Kautilya- the True Founder of Economics

by Balbir Singh Sihag

  There existed some tort laws but pre-Kautilyan writers had primarily elaborated on expiation methods, which were intended to free the defendant from his sins and to enhance deterrence by modifying his behaviour. These are presented in Section 17.1. Kautilya’s objective was to complement the expiation methods with the introduction of a comprehensive set of secular laws. The implications of his conceptual framework are brought out in Section 17.2. It is indicated that a monetary penalty alone or penance alone is less effective as a deterrent than a penalty-penance mix. Interestingly, the defendant may also prefer a mix of penalty and penance than either one of them alone. It means that a specific penalty-penance mix can be designed to tailor to the specific circumstances of a defendant. Kautilya’s conceptual framework offers some insights into the working of the prevailing tort law systems, which are heavily focused on monetary penalties. He proposed a set of negligencebased tort laws such that the social objective of deterrence without weakening the ethical norms was accomplished. Surprisingly, he discussed tort liabilities related to some modern problems, such as consumer fraud, tress pass, malpractice, privacy and defamation. These are discussed in Section 17.3.

  17.1 TORT LAWS BEFORE KAUTILYA Patrick Olivelle (1999) deserves credit for translating the pre-Kautilyan Dharamsutras of Apastamba, Gautama, Baudhayana and Vasishtha. No one really knows for sure when these dharmasutras were written but one could say with a high degree of confidence that these were written before Kautilya. All of these writers emphasized various kinds of penances for emancipating the defendant from minor and major sins. However, they did introduce some tort laws. Apastamba (Olivelle, 1999, p 34) wrote, ‘If someone kills a Kshatriya, he should give a thousand cows to erase the enmity, a hundred if he kills a Vaishya, and ten if he kills a Sudra. In addition a bull is to be given in each case as an expiation. The same applies for killing women of these classes’. This sounds like the 21st century law. Since a murder was considered a crime against society, as well as a tort (private wrong). This indicates that he understood tort liabilities.

  It is interesting to note that the economic value of a Kshatriya’s life was considered equal to the economic values of 1000 cows plus a bull. It appears that the economic value of a person’s life was dependent both on social and economic factors. According to these thinkers, everyone was born as a Sudra (uneducated—a characteristic of those belonging to lowest of the fourfold social strata) and only by acquiring skills and knowledge, a person lifted himself upwards, implying that the economic value of a Kshatriya’s life would be higher than that of a Sudra’s. Clearly, they understood the importance of human capital. Unfortunately, none of these writers recommended universal education and some individuals remained as Sudras.

  Apastamba (Olivelle, 1999, p 71) also wrote, ‘If someone sees cattle that have been carelessly allowed to wander into the wilderness, he should bring them to the village and return them to their owners. If such negligence happens again, he should return them after impounding them, and thereafter he should ignore them’. One may conclude from this paragraph that he did not establish tort law as a distinct branch of law.

  However, Gautama proposed a genuine negligence-based tort law although limited only to an agricultural economy. He understood the four elements of tortuous liabilities: ‘each individual owed duty of care to others; it should not be breached; no harm would have occurred without the breach of duty of care and the breach was the cause of harm.’ Gautama (Olivelle, 1999, p 98-99) recommended, ‘The owner is at fault when his animals cause damage; but if a herdsman was looking after them at the time, then it is the herdsman’s fault. If the damage is done to an unfenced field by the side of a road, then the fault lies with both the herdsman and the owner of the field. For damage done by a cow, the fine is five Mashas; by a camel or a donkey, six; by a horse or a buffalo, ten; by sheep or goats, two for each. If the whole field is destroyed, the fine is the value of the crop.’ Apparently, by Gautama’s time, some monetization had taken place and imposition of fines in terms of cows was getting replaced by cash (Masha was the unit of account and medium of exchange).

  Darmasutras (religious scriptures before Kautilya) on Penance as a Deterrent: The Brahmin (priest) took responsibility for performing ceremonies or rituals required for removing the guilt incurred from the sins. Patrick Olivelle (2005) lists four means of expiation. He (p 227) states, ‘A sinner is freed from his sin by declaring it publicly, by being contrite, by performing acetic toil, and by reciting the Vedas; during a time of adversity, also by giving gifts.’ In fact, penance not only served as a deterrent by publicly acknowledging guilt but also reduced victim’s intensity of vengefulness. Robert Lingat (1967/2004, p 64) notes, ‘Penance inflicted on the wrongdoer often provides a kind of public reparation for the victim sufficient to assuage his desire for vengeance. Occasionally, too, the penance devised takes into account reparation to the victim.’7 Clearly, besides monetary compensation, non-market methods could be effective in reducing vengeful tendencies.

  Robert Lingat (1967/2004, p 68) points out, ‘The religious law and the secular law thus interpenetrate each other. The two domains are never clearly distinguished. However, the rules of penal law occupy little space in the Dharmasutras. They are not arranged systematically, as are sins and penances. The topic was plainly secondary and accessory so far as our authors are concerned.’

  However, as mentioned earlier, all these ancient writers put heavy emphasis on ethical conduct. For example, Apastamba (Olivelle, 1999, p 34) 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.’

  Kautilya also believed that an ethical person would avoid causing any financial or physical harm to others. He wanted to create secular laws that did not conflict with or weaken the moral codes or social norms and cause any crowding-out.4 He considered secular laws as complementary to the prevailing penance/expiation measures. In fact, he designated the judge as a ‘dharmastha’—upholder of dharma. He provided incentives to the Brahmins to move to the new settlements so that they were available for performing the rituals. He (p 179) suggested to the king that, 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 (2.1).’ He strongly believed that the Arthashastra contained useful advice for achieving all the worthy goals.

  According to Charles Drekmeier (1962, p 194), ‘There is, in Indian philosophy, a hedonistic current that ridicules religion and ethics, but Kautilya is always aware of the instrumental value of religious rites and ethical norms in preserving the social structure.’ He adds, ‘Yet statute law must be compatible with the Vedas and the social order defined therein.’ According to Kautilya, ethical anchoring was both an end (a source of joy) and a means (to preventing wrong).

  17.2 KAUTILYA PROPOSED PENANCE-PENALTY MIX FOR AN EFFECTIVE DETERRENCE Kautilya was a pragmatist and today’s labels like conservative, liberal or libertarian do not apply to him. He considered prosperity as essential to internal stability and security against foreign aggression. According to him, preservation and creation of wealth maximization, but subject to maintaining the moral fabric of the society, was essential to prosperity. He devised tort laws keeping in view the twin objectives of preservation of wealth and moral fabric of the society. Moreover, there were some inequalities but were not that serious like today’s, implying that initial distribution of wealth was not that objectionable to the goal of wealth maximization.

  Minimization of the Probability of Accidents: Kautilya, just like Jeremy Bentham, Adam Smith or David Ricardo, was not hostage to Pareto’s static efficiency optimization conditions. He still suggested wealth maximization tort laws.5 He put heavy emphasis on prevention. He suggested complementing the existing expiation meas
ures with: (a) traffic codes to reduce the probability of an accident, license to practice medicine to reduce the probability of wrong treatment, building codes to protect privacy and industrial zones to reduce the probability of a fire; and (b) imposition of monetary fines. The emphasis was on developing a comprehensive approach.

  Traffic Code and other Measures to Reduce Probability of an Accident: Kautilya suggested curtailing human activities where the probability of an accident was high. He (p 369) envisaged, ‘A cart shall not [be allowed to] move with no driver in it; only an adult can be in charge of a cart; a minor driver shall be accompanied by an adult (4.13).’ The penalty for not obeying this rule was the confiscation of his cart. It is significant to note that he understood the distinction between tort liability and regulatory liability.6 a (ii) Medical License Requirement: L Sternbach (1965, part I, p 301) states, in ancient India, it was necessary for a physician to obtain permission of the king for starting medical practice. Non-licensed and ignorant physicians were called companions of diseases.’

  Building Codes: Kautilya recommended building codes to protect privacy. He (p 371) wrote, ‘The doors and windows shall be so made as not to cause annoyance by facing directly a door or a window of a neighbouring house. Any window made for lighting shall be high up [so that it does not overlook a room of another house] (3.8).’

  Setting up Industrial zones: He suggested setting up industrial zones to minimize fire hazards by limiting the craftsmen to the specified industrial areas. He (p 193) wrote, ‘The Governor-General of the City shall make all those who work with fire [e.g., blacksmiths] live in one locality (2.36).’ He (p 349) suggested, ‘Liquor shall only be drunk in the drinking house, and no one shall move about while drunk (2.25).’ He suggested making provision for sleeping beds. Interestingly, he cited many externalities of drunkenness, such as workers spoiling the work, behaving immodestly or even committing murders.

  Note, prevention (or deterrence) is forward-looking whereas remedial measures, like corrective justice are backward-looking, that is, after the fact. Although Kautilya separated the social objective of deterrence from the corrective justice objective, he understood their interaction. He understood that administration of justice was critical to prevention (discussed in Chapter 15).

  Kautilya proposed complementing the prevailing penance measures at the time by monetary penalties to reduce the harmful activities. He tried to fill this vacuum by providing a systematic, comprehensive, secular body of laws. In his conceptual framework, the Brahmin took responsibility for performing ceremonies for freeing the defendant of his sins through penance/expiation and the judge was in charge of the judicial process and the imposition of the monetary penalty on the defendant. Both monetary penalty and penance are bads (less the better), implying concave indifference curves.7 A defendant could prefer a mix of penance and penalty to penance only or only monetary penalty, as a punishment. Since both are bads, a lower indifference curve is preferable to a higher one. We can get a sense of the implications of Kautilya’s ideas here through the indifference curve apparatus.

  Figure 17.1 is used to express his ideas on a defendant’s choice between penance and penalty. For example, he might prefer point E on a lower indifference curve A0B0 to point A1 or B1 on a higher indifference curve A1 B1. Since penance involved some labour-intensive

  Figure 17.1: A0 B0 and A1 B1 are the defendant’s indifference curves for penalty and penance (the two bads, less the better). The defendant prefers point E to point A1 or to point B1 since it is on a lower indifference curve A0 B0.

  rituals, a rich defendant might have preferred a higher monetary penalty and less penance than a poor defendant, who might have preferred more penance and less monetary fine. That is, punishment could be tailored to each defendant.

  Kautilya made a few noteworthy suggestions related to tort law. First, he considered both system-building and corrective justice as desirable goals of tort law. But punitive component of the penalty went to the treasury and not to the plaintiff. He, as mentioned above, suggested formulating traffic rules, such as specifying the minimum age and training requirement of a bullock cart driver for reducing the probability of an accident. Nowadays we have stop signs, red lights, require driving licenses, minimum age to get a license, marked lanes, road dividers, which side of the road to drive rules, inspection stickers for cars to reduce breakdowns, animal and railroad crossing signs, speed limits and their enforcement to reduce the probability of an accident. Since tax payers finance expenditure on these preventive measures, so the punitive damages should go to the treasury, he suggested. Second, he considered penance and penalty as complements, that is, monetary fines were proposed to complement the existing penance measures and not replace them. Figure 17.2 is used to capture his ideas.

  Figure 17.2: Isoquant Q0 represents a deterrence level of [p0–p1] and isoquant Q1 represents a higher deterrence level of [p0–p*]. A penalty at the level of OA, but without any penance, achieves a deterrence level of [p0–p1] as indicated by the isoquant Q0. However, if accompanied with penance, a higher level of deterrence [p0–p*] as shown by isoquant Q1 may be achieved, indicating that a propermix of penalty and penance, such as OA* of penalty and OB* of penance may achieve a higher level of deterrence. Similarly, it can also be shown that penance alone would be a less effective tool in deterring accidents. As a general rule, two instruments are better than one, implying that both the judge and the Brahmin (priest) may help in ensuring of an effective deterrence. In today’s society, along with other avenues, community service may constitute a large component of penance.

  The monetary penalty OA* in Figure (2) consists of two components: the punitive damages and the compensation to the victim for his loss. According to Kautilya, as discussed below in Section III, punitive damages went to the Treasury. That is, according to him, there was no need to split the punitive damages with the plaintiff. He implicitly indicated that the social objective of deterrence through monetary fines should be delinked from the corrective justice goal of compensating the victim for the loss, since there were other ways a plaintiff could be compensated by the society.8

  A numerical example may help in clarifying Kautilya’s ideas. Let P be the initial probability of an accident and P0 be the reduced probability due to traffic codes, that is, traffic codes help in reducing the probability by [P–P0] and, larger the difference between them, higher the deterrence. If P0 is the probability of an accident before any precautions were taken by an individual and P1 is the reduced probability of an accident if precautions are undertaken in response to a monetary penalty, the difference between P0 and P1, that is, [P0– P1] will measure the deterrent effect of a penalty only and [P0–P*] indicates the impact of a combination of penalty and penance. Let us say P=0.50, P0=0.15, P1=0.08, P*=0.03, then traffic codes reduce the probability of an accident by 0.35 (=[P–P0]), monetary fine reduces it by 0.07 (=[P0–P1]) and a combination of monetary fine and penance by 0.12 (=[P0–P*])

  According to Isaac Marcushamer (2005), plaintiff ’s indifference curves have changed from almost flat to almost vertical in the vengefulness-monetary compensation space (indicating a shift away from vengefulness). That is, two-three hundred years ago, even a large amount of monetary compensation was, more or less, ineffective in reducing victim’s feelings of vengefulness (implying flat indifference curves),whereas, now-a-days, smaller amounts of monetary compensation are needed in pacifying a victim’s feelings of vengefulness. This development is captured by Figure 17.3.

  Figure 17.3a: is used to depict the relatively flat indifference curve, U U between vengefulness and monetary compensation, implying ineffectiveness of monetary compensation. Similarly, Figure 17.3b is used to indicate the transformed, almost vertical indifference curve, U' U' between vengefulness and monetary compensation and implying effectiveness of monetary compensation.

  Marcushamer cites two explanations for moving away from vengefulness and towards monetary compensation: (i) attaining of ‘psychological maturity’ b
y Ehrenzweig and (ii) ‘shifting of moral standards into objective standards’ by Holmes. Moving away from vengefulness has been a positive development but in this transformation, the positive role for moral sense got eliminated. Guido Calabresi (2007, p 6) points out that this transformation has led to an entitlement mentality to seek maximum possible monetary compensation from the defendant, implying a harmful development. It may also be noted that this type of development has undermined the role of expiation measures. For example, incorporation of an explicit role for expiation into current tort laws would shift the indifference curves in both Figure 17.3a and Figure 17.3b towards the origin. That is, a victim would have the same level of utility, but with a lower monetary compensation and also would have reduced feelings of revenge.

  This development most likely has changed the slope of the plaintiff ’s indifference curves to almost vertical in the penance-penalty (=monetary compensation) space. This development is captured by Figure 17.4.

  Figure 17.4: Victim’s indifference curve UB is almost vertical, implying a preference only for monetary compensation. Some victims do prefer receiving a monetary compensation, along with an expression of remorse from the defendant. But it appears that a majority of the victims not only expect, but also leave no stone unturned to extract as much monetary compensation as possible, that is, they prefer the corner point A in Figure 17.4. On the other hand, often the defendant may want to say sorry but is afraid to do so, since that is an open invitation to a lawsuit and a larger judgment against him. In any case, after paying a huge penalty (including the punitive damages etc.), the defendant does not want to express any remorse. It means that going through the court ordered rehabs and driving courses etc. by the defendants are just rituals without any feeling of remorse on their part. Thus, the exclusive emphasis on monetary compensation might have not only increased the level of litigation by manifolds but also has eliminated the need to experience guilt or shame on the part of the injurer, that is, it might be contributing to the phenomenon aptly termed as ‘dead man walking’− a human skeleton without a soul. This implies that the society may have already lost or may be close to losing the instrument of penance as a deterrent and a pacifier.9