Caste as an Economic Institution: Formalizing Ambedkar’s Theory of Graded Inequality

Abstract

The caste system in India has always been understood as a social order. This paper proposes an alternative conception it views the caste system as an economic institution. Using Ambedkar’s theory of ‘graded inequality’, the paper attempts to construct a formal framework to understand caste in economic terms. Using Ambedkar’s writings in conjunction with contemporary empirical studies and government data, we show how caste stratification impacts labor markets, human capital formation, and resource access. The most important result is that lower-caste groups, on average, have less wealth, possess fewer assets, and face more obstacles to upward socio-economic mobility. The evidence suggests that caste operates as a market-controlled system. In other words, it disallows socio-economic mobility by allocating pre-determined economic roles and exercising economic control of group advantages and disadvantages. This paper is the first to formalize Ambedkar’s theory of graded inequality and thus is a major step in knowing the costs of caste, particularly in informing more constructive inclusion policies. This is particularly important as it highlights the importance of policies that treat caste as an economic structure. This is important as it reinforces economic social justice.