Social capital is the answer to India’s gold dilemma

This is from The Intersection column that appears every other Monday in Mint. India’s social capital deficit registers as a factor in its current account deficit through the demand for gold. Our appetite for gold is not a irrational cultural quirk. It is, in part, a revealed preference, a tangible symptom of our collective distrust in each other, in our society and in our civic institutions. More dramatically, the economist Ajay Shah tells me that gold is a vote of no confidence in civilisation itself. Whatever people might say in opinion polls about how much they trust their government or their leaders, they reveal their true beliefs when they buy gold when other assets are available. In an earlier column I cite Rothermund’s work to show social harmony is a crucial ingredient for growth and development. Writing about the 19th century, the historian Dietmar Rothermund noted that unlike Meiji Japan, surplus capital in India went into land and gold because of the absence of…