Keynes and Indian currency

The legendary figure Vedagiri Shanumugasundaram (b. 1926), who taught Indian economic thought while serving as Head of the Department of Economics at the University of Madras, expressed a blind adoration so characteristic of recent Indian scholarship: J.M.

Keynes published his first book Indian Currency and Finance in 1913, analysing the workings of India's monetary system. In the same year, he was appointed as member of the Royal Com­mission on Indian Currency and Finance chaired by J.A. Chamberlain. Many of the chapters were already drafted before Keynes was appointed, while Sir Shapuιji Buιjorji Broacha was the only Indian member. Both Keynes's book and the Commission's report created a heated debate. J. Shield Nicholson criticized the Commission's report and believed that ‘a large part of the report is substantially in accord with the treatment (sic) by Mr J.M. Keynes in his recent book' (Doraiswami, 1914). One of the key aspects was that Keynes believed that the gold-exchange standard was suitable for India, rather than the traditional gold standard. This was strongly contested by many within India and abroad as well.

S.V. Doraiswami was a well-known economist from Madras (now Chennai) who criticized Keynes's arguments. In December 1914, Doraiswami published his own book entitled Indian Finance, Currency and Banking. He had already published his views in outlets like London's Statist, and his book was reviewed internationally. According to Doraiswami, Keynes ‘seems to have dominated the Commission, and he holds the view that the gold exchange standard marks an advanced stage in monetary evolution. I am not aware of any economist of repute who holds that view. Be that as it may, the Indian currency system should not be tampered with to suit the whims of an armchair doctrinaire' (1914, 109).

Moreover, in the early 1920s, B.R. Ambedkar also criticized Keynes's arguments on the gold- exchange standard. Ambedkar (1923, 256) declared that ‘if stability of purchasing power in terms of commodities in general is the criterion for judging a system of currency, then few students of economics will be found to agree with Prof. Keynes'. Ambedkar argued that the gold-exchange standard did not have the institutional stability of the gold standard, as in the former system additions to the supply of currency depended on the actions of the issuer, and in the Indian context at least, he demonstrated that prices varied significantly more under the former system than the latter. He (1923, 257) continued, ‘Keynes scoffs at the view that there cannot be a gold standard without a gold currency as pure nonsense. He seems to hold that a currency and a standard of value are two different things. Surely there he is wrong. Because a society needs a medium of exchange, a standard of value, and a store of value to sustain its economic life, it is positively erroneous to argue that these three functions can be performed by different instrumentalities'.

Bhalchandra P. Adarkar (d. 1988) was unique among Keynes's many Indian students both personally and intellectually. Adarkar was Professor of Economics in Allahabad University. He produced works such as Theory of Monetary Policy (1935), The Indian Constitution (1938) and Indian Fiscal Policy (1941). His contributions on monetary theory, federal finance and fiscal policy are classics (Khatkhate, 1988). The high esteem in which Adarkar was held by Keynes, who was not only his supervisor for the Economics Tripos at King's but also a mentor (Chandavarkar, 1988), was shown by the fact that in 1932 Keynes wrote: ‘I consider him to be the most promising Indian student of economics, as far as original work is concerned'.