Indian Antecedents to Modern Economic Thought

30 Pages·2017·0.76 MB·English

INDIAN INSTITUTE OF MANAGEMENT
AHMEDABAD  INDIA
Research and Publications

Indian Antecedents to Modern Economic Thought

Satish Deodhar

W. P. No. 2018-01-02
January 2018

The main objective of the working paper series of the IIMA is to help faculty members, research staff and
doctoral students to speedily share their research findings with professional colleagues and test their research
findings at the pre-publication stage. IIMA is committed to maintain academic freedom. The opinion(s), view(s)
and conclusion(s) expressed in the working paper are those of the authors and not that of IIMA.

INDIAN INSTITUTE OF MANAGEMENT
AHMEDABAD-380 015
INDIA
I IMA  INDIA
Research and Publications

Indian Antecedents to Modern Economic Thought

Satish Deodhar*
Abstract
The history of economic thought begins with salutations to Greek writings of Aristotle and Plato.
While the fourth century BCE Greek writings may have been the fount of modern economic thought
that emerged in Europe starting 18th century CE, there has been a general unawareness of the
economic thinking that emanated from the Indian subcontinent. Pre-classical thoughts that had
appeared in Vedas dating a millennium prior to the Greek writings had culminated in their
comprehensive coverage in the treatise Arthashastra by Kautilya in the fourth century BCE. In this
context, the paper outlines various ancient Indian texts and the economic thoughts expressed therein,
delves on the reasons why they have gone unnoticed, brings to the fore the economic policies laid
down by Kautilya, shows how these policies exemplify pragmatic application of the modern
economic principles, and brings out in bold relief, the contribution of this Pre-Classical literature in
the history of economic thought.

Key Words: Ancient Indian Texts, Arthashastra, Economic History, History of Economic Thought,
India, Kautilya, Political Economy, Sanskrit, Tamil, Vedas
JEL Classification: B11, B15

_________________________
*Professor of Economics, Indian Institute of Management Ahmedabad (IIMA), Vastrapur, Ahmedabad, 380015.

W. P. No. 2018-01-02 Page No. 2
I IMA  INDIA
Research and Publications

Indian Antecedents to Modern Economic Thought

1. Introduction
Economics is a relatively young science as compared to other physical sciences. Throughout
much of the period of Roman Empire, the Dark Ages in its aftermath (TAE, 1883), and the
spread of Inquisition; no significant contribution was made to the subject of economics in the
western world. As described by Ingram (1919), the long period was characterised by Roman
military ambitions, slavery ascending into serfdom, rise of religious crusades, and, lack of an
energetic exercise in economic thought. Europe had to wait almost for millennia and half
until renaissance, protestant reformation, and enlightenment, in that broad order, created a
congenial environment for the new thinking (Weber, 1905). It was in this new environment
that in the late eighteenth century Adam Smith (1776) wrote his treatise, An Inquiry into the
Nature and Causes of the Wealth of Nations. In this treatise, Smith could replace the Greco-
Christian doctrines with a system that combined moral living and reasonable pursuit of
material desires (Fitzgibbons, 1995). Of course, Smith and his close contemporaries –
philosophers and thinkers of political economy, did not begin to ponder over their new
economics, now christened as Classical Economics, out of vacuum. Looking beyond
mercantilism and the dark ages, the fount of their inspiration was the pre-Roman Greek
thinkers of Europe such as Aristotle, Socrates, and Plato who wrote on political economy
matters. The word ‘economics’ comes from the ancient Greek word oikonomia, where oikos
means house and nomos means custom or law (Eatwell, Milgate, and Newmann; 1987).
Circa fourth century BCE, Aristotle wrote the treatise titled Oikonomiokos, which roughly
translates into English as the rules of or the management of household. Smith was
particularly impressed by Aristotle’s defence of private property and his critical view on
Plato’s communism.

The continuity of this ancient western legacy, albeit with a millennial gap, gets reflected in
current economic writings. For starters, textbooks on principles of economics introduce the
prefixes micro and macro referring to their Greek meanings, small and large, respectively.
Importantly, literature on development of economic thought acknowledges the contributions
of the Greek scholars, and justifiably so. For example, if Cossa (1893) and Ingram (1919)
introduce the economic ideas of the Greeks in about ten pages, Haney (1911) spends an entire
chapter on Greek contribution. Similarly, Roll (1973) devotes an entire section on Greek
antecedents in Chapter I of his book titled, A History of Economic Thought. In recent times,
Mark Skousen (2016) makes reference to Aristotle and Plato in Chapter I of his book titled,
The Making of Modern Economics. References to ancient non-western antecedents,
however, perhaps with the exception of Haney, do not find a mention in the literature on
history of economic thought. This is either because the references to non-western
contributions were not available; and/or the development of those antecedents happened
independently and their link and continuity to modern economic literature did not exist; or

W. P. No. 2018-01-02 Page No. 3
I IMA  INDIA
Research and Publications

simply, the contributions did not exist. Perhaps, the perception of the latter kind made
Skousen write, that until the publication of Smith’s treatise, “six thousand years of recorded
history had passed without a seminal work on the subject that dominated every waking hour
of practically every human being.” This sweeping impression may read a bit exaggerated,
once we consider some of the ancient writings originating from the Indian subcontinent.

Spengler (1971) has covered the Indian literature spanning from the ancient and the medieval
to the colonial and the modern times; however, it gets spread thinly over the entire period and
the work on ancient Indian literature is from secondary sources alone. Similarly, in the recent
past, Waldauer, Zahka, and Pal (1996); Sihag (2009); and Skare (2013) have also contributed
to the literature. However, their work focuses only on a particular treatise, Arthashastra by
Kautilya, and is based on secondary sources. In these studies, Arthashastra gets treated as a
one-off text without juxtaposing it as a seminal improvement and collation of previous works.
These studies do not conjecture the reasons as to why ancient Indian literature on economic
matters got overlooked and how the western world got exposed only to the otherworldly
features of Indian thought. I address these issues in this paper. Moreover, this paper takes a
comprehensive perspective on Indian economic thought leading upto Kautilya, highlighting
the broader spread of economic writings prior to Kautilya as also the political economy
aspects espoused by Kautilya. I focus attention not just on secondary sources but on quite a
few original sources and their English translations. And, in doing so, wherever possible, I
give parallel references to occidental thinkers of the respective times. Towards this end, in
Section 2, I introduce the ancient Indian texts in general, refer to the literature concerning
economic aspects in particular, and provide reasons for the inattention it received.
Thereafter, in the Section 3, I give examples of what I call Pre-Classical economic thought
emanating from some of the ancient Indian texts dating back to 1500 BCE, and, in Section 4,
I bring to the fore, the economic thought and policies as prescribed in the fourth century BCE
treatise on political economy – Arthashastra, by Kautilya. Finally, concluding comments are
made in Section 5.

2. Ancient Indian Literature
Although separated in time and space, and against popular perception, practical observations,
societal laws, and thoughts on economic matters were being written in the Indian
subcontinent as much as the otherworldly concerns. Written mostly in Sanskrit, some of this
literature spanned beyond a couple of millennia BCE. For example, Rig-Veda, one of the
premier religious texts originating in India dates back at least to 1500 BCE (Violatti, 2013).
For want of good writing materials and its durability in those times, such texts were
composed using terse metrical verses and passed-on to future generations through
memorization. In fact, there are four different kinds of Vedas and most were orally
composed in the third millennia BCE (Vinod, 2012), before being written down between
1500 BCE to 600 BCE. This literature is referred to as Apaurusheya and Shruti literature,
which means that there is no single author to these scriptures and the compositions are a
collective knowledge of many sages as was revealed to and by them. Similarly, the Indian

W. P. No. 2018-01-02 Page No. 4
I IMA  INDIA
Research and Publications

epics Ramayana and Mahabharata were composed prior to 500 BCE. Moreover, there are
other texts referred to as Dharmashasthras, which are considered as Smrutis, i.e., those that
are written by individuals to serve as manuals of behaviour for the society. About six
Dharmashastras are known to have been written over a period from 600 BCE to 200 AD, the
latest one being called as the Manu Smruti. While Vedas are the sacred texts,
Dharmashastras were written as guides for the smooth functioning of society. If there was
any conflict between the two, Vedas would have to prevail (Radhakrishnan, 1948).
Furthermore, there are six Darshana treatises, both theistic and atheistic, which focus on
Anwikshiki, i.e., the philosophical expositions on logic, reason, and inquiry of the soul
(Vidyabhushan, 1921). And finally, there was a yet another text called Arthashastra authored
by Kautilya circa 4th century BCE. Arthashastra was written as a treatise for ideal
functioning of the economy, state administration, and the conduct of the ruler. Kautilya also
refers to a few earlier texts from where he had improvised some of the ideas in his treatise
(Kangle, 1965).

Existence of such literature in the Indian subcontinent should not be surprising, for there
existed a vibrant social and economic life in this part of the world at least a millennium prior
to the Greek period. It must be remembered that India’s Sarasvati-Sindhu civilization, which
flourished in the regions of Gujarat, Sindh, and Punjab was at its peak between 2300 BCE to
1700 BCE1. Large numbers of seals excavated in this archaeological region were found
attached to jars, baskets, and containers. They are the earliest known examples of brands and
trademarks by merchants who would ship goods to Mesopotamian sites through Persian Gulf
(Moore and Reid, 2008). One also finds that bricks were made with a standard length to
width to height ratio of 4:2:1 (Possehl, 2002). Further, cost and quality considerations were
thought through in construction activity. For example, cost-effective mud-bricks with straws
were used in homes for thermal insulation and sound isolation, and, expensive baked-bricks
with high compressive strength and water resistance were used for drainage system, baths,
citadels, city walls, and granaries (Khan and Lemmen, 2014). This civilization had a well-
organized urban economy with cities which were more scientifically planned than the
contemporary Mesopotamian cities (Spengler, 1971, p. 32). The above features show that the
society had carved out institutional mechanisms for standards, intellectual property rights,
and welfare-augmenting economic decision making for city planning.
Prior to the Sarasvati-Sindu epoch and thereafter, India has had a continuous and
uninterrupted existence of social, religious and economic life, a phenomenon which finds few
parallels elsewhere. While world population was about 100 million in 1000 BCE, 3/5th of it
lived in Asia with an overwhelming number in the Indian subcontinent itself. Angus
Maddison’s (2003) work shows that by the 1st millennia CE, India’s GDP had acquired about
1/3rd to ½ of the total world GDP. The Golden Age of India had reached its peak during the
Gupta dynasty circa 6th century. Thereafter, India witnessed invasions by Huns, the barbarian
hordes from Central Asia. They ransacked and destroyed Takshashila, one of the oldest and

1 Sarasvati-Sindhu civilization has been variously called as Indus Valley Culture, Indus Civilization, and
Harappan Civilization. It flourished along the now-extinct river Sarasvati and the existing river Sindhu (Indus).

W. P. No. 2018-01-02 Page No. 5
I IMA  INDIA
Research and Publications

thriving universities in the Northwestern part of India (Marshall, 1918). From thereon, India
had its share of the Dark Ages. Many Sanskrit texts had gone into oblivion and the decline
continued with the turmoil caused by the Muslim conquests and the capture of the Indian
polity by the British in the eighteenth century. For example, circa 1193 CE, Nalanda
university complex in Eastern India, which was founded by the Gupta dynasty circa 5th
century CE, was completely burned down by the invading Muslim general, Bakhtiyar Khilji
(Allen, 2002)2. Fate of other seats of learning such as Vikramasila, Jagaddala, and
Odantapuri was sealed in the same fashion (Ambedkar, p. 232, 2014). While the invading
Islamic rulers employed Indian educated class for administrative purposes, the Islamic writers
did not engage themselves with the Indian literature concerning economic matters (Spengler,
1971, p. 159). Arab travellers such as Alberuni and others carried the wealth of Indian
mathematical treatises to the West; however, they neglected economic literature of the
Indians.

The heightened exposure to India after the firm consolidation British rule did result in
translations of Sanskrit texts by scholars such as Max Muller and a few others who chanced
upon ancient texts. In fact, Arthashastra was discovered only in the early part of the 20th
century, in the possession of a pundit from Tanjavur, Tamil Nadu, a region that was left
mostly unharmed by the Muslim conquests. It was transcribed and published in English in
1915 by Dr. R. Shamasastri of the Mysore Oriental Library. The Indian texts referred to in
this section so far, include contemplative thoughts of sages and folk wisdom, which are not
restricted to religious practices alone. They encompass various topics ranging from flora and
fauna to philosophy; and, music and mythology to money matters. And, within the realm of
religion and philosophy, there are varied schools of thought ranging from ones emphasizing
otherworldly goals, others promoting righteous positive actions, and still a few others openly
provoking atheist arguments. However, with limited exposure to Sanskrit texts, their
translations, and the colonizer’s attitudes towards the colonized society, western scholars’
attention got focused only on the otherworldly stream of Indian thought.

For example, James Mill (1823), a liberal utilitarian who later worked for East India
Company, perceived nothing worthwhile in Indian culture and Sanskrit literature! He opined
that Indians (Hindoos) almost always were penurious and ascetic. Further, the wider
acceptance in the later 19th century of what came to be known as the ‘race science’ also led to
pejorative opinion about Sanskrit literature. Sanskrit dramas such as those of the playwrite
Kalidas, which brought out idyllic picture of closeness to nature, were touted as being at the
foot of the evolutionary ladder (Hansen, 1997; Thapar, 2013). In the realm of economics, the
situation turned out to be similar. Haney (1911) wrote a book, also titled History of
Economic Thought, where he dedicated a separate chapter for Oriental economic thought.
But he referred mostly to a select Dharmashastras ignoring many earlier original texts, both
secular and religious. He concluded that among people of the East, moral or religious codes
have usually played a greater part in shaping their thought, and that prevented them from

2 More than 150 years prior to burning of Nalanda, Mahmud of Ghazni had already raided the flourishing port
city Veraval in Gujarat, destroyed the iconic Somanath Temple, and broke the presiding deity (Thapar, 2013).

W. P. No. 2018-01-02 Page No. 6
I IMA  INDIA
Research and Publications

striving eagerly for industrial progress. This perception got carried forward to other western
scholars as well. For example, Schweitzer (1936), Weber (1958), and Kapp (1963) to name a
few, focused only on the otherworldly stream of Indian thought. They interpreted that the
otherworldly thought of Indians was instrumental in denial of economic betterment and
alleviation of poverty in India.

And, the hysteresis effect continued in the post-colonial times as well. For example, the
abysmal slow GDP growth in the first three decades of India’s independence was pejoratively
called as the Hindu rate of growth by the economist Raj Krishna, who was no ideological free
marketer (Ahluwalia, 1995). This was an innuendo, perpetuating the perception that ancient
Indian antecedents were the culprit for the slow GDP growth. Quite contrary, the slow GDP
growth should have been termed as the socialist rate of growth, for it was the all-pervasive,
state-controlled, command economy that had shackled the Indian economy then (Virmani,
2004)3. Thus, an inordinately prolonged period with limited access to Sanskrit literature in
general, scant exposure to literature on economic matters in particular, a blinkered attention
focussed only on the otherworldly stream of thought, and a pejoratively obscuring description
of India’s low GDP growth in the early-independence period had contributed to the
inattention given to ancient Indian view on economic matters. Hence, Roll (1973) fails to
make any mention of earliest Indian economic thought, which predates the western tradition
by a millennium or more. This, of course, provides an opportunity to bring to the fore, the
Pre-Classical economic thought emanating from the Indian subcontinent.

In what follows, I demonstrate that economic issues were discussed in Indian ancient texts
quite a few millennia ago. Of course, the objective here is not to advocate Indian economics
as a separate economic thought process. Laws of economics are universal. Economic agents,
irrespective of their culture, country, and know-how, would respond to incentives and
coercion in almost the same way (Swami, 2012). Perhaps an important distinction one could
draw is that while the modern economic theory focuses on pursuit of material and physical
pleasures alone as an end in itself, Indian texts have treated economic well-being as one of
the important life-objectives. As I refer to in the subsequent sections, Indian texts identify
four life-objectives – Dharma, Artha, Kama, and Moksha; i.e, righteous conduct, acquisition
of wealth, pleasure & love, and salvation. In this paper, of course, my limited task is to focus
on the economic antecedents to the modern principles of economics.

3 To paraphrase Viramani, phrases such as Hindu Rate of Growth may have exposed obscure economic data to a
wider audience; however, they obscured reality by focussing attention on the wrong issue. Low growth rate had
nothing to do with Hinduism. In fact, he called the 30-year period till 1979 as the Indian-socialist period and
identified 15 years from 1965 to 1979 as a period with truly disastrous Indian Socialist Growth Rate (ISGR).
India’s annual GDP growth rate during this period was one of the lowest in the world at 0.6 per cent per capita.

W. P. No. 2018-01-02 Page No. 7
I IMA  INDIA
Research and Publications

3. Early Economic Thought in India
Humans have accumulated economic wisdom over millennia. Of course, one does not expect
literature dating back at least three millennia or more to espouse refined and modern
economic theories, for both the technological and social context of those periods was far
different than what it has been in the 18th to 21st century CE. Nonetheless, guided by their
wisdom, the maturity of economic thought that has found expression in ancient Indian texts is
worth reviewing. Here I narrate economic ponderings from some of the earliest ancient texts.

3a. Pursuit of Material Desires, Money, and Wealth
Rig-Veda, composed within its 1028 hymns, 10,600 verses, and ten books (mandalas) is the
world’s oldest religious text in continuous use till date (Klostermaier, 1984; Kurtz, 2015).
There are many hymns which relate to matters on material prosperity, prices, bargaining, and
taxes. For example, Hymn 112 of Book IX (Griffiths, 1886) of the Rig-Veda tells us how we
follow our desires and wealth. To paraphrase in short, it reads:
“We all have diverse hopes and plans. We strive for wealth in different
ways. We follow our desires like cows follow one after the other. A
frog looks forward to a flood, an arrow-smith seeks someone who will
pay him in gold, a craftsman seeks something that is to be restored, and
a priest seeks worshippers.”
Further, in Hymn 21 of Book II of Rig-Veda, the author requests Indra to provide best of
riches, capable minds, pleasant weather, and sweet speech. Yet another Vedic prayer called
Chamakam (i.e., This & That), repeatedly seeks in a rhythmic tone, material objects,
happiness, power, knowledge as also spiritual well-being (Nadkarni, 2012). Similarly,
Panchatantra by Vishnu Sharma written at around 200 BCE also drives home importance of
money motive through his stories of the wise conduct4. For example, in one verse Vishnu
Sharma describes (Ryder, 1955) and I paraphrase in short:
“A king may scold his servant but he continues to work if he is paid at
the end of the day. A calf also deserts the cow when her udder goes dry.
Money gets you everything in a flash. Therefore, let the prudent get
cash!”
Furthermore, in Shanti Parva (Book XII, Chapter 8) of Mahabharata, after the Great War was
won, Arjuna forcefully counsels Uddhishthira to occupy the throne and give up the thought of
becoming a mendicant (Ganguli, 1896-a). Some of his paraphrased arguments are as follows:
“He that would live by mendicancy, cannot, by any act of his, enjoy the
good things of the earth. It is seen that a poor man, even when he stands
near, is accused falsely. He that has wealth has kinsmen. He that has

4 Composed in Kashmir about two centuries after Kautilya, Vishnu Sharma’s collection of fables reflects
influence of Arthashastra throughout the text (Ruben, 1959).

W. P. No. 2018-01-02 Page No. 8
I IMA  INDIA
Research and Publications

wealth is regarded as a true man in the world. He that has wealth is
regarded as a learned man. If a person, who has no wealth, desires to
achieve a particular purpose, he meets with failure. Wealth brings about
accessions of wealth, like domesticated elephants are used to capture
wild elephants. Religious acts, pleasures, joy, courage, wrath, learning,
and sense of dignity, all these proceed from wealth.”

Similarly, in the ancient Tamil treatise Tirukkural, written sometime between the 1st and 3rd
century BCE, the author Thiruvalluvar underscores the importance of wealth. There are 700
aphorism devoted to the subject of wealth in Book II titled Kural. For example, verse 1040
in Kural (Pope et al, 1886) mentions that the mother earth will laugh at the prospect of those
who plead poverty but lead an idle life. Moreover, verse 1036 suggests that if farmers were
to give up their dexterous life, even the ascetics will have hard time to live.
India has had a wide range of philosophical traditions including the atheist school of thought.
Billington (1997) affirms that in the sixth century BCE, a philosopher named Charvak
founded and advocated the materialist school called Lokayat. Charvak is famously quoted as
saying:
“As long as you live, live happily. Drink ghee (clarified butter) even if
you may have to borrow money. For, once consigned to flames (after
death), who can return (to enjoy life)?”

3b. Balancing Baser, Refined, and Otherworldly Goals
At another place in Panchatantra, Vishnu Sharma remarks that unless man’s minimal material
needs are fulfilled, his higher aspirations cannot be realized. I paraphrase what he wrote
(Ryder, 1955) in short:
“Until a mortal’s belly-pot is full, he does not care for love or music, wit
or shame, body’s care or scholar’s name, virtue or social charm, godlike
wisdom or youthful beauty.”
Basham (1954, p. 125) also corroborates that in early Indian literature poverty was looked
upon as ‘living death’ and worldly wealth was considered morally desirable. Thus, the
antecedents of the literature on ‘culture of poverty’ by Lewis (1959) and others had appeared
in Indian literature almost twenty-two centuries earlier.

Similarly, Chapter 40 of the Yajur-Veda, which is also known as Isha Upanishad, captures
the dialectics between householder life and spiritual life. While it talks of unity of individual
soul and the universal one, it also emphasizes that to live a life of hundred years one must
perform one’s household duties. It also underlines the concept of property right by saying
that one must not appropriate others’ wealth (Bokare, 2009). A millennium later, the saints
of the Bhakti movement did not hesitate to prioritize devotion to work over devotion to god.
And this was not surprising, for quite a few saint-poets belonged to the working classes
(Nadkarni, 2007).

W. P. No. 2018-01-02 Page No. 9
I IMA  INDIA
Research and Publications

3c. Market Failure and Charity
As described above, acquisition of material well-being was considered important in ancient
Indian literature, and, abject poverty described as living death. In this context, ancient
society had also developed a much matured worldview on charity. In modern economic
terminology, poverty-reduction is a merit good – a source of market failure where private
sector may underprovide it, if left to itself. Almost all ancient Indian texts starting from Rig-
Veda talk of charity for the poor. For example, Hymn 117 of the Book X of Rig-Veda states
that god has not ordained hunger as a form of death. Death comes in various ways even to a
well-fed person and riches come to her like the rolling of a cartwheel; hence, the rich should
give alms to the poor who become her friends in future troubles.

The Bhagwadgita (Telang, 1882), or simply Gita, which forms part of the Bhishma Parva
(Book VI) of Mahabharata goes a step further. It describes right and wrong forms of daana
(charity) in Hymns 17.20 through 17.22. Charity must be without any expectation of return
and this is defined as saatvikam (pure/good). If the charity is ego driven and given
grudgingly with expectations, it is termed as rajas (given to passion), and the one given with
contempt, to wrong causes, and at wrong times is termed as tamas (ignorant, destructive).
Similarly, in the Tamil treatise Thirukkural referred earlier, Tiruvalluvar opines in Chapter 23
that if the power to endure hunger is great, greater still is the power to relieve other's hunger.
Much later, in the 14th century, Hemadri, the prime minister of Devagiri court in the Deccan
would write a thousand-page compendium on charity titled Daankand (Heime, 2004).

Of course, discussion on charity exists in the West Asian literature as well. In the Jewish
religious literature, the Torah requires that 10 per cent of a Jew's income must be given as
tzedakah for righteous deeds or causes (AICE, 2017). These requirements are not charity per
se but considered as righteous acts, mandated through a religious tax. In the Christian
literature too, Tieth, or 10 per cent of one’s income is to be given away as charity (Knight,
2012). Similarly, in Islam, giving Zakat, that is, paying 2.5 per cent of one’s wealth every
year to the poor is a religious obligation (BBC, 2009). If not codified in a country’s law,
non-conformance to such mandatory religious obligations is not illegal. In contrast, literature
on charity in ancient India invoked economic and ethical arguments alone and did not make it
mandatory, either as a religious or a legal requirement. This voluntary nature of charity is
best captured by what Alberuni described in his eleventh century book, Tarikh Al-Hind
(Kegan, 1910). He wrote and I paraphrase:

“There are various opinions on how Indians spent their income after
paying taxes. Some apportion one-ninth of their income for alms.
Others divide it in four parts – One fourth for usual common expenses,
the second for works of a noble mind, the third for alms, and the fourth
for being kept in reserve (savings).”

W. P. No. 2018-01-02 Page No. 10