Evolution of Modern Economic Thought

Module 1: Evolution of Economic Thought

Dadabhai Naoroji (1825 – 1917)

• Known as the Grand Old Man of India and father of Indian nationalism.

• From a wealthy Parsi family in Bombay; an intellectual, educator, and political leader.

• Served as a Member of Parliament (MP) in the UK and the first Asian to be in the House of Commons (1892-1895).

• Co-founded Indian National Congress along with A.O. Hume.

• Early academic career:

  • Professor at Elphinstone Institution (1850); first Indian in this role.

  • Founded Rast Goftar (The Truth Teller) to clarify Zoroastrian concepts (1854).

  • Later appointed as Professor of Mathematics and Natural Philosophy in Mumbai, then to Gujarati at University College London.

• Held various prestigious positions, including Prime Minister of Baroda.

• His significant work, Poverty and Un-British Rule in India (1901), highlighted the draining of India’s wealth by Britain.

Economic Ideas of Naoroji

Poverty

• Identified poverty as India's major problem, rooted in British exploitation.

• Estimated Bombay Presidency's per capita income (1867-70) at Rs. 20; noted a need for Rs. 34 to meet basic needs.

The Drain Theory

• Naoroji’s Drain Theory emphasized the exportation of wealth to England due to colonial rule:

  • Identified six factors contributing to external drain:

    1. India is governed by a foreign power.

    2. Lack of immigrant investment in labor and capital.

    3. India covers costs of British civil administration and military presence.

    4. India financially supports empire-related expenses.

    5. Free trade policies disadvantage India’s economic prospects.

    6. Local wealth primarily benefits foreign personnel.

• Highlighted various forms of wealth drainage, including salaries, pensions, and remittances from British officials.

• Estimated rise in drain from 3 million pounds in early 19th century to 30 million pounds by the 20th century.

M.K. Gandhi (1869-1948)

• Developed Gandhian economics focusing on ethical foundations and socio-economic harmony.

• Key Principles:

  • Truth, Non-violence, Dignity of Labour, Simplicity.

  • Advocated for spiritual development over materialism.

  • Opposed capitalism as exploitative.

Salient Features of Gandhi's Economic Thought

Village Republics and Sarvodaya

• Promoted village self-sufficiency (Grama Swaraj).

• Advocated for Khadi programs and rural civilization development.

On Machinery

• Opposed large-scale, labor-saving machinery but supported lightening burdens of laborers.

• Acknowledged risk of technological unemployment.

Industrialization

• Criticized large-scale industrialization; advocated for village industries.

• Saw industrialization as capitalism's byproduct, leading to wealth concentration.

Decentralization

• Favored small-scale, diverse production.

• Envisioned coordinated village communities.

Bread Labour

• Emphasized the dignity of manual labor.

Doctrine of Trusteeship

• Suggested wealthy individuals act as trustees for society’s welfare.

• Advocated for equitable distribution of wealth and limited private ownership.

On Population and Food

• Opposed food controls; believed they create artificial scarcity.

• Advocated self-control for population management.

Relevance of Gandhian Economic Thought to India

• Critics deemed Gandhian economics utopian.

• Rooted in ethical values; aims for social justice without violence.

• Advocated labor-intensive industries over machinery.

• Focus on the weaker sections and environmental sustainability.

Dr. B.R. Ambedkar (1891-1956)

• Celebrated as the Father of the Indian Constitution; keenly studied economics.

• Advocated for mixed economy and criticized capitalism.

• Emphasized addressing land system issues for economic progress.

Economic Ideas of Ambedkar

Land Reform

• Concerned with issues of fragmented and small landholdings.

• Advocated consolidation and state acquisition of lands for efficient use.

Currency Problems

• Critiqued gold standard; proposed managed inconvertible currency system.

• Emphasized the need for state management to ensure economic equity.

Economics of Caste System

• Caste system as an impediment to economic growth and individual labor rights.

• Asserted that caste restrictions led to unemployment and resource inefficiencies.

• Advocated for the emancipation of the socioeconomic structures.

Amartya Sen (1933-Present)

• Nobel Prize in Economics (1998) and key figure in welfare economics.

• Contributed to understanding famine causes beyond food scarcity, emphasizing distribution inequalities.

• Developed Human Development Index; years spent teaching at prestigious universities.

• Personal experience during the 1943 Bengal famine informed his work on poverty and hunger.