Ambedkar’s ‘enlightened economics’

If we had people like him at the helm of economic affairs, the 250,000-plus farmer suicides in the past 16 years may not have occurred, because he recognized that labour, capital and capital goods are all crucial to agricultural production in India

I coined the term “enlightened economics” to define Babasaheb Ambedkar’s economic vision – not only to pay tribute to the values of the European Enlightenment, which formed the value base

B.R. Ambedkar

for the Constitution of India, but also to underline Ambedkar’s brilliant and spectacularly successful effort to link these values to the teachings of the Enlightened One, the Buddha.

Ambedkar lived and worked through tumultuous national and international events – the World War II, the Russian Revolution – and saw first-hand the European Enlightenment leaving its imprint on history, politics, scholarship, statecraft and the anti-colonial struggle in India, among others. He also was either taught or influenced by eminent contemporary world-class authorities in Economics, like Seligman and Edwin Cannan; in Philosophy, John Dewey; in Anthropology, Alexander Goldenwieser, who encouraged him to write and present his essay on castes in India, which was later published in the Antiquary in 1917.

Ambedkar and Marx: They differed on the motive force of human history

As Ambedkar himself wrote so prophetically: “History shows that where ethics and economics come in conflict, victory is always with economics. Vested interests have never been known to have willingly divested themselves unless there was sufficient force to compel them.” (What Gandhi and the Congress have done to the Untouchables, Chap VII).

Ambedkar’s economics: An analysis

Ambirajan, a respected professor of Economic History, in his Ambedkar Memorial Lecture[i] in 1999 at the University of Madras, pointed out that Ambedkar was one of the first Indians to undergo formal training in economics and practise it professionally. While India’s tradition in economics goes back to the classical era when Arthashastra, the Sukraniti, and the Tirukkural were written, formal training in the field in the Western tradition began in mid-19th century. Thus, those writing economic treatises were not necessarily economists, but included people who saw economics as a means to an end: Indian scholars, such as Dadabhai Naoroji, for instance, were thinkers whose writings had good analyses of economic practices and even had prescriptions for change which influenced both contemporaries in the Independence movement and the colonial government.

In his preface to the Indian edition of this The Problem of the Rupee, Ambedkar wrote that he would shortly bring out a second volume covering the period from 1923 onwards. But independent India was born and he was required to devote much of his time and expertise to law and politics. Thus, while India gained a visionary Constitutional expert and leader for millions, she lost a far-sighted and pragmatic economic thinker who believed in a strong, pro-people economic policy.

“Small Holdings in India and Their Remedies”, a paper that Ambedkar wrote in 1918, shows his skill at analyzing ground realities and coming up with pragmatic, workable policy prescriptions for economic problems. His analysis, as we will see, holds true even for present-day issues in agriculture. If we had people like him at the helm of economic affairs, the 250,000-plus farmer suicides in the past 16 years may not have occurred, because he recognized that labour, capital and capital goods are all crucial to agricultural production in India. This is in contrast to the today’s agricultural policy, which favours increased mechanization and capital-intensive production and makes it uneconomical for smallholders to continue in farming and drives farm labour to migration, destitution or suicide.

A portrait of Ambedkar being presented to the London School of Economics (LSE) in 1973. It was at LSE that Ambedkar researched “The Problem of the Rupee”

He wrote in “Small Holdings in India and Their Remedies”:

 “Capital exists, but labour lives. That is to say, capital when idle does not earn, but does not also consume much to keep itself. But labour, earning or not, consumes in order to live. Idle labour is, therefore, a calamity; for if it cannot live by production as it should, it will live by predation as it must… For we most strongly hold that the evil of small holdings in India is not fundamental but is derived from the parent evil of the mal-adjustment in her social economy… If we wish a permanent cure, we must go to the parent malady. But before doing that we will show how we suffer by a bad social economy… The income of a society, as of an individual, proceeds (1) from the efforts made, and (2) from possessions used. It may be safely asserted that the aggregate income of any individual or society must be derived either from the proceeds of the current labour or from productive possession already acquired. We have thus shown how our bad social economy is responsible for the ills of our agriculture… Consequently the remedy for the ills of agriculture in India does not lie in enlarging holdings but in increasing capital and capital goods. That capital arises from saving and that saving is possible where there is surplus is a commonplace of political economy”.

He goes on to explain, with relevant data, that the unproductive tilling of land, for want of adequate inputs like capital and capital goods, is responsible for low productivity. He studies the various options, like consolidation and conservation of landholdings and the prevention of further fragmentation. He finally comes up with his prescription: “Industrialization of India is the soundest remedy for the agricultural problems of India.” He points out that this will at one stroke deal with the issue of idle labour, the generation of surplus, and pressure on the land and, consequently, reduce its further fragmentation. Thus, he is that rare economic theorist who has a pragmatic and pro-people approach to economic policy and planning. His insistence on a “social economy” perhaps makes him unique among modern economic thinkers.

His essay on “The Problem of the Indian Rupee: Its Origin and Its Solution” analyses the vagaries of the fate of the Indian rupee in the context of the international market. While the value of the Indian rupee in the 19th century was based on the silver content in it, the rise of gold as legal tender linked it to the price of gold. Gold discoveries in Australia and the United States of America caused a fall in the value of gold, and later discoveries in silver also caused the value of silver to plummet. An inevitable consequence was the devaluation of the rupee, which adversely affected the economy in India. In 1899, the government permitted the issue of gold coins, even as silver rupees continued to be used.

In 1906, the gold standard was established, which linked the value of the rupee to gold. But the gold, which guaranteed the rate of exchange of the rupee, was held in London instead of in India. Against this gold, rupee currency was issued almost without limit. Then, in 1916, the gold standard broke down, and the value of the rupee again came to be linked to the value of silver. In his analysis, Ambedkar strongly criticized the prevailing support for the silver standard from even the then leading existing economic theorists, including John Maynard Keynes. Ambedkar preferred the option of the gold standard, with a gold currency, but with the provision that the currency management should be strong. Overall, he insisted on the need to “keep money stable in terms of commodities in general, and that is but proper, for what ministers to the welfare of people is not so much the precious metals as commodities and services of more direct utility”.

Ambedkar has talked about ‘faithfulness, wisdom and economy’ while explaining the need for a Comptroller and Auditor General in the Constitution

“Ambedkar’s conclusion is clearly towards price stability through conservative and automatic monetary management,” Ambirajan says. “This is of such current relevance that in these days of burgeoning budget deficits and their automatic monetization, it would appear that we could do with an effective restraint on liquidity creation through an automatic mechanism.”

Ambedkar’s The Evolution of Provincial Finance in British India (1925) deals with the issue of public finances. He offers an incisive analysis of the contemporary Indian system leading to conclusions that are more relevant today than in his time. He maintained that if during a time of relative prosperity the government found itself short of resources to meet its constitutional and fiscal obligations, it would be the government’s own fault – for it would have, due to a lack of political will, failed to devise suitable means to derive the necessary fiscal mechanisms to tap into the resources in the economy.

He is sharply critical of the self-protective attitude of the provinces, which does not see the larger interests of the nation, and says that the “diarchy” prevalent in India then was a very bad form of governance not only because of its undemocratic character but also because it was against the principle of collective responsibility. “Various functions cannot act at all to produce orderly progress unless there is some force to harmonize them.” Collective responsibility is this harmonizing force. His conclusion is unmistakable: “Hybrid executives, divided responsibility, division of functions, reservation of powers, cannot make for a good system of government, and where there is no good system of government, there can be little hope for a sound system of finance.” (emphasis ours)

Ambirajan points out that apart from the famous works of taxation by Adam Smith, very little of note was to be found on the subject for over 200 years until Ambedkar wrote on the subject in the draft constitution in 1949. Explaining the formation of the Comptroller and Auditor General (CAG), he stated that “governments should spend the resources garnered from the public not only as per rules, laws and regulations, but also to see that ‘faithfulness, wisdom and economy’ have gone into the acts of expenditure by public authorities. First, the question of faithfulness. ‘Faith’ in this context as defined by the dictionary is ‘duty or commitment to fulfil a trust, promise…’” Therefore, in all his work, whether fiscal or monetary economic theory, his primary interest was to ensure a practical outcome that would be pro-people in its impact.

Public finance mostly exists so that basic requirements such as roads, law and order, etc, are to be available to all and not enjoyed exclusively. As the costs and benefits of such items cannot be internalized, they will not be supplied through the free-market mechanism. Governments exist to provide these common requirements. The citizens place their trust in the government by delegating to it the authority to take decisions on taxation and expenditure. Therefore, the fidelity to the original intention must be tempered by wisdom on the part of the government officials who take the decisions. Expenditure should transcend personal interest and must be undertaken with prudence, an understanding of the deeper issues, and application of critical knowledge and practical experience.

Finally, the third principle is of economy: it pertains not only to keeping costs to a minimum, but also to the intelligent use of funds so that every rupee is fully and gainfully used, making sure that leakages do not occur. These three principles are not only axiomatic but also flexible – what may be prudent at one time may be foolish under other circumstances; they also apply to all establishments, small or big. Decisions on expenditure should be guided by specific objectives and also lead to economy and effectiveness on implementation. Ambedkar was thus less interested in the technical study of economics to prove economic theorems. While his up-to-date, critical and in-depth knowledge of economics, history and philosophy is evident in his writings, so is his pragmatic and rational scientific approach based on data and statistical analysis.[ii]

Ambirajan sums up Ambedkar’s critique of the caste system as being based on the liberal enlightenment principles of economic efficiency that included private initiative, individual liberties and human equality. In the 1940s, however, he moved away from his mainstream economic position towards a system of state socialism the featured state ownership of agriculture, with a collective of cultivators; state ownership of industry; nationalization of insurance, etc. In recent years, Ambedkar scholars have shown that his state socialism did not exclude individual initiatives.

An enlightened and egalitarian social order

Gail Omvedt has, for over thirty years, worked on Ambedkarite thoughts, Dalit movement in India, Buddhism, Indian anti-caste movements, including the Bhakti movements, and other related areas. In a lecture entitled “Liberty, Equality, Community: Babasaheb’s Vision of a New Social Order” she gave on Ambedkar’s birth anniversary in the year 2000 she makes three main points with regard to the Ambedkarite vision for India: first, that he had a modern belief in progress and human development, which contrasts with Gandhi’s “eco-romantic and backward-looking” position; while he shared a belief in progress with Marx, he differed from him in his interpretation of the motive force of human history. Second, in contrast with Nehruvian statism, Ambedkar’s economic and political philosophy was a form of social liberalism, and comprised a nuanced reading of Buddhist and Marxist thoughts with application and relevance for today’s India. Finally, Omvedt speaks of Ambedkar’s seminal contribution in the field of religion, especially his understanding of Buddhism, which is both practical and philosophical: his version of Buddhism, which she terms “a liberation theology” of Buddhism, or, “more accurately, a Navayana Buddhism”.

A coin minted in Ambedkar’s memory on the occasion of his 125th birth anniversary

While Ambedkar is for enhancing human productivity and the accumulation of wealth, he is also cautiously positive on the issue of property. He wrote: “The trouble, therefore, one might say, is not with property but with the unequal distribution of it.” He stuck to this philosophy till the end, even as he moved from being in favour of state socialism to a progressive form of social democracy in his later years, or, as Omvedt states, he moved from a form of economic materialism to a form of idealism being the motive force of history.

Even so, he is never dismissive of the idea of material factors and economic impulses as an important part of the overall historical and social development. Omvedt characterizes Ambedkar’s philosophy of history as “consistent with a pluralistic explanation of history, though not of a purely materialistic one”. She adds that his political economy was one of social liberalism: throughout his life, it was the values of the French revolution – liberty, equality and fraternity (community), all summed up in “social justice” – that defined Ambedkar’s orientation.

While Ambedkar’s writings in the 1920s show him to be a liberal economist, the 1930s saw him involved in social movements of Dalits, workers, and peasants, with Marxist influence, which never really left him. His critical studies of Indian society convinced him that the caste had a decisive role on the workers in the country. In his famous speech at Mahad, in 1938, he said: “There are in my view two enemies which the workers of this country have to deal with. The two enemies are Brahmanism and Capitalism … By Brahmanism I do not mean the power, privileges and interests of the Brahmans as a community. By Brahmanism, I mean the negation of the spirit of Liberty, Equality and Fraternity. In that sense, it is rampant in all classes and is not confined to the Brahmans alone, though they have been the originators of it.”

It is in one of his later essays, “Buddha or Karl Marx”, Ambedkar lays out his definitive answer to the dilemma of human development in the context of competing interests of economics and ideology – the material and the philosophical.

Omvedt points out that he uses a parable of the Buddha to give an interpretation of the market, state and community – a uniquely Asian, if not Indian, discourse. She sums up his conclusion as follows: “The householder, striving to increase his wealth honestly and forthrightly, provides the foundation of the economy. The king, symbolizing the state, has the necessary role of ensuring against the poverty of the most oppressed – poverty which would result in chaos or revolution if he did not intervene. Finally, the Bhikku Sangh represents community, the ideal communist society.”

In his concluding chapter of the essay “Buddha or Karl Marx”, Ambedkar says: “Humanity does not only want economic values, it also wants spiritual values to be retained … Man must grow materially as well as spiritually. What the Buddha wanted was that each man should be morally so trained that he may himself become a sentinel for the kingdom of righteousness … Society has been aiming to lay a new foundation which was summarized by the French Revolution in three words, Fraternity, Liberty and Equality … But it cannot be too much emphasized that in producing equality, society cannot afford to sacrifice fraternity or liberty. Equality will be of no value without fraternity or liberty. It seems that the three can coexist only if one follows the way of the Buddha. Communism can give one but not all.”

But any discussion on Ambedkar’s economic vision cannot be complete without a look at his idea of social liberalism. Gail Omvedt, quoting Ralph Dahrendorf, identifies three kinds of liberalism: classical, social, and neo. Classical liberalism, which places the individual at the centre of society, has fallen into historical and logical contradictions: the state is justified only because it protects life, liberty, and property; but if the claim to property is justified because individuals have invested their labour in it, and if the state exists and is empowered to justify the protection of “life, liberty, and property”, then, what is one to make of a society divided into those who possess inherited property and those who do not? A state where impoverished individuals – who have no property and who cannot have – exist or are prevented by convention from acquiring property by honest labour? In such a situation, can the state or the right to property be justified, in fact, in terms of human rights and human values?

The gap between the socially imposed inequality and the rights of those affected by it can be closed only if the state intervenes to establish equality. On the other hand, it could be that there is an effort to establish and provide equal rights for all individuals.

Ambedkar had always been a votary of state policy to be the means to achieve social justice, provide welfare and end poverty. In his famous speech, while presenting the Constitution to the Indian Parliament, he made several points that amount to caution not only to the users of the new Constitution, but to those who resist its democratic, liberal, and equalitarian value-base. He referred to the right of future generations to change the Constitution and to the need to abjure coercive methods of agitation such as satyagrahas and bandhs. He then listed a series of dangers that face the fledgling democratic Indian state: inequality caused by casteism, the predilection to blind faith in “mahatmas”, and to accept authoritarianism. He issued two important warnings with regard to inequality: one, that while state would give de jure equality to every Indian citizen, the social system would not, and the resulting inequality could be the greatest threat to our democracy; and two, that the “downtrodden classes are tired of being governed, they are impatient to govern themselves. This urge for self-realization in the downtrodden classes must not be allowed to develop into a class struggle or a class war … That would indeed be a day of disaster.”

Two months before his death, Ambedkar led hundreds of thousands of Untouchables out of their traditional religious identity into Buddhism, although it was not any of the classical forms of Buddhism, such as Hinayana, Mahayana, or Vajrayana. It was a form of Buddhism that he had arrived at through study and deep thought. His essays Buddha or Karl Marx and Buddha and His Dhamma were part of this intellectual pursuit. Ambedkar profoundly believed that problems of inequality and exploitation could be resolved without recourse to class wars (violence) and this belief led him to Buddhism. Ambedkar also reframed the equalitarian concepts of Buddhism; he centred the Indian genius for religious and philosophical understanding on a firm basis of rationality and recast the Sangha – the original and ideal community – as a body for service of the community. This modern form of Buddhism is now called Navayana.

A coin brought out for the centenary year of Ambedkar’s birth

In his Buddha and the Dhamma, he stated: “Society needs Dhamma (or the moral base of religion): Society has to choose one of three alternatives. Society may choose not to have any Dhamma as an instrument of Government … This means Society chooses the road to anarchy. Secondly, Society may choose the police, ie, the dictatorship as an instrument of Government. Thirdly, Society may choose Dhamma plus the Magistrate wherever people fail to observe the Dhamma. In anarchy and dictatorship, liberty is lost. Only in the third, liberty survives. Those who want liberty must, therefore, have Dhamma.” He, however, did not define Dhamma as religion; he saw it as a moral basis or impulse for action. Paraphrasing Marx’s famous statement, he said: “The purpose of Religion is to explain the origin of the world. The purpose of Dhamma is to reconstruct the world.” In so doing, he gave another original idea for national identity.

Thus, Ambedkar’s far-sighted prescriptions in the Constitution with regard to the basic values of “Faithfulness, Wisdom and Economy” should be at the centre of the government’s economic and spending decisions and are the most relevant to today’s India. We are all witness to the eroding standards of public morality and governance in which these three qualities appear to be conspicuously absent in the majority of our public and private institutions. We, as individuals, as part of institutions and ultimately as a nation, have to find our moral compass once again, so that we can climb out of the pit in which we now collectively find ourselves – with most of our most hallowed national institutions, suffering crisis after crisis of credibility and accountability.

This essay is a shortened and updated version of a chapter entitled “Enlightened Economics: Ambedkar’s Economic Thought and India’s Liberalised Economy”, published in Towards a Strong Global Economic System, Chackalackal ed, Dharmaram Publications, Bangalore, 2013


[i] Ambirajan’s talk, entitled “Ambedkar’s Contribution to Indian Economics”. The speech was published in the Economic and Political Weekly, 20 November 1999, 3280-3285; it may be accessed at


[ii] I am indebted to Prof Ambirajan for this analysis, which I have shortened and modified for this paper.

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