an established writer, then releasing your next major work under Creative Commons license(providing you don’t already have an agreement which prevents you from doing so), helps you reach more and more readers. I cannot comment on the amount of money you will make by releasing it under CC license, but you will be more famous than ever.
   Warning: If you release a book under Creative Commons license, you cannot revoke it, that book is now a part of the ever increasing public domain. If you are a writer to make money, then Creative Commons has nothing much to offer, but i
   f you are a writer because you love writing, then there is no better way to show your love for your readers than to release it under a CC license. There is no way of actually telling whether you will be making more money or less, but then be the first one to experiment.
3. Musician: If you are a music artist, then considering the massive monopoly a few artists have over the music industry you have a little chance of achieving any real success. If you get signed by a major recording label, you can become famous, otherwise there is little chance for you to achieve any major success. If you belong to a less famous genre(for example Goth-Metal, Reggaeton, or say Metal in India), then even a major recording labels will not come near you considering the small market for such music. If you release your music under a Creative Commons license you allow your music to be freely shared over the internet, used by podcastes, posted on the blogs, etc etc. Your chances of being heard by more and more people greatly increases. There is a great website for musicians who want to release their music under Creative Commons licences and that is Jamendo(http://www.jamendo.com/). Whether you are a music artist, or just a music lover, there is a great amount of music on that website which is freely available for download. If you would like to use any of those music for your production, there is a very easy and fast licensing process on Jamendo PRO! If you are going to create a youtube video and need a track go to Jamendo and freely download any track you like and use it freely in your personal non-commercial production.
   Nine Inch Nails(NIN) is the most famous band ever to experiment with Creative Commons licensing.⁵ They have managed to reach way more audience by their CC licensed music than they would have had they released the albums under the restrictions of Copyright.
   Warning: If you release a music piece under Creative Commons, you cannot revoke it, that music is now a part of the public domain. Other than that, if you are reading this blog post, chances are you aren’t really as famous as Metallica or Michael Jackson. If you want to stick with the Copyright model and want to be as rich as a Rock Star, go ahead, but let me warn you, the copyright model is failing miserably in the Music industry. People still go and buy paper novels because they like to hold the book in their hands, but the copyright model in music industry is on a demise. Release your music under Creative Commons on Jamendo, and post your link on the commens, and we will guarantee a few loyal listeners to you if not much.

I have tried to create a utilitarian argument for individuals to release their work under a lesser restrictive licensing scheme. But to be honest, the biggest reason why I support avoiding the use of Copyright is because I believe that copyright is only possible through government coercion. A free market will never prevent an individual from using his property in any manner shape or form by creating and respecting artificial property rights. If you are a liberty loving individual, then none of the above listed pros and cons should matter to you, just go ahead and pick up the least restrictive CC license for your next work and share ideas with the whole world. One of the biggest reason why in India we had an IT revolution is because of the lack of copyright enforcement in software industry, we learned to work on the most costliest software and ideas flew freely. Our whole IT industry is a service based industry, and there is little development of commercial software in India. We will not see software development of commercial products for a long time(well as long as American government keeps on creating artificial innovation in America through the artificial monopoly of IP rights).

We have released all contents on this blog under Creative Commons license, our reason is simple, if you like the content, and want to post it somewhere else, do it, but make sure to attribute it back to our site. The more people read about rationality and liberty, the better it is for us. If you would like to print our articles and distribute them for free among other people, please feel free to do so. If you would like to work on our articles and create a better version or your own version of those articles, feel free to do it as long as you link it back to us. Personally speaking I find nothing more smug than petty bloggers putting heavy handed copyright notices in their blog posts, or worse putting “DO NOT COPY” notices on their blogs.

1. Legal or Illegal : Copyright Violations
2. Violation of Copyrights is illegal
3. Patent laws:Beneficial or Bane
4. Creative Commons Licenses, Wikipedia
5. Nine Inch Nails Ghost I-IV

American experiment with Prohibition
In 1919 after public demand, the constitution of United States was modified to ban the sale, manufacture, and transportation of alcohol for consumption as 18th Amendment¹. Women groups such as Women’s Christian Temperance Union, had been pivotal in bringing about national Prohibition in the United States of America, believing it would protect families, women and children from the effects of abuse of alcohol.

The proponents of Prohibition had believed that banning alcoholic beverages would reduce or even eliminate many social problems, particularly drunkenness, crime, mental illness, and poverty, and would eventually lead to reductions in taxes. Until 1920s the Mafia groups were only limited to illegal gambling and thievery but after the prohibition there was a massive scope of profits in the black market. So the organized crime rose in America.

The situation became so bad that the lawmakers repealed the 18th Amendment in 1933 by 21st Amendment which made alcohol and liquor legal in US again.
Organized crime lost almost all its profit of the black market when alcohol was made legal in 1933.

J D Rockafeller(American businessman) wrote at the end of the prohibition era:

When Prohibition was introduced, I hoped that it would be widely supported by public opinion and the day would soon come when the evil effects of alcohol would be recognized. I have slowly and reluctantly come to believe that this has not been the result. Instead, drinking has generally increased; the speakeasy has replaced the saloon; a vast army of lawbreakers has appeared; many of our best citizens have openly ignored Prohibition; respect for the law has been greatly lessened; and crime has increased to a level never seen before.

As it turns out that people get more drunk, and the mafia becomes more stronger. This experiment of banning a perfectly legitimate commodity fails pretty much everywhere.

1950s-80s Gold and Import restrictions in India

Bombay had the biggest underworld in India, because that’s where the import of the prohibited items came to from the rest of the world. Dawood Ibrahim, Haji Mastan, Chota Rajan, Chota Shakeel, they all were smugglers(illegal importers) in the starting. Then police started hunting them and they started acquiring more and more weapons, powers and became more and more brutal.

Mumbai underworld mostly imported gold, western watches, weapons, drugs and electronic items. The huge profit margins created by the cheap gold prices outside India, and artificially increased prices in India, helped them hire the whole Police department for themselves. They kept politicians in their pocket. Now since import restrictions are gone, the underworld has been decimated, and the police inspectors take false credit for encount killing the underworld. The truth is, if the smuggling business was still profitable(that is India was still not liberalized) then these same cops would have been on don’s salaries.

Coal Mafia of Bihar

Although not exactly an example of a commodity trading ban, it explains how govt creates lawlessness by facilitating only the lawless people do trades of some commodities. Bihar the most mineral richest state of India(by Bihar I mean current Bihar+Jharkhand), and it has India’s largest coal, but you cannot mine coal freely, you cannot own the coal mines, and all the coal mines must be owned by the government. The government then contracts it out to the various private organizations. Since there is no individual claiming the ownership of the mines, this results in private individuals and government officials digging coal and selling it in black market. Govt orders their police officers to hunt down the peaceful businessmen who would have provided the coal in a more peaceful and consistent manner to the market, soon there are only organized criminals left in the business of coal mining. Because of the manipulation of market there is a huge arbitrage opportunity, and these Coal mafia organizations acquire power to own the police and the state government.

From Wikipedia page on Coal Mafia² :

The state-owned coal mines of Bihar (now Jharkhand after the division of Bihar state) were among the first areas in India to see the emergence of a sophisticated mafia, beginning with the mining town of Dhanbad. It is alleged that the coal industry’s trade union leadership forms the upper echelon of this particular arrangement, and employs caste allegiances to maintain its power. Pilferage and sale of coal on the black market, inflated or fictitious supply expenses, falsified worker contracts and the expropriation and leasing-out of government land have allegedly become routine. A parallel economy has also developed with a significant fraction of the local population employed by the mafia in manually transporting the stolen coal for long distances over unpaved roads to illegal mafia warehouses and points of sale.

This is a clear reason behind the failure of a mineral rich state such as Bihar.

Sandalwood smuggler Veerappan

Again we repeat the same story as in Bihar coal mines. Only the govt wants the rights to be able to cut the Sandalwood forests for its Sandalwood(which has a huge price in International Market). There is no private property rights over the sandalwood forests of Kerala, Karnataka and Tamil Naud. Because no individual owns these forests, and there being a huge profit margin for anyone who wants to cut them and sell them in the International Market, many independent illegal sandalwood smugglers and wildlife poachers sprung up. Soon the government had them arrested or killed for such activities. This lead to the rise of the most brutal bandit of those jungles, Veerappan. Veerappan earned $22 million dollars from sandalwood and $2 million from killing some 200 elephants for their ivory. He killed around 180 men in his lifetime.

Although Veerappan was very much liked among the local people, the situation could have been worse. Had these forests owned by private individuals, and if there were no restrictions on the trading of Sandalwood, Ivory and other animal products the forests wouldn’t have eroded that fast, and Veerappan would not have been born.

Drug prohibition in United States

Currently in USA there is a massive demand of drugs, but the govt puts severe restrictions on it. This demand has to be fulfilled from somewhere. Initially local drug dealers tried to fulfil the demand, but Drug Enforcement Agency(DEA) agents with their M16s and sophesticated technology hung the drug dealers, but irrespective of how much money they spend on fighting it, it just increases the profit margins of some of the most lawless people.
There is a brutal war going in Mexico right now.³
Mexican drug cartels which supply drugs to United States and Canada, these people have assault rifles, military-style semiautomatic rifles, hand grenades, and a variety of other military weapons.

This is what you give birth to when you try to restrict peaceful transactions like trading drugs, gold, watches, sandalwood.
The point I am trying to make here is, that Indian govt achieves great advantage when it keeps all the power in its hands, and blames the corruption of its components on the individuals placed on those positions.
You can keep on replacing the Train Conductors for next 1000 years but you still will not be able to have honest train conductors as long as they have the power of monopoly and free market’s competitive forces cannot touch them.
On the other hand, you eliminate the monopoly of Dept of Telecom(DoT) and you suddenly have honest linemen who refuse to accept bribes(I have tried bribing BSNL employees them they didn’t take it).

The solution for liquor deaths is not stricter punishment for those who are caught in the trade(as the Chief Minister of Gujarat Narendra Modi has suggested), but to remove all the restrictions on consensual acts between adults. There isn’t a single commodity in the the market which should be banned from trading or restricted in any way. The usual response to this suggestion is “Should we follow every policy based on the fear of the growth of Mafia?”, the answer of this is Mafia is organized criminals, they are essentially businessmen who grow based on the profits they acquired by peforming the transactions the government tries to prohibit everyone from doing. If that profit goes away, the mafia becomes weak. If that profit increases(because the government prevents more and more people from doing it thereby increaseing the profits by killing off the supply), Mafia becomes stronger and stronger.

There is no possible way to prohibit something by the use of force. The only way by which something can be prohibited successfully is to convince people to give things up voluntarily. The best example of that kind of prohibition is non-usage of beef in India and pork products in Islamic countries.

1. Eighteenth Amendment to the United States Constitution
2. Wikipedia entry on Coal mafia
3. http://en.wikipedia.org/wiki/Mexican_Drug_War

The author begins by clearly stating that this is not a book about blaming Nehru. He doesn’t question the allegedly “good” motives of Nehru, and is of the opinion that he was an honorable man. It is not the ends Nehru had in mind he questions, but the means he used to achieve them. He takes for granted that not many would argue against helping the poor. Using violent coercive means to achieve this end, however, produces the exact opposite result. This should be obvious. Nothing good was ever done through coercive means.

Sabhlok, who served the Indian Government for eighteen years, knows from his own experience that such policies breed corruption, poverty and inefficiency. He remembers an IAS officer who joined with him in 1982 saying that his “sole objective in joining the service was to make money”. He was once asked by a young man whether he moved to the Assam cadre from Haryana cadre as more money is to be made in Assam. In all the years he served the Indian Government, he didn’t come across a single officer who even compares with the public officials he met in Australia, where he works now. I don’t have to quote extensively from his work. Everyone knows these facts.

I find it really sad that Sabhlok’s attempt to set up a liberal political party in India didn’t succeed. India badly needs politicians who have studied political economy from a Classical and Austrian point of view. India, needless to mention, has never known the concept of liberty. Even when our freedom fighters and other politicians used words like “freedom”, they never clearly understood what it really means. A hampered market economy was the intellectual default. This wouldn’t have happened if people who know better had spoken up for the cause of Individual liberty. And that precisely is what books like “Breaking Free of Nehru” do.

I have, however, several differences with the book. I would like to mention it here. I don’t think Nehru’s motives were good. I think we should be really careful when branding the motives of a person as good, when the end result is chaos. Good-By what standard? We should remember the words of Ayn Rand-“Do not ever say that desire to do good by force is a good motive. Neither stupidity, nor power lust is a good motive”.

The author says that, in India, there was forceful expropriation of property and land in the manner of Robin Hood. Several thinkers, including Ayn Rand and her followers, have made this mistake. Robin Hood, in my opinion, was actually a good guy. I shall quote the philosopher Tibor Machan: “Often it is Robin Hood who is held up as the role model for justifying taxation: Didn’t he “steal” from the rich to “give” to the poor? Well, not, not really. In the original version of the legend, Robin Hood did just the opposite: He stole from those who stole from the poor and returned the loot to the rightful owners. In those days the upper classes, from the king to all his cronies, routinely engaged in extortion. They disguised this, however, with the phony claim that everything belongs to the king and his cronies. Yes, monarchs and those who rationalized monarchy spun this fantasy and managed to sell it to the people that they where the rightful owners “of the realm,” that they had a “divine right” to rule us. This way when the bulk of the country went to work on the farm or wherever, they had to pay “rent” to the monarch and his cronies.”

Like the author, I don’t think that progressive taxation is compatible with Capitalism. It is true that marginal utility of money decreases with increase in wealth, and a rich person cares far less for a thousand Rupees than a poor person. However, this doesn’t contradict my position. There is a limitless need for wealth. The total utility of the wealth a person has should go on increasing so long as wealth has any positive marginal utility to him. There is a need for more wealth so long as additional wealth has any marginal utility. Progressive taxation would only undermine savings and capital accumulation. Taxation is completely incompatible with Capitalism. There is also the Inherent immorality of taxing Peter to pay Paul.

There are some statements in the book, which libertarians like me can’t agree with. Freedom, the author says, is good, and anarchy is bad. I can’t disagree more. Anarchy is the logical end result of total freedom. Anarchy and Capitalism are fully compatible. There is no justification for a bunch of robbers to take money forcefully from you and providing you services, forbidding that you buy from others. All services, including defense and security services could be provided by private individuals. Government is in fact a criminal organization which robs murders and drafts the citizens in a particular geographical area.

The author makes a case for Government regulations quoting an example of a coal miner working under dangerous conditions. However, it is not at all evident that there is a need for a Government to ensure safety for the worker. In case a worker dies in a free society, the Insurance Company of the employer would have to compensate the employee’s family. Insurance companies, hence, would have a policy to make sure that its customers ensure safe working conditions, as their profits would depend on it.

Another point where I disagree with Sabhlok is on social security and public funded education. We libertarians don’t want the poor to starve or children to go without education. Quite the contrary! We believe that the society would deal with these issues in a better manner in the absence of Government coercion. Under Capitalism, people who deserve such aid would not be many and could easily be taken care of by private organizations and voluntary charity.

All said, I highly recommend this book to anyone who wants to understand Individual liberty in an Indian context. Also visit his Freedom Team Of India website, and consider joining the Freedom team.

If the supply is going to go down considerably(say because in Southern India its going to rain a bit too much thus destroying the wheat crop), the wheat farmers will be geared up to produce more wheat that season to compensate for the fall in supply thereby fulfilling the demand of the market. Thereby benefitting both the consumer and the farmer.

Similarly if its going to rain pretty well and it will result in sufficient harvest, the farmers will produce less, put less money on the crop and it will create a bountiful harvest.

Wouldn’t this foresight into the future going to help the poor farmers. Unfortunately we face two problems in realization of this scenario.

1. You don’t have such a psychic ability.
2. You cannot just convince the farmers out there that what you are telling them is true

That is, there is no such psychic ability possessed by anyone who can predict the future demand and supply with accuracy. The closest to such a prediction you can come to, is to study weather, study the crop cycles, study the soil, and then make an educated prediction. Even when you are able to make such a prediction you face the problem of convincing the farmers. Why should farmers believe you who says that there will be a shortage of Wheat coming harvest season, or believe me who says that there will be an abundance of wheat this harvest season. There must be a solution to this problem.

I bet the way most Indians are educated to think will think of a centralized government solution of this problem. One possible solution which was given to me by someone really smart went something like this:

Govt should organize a national level exam(on the scale of IAS-Indian Administrative Services exam), to find out the most intelligent soil, agriculture, wheat scientists and form a group which will then issue advisories on how much wheat the farmers must produce. This committee must be kept away from the political pressures, and must be paid very highly so that we are able to attract the most intelligent IITians-Agro scientists etc etc.

The problem with the above solution is, that it simply is the worst possible solution of the problem, it is so bad that its just going to worsen the problem. As long as the “National Advisory Committee” gives good recommendations its good, but when they will screw up which will happen more often than not, its going to create disaster. Plus it is actually no different than the Central Planning we have followed from Independence till 1990s, I am sure that gave us some amazing results. Also it basically excludes 99.99% of other people who could have been right.

So what’s an alternate more efficient solution? Wouldn’t it be better if every individual can take part in this process of prediction the wheat prices in future? Not only anyone wishing to take part must be able to take part, it should work more efficiently than handing out the power to a few individuals. It must penalize the participant if their prediction turns out to be wrong, and must give more weight to the prediction of an accurate individual.

The system would basically allow the farmers to sell wheat at a fixed price on a future date. That is if a farmer is producing wheat for the harvesting of June 09, and currently it is Jan 09, then he must not worry about the uncertainty of the wheat prices in future. Someone must assure him the price he is going to get.

Ladies and Gentlemen, presenting Commodity Futures.

Let me first explain you the concept of Futures contract. In finance a futures contract is a standardized contract to buy and sell a standardized quantity of commodity at a future date at a market determined price. The price is determined by the instantaneous equilibrium between the forces of supply and demand among competing buy and sell orders on the exchange at the time of the purchase or sale of the contract.

In simple words, if I am a wheat farmer, and you are a wheat price speculator, buy the wheat from me now, which will be delivered to you on a future date when the harvest occurs. If you think in the future the wheat price is going to be $700 per quintal, then lets sign a contract where you pay me $700 per quintal, and I will deliver to you wheat on that future date. If on that future date, the price of wheat is $700 or more, you make profit, if its less than $700 then you make loss. In either case the headache from my head of worrying about the future wheat demand is gone. My work as a farmer is now to simply grow wheat, and not worrying about the trading of the wheat.

This is a much better way to discover the future prices of any commodity compared to putting the burden on the poor farmers, or to give the task to one elite intelligent group of Oxford graduates. In this way anyone in the market can take part in the price discovery of the commodities. The risk of wheat prices plummeting has been taken off from the farmer, and is handed to the guys who are more focused on the task of predicting the future prices. If they succeed they make the profit, and they will trade even more futures and become larger contributor in the price discovery. If they fail they will be penalized for making the wrong prediction.

Futures trading is not new to the world. In fact from wikipedia entry on Futures:

The origins of futures contract can be traced to Ancient Greece, in Aristotle’s writings. He tells the story of Thales, a poor philosopher from Miletus who developed a “financial device, which involves a principle of universal application.” Thales used his skill in forecasting and predicted that the olive harvest would be exceptionally good the next autumn. Confident in his prediction, he made agreements with local olive-press owners to deposit his money with them to guarantee him exclusive use of their olive presses when the harvest was ready. Thales successfully negotiated low prices because the harvest was in the future and no one knew whether the harvest would be plentiful or pathetic and because the olive-press owners were willing to hedge against the possibility of a poor yield. When the harvest-time came, and many presses were wanted all at once and of a sudden, he let them out at any rate which he pleased, and made a large quantity of money.

In the modern times, Futures trading has been around in America for over two centuries. In 1848, the Chicago Board of Trade (CBOT – the world’s first modern futures exchange) was formed. In India the futures trading has been going on with some big government support since 2002. In terms of trading volume Mumbai Stock Exchange is world’s largest stocks and futures trading exchange.

Since my article is focused for Indians and I am using Wheat as an example, let me talk a bit about two major Commodity exchanges in India(there are more than 20 overall).

1. National Commodities and Derivatives Exchange(NCDEX) – Wiki – A regulated online commodity exchange based in Mumbai.
2. Multi Commodity Exchange of India Ltd(MCX) – Wiki – An independent commodity exchange based in Mumbai with 84% of Market Share in 2008.

Lets take an example of what a Wheat futures contract specifications in India consists of.

http://www.ncdex.com/product/Agro_product.aspx?comm=WHE

Name of commodity – Wheat
Ticker Symbol – WHTSMQDELI
Unit of Trading – 10 Metric Tonnes (That is one contract deals with 10 metric tonnes of wheat)
Quotation Price – Rs per Quintal (This means that if you read the price of Wheat contract Rs 830, it means that on the delivery date market thinks the price is going to be Rs 830 per quintal).

Tick Size – 20 paisa (that means the price of Futures contract can go up and down by 20 paisa or more.

Delivery center – Delhi (once the Futures contract expires you can take the delivery of the contracts from Delhi delivery center)

There are many other things involved with trading commodities, the details of which are out of scope of this article. The conclusion I wanna put in is that Grain futures trading can be a very powerful way to actually serve the people, to help the poor farmers by taking the risk off their hands, as well as make a living while doing that. There are tremendous risks involved with futures trading and you might lose all your capital in it. So instead of trying to become all out commodity trader, try to hedge your wealth with a real job.

Before you become any kind of trader I would suggest you to read this book by Nicholas Taub:
http://en.wikipedia.org/wiki/The_Black_Swan:_The_Impact_of_the_Highly_Improbable

“It is enough to mention the commercial crises that by their periodical return put the existence of the entire bourgeois society on its trial, each time more threateningly. In these crises, a great part not only of the existing products, but also of the previously created productive forces, are periodically destroyed. In these crises, there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity — the epidemic of over-production.”

So according to Marx and Engels, capitalist economies suffer from an inherent trait of periodic depressions. They go on to explain further:

“Because there is too much civilisation, too much means of subsistence, too much industry, too much commerce. The productive forces at the disposal of society no longer tend to further the development of the conditions of bourgeois property”

According to them, the root cause of a depression is too much prosperity. For better understanding of this subject, I would also like to cite the Marxian crises theory, which revolves around the concept of the falling tendency of the profits in capitalist economies. Marxist writers often use this in various ways to put forward their theory of Imperialism. However, I would restrain myself from explaining that here.

The basic premise of the overproduction doctrine is that a capitalist economy, as it gets more and more efficient with labor-saving machines introduced for the production of goods, moves towards a state of increased efficiency which leads to overproduction and that overproduction causes losses. Therefore the core reason behind the losses are overproduction and increased efficiency. Because of overproduction, there are no more profits in the economy, and hence the economy goes into a deep depression. So, it is the lack of profits which causes depression.

In order to debunk this Marxist proposition, we need to understand what causes profits to exist in the market. I will explain how profits never cease to exist in a non-stationary economy where consumers’ preferences and production conditions change so often. I will start of by quoting Austrian economist Ludwig Von Mises from his famous work ‘Human Action’:

“Profit is not related to or dependent on the amount of capital employed by the entrepreneur. Capital does not “beget” profit. Profit and loss are entirely determined by the success or failure of the entrepreneur to adjust production to the demand of the consumers. There is nothing “normal” in profits and there can never be an “equilibrium” with regard to them. Profit and loss are, on the contrary, always a phenomenon of a deviation from “normalcy,” of changes unforeseen by the majority, and of a “disequilibrium.”

What Mises says here is that the origin of profits (and losses) is due to the “disequilibrium” phenomenon. So how does this “disequilibrium” phenomenon actually express itself like in a real economy?

Suppose that a market is dumped with millions of tonnes of potatoes much more than the consumer’s desire to purchase. This causes the market gets cleared only when the prices decrease to a large extent. This might lead to immense losses to the farmers, but can these losses caused by the overproduction in one sector of the economy cause a recession? The answer is no.

Lets go further and ask, does this overproduction in any way lower the average rate of profit in the economy. Again no, it doesn’t. The partial overproduction in a particular sector of the economy leads to partial underproduction in some other sector of the economy. Like in our example, the overproduction of potatoes means that the equipments and labor that were used in growing potatoes could have been used better in some other sector of the economy.

How would this show up in the price levels? The prices of the commodities that are underproduced(because of employment of resources in overproduction of potatoes) will rise proportionately and lead to higher profits. The losses that are made in the sector where overproduction causes havoc is compensated by profits in the sectors where commodities are underproduced. In simple words potato farmers will be making huge losses and the wheat, rice, barley farmers will be making huge profits.

This is what Mises calls a “disequilibrium” phenomenon. The market always moves in a direction to minimize this disequilibrium, but almost never reaches equilibrium because of various factors like the change in consumers’ preferences, natural causes etc.

Having explained the basic misconception, I would also like to deal with such speculations which contemplate the possibility of an overproduction in every sector of the economy. People argue overproduction everywhere could lead to losses everywhere completely wiping out profits from the economy. But there is no need to worry, the market has answers again. An overall overproduction everywhere in the economy still doesn’t set the “disequilibrium” that exists between the preferred quantities of various goods into equilibrium. Here one needs to understand that people’s needs are humongous and can never be satisfied. The market can only try to provide the proportionate quantities of various commodities according to the consumers’ preferences. Profits (and losses) are nothing but the signals that guide producers to adopt to the consumers’ preferences, and they never would cease to exist.

Being a Socialist up till a few months ago, I spent countless hours figuring a way out to enable a central planner to somehow manage to order the exact amount of production required to satisfy the maximum demand for the maximum people, and I did reach onto some complicated unrealistic solutions, but nothing beats the simplicity and realism of the Free Markets.

1. The Negative GDP growth rate of India, Times of India
2. The Negative GDP growth rate of India, Times of India
3. Economic Crisis and stimulus by Government, Reason for Liberty
4. Falling prices is the cure of Deflation, Reason for Liberty
5. China, India and call for Free Market, Reason for Liberty

In his Biography, Greenspan wrote that he has always harbored nostalgia for the Gold Standard which guaranteed price stability. Further, he wrote that he doesn’t see the likelihood of its return in the near future and it is a necessary cost for the existence of the welfare state. What is this statement intended to mean? It is certainly that the Federal Reserve creates money out of thin air to fund the welfare state.Moreover,Greenspan got it all wrong.Price stability is both unachievable and undesirable. As Friedrich Hayek had once written ,the “impossibility of achieving in practice an absolute stabilization of the level of prices in a dynamic economy has been proven time and again.”

When he was asked in a recent interview whether he was wrong, he replied-”Well, partly.”
“A critical pillar to market competition and free markets did break down,’ Greenspan said. ‘I still do not understand why it happened.’” “Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief.” Was this the man who wrote this about the 1929 Crash that “The excess credit which the Fed pumped into the economy spilled over into the stock market–triggering a fantastic speculative boom.”? He blamed the fraud of Enron, WorldCom and Global Crossing on “infectious greed”. Wasn’t it Greenspan who wrote for the Objectivist Newsletter that “it is precisely the ‘greed’ of the businessman or, more appropriately, his profit-seeking, which is the unexcelled protector of the consumer?”
The greatest crime that Greenspan had done was not his inflationary policies during his term. It was that he “admitted” that his belief in enlightened self interest was wrong! Greenspan was just passing the blame to the market. Surely, this man is a hypocrite!

1. Indian government to Introduce new Carbon emission norms, Commodityonline news
2. Electricity in India, Wikipedia
3. Failure of European Green Initiatives, Reuters news
4. Failure of European Green Initiatives, Reuters news
5. Electricity in India, Wikipedia

1. India will soon face water shortage, NDTV
2. India will soon face water shortage, NDTV
3. Water crisis and solution, Reason for Liberty
4. India’s water shortage, Fortune reports

1. Alcohol Addict, Reason for Liberty

“India’s fiscal deficit is one of the highest in the world and the additional borrowings announced today will further put pressure on the deficit.”⁴

Fiscal deficit is the difference between what Government spends, and what it actually collects from the revenues and taxes in a fiscal year. Obviously, to decrease the fiscal deficit to convincible limits, Government will enforce further strict taxes, and hence will culminate the rate of progress while increasing poverty.
The governmental plans of spending have been a failure since always. We all know how corruption engrossed billions spent in the programs like Mid-day-meal schools, and PM-employment Programs etc. Here is a combined list of wastage and embezzlement of such grants and welfare programs compiled by the NREGA authority itself.⁵
Now, it is easy to complain the failure on corruption, but the reality is, all such welfare programs are the cause of such corruption because welfare-state itself is a form of corruption⁶ , forcibly looting the producers through taxes to squander the collected loot wealth in poor can never reduce poverty, it is robbery, corruption and wrong at the base, hence it causes further corruption (Boya Ped Babul Ka to Aam Kahaan se Hoye~~ As you sow, so you reap)
Above that, to invest for such welfare programs, Indian government borrows from international communities and takes grants and foreign aids too, and as we have already discussed, it further increases burden rather than being helpful.⁷
Whenever people talk of corruption in India, they start blaming it to degradation of morals and cultural backlash etc, and hence they start making a new platform for tyranny in form of Moral Policing, but such acts further creates anomaly and disruption because of the misplaced idea about corruption.
Corruption is not because of selfishness or greed, this corruption is the result of the sense of welfare and altruism, as altruism is a fake identity and always involves a certain extent of hypocrisy, it provides space for the growth of corruption. On the other hand, the promotion of rational selfishness always provide space of honesty, hard-work, free competition and undiscriminating comparisons of success or failure.
The idea of economic stimulus and bail outs is also inspired by the sense of Altruism and just like altruism, it is a paradox which in place of helping, cause further deterioration⁸.
First of all, one should understand the meaning and importance of failure and pain in common life.

The physical sensation of pain is a warning signal of danger, indicating that the being is pursuing the wrong course of action, that something is impairing the proper function of its body, which requires action to correct it.
This natural mechanism of pleasure and pain is very essential for any living being or human to actually realize the reasons and hence reality and course of right and wrong.
The example of mentally retarded children can explain it very precisely, who are born with a deficiency of such practical innate mechanical system of learning. Such children have no means of learning that what can and will injure them. The survival chances of such children are always less. The question of the possibility of a living being without having any of the five innate senses also depends on this.⁹

Failure is no different phenomenon; failure indicates that the course of action was flawed.
Providing economic stimulus or bail outs is nothing but the case of making the enterprises just like the mentally retarded children, with the sense of stimulus and bailout, government actually reduces the market’s capacity to judge what activities are profitable and what are causing loss. Without this capacity of understanding profit and loss, a market enterprise becomes as dependent as a mentally retarded child remains who just cannot experience pain, survival chance of child and such enterprises are always less and hence even if we bail out and stimulate them, they will fail again.
They will fail because by bailing out, we just reduced their capacity and freedom to check out the faults and get better actions. We reduced their incentive to discover all “non-productive-activities” and malinvestment of capital and resources and remove those causes of failure. Thus, all such economic stimulus and bailouts will not only hurt Indian citizens through burden of fiscal deficit, it will hurt the market and enterprises too by reducing their capacity to understand cause of failure and evolve a mechanism to rectify the failure. Such stimulus will help the failure to live long.
Thus, it should be clear that all these economic stimulus and bail outs are designed to shield people from the effects of bad decisions and faulty actions.
Many people also claim that it is all because of greed and capitalism.
What these people forget is the fact, that before 1991, India was a strict socialist country with complete control of government. In 1991, Indian monetary status was zero and India was facing dangers of bankruptcy and a declared economic failure state. We improved from that situation by means of economic reforms, liberalization of markets and a drift towards capitalism. Without capitalism, there was no way for Indian government to even to think about providing any sort of stimulus or bail out.
By announcing that in a school exam, nobody will be failed; school actually removes any incentive for children to actually work hard for learning and getting good grades, and hence hurts the process of learning. Why should a beggar work when he is already getting good food and other essentialities without working and attempting?
Similarly, why will a market enterprise search for and remove the causes of failure if it is provided security against any sort of failure through such bailouts and economic stimulus?
It is not as if governments do not realize this fact, that such helps are detrimental, yet politicians always support such stimulus by exhorting at the emotional causes of helping the failed enterprises and people who lost job. They do so not for helping the market to come above economic crisis, as they know that all such helps will increase the period of crisis only. They do so to gain emotional support of the voters so that they may maintain their stronghold at power, power to rule over people and nation by means of government.
Such economic stimulus and bail outs are no better than the politico-religious issues like Ram Temple and Babri Masjid. Political parties do not raise such issues to revamp religion or morality or spirituality (whatever!¹⁰ ) they do so to raise an emotional platform to gain vote banks and hence the power to rule.
For proper corruption-less governance, it is extremely essential to limit the government and keep it out of any sphere of economy, or religion because both are the spheres of Individual Liberty and right to live, freedom to act and express.

1. $9.44 billion further for Indian economic stimulus, bloomberg.com
2. $9.44 billion further for Indian economic stimulus, bloomberg.com
3. Economic Crisis and Fiscal Stimulus by Government, Reason for Liberty
4. $9.44 billion further for Indian economic stimulus, bloomberg.com
5. Complains of corruption in governmental programs, NREGA list
6. Welfare and Embezzlement, Reason for Liberty
7. Foreign Aid Vs Foreign Investment, Reason for Liberty
8. Altruistic Paradox, Reason for Liberty
9. Happiness, pain and pleasure, Reason for Liberty
10. Shackles of Indian Politics, Reason for Liberty

May we have our money back, please? Specifically, the £1 billion we donate in aid to India, a country rich enough to enter the space race.⁵

The above discussion establishes that it is beyond any doubts that India suffered because of foreign aids, not only the government squandered the foreign money, but also it caused the national debt and fiscal deficits too. It is also an established and well-proven fact that voluntary foreign investment always helps and reduces poverty on sides of the recipient and the provider too.
So why is Indian government involving Indian Tax-Payers money in donating as Aid for other poor nations? Why not let Indian entrepreneurs and investors provide investment rather than looting Indian tax-payers and providing the robbed money to others to waste it? Why cannot we learn from our own mistakes?
For any government, providing aid to poor nation is more a cause of making impressions and false superiority, but such falsified superfluous acts increases poverty alone. Providing aid to poor nation on account of tax-payers hard earned money is just like making a new Statue of Shivaji to show how impressive a political party is.⁶
Indian tax-payer individuals must oppose any move by Indian government about providing aid to any other nation. Better is providing a free market environment to facilitate investment by Indian entrepreneurs to those poor nations.
Indian government at present is providing aid to Nepal, Bhutan, Srilanka, Burma, Afghanistan and Bangladesh.⁷ Such aids surely cause wastage and will increase corruption and poverty. A much Better way to reduce poverty of the Indian sub-continent is, providing a free-market zone in Indian sub-continent, which will inspire and invigorate Indian entrepreneurs, investors and businesspersons to provide foreign investment to those poor countries and hence reducing poverty of whole Indian Sub-Continent.

1. India providing Foreign Aid to poor nations
2. Wasting $50 Billion on Major Irrigation, Times of India
3. World Bank Slams corruption on Aided, Indian health Care project
4. Welfare and Embezzlement, Reason for Liberty
5. A Complain against UK Foreign Aid to India
6. Indian version of Statue of Liberty, Reason for Liberty
7. Indian Foreign Aid Budget, pdf document

My friend at First Principles wrote in his blog post “The mystery of inflation, deflation and printing money”:

The RBI weekly inflation figures are out, and inflation in India is pretty much around what it was last week. So prices continue to rise at a steady rate despite rapid decreases in interests which have pumped crores of Rupees into the economy.

How do we explain the puzzle.

He then proceeds to explain the phenomenon using the “velocity of money” (the frequency at which money changes hands), saying that during recession people start to save more therefore the velocity of money decreases, and then he talks about a Keynesian prescription (although I am not sure whether Vipin supports it or not, or he is merely talking about it) for sending people checks to increase the velocity of money.

The best part of Keynesian theories is their appeal to common sense and the examples they use. But it is the common sense approach of Keynesian theory which makes them so wrong. Lemme give you an example on how Keynesian theories work.

Let’s say you and John M Keynes are traveling in a car with your chauffeur at 30 miles per hour on a smooth road with no other traffic. After traveling for some time, you encounter a steep uphill, the car’s speed comes down to 15 miles per hour because of the uphill, and the slow speed clearly frustrates you. Keynes suggests that if we push the needle of the speedometer down to 10 miles per hour, this will fool the driver into thinking that its traveling really slow, so it will try to apply more power and thereby more acceleration onto the car and the car will get out of this slow speed period which he terms as “the slowdown”.
Then the Car reaches the top of the hill. The driver still thinks he is driving at 15 miles per hour, but the car’s actual speed is 45 miles per hour, and there comes a downhill slope, and now the car is over speeding at 60 miles per hour, so the smart guy Keynes’ reply is that now we should leave the speedometer’s needle as is to reflect the actual speed.
At this point the driver suddenly realizes that he was over speeding, so he starts applying break, the car skids, swerves uncontrollably and slows down. To which rather than suggesting that car should be allowed to stop and to be fully controlled by the driver, Keynes shows a smug smile saying “See that is even more reason why we cannot trust the driver to drive the car, we are slowing down now push the speedometer needle down so that the driver will start applying more power on the engine”, and so another cycle of dangerous driving starts. People note down the amazing speeds this car is able to reach. You hire Mr Keynes to act as the guy who controls the speedometer because otherwise the driver is really stupid, and he will end up totally stopping the car and the car will never start again.

It sounds very logical for anyone who has never driven a car that its really common sense to play with the speedometer needle in order to control the speed of the car. But anyone who has actually driven a car knows that a driver is the best person who can drive the car, if its an uphill he will automatically change the gear to a lower setting and apply more power but not more acceleration to the car.

Our economy is exactly like this car, and the driver are the various entrepreneurs and businessmen(the participants of the economy). The speedometer needle is the interest rates, and other indicators of the economy, and mainstream economists are the faulty believers that playing with the speedometer needle actually helps in regulating the speed of the car.

Coming back to the topic, what really is money, and what is it so mysterious.¹

Money is basically just another commodity. Money is not a “special” commodity which does not follow any “special” economics rules. Money is THAT commodity which evolved in the market as the common medium of indirect exchange.

Every commodity is exchanged with respect to Money, and money becomes so mysterious because people always forget that money also follows the rules of supply and demand.
If Commodity’s supply is more and demand less, then its value would fall, and if its demand is more and supply less, its value will rise.

But since every commodity is exchanged with money, the supply of money equally counts.
If supply of money is more, and demand less, then the value of the money will fall, if demand is more and supply is less then the value of money will rise.

So in the exchange of money and commodity, if supply of money is more then more money will be transferred for the same quantity of commodity, that means the number which we use to represent the unit of the money will rise.
If the supply of money is less than the demand of the money, than less units of money will be exchanged for same quantity of commodity.

In simple words:

1. If the price of a commodity rises, it could be because either of the following two reasons:
   1. The supply of commodity has been reduced, and/or demand of commodity has risen
   2. The supply of money has been increased and/or the demand of money has fallen
2. If the price of a commodity falls, it could be because either of the following two reasons:
   1. The supply of commodity has been increased, and/or the demand of commodity has fallen
   2. The supply of money has been reduced and/or the demand of money has increased

So how do we tell by looking at the rise of prices of a commodity whether the demand and supply of that commodity has changed or the demand and supply of money has changed? Well if the prices of almost all the commodities you see around are increasing, then the chances are its not because the demand of every commodity has increased, rather its the money whose demand and supply has changed.

Despite of things looking that simple, mainstream economics and general public almost NEVER consider the demand and supply of money into the picture. Take for example last summer when the oil prices rose really high, George W Bush came out and blamed it on increased consumption of Indian and Chinese people.²Well the price of Oil has fallen down from $90 per barrel to $30 per barrel, does that mean now Indian and Chinese people have reduced their consumption to 1/3rd??

The truth is, that the oil and rice prices rose that much because they are highly transacted commodities in international market, and they are(especially Oil) universally traded in dollar. So if the supply of dollar increases, the per unit value of Oil in dollars will also increase. It has nothing to do with increased consumption or reduced supply of oil. I used to hear Bill O’Reilly almost everyday cursing the Oil companies for reducing their oil production strategically, when the oil prices were rising really high.

Now coming down to what is a recession, because apparently in Keynes world, recession occurs when driver falls asleep on the steering wheel and forgets to push the gas pedal. This is totally false. Recession occurs because the federal reserve stops inflating the money supply. So why does Federal Reserve stop inflating the money supply? The reason is that if Feds don’t stop inflating the money supply it will result in hyperinflation.

I would like to quote from my old post:

1) At first when price rises people think “Well this is weird, the price of this product has gone too high, but there might be some emergency, I will buy when the prices come down”, a housewife who needs a frying pan at this stage thinks the same and postpones her purchase of Frying pan for a later date when the prices drop.
2) Sooner or later, the people, and our housewife in the above example realizes that the Government plans to keep on inflating the money supply, and therefore the prices are going to rise more and more. Then she reasons: “I do not need a new frying pan today; I shall only need one next year. But I had better buy it now because next year the price will be much higher.” If more and more people think like that then everyone rushes to buy more and more stuff. People buy more and more rice to store for future when the prices will be even higher. The demand of Money falls down considerably and demand of products rises up even more. At this point the government is called to “relieve the money shortage”.
3) Soon the country reaches to a stage of “crack-up boom” where people say: “I must buy anything now — anything to get rid of money which depreciates on my hands.” The supply of money skyrockets (like last week Bush administration with a Joint opposition effort decided to mail everyone a check of $600), the demand plummets and price rise astronomically. Production falls sharply, as people spend more and more of their time finding ways to get rid of their money. The monetary system has, in effect, broken down completely, and the economy reverts to other moneys, if they are attainable — other metal, foreign currencies if this is one-country inflation, or even a return to barter conditions. The monetary system has broken down under the impact of inflation. This stage is also called Hyper-inflation.

If you are regularly perplexed by the mysteries of Money, or if you are unable to understand why is that when RBI is slashing the interest rates, the inflation is also going down, just follow the rules I wrote above in bullets, and remember that Money is just like any other commodity and it follows all the rules of demand and supply. Also slashing interest rates is like pushing the speedometer needle down. It does not really changes anything, but it just fools the drivers of the economy into thinking that they are going faster or slower than the actual speed they are going at.

1. “The Story of money, what causes inflation”, A good introduction would be to read
2. George W Bush claims growing India and China are responsible for inflation

“As we unravel the tangled web of protectionist argument, we should keep our eye on two essential points: (1) protectionism means force in restraint of trade; and (2) the key is what happens to the consumer. Invariably, we will find that the protectionists are out to cripple, exploit, and impose severe losses not only on foreign consumers but especially on Americans. And since each and every one of us is a consumer, this means that protectionism is out to mulct all of us for the benefit of a specially privileged, subsidized few—and an inefficient few at that: people who cannot make it in a free and unhampered market.”

Similarly, minimum wage laws although sounds supporting the lower-income-groups, yet they hurt the poor only, as an employer who could have managed providing employment for more unemployed in a limited amount of investment he can provide, is forced by such minimum wages laws to not to employ more workers. This not only increases unemployment, it further decreases production. The enforceable health-care premiums further reduces the capacity of investor to provide employment and increase production and that further increases poverty.
Indian media, economists and to a part government too, has always criticized any sort of protectionism on behalf of government. Our most proficient sector is service sector and we gain a lot from globalization and outsourcing. Obviously, if the Patriot Employers Act is applied, Indian workers will suffer unemployment. May be that is the reason why Kunal Kumar at Rediff news ⁴ has criticized the New Stimulus Plan.
Yet are we Indians not protectionists? India is well known nationalist-socialist country. The evolution of “Swadeshi” Idea of India is nothing different from American protectionism.⁵
Moreover, Indian nationalist-socialists encourage this faulty idea of protectionism “swadeshi” to moral policing too. That is what we saw on 26th of January when some nationalist-socialist goons of Ram Sena harassed some youth in Mangalore for dancing in pubs. Its month of February and soon we will see various groups singing songs of “Swadeshi” attacking malls, McDonald’s centres and Archie’s gift centres opposing Indian youth to enjoy the festival of love, opposing Valentine’s Day celebrations. It should be clear that any sort of protectionism not only decreases chances of employment, production and reduction of poverty, protectionism also increases tensions in different sectors of a society.
The best policy is no interference of government in economic sector or Individual’s life, let the Market be free, let the Individual be free.
We Indians should oppose not only the moral policing by government and political parties; we should oppose the protectionist “Swadesi” movement.
Do Not Give in to Evil but Proceed more boldly against it.

1. Obama Stimulus Plan, ET News
2. Obama’s stimulus plan, Rediff News
3. Murray Rothbard, Protectionism
4. Obama’s stimulus plan, Rediff News
5. Evolution of Swadeshi Idea, The Hindu

If we are to attain a state of complete liberty, the majority of the population must have a reasonably good understanding of Economics. People should realize that inflation is expansion of money supply and booms and busts are the result of it. They should be able to trace back shortages to price controls and unemployment to minimum wage laws and labor union regulations. They should be made aware of the fact that taxation is bleeding the economy and regulations are strangulating it. The study of economics should be an essential part of everyone’s education, especially the first hand and second hand dealers of ideas. A clear understanding of economics is necessary if we are save the civilization. It is the ideas which are held by the majority which determines the economic policies a society adopt. Hence, the burden is on everyone’s shoulders. The task demands an exacting morality. But, the rewards are worth the effort.

The teachings of economics are usually derided as it seems to be totally against the notions of conventional morality. For example, selling Gas during a cyclone at a higher price is the most logical thing to do and is beneficial to everyone stuck in the cyclone, but society gets furious whenever such a thing happens, and is considered as “Price Gauging” and is usually outlawed. Capitalism is also said to be the cause of alienation and other mental diseases. Karl Marx introduced this concept of alienation out of his hatred of the producing class, but it was later supported by psychologists like Erich Fromm and even some popular novelists like Chetan Bhagat. Such notions are the result of ignorance of the immense benefits Capitalism and a division of labor society bestows.

Capitalism is a politico-economic system based on the concept of individual rights. Capitalism is the only system which grants individual freedom to its citizens. A society with fundamental structure as capitalism was implemented largely as the result of the ideas of enlightenment age philosophers like John Locke and the founding fathers of United States. A philosophy which upholds reason-that reason is capable of dealing with reality, and the fact that there isn’t a life beyond grave have played a large part in the flourishment of Capitalism.

It is usually believed that a Government is required for the proper functioning of the society, but nothing can be further from the truth. Government is an agency which is given the power to initiate force against any individual in the society for the sheer purpose of preventing initiation of force in the society, but if the initiation of force itself is wrong and immoral, how can the government be the entity to prevent initiation of force. All services and goods, including defense and security services could be provided by private individuals. Some intellectuals argue that doing away with the government would provide private agencies with an unregulated power to employ force. Well how is this any different from giving unregulated power to a government agency, hence this argument contradicts itself, as who will regulate government bureaucrats and politicians other than themselves?

Economic freedom and political freedom are indivisible. Both are in fact, the different aspects of the same thing. It is usually said that we have all the political freedom we need, sadly we lack the economic freedom we could use. Most people think that the right to vote gives political freedom to the citizens. Then there are people who think that economic freedom means that a job or income is guaranteed. They usually utter bromides such as “a hungry man is not free” or that economic freedom means “the freedom to starve”. All these people are way off the mark. Economic freedom means one would be free to pursue his economic goals without the initiation of physical force from others. If a person wants to start working at a wage lower than which the labor unions and government legislation decree, he would be allow to work in a system which guarantees economic freedom. The employer would be free to hire a person, and the employee would be free to work. Economic freedom is a necessary, though not sufficient condition for economic security. It is widely believed that government measures such as social security are necessary for economic security, though the exact opposite is true.

One of the main reasons why people turn their deaf ears towards the teaching of economics is because of the morality of altruism. They are too dull to think for themselves, they think that one man’s loss is another man’s gain. The other reason is that to understand the theorems of economics, one needs a long chain of thoughts. What appears to be true in first glance, may not be true in reality. Irrational, short term interests too happen to play a large role in the opposition to economics and its teachings.
Envy plays a much larger role in the hatred of economics, as most people want their superiors to be taxed and humiliated. Whatever the reasons, it is evident that the vast majority of the people don’t agree to the teachings of economics. Their ignorance is taking us on the path of destruction. If we are to save the world, we should turn to the teachings of economics and other social sciences, which all lead to the same conclusions in the matter of social organization.

“We have to take counter-(measures) and sometimes corrective measures to ensure high domestic demand. While the government is taking fiscal measures, the RBI is taking monetary measures’‘

Let us see, will such fiscal stimulus can help economy?
Paul Krugman³ along with all other Keynesian economist keep stressing how Important it is for government to help market.
The idea of all Keynesian economists is people do not trust in market in the period of recession, and if market is left free in such situation, it will lead market to self-destruction, hence government should save the market.
It is also knows as consumerism. It states that spending of one individual becomes the earning of other person. Thus, spending generates income, so government should influence overall spending and encourage people to spend more. By doing so, recession can be averted.
Keynesian system works upon the theory of Potential Output⁴ which is the highest gross domestic product an economy can generate without increasing inflation, in a given pool of resources, that is labor, tools, technology. If the real output or GDP lags behind the Potential Output, government says it is recession.
If demand of products is not enough, it causes economic meltdown, as only some part of the pool of resources is used, other goes on waste or unemployed.
Thus, it makes sense when Keynesians says that government should do its best to maintain the demand as that will end the recession.
So what is Fiscal Stimulus?
Keynesians states that if during a recession consumers fail to spend, then it is the role of the government to step in and boost overall spending in order to grow the economy.
Yet, Government do not produce wealth so how it can increase spending? Government increases currency in the market to increase the liquidity, what it forgets is, currency is not the wealth: currency is just the tool by which we exchange wealth. There should be real wealth in order to increase spending.
Let us say a farmer produces wheat. He exchanges 20 kilogram of wheat for a pair of Kurta (shirts) from a tailor. That is, he funded for two shirts by providing 20 Kg of wheat. Wheat saves the tailor from starvation, on the other hand, Tailor funds for production of wheat by producing shirts for the farmer, which saves him against weather.
Now, the tailor needs rice and pulses too. So in order to buy rice and pulses, he decides to produce more shirts. For that, he needs more cloth, needles, and machine.
To buy more cloth, needles and machine, he pays some more shirts he produced and saved earlier. Thus, to increase his production, he needs to fund it with the real wealth he produced that is the shirts. Yet, if the production of shirt is stopped for some reason and he has no shirt to exchange for further cloth and needles, he would not be able to pay for more cloths. That will abort his idea of making further cloth and he will not be able to buy rice and pulses.
Government do not produce cloths, or rice or wheat or pulses. It produces currency or note, by increasing notes or currency in market, government cannot increase wheat, cloth, rice, or pulse. By increasing currency, it will increase inflation only, or the depreciation of the currency. Here is the explanation.
To increase production, the tailor needed more saved real wealth, that is, the shirts he produced. Similarly, if the farmer wants to increase his production by buying a tractor, he needs to fund his saved wheat, the real wealth in order to exchange for a tractor. Same way, other producers must have final, saved, real consumer goods; real savings, to fund the purchase of goods and services they require. Money is just the medium of exchange it is not wealth.
When government do not produce wealth, how will governmental outlays and stimulus packages will help?
The people government will engage in the all these stimulus programs and bail outs of banks and other non-productive-activities, will further expect compensation. To pay them, government will have to increase tax on those who are still generating real wealth. Thus, it will cause further loot, and will further decrease the potential of producers. Otherwise, government will take foreign help, thus increasing national debt.
India’s fiscal deficit is already high at 11% of the GDP.
It shows that any stimulus package from government in any form will cause further deficit, further problem for India.
What can help is the real wealth stimulus from governmental stores, if government provides market with real wealth, like wheat, rice, cloths etc, it will help, but then, it will decrease the export potential. Increasing currency will not help anybody; on the other hand, it will cause further inflation.
We must not forget that government can invest only that which it robbed from us in form of compulsory taxation.
It is a general belief that Governmental regulations can avert such economic meltdown.
We know along with USA, China is also facing economic slump and so is India. Now China and India both are well regulated economy so the belief is wrong.
American New President Obama is hell bent to revive US economy with his new deal and new stimulus plans. As explained earlier it is all futile and may lead to further closed economy with high tax rates and weaker producers
Singapore⁵ on the other hand is easing down with market providing more freedom reducing taxes.
Singapore government has decided to reduce corporate tax. Government has announced property and personal tax rebates for citizens too, that is more freedom.
The new Tax Cuts will lead Singapore closure to Hong Kong and the economic freedom will provide enough attraction for investment in service and manufacturing industries. Obviously, providing market freedom and reducing governmental interference is much better than the Bail Out packages, governmental Fiscal Stimulus programs, and more regulations and increased tax.

1. Mr P. Chidambaram,The Hindu Businessline
2. Mr P. Chidambaram,The Hindu Businessline
3. Paul Krugman, Keynesian Economist
4. Potential Output, Wiki Link
5. Singapore Tax Cuts, Bloomberg news

“High rates of taxation on cigarettes are forcing consumers to shift to cheaper and alternate forms of tobacco consumption. As a result, overall tobacco consumption is increasing, as the price of other tobacco products is very low,”³

Thus, by banning or increasing taxes on cigarette companies, government not only increases the rates of lung cancer, it increases the consumption of tobacco too making it a decision causing double disaster.
What if government increase hyper-taxes on tobacco, will it help?
Banning or restricting any thing never helps anybody, yet it increases black-marketing, it increases smuggling, and to counter all that, government will need a new force to control smuggling and black-marketing of Tobacco. In addition, black-marketing always increases consumption because it provides the demanded goods at much less price than the governmental prices.
Thus, even if government announces extreme high tobacco taxes, making even the Bidis too much expensive, it will not help anybody.
Yet it will make many people die of hunger and starvation in poverty.
According to reports, 25% families in and around Mangalore city are dependent on Bidi making⁴)
In India, 34 per cent of tobacco consumption is in the form of bidi. Snuff and chewing tobacco account for 35 per cent whereas 22 per cent of tobacco use is in the form of cigarettes. Bidi making is a large Industry in India, 1.5 million workers were employed in bidi making in 1990. According to the data on the number of workers in the bidi industry released by the Ministry of Labour, Government of India, the number of bidi workers in the middle of 1997 was 4.4 million. Therefore, between 1990 and end of 1997, the number of workers in the bidi industry grew almost threefold.⁵
Can government force this large Industry and the people involved to go out of business and employment? How logical it is?
Is it the case that by increasing taxes on Cigarette making companies, Indian government is promoting Bidi making Industry of India?
Let us check the validity of such move by government. In order to help national small scale industry of India, it bans or increases taxes on cigarette making companies. It will make smokers to opt for smoking bidis using gutkhas and other local cheap tobacco products which are much more dangerous than Bidis, furthermore it will also force people to keep increasing involvement in vibrant Bidi making industry which itself is hazardous.
Thus, any such move by government is anti-poor, anti-Indian.
In addition, one another move by government is to ban smoking on public places like trains, bus, etc. In general, such bans never help public, although these bans become a way for police to grab money from poor. It provides an incentive for police to catch poor person smoking in general compartment of trains, or on roads etc and harassing him, robbing him some Rs 5/- or Rs10/-.
What if government bans smoking in private property too. If you smoke in your home, you get jailed or pay a fine of Rs1000/-
Overall study shows that any sort of intervention in the tobacco market by government will cause havoc alone and will increase the rate of cancer.
On the principle of individual freedom, those who are worried about the perils of smoking have every right to work to persuade–but not force–others to choose not to smoke. Yet, the anti-smoking movement run by the government is anti-liberty, it is against the principle of Individual freedom, and that is why, in any case, it will never work but will worsen the situations.
May be that is the reason why The Delhi High Court on Friday⁶ struck down the Center’s October 2006 notification banning smoking scenes in films, saying onscreen
Smoking was part of an artist’s creative license. Justice Sanjay Kishan Kaul strike down the rules framed by the Center saying-

“Director of films should not have multifarious authorities breathing down their necks when indulging in creative act.”

I say, if government gets over its useless drive against cigarettes and cigarette making companies, it will reduce the dangers of Lung Cancer in India. Government must not intervene in Market.

“I like to think of fire held in a man’s hand. Fire, a dangerous force, tamed at his fingertips. I often wonder about the hours when a man sits alone, watching the smoke of a cigarette, thinking. I wonder what great things have come from such hours. When a man thinks, there is a spot of fire alive in his mind–and it is proper that he should have the burning point of a cigarette as his one expression.”
Ayn Rand Atlas Shrugged

1. The Fag End, Editorial Times of India
2. The Fag End, Editorial Times of India
3. Express India
4. Bidi Rolling in Rural Development, Study conducted in Karnataka
5. Ministry of Labour Report on Bidi workers
6. “Smoking in films allowed Delhi High Court rules” Times of India, 23rd of January 2009

A tax is a financial charge or other levy imposed on an individual or a legal entity by a state or a functional equivalent of a state (for example, secessionist movements or revolutionary movements). Taxes are also imposed by many sub national entities. Taxes consist of direct tax or indirect tax, and may be paid in money or as its labor equivalent (often but not always unpaid). A tax may be defined as a “pecuniary burden laid upon individuals or property to support the government […] a payment exacted by legislative authority.” A tax “is not a voluntary payment or donation, but an enforced contribution, exacted pursuant to legislative authority” and is “any contribution imposed by government […] whether under the name of toll, tribute, tillage, gable, impost, duty, custom, excise, subsidy, aid, supply, or other name.¹

Let me clear out the difference between Direct and Indirect Tax.
Indirect Taxes are attached to goods and services before a consumer uses them
The proper meaning of indirect tax is price of permission-to-live. There is not a single commodity, service or satisfaction in market, which you may acquire without paying the price of the permission to buy that product. That is, you are not “free” to buy. Either you pay government to buy a commodity like milk, vegetables, wheat, flour or salt, or you go without buying them. Since you cannot live without certain commodities and you have to buy them anyhow, you pay the government to buy those products. In other words, you pay government for living. It clearly shows that all ideas of a citizen to be free are just false, he has to pay for living his life, and if he will not pay, he will die.

“People often say death and taxes are the same, but this is wrong. Death is a taxable event, but taxes never die.” Anonymous

If you come to know that, “what price you pay, for buying commodities you live by, and what price you pay government for getting the “permission to buy your life” you will be astonished by the difference between charge of production and the charge of permission to buy.As for example, a handmade soap which one may get of Rs 3/- or Rs 4/- in market, costs merely Rs 0.80/- per piece, the producers takes Rs 0.20/- profit on each piece, so total price is Rs 1/- per piece of a soap cake, but production levies, excise duty levies, sales tax, and then buying tax makes it Rs 4/- per piece.
(An explanation from The Hindu Business Line²
Thus, it is clear that taxation makes living three or four times costly in a state.
It is also clear that living in a state is not free; we have to pay for living.
That is, Life is Not free, there is no fundamental right to life, and who collects the price of living, Yes, the government the taxation authority.
Now these levies and indirect taxes are variable on various products, the handmade soap is mostly used by poorest section of society, and government makes their life too, 3 to 4 times costly than what it could have been if there were no compulsory taxes.
Often people believe that government helps poor by these taxes through subsidies, and thus being under the influence of altruistic paradox, they accept taxation, as if they are helping poor section of society.
Let me clear out this false propaganda. Government never helps poor. Subsidies do not mean help, subsidies means rebate in levies and taxation. On certain commodities, government reduces taxes, or announce them tax free. You still have to pay the price of production.
Recently, Madhya Pradesh and Chhattisgarh government announced free food for poor and villagers, Dr Raman Singh announced Rice for Rs 2/- per Kilogram. Is government helping poor?
No, it is not so. What government has done is it has announced it won’t take taxes on rice, that is, government won’t take price of permission from poor to buy rice.
The actual cost of that rice is almost Rs 2/- per kilogram, or a little less, the producers takes their profits too. Thus, government is not helping anybody, what it is doing is it restricts itself from looting public on certain commodities and announces it as subsidy. To cover up the loss on tax-collection by these subsidies, government increases levies on some other products that are less used by poor and more by middle class or rich. Thus, government makes sure that it takes lesser price of living from poor, more from middle class and maximum from rich.
Let us forget the rich class, neither I am rich nor I guess are the readers of this blog are coming from families like TATA or Ambani or Birla or Bachchan.
Thus, government makes the life of poor 3-4 times costlier than what it could have been without compulsory taxation. Its effect on middle class is further extreme, which makes the life of a middle class man some 15-16 times costlier than what it could have been without taxes. Hence, we always remain poor. Yet, the rich suffers the most, and many times rich pays for our permissions-to-live, i.e. we owe our lives to richer class and we pay for the poor class, yet lives of all of us remains costlier than what they might have been without taxes. One more thing, this all happens in every sector. Government makes education costlier for poor, middle class and rich, yet it announces dreams of free education. Government makes water costlier and more impure for poor, rich and middle class, yet it announces “free-water”. I clarified how government causes water pollution and wastage and makes water costlier here. Government makes roads and electricity, it increases the actual cost of making roads or electricity and most often, we get worst kind of roads and we keep paying taxes. Read privatization of Roads.
Now, let’s come to Direct Taxes.
In the first part, I explained how we are not free and we pay price for our living. We pay price for every breath we take, and government takes that price. After all those loots and robberies by government, if somehow a person by his endeavors, courage and talent manages to save some money, property, he has to pay tax on it. So, you have to pay tax on your house, it a price of owning a house. That is, your house is not free, nor your right to own a house, you have to pay for the right to own house or any other property, there is no property rights or freedom “Property tax“.
Income tax also comes in same category. What is income tax? It is the price of permission to earn a living. Ohh yes you are not free, as a dutiful slave, you have to pay to your master if you want to live. How the hell one can live without earning? If he wants to live, he needs to earn and hence he need to pay tax. Life is not FREE; there is no right to life. If you want to innovate and begin an enterprise, you need to pay for permission as there is Corporate Tax, if you don’t want to be unemployed, you need to pay for permission as there is Self-Employment Tax.
The difference between direct taxes and indirect taxes is, in Indirect taxes, government can force a particular sector to bear the charges of permission for all, those who pay direct taxes, cannot demand reimbursement from others.
Remember, all this discussion of taxes is about a statist system which is completely free, there is no corruption, no bribery no embezzlement. Still, since taxes themselves are loot, everything is costly, but in real state authoritative system, corruption, embezzlement, scams by government, bureaucrats, clerks, corporate, babus and politicians also comes in the calculation, making the life further costlier than what it could have been in free market.
Now the question how government misuses taxes, as I explained indirect taxes by example of subsidized rice in Chhattisgarh and MP and in other south Indian states, by announcing such misleading subsidies and making people think government is helping poor, government delude public and wins votes. Many times, it creates reservation groups to maintain vote banks, its all illusive help.
Taxation provides total control in government hands and government uses that control in propagating its plan. As for example, recently, MP government arranged Surya Namaskar Program³ in whole state on December 21st in all schools, government or private (there is no private school in India, either they are government schools, or autonomous government supported schools or licensed schools). It is simply misuse of authority to propagate theocracy, and our taxes are being used.

1. Taxation, Wikipedia Link
2. The Hindu Businesshere
3. Surya Namaskar program, Indian Express