No amount of welfarist blab can prove that their poverty has been caused by capitalism. On the contrary it is the absence of capitalism that is the root cause of their poverty.
And the absence of capitalism may be traced to the vestigial ascetic and feudal mentality, hostility to foreign investors, lack of energy honesty and righteousness, increasing population, little capital accumulation, extremely low per capita quota of capital investment, low capacity to absorb capital, encysted market, and, above all, the new found love for escapist and self-stultifying method of realising economic good. All these and many other factors checkmate the growth of a healthy and virile profit-seeking entrepreneurship.
No amount of welfarist nationalist sentiment, again can blame the erstwhile colonial powers for the poverty of the Indian people. That the Imperialists in India did some harm to our age-old cottage industries is offset by the fact that the foreign rulers imported and invested capital and did all they could for the material well-being of the people. Neither has the poverty of the Indian people been caused by the microscopic minority of the allegedly privileged groups inside or outside the country.
Welfarism creates slavery and poverty
And, even an ignoramus like the present writer has no difficulty in seeing that the political shortcut to the welfarist utopia is like Belzeebub’s driving the special train along the celestial rail-road. Again, no amount of welfarist wish-fulfilment and futurist illusion can remove the poverty of the Indian people. The operation of the Free Market alone can deliver the goods.
The relationship between consumption and investment being that of inverse variation, quick economic development makes the problem of poverty and backwardness acute. Besides, look into the aspirations of erstwhile colonial peoples. Individually, they would like to have the prosperity of an American, and nationally, the security of the British Welfare State. Given the above relation between investment and consumption and the above aspirations of the people, the welfare politicians will have to give them only regimentation and totalitarianism.
We are not taking an alarmist view. To add to the available resources, the plough-back of resources and the pace of development, the State takes over and actually runs the industries; it tries to mobilise the saving potential latent in rural unemployment and then begin to control production in the rural sector. And one dark noon it reaches autarchy. That this will not be a mere transitional phase followed by a release of private initiative is more than well-founded on the contemporary experiments in totalitarian economies in the backward countries which are now communist states.
Neither can state action be justified on grounds that a mixed economy involving coexistence of a public sector and private sector ‘amounts merely to a modification of the components of the mixture and hence constitutes no threat to freedom.’ The reason is, as Prof. G. D. Parikh has pointed out, that “with the replacement of atomistic decisions about investment by the so-called social priorities, the private sector in such controlled economies ceases to be private and the entrepreneur is often reduced to a semi-civil servant. There being no theoretical basis for determining the nature of the sectoral mixture, a mixed economy remains an inherently unstable pattern subject to pressures of diverse kinds. And the pressures that generally assert themselves in underdeveloped countries are those leading to increasing centralisation and bureaucratisation.” (RIViALRY BETWEEN DEMOCRACY AND TOTALITARIANISM, The Future of Freedom, p.302).
Mixed economy of the welfarist is a myth. By definition, it is a negation of the market economy. Interventionism is the beginning of totalitarianism. We are already in the throes of it. It uses the method of compulsion. That the government would graciously give the private sector “encouragement in every way” and “would not touch them for at least ten years, may be more” does not do away with the grim facts that the government has already taken control of the economic life of the people, and that the government may nationalise whatever and whenever it leases. The words quoted were recently spelled by the arch welfarist of India, namely, Nehru, who also added, “We do not know when we shall nationalise them.” (Jawaharlal Nehru, Independence and After, p. 192). So it is coming, the day of universal pauperization and regimentation.
Thus, we are left with only two alternatives: the free market economy and the totalitarian economy. The free market implies that people use their own money and skills to realise their own economic decisions and either gain or lose. If their judgements are correct, they gain; if wrong, they lose. There is thus a freedom and there is an equality of freedom which is justice. The socialist pattern works through compulsion. The market is by-passed. The bureaucrat collects taxes and compels the participants against their will and judgement to give a portion of their money or energy to realise the official plans and schemes.
The welfarist may argue, though he does not, that this proves only loss of freedom and that this does not prove that poverty is not removed. The capitalist rejoins that welfarism creates poverty too. Bureaucrats have won a notoriety for their inefficient utilisation of the available resources. Credit expansion and inflation foil the common man’s attempts to save. Taxation appropriates savings for the public sector and atrophies the private sector. Private sector retaliates by diverting the savings. A part of the tax receipts may represent the potential savings of the taxpayers: heavy taxation thus reduces the national saving and retards economic progress. The bureaucrats cannot increase savings by tampering with the usual devices: they cannot invest resources which are simply not there. A part of the tax-receipts is consumed by administrative expenditure. Tax measures thus produce the opposite effect. Deficit financing is a plain fraud. Over-investment diverts a part of the resources away from the Public investment.
The various big Hydel projects like TVA, Dneprostroi, Aswan and our DVC are glaring instances of colossal waste achieved by our politicians turned economic bosses. Also look into the repercussions of the tax proposals towards the financing of the Second Five Year Plan. The artificial pressure of the expected heavy taxation has already resulted in a decline in the prices of industrial equities. The fall in share values is showing a tendency to cause a diversion of savings {into less essential urban property, concealed investment overseas or into gold hoards) and also a withdrawal of private foreign capital and a further flagging in national product. Thus, tax-measures to accelerate progress may produce the opposite effect.
Also read: Violent class-war doctrines of Marx became the sole saviour of labour: MA Venkata Rao
The capitalist attitude of poverty
The capitalist attitude to poverty is more rational than that of the welfare propagandists who are suffering from a fixation on feudalist mentality. In a Capitalist society, the notion of poverty refers only to those who are invalids, have no property of their own and are not taken care of by their next of kin. And in the capitalist society, both the government and private charitable institutions, religious or secular, vie with one another in charity.
Welfare romanticists do not approve of charity on two counts, economic and psychological. Individual charities can never yield sufficient wherewithal with which all invalids can be fed clothed and housed The psychological objection rests on a sentimental reason that charity is mere charity and mercy, that there is an indignity inherent in it.
The capitalist rejoinder to the first objection is that the progress of capitalism will add to the capacity for donation and reduce the number of the beneficiaries. Besides, as Dr. Mises sardonically points out, it is highly probable that had there been no interventionism sabotaging the market economy, the charity funds in capitalist societies would be more than sufficient. Credit expansion and inflation foil the common man’s attempts to save for bad days. Thus the majority of the beneficiaries are needy only because of interventionism. Besides, inflation and interventionist tampering with the rate of interest bringing it down below the potential market rate virtually expropriate the endowments of orphanages, asylums, hospitals etc. Dr. Mises thus rightly concludes that in lamenting the paucity of charity funds, the welfarists lament one of the results of their own policies.
The other objection of the welfarist is valid. The element of indignity and humiliation in becoming an almsman cannot be denied even by the greatest of rational Spinoza-like egoists.
But then, no interpersonal relationship can escape a similar fate. The chances of indignity and humiliation will always be there, may be in changing forms. On the contrary, the chances will be greater when a professional class of ‘do-gooders’ in power will dispense their providential care to the class of ‘done good to’.
Compare this with the capitalist’s attitude. The invalids’ right to sustenance is justified on grounds of the metaphysical doctrine of natural right, that before God or Nature all men are equal and have an inalienable right to live. While fully endorsing the religious and moral duty in this respect, we may very well question whether the recognition of this duty enjoins the choice of uneconomic methods. The methods of the welfarist reduce the productivity of the human effort and thus affect the welfare of the invalids as well as of the able-bodied. This is a greater injustice.
This essay is part of a series from the Indian Liberals archive, a project of the Centre for Civil Society. It has been excerpted from the journal “The Indian Libertarian”, published on 15 July 1957.. The original version can be accessed here.