Hindu Capitalism-Why Capitalism Is The Only Economic System Compatible With Indian Culture

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.
Im now starting this book by bringing together these blog posts/ writings. Ill 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Please do not cite from this manuscript, since it is work in progress.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 liberals views can ever be final.)
Please delete this draft after reading! [join me at

sabhlokcity.com]
Hindu capitalism
In praise of profit: Shub Labh
Gold and God: a very close relationship
ii
Hindu capitalism
Frontispiece: Freedom is bounded by

accountability
Freedom
(to act)
Accountability
(including attribution*)
*A free person is always accountable for his or her actions (or inaction).
The essence of liberty has always lain in the ability to choose as you wish to
choose, because you wish so to choose, uncoerced, unbullied, not swallowed up in
some vast system; and the right to resist, to be unpopular, to stand up for your
convictions merely because they are your convictions. That is true freedom, and
without it there is neither freedom of any kind, nor even the illusion of it.
Isaiah Berlin, in Freedom and Its Betrayal 1
Liberty in thought and action is the only condition of life, growth and well-being:
Where it does not exist, the man, the race, and the nation must go down.
Vivekananda2
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
iii
Acknowledgements
Thanks to:
Person
N. Sriram
Lalatendu Dash
Lalatendu Dash
For sending the following

Project on Indian science and technology
India Office records
The Economic History of Organizational Entities in
Ancient India by Vikramiditya S. Khanna
Arjun
Singh Ancient Indian Dispute Redressal System - as
Thakur
given in Agnipuraan
AAryan Rao
Cultural values and globalization: Indias dilemma,
Kamlesh Mohan, Punjab University, India, Current
Sociology, 59(2) 214228, 2011
iv
Hindu capitalism
Contents
Frontispiece: Freedom is bounded by accountability........................

Acknowledgements..........................................................................
1.
Introduction.............................................................................
1.1 Kautilya, the anti-socialist.............................................................................
1.2 Goddess Lakshmi..........................................................................................
1.2.1 In praise of profit................................................................................
1.2.2 Prosperity...........................................................................................
1.3 For 12 out of the past 20 centuries, India was the worlds
RICHEST country.......................................................................................
1.4 Why do most writers believe India and capitalism are
incompatible?...............................................................................................
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.........................................................
1.9 Hindu capitalism is Adam Smiths capitalism supercharged.......................
1.10
There is no Vedic socialism..............................................................
2.
Commitment to freedom, reason, prosperity.........................

2.1 Vedic capitalism. Affirmation of equality and pursuit of wealth..................
2.2 Arthashastra...............................................................................................
2.2.1 Policies on which I agree with Chanakya..........................................
2.2.2 Policies on which I differ with Chanakya...........................................
2.2.3 Freedom...........................................................................................
2.2.4 Freedom of speech and belief..........................................................
2.2.5 Natural rights...................................................................................
2.2.6 Equality............................................................................................
2.2.7 Reason.............................................................................................
2.2.8 High quality Minsters/leaders...........................................................
2.2.9 Exhortation to be rich.......................................................................
3.
Knowledge about this world...................................................
4.
The minimal state..................................................................

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

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

6.1
6.2
6.3
6.4
6.5
Free banking in India..................................................................................

Microfinance in Hindu India........................................................................
How loans were recovered..........................................................................
Absence of usury prohibitions in Hinduism.................................................
How British joint stock system and barriers displaced Hindu
bankers.......................................................................................................
6.6 Corporations...............................................................................................
6.7 Foreign investment.....................................................................................
7.
Institutions:Trade and commerce.........................................

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

centuries.............................................................................
9.
Rebooting Hinduism.............................................................
9.1 India needs to rediscover and strengthen its innate capitalism................
9.2 Hinduism will do well to rediscover itself..................................................
9.3 Socialism is wiping out Indias history......................................................
10.
References...........................................................................
11.
Unsorted material................................................................
vi
Hindu capitalism
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 worlds 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!
3
http://www.hinduwebsite.com/hinduism/h_socialism.asp
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 Nehrus Fabian
socialist ideas.
If we can prove that Hinduism is innately CAPITALIST, then weve 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. Id encourage everyone to get involved.
Lets try to understand how ancient India worked, and if we determine it
was capitalist, then we can sell freedom to India more easily.
Im 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
(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?
Hindu capitalism
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.
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
Indias 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.
Indias 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 cant 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
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
Hindu capitalism
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
1.2.2 Prosperity
Virji Vora was the worlds 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 Companys 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
Companys 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 travelers cheques).
1.3
For 12 out of the past 20 centuries, India was the

worlds 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.
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/cooldata/): vertical-file_02-2010 (XLS)
Hindu capitalism
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
Indias 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 Roys analysis focused on the
transfer of capital from India to the West by Europeans who
temporarily resided in India. Roys 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 that the wages of European employees were remitted
abroad (Roy 1987, 42-44).
Dadabhai Naorojis 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 Indias 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.
Indias 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 Indias deindustrialization during
the nineteenth century continued to receive attention after Indias
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, while Ram (1972)
Hindu capitalism
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 Indias
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 Indias
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--vis Indian products and this furthered
Indias deindustrialization. Pardesi (2007, 216-217) suggests that
Mughal India was not only self-sufficient but also the ultimate
destination for much of the New Worlds gold and silver. Indias
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--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
10
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.
Indias History Is No History: The Marxist View of Indian
Economic History
Amongst the most famous proponents of the notion that India
displayed little ability to develop on its own is Karl Marx. [Hegel
viewed Indias 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.] Marxs view of India was shaped
by Hegels 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
Hindu capitalism
11
banker-merchants.]
Much of Habibs 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). Indias
spiritual values place greater emphasis on reducing desires
rather than bettering ones 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 limited to discussions of the caste system.
Amongst the earliest and most influential proponents of the view
that the caste system hindered Indias 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.]
Webers 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 ones place in the caste
hierarchy and a persons earnings were more likely to reflect his
12
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 Indias 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 Indias 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 Indias 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-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).
Indias 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 Indias
industrialization were not so easy to overcome.
One major factor in hindering Indias industrialization during British
rule was the low demand for industrial goods. Indias population
had risen from 200 million around 1800 to 417 million in 1947.
This enormous growth in population, however, did not lead to an
Hindu capitalism
13
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
countrys 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
Indias 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 laborscarce 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 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 Indias political history has characterized
by feuds between local rulers. This political instability resulted in
14
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,
Indias population never exceeded 200 million. A third
characteristic was a stable standard of living: Indias 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 entirely free, with a minimal
state. That's a key point that I'd like to highlight in my book.
Hindu capitalism
15
1.5
Rondo Cameron got it totally wrong about India

Rondo Camerons 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, Im 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 kids 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 dont 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

Heres 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
16
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 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
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 doesnt 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
17
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 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 Ive quickly checked up my
fathers 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 fathers 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
individuals 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 fathers 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
18
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 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.
Hindu capitalism
19
1.8
The Capitalist Structures of Hinduism

Mario Gmez-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 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-Sastrasof Vedic inspiration and
devoted to regulating social life in the context of justice and
righteousnesscenter 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 consideredand still is, although in a way more akin
to its original designa pre-requisite for every good society, and the axis of
social life. For example, in the laws of Manu, the most important DharmaSastra, the duties and functions of the castes are listed and their
20
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. Manus 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 economic forces was not over regulated and, more
significantly, the individual was considered to have rights before
the state. The limitation of the states 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
Hindu capitalism
21
get taxes. So there were very few such factories, and wherever these
existed, Im 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 constructso
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 Hinduisms 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 underregulation 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 societywhere 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.
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
22
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 ones
merit and to making ones own talents count, as was indeed the ideal aim
in Hinduism, we can say that we are witnessing at least an instance of precapitalist praxis.
In conclusion, we cannot say that traditional Hinduism thoroughly
shares capitalist precepts, but we can assert that it pre-figures
capitalism much closer than socialism.
What characterizes socialism above all is that it takes the person as a
means, while the recognition of the individual as an end, and thus as
subject of inalienable rights, is the most distinctive juridico-economic
structure of both capitalism and Hinduism.
1.9
Hindu capitalism is Adam Smiths capitalism

supercharged
Arthashastra represents a society that focuses on wealth creation and
security to ensure the happiness of its citizens. Wealth creation is
absolutely paramount.
In addition to exhortations to become rich and be brave and diligent in
that goal, Chanakya notes:
The root of wealth is economic activity and lack of it brings

material distress. In the absence of fruitful economic activity, both
current prosperity and future growth are in danger of destruction."
{from 1.19.35,36} [Rangarajan, L N, ARTHASHASTRA, p.150]
Trade shall be [directed towards markets which are] profitable; losses

must be avoided." {2.16.25} (ibid, p. 275).
This reaffirms the fundamental mantra of Hindu capitalism: Shubh Labh.

He clarifies that land is WORTHLESS. It is what we DO with it that is
important:
The value of land is what man makes of it." {7.11.9} (ibid, p. 94)
Finally, to ensure wealth a society must remove obstacles to economic

activity, profit, and trade:
In the interests of the prosperity of the country, a king should be

diligent in foreseeing the possibility of calamities, try to avert them
before they arise, overcome those which happen, remove all
obstructions to economic activity and prevent loss of revenue to
the state." {8.4.50, 8.5.21} (ibid, p.94).
Given these (and many other) BLUNT DIRECTIONS TO BECOME RICH, it is

absurd for anyone to even remotely suggest that (a) Hinduism is "other
worldly" or that (b) Hinduism promotes socialism.
There is NO Vedic socialism. Or Integral Humanism.
There is Vedic capitalism. There is Hindu capitalism. Period.
All attempts by Hindutva fanatics to promote collectivism, or by half-baked
"thinkers" like Anna Hazare or Arvind Kejriwal to promote socialism (by the
back door) and oppose FDI and free trade are ANTI-HINDU.
Hindu capitalism
23
Not that I much care about someone being anti-Hindu (I'm not yet inclined
to call myself Hindu, although I claim roots in India's sceptical intellectual
tradition). But I much care about the fact that these people have BLOCKED
the study of economics and politics in which India was the world's most
advanced region over 2000 years ago.
For us to have re-discovered economics through the West is a shame.We
should have developed and refined Chanakya's work but probably even
forgot it.
It is not too late even now to OVERTHROW the nonsense of socialism.
1.10 There is no Vedic socialism

The other day I showed how Rajneesh detested socialism. Now
Harsh Vora sent me this link: [This is from my blog post of August
2011]
Dharma Pravartaka Acharya (Dr. Frank Morales) speaks in this video
about the history of India during which he makes some unqualified
generalisations, some of which can be very hurtful to people from
some religions. The reality is far richer than what he presents. But
there is something of merit in what he says about India's recent
history.
He clearly shows that the socialism practiced over the past
64 years is not part of the natural law. He therfore hits out
strongly at Nehru's socialism (although he mixes up India's
'secularism' with atheism). While this man needs to learn some
history, when he talks about freedom, he seems to make sense.
I trust that those who preach "Vedic Socialism" will now review their
ideas in the light of their own concept of natural law (Dharma).
To me, freedom is the natural law.

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

I've explained in (draft) DOF, thus:
At each instant, the karma yogi considers options for action
for their long term consequences without being personally
affected by the success or failure of his effort. Freedom of thought
thus leads like, an arrow, towards moral action. The free man acts
24
with deliberation, aware of the potential consequences of his

actions, always committed to being held to account. In advancing
his self-interests though responsible action, he contributes to the
welfare of mankind and of all life on earth.
Whether it is the karma theory of Hinduism, the Buddhist theory of

the middle path, or Christian theory of sin, each notes that our
choices determine our character. As Rajagopalachari said:
Everyone knows from experience and without the help of any doctrine that
every thought or act, good or bad, has at once an effect on oneself, apart
from its effect on others or on the outside world. Every motion of the mind
deals a stroke as with a hammer, on character and whether one wants it
or not, alters its shape for better or worse. We are ceaselessly shaping
ourselves as the goldsmith busy with his hammer shapes gold or silver all
day long. Every act of ours and every thought creates a tendency and
according to its nature adds or takes away from our free will, to a certain
extent. If I think evil thoughts today, I will think them more readily and
more persistently tomorrow. Likewise it is with good thoughts. If I control
or calm myself today, control becomes more easy and even spontaneous
next time, and this goes on progressively.[1]
The good thing is that we can (largely) choose our character, health,
and reputation. Freedom is in that sense a positive philosophy, that
brings out the best in us. As Ian Harper points out: Our choices
have consequences, not just for our material but also for our moral
well-being. Good choices make us virtuous while bad choices
make us vicious.[2] Even in the most collectivist totalitarian society
we will necessarily remain at least partially free to form our
character and work towards our moral goals.
[1] Rajagopalachari, C. Hinduism: Doctrine and Way of Life, Bharatiya
Vidya Bhavan,1959, p.80.
[2] Harper, Ian, Christian Morality and Market Capitalism: Friends or
Foes?, 5th Annual CIS Acton Lecture on Religion & Freedom, Sydney:
Centre for Independent Studies, 2003.
Hindu capitalism
25
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: Nadkarnis 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) otherworldly 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).
26
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.]
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 themselves the sins of
kings, while kings who do not look after the welfare 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.].
Hindu capitalism
27
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 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 fathers 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.
Heres 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
28
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. Dont blame anyone else! Dont 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]
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 kings 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,
Hindu capitalism
29
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 Kautilyas
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 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. [Source8]
6
I always talk about freedom with accountability.
The Religious Foundations of Human Rights: A Perspective from the Judeo-Christian Tradition
and Hinduism, by Dipti Patel
8
The Religious Foundations of Human Rights: A Perspective from the Judeo-Christian Tradition
and Hinduism, by Dipti Patel
30
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. Ive 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 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
Hindu capitalism
31
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 Hindus 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 (Im 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 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.
32
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 preeminent 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
dont 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 Indias 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.
Hindu capitalism
33
Some later developments in Hinduism explicitly opened the door to

critical thinking. 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
Dayanands 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 mans 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
34
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 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.
Hindu capitalism
35

[5] Kathopanishad (3:12) Eknath Easwaran Translation,
[http://myweb.cableone.net/subru/Vedanta.html#anchor71261]
Oriental Society, Vol. 105, No. 3, , (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]
[10] All citations from Mehendale, M. A., Satyam Eva Jayate
Nntram, Journal of the American Oriental Society, Vol. 81, No. 4,
(Sep. Dec., 1961), p. 405.
[11] Mehendale, M. A., Satyam Eva Jayate Nnrtam, Journal of the
American Oriental Society, 1961, 81 (4): 405-408.
Oriental Society, Vol. 105, No. 3, , (Jul. Sep., 1985), p.510.
[13] K.C. MAHENDRU, "MAHARISHI DAYANAND The Great PathMaker", Diamond Jubilee souvenir of the DAV College Jullundur,
1978.
[14] K.C. MAHENDRU, "MAHARISHI DAYANAND The Great PathMaker", 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/r
aja-yoga/raja-yoga_contents.htm)
[16] Complete Works of Swami Vivekananda, Volume 1, Reason
and Religion,
(http://www.ramakrishnavivekananda.info/vivekananda/volume_1/l
ectures_and_discourses/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.
36
[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.
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.
Hindu capitalism
37
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.
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 cant 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.
38
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).
Hindu capitalism
39
But I'll come to these issues later. For now, let's all just note that Hindu/
Indian thought is PREDOMINANTLY material.
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.
40
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 kings 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
Hindu capitalism
41
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.
4.1.2 Enforcement of property rights

In DOF, I discussed property rights in Hinduism, thus:
PROPERTY RIGHTS IN HINDUISM
The Dharmasastras and Kautilyas 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 womens 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
Marxs 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 regimethe Cholas of Tanjoreis
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
42
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 REGIMECIRCA 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
lands did have economic value.
Unsettled land could be disposed of by the ruler, or, where his power was
weak, whoever had the highest authorityit 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
taxesa king, a chieftain, or village or higher level assemblythe 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 rulers
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
Hindu capitalism
43
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 templerituals 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 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
templethough 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 shouldnt
44
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 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
Hindu capitalism
45
references in the inscriptions show. To give one example, when it was

found after a mans 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 landowners 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-kudinikkior notkudikudi-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 nonWestern 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 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
46
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
assemblymembers 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 affairsirrigation, 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
Hindu capitalism
47
the whole or only a part of his share, including a corresponding fraction of

the perquisites, etcetera, and this was probably the case earlier too. There
may have been rules that restricted sales, for instance, by giving preemption rights to certain groups, such as other landholders or kinsmen. In
Brahmin villages attempts were made to prevent non-Brahmins from
acquiring shares, but the mixed caste composition of originally Brahmin
villages shows that these restrictions were not entirely successful. And in
any case, whatever the restrictions, it is surely significant that
membership in the group was acquired not solely by birth or kinship but
also by purchase.
b) Family and Individual Rights
The classical Hindu law deals copiously with the distribution of property
rights within the family. Inheritance of property is governed by two
different systemsthe 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 circumstancesin
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 holdingsand 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 inheritancea Chola
stone inscription records that a widow gave land that had belonged to her
husband and her brother, and which had become her property after their
deaths.
When a man died without male issue, his widow and the ruler were rival
claimants to his estate. If he died owing revenue, his lands were sold by
the ruler or by the village assembly, which had to pay the revenue. Thus a
48
thirteenth-century Chola inscription records that an inhabitant of a

Brahmin village left it and died elsewhere, with ten years of rent (i.e.,
land revenue) remaining in arrears. He had no heir, so the assembly sold
his land to pay the taxes. But in one case, the wife and son (the son
presumably being too young to cultivate the land and pay the arrears)
pleaded that they needed support, so part of the land was given to the
temple for their maintenance.
Chola king Rajadhiraja II decreed in his fourteenth year (circa 1 160) that a
married woman, even though childless, should inherit from her husband
his lands, slaves, cattle, jewels, and other valuables.
There is even a hint of something like a will, though for a later period. A
Vijayanagar inscription records that a certain Vikramasola Muthurayan
made an assignment of one fifth of his estate to the temple, stipulating
that in the absence of any male issue, the remaining four fifths should also
belong to the temple.
UNCERTAINTY OF LEGAL RIGHTS: THE DANGERS OF A PRIORI REASONING
Father Bouchet found that the eighteenth-century process of dispute
settlement was cheap and efficient: disputes were settled by the village
headman, with the aid of three or four arbitrators. Presumably, the vast
majority of disputes over land sales in the Chola period, too, were settled
within the village, and were not recorded. It was generally only when
higher authorities were called in that the dispute might reach an
inscription, or when the normal processes of dispute settlement
generally arbitration or an attempt to reach a consensusfailed.
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 kings 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 (849985),
land sales to and by individuals were mostly by Brahmins in Brahmin
settlements (brahmadevas). However, by the late Chola period (11791279), many inscriptions record individual sales in peasant villages also.
Imperialistic expansion was accompanied by the distribution of booty in
the core areas; there was greatly expanded irrigation, and the growing
prosperity was accompanied by increasing economic differentiation in core
areas.
How strong is the evidence provided by the analyses of sales by
Karashima and Y. Subbarayulu? Certainly 415 sales of all types in roughly
as many years (of which several involved individuals) is not a large
Hindu capitalism
49
number. But one should note, first, that this is not the total number of
sales described in inscriptions. Not all the inscriptions have been recorded
and translated as yet nor have all the recorded Chola inscriptions been
analysed.
Nevertheless, it appears unlikely, given the frequency with which the sale
appear in the annual epigraphical series, that a very much larger number
of private sales will be found in the inscriptions. But why should one
expect them there? It was expensive to incise inscriptions, and the vast
majority of private transactions would not need to be recorded thus.
One tends to assume that there were relatively few land sales in the Chola
period, as compared not only, say, to Western Europe or England at that
time but also to South India in the British period; and this follows from the
view that the British period saw increasing monetisation, the growth of
markets, and more secure land rights. But it is not clear that rights were
less secure during the Chola period.
There is mention, however, of land bought to be developed and then
resold. Two early-thirteenth-century inscriptions describe the enterprise of
a certain Pandyadeva who bought waste land from a village assembly,
reclaimed it, and sold it four years later for ten times its original value.
Rents could yield a handsome income.
CONCLUSIONS
The king himself apparently had little or no demene lands, but was
entitled to a share of the produce from all the land in his kingdom, though
nothing can be said definitely about the rates of land tax, or what actual
collections were, or how they were distributed. The king was certainly no
Oriental Despot.
Below these institutions lay what one may call, without any claim to
precision, the private domain, and the inscriptions make references to
various categories of private rights, including those generally regarded as
the core rights of private ownership: the rights to possess, cultivate,
mortgage, sell, and bequeath.
This study has concentrated on one medieval South Indian kingdom, but
there is no reason to believe that it was unique. The inscriptional data are
perhaps not so rich for other areas, but other scholars have shown that
private property in land was found, for instance, in North India and Bengal
too.
WOMENS PROPERTY RIGHTS:
I havent 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 Womens Studies
Womens 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 Womens
Succession Act in 1956, we find that in ancient law and modern legal
history, womens property rights have been accepted.
50
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:
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.
9
Knapp hasn't cited the specific section, but I assume this is mentioned in
the Mahabharata
Hindu capitalism
51
Prabhu Guptaras 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 serfdomthough 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.
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 kings
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
52
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 rulers 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 market - was not
implemented by the Indian government, thus further impoverishing
farmers. Even today, there are few who are willing to lend to farmers.
Hindu capitalism
53
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 kings
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]
54
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
Hindu capitalism
55
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 misdemeanoursshowing 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 besinging, 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 courtesans son, who
had to work as the kings 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
panashad 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
Kings 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 Kings personal advisers and attendants such as
the charioteer, physician, astrologer, court poet, etc.
An interesting point is that the courtesans 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
56
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 prostitutes
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 enemys army
chiefs [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 courtesans 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
Hindu capitalism
57
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 Kings 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 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 Kings 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
58
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
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
Hindu capitalism
59
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 mademedaka

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].
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
enemys 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
60
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]
[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
Hindu capitalism
61
-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 months 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. [2.25.6,1215]
PUNISHMENTS
Making, selling or buying liquor other than in the authorized
places: 600 panas [2.25.2]
62
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
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,
Hindu capitalism
63
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 wineKapishayana imported from Afghanistan.
Harahurakaimported 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.
If BFN seems hard to read (for jealousy of one's peers is often a problem),
then why not read Chanakya?
64
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 Kings 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 officials 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 ones 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
Hindu capitalism
65
should subordinate his desires and wishes to those of his subjects. Their
welfare should be his only concern.
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.
66
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.
Im 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
didnt ask probing questions. It didnt 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

Hindu capitalism
67
68
If this is Hinduism then everyone should become Hindu
Vivekananda on science and reason and a reason-based approach to the

properties of God
6.
Institutions:
banking
Financial
6.1
Free banking in India
system
and
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 selfregulation 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
Hindu capitalism
69
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 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 Dowds (1994) notion
of voluntary bankers 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 cooperation among banks for clearing purposes.
70
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 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
Hindu capitalism
71
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 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
72
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
communiqu 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 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
Hindu capitalism
73
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-today 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
specializationmaking possible every other commercial venture in
which it engagedeach 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.
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
74
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 Rudners (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 bankers
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, banks location and strength
Hindu capitalism
75
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. 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 preapproved 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
76
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 Burmas capital Rangoon.
[The nadappu rate] is fixed in the evening of the 16th of every
Tamil month at a 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 jointstock 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
Hindu capitalism
77
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.
Rudner (1994:78) writes of the first firms 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 timeThus 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.
78
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 bankers 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 bankers club. Their self-regulatory systems
provided for clearinghouses, interest 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 Dowds (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
Hindu capitalism
79
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 bankers 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].
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
80
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 tradingcum-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 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,
Hindu capitalism
81
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 selffinancing.] 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.
82
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 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 rentseekers, 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
Hindu capitalism
83
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 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 moneylending 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,
84
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 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
Hindu capitalism
85
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 socioeconomic 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 todays predominantly interestbased 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 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 Naorojis 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:
86
==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 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
Hindu capitalism
87
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. The
Muslim rulers from the days of the Arab occupation of Sind
88
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 Ive come across a recent article which throws light on aspects of Hindu
capitalism. Timur Kurans 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). Ive significantly truncated the article which focuses on institutional analysis of the
impacts of inheritance.
Ritu Birlas 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. Ive now got to find out more about her thesis.
Scholars are looking again at banking and mercantile families in Indias

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 twothirds 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
Hindu capitalism
89
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 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 Birlas 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
90
Oswals, the first two

predominantly Jain.[10]
predominantly
Vaishnavite
and
the
last
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 states 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 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,
Hindu capitalism
91
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 Hyderabads 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 statebuilding 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 premodem 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]
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 Nizams
court. The tumultuous period of the late eighteenth and first half of the
nineteenth century saw bankers becoming crucial players in
Hyderabad state politics. The second Nizam, Nizam Ali Khan (17621803), moved the capital fromAurangabad to Hyderabad. Nizam Ali Khans
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 Hyderabads 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
states finances.
92
HYDERABADS 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
Hyderabads
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 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
Hindu capitalism
93
among relatives, and, in oral accounts of the firms 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 Nizams 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 HYDERABADS 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 Nizams 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
94
with respect to adoption, not considered by Kuran and Singh), much more
study is needed. Their work rests on 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
international
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.
Ive removed all footnotes. Please check original PDF.
==
As mentioned earlier today, Ive 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.)
Im 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
Hindu capitalism
95
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 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 Bankers 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
96
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 emperors or the soubadars 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 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
Hindu capitalism
97
known. In the North-Western Provinces, the Village Mahajuns are, owing to

the impoverished condition of the agricultural classes, and to the severity
of the operation of the revenue laws upon them, a thriving, in fact the only
thriving class. In Bengal, every man, with a little spare cash, is a
Village Mahajun.
Of these several classes, the one, which is most directly useful to the
community; is the class of Zillah Bankers. Their close connection with the
landed interest, and the assistance they afford towards the exportation of
the superfluous produce of the interior districts of the country, give a
peculiar value to their services. They form efficient props to the fortunes
of the landed families which connect themselves with them, and have
frequently rendered important aid to the Government. Of this Lalla
Joteepersaud is as instance. During the mutiny in 1857-58 he came
forward most liberally and nobly to assist the authorities.
The urgency of the periodical calls for the public revenue from
landed proprietors, and the serious consequences of default in
the payment of the assessment, render the assistance of the
Bankers of the last importance. Theiragents also are to be found in
most produce marts, making advances to dealers, and their
operations extend in some cases, we believe, to the bonding of
produce. By all these means, they afford much assistance to the
agricultural interests of the country. The vast improvement that has taken
place in Scottish agriculture, owing to the peculiar system of Banking
prevailing north of the Tweed, makes us almost wish that a class of large
farmers may replace the yeomanry of this country, and that a similar
correspondence may grow up between them and the Zillah Bankers.
EXTREME INTEGRITY OF THE SYSTEM
The character and extent of Indian Banking have been frequently cited in
refutation of the unjust calumnies with which the opponents of Indian
political reform have aspersed this nation.There can be no surer proof of
the soundness of a peoples moral condition, and of their habitual regard
to truth in the transactions of life, than the prevalence of so much credit
as is necessary to the existence of such a system of Banking. The native
Bankers themselves are patterns of commercial morality. The
dishonoring of a hoondee is an event of rare occurrence with
them. They transact business with each other, and with their
constituents, with a total disregard of those forms which English
commercial men deem essentially requisite, and, without the aid of which,
indeed, an English house of business would scarcely be secure.
One peculiar feature of native Banks has always struck us as peculiarly
gratifying. The business is usually carried on by gomashtas, or clerks
holding a confidential position in the firm. They are often poor men, and
yet are never called upon to furnish security. Their remuneration is not
high, and they have often the entire disposal of the capital of a Cootee;
98
yet it rarely happens that a firm loses anything by their dishonesty.

ORIGIN OF BANKING: HYPOTHESES
The fact that Europeans are not the originators of Banking in this
country, need not strike us with surprise, for, both from internal
evidence, which the successes of the British arms in the Punjab further
extended and opened out, we know that civilization and the arts
distinguished the East for a very considerable period before the West
had begun to emerge from ignorance and barbarism. When the
Dorian conquerors drove a large portion of the Greeks into exile, the
fugitives acquired new settlements in Asia (Minor), and established their
own national Bank.
Of all the nations of antiquity, none were more persevering in the work of
colonization than the Greeks. At a very early date they traded with, and
colonized, the shores of the Black Sea, and from thence carried their
commodities, probably by way of Persia and the Caspian Sea; far into Asia.
The progress also of Alexander the Great, through the Punjab, may have
contributed to extend the knowledge which the Greeks possessed, and it
is not improbable that, long before England had ranked in the scale of
nations, India had adopted a system of Banking which may have
originated that now in use with the Shroffs or native Bankers.
In looking at Asia in this light, we are justified in assuming something from
her former position. Asia surpasses all other divisions of the Globe in the
antiquity of its population. Here were transacted events of the
utmost importance. Here the human race first made their
appearance: it was the theatre of their earliest achievements :
the grand centre from which population, science, and all the arts
of civilized life, have gradually diffused themselves over the other
regions of the world.
Another means by which Banking might have been introduced into India
was through the Jews, many of whom settled in Asia, on the dispersion of
the tribes, after the destruction of Jerusalem, A. D. 70. This proscribed
people, who are celebrated for their acuteness in monetary dealings, may
have contributed, in some measure, to the dissemination of Banking as
observed by the aborigines of this country.
Whoever is conversant with Scripture history, and has given his attention
to the customs of this country, cannot fail to notice a very close
resemblance between the practices of the Jews and the natives of
India. But although the Shroffs have, for ages past, been considered the
Bankers of the country, there has not always been a general recourse to
them; for, whether under apprehension of the exactions of the zemindars,
or from some other cause, which we may advert to elsewhere, a very
large class of people resorted to the practice, common throughout all Asia,
of hoarding up their money, or melting down the gold and silver into
ornaments for themselves, their wives and children, and thereby allowing
Hindu capitalism
99
it to lie unproductive.
Great astonishment has been expressed, both in England and
India, at the constant and continued drain of silver from Europe,
without any satisfactory explanation or elucidation of its disappearance;
but this wholesale hoarding will afford some clue to the withdrawal from
circulation of such vast sums. Still, the profits of the Shroffs, or Indian
Bankers, were considerable, and some thirty years back they
constituted by far the richest class of the people of Bengal and
Hindoostan, and the countries appertaining to the Presidencies of
Madras and Bombay. The most wealthy are to be found settled in
Calcutta, Dacca, Patna, Benares, Mirzapore, and Bombay, but the class are
to be found located over India, wherever business exists.
==
Im 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 Nehrus Fabian
socialist ideas.
If we can prove that Hinduism is innately CAPITALIST, then weve 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. Id encourage all FTI members (and
others!) to get involved. Lets 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.Ive checked Wikipedia (Indian banking) but it seems to start
from when the British came, and doesnt cover pre-British capitalism in
India. Ill keep researching as time permits. Please assist.
Theres 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 Ive downloaded and will review.
BANKING DEVELOPMENT IN INDIA
IT is not improbable, remarked Cooke in his book on Banking in
India, that long before England had ranked in the scale, of nations, India
had adopted a system of banking which may have originated that now in
use with the shroffs or native bankers. The antiquity of Indian banking can
be established by references to bankers and bank documents in the
100
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 Indias 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 following is a brief extract from my copy of A Concise History of the Indian Economy 17501950, by Dhires Bhattacharyya, Prentice Hall of India, 1979.Ive checked Wikipedia (Indian
banking) but it seems to start from when the British came, and doesnt 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
Hindu capitalism
101
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 Indias 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. Desais 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 Kautilyas Arthashastra we
102
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, Desais book has neither an index nor a bibliography, so Im
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
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 indigenous 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 accustomed.
The consequence of the above unsatisfactory system was that the English
Hindu capitalism
103
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 moneylenders 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 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.
104
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 SouthEast 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 merchants 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 lions 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
105
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 industrialists. 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
rediscounting 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
106
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.
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, Ive 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 Indias 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
Hindu capitalism
107
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 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 Birlas 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
108
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 Maines 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 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 householdfather, wife, sons and their wives, and
unmarried daughtersexisted 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
Hindu capitalism
109
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 expos 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 Registrars opinion posed habits of public civic
associationthe responsibility of exercising rights, rather than obeying a
despot or directoras necessary conventions for the healthy 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 missions
mantra of moral and material progress.
110
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 culturematters 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 spheresone 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 capitalisms 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
Hindu capitalism
111
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
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 bills 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
112
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 jointstock 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 terrainthe 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
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 laws investment in an autonomous subject: the legal rights of the
deity overrode the situated contexts of gift giving,
Hindu capitalism
113
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 philosopherstatesman 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 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 longstanding 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
114
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 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. 124125).
Hindu capitalism
115
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 profitlf 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
116
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, 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 treasuryThus, 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
Hindu capitalism
117
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)
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
collectionthat productionand consumption should not be injuriously
affectedfinancial 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
118
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 Commanderin-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 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 preindustrial 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
Hindu capitalism
119
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 spunWages
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
establishing 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 semiskilled 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 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
120
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
Thought, London, England: Routledge. Gopal, M.
Public Finance. London, England: George Allen &
R.P. (1965), The Kautilya Arthashastra, Delhi, India:
Nagarajan, V. (1992), Evolution of Social Polity of Ancient India. Delhi,
Indian
Economic
H. (1935), Mauryan
Unwin Ltd. Kangle,
Motilal Banarsidass.
Hindu capitalism
121
India: Dattsons.
122
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. 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.
7.
Institutions:Trade and commerce
7.1
Commerce in Indian Society

Extract from Caste and Capitalism in Colonial India10. Ive 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 Indias precolonial social
formations retains many traditional assumptions about Indias
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
communitys 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
10
http://publishing.cdlib.org/ucpressebooks/view?
docId=ft88700868&chunk.id=d0e7229&toc.id=&brand=ucpress
Hindu capitalism
123
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 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
their basis)
provisiona
caste during
book attempts to modify the existing stereotypes (whatever

by examining aspects of a large-scale system for credit
non-Western banking systemoperated by a South Indian
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 1:3585; Nicholson 1895; Rajayyan
196465; 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
124
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 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 largescale 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: 338340; 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).
Hindu capitalism
125
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 the 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, 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 reexamination.
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.
Goiteins 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 bild al-Hind or diyr al-Hind (the
lands of Hind) are often used.
In the Geniza documents we find the three terms, al-Hind, bild al-Hind
and diyr al-Hind, listed here in descending order of frequency. These
seem to be used more or less interchangeably. I assume that they refer to
126
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 merchants 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 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 hometo 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
Hindu capitalism
127
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
items
B. Iron and steel (a chief commodity)
C. Brass and bronze vessels
36
6 varieties
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
H. Tropical fruits, such as coconuts
I. Timber
3 items
5 items
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 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 {lnas} in some
letters and ldlis {llas} 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
128
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

items
23
C. Household goods, such as carpets, mats, tables, frying pans, etc.

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 Lebdis 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 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
Hindu capitalism
129
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--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,
130
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 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 ones 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
131
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 thats where the poor quality of Indian labour comes
from.
I recall the equal competitions we had with school classmates (19651976). 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.
132
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 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 Ill publish my brothers 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 Im NOT being critical of Indian labour. It is NOT their
fault. Im 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.
Hindu capitalism
133
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 wouldnt employ local people in India only New Zealanders, or
Europeans. The reason we feel that the work ethic is poor, labour laws v
restrictive (cant sack people), graduate-level education not very good; if
you get the wrong person, you cant do anything about it high risk! Tait
Radio Communications [Source:
http://www.asianz.org.nz/sites/asianz.org.nz/files/India_Opportunity.pdf]
134
9.
Rebooting Hinduism
Why do Hindus hate liberty? Heres 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 worlds 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
Hindu capitalism
135
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, railline, electricity and telephones. Not a paradise, by any means
particularly for the lower castes. But it worked.
This model was not uncommon during the agricultural era. European
feudalism comes to mind but Im 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 Indias progress. And outdated beliefs about cows and such
things create further complications and block Indias forward move.
No wonder India has slipped into deep poverty as the rest of the world has
progressed rapidly ahead. Indias 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
Im 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. Im one of them, for sure.
Im also broadly comfortable with Advaita philosophy and Buddhism. But
Im far more comfortable with Charvakas 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 Im at least some form of Hindu. But Im not a caste-loving, cowworshipping Hindu. I am a SCIENTIFIC Hindu. Im a Charvaka, a Buddha, a
136
Vivekananda, an independent human being. I see myself as an Indian, and

human - the highest category of all.
So Im happy to participate in the re-invention of Hinduism, and help rewrite its scriptures from scratch. Im sure we can create a new Hinduism
best tailored to the needs of India in the modern, scientific world. In this
Hinduism wed have all our myths and mythologies but consider them to
be nice stories, not something to be taken as gospel. In this Hinduism
wed 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, Charvakas ideas, or Hayeks liberalism. Wed 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 mankinds thinking and create a NEW WAY OF LIFE.
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 Indias history

India has the worlds greatest history. Its history is not just ancient, it has
some of the worlds 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.
Indias 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 wont 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 (Chanakyas 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.
Hindu capitalism
137
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 Indias history, or Indias
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 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.
138
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 Dharma and capitalist institutions #1: Human rights
Hindu Capitalism #20. Two further excerpts to prove Hinduism is 100% anti-socialist!
Hindu Capitalism #13: Anantdeep Singh and Timur Kuran
Hindu Dharma and capitalist institutions #3: Freedom and the role of the state in Mahabharata
Hindu Dharma and capitalist institutions #4: Natural rights and equality
A most powerful statement about human liberty, 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
139
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",
Balbir S. Sihag, (2009),"Kautilya on law, economics and ethics",
140
11. Unsorted material
Caste and Capitalism in Colonial

INDIA'S NEW CAPITALISTS: CASTE, BUSINESS AND INDUSTRY IN A
MODERN NATION
BY HARISH DAMODARAN11
PERMANENT BLACK
PAGES: 362; RS. 695
The "Protestant ethic", claimed Max Weber, promoted the "spirit of
capitalism" and wrought change in feudal Europe. It is "animal
spirits" that induce "a spontaneous urge to action rather than
inaction" and thereby fuel enterprise, said John Maynard Keynes.
For 200 years, social scientists have tried hard to explain why and
how agrarian societies transform into industrial nations.
When, how and why do merchants, traders, moneylenders and
landlords become industrial capitalists?
There has been much theorising and even more empirical
recording. The study of capitalist industrialisation in India is,
however, still in its infancy. You get hagiographical accounts of the
"captains" of business, you get dull historical detailing or
sociological hypothesising, but very little hard facts about the
social origins of business enterprise in India.
So, full marks to Harish Damodaran for a book that those
interested in the dynamics of capitalist development in India must
read. It's not just good journalism but the work of a profoundly
talented observer of social change in India.
Everyone complains about Indian politics getting stuck in the caste
groove. Indian business was there before. Caste networks helped
create trust, an essential lubricant of business. Damodaran doesn't
discuss the whys and wherefores of caste in business. He has stuck
to digging out facts and showing us how different castes across the
country made the transition from traditional economic activity to
trade and industry.
Interestingly, vegetarian Indiansthe Jains, Marwaris and Brahmins
exhibited "animal spirits" before the other castes caught up.
They and the Parsis dominated pre-Independence business
enterprise. After Independence came the Chettiars, Khatris,
Kammas, Reddys, Rajus, Jats and Marathas, to name some of the
other entrepreneurial castes.
Damodaran doesn't waste time trying to justify the caste lens. Nor
does he get diverted by the question "Is caste class?" He believes
capitalism in India has developed through what he calls "business
communities" in which ethnic and other networks facilitate
commercial activity. In elaborating the caste dynamics of capitalist
11
http://www.outlookindia.com/article.aspx?237402
Hindu capitalism
141
development, Damodaran's taken scholarship in the area several

steps forward. It would have been fascinating to see how
Damodaran's grandfather, the Communist leader and Marxist
theoretician E.M.S. Namboodiripad, would have viewed young
Harish's work!
Damodaran identifies three sources of industrial capitalism in India
mercantile capital ("bazaar-to-factory"); professionals ("office-tofactory") and agrarian capital ("farm-to-factory"). My own work on
the development of capitalism in Andhra Pradesh, dating back to
the early '80s, showed a fourth routepublic 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 Indiathe regional one. Most of existing
work focuses mainly on Marwari, Jain, Parsi and Punjabi enterprise.
There is very little published work on South Indian business, apart
from the work of economic historians. Damodaran's chapters on
South Indian castes in business, and his brief 'Note on Minorities'
fill this gap.
The most important challenge Damodaran poses to his
distinguished grandfather's intellectual and political legacy is not
his focus on caste as a factor in the growth of new enterprise.
Rather, it is his unequivocal demonstration that so many of the
first-generation business groups across the country find their origin
in the post-Green Revolution agrarian transformation of rural India.
The old theoretical formulations regarding India's inability to make
the transition from feudalism to capitalism because of the semifeudal nature of agrarian relations and the constraints imposed by
backwardness fly out of the window. That may be true for parts of
eastern and northern India, but, as Damodaran shows, in much of
southern, western and northwestern India, farmers have become
industrialists. The dynamics of Indian agriculture facilitated that
transition, with help from the government.
I am particularly delighted to see Damodaran's rich detailing of this
process because some of us had in fact argued even in the '80s
that a new dynamism was visible in the countryside in places like
coastal Andhra, southern Tamil Nadu, western Maharashtra and so
on, where a new business class was in the making. It is not often
that one reads a book you wish you had written. I certainly wish I
had Damodaran's skill, energy and intellect to produce such a wellresearched and readable book.
http://www.usc.edu/schools/college/crcc/private/ierc/conference_registratio
n/papers/Kuran_final.pdf
Indian response to the onslaught of westernism/modernity
142
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
womens 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
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 Indias 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: 567). This was
reinforced by the Indian leaderships 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 Indias 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, Gandhis 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 hypermasculine 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.
Hindu capitalism
143
Above all, his keen awareness of the untapped potential of Indias

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
Indias 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 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: Indias dilemma, Kamlesh
Mohan, Punjab University, India, Current Sociology, 59(2) 214228,
2011
144

Hindu Capitalism-Why Capitalism Is The Only Economic System Compatible With Indian Culture

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Hindu capitalism

Why capitalism is the only economic system

DRAFT FOR PUBLIC COMMENT

Please delete this draft after reading! [join me at

In praise of profit: Shub Labh

Gold and God: a very close relationship

Frontispiece: Freedom is bounded by

Cited in Modern India. 1986.NCERT. p. 218.

For sending the following

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

Commitment to freedom, reason, prosperity.........................

Knowledge about this world...................................................

The minimal state..................................................................

Institutions: Science and innovation......................................

Institutions: Financial system and banking............................

Free banking in India..................................................................................

Institutions:Trade and commerce.........................................

Why Hindu capitalism failed to deliver in the recent

British commercial success (and possibly the industrial revolution?) would

If I can demonstrate that Indian history and economy was primarily a

Kautilya, the anti-socialist

In Hinduism, wealth is valued and not rejected. Hinduism is the most

or ask any priest and put any yantra in ur house.

It is impossible for socialism to last long under these circumstances.

1.2.1 In praise of profit

1619: A record dated 25 August 1619, states that Virji lent

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

1647: Financed the East India Companys voyage to Pegu, Burma by

1650: Offered Rs. 100,000 to Merry, the President at English Factory

1669: The English borrowed Rs. 400,000 from a group of creditors,

For 12 out of the past 20 centuries, India was the

See details here.

Why do most writers believe India and capitalism are

and Specker (1987) discuss the negative impact of British

only in the late eighteenth century. Allen (2001) estimates real

socioeconomic status than aptitude or performance. [Sanjeev:

increased demand for machine production because average per

the rise of autonomous village communities throughout India.

Rondo Cameron got it totally wrong about India

Max Weber got it totally wrong about India

between their identity as Hindus or Brahmins and their identity as

How Vedic socialists have got it wrong

This is from my blog post of August 2010:

greatness of ancient India, but without the slightest scientific analysis of

What do the Vedas say?

b) they must become more religious.

The Capitalist Structures of Hinduism

the caste, or Varna, system,

theologico-philosophical issues regarding property (outside the

some socio-historical facts or events.

An understanding of the caste system is crucial to understanding Indian

Hindu capitalism is Adam Smiths capitalism

The root of wealth is economic activity and lack of it brings

Trade shall be [directed towards markets which are] profitable; losses

This reaffirms the fundamental mantra of Hindu capitalism: Shubh Labh.

Finally, to ensure wealth a society must remove obstacles to economic

In the interests of the prosperity of the country, a king should be

Given these (and many other) BLUNT DIRECTIONS TO BECOME RICH, it is