TYBA-SEM-VI-Economics-Paper-XVIII-History-of-Economic-Thought-II-English-Version-munotes

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INDIAN ECONOMIC THOUGHT:
KAUTILYA AND DADABHAI NAOROJI
Unit Structure
1.0 Objectives
1.1 Introduction
1.2 Kautilya On Welfare State
1.3 Dadabhai Naoroji’s Thought On Drain Theory
1.4 Summary
1.5 Questions
1.0 OBJECTIVES  To know the thoughts o f Indian economist Kautilya on welfare state.
 To know the Indian economist Dadabhai Naoroji’s Thought On Drain
Theory.
1.1 INTRODUCTION Indian economic thought is relatively little known either in India or
elsewhere. The study of ancient Indian economic id eas provides a deeper
1insight into India's culture, tradition, and inherent national characteristics.
The major sources of information about the economic ideas of Indian
writers are Vedas, Arthasastra, the Ramayana and Mahabharata,
Manusmriti, Sukraniti, and several other ancient Indian texts. Many
scholars, particularly during the first half of the 20th century, attempted to
make an objective and unbiased evaluation of ancient Indian economic
ideas, explicitly or implicitly, contained in ancient Indian wr itings. Indian
economic thought has certain special features which necessitates a
separate study of Indian economic thought.
The history of Indian economic thought provides rich insights into both
economic issues and the workings of the Indian thinkers. A study of the
history of Indian economic thought provides the first overview of
economic thought in the sub -continent. The sources of information
available for the study of ancient Indian economic thought are Vedas, the
Upanishads, the Epics - Ramayana and Mahabharata, Smritis and Niti
Shastras particularly those of Manu and Shukra. Among these, the two
most well -known ancient Indian writings are Arthasastra and Manusmriti.
Kautilya was the important thinker, whose ‘Arthasastra’ has been
considered the most reliable work on ancient Indian economic thought. It
should be mentioned that ancient Indian thinkers had no clear conception
of economics and their ideas were mixed with politics, ethics and
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2 History of Economic Thought - II
2 EconomicthoughtinmodernIndiawaslargelyinfluencedbythe BritishruleinIn
dia.The British rule has impoverished the country and according to Indian
thinkers this has been the major reason for the abject poverty of Indians.
Hence, Indian nationalism and widespread poverty of the masses in India
influencedtheeconomi cthoughtofmodernIndia.Wemaybrieflyexplaintheeco
nomicideasofIndian economists in the following paragraphs. It should be
mentioned that the economic ideas of Indian writers are mixed with ethics
and politics. Let us now analyse the ideas of Kautilya and Dada bhai
Noroji in this unit .
1.2 KAUTILYA ON WELFARE STATE In the ancient economic thought in India, Arthashastra plays an important
role. Economics is considered as one of the four important streams of
knowledge namely Philosophy, Political Science or Dan dniti the Vedas
and Economics. Economics was considered as the science of wealth
(Artha).
Kautilya, Arya Chanakya, wrote a book called as Arthashastra. It reflects
Ancient Indian Economic Thought, economic structure and economic
aspirations of the society. He has regarded economics as a continuous
process. The treatment in his book is quite comprehensive and systematic.
It also deals with the government of towns and villages, law courts, rights
of women, maintenances of old and helpless, marriage and divorc e, public
finance, maintenances of army and navy, diplomacy, agriculture, spinning
and weaving and a number of other subjects. His book contains ample
ideas on a welfare state.
The ancient economic thought was welfare oriented. It wanted to study the
problems and prospects of the welfare state. The ancient Indian thinkers
had a very clear concept of welfare state.
The functions of the state were governed by the moral dictates. Economic
life in ancient India was governed by religious ideals and moral sanct ions.
Each citizen was guaranteed protection against starvation. An equitable
distribution of wealth and food was the objective of the State
administration. Wages were determined on the basis of equality and
justice. There was no exploitation of labour by employers. There was no
exploitation of the cultivator by the landlords and the capitalists.
Kautilya was against high rates of interest. According to Kautilya, profits
are the rewards of purely entrepreneurial function. The Vedas spoke about
the equitabl e distribution of wealth. However, due allowance was given to
the differences in caliber, character and aptitude of the people. The chief
duty of the state was to promote the economic welfare of the people. It
was required to promote trade, agriculture, ir rigation mining etc. by giving
subsidies.
The justice was administered by Panchayats and Guild Courts. The
administrations, economic as well as political, was fully democratic. The
Panchayat and the Municipality were the basic units of democracy. There munotes.in

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3 Indian Economic Thought: Kautilya And Dadabhai Naoroji were several instances where the State framed regulations relating to the
financial transactions, weights and measures, essential industries, currency
and exchange, prevention of adulteration etc. According to Shukra, the
State is a trustee to which others a re related. He also said that the state is
tree of which King is the root and counsellors are the main branches. The
Commanders are the lesser branches. The armies are the blossoms and the
flowers. The people are the fruits and the land is the seed. In sho rt, King
was responsible for the economic prosperity of the people. All this
indicates that the ancient concept of State in India was that of Welfare
State.
The Kautilyan state was in essence a welfare state not only in its ideal but
also in its programmed of action. Kautilyan state intervened, regulated and
participated in socioeconomic activities and, at the same time, it controlled
private enterprises in many ways checked unhealthy profit motive,
standardized weights and measures and fixed prices. Privat e enterprises
were strictly regulated for profit, general welfare and prevention of fraud.
Kautilya touched almost all the aspects of human life, civilization and
culture within his concept of Yogakshema (Welfare State, in the modern
sense).
Kautilya has g iven the welfare of the public the foremost place in his
administrative policies. The most important objective of his administrative
system was ensuring inclusive development of all while doing the work of
public interest.12 Kautilya State made several law s for the welfare of the
society. A ban was imposed on the sale and purchase of children as slaves.
This shows his immense concern for child labor. Similarly, an employer
could not force a female slave to become naked or hurt or abuse her
chastity. This in dicates remarkable human values which Kautilya
cherished against slavery and thus guaranteeing civil rights to shudras. His
views related to children slavery and women liberty are significant in
modern period. Today every state makes many laws against the child labor
and for protection of women liberty. Kautilyan state was not merely
concerned with the material and physical welfare of the citizens; it was
concerned with the moral welfare of the people as well
Kautilya’a concept of State is founded on Indust rial structure. Industrial
development was the important function of the State. The State had the
duty and responsibility of making the country self -sufficient and wealthy.
According to him, there are three guidelines for the State,
1. The State should un dertake those industries which help directly in
making the nation self -sufficient and self -reliant. For eg. Gold, silver,
diamond, iron and other metals should be in the charge of the State.
2. The activities related to farming, spinning, weaving, livesto ck
farming, arts and crafts etc. should be left to the individuals and the
right of ownership should be recognised. The State should supervise
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4 History of Economic Thought - II
4 3. The State should see that the activities related to the production,
distribution and concept ion are carried out efficiently and in
accordance with the rules framed by the State.
1.3 DADABHAI NAOROJI’S THOUGHT ON DRAIN THEORY Dadabhai Naoroji made several contributions in the Indian Economic
Thought. He laid down the foundation of studying the problems faced by
India during British rule from a practical angle and devised the necessary
statistical tool for it . He was basically motivated by a deep sense of
patriotism. He was always emphasizing the basic duty which the British
government had towar ds it subjects in India and advocated that Britain
was morally not authorised to benefit at the cost of Indian interests.
Dadabhia Naoroji contributed a number of writings on the subject of
Indian poverty and the consequences of British rule. One of his gr eatest
contributions is ‘The Drain Theory’.
Naoroji was of the firm opinion that the economic and political relations
between India and Britain were leading to heavy drain of real resources
from India to Britain and thus condemning India to a perpetual st ate of
poverty. The Drain Theory comprehends the essence of what he wanted to
say as a patriotic citizen who had studied the causes of poverty in a
colonial economy. From the angle of the methodology this theory provides
an excellent conceptual framework w ithin which Dadabhai’s economic
ideas and his assessment of the burning question of his times easily fall
into place form a coherent whole so as to appeal to even sophisticated
student of modern economists.
The economic drain was a manifestation of the un just and forceful
obstruction in the way of Indian economic growth and led the country to a
heavy foreign indebtedness. The whole gamut of financial, civil and
military set -up was geared towards setting up a mechanism which extorted
resources from the Indi an economy. Such a drain mechanism was
operative at two levels: (i) the external trade and (ii) the internal working
of the economy.
Economic drain may be defined as a complex system through which
economy’s surplus was extracted out by a process of interna l drain. The
surplus was taken out of India through foreign trade and uni -lateral
transfer of funds. It was called the process of external drain as an external
cum internal drain.
Internal Economic Drain:
It is the transfer of income from small producers in agriculture and crafts
to organized urban sectors, landlords, merchants etc. through the medium
of taxation, interest payment, profit and other form of surplus. It was done
through the terms of trade, unfavorable to agriculture and crafts. The result
was the long period of decline of handicrafts production, mainly textiles. It munotes.in

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5 Indian Economic Thought: Kautilya And Dadabhai Naoroji resulted in the disturbance in village level equilibrium of the crafts and
agriculture.
External Economic Drain:
It is the transfer of resources from India to England through the export
surplus and movement of precious metals without any corresponding
returns from England to India. Export surplus means the surplus on export
on goods and services of a country over its imports. Increase of India the
export surp lus in its trade with England was not often matched by any
corresponding payment from England to India since they were accounted
for charges against India as home charges, war expenses of England etc.

Initially the external drain was represented by the unilateral transfer of
purchasing power from India to England. This was made through the
movement of precious metals from India to England. Later on this transfer
of purchasing power took the form of export of commodities from India to
England. But for th ese exports there was no equivalent flow of payments
from England to India. Since the export of commodities was not matched
by any counterflow of payment it is called as unrepeated export surplus.
Thus it was argued that a large portion of India’s national wealth was
transferred to England without any quid -pro-quo i.e. without any returns.
Since the resources were transferred from India to England without much
significant returns from England, such transfer of resources was described
as drain of India’s res ources. This phenomena of transfer of resources and
wealth from India to England was called as Economic Drain by Dadabhai
Noroji.
Mechanism of Economic Drain:
1. Merchants and officials of East India Company and other officials
demanded gifts from Indian people. Sometimes these gifts were taken
forcibly from the Indian people.
2. Remittances to England by European employees for the support of
families and education to their children.
3. European employees preferred to invest in their own countries rathe r
than in India.
4. Government of India had to make payments for the purchase of the
things manufactured in England. munotes.in

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6 History of Economic Thought - II
6 5. When India had export surplus in its trade with England then that
surplus was taken away by England as charges against India. There
was no payment from England to India.
6. India had to pay interest charges on public debt held in Britain. Their
investment in Indian railways, coal mines etc. were written down as
debt of India. Thus, India had to pay interest on that.
7. The Government of India had to make large payments to people in
England. It was on account of the political and commercial
connections between India and England.
8. Home charges were imposed in the form of payment to railways,
irrigation works, interest on the debt raised by England, pensions to
retired British officials etc.
9. There was a neglect of traditional public works.
10. Heavy duties were imposed on Indian goods going to England.
11. Free imports of British manufactured goods.
12. The Government purchased most of its stores from the British
manufacturers and the foreigners in India also purchased mostly
foreign goods. The combined effect of all these factors was that the
resources drained from the Indian economy did not flow back into it.
This external drain wa s affected through the mechanism of export
surplus. Ordinarily an export surplus would have enabled India to pay
off her foreign debts, to have foreign investment, or to bring in capital
goods and strengthen her own economy. But, as it was, this export
surplus was lost without any return and the country was getting
deeper into foreign indebtedness.
1.4 SUMMARY Thus, this economic drain resulted in -
a. Increase in tax burden
b. It made the Indian economy stagnant. It was due to the abnormal
increase in I ndia’s public debt and home charges.
c. It resulted in poverty. The economic drain of resources resulted in
decline of Indian handicrafts production, agricultural production etc.
d. It had harmful effects on income and employment. The drain involved
spendi ng a large part of National Income in England. Thus we could
not generate income and employment in India.
e. There was a huge loss of capital.
f. It affected the industrial development adversely. munotes.in

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7 Indian Economic Thought: Kautilya And Dadabhai Naoroji g. The terms of trade went against India. It was mainly du e to less export
earning and more import payments.
1.5 QUESTIONS 1. Explain Kautilya’s views on welfare state.
2. Write an explanatory note on Dadabhai Naoroji’s thought on
economic drain.


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8 2
INDIAN ECONOMIC THOUGHT :
RANADE, R. C. DATT AND GOPAL
GANESH AGARKAR
Unit Structure
2.0 Objectives
2.1 Ranade’s Case On Protection
2.2. R.C.Dutt On Imperialism
2.3 Gopal Ganesh Agarkar
2.4 Questions
2.0 OBJECTIVES  To know the Indian economist M. G. Ranade’s thoghts on protection.
 To know the thoughts of Indian economist R. C. Datt on Imperialism.
 To know the thoughts of Indian economist Gopal Ganesh Agarkar.
2.1 RANADE’S CASE ON PROTECTION M.G.Ranade was born on 18th January, 1842. He compl eted his MA from
University of Bombay. Later on, he studied law and became the judge of
Bombay High Court. The economic ideas of Ranade concentrate on few
subjects such as
a) Methodology of study
b) Explanation of backwardness/poverty in India.
c) Develop ment and industrialisation of India and the role of State.
Economic ideas of Ranade can be found in his essays on ‘essay on Indian
Economics’ or ‘Essays on Indian Political Economy’, 1893.
Let us now study the ideas of Ranade mainly with respect to Protec tion.
His ideas on protection are explained in the development and
industrialisation of India and the role of State.
Ranade opposed the laissez -faire policy i.e., non -interference by the
government in economic matters. According to Ranade, government
(State) must play an important role in removing poverty and promoting the
wealth of nation.
The State must come forward with several measures which are helpful for
the development of the economy. The policies and measures must give munotes.in

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9 Indian Economic Thought: Ranade, R. C. Datt And Gopal Ganesh Agarkar maximum advantage to the peo ple. He said that the State is recognised as
a national organ. The State must take care of national needs. National
needs are many and varied. In this case, it must take help of individual and
cooperative efforts. Government must bring effective and econom ical
efforts (returns must be more than expenditure). He said that we must go
for planned economy with the objective of welfare State.
Ranade opposed the policy of free trade. According to him, free trade will
affect the interests of Indian industries badl y. Thus, Ranade advocated and
supported the policy of protection to India and mainly to Indian industries.
He said that the government should follow a positive policy for the
promotion and development of Indian industries. Later on, he said that the
govern ment must also promote large -scale farming.
According to Ranade, a balanced and land development of agriculture,
industry and commerce is essential for promoting economic development
of India.
There was also a problem of population pressure. To solve thi s problem,
he advocated a balanced redistribution of population. It is possible by
sending people from thickly populated areas to thinly populated areas. The
government must also take care of the resettlement of the people.
Ranade also advocated changes i n land policy. He said that these changes
are essential for the interest of cultivators of soil. The farmers must be
allowed to pay their tax in kind if it is convenient to them. He pleated a
permanent Ryotwari Land Settlement for a minimum period extendin g
from 20 to 30 years. He also advocated the reorganisation of credit system.
He said that we must set up committees of capitalists to finance
agriculture.
Ranade’s argument also rested upon a weakness in the classical position
itself. Adam Smith was a ‘f air trader’ i.e., he would allow free trade only
where it was advantageous to Britain. J.S.Mill favoured the institution of
free trade when industrialisation of a country had crossed the stage of
infancy. Ranade wanted that on this basis India should also adopt policy of
protection till her industrial strength had grown.
His ideas of economic growth are closely linked with those of population,
credit and investment, protection and other possible state actions. The
need for capital accumulation was also put to the fore. He noticed that
there was ample availability of capital funds. But the appropriate
mechanism for their collection and utilisation was not there. The private
sector was not able to attract these funds. Instead, there was an excessive
demand f or government securities which, therefore, commended a
premium. There was also a surfeit of funds with the exchange banks.
Therefore, the real deficiency was that of the lack of suitable financial
intermediaries through which these funds could be channelle d. In the
country -side, there was a predominance of private lending which could not
be considered the best. The need of the economy was to have developed
system of institutional lending. Expansion of banking would be very
helpful in this connection. It is remarkable that Ranade was able to realize munotes.in

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10 the role of institutional finance and its means (banking) at such an early
time a policy whose worth is not fully realised. Apart from the financial
side of the policy, Ranade also recognised that in his scheme of things (in
which he was basically not concerned with economic justice as between
individual members of the society) capital accumulation and technology
were to be mainly the responsibility of bigger proprietors. And it was in
the context of economic growt h that Ranade would not ask for complete
protection on two grounds. Firstly, it was bound to be unacceptable to the
government in those hay -days of laissez -faire. Secondly, he believed in the
fundamental strength of the case for free trade.
But he did bel ieve that in the initial stages of industrial growth, protection
was needed. Free trade was good between the parties of equal strength.
“the Advanced Theory concedes freedom where the parties are equally
matched in intelligence and resources; when this is not the case, all talk of
equality and freedom adds insult to injury.” He therefore said: “We
cannot, as with the governments of these (European countries and
America) countries, rely upon differential tariff to protect Home Industries
during their experim ental trial. We cannot expect the government here to
do what France and Germany do for their shipping out of general taxes.
These are heresies according to English Political Economy, such as taught
to us, and whether they are really so or not, it is useles s to divert our
energies in fruitless discussion and seek to achieve victory over free
trade.”
In his idea on State action and planning, State was expected to operate and
help the economy. Ranade’s ‘Policy of the Cultural System’ assumes the
State to play positive and comprehensive role in the industrialisation of the
country. We have also noticed the place which Ranade accorded to
protection in this scheme of things. He advocated a systematic shift in
government policy regarding purchase of stores in favou r of Indian
products. Thus, protection, store -purchases and such like actions would
create demand for Indian industrial products.
2.2 R. C. DUTT ON IMPERIALISM R.C Dutt was born in Bengal family. The economic ideas of Dutt are
found in his two fundamental books namely Economic History of India
(2volumes) and Famines in India (2 volumes).
2.2.1 R.C. Dutt on Imperialism:
India in the 18th century was a great manufacturing as well as great
agricultural country and the products of the Indian looms were suppl ied in
the markets of Asia and Europe. It is , unfortunately true that the East
India Company and the British Parliament, following the selfish
commercial policy discouraged Indian manufacturers in the early years of
British rule in order to encourage the rising manufacturers of England.
Their fixed policy was to make India subservient to the industries of Great
Britain, and to make Indian people grow raw produce only in order to
supply material for the looms and factories of Great Britain. This policy munotes.in

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11 Indian Economic Thought: Ranade, R. C. Datt And Gopal Ganesh Agarkar was perused with unwavering resolution and with fatal success. Orders
were sent to force Indian artisans to work in company’s factories.
Commercial residents were legally vested with extensive powers over
villages and communities of Indian weavers. Prohibiti ve tariffs excluded
Indian silk and cotton goods from England: England goods were admitted
into India free of duty or on payment od a nominal duty.
Millions of Indian artisans lost their earnings. The population of India lost
one great source of wealth an d it resulted their helpless dependence on
agriculture. The invention of power loom in Europe completed the decline
of the Indian industries and when in recent the power loom was set up in
India. An excise duty was imposed on the production of cotton fabri cs in
India which disabled the Indian manufacturer from competing with the
manufacturers of Japan and China.
For when taxes are raised and spent in a country, the money circulates
among the people, fructifies trade, industries, and agriculture, and in one
shape or another reaches the mass of the people. But when the taxes raised
in the country are remitted out of it, the money is lost to country forever; it
does not stimulate her trades or industries, or reach the people in any form.
Large amount of money was annually drained from the revenues of India.
These are the plain facts of economic situation in India. If manufacturers
were crippled, agriculture over -taxed and a third of the revenue remitted
out of the country any nation on earth would suffer from permanent
poverty and recurring famines. Economic laws are the same in Asia as in
Europe. If India is poor today, it is through the operation of economic
causes. If India as prosperous under these circumstances, it would be an
economic miracle. Science kno ws no miracles. Economic laws are
constant and unvarying in the operation. These were the views of R.C.Dutt
on imperialism.
2.2.2 R. C. Dutt views on Land taxation:
Agriculture was virtually the only remaining source of national wealth in
India, and four -fifth of the Indian people depend on agriculture. But the
Land tax levied by the British Government is only excessive but what is
worse: it is fluctuating and uncertain in many provinces. In England, the
Land Tax was between one shilling and four shilling s in the pound, i.e.,
between 5 and 20 percent of rental. During 1798 it was made perpetual
and redeemable by William Pitt. In Bengal the Land Tax was fixed at over
90% of the rental, and in northern India at over 80% of the rental between
1793 and 1882. I n Madras , the Land tax first imposed by the East India
Company was half of the gross produce of land.
In Madras and Bombay things were worse. There the Land Tax was paid
generally by the cultivators of the soil there being, most parts of those
provinces, no intervening landlords. The British government declared its
intention in 1864 of realising as Land Tax about one -half or the economic
rent, but what the British government does take as land Tax at the present
day, sometimes approximates to the whole of the economic rent, leaving munotes.in

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12 History of Economic Thought - II
12 the cultivators little beyond the wages of their labour and the profits of
their agricultural stock.
The land tax is received once every thirty years. The cultivators do not
know on what ground it is enhanced, he has to submit to each renewed
assessment or to leave his ancestral fields and perish. This uncertainty of
Land Tax paralyses agriculture, prevents savings and keeps the tiller of the
soil in the state of poverty and indebtedness.
It will appear from the facts stated ab ove that the Land Tax in India is not
only heavy and uncertain, but what the very principle on which it is raised
is different from the principle of taxation in all well - administered
countries. In such countries the State promotes the accumulation of
weal th, helps the people to put money into their pockets, like to see them
prosperous and rich, and then demand a small share of their earnings for
the expenses of State. In India, the State virtually interferes with
accumulation of wealth from the soil. Inte rcepts the incomes and gains of
the tillers, and generally adds to its land revenue demand at each recurring
settlement, leaving the cultivators permanently poor. In England, in
Germany, in the United States and in the France and other countries, the
State widens the income of the people, extend their markets, opens out
new sources of wealth, identifies itself with the nation and the State grows
richer with the nation. In India the State has fostered to new industries and
revived no old industries for the p eople; on the other hand, it intervenes at
each recurring land settlement to take what considers its share out of the
produce of the soil. Each new settlement in Bombay and Madras is
regarded by the people as a wrangle between them and the State as to how
much the former will keep and how much the latter will take. It is a
wrangle decided without any clear limits fixed by the law a wrangle in
which the opinion of the revenue officials is final and there is no appeal to
judges or law courts. The revenue incr eases and the people remain
destitute.
Taxation raised by the King says the Indian poet is like the moisture of the
earth sucked by the sun, to be returned to the earth as fertilising rain, but
the moisture raised from the Indian soil now descends as fert ilising rain
largely on other lands, not on India. Every nation reasonably expects that
the proceeds of taxes raised in the country should be mainly spent in the
country, under the worst governments that India had in former times, this
was the case. The va st sums which Afghan and Mughals emperors spent
on their armies went to support great and princely houses, as well as
hundreds of thousands of soldiers and their families. The gorgeous palaces
and monuments they built, as well as the luxuries and displays in which
they indulged, fed and encouraged the manufacturers and artisans of India.
Nobles and commanders of the army, Subadars, Diwans, and Kazis, and
host of inferior officers in every province and every district, followed the
example of the court: and m osques and temples, roads, canals and
reservoirs, attested to their wide liberality, or even to their vanity. Under
wise rulers, as under foolish kings, the proceeds of taxation flowed back to
the people and fructified their trade and industries. munotes.in

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13 Indian Economic Thought: Ranade, R. C. Datt And Gopal Ganesh Agarkar But a ch ange came over India under the rule of the East India Company.
They considered India as a vast estate or plantation, the profits of which
were to be withdrawn from India and deposited in Europe.
The expenses of the mutiny wars had vastly added to Indian l iabilities and
demand increases in Taxation. Commerce could not be taxed against the
wishes of British merchants and British voters; the increased taxes
therefore fell on agriculture. Accordingly, from 1871, a number of new
taxes were assessed on land, in addition to the land reven ue. If the Land
Revenue was 50% , of the rental, the total assessment on the soil, including
the new taxes came to 56%, or 58%, or even 60% of the rental. And the
people of India asked what was the object of limiting the land reven ue, if
the limits were exceeded by the imposition of additional burdens on
agriculture.
Agriculture, as a source of the nation’s income, has not been widened
under British administration. Except where the land revenue is
permanently settled it is revised and enhanced at each new settlement,
once in thirty years or once in twenty years. It professes to take 50% of the
rental or of the economic rent, but virtually takes a much larger share in
Bombay and Madras. And to it are added other special taxes on and which
can be enhanced indefinitely at the will of the State. The Land assessment
is, thus excessive, and it is also uncertain. Place and country in the world,
under the operation of these rule, and agriculture will languish. The
cultivators of India are fr ugal, industrious, and peaceful, but they are
nevertheless impoverished, resourceless, always on the brink of famines
and starvation. This is not a state of things, which Englishmen can look
upon with just pride. It is precisely the state of thing, which t hey are
remedying in Ireland. It is a situation, which they will not tolerate in India
when they have once grasped it.
Further R.C. Dutt states Agriculturalist who have lands are better off.
They are better housed, better clothed, and have more sufficient food. But
a severe Land Tax or rent takes away much from their earnings, and falls
on the labouring classes also. For where the cultivator I lightly taxed and
has more to paid. In Backergunj where the land is lightly rented and the
cultivator is prosperou s, the labourer employed by him get 10s,3d a
month. In Salem, where the land is heavily taxed, and the cultivator is
poor, the labourer employs earns 4s, 8ed a month. It is this fact which
appeals strongly to the Indian economists familiar with the circums tances
of his fellow -villagers; it is this fact which is ignored by the Settlement
officer when he enhances the Land Tax. A moderate Land tax relieves the
landless village labourer as much as the cultivator; labourer deprives him
of work reduces his wages and renders an easy victim to the first onset of
famines. We have in this page again and again urged a limitation of the
Land Tax within moderate and definite limits because a moderate and
defined land tax is calculated to improve the condition of the enti re village
population. Of British India all the 200 million who own lands and who
labour on lands. And the Native States of India would soon follow the lead
of British Government in this matter, as they do in other details of
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14 History of Economic Thought - II
14 2.2.3 R. C. Dutt’s Views on Public Finance:
Public Finance has many facets. A high level of land taxation was
necessitated by the high cost of British Indian administration. These costs
were increased by reason of expenditure undertaken on wars for the
expansion of Bri tish dominion and for the maintenance in India of military
establishments required for this purpose. Interest payment on
unremunerative railway and other debts home charges, remittances of
funds to England by public servants and others - all these resulted in a
considerable drain of resources from the country.
In India, an empire had been acquired, wars had been waged and the
administration had been carried out at the cost of the India people, the
British nation had not contributed a Shilling.
The East Ind ia Company ceased to exist in 1858, their stock was paid off
by loans which were made ire to an Indian debt, and the Indian people are
thus paying dividends to this day, on the stock of an extinct company, in
the shape of interest on debt.
It has been stat ed that the whole cost of wars in India and of civil
administration was paid out of the resources of India, even after paying all
these expenses, India showed a substantial surplus during the 46 years
ending with the accession of Queen Victoria.
There wer e 32 years of surplus, and if the deficit amounted altogether to
nearly seventeen million, the surplus amounted to nearly forty -nine
million, but this money was not saved in India, nor devoted to irrigation or
other works of improvements. It went as a cont inuous tribute to England
to pay dividend to the company’s shareholders and as the flow of the
money from India was not sufficient to pay the dividends there was an
increasing debt called the public debt of India.
Indian debt represents British capital su nk in the development of India. It
shown in the body of this volume that this is not the genesis of the Public
Debt of India. When the East India Company ceased to be rulers of India
in 1858, they had piled up an Indian debt of 70 million. They had in the
mean time drawn a tribute from India, financially an unjust tribute
exceeding 150 millions, not calculating interest. They had also charged
India with the cost of Afghan wars, Chinese wars, and other wars outside
India. Equitably, therefore, India owed no thing at the close of the
Company’s rule; her Public Debt was myth: there was a considerable
balance of over 100 millions in her favour out of the money that had been
drawn from her.
Within the first 18 years of Administration of the Crown the Public Deb t
of India was doubled. It amounted to about 140 millions in 1877, where
the Queen became the Empress of India.
This was largely owing to the cost of the Mutiny Wars, over 40 million
sterling, which was thrown on the revenues of India. India was also mad e
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15 Indian Economic Thought: Ranade, R. C. Datt And Gopal Ganesh Agarkar Between 1877 and 1900, the Public Debt rose from 139 million to 224
millions. This was largely due to the construction of railways by
Guaranteed Companies or by the State, beyond the pressing needs of India
and beyond her resources. It was also largely due to the African Wars of
1878 and 1897. The history of the Indian Debt is a distressing record of
financial un -wisdom and injustice and every impartial leader can reckon
for himself h ow much of this Indian Debt is morally due from India.
Modern European nations create National Debts mainly to extend their
conquests and colonies, and to maintain their position among rival nations.
India seeks no conquest; she has no rivals in Asia; her position under a
strong and good government is invulnerable. The cost of the British
conquest of the country had been defrayed from her annual revenues; the
cost of useful public works could be met from a country; and there was no
need for continuously in creasing it when people had followed the Mutiny
wars and the administration had been assumed by the Crown. Lord
Lawrence endeavoured to meet all expenditure from the annual income,
Lord Mayo’s plan of constructing Public Works with borrowed capital
was a m istake. When money is easily borrowed it is easily spent, and the
debt accumulates.
2.3 GOPAL GANESH AGARKAR Agarkar is commemorated for his work as a social reformer, as a
rationalist and as an educationist. It is also essential to understand and
recogn ise his positions on many issues especially the ones on economics.
He often wrote essays commenting on the nature of discourse on
economics prevalent during his time. His essays are of particular
significance to understand where exactly he stood as a 19t h -century
liberal and to comprehend the philosophical influences that propelled him
to take those positions. The two essays that reveal his economic thoughts
are titled ‘Teen Arthashastre’ – which can be broadly translated as ‘Three
Strands of Economics’.
He opens his first essay with the analogy of an ongoing ‘Tug of war’
between what he called the extremely ignorant people of India on one
hand and an extremely self -serving British government in India. And the
liberal -intellectuals in the society were di smayed by the self -serving
policy initiatives of the British government and equally by the lack of
logic in Indian demands for economic redressal. As a member of the third
party of intellectuals, not aligning with the views of the government or the
vast ma jority of Indian nationals, he advanced suggestions for both the
government and the people of India.
Economics is about production, distribution and transactions or exchanges.
India had a grave problem concerning all three aspects. India’s production
was d iminutive and thus the wealth produced was limited. Therefore, the
other two factors of a healthy economy were also impaired. This was a
result of the foreign rule in India. Agarkar categorized the then -existing
views on economics under three labels. These can be broadly called
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16 History of Economic Thought - II
16 Economics. We shall discuss the three categories of the then prevalent
thought in the same sequence as Agarkar did.
As per the tenets of Classical Economics, a gove rnment should stay away
from interfering in production, distribution and trade in general. However,
the British government in India used this very principle of non -
intervention to ignore the grave economic conditions and to turn a blind
eye toward the debi litating effects of its economic policies. It was obvious
to Agarkar that the government chose to be brazenly opportune and abide
by this principle where it helped serve the British national interest and it
blatantly violated the same principle when it was not beneficial for its
national interest.
Given the complex political relationship between the British government
of India and the Indian people, the conventional rules of economics
wouldn’t apply to the Indian conditions. According to Agarkar political
freedom and economic freedom were inextricably / inseparably
intertwined and he was convinced that Indians would have to win them
back in the same sequence in which they lost those to the British.
He further argued that the British held India as a precious possession not
because they cared for India or her people, but because India was
geographically important in continuing the trade with other Asian
countries. The colonial masters valued India for the access it granted to
Britain to the distant parts of th e orient. The trade via India benefited the
British more than their occupation of Indian possessions and the Indian
resources.
Agarkar pointed out that India never had a consumerist culture. Wantonly
enjoying different goods and services was yet to be deem ed normal. This
was one of the reasons why Indians never developed the skills, talents and
means required to produce goods. Ironically, Indians had to depend on the
British even for the essentials that could be easily and cost -effectively
produced in India . This led to the infamous economic drain and rendered
the nation vulnerable to rustification.
This begs a question that if the economic ordeal was real and so overt,
then how did the government manage to govern India for decades after the
first spark of consciousness among the Indian intellectuals?
The answer lies in the fact that the government mastered the art of
controlling the impoverished masses by offering temporary relief in
various ways. At times the government appointed a commission when the
popular discontent was too conspicuous. On some other occasions, it
offered some concessions to the farmers. Yet another time it dug canals
and wells, distributed seeds of cotton or wheat, established farms to carry
out experiments or even established veterin ary hospitals.
Apart from these usual methods, Agarkar touched upon two more ways in
which the government used its power supposedly for the redressal of
grievances. One, the government at times sought to save the peasants by
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17 Indian Economic Thought: Ranade, R. C. Datt And Gopal Ganesh Agarkar Secondly, the government opened up a ministry to manage agrarian affairs
and manned it with intelligent bureaucrats. They had a lucrative
remuneration for which Indians paid through their tax money. The
gove rnment did all of this in the name of ‘agrarian reforms’ but none of
the so -called reforms elevated the lifestyle of crores of poor Indians
fundamentally.
As Agarkar put it “the fatal and deep wound of systemic impoverishment
(that the economic policies o f the government) inflicted on Indians could
not be healed by mere band -aids.” No amount of temporary relief could
improve the economic condition of India. If India had to recover and
reinvigorate herself, it would take some serious effort – a reliable ‘to nic’.
Increasing the volume of the production (and subsequently trade) was the
only suitable tonic that could impart vitality among Indians. He argued
that countries like France, the United States of America, Germany, Italy,
Russia, Japan, Switzerland and even England worked toward increasing
the trade when their industries were at a nascent stage. But, when this
historical fact was brought to the notice the British officials would respond
frantically as if the laws of classical economics had always been
sacrosanct for them.
“Indian thinkers like Justice Telang, Justice Ranade and Dadabhai Naoroji
had devised ways of stimulating Indian industries, commerce and
agriculture without violating the laws of economics. But to what end?”
Agarkar didn’t hide his pe ssimism about the British nonchalance when he
declared that these sane voices were falling on deaf ears. “Afterall one can
be woken up from slumber if they are asleep, how can a person who
pretends to be asleep be woken up?” – questioned Agarkar.
Given the nature of British rule, Agarkar concluded that the general laws
of classical economics were not entirely suitable for the then prevailing
conditions. His explanation for deviating from classical thought was that
the principles of classical economics ca nnot be applied to every society as
their applicability hinges upon the level of economic development in a
given society. Typically, the new colonies or underdeveloped countries
require some modifications.
‘If there are compelling reasons to believe that industry, if promoted, for
the time being at least at the outset, can flourish and if it creates self -
sustainable enterprises, it won’t require the support of the state then such
an industry should be incentivized by the state.’ This state support would
be purely temporary. This was the second and less prevalent view called
Practical Economics. It was the one that Agarkar adhered to. However,
this was his second -best and he considered it a transitional arrangement to
reach the ideals of Classical Economics .
The Indian public intellectuals such as Agarkar and economists like
Ranade demanded a specific, temporary and transient role for the state –
one that of a facilitator for free trade and industry. But the British
government naturally showed the proclivi ty to protect the British
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18 History of Economic Thought - II
18 from the natives. On the other hand, Agarkar was also concerned with how
many Indians extolled the so -called virtues of Indian products. He
ridiculed them as peo ple with a ‘misplaced sense of patriotism’. He placed
them in the third category of those who believed in Illusory Economics.
Dismissing the false sense of being useful to the nation that one may
derive by promoting Swadeshi, he declared that ‘no one has e ver benefited
from buying a costly product just because it is ‘swadeshi’ or made in
India.
Agarkar was convinced that both the British state and the Indian people
had something in common. The extremely self -seeking character of the
government and the naiv ety of the common people in India indeed had a
point of concurrence – both the Indians and the British fell for
protectionism of some sort. It clarifies that Agarkar wanted the state to
create good conditions for industries to increase production, trade an d
commerce. He did not seek protection. His unequivocal rejection of the
preferential treatment to products based on the place of their origin and
opposition to state or society sponsored protection to businesses is
testimony to his belief in fair play and competition.
2.4 QUESTIONS 1. Discuss Ranade’s case of protection.
2. Write a note on R.C. Dutt’s views on Imperialism.
3. Discuss R.C. Dutt’s views on land tax.
4. Explain th eviews of R.C.Dutt on public finance.
5. Explain economic ideas of Gopal Ganesh Aga rkar.

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19 3
ECONOMIC THOUGHTS OF
MAHATMA PHULE
Unit Structure
3.0 Objectives
3.1 Introduction
3.2 Life Introduction
3.3 Books of Jyotirao Phule
3.4 Economic Thoughts Of Mahatma Phule
3.5 Summary
3.6 Questions
3.7 References
3.0 OBJECTIVES • Students kn ow about the work of Mahatma Jyotiba Phule.
• To study the thoughts of Mahatma Phule in relation to Indian
agriculture and farmers' welfare.
• To study the history of economic exploitation of farmers.
3.1 INTRODUCTION Mahatma Jyotirao Phule is known as the father of women's education in
modern India. Mahatma Phule was the greatest social reformer of
Maharashtra and India, he was a revolutionary thinker who analyzed the
exploitation of the working class in the society and suggested solutions for
it. Maha tma Jyotiba Phule tried his best to get equal rights for men and
women in India. Mahatma Phule is the first leader of social freedom and
decided the direction of the development of the oppressed, victimized and
backward classes and worked hard in accordanc e with it. The economic
thoughts of Mahatma Jyotiba Phule are responsible for bringing about
comprehensive economic growth in the country. He has made various
efforts to create an egalitarian system by rejecting the exploitative system
and has organized hi s ideas through his literature. Mahatma Phule has
called farmers as the cloth of the world. That is, farmers are described in
terms of 'Jagacha Poshinda' “Feeder to the world”. Farmers produce vital
materials/commodities essential for world development and global human
development in today's concept. Mahatma Phule has been given various
rewards by citizens and intellectuals.
Jotirao Govindrao Phule was conferred the title of Mahatma by Rao
Bahadur Wadekar on behalf of the people of Mumbai on 11 May 1888 in a
ceremony at Koliwada, Mandvi, Mumbai. Maharshi Vitthal Ramji Shinde
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20 History Of Economic Thought - II
20 So, “Log Muje Mahatma Kehete Hai Asli Mahatma To Jyotiba The”
(People says Mahatma to me (Gandhiji) but real Ma hatma is Mahatma
Jyotiba Phule) said Mahatma Gandhi from Yerwada Jail in 1932.
Sayajirao Gaikwad, the institutional king of Baroda, called Mahatma
Phule, “The Booker Washington of Maharashtra”. Bharat Ratna, The
Indian person who known as the symbol of kno wledge in the world,
Bharatratna Dr. Babasaheb Ambedkar considered Mahatma Phule as his
ideological guru (Teacher).
3.2 LIFE INTRODUCTION Mahatma Jyotirao Phule's full name is Jyotirao Govinda Phule. Jyotirao
was born on April 11, 1827 in Pune in the Mali , a Shudra caste of Hindu
religion. Jyotirao's mother Chimanabai died when he was child. In those
days, education was not available to the common people, especially to the
backward classes and to all women. But according to the British Charter
of 1813, edu cation was opened to all. Accordingly, in 1836, the British
government at its own expense started experimental village schools in
some villages of Pune district. Reading and writing were taught in it.
Jyotirao was sent to a Marathi primary school at the ag e of seven. No one
in his family had gone to school before him. But, one Pantoji, who is in
contact with Govindrao, gets upset about going to Jotirao's school,
Jyotirao will go to school and will not help your partner in the agriculture
work. By making thi s kind of arrangement, Govindrao expelled Jyotirao
from school and joined farming. Meanwhile, Jotirao had learned to read
and write in school and was always fond of reading. In 1841 Ghaffar Begh
Munshi, Pantoji of Urdu and Persian, and another Lidget Saheb told
Govindrao the importance of education and asked him to send Jyotirao
back to school. Accordingly, Jyotirao completed his education till 1847.
Jyoti Rao was an independent thinker and he felt that the country should
become independent. Every Indian ne eds to strive for that and in that
regard; Lahuji was doing the necessary training of exercise. There he
learned swordsmanship, marksmanship and various types of outdoor
sports. His friends were from all walks of life and religions. One of them
is a friend of the Brahmin community and Jyotirao was walking with all
the people during his wedding ceremony on the invitation of his Brahmin
friend. But there were Brahmins in the Varat and how dare a Shudra run
with the Brahmins, they were kicked out him. Mahatma Jyotirao Phule's
thoughts moved from the freedom of the country to the freedom of the
individual and the society form inhuman caste system. This incident
turned his life upside down. From then on, he dedicated his life to
revolutionizing the society to est ablish equality and unity in the society
and bringing the backward classes and women into the stream of
education and giving them their human rights.
Jyotirao got inspired to do social work from the biographies of Chhatrapati
Shivaji Maharaj and George Was hington. While reading Thomas Paine's
book “Rights of Man ” had a great impact on his mind and he started
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21 Economic Thoughts Of Mahatma Phule Mahatma Jyotirao Phule first educated his wife Savitribai Phule and then
started the first girls' school in Pune on 1st January, 1848. Where,
Savitribai Phule was teaching girls with the guidance of Jyotirao Phule.
Then in 1851 two more schools for girls were started and in 1852 Phule
started a school for the children of Shudra. While doing this, they had to
contend with society. Importantly, his father Govindrao kicked Jyotirao
and his wife Savitribai Phule out of the house to avoid the wrath of Pantoji
and the society. However, Mahatma Phule and Savitribai Phule continued
the important work of education for the all sections of society throughout
his life.
Apart from this, he attacked the bad religious practices, harmful practices
in the society. Efforts were made to create a new structure of society on
the basis of freedom, equality, and rationalism. In India th ere were
inhumane concepts and practices like Sati with a dead husband, cutting a
widow's hair, forcing her to remain celibate, harassing widows, denying
widows the right to remarry. Jyotiba Phule tried to end such exploitative
practices. Mahatma Phule org anized the strike of the barber community to
stop cutting hairs of widows. Not only that, but he ran a maternity home
for abandoned, cheated orphan women in her own home, saving their lives
and that of their babies with Savitribai Phule. To take care of th e babies,
they nurtured the children at home. Removed the Infanticide Prevention
Home and established the Satishodhak Samaj to create a new humanitarian
society.
3.3 BOOKS OF JYOTIRAO PHULE • Tritiya Ratna -Natak (1855 ): In this, Phule shows how the poor
peasants of India are robbed by the priests and Brahmins through
superstition and the plight of the peasants.
• Powada on Shivajiraje Bhosale (1869) discusses Shivajiraje
Bhosale's egalitarian state and his policies towards peasants.
• Brahminanche Kasab (1869) describes how the indigenous
community of India was subjugated and exploited by the Brahmin
class, especially the peasants.
• Slavery (1873) An analysis of how slavery was imposed on the native
Indian society and how they adopted the tradition of slavery.
• Shetkaryancha Asud (1883 ) describes in detail the condition of the
peasants in India and the state of Indian agriculture in this book. It
discusses measures to improve the condition of the farmers.
• “Ishara” Warning (1885) In this, Phule has analyzed Indian
agriculture and the poverty of the farmers and its causes.
• In addition, Phule produced literature such as Satsar Ank -1, Satsar
Ank-2, Sarvajanik Satyadharma, Akhandadi Kavya Rachna etc.
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22 History Of Economic Thought - II
22 3.4 ECONOMIC THOUGHTS OF MAHATMA PHULE Mahatma Jy otirao Phule has not formulated anything like this in the form
of theory in economics. But, the work done by him and the ideas put
forward to lead the country and the economy towards inclusive and
sustainable development from a holistic perspective. Theref ore, the real
intention behind keeping Mahatma Jyotirao Phule's economic thoughts for
study is that the students should study the ideas presented from the point
of view of his comprehensive development and develop the wisdom to
find a way out of the curren t economic situation in India.
India is an agricultural country. But the methods of farming in India are
traditional and the farming and farmers are found to be deprived of
education. And how it is exploited in different ways by the priestly
Brahmins as we ll as by the British government and how the farmers
themselves become impoverished due to superstitions. Mahatma Phule has
commented on this in his book 'Shetakrecha Asud' and his book 'Ishaara'
describes the reasons for the poverty of farmers. Even today, the condition
of farmers in India has not improved. Suicide rate is highest among
farmers and farmers live in poverty even after 75 years of independence.
3.4.1 Mahatma Phule's Thoughts on Agriculture and Farmers:
Agriculture is the backbone of the econom y i.e. the development of the
country. The development of agriculture means the development of all
other sectors of the economy. India is known as an agricultural country. In
India, most of the citizens are dependent on the agriculture sector.
Therefore, t he importance of agriculture sector in Indian system is unique.
Today, even in the 21st century, more than 65 percent of India's
population depends on agriculture for their livelihood.
Many kings and palaces of the country of India fought with each other a nd
the agriculture in India suffered tremendously. Agriculture was an
important means for states to collect taxes. The product produced by the
farmers was taken away by the Indian kings and their servants by levying
heavy taxes on it. So, the farmer was no t motivated to produce more. At
the same time, Mahatma Phule has described in his book, Chatrapati
Shivaji Maharaj was the only one king who worked for the welfare of the
farmers and had different plans by giving them tax waivers in case of
agricultural cr isis.
Mahatma Phule on page number two of the book ‘Warning’ describes the
plight of the Indian farmers in the following words, “Until the end of the
reign of Raobaji, the last Kuldeepak Purush of the Peshwa, “if the peasants
fail to pay even a little, the y should be made to stand in the sunshine at
noon and be given a big stone on their backs or the wife of the farmer
should be given his. The farmer was punished such inhuman by the Indian
states if he could not pay the tax in such a way that he should be s eated on
his back and given the smoke of chillies from below”. In addition, if the
farmer took his grain or vegetables to the city for sale, the Munshi party in
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23 Economic Thoughts Of Mahatma Phule This method of looting of farmers continued in India even after
independence till the end of the twentieth century.
Considering the whole of India, Indian agriculture was backward and
traditional as no king had made special efforts to bring about special
improvements in agricul ture in India, to provide water system for
agriculture. Due to which Indian farmers remained weak, backward and
underdeveloped as compared to other countries. The British ruled India by
taking advantage of the caste system created by the caste system in In dia.
The British appear to have made some minor improvements in agriculture
during their rule. But those reforms have not enough to significantly
improve the status of farmers and agricultural productivity. Therefore, in
all such situations, the Indian far mers during the pre -British rule, during
the British rule and even in post -independence India are seen as poor,
economically backward.
3.4.2 Reasons given by Mahatma Phule why Indian farmers are poor:
Indian farming and farmers are being remains poor befor e British rule,
during British rule and after the British rule. It is so because there were no
special efforts are being taken to improve the conditions of farmers.
Mahatma Jyotirao Phule has explained the deeply the causes of poor
conditions of Indian far ming and farmers in India as following.
1) Burden of growing population on agriculture :
Poverty is a major cause of population growth. In India, the rate of
population growth was high and as more and more people depended on
agriculture, increasing populat ion increased the burden of population on
agriculture. The people who were working or employed in the native
institutes sat at home and started farming after coming of the British rule.
Due to this, the burden on agriculture increased and the per capita in come
of farmers decreased.
2) Division and fragmentation of land :
Due to the increase in the burden of the population on agriculture, the
number of people working in the farming increased and farming in the
name of many members of the family led to fragme ntation of agriculture.
Loss of traditional business called other artisans worked other related
profession were also depended on the farming. It resulted, division and
fragmentation of land. It leads to the less income of the person compare to
big land hol ders.
3) Loss of Traditional Businesses:
Since the beginning of the British rule in India, the businesses of small
entrepreneurs or people like carpenters, blacksmiths, potters etc. have been
closed. Because the material produced on the new machine from t he
England started selling in India at a low price, so the goods of the country
were not bought. Due to this they had to live their lives by working on
agriculture to survive. Due to the closure of this indigenous business, the munotes.in

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24 History Of Economic Thought - II
24 trade between the farmers an d them was also stopped and the income of
both was lost.
4) Exploitation of Farmers by Moneylenders:
Mahatma Phule describes that farmers had to take loans for various
reasons due to their poor condition. The moneylenders from whom the
loan was taken used to exploit the farmers by charging arbitrary interest
rates and charging interest on the interest. As the loans were not being
repaid by the farmers out of this growing debt, the moneylenders took the
produce of the farmers. Not only this, the land of the farmers was also
taken away.
5) Decreasing number of quality bulls:
As officers and shoulders of the British government consumed more meat
of cows and bulls, the number of quality bulls started to decrease.
Bullocks have traditionally played an important role in agricultural work.
If the bullock is of working quality, more work will be done in less time
and the productivity of the farm will increase. Therefore, it is necessary to
have more quantity of quality bulls. There were draughts in India, the food
was not available to surview for the Indians. To surview during such time,
cows and bulls meat was being used as food. The second thing was in such
drought situation bulls were unable to eat as much as it required.
But Considering the modern times, it is seen that since bullocks have been
replaced by tractors, this issue is not so important for the farmer in today's
situation.
6) Economic and Social Exploitation of farmers under the rule of
Peshwas’:
In the book ‘ Warning ’, Mahatma Phule on page number two describes the
plight of the Indian farmers in the following words, “Until the reign of
Raobaji, the last Kuldeepak Purush of the Peshwas, the farmers, if they
failed to pay even a little, put them on their backs in the sun at noon a big
stone should be gi ven or the farmer's wife should be placed on his back
and the smoke of chilies should be given from below” the farmer was
punished such by the Indian states if he could not pay the tax.
7) Ban on Education of Farmers' Children:
The Brahmin class in India created a situation where education was a
monopoly of the Brahmins only, so the education of the Shudra farmer or
his child was completely banned. An example of the Brahmin class trying
to pollute the minds of the farmers so that the farmers do not send th eir
children to school for education is an example of Mahatma Phule himself
being made to stop the education. Analyzing the plight of the Shudra
farmers due to education, Mahatma Phule writes; Education is the only
mean through which anybody can cross any type of poverty. But the
education was totally banned to the farmers and their children in the
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25 Economic Thoughts Of Mahatma Phule 8) Exploitation of farmers in the name of religious rituals:
In Indian Hindu culture, various religious rituals are performed from the
conception of a child to its death. Religious rituals are performed by
chanting different types of mantras. To do this immense amount of money
is extorted from the farmers by Brahmins. This pushes the already low
income farmers further into the pit of povert y. But out of superstitious
fear, the poor and illiterate farmers succumb to this machination and bring
about their own downfall.
9) Robbery of Farmers by Rituals in Festivals:
During Chaturthi, Padwa, Saturday, Shani Amavasya, Ganeshotsav,
Dussehra, Diwa li, Gauri Pujan, Tulsi marrage etc., Brahmins take food
from the farmers in the name of various Japanushthans and Dakshina
amount take Brahmins from the farmers. As a result, the farmer has
become poorer. These practices existed even then and are still obs erved in
India especially in rural areas.
10) Expenditure on Japanusthana for Peace of Rashi and Planets:
A planet has entered your Rashi and a restless planet is troubling you.
Brahmins used to extort money from the farmers to perform Japonusthana
in the name of planetary peace by giving the false idea that if it is pacified,
the farmer will have good days. Due to such unproductive spending of the
farmer's money, the farmer became poorer and more indebted.
11) Winding of Farmers' Wealth through Marriage R itual:
Every person in the country marries boys and girls with great enthusiasm.
Farmers also try to get boys and girls married despite the circumstances.
In this marriage ceremony, all the rituals are performed by the Brahmins,
starting from the chanting of Mangalashtaka. To do that money is taken
from farmers by Brahmins. That expenditure and the expenditure incurred
on marriage work and the loan taken for it does not fit the whole life of the
farmer and he becomes indebted and poor.
12) Expenditure on r ecitation of mythological stories:
Farmers in rural areas are charged exorbitant expenses by advising them
on reciting and reciting mythological stories. For example, Ramayana,
Bhagwat Saptaha, Pandava Pratap, Garuda Purana, Satyanarayana Pooja,
Radha -Krishna Leela, etc. are recited and extorted from the poor farmers
through Dakshina along with cloths.
13) Looting farmers by creating bogus fathers:
Mahatma Phule writes, the upper castes in the system take a bindok,
gullible, idle person from among them, d ress him in saffron clothes, grow
his beard and hair and make him a maharaja, and two or four people walk
behind him and sing his praises and extort money from poor farmers in his
name. munotes.in

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26 History Of Economic Thought - II
26 14) Creation of Forest Department by British:
The British made a fore st reservation law so that those who were small
landholders could contribute to their income by rearing cattle on the
resources of the forest apart from agriculture. But the British restricted the
income of the farmers by creating forest accounts. As a res ult, the
smallholder farmers became totally depended on the very less farm land.
15) Deprivation of Farmers from International Trade Benefit and
Technology Transformation:
Due to widespread superstition among Indians that it is a sin not to
emigrate, the superstition in Indian society also blocked the way of
earning more money by selling the produce produced by the farmer in the
region. While studying international economics, you realize that,
'international trade is an important tool for economic developm ent' but this
trade is closed due to superstitions, a way of development of the farmer is
blocked by his own religious scriptures. The second important thing which
will improve the productivity of farm product that is new technology
developed about the far ming in developed countries not transform in India
because of banned on immigration to the foreign.
16) Corruption and Extortion of Farmers by Civil Servant:
Due to the prohibition of education to farmers, the children of the peasant
class do not study an d get jobs. Only Brahmin employees used to work on
government posts or jobs and doing corruption on a large scale. If the
farmer had some work in the government office, he had to pay a large
amount of bribe to these employees. Without it, they could not wo rk. Even
after 75 years of independence in India, this scourge of corruption has not
abated. So even today in India according to 2011 statistics 29.5 percent
people live below the poverty line.
17) Municipal Tariff Tax:
The British introduced Excise Tax i n the municipalities in the cities under
their rule in India. When a farmer takes his produce, grains, vegetables or
fruits to the city for sale, a large amount of tax was collected from these
farmers in the name of Jakat Kar (Tariffs). This means that the additional
tax burden falls on the farmer and the income of the farmer is further
reduced. Such Jakat Kar was collected in India till 1991 -92 from farmers
for selling their produces in cities.
18) Lack of Irrigation Facilities:
Availability of irrigation facilities is one of the most important factors for
increasing agricultural productivity and production. But before the arrival
of the British in India, no any Indian king built dams, canals to provide
irrigation facilities. There was no construction of p onds or wells.
Therefore, agriculture was completely dependent on nature's rains. Due to
this, a lot of land was lying fallow and the farmers of the place where the
drought happened used to go to land. Their financial situation would be munotes.in

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27 Economic Thoughts Of Mahatma Phule ruined. Although th e British made water available through dams and
canals to a small extent, the British government extorted money from the
farmers by levying huge fees on canal water. Some get water while some
farmers have to deposit money in the government account as soon as even
they don't get water.
19) Lack of modern technology:
High yielding seeds and animals were discovered in advanced countries
and based on that the agricultural production of that country increased
tremendously. However, in India, as agriculture is d one in a traditional
way and the old varieties that give fewer yields are used in agriculture, the
productivity remains low. In India, land was not tilled using new
machinery. There was also a superstition in India that Mahatma Phule
used the water of the dam to get rid of the superstition that farmers should
use dam water for farming.
As observed in the Indian economy, if agriculture develops, the industry
and service sector develop in the second year. This principle was
presented by Mahatma Phule in the n ineteenth century in the words 'if
agriculture improves, the country improves'. Farmers in India have lived
in poverty for years, centuries. Mahatma Phule has elaborated the
scientific reasons behind his poverty in his literature. An important reason
for the poverty of farmers is that all the governments in India so far have
not made any special efforts to improve the conditions of agriculture and
farmers. Lack of education among peasants and this leads to superstition,
godlessness, blind faith, inordinate expenditure on festivals, expenditure
on planetary peace etc.
3.5 SUMMARY Mahatma Phule is called the originator of inclusive economic
development because Mahatma Phule worked throughout his life to
eliminate economic and social disparities between countri es. He has
presented his thoughts through books. According to him, it is more
important to improve agriculture and the factors that lead to the
backwardness of farmers. In this context, Mahatma Phule himself brought
many practical reforms and suggested mea sures on how governments,
farmers and Brahmin classes should behave, so as to improve the
condition of Indian agriculture and farmers. Those amendments are briefly
suggested as follows by Mahatma Phule.
1) Government should build dams at right places and provide water to
farmers at low cost through canals.
2) Toti (meter) should be installed on the water of this canal so that the
farmer has to pay for the amount of water he uses and the water usage
is consistent.
3) The farmer should dig and construct we lls in his fields where there are
water sources and government should proved fund for it. munotes.in

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28 History Of Economic Thought - II
28 4) With the hands of sitting soldiers, small dams should be built in the
farmers' fields on the embankment and on the hills, so that the water
seeps into the soil, t he soil is not eroded, and the wells of the farmers
in the vicinity have water available for twelve months.
5) The government should waive the interest of farmers just as it waives
the interest of big entrepreneurs.
6) Tax should not be levied on farmers ' produce and all taxes on farmers
should be waived during drought.
7) Free education should be made available to all and a person from the
farmer's family should be appointed as a teacher to teach the children
of the farmers.
8) Equal opportunities shou ld be provided to all in government jobs.
9) Seeds of new varieties of food grains and new species of domesticated
and useful animals like goats and sheep should be brought to India
from abroad.
10) Farmers should be protected from wild animals so that t he farmer can
sleep comfortably at night which will improve his health and increase
his productivity and agriculture will not be damaged.
11) The government should periodically organize agricultural exhibitions
at taluka places and send the clever son of t he farmer to foreign
countries at government expense to learn about agriculture in
developed countries.
12) Excessive expenditure on government domestic and foreign
employees should be avoided and the remaining money should be
used for improving agricultur e.
13) Farmers should learn and use their own heads to conduct business and
transactions. No one else's religion should be followed by
superstition.
14) Don't spend excessively on festivals and weddings and celebrations
and don't spoil yourself by fallin g into the trap of planetary peace.
15) Make yourself more enterprising and focus on how to generate more
income by keeping your house clean and producing more.
Mahatma Phule has put forward the ideas that the conditions of Indian
agriculture and farmers can be improved by suggesting reforms etc. The
measures suggested by Mahatma Phule have not yet been fully
implemented in India. So even today, the condition of agriculture and
farmers in our country is seen to be not good as much as Mahatma Phule
required .
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29 Economic Thoughts Of Mahatma Phule 3.6 QUESTIONS Long answer question:
1) Explain the Economic thoughts of Mahatma Phule were for Inclusive
Economic Development of India.
2) Explain the causes of poverty among Indian farmers written by
Mahatma Phule.
Short Answer Questions:
1) Explain in brief th e conditions of farmers in India during pre British
Rule.
2) What are suggestions suggested by Mahatma Phule improvement of
Indian farming and farm conditions.
3.7 REFERENCES 1) Mahatma Jyotirao Phule (2010) “Shetkaryacha Asud” Publisher Dr.
Ashok Gaikwad, S kills Publications, HUDCO Aurangabad.
2) Mahatma Jyotirao Phule (1884) “Ishaara” Mahatma Phule Samagra
Vangmay, Editor, Yashwant Dinkar Phadke, Maharashtra State Board
of Literature and Culture, Mumbai.
3) Mahatma Jyotirao Phule (1855) “Third Gem” Mahatm a Phule
Samagra Vangmay, Editor, Yashwant Dinkar Phadke, Maharashtra
State Board of Literature and Culture, Mumbai.
4) Mahatma Jyotirao Phule (1869) “Brahmananche Kasab” Mahatma
Phule Samagra Vangmay, Editor, Yashwant Dinkar Phadke,
Maharashtra State Board of Literature and Culture, Mumbai.
5) Letters of Mahatma Jyotirao Phule (1991) “Mahatma Phule Samagra
Vangmay”, Editor, Yashwant Dinkar Phadke, Maharashtra State
Board of Literature and Culture, Mumbai.
6) Dhanashree Mahajan (2007) “International Economi cs” Vidya
Prakashan, Aurangabad.
7) Suresh Ghumtkar and Gopal Ghumtkar (2021) “Indian Economy”
Education Publication, Aurangabad.

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30 4
ECONOMIC THOUGHTS OF
MAHATMA GANDHI
Unit Structure
4.0 Objectives
4.1 Introduction
4.2 Mahatma Gandhi's Economic Thoughts on Self Sufficient Village
Economy
4.3 Mahatma Gandhi's Economic Thoughts on Dignity of Labour
4.4 Mahatma Gandhi's Economic Thoughts on Trusteeship
4.5 Mahatma Gandhi's Economic Thoughts on Sarvodaya
4.6 Mahatma Gandhi's Economic Thoughts on Swadeshi
4.7 Summary
4.8 Questions
4.9 References
4.0 OBJECTIVES • To study economic thought of Mahatma Gandhi.
• To study the c oncept of self -sufficient village.
• To study labor dignity, trusteeship, rural economy and Sarvodaya
4.1 INTRODUCTION Mahatma Gandhi is known all over the world as a prominent leader who
played an important role in India's freedom struggle. Mahatma Gandh i has
presented his thoughts from the point of view of economic development of
the country. The ideas of Gandhi about economics are being to studied
here. Mahatma Gandhi's full name is Mohandas Karamchand Gandhi.
Gandhi was born on 2nd October 1869, in Por bandar, of the Gujarat state.
He completed his matriculation education in India and completed his
further education from England. His highest degree is Barrister from
England. Then, Mahatma Gandhi went to South Africa in 1893 in
reference to a case matter. When he saw the unequal treatment among the
black and white, he started fight against the government of South Afrika
by the way of ‘ Satyagrah’ “Struggle for truth”. Mahatma Gandhi came to
the India and first toured India and then started working in the In dian
National Congress. From 1920, Gandhi took all the reins of the movement
run by the Indian National Congress and carried out various agitations in
the form of Satyagraha. Among them, the major movements were
'Asahkar Andolan 1920', 'Dandi Yatra 1930', 'Civil Disobedience', 'Chale
Jav Andolan 1942' etc. Mahatma Gandhi was assassinated by a thug munotes.in

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31 Economic Thoughts Of Mahatma Gandhi named Nathuram Godse on January 30, 1948 after India gained
independence.
Mahatma Gandhi is also known as Father of the nation. After getting
freedom from British Government, he started to focus on the socio -
economic and political issues of the India. He had the vision for the
overall development of the India from rural area to urban area. He was
always against of economic inequality, social inequality regional and
political inequality. He had believed on the equality through trusteeship
and Survoday community. He focused especially on the rural development
to make villages self sufficient.
It can be said that Mahatma Gandhi's thoughts were pragmatic from an
economi c point of view in the context of the then situation. During the
period of British rule and India’s social conditions, the caste system and
high level of poverty existed on huge level. Gandhiji has presented his
economic philosophy by assuming minimum need s and simple living for a
person to be happy in the countries. According to him, ethics and
economics cannot be separated from each other. Mahatma Gandhi's
economic thoughts are based on principles of truth, non -violence, dignity
of labor, simplicity etc. While studying Gandhi's economic thought,
Gandhiji's economy is presented through concepts such as trusteeship,
Sarvodaya and Sarvodaya Samaj, Gramswaraj and self suffiency of
villages, thoughts regarding mechanization, thoughts regarding
decentralization, use of indigenous goods, thoughts regarding dignity of
labor and communist ideology.
Here we are going to study Mahatma Gandhi's views on self -sufficient
villages, labor dignity, trusteeship and Sarvodaya concepts.
4.2 MAHATMA GANDHI'S ECONOMIC THOUGHTS ON SELF SUFFICIENT VILLAGE ECONOMY Gandhiji has proposed the concept of self -sufficient village. According to
him, 'True India lives in the villages', so, he has also given a call to go to
the villages. If the villages develop, the country also develops be cause the
proportion of population living in villages is very high. Earlier in the
villages, the needs of the citizens of the villages were less and they were
fulfilled by villages. Hence, the village was self -sufficient and the people
were happy and conte nted. Therefore, Gandhi wanted such self -sufficient
villages to be created in the country.
The small artisans of the villages were used to make and sell the necessary
goods needed by the people of the village. Foodgrains, vegetables and
fruits were bought from farmers. The money of the village stayed in the
village and there was a practical harmony between them as financial
transactions with each other continued. The people of the villages were
living a happy life. But since the coming of the British govern ment, the
villages have become dependent. Due to the closure of village businesses,
the unemployment specifically disguised unemployment rate among the
people has increased. Gandhi's concept of Gram Swaraj was primarily munotes.in

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32 History of Economic Thought - II
32 based on economically self -sufficien t villages. They expected every
village to be a perfect republic.
Mahatma Gandhi has mentioned some characteristics of an ideal village in
terms of how an ideal village should be.
• Every village should be self sufficient in terms of food and clothing.
• Every village should have proper sewage system and clean roads and
beautify.
• Every village should have schools, clinics, clean drinking water,
community temples and hospices.
• Every village should have playgrounds for children.
• Free basic educatio n should be available to all.
• All industries and businesses in the village should be run on
cooperative principle.
• Gram Panchayat (Local Government) should be administered through
democratically elected members.
• Gram Panchayats (Local Government) should have powers to enact
laws and enforce them.
• A good market should be available in the village.
• Each village should be economically self -sufficient.
• Farmers should produce food grains along with other vegetables,
fruits and cash crops from th e land.
• Emphasis should be placed on providing abundant water to
agriculture by developing irrigation facilities in villages.
Villages in India are beset by many problems today. Such as poverty, lack
of health facilities, lack of education, lack of irri gation, lack of drinking
water, non -availability of roads etc. rural life can be happy only; Mahatma
Gandhi was of the opinion that first of all, emphasis should be placed on
solving this problem. Along with this, rural industries should be revived,
for ex ample khadi industry, soap making, paper making, leather tanning
etc. should be given more emphasis on setting up industries in rural areas.
So that the unemployment created in agriculture especially the disguised
unemployment can be reduced. In all these, Gandhiji laid more emphasis
on increasing Khadi production.
4.3 MAHATMA GANDHI'S ECONOMIC THOUGHTS ON DIGNITY OF LABOUR Just as Annabhau Sathe said while giving dignity to labour, "Earth does
not rest on the head of a cobra, it rests on the palms of hard working
workers", similarly Mahatma Gandhi also gave dignity to labour. Labor is munotes.in

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33 Economic Thoughts Of Mahatma Gandhi an important asset of a country. Importance of labour is not less than
capital. Labor should be worshiped for good health and every man should
do labor for at least two hours a day if he wants to maintain good health. If
not, there is a possibility of deterioration in his health and a happy life can
be destroyed. Gandhi understood labor as a law of nature. A person who
violates this law of nature can surely get into trouble. Ga ndhi believed that
physical labor not only improves health but also increases mental strength.
He believed that one of the sacred duties of man is physical labor. He
considered every work, every profession as equal. The work is not small
or big, every prod uctive work is equally important for the development of
the country. He always felt that a man should get dignity in the society
through labour. He himself did physical labor for at least two hours every
day.
Labor is considered as the major factor of prod uction. To increase the
national income of the country, it is necessary to increase the production
and productive capacity of the country. Labor plays an important role in
increasing productivity and output. As important as engineers, doctors,
managers, pr ofessors, teachers and other employees are manual laborers.
Therefore labor must be given dignity, which was given by Mahatma
Gandhi.
4.4 MAHATMA GANDHI'S ECONOMIC THOUGHTS ON TRUSTEESHIP The concept of Trusteeship has arisen from the idea of Aparigraha . The
tendency not to collect is Aparigraha. According to Gandhiji, the system
in society is the cause of economic disparity. This includes the rich and the
poor who are classified by Gandhiji as the Ahire and the Naher classes.
Ahire means that even thoug h there is no legal restriction on how much
wealth the rich can own, as part of morality and as an approach to get
everything for all, the rich should consistently spend a portion of their
wealth on the poor and not keep more wealth for themselves.
Poverty rate was very high in India and still there is huge poverty among
Indians. After independence, citizens needed to come out of poverty, but
in India, the population of poor or below poverty line is increasing day by
day. There were more poor people in Indi a in 2011 than the population of
India in 1951. On the other hand, it can be seen that there were 102
billionaires in India in January 2021, which increased to 142 in January
2022. That is, on one side the number of billionaires is increasing and on
the ot her side the number of poor is also increasing. In such a situation
Gandhiji's concept of Trusteeship is a guide from a moral point of view.
Gandhiji was a follower of truth and non -violence. Capitalists in India had
and still have huge wealth with them. G andhi did not think it was right to
take away their property by force. Therefore, they constantly wanted to
change the heart of this capitalist class and transfer their wealth to the
poor. By nature, every human being likes to accumulate more and more
weal th. However, these individuals should be informed about the far -
reaching effects on the rest of society if only a few people keep more munotes.in

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34 History of Economic Thought - II
34 wealth for themselves. Mahatma Gandhi thought that those capitalists
should act as trustees and use the wealth for the so ciety. Just as Gandhiji
protested against the British government through non -violence, fought for
freedom, changed the hearts of the British. In this way it was hoped that
the heart of the capitalist classes and the wealthy classes of the country
would be converted and the idea of trusteeship would be inculcated in
them.
According to Mahatma Gandhi, if the idea of trustees is realized, equality
will be established on earth. Because the class struggle will disappear
when the idea of trusteeship becomes a reality. The capitalist class will
take care of the workers. Will it take care of their interests? It will
distribute some share of its wealth to the surrounding poor society so that
the fear of the capitalist class will also disappear and the poor will g et
timely income to meet their needs. There will be a tendency towards peace
and non -violence in the society.
While explaining the importance of concept trusteeship, Gandhiji tells
everyone that, “The World is big enough to satisfy the needs of any
person, but too small to satisfy human greediness”. Therefore, everyone
should reduce his needs and use the rest of his wealth to fulfill the needs
of others, no matter how much wealth he has, he is not satisfied.
After Gandhiji, the concept of Trusteeship was ma inly taken forward by
Vinoba Bhave. There was resentment among the landlord class when land
reforms were being carried out in India and large landlords were handing
over land to smallholders or land labourers. In such a situation, Vinoba
Bhave implemented the land donation movement in India so that instead
of taking the land by law, they should donate the land by making them
trustees.
4.5 MAHATMA GANDHI'S ECONOMIC THOUGHTS ON SARVODAYA Sarvodaya means the rise of all or the welfare of all. Mahatma Gandhi
made the idea of Sarvodaya the basis of his life. According to Gandhi,
Sarvodaya is the panacea for all kinds of political, economic and social
ills. John Ruskin's book 'Un to the Last' was translated by Gandhi as
"Sarvodaya".
4.5.1 Characteristics of the Sarvodaya concept envisioned by Gandhi:
• Welfare of all means Sarvodaya. This means that the well -being of all
includes the well -being of the individual.
• The life of hard workers, farmers, artisans and others should be
happy.
• Everyone's work shoul d be of equal quality. In short, the work and
status of a housekeeper or a lawyer should be equal and the value of
that work should be equal. munotes.in

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35 Economic Thoughts Of Mahatma Gandhi • Every person should have the fundamental right to earn and live.
• Every person should have access to equal op portunities to fulfill their
needs.
• Equality should be achieved for all.
Gandhiji's important role behind the spread of Sarvodaya is the overall
development of the society. If a particular character, a particular caste, a
particular group or a particula r person develops in the society, then the
overall welfare of the society is achieved. So, only if every individual,
every caste and every group gets economic development, then the welfare
of the society and in turn the welfare of the country will be real. Therefore,
Gandhiji wanted Sarvodaya society to be established and work to be done.
4.5.2 Conceptual aspects of how Sarvodaya society should be:
• People in Sarvodaya society will live in equality.
• All castes and religions will be respected.
• Will b e committed to overall development of the society.
• There will be no untouchability in this society.
• All will have equal access to education.
• There will be no conflict between workers and employers.
• There will be no conflict between landlords an d clans.
• There will be more scope for small enterprises and there will be limits
to the expansion of large enterprises.
• Labor intensive production techniques will be increasingly used in
industries.
4.5.3 Program Bulletin of Sarvodaya:
• Workers and farmers should form their own organizations so that
workers are not exploited by capitalists and farmers by landlords in
any way.
• Concrete measures should be planned to increase the standard of
living of the farmers and working class of the country.
• Education and technical training should be provided to every section
of the society and adults during non -work hours.
• Efforts should be made to set up industries in rural areas to develop
backward villages and rural areas as a whole.
• All infrastruct ure facilities should be provided in rural areas.
• Special focus on health and sanitation in rural areas. munotes.in

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36 History of Economic Thought - II
36 • Development schemes of the government should aim at self -
sufficiency of rural areas or villages.
• Every family in the rural areas if spinning b usiness along with their
main business will increase their income and improve their economic
condition.
• Special efforts should be made to establish economic equality in the
country.
• Harmony should be created between different religions and castes.
• All forms of power should be decentralized.
• All useful services should be nationalized.
As Mahatma Gandhi was assassinated within a few days after the
independence of the country, the concepts of Sarvodaya and Trusteeship
which he had decided did not a ctually materialize for the overall
development of the country. The ideas of Sarvodaya or Trusteeship did not
materialize in India as the government established after him did not plan in
this way on a large scale. To some extent there were efforts towards
completion of some matters by Vinoba Bhave and Jaiprakash Narayan
after Gandhiji. But it does not appear to have been a complete success.
4.6 MAHATMA GANDHI'S ECONOMIC THOUGHTS ON SWADESHI Mahatma Gandhi made it clear that the citizens of India should buy and
use only the goods produced in the country. Domestic goods should be
used instead of foreign goods, even if domestic goods are expensive
compared to foreign goods and are inferior in quality. Because, by using
the goods of the country, more workers are created in the industries that
produce those goods in the country, the production increases, the income
of the nation increases. Money that goes abroad from the nation is saved.
It can be used by the nation for social welfare. Before the British came to
India, India had very little international trade. The import of foreign goods
into the country was minimal. Therefore, the small entrepreneurs and
artisans of the country used to get a large amount of employment. Their
income would increase. As their income increased, the production of
farmers was in demand. But due to the increase in the use of imported
goods by the citizens of the country, the financial wealth of our country
started going abroad and the country and the people of the country became
poor. So every Indian should use indigenous products. While doing this,
Gandhiji is found to have burned foreign goods.
4.7 SUMMARY Mahatma Gandhi has presented important ideas for the economic
development of the country. Which we study from the point of view of
Mahatma Gandhi's economic thought. Mahatma Gandhi is a pioneer in
fighting for freedom through truth and non -violence. All Indians should munotes.in

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37 Economic Thoughts Of Mahatma Gandhi use indigenous products. A person should become a fiduciary which
means that whatever amount of wealth comes one should try to distribute
it equally among others without hoarding it. Also, thoughts are presented
in the context of reducing economic disparity. Gandhiji proposed the
concept of Sarvodaya Samaj from the point of view of creating Sarvodaya
Samaj. India is still referred to as the country of villages. The proportion
of population living in villages in India is still up to 68 percent. If these
villages are developed and self -sufficient, India will hav e an all -round
development. Therefore, the idea of 'Going to the village' and bringing
development to the villages has been proposed. Gandhi was opposed to
total mechanization but he was not completely against mechanization. So
they wanted mechanization to be based on labor intensive technology.
Gandhiji has advised farmers, farm laborers and every businessman in
rural areas to have a second business along with their main business. The
important thing is that if everyone does the business of spinning yarn , his
income can increase.
According to critics, the economic ideas propounded by Mahatma Gandhi
are idealistic ideas like Trusteeship, Sarvodaya etc. In reality, however,
there are very few people who act on these ideas. Therefore, even though
Mahatma Gan dhi has put forward these ideas, no entrepreneur or capitalist
or rich person is seen following this idea. On the contrary, capitalists are
seen doing the opposite. Even though India has completed 75 years of
independence, poverty has not been eradicated f rom India. And on the
other side, the number of billionaires has reached 142. Such a chasm of
economic disparity is widening in the country. Social disparity is also
found to be large.
4.8 QUESTIONS (Long question)
1) Explain Mahatma Gandhi's economic th ought.
2) Elaborate Mahatma Gandhi's views on trusteeship.
(Short questions)
1) State the concept of Sarvodaya and write its characteristics.
2) Explain Mahatma Gandhi's concept of self -sufficient.
3) How will the country develop through the use of Sw adeshi?
4.9 REFERENCES 1) Mohanchand Karamchand Gandhi (2011 edition) “Sarvodaya” (Un to
the Last Ka Sar) Sasta Sahitya Mandal Prakashan, Mumbai.
2) Raikhelkar and Damaji (2022) “History of Economic Thought” Vidya
Book Publication, Aurangabad. munotes.in

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38 History of Economic Thought - II
38 3) J.C. Kumarappa, “Gandhian Economic Thought” Sarva Seva Sangh
Publication, Varanasi. www.mkgandhi.org
4) Amandeep Kaur (July 2022) “Doctrine of Trusteeship and Sarvodaya
Relevance of Gandhiyan Philosophy in Modern Econom y”
International Journal of Creative Research Thoughts,
file:///C:/Users/NEW/OneDrive/Desktop/Book%20for%20
5) Suresh Ghumtkar and Bhagyashree Ghumtkar (2022) “Status and
Policy Affirmat ions of Economic Inequality in India” Arthsanwad,
www.marathpari.org

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39 5
ECONOMIC THOUGHT OF
DR. B. R. AMBEDKAR
Unit Structure
5.0 Objectives
5.1 Introduction
5.2 Dr.Ambedkar's Case for State Socialism
5.3 Problem of Rupee
5.4 Public Finance
5.5 Summary
5.6 Questions
5.0 OBJECTIVES  To help the learner comprehend the Economi c Thought of Dr.
B.R.Ambedkar.
 To enable the learner understand and analyse Dr. Ambedkar’s views
on State Socialism, Problem of Rupee and Public Finance
5.1 INTRODUCTION Bhimrao Ramji Ambedkar (14 April 1891 - 6 December 1956) was an
Indian jurist, econo mist, social reformer and political leader who headed
the committee drafting the Constitution of India from the Constituent
Assembly debates, served as Law and Justice minister in the first cabinet
of Jawaharlal Nehru, and inspired the Dalit Buddhist movem ent after
renouncing Hinduism.
Ambedkar graduated from Elphinstone College, University of Bombay,
and studied economics at Columbia University and the London School of
Economics, receiving doctorates in 1927 and 1923 respectively and was
among a handful of Indian students to have done so at either institution in
the 1920s.He also trained in the law at Gray's Inn, London. In his early
career, he was an economist, professor, and lawyer.
His later life was marked by his political activities; he became involve d in
campaigning and negotiations for India's independence, publishing
journals, advocating political rights and social freedom for Dalits, and
contributing significantly to the establishment of the state of India. In
1956, he converted to Buddhism, initia ting mass conversions of Dalits.
In 1990, the Bharat Ratna, India's highest civilian award, was
posthumously conferred on Ambedkar.
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40 History of Economic Thought - II
40 5.2 DR.AMBEDKAR'S CASE FOR STATE SOCIALISM State socialism is one of the alternative approaches for the development of
all the sections of society. It can act as a solution to the problems inherent
in capitalism and socialism. Ambedkar strongly believed that the
involvement of state is essential for economic development. He believed
that the state should take a proactive rol e in development so that the
vulnerable and the poor can be benefitted.
State socialism provides better opportunities to communities and also
curbs regional inequalities and exploitation of masses. Ambedkar believed
that division and unequal distribution of resources was the main cause for
suppression and exploitation of masses. So long as the exploitation exists
in the system, the development would be impossible and a dream. Only
the state could reduce this exploitation through state socialism.
Ambedkar b elieved in placing ‘an obligation on the State to plan the
economic life of the people on lines which would lead to highest point of
productivity without closing every avenue to private enterprises and also
provide for the equitable distribution of wealth. ’
Accordingly, Ambedkar suggested an economic policy framework aimed
at providing protection to the vulnerable sections of society against
economic exploitation. This plan, elaborated in Clause 4, Article 2 of his
Memorandum to the Constituent Assembly, is outlined as follows:
• Agriculture would be State industry.
• Key industries would be owned and run by the State.
• A life insurance policy would be compulsory for every adult citizen.
• The State would acquire the subsisting rights in agricultural l and held
by private individuals as owners, tenants or mortgages, key and basic
industries and the insurance sector and compensate the owners by
issuing debentures.
• The agricultural land acquired would be divided into farms of
standard size and would be let out to residents of villages as tenants
without distinction of caste or creed.
Ambedkar’s plan thus proposes state ownership of agriculture with a
collectivised method of cultivation and a modified form of state socialism
in the field of industry. Acco rding to Ambedkar:
Consolidation of holdings and tenancy legislations are worse than useless.
They cannot bring about prosperity to agriculture. Neither consolidation
nor tenancy legislation can be of any help to landless labourers.
Industry and agricultur e should go together in the current state of
development. The agriculture sector is witnessing a low level of
productivity and the productivity of labour has been declining with the
advancement of various forces. With the spread of technology and the munotes.in

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41 Economic Thought Of Dr. B. R. Ambedkar adven t of market forces, the agriculture sector and small industry are at
stake. Profitability and sustainability have become a question.
Ambedkar rightly advocated that the state must address such issues. While
addressing the issues of the poor and the margin alised, the state has to take
initiative in providing basic resource distribution. Hence, it can be argued
that state socialism is one of the alternative approaches to bring about
equal distribution of wealth and welfare to the masses.
In the Indian contex t, the post -reform period has bridge the gap between
poor and rich, between class and caste. This is the epoch of affirmative
action by the government. Alternative opportunities are now available to
the masses and the marginalised sections. However, unfort unately, this has
not effectively happened with an active role of the state. So, as rightly
stressed upon by Ambedkar, it is the need of the hour for the state to take
an active and lead role.
5.3 PROBLEM OF RUPEE Ambedkar was a monetary economist. He obta ined a doctorate from
London School of Economics in 1923 under the supervision of Prof.
Edwin Canaan. His thesis, “The Problem of the Rupee: Its Origin and
Solution” was on the problems of the rupee, and was published in book
form in 1923. In his thesis, A mbedkar examined the causes for the rupee’s
fall in value.
The main focus of his thesis in London School of Economics (LSE) was
on managing Indian monetary affairs. Unlike J.M. Keynes who favoured
the gold exchange standard, Ambedkar favoured the gold stan dard. He
looked into the problems of the rupee at a time when there was a clash
between the colonial administration and Indian business entrepreneurs
over the value of rupee. Indian businessmen blamed the colonial
administration for maintaining an overvalu ed exchange rate of the Indian
currency to support British exporters who sold goods in India. The
Congress supported Indian entrepreneurs and demanded devaluation in the
Indian currency. Eventually, London agreed to set up the Hilton Young
Commission to lo ok into the matter. When this commission, then known
as the Royal Commission on Indian Currency and Finance, came to India,
each of its members was holding the book, The Problem of Rupee: Its
Origin and Its Solution, which Ambedkar wrote in 1923.
In his bo ok, Ambedkar raised the following basic questions:
• Should India stabilise its exchange?
• What should be the ratio at which India should stabilise its exchange?
Ambedkar argued in favour of limited devaluation of rupee, somewhere in
between the then pr evailing exchange rate and the point of agreement
between the Congress and British colonial administration. He said that this
limited devaluation would help both the business class as well as the
earning class. A devaluation of currency increases inflation . A steep munotes.in

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42 History of Economic Thought - II
42 devaluation results in steep inflation which reduces real wages of the
earning class. Ambedkar, in his statement to the Royal Commission said:
The more important point is, supposing that there is a gain arising from
low exchange, where 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 posited the following facts before the commission to reform the
Indian currency:
• Coinage of Indian rupee should be stopped absolutely by closing the
mints.
• Minting of gold coin should be opened for the coinage of a suitable
gold coin.
• Ratio between the g old coin and rupee should be fixed.
• Both the rupee and gold should not be convertible to each other but
they may be circulated as unlimited legal tender at a ratio fixed by
law.
Problems of Rupee :
i) Double Standard in Mughal Period :
The Indian money c onsisted of both gold and silver in the mid -eighteenth
century. Hindu emperors supported gold coins while Muslim emperors
favoured silver ones (Princep 1834). For example, in south India, a silver
coin, pagoda, was used as a medium of exchange. Hence both the gold
mohur and the silver rupee were in circulation without any fixed exchange
ratio between them. Further, different kingdoms in India decided the
minting quality of coins; hence metallic contents differed considerably
across kingdoms. As a result, th e currency lost its primary quality of
general and ready acceptability.
A common medium of exchange between the coins in circulation being
absent, plurality of medium of exchange created problems in trade. It
encouraged barter trading in the markets. The s ociety suffered from
diseased money which drove away good money. Consequently Indian
economy suffered significantly.
The value of the coin circulated in the Mughal period depended on the
fluctuation in the value of metals. When the value of gold increased more
than its value when the coin was minted, the circulation of the gold coin
got reduced because people would store gold coins at home instead of
using them. Similarly, when the value of silver increased more than its munotes.in

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43 Economic Thought Of Dr. B. R. Ambedkar value at the time of fixation of the proportion of gold and silver, the
circulation of the silver coin got reduced because people would store the
silver coins at home instead of using them. This fluctuation in the relative
value 14 Economic Philosophy became a continual problem for trade.
Traders started demanding circulation of monometallic coins in place of
bimetallic ones.
ii) From Double Standard to Silver Currency :
In 1833 an Imperial system of administration was set up by an Act of
parliament which centralized all legislative and execu tive authorities over
India. It replaced local coinage by imperial coinage. Therefore, a common
currency, as a sole legal tender, was introduced in India by an Act of the
Imperial government (XVII of 1835), which is also known as the Currency
Act of 1835. According to this act, no gold coin was permitted as a legal
tender of payment in any of the territories of the East India Company. This
was a turning point in India’s monetary reforms because monometallic
silver, 180 grains in weight, became the sole lega l tender throughout the
country. Adoption of silver coinage decreased the revenue collected
through seignorage (tax collected on total price of a coin including metal
contents and production cost). It created a commercial problem in trade,
which was demand ing credit that could not be met by silver coinage due to
insufficiency of supply of silver.
iii) Free Banking System :
In the nineteenth century, India followed the free banking system in which
every bank was empowered to issue notes. However, notes issued by the
Presidency Bank enjoyed more acceptances by the Government for
revenue repayment. In 1920, by the Banking Act XLVII, three Presidency
Banks were amalgamated into one bank, called the Imperial Bank of India.
No discretion was left to the Government regarding paper currency. The
Government was empowered to regulate silver mining. According to law,
Rs. 979 only could be issued against 1000 to lakh of silver coins. The
Indian Paper Currency Law was able to control the volume of issue of
notes. Banks wer e empowered to invest Rs. 4.00 crore in 1861, Rs. 6.00
crore in 1871 and Rs. 8.00 crore in 1890. Denominations of 10, 20, 50,
100, 500and 1000 notes were being issued in 1861. However, even the
lowest denomination (Rs. 10) was too large to displace the met allic
currency. Perhaps this was the reason why the paper currency could not
have as much share as silver coins in total circulated currency (i.e. silver
coins plus paper currency). A 5 - rupee note was issued for the first time in
1871.
iv) Lack of Univers al Encashability :
The country was divided into different circles for issuing paper currencies.
Paper currencies were encashable only in the circle office from where they
were issued. They were not encashable in another circle. Thus the Indian
paper curren cy lacked universal encashability despite being legal tender.
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44 History of Economic Thought - II
44 v) Irregular Supply of Money :
Both the demand and the supply of money should be kept equal, to keep a
check on prices. But in any economy, the demand for money can never be
pre-determined beca use it depends on the population, trade and seasonal
variations (for example, demand is slack in summer and brisk in autumn).
Only money supply can be adjusted according to the fluctuation in the
demand for money. Financial management involves managing cir culation
of both metallic and paper money. But the Indian Paper Currency Act did
not permit an increase in supply beyond a limit. Paper notes became
inelastic in nature. The demand for money, Financial Management and the
Problem of Rupees 15 therefore, inc reased substantially, more than the
supply because the purchasing medium of exchange is a function of both
money and credit. It resulted in more demand for metallic money than for
paper currency because the supply of the latter was restricted and inelastic .
vi) No Cheque System :
Credit was given in cash, not by cheque. This created a shortage of
liquidity in banks.
vii) No Connection between Treasury and Banking Operation :
The government treasury operated independently without any connection
with the bank ing operation.
viii) Inelastic Credit Media :
Amount of credit in operation was limited due to unavailability of cheque
system and limited paper currency. This severely affected purchasing
power.
ix) Low Profit Margin to Businessmen ;
Businessmen dependent on banking operations for borrowing capital were
subjected to seasonal fluctuations. Their profit margins could be wiped out
because of the fluctuations. A sudden rise or fall in the rate of discount
resulted in under trading or over trading. This increas ed business risk.
x) Rupee -Sterling Exchange Variation :
Both the Indian silver rupee and England’s gold were made of different
metals which were subject to vary in value over a period of time.
However, the exchange rate was almost steady up to 1873 at th e ratio of 1
to 15.5, but after that, the value of the Indian rupee fell substantially
because of demonetization of silver in the international market and less
production of silver. It affected trade between the two countries. India paid
a higher amount of gold to England due to appreciation of gold value.
Consequently British administration in India increased taxes to raise
revenue.

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45 Economic Thought Of Dr. B. R. Ambedkar xi) Switching over to Gold Standard :
India was following the silver standard while most of the prominent
countries were fol lowing the gold standard. Under the prevalent system,
the Government was to pay in rupees in return for gold, in every case, and
gold for rupees only in case of foreign remittances (Lindsay Committee
1898). The Government of India had two reserves of curre ncies -paper
currency reserve and gold standard reserve. The difference between the
two is summarized in the following table:
The paper currency reserve was held fully in rupees while gold standard
reserve was held partly in gold and partly in rupee. The go ld reserve was
in the possession of the secretary of state located in London and the rupee
reserve was in the possession of the 16 Economic Philosophy Government
of India located in India. The secretary of state was empowered to sell
“Council Bill” when th ere was a want of rupee and the Government of
India was empowered to sell “Reverse Council” when there was a want of
gold. The basic points of the Indian currency system can be cited below.
• The gold sovereign was a full legal tender.
• The silver rupee was also a full legal tender.
• The Government of India undertook to give rupees for sovereigns but
did not undertake to give sovereigns for rupees, that is, rupee was an
inconvertible currency, unlimited in issue.
5.4 PUBLIC FINANCE Ambedkar examined the changes in administration and finance of the East
India Company during the period 1792 to 1858, which led him to conclude
that colonial rulers had imposed injustice on Indians. His detailed analysis
of gross revenue and expenditure of colonial India revea led that the
company had surplus revenue for 36 years and was in deficit for the
remaining 30 years, though the combined surplus was in excess of the
combined deficit. The main reason for the deficit was that money was not
saved in India. It went as a trib ute and dividends to company shareholders.
The money flow was not sufficient in India to pay to dividends and it had
an impact on increasing debt or public debt of India.
The Indian debt was increased because the company borrowed money.
There were two ways to raise loans:
i) Within India by accepting exchange of loan notes
ii) Home bond debt raised in England by issuing bonds.
Ambedkar had found that the Indian debt rose from 70 lakh pounds to 607
lakh pounds, an increase of 767 per cent in the years 179 2-1857. However,
the Home bond debt never exceeded 66 lakh pounds during the years
1800 -1857. The surprising fact was that Indian debt was more than home
bond debt. The Home bond debt did not increase because the English munotes.in

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46 History of Economic Thought - II
46 parliament’s regulation limited the borrowing capacity of East India
Company.
The tax that the British government imposed on land was not only
excessive; it was fluctuating and uncertain in many provinces. The tax rate
for Indians ranged from 80 to 90 per cent while in England it was betwee n
5 and 20 per cent for 100 years up to 1798. The British government
generated huge revenue during the period 1792 -93 to 1885 -86. The major
components of average revenue are given below:
• Land tax: 54 per cent
• Tax on salt: 11per cent
• Opium duties: 8.7 per cent
• Customs duty: 6.2 per cent.
During the period 1800 -1857, the British government spent between 45
per cent and 64 per cent of expenditure on military alone, whereas they
spent negligible amount on public works in India. Ambedkar quoting John
Bright wrote that a single city of Manchester in England had spent more
on a single item, water, than the money spent on all kind of public works
in India.
The British administration and finance of East India Company benefited
from financial settlement. T he East India Company ceased to be a
commercial corporation as per the Act of 1834. After this Act, the
company benefited in the following ways:
• 15 per cent payment for territorial charges to England
• 12 per cent for liquidation of part of home debt
• 13 per cent for redemption of capital stock of the company
The public debt of India was entirely due to wars and India had to bear the
burden of debt. The company had spent 6,94,73,484 pounds on wars and
this unproductive expenditure was placed on the sh oulder of the poverty -
stricken Indians. The revenue from India was spent outside India for non -
Indian purpose. Ambedkar dissected the Act of 1858 and showed it to be
unfavorable to India and having evil administrative objectives such as
autocracy, secrecy and irresponsibility towards Indians.
From an economic point of view, India contributed immensely to the
prosperity of England but did not get any economic benefits in return.
England’s contribution lay in the uneconomic realm, such as maintenance
of peace , introduction of western Education, building modern institutions
including administrative and judicial system.
Ambedkar’s contribution to the field of public finance and his earlier work
on administration and finance of East India Company gave substantive
inferences and criticism. He further developed his Ph. D thesis on the
Evolution of Provincial Finance in British India. This work explores the munotes.in

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47 Economic Thought Of Dr. B. R. Ambedkar central -state financial relationship in British India during the period 1833 -
1921. He criticized the British go vernment for its excessive revenue
collection through taxation; however a poor country like India had limits
to taxation. As the result, the problem of equitable distribution of burden
on various forms of government such as the central, provincial and loca l
government assumed significance.
The centralization of government finances was a failure on account of
faulty fiscal system marked by injurious taxes and extravagant
expenditure. The financial system collapsed due to imprudent and unsound
fiscal policy. British India suffered its fiscal malady during 1792 -1870
mainly because of the inadequacy of imperial system of finance. Financial
inadequacy resulted in chronic budget deficit.
Ambedkar in his study cautioned the British government that chronic
budget de ficit should be corrected not only by increasing the revenue, but
also by increasing the stability and productivity of the nation. The taxing
capacity of the country must give the benefit to the treasury and the
people. He observed that land tax in India w as very high which prevented
the prosperity of agriculture. Custom taxes hampered Indian
manufacturers; internal and external customs blocked trade and repressed
industry
He urged that tax was not equitable: landlords enjoyed conspicuous
consumption and le d a life of leisure while exploiting poor tenants.
European civil servants reveled in the many exemptions and privileges and
lived with pomp, while the Indian poor was harassed by taxes on salt and
other items. The government was unable to alleviate the bu rden of taxes
from the injurious revenue system. Ambedkar argued that when revenue
laws are harmful to the people, the government can only blame itself for
its empty treasury. The bulk of government revenue rose out of injurious
taxes and it spent them on unproductive uses. The government wasted
between 52 and 80 per cent of its revenue on war services. The salary of a
European soldier was four times higher than that of an Indian. Though the
war was fought in the name of peace, it did not bring any progress .
Education formed no part of the expenditure incurred and useful public
works were far and few between. There were no long term plans in the
imperial budget for the following sectors:
• Railways
• Canals for navigation
• Irrigation
• Other aids to the deve lopment of commerce and industry
A weak economy and chronic deficit prevailed in 1833 when the
centralization of imperial finance and government was established. The
imperial administration was not de jure but de facto. Administration of
provinces was unde r the primary units of executive and the Imperial
administration was the co -coordinating authority. The dichotomy was munotes.in

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48 History of Economic Thought - II
48 dangerous for government finance. The expenditure budget was prepared
by provincial governments but the responsibility of finding resource s
rested on the government of India, with the result that the government of
India came under financial strain. It was then realized that the provincial
governments must draw up their own revenue and expenditure budget. In
1871 provincial budgets came into force.
Ambedkar observed that in Budget Assignment, there were high taxes and
inequitable taxation; the imperial government reduced income tax due to
outcry of the richer classes which led to additional deficit, hence it
curtailed the assignments of the pr ovinces. The provinces therefore, had to
resort to higher taxation and again impose tax and cesses on an already
overburdened class of tax payers, namely landholders. As a matter of
justice, the income tax should have been under the state for their relief.
This justice was absent for a long time from Financial Secretariat of
Government of India. Ambedkar criticised in a healthy way the financial
inadequacy of the new arrangement; the government had not been able to
marshal in the two revenue sources properl y, viz. land
Critique on Monetary Economy in Colonial India :
At the time two types of money systems were in use: silver standard and
gold standard. Due to uncertainties in international exchange rate, it was
difficult to define how much gold was equal to h ow much silver. The
exchange rate between the rupee and the sterling was stable at 1 Rupee = 1
shilling and 10 -1/2 pence prior to 1873 and its reflections in the exchange
rate between gold and silver was 1 to 15 -1/2. However, after 1873, the
rupee - sterli ng parity was dislocated, which resulted in gold -silver
exchange ratio losing its growth.
Since India, a silver standard country was bound to a gold standard
country, in reality, the economic and financial life of India was controlled
by relative values of gold and silver, which governed the rupee -sterling
exchange. It was obvious that if India had to make gold payments to
England, India had to bear the burden of the increasing value of gold. The
payments included the following:
• Interest on debt and stock of guaranteed railway companies
• Expenses on European troops maintained in India
• Pension and non -effective allowances payable in England
• Cost of home administration
• Supplies purchased in England for use or consumption in India
Because of the appr eciation of gold value (more than the revenue from
India), a high tax and rigid financial economy was imposed to compensate
for the increase in the cost of sterling. The English investor did not invest
in Indian rupee securities due to fall in the gold val ue of silver and fall in
the gold value of rupee securities. Even Indian trade and industry was
affected by the fall in the value of rupee; ultimately foreign trade showed munotes.in

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49 Economic Thought Of Dr. B. R. Ambedkar significant buoyancy, not Indian trade. The central government treasury
was diminish ing by the loss due to exchange. The fall of exchange and
instability of silver, both affected the fixed income groups, including a
large section of Indian people, government, and Europeans. So to establish
stable monetary conditions, restoration of common standard of value was
needed.
Ambedkar was in favour of a gold standard and criticized Keynes who
favoured a gold exchange standard, because gold exchange standard does
not have the stability of the gold standard. In the gold standard, additions
to the su pply of currency are so small that the stability of the standard does
not get affected. On the other hand, in the gold exchange standard, the
supply of currency is dependent of the will of the issuer and hence its
stability is more easily jeopardized. This was evident in India where,
prices varied much less under the gold exchange standard.
5.5 SUMMARY In this unit we have discussed Ambedkar’s views on state socialism and
his contemplation towards the emancipation of human welfare and his
deliberation on al ternatives to capitalism and socialism. Ambedkar’s state
socialism is an alternative to both capitalism and socialism. His economic
system aims to achieve the ideals of socialism in a parliamentary form of
democracy. He balances both economic equality and social equality in his
scheme of development. He is concerned with both production and
distribution of wealth. Ambedkar argues for state ownership of agriculture
and key industries. The state has to mimic a welfare state in minimizing
the social and econom ic inequalities among people. In this time of
globalization, Ambedkar’s economic insights ensure economic growth
along with social justice. We have learned how B. R. Ambedkar looked
into the problems of the rupee at a time when there was a clash between
the colonial administration and Indian entrepreneurs and businessmen over
the value of rupee. The Indian rupee was suffering from a number of
problems.
We have also learned how B. R. Ambedkar looked into the problems of
the rupee at a time when there was a c lash between the colonial
administration and Indian entrepreneurs and businessmen over the value
of rupee. The Indian rupee was suffering from a number of problems.
We also leaned Ambedkar’s views on public finance, which helped us to
understand how India was thus forced to remain an underdeveloped
country because its resources were exploited by England for its own
economic development.



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50 History of Economic Thought - II
50 5.6 QUESTIONS 1. Critically analyse Ambedkar’s economic views on an alternative to
capitalism and socialism
2. Compare state socialism and mixed economy system. At the present
state of development, which one do you think would be a better
solution for development?
3. What problems were being faced by Indian currency before
independence?
4. Discuss Ambedkar’s vies on Publi c Finance.

*****

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51 6
ECONOMIC THOUGHT OF G. K.
GOKHALE AND DR. MANMOHAN SINGH
Unit Structure
6.0 Objectives
6.1 G.K.Gokhale: Introduction
6.2 G.K.Gokhale on Development and Welfare
6.3 Dr. Manmohan Singh's ' Three Steps' to Stem India's Economic Crisis
6.4 Summary
6.5 Quest ions
6.0 OBJECTIVES  To help the learner comprehend the Economic Thoughts of
G.K.Gokhale and Dr. Manmohan Singh
 To enable the learner understand and analyse Economic Thoughts of
G.K.Gokhale and Dr. Manmohan Singh
6.1 G.K.GOKHALE: INTRODUCTION Gopal Krishna Gokhale CIE was an Indian 'moderate' political leader and
a social reformer during the Indian Independence Movement. Gokhale was
a senior leader of the Indian National Congress and the founder of the
Servants of India Society.
Gokhale's economic and social ideas constitute a part of his political
thinking. He was not an economist in the strict sense of the term. Neither
was he a social thinker with deep sociological insight. However, as a
leader of the Congress and as a member of the legislature Gokhale had to
ponder over many socioeconomic issues of the time which, in turn, gave
birth to his economic and social ideas. These ideas reflected his way of
thinking which considerably influenced the process of social change of his
time.
6.2 G.K.GOKHALE ON DEVELOPM ENT AND WELFARE Gokhale’s economic ideas owed much to Justice M.G. Ranade and Prof.
List, a German economist. Both Ranade and List differed from the
classical economists such as Adam Smith and Ricardo. Ranade argued that
'Political Economy being aHypotheti ca1 Science, its propositions are not
based upon axiomatic truths like those of Euclid and do not absolutely and
universally hold good, like the latter, true in all times.' munotes.in

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52 History of Economic Thought - II
52 Therefore, if a particular economic policy was suited to England it was not
necessa rily valid for India as well. It was on this ground that Ranade
opposed the policy of free trade in India as advocated by the classical
English economists. Ranade argued that it was not the policy of free trade
but that of protection which India needed. Ra nade noticed that in Germany
it was because of state initiative that the country was able to transform
itself into a first rate modern power, and hence he pleaded that the state
should take initiative in accelerating the process of industrialization. Like
Prof. List, Ranade thought that the trade policy of the country is integrated
with its general economic policy and therefore he felt that 'the government
should guarantee or subsidise private efforts till private enterprise could
support itself... should a dvance loans to private capitalist at low interest
and help them in the choice of places and the selection of the form of
investment.' According to Ranade, the grave problem before India was
that of poverty and it could not be removed until the process of
industrialization set in. The policies of free trade, open competition, as
followed by the British administrators were not conducive to the growth of
industrialization in India and hence Ranade advocated state intervention in
the economic life of the Count ry.
Gokhale made a careful study of Indian finance from1 1874 to 1909
dividing this period into four phases comparing the growth in expenditure
with the growth of revenue. On the basis of his study Gokhale concluded
that the growth in expenditure tended to more than the growth in revenue,
whereas in fact it was essential to keep the two in balance. Moreover,
there was no point in having a surplus budget while the budget of the
common man failed to balance itself.
During a period of budgetary surplus, Gokha le recommended that the state
adopt the following measures:
i) A reduction in state demand on land by 25 to 30%
ii) The creation of a fund of million sterling to rescue the Indian
agriculturists from the load of debt
iii) The activisation of co -operati ve credit societies through establishing
agricultural banks on Egyptian model
iv) The promotion of industrial and technical education and the
sanctioning of the increased expenditure for this purposes
v) Free and compulsory primary education, vi) improvem ent of the
finances of the local bodies
It is evident from the above proposals suggested by Gokhal that he was of
the opinion that it was of no use to have surplus budget when the budget
of the common man failed to balance itself. If there was to be a surp lus
budget the surplus must be devoted to the work of promoting development
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53 Economic Thought Of G. K. Gokhale And Dr. Manmohan Singh Gokhale was also aware of the state of the agricultural life in India. He
saw that the agricultural industry in India was in a serious depression and
the cr op yield per acre was low. In such circumstances he resented the
increase in the land revenue demanded by the state. He made it clear that
he regarded land revenue and the indirect taxes as together placing an
unbearable burden on the poor. He wanted the s tate to give importance to
irrigation and scientific agriculture as measures for agricultural prosperity.
He disapproved the excise duty on cotton textiles which in his opinion was
imposed to counter balance the duties on imports. Gokhale thought that
such a duty further burdened the poor.
Following the German economist Prof. List, Gokhale pleaded protection
for the new industries in India on the ground that she was an industrially
backward country. Gokhale observed: "...he (List) says that when a
country i s industrially backward ... comes into voriex of universal
competition -competition with countries which use steam and machinery...
in their production -the first effect is to sweep of local industries and the
country is thrust back on agriculture for some t ime. But then, he says,
comes in the duty of the state. When such a situation is reached, the state
should step forward and by a judicious system of protection it should
foster such industries as are capable of being fostered so that the country
may once a gain enter on its industrial path with the aid of the latest
appliances and ultimately stand successfully the competition of the whole
world. India should follow this advice of List.' In short, Gokhale stood for
the industrial development, advocated state initiative to further the process
of industrialization, demanded protection for infant industries and thus
paved the way for capitalist development.
Gokhale did not stop at merely criticizing the fiscal policy of the
government but also advocated the cause of Swadeshi. However, he did
not identify Swadeshi with boycott. To him the Swadeshi movement was
both a patriotic and an economic movement. So far as its patriotic aspect
concerned it meant devotion to motherland but the movement on its mate.
It ensured a ready consumption of such articles as were produced in the
country and furnished a perpetual stimulus to production by keeping up
the demand for indigenous thing. To - Gokhale the question of production
was a question of capital, enterprise and skill - and whoever could help in
one of those fields could be called a worker in the Swadeshi cause.
Gokhale did not mind even to seek governmental co -operation in the cause
of Swadesh. Through the Swadesh movement Gokhale sought to lay the
foundations of indigeno us capitalism.
In the sphere of social reforms Gokhale sided with Ranade. Like Ranade,
Gokhale also believed that social reforms must go along with political
reforms. As early as in 1890 Ranade had advocated certain reforms viz.
(i) Not more than a year' s income should be expended on the marriage
ceremonies of son or daughter;
(ii) That the boys should not be married before the ages 16, 18 or 20 and
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54 History of Economic Thought - II
54 (iii) Polygamy should be prohibited;
(iv) No one should mar ry after the age of 60;
(v) That efforts should be made to promote female education.
By and large Ranade believed that all these reforms should be introduced
gradually, and the state might be utilised to bring about social change
through legislative pro cedure whenever it was absolutely necessary. But
on an average, Ranade believed, that 'popular initiation' rather than
'imposed laws' would be helpful in reforming the society. However, it
must be noted here that Ranade was not totally against the state -
intervening to promote social reforms as Tilak was.
Gokhale followed Ranade in this respect. He was of the opinion that the
state must help the progressive elements in the society. He thus supported
the motion on the Civil Marriage Bill. With the support of an influential
and enlightened minority Gokhale wanted the state to proceed with
measures of social change.
Gokhale suggested free and compulsory elementary education for the
masses. To him the elementary education meant something more than a
mere capacit y to read and I write. It meant the greater moral and economic
efficiency of the individual -and hence he strove hard to insist on
compulsory free education. He also suggested the prohibition of liquor and
other measures of public health so as to remove hin drances and hardships
from the path of the development of individual personality.
6.3 DR. MANMOHAN SINGH'S ' THREE STEPS' TO STEM INDIA'S ECONOMIC CRISIS Dr. Manmohan Singh listed out a three -step solution to stem the current
economic crisis and restore no rmalcy.
First of the three immediate steps is to "ensure people's livelihoods are
protected and they have spending power through a significant direct cash
assistance".
The second remedy according to Singh is to make available sufficient
capital for busines ses via "government -backed credit guarantee
programmes".
For the third step, he recommends "institutional autonomy and processes"
for fixing the country's financial sector.
According to him, deep and prolonged economic slowdown" was
"inevitable", however, words like 'depression' should not be used in a
cavalier fashion. This economic slowdown is caused by a humanitarian
crisis. It is important to view this from the prism of sentiments in our
society than mere economic numbers and methods.
Dr Singh believes the Coronavirus -induced nationwide lockdown
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55 Economic Thought Of G. K. Gokhale And Dr. Manmohan Singh doing. He said, “Perhaps a lockdown at that stage was an inevitable
choice. But the government's shock and awe approach to the lockdown has
caused tremendous pain to people. The suddenness of the announcement
and the stringency of the lockdown were thoughtless and insensitive".
According to him Public health emergencies such as COVID 19 are best
dealt with locally by local administrators and publi c health officials, with
broad guidelines from the Centre. Perhaps, government should have
devolved the Covid -19 battle to the state and local administrations much
sooner."
As the debate on how to revive the economy rages on, Dr Singh says
"higher borrowin g is inevitable." While this can impact India's debt to
GDP ratio, he said, "(if it) can save lives, borders, restore livelihoods and
boost economic growth, then it's worth it."
"India's track record as a borrower from multilateral institutions is
impeccab le, It is not a sign of weakness to borrow from these institutions,"
he added.
The former Finance Minister, who famously helmed the reforms of the
1990s, also warned against protectionism - imposing high import duties.
He reminded that India's trade policy over the last three decades brought
"enormous economic gains to not just the top but across all sections of our
population."
"The previous crises were macroeconomic crises for which there were
proven economic tools. Now we have an economic crisis caused b y an
epidemic which has induced fear and uncertainty in society and monetary
policy as an economic tool to counter this crisis is proving to be blunt," he
added.
6.4 SUMMARY Although G.K.Gokhale was not an economist in the strict sense of the
term. Neither was he a social thinker with deep sociological insight.
However, as a leader of the Congress and as a member of the legislature
Gokhale had to ponder over many socio - economic issues of the time
which, in turn, gave birth to his economic and social ideas .
Dr. Manmohan Singh, the former Finance Minister, who famously helmed
the reforms of the 1990s, also warned against protectionism - imposing
high import duties. He reminded that India's trade policy over the last
three decades brought "enormous economic g ains to not just the top but
across all sections of our population."
6.5 QUESTIONS 1. Critically evaluate G.K.Gokhale’s economic thoughts on
Development and Welfare.
2. Analyse Dr. Manmohan Singh's ' Three Steps' to Stem India's
Economic Crisis.
***** munotes.in

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56 7
NOBEL PRIZE WINNERS IN
ECONOMICS: DR. AMARTYA SEN &
ROBERT. A. MUNDELL
Unit Structure
7.0 Objectives
7.1 Introduction
7.2 Nobel Prize Winner in Economics: Dr. Amartya Sen
7.3 Nobel Prize Winner in Economics: Robert A. Mundell
7.4 Questions
7.5 References
7.0 OBJECTIVES The main objectives behind the study of this unit are as follows -
• To know about the Nobel Prize.
• To know about the Nobel Prize Winner in Economics: Dr. Amartya
Sen.
• To know about the Nobel Prize Winner in Economics: Rober t A.
Mundell
7.1 INTRODUCTION ABOUT THE PRIZE :
In 1968, Sveriges Riksbank (Sweden’s central bank) established the Prize
in Economic Sciences in Memory of Alfred Nobel, founder of the Nobel
Prize. The prize is based on a donation received by the Nobel Fou ndation
in 1968 from Sveriges Riksbank on the occasion of the bank’s 300th
anniversary. The first prize in economic sciences was awarded to Ragnar
Frisch and Jan Tinbergen in 1969.
The prize in economic sciences is awarded by the Royal Swedish
Academy of S ciences, Stockholm, Sweden, according to the same
principles as for the Nobel Prizes that have been awarded since 1901.
The Man Behind The Prize – Alfred Nobel :
For the greatest benefit to humankind
Alfred Nobel was an inventor, entrepreneur, scientist and businessman
who also wrote poetry and drama. His varied interests are reflected in the
prize he established and which he lay the foundation for in 1895 when he munotes.in

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57 Nobel Prize Winners In Economics: Dr. Amartya Sen & Robert. A. Mundell wrote his last will, leaving much of his wealth to the establishment of the
prize.
Since 1901, the Nobel Prize has been honoring men and women from
around the world for outstanding achievements in physics, chemistry,
physiology or medicine, literature and for work in peace.
Alfred Nobel (1833 -1896) was born in Stockholm, Sweden, on 21 October
1833. His family was descended from Olof Rudbeck, the best -known
technical genius in Sweden in the 17th century, an era in which Sweden
was a great power in northern Europe. Nobel was fluent in several
languages, and wrote poetry and drama. Nobel was also very i nterested in
social and peace -related issues, and held views that were considered
radical during his time. Alfred Nobel’s interests are reflected in the prize
he established. Learn more about his life and his interests – science,
inventions, entrepreneursh ip, literature and peace work.
Nobel Prize Facts :
On 27 November 1895, Alfred Nobel signed his last will and testament,
giving the largest share of his fortune to a series of prizes in physics,
chemistry, physiology or medicine, literature and peace – the Nobel
Prizes. In 1968, Sveriges Riksbank (Sweden’s central bank) established
The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred
Nobel. Learn more about the Nobel Prize laureates here.
615 Nobel Prizes :
Between 1901 and 2022, the Nobel Pri zes and the prize in economic
sciences were awarded 615 times.
Nobel Prize Number of prizes Number of laureates Awarded to one laureate Shared by two laureates Shared by three laureates Physics 116 222 47 32 37 Chemistry 114 191 63 25 26 Medicine 113 225 40 34 39 Literature 115 119 111 4 – Peace 103 110+30 69 31 3 Economic sciences 54 92 25 20 9 Total: 615 989 355 146 114
In the statutes of the Nobel Foundation it says: “A prize amount may be
equally divided between two works, each of which is con sidered to merit a
prize. If a work that is being rewarded has been produced by two or three munotes.in

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58 History of Economic Thought - II
58 persons, the prize shall be awarded to them jointly. In no case may a prize
amount be divided between more than three persons.”
Process of Nomination And Selection :
The Economic Sciences Prize Committee sends confidential forms to
persons who are competent and qualified to nominate.
Qualified Nominators:
The right to submit proposals for the award of a Sveriges Riksbank Prize
in Economic Sciences in Memory of Alfre d Nobel shall, by statute, be
enjoyed by:
• Swedish and foreign members of the Royal Swedish Academy of
Sciences;
• Members of the Prize Committee for the Sveriges Riksbank Prize in
Economic Sciences in Memory of Alfred Nobel;
• Persons who have been award ed the Sveriges Riksbank Prize in
Economic Sciences in Memory of Alfred Nobel;
• Permanent professors in relevant subjects at the universities and
colleges in Sweden, Denmark, Finland, Iceland and Norway;
• Holders of corresponding chairs in at least six u niversities or colleges,
selected for the relevant year by the Academy of Sciences with a view
to ensuring the appropriate distribution between different countries
and their seats of learning; and
• Other scientists from whom the Academy may see fit to inv ite
proposals.
• Decisions as to the selection of teachers and scientists referred to in
paragraphs 5 and 6 above shall be taken each year before the end of
the month of September.
Selection of economic sciences laureates :
The Royal Swedish Academy of Scie nces is responsible for the selection
of the economic sciences laureates from among the candidates
recommended by the Economic Sciences Prize Committee. The
Committee is the working body that screens the nominations and selects
the final candidates. It con sists of five members, but for many years the
Committee has included adjunct members with the same voting rights as
members.
Who is eligible for the prize in economic sciences?
The candidates eligible for the prize in economic sciences are those
nominated by qualified persons who have received an invitation from the
Economic Sciences Prize Committee to submit names for consideration.
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59 Nobel Prize Winners In Economics: Dr. Amartya Sen & Robert. A. Mundell How are the economic sciences laureates selected?

Below is a brief description of t he process involved in choosing the
economic sciences laureates.
1) September – Nomination forms are sent out.
The Economic Sciences Prize Committee sends out confidential forms to
around 3,000 individuals – selected professors at universities around the
world, economic sciences laureates, and members of the Royal Swedish
Academy of Sciences, among others.
2) February – Deadline for submission.
The completed forms must reach the Economic Sciences Prize Committee
no later than January 31 of the following y ear. The Committee screens the
nominations and selects the preliminary candidates. About 250 -350 names
are nominated as the same names are often submitted by several
nominators.
3) March -May – Consultation with experts.
The Economic Sciences Prize Committ ee sends the names of the
preliminary candidates to specially appointed experts for their assessment
of the candidates’ work.
4) June -August – Writing of the report.
The Economic Sciences Prize Committee puts together the report with
recommendations to be submitted to the Academy. The report is signed by
all members of the Committee.
5) September – Committee submits recommendations.
The Economic Sciences Prize Committee submits its report with
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60 History of Economic Thought - II
60 The report is discussed at two meetings of the Economic Sciences Section
of the Academy.
6) October – Economic sciences laureates are chosen.
In early October, the Academy of Sciences selects the economic sciences
laureates through a majority vot e. The decision is final and without appeal.
The names of the economic sciences laureates are then announced.
7) December – Economic sciences laureates receive their prize.
The Nobel Prize award ceremony takes place on 10 December in
Stockholm, where the Nobel Prize laureates receive their Nobel Prize,
which consists of a Nobel Prize medal and diploma, and a document
confirming the prize amount.
Are the nominations made public?
The statutes of the Nobel Foundation restrict disclosure of information
about t he nominations, whether publicly or privately, for 50 years. The
restriction concerns the nominees and nominators, as well as
investigations and opinions related to the award of a prize.
Not a Nobel Prize :
The prize in economic sciences is not a Nobel Priz e. In 1968, Sveriges
Riksbank (Sweden’s central bank) instituted “The Sveriges Riksbank Prize
in Economic Sciences in Memory of Alfred Nobel”, and it has since been
awarded by the Royal Swedish Academy of Sciences according to the
same principles as for th e Nobel Prizes that have been awarded since
1901. The first prize in economic sciences was awarded to Ragnar Frisch
and Jan Tinbergen in 1969.
7.2 NOBEL PRIZE WINNER IN ECONOMICS: DR. AMARTYA SEN Amartya Kumar Sen (born on 3 November 1933) is an Indian eco nomist
and philosopher, who since 1972 has taught and worked in the United
Kingdom and the United States. Sen has made contributions to welfare
economics, social choice theory, economic and social justice, economic
theories of famines, decision theory, dev elopment economics, public
health, and measures of well -being of countries.
He is currently a Thomas W. Lamont University Professor, and Professor
of Economics and Philosophy at Harvard University.He formerly served
as Master of Trinity College at the Univ ersity of Cambridge. He was
awarded the Nobel Memorial Prize in Economic Sciences in 1998 and
India's Bharat Ratna in 1999 for his work in welfare economics. The
German Publishers and Booksellers Association awarded him the 2020
Peace Prize of the German Book Trade for his pioneering scholarship
addressing issues of global justice and combating social inequality in
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61 Nobel Prize Winners In Economics: Dr. Amartya Sen & Robert. A. Mundell Early life and education:
Amartya Sen was born in a Hindu Baidya family in Santiniketan, Bengal,
British India. Rabi ndranath Tagore gave Amartya Sen his name. Sen's
family was from Wari and Manikganj, Dhaka, both in present -day
Bangladesh. His father Ashutosh Sen was Professor of Chemistry at
Dhaka University, Development Commissioner in Delhi and then
Chairman of the W est Bengal Public Service Commission. He moved with
his family to West Bengal in 1945. Sen's mother Amita Sen was the
daughter of Kshiti Mohan Sen, the eminent Sanskritist and scholar of
ancient and medieval India, who was a close associate of Rabindranath
Tagore. K.M. Sen served as the second Vice Chancellor of Visva Bharati
University from 1953 to 1954.
Sen began his school education at St Gregory's School in Dhaka in 1940.
In the fall of 1941, Sen was admitted to Patha Bhavana, Shantiniketan,
where he co mpleted his school education. The school had many
progressive features, such as distaste for examinations or competitive
testing. In addition, the school stressed cultural diversity, and embraced
cultural influences from the rest of the world. In 1951, he went to
Presidency College, Calcutta, where he earned a B.A. in economics with
First in the First Class, with a minor in Mathematics, as a graduating
student of the University of Calcutta. While at Presidency, Sen was
diagnosed with oral cancer, and given a 15% chance of living five years.
With radiation treatment, he survived, and in 1953 he moved to Trinity
College, Cambridge, where he earned a second B.A. in economics in 1955
with a First Class, topping the list as well. At this time, he was elected
President of the Cambridge Majlis. While Sen was officially a PhD
student at Cambridge (though he had finished his research in 1955 –56), he
was offered the position of First -Professor and First -Head of the
Economics Department of the newly created Jadavpur Uni versity in
Calcutta. He is still the youngest chairman to have headed the Department
of Economics. He served in that position, starting the new Economics
Department, from 1956 to 1958.
Meanwhile, Sen was elected to a Prize Fellowship at Trinity College,
which gave him four years of freedom to do anything he liked; he made
the radical decision to study philosophy. Sen explained: "The broadening
of my studies into philosophy was important for me not just because some
of my main areas of interest in economics relate quite closely to
philosophical disciplines (for example, social choice theory makes intense
use of mathematical logic and also draws on moral philosophy, and so
does the study of inequality and deprivation), but also because I found
philosophical st udies very rewarding on their own." His interest in
philosophy, however, dates back to his college days at Presidency, where
he read books on philosophy and debated philosophical themes. One of the
books he was most interested in was Kenneth Arrow's Social Choice and
Individual Values.
In Cambridge, there were major debates between supporters of Keynesian
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62 History of Economic Thought - II
62 Keynes. Because of a lack of enthusiasm for social choice theory in both
Trinity and Ca mbridge, Sen chose a different subject for his PhD thesis,
which was on "The Choice of Techniques" in 1959. The work had been
completed earlier, except for advice from his adjunct supervisor in India,
Professor A.K. Dasgupta, given to Sen while teaching an d revising his
work at Jadavpur, under the supervision of the "brilliant but vigorously
intolerant" post -Keynesian, Joan Robinson. Quentin Skinner notes that
Sen was a member of the secret society Cambridge Apostles during his
time at Cambridge.
During 19 60–61, Amartya Sen visited the Massachusetts Institute of
Technology, on leave from Trinity College.
Research work :
Sen's work on 'Choice of Techniques' complemented that of Maurice
Dobb. In a developing country, the Dobb -Sen strategy relied on
maximising investible surpluses, maintaining constant real wages and
using the entire increase in labour productivity, due to technological
change, to raise the rate of accumulation. In other words, workers were
expected to demand no improvement in their standard of living despite
having become more productive. Sen's papers in the late 1960s and early
1970s helped develop the theory of social choice, which first came to
prominence in the work by the American economist Kenneth Arrow.
Arrow had most famously shown that when voters have three or more
distinct alternatives (options), any ranked order voting system will in at
least some situations inevitably conflict with what many assume to be
basic democratic norms. Sen's contribution to the literature was to show
under w hat conditions Arrow's impossibility theorem applied, as well as to
extend and enrich the theory of social choice, informed by his interests in
history of economic thought and philosophy.
In 1981, Sen published Poverty and Famines: An Essay on Entitlement
and Deprivation (1981), a book in which he argued that famine occurs not
only from a lack of food, but from inequalities built into mechanisms for
distributing food. Sen also argued that the Bengal famine was caused by
an urban economic boom that raised fo od prices, thereby causing millions
of rural workers to starve to death when their wages did not keep up.
Sen's interest in famine stemmed from personal experience. As a nine -
year-old he witnessed the Bengal famine of 1943, in which three million
people d ied. This staggering loss of life was unnecessary, Sen later
concluded. He presents data that there was an adequate food supply in
Bengal at the time, but particular groups of people including rural landless
labourers and urban service providers like barbe rs did not have the means
to buy food as its price rose rapidly due to factors that include acquisitions
by the military, panic buying, hoarding, and price gouging, all of them
connected to the war in the region. In Poverty and Famines, Sen revealed
that i n many cases of famine, food supplies were not significantly reduced.
In Bengal, for example, food production, while down on the previous year,
was higher than in previous non -famine years. Sen points to a number of munotes.in

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63 Nobel Prize Winners In Economics: Dr. Amartya Sen & Robert. A. Mundell social and economic factors, such as dec lining wages, unemployment,
rising food prices, and poor food -distribution, which led to starvation. His
capabilities approach focuses on positive freedom, a person's actual ability
to be or do something, rather than on negative freedom approaches, which
are common in economics and simply focuses on non -interference. In the
Bengal famine, rural laborers' negative freedom to buy food was not
affected. However, they still starved because they were not positively free
to do anything, they did not have the func tioning of nourishment, nor the
capability to escape morbidity.
In addition to his important work on the causes of famines, Sen's work in
the field of development economics has had considerable influence in the
formulation of the "Human Development Report" , published by the United
Nations Development Programme. This annual publication that ranks
countries on a variety of economic and social indicators owes much to the
contributions by Sen among other social choice theorists in the area of
economic measureme nt of poverty and inequality.
Sen's revolutionary contribution to development economics and social
indicators is the concept of "capability" developed in his article Equality
of What. He argues that governments should be measured against the
concrete capab ilities of their citizens. This is because top -down
development will always trump human rights as long as the definition of
terms remains in doubt (is a "right" something that must be provided or
something that simply cannot be taken away?). For instance, in the United
States citizens have a right to vote. To Sen, this concept is fairly empty. In
order for citizens to have a capacity to vote, they first must have
"functionings". These "functionings" can range from the very broad, such
as the availability of education, to the very specific, such as transportation
to the polls. Only when such barriers are removed can the citizen truly be
said to act out of personal choice. It is up to the individual society to make
the list of minimum capabilities guaranteed b y that society. For an
example of the "capabilities approach" in practice, see Martha Nussbaum's
Women and Human Development.
He wrote a controversial article in The New York Review of Books
entitled "More Than 100 Million Women Are Missing" (see Missing
women of Asia), analyzing the mortality impact of unequal rights between
the genders in the developing world, particularly Asia. Other studies,
including one by Emily Oster, had argued that this is an overestimation,
though Oster has since then recanted he r conclusions.
In 1999, Sen further advanced and redefined the capability approach in his
book Development as Freedom. Sen argues that development should be
viewed as an effort to advance the real freedoms that individuals enjoy,
rather than simply focusi ng on metrics such as GDP or income -per-capita.
Sen was inspired by violent acts he had witnessed as a child leading up to
the Partition of India in 1947. On one morning, a Muslim daily labourer
named Kader Mia stumbled through the rear gate of Sen's famil y home,
bleeding from a knife wound in his back. Because of his extreme poverty,
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64 History of Economic Thought - II
64 his choices were the starvation of his family or the risk of death in coming
to the neighbourhood. The p rice of Kader Mia's economic unfreedom was
his death. Kader Mia need not have come to a hostile area in search of
income in those troubled times if his family could have managed without
it. This experience led Sen to begin thinking about economic unfreedom
from a young age.
In Development as Freedom, Sen outlines five specific types of freedoms:
political freedoms, economic facilities, social opportunities, transparency
guarantees, and protective security. Political freedoms refer to the ability
of the peop le to have a voice in government and to be able to scrutinize
the authorities. Economic facilities concern both the resources within the
market and the market mechanism itself. Any focus on income and wealth
in the country would serve to increase the econo mic facilities for the
people. Social opportunities deal with the establishments that provide
benefits like healthcare or education for the populace, allowing individuals
to live better lives. Transparency guarantees allow individuals to interact
with some degree of trust and knowledge of the interaction. Protective
security is the system of social safety nets that prevent a group affected by
poverty being subjected to terrible misery. Before Sen's work, these had
been viewed as only the ends of development ; luxuries afforded to
countries that focus on increasing income. However, Sen argues that the
increase in real freedoms should be both the ends and the means of
development. He elaborates upon this by illustrating the closely
interconnected natures of the five main freedoms as he believes that
expansion of one of those freedoms can lead to expansion in another one
as well. In this regard he discusses the correlation between social
opportunities of education and health and how both of these complement
econo mic and political freedoms as a healthy and well -educated person is
better suited to make informed economic decisions and be involved in
fruitful political demonstrations etc. A comparison is also drawn between
China and India to illustrate this interdepen dence of freedoms. Both
countries were working towards developing their economies, China since
1979 and India since 1991.
Welfare economics seeks to evaluate economic policies in terms of their
effects on the well -being of the community. Sen, who devoted h is career
to such issues, was called the "conscience of his profession". His
influential monograph Collective Choice and Social Welfare (1970),
which addressed problems related to individual rights (including
formulation of the liberal paradox), justice an d equity, majority rule, and
the availability of information about individual conditions, inspired
researchers to turn their attention to issues of basic welfare. Sen devised
methods of measuring poverty that yielded useful information for
improving econom ic conditions for the poor. For instance, his theoretical
work on inequality provided an explanation for why there are fewer
women than men in India and in China despite the fact that in the West
and in poor but medically unbiased countries, women have low er
mortality rates at all ages, live longer, and make a slight majority of the
population. Sen claimed that this skewed ratio results from the better munotes.in

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65 Nobel Prize Winners In Economics: Dr. Amartya Sen & Robert. A. Mundell health treatment and childhood opportunities afforded boys in those
countries, as well as sex -selective ab ortions.
Governments and international organisations handling food crises were
influenced by Sen's work. His views encouraged policy makers to pay
attention not only to alleviating immediate suffering but also to finding
ways to replace the lost income of the poor for example through public
works and to maintain stable prices for food. A vigorous defender of
political freedom, Sen believed that famines do not occur in functioning
democracies because their leaders must be more responsive to the
demands of th e citizens. In order for economic growth to be achieved, he
argued, social reforms such as improvements in education and public
health must precede economic reform.
In 2009, Sen published a book called The Idea of Justice. Based on his
previous work in w elfare economics and social choice theory, but also on
his philosophical thoughts, Sen presented his own theory of justice that he
meant to be an alternative to the influential modern theories of justice of
John Rawls or John Harsanyi. In opposition to Raw ls but also earlier
justice theoreticians Immanuel Kant, Jean -Jacques Rousseau or David
Hume, and inspired by the philosophical works of Adam Smith and Mary
Wollstonecraft, Sen developed a theory that is both comparative and
realisations -oriented (instead of being transcendental and institutional).
However, he still regards institutions and processes as being equally
important. As an alternative to Rawls's veil of ignorance, Sen chose the
thought experiment of an impartial spectator as the basis of his theo ry of
justice. He also stressed the importance of public discussion
(understanding democracy in the sense of John Stuart Mill) and a focus on
people's capabilities (an approach that he had co -developed), including the
notion of universal human rights, in e valuating various states with regard
to justice.
Career:
Sen began his career both as a teacher and a research scholar in the
Department of Economics, Jadavpur University as a professor of
economics in 1956. He spent two years in that position. From 1957 t o
1963, Sen served as a fellow of Trinity College, Cambridge. Between
1960 and 1961, Sen was a visiting professor at Massachusetts Institute of
Technology in the United States, where he got to know Paul Samuelson,
Robert Solow, Franco Modigliani, and Norbe rt Wiener. He was also a
visiting professor at the University of California, Berkeley (1964 –1965)
and Cornell University (1978 –1984). He taught as Professor of Economics
between 1963 and 1971 at the Delhi School of Economics (where he
completed his magnum opus Collective Choice and Social Welfare in
1969).
During this time Sen was also a frequent visitor to various other premiere
Indian economic schools and centres of excellence like Jawaharlal Nehru
University, Indian Statistical Institute, Centre for Dev elopment Studies,
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66 History of Economic Thought - II
66 Social Sciences. He was a companion of distinguished economists like
Manmohan Singh (ex -Prime Minister of India and a veteran economist
responsible for liberalizing the Indian economy), K. N. Raj (advisor to
various prime ministers and a veteran economist who was the founder of
Centre for Development Studies, Trivandrum, which is one of India's
premier think tanks and schools) and Jagdish Bhagwati (who is known to
be one of the greatest Indian economists in the field of international trade
and currently teaches at Columbia University). This is a period considered
to be a Golden Period in the history of DSE. In 1971, he joined the
London School of Economics as a professor of economics, where he
taught until 1977. From 1977 to 1988, he taught at the University of
Oxford, where he was first a professor of economics and fellow of
Nuffield College, and then the Drummond Professor of Political Economy
and a fellow of All Souls C ollege, Oxford, from 1980.
In 1987, Sen joined Harvard as the Thomas W. Lamont University
Professor of Economics. In 1998 he was appointed as Master of Trinity
College, Cambridge, becoming the first Asian head of an Oxbridge
college. In January 2004, Sen r eturned to Harvard. He also established the
Eva Colorni Trust at the former London Guildhall University in the name
of his deceased wife.
In May 2007, he was appointed as chairman of Nalanda Mentor Group to
examine the framework of international cooperatio n, and proposed
structure of partnership, which would govern the establishment of Nalanda
International University Project as an international centre of education
seeking to revive the ancient center of higher learning which was present
in India from the f ifth century to 1197.
He chaired the Social Sciences jury for the Infosys Prize from 2009 to
2011, and the Humanities jury from 2012 to 2018.
On 19 July 2012, Sen was named the first chancellor of the proposed
Nalanda University (NU). Sen was criticized a s the project suffered due to
inordinate delays, mismanagement and lack of presence of faculty on
ground. Finally teaching began in August 2014. On 20 February 2015, Sen
withdrew his candidature for a second term.
Memberships and associations:
He has serve d as president of the Econometric Society (1984), the
International Economic Association (1986 –1989), the Indian Economic
Association (1989) and the American Economic Association (1994). He
has also served as president of the Development Studies Associatio n and
the Human Development and Capability Association. He serves as the
honorary director of the Academic Advisory Committee of the Center for
Human and Economic Development Studies at Peking University in
China.
Sen has been called "the Conscience of th e profession" and "the Mother
Teresa of Economics" for his work on famine, human development theory,
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67 Nobel Prize Winners In Economics: Dr. Amartya Sen & Robert. A. Mundell inequality, and political liberalism. However, he denies the comparison to
Mother Teresa, s aying that he has never tried to follow a lifestyle of
dedicated self -sacrifice. Amartya Sen also added his voice to the campaign
against the anti -gay Section 377 of the Indian Penal Code.
Sen has served as Honorary Chairman of Oxfam, the UK based
interna tional development charity, and is now its Honorary Advisor.
Sen is also a member of the Berggruen Institute's 21st Century Council.
Sen is an Honorary Fellow of St Edmund's College, Cambridge.
He is also one of the 25 leading figures on the Information and Democracy
Commission launched by Reporters Without Borders.
Media and culture:
A 56 -minute documentary named Amartya Sen: A Life Re -examined
directed by Suman Ghosh details his life and work. A documentary about
Amartya Sen, titled The Argumentative Indian (the title of one of Sen's
own books), was released in 2017.
A 2001 portrait of Sen by Annabel Cullen is in Trinity College's
collection. A 2003 portrait of Sen hangs in the National Portrait Gallery in
London.
In 2011, he was present at the Rabi ndra Utsab ceremony at Bangabandhu
International Conference Centre (BICC), Bangladesh. He unveiled the
cover of Sruti Gitobitan, a Rabindrasangeet album comprising all the 2222
Tagore songs, brought out by Rezwana Chowdhury Bannya, principal of
Shurer Dhar a School of Music.
Max Roser said that it was the work of Sen that made him create Our
World in Data.
Political views:
Sen was critical of Indian politician Narendra Modi when he was
announced as its prime ministerial candidate by the BJP. In April 2014 , he
said that Modi would not make a good Prime Minister. He conceded later
in December 2014 that Modi did give people a sense of faith that things
can happen. In February 2015, Sen opted out of seeking a second term for
the chancellor post of Nalanda Univ ersity, stating that the Government of
India was not keen on him continuing in the post.
In August 2019, during the clampdown and curfew in Kashmir for more
than two weeks after the Indian revocation of Jammu and Kashmir's
special status, Sen criticized t he government and said "As an Indian, I am
not proud of the fact that India, after having done so much to achieve a
democratic norm in the world – where India was the first non -Western
country to go for democracy – that we lose that reputation on the groun ds
of action that have been taken". He regarded the detention of Kashmiri
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68 History of Economic Thought - II
68 against the Indian government's decision and called for a democratic
solution that would involve Kashmiri peopl e.
Sen has spent much of his later life as a political writer and activist. He
has been outspoken about Narendra Modi's leadership in India. In an
interview with the New York Times, he claimed that Modi's
fearmongering among the Indian people was anti -democratic. "The big
thing that we know from John Stuart Mill is that democracy is government
by discussion, and, if you make discussion fearful, you are not going to get
a democracy, no matter how you count the votes." He disagreed with
Modi's ideology of Hi ndu nationalism, and advocated for a more
integrated and diverse ideology that reflects the heterogeneity of India.
Sen also wrote an article for the New York Times documenting the
reasons why India trails behind China in economic development. He
advocate s for healthcare reform, because low -income people in India have
to deal with exploitative and inadequate private healthcare. He
recommends India implement the same education policies that Japan did
in the late 19th century. However, he realizes that there is a tradeoff
between democracy and progress in Asia because democracy is a near
reality in India and not in China.
In a 1999 article in The Atlantic, Sen recommended for India a middle
path between the "hard -knocks" development policy that creates wealt h at
the expense of civil liberties, and radical progressivism that only seeks to
protect civil liberties at the expense of development. Rather than create an
entirely new theory for ethical development in Asia, Sen sought to reform
the current development model.
Personal life and beliefs:
Sen has been married three times. His first wife was Nabaneeta Dev Sen,
an Indian writer and scholar, with whom he had two daughters: Antara, a
journalist and publisher, and Nandana, a Bollywood actress. Their
marriage broke up shortly after they moved to London in 1971. In 1978
Sen married Eva Colorni, an Italian economist, daughter of Eugenio
Colorni and Ursula Hirschmann and niece of Albert O. Hirschman. The
couple had two children, a daughter Indrani, who is a journa list in New
York, and a son Kabir, a hip hop artist, MC, and music teacher at Shady
Hill School. Eva died of cancer in 1985. In 1991, Sen married Emma
Georgina Rothschild, who serves as the Jeremy and Jane Knowles
Professor of History at Harvard University .
The Sens have a house in Cambridge, Massachusetts, which is the base
from which they teach during the academic year. They also have a home
in Cambridge, England, where Sen is a Fellow of Trinity College,
Cambridge, and Rothschild is a Fellow of Magdalene College. He usually
spends his winter holidays at his home in Shantiniketan in West Bengal,
India, where he used to go on long bike rides until recently. Asked how he
relaxes, he replies: "I read a lot and like arguing with people."
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69 Nobel Prize Winners In Economics: Dr. Amartya Sen & Robert. A. Mundell Sen is an atheist. I n an interview, he noted:
“In some ways people had got used to the idea that India was spiritual and
religion -oriented. That gave a leg up to the religious interpretation of
India, despite the fact that Sanskrit had a larger atheistic literature than
exists in any other classical language. Madhava Acharya, the remarkable
14th century philosopher, wrote this rather great book called
Sarvadarshansamgraha, which discussed all the religious schools of
thought within the Hindu structure. The first chapter is "A theism" a very
strong presentation of the argument in favor of atheism and materialism.”
Awards and honours:
1) Sen has received over 90 honorary degrees from universities around
the world. In 2019, London School of Economics announced the
creation of th e Amartya Sen Chair in Inequality Studies.
2) Adam Smith Prize, 1954
3) Foreign Honorary Member of the American Academy of Arts and
Sciences, 1981
4) Honorary fellowship by the Institute of Social Studies, 1984
5) Resident member of the American Philosoph ical Society, 1997
6) Nobel Memorial Prize in Economic Sciences, 1998
7) Bharat Ratna, the highest civilian award in India, 1999
8) Honorary citizenship of Bangladesh, 1999
9) Order of Companion of Honour, UK, 2000
10) Leontief Prize, 2000
11) Eisenhower M edal for Leadership and Service, 2000
12) 351st Commencement Speaker of Harvard University, 2001
13) International Humanist Award from the International Humanist and
Ethical Union, 2002
14) Lifetime Achievement Award by the Indian Chamber of Commerce,
2004
15) Life Time Achievement award by Bangkok -based United Nations
Economic and Social Commission for Asia and the Pacific
(UNESCAP)
16) National Humanities Medal, 2011
17) Order of the Aztec Eagle, 2012
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70 History of Economic Thought - II
70 19) 25 Greatest Global Living Legends in India by NDTV, 2013
20) Top 100 thinkers who have defined our century by The New
Republic, 2014
21) Charleston -EFG John Maynard Keynes Prize, 2015
22) Albert O. Hirschman Prize, Social Science Research Council, 2016
23) Johan Skytte Prize in Political Science, 2017
24) Bodley Medal, 2019
25) Friedenspreis des Deutschen Buchhandels, 2020
26) Princess of Asturias Award, 2021
27) In 2021, he received the prestigious Gold Medal from The National
Institute of Social Sciences .
7.3 NOBEL PRIZE WINNERS IN ECONOMICS: ROBERT. A. MUNDELL Introduction:
Robert Alexander Mundell CC (October 24, 1932 – April 4, 2021) was a
Canadian economist. He was a professor of economics at Columbia
University and the Chinese University of Hong Kon g.
He received the Nobel Memorial Prize in Economic Sciences in 1999 for
his pioneering work in monetary dynamics and optimum currency areas.
Mundell is known as the "father" of the euro, as he laid the groundwork
for its introduction through this work and helped to start the movement
known as supply -side economics. Mundell was also known for the
Mundell –Fleming model and Mundell –Tobin effect.
Early Life:
Mundell was born Robert Alexander Mundell on October 24, 1932, in
Kingston, Ontario, Canada, to Lila T eresa (née Hamilton) and William
Mundell. His mother was an heiress while his father was a military officer
and taught at the Royal Military College of Canada. He spent his early
years in a farm in Ontario and moved to British Columbia with his family
when his father retired at the end of World War II. He completed his high
school education in British Columbia where he was known to have
participated in boxing and chess events during this time.
He earned his Bachelor of Arts in economics and Russian at the
Vancouver School of Economics of the University of British Columbia,
and went on a scholarship to the University of Washington in Seattle. He
went on to complete his PhD from the Massachusetts Institute of
Technology while continuing to study at the London School of
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71 Nobel Prize Winners In Economics: Dr. Amartya Sen & Robert. A. Mundell In 2006 Mundell earned an honorary Doctor of Laws degree from the
University of Waterloo. He was Professor of Economics and Editor of the
Journal of Political Economy at the University of Chicago from 1965 to
1972, Chairman of the De partment of Economics at the University of
Waterloo 1972 to 1974 and since 1974 he had been Professor of
Economics at Columbia University. He also held the post of Repap
Professor of Economics at McGill University.
Career:
From 1974 until his death he had been a professor in the Economics
department at Columbia University; and from 2001 he had held
Columbia's highest academic rank – University Professor. After
completing his post -doctoral fellowship at the University of Chicago in
1957, he began teaching e conomics at Stanford University, and then Paul
H. Nitze School of Advanced International Studies at Johns Hopkins
University during 1959 –1961. In 1961, he went on to staff the
International Monetary Fund. Mundell returned to academics as professor
of econo mics at the University of Chicago from 1966 to 1971, and then
served as professor during summers at the Graduate Institute of
International Studies in Geneva until 1975. In 1989, he was appointed to
the post of Repap Professor of Economics at McGill Univer sity. In the
1970s, he laid the groundwork for the introduction of the euro through his
pioneering work in monetary dynamics and optimum currency forms for
which he won the 1999 Nobel Prize in Economics. During this time he
continued to serve as an economi c adviser to the United Nations, the IMF,
the World Bank, the European Commission, the Federal Reserve Board,
the United States Department of Treasury and the governments of Canada
and other countries. He was the Distinguished Professor -at-Large of The
Chinese University of Hong Kong. His 1971 Princeton tract The dollar
and the policy mix is credited with founding supply -side economics
(Bartlett 1971, p 101).
Among his major contributions are:
• Theoretical work on optimum currency areas.
• Contributions to the development of the euro.
• Helped start the movement known as supply -side economics.
• Historical research on the operation of the gold standard in different
eras
• Predicted the inflation of the 1970s
• Mundell –Fleming model
• Mundell –Tobin effect

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72 History of Economic Thought - II
72 International monetary flows:
Mundell is best known in politics for his support of tax cuts and supply -
side economics; however, in economics it is for his work on currency
areas and international exchange rates that he was awarded the Sveriges
Riksbank P rize in Economic Sciences in Memory of Alfred Nobel by the
Bank of Sweden (Sveriges Riksbank). Nevertheless, supply -side
economics featured prominently in his Bank of Sweden prize speech.
In the 1960s, Mundell's native Canada floated its exchange rate: thi s
caused Mundell to begin investigating the results of floating exchange
rates, a phenomenon not widely seen since the 1930s "Stockholm School"
successfully lobbied Sweden to leave the gold standard.
In 1962, along with Marcus Fleming, he co -authored the M undell –
Fleming model of exchange rates, and noted that it was impossible to have
domestic autonomy, fixed exchange rates, and free capital flows: no more
than two of those objectives could be met. The model is, in effect, an
extension of the IS/LM model ap plied to currency rates.
According to Mundell's analysis:
• Discipline under the Bretton Woods system was more due to the US
Federal Reserve than to the discipline of gold.
• Demand side fiscal policy would be ineffective in restraining central
banks under a floating exchange rate system.
• Single currency zones relied, therefore, on similar levels of price
stability, where a single monetary policy would suffice for all.
His analysis led to his conclusion that it was a disagreement between
Europe and the Un ited States over the rate of inflation, partially to finance
the Vietnam War, and that Bretton Woods disintegrated because of the
undervaluing of gold and the consequent monetary discipline breakdown.
There is a famous point/counterpoint over this issue be tween Mundell and
Milton Friedman.
This work later led to the creation of the euro and his prediction that
leaving the Bretton Woods system would lead to "stagflation" so long as
highly progressive income tax rates applied. In 1974, he advocated a
drastic tax reduction and a flattening of income tax rates.
Mundell, though lionized by some conservatives, has many of his harshest
critics from the right: he denied the need for a fixed gold -based currency
or currency board (he still often recommended this as a policy in
hyperinflationary environments) and he was both a fiscal and balance of
payments deficit hawk. He is well known for stating that in a floating
exchange rate system, expansion of the money supply can come about
only by a positive balance of payme nts.
In 2000, Mundell recommended that Canada permanently tie its dollar's
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73 Nobel Prize Winners In Economics: Dr. Amartya Sen & Robert. A. Mundell Father of the Euro:
Robert Mundell was considered the "father of the euro" for his early work
encouraging a European monetary union. Starting in the 1960s, Mundell
supported the constitution of a European Economic and Monetary Union
and pushed for the creation of the euro.
In 2000, he predicted that before 2010, the eurozone would expand to
cover 50 countries, while the U.S. dollar would spread throughout L atin
America, and much of Asia would look towards the yen. Such predictions
have proved highly inaccurate.
In his 2012 article "Robert Mundell, evil genius of the euro", Greg Palast
affirms that Mundell advocated for the euro because its implementation
would have the effect of removing democratic control over monetary
policy. As such, when a crisis hits, eurozone governments would not be
able to stimulate the economy by creating money, as is prescribed by
Keynesian economics. They would thus be forced to re sort to other means
to curtail unemployment, such as deregulating businesses, privatizing state
industries, cutting taxes, and weakening the social safety net.
In 2014, Mundell voiced his opposition to proposals of a fiscal union
between the European stat es. He declared that "it would be insane to have
a central European authority that controls all the taxes and duties of the
states ... controlled in the Union. This transfer of sovereignty is far too
big". He also voiced his opposition to the prospect that countries could be
liable for other countries' debt.
Awards and honours:
Mundell was awarded the Guggenheim Fellowship in 1971 and the Nobel
Memorial Prize in Economics in 1999. In 2002 he was made a Companion
of the Order of Canada.
In 1992, Mundell rec eived a Docteur honouris Causa from the University
of Paris. Mundell's honorary professorships and fellowships were from
Brookings Institution, the University of Chicago, the University of
Southern California, McGill University, the University of Pennsylva nia,
the Bologna Center and Renmin University of China. He became a Fellow
of the American Academy of Arts and Sciences in 1998. In June 2005 he
was awarded the Global Economics Prize World Economics Institute in
Kiel, Germany, and in September 2005 he was made a Cavaliere di Gran
Croce del Reale Ordine del Merito sotto il Titolo di San Ludovico by
Principe Don Carlo Ugo di Borbone Parma.
The Mundell International University of Entrepreneurship in the
Zhongguancun district of Beijing, People's Republic of C hina, is named in
his honour.
Mundell won the Nobel Memorial Prize in Economic Science in 1999 and
gave as his prize lecture a speech titled "A Reconsideration of the
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74 History of Economic Thought - II
74 honour for "his a nalysis of monetary and fiscal policy under different
exchange rate regimes and his analysis of optimum currency areas".
Mundell concluded in that lecture that "the international monetary system
depends only on the power configuration of the countries that make it up".
He divided the entire twentieth century into three parts by different
periods of time:
• The first third of the century, from its beginning to the Great
Depression of the 1930s, economics was dominated by the
confrontation of the Federal Rese rve System with the gold standard.
• The second third of the century was from World War II to 1973, when
the international monetary system was dominated by fixing the price
of gold with the US dollar.
• The last third of the century started with the destru ction of the old
monetary system due to the problem of inflation.
With the destruction of the old monetary system, a new international
monetary system was finally founded. Controlling inflation by each
country became a main topic during this era.
Televisio n appearances:
Mundell appeared on CBS's Late Show with David Letterman. His first
appearance was on October 17, 2002, where he gave The Top 10 List on
"Ways My Life has Changed Since Winning the Nobel Prize." In March
2004 he told "You might be a redneck " jokes, followed in May 2004 with
"Yo Mama" jokes. In September 2004 he appeared again, this time to read
excerpts from Paris Hilton's memoir at random moments throughout the
show. In November 2005 he told a series of Rodney Dangerfield's jokes.
On Februa ry 7, 2006, he read Grammy Award nominated song lyrics, the
night before CBS aired the 48th Grammy Awards.
Mundell also appeared on Bloomberg Television many times, mainly
speaking on euro -related topics and other European financial issues.
Mundell has al so appeared on China Central Television's popular Lecture
Room series. He was also a special guest making the ceremonial first
move in Game Five of the 2010 World Chess Championship between
Viswanathan Anand and Veselin Topalov. He also played the opening
move at the Pearl Spring Chess Tournament.
Personal Life:
Mundell was married to Velerie Natsios -Mundell. The couple had a son
and lived in Monteriggioni, Siena, Tuscany, Italy, starting the late 1970s.
He had two sons and a daughter from an earlier marr iage. One of his sons
had predeceased him in a car accident. Mundell died on April 4, 2021,
from cholangiocarcinoma, a cancer of the bile duct. He was aged 88.
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75 Nobel Prize Winners In Economics: Dr. Amartya Sen & Robert. A. Mundell 7.4 QUESTIONS Q1. Write explanatory note on Nobel prize winner in Economics Dr.
Amartya Sen.
Q2. Write explanatory note on Nobel prize winner in Economics Robert
A. Mundell.
Q3. Write note on ‘Nobel Prize’.
7.5 REFERENCES • Sen, Amartya (2010). The Idea of Justice. London: Penguin. ISBN
9780141037851.
• Deneulin, Séverine (2009). "Book Reviews: Intellectual Roots of
Amartya Sen: Aristotle, Adam Smith and Karl Marx". Journal of
Human Development and Capabilities. 10 (2): 305 –306.
doi:10.1080/1945282090294162.
• https://en.wikipedia.org/wiki/Amartya_Sen
• https://www.nobelprize.org/

*****

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76 8
NOBEL PRIZE WINNERS IN
ECONOMICS: JOSEPH STIGLITZ &
DR. ABHIJEET BANARJEE
Unit Structure
8.0 Objectives
8.1 Introduction
8.2 Nobel Prize Winner in Economics: Joseph Stiglitz
8.3 Nobel Prize Winners in Economics: Dr. Abhijeet Banarjee
8.4 Question s
8.5 References
8.0 OBJECTIVES The main objectives behind the study of this unit are as follows -
• To know about the Nobel Prize Winner in Economics: Joseph Stiglitz.
• To know about the Nobel Prize Winners in Economics: Dr. Abhijeet
Banarjee.
8.1 I NTRODUCTION Nobel Prize, any of the prizes (five in number until 1969, when a sixth
was added) that are awarded annually from a fund bequeathed for that
purpose by the Swedish inventor and industrialist Alfred Nobel. The
Nobel Prizes are widely regarded a s the most prestigious awards given for
intellectual achievement in the world. To browse Nobel Prize winners
alphabetically, chronologically, and by prize, see below.
In the will he drafted in 1895, Nobel instructed that most of his fortune be
set aside as a fund for the awarding of five annual prizes “to those who,
during the preceding year, shall have conferred the greatest benefit on
mankind.” These prizes as established by his will are the Nobel Prize for
Physics, the Nobel Prize for Chemistry, the Nobe l Prize for Physiology or
Medicine, the Nobel Prize for Literature, and the Nobel Prize for Peace.
The first distribution of the prizes took place on December 10, 1901, the
fifth anniversary of Nobel’s death. An additional award, the Sveriges
Riksbank Priz e in Economic Sciences in Memory of Alfred Nobel, was
established in 1968 by the Bank of Sweden and was first awarded in 1969.
Although not technically a Nobel Prize, it is identified with the award; its
winners are announced with the Nobel Prize recipient s, and the Prize in
Economic Sciences is presented at the Nobel Prize Award Ceremony.
After Nobel’s death, the Nobel Foundation was set up to carry out the
provisions of his will and to administer his funds. In his will, he had munotes.in

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77 Nobel Prize Winners In Economics: Joseph Stiglitz & Dr. Abhijeet Banarjee stipulated that four differe nt institutions —three Swedish and one
Norwegian —should award the prizes. From Stockholm, the Royal
Swedish Academy of Sciences confers the prizes for physics, chemistry,
and economics, the Karolinska Institute confers the prize for physiology or
medicine, and the Swedish Academy confers the prize for literature. The
Norwegian Nobel Committee based in Oslo confers the prize for peace.
The Nobel Foundation is the legal owner and functional administrator of
the funds and serves as the joint administrative body of the prize -awarding
institutions, but it is not concerned with the prize deliberations or
decisions, which rest exclusively with the four institutions.
In this unit we will study about the nobel prize winners in economics
Joseph Stiglitz and Dr. Abhijit Banarjee in detail.
8.2 NOBEL PRIZE WINNER IN ECONOMICS: JOSEPH STIGLITZ About Joseph Eugene Stiglitz:
Joseph Eugene Stiglitz (born February 9, 1943) is an American New
Keynesian economist, a public policy analyst, and a full professor at
Columbia Unive rsity. He is a recipient of the Nobel Memorial Prize in
Economic Sciences (2001) and the John Bates Clark Medal (1979). He is a
former senior vice president and chief economist of the World Bank. He is
also a former member and chairman of the (US president 's) Council of
Economic Advisers. He is known for his support for the Georgist public
finance theory and for his critical view of the management of
globalization, of laissez -faire economists (whom he calls "free -market
fundamentalists"), and of internation al institutions such as the
International Monetary Fund and the World Bank.
In 2000, Stiglitz founded the Initiative for Policy Dialogue (IPD), a think
tank on international development based at Columbia University. He has
been a member of the Columbia fac ulty since 2001, and received the
university's highest academic rank (university professor) in 2003. He was
the founding chair of the university's Committee on Global Thought. He
also chairs the University of Manchester's Brooks World Poverty Institute.
He was a member of the Pontifical Academy of Social Sciences. In 2009,
the President of the United Nations General Assembly Miguel d'Escoto
Brockmann, appointed Stiglitz as the chairman of the U.N. Commission
on Reforms of the International Monetary and Fina ncial System, where he
oversaw suggested proposals and commissioned a report on reforming the
international monetary and financial system. He served as the chair of the
international Commission on the Measurement of Economic Performance
and Social Progress , appointed by the French President Sarkozy, which
issued its report in 2010, Mismeasuring our Lives: Why GDP doesn't add
up, and currently serves as co -chair of its successor, the High Level Expert
Group on the Measurement of Economic Performance and Soci al
Progress. From 2011 to 2014, Stiglitz was the president of the
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78 History of Economic Thought - II
78 organization of the IEA triennial world congress held near the Dead Sea in
Jordan in June 2014.
Stiglitz has received more tha n 40 honorary degrees, including degrees
from Cambridge and Harvard, and he has been decorated by several
governments including Bolivia, South Korea, Colombia, Ecuador, and
most recently France, where he was appointed as a member of the Legion
of Honor, Of ficer.
In 2011, Stiglitz was named as one of the 100 most influential people in
the world by the Time magazine. Stiglitz's work focuses on income
distribution from a Georgist perspective, asset risk management, corporate
governance, and international trade . He is the author of several books, the
latest being People, Power, and Profits (2019), The Euro: How a Common
Currency Threatens the Future of Europe (2016), The Great Divide:
Unequal Societies and What We Can Do About Them (2015), Rewriting
the Rules of the American Economy: An Agenda for Growth and Shared
Prosperity (2015), and Creating a Learning Society: A New Approach to
Growth Development and Social Progress (2014). He is also one of the 25
leading figures on the Information and Democracy Commission launched
by Reporters Without Borders. According to the Open Syllabus Project,
Stiglitz is the fifth most frequently cited author on college syllabi for
economics courses.
Life and career:
Stiglitz was born in Gary, Indiana into a Jewish family. His mot her was
Charlotte (née Fishman), a schoolteacher, and his father was Nathaniel
David Stiglitz, an insurance salesman. Stiglitz attended Amherst College,
where he was a National Merit Scholar, active on the debate team, and
president of the student governme nt. During his senior year at Amherst
College, he studied at the Massachusetts Institute of Technology (MIT),
where he later pursued graduate work. In Summer 1965, he moved to the
University of Chicago to do research under Hirofumi Uzawa who had
received a n NSF grant. He studied for his PhD from MIT from 1966 to
1967, during which time he also held an MIT assistant professorship.
Stiglitz stated that the particular style of MIT economics suited him well,
describing it as "simple and concrete models, directe d at answering
important and relevant questions."
From 1966 to 1970 he was a research fellow at the University of
Cambridge. Stiglitz initially arrived at Fitzwilliam College, Cambridge as
a Fulbright Scholar in 1965, and he later won a Tapp Junior Resear ch
Fellowship at Gonville and Caius College, Cambridge which was
instrumental in shaping his understanding of Keynes and macroeconomic
theory. In subsequent years, he held academic positions at Yale, Stanford,
Oxford - where he was Drummond Professor of Po litical Economy - and
Princeton. Since 2001, Stiglitz has been a professor at Columbia
University, with appointments at the Business School, the Department of
Economics and the School of International and Public Affairs (SIPA), and munotes.in

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79 Nobel Prize Winners In Economics: Joseph Stiglitz & Dr. Abhijeet Banarjee is an editor of The Econ omists' Voice journal with J. Bradford DeLong
and Aaron Edlin.
He also takes classes for a double -degree program between Sciences Po
Paris and École Polytechnique in 'Economics and Public Policy'. He has
chaired The Brooks World Poverty Institute at the U niversity of
Manchester since 2005. Stiglitz is widely considered a New -Keynesian
economist, although at least one economics journalist says his work
cannot be so clearly categorised.
Stiglitz has played a number of policy roles throughout his career. He
served in the Clinton administration as the chair of the President's Council
of Economic Advisers (1995 –1997). At the World Bank, he served as a
senior vice -president and the chief economist from 1997 to 2000. He was
fired by the World Bank for expressing dissent with its policies.
Stiglitz has advised American president Barack Obama, but has criticized
the Obama Administration's financial -industry rescue plan. He said
whoever designed the Obama administration's bank rescue plan is "either
in the pocket of the banks or they're incompetent."
In October 2008, he was asked by the President of the United Nations
General Assembly to chair a commission drafting a report on the reasons
for and solutions to the financial crisis. In response, the commission
produce d the Stiglitz Report.
On July 25, 2011, Stiglitz participated in the "I Foro Social del 15M"
organized in Madrid, expressing his support to the 15M Movement
protestors.
Stiglitz was the president of the International Economic Association from
2011 to 201 4.
On September 27, 2015, the United Kingdom Labour Party announced
that Stiglitz was to sit on its Economic Advisory Committee along with
five other world -leading economists.
Contributions to economics:
After the 2018 mid -term elections in the United S tates he wrote a
statement about the importance of economic justice to the survival of
democracy worldwide.
Risk aversion:
After getting his Ph.D. from M.I.T. in 1967, Stiglitz co -authored one of his
first papers with Michael Rothschild for the Journal o f Economic Theory
in 1970. Stiglitz and Rothschild built upon works by economists such as
Robert Solow on the concept of risk aversion. Stiglitz and Rothschild
showed three plausible definitions of a variable X being 'more variable'
than a variable Y were all equivalent - Y being equal to X plus noise,
every risk -averse agent preferring Y to X, and Y having more weight in its
tails, and that none of these were always consistent with X having a higher munotes.in

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80 History of Economic Thought - II
80 statistical variance than Y - a commonly used definition at the time. In a
second paper, they analyzed the theoretical consequences of risk aversion
in various circumstances, such as an individual's savings decisions and a
firm's production decisions.
Henry George theorem :
Stiglitz made early contributions to a theory of public finance stating that
an optimal supply of local public goods can be funded entirely through
capture of the land rents generated by those goods (when population
distributions are optimal). Stiglitz dubbed this the 'Henry George theorem'
in reference to the radical classical economist Henry George who
famously advocated for land value tax. The explanation behind Stiglitz's
finding is that rivalry for public goods takes place geographically, so
competition for access to any beneficial public g ood will increase land
values by at least as much as its outlay cost. Furthermore, Stiglitz shows
that a single tax on rents is necessary to provide the optimal supply of
local public investment. Stiglitz also shows how the theorem could be
used to find th e optimal size of a city or firm.
Information asymmetry:
Stiglitz's most famous research was on screening, a technique used by one
economic agent to extract otherwise private information from another. It
was for this contribution to the theory of informat ion asymmetry that he
shared the Nobel Memorial Prize in Economics with George A. Akerlof
and A. Michael Spence in 2001 "for laying the foundations for the theory
of markets with asymmetric information".
Much of Stiglitz's work on information economics dem onstrates situations
in which incomplete information prevents markets from achieving social
efficiency. His paper with Andrew Weiss showed that if banks use interest
rates to infer information about borrowers' types (adverse selection effect),
or to encour age their actions following borrowing (incentive effect), then
credit will be rationed below the optimal level, even in a competitive
market. Stiglitz and Rothschild showed that in an insurance market, firms
have an incentive to undermine a 'pooling equili brium', where all agents
are offered the same full -insurance policy, by offering cheaper partial
insurance that would only be attractive to the low -risk types, meaning that
a competitive market can only achieve partial coverage of agents. Stiglitz
and Gros sman showed that trivially small information acquisition costs
prevent financial markets from achieving complete informational
efficiency, since agents will have an incentive to free -ride on others'
information acquisition, and acquire this information ind irectly by
observing market prices.
Monopolistic competition :
Stiglitz, together with Avinash Dixit, created a tractable model of
monopolistic competition that was an alternative to traditional perfect -
competition models of general equilibrium. They showe d that in the
presence of increasing returns to scale, the entry of firms is socially too munotes.in

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81 Nobel Prize Winners In Economics: Joseph Stiglitz & Dr. Abhijeet Banarjee small. The model was extended to show that when consumers have a
preference for diversity, entry can be socially too large. The modeling
approach was also influential in the fields of trade theory, and industrial
organization, and was used by Paul Krugman in his analysis of the non -
comparative advantage trading patterns.
Shapiro –Stiglitz efficiency wage model :

In the Shapiro –Stiglitz model of efficiency wages, workers are paid at a
level that dissuades shirking. This prevents wages from dropping to
market clearing levels. Full employment cannot be achieved because
workers would sh irk if they were not threatened with the possibility of
unemployment. Because of this, the curve for the no -shirking condition
(labeled NSC) goes to infinity at full employment.
Stiglitz also did research on efficiency wages, and helped create what
became known as the "Shapiro –Stiglitz model" to explain why there is
unemployment even in equilibrium, why wages are not bid down
sufficiently by job seekers (in the absence of minimum wages) so that
everyone who wants a job finds one, and to question whether the
neoclassical paradigm could explain involuntary unemployment. An
answer to these puzzles was proposed by Shapiro and Stiglitz in 1984:
"Unemployment is driven by the information structure of employment".
Two basic observations undergird their analysis:
1. Unlike other forms of capital, humans can choose their level of effort.
2. It is costly for firms to determine how much effort workers are
exerting.
A full description of this model can be found at the links provided. Some
key implications of this model a re:

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82 History of Economic Thought - II
82 1. Wages do not fall enough during recessions to prevent
unemployment from rising :
If the demand for labour falls, this lowers wages. But because wages have
fallen, the probability of 'shirking' (workers not exerting effort) has risen.
If employment levels are to be maintained, through a sufficient lowering
of wages, workers will be less productive than before through the shirking
effect. As a consequence, in the model, wages do not fall enough to
maintain employment levels at the previous state, bec ause firms want to
avoid excessive shirking by their workers. So, unemployment must rise
during recessions, because wages are kept 'too high'.
2. Possible corollary:
Wage sluggishness. Moving from one private cost of hiring (w ∗) to
another private cost of hiring (w ∗∗) will require each firm to repeatedly re -
optimize wages in response to shifting unemployment rate. Firms cannot
cut wages until unemployment rises sufficiently (a coordination problem).
3. The outcome is never Pare to efficient :
Each firm employs too few workers, because the cost of employing too
many workers would be faced by the firm alone, while the cost of
unemployment is shared by the firm and its competitors, indeed it is
shared by all firms that pay taxes in t he country. This means that firms do
not "internalize" the "external" cost of unemployment – they do not factor
how large -scale unemployment harms society when assessing their own
costs. This leads to a negative externality as marginal social cost exceeds
the firm's marginal cost (MSC = Firm's Private Marginal Cost + Marginal
External Cost of increased social unemployment)
4. There are also positive externalities:
Each firm increases the asset value of unemployment for all other firms
when they hire during recessions. By creating hypercompetitive labor
markets, all firms (the winners when laborers compete) experience an
increase in value. However, this effect of increased valuation is very
unapparent, because the first problem (the negative externality of s ub-
optimal hiring) clearly dominates since the 'natural rate of unemployment'
is always too high.
5. Practical implications of Stiglitz's theories :
The practical implications of Stiglitz's work in political economy and their
economic policy implications ha ve been subject to debate. Stiglitz himself
has evolved his political -economic discourse over time.
Once incomplete and imperfect information is introduced, Chicago -school
defenders of the market system cannot sustain descriptive claims of the
Pareto effi ciency of the real world. Thus, Stiglitz's use of rational -
expectations equilibrium assumptions to achieve a more realistic
understanding of capitalism than is usual among rational -expectations
theorists leads, paradoxically, to the conclusion that capital ism deviates munotes.in

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83 Nobel Prize Winners In Economics: Joseph Stiglitz & Dr. Abhijeet Banarjee from the model in a way that justifies state action – socialism – as a
remedy.
The effect of Stiglitz's influence is to make economics even more
presumptively interventionist than Samuelson preferred. Samuelson
treated market failure as an ex ception to the general rule of efficient
markets. But the Greenwald -Stiglitz theorem posits market failure as the
norm, establishing "that government could potentially almost always
improve upon the market's resource allocation." And the Sappington -
Stiglit z theorem "establishes that an ideal government could do better
running an enterprise itself than it could through privatization"
Objections to the adoption of positions suggested by Stiglitz's do not come
from economics itself but mostly from political sc ientists, especially in the
field of sociology, As David L. Prychitko discusses in his "critique" to
Whither Socialism? (see below), although Stiglitz's main economic insight
seems generally correct, it still leaves open great constitutional questions
such as how the coercive institutions of the government should be
constrained and what the relation is between the government and civil
society.
Economic views:
Market efficiency
For Stiglitz, there is no such thing as an invisible hand, in the sense that
free markets lead to efficiency as if guided by unseen forces. According to
Stiglitz:
Whenever there are "externalities" – where the actions of an individual
have impacts on others for which they do not pay or for which they are not
compensated – markets wi ll not work well. But recent research has shown
that these externalities are pervasive, whenever there is imperfect
information or imperfect risk markets – that is always. The real debate
today is about finding the right balance between the market and
gove rnment. Both are needed. They can each complement each other. This
balance will differ from time to time and place to place.
In an interview in 2007, Stiglitz explained further:
The theories that I (and others) helped develop explained why unfettered
mark ets often not only do not lead to social justice, but do not even
produce efficient outcomes. Interestingly, there has been no intellectual
challenge to the refutation of Adam Smith's invisible hand: individuals
and firms, in the pursuit of their self -interest, are not necessarily, or in
general, led as if by an invisible hand, to economic efficiency.
The preceding claim is based on Stiglitz's 1986 paper, "Externalities in
Economies with Imperfect Information and Incomplete Markets", which
describes a gener al methodology to deal with externalities and for
calculating optimal corrective taxes in a general equilibrium context. In
the opening remarks for his prize acceptance at Aula Magna, Stiglitz said: munotes.in

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84 History of Economic Thought - II
84 I hope to show that Information Economics represents a f undamental
change in the prevailing paradigm within economics. Problems of
information are central to understanding not only market economics but
also political economy, and in the last section of this lecture, I explore
some of the implications of informa tion imperfections for political
processes.
Land value tax (Georgism):
Stiglitz argues that land value tax would improve the efficiency and equity
of agricultural economies. Stiglitz believes that societies should rely on a
generalized Henry George princi ple to finance public goods, protect
natural resources, improve land use, and reduce the burden of rents and
taxes on the poor while increasing productive capital formation. Stiglitz
advocates taxing "natural resource rents at as close to 100 percent as
possible" and that a corollary of this principle is that polluters should be
taxed for "activities that generate negative externalities." Stiglitz therefore
asserts that land value taxation is even better than its famous advocate
Henry George thought.
Views on taxation :
Stiglitz maintained the super -rich should pay taxes up to 70% to help deal
with increasing inequality. Stiglitz stated a worldwide income tax rate of
70% on biggest earners "would clearly make sense". Stiglitz maintained
society would become more egalitarian and cohesive. Stiglitz said a
wealth taxes on fortunes acquired during many generations would have a
larger influence. Stiglitz maintains most billionaires acquired much of
their wealth through luck. He maintains Elizabeth Warren proposing a 2%
tax for people with assets of over $50m and 3% on those with overn $1bn
was "very reasonable" and would raise significant revenues that could
improve some United States problems.
Awards and honors :
• In addition to being awarded the Nobel Memorial p rize, Stiglitz has
over 40 honorary doctorates and at least eight honorary professorships
as well as an honorary deanship.
• Stiglitz was elected to the American Academy of Arts and Sciences in
1983, the National Academy of Sciences in 1988, and the Americ an
Philosophical Society in 1997.
• In 2009, he received the Golden Plate Award of the American
Academy of Achievement presented by Awards Council member
Archbishop Desmond Tutu at an awards ceremony at St. George's
Cathedral in Cape Town, South Africa.
• He received the 2010 Gerald Loeb Awards for Commentary for
"Capitalist Fools and Wall Street's Toxic Message".
• In 2011, he was named by Foreign Policy magazine on its list of top
global thinkers. munotes.in

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85 Nobel Prize Winners In Economics: Joseph Stiglitz & Dr. Abhijeet Banarjee • In February 2012, he was awarded the Legion of Honor, in the rank of
Officer, by the French ambassador in the United States François
Delattre.
• Stiglitz was elected a Foreign Member of the Royal Society
(ForMemRS) in 2009.
• Stiglitz was awarded the 2018 Sydney Peace Prize.
Personal life:
Stiglitz marri ed Jane Hannaway in 1978 but the couple later divorced. He
married for the third time on October 28, 2004 to Anya Schiffrin, who
works at the School of International and Public Affairs at Columbia
University. He has four children and three grandchildren.
8.3 NOBEL PRIZE WINNERS IN ECONOMICS: DR. ABHIJEET BANARJEE Abhijit Vinayak Banerjee (born 21 February 1961) is an Indian -American
economist who is currently the Ford Foundation International Professor of
Economics at Massachusetts Institute of Technology. Banerjee shared the
2019 Nobel Memorial Prize in Economic Sciences with Esther Duflo and
Michael Kremer "for their experimental approach to alleviating global
poverty". He and Esther Duflo, who are married, are the sixth married
couple to jointly win a Nob el Prize.
Early life and education :
Abhijit Banerjee was born to a Bengali family in Mumbai. His father,
Dipak Banerjee, was a professor of economics at Presidency College,
Calcutta, and his mother Nirmala Banerjee (née Patankar), a professor of
economics at the Centre for Studies in Social Sciences, Calcutta. His
father, Dipak Banerjee, earned a PhD in economics from the London
School of Economics.
He received his school education in South Point High School, a renowned
educational institution in Calcutta . After his schooling, he took admission
at Presidency College, then an affiliated college of the University of
Calcutta and now an autonomous university, where he completed his
BSc(H) degree in economics in 1981. Later, he completed his M.A. in
economics at the While studying in JNU, he was arrested and imprisoned
in Tihar Jail during a protest after students gheraoed the then Vice
Chancellor PN Srivastava of the university. He was released on bail and
charges were subsequently dropped against the student s. Later, he went on
to obtain a PhD from Harvard University in 1988. The subject of his
doctoral thesis was "Essays in Information Economics."
Academic career:
Banerjee is currently the Ford Foundation International Professor of
Economics at the Massachu setts Institute of Technology; he has taught at munotes.in

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86 History of Economic Thought - II
86 Harvard University and Princeton University. He has also been a
Guggenheim Fellow and an Alfred P. Sloan Fellow.

His work focuses on development economics. Together with Esther Duflo
he has discussed field experiments as an important methodology to
discover causal relationships in economics. He was elected a fellow of the
American Academy of Arts and Sciences in 2004. In 2009, he received the
Infosys Prize in the social sciences (economics) category. He serv ed on
the Social Sciences jury for the Infosys Prize in 2018. In 2012, he shared
the Gerald Loeb Award Honorable Mention for Business Book with co -
author Esther Duflo for their book Poor Economics.
In 2013, he was named by the United Nations Secretary Gen eral Ban Ki -
Moon to a panel of experts tasked with updating the Millennium
Development Goals after 2015 (their expiration date).
In 2014, he received the Bernhard -Harms -Prize from the Kiel Institute for
the World Economy.
In 2019, he delivered Export -Import Bank of India's 34th Commencement
Day Annual Lecture on Redesigning Social Policy.
In 2019, he was awarded the Nobel Prize in Economics, together with
Esther Duflo and Michael Kremer, “for their experimental approach to
alleviating global poverty."
2019 Nobel Memorial Prize in Economic Sciences:
The 2019 Nobel Memorial Prize in Economic Sciences was awarded
jointly to the economist couple Abhijit Banerjee (1961), Esther Duflo -
Banerjee (1972) and their colleague Michael Kremer (1964) "for their
experim ental approach to alleviating global poverty." Banerjee and Duflo
are the sixth married couple to jointly win a Nobel Prize. The pressed
release of the Royal Swedish Academy of Sciences noted:
"The research conducted by this year's Laureates has considerab ly
improved our ability to fight global poverty. In just two decades, their new
experiment -based approach has transformed development economics,
which is now a flourishing field of research. They have laid the
foundations of the best way to design measures that reduce global
poverty"
Their key contribution to economics is the usage of randomized controlled
trials (RCT) in development economics.
Research and work in India:
Banerjee and his co -workers try to measure the effectiveness of actions
(such as gove rnment programmes) in improving people's lives. For this,
they use randomized controlled trials, similar to clinical trials in medical
research. For example, although polio vaccination is freely available in
India, many mothers were not bringing their chil dren for the vaccination munotes.in

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87 Nobel Prize Winners In Economics: Joseph Stiglitz & Dr. Abhijeet Banarjee drives. Banerjee and Prof. Esther Duflo, also from MIT, tried an
experiment in Rajasthan, where they gave a bag of pulses to mothers who
vaccinated their children. Soon, the immunization rate went up in the
region. In another exper iment, they found that learning outcomes
improved in schools that were provided with teaching assistants to help
students with special needs.
Banerjee is a co -founder of Abdul Latif Jameel Poverty Action Lab (along
with economists Esther Duflo and Sendhil Mullainathan). In India he
serves on the academic advisory board of Plaksha University, a science
and technology university established in 2010.
Personal life
Abhijit Banerjee was married to Dr. Arundhati Tuli Banerjee, a lecturer of
literature at MIT. A bhijit and Arundhati had one son together and later
divorced. Their son, born in 1991, died in an accident in 2016.
In 2015, Banerjee married his co -researcher, MIT professor Esther Duflo;
they have two children. Banerjee was a joint supervisor of Duflo's PhD in
economics at MIT in 1999. Duflo is also a Professor of Poverty
Alleviation and Development Economics at MIT.
8.4 QUESTIONS Q1. Write explanatory note on Nobel prize winner in Economics Joseph
Stiglitz.
Q2. Write explanatory note on Nobel prize wi nner in Economics Dr.
Abhijit Banarjee.
8.5 REFERENCE https://www.nobelprize.org/


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Question Paper Pattern (For IDOL Students Only)
TYB A SE M VI (Economics) – for all Six papers

Time: Three Hours Total Marks: 100 Marks
Please Check whether you have got the right question paper.
N.B. 1) All questions are compulsory. Attempt Sub questi on (A) or (B)
of Question no. 5
2) Figures to the right indicate marks.
3) Draw neat diagrams wherever necessary.
Q1. Answer any TWO questions of the following. 20 Marks
a.
b.
c.
Q2. Answer any TWO questions of the fol lowing. 20 Marks
a.
b.
c.
Q3. Answer any TWO questions of the following. 20 Marks
a.
b.
c.
Q4. Answer any TWO questions of the following. 20 Marks
a.
b.
c.
Q5. (A) Write short notes on any TWO of the following.
20 Marks
a.
b.
c.
d.
OR
(B) Multiple choice questions, select an appropriate option
(20 MCQs) 20 Marks

****** munotes.in