Ambedkar, the forgotten free-market economist
in Perspective by B Chandrasekaran — April 14, 2011 at 12:45 am
On April 14th the world will celebrate, no matter how ignorantly, the
120th birth anniversary of Bhimrao Ramji Ambedkar for his role as
chairman of the Constituent Assembly's Drafting Committee, as an icon
of the Dalit community, as the first law minister of independent
India, for his conversion to Buddhism, for his debates with Mahatma
Gandhi—for all possible reasons except for being a radical economist
of his time. That too, a free market economist.
In fact, several scholars have claimed otherwise, the most recent of
them being Anand Teltumbde in a recent issue of the Economic &
Political Weekly writes:
The protagonists of globalisation have tried to project him as a
proponent of the free-market, indeed, as a neoliberal, and have even
gone to the extent of painting him as a monetarist (monetarists are
supposed to be the intellectual initiators of neoliberalism) to claim
him in support of their propaganda. In any case, how many Dalits, even
among the educated ones, know what monetarism is? Ambedkar, who
publicly professed his opposition to capitalism throughout his life,
was thus wilfully distorted to be the supporter of neoliberal
capitalism, which globalisation is!
The truth however is quite on the contrary. While Ambedkar is
routinely portrayed as an intellectual who wrote against capitalism
and free markets, and advocated socialism, a few well-informed writers
like Gail Omvedt have claimed otherwise. Ironically one of the reasons
for the prevailing misconception is the volume of Ambedkar's scholarly
output. With contributions in political science, sociology, law, and
other fields spanning over four decades, much of his work on economics
has been neglected.
This meant that the academic community in India did not go on to
develop Ambedkar's ideas on economics, some of which anticipated
important threads of 20th century Western economic thought, like
"economic and political decision making in an environment of dispersed
knowledge" and "alternative monetary systems (and the) denationalised
production of money". Ambedkar wrote extensively on finance, monetary
economics, banking systems, and interstate financial relations.
Perhaps the only exceptions to the gross neglect of Ambedkar's
writings on economics in India are the works of Srinivasa Ambirajan
and Narendra Jadhav.
Mr Jadhav argues that:
…one finds the widespread ignorance regarding Ambedkar's
contribution as an economist unfortunate. This lack of awareness, to
an extent, could be explained by his phenomenal contributions in other
spheres such as law, religion, sociology, and politics, which might
have overshadowed his contribution to economics. Yet it is surprising
that even the so-called expert studies on the evolution of Indian
economic thought…do not seem to take much cognisance of Ambedkar's
contributions.
There is no work reinterpreting Ambedkar's writings on economics from
a twenty-first century perspective.
Ambedkar was an authority on Indian currency and banking in the early
decades of the 20th century. He was trained under scholars like Edwin
Cannan, Edwin Seligman, John Dewey, James Robinson, and James
Shotwell. Both his MA and PhD degrees (from Columbia University) were
in Economics. He also received a DSc degree in Economics from the
London School of Economics. He was familiar with the works of Carl
Menger, who founded the Austrian School of Economics in the 1870s.
That said, he remained an independent rational thinker, favouring
empiricism and logic, rather than favouring any particular economic
system or ideology.
Ambedkar's magnum opus, The Problem of the Rupee: Its Origins and
Solutions, was first published in 1923. This was republished as the
first volume of the History of Indian Currency and Banking in 1947. In
his forward to the book, Cannan wrote:
I do not share Mr Ambedkar's hostility to the system, nor accept
most of his arguments against it and its advocates. But he hits some
nails very squarely on the head, and even when I have thought him
quite wrong, I have found a stimulating freshness in his views and
reasons. An old teacher like myself learns to tolerate the vagaries of
originality, even when they resist "severe examination" such as that
of which Mr Ambedkar speaks.
Cannan went on to say that "In his practical conclusion, I am inclined
to think, he is right".
In the very first chapter, Ambedkar holds that:
Trade is an important apparatus in a society, based on private
property and pursuit of individual gain; without it, it would be
difficult for its members to distribute the specialised products of
their labour…But a trading society is unavoidably a pecuniary society,
a society which of necessity carries on its transactions in terms of
money.
In fact, the distribution is not primarily an exchange of products
against products, but products against money. In such a society, money
therefore necessarily becomes the pivot on which everything revolves.
With money as the focusing-point of all human efforts, interests,
desires, and ambitions, a trading society is bound to function in a
regime of price, where successes and failures are results of nice
calculations of price-outlay as against price-product.
Essentially, he emphasises that a "sound system of money" is the
foundation for specialisation in production and trade among
individuals in society, without which the prosperity of society would
not be possible.
Unlike many of his contemporaries, Ambedkar was an original thinker as
it appears from his skilful analysis of the political economics of
British India. Contrary to popular belief, Ambedkar believed in the
principles of free markets and advocated free banking (against
government monopoly of printing legal tender), gold standard,
decentralised planning, private property rights, economic freedom,
free enterprise and individual liberty. Moreover, Ambedkar understood
the knowledge problem in society and its relevance for decentralised
planning. Ambedkar also vehemently criticised Keynes and others for
favouring Gold Exchange Standard rather than Gold Standard, and
extended the argument of the law of consumption.
The three following examples from Ambedkar's writing substantiate this
view. First, in his statement to the Royal Commission on Indian
Currency and Finance in 1924-25 (whose recommendations established the
Reserve Bank of India) he submitted that:
One of the evils of the Exchange Standard is that it is subject to
management. Now a convertible system is also a managed system.
Therefore by adopting the convertible system we do not get rid of the
evil of management which is really the bane of the present system.
Besides, a managed currency is to be altogether avoided when the
management is to be in the hands of the Government. When the
management is by a bank there is less chance of mismanagement. For the
penalty for imprudent issue, or mismanagement is visited by disaster
directly upon the property of the issuer.
But the chance of mismanagement is greater when it is issued by
Government because the issue of government money is authorised and
conducted by men who are never under any present responsibility for
private loss in case of bad judgement or mismanagement.
Ambedkar thought that the government should not print the currency,
instead the private banks should print and thus there will be
competing currencies with direct responsibility. This is one of the
core principles of the Austrian School of Economics.
Second, on the issues of knowledge problem and decentralised planning
Ambedkar wrote (in his PhD thesis) that:
By centralisation all progress tends to be retarded, all
initiative liable to be checked and the sense of responsibility of
Local Authorities greatly impaired…centralisation conflicts with what
may be regarded as a cardinal principle of good government.
Thus, centralisation, unless greatly circumscribed, must lead to
inefficiency. This was sure to occur even in homogeneous states, and
above all in a country like India where there are to be found more
diversities of race, language, religion, customs and economic
conditions.
In such circumstances there must come a point at which the higher
authority must be less competent than the lower, because it cannot by
any possibility posses the requisite knowledge of all local
conditions. It was therefore obvious that a Central Government for the
whole of India could not be said to posses knowledge and experience of
all various conditions prevailing in the different Provinces under it.
It therefore, necessarily becomes an authority less competent to deal
with matters of provincial administration than the Provisional
Governments, the members of which could not be said to be markedly
inferior, and must generally be equal in ability to those of the
Central Government, while necessarily superior as a body in point of
knowledge.
Ambedkar further went on to say that the only argument on the above
the Government of India could make is that it has "all power in its
hands, not from principle but from necessity. That necessarily arose
out of its constitutional obligations." There are similarities
between Ambedkar and Hayek's view on knowledge problems and therefore
need for decentralisation in planning. Note that Ambedkar wrote these
ideas decades before F A Hayek published his classic article on The
Use of Knowledge in Society (1945).
Third, while reviewing Bertrand Russell's Principles of Social
Reconstruction, Ambedkar pointed out what Russell failed to figure out
in his theses on the law of consumption.
…the utility of an object varies according to the varying
condition of the organism needing satisfaction. Even an object of our
strongest desire like food may please or disgust, according as we are
hungry or have over-indulged the appetite. Thus utility diminishes as
satisfaction increases.
Ambedkar would have been against a Planning Commission with powers to
plan for the whole country without adequate knowledge about it. A good
government cannot issue paper money irrespective of goods and services
produced in the economy. There is a greater convergence in the
writings of Ambedkar and those of B R Shenoy, Hayek, Ambirajan and
Ludwig Von Mises. However, there is virtually no literature exploring
the possibility of understanding of these writings from a comparative
perspective. The economic historians have starved young minds by
focusing the politically motivated debates for far too long.
B Chandrasekaran works in the area of public policy and blogs at Hayek
Order. This essay is based on a paper presented by him at the Austrian
Scholars Conference 2011 organised by the Ludwig Von Mises Institute.
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