Re: trade liberalization

["MV" <maxv@vsnl.com>]

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> From: "prakash chandrashekar"
>
> A currency sytem which varies in value with the goods sold by one
> country to another -  that is the system of floating currencies we
> have today -  and the analysis of ashish holds true in that scenario.

There is nothing wrong with the analysis if the trade
is *free and fair*. What i suggested is the necessary
conditions for free and fair international trade,
beyond the manipulations of floating currency system.

>> On Thu, 29 Nov 2001 MV wrote :
>>
>> The above scenario will work only under certain
>> conditions.
>>
>> 1. There is a universal currency system so that the
>> value of
>>    currency is same across countries, and the value of
>> currency
>>    is directly linked to energy. The only way we can
>> define
>>    currency with any meaning is "representation
>> potential to
>>    mobilize energy" which was true from the beginning
>> of trade
>>    until fossil fuels, coal and petroleum (pre stored
>> energy)
>>    were discovered.
>>
>>    Today under the floating currency system the value
>> of currency
>>    is determined by very complex equilibrium dependent
>> on umpteen
>>    variables which can easily be manipulated by vested
>> interests,
>>    and it is happening every day.
>>
>>    Under a energy based universal currency system the
>> hourly
>>    unskilled labour cost will become uniform across
>> countries,
>>    and the scenario you described above may be possible.
>>

> Any universal system (earlier it was gold ) could do the
> same. I am no frined of currency specualtion, but it performs a
> reasonably useful task - of balancing buying powers of
> currrencies.

When the currencies were backed by gold things were somewhat
stable, since gold was a quantifiable entity. Paper currencies
came into existance as representation of the gold. Now the gold
standard is gone.

Currency is just representation of value of goods and service,
the question is what is this value? Every time we try to
define this value in absolute terms, it comes down to the
energy mobilization aspect of the transaction. Every living
creature require energy input in one form or another, the
whole biological ecosystem is based on this energy transfer,
starting with the plants at the bottom and the carnivores
at the top. Human society is very much similar, food is the
primary energy input. The trade process starts at the basic
level with food (energy) as the currency.

We need not go back very much in history to understand this
system. When i was a kid rice was the primary currency in
our village, all labour was paid for in rice! The local
shopkeepers used to accept rice as currency.

I am not suggesting we should go back to rice barter system,
but just illustrating, when rice was used as currency it had
an absolute stable value in terms of calorific content. Even
when gold was used for calibration of currency there was some
kind of international standardisation of currency in terms
of weight of gold. In free float currency there is none, so
it's value can be manipulated beyond market forces, for short
periods of time. Over a longer period of time such
manipulations cannot sustain, market forces comes to play
and the manipulated currency system goes to crisis mode. It
is happening in one country or the other every year, if still
the world economists don't understand or are they keeping
mum since the current system is in favour of the western
so called developed economies, the moment the tide turns
(it will definitly turn in a very short period) all of them
will start crying for energy based universal currency system,
let us hope it is not too late.


> Anyway, please send me some links on the net about this system
> of currency. I will defintely read through it.

I haven't seen any, but there are lot of sites that give,
the history of the currency and how the paper currency
system came into existence.

You can also find some stuff about introduction of the
european union euro currency system.


>> 2. People should be adaptable. Which again requires
>> minimum
>>    education, i would say equivalent of Indian ICSE
>> syllabus 10th
>>    standard that will equip people to absorb new
>> agricultural or
>>    industrial production techniques and enable them to
>> market
>>    the resulting products nationally and
>> internationally.
>>
>>    A good illustration is our traditional craftsmen who
>> make
>>    products that have good market in India and abroad,
>> but the
>>    craftsmen do not get to enjoy the benefit of that
>> market
>>    since they do not have the marketing capability which
>>    requires decent command of english the language of
>> Indian
>>    and international trade. What is happening today is
>> the
>>    profits are suctioned by the middle men or traders
>> and
>>    in the process the craft becomes non profitable for
>> the
>>    craftsmen and they look to other avenues, in process
>> the
>>    product and the market disappears and the skilled
>> artisan
>>    becomes unskilled labourer.

> I think that the artisan and the middleman have gone in for a
> trade that is mutually beneficial to both of them.

Today the interaction of the illiterate artisan and the
literate trader is some what unilateral, due to the information
asymmetry. The moment the artisan has the language skills
to sell the product over a larger geographic area the
asymmetry will disappear and then only the trade will
become mutually beneficial or free and fair.


> after all,
> marketing a good in the foriegn country is no cake-walk. Every
> handicraft of ours comepted with artworks form all over the
> world. And, the trader perfomrs a useful job - that of marketing
> the good.


>> The cost efficiency of the US and the entire socalled
>> developed
>> economy is fully dependent on use of petroleum without
>> considering
>> the global cost on environment. Remove the petroleum
>> factor
>> and there is no advantage.
>>

> Please explain- Japan had NO petroleum - what fuelled its
> growth - in productivity and absolutes ? I am learning operational
> excellence in the courses in  my B-school and can say for one that
> prodcutivity and quality are NOT TRIVIAL. they are obtained
> through much effort and thought, none of which can be trivialised.

Remove the petroleum factor from the equation and see
how could have Japan prospered without petroleum....


> Ok, assuming you were correct - Then the advantage had by Japan,
> Hong Kong, Sigapore, taiwan, etc. would have been siphoned away
> from them by the person who sold them oil, right ? As in, the oil
> producing country would have charged them the marginal productivity
> of oil (marginal produ/utility=price in a free maket, and in a
> cartelised market price > marginal utility, only
> strengthening my argument) this would mean that the extra
> productivity gained by japan via oil would be lost to the person
> who sold that oil to them. But, that is not the case -Japan and
> non-oil producing european countries have a good material level of
> goods, per capita.

Current western prosperity is based on petroleum and
availability of education for all which allows creative people
to learn the existing technology and improve it constantly.
To answer your question it is  the lack of the education part
required to unlesh the creativity of people of oil producing
countries that is holding them back, the moment they start
producing goods and sell them rather than sell the oil itself!

>> Only few processes actually create wealth. Wealth is
>> created
>> only when solar energy is stored for future use. In
>> human
>> enterprise agriculture is the primary wealth creation
>> process.
>>

> that was an argument made by the physiocrats and thomas malthus.
> But the industrial revolution proved them wrong. But anyway, we
> differ on fundamentals here - what is your definition of wealth -
> mine is "converted nature that has some value to humans", to
> distinguish it from "plain nature/land".

I define wealth as the "potential to mobilize energy"
To put it more simply, at the very basic level wealth is
something one can exchange to buy food. Food being the
primary energy source for sustaining life.


>>
>> What you say clearly illustrates wealth is created only
>> at the
>> agricultural operation level rest of the process is
>> just a
>> pyramidal value chain.

> wealth is cretaed at every level. there is a reason our
  GDP is counted by "value addded".

The moment you cannot exchange it for food, the wealth
does not have any meaning. A doctor has no wealth unless
a patient gives him, it is the same with a manufacturer,
he does not have any wealth unless someone buys his
product, wealth is not created at the upper end of the
value chain, it is merely transferred up from the lower
level.  That is not the case with a farmer, he creates
food from nature, like you said above "converted nature
that has some value to humans" that is the beginning of
the pyramidal value chain.

>>
>> Once you understand where the wealth is created, you
>> will be
>> surprised to see where the tax money(wealth generated
>> from
>> agriculture) is going? Obviously it is not going back
>> to the
>> poor, as long as govt does not spend big money on
>> education.

> Government does not tax agriculture in india.

India has one of the highest indirect taxation,
every time a farmer buys a soap he is paying tax,
60+ percent of Indian govt revenue is from indirect
taxation. That is what i call siphoning wealth
from the poor people who pay tax unknowingly.
Soon they will demand the benefits......

>>
>> Who really benefit from govt spending on running public
>> sector
>> companies? The answer is, there is short term benefit
>> for the
>> employees, rest of the benefit goes to the private
>> sector
>> industry.
>>
>> employees, administrators, all the gravy bucket !!

>> The process works like this - govt invests in an
>> industry
>> in which it has no business advantage, industry grows
>> for
>> certain period of time then the administrative
>> inefficiencies
>> makes it non profitable, Enter the private sector - sets
>> up similar industry, there is already technology and
>> knowledgeable work force developed at the expense of the
>> tax payer(people in the village who create wealth) this
>> is
>> siphoning of wealth by private sector that should have
>> gone
>> to developing the nation by investing in education of
>> the
>> people(which would have improved the productivity and
>> adaptability making our nation more competitive in the
>> international arena, and hence more prosperous)
>>

> Please don't mind the harsh language
> This is a load of crap ! Please look into the history of public
> sector in india -

> SBI - made by nationalising private banks

It looks like Banks were nationalised possibly because they
stopped lending to the inefficient entrepreneurs. The huge
NPA's that the Nationalised banks hold today proves my point.
Yes unless the private banks were not nationalised few of them
who had lend money to inefficient entrepreneurs would have
gone under in the mid 70's along with some of those businesses
and people who had deposited money in such banks would have
lost their money, but the surviving banks would have lend money
more diligently, creating more competitive and vibrant industry.
Today the nation has paid a huge price without achieving
anything, only beneficiaries in the whole game is few
inefficient industrialists who managed to survive.

> Air india - made by nationalising tata airlines.
> Hindustanmotors -  survived only because of cpacity restrictions
> on premier, licensing of industry.
> ditto for scooters india.

> And how can we say that public sector created wwelath
> efficiently when we have no bulwark to measure it against.


>> What private sector and middle class who were riding the
>> public sector govt investments did not understand is
>> they need *consumers with buying power* to buy the
>> products
>> and services they produce, slowly this reality is
>> setting in,
>> hence the sudden enthusiasm in passing right of
>> education
>> bill....Let's hope it doesn't turnout to be yet another
>> eye-wash!
>>

> Ok, i can see class hatred here. shall we tone down the marxism
> now, marx is dead and buried, well and truly.

During one discussion in '84 when i said the soviet union
will brake up in our life time, they called me capitalist.
At that time i expected it will take about 20 years but
that is history now.....


>>
>> Free and fair international trade can take place only,
>> if there
>> is universal currency system linked directly to energy
>> mobilization
>> aspect of economy.

> Please send me articles about this. I shall check them out.
> There are reasons i consider energy as a good benchamrk for
> a currency -

> 1- its somehting that grows along with the economy at a rate that
> is neither too fast, nor too slow - ideal for a money benchmark.
> It can curb infaltion AND hoarding.

> 2- There can be competing energy producers - so, we cna have
> currency competition -  another good idea.

> 3- it is marked to a scientific barometer - very little ambiguity
> about it.

Exactly, switch over to a universal currency system based on
energy benchmark can effect a smooth transition when the fossil
fuels are exhausted, i belive that crisis is much nearer than
most people expect.....

Fossil fuels are pre-stored solar energy or wealth. It's like
someone who stumbles on a cache of gold coins and suddenly
becomes rich.... When the gold coins are exhausted.....?

I believe mankind has the ability to come up with alterante ways
of mobilizing huge quanities of clean and cheap energy that has
to happen and will happen. What ever be the scenario, all human
transactions will still be based on the energy mobilization,
hence the concept of energy based universal currency system.

MV.






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