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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 ...


Dear friends,

Thank you for gathering today to talk about Gandhiji, economics and the future of humanity. 

First of all what is Gandhian economics? It is the economics of Mahatma Gandhi. Gandhiji, as he is known to us who grew up in India (the -ji added after his name is in the Indian tradition of respectful address), created the finest and clearest approach to a whole economics that was part of and not separate from all the other aspects of what it means to be human. Gandhiji wrote prolifically and his collected works now fill 100 volumes. In each and every part of his writing are clues to his economics. He did not believe in separation, his goal was to heal the split in modern man and modern woman. So he wrote about economics the way he wanted his economics to be applied: not piece-meal but whole. We must therefore not look for his economics in any one volume of his many writings but instead for for it in all his writing. 

I believe (along with the late great E. F. Schumacher) Gandhiji to be the greatest economist who ever lived. To understand Gandhian economics though we must really look at all his writing, on every subject possible, to glean the deep principles and insights that he provides. These insights are embedded in thoughts and analyses of a multitude of problems, considerations and examples and must be understood in their entire wholeness, not separated out and distilled or summarized.

Well then, secondly, we must talk about what Gandhian economics is not!

It is not the economics of J. C. Kumarappa. Gandhian economics is the economics of Gandhiji just as surely as Keynesian economics is the economics of J. M. Keynes and Marxian economics is the economics of Karl Marx. Kumarappa may well have coined the term "Gandhian Economics" but what he wrote is simply one interpretation of what the great master had to teach and say. 

It is not the economics of John Ruskin. While it is true that reading Ruskin's Unto This Last made a huge and life-changing impact on Gandhiji while still living in South Africa and inspired Gandhiji to create the first of his Ashrams, their economics are actually very different. Ruskin was the product of his age while Gandhiji was ever the free thinker, unbound by tradition or rules of behavior. Let us take just one simple difference. Ruskin was, like many people of his time and place, brainwashed into a genuine belief in free trade. There is a footnote in Unto This Last (that many seem to have missed) in which Ruskin states this quite plainly. He was a free trader, while Gandhiji reasoned quite correctly that while free trade had made Britain rich, it had impoverished India. Gandhiji created the concept of swadeshi that has now spawned the buy local movement worldwide in opposition to the crude idea of free trade. 

Gandhian economics is a living, vital subject that is quickly gaining interest and developing worldwide. It is not a ready-made set of principles to be applied indiscriminately. The world has tried ready-made principles both in the Communist world and the Capitalist world. Neither has worked and in fact their failure has brought us to the brink of total destruction. As E. F. Schumacher taught us a long time ago, economics is treated like a convergent problem where we obtain one single solution to a problem when in fact true economics is a divergent problem requiring divergent creative approaches. I would add that true economics is also an organic problem requiring creative and organic transformation along with divergence. Gandhian economics fits the bill of a true economics perfectly and as I see it is the only hope for our, and dear young ones, your economic future. 

I would invite young people worldwide to explore this vital and important subject and contribute to the divergent and organic transformation of our world. Together we can do it, in our own lifetime. 


What does 'economic' mean? This concerns me because even otherwise thoughtful people talk about 'economic' as if to mean one thing alone, involving a calculus of maximizing greed. So people will say that a particular situation displays the tendency for participants in the situation to display 'economic' behavior when they mean that the participants are acting like calculating machines, adding up benefits and comparing them to costs in a way to maximize satisfaction.

I have noticed an increasing tendency in using the word 'economic' in this way. Even people opposed to the regimented, so-called rational-economic-man approach to social phenomena tend to use 'economic' to denote the use of a cost-benefit, adding-and-subtracting approach to life.

But why should 'economic' mean such a narrow and unwholesome thing? Why should human beings be artificially converted into mechanical calculators and then be given the term 'economic' to mean such a reduced, diminished, stupid state of being?

May I suggest that the reason why we use the word 'economic' in such a stilted, soul-destroying way is that we have allowed ourselves to be brainwashed by the tenets of classical economics.

It seems to me that even some of the brightest minds of the generation have simply given up the term 'economic' without a fight and use it to mean little more than the use of a base, quantitative, greed-based approach to life.

I do not think the term 'economic' is being used correctly. As I see it 'economic' has to do with our relationship to the earth, our relationship with each other, within families, within communities. It has to do with sustaining ourselves as whole people, building whole families, whole communities.

If the major split in modern men and women is the internal split caused by an evil economics applied purely out of greed, with no consideration for the majesty of what it means to be human, the tremendous responsibility to creation that comes with having consciousness, then the only way to heal that split is to (a) stop doing what we have been doing for so long, splitting our selves artificially by making us out to be little more than adding-machines, (b) start living whole lives where work is meaningful and a part of family, a part of society, a part of play and culture and exchange and expression, (c) return the term 'economic' to its correct meaning to mean that which involves creation, that which involves sustenance, that which is the foundation of a whole life.


What is interest?

Classical economics saw interest as the value of capital. It was the value at which supply of and demand for capital would find balance. In this way of thinking of interest any intervention that changed the supply conditions such as monetary policy would distort and confuse underlying valuations of capital. Hence the classical insistence of hands-off economics. Capital is appropriately used when its real value is clearly exposed. Its value is reflected in the interest. Messing with interest is tantamount to a sin.

As everyone knows classical economics and its hands-off approach meant that historically during depressions, those inevitable downturns of the trade cycle, millions of people would be jobless, homeless, hungry and in misery. This was the history of western economics until John Maynard Keynes.

John Maynard Keynes revolutionized economics by seeing interest as the value of money. New capital forms a very small part of the market for money so Keynes explained interest in terms of the balance between the supply of and demand for money. Seen in this light monetary policy or even fiscal policy does not cause distortions in capital. Money in the sense of modern fiat money (not backed by gold) can be sensitively modified to improve overall performance and in the case of crises such as the depression, fiscal policy can be brought in powerfully to effect a massive change in conditions. Neither distorts capital and can and have been used effectively to ease suffering.

We are grateful to Keynes for improving the lot of the common human. Millions upon millions of children would have died or never have been born without Keynes' revolution.

However the revolution was only partial. To be complete we must match means and ends. As Gandhiji once said, "Means and Ends are convertible terms." Keynes created a system where new means (monetary and fiscal policy) were created to meet the ends of preserving the very system that created the imbalance and suffering in the first place! Think about it in 5 easy to understand steps:

1. You have a system based on bad economics.

2. This system inevitably creates cyclical crises.

3. The crises cause untold suffering.

4. Classical economists say, "Hands-off, all this suffering cleanses the system of bad blood!"

5. Keynes brings humanity into the system by redefining interest, eases suffering somewhat.

Both systems preserve the system based on bad economics. Means and ends are not convertible!

Any system that involves senseless suffering of people is a system that we should no longer accept. We can not even let ourselves be hoodwinked into accepting it as a means to a lofty end. We must develop a new system where means and ends are convertible, where joyful work, wholeness, a spirit of community, peace and laughter are are means and also our ends.

In the previous blog post I ponder one small way of making a beginning in rethinking the concept of interest.
There is so much suffering in the world. I was in the library this morning and read a National Geographic report on hunger in the United States. Yes, even in the so-called richest country in the world millions go hungry each day. Many of them are children. The same thing is happening worldwide, in rich and poor countries alike. People are going hungry. 

I know a lot of people who would like to help.  But they don't know how. Many well-meaning attempts have been made to extend credit to the poor. However the credit is offered at interest and that, I believe, is wrong. It is wrong morally and is bad economics.

People borrow either to obtain necessities (n) or to create capital (c). The current system charges interest on both of these, necessities (n) and capital (c). That does not make any sense either practically or historically. 

If my neighbor's children are hungry it is my duty to offer them food. If my neighbor needs to fix her roof to keep her family safe and warm and dry, it is my duty to lend her money. Sure I can expect that the money be returned to me when she can do so but to expect interest would be plain wrong. It defies any kind of economic logic as well--my neighbor is in need. She is not applying my loan to the making of money elsewhere. She is in need and I must fulfill that need. That acts creates bonds of reciprocity that make up a tight, well-functioning society. 

I can expect that my loan will be repaid but I can not expect interest from her. To expect or even accept interest would be to gain from her misery. That is a very destructive act and splits us apart. I become the money-lender and she becomes my victim. For how many centuries have such relationships plagued the world? Have they ever created a happy society, have they ever ended suffering?

If my neighbor starts a business and wants to borrow money from me I may lend him money at interest. After all he expects to gain from the investment. He intends to create capital and I may share in that venture and rightfully expect a fair return on my share.  

So interest on money borrowed for capital (c) may earn a positive market interest rate. That is fine. But money lent for necessities (n) should never carry any interest. 

Historically the charging of interest for necessities (n) was called usury and forbidden by the ancients. Alas we have forgotten their wisdom and in our greed extended interest to everything borrowed and lent. In doing so we may have well lost our souls. 

I would suggest that the term interest be only applied to interest for capital (c). Henceforth interest on necessities (n) should be widely viewed as inhumane, economically unsound and no longer be called interest at all. 


 Interest = c + n

I am proposing that from now on

Interest = c

Which means that necessities (n) be free from the tyranny of exploitation. 

As Gandhiji once said, "the world has enough for everyone's needs but not enough for everyone's greed." Without the false yoke of interest, we can easily help our neighbors and suffering can end. This can happen very quickly, in our own lifetime. 


Why do we try to maximize?

Is it not because we are living in the delusion of a limitless life in which maximizing allows us to enjoy as much of life as possible?

What if life is not limitless? What if life is the sum total of our experiences and relationships in our own lifetime. These are obviously not limitless. They may be subtle and varied but they are certainly finite. Each one of us has a finite set of relationships and experiences. We call each such set our life.

When life is viewed this way maximizing seems absurd. Why act to maximize when what is needed is available right about you. You are surrounded by right relationships, right work, right experiences. You only need to be open and acknowledge them. This is what it means to live your life.

Maximization is not good economics. What is good economics is to acknowledge all the wonderful relationships in your life, be open to experiences and engage in work that honors your wholeness and the wholeness of the others.