Kautilya's Arthashastra: Ancient Indian Economics

The ancient Indian treatise on statecraft and economics, its ideas on taxation, trade and administration, and why it is still studied today.

Long before modern economics, thinkers in many civilisations wrote about wealth, taxes and government. One of the most remarkable is the Arthashastra, an ancient Indian text on statecraft, economics and administration. It is traditionally attributed to Kautilya, also known as Chanakya, an adviser to Chandragupta Maurya, founder of the Maurya Empire in the fourth century BCE. Many scholars believe the text as we have it was compiled and revised over several centuries.

What “artha” means

The word artha can be translated as wealth, material well-being or livelihood. The Arthashastra treats the prosperity of the state and its people as closely linked. A ruler’s duty, it argues, is to protect and increase the wealth of the kingdom, because a prosperous people supports a strong state.

Economic ideas

The text covers a remarkable range of economic topics:

Taxation: it advises that taxes should be collected the way a gardener picks ripe fruit, taking what is ready without harming the tree. Taxes that are too heavy would damage the sources of future revenue.
Administration: it describes officials to oversee agriculture, mining, trade, weights and measures, and state storehouses.
Trade and markets: it discusses regulating markets, preventing fraud by traders and setting fair weights.
Public works: it recommends irrigation, roads and support for farming to expand the economy.
Famine relief: it advises storing grain and helping people in times of scarcity.

The gardener's rule for taxes

The Arthashastra compares a wise tax collector to a gardener who picks fruit only when it is ripe, and avoids unripe fruit because picking it would harm the tree. The modern idea behind this image is familiar to economists: taxes set too high can shrink the economy and eventually reduce revenue.

Its reputation

The Arthashastra is also famous for its hard-headed advice on diplomacy, war and espionage, which has led some to compare Kautilya with the Italian writer Machiavelli. Its economic sections show an early understanding of how government policy affects prosperity. The text was largely forgotten until a manuscript was rediscovered and published in the early twentieth century by the scholar R. Shamasastry.

Treating the Arthashastra as a modern economics textbook

The Arthashastra reflects the world of an ancient monarchy, with very different values and institutions from today. Its insights are impressive, but reading modern theories into it can distort what it actually says. It is best understood in its historical context.

Key takeaways

The Arthashastra is an ancient Indian treatise on statecraft and economics attributed to Kautilya.
It links the ruler's success to the prosperity of the people.
It discusses taxation, administration, markets, public works and famine relief.
Its advice that taxes should not harm the sources of wealth remains relevant.