After Independence, India maintained the British policy of pegging the Rupee to the pound. While Bretton Woods lasted, one could say that the Rupee remained on a gold exchange standard. Dr. Ambedkar in his 'The Problem of the Rupee' published in 1923 wrote-
But the conclusions (Keynes) has arrived at are in sharp conflict with those of mine.
Because Keynes was smart & actually knew Econ. Ambedkar has a useless American Phd on Indian Fiscal policy of which no American knew anything.
Our differences extend to almost every proposition he has advanced in favour of the exchange standard.
Which was the only thing which could work- which is why India kept the Sterling link till 1975 when, in view of the UKs own parlous position, it shifted to a basket of currencies.
This difference proceeds from the fundamental fact, which seems to be quite overlooked by Professor Keynes, that nothing will stabilize the rupee unless we stabilize its general purchasing power.
i.e. eliminate inflation. But that means no public sector borrowing requirement and/or high interest rates and 'crowding out' of private investment. So long as the Raj remained, the priority would be the 'home charge'- including pensions denominated in Rupees. British officials would want the exchange rate to be fixed so as to protect their own financial security in retirement. Oddly, the Indians too preferred this arrangement.
That the exchange standard does not do.
Nothing would save elimination of budget deficits & subordinating everything to inflation targeting. This would mean raising interest rates or buying back consols any time there was an exogenous price shock.
That standard concerns itself only with symptoms and does not go to the disease
what disease? Inflation? The alternative was a deflationary policy which would reduce GDP & thus Government revenue more than proportionally. This in turn would mean a bigger deficit necessitating even more deflationary policies. Ambedkar studied at the LSE. So did Bruning- Germany's 'hunger Chancellor' whose deflationary policies during the height of the Great Depression doomed Germany to Totalitarianism. Back then, even Cambridge was less shitty a place to study Econ, than the LSE.
: indeed, on my showing
Ambedkar could only display his own stupidity. He'd have made a great Professor of Econ. Fortunately, what he really cared about, while in London, was qualifying as a barrister. Telling stupid lies is no disqualification to earning big bucks in that profession.
,if anything it aggravates the disease.
Not really. If your prices are rising too rapidly, imports increase and exports decrease. This reduces Aggregate Demand & thus is deflationary. Thus the system is self-regulating.
When I come to the remedy I again find myself in conflict with the majority of those who like myself are opposed to the exchange standard.
because they are crypto-Manuvadis. I hate them.
It is saidtthat the best way” to stabilize the rupee is to provide for effective convertibility into gold.
Could India go directly on gold? No. It didn't have the reserves. Within a day of granting convertibility, the reserves would have been exhausted. Convertibility would have to be suspended. Suppose the Govt. stipulated that only gold coins were legal tender. What would happen is that those with gold would hoard it while property sold in distraint plummeted in value. Lack of gold to pay soldiers would mean either Mutiny or resort to scrip. Gresham's law would apply. 'Bad money'- i.e. scrip- would drive out 'good money' (gold). People would go back to burying bullion. The administration would collapse. India would return to the era of the Thug & Pindari.
I do not deny that this is one way of doing it.
Because you are as stupid as shit.
But I think a far better way would be to have an inconvertible rupee with a fixed limit of issue.
That's scrip. But nobody would believe that the limit would really be fixed. It's like agreeing that you will only stick half your dick into a pussy. Everybody knows how that ends..
Indeed, if I had any say in the matter I would propose that the Government of India should melt the rupees, sell them as bullion and use the proceeds for revenue purposes
People will hoard rupees & bid up the price of bullion. Net revenue would fall because economic activity would collapse. Even Weimar Germany didn't do shite as stupid as what Ambedkar was suggesting.
and fill the void by an inconvertible paper.
Which nobody would want to hold. Velocity of circulation would rise as would, ceteris paribus, inflation.
But that may be too radical a proposal, and I do not therefore press for it, although I regard it as essentially sound.
Because you have shit for brains. Keynes knew a bit about how actual markets work. Ambedkar was wholly ignorant of commerce.
In any case the vital point is to close the Mints not merely to the public, as they have been, but to the Government as well.
i.e. close the mints. This means that coins in circulation command a premium. They are 'good money' & get hoarded by Gresham's Law. This shithead just caused a monetary contraction which plunges the country into Depression.
Once that is done I venture to say that the Indian currency, based on gold as legal tender
though, at the margin, people prefer to default rather than pay. This creates a vicious circle where more & more contracts are voided. Once the Land Revenue collapses (because landlords can't borrow & thus their estates end up getting sold for a pittance to the bankers), soldiers' salaries have to be cut. Hello Mutiny!
with a rupee currency fixed in issue,
like your promise that you will only stick half your dick in
will conform to the principles embodied in the English currency system.
The English had just reduced the purity of silver coins to about 50 percent. The Government looked at the need for extra coins & supplied it through the Royal Mint.
It will be noticed that I do not propose to go back to the recommendations of the Fowler Committee. All those who have regretted the transformation of the Indian currency from a gold standard to a gold exhange standard have held that everything would have been all right if the Government had carried out in toto the recommendations of that Committee.
Nobody follows such recommendations. Fowler was wholly irrelevant. The Great War had changed the world. The US stock exchanges closed for a month in 1914 because of the high rate of British sell-off.
I do not share that view. On the other hand, I find that the Indian currency underwent that transformation because the Government carried out those recommendations.
No. GoI was already doing what Fowler- the deputy to the Sec. of State who knew nothing about India or monetary policy- put his rubber stamp on.
While some people regard that Report as classical for its wisdom, I regard it as classical for its nonsense.
Indians reading this decided Ambedkar was a shithead. I suppose this explains why he ended up as 'Murknayak'- the leader of the fools.
For I find that it was this Committee which, while recommending a gold standard, also recommended and thereby perpetuated the folly of the Herschell Committee, that Government should coin rupees on its own account according to that most naive of currency principles, the requirements of the pubhc,
Which is the only thing which matters. Currency exists for a purpose. You withdraw old coins which are less able to fulfil that purpose & issue new ones. You may also gradually debase the coinage & gain a bit of seigniorage.
without realizing that the latter recommendation was destructive of the former.
Nope. Gresham's law applies. People use the debased coinage for transactions. They hold gold as an asset. So long as GoI can pay the 'home charge' in British pounds (which has to do with buying and selling bills of exchange arising out of Indo-British trade) they face no problem provided there are good enough arbitrageurs or market makers. Keynes knew how the 'carry trade' worked & sometimes was able to manipulate the market in the Government's favour. That's why he occupied a position of pre-eminence. Otherwise, nobody in England had ever rated Professors from Cambridge.
Indeed, as I argue, the principles of the Fowler Committee must be given up if we are to place the Indian currency on a stable basis.
It was stable enough though, sadly, some fucking darkies were making a profit 'roundtripping'. N. G. Ganpuley, a revolutionary, had raised money in Rupees to buy a printing press in Germany to disseminate Nationalist propaganda. He tell us he made a profit on conversion because there was a brief period when the Rupee was stronger than the pound! Obviously, a guy like Ambedkar would be against some fucking Manuvad making some money for the cause of the Indian Nation.
Ambedkar's supervisor, Cannan, wasn't utterly stupid. But he was naive. The time had long passed when anyone believed that Government's would observe such self-denying ordinances that they themselves pronounced. On the other hand, a true blue Englishman never broke his respect to only put his tip in and not follow through. This was the main reason for the rise of Suffragette Lesbianism. Sad.
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