Rethinking Money and Capital is quite an interesting book that looks at the subject in a novel manner. Author Swapnil Pawar takes a rather unconventional approach and comes up with some rather far-reaching and hard-hitting commentary on the state of capitalism, inflation, policy, etc. For a non-economist to convincingly argue out logically his themes is quite refreshing, though he does use the economist’s tools to put things down for easy understanding. Hence there are several equations drawn up to explain his methods for reaching the conclusions.
For instance, he does argue that the invisible hand is not quite that powerful and may not lead to optimal solutions. Therefore, one cannot seek solace in the markets taking care of problems because they are basically inefficient. As an extension, he has a chapter which explains how laissez faire leads to aggravation of inequality, which is something that can be seen not just in countries like USA but also India, where everything is controlled by capitalists. This also leads to what he calls a quasi-feudal society, and depending on the way one defines feudalism, the argument is worthy of consideration. When the means of production are controlled by the elites, who also have the power to control policy making, then one does drift gradually to a tiered society where the rich are the strong and are the ones who control everything. This can be said as being typical even in our country.
The author treads different territories while writing on money and capital. We talk a lot of money and finance, which he feels are not resources like labour or capital. It is a means of transaction but not a resource that should come in the way of consumption or capacity expansion. Money, as per the author, has now transcended the conventional central bank-controlled components with the proliferation of capital markets, and, more recently, cryptocurrency. This also means that the power of monetary policy gets restricted because what the central bank controls is how the financial system that it oversees operates. The other sections are outside and can work in a different direction.
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These conclusions are debatable, but are pertinent arguments that can be discussed. In fact, Pawar stretches these arguments to also show that fiscal policy is more effective than monetary policy because of its direct effect on spending either through expenditure or taxation.
He also puts forth the view that the limits being put on fiscal deficit may not be justified. His proposition is that as long as the debt is in domestic currency it should be okay and a default will never take place. He also pitches for an independent government body or board which oversees expenditure of the government. In a way the Finance Commission and the FRBM rules are already in place and perform a similar role. While the concept is good, ensuring that it is truly independent which can say ‘no’ to the government is difficult.
Here it may be counter-argued that the inflationary consequences are dire even when the debt is domestic as has been witnessed in some of the Latin American or African nations. Such a theory would hold in a country like the USA where the dollar is the global anchor currency. But at any rate the idea of the government playing a more important role when the economy is down is worthy of consideration.
The author also has some suggestions for rapid growth in the same vein. He speaks of not being obsessed by the fiscal deficit. This may not have support from economists, as his view is that governments have to come in when private sector is on the sidelines. The problem, however, in India is that most of the deficit goes into financing revenue, which is not what it should be. He also talks of having a wider inflation band for targeting. Here, too, this thought of having a band of 5-10% which is suggested may not mean much, because it becomes too flexible for interpretation.
He gets a bit into a knot when he asks for more tax breaks for investment to the private sector. At other places he cautions how the laissez faire model leads to semi-feudalism. Therefore, when his suggested roadmap talks of giving concessions to this structure, the reader may be a bit confused.
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In a way one can interpret the author’s views as coming from a layman who knows what should be done, with the economists being left to work out how they can be implemented. There is talk also of universal basic income, higher government spending, export promotion, keeping interest rates low (goes against his concern of dissaving in the economy), etc. These ideas that have been put forth here may be at odds with one another, but are interesting nonetheless.
Rethinking Money and Capital: New Economics for QE, Stimulus, Negative Interest, and Cryptocurrencies
Pp 359, Rs 399
Madan Sabnavis is chief economist, Bank of Baroda