B.R.Ambedkar, the Greatest Free Market Economist of India
Before Ambedkar became a lawyer, social reformer and Constitution maker, he was a professional economist. Strangely, he is now known more as a Dalit leader than as an economist in the Dalit community as well as in the society at large.
Socialist myth: when people do talk about his economics, but it is about his opposition to capitalism and socialist leanings. This is a myth forwarded by dalits to further their own agenda.In fact, Ambedkar did not oppose free-markets but was himself an advocate of free-markets!!
Dalit politics: his economics is ignored by the mainstream and misrepresented by the dalits community because it is contrary to the socialist politics in India.
True free-market capitalist: those who know about his economics downplay it but he was free-market economist even before Austrian Economists like F.A.Hayek, etc.
Significance of Ambedkar’s economics today: in the heyday of economic reforms in India, we need to rediscover the Ambedkar’s economics, especially his ideas of free-market principles, to empower the dalits and raise them from deep ignorance.
In his article “Dalit Capitalism and Pseudo Dalitism” (5 March 2011, pp 10–11), the civil rights activist Anand Teltumbde makes several dubious claims, one of them being Ambedkar’s opposition to capitalism/free market economics “throughout his life”. In reality, Ambedkar was one of the first-generation economists in India and a leading free-market economist in the early decades of 20th century. He was a trained economist with degrees from Columbia University in U.S.A and the London School of Economics before moving on to law and social theory and practices.
The reason for this myth is the poor understanding of the intellectuals among the Dalit community and by the mainstream academia and society. The academic environment both in India and abroad has almost forgotten Ambedkar as an economist (leave alone his contribution to free-market economics). According to eminent economist Narendra Jadhav, the lack of awareness continues due to the “intellectual slavery of the Indian society”. Even today, there is a blatant lack of awareness about Ambedkar’s life and works. We continue to underestimate, or worse ignore, the many original contributions that Ambedkar made to many mainstream economics theories in the latter part of the 20th century. Professor S. Ambirajan (1999:3280) said, “I am somewhat distressed to see that he is portrayed as a leader of the ‘dalit’ community and nothing else.”
Dalit activists such as Teltumbde seem to downplay Ambedkar’s free-market economics. For example, Teltumbde says:
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?
Further, Teltumbde paints Ambedkar as a socialist and Marxist: Ambedkar, who publicly professed his opposition to capitalism throughout his life, was thus willfully distorted to be the supporter of neoliberal capitalism, which globalisation is!
This denial of Ambedkar’s free-market credentials seems to be rooted in further propagating Ambedkar’s socialist beliefs for populist reasons and political gain, which is a gross mistake and a misrepresentation of his original arguments. Indeed:
[Ambedkar] rejected the totalitarian approach of Marx in advocating control of all the means of production. He did not accept the Marxian position that the abolition of private ownership of property would bring an end to the poverty and suffering of the have nots. He also did not accept the Marxian prognosis that the state is a temporary institution that will wither away in course of time. (Jadhav, 1991: 982).
In fact, in his book States and Minorities, Ambedkar entrusted:
…an obligation on the state to plan the economic life of the people on line which would lead to highest point of productivity without closing every avenue to private enterprise, and also provide for equitable distribution of
wealth (ibid 982).
To illustrate my core contention that Ambedkar was a free-market economist, I would like to draw the reader’s attention to his early career as a professional economist. Ambedkar wrote at least three scholarly contributions to economics and in which he makes many original arguments.
(1) Administration and Finance of the East India Company (1915)
(2) The Problem of the Rupee: Its Origin and Its Solution (1923, and
(3) The Evolution of Provincial Finance in British India: A Study in the Provincial Decentralisation of Imperial Finance (1925).
The Problem of the Rupee was Ambedkar’s magnum opus and was based on his LSE thesis. He emphasized the need for a sound monetary system for trade and its nexus with private property rights, writing in the first chapter (1947: 1-2):
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 specialized products of their labour. Surely a lottery or an administrative device would be incompatible with its nature. Indeed, if it is to preserve its character, the only mode for the necessary distribution of the products of separate industry is that of private trading. 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.
He further went on to say:
Money is not only necessary to facilitate trade by obviating the difficulties of barter, but is also necessary to sustain production by permitting specialization. For, who would care to specialize if he could not trade his products for those of others which he wanted? Trade is the handmaid of production, and where the former cannot flourish the latter must languish. It is therefore evident that if a trading society is not to be out of gear and is not to forego the measureless advantages of its automatic adjustments in the great give-and· take of specialized industry, it must provide itself with a sound system of money.
The Problem of the Rupee is an authoritative book on Indian currency and finance. In fact, this book was carried by all Members of the Royal Commission on Indian Currency and Finance Chaired by Hilton Young in 1924–25. While defending before the Commission the idea of multiple or competing currencies issued by individual banks instead of the government’s monopoly of legal tender, Ambedkar said (1926):
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.
As Ambirajan says (1999: 3282):
[Ambedkar was] afraid that government will tend to artificially increase money in circulation… Ambedkar’s conclusion is clearly towards price stability through conservative and automotive monetary management. This is of such current relevance that in these days of burgeoning budget deficits and their automatic monetisation, it would appear that we could do with an effective restrain on liquidity creation through an automatic mechanism.
Contrary to the views among monetary economists in India and abroad, Ambedkar “vehemently criticized Keynes and other supporters of the gold-exchange standard and argued in favour of the gold standard”. Ambedkar’s argument for multiple currencies is indeed a core idea of the Austrian school of economic thought founded by the Carl Menger in the 1870s. Not surprisingly, Ambedkar was knowledgeable of Menger’s work.
Ambedkar clearly understood the knowledge problem of a society that no one person can own all the information needed to plan for the whole country. This other original argument for the weaknesses inherent in a centralized economy can be found in The Evolution of Provincial Finances in British India, where he says (1925):
By centralisation all progress tends to be retarded, all initiative liable to be checked and the sense of responsibility of local Authorities greatly impaired. Besides, centralisation involves and must involve a serious sacrifice of elasticity, for it is naturally disagreeable to a central department to have to deal with half a dozen different ways of managing the same branch of administration, and which therefore aims at reducing all types to one. Further centralisation conflicts with what may be regarded as a cardinal principle of good government, namely, that when administrative business reached an authority fully competent to deal with it, that authority should deal with it finally. Even when there is a higher authority equally competent, to pass the business on to it would at best help to transfer power to the hands of the tower ranks of the official hierarchy, by causing congestion of business in the Central Department.
Further, Ambedkar prophesied what would happen later in an independent India where leviathan central government would become too big to coordinate all the information to run a large and diverse nation, which is why we must decentralize our efforts to bridge the deficiency of development. Ambedkar said:
… 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 than in the whole continent of Europe. In such circumstances there must come a point at which the higher authority must be less competent than the tower, because it cannot by any possibility possess 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 possess knowledge and experience of all various conditions prevailing in the different Provinces under it. It, therefore, necessarily became an authority less competent to deal with matters of provincial administration than the Provincial 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.
Remember that Ambedkar wrote these ideas decades before Austrian economist Friedrich A. Hayek published his classic article The Use of Knowledge in Society (1945). In this article, which the American Economic Review selected (2011:4) as one of the top 20 AER papers of the last 100 years, Hayek wrote (519-520, 524–525):
… the knowledge of the circum-stances of which we must make use never exists in concentrated or integrated form, but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess… The economic problem of society is thus……….a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. Or, to put it briefly, it is a problem of the utilization of knowledge not given to anyone in its totality.
And therefore he went on to say:
We need decentralization because only thus can we ensure that the knowledge of the particular circumstances of time and place will be promptly used. But the “man on the spot” cannot decide solely on the basis of his limited but intimate knowledge of the facts of his immediate surroundings.
Thus, there is a close nexus between Ambedkar and Hayek’s view on knowledge problems and the competency of centralized authority in planning for development and therefore the need for decentralization in planning. This is not to say that economists in Western countries have copied Ambedkar’s original contribution to economics; it is only a reminder that we (including economic historians) have neglected Ambedkar’s original ideas in economics, as a result of which Indian polity and economics are suffering many ills!
What stops the 21st century dalit community from cherishing Ambedkar’s pioneering thoughts on free-market economics/capitalism? Why should they always be against capital and be custody of hypocrisy? The above examples are but only a few of the many ideas of Ambedkar in his early writings in economics that if thoroughly studied would give us many new insights from monetary economics to public choices economics, and even behavioural economics.
It is also clear that Ambedkar was closer to free-market economics/capitalism and not an advocate of state socialism or Marxism as painted by Teltumbde and others. It was Ambedkar who said “Educate, Agitate, Organise”, but the recent trend is for people to organize movements and agitations without educating oneself! This is a crime by the dalit community against Ambedkar’s beliefs and nothing short of dishonoring and doing enormous injustice to his life and work.
Ambedkar, B.R (1947): “History of Indian Currency and Banking”, Vol.1, Thacker and Company Ltd, Rampart Row, Bombay.
Ambedkar, B.R (1925): “The Evolution of Provincial Finance in British India: A Study in the Provincial Decentralisation of Imperial Finance“, Chapter IX, P. S. King and Son Ltd, Westminster, Great Britain.
Ambirajan, S (1999): “Ambedkar’s Contribution to Indian Economics”, November 20, Economic & Political Weekly, pp 3280–3285.
Arrow, Kenneth J, Bernheim, B. Douglas, Feldstein, Martin S, McFadden, Daniel L, Poterba, James M and Solow, Robert M (2011): “100 Years of the American Economic Review: The Top 20 Articles“, American Economic Review 101,
Hayek, F. A. (1945): “The Use of Knowledge in Society.” American Economic Review, 35(4): 519–30. .
Jadhav, Narendra (1991): “Neglected Economic Thought of Babasaheb Ambedkar”, April 13, Economic & Political Weekly, Vol.26, No.15, pp 980–982.
—- (1926): “Report of the Royal Commission on Indian Currency and Finance“, Vol. II, Appendix 29, His Majesty’s Stationery Office, London, pp 235-239