India will be witnessing its 16th LokSabha Elections soon, again; Indians will choose their leaders in the festival of democracy to rule over them.
Yet, can we say that Indian leaders and Indian voters have any sense of responsibility and clarity of issues on which one may raise the platform for the general elections?
Indian politics is no less mysterious than the blind labyrinth of Jantar Mantar.
No matter how much one may try to look for a right perspective and correct way to find out the path towards freedom, development, peace and progress through the political system of India, it is highly improbable for him to get any ray of light in dark alley.
Recently, Rajnath Singh, the party chief of BJP raised the issue of Ram Temple again.¹
Yet, the thing is, is Ram Temple really an issue of Justice, or is it a political gimmick?
Anyways, Indian sense of secularism is extremely debauched, so yes; Ram Temple can again be the issue for election. Since the start, Indian politics is working on rules of caste, creed and religion.
India is a country that may face major political change not on the issue of extreme inflation or high unemployment rates, neither on the number of poor farmers committing suicides and starving² , but the trivial issue of Ram Temple and Ram or on some further debauched issues of reservation on the name of caste, creed religion and sex.
Is it good for India, or is it bad?
What should be the issue for elections if not the Ram Temple? Should it be removing the illiteracy? Now that will be ridiculous, to remove illiteracy, we do not need government or government support, what we need is workers as teachers and investors to create schools. What we need is No interference from government in the process of providing education for all through private mediums, schools, channels and organizations. We do not want government to interfere in the process of educating and halt it uselessly by its worthless ways of licensing.
Can the election issue be employment? How logical it is to expect government to provide employment for all, or better ask can government really provide employment for anyone? No, that is not the work of government, providing employment is the work of Individuals, and entrepreneurs.³
In a free society, we individuals provide jobs and work for each other. If one makes a house, he actually provides jobs for the labor, architect, engineer, raw material providers and transporters. If one feels hungry, he provides job for the farmers, the vegetable growers, the milkmen and the distributors, the dealers and the shopkeepers, the vendors. If one needs shoes, he provides job for the shoemaker, if one needs a nanny or a housekeep or a house cleaner helping in home maintenance, he/she provides further job. If one wants to provide education to their kids, he further provides job for teachers, schools maintainers, guards, peons and all, if one want to go to market from home, they provides job for autorikshaw drivers, city bus drivers and maintainers, mechanics, garage owners etc.
In any Indian city, the individuals living in that city provide roughly 60% of jobs by means of self-employment. Enterprises provide further 25% jobs in form of big shops owners, constructors and IT sector majors, private schools and colleges, colony maintainers, private security guards, private hostels, ambulance, nursing homes, doctors, restaurants owners and hoteliers etc.
Municipality in form of governmental colleges, schools, police, and government hospitals etc provides further 10% jobs as in maintenance and administration, and the central government provides the rest of 5% jobs.
So yes, we cannot expect unemployment as a major issue for elections. In fact, what we can desire for, is a governmental policy to NOT to interfere in market, because in absence of government interference there can be only voluntary unemployment in a society.
Often people opt for voluntary retirement. They work hard for a period, make enough money to lead a good life and future, and then enjoy the leisure, roaming round the country, visiting new places.
A person seek for employment only when he considers the value of leisure lesser than the value he will get by labor of working for the employer, or when he realizes that he need more and he can make more than what he is making from self-employment while working for the employer.
There can be a scenario of unemployment for a seeker only if he is not ready to accept any job, which will provide him lesser value (as in terms of salary or work satisfaction) than what he thinks is necessary for him to work.
As for example, a graduate person in India may complain of unemployment, but what he complains is not lack of work, but lack of his desired work. If he desires a clerical job in some governmental office, then yes there may be some sort of unemployment, but if he is just seeking for an honest living by hard work, there is no lack of work. He can very well establish a beetle shop too, that is self-employment. Furthermore, for self-employment, it is easier to get loans or micro finance from independent firms.
Even a farmer wishes to enter the cities somehow to get work only if he feels working in city is more worthy than his self-employing work at his farms.
Can politicians make poverty an issue for elections?
As a matter of fact, it is also not possible. We know that politicians and government policies cannot tackle the issue of poverty in India. The only solution for poverty is to increase productivity of the poor, and that is not possible by any governmental policy, government interference may further reduce the productivity though, as it is the case of failure of trade unions all round the world. Productivity can be increased if the individual citizens are provided with more potential to create job opportunities, and for that, freedom for citizens is necessary, freedom to innovate and enterprise, freedom to entrepreneur and channelize capital resources freely.
Free education does not increase productivity of poor by any means; hence, education does not make him rich too. A study on poverty, and always changeable poverty line definition suggests,

while nearly 26.7 per cent of non-poor households have at least one graduate, just 8.5 per cent of ‘poor’ households qualify under this attribute.⁴

That clarifies the fact, that even a graduate can be a poor. As explained earlier too, poverty is comparative; we all are poor in some sense or other. A study on poverty in India by Planning Commission and NCAER under Mr S.L Rao⁵

In contrast, 8 per cent of ‘poor’ households own colour television sets, 4 per cent have telephones, 3 per cent have refrigerators, 3 per cent own cellular phones, and hardly 1 per cent have cars and credit cards each. But these ‘poor’ do own them.⁶

This shows that even many of us can be called poor by the measures of government, and even a “poor” can have cars and credit cards, refrigerators, mobile phones and colour television. This shows that the standards of poor are increasing progressively.
Obviously, the reason is the increased productivity of India through the liberalization process towards a more open and free economy as it was before under totalitarian socialistic system. As far as we go towards liberalism and libertarianism, towards free-market individualism, towards freedom from government and politicians, poverty reduces further.
Hence, political parties cannot make any of issues like poverty, education or employment as a political issue for the elections. What is left is again the dirty vote bank politics of caste, creed, and reservations, and religious differences and divide and rule politics, and unworthy ignorable issues of tussle like the Ram Temple.

1. BJP raising Ram Temple Issue, Times of India [↩]
2. GM genocide, Reason For Liberty [↩]
3. Population, Poverty and Production, Reason For Liberty [↩]
4. Planning Commission and NCAER study on Poverty in India, Rediff News [↩]
5. Planning Commission and NCAER study on Poverty in India, Rediff News [↩]
6. Planning Commission and NCAER study on Poverty in India, Rediff News [↩]

Of all the problems which the mankind faces, the greatest one is poverty. The history of mankind is full of famines and starvation deaths. Manipulative do-gooders have always proposed false remedies for poverty. Their remedies have only aggravated the very problem it was supposed to solve. The poor relief in ancient Rome and England tell a sad story. There is overwhelming evidence that all governmental interventions have unintended consequences. Yet, a great majority of the population supports such schemes.
If poverty is the fate of the majority of the living men on earth, and that all the remedies proposed to alleviate it leads to chaos, does that mean that it nothing could be done? Obviously not! There is no reason for poverty as we see now to exist if the ideal social system of the free market is instituted. Of all the nonsense written on poverty, the worst is the notion of vicious cycle of poverty. It has no theoretical or empirical basis. If it were true, mankind would have never risen out of the cave. We wouldn’t have achieved all the progress if poverty begets poverty.
A similar bromide which is uttered by most collectivists is that “The rich gets richer and the poor gets poorer”. Nothing can be more absurd than that. The poorest of today lives much comfortable than the richest of the past. It must be true that there is a huge gap between the rich and poor. But, the gap is not widening and the cause of the poverty of some is not the riches of the other. What the word ‘rich’ meant in the feudal era when people lived on the precipice of starvation and most children died out of it before long? The so called rich in those days couldn’t afford food, clothing’s or anything for that matter which the ‘poor’ can afford now. Once the majority had enough to eat of good quality food, the gap between the rich and the poor would never be an important issue no matter how many exotic delicacies are exclusively available to the rich.
The most popular remedy put forward in solution to the problem of poverty is redistribution of wealth. The supporters of redistribution schemes take the wealth which exists as the given. According to them, the only problem is the allocation of the resources. Their mind is too feeble to get the fact that wealth doesn’t simply exist on earth waiting for its allocation. Wealth is goods and almost all goods men use ought to be produced. One can’t redistribute wealth without reducing incentives for people to produce it. One can’t tax the rich without reducing the incentives for the productive to produce and the parasites to look for a job. One thing is for sure. The more you tax the less will be the total wealth produced as a whole. It is also obvious that the wealth which exists presently in the society, if divided won’t cure poverty. It should follow from both these facts that to solve the problem of poverty, more wealth is to be produced. Taxation can only impede the production of wealth. The greatest economic charity is saving and capital accumulation, which increases the capital invested per head and hence, the wages. This precisely is what taxation and government regulations prevent from happening.
If low wages are the cause of misery of some, it is easy to imagine what the effect of unemployment must be. However, there is nothing inherent in the free market which causes unemployment. Human wants are unlimited. There is always work to do no matter how the human society progresses as goods are physical phenomena and desires are mental phenomena. What causes unemployment is minimum wage laws and labor union coercion. When a minimum wage law is set, employees who are not worth that much gets fired. The same happens when labor unions forcefully set wages above the market level. It affects the employees who are the least skilled. It should be obvious that laborers have every right to organize. What I am against is not labor unions per se, but the forceful tactics of labor unions. The real victims of the so-called pro labor legislation is the least skilled among the laborers-mostly blacks and Dalits. What is shocking is that those who profess to be the defenders of the little guy are those who support such laws. Another farce conducted by the governments is make-work projects such as NREGA. Supporters of such programs such as Amartya Sen and Jean Dreze pretend not to know that the money for the program is taken away from the tax payer and if that money remained in their hands they would have created more employment and higher wages. They don’t even respect arithmetic.

Inflation is another redistribution scheme which affects the most poor. Contrary to the popular belief, inflation is an increase in paper money not backed in gold caused by the central bank (RBI in India, Federal Reserve in the US).Most people are unaware of the fact that the Central bank expands the supply of money and bank credit and this is what causes the prices to rise every year. If the central bank is abolished, prices would fall every year as the production of goods increase every year. In fact, prices have fallen continuously from the mid half of the eighteenth century to 1940 in the United States. It was the abolition of the gold standard in 1933 that caused the price rise later. Inflation is worst form of taxation, as it taxes both the poor and rich alike and the ones most affected are orphans and those who depend on pensions and annuities.
What lies behind these redistribution schemes is the belief that equality is some ideal goal, or that envy should be appeased. Why is equality an ideal? Why should people pander to the envy of the incompetents? The answers are not at all evident. The collectivists have no sane answers to give to these questions. The wealth of some is not the cause of the poverty of the rest. The rightfully understood interests of people are not in conflict with the interests of others. If the personal wealth of Bill is confiscated and divided among the poor, it can’t match the good he has done to humanity. The economic significance of the money the rich spend on luxury is negligible. Most of the wealth of the rich is invested in production, which means to serve the ultimate consumer.
We see that the richest men on the earth are running around like Santa Clause’s. What is interesting is that almost all of them are largely anti-capitalistic. They don’t realize that they are harming the poor by sending out the message that wealth distribution cures poverty. There is one way in which the poverty of the third world nations could be solved. It is by an increase in capital invested. If these nations encouraged foreign investment, businessmen would have invested capital and the wages would have gone up, as it would lead to more production. The only cure for poverty is a free, uncontrolled, unregulated market. But, this is not the goal of the anti-capitalists. They pretend sympathy towards the underprivileged, but oppose everything that would remove their misery!

Human wants are unlimited. There is no limit for the work to be done in this world. To assert otherwise would mean that we are in the Garden of Eden and have no need left to be satisfied. I don’t think that I have to state that we haven’t reached such a state and will never ever do so. It should follow from this that in a non-coercive society, there is no reason for involuntary unemployment. In a free society, free of government regulations and taxation, there would be employment for everyone who is willing to work.

Economists and other intellectuals who make a case for make work schemes pay no attention to this fact. I will let one among them to speak. “Take the case of education. There is an estimated under-supply of 400,000 schools. Can you imagine the number of jobs we would create if we decided to address this? Simply having one teacher per class, instead of the current one per five classes, would create two million jobs. The construction of the schools, canteen services for them, and all the eco-systems around each school would create millions of more jobs.” says the “brilliant” journalist, Sainath.

If there were truly an undersupply of schools, the market would have solved the situation (provided schools aren’t choked by government regulations which prevent them from making profits). Businessmen seeking profits would find the situation appealing and step in. The fact that they haven’t proves that it apparently isn’t the case. It is understandable that what Sainath would have meant is that there is a need for education. Need, however, is not demand. Need, to be demand, should be backed by adequate purchasing power.

“Government spending cures unemployment”, is an old fallacy in economics. It is backed by no theoretical or empirical evidence. The amazing naiveté with which the intellectuals push this theory is shocking indeed. I hope that everyone would agree that two and two equals four. If this much is understood, the fallacy in this view becomes evident. The government doesn’t create wealth. Everything that it spends is taken from the innocent tax payer-directly or indirectly. (Inflation is an indirect form of taxation.) If this very money which the government spends is let to the tax payer, he would have either invested it or spent it on consumption. Both would have created as much employment or more. There is no reason to believe that private spending creates fewer jobs than public spending. There is no reason to believe that a bureaucrat, who has only the moral responsibility, in general would spend the money more efficiently than the tax payer who has both moral and financial responsibility. Another fact which is being forgotten is that the money taken from the tax payer won’t be spent in the same manner the tax payer wants it to be spent. If it were so, there would be no reason for the government to step in. The tax payer would have managed by himself. The fact that the tax payer is being called to spend for some ventures is adequate proof that no one would willingly spend for these projects.

I have said that what the government spends is the money of the tax payer. How moral is it to tax individuals for ventures which they may not approve of? Wouldn’t taxing A to spend on B reduce incentives for both-the productive and the parasite? Wouldn’t taxation preventing employers from expanding production and prospective employers from being employers itself? Such coercive actions would indirectly lead to more unemployment, not less.

It is worth examining why the very problem of involuntary unemployment exists. If there is no limit for the work to be done, why should some people go without jobs? The answer is: Government regulations and labor union coercion. If a minimum wage is set at a particular rate, employees who aren’t worth that much would be laid off. The same goes for labor union coercion. Labor unions use coercion to prevent employees working a wage lower than they have decided. Intellectuals who advocate such measures are hurting the poorest among the workers-the very people they claim to protect!

There is a very widespread myth among Indian citizens about Education. Since 1947, Indian Govt is trying to achieve the goal of education for all.
In 1947, the population of India was about 360 million. In 2007, it rose to 1120 million.
Adult literacy rate of India is 61.8% that means; now we have more than 360 million of illiterates.

Let’s see how viable is the idea of education for all?

If India is 100% educated with reading/writing skills to everyone, which educated guy will clean the toilets, work on the construction site, do the entire blue collar labor which do not require that much education?
Those jobs still do not require reading/writing skills. Although people might say that by educated they mean having basic reading/writing skills,and that does not really qualifies a person for a white collar job. So its overall good for the society to have 100% educated society.

The problem is that people in India don’t realize the economic costs of teaching everyone, we were brainwashed into thinking that if we study only then we will be able to make a future, so we presume if everyone studies then it will make their future. Unfortunately it’s not true. Just studying does not secure your future. You have to be really good. For that bottom 1/3rd, its better that nobody waste their money on them, and let them do blue collar jobs.
I know people would hate me for saying these things, but imagine this, lets say the cost of teaching all the kids of India is half the wealth of Mukesh Ambani, and since Mukesh Ambani will not come to street just because we take half his wealth and invest it in educating the kids below poverty line, most people will suggest that we should take half of his wealth.
But the problem is, most of his wealth is in terms of investments, he will have to shut down half of his business, now imagine half of the Reliance industries shuts down, do people realize how many hard working workers will be out of job because of that?
And so many people dependent on them, what are these people going to do?
In fact if we reduce the taxes on everyone, it will actually help in the creation of more jobs.
Would you like to be served by a cup of tea by a child during your lunch time?
Sure I would love to, in fact a child DOES serves tea in most of the offices. Serving tea is a much better job for children rather than working in coal mines or candle factory.
Many people die of hunger and politicians uses it for their propaganda.
Why a person dies of hunger if he is not a lazy bum?
I mean isn’t the sheer fact that they are dying of hunger an indication that they are useless or lazy bums?
Don’t get into societal propaganda that poverty is something written in your fate, or some people are just born with it. Its bull shit.
Indian Govt is airing a ‘public service’ advertisement on the Television these days. It goes on talking about the thousands of villages that are still there without any proper sanitation hygiene available, and the diseases the people are suffering from.
It then suggest the necessity for hygiene to build a nation.
At one point you might even wonder after looking at the public service ad, that we do need a hygienic environment in India for our society to develop fully. But if you think a bit more morally, a question arises, should we spend money on “development” and welfare by unfairly taking it from those who really earn it (the honest tax payers), rather than allowing those people who earned it to spend it on their kids and make their lives better?
An average Indian would say that education is necessary for all because people lacking this basic skill of reading and writing, the illiterates are being cheated in the every sphere of the society, they are deprived of what they are supposed to get . But the irony of the fact is that also don’t know what they are loosing.
The question is, in order to provide them the basic opportunity, should we rip off the hard working people who work hard just to be make the lives of their kids better?
We believe in equality and equal opportunity, our govt tells us to take care of our parents, it provides us water, electricity, and god knows what not.
It is this deep hand of the government shoved in our throat which stops us from speaking or doing anything, leave alone growing. We have a development fetish, we think that in order to have our Mumbai and Delhi be like New York and Shanghai we must do something, get rid of the slums, kick out those people from Dharavi.
But this is the sole cause of all our problems. We KNOW government is inefficient, we know no matter how many times we put honest people out there, still they end up becoming corrupt, YET we cannot think beyond government, its like our only option. But it is simply not true.
So all we do in the end is hope for an honest person out there.
It is not the corruption which is the enemy of development, it is the government itself which is the enemy of development.

We should not forget that the population of whole USA is just around 310 million now and it has 99% literacy rate. We should also understand that with 61.8% of literacy rate in India, we have just double the number of literate people as there are in USA.

Second problem is our fetish with our culture. We must preserve our Indian culture, we must try to give our children some values. WE give them all the values but the ones really required.
Our kids copy all sorts of values from America, like dating, flirting kissing, but they fail to capture the most important value from America, that is, every man is for himself.
Do we teach the importance of “self-reliance” “self-importance”, “self-defense”, “self-respect” and selfishness? Do we teach them that they should not look for looting or begging from others for their own benefits?
If there is a vote, everybody must vote for everybody else. a farmer in Maharashtra must vote how the factories of UP must be run, no wonder people hate each other in India, and these differences are going to grow up real fast.
Our problem is, we are like a really rich man who rose from the rags, but still thinks like a slum dweller. We must vote for the guy who takes care of the poor, we are not poor statistically, but we must vote for a party which works for the poor.
We vote for a party which promises us everything in the world, but never promises what we really want. Why the politicians never fulfill their promises?
Because you want something they cannot give us, but since we want it, so they still give us the promises.
We want electricity without paying for it, we want education for your kids without actually paying for it. We want safe-drinking-water without actually paying for it, We want subsidized food without actually earning it.
If a politician promises to open a school for free education, for all, whom do you think is going to pay for the expenses of the school?
If politicians squeeze the tax payers too much they will simply revolt by not giving up their hard earned money to the government. Why will they accept the blatant loot of their hard earned money?
Seriously do we even think before we demand “we want education for all” that who is going to pay for it?
Money and wealth does not grow from trees. Some hard working businessman works for it, you demand more from him, and he starts to steal taxes (after all it’s HIS right to keep his money, not ours.)
Maybe its time when we should stop dreaming, stop drinking that Bhang every Holi and come down on earth and ask for something real. You cannot ask job for your son, because government cannot provide job to everyone, but ask something for the guy who would provide a job to your son, the businessman, the rich corporation.

The Nobel Laurete Paul Krugman, in his shockingly offensive article has put forward some solutions to the present economic crisis- Each one of them wrong and a dangerous step to take. He says that the non-financial economy is too desperately need of “help”. “The government should spend and spend. Let fiscal responsibility go to hell. We shouldn’t be concerned about the budget deficit at all.”

Let us take his points one by one.

1) “The Federal Government can can provide extended benefits to the unemployed, which will both help distressed families cope and put money in the hands of people likely to spend it.”

Wouldn’t extending benefits prolong unemployment? Wouldn’t it delay the shift of workers to fields where jobs are available? In the first place, the money put in the hands of the distressed families is taken from the tax payer. To say that it would increase spending is tantamount to saying that a robber would give a boost to the retail trade. In the second place, what we need isn’t more spending and consumption, but more saving and investment.

2) “The Federal Government can provide emergency aid to state and local governments, so that they aren’t forced into steep spending cuts that both degrade public services and destroy jobs. And this is also a good time to engage in some serious infrastructure spending, which the country badly needs in any case. What we need right now is more government spending.”

The only way the government can help not to prolong the depression is to reduce its role in the economy.It involves cutting taxes-especially taxes which tampers with saving and investment. It should also be kept in mind that all government spending is consumption. The ideal policy is laissez faire- Not to interfere in the economy in any manner.

Cost-Push Doctrine

The believers of the cost-push doctrine think that an increase in demand would not raise prices in a situation where unemployment exists. They think that it would lead to more employment and hence, more production. They blame the price rise on some arbitrary power such as the rise of some costs. The prices, in their opinion rise when certain costs rise and they would be satisfied to leave the matters at that. Let’s perform a mental experiment. Let’s keep the demand constant imagine what should happen in order to the prices to rise. It should be obvious that the supply should fall is the demand is kept constant in order for the prices to rise. We have already rejected a fall in supply as the cause of inflation. Hence, we should reject the cost-push doctrine too.

Wage-Push doctrine

People unsympathetic to labor unions hold that it is labor union coercion and wage demands that lead to a rise in wages and hence inflation. It is true that labor union coercion has serious repercussions. But, if it was only labor union coercion that was in action, it would only lead to more unemployment. When the funds to pay wages are fixed, the demand for more wages would lead to the firing of some employees. Yet, if the question is whether labor union coercion would lead to inflation, the answer would be that economically “No” and politically “Yes”. When labor unions demand for more wages, the government injects more paper money into the system to prevent unemployment. This leads to inflation. Here again, it is proven that the quantity theory of money is the only explanation for inflation.

Profit-Push Doctrine

The advocates of Profit-Push doctrine believe that the businessmen rise the prices in order to raise profits and this leads to a general rise in prices and hence, inflation. This stems from a gross misunderstanding of the market economy. It is obvious that they will have to cut down the sales when prices are raised recklessly. It is a characteristic of market economy that a striving for profits leads to an increase in supply and hence lower prices. Unfortunately, in many cases, the lowering of prices is obscured by inflation, the injection of paper money. What gives credence to this Profit-Push doctrine is that the nominal profits rise during inflation. Inflation shows the profits of business firms as a lot higher than it is. But, the fact is that real profits fall during inflation.

Crisis-Push Doctrine

Crisis-Push doctrine holds that a certain crisis as the Arabian Oil embargo of 1973 is the cause for inflation. A crisis can of course, explain a price rise of a particular item, such as oil or wheat, but it can’t explain a general rise in prices. When the price of a particular item rises, the price of other items does not rise, they in fact fall. People will have to divert their resources to products which’s prices rise and hence they would have to cut short their purchase of other items and hence their prices fall. When the price of oil increases, for instance, it reduces the sale of automobiles and hence its prices are likely to come down. A rise in price of oil too is likely to make substances such as copper, rubber, iron etcetera useless. The wage rates of the workers who work in processes of production that depend on oil also comes down. Hence, we will have to reject the Crisis-Push Doctrine too.

Wage-Price-Spiral Doctrine

Wage-Price-Spiral doctrine holds that the wages rise because prices rise and prices rise because wages rise and both leads to a spiral. The arbitrary rise in prices and wages were already rejected as the cause of inflation.

Velocity of Circulation Doctrine

Velocity of Circulation doctrine holds that an increase in velocity of circulation of money causes inflation. It is a classic example of the effect being seen as the cause. The increase in velocity of circulation is merely a cause and inflation is the effect. It is a rise in paper money that leads to high velocity of circulation of money and not the other way round. When there is a rise in paper money, people tend to buy anything and everything as they find it dangerous to hold money in their hands. This leads to a rise in prices. Here, it should be kept in mind that this phenomenon is only an effect of the injection of paper money, not as some statists would want us to believe.

Inflation Psychology doctrine

The advocates of inflation psychology doctrine are of the view that it is an inflation psychology that leads to a general rise in prices. When the workers anticipate that there would be a rise in inflation, they would demand higher wages. When businessmen anticipate inflation, they would raise the prices. But, this is not an adequate explanation. In the first place, how did this inflation psychology come in being? It is out of the hard won experience of people. If we had instituted a gold standard, there wouldn’t be any inflation and hence there would be no inflation psychology. Such explanations should be rejected beforehand.

Credit Card doctrine

The supporters of the credit card doctrine thinks that people holding credit cards needn’t hold as much money as they have to and this leads to more spending and hence an increase in prices. This, but, is an entirely fallacious notion. It would only lead to an increase in prices only because the banks can extent the line of credit. They can extend the line of credit only because they can create checking deposits which they lend out. Thus, we again come to the conclusion that only an expansion in money supply would lead to inflation.

Consumer-Installment-Credit doctrine

Advocates of this doctrine believe that the granting of consumer installment credit leads to more spending and hence inflation. This is true only to the extend that credit is granted out of newly created money. It would not be true if the credit was granted out of saved funds. If the credit was granted out of the saved funds, the savers first have to restrict their consumption before the consumer borrowers can expand their consumption. There is only a transfer of spending power from one group to other.

Consumer Greed doctrine

American President George Bush has accused that it is the greed of Indian consumers that leads to inflation. The supporters of this doctrine hold that it is the greed of consumers that lead to a rise in prices. But, it doesn’t give us answer to the question that where does they get the funds to spend according to their new greed. It may give us an explanation for the rise in price of a particular item, but not the rise in prices in general. They would have to restrict their consumption of other items if they purchase a particular item in excess. Moreover, greed would lead not to more spending, but harder work and greater supply.

Oil and commodity prices are soaring. Inflation has reached a sixteen year high. As the thief who cries “Catch the thief!” the politicians are blaming it on everyone else, except their own policies. Economists are placing the blame on a food shortage. Everywhere, the effect is being confused with the cause.

Inflation is, and always is, an increase in the supply of paper money or bank credit. When there is more supply of money, people value the money less. This leads to a general increase in prices. An increase in supply of bank credit too would lead to the same.

When money is injected in this mode into the economy, it first reaches the people whom the governments pay. Let’s assume that these are the defense contractors or the farmers whom the government pays subsidies. Then, the money ripples out and spreads through out the entire economy. When it ripples out, the demand for the goods increase and hence, the prices rise.

Usually, when there is a budget deficit, the Reserve Bank of India purchases government securities, against which it creates checking deposits. This is how paper money is created. It should be kept in mind that budget deficits in itself are not inflationary. Budget deficits are not inflationary if they are financed by bonds sold to the public paid out of real savings.It certainly doesn’t mean that budget deficits financed in this manner doesn’t have harmful consequences. It hampers production and misallocates resources.Inflation can occur even if there is a budget surplus if there is an increase in money supply notwithstanding.

Governments usually inflate in order to buy armaments during a war period. They inflate in order to buy the votes of the public without their knowing it. They inflate in order to provide subsidies to certain political pressure groups. They inflate under the false belief that it would cure unemployment. Inflation is in fact a tax we pay irrespective of our income levels. It leads to reckless income redistribution in a wanton fashion. It discourages saving and encourages speculation. It wipes out morality.

Inflation would always end in a crisis and a depression and worse, people would then blame the depression on the inherent defects of capitalism. It is worth remembering that people blamed the great depression on the inherent defects of capitalism and that led to sweeping reforms that took people into a welfare state oriented society.

The only cure for inflation is to stop the expansion of money and credit. It is as simple as that. If we had instituted a gold standard, which means, if paper money was redeemable in gold on demand, it would have put an automatic rein on the extent over which they can inflate. It would have stopped inflation altogether. And this exactly is why they abandoned the gold standard. And this is why we badly need it.

Inflation derives from the doctrine that what we need is not a gold standard, but monetary management. Monetary management, but is a euphemism for government manipulation of money and credit, which is the root of inflation. It should be remembered that a century back, every economist of repute believed in a gold standard. It required decades of government propaganda and obfuscation to change the tide.

The gold standard was abolished only because it wouldn’t let them inflate when it seems to them that they should. On a gold standard, each money would be defined in terms of gold and all international currencies would be anchored to each other. It would put a stop to fluctuating exchange rates and would lead to a fixed exchange rate.

There are economists who believe that monetary management is needed and we should increase the money supply in relation to the increase in goods and services. They believe, otherwise, that it would lead to deflation and depression. The absurdity of the doctrine becomes clear when we think that how we would compare the increase in goods and services in relation to the increase in money supply. It is true that if let alone, the prices would fall every year, but that wouldn’t affect the profit margins. The total demand would be sufficient to buy the products at lower prices and there wouldn’t be a depression or unemployment.

It is also believed by some pseudo-economists that inflation would cure unemployment. But, the real effect of inflation is to hamper production and reduce employment. The only situation in which inflation would boost employment is when a deflation has occurred and the labor unions are not to use their power to raise wages. But, to say that inflation is a cure for unemployment is tantamount to saying more drugs is a cure for withdrawal symptoms.