Demonetisation is a Despotic Action, Not Humane, Says Amartya Sen

Nobel Laureate Amartya Sen said that demonetisation has made potential racketeers out of legitimate traders.

Nobel Laureate Amartya Sen has called Modi government's demonetisation move "despotic action that has struck at the root of economy based on trust".

In an email interview to The Indian Express, Sen had described the move to demonetise Rs 500 and 1,000 notes and its implementation were “akin to a despotic action”.

In an interview to NDTV’s Barkha Dutt, Sen explained his choice of words by claiming that, ”it (demonetisation) undermines notes, it undermines bank accounts, it undermines the entire economy of trust. That is the sense in which it is despotic.”

He further said his immediate point of view on demonetisation is on its economic aspect, although demonetisation can be challenged in a court of law.

A known critic of the Prime Minister and his policies, the Bharat Ratna awardee justified his point by claiming that the government has made “potential racketeers” out of legitimate traders, until they prove otherwise.

Sen, who is currently Thomas W Lamont University Professor at Harvard University, said that while he is not an admirer of capitalism, it has proved to bring success to economies. However, moves like demonetising the most used currency leaves a serious mark on the economy, besides the harassment that it causes.

Read the complete text of the interview here:

If a government promises, as any promissory note does, that when given to us, we will give you this amount of compensation for it. It’s a promissory note. To make such promise is a despotic action. Now, you know, I’m not a great admirer of capitalism, as people who have read any of the writings would know. On the other hand, capitalism has had many successes and the successes have come from having a trust in business. The root of the trust, is the faith in the promissory note. I promise to pay you this amount. Suddenly the givernment says, “Well, we did promise but we are not going to pay you that much.” Well, that’s a despotic action.

Now people like Adam Smith, the founder of modern economics, spent a lot of time discussing why trust is the central thing to build up in having an exchange economy, making capitalism as a success. He also saw limitations of capitalism but to the extent that capitalism is a success, it depends on trust.

Now, it goes against trust all together here. Now, one of the things to recognize here, Barkha, is a relatively positive effect that someone has commented on of making money illegal and these are relatively common methods. Majority of our transactions take place in these notes and by making them not acceptable, you encourage people to open bank account and use them. But that cannot counter promissory statements too; the bank’s promise to pay this much. If the government today suddenly said “okay, we won’t accept any account more than 10,000 or more than this amount of money, unless these people who hold their account can prove. the onus is on them to prove that they are not racketeers and then we will pay them.”

So, it undermines the note, it undermines potentially the bank account, it undermines the entire economy of trust.

That’s the sense in which it’s despotic. It has legal aspect which of course could be challenged in a court. But from my immediate point of view, it is an economic aspect. It’s a disaster for an economy of trust which makes a very big difference to the success of the Indian economy which has been quite successful in terms of economic growth though not in distribution. With economic growth for more than 20 years now, the country has been growing very fast. But it’s all based on the acceptance of each other’s words and by taking a despotic action and suddenly saying “we have promised but we won’t fulfill our promise”. You get at the root of it, despotism has its economic price, quite aside from its implications in terms of harassment that is brought about by suddenly making normal, legitimate traders potential holders of black money, potential racketeers, until they can show that they are not racketeers after all.

(With inputs from PTI, NDTV and The Indian Express)