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Mises On India

India is as hostile to the domestic accumulation of capital as it is to foreign capitalists.

My engineering mechanics lecturer loved to say that a picture is worth a thousand words. I never found this convincing.  Many think that economics is dry and boring, but they are surprised when they hear that there were great economists who never used a graph or a chart, and that their work was far more important than that of the large majority of the economists who used them.

The great 20th century economist Ludwig Von Mises never used a graph or a chart in any of his works. I was an instant convert to Mises’ worldview because the “Library of Economics and Liberty” described him as an economist who believed that all sorts of government interventions lead to harmful consequences. It just made a lot of sense to me. Mises believed that statistics is not economics, and cannot produce economic theorems. I too believed this with some strength of conviction in my late teens and early 20s, though I no longer think that empirical data is worthless.

It is easy to find fault with Mises’ anti-empirical stance, but as Bryan Caplan says, Mises’ take on democracy is sounder than standard public choice, not because he had more data, but because he paid attention to the date he had. He had no illusions about the virtues or wisdom of the common man.

Most Indians, for instance, might think that his views on India are silly, and that he does not really understand India:

The Asiatic peoples are not justified in blaming the invaders for atrocities committed in previous years. Indefensible as these excesses were from the point of view of liberal tenets and principles, they were nothing extraordinary when measured by the standards of oriental customs and habits. The demands for liberty and self-determination on the part of the Asiatic peoples are a result of their Westernization. The natives are fighting the Europeans with ideologies borrowed from them. It is the greatest achievement of Europe’s nineteenth-century Asiatic policies that the Arabs, the Hindus, and the Chinese have at length grasped the meaning of Western political doctrines.

The East still clings to the idea that once hindered the development of capital in the Western world, the idea that one man’s wealth is the cause  of the poverty of others.The concept of the “underdeveloped nations” has arisen and the idea that it is necessary to give them technological advice, i.e., “know-how.” This is really ridiculous! There are lots of Indians, Chinese, and students from other countries in our universities who are very capable persons and who are acquiring know-how. And even if they weren’t, many Americans would be willing to go to those countries to work and to give advice. What they really need is the capital. What is lacking is capitalism.

British exported to India the modern methods of fighting contagious diseases. The result was a tremendous increase in the Indian population and a corresponding increase in the country’s troubles. Facing such a worsening situation, India turned to expropriation as a means of dealing with its problems. But it was not always direct expropriation; the government harassed foreign capitalists, hampering them in their investments in such a way that these foreign investors were forced to sell out.

India could, of course, accumulate capital by another method: the domestic accumulation of capital. However, India is as hostile to the domestic accumulation of capital as it is to foreign capitalists. The Indian government says it wants to industrialize India, but what it really has in mind is to have socialist enterprises.

A few years ago the famous statesman Jawaharlal Nehru published a collection of his speeches. The book was published with the intention of making foreign investment in India more attractive. The Indian government is not opposed to foreign investment before it is invested. The hostility begins only when it is already invested. In this book—I am quoting literally from the book—Mr. Nehru said: “Of course, we want to socialize. But we are not opposed to private enterprise. We want to encourage in every way private enterprise. We want to promise the entrepreneurs who invest in our country, that we will not expropriate them nor socialize them for ten years, perhaps even for a longer time.” And he thought this was an invitation to come to India!

What is called the American way of life is the result of the fact that the United States has put fewer obstacles in the way of saving and capital accumulation than in other nations. The economic backwardness of such countries as India consists precisely in the fact that their policies hinder both the accumulation of domestic capital and the investment of foreign capital. As the capital required is lacking, the Indian enterprises are prevented from employing sufficient quantities of modern equipment, are therefore producing much less per man-hour and can only afford to pay wage rates which, compared with American wage rates, appear as shockingly low.

But…..

If, as we believe, European civilization really is superior to that of the primitive tribes of Africa or to the civilizations of Asia, it should be able to prove its superiority by inspiring these peoples to adopt it of their own accord. Could there be a more doleful proof of the sterility of European civilization than that it can be spread by no other means than fire and sword? No chapter of history is steeped further in blood than the history of colonialism. Blood was shed uselessly and senselessly. Flourishing lands were laid waste; whole peoples destroyed and exterminated. All this can in no way be extenuated or justified. The men who represented Europe in the colonies were seldom proof against the specific moral dangers of the exalted positions they occupied among backward populations. Their snobbishness poisoned their personal contact with the natives. The marvelous achievements of the British administration in India were overshadowed by the vain arrogance and stupid race pride of the white man. Asia is in open revolt against the gentlemen for whom socially there was but little difference between a dog and a native. India is, for the first time in its history, unanimous on one issue—its hatred for the British. This resentment is so strong that it has blinded for some time even those parts of the population who know very well that Indian independence will bring them disaster and oppression: the 80 millions of Moslems, the 40 millions of untouchables, the many millions of Sikhs, Buddhists, and Indian Christians.

I think Mises was dead right. What is poorly understood is his view that:

“Wealth cannot be won by the annexation of new provinces, since the “revenue” derived from a territory must be used to defray the necessary costs of its administration.”

People want to believe otherwise, but this is why Colonialism was such a bad deal for Britain. The people who looked into the data could not help but admit that this was true, but they did not have the confidence of Mises who had plenty of common sense. For instance, Paul Bairoch says in “Economics and World History”:

“If one compares the rate of growth during the nineteenth century it appears that non-colonial countries had, as a rule, a more rapid economic development than colonial ones. There is an almost perfect correlation. Thus colonial countries like Britain, France, the Netherlands, Portugal, and Spain have been characterized by a slower rate of economic growth and industrialization than Belgium, Germany, Sweden, Switzerland and the United States. The ‘rule’ is, to a certain extent, also valid for the twentieth century. Thus Belgium, by joining the colonial ‘club’ in the first years of the twentieth century, also became a member of the group characterized by slow growth. It is obvious that this correlation is far from being proof that all colonial ventures had been economically counterproductive. However, nothing excludes such a possibility. However, this correlation can at least be a partial proof that colonialism has not been such a powerful force for development and industrialization.”

Today is Mises 132nd Birthday.

Post Script: Even today, most Indian journalists are clueless, but some less prejudiced fellows do recognize the merit in this view, though they are somewhat muddled in their thinking:

Swaminathan Aiyar writes:

“The contrast between India and Hong Kong shows that the old theory of colonial exploitation needs serious revision if not scrapping. But doing so would make the venerated leaders of our independence movement look foolish. I said, with the incontrovertible fact that the British plundered, looted and raped like all conquerors before them. Let us also grant that, unlike many previous conquerors, the British brought in modern systems of law, justice, administration and industrial organisation. Despite these plus points, I said, we in the Third World, regarded colonial exploitation as obviously evil. How, then, did this system permit Hong Kong to become richer than Britain?”

Manu Joseph, here:  

“The most enduring myth is that something called the freedom movement got India freedom, that the Second World War and the impoverishment of Britain had nothing to do with it, that it was just a coincidence that without Gandhi and other sepia barristers Sri Lanka still got its independence in 1948, and soon African colonies too broke free.”

But, what else would explain this? Lakshmi once told me that anyone who reads Indian history carefully will know that this is true. How could so many people miss it then?

3 Comments

  1. “British exported to India the modern methods of fighting contagious diseases. The result was a tremendous increase in the Indian population and a corresponding increase in the country’s troubles.”

    How so kind of them and how pathetic that we misunderstood them!

    I would consider somebody as sensible only if he refrains from commenting about issues on which his competence is negligible or nil. This sentence is not only utter nonsense, but much worse, given that it is also one of the premises of the argument.

    India’s population explosion started during the last years of the Raj, but vaccination at best was one among the 10 major factors. The major issue for rural India was the availability of food and it had went down ever since the European colonisation when the farmers were forced to cultivate cash crops and their traditional rights were violated. There was a significant decrease in population in the Eastern India even during 1940’s. The early Bengal famine (during the late 18th and ) was inflicted by the this imported system of ownership by which the tenants lost all rights up on the land they cultivated and their produce, and were at the complete mercy of the newly formed class of Zamindars or Jagirdars. The last years of Raj saw several peasant revolts. It is not that troubles of India that existed from 1950’s till mid sixties were not present during colonial rule. The voices of a population who got its right to vote could no longer be suppressed or ignored to the extend it was possible by the Viceroys, Sahibs and a non-accountable government.

    There is no doubt that we only need Indians to blame for what ever happened, good and bad, after 1950’s. And nobody in their sane mind would claim that Indians are exceptional. But this European exceptionalism is the attitude of a rapist who boasts “I taught the techniques of sex to that woman and she should be thankful to me”. I am not surprised, given that James Mill could write the history of a region without ever visiting it or even going through the primary sources. So much for the ‘White man’s burden’.

  2. Deke

    Mises neither argued from an anti-empirical standpoint nor would he have looked highly on those who deem it worthless. Empiricism deals with testing and experience, from both of which Mises asserts his economic theories. Omnipresent throughout history are human actions on which all economic graphs, charts, and models are based. Hence, an action precipitates each datum since an action resulted from an individual actor’s subjective valuations (also known as an “idea”) is required for its ascertainment. Mises submitted this:

    “What counts is not the data, but the mind that deals with them…. Galileo was certainly not the first to observe the swinging motion of the chandelier in the cathedral at Pisa.” -LvM

    *It’s like reading the news. Read what it says, but think differently.

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