Ambedkar, the forgotten free market economist - Pragati

40 Pages·2011·1.96 MB·English

The Indian National Interest Review
April 2011 50 $7 www.nationalinterest.in
The illusion of freedom Champion of
How strong is our rule of law?
Forgotten anti-corruption bills
the free market
Pakistan's economic predicament
Bringing Indians home from Libya

PERSPECTIVE H I G H L I G H T S
QUANTIFYING THE RULE OF LAW
10
Using international comparisons as a diagnostic tool
Jhelum Chowdhury
RISING TO THE OCCASION
12
The way forward for India’s strategic community
Dhruva Jaishankar
BRIEFS
FILTER
15 Ambedkar, the
3
ALIF
17 forgotten free-
PARETO
31 market economist
IN PARLIAMENT
33
A number of anti-corruption bills are languishing in Digging into the intellectual history of economic freedom
parliament B Chandrasekaran
M R Madhavan
ROUNDUP
BRINGING OUR CITIZENS HOME
19
How Indian citizens were evacuated from Egypt and
Libya
Rohan Joshi
FAILURE AS THE TRUMP CARD
21
Will Pakistan’s international donors blink again?
Colin Cookman
23 WILL PAKISTANIS PUT THEIR NATIONAL 7 The illusion of
INTEREST FIRST?
Deep are the inequities of our neighbor freedom
Harini Calamur
IN DEFENCE OF JAITAPUR India is poor because Indians are not free
26 Energy security could do without political opportunism Atanu Dey
Rca Godbole
THE IMBALANCES ARE ALIVE
28
Extant threats to global economic recovery
V Anantha Nageswaran
BOOKS
THE STUDY OF CYBER POWER
35
A comprehensive treatment of strategy and cyberspace
Srijith K Nair
Pragati
The Indian National Interest Review
Published by the Takshashila Institution, an
CONTRIBUTORS independent think tank on India’s strategic affairs.
Harini Calamur Some rights reserved. This work is
licensed under the Creative Commons
Harini Calamur is a media entrepreneur
Attribution 2.5 India License.
B Chandrasekaran Advisory Panel
Mukul G Asher
B Chandrasekaran works in public policy and blogs at Hayek Order
(hayekorder.blogspot.com). This essay is based on a paper presented by him Sameer Jain
at the Austrian Scholars Conference 2011 organised by the Ludwig von Mises Amey V Laud
Institute. V Anantha Nageswaran
Ram Narayanan
Sameer Wagle
Jhelum Chowdhury
Jhelum Chowdhury is fellow for national security at the Takshashila Editors
Institution. Nitin Pai
Ravikiran Rao
Sushant K Singh
Colin Cookman
Colin Cookman is an analyst for Afghanistan and Pakistan with the Center Editorial Support
for American Progress in Washington, D.C.
Yamini Vasudevan
Priya Kadam
Atanu Dey Aruna Urs
Atanu Dey blogs on India’s development at deeshaa.org
Graphics
Dibyo Haldar
Rca Godbole Aditya Dipankar
Anuj Agrawal
Rca Godbole is a plant molecular biologist by training and advises law firms
and corporate houses in matters on patents and innovation strategies.
Acknowledgements
Feroz Khan Photography (Cover Image)
Dhruva Jaishankar
Dhruva Jaishankar is an editor of Pragati and a fellow at the Takshashila Contact
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Public Policy

B CHANDRASEKARAN
B Chandrasekaran works in public policy and blogs at Hayek Order (hayekorder.blogspot.com). This essay is based on a paper presented by him at the Austrian
Scholars Conference 2011 organised by the Ludwig von Mises Institute.
Ambedkar, the forgotten
free-market economist
Digging into the intellectual history of economic freedom
On April 14th the world will celebrate, and advocated socialism, a few well-informed
no matter how ignorantly, the 120th writers like Gail Omvedt have claimed otherwise.
birth anniversary of Bhimrao Ramji Ironically one of the reasons for the prevailing
Ambedkar for his role as chairman of the misconception is the volume of Ambedkar’s
Constituent Assembly’s Drafting Committee, as scholarly output. While his contributions to
an icon of the Dalit community, as the first law political science, sociology, law, and other fields
minister of independent India, for his conversion is well known, having spanned more than four
to Buddhism, for his debates with Mahatma decades, much of his work on economics has been
Gandhi—for all possible reasons except for being neglected.
a radical economist for his time. That too, a free
market economist. This meant that the academic community in
India did not go on to develop Ambedkar’s
In fact, several scholars have claimed otherwise, ideas on economics, some of which anticipated
the most recent of them being Anand Teltumbde. important threads of 20th century Western
In a recent issue of the Economic & Political Weekly economic thought, like “economic and political
writes: decision making in an environment of dispersed
knowledge” and “alternative monetary systems
The protagonists of globalisation have tried (and the) denationalised production of money”.
to project him as a proponent of the free- Ambedkar, in fact wrote extensively on finance,
market, indeed, as a neoliberal, and have monetary economics, banking systems, and
even gone to the extent of painting him as a interstate financial relations.
monetarist (monetarists are supposed to be
the intellectual initiators of neoliberalism) Perhaps the only exceptions to the gross neglect
to claim him in support of their of Ambedkar’s writings on economics in India are
propaganda. In any case, how many Dalits, the works of Srinivasa Ambirajan and Narendra
even among the educated ones, know what Jadhav.
monetarism is? Ambedkar, who publicly
professed his opposition to capitalism Mr Jadhav argues that:
throughout his life, was thus wilfully
distorted to be the supporter of neoliberal …one finds the widespread ignorance
capitalism, which globalisation is! regarding Ambedkar’s contribution as
an economist unfortunate. This lack of
The truth however is to the contrary. While awareness, to an extent, could be explained
Ambedkar is routinely portrayed as an intellectual by his phenomenal contributions in other
who wrote against capitalism and free markets, spheres such as law, religion, sociology, and
PRAGATI The Indian National Interest Review 3
There is no work
reinterpreting Ambedkar’s
m
economics from a twenty- a
all
T
first century perspective. ay
Aj
4 PRAGATI The Indian National Interest Review
politics, which might have overshadowed it would be difficult for its members to
his contribution to economics. Yet it is distribute the specialised products of their
surprising that even the so-called expert labour…But a trading society is unavoidably
studies on the evolution of Indian economic a pecuniary society, a society which of
thought...do not seem to take much necessity carries on its transactions in terms
cognisance of Ambedkar’s contributions. of money.
In fact, the distribution is not primarily an
There is no work reinterpreting Ambedkar’s exchange of products against products, but
writings on economics from a twenty-first products against money. In such a society,
century perspective. money therefore necessarily becomes the
pivot on which everything revolves.
Ambedkar was an authority on Indian currency With money as the focusing-point of
and banking in the early decades of the 20th all human efforts, interests, desires, and
century. He was trained under scholars like ambitions, a trading society is bound
Edwin Cannan, Edwin Seligman, John Dewey, to function in a regime of price, where
James Robinson, and James Shotwell. Both his successes and failures are results of nice
MA and PhD degrees (from Columbia University) calculations of price-outlay as against price-
were in Economics. He also received a DSc product.
degree in Economics from the London School of
Economics. He was familiar with the works of Essentially, he emphasises that a “sound system
Carl Menger, who founded the Austrian School of of money” is the foundation for specialisation
Economics in the 1870s. That said, he remained in production and trade among individuals in
an independent rational thinker, favouring society, without which the prosperity of society
empiricism and logic, rather than favouring any would not be possible.
particular economic system or ideology.
Unlike many of his contemporaries, Ambedkar
Ambedkar’s magnum opus, The Problem of the was an original thinker as it appears from
Rupee: Its Origins and Solutions, was first published his skilful analysis of the political economics
in 1923. This was republished as the first volume of British India. Contrary to popular belief,
of the History of Indian Currency and Banking in Ambedkar believed in the principles of free
1947. In his foreword to the book, Cannan wrote: markets and advocated free banking (against
the government’s monopoly of printing legal
I do not share Mr Ambedkar’s hostility tender), the gold exchange standard, decentralised
to the system, nor accept most of his planning, private property rights, economic
arguments against it and its advocates. freedom, free enterprise and individual
But he hits some nails very squarely on the liberty. Moreover, Ambedkar understood the
head, and even when I have thought him knowledge problem in society and its relevance
quite wrong, I have found a stimulating for decentralised planning. Ambedkar also
freshness in his views and reasons. An old vehemently criticised Keynes and others for
teacher like myself learns to tolerate the favouring Gold Exchange Standard rather than
vagaries of originality, even when they resist Gold Standard, and extended the argument of the
“severe examination” such as that of which law of consumption.
Mr Ambedkar speaks.
The three following examples from Ambedkar’s
Cannan went on to say that “In his practical writing substantiate this view. First, in his
conclusion, I am inclined to think, he is right”. statement to the Royal Commission on Indian
Currency and Finance in 1924-25 (whose
In the very first chapter, Ambedkar holds that: recommendations established the Reserve Bank
of India) he submitted that:
Trade is an important apparatus in a
society, based on private property and One of the evils of the Exchange Standard
pursuit of individual gain; without it, is that it is subject to management. Now
PRAGATI The Indian National Interest Review 5
a convertible system is also a managed Government for the whole of India
system. Therefore by adopting the could not be said to posses knowledge
convertible system we do not get rid of and experience of all various conditions
the evil of management which is really prevailing in the different Provinces under
the bane of the present system. Besides, it. It therefore, necessarily becomes an
a managed currency is to be altogether authority less competent to deal with
avoided when the management is to be matters of provincial administration than
in the hands of the Government. When the Provisional Governments, the members
the management is by a bank there is less of which could not be said to be markedly
chance of mismanagement. For the penalty inferior, and must generally be equal in
for imprudent issue, or mismanagement ability to those of the Central Government,
is visited by disaster directly upon the while necessarily superior as a body in point
property of the issuer. of knowledge.

But the chance of mismanagement is Ambedkar further went on to say that the only
greater when it is issued by Government argument on the above the Government of India
because the issue of government money could make is that it has “all power in its hands, not
is authorised and conducted by men who from principle but from necessity. That necessarily
are never under any present responsibility arose out of its constitutional obligations.” There
for private loss in case of bad judgement or are similarities between Ambedkar and Hayek’s
mismanagement. view on knowledge problems and therefore
need for decentralisation in planning. Note that
Ambedkar thought that the government should Ambedkar wrote these ideas decades before F A
not print the currency, instead the private banks Hayek published his classic article “The Use of
should print and thus there will be competing Knowledge in Society, in 1945”.
currencies with direct responsibility. This is one
of the core principles of the Austrian School of Third, while reviewing Bertrand Russell’s The
Economics. Principles of Social Reconstruction, Ambedkar
pointed out what Russell failed to figure out in his
Second, on the issues of knowledge problem and theses on the law of consumption.
decentralised planning Ambedkar wrote (in his
PhD thesis) that: “...the utility of an object varies according to
the varying condition of the organism needing
By centralisation all progress tends to be satisfaction. Even an object of our strongest desire
retarded, all initiative liable to be checked like food may please or disgust, according as we
and the sense of responsibility of Local are hungry or have over-indulged the appetite.
Authorities greatly impaired...centralisation Thus utility diminishes as satisfaction increases.”
conflicts with what may be regarded as a
cardinal principle of good government. Ambedkar would have been against a Planning
Thus, centralisation, unless greatly Commission with powers to plan for the whole
circumscribed, must lead to inefficiency. country without adequate knowledge about it.
This was sure to occur even in A good government cannot issue paper money
homogeneous states, and above all in a irrespective of goods and services produced in
country like India where there are to be the economy. There is a greater convergence
found more diversities of race, language, in the writings of Ambedkar and those of B R
religion, customs and economic conditions. Shenoy, Hayek, Ambirajan and Ludwig von
In such circumstances there must come a Mises. However, there is virtually no literature
point at which the higher authority must exploring the possibility of understanding these
be less competent than the lower, because writings from a comparative perspective. The
it cannot by any possibility posses the economic historians have starved young minds
requisite knowledge of all local conditions. by focusing on politically motivated debates for
It was therefore obvious that a Central far too long.
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ATANu DEy
Atanu Dey blogs on India’s development at deeshaa.org
The illusion of freedom
India is poor because Indians are not free
There is much to be celebrated about India of raw human resources. By all measures, they are
and the progress it has made since it fairly close to average in intelligence, motivation,
gained political independence, especially and have considerable cultural and social capital.
over the last couple of decades. Various observers India does not suffer from frequent widespread
have pointed that out in bestselling books and civil unrest and natural disasters which destroy
articles in the popular press. Indeed, it’s become all the accumulated capital, leaving death and
a cottage industry of sorts to write books on how destruction in their wake.
India is going to be a superpower—if it isn’t one
already. It is worth noting that Indians do quite well
outside India. In the United States and other
Yet the fact remains that India is an extremely developed countries, they are extraordinarily
poor country. For instance, half of its children successful. Their ability to prosper outside India
below the age of five are malnourished, and is in sharp contradiction to the inability of their
around 40 per cent of Indians are illiterate in counterparts within India to prosper. Could that
the 21st century. India should have at the very imply that it is not nature but rather something
least solved the problems of underdevelopment in the Indian environment which accounts
such as widespread poverty and illiteracy for Indians not prospering in India? Since it
since they are precisely what the government is the government which largely creates and
of India has ostensibly been focused on ever controls the environment, could it be that India’s
since Independence. Practically every policy of greatest handicap is the quality and nature of its
every government that India has ever seen has government?
avowedly been made to eradicate poverty and its
concomitants. Clearly it is not for lack of trying by Robert Solow, Nobel prize-winning economist,
the government. observed that poverty is not simply an economic
problem and that “underdevelopment is a web
Why is India so poor? Implicit in asking that of economic, political, institutional, ethnic,
question is the assumption that there is nothing and class-related connections with persistent
inevitable about India’s poverty—that it is not historical roots.” India’s continued struggle
as if it were an unalterable fact of nature. That with poverty and underdevelopment are the
question, hard though it may be to admit it, has understandable consequences of its governments’
to be asked and answered honestly for there to objective. The roots of the Indian government’s
be any hope of achieving that state in which that “license permit control quota” regime lie in its
question is rendered meaningless. history of British colonialism.

India does not lack any of the necessary In 1947, Indians got political freedom but little
ingredients required for prosperity. It has economic freedom, and only limited personal
adequate natural resources—granted that it does freedom. Merely changing the people who rule
not have an over abundance of them but neither India without changing the rules is superficial
has nature been exceptionally unkind. India has change, which does not change the objective of
human resources; indeed it has a super abundance the government. The government’s objective
PRAGATI The Indian National Interest Review 7
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