Consumption driven growth vs. savings driven growth.
Essential features of the Indian mindset
To make money you have to spend money. You have to invest. On goods and services that improve the quality of your own life and your mind and cut costs in the future and on people who are capable of exponentially increasing output and building capital assets that serve the interests of the local consumers.
But Indian society has historically been an extremely dangerous and uncertain one. The social traditions and cultural practices evolved through ages of uncertainty, poverty, violent dispossession and sudden death. Extreme uncertainty creates incentive structures that encourage people to avoid down-side risk at all costs.
Lack of trust in others, in society and the government promotes economically inefficient self-reliance, paranoia and lust for hard money.
A picture of a successful society
A society that has succeeded is one in which people have an instrumental view of money and do not see it as an end in itself. An instrument to create capital structures and new real wealth that improves society and makes things better for the future. As a tool that is used to signal value and coordinate supply chains. As a tool that can be used to enable real production and reward mindful consumption and good decision making.
This tool will work when it is combined with a moral culture that celebrates success, punishes jealousy and recognizes that some principals are more important than money.
There are two things that you can do with money. Bury it and try to keep it safe or spend/invest it. Spending is for things that make you feel good in the moment and investing is for things that will generate a return in money or cut spending requirements in the future. Stories and social conditioning can be used to make people enjoy investing more than spending.
What happens when trust erodes
But to invest there must be some guarantee that you will be able to generate a return. To generate a return you must be able to predict the future. If you can’t predict the future, then, at the very least you must be able to be secure in the knowledge that if and when you succeed the rewards will not get stolen.
If these guarantees cannot be put in place by the government, then people will rely on cutting costs and cornering hard assets to save money instead of on investment to make new capital assets. Some of these costs that they cut will be neutral or even good from an economic stand-point. Like choosing to skip a pizza or a jalebi. But some of them might be counterproductive and even destructive in the long run. For example, if a family chooses to cut costs by refusing to buy any books for the children or buy them nutritious food it will destroy value in the long run.
Saved money cannot just sit in a vault. The economy cant grow that way. The people will just work harder and harder and gradually impoverish themselves off the material factors that are important for their own well-being in exchange for currency to pay taxes.
So, the saved money has to be somehow invested to increase the volume of goods and services that can be bought with money. This will cause the value of money itself to increase which can then be used to print more money and grow the economy. The economy can be either directly taxed to provide public services or indirectly taxed by printing money for government spending.
Centralized Capital Allocation
If the people won’t invest it then the banks and the government have to do it. This will centralize decision making and risk taking. In a society that has an unhealthy obsession with money and gold and a generally low standard for moral behavior and selfless thinking this will create serious problems.
The people controlling these few big taps of money wield enormous power. Power doesn’t rest easy in the hands of tiny-dicked, insecure and selfish people. Instead of a self-sacrificing elite society, India has in recent history had a parasitic class of professional butt-lickers and back-stabbers in the form of a brahmin elite that served as the whip of the British masters.
Worship of power and proximity to white humans coupled with extreme fear and subservience to authority regardless of its legitimacy has been programmed into the Indian lower classes through millennia of casteism and automatic hierarchies based on birth.
Power and wealth are in more enlightened societies, seen as a tool that can be used to create a positive impact on society. But in India, ‘the good life” is not something people aspire to since most people don’t know what it means. Living in healthy, clean conditions in a peaceful society with a healthy and beautiful body and mind is not something that most Indians aspire to. What they want is power. Power to improve things? To make their own situation better? No. Since most Indians don’t know how to make themselves feel good they try to make other people suffer so that they can feel less shitty about themselves. For them life is all about competition. If Sharmaji has a Zen, we should buy an Esteem, if they have 2 bedrooms we must have three. And if we can’t have these things we must somehow destroy their stuff. That is the value of wealth and the power it can buy, from an Indian perspective.
In such an environment concentrating economic decision making in an elite at the top of a political hierarchy is asking for trouble. Forget preserving wealth. The money can actually be used to entrench and secure the interests of the parasitic, self-absorbed and insular elite and to isolate themselves from the suffering of the masses.
In such a scenario the value of money doesn’t grow. In fact the value of the paper money actually goes down because the people holding it didn’t earn it by making something useful, but by stealing it from deserving people. Once the volume of currency held in such hands crosses a critical threshold confidence in the currency collapses. Either suddenly or gradually. The steadily increasing price of gold in India is hard evidence for the fact that people don’t trust the economic system.
Betting real wealth on statues and bullet trains vs. just burying it
I used to laugh at my grandma for washing hands all the time and running to the jewelry and buying a little bit of gold every time she got some money. She is nearly a 100 now and has managed to survive all these years without asking anyone for any help and is quite wealthy now. It is after the recent pandemic and witnessing the central government’s response to it that I realized the value of her wisdom and her paranoia. The government, the system and the society cannot be trusted in India. Any store of value that relies on a functioning social system is quite vulnerable in a country like this. Trying to achieve growth without first prioritizing wealth preservation is asking for trouble.
Yes, it does create a problem for the commons. The vast quantities of wealth locked down in the form of unmonetized gold is a big loss for the country. It prevents growth. A loss! That is how I used to think about all this gold lying in lockers and buried underground and hidden in walls all over the country. But then I figured out that preservation of wealth is more important than growing it. Gold is the weak and uneducated man’s protection against the caprices of the sometimes educated but always uncultured and predominantly criminal elite of the country. Maybe the secret piles can’t be used to create gold backed currency that can be used to grow the economy. But at least it can’t be wasted or siphoned off or used to win power by the unscrupulous politicians and businessmen that have made India a living hell.
It might be better to let the wealth rot underground than to give it to criminals. That will just make everything a lot worse. Until the system improves and decentralized investments have a fighting chance it is best to sequester the wealth in places and forms that make it invulnerable to confiscation by a ruthless and rapacious ruling class.
Like always, grandma is right again!