101 years ago, in the summer of 1923, a young lawyer and an economist arrived at the Bombay High Court back from New York . His name was BR Ambedkar. Post that, Ambedkar studied in London, where he had trained at Gray’s Inn. Dr. B R Ambedkar quickly made a name for himself, as Babasaheb, and his subsequent legal and political legacy continues to inspire Dalit activists and constitutional theorists around the world alike.
The young scholar would sit for hours in the university library. In his three years at Columbia, Ambedkar took 29 courses in economics, 11 in history, six in sociology, five in philosophy, four in anthropology, three in politics and one each in elementary French and German, according to the Columbia website.
Ambedkar was one of the first generation of professionally trained economists in India. He was also the first Indian political leader with formal training in economics, with research papers published in noted academic journals. He came back from the US in 1916, taught economics at a Mumbai college for three years, and then went to London to do his doctorate at the London School of Economics under Edwin Canaan. The London doctorate was awarded in 1923 and the Columbia one in 1927. He also became a lawyer during his stay in London.
But the same year, 1923, also marked the culmination of a different and altogether lesser-known aspect of Ambedkar’s life as an economic historian and monetary reformer. When he arrived in Bombay, aged 32, Ambedkar had just completed a monumental history of Indian money that was crowned by a ferociously learned critique of British colonial monetary mismanagement.
Ambedkar looked into the problem of the rupee at a time when there was a clash between the colonial administration and Indian business interests on its value. The latter argued that the government was maintaining an overvalued exchange rate to help British exporters who sold their goods in India.
The book, entitled “The Problem of the Rupee: Its Origins and its Solution”, appeared in London in December 1923 and it quickly distinguished Ambedkar as one of the world’s leading authorities on Indian currency and banking.
The main focus of the doctoral thesis was on how Indian monetary affairs should be arranged. Ambedkar argued in favour of a gold standard as opposed to the suggestion by John Maynard Keynes that India should embrace a gold exchange standard. His interest in economics, however, was never purely theoretical—it also lay in what implications it had for public policy.
In his statement to the royal commission on the rupee, Ambedkar defined the controversy in a way that is relevant today as well: “At the outset, it is necessary to realize that this controversy involves two distinct questions: (i) Should we stabilize our exchange and (ii) What should be the ratio at which we should stabilize?”
Ambedkar eventually argued in favour of a limited devaluation of the rupee, somewhere between the exchange rates that the two competing groups were in favour of: the colonial government representing British business interests that wanted to maintain the existing exchange rate and the Congress speaking for Indian business interests that wanted a cheaper rupee. A cheaper rupee at the end of the 19th century had helped Indian exporters.
His reasoning for such a compromise settlement was fascinating, because it looked at the distributional consequences of exchange rate management.
Ambedkar said that a limited devaluation would help the business class as well as the earning class. A very steep devaluation would harm the latter since they would be hit by high inflation if the fall in the rupee was too steep. In effect, he said that the interests of these two groups should be balanced while thinking of the value of the rupee, because a very steep devaluation would reduce real wages of the earning class because of inflation.
In his statement to the Royal Commission on Indian Currency and Finance, Ambedkar said: “The more important point is, supposing that there is a gain arising from low exchange, whence does this gain arise? It is held by most businessmen that it is a gain to the export trade and so many people have blindly believed in it that it must be said to have become an article of faith common to all that a low exchange is a source of gain to the nation as a whole. Now if it realized that low exchange means high internal prices, it will at once become clear that this gain is not a gain coming to the nation from outside, but is a gain from one class at the cost of another class in the country.”
Ambedkar also knew that the problem of the rupee is eventually linked to the problem of domestic inflation. In the preface to the book version of his thesis, he pointed out: “…nothing will stabilize the rupee unless we stabilize its general purchasing power”. Ambedkar was clearly in favour of price stability and automatic monetary management (or what may today be termed as rule-based monetary policy).
Much has changed in the Indian economy since Ambedkar did his academic work in monetary economics. But some of his general approach to the problem of the rupee is still relevant: the benefits of depreciation in an open economy, the need to take the distributional consequences into account, the need to maintain price stability in the domestic economy, and the preference for rules over discretion in monetary management.
Having started its life as a dissertation completed earlier in 1923 at the London School of Economics (LSE) under the supervision of the economist Edwin Cannan, the book was immediately widely reviewed in India, Britain, as well as the US, and it earned Ambedkar a spot on the 1925 Royal Commission on Indian Currency and Finance.
This was not Ambedkar’s first dissertation. Already during WWI, he had completed a different thesis at Columbia University on the provincial decentralisation of Indian public finances.But before he could submit the manuscript, it was lost in 1917, after a German torpedo destroyed the Thomas Cook steamer that carried his luggage back to India. Every doctoral student will empathise with the apologetic letter Ambedkar was forced to write to his dissertation advisor.
In his LSE dissertation, Ambedkar now instead turned to the complexities of currency. The Problem of the Rupee sketched a comprehensive history of Indian money since the eighteenth century but also provided a captivating picture of contemporary Indian monetary exploitation. Ambedkar’s analysis removed money from the abstract realm of technical minutia and instead situated it as “the focusing point of all human efforts, interests, desires, and ambitions.”
This meant bringing the drama of money alive by confronting the reigning imperial monetary views of the India Office and its spokesmen, including those of a youthful John Maynard Keynes whose first book on Indian currency had still presented a fulsome defence of British monetary management in India.
But perhaps the single most stunning feat of The Problem of the Rupee was its dual ability not only to confront an imperial English audience with an unassailable display of technical virtuosity and overwhelming empirical persuasiveness but to simultaneously address a broad Indian public by capturing the pain associated with monetary mismanagement. The result was a pathbreaking account of how the rupee had become the financial pivot of the entire British colonial project through a series of brutal monetary reforms in the nineteenth century.
While India had long been accustomed to a wide variety of monies, including gold coins, in 1835, Britain imposed a uniform silver rupee — issued in the name of the East India Company — as India’s sole legal tender. As Ambedkar painstakingly showed, one aim of this policy had been to enable the extraction of gold from the subcontinent.
India’s vast gold treasures had been legendary since antiquity. But in the nineteenth century, bullion suddenly drained out of the country. Ironically, the one place in the British empire that was never part of the gold standard was India. Instead, Britain preferred to keep British India on a managed rupee standard in order to support its own finances with India’s gold reserves, now stored in vaults underneath the streets of London.
Having sketched India’s forced transition to a silver standard, Ambedkar investigated how the rupee-sterling exchange rate became suddenly destabilised in the 1870s, with devastating and traumatic effects for price stability. As India was dragged into a “vortex of perplexities”, Ambedkar explained, the “precision of value, the very soul of pecuniary exchange, gave place to the uncertainties of gambling.”
The question of monetary reform now animated Indian nationalists and colonial reformers alike. But once more, Britain decided to sacrifice Indian price stability for imperial gain. In 1893, the British closed the Mint in British India and switched the country to a managed token silver and paper currency that allowed the colonial government to issue new rupees when it so wished. While a young Keynes praised the superior efficiency of the system, Ambedkar showed through extensive charts and tables that the immediate result was once more a dramatic rise in Indian prices.
The Problem of the Rupee’s sweeping history culminated in a deft proposal for monetary reform. In a surprising twist, Ambedkar concluded that Indian money could only be effectively shielded against both British and upper caste domination by finally extending to the subcontinent the gold standard, that had accompanied Britain’s rise to power and whose possible restoration after WWI animated fierce monetary feuds around the world during the early 1920s.
This paradoxical, anti-colonial call for placing India on the gold standard is bound to perplex readers today and it has arguably contributed to the book’s forgotten status.
But The Problem of the Rupee was no orthodox defence of the natural virtues of gold or monetary discipline. Instead, it was driven by a pragmatic political logic that can be read both as a savvy ideology critique and an example of what the philosopher Tommie Shelby once dubbed “the ethics of the oppressed.”
Appealing to the aspirational principles of British monetary thought, while pointing to their violation in India, Ambedkar called out British hypocrisy. He simultaneously concluded that as long as India was not governing itself it would be far preferable to tie the hands of the colonial state rather than granting it discretionary powers.
Ambedkar was here writing as part of an older tradition of political economy that remained attuned to institutional questions of trust and power in a way that all too often dropped out of the picture with the rise of economics as the queen of the social sciences in the course of the twentieth century. But for Ambedkar, the politics and economics of money always remained closely entwined in a way that provides a salutary reminder today.
In 1947, now a renowned lawyer, Ambedkar returned to The Problem of the Rupee. In a new preface he even promised a second volume that would bring his account up to the present and offer an updated solution. This did not mean that he had changed his mind about the nature of the problem. But the crucial political context was in flux, the Reserve Bank of India had been founded in 1935, and the world had forged a new global monetary accord in Bretton Woods. The promised second volume would consequently update the monetary solution apt for the new situation.
Within weeks of writing these promissory lines, India gained her independence. Ambedkar was now engulfed, more than ever before, in constitutional law and politics at the highest level. As a result, we never got a second volume and with it an account of how Ambedkar himself would have imagined monetary politics in a democratic constitutional context beyond the gold standard.
Unfortunately, Ambedkar never came back to economic research. But he later looked back at his years in the US and the UK with pleasure: “My five years of staying in Europe and America has completely wiped out of mind any consciousness that I was an untouchable, and that an untouchable wherever he went in India was a problem to himself and to others.”
Instead, it is up to us to look at money anew, through Ambedkar’s eyes, as not merely an economic convenience but itself a constitutional project.
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