The Father of Indian Economics: Kautilya

For most of recorded human history, there was little to no economic growth. Only in the last two hundred years has humankind seen the kind of economic growth that allows for the flourishing modern world. Though many still live in poverty, despite all of the doom and gloom, the inhabitants of Earth are getting richer, living longer, and leading more fulfilled lives than ever before in human history. While not the only factor, the pioneering of economics as a serious discipline has changed the world for the better.

The story we hear about economics usually begins with the famous Scottish philosopher Adam Smith writing his seminal work The Wealth of Nations in 1776. But there were people before Adam Smith who discussed in detail what would now call economic principles. The French Physiocrats such as François Quesnay wrote Tableau économique attempted to analyze the economy in a rational analytic manner. But even before Smith and the Physiocrats, 16th-​century Spanish theologians belonging to the School of Salamanca articulated the benefits of trade and the efficacy of the free market. The foundation of economics as a discipline is often viewed as a product of western civilization. However, as always, non-​western thinkers also theorized about how the economy functioned and how to best harness people’s productive energies.

Nearly two thousand years before Smith penned the Wealth of Nations, in ancient India, an author by the name of Kautilya penned a book entitled Arthashastra intended as a guidebook for future kings and leaders. Kautilya, with an encyclopedic level of knowledge covering many topics, including military strategy, espionage, diplomacy, leadership, and judicial rules. But from a historical perspective, what is most impressive about Arthashastra is the extensive discussion of taxation, business ethics, the benefits of trade, the importance of incentives, and the positive effects of prosperity. Until Smith’s Wealth of Nations, Kautilya’s Arthashastra was the most extensive economic treatise on the planet.

But I think a little context will help us understand why Arthashastra is so special. Today economists are an essential component of our governments. Besides a few fringe groups who believe economics is a bourgeois science or a conspiracy theory to enslave the masses, most political partisans of all persuasions believe economics and economists have a role to play in helping us understand the world and promote prosperity.

One of the biggest names in western philosophy, Plato, the man himself, had little positive to say about commerce or private property. Plato’s ideal republic was ruled over by Guardians who strictly regimented and organized society along communal lines with only a select few undesirables managing the less illustrious world of trade. Though more friendly to private property, fellow Greek and philosophical heavyweight Aristotle believed commercial pursuits were the mark of a lowborn, ill-​refined man. Even one of my personal favorite philosophers, Cicero, argued that earning a wage made a man into a slave of another’s will and believed commercial activity to be beneath a virtuous statesman. The uncomfortable truth is that a huge portion of philosophy has been written by aristocratic elites who tended to look down on the crude and mean world of commerce from their lavish inherited country estates. Though some thinkers such as the underrated philosopher and pupil of Plato Xenophon wrote about a sort of proto-​economics, his work primarily focused on the home as an economic unit, not broader society.

Inheriting this hostile stance towards commerce, medieval thinkers tended to have similarly dismissive views of commerce. They even viewed interest, or as they referred to it usury, as an evil that corrupted society. Wealth was not viewed as a positive good but instead a corrupting force that could tarnish a man’s soul. After all, in the Bible, Jesus stated that “it is easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of God.”

Despite the colossal role commerce, wealth creation, and banking play in our modern lives, for much of the story of the western world, these topics were viewed with deep suspicion, if not outright disdain. The philosophers and thinkers who expounded these views were no fools. In their respective fields of ethics, metaphysics, theology, and so on, they were geniuses of the highest order. But something was in the way of them developing coherent accounts of how wealth was created and maintained. Whether it was their aristocratic backgrounds or religious convictions that impeded their appetite for economic affairs is a debate for another time. In the context how of how long it took the west to develop the discipline of economics, a treatise that comes uncannily close to expounding modern economic thought all the way back in ancient India is a story worth knowing.

Kautilya, or as he often referred to as Chanakya or Vishnugupta, was a member of the Brahmin caste born sometime around 375BC in the village of Chanaka in the Golla region. He is a semi-​legendary figure with multiple fantastical accounts of his life and exploits documented by Buddhists and Jainists. To cut to the chase, somehow, Kautilya was in some manner dishonored or insulted by the Nanda king who ruled over the majority of the Indian subcontinent. The Nanda Empire was a militaristic empire that conquered large swathes of land and had transitioned from roving bandits to an imperial dynasty through violence and plunder. Kautilya vowed to take revenge on one of the most powerful people on the planet at the time.

While plotting his revenge, he encountered a young boy named Chandragupta who, while playing a mock game with his friends where he pretended to be king, showed extraordinary leadership and, in some accounts, magical abilities despite his age. Seeing the boy’s potential, Kautilya took him under his wing to one day replace the Nanda king with a new and improved king akin to Plato’s ideal philosopher-​king. However, unlike Plato, Kautilya succeeded in raising an army alongside the matured Chandragupta overthrowing the Nanda king in 321BC, establishing a new power, the Maurya empire. With Chandragupta as king and Kautilya acting as a sort of prime minister, the Maurya empire flourished through trade, agriculture, and commerce, all under an efficient system of finance, administration, and security.

At some point between 321 and 286BC, Kautilya decided to write the Arthashastra, a guide for future rulers to follow to establish and maintain a prosperous society. Today, scholars tend to focus on Kautiyla’s views on foreign policy and grand strategy. Kautilya though not an amoral thinker by any means, tended to hold the belief that the end justifies the means. Espionage, propaganda, and dirty tactics were all fair game in the struggle for power between nations and empires. A view similarly articulated by the infamous Niccoló Machiavelli in 15thcentury Italy. Though as the famous sociologist Max Weber noted, Kautiyla’s pragmatism at times makes Machiavelli look like a lightweight. Though Kautilya is often referred to as the Indian Machiavelli, it might be more accurate to call Machiavelli the European Kautilya. Arguably, Kautilya is the first recorded advocate of realpolitik or realism.

However, international relations and strategy are only a part of Arthashastra. My edition of the book is over 800 pages long. Seemingly Kautiyla had an extensive set of knowledge; he discusses statecraft, taxation, foreign trade, military strategy, coinage, agriculture, public works projects, fortresses, labor laws, accounting systems, all of the knowledge a king required to rule his country effectively. Archaeologists have read his chapters on fortresses and public works and compared them to archaeological evidence to see if Kautiyla really knew what he was talking about. It turns out he most definitely did. His descriptions of buildings and forts resemble remains from his period. He was no armchair academic by any means. Arthashastra is divided into 15 book titles, 150 chapters that cover 180 topics. Though commentators tend to focus on international relations, the Sanskrit title of the book Arthashastra translates roughly in English to “the science of wealth,” what Kautiyla argued was the ultimate foundation of civilized life.

Kautilya wrote Arthashastra for prospective monarchs, but he was by no means an advocate of despotism or tyranny. Regardless of the prestige of a king, Kautilya makes it clear from both a moral and pragmatic perspective that a king is bound by an implicit social contract. Like many liberals in the early modern period, Kautoyla theorized that people originally lived without states in what thinkers like John Locke call the state of nature. However, the state of nature for Kautilya is the law of the jungle where the strong tend to oppress the weak, and often chaos reigned. Eventually, people tired of the state of nature and yearned for order. Thus they crowned a king and gave him a portion of their property to ensure justice and order prevails over the law of the jungle. English Revolutionaries in the 17th-​century argued against the absolutist perspective that a monarch has unlimited power and can trample over people’s rights and take their property at his pleasure. For the English revolutionaries, the king ruled by law, not by personal prerogative. Kautilya similarly argues that the king is brought to his position of power, not for his personal satisfaction or gain but to serve the common good. He writes of a good king, “In the happiness of his subjects lies his happiness; in their welfare his welfare; whatever pleases himself he shall not consider good, but whatever pleases his subjects he shall consider as good.”

The king and, by the same extension, the state exists to serve, not to dominate. The power of taxation is only granted to the king on the proviso that he uses taxpayers money for the common good. Kautilya advises that a good king “shall provide the orphans, the aged, the infirm, the afflicted, and the helpless with maintenance. He shall also provide subsistence to helpless women when they are carrying and also to the children they give birth to.” Citizens under the Kautiylian state pay taxes but only to provide for those who need it most. If a king fails to provide these essential services, Kautilya believes citizens are entitled to a sort of tax refund. For Kautilya, all of humanity’s various branches of knowledge exist to teach self-​control; he writes that, “A king who has no self-​control and gives himself up to excessive indulgence in pleasures will soon perish, even if he is the ruler of all four corners of the earth.” Being a realist, Kautilya argued that a king does not perish because of some divine law or punishment but because the dissatisfied will rise up to overthrow his rule for better or worse. Though Kautilya wrote from the perspective of a monarch, he believed even a king had duties towards his people and that he should practice restraint, only using his power when absolutely necessary. The power of a king is limited by the satisfaction of his people.

But what is the best way to satisfy people? The simple answer is material well-​being. Kautilya was deeply versed in ethical philosophy, but he saw that material wealth was the most sure-​fire way to keep people happy. Regardless of ethics, Kautilya argued it is always in the best interests of a good king to make his people wealthier and thus happier. He wrote that, “Material well-​being alone is supreme…spiritual good and sensual pleasure depend on material well-​being.” Akin to later enlightenment thinkers, he placed the efforts of people above religious or supernatural phenomena. He warned that “The object slips away from the foolish person who continuously consults the stars…what will the stars do? Men without wealth do not attain their objects even with hundreds of efforts.”

Unlike his ancient contemporaries in the west, who feared wealth brought luxury and vice, Kautilya extols the virtues of wealth because it made people not only happier but moral. He explains that when people have a little more money in their wallets, they are more capable of practicing the eternally important virtue of charity and generosity. For Kautilya, there is no nobility or secret virtue in poverty, it is a miserable condition that ideally, no person ought to experience writing that, “Poverty is death, while living. There is no enemy equal to hunger. A poor man’s word, even if apt, is not heard. It is not difficult for the rich to do good deeds. Death is preferable to poverty.” Despite his slightly extreme phrasing, Kautilya does not blame the poor for being poor; he blames the king for not taking the proper measures to promote economic growth. If poverty is rife amongst the populace, Kautilya advises the king “not act in such a manner as would cause impoverishment, greed or disaffection among the people; if however, they do appear, he shall immediately take remedial measures.”

People leave the state of nature and enter a civilized society or order and economic opportunity. Therefore the king ought to refrain from “demanding gifts, seizing what he wants and grabbing for himself and his favourites the produce of the country.” If a king “fails to give what ought to be given and exacts what he cannot rightly take,” then he “does not carry out his part of what had been agreed upon.” Kautilya provided three rationales for pursuing economic growth. Firstly, as previously stated, it is the king’s moral duty and implicit agreement that his reign will bring prosperity to his people. Secondly, wealth and satisfaction produces stability. Regardless of morality, wealth maintains stability within a state, something any good ruler should cherish, especially in the turbulent days of the ancient world. Lastly, more wealth means more revenue with which a king can enhance national security, protecting his rule from foreign invasions and internal usurpations. Kautilya advised prospective monarchs to establish the rule of law, protect private property, and create an efficient and transparent bureaucracy to promote economic growth. If a king can increase the productive capacity of his economy, his people could have a higher standard of living, earning him support amongst the public while also yielding higher tax revenues. Because of the importance Kautilya attaches to economic growth, he preferred peace over war because, in nearly all situations, peace is conducive to prosperity. In contrast, war only consumes both lives and property.

Libertarians and classical liberals alike agree with Kautilya on the importance of the rule of law and protecting private property, but bureaucracy is often a dirty word for those who view the state in a skeptical light. But Kautilya argued that a well-​functioning bureaucracy is a prerequisite for economic opportunity and growth. While Kautilya advocated for a benevolent monarch, he did not believe one person could rule alone. Just like a chariot cannot move with one wheel alone, so too can a king only properly govern with the cooperation of advisors, ministers, and bureaucrats to implement policies. Kautilya advises that “Sovereignty is practicable only with the cooperation of others and all administrative measures are to be taken after proper deliberations.” The king is not omnipotent and all-​knowing; he requires the talents of others channeled through a well-​functioning bureaucracy that promotes good government.

Good government promotes order and “By maintaining order, the king can preserve what he already has, acquire new possessions, augment his wealth and power.” The world depends on the proper functioning of government. Good government consists of three elements for Kautilya. Firstly, governments provide for national security and public infrastructure such as roads and bridges that promote commerce. Secondly, government helps implement efficient long-​term policies that remove obstructions to economic growth. Lastly, and possibly most importantly, good government ensures a fair and clean administration with minimal corruption and waste. Order depends on the honesty of those who enforce the law. Clarity, consistency, and the minimization of errors were top priorities for Kautilya.

Being an experienced minister Kautilya lists forty different methods that corrupt officials use to embezzle government money. Ever the realist, Kautoyla recognized that there is always potential for corruption writing “Just as it is impossible not to taste the honey or the poison that finds itself on the tip of the tongue, so it is impossible for a government servant not to eat up, at least, a bit of the king’s revenue.” Never the less, officials who wasted taxpayers money were to be punished for “swallowing the labour of workers.” Officials were expected to show their accounts to prove their honesty. Anywho told lies or made contradictory statements were liable to pay fines for misusing taxpayer money, a practice that would appeal to any prudent critic of the state. In extreme cases, Kautilya recommended that corrupt officials be punished by not only heavy fines but public humiliation by smearing offenders with cow dung or shaving off their hair.

Scholars have argued that Kautiyla can be described as the first theorist of intelligence. Outside of foreign affairs, Kautilya believed the main function a state’s secret service was not to watch over the people but government officials. Kautilya recommended hiring spies operating under covers such as priests, jugglers, and even prostitutes to root out treason and corruption.

For the maintenance of order and a well-​functioning bureaucracy, taxes are required. Kautilya advocated for a wide range of taxes. However, he was careful to specify taxes should never be too heavy. He advocated a multitude of taxes to collect revenue from all available sources, but he stressed that a king should never exploit or overtax his people. Kautilya saw the benefits of taxing people proportionally based on their income and wealth. Students, the ill, and widows were exempted from taxes and even at times given remissions. Like Adam Smith, Kautilya believed an effective system of taxation was proportional and easy to pay to avoid evasion. Kautilya expressed three major principles of taxation, that the power of taxation is limited, it should not place excessive strain on economic activity, and that it ought to be graduated based on wealth and income. Kautilya emphasized the importance of the long run, heavy taxation may produce revenue in the short run, but it was likely to dampen future economic activity and gains. Ideally, “A King must collect taxes like a honeybee,” enough to sustain the state, but not too much to destroy the source of its revenue. He also warned that when people are taxed too heavily, they are likely to emigrate to neighboring countries depriving the nation of wealth and talent.

Importantly, Kautilya also observed that the state could be too large and swallow taxpayer money. He recommended that a king’s servants should never exceed over a quarter of his revenue. At times he even advocated for reducing government spending to promote growth. Since a productive economy is the base on which a stable state rests, Kautoyla advocated for infrastructure to assist economic development, especially roads, which promoted commerce. He wrote that a good king, removes all obstructions to economic activity. Kautilya envisioned the state taking a strong supervisory role over the economy; it is the state’s duty to facilitate transactions, not to command the economy at a whim. Though at times he advocated for intervening in the economy, he specified this should only be undertaken in times of war, famine, or emergency.

Despite living over two thousand years ago, Kautilya grasped so many economic ideas that would elude western thinkers until the Enlightenment. For example, while his contemporary Aristotle condemned interest on loans as immoral, Kautilya outlined the importance of interest for a healthy economy. Later, Roman emperors would inflate their currencies in fruitless attempts to manipulate the economy, while Kautiyla, centuries before them, saw no need for the state to manipulate monetary policy. At every turn, Kautilya sounds like a modern economist more than an ancient philosopher.

It is difficult to grasp the influence Arthashastra had on Indian thought. Kautilya is often favorably quoted, but by the 12th-​century, Arthashastra was lost. In 1905, a Tamil Brahmin from Tanjore visited the newly opened Mysore Oriental Library donating a Sanskrit manuscript written on palm leaves. Sanskrit scholar Rudrapatna Shamasastry identified the text as Arthashastra. Sanskrit being grammatically and syntactically different languages has led to scholars having debates over the true meaning of Arthashastra, a debate that continues today even a hundred years after its rediscovery. Today in India, the name Kautiyla has a few different connotations. On one end, Kautilya is a symbol of a pragmatic and cunning statesman who gets the job done by whatever means necessary. On the other, nationalists note Kautiya’s role in unifying the Indian subcontinent as one of the founders of the Mauryan empire. Lastly, in international policy circles, Kautilya is revered as an advocate of foreign policy realism.

In my opinion, none of these characterizations do Kautiyla justice. He had a level of practical and theoretical knowledge unparalleled by any of his contemporaries or even a large portion of thinkers who followed in his footsteps. Kautilya is by no means a liberal. He supported a monarchical form of government, at times an interventionist state, and a certain vicious realism in foreign policy. However, if Kautiyla’s Arthashastra had never been lost, his economic principles could have spurred the growth of the modern world well before the days of Adam Smith and David Ricardo. Yet again, Kautiyla proves that some of the west’s most cherished intellectual legacies were articulated by eastern thinkers whose ideas did not find fertile ground for growth. Regardless, Kautilya could arguably be the father of Indian economics. Despite the age of his ideas, he still challenges us to think about the nature of the state and how to a money-​hungry bureaucracy in check.