Thoughts on economics and liberty

B.R. Ambedkar – a great Indian classical liberal

Here's a truly useful piece of research on B.R. Ambedkar by Balakrishnan Chandrasekaran, published in Pragati today. I've learnt a lot from this, and so, I'm sure will readers of this blog. I'm copying it entirely on this blog, for my own record. I trust Pragati won't have violent objections. 

Well done, Balakrishnan! I'm delighted to learn about Ambedkar's economic ideas, and look forward to further studies on Ambedkar (and others) from you.  

By all standards, Ambedkar was a classical liberal, and despite controversies about his life and influence on India, he was rightly honoured as the chairman of the Drafting Committee for India's constitution, a kind of Indian Jefferson. Highly trained in economics, from Columbia University, [Ambedkar received a scholarship to Columbia from the Maharajah of Baroda. He earned his MA in 1915 and then obtained a DSc at the London School of Economics before being awarded his Columbia PhD in 1927]

Through this post, may I also invite the "Dalits" of India (and others!) to study Ambedkar carefully and understand that what he and I are saying was basically the same thing. It is important that we recover the political and economic views that Ambedkar represented, and give everyone in India – including the "Dalits" – a chance to succeed.

Ambedkar, the forgotten free-market economist
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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3 thoughts on “B.R. Ambedkar – a great Indian classical liberal
  1. Sameer

    I'm glad that you've understood Ambedkar far better than any of our contemporary political commentators. I've been greatly influenced by his writings. Nowhere else have I seen such forthrightness, honesty & authority. I wonder where we'd have been if he weren't the chairman of the drafting committee for the constitution. Truly remarkable thinker, he was. All of his writings can be accessed here…

  2. sabhlok

    Ambedkar was a brilliant Indian, from whatever I can understand of him. Unfortunately there are a few of his statements which have been distorted and used by a number of “dalits” to oppose the ideas of liberty. The reality is that in those days a lot of Indians made confusing mixed statements. However, Ambedkar was predominantly a classical liberal.

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