Hindu Capitalism

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Please do not cite from this manuscript, since it is work in progress.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.)
Please delete this draft after reading! [join me at
sabhlokcity.com]
Hindu capitalism
Draft, 15 September 2012 i
In praise of profit: Shub Labh
Gold and God: a very close relationship
Hindu capitalism
ii 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 Betrayal1
‘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
Acknowledgements
Thanks to:
Person For sending the following
N. Sriram Project on Indian science and technology
Lalatendu Dash India Office records
Lalatendu Dash The Economic History of Organizational Entities in Ancient
India by Vikramiditya S. Khanna
Arjun Singh Thakur Ancient Indian Dispute Redressal System - as given in
Agnipuraan
AAryan Rao Cultural values and globalization: India’s dilemma, Kamlesh
Mohan, Punjab University, India, Current Sociology, 59(2) 214–
228, 2011
Hindu capitalism
iv Draft, 15 September 2012
Contents
Frontispiece: Freedom is bounded by accountability...................................................iii

Acknowledgements.......................................................................................................iv
1. Introduction........................................................................................................1
1.1 Kautilya, the anti-socialist...........................................................................................................3
1.2 Goddess Lakshmi........................................................................................................................3
1.2.1 In praise of profit...........................................................................................................6
1.2.2 Prosperity......................................................................................................................6
1.3 For 12 out of the past 20 centuries, India was the world’s RICHEST “country”..........................7
1.4 Why do most writers believe India and capitalism are incompatible?.......................................7
1.5 Rondo Cameron got it totally wrong about India.....................................................................14
1.6 Max Weber got it totally wrong about India.............................................................................14
1.7 How Vedic socialists have got it wrong.....................................................................................15
1.8 The Capitalist Structures of Hinduism......................................................................................17
1.9 Hindu capitalism is Adam Smith’s capitalism supercharged.....................................................20
1.10 There is no Vedic socialism.......................................................................................................21
2. Commitment to freedom, reason, prosperity..................................................23

2.1 Vedic capitalism. Affirmation of equality and pursuit of wealth...............................................23
2.2 Arthashastra.............................................................................................................................23
2.2.1 Policies on which I agree with Chanakya.....................................................................23
2.2.2 Policies on which I differ with Chanakya.....................................................................24
2.2.3 Freedom......................................................................................................................25
2.2.4 Freedom of speech and belief.....................................................................................25
2.2.5 Natural rights..............................................................................................................26
2.2.6 Equality.......................................................................................................................27
2.2.7 Reason........................................................................................................................27
2.2.8 High quality Minsters/leaders.....................................................................................32
2.2.9 Exhortation to be rich.................................................................................................33
3. Knowledge about this world............................................................................35

4. The minimal state.............................................................................................37
4.1 Key functions............................................................................................................................37
4.1.1 Defence, Police, Justice...............................................................................................37
4.1.2 Enforcement of property rights...................................................................................38
4.1.3 Infrastructure..............................................................................................................45
4.1.4 Social minimum...........................................................................................................45
4.1.5 A minimal state with low taxes....................................................................................45
4.1.6 Integrity in public life..................................................................................................47
4.2 Public choice: making common decisions through public consultation....................................48
4.3 Examples of minimal regulation...............................................................................................48
4.3.1 Prostitution.................................................................................................................48
Hindu capitalism
Draft, 15 September 2012 v
4.3.2 Alcohol........................................................................................................................52
4.4 Ensuring corruption free governance.......................................................................................57
4.5 Limitations of the Hindu state: Paternalism (mai-baap sarkar)................................................58
5. Institutions: Science and innovation................................................................59

5.1 Reason 59
5.2 Science and technology............................................................................................................59
6. Institutions: Financial system and banking......................................................60

6.1 Free banking in India................................................................................................................60
6.2 Microfinance in Hindu India.....................................................................................................69
6.3 How loans were recovered.......................................................................................................72
6.4 Absence of usury prohibitions in Hinduism..............................................................................74
6.5 How British joint stock system and barriers displaced Hindu bankers......................................75
6.6 Corporations.............................................................................................................................92
6.7 Foreign investment...................................................................................................................97
7. Institutions:Trade and commerce..................................................................104

7.1 Commerce in Indian Society...................................................................................................104
7.2 India Traders of the Middle Ages............................................................................................106
8. Why Hindu capitalism failed to deliver in the recent centuries.....................112

9. Rebooting Hinduism.......................................................................................115
9.1 India needs to rediscover and strengthen its innate capitalism.............................................115
9.2 Hinduism will do well to rediscover itself...............................................................................115
9.3 Socialism is wiping out India’s history....................................................................................117
10. References......................................................................................................119
11. Unsorted material..........................................................................................121
Hindu capitalism
vi Draft, 15 September 2012
1. 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.
It is increasingly clear from my limited research that there was a distinct form of capitalism
that can be legitimately called Hindu capitalism. It performed most functions that British
capitalism did, but in different ways.
It is truly deplorable that it is not widely known in India that Hinduism is totally inconsistent
with the socialist ideology. Some wishy-washy attempts to link Hinduism with socialism have
been attempted (such as Vedic socialism), but these are ALL wrong. There is simply no way
that Hinduism operates a socialist regime.
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.
India tried unsuccessfully to inculcate the ideals of socialism among Hindus. 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. The idea of free
enterprise goes well with Hinduism because it is very much in harmony with the theory of
karma. Free enterprise is natural to Hinduism. So also the theory of survival of the fittest. 3
(Jayram V.)
Indian innovations in capitalism have been seriously neglected by world economic historians.
There are, for instance, a vast number of Western economists who receive funds to study
original documents of European capitalism, but almost no Indian economists funded to
similarly study Indian 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. Such misguided thought, usually statist, if not socialist, has harmed India greatly.
We need to learn to appreciate the inner working of the world’s greatest society – India –
over the past 2500 years, and find a way to bring back that dynamism, even as we reject
caste based discrimination.
There are strong capitalist undercurrents in India that will ultimately overthrow socialism.
But our education system has been entirely hijacked by socialists, and our politics and
bureaucracy, as well.
It is going to be hard work to burn away the dross that covers India today in order to reveal
its gleaming golden might.
Hindu capitalism 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
3
http://www.hinduwebsite.com/hinduism/h_socialism.asp
Hindu capitalism
Draft, 15 September 2012 1
‘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 everyone 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.
I’m more interested in the role of PRIVATE enterprise and its relationship with the state.
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).
Clearly India had a form of capitalism before the British came. And this form merged
seamlessly into the new forms that were introduced in India by the British. Some writers like
Cooke struggle, though, with the idea that banking could have originated in India without
assistance. He thinks the Greeks or Jews might have helped!
Instead of aping idiots like Marx and Keynes, much better to look into Indian history for
inspiration on how a powerful economy can be operated.
The purpose of this book is not the aggrandisation of any religion (Hinduism is not a religion
in the typical sense of the word, anyway), but to point out that there are many elements in
Hinduism that are compatible with liberty, not with statist/elite direction of the economy, or
production. This fact is not widely known. It is my aim to discover the extent to which
traditional Indian thought is compatible with liberty. If Indians thereafter become proud of
their past and determine to become more free, so much the better. Currently they shun their
past given the besmirching of the truth by Marx, Weber, and many others (including the
Hindutva brigade).
This book is purely about Hindu capitalism, not about ancient India's market model. I'm
going to study standard "Hindu" literature and investigate trade and banking by Hindus (as
opposed to, say, Muslims). Also I'll study Hindu institutions. There is value in understanding
this topic clearly.
India is a very new concept. For thousands of years, the place known as India today was
called al-Hind. People who lived there were called Hindu.
This place (al-Hind) had certain properties which allowed it become the wealthiest "nation"
on earth. Let's explore these properties, and also find out why these people were not adept
and flexible enough to take advantage of new technologies invented in the West.
These same people are now at the top of the technology and business pyramid (in Silicon
valley/ multinational companies founded by India). Certain innate properties in the minds of
"Hindus" are enabling them to adapt to modern technology rapidly. What are these
properties? Let's investigate.
1.1 Kautilya, 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
2
(3) He built a strong regulatory system for "vices" like alcohol and prostitution, but NO
PROHIBITION. He would have STRONGLY OPPOSED Gandhi's and Anna Hazare's attempts to
impose prohibition.
He was, however, not a modern economist and didn't quite understand the price system
(e.g. he advocated price regulation). But overall, a far better economist than any of India's
economic advisers to the government since 1950 (excluding B.R. Shenoy).
1.2 Goddess Lakshmi

Have you seen such socialist women before?
In Hinduism, wealth is valued and not rejected. Hinduism is the most anti-socialist system
ever invented by mankind. A country that worships Goddess Laskhmi has been hijacked by
the socialist poverty industry.
Hindu capitalism
Marxians, Fabian socialists and others have tried their best – even after independence – to
prevent India from recovering its ancient capitalist might - its power of wealth based on free
exchange and trade.
India is an amazing place. There is such insistence on being wealthy that one has to live there
to believe it. Marriages are a good place to observe this devotion to wealth, but the passion
for gold and large buildings is almost universal. And there are the endless stories of Gods
who were resplendent with gold, and kings ….
I know these stories through Chandamama which I used to read in the 1960s.
There is, in my view, no place more conscious of wealth than India. No other country,
perhaps, where wealth is so intensely worshipped.
And so it should.
It is a good thing to be rich (so long as it is earned).
It might appear to an indifferent observer that after socialism became India’s ruling ideology,
Indians probably lost interest in wealth. They started putting their entire effort purely into
public service, into charity, noble intentions, fasting, preaching.
Not so.
While India builds thousands of statues of a Gandhi who wore a loin cloth, it spends billions
of dollars in real savings to build temples and worship the most beauteous and wealthy,
knowledgeable Goddess Lakshmi.
Lakshmi RULES India. 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. And of course she is SUPER-RICH (being God), with an endless
outpouring of gold coins and jewellery.
Lakshmi is worshiped perhaps more than any other God or Goddess in India.
India’s desire for wealth has (thankfully!) not been dimmed by Marxian or Nehruvian
socialism.
I was browsing the internet to find out whether there are any slokas that praise wealth and
profit, and found this interesting piece.
Deepali Mujumdar:
I want to purchase a house so i am in need of money. Is there any shloka or remedy by which
i can get money. Please suggest
Extracts from responses are provided below
Response from: NEERAJA NAVEEN,
do laxmi pooja daily.
Dhana Laxmi is worshipped for wealth. Goddess Laxmi, the consort of Lord Narayana
popularly known as Lord Vishnu, is the ruler of eight kinds of wealth. It is believed that the
household where she is not worshipped never gets prospered.Wealth and success never ever
knocks at the doors of those households. As she is the beloved of Lord Vishnu, you need to
accord respect to Lord Vishnu otherwise you can’t expect Laxmi to stay at your place. This
pooja needs to be performed using strict rituals ,mantras and samagri by experts.
also reciite the below mantra daily:
Aum shreem Laxmi dhanam dehi dehi shreem Aum
4
This Mantra grants wealth and prosperity. ‘Aum’ and ‘Shreem’ are seed mantras.
u can also chant kubera mantra for getting wealth.that mantra is ‘om shreem om hreem
shreem hreem kleem shreem kleem vitteswaraya namaha.
or u can read daily kanakadhaara mantram .it is ‘om vam shreem vam ayeim hreem kleem
kanakadhaarayei namaha .
u can also chant the following Mantra for acquiring wealth:
Om Ya Devi SarvaBhuteshu Lakshmirupen sansthita, Namastasyei Namastasyei Namastasyei
Namo Namah
The mantra is attributed to Goddess Lakshmi. She is well known as the Goddess of wealth
among the Hindus. The continuous chant of this mantra for 108 times everyday can help to
acquire fabulous wealth. The use of a beaded garland of Tulsi (Basil Plant) is favourable.
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, and for which Shrim is the seed’
This mantra has not only been used for the purpose of attracting prosperity, but also for
drawing in proper friends, clearing up family misunderstandings and quarrels, and
smoothing some health problems. As we all know, there are many different kinds of wealth.
As you use this mantra, focus on the kind of wealth you wish to manifest in your life.
wear extraordinary powers of Rudrakshas which will give good results for u.it Not only does
solve your immediate problems, but also helps you to lead a more happy & successful life
or ask any priest and put any yantra in ur house.
also read the mantras which are in the link below :
Response from: Shobana Veeraraghvan,
Hai Deepali ,
Kuber is regarded as the god of wealth, in Hindu mythology. Lord Kubera is also known as the
god of yakshas (savage beings). Kubera is always remembered with the goddess of fortune,
Lakshmi. Chanting of Kuber Mantra blesses the worshipper with money and prosperity by
drawing new avenues and sources of income and wealth. Mantra of Kubera helps to increase
the flow of funds and the ability to accumulate wealth. Do lakshmi Pooja . As Navarathri has
started and Diwali is closeby do pooja on diwali night. Recite Lakshmi ashtothram and do
Dhanakarshana poojai and Kubera mantram . I have attached the slokams for you. You can
also read Kanakadhara Slokam of Lakshmi . Here is a rare slokam to purchase hosue:
Annadha Thanatha Pootha Tvanimathi Balapratha Siditha, PutteethaSoolaa Shishtaa Chaara
Paraayana
Tell this 12 times everyday. Soon you will buy a house .
And so on…
It is impossible for socialism to last long under these circumstances. Someone has to come
up and show how capitalism is FULLY COMPATIBLE with the beliefs and desires of Indians.
1.2.1 In praise of profit

Shub Labh
Hindu capitalism
1.2.2 Prosperity
Virji Vora was the world’s richest businessman in the seventeenth century. His role as
financier between 1617 and 1670 of the East India Company was crucial to its future success.
Business is, in the end, all about credit, and he was a great creditor. He kept the wheels of
trade going in India and the world.
There is a comprehensive Wikipedia page on this businessman. Extracts:
The East India Company Factory Records records describe him as the richest
merchant in the world at the time.[1][2] According to the English records, his
personal worth is estimated to be worth 8 million rupees, a substantial amount of
money in those days.[3]
The English often complained about the high interest rates charged by Virji Vora (1-
1.5% per month). One English record states that ‘the town (Surat) is very empty of
moneys; Virji Vora is the only master of it’[4] and ‘‘none but Virgee Vorah hath
moneye to lend or will lend.’[9] Some of his credits to the English include:[4][10]
 1619: A record dated 25 August 1619, states that Virji lent 25,000 mahmudis to the
English.
 1630: Lent Rs. 50,000 to the English at Agra
 1635: Lent Rs. 20,000 to the English
 1636: Lent Rs. 30,000 to the English
 1636: Lent Rs. 2 lakhs to the English
 1642: A letter dated 27 January 1642 mentions him as the ‘greatest creditor’ of the
East India Company, and mentions that he offered a loan of Rs. 100,000 in
‘necessitous and calamitous times’
 1647: Financed the East India Company’s voyage to Pegu, Burma by providing
10,000pagodas (about 6000 £), at an interest of 1.17% per month, in Golconda
 1650: Offered Rs. 100,000 to Merry, the President at English Factory at Surat
 1669: The English borrowed Rs. 400,000 from a group of creditors, 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.[11] Virji also lent money to
individual Englishmen to finance their own private trade, a practice denounced by
the Company’s London office.[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).
1.3 For 12 out of the past 20 centuries, India was the world’s RICHEST
“country”
In 12 out of the past 20 centuries, India was the RICHEST region in the world (there were no
"countries" then). In the remaining 8 centuries, 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.
6
See details here.
See
a) Economic history of India
b) List of regions by past GDP (PPP)
Source: Angus Maddison's pathbreaking 2007 book.
Spreadsheet (from http://www.visualizingeconomics.com/cool-data/): vertical-file_02-
2010 (XLS)
These estimates might not be 100% robust but in my view, at the level of aggregation we are
talking about here, they are VERY CLOSE to the truth.
1.4 Why do most writers believe India and capitalism are incompatible?
1) A PhD dissertation from my own University (USC), nearly 10 years after my (different!)
work: "The divergence of the economic fortunes of Hindus and Muslims in British India: a
comparative institutional analysis", by Anantdeep Singh [PDF]
2) A paper
Economic Modernization in Late British India: Hindu-Muslim Differences by Timur Kuran and
Anantdeep Singh, December 2010 [PDF]
EXTRACT
Writers who are not sympathetic to the “classical thesis” have written on causes
inherent within India including the caste system, the value system embodied by
Hinduism, and the political conditions in pre-British India. For clarity, the
explanations of India’s underdevelopment will be placed into the following
categories: (i) Classical Thesis; (ii) Marxist Thesis; (iii) Incompatibility of Hinduism
and Capitalism Thesis; (iv) Endemic Conditions of India Thesis and (v) Hindu
Equilibrium Thesis. While an extensive critique of these explanations is beyond the
scope of this chapter, a brief survey of these explanations follows.
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. The first Indian
writer to address this issue was Ram Mohan Roy in 1830. Much of Roy’s analysis
focused on the transfer of capital from India to the West by Europeans who
temporarily resided in India. Roy’s solution was a relatively simple one: invite the
Europeans to settle permanently in the country. Indian periodicals of the mid
nineteenth century such as Sambad Prabhakar and Somprakas also devoted
arguments to British exploitation of the Indian economy. Articles discussed how
British policies hindered the development of industry in India. They also claimed
Hindu capitalism
that the wages of European employees were remitted abroad (Roy 1987, 42-44).
Dadabhai Naoroji’s Poverty of India, published in 1876, 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. 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. Rather
than benefiting from an export surplus, India was impoverished every year
throughout the nineteenth century. India’s export surplus was cancelled out by
four sources: (i) payment of interest on foreign borrowings; (ii) service charges such
as freight and banking; (iii) remittances of British nationals living in India; and (iv)
foreign obligations of the government of India (Chaudhuri 1968, 39). The amount
drained out of India from 1835 to 1872 was estimated to be approximately 0.5
billion English pounds (Roy 1987, 45).
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, the national per capita income failed to increase because Indian
industry suffered from foreign competition and from the drain of wealth to Britain.
Mukhopahay estimated that approximately one-fourth the revenue collected by
British authorities was submitted back to Britain, along with the salaries of some
80,000 European soldiers and professionals. The amount of drain varied but for
1892 it was estimated to be Rs. 300 million (Roy 1987, 45).
R.C. 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. The salaries of European officers were 10 million pounds.
About one-half of the revenue collected by the British in India, or 22 million
pounds, was sent to Britain. Also, the British East India Company sent a total of 32
million pounds to its shareholders in England from 1793 to 1838 (Roy 1987, 45).
Among the most vociferous critics of British rule in India was Jawaharlal Nehru.
Before the arrival of the British, India was “as advanced industrially, commercially,
and financially as any country” (Nehru [1946] 1991, 284) and well on its path to
industrialization. Nehru viewed British rule as having multiple effects: the
impoverishment of India through looting, the industrialization of Britain via loot
acquired in India, and that India “became progressively ruralized” (Nehru [1946]
1991, 284) as a result of its arrested industrialization. Going further, Nehru asserts
that British wealth and industrialization stemmed directly from the British plunder
of India, especially the rapacious plunder of Bengal: “the Bengal plunder began to
arrive in London, and the effect appears to have been instantaneous, for all
authorities believe that the ‘industrial revolution began with the year 1770…’ ”
(Nehru [1946] 1991, 297-298). Indian manufacturers were crushed via various
policies and taxes while Britain slammed shut its doors on finished Indian goods.
The Indian artisan class was led to mass poverty while the economy was
transformed into an agrarian one (Nehru [1946] 1991, 298-302).
The role played by the British in India’s deindustrialization during the nineteenth
century continued to receive attention after India’s independence. Some studies by
Indian scholars have attempted to assess the impact British policies on the entire
Indian subcontinent (Bagchi 1976a; 1976c; 1982; Dutt 1992, 146-150; Eswaran and
Kotwal 1994). Other studies discussed the impact of colonialism on specific areas or
groups within India. Bagchi (1976b) describes in great detail how British economic
policies were conducive to the deindustrialization of Bihar in northeastern India,
8
while Ram (1972) and Specker (1987) discuss the negative impact of British
economic policies on the economic development of southern India. Guha (1976)
links the growth of the opium industry with the underdevelopment of Assam.
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, 277-283; Frank
1975, 22; Robinson 1979, 104). Athar Ali (1975, 386-388) asserts that the Mughal,
Ottoman, 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. [Athar Ali is unclear as to why producers of the
Mughal, Safavid, and Ottoman empires could not have matched European demand
for their goods by increasing production.]
Perlin (1983) asserts that capitalism in pre-British India was well developed and
suggests that the British underdeveloped the country. [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. Bayly (1989) and Prakash (1998) also suggest that
pre-British India was at a high level of economic development.]
Wallerstein (1986) suggests that before 1750, India was outside the framework of
the European-dominated capitalist world economy. The period 1750-1850 saw
both the incorporation of India into the world capitalist system and its subsequent
dependence upon the Western world.
Recent works continue to assess the impact of the British on India’s economy.
Harnetty (1991) discusses the decline of the Indian handloom industry in the face of
British competition. 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. Pardesi (2007, 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. India’s decline can only be properly understood in light of the rise of
British and American power. Nayyar (2006) has suggested that globalization
occurred during two periods: 1870-1914 and after 1950. 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.
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. Parthasarathi (1998) argues that gap in Indian and British
living standards is a recent phenomenon. Real wages in South India and southern
England were more or less equal: they began to diverge only in the late eighteenth
century. Allen (2001) estimates real wages of workers in the Mughal capital Agra in
1595 and compares them to real wages in 1960. He suggests that real wages fell by
23.3 percent during this period. In another work, Allen (2007) argues that while
pre-industrial Asia and Europe may not have had dramatically different standards of
living, by the beginning of the nineteenth century a clear difference between the
two regions had emerged. Broadberry and Gupta (2006) suggest that differences
between India and the Western world (especially Britain) began to emerge as early
as the seventeenth century.
India’s History Is No History: The Marxist View of Indian Economic History
Hindu capitalism
Amongst the most famous proponents of the notion that India displayed little
ability to develop on its own is Karl Marx. [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. [Sanjeev: This is false.] Marx’s view of India was
shaped by Hegel’s assessments (Habib 1995, 16-18).] According to Marx the
absence of property ownership in India prevented the formation of
classes. [Sanjeev: This is false. India had clear property rights.] Therefore class
conflict, which was the engine of history in Europe, did not exist in India.
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); (ii) the absence of class struggle in India stratified the
classes into permanent positions, which prevented the development of social
revolution and technological innovation; and (iii) unlike Europe, where the urban
centers played revolutionary roles, Indian cities did not do so (Naqvi 1972). The
numerous invasions, falls of dynasties, wars, famines, and other traumatic events in
Indian history are not relevant because “Indian society has no history at all” (Marx
1959, 81) until the arrival of the British, who destroyed Indian civilization by
“leveling all that was great and elevated in the native society” (Marx 1959,
81). [Sanjeev: This is absurd.]
This social revolution was brought about by the introduction of new relations
between the classes and particularly the introduction of property rights (Naqvi
1972, 383). [Sanjeev: This is nonsense on stilts.] By destroying the traditional
industries and self-supporting villages of the Indian subcontinent, the British were
able to introduce a technological and social revolution whose scale was
unprecedented in previous Indian history.
Irfan Habib (1969) uses the Marxist framework to explain why capitalism did not
develop in pre-British India. According to Habib, capitalism is only possible with the
accumulation of sufficient capital; if per capita income is too low then it is not
possible to accumulate sufficient capital and capitalism cannot emerge (Habib 1969,
34). [Sanjeev: This is false. India had the world's wealthiest banker-merchants.]
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. The aristocracy, instead of using this capital for investment
purposes, was inclined to use the revenue collected from villages for the purposes
of conspicuous consumption, and as a result sufficient capital accumulation could
not occur (Habib 1969, 32-79). [Sanjeev: This is false. There was massive capital
accumulation. It went into temples.]
Hinduism and Capitalism: Incompatible?

The proposition that Hinduism stymied industrialization in the subcontinent has
attracted considerable attention. A commonly held view is that Indian values are by
nature “spiritual” while Western values are “material” (Goheen et al. 1958, 1).
India’s “spiritual” values place greater emphasis on reducing desires rather than
bettering one’s lot (Goheen et al. 1958, 3). The impact of Hinduism on economic
development can be seen in from two angles: attitudinal and institutional (Misra
1962, 42). The former focuses more on specific beliefs and attitudes imbibed in
Hinduism, while the latter focuses more on the specific institutions of Hindu
society. A significant portion of this literature focuses on the beliefs of
reincarnation and karma. The institutional analysis of Hinduism has been largely
10
limited to discussions of the caste system.
Amongst the earliest and most influential proponents of the view that the caste
system hindered India’s industrialization has been Max Weber. [Sanjeev: This thesis
is false.] Weber believed that South Asia was in its early history at par with Europe
in terms of intellectual development, productivity, and means of social organization
(Morris 1967, 589). Weber characterizes the effect of the caste system as
“essentially negative” (Weber 1958, 111). The caste system hindered the
development of capitalism on the following counts: (i) it engendered extreme
traditionalism and hostility to innovation; and (ii) it secluded castes from each other
and prevented the rational organization of labor that is characteristic of capitalism
(Weber 1958, 113).[Weber has been criticized for neglecting the heterogeneity of
Hinduism. 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.]
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. K. 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,
performance and earnings” (Kapp 1963, 46-47). 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 socioeconomic status than aptitude or
performance. [Sanjeev: Capitalism is mostly about underlying institutions of
finance, trade and production. These existed.]
Vikas Misra also argues that the caste system lowered incentives, albeit in different
ways for lower and higher castes. 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. On the other hand, 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. Finally, the joint family
system limited spatial and occupational mobility while further strengthening the
caste system (Misra 1962, 53-56).
Conditions Endemic to India Led to Underdevelopment
Morris D. Morris (1968) traces India’s lack of development to historical conditions
existing in pre-British India. Unlike the Marxist arguments examined earlier, Morris
does not see a causal link between India’s underdevelopment and class relations.
He also rejects the notion that Hinduism and its attitudinal and institutional factors
suppressed growth. Instead, Morris points to a plethora of geographical, political,
and social circumstances as culprits.
India was always fragmented into numerous political units and this led to greater
political instability than in Ancient Rome or China.[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, 194-198; 1988, 134-135; Landes
1999, 156-158).] This fragmentation also prevented Indian markets from effectively
integrating into larger markets. Accordingly, it obviated the emergence of
economies of scale. Geographical conditions prevented the growth of internal
trade, [Sanjeev: This is false] led to lower agricultural yields, and made it difficult to
obtain the necessary raw materials for industrialization. Morris stresses that pre-
Hindu capitalism
British India probably had a low per capita income and British rule provided the
country with political stability, standardization, and greater administrative efficiency
(Morris 1968, 3-22).
India’s agriculture benefited greatly from British rule: political stability reduced
fluctuations in land usage, leading to greater yields from the land. The new
irrigation schemes introduced by the British made allowed for farming on previously
unused areas. Finally, there was a greater specialization in agriculture and a shift to
crops with greater market value. While British rule had positive impacts in
agriculture, the factors causing a lag in India’s industrialization were not so easy to
overcome.
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. This enormous growth in population, however,
did not lead to an increased demand for machine production because average per
capita income was too low. India was also characterized by an unequal distribution
of income. Moreover demand from the wealthier classes was limited to specialty
items which could not be mass produced (Morris 1983, 554-555). [Sanjeev: this is a
good insight. 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. Skilled labor was expensive and almost all machinery had to be
imported from the West. Since unskilled labor was readily available, entrepreneurs
tapped into it as a source of inputs and neglected mechanization. Businessmen
were reluctant to invest in capital-intensive industries and gave preference to labor-
intensive industries instead (Morris 1983, 555).
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, alternative goods, and prices. The mechanisms for
transmitting information about cost of production and level of demand were much
weaker in India than in the West. As a consequence Indian merchants could not
make long term calculations with the same level of certainty that Western
merchants could. In order to buffer themselves from greater uncertainty, the Indian
businessman had to have a stock of ready capital to fall back on. India lacked the
institutions for an effective capital market and much of the country’s capital was
immobile. Investors were thus reluctant to invest in new areas and tended to
remain in traditional ones (Morris 1983, 556).
Hindu Equilibrium: Deepak Lal

Deepak Lal ([1988] 2005) suggests that by the third century BC, an economic and
social system had been established that placed India’s economy in a long lasting
equilibrium. Despite numerous attempts to reform it, this equilibrium has changed
little since its establishment.
This equilibrium was able to persist and function within the framework of four
parameters. This first was labor scarcity. Lal argues that until the twentieth
century, India has been a labor-scarce country (Lal [1988] 2005, 383). The caste
system arose as a response to this constraint and allowed for the provision of a
steady supply of labor. The specialization implicit in the caste system made it
12
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. 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, 44).
A second parameter mentioned by Lal is political instability. According to Lal, much
of India’s political history has characterized by feuds between local rulers. This
political instability resulted in the rise of autonomous village communities
throughout India. Rulers received regular tribute from these communities and
responded in turn by refraining from the internal affairs of these villages (Lal [1988]
2005, 384-385).
Lal also points to the climatic conditions of India as a third parameter defining the
equilibrium (Lal [1988] 2005, 385). The relative unpredictability of rainfall and
monsoons resulted in considerable uncertainty in regards to production of
agricultural output. 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. On the other hand, individuals
with small or no landholdings were unable to do the same. In order to obtain a
steady supply of food, they supplied services to individuals with large landholdings.
This exchange of services for agricultural produce was known as the jajmani system
(Lal [1988] 2005, 56-58).
The final parameter under which this equilibrium operated was an ideological one.
Lal asserts that the general belief system of Hinduism frowns upon commerce and
the pursuit of profit. 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, 385).
Three characteristics of this equilibrium are worth noting. The first characteristic
was the stability of agricultural technology. Lal argues that Indian agricultural
patterns and technology have changed little over the last two millennia. A second
characteristic was the stability of population size: until the nineteenth century,
India’s population never exceeded 200 million. 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, 36-42).[This amount is
equivalent to US $796.50 at 2007 prices.]
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. 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, 389).
Sanjeev:
Kishore Jethanandani: "Hindu Equilibrium", by Deepak Lal is about long stagnation
in India and the delayed growth of Capitalism. I guess the starting point for your
book. It is really about the caste system and its role in restricting labor mobility.
Sanjeev Sabhlok I agree in part, but I believe there were many economic merits of
the caste system - given the technology that prevailed. The underlying system was
Hindu capitalism
entirely free, with a minimal state. That's a key point that I'd like to highlight in my
book.
1.5 Rondo Cameron got it totally wrong about India

Rondo Cameron‘s textbook, Concise Economic History of the World is considered by most
economists to be the greatest introductory textbook on world economic history. It is
enormously detailed (not concise!) as far as European (and American) economies are
concerned.But is is pathetic in its coverage of India and Asia.
As I continue to discover some wonderful (and intriguing!) things about Hindu capitalism, I’m
overcome with a sense of disgust, even anger at Western fools who pretend to write
histories of ‘the world’, when all they are writing about is a measly 1/10th of the world. I
would have no problem if they said they were writing about Western economic history, 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. Let me extract below what he has
written. It is best that such useless nonsense is not taught in the West (or anywhere for that
matter!).
If Indian economists don’t start challenging these fools, 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.
The winners get to write history. But it is clear that the Western university system has failed.
This book project attempts to correct the huge failures of Western scholarship.
1.6 Max Weber got it totally wrong about India

Here’s an extract from an article entitled, ‘Udipi Hotels: Entrepreneurship, Reform and
Revival’, by Stig Toft Madsen and Geoffrey T. Gardella, published in Curried Cultures:
Globalization, Food, and South Asia By Krishnendu Ray, Tulasi Srinivas (May 2012, University
of California Press).
Max Weber was disinclined to believe that capitalism would have any future in
India. Indians, he argued, would be incapable of running modern industries in an
efficient and nonpredatory manner on account of the Hindu ‘law of rituals.’
When Milton Singer studied Madras entrepreneurs, he realized that Weber was
wrong. According to Singer, modernization among these entrepreneurs was helped
along by a series ofadaptive strategies. 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.
To account for the coexistence of Hinduism and capitalism, Singer developed the
notion of ‘compartmentalization.’ The industrialists in Madras, he argued, did not
experience a clash 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).
In 2000, when John Harriss restudied some of the same entrepreneurial families
that Singer had interviewed, he found the notion of compartmentalization
misleading (Harris 1003). Instead, Harriss observed a similar interpenetration
14
between capitalism, Hinduism, and Hindutva politics that we have drawn attention
to, namely, politicized Hindu capitalism without compartmentalization. Thus, a
Great Tradition that modernizes, globalizes, and secularizes is also likely to
Brahmanize and revitalize as it stands forth. 4
References
Harriss, John, 2003, ‘The Great Tradition Globalizes: Reflections on Two Studies of
‘The Industrial Leaders’ of Madras’ in Modern Asian Studies 37, 2: 327-62.
Singer, Milton, 1972, When a Great Tradition Modernizes. An Anthropological
Approach to Indian Civilization, Chicago and London: The University of Chicago
Press.
1.7 How Vedic socialists have got it wrong

Harsh Vora introduced me to a book by Dr. K.C. Mahendru entitled, Baba Ramdev –
Resurgence of New India (Freedom Movement-2). It talks about the political
philosophy of Baba Ramdev, known as Vedic Socialism. 5
Origin of this term
It appears that this term was first introduced by Swami Agnivesh, although Balak
Brhamachary of Santan Dal is also associated with this idea. Possibly both of them
got it from someone else. There is also a book entitled Vedic socialism by Nitya
Narayan Banerjee. And there is a Vedic Socialism Party on Facebook!
Apparently Vedic socialism resembles integral humanism. I have with me the book,
Deendayal Upadhyaya's Integral Humanism – documents, interpretations,
comparisons (edited by Devenedra Swarup) and have been singularly unimpressed by the
paucity of logical thinking displayed as part of this idea. The fact that BJP follows integral
humanism explains (to me) why is is a copycat socialist party, merely mimicking Nehru – and
displaying zero understanding of good policy. I do hope that Vedic socialism is not like
integral humanism: a fuzzy feel-good essay on the greatness of ancient India, but without
the slightest scientific analysis of the economy.
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 is NOT an
indigenous Indian idea, for as I clearly show in DOF, Indian philosophy is in tune with
liberalism, not socialism. 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. India and
socialism have nothing in common. Nehru brought socialism to India from the British Fabian
socialists – and ruined India – as clearly described in BFN.) It is odd that on the one hand
4
I believe all these writers are confused since they are using either statist (Weberian) or
Marxist paradigms about Hindu capitalism. They are looking for something that simply
doesn’t exist. These perspectives on Indian capitalism and business classes are
fundamentally flawed. The Indian businessman is rooted in an ANCIENT culture that values
(even worships) wealth, particularly gold, and believes that wealth is just one of the many
things needed in life. There is NO CONTRADICTION between Hinduism and capitalism. There
is nothing to explain!
5
This is from my blog post of August 2010: http://sabhlokcity.com/2010/08/what-is-vedic-
socialism/
Hindu capitalism
Baba Ramdev wants swadeshi, yet on the other, he picks up the WORST foreign idea. At least
understand the history of freedom that I've outlined in DOF.
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, our Vedic seers were not utter fools like the socialists are. 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. It appears that the Vedas speak out against
corruption, which is good. But the solution they seem to offer to eradicate corruption is not
logical nor viable. 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, 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. Rig
Veda.1-42-3 mentions bribe takers are thieves. Sam Veda while, mentioning 99 sources of
corruption and evil, 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).”
Mahabharata on the solution to corruption:
Again, 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. While sattavic guna of purity, truthfulness, transparency results in
ennobling the individual and society, the rajasic guna of activity with self interest and false
ego and desires along with tamasic guna of passivity, dullness, idleness become the cause of
corrupting the individuals and the society.
“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. Jnan is the knowledge of complete
understanding of God, soul, divinity in virtuous actions and considering the world as Maya –
the cosmic illusion.”
It would appear that, according to the Vedas, two ways exist to improve governance:
a) peoples' character has to be improved; and
b) they must become more religious.
This amounts to expecting corruption to be solved by preaching. That can NEVER work. But
fortunately, no matter what it is, this confused thinking is not socialistic, it is simply a typical
confused religious perspective. This "solution" does not display any understanding of human
nature or human incentives. Indeed, my father, after all his Vedic readings, now seems to
understand and appreciate the logic of freedom that I advocate in BFN.
Clearly I've not found out much yet, so I'm keen to find out more about the Vedic solution to
good governance. And more about Vedic socialism. Happy to have anyone point me in the
right direction.
Vedantic socialism
I usually seek information on ancient Indian perspectives by consulting Vivekananda's works
– for he was a scholar par excellence. It turns out that he was an advocate of what some
people call Vedantic socialism (unfortunately, the writer of this article mostly provides his
own opinions and doesn't specify clearly what Vivekananda actually said). There is also a
16
book called Swami Vivekananda, the prophet of Vedantic socialism by V. K. R. V. Rao
(Publications Division, Ministry of Information and Broadcasting, Govt. of India in New
Delhi, 1979), but I unfortunately don't have ready access to it.
In the meanwhile, 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, Swami Vivekananda: a
reassessment, Susquehanna University Press, 1997, p.86). I don't know precisely which
books Vivekananda read when he was young, but this statement seems likely to be true.
2) Another states: "[T]hough Vivekananda praised socialism here and there, his social ideal
was spiritual democracy and not a socialist society." (Urmila Sharma and S.K. Sharma, Indian
Political Thought, Atlantic Publishers & Distributors, 2001, p. 187). This sounds more close to
the truth than those who claim that Vivekananda was a socialst.
Clearly, there is scant or non-existent evidence of Vedantic socialism. I find it hard to imagine
that a major votary of freedom like Vivekananda could possibly be a socialist. I cite his words
at the head of the draft manuscript of my next book, DOF, thus: ‘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.’ No socialist can possibly make such a
beautiful statement about freedom – for socialists well and truly HATE freedom. All they care
for is economic equality. And they will impose their will on everyone else. That's their only
way of functioning. But no matter what Hinduism does, it does not force its way on others.
I doubt if any cogent theory of 'socialism' can possibly be traced to the Vedas or Vedanta.
Instead, I find there are many strands of liberalism that can be, at least faintly, linked back to
the ancient Hindu (and other Indian) scriptures and texts. No unambiguously clear signal
that promotes freedom in the modern sense seems to arise from ancient India, but bits and
pieces do arise that might, when combined, offer a cogent theory of Vedic capitalism.
1.8 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. First, the typical Western split
between the religious and the socio-economic realms is very limited in Hinduism, as it is
indeed for most Oriental mentalities; practical social morality is supposed to agree with
religious and philosophical precepts. Thus, codes of law which presumably derive from the
latter can be regarded as part of Hinduism. Second, as there is no central religious authority
to establish orthodoxy, the teachings of recognized spiritual masters are usually incorporated
into Hinduism. In addition, let us state that we will refer here mainly to traditional doctrines
and practices.
In order to identify if Hinduism fits into a capitalist or socialist framework, we will look at
three basic issues:
 the caste, or Varna, system,
 theologico-philosophical issues regarding property (outside the sacred texts), and
 some socio-historical facts or events.
An understanding of the caste system is crucial to understanding Indian social and economic
structures and practices. It is first mentioned in the Rig-Veda, in the famous hymn to
Purusha, and then elaborated exegetically in the Upanishads. This system divides men into
five catagories: Brahmins (philosophers, priests, and others who perform the function of
Hindu capitalism
illuminating the higher truths), Ksatriyas (warriors and rulers, entrusted with safeguarding
the truth and with leadership), Vaisyas (traders, farmers, and all who have the role of
creating wealth and increasing welfare), and Sudras (workers, charged with supporting all of
the above and with performing services). In addition to the Vedic sacred literature, the Varna
system is also endorsed in the Bhagavad-Gita, the most influential Hindu religious text,
considered by some a direct revelation from God. Besides, 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.
Such a system does not merely reflect a division of labor; it is rooted in the notion that man
attains fulfillment only by performing his duties, which consist in developing his natural
potentialities. In truth, the system only entailed a ranking or hierarchy of labors resulting
from different capacities, not a distinction in the context of human dignity or worth, which
was the outcome of vested interests and human shortcomings. Buddhism actually did not
oppose the Varna system itself, only the belittlement of those considered inferior, averring
that anyone, including Sudras, could reach enlightenment. [Sanjeev: the original caste
system might not have discriminated, being merit based, but moral hazard overcame its
intent. It was bad design.]
The Varna system was considered–and still is, although in a way more akin to its original
design–a pre-requisite for every good society, and the axis of social life. For example, in the
laws of Manu, the most important Dharma-Sastra, the duties and functions of the castes are
listed and their corresponding right and wrong practices pointed out. In one of the most
important passages, it is said that the Vaisya must exert himself to the utmost in order to
increase his property in a righteous manner, which includes providing others with
food. Manu’s code endorses market practices, although it provides regulations above all
for the market of labor.
As it is true for all the great religions, Hinduism warns human beings about the dangers of
accumulating wealth, and at times demands them to renounce it. But in all cases, wealth is
attacked because it is likely to subject man to dependency, fostering egoism, greed, and
avarice, and not for being an evil in itself. In fact, wealth is considered a good to be pursued
within the spheres of worldly affairs, trying at the same time to remain detached from
it, which is the way to spiritual evolution. In Hinduism, this aspect is commonly referred to as
renouncing the fruit of labor. It is made with the provision that renunciation must be a
voluntary act, because it is acknowledged that only a few are prepared to follow the path to
perfection in a strict manner. Literature on this is vast, so I will limit myself to sample what
Sai Baba and Prabhupada (the first considered by many as the Avatar of our time, the second
the founder of the International Society for the Conscience of Krishna) have to say about
this. To quote Sai Baba: ‘When a man has a right to engage in Karma, he has a right also for
the fruit; no one can deny this or refuse his right’. On his part, Prabhupada states that,
according to the Law of Karma, wealth is the result of a good previous labor, and that the
Lord leaves man independent to engage in the activities proper to the material world.
Ideologically, most of the relevant socio-historical facts can be grouped within a few
categories, the most important ones being the role of the state of the economy, its bearing
on individuals, and the economic relations between people. In fact, though the state in India
throughout the centuries was the equivalent of a big entrepreneur, it never did away with
private enterprise. [Sanjeev: The state was not an entrepreneur. Kings in their PERSONAL
capacity were free to trade/produce, and did so, but the state did not direct private
production.] That was the case, for example, with land, where although the king was to be its
ultimate owner, private parcels were deemed a necessary entitlement.
Regulations affected above all the macro-economic aspects, but the play of particular
18
economic forces was not over regulated and, more significantly, the individual was
considered to have rights before the state. The limitation of the state’s power can be
illustrated in the matter of tributes. As a rule, these amounted between one-third and one-
sixth of production, were only levied in emergencies, and for only once taxes could reach as
much as fifty percent of income. Of course, favoritism in assigning land, tricks to increase
state revenues, and so on, were not unheard of. With respect to the micro-economy, the
artisans, merchants, amusers, and many more contracted their products or services freely,
although there were guilds and legal mechanisms to ensure that contracts were fulfilled.
Many had their own workshops in their dwelling, but there were also state-run
manufacturing mills, such as those which employed women with no relatives. [Sanjeev: the
idea of state-run manufacturing needs to be examined very closely. It was extremely
expensive for a king to devote time to manufacturing. His task was defence, and he ruled
through a standing army. He could easily get taxes. So there were very few such factories,
and wherever these existed, I’m almost certain these were personal investments of the king;
not state-directed production.]
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. All too rigid as it was (at least theoretically), it would appear at first sight as a
statist construct–so common under any socialist scheme. However, such a system constitutes
an ontological need of a society rooted in the cosmogonical myth mentioned in note 1. The
way it was implemented, the system limited many freedoms, but it also allowed each caste
not to be fused within a general standard and to be free to live its own way. Of
course,endogamy and other features of a caste system do not exist in capitalism.
Nevertheless, with the allowance of greater social mobility and the recognition of equal
human dignity for all, capitalism has indeed modernized the Varna system.
Central planning and regulations were implemented according to higher parameters set by
Hinduism’s worldview, which were accepted by the collective conscience as traditional
goods, with the state being, at least ideally, an instrument. [Sanjeev: this is based on the
social contract idea, 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]. Big bureaucracies resulted from
the desire to control and maintain power, and other statist measures arose from the need to
face external threats. Worldviews (religious, political or humanistic) limiting free will are to
be found in every human group. In India, some over-regulation resulted from the greater
interpenetration of what, according to Western thought, is to be legally enforced and what
belongs to personal choice. [Sanjeev: I agree that there was some over-regulation in some
areas, but there was under-regulation in others.] But here the state was never a mechanism
to subordinate the individual good to that of the society, which in short defines a socialist
worldview.
Hinduism never denies the right to property; calls to renunciation fall outside the legal
sphere. The attainment of wealth, although embodied with a social function, is considered
a praiseworthy personal achievement. In fact, there is also a need in capitalism that
economic activities project to the common good. 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. They may be deemed to be supported by a legitimate
social patrimony if they represent instances of epoch-related common goals of society,
which originate specific secular functions of the state. The difference here, and so in
Hinduism, is that the right to property is not subordinated to the above, that is it is not left at
the stage of a functional need, and that the individual good is the highest aim of society.
Hindu capitalism
Although subjected to regulations, man always enjoyed in India enough freedom over what
he had created. Following what we had said in the last two paragraphs, for the time being
capitalism does not propose absolutely unregulated free trading practices. Basically in
reference to the labor market, free trade must still abide by certain 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 pre-capitalist 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.
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
20
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 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:
Hindu capitalism
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.
22
2. Commitment to freedom, reason, prosperity
In considering the social contract, the Hindu society has affirmed, in numerous ways, its
commitment to freedom and prosperity.
2.1 Vedic capitalism. Affirmation of equality and pursuit of wealth.

Advocates of “Vedic socialism” are seriously misguided. They were trying to "fit" the Vedas
into the mould of socialism popularised by Nehru. Everyone wanted to be a socialist. It was a
fashion. So they distorted Hinduism to "fit" socialism.
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.
I was browsing through a recent (2003) article by M.V. Nadkarni and something caught my
eye.
Rg Veda emphasises equality of all human beings. It goes to the extent of saying,
which sounds quite modern: 'No one is superior, none inferior. All are brothers
marching forward to prosperity.
Reference: The Sanskrit original is 'Ajyestliaso akanishthaso ete sambhrataro
vahaduhu saubhagaya' (Rg Veda V 60.5). Translation and original from K T
Pandurangi (1999, second edn) — Indian Thought on Human Values, Bangalore:
Bharatiya Vidya Bhavan, p 3. [Btw, I agree with the translation. It uses a key word
that is common in Hindi even today: Saubhaghya. That represents prosperity in the
most general sense.]
Source: Nadkarni’s article: "Is Caste System Intrinsic to Hinduism? Demolishing a
Myth", Economic and Political Weekly, Vol. 38, No. 45 (Nov. 8-14, 2003), pp. 4783-
4793.
This demonstrates religious approval of equality and wealth. And confirms the theoretical
foundations of Hindu capitalism.
Whether such foundations were realized in practice is a different issue. One thing is clear:
there is NO evidence that Hinduism was a) other-worldly or b) glorified the state (collective)
at the expense of the individual.
Hinduism and socialism (or "other-worldliness") are poles apart.
2.2 Arthashastra
I agree with many things Chanakya wrote (if these are taken broadly, not precisely: e.g.
when he says that Ministers must be paid 800 times more than the lowest government
functionary, I'm considering the broad recommendation to pay Ministers well, not the
precise figure of 800).
2.2.1 Policies on which I agree with Chanakya

I agree with many things Chanakya wrote (if these are taken broadly, not precisely: e.g.
This is purely illustrative.
1. There must be a state. [This rules out any form of anarchy.]
Hindu capitalism
2. The king /ruler must be strong and powerful. [This is absolutely crucial, in order to provide
stability, security, and peace.]
3. Maintaining law and order is a key function of the government. Chankya said,
"Government by Rule of Law, which alone can guarantee security of life and welfare of the
people, is, in turn, dependent on the self-discipline of the king".
4. The government must be minimal (taxes must not be too high or too little).
5. Taxes must include income tax (he opposed a lump sum poll tax. I agree).
When there was no order in society and only the law of the jungle prevailed, people [were
unhappy and being desirous of order] made Manu, the son of Vivasvat, their king; and they
assigned to the king one-sixth part of the grains grown by them, one-tenth of other com-
modities and money. The king then used these to safeguard the welfare of his subjects.
Those who do not pay fines and taxes take on them¬selves the sins of kings, while kings who
do not look after the wel¬fare of the people take on themselves the sins of their subjects
6. 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, which was one-sixteenth of the produce) on land holdings according to
the yield from them. He suggested that the king “should demand a third or a fourth part of
the grains from a region, whether big or small in size, that is not dependent on rains and
yields abundant crops; from a middling or inferior one, according to yield.
7. The government must remove obstacles to economic growth ("remove all obstructions to
economic activity"). This will result in wealth. ("In the absence of fruitful economic activity,
both current prosperity and future growth are in danger of destruction. A king can achieve
the desired objectives and abundance of riches by undertaking productive economic
activity").
8. To ensure high quality advice from men of integrity, Ministers must be paid very well, but
then held to account. Punishment for corruption must be sharp and swift. Those who bribed
under duress – and complain to an investigating offer – should be reimbursed their costs.
9. The treasury must not just be balanced, it must be in significant surplus.
10. There should be detailed accounts of all government expenditure (accountability).
11. The government must invest significantly in infrastructure [e.g. state should have good
roads and waterways; roads are essential for national security as well as for promoting
commercial activities; and ports, etc.]. Not more than 25 per cent of all government
expenditure must go on salaries.
12. People must work hard and strive to become rich ["Wealth will slip away from that
childish man who constantly consults the stars"].
13. Trade must be promoted, and foreign traders given shelter.
14. Prohibition doesn't solve problems. Regulation does (e.g. alcohol, prostitution,
gambling).
15. There shall be a social minimum (in my view, as part of social insurance). Chanakya said:
"King shall maintain, at state expense, children, the old, the destitute, those suffering from
adversity, childless women and the children of the destitute women".
2.2.2 Policies on which I differ with Chanakya

1. Chankya allowed for some government production (e.g. monopoly over alcohol). I
disagree with ANY state production. Anyway, even where a government does decide to
produce something, it must ensure profitability. That would have definitely been Chanakya's
24
approach – thus being totally inimical to Nehru's loss making public enterprises. Chankya
would have OPPOSED SOCIALISM TOOTH AND NAIL.
2. Chankya does get involved in setting wages and some prices. This is unnecessary and
should be left free to markets.
3. Chanakya believes that happiness of citizens should be a goal for the king. In my view,
liberty of citizens should be the goal. Free people can work out their own happiness.
2.2.3 Freedom
“The best king is one whose subjects live in freedom and happiness as they do in their
father’s house. Peace will be theirs, and contentment. There will then be no wickedness, no
pretense, no dishonesty and no envy. [Mahabharata]
Thanks to Ashish Deodhar for bringing a very powerful snippet from Vivekananda to my
notice. I searched and found the original source, here. This man Vivekanada, literally a boy,
so young was he when he died, never fails to inspire.
Here’s the extract that WILL TOTALLY ENERGISE YOU. Take responsibility, or accept your
bondage.
Nothing makes us work so well at our best and highest as when all the responsibility is
thrown upon ourselves.
I challenge everyone of you. How will you behave if I put a little baby in your hands? Your
whole life will be changed for the moment; whatever you may be, you must become selfless
for the time being. You will give up all your criminal ideas as soon as responsibility is thrown
upon you — your whole character will change.
So if the whole responsibility is thrown upon our own shoulders, we shall be at our highest
and best; when we have nobody to grope towards, no devil to lay our blame upon, no
Personal God to carry our burdens, when we are alone responsible, then we shall rise to our
highest and best.
I am responsible for my fate, I am the bringer of good unto myself, I am the bringer of evil.
I am the Pure and Blessed One. We must reject all thoughts that assert the contrary.
‘I have neither death nor fear, I have neither caste nor creed, I have neither father nor
mother nor brother, neither friend nor foe, for I am Existence, Knowledge, and Bliss
Absolute; I am the Blissful One, I am the Blissful One. I am not bound either by virtue or vice,
by happiness or misery. Pilgrimages and books and ceremonials can never bind me. I have
neither hunger nor thirst; the body is not mine, nor am I subject to the superstitions and
decay that come to the body, I am Existence, Knowledge, and Bliss Absolute; I am the Blissful
One, I am the Blissful One.’
Hinduism has a message of freedom with responsibility. This is entirely consistent with the
classical liberal message of freedom with accountability.
You are what you make of yourself. Don’t blame anyone else! Don’t ever beg for mercies.
Demand your dues, but be willing to put in the effort to deserve these dues.
India must change. Indiand deserve a far better India.
2.2.4 Freedom of speech and belief

[Insert material from DOF, chapter on tolerance, once DOF is completed]
Hindu capitalism
2.2.5 Natural rights
There are a number of people who have written on this issue, e.g:
a)Subedi, ‘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’, (1999) 30
California Western
International Law Journal 46;
b) Pandeya, ‘Human Rights: An Indian Perspective’, in Ricoeur (ed.), Philosophical
Foundations of Human Hights (Prepared by UNESCO and the International Institute of
Philosophy, 1986) 267.
c) Sharma, Hinduism and Human Rights, A Conceptual Approach (New Delhi: Oxford
University Press, 2004)
d) Nanda, ‘Hinduism and Human Rights’, in Werner (ed.), Human Rights and Humanitarian
Law: The Quest for Universality (The Hague, Boston: M. Nijhoff, 1997)
The social structures and underlying social visions of human dignity in traditional India rests
not on human rights but on social duties (dharma). Persons are seen first as bearers of
duties, not rights, and whatever rights one does have rest on the discharge of duties.
Examples within Hinduism exist of rights talk (or adhikara as Hindus use the term). The word
dharma can be translated into a term meaning ‘rights’ when used in the context of a crisis
(apad-dharma). For example, the concept of rights exists if one looks at the duties of the
king (raja-dharma). It is the king’s duty to protect all and also assist in times of
apad-dharma. However, there is no right for the subjects to be ruled over fairly. As a result
they cannot enforce their rights. However, the Mahabharata, a Hindu religious text, grants
the people to ‘gird themselves up and kill a cruel king, who does not protect his subjects,
who extracts taxes and simply robs them of their wealth.’ There is a right (adhikara) to rebel
against a king if he does not fulfil his duty to protect the people . This is a clear example of
how the concept of human rights can be interpreted within the context of human duties.
The idea of rights is not totally redundant within Hindu thought.
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. Concern for the common good
enhances human rights by teaching those virtues that include respect for the human dignity
of each and every person. So, for example, one would have a right to life but would also have
a corresponding duty to protect life.
Addendum: A nice point is made elsewhere: It seems from Kautilya’s Arthasastra that law,
judicial system and its implementation played a very important role in order to protect the
rights of others. ALSO: Indian tradition tries to secure rights of those who are not even aware
of their rights, by recognizing duties towards them. ALSO: freedom must be regulated by
duties.6 [Source7]
2.2.6 Equality
The original design of the non-hereditary caset system was not as pernicious as it turned out
to be. 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). Had the original law makers realised
what was going to happen 1000 years later, they would have backed off from the idea of
6
I always talk about freedom with accountability.
7
The Religious Foundations of Human Rights: A Perspective from the Judeo-Christian Tradition
and Hinduism, by Dipti Patel
26
varna, and talked about occupational expertise and division of labour, instead (both of which
underpin the caste system, along with issues of ‘race’, etc.).
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. This is demonstrated by a verse in Rigveda, where a poet
exclaims, ‘I am a reciter of hymns, my father is a physician, and my mother grinds corn with
stones.’ This means that one can be whatever he desires and is not restricted by his ‘caste’ as
understood by many. Equality of all human beings was reiterated in the Vedic period, no one
was superior or inferior, 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. This embraces the idea of
harmony and fraternity among all human beings, the equality of all human souls. According
to Vedanta philosophy, the souls in every human being is the same, therefore, all human
beings should be treated as such. [Source 8]
2.2.7 Reason
The most important capitalist concept – of the social contract for the defence of individual
liberty – which underpins the modern capitalist state, was first articulated in human history
in the Mahabharata. I’ve dealt with that elsewhere.
Therefore an analysis of Hindu capitalism would begin with the social contract and role of
the state; then the role of individual, and thereafter consider other institutions.
Those who have been following the development of DOF over the past few years would have
noticed that I'm still investigating issues, and in some cases at least I have changed my
position from which I started writing the manuscript. A good example is my revised view on
Hinduism and critical thinking.
Till recently I had the view that Buddhism was particularly favourable to critical thinking, but
not Hinduism. However, that has changed. Even Hinduism is, I now find, supportive of
reason. Definitely not as strongly as Buddhism supports reason, but close enough. This
change in perspective, as you might have gathered by now, underpins my claim that India is
tailor-made for modernity.
Since India is tailor-made for modernity, WHAT AM I DOING HERE IN AUSTRALIA? I ask
myself this question more and more, as I think about what I could be doing with the rest of
my productive years.
I have increasingly felt the urge to return to India – should circumstances permit. I have
relatively little to contribute to Australia, at least in comparison to what I can contribute to
India.
Moreover I'm getting sick of the underbelly of soft racism in Australia. Australia is not the
meritocracy I had initially thought it was. As a result it performs well below its potential, but
I'm unable to devote much energy (beyond working hours) to helping fix Australia's
problems. I'm more interested in recovering India's super-power status and setting the
world order right, the way it should be.
It is shameful that Indians have to live outside India because India can't make any use of its
people. It is high time we organise systematically and sort out matters so that India can
8
The Religious Foundations of Human Rights: A Perspective from the Judeo-Christian Tradition
and Hinduism, by Dipti Patel
Hindu capitalism
rapidly recover its lost glory. Indeed, with the underlying culture being so science-friendly,
there is no reason why India should not become five times the size of USA in just a few
decades.
Let us get the world's best policies implemented, let us get the world's best education
system organised, and let us show the racist people of the West what India was and what it
will be. Only after achieving OVERWHELMING domination over the West will racism finally
be buried.
Till then Indians are stuck in the second gear. Hundreds of thousands of India's best brains
working for the benefit of Western societies. What shame!
EXTRACT
Hinduism – its approach to independent, critical thinking
It would appear at first glance that Hinduism, like other religions, acted as a bulwark
against reason. A few perspectives from the Hindu scriptures seem to indicate the
reluctance in Hinduism to allow people to think for themselves.
a) Humans do not create knowledge
Hindu scriptures claim to arise from a divine source. Knowledge is seen ‘as an
exclusively divine activity’[1], passed on via divine intermediaries to the human
authors of the scriptures. Thereafter, all aspects of a Hindu’s life are regulated by
the sastras, leaving little scope for creating new knowledge.
However, there does seem to be some scope for critical inquiry. For instance, the
Mundaka Upanishad contains a major onslaught against sacrificial ceremonials, thus
changing a practice that was widely prescribed during the early Vedic period.[2]
Hinduism does appear to have benefitted by not having formalized its ‘divine’
findings into a single book. This gave it leeway to critique earlier customs, an option
not usually available to other religions.
Hindu conceptions about God evolved over time. The early Vedas were theistic and
suggested that gods (or devas) are ‘a luminous something presented as external to
us’.[3] (Even at that time, though, the apparent multiplicity of gods, or aspects of
God, was underpinned by a monotheistic view.)
This perspective was revised by the Upanishads with what is called the Vedantic
view (being at the ‘ant’ or end of the Vedas). This perspective seems to have
developed coterminously with somewhat similar Buddhist ideas (I’m not aware
which came first). According to the Vedanta, God is everywhere: the energy and
consciousness that pervades the universe, the ‘“thread” that runs through all things
and holds them together.’[4] The Brahman is thought of in the Upanishads as the
‘hidden Self in everyone’.[5] This idea, which is almost pantheistic, sees God not just
as transcendental (something beyond us) but as an immanent principle (namely,
found within us). This evolution into an extremely subtle idea appears to indicate
that at least some new ‘knowledge’ could be developed within Hinduism.
b) Reasoning can lead us seriously astray
Reason has not particularly popular in Hinduism. In the Ramayana, for instance,
Rama advises Bharata to steer clear of those ‘brahmans who are materialists’
(referring to the lokayatas), on the ground that ‘although pre-eminent sastras on
righteous conduct are ready to hand, those ignorant fellows derive their ideas from
reasoning alone and so propound utter nonsense.’[6] The Mahabharata (Anusasana
28
Parva, Section CLXII) similarly decries reason: ‘That knowledge, O king, which is
derived from reason (or inferences), can scarcely be said to be knowledge. Such
knowledge should be rejected. It should be noted that it is not defined or
comprehended by the word. It should, therefore, be rejected!’[7] These approaches
seem to directly oppose reason and critical thinking.
Interpreters of the Mahabharata argue, however, 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]. To what extent this interpretation is true is
not obvious.
c) Excessive veneration of teachers
The scientific method gives a prominent place to the teacher, whose role is to teach
us how to think, and to pass on information known to his generation. But the goal is
to exceed our teacher and to find new things by using our own mind. This was not
the approach in Hindu scriptures, which tended to be backward looking. Therefore
the teacher was given an excessively pre-eminent stature. For instnce, in the
Kathopanishad (2:9) Yama tells Nachiketa:
This awakening you have known comes not
Through logic and scholarship, but from
Close association with a realized teacher.[9]
This over-emphasis on the perceived wisdom of the teacher has led to deep-seated
subservience towards elders in India. Children often don’t ask questions in the
classroom to clarify issues in their mind. This is fortunately changing, with the onset
of modern science. Also, teachers like Swami Suddhananda and Dayananda have
promoted the idea that children should question the teacher.
Satyameva jayate
But the story in Hinduism is more complex than what appears on the surface. The
Upanishads do appear to, in some parts, commend the truth. As evidence, the
phrase, satyameva jayate is often cited, a phrase which is India’s national motto
and finds place in the national emblem. The phrse originated in a mantra in the
Mundaka Upanisad (3.1.6) of the Atharva Veda, a part of which reads: satyam eva
jayate nanrtam. But there appears to be little scholarly agreement on its meaning.
The phrase has been variously translated as: ‘Truth alone conquers, not falsehood’,
‘The true prevails, not the untrue’, ‘Truth alone conquers, not untruth’,[10] or (the
more widely used) ‘Truth Alone Triumphs’. M.A. Mehendale questions such
interpretations, noting:
In the above interpretation satyam and anrtam are taken to be the subjects, but
this does not seem to be correct. Both satyam and anrtam have to be regarded as
the objects, and a rsi is to be understood as the subject. Taken this way, the
sentence would mean “A sage obtains only the Real (i.e., the Brahman), not the
unreal. …This interpretation will be found to be in harmony with the spirit of the
Upanisads in general and that of the Mundaka in particular.[11]
It is therefore very likely that the common meaning attributed to this pharse is
incorrect. I am happy, of course, for this possible error to continue. Only good can
arise from Hindus believing that their religion raises the truth to the highest
pedestal.
Some later developments in Hinduism explicitly opened the door to critical thinking.
Hindu capitalism
Thus, the Carakasamhita, a scientific text written in the third century BC assert that
‘[o]f all types of evidence, the most dependable is that [which is] directly observed.’
It goes on to proclaim that ‘[t]he wise understand that their best teacher is the very
world around them.’[12] As evidence of the growth of critical thinking in India, one
can cite the discovery by Hindu mathematicians in around 500 AD of the decimal
number system, including the use of zero – the system that has transformed all
fields of human knowledge.
In addition, I now cite four representatives of Hinduism to further explore critical
thinking in Hindu thought. These are Swami Dayanand Saraswati, Swami
Vivekananda, Gandhi, and Swami Suddhananda.
Dayanand Saraswati
The work of Swami Dayanand Saraswati is perhaps best evaluated through the
impact he has had on the educational landscape of India, through the Dayanand
Anglo Vedic (DAV) institutions. The ‘DAV system of education was a synthesis of
ancient Vedic lore and culture and western scientific outlook. It was to be a bridge
between the wisdom of India and of the west’[13]. Writing about Dayanand’s work,
K.C. Mandendru wrote:
When reason had sunk deep and given place to prejudices and superstitions, when
ignorance and orthodoxy studded human existence and chained the nation to
inaction, 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. An
arch crusader, he refused to submit to the authoritarian &t orthodox dictates of the
then social and moral monopolists in the arena of religion and conscience. A
dauntless champion of the individual in the quest for eternal truth, Maharishi
Dayanand laid emphatic stress on man’s self renovation and for this he taught him
to adopt a rational outlook, based upon truth both in thought and action, and
purity of conduct and behaviour.[14]
This would indicate that there was a significant focus on rationalism in Vedic
Hinduism that later reformers attempted to revive.
Vivekananda
Swami Vivekananda was a firm advocate of reason: ‘It is wrong to believe blindly’,
he said. ‘You must exercise your own reason and judgment’.[15] Indeed, he wanted
the methods of reason to be applied to religion as well: ‘Are the same methods of
investigation, which we apply to sciences and knowledge outside, to be applied to
the science of Religion? In my opinion this must be so, and I am also of opinion that
the sooner it is done the better. If a religion is destroyed by such investigations, it
was then all the time useless, unworthy superstition; and the sooner it goes the
better. I am thoroughly convinced that its destruction would be the best thing that
could happen.’[16]
Gandhi
Gandhi, the advocate of individual liberty, promoted freedom of thought as well: ‘I
am not interested in freeing India merely from the English yoke. 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]. According to him, ‘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’.[18] One may, or course,
argue that this conception applies only to ‘self-realisation’. Gandhi seems to have
combined what he saw as the Hindu focus on self-realisation with some elements of
30
Western liberalism (from Henry David Thoreau).
But Gandhi did not connect the dots between science and technology: ‘mass
production’, he said, ‘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. My machinery must be of the most elementary type which I can put
in the homes of the millions.’[19] That displays both a level of paternalism and
resistance to the exploitation of the best instruments that science has to offer.
Gandhi opposed modern medicine or allopathy, calling it a ‘false science’.[20] And
he wrote: ‘the boast about the wonderful discoveries and the marvellous inventions
of science, good as they undoubtedly are in themselves, is, after all, an empty
boast. They offer nothing substantial to the struggling humanity.[21] This shows
both ignorance and cynicism about technology.
Suddhandanda
Another advocate of the Vedanta, Swami Suddhananda, believes that people must
find the truth about the teaching of Advaita themselves: ‘Ultimately, your own
experience is the best teacher’[22]. He praises science: ‘These wonders of science
have not been discovered by a man sitting in the darkness of a cave. It is the
achievement of men who have put to use their thought power.’[23]
On evaluating the wide array of evidence presented above, and on balance of
probabilities, I am inclined now to argue that (a) there is no strong opposition in
practice to the use of reason in Hinduism, and indeed, (b) there might be some
underlying positive support of human thinking in the Vedic or the Vedantic
tradition, given the reformers of Hinduism insist that such is the flavour of the
original system of Hindu thought.
[1] Pollock, Sheldon, ‘The Theory of Practice and the Practice of Theory in Indian
Intellectual History’, in Journal of the American Oriental Society, Vol. 105, No. 3, ,
(Jul. – Sep., 1985), p.515. Also verified with Ganeri, Jonardon, Philosophy in
Classical India: The Proper Work of Reason, London: Routledge p.7.
[2] Hiriyanna, M., Outlines of Indian Philosophy, Bombay:George Allen and Unwin
(India) Ltd., 1932 [1976], p.48.
(India) Ltd., 1932 [1976], p.82.
(India) Ltd., 1932 [1976], p.82.
[5] Kathopanishad (3:12) Eknath Easwaran Translation,
[http://myweb.cableone.net/subru/Vedanta.html#anchor71261]
(Jul. – Sep., 1985), p.510.
[7]Translated by Sri Kisari Mohan Ganguli,
[http://www.hinduism.co.za/direct_perception.htm]
[8] Vivek Iyer in an email to me dated 4 September 2010.
[9] Eknath Easwaran Translation,
[http://myweb.cableone.net/subru/Vedanta.html#anchor71261]
Hindu capitalism
[10] All citations from Mehendale, M. A., ‘Satyam Eva Jayate Nāntram’, Journal of
the American Oriental Society, Vol. 81, No. 4, (Sep. – Dec., 1961), p. 405.
[11] Mehendale, M. A., ‘Satyam Eva Jayate Nānrtam’, Journal of the American
Oriental Society, 1961, 81 (4): 405-408.
(Jul. – Sep., 1985), p.510.
[13] K.C. MAHENDRU, "MAHARISHI DAYANAND —The Great Path-Maker", Diamond
Jubilee souvenir of the DAV College Jullundur, 1978.
[14] K.C. MAHENDRU, "MAHARISHI DAYANAND —The Great Path-Maker", Diamond
Jubilee souvenir of the DAV College Jullundur, 1978.
[15] Complete Works of Swami Vivekananda, Volume 1, Raja-Yoga, Introductory
(http://www.ramakrishnavivekananda.info/vivekananda/volume_1/raja-yoga/raja-
yoga_contents.htm)
[16] Complete Works of Swami Vivekananda, Volume 1, Reason and Religion,
(http://www.ramakrishnavivekananda.info/vivekananda/volume_1/lectures_and_di
scourses/reason_and_religion.htm)
[17] In The Essential Gandhi. Edited by Louis Fisher. Vintage Books. New York.
1962. p. 191
[18] In The Essential Gandhi. Edited by Louis Fisher. Vintage Books. New York. 1962.
p.212.
[19] Collected works of Gandhi, p.20, Vol. 54.
http://www.gandhiserve.org/cwmg/VOL054.PDF
[20] Collected works of Gandhi, p.157 Vol. 95
[21] Collected works of Gandhi, p.209, Vol. 53.
http://www.gandhiserve.org/cwmg/VOL003.PDF
[22] Suddhananda, Swami, Self Knowledge: A Path to the Pathless, 3rd edition.
Chennai: Suddhananda Foundation for Self Knowledge, 2006, p.32.
[23] Suddhananda, Swami, Self Knowledge: A Path to the Pathless, 3rd edition.
Chennai: Suddhananda Foundation for Self Knowledge, 2006, p.66.
2.2.8 High quality Minsters/leaders

Chanakya was a firm believer in merit. His writings are designed to impart political and
economic education for those who rule India. He is comprehensive and detailed, 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, but on reviewing
it I'm finding it more and more useful).
One thing seems to me to be clear, though: that he would have been shocked at the idea of
democracy the way it is currently practiced in India.
In chapter 1.15.61 of Arthashastra he says: "one should not listen to the advice given by
those ignorant of the science [of economics and politics]" (Rangarajan, p.169).
Nehru listened to those ENTIRELY ignorant of economics and politics (e.g. Mahalanobis), or
to those like Laski who "taught" politics but came to it from a statist/socialist perspective.
32
Anna Hazare spouts ideas today that have no grounding in the science of economics and
politics. So does Baba Ramdev. So does Arvind Kejriwal. And many, many others.
These "good" people are SURE to take India to disaster.
A nation is NOT built on good intentions. It is built on the knowledge, wisdom and
expertise of its leaders.
It takes a HUGE amount of time for an ordinary mortal to understand the sciences of
economics and politics. This is not something intuitive! Most of it is counter-intuitive.
Neither Nehru, nor Anna Hazare, nor Arvind Kejriwal invested time and energy to learn these
sciences. Yet they are the kind of people thrown up by democracy.
It is self-evident that it is POPULISM that matters in democracy, not merit (and proportional
representation – which gives populism even greater weight, creates an even greater
disconnect between governance and merit). Chanakya would have been shocked to see the
lack of policy expertise among people who lead India.
Such people would be less of an issue if the "king" could appoint expert counsellors, but that
is not possible under the Westminster cabinet system of government, where elected
representatives directly become Ministers. The presidential form would perhaps be better in
that sense. I'm still willing to support the Westminster system, though, 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. By getting meritorious people elected, we can meet the
demands of "representation" even as we manage to get leaders who understand the
sciences of economics and politics.
Westminster can work, but ONLY if political parties become guarantors of quality.
It was in this light that I proposed FTI, which is essentially a process of vetting candidates.
FTI will offer candidates (when we find them!) who have highly developed intuitions in
economics and politics.
As the number of good (and in my view "good" goes well beyond moral integrity) people
willing to lead India increases, FTI will be able to establish more stringent quality control.
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). But
that's a plan for the distant future.
In my view, each of India's representatives should be at least as brilliant as Chanakya. That
should be FTI's goal.
2.2.9 Exhortation to be rich

Chanakya exhorts India to be wealthy and work hard to achieve goals.
Hindu capitalism
These are four sutras (equivalent to 3.2 (Garde) ,4.3 (Garde), 4.5 (Garde), 7.11 (Garde))
1) Protecting/improving your project leads to accomplishment of goals.
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, many more sutras and verses by Chanakya that motivate people to
SUCCEED in this real world.
34
3. Knowledge about this world
Chanakya wrote three books: Arthashastra, Chankya Niti and Chanakya Sutras. The last of
these has proved fertile source material for a number of modern management books (e.g.
Ashok Garde's).
As part of my studies on Hindu Capitalism, I'm first compiling key original Sanskrit texts with
the intention of double-checking references. (Btw, I find that although I can't fully
understand the meaning of Sanskrit texts without assistance, these aren't very hard to read
since the roots words in Sanskrit and Hindi are the same. Sanskrit, like short-hand, is super-
dense. That was perhaps an optimal grammar for verbal transmission.)
My goal is to cut and paste original Sanskrit into Hindu Capitalism. That requires Devanagri
text that can be "cut and paste" from OCR'd PDF. Here's where you can help me, if you know
about this issue.
I've struggled to find any OCR software that converts Sanskrit PDF files into "cut-and-paste"
ready text. That is a roadblock since without this feature I need to insert image file into the
book, which is such a pain. Google docs claims to do so but it doesn't really work; Nuance
Omnipage doesn't have it, ABBYY doesn't have it. Every language seems have OCR facility
except for Indian languages! If you know of any software that OCRs Devanagri script please
let me know.
Anyway, let me start my academic study of Chanakya with Chanakya Sutra 1.9:
What does this say? It says:

"Equip yourself fully with worldly knowledge".
MOST of Hinduism is "this-worldly", not "other-worldly". Of four key human endeavours
(purusharthas), 75 per cent (three out of four) are PURELY this-worldly. DHARMA (justice,
just behaviour), ARTHA (resources/wealth to support a good life), and KAMA (enjoyment of
life) are ENTIRELY this worldly. Even the last (MOKSHA) is largely this-worldly, at least based
on interpretations by many Advaita philosophers (who don't see any distinction between this
or that world).
That's a lot of "this-worldliness" for a religion apparently steeped in "other-worldly"
pursuits.
The fact that Hinduism is PREDOMINANTLY THIS-WORLDLY must form the foundation of all
understanding of Hindu Capitalism.
In Chanakya's work there are numerous references to how money should be made, how
important it is to grow money, how important it is for kings to remove all obstacles to
prosperity. He links prosperity (and security – which is is his second key contribution) very
strongly with Dharma through an incessant emphasis on integrity. (He offers solutions to
corruption, such as paying Ministers well, that are consistent with BFN).
But I'll come to these issues later. For now, let's all just note that Hindu/ Indian thought is
PREDOMINANTLY material.
Hindu capitalism
Without a strong material foundation, capitalism can't exist. A society must demonstrate a
commitment to live well, not to poverty. It is clear that Hindu society has such a foundation.
36
4. The minimal state
4.1 Key functions

4.1.1 Defence, Police, Justice
Mahabharata
“Having thus arranged all the affairs (of) his (government), he shall zealously and
carefullyprotect his subjects. That (monarch) whose subjects are carried off by
robbers (Dasyu) from his kingdom, while they loudly call (for help), and he and his
servants are quietly looking on, is a dead and not a living (king). The highest duty of
a Kshtriya is to protect his subjects,for the king who enjoys the rewards is bound to
(discharge that) duty. (Manu-samhita 8.142-144)
“A king should protect his subjects just as a pregnant women nurtures the foetus in
her womb.” (Mb.12.56.44) In this way, as a pregnant woman sacrifices her own
interests for the sake of the child in her womb, so also a king should be able to give
up his own interests to address the needs of the citizens.
“Just as a father helps his son rise over a crisis, so also a king should deliver his
subjects from difficulties.” (Bhagavata Purana 11.17.45)
“Punishing evildoers, honoring the righteous, enriching the treasury
lawfully, deciding the cases of petitioners, and protecting the nation are the five
sacrificial fires (yajnas) or spiritual duties of a king.” (Atrismruti 28)
“The very core of a king’s duty is the protection of his subjects and their happiness.
It is not easy. To secure the happiness of his people he should use diverse methods.”
“A king who does not annihilate his enemy will not gain fame on this earth, will
not acquire wealth and his subjects too will remain insecure. Even Indra was
accorded the status of Mahendra after he slew the demon Vritrasua.”
(Mb.12.15.15)
Sri Krishna to Yudhisthira explains: “O Dharmaraja, vanquisher of enemies, so long
as you continue to reconcile with them (the enemies of the Kauravas) they will
continue to rule your kingdom.” (Mb.5.73.8)
“If one finds an enemy who deserves to be killed, then one should never let him
go.” (Mb.5.38.29)
“He should amass troops, and this should be done in secret. A king can never
protect his kingdom by candor and by simplicity. A king should be both candid and
crooked. He must employ crookedness and wrong acts when he wants to subdue
the enemy. All these things should be concealed behind a candid and open
exterior.”
“If a king is too gentle, then people disobey him. And if he is authoritarian they fear
him. Hence, depending on the situation he should be authoritarian or gentle.”
(Mb.12.140.
Hindu capitalism
4.1.2 Enforcement of property rights
In DOF, I discussed property rights in Hinduism, thus:
PROPERTY RIGHTS IN HINDUISM

The Dharmasastras and Kautilya’s Arthasastra have many references to property, such as
discussions on the valid proofs of possession and ownership of property, its purchase and
sale, inheritance; and donation.[1] Romila Thapar tells us that ‘Private ownership of land
emerged [in India] in areas where the village economy had been established’[2]. She added
that ‘[i]n the post-Gupta period references to the sale of land to individuals, increase.
Inscriptions dating to the period after the sixth century A.D. frequently refer to purchase of
land and the transfer of property.’[3] Ancient genealogical records in India are amazing (a
visit to a panda in Haridwar is eye-opening!). These too could have been used, at times, to
pass on records aobut property ownership of significant lands and territory.
[1] Sternbach, Ludwik, ‘Review of Theory of Property in Ancient India by A. M. Samozvancev’,
in Journal of the American Oriental Society, Vol. 101, No. 4, (Oct. – Dec., 1981), p. 487.
[2] Thapara, Romila, The Past and Prejudice, Patel Memorial Lectures, New Delhi:
Publications Division, 1973, p.39.
[3] Thapara, Romila, The Past and Prejudice, Patel Memorial Lectures, New Delhi:
Publications Division, 1973, p.42.
However, there is much more to think about. In particular, there is the huge debate in the
literature about women’s property rights. So let me provide two views from the literature
(only extracts).
Private Property in Asia? The Case of Medieval South India, by Dharma Kumar, Comparative
Studies in Society and History , Vol. 27, No. 2 (Apr., 1985), pp. 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. Another
line of argument was that individual rights were unknown: the land was held communally, by
the village community, and alienation was difficult if not impossible. Customary law was as
despotic, in its way, as the king.
[In this article] one particular medieval regime—the Cholas of Tanjore—is taken up. The chief
reason for choosing this regime is that it left, in copper plate and stone inscriptions, mostly
on temple walls, a large number of records describing actual transactions in land, but there
is no reason to believe that it was untypical. For instance, the Chola period was one of
relative stability, 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.
Therefore, this essay should have a fairly general application.
THE CHOLA REGIME—CIRCA 850– 1280
The Cholas ruled from circa 850 to 1280 in southeast India. We do know that there were
well-organised merchant communities engaging in internal and external trade in grain,
spices, and cloth, as well as elephants, horses, and precious stones. Gold, silver, and copper
coins were current, and taxes were collected in cash as well as in kind.
All that is clear is that there was a large number of taxes, and that they were levied by
various authorities, from the king to the village assembly. Little is known about the rates of
land revenue or at what levels of government it was collected and spent. It will be argued
below that this political system did in fact give protection to private rights, so that private
38
lands did have economic value.
Unsettled land could be disposed of by the ruler, or, where his power was weak, whoever
had the highest authority—it was either presented as a gift to temples and Brahmins, free of
land revenue or at specially low rates, or allocated to peasants, who might pay low rates for
an initial period. The settled land was owned by all kinds of people, from chieftains and
merchants to weavers and dancing girls, with the probable exception of the untouchable
castes, and perhaps the Chola kings themselves, but the three main landholding groups were
the temples, the Brahmins, and the Vellalas, the caste of cultivators.
Before describing the forms of land tenure, it might be useful to discuss the first two groups,
since they often, though not invariably, held land on special terms.
Temples as Major Landholders
It is not inconceivable that a larger part of the social product went to the temple than to the
king. The southern landscape is dotted with temples, from small village temples to the great
wealthy temples of the centres of pilgrimage. From the king or queen to the dancing girl or
beggar, Hindus gave land, livestock, and gold lavishly to the temples in order to acquire
religious merit, fame, or social authority.
Temple lands were generally tax free, but not always so. This partly depended upon the
identity of the donor and the status of the donated land. In essence, if the donor was an
authority entitled to revenues from taxes—a king, a chieftain, or village or higher level
assembly—the land would generally be given to the temple free of those taxes. If a private
individual gave the land, it would not be free of taxes unless the ruler’s permission had been
obtained; alternatively, the donor might also donate a capital sum to pay for the taxes.
The affairs of a temple were run by temple managers, sometimes supervised by village
assemblies. The managers could hire labour and organise the cultivation themselves but
apparently the lands were more commonly leased out, to individuals or assemblies.
Temple managers needed income in cash and kind for a variety of purposes. Current
expenses included payments of taxes, maintenance of buildings (the sale of land to pay for
temple repairs is often mentioned in the inscriptions), rituals and festivals, maintenance of
charities, and so on. Some of these costs were obligatory, as when a donor had specified that
certain special rituals should be performed. But there was no limit in theory to the
expenditure of a temple—rituals could be grander, idols decked in more jewels, new shrines
could be built, all to the greater glory of the temple deity (and perhaps, to its superiority
over rival deities).
Managers could raise money by soliciting gifts, but they must also have devoted much
attention to the prudent management of temple assets, especially in the large temples.
Managers had to choose among alternative forms of investment: hoarding bullion or jewels,
storing grain and other commodities, loaning out money, or buying land or the right to
collect taxes. The inscriptions reflect the great variety of transactions that temple managers
undertook. Temples sold lands given to them to other temples, village assemblies, or
individuals, and they exchanged lands with other temples. In addition, the temple could
increase the value of its lands by irrigation. Temples also made gifts of land to individuals,
presumably in payment for past or future services.
Lands Held by Brahmins
Piety also took the form of granting land to Brahmins, and, as in the case of the temples,
there was a variety of tax arrangements. The lands could be free of certain taxes but not of
others. Brahmin villages were relatively recent in South India, the majority having been
Hindu capitalism
created in the Pallava and especially the Chola periods. Probably every great temple would
have one or more settlements of Brahmins nearby to manage its affairs and conduct its
rituals. But the maintenance of Brahmins was also an end in itself, particularly of Brahmins
known for their learning or holiness, 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.
However, the majority of Brahmins lived in non-Brahmin villages, as priests, village
accountants, teachers, astrologers, and so on. They, too, were given land at especially low
rates of land revenue. These beneficial grants of land were frequently subject to special
conditions, connected either with the maintenance of the land (e.g., that it should be
irrigated properly) or with Brahminical functions and behaviour. In addition, frequently there
were restrictions on alienation, such as that the land could be transferred only to other
Brahmins, or even only to Brahmins belonging to a particular philosophical school. The
reason for these stipulations is clear: certain functions could be carried out only by
Brahmins. Another reason, applicable to lands in Brahmin villages rather than to holdings by
Brahmins in peasant villages, was caste exclusiveness, especially since landownership might
carry with it membership in the village assembly. [Sanjeev: this condition probably added to
the incentive for a Brahmin to train his children to become Brahmins. One shouldn’t wonder,
given these material (and genetic) pressures, why caste became hereditary.]
Apart from these specially given 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. In other words, 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), in the case of the Brahmins,
they were occasionally, but not as a rule, allowed to pay at lower rates of revenue, regardless
of the original tax status of the land.
Brahmins generally did not plough the lands themselves; they either leased the lands out, or,
less frequently, hired labour. When Brahmin villages were founded in virgin lands, the rulers
may also have assigned groups of agricultural labourers to them to clear and develop the
lands. If the labourers were of low caste, they may have become serfs, but if of the higher
cultivating castes, may have acquired occupancy rights in time.
PROPERTY RIGHTS ON NONBENEFICIAL TENURES
A large part of the land during the Chola period was subject to the payment of full land
revenue; [Sanjeev: this implies comprehensive land settlement and record keeping.] 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, at the risk of
misrepresentation involved in any translation, but not much more. 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, law, economics, and
history shows) and our insufficient knowledge of property rights in medieval South India.
It is surely significant, however, that there were native legal categories conveying rights
generally regarded as the core rights of private ownership: the rights to possess, to use
(cultivate), to receive income, and to the benefit of capital (including the right to sell). These
are the rights generally stressed by economists, though jurists naturally have more
exhaustive definitions.
The sales mentioned in the inscriptions occasionally use the Tamil word for land, nilam, but
more frequently the word kani. In conjunction, kani meant a right, generally a hereditary
right, and without qualification it generally meant hereditary property rights in land. It is
40
significant that the inscriptions often specify the rights included in kani. Some inscriptions
state that the eight rights (ashtabhoga) of classical Hindu law are included, others specify the
rights. Rights conveyed vary, but the rights of sale, gift, and enjoyment are generally
included. These rights were bought and sold by private parties, who can consequently be
considered as being landowners. These private landowners, to repeat, could cultivate the
land themselves or lease it out, mortgage it, or sell it (with restrictions described later), and
when they sold their land they transferred all their rights in it. There is ample evidence that
they did in fact lease out, mortgage, and sell their lands; the evidence on sales is examined
in a later section.
Private landowners as well as temples held title deeds, as many references in the inscriptions
show. To give one example, when it was found after a man’s death that his title deed had
been lost, six of his relatives paid cash to get another. Again, when recording the sale of land
to temples, the inscriptions often state that the original documents were deposited in the
temple. 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.
How secure were the landowner’s rights against the state? In particular, on what grounds
could he be evicted? He could be evicted for tax arrears, as in many modern states, but the
medieval taxpayer may well have been given a much longer rope, especially since tax
collectors were less efficient then. Land was confiscated for treason and for heinous crimes.
Some such cases are reported in the inscriptions, but there is no evidence that the incidence
of these types of confiscation was extensive, except perhaps in newly conquered lands.
Moreover, when the ruler or other authority wanted to donate settled lands to temples or
others, he first had to buy the lands from their owners. The inscriptions often state whether
or not the grantee may evict the occupants-kudinikki—or not—kudikudi-ninga. A grantee
who could not evict the occupants presumably would not be able to raise the rent.
The term kudi is translated as ‘cultivator’ or ‘occupant’; over time it came to be applied to a
tenant, as distinct from a landlord, but when the owner cultivated the land himself, the term
kudi could be applied to him. The inscriptions contain other terms whose meanings we still
do not know, but it is clear that there were various categories and conditions of tenancy,
determined partly by the institutional statuses of the two parties, as well as by purely
economic factors, such as the type of land.’’
HOW CONSTRICTED WAS THE INDIVIDUAL?
It has been argued, 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.
Honore calls this condition ‘split ownership’.
Split ownership is often an element in explanations of the failure of non-Western societies to
achieve modern economic growth, but the simple contrast between the efficiency of
individual private rights and the inefficiency of collective rights is increasingly suspect. On
the one hand, the modern joint-stock company is itself an example of split ownership; on the
other, earlier forms of split ownership may also have been economically efficient in the
circumstances of the time.
a) The Village Community and Communal Landholding
Carl Dahlman has compared the English open field village to a firm:
We may, if we wish, look at the open field village as a firm. It is a collection of decision rights
created by a voluntary relinquishing of those rights by their owners. Implied in the
relinquishing of those rights is a way of organizing the relative influence of each member of
Hindu capitalism
the collective thus created: a voting rule, and a way to share the proceeds, i.e., a profit
sharing rule. . . [lin a very similar way to the firm, the members of the open field village were
able to assume corporate responsibility and act as a juridical person. The village could enter
into contractual agreements as one body, as for example in the renting of certain lands. It
accepted joint responsibility in matters of taxation, militia, criminal liability, road and bridge
servicing, and the like. As a body it could bind itself to fulfil obligations and to incur financial
liabilities.
This description is strikingly apt for certain Chola villages in which, significantly enough, the
arable land was divided into shares, and the landholders were literally ‘shareholders’
(pangukkarar). In these villages only the share-holders would be members of the village
assembly. However, every shareholder was not necessarily a member of the assembly—
members might be elected or chosen by lot. (Even in other villages, where membership of
the assembly was not confined to shareholders, it was likely to be restricted to landowners,
important village functionaries, and so on.) It was extremely useful to be a member of the
assembly because that body had important administrative and judicial functions and powers.
The land revenue was frequently assessed as a lump sum on the village as a whole, and the
distribution of the burden within the village was left to the villagers themselves, i.e., to the
assembly or the headman. Moreover, the assembly could levy taxes on its own and spend
the proceeds on village property and village affairs—irrigation, the temple, rituals, and
festivals.
However, unlike the English open fields, the arable land in Chola villages was divided into
physically distinct strips, and the fields were generally hedged, as they are today. It seems
unlikely that different families ever cultivated jointly their undivided lands with common
livestock and agricultural implements. Even with separate cultivation, it is possible that joint
decisions were taken about, for instance, the crops to be grown, although this point has not
been explicitly discussed in the literature. But the inscriptions do record other forms of
collective decision making. When the landowners were Brahmins who did not cultivate
themselves, it is possible that they dealt jointly with tenants or labourers. Sometimes the
assembly adopted certain rules; in one village, the ‘great assembly [mahasabha] framed
certain revised rules in regard to tenancy cultivation.’ Or the assembly could appoint a
representative or a committee for the actual management, the profits being divided
according to the arable held by each.
Lands in such villages were sold both by the village assembly and by individual shareholders.
The assembly sold the lands that were held in common, of which the most commercially
valuable were the those which could be converted into arable. This included once-cultivated
land, given up because the family which owned it had died out or emigrated. One reason for
land sales was the need for money to meet tax arrears, but the money could have been used
for other common purposes too, such as the endowment of charities.
Individual shareholders could sell their shares, and the buyer acquired not only the arable
but membership in the assembly, as well as a share in all the perquisites and responsibilities
that went with it. Moreover, seventeenth-century sale deeds show that an individual could
sell either 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 pre-emption 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
42
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 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
Hindu capitalism
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 (1179-1279), 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 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
44
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.
In Tamil society in particular, we can trace a long history of women owning, controlling and
disposing of personal property, while in more recent times, there is a distinctive tradition of
land passing from mother to daughter in a female line of descent. The evidence suggests
that there is scope for much more intensive research to establish the intra-cultural variations
and regional patterns.
4.1.2.1 The logic behind inheritance laws
4.1.3 Infrastructure
Provisions of facilities such as lakes and water canals, distribution of seeds, control
of rodents, elephants, and those things which destroy harvests, augmenting
farming by developing meadows for cattle to graze, etc., 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. 9 Mahabharata
4.1.4 Social minimum

The feeble and downtrodden, blind, dumb, crippled, orphaned, old, widowed,
diseased and distressed should be provided with food, clothing, medicines, shelter,
etc. (Mb.12.86.24) Mahabharata
4.1.5 A minimal state with low taxes

Chanced upon an interesting piece by Stephen Knapp. I'm not sure who he is, or how
authentic this material is (his citation of the social contract is absolutely authentic), but it
provides a good lead into the underlying concepts of Dharma.
Professor Prabhu Guptara has suggested that:
9
Knapp hasn't cited the specific section, but I assume this is mentioned in the Mahabharata
Hindu capitalism
it would be interesting to compare the Hindu kingdoms with Buddhist, Jain, Sikh, Muslim,
Eastern Orthodox, Roman Catholic, Protestant, Confucian, Shinto and Animist kingdoms, to
see whether HIndu kingdoms were really more or less "minimal" than other historical
kingdoms when it came to ecnomics.
In my writings, I have argued that there is really very little to choose, till the rise of
Protestantism, between most kingdom-types when it is to do with the socio-economic
system (with individual exceptions such as Akbar, Chandragupta Maurya (who was Jain) and
Ashoka (who was Buddhist).
I do not intend (for reasons of time) to compare various states, 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. This would be around 17 per cent of GDP. Most
western nations now have over 40 per cent. In, BFN, I'm comfortable with up to 25 per cent.
I believe the Indian state was too small and too weak to defend itself properly. It needed to
invest more heavily in defence. That was a great weakness. Even today the Indian state
underspends in defence.
Prabhu Guptara’s response

That is common knowledge. The question is whether this was merely theory, or was actually
followed in practice (India is replete with examples of the distance between what is said and
what is done).
In the Jewish system, 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.
That is what I suspect you will find was the reality in India, once you have examined the
history as distinct from the theory.
I agree with you on Indian defence expenditure. The caveat being whether what is being
spent is being spent properly (how much might be disappearing into bribes and kickbacks,
and even into buying stuff we don't need or is not best suited to our needs).
It also occurs to me that you can't really claim that our system was "minimal" if other
systems (Muslim, Jewish...) theoretically or in practice required taxes LESS than 1/6th....So,
for your book to be convincing, I think you have to do some "minimal" comparison...\
* * *
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, my caste (baniyas) were able
to charge whatever rate of interest could be borne by the market (in living memory, 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, but also what (even) a minimal state
sanctions, 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, “Mother India” from the time when our film
industry was, due to the fervour of independence, still interested in social reform and not
merely in escapism.
46
Mahabharata:
“The king should take a sixth of the income of his subjects. This is for the
maintenance of the army for their protection. A king’s subjects are his children. But
he should guard against compassion while punishing them for their wrong behavior.
“A king should become a gardener, not a coal manufacturer. A gardener takes care
of plants to obtain flowers and fruits from them. Similarly a king should guide his
subjects towards prosperity and then secure one fourth of their income from them
in the form of taxes. A coal trader uproots a tree and then chars it completely. A
king should not uproot his subjects likewise plundering their wealth totally.” (Mb.)
One of the primary functions of a ruler is to oversee and design the development of
his country, and one of the means he uses for this is taxes. But how he collects tax
must be systematic and with proper consideration of his subjects. As it is described:
“Just as a bumble-bee sucks nectar from flowers without harming them, so also a
king should collect money from his subjects without hurting them.” (Mb.5.34.17)
“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, without
hurting them. One who milks a cow does not milk it dry but takes care to see that
some milk is left for its calf. Similarly a king should levy taxes on the people carefully
after considering that they will be sufficiently provided for.” (Mb.12.88.4)
“The king should levy taxes, but they should never be so high as to hurt the
subjects. He should know how to milk his kingdom. He should be like a bee
gathering honey from the flowers. He should be a leech which draws blood mildly
without the victim being conscious of it. He should behave like a tigress with her
cubs while handling his subjects: she catches them with her teeth and yet never
hurts them.”
“Like a leech, a king should gently take money from the state by levying taxes. A
tigress lifts its cubs with its teeth yet does not harm them. Similarly a king should
levy taxes on his subjects without causing them distress.” (Mb.12.88.5)
“O king, 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.” (Ramayana 3.6.11)
“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.” (Mb.1.213.9)
“Just as one who cuts off the udders of a cow with the hope of getting milk never
acquires it, so also a state in which taxes are levied inappropriately, thus harrassing
the subjects, does not prosper.” (Mb.12.71.16)
Yes, I've seen Mother India, although many years ago. A key feature of Hindu law was it did
not proscribe high interest rates (although it did prescribe about 15 per cent or so - Manu),
which would have been a useful feature in allocating capital in relation to risk. Competition
also probably drove down interest rates in major commercial ventures and trade.
In the case of agriculture, 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. This
did lead to bonded labour. The solution to that - opening up of competition in the capital
Hindu capitalism
market - was not implemented by the Indian government, thus further impoverishing
farmers. Even today, there are few who are willing to lend to farmers. That's unfortunate.
Ultimately, all production is conditional on borrowing working capital.
4.1.6 Integrity in public life

“A king should be proficient in the art of choosing honest men to hold important
offices.”
“Honest men who are absolutely trustworthy should be appointed to administer
justice. The state has her strong foundation only upon the proper administration of
justice.
“The treasury of a king is meant for the protection of the army, his subjects and of
righteousness (Dharma). If it is used for these purposes, it will prove beneficial. On
the other hand, if the treasury is misused, it will prove disastrous. Should the king
use the royal treasury for his wife and children and to fulfill his own sensual
pursuits, it will bring him unhappiness and he will attain hell.” (Shukraniti 4.2.3-5)
Yudhishthira asked: “What should be the characteristics of the legislators, the
ministers of war, the courtier, and the counselors of a king?”Bhishma responded:
“The legislators should be men who are modest, self-restrained, truthful and
sincere, and they should have the courage to speak what is proper. The ministers for
war should be those who are always by the side of the king. They should be very
brave. They should belong to the higher caste, and be learned and affectionate to a
fault as far as the king is concerned. A courtier should be of high lineage. He should
always be honored by the king. He should be a man who has the king’s interests
always at heart. He should never abandon the king whatever the circumstances
may.
Vidura said: “I will tell you what a wise man should be like. A man should aspire for
the higher things, ideals, in life. The assets of such a man are self-knowledge,
exertion, forbearance and steadiness in virtue. Such a man is wise. Neither anger,
nor joy, nor pride, nor false modesty, nor vanity, can distract him from his purpose.
His actions are always done with the thought that they should serve both the
worlds. Desire does not tinge his actions. Honest deeds delight him and he loves
what is good. He is unaffected either by honors or by slights. Like a lake in the
course of the river Ganga, he is calm, cool and unagitated.
[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. This is because the king gets one sixth of
the merits acquired by a Brahmana following the righteous path.” (Vishnu Dharmasutra 3.26-
27)
4.2 Public choice: making common decisions through public

consultation
[Insert section on democracy from DOF]
48
4.3 Examples of minimal regulation
4.3.1 Prostitution
I'm amazed at the advanced thinking of Kautilya. In the West, the systematic regulation of
prostitution (which was brushed under the carpet in the past) has occurred only very
recently (for instance, the state of Victoria in Australia legislated the Sex Work Act only in
1994).
India, on the other hand, had a well-regulated prostitution system 2300 years ago.
I believe there is much that modern India can learn from its past, particularly from its
greatest (Mauryan) empire. I'm not suggesting that we should follow these texts verbatim,
but there is undoubtedly much value in their spirit of innovation and freedom.
Unfortunately, Victorian prudishness coupled with socialist policy has led to a rapid spread of
AIDS in India. More than anything else today we need realism, not utopia.
The answer is classical liberalism which includes appropriate regulation.
I am providing below a few extracts from Rangarajan's famous translation of Arthashastra on
the subject of prostitution. Time permitting, I'll comment on the HUGE difference between
Chankya's policies and what socialist India has followed.
Extracts from Arthashastra
COURTESANS, 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, for the most
part, carried on in state-owned establishments [2.27.1]. Women who lived by their
beauty (rupajivas) could, however, entertain men as independent practitioners
[2.27.27]; these could have been allowed to practice in smaller places which could
not support a full-fledged state establishment. A third type of women of pleasure,
mentioned in a few places, is pumsachali, perhaps meaning concubines [3.13.37].
As befits a treatise on the economy of a state, the emphasis in the Arthashastra is
on collection of revenue. 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,
presumably to enable them to buy jewellery, furnishings, musical instruments and
other tools of their trade [2.27.1]. 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 [2.27.10]. Independent
prostitutes, who were neither given a grant nor required to produce detailed
accounts, had to pay a tax of one-sixth of their income [2.27.27]. In times of
financial distress, both groups had to produce extra revenue with the independents
having to pay half their earnings as tax [5.2.21,23,28].
The establishments were located in the southern part of the fortified city [2.4.11].
Whenever the army marched on an expedition, courtesans also went with them;
they were allotted places in the camp, alongside the roads [10.1.10]. During battle,
the women were stationed in the rear with cooked food and drinks, encouraging
the men to fight [10.3.47].
It would seem that courtesans not only provided sexual pleasure but also
entertained clients with singing and dancing. In specifying their duties, the
Arthashastra makes a clear distinction between two types of misdemeanours—
Hindu capitalism
showing a dislike towards a client visiting her for normal entertainment and refusing
to sleep with him, if he stayed overnight [2.27.20,21]. The description of the
training given to a couresan, at state expense, indicates how wide her
accomplishments had to be—singing, playing on musical instruments, conversing,
reciting, dancing, acting, writing, painting, mind-reading, preparing perfumes and
garlands, shampooing and, of course, the art of lovemaking [2.27.28]. A courtesan’s
son, who had to work as the king’s minstrel from the age of eight, was also trained
as a producer of plays and dances [2.27.29].
It would appear from the above that some families specialized in the entertainment
business. However, the Arthashastra specifically states that any beautiful, young
and talented girl could be appointed as the head of an establishment, irrespective
of whether she came from a family of courtesans or not [2.27.1].
Once appointed, the madam became a very important person. She could aspire to
become the personal attendant of the King or Queen [1.20.20, 2.27.4]. Even
otherwise, a very high price – 24,000 panas—had to be paid for obtaining her
release from her post [2.27.6]. 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, the Chancellor and the Treasurer). Only such people could afford to
buy a madam off as an exclusive concubine.
If a courtesan was promoted to attend on the King, her annual salary was fixed as
1000, 2000 or 3000 panas, depending on her beauty and qualifications [2.27.4].
1000 panas was the same salary paid to the King’s personal advisers and attendants
such as the charioteer, physician, astrologer, court poet, etc.
An interesting point is that the courtesan’s establishment could not be inherited by
her son. On the death, retirement or release of the head of an establishment, her
daughter (or sister) could take her place or she could promote her deputy and
appoint a new deputy. If neither the daughter nor the deputy succeeded her, the
establishment reverted to the state [2.27.2,3].
The state not only imposed obligations on prostitutes but also protected them.
Having been given a grant by the state and having been allowed to spend a part of
her earnings on personal adornment, a prostitute could not sell, mortgage or
entrust her jewellery and ornaments to anyone except the madam [2.27.11].
Prostitutes were obliged to attend on any client when ordered to do so, be pleasant
to them and not subject them to verbal or physical injury [2.27.12]. In return, stiff
punishments were prescribed for anyone cheating or robbing a prostitute,
abducting her, confining her against her will or disfiguring her [2.27.14]. Special
punishments were also prescribed for depriving a prostitute’s daughter of her
virginity whether she herself consented or not; 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 [4.12.26].
An imbalance in punishments has to be noted. 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 [2.27.17]. On the other hand, if a prostitute killed a client, she was burnt or
drowned alive [2.27.22].
The expression bandhakiposhaka (keeper of prostitutes) occurs thrice in the text,
associated always with ‘young and beautiful women’. The keepers were obliged to
use the women to collect money in times of emergency [5.2.28], sow dissension
among the chiefs of an oligarchy [11.1.34] and subvert the enemy’s army chiefs
50
[12.2.11].
THE CHIEF CONTROLLER OF ENTERTAINERS (COURTESANS, BROTHELS,
PROSTITUTES AND OTHER ENTERTAINERS) RESPONSIBILITES
Professions to be supervised:
(i) The regulations regarding courtesans and prostitutes also apply to actors,
dancers, singers, musicians, story-tellers, bards, rope dancers [acrobats?], jugglers,
wandering minstrels, people who deal in women and women who follow a secret
profession.3 [2.27.25]
The wives of actors and similar entertainers shall be taught languages and the
science of signs and signals. They shall be employed, using the profession of their
relatives [as a cover], to detect, delude or murder the wicked. [2.27.30]
Training of prostitutes and courtesans:
(ii) The state shall bear the expenditure on training courtesans, prostitutes and
actresses in the following accomplishments: singing, playing musical instruments
(including the vina, the flute and the mridangam), conversing, reciting, dancing,
acting, writing, painting, mind-reading, preparing perfumes and garlands,
shampooing and making love.
Their sons shall also be trained [at state expense] to be producers of plays and
dances. [2.27.2 8,29]
Management of brothels:
(iii) A beautiful, young and talented woman, whether a member of a courtesan’s
family or not, shall be appointed as the ‘madam’ of a brothel; she shall be given, on
appointment, a grant of 1000 panas [for setting up the establishment].
A deputy shall be appointed, with a grant of 500 panas.
If the madam of a brothel dies or goes away, her daughter or sister shall take over
the establishment. Or, the madam can [before her departure] appoint a deputy
[promoting her own deputy to be the head].
If no such arrangements are possible, the establishment shall revert to the King
[and the Chief Controller shall place it under the charge of someone else]. [2.27.1-
3]
Court attendants:
(iv) Courtesans shall be appointed to attend on the King in one of three grades,
according to their beauty and the splendour of their make-up and ornaments. The
lowest grade, on a salary of 1000 panas per month, shall hold the umbrella over the
King, the middle grade, on a salary of 2000 panas per month, shall carry his water
jug and the highest, on a salary of 3000 panas per month, shall be his fan bearer. In
order to add distinction, courtesans of the lower grade shall attend on the King
when he is carried in his palanquin, the middle grade when he is seated on his
throne and the highest shall accompany him in his chariot.
Courtesans who are no longer beautiful shall be put in charge of supervising court
attendants.
Sons of courtesans shall work as the King’s minstrels from the age of eight.
[2.27.4,5,7]
[Reference has been made in III.iv to preventing dangers to the King from Queens
Hindu capitalism
by ensuring that only trusted courtesans attended on them.]
Courtesans shall cleanse themselves with baths and change into fresh garments
before attending on the Queen. [1.20.20]
Release and retirement:
(v) The payment for obtaining the release of a courtesan [the head of an
establishment] shall be 24,000 panas and for her son, 12,000 panas.
When they can no longer work prostitutes under a madam in an establishment shall
be given work in the pantry or kitchen. Any one who does not work but is kept by
someone shall pay 1 1/4 panas [per month?] as compensation. [2.27.6,8,9]
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.
(vii) A prostitute shall not show dislike [and refuse service] to a client after receiving
payment from him.
She shall not abuse a client, disfigure him or cause him physical injury. She shall not
refuse to sleep with a client staying overnight, unless the client has physical defects
or is ill.
(viii) She shall not disobey the King’s command to attend on a particular person.
[from 2.27.11,12,19-22]
Protection of prostitutes:
(ix) The proper procedure shall be used to take a virgin daughter of a prostitute,
whether she is willing or not; coercive methods shall not be used.
(x) No one shall abduct a prostitute, keep her confined against her will or spoil her
beauty by wounding her.
(xi) A client shall not rob a prostitute of her jewellery, ornaments or belongings nor
cheat her of the payment due to her. [2.2 7.13,14,23]
Revenue:
(xii) In establishments:
Every prostitute shall report the persons entertained, the payments received and
the net income to the Chief Controller.
The Chief Controller shall keep an account of the payments and gifts received by
each prostitute, her total income, expenditure and net income. He shall ensure that
prostitutes do not incur excessive expenditure. [2.27.24,10]
(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. [2.27.27]
[The special taxes levied in times of financial distress on prostitutes and brothel
keepers are described in [5.2.21, 28] in V.iii.]
Foreign entertainers:
(xiv) Foreign entertainers shall pay a licence fee of 5 panas per show [2.27.26]
And so on…
52
4.3.2 Alcohol
Chankya is India's MOST RESPECTED ancient thinker and philosopher who not only wrote
India's most famous book, 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).
Chankya was not a man preached non-violence but he would NEVER have beaten anyone
with an army belt. Chankya was too intelligent for such low level thuggery. And he would
have ensured that anyone with Anna Hazare's violent tendencies would have been brought
to book.
Here's a nice PDF summary of Kautliya's society. Very short. Do read it.
I'm going to provide a few extract from Rangarajan's famous translation of Arthashastra.
First I'll discuss alcohol. Then prostitution.
LIQUOR INDUSTRY
The manufacture of alcoholic liquor was predominantly a state monopoly. Specific
exemptions were, however provided for: physicians making different kinds of
arishtas, i.e. alcohol-based medicines, types of liquor like fermented fruit juices not
made by the state, home-made alcohol-based medicines, ‘white’ liquor for own
consumption and a special exemption, during fairs and festivals, to make liquor for a
maximum of four days.
Liquor was manufactured by the state in a number of places near the points of
consumption. It is clearly stated that liquor shall be made in the city, the
countryside and the camps, in one place or as many places as required [2.25.1].
The following kinds of alcoholic drinks were made—medaka from rice,
prasanna from barley flour, asava from sugarcane juice, maireya from
jaggery, madhu from grape juice and arishtas for medicinal purposes
[2.25.16,21]. Many varieties of liquor were made. The basic types were: sara
and kinva. From kinva, another liquor made from fermented bean pulp, two
kinds of sura could be made. These were then flavoured with different spices
or fruit juices. A type of liquor was made without using kinva by fermenting
wood apple or bark, mixed with jaggery or honey. Grape wine was also
consumed. The complete list of all types, along with recipes for making,
clarifying and flavouring them is given in Appendix 10.
ALCOHOLIC BEVERAGES
The manufacture and sale of alcoholic drinks was a state monopoly, private
manufacturing being very limited and strictly controlled [2.25.36]. Alcoholic drinks
were widely sold in many places in the city, the countryside and the camps [2.25.1].
These were drunk mainly in drinking halls built for this purpose. The Arthashastra
prescribes:
‘These shall have many rooms, with beds and seats in separate places. The drinking
rooms shall be made pleasant in all seasons by providing them with perfumes,
flowers and water’ [2.25.11].
Only persons of good character could buy and take away small quantities of liquor;
others had to drink it on the premises. Moving about while drunk was prohibited
[2.25.5). The liquor seller employed beautiful female servants, who were used to
find out information about customers who might have been imposters [2.25.15].
Hindu capitalism
The duties and responsibilies of the Chief Controller of Alcoholic Beverages may be
seen in VII.vi. Details of the types of liquor made are given in Appendix 10.
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
[11.1.24] or for disabling the enemy’s troops during a siege [12.4.4).
CHIEF CONTROLLER OF ALCOHOLIC BEVERAGES RESPONSIBILITIES
State Manufacture:
(i) The Chief Controller shall make arrangements for the manufacture of alcoholic
beverages in the city, the countryside and the camps, with the help of experts in
brewing and fermenting. 12.25.11
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, grinding,
etc.]. [2.25.38]
Private Manufacture:
(ii) Physicians can make arishtas [medicines based on alcohol] for different illnesses.
[2.25.21]
Types of liquor, including fermented fruit juices, not made in the state units, can be
made by [private] manufacturers, on condition that they pay 5% of the quantity as
royalty. [2.25.39]
Householders shall be permitted to make white liquor for special occasions, arishtas
for medicinal purposes and other liquor [for similar needs].
Permission to make and sell liquor shall be given on special occasions such as
festivals, fairs and pilgrimages, for a period of four days [only]. Those who make
liquor without permission shall pay a daily fine, till the end of the festive period.
[2.25.35-37]
Trade:
(iii) The Chief Controller shall organize, through appropriate persons, the sale of
liquor (in the city, the countryside and the camps) in as many places as are
necessary. [2.25.1]
(iv) Drinking places: The Chief Controller shall be responsible for the construction of
drinking places. These shall have many rooms, with beds and seats in separate
places. The drinking rooms shall be made pleasant in all seasons by providing them
with perfumes, flowers and water. [2.25.11]
(v) Liquor sellers: Vintners shall sell liquor only for cash at the price fixed’ and shall
not sell for credit.
Spoilt liquor may be sold at a different price [i.e. less than the fixed price,] but only
at a different place [and not at the drinking house itself]. Alternatively, spoilt liquor
may be given to slaves and labourers, or used to feed draught animals and pigs.
[2.25.7-10]
Revenue:
(vi) At the end of each day the Chief Controller shall ascertain the quantity sold, the
transaction tax collected, the out-go on manasrava (sticking allowance), the cash
received and the countervailing tax collected; he shall strike the balance accordingly
[i.e. the net profit for remitting to the Treasury]. [2.25.40]
54
[Since the trade measure for liquids was 6.25% smaller than the revenue measure
(in which liquor manufactured or bought in from private manufacturers was
measured), for every litre of liquor sold 62.5 millilitres of liquor should have been in
stock. On the other hand, the customer was entitled to 1/50th or 2% for all liquids
sold by measure as sticking allowance; hence, the surplus stock would actually been
only 42.5 millilitres.
Thus, the stock verification of each kind of liquor was to be calculated according to
this formula:
Closing stock = Opening stock - quantity sold + transaction tax -sticking allowance.
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.
The net profit was:
Net profit = Sale realisation - cost of production of liquor manufactured by the
Crown - 95 % of the sale realisation on private liquor paid to private manufacturers -
wages and other expenses.
Since the retail outlets had to maintain daily accounts, the Chief Controller was
obliged to submit the accounts for a given month before the end of the following
month; if he failed to do so, he was fined 200 panas for each month’s delay
[2.7.26,27] in V.iii.]
Control over movements and stock:
(vii) Liquor shall only be drunk in the drinking house, and no one shall move about
while drunk.
Liquor shall not be stored [in large quantities] nor taken out of a village. The
dangers in allowing large stocks or unrestricted movement are that workers may
spoil the work allotted to them, the Arya may behave immodestly and assassins
may be encouraged to behave rashly.
However, persons known to be of good character may be allowed to take away
small quantities in certified containers of 1/2 kuduba, 1 kuduba, 1/2 prastha and 1
prastha. [2 .2 5.3-5].
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. If anyone
is found in a drinking place with an article or money that is not his, he shall be
arrested elsewhere [i.e. not in the drinking house itself].
A watch shall be kept over those who spend lavishly and those who spend without
having a known source of income.
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].
Secret agents shall also make a note of the ornaments, clothes or cash of customers
who are drunk or asleep. Any loss suffered by these customers shall be the
responsibility of the liquor seller who shall repay the loss and pay a fine.
Liquor sellers shall be responsible for finding out correct information about
strangers and natives who may pretend to be Aryas. Beautiful female servants shall
find out the information when the client is drunk or asleep in a secluded place.
Hindu capitalism
[2.25.6,12-15]
PUNISHMENTS
Making, selling or buying liquor other than in the authorized places: 600 panas
[2.25.2]
Loss suffered by customers: Vintner to pay compensation to client and fine equal to
loss [2.25.14]
Appendix 10
ALCOHOLIC BEVERAGES
LIQUORS MADE FROM KINVA
Kinva
1 part rice to 3 parts beans with added spices; for example:
1 drona of pulp of raw or cooked masha beans.
1/3 drona of rice.
l karsha of each of the six mixed spices.
Medaka
2 parts rice to 3 parts ferment and 16 parts water; 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; 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, lodha, tejuvati, cardamom, valuka, liquorice,
grape juice, priyangu, daruharidra (turmeric?), black pepper and long pepper.
Clarifying agent for Medaka and Prasanna
A decoction of liquorice and jaggery.
Varieties of Prasanna
Mahasura – White liquor and mango juice, replacing in part the spice mixture given
above. This is to be clarified with a handful of mixed spice, burnt jaggery and pulp
of herbs, like partha, etc. The liquor can he made sweeter by adding 5 palas of
jaggery. [2.25.17,18,26-28,31-34]
OTHER LIQUORS
Asava
(for 8 tulas of water)
1 tula wood apple
5 tulas treacle
56
1 prastha honey
This is for average quality; for superior quality add one quarter more of each of the
three ingredients and for lower quality less.
Spices to be added-1 karsha each of cinnamon, chitraka, vilanga, quarter of the
quantity of each of these is to be kept in the liquor (tied up in a piece of cloth).
[2.25.19,20,29,30]
Maireya
A decoction of the bark of the meshashringi with jaggery; spices to be added: long
pepper and black pepper or tripala (nutmeg, arecanut and cloves). [2.25.22,23]
Madhu
Grape wine—Kapishayana imported from Afghanistan.
Harahuraka—imported from Arachosia. [2.25.24,25]
4.4 Ensuring corruption free governance

Without a corruption-free system, the Mauryan empire – which was the largest in Indian
history and the largest (in relative terms) the world has ever seen, could never have arisen.
One can't build a MEGA EMPIRE if your ministers, officials, police, and army is corrupt. TOTAL
integrity is the minimum requirement. And high quality governance.
Lord Cornwallis merely rediscovered what Chankya had long ago said, when he raised
salaries of ICS officers. If you recall, East India company officials were SUPER CORRUPT –
more corrupt than even the most corrupt officials found in India today. Cornwallis's reforms
fixed that problem.
- Till, of course, Nehru came in and DESTROYED integrity in public life in India through his
socialist policies.
The difference in salary between highest and lowest in Chanakya's time was 800 times!
Not five times. Not 10 times. But 800 times.
 "the highest salary paid in cash, excluding perquisites, was 48,000 panas a year and the
lowest 60 panas a year. The ratio of the highest salary to the lowest, was eight hundred
to one."
 "The highest salary, 48,000 panas a year, (‘enough to prevent them from succumbing to
the temptations of the enemy or rising up in revolt’)" (Rangarajan's translation, p.179)
Of course, only the extremely deserving would get highest salary. I'll not go into details, here.
But Chanakya is not giving away money on idle grounds. You deserve it. You get it. It is not
charity or reward for the irrelevant fact that your grandfather was Jawaharlal Nehru.
I was speaking with one of the erstwhile members of Team Anna over the phone this
Monday. 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.25,000 per month. (That
rules me out ENTIRELY!!!!)
Arvind is deeply ignorant about BASICS of human nature. He is merely a godchild of Nehru:
one more man who is intent on destroying India through his "good" intentions.
To such mega-ignoramuses I suggest BFN.
Hindu capitalism
If BFN seems hard to read (for jealousy of one's peers is often a problem), then why not read
Chanakya?
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").
Once the right (positive) incentives have been established we need a sharp, vicious
deterrence. Lokpal is wishy washy. What we need at that point is a super-stringent
punishment system. I've outlined in BFN an example: Dismissal without recourse to natural
justice. Contractual appointments of all senior officials.
But I'm comfortable with even more stringent punishments at that stage. Death penalty
doesn't sound implausible to me.
"In the case of a miserly official, who hoards the King’s property and uses it for his own
benefit (by storing it in his own house, by depositing it with others or by trading with it with
foreigners), the facts shall be ascertained by a secret agent. The agent shall find out the
details of the receipt and despatch of the goods as well as who are the official’s advisers,
friends, dependents, kinsmen and supporters. In the case of trading with foreigners, the
agent shall penetrate the [establishments of] foreign buyers in order to ascertain concealed
information. When all facts have been ascertained, the errant official shall be [falsely]
accused [of being in the pay of the enemy] using, as a pretext, a [forged] letter; he shall then
be killed. {2.9.2027}
Chanakya's remedy is a bit extreme, but he's got the combination of incentives right. 800
times salary difference. Then DEATH. He would get his spies to investigate Bofors and other
scams. Once convinced, he would KILL. Without recourse.
Regardless of whether a death penalty should be imposed for corruption, it is clear that the
combination of positive incentives and stringent accountability can bring corruption to a
grinding halt. IN ONE DAY.
4.5 Limitations of the Hindu state: Paternalism (mai-baap sarkar)

Having said the above, there remains a significant flavour of paternalism in the Hindu
system. Hobbes would have appreciated it but not Locke.
Unlike the American declaration of independence, which demanded the right to pursue
one’s own happiness, the Hindu system allows the king to be directly concerned with our
happiness. One can potentially take issues with such an approach.
“Keeping the subjects happy on this earth itself is the code of righteousness (Santana-
Dharma) of a king.” (Mb.12.57.11)
“The king who nurtures his subjects on the best possible way is certainly knowledgeable in
righteousness. Why does such a king require penance? Why at all does he need to perform
sacrificial fires?” (Mb.12.69.73)
“A king must consider that his first duty is to his subjects. He should guard them as a mother
guards the child in her womb. 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. Even so,
a king should subordinate his desires and wishes to those of his subjects. Their welfare
should be his only concern.”
58
nstead of running about like headless chicken, Anna Hazare and Arvind Kejriwal would do
well to read Chanakya. In Chanakya they will find THE main solutions to the problems facing
India.
Hindu capitalism
5. Institutions: Science and innovation
Read: http://www.indianscience.org/index.html
5.1 Reason
5.2 Science and technology

Long before any culture anywhere in the world had visualised such things, Hindu scriptures
not just promoted wealth, but the INNOVATIVE use of wealth.
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.
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. But the fact that
such fiction was entertained indicates that there was no barrier to invention within the fold
of Hindu dharma. If nothing, science fiction was definitely valued!
Leaving aside mythological weapons, airplanes, etc. science made some very significant and
genuine advances under the umbrella of Hindu dharma. Not just the number system – which
underpins the entire modern civilisation – but there was substantial knowledge in India in
fields like astronomy, cosmology, atomic theory, medicine and metallurgy.
While the West suffered from delusions that the earth was at the centre of the universe, no
Indian suffered such folly. While the West suffered the delusion that the world was created
in seven days, India had rightly noted that the universe existed for billions of years. And so
on. While the West remained confused about the nature of matter, India had gone right into
its core – not just atomic, but into the theory of underlying energy. These were theories, and
not very well done either; but these indicated a culture that allowed innovative theories.
I do not wish to ‘prove’ that Hindu science was ‘right’. Far from it. It was not as curious as it
should have been. It took many things for granted, it didn’t ask probing questions. It didn’t
create universities that studied science carefully.
However, in principle, there was no barrier in Hindu dharma against scientific thinking and
innovation. Scientific thinkers were highly regarded, as well. Merit was valued. Hinduism was
not even remotely socialist in its design, structure, and operation.
Why this did not lead to direct innovation (on the scale of – the later – Chinese/Western
innovation) is a separate matter. That would perhaps form the last chapter of a book on
Hindu capitalism: what were its weaknesses, why did Hinduism decay, what weakened its
innovative spirit.
Some other blog posts that throw light on similar issues
 Another Hindu spiritual leader lambasts socialism
 If this is Hinduism then everyone should become Hindu
 Vivekananda on science and reason – and a ‘reason-based’ approach to the properties of God
60
6. Institutions: Financial system and banking
6.1 Free banking in India

There was an almost complete complement of capitalist institutions in India. 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. This paper puts forth a case of a
banking system in nineteenth century India that evolved and functioned without
any government regulation. The Chettiars, indigenous bankers from South
India comprised a banking system that provided banking and credit in many
countries in South-East Asia. This paper describes their banking system and
mechanisms of self- regulation such as interest rate setting, clearinghouses and
informal deposit insurance. In general, it finds that their banking system was stable
and functioned smoothly, thus adding to the literature in favor of free banking.
1. Introduction
Most economists agree that a government run central bank is essential to the
workings of a monetary economy. A minority view (Hayek 1976, Dowd 1994, Selgin
1988, White 1989) holds that free banking or banking without government
involvement would fare better than the government-regulated system. The
theoretical literature on free banking explains how these banks would handle the
problems of note-issue, lender of last resort and other regulatory mechanisms.
Complimentary to this literature is the study of various episodes of free banking or
near-free banking through history. These historical episodes come close to
resembling laboratory experiments and allow economists the chance to ‘test’ or
verify their theories against concrete data.
This paper contributes a new historical case of free banking to the literature. The
Chettiars were a nineteenth century banking caste from the South Indian state of
Tamil Nadu. They formed an entire banking system that spread along side the
expanding British Empire from South India to several countries in South-East Asia.
Although existing case studies within this literature have exhibited varying degrees
of government regulation (Dowd 1992), this case offers a look into a
completely ‘indigenous’ banking system, with no government involvement in its
inception or its functioning. This paper provides a description of their regulatory
mechanisms such as clearinghouses, interest rate setting, insurance mechanisms
and note-issue. In general, it finds that the banking system of the Chettiars was
stable and functioned smoothly, thereby adding to the existing historical cases in
favor of free banking.
One particular characteristic that stands out is the lack of competitive note- issue
in the Chettiar banking system. This can be attributed to their ‘notes’ or deposit
receipts never gaining in circulation as money substitutes. They did allow for the
Hindu capitalism
drawing of bills of exchange or ‘hundis’, but these always came back to be
redeemed quickly. Thus they relied mainly on the extension of credit and interest
rate differentials for their business. Their case, however, seems to strongly
support Dowd’s (1994) notion of voluntary ‘banker’s clubs’, clubs that would serve
key regulatory purposes but not regulate as extensively as central banks do. 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. Beyond these key club goods,
things such as branching decisions, 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.
Section 2 of the paper reviews the existing historical literature on free banking and
shows where this case study fits in. Section 3 provides the historical details of the
Chettiar banking system and their regulatory mechanisms. Section 4 highlights the
main implications and contributions to the literature. Section 5 provides
conclusions.
2. 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.
White (1984,1989), Selgin (1987,1988) and Dowd (1989,1991,1994) have stressed
the ability of competition among banks to regulate themselves, keep excessive
note-issue and risk taking in check, as well as provide information sharing
mechanisms. 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. As a corollary, these economists maintain that much government
regulation of the banking sector is most often the result of previous government
regulation, not a response to an inherent market failure.
This simple thesis, if true, should hold up to historical analysis wherever its
conditions are present. There have been several free banking case studies brought
to light where banks had more or less a great degree of self-regulatory power.
Prominent among them are free banking in Scotland, Canada, France, Australia and
the United States. Some others are free banking in China, Switzerland, Ireland and
Sweden (Dowd 1992). Within this historical literature, the main focus has been the
study of competitive note issue and co-operation among banks for clearing
purposes.
Structurally, the first feature common to all existing cases is the presence of some
amount of government regulation of banking, however small, with Scotland often
cited as the freest (Selgin 1992, Dowd 1992). The main features of the banking
system in Scotland were freedom of entry, no branching restrictions and the ability
to issue notes privately from 1695 to 1844. During this period, several banks
competed in the market, issued notes, voluntarily participated in a note-exchange
system and no major banking crises occurred.
Another feature common to the existing cases is involvement of government in the
setting up or creation of the banks, and then allowing them to regulate themselves
over time. This process took place in two patterns. The first was prominent in
Britain and its colonies where the government let banks regulate note issue
themselves from the beginning (Schuler 1992). The second was prominent in the
Americas where government note issue preceded private note issue (Schuler 1992).
The case study presented in this paper provides a look into an Indian banking
62
system with no government involvement either in its inception or its functioning.
Thus, it provides a look at a more pure case of totally free banking in a different
geographical area, offering the opportunity of rendering the literature more robust.
3. Chettiars and their banking system
This section lays out the historical details of the Chettiar banking system. It begins
by providing a general historical setting and description of the system, before going
over the particular regulatory mechanisms. It draws from a few primary and several
secondary sources. The primary sources are government reports of banking
enquiries undertaken in 1929. Specifically, the Madras Provincial Banking Enquiry
Committee Report, 1930 (MPBEC 1930 henceforth) and the Burma Banking Enquiry
Committee Report, 1930 (BBEC 1930 henceforth) are used. The main
secondary sources used are Rudner (1994), Weerasooria (1973), Krishnan
(1959), Tun Wai (1953), Jain (1929), Menon (1985) and Mahadevan (1978a &
1978b) for historical and anthropological details[1]
3.1 Institutional Setting and Market Structure
The Chettiars , native to the South Indian state of Tamil Nadu, started out as salt
traders and money lenders in the seventeenth century and evolved into a full-
fledged banking system by the nineteenth century (Rudner 1994). At its peak, their
banking system extended from South India to Burma, Malaya, Ceylon (now Sri
Lanka) and parts of China. It resulted from the exploitation of new business
opportunities created by the British conquest of these countries in the early
nineteenth century (Rudner 1994). It lasted till around 1930, leading to large-scale
withdrawal from foreign stations and disinvestment from banking and finance. This
decline was not due to inherent instability within the banking system. Rather it was
a combination of various external factors such as the Great Depression, increasingly
hostile business environments in foreign business stations as well as the opening up
of alternative investment opportunities in India (Rudner 1994:55, Menon 1985,
Mahadevan 1978b, Weerasooria 1973). This decline of the Chettiar banking system
is dealt with in more detail below. 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,
Weerasooria 1973, Mahadevan 1978a & 1978b, Rudner 1994, Baker 1984).
Known as ‘indigenous’ bankers, their growth and functioning took place outside of
the formal government-backed banking sphere. One encounters some inconsistency
and difficulty in the various definitions of ‘indigenous banker’. All writers, including
government reports, recognize their true intermediary nature of taking deposits
and making loans as opposed to moneylenders who only make loans. One way of
defining them is as bankers who are not organised along western banking practises
or joint-stock banking (BBEC 1930). This however does not get to the heart of the
matter. 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”. 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.
The formal banking sphere at that time consisted of the three government- backed
Presidency Banks meant to handle domestic credit requirements, the
‘Exchange Banks’ chartered to handle foreign exchange and tribute remittance to
England as well as some private joint-stock banks (Bagchi 2003:22, Chandavarkar
2008:775). Despite this formal sphere, the Chettiars and other indigenous bankers
Hindu capitalism
like them remained an important vehicle of banking and credit throughout the
country. Jain (1929) provides one explanation for this, in his study on indigenous
banking in India. He writes (Jain 1929:25):
Each system had a distinct and separate existence, because each had its own
particular function. 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, while the early European banks confined their activities almost entirely
to the three Presidency capitals, providing remittance and deposit facilities, chiefly
made use of by Europeans, and financing the external trade.
Indigenous bankers had been providing banking and monetary services much
longer, several centuries in some cases and this contributed to their continued
relevance in the credit market as well (Jain 1929, Krishnan 1959). The Chettiars,
too, 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). They competed withother banking castes such as the Multani and Marwari
bankers, local Burmese and Chinese moneylenders and with each other within this
loan market (Tun Wai 1953, Krishnan 1959, BBEC 1930). For attracting deposits,
they even competed with government banks in addition to any other bankers
offering deposit services (MPBEC 1930, BBEC 1930)
As mentioned earlier, there existed no systematic regulation of their banking
through the time that they were at their peak. The Indian government set up a
national committee to study the nature of banking in the country in 1929, with a
view to regulate it. The report of the Madras Provincial Banking Enquiry
Committee (MPBEC 1930) is relevant here.
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, if any, are
feasible and desirable under the following headings:-
a) The regulation of banking with a view to protecting the interests of the public;
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, commerce and
industry.
…The indigenous bankers in this Presidency must include the banking
communities of Marwaris, Multanis, Nattukottai Chettiyars and Kallidaikuruchi
Brahmans. 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. They deal in hundis3 to a very large extent and
finance a great deal of the internal movement of goods. (MPBEC 1930:2,emphasis
mine)
Though they were sporadically impacted by legislation pertaining to business
practises in general (Weerasooria 1973, Krishnan 1959), the government did not
exercise any significant regulatory control until after 1930.
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. With this rise, several ‘indigenous’ or informal
business elite got increasingly involved in political movements and faced the choice
64
of entering the more legitimate formal business sphere or remaining informal (Roy
2010). This was true of the Chettiars as well; several elite members withdrew from
the informal banking sphere to set up joint-stock banks in the formal sphere.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, Rudner 1994).
However, as is explained below, the Chettiar business in its heyday was not very vast
in India. It was most extensive in Burma followed by Malaya, Sri Lanka and China.
Within these countries, it is the Great Depression of 1930 and the sudden fall in
prices that dealt the first blow to Chettiar business. Mainly involved in financing
agriculture as they were, a sharp fall in agricultural prices led to many debtors
defaulting on their loans, which either led several smaller Chettiar banks to go
bankrupt or to acquire the land pledged as collateral for the loan. For example, in
Burma, total Chettiar land holdings went from 570,000 acres in 1929 representing 6
% of total cultivated area in the major rice growing districts to 2,393,000 acres by
1936 or 25 % of total cultivated rice growing area (Mahadevan 1978b). Again, rising
nationalist movements and hostile business environments within those countries
led to massive Chettiar withdrawals back to India, often having had to relinquish
ownership of the land they had acquired due to the Depression (Mahadevan 1978a
& 1978b, Menon 1985, Rudner 1994). Back in India to a changing socio-political and
business environment, many Chettiars were forced either into poverty or
reinvestment of resources into other avenues (Rudner 1994). Thus, the Chettiar
banking system that had flourished through the nineteenth century changed form
dramatically and declined definitively post 1930.
Officially, India was on a monometallic silver standard from 1835 to 1893, after
which it shifted to a gold exchange standard from 1893 until 1916 with a period of
transition in between (Chandavarkar 2008). The government monopolised the issue
of bank notes after the passage of the Paper Currency Act of 1861, prior to which
the three Presidency banks had the right to issue notes (Chandavarkar 2008: 777).
3.2 System of Banking
The Chettiars represented an entire banking system, one formed by hundreds of
interdependent family firms or banks. Each extended family would accept deposits,
issue bills of exchange and grant loans, rendering it a separate bank. The main
proprietor would live in his homeland village in South India, while hired agents from
within the caste or extended family would carry out day-to-day operations of the
business in India or abroad. 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, after which his contract could be
renewed or would lapse (Rudner 1994:118). Proprietors, on the other hand kept
abreast of the latest business news and information from each other while in the
homeland. Rudner (1994:90) describes the banking system:
Nakarattars built their commercial empire out of a complex network of
interdependent family business firms. Each firm was involved in commodities
trading, money lending, domestic and overseas banking operations, or industrial
investment. 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,
every Nakarattar firm was tied together with all of the others to form a unified
banking system.
Hindu capitalism
Estimates of their working capital in 1930 range from 795 million rupees to 1200
million rupees, which translates to 3.71 billion and 5.6 billion in 2008 dollars
respectively. While Rudner (1994:70) attributes these discrepancies to the biased
nature of government reports, even the smallest estimate points to a sizable
business. There were 243 firms or bankers doing business locally in South India in
1930 (Rudner 1994:72), while 1650 firms were operating in Burma in 1929
(Mahadevan 1978b). There were 700 firms operating in Ceylon in 1916 (Rudner
1994: 76). This picture is confirmed by a regional break-up of working capital
provided below, which shows that Chettiar business was least prominent in India
and most prominent in Burma.
As a banking system, the Chettiars were an important source of credit to one
another (Mahadevan 1978a & 1978b, Rudner 1994, Weerasooria 1973). Rudner
(1994:103) estimates that for any bank, deposits from fellow Chettiars (bankers and
non-banking caste members) comprised between 60 to 80 per cent of all deposits,
while proprietors’ own capital invested in the business generally constituted 10 to
20 per cent. Non-Chettiar deposits would make up the difference. This is a crucial
feature that is not apparent based on the aggregated values present in the table
below. However, one finds support for it in all works describing Chettiar banking in
addition to Rudner’s (1994) estimations, which are based on his study of their
account books and oral evidence.
The Chettiars offered checking or demand deposits as well as time deposits to
their customers and caste members. As noted above, deposits from non- caste
members made up a small percentage of total deposits. Depositors would
receive either a deposit receipt or a passbook containing the particulars of the
transaction when the deposit was made, depending on which one they preferred.
All deposits, including the checkable ones, paid interest9(BBEC 1930, 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.
The interest rates paid on the two were also different. Interest paid on Chettiar time
deposits was lower than non-Chettiar time deposits, allowing them cheaper access
to stable capital from within the caste (Rudner 1994: 91). Deposits were the basis
for the drawing of bills of exchange or ‘hundis’. Clients had to maintain a deposit
account with the banker, in order to be able to draw a hundi. Hundis worked much
in the way checks do, serving the purpose of transferring funds across place and
time without moving physical money. Checkable deposits, in turn, could be drawn
on by ‘at sight’ or ‘darshan’ hundis, resembling demand drafts. Time deposits could
only be drawn on by interest-bearing hundis with fixed maturity dates, resembling
present day certificates of deposit. Deposit interest rates were set communally and
this feature is dealt with below.
Loans of various kinds, on the other hand were granted against promissory notes
and other kinds of collateral such as land or jewellery. The interest rate varied
depending on the banker’s knowledge of the borrower and quality of
collateral offered. Loans issued only on promissory note charged higher interest
than loans issued on promissory note and collateral. Chettiars competed with each
other and other bankers in the loan market. Thus, there was no one standardized
loan rate that was used by all Chettiars. It depended on local knowledge, trust,
bank’s location and strength of collateral offered. 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). This is attributable
to the limited extent to which the Chettiars’ notes were able to circulate as money.
66
In other words, 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. On repayment of principal and interest, the borrower would
receive the promissory note with a stamp of repayment by the banker.
3.3. Mechanisms of Regulation
This section provides a description of the self-regulation mechanisms used by the
Chettiars. The three main mechanisms of interest rate setting, parent bankers and
informal deposit insurance are described.
3.3.1. Parent Bankers as Clearinghouses
The natural elite among the Chettiars played an important role in the banking
business, that of clearinghouses for the smaller firms. The main differentiating
factor between parent or ‘adathi’ bankers and non ‘adathi’ bankers was the size and
scope of their business. ‘Adathi’ bankers owned an extensive network of banking
branches, and comprised 5 to 10 per cent of the caste population (Rudner 1994:
123). This widespread network of banking branches allowed smaller Chettiar firms
to transmit funds over wider distances. 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. It allowed for
the efficient clearing of debits and credits among dispersed Chettiar bankers. Adathi
bankers also had a larger say in the monthly setting of interest rates (Rudner
1994:124), and this helped regulate as well as standardize interest rate levels across
business stations. 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).
Further, British banks would lend to some adathis from a pre-approved list, who in
turn would further lend out the funds at a higher rate to fellows and thereby earn
an interest rate differential. This higher status within the banking system was not
granted on the basis of a one-time agreement among members. It was the result of
greater respect and trust given to those bankers who had done very well in
business, and thus represents an organically evolved institution resulting from
repeated interaction among caste members.
3.3.2. Communal setting of interest rates
Interest rates were set communally in common houses or temples, on a fixed day of
every month, in every Chettiar business station. 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. This rate was paid to other Chettiars
for their checking deposits. Time deposits between Chettiars paid the
‘nadappu’ rate at compound interest, while time deposits from non-Chettiars
added a mark-up to the ‘nadappu’ rate. This practice meant that the Chettiars could
borrow from one another at a cheaper rate than borrowing from non-Chettiars. A
second point is that although they did not compete with each other in the setting of
the ‘nadappu’ rate, 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.
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.
‘[The nadappu rate] is fixed in the evening of the 16th of every Tamil month at a
Hindu capitalism
meeting held at 9 p.m. in the Nakarattar temple at Rangoon, and it holds good for
all the current Nakarattar month including the sixteen days already passed…. The
meeting discusses the general financial situation, and fixes the current [nadappu ]
rate for the current month with this, taking into account the current pitch and
tendency of the thavanai rate, the rates current amongst the Marwaris, Multanis,
and Gujeratis [other Indian banking castes] and the rates for advances by the joint-
stock banks to Nakarattars. As every firm has both income and expenses
determined largely by this rate, 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.
3.3.3. Caste ties as Deposit Insurance
The communal setting of deposit rates was closely tied to a sort of informal deposit
insurance. If a trusted Chettiar was in sudden need of liquidity, 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). As a result, 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). Rudner (1994: 125) describes this activity:
As clearinghouses for information about each other and about business
opportunities generally, these collective events effected investment decisions,
including decisions about the optimum allocation of investment funds and the
amount of credit to extend to a fellow Nakarattar. In other words, vitutis11provided
Nakarattars with access to information about each other's business. They provided
opportunities to scout out investment opportunities and arrange for loans by fellow
Nakarattars looking for investments. At the same time, the information they
provided served as checks against incautious business behaviour and unreasonable
requests for credit. (Emphasis mine)
Thus, although the Chettiars did not have a formal lender of last resort, they did
have an informal insurance mechanism that any Chettiar could call on in time of
trouble. This informal insurance, however, was rooted in cautious judging of the
particular situation at hand by the lender since it was his own money and capital at
risk. This helped hedge against excessive risk-taking since the costs of doing so
would have to be borne by the lenders themselves. As a community, then, the
Chettiars were incentivized to reduce asymmetric information by providing for the
smooth exchange of information. 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).
There is one recorded instance of a ‘crisis’ leading to the closing down of some
Chettiar firms in Ceylon (Weerasooria 1973). This took place in 1925 when a
prominent Chettiar bank collapsed leading others to follow suit. 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 result was what came to be known as the “Chetty Crisis” of
1925. A number of Nattukottai Chettiar firms had to suspend business operations.
Others had to close down permanently.
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Rudner (1994:78) writes of the first firm’s bankruptcy, “the High Court of Madras
estimated the firm's Indian assets at Rs. 800 thousand and Indian liabilities at Rs.
3.7 million; its Ceylon assets at Rs. 150 thousand and its Ceylon liabilities at Rs. 1.7
million”. 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, Rudner 1994:78). 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, 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, were able to use loans from banks,
sometimes from the same bank, to meet the maturing bank loans. To theextent this
happened, it was the banks' own money which enabled the Chettiars to keep their
loan contracts with the banks with striking promptness.
However, this crisis did not lead to the downfall of the entire banking system, let
alone within Ceylon. Though the exact number of firms that went bankrupt is
unknown, there were still 556 Chettiar firms operating in Ceylon as of 1934
(Weerasooria 1973:22), down from 700 reported in 1916 (Rudner 1994:76)12 . This
is an indication that inter-firm lending or informal deposit insurance itself was not
the problem, it was the particular risky practises of a few firms at a particular time.
The implication is that Chettiar banking system was stable in the majority of cases,
with informal deposit insurance adding to that stability.
The next section goes over some implications or contributions that the historical
case of the Chettiar banking system makes to the literature.
4. Implications
Dowd (1994) provides the concept of a ‘banker’s club’, a voluntary association
among member banks that would regulate and provide clearinghouse services. He
sharply differentiates between this concept and the services of a government
central bank in an economy. In a free market, banks would have the incentives to
voluntarily come together and form a club that would then regulate certain key
aspects of banking. Dowd (1994) lists three possible benefits to such an
association: the benefits of reducing monitoring and transactions costs, benefits of
help against bank contagion and the benefits of external reserves. The club would
most likely be in the form of a clearinghouse, where member banks would pay a fee
and partake of the services and regulatory structure. Regulation would only pertain
to key 1994). A central bank, in contrast, is not a voluntary institution but an
imposed one and has historically regulated banks in a more extensive way, 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. Their contention is that the extensive amount of
regulation of banks by ways of capital requirements, reserve requirements,
accounting standards, exposure restrictions would all exist even in the case of
voluntary clearinghouse clubs.
The Chettiar banking system seems to provide strong support for this notion of a
banker’s club. Their self-regulatory systems provided for clearinghouses, interest
Hindu capitalism
rate setting and informal deposit insurance. Beyond that, other banking decisions
related to matters such as account keeping, risk-taking or adequate reserves were
left to the judgement of the owners themselves. 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.
Economists interested in free banking have extensively studied the problem of
note-issue or money supply under competition. The Chettiar banking system
provides little to no evidence of note-issue being prominent. Deposit receipts
issued in return for deposits made never circulated and thus never became money
substitutes. While their bills of exchange were widely used for financing trade and
transferring money across places, there is no evidence of them circulating beyond
the realm of traders, merchants and bankers who were familiar with them. There is
some scant evidence of hundis issued by parent bankers being held by some
Chettiars, uncashed as substitutes for liquidity, hence performing a monetary
function (Rudner 1994). However, the focus of banking in the Chettiars’ case was
the provision of credit, not note-issue.
5. Conclusion
This paper presents the case of a self-regulated banking system operating in
nineteenth century India. It was shown that ‘indigenous’ banking in the Indian
context is also banking free from any government regulation. 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. Thus,
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), where
government was involved in some way or the other.
Their regulatory mechanisms of interest rate setting, clearinghouses, information
sharing and informal deposit insurance resemble closely the services of a ‘banker’s
club’. These crucial services allowed for the smooth functioning of the banking
system and added to its stability. It was also pointed out that the Chettiar banking
system does not give evidence of competitive note-issue, the primary reason being
that their ‘notes’ never gained the status of money substitutes. Thus, one is not
able to offer new evidence for stability under note-issue. 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.
Preliminary investigation of the primary sources suggests that they did and also
suggests a completely voluntary setting. How the keeping of fractional reserves
interacted with the inability to create new money (substitutes) is also an interesting
question, all subject matter for further research.
6.2 Microfinance in Hindu India

I've found a relatively recent paper that outlines the nature of microfinance and banking in
ancient India.
Seibel, Hans Dieter (2005) : Does History Matter? The Old and the New World of
Microfinance in Europe and Asia, Working paper / University of Cologne,
Development Research Center, No. 2005,10, http://hdl.handle.net/10419/23654
[Download PDF here].
70
EXTRACT
Microfinance in India
3.1 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. There are at least three strands of indigenous finance of great
historical depth in India: moneylenders, chit funds or rotating savings and credit
associations (ROSCAs), and merchant bankers – each with a complex and interlinked
history, much of it yet to be written. 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. This is all the more important as
India, over a period of three thousand years, has spread its culture, trade and
banking through 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.
Moneylenders who provide loans from their own resources as their only financial
service are the oldest of these professions, dating back to prehistoric times. There
was probably a long period of transition from gift-exchange, reciprocal lending and
trading-cum-lending to specialized lending, and from lending-in-kind to lending-in-
money before the first millennium B.C. Moneylending became an organized and
subsequently regulated profession in India around 1700-2200 years ago as shown
below. Information on rural moneylending in medieval and British India will be
given below. Moneylending is still widespread today, and remnants of its historical
informal precedents are still in existence, re-emerging time and again according to
demand. Many (informal and formal) moneylenders may have turned into (formal)
merchant bankers at various times in history, or into organizers of (informal or
formal) chit funds; this is a subject on which I have no information.
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]; but I have not been able to determine the time of
origin. A number of people, usually under an organizer, join together to regularly
(eg, daily, weekly, monthly) contribute equal amounts of money (or kind) allocated
to one member at a time; a cycle ends when each participant had his turn. It
appears that historically they were relatively small and unregulated. There are two
types: the conventional type, found all over the world, in which the full amount
contributed (apart from minor deductions) is allocated to one member at a time,
either by lot, demonstrated need or in an agreed-upon sequence; and an advanced
type found in a number of Asian countries including China, Vietnam and Nepal
where the amount collected is allocated by auction to the lowest bidder and the
balance returned to the members, or by tender. In response to increasing business
opportunities, the bidding type has been gradually replacing the conventional type,
but I do not know over which period of time. As chit funds grew in size and volume
and the risk of fraudulent pyramid schemes increased, there has been a tendency
of regulating the chits. Starting with the Travancore Chit Act of 1945 followed by
other state-level laws, they were increasingly included in the formal financial sector.
Chit funds attained such importance that in 1982, after ten years of deliberations, a
federal Chit Funds Act was passed, providing legal status to chits as non-banking
financial intermediaries. The act regulates minimum capital, ceilings on aggregate
Hindu capitalism
chit amounts, procedures of dispute settlement, etc. This has greatly contributed to
the growth of licensed chit funds, which are found all over India in large numbers.
Merchant banking – ie, financial intermediation comprising lending, deposit taking
and other financial services – evolved in India during the first millennium B.C. and
was widespread in India and beyond as early as the third century B.C. Merchant
guilds, which dealt in goods and money, appeared already in the Vedic scripts, the
oldest parts of which date back beyond the first millennium B.C. Between 200 B.C.
and 300 A.D. a differentiation took place between the guild of moneylenders and
the guild of traders, followed by the emergence of a guild of merchant bankers. The
guilds eventually turned into strictly hereditary castes, and banking became a sub-
caste of the traders’ caste (vaisya).[Financial services provided by the merchant
bankers included lending, deposit-taking, discounting bills and promissory notes,
providing guarantees, issuing drafts, letters of credit and circular notes, hundi
(written drafts), money-changing and safekeeping of valuables. Some top bankers
also provided state financial functions: treasury, minting, revenue collection, and
the financing of wars.]
Regulation evolved during the first two centuries A.D. when a law code,
dharmashastras, was written regulating loan deeds, law courts and debt procedures
in detail. Moneylending and banking became licensed and tax-paying professions.[It
appears that moneylending and banking were not monopolized by the respective
castes, as Hindu temples and Buddhist monasteries were frequently involved in
financial services as a means of self-financing.] Usury initially was a major issue of
religious disputation. This was eventually resolved by agreements over
“reasonable” interest rates, eg, 15% p.a. on secured loans and higher rates on
unsecured loans. The latter ranged from 2% p.m. on loans to a priest (Brahman) to
5% p.m. to a cultivator (shudra), supposedly reflecting different assessments of risk
by caste [These figures are based on the Manu, one of the ancient texts of the time.
The older Kautalya reports interest rates of 5% p.m. on ordinary monetary loans
irrespective of caste and rates of 10% and 20% p.m. on loans to high-risk borrowers
such as sea-faring merchants and forest explorers, respectively. The regulation thus
led to a substantial lowering of interest rates.] Interest payments could also be
made in kind, but at a substantially higher rate. Unrecovered loans were written off
after 10 years. In addition there was social banking, ie, interest-free loans to the
deserving and the poor. (Bhargava 1934; Schrader 1997:71-83)
Medieval India, the period from the mid-thirteenth century to the beginning of
British rule during the eighteenth century, with its highly monetized economy was
the heyday of indigenous banking. With domestic and international long-distance
trade, merchant banking grew enormously, held by individual firms, joint family
firms and partnership firms – all within the same baniya caste, but differentiated
into numerous sub-castes. Their customers included European private merchants
and trading companies. 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. Some secured commercial interest
rates during the 17thcentury were reported between 0.5 and 1.25% p.m.; risky
commercial credit fetched a flat rate of 40-60% per trade venture. 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.
Rural finance, mostly in the form of abusive moneylending, spread under the Delhi
sultanate with the introduction of a system of land revenue, housing tax and cattle
tax to be paid in cash. Land was abundant; but the payment of taxes in cash was
72
difficult, forcing the peasants to produce for the market. This resulted in the overall
commercialization and monetization of the rural economy and the expansion of
trade. At the same time it created a new market for the financial professions: rural
moneylenders advanced land revenue payments to the peasantry; merchant
bankers financed trade. Indigenous banking in Mughal India, ie, during the period
from the sixteenth to the eighteenth century, is described in detail by Schrader
1997.
The urban population paid a mere 5% of their income in taxes, while land
assessments in rural areas varied from one third to one half of the produce.
Assessments of actual production were soon replaced by average pre-assessments,
which caused severe hardship during bad years. This created a large class of rent-
seekers, comprising tax collectors, moneylenders and a ruling class of landlords and
officials without a salary but with rights to collect revenues; they kept about one
quarter and transferred between one quarter and one third of the revenue to the
government. Moneylending became part of everyday life in Indian villages. As rural
indebtedness and the loss of land to moneylenders surged, microfinance turned
into usurious moneylending of the worst kind. Peasants became serfs; they could
not be displaced as long as the revenue was paid, but, if not, were punished by
expropriation, bonded labor, enslavement and even death for what was considered
an act of rebellion against the government. This led to a land revolution-in-reverse:
dispossessing the peasants and converting their rights of occupancy into rights of
tax collection (zamindari): inheritable, alienable and mortgageable.
In British India microfinance and banking changed substantially, starting in 1757
(Battle of Plassey). 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. Interventionist policies such as the preferential
importation of cloth from England dealt a death-blow to Indian textile
manufacturing and the ancient commercial structure. However, this was followed
by a rise in domestic trade and a shift to Bombay as the main centre of indigenous
industry and banking. European finance limited itself largely to European
enterprise. In rural areas, new legislation on land revenue collection, private
property and land mortgaging and the transformation of subsistence agriculture
into cash- crop production created new opportunities for moneylender, who could
now enforce their claims in court. During the first half of the 20thcentury, rural
indebtedness first increased, then was reigned in by moneylender, usury and
tenancy legislation, but finally led to the rise of new types of lenders with an
interest in acquiring the land of their borrowers. Cooperatives, introduced top-
down, At the same time, the bankers’ castes rose to new heights. In the sphere of
big business they adopted Western banking by pooling their capital, establishing
joint-stock companies or buying shares of banks; in the small and medium business
sphere indigenous-style banking continued.
6.3 How loans were recovered

Here's more on ancient Indian banking institutions: Future of Rural Banking by Y. V. Reddy
[PDF]
EXTRACT
We have a long tradition of banking. Evidence regarding the existence of
Hindu capitalism
money-lending operations in India is found in the literature of the Vedic
times, i.e., 2000 to 1400 B.C. The literature of the Buddhist period, e.g., the
Jatakas, and recent archaeological discoveries supply evidence of the
existence of sresthis, or bankers. From the laws of Manu, it appears that
money-lending and allied problems had assumed considerable importance in
ancient India.
What were the interest rates? The role of interest rates was recognised in ancient
India. Interest rates were prescribed by almost all Hindu law-givers Manu, Vasistha,
Yajnavalkya, Gautama and Baudhayana as also Kautilya. A common base number
was 15 per cent per annum – what the banker-economist Dr. Thingalaya calls Hindu
rate of interest. [Sanjeev: for such a rate to be paid, there had to be commensurate
rewards in the market.] Incidentally, this is higher than current Prime Lending Rate
(PLR) of many banks!
It was not as though everyone used to get loans at PLR. Only prime borrowers got
at PLR, though the basis was different then. According to Manu and Vasistha, the
interest rates were not to vary depending on the risk involved or the purpose for
which the money was borrowed. But, they were directly linked to the caste
classification of the borrowers. Brahmin was to be charged2 per cent, Kshatriya 3
per cent, Vaishya 4 per cent and Shudra 5 per cent per month. However, Chanakya's
interest rate structure was risk-weighted since the rate of interest increased with
the risk involved in the borrowers' business. The interest rate worked out to be 15
per cent per annum for general advances. The traders were charged a rate of 60 per
cent per annum. Where the merchandise had to pass through forests, 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.
Again, it was not everyone who could take up banking business. Only men
belonging to the Vaishya caste could take up the money-lending profession.
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. When a creditor sued the debtor for recovery of money, it was the duty of
the king to ensure that the creditor got back his money. Manu permitted the king
to employ all means, fair or foul, to recover the dues, for example, torturous
punishment like killing the debtor's wife, children and cattle or obstructing his
movements. Manu held the view that a defaulter could not absolve himself of his
debt burden even by death. Chanakya said that sons should pay with interest the
debt of a deceased person or co-debtors or sureties. Was a spouse, i.e., husband or
wife responsible to pay for the debts incurred? Yes, and no. Wife was exempted
from debt burden of her husband if she had not given her assent to his
borrowings. However, for the debt incurred by a wife, her husband was liablefor
repayment.
6.4 Absence of usury prohibitions in Hinduism

I think I'll call it a day now, as far as preliminary research on Hindu capitalism is concerned.
I've requested two books from the library, and will perhaps revert in the coming week/s or
74
months to this topic. Until then, this last bit on usury (below). It is this piece that me the
reference to Jain's book/s.
Basically, as you'd expect, Hindu capitalism didn't have much to say against 'usury'. This was
a key driver of prosperity in India, and gave its merchants and bankers enormous clout. The
massive temples (all endowed privately) across India are testimony to the absence of
restrictions on trade and free banking.
Yes, there were excesses – when high rates were charged in villages from the poor. But there
was nothing in principle, in Hindu captalism, that prevented economies of scale. It is
increasingly clear that had it not been for deliberate suppression, first by the British, then by
Nehru and his Godchildren, India would have been a super-wealthy nation by now.
Yes, the Indian state (or rather, kingdoms) needed to impose a few more protections,
perhaps, but Hindu capitalism was largely self-sufficient. It could have been easily
converted into a GREAT FREE MARKET SYSTEM. Anyway, that's my hypothesis.
EXTRACTS
A Short Review of the Historical Critique of Usury (Riba)
BY Wayne A.M. Visser and Alastair McIntosh
Centre for Human Ecology
First published in Accounting, Business & Financial History, 8:2, Routledge, London,
July 1998, pp. 175-189
INTRODUCTION
The concept of “usury” has a long historical life, 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, although in some instances and more especially in
more recent times, it has been interpreted as interest above the legal or socially
acceptable rate[i]. Accepting this broad definition for the moment, the practice of
usury can be traced back approximately four thousand years (Jain, 1929), and
during its subsequent history it has been repeatedly condemned, prohibited,
scorned and restricted, mainly on moral, ethical, religious and legal grounds.
Among its most visible and vocal critics have been the religious institutions of
Hinduism, Buddhism, Judaism, Islam and Christianity. To this list may be added
ancient Western philosophers and politicians, as well as various modern socio-
economic reformers. It is the objective of this paper to outline briefly the history of
this critique of usury, to examine reasons for its repeated denouncement and,
finally, to intuitively assess the relevance of these arguments to today’s
predominantly interest-based global economy. The scope will not extend to a full
exploration of some of the proposed modern alternatives to usury, except to
describe the growing practice of Islamic banking as an example.
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. The earliest such record derives from the Vedic texts of Ancient
India (2,000-1,400 BC) in which the “usurer” (kusidin) is mentioned several times and
interpreted as any lender at interest. More frequent and detailed references to interest
payment are to be found in the later Sutra texts (700-100 BC), as well as the Buddhist Jatakas
(600-400 BC). It is during this latter period that the first sentiments of contempt for usury are
exressed. For example, Vasishtha, a well known Hindu law-maker of that time, 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
Hindu capitalism
form of occupational regulation, a labour market restriction. This must be deplored, but this
didn't really regulate interest rates, it would appear.] Also, in the Jatakas, usury is referred to
in a demeaning manner: “hypocritical ascetics are accused of practising it”.
By the second century AD, however, usury had become a more relative term, as is implied in
the Laws of Manu of that time: “Stipulated interest beyond the legal rate being against (the
law), cannot be recovered: they call that a usurious way (of lending)” (Jain, 1929: 3-10). This
dilution of the concept of usury seems to have continued through the remaining course of
Indian history so that today, while it is still condemned in principle, usury refers only to
interest charged above the prevailing socially accepted range and is no longer prohibited or
controlled in any significant way.
6.5 How British joint stock system and barriers displaced Hindu bankers
 Hindu Capitalism #10. Dadabhai Naoroji’s notes on the displacement of Indian capitalism
 Some more notes on Hindu capitalism (appx. 1000 years ago) [#2]
The usual late night browsing has led me to another interesting source: Muslim Civilization in
India by S. M. Ikram, New York: Columbia University Press, 1964. This book is available freely
online.
During the Delhi Sultanate, this is what happened:
==EXTRACT==
All these factors make the sultanate a period of tensions and conflicts. It would,
however, be wrong to think that the Hindus were completely excluded from service.
The land system was not altered. Trade and commerce also remained in Hindu
control, for to the Muslim invader from Central Asia, the complex Hindu banking
system would be unfamiliar and unworkable.
The Hindu merchant might be heavily assessed, or, during a war have his movable
goods confiscated, but he was too much a part of the intricate commercial
structure to be easily replaced.
The money-lender thrived under the new, as under the old, dispensation. We
hear, for example, about the large incomes of the Muslim grandees and the
splendor of their households, but Barani leaves us in no doubt that most, if not all,
borrowed from the Hindu money lenders. ‘The maliks and the khans and the
nobles of those days were constantly in debt, owing to their excessive generosity,
expenditures, and beneficence. Except in their public halls no gold or silver could be
found, and they had no savings on account of their excessive liberality. 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, who borrowed money
from them to the maximum limit, and repaid their debts along with additional gifts
from their [lands]. Whenever a malik or a khan held a banquet and invited notables,
his agents would rush to the Multanis and shahs, sign documents, and borrow
money with interest.’/1/ That the money lenders recovered their money along
with interest (forbidden under Islamic law), is an indication of how vital they were
to the system. Even the powerful Ala-ud-din Khalji who, seeing the danger to his
government from the power of the Hindu rural chiefs, made a determined attempt
76
to curb their power and reduce their wealth, found it necessary to make Hindu
traders the main instrument of his price control measures./2/
Industry and Trade
Hindus occupied an important role in foreign, as in domestic, trade, although
foreign Muslim merchants, known as khurasani, also had a large share of it. The
rulers of the coastal kingdoms in the Deccan accorded to foreign merchants certain
extra-territorial rights and special concessions, in consideration of the heavy taxes
which they paid to the treasury. An organized class of brokers handled the
business on the coast and inside the country.
The imports consisted mainly of certain luxury items for the upper classes, and a
general supply of all kinds of horses and mules, in which India was deficient. Hindus
had never attached any importance to cavalry, but seeing the success of the Muslim
horsemen, they started to substitute horses for elephants. The exports included
large quantities of food-grains and cloth. Among the agricultural products were
wheat, millet, rice, pulses, oilseeds, scents, medicinal herbs, and sugar.
Some of the countries around the Persian Gulf depended on the subcontinent for
their entire food supply. Cotton cloth and other textiles were especially important
items of export, particularly to Southeast Asia and East Africa, although some
reached Europe. They were carried by the Arabs to the Red Sea and from there
found their way to Damascus and Alexandria, from where they were distributed to
the Mediterranean countries and beyond.
Many industries of considerable size and importance developed during this period,
the most important of which were textiles, various items of metal work, sugar,
indigo, and in certain localities, paper. The Indian textile industry is very old, but the
variety of cloth produced was originally limited. Taking advantage of the local
talent, the Muslims introduced a number of fine varieties of textiles, most of which
had Persian or Arabic origin. Bengal was the main center of this industry, but
Gujarat rivaled it as a supplier of the export trade during the sultanate period.
Next in importance were a number of industries connected with metal work: the
manufacture of swords, guns, and knives, as well as household needs such as trays
and basins. Manufacture of sugar was also carried on on a fairly large scale, and in
Bengal enough was produced to leave a surplus for export after meeting the local
demand. Paper-making was a minor industry, of which little is known except that
Delhi was the center of a considerable market.
These industries were mainly privately owned, but the government equipped and
managed large-scale karkhanas, or factories, for supplying its requirements. The
royal factories at Delhi sometimes employed as many as four thousand weavers for
silk alone. The example of the sultan of Delhi was followed by the rulers of the
regional kingdoms, and the contribution of the state to the development of the
industry was not a minor one.
In certain aspects of social life, the Hindus had virtual autonomy during the
sultanate. This was in accordance with the established axiom of Islamic law that
while Muslims are governed by the Shariat, non-Muslim zimmis are subject to their
own laws and social organization, but it was also a product of the Indian situation.
Hindu capitalism
The Muslim rulers from the days of the Arab occupation of Sind accepted the right
of the village and caste panchayats to settle the affairs of their community. This
meant that the Hindu villages remained small autonomous republics, as they had
been since ancient times, and in commerce and industry the Hindu guilds were
supreme. This position continued throughout the Muslim rule, but during the
sultanate, when the provincial administration had not been properly organized,
Hindu autonomy outside the principal towns was particularly effective.
 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. 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; I was fortunate to be taught by
him).
Below are key extracts from this article, by Karen Isaksen Leonard, entitled: Family Firms in
Hyderabad: Gujarati, Goswami, and Marwari Patterns of Adoption, Marriage, and Inheritance,
(2011). I’ve significantly truncated the article which focuses on institutional analysis of the
impacts of inheritance.
Ritu Birla’s work. Birla is a professor at the University of Toronto, and has written Stages of
Capital: Law, Culture, and Market Governance in Late Colonial India (Durham, North Carolina:
Duke University Press, 2009. I’ve now got to find out more about her thesis.
Scholars are looking again at banking and mercantile families in India’s early modern history,
responding to the challenge issued by Claude Markovits in the epilogue of his 2008
volume,Merchants, Traders, Entrepreneurs, to ‘return the merchant to South Asian
history.’[1] Some of the underlying assumptions and questions being asked are old and some
are new. My own longstanding assumption, upon which this article relies, has
been that bankers and merchants played multiple and important roles with respect to
states in South Asia, 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, most
notably, the Mughal state.[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. Islamic laws of inheritance, they argue, divide and diminish family
resources, partitioning at least two-thirds of an estate among children, spouses, parents, and
sometimes more distant relatives. While Muslim women receive only half of what men in
each category do, legally they should inherit. Hindu Mitakshara law, by contrast, helps
consolidate and maintain resources within joint families; Hindu women do not inherit and
joint-family enterprises pool capital and discourage partitions of an estate.[4]
Other legal questions concern the interactions between customary or personal law and the
evolution of British colonial law in much of South Asia. Sumit Guha, for example,
discussesprecolonial, eighteenth-century conceptions of rights and legal practices in the
78
Maratha country, ‘a region of shifting political boundaries, often indefinite jurisdictions, in
which several unwritten and written bodies of law and custom could be invoked or set aside
as the case might be.’[5]
The present research pertains to Hyderabad, a princely or native state outside British Indian
jurisdiction, where the state made no attempt to regulate customary practices with respect
to marriage, adoption, and inheritance within each kindred, caste, or community. Legal
pluralism prevailed in the native states even as British India codified colonial laws from the
1860s, and, even in British India, attempts to devise laws and impose them on religious
and caste communities varied over time and by region.
Lauren Benton suggests that Indian litigants helped move a plural legal order toward a state-
centered legal order by seeking to ‘exploit jurisdictional complexity.’ Speculating that colonial
conditions ‘intensified the fluidity of the legal order and enhanced the strategic importance
of personal law,’[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; Birla refers to the ‘extensive negotiability’ that
characterized vernacular practices governing the symbolic capital of kinship, caste, and
lineage, and the capital flows of market exchange and production, a situation that
colonial laws sought to restrict.[7]
In Hyderabad by the late nineteenth century, 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.
To consider these issues, I look closely at three Hindu and Jain banking andmercantile
communities, focusing on adoption, marriage, and inheritance practices among Hindu and
Jain family firms in Hyderabad, India. These firms came from three major financial
communities: the Gujaratis, Goswamis, and Marwaris.
Gujarati merchants and bankers are so named because their homeland is Gujarat, and they
have many subdivisions, some of them Hindu (mostly Vaishnavite, worshippers of Vishnu)
and some of them Jain.[8]
Marwaris came originally from the Marwar region of Rajasthan.[9] The three major Marwari
castes or subcastes are Agarwals, Maheshwaris, and Oswals, the first two predominantly
Vaishnavite and the last predominantly Jain.[10]
The Goswamis in Hyderabad were Shaivite (worshippers of Shiva) sanyasis, celibate
mendicants by tradition, whose roots were in northern and central India. Not much has been
written about these communities in Hyderabad,[11] although listings of firms by locality and
biographies of individuals appear in various sources.[12]
Historical study of Gujarati, Goswami, and Marwari banking firms in Hyderabad State prior to
the state’s 1948 incorporation into India suggests several lines of argument, the first
concerning adoption. Before the demographic transition, high infant and child mortality
made the survival of sons (the heirs under Hindu law) to adulthood problematic.[13]
With this pattern in mind, I argue that Hindu and Jain encouragement of adoption, in
contrast to Islamic constraints on adoption, gave an obvious advantage to Hindu and Jain
Hindu capitalism
family firms when it came to the continuity of their firms and financial networks.
[15] Hindu law permits adoption even by widows and of adults as well as children, the
purpose being to provide heirs to property and resources rather than to provide for children.
[16] I will present detailed evidence of the prevalence of adoption in Gujarati, Goswami, and
Marwari family firms, derived from orally constituted genealogies and also from Hindi family
histories of Marwari entrepreneurial families in Hyderabad.
My second argument is that marriage and inheritance practices among these patrilineal
mercantile families were actually quite flexible, notably involving affines relatives by
marriage as major players. Wives and their kin did play roles in mercantile family histories.
[17] Flexible family strategies meant not only continuity for the family firms but also a
potentially broad spatial range of financial networks.
Gujarati and Marwari Hindu and Jain bankers and financiers practiced caste endogamy
butgotra, or subgroup exogamy, so marriage networks could be and often were wide-
ranging. In contrast, Indian Muslims in general encouraged and often practiced cousin
marriage. This could result in a more limited range of options for marital networks,
possibly leading again to an advantage for the Hindu bankers and merchants in terms of
access to capital and other resources. (On the other hand, cousin marriage could offset the
dispersion of resources caused by Islamic inheritance law: empirical data is needed here.
[18])
Finally, I argue that trust is a mischaracterization or overstatement of the values and
practices that helped maintain family firms and their financial networks; at least it seems a
less-than-useful concept when analyzing the family firms in Hyderabad. Discussions and
debates about trust focus chiefly on long-distance trade diasporas but also raise issues of
kinship, caste, and religion that arc relevant here, as well as the issue of the degree of
merchant reliance on orautonomy from state power.[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, as I
will show with case studies.
HYDERABAD STATE: REVIEWING THE CRUCIAL ROLE OF BANKERS
Banking firms, particularly what have been termed ‘great firms,’[28] had been important
participants in state-building in precolonial India, serving as state treasurers, minters of
money, and revenue-collectors as well as maintaining long distance credit and trade
networks.[29] The importance of these firms to state-building and maintenance is being
increasingly confirmed,[30] and scholars are also looking hard at pre-modern merchant and
trading networks in South Asia and beyond, reassessing their relationship to the
development of capitalism.[31]
Yet there is still no definitive history of banking in India that integrates pre-modem and
colonial materials across the subcontinent (including the native or princely states). No
authoritative, 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, the
British Raj, and postcolonial South Asia.[32]
80
Bankers and merchants from these last three communities, of Gujaratis,Goswamis, and
Marwaris, arrived in Hyderabad at different times, settled incertain localities, and
established close relationships with particular officialsand nobles at the Nizam’s court. The
tumultuous period of the late eighteenth and first half of the nine teenth century
saw bankers becoming crucial players in Hyderabad state politics. The second Nizam, Nizam
Ali Khan (1762-1803), moved the capital fromAurangabad to Hyderabad. Nizam Ali Khan’s
successors, Sikander Jah (1803-1829) and Nasiruddaula (18291857), made agreements with
the British resident establishing the Hyderabad Contingent, a military force that was, by
1813-1814, paid by the Nizam but led by British officers.
The British resident pressed for the back pay due to the Contingent, a debt that grew in the
1830s and 1840s and led to Hyderabad’s financial crisis of the 1840s. Financial arrangements
resorted to after the Palmer bankruptcy in 1824 failed to ameliorate the situation, and by
1850 the situation was drastic. Successive Diwans sought funds from bankers and mediated
among bankers, revenue contractors, and mercenary troops, all of who became crucial to
the state’s finances.
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,[42] Muslims were bankers and traders in the
subcontinent and in Hyderabad. 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,[43]but this would not explain the scarcity of
Muslim bankers in Hyderabad, a state outside British jurisdiction. Muslim bankers were
present and active in Hyderabad in the late eighteenth and early nineteenth centuries, but
they did not establish family firms that lasted.[44] Afghan or Pathan moneylenders
weresometimes mentioned as loaning money to state officials and nobles but were not
prominent as bankers.[45] Khoja and Bohra Muslims, from formerly Hindu caste
communities that continued to follow Hindu law and so were important as merchants and
bankers in western India,[46]were not leading bankers in Hyderabad, although there were
Bohra families settled in the old city locality of Husaini Alam.
Tantalizingly, it seems that the original ‘Panch Bhai’ (five brothers) bankers of Hyderabad in
the late eighteenth century were Muslims, although later these roles were filled by various
Hindus.
The Gulzar-i Asafia, a Persian history, describes Hyderabad’s evolving banking communities
and their localities in the early nineteenth century and highlights non-Muslims. It lists ten
bankers, five in Karwan (all Gujaratis), four in Begum Bazar (three Goswamis and a Marwari),
and one in Chaderghat, or Residency Bazar (a Parsi): ‘Side by side in Begum Bazar are the
houses of the Marwaris, Gosains, Komatis, Afghans, and other financiers and traders … and
in Karwan Sahu, the Gujaratis reside…. The bankers are millionaires, lending millions of
rupees to the state and financing the land revenue contractors…. [One of them, a Gosain]
associates with the Afghan military leaders and is fond of fighting…. The bankers also loan to
the nobles and to the Nizam himself; they have access to the Court.’[52]
Given the provisions of Hindu Mitakshara law, Claude Markovits, for example, found
Hindu capitalism
asurprising incidence of women recognized as heirs in 118 succession cases among
Shikarpuri Sindhi merchant court cases in the 1890s.[53]
The leading Hindu bankers in Hyderabad State were initially Gujaratis settled in
Aurangabad and in Karwan (just outside Golconda Fort).[55] Karwan was dominated by
Gujaratis, although others were also settled there.[59]
This Gujarati family firm all by itself illustrates many issues of interest here: adoption, flexible
use of kinship ties, mistrust or rivalry among relatives, and, in oral accounts of the firm’s
affairs, leading roles for women. These genealogies show the family firms responding to
mortality and age structure, passing leadership to sons, cousins, nephews, or relatives
through affines to carry on entrepreneurial activities. Whether or not actual adoptions were
involved is not always known (only one was explicitly mentioned in interviews), but
theflexible family strategies are very clear.[66] Many of the men had more than one wife,
sometimes at the same time, suggesting that multiple wives as well as adoptions served the
strategic end of securing living sons.
The British Residency, or Sultan Bazar locality, 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.[72] A
competing British Indian legal system was developing there, one that enjoyed substantial
military backing from nearby Secunderabad and in British India. 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.
WHAT HYDERABAD’S MARWARI FAMILY HISTORIES TELL US
No matter how brief the histories, again and again only one son of two or three survived,
and many fathers died leaving a very young son or sons. Adoptions were plentiful,
[87] usually of relatives but not always. Of the sixteen Oswal Jain family histories, ranging in
generations from one to eIeven,[88] eight mention no adoptions, and the other eight record
sixteen. Of the forty-two Maheshwari family histories, of from one to eleven generations,
twenty mention no adoptions, and twenty-two mention a total of thirty-five. Of the thirty-
two Agarwal family histories (including a few Digamber Jains), ranging from two to nine
generations, there were thirty-seven adoptions in nineteen families. In sum, forty-nine of
these ninety Marwari families migrating to the Nizam’s state give histories that include
adoptions, eighty-nine in all. In some families there were as many as four or five adoptions,
most of them being a second or younger son of a younger brother given to an older brother
or cousin brother.
CONCLUSION
Patterns of adoption, marriage, and inheritance among the predominantly Hindu and Jain
banking communities in Hyderabad State show family histories interacting with changing
political and legal regimes. Recent work by Kuran and Singh relates normative Islamic and
Hindu inheritance laws[94] to the relative continuity of Muslim and Hindu family firms.
While the possibilities of such links are promising (particularly with respect to adoption, not
considered by Kuran and Singh), much more study is needed. Their work rests on
82
severalassumptions: first, that both Hindu and Muslim financial firms actually followed
Hindu and Islamic inheritance law when it came to succession; second, that the common
Muslim practice of cousin marriages did not effectively counteract the divisive effects of
Islamic inheritance law; and third, 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.
[95] Further, while the Hyderabad evidence testifies to the frequency of adoption in Hindu
and Jain financial communities, 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.
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 inter-
national operations throughout the period of European economic and political domination
in Asia.’[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.[98]
As scholars look again at South Asian banking and mercantile families and firms, the
material presented here highlights the significance of marriage, adoption, and inheritance
practices within communities, and whether or not such practices were regulated by the
state in any way.
I’ve removed all footnotes. Please check original PDF.
==
Notes on Hindu capitalism – continued: #5
 As mentioned earlier today, I’ve found a 1863 book on Indian banking and have started reading
it (The rise, progress, and present condition of banking in India, Charles Northcote Cooke,
P.M. Cranenburgh, Bengal Print. Co., 1863.)
 I’m presenting extracts from its preface and second chapter (on the antiquity of banking in
India), below, along with annotations in colour. Charles Northcote Cooke was a senior banker,
being Deputy Secretary and Treasurer to the Bank of Bengal.
THE RISE, PROGRESS, AND PRESENT CONDITION OF BANKING IN INDIA, BY CHARLES

NORTHCOTE COOKE, ESQ., DEPUTY SECRETARY AND TREASURER, BANK OF BENGAL, 1863.
PREFACE
IN submitting this work to the Banking and Commercial Community of India, I desire to claim
for it no other merit than that of being the first of its kind in this Country. I could have
wished to have made it more complete than it is, but the refusal, in some quarters, to give
me the most trifling information, has foiled my best endeavors. Though too late to be
remedied, I shall still be happy to receive any suggestions, as they may be useful in the event
of the work ever reaching to a second edition. I am sensible of its manifold imperfections :
but, with this acknowledgment, and, with the assurance that it has been put forth simply to
Hindu capitalism
supply a want, I trust to disarm severe criticism. Some useful hints have been afforded me
about Ceylon, by a well-penned and unpretending little brochure by Mr. H. D. Andree,
Accountant of the Chartered Mercantile Bank at Colombo, to whom I am under obligations
for his courtesy in forwarding it to me. In writing the history of some of the Banks, I have
availed myself freely of the information to be found in the Banker’s Magazine, when my own
notes have proved insufficient for the purpose.
CHAS. NORTHCOTE COOKE. CALCUTTA, No. 2, Royd Street, 28th May 1863.
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, though the system under which it was carried on was widely different
from that which European skill and science have introduced.
From time immemorial, the Banker has always been an important member of Indian
society. Formerly, in all divisions and sub-divisions of that society, he had his type and
representative, discharging functions of indispensable necessity to the well-being of the
community. The Empire had its Banker, the Soubah had its Banker, the Zillah had its Banker,
and the Village had its Banker.
Each in his sphere exercised an engrossing influence; each, in addition to his financial, was
charged with a large proportion of social and political responsibilities. The traditions of the
Hindoo, and the records of the Mahomedan periods of our history, endow the higher classes
of Bankers with the character and powers of Ministers of State. No royal or imperial Council
was complete in its members without the Banker.
The principal source of the revenue was the land tax, which, according to practice, was paid
in kind. The royal or imperial exchequer could not well accommodate the rather bulky forms
in which the revenue was collected from the people, and the magnitude of the royal or
imperial transactions, as well as the peculiar character of some of them, necessitated the
employment of metallic and paper currencies.
Standing armies had early become a part of Indian institutions, and mercenaries seldom
stipulate for remuneration with necessaries, or with luxuries, in kind. A pervading and a
properly organized agency was therefore constantly necessary to convert the proceeds of
the taxes into a useful form, and to make the public resources readily available to the
demands of the State. Hence the institutional character and political influence of Indian
Banking.
The general state of society also precluded the independent accumulation of capital in many
hands, and the ruler and the provincial governors were often personally the least
trustworthy men in the country. None therefore but the possessors of political influence
ventured to deal with them.
Last of all, caste came to the aid of these causes, and consolidated the system into an
institution. The son of the Banker could only be a Banker, and he whose father transacted
the emperor’s or the soubadar’s monetary business had, according to the first Indian notion
of rights, an indefeasible title to succeed to that business.
The action of British laws, and forms of civil government, have, in some measure,
destroyed the universality of the institution and the nature of its form, but it nevertheless
retains its vitality, though under much alteration. The Banking Corporations and
Government Agencies at the Presidencies, that have succeeded the hereditary
84
establishments of the Dosses and Setts of imperial times, are devoid of the political
influence which the latter exercised.
The functions of the Zillah Banker have been divided between, and appropriated by, the
revenue collector and the independent capitalist.The Village Banker, like most other of our
village dignitaries, still maintains his character and position, and may be promptly recognized
in the Village Mahajun. The diffusion of capital, and the conversion of taxes in kind into
money-taxes, have closed up some and opened other channels of Banking business, and at
present, though an extensive system of Banking is carried on, it bears a less peculiar
character than before, and is largely mixed up with the funding and general commercial
business of the country.
The occupation is not gone. It has only shaken off the trammels with which tradition and
conventional forms formerly bound it. The Bankers of the present day may be divided into
three classes: the City Shroffs, the Zillah Bankers, and the Village Mahajuns.
City Shroffs: The first are chiefly engaged in exchange operations, in dealing with the public
stock, and making advances on securities to commercial establishments. They possess
extensive credit throughout the country, and comprise some of the most honored names in
Indian society.
Zillah Bankers: The second are the depositaries of the monied wealth of the landed
families or their creditors, and have a close connection with the internal trade of the
country, in which they are often found engaged directly on their own account.
Village Mahajuns: The character and functions of the third are well 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
Hindu capitalism
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;
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,
86
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 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
Arthashastra of Kautilya and laws of Manu.
During the period of Mughal rule bankers and financiers were held in high esteem; the
financial stability of the Royal Court appeared to rest on the principal bankers of the
country. (At the court of the Nawab of Bengal in the eighteenth century the Royal
Hindu capitalism
bankers (Jagat Seths as they were called) exercised tremendous influence and
discharged useful banking functions. One of their functions was to stand as surety, for a
consideration, on behalf of zamindars who were unable to pay the instalments of
land revenue in time.) 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. 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. 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 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.
By the second half of the eighteenth century European Agency Houses began to come into
existence. Usually founded with the accumulated capital of retired English traders and
officials, these houses rendered a number of financial services for which the help of native
bankers had to be sought in an earlier period. 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.
==
 Notes on Hindu capitalism – continued: #4
 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
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
Arthashastra of Kautilya and laws of Manu.
During the period of Mughal rule bankers and financiers were held in high esteem; the
financial stability of the Royal Court appeared to rest on the principal bankers of the
country. (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. One of their functions was to stand as surety, for a
consideration, on behalf of zamindars who were unable to pay the instalments of
land revenue in time.) 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
88
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. 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 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.
By the second half of the eighteenth century European Agency Houses began to come into
existence. Usually founded with the accumulated capital of retired English traders and
officials, these houses rendered a number of financial services for which the help of native
bankers had to be sought in an earlier period. 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 .
The rise, progress, and present condition of banking in India, Charles Northcote Cooke, P.M.
Cranenburgh, Bengal Print. Co., 1863) – to review
==
 Notes on Hindu capitalism - continued: #3
Continuing my compilation of notes on Hindu capitalism. This is an extract from my copy of
S.S.M. Desai’s Economic History of India (Himayala Publishing House, 1980).
BANKING IN INDIA
Money lending, the predecessor of banking has been practised in India, as in most other
countries, from times immemorial. There are, for example, references to money-lending
in Rig Veda and various Hindu scriptures. 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. In
Kautilya’s Arthashastra we get detailed references regarding the rates of interest that
might be charged by money-lenders to different type of borrowers. [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 - 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 3,000 years ago. The bankers understood and followed the fluctuations of
moneyvalue; they kept account-books, day-books, and ledgers by single and double entry.
They charged interest simple and compound, they made insurance by sea and land, they
grantedbills of exchange, and in short, they followed the practices of modern times which
are little changed from ancient rules.’ [Sanjeev: unfortunately, Desai’s book has neither an
index nor a bibliography, so I’m unable to trace the original source of this quotation. This is a
big issue with most Indian scholarship: the lack of proof of assertions/references.]
There are records to show that indigenous bankers in India dealt in hundis (i.e. equivalent
of modern bills of exchange) from 12th century onwards when they were in much use. The
Indian indigenous bankers used the device of hundis for financing internal as well as foreign
Hindu capitalism
trade of India. There are records to show that some prominent indigenous bankers even
advanced loans to Government of the day.
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 indi-
genous bankers. And yet the money-lending and indigenous banking activities
continued asbefore, 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.
During the early days, the East India Company was forced to rely on indigenous bankers in
India for personal loans and for remittance facilities. But as the activities of the East
India Company grew in dimensions, the above arrangement was felt to be inadequate and
unsatisfactory due, among various reasons, to difficulties of language, on both sides, 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, inability of indigenous bankers to
follow banking practices to which East India Company officials and servants were ac-
customed.
The consequence of the above unsatisfactory system was that the English Agency Houses in
Calcutta, Bombay, and Madras started conducting banking operations along with
their normal commercial operations. Though this system worked for some time, it came to
be realised thatsuch mixed activities like trading and banking would pose complex problems
for the Agency Houses. It was therefore felt that for meeting the needs of the East India
Company officials, merchants and servants, the best way would be to start joint-stock
banking in the country of the type already prevalent in England.
2. INDIGENOUS BANKERS
Indian money market is generally divided into organised sector and unorganised sector. The
organised sector comprises of the Reserve Bank of India, the Imperial Bank (later
renamed as the State Bank of India), Foreign Exchange Banks and commercial banks. The
Unorganised Sector comprises of indigenous bankers, money-lenders, commission agents,
traders, relatives,etc. some of whom combine money-lending with their normal trading and
commercial or otheractivities.
Distinction between Indigenous Bankers and Money-Lenders
As the terms indigenous bankers and money-lenders are generally used together, the
distinction between them should be made clear. While money-lenders usually work on their
owncapital resulting out of their savings, indigenous bankers accept deposits from the
public, at least on a selective basis. The indigenous bankers discount hundis, whereas
money-lenders do notdo so. Indigenous bankers provide finance to trade and industry
whereas money-lenders generally lend for small productive activities and for domestic
purposes, mostly for consumptionpurposes. Whereas indigenous bankers are generally
careful about the purpose of the loans given, 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
90
much more detailed and systematic way thanmoney-lenders.
What is common to indigenous bankers and money-lenders is that both are ancient
institutions, both are not properly organised (though indigenous bankers appears to be at
least in some areas better organised than money-lenders), both are ubiquitous, methods of
work of both are flexible, efficient, and cheap and both have evolved methods of business
suited to theenvironment, .needs and customs of the people.
Role and Functions of Indigenous Bankers
In the organised sector of banking in India, indigenous bankers (along with money-lenders)
have from ancient times been playing a vital role. Indigenous bankers are to be found in all
parts of the country and have existed for centuries.
Generally, indigenous banking is purely a family business and carried on in hereditary
fashion. The Chettiyars of Madras and Kerala, Mahajans of Punjab, Sahukars of
Maharashtra, Shroff, Marwaries and Banias in U.P., Gujarat, Rajasthan and Bengal are the
striking examples of indigenous bankers. In the good old days, indigenous bankers were
well-known by their reputation and their hundis were negotiable throughout
the country and beyond the borders of India. Chettis were actually providing finance for
foreign trade of India with South-East Asian countries much before the advent of the British
in India. 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. It is on record that during ancient times, 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, to even to the mer chants
of that Company.
Before the advent of modern joint-stock banking in the country (i.e. upto 1850 or 1860),
indigenous bankers and moneylenders were the main source of credit in the Indian
economy. Even during the first half of the 20th century (or for that matter, even at present),
in spite of the growth of joint-stock banking in the country, indigenous bankers and money-
lenders supply lion’s share of credit, especially in the rural areas of the country.
The indigenous bankers generally discount hundis and thus provide finance for internal
trade. They also discount agricultural bills of exchange. The indigenous bankers, unlike
joint-stock banks, lend money on personal credit and on first class bills or such other
securities. Their methods of work are informal and therefore fairly efficient.Many
indigenous bankers have branches in other centres, especially at trading centres, which
enable the work of discounting of hundis.
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, many indigenous bankers are organised into associations or guilds which are
of ancient origin. The indigenous bankers are guilds, among other things, for settlement of
mutual claims as also disputes. The establishments of the indigenous bankers are run
extremely economically and as it is a family business inherited by son from his father, the
son growing in the environment from childhood gets his training automatically and
without any expenses on training in the art of indigenous banking.
Hindu capitalism
As indigenous bankers have been working at the same centres for generations, they know
most of their clients personally and intimately and know their creditworthiness. This enables
them to lend money without much ado, unlike in the case of commercial banks. They
accept deposits on current account or for a fixed period and they pay interest on
them.As indigenous bankers seldom fail to make payments when payments are due, they
generally enjoy high reputation for their honesty and efficiency. On the whole, 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.
Even after the establishment of modern joint-stock banks in the country, the
indigenousbankers (and also money-lenders) proved to be very powerful competitors to
them. Some indigenous bankers established contacts with modern commercial banks from
whom they borrow funds on the basis of discounting of hundis.
The indigenous bankers provide finance for agricultural operations directly and also
indirectly through traders. They also provide finance to internal trade and to small industria -
lists. They used to keep part of their deposits in textile mills.
The indigenous bankers used to provide finance by various methods such as discounting of
hundis, demand promissory notes, on the security of gold, silver, land and other
moveable and immoveable property. 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.
Though some indigenous bankers have been borrowing from commercial banks including the
State Bank of India, there is no regular and formal type of relationship between indigenous
bankers and joint-stock commercial banks from the beginning to this day. This is because
commercial banks do not accept cheques drawn on indigenous bankers as the latter do not
publish their balance sheets, or furnish sufficient details or comply with all the formalities
insisted upon by commercial banks. The indigenous bankers also do not get easy rediscount-
ing facilities from commercial banks.
Defects of Indigenous Bankers
Though indigenous bankers have been playing an important role from ancient times to the
present day, the institution has been characterised by some serious defects such as
followingantiquated and conservative methods of business, minimising secrecy which means
not publishing balance-sheets and other accounts, not making them available for public
inspection, have not cared much to develop the deposit side, combining trading and other
business activities with their banking activities; have not developed the hundi side; 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. This makes
control by the Reserve Bank of India over the credit structure of the country and successful
implementation of the monetary policy difficult.
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.
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After its establishment in 1935, the Reserve Bank of India circulated in 1937 a scheme to link
indigenous bankers with the Reserve Bank. 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; (b) they should follow modern banking
methods ofbusiness; (c) they should develop the deposit-side of banking; (d) they should get
their accounts audited by certified auditors; (e) they should standardize forms of hundis and
should take steps to develop true bills; and (f) they should organise themselves and perform
the functions similar to ones performed by London Discount Houses.
In return for effecting the above improvements, the Reserve Bank of India offered to
indigenous bankers the same concessions which the Reserve Bank offered to scheduled
commercial banks. 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.
But the indigenous bankers felt that the conditions laid down were too severe in return for
the advantages offered by the Reserve Bank. Nothing much came out of the attempt by the
Reserve Bank to integrate indigenous bankers with the organised banking sector of the
Indian economy. Indigenous bankers continued and still continue as part of unorganised
money market in India.
6.6 Corporations
Hindu Capitalism #14: The existence of advanced (modern) corporations in ancient India
As part of my research, I’ve chanced upon The Economic History of the Corporate Form in Ancient
India by: Vikramaditya S. Khanna, Professor of Law, University of Michigan Law School.
It is clear that India’s capitalist history is only now beginning to emerge. It is a shame
that there are so few Indian economists interested in this subject.
The analysis in this paper suggests that Ancient India had many different forms of business
organization including the sreni. Moreover, the sreni can be dated from a period much older
than many would expect for the development of the corporate form – from at least 800 B.C.
and perhaps even earlier. This predates, by centuries, the earliest Roman proto-
corporations. Further, the sreni was also in continuing and expanding use until 1000 A.D.
and was utilized for many different kinds of purposes including business, municipal, social
and religious activities. The sreni was clearly one of the most important institutions of
Ancient India.
When we examine the details of its formation, governance and regulation we find that its
development corresponds well to more modern theories about the development of the
corporate form. In particular, the sreni grew as trade expanded and as the supply of the
monitoring methodologies needed for its development arose. Moreover, when the features
of the sreni are compared to those of more modern Anglo-American corporations we find a
significant amount of similarity. The members of the sreni faced many similar concerns to
those we face today and they found quite similar ways of addressing those concerns.
However, when we examine sreni development more closely we find a number of interesting
results. The sreni grew the fastest in the state structure where there was an intermediate
Hindu capitalism
level of centralization and considerable deference to the sreni in managing its internal
affairs. Although trade grew under other structures too, it was the relatively less centralized
Gupta Empire that saw the greatest advances in trade. Of course, other factors also
influenced the development of trade in Ancient India, but these results are interesting
nonetheless. Moreover, the development of the sreni provides some more fodder for the
debate about convergence or path dependence in corporate governance.
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. Moreover, the Ancient Indian sreni forces us to revise our conceptions of when
corporations developed to a much earlier time period. Indeed, much can be learned about
the corporation from the Ancient Indian sreni.
Extract from Ritu Birla’s article, Law as Economy: Convention, Corporation, Currency.The article,
presented at Harvard in April last year.
Colonial legislation and jurisprudence installed ‘the market’ as abstract model for all social
relations and as terrain for the making of modern subjects. A torrent of new measures
directed at the free circulation of capital emerged in the period immediately after formal
legal codification, especially from about 1880 to 1930, measures that ranged from law on
companies, to negotiable instruments, to income tax, trusts, and charitable endowments, as
well as futures trading and government securities, among others.
A key story in the broader global standardization of contract law in the nineteenth century,
this accelerated colonial process installed new forms of group association grounded
in contractual relations of individual subjects.
Vernacular practitioners of capitalism, who operated through norms of kinship, and were
universally acknowledged engines of credit, production, and consumption, confronted the
establishment of contract as universal instrument for market exchange. The confrontation
exposes the difficulties in translating the spatial and temporal habitus of market
conventions, the ways of organizing exchange, production, kinship, and trust that sustained
the hegemony of vernacular capitalists, and that British authorities sought to appropriate in
the name of a civilizing mission of ‘moral and material improvement.’
It is important to remember here that in 1858, after being shaken by the rebellions of 1857,
the British Crown officially replaced the East India Company, pronouncing a policy of
noninterference with indigenous culture, a project enforced through an investment in legal
pluralism with the codification and strict application of the regime of personal law.
IV. COMPANIES AND THE MONOPOLIZATION OF CORPORATE LIFE
Influenced by Maine, colonial jurists understood joint family organization in nineteenth-
century India as an ancient form of corporation. The difficulty with the joint family, as with
other such ancient forms in medieval Europe, was that, in Maine’s words, ‘corporations
never die’: they have a perpetual life, an extensive symbolic value of kinship, caste and
lineage, and the arrangements and capital flows of commerce and finance.
The majority of vernacular firms were regulated by the Hindu Law of Mitakshara, the
personal law system which gave sons rights in the family property, including the capital of
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the firm, at birth. Moreover, 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.
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. The commercial joint family household—father, wife, sons and their
wives, and unmarried daughters—existed within a much broader context, the nexus of
extended relations harnessed by the firm. These networks were constituted spatially, across
villages, bazaars, and even global regions. Lines of descent called gotres arranged
exogamous clans within a particular endogamous caste, and constituted yet another
barometer for degrees of affinity.
The story of the establishment of The Indian Companies Act of 1882: Establishing the limited
liability joint-stock as the model for commercial organization, 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, following the U.S. Civil War. In this volatile market climate, British
merchants launched new companies at an accelerated rate, drew investments from native
shareholders, and then defrauded them, absconding with their investments. The hundreds
of pages of debates surrounding the act evince a public discrediting of British-run joint-
stocks, and an extensive public discussion of corruption. As one officially solicited ‘native’
opinion asserted, these newly hatched joint-stocks were ‘huge superstructures of fraud,
erected to inveigle the unwary and imprudent.’
And despite this exposé of limited liability as a masquerade for corrupt practices, the debate
resulted in new legislation, offering a pumped-up version of limited liability, with strict codes
for memoranda of association, official registration, and the regulation of bankruptcy. It
replicated earlier British statutes and enforced the corporation as a public legal person, a
contractual model for what was called the ‘the healthy and useful employment of capital’
and equally as significantly, for civic association.
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. The Acting Registrar of Joint-Stock Companies at Bombay, the eye
of the storm, for example, insisted that:
[T]he evils incidental to limited liability have been exaggerated in Bombay
by peculiarities in Native character. . . . The mass of Native shareholders,
profoundly ignorant, and placing blind confidence in the new discovery
in ‘finance’ placed no watch on their Directors and Managers. The latter
only wanted to profit from the sale of shares, and cared nothing for the
regular transaction of business. 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.
Reiterating long-held tropes about the submissive nature of the native population, the
Registrar’s opinion posed habits of public civic association—the responsibility of exercising
rights, rather than obeying a despot or director—as necessary conventions for the ‘healthy
Hindu capitalism
and useful employment of capital.’ An economic organization of the social, in other words,
was to convey modern habits of rights, part of a civilizing mission’s mantra of ‘moral and
material progress.’
At the same time, the affirmation of limited liability threw the organization and practices of
kinship-based commerce into question. The figure of the indigenous merchant loomed large
in the debates, strangely not as facilitator of capital, but as a serious problem, a problem of
personalized exchange antithetical to new legal procedures.
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, or at
the very least as contractual partnerships? If so, it was argued, the firm should come under
the purview of the Act. Or was the firm first and foremost a family? In this case, 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, inheritance, and religion. Again, it is
important to remember here that by this time, the project of ‘cultural preservation’ was
official policy, enforced through the codification and application of the personal law.
The Companies Act did not, as might be expected in an easy reading of colonial disciplinary
practices, make indigenous firms directly subject to its regulations. Rather, it demanded
that they be regulated by the Hindu or Muslim personal law governing families and religio-
cultural practice.
In short, vernacular capitalism was governed first and foremost as cultural, rather than as
economic mechanism. That is, despite the universally acknowledged role of vernacular
capitalists as key economic middlemen, colonial law institutionalized a disjuncture
between economy, a public and ethical project, and culture, a private one. 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.
V. CONVENTION, NEGOTIABLE INSTRUMENTS, AND THE LEX MERCATORIA
Almost contemporaneous with the Indian Companies Act, the Negotiable Instruments Act of
1881 grappled with what colonial jurists had begun to call the ‘native’ lex mercatoria. I would
like to foreground a key feature of the debates around the Indian Negotiable Instruments
Act, once again, the problem of the joint family firm, and discourses on the temporality of
vernacular conventions.
Indigenous or vernacular systems of credit in particular drew legislators’ attention as
British joint-stock banks flourished beginning in the mid-nineteenth century, marking the
institutionalization of the British banking sector in the subcontinent. British banks depended
on vernacular merchants and their vast access to credit in the bazaars across India, and
vernacular capitalism’s investment in the financing of colonial commodity production tied
them to sources of British financing. The indigenous ‘unorganized’ banking sector had
varied ‘personalized’ and multiregional conventions for borrowing, lending, and investing,
secured by extended ties of kinship, in which negotiable instruments could be endorsed
and reendorsed many times; they sustained a very extensive negotiability.
These conventions, and their variability, posed problems for legislation aimed at rationalizing
and facilitating flows of credit and forms of paper currency. As early as 1866, the first Indian
Law Commission, guided by Henry Sumner Maine and James Fitzjames Stephen, had
introduced the question of standardized rules for negotiable instruments. Intended to be
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one of the chapters of the Indian Civil Code, an inaugural bill on the subject was introduced
in 1867, and referred to a Select Committee.
The mercantile members of the Legislative Council, all representatives of British trading
interests, had unanimously objected to the bill because of its numerous deviations from
English law. On the other hand, other members had strongly criticized it for not including a
clause saving the customs of native merchants. From the bill’s inception, then, the question
of preserving indigenous customs, and so sustaining the official policy of ‘noninterference’
in native culture, conflicted with arguments for their assimilation into British legal models.
The debate, which continued for over a decade, was driven by the ambiguous place within
the Anglo-Indian legal system of what jurists called the ‘native law merchant,’ for this legal
arena did not fall under the purview of personal law. The final act of 1881 did include a ‘local
usages’ exception, but one that ingeniously opened a space for their assimilation to models
of contract already codified by the Indian Contract Act of 1872. It stated that in order to
‘facilitate the assimilation of the practice of Native shroffs [bankers] to that of European
merchants,’ the act would extend:
[T]o the whole of British India; but nothing herein . . . 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.
Local usages could thus be overruled if vernacular negotiable instruments were written to
accommodate the practices of British bankers and merchants.
While in theory not directly affecting relations among indigenous merchants, this provision
reflected the de facto governmental installation of a new market terrain, the concomitant
delegitimizing of bazaar practices and the accelerated and more extensive transactions
between British and indigenous commerce conducted through joint-stock banks.
The Select Committee on the bill in 1879 defended the new provision as one which would
not ‘stereotype and perpetuate these [indigenous] usages,’ but rather ‘induce the Native
mercantile community gradually to discard them for the corresponding rules contained in
the Bill.’ Seeking to transform mercantile convention while dissimulating laissez-faire, 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.’ It delivered
evidence offered by the British joint-stock Bank of Bengal, ‘that the native usages as to
negotiable paper have of recent years been greatly changing, and that the tendency is to
assimilate them more and more to the European custom.’
The standardization represented by the Negotiable Instruments Act presented itself as the
logical extension of indigenous mercantile conventions, even as it reflected the very
institutionalization of a new terrain—the public space of economy, inscribed by the new
and restricted spatial and temporal negotiability of contract law.
Social institutions
One key example is nineteenth-century colonial jurisprudence on indigenous endowments
gifted for social welfare. Vernacular capitalists would establish institutions for social
welfare such as temples, schools, rest houses for travelers, all of which were consecrated
Hindu capitalism
to deities. These were organizations that produced social capital and affirmed the
respectability, and so the credit, of kinship-based firms.
The difficulty for jurists was that in vernacular conventions, income derived from such
properties could revert back to the firm, to defray debt, or to provide for the welfare of
aging family members for example. Income regained in time would then be redirected to
the endowment. Such oscillations performed the extensive negotiability across social
capital and the material flows of credit, as well as across time itself, and across the colonial
categories of public and private, that characterized vernacular commercial practices.
Anglo-Indian jurisprudence on trusts sought to restrict this negotiability, and sought to
establish an a priori intentionality for the purpose of such endowments, one that would
regulate the endowment as a contract made in perpetuity, and so confirm the principle of
mortmain as grounding legal category for charitable trusts. These concerns were manifest in
a series of late nineteenth-century Bombay and Calcutta High Court cases on religious
endowments, in which judges interpreted case law on temple management to argue that
the deity was a legal subject. Extending this logic to case law on endowments for social
welfare that were consecrated to deities, new precedents established that these were gifts
given to the deity as legal beneficiary, so that no income could revert back to families, as
the rights of the beneficiary confirmed that the purpose of the endowment was to exist in
perpetuity. This fantastic turn of legal idolatry, which ushered in the sovereign translation of
customary endowment as legal trust, exposes modern law’s investment in an autonomous
subject: the legal rights of the deity overrode the situated contexts of gift giving,
6.7 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. This demonstrates that Chanakya would
have certainly promoted FDI.
Kautilya's Arthashastra: A Neglected Precursor to Classical Economics

CHARLES WALDAUER, WILLIAM J. ZAHKA AND SURENDRA PAL School of Management,
Widener University Chester, PA 19013 USA, Indian Economic Review, Vol. XXXI, No. 1,
1996, pp. 101-108
ABSTRACT
This paper demonstrates that Kautilya, a great Indian philosopher-statesman and
contemporary of Aristole, and whose work was lost for more than 1400 years, anticipated
classical economic thought by some 2,000 years in the areas of international trade, taxation
and a labor theory of value. 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. JEL Classification : B1, B3
1. INTRODUCTION
Kautilya, the great Indian philosopher-statesman and contemporary of Aristotle, wrote
hisARTHASHASTRA as a primer for good rule by the king. 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
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philosophers, Kautilya did not distinguished between the wealth of the sovereign and that of
his subjects. In this respect,Kautilya's approach is akin to the seventeenth century German
Cameralist School of Economic Thought (Dasgupta, ch. 3). Kautilya's work continues a long-
standing Indian tradition of inquiry into the creation of wealth, which goes at least as far
back as theARTHARVAVEDA, circa 1000 BC (Chand).
Unfortunately for the development of economic thought, Kautilya's writings were lost
toward the end of the Gupta Dynasty in India, around 500, and were not rediscovered until
early in the twentieth century (Choudhary). Translations from Sanskrit into English and Hindi
did not occur until 1915, and subsequent translations into other languages did not take place
until the 1920s and 1930s. Unlike his contemporary, Aristotle, Kautilya's views were
unknown to medieval and renaissance philosophical and, consequently, had no influence on
the creation of modern economic theory. David Hume, Adam Smith, David Ricardo and John
Stuart Mill, among others, therefore did not have the benefit of Kautilya's thoughts on the
best policies and practices for creating and enhancing a nation's wealth.
In proposing rules and practices by which the king will rule successfully, 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.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, one which will supply the king with tax revenue
while not stifling economic growth. 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.
2. 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. He
counsels that relationships with southern kingdoms are to be favored over those with
northern kingdoms because the southern kingdoms possess greater mineral wealth. 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." (Sen, p. 10) Kautilya also
advantages attracting foreigners who possess good technical and other economic
development of the realm.
Unlike the Mercantilists, Kautilya also explicitly recognizes that imports represent a very
important way in which the wealth of the realm can be increased, in that imports can
provide the kingdom with products which are either not available domestically (e.g., natural
resources and agricultural commodities) or can be obtained more cheaply from foreign
sources through trade than through domestic production. Kautilya fully realizes that exports
are not more important than imports as a means for enhancing the kingdoms's wealth.
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, p. 29).
Kautilya proposes heavy state regulation of trade, both so as not to undermine state
Hindu capitalism
monopolies and not to aid potential adversarial kingdoms. Kautilya also advocates price and
profit controls, 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). "Kautilya imposed a heavy taxation on imported foreign goods of
luxury. On the articles of common consumption, light duties were imposed." (Choudhary, pp.
124-125).
Kautilya supports the use of tariffs, both import and export duties, primarily as revenue-
raising devices for the monarch rather than as mechanisms for altering trade patterns.
"Import rates, intended for revenues rather than for trade limitation, generally ranked
between 4 per cent and 20 per cent ad valorem." (Braibanti and Spengler, p. 249).
Kautilya urges the monarch to create trade missions to promote trade with other kingdoms
and he especially supports bilateral trade arrangements in products. In fact, he counsels
against unilateral trade, where products are exported or imported for money (bullion) only.
He stresses the need to exchange commodities for commodities so that both kingdoms may
be mutually enriched (Sen, p. 27). 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.
His views on international trade are most clearly spelled out in Book II of
the Arthashastra, Chapter XVI, 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, 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." (Shamasastry, p. 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, 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, 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 …. Having gathered information as to the
transactions in commercial towns along the banks of rivers, he shall transport his
merchandise to profitable markets and avoid unprofitable ones." (Shamasastry, pp. 108-
109)
Thus, Kautilya recognized that trade based on the principle of comparative advantage would
be to the material benefit of both exporting and importing nations.
3. KAUTILYA'S PRINCIPLES OF TAXATION
This section of the paper focuses on the Kautilyan tax system, which was remarkable for how
extensive it was and how well it conformed to modern principles of good tax systems
(Choudhary, pp. 128-130). In advising the ideal tax system, 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, published in 1776. Thus,
100
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, apparently in keeping with traditional
doctrine, gave expression to three Indian principles: taxing power is limited; taxation should
not be felt to be heavy or exclusive; tax increases should be graduated." (Spengler, 1971, p.
72).
Kautilya recognized that a prosperous and stable kingdom had to be founded on a well-
developed an administered tax system. 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. Hence foremost attention must be paid to the
treasury…Thus, when both the receipts and expenditures are property earned for, the king
will never find himself in financial or military difficultues." (Gopal, p. 19).
"…the army is sometimes the means of securing the wealth acquired; but wealth is always
the means of securing both the treasury and the army. Since all activities depend on
finance, financial troubles are more serious." (Gopal, P. 20)
In Kautilya's view, finance was so important to the success and well being of the sovereign
that it, along with the army, was under the direct control of the king. In the ideal Kautilyan
state, the monarch's revenues came from two major sources: sales of minerals, timber and
agricultural products from the king's lands and mines, and taxes levied on private income,
wealth and products (including exports and imports).
As presented in the Arthashastra, 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; promoting economic growth and development within the kingdom; ensuring that
resources are used efficiently; and applying taxes that are "fair" and "just".
As a noted student of Mauryan public finance observed, the Kautilyan system of taxation
resembled that of the Roman Empire at its height: taxes were levied on income, wealth in
the form of both real and personal property, and market transactions (sales) including
both export and import duties, as well as poll taxes on all adult males. (Gopal, P. 22)
Further,Kautilya recognizes that the "ideal" tax system should embody the following
principles: it would be convenient to pay, easy to calculate, inexpensive to administer, fair
(equitable) in its burden, non-distortive of economic behavior in its impact (neutral), and
in general not inhibit economic growth and development. (Gopal, pp. 23- 26)
In keeping with the criteria of convenience, equity, neutrality, and promoting economic
growth, Mauryan taxes could be paid in gold, coins (usually silver or copper), livestock
(mostly cattle), agricultural products, minerals and timber, and personal services (e.g.,
working on the construction of roads, canals and forts, laboring in the king's mines or logging
in the king's forests, or serving without pay as a soldier). 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, so revenue shall be
collected as often as it becomes ripe. Collection of revenue or of fruits, when unripe, shall
never be carried on, lest their source may be injured, causing immense trouble." (Gopal, p.
23)
Hindu capitalism
Further, 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, thereby
lowering the level of economic activity and the material wealth of the kingdom:
"Thus, 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, abundance of harvest, and prosperity of commerce among
other things." (Gopal, pp. 23-24)
According to Kautilya, the amount of tax liability should be certain and known, 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." (Gopal, p. 24)
In Kautilya's view, the tax system should be fair, 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], and to
grant exemptions from this liability where the cause of production and development may
suffer through high taxation." (Sen p. 119)
Higher rates of sales taxation apply to the most expensive commodities traded (e.g., gold,
silver, diamonds, pearls, etc.) and progressively lower rates of sales taxation apply to less
expensive commodities (e.g., cloths and threads, grains and dairy products, and finally
firewood/earthen vessels/bamboo). (Sen, pp. 121-122) A similar system of graduated tax
rates apply to the occupational privilege and income taxes levied on artisans and
craftsmen, where the highest rates are levied on the most skilled workers and the lowest
rates are assigned to the least skilled. (Sen, pp. 122-123)
Kautilya advocates a highly structured and centralized revenue system, with extensive usage
of broad-based taxes. The system is supervised by the Collector-General of Revenues
(Samaharta), who reports directly to the monarch and is equal in importance and influence
to the Commander-in-Chief of the Army. 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, Mines, Storehouse, Commerce, Forest
Products, Tolls, Weaving, Agriculture, Liquor, Slaughter-House, Prostitutes, Ships and
Passports).
Responsibility for gathering information on which the collection of tax revenue and its
auditing is based resides in the Village Accountants (Gopas, each responsible for from five to
ten villages), who in effect are the census takers. These Gopas are required to inventory all
the real and personal property wealth in their domains for wealth tax purposes, the number
of adult males for poll tax purposes, the annual income and expenditure of each household
for income tax purposes, and the number and type of merchants and artisans (as well as
volume of business done) for both sales and occupational license tax purposes. The breadth
and detail of Mauryan census-taking revalled that of ancient Egypt under the Pharaohs, and
was the most extensive census existing before the industrial revolution (Bandyopadhyaya, p.
138). With reference to the U.S. fedral government, the Gopals combined the functions of
102
the Internal Revenue Service and the Bureau of the Census.
Under the tutelage of Kautilya, the Maurya tax system was as extensive as any that exists in
this modern age. As would be expected in a pre-industrial economy, real property and excise
taxes were major sources of tax revenue. Because of the detailed census conducted by the
Mauryan kingdom, however, considerable revenue was derived from personal property and
poll (head) taxes, as well taxation in the form of occupational licenses. Even income taxation
was employed. Thus, Kautilya clearly enunciated-well before the rise of classical economic
thought-a detailed, all-inclusive and effective tax system.
4. KAUTILYA'S LABOR THEORY OF VALUE
Two millennia before Adam Smith enunciated has labor theory of value, 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, the amount of output created, and the skills necessary to perform the
required tasks. Kautilya explicitly recognizes three distinct components for determining the
market value of labor: the level of skill required (the human capital element), labor hours
worked and units of output produced (the labor productivity element). As stated by Benoy
Chandra Sen in his treatise, Economics in Kautilya (p. 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 latter
again depends on the cost of its production, including the cost of material used. 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; i.e., both the quality and
quantity of the job completed by him."
R. Shamasastry in his translation, Kautilya's Arthshastra, cites that among the duties of the
Superintendent of Weaving shall be the setting of wages paid to weavers (pp. 125- 126):
Wages shall be fixed according as the threads spun are fine, coarse or of middle quality, and
in proportion to a greater or less quantity manufactured, and in consideration of the
quantity of thread spun…Wages shall be cut short, if, making allowance of the quality of raw
material, the quantity of the thread spun out is found to fall short.
In determining wages for labor in general, Shamasastry quotes Kautilya in establish ing the
following procedure (p. 208):
As to wages not previously settled, the amount shall be fixed in proportion to the work done
and the time spent in doing it. Wages being previously unsettled, a cultivator shall obtain
1/10th of the crops grown, a herdsman 1/ 10th of the butter clarified, a trader 1/10th of the
sale proceeds. Wages previously settled shall be paid and received as agreed upon.
V. Nagarajan, in his book on Evolution of Social Polity of Ancient India, observes that (p. 114).
To prevent deception by employers, 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. Payment to labour is not contingent on marketing of goods.
Production should not be hampered by the irresponsible conduct of the workers. Guilds of
Artisans ("Sanghabhrta") often functioned as contractors and employed semi-skilled and
unskilled laborers. To protect these laborers, Kautilya, as cited by Narayan Chandra
Bandyopadhyaya in his book, Kautilya, (p. 203) recommends that a board of overseers
Hindu capitalism
review the guild contracts concerning wage rates and working conditions.
5. SUMMARY AND CONCLUSION
Kautilya, the great Indian philosopher and statesman, in writing his epic treatise on the art of
good government, the Arthashastra, enunciated classified views on international trade,
principles of taxation, and a labor theory of value.
Writing more than two thousand years before Hume, Smith, Ricardo and J.S. Mill, Kautilya
anticipated their thoughts on the importance of conducting trade in accordance with the
principle of comparative advantage, that imports are as important as exports in promoting
a nation's economic development and growth, and that reciprocal demand will determine
the value of commodities in bilateral and multilateral trade.
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, ensure that resources are used efficiently, whose burden is borne fairly, and
which distorts economic decision-making as little as possible.
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. Anticipating the thoughts of Smith and
Ricardo, he explicitly recognized that the value of labor depend on the level of skills
employed, time spent on the job, and the amount of output produced. He also was
cognizant that the market value of labor also reflects the market value of the product
created.
One can only conjecture that trade theory, principles of taxation, 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. Thomas Acquinas in the late middle ages or early Mercantilists in the Renaissance. This
is another example of occidental philosophical thought suffering from not having access to
oriental philosophical thought.
REFERENCES
 Bandyopadhyaya, Narayan Chandra (1982), Kautilya, Varanasi, India: lndological Book
House. Braibanti, Ralph and Joseph J. Spengler, (1963) eds Administration and Economic
Developmentin India, Durham, NC: Duke University Press.
 Chand, Devi (1982), The Atharvaveda, New Delhi, India: Munshiram Manoharlal
Publishers. Choudhary, Radhakrishna. (1971) Kautilya's Political Ideas and
Institutions, Varanasi, India: Chowkhambra Sanskrit Studies Office.
 Dasgupta, Ajit K. (1993), A History of Indian Economic Thought, London, England:
Routledge. Gopal, M. H. (1935), Mauryan Public Finance. London, England: George Allen
& Unwin Ltd. Kangle, R.P. (1965), The Kautilya Arthashastra, Delhi, India: Motilal
Banarsidass.
 Nagarajan, V. (1992), Evolution of Social Polity of Ancient India. Delhi, India: Dattsons.
 Sen, Benoy Chandra, (1967), Economics in Kautilya. Calcutta, India: Sanskrit College.
Shamasastry, R. (1956) Kautilya's Arthashastra, 8th ed., Mysore, India: Mysore Printing
and Publishing House.
 Spengler, Joseph J (1971) Indian Economic Thought, Durham, NC: Duke University Press.
104
Spengler, Joseph J (1980) Origins of Economic Thought, Carbondale, IL: Southern Illinois
University Press.
 Trautmann, Thomas R (1971) Kautilya and the Arthashastra, Leiden, Netherlands: E.J.
Brill.
Hindu capitalism
7. Institutions:Trade and commerce
7.1 Commerce in Indian Society

Extract from Caste and Capitalism in Colonial India10. I’ve extracted an intriguing section from
this book, below.
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.[1] They deny the
existence of commerce and hence of institutional involvement in commercial activities.[2]
Excepting only some of the most recent studies, such as those by Baker (1984), Bayly (1983),
and Subrahmanyam (1990), almost no one addresses the specific institutions that were
agents of Indian commercial activity in the colonial or precolonial periods.[3]
For the most part, our understanding of India’s precolonial social formations retains many
traditional assumptions about India’s noncommercial character.
Only recently has there been any progress in addressing the powerful and complex non-
Western commercial apparatus that underlay the Indian economy. Yet, despite growing
recognition that India has long maintained itself as a formidable commercial society, we still
understand very little about the people who engaged in commerce, the institutional
structures by which they controlled credit and money, the ways they used these structures
for investment, and the values that underlay these uses.
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’). Ultimately, the courts concluded that such instruments lacked explicit
statements stipulating conditions for certain kinds of transactions between multiple trading
partners. Accordingly, their negotiability could not be appealed to a court of law (Krishnan
1959; Weersooria 1973). The implication of such a finding is that instruments such as
hundis , which lack legal standing, could not possibly function effectively outside of a specific
local community’s ability to apply customary sanctions; therefore, hundis must be ineffective
instruments for any kind of large-scale or long-distance trade.
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. On the other hand, it
is certainly inappropriate for any person dealing with the day-to-day operation of an Indian
commercial enterprise. The difficulty is that it simply ignores customary sanctions on hundi
transactions that are rigorously enforced by multilocale, multiregional, and even
multinational communities of businessmen. Indeed, the considerable negotiability
established by hundis is a testament to the adequacy of these customary sanctions. 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, it is clear that British and British-trained jurists never really
comprehended the systematic operation of Indian financial institutions.
Even modern economic historians such as A. K. Bagchi (1972) continue to accept Western
10
http://publishing.cdlib.org/ucpressebooks/view?
docId=ft88700868&chunk.id=d0e7229&toc.id=&brand=ucpress
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colonial views that India lacked an institutional system capable of providing the large-scale
finance necessary for industrial investment.[8]
Lacking in all such views of Indian credit resources is any appreciation for the complex
network of financial debts, opportunities, 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. It is scarcely surprising that the scale and scope of Indian
financial operations have been denied, when the very mechanisms for their transaction have
gone unrecognized.
The present book attempts to modify the existing stereotypes (whatever their basis) by
examining aspects of a large-scale system for credit provision—a non-Western banking
system—operated by a South Indian caste during the colonial period.
Village Studies of Indian Commerce
There have been remarkably few studies of the operation of even contemporary Indian
commercial and other economic systems.
Throughout Indian history, 40 percent to 60 percent, and under extreme circumstances
perhaps as much as 80 percent, of village produce has left the village (Habib 1969; MBPEC
1930 1:35–85; Nicholson 1895; Rajayyan 1964–65; Robert 1983; Thorner 1960). A large part
of this exported village surplus takes the form of taxes in kind or money levied by various
governmental institutions. Anthropologists and historians have paid little attention to an
entire range of significant economic activities occurring beyond the level of the village.
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, traders, and governments. Without institutions of credit extension, India
could not have maintained either its notorious tax levies or its extensive system of medium-
and long-distance trade in agricultural and nonagricultural commodities.
To the extent that scholars have addressed Indian financial organization beyond the village,
their studies seem to fall into two categories: (1) studies of bazaar economy, and (2) studies
of major commercial centers, sometimes referred to as ‘burgher cities’ (Bayly 1978, 1983),
and of Indian ‘burghers,’ sometimes called ‘portfolio capitalists’ (Subrahmanyam 1990). But
these studies scarcely scratch the surface of Indian commerce. The role, operation, and even
existence of large-scale merchant-bankers remains, with few exceptions, unknown or
unconsidered.
Indian Burghers and Portfolio Capitalists
The recent studies by Bayly and Subrahmanyam require additional comment, for, as I have
already indicated, they represent a major turning point to the general trends I have just
described, and at first glance their findings seem to stand in radical contradiction to the
conclusions presented in the present study.[16] I begin with Bayly, who explicitly joins the
issue and, in this respect, provides the best opportunity to scout out potential differences
and agreements in our views. In several places Bayly presents detailed historical data and
interpretations about North Indian commercial towns and cities that correct largely
unfounded, Weberian stereotypes about Indian commerce (Gadgil 1959; Lamb 1959; Sjoberg
1970). In particular, he is concerned with the organization of commerce in so-called burgher
cities, such as Allahabad or Benares, which exhibit long histories of financial, commercial,
and industrial activity and an elite, multicaste commercial community.
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
Hindu capitalism
remittance facilities for regional and imperial authorities.
It may indeed be the case that the commercial elites of Allahabad and Benares gave no
special precedence to relationships of caste. But this was not the case for all commercial
magnates, especially those belonging to the Marwari caste (Timberg 1978) or the Kaikkolar
caste (Mines, 1984). Nor was it the case for the Nakarattars, whose caste organization
constituted a corporate financial institution in Indian society.
By 1870 (and, perhaps, for some time before this) the Nakarattars were the premier
merchant-banking caste of the region. Moreover, individual Nakarattars were among the first
Tamil businessmen to divert their assets from banking and trade to capital-intensive industry.
Nakarattars also played major roles in providing financial support and management for
temples and charitable institutions wherever they did business. [Sanjeev: the study of
temple funding will surely provide vital clues about Indian capitalism. How could such HUGE
mega temples get funded without deep institutions of capitalism?]
From the seventeenth to the nineteenth century, much of the European trade depended on
financing by Indian capital under the control of large-scale merchants (Appadurai 1974;
Arasaratnam 1980; Basu 1982; Brennig 1977; Chaudhuri 1978; Furber 1951; Lewandowski
1976; Subrahmanyam 1990). Not surprisingly, the relationship was always strained on both
sides.[20]
From the European point of view, Indian brokers held entirely too much power and,
moreover, often employed it in competition with the Europeans themselves.
By 1680, 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; see also Arasaratnam
1979; 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).
…
It is just at this time that the Nakarattars emerge on the scene in a major way. 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.
7.2 India Traders of the Middle Ages

The book, India Traders of the Middle Ages: Documents from the Cairo Geniza ''India Book'',
by Friedman, M.A., Goitein, S.D.F. is an astonishingly well researched book, and is likely to
throw considerable light on Hindu capitalism. It is an excellent primary source to confirm
aspects of Indian trade.
Until a few years ago, 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. Yet t he
India trade was the backbone of the international economy in the Middle Ages in general
and within the Islamic world in particular. More than anything else, it stimulated inter-
territorial traffic, 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.
Fortunately, it has been possible to assemble during the last decades a collection of records,
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written mostly in the Arabic language, albeit nearly exclusively with Hebrew characters,
which provide much of the desired information. These Judeo-Arabic documents are mostly
of the eleventh and twelfth centuries. They had been originally preserved in the so-called
Cairo Geniza and are presently dispersed throughout many libraries of Europe and the
United States. A first report about the Geniza papers as related to the India trade was
provided in Speculum, the Journal of the American Medieval Academy, in April 1954.
Meanwhile, many new finds have been made and the whole material was subjected to a
systematic re-examination.
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. 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 term India trade is taken here in the widest sense of the word, comprising commercial
activities and travel stretching from the ports of the Red Sea in the West to the shores of
Sumatra, Indonesia, in the East.
Goitein’s definition of the boundaries of the India trade approximates two geographical
terms used in medieval Arabic, (al-) Hind and bahar al-Hind. Hind is used in reference to a
wide expanse, the exact limits of which vary somewhat. As narrowly defined, it denotes
the regions east of the Indus. In its wider usage, it designates the entire region from Makran
(which straddles modern Iran and Pakistan), in the West, to the Indonesian Archipelago and
mainland Southeast Asia, in the East. In reference to the larger area the terms bilãd al-Hind
or diyãr al-Hind (‘the lands of Hind’) are often used.
In the Geniza documents we find the three terms, al-Hind, bilãd al-Hind and diyãr al-Hind,
listed here in descending order of frequency. These seem to be used more or less
interchangeably. I assume that they refer to the same areas intended by the same terms in
Arabic sources. Most of the India traders, whose papers were preserved in the Geniza,
were usually active along the western coast of India.
The pivotal role of Yemen, especially Aden, in the India trade is discussed repeatedly in
this book.
Items of private correspondence of the India merchants have also found their way into the
Geniza. Novices in those foreign parts would describe the terrors of the Indian Ocean, which
was so different from the quiet waters of the Mediterranean, and the ships which were
held together by ropes instead of nails, or complain about their loneliness and miserable
home-sickness. The merchants would send home presents and goods for the use and
maintenance of their families or more distant relatives. Presents were of the greatest
possible variety, ranking from Oriental spices and costly textiles to Chinese porcelain or an
Indian slave girl of six, whom the merchant’s wife back home would bring up to become her
personal attendant.
The second largest group of Geniza papers referring to the India trade is composed of
documents of legal character. Invariably, a merchant embarking on so long a journey did
business not only for himself, but also for others, or acted at one and the same time as an
agent for one or, usually, several investors. In such a case, a deed of commenda, or
‘partnership according to Muslim law,’ as it was called in Jewish legal parlance, would be
drawn up. When the traveler came home, or even when he returned only from India to
Aden, he would make a statement about his dealings in the interest of his partners and
deposit it with the local rabbinical or Muslim court. The partners, on their part, would write
out a release showing that the transaction had been concluded to their complete
satisfaction.
Naturally, things did not always go smoothly. The resulting disputes would be aired before
Hindu capitalism
the rabbinical court, which had largely the character of a merchants’ court, since most of its
members were experienced businessmen. Custom, reason and expedience, rather than any
written law, formed the basis of their decisions.
Since shipwreck was a recurrent feature of seafaring on the Indian Ocean, statements about
men perished and goods lost, or goods retrieved by divers, were made before the nearest
court and forwarded to the parties concerned. The estates of merchants whom death
overtook on their travels would be carefully listed, in order to preserve them for their heirs
back home—to ensure, as far as they could be saved from the rapacity of the Sultans in
whose territories the death occurred. Discord about communal leadership (which was not
unrelated to business, the safety and efficiency of which depended largely upon the local
representative of the merchants) is also reflected in legal documents. Even poems extolling
the merits of these leaders are not without historical value.
In addition to letters and legal documents, the Geniza has preserved a variety of smaller
items related to the India trade. Memos accompanying shipments specify the goods sent,
their quantity and often their price and sometimes instructions on how to dispose of them.
We have some accounts of a brass factory in India, specifying the materials used and the
wages paid. Unfortunately, documents of this type are comparatively rare, presumably
because there existed no religious scruples about their destruction, since they did not
contain the name of God.
The Geniza records contain particularly rich information about the goods exchanged
between the countries of the Indian Ocean and the Mediterranean, their prices in the
different cities in which they were traded, their modes of transport, customs duties and
other expenses connected with them, and details about their relative importance. A
provisional list comprises seventy-seven commodities going West and one hundred and
three exported to the East.
EXPORTS FROM INDIA
Those coming from or through India and other countries of the Indian Ocean may be
classified as follows:
A. Spices, aromatics, dyeing and varnishing plants and medical herbs 36 items
B. Iron and steel (a chief commodity) 6 varieties
C. Brass and bronze vessels 12 items
D. Indian silk and other textiles made mainly of cotton 8 items (only!)
E. Pearls, beads, cowrie shells and ambergris 4 items
F. Shoes and other leatherwork 2 items
G. Chinese porcelain, Yemenite stone pots and African ivory 3 items
H. Tropical fruits, such as coconuts 5 items
I. Timber 1 item Total 77 items
Different types of iron and steel loom large in the Geniza records, but only as raw
materials. Indian swords, so famous in Arabic literature, are never mentioned. Whether the
Middle East Muslims preferred to manufacture their own weapons, or whether the Jews, for
one reason or another, refrained from trading in this commodity, needs further elucidation.
The details about the fabrication of copper vessels are very remarkable and certainly deserve
the attention of the specialists. Southwestern India was famous both for its copper mines
and its bronze and brass industry. The Geniza shows us: (a) that large quantities of copper,
lead and other raw materials of that industry were imported to India from the countries of
110
the West; 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, i.e., according to
specifications provided. 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;
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,
although these too must have had a long tradition behind them.
As for textiles, Indian muslin {Indian red silk}, called ldnis {lãnas} in some letters and ldlis
{lãlas} in others, as well as muslin clothing are frequently mentioned, but mostly as presents
sent by the India traders to their wives, to business friends or to religious dignitaries. On the
other hand, Indian cotton fabrics were traded in considerable quantities, but still were only
of secondary importance. Since textiles took up much cargo space, only precious textiles
were, as a rule, considered worthwhile to ship; but the Jewish traders represented in the
Geniza catered mostly to middle class customers.
IMPORTS TO INDIA
As eastbound, i.e., sent from the ports of the Red Sea or from Aden, the following
categories of goods have been noted in the Geniza papers:
A. Textiles and clothing 36 items
B. Vessels and ornaments of silver, brass, glass and other materials 23 items
C. Household goods, such as carpets, mats, tables, frying pans, etc. 7 items
D. Chemicals, medicaments, soap, paper, books 19 items
E. Metals and other raw materials for the copper industry 7 items
F. Coral (a staple article of great importance) 1 item
G. Foodstuffs, (cheese, sugar, raisins and olive oil) and linseed oil for lamps, etc. 10 items
Total 103 items
This list, which, after an exhaustive study of the Geniza material, will be certainly enlarged by
many items, is impressive, but misleading. If one compares it with the list of westbound
goods given above, one may jump to the conclusion that India and the Orient mostly sent
agricultural produce and raw materials, while the Middle East exported mostly industrial
products and consumer goods. 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.
This, however, was not the case. The industrial and consumer goods sent to India were of
the greatest variety, but their value, as a rule, amounted to comparatively small sums.
They were used by the Middle Eastern merchants and their families, not by the local
population. Only in exceptional cases, as in that of Joseph Lebdi’s India trip, most of the
Oriental goods were purchased at the prices obtained for Middle Eastern products. Mostly,
gold and silver, in particular Egyptian gold pieces, the dollars of that period, accompanied
orders for Indian goods. Raw materials for the Indian bronze industry, however, were sent as
an equivalent.
Whenever possible, the merchants preferred sending goods instead of gold. It was
customary to pay for the products of the Orient in cash. Thus, the question raised by R. S.
Lopez, how the Middle East made good its apparently unfavorable balance of gold in its
trade with India, is still valid. The material alluded to in the preceding lines seems to indicate
that there is no clear-cut answer to this question.
Turning from the goods to those who handled them, one is struck by the predominance of
Hindu capitalism
merchants from North Africa in the India trade. 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. However, the same holds true concerning the hundreds
of other persons mentioned in them. The coastal towns of the Red Sea, Arabia and India
were flooded with people coming not only from the larger cities of the Muslim West, such as
Barqa and Tripoli, Libya, Qayrawan and al-Mahdiyya, Tunisia, Tlemcen, Algiers, Fez and
Tangier, Morocco, Malaga and the isle of Majorca, Spain, but also from small and out of the
way places, such as (Jabal) Nafusa, Libya, Urbus, Tunisia, and Der`a, Morocco. In a number of
cases, our documents prove that such persons, or even their fathers, had previously
immigrated to Egypt. In others, however, we definitely see merchants from Tunisia, Morocco,
Spain and Sicily undertaking the long voyage to India and, in some instances, even more than
once.
In a stimulating essay entitled, “The Fatimids and the Route to India,” 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, the Abbasid caliphs of Baghdad.
As to the organization of the India trade, no merchant guilds can be discerned in its Middle
Eastern branch. The merchants appearing in the Geniza records normally concluded
partnerships and traveled in company, but no rigid organization or coercion whatsoever can
be discovered in this respect. It is astonishing how many small fry participated in this
overseas trade. In order to spread the risk, a Cairene businessman would join many
partnerships each with comparatively small sums or with limited amounts of goods, and
persons possessing little capital would venture on the long and dangerous journey relying
mainly on the capital or merchandise confided to them. An important merchant would be
accompanied by a slave who served him as a business agent and also as a menial, or he
would send a slave out to India instead of going himself.
Yet this great trade did not entirely lack organized leadership. It was provided by the
representative of the merchants, in Arabic wakfl al-tujjdr, in Hebrew peqfd ha-soharcm. No
substantial difference can be discovered with regard to this important office vis-à-vis the
Mediterranean and the India trades.
Over twenty places on the west coast of India are mentioned in the Geniza records. Each
ship or convoy had its own port of destination and was labeled accordingly ‘the one bound
for Broach’ or Tana, or Kalam, etc. Merchants and goods traveling in a ship heading for a port
different from their own destination had to change to another ship. An additional reason for
this seemingly strange system was perhaps the endeavor to avoid the excessive customs
duties levied in each port.
The names of the Indian shipowners, merchants and craftsmen mentioned in the Geniza
records will require the attention of the experts. It seems that quite a number of them are
not proper names, but designations for officers or members of caste guilds. Thus PTN SWMY,
whose large ship foundered, after having been driven by winds to Berbera on the African
coast (while the escorting smaller craft arrived safely in Aden), certainly was no other than
the pattana svami, the head of a large merchants guild, who also served as a kind of mayor.
Reference is made repeatedly to an Indian shipowner PDYAR, which word is in some letters
preceded by the article, characterizing it as a title or as a term of office. The PDYAR
possessed several ships, one of which was commanded by a Muslim, and he was addressed
in writing by the above-mentioned Madman. One wonders in which language the two
corresponded, presumably, in Arabic. It is, however, not excluded that the Jewish
representative of the merchants in Aden kept an Indian clerk for his correspondence with
the authorities, shipowners and business friends in the ports of India .
Business was conducted to a large extent along denominational lines, simply because this
112
was the practical thing to do. Members of one religion traveled together in order to be able
to fulfill their religious duties, such as prayers and observance of the Sabbath, holidays and
dietary laws. Partnerships were concluded and dissolved and many other civil cases were
brought before the courts of the various denominations. These courts also dealt with
matters of inheritance, so important for families whose fathers and sons were exposed to
the hazards of overseas travel.
Yet the same Geniza letters reveal an astonishing degree of interdenominational
cooperation, matched by almost complete absence of animosity against other
communities. Partnerships and other close business relationships between Jews and
Muslims, or Hindus, 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. The great dangers shared in common, the feeling that every one’s lot was in
the hand of the same God, certainly contributed much to that spirit of all-embracing
brotherhood, which pervades the India papers of the Cairo Geniza.
Hindu capitalism
8. 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, institutions and incentives of capitalism (property rights, rule of law,
etc.) do NOT necessarily increase wealth significantly.
There is an X-factor involved in this whole thing, as it is in beauty contests! It is about
culture.
This is not as fuzzy at it sounds. It has a precise meaning.
This new understanding of the cultural drivers of wealth is growing largely because of the
work of Deirdre McCloskey. In particular, McCloskey has proposed a potent hypothesis about
dignity. The more I think about it the more sense it makes. That surely is the PRIMARY
REASON why Hindu capitalism has performed badly over the past 2000 years (particularly
the last 200 years), even though many of the other institutions of capitalism were often
present in India's history.
And although we had Arthashastra, the world's first and one of the most potent analyses of
wealth.
Capitalism is, in the end, a state of mind. In particular, it requires a sense of equality, a
sense of dignity, of equal competition
When we talk about equal liberty, we must really mean it. Liberty means giving everyone
equal dignity.
Recently FTI member Harsh Vora wrote on his Facebook page:
Today's TOI issue (25 August 2012, pg. 2) discusses why Indian students excel abroad, but not
at home – why Homi Bhabha, Amartya Sen, and Ramanujan became big stars in foreign
universities! The reason is foreign universities don't require students to be servants.
Students are not required to use the word 'sir'. Above all, there is freedom of individual
thought. 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). Using such suffixes only creates an unequal
playing field. Much better to recognize individuals as persons worthy of regard in their own
might!
Well, this actually holds the key!
Because that’s where the poor quality of Indian labour comes from.
I recall the equal competitions we had with school classmates (1965-1976). A good number
of these classmates are highly qualified professionals settled abroad in the academia or
private sector. There was never any question about our “equality” or "equal dignity". We
competed on everything, including academia, sports, dramatics, quiz; but also collaborated.
THAT culture was responsible for creating a hugely aspirational upwardly mobile middle class
in India.
On the other hand, there were those who “served” us. The maids and gardeners at home,
the drivers, the vendor who sold vegetables at the doorsteps of our house. These people
were NOT EQUAL. These people were not part of the game. These people were tools, meant
114
to serve our needs. They were not regarded as independent humans with the same dignity
that was available to our fellow classmates or teachers.
This unequal hierarchy and different levels of dignity among people continues in India.
Take the example in 2010 of a prominent Indian who comes regularly on TV to promote self-
respect. I really appreciate his work and suggested that he make it a practice of having coffee
with his staff, on rotation (e.g. his driver) in a restaurant to discuss their life and career
aspirations.
That was the test. Whether we pay lip service to equality or we really mean it.
He balked at this suggestion and said that doing such a thing would send the wrong signal to
people.
This is about 2010. This says it all. Therefore, when some Indians are heads of multinational
companies and leaders in the academia, others continue to perform dismally. They just don't
have the self-regard and dignity.
Let me show what others think about Indian labour productivity. In a second post I’ll publish
my brother’s experiences with Indian labour. (I'd also like to note, here, the low quality of
office assistants in most government offices in India.)
Please note that I’m NOT being critical of Indian labour. It is NOT their fault. I’m being critical
of educated Indians who've not yet broken down the “status” barriers between them and
their staff. We need to ACTUALLY DELIVER EQUALITY if we want India to achieve its
potential.
The Indian Factory Labour Commission report of 1909 is full of testimony by employers
regarding conditions in the mills. A substantial fraction of workers were absent on any given
day, and those at work were often able to come and go from the mill at their pleasure to eat
or to smoke. Other workers would supervise their machines while they were gone, and
indeed some manufacturers alleged that the workers organized an informal shift system
among themselves. The mill yards would have eating places, barbers, drink shops, and other
facilities to serve the workers taking a break. Some mothers allegedly brought their children
with them to the mills. Workers’ relatives would bring food to them inside the mill during the
day. “There was an utter lack of supervision in the Bombay mills.” One manager even stated
that the typical worker “washes, bathes, washes his clothes, smokes, shaves, sleeps, has his
food, and is surrounded as a rule by his relations.” Source: Gregory Clark, A Farewell to Alms:
a brief economic history of the world, p.363.]
Further
In some cases, high levels of technical expertise are required, and some of the New Zealand
companies experience difficulty in accessing local people with the requisite skills. Two
approaches are used to counter this problem: training local people, either in India or in New
Zealand, and using expatriate staff from New Zealand to conduct or supervise the skilled
work.
Both of these approaches add significant cost to the operation (with expatriates costing four-
six times as much as local staff), but are considered necessary until local skills develop to
higher standards. One New Zealand company that manufactures specialised equipment is
concerned about the quality of labour in India, noting that it does not employ local people
for this reason.
“We wouldn’t employ local people in India – only New Zealanders, or Europeans. The reason
– we feel that the work ethic is poor, labour laws v restrictive (can’t sack people), graduate-
level education not very good; if you get the wrong person, you can’t do anything about it –
Hindu capitalism
high risk!” Tait Radio Communications [Source:
http://www.asianz.org.nz/sites/asianz.org.nz/files/India_Opportunity.pdf]
116
9. 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
9.1 India needs to rediscover and strengthen its innate capitalism

The rules of the game changed between 1400 and 1750. Just like big companies that
do not change with the times, die, India almost entirely lost its capacity to innovate
by around 1750. Others, earlier far behind, rushed ahead. Every Tom Dick and Harry,
including Japan, South Korea, Hong Kong, Singapore, Taiwan went ahead.
India continued to lives in its dreamworld, as confused as Islamic cultures are about
their precipitous downfall. Tragically, till today, most Indians REFUSE to recognise
that the rules have changed long ago. The competition is no longer the same. It is
10 times tougher.
India can NEVER become No.1 in the world again till Indians realise that they have
to play with the new rules.
That means, among other things, discarding caste, stopping the constant religious
babble that destroys peace and harms relationships, and the economy. That means
building systems that are incentive-compatible.
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.
Unfortunately, none of the existing political parties in India have the remotest clue
how to get this to happen.
And so, once again, if you are serious about a very prosperous and successful India,
read BFN; join FTI. There is NO other policy known to mankind that can help India
achieve its potential; or rather, its natural right.
9.2 Hinduism will do well to rediscover itself

The caste system was perhaps an efficient solution to the agricultural age in India. It helped
create an environment for hundreds of millions of people to live harmoniously in villages,
and it helped produced sufficient surplus to feed hundreds of prosperous towns and cities.
Not for nothing was India the world’s wealthiest nation for thousands of years.
With the caste system even the smallest village could guarantee itself a blacksmith, traders,
cleaners, and priests to conduct marriage and death ceremonies. 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. The caste system also produced soldiers when needed.
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, rail-line, electricity and telephones.
Not a paradise, by any means – particularly for the ‘lower’ castes. But it worked.
Hindu capitalism
This model was not uncommon during the agricultural era. European feudalism comes to
mind but I’m sure broadly similar social structures must have been created in China. I know
that Japan definitely had its own ‘caste system’ of sorts.
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, given that most people could
not afford meat and had to eat just rice and coarse lentils. This clearly did not occur all at
once. It took time for the culture to stop eating cows and other animals (indeed, in the
hunter-gathering era, till about 10,000 years ago, no one could have survived without eating
meat).
That is why Hinduism took the shape it did in the last 2000 years – basically a way of life to
support an agrarian society.
The context has changed
Between 1400-1750 AD the rules of the game changed. To the agrarian settlement in Europe
was added the manufacturing or industrial revolution, and the scientific method.
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. They no
longer needed their local blacksmith. A factory in the city could produce things 10 times
cheaper and supply it to every corner of the world. Knowledge became specialised. The
division of labour became acute and all-pervasive.
In this changed context, Hinduism as it evolved over the past 2000 years is no longer
relevant. For instance, the caste system has became a HUGE BLOCKER on India’s progress.
And outdated beliefs about cows and such things create further complications and block
India’s forward move.
No wonder India has slipped into deep poverty as the rest of the world has progressed
rapidly ahead. India’s per capita GDP is 15 times less than that of USA today.
This is because Hinduism has not kept pace with the times.
Time to re-invent Hinduism from scratch
I’m actually a ‘kind of’ Hindu – since ancient Hindus included atheists, agnostics and skeptics.
Indeed ‘Hindu’ only meant someone who lived on the other side of the Sindhu (Indus) river.
I’m one of them, for sure.
I’m also broadly comfortable with Advaita philosophy and Buddhism. But I’m far more
comfortable with Charvaka’s school of thought, noting that there has been no greater and
more revolutionary thinker than him in India so far (assuming he existed!). I also believe in
the validity of many Indian things like zero, the number system, yoga, and much of ayurveda.
So I’m at least some form of ‘Hindu’. But I’m not a caste-loving, cow-worshipping Hindu. I am
a SCIENTIFIC Hindu. I’m a Charvaka, a Buddha, a Vivekananda, an independent human being.
I see myself as an Indian, and human - the highest category of all.
So I’m happy to participate in the re-invention of Hinduism, and help re-write its scriptures
from scratch. I’m sure we can create a new Hinduism best tailored to the needs of India in
the modern, scientific world. 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. In this Hinduism we’d
have all the temples and the lot, but have them as quiet places for contemplation and self-
reflection, or for a lecture or two on the Vedanta, Buddhism, Charvaka’s ideas, or Hayek’s
liberalism. We’d all be called Brahmins since this is the knowledge age. Even a plumber has
to be highly qualified and experienced. And so on… We can take the best from all of
mankind’s thinking and create a NEW WAY OF LIFE.
118
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.
9.3 Socialism is wiping out India’s history

India has the world’s greatest history. Its history is not just ancient, it has some of the world’s
most significant documents and monuments – in the fields of science, philosophy, and art.
Greece (and Europe, more generally) pales into insignificance in comparison with India.
Greece, for instance, has merely one tiny city-state – Athens to show. India, on the other
hand, has 1,000 Athens.
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.
Yet, India also happens to have a climate (hot, humid) which destroys documents very
quickly. And so it is crucial to use the latest technologies to preserve key records from our
past.
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. While I won’t go
into details here, below are extracts from a FB conversation today with Harsh Vora, that
show why it is literally impossible to preserve records in socialist India.
Harsh
India has VERY RARELY shown regard for preserving her history. 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.ly/v8CFUA
My response (slightly edited):
Harsh, 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).
Most records have been lost.
The truth is that our ‘educated’ people are focused on getting educated and FLEEING India.
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, or India’s historical documents. That
is because such work is a lowly-paid dreary dead end.
It is almost IMPOSSIBLE in socialist India to get funds for preserving old records, but it is easy
to get thousands of crores of rupees worth of subsidies for industries, or for ‘rural
development’ (most of which end up in the pockets of corrupt politicians).
Socialism is insidious. It has many effects, all of them negative.
Therefore there is no point blaming anyone but the Indians themselves, who both elect such
socialist rascals to power and refuse to offer themselves up for election. Thanks, Shantanu
Indians gave in too easily to Nehru's grandiose statist ideas in the 1950s. Rajaji consistently
tried to get him off the socialist bandwagon but he didn't care. I'm certain Patel would have
opposed such a conception, as well.
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); Weber considered Hinduism
Hindu capitalism
incompatible with capitalism, and even in the 1990s, there is utter tripe being taught about
Indian economic history in the most famous textbooks on economic history.
When all our intellectuals took Marx's and Weber's words at face value, then it was difficult
for Rajaji to overpower these views. And the Hindus who wrote about history were so poorly
read (e.g. Golwalkar) that they merely proved to people like Nehru (and Gandhi) how shoddy
Hindu political and economic thinking was.
Our tragedy is that very few have cared to ACTUALLY study India's social, political and
economic system. Fortunately, some people have been doing this in a piecemeal manner
over the past few decades.
It is time we bring this together and show India that its heart is made of gold, and we need
to rediscover that vitality and system of wealth creation.
120
10. References
Caste and Capitalism in Colonial India.

a)Subedi, ‘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’, (1999) 30 California
Western
International Law Journal 46;
b) Pandeya, ‘Human Rights: An Indian Perspective’, in Ricoeur (ed.), Philosophical Foundations
of Human Hights (Prepared by UNESCO and the International Institute of Philosophy, 1986) 267.
c) Sharma, Hinduism and Human Rights, A Conceptual Approach (New Delhi: Oxford University
Press, 2004)
d) Nanda, ‘Hinduism and Human Rights’, in Werner (ed.), Human Rights and Humanitarian
Law: The Quest for Universality (The Hague, Boston: M. Nijhoff, 1997)
Blog posts that could throw light on the topic
 Hindu Capitalism #17: The writings of Lakshmi Chandra Jain
 Hindu Capitalism #12. Capital and Karma: Capitalism and Hinduism Compared, by Oyvind Jaer
 Does Hinduism cause corruption?
If this is Hinduism then everyone should become Hindu
Hindu capitalism – a vibrant, innovative, and TRULY FORMIDABLE form of capitalism [#1]
 Hindu Capitalism #20. Two further excerpts to prove Hinduism is 100% anti-socialist!
 Hindu Dharma and capitalist institutions #1: Human rights
 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, by Swami Vivekananda
Arthashastra
 Sanskrit
 PDF (Download) Word (Download) Another version here. HTML (Wikisource)
 Hindi translation
 Ganapati Sastri (1924)
 English translations
 1) 1915 R. Shamasastry translation. This is available electronically and I've included it in the
above version. [Source]
 2) 1955 R. P. Kangle's translation (University of Bombay)
 3) 1992 LN Rangarajan's translation (Penguin) – available for $10 in "cut and paste" kindle
edition. It can also be read (considerable portions) on google books. 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.
Chanakya Niti
Hindu capitalism
 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
122
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 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!
11
http://www.outlookindia.com/article.aspx?237402
Hindu capitalism
Damodaran identifies three sources of industrial capitalism in India—mercantile
capital ("bazaar-to-factory"); professionals ("office-to-factory") 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 semi-feudal 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 well-researched and
readable book.
http://www.usc.edu/schools/college/crcc/private/ierc/conference_registration/papers/Kura
n_final.pdf
Indian response to the onslaught of westernism/modernity

In the 19th century, the British weakened the traditional Indian social order and
inferiorized its culture, its worldview and the people as a race. They induced them
to launch cultural, ideological struggles at two levels: one against caste
discrimination and women’s oppression, and another against cultural
hegemonization by the colonial state. While the reformers had found traditional
culture inadequate to meet the challenges of western modernity, 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. Thus, ambivalence and contradiction in their attitude towards
124
tradition and modernity, which is characteristic of colonial consciousness, surfaces
repeatedly in their ideological formulations throughout the 19th and early 20th
centuries.
Further, it may be added that India’s encounter with western modernity,
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, nation, secular and the like (Alam, 1999: 56–7). This was
reinforced by the Indian leadership’s keen sense of responsibility to communicate
an aspiration for freedom from political bondage, economic exploitation and
cultural hegemony of the colonial rulers.
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. However, a critical attitude has not been
lacking. Nearer present times, 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. By mobilizing
latent cultural resources, he had been able to turn satyagraha and ahimsa into
effective strategies for social and political struggles. Thus, he had launched a
‘transcultural’ protest against the materialist and hyper-masculine worldview of
colonial modernity (Nandy, 1983: 48).
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. In his
pamphlet Hind Swaraj (1909), he indicted the West for its stance of arrogant
superiority over its material achievements, barbarity and irreligiousness (Gandhi,
1909, 1910). His cultural agenda was based on such principles that hardly coincide
with the ideals of western modernity, dividing societies into traditional or modern
(modernization regarded as synonymous with westernization and secularism) and
putting exclusive emphasis upon value-neutral, scientific and universalistic
rationality (Baykan, 1991: 138). In this worldview, modernity has become gender-
biased not only by continuing the gender division of labour but also by the
monopoly of men in public affairs, e.g. the administration, politics, sciences and arts
(Van Vucht Tijssen, 1991: 151). Gandhi rejected not only this worldview but also
condemned the objectification of nature and the ruthless exploitation of resources.
Above all, his keen awareness of the untapped potential of India’s rich cultural
heritage, particularly folk resources and relevant elements of modernity, has
been recognized not only by the advocates of western modernity including
feminists but also by the traditionalists.
However, the decolonization process, initiated by Gandhi, 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. 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. In this context,
Giddens’ description of globalization as an ‘enlargement of modernity from society
to the world’ (Giddens, 1993) is appropriate.
It can be said that the powerful current of western modernity, especially its
ultra-consumerist orientation, is now affecting numerous sensitive teenagers and
Hindu capitalism
youth with full force, owing to the deep penetration of satellite television and cable
networks in urban as well as rural areas and slums.
Source: Cultural values and globalization: India’s dilemma, Kamlesh Mohan, Punjab
University, India, Current Sociology, 59(2) 214–228, 2011
126

Hindu Capitalism

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Hindu capitalism

Why capitalism is the only economic system compatible with

Become a Unleash India! Join me on

Gold and God: a very close relationship

Frontispiece: Freedom is bounded by accountability...................................................iii

2. Commitment to freedom, reason, prosperity..................................................23

3. Knowledge about this world............................................................................35

5. Institutions: Science and innovation................................................................59

6. Institutions: Financial system and banking......................................................60

7. Institutions:Trade and commerce..................................................................104

8. Why Hindu capitalism failed to deliver in the recent centuries.....................112

1.1 Kautilya, the anti-socialist

1.2 Goddess Lakshmi

1.2.1 In praise of profit

India’s History Is No History: The Marxist View of Indian Economic History

Hinduism and Capitalism: Incompatible?

Hindu Equilibrium: Deepak Lal

1.5 Rondo Cameron got it totally wrong about India

1.6 Max Weber got it totally wrong about India

1.7 How Vedic socialists have got it wrong

1.8 The Capitalist Structures of Hinduism

The Capitalist Structures of Hinduism

1.9 Hindu capitalism is Adam Smith’s capitalism supercharged

1.10 There is no Vedic socialism

2.1 Vedic capitalism. Affirmation of equality and pursuit of wealth.

2.2.1 Policies on which I agree with Chanakya

2.2.2 Policies on which I differ with Chanakya

2.2.4 Freedom of speech and belief

2.2.8 High quality Minsters/leaders

2.2.9 Exhortation to be rich

1) Protecting/improving your project leads to accomplishment of goals.

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!

What does this say? It says:

4.1 Key functions

PROPERTY RIGHTS IN HINDUISM

4.1.2.1 The logic behind inheritance laws

4.1.4 Social minimum

4.1.5 A minimal state with low taxes

Prabhu Guptara’s response

4.1.6 Integrity in public life

4.2 Public choice: making common decisions through public

COURTESANS, PROSTITUTES AND BROTHELS

4.4 Ensuring corruption free governance

4.5 Limitations of the Hindu state: Paternalism (mai-baap sarkar)

5.2 Science and technology

6.1 Free banking in India

6.2 Microfinance in Hindu India

6.3 How loans were recovered

6.4 Absence of usury prohibitions in Hinduism

 Notes on Hindu capitalism – continued: #6

I’ve removed all footnotes. Please check original PDF.

THE RISE, PROGRESS, AND PRESENT CONDITION OF BANKING IN INDIA, BY CHARLES

BANKING DEVELOPMENT IN INDIA

6.7 Foreign investment

Kautilya's Arthashastra: A Neglected Precursor to Classical Economics

7.1 Commerce in Indian Society

The Study of Commerce in Indian Society

7.2 India Traders of the Middle Ages

There is an increasing understanding that while institutions of socialism are totally

 Why do ‘Hindus’ hate liberty? Here’s a clue

9.1 India needs to rediscover and strengthen its innate capitalism