Theoretical Visions and Economic Prophecies

B. R. Shenoy (1905–1978) was the most important free-market economist in India during the twentieth century. Throughout the long period when socialism and economic nationalism dominated public policy in India, Shenoy was a lone voice for individual freedom, limited government, and the market economy.

From 1929 to 1932 he studied at the London School of Economics and had the good fortune to hear F. A. Hayek deliver the lectures on the Austrian theory of money, capital, and the business cycle that were published later as Prices and Production. Those lectures greatly influenced Shenoy’s thinking on economics for the rest of his professional life.

He also became a devoted advocate of liberty during those years at the London School. As one his biographers pointed out, “During this period he acquired considerable interest in the wider issues of social philosophy and methodology. In this connection, his ideas came to be strongly influenced by Hayekian liberalism and throughout the rest of his life, as an economist as well as a social philosopher and critic, he remained a fiercely uncompromising [classical] liberal.”

After leaving England in 1932, he held a number of university teaching positions in Ceylon and India. From 1945 to 1953 Shenoy was employed as a senior economic analyst with the Indian central bank, but returned to academic life in 1954 because he desired greater intellectual freedom. He showed why he wanted such freedom when he became the leading opponent of India’s second central plan in 1955–1956, offering a scathing critique of planning in general and in particular the dangers to any chance for Indian economic development from government’s intrusive hand. From the 1950s to the end of his life, a time when the Indian government presumed that wealth could be created by simply creating money, Shenoy was an unbending critic of monetary manipulation and inflation.

In 1968 he resigned from his university position and founded the Independent Economic Research Centre in New Delhi, serving as director until his death in 1978. The late Peter Bauer, one of the world’s leading free-market experts on development economics, praised Shenoy’s “moral courage in dissenting from the Second Five Year Plan and the orthodoxy surrounding it.” Bauer said Shenoy “united moral courage, intellectual integrity and technical competence to an exceptional degree.”

Shenoy was a prolific writer, and was the author of such works as Problems of Indian Economic Development (1958), Indian Planning and Economic Development (1963), Fifteen Years of Indian Planning (1966), Indian Economic Policy (1968), Indian Economic Crisis: A Program for Reform (1968), PL480 Aid and India’s Food Problem (1974), Food Crisis in India: Causes and Cure (1974), and Economic Growth and Social Justice (1977). A collection of some of his essays was published in 1996 as Planned Progress or Planned Chaos?

The Centre for Civil Society in New Delhi has recently published a wide selection of Shenoy’s essays in two companion volumes, Theoretical Visions and Economic Prophecies. The first contains a series of excellent essays in which he explains the essential political and economic institutions for freedom and prosperity. This is followed by five articles on the meaning and nature of savings and capital accumulation, in which he presents an outstanding summary of the ideas of classical economists on the role of savings in economic development, as well as the Austrian theory of savings and capital formation as found in the writings of Eugen von Böhm-Bawerk.

The remaining pieces in this volume detail the causes and harmful consequences of inflation, and the importance of maintaining a sound currency based on a gold standard. Also included are Shenoy’s earlier essays from the 1930s, in which he insightfully demonstrated a number of inherent weaknesses and fallacies in the writings of John Maynard Keynes.

The second volume contains 36 essays in which Shenoy defends free enterprise and the entrepreneur, demonstrating how essential they are if India is to have a prosperous future. In meticulous detail he shows the theoretical and institutional disasters caused by central planning in India. In four of the essays he outlines the harmful effects from foreign aid and how it undermined Indian agricultural development.

He also forcefully speaks out against foreign-exchange and export controls, explaining the economic distortions and political corruption they created. In this vein, he discusses the negative effects on incentives and production from government income and wage regulation, especially in the urban and industrial sectors of the Indian economy. This includes the labyrinth of licensing and other controls on private enterprise. Shenoy also demonstrates how private Indian farming is undermined by government planning, state trading in agricultural output, and price controls on farm products.

In one of his last writings in the year before his death, Shenoy explained what is necessary for prosperity in India: “The economic affairs of a free society are controlled, directed and governed by truly sovereign consumers. . . . Consumer control and direction of the economy is effected through a price-regulated market mechanism. . . . Traders interpret these price and turnover signals, and direct producers to adjust their production programs to match the consumer needs thus recorded. . . Available investment resources, i.e. domestic savings and inflows of foreign savings get shifted, through such activity of traders and producers, and via capital markets—which is an integral part of the overall price-regulated market. . . . The full and efficient functioning of a free society demands recognition of the institution of private property, not only in respect of a family house, durable consumer goods in it and a car, but also in respect of capital assets, the means of production.”

All this may sound mundane and almost trivial to many readers who appreciate the nature and workings of a free economy. But in 1977 and earlier, when only socialist voices were heard in India and most other parts of the third world, these were radical and dangerous ideas. To speak them was to go against the tide and risk being viewed as an “enemy of the people.” B. R. Shenoy would not be silent, and if India has been moving in more free-market directions over the last two decades, it is to a great extent because of the intellectual legacy left by this man of moral courage.