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Kautilya’s Arthashastra: A Recognizable Source of the Wealth of Nations

Article  in  Theoretical Economics Letters · January 2016

DOI: 10.4236/tel.2016.61008

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Theoretical Economics Letters, 2016, 6, 59-67
Published Online February 2016 in SciRes. http://www.scirp.org/journal/tel
http://dx.doi.org/10.4236/tel.2016.61008

Kautilya’s Arthashastra: A Recognizable

Source of the Wealth of Nations
Balbir S. Sihag
University of Massachusetts Lowell, Lowell, USA

Received 7 January 2016; accepted 1 February 2016; published 4 February 2016

Copyright © 2016 by author and Scientific Research Publishing Inc.

This work is licensed under the Creative Commons Attribution International License (CC BY).
http://creativecommons.org/licenses/by/4.0/

Abstract
It is almost a unanimously accepted view that The Wealth of Nations does not contain a single
original idea establishing the fact that Adam Smith borrowed all key ideas from various sources.
He believed that he could claim originality for all the important ideas if he concealed their sources.
Ferguson exposed Adam Smith for making a false claim related to the pin-factory example. It is in-
tended to continue the process initiated by Ferguson by identifying paragraphs on sources of eco-
nomic growth, canons of taxation and undesirability of monopolies, the core of The Wealth of Na-
tions, which are textually quite similar to those in The Arthashastra. It is claimed that Adam Smith
lifted those ideas from The Arthashastra. It is indicated in the Appendix that more than two hundred
years before Adam Smith, Machiavelli also seems to have access to The Arthashastra. Hopefully this
process continues until all of Adam Smith’s sources are identified and duly acknowledged.

Keywords
Division of Labor, Economic Growth, Canons of Taxation, Monopoly, Monopsony, Transmission,
Delegation

1. Introduction
It is truly astounding that there is almost a consensus that Adam Smith’s The Wealth of Nations does not contain
anything that may qualify as original. Adam Smith merely collected materials from various sources. Often he
expressed the borrowed material in his own language and also tried to synthesize it although with some incon-
sistencies.1 Sometimes, he acknowledged his sources, and other times the honorable Dr. concealed them, as-
1
[11] Barber (1967, p. 51) observes, “Little of the content of The Wealth of Nations can be regarded as original to Smith himself. Most of the
book’s arguments had in one form or another been in circulation for some time.”
Barber (1967, p. 51) notes, “Smith’s talents as a synthesizer, however, were the source of some analytical imperfections in his writing. At a
number of points he offered explanations that were ambiguous or inconsistent.” Similarly, the remarks by [12] Grampp about Adam Smith
that “to make the ideas of Smith consistent, an honor he was not sure he merited” are quite indicative.

How to cite this paper: Sihag, B.S. (2016) Kautilya’s Arthashastra: A Recognizable Source of the Wealth of Nations. Theo-
retical Economics Letters, 6, 59-67. http://dx.doi.org/10.4236/tel.2016.61008
B. S. Sihag

suming, perhaps that no one would bother to find that out. That proved to be an unrealistic assumption, particu-
larly when the source was too obvious to be concealed. As an illustration, in emphasizing the importance of di-
vision of labor, he used the example of the pin-factory, although he did not acknowledge its source but repro-
duced it as he had found it in the French Encyclopédie (1755).2
Adam Smith borrowed key ideas both from western and non-western sources, but avoided acknowledging
them.3 If his borrowed feathers were returned to the owners, the unearned title of “father of economics” would
also fly away with the feathers. Adam Smith personally supervised the burning of his confidential papers to de-
stroy not just his incomplete manuscripts but also evidence related to his sources. Nevertheless, at least in three
areas, Adam Smith’s debt to Kautilya is clearly recognizable: 1) identification of land, labor and capital as the
sources of economic growth; 2) the four canons of taxation: a) certainty of tax liability, b) tax liability in propor-
tion to benefit (income), c) economy in collection and d) convenience to the tax payer in making payment; and 3)
undesirability of monopolies. Section 3 presents paragraphs related to the sources of growth from Kautilya’s
Arthashastra and from Adam Smith’s The Wealth of Nations. Paragraphs related to the four canons of taxation
are presented in Section 4. Kautilya’s and Adam Smith’s views on the undesirability of monopolies are pre-
sented in Section 5. Final section contains some concluding observations. Section 2 briefly presents the respec-
tive scopes of The Arthashastra and The Wealth of Nations.

2. Kautilya and Adam Smith on the Scope of Economics

Scope of The Arthashastra: Interestingly, rather than stating the scope of his Arthashastra in the beginning, [1]
Kautilya (p. 100) makes the following claim at the end: “By following [the principles set out in] this treatise one
can not only create and preserve dharma [spiritual good], artha [material well-being] and kama [aesthetic plea-
sures] but also destroy [their opposites, i.e.,] unrighteousness, material loss and hatred. It is a guide not only for
the acquisition of this world but also the next (15.1).”
Two things are obvious: first, Kautilya put strengthening and promotion of dharma (ethics) ahead of artha
(material well-being) since he believed dharma not only paved the way to bliss but also to prosperity. Secondly,
he considered his Arthashastra as a manual on engineering Yogakshema—peaceful enjoyment of prosperi-
ty—for all the people. The concept of Yogakshema is much broader and holistic than the currently used concept
of human security. Capitalism was emerging and both urbanization and monetization were increasing at the
time.4 Keeping those trends in view, Kautilya proposed a judicious mix of visible and invisible hands.
He understood the allocative role of prices.5 He suggested incentives to promote economic growth in the pri-
vate sector. At that time, Kings used to spend most of the tax revenue on building luxurious palaces and very lit-
tle on building infrastructure. However, Kautilya (p. 149) suggested, “Hence the king shall be ever active in the
management of the economy. The root of wealth is economic activity and lack of it brings material distress. In
the absence of fruitful economic activity, both current prosperity and future growth are in danger of destruction.
A king can achieve the desired objectives and abundance of riches by undertaking productive economic activity
2
[13] Murray Rothbard (1995, Chap. 16) points out, “When Smith upbraided Ferguson for not acknowledging Smith’s precedence in the pin-
factory example, Ferguson replied that he had borrowed nothing from Smith, but indeed that both had taken the example from a French
source “where Smith had been before him”. There is strong evidence that the “French source” for both writers was the article on Epingles
(pins) in the Encyclopédie (1755), since that article mentions 18 distinct operations in making a pin, the same number repeated by Smith in
the Wealth of Nations, although in English pin factories 25 was the more common number of operations.” He concluded, “The problem is
not simply that Smith was not the founder of economics. The problem is that he originated nothing that was true, and that whatever he ori-
ginated was wrong.”
3
It appears that the tradition of concealing sources, perhaps started with Fibonacci (1202). [14] Charles Burnett (2005) observes, “By the end
of the twelfth century the “algorismus” was widespread and it would certainly have been known to Fibonacci. In fact he refers specifically to
the “algorismus”, in the preface to his Liber abbaci, as we have seen. But it is difficult to see why he should criticise it alongside the “Gerbertian
abacus”, and state that the “method of the Indians” is better, when the “algorismus” is precisely “the method of the Indians”. I suspect that
his reason is that he thinks that, or wants to give the impression that, his own work is truly innovatory, for he scrupulously avoids mention-
ing the name of al-Khwarizmi. (In chapter 15 he uses only al-Khwarizmi’s first name (ism), “Maumeht”). Are we to suppose that Fibonacci
was, in fact, ignorant of this Latin tradition of Indian arithmetic, and re-introduced the place-value numerals afresh from the Arabs?”
4
[15] Drekmeier (1962, p. 105) describes, “The Ganges valley in the seventh century was the home of a nascent capitalism as well.”
5
According to Spengler (1971), Kautilya understood the role of prices. Spengler (p. 74) states, “Prices reflected actual or potential scarcity
(4.2; 2.21.7-14) as well as the presence of monopolistic arrangements (2.6.10; 4.2.18-19, 28-30).”
He (1971, p. 74) explains: “His analysis, of course, was implicit, not explicit; it rested upon the assumption that individual behavior could be
controlled in large measure through economic rewards and penalties, particularly when these were commensurate with the action to be en-
couraged or discouraged.”
He (1971, p. 158) concludes: “Kautilya was, of course, familiar with the general nature of man’s response to changes in price and income as
well as to changes in the structure of rewards and penalties.”

60
 B. S. Sihag

(1.19).” He suggested to build roads, water works, “remove all obstructions to economic activity” and create an
ethical environment. He identified a) capital, labor and land as the sources of economic growth, b) suggested
incentives to encourage supplies of these inputs, c) devised a tax system, that included not only the principles of
taxation and a piecewise linear income tax but also measures for compliance and d) formulated laws that pro-
moted economic efficiency and ethical fabric of the society. He believed that ruler’s ethical conduct, and not in-
stitutions, was the “deep determinant” of economic growth. According to him, a king should be a rajarishi, ethi-
cal and wise like a sage and create an ethical environment.
Until recently, Kautilya has been the only economist who suggested both preventive and remedial measures to
handle systemic risk. He (p. 116) stated, “In the interests of the prosperity of the country, a king should be dili-
gent in foreseeing the possibility of calamities, try to avert them before they arise, overcome those which happen,
remove all obstructions to economic activity and prevent loss of revenue to the state (8.4).” He identified threat
of an aggression, occurrence of a famine and moral decay as sources of systemic risk.6
Scope of The Wealth of Nations: [2] 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.” One would expect that The
Wealth of Nations would cover how a nation should enhance its power and enrich its people. As [3] Prasch
(1991) comments, “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 cre-
dence 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.” However, Adam Smith’s discussion
on national security was inadequate. He followed Machiavelli, who did not have much to say on national secu-
rity (See [4] Sihag (2016)).
Then, in Book IV, Adam Smith (Book IV, p. 449) defines, “Political economy, considered as a branch of the
science of a statesman or legislator, proposes two distinct objects: first, to provide a plentiful revenue or subsis-
tence for the people, or more properly to enable them to provide such a revenue or subsistence for themselves;
secondly, to supply the state or commonwealth with a revenue sufficient for the public services. It proposes to
enrich both the people and the sovereign.” One would expect that he would explain, at the minimum, how to
bring prosperity. As [5] Dorfman (1991) notes, “Wealth of Nations was primarily a treatise on economic devel-
opment.” However, Adam Smith borrowed only the sources of economic growth from The Arthashastra and
ignored how to engineer prosperity. Thus, the scope of The Wealth of Nations is very limited. On the other hand,
Kautilya’s Arthashastra is comprehensive, consistent, concise, coherent and rigorous.7 The following table may
capture the relative scopes of The Arthashastra and The Wealth of Nations (Table 1).
Adam Smith’s invisible hand would be confined only to Case 1 where there is no conflict between the public
interest and the private interest. Whereas, Kautilya suggested steps to manage all the cases. Incidentally, both
Confucius and Kautilya paid special attention to Case IV. If Adam Smith had borrowed all of Kautilya’s insights
or not concealed the sources, other researchers could have benefitted significantly.

3. Kautilya and Adam Smith on Economic Growth

As mentioned above, Kautilya had identified Land, Labor and Capital as the sources of economic growth. As-
sembly-type division of labor, what is now called Fordism, was practiced during fourth century BCE in India
6
Adam Smith considered “justice is the pillar on which the whole edifice rests” but no discussion, on how to build the pillar and its base, was
provided. Moreover, he never examined how the rules of justice were formulated, interpreted or implemented. [16] He ((1790/1982, p. 175)
asserted, “The rules of justice may be compared to the rules of grammar; the rules of the other virtues, to the rules which critics lay down for
the attainment of what is sublime and elegant in composition.” The concept of justice itself is ambiguous and its rules are formulated by less
than perfect individuals, implying an unavoidable imprecision. Thus, rules of justice could not be like grammar. If they were, would there be
any kangaroo courts? Would there be “black” and “white” justice? If they were like grammar, would there be need for any lawyers? Thus, it
is an inappropriate comparison. He did not understand justice.
7
Sihag (2014) presents Kautilya’s in-depth analysis of the following: The Arthashastra consists of three reasonably developed but inter-
related parts. (a) Economic Issues: This part deals with Principles and policies related to economic growth, taxation, international trade, effi-
cient, clean and caring governance, moral and material incentives to elicit effort and preventive and remedial measures to deal with famines
and other calamities and Accounting Methods. (b) Law and Economics: Kautilya devotes the second part to administration of justice, mini-
mization of legal errors, formulation of ethical and efficient laws, labour theory of property, regulation of monopolies and monopsonies,
protection of privacy, laws against sexual harassment and child labour. (c) Application of economic analysis to National Security: This part
discusses all aspects of national security, such as energetic, enthusiastic, well trained and equipped soldiers, most qualified and loyal advis-
ers, strong public support, setting-up an intelligence and analysis wing, negotiating a favourable treaty, military tactics and strategy, and diet
of soldiers to enhance their endurance are covered.

61
B. S. Sihag

and Kautilya did not see the need to mention it.8 The following Table 2 presents their identification of the
sources of economic growth.
Kautilya in emphasizing the contribution of capital wrote “Man, without wealth, does not get it even after a
hundred attempts”. Adam Smith expressed that as machines “facilitate and abridge labor, and enable one man to

Table 1. Kautilya and Adam smith on public and private interests.

Public interest Against public interest

Private Ideal In private interest but against public interest (conflicts of interest):
interest Case I monopoly, lobbying, financial manipulation, insider trading,
regulatory arbitrage, free riding etc.
Case III
Against In public interest but against private interest Against both public and private interests (worst): actions motivated
private (conflicts of interest): charitable activities, serving by the destructive vices, such as excessive greed, anger, lust,
interest the country etc. jealousy etc.
Case II Case IV

Table 2. Sources of economic growth.

Sources of
economic Kautilya Adam Smith
growth

Importance “Man, without wealth, does not get it even after a hundred He (p. 11) states that machines “facilitate and abridge
of capital attempts. Just as elephants are needed to catch elephants, so labor, and enable one man to do the work of many.”
does wealth capture more wealth, Wealth will slip away from Adam Smith (p. 13, ft. 1): [Examples are given in
that childish man who constantly consults the stars. The only Lectures, p. 167: “Two men and three horses will do
[guiding] star of wealth is itself; what can the stars of the sky more in a day with the plough than twenty men
do? (9.4.26-27).” without it. The miller and his servant will do more
Kautilya (p. 664) observed, “On the other hand, one fighting with the water mill than a dozen with the hand mill,
with a tiny army perishes like one trying to cross the ocean though it too be a machine.”]
without a boat (12.1).”
Importance He (p. 619) stated, “The value of land is what man makes of it p. 351: “There is one sort of labor which adds to the
of labor (7.11).” value of the subject upon which it is bestowed: there is
He (p. 621) added, “A king who trusts in fate and does not another which has no effect. The former, as it
believe in human effort will fail because such a king never produces a value, may be called productive; the latter,
begins a work and never achieves anything (7.11).” unproductive.”
He (p. 685) stated, “It is better to have either an army
composed of Kshatriyas trained in the use of weapons or a
Vaishya or Sudra army with a large number of men (9.2).”

Importance Kautilya (p. 617) stated, “Among the signatories to a treaty for He (p. 195) states, “The acquisition of new territory,
of land a joint campaign, he who acquires land [whether settled land or of new branches of trade, may sometimes raise the
or virgin land] with [the maximum number of] ideal qualities profits of stock, and with them the interest of money,
and with many developed productive facilities outman oeuvres even in a country which is fast advancing in the
the others (7.10).” acquisition of riches.”

Role of Kautilya (p. 108) observed, “By maintaining order, the king (Bk. V, Ch. III, p. 445) “Commerce and manufactures
institutions can preserve what he already has, acquire new possessions, can seldom flourish long in any state which does not
augment his wealth and power, and share the benefits of enjoy a regular administration of justice, in which
improvement with those worthy of such gifts. The progress of people do not feel themselves secure in the possession
this world depends on the maintenance of order and the of their property, in which the faith of contracts is not
[proper functioning of] government (1.4).” supported, and in which the authority of the state is
not supposed to be regularly employed in enforcing
the payment of debts from all those who are able to
pay.”
8
[17] Basham (1959, p. 216) notes, “Though the basis of ancient Indian industry was at all times the individual craftsman, aided chiefly by
members of his own family, larger manufactories, worked chiefly by hired labour, were by no means unknown.” Further, “We read here and
there of private producers who had far transcended the status of the small home craftsman, and who manufactured on a large scale for a wide
market. Thus an early Jain a text tells of a wealthy potter named Saddalaputta who owned 500 potters’ workshops, and a fleet of boats which
distributed his wares throughout the Ganges valley; there are a few other references, which confirm that large scale production for a wide
market was not unknown in ancient India.” Basham points out that the existence of co-operatives of workmen were also common. He asserts
“Their existence tended to encourage division of labour; thus one man would fashion the shaft of an arrow, a second would fix the flights,
and a third would make and fix the point.”

62
 B. S. Sihag

do the work of many”. There is hardly any difference since Adam Smith substituted “hundred” by “many”.
However, according to Kautilya, all workers contributed to income, whereas Adam Smith did not think so. We
may summarize as follows:
1) Kautilya emphasized the importance of capital to economic growth so did Adam Smith. Both used simple
examples to make the point. Industrial revolution was taking hold all around Adam Smith still he used simple
examples. It indicates that he spent twelve years in collecting ideas from existing sources rather than shifting the
knowledge frontier outwards.
2) Kautilya believed that capital and labor were complements so did Adam Smith.
3) Kautilya believed that use of capital increased labor productivity and saved labor and Adam Smith also be-
lieved that. They did not make any distinction between labor-augmenting and labor-saving.
4) Interestingly, Kautilya understood that training was labour-augmenting.

4. Kautilya and Adam Smith on Principles of Taxation

Kautilya emphasized certainty of taxation, proportional income tax, convenience of payment and economy in
the collection of taxes. Additionally, Kautilya was concerned about tax evasion. He equated tax evasion to a
theft and recommended strict enforcement. Adam Smith appreciated the tax system in India and other countries.
He (1776, part II, p. 364) wrote, “The sovereigns of China, those of Bengal while under the Mahometan gov-
ernment, and those of ancient Egypt, are said accordingly to have been extremely attentive to the making and
maintaining of good roads and navigable canals, in order to increase, as much as possible, both the quantity and
value of every part of the produce of the land, by procuring to every part of it the most extensive market which
their own dominions could afford.” The tax system in Bengal and others parts of India was the one recommend-
ed by Kautilya.9 It is no surprise, Adam Smith recommended the same canons of taxation. The following Table
3 presents their views on taxation.
Incidentally, Spengler brings out Kautilya’s additional insights on taxation. [6] He (1971, p. 72) observes,
“Kautilya’s discussion of taxation and expenditure, apparently in keeping with traditional doctrine, gave expres-
sion to three Indian principles: taxation power is limited; taxation should not be felt to be heavy or excessive; tax
increases should be graduated. One of his main concerns seems to have been the collection and expenditure of
revenue in such ways as to build up the permanent revenue-yielding capacity of the economy. While he mani-
fested little knowledge of tax shifting and incidence, he emphasized the long run, cautioned against too heavy
taxation in the short run, and noted that a ruler could not tax at his pleasure, particularly in frontier regions
whence disgruntled taxpayers could flee to neighboring countries.” (See [7] Sihag (2014, Chapter 12) for an
in-depth analysis of Kautilya’s ideas on taxation).

5. Kautilya and Adam Smith on Undesirability of Monopoly

Kautilya had suggested provision of public goods and regulation of externalities, monopolies and monopsonies
by the government. Adam Smith suggested provision of public goods by the government but did not suggest any
regulation of externalities and monopolies. However, neither Kautilya nor Adam Smith called them market fail-
ures. The following Table 4 presents their view on the undesirability of monopolies.
Kautilya did not use deadweight loss as the argument for the undesirability of monopolies. Instead he had ar-
gued that monopoly was undesirable since it oppressed people. Adam Smith also did not argue that monopoly
was undesirable because it created a deadweight loss. He, just like Kautilya, argued that monopoly was undesir-
able because it oppressed people. This is indisputable evidence that Adam Smith had access to Kautilya’s ideas.
Interestingly, Kautilya equated charging of high prices through the formation of cartels to theft.
9
John M. Keynes worked in the India Office and the following suggestion by Keynes was borrowed from the program initiated by Nawab
Asaf-ud-Daula since there had been no such program in the whole world. Nawab Asaf-ud-Daula started a food for work program to help the
famine-stricken people of Lucknow around 1784. Some workers were employed during daytime to construct a building known as Imambara.
Others were hired at night to demolish part of what was constructed during the day time. The objective was to provide employment to as
many workers as possible and as long as it was needed.
[18] John Keynes (1936, p. 129) wrote, “If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused
coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire
to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no
more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably
become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and
practical difficulties in the way of this, the above would be better than nothing.”

63
B. S. Sihag

Table 3. Canons of taxation.

Kautilya Adam Smith

Benefit-rule of (p. 820) “When there was no order in society and only the law of (Bk. V, Ch. II, p. 350) “The subjects of every state
taxation the jungle prevailed, people [were unhappy and being desirous ought to contribute towards the support of the
of order] made Manu, the son of Vivasvat, their king; and they government, as nearly as possible, in proportion to
assigned to the king one-sixth part of the grains grown by them, their respective abilities; That is, in proportion to
one-tenth of other commodities and money. The king then used the revenue which they respectively enjoy under
these to safeguard the welfare of his subjects.” the protection of the state.

Certainty of Income tax rate was proportional and equal to one-sixth of “The tax which each individual is bound to pay
tax income and was fixed by the tax-payers. ought to be certain, not arbitrary.”

Economy p. 220: “A wise Chancellor is one who collects revenue so as to (p. 351) “Every tax ought to be so contrived as
increase income and reduce expenditure. He will take remedial both to take out and to keep out of the pockets of
measures if income diminishes and expenditure increases the people as little as possible, over and above
(2.6.28).” what it brings into the public treasury of the state.”
(p. 284) “He who produces double the [anticipated] revenue eats
up the janapada [the countryside and its people, by leaving them
inadequate resources for survival and future production] (2.9).”
He (p. 181) suggested for the king, “He shall protect agriculture
from being harassed by (onerous) fines, taxes and demands of
labour (2.1).”

Convenience He (p. 253) observed, “Just as one plucks fruits from a garden as (p. 351) “Every tax ought to be levied at the time,
of payment they ripen, so shall a king have the revenue collected as it or in the manner, in which it is most likely to be
becomes due. Just as one does not collect unripe fruits, he shall convenient for the contributor to pay.”
avoid taking wealth that is not due because that will make the
people angry and spoil the very sources of revenue (5.2).”

Compliance The Record Keepers were responsible for collecting the taxes None
and there were magistrates to “inspect their work and to ensure
proper collection of taxes” (2.35).

Table 4. Undesirability of monopoly.

Market failure Kautilya’s Arthashastra Adam Smith’s Wealth of nations

Monopolies and (p. 236) stated, “Merchants are all thieves, in effect, if not in name; (Book 1, Ch. XI, p. 278) wrote, “It comes
monopsonies they shall be prevented from oppressing the people (4.1).” He (p. 134) from an order of men, whose interest is
added, “It is the frontier officer who promotes trade, whereas traders never exactly the same with that of the
form cartels in order to raise prices [for the goods they sell] or lower public, who have generally an interest to
them [for the goods they buy]; they are profiteers making one hundred deceive and even to oppress the public, and
panas on one pana or one hundred measures on one measure of who accordingly have, upon many
[grain].” occasions, both deceived and oppressed it.”

Regulation of Kautilya (p. 250) recommended, “Cartelisation by artisans and Nothing specific
monopolies and craftsmen with the aim of lowering quality, increasing the profits or
monopsonies obstructing the sale or purchase and by merchants conspiring to hoard
with the aim of selling at a higher price (4.2)” would be dealt with
stiff punishments of 1000 panas for such offenses. Such a high
penalty indicates the perceived seriousness of the offense. He (pp
249.250) recommended punishment for “adulteration”, “fraud”, “false
description in selling”, “showing one product and selling another”,
and “stealing precious metal in making new objects”, etc. (4.2).

6. Concluding Observations
Fairness requires that acknowledgement be given only to the thinker, who originates an idea and not to the one,
who copies it and tries to claim proprietorship. Secondly, Miss Columbia, Ariadna Gutierrez was erroneously
declared Miss Universe but that error was corrected in about three minutes and Miss Philippines, Pia Alonzo
Wurtzbach, the rightful winner of the contest, was crowned as Miss Universe. Adam Smith was erroneously de-
clared as the founder of economics and instead of correcting the error, concerted and coordinated efforts have
been made over the last two hundred years and are still continuing to perpetuate it. Moreover, one cannot extract
any butter by churning buttermilk, in this case The Wealth of Nations, unless s/he has added butter beforehand.

64
 B. S. Sihag

Acknowledgements
I am thankful to Prof. Anthony Waterman for presenting me with a challenge to show that Kautilya’s Arthasha-
stra was a source of Adam Smith’s The Wealth of Nations. I am grateful to Chandra Kant Raju and an anonym-
ous referee for enhancing clarity and content of the paper.

References
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tion, Notes, Marginal Summary, and Index by Edwin Cannan. The University of Chicago Press, Chicago.
[3] Prasch, R.E. (1991) The Ethics of Growth in Adam Smith’s Wealth of Nations. History of Political Economy, 23, 337-
351. http://dx.doi.org/10.1215/00182702-23-2-337
[4] Sihag, B.S. (2016) Comparison of Kautilya’s People-Centric Approach to Machiavelli’s King-Centric Approach, Mi-
meo.
[5] Dorfman, R. (1991) Review Article: Economic Development from the Beginning to Rostow. Journal of Economic Li-
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[6] Spengler, J.J. (1971) Indian Economic Thought. Duke University Press, Durham.
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[9] Strauss, L. (1987) Niccolo Machiavelli. In: Strauss, L. and Joseph, C., Eds., History of Political Philosophy, University
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[10] Machiavelli, N. (1994) Selected Political Writings. Edited and Translated by David Wootton, Hackett Publishing,
Cambridge.
[11] Barber, W.J. (1967) A History of Economic Thought. Penguin Books, Baltimore.
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465. http://dx.doi.org/10.1086/262125
[13] Rothbard, M. (1995) Economic Thought before Adam Smith: An Austrian Perspective on the History of Economic
Thought. Vol. 1, Edward Elgar, Aldershot.
[14] Burnett, C. (2005) Leonard of Pisa (Fibonacci) and Arabic Arithmetic. www.muslimheritage.com
[15] Drekmeier, C. (1962) Kingship and Community in Early India. Stanford University Press, Stanford.
[16] Smith, A. (1790/1982) The Theory of Moral Sentiments. Edited by D.D. Raphael and A.L. Macfie; Liberty Fund, In-
dianapolis.
[17] Basham, A.L. (1959) The Wonder That Was India. Grove Press, New York.
[18] Keynes, J.M. (1936) The General Theory of Employment, Interest, and Money. Harcourt Bruce Jovanovich, New York,
London.

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Appendix: Transmission of Ideas from India to Europe

How ideas get diffused? The person who has new ideas must be willing to share them and there must be a will-
ing and capable host to receive them since these may be complementary or substitutes of his existing knowledge.
Role of existing institutions and interests becomes very critical in the acceptance or rejection of new ideas.
There were both direct and indirect routes for transmission of ideas from India to Europe. Roman coins at Pu-
dukottai and at other places in southern India have been found indicating that there was brisk trade between In-
dia and Italy during the first century BCE and thereafter. In all likelihood not only there were exports of goods
from India but also of ideas. Sri Lanka also served as a transfer station for transmission of ideas from India to
other countries.
Kautilya’s ideas were transmitted to Indonesia. A king explicitly gave credit to Kautilya’s ideas for his suc-
cess. [8] Wolters (p. 49) writes, “An inscription states that the 11th century Javanese king named Erlangga sub-
verted his enemy’s power “by the application of the means taught by” the author of The Arthashastra, the most
famous of all Indian treaties on the policies of a successful mandala manager. The Arthashastra also contains
many precepts useful for a would-be conqueror.” (Wolters cites the inscription translated by B.R. Chatterji,
History of Indonesia, p. 183, verse 29).
It is almost certain that Kautilya’s ideas reached Europe also. Use of Indian numerals spread very quickly
since they facilitated in conducting commerce and also in tracking the movements of stars and planets. For ex-
ample, these numerals were transmitted to Middle-East in a matter of few decades. There was a wholesale
translation of Indian books at Baghdad’s House of Wisdom. Indian numerals reached Spain in 976. Vasco De
Gama travelled to India in 1498, presumably, in search of exploring an alternative route to India that could allow
imports of spices directly without any middle man from the Middle-East. He could have filled his boats with
spices but instead he chose to take back a boat-load of books from India. Clearly, Indian books were more valu-
able than spices.
Most likely Machiavelli had access to Kautilya’s Arthashastra. Since he discusses, although without much
depth, many of the same topics, such as forming alliances, role of an adviser, role of information, types of army
and specifically the delegation of unpopular task (as discussed below), as were discussed by Kautilya. He did
not fully understand the Arthashastra, was short of time since he was desperate to find work or tried to modify it
to make it look original. As noted by [9] Leo Strauss (1987), Machiavelli was very good in imitation. Leo
Strauss (p. 316) remarks, “Almost all those sayings have been borrowed by Machiavelli from Diogenes Laertius’
Lives of the Famous Philosophers. Machiavelli changes the sayings in some cases in order to make them

Table A1. Kautilya and Machiavelli on delegation.

Kautilya (Arthashastra, 4th century BCE) [10] Machiavelli (Prince, 513 CE)

ON Vices Ch. 19, page 58: “For whoever set up the government
Page 137: “Anger makes one the object of hatred, creates enemies and brings of that country understood the powerful are ambitious
suffering on oneself. Excessive greed and lust bring about humiliation, loss of and insolvent, and judged it necessary they should be
wealth and association with undesirable persons like thieves, gamblers, hunters, bridled so they could be controlled, but on the other
singers and musicians. [While both have had bad consequences,] being hated is hand he recognized the hatred most people have for
worse than humiliation; whereas one humiliated is held in thrall by his own the powerful, whom they have reason to fear, and the
people and by enemies, a hated one is destroyed.” consequent need to reassure and protect the great. So
he did not this to be the responsibility of the king, in
Anticipating and Avoiding Discontent order to avoid his alienating the powerful by favoring
Page 158: “Spies in the guise of ascetics shall find out who among the the people or alienating the people by favoring the
following are happy and who discontented: powerful, and he established an independent tribunal,
Those dependent on the King for grains, cattle or money; those who help the whose task it is, without incurring blame for the king,
King in prosperity and adversity; those who [help to] restrain an angry relative to crush the powerful and defend the weak. This
or region and those who repel enemies and forest chiefs. arrangement is as intelligent and prudent as could be,
The contented shall be appreciated by giving them additional honors and and makes a substantial contribution to the security of
wealth. the king and the stability of the kingdom. This
In order to make the discontented happy, conciliation shall be the method used. institution enables us to recognize a significant
If [conciliation fails and] they continue to be unhappy, they shall be used to general principle: Rulers should delegate
collect taxes and fines so that they may incur the wrath of the public. When the responsibility for unpopular actions, while taking
people come to hate them, they shall be eliminated either by inciting a popular personal responsibility for those that will win favor.
revolt against them or by secret punishment. Alternatively, they may be sent to And once again I conclude a ruler should treat the
work in mines and factories while keeping their wives and sons under close powerful with respect, but at all costs he should avoid
security in order to prevent them from being used by enemies.” being hated by the people.”

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suitable to Castruccio. In Diogenes, an ancient philosopher is recorded as having said that he would wish to die
like Socrates; Machiavelli makes this Castruccio’s saying, yet he would wish to die like Caesar.”
Machiavelli imitates Kautilya in recommending that a king should delegate an unpopular task to someone else
so that the king does not become object of hatred. Table A1 presents their views on delegation.
This similarity of views on delegation leaves little doubt that Machiavelli had access to The Arthashastra. But
To Machiavelli’s credit, he (1513, Ch. 6, p. 18) wrote, “But you cannot exactly in the footsteps of those who
have gone before, nor is it easy to match the skill [virtu] of those you have chosen to imitate.” Who were the
“many authors” referred to by Machiavelli (p. 48)? Possibly Kautilya was one of them. Kautilya had emphasized
the critical role of the ethical values in bringing prosperity.
Similarly, Indian methods of navigation were also transmitted very quickly to Europe. There is new research
showing the transmission of calculus from India to Europe. Interestingly, even Indian cows have reached Texas,
USA through Africa-Europe-Caribbean-Mexico. Given all these facts, it is unthinkable that other Indian thought
including Kautilya’s Arthashastra had not reached Europe.

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