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Keynesian Economics and Under-Developed Countries Again-A Rejoinder

Keynesian Economics and Under-Developed Countries Again A Rejoinder A K Dasgupta BECAUSE of his enormous experience as an economic administrator, whatever L K Jha says about economic policy deserves our closest attention. It is therefore with considerable interest that I read Jha's comments (EPW, November 14) on my piece on 'Keynesian Economics and Under-Developed Countries Again'. It appears that my "persuasive prose" could not persuade Jha! But no, he has taken the last paragraph of my paper in isolation from its earlier part, and has mistaken me to be one of those orthodox economists who would shun deficit financing under any circumstances. I am not that at all. I entirely agree with him as regards the use of deficit financing in the context of planned economic development, at any rate at its initial stages. In fact this was the bone of contention in the Economists' Panel in the mid fifties between the late B R Shenoy and some of us. Shenoy, as one will remember, was an extreme conservative in respect of Plan finance. In the Panel meeting where the matter was discussed I remember having set myself against him. And at the request of the late C D Desh- mukh (who happened to be our Chairman) I allowed myself to write a note on Deficit- Financing. The note was published in "Papers Relating to the Second Five Year Plan" (Planning Commission, Government of India, 1954). Therein I justified a policy of deficit financing in the context of plan-finance, even though I made it clear that the policy was not to be a painless process as it would be in the economy which had been Keynes's frame of reference. I cannot quote from that note, for I do not have it with me at the moment. I may, however, quote from a paper, which I had written earlier and which was published in a revised form in a collection of essays under the'title "Keynesian Economics'' (ed V B Singh, Peoples' Publishing House, Delhi, 1956). This is what I said there: The need for public investment is urgent if the objective in the under-developed economies is to achieve a higher standard of living and increasing volume of employment. And, in the absence of an adequate flow of foreign capital and an adequate volume of public savings, deficit financing is also called for. But whereas, in mature economies, deficit financing is more or less innocuous and can be depended on, with the aid of the multiplier, to achieve the desired level of employment without any substantial rise of prices and with a constant money rate of wages, in under-developed economies where structural resistances are strong, deficit financing leads to inflationary pressures and a tendency to a rise in money wage rate, except insofar as the pattern of investment is such as increases output within the time lag between the earning of additional money income and its spending on consumption goods. In such economies, therefore, deficit financing has to be accompanied in the transition period (i e, till the structure of capital equipment is matched with the extended structure of demand) by a system of controls very much on the lines of war time controls. If money wage rates are to be kept constant, prices of wage-goods must not be allowed to rise. And if resources are to be prevented from shifting to non-essential industries, price control must be accompanied by capital issue control. And so on (pp 162-63). On this therefore we agree. I have not indeed made "the point", as Jha suggests, "that with the shortage of capital addition to aggregate demand through budgetary deficits will not help countries like India". I have, on the other hand, always argued, as I say in the early part of the paper which provokes his comment, that deficit financing can be legitimately used towards capital formation (and hence growth), provided its inflationary impact could be regulated. In fact in a seminar on Inflation organised by the members of parliament on the eve of the Third Plan, which both V K R V Rao (whom Jha quotes in. his favour) and myself addressed, I remember to have found myself rather to the "left" of Rao in my deviation from orthodoxy.

Keynesian Economics and Under-Developed Countries Again-A Postscript

Countries Again A Postscript THIS postscript (as I have called it) has reference to my paper on 'Keynesian Economics and Under-Developed Countries Again' (EPW, September 19) The purpose of the postscript is to clear up a matter concerning the diagram which 1 have used in the paper (p 1602), to show how it is related to a diagram which was in the background of my 1954-paper on the same subject,1 and to which there are references in the earlier part of the 1987 paper. I am anxious to remove a possible confusion due to the fact that I allowed myself in the paper to switch on from one diagram to the other without warning This I detected after I had sent off the paper to the editor.

Keynesian Economics and Under-Developed Countries Again

Countries Again A K Dasgupta /t is resources constraint rather than demand deficiency to which one would have to turn for an explanation of mass unemployment and underemployment in an underdeveloped country In India we have had the telling experience of rising prices and money wages invariably associated with deficit-induced investment. There may have been misallocation of resources, leading to over-capitalisation and periodic depression in one or the other sector of the economy. But of a general deficiency in aggregate demand there is hardly any evidence.

Marshall s Ultra-Short Period Market

Marshall's 'Ultra-Short Period' Market IN the course of his review of my "Epochs of Economic Theory" (EPW, May 2) Bhabatosh Datta has raised a point which, though apparently trivial, is of some importance from the pedagogic point of view. I refer to his objection to Marshall's use of 'corn' as example in his analysis of what John Hicks has taught us to call the 'ultrashort period' market, a market where the stock of the commodity to be bought and sold is assumed to be absolutely fixed, the period being too short for production to take place.

Lord Kaldor - An Obituary

An Obituary A K Dasgupta THE death of Nicholas Kaldor (Nicky, as he used to be called by his friends and admirers) is a great loss to the world of economics. For in spite of his age

On Higher Education in India

On Higher Education in India A K Dasgupta VISVA-BHARATI, the brain child of Rabindranath, which he nursed in its infancy has grown into adulthood. Its sizehas expanded and it is now on a sound financial tooting. Is it justifying its inheritance, or is it now just one other university within the general design of the University Grams Commission, cut off from its old moorings? As one ascends this platform one cannot help asking this question. Quite a few of my predecessors have indeed done so and have lamentmed what they regard as an erosion of its old tradition. There are also whispers around

The Wages Question Theory and Policy

The Wages Question: Theory and Policy A K Dasgupta In an underdeveloped country like India there is hardily a general market for labour and labourers are paid in a variety of ways not always amenable to organised treatment. Can these diversities be re- conciled? Can wage payments in the various markets be brought under general principle? The present state of wage theory is discussed in this light in the first part of this paper.

Not Revolution, but Restoration

Not Revolution, but Restoration Revolution through Ballot by Anirudha Gupta; Ankur Publishing House, New Delhi, 1977; pp viii + 164; Rs. 40. I REMEMBER having had an interview with Jayaprakash Narayan at Banaras sometime in early 1950, along with some other teachers of the Banaras Hindu University. The discussion centred on whether there was any possibility of a China-type revolution in our country, considering that the Constitution as such did not permit any fundamental socio-economic reconstruction. Jayaprakash Narayan had by then left the Congress along with other members of the Socialist group and had not yet joined the Sarvodaya movement. The Socialist party, of which he was a leading member, was active in opposition to the ruling Congress party. His reaction to our question was clear and straightforward. He believed, as he said to us in his characteristic, soft tone, that an armed revolution of the Chinese variety was not possible in our country, nor was it necessary. He agreed that there were similarities in the situation in the two countries. But, he argued, there were dissimilarities also, which were serious. The army in China, which Mao Tse-tung and his followers fought was decentralised. Each unit could thus be taken separately and overpowered. India, on the other hand, had a centralised, well-disciplined army which the Central government was controlling, having inherited it from the British. It was not within the power of any revolutionary body in India, whatever its urge, to cope with it; an armed revolution was not a practicable proposition. Nor, he continued, was is necessary, in view of the fact that the Constitution provided for adult suffrage and that it was open to any party seeking a socio-economic revolution to work it out through ballot. If you wanted to change the socioeconomic structure in favour of the masses, it is the masses to whom you could appeal for votes; adult suffrage provided enough opportunity to the Socialist party, operating within the Constitution, to snatch power and then to effect changes. But he added, with his voice as serene as ever, that if the ballot at all failed, he would not hesitate to lead a movement towards a revolution, even though he would eschew violence.

Tax Concessions, Equity and Growth

Tax Concessions, Equity and Growth A K Dasgupta FROM all accounts, there is jubilation over the income tax concessions that the Finance Minister has announced in his Budget. Congress Members of Parliament, including among them a renowned economist have welcomed the concession proposals. They' argue that the concessions will stimulate growth. The old plea that they will reduce the tendency to evasion is also often repeated.

Inflation, Money and Production

Inflation, Money and Production A K Dasgupta Inflation in India (ed) S L N Simha; Vora and Co, 1974; pp xxviii + THERE has been of late a comparative calm on the Inflation front. The rate of inflation is reported to have come clown, and our economists seem to be satisfied that their exercises over the last few years and their pressures on the Government for remedial action have started bearing fruit. The book under review carries some of these exercises and prescriptions of policy. It is a collection of papers read and discussed at a Seminar organised by the Institute of Financial Management and Research, held during the heyday of inflation in the country.

John Hicks, the New Nobel Laureate in Economics

November 25, 1972 John Hicks, the New Nobel Laureate in Economics A K Dasgupta ONE of the recipients of this year's Nobel Prize in Economics is John Hicks, Fellow of All Souls and formerly Drummond Professor of Political Economy, Oxford University. The choice will be acclaimed by his professional colleagues with unreserved approbation. lamented having missed his name last year. Very rightly. Hicks certainly is the foremost economic theorist of our time

On Differential Rates of Interest-A Reply

On Differential Rates of Interest A Reply A K Dasgupta MY paper on differential rates of interest (July 1) has elicited two comments (July 22) which should not remain unanswered. I shall discuss them separately.


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