Similarly, Choi (1989) points out, ‘Han Feitzu repeatedly argued against Confucians (moralists) and showed that proposals based on moral grounds, though eloquent, inevitably resulted in absurdity if not outright undesirability.’
12. Basham (1959, p 9), ‘India was a cheerful land, whose people, each finding a niche in a complex and slowly evolving social system, reached a higher level of kindliness and gentleness in their mutual relationships than any other nation of antiquity.’ He (p 153) adds, ‘The humane regulations of The Arthashastra, probably unique in the records of any ancient civilization, are perhaps survivals of Mauryan laws, and it is therefore not surprising that Megasthenes declared that there was no slavery in India.’
13. Haddad (1996, p 77) observes, ‘Admittedly, the Scottish school did not venture very far into the theory of choice. According to Campbell and Skinner (1982: 99), Hutcheson, Hume and Smith believed that moral choices or judgments were to be explained in terms of immediate sense of feelings rather than as a process of reasoning or conscious calculations.’ Similarly, Sugden (2002) concludes his discussion on sympathy, empathy and fellow-feeling as: ‘The account depends on hypotheses about causal relationships between affective mental states, and makes no reference to preference or choice. Thus, it cannot be expressed in the language of a theory of rational choice from which all references to affective states have been stripped out.’
14. As discussed in Section 6.1, the following observation by John M Koller does not capture the true intent behind the creation of the concept of Heaven (Moksha). He (1999, p 289)) states, ‘However, if the discontinuity between the ultimate reality and worldly existence cannot be overcome, then it must be recognized that moksha, the supreme value, devalues human existence, for then it is not liberation of human beings, but liberation from being human. That is, then the value of Moksha belongs to Atman, not to embodied human existence, which ultimately is no more than the projection of ignorance.’
15. Zaratiegui (1999) does not take into consideration Kautilya’s contributions when he remarks, ‘The character and content of the old ethics has little to do these days with moral behavior. Furthermore, the roles have changed: Economics is now the social science with the greater academic and cultural prestige, while it was ethics that once had priority during the first stage of the process. Ethics exercised its control with a holistic view of society, whereas the focus has now changed to analyze why individuals from different cultural backgrounds adopt similar ethical and cultural norms with respect to moral behavior.’
CHAPTER -7 1. Kumar (1989, p xxii) observes, ‘Thus a critical study of the Arthashastra shows synthesis in life. In his philosophy of good living, he tampers orthodoxy with rationalism, combines moderate enjoyment of pleasures and economic gains with the pursuit of spiritualism and supports selfcontrol and not self-repression in them. We find a synthesis of all these qualities.’
2. Kautilya (Subramanian, p 13) stated, ‘That mother and that father are enemies, who do not give education to their children.’ Apparently, it was the parents’ responsibility to get their children educated and the government’s responsibility was to provide good governance.
3. Case VI has led to the harshest of criticism. For example, Sen (1997) concludes, ‘Kautilya is a consequentialist of quite narrow kind.’ But it is obvious that this assessment is based on this very small part and Sen totally ignores Kautilya’s broad conceptual framework which has more ethical content than that in the Wealth of Nations.
Perhaps that was needed at that time to maintain law and order and national security. For example, Drekmeier (p 260) writes, ‘The king needed greater freedom of movement if he was to provide security and the conditions of prosperity. The state was forced to take measures that frequently ran counter to the accepted moral standards of the community. But Kautilya well knew that such policies were all that could save society from collapse. He was led inevitably to a theory approximating the reason of state arguments of sixteenth-century Europe. But he sought to emphasize the fact that such actions were not irresponsible. Indeed, it is the duty of the ruler to his subjects that compels him to take drastic steps to ensure their welfare. Survival and progress are recognized as bestowing authority.’
Similarly, Choi (1989) in expressing the views of Han Feitzu (280-233 BCE) remarks, Han Feitzu was a radical in that a little coercion, initially, is justified if the end sought is the supreme public good, the law.
4 . Specification of the Role of Education: Conlisk asserts, ‘People spend much on human capital, in large part through schooling. The investment is partly information collection (names and dates), partly skill acquisition (typing), and partly general cognitive investment (Learning to think). The cognitive investment must be a response to bounded rationality. The part of schooling cost which goes into general cognitive development is general deliberation cost, and human capital theory is implicitly concerned with bounded rationality. The assumption that students invest optimally in schooling is an unusually strong example of optimal imperfection. Explicit recognition of the relation of human capital theory to bounded rationality might bring new insights to the theory.’
CHAPTER -8 1 . Mercantilists and Adam Smith on Economic Growth: Spengler (1960, p 9) notes, ‘First, disagreement persists with respect to the policy objectives of mercantilism, particularly as to whether mercantilism had power or plenty as its over-riding objective.’ However, Prasch (1991) remarks, ‘First, the title of the book, An Inquiry into the Nature and Causes of The Wealth of Nations, as well as his lengthy tracts about the mercantilists’ confusion with regard to the formation of wealth, lends credence to the view that he shared the mercantilists’ goals, namely the development of England’s wealth and power as a policy goal. Reviewing Book 4 of the Wealth of Nations, one finds that Smith never raises issue with the mercantilists’ policy goals, only with their attempts to achieve them.’ Adam Smith (Book 1, p 394) wrote, ‘But the great object of the political economy of every country, is to increase the riches and power of that country.’
In fact, Adam Smith offered paradoxical positions on the purpose of economic growth. He (Book 2, p 179) stated, ‘Consumption is the sole end and purpose of all production.’ But then, it might appear that Adam Smith was not concerned with growth in consumption since he believed that additional goods and services did not increase utility. For example, Prasch observes, ‘These passages as well as a number of others in The theory of Moral Sentiments make it clear that the increase of consumption cannot stand as a justification for economic growth.’ Similarly, Tribe (1999) states, ‘however, Brown argues that the meaning here should not be understood as a statement with respect to the forces for economic harmony, but instead as an endorsement of the Stoic argument that material things do not contribute to the general good and therefore do not affect a person’s happiness (Brown 1994, p 90). This, then, is not an argument about “trickle down”, the benefits for all consequent upon the consumption of a few; it is an argument that whatever the material distribution of goods might be, this has nothing to do with the distribution of happiness.’
Prasch attempts to piece together Adam Smith’s scattered thoughts on the purposes of economic growth and concludes, ‘Smith initially presents us with a variety of purposes for growth, including consumption, wealth and power, and civilization. Yet these goals are not individually exclusive and in fact are subsidiary to his overriding concern—the bringing of civilization—understood as the system of “natural liberty.”’
2. It seems that some technical progress was taking place. As Mokyr (1990, p 24) observes, ‘The best quality steel, “seric iron” (or Wootz steel), was imported from India, although the bloomeries of the West were capable of producing some level of low quality.’
3. Mokyr (1990, p 172-173) remarks, ‘In the eternal trade-off between progress and growth on the one hand, and stability and order on the other, Hindu civilization chose a position biased in the extreme toward the latter.’ He continues, ‘India, where daily life was conducte
d for millennia at the very margins of subsistence, is a reductio ad absurdum of the notion of an equilibrium, so beloved by economists. Yet this equilibrium was regarded as an arrangement established by the Gods, a perfect world in which everything and everyone had its place, a society in which poverty was holy and action was vanity.’
Basham (p 4), ‘The great achievements of ancient India and Ceylon—their immense irrigation works and splendid temples and the long campaigns of their armies do not suggest a devitalized people.’ He adds, (p 9), ‘Indian character is neither lethargic nor unhappy. This conclusion is borne out by a general acquaintance with the remains of India’s past. Our second general impression of India is that her people enjoyed life, passionately delighting both in the things of the senses and the things of the spirit.’
Moreover, the differences in the standard of living among nations arose only during the last two hundred and fifty years. For example, Blanchard (2000, p 195) states, ‘From the end of the Roman Empire to roughly year 1500, there was essentially no growth of output per capita in Europe. From about 1500 to 1700, growth of output per capita turned positive but small, around 0.1% per year, increasing to 0.2% per year from 1700 to 1820.’
Recently, Alam (2000, Chapter 2) examines this issue in more depth. He faults the ‘backward projection’ method used by almost all researchers to estimate the income levels in the distant past. He concludes that around 1760, the differences in income levels between the now advanced and the developing countries were negligible if any at all. He explores the factors that might have caused the ever-widening gap between the income levels of the now-advanced and the developing countries. He (Chapter 6) carries out empirical tests and finds conclusive evidence that the loss of sovereignty by the Asian and African countries (ie. the adoption of aggressive policies of imperialism by the developed countries) caused these huge income differences.
What may be said more convincingly: foreign rule is not a necessary condition but definitely a sufficient condition for creating a stagnant economy. No country has ever prospered while under foreign rule. All those countries, which were under foreign rule during the last two-three hundred years, did not get the opportunity to choose to grow. Therefore, Mokyr has to provide more convincing arguments to prove his assertions regarding the nature of relationship between Hindu civilization and economic growth.
4. Adam Smith makes a similar assertion in his Wealth of Nations. He (p 112) states that machines ‘facilitate and abridge labour, and enable one man to do the work of many.’
5. Adam Smith emphasizes the importance of land. He (p 195) states, ‘The acquisition of new territory, or of new branches of trade, may sometimes raise the profits of stock, and with them the interest of money, even in a country which is fast advancing in the acquisition of riches.’
6. For example, Hall and Jones (1999, p 97-98) note, ‘Two of these categories relate to the government’s role in protecting against private diversion: (i) law and order, and (ii) bureaucratic quality. Three categories relate to the government’s possible role as a diverter: (i) corruption, (ii) risk of expropriation, and (iii) government repudiation of contracts.’
7. According to McGuire and Olson (1996), public goods, such as law and order and other public infrastructure essentially shift the feasibility frontier upwards.
8. Kautilya (Subramanian, p 36) stated, ‘He feeds on nectar, who first feeds his people and then eats the left-overs.’ Similarly, Drekmeier (p 189) observes, ‘In the Arthashastra literature the interests of the state, rather than the king’s personal fulfillment, are of foremost importance.’ According to Kautilya, a king was a paid public servant.
9. Incidentally, Olson (2000) calls this ‘the second invisible hand.’ He (p 12-13) states, ‘This invisible hand—shall we call it as invisible hand on the left?—that guides encompassing interests to use their power at least to some degree, in accord with the social interest, even when serving the public good, was not part of the intention. This second invisible hand is as unfamiliar and perhaps counterintuitive as the first hidden hand was in Adam Smith’s time, but that does not mean it is less important.’
10. For example, Kaufmann and Kraay (2003) claim that better governance leads to higher growth in income but higher income does not cause any improvement in the quality of governance. They emphatically assert that there is no ‘virtuous cycle.’ Kaufmann and Kraay specify their model as follows:
Y = γ0 + γ1 GG +
(8.1A) GG= + β2 Y + β4 X (8.3A)
0 Where GG=good governance, Y=income, X=instrumental variable. It is a mis-specified model since important endogenous variables like knowledge are omitted. Knowledge is likely to affect income and that, in turn, influences the creation of knowledge.
CHAPTER -9 1. Rebecca M Blank and William McGurn (2004), ‘Is the Market Moral? A Dialogue on Religion, Economics & Justice’
http://pewforum.org/events/index.php?eventID=57
2. Albert Hirschman (1982, p 1483) concludes, ‘It is not just a question of difficulty of perception, but one of considerable psychological resistance and reluctance: to accept that the doux-commerce and the self-destruction theses (or the feudal-shackles and the feudal-blessing theses) might both be right would make it much more difficult for the social observer, critic, or “scientist” to impress the general public by proclaiming some inevitable outcome of current processes.’ Also see Fourcade, Marion and Healy, Kieran (2007).
3. William McGurn (2004) [suggests], ‘In short, my position is that theologians and economists need each other. Theologians and religiouslyinformed activists need to have some grasp of how the economy really works if their critiques are to be taken seriously. Conversely, market economists, if they are not to succumb to the same self-destructive hubris as the socialists, need a religiously informed culture to remind them that economics is made for human beings and not vice versa.’ http://pewforum.org/events/index.php?eventID=57
4. See Barr (1992) for such a distinction
5. Friedman (1980) remarks, ‘To a modern economist familiar with the difficulties of maintaining a successful monopoly their concern seems if anything excessive, but that may be a reflection of improvements in the market, not in economic wisdom, over the intervening centuries.’ The problem of monopoly, in all likelihood must have been quite severe during ancient times and Kautilya considered remedying what Sen (1987, fn. 29 p 27) calls ‘pull failure’ and ‘response failure.’
6. Consumer Protection: Post et al (1999, p 312) argues, ‘This consumer movement exists because consumers want to be treated fairly and honestly in the marketplace. Some business practices do not meet this standard. Consumers may be harmed by abuses such as unfairly high prices, unreliable and unsafe products, excessive or deceptive advertising claims, and the promotion of some products known to be harmful to human health, such as cigarettes or farm products contaminated with pesticides.’ It is further argued that consumers demand protection since products have become more complex, services have become more specialized, prevalence of deceptive advertising and inadequate attention paid to product safety.
7. Stiglitz (1994) analyzes the market failures, which are ‘based on imperfect and costly information and incomplete markets.’ Some of these are labeled as the problems of ‘moral hazard’ and ‘adverse selection.’ For example, Kotowitz (1987, p 549) notes that the problem of moral hazard is widespread and even Adam Smith was aware of it. He remarks, ‘However, theoretical developments and their applications to specific problems have only proceeded over the past 25 years and are still the subject of vigorous research. While we have a considerable understanding of the problem, we do not as yet understand fully market and social responses to it.’
8. Joseph Stiglitz (2000, p 9-10) lists four main reasons for government failure when attempting to correct a market failure: (1) limited information, (2) limited control over market responses, (3) limited control over bureaucracy, and (4) limitations imposed by political processes.
9. Robert Bradley (1990) provides an
alternative explanation. He argues that Senator Sherman’s intent in getting the Sherman Act passed was not to enhance consumer welfare but to settle a score with General Russell Alger, who had blocked Sherman’s Republican presidential nomination. He writes, ‘Upon signing the Sherman Act into law, Harrison stated: “John Sherman has fixed General Alger.”’
10. According to Charles Drekmeier (1962), there was a paradigmatic shift in thinking in terms of the realm of possibilities during Kautilya’s time in India. He (p 290) observes, ‘New controls over the environment sharpened the distinction between physical necessity and necessity that is created by man. We may surmise that men began to conclude that remaking the world was within the realm of possibility. The ancient belief in the cyclical periodicity of time, the eternal return, was modified or displaced altogether by a sense of continuity and development approximating a historical attitude. Accumulated wealth and the military power and administrative efficiency it made possible could now be used for achieving ambitious, long-range political and social goals. The great man is, in fact, the great organizer. He creates the very conditions that make the hero obsolete, for he imposes an order that limits the unpredictable contingencies against which the hero struggles. The hero was made for his age; the organizer is the maker of his age. Man can now do things that earlier could be accomplished only by the gods.’
Kautilya- the True Founder of Economics Page 38
