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I = S - M

The modern way of thinking about economics has been I = M - S Where I is the I as in me, M is what is 'mine' and S is what ...


Karl Marx made an important observation: Human beings are different from other so-called factors of production. As workers, humans are paid less than what they contribute to production. There lies the source of surplus value.

Gandhian economics also sees human beings as unique. They are capable of consciousness. It is this capacity for consciousness that makes humans able to vary their level of what I call dignity value. So while everything in the world has its inherent dignity value, humans have the capacity to actually increase their dignity value.

This puts a great responsibility upon our shoulders as humans. We must accept what the Gandhian economist E. F. Schumacher called the 'vertical dimension.' We must allow ourselves to grow as people, grow in consciousness.

Modern life, based as it is upon self-interest and mass-production with a simultaneous rejection of spirituality, just does not allow for such growth. The spirit weakens, then withers.
The madness involved in the mass production and mass purchases of poorly conceived and poorly made products can be explained using Gandhian economics.

Decisions about what to make and where to make things are based not on total costs but on marginal cost, the cost of making one more unit of the product. In the manufacturing of a million units of a modern product, the cost of making one more unit is very small. So very large amounts of very many things get produced in far flung places at great environmental and human cost as long as marginal costs are low.


Developing our model of Gandhian economics further, we can say

P--c--P+ ....... (1)

P--m--P+ ......(2)

P = person
c = commodity produced by neighbors
m = microcredit obtained through and with neighbors
P+ = enhanced person

(1) Engaging in work and trade among neighbors enhances people.

(2) Engaging in credit and debt with neighbors through microcredit enhances people.


Our economic system makes us either whole or not whole. When the entire economy is based on making maximum profit at the least cost it fragments us. We are reduced to worker and buyer. We are not workers and buyers but whole beings to begin with. It is the harsh inanimate logic of classical economics that fragments us. Once divided, we lose touch with the whole life and simultaneously work a lot and buy a lot. We do this without joy for we are separated from ourselves.


There is a fresh way of doing things. I come across it every day. A new generation seems to be growing up looking for new ways to build relationships and model exchange. This week I came across two such examples.

My wife took me to gravel & gold in the Mission in San Francisco. The store is full of magical things made by hand with little hand-written notes about the maker. We found folding scissors made very sturdily by the same family in Oregon for a couple generations. They are TSA-approved and perfect for traveling with. A hand-written note said

Founded in 1971, Slip-N-Snip is the original inventor and manufacturer of folding scissors. All components are manufactured here in the US by Don Gallogly and family.

We also bought some beeswax candles. Each item in the store had a maker and a story behind the maker. There were no fake 'old brands' bought out by people looking to make money on the basis of a name that may have nostalgic associations. The shop-keeper when we went there was Nile, one of the three owners of the store. She was very knowledgeable about everything the store carried and clearly loved her work. She was working when we came in, filling out orders, hand-writing notes, arranging products for sale. She was working when we left. Watching her I had to say good work!

Back in Berkeley I was walking to the farmers market when I came across the East Bay Alternative Press Festival (December 11, 10-4). What a delightful event. There were rows and rows of tables and chairs with mostly hand-made and some small-press books, zines, and other artifacts. I bought a little hand-made comic called black tea by Jason Martin. Jason was shy but available to interact with his customers. Many of the maker/sellers were happy to trade their books for ones you may have made. I had a wonderful time being there.

What was interesting about these two experiences was to see an emerging Gandhian economics in action. What was being sold was a result of good work, and the selling and trading itself was done in a way that was on a small, human-scale respectful of human dignity.


Classical economics is based on self-interest. Krishnamurti said

Corruption is not just passing money under the table or smuggling goods into the country. Corruption begins where there is self-interest. Where there is self-interest, that is the origin of corruption.*

Classical economics, which is based on self-interest, is corruption.

* The Benediction is Where You Are: The Last Bombay Talks 1985. Chennai: Krishnamurti Foundation India, 2001, p 3.


Classical economics is based on an inanimate logic. The logic of machines. Each factor of production is paid on the margin, that is what the last unit employed contributes. It is the economics of the status quo. Values are exchanged but are static, never enhanced. Commodities trade for money which trades for commodities.

Marx improved on this system considerably by pointing out that labor was different from the other factors of production. Under capitalism labor was paid not according to its contribution but simply a socially conditioned subsistence wage that was below its contribution to production. This yielded surplus value which was appropriated by the capitalist. Thus money trades for commodities which bring the capitalist even greater sums of money.

Gandhian economics is the economics of the whole person. Engaging in living, the person does many things both spiritual and material. One aspect of living is working and trading with neighbors. The interrelationships created by living and exchanging commodities with others allows the person to grow.

While other approaches to economics treat money and commodities as the central aspect of economic life, Gandhian economics is a holistic economics with humans as it central point and the possibility of growth, both spiritual and material, as its promise.


If classical economics can be summarized as


where C = commodity, M = money,

and Marx's critique of classical economics as


where M+ = enhanced money,

then Gandhian economics is


where P = whole person, P+ = enhanced persons.

Work and trade amongst neighbors who are whole enhances people's lives.


The problem of economics was famously formulated by Paul Samuelson as What to produce, How to produce, and For Whom to produce. However, classical economics in it's quest for a value-free study of the subject has not looked at the three-fold central problem as a spiritual one.

The central problem of economics is a spiritual one. We can only answer the What, How, and For Whom in a holistic way by asking first, what would be in keeping with human dignity? and second, what would further the inner lives of the people involved? Based on these questions it is clear that the How of production becomes the first and most important economic problem. How do we work? What do we bring to our work? How do we work with others? How meaningful is our work? These are the central problems. From these flow the What and For Whom.

What I have described above is the opposite of the approach of classical economics which starts with What and then looks for the cheapest means (the How) to make it. To me this is a recipe for disaster.


What we call Gandhian economics is the small economics of neighbors and self-sufficiency. It has deep roots in the United States. The great historian of the Reconstruction, Eric Foner writes

Northern investors understood free labor to mean working for wages on plantations; to blacks it meant farming their own land and living largely independent of the marketplace.*

* Short History of the Reconstruction. NY: Harper & Row, 1990, p 25.
There is an increasing level of comfort with private for-profit microfinance institutions in developing countries. Even though only 1 in 10 microfinance institutions is private, they account for over half of the industry's assets.* These companies make a profit by lending to the poor at high rates of interest. I don't think these companies should be allowed to operate at all.

Microfinance is about extending small amounts of money to poor people. The loans are signed not only by the borrower but also by a number of neighbors who all vouch for the borrower. This system devised by Mohammed Yunus (who went on to win the Nobel Peace Prize) in Bangladesh was created in the spirit of seeing credit as a fundamental human right, one that was denied to the masses for much of human history. The only access to credit that the poor have had in developing countries has been the usurious money-lender. Microfinance was developed as a way to break this mold of exploitation and make credit available to all.

To allow market-driven for-profit institutions to operate in the guise of microfinance institutions is to return the poor to the world that Yunus worked so hard to bring an end to.  A for-profit company has a very simple goal: to make as much money as possible at the least cost. Private companies, in their search for new ways to make money pose as benefactors while exploiting the poor. They should not be allowed to operate. Microfinance is a spiritual idea of our time as much as Gandhiji's satyagraha, or soul-force was in his own. The spirit must not be compromised with the flurry of Initial Public Offerings (IPOs) and corporate scandals that have arisen with the privatizing of the idea of microfinance.

* Little India, November 2010, page 37.


Buying and selling create relationships. If we think of the value inherent in the transaction between the person selling and the person buying in terms of what I call dignity value, we must take into consideration not only the satisfaction that the exchanged item produces for the buyer and the surplus created for the seller but also even more importantly the quality of the relationship created between the two. Over time commerce has the power to create rich and complex webs of interaction and inter-dependence. These themselves contribute to the value of what is exchanged.


We must create an economy where neighbors trade with neighbors. But who is a neighbor? Is it just the person who lives and works nearby? I don't think so. A neighbor is someone who is close to me in their values. On that basis the Fair Trade sugar that I buy from Africa is produced by neighbors. The Barbour raincoat that I wear on my bicycle to work in the Winter is made by neighbors in England.

My neighbors share my appreciation of the dignity of work and the wholeness of the person and are of every race color and nationality. Together we can create a new economy.
There is a scene in Jean-Luc Godard's Every Man For Himself in which a woman is slapped repeatedly for saying 'I will not choose,' as a race car painted with signs advertising Marlboro Cigarettes pulls up. Living in our times I often feel like that woman in the movie. We are supposedly living at a time of great choice and that choice itself has been raised to the status of a god. We are happy because we have choice. But what really are we choosing? Is a choice between one worthless shiny trinket and another really a choice? Or is it that in making our daily choices of mass produced gadgets, gimmicks, and genetically altered foods we numb ourselves of the consciousness of a real meaningful interconnected life with a real human web of relationships?

Krishnamurti said

Where there is choice, there is no freedom. And choice exists only when the brain is confused. When the brain is clear, then there is no choice, but only direct perception and right action.*

'I will not choose,' Godard's woman seems to say, when the choice is a not a meaningful choice at all. Give me a whole life and I will not need 'choice,' she seems to say and Life sponsored by Marlboro or some other Corporate entity slaps her for it. That was Godard's indictment of modern man in 1979. How will we respond to that today?

* The Benediction is Where You Are: The Last Bombay Talks 1985. Chennai: Krishnamurti Foundation India, 2001, p 20.


While colonialism imposed an economic system that destroyed the livelihoods of millions of small artisans and craftsmen in India, modern economics has had the same devastating effect on well-established businesses that once made things in the United States. For many years after moving from India to the United States, I enjoyed wearing Converse sneakers, particularly the Chuck Taylor All Star (dating back to 1923). They fit beautifully, were made in the same factory in North Carolina for over 60 years, and cost $29 at my local shoe store in Berkeley.

Then in 2001 I noticed something had changed. I had just bought a pair of Converse shoes, taken them home, and put them on. I was shocked to find that they did not fit right! On closer inspection they did not look right either. Their elegant, timeless aesthetics had been replaced by the distinct mark of overseas mass production. The old Converse with their Made in U.S.A. tags were gone forever. I later found out that the last pair of the Converse high tops to come out of North Carolina were on March 31, 2001.*

I also found out that the logic of modern free-trade economics had changed the shoe industry. Businesses like Nike that had never owned a single shoe factory outsourced their entire production and were immensely profitable. They produced at pennies per shoe and sold at prices much higher than the traditional shoe-makers. In this altered environment the Converse brand was bought by two sports-industry entrepreneurs. The new owners were not interested in the factory in North Carolina that had made the Converse shoes for over half a century. Nor were they concerned about the skilled American workers who worked there. To the entrepreneurs, Converse was just a brand name with nostalgic associations that could be exploited for maximum profits at minimum cost. Suddenly a quality shoe that was being manufactured in America, creating gainful skilled employment for workers and a profit for the owners, following all the regulations of worker-safety and human welfare, stopped being made. It was replaced by a noticably inferior product produced in sweatshops in Asia and bringing fabulous wealth to its new entrepreneurial owners.

The case of Converse is not an isolated one. It has become the norm. I know of very few businesses that still make things in the United States. The economics that has created this change is based on an artificial splitting of the person into consumer and producer. It is argued that producers must be free to produce anywhere and anyhow. Consumers must be free to buy as cheaply as possible and in ever increasing quantitites. But human beings and human society can not be split into consumers and producers. We are whole beings and our society depends on its people being whole. The nature of the work we do creates the character of the fruits of that work. What we do is what we are, what we make is what we partake of. Gandhiji taught us to become the change we wish to see. What sense is there in hiring large numbers of strangers in far-flung lands to make large quantities of useless things even as we dismantle our own tradtitions of work? If we work poorly and buy poorly does that not make us a poor society?

* Smithsonian 32(8), November 2001, p. 26.


I have been reading the works of Gandhiji for many years now. Recently I decided to undertake a reading of the chronological Collected Works of Mahatma Gandhi in 98 volumes. I have just completed volume 1. I was delighted to find Gandhiji's economics to be very clear and focused on the dignity and wholeness of the person even in these early years of writing.

In discussing the treatment of indentured servants and equally applicable to our own so-called illegal immigrants Gandhiji writes
A man is brought here, in theory with his own consent, in practice very often without his consent, he gives the best five years of his life, he forms new ties, forgets the old ones, perhaps establishes a home here, and he cannot, according to my view of right and wrong, be sent back.
What a wonderful statement of an economics that is at once moral, historical, and holistic!


Traveling across the India Gandhiji found former cloth-weavers, who had once been prosperous, reduced to destitution as a result of British India's free trade policies. This was happening all over the country and in direct proportion to the availability of cheap cloth manufactured in England and sold in India.

The free trade argument artificially divides people into producers and consumers. Free trade gives consumers the lowest possible prices and keeps producers in line by only affording them normal profit. According to classical economics free trade results in consumers having the final say in what is produced and that too at the lowest price. In other words consumer is king.

People cannot be split into consumers and producers however! How we spend our money affects what we do for a living. How we spend is how we earn. As India's masses were being coaxed into buying cheap foreign cloth and other products, more and more Indian artisans and farmers were finding themselves unemployed and under-employed, increasingly reduced to working meaningless menial jobs when jobs were to be found at all. Gandhiji observed free trade reducing the standard of living in the country as it reduced the quality of work available in the country.

It was from these travels and observations that Gandhiji decided to focus his economics on swadeshi, the idea that buying and selling were undertaken by people, not consumers and producers, and that a person was not split into king and slave but rather needed to be whole and trade with neighbors who were themselves whole.


I was reading an essay* by Gandhiji the other day in which he suggested swadeshi as an economics principle. He went on to explain that it meant not so much buying what is nationally produced over what is produced abroad, but rather buying from what and who is close to us, our neighbors.

This makes a lot of sense to me. I prefer to buy the food I get at the farmer's market down the street from me. I like to go to my local stores in Berkeley. I do not go to Costco or WalMart or stores like that. This I do instinctively, without a lot of thought. I like being swadeshi.

The economics behind this idea and the local food and other local movements is simple: We are not producers and consumers but people. Buying and selling (and thus working) are two sides of the same coin. How we buy exactly reflects how we sell. If we buy cheaper and cheaper we also, over the long haul, sell cheaper and cheaper. If we buy sweated goods we also sell sweated goods. It is not possible to keep buying mass produced cheap products from thousands of miles away while maintaining or improving our standard of work and hence our standard of living.

Free trade equals free fall. Local trade on the other hand nourishes the organic relationships between people who buy and sell never as the split-personalities of producers and consumers that classical economics would have us believe but as whole people.

*Address delivered before the Missionary Conference on February 14, 1916.