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Hindu capitalism

Why capitalism is the only economic system
compatible with Indian culture
By Sanjeev Sabhlok
Draft, 15 September 2012
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DRAFT FOR PUBLIC COMMENT
The idea for this book came up as part of certain explorations on my blog in August 2012.
I’m now starting this book by bringing together these blog posts/ writings. I’ll conduct
further research and bring together this material into a coherent book form over the
coming years, time permitting.
I welcome your comments at sabhlok AT gmail DOT com. Comments that end up
influencing the content of this book will be acknowledged.
Please do not cite from this manuscript, since it is work in progress. My views at
the moment are tentative excursions. Only the published version (if any) will contain my
final views (to the extent that any liberal’s views can ever be final.)

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Hindu capitalism
Draft, 15 September 2012

i

In praise of profit: Shub Labh

Gold and God: a very close relationship

ii

Hindu capitalism
Draft, 15 September 2012

Frontispiece: Freedom is bounded by
accountability

Freedom
(to act)

Accountability
(including attribution*)

*A free person is always accountable for his or her actions (or inaction).

‘The essence of liberty has always lain in the ability to choose as you wish to
choose, because you wish so to choose, uncoerced, unbullied, not swallowed up in
some vast system; and the right to resist, to be unpopular, to stand up for your
convictions merely because they are your convictions. That is true freedom, and
without it there is neither freedom of any kind, nor even the illusion of it.’ –
Isaiah Berlin, in Freedom and Its Betrayal 1
‘Liberty in thought and action is the only condition of life, growth and well-being:
Where it does not exist, the man, the race, and the nation must go down.’ –
Vivekananda2

1

Berlin, Isaiah, Freedom and its Betrayal: Six Enemies of Human Liberty, London: Pimlico,
Random House, 2003, p.103.
2

Cited in Modern India. 1986.NCERT. p. 218.
Hindu capitalism
Draft, 15 September 2012

iii

15 September 2012 . Kamlesh Mohan. Sriram Lalatendu Dash Lalatendu Dash For sending the following Project on Indian science and technology India Office records The Economic History of Organizational Entities in Ancient India by Vikramiditya S. 2011 iv Hindu capitalism Draft. India.Acknowledgements Thanks to: Person N. 59(2) 214–228.as Thakur given in Agnipuraan AAryan Rao Cultural values and globalization: India’s dilemma. Punjab University. Khanna Arjun Singh Ancient Indian Dispute Redressal System . Current Sociology.

.......... 2......................................... 2.............................2........................5 Natural rights...........1...............2 Public choice: making common decisions through public consultation.... 4................................4 Freedom of speech and belief................................ reason...............7 How Vedic socialists have got it wrong..................................................... 2.............................................................................................1 In praise of profit...8 High quality Minsters/leaders.....5 Rondo Cameron got it totally wrong about India.......2........................................................2 Arthashastra............... 1....7 Reason....................... 4................................................................................................................ 4......3 Examples of minimal regulation...... Acknowledgements..... 1.......................... Introduction.............. 3................................................1 Kautilya....................................... 1..2........4 Social minimum........................................................................................... 2....2................................................2 Enforcement of property rights..1.....................2.....1.. 4................ 2..................... prosperity.............................................................................................................................................. Commitment to freedom............. 2...... 1....................................................8 The Capitalist Structures of Hinduism....... 2........................................................................................... 2....................................................6 Integrity in public life...................1 Vedic capitalism....................2....................1 Key functions................................9 Exhortation to be rich.................... 2..................4 Why do most writers believe India and capitalism are incompatible?... 1............................................2............. 2... 1............6 Equality............................ 1.............. India was the world’s RICHEST “country”......................... 2...................... 4....................................................... 15 September 2012 v . 4..................2.................................. 4.................................................................................................1................................................................................................. 1.....................................2...................................2 Goddess Lakshmi.........2 Policies on which I differ with Chanakya.... 4...........6 Max Weber got it totally wrong about India........... Knowledge about this world.................. Justice.............................. the anti-socialist............................................................................................1......... 1....... Police.....1......................... 1.... The minimal state............ 1..1 Policies on which I agree with Chanakya........................ 1........ 1........................................1 Defence.........2 Prosperity.......................5 A minimal state with low taxes............ 4.............3 For 12 out of the past 20 centuries...........2..................3 Infrastructure.................... Hindu capitalism Draft....3 Freedom....................................................10 There is no Vedic socialism....... 4.............................................. Affirmation of equality and pursuit of wealth.....Contents Frontispiece: Freedom is bounded by accountability........ 2.........................................9 Hindu capitalism is Adam Smith’s capitalism supercharged...........2............................

.... 7...................................... 6...... Institutions: Financial system and banking........ 8.................................................... Microfinance in Hindu India....5 Limitations of the Hindu state: Paternalism (mai-baap sarkar).. How loans were recovered.......................2 India Traders of the Middle Ages...................... 10...............................................................................1 6.................3 6.............. 6.......3.................. 9.................................. 4............... 6........................5 Free banking in India..................................................1 India needs to rediscover and strengthen its innate capitalism.............. 9.................................................................................................... References.......................................................2 Science and technology...............................................................2 6......................... Why Hindu capitalism failed to deliver in the recent centuries..... 7................................................................................... 4.........1 Commerce in Indian Society................................ 15 September 2012 .............................6 Corporations................................... 5.........7 Foreign investment.....4 Ensuring corruption free governance................... Institutions: Science and innovation........................................ Rebooting Hinduism......................... 6...................................3 Socialism is wiping out India’s history.......................................... How British joint stock system and barriers displaced Hindu bankers............ Unsorted material..........4 6....................................1 Reason..............................................2 Alcohol..................................................................................................................... 4............................................................................ 5................ 9.............................................................3....................4..............................2 Hinduism will do well to rediscover itself............. Absence of usury prohibitions in Hinduism...........................................................................................1 Prostitution.......... 11........... 9.......... 7.. vi Hindu capitalism Draft........................................ Institutions:Trade and commerce............ 5.........

for instance. It performed most functions that British capitalism did. a vast number of Western economists who receive funds to study original documents of European capitalism. It is going to be hard work to burn away the dross that covers India today in order to reveal its gleaming golden might. as well. but almost no Indian economists funded to similarly study Indian capitalism. but in different ways. even as we reject caste based discrimination. We need to learn to appreciate the inner working of the world’s greatest society – India – over the past 2500 years. Hindu capitalism seems to have been seriously under-researched.hinduwebsite. Some wishy-washy attempts to link Hinduism with socialism have been attempted (such as Vedic socialism). So also the theory of survival of the fittest. India tried unsuccessfully to inculcate the ideals of socialism among Hindus. Free enterprise is natural to Hinduism. There is simply no way that Hinduism operates a socialist regime.1. There are strong capitalist undercurrents in India that will ultimately overthrow socialism. The idea of free enterprise goes well with Hinduism because it is very much in harmony with the theory of karma. Hinduism … is not suitable for a political ideology that would strive to establish a socialist society based upon forcible restriction of the freedom of individuals and sharing of wealth.asp . It is increasingly clear from my limited research that there was a distinct form of capitalism that can be legitimately called Hindu capitalism. This lack of study of Indian capitalism has allowed half-baked ‘theorists’ like Marx and Weber – and Western sociologists – to exercise a disproportionate influence on Indian intellectual thought. and find a way to bring back that dynamism. Those who tried to rub it on the Indian masses over looked the fact that socialism and communism contradicted with the fundamentals of karma and maya and therefore would never succeed in the country so long as the roots of Hinduism were intact in the soil. but these are ALL wrong. Introduction British commercial success (and possibly the industrial revolution?) would have been impossible without Hindu capitalism – the wealth of thousands of years of trade that was centered in India.) Indian innovations in capitalism have been seriously neglected by world economic historians. There are.3 (Jayram V. It is truly deplorable that it is not widely known in India that Hinduism is totally inconsistent with the socialist ideology. Why is this issue important? Am I trying to revive Hindutva theories? Or aligning myself with the BJP types? Not at all! 3 http://www. But our education system has been entirely hijacked by socialists. usually statist. Such misguided thought. if not socialist. has harmed India greatly. and our politics and bureaucracy.com/hinduism/h_socialism.

not socialist. not with statist/elite direction of the economy. I’m more interested in the role of PRIVATE enterprise and its relationship with the state. and also find out why these people were not adept and flexible enough to take advantage of new technologies invented in the West. People who lived there were called Hindu. so much the better. Certain innate properties in the minds of "Hindus" are enabling them to adapt to modern technology rapidly. Also I'll study Hindu institutions. Let’s try to understand how ancient India worked. with the idea that banking could have originated in India without assistance. or production. then I can debunk ridiculous claims of ‘Vedic socialism’ and ‘Integral Humanism’ which arise primarily from poor scholarship and the strong influence of Nehru’s Fabian socialist ideas. I’d encourage everyone to get involved. then we’ve won half the battle against Indain Marxians. Currently they shun their past given the besmirching of the truth by Marx. though. not about ancient India's market model. This is a very important project. say. This fact is not widely known. Keynesians and other socialists. If Indians thereafter become proud of their past and determine to become more free. Some writers like Cooke struggle.If I can demonstrate that Indian history and economy was primarily a PRIVATE ENTERPRISE capitalist economy. This place (al-Hind) had certain properties which allowed it become the wealthiest "nation" on earth. India is a very new concept. He thinks the Greeks or Jews might have helped! Instead of aping idiots like Marx and Keynes. There is by now sufficient evidence (given my limited research) of the existence of a robust capitalist system in pre-coloinal India (some aspects that led to innovation were possibly missing). Muslims). much better to look into Indian history for inspiration on how a powerful economy can be operated. There is value in understanding this topic clearly.Then we can hope that LIBERTY will once again occupy the heart and minds of Indians. and if we determine it was capitalist. and many others (including the Hindutva brigade). but to point out that there are many elements in Hinduism that are compatible with liberty. 2 . If we can prove that Hinduism is innately CAPITALIST. Weber. Clearly India had a form of capitalism before the British came. The purpose of this book is not the aggrandisation of any religion (Hinduism is not a religion in the typical sense of the word. then we can sell freedom to India more easily. It is my aim to discover the extent to which traditional Indian thought is compatible with liberty. For thousands of years. I'm going to study standard "Hindu" literature and investigate trade and banking by Hindus (as opposed to. the place known as India today was called al-Hind. And this form merged seamlessly into the new forms that were introduced in India by the British. This book is purely about Hindu capitalism. Let's explore these properties. anyway). What are these properties? Let's investigate. These same people are now at the top of the technology and business pyramid (in Silicon valley/ multinational companies founded by India).

He was.2 Goddess Lakshmi Have you seen such socialist women before? Hindu capitalism Draft. 15 September 2012 3 . a far better economist than any of India's economic advisers to the government since 1950 (excluding B. But overall. but NO PROHIBITION. the anti-socialist (1) Kautilya would have STRONGLY OPPOSED NEHRUVIAN SOCIALISM (and any attempt to bring about forced equality amongst people) (2) Kautilya strongly favoured an open economy and would have favoured FDI (3) He built a strong regulatory system for "vices" like alcohol and prostitution. not a modern economist and didn't quite understand the price system (e.1 Kautilya.g.1. he advocated price regulation). 1.R. however. He would have STRONGLY OPPOSED Gandhi's and Anna Hazare's attempts to impose prohibition. Shenoy).

They started putting their entire effort purely into public service.In Hinduism. perhaps. It might appear to an indifferent observer that after socialism became India’s ruling ideology. And there are the endless stories of Gods who were resplendent with gold. I know these stories through Chandamama which I used to read in the 1960s. Marriages are a good place to observe this devotion to wealth. Marxians. There is. Lakshmi RULES India. wealth is valued and not rejected. noble intentions. Not so. India is an amazing place.its power of wealth based on free exchange and trade. it spends billions of dollars in real savings to build temples and worship the most beauteous and wealthy. knowledgeable Goddess Lakshmi. where wealth is so intensely worshipped. into charity. There is such insistence on being wealthy that one has to live there to believe it. Hinduism is the most anti-socialist system ever invented by mankind. no place more conscious of wealth than India. No other country. but the passion for gold and large buildings is almost universal. in my view. with an endless outpouring of gold coins and jewellery. Gandhi was only one of the many good men from India. Notice that Lakshmi is preaching the message of SACRED PROFIT (‘Shubh Labh’) printed on the pillars behind her. Lakshmi is worshiped perhaps more than any other God or Goddess in India. It is a good thing to be rich (so long as it is earned). While India builds thousands of statues of a Gandhi who wore a loin cloth. 4 . fasting. And so it should. and kings …. And of course she is SUPER-RICH (being God). Fabian socialists and others have tried their best – even after independence – to prevent India from recovering its ancient capitalist might . Indians probably lost interest in wealth. preaching. A country that worships Goddess Laskhmi has been hijacked by the socialist poverty industry.

also reciite the below mantra daily: Aum shreem Laxmi dhanam dehi dehi shreem Aum This Mantra grants wealth and prosperity. The use of a beaded garland of Tulsi (Basil Plant) is favourable. This pooja needs to be performed using strict rituals . Deepali Mujumdar: I want to purchase a house so i am in need of money. you need to accord respect to Lord Vishnu otherwise you can’t expect Laxmi to stay at your place. there are many different kinds of wealth.Wealth and success never ever knocks at the doors of those households.it is ‘om vam shreem vam ayeim hreem kleem kanakadhaarayei namaha . or u can read daily kanakadhaara mantram . wear extraordinary powers of Rudrakshas which will give good results for u. u can also chant kubera mantra for getting wealth. I was browsing the internet to find out whether there are any slokas that praise wealth and profit. Dhana Laxmi is worshipped for wealth. She is well known as the Goddess of wealth among the Hindus. 15 September 2012 5 . and for which Shrim is the seed’ This mantra has not only been used for the purpose of attracting prosperity. and found this interesting piece. but also helps you to lead a more happy & successful life Hindu capitalism Draft. do laxmi pooja daily. It is believed that the household where she is not worshipped never gets prospered.mantras and samagri by experts.it Not only does solve your immediate problems. focus on the kind of wealth you wish to manifest in your life. the consort of Lord Narayana popularly known as Lord Vishnu. ‘Aum’ and ‘Shreem’ are seed mantras. and smoothing some health problems.India’s desire for wealth has (thankfully!) not been dimmed by Marxian or Nehruvian socialism. or chant the following laxmi mantra: ‘Om Shrim Mahalakshmiyei Swaha’ Rough Translation: ‘Om and salutations to that feminine energy which bestows all manner of wealth. but also for drawing in proper friends. Namastasyei Namastasyei Namastasyei Namo Namah The mantra is attributed to Goddess Lakshmi.that mantra is ‘om shreem om hreem shreem hreem kleem shreem kleem vitteswaraya namaha. clearing up family misunderstandings and quarrels. As you use this mantra. As we all know. u can also chant the following Mantra for acquiring wealth: Om Ya Devi SarvaBhuteshu Lakshmirupen sansthita. Please suggest Extracts from responses are provided below Response from: NEERAJA NAVEEN. The continuous chant of this mantra for 108 times everyday can help to acquire fabulous wealth. Is there any shloka or remedy by which i can get money. is the ruler of eight kinds of wealth. Goddess Laxmi. As she is the beloved of Lord Vishnu.

in Hindu mythology. And so on… It is impossible for socialism to last long under these circumstances. Mantra of Kubera helps to increase the flow of funds and the ability to accumulate wealth. You can also read Kanakadhara Slokam of Lakshmi .2. PutteethaSoolaa Shishtaa Chaara Paraayana Tell this 12 times everyday. a substantial amount of money in those days. all about credit.1 In praise of profit Shub Labh 1.5% per month).or ask any priest and put any yantra in ur house.[1] [2] According to the English records.2 Prosperity Virji Vora was the world’s richest businessman in the seventeenth century. and he was a great creditor. in the end.000 mahmudis to the English. There is a comprehensive Wikipedia page on this businessman. Here is a rare slokam to purchase hosue: Annadha Thanatha Pootha Tvanimathi Balapratha Siditha.’[9] Some of his credits to the English include:[4][10] 6  1619: A record dated 25 August 1619. One English record states that ‘the town (Surat) is very empty of moneys. His role as financier between 1617 and 1670 of the East India Company was crucial to its future success. 50.  1630: Lent Rs. his personal worth is estimated to be worth 8 million rupees. Soon you will buy a house .000 to the English at Agra . Hai Deepali . Lakshmi. states that Virji lent 25. Kubera is always remembered with the goddess of fortune. I have attached the slokams for you. Someone has to come up and show how capitalism is FULLY COMPATIBLE with the beliefs and desires of Indians.2. Recite Lakshmi ashtothram and do Dhanakarshana poojai and Kubera mantram . As Navarathri has started and Diwali is closeby do pooja on diwali night. Kuber is regarded as the god of wealth.[3] The English often complained about the high interest rates charged by Virji Vora (1-1. Extracts: The East India Company Factory Records records describe him as the richest merchant in the world at the time. He kept the wheels of trade going in India and the world. 1. also read the mantras which are in the link below : Response from: Shobana Veeraraghvan. Business is. Do lakshmi Pooja . Virji Vora is the only master of it’[4] and ‘‘none but Virgee Vorah hath moneye to lend or will lend. Chanting of Kuber Mantra blesses the worshipper with money and prosperity by drawing new avenues and sources of income and wealth. Lord Kubera is also known as the god of yakshas (savage beings).

[11] Virji also lent money to individual Englishmen to finance their own private trade.[4] The Dutch and the English often used his facilities for transmitting large amounts of money from Surat to Agra through hundis (similar to demand drafts or traveler’s cheques). India was the world’s RICHEST “country” In 12 out of the past 20 centuries. the President at English Factory at Surat  1669: The English borrowed Rs. Burma by providing 10. it was the world's 2nd richest region. Only in the 19th and 20th centuries – and now – has India not been in the top two nations in the world. 30.visualizingeconomics. See a) Economic history of India b) List of regions by past GDP (PPP) Source: Angus Maddison's pathbreaking 2007 book. 100.000 from a group of creditors. 15 September 2012 7 . See details here. and mentions that he offered a loan of Rs. In the remaining 8 centuries. 1635: Lent Rs. a practice denounced by the Company’s London office. Spreadsheet (from http://www. 100.000 to the English  1636: Lent Rs.000 to Merry.com/cooldata/): vertical-file_02-2010 (XLS) Hindu capitalism Draft.000 in ‘necessitous and calamitous times’  1647: Financed the East India Company’s voyage to Pegu.17% per month. 1.3 For 12 out of the past 20 centuries.000pagodas (about 6000 £).000 to the English  1636: Lent Rs. 20. 2 lakhs to the English  1642: A letter dated 27 January 1642 mentions him as the ‘greatest creditor’ of the East India Company. of which Virji was an important member Most of the capital lent to the Dutch East India Company (VOC) in India also came from Virji Vora and his close associate Shantidas Jhaveri. in Golconda  1650: Offered Rs. at an interest of 1. India was the RICHEST region in the world (there were no "countries" then). 400.

published in 1876. India was impoverished every year throughout the nineteenth century. the value system embodied by Hinduism. they are VERY CLOSE to the truth. 1. (iii) Incompatibility of Hinduism and Capitalism Thesis. Naoroji defined the concept of drain as an export surplus for which there was no corresponding entry on the debit side in the form of import of merchandise or securities. They also claimed that the wages of European employees were remitted abroad (Roy 1987. (ii) Marxist Thesis. (iv) Endemic Conditions of India Thesis and (v) Hindu Equilibrium Thesis. Roy’s solution was a relatively simple one: invite the Europeans to settle permanently in the country. the explanations of India’s underdevelopment will be placed into the following categories: (i) Classical Thesis. Much of Roy’s analysis focused on the transfer of capital from India to the West by Europeans who temporarily resided in India. a brief survey of these explanations follows. While an extensive critique of these explanations is beyond the scope of this chapter. and (iv) foreign obligations of the government of India 8 . Articles discussed how British policies hindered the development of industry in India. nearly 10 years after my (different!) work: "The divergence of the economic fortunes of Hindus and Muslims in British India: a comparative institutional analysis". December 2010 [PDF] EXTRACT Writers who are not sympathetic to the “classical thesis” have written on causes inherent within India including the caste system. shifted the focus from the remittances earned by British officials in India and instead used statistical analysis to show how India’s export surplus was a source of impoverishment. Dadabhai Naoroji’s Poverty of India. The “Classical Thesis” and Its Proponents The “classical thesis” was first espoused by the historian Alexander Dow in the early 1770s and it was given a theoretical form in 1783 by Edmund Burke. For clarity.These estimates might not be 100% robust but in my view. and the political conditions in pre-British India. Rather than benefiting from an export surplus. Indian periodicals of the mid nineteenth century such as Sambad Prabhakar and Somprakas also devoted arguments to British exploitation of the Indian economy. 42-44). at the level of aggregation we are talking about here. by Anantdeep Singh [PDF] 2) A paper Economic Modernization in Late British India: Hindu-Muslim Differences by Timur Kuran and Anantdeep Singh.4 Why do most writers believe India and capitalism are incompatible? 1) A PhD dissertation from my own University (USC). (iii) remittances of British nationals living in India. (ii) service charges such as freight and banking. India’s export surplus was cancelled out by four sources: (i) payment of interest on foreign borrowings. The first Indian writer to address this issue was Ram Mohan Roy in 1830.

000 European soldiers and professionals. while Ram (1972) Hindu capitalism Draft. Among the most vociferous critics of British rule in India was Jawaharlal Nehru. 15 September 2012 9 . India was “as advanced industrially. along with the salaries of some 80. the industrialization of Britain via loot acquired in India. The role played by the British in India’s deindustrialization during the nineteenth century continued to receive attention after India’s independence. 297-298). for all authorities believe that the ‘industrial revolution began with the year 1770…’ ” (Nehru [1946] 1991. Going further. The Indian artisan class was led to mass poverty while the economy was transformed into an agrarian one (Nehru [1946] 1991. The amount of drain varied but for 1892 it was estimated to be Rs. and that India “became progressively ruralized” (Nehru [1946] 1991.5 billion English pounds (Roy 1987. 39). 45). Indian manufacturers were crushed via various policies and taxes while Britain slammed shut its doors on finished Indian goods. Bagchi (1976b) describes in great detail how British economic policies were conducive to the deindustrialization of Bihar in northeastern India. commercially. Before the arrival of the British.C. The amount drained out of India from 1835 to 1872 was estimated to be approximately 0. A work in the periodical Samajik Prabhandha written by Bhudev Mukhopahay in 1892 argued that while British rule in India had positive effects in areas such as agriculture. especially the rapacious plunder of Bengal: “the Bengal plunder began to arrive in London.(Chaudhuri 1968. or 22 million pounds. 1982. 146-150. About one-half of the revenue collected by the British in India. 284) as a result of its arrested industrialization. R. Nehru asserts that British wealth and industrialization stemmed directly from the British plunder of India. and financially as any country” (Nehru [1946] 1991. 45). 45). 1976c. the British East India Company sent a total of 32 million pounds to its shareholders in England from 1793 to 1838 (Roy 1987. Eswaran and Kotwal 1994). 284) and well on its path to industrialization. Mukhopahay estimated that approximately one-fourth the revenue collected by British authorities was submitted back to Britain. the national per capita income failed to increase because Indian industry suffered from foreign competition and from the drain of wealth to Britain. Dutt 1992. The salaries of European officers were 10 million pounds. Dutt in Economic History of India alleged that the Indian debt from 1862 to 1901 stood at 200 million pounds and remittances were in the amount of 16 million pounds per annum. 298-302). 300 million (Roy 1987. Other studies discussed the impact of colonialism on specific areas or groups within India. and the effect appears to have been instantaneous. was sent to Britain. Some studies by Indian scholars have attempted to assess the impact British policies on the entire Indian subcontinent (Bagchi 1976a. Nehru viewed British rule as having multiple effects: the impoverishment of India through looting. Also.

Ottoman. Both periods of globalization hindered economic growth in the underdeveloped world and may be responsible for much of the economic gap between the developed and underdeveloped regions of the planet. India’s decline can only be properly understood in light of the rise of British and American power. Recent works continue to assess the impact of the British on India’s economy. 22. The period 1750-1850 saw both the incorporation of India into the world capitalist system and its subsequent dependence upon the Western world. Harnetty (1991) discusses the decline of the Indian handloom industry in the face of British competition. Pardesi (2007. and Safavid empires suffered simultaneous declines because European demand for Asian goods led to inflation and constrained the financial capacities of the ruling elites of these empires. [Perlin (1983) is not alone in suggesting that pre-British India was at least a par with the Western world in its level of economic development. Shah Mohammed and Williamson (2004) argue that improvements in transportation technology in the nineteenth century decreased the price of British products vis-à-vis Indian products and this furthered India’s deindustrialization. 277-283. [Athar Ali is unclear as to why producers of the Mughal.] Perlin (1983) asserts that capitalism in pre-British India was well developed and suggests that the British underdeveloped the country. 216-217) suggests that Mughal India was not only self-sufficient but also the ultimate destination for much of the New World’s gold and silver. Parthasarathi (1998) argues that gap in Indian and British living standards is a recent phenomenon. Frank 1975. 386-388) asserts that the Mughal. Bayly (1989) and Prakash (1998) also suggest that pre-British India was at a high level of economic development.and Specker (1987) discuss the negative impact of British economic policies on the economic development of southern India. Nayyar (2006) has suggested that globalization occurred during two periods: 1870-1914 and after 1950. Some recent material has also been devoted to determining when India became underdeveloped vis-à-vis the Western world by examining differences in wages between the two regions. 104). Safavid.] Wallerstein (1986) suggests that before 1750. Scholars who are sympathetic the “classical thesis” have also utilized variants of dependency theory to assert that India’s incorporation into the global capitalist economy helped bring about its underdevelopment (Baran 1978. Robinson 1979. and Ottoman empires could not have matched European demand for their goods by increasing production. Athar Ali (1975. Guha (1976) links the growth of the opium industry with the underdevelopment of Assam. Real wages in South India and southern England were more or less equal: they began to diverge 10 . India was outside the framework of the European-dominated capitalist world economy.

only in the late eighteenth century. which prevented the development of social revolution and technological innovation. Irfan Habib (1969) uses the Marxist framework to explain why capitalism did not develop in pre-British India. and other traumatic events in Indian history are not relevant because “Indian society has no history at all” (Marx 1959. 34). 81) until the arrival of the British. Pre-British India had a stagnant social order characterized by the following characteristics: (i) a stable equilibrium that showed little movement through the centuries (external events such as invasions served only to undermine this equilibrium temporarily). 15 September 2012 11 . the British were able to introduce a technological and social revolution whose scale was unprecedented in previous Indian history. capitalism is only possible with the accumulation of sufficient capital. He suggests that real wages fell by 23. where the urban centers played revolutionary roles. who destroyed Indian civilization by “leveling all that was great and elevated in the native society” (Marx 1959. [Hegel viewed India’s history as a long episode of stagnation and felt that Hinduism had a stifling affect on the development of human freedom. Indian cities did not do so (Naqvi 1972). if per capita income is too low then it is not possible to accumulate sufficient capital and capitalism cannot emerge (Habib 1969. which was the engine of history in Europe. (ii) the absence of class struggle in India stratified the classes into permanent positions. Allen (2007) argues that while pre-industrial Asia and Europe may not have had dramatically different standards of living. India’s History Is No History: The Marxist View of Indian Economic History Amongst the most famous proponents of the notion that India displayed little ability to develop on its own is Karl Marx. The numerous invasions. and (iii) unlike Europe. by the beginning of the nineteenth century a clear difference between the two regions had emerged. India had clear property rights. did not exist in India. [Sanjeev: This is false.] This social revolution was brought about by the introduction of new relations between the classes and particularly the introduction of property rights (Naqvi 1972.3 percent during this period. [Sanjeev: This is false. [Sanjeev: This is nonsense on stilts. 81). According to Habib. India had the world's wealthiest Hindu capitalism Draft. Broadberry and Gupta (2006) suggest that differences between India and the Western world (especially Britain) began to emerge as early as the seventeenth century. falls of dynasties.] According to Marx the absence of property ownership in India prevented the formation of classes. [Sanjeev: This is false. [Sanjeev: This is absurd. Allen (2001) estimates real wages of workers in the Mughal capital Agra in 1595 and compares them to real wages in 1960. 16-18).] Therefore class conflict. 383).] Marx’s view of India was shaped by Hegel’s assessments (Habib 1995. wars. famines. In another work.] By destroying the traditional industries and self-supporting villages of the Indian subcontinent.

Status in Hindu society was traditionally linked with one’s place in the caste hierarchy and a person’s earnings were more likely to reflect his 12 . 32-79). 1). Amongst the earliest and most influential proponents of the view that the caste system hindered India’s industrialization has been Max Weber. [Sanjeev: This is false. and (ii) it secluded castes from each other and prevented the rational organization of labor that is characteristic of capitalism (Weber 1958.] Weber believed that South Asia was in its early history at par with Europe in terms of intellectual development. 113). 111). A commonly held view is that Indian values are by nature “spiritual” while Western values are “material” (Goheen et al.] Much of Habib’s argument is devoted to illustrating how the Mughal landholding system in India siphoned off revenue away from the countryside and into the hands of the aristocracy. A significant portion of this literature focuses on the beliefs of reincarnation and karma. 589). and means of social organization (Morris 1967. The aristocracy. Rao (1969) and Uppal (2001) have both suggested that Hindu scriptures and reform movements within Hinduism need to be accounted for in order to assess its impact on economic growth. William Kapp voices the argument in lines more acceptable to neo-classical economists when he suggests that the caste system lowers incentive to be productive because “it works against the emergence of a relationship between individual aptitude.] Hinduism and Capitalism: Incompatible? The proposition that Hinduism stymied industrialization in the subcontinent has attracted considerable attention. The impact of Hinduism on economic development can be seen in from two angles: attitudinal and institutional (Misra 1962.[Weber has been criticized for neglecting the heterogeneity of Hinduism. was inclined to use the revenue collected from villages for the purposes of conspicuous consumption. 3). and as a result sufficient capital accumulation could not occur (Habib 1969. Weber characterizes the effect of the caste system as “essentially negative” (Weber 1958. The institutional analysis of Hinduism has been largely limited to discussions of the caste system. It went into temples. [Sanjeev: This thesis is false. while the latter focuses more on the specific institutions of Hindu society. 1958.banker-merchants. India’s “spiritual” values place greater emphasis on reducing desires rather than bettering one’s lot (Goheen et al. productivity. 1958. 42). The former focuses more on specific beliefs and attitudes imbibed in Hinduism. performance and earnings” (Kapp 1963. The caste system hindered the development of capitalism on the following counts: (i) it engendered extreme traditionalism and hostility to innovation.] Weber’s approach to differs from that of many modern economists in that it neglects the impact of the caste system on lowering work incentives. There was massive capital accumulation. K. 46-47). instead of using this capital for investment purposes.

3-22). On the other hand. the factors causing a lag in India’s industrialization were not so easy to overcome. 1988. Geographical conditions prevented the growth of internal trade. Finally. Morris (1968) traces India’s lack of development to historical conditions existing in pre-British India.] This fragmentation also prevented Indian markets from effectively integrating into larger markets. Instead. 194-198. and social circumstances as culprits. however. upper castes were generally forbidden from taking the occupations of the lower castes and this prevented them from participating in lucrative fields such as trade and commerce.] Vikas Misra also argues that the caste system lowered incentives. 134-135. Morris does not see a causal link between India’s underdevelopment and class relations. Finally. political. These existed. and made it difficult to obtain the necessary raw materials for industrialization. trade and production. The new irrigation schemes introduced by the British made allowed for farming on previously unused areas. the joint family system limited spatial and occupational mobility while further strengthening the caste system (Misra 1962. leading to greater yields from the land. Morris stresses that pre-British India probably had a low per capita income and British rule provided the country with political stability. it obviated the emergence of economies of scale. [Sanjeev: This is false] led to lower agricultural yields. [Sanjeev: Capitalism is mostly about underlying institutions of finance. 15 September 2012 13 . Lower caste Hindus had little incentive to obtain wealth because they would still be looked down upon by upper caste Hindus even if the latter were poor. there was a greater specialization in agriculture and a shift to crops with greater market value. India’s agriculture benefited greatly from British rule: political stability reduced fluctuations in land usage. Unlike the Marxist arguments examined earlier. [The opposite of this argument has also been suggested by scholars who argue that Mughal Empire stunted India’s economic growth by siphoning away surplus capital for consumption and failing to develop basic infrastructure (Jones [1981] 2003. 53-56). did not lead to an Hindu capitalism Draft. Morris points to a plethora of geographical. standardization. 156-158). Accordingly.socioeconomic status than aptitude or performance. Conditions Endemic to India Led to Underdevelopment Morris D. This enormous growth in population. albeit in different ways for lower and higher castes. India was always fragmented into numerous political units and this led to greater political instability than in Ancient Rome or China. and greater administrative efficiency (Morris 1968. While British rule had positive impacts in agriculture. He also rejects the notion that Hinduism and its attitudinal and institutional factors suppressed growth. Landes 1999. One major factor in hindering India’s industrialization during British rule was the low demand for industrial goods. India’s population had risen from 200 million around 1800 to 417 million in 1947.

Lal argues that until the twentieth century. The Indian bankers/merchants had few needs] India was hindered not only from the demand side but also from the supply side of the economy. this equilibrium has changed little since its establishment. This first was labor scarcity. It is important to note that social ostracism and the emphasis on ritual purity prevented castes from learning skills from one another (Lal [1988] 2005. The mechanisms for transmitting information about cost of production and level of demand were much weaker in India than in the West. an economic and social system had been established that placed India’s economy in a long lasting equilibrium. [Sanjeev: this is a good insight. Moreover demand from the wealthier classes was limited to specialty items which could not be mass produced (Morris 1983. Hindu Equilibrium: Deepak Lal Deepak Lal ([1988] 2005) suggests that by the third century BC. 554-555). Skilled labor was expensive and almost all machinery had to be imported from the West. The caste system arose as a response to this constraint and allowed for the provision of a steady supply of labor. According to Lal. Businessmen were reluctant to invest in capital-intensive industries and gave preference to labor-intensive industries instead (Morris 1983. and prices. 555). A second parameter mentioned by Lal is political instability. the Indian businessman had to have a stock of ready capital to fall back on. 383). This equilibrium was able to persist and function within the framework of four parameters. India lacked the institutions for an effective capital market and much of the country’s capital was immobile. much of India’s political history has characterized by feuds between local rulers.increased demand for machine production because average per capita income was too low. India was also characterized by an unequal distribution of income. India has been a laborscarce country (Lal [1988] 2005. Investors were thus reluctant to invest in new areas and tended to remain in traditional ones (Morris 1983. 44). As a consequence Indian merchants could not make long term calculations with the same level of certainty that Western merchants could. Despite numerous attempts to reform it. entrepreneurs tapped into it as a source of inputs and neglected mechanization. Since unskilled labor was readily available. Indian businessmen were plagued by much greater levels of uncertainty than their Western counterparts because there was an unsatisfactory flow of information about incentive structures. The specialization implicit in the caste system made it difficult for castes to migrate to other regions because a caste that migrated to another region would find itself in competition from another caste that possessed the same specialized skills. In order to buffer themselves from greater uncertainty. 556). This political instability resulted in 14 . alternative goods.

15 September 2012 15 . Lal argues that Indian agricultural patterns and technology have changed little over the last two millennia. Three characteristics of this equilibrium are worth noting. 385). Sanjeev Sabhlok I agree in part. The underlying system was entirely free. A second characteristic was the stability of population size: until the nineteenth century. Lal asserts that the general belief system of Hinduism frowns upon commerce and the pursuit of profit.[This amount is equivalent to US $796. A third characteristic was a stable standard of living: India’s per capita income throughout the last two millennia was approximately US $150 at 1965 prices (Lal [1988] 2005. It is really about the caste system and its role in restricting labor mobility.] Lal asserts that this equilibrium has persisted for over two millennia because it provided Indians with a standard of living higher than that of their neighbors.the rise of autonomous village communities throughout India. by Deepak Lal is about long stagnation in India and the delayed growth of Capitalism. Individuals with relatively large landholdings were able to secure themselves against this uncertainty because their landholdings allowed them to produce and store a surplus supply of food. Lal believes that the equilibrium may be undermined in the near future because many of the parameters that led to creation of this equilibrium have changed (Lal [1988] 2005. India’s population never exceeded 200 million. This exchange of services for agricultural produce was known as the jajmani system (Lal [1988] 2005. they supplied services to individuals with large landholdings. On the other hand.given the technology that prevailed. 36-42). This belief system influenced the attitudes of the rulers of India and played a role in hindering any attempts to move away from an agrarian economy (Lal [1988] 2005. In order to obtain a steady supply of food. Lal also points to the climatic conditions of India as a third parameter defining the equilibrium (Lal [1988] 2005. 385). 56-58). The final parameter under which this equilibrium operated was an ideological one. Sanjeev: Kishore Jethanandani: "Hindu Equilibrium". but I believe there were many economic merits of the caste system . individuals with small or no landholdings were unable to do the same. Rulers received regular tribute from these communities and responded in turn by refraining from the internal affairs of these villages (Lal [1988] 2005. That's a key point that I'd like to highlight in my book. Hindu capitalism Draft. I guess the starting point for your book. with a minimal state. 389).50 at 2007 prices. The first characteristic was the stability of agricultural technology. 384-385). The relative unpredictability of rainfall and monsoons resulted in considerable uncertainty in regards to production of agricultural output.

would be incapable of running modern industries in an efficient and nonpredatory manner on account of the Hindu ‘law of rituals.1. when all they are writing about is a measly 1/10th of the world. published in Curried Cultures: Globalization. expect the world to continue to pretend that the greatest region of the past 5000 years – India! – was a small little blip in world history. modernization among these entrepreneurs was helped along by a series ofadaptive strategies. Concise Economic History of the World is considered by most economists to be the greatest introductory textbook on world economic history. even anger at Western fools who pretend to write histories of ‘the world’. ‘Udipi Hotels: Entrepreneurship. Max Weber was disinclined to believe that capitalism would have any future in India.6 Max Weber got it totally wrong about India Here’s an extract from an article entitled. To account for the coexistence of Hinduism and capitalism. 1. University of California Press). Food. Gardella. Indians.5 Rondo Cameron got it totally wrong about India Rondo Cameron‘s textbook. and South Asia By Krishnendu Ray.’ The industrialists in Madras. Reform and Revival’. I’m overcome with a sense of disgust. Let me extract below what he has written.’ When Milton Singer studied Madras entrepreneurs. As I continue to discover some wonderful (and intriguing!) things about Hindu capitalism. I would have no problem if they said they were writing about Western economic history. But it is clear that the Western university system has failed. These strategies enabled industrial leaders to thrive in the modern world without unbearable mental strains resulting from a failure to conform to inherited notions of purity. The winners get to write history. It is best that such useless nonsense is not taught in the West (or anywhere for that matter!). he argued. by Stig Toft Madsen and Geoffrey T. It is enormously detailed (not concise!) as far as European (and American) economies are concerned. he argued.But is is pathetic in its coverage of India and Asia. Singer developed the notion of ‘compartmentalization. If Indian economists don’t start challenging these fools. Tulasi Srinivas (May 2012. he realized that Weber was wrong. This book project attempts to correct the huge failures of Western scholarship. did not experience a clash 16 . but to arrogate themselves as experts in global economic history when their knowledge is little more than a kindergarten kid’s as far as 9/10th of world history is concerned. is a bit rich! And whatever little Cameron has written about India is so full of platitudes and nonsense that it would have been better not to write it at all. According to Singer.

Thus. Baba Ramdev – Resurgence of New India (Freedom Movement-2). Deendayal Upadhyaya's Integral Humanism – documents. and Hindutva politics that we have drawn attention to. The fact that BJP follows integral humanism explains (to me) why is is a copycat socialist party. and believes that wealth is just one of the many things needed in life. In 2000. 5 Origin of this term It appears that this term was first introduced by Swami Agnivesh. comparisons (edited by Devenedra Swarup) and have been singularly unimpressed by the paucity of logical thinking displayed as part of this idea. There is also a book entitled Vedic socialism by Nitya Narayan Banerjee.C. Instead. Singer. Mahendru entitled. he found the notion of compartmentalization misleading (Harris 1003).com/2010/08/what-is-vedic-socialism/ Hindu capitalism Draft. And there is a Vedic Socialism Party on Facebook! Apparently Vedic socialism resembles integral humanism. Chicago and London: The University of Chicago Press. although Balak Brhamachary of Santan Dal is also associated with this idea. 2003. 4 References Harriss. 1. John. politicized Hindu capitalism without compartmentalization. ‘The Great Tradition Globalizes: Reflections on Two Studies of ‘The Industrial Leaders’ of Madras’ in Modern Asian Studies 37. Possibly both of them got it from someone else. known as Vedic Socialism. 2: 327-62. particularly gold. when John Harriss restudied some of the same entrepreneurial families that Singer had interviewed.7 How Vedic socialists have got it wrong Harsh Vora introduced me to a book by Dr. a Great Tradition that modernizes. globalizes. and secularizes is also likely to Brahmanize and revitalize as it stands forth. 1972. I do hope that Vedic socialism is not like integral humanism: a fuzzy feel-good essay on the 4 I believe all these writers are confused since they are using either statist (Weberian) or Marxist paradigms about Hindu capitalism. There is NO CONTRADICTION between Hinduism and capitalism. These perspectives on Indian capitalism and business classes are fundamentally flawed. When a Great Tradition Modernizes. Harriss observed a similar interpenetration between capitalism. They are looking for something that simply doesn’t exist.between their identity as Hindus or Brahmins and their identity as industrialists because these two roles were compartmentalized or separated into different life-worlds (Singer 1972: 320-25). namely. Hinduism. merely mimicking Nehru – and displaying zero understanding of good policy. Milton. 15 September 2012 17 . K. interpretations. There is nothing to explain! 5 This is from my blog post of August 2010: http://sabhlokcity. I have with me the book. An Anthropological Approach to Indian Civilization. It talks about the political philosophy of Baba Ramdev. The Indian businessman is rooted in an ANCIENT culture that values (even worships) wealth.

he picks up the WORST foreign idea. Indian philosophy is in tune with liberalism. To find out more I’ve quickly checked up my father’s book on Vedic Metaphysics (here) which he wrote after studying the Vedas for more than 10 years. and 18 . mentioning 99 sources of corruption and evil. Jnan is the knowledge of complete understanding of God. transparency results in ennobling the individual and society. for as I clearly show in DOF. which is good. also calls it a disease which goes on increasing with all material treatment and makes the power of soul and human spirit weaker and weaker (Sama Veda 913 and 179). At least understand the history of freedom that I've outlined in DOF. our Vedic seers were not utter fools like the socialists are. idleness become the cause of corrupting the individuals and the society. This is what the Vedas say: Rig Veda on corruption: From my father’s book: “Rig-Veda 1-104-3 refers to corruption as misappropriation of public funds. I must admit that when I think of the concept of 'Vedic socialism' I find it quixotic and quaint that Hindu preachers like Baba Ramdev try to align India's ancient scriptures with the worst Western idea that was ever created – socialism! (Let this be VERY clear to all Indians: socialism is an idea that started with Rousseau and peaked with Marx.” It would appear that. dullness.) It is odd that on the one hand Baba Ramdev wants swadeshi. It is NOT an indigenous Indian idea. the rajasic guna of activity with self interest and false ego and desires along with tamasic guna of passivity. yet on the other. divinity in virtuous actions and considering the world as Maya – the cosmic illusion. soul. citing my father’s book: “Bhagavad Gita traces the causes of corruption and evil to the primordial matter the three gunas in the human body. What do the Vedas say? Why would the Vedas have picked up the worst idea that would occur (in the future!) to the mind of man? Surely. two ways exist to improve governance: a) peoples' character has to be improved. taking bribe for money belonging to the state and trusts and when the individual’s action results in the reduction of state revenue or the revenue of the institution where he/she is a trustee.1-42-3 mentions bribe takers are thieves. truthfulness. India and socialism have nothing in common.” Mahabharata on the solution to corruption: Again. “Lack of knowledge of Vedic Brahma vidya that Bhagavad Gita refers as Jnan and Vijnan is another major factor for the spread of this evil. But the solution they seem to offer to eradicate corruption is not logical nor viable. If Charvaka's views are considered – as they should be – then India clearly laid the foundation stone of classical liberalism and freedom in the world. Sam Veda while. not socialism. Rig Veda. but without the slightest scientific analysis of the economy. Nehru brought socialism to India from the British Fabian socialists – and ruined India – as clearly described in BFN. according to the Vedas.greatness of ancient India. It appears that the Vedas speak out against corruption. While sattavic guna of purity.

This sounds more close to the truth than those who claim that Vivekananda was a socialst. That's their only way of functioning. Rao (Publications Division. V. of India in New Delhi. Vedantic socialism I usually seek information on ancient Indian perspectives by consulting Vivekananda's works – for he was a scholar par excellence. thus: ‘Liberty in thought and action is the only condition of life. my father. the race.86). the prophet of Vedantic socialism by V. This "solution" does not display any understanding of human nature or human incentives. the writer of this article mostly provides his own opinions and doesn't specify clearly what Vivekananda actually said). Atlantic Publishers & Distributors. 2001. there is scant or non-existent evidence of Vedantic socialism. Happy to have anyone point me in the right direction. the man. I doubt if any cogent theory of 'socialism' can possibly be traced to the Vedas or Vedanta. Ministry of Information and Broadcasting. It turns out that he was an advocate of what some people call Vedantic socialism (unfortunately. Swami Vivekananda: a reassessment. No unambiguously clear signal that promotes freedom in the modern sense seems to arise from ancient India. but this statement seems likely to be true.K. All they care for is economic equality. But no matter what Hinduism does.b) they must become more religious. 15 September 2012 19 . his social ideal was spiritual democracy and not a socialist society. Hindu capitalism Draft. But fortunately. p. 2) Another states: "[T]hough Vivekananda praised socialism here and there. but I unfortunately don't have ready access to it. it does not force its way on others. 1979). Instead. no matter what it is. There is also a book called Swami Vivekananda. That can NEVER work. Govt. after all his Vedic readings. I cite his words at the head of the draft manuscript of my next book. when combined. Clearly. I find there are many strands of liberalism that can be. offer a cogent theory of Vedic capitalism. In the meanwhile. I don't know precisely which books Vivekananda read when he was young. Sharma. 187). p. This amounts to expecting corruption to be solved by preaching. at least faintly. it is simply a typical confused religious perspective. I find it hard to imagine that a major votary of freedom like Vivekananda could possibly be a socialist. 1997. And they will impose their will on everyone else. And more about Vedic socialism. R. DOF. growth and well-being: Where it does not exist. an analysis of two books through Google books shows the following: 1) One author has concluded: "It is extremely doubtful that he had first hand knowledge of the socialist literature – Utopian or Scientific" (Narasingha Prosad Sil. Clearly I've not found out much yet. Indian Political Thought. now seems to understand and appreciate the logic of freedom that I advocate in BFN. K. and the nation must go down. but bits and pieces do arise that might. linked back to the ancient Hindu (and other Indian) scriptures and texts. Susquehanna University Press." (Urmila Sharma and S. Indeed.’ No socialist can possibly make such a beautiful statement about freedom – for socialists well and truly HATE freedom. so I'm keen to find out more about the Vedic solution to good governance. this confused thinking is not socialistic.

In addition to the Vedic sacred literature. the most influential Hindu religious text. and all who have the role of creating wealth and increasing welfare). as there is no central religious authority to establish orthodoxy. but moral hazard overcame its intent. entrusted with safeguarding the truth and with leadership). and the axis of social life.8 The Capitalist Structures of Hinduism Mario Gómez-Zimmerman has this to say: The Capitalist Structures of Hinduism We must keep in mind two characteristics of Indian culture. Buddhism actually did not oppose the Varna system itself. An understanding of the caste system is crucial to understanding Indian social and economic structures and practices. being merit based. First. or Varna. It was bad design. Second. Such a system does not merely reflect a division of labor. and then elaborated exegetically in the Upanishads. the Dharma-Sastras–of Vedic inspiration and devoted to regulating social life in the context of justice and righteousness–center heavily on the Varna system. only the belittlement of those considered inferior. For example. Besides. Ksatriyas (warriors and rulers. It is first mentioned in the Rig-Veda.] The Varna system was considered–and still is. priests. and  some socio-historical facts or events. This system divides men into five catagories: Brahmins (philosophers. in the famous hymn to Purusha. the most important DharmaSastra. not a distinction in the context of human dignity or worth. considered by some a direct revelation from God. codes of law which presumably derive from the latter can be regarded as part of Hinduism. the typical Western split between the religious and the socio-economic realms is very limited in Hinduism. In addition. and others who perform the function of illuminating the higher truths). the duties and functions of the castes are listed and their 20 . which was the outcome of vested interests and human shortcomings. averring that anyone. Thus. system. Vaisyas (traders. In order to identify if Hinduism fits into a capitalist or socialist framework. it is rooted in the notion that man attains fulfillment only by performing his duties. the teachings of recognized spiritual masters are usually incorporated into Hinduism. which consist in developing his natural potentialities. the Varna system is also endorsed in the Bhagavad-Gita. in the laws of Manu.  theologico-philosophical issues regarding property (outside the sacred texts). [Sanjeev: the original caste system might not have discriminated. let us state that we will refer here mainly to traditional doctrines and practices. practical social morality is supposed to agree with religious and philosophical precepts. the system only entailed a ranking or hierarchy of labors resulting from different capacities. and Sudras (workers. charged with supporting all of the above and with performing services). including Sudras. although in a way more akin to its original design–a pre-requisite for every good society. we will look at three basic issues:  the caste.1. In truth. as it is indeed for most Oriental mentalities. could reach enlightenment. farmers.

with land. With respect to the micro-economy. wealth is considered a good to be pursued within the spheres of worldly affairs. But in all cases. and many more contracted their products or services freely. which is the way to spiritual evolution. but the play of particular economic forces was not over regulated and. As a rule. In fact. favoritism in assigning land. His task was defence. It was extremely expensive for a king to devote time to manufacturing. amusers. wealth is attacked because it is likely to subject man to dependency. for example.corresponding right and wrong practices pointed out. but the state did not direct private production. Literature on this is vast. trying at the same time to remain detached from it. Regulations affected above all the macro-economic aspects. fostering egoism. the individual was considered to have rights before the state. its bearing on individuals. Prabhupada states that. where although the king was to be its ultimate owner. it never did away with private enterprise. The limitation of the state’s power can be illustrated in the matter of tributes. more significantly. merchants. the artisans. He could easily Hindu capitalism Draft. although there were guilds and legal mechanisms to ensure that contracts were fulfilled. though the state in India throughout the centuries was the equivalent of a big entrepreneur. and did so. Ideologically. and the economic relations between people. the most important ones being the role of the state of the economy. wealth is the result of a good previous labor. Kings in their PERSONAL capacity were free to trade/produce. such as those which employed women with no relatives. this aspect is commonly referred to as renouncing the fruit of labor. and avarice. In Hinduism. so I will limit myself to sample what Sai Baba and Prabhupada (the first considered by many as the Avatar of our time. and not for being an evil in itself. and he ruled through a standing army. were not unheard of. To quote Sai Baba: ‘When a man has a right to engage in Karma. tricks to increase state revenues. On his part. although it provides regulations above all for the market of labor. 15 September 2012 21 . it is said that the Vaisya must exert himself to the utmost in order to increase his property in a righteous manner. and so on. [Sanjeev: the idea of state-run manufacturing needs to be examined very closely. which includes providing others with food.] That was the case. greed. the second the founder of the International Society for the Conscience of Krishna) have to say about this. As it is true for all the great religions. It is made with the provision that renunciation must be a voluntary act. In one of the most important passages. and at times demands them to renounce it. most of the relevant socio-historical facts can be grouped within a few categories. Manu’s code endorses market practices. according to the Law of Karma. In fact. Of course. because it is acknowledged that only a few are prepared to follow the path to perfection in a strict manner. these amounted between one-third and one-sixth of production. private parcels were deemed a necessary entitlement. Hinduism warns human beings about the dangers of accumulating wealth. were only levied in emergencies. and that the Lord leaves man independent to engage in the activities proper to the material world. he has a right also for the fruit. no one can deny this or refuse his right’. [Sanjeev: The state was not an entrepreneur. but there were also state-run manufacturing mills. Many had their own workshops in their dwelling. and for only once taxes could reach as much as fifty percent of income.

and wherever these existed. free trade must still abide by certain 22 . They may be deemed to be supported by a legitimate social patrimony if they represent instances of epoch-related common goals of society. the system limited many freedoms. for the time being capitalism does not propose absolutely unregulated free trading practices. man always enjoyed in India enough freedom over what he had created. I’m almost certain these were personal investments of the king. there is also a need in capitalism that economic activities project to the common good. such a system constitutes an ontological need of a society rooted in the cosmogonical myth mentioned in note 1. at least ideally. [Sanjeev: I agree that there was some over-regulation in some areas. Although subjected to regulations. Nevertheless. capitalism has indeed modernized the Varna system. Following what we had said in the last two paragraphs. Basically in reference to the labor market. In fact.] But here the state was never a mechanism to subordinate the individual good to that of the society. political or humanistic) limiting free will are to be found in every human group. and other statist measures arose from the need to face external threats. [Sanjeev: this is based on the social contract idea. but there was underregulation in others. In India. So there were very few such factories. Except in a utopian and ideal capitalist society–where all the property would be privately owned and we can even contemplate a voluntary financing of the government– public enterprises and subsidizing policies do not necessarily contradict capitalist tenets. which originate specific secular functions of the state. although embodied with a social function. is considered a praiseworthy personal achievement. it would appear at first sight as a statist construct–so common under any socialist scheme. Central planning and regulations were implemented according to higher parameters set by Hinduism’s worldview. and that the individual good is the highest aim of society.endogamy and other features of a caste system do not exist in capitalism. Of course. but it also allowed each caste not to be fused within a general standard and to be free to live its own way. The way it was implemented. that is it is not left at the stage of a functional need. which in short defines a socialist worldview. some over-regulation resulted from the greater interpenetration of what. The difference here. is that the right to property is not subordinated to the above. The attainment of wealth. according to Western thought. which were accepted by the collective conscience as traditional goods. is to be legally enforced and what belongs to personal choice. Big bureaucracies resulted from the desire to control and maintain power.get taxes. However. not state-directed production. with the allowance of greater social mobility and the recognition of equal human dignity for all. calls to renunciation fall outside the legal sphere. Hinduism never denies the right to property. an instrument. All too rigid as it was (at least theoretically).] The above points to several conclusions that reveal capitalist structures in Hinduism: The socialist concepts of equality and a classless society are completely rejected by the Varna system. Worldviews (religious. very clearly known in Hinduism! but the fact that this is a basic Hindu concept is apparently not known to the writer of this article]. and so in Hinduism. with the state being.

directives which relate to the general framework of right upon which our
social orders have been constructed. But as long as such directives do not
interfere with any rational pursuit of fulfillment according to each one’s
merit and to making one’s own talents count, as was indeed the ideal aim
in Hinduism, we can say that we are witnessing at least an instance of precapitalist praxis.
In conclusion, we cannot say that traditional Hinduism thoroughly
shares capitalist precepts, but we can assert that it pre-figures
capitalism much closer than socialism.
What characterizes socialism above all is that it takes the person as a
means, while the recognition of the individual as an end, and thus as
subject of inalienable rights, is the most distinctive juridico-economic
structure of both capitalism and Hinduism.

1.9

Hindu capitalism is Adam Smith’s capitalism
supercharged
Arthashastra represents a society that focuses on wealth creation and
security to ensure the happiness of its citizens. Wealth creation is
absolutely paramount.
In addition to exhortations to become rich and be brave and diligent in
that goal, Chanakya notes:

“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."
{from 1.19.35,36} [Rangarajan, L N, ARTHASHASTRA, p.150]

“Trade shall be [directed towards markets which are] profitable; losses
must be avoided." {2.16.25} (ibid, p. 275).

This reaffirms the fundamental mantra of Hindu capitalism: Shubh Labh.
He clarifies that land is WORTHLESS. It is what we DO with it that is
important:

“The value of land is what man makes of it." {7.11.9} (ibid, p. 94)

Finally, to ensure wealth a society must remove obstacles to economic
activity, profit, and trade:

“In the interests of the prosperity of the country, a king should be
diligent 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." {8.4.50, 8.5.21} (ibid, p.94).

Given these (and many other) BLUNT DIRECTIONS TO BECOME RICH, it is
absurd for anyone to even remotely suggest that (a) Hinduism is "other
worldly" or that (b) Hinduism promotes socialism.
There is NO Vedic socialism. Or Integral Humanism.
There is Vedic capitalism. There is Hindu capitalism. Period.
All attempts by Hindutva fanatics to promote collectivism, or by half-baked
"thinkers" like Anna Hazare or Arvind Kejriwal to promote socialism (by the
back door) and oppose FDI and free trade are ANTI-HINDU.

Hindu capitalism
Draft, 15 September 2012

23

Not that I much care about someone being anti-Hindu (I'm not yet inclined
to call myself Hindu, although I claim roots in India's sceptical intellectual
tradition). But I much care about the fact that these people have BLOCKED
the study of economics and politics in which India was the world's most
advanced region over 2000 years ago.
For us to have re-discovered economics through the West is a shame.We
should have developed and refined Chanakya's work but probably even
forgot it.
It is not too late even now to OVERTHROW the nonsense of socialism.

1.10 There is no Vedic socialism
The other day I showed how Rajneesh detested socialism. Now
Harsh Vora sent me this link: [This is from my blog post of August
2011]
Dharma Pravartaka Acharya (Dr. Frank Morales) speaks in this video
about the history of India during which he makes some unqualified
generalisations, some of which can be very hurtful to people from
some religions. The reality is far richer than what he presents. But
there is something of merit in what he says about India's recent
history.
He clearly shows that the socialism practiced over the past
64 years is not part of the natural law. He therfore hits out
strongly at Nehru's socialism (although he mixes up India's
'secularism' with atheism). While this man needs to learn some
history, when he talks about freedom, he seems to make sense.
I trust that those who preach "Vedic Socialism" will now review their
ideas in the light of their own concept of natural law (Dharma).

To me, freedom is the natural law.
Whether you call it dharma or (as Adam Smith called it) the "system
of natural liberty", is immaterial. But freedom
without accountability is pointless. Accountability is essentially a
version of karma. So it is freedom with accountability that IS
THE NATURAL LAW.
It is crucially important that spiritual aspects of our life (whether we
are eternal/ not eternal, etc.) should be left to each individual to
understand and decide for himself. That is the implication of
freedom – that we don't impose on such matters on anyone. It is
violence against our nature to be imposed upon by others. That is
what socialism does. It is unnatural in every way.

Extracts from The Discovery of Freedom
I've explained in (draft) DOF, thus:
At each instant, the karma yogi considers options for action
for their long term consequences – without being personally
affected by the success or failure of his effort. Freedom of thought
thus leads like, an arrow, towards moral action. The free man acts

24

with deliberation, aware of the potential consequences of his
actions, always committed to being held to account. In advancing
his self-interests though responsible action, he contributes to the
welfare of mankind and of all life on earth.

Whether it is the karma theory of Hinduism, the Buddhist theory of
the middle path, or Christian theory of sin, each notes that our
choices determine our character. As Rajagopalachari said:
Everyone knows from experience and without the help of any doctrine that
every thought or act, good or bad, has at once an effect on oneself, apart
from its effect on others or on the outside world. Every motion of the mind
deals a stroke as with a hammer, on character and whether one wants it
or not, alters its shape for better or worse. We are ceaselessly shaping
ourselves as the goldsmith busy with his hammer shapes gold or silver all
day long. Every act of ours and every thought creates a tendency and
according to its nature adds or takes away from our free will, to a certain
extent. If ‘I think evil thoughts today, I will think them more readily and
more persistently tomorrow. Likewise it is with good thoughts. If I control
or calm myself today, control becomes more easy and even spontaneous
next time, and this goes on progressively.[1]

The good thing is that we can (largely) choose our character, health,
and reputation. Freedom is in that sense a positive philosophy, that
brings out the best in us. As Ian Harper points out: ‘Our choices
have consequences, not just for our material but also for our moral
well-being. … Good choices make us virtuous while bad choices
make us vicious.’[2] Even in the most collectivist totalitarian society
we will necessarily remain at least partially free to form our
character and work towards our moral goals.
[1] Rajagopalachari, C. Hinduism: Doctrine and Way of Life, Bharatiya
Vidya Bhavan,1959, p.80.
[2] Harper, Ian, ‘Christian Morality and Market Capitalism: Friends or
Foes?’, 5th Annual CIS Acton Lecture on Religion & Freedom, Sydney:
Centre for Independent Studies, 2003.

Hindu capitalism
Draft, 15 September 2012

25

2003). [Btw.5). reason. It was a fashion. p 3. second edn) — Indian Thought on Human Values. its commitment to freedom and prosperity.1 Vedic capitalism. 8-14. pp. Everyone wanted to be a socialist. prosperity In considering the social contract. 4783-4793. I was browsing through a recent (2003) article by M. Vol. none inferior. Not just Arthashastra (which is based on the Hindu way of thinking) but the Vedas seem to be very clear about an intrinsic capitalist framework. Advocates of “Vedic socialism” are seriously misguided. It goes to the extent of saying. 2. when he says that Ministers must be paid 800 times more than the lowest government functionary. So they distorted Hinduism to "fit" socialism. Rg Veda emphasises equality of all human beings. That represents prosperity in the most general sense. not precisely: e.g.2 Arthashastra I agree with many things Chanakya wrote (if these are taken broadly. One thing is clear: there is NO evidence that Hinduism was a) otherworldly or b) glorified the state (collective) at the expense of the individual. And confirms the theoretical foundations of Hindu capitalism. All are brothers marching forward to prosperity. Commitment to freedom. It uses a key word that is common in Hindi even today: Saubhaghya. 45 (Nov. the Hindu society has affirmed. No. 2. not the precise figure of 800). Affirmation of equality and pursuit of wealth. Hinduism and socialism (or "other-worldliness") are poles apart. They were trying to "fit" the Vedas into the mould of socialism popularised by Nehru. Whether such foundations were realized in practice is a different issue. Economic and Political Weekly. This demonstrates religious approval of equality and wealth.] Source: Nadkarni’s article: "Is Caste System Intrinsic to Hinduism? Demolishing a Myth". Translation and original from K T Pandurangi (1999. Nadkarni and something caught my eye. Bangalore: Bharatiya Vidya Bhavan.2. I agree with the translation. 38. 26 . which sounds quite modern: 'No one is superior. in numerous ways.V. I'm considering the broad recommendation to pay Ministers well. Reference: The Sanskrit original is 'Ajyestliaso akanishthaso ete sambhrataro vahaduhu saubhagaya' (Rg Veda V 60.

11. Ministers must be paid very well. To ensure high quality advice from men of integrity. 4. people [were unhappy and being desirous of order] made Manu. etc.]. and peace. 9. the son of Vivasvat. 10. both current prosperity and future growth are in danger of destruction. and ports. 5. from a middling or inferior one. Hindu capitalism Draft. while kings who do not look after the wel¬fare of the people take on themselves the sins of their subjects 6. This will result in wealth. I agree). He suggested that the king “should demand a third or a fourth part of the grains from a region.] 3. and they assigned to the king one-sixth part of the grains grown by them. one-tenth of other com-modities and money.g. according to yield. A king can achieve the desired objectives and abundance of riches by undertaking productive economic activity").2.g. which alone can guarantee security of life and welfare of the people.2. whether big or small in size. [This rules out any form of anarchy. it must be in significant surplus. dependent on the self-discipline of the king". There should be detailed accounts of all government expenditure (accountability). in turn. is. Taxes must include income tax (he opposed a lump sum poll tax. Chankya said. There must be a state. state should have good roads and waterways. Punishment for corruption must be sharp and swift. When there was no order in society and only the law of the jungle prevailed. security. The government must be minimal (taxes must not be too high or too little). roads are essential for national security as well as for promoting commercial activities. but then held to account. 7. This is purely illustrative. 15 September 2012 27 . that is not dependent on rains and yields abundant crops. "Government by Rule of Law. not precisely: e. Those who bribed under duress – and complain to an investigating offer – should be reimbursed their costs. Those who do not pay fines and taxes take on them¬selves the sins of kings.1 Policies on which I agree with Chanakya I agree with many things Chanakya wrote (if these are taken broadly. 8. Income tax should have some level of proportionality built into it: Kautilya suggested a graduated tax (although only during an emergency but on top of the existing income tax. ("In the absence of fruitful economic activity. The government must invest significantly in infrastructure [e. The treasury must not just be balanced. The king /ruler must be strong and powerful. The government must remove obstacles to economic growth ("remove all obstructions to economic activity"). Maintaining law and order is a key function of the government.] 2. their king. 1. which was one-sixteenth of the produce) on land holdings according to the yield from them. [This is absolutely crucial. in order to provide stability. The king then used these to safeguard the welfare of his subjects.

monopoly over alcohol). This is unnecessary and should be left free to markets. when we are alone responsible. whatever you may be. Here’s the extract that WILL TOTALLY ENERGISE YOU. That would have definitely been Chanakya's approach – thus being totally inimical to Nehru's loss making public enterprises.g. So if the whole responsibility is thrown upon our own shoulders. as part of social insurance). we shall be at our highest and best. and contentment. no dishonesty and no envy. [Mahabharata] Thanks to Ashish Deodhar for bringing a very powerful snippet from Vivekananda to my notice. 15. you must become selfless for the time being. Trade must be promoted. Chankya allowed for some government production (e. I am the bringer of good unto myself. 3. or accept your bondage. You will give up all your criminal ideas as soon as responsibility is thrown upon you — your whole character will change. 2.2. here.g. Take responsibility. I searched and found the original source. it must ensure profitability. This man Vivekanada. There will then be no wickedness. People must work hard and strive to become rich ["Wealth will slip away from that childish man who constantly consults the stars"]. Chankya would have OPPOSED SOCIALISM TOOTH AND NAIL. 13. Regulation does (e. no pretense. Free people can work out their own happiness. 2. when we have nobody to grope towards. Chanakya believes that happiness of citizens should be a goal for the king. gambling). those suffering from adversity. prostitution. Prohibition doesn't solve problems. alcohol. no Personal God to carry our burdens. literally a boy. I disagree with ANY state production. I am 28 . even where a government does decide to produce something. liberty of citizens should be the goal. childless women and the children of the destitute women". There shall be a social minimum (in my view. at state expense. so young was he when he died. 14. the destitute. Peace will be theirs. and foreign traders given shelter. children. I challenge everyone of you. 2.2. Anyway. 12. then we shall rise to our highest and best. no devil to lay our blame upon. Chankya does get involved in setting wages and some prices.2 Policies on which I differ with Chanakya 1. In my view. never fails to inspire. How will you behave if I put a little baby in your hands? Your whole life will be changed for the moment. Chanakya said: "King shall maintain.Not more than 25 per cent of all government expenditure must go on salaries. the old. I am responsible for my fate.3 Freedom “The best king is one whose subjects live in freedom and happiness as they do in their father’s house. Nothing makes us work so well at our best and highest as when all the responsibility is thrown upon ourselves.

in Werner (ed. I am the Blissful One. a Hindu religious text.2. I have neither father nor mother nor brother.’ Hinduism has a message of freedom with responsibility.the bringer of evil. It is the king’s duty to protect all and also assist in times of apad-dharma. c) Sharma. Human Rights and Humanitarian Law: The Quest for Universality (The Hague. Philosophical Foundations of Human Hights (Prepared by UNESCO and the International Institute of Philosophy. I am the Pure and Blessed One. Hindu capitalism Draft. Persons are seen first as bearers of duties. there is no right for the subjects to be ruled over fairly. Boston: M. ‘Hinduism and Human Rights’. However. Pilgrimages and books and ceremonials can never bind me. I am the Blissful One. and whatever rights one does have rest on the discharge of duties.). Knowledge. in Ricoeur (ed. (1999) 30 California Western International Law Journal 46. However.5 Natural rights There are a number of people who have written on this issue. the Mahabharata. by happiness or misery. Indiand deserve a far better India. India must change. I am the Blissful One. e. not rights. 2. I have neither caste nor creed.g: a)Subedi. For example. I am not bound either by virtue or vice. Don’t blame anyone else! Don’t ever beg for mercies.4 Freedom of speech and belief [Insert material from DOF. but be willing to put in the effort to deserve these dues. the body is not mine. once DOF is completed] 2. Demand your dues. 15 September 2012 29 . ‘Human Rights: An Indian Perspective’. I have neither hunger nor thirst. and Bliss Absolute. and Bliss Absolute. We must reject all thoughts that assert the contrary. ‘I have neither death nor fear. 1986) 267.). I am Existence. 1997) The social structures and underlying social visions of human dignity in traditional India rests not on human rights but on social duties (dharma). I am the Blissful One. Hinduism and Human Rights. for I am Existence. ‘Are the Principles of Human Rights “Western” Ideals? An Analysis of the Claim of the “Asian” Concept of Human Rights from the Perspectives of Hinduism’. chapter on tolerance. The word dharma can be translated into a term meaning ‘rights’ when used in the context of a crisis (apad-dharma). Knowledge. As a result they cannot enforce their rights. A Conceptual Approach (New Delhi: Oxford University Press. 2004) d) Nanda. This is entirely consistent with the classical liberal message of freedom with accountability. Nijhoff. b) Pandeya. Examples within Hinduism exist of rights talk (or adhikara as Hindus use the term).2. neither friend nor foe. You are what you make of yourself. nor am I subject to the superstitions and decay that come to the body. the concept of rights exists if one looks at the duties of the king (raja-dharma).

This is demonstrated by a verse in Rigveda. one would have a right to life but would also have a corresponding duty to protect life. Equality of all human beings was reiterated in the Vedic period. along with issues of ‘race’. ALSO: freedom must be regulated by duties. etc. who does not protect his subjects. 7 The Religious Foundations of Human Rights: A Perspective from the Judeo-Christian Tradition and Hinduism. where a poet exclaims. by Dipti Patel 8 The Religious Foundations of Human Rights: A Perspective from the Judeo-Christian Tradition and Hinduism. According to Vedanta philosophy. Hinduism tends to accord greater recognition to the rights that others have in relation to us as compared to the rights we have in relation to them.grants the people to ‘gird themselves up and kill a cruel king.2. they would have backed off from the idea of varna. [Source8] 6 I always talk about freedom with accountability. for example. Addendum: A nice point is made elsewhere: It seems from Kautilya’s Arthasastra that law.). no one was superior or inferior. So. judicial system and its implementation played a very important role in order to protect the rights of others. The idea of a ‘caste system’ as a hereditary aspect that lasts through generations is not expressly identified within the original religious texts. The caste system was an idea that was taken out of the religious context. and talked about occupational expertise and division of labour. Concern for the common good enhances human rights by teaching those virtues that include respect for the human dignity of each and every person. all were considered as equal ‘like the spokes of a wheel of the chariot connecting its rim and the hub’ A deeper meaning of equality is found within the Hindu religion. Had the original law makers realised what was going to happen 1000 years later. This is a clear example of how the concept of human rights can be interpreted within the context of human duties. instead (both of which underpin the caste system.6 [Source7] 2. Its existence highlights a key design failure of the Hindu law givers (they did not realise the huge moral hazard that lies within such systems). The idea of rights is not totally redundant within Hindu thought. by Dipti Patel 30 . ‘I am a reciter of hymns. therefore. who extracts taxes and simply robs them of their wealth. by recognizing duties towards them. ALSO: Indian tradition tries to secure rights of those who are not even aware of their rights.’ There is a right (adhikara) to rebel against a king if he does not fulfil his duty to protect the people. all human beings should be treated as such.6 Equality The original design of the non-hereditary caset system was not as pernicious as it turned out to be. the equality of all human souls.’ This means that one can be whatever he desires and is not restricted by his ‘caste’ as understood by many. This embraces the idea of harmony and fraternity among all human beings. my father is a physician. and my mother grinds corn with stones. the souls in every human being is the same.

I'm more interested in recovering India's super-power status and setting the world order right. and in some cases at least I have changed my position from which I started writing the manuscript. with the underlying culture being so science-friendly. as you might have gathered by now. Till then Indians are stuck in the second gear. A good example is my revised view on Hinduism and critical thinking. but not Hinduism. It is shameful that Indians have to live outside India because India can't make any use of its people.2.2. Moreover I'm getting sick of the underbelly of soft racism in Australia. underpins my claim that India is tailor-made for modernity. there is no reason why India should not become five times the size of USA in just a few decades. Till recently I had the view that Buddhism was particularly favourable to critical thinking. that has changed. but I'm unable to devote much energy (beyond working hours) to helping fix Australia's problems. Even Hinduism is. 15 September 2012 31 . I have relatively little to contribute to Australia. at least in comparison to what I can contribute to India. Therefore an analysis of Hindu capitalism would begin with the social contract and role of the state. It is high time we organise systematically and sort out matters so that India can rapidly recover its lost glory. was first articulated in human history in the Mahabharata. Hundreds of thousands of India's best brains working for the benefit of Western societies. However. Definitely not as strongly as Buddhism supports reason. I now find. What shame! EXTRACT Hindu capitalism Draft. I have increasingly felt the urge to return to India – should circumstances permit. then the role of individual. This change in perspective. Since India is tailor-made for modernity. Indeed. WHAT AM I DOING HERE IN AUSTRALIA? I ask myself this question more and more. let us get the world's best education system organised. as I think about what I could be doing with the rest of my productive years. As a result it performs well below its potential. I’ve dealt with that elsewhere. but close enough. Australia is not the meritocracy I had initially thought it was. the way it should be. Those who have been following the development of DOF over the past few years would have noticed that I'm still investigating issues. supportive of reason. and let us show the racist people of the West what India was and what it will be. and thereafter consider other institutions. Let us get the world's best policies implemented. Only after achieving OVERWHELMING domination over the West will racism finally be buried.7 Reason The most important capitalist concept – of the social contract for the defence of individual liberty – which underpins the modern capitalist state.

which is derived from reason (or inferences). A few perspectives from the Hindu scriptures seem to indicate the reluctance in Hinduism to allow people to think for themselves. Thereafter. found within us). an option not usually available to other religions. Knowledge is seen ‘as an exclusively divine activity’[1]. This gave it leeway to critique earlier customs. Section CLXII) similarly decries reason: ‘That knowledge.’[4] The Brahman is thought of in the Upanishads as the ‘hidden Self in everyone’. Such knowledge should be rejected. was underpinned by a monotheistic view. there does seem to be some scope for critical inquiry. In the Ramayana. or aspects of God. critical thinking It would appear at first glance that Hinduism. the apparent multiplicity of gods. for instance. It should be noted that it is not defined or comprehended by the word. For instance. The early Vedas were theistic and suggested that gods (or devas) are ‘a luminous something presented as external to us’. like other religions. a) Humans do not create knowledge Hindu scriptures claim to arise from a divine source. O king. can scarcely be said to be knowledge. This evolution into an extremely subtle idea appears to indicate that at least some new ‘knowledge’ could be developed within Hinduism.[2] Hinduism does appear to have benefitted by not having formalized its ‘divine’ findings into a single book. the ‘“thread” that runs through all things and holds them together. leaving little scope for creating new knowledge. all aspects of a Hindu’s life are regulated by the sastras. on the ground that ‘although pre-eminent sastras on righteous conduct are ready to hand. God is everywhere: the energy and consciousness that pervades the universe. Rama advises Bharata to steer clear of those ‘brahmans who are materialists’ (referring to the lokayatas). passed on via divine intermediaries to the human authors of the scriptures.Hinduism – its approach to independent. therefore. According to the Vedanta. It should. sees God not just as transcendental (something beyond us) but as an immanent principle (namely.’[6] The Mahabharata (Anusasana Parva. 32 .[3] (Even at that time. This perspective seems to have developed coterminously with somewhat similar Buddhist ideas (I’m not aware which came first). be rejected!’[7] These approaches seem to directly oppose reason and critical thinking. Hindu conceptions about God evolved over time. thus changing a practice that was widely prescribed during the early Vedic period. However. acted as a bulwark against reason.) This perspective was revised by the Upanishads with what is called the Vedantic view (being at the ‘ant’ or end of the Vedas). those ignorant fellows derive their ideas from reasoning alone and so propound utter nonsense.[5] This idea. though. the Mundaka Upanishad contains a major onslaught against sacrificial ceremonials. b) Reasoning can lead us seriously astray Reason has not particularly popular in Hinduism. which is almost pantheistic.

Only good can arise from Hindus believing that their religion raises the truth to the highest pedestal. M. and a rsi is to be understood as the subject. But there appears to be little scholarly agreement on its meaning. Mehendale questions such interpretations. not untruth’. Children often don’t ask questions in the classroom to clarify issues in their mind. This was not the approach in Hindu scriptures. To what extent this interpretation is true is not obvious. a part of which reads: satyam eva jayate nanrtam.[9] This over-emphasis on the perceived wisdom of the teacher has led to deep-seated subservience towards elders in India. which tended to be backward looking. but this does not seem to be correct. Therefore the teacher was given an excessively preeminent stature. that the ‘Gita is really about Freedom but based on true knowledge of your own interests and a rational means to see what the interests of others are and how you can work productively with them rather than live in fear of them’[8]. The phrase has been variously translated as: ‘Truth alone conquers.[11] It is therefore very likely that the common meaning attributed to this pharse is incorrect. ‘Truth alone conquers. but from Close association with a realized teacher.Interpreters of the Mahabharata argue. and to pass on information known to his generation. The phrse originated in a mantra in the Mundaka Upanisad (3. not the unreal. with the onset of modern science. For instnce. not the untrue’. This is fortunately changing. Satyameva jayate But the story in Hinduism is more complex than what appears on the surface. not falsehood’. the Brahman).A. 15 September 2012 33 . satyameva jayate is often cited. Also.[10] or (the more widely used) ‘Truth Alone Triumphs’. the phrase. however.e.6) of the Atharva Veda.1. As evidence. ‘The true prevails. c) Excessive veneration of teachers The scientific method gives a prominent place to the teacher. Taken this way. whose role is to teach us how to think. Hindu capitalism Draft. in some parts. a phrase which is India’s national motto and finds place in the national emblem. of course. noting: In the above interpretation satyam and anrtam are taken to be the subjects. teachers like Swami Suddhananda and Dayananda have promoted the idea that children should question the teacher. I am happy. the sentence would mean “A sage obtains only the Real (i. But the goal is to exceed our teacher and to find new things by using our own mind.. commend the truth. …This interpretation will be found to be in harmony with the spirit of the Upanisads in general and that of the Mundaka in particular. in the Kathopanishad (2:9) Yama tells Nachiketa: This awakening you have known comes not Through logic and scholarship. The Upanishads do appear to. Both satyam and anrtam have to be regarded as the objects. for this possible error to continue.

These are Swami Dayanand Saraswati.C. Thus. Swami Vivekananda. unworthy superstition. and I am also of opinion that the sooner it is done the better. A dauntless champion of the individual in the quest for eternal truth. to be applied to the science of Religion? In my opinion this must be so. which we apply to sciences and knowledge outside. Mandendru wrote: When reason had sunk deep and given place to prejudices and superstitions. it was then all the time useless. a scientific text written in the third century BC assert that ‘[o]f all types of evidence. If a religion is destroyed by such investigations.[14] This would indicate that there was a significant focus on rationalism in Vedic Hinduism that later reformers attempted to revive. Maharishi assigned unto himself the most important task to snap asunder these fetters and inaugurate an era of liberty of thought and freedom of action. based upon truth both in thought and action. The ‘DAV system of education was a synthesis of ancient Vedic lore and culture and western scientific outlook. including the use of zero – the system that has transformed all fields of human knowledge. Dayanand Saraswati The work of Swami Dayanand Saraswati is perhaps best evaluated through the impact he has had on the educational landscape of India. K. the Carakasamhita. Gandhi. It was to be a bridge between the wisdom of India and of the west’[13]. the most dependable is that [which is] directly observed. I now cite four representatives of Hinduism to further explore critical thinking in Hindu thought. I am thoroughly convinced that its destruction would be the best thing that could happen.’ It goes on to proclaim that ‘[t]he wise understand that their best teacher is the very world around them. he said.Some later developments in Hinduism explicitly opened the door to critical thinking.[15] Indeed. Maharishi Dayanand laid emphatic stress on man’s self renovation and for this he taught him to adopt a rational outlook. when ignorance and orthodoxy studded human existence and chained the nation to inaction. he refused to submit to the authoritarian &t orthodox dictates of the then social and moral monopolists in the arena of religion and conscience. he wanted the methods of reason to be applied to religion as well: ‘Are the same methods of investigation. ‘You must exercise your own reason and judgment’.’[16] Gandhi 34 .’[12] As evidence of the growth of critical thinking in India. and Swami Suddhananda. one can cite the discovery by Hindu mathematicians in around 500 AD of the decimal number system. and purity of conduct and behaviour. Vivekananda Swami Vivekananda was a firm advocate of reason: ‘It is wrong to believe blindly’. In addition. Writing about Dayanand’s work. through the Dayanand Anglo Vedic (DAV) institutions. and the sooner it goes the better. An arch crusader.

82.[20] And he wrote: ‘the boast about the wonderful discoveries and the marvellous inventions of science. 1932 [1976]. Sheldon. Swami Suddhananda. an empty boast. Jonardon.7. Also verified with Ganeri.48. I am inclined now to argue that (a) there is no strong opposition in practice to the use of reason in Hinduism.515. . My machinery must be of the most elementary type which I can put in the homes of the millions. M. Vol. promoted freedom of thought as well: ‘I am not interested in freeing India merely from the English yoke. M. No.’[19] That displays both a level of paternalism and resistance to the exploitation of the best instruments that science has to offer. Hindu capitalism Draft.’[23] On evaluating the wide array of evidence presented above. 1932 [1976]. It is the achievement of men who have put to use their thought power. Outlines of Indian Philosophy. 105.. your own experience is the best teacher’[22]. ‘Hinduism leaves the individual absolutely free to do what he or she likes for the sake of self-realisation for which and which alone he or she is born’.Gandhi. I am bent upon freeing India from any yoke whatsoever… Hence for me the movement of swaraj is a movement of self purification’[17] [emphasis mine]. (b) there might be some underlying positive support of human thinking in the Vedic or the Vedantic tradition. Suddhandanda Another advocate of the Vedanta.[21] This shows both ignorance and cynicism about technology. p. ‘is a technical term for production by the fewest possible number through the aid of highly complicated machinery. I have said to myself that that is wrong. According to him. argue that this conception applies only to ‘self-realisation’. – Sep.. Gandhi seems to have combined what he saw as the Hindu focus on self-realisation with some elements of Western liberalism (from Henry David Thoreau). is. Outlines of Indian Philosophy. They offer nothing substantial to the struggling humanity. the advocate of individual liberty. [3] Hiriyanna. Bombay:George Allen and Unwin (India) Ltd. and on balance of probabilities. good as they undoubtedly are in themselves. ‘The Theory of Practice and the Practice of Theory in Indian Intellectual History’. (Jul. believes that people must find the truth about the teaching of Advaita themselves: ‘Ultimately. [2] Hiriyanna. 15 September 2012 35 . Gandhi opposed modern medicine or allopathy. [1] Pollock. p. in Journal of the American Oriental Society. London: Routledge p.. he said. p. Philosophy in Classical India: The Proper Work of Reason..[18] One may. He praises science: ‘These wonders of science have not been discovered by a man sitting in the darkness of a cave. after all. 1985). calling it a ‘false science’.. But Gandhi did not connect the dots between science and technology: ‘mass production’. and indeed. or course. given the reformers of Hinduism insist that such is the flavour of the original system of Hindu thought. 3. Bombay:George Allen and Unwin (India) Ltd.

net/subru/Vedanta. 1978. Volume 1.C. Vol. 36 .info/vivekananda/volume_1/r aja-yoga/raja-yoga_contents. 105. p.cableone. Swami. in Journal of the American Oriental Society. p. M. ‘Satyam Eva Jayate Nāntram’. p. "MAHARISHI DAYANAND —The Great PathMaker". – Dec. 1961). [http://www. p. . .html#anchor71261] [10] All citations from Mehendale.510.. [http://myweb.info/vivekananda/volume_1/l ectures_and_discourses/reason_and_religion.htm) [16] Complete Works of Swami Vivekananda.82. [14] K. Raja-Yoga. New York..hinduism. [11] Mehendale.212. 1985). 405. 3.htm) [17] In The Essential Gandhi. p. [13] K..org/cwmg/VOL054. M. MAHENDRU. 1978. p.cableone.PDF [20] Collected works of Gandhi. 1985). M. Vol. 4. A.html#anchor71261] [6] Pollock. [5] Kathopanishad (3:12) Eknath Easwaran Translation. – Sep. A. Sheldon. p.ramakrishnavivekananda.C. Edited by Louis Fisher.PDF [22] Suddhananda.. [12] Pollock.209. 81 (4): 405-408. 95 [21] Collected works of Gandhi. New York. Self Knowledge: A Path to the Pathless. http://www...[4] Hiriyanna. [http://myweb. Vol.. – Sep.gandhiserve. (Sep.org/cwmg/VOL003. 3rd edition. http://www. Introductory (http://www. 1932 [1976]. Vol.za/direct_perception. Diamond Jubilee souvenir of the DAV College Jullundur. No. Sheldon. [9] Eknath Easwaran Translation. (http://www. 105. Vintage Books. No. ‘The Theory of Practice and the Practice of Theory in Indian Intellectual History’. Chennai: Suddhananda Foundation for Self Knowledge. Volume 1. MAHENDRU. [19] Collected works of Gandhi.157 Vol. (Jul. p.ramakrishnavivekananda.co. (Jul. p. 1961. Diamond Jubilee souvenir of the DAV College Jullundur. Reason and Religion. ‘The Theory of Practice and the Practice of Theory in Indian Intellectual History’. [15] Complete Works of Swami Vivekananda. ‘Satyam Eva Jayate Nānrtam’.net/subru/Vedanta. 2006. Edited by Louis Fisher. 1962. No.32. [7]Translated by Sri Kisari Mohan Ganguli. p. "MAHARISHI DAYANAND —The Great PathMaker". Vol. 191 [18] In The Essential Gandhi. Outlines of Indian Philosophy.gandhiserve. in Journal of the American Oriental Society. 54.20. Vintage Books. 53. Journal of the American Oriental Society. Bombay:George Allen and Unwin (India) Ltd. 1962. 81. Journal of the American Oriental Society.htm] [8] Vivek Iyer in an email to me dated 4 September 2010. 3.510.

15. Swami. though: that he would have been shocked at the idea of democracy the way it is currently practiced in India.8 High quality Minsters/leaders Chanakya was a firm believer in merit. Hindu capitalism Draft. Self Knowledge: A Path to the Pathless. So does Baba Ramdev.169). the Shakespeare of political and economic philosophy: a genius in whose work we find new meaning each time we read it (I must admit I was sceptical about his work. many others. but that is not possible under the Westminster cabinet system of government. p. Anna Hazare spouts ideas today that have no grounding in the science of economics and politics.61 of Arthashastra he says: "one should not listen to the advice given by those ignorant of the science [of economics and politics]" (Rangarajan. A nation is NOT built on good intentions. His writings are designed to impart political and economic education for those who rule India.g. Nehru listened to those ENTIRELY ignorant of economics and politics (e. nor Arvind Kejriwal invested time and energy to learn these sciences. Chennai: Suddhananda Foundation for Self Knowledge. creates an even greater disconnect between governance and merit). So does Arvind Kejriwal. where elected representatives directly become Ministers. And many. Such people would be less of an issue if the "king" could appoint expert counsellors. 2006. It is self-evident that it is POPULISM that matters in democracy. It takes a HUGE amount of time for an ordinary mortal to understand the sciences of economics and politics. IF the following is in place: The solution is to develop political parties that rigorously vet the quality of their candidates before offering them to the people. This is not something intuitive! Most of it is counter-intuitive. By getting meritorious people elected. Mahalanobis). p. but on reviewing it I'm finding it more and more useful). or to those like Laski who "taught" politics but came to it from a statist/socialist perspective. In chapter 1.[23] Suddhananda. nor Anna Hazare. He is comprehensive and detailed.66. Yet they are the kind of people thrown up by democracy. wisdom and expertise of its leaders. though. It is built on the knowledge. 15 September 2012 37 . Chanakya would have been shocked to see the lack of policy expertise among people who lead India. not merit (and proportional representation – which gives populism even greater weight.2. One thing seems to me to be clear. we can meet the demands of "representation" even as we manage to get leaders who understand the sciences of economics and politics. I'm still willing to support the Westminster system. The presidential form would perhaps be better in that sense. 3rd edition. These "good" people are SURE to take India to disaster. 2. Neither Nehru.

each of India's representatives should be at least as brilliant as Chanakya.5 (Garde).2 (Garde) . That should be FTI's goal.9 Exhortation to be rich Chanakya exhorts India to be wealthy and work hard to achieve goals. These are four sutras (equivalent to 3. 7.4. FTI will offer candidates (when we find them!) who have highly developed intuitions in economics and politics. It was in this light that I proposed FTI.Westminster can work. 2. 2) To be strong you must exert yourself to achieve the goal 3) The lazy can’t even protect what they have achieved 4) Desiring artha (wealth/ resources) is not a vice! There are many. But that's a plan for the distant future. 4. Ideally I'd like each FTI member to pass an oral exam of at least three hours on fundamental policy issues (the examination board would comprise carefully selected policy experts). 38 . which is essentially a process of vetting candidates. but ONLY if political parties become guarantors of quality. FTI will be able to establish more stringent quality control. As the number of good (and in my view "good" goes well beyond moral integrity) people willing to lead India increases. In my view. many more sutras and verses by Chanakya that motivate people to SUCCEED in this real world.3 (Garde).2.11 (Garde)) 1) Protecting/improving your project leads to accomplishment of goals.

As part of my studies on Hindu Capitalism. Google docs claims to do so but it doesn't really work. I find that although I can't fully understand the meaning of Sanskrit texts without assistance. if you know about this issue. That was perhaps an optimal grammar for verbal transmission. That requires Devanagri text that can be "cut and paste" from OCR'd PDF. Of four key human endeavours (purusharthas). ARTHA (resources/wealth to support a good life). 15 September 2012 39 . I've struggled to find any OCR software that converts Sanskrit PDF files into "cut-and-paste" ready text. He links prosperity (and security – which is is his second key contribution) very strongly with Dharma through an incessant emphasis on integrity. I'm first compiling key original Sanskrit texts with the intention of double-checking references. how important it is for kings to remove all obstacles to prosperity. such as paying Ministers well. DHARMA (justice. which is such a pain. how important it is to grow money.g. Here's where you can help me. Even the last (MOKSHA) is largely this-worldly. Nuance Omnipage doesn't have it. Hindu capitalism Draft. The last of these has proved fertile source material for a number of modern management books (e. (Btw. not "other-worldly". (He offers solutions to corruption. just behaviour).3. Anyway. Knowledge about this world Chanakya wrote three books: Arthashastra.) My goal is to cut and paste original Sanskrit into Hindu Capitalism.9: What does this say? It says: "Equip yourself fully with worldly knowledge". at least based on interpretations by many Advaita philosophers (who don't see any distinction between this or that world). is super-dense. ABBYY doesn't have it. Chankya Niti and Chanakya Sutras. Sanskrit. like short-hand. these aren't very hard to read since the roots words in Sanskrit and Hindi are the same. In Chanakya's work there are numerous references to how money should be made. Ashok Garde's). Every language seems have OCR facility except for Indian languages! If you know of any software that OCRs Devanagri script please let me know. 75 per cent (three out of four) are PURELY this-worldly. let me start my academic study of Chanakya with Chanakya Sutra 1. That is a roadblock since without this feature I need to insert image file into the book. The fact that Hinduism is PREDOMINANTLY THIS-WORLDLY must form the foundation of all understanding of Hindu Capitalism. MOST of Hinduism is "this-worldly". That's a lot of "this-worldliness" for a religion apparently steeped in "other-worldly" pursuits. that are consistent with BFN). and KAMA (enjoyment of life) are ENTIRELY this worldly.

Without a strong material foundation. let's all just note that Hindu/ Indian thought is PREDOMINANTLY material. For now.But I'll come to these issues later. 40 . capitalism can't exist. It is clear that Hindu society has such a foundation. A society must demonstrate a commitment to live well. not to poverty.

142-144) “A king should protect his subjects just as a pregnant women nurtures the foetus in her womb. That (monarch) whose subjects are carried off by robbers (Dasyu) from his kingdom. The minimal state 4. while they loudly call (for help). “Just as a father helps his son rise over a crisis. so long as you continue to reconcile with them (the enemies of the Kauravas) they will continue to rule your kingdom. vanquisher of enemies. It is not easy. and protecting the nation are the five sacrificial fires (yajnas) or spiritual duties of a king.5. then one should never let him go. and this should be done in secret. will not acquire wealth and his subjects too will remain insecure. as a pregnant woman sacrifices her own interests for the sake of the child in her womb.12.45) “Punishing evildoers.29) “He should amass troops. deciding the cases of petitioners.8) “If one finds an enemy who deserves to be killed.for the king who enjoys the rewards is bound to (discharge that) duty.38. A king can never protect his kingdom by candor and by simplicity. 15 September 2012 41 .4. Police. he shall zealously and carefullyprotect his subjects. enriching the treasury lawfully. is a dead and not a living (king).” (Mb.15) Sri Krishna to Yudhisthira explains: “O Dharmaraja.” “A king who does not annihilate his enemy will not gain fame on this earth.56.” (Mb.1 Defence. so also a king should deliver his subjects from difficulties. Justice Mahabharata “Having thus arranged all the affairs (of) his (government).” (Mb. A king Hindu capitalism Draft. The highest duty of a Kshtriya is to protect his subjects.73.44) In this way.1 Key functions 4. To secure the happiness of his people he should use diverse methods. so also a king should be able to give up his own interests to address the needs of the citizens.” (Mb.” (Atrismruti 28) “The very core of a king’s duty is the protection of his subjects and their happiness.12.17.15.1.” (Bhagavata Purana 11. Even Indra was accorded the status of Mahendra after he slew the demon Vritrasua. honoring the righteous.5. (Manu-samhita 8. and he and his servants are quietly looking on.

then people disobey him. Customary law was as despotic.39. Vol. The Past and Prejudice. 4. Inscriptions dating to the period after the sixth century A.42.” “If a king is too gentle. The chief reason for choosing this regime is that it left.D. Patel Memorial Lectures. p. Ludwik. Samozvancev’. Vol. And if he is authoritarian they fear him. such as discussions on the valid proofs of possession and ownership of property. by the village community. M. [1] Sternbach.. and alienation was difficult if not impossible. increase. 27. inheritance. However. Romila. No. Romila. [2] Thapara. These too could have been used. ‘Review of Theory of Property in Ancient India by A. as the king.12. frequently refer to purchase of land and the transfer of property. p. Hence. Comparative Studies in Society and History . and donation. 1981).” (Mb. 4.should be both candid and crooked. [3] Thapara. Private Property in Asia? The Case of Medieval South India.140. by Dharma Kumar. New Delhi: Publications Division. p. New Delhi: Publications Division. (Oct. in copper plate and stone inscriptions. So let me provide two views from the literature (only extracts). Patel Memorial Lectures. She added that ‘[i]n the post-Gupta period references to the sale of land to individuals. pp. Another line of argument was that individual rights were unknown: the land was held communally.[1] Romila Thapar tells us that ‘Private ownership of land emerged [in India] in areas where the village economy had been established’[2].. 487. its purchase and sale. a large number of 42 . to pass on records aobut property ownership of significant lands and territory. In particular. 101. at times. [In this article] one particular medieval regime—the Cholas of Tanjore—is taken up. in Journal of the American Oriental Society. 340-366 Marx’s well-known assertion that the basic form of all phenomena in the East was the absence of private property in land is part of an old tradition of Western thought. thus: PROPERTY RIGHTS IN HINDUISM The Dharmasastras and Kautilya’s Arthasastra have many references to property. there is the huge debate in the literature about women’s property rights. All these things should be concealed behind a candid and open exterior. He must employ crookedness and wrong acts when he wants to subdue the enemy. in its way. there is much more to think about.’[3] Ancient genealogical records in India are amazing (a visit to a panda in Haridwar is eye-opening!).2 Enforcement of property rights In DOF. mostly on temple walls. – Dec. 1973. 1985). No. 2 (Apr.1. 1973. depending on the situation he should be authoritarian or gentle. The Past and Prejudice. I discussed property rights in Hinduism.

or social authority. sometimes supervised by village assemblies. or village or higher level assembly—the land would generally be given to the temple free of those taxes.records describing actual transactions in land. spices. since they often. from the king to the village assembly. silver. the caste of cultivators. The managers could hire labour and Hindu capitalism Draft. it would not be free of taxes unless the ruler’s permission had been obtained. From the king or queen to the dancing girl or beggar. and perhaps the Chola kings themselves. where his power was weak. but there is no reason to believe that it was untypical. Therefore. with the probable exception of the untouchable castes. free of land revenue or at specially low rates. though not invariably. The settled land was owned by all kinds of people. fame. who might pay low rates for an initial period. Temples as Major Landholders It is not inconceivable that a larger part of the social product went to the temple than to the king. Hindus gave land. this essay should have a fairly general application. In essence. and gold lavishly to the temples in order to acquire religious merit. or allocated to peasants. All that is clear is that there was a large number of taxes. The southern landscape is dotted with temples. but not always so. the Brahmins. For instance. or. and precious stones. We do know that there were well-organised merchant communities engaging in internal and external trade in grain. from small village temples to the great wealthy temples of the centres of pilgrimage. Unsettled land could be disposed of by the ruler. This partly depended upon the identity of the donor and the status of the donated land. but the three main landholding groups were the temples. 15 September 2012 43 . and copper coins were current. it might be useful to discuss the first two groups. and the Vellalas. whoever had the highest authority—it was either presented as a gift to temples and Brahmins. held land on special terms. Before describing the forms of land tenure. alternatively. from chieftains and merchants to weavers and dancing girls. horses. livestock. The affairs of a temple were run by temple managers. and that they were levied by various authorities. THE CHOLA REGIME—CIRCA 850– 1280 The Cholas ruled from circa 850 to 1280 in southeast India. the Chola period was one of relative stability. and taxes were collected in cash as well as in kind. Temple lands were generally tax free. Gold. as well as elephants. the donor might also donate a capital sum to pay for the taxes. Little is known about the rates of land revenue or at what levels of government it was collected and spent. and cloth. It will be argued below that this political system did in fact give protection to private rights. so that private lands did have economic value. If a private individual gave the land. a chieftain. if the donor was an authority entitled to revenues from taxes—a king. but even so some of the leading historians of South India would probably argue that in this period also legal rights were too imprecise and uncertain to merit analysis.

The reason for these stipulations is clear: certain functions could be carried out only by Brahmins. to its superiority over rival deities). as in the case of the temples. Current expenses included payments of taxes. storing grain and other commodities. astrologers. Lands Held by Brahmins Piety also took the form of granting land to Brahmins. connected either with the maintenance of the land (e.. new shrines could be built. teachers. to individuals or assemblies. In addition. In addition. there was a variety of tax arrangements. The inscriptions reflect the great variety of transactions that temple managers undertook. Probably every great temple would have one or more settlements of Brahmins nearby to manage its affairs and conduct its rituals. presumably in payment for past or future services.organise the cultivation themselves but apparently the lands were more commonly leased out. The lands could be free of certain taxes but not of others. and so on. was caste exclusiveness. Managers could raise money by soliciting gifts. were given land at especially low rates of land revenue. as when a donor had specified that certain special rituals should be performed. and they exchanged lands with other temples. applicable to lands in Brahmin villages rather than to holdings by Brahmins in peasant villages. maintenance of charities. or even only to Brahmins belonging to a particular philosophical school. rituals and festivals. or individuals. particularly of Brahmins known for their learning or holiness. They. One shouldn’t 44 . maintenance of buildings (the sale of land to pay for temple repairs is often mentioned in the inscriptions). These beneficial grants of land were frequently subject to special conditions. But the maintenance of Brahmins was also an end in itself. so it is possible that settlements of Brahmins existed prior to the building of the temple—though every Brahmin village probably would have at least one temple. especially in the large temples. but they must also have devoted much attention to the prudent management of temple assets. [Sanjeev: this condition probably added to the incentive for a Brahmin to train his children to become Brahmins. village assemblies. Another reason. Managers had to choose among alternative forms of investment: hoarding bullion or jewels. the majority having been created in the Pallava and especially the Chola periods. the majority of Brahmins lived in non-Brahmin villages. Temples also made gifts of land to individuals. too. village accountants. as priests. idols decked in more jewels. frequently there were restrictions on alienation. all to the greater glory of the temple deity (and perhaps. Temple managers needed income in cash and kind for a variety of purposes. such as that the land could be transferred only to other Brahmins. Brahmin villages were relatively recent in South India. and.g. the temple could increase the value of its lands by irrigation. But there was no limit in theory to the expenditure of a temple—rituals could be grander. especially since landownership might carry with it membership in the village assembly. or buying land or the right to collect taxes. that it should be irrigated properly) or with Brahminical functions and behaviour. Temples sold lands given to them to other temples. However. and so on. loaning out money. Some of these costs were obligatory.

to receive income. and without qualification it generally meant hereditary property rights in land. they either leased the lands out. These rights were bought and sold by private parties. generally a hereditary right. In conjunction. the rulers may also have assigned groups of agricultural labourers to them to clear and develop the lands. but if of the higher cultivating castes. who can consequently be considered as being landowners. gift. mortgage it. regardless of the original tax status of the land. to use (cultivate). hired labour. but the rights of sale. Rights conveyed vary. that there were native legal categories conveying rights generally regarded as the core rights of private ownership: the rights to possess. These private landowners. Private landowners as well as temples held title deeds. and enjoyment are generally included. There is ample evidence that they did in fact lease out. In fact it is not mistranslation that is the problem so much as the ambiguity of the term ownership in English itself (as the enormous literature on the term in philosophy. If the labourers were of low caste. It is surely significant. nilam. It is significant that the inscriptions often specify the rights included in kani. they were occasionally. economics. Brahmins generally did not plough the lands themselves. mortgage. When Brahmin villages were founded in virgin lands. law. however. could cultivate the land themselves or lease it out. given these material (and genetic) pressures. to repeat. These are the rights generally stressed by economists. the evidence on sales is examined in a later section. in the case of the Brahmins. but not much more. as many Hindu capitalism Draft. at the risk of misrepresentation involved in any translation. less frequently. or sell it (with restrictions described later). PROPERTY RIGHTS ON NONBENEFICIAL TENURES A large part of the land during the Chola period was subject to the payment of full land revenue. and history shows) and our insufficient knowledge of property rights in medieval South India. allowed to pay at lower rates of revenue. The sales mentioned in the inscriptions occasionally use the Tamil word for land. and to the benefit of capital (including the right to sell). they may have become serfs. but not as a rule.] Apart from these specially given lands. and when they sold their land they transferred all their rights in it. though jurists naturally have more exhaustive definitions. Some inscriptions state that the eight rights (ashtabhoga) of classical Hindu law are included. while it was generally the land that was made tax free or not (with stipulations as regards the kind of person who could occupy it).wonder.] it is our contention that those persons liable to the payment of land revenue had extensive property rights and that the term landowner could be applied to them. kani meant a right. may have acquired occupancy rights in time. In other words. 15 September 2012 45 . and sell their lands. Brahmins held other lands on the same terms and conditions as other castes. though even there they may occasionally have paid taxes at lower rates. others specify the rights. but more frequently the word kani. [Sanjeev: this implies comprehensive land settlement and record keeping. why caste became hereditary. or.

references in the inscriptions show. except perhaps in newly conquered lands. the term kudi could be applied to him. Honore calls this condition ‘split ownership’. determined partly by the institutional statuses of the two parties. Another inscription records that an assembly had to give a temple new lands because documents showed that those it first gave belonged to another temple. the members of the 46 . as in many modern states. the inscriptions often state that the original documents were deposited in the temple. On the one hand. the modern joint-stock company is itself an example of split ownership. . i. Implied in the relinquishing of those rights is a way of organizing the relative influence of each member of the collective thus created: a voting rule. but the simple contrast between the efficiency of individual private rights and the inefficiency of collective rights is increasingly suspect. a) The Village Community and Communal Landholding Carl Dahlman has compared the English open field village to a firm: We may. but the medieval taxpayer may well have been given a much longer rope. but when the owner cultivated the land himself. as well as by purely economic factors. The term kudi is translated as ‘cultivator’ or ‘occupant’. on what grounds could he be evicted? He could be evicted for tax arrears. and a way to share the proceeds. Some such cases are reported in the inscriptions. [lin a very similar way to the firm. The inscriptions often state whether or not the grantee may evict the occupants-kudinikki—or not—kudikudi-ninga. but there is no evidence that the incidence of these types of confiscation was extensive. Moreover. To give one example. The inscriptions contain other terms whose meanings we still do not know. as distinct from a landlord. How secure were the landowner’s rights against the state? In particular. look at the open field village as a firm. earlier forms of split ownership may also have been economically efficient in the circumstances of the time. when it was found after a man’s death that his title deed had been lost. on the other. if we wish. Land was confiscated for treason and for heinous crimes. Again. Split ownership is often an element in explanations of the failure of nonWestern societies to achieve modern economic growth. a profit sharing rule.’’ HOW CONSTRICTED WAS THE INDIVIDUAL? It has been argued. such as the type of land.e. A grantee who could not evict the occupants presumably would not be able to raise the rent.. in societies like those of medieval South India it is impossible to identify a single owner of the land since the rights are divided amongst a large number of people. It is a collection of decision rights created by a voluntary relinquishing of those rights by their owners. especially since tax collectors were less efficient then. but it is clear that there were various categories and conditions of tenancy. . he first had to buy the lands from their owners. when the ruler or other authority wanted to donate settled lands to temples or others. when recording the sale of land to temples. over time it came to be applied to a tenant. six of his relatives paid cash to get another.

the assembly could levy taxes on its own and spend the proceeds on village property and village affairs—irrigation. unlike the English open fields. where membership of the assembly was not confined to shareholders. It accepted joint responsibility in matters of taxation. Sometimes the assembly adopted certain rules.’ Or the assembly could appoint a representative or a committee for the actual management. and festivals. (Even in other villages. and the landholders were literally ‘shareholders’ (pangukkarar). it is possible that joint decisions were taken about. to the assembly or the headman. such as the endowment of charities. it was likely to be restricted to landowners. This description is strikingly apt for certain Chola villages in which. but the money could have been used for other common purposes too. The assembly sold the lands that were held in common.. in one village. But the inscriptions do record other forms of collective decision making. When the landowners were Brahmins who did not cultivate themselves. and the fields were generally hedged. and the like. 15 September 2012 47 . the arable land was divided into shares. seventeenth-century sale deeds show that an individual could sell either Hindu capitalism Draft. This included once-cultivated land. the ‘great assembly [mahasabha] framed certain revised rules in regard to tenancy cultivation. the temple. it is possible that they dealt jointly with tenants or labourers. militia. the profits being divided according to the arable held by each. Moreover. given up because the family which owned it had died out or emigrated. rituals. The village could enter into contractual agreements as one body. road and bridge servicing. Even with separate cultivation. and the distribution of the burden within the village was left to the villagers themselves. the arable land in Chola villages was divided into physically distinct strips. In these villages only the share-holders would be members of the village assembly. Individual shareholders could sell their shares. However. every shareholder was not necessarily a member of the assembly—members might be elected or chosen by lot. of which the most commercially valuable were the those which could be converted into arable. the crops to be grown. Lands in such villages were sold both by the village assembly and by individual shareholders. significantly enough. as well as a share in all the perquisites and responsibilities that went with it. i. as for example in the renting of certain lands. for instance. Moreover. and the buyer acquired not only the arable but membership in the assembly. One reason for land sales was the need for money to meet tax arrears.open field village were able to assume corporate responsibility and act as a juridical person. important village functionaries. and so on. The land revenue was frequently assessed as a lump sum on the village as a whole.e. It seems unlikely that different families ever cultivated jointly their undivided lands with common livestock and agricultural implements. although this point has not been explicitly discussed in the literature. as they are today.) It was extremely useful to be a member of the assembly because that body had important administrative and judicial functions and powers. However. As a body it could bind itself to fulfil obligations and to incur financial liabilities. criminal liability.

the whole or only a part of his share, including a corresponding fraction of
the perquisites, etcetera, and this was probably the case earlier too. There
may have been rules that restricted sales, for instance, by giving preemption rights to certain groups, such as other landholders or kinsmen. In
Brahmin villages attempts were made to prevent non-Brahmins from
acquiring shares, but the mixed caste composition of originally Brahmin
villages shows that these restrictions were not entirely successful. And in
any case, whatever the restrictions, it is surely significant that
membership in the group was acquired not solely by birth or kinship but
also by purchase.
b) Family and Individual Rights
The classical Hindu law deals copiously with the distribution of property
rights within the family. Inheritance of property is governed by two
different systems—the Dayabhaga in Bengal, whereby sons inherit only at
the death of their father, and the Mitakshara in the rest of India, whereby
sons receive a right to the ancestral property at birth. In the Mitakshara
system, ownership belongs to the coparcenary, i.e., to all males
descended lineally from a common male ancester, up to four generations.
Thus, while the family is undivided, the size of the share of each
coparcenor fluctuates, since it can be enlarged by deaths and diminished
by births. Possession and enjoyment of family property are joint. The
affairs of the family may be managed by the father or other senior
member. No coparcenor (except the manager or the father) can alienate
his undivided interest without the consent of the other coparcenors. The
manager or father, however, can do so under special circumstances—in
times of distress, for family maintenance, or for religious purposes. The
father can also make gifts even of immovable property, within reasonable
limits. Each coparcenor has the right to enforce a partition, but this right
took a long time to establish. Classical Hindu texts are not codes of law in
the European sense, but rather a combination of discussions of judicial
norms and descriptions of customary law.
There are some reasons for supposing that this legal structure might
indeed have applied to the Cholas. While the law books naturally describe
the structure of rights in the largest possible family, the normal family in
medieval India was very probably much smaller. The small average size of
the family and the frequent variations in the size of each family are strong
reasons to expect changes in family holdings—and when land is not freely
available, these must take the form of sales and purchases.
Women, for instance, owned property, movable and immovable, as is clear
from numerous inscriptions that record gifts to temples and other charities
made by women of all conditions, from queens to dancing girls and
servants. Some property may have been given to daughters when they
married. But some property could be acquired by inheritance—a Chola
stone inscription records that a widow gave land that had belonged to her
husband and her brother, and which had become her property after their
deaths.
When a man died without male issue, his widow and the ruler were rival
claimants to his estate. If he died owing revenue, his lands were sold by
the ruler or by the village assembly, which had to pay the revenue. Thus a

48

thirteenth-century Chola inscription records that an inhabitant of a
Brahmin village left it and died elsewhere, with ten years of ‘rent’ (i.e.,
land revenue) remaining in arrears. He had no heir, so the assembly sold
his land to pay the taxes. But in one case, the wife and son (the son
presumably being too young to cultivate the land and pay the arrears)
pleaded that they needed support, so part of the land was given to the
temple for their maintenance.
Chola king Rajadhiraja II decreed in his fourteenth year (circa 1 160) that a
married woman, even though childless, should inherit from her husband
his lands, slaves, cattle, jewels, and other valuables.
There is even a hint of something like a will, though for a later period. A
Vijayanagar inscription records that a certain Vikramasola Muthurayan
made an assignment of one fifth of his estate to the temple, stipulating
that in the absence of any male issue, the remaining four fifths should also
belong to the temple.
UNCERTAINTY OF LEGAL RIGHTS: THE DANGERS OF A PRIORI REASONING
Father Bouchet found that the eighteenth-century process of dispute
settlement was cheap and efficient: disputes were settled by the village
headman, with the aid of three or four arbitrators. Presumably, the vast
majority of disputes over land sales in the Chola period, too, were settled
within the village, and were not recorded. It was generally only when
higher authorities were called in that the dispute might reach an
inscription, or when the normal processes of dispute settlement—
generally arbitration or an attempt to reach a consensus—failed.
This kind of a priori reasoning is admittedly unsatisfactory, but there is
little help in the inscriptions. As might be expected, the disputes which
figure in them usually concern the temple on one side and local
assemblies or individuals on the other. Often a king’s officer arbitrated,
fining the guilty party. There are certainly references to illegal occupation
and to the inability to obtain legal redress.
However, one cannot conclude that these dramatic but scattered
instances were either normal or so frequent as to make titles to land
worthless. The truth is that we know next to nothing about the efficiency
of judicial procedures in medieval South India, and hence evenless about
their effect on property rights.
SALES OF LAND: TYPES, PURPOSES, AND NUMBERS
Noboru Karashima points out that in the early Chola period (849–985),
land sales to and by individuals were mostly by Brahmins in Brahmin
settlements (brahmadevas). However, by the late Chola period (11791279), many inscriptions record individual sales in peasant villages also.
Imperialistic expansion was accompanied by the distribution of booty in
the core areas; there was greatly expanded irrigation, and the growing
prosperity was accompanied by increasing economic differentiation in core
areas.
How strong is the evidence provided by the analyses of sales by
Karashima and Y. Subbarayulu? Certainly 415 sales of all types in roughly
as many years (of which several involved individuals) is not a large

Hindu capitalism
Draft, 15 September 2012

49

number. But one should note, first, that this is not the total number of
sales described in inscriptions. Not all the inscriptions have been recorded
and translated as yet nor have all the recorded Chola inscriptions been
analysed.
Nevertheless, it appears unlikely, given the frequency with which the sale
appear in the annual epigraphical series, that a very much larger number
of private sales will be found in the inscriptions. But why should one
expect them there? It was expensive to incise inscriptions, and the vast
majority of private transactions would not need to be recorded thus.
One tends to assume that there were relatively few land sales in the Chola
period, as compared not only, say, to Western Europe or England at that
time but also to South India in the British period; and this follows from the
view that the British period saw increasing monetisation, the growth of
markets, and more secure land rights. But it is not clear that rights were
less secure during the Chola period.
There is mention, however, of land bought to be developed and then
resold. Two early-thirteenth-century inscriptions describe the enterprise of
a certain Pandyadeva who bought waste land from a village assembly,
reclaimed it, and sold it four years later for ten times its original value.
Rents could yield a handsome income.
CONCLUSIONS
The king himself apparently had little or no demene lands, but was
entitled to a share of the produce from all the land in his kingdom, though
nothing can be said definitely about the rates of land tax, or what actual
collections were, or how they were distributed. The king was certainly no
Oriental Despot.
Below these institutions lay what one may call, without any claim to
precision, the private domain, and the inscriptions make references to
various categories of private rights, including those generally regarded as
the core rights of private ownership: the rights to possess, cultivate,
mortgage, sell, and bequeath.
This study has concentrated on one medieval South Indian kingdom, but
there is no reason to believe that it was unique. The inscriptional data are
perhaps not so rich for other areas, but other scholars have shown that
private property in land was found, for instance, in North India and Bengal
too.
WOMENS’ PROPERTY RIGHTS:
I haven’t examined this issue much (although it has been touched upon,
above), but this is a nice article: Turmeric Land-Women s Property Rights
in Tamil Society since Early Medieval Times, Vol – XXVII No. 17, April 25,
1992, by Kanakalatha Mukund, Review of Women’s Studies
Women’s Property Rights in Tamil Society since Early Medieval Times
Kanakalatha Mukund Contrary to the general notion that women had no
property rights in Hindu society until the enactment of the Hindu Women’s
Succession Act in 1956, we find that in ancient law and modern legal
history, women’s property rights have been accepted.

50

Even today the Indian state underspends in defence. there is a distinctive tradition of land passing from mother to daughter in a female line of descent. dumb. between most kingdom-types when it is to do with the socio-economic system (with individual exceptions such as Akbar. we can trace a long history of women owning. Most western nations now have over 40 per cent. 9 Mahabharata 4. That was a great weakness. 4. augmenting farming by developing meadows for cattle to graze.In Tamil society in particular. or how authentic this material is (his citation of the social contract is absolutely authentic). In. medicines. I have argued that there is really very little to choose. to see whether HIndu kingdoms were really more or less "minimal" than other historical kingdoms when it came to ecnomics.1. control of rodents.1. Sikh. controlling and disposing of personal property. Chandragupta Maurya (who was Jain) and Ashoka (who was Buddhist).. old. are all part of the assortment of ways meant to be overseen by the king and his government for the protection and continued development of the citizens.86. Protestant. Roman Catholic. BFN. It needed to invest more heavily in defence. and those things which destroy harvests. Professor Prabhu Guptara has suggested that: it would be interesting to compare the Hindu kingdoms with Buddhist. but it provides a good lead into the underlying concepts of Dharma. but I've extensively documented that the Hindu literature talks about a minimal state and doesn't tolerate a king raising more than 1/6th of output as tax. (Mb.3 Infrastructure Provisions of facilities such as lakes and water canals.2. Confucian. I do not intend (for reasons of time) to compare various states. etc.4 Social minimum The feeble and downtrodden. Muslim. elephants. This would be around 17 per cent of GDP. orphaned. I believe the Indian state was too small and too weak to defend itself properly. clothing.24) Mahabharata 4. diseased and distressed should be provided with food. shelter.1 The logic behind inheritance laws 4. The evidence suggests that there is scope for much more intensive research to establish the intra-cultural variations and regional patterns. Jain. till the rise of Protestantism.1. 15 September 2012 51 . In my writings. Shinto and Animist kingdoms. etc. blind. Eastern Orthodox. I'm comfortable with up to 25 per cent. distribution of seeds. widowed. but I assume this is mentioned in the Mahabharata Hindu capitalism Draft.1. while in more recent times.12. 9 Knapp hasn't cited the specific section.5 A minimal state with low taxes Chanced upon an interesting piece by Stephen Knapp. I'm not sure who he is. crippled.

This is for the maintenance of the army for their protection. 360%) thereby reducing millions of people more or less to serfdom…though many have been liberated from that due to the state not being as minimal now as historically The question is not only whether the state is minimal.... once you have examined the history as distinct from the theory. A coal trader uproots a tree and then chars it completely. tolerates or forbids… … and that might be more important than the “size” of the state? I wonder if you have seen the 1950s classic film.. The caveat being whether what is being spent is being spent properly (how much might be disappearing into bribes and kickbacks.\ * * * I would like you to consider the phenomenon of bonded labour in India being the direct result of the sort of capitalism we have historically had in India: While the state may or may not have charged only 1/6th as tax. Similarly a king should guide his subjects towards prosperity and then secure one fourth of their income from them in the form of taxes. Jewish. “A king should become a gardener. “Mother India” from the time when our film industry was... due to the fervour of independence. A king should not uproot his subjects likewise 52 . But he should guard against compassion while punishing them for their wrong behavior. Mahabharata: “The king should take a sixth of the income of his subjects. but also what (even) a minimal state sanctions. A gardener takes care of plants to obtain flowers and fruits from them. or was actually followed in practice (India is replete with examples of the distance between what is said and what is done). I agree with you on Indian defence expenditure. not a coal manufacturer.Prabhu Guptara’s response That is common knowledge. for your book to be convincing. A king’s subjects are his children. In the Jewish system. my caste (baniyas) were able to charge whatever rate of interest could be borne by the market (in living memory. there was to be no king at all precisely because of the likelihood of the king starting by demanding a slight tribute (tax) but then gradually or suddenly increasing it. still interested in social reform and not merely in escapism.. I think you have to do some "minimal" comparison.So. and even into buying stuff we don't need or is not best suited to our needs). That is what I suspect you will find was the reality in India.) theoretically or in practice required taxes LESS than 1/6th. The question is whether this was merely theory. It also occurs to me that you can't really claim that our system was "minimal" if other systems (Muslim.

thus further impoverishing farmers. As it is described: “Just as a bumble-bee sucks nectar from flowers without harming them.6.plundering their wealth totally. interest rates sky-rocketed given lack of competition inside the village and inability of a city lender to determine credit worthiness of a village labourer. and one of the means he uses for this is taxes.12.71. A key feature of Hindu law was it did not proscribe high interest rates (although it did prescribe about 15 per cent or so . so also a king should collect money from his subjects without hurting them. He should know how to milk his kingdom. One who milks a cow does not milk it dry but takes care to see that some milk is left for its calf.34. Hindu capitalism Draft.9) “Just as one who cuts off the udders of a cow with the hope of getting milk never acquires it. without hurting them. Similarly a king should levy taxes on the people carefully after considering that they will be sufficiently provided for.11) “It is said that a king who without protecting his subjects takes one sixth of their income (in the form of taxes) acquires their sins.16) Yes.was not implemented by the Indian government.opening up of competition in the capital market .5. He should behave like a tigress with her cubs while handling his subjects: she catches them with her teeth and yet never hurts them.) One of the primary functions of a ruler is to oversee and design the development of his country.” (Mb.17) “Just as a bumble-bee sucks nectar from flowers delicately without harming the plant so also a king should collect money by levying taxes on his subjects.1. but they should never be so high as to hurt the subjects.” (Mb.213.88. The solution to that . Even today. thus harrassing the subjects. does not prosper.” (Mb.” (Mb. there are few who are willing to lend to farmers.12. so also a state in which taxes are levied inappropriately. This did lead to bonded labour. Competition also probably drove down interest rates in major commercial ventures and trade.” (Mb. In the case of agriculture. He should be a leech which draws blood mildly without the victim being conscious of it.88.12. But how he collects tax must be systematic and with proper consideration of his subjects. A tigress lifts its cubs with its teeth yet does not harm them.” “Like a leech. although many years ago.5) “O king.” (Mb. He should be like a bee gathering honey from the flowers. Similarly a king should levy taxes on his subjects without causing them distress.” (Ramayana 3. 15 September 2012 53 .4) “The king should levy taxes. I've seen Mother India. a king should gently take money from the state by levying taxes.Manu). which would have been a useful feature in allocating capital in relation to risk. it is the ruler’s great folly if despite taking one sixth of the income of his subjects he does not nurture them like his children.

This is because the king gets one sixth of the merits acquired by a Brahmana following the righteous path. exertion. the courtier. and the counselors of a king?”Bhishma responded: “The legislators should be men who are modest. [Tax exemption for Brahmins!] “Most of the authors of the Smritis have stated that taxes should not be levied upon the Brahmanas (priests) who have mastered the Vedas.” (Shukraniti 4. They should belong to the higher caste. nor pride. He should always be honored by the king. The assets of such a man are self-knowledge. and be learned and affectionate to a fault as far as the king is concerned. nor joy. in life. Should the king use the royal treasury for his wife and children and to fulfill his own sensual pursuits. Vidura said: “I will tell you what a wise man should be like. 4. the ministers of war. cool and unagitated. ideals. he is calm.1. His actions are always done with the thought that they should serve both the worlds. Honest deeds delight him and he loves what is good. A man should aspire for the higher things. On the other hand.” (Vishnu Dharmasutra 3. and they should have the courage to speak what is proper.2 Public choice: making common decisions through public consultation [Insert section on democracy from DOF] 54 . nor vanity. If it is used for these purposes. Neither anger. it will prove beneficial. The state has her strong foundation only upon the proper administration of justice.2. He should never abandon the king whatever the circumstances may. Like a lake in the course of the river Ganga. self-restrained. can distract him from his purpose. The ministers for war should be those who are always by the side of the king. He is unaffected either by honors or by slights. truthful and sincere. it will bring him unhappiness and he will attain hell. A courtier should be of high lineage. Such a man is wise. They should be very brave.6 Integrity in public life “A king should be proficient in the art of choosing honest men to hold important offices. all production is conditional on borrowing working capital.” “Honest men who are absolutely trustworthy should be appointed to administer justice. his subjects and of righteousness (Dharma). if the treasury is misused. Desire does not tinge his actions. nor false modesty. He should be a man who has the king’s interests always at heart. it will prove disastrous.3-5) Yudhishthira asked: “What should be the characteristics of the legislators.26-27) 4.That's unfortunate. “The treasury of a king is meant for the protection of the army. forbearance and steadiness in virtue. Ultimately.

The answer is classical liberalism which includes appropriate regulation. More than anything else today we need realism. the emphasis in the Arthashastra is on collection of revenue. not utopia. A third type of women of pleasure.27]. carried on in state-owned establishments [2.27.37].27. particularly from its greatest (Mauryan) empire. I believe there is much that modern India can learn from its past. however. who were neither given a grant nor required to produce detailed accounts.27. for the most part. 15 September 2012 55 . PROSTITUTES AND BROTHELS Providing sexual entertainment to the public using prostitutes (ganika) was an activity not only strictly controlled by the State but also one which was. furnishings. The madam of the establishment had to render full accounts and it was the duty of the Chief Controller of Entertainers to ensure that the net income was not reduced by her extravagance [2.4. musical instruments and other tools of their trade [2. In the West. presumably to enable them to buy jewellery.27]. on the other hand. I'm not suggesting that we should follow these texts verbatim. Unfortunately.1]. mentioned in a few places.27. Victorian prudishness coupled with socialist policy has led to a rapid spread of AIDS in India. The state enabled the setting up of establishments with lump sum grants of 1000 panas to the head courtesan and 500 panas to her deputy. these could have been allowed to practice in smaller places which could not support a full-fledged state establishment. the state of Victoria in Australia legislated the Sex Work Act only in 1994). had a well-regulated prostitution system 2300 years ago. both groups had to produce extra revenue with the independents having to pay half their earnings as Hindu capitalism Draft.1].3. I'll comment on the HUGE difference between Chankya's policies and what socialist India has followed. is pumsachali.1 Prostitution I'm amazed at the advanced thinking of Kautilya.10]. the systematic regulation of prostitution (which was brushed under the carpet in the past) has occurred only very recently (for instance. had to pay a tax of one-sixth of their income [2.3 Examples of minimal regulation 4. Women who lived by their beauty (rupajivas) could. As befits a treatise on the economy of a state.27. perhaps meaning concubines [3. India. Independent prostitutes. Extracts from Arthashastra COURTESANS. In times of financial distress. entertain men as independent practitioners [2. Time permitting. I am providing below a few extracts from Rangarajan's famous translation of Arthashastra on the subject of prostitution. but there is undoubtedly much value in their spirit of innovation and freedom.13.

the madam became a very important person.4]. 2000 or 3000 panas. writing. 2. Having been given a grant by the state and having been allowed to spend a part of her earnings on personal adornment. shampooing and.27. the Chancellor and the Treasurer). If neither the daughter nor the deputy succeeded her.3.28]. It would seem that courtesans not only provided sexual pleasure but also entertained clients with singing and dancing. the establishment reverted to the state [2.10]. painting. the Arthashastra makes a clear distinction between two types of misdemeanours—showing a dislike towards a client visiting her for normal entertainment and refusing to sleep with him.000 panas—had to be paid for obtaining her release from her post [2. An interesting point is that the courtesan’s establishment could not be inherited by her son. In specifying their duties. her daughter (or sister) could take her place or she could promote her deputy and appoint a new deputy. mind-reading.20. It would appear from the above that some families specialized in the entertainment business.27. astrologer. irrespective of whether she came from a family of courtesans or not [2. retirement or release of the head of an establishment.21]. Prostitutes were obliged to attend on any client when ordered to do so. Even otherwise.27. reciting.27. the women were stationed in the rear with cooked food and drinks.2. her annual salary was fixed as 1000. A courtesan’s son. courtesans also went with them. The state not only imposed obligations on prostitutes but also protected them. the art of lovemaking [2.20. they were allotted places in the camp.3].2. mortgage or entrust her jewellery and ornaments to anyone except the madam [2.6]. was also trained as a producer of plays and dances [2. of course. be pleasant to them and not subject them to verbal or physical 56 . acting.29]. On the death. conversing. During battle. alongside the roads [10. She could aspire to become the personal attendant of the King or Queen [1.4].4. young and talented girl could be appointed as the head of an establishment.27.27. We must note that the amount was the second highest annual salary paid only to the five top officials (like the Chief of the King’s Bodyguards.21.1. The description of the training given to a couresan. encouraging the men to fight [10. who had to work as the king’s minstrel from the age of eight.27. the Arthashastra specifically states that any beautiful. a prostitute could not sell. However.47]. depending on her beauty and qualifications [2. If a courtesan was promoted to attend on the King. The establishments were located in the southern part of the fortified city [2. indicates how wide her accomplishments had to be—singing. court poet.11]. dancing.27. at state expense.27. playing on musical instruments. Only such people could afford to buy a madam off as an exclusive concubine.tax [5. if he stayed overnight [2. Once appointed.11].20.23. a very high price – 24. physician. preparing perfumes and garlands. etc.1].28]. 1000 panas was the same salary paid to the King’s personal advisers and attendants such as the charioteer. Whenever the army marched on an expedition.

27. she shall be given. The expression bandhakiposhaka (keeper of prostitutes) occurs thrice in the text. on appointment.11].injury [2. wandering minstrels. Special punishments were also prescribed for depriving a prostitute’s daughter of her virginity whether she herself consented or not.14]. writing.27. playing musical instruments (including the vina. acting.27. dancing. a grant of 1000 panas [for setting up the establishment]. [2. singers. jugglers. the flute and the mridangam). young and talented woman. using the profession of their relatives [as a cover]. The keepers were obliged to use the women to collect money in times of emergency [5.28]. THE CHIEF CONTROLLER OF ENTERTAINERS (COURTESANS.12.2 8. confining her against her will or disfiguring her [2. prostitutes and actresses in the following accomplishments: singing.27. whether a member of a courtesan’s family or not.29] Management of brothels: (iii) A beautiful. the right of the mother was recognized by making the man pay not only a fine but also a compensation to the mother of sixteen times the fee for a visit [4. if a prostitute killed a client. story-tellers. They shall be employed. A deputy shall be appointed. shall be appointed as the ‘madam’ of a brothel. BROTHELS. On the other hand. bards. delude or murder the wicked. [2. to detect. with a grant of 500 panas. rope dancers [acrobats?]. An imbalance in punishments has to be noted. she was burnt or drowned alive [2.27. mind-reading.30] Training of prostitutes and courtesans: (ii) The state shall bear the expenditure on training courtesans. Their sons shall also be trained [at state expense] to be producers of plays and dances.26].25] The wives of actors and similar entertainers shall be taught languages and the science of signs and signals.27. The penalty for killing the madam of an establishment was three times the release price and that for killing a prostitute in her establishment or her mother or daughter was only the Highest Standard Penalty [2. preparing perfumes and garlands. 15 September 2012 57 . painting. In return. stiff punishments were prescribed for anyone cheating or robbing a prostitute.3 [2. musicians.17]. sow dissension among the chiefs of an oligarchy [11. people who deal in women and women who follow a secret profession. her daughter or sister Hindu capitalism Draft. associated always with ‘young and beautiful women’.2. reciting.12]. conversing. shampooing and making love.1.34] and subvert the enemy’s army chiefs [12.22]. dancers.27. abducting her. If the madam of a brothel dies or goes away.2. PROSTITUTES AND OTHER ENTERTAINERS) RESPONSIBILITES Professions to be supervised: (i) The regulations regarding courtesans and prostitutes also apply to actors.

according to their beauty and the splendour of their make-up and ornaments.4.] Courtesans shall cleanse themselves with baths and change into fresh garments before attending on the Queen. Sons of courtesans shall work as the King’s minstrels from the age of eight. shall carry his water jug and the highest. (viii) She shall not disobey the King’s command to attend on a particular person. courtesans of the lower grade shall attend on the King when he is carried in his palanquin.7] [Reference has been made in III. Or. (vii) A prostitute shall not show dislike [and refuse service] to a client after receiving payment from him. the middle grade.20] Release and retirement: (v) The payment for obtaining the release of a courtesan [the head of an establishment] shall be 24.iv to preventing dangers to the King from Queens by ensuring that only trusted courtesans attended on them. [2. coercive methods shall 58 .6. whether she is willing or not.5.12. She shall not refuse to sleep with a client staying overnight.1-3] Court attendants: (iv) Courtesans shall be appointed to attend on the King in one of three grades. In order to add distinction. disfigure him or cause him physical injury. [from 2. 12.000 panas and for her son. on a salary of 3000 panas per month. [1.27.shall take over the establishment.27. on a salary of 2000 panas per month. [2. [2.11. Courtesans who are no longer beautiful shall be put in charge of supervising court attendants.27.9] Obligations of a prostitute: (vi) A prostitute shall not hand over her jewellery and ornaments to anyone except the madam and shall not sell or mortgage them. on a salary of 1000 panas per month. unless the client has physical defects or is ill. the middle grade when he is seated on his throne and the highest shall accompany him in his chariot.8.000 panas. When they can no longer work prostitutes under a madam in an establishment shall be given work in the pantry or kitchen.27.20.19-22] Protection of prostitutes: (ix) The proper procedure shall be used to take a virgin daughter of a prostitute. The lowest grade. the madam can [before her departure] appoint a deputy [promoting her own deputy to be the head]. shall hold the umbrella over the King. the establishment shall revert to the King [and the Chief Controller shall place it under the charge of someone else]. shall be his fan bearer. If no such arrangements are possible. She shall not abuse a client. Any one who does not work but is kept by someone shall pay 1 1/4 panas [per month?] as compensation.

ornaments or belongings nor cheat her of the payment due to her. And he would have ensured that anyone with Anna Hazare's violent tendencies would have been brought to book. Chankya was too intelligent for such low level thuggery. Chankya was not a man preached non-violence but he would NEVER have beaten anyone with an army belt. (xi) A client shall not rob a prostitute of her jewellery. 28] in V.10] (xiii) Independent prostitutes: Women who live by their beauty (rupajiva) [not in state-controlled establishments] shall pay a tax of one-sixth of their earnings.e.not be used. The Chief Controller shall keep an account of the payments and gifts received by each prostitute. LIQUOR INDUSTRY The manufacture of alcoholic liquor was predominantly a state monopoly. 15 September 2012 59 . Here's a nice PDF summary of Kautliya's society.23] Revenue: (xii) In establishments: Every prostitute shall report the persons entertained. Very short. her total income. but also built the world's largest kingdom of the ancient world (the Mauryan empire was FAR GREATER than the Roman empire). Hazare has not written a single book (to the best of my knowledge).2 7.2 Alcohol Chankya is India's MOST RESPECTED ancient thinker and philosopher who not only wrote India's most famous book. expenditure and net income.] Foreign entertainers: (xiv) Foreign entertainers shall pay a licence fee of 5 panas per show [2. the payments received and the net income to the Chief Controller.13. He shall ensure that prostitutes do not incur excessive expenditure. Do read it.24. (x) No one shall abduct a prostitute.26] And so on… 4.3. alcohol-based medicines.27] [The special taxes levied in times of financial distress on prostitutes and brothel keepers are described in [5. [2. I'm going to provide a few extract from Rangarajan's famous translation of Arthashastra.iii. First I'll discuss alcohol.14. Then prostitution. types of liquor like fermented fruit juices not made by the state. [2. keep her confined against her will or spoil her beauty by wounding her.27. ‘white’ liquor for Hindu capitalism Draft. home-made alcohol-based medicines. i.27.21. however provided for: physicians making different kinds of arishtas. [2.2.27. Specific exemptions were.

25.25.1]. CHIEF CONTROLLER OF ALCOHOLIC BEVERAGES RESPONSIBILITIES State Manufacture: (i) The Chief Controller shall make arrangements for the manufacture of alcoholic beverages in the city. A type of liquor was made without using kinva by fermenting wood apple or bark. the countryside and the camps. These were then flavoured with different spices or fruit juices. clarifying and flavouring them is given in Appendix 10. Alcoholic drinks were widely sold in many places in the city. Only persons of good character could buy and take away small quantities of liquor. Grape wine was also consumed. private manufacturing being very limited and strictly controlled [2. These were drunk mainly in drinking halls built for this purpose. The complete list of all types.25.16.25.4).25. The liquor seller employed beautiful female servants. The prevalence for drinking gave rise to opportunities for poisoning with narcotics or stupefiants during a fight between the chiefs of oligarchies instigated by the king [11. Liquor was manufactured by the state in a number of places near the points of consumption. prasanna from barley flour.25. The Arthashastra prescribes: ‘These shall have many rooms. flowers and water’ [2. along with recipes for making.own consumption and a special exemption. asava from sugarcane juice. Many varieties of liquor were made. who were used to find out information about customers who might have been imposters [2. The drinking rooms shall be made pleasant in all seasons by providing them with perfumes. 12.25. to make liquor for a maximum of four days. maireya from jaggery.vi. Details of the types of liquor made are given in Appendix 10. with the help of experts in brewing and fermenting. mixed with jaggery or honey. during fairs and festivals. The following kinds of alcoholic drinks were made—medaka from rice.15]. The duties and responsibilies of the Chief Controller of Alcoholic Beverages may be seen in VII.11 60 .11]. others had to drink it on the premises.4. in one place or as many places as required [2. another liquor made from fermented bean pulp. the countryside and the camps [2. madhu from grape juice and arishtas for medicinal purposes [2. the countryside and the camps.24] or for disabling the enemy’s troops during a siege [12. two kinds of sura could be made. It is clearly stated that liquor shall be made in the city. Moving about while drunk was prohibited [2.36].1. From kinva. The basic types were: sara and kinva.25.21].1]. with beds and seats in separate places.5). ALCOHOLIC BEVERAGES The manufacture and sale of alcoholic drinks was a state monopoly.

the transaction tax collected. the customer was entitled to 1/50th or 2% for all liquids sold by measure as sticking allowance. [2. for a period of four days [only]. the countryside and the camps) in as many places as are necessary.5 millilitres of liquor should have been in stock.25.e. fairs and pilgrimages. not made in the state units. arishtas for medicinal purposes and other liquor [for similar needs]. grinding. [2. hence.7-10] Revenue: (vi) At the end of each day the Chief Controller shall ascertain the quantity sold.39] Householders shall be permitted to make white liquor for special occasions.25.21] Types of liquor. on condition that they pay 5% of the quantity as royalty. can be made by [private] manufacturers.e.25. On the other hand. Those who make liquor without permission shall pay a daily fine. including fermented fruit juices. The drinking rooms shall be made pleasant in all seasons by providing them with perfumes. for every litre of liquor sold 62. the sale of liquor (in the city. the net profit for remitting to the Treasury].38] Private Manufacture: (ii) Physicians can make arishtas [medicines based on alcohol] for different illnesses. he shall strike the balance accordingly [i. etc. or used to feed draught animals and pigs.25% smaller than the revenue measure (in which liquor manufactured or bought in from private manufacturers was measured). [2. [2.11] (v) Liquor sellers: Vintners shall sell liquor only for cash at the price fixed’ and shall not sell for credit. Thus. These shall have many rooms. Alternatively. [2.] but only at a different place [and not at the drinking house itself]. till the end of the festive period.35-37] Trade: (iii) The Chief Controller shall organize. Spoilt liquor may be sold at a different price [i. through appropriate persons.]. with beds and seats in separate places. [2. [2. the out-go on manasrava (sticking allowance). flowers and water.1] (iv) Drinking places: The Chief Controller shall be responsible for the construction of drinking places.25. spoilt liquor may be given to slaves and labourers.25. the stock verification of each kind of liquor was to be calculated according to this formula: Closing stock = Opening stock .5 millilitres.quantity sold + transaction tax Hindu capitalism Draft. less than the fixed price. [2. Permission to make and sell liquor shall be given on special occasions such as festivals.Women and children shall be employed in searching for special ingredients (such as herbs and spices) used in the industry and in preparing them [by roasting.40] [Since the trade measure for liquids was 6.25.25. the surplus stock would actually been only 42. the cash received and the countervailing tax collected.25. 15 September 2012 61 .

Law and order: (viii) Some people may try to buy liquor by misappropriating articles entrusted to them [for manufacture or repair] or by selling a pledged or stolen article.25. selling or buying liquor other than in the authorized places: 600 panas [2. the Chief Controller was obliged to submit the accounts for a given month before the end of the following month. Liquor shall not be stored [in large quantities] nor taken out of a village. The net profit was: Net profit = Sale realisation .2] 62 . Liquor sellers shall be responsible for finding out correct information about strangers and natives who may pretend to be Aryas. he was fined 200 panas for each month’s delay [2.iii.3-5].25. 1/2 prastha and 1 prastha. A watch shall be kept over those who spend lavishly and those who spend without having a known source of income. However.1215] PUNISHMENTS Making. not in the drinking house itself].95 % of the sale realisation on private liquor paid to private manufacturers . if he failed to do so. [2.6. and no one shall move about while drunk. Beautiful female servants shall find out the information when the client is drunk or asleep in a secluded place. persons known to be of good character may be allowed to take away small quantities in certified containers of 1/2 kuduba. Secret agents shall be posted in drinking houses to note whether the spending by customers is normal or abnormal and they shall gather information about visitors [to the village or city]. 1 kuduba. Any loss suffered by these customers shall be the responsibility of the liquor seller who shall repay the loss and pay a fine. [2 .-sticking allowance. The dangers in allowing large stocks or unrestricted movement are that workers may spoil the work allotted to them. If anyone is found in a drinking place with an article or money that is not his. Secret agents shall also make a note of the ornaments. clothes or cash of customers who are drunk or asleep. he shall be arrested elsewhere [i.2 5. the Arya may behave immodestly and assassins may be encouraged to behave rashly. Since the retail outlets had to maintain daily accounts. The money to be accounted for by the vintner was the sale price multiplied by the quantity sold at the trade measure for each kind of liquor.cost of production of liquor manufactured by the Crown .26.] Control over movements and stock: (vii) Liquor shall only be drunk in the drinking house.wages and other expenses.7.27] in V.e.

25. Hindu capitalism Draft. replacing in part the spice mixture given above.25. priyangu. for example: Rice-wine – 3 prasthas of kinva 1/2 adhaka of rice 1 drona of water Prasanna Flour wine (white) 2 parts rice to 3 parts ferment and 16 parts water. black pepper and long pepper. lodha. valuka.31-34] OTHER LIQUORS Asava (for 8 tulas of water) 1 tula wood apple 5 tulas treacle 1 prastha honey This is for average quality.18. 1/3 drona of rice. daruharidra (turmeric?). 15 September 2012 63 .Loss suffered by customers: Vintner to pay compensation to client and fine equal to loss [2. chitraka. for example: 5 prasthas kinva 12 adhakas flour 24 dronas of water Back and fruit of kramuka (?) Addition to Medaba and Prasanna 5 karshas each of the following: patha. l karsha of each of the six mixed spices. Medaka 2 parts rice to 3 parts ferment and 16 parts water. liquorice. tejuvati. This is to be clarified with a handful of mixed spice.26-28. [2. vilanga. Clarifying agent for Medaka and Prasanna A decoction of liquorice and jaggery. cardamom.17. Spices to be added-1 karsha each of cinnamon. for example: 1 drona of pulp of raw or cooked masha beans. for superior quality add one quarter more of each of the three ingredients and for lower quality less. like partha.14] Appendix 10 ALCOHOLIC BEVERAGES LIQUORS MADE FROM KINVA Kinva 1 part rice to 3 parts beans with added spices. burnt jaggery and pulp of herbs. Varieties of Prasanna Mahasura – White liquor and mango juice. The liquor can he made sweeter by adding 5 palas of jaggery. grape juice. etc.

Harahuraka—imported from Arachosia. You get it.Till.000 panas a year and the lowest 60 panas a year. spices to be added: long pepper and black pepper or tripala (nutmeg. (That rules me out ENTIRELY!!!!) Arvind is deeply ignorant about BASICS of human nature.  "the highest salary paid in cash.4 Ensuring corruption free governance Without a corruption-free system. of course. To such mega-ignoramuses I suggest BFN. here. TOTAL integrity is the minimum requirement. If you recall. police.19. and army is corrupt.25. I was speaking with one of the erstwhile members of Team Anna over the phone this Monday.000 panas a year. officials. the Mauryan empire – which was the largest in Indian history and the largest (in relative terms) the world has ever seen. And high quality governance.24. But Chanakya is not giving away money on idle grounds. (‘enough to prevent them from succumbing to the temptations of the enemy or rising up in revolt’)" (Rangarajan's translation.20. could never have arisen.25.25. [2. But 800 times.000 per month. He is merely a godchild of Nehru: one more man who is intent on destroying India through his "good" intentions. 48. . I'll not go into details.23] Madhu Grape wine—Kapishayana imported from Afghanistan.30] Maireya A decoction of the bark of the meshashringi with jaggery. p. He told me that Arvind Kejriwal wants only those people to step forward as candidates for his new party who will be happy with a salary of Rs. arecanut and cloves). was eight hundred to one. Not 10 times.179) Of course. East India company officials were SUPER CORRUPT – more corrupt than even the most corrupt officials found in India today. only the extremely deserving would get highest salary. was 48. The ratio of the highest salary to the lowest. [2. [2."  "The highest salary. excluding perquisites.29. then why not read Chanakya? 64 .22.quarter of the quantity of each of these is to be kept in the liquor (tied up in a piece of cloth). Cornwallis's reforms fixed that problem.25] 4. If BFN seems hard to read (for jealousy of one's peers is often a problem). One can't build a MEGA EMPIRE if your ministers. Lord Cornwallis merely rediscovered what Chankya had long ago said. Nehru came in and DESTROYED integrity in public life in India through his socialist policies. when he raised salaries of ICS officers. You deserve it.25. The difference in salary between highest and lowest in Chanakya's time was 800 times! Not five times. It is not charity or reward for the irrelevant fact that your grandfather was Jawaharlal Nehru.

Without recourse. there remains a significant flavour of paternalism in the Hindu system. He should guard them as a mother guards the child in her womb.Or does Arvind Kejriwal think himself to be a greater economist/ policy maker than Chanakya? Please try to understand that corruption can be fixed PRIMARILY through the right POSITIVE incentives ("efficiency wage". "incentive compatible constraint"). the agent shall penetrate the [establishments of] foreign buyers in order to ascertain concealed information. One can potentially take issues with such an approach. kinsmen and supporters.11) “The king who nurtures his subjects on the best possible way is certainly knowledgeable in righteousness. but he's got the combination of incentives right. as a pretext. 800 times salary difference. a [forged] letter.73) “A king must consider that his first duty is to his subjects. it is clear that the combination of positive incentives and stringent accountability can bring corruption to a grinding halt. the errant official shall be [falsely] accused [of being in the pay of the enemy] using. In the case of trading with foreigners. Hobbes would have appreciated it but not Locke. dependents.” (Mb. who hoards the King’s property and uses it for his own benefit (by storing it in his own house. What we need at that point is a super-stringent punishment system. Death penalty doesn't sound implausible to me. IN ONE DAY. the facts shall be ascertained by a secret agent. Contractual appointments of all senior officials. friends. Will any mother have thoughts of pleasing herself when her child is in her womb? All her thoughts will be bent only on the child and its welfare. by depositing it with others or by trading with it with foreigners). I've outlined in BFN an example: Dismissal without recourse to natural justice.69. vicious deterrence. Then DEATH. But I'm comfortable with even more stringent punishments at that stage.9.57. Even so. Regardless of whether a death penalty should be imposed for corruption. “Keeping the subjects happy on this earth itself is the code of righteousness (Santana-Dharma) of a king.12.5 Limitations of the Hindu state: Paternalism (mai-baap sarkar) Having said the above. Once the right (positive) incentives have been established we need a sharp. Lokpal is wishy washy.2027} Chanakya's remedy is a bit extreme. he shall then be killed. 4.12. Once convinced. Why does such a king require penance? Why at all does he need to perform sacrificial fires?” (Mb. the Hindu system allows the king to be directly concerned with our happiness. he would KILL. {2. When all facts have been ascertained. Unlike the American declaration of independence. "In the case of a miserly official. He would get his spies to investigate Bofors and other scams. a king Hindu capitalism Draft. The agent shall find out the details of the receipt and despatch of the goods as well as who are the official’s advisers. 15 September 2012 65 . which demanded the right to pursue one’s own happiness.

In Chanakya they will find THE main solutions to the problems facing India. Anna Hazare and Arvind Kejriwal would do well to read Chanakya. 66 .” nstead of running about like headless chicken.should subordinate his desires and wishes to those of his subjects. Their welfare should be his only concern.

but the INNOVATIVE use of wealth. science made some very significant and genuine advances under the umbrella of Hindu dharma. but into the theory of underlying energy. India had rightly noted that the universe existed for billions of years. what weakened its innovative spirit. India had gone right into its core – not just atomic. Far from it. However. I do not wish to ‘prove’ that Hindu science was ‘right’. Some other blog posts that throw light on similar issues  Another Hindu spiritual leader lambasts socialism Hindu capitalism Draft. and operation. Institutions: Science and innovation Read: http://www. And so on. no Indian suffered such folly. Not just the number system – which underpins the entire modern civilisation – but there was substantial knowledge in India in fields like astronomy. Merit was valued. and not very well done either. Why this did not lead to direct innovation (on the scale of – the later – Chinese/Western innovation) is a separate matter. in principle. as well. I’m not saying that the weapons depicted in the Mahabharata or Ramayana were in any way real. There is no evidence to suggest that these were anything but fiction.2 Science and technology Long before any culture anywhere in the world had visualised such things. It didn’t create universities that studied science carefully. structure. why did Hinduism decay.org/index.1 Reason 5. 15 September 2012 67 . Hinduism was not even remotely socialist in its design.5. but these indicated a culture that allowed innovative theories. there was no barrier in Hindu dharma against scientific thinking and innovation. airplanes. While the West suffered the delusion that the world was created in seven days. It was not as curious as it should have been. Scientific thinkers were highly regarded. But the fact that such fiction was entertained indicates that there was no barrier to invention within the fold of Hindu dharma.html 5. it didn’t ask probing questions. Hindu scriptures not just promoted wealth. While the West remained confused about the nature of matter. These were theories. While the West suffered from delusions that the earth was at the centre of the universe. Till very recently – when missiles are able to be launched against other missiles – the very idea flaming missiles that neutralise each other (something which is found extensively in Hindu scriptures) would have constituted science fiction. cosmology. science fiction was definitely valued! Leaving aside mythological weapons. medicine and metallurgy. etc. If nothing.indianscience. atomic theory. That would perhaps form the last chapter of a book on Hindu capitalism: what were its weaknesses. It took many things for granted.

68  If this is Hinduism then everyone should become Hindu  Vivekananda on science and reason – and a ‘reason-based’ approach to the properties of God .

1 Free banking in India system and There was an almost complete complement of capitalist institutions in India. with no government involvement in its inception or its functioning. This paper provides a description of their regulatory mechanisms such as clearinghouses. Here's a recent piece on Indian free banking Workings of a Nineteenth Century Indigenous Banking System: A Case in support of Free Banking BY Malavika Nair Economics Department Suffolk University Abstract: Free Banking theory predicts that banks working under competitive conditions with minimum or no government regulation will regulate themselves efficiently and not be necessarily prone to crisis. it finds that their banking system was stable and functioned smoothly. The theoretical literature on free banking explains how these banks would handle the problems of note-issue. 1. This paper puts forth a case of a banking system in nineteenth century India that evolved and functioned without any government regulation. A minority view (Hayek 1976. Although existing case studies within this literature have exhibited varying degrees of government regulation (Dowd 1992). This paper contributes a new historical case of free banking to the literature. this case offers a look into a completely ‘indigenous’ banking system. These historical episodes come close to resembling laboratory experiments and allow economists the chance to ‘test’ or verify their theories against concrete data. The Chettiars. Institutions: banking Financial 6. This paper describes their banking system and mechanisms of selfregulation such as interest rate setting. lender of last resort and other regulatory mechanisms. Selgin 1988. They formed an entire banking system that spread along side the expanding British Empire from South India to several countries in South-East Asia. Dowd 1994. Complimentary to this literature is the study of various episodes of free banking or near-free banking through history. The Chettiars were a nineteenth century banking caste from the South Indian state of Tamil Nadu. clearinghouses and informal deposit insurance. 15 September 2012 69 .6. indigenous bankers from South India comprised a banking system that provided banking and credit in many countries in South-East Asia. interest rate Hindu capitalism Draft. In general. Introduction Most economists agree that a government run central bank is essential to the workings of a monetary economy. thus adding to the literature in favor of free banking. White 1989) holds that free banking or banking without government involvement would fare better than the government-regulated system.

In general. insurance mechanisms and note-issue. things such as branching decisions. however. these economists maintain that much government regulation of the banking sector is most often the result of previous government regulation. One particular characteristic that stands out is the lack of competitive note. not a response to an inherent market failure. Canada. Australia and the United States. White (1984. Their case. keep excessive note-issue and risk taking in check. if true. Literature Review The theoretical argument for free banking rests on the idea that competition in banking and note issue would work just as it does in other sectors of the economy. it finds that the banking system of the Chettiars was stable and functioned smoothly. This can be attributed to their ‘notes’ or deposit receipts never gaining in circulation as money substitutes. France. As a corollary. Beyond these key club goods. Switzerland. Ireland and Sweden (Dowd 1992).setting. reserve ratio requirements or even risk taking were left completely up to the discretion of the proprietors of firms and thus ultimately to competitive forces to regulate.1991. seems to strongly support Dowd’s (1994) notion of voluntary ‘banker’s clubs’.1989). Some others are free banking in China. Section 3 provides the historical details of the Chettiar banking system and their regulatory mechanisms. the main focus has been the study of competitive note issue and cooperation among banks for clearing purposes. The Chettiars provided for the communal setting of deposit rates that in turn created an informal deposit insurance mechanism as well as other key regulatory services like information sharing and clearinghouse mechanisms.issue in the Chettiar banking system. 2. but these always came back to be redeemed quickly. The implication is that banking stability does not inherently require the presence of a government central bank to regulate or provide mechanisms such as clearinghouses. Selgin (1987. Section 5 provides conclusions. Section 4 highlights the main implications and contributions to the literature. Section 2 of the paper reviews the existing historical literature on free banking and shows where this case study fits in. should hold up to historical analysis wherever its conditions are present. 70 .1988) and Dowd (1989. There have been several free banking case studies brought to light where banks had more or less a great degree of self-regulatory power. They did allow for the drawing of bills of exchange or ‘hundis’.1994) have stressed the ability of competition among banks to regulate themselves. This simple thesis. Thus they relied mainly on the extension of credit and interest rate differentials for their business. as well as provide information sharing mechanisms. thereby adding to the existing historical cases in favor of free banking. Within this historical literature. clubs that would serve key regulatory purposes but not regulate as extensively as central banks do. Prominent among them are free banking in Scotland.

The primary sources are government reports of banking enquiries undertaken in 1929. It resulted from the exploitation of new business opportunities created by the British conquest of these countries in the early nineteenth century (Rudner 1994). This decline was not due to inherent instability within the banking system. Ceylon (now Sri Lanka) and parts of China. voluntarily participated in a note-exchange system and no major banking crises occurred. It draws from a few primary and several secondary sources. 1930 (MPBEC 1930 henceforth) and the Burma Banking Enquiry Committee Report. The main features of the banking system in Scotland were freedom of entry. with Scotland often cited as the freest (Selgin 1992. It begins by providing a general historical setting and description of the system. Jain (1929). Krishnan (1959). This process took place in two patterns. 15 September 2012 71 . issued notes. several banks competed in the market. 3. Weerasooria (1973). their banking system extended from South India to Burma. The main secondary sources used are Rudner (1994). The second was prominent in the Americas where government note issue preceded private note issue (Schuler 1992). leading to large-scale withdrawal from foreign stations and disinvestment from banking and finance. Another feature common to the existing cases is involvement of government in the setting up or creation of the banks. Thus. Menon (1985) and Mahadevan (1978a & 1978b) for historical and anthropological details[1] 3.fledged banking system by the nineteenth century (Rudner 1994). Malaya. Dowd 1992). Chettiars and their banking system This section lays out the historical details of the Chettiar banking system. however small. the first feature common to all existing cases is the presence of some amount of government regulation of banking. increasingly hostile business environments in foreign business stations as well as the Hindu capitalism Draft. before going over the particular regulatory mechanisms. At its peak. Specifically. Tun Wai (1953). The case study presented in this paper provides a look into an Indian banking system with no government involvement either in its inception or its functioning.1 Institutional Setting and Market Structure The Chettiars . native to the South Indian state of Tamil Nadu. the Madras Provincial Banking Enquiry Committee Report. The first was prominent in Britain and its colonies where the government let banks regulate note issue themselves from the beginning (Schuler 1992). During this period. and then allowing them to regulate themselves over time. Rather it was a combination of various external factors such as the Great Depression. started out as salt traders and money lenders in the seventeenth century and evolved into a full. 1930 (BBEC 1930 henceforth) are used. It lasted till around 1930. offering the opportunity of rendering the literature more robust. no branching restrictions and the ability to issue notes privately from 1695 to 1844.Structurally. it provides a look at a more pure case of totally free banking in a different geographical area.

Rudner 1994. Menon 1985. the ‘Exchange Banks’ chartered to handle foreign exchange and tribute remittance to England as well as some private joint-stock banks (Bagchi 2003:22. Baker 1984). He writes (Jain 1929:25): Each system had a distinct and separate existence. local Burmese and Chinese moneylenders and with each other within this loan market (Tun Wai 1953. They were an important source of credit in the countries where they did business and are widely acknowledged as having been instrumental to the economic development of various industries (Tun Wai 1953. One way of defining them is as bankers who are not organised along western banking practises or joint-stock banking (BBEC 1930). the Chettiars and other indigenous bankers like them remained an important vehicle of banking and credit throughout the country. providing remittance and deposit facilities. Despite this formal sphere. BBEC 1930). several centuries in some cases and this contributed to their continued relevance in the credit market as well (Jain 1929. too. Krishnan 1959. Chandavarkar 2008:775). because each had its own particular function. A crucial point that is not emphasised enough explicitly is the fact that such bankers or systems of banking were also naturally free from any government regulation or involvement and this makes them relevant to the literature on free banking. This however does not get to the heart of the matter. their growth and functioning took place outside of the formal government-backed banking sphere.backed Presidency Banks meant to handle domestic credit requirements. while the early European banks confined their activities almost entirely to the three Presidency capitals. Weerasooria 1973. chiefly made use of by Europeans. The formal banking sphere at that time consisted of the three government. Indigenous bankers had been providing banking and monetary services much longer. Krishnan 1959). and financing the external trade. catered to a niche market of local businessmen and agricultural labor whose credit needs were not met by government banks in India and abroad (Rudner 1994). recognize their true intermediary nature of taking deposits and making loans as opposed to moneylenders who only make loans. This decline of the Chettiar banking system is dealt with in more detail below. Weerasooria 1973). Jain (1929:1) comes closer when he writes about such bankers as “not required to register themselves as such under any law of the realm”. For attracting deposits. Mahadevan 1978b. Jain (1929) provides one explanation for this.opening up of alternative investment opportunities in India (Rudner 1994:55. they even competed with government banks in addition to any 72 . in his study on indigenous banking in India. One encounters some inconsistency and difficulty in the various definitions of ‘indigenous banker’. Known as ‘indigenous’ bankers. Mahadevan 1978a & 1978b. They competed withother banking castes such as the Multani and Marwari bankers. All writers. including government reports. The Chettiars. The indigenous banker concerned himself with the granting of credit to the agriculturists and the artisans and the financing of the internal trade of the country.

are feasible and desirable under the following headings:a) The regulation of banking with a view to protecting the interests of the public. These proposals were in general agreed to and a press communiqué was issued on 12thJune 1929 stating that the objects of the enquiry were the investigation of existing conditions of banking and the consideration of what steps. with a view to regulate it. Nattukottai Chettiyars and Kallidaikuruchi Brahmans. Mainly involved in financing agriculture as they were. With this rise. Sri Lanka and China. BBEC 1930) As mentioned earlier. They grant loans primarily on personal credit generally at higher rates of interest than large joint-stock banks and at the same time take larger risks relying more on personal knowledge of their clients and their clients’ business than on pledged securities for trade loans. …The indigenous bankers in this Presidency must include the banking communities of Marwaris.other bankers offering deposit services (MPBEC 1930. which either led several smaller Chettiar banks to go bankrupt or to acquire the land pledged as collateral Hindu capitalism Draft. the government did not exercise any significant regulatory control until after 1930. It was most extensive in Burma followed by Malaya. 15 September 2012 73 . as is explained below. The report of the Madras Provincial Banking Enquiry Committee (MPBEC 1930) is relevant here. Multanis. Rudner 1994). Krishnan 1959). b) The development of banking in the sense of the expansion of both indigenous and joint-stock banking with reference to the needs of agriculture. This was true of the Chettiars as well. Within these countries. commerce and industry. The Indian government set up a national committee to study the nature of banking in the country in 1929. The decline of the Chettiar banking system that is usually dated to 1930 was the result of several complex external and socio-political factors. The early twentieth century saw the rise of nationalism in India as the forbearer of the coming freedom movement against the British. They deal in hundis3 to a very large extent and finance a great deal of the internal movement of goods. a sharp fall in agricultural prices led to many debtors defaulting on their loans. However. if any. several ‘indigenous’ or informal business elite got increasingly involved in political movements and faced the choice of entering the more legitimate formal business sphere or remaining informal (Roy 2010).emphasis mine) Though they were sporadically impacted by legislation pertaining to business practises in general (Weerasooria 1973.4This led to a growing polarization in the community since smaller non-elite bankers could not afford to set up joint stock banks (Mahadevan 1978b. the Chettiar business in its heyday was not very vast in India. it is the Great Depression of 1930 and the sudden fall in prices that dealt the first blow to Chettiar business. there existed no systematic regulation of their banking through the time that they were at their peak. (MPBEC 1930:2. several elite members withdrew from the informal banking sphere to set up joint-stock banks in the formal sphere.

domestic and overseas banking operations. Beyond this specialization—making possible every other commercial venture in which it engaged—each family firm operated as a commercial bank: taking money on deposit and drafting bills and other financial instruments for use in the transfer of lendable capital to branch offices and to other banks. As a result. Each firm was involved in commodities trading. prior to which the three Presidency banks had the right to issue notes (Chandavarkar 2008: 777). The main proprietor would live in his homeland village in South India. often having had to relinquish ownership of the land they had acquired due to the Depression (Mahadevan 1978a & 1978b.6 billion in 2008 dollars respectively.2 System of Banking The Chettiars represented an entire banking system. Again. money lending. 3.71 billion and 5. For example. Estimates of their working capital in 1930 range from 795 million rupees to 1200 million rupees. after which it shifted to a gold exchange standard from 1893 until 1916 with a period of transition in between (Chandavarkar 2008). every Nakarattar firm was tied together with all of the others to form a unified banking system. Rudner 1994). Back in India to a changing socio-political and business environment. one formed by hundreds of interdependent family firms or banks. which translates to 3. Rudner (1994:90) describes the banking system: Nakarattars built their commercial empire out of a complex network of interdependent family business firms. While Rudner (1994:70) attributes these discrepancies to the biased nature of government 74 . while hired agents from within the caste or extended family would carry out day-today operations of the business in India or abroad. issue bills of exchange and grant loans. or industrial investment. This system of agency was well developed whereby agents and proprietors kept close contact with each other via telegram and each agent was hired for a period of three years. the Chettiar banking system that had flourished through the nineteenth century changed form dramatically and declined definitively post 1930.393. rising nationalist movements and hostile business environments within those countries led to massive Chettiar withdrawals back to India.000 acres in 1929 representing 6 % of total cultivated area in the major rice growing districts to 2.for the loan. after which his contract could be renewed or would lapse (Rudner 1994:118). rendering it a separate bank. Thus. total Chettiar land holdings went from 570. Proprietors. many Chettiars were forced either into poverty or reinvestment of resources into other avenues (Rudner 1994). The government monopolised the issue of bank notes after the passage of the Paper Currency Act of 1861. Menon 1985. on the other hand kept abreast of the latest business news and information from each other while in the homeland. in Burma.000 acres by 1936 or 25 % of total cultivated rice growing area (Mahadevan 1978b). India was on a monometallic silver standard from 1835 to 1893. Each extended family would accept deposits. Officially.

in turn. Depositors would receive either a deposit receipt or a passbook containing the particulars of the transaction when the deposit was made. the Chettiars were an important source of credit to one another (Mahadevan 1978a & 1978b. There were 700 firms operating in Ceylon in 1916 (Rudner 1994: 76). including the checkable ones. Non-Chettiar deposits would make up the difference. while 1650 firms were operating in Burma in 1929 (Mahadevan 1978b). Loans of various kinds. This picture is confirmed by a regional break-up of working capital provided below. Interest paid on Chettiar time deposits was lower than non-Chettiar time deposits. while proprietors’ own capital invested in the business generally constituted 10 to 20 per cent. could be drawn on by ‘at sight’ or ‘darshan’ hundis. which shows that Chettiar business was least prominent in India and most prominent in Burma.caste members made up a small percentage of total deposits. Loans issued only on promissory note charged higher interest than loans issued on promissory note and collateral. The Chettiars offered checking or demand deposits as well as time deposits to their customers and caste members. 15 September 2012 75 . The interest rate varied depending on the banker’s knowledge of the borrower and quality of collateral offered. on the other hand were granted against promissory notes and other kinds of collateral such as land or jewellery. one finds support for it in all works describing Chettiar banking in addition to Rudner’s (1994) estimations. Time deposits could only be drawn on by interest-bearing hundis with fixed maturity dates. There were 243 firms or bankers doing business locally in South India in 1930 (Rudner 1994:72). Checkable deposits. The interest rates paid on the two were also different. serving the purpose of transferring funds across place and time without moving physical money. which are based on his study of their account books and oral evidence. Deposit interest rates were set communally and this feature is dealt with below. depending on which one they preferred. Clients had to maintain a deposit account with the banker. trust. Weerasooria 1973). As a banking system. resembling present day certificates of deposit. Rudner (1994:103) estimates that for any bank. Chettiars competed with each other and other bankers in the loan market.reports. allowing them cheaper access to stable capital from within the caste (Rudner 1994: 91). even the smallest estimate points to a sizable business. deposits from fellow Chettiars (bankers and non-banking caste members) comprised between 60 to 80 per cent of all deposits. All deposits. Thus. in order to be able to draw a hundi. Rudner 1994). Chettiars made a clear distinction in their account books of deposits (time and on demand) received from fellow caste members and those received from outsiders. deposits from non. As noted above. Deposits were the basis for the drawing of bills of exchange or ‘hundis’. paid interest9(BBEC 1930. However. there was no one standardized loan rate that was used by all Chettiars. It depended on local knowledge. This is a crucial feature that is not apparent based on the aggregated values present in the table below. Hundis worked much in the way checks do. Rudner 1994. resembling demand drafts. bank’s location and strength Hindu capitalism Draft.

This is attributable to the limited extent to which the Chettiars’ notes were able to circulate as money. The focal point of the monthly meeting was the setting of the checking deposit rate or ‘nadappu’ rate that was then used as a benchmark to set other rates. customers were unwilling to use Chettiar issued notes or deposit receipts as money substitutes and thus also demanded actual or ‘outside money’ for loan transactions. In other words. Further. Loans were issued by actually giving out physical money and not by the creation of a checkable account that could then be operated on by checks or hundis (BBEC 1930). the borrower would receive the promissory note with a stamp of repayment by the banker. It was the result of greater respect and trust given to those bankers who had done very well in business. in every Chettiar business station. Mechanisms of Regulation This section provides a description of the self-regulation mechanisms used by the Chettiars. parent bankers and informal deposit insurance are described. 3. and this helped regulate as well as standardize interest rate levels across business stations. On repayment of principal and interest.3.2. Time deposits between Chettiars 76 . This widespread network of banking branches allowed smaller Chettiar firms to transmit funds over wider distances. Adathi bankers also had a larger say in the monthly setting of interest rates (Rudner 1994:124). It allowed for the efficient clearing of debits and credits among dispersed Chettiar bankers.of collateral offered. on a fixed day of every month. The three main mechanisms of interest rate setting. Hundis issued by adathi bankers had a greater value than those issued by non-adathi banks and were often kept uncashed by caste members as security for a time when liquidity was required (Rudner 1994).1. 3. British banks would lend to some adathis from a preapproved list. 3. and comprised 5 to 10 per cent of the caste population (Rudner 1994: 123). This rate was paid to other Chettiars for their checking deposits. Parent Bankers as Clearinghouses The natural elite among the Chettiars played an important role in the banking business.3. ‘Adathi’ bankers owned an extensive network of banking branches.3. that of clearinghouses for the smaller firms. who in turn would further lend out the funds at a higher rate to fellows and thereby earn an interest rate differential. The main differentiating factor between parent or ‘adathi’ bankers and non ‘adathi’ bankers was the size and scope of their business. Every small or mid-sized Chettiar firm would maintain an account with an adathi banker and this in turn led them to function as clearinghouses for the banking system as a whole in a defacto way. Communal setting of interest rates Interest rates were set communally in common houses or temples. This higher status within the banking system was not granted on the basis of a one-time agreement among members. and thus represents an organically evolved institution resulting from repeated interaction among caste members.

Caste ties as Deposit Insurance The communal setting of deposit rates was closely tied to a sort of informal deposit insurance. As every firm has both income and expenses determined largely by this rate. 3. and it holds good for all the current Nakarattar month including the sixteen days already passed…. they did have an informal insurance mechanism that any Chettiar could call on in time of trouble.3.m. (Emphasis mine) Thus. was rooted in cautious judging of the particular situation at hand by the lender since it was his own money and capital at Hindu capitalism Draft. and fixes the current [nadappu ] rate for the current month with this.paid the ‘nadappu’ rate at compound interest. Rudner (1994: 125) describes this activity: As clearinghouses for information about each other and about business opportunities generally. the reputation of fellow Chettiars was under consistent scrutiny and formed an important part of the information exchange that took place at collective events at common houses or temples (Rudner 1994). they could possibly compete in attracting non-Chettiar clients since there was no standardization on the level of the mark up that was paid to the outsiders. As a result. these collective events effected investment decisions. taking into account the current pitch and tendency of the thavanai rate. ‘[The nadappu rate] is fixed in the evening of the 16th of every Tamil month at a meeting held at 9 p. vitutis11provided Nakarattars with access to information about each other's business. This informal insurance. however. If a trusted Chettiar was in sudden need of liquidity. A second point is that although they did not compete with each other in the setting of the ‘nadappu’ rate. while time deposits from non-Chettiars added a mark-up to the ‘nadappu’ rate. The meeting discusses the general financial situation. the information they provided served as checks against incautious business behaviour and unreasonable requests for credit. Multanis. The Report of the Burma Provincial Banking Enquiry Committee (1930) cited in Rudner (1994: 91) describes this process of setting of interest rates in Burma’s capital Rangoon. 15 September 2012 77 . the rates current amongst the Marwaris. great care is taken to fix the rate according to the needs of the situation…’ Thus cooperation and keeping watch on competitors’ rates were key to the formation of interest rates. although the Chettiars did not have a formal lender of last resort. he could count on his fellows to lend to him easily and at a lower rate than he could secure from outside (Rudner 1994: 124). At the same time. and Gujeratis [other Indian banking castes] and the rates for advances by the jointstock banks to Nakarattars. including decisions about the optimum allocation of investment funds and the amount of credit to extend to a fellow Nakarattar. in the Nakarattar temple at Rangoon.3. This practice meant that the Chettiars could borrow from one another at a cheaper rate than borrowing from non-Chettiars. In other words. They provided opportunities to scout out investment opportunities and arrange for loans by fellow Nakarattars looking for investments.

This took place in 1925 when a prominent Chettiar bank collapsed leading others to follow suit. 150 thousand and its Ceylon liabilities at Rs.The result was what came to be known as the “Chetty Crisis” of 1925. 3. its Ceylon assets at Rs. let alone within Ceylon. sometimes from the same bank. This helped hedge against excessive risk-taking since the costs of doing so would have to be borne by the lenders themselves. A witness’ testimony in the Report of the Ceylon Banking Commission (1934) cited in Rudner (1994: 78) alludes to this alliance between the British banks and Chettiar firms as causing the crisis: As the due dates of the loans vary in the different banks. to meet the maturing bank loans. there were still 556 Chettiar firms operating in Ceylon as of 1934 (Weerasooria 1973:22). this crisis did not lead to the downfall of the entire banking system. This exchange would take place at the weekly and monthly meetings for the setting of interest rates as well as by maintaining blacklists of bad or risky debtors that were circulated throughout the community of bankers (BBEC 1930). 78 . 800 thousand and Indian liabilities at Rs. down from 700 reported in 1916 (Rudner 1994:76)12 . As a community. 1. Others had to close down permanently. The implication is that Chettiar banking system was stable in the majority of cases. were able to use loans from banks.risk. There is one recorded instance of a ‘crisis’ leading to the closing down of some Chettiar firms in Ceylon (Weerasooria 1973). the Chettiars used to borrow from one bank to pay off their dues to others so that a Chettiar firm which is financially embarrassed can easily tide over its difficulties and if it is actually insolvent the heaviest loss is entailed upon the bank to which the loan is repayable last in order of time…Thus the Chettiars through the age-old practice of being their own mutual lenders of last resort. The reason for this crisis was ascribed to the “unholy alliance” between British banks lending to a few large Chettiar firms coupled with the easy inter-firm lending practices among the Chettiars (Weerasooria 1973:15.7 million. However.7 million”. with informal deposit insurance adding to that stability. Weerasooria (1973:15) writes: The firm was heavily in debt both in Madras and in Ceylon and the liquidation and winding-up proceedings of the firm disclosed a number of malpractices freely indulged in by it. the Chettiars were incentivized to reduce asymmetric information by providing for the smooth exchange of information. Rudner (1994:78) writes of the first firm’s bankruptcy. Rudner 1994:78). A number of Nattukottai Chettiar firms had to suspend business operations. This is an indication that inter-firm lending or informal deposit insurance itself was not the problem. it was the banks' own money which enabled the Chettiars to keep their loan contracts with the banks with striking promptness. “the High Court of Madras estimated the firm's Indian assets at Rs. Though the exact number of firms that went bankrupt is unknown.. it was the particular risky practises of a few firms at a particular time. To theextent this happened. then.

uncashed as substitutes for liquidity. Dowd (1994) lists three possible benefits to such an association: the benefits of reducing monitoring and transactions costs. The club would most likely be in the form of a clearinghouse. However. The Chettiar banking system seems to provide strong support for this notion of a banker’s club. accounting standards. reserve requirements. interest rate setting and informal deposit insurance. banks would have the incentives to voluntarily come together and form a club that would then regulate certain key aspects of banking. benefits of help against bank contagion and the benefits of external reserves. is not a voluntary institution but an imposed one and has historically regulated banks in a more extensive way. a voluntary association among member banks that would regulate and provide clearinghouse services. the focus of banking in the Chettiars’ case was the provision of credit. contra Gorton and Mullineux (1987) who argue that the extensive banking regulation that exists today arose as a spontaneous response to the problems of asymmetric information inherent in banking. risk-taking or adequate reserves were left to the judgement of the owners themselves. merchants and bankers who were familiar with them. Regulation would only pertain to key 1994). Their self-regulatory systems provided for clearinghouses. not note-issue. He sharply differentiates between this concept and the services of a government central bank in an economy. 4. where member banks would pay a fee and partake of the services and regulatory structure. A central bank. Their contention is that the extensive amount of regulation of banks by ways of capital requirements. Implications Dowd (1994) provides the concept of a ‘banker’s club’. 15 September 2012 79 . The Chettiar banking system provides little to no evidence of note-issue being prominent. While their bills of exchange were widely used for financing trade and transferring money across places. There is some scant evidence of hundis issued by parent bankers being held by some Chettiars. Economists interested in free banking have extensively studied the problem of note-issue or money supply under competition. there is no evidence of them circulating beyond the realm of traders. It was shown that Hindu capitalism Draft. Beyond that. Conclusion This paper presents the case of a self-regulated banking system operating in nineteenth century India. In a free market.The next section goes over some implications or contributions that the historical case of the Chettiar banking system makes to the literature. other banking decisions related to matters such as account keeping. Deposit receipts issued in return for deposits made never circulated and thus never became money substitutes. This pattern validates Dowd’s (1994) prediction of voluntary associations regulating on key matters only as opposed to the extensive regulation of banking undertaken by central banks. 5. hence performing a monetary function (Rudner 1994). exposure restrictions would all exist even in the case of voluntary clearinghouse clubs. in contrast.

2005. studying their banking practises offers a look into a purer instance of ‘free-banking’ and sets it apart from other historical cases of free banking (Dowd 1992). This is all the more important as India. Working paper / University of Cologne.handle. 6. Thus. Their regulatory mechanisms of interest rate setting. the primary reason being that their ‘notes’ never gained the status of money substitutes. How the keeping of fractional reserves interacted with the inability to create new money (substitutes) is also an interesting question. where government was involved in some way or the other. clearinghouses.net/10419/23654 [Download PDF here].‘indigenous’ banking in the Indian context is also banking free from any government regulation. No. chit funds or rotating savings and credit associations (ROSCAs). Hans Dieter (2005) : Does History Matter? The Old and the New World of Microfinance in Europe and Asia. Thus. Preliminary investigation of the primary sources suggests that they did and also suggests a completely voluntary setting. over a period of three thousand years. all subject matter for further research. These crucial services allowed for the smooth functioning of the banking system and added to its stability. Development Research Center. much of it yet to be written.1 Origins and early developments The case of India shows that the origins of microfinance predate those reported above in Ireland and Germany by more than two and perhaps even three millenniums. The Chettiars are but one of many indigenous banking communities that evolved and existed for several decades before the rise of the regulatory State in the twentieth century. trade and banking through 80 .10. one is not able to offer new evidence for stability under note-issue.2 Microfinance in Hindu India I've found a relatively recent paper that outlines the nature of microfinance and banking in ancient India. EXTRACT Microfinance in India 3. Seibel. and merchant bankers – each with a complex and interlinked history. has spread its culture. It was also pointed out that the Chettiar banking system does not give evidence of competitive note-issue. To draw lessons from this experience would require systematic historical research from a microfinance perspective. The following may serve as an inducement to embark on such research and share the results with the microfinance community. information sharing and informal deposit insurance resemble closely the services of a ‘banker’s club’. http://hdl. There are at least three strands of indigenous finance of great historical depth in India: moneylenders. Whether or not and to what extent the Chettiars kept fractional reserves is an interesting question that comes up since interest was paid on all deposits including checkable ones.

a federal Chit Funds Act was passed. but I have not been able to determine the time of origin. Chit funds [Known under various names such as chitty or kuri (cowry)] or ROSCAs are widespread institutions of ancient origin in India [The alternative term kuri indicates that it must have existed at least at medieval times when cowries were used as a means of exchange]. Moneylending is still widespread today. A number of people. Merchant guilds. which are found all over India in large numbers. Moneylenders who provide loans from their own resources as their only financial service are the oldest of these professions. the bidding type has been gradually replacing the conventional type. Information on rural moneylending in medieval and British India will be given below. either by lot. join together to regularly (eg. etc. financial intermediation comprising lending. or by tender. and was widespread in India and beyond as early as the third century B. re-emerging time and again according to demand.C. The act regulates minimum capital. monthly) contribute equal amounts of money (or kind) allocated to one member at a time. Many (informal and formal) moneylenders may have turned into (formal) merchant bankers at various times in history.C. It appears that historically they were relatively small and unregulated. Chit funds attained such importance that in 1982. daily.C. Hindu capitalism Draft. This has greatly contributed to the growth of licensed chit funds. Merchant banking – ie. demonstrated need or in an agreed-upon sequence. Moneylending became an organized and subsequently regulated profession in India around 1700-2200 years ago as shown below. deposit taking and other financial services – evolved in India during the first millennium B. dating back to prehistoric times. providing legal status to chits as non-banking financial intermediaries. procedures of dispute settlement. weekly. There are two types: the conventional type. As chit funds grew in size and volume and the risk of fraudulent pyramid schemes increased. found all over the world. 15 September 2012 81 . there has been a tendency of regulating the chits. after ten years of deliberations. in which the full amount contributed (apart from minor deductions) is allocated to one member at a time. reciprocal lending and tradingcum-lending to specialized lending. they were increasingly included in the formal financial sector. and remnants of its historical informal precedents are still in existence. Starting with the Travancore Chit Act of 1945 followed by other state-level laws. or into organizers of (informal or formal) chit funds. In response to increasing business opportunities. but I do not know over which period of time. a cycle ends when each participant had his turn. and an advanced type found in a number of Asian countries including China. usually under an organizer. and from lending-in-kind to lending-in-money before the first millennium B. this is a subject on which I have no information. ceilings on aggregate chit amounts. Vietnam and Nepal where the amount collected is allocated by auction to the lowest bidder and the balance returned to the members. There was probably a long period of transition from gift-exchange.vast parts of south and south-east Asia and may continue to do so as far as its latest rural finance innovation is concerned: SHG banking.

In addition there was social banking..] Regulation evolved during the first two centuries A. Unrecovered loans were written off after 10 years. deposit-taking.] Usury initially was a major issue of religious disputation. issuing drafts.[It appears that moneylending and banking were not monopolized by the respective castes. 82 . supposedly reflecting different assessments of risk by caste [These figures are based on the Manu.D.m. followed by the emergence of a guild of merchant bankers. the oldest parts of which date back beyond the first millennium B. a differentiation took place between the guild of moneylenders and the guild of traders. [Financial services provided by the merchant bankers included lending. as Hindu temples and Buddhist monasteries were frequently involved in financial services as a means of selffinancing.m.25% p. revenue collection. money-changing and safekeeping of valuables. The basic principle of merchant banking were mutual trust and mutual benefit: very much in contrast to what emerged at the same time in rural finance. merchant banking grew enormously. on secured loans and higher rates on unsecured loans. Schrader 1997:71-83) Medieval India. but at a substantially higher rate. on loans to a priest (Brahman) to 5% p. Some secured commercial interest rates during the 17thcentury were reported between 0. with its highly monetized economy was the heyday of indigenous banking. 15% p. They also advanced working capital to weavers and other artisans to produce goods on order for Indian or European merchants – an Indian (monetized!) version of the putting-out system.m. and 300 A. dharmashastras. interest-free loans to the deserving and the poor. was written regulating loan deeds. law courts and debt procedures in detail. hundi (written drafts). and the financing of wars.m. Moneylending and banking became licensed and tax-paying professions. minting. The latter ranged from 2% p. Some top bankers also provided state financial functions: treasury. held by individual firms. to a cultivator (shudra). joint family firms and partnership firms – all within the same baniya caste. This was eventually resolved by agreements over “reasonable” interest rates. on loans to high-risk borrowers such as sea-faring merchants and forest explorers.which dealt in goods and money.m. The regulation thus led to a substantial lowering of interest rates.5 and 1.a. discounting bills and promissory notes.C. The older Kautalya reports interest rates of 5% p.] Interest payments could also be made in kind. With domestic and international long-distance trade. respectively. risky commercial credit fetched a flat rate of 40-60% per trade venture. when a law code. appeared already in the Vedic scripts. providing guarantees. the period from the mid-thirteenth century to the beginning of British rule during the eighteenth century.C. eg. but differentiated into numerous sub-castes. on ordinary monetary loans irrespective of caste and rates of 10% and 20% p. Between 200 B.D. ie. letters of credit and circular notes. and banking became a sub-caste of the traders’ caste (vaisya). The guilds eventually turned into strictly hereditary castes. one of the ancient texts of the time. Their customers included European private merchants and trading companies. (Bhargava 1934.

At the same time. spread under the Delhi sultanate with the introduction of a system of land revenue. enslavement and even death for what was considered an act of rebellion against the government. is described in detail by Schrader 1997.Rural finance. This resulted in the overall commercialization and monetization of the rural economy and the expansion of trade. This led to a land revolution-in-reverse: dispossessing the peasants and converting their rights of occupancy into rights of tax collection (zamindari): inheritable. private property and land mortgaging and the transformation of subsistence agriculture into cash. merchant bankers financed trade. housing tax and cattle tax to be paid in cash. then was reigned in by moneylender. Cooperatives. During the first half of the 20thcentury. In rural areas. they could not be displaced as long as the revenue was paid. rural indebtedness first increased. Land was abundant. alienable and mortgageable. At the same time it created a new market for the financial professions: rural moneylenders advanced land revenue payments to the peasantry. this was followed by a rise in domestic trade and a shift to Bombay as the main centre of indigenous industry and banking. bonded labor. Moneylending became part of everyday life in Indian villages. the bankers’ castes rose to new heights. usury and tenancy legislation. introduced top-down.crop production created new opportunities for moneylender. European finance limited itself largely to European enterprise. ie. In British India microfinance and banking changed substantially. However. This created a large class of rentseekers. forcing the peasants to produce for the market. during the period from the sixteenth to the eighteenth century. As rural indebtedness and the loss of land to moneylenders surged. but the payment of taxes in cash was difficult. 15 September 2012 83 . Assessments of actual production were soon replaced by average pre-assessments. which caused severe hardship during bad years. starting in 1757 (Battle of Plassey). The urban population paid a mere 5% of their income in taxes. The imposition of trade restrictions and the exclusion of Indian merchants from long-distance maritime trade led led to a decline of indigenous trading and merchant banking. but finally led to the rise of new types of lenders with an interest in acquiring the land of their borrowers. moneylenders and a ruling class of landlords and officials without a salary but with rights to collect revenues. microfinance turned into usurious moneylending of the worst kind. if not. they kept about one quarter and transferred between one quarter and one third of the revenue to the government. Peasants became serfs. who could now enforce their claims in court. Indigenous banking in Mughal India. Interventionist policies such as the preferential importation of cloth from England dealt a death-blow to Indian textile manufacturing and the ancient commercial structure. but. mostly in the form of abusive moneylending. new legislation on land revenue collection. comprising tax collectors. while land assessments in rural areas varied from one third to one half of the produce. establishing joint-stock companies or buying shares of Hindu capitalism Draft. In the sphere of big business they adopted Western banking by pooling their capital. were punished by expropriation.

e. V. A common base number was 15 per cent per annum – what the banker-economist Dr. this is higher than current Prime Lending Rate (PLR) of many banks! It was not as though everyone used to get loans at PLR. it was not everyone who could take up banking business. What about disputes and debt recovery? Manu specified the punishments to be given in case of disputes arising about loan repayment and listed 18 types of disputes. Interest rates were prescribed by almost all Hindu law-givers Manu. Vaishya 4 per cent and Shudra 5 per cent per month. [Sanjeev: for such a rate to be paid. to recover the dues. and recent archaeological discoveries supply evidence of the existence of sresthis. Vasistha. Chanakya's interest rate structure was risk-weighted since the rate of interest increased with the risk involved in the borrowers' business.3 How loans were recovered Here's more on ancient Indian banking institutions: Future of Rural Banking by Y. Only men belonging to the Vaishya caste could take up the moneylending profession. Manu permitted the king to employ all means. it was the duty of the king to ensure that the creditor got back his money. Where the merchandise had to pass through forests.] Incidentally.C. Only prime borrowers got at PLR. Gautama and Baudhayana as also Kautilya. e. But. The traders were charged a rate of 60 per cent per annum. Reddy [PDF] EXTRACT We have a long tradition of banking. it appears that money-lending and allied problems had assumed considerable importance in ancient India. Thingalaya calls Hindu rate of interest. in the small and medium business sphere indigenous-style banking continued.g. they were directly linked to the caste classification of the borrowers. What were the interest rates? The role of interest rates was recognised in ancient India. the interest rates were not to vary depending on the risk involved or the purpose for which the money was borrowed. Again. Evidence regarding the existence of money-lending operations in India is found in the literature of the Vedic times. 2000 to 1400 B. the traders had to pay 120 per cent per annum while those engaged in the export-import business handling sea-borne cargo had to pay 240 per cent per annum. However. i. 6. or bankers. the Jatakas.. The literature of the Buddhist period. Brahmin was to be charged2 per cent. 84 .banks. Kshatriya 3 per cent. Yajnavalkya. there had to be commensurate rewards in the market. When a creditor sued the debtor for recovery of money. though the basis was different then. According to Manu and Vasistha. fair or foul. From the laws of Manu.. The interest rate worked out to be 15 per cent per annum for general advances.

8:2. I've requested two books from the library. and will perhaps revert in the coming week/s or months to this topic. 1929). 15 September 2012 85 . this last bit on usury (below). her husband was liablefor repayment. in Hindu captalism. Manu held the view that a defaulter could not absolve himself of his debt burden even by death. The massive temples (all endowed privately) across India are testimony to the absence of restrictions on trade and free banking. perhaps.4 Absence of usury prohibitions in Hinduism I think I'll call it a day now. India would have been a super-wealthy nation by now.. pp. it has been interpreted as interest above the legal or socially acceptable rate[i]. It could have been easily converted into a GREAT FREE MARKET SYSTEM. Anyway.e. Was a spouse. Until then. i. then by Nehru and his Godchildren. London. first by the British. as you'd expect. that's my hypothesis. Basically. for the debt incurred by a wife. It is this piece that me the reference to Jain's book/s. Visser and Alastair McIntosh Centre for Human Ecology First published in Accounting. although in some instances and more especially in more recent times. But there was nothing in principle. However. the practice of usury can be traced back approximately four thousand years (Jain. Yes. 175-189 INTRODUCTION The concept of “usury” has a long historical life. the Indian state (or rather. Chanakya said that sons should pay with interest the debt of a deceased person or co-debtors or sureties. and during its subsequent history it Hindu capitalism Draft. Wife was exempted from debt burden of her husband if she had not given her assent to his borrowings. that prevented economies of scale. Accepting this broad definition for the moment. torturous punishment like killing the debtor's wife. This was a key driver of prosperity in India. and gave its merchants and bankers enormous clout. Business & Financial History. Yes. kingdoms) needed to impose a few more protections. as far as preliminary research on Hindu capitalism is concerned. throughout most of which it has been understood to refer to the practice of charging financial interest in excess of the principle amount of a loan. and no. July 1998.M. husband or wife responsible to pay for the debts incurred? Yes.for example. children and cattle or obstructing his movements. but Hindu capitalism was largely self-sufficient. EXTRACTS A Short Review of the Historical Critique of Usury (Riba) BY Wayne A. It is increasingly clear that had it not been for deliberate suppression. Routledge. Hindu capitalism didn't have much to say against 'usury'. 6. there were excesses – when high rates were charged in villages from the poor.

as well as various modern socioeconomic reformers. The scope will not extend to a full exploration of some of the proposed modern alternatives to usury. More frequent and detailed references to interest payment are to be found in the later Sutra texts (700-100 BC). scorned and restricted. New York: Columbia University Press. as is implied in the Laws of Manu of that time: “Stipulated interest beyond the legal rate being against (the law). Islam and Christianity. M. to examine reasons for its repeated denouncement and. During the Delhi Sultanate. usury refers only to interest charged above the prevailing socially accepted range and is no longer prohibited or controlled in any significant way. By the second century AD. usury had become a more relative term. 1000 years ago) [#2] The usual late night browsing has led me to another interesting source: Muslim Civilization in India by S. as well as the Buddhist Jatakas (600-400 BC). Dadabhai Naoroji’s notes on the displacement of Indian capitalism   Some more notes on Hindu capitalism (appx. 1929: 3-10). a well known Hindu law-maker of that time. finally. made a special law which forbade the higher castes of Brahmanas (priests) and Kshatriyas (warriors) from being usurers or lenders at interest. [Sanjeev: This is not a restriction on usury but a form of occupational regulation. ethical. it would appear.5 How British joint stock system and barriers displaced Hindu bankers Hindu Capitalism #10. Judaism. It is during this latter period that the first sentiments of contempt for usury are exressed. in the Jatakas. For example. prohibited. Ikram. except to describe the growing practice of Islamic banking as an example. a labour market restriction. mainly on moral.400 BC) in which the “usurer” (kusidin) is mentioned several times and interpreted as any lender at interest. This dilution of the concept of usury seems to have continued through the remaining course of Indian history so that today. This book is available freely online. to intuitively assess the relevance of these arguments to today’s predominantly interestbased global economy. 1964. while it is still condemned in principle. 6.] Also. It is the objective of this paper to outline briefly the history of this critique of usury. This must be deplored. Usury in Hinduism and Buddhism Among the oldest known references to usury are to be found in ancient Indian religious manuscripts and Jain (1929) provides an excellent summary of these in his work on Indigenous Banking in India. usury is referred to in a demeaning manner: “hypocritical ascetics are accused of practising it”.has been repeatedly condemned. religious and legal grounds. this is what happened: 86 . cannot be recovered: they call that a usurious way (of lending)” (Jain. Buddhism. The earliest such record derives from the Vedic texts of Ancient India (2. but this didn't really regulate interest rates. Vasishtha. Among its most visible and vocal critics have been the religious institutions of Hinduism. To this list may be added ancient Western philosophers and politicians.000-1. however.

during a war have his movable goods confiscated. although foreign Muslim merchants. who borrowed money from them to the maximum limit. sign documents. Whenever a malik or a khan held a banquet and invited notables. and borrow money with interest. for example. borrowed from the Hindu money lenders. The imports consisted mainly of certain luxury items for the upper Hindu capitalism Draft./2/ Industry and Trade Hindus occupied an important role in foreign. and beneficence. Trade and commerce also remained in Hindu control. We hear. be wrong to think that the Hindus were completely excluded from service. dispensation. for to the Muslim invader from Central Asia. Except in their public halls no gold or silver could be found. seeing the danger to his government from the power of the Hindu rural chiefs. ‘The maliks and the khans and the nobles of those days were constantly in debt. and they had no savings on account of their excessive liberality. as under the old. The Hindu merchant might be heavily assessed. in consideration of the heavy taxes which they paid to the treasury. The land system was not altered. It would. if not all. expenditures. or. also had a large share of it. made a determined attempt to curb their power and reduce their wealth. 15 September 2012 87 . Even the powerful Ala-ud-din Khalji who. about the large incomes of the Muslim grandees and the splendor of their households. trade. The money-lender thrived under the new. however. owing to their excessive generosity. An organized class of brokers handled the business on the coast and inside the country.’/1/ That the money lenders recovered their money along with interest (forbidden under Islamic law).==EXTRACT== All these factors make the sultanate a period of tensions and conflicts. his agents would rush to the Multanis and shahs. The rulers of the coastal kingdoms in the Deccan accorded to foreign merchants certain extra-territorial rights and special concessions. but Barani leaves us in no doubt that most. known as khurasani. The wealth and riches of the Multani merchants and the shahs [money lenders] were from the interest realized from the old maliks and nobles of Delhi. the complex Hindu banking system would be unfamiliar and unworkable. as in domestic. found it necessary to make Hindu traders the main instrument of his price control measures. and repaid their debts along with additional gifts from their [lands]. but he was too much a part of the intricate commercial structure to be easily replaced. is an indication of how vital they were to the system.

Hindus had never attached any importance to cavalry. millet. and the contribution of the state to the development of the industry was not a minor one. in which India was deficient. scents. but the variety of cloth produced was originally limited. Some of the countries around the Persian Gulf depended on the subcontinent for their entire food supply. indigo. The royal factories at Delhi sometimes employed as many as four thousand weavers for silk alone. of which little is known except that Delhi was the center of a considerable market. and sugar. although some reached Europe. The Indian textile industry is very old. as well as household needs such as trays and basins. but seeing the success of the Muslim horsemen. and in certain localities. The Muslim rulers from the days of the Arab occupation of Sind 88 . non-Muslim zimmis are subject to their own laws and social organization. The example of the sultan of Delhi was followed by the rulers of the regional kingdoms. from where they were distributed to the Mediterranean countries and beyond. particularly to Southeast Asia and East Africa. rice. They were carried by the Arabs to the Red Sea and from there found their way to Damascus and Alexandria. This was in accordance with the established axiom of Islamic law that while Muslims are governed by the Shariat. and a general supply of all kinds of horses and mules. various items of metal work. the Hindus had virtual autonomy during the sultanate. but it was also a product of the Indian situation. Taking advantage of the local talent. the Muslims introduced a number of fine varieties of textiles. Cotton cloth and other textiles were especially important items of export. Next in importance were a number of industries connected with metal work: the manufacture of swords. oilseeds. In certain aspects of social life. and in Bengal enough was produced to leave a surplus for export after meeting the local demand. for supplying its requirements. Bengal was the main center of this industry. most of which had Persian or Arabic origin. The exports included large quantities of food-grains and cloth. medicinal herbs. pulses. paper. but the government equipped and managed large-scale karkhanas. they started to substitute horses for elephants. but Gujarat rivaled it as a supplier of the export trade during the sultanate period. or factories. the most important of which were textiles. guns. Paper-making was a minor industry. Among the agricultural products were wheat. Many industries of considerable size and importance developed during this period. and knives. sugar. These industries were mainly privately owned.classes. Manufacture of sugar was also carried on on a fairly large scale.

I’ve significantly truncated the article which focuses on institutional analysis of the impacts of inheritance. Scholars are looking again at banking and mercantile families in India’s early modern history.’[1] Some of the underlying assumptions and questions being asked are old and some are new. spouses. North Carolina: Duke University Press. has been that bankers and merchants played multiple and important roles with respect to states in South Asia. helps consolidate and maintain resources within joint Hindu capitalism Draft. and in commerce and industry the Hindu guilds were supreme. 2009. This position continued throughout the Muslim rule. Birla is a professor at the University of Toronto. (2011).Merchants. and Market Governance in Late Colonial India (Durham. by contrast. 15 September 2012 89 . and has written Stages of Capital: Law.accepted the right of the village and caste panchayats to settle the affairs of their community. parents. Traders. and sometimes more distant relatives.[2] Consideration of legal norms alerts us to claims being made by Timur Kuran and Anantdeep Singh about the advantages of Hindu law over Islamic law (as written in legal texts) for capital accumulation and the continuity of family firms in the South Asian and Middle Eastern economic worlds. and Inheritance.  Notes on Hindu capitalism – continued: #6 As part of my research I’ve come across a recent article which throws light on aspects of Hindu capitalism. Hindu Mitakshara law. Hindu autonomy outside the principal towns was particularly effective. While Muslim women receive only half of what men in each category do. entitled: Family Firms in Hyderabad: Gujarati. Ritu Birla’s work. Culture. as they had been since ancient times. Below are key extracts from this article. upon which this article relies. This meant that the Hindu villages remained small autonomous republics. legally they should inherit. I’ve now got to find out more about her thesis. divide and diminish family resources. My own longstanding assumption. they argue. Timur Kuran’s work has been cited in this context (recall that Kuran is a major analyst of banking institutions in Islam and of institutions more generally. but during the sultanate. Islamic laws of inheritance. and Marwari Patterns of Adoption. when the provincial administration had not been properly organized. most notably. Goswami. the Mughal state. to ‘return the merchant to South Asian history. responding to the challenge issued by Claude Markovits in the epilogue of his 2008 volume. and that their relations with non-kin officials and other political actors determined theirsuccess or failure and sometimes the success or failure of a state. by Karen Isaksen Leonard. Marriage. I was fortunate to be taught by him). partitioning at least twothirds of an estate among children. Entrepreneurs.

[8] Marwaris came originally from the Marwar region of Rajasthan.[7] In Hyderabad by the late nineteenth century. Maheshwaris. laws evolving in surrounding British India and the establishment of a British Residency in Hyderabad began to affect family firms by providing new legal arenas for cases involving transactions and property holding. and 90 . for example.’ Speculating that colonial conditions ‘intensified the fluidity of the legal order and enhanced the strategic importance of personal law. and. and inheritance practices among Hindu and Jain family firms in Hyderabad. I look closely at three Hindu and Jain banking andmercantile communities.’[6] Benton anticipates Rita Birla’s arguments about negotiations between kin-based indigenous commercial networks and market-oriented colonial commercial law from the late nineteenth century. marriage. a princely or native state outside British Indian jurisdiction. caste. Birla refers to the ‘extensive negotiability’ that characterized vernacular practices governing the symbolic capital of kinship. attempts to devise laws and impose them on religious and caste communities varied over time and by region. and they have many subdivisions. Legal pluralism prevailed in the native states even as British India codified colonial laws from the 1860s. even in British India. or community. Gujarati merchants and bankers are so named because their homeland is Gujarat. and lineage. These firms came from three major financial communities: the Gujaratis. focusing on adoption. where the state made no attempt to regulate customary practices with respect to marriage. Sumit Guha. Goswamis. Hindu women do not inherit and joint-family enterprises pool capital and discourage partitions of an estate. Lauren Benton suggests that Indian litigants helped move a plural legal order toward a state-centered legal order by seeking to ‘exploit jurisdictional complexity. eighteenth-century conceptions of rights and legal practices in the Maratha country. and inheritance within each kindred. in which several unwritten and written bodies of law and custom could be invoked or set aside as the case might be. discussesprecolonial. a situation that colonial laws sought to restrict. caste. adoption. some of them Hindu (mostly Vaishnavite.’[5] The present research pertains to Hyderabad. To consider these issues.[9] The three major Marwari castes or subcastes are Agarwals. often indefinite jurisdictions.[4] Other legal questions concern the interactions between customary or personal law and the evolution of British colonial law in much of South Asia. worshippers of Vishnu) and some of them Jain. India. and the capital flows of market exchange and production. and Marwaris. ‘a region of shifting political boundaries.families.

the first two predominantly Jain. In contrast. so marriage networks could be and often were wide-ranging.[18]) Finally. whose roots were in northern and central India. Gujarati and Marwari Hindu and Jain bankers and financiers practiced caste endogamy butgotra. Goswami.[11] although listings of firms by locality and biographies of individuals appear in various sources. at least it seems a less-than-useful concept when analyzing the family firms in Hyderabad. Indian Muslims in general encouraged and often practiced cousin marriage. or subgroup exogamy. derived from orally constituted genealogies and also from Hindi family histories of Marwari entrepreneurial families in Hyderabad. the first concerning adoption. high infant and child mortality made the survival of sons (the heirs under Hindu law) to adulthood problematic. 15 September 2012 91 .[15] Hindu law permits adoption even by widows and of adults as well as children. I argue that trust is a mischaracterization or overstatement of the values and practices that helped maintain family firms and their financial networks. in contrast to Islamic constraints on adoption. Before the demographic transition. My second argument is that marriage and inheritance practices among these patrilineal mercantile families were actually quite flexible. Discussions and debates about trust focus chiefly on long-distance trade diasporas but also raise issues of kinship. celibate mendicants by tradition. possibly leading again to an advantage for the Hindu bankers and merchants in terms of access to capital and other resources. and Marwari family firms.[13] With this pattern in mind.[10] predominantly Vaishnavite and the last The Goswamis in Hyderabad were Shaivite (worshippers of Shiva) sanyasis. Wives and their kin did play roles in mercantile family histories. gave an obvious advantage to Hindu and Jain family firms when it came to the continuity of their firms and financial networks.[12] Historical study of Gujarati.Oswals. the purpose being to provide heirs to property and resources rather than to provide for children.[17] Flexible family strategies meant not only continuity for the family firms but also a potentially broad spatial range of financial networks. and Marwari banking firms in Hyderabad State prior to the state’s 1948 incorporation into India suggests several lines of argument.[16] I will present detailed evidence of the prevalence of adoption in Gujarati. Hindu capitalism Draft. This could result in a more limited range of options for marital networks. Goswami. Not much has been written about these communities in Hyderabad. I argue that Hindu and Jain encouragement of adoption. notably involving affines relatives by marriage as major players. (On the other hand. cousin marriage could offset the dispersion of resources caused by Islamic inheritance law: empirical data is needed here.

caste. arrived in Hyderabad at different times. and Marwaris. made agreements with the British resident establishing the Hyderabad Contingent. paid by the Nizam but led by British officers. Nizam Ali Khan’s successors. and by 1850 the situation was drastic.Goswamis.[29] The importance of these firms to statebuilding and maintenance is being increasingly confirmed. serving as state treasurers. as I will show with case studies. Sikander Jah (1803-1829) and Nasiruddaula (18291857). by 1813-1814.[20] Thus entrepreneurial success on the part of Hyderabad’s financial communities was more readily accounted for by close relationships with other political actors in Hyderabad. No authoritative.[30] and scholars are also looking hard at pre-modern merchant and trading networks in South Asia and beyond. a debt that grew in the 1830s and 1840s and led to Hyderabad’s financial crisis of the 1840s. HYDERABAD STATE: REVIEWING THE CRUCIAL ROLE OF BANKERS Banking firms. and established close relationships with particular officialsand nobles at the Nizam’s court. particularly what have been termed ‘great firms. minters of money. Nizam Ali Khan (17621803). revenue contractors.[32] Bankers and merchants from these last three communities. The tumultuous period of the late eighteenth and first half of the nineteenth century saw bankers becoming crucial players in Hyderabad state politics. reassessing their relationship to the development of capitalism. and revenue-collectors as well as maintaining long distance credit and trade networks.[31] Yet there is still no definitive history of banking in India that integrates premodem and colonial materials across the subcontinent (including the native or princely states). moved the capital fromAurangabad to Hyderabad. and postcolonial South Asia. 92 . Successive Diwans sought funds from bankers and mediated among bankers. of Gujaratis. settled incertain localities. a military force that was. The second Nizam. and mercenary troops. Financial arrangements resorted to after the Palmer bankruptcy in 1824 failed to ameliorate the situation. and religion that arc relevant here.’[28] had been important participants in state-building in precolonial India. the British Raj. comprehensive history relates the ‘great firms’ and diasporic trading networks to the agency houses and joint-stock banks that emerged under the East India Company. as well as the issue of the degree of merchant reliance on orautonomy from state power. all of who became crucial to the state’s finances. The British resident pressed for the back pay due to the Contingent.

and one in Chaderghat. Komatis. although there were Bohra families settled in the old city locality of Husaini Alam. although others were also settled there.[43]but this would not explain the scarcity of Muslim bankers in Hyderabad.[44] Afghan or Pathan moneylenders weresometimes mentioned as loaning money to state officials and nobles but were not prominent as bankers. a Persian history. The bankers are millionaires.[42] Muslims were bankers and traders in the subcontinent and in Hyderabad. Claude Markovits. a Gosain] associates with the Afghan military leaders and is fond of fighting…. five in Karwan (all Gujaratis). or Residency Bazar (a Parsi): ‘Side by side in Begum Bazar are the houses of the Marwaris. mistrust or rivalry Hindu capitalism Draft. from formerly Hindu caste communities that continued to follow Hindu law and so were important as merchants and bankers in western India. found asurprising incidence of women recognized as heirs in 118 succession cases among Shikarpuri Sindhi merchant court cases in the 1890s.[45] Khoja and Bohra Muslims. One explanation offered for Muslim under-representation in the management of large Indian firms stresses not just Islamic inheritance laws but enforcement of them under British rule.’[52] Given the provisions of Hindu Mitakshara law. It lists ten bankers. four in Begum Bazar (three Goswamis and a Marwari).[59] This Gujarati family firm all by itself illustrates many issues of interest here: adoption. a state outside British jurisdiction. although later these roles were filled by various Hindus. 15 September 2012 93 . Muslim bankers were present and active in Hyderabad in the late eighteenth and early nineteenth centuries. and other financiers and traders … and in Karwan Sahu. it seems that the original ‘Panch Bhai’ (five brothers) bankers of Hyderabad in the late eighteenth century were Muslims. Tantalizingly. the Gujaratis reside….[46]were not leading bankers in Hyderabad.[55] Karwan was dominated by Gujaratis.[53] The leading Hindu bankers in Hyderabad State were initially Gujaratis settled in Aurangabad and in Karwan (just outside Golconda Fort). describes Hyderabad’s evolving banking communities and their localities in the early nineteenth century and highlights non-Muslims.HYDERABAD’S MUSLIM AND HINDU BANKERS While the absence or near-absence of Muslim bankers is often attributed to the Islamic prohibition on the taking of interest. [One of them. Afghans. The bankers also loan to the nobles and to the Nizam himself. but they did not establish family firms that lasted. they have access to the Court. for example. The Gulzar-i Asafia. lending millions of rupees to the state and financing the land revenue contractors…. flexible use of kinship ties. Gosains.

passing leadership to sons. or relatives through affines to carry on entrepreneurial activities. Of the thirty-two Agarwal family histories (including a few Digamber Jains). ranging in generations from one to eIeven. one that enjoyed substantial military backing from nearby Secunderabad and in British India. and. In some families there were as many as four or five adoptions. marriage. Of the sixteen Oswal Jain family histories. Adoptions were plentiful.among relatives. ranging from two to nine generations. WHAT HYDERABAD’S MARWARI FAMILY HISTORIES TELL US No matter how brief the histories.[66] Many of the men had more than one wife. in oral accounts of the firm’s affairs. attracted increasing numbers of bankers from Karwan and Begum Bazar and the old city from the 1820s since the British Residency area offered them protection from the Nizam’s desperate requests for more money. eighty-nine in all.[88] eight mention no adoptions. leading roles for women.[87] usually of relatives but not always. The Benkati Das cluster of closely related Gujaratis in the banking business shifted residences and temples (their Gokulnath temple and the private Bhagwan Das family Giriraj temple) from Karwan to Sultan Bazar in about 1900.[72] A competing British Indian legal system was developing there. and many fathers died leaving a very young son or sons. Of the forty-two Maheshwari family histories. cousins. These genealogies show the family firms responding to mortality and age structure. of from one to eleven generations. but theflexible family strategies are very clear. Recent work by Kuran and Singh relates normative Islamic and Hindu inheritance laws[94] to the relative continuity of Muslim and Hindu family firms. The British Residency. In sum. and twenty-two mention a total of thirty-five. forty-nine of these ninety Marwari families migrating to the Nizam’s state give histories that include adoptions. Whether or not actual adoptions were involved is not always known (only one was explicitly mentioned in interviews). While the possibilities of such links are promising (particularly 94 . most of them being a second or younger son of a younger brother given to an older brother or cousin brother. and the other eight record sixteen. twenty mention no adoptions. CONCLUSION Patterns of adoption. and inheritance among the predominantly Hindu and Jain banking communities in Hyderabad State show family histories interacting with changing political and legal regimes. nephews. sometimes at the same time. or Sultan Bazar locality. suggesting that multiple wives as well as adoptions served the strategic end of securing living sons. there were thirty-seven adoptions in nineteen families. again and again only one son of two or three survived.

not considered by Kuran and Singh). that the striking success of the Khoja and Bohra Muslim communities was due chiefly to the continued adherence of these endogamous communities (once Hindu castes) to Hindu law with respect to inheritance. Their work rests on severalassumptions: first. progress. Charles Northcote Cooke was a senior banker. second. it also shows that multiple wives and the flexible incorporation of at least some affines into family businesses helped supply male heirs to the family firms. BANK OF BENGAL. Charles Northcote Cooke.’[97] Jack Goody contends that in both South Asia and Europe kinship groups and extended domestic units often played critical roles in commercial and industrial activities both before and after the development of capitalism. and whether or not such practices were regulated by the state in any way.M.. and present condition of banking in India. 15 September 2012 95 . and third.[95] Further. P. the material presented here highlights the significance of marriage. while the Hyderabad evidence testifies to the frequency of adoption in Hindu and Jain financial communities. I’ve found a 1863 book on Indian banking and have started reading it (The rise. I’ve removed all footnotes. Cranenburgh. below. 1863. BY CHARLES NORTHCOTE COOKE. Bengal Print. Please check original PDF. that the common Muslim practice of cousin marriages did not effectively counteract the divisive effects of Islamic inheritance law. PROGRESS.with respect to adoption. being Deputy Secretary and Treasurer to the Bank of Bengal. DEPUTY SECRETARY AND TREASURER. ESQ. that both Hindu and Muslim financial firms actually followed Hindu and Islamic inheritance law when it came to succession.)  I’m presenting extracts from its preface and second chapter (on the antiquity of banking in India). PREFACE Hindu capitalism Draft. adoption. THE RISE. along with annotations in colour. Claude Markovits argues that Asian merchants were ‘some kind of capitalists’ and writes that the South Asian merchants were able ‘to maintain significant areas of independent international operations throughout the period of European economic and political domination in Asia. AND PRESENT CONDITION OF BANKING IN INDIA. == Notes on Hindu capitalism – continued: #5  As mentioned earlier today.. and inheritance practices within communities. Co. much more study is needed. 1863.[98] As scholars look again at South Asian banking and mercantile families and firms.

to give me the most trifling information. when my own notes have proved insufficient for the purpose. In writing the history of some of the Banks. Formerly. I desire to claim for it no other merit than that of being the first of its kind in this Country. in kind. according to practice. Royd Street. was charged with a large proportion of social and political responsibilities. No. the Banker has always been an important member of Indian society. The Empire had its Banker. to whom I am under obligations for his courtesy in forwarding it to me. which. the Soubah had its Banker. but the refusal. as well as the peculiar character of some of them. each. H. Some useful hints have been afforded me about Ceylon. and the records of the Mahomedan periods of our history. No royal or imperial Council was complete in its members without the Banker. has foiled my best endeavors. The royal or imperial exchequer could not well accommodate the rather bulky forms in which the revenue was collected from the people. the Zillah had its Banker. in some quarters. NORTHCOTE COOKE. with the assurance that it has been put forth simply to supply a want. Its antiquity in India THE knowledge of Banking in India was long anterior to the settlement of the English in this part of the globe. The principal source of the revenue was the land tax. and the Village had its Banker. by a well-penned and unpretending little brochure by Mr. was paid in kind. with this acknowledgment. D. I have availed myself freely of the information to be found in the Banker’s Magazine. CALCUTTA. necessitated the employment of metallic and paper currencies. The traditions of the Hindoo. Each in his sphere exercised an engrossing influence. endow the higher classes of Bankers with the character and powers of Ministers of State. and the magnitude of the royal or imperial transactions. Accountant of the Chartered Mercantile Bank at Colombo.IN submitting this work to the Banking and Commercial Community of India. discharging functions of indispensable necessity to the well-being of the community. From time immemorial. I am sensible of its manifold imperfections : but. though the system under which it was carried on was widely different from that which European skill and science have introduced. in all divisions and sub-divisions of that society. and. Andree. as they may be useful in the event of the work ever reaching to a second edition. 2. he had his type and representative. and mercenaries seldom stipulate for remuneration with necessaries. or with luxuries. Standing armies had early become a part of Indian institutions. A pervading and a properly organized agency was therefore constantly necessary to convert the proceeds of the 96 . I shall still be happy to receive any suggestions. 28th May 1863. I could have wished to have made it more complete than it is. in addition to his financial. CHAS. I trust to disarm severe criticism. Though too late to be remedied.

and he whose father transacted the emperor’s or the soubadar’s monetary business had.The Village Banker. destroyed the universality of the institution and the nature of its form. The general state of society also precluded the independent accumulation of capital in many hands.taxes into a useful form. Hence the institutional character and political influence of Indian Banking. in dealing with the public stock. and consolidated the system into an institution. They possess extensive credit throughout the country. and the conversion of taxes in kind into money-taxes. None therefore but the possessors of political influence ventured to deal with them. and forms of civil government. The son of the Banker could only be a Banker. caste came to the aid of these causes. and appropriated by. it bears a less peculiar character than before. though under much alteration. the Zillah Bankers. the revenue collector and the independent capitalist. The Banking Corporations and Government Agencies at the Presidencies. that have succeeded the hereditary establishments of the Dosses and Setts of imperial times. The action of British laws. Village Mahajuns: The character and functions of the third are well Hindu capitalism Draft. Last of all. It has only shaken off the trammels with which tradition and conventional forms formerly bound it. in some measure. and to make the public resources readily available to the demands of the State. according to the first Indian notion of rights. and may be promptly recognized in the Village Mahajun. and the Village Mahajuns. though an extensive system of Banking is carried on. and comprise some of the most honored names in Indian society. and is largely mixed up with the funding and general commercial business of the country. still maintains his character and position. are devoid of the political influence which the latter exercised. in which they are often found engaged directly on their own account. like most other of our village dignitaries. and have a close connection with the internal trade of the country. The functions of the Zillah Banker have been divided between. The Bankers of the present day may be divided into three classes: the City Shroffs. Zillah Bankers: The second are the depositaries of the monied wealth of the landed families or their creditors. and at present. have. The diffusion of capital. City Shroffs: The first are chiefly engaged in exchange operations. have closed up some and opened other channels of Banking business. The occupation is not gone. 15 September 2012 97 . and making advances on securities to commercial establishments. and the ruler and the provincial governors were often personally the least trustworthy men in the country. but it nevertheless retains its vitality. an indefeasible title to succeed to that business.

known. In the North-Western Provinces, the Village Mahajuns are, owing to
the impoverished condition of the agricultural classes, and to the severity
of the operation of the revenue laws upon them, a thriving, in fact the only
thriving class. In Bengal, every man, with a little spare cash, is a
Village Mahajun.
Of these several classes, the one, which is most directly useful to the
community; is the class of Zillah Bankers. Their close connection with the
landed interest, and the assistance they afford towards the exportation of
the superfluous produce of the interior districts of the country, give a
peculiar value to their services. They form efficient props to the fortunes
of the landed families which connect themselves with them, and have
frequently rendered important aid to the Government. Of this Lalla
Joteepersaud is as instance. During the mutiny in 1857-58 he came
forward most liberally and nobly to assist the authorities.
The urgency of the periodical calls for the public revenue from
landed proprietors, and the serious consequences of default in
the payment of the assessment, render the assistance of the
Bankers of the last importance. Theiragents also are to be found in
most produce marts, making advances to dealers, and their
operations extend in some cases, we believe, to the bonding of
produce. By all these means, they afford much assistance to the
agricultural interests of the country. The vast improvement that has taken
place in Scottish agriculture, owing to the peculiar system of Banking
prevailing north of the Tweed, makes us almost wish that a class of large
farmers may replace the yeomanry of this country, and that a similar
correspondence may grow up between them and the Zillah Bankers.
EXTREME INTEGRITY OF THE SYSTEM
The character and extent of Indian Banking have been frequently cited in
refutation of the unjust calumnies with which the opponents of Indian
political reform have aspersed this nation.There can be no surer proof of
the soundness of a people’s moral condition, and of their habitual regard
to truth in the transactions of life, than the prevalence of so much credit
as is necessary to the existence of such a system of Banking. The native
Bankers themselves are patterns of commercial morality. The
dishonoring of a hoondee is an event of rare occurrence with
them. They transact business with each other, and with their
constituents, with a total disregard of those forms which English
commercial men deem essentially requisite, and, without the aid of which,
indeed, an English house of business would scarcely be secure.
One peculiar feature of native Banks has always struck us as peculiarly
gratifying. The business is usually carried on by gomashtas, or clerks
holding a confidential position in the firm. They are often poor men, and
yet are never called upon to furnish security. Their remuneration is not
high, and they have often the entire disposal of the capital of a Cootee;

98

yet it rarely happens that a firm loses anything by their dishonesty.
ORIGIN OF BANKING: HYPOTHESES
The fact that Europeans are not the originators of Banking in this
country, need not strike us with surprise, for, both from internal
evidence, which the successes of the British arms in the Punjab further
extended and opened out, we know that civilization and the arts
distinguished the East for a very considerable period before the West
had begun to emerge from ignorance and barbarism. ‘When the
Dorian conquerors drove a large portion of the Greeks into exile, the
fugitives acquired new settlements in Asia (Minor), and established their
own national Bank.’
Of all the nations of antiquity, none were more persevering in the work of
colonization than the Greeks. At a very early date they traded with, and
colonized, the shores of the Black Sea, and from thence carried their
commodities, probably by way of Persia and the Caspian Sea; far into Asia.
The progress also of Alexander the Great, through the Punjab, may have
contributed to extend the knowledge which the Greeks possessed, and it
is not improbable that, long before England had ranked in the scale of
nations, India had adopted a system of Banking which may have
originated that now in use with the Shroffs or native Bankers.
In looking at Asia in this light, we are justified in assuming something from
her former position. Asia surpasses all other divisions of the Globe in the
antiquity of its population. Here were transacted events of the
utmost importance. Here the human race first made their
appearance: it was the theatre of their earliest achievements :
the grand centre from which population, science, and all the arts
of civilized life, have gradually diffused themselves over the other
regions of the world.
Another means by which Banking might have been introduced into India
was through the Jews, many of whom settled in Asia, on the dispersion of
the tribes, after the destruction of Jerusalem, A. D. 70. This proscribed
people, who are celebrated for their acuteness in monetary dealings, may
have contributed, in some measure, to the dissemination of Banking as
observed by the aborigines of this country.
Whoever is conversant with Scripture history, and has given his attention
to the customs of this country, cannot fail to notice a very close
resemblance between the practices of the Jews and the natives of
India. But although the Shroffs have, for ages past, been considered the
Bankers of the country, there has not always been a general recourse to
them; for, whether under apprehension of the exactions of the zemindars,
or from some other cause, which we may advert to elsewhere, a very
large class of people resorted to the practice, common throughout all Asia,
of hoarding up their money, or melting down the gold and silver into
ornaments for themselves, their wives and children, and thereby allowing

Hindu capitalism
Draft, 15 September 2012

99

it to lie unproductive.
Great astonishment has been expressed, both in England and
India, at the constant and continued drain of silver from Europe,
without any satisfactory explanation or elucidation of its disappearance;
but this wholesale hoarding will afford some clue to the withdrawal from
circulation of such vast sums. Still, the profits of the Shroffs, or Indian
Bankers, were considerable, and some thirty years back they
constituted by far the richest class of the people of Bengal and
Hindoostan, and the countries appertaining to the Presidencies of
Madras and Bombay. The most wealthy are to be found settled in
Calcutta, Dacca, Patna, Benares, Mirzapore, and Bombay, but the class are
to be found located over India, wherever business exists.
==
I’m continuing my compilation on Hindu capitalism – a topic that seems to
have been seriously under-researched.
Why is this issue important? Am I trying to revive Hindutva theories? Or
aligning myself with the BJP types? Not at all!
If I can demonstrate that Indian history and economy was primarily a
PRIVATE ENTERPRISE capitalist economy, not socialist, then I can debunk
ridiculous claims of ‘Vedic socialism’ and ‘Integral Humanism’ which arise
primarily from poor scholarship and the strong influence of Nehru’s Fabian
socialist ideas.
If we can prove that Hinduism is innately CAPITALIST, then we’ve won
half the battle against Indain Marxians, Keynesians and other
socialists.Then we can hope that LIBERTY will once again occupy the heart
and minds of Indians.
This is a very important project. I’d encourage all FTI members (and
others!) to get involved. Let’s try to understand how ancient India worked,
and if we determine it was capitalist, then we can sell freedom to India
more easily.
The following is a brief extract from my copy of A Concise History of the
Indian Economy 1750-1950, by Dhires Bhattacharyya, Prentice Hall of
India, 1979.I’ve checked Wikipedia (Indian banking) but it seems to start
from when the British came, and doesn’t cover pre-British capitalism in
India. I’ll keep researching as time permits. Please assist.
There’s a book cited below (The rise, progress, and present condition of
banking in India, Charles Northcote Cooke, P.M. Cranenburgh, Bengal
Print. Co., 1863) that I’ve downloaded and will review.
BANKING DEVELOPMENT IN INDIA
‘IT is not improbable,’ remarked Cooke in his book on Banking in
India, ‘that long before England had ranked in the scale, of nations, India
had adopted a system of banking which may have originated that now in
use with the shroffs or native bankers.’ The antiquity of Indian banking can
be established by references to bankers and bank documents in the

100

The bullion which was imported by the companies was usually sold (at a discount) to the Royal bankers who often enjoyed a monopsony in respect of bullion purchases.’ remarked Cooke in his book on Banking in India. ‘that long before England had ranked in the scale. The banking houses were found useful by the East India Company for remitting its revenues from one part of the country to another and getting different types of currencies then circulating in the country exchanged for one another.Arthashastra of Kautilya and laws of Manu. on behalf of zamindars who were unable to pay the instalments of land revenue in time. During the period of Mughal rule bankers and financiers were held in high esteem. ==  Notes on Hindu capitalism – continued: #4  The following is a brief extract from my copy of A Concise History of the Indian Economy 17501950.I’ve checked Wikipedia (Indian banking) but it seems to start from when the British came. these houses rendered a number of financial services for which the help of native bankers had to be sought in an earlier period. India had adopted a system of banking which may have originated that now in use with the shroffs or native bankers. by Dhires Bhattacharyya. for a consideration. One of their functions was to stand as surety. Usually founded with the accumulated capital of retired English traders and officials.) Banking activities were usually the monopoly of a few castes who were known by different names in different parts of the country. The European trading companies in India at one time made frequent use of the services of India’s indigenous bankers. (At the court of the Nawab of Bengal in the eighteenth century the Royal bankers (Jagat Seths as they were called) exercised tremendous influence and discharged useful banking functions. of nations. the financial stability of the Royal Court appeared to rest on the principal bankers of the country.’ The antiquity of Indian banking can Hindu capitalism Draft. For their purchases in India the companies had sometimes to resort to borrowing from the native bankers at rates usually varying between 9 and 12 per cent per annum. The rise of these European houses hastened the process of disintegration of native banking establishments which were already suffering from thedisappearance of the royal patronage and the new system of revenue administration introduced by the Britishers in this country. By the second half of the eighteenth century European Agency Houses began to come into existence. 1979. Prentice Hall of India. 15 September 2012 101 . and doesn’t cover pre-British capitalism in India  BANKING DEVELOPMENT IN INDIA ‘IT is not improbable.

The rise. Bengal Print. progress. the predecessor of banking has been practised in India. (At the court of the Nawab of Bengal in the eighteenth century the Royal bankers (Jagat Seths as they were called) exercised tremendous influence and discharged useful banking functions.. BANKING IN INDIA Money lending. the financial stability of the Royal Court appeared to rest on the principal bankers of the country.M.continued: #3 Continuing my compilation of notes on Hindu capitalism. for a consideration. these houses rendered a number of financial services for which the help of native bankers had to be sought in an earlier period. Usually founded with the accumulated capital of retired English traders and officials.S. The rise of these European houses hastened the process of disintegration of native banking establishments which were already suffering from thedisappearance of the royal patronage and the new system of revenue administration introduced by the Britishers in this country. as in most other countries. Desai’s Economic History of India (Himayala Publishing House. During the period of Mughal rule bankers and financiers were held in high esteem. The banking houses were found useful by the East India Company for remitting its revenues from one part of the country to another and getting different types of currencies then circulating in the country exchanged for one another. from times immemorial. For their purchases in India the companies had sometimes to resort to borrowing from the native bankers at rates usually varying between 9 and 12 per cent per annum. The Hindu Dharniashastra laid down that different rates of interest should be charged to borrowers belonging to different castes and that only people belonging to Vaishya caste should take up the profession of money-lending. 1980). In Kautilya’s Arthashastra we 102 . Charles Northcote Cooke. There are. By the second half of the eighteenth century European Agency Houses began to come into existence. One of their functions was to stand as surety. Co. P. and present condition of banking in India. This is an extract from my copy of S. for example.M. on behalf of zamindars who were unable to pay the instalments of land revenue in time. references to money-lending in Rig Veda and various Hindu scriptures.be established by references to bankers and bank documents in the Arthashastra of Kautilya and laws of Manu.) Banking activities were usually the monopoly of a few castes who were known by different names in different parts of the country. 1863) – to review ==  Notes on Hindu capitalism . Cranenburgh. The European trading companies in India at one time made frequent use of the services of India’s indigenous bankers. The bullion which was imported by the companies was usually sold (at a discount) to the Royal bankers who often enjoyed a monopsony in respect of bullion purchases.

] There are records to show that indigenous bankers in India dealt in hundis (i. so I’m unable to trace the original source of this quotation. they made insurance by sea and land. During the early days. They charged interest simple and compound. the above arrangement was felt to be inadequate and unsatisfactory due. There are records to show that some prominent indigenous bankers even advanced loans to Government of the day. and ledgers by single and double entry.get detailed references regarding the rates of interest that might be charged by money-lenders to different type of borrowers. Desai’s book has neither an index nor a bibliography. day-books. The bankers understood and followed the fluctuations of moneyvalue. and in short. The consequence of the above unsatisfactory system was that the English Hindu capitalism Draft. and ignorance on the part of the East India Company servants of the practices of Indian indigenous bankers on the one hand and on the other. 15 September 2012 103 . And yet the money-lending and indigenous banking activities continued asbefore. During the Mogul period money-lending and indigenous banking activities received some setback because of troubled times and refusal of repayment of debt by some rulers to indigenous bankers. the money-lenders and indigenous bankers often making good their losses (due to nonpayment of loans) by the activities of money changing which was a fairly common business then because of the prevalence of different types of gold and silver coins circulating at that time in different parts of the country. [Sanjeev: this further confirms my view that Chanakya was a statist (although not quite a mercantalist) and had not understood what Adam Smith was to later understand . the East India Company was forced to rely on indigenous bankers in India for personal loans and for remittance facilities.that the market must be let free to determine its own prices] Meadows Taylor tells us: ‘The laws of Manu disclose how thoroughly the scheme of banking was known 3.’ [Sanjeev: unfortunately. they grantedbills of exchange. equivalent of modern bills of exchange) from 12th century onwards when they were in much use. on both sides.000 years ago. they followed the practices of modern times which are little changed from ancient rules. But as the activities of the East India Company grew in dimensions. inability of indigenous bankers to follow banking practices to which East India Company officials and servants were accustomed. among various reasons. This is a big issue with most Indian scholarship: the lack of proof of assertions/references. The Indian indigenous bankers used the device of hundis for financing internal as well as foreign trade of India. they kept account-books. to difficulties of language.e.

it came to be realised thatsuch mixed activities like trading and banking would pose complex problems for the Agency Houses. While money-lenders usually work on their owncapital resulting out of their savings. . efficient. Though this system worked for some time. the best way would be to start joint-stock banking in the country of the type already prevalent in England. and Madras started conducting banking operations along with their normal commercial operations. both are not properly organised (though indigenous bankers appears to be at least in some areas better organised than money-lenders). indigenous bankers (along with money-lenders) have from ancient times been playing a vital role. some of whom combine money-lending with their normal trading and commercial or otheractivities.Agency Houses in Calcutta. merchants and servants. It was therefore felt that for meeting the needs of the East India Company officials. Indigenous bankers provide finance to trade and industry whereas money-lenders generally lend for small productive activities and for domestic purposes. 104 . Foreign Exchange Banks and commercial banks. The organised sector comprises of the Reserve Bank of India. Distinction between Indigenous Bankers and Money-Lenders As the terms indigenous bankers and money-lenders are generally used together. methods of work of both are flexible. relatives. Bombay. The indigenous bankers discount hundis. indigenous bankers accept deposits from the public. traders. both are ubiquitous. INDIGENOUS BANKERS Indian money market is generally divided into organised sector and unorganised sector. Indigenous bankers are to be found in all parts of the country and have existed for centuries.etc. the distinction between them should be made clear. money-lenders are generally indifferent to it caring more for the interest which they are going to get Indigenous bankers carry on their activities on a much wider scale than money-lenders and therefore keep their accounts in a much more detailed and systematic way thanmoney-lenders. Whereas indigenous bankers are generally careful about the purpose of the loans given. What is common to indigenous bankers and money-lenders is that both are ancient institutions. whereas moneylenders do notdo so. money-lenders.needs and customs of the people. at least on a selective basis. the Imperial Bank (later renamed as the State Bank of India). 2. commission agents. mostly for consumptionpurposes. and cheap and both have evolved methods of business suited to theenvironment. The Unorganised Sector comprises of indigenous bankers. Role and Functions of Indigenous Bankers In the organised sector of banking in India.

Before the advent of modern joint-stock banking in the country (i. Sahukars of Maharashtra. Mahajans of Punjab. 15 September 2012 105 . Shroff. even at present).P. indigenous banking is purely a family business and carried on in hereditary fashion.. The indigenous bankers are guilds. the well-known indigenous bankers often lent money to the rulers of the day (for example to Peshwas in Maharashtra) and during the early days of the East India Company. indigenous bankers and moneylenders were the main source of credit in the Indian economy. indigenous bankers and money-lenders supply lion’s share of credit. to even to the merchants of that Company.Generally. Hindu capitalism Draft. Though on the whole indigenous bankers belong to unorganised sector of money market. and though indigenous bankers work and carry on their activities independent of each other. Their methods of work are informal and therefore fairly efficient. especially at trading centres. especially in the rural areas of the country. many indigenous bankers are organised into associations or guilds which are of ancient origin. Marwaries and Banias in U. Even during the first half of the 20th century (or for that matter. in spite of the growth of joint-stock banking in the country. In the good old days. The Chettiyars of Madras and Kerala. The indigenous bankers. Chettis were actually providing finance for foreign trade of India with SouthEast Asian countries much before the advent of the British in India.Many indigenous bankers have branches in other centres. for settlement of mutual claims as also disputes. It is on record that during ancient times. indigenous bankers were well-known by their reputation and their hundis were negotiable throughout the country and beyond the borders of India. the son growing in the environment from childhood gets his training automatically and without any expenses on training in the art of indigenous banking. lend money on personal credit and on first class bills or such other securities. unlike joint-stock banks. The well-known indigenous bankers had gumastas or accredited agents throughout the country and they got all the necessary intelligence regarding monetary matters from different parts of the country.e. The indigenous bankers generally discount hundis and thus provide finance for internal trade. upto 1850 or 1860). They also discount agricultural bills of exchange. The establishments of the indigenous bankers are run extremely economically and as it is a family business inherited by son from his father. which enable the work of discounting of hundis. Gujarat. among other things. Rajasthan and Bengal are the striking examples of indigenous bankers.

The indigenous bankers used to provide finance by various methods such as discounting of hundis. They used to keep part of their deposits in textile mills. not making them available for public inspection. The rate at which indigenous bankers discounted hundis is called the Bazar Rate which varied depending upon the pressure for funds and nature of demand for funds. there is no regular and formal type of relationship between indigenous bankers and joint-stock commercial banks from the beginning to this day. On the whole. they generally enjoy high reputation for their honesty and efficiency. This is because commercial banks do not accept cheques drawn on indigenous bankers as the latter do not publish their balance sheets. They also provide finance to internal trade and to small industrialists. they know most of their clients personally and intimately and know their creditworthiness. have not cared much to develop the deposit side.As indigenous bankers have been working at the same centres for generations. The indigenous bankers also do not get easy rediscounting facilities from commercial banks. unlike in the case of commercial banks. This enables them to lend money without much ado. on the security of gold. silver. Some indigenous bankers established contacts with modern commercial banks from whom they borrow funds on the basis of discounting of hundis. land and other moveable and immoveable property. Though some indigenous bankers have been borrowing from commercial banks including the State Bank of India. the institution has been characterised by some serious defects such as followingantiquated and conservative methods of business. The indigenous bankers provide finance for agricultural operations directly and also indirectly through traders. combining 106 . They accept deposits on current account or for a fixed period and they pay interest on them. these indigenous bankers have been playing an extremely useful role from ancient times by providing credit to trade and industry when no other source of credit was available in the country. the indigenousbankers (and also money-lenders) proved to be very powerful competitors to them. or furnish sufficient details or comply with all the formalities insisted upon by commercial banks. Even after the establishment of modern joint-stock banks in the country.As indigenous bankers seldom fail to make payments when payments are due. demand promissory notes. minimising secrecy which means not publishing balance-sheets and other accounts. Defects of Indigenous Bankers Though indigenous bankers have been playing an important role from ancient times to the present day.

(d) they should get their accounts audited by certified auditors. (b) they should follow modern banking methods ofbusiness. the sreni can be dated from a period much older than many would expect Hindu capitalism Draft. Nothing much came out of the attempt by the Reserve Bank to integrate indigenous bankers with the organised banking sector of the Indian economy. (c) they should develop the deposit-side of banking. It is a shame that there are so few Indian economists interested in this subject. Attempts at Reform of Indigenous Banking The Central Banking Enquiry Committee (1930) recommended that the Reserve Bank of India should take steps to bring the indigenous bankers within their purview.trading and other business activities with their banking activities. Indigenous bankers continued and still continue as part of unorganised money market in India. and (f) they should organise themselves and perform the functions similar to ones performed by London Discount Houses. This makes control by the Reserve Bank of India over the credit structure of the country and successful implementation of the monetary policy difficult. 6. I’ve chanced upon The Economic History of the Corporate Form in Ancient India by: Vikramaditya S. The Reserve Bank laid down the conditions that (a) the indigenous bankers should separate trading and commercial activities from banking activities in which they should specialise. After its establishment in 1935. have not developed the hundi side.6 Corporations Hindu Capitalism #14: The existence of advanced (modern) corporations in ancient India As part of my research. 15 September 2012 107 . The Reserve Bank promised to give to indigenous bankers facilities for rediscounting their hundis and give them loans on the same conditions as it did to scheduled commercial banks. (e) they should standardize forms of hundis and should take steps to develop true bills. In return for effecting the above improvements. But the indigenous bankers felt that the conditions laid down were too severe in return for the advantages offered by the Reserve Bank. It is clear that India’s capitalist history is only now beginning to emerge. the Reserve Bank of India offered to indigenous bankers the same concessions which the Reserve Bank offered to scheduled commercial banks. the Reserve Bank of India circulated in 1937 a scheme to link indigenous bankers with the Reserve Bank. Professor of Law. The analysis in this paper suggests that Ancient India had many different forms of business organization including the sreni. Moreover. and have never been properly organised thus remaining virtually unconnected with the organised sector of banking in the country from olden days to the present. University of Michigan Law School. Khanna.

This predates. by centuries. when the features of the sreni are compared to those of more modern Anglo-American corporations we find a significant amount of similarity. especially from about 1880 to 1930. the development of the sreni provides some more fodder for the debate about convergence or path dependence in corporate governance. municipal. Indeed. Although trade grew under other structures too. it was the relatively less centralized Gupta Empire that saw the greatest advances in trade. the sreni was also in continuing and expanding use until 1000 A. when we examine sreni development more closely we find a number of interesting results. social and religious activities. governance and regulation we find that its development corresponds well to more modern theories about the development of the corporate form. other factors also influenced the development of trade in Ancient India. Moreover. Extract from Ritu Birla’s article. Overall the ability of the sreni to survive and develop in a predictable fashion through so many centuries and such differing environments in Ancient India attests to its resilience and adaptability. Law as Economy: Convention. The sreni grew the fastest in the state structure where there was an intermediate level of centralization and considerable deference to the sreni in managing its internal affairs. Of course. However.for the development of the corporate form – from at least 800 B. much can be learned about the corporation from the Ancient Indian sreni. Currency. but these results are interesting nonetheless.The article. Colonial legislation and jurisprudence installed ‘the market’ as abstract model for all social relations and as terrain for the making of modern subjects. Moreover. A torrent of new measures directed at the free circulation of capital emerged in the period immediately after formal legal codification. Further. Moreover.D. measures that ranged from law on 108 . the Ancient Indian sreni forces us to revise our conceptions of when corporations developed to a much earlier time period. In particular.C. Corporation. When we examine the details of its formation. presented at Harvard in April last year. the earliest Roman proto-corporations. The sreni was clearly one of the most important institutions of Ancient India. The members of the sreni faced many similar concerns to those we face today and they found quite similar ways of addressing those concerns. and was utilized for many different kinds of purposes including business. the sreni grew as trade expanded and as the supply of the monitoring methodologies needed for its development arose. and perhaps even earlier.

caste and lineage. was that. wife. the ways of organizing exchange. COMPANIES AND THE MONOPOLIZATION OF CORPORATE LIFE Influenced by Maine. pronouncing a policy of noninterference with indigenous culture. trusts. a project enforced through an investment in legal pluralism with the codification and strict application of the regime of personal law. who operated through norms of kinship. production. Connections across time were complemented by connections across space: the vernacular notion of ‘family’ extended beyond just the household and encompassed a variety of patriarchal relations. production. and the arrangements and capital flows of commerce and finance. ‘corporations never die’: they have a perpetual life. The commercial joint family household—father. to negotiable instruments. The story of the establishment of The Indian Companies Act of 1882: Establishing the limited liability joint-stock as the model for commercial Hindu capitalism Draft. and trust that sustained the hegemony of vernacular capitalists. at birth. confronted the establishment of contract as universal instrument for market exchange. sons and their wives. and that British authorities sought to appropriate in the name of a civilizing mission of ‘moral and material improvement. kinship. credit and what economic historians have called ‘commercial trust’ could be extended to kinship relations that could be linked back through a common male ancestor as many as seven generations. 15 September 2012 109 . as with other such ancient forms in medieval Europe. and charitable endowments. the nexus of extended relations harnessed by the firm. and even global regions. in Maine’s words. bazaars.’ It is important to remember here that in 1858. as well as futures trading and government securities. A key story in the broader global standardization of contract law in the nineteenth century. and constituted yet another barometer for degrees of affinity. an extensive symbolic value of kinship. colonial jurists understood joint family organization in nineteenth-century India as an ancient form of corporation. after being shaken by the rebellions of 1857. the British Crown officially replaced the East India Company. The difficulty with the joint family. and were universally acknowledged engines of credit.companies. and unmarried daughters—existed within a much broader context. to income tax. this accelerated colonial process installed new forms of group association grounded in contractual relations of individual subjects. The majority of vernacular firms were regulated by the Hindu Law of Mitakshara. including the capital of the firm. and consumption. The confrontation exposes the difficulties in translating the spatial and temporal habitus of market conventions. among others. Vernacular practitioners of capitalism. Lines of descent called gotres arranged exogamous clans within a particular endogamous caste. Moreover. the personal law system which gave sons rights in the family property. These networks were constituted spatially. IV. across villages.

a contractual model for what was called the ‘the healthy and useful employment of capital’ and equally as significantly. and placing blind confidence in the new discovery in ‘finance’ placed no watch on their Directors and Managers. for example. . and cared nothing for the regular transaction of business. absconding with their investments. and then defrauded them. The intensity of the discussion over principles of corporate association reflects the extent to which forms of capitalist economic organization informed visions of modern social association in this period. profoundly ignorant. following the U. for civic association.’ And despite this exposé of limited liability as a masquerade for corrupt practices. The latter only wanted to profit from the sale of shares. Reiterating long-held tropes about the submissive nature of the native population.S.’ 110 . the debate resulted in new legislation. insisted that: [T]he evils incidental to limited liability have been exaggerated in Bombay by peculiarities in Native character. It replicated earlier British statutes and enforced the corporation as a public legal person. In this volatile market climate. the act was a fine-tuning of an earlier statute of 1866 and was instituted after the boom and bust of the cotton market in western India in the 1870s. rather than obeying a despot or director—as necessary conventions for the ‘healthy and useful employment of capital. and an extensive public discussion of corruption. As one officially solicited ‘native’ opinion asserted.organization. . in other words. The hundreds of pages of debates surrounding the act evince a public discrediting of British-run joint-stocks. the Registrar’s opinion posed habits of public civic association—the responsibility of exercising rights. The mass of Native shareholders. . offering a pumped-up version of limited liability. these newly hatched joint-stocks were ‘huge superstructures of fraud.’ An economic organization of the social. erected to inveigle the unwary and imprudent. The shareholders have now changed the blindness of confidence for the blindness of terror. and it appears that they are generally quite ready to get out of the concern at any cost without calling the responsible parties to account. official registration. British merchants launched new companies at an accelerated rate. drew investments from native shareholders. the eye of the storm. Civil War. with strict codes for memoranda of association. and the regulation of bankruptcy. part of a civilizing mission’s mantra of ‘moral and material progress. The Acting Registrar of Joint-Stock Companies at Bombay. was to convey modern habits of rights.

British banks depended on vernacular merchants and their vast access to credit in the bazaars across India. once again. The Companies Act did not. I would like to foreground a key feature of the debates around the Indian Negotiable Instruments Act. it demanded that they be regulated by the Hindu or Muslim personal law governing families and religio-cultural practice. lending. inheritance. 15 September 2012 111 . make indigenous firms directly subject to its regulations. NEGOTIABLE INSTRUMENTS. The figure of the indigenous merchant loomed large in the debates. or at the very least as contractual partnerships? If so. secured by extended ties of kinship. marking the institutionalization of the British banking sector in the subcontinent. vernacular capitalism was governed first and foremost as cultural. The indigenous ‘unorganized’ banking sector had varied ‘personalized’ and multiregional conventions for borrowing. a public and ethical project. they sustained a very Hindu capitalism Draft. strangely not as facilitator of capital. a problem of personalized exchange antithetical to new legal procedures. AND THE LEX MERCATORIA Almost contemporaneous with the Indian Companies Act. V.At the same time. it would have to be regulated by the Hindu or Muslim personal law that governed the so-called private realm of indigenous ‘culture’—matters of caste. the problem of the joint family firm. despite the universally acknowledged role of vernacular capitalists as key economic middlemen. colonial law institutionalized a disjuncture between economy. That is. and religion. the firm should come under the purview of the Act. in which negotiable instruments could be endorsed and reendorsed many times. In short. Indigenous or vernacular systems of credit in particular drew legislators’ attention as British joint-stock banks flourished beginning in the mid-nineteenth century. Or was the firm first and foremost a family? In this case. the affirmation of limited liability threw the organization and practices of kinship-based commerce into question. and discourses on the temporality of vernacular conventions. the project of ‘cultural preservation’ was official policy. as might be expected in an easy reading of colonial disciplinary practices. the Negotiable Instruments Act of 1881 grappled with what colonial jurists had begun to call the ‘native’ lex mercatoria. rather than as economic mechanism. but as a serious problem. it was argued. a private one. enforced through the codification and application of the personal law. and culture. it is important to remember here that by this time. CONVENTION. and vernacular capitalism’s investment in the financing of colonial commodity production tied them to sources of British financing. and investing. The Companies Act thus exposes a key technique of colonial liberal governmentality— the production of economy and culture as distinct and separate spheres—one I argue ultimately espoused by indigenous capitalists themselves. The major issue was whether the standardized procedures of the Act applied at all to indigenous kinship-based firms: could these even be conceived as public corporations. Rather. Again.

the question of preserving indigenous customs. conflicted with arguments for their assimilation into British legal models. the concomitant delegitimizing of bazaar practices and the accelerated and more extensive transactions between British and indigenous commerce conducted through joint-stock banks.’ Seeking to 112 . the first Indian Law Commission.’ but rather ‘induce the Native mercantile community gradually to discard them for the corresponding rules contained in the Bill.’ for this legal arena did not fall under the purview of personal law. Intended to be one of the chapters of the Indian Civil Code. had unanimously objected to the bill because of its numerous deviations from English law. and referred to a Select Committee. and so sustaining the official policy of ‘noninterference’ in native culture. an inaugural bill on the subject was introduced in 1867. affects any local usage relating to any instrument in an oriental language: Provided that such usage may be excluded by any words in the body of the instrument which indicate an intention that the legal relations of the parties thereto shall be governed by this Act. . The mercantile members of the Legislative Council. From the bill’s inception. It stated that in order to ‘facilitate the assimilation of the practice of Native shroffs [bankers] to that of European merchants. These conventions.extensive negotiability. The final act of 1881 did include a ‘local usages’ exception. other members had strongly criticized it for not including a clause saving the customs of native merchants. . all representatives of British trading interests. this provision reflected the de facto governmental installation of a new market terrain. but nothing herein . While in theory not directly affecting relations among indigenous merchants. As early as 1866. posed problems for legislation aimed at rationalizing and facilitating flows of credit and forms of paper currency. The Select Committee on the bill in 1879 defended the new provision as one which would not ‘stereotype and perpetuate these [indigenous] usages. The debate. but one that ingeniously opened a space for their assimilation to models of contract already codified by the Indian Contract Act of 1872. On the other hand.’ the act would extend: [T]o the whole of British India. and their variability. was driven by the ambiguous place within the Anglo-Indian legal system of what jurists called the ‘native law merchant. Local usages could thus be overruled if vernacular negotiable instruments were written to accommodate the practices of British bankers and merchants. then. guided by Henry Sumner Maine and James Fitzjames Stephen. had introduced the question of standardized rules for negotiable instruments. which continued for over a decade.

or to provide for the welfare of aging family members for example. all of which were consecrated to deities. 15 September 2012 113 . rest houses for travelers. to defray debt. the Committee argued that ‘the desirable uniformity of mercantile usage will thus be brought about without any risk of causing hardship to Native bankers and merchants. Income regained in time would then be redirected to the endowment. income derived from such properties could revert back to the firm. Social institutions One key example is nineteenth-century colonial jurisprudence on indigenous endowments gifted for social welfare.’ It delivered evidence offered by the British jointstock Bank of Bengal. of kinship-based firms. and that the tendency is to assimilate them more and more to the European custom. Anglo-Indian jurisprudence on trusts sought to restrict this negotiability. new precedents established that these were gifts given to the deity as legal beneficiary. even as it reflected the very institutionalization of a new terrain—the public space of economy. Hindu capitalism Draft. These were organizations that produced social capital and affirmed the respectability. These concerns were manifest in a series of late nineteenth-century Bombay and Calcutta High Court cases on religious endowments. This fantastic turn of legal idolatry. schools. and across the colonial categories of public and private. in which judges interpreted case law on temple management to argue that the deity was a legal subject. Vernacular capitalists would establish institutions for social welfare such as temples. and so the credit. which ushered in the sovereign translation of customary endowment as legal trust. Such oscillations performed the extensive negotiability across social capital and the material flows of credit. that characterized vernacular commercial practices. one that would regulate the endowment as a contract made in perpetuity. as well as across time itself. so that no income could revert back to families. Extending this logic to case law on endowments for social welfare that were consecrated to deities. as the rights of the beneficiary confirmed that the purpose of the endowment was to exist in perpetuity. inscribed by the new and restricted spatial and temporal negotiability of contract law.transform mercantile convention while dissimulating laissez-faire. The difficulty for jurists was that in vernacular conventions. ‘that the native usages as to negotiable paper have of recent years been greatly changing. and sought to establish an a priori intentionality for the purpose of such endowments.’ The standardization represented by the Negotiable Instruments Act presented itself as the logical extension of indigenous mercantile conventions. exposes modern law’s investment in an autonomous subject: the legal rights of the deity overrode the situated contexts of gift giving. and so confirm the principle of mortmain as grounding legal category for charitable trusts.

anticipated classical economic thought by some 2. Vol. 3). 1. Indian Economic Review. In proposing rules and practices by which the king will rule 114 . had no influence on the creation of modern economic theory. taxation and a labor theory of value. INTRODUCTION Kautilya. a great Indian philosopherstatesman and contemporary of Aristole.Kautilya's approach is akin to the seventeenth century German Cameralist School of Economic Thought (Dasgupta. Unlike his contemporary. consequently. Adam Smith. Kautilya's writings were lost toward the end of the Gupta Dynasty in India. the great Indian philosopher-statesman and contemporary of Aristotle. circa 1000 BC (Chand). therefore did not have the benefit of Kautilya's thoughts on the best policies and practices for creating and enhancing a nation's wealth. pp. Kautilya did not distinguished between the wealth of the sovereign and that of his subjects. Unfortunately for the development of economic thought. Widener University Chester.7 Foreign investment An important article on Kautilya's thought was published in the Indian Economic Review(the journal of the Delhi School of Economics) in 1996. and whose work was lost for more than 1400 years. Aristotle.000 years in the areas of international trade. This demonstrates that Chanakya would have certainly promoted FDI. David Hume. around 500. ZAHKA AND SURENDRA PAL School of Management. David Ricardo and John Stuart Mill. which goes at least as far back as theARTHARVAVEDA. ch. The goal of this is treatise was to increase the monarch's wealth and that of his realm – as was true of ancient and medieval philosophers. JEL Classification : B1. PA 19013 USA. No. In this respect. among others. Kautilya's Arthashastra: A Neglected Precursor to Classical Economics CHARLES WALDAUER. This aspect of Kautilya's philosophy of government has been overlooked by historians of economic thought and we believe that his contributions should receive appropriate and overdue recognition. 101-108 ABSTRACT This paper demonstrates that Kautilya. Kautilya's views were unknown to medieval and renaissance philosophical and. Kautilya's work continues a longstanding Indian tradition of inquiry into the creation of wealth. and subsequent translations into other languages did not take place until the 1920s and 1930s. WILLIAM J. XXXI. Translations from Sanskrit into English and Hindi did not occur until 1915.6. 1996. wrote hisARTHASHASTRA as a primer for good rule by the king. and were not rediscovered until early in the twentieth century (Choudhary). B3 1.

On the articles of common consumption.Kautilya also counsels his monarch that the wealth and well being of the realm can be most advanced by a fair and efficient system of taxation. p. Hindu capitalism Draft. He counsels that relationships with southern kingdoms are to be favored over those with northern kingdoms because the southern kingdoms possess greater mineral wealth. natural resources and agricultural commodities) or can be obtained more cheaply from foreign sources through trade than through domestic production.successfully. p. As he puts it "Possessing immense gold is better than a friend ruling over a vast population… for armies and other desired objects can be purchased with gold. 29). "Kautilya imposed a heavy taxation on imported foreign goods of luxury. Kautilya proposes heavy state regulation of trade. in that imports can provide the kingdom with products which are either not available domestically (e. 10) Kautilya also advantages attracting foreigners who possess good technical and other economic development of the realm. light duties were imposed. being concerning about "just" and "fair" prices and profits (this is similar to Aristotelian and Christian Schoolmen doctrines concerning economic justice and fairness in commercial transactions). pp. Kautilya also advocates price and profit controls. Kautilya fully realizes that exports are not more important than imports as a means for enhancing the kingdoms's wealth. one which will supply the king with tax revenue while not stifling economic growth." (Sen.. Unlike the Mercantilists. 15 September 2012 115 . 124125)." (Choudhary. Finally Kautilya advocates a wage system which rewards workers for the economic value they have created and encouraged them to work harder and more efficiently. Kautilya explicitly recognizes that international trade (trade among kingdoms) in goods and services is a major vehicle for increasing the sovereign's wealth as well as that of his subjects.g. Kautilya also explicitly recognizes that imports represent a very important way in which the wealth of the realm can be increased. KAUTILYA'S VIEWS ON INTERNATIONAL TRADE The importance of international trade is emphasized by Kautilya in that he advises the sovereign thatforeign relations should be guided strongly by trade considerations. Kautilya explicitly formulates a comparative advantage view of international tradepatterns by stating that it is mutually beneficial to the various kingdoms when the products being imported are cheaper than those that can be obtained domestically and will fetch higher prices to the exporter than can be gotten in domestic markets (Sen. 2. both so as not to undermine state monopolies and not to aid potential adversarial kingdoms.

he shall transport his merchandise to profitable markets and avoid unprofitable ones. Chapter XVI." (Shamasastry. 3. p. he counsels against unilateral trade. In advising the 116 . Having gathered information as to the transactions in commercial towns along the banks of rivers. the superintendent will find out (by calculation) whether there is any margin left for profit…lf no profit can be realized by selling the local produce in foreign countries. generally ranked between 4 per cent and 20 per cent ad valorem. intended for revenues rather than for trade limitation. 128-130). which was remarkable for how extensive it was and how well it conformed to modern principles of good tax systems (Choudhary. Kautilya recognized that trade based on the principle of comparative advantage would be to the material benefit of both exporting and importing nations. 249). Kautilya urges the monarch to create trade missions to promote trade with other kingdoms and he especially supports bilateral trade arrangements in products. he has to consider whether any local produce can be profitably bartered for any foreign produce he may take his merchandise to other countries through rivers …. pp. KAUTILYA'S PRINCIPLES OF TAXATION This section of the paper focuses on the Kautilyan tax system. both import and export duties. so that they may derive some profit… Foreigners importing merchandise shall be exempted from being sued for debts unless they are (local) associations and partners. 108-109) Thus. 27). He stresses the need to exchange commodities for commodities so that both kingdoms may be mutually enriched (Sen." (Braibanti and Spengler. pp. This stress on two-way trade in products is based on the desire to raise tax revenues for the monarch through both export and import duties. 107) Kautilya also enunciates rules governing the export of state-owned— commodities: "the sale of the king's merchandise in foreign countries…[having ascertained] the value of local produce as compared with that of foreign produce that can be obtained in barter. primarily as revenue-raising devices for the monarch rather than as mechanisms for altering trade patterns. p. His views on international trade are most clearly spelled out in Book II of the Arthashastra. which specifies the duties of the king's Superintendent of Commerce: "…The superintendent shall show favour to those who import foreign merchandise: mariners and merchants who import foreign merchandise shall be favoured with the remission of the trade taxes.Kautilya supports the use of tariffs." (Shamasastry. "Import rates. where products are exported or imported for money (bullion) only. In fact. p.

wealth in the form of both real and personal property. promoting economic growth and development within the kingdom. Kautilya's views on the elements of a good tax system predate modern economic thought by some two thousand years: "Kautilya's discussion of taxation and expenditure. "…the army is sometimes the means of securing the wealth acquired. 72). Hence foremost attention must be paid to the treasury…Thus. inexpensive to Hindu capitalism Draft. tax increases should be graduated. P. and applying taxes that are "fair" and "just". In the ideal Kautilyan state. and taxes levied on private income. P. timber and agricultural products from the king's lands and mines. the king will never find himself in financial or military difficultues. 1971. the Kautilyan system of taxation resembled that of the Roman Empire at its height: taxes were levied on income. 15 September 2012 117 ." (Gopal. and market transactions (sales) including both export and import duties. financial troubles are more serious. easy to calculate. 22) Further.Kautilya recognizes that the "ideal" tax system should embody the following principles: it would be convenient to pay." (Gopal. As presented in the Arthashastra. 19). Thus. taxation should not be felt to be heavy or exclusive. The importance of public finance to the successful reign by a monarch is underscored by his succinct advice to his sovereign: "All undertakings depend on finance.ideal tax system. 20) In Kautilya's view. along with the army. p. but wealth is always the means of securing both the treasury and the army. gave expression to three Indian principles: taxing power is limited. As a noted student of Mauryan public finance observed. the monarch's revenues came from two major sources: sales of minerals. apparently in keeping with traditional doctrine. Kautilya's advice to his monarch on the ideal tax system is based on achieving the following objectives: gaining as much tax revenue as possible for his king." (Spengler. ensuring that resources are used efficiently. wealth and products (including exports and imports). Kautilya enunciates a set of "principles of taxation" remarkably similar to the modern-day criteria first formulated by Adam Smith as "canons of taxation" in his Wealth of Nations. (Gopal. finance was so important to the success and well being of the sovereign that it. published in 1776. Kautilya recognized that a prosperous and stable kingdom had to be founded on a well-developed an administered tax system. was under the direct control of the king. Since all activities depend on finance. as well as poll taxes on all adult males. when both the receipts and expenditures are property earned for. p.

agricultural products. working on the construction of roads. and prosperity of commerce among other things. pp. Collection of revenue or of fruits. and personal services (e. grains and dairy products. non-distortive of economic behavior in its impact (neutral). minerals and timber. p. shall never be carried on. causing immense trouble. silver. neutrality. pp. and to grant exemptions from this liability where the cause of production and development may suffer through high taxation.. thereby lowering the level of economic activity and the material wealth of the kingdom: "Thus. or serving without pay as a soldier).) and progressively lower rates of sales taxation apply to less expensive commodities (e. pp. livestock (mostly cattle). diamonds.g.. 24) In Kautilya's view. coins (usually silver or copper). 23) Further. so revenue shall be collected as often as it becomes ripe. canals and forts. Kautilya counsels that taxes should be collected only when people have the capacity to pay: "Just as fruits are gathered from a garden as often as they became ripe. a wise Collector-General shall conduct the work of revenue collection…that productionand consumption should not be injuriously affected…financial prosperity depends on public prosperity. equity. gold. 119) Higher rates of sales taxation apply to the most expensive commodities traded (e. and convenient to pay: "…collection of revenue at a season when people were unable to pay is forbidden because it injures the source and causes immense trouble. the tax system should be fair.administer. 23-24) According to Kautilya. 23. cloths and threads. etc. and finally firewood/earthen vessels/bamboo). and tax rates should reflect people's ability to pay in terms of wealth or income or sales revenue: "…the policy is to make the richer section of the peasantry or those who hold lands in fertile areas of high productive calibre to contribute more [have higher tax rates apply].26) In keeping with the criteria of convenience. when unripe.g. fair (equitable) in its burden. abundance of harvest. laboring in the king's mines or logging in the king's forests.g. pearls. Kautilya advises that taxation should not be raised to such a high degree that it destroys people's economic incentives to engage in productive undertakings. Mauryan taxes could be paid in gold. and in general not inhibit economic growth and development. lest their source may be injured. the amount of tax liability should be certain and known. and promoting economic growth." (Gopal.. (Gopal. p." (Sen p. 121-122) A similar system of graduated tax 118 . (Sen." (Gopal." (Gopal.

4. Tolls. The system is supervised by the Collector-General of Revenues (Samaharta). These Gopas are required to inventory all the real and personal property wealth in their domains for wealth tax purposes. Kautilya in the Arthshatra held that a "just" wage to be paid to workers should be based on the amount of time spent on the job. Because of the detailed census conducted by the Mauryan kingdom. real property and excise taxes were major sources of tax revenue. Storehouse. Agriculture. as well taxation in the form of occupational licenses. all-inclusive and effective tax system.rates apply to the occupational privilege and income taxes levied on artisans and craftsmen. with extensive usage of broad-based taxes. where the highest rates are levied on the most skilled workers and the lowest rates are assigned to the least skilled.S. Kautilya explicitly recognizes three distinct components for determining the market value of labor: the level of skill required (the human capital element). Thus. (Sen. Liquor. and the skills necessary to perform the required tasks. the Maurya tax system was as extensive as any that exists in this modern age. and the number and type of merchants and artisans (as well as volume of business done) for both sales and occupational license tax purposes. With reference to the U. Forest Products. 122-123) Kautilya advocates a highly structured and centralized revenue system. 138). Commerce. pp. fedral government. and was the most extensive census existing before the industrial revolution (Bandyopadhyaya. The breadth and detail of Mauryan census-taking revalled that of ancient Egypt under the Pharaohs. Weaving. each responsible for from five to ten villages). Slaughter-House. who reports directly to the monarch and is equal in importance and influence to the Commanderin-Chief of the Army. 15 September 2012 119 . As would be expected in a preindustrial economy. Under the tutelage of Kautilya. however. the Gopals combined the functions of the Internal Revenue Service and the Bureau of the Census. Mines. All the Superintendents of the king whose activities generate revenues for the sovereign report to the Collector-General of Revenues as concerns the revenues collected (Superintendents of Gold. Responsibility for gathering information on which the collection of tax revenue and its auditing is based resides in the Village Accountants (Gopas. the number of adult males for poll tax purposes. who in effect are the census takers. labor hours worked and units of output produced (the labor Hindu capitalism Draft. Kautilya clearly enunciated-well before the rise of classical economic thought-a detailed. considerable revenue was derived from personal property and poll (head) taxes. the annual income and expenditure of each household for income tax purposes. KAUTILYA'S LABOR THEORY OF VALUE Two millennia before Adam Smith enunciated has labor theory of value. Prostitutes. Ships and Passports). the amount of output created. Even income taxation was employed. p.

in writing his epic treatise on the art of good government. 203) recommends that a board of overseers review the guild contracts concerning wage rates and working conditions. (p. SUMMARY AND CONCLUSION Kautilya. 208): As to wages not previously settled. Kautilya. Economics in Kautilya (p. To protect these laborers. and in consideration of the quantity of thread spun…Wages shall be cut short. Wages being previously unsettled. both the quality and quantity of the job completed by him. Production should not be hampered by the irresponsible conduct of the workers. the Arthashastra. and in proportion to a greater or less quantity manufactured. making allowance of the quality of raw material. Shamasastry quotes Kautilya in establishing the following procedure (p. In determining wages for labor in general. 125. in his book on Evolution of Social Polity of Ancient India. Kautilya. Shamasastry in his translation. i. as cited by Narayan Chandra Bandyopadhyaya in his book. a trader 1/10th of the sale proceeds. observes that (p. 114). Kautilya lays down that cultivators or merchants shall either at the end or in the middle of their cultivation or manufacture pay the labourers proportionate wages. cites that among the duties of the Superintendent of Weaving shall be the setting of wages paid to weavers (pp. The latter again depends on the cost of its production. including the cost of material used.e." R. To prevent deception by employers. the amount shall be fixed in proportion to the work done and the time spent in doing it. Thus the settlement of just wages is a complicated matter depending not only on the skill of the worker employed but also on the total out-turn of his work. As stated by Benoy Chandra Sen in his treatise. enunciated 120 . Nagarajan. V. a herdsman 1/ 10th of the butter clarified.productivity element). 51): "A uniform and flat rate of wages for laborers of all sorts is impracticable in an advanced economic condition where commodities of various gradations of value representing different kinds and degrees of manufacturing skill are produced and used by consumers. The wages of a laborer cannot but be dependent on the market-value of the article produced. the great Indian philosopher and statesman. if. the quantity of the thread spun out is found to fall short.. a cultivator shall obtain 1/10th of the crops grown. Wages previously settled shall be paid and received as agreed upon. Guilds of Artisans ("Sanghabhrta") often functioned as contractors and employed semiskilled and unskilled laborers. Kautilya's Arthshastra. 5. coarse or of middle quality. Payment to labour is not contingent on marketing of goods.126): Wages shall be fixed according as the threads spun are fine.

He also was cognizant that the market value of labor also reflects the market value of the product created. Writing more than two thousand years before Hume. England: Routledge. Kautilya was also far ahead of his time in developing a labor theory of value in trying to determine what was a "just" wage for workers. Narayan Chandra (1982). M. This is another example of occidental philosophical thought suffering from not having access to oriental philosophical thought. Spengler. (1963) eds Administration and Economic Developmentin India. Ralph and Joseph J. REFERENCES  Bandyopadhyaya. India:  Nagarajan. Varanasi. principles of taxation. Devi (1982). Delhi. Evolution of Social Polity of Ancient India. The Atharvaveda. Gopal. and that reciprocal demand will determine the value of commodities in bilateral and multilateral trade. Mauryan Unwin Ltd. Choudhary. principles of taxation. ensure that resources are used efficiently. A History of Thought. Durham. Indian Economic H. London. Anticipating the thoughts of Smith and Ricardo. (1992). India: lndological Book House. and the amount of output produced. and which distorts economic decision-making as little as possible. New Delhi. Motilal Banarsidass. and a labor theory of value. Public Finance. The Kautilya Arthashastra. 15 September 2012 121 .P. time spent on the job. India: Munshiram Manoharlal Publishers.  Chand. Smith. (1935). He also clearly anticipated Smith and Ricardo on the principles of effective taxationthat will result in an ideal system of taxation: one which will promote economic growth and development. (1993). Delhi. (1971) Kautilya's Political Ideas and Institutions. V. Ajit K. Kangle. India: Chowkhambra Sanskrit Studies Office. Ricardo and J. London. he explicitly recognized that the value of labor depend on the level of skills employed. Braibanti. Varanasi. whose burden is borne fairly. England: George Allen & R.classified views on international trade. (1965). One can only conjecture that trade theory. Thomas Acquinas in the late middle ages or early Mercantilists in the Renaissance. and the labor theory of value associated with classical economic thought might have evolved much earlier (perhaps in the fourteenth or fifteenth centuries) if Kautilya's views had been known to scholars such as St. Hindu capitalism Draft. that imports are as important as exports in promoting a nation's economic development and growth. NC: Duke University Press. Kautilya. Mill.S.  Dasgupta. Radhakrishna. Kautilya anticipated their thoughts on the importance of conducting trade in accordance with the principle of comparative advantage.

. Economics in Kautilya. 8th ed. IL: Southern Illinois University Press. Benoy Chandra. (1956) Kautilya's Arthashastra. India: Mysore Printing and Publishing House. Joseph J (1980) Origins of Economic Thought. 122  Sen. Brill. Spengler. (1967). Netherlands: E. Calcutta.  Spengler. Joseph J (1971) Indian Economic Thought. Thomas R (1971) Kautilya and the Arthashastra.  Trautmann.India: Dattsons. Durham. Carbondale. R. Shamasastry. India: Sanskrit College. Mysore. NC: Duke University Press. .J. Leiden.

our understanding of India’s precolonial social formations retains many traditional assumptions about India’s noncommercial character. The difficulty is that it simply ignores customary sanctions on hundi transactions that are rigorously enforced by multilocale. The Study of Commerce in Indian Society A major difficulty standing in the way of adequate historical understandings of Indian commerce is that we labor under the burden of past misunderstandings. could not possibly function effectively outside of a specific local community’s ability to apply customary sanctions. such as those by Baker (1984). Yet.org/ucpressebooks/view? docId=ft88700868&chunk. Such a conclusion might be appropriate for a jurist or administrator who looks only to the courts for sanctions on contracts or authoritative judgment of disputes.1 Commerce in Indian Society Extract from Caste and Capitalism in Colonial India10. and Subrahmanyam (1990). 15 September 2012 123 .[3] For the most part. the institutional structures by which they controlled credit and money. therefore. almost no one addresses the specific institutions that were agents of Indian commercial activity in the colonial or precolonial periods. The legal history of the period is replete with judicial efforts to define indigenous financial instruments such as the hundi (a kind of bill of exchange used by moneylenders but not by ‘true bankers’).cdlib. the courts concluded that such instruments lacked explicit statements stipulating conditions for certain kinds of transactions between multiple trading partners. which lack legal standing. below. I’ve extracted an intriguing section from this book. we still understand very little about the people who engaged in commerce. the considerable negotiability established by hundis is a 10 http://publishing. it is certainly inappropriate for any person dealing with the day-to-day operation of an Indian commercial enterprise. On the other hand. Only recently has there been any progress in addressing the powerful and complex non-Western commercial apparatus that underlay the Indian economy. and the values that underlay these uses.[1] They deny the existence of commerce and hence of institutional involvement in commercial activities.[2] Excepting only some of the most recent studies. Weersooria 1973). Institutions:Trade and commerce 7. their negotiability could not be appealed to a court of law (Krishnan 1959. and even multinational communities of businessmen. Indeed. Ultimately.id=&brand=ucpress Hindu capitalism Draft. the ways they used these structures for investment. hundis must be ineffective instruments for any kind of large-scale or long-distance trade.id=d0e7229&toc. despite growing recognition that India has long maintained itself as a formidable commercial society. The implication of such a finding is that instruments such as hundis . Bayly (1983). Accordingly. multiregional.7.

unknown or unconsidered. operation. Village Studies of Indian Commerce There have been remarkably few studies of the operation of even contemporary Indian commercial and other economic systems. Without institutions of credit extension. The role. When jurists’ failure to appreciate these important financial instruments is placed in the context of stereotypic views about Indian bankers as merely clever (and sometimes irrational or usurious) moneylenders. The present their basis) provision—a caste during book attempts to modify the existing stereotypes (whatever by examining aspects of a large-scale system for credit non-Western banking system—operated by a South Indian the colonial period. To the extent that scholars have addressed Indian financial organization beyond the village. 40 percent to 60 percent.and long-distance trade in agricultural and nonagricultural commodities. Throughout Indian history.testament to the adequacy of these customary sanctions.[8] Lacking in all such views of Indian credit resources is any appreciation for the complex network of financial debts. This observation applies to trade at a variety of periodic markets and especially to money-lending and banking activities involved in sophisticated indigenous systems for providing credit to farmers. But these studies scarcely scratch the surface of Indian commerce. and governments. of village produce has left the village (Habib 1969. opportunities. when the very mechanisms for their transaction have gone unrecognized. 1983). and (2) studies of major commercial centers. Rajayyan 1964–65. Nicholson 1895. K. Indian Burghers and Portfolio Capitalists The recent studies by Bayly and Subrahmanyam require additional 124 . sometimes referred to as ‘burgher cities’ (Bayly 1978. Even modern economic historians such as A. Bagchi (1972) continue to accept Western colonial views that India lacked an institutional system capable of providing the large-scale finance necessary for industrial investment. and even existence of large-scale merchant-bankers remains.’ sometimes called ‘portfolio capitalists’ (Subrahmanyam 1990). and possibilities that indigenous moneylenders and bankers could activate outside of Western-style banks through relationships of kinship and caste or through common participation with potential investors and lenders in a variety of religious and secular institutions. and under extreme circumstances perhaps as much as 80 percent. MBPEC 1930 1:35–85. it is clear that British and British-trained jurists never really comprehended the systematic operation of Indian financial institutions. Robert 1983. It is scarcely surprising that the scale and scope of Indian financial operations have been denied. traders. their studies seem to fall into two categories: (1) studies of bazaar economy. Thorner 1960). A large part of this exported village surplus takes the form of taxes in kind or money levied by various governmental institutions. and of Indian ‘burghers. Anthropologists and historians have paid little attention to an entire range of significant economic activities occurring beyond the level of the village. India could not have maintained either its notorious tax levies or its extensive system of medium. with few exceptions.

1984). which exhibit long histories of financial. Brennig 1977. How could such HUGE mega temples get funded without deep institutions of capitalism?] From the seventeenth to the nineteenth century. … Hindu capitalism Draft. Lamb 1959. as I have already indicated. Furber 1951. Lewandowski 1976. Sjoberg 1970). and industrial activity and an elite. perhaps. Arasaratnam 1980. and at first glance their findings seem to stand in radical contradiction to the conclusions presented in the present study. such as Allahabad or Benares. individual Nakarattars were among the first Tamil businessmen to divert their assets from banking and trade to capital-intensive industry. moreover. for. for some time before this) the Nakarattars were the premier merchant-banking caste of the region. Weberian stereotypes about Indian commerce (Gadgil 1959. see also Arasaratnam 1979. 15 September 2012 125 . much of the European trade depended on financing by Indian capital under the control of largescale merchants (Appadurai 1974.[20] From the European point of view. often employed it in competition with the Europeans themselves. Subrahmanyam 1990). Nor was it the case for the Nakarattars. especially those belonging to the Marwari caste (Timberg 1978) or the Kaikkolar caste (Mines. By 1680. Chaudhuri 1978. he is concerned with the organization of commerce in so-called burgher cities. In several places Bayly presents detailed historical data and interpretations about North Indian commercial towns and cities that correct largely unfounded. Nakarattars also played major roles in providing financial support and management for temples and charitable institutions wherever they did business. Subrahmanyam 1990). But these efforts to circumvent the Indian mercantile elite were by and large unsuccessful in that even the joint stock companies continued to be dominated by a small number of highly powerful ‘chief merchants’ (Arasaratnam 1980). the relationship was always strained on both sides. they represent a major turning point to the general trends I have just described. commercial. It may indeed be the case that the commercial elites of Allahabad and Benares gave no special precedence to relationships of caste. Indian brokers held entirely too much power and. provides the best opportunity to scout out potential differences and agreements in our views. Basu 1982. [Sanjeev: the study of temple funding will surely provide vital clues about Indian capitalism. Not surprisingly. European merchants were already attempting to alter the indigenous system by insisting on dealing with groups of merchants operating like their own joint stock companies rather than with individuals with privileged claims on their European patrons and monopolistic power over native producers (Brennig 1977: 338–340. multicaste commercial community. Moreover. In particular.[16] I begin with Bayly.comment. By 1870 (and. who explicitly joins the issue and. Bayly identifies an upper stratum of powerful merchant-bankers who maintain interregional trade in various commodities and credit notes and who provide important treasury and remittance facilities for regional and imperial authorities. But this was not the case for all commercial magnates. whose caste organization constituted a corporate financial institution in Indian society. in this respect.

These seem to be used more or less interchangeably. M. Goitein’s definition of the boundaries of the India trade approximates two geographical terms used in medieval Arabic. listed here in descending order of frequency.A. 7. Yet the India trade was the backbone of the international economy in the Middle Ages in general and within the Islamic world in particular. In reference to the larger area the terms bilãd al-Hind or diyãr al-Hind (‘the lands of Hind’) are often used. furthered the rise of a flourishing merchant class and created close and fruitful links between the countries of Islam and the Far East on the one hand and Europe on the other.D.F. The import of these papers for the study of that commerce lies in the simple reason that thus far they are the only ones that have survived. the Journal of the American Medieval Academy.. in the East. Indonesia. bilãd al-Hind and diyãr al-Hind. and is likely to throw considerable light on Hindu capitalism. by Friedman. in April 1954. In the Geniza documents we find the three terms. More than anything else. no letters or documents illustrating the medieval trade with India had been known to exist on either the Arabian or the eastern shores of the Indian Ocean. it stimulated inter-territorial traffic. They had been originally preserved in the so-called Cairo Geniza and are presently dispersed throughout many libraries of Europe and the United States. S. Meanwhile. Goitein. the exact limits of which vary somewhat. it has been possible to assemble during the last decades a collection of records. (al-) Hind and bahar al-Hind. Fortunately. The term India trade is taken here in the widest sense of the word. al-Hind. Hind is used in reference to a wide expanse. albeit nearly exclusively with Hebrew characters. I assume that they refer to 126 . It is an excellent primary source to confirm aspects of Indian trade. Until a few years ago. to the Indonesian Archipelago and mainland Southeast Asia. which provide much of the desired information. is an astonishingly well researched book.2 India Traders of the Middle Ages The book. it designates the entire region from Makran (which straddles modern Iran and Pakistan). it denotes the regions east of the Indus.It is just at this time that the Nakarattars emerge on the scene in a major way. I should like to remark at the outset that the share of the Jewish merchants in the India trade seems to have been comparatively modest. India Traders of the Middle Ages: Documents from the Cairo Geniza ''India Book''. in the West. In its wider usage. written mostly in the Arabic language. in the East. These Judeo-Arabic documents are mostly of the eleventh and twelfth centuries. As narrowly defined. And it is precisely the qualities of their caste organization that enable them to take advantage of the changing colonial economy and become the chief merchant-bankers of South India and Southeast Asia. many new finds have been made and the whole material was subjected to a systematic reexamination. comprising commercial activities and travel stretching from the ports of the Red Sea in the West to the shores of Sumatra. A first report about the Geniza papers as related to the India trade was provided in Speculum.

things did not always go smoothly. the Geniza has preserved a variety of smaller items related to the India trade. In addition to letters and legal documents. whose papers were preserved in the Geniza. several investors. would write out a release showing that the transaction had been concluded to their complete satisfaction. 15 September 2012 127 . and the ships which were held together by ropes instead of nails. Custom. rather than any written law. Even poems extolling the merits of these leaders are not without historical value. Unfortunately. Invariably. their quantity and often their price and sometimes instructions on how to dispose of them. Naturally. reason and expedience. The pivotal role of Yemen. or ‘partnership according to Muslim law. since most of its members were experienced businessmen. in order to preserve them for their heirs back home—to ensure. Presents were of the greatest possible variety. ranking from Oriental spices and costly textiles to Chinese porcelain or an Indian slave girl of six. We have some accounts of a brass factory in India. whom the merchant’s wife back home would bring up to become her personal attendant. or complain about their loneliness and miserable home-sickness. documents of this type Hindu capitalism Draft. or goods retrieved by divers. Since shipwreck was a recurrent feature of seafaring on the Indian Ocean. When the traveler came home. on their part. Memos accompanying shipments specify the goods sent. statements about men perished and goods lost. which had largely the character of a merchants’ court. formed the basis of their decisions. Most of the India traders. were usually active along the western coast of India. were made before the nearest court and forwarded to the parties concerned. Discord about communal leadership (which was not unrelated to business. specifying the materials used and the wages paid. or acted at one and the same time as an agent for one or. he would make a statement about his dealings in the interest of his partners and deposit it with the local rabbinical or Muslim court. usually. as far as they could be saved from the rapacity of the Sultans in whose territories the death occurred. The merchants would send home presents and goods for the use and maintenance of their families or more distant relatives. but also for others. The estates of merchants whom death overtook on their travels would be carefully listed.’ as it was called in Jewish legal parlance. a deed of commenda. The resulting disputes would be aired before the rabbinical court. the safety and efficiency of which depended largely upon the local representative of the merchants) is also reflected in legal documents. or even when he returned only from India to Aden. Novices in those foreign parts would describe the terrors of the Indian Ocean. in the India trade is discussed repeatedly in this book. The partners. which was so different from the quiet waters of the Mediterranean. especially Aden. would be drawn up. Items of private correspondence of the India merchants have also found their way into the Geniza. In such a case. a merchant embarking on so long a journey did business not only for himself.the same areas intended by the same terms in Arabic sources. The second largest group of Geniza papers referring to the India trade is composed of documents of legal character.

Chinese porcelain. Timber 3 items 5 items 1 item Total 77 items Different types of iron and steel loom large in the Geniza records. their prices in the different cities in which they were traded. to business friends or to religious dignitaries. Yemenite stone pots and African ivory H. Iron and steel (a chief commodity) C. although these too must have had a long tradition behind them. as well as muslin clothing are frequently mentioned. refrained from trading in this commodity. This seems to indicate (a) that the demands of the bronze and brass industry of southwest India were far larger than the local copper ores were able to satisfy. but only as raw materials. but still were only of 128 . Shoes and other leatherwork 2 items G. or whether the Jews. called ldnis {lãnas} in some letters and ldlis {lãlas} in others. Whether the Middle East Muslims preferred to manufacture their own weapons. As for textiles. i. but mostly as presents sent by the India traders to their wives. aromatics. and (b) that the Indian industry was so highly regarded that the Adenese merchants took the trouble and the risk to order vessels from India rather than from Yemenite coppersmiths. presumably because there existed no religious scruples about their destruction. customs duties and other expenses connected with them. cowrie shells and ambergris 4 items F. The Geniza shows us: (a) that large quantities of copper. since they did not contain the name of God. Tropical fruits.e. are never mentioned. and (b) that old or broken vessels and implements of all descriptions were sent from Aden to India and worked there into new utensils according to order. The Geniza records contain particularly rich information about the goods exchanged between the countries of the Indian Ocean and the Mediterranean. such as coconuts I. needs further elucidation. Spices.are comparatively rare. Southwestern India was famous both for its copper mines and its bronze and brass industry. so famous in Arabic literature. according to specifications provided. Brass and bronze vessels 36 6 varieties 12 items D. Indian swords. Pearls. beads. for one reason or another. EXPORTS FROM INDIA Those coming from or through India and other countries of the Indian Ocean may be classified as follows: A. The details about the fabrication of copper vessels are very remarkable and certainly deserve the attention of the specialists.. their modes of transport. dyeing and varnishing plants and medical herbs items B. Indian muslin {Indian red silk}. On the other hand. Indian silk and other textiles made mainly of cotton 8 items (only!) E. and details about their relative importance. Indian cotton fabrics were traded in considerable quantities. lead and other raw materials of that industry were imported to India from the countries of the West. A provisional list comprises seventy-seven commodities going West and one hundred and three exported to the East.

raisins and olive oil) and linseed oil for lamps. mats. etc. however. as a rule. tables. Household goods. soap. The material alluded to in the preceding lines seems to indicate that there is no clear-cut answer to this question. but their value. the question raised by R. medicaments. sent from the ports of the Red Sea or from Aden. Turning from the goods to those who handled them. i. Thus one might be led to assume that the situation bore a certain similarity to the relations of Europe with her spheres of colonial expansion in modern times. However. the merchants preferred sending goods instead of gold. while the Middle East exported mostly industrial products and consumer goods. Foodstuffs. books 19 items E. It was customary to pay for the products of the Orient in cash. however. paper. IMPORTS TO INDIA As eastbound. is still valid. one may jump to the conclusion that India and the Orient mostly sent agricultural produce and raw materials. which. is impressive. (cheese.e. frying pans. Thus. the dollars of that period. Vessels and ornaments of silver. accompanied orders for Indian goods. brass. how the Middle East made good its apparently unfavorable balance of gold in its trade with India. after an exhaustive study of the Geniza material. amounted to comparatively small sums. Raw materials for the Indian bronze industry. as a rule. only precious textiles were. Whenever possible. Chemicals. the same holds true concerning the Hindu capitalism Draft. glass and other materials items 23 C. S. in particular Egyptian gold pieces. Textiles and clothing 36 items B. most of the Oriental goods were purchased at the prices obtained for Middle Eastern products. gold and silver. such as carpets. were sent as an equivalent. was not the case. This could be concluded already from the details given above concerning the persons whose papers form the main stock of the Geniza records are discussed in this article. not by the local population. Metals and other raw materials for the copper industry 7 items F. as in that of Joseph Lebdi’s India trip. will be certainly enlarged by many items. etc. The industrial and consumer goods sent to India were of the greatest variety. Coral (a staple article of great importance) 1 item G. items 7 D. 15 September 2012 129 .. They were used by the Middle Eastern merchants and their families. Only in exceptional cases. sugar. one is struck by the predominance of merchants from North Africa in the India trade. 10 items Total 103 items This list. Since textiles took up much cargo space. Lopez. This. but the Jewish traders represented in the Geniza catered mostly to middle class customers. the following categories of goods have been noted in the Geniza papers: A. Mostly. considered worthwhile to ship.secondary importance. but misleading. If one compares it with the list of westbound goods given above.

“The Fatimids and the Route to India. which word is in some letters preceded by the article. Spain and Sicily undertaking the long voyage to India and. As to the organization of the India trade. we definitely see merchants from Tunisia. a Cairene businessman would join many partnerships each with comparatively small sums or with limited amounts of goods. The coastal towns of the Red Sea. Malaga and the isle of Majorca. Arabia and India were flooded with people coming not only from the larger cities of the Muslim West. no merchant guilds can be discerned in its Middle Eastern branch. but also from small and out of the way places. Reference is made repeatedly to an Indian shipowner PDYAR. 130 . merchants and craftsmen mentioned in the Geniza records will require the attention of the experts. Tunisia.hundreds of other persons mentioned in them. In others. or he would send a slave out to India instead of going himself. It is astonishing how many small fry participated in this overseas trade. One wonders in which language the two corresponded. in some instances. after having been driven by winds to Berbera on the African coast (while the escorting smaller craft arrived safely in Aden). our documents prove that such persons. characterizing it as a title or as a term of office. Yet this great trade did not entirely lack organized leadership. In order to spread the risk. but no rigid organization or coercion whatsoever can be discovered in this respect. The merchants appearing in the Geniza records normally concluded partnerships and traveled in company. certainly was no other than the pattana svami. the Abbasid caliphs of Baghdad. Libya. Morocco. etc. Over twenty places on the west coast of India are mentioned in the Geniza records. In a stimulating essay entitled. No substantial difference can be discovered with regard to this important office vis-à-vis the Mediterranean and the India trades. Spain. It seems that quite a number of them are not proper names. in Arabic wakfl al-tujjdr. such as Barqa and Tripoli. one of which was commanded by a Muslim. Qayrawan and al-Mahdiyya. and Der`a. and he was addressed in writing by the above-mentioned Madman. Each ship or convoy had its own port of destination and was labeled accordingly ‘the one bound for Broach’ or Tana. Tunisia. An important merchant would be accompanied by a slave who served him as a business agent and also as a menial. Urbus. Thus PTN SWMY.” Professor Bernard Lewis undertook to show that the Fatimid caliphs of Egypt endeavored to take the India trade out of the hands of their Iraqi rivals. Merchants and goods traveling in a ship heading for a port different from their own destination had to change to another ship. even more than once. whose large ship foundered. who also served as a kind of mayor. or Kalam. It was provided by the representative of the merchants. An additional reason for this seemingly strange system was perhaps the endeavor to avoid the excessive customs duties levied in each port. In a number of cases. in Hebrew peqfd ha-soharcm. The PDYAR possessed several ships. however. such as (Jabal) Nafusa. The names of the Indian shipowners. Tlemcen. Morocco. or even their fathers. Libya. but designations for officers or members of caste guilds. had previously immigrated to Egypt. the head of a large merchants guild. and persons possessing little capital would venture on the long and dangerous journey relying mainly on the capital or merchandise confided to them. Algiers. Morocco. Fez and Tangier.

matched by almost complete absence of animosity against other communities. holidays and dietary laws. shipowners and business friends in the ports of India . so important for families whose fathers and sons were exposed to the hazards of overseas travel. Hindu capitalism Draft.presumably. or Christians were commonplace and the members of other religious communities are referred to with the same honorable and amicable epithets as the writers’ own brethren. certainly contributed much to that spirit of all-embracing brotherhood. Yet the same Geniza letters reveal an astonishing degree of interdenominational cooperation. however. such as prayers and observance of the Sabbath. the feeling that every one’s lot was in the hand of the same God. Business was conducted to a large extent along denominational lines. in Arabic. It is. These courts also dealt with matters of inheritance. 15 September 2012 131 . not excluded that the Jewish representative of the merchants in Aden kept an Indian clerk for his correspondence with the authorities. Members of one religion traveled together in order to be able to fulfill their religious duties. Partnerships were concluded and dissolved and many other civil cases were brought before the courts of the various denominations. or Hindus. Partnerships and other close business relationships between Jews and Muslims. The great dangers shared in common. which pervades the India papers of the Cairo Geniza. simply because this was the practical thing to do.

we must really mean it. A good number of these classmates are highly qualified professionals settled abroad in the academia or private sector. but not at home – why Homi Bhabha. This new understanding of the cultural drivers of wealth is growing largely because of the work of Deirdre McCloskey. but also collaborated. quiz. Students are not required to use the word 'sir'. and Ramanujan became big stars in foreign universities! The reason is foreign universities don't require students to be servants. a sense of dignity. I recall the equal competitions we had with school classmates (19651976). including academia. Much better to recognize individuals as persons worthy of regard in their own might! Well. as it is in beauty contests! It is about culture. rule of law. pg. Using such suffixes only creates an unequal playing field. There was never any question about our “equality” or "equal dignity". There is an X-factor involved in this whole thing. THAT culture was responsible for creating a hugely aspirational upwardly mobile middle class in India. Why Hindu capitalism failed to deliver in the recent centuries There is an increasing understanding that while institutions of socialism are totally destructive of wealth. In particular. We competed on everything. of equal competition When we talk about equal liberty. Recently FTI member Harsh Vora wrote on his Facebook page: Today's TOI issue (25 August 2012. it requires a sense of equality. there is freedom of individual thought. institutions and incentives of capitalism (property rights. etc. 132 . a state of mind. dramatics.8. Above all. in the end. Liberty means giving everyone equal dignity. McCloskey has proposed a potent hypothesis about dignity. sports. In particular. Capitalism is. this actually holds the key! Because that’s where the poor quality of Indian labour comes from. The more I think about it the more sense it makes. It has a precise meaning. That surely is the PRIMARY REASON why Hindu capitalism has performed badly over the past 2000 years (particularly the last 200 years). Please read this amazing piece! There's NO logical reason why we must use suffixes such as 'ji' or 'sir' or 'uncle' in our daily conversations (instead of only first names). This is not as fuzzy at it sounds. the world's first and one of the most potent analyses of wealth. Amartya Sen. even though many of the other institutions of capitalism were often present in India's history.) do NOT necessarily increase wealth significantly. And although we had Arthashastra. 2) discusses why Indian students excel abroad.

The maids and gardeners at home. and those at work were often able to come and go from the mill at their pleasure to eat or to smoke. In a second post I’ll publish my brother’s experiences with Indian labour. and some of the New Zealand companies experience difficulty in accessing local people with the requisite skills. when some Indians are heads of multinational companies and leaders in the academia.” One manager even stated that the typical worker “washes. Whether we pay lip service to equality or we really mean it. I’m being critical of educated Indians who've not yet broken down the “status” barriers between them and their staff. Other workers would supervise their machines while they were gone. there were those who “served” us. Workers’ relatives would bring food to them inside the mill during the day. meant to serve our needs.On the other hand. The Indian Factory Labour Commission report of 1909 is full of testimony by employers regarding conditions in the mills. here. Therefore.) Please note that I’m NOT being critical of Indian labour. He balked at this suggestion and said that doing such a thing would send the wrong signal to people. his driver) in a restaurant to discuss their life and career aspirations. (I'd also like to note. drink shops. Take the example in 2010 of a prominent Indian who comes regularly on TV to promote self-respect. Hindu capitalism Draft. This unequal hierarchy and different levels of dignity among people continues in India. A Farewell to Alms: a brief economic history of the world. the drivers. others continue to perform dismally.363. I really appreciate his work and suggested that he make it a practice of having coffee with his staff. “There was an utter lack of supervision in the Bombay mills. has his food. high levels of technical expertise are required. This says it all. Some mothers allegedly brought their children with them to the mills. These people were tools.” Source: Gregory Clark. This is about 2010. 15 September 2012 133 . bathes. either in India or in New Zealand. Two approaches are used to counter this problem: training local people. A substantial fraction of workers were absent on any given day. and using expatriate staff from New Zealand to conduct or supervise the skilled work.] Further In some cases. sleeps. smokes. the vendor who sold vegetables at the doorsteps of our house. barbers. These people were not part of the game. and is surrounded as a rule by his relations. and other facilities to serve the workers taking a break. These people were NOT EQUAL. washes his clothes. the low quality of office assistants in most government offices in India. It is NOT their fault. They just don't have the self-regard and dignity. p.g. They were not regarded as independent humans with the same dignity that was available to our fellow classmates or teachers. Let me show what others think about Indian labour productivity. The mill yards would have eating places. We need to ACTUALLY DELIVER EQUALITY if we want India to achieve its potential. on rotation (e. and indeed some manufacturers alleged that the workers organized an informal shift system among themselves. That was the test. shaves.

labour laws v restrictive (can’t sack people).asianz.org. if you get the wrong person. One New Zealand company that manufactures specialised equipment is concerned about the quality of labour in India.pdf] 134 .Both of these approaches add significant cost to the operation (with expatriates costing four-six times as much as local staff).nz/sites/asianz. graduate-level education not very good.nz/files/India_Opportunity. or Europeans. The reason – we feel that the work ethic is poor. “We wouldn’t employ local people in India – only New Zealanders. noting that it does not employ local people for this reason. you can’t do anything about it – high risk!” Tait Radio Communications [Source: http://www.org. but are considered necessary until local skills develop to higher standards.

9. Not for nothing was India the world’s wealthiest nation for thousands of years. rushed ahead. join FTI. if you are serious about a very prosperous and successful India. Hong Kong. Unfortunately. its natural right. With the caste system even the smallest village could guarantee itself a blacksmith. That India should be doing AT LEAST TEN TIMES better than today is obvious. But achieving that requires a significant change in policies and governance – which have to be radically different to what we have had over the past 60 years. or rather.1 India needs to rediscover and strengthen its innate capitalism The rules of the game changed between 1400 and 1750. among other things. Rebooting Hinduism  Why do ‘Hindus’ hate liberty? Here’s a clue  The increasing lack of tolerance in Hinduism  Why is Hinduism afraid of proselytisation? Only a fraud is afraid of scrutiny 9. and it helped produced sufficient surplus to feed hundreds of prosperous towns and cities. The competition is no longer the same. It is 10 times tougher. Others.2 Hinduism will do well to rediscover itself The caste system was perhaps an efficient solution to the agricultural age in India. die. as confused as Islamic cultures are about their precipitous downfall. India can NEVER become No. 9. There is NO other policy known to mankind that can help India achieve its potential. That means building systems that are incentive-compatible. till today. none of the existing political parties in India have the remotest clue how to get this to happen. And so. Just like big companies that do not change with the times. discarding caste. read BFN. Singapore. earlier far behind. Taiwan went ahead. It helped create an environment for hundreds of millions of people to live harmoniously in villages. Every Tom Dick and Harry. and priests to conduct marriage and death Hindu capitalism Draft. most Indians REFUSE to recognise that the rules have changed long ago. South Korea. That means. including Japan. stopping the constant religious babble that destroys peace and harms relationships. Tragically. 15 September 2012 135 . once again. India almost entirely lost its capacity to innovate by around 1750. and the economy. India continued to lives in its dreamworld. traders.1 in the world again till Indians realise that they have to play with the new rules. cleaners.

But I’m not a caste-loving. and the scientific method. India’s per capita GDP is 15 times less than that of USA today. by any means – particularly for the ‘lower’ castes. and much of ayurveda. railline. I’m also broadly comfortable with Advaita philosophy and Buddhism. It also made sense (perhaps!) in the agricultural age to deify the cow and make it a sacred animal. so as to have sufficient proteins available in the village. But I’m far more comfortable with Charvaka’s school of thought. Not a paradise. I’m one of them. They no longer needed their local blacksmith. electricity and telephones. In this changed context. a Buddha. That meant that agriculture became mechanised – and far more productive than before – and people began to move to cities in a big way to produce things for the villages. till about 10. Knowledge became specialised. I also believe in the validity of many Indian things like zero. the caste system has became a HUGE BLOCKER on India’s progress. But it worked. That meant that just because the local blacksmith died the village did not have to go miles away to get its ploughs and carts fixed. no one could have survived without eating meat). No wonder India has slipped into deep poverty as the rest of the world has progressed rapidly ahead. For instance. the number system. This model was not uncommon during the agricultural era. I’m a Charvaka.ceremonies. cowworshipping Hindu. That is why Hinduism took the shape it did in the last 2000 years – basically a way of life to support an agrarian society. Indeed ‘Hindu’ only meant someone who lived on the other side of the Sindhu (Indus) river. This clearly did not occur all at once. noting that there has been no greater and more revolutionary thinker than him in India so far (assuming he existed!). So I’m at least some form of ‘Hindu’. The caste system also produced soldiers when needed. A factory in the city could produce things 10 times cheaper and supply it to every corner of the world. I know that Japan definitely had its own ‘caste system’ of sorts. a 136 . given that most people could not afford meat and had to eat just rice and coarse lentils. The division of labour became acute and all-pervasive. To the agrarian settlement in Europe was added the manufacturing or industrial revolution. agnostics and skeptics. It took time for the culture to stop eating cows and other animals (indeed. Hinduism as it evolved over the past 2000 years is no longer relevant. And outdated beliefs about cows and such things create further complications and block India’s forward move. The context has changed Between 1400-1750 AD the rules of the game changed. This is because Hinduism has not kept pace with the times. I am a SCIENTIFIC Hindu.000 years ago. for sure. European feudalism comes to mind but I’m sure broadly similar social structures must have been created in China. yoga. Time to re-invent Hinduism from scratch I’m actually a ‘kind of’ Hindu – since ancient Hindus included atheists. in the hunter-gathering era. It was a self-perpetuating solution or equilibrium to a difficult problem of living in remote corners of India without the support network of roads.

India. when I was Commissioner for Arts and Culture in Meghalaya I found similar issues with government records from British times (Shillong was capital of Assam since mid-1800s). below are extracts from a FB conversation today with Harsh Vora. In this Hinduism we’d have all our myths and mythologies but consider them to be nice stories. not something to be taken as gospel.Vivekananda. Charvaka’s ideas.the highest category of all. on the other hand. I’m sure we can create a new Hinduism best tailored to the needs of India in the modern. or Hayek’s liberalism. Greece. Its history is not just ancient. Buddhism. In this Hinduism we’d have all the temples and the lot. or for a lecture or two on the Vedanta. And so it is crucial to use the latest technologies to preserve key records from our past. and human . has 1. for instance.3 Socialism is wiping out India’s history India has the world’s greatest history. So I’m happy to participate in the re-invention of Hinduism. While I won’t go into details here. I see myself as an Indian. it has some of the world’s most significant documents and monuments – in the fields of science. India also happens to have a climate (hot. As Commissioner for Arts and Culture in Meghalaya in 1999/2000 I visited the National Archives in Delhi to discuss options for preserving the records of Assam. has merely one tiny city-state – Athens to show. Greece (and Europe.000 Athens. an independent human being. scientific world. India’s history therefore represents a very significant share of world history and the whole world must be concerned about the preservation of its records. And so on… We can take the best from all of mankind’s thinking and create a NEW WAY OF LIFE. humid) which destroys documents very quickly. more generally) pales into insignificance in comparison with India.ly/v8CFUA My response (slightly edited): Harsh. Even a plumber has to be highly qualified and experienced. We’d all be called Brahmins since this is the knowledge age. Hindu capitalism Draft. 15 September 2012 137 . Do you want to participate in a project to re-boot Hinduism? I believe that a ‘new -look’ Hinduism is crucial for India to be able to lead the world once again. philosophy. but have them as quiet places for contemplation and self-reflection. that show why it is literally impossible to preserve records in socialist India. Harsh India has VERY RARELY shown regard for preserving her history. Yet. and art. and help rewrite its scriptures from scratch. 9. This fact is now evident in the degenerate condition of the 450-year old manuscript of ‘Arthashastra’ (Chanakya’s treatise on economics and statecraft) at the Mysore library – no doubt we have so scant knowledge of our past! Link: http://bit. Most records have been lost.

Rajaji consistently tried to get him off the socialist bandwagon but he didn't care. When all our intellectuals took Marx's and Weber's words at face value. or for ‘rural development’ (most of which end up in the pockets of corrupt politicians). who both elect such socialist rascals to power and refuse to offer themselves up for election. 138 . there is utter tripe being taught about Indian economic history in the most famous textbooks on economic history. On reason why Nehru won and Rajaji/Patel lost was that the Marxist literature had called Indian society feudal (to fit it into the European mould). political and economic system. then it was difficult for Rajaji to overpower these views. and even in the 1990s. Therefore there is no point blaming anyone but the Indians themselves.g. Thanks. Weber considered Hinduism incompatible with capitalism. Our tragedy is that very few have cared to ACTUALLY study India's social. some people have been doing this in a piecemeal manner over the past few decades. I'm certain Patel would have opposed such a conception.The truth is that our ‘educated’ people are focused on getting educated and FLEEING India. but it is easy to get thousands of crores of rupees worth of subsidies for industries. It is time we bring this together and show India that its heart is made of gold. all of them negative. Fortunately. Or at most they are happy to work in flashy high paying jobs in the private sector in India. There is VIRTUALLY NO ONE interested in India’s history. Socialism is insidious. And the Hindus who wrote about history were so poorly read (e. It is almost IMPOSSIBLE in socialist India to get funds for preserving old records. or India’s historical documents. It has many effects. and we need to rediscover that vitality and system of wealth creation. Golwalkar) that they merely proved to people like Nehru (and Gandhi) how shoddy Hindu political and economic thinking was. Shantanu Indians gave in too easily to Nehru's grandiose statist ideas in the 1950s. as well. That is because such work is a lowly-paid dreary dead end.

1986) 267.). in Ricoeur (ed. 2004) d) Nanda. Capital and Karma: Capitalism and Hinduism Compared. Philosophical Foundations of Human Hights (Prepared by UNESCO and the International Institute of Philosophy. 1997) Blog posts that could throw light on the topic  Hindu Capitalism #17: The writings of Lakshmi Chandra Jain  Hindu Capitalism #12. and TRULY FORMIDABLE form of capitalism [#1]  Hindu Dharma and capitalist institutions #1: Human rights    Hindu Capitalism #20. This is available electronically and I've included it in the above version. a)Subedi. P. Two further excerpts to prove Hinduism is 100% anti-socialist! Hindu Capitalism #13: Anantdeep Singh and Timur Kuran Hindu Dharma and capitalist institutions #3: Freedom and the role of the state in Mahabharata Hindu Dharma and capitalist institutions #4: Natural rights and equality  A most powerful statement about human liberty. References Caste and Capitalism in Colonial India. It can also be read (considerable portions) on google books. 15 September 2012 139 . [Source]  2) 1955 R. (1999) 30 California Western International Law Journal 46. b) Pandeya. by Swami Vivekananda Arthashastra       Sanskrit PDF (Download) Word (Download) Another version here. HTML (Wikisource) Hindi translation Ganapati Sastri (1924) English translations 1) 1915 R. in Werner (ed.10. Hinduism and Human Rights. Boston: M. Kangle's translation (University of Bombay)  3) 1992 LN Rangarajan's translation (Penguin) – available for $10 in "cut and paste" kindle edition. ‘Hinduism and Human Rights’.). I tend to use a combination of this translation (of which I have a hard copy) and Shamasastry's translation since Kangle's translation is not electronically available. innovative. A Conceptual Approach (New Delhi: Oxford University Press. Shamasastry translation. by Oyvind Jaer  Does Hinduism cause corruption? If this is Hinduism then everyone should become Hindu Hindu capitalism – a vibrant. Nijhoff. Human Rights and Humanitarian Law: The Quest for Universality (The Hague. ‘Human Rights: An Indian Perspective’. ‘Are the Principles of Human Rights “Western” Ideals? An Analysis of the Claim of the “Asian” Concept of Human Rights from the Perspectives of Hinduism’. Chanakya Niti Hindu capitalism Draft. c) Sharma.




Sanskrit
PDF (Download)
English translation
1981: Translation by Miles Davis & V. Badarayana Murthy: PDF (Download), Word
(Download)

Chanakya Sutras




Sanskrit
PDF (Download) Word [Partial] (Download)
English translation
Partial translation (90 verses) Word (Download)

Scholarly articles on Chanakya

Most of these are downloadable. I'll provide links (and keep
adding to this list) as time permits. This is only a very small
list of scholarly articles available on Chanakya's work.
Balbir S. Sihag, KAUTILYA ON THE SCOPE AND METHODOLOGY OF
ACCOUNTING, ORGANIZATIONAL DESIGN AND THE ROLE OF ETHICS
IN ANCIENT INDIA, The Accounting Historians Journal,Vol. 31, No. 2
(December 2004), pp. 125-148,
http://www.jstor.org/stable/40698303
Balbir S. Sihag, Kautilya on Time Inconsistency Problem and
Asymmetric Information, Indian Economic Review, New Series, Vol.
42, No. 1 (January-June 2007), pp. 45-55
http://www.jstor.org/stable/29793874 Balbir S. Sihag, Kautilya on
Moral and Material Incentives, and Effort.
Balbir S. Sihag, Kautilya on Public Goods and Taxation
Balbir S. Sihag, Guest editorial on Chanakya, Humanomics, Volume
25, Issue 1.
Balbir S. Sihag, (2009),"Kautilya on economics as a separate
science", Humanomics, Vol. 25 Iss: 1 pp. 8 -36
Balbir S. Sihag, (2009),"Kautilya: a forerunner of neoclassical price
theory", Humanomics, Vol. 25 Iss: 1 pp. 37 – 54
Balbir S. Sihag, (2009),"Kautilya on principles of taxation",
Humanomics, Vol. 25 Iss: 1 pp. 55 – 67
Balbir S. Sihag, (2009),"Kautilya on international trade policies",
Humanomics, Vol. 25 Iss: 1 pp. 68 – 74
Balbir S. Sihag, (2009),"Kautilya on law, economics and ethics",
Humanomics, Vol. 25 Iss: 1 pp. 75 – 94

140

11. Unsorted material

Caste and Capitalism in Colonial
INDIA'S NEW CAPITALISTS: CASTE, BUSINESS AND INDUSTRY IN A
MODERN NATION
BY HARISH DAMODARAN11
PERMANENT BLACK
PAGES: 362; RS. 695
The "Protestant ethic", claimed Max Weber, promoted the "spirit of
capitalism" and wrought change in feudal Europe. It is "animal
spirits" that induce "a spontaneous urge to action rather than
inaction" and thereby fuel enterprise, said John Maynard Keynes.
For 200 years, social scientists have tried hard to explain why and
how agrarian societies transform into industrial nations.
When, how and why do merchants, traders, moneylenders and
landlords become industrial capitalists?
There has been much theorising and even more empirical
recording. The study of capitalist industrialisation in India is,
however, still in its infancy. You get hagiographical accounts of the
"captains" of business, you get dull historical detailing or
sociological hypothesising, but very little hard facts about the
social origins of business enterprise in India.
So, full marks to Harish Damodaran for a book that those
interested in the dynamics of capitalist development in India must
read. It's not just good journalism but the work of a profoundly
talented observer of social change in India.
Everyone complains about Indian politics getting stuck in the caste
groove. Indian business was there before. Caste networks helped
create trust, an essential lubricant of business. Damodaran doesn't
discuss the whys and wherefores of caste in business. He has stuck
to digging out facts and showing us how different castes across the
country made the transition from traditional economic activity to
trade and industry.
Interestingly, vegetarian Indians—the Jains, Marwaris and Brahmins
—exhibited "animal spirits" before the other castes caught up.
They and the Parsis dominated pre-Independence business
enterprise. After Independence came the Chettiars, Khatris,
Kammas, Reddys, Rajus, Jats and Marathas, to name some of the
other entrepreneurial castes.
Damodaran doesn't waste time trying to justify the caste lens. Nor
does he get diverted by the question "Is caste class?" He believes
capitalism in India has developed through what he calls "business
communities" in which ethnic and other networks facilitate
commercial activity. In elaborating the caste dynamics of capitalist
11

http://www.outlookindia.com/article.aspx?237402
Hindu capitalism
Draft, 15 September 2012

141

development, Damodaran's taken scholarship in the area several
steps forward. It would have been fascinating to see how
Damodaran's grandfather, the Communist leader and Marxist
theoretician E.M.S. Namboodiripad, would have viewed young
Harish's work!
Damodaran identifies three sources of industrial capitalism in India
—mercantile capital ("bazaar-to-factory"); professionals ("office-tofactory") and agrarian capital ("farm-to-factory"). My own work on
the development of capitalism in Andhra Pradesh, dating back to
the early '80s, showed a fourth route—public works-to-factory, the
so-called "contractor class" who accumulate capital from public
works. There are many prominent examples of businessmen who
have milked the public exchequer, with help from politicians in
office, to become "dynamic entrepreneurs".
Damodaran's book corrects one imbalance in existing literature on
business enterprise in India—the regional one. Most of existing
work focuses mainly on Marwari, Jain, Parsi and Punjabi enterprise.
There is very little published work on South Indian business, apart
from the work of economic historians. Damodaran's chapters on
South Indian castes in business, and his brief 'Note on Minorities'
fill this gap.
The most important challenge Damodaran poses to his
distinguished grandfather's intellectual and political legacy is not
his focus on caste as a factor in the growth of new enterprise.
Rather, it is his unequivocal demonstration that so many of the
first-generation business groups across the country find their origin
in the post-Green Revolution agrarian transformation of rural India.
The old theoretical formulations regarding India's inability to make
the transition from feudalism to capitalism because of the semifeudal nature of agrarian relations and the constraints imposed by
backwardness fly out of the window. That may be true for parts of
eastern and northern India, but, as Damodaran shows, in much of
southern, western and northwestern India, farmers have become
industrialists. The dynamics of Indian agriculture facilitated that
transition, with help from the government.
I am particularly delighted to see Damodaran's rich detailing of this
process because some of us had in fact argued even in the '80s
that a new dynamism was visible in the countryside in places like
coastal Andhra, southern Tamil Nadu, western Maharashtra and so
on, where a new business class was in the making. It is not often
that one reads a book you wish you had written. I certainly wish I
had Damodaran's skill, energy and intellect to produce such a wellresearched and readable book.

http://www.usc.edu/schools/college/crcc/private/ierc/conference_registratio
n/papers/Kuran_final.pdf

Indian response to the onslaught of westernism/modernity

142

modernity has become gender-biased not only by continuing the gender division of labour but also by the monopoly of men in public affairs. he had launched a ‘transcultural’ protest against the materialist and hypermasculine worldview of colonial modernity (Nandy. nation. 1983: 48). the British weakened the traditional Indian social order and inferiorized its culture. 1910). e. Hindu capitalism Draft. capitalism and imperialism as well as the compelling need to articulate its complex response had fuelled a search for an appropriate vocabulary and the borrowing of new words such as rights. 15 September 2012 143 . surfaces repeatedly in their ideological formulations throughout the 19th and early 20th centuries. he indicted the West for its stance of arrogant superiority over its material achievements. However.In the 19th century. Gandhi rejected not only this worldview but also condemned the objectification of nature and the ruthless exploitation of resources. In his pamphlet Hind Swaraj (1909). This was reinforced by the Indian leadership’s keen sense of responsibility to communicate an aspiration for freedom from political bondage. barbarity and irreligiousness (Gandhi. ambivalence and contradiction in their attitude towards tradition and modernity. Here we notice India’s dilemma of how to borrow without submitting to the hierarchical relationship with the West despite the earlier experience of humiliating domination and demoralization. His cultural agenda was based on such principles that hardly coincide with the ideals of western modernity. sciences and arts (Van Vucht Tijssen. politics. ideological struggles at two levels: one against caste discrimination and women’s oppression. 1999: 56–7). secular and the like (Alam. which is characteristic of colonial consciousness. he had been able to turn satyagraha and ahimsa into effective strategies for social and political struggles. and another against cultural hegemonization by the colonial state. 1909. They induced them to launch cultural. The Indian attitude towards modernity acquired more criticality. clarity and sharpness when Gandhi pulled the intellectual community out of the orbit of bourgeois values through his powerful critique of western civilization. its worldview and the people as a race. In this worldview. Thus. Gandhi’s insightful and creative reading of Indian and western traditions had urged him to reject social reformers’ alternative whether in terms of ideology or borrowed conceptual vocabulary. dividing societies into traditional or modern (modernization regarded as synonymous with westernization and secularism) and putting exclusive emphasis upon value-neutral. a critical attitude has not been lacking. 1991: 138). By mobilizing latent cultural resources. it may be added that India’s encounter with western modernity. While the reformers had found traditional culture inadequate to meet the challenges of western modernity. the administration. 1991: 151). Nearer present times. Thus. economic exploitation and cultural hegemony of the colonial rulers. scientific and universalistic rationality (Baykan. they were not inclined to adopt the bourgeois liberal model in toto as the cultural and intellectual engineering had caused anxiety among them about the survival of tradition itself. Further.g.

It can be said that the powerful current of western modernity. 2011 144 . Punjab University. 1993) is appropriate. Giddens’ description of globalization as an ‘enlargement of modernity from society to the world’ (Giddens. In this context. the decolonization process. However. Current Sociology. particularly folk resources and relevant elements of modernity. is now affecting numerous sensitive teenagers and youth with full force. initiated by Gandhi. Source: Cultural values and globalization: India’s dilemma.Above all. Kamlesh Mohan. The changing parameters of global economy and the civilizing mission in the hands of corporate capitalists and the inability of India to resist multinational corporate pressures for liberalization have once again made people vulnerable to the alluring promises of western modernity. his keen awareness of the untapped potential of India’s rich cultural heritage. owing to the deep penetration of satellite television and cable networks in urban as well as rural areas and slums. has been recognized not only by the advocates of western modernity including feminists but also by the traditionalists. has lost much of its force as his thought and practice could not fully capture India’s urge for a ‘relevant’ modernity in terms of the multiple needs of its fast-growing population and its national aspirations. especially its ultra-consumerist orientation. 59(2) 214–228. India.