Kautilya- the True Founder of Economics
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The interpretations in this work are confined to Grampp’s points (a) and (b) and only occasionally, with recourse to point (c), but points (d), (e) and (f ) are avoided altogether. In other words, interpretations are limited to what Waterman (1999) calls ‘can be found—or read into’. Secondly, the origin of a concept is attributed to Kautilya only if he provided at least as much substantive material on it as Adam Smith did. The work is undertaken as a challenge to minimize the pitfalls of hindsight.
The narrative highlights only the salient and seminal ideas initiated by Kautilya, provides some details on the re-emergence of these ideas since Adam Smith, and the current state of our knowledge on them. Every important concept, which has been used by Kautilya in various contexts, for example (i) opportunity cost (Chapter 4), is discussed and then a history of its re-emergence is provided in the end notes. Currently, the credit for originating the concept of opportunity cost goes to Wieser in 1876—implying that Kautilya was way ahead of the classicists. Second example: (ii) Kautilya was acutely aware of the time inconsistency problem (Chapter 20) and the credit for the revival of this concept goes to Keyland and Prescott in 1977. This methodology keeps the discussion focused, brief and informative and helps in easy placement of Kautilya’s ideas since it is difficult to give him a single label, such as classical, neoclassical or postmodern.
3.2 REQUIREMENTS FOR ESTABLISHING ORIGIN OF ECONOMICS Questions, such as what is a science? Is economics a science? These are not questions of major concern in this book. No economic historian, who has explored the origin of economics, has made any distinction between establishing of economics as a science and economics as a separate discipline and that practice is followed here also. According to Schumpeter (1954), it is futile to search for the origin of economics. He (p 9) remarks: ‘As regards economics, bias or ignorance alone can explain such statements as that A Smith or F Quesnay or Sir William Petty or anyone else “founded” that science, or that the historian should begin his report with one of them.’
On the other hand, Groenewegen (2002) argues, unlike Schumpeter, for dating the emergence of economics as a science. However, Spiegel hints at some arbitrariness in the search for the origin of economics. He (1991, p xxii) remarks, ‘Where should a history of economics start? Often the nationality of an author makes him inclined to open up the discussion with the contributions of fellow nationals. Even in the absence of an explicit claim the whole matter then appears to be part of the national heritage, perhaps even a national invention—thus French historians of economics are apt to open up the story with the Physiocrats, while the English may prefer the mercantilists or the classics.’
The above remark by Spiegel may be interpreted in more than one way. Since it may mean that the requirements to declare economics as a science/separate discipline either are not standardized regarding its definition, scope and method, inconsistently followed or have been changing over time.4 Any one of these possibilities could allow some arbitrariness in determining the origin of economics as a science but in this case all of the above seem to hold. For example, Groenewegen (2002, p 49) observes, ‘A study of the literature of the history of economics quickly reveals that the question of the emergence of economics as a science has been treated in different ways, and that these different ways not infrequently can be explained by differences in the scope, subject matter and objectives of economics accepted by the historian. Hence there is a strong relationship between the treatment of the emergence of economics as a science, and the definition of economics as a science, different definitions generally, but not always, leading to different periods of time, and to different individuals or groups to whom or to which the emergence can be assigned.’
There are indeed no uniform standards. For example, (a) Spiegel emphasizes only the autonomous aspect, and (b) Ekelund and Hebert (1999) concentrate only on the development of a reasonable number of concepts. However, (c) Schumpeter is much more demanding as to the requirements although he himself is inconsistent in their applications.5 According to him, the author, who understood the economy as a system of inter-dependent elements should be acknowledged as the founder of economics as a science. These requirements are discussed in turn. It may be added, however, that Alfred Marshall (1920) singles out only the writing of a treatise on economics, while Barber (1967), Landreth and Colander (1994) consider only the providing of a brilliant synthesis as the requirements for declaring an author (in this case, Adam Smith) as the founder of economics.6
Economics as an Autonomous Discipline: Spiegel (1991, p xxiiixxiv) asserts: ‘Economics as an autonomous and systematic science is of comparatively recent origin; it arose as part of the science of man in the seventeenth and eighteenth centuries. Before that time, economic ideas were presented in the context of philosophy in classical Greece, in the context of theology during the Middle Ages, and again in the context of philosophy, but at times in the somewhat more emancipated form of separate essays, during the era of Locke and Hume. The economic thought of the mercantilists may have been autonomous—that is, independent of religion and philosophy—but it touched only certain aspects of economics and did not cover the entire field in systematic fashion. The same can be said of the Physiocrats. With Adam Smith economics became established as an autonomous and systematic field of study.’
According to Spiegel, establishment of economics as an autonomous discipline—independent of religion and philosophy— is the only requirement and Adam Smith was the first one, who accomplished this during the eighteenth century. As explained below, this is neither necessary nor sufficient to declare economics as a science. Also, at that time, economics was still not separated from political science. But more important, Adam Smith not only made economics independent of religion and philosophy, but also of ethics and thus the Wealth of Nations is solely responsible for causing ‘the lack of bonhomie’ in modern economics. The commercial man of the Wealth of Nations never met the benevolent man of the Theory of Moral Sentiments.
Development of a Reasonable Number of Concepts: Ekelund and Hebert (p 6) quote Dupuit: ‘All sciences undergo a period when they are considered mere practice. A few sparse principles based on observation or reason do not constitute a science. For a science to merit its title, its principles must be numerous and sufficiently well established to explain a particular order of phenomenon. Therefore, each science undergoes a period of gestation before its birth; but little by little, through successive discoveries, a more or less comprehensive body of doctrine is formed. This body of doctrine, accepted by all those adept in the field, constitutes the science’s lifeblood. It is the unanimous consent of the scholars in the field that imposes itself on the public (1863b, p 238).’ And (p 7), ‘Then, one glorious day the new principle is demonstrated through observation or reason.’
Several remarks are in order. According to Dupuit, the true criterion to be a discipline (or science) is that it must have ‘numerous and sufficiently well established’ principles. The word ‘numerous’ is a little vague since it does not specify a lower limit on the required number of principles. The phrase ‘sufficiently well established’ is used by Dupuit to indicate that a principle must be demonstrated by ‘observation or reason’ and must be ‘accepted by all’. However, if unanimous consent were used as a criterion to declare a body of knowledge as a separate discipline, economics, most likely, would not qualify to be a discipline. Moreover, the phrases ‘little by little’ and ‘accepted by all’ together imply that probably more than one founder would be needed to establish a discipline. Therefore, the only meaningful requirement to be called a new discipline may be whether there is a distinctly identifiable core consisting of, at least, a respectable number of basic concepts and testable hypotheses. The expressions ‘respectable number’ and ‘distinctly identifiable core’ too need some explanation.
An Evaluation of Dupuit’s Contributions: Some of the contributions of Dupuit and the French engineers are quite remarkable.7 However, the claim by Ekelund and Hebert ‘that micro
economics, as we know it today, is uniquely of French origin’ is not justified. Since Dupuit’s contributions, both in terms of depth and breadth, are far too insubstantial to bestow him with the fatherhood of microeconomics.
Schumpeter’s Test for Declaring Economics as a Science: According to Schumpeter (p 7), ‘A science is any kind of knowledge that has been the object of conscious efforts to improve it. Such efforts produce habits of mind, methods or “techniques”—and a command of facts unearthed by these techniques which are beyond the range of the mental habits and the factual knowledge of everyday life. Hence we may also adopt the practically equivalent definition: a science is any field of knowledge that has developed specialized techniques of fact-finding and of interpretation or inference (analysis).’ He (p 173) adds that one has to ‘show how they hang together and how they determine each other, which is where scientific economics begin.’ That is, until the economy was seen as a system consisting of inter-dependent elements, economics would remain in the prescientific stage.
It may be pointed out that although Schumpeter specified a rigorous standard for a body of knowledge to qualify as a scientific discipline, he himself did not follow it. It should also be noted that Schumpeter’s requirements as to what is scientific are much different than those prevalent during the eighteenth century. For example, Redman (1997, p 104) remarks, ‘I have said that doing science, or philosophy, in the eighteenth century meant systematic inquiry. What exactly did this entail? For the Scots, science was a body of coherent knowledge organized around a few simple principles of explanation.’ In other words, according to the Scots, science was concerned with systematic analysis, and not with systemic analysis as required by Schumpeter.
3.3 VIEWS ON THE WEALTH OF NATIONS Each economist has his/her own view of the Wealth of Nations, implying that there may be thousands of them. It is impossible and unnecessary to accommodate all of them. The only reasonable thing to do is to ignore the outliers like the views of Dugald Stewart and George Stigler on one side and those of Murray Rothbard and Schumpeter on the other. Still, it is not claimed that the selection here is based on any random sampling.
How Adam Smith Came to be Known as the Founder of Economics: Schumpeter (1954, p 194) explains, ‘But outside of England, most economists were not quite up to Ricardo, and Smith continued to hold sway. It was then that he was invested with the insignia of “founder”—which none of his contemporaries would have thought of bestowing on him—and that earlier economists moved into the role of “precursors” in whom it was just wonderful to discover what nevertheless remained Smith’s ideas.’
Traditional Views on Adam Smith: Three kinds of arguments have been advanced to accredit Adam Smith as the founder of economics. The first is that he wrote the first treatise on economics—Wealth of Nations; secondly, he provided a brilliant synthesis of existing ideas in economics, and thirdly, upon a closer examination, he was also a theoretician who made original contributions. Obviously, so considered, if Adam Smith is accepted as the founder of economics, then the study and formulation of economic thought in a systematic manner could not have begun much earlier than the eighteenth century.
Samuelson (1962) remarks, ‘Past experience at these annual gatherings of the sons and daughters of Adam Smith suggests that the popular subject of discussion among economists is not so much economics as economists.’ In fact, at least from Ricardo onwards, Adam Smith has been declared as the founder of economics, which various prominent writers at different times have reaffirmed. A representative listing of their views is provided below. Ricardo (1821) in the preface to his Principles of Political Economy and Taxation states, ‘The writer, in combating received opinions, has found it necessary to avert more particularly to those passages in the writings of Adam Smith from which he sees reason to differ; but he hopes it will not, on that account, be suspected that he does not, in common with all those who acknowledge the importance of the science of Political Economy, participate in the admiration which the profound work of this celebrated author so justly excites.’
Deane (1978, p 3-4) asserts, ‘It was not until the eighteenthcentury philosophers—primarily the Physiocrats and Adam Smith— began systematically, and not merely incidentally, to apply to economic phenomena their theories of natural order underlying the real world that economic theory began to develop into a unified system of explanation, a definitive technique of analysis.’ She (p 6) adds, ‘Karl Marx too had no doubt where modern economics effectively began. Adam Smith “must be given credit”, he wrote, “for having closely determined the abstract categories and for having securely labeled the differences analyzed by the Physiocrats.”’
Samuelson (1980) provides a different perspective in evaluating the contributions of earlier writers. He observes, ‘Every historian of science appreciates how vague are the brilliant perceptions of the earliest writers and how constructive is the achievement of later writers in synthesizing and clarifying ideas.’ He emphasizes originality, rather than the synthesis in Smith’s work. In fact, Samuelson (1977, 1978, and 1980) has attempted to establish Adam Smith as a theorist, contrary to the traditionally established view that he was merely a synthesizer of ideas. It is beside the point that if Adam Smith were to read the interpretation of his own work by Samuelson, being a humble Scotchman (having completed the evolution from ‘savage to Scotchman’), he would declare Samuelson to be the father of economics and agree with Wordsworth that ‘child is the father of man’.
Recent Revisions of the Initial Views on Adam Smith: Miller (1997) points out that the classical economists before J S Mill did not consider economics as a separate discipline and the style was non-technical. He remarks, ‘From Adam Smith until the middle of the nineteenth century, leading social thinkers made little distinction between their economic and political writing. The methods of analysis were similar, using largely verbal arguments dominated by normative concerns.’ Similarly, Redman (1997, p 4) observes: ‘Binding the eighteenth and early nineteenth-century thinkers was a belief in a common method for the social sciences. This strand of thought stops, however, with J S Mill, who developed the idea of political economy as a separate science.’ It is obvious from the above assessments by Miller and Redman of Adam Smith’s work that he alone really did not establish economics as a separate discipline, implying that he cannot be declared as the sole founder of economics.
Ekelund and Hebert (1999, p 1) asserts, ‘The popular wisdom is that classical economic inquiry, which extends from Adam Smith to John Stuart Mill, is focused on macroeconomics, whereas neoclassical economic inquiry, which begins with William Stanley Jevons and Carl Menger and culminates with Alfred Marshall, centered on microeconomics.’ That is, they believe that the classical economists may be declared as the founders only of macroeconomics. But they (p 2) claim ‘that microeconomics, as we know it today, is uniquely of French origin.’
Joan Robinson (1953) did remark that neoclassical thought paid too much attention to little issues like ‘why does an egg cost more than a cup of tea’ and ignored the big issues like growth and distribution, a cup of tea’ and ignored the big issues like growth and distribution, 24) while commenting on the Wealth of Nations, remarks, ‘Yet, despite its great sweep, and its pre-eminent concern with what we would now call “economic growth”, the book contains no real discussion of why the level of employment is what it is. Clearly, this was not a question which interested the author; indeed it probably never occurred to him.’
Deane also wonders about the recognition of Adam Smith as the founder of macroeconomics. She (p 5-6) states, ‘The case for beginning a study of the evolution of economic ideas with Adam Smith rather than with the Physiocrats does not rest, however, either on the innate superiority of his analytical framework, or on his claims to chronological priority in the unified methodological approach which both shared. No doubt Francois Quesnay has as much right as Adam Smith to be regarded as the founder of modern political economy. Indeed his concept of a circular flow of incomes and his Ta
bleau Economique, which can be interpreted as kind of input-output table, will strike economists used to operating with social accounting tools of analysis as more relevant to modern macroeconomics than any part of mainstream classical political economy from Smith onwards.’ Thus, according to Deane, the credit for originating macroeconomics, if at all, should go to Francois Quesnay but definitely not to Adam Smith.
Rationality Assumption: The current methodology of economics also would be foreign to Adam Smith. For example, Redman (p 234) remarks, ‘Unlike twentieth-century usage, Smith’s self-interest is not rooted in a concept of rationality. He did not believe that reason should be the primary guide of human destiny; in The Theory of Moral Sentiments he asserts nature implants a consciousness in the human breast that is wiser than reason, for nature intends the good of the species and endows people with social sentiments (1976b: p80).’
Optimization Assumption: Similarly, according to Redman, Adam Smith was averse to the assumption of optimization, which is the underlying foundation of all economic decisions. She (p 218) asserts, ‘Smith was not interested in optimization problems, “which offer an irresistible invitation to mathematical treatment” (Spiegel 1976:p487).’ She continues, ‘Thus, the many modern interpretations of Smith’s theory that mathematize and axiomatize his theory are not Smith at all but a transformation of Smith.’