Economic Sutra: Ancient Indian Antecedents to Economic Thought

 by Prof. Satish Y. Deodhar

Science philosopher Michael Ruse has said that science without history is like a man without memory. Economist Joseph Schumpeter too argued that economic history, among other benefits, provides insight into the ways of working of the human mind. His book A History of Economic Analysis and Eric Roll's A History of Economic Thought are masterpieces of the history of economic analysis and thought. While both the books refer to the ancient West Asian and Greco-Roman traditions, ancient Oriental contributions find no place in them. In fact, while reviewing Schumpeter's book, late Frank Knight, the famous economist from University of Chicago had rued that Indian thought did not find any mention in the otherwise grandly conceived treatise.

Right from the pre-independence era, Indians have had to prioritize their efforts on issues of poverty, progress, and plurality. Though these issues will continue to dominate, India has come of age in the comity of nations, and there is a renewed interest in retrieving her memory. For example, if you have an interest in Sanskrit literature, one learns about the protagonist Kautilya from the Sanskrit play Mudrarakshasa by Vishakhadatta. In that play, Kautilya is portrayed as the prime minister of King Chandragupta Maurya. Kautilya's image as a character in this Sanskrit drama changed; however when an old manuscript of Arthashatra was found in the early 20th century. Decades later, from 1965 onwards, a critical edition in Sanskrit, its literal translation, and a commentary was sequentially published by R.P. Kangle. These three volumes truly established Kautilya as a scholar in flesh and blood and not just a protagonist of a Sanskrit play.

As I read the volumes, it became clear that Kautilya was indeed an economist of yore who walked on this land circa 4th century BCE. Interestingly, Kautilya mentions in his treatise that his was a received knowledge and he refers to quite a few sages that appear in ancient literature - from Vedas to Mahabharata. In the past, Kautilya has been referred to as the Machiavelli of India. However, comparing the treatises they wrote, one notices that Machiavelli wrote his book, The Prince in the 16th century and Kautilya wrote Arthashastra almost two millennia earlier! Moreover, while The Prince focuses only on tactical statecraft for the continuation of a ruler; Arthashastra covers statecraft, civil administration, international relations, and importantly, economic policies of a nation. It is Machiavelli who should be called the Kautilya of Italy!

In olden times, philosophers had thought of softening the state's coercive power of taxation. Jean-Baptiste Colbert, the 17th-century finance minister of France had opined, "The art of taxation consists in so plucking the goose as to obtain the largest number of feathers with the least possible amount of hissing." Though nicely put, this definition of taxation still seems a bit exploitative in nature. More than two millennia earlier, however, the art of taxation was described as a symbiotic process in the epic Mahabharata. Bhishma, the grand-old patriarch of the Kuru clan, tells Yudhishthira, "A king should tax his kingdom like a honeybee gathering honey from the flowering plants". Just as the bee gathers honey without touching the bloom of the flower and leads to pollination, the message is that the process of collecting taxes be such that it maintains the health of the firm and provides public infrastructure in return. Much later, Kautilya makes a similar statement saying that taxes should be levied in the same way as the sustainable development of orchards requires plucking only the ripened fruits and leaving un-ripened ones untouched. Today, it is no surprise that start-ups get all kinds of exemptions from taxes.

It was also well understood that taxes are not meant for the conspicuous consumption of the ruler. If sage Narada advises Yudhishthira to spent at worst 50% of tax revenue on himself and state administration, leaving the rest for developmental work; Kautilya was even stricter in advising a king not to spend more than 25% of tax revenue on government employees. This is a proto-economic idea resembling modern-day economists' advice that the revenue deficit must be zero. That the important purpose of tax revenue was for spending on public goods and merit goods was well understood then. For example, while the modern land-grant universities were established in the US during the late 19th century; the ancient Nalanda university that was situated in the present-day Indian state of Bihar was one of the original examples of a land-grant university. The Nalanda university complex was founded with a large munificence and village-grant from the Vaishnava king Kumargupta I circa 5th century CE. Such land-grant could be used by the university administration for constructing building infrastructure and secure a source of income for the university through tax revenue coming from the village economy. Even the literati knew about the role of taxes and public goods. For example, while Kalidasa is known more for his epic poem Meghadutam or Cloud Messenger, not many know that he also talked about the same cloud in Raghuvamsham as a government treasury. He writes that just as the Sun evaporates water, turns it in the form of clouds, and brings it in the following year in the form of rains for agriculture, so also government taxes people and brings the revenue back in the form of public goods later.

Quite a few of you would know the characters Shylock, the Jewish moneylender, and Antonio, the merchant-borrower from the Shakespeare's 16th century play Merchant of Venice. The witty quote from the play, "a pound of flesh and not a drop of blood," has a reference to the fact that the outwitted Shylock was prevented from charging interest as it was considered a sinful act. Greek and Roman philosophers too condemned charging interest. If Aristotle considered money as barren, Cato the Elder considered charging interest as bad as murder. In ancient India, references to debt appear in the Vedas. One also finds Arjuna advising Yudhishthira that capital begets capital in the same way as domesticated elephants are used to capture wild elephants! In fact, interest as a price for the service of accessing others' surplus funds was understood then. Circa 700 BCE Panini the grammarian had defined simple interest in per cent terms as also the terms for daily compounding and monthly compounding. Later, Kautilya went on to describe the variability of interest rate which depended upon the riskiness of a 'borrower's venture.

In ancient Indian literature, socio-cultural and religious aspects also seem to have been seamlessly integrated with economic ideas. For example, goddess Lakshmi has been a representation of abundance and various kinds of wealth one could acquire. Eight forms of wealth or Ashta Lakshmi were identified. Among others, it included items such as chattels, grains, livestock, knowledge, and, of course, money. Importantly, however, land or earth was never considered as wealth. Sanskrit names for the Earth, Vasudha and Vasundhara mean wealth-producing and wealth-holding, indicating that land is a source of or store of material wealth and not wealth in itself. It is a fundamental fact that like air and sunlight, a person or a household needs space to exist as well as to labour on it. If this was recognized by Karl Marx in the 19th century calling it locus standi and field of activity in his treatise, Das Capital, the same was clearly emphasized much earlier in the 2nd century by the lawmaker Narada. He says, "Householder's living space and his field are considered as the two fundamentals of his existence. Therefore, let not the king upset either of them; for that is the root of householders". The origins of this principle are also found in Jaimini's Purva Mimamsa circa 4th century BCE. This concept was in contrast to the western concept of eminent domain, which meant that the Lord owned all property including land, and, therefore, his representative on earth, the king, had the right to confiscate land from the people. The origins of the draconian land acquisition act in India starting with the British rule lay in this eminent domain principle.

Modern standard economics assumes the maximizing behaviour of individuals and firms. Utility maximization is a unidimensional objective with stable preferences. Recent studies in behavioural economics suggest that this approach may be a bit inadequate. An individual can have more than one life-objective. Preferences may in fact change subject to stages of life and occupation. Amartya Sen, in his paper Rational Fools argues that beyond self-interest, there are moral values or commitments that an individual possesses. To paraphrase him, if one were to see a person being tortured and that makes one sick and reach out, he/she acts out of sympathy and self-interest which would be part of his/her utility function. However, if one thinks that torturing is wrong and hence reaches out, one acts out of commitment to ethical values. Ancient Indian literature calls this as a righteous act or Dharma. Importantly, dharma forms one of the four-fold objectives of life. The other three include artha or material acquisitions, kama or pleasure and love, and moksha or liberation. The relative importance of these objectives, in turn, may change as one would pass through the four-fold ashramas or life-stages. These life-stages are: brahmacharya or the student-life, gruhastha, or the householder, vanaprastha or the retirement stage, and sanyaas or the renunciation stage. Moreover, it was only practical to assume that the four-fold objectives of life would also get conditioned by one's varna or profession.

Schumpeter said, "We do stand to profit from visits to the lumber room, provided we do not stay there too long". Dear Readers, if I have given you a sneak preview of the lumber room and you want to step in for a while, do take a look at my book 'Economic Sutra: Ancient Indian Antecedents to Economic Thought'.

Deodhar, S. (2019). Economic Sutra: Ancient Indian Antecedents to Economic Thought, Gurgaon, India: Penguin Random House

About The Author

Prof. Satish Y. Deodhar

Prof. Satish Y. Deodhar

Ph.D. (Agricultural Economics), The Ohio State University, Columbus, USA M.A. (Economics), Gokhale Institute of Politics and Economics, Pune, India B.A. (Economics), Gokhale Institute of Politics and Economics, Pune, India