CHAPTER 5
K A U T I L Y A ’S E C O N O M IC
ID E A S A N D V A R IO U S
S C H O O L S O F E C O N O M IC
THOUGHT
5.1 SIMILARITIES BETWEEN KAUTILYA’S ECONOMIC
IDEAS AND TENETS OF VARIOUS SCHOOLS OF
ECONOMIC THOUGHT
An attempt has been made in this chapter to prove that there are many
similarities between Kautilya’s economic ideas and the tenets of various
schools of economic thought right from the very ancient times. The analysis
proceeds along the following line - first a very brief discussion of the given
school of thought has been taken up and in the succeeding paragraph,
Kautilya’s view that resemble the given school of thought have been taken
up.
H HEBREW ECONOMIC THOUGHT (2500 BC-150 BC)
Hebrew economic thought is based on metaphysical and ethical
considerations. Corruption was punishable whereas honesty was rewarded.
Commerce was regulated by laws. There were special arrangements to help
the poor people by granting them tithe as was permitted under the law of the
land.
Kautilya was a political philosopher. Arthasastra included Kama
(aesthetic), Artha (economic) and Dharma (religious) aspects of worldly life
as separated from Moksha (subject related to non worldly life). All this
points to sound metaphysical grounding on which the treatise of Kautilya is
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based. In modem terminology his text Arthasastra is a perfect combination
of jurisprudence, economics and politics. Kautilya admits the prevalence of
corrupt practices in government administration and mentions punishing the
corrupt and also rewarding the honest. Kautilya has designed an elaborate
system of laws to regulate trade and commerce, particularly to stop the
exploitation of consumers at the hand of traders. Kautilya was a pioneer of
social security system that has been well mentioned in his text. All this
points to the ethical concerns present in the Arthasastra.
2)GREEK ECONOMIC THOUGHT (427 BC-322 B Q
Plato, Aristotle and Xenophon mainly developed the Greek economic
thought. They considered economics as an art dealing with wealth getting
and wealth spending. These writers combined economic reasoning with
general philosophy of the management of state and society.
In his Arthasastra, Kautilya emphasizes the role of wealth
accumulation. His treatise combines economic reasoning with general
philosophy of the management of state and society. Arthasastra is considered
to be an excellent ancient piece of work on statecraft relevant in modem
times too.
3) ROMAN ECONOMIC THOUGHT
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Roman economic thought was mainly derived from the Greek economic
thought and its important constituents consisted the following (i)
importance of small-scale farming;
(ii)
opposition to usury;
(iii)
the importance of utility for the determination of exchange value of a
commodity;
(iv)
condemnation of slave labour and
(v)
significance attached to incentives given to labour for the growth of
industrial production.
Kautilyan economic ideas too mention the importance of
agriculture but not specifically small-scale farming, importance of utility
(along with cost of production) in determining exchange value of a
commodity and the system of incentives for labour. Kautilya has not
opposed system of slavery but he brought slave labourers under the
regulation of the state. Kautilya opposed usury. Therefore, interest rates
were to be state determined.
4) MEDIEVAL ECONOMIC THOUGHT (1225 AD - 1274 API
St. Thomas Aquinas mainly developed medieval economic thought and it is
based on moral questions of right and wrong, justice and natural law.
According to Aquinas value is just price which includes the cost of
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production, risk and carriage charges. Aquinas was against usury but was in
favour of providing compensation for damages and delay to the lenders.
Aquinas favored private property and expected the state to perform many
important functions such as the maintenance and building of roads,
providing a good system of coinage, weights and measures and for
eliminating poverty apart from maintaining the regular law and order
situation.
One finds the mention of just price in Kautilyan economics as a
summation of average cost of production (cost of raw materials + wages +
interest) and profit margin. Kautilya condemned usury and also favored
compensation for damages and delay to lenders. One finds the mention of
the system of private property in the Arthasastra and also its protection by
the state. In the Arthasastra, Kautilya instructs the state to take up the task of
erecting infrastructure, providing good system of coinage, weights and
measures and maintaining law and order through espionage and the system
of punishments.
5) MERCANTILISM (1500 AD - 1750 AD)
Intellectuals like Petty, North, Locke, Hume and Cantillon formed the core
of Mercantilist school of economic thought also known as bullionism or
cameralism. The main theme of mercantilism is the enhancement of state
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power. State is considered to be the supreme. State power was equated with
the magnitude of wealth that the state possessed. To enhance wealth,
mercantilists advocated the principle of surplus balance of trade that
required exports to be greater than imports. Mercantilists also advocated
strong government for giving protection to the markets and for maintaining
law and order situation. Other principles included encouraging population
growth, multiple tax system, lower rate of interest and wages and mild
inflation. Mercantilist preferred market value against just price.
Measures enunciated in the Arthasastra are meant for basically
enhancing state power for the welfare of the people. Kautilya advocates
trade with other nations only if it was to be profitable. He also emphasizes
more on exports. Implicitly Kautilya was for surplus but he never makes this
explicit. Kautilya designed a multiple system of taxation and was in favour
of lower rate of interest to promote trade and investment. Kautilya laid down
rules and regulation for the protection of traders. Kautilya favoured
increasing population.
6) PHYSIOCRACY (1750 AD - 1776 ADI
Quesnay and Turgot were the leading physiocrats. The essence of
physiocracy lay in the philosophy of natural order. Physiocrats favoured a
system of economic liberty or laissez-faire and were against state
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interference in economic matters. They considered agriculture to be the only
productive activity. They also advocated a single and direct tax on land.
Agriculture was the most important profession in Kautilyan
times. Enough has been written in the Arthasastra to highlight the
importance of agriculture. Other professions also received attention.
Kautilya also advocates a single direct tax on agriculture (called bhaga, onesixth of the produce of land was to be given to the state). But unlike
physiocrats Kautilya was in favour of state regulated market system.
7) CLASSICAL SCHOOL (1750 AD - 1850 AD)
Adam Smith, Robert Malthus, David Ricardo and J S Mill were the founders
of the Classical school of economic thought. Chief tenets of Classical school
can be listed as follows i)
welfare of each individual leads to the welfare of the society;
ii)
laissez faire is the best form of economic system that can maximize
social welfare;
iii)
population growth and capital accumulation are the necessary
conditions of growth. Profit is the prime mover of capitalist society;
iv)
price is basically determined by cost conditions;
v)
factor prices are determined by marginal productivity of factors and
vi)
free trade is advantageous.
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One does not find one to one correspondence between Kautilya’s
economic ideas and principles of classical school. Some similarities are
observable. For instance, Kautilya takes into account both way relationship
between individual and social welfare - individual welfare determines social
welfare and social welfare affects individual welfare - and accordingly he
devised measures to increase both individual and social welfare. Kautilya
was not totally against the laissez faire system but was well aware about its
limitations. He was in favor of state regulated market system. Kautilya also
recognized the importance of capital accumulation in the growth process and
allowed traders to earn profit that were to be determined by the state.
Kautilya considers cost as an important factor in price determination. He
also accepts the advantage of trade but is against free trade and therefore
advocated a system of state regulated trade. There is an element of marginal
productivity present in Kautilya’s discussion about the determination of
wages.
8) .HISTORICAL SCHOOL
(\
843 AD - 1883 ATT>
Historians opined that an individual as a social being must be studied with
reference to environment and society in which he lives. They observed that
without the study of social organizations and institutions it is not possible to
get a fruitful result. They considered the organic view of society. They laid
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emphasis on the study of economic phenomena with reference to the social
facts. The Historical School gave importance to the study of the past which
can provide an important insight into the present events. Historians were
nationalists of the first order. They favoured national system of development
and the growth of nationalistic economic system. They advocated the
importance of state in the economic activity of a nation and were of the
opinion that without the help of the state, national development is
impossible.
Kautilya too was a nationalist of the first order. He advocated
state intervention to promote national development. More importantly,
Kautilya developed his economic ideas with reference to the society and
environment in which he lived. His approach to economics was holistic. He
considered the past as well. He refers to the Arthasastras written earlier by
Brahaspati and other leanred people before writing his own Arthasastra. In
the very first verse of his treatise, he acknowledges his indebtedness to such
learned people from whom he has borrowed his own ideas.
9) AUSTRIAN SCHOOL (1840 AD - 1926 AD)
Carl Menger was the chief economist belonging to the Austrian School. He
emphasized on subjective factors and defended self-interest, utility
maximization and complete knowledge as the grounds upon which
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economics must be built. Subjective value is the basis of price
determination. But another Austrian economist Wieser stated that value is
determined by cost and utility. Wieser also advocates selected governmental
interferences (primarily to eliminate bad effects of monopoly; to avoid
concentration of economic power; to provide public goods like education,
police and defence and where the product is to be supplied under uncertainty
or where the profit is too low for the private enterprise to get attracted).
Weiser s social economics is a normative programme for economic policy.
Kautilya asserted the fact of self-interest maximizing behaviour
of individual economic agents. But did not consider complete knowledge to
be the norm. He was aware about the incomplete knowledge possessed by
the consumers and so set up a system of consumer protection. In Kautilyan
system price is determined by both subjective factor (utility) and cost of
production. Kautilya favored governmental intervention in number of
spheres of economic activity as he was convinced that without this social
welfare couldn’t be maximized.
10) MARGINALIST SCHOOL 11870 AD - 1914 A TY t
The basic objective of marginal economics was to search for the conditions
under which optimum results could be obtained by the allocation of scarce
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resources. The marginal economists wanted to attain the maximization of
certain objective functions like profit, utility and so on.
Kautilya recognized the existence of scarcity of resources and
the need to obtain optimum results by allocation of scarce resources. But in
Kautilyan economics the state and not the market will do such an allocation
of resources. Moreover, Kautilya was also aware about the maximizing
behaviour of economic agents. So he writes traders would try to maximize
profit at any cost.
1n LAUSSANE SCHOOL (1834 AD - 1923 AD)
Leon Walras and Vilffedo Pareto, pioneers of the Laussane School
attempted to show the general interdependence of the entire economic
system and emphasized to study the interrelations and interdependence
among the variables for the proper understanding of the economy as a
whole.
In the Arthasastra one finds interdependence among different
sectors of the economy and Kautilya takes note of such interrelations in his
analysis to properly understand the functioning of the economy.
12) SOCIALIST SCHOOL (1805 AD - 1924 ADI
Socialist School consisted of intellectual stalwarts like Karl Rodbertus and
Karl Marx. V I Lenin also belonged to this school. A common thread
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running through the writings of Rodbertus and Marx was to highlight the
exploitative nature of capitalist society and therefore advocated state
socialism for the betterment of the economic lot of workers.
One does not find anything directly Marxian in Kautilyan
economics but when one goes through Kautilyan ideas on economic system
one cannot stop from concluding that Marxian theme is hidden in Kautilya’ s
writings. Kautilya’s state regulated market system draws close to Marx’s
state socialism. Kautilya too like Marx fears the exploitation of labour at the
hands of employers and so has devised an elaborate legal system to stop the
same.
13) WELFARE ECONOMICS (1858 AD - 1959 AD)
John Hobson and A C Pigou were the pioneers of Welfare Economics.
According to them Classical economics gives too much emphasis on free
competition, market price and individualism. Market price cannot be a
proper index o f economic welfare. Classical economics is also unduly
production oriented. What is more important is however, consumption. They
also highlight inequalities present in the industrial structure and advocate
balancing human cost and utility. Hobson was in favour of reforming socio­
economic system to improve the distribution aspect (particularly the surplus
product), institute social control (to counterbalance monopolistic industries)
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and establishing equilibrium between production and consumption. For all
these to be achieved, state intervention was a must. Pigou too was aware of
frictions that may develop under laissez faire and he particularly highlights
the disharmony between private and social interest. And to establish
harmony state intervention is inevitable.
Kautilya has embodied the importance o f consumption in his
Arthasastra indirectly. Through his social security measures he wants to
ensure consumption for all. He advocates wider state control in productive
activities of manufacturing and designs the tax-incentive system to take into
account social costs and social benefits.
14) KEYNESIAN ECONOMICS (1883 AD - 1946 AD)
John Maynard Keynes revolutionized the way economics was thought and
practiced. He brought to the fore the importance of macroeconomics and
policymaking. Particularly his prescription of state intervention to cure
depression through the use of fiscal policy (tax and public expenditure
policy) received wide attention. Keynes was not against capitalism per se but
opined that to save capitalism it need to be modified through deliberate state
action. He also suggested increased investment by government for economic
progress.
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interventionism. This stark reality is proved by the fact that Kautilya has
some similarity of thoughts with Classicals and others with that of Keynes.
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5.2 SIMILARITIES BETWEEN KAUTILYAN ECONOMICS
AND GANDHIAN ECONOMICS
In the very first reading it would surprise a reader as to how can someone
like Kautilya be compared with someone like Mahatma Gandhi. The two
may represent to many as two extremes on a continuum of human qualities.
While Gandhi stands for someone close to God, Kautilya definitely is far
away from being equaled to even an average human being. Gandhi is a
synonym for morality and utmost goodness whereas Kautilya is a synonym
for crookedness, intrigue, unscrupulous, etc. Gandhi emphasized upon the
quality of means to achieve the right ends whereas for Kautilya means were
not at all important. Kautilya was of the opinion that success needs to be
achieved at any cost. Despite these striking dissimilarities some traits are
common in these two men. Both of them were burning patriots and had utter
love for their motherland. Both of them took upon itself the cause of the
common man with the kings or rulers. Both of them contributed significantly
to the nation in that Kautilya invented the science o f statecraft suitable to
Indian conditions and helped Chandragupta Maurya establish first Indian
empire whereas Gandhi through the use of non-violence won independence
for India from the British rule. Both of them sacrificed their personal lives
for the greater good of the nation. Both of them grew up as bigger statures
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due to insults inflicted upon them - Kautilya being insulted by the Nanda
king and Mahatma Gandhi being insulted by the British while he was in
South Africa. Apart from these similarities in their lives and personality one
can also trace a number of similarities in their economic writings. These
have been discussed below.
1)
Kautilya and Gandhi both were practical economists more interested
in solving problems of the time.
2)
Both of them lacked systematization in their economic writings and
did not present a theoretical system.
3)
Kautilya and Gandhi developed their own analysis instead of
borrowing it from elsewhere unsuitable to Indian conditions. Both of them
recognized that laws of economics are not universal. The economic laws of a
country are determined by the climatic, geological and temperamental
conditions of that country.
4)
Gandhi wanted to build the ideal socialist society. Although Kautilya
was in favour of something like a state controlled mixed economic system.
5)
The ideal economic condition according to both Kautilya and, Gandhi
is self-sufficiency of the economy. For this it is required that needs of the
people must be in harmony with the resources of the economy. Both of them
recognized this.
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6)
Kautilya and Gandhi emphasized the importance of agriculture and
rural development in the overall growth and development of the country.
7)
Kautilya and Gandhi opined that capitalistic method of production
could not achieve the goal of overall welfare. It only aggravated the problem
and neglected human values.
8)
Both of them were against excess profits earned by businessmen.
9)
Kautilya and Gandhi believed in the principle of trusteeship but in a
slightly different sense. According to Gandhi a rich man after providing for
his needs in a reasonable way, is required to use the surplus wealth in the
broader interest of the community. He becomes trustee of society in this
sense. Whereas according to Kautilyan economics the State itself is a trustee
of the people in that the state is expected to provide for a number of social
security measures.
10)
Kautilya and Gandhi favoured the promotion of labour welfare and
were practically against the exploitation of labour. Both of them have
advocated just wages for labour. Labour welfare is perceived by both to be
important for establishing economic stability and social harmony.
Despite the above startling similarities in the economic writings
of Kautilya and Mahatma Gandhi, the differences one can find in their
personalities can be directly attributed to the fact that Kautilya was to
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manage economic affairs for his king Chandragupta Maurya whereas no
such necessity dawned upon Mahatma Gandhi at any point of time in his
life. That was best left to Jawaharlal Nehru who too followed the path of
mixed economy as was suggested by Kautilya to ensure growth with justice.
\
It also best explains the fact of differences in method adopted by the two.
Kautilya had no choice other than aggression as the only source of achieving
economic welfare by establishing a strong state or empire. On the other
hand, Mahatma Gandhi could afford to use non-violence or disobedience as
a weapon to fight against the British empire since the state had already been
well-defined and established by that time.
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