Unconditional Private Property Rights on the Existing settlements: The owners could use their properties in any way they saw fit, could rent, sell or transfer them. Kautilya (p 231) suggested, ‘Water works such as reservoirs, embankments and tanks can be privately owned and the owner shall be free to sell or mortgage them (3.9).’
Special Importance to Self-acquired Property and Skills: According to him (p 414), ‘Partition of inherited property shall be made in accordance with the customs prevalent in the region, caste, guild or village [of the family]. The laws of inheritance do not apply to self-acquired property (3.5).’ He (p 421) added, ‘The sons who are proficient in the craft shall inherit everything and maintain the others. If no son is a skilled craftsman, all sons shall share equally (3.6).’ He suggested the waiving of customary inheritance rules related to bequeathing self-acquired property. He also made an exception in the case of a business requiring special skills such that economic efficiency and equity were preserved. This could be described as an evolutionary stage between physical capital and intellectual property rights.
Kautilya Implicitly Defined Surplus Created by Transfer of Property: Kautilya suggested that an owner, who wanted to sell his house, should announce in the presence of his neighbors its price, which he was willing to accept. If due to bidding among buyers the price of the house turned out to be higher than the asking price (reserve price), the excess would go to the government. He (p 434) wrote, ‘The owner shall name his price and ask three times: “Who is willing to buy at this price?” If, during this time, no one has challenged [the owner’s right to sell] prospective buyers may make their bids. Bids by proxy are not allowed. If there is a competition among buyers and a higher price is realized, the difference between the call price and the sale price along with any tax payable shall go to the Treasury. The tax [due on the transaction] shall be paid by the successful bidder (3.9).’ Not only, all the necessary steps, such as title verification, responsibility of payment of taxes were specified but also the concept of a surplus ‘the difference between the call price and the sale price’ is discernible.
Assignment of Private Property Rights on New Settlements: Kautilya’s three insights are highlighted here. These are related to: • theimportanceofclearlydefinedpropertyrights,
• granting the village headman the right to levy a user fee to mitigate ‘the tragedy of commons’ and avoid the ‘tragedy of anti-commons’, and
• Kautilya saw the need to modify property rights, but without violating the original contract. With that constraint in view, he suggested modification of the property rights only on the new settlements (and also with self-acquired property on the existing ones). He suggested rewarding hard work by granting ownership rights and thus proposed a pure labour theory of property, that is, without mixing it with the labour theory of value.
Clearly Defined Property Rights: Kautilya understood the importance of good governance and good institutions: unambiguous private property rights, and maintenance of law and order.6 He (p 371) wrote, ‘The boundaries of every residential property shall be clearly demarcated by pillars at the corners with wires strung between them (3.8).’ Similarly, he (p 179) stated, ‘Each boundary of a village shall be one or two krosas and be [clearly identifiable using] a river, a mountain, a forest, a dry-bed, a cave, an embankment, or trees like the silk cotton, acacia and milktree (2.11).’
Kautilya considered three types of property rights: collective property, common property and private property. Collective Property: Residents rather than local authorities were involved in deciding, building and maintaining some facilities. According to him (p 370), ‘Every one shall contribute his share to the building of common facilities. No one shall obstruct or prevent the lawful use of such facilities by others in the neighbourhood. Such facilities shall not be destroyed (3.8).’ He (p 371) added, ‘It is preferable that sheds, courtyards, latrines, fire places, places for pounding grain and all open spaces are used as common property (3.8).’ He believed that sharing these facilities was likely to promote cooperation and harmony among people and therefore, it was undesirable to put any restriction on their use. For example, he (p 365) wrote, ‘All the people in a village shall contribute their share of the [community] work and the costs of festivals and entertainments (3.10).’ He (p 366) added, ‘The people of a village shall obey the orders of anyone who proposes any activity beneficial to all. They shall not conspire against such a person to [attack or] harm him (3.10).’
Common Property: Kautilya considered pasture as a common property but treated it differently than collective property. According to him, anyone could use the pasture subject to a user fee and the revenue collected from the user fee was designed to finance the local administration. He (p 366) suggested grazing charges as follows: ‘Small animals 1/16 pana, cattle, horses and donkeys 1/8 pana and buffaloes and camels ¼ pana (3.10).’ There were additional charges for additional uses, such as resting or staying overnight. However, he added, ‘Bulls belonging to village temples, stud bulls and cows up to ten days after calving are exempt from payment of grazing charges.’
A few points are worth noting. First, it is not claimed that Kautilya was aware of the distinction between social marginal cost (SMC) and private marginal cost (PMC), or he could calculate the optimum level of user fee (ie. user fee = SMC—PMC). But his suggestion to levy the user fee not only raised the needed revenue for the local administration but also reduced the overuse of the common grazing land. That is, his suggestion avoided Aristotle’s major concern that ‘common to the greatest number has the least care bestowed upon it’. Similarly, a grazing field if divided among the residents would face ‘the tragedy of anti-commons’ since each piece of land would become too small to be useful for grazing and also would require expensive fencing. Secondly, it is significant to note that even though grazing field was a common property but the village headman had the clearly defined right to exclude non-payers and thus the Coasian insight is also discernible. Thirdly, Kautilya’s suggestion indicates that individual authority for management and not necessarily ownership is the necessary condition for economic efficiency. For example, Posner (2003, p33) remarks, ‘The creation of individual (as distinct from collective) ownership rights is a necessary rather than a sufficient condition for the efficient use of resources. The rights also must be transferable.’ Fourthly, Kautilya advanced the benefit principle of taxation. Since the user fee was lower for smaller animals than that on larger ones, presumably the smaller animals consumed less grass than the larger ones. Finally, his recommendation that ‘cows up to ten days after calving are exempt from payment of grazing charges’ is a true case of law protecting both the ethical values and economic efficiency. According to him, cattle rearing was the second most important economic activity and allowing the cow and calf to stay free of charge ensured their good health and consequently to a higher growth in their population.
Figure 16.1: PMB is the private marginal benefit curve and PMC is the private marginal cost curve. In the absence of a user fee, a farmer would keep S number of cattle heads on the common grazing land and the number would be S* if a user fee is imposed.
Ownership of property on the new settlements was conditional on its being put to productive use. Vaughn (1978) remarks, ‘Grotius and Pufendorf had both argued that private property was established in the state of nature by the consent of all mankind who once shared in the original communistic ownership of these resources. Such a theory of property, implied, however, that since property only existed at the consent of society, this consent could be withdrawn or modified by the society which sanctioned it originally, a conclusion which Locke sought to avoid. Instead, he argued that private property was established in the state of nature not by the consent of mankind, but by natural law.’ However, according to Kautilya, a king should be allowed to modify property laws (and other laws too) if that promoted public interest. In any case, he never advocated linking property rights to natural rights.
Selection of a Site for Settlement: Kautilya (p 179) stated, ‘The king shall avoid [settling] any part of the country which is liable to attack by enemies or jungle tribes and which is likely to be afflicted by disease and famine. He shall avoid excessive expenditure (2.1).’ Clearly, settlement of virgin land was treated like a business investment and the selection of its site was based on analyzing the risk-return trade-off.
Selection of the Settlers: According to Kautilya (Kangle, part II, p 55), ‘He should cause villages to be settled consisting of mostly of shudra agriculturists, with a minimum of one hundred families and a maximum of five hundred families, with boundaries extending over one krosa or two krosas, (and) affording mutual protection (2.1).’ It is significant to note that Kautilya trusted the shudra agriculturists, who were the lowest in the four-fold social stratification, but were known to be hard working and most experienced for achieving the stated objective of maximization of agricultural output. On the other hand, Aristotle justified private property in that it promoted prudence and responsibility and only the aristocracy should own a larger share of the property. For Kautilya, ‘prudence and responsibility’ were requirements to own private property on new settlements. Cooter and Ulen (2004, p 116) remark, ‘In Aristotle’s conception, it is just that aristocrats receive an unequal share of wealth because they use it for more worthy ends than do others.’
Assignment of Property Rights: Kautilya (p 179) suggested to the king, ‘He shall grant land to Brahmins [of different categories] teachers, purohitas, experts in the Vedas and those who officiate at ritual sacrifices. Such land shall be exempt from fines and taxes and be transferable to heirs. He shall [also] grant land [after the village is fully established] to heads of departments, accountants, record keepers (gopas), divisional officers (sthanikas), doctors, couriers and horse trainers. Such land shall not be sold or mortgaged by the possessor [being a perquisite associated with the job] (2.1).’ Apparently, Kautilya’s goal was to promote a well-balanced community consisting of intellectuals, the merchants, the moneylenders and the government officials. It is also obvious that Kautilya had a lot of respect for the intellectuals, who were ‘experts in Vedas.’
Kautilya Implicitly Proposed the Labour Theory of Property: According to Kautilya (pp 179-180), ‘Arable land shall be allocated to tax-payers for their lifetime [only]. Unarable land, prepared for cultivation by any one [by their own efforts] shall not be taken away from them. Land allotted to those who do not cultivate it shall be confiscated and given to others. Alternatively, employees of the village, whether salaried or not, or [village] merchants may cultivate them. The loss suffered by the state due to non-cultivation shall be made good by the offending holder. [On new settlements] the cultivators shall be granted grains, cattle and money which they can repay at their convenience. Favours and exemptions shall be granted either at the time a settlement is organized or as when people move in. Grants can also be made later [to people in existing settlements] provided that such grants result in increased revenue and/or avoid losses to the Treasury; for, a King with depleted Treasury eats into the very vitality of the country. He shall, however, treat leniently, like a father [treat his son], those whose exemptions have ceased to be effective (2.1).’
A few points are noteworthy. Both, the labour theory of property and the labour theory of value, have received a sustained interest for more than two centuries. Ellerman (1992) provides their comprehensive intellectual history. He believes that John Locke’s second treatise on government could be credited with the origination of these theories. However, Kautilya’s statement ‘unarable land, prepared for cultivation shall not be taken away’ indicates that he not only anticipated Lockean justification for private property but also was more specific as to its requirements. For example, Locke did not make any distinction between arable land and unarable land. Additionally, as Ellerman (1992, Chapter 4) points out that Locke did not distinguish between labour performed and labour owned (wage labour). The following paragraph has drawn a lot of criticism from the leftists that Locke treats the horse and the worker alike.
‘Thus the Grass my Horse has bit; the Turfs my Servant has cut; and the Ore I have digg'd in any place where I have a right to them in common with others, become my Property, without the assignation or consent of any body. The labour that was mine, removing them out of that common state they were in, hath fixed my Property in them. [Locke, Second Treatise, Section 28].’
This type of criticism has no merit and can easily be ignored. However, this paragraph shows logical inconsistency. First, existence of wage labour in the natural state of nature appears unnatural. Second, the existence of wage labour indicates the existence of markets. But that implies the existence of property rights because markets cannot exist in their absence. Thus, the existence of wage labour essentially invalidates Locke’s justification for the labour theory of property. Also the use of the phrase, ‘the loss suffered by the state due to noncultivation shall be made good’ by Kautilya indicates that he was aware of the concept of opportunity cost.
Kautilya on the Labour Theory of Value: Ellerman remarks, ‘The labour theory of property has throughout its history been entwined with and often totally confused with the labour theory of value. The admixture of the two labour theories was present even in Locke who had a somewhat rudimentary form of the labour theory of value.’ Waldauer et al (1996) conclude, ‘Kautilya was far ahead of his time in developing a labour theory of value in trying to determine what was a “just” wage for workers.’ According to Vaughn, labour theory of value has three possible meanings. However, none of these meanings of the labour theory of value can be attached to Kautilya’s ideas. First, Kautilya did stress the importance of labour. For example, he (p 619) stated, ‘The value of land is what man makes of it (7.11).’ But, as was also pointed out earlier, he (p 637) argued, ‘Man, without wealth, does not get it even after a hundred attempts. Just as elephants are needed to catch elephants, so does wealth capture more wealth (9.4).’ He stressed the importance of both capital and labour as sources of value. In fact, Kautilya attributed only one third of agricultural output to labour and the remaining two-thirds to land, seeds and other inputs. Secondly, as mentioned above, the price of a good depended on demand factors (competitive bidding) also and not just on cost. That is, labour content alone was not used to determine relative prices. Thirdly, Kautilya on normative grounds also did not suggest that two goods with identical labour content should have identical prices. Therefore, it may appear at first glance that he was implicitly proposing a labour theory of value. But he had a much broader perspective than considering labour as the only source of value or the only measure of value.
SUMMARY Kautilya understood the importance of ethical conduct and compliance with laws for economic prosperity. He proposed a true labour theory of property but social consent was needed to sustain it. Despite the fact that Kautilya advocated a contract theory between the ruler and the ruled, that a king was a salaried public employee and that it was utilitarian in nature, unlike Bentham, he still appealed to the moral motivation. For example, he (p 377) stated, ‘A king who observes his duty of protecting his people justly and according to law will go to heaven, whereas one who does not protect them or inflicts unjust punishment will not (3.1.42).’ Most importantly, Kautilya never separated economics from ethics.
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Penance, Penalty and Prevention of Torts
Kautilya’s Arthashastra and Manu’s Code of Law also known as Manava-Dharmashast
ra have been considered as the most important treatises on the civil and criminal laws in ancient India. Kautilya’s objective was to complement the existing expiation methods with a comprehensive secular law.1 In his conceptual framework, the Brahmin took responsibility for performing ceremonies for freeing the defendant from his sins through penance/expiation and the judge was in charge of the judicial process and the imposition of the punishment on the defendant. Recently, Donald Davis (2010), Timothy Lubin, (2007) and Patrick Olivelle (2011) have explored in-depth the elements of spiritual law (ecclesiastical) and the secular law (based on judicial proceedings) in the Dharmashastras. Eminent Sanskrit scholars Kangle (1972) and Olivelle (2005) argue that the Arthashastra was one of the primary sources of Manu’s Code of Law.2 Also it seems that Manu’s primary objective in writing the codes was to undermine the secular law and reestablish the social hierarchy.3 Kautilya’s Arthashastra is a treatise on wealth and welfare of the
citizens. According to Kautilya, survival of a kingdom depended on economic prosperity, which among other things depended on wealth creating and preserving laws and fair judicial process. He developed a set of comprehensive secular laws related to property, contracts and torts. He considered both ethical and economic perspectives on creating laws. His proposal on tort law contained many noteworthy elements. First, he considered both deterrence and corrective justice as important social objectives but treated them separately. Secondly, he recommended monetary fines to complement the existing expiation measures used for freeing the wrong-doers from their sins. Thirdly, liabilities were based on negligence since that was considered as preserving and promoting ethical values. Fourth, punitive damages were large and all the receipts went to the Treasury. Finally, in addition to the punitive damages, the injurer was required to compensate the victim for serious physical injuries and for all financial losses.
Kautilya- the True Founder of Economics Page 28
