Prof F A Hayek, Dr.B R Ambedkar and Prof. S Ambirajan

As I wrote here I have read two interesting articles by Prof. S Ambirajan one was on ‘Ambedkar’s contribution to Indian Economics’ this article was published in the EPW in 1999 based his Ambedkar Memorial Lecture.

First I will take you to some of interesting paragraphs from this lecture.

I was shock when I read Ambedka’s writings saying:

• “a managed currency is to be altogether avoided when the management is to be in the hands of the government”
• While there is less risk with monetary management by a private bank because “the penalty for imprudent issue, or mismanagement is visited by disaster directly upon the property of the issuer”.

Read for more………

• “Before I proceed, I wish to remark on one aspect of Ambedkar’s present status with which many of you may not agree. I am somewhat distressed to see that he is portrayed as a leader of the ‘dalit’ community and nothing else. Partly it is the fault of the Indian political leadership in the post-independent era. It succeeded in its effort to marginalise him politically. But equally it is the fault of the community itself for having projected him exclusively as its own leader. This led to the repercussion of other much inferior people propelled as leaders of other communities, and the result was that Ambedkar got equated on a politico-intellectual plane with regional pygmies devoid of any significant national presence. It is my conviction that in reality we have had only two major personalities who could be considered the founding fathers of modern India. Vallabhbhai Patel unified and organised whatever bits and pieces left of a brutally partitioned geographical entity into a nation state. Ambedkar provided the cementing framework in the form of a Constitution that gave the newly born state a measure of feasibility and stability.

I ‘m not surprised to see his exclusion of Nehru name from the above list because his writings shows quite clearly that he was not at all happy with what Nehru did!

• All the remaining leaders were mere bit-players in this great story of the building of our sovereign democratic republic. I may be wrong, but there is enough ground for suspicion that the present Indian political class which seeks to honour Ambedkar by awarding posthumous titles, instituting fellowships and other memorials, is doing all this, not for genuinely honouring the departed leader but with the very utilitarian-selfish motive of securing the votes of those in whom he tried to instill a sense of self-respect. I must also make another melancholy reflection that in these days when the minority communities are claiming affinity with dalits – no doubt with the intention of strengthening their electoral clout – it would be worthwhile to remember that they treated dalits as no better than the caste Hindus. Ambedkar wrote of his experiences: Although on conversion to Christianity, the husband had become liberal in thought “the wife had remained orthodox in her ways and would not have consented to harbour an untouchable in her house…I learnt that a person who is an untouchable to a Hindu is also an untouchable to a Parsi…a person who is an untouchable to a Hindu is also an untouchable to a Mohammedan” (XII, 677, 678, 685). There must be something in the Indian soil and ethos that despite the lofty ideals of all religions, in the social and human sphere, much barbarism prevails.
• Those who studied economics and wrote economic treatises were not strictly speaking professional economists. They used economics as a political tool.
• Ambedkar’s major writings are easily listed because after the late 1920s, he seems to have written almost nothing, though he has made some extremely insightful comments here and there one of which I shall elaborate at the end. The major economics publications are The Problem of the Rupee: Its Origin and Its Solution (P S King and Son Ltd, London 1923), and The Evolution of Provincial Finance in British India – A Study in the Provincial Decentralisation of Imperial Finance (P S King and Son Ltd, London 1925).
• It is a matter of some regret that while much devotion and dedication has gone into the production of this edition, adequate attention to proper editing and scholarly annotating has not been tendered.
• The basic Indian currency unit, the rupee, has had a long history. Until 1893, it was based on a silver standard which means that the Indian rupee was based on the value of the silver content in it. From 1841 onwards gold coins also became legal tender at one mohur as equal to 15 silver rupees. Owing to vast gold discoveries in Australia and US, gold value fell, and from 1853 onwards gold coins ceased to be legal tender. Though many suggestions were made to introduce gold coinage especially after 1872, these were not heeded despite from 1873 onwards, due to enormous silver discoveries, the price of silver fell and hence the price of rupee slipped in terms of gold. From 1872 to 1893, this acted as a continued devaluation of the Indian currency which while was good for Indian exports, was not good for the Indian economy, it had to produce more rupees to remit expenses undertaken in England by India which were in sterling (i e, gold) terms. In 1893, the government stopped coining silver rupees though agreed to coin rupees in exchange of gold at a ratio of one pound four pence per rupee. It became managed currency with the government reserving the right to coin rupees whenever it was found necessary. The idea was to introduce eventually a gold standard with gold currency replacing the existing (managed) silver standard. In 1899, at the suggestion of the currency committee headed by H H Fowler, Indian mints were thrown open to issue gold coins.
• Gold was sought to be used widely, but it also recommended the silver rupee to remain unlimited legal tender. This was mistaken because under gold currency, rupee should have been token coin. From now on, many events took place till the gold exchange standard came to be established in 1906. According to this system, silver rupee was guaranteed convertibility into sterling pounds (based on gold value) at a fixed price, and make it available without any limit. The accumulated gold in India, instead of supporting a gold standard with gold currency in India, was kept in London to maintain the stability of the rate of exchange. However the system broke down in 1916 with the enormous rise in the value of the silver. Silver rupee more or less ceased to be merely token, and the system effectively became silver standard. Ambedkar’s writings took all this and argued stridently for a proper gold standard with gold currency as he was highly critical of the gold exchange standard though the latter received powerful theoretical support from all the then leading authorities including John Maynard Keynes.
• Low exchange rate increases exports and boosts internal prices. This benefits the trading classes at the expense of the poorer people at home.
• Ambedkar’s commitment was internal stability, and he was convinced that only an automatic system based on gold standard with gold currency could achieve this desirable end. Like every economist of his generation, he was a believer in the quantity theory of money and was afraid that governments will tend to artificially increase money in circulation. In his memorandum given to the Hilton Young Commission in 1925 he pointed out: “a managed currency is to be altogether avoided when the management is to be in the hands of the government”. While there is less risk with monetary management by a private bank because “the penalty for imprudent issue, or mismanagement is visited by disaster directly upon the property of the issuer”.
• In the case of the government “the chance of mismanagement is greater” because the issue of money “is authorised and conducted by men who are never under any present responsibility for private loss in case of bad judgment or mismanagement” (VI, p 627). In short, Ambedkar’s conclusion is clearly towards price stability through conservative and automatic 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 restraint on liquidity creation through an automatic mechanism.
• This will automatically “lessen and destroy the premium that at present weighs heavily on land in India” and large “economic holding will force itself upon us as a pure gain”. He concludes that “Industrialisation of India is the soundest remedy for the agricultural problems of India”.
• He brings the heavy artillery of neo-classical theory of marginal utility developed by as he says “Cournot, Gossen, Walras, Menger and Jevons” to counter Russell’s position that it is all due to individual preference, and that people will give up things as soon as they have too much of anything.
• But more importantly he believed in material progress, constitutional approach to solving problems, rule of law, right to property, civil liberties, democracy based on the liberty, equality and fraternity principles enunciated by the French Revolution. His extensive critique of the caste system is also based on enlightenment principles of economic efficiency through private initiative, individual liberties and human equality.”

I will take separate post for another article on “The Concepts of Happiness, Ethics, and Economic Values in Ancient Economic Thought”.