What is price? It is not the reflection of
any intrinsic value something may have, nor is it the sum of what is cost to
produce it and profits fetched. It is instead what the owner will demand in
order to part with it. I hope you get this straight into your head as this
happens to be the main reason as to why prices rise during scarcity and do not
drop to the same levels when demand meets supply. The term “Inflation” is
merely a cover up to justify this act. Of course I am not ridiculing inflation
here, I’m just pointing out misconceptions.
I’d like to take you through a cautionary
tale here. Two cities Zig and Zog prevailed long ago. Both had around the same
population, same terrain and people who ate the same kind of food, similar
cultural practises but different rulers. One was a benevolent king and the
other was a good Economist.
In Zig, food produced
was always in surplus and every grain reached the palace doors and they were
equally distributed to all. The king set fair prices and food reached everyone,
and so all praised the king. But when famine hit, the benevolent king under
priced the food articles to help his people live at the cost of his reserves
diminishing. And as the famine persisted, the dying people continued to praise
the dying king. And once the king was dead, so did Zig. There was theft and
chaos and the remaining people fled.
In far away Zog, the
government never intervened in pricing commodities. It left the responsibility
to its merchants, trusted them and supported them. During times of surplus
these merchants stealthily built warehouses to store excess food. And when
famine hit, they sold the food at double the price stripping people even of
their watches n jewels. These traders even gave some of these jewels and
watches to the peasants to coax more food. News spread and this attracted
people from nearby areas surrounding Zog. The longer the famine, the higher the
prices went, until the people restricted themselves to a minimal diet. Or you
can say that the markets rationed them to such a a state. This made them more
competitive survivors than mere dependant slaves to the government as in the
case of Zig. By the time the famine ended, the whole city was indebted to the
merchants, but was alive: and each merchant was resentful that competition from
his colleagues restricted him to raise his fortune twenty fold, rather than
only four fold.
In Zig, when fair prices
were paid for food, the supply dried up and people starved and died along with
their fair-minded ruler. Farmers were not prepared to supply food at the fixed
low prices set by the government. Whereas in Zog, when no fair prices were
legislated, there were large price rises, big enough to attract farmers, not
only from nearby regions but even as far as Zig (remember the people who fled
from Zig). The people of Zog grumbled, but lived and adapted.
This is just a tale, but it
emphasises the fact that as prices rise, competition increases, quality
increases, new techniques evolve and people become more adaptable. Moreover it
portraits that prices have an existence and influence people beyond the
intentions of the ruler/government.
Yes, the entire article was referring to
subsidies. 27 years ago, Indians unintentionally miscalculated the back
firings that the country would face by introducing subsidies. They never had a
time frame. Subsidies are generally given at the time of an emergency in order
to sustain a dying population and in that particular time frame; the government
should empower its people to alleviate themselves from existing misery. Take
world history and you’ll find food and fuel subsidies being the most popular
form, and all of them came with a well defined time frame. Once the country
revives, the subsidies vanish. Unfortunately here in India, subsidy is a way of
life. And we did follow the trail left by Zig. We are desperately working
towards reviving ourselves to avoid an economic breakdown. The country dies
with its dying king. Should we allow it?
By creating a cheaper country to live in, we create a less
competitive environment for us to survive. This is not to be confused with
creating 'Security', rather this is merely inculcating 'Stupidity'. On a
concluding note, evaluate politicians who help the country and its people grow
progressively, rather than the ones who make your life easier.
