Kautilya- the True Founder of Economics

by Balbir Singh Sihag

  It is truly astounding that an Indian guru, more than a millennium before Pacioli’s Summa, could initiate the process of genuine innovations in accounting methods, assign a central role to accounting for promoting economic development, and display a modern perspective on the scope and methodology of accounting.

  THREE

  Ethical Foundation to Freedom from Wants

  Kautilya was the high priest, who performed a holistic marriage between artha (economics) and dharma (ethics) as equal /made for each other partners. Chapters 6-13 present Kautilya’s ideas on the integration of ethics into economic issues. He argued that unless decision-makers were ethical, the quality of institutions and governance could not be assured. It is shown that Sen’s (1987) claim that Aristotle originated the ethics-based approach to economics is unsustainable. Kautilya originated both the engineering-based and the ethics-based approaches to economics. It is proved beyond any reasonable doubt that Kautilya’s Arthashastra may rightfully be called [Kautilya’s] Dharmanomics.

  6

  Foundational Role of Dharma

  Only small men discriminate saying: One is a relative; the other is a stranger. For those who live magnanimously the entire world constitutes but a family.

  — Maha Upanishad (Chapter 6, Verse 72)

  Thinkers in ancient India considered financial wellbeing, spiritual wellbeing, enjoyment of art and music and good physical health as essential to a long and happy life on earth.1 They understood backward induction. They reasoned that an individual could enjoy life to the fullest only if peace and harmony prevailed in society. They developed the concept of dharma to justify and enable creation of such a society. They firmly believed that if there was dharma [righteousness; observance of moral codes] there would be social order, that is, they assigned a foundational role to dharma. The emphasis on the foundational role of ethics was truly a unique insight since Aristotle emphasized only the remedial role of ethics and Adam Smith also gave up on its foundational role.2

  Pre-Kautilyan sages emphasized the role of ethics in creating a joyous, peaceful and harmonious social order by motivating the individual to follow dharma for attaining bliss. These ideas on the foundational role of ethics are presented in Section 6.1. Kautilya enthusiastically accepted his predecessors’ ideas on ethics. Section 6.2 shows that Kautilya was truly a Vedic Man.

  Kautilya’s most important insight was to link ethics to prosperity. He thus argued that ethics was also essential to salvation from poverty. He explained that ethical decision-makers would establish and maintain good institutions and provide good governance. They would formulate economic policies to advance the common good and implement them effectively. They would strengthen ethical values and help in creating an ethical environment and thus help in maintaining peace and harmony and law and order. Essentially, his Arthashastra may be correctly termed as dharmanomics, that is, economics wedded to dharma and propounding ethical foundation to prosperity. These ideas are discussed in detail in Section 8.4 of Chapter 8.

  The ancient Greek philosophers and the Chinese philosopher, Confucius, emphasized only the virtue ethics. On the other hand, Han Feitzu (280-233 BCE) advanced only the legalistic approach to ethics and discarded the moralistic approach of Confucius.3 Kautilya, just like the sages in ancient India, emphasized [the virtue] ‘ethics’ and its role in building of good character. He believed that moral individuals were likely to behave ethically, even if they had the opportunity to behave otherwise. However, he was not naïve and did not believe that everyone would be ethical even in a healthy society. According to him, given the opportunity, some amoral and immoral individuals might behave unethically. His second important insight was to propose complementing the virtue—ethics—with an action-oriented approach, such as, advocating the Silver Rule (viz., not doing unto others what one would not like to be done to him), designing a sound organizational structure and having dharmabased laws, rules and regulations. Kautilya’s ideas on these issues are presented in Section 6.3.

  6.1 PRE-KAUTILYAN SAGES ON

  THE FOUNDATIONAL ROLE OF DHARMA

  May there be peace throughout the world

  — Yajur Veda (Chapter 36, mantra 17) Sages and seers in ancient India carried a vision in which each individual realized one’s full potential and enjoyed life to the fullest. They understood the concept of backward induction and logically traced the steps, which could help the individual in living accordingly.

  First, they reasoned that enjoyment of a richer and fuller life on earth was possible only if a peaceful and harmonious social system existed. Secondly, they proceeded to explore the requirements to create such a social system, that is, essentially for creating a heaven on earth. They developed the concept of dharma which, if followed, would create a trusting, caring, peaceful and harmonious social system. As pointed out earlier, dharma literally means behavior that holds the society together, that is, something foundational. They identified dharmic (ethical) values of non-violence, compassion, truthfulness, honesty and tolerance as basic to such a social order. They also believed that every individual, who practiced these virtues, created large positive externalities. For example, Rig Veda (10-65-11) contains the following statement: ‘The godly people spread divine virtues on the earth.’ These virtues are considered eternal and no further trial and error is required.4 Also there is no circularity involved in defining them.5

  The final step in the logical chain was motivating the individual to voluntarily practice dharma. Ancient thinkers understood human nature with all its appetites, emotions, passions and weaknesses. Keeping this in view, they devised the concepts of heaven and hell to motivate the individual to follow dharma for securing heaven and working for the eternal bliss. Their message was very clear—that unless an individual contributed to the creation of heaven on earth, s/he could not go to heaven after death. Essentially, their goal was to align private and social interests. Therefore, they emphasized roles of ethics both at the micro and macro levels.6 (i) At the micro level, the practice of dharma helped in self-improvement by performing good deeds, controlling destructive emotions and living piously for breaking the birth-death-rebirth cycle, that is, achieving inner peace of mind (steady state or eternal bliss and essentially removing the ‘depressive and euphoric’ cycles of life). (ii) At the macro level, dharma was considered essential to system-building, that is, it was considered foundational in establishing the social order. These are presented below.7

  Self-improvement (Spiritual Uplifment): The Vedic emphasis on dharmic values was pursued by the writers of the Dharmasutras also. For example, sage Apastamba (Olivelle, 1999, p 34) provided a detailed list of virtues and vices. He urged each individual to follow dharmic values and to control vices. He wrote, ‘Refraining from anger, excitement, rage, greed, perplexity, hypocrisy, and malice, speaking the truth; refraining from overeating, calumny, and envy; sharing, liberality, rectitude, gentleness, self-control, amity with all creatures…benevolence and contentment.’ The following Hindu proverb summarizes the self-improving role of ethics as: ‘There is nothing noble about being superior to some other man. The true nobility is in being superior to your previous self.’

  Each individual was urged to accumulate moral capital by undertaking virtuous deeds, particularly making charitable donations and also uplift oneself through prayers, meditation, reflection, contemplation and yoga. All these practices were recommended to motivate the individual to ensure an end to the birth-death-rebirth cycle, that is, the attainment of eternal bliss and in attaining the union of the atman (individual soul) with the paramatman (Supreme-Being).

  System-building: Ancient sages identified cardinal dharmic values of non-violence, tolerance, compassion, truth, honesty and cleanliness for creating a peaceful, harmonious and caring society. Virtue of non-violence means not to hurt anyone physically, emotionally or financially. That means this virtue is incompatible with anger, greed, jealousy and lust. It also means that any kind of injustice arising from oppression, infringement, sub
jugation, discrimination and deprivation would be incompatible with the virtue of non-violence, that is, in an ethical society, justice would automatically be served.

  Michael Sandel (2009, p 187) explains, ‘For Aristotle, justice means giving people what they deserve, giving each person his or her due. But what is a person due? What are the relevant grounds of merit or moral desert? That depends on what’s being distributed. Justice involves two factors: “things, and persons to whom things are assigned.”’ He adds, ‘Suppose we’re distributing flutes. Who should get the best ones? Aristotle’s answer: “the best flute players.” However, according to the sages in ancient India, that would be an incomplete answer because the issue would be how the person who had the authority to decide the best players, was selected? Moreover, if this person was not ethical, he might declare even the worst player to be the best one. Ultimately, administration of justice depends on the morality of a particular society.’

  Two thousand years later, Adam Smith (1790/1982, Part II. ii. 3.4) argued, ‘Justice, on the contrary, is the main pillar that upholds the whole edifice. If it is removed, the great, the immense fabric of human society,..., must in a moment crumble into atoms’. A few remarks are in order. First, the pillar must be standing on the solid rock of dharma, otherwise it would be unstable. That is, justice in an unethical society is unattainable. Secondly, if justice has to serve as the main pillar, then it must be strong enough to support the edifice. However, it will not be strong unless it is constructed with the bricks and mortar of dharmic values. Finally, it appears as if the pillar and the edifice are two separate entities and not components of one system. Every society decides both the pillar and the edifice together, but Adam Smith’s approach does not allow any possible interaction or interdependence between them.

  A genuine question arises: has the emphasis on the concept of justice been misplaced? More than two thousand years of debate has not succeeded in removing its ambiguity since, in the absence of ethical grounding, each person possesses his/her own concept of justice. Clearly, the preoccupation with the concept of justice has done more harm than good since focus on foundational virtues has been neglected. It is perhaps time to deemphasize this concept and focus on ethical grounding, since manifestation of injustice is just a symptom of moral degradation.

  Similarly, the virtue of tolerance is incompatible with arrogance, pride and pathological ego. The virtue of compassion is incompatible with large inequalities. As a result, there is heavy emphasis on charity. The virtues of truth and honesty are essential to the creation of trust, which is essential for all interpersonal dealings. That is, trust is a dharma-intensive concept. Cleanliness was equally important for enjoying a healthy life.

  System-building through Individual-upliftment (Spiritual Wellbeing): Ancient thinkers understood the distinction between internal restraints, such as through self-discipline and external constraints, such as compliance through enforcement of laws. They emphasized internal restraints since those were considered more effective for system-building. Therefore, they put heavy emphasis on instilling moral values into young children through education. The teachers, parents and elders were assigned this important task. As adults, they were encouraged to undertake moral reflection freely and critically on moral issues. Their approach was not focused merely on dos and don’ts but on internalization of dharmic virtues and controlling of vices, such as anger, greed, lust, arrogance, jealousy, ego, attachment and pride. Since these were regarded destructive impulses for the individual as well as for the community, the sages urged the need to develop internal control over them. The following table captures their insights:

  Table 6.1: Ancient Thinkers on Creating Heaven on Earth through Dharma Type of Individual Dharmic

  Self-disciplined

  Description of

  Characteristics Practicing of dharmic values: Non-violence, freedom from malice tolerance, honesty, truthfulness, cleanliness, compassion

  Controlling of vices: Anger, greed, lust, jealousy, arrogance, attachment, ego

  State of Individual’s Well-being Happiness and bliss in the

  present life and emancipation (moksha) after death

  State of Social Order Peace and harmony= heaven on earth

  Contd...

  Type of Individual Adharmic

  Indisciplined

  Description of

  Characteristics

  Does not practice dharmic values

  Has no control over vices

  State of Individual’s Well-being Unhappy in the present life and after death

  State of Social Order Hellish

  conditions on earth

  They prescribed four ends of a productive and happy life: dharma, artha, kama and moksha. According to them, an individual should accumulate moral capital (dharma) by doing good deeds and both artha and kama be guided by dharma (ethics). Bansi Pandit (2009, p 141) explains Vedic ethics aptly as: ‘Man is born to give and not to grab.’8

  6.2 KAUTILYA FOLLOWED THE INDIAN THOUGHT ON THE ROLE OF DHARMA Greed clouds the intellect. Another’s wealth, even if it be husk, should not be stolen. One can conquer the worlds with righteousness. Righteousness is the root of happiness.

  —Kautilya’s Sutras Alexander the Great invaded northern India around 325 BCE, and after much difficulty, won one battle against a very small kingdom. Discouraged and facing revolt from his army, he left India and died around 323 BCE on his way back to Greece. Because Aristotle was Alexander’s teacher, is it possible that he left impressions of Greek culture behind? Could Kautilya have been influenced by Aristotle’s ideas on ethics? Based upon the historical evidence, it is doubtful that Kautilya would have benefited from Aristotle’s ideas on ethics even if we assume that he had access to them. The intellectual pursuits leading to the development of philosophy and religion were initiated much earlier and were far richer in content in India than in Greece.9 Kautilya was a Vedic man and he strictly adhered to Indian thought.

  Kautilya believed in character-building (see the next chapter). He (p 107) listed ethical values as: ‘Ahimsa [abstaining from injury to all living creatures]; satyam [truthfulness]; cleanliness; freedom from malice; compassion and tolerance’. In fact, these values have not changed ever since they were enshrined in the Vedas and have been considered universal. Kautilya wholeheartedly and enthusiastically embraced and promoted the prevailing roles of dharma: (a) that it was a source of joy and attainment of eternal bliss (salvation from the birth-death-rebirth cycle), and (b) was essential to holding society together, that is, its foundational role and also in reducing the systemic risk.

  According to Kautilya, Vedas, the Hindu religious scriptures and philosophy were the two primary sources of values. Kautilya (Subramanian, p 68) stated: ‘There is no righteous duty, not specified in the learned scriptures.’ He seemed to have a very broad concept of rationality, which included not only the usual axiomatic rationality but also self-discipline to check impulses of excessive greed, anger and lust. He followed the Atharva Veda both in letter and spirit. He (p 106) wrote, ‘[The observance of ] one’s own dharma leads to heaven and eternal bliss. When dharma is transgressed, the resulting chaos leads to the extermination of this world.’ He (p 180) added: ‘For, when adharma overwhelms dharma, the king himself will be destroyed.’ Figure 6.1 captures his ideas.

  Figure 6.1: Curve AB indicates the relationship between prosperity (GDP) and the percentage of unethical people. GDP falls rapidly as the percentage of unethical people exceeds fifty per cent of the population.

  According to Kautilya, there would be total anarchy if unethical people acquired a majority. Political instability would ruin prosperity and people would merely be surviving. He (p 177) summarized his advice to the king as: ‘Ever victorious and never conquered shall be that Kshatriya, who is nurtured by Brahmins, made prosperous by the counsels of able ministers and has, as his weapons, the precepts of the shastras (1.9.11).’ He (p 141) added, ‘A king who flouts the teachings of the Dharamshastras and the Arth
ashastra, ruins the kingdom by his own injustice (8.2).’

  Compassion and Tolerance: Kautilya advised the king to show compassion and tolerance. According to him (p 741), the king, ‘Shall adopt the way of life, dress, language and customs of the people [of the acquired territory], show the same devotion to the gods of the territory [as to his own gods] and participate in the people’s festivals and amusements. He shall ensure that devotions are held regularly in all the temples and ashrams. The ill, the helpless and the distressed shall be helped (13.5).’ Incidentally, the use of the word ‘tolerance’ is significant since John Locke (1689) is usually given the credit for emphasizing its virtue.10 The king was persuaded on moral grounds to make sacrifices, such as to be charitable, and show compassion and tolerance.

  Prevention of Moral Decline: According to Kautilya, knowledge helped in developing self-discipline and logical abilities to foresee the harmful consequences of vices. He (p 137) explained, ‘Vices are due to ignorance and indiscipline; an unlearned man does not perceive the injurious consequences of his vices (8.3).’ He (p 144) stated, ‘The sole aim of all branches of knowledge is to inculcate restraint over the senses (1.6.3). Self-control, which is the basis of knowledge and discipline, is acquired by giving up lust, anger, greed, conceit, arrogance and foolhardiness. Living in accordance with the shastras means avoiding over-indulgence in all pleasures of [the senses, ie.] hearing, touch, sight, taste and smell (1.6.1,2).’