Table Of Content1
An Expedition into Real Life Economics
WEALTH and ILLFARE is intended for readers who do not
have much knowledge in economics, but are eager to
know how economic systems function. In particular, it
deals with the phenomenon that many find disturbing, the
soaring affluence of the few and the continuing misery of
the many that is increasingly becoming evident globally
and in our country. Ownership and control over resources,
different forms of mediation and asymmetry of
information are identified as clues for any interested
reader to develop skills to study real life economic
problems. It is a unique and timely contribution by a
reputed practitioner who, over the past half a century, has
influenced generations of students and through his earlier
writings the general public as well.
ISBN: 978-81-8291-120-8
Publisher: Books for Change, Bangalore
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About the Author
Dr. C. T. Kurien is one of India’s senior economists. He was
Professor in the Madras Christian College (1962-78) and
Director of the Madras Institute of Development Studies
(1978-88). His books include: Poverty and development
(1973), Poverty, Planning and Social Transformation (1978),
Dynamics of Rural Transformation (1980), Growth and
Justice (1991), The Economy: An Interpretative Introduction
(1992), Global Capitalism and the Indian Economy (1994),
Rethinking Economics: Reflections based on a study of the
Indian Economy (1996). His most recent essay was on the
international financial crisis titled Inter-Planetary
Economics: The Meltdown and Beyond (2009). Through his
many books, professional papers and newspaper articles
he has influenced generations of economists and the
reading public. He has retired from active academic life and
now lives in Bangalore.
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WEALTH AND ILLFARE
An Expedition through Real Life Economics
“Ill fares the land…where wealth accumulates and men decay”
Oliver Goldsmith
C. T. Kurien
2012
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TABLE OF CONTENTS
INTRODUCTION 6
Part I: BASIC ECONOMIC ACTIVITIES AND RELATIONSHIPS 15
Chapter 1: Economics of a Single Household 17
Chapter 2: Economics of Multiple Households 29
Chapter 3: Exchange and Intermediation 42
Part II: THE INTERMEDIARIES 52
Chapter 4: Money and Markets 54
Chapter 5: Banking and Finance 68
Part III: PRODUCTION AND AGGREGATION 93
Chapter 6: The Organization of Production 95
Chapter 7: The State 113
Chapter 8: The National Economy 126
Chapter 9: The Global Economy 152
Part IV: THE INDIAN ECONOMY 184
Chapter 10: The Indian Economy: Evolution and Structure 185
Chapter 11: Growth and Transformation 203
Chapter 12: India Today: Wealth and Illfare 226
CONCLUSION 250
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INTRODUCTION
Dear Reader,
You have picked up this book, I imagine, because you recognize that economic events
both in your immediate surroundings and elsewhere are impacting your life as also of
society as a whole. If you are a home-maker you know that the rising prices of daily
necessities are related to the happenings in the farms in the rural areas, the policies
within the country and outside that determine the price of petrol, and may be because
of all the developments in the much talked about ‘global economy’. If you are an IT
professional you are acutely aware that your progress in life depends much more on the
changes and chances of the world outside than on your own skills. If you are a social
worker involved in poverty alleviation programmes, you are convinced that the people
whose welfare you are concerned with are not largely responsible for their present
plight. But you do not find it easy to explain the phenomenon of the continuance of
mass poverty even as a few in the country quickly make their way to the top.
We are all aware of many more issues of this kind. What is perhaps missing is an
understanding of how such things hang together. That is what the discipline of
economics is supposed to do – to provide the interconnections of the many puzzling
economic problems that are part of our everyday experience.
I have had a long engagement with economics for about six decades – as student,
teacher, researcher, author and commentator. I turned to economics because I was
seeking explanations for real life issues, specifically for the prevalence of mass poverty in
the country. From my acquaintance with the subject I can tell you that while there are
many “schools” within it, most of them professing to deal with practical issues, they can
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be broadly divided into two basic approaches. Let me refer to them as ‘logic-centred’
and ‘life-centred’.
The former creates an abstract economic system (a make-believe world, if you like)
concentrating on what is a prioiri determined to be the central principle coordinating
the decisions of its different participants and thus leading to what may be thought as the
ideal set up. But, of course, the participants must behave as ‘theory’ expects them to.
Internal consistency and universal applicability are claimed to be the features of such a
system. If the real world throws up situations different from the ideal, the inference then
is that some conditions required for the ideal have not been adhered to. Removing
these external impediments through ‘policy instruments’ can get the real world closer to
the ideal is the claim. Exposition of economics, especially in class room teaching turns
out to be enumeration (rigourous or otherwise) of the conditions required for a
smoothly functioning and (internally) self-adjusting economic system.
In the second approach the emphasis is on contextuality, temporal and spatial, of
economic phenomena as they arise from and reflect the ever-changing social processes.
The basic premise is that the economy is not a self-contained closed entity governed by
its own laws but part of and greatly contributing to larger social relationships. Hence
economic problems must be probed keeping in mind such social factors as the
ownership of resources, the manner of control over them, divisions and power
configurations that arise from them and much more. Real human beings in the variety of
social contexts are the actors that shape the economy.
A familiar ‘riddle’ may bring out the essential difference between the two approaches.
Ten birds are perched on the branch of a tree. A hunter comes and shoots one and it
falls down. How many birds are left on the branch?
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The common sense answer to this ‘riddle’ is known to everyone – or nearly everyone.
Have you tried out this riddle on any of our smart urban kids who have not seen birds,
except in cages or TV, but are otherwise very well-schooled? I have, and the answer is
not rarely, “Nine”. In one instance, a youngster thought that this riddle was an insult to
his knowledge of arithmetic and so added, “No big deal”!
Why does this smart youngster give 9 as answer to the above trick question? Obviously
because it comes naturally to him that 10 – 1 = 9, or to make it a little more
sophisticated, 10x – 1x = 9x, no matter what the x is -- apples, oranges or birds or
whatever-- a case of trained logical thinking. But note that when you give the answer to
the riddle as ‘None’, instead of ‘Nine’ you are also relying on sound logic, but modified
by your knowledge of the behaviour of birds. You have to concede, then, that logic is not
always “pure and simple”, and two forms of it will have to be recognized. Abstract
context-independent logic, and logic based on the realities of life. This distinction is not
always made, but is of crucial significance when dealing with societal matters. In one of
my writings I have referred to these distinct, but related forms of reasoning as ‘formal or
syntactic logic’ and ‘substantive logic’. Please note that when you deal with real life
situations, there are instances where 10 – 1 = 0!
Let me give you an example of substantive logic in application. Two strangers run into
each other in an isolated desert area. Let me call them A and B.
A says to B: “Are you by any chance looking for a lost camel?”
“Yes”, replies B and also asks excitedly, “Have you seen it?”
“No”, says A, “but tell me, is its right leg a little lame and the left eye almost blind?”
“Sure enough, that’s my camel”, cries B, “please tell me where you saw it”
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A answers, “Let me tell you once again that I have not seen your camel”.
B loses his cool and shouts back at A, “Stop your nonsense! If you have not seen my
camel, how do you know so much about it?”
“Cool down my friend” says A, “I noticed the foot prints of a camel and a man in the
sand for a long stretch of the desert. After a while only the footprints of a camel could be
seen. So I inferred that the animal had been separated from the man. I noticed too that
the footprints of the right hind leg were not very clear and that led me to think that it
must be lame. I also observed that the camel had eaten leaves only from the right side of
its path and I concluded that the vision of the animal on the left side must have been
impaired.”
The story illustrates what substantive logic is.
I rely a great deal on substantive logic to take you through the economy using economics
as the guide map. And you have rightly inferred that I am taking the second alternative
mentioned above! My training, initially in Madras and subsequently at Stanford
University, United States was via the first alternative, what has come to be known as
‘Neo-Classical Economics’. The Department of Economics of Stanford at that time (late
1950s and early 1960s) was arguably the best centre in the world rigorously expounding
that tradition in economics. Kenneth Arrow whose mathematical exposition of the
logical structure of Neo-Classical Economics at that time was a great novelty (and for
which he received the Nobel Prize subsequently) was one of those from whom I learned
the subject. Initially I was quite excited about the integrating power of that approach.
On one occasion I raised the question about the relationship between the abstract
logical system whose properties and claims one was intellectually appreciating and the
practical issues that one comes across in any actual economy and the answer was that
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mastery of the logic would make that possible. However, when I started using it to make
sense of real life problems from the Indian context I began to see its limitations. I took up
the matter with Arrow too. He admitted that the logical system was far removed from
reality, but that an ideal system would enable one to see how far the real was from the
ideal and thus help in initiating corrective action. I did not think that this was the best
way to understand reality, but the priority at that time was to complete my doctoral
work, which I did!
Back home, while I was passing on the logic to undergraduates as “Principles of
Economics” and to post-graduates as “Advanced Economic Theory”, but was also dealing
at some depth with practical economic problems, I began to realize that at best the
logical approach could only deal with what it recognized as economic problems. One of
my earliest professional writings was bringing out the limitations of the Neo-classical
tradition to provide rational explanations for the dominance of household production
units in India.
Subsequently I was at Yale University (in the late 1960s) which then had a ‘Growth
Centre’ trying to apply economic theory to the development problems of
underdeveloped countries. The ‘models’ that were being churned out there were based
on assumptions whose validity was never seriously examined and I was not enthused
about such exercises. Instead, I devoted the best part of the year to a careful study of the
‘classical’ writings in economics. I became convinced that what was required to deal with
concrete economic problems was an appropriately modified approach of the classical
writers whose basic concern was the practical economic problems of their times. From
the early 1970s I started cultivating such an approach. Issues related to the
measurement of poverty in the country were the widely discussed theme among
economists at that time, but I worked on an adequate conceptualization of poverty as a
societal aberration. My book on poverty written while I was a National Fellow of the
University Grants Commission and which came out towards the end of the decade was
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