top of page

Close Cousins : Roman and Indian Early Economic Thought

By

Amogh Atwe and Dhruvah Sreedhar

History is often said to be written by the victors, and economics is no exception. Discussions about the history of economic thought often begin with thinkers from Ancient Greece and Roman ideas. However, we rarely consider the contributions of our own Eastern thinkers – contemporaries to the Romans.

Kautilya, also known by the names of Chanakya and Vishnugupta, was an Indian polymath from the 3rd century BC and a prominent figure in the establishment of the Mauryan Empire, serving as the tutor and prime minister to the kingdom’s founder Chandragupta Maurya. In his highly influential treatise Arthashastra, Kautilya offers advice for the effective governance and administration of a kingdom, delving into the realms of statecraft, political philosophy, ethics, and economic policy. This article aims to bridge the similarities between Roman thought and Kautilya's writings.

An examination of the economic logic underlying Kautilya’s policy advice reveals a firm understanding of economics in a form relevant to its own time. The economics of Kautilya was a kind of normative economics that took the concept of prosperity in a broad sense, emphasizing the necessity of ethics and duty in the pursuit of material gain, and firmly in accordance with the structure of the economy and society of the time. Given below are Kautilya’s views on some of the concepts that have come to define the modern discipline of economics.


International Trade

The theories of absolute and comparative advantage, given by Adam Smith and David Ricardo respectively, is considered to be one of the hallmark insights provided by the classical tradition of economics. It is viewed, in the history of economic thought, as one of the discipline’s most significant theoretical advancements, displacing the mercantilist view of international trade as a zero-sum game wherein the exporter necessarily profits from the loss of the importer.

 

International trade is thought to be a cornerstone of Roman contribution to economic thought. The Romans, not any thinker, were known for their application of ideas that the Greeks laid out. Roman trade encompassed a wide variety of goods, including grain, wine, olive oil, textiles, and luxury items like silk and spices. The Romans engaged in extensive trade with regions as far away as India and China, using both land (Silk Road) and maritime routes.

 

However, that Kautilya recognized the importance of both imports and exports in facilitating growth. He saw the necessity of imports to provide the kingdom with goods that weren’t available domestically or that could be attained more cheaply through foreign trade than through domestic production (Waldeur et. al, 1996). He encouraged imports by announcing favours for merchants who bought foreign merchandise through remission of trade taxes so that they may derive some profit (Kautilya, xx). For the export of state-owned products, Kautilya, implicitly adopted a view of comparative advantage, emphasizes the importance of exporting to regions or areas where the goods could be profitably sold, else those regions were to be avoided. Kautilya’s trade policy involved heavy state regulation of trade through price and profit controls, along with the use of tariffs and duties, although more so as a means of revenue creation rather than as a mechanism to alter trade patterns.


Taxation

Much like Kautilya’s heavy involvement of state regulation of trade, The Roman Empire exercised significant control over trade, particularly through regulations that ensured the supply of essential goods, pimrarily as grain. The “praefectus annonae” -- a Roman official specifically in charge of the supervision of grain supply -- handled grain distribution and market regulation, reflecting a structured approach to managing trade within the empire. Roman thought also recognized the necessity of state intervention, particularly through legal frameworks that regulated trade, property rights, and taxation. Roman law provided a structure that facilitated commerce and protected property rights, reflecting an understanding of how government action could stabilize and promote economic growth.

 

Kautilya also placed immense importance on the financial health of the state and viewed the presence of a sound treasury as an important prerequisite for accomplishing other goals. Taxes certainly played a key role in ensuring the soundness of the treasury, however Kautilya advocated for limited, equitable and just taxation policies, suggesting that tax rates should not go beyond 16% ~ 20% of economic activities. Certain items which were considered harmful to society were taxed at higher rates and the taxes were primarily levied on land and commodities with income tax being relegated to only a few specific professions. He believed that taxes beyond a certain limit would hamper economic activities and promote tax evasion, employing the metaphor of a bee that sucks just the right amount of honey from a flower so that both can survive. In this way, Kautilya’s ideas on taxation are strikingly similar to the modern system of progressive taxation.


Demand and Supply

Ancient Roman thinkers contributed significantly to the understanding of demand and supply, albeit in a less formalized manner compared to modern economic theory. Their insights emerged from practical observations of market behaviour, trade practices, and the socio-political context of the Roman Empire.

 

Roman thinkers recognized that prices were influenced by the forces of supply and demand. They observed that when demand for a good increased while its supply decreased, prices would rise. Conversely, if supply increased and demand fell, prices would drop. This basic understanding aligns with the fundamental principles of modern economics regarding price elasticity and market equilibrium.

 

A strong understanding of the fundamental concepts of demand and supply can be inferred from Kautilya’s writings. He believed that a king should not arbitrarily set prices for products without considering their conditions of demand and supply. With that said, he was aware of the inequalities inherent in the distribution of goods by the market and the possibility of monopolies, and was thus in favour of using price ceilings that would restrict profit margins to 5 ~ 10%. According to Kautilya, the state should account for factors like the cost of manufacturing, supply-demand ratio and suitable profit levels when setting prices and should centralize the sale of goods during times of overproduction to prevent prices from falling below a certain minimum level. Even during Kautilya’s time, there existed both state- and privately-owned businesses, with the conflict of interests among the two sectors being inevitable. Kautilya suggested some sort of price parity to alleviate this conflict so as to not stifle the incentives for the private sector.

 

Ancient Roman thinkers contributed valuable insights into demand and supply through their observations of market dynamics and regulatory practices, their approach was less systematic than Kautilya's comprehensive framework.


Labour Theory and Welfare

Roman thinkers recognized the existence of a labour market characterised by both free and enslaved workers -- differing greatly form what Kautilya thought about slavery. Economic activities were influenced by supply and demand, with wages serving as a mechanism to equilibrate the market. Scholars like Peter Temin argued that the early Roman Empire had a functioning labour market where wages varied based on skill levels, similar to modern labour markets.

 

Kautilya recognized labour as an active and important part of production and explicitly identified three important factors for determining the market value of wages- the level of skill required, labour hours worked and units of output produced. He emphasized proper working conditions, training, social security and payment for the workers. Kautilya saw the duty of the king as striving for the well being of his subjects and tom achieve this goal, the actions of the state were to be governed by moral dictates. Equitable distribution of wealth and food was the objective of state administration and wealth was the basis of strength and power in a kingdom. With these ideas put at the forefront of his policies, Kautilya sought production, consumption and distribution to be regulated by the state, with the object of maximum efficiency and equitable distribution, while allowing for the coexistence of private enterprise and private property.  


Conclusion

Kautilya’s administrative prescriptions display a striking, implicit understanding of economic concepts that are generally said to have been first described by Adam Smith in his monumental work “An Inquiry into the Nature and Causes of the Wealth of Nations” (1776). Bearing similarities to major early western economic thought, we must question why there is so much

 

This gives rise to the question of “Why are the western thinkers given so much more recognition for their conceptual contributions to economics despite prominent eastern thinkers doing much of the same work?”


References

 

 

 

 

 
 
 

Comments

bottom of page