Towards a Framework for a Hindu Economic Model

By Lall B. Ramrattan, Ph.D., UC Berkeley Extension

Abstract

This paper delineates the assumptions and basic laws of a Hindus economics system. The intention is to compare the Hindus and Capitalists systems with a view to validate their comprehensiveness. We found that the Hindu system is more encompassing by including grace and liberating efforts that can be modeled. A diagram illustrates the Hindu framework for a rudimentary system is constructed. The paper is sufficient as a foundation for a research program on the Hindu economic discipline.

Introduction

When Adam Smith formulated the western economic model he leaned on moral philosophy. The sociologist Max Weber who has likened Smith moral philosophy to protestant ethics seems wanting to extend that principle to Hinduism when he wrote that “To a Christian, the official recognition of the Vedas might appear to be a “formal principle” of Hinduism in the manner of the Protestant recognition of the Bible—always with the reservation that it is the least not absolutely indispensable.” (Weber 1958, p. 27) James Mills held a contrary view, namely that “Hinduism was less favorable to human happiness than Christianity.” (Plassart 2008, p. 534) We know also, that Karl Marx, being all out materialistic, stooped so low as to deprecate the Hindu gods in his Colonial Writings. This paper presents a Hindu Economic Model that is counterfactual to the negative view such as proposed by Mills and Marx, and argue for equal vision if not a superior one to Smith’s model of capitalism.

The essence of the model is that Hindus “…belief in the intimate relationship of philosophy and life.”  (Radhakrishnan and Moore, 1957, p. xxiii) The vision of such a study is to make people free. It is a paradigm that seeks the truth to solve the problems of life. The truth is to be lived, and not just known. (Ibid, p. xxiv). In the field of truth, however, conflict and war over economic phenomenon are not excluded, for even the great war of India, Mahābhārata, was set in the field of Kurukṣetre, the field of righteousness.

The model posits a strong relationship between contemplation and action. It is in their equilibrium state that we should look for the vision of the Hindus in general and Indian in particular. “In the totality of things, equilibrium is made the sum of all disequilibria, and all partial disorders, no matter what, combine in the total order.” (Guenon, 1983, 7) Guenon locates this harmony even in the Svadharma, the true law of cast  (Ibid, p. 9) A person’s vision in term of Dharma and Karma were circumscribed around this concept of the original sacrifice. (Dasgupta 1969, p. 2) The greatest sacrifice was the act of the one (Mahā -puruṣha) creating the world (prakriti) out of sacrifices. In the beginning was darkness, and the supreme was alone. “He reflected, I am one, I will become many.” (Wilson V.2, 1976, p. 88)

The model evolved in phases: the formative period (2500-800 B.C.), the speculative period (800-400 B.C.), the epic and classical periods (400 B.C. to A.D. 600), the medieval period (A. D. 600-1800), and the modern period (1800 to present) (Kinsley 1982, 10 – 23). The Vedas, of which the Ṛgveda Veda stands out, lay the defining words of Hinduism. The Vedas expound a caste system—priest (brāhmin), warrior (kṣatriya), merchant (vaiśya), and laborer (śudra), a stage of life system—students (brahmacārin), householder (gṛhastha), forest-dweller (vānaprastha), and monks (sannyāsin), and goals of life—duties (dharma), wealth (artha), pleasure (kāma), and liberation (mokṣa).

The Hindu model has been stalled in its development by significant interruptions. The formative period was confronted by waves of Aryan invasions and natural disasters. Archeological evidence at the Mohenjo-daro  and  Harapppa mounds suggests that the pre-Vedic civilization had a developed urban culture around 1500 B. C. Apparently, the two cultures have merged their skills, the Aryans offered knowledge of horse-power, iron and the Sanskrit language, and the original inhabitants offered oxen-force, copper, and local knowledge. The meeting of the two cultures during the Vedic period laid out the moral philosophy for the development of Hindu economics. “The earth, according to the Vedas, is upheld not by the Will of God, but by truth (Satya) of which God is the supreme exponent. Similarly the Veda says that God reveals Himself through Ṛita (Eternal Order).”  (Bose 1970, 28) Vedic ethics, therefore, sits on two pillars, Satya and Ṛita. More completely, “There are two basic terms in the Vedas indicating their ethical value—Satya (truth) and Ṛita (eternal order, discipline or eternal law, goodness). It may be said that there can be no God or Goddess in the Vedas who does not represent the conceptions of Satya (truth) and Ṛita (order).” (Bose 1970, p. 27)

A firm foundation of economics of the Hindus started in the Epic Period that set the stage for the development of “…the orthodox system of Hinduism and the unorthodox system of Cārvāka, Buddhism, and Jainism—were perforce brought into clearer perspective by the construction of systematic treatises.” (Radhakrishnan and Moore 1957, p. xix). In that period, two socio-economic treatises were codifies–the Dharmaśāstras, a treatise containing moral codes, social structure, obligations, and religion practices, and the Artha-śāstra dealing with the role of the individual regarding decision making and utility.  (Ibid, 1957, p. 193)

Assumption of the Hindu Model.

A full economics model should clearly spell out assumptions, laws and predictions of economic phenomena. The following discussions are on those assumptions that are necessary to delineate an economic system. Since many views of Hinduism have developed over the years, we can only present broad outlines, steering clear of any one particular school and providing only essential discussion.

Natural Assumptions

From nature, prakṛti, we get substances, qualities, activities, inherent relations such as hand to body, universal and particulars. (Raju, 1982, p. 80) The Veda says that “Heaven and Earth bestow riches and various wealth and treasure…prosperity on all, sustainers of the region, Holy Ones and wise.” (Ṛgveda, I. 159.5; 159.1) Nature is the source of all things. (Gītā, 9.10)

As mentioned above, the objective world, prakṛti, originated from the greatest sacrifice of the great one, puruṣa. Three types of nature are discussed in the Gītā– cosmic matter, the source of all being, and māyā. (Dasgupta, 1969, p. 58) Māyā refers to mirage, dreams, Illusion, the power of Brahman, without substance, source of modification, nonbeing but dependent on being, spontaneousness,  (Ibid, pp. 90,101, 161, 170, 179, 180, 193 Māyā can take three interpretations—real for the man in the street, undeterminable by logicians, and non-existent by the followers of the scripture. (Staal, 1975, p. 94) Guṇas are qualities derived from substances. (Ibid, 1975, p. 157) The qualities are of the nature of goodness (Satva), passion (rajas), and dullness or inertia (tamas). (Radhakrishnan and Moore, 1957, p. 109) They are the modes through which work is done. (Gītā , III.27).

Nature is conceived by Sage Kapila, the author of the Sāṁkhya system of philosophy as the source of pain and pleasure. (Vidyabhusana 1971, p. 10) This might be taken as foreshadowing of the pain and pleasure calculus of Jeremy Bentham. It is said that James Mill took a more Christian than utilitarian interpretation of the Hindus. (see Plassart, 2008) The logical view of “The illustrative (prakṛti) is the mentioning of a course of action, the obstruction of which by some particular person led to bad consequences”. (Vidyabhusana 1971, p. 108). There is lingering dispute as to whether prakṛti is eternal. Some say it is eternal because it evolved into the universe. The Naiyāyikas, Indian logicians, claim only the soul and God are eternal. (Ibid, 1971, p. 363)

The natural assumption infuses order into the Hindu economic system through the orderly state of nature (Ṛta). In the Veda, natural order is maintained by Karma through sacrifices to the Gods. (Smet 1977, p. 53) Here we have concordance with classical economics and Vedic thought on the orderly nature of the universe. This is accordance Alfred Marshall idea that economics is Natura non facit saltum loosely translated to mean nature does not leap. The physicists however, have still not settled whether the nature of the universe is orderly or chaotic. The Buddhists have argued that “…in reality everything is in a flux and nothing stays the same.” (Puhakka 1975, p. 13) As part of Hinduism, Buddhism can be seen as having a more meandering schema for the attainment of Release.

The natural assumptions subsume a big-bang theory of nature within the domain of the Hindus doctrine of Kalpa, a theory of cyclical movements of creation and dissolution.  Briefly, a Kalpa has 14 Manvantara of 64,800 years each, or 1000 Mahayugas of 12,000 years each according to Vedic astrologers. During that time, the universe goes through many phases parallel to the Golden, Silver, Bronze, and Iron ages of the West, which are called Satya or Krita-Yuga, Treta- Yuga, Dvarpara- Yuga, and Kali-Yuga, respectively. Now, we are in into the seventh Manvantara of Kali-Yuga, which will cycle back to Krita-Yuga when it dissolves. (Gītā, IX. 7).

The natural assumption also provides for economies of scale considerations in Hindu economics. The economic assumption of puruṣa can be both limitless and limited. “A Thousand heads hath Puruṣa, a thousand eyes, a thousand feet…All Creatures are one-fourth of him, three fourths eternal life in heaven…With three-fourths Puruṣa went up: one fourth of him again was here. “(Ṛgveda, 10. 90. 1, 3-4). The “thousand” is variously interpreted as innumerable, and the one-fourth is a proportional limit of the power of creatures. One can read into this that the power of labor is limited, a condition for diminishing returns. Increasing returns to scale, however, can be attributed to Hindu economics as a result of the socialized feature of technological advancement, which is referred to in ancient Hindu text, and is an advent of the modern informational revolution.

There is dispute over the purpose of nature in Hindu economics.  In the Brahma Sūtras, the world is said to be created as a Līlā, meaning sport or play. (Brahma Sūtras, II. 1.33) The great Hindu books the Rāmāyaṇa and the Bhādgavata-purāṇa describe Rama Līlā and Kṛṣṇa Līlā, respectively, where the avatāras, Rama and Kṛṣṇa simply engage in amorous pastimes. The image that is painted from those pastimes is that the purpose of the world is mere sport just as a child having built a sand castle would take it down. In addition to the teaching of renunciations, this sportive idea may explain the Marshallian view as to why the Hindu doctrine does not support capital accumulation as the western doctrine. Another explanation may be that even when accumulation takes place, it is spent for God purpose. Anandagiri says that we should not raise the question as to the purpose of creation, (comment on Gītā IX,10) which allows the argument that creation might be just spontaneous and so too, economic activities.

Arguing from an identity and not say structural viewpoint, one can say that a purpose is implicit from the mere expansion of God’s energy. Earth, water fire, air, ether, mind, intelligence, ego combine to form the class of inferior energy. One can build a determinist argument on the identity premise. The superior energy is living entity, Jīva-bhūtām, which utilizes or exploits the inferior energy. (Gītā VII, 4; 5)  The inferior energy is veiled by the creative power yogamāyā, the confluence of the three guṇas. (Gītā VII, 25) But one can find also stochastic or ergodic viewpoints to complement determinism. The Śrīmad-Bhāgvatam speaks of a random process, like a log floating down a stream by chance come to rest, for the creatures coming out of the clutches of matter. (Bhāgvatam 10. 38. 5). Identity elements such as Atman is Brahma reflect national income identity concept in macro economics. The stochastic elements also have mirrors as when one can say that You = self + error. “The Vedanta recognizes no sin, it only recognizes error.” (Vivekananda, 1976, p. 295).

Psychological Assumptions

Those part of the Vedic literature that postulate a soul, argue that individuals have the propensity to better their conditions.  The psychological desire to better ones material conditions comes out clearly in this partial verse: “Like Sun and Moon may we pursue in full prosperity our path.” (Ṛgveda.V. 51.15) Again we read that “A man should think on wealth and strive to win it by adoration on the path of Order, Counsel himself with his own mental insight, and grasp still nobler vigor with his spirit.” (Ṛgveda, X. 31. 2)

Beside desire for wealth and food, people have different mental disposition in their seeking as is evident from the path of bhakti–devotion, jñāna–Knowledge, karma—action.  A person’s vision in term of Dharma and Karma were circumscribed around this concept of the original sacrifice. (Dasgupta 1969, p. 2) These mental dispositions are circumscribed by three forces of the guṇas, namely sattva—potential consciousness, rajas—source of activity, and tamas—source that resist activity. (Radhakrishnan and Moore, 1957, p. 424)

Another psychological drive is our tendency to imitate. What the leaders do, the generality of men tend follows. (Gītā III, 21) This concept is most enlightened for economic analysis in the areas of advertising, research and development, franchising, and dealership competition. Needless to mention that orthodox economic theory breaks down in its leader-follower models where the marginal curves fail to predict outcomes.

Institutional Assumptions

We now ponder the institutional Assumptions.

1. Personal Freedom

The Psyciocrats advance that notion that “…for the production of wealth free competition is the best general rule, subject to exceptions only when they can be justified. (Walras 1954, p. 397)  “The natural effort of every individual to better his own condition, when suffered to exert itself with freedom and security, is so powerful a principle, that it is alone, and without any assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often encumbers its operations”. (Smith, 1776, WN, Modern Library, p. 508) Alfred Marshall spoke more broadly of Economic Freedom encompassing “…self-reliant habits, more forethought, more deliberate and free choice.” (Marshall, 1972, p. 8) Today, we think of personal freedom in terms of the economic agent being free to choose an action.

The Gītā has conditioned action on the guṇas so precisely that one is tempted to write the conditioned expectation E(Action|guṇas). In view of what is said about creative energies, we have to add also that E(Action| guṇas| Jīva-bhūtām). Or is it that E(Jīva-bhūtām | guṇas )The guṇas are the doer of action (Gītā III. 27; V. 14), and nothing is free from the guṇas, which are derived from material nature. (Gītā XVIII. 40). In keeping with modern economic thought, the guṇas may be thought of loosely as the information set that determined the action of the individual. The information set does not have the same partitioning for every individual. Each individual partitioning will be determined by the individual inborn nature, svabhāva. Each individual will conduct his/her own work, svadharma. The three guṇas—potential consciousness (sattva), source of activity (rajas), and source that resist activity (tamas) creates no action (equilibrium) when they are equipoise and creates disequilibrium (evolution) when they are disturbed. (Radhakrishnan and Moore, 1957, p. 424)

Freedom is attained when one does their appointed work “for action is better than inaction.” (Gītā, III. 8). “Even the man of knowledge acts in accordance with his own nature. Beings follow their nature. What can repression accomplish?” (Gītā, III. 33). “…no one can remain even for a moment without doing work” (Gītā, III. 5). “Thou shouldst do works also with a view to the maintenance of the world.” (Gītā, 111. 20) The two verses: “Better is one’s own law through imperfectly carried out than the law of another carried out perfectly. (Gītā, III. 35)

Actions comes under the influences of the gunas. One mudhra has it that the gunas—, tamasic, sattwic,  and rajastic are like the little, ring, and index finger, respectively. The ring finger can be bent toward the index one signifying phlontrophic activities like a Bill Gate, Warren Buffet, or Ted Turn giving away lots of their money for the good of people. It can be bent toward the little finger, signifiying all attachment to the fruits of ones work. The middle finger can stand equipoised with only self reflection, then no work will be done. Swamin Vivekananada of the Ramakrishna order advocate keeping some ego in order to continue the work of the world. One thing is clear, though, Karma becomes a path to liberation only if it is done as karma yoga.

2. Contractural Relations

Man has an implicit contract to work. Even God abides by this contract: “If I shold cease to work, these worlds would fall in ruin” (Gītā III, 24). In worship, the hindus make a contract with God by stating the purpose of the worship (Sankalp) upfront. But there is somewhat of an explicit contract (Gītā IV,13) which speaks of the four orders (cāturvarṇaṁ) created by the Lord. Most interpreters say that this social order system is driven by the modes of material nature and action, and not birth. The proof of this is inherent in the argument that the the trancendence of the guṇas leads each of the four order back to their true self.

Contractual relations also speaks to the distribution of wealth. The Veda states in effect one receives more in wealth and kind that one give. (Rig 10.107.8). Mankind must acquire wealth with 100 hands, but distrubte it with 1,000 hands. (Arth Veda 5.24.5). But the rulers of the state is charged with monitoring the equitable distribution. The rulers distribute land, wealth, necessities of life, equitably, seeing that no one is below the poverty line, or those properties get accumulated in the hands of misers. (Rig 1.22.7; 1.81.6, and 2.3.2)

3. Private Property

Even in western economic fundamental text, we read that “Property consists in fair and rational apppropriation, or rightful appropriation.” (Walras, 1969, p. 78) “Coveting the property of others, thinking in one’s heart of what is undesirable, and adherence to false (doctrines), are the three kinds of (sinful) mental action.” (Radhakrishnan and Moore, 1957, p. 173).

Prosperity = f(Peace, Industry) (Artha Sastra: Ibid., 207).

4. Inequal Distribution

In the Hindu model, distribution is basically unequal, but made equal through the desire for  attracting more wealth. The Veda recognized natural inequality: “The hands are both alike: their labour differs. The yeild of siser milch-kine is unequaly. Twin even differ in their strength and vigour: two, even kinsmen, differ in ther bounty.” (Riveda, X. 117. 9) It, however, counts on the rich giving to the poor: “Let the rich satisify the poor implorer, and bend his eye upon a longer pathway. Riches come now to one, now to another, and like the wheels of cars are ever rolling.” (Ṛgveda, X. 117. 5)

Natural inequality is made whole through not only the benevolence of the giver, but from the giver’s own regards for a better life.  A person that does not give will “…find not one to comfort him.” (Ṛgveda, X. 117. 2). When one gives, “He makes a friend of him in future troubles.” (Ibid, X. 117. 3), and “All guilt is he who eats with not partaker. “ (Ibid, X. 117. 6). Similarly, the Gītā urge us to  “…even-minded in all conditions, rejoicing in the welfare of all creatures”. (Gītā, XII, 4) But the Lord responds to people the way people approach him.” (Gītā, IV, 11)

From the “brodest and most comprehensive point of view,” distribution is discussed either collectively, or through the individual. (Walras, 1969, p. 79-9) “Let the rich satisify the poor implorer, and bend his eye upon a longer pathway. Riches come now to one, now to another, and like the wheels of cars are ever rolling.” (Ṛgveda, X. 117. 5) This latter verse underscore the view that inequality is a result of some superior force. In capatilism, this force is associted with the market, the invisible hand, or the spectatior principle. Adam Smith who father those concepts scarcely equate them with the Deity. But the Vedas repeatly demonstrate that God is the one who hold the inventory of riches, and who gives through his grace.

5. Division of Labor

Productivity is advanced by skillfulness in work, which come from division of labor. This partly achieved through imitation: “Whatsoever a great man does, the same is done by other as well. Whatever standard he sets, the world follows.” (Gītā, III. 21) It is the method of dexterity: “Thy spirit comes to thee again for wisdom, energy, and life.”  (Ṛgveda, X. 57. 4) This verse has been interpreted to the effect that “O Man, you have been given the mind for obtaining dexterity all-round for leading an active life and for contemplation of God.” (Khosla 1993, p. 46)

Division of labor is driven by the desire to control the wavering mind, and unleash it on one’s appointed tasks. For this much repetition of a task is required, which can be attained, according to the The Bhagavadgītā, by “constant practice”. (Gītā, 6. 36) It is the division of labor that seems to drive the social division of caste.

6. Free Trade

Part of a Vedic verse say “…and meet with one who give again, who knows us well and slay us not.” (Ṛgveda, V. 57. 15) Another translation is that “…we move in full cooperation in mutual give and take, without causing injury to each other and in the mutual right understanding.” (Sarasvati 1984, p. 27) Yet another translation is that “…we will associate with the liberal, the kind, the knowing. (Bose 1970,  p. 245) We recall that “…the object of relations between persons and persons is the mutual co-ordination of human destinies.” (Walras, 1969, p. 63)

There are implications in the Veda for modern trade theory. “The Atharva Veda says God is as much of the foreign (Videśya) as our own land…The Veda wants Saṁjñāna, concord (loving union), to be established not only with one’s own people, but also with foreign people—a step that, it says, will put an end to wars. (Bose 1970, p. 35) It has foreshadowed modern integrated trade theory, which presumes a world without any boundary, one that demonstrates factor price equality.

7. Factor Mobility

A world without boundary would seem to be ideal for factor mobility.  The Vedas recognized that the mobility of factors must be allowed for soldiers who are beyond the seas. (Rig 1.167.2) In the Rāmāyaṇa, we read of allies between Lord Rama and other rulers—Vibhishana and Nisada that allow trade between their kingdoms, perhaps an ideal foreshadowing of the modern Free Trade Areas in the global economies.

8. Specialization

The Veda says that “Not without toil are Gods inclined to friendship.” (Ṛig  IV. 33. 11). This idea was interpreted to mean that “Gods befriend none but him who has toiled”. (Bose 1970, p. 242)

Man as an embodied spirit, Puruṣa, can be considered as a might person, whose limbs represent the social order of society. The Veda says: “The Brāhman was his mouth, of both his arms was the Rājanya (Kṣatriya) made. His thighs became the Vaiśya, from his feet the Śūdra was produced.” (Ṛig X. 90. 12). These are today recognized as the four castes:  priest, ruler or warriors, husbandman, and laborers, respectively, people specialized in occupation driven by their modes of nature.

There is no drawback to specialization in the Hindu economics system such as the monotony of doing one task over-and-over. One can see that if one is born into an occupation that monotony may likely result. But this is not so in Hinduism. Western notion of specialization is associated with increase productivity, as is demonstrated by Adam Smith’s pin factory example, but is dragged by monotony. Hindu specialization is somewhat ratcheted up by the thought that one is doing one’s appointed duty for liberation. The western specialization is motivated by limited gains, the Hindu specialization is motivated by unlimited gains.

Laws of Hindu Doctrine

A.    Law of Sacrifice

We mention above that it is god who made the original sacrifice: Mahā -puruṣha becoming the cosmos (prakriti). Sāṁkhya, the oldest philosophy, explains that although the Puruṣa vitalizes Prakṛti with creative forces, Prakṛti is allowed independent action. The relationship is not casual—material or efficient. (Gupta 1982, p.2) Another view is that it an unconnected relationship which can be looked at ontologically, if we wish to draw out only essential relationships. (Deutsch 1979, p. 6) This sacrifice then, is not subject to the western economic law that you cannot get something for nothing. One is reminded of the logic of the very first verse of the Isvasys Upanishad: “That is Whole; this is Whole, from the Whole the whole becomes manifest. From the Whole when the whole is negated what remains is again the Whole. (IsavasYopanishad, p. 67)

At the level of the cosmos, this law became work without the expectation for a reward.

If western economics can be defined by one word, it would be “incentive”.  If Hindus economics can be defined by one world, it would be “work.” It is tempting to write an equation of their difference, namely, (I)incentive – ( R)enouncing the fruits of ones action = (K)arma yoga. Now, it becomes subtle to interpret permutations of the terms in the equation.  I – K = R can be read as benefits wiped out as karma is renunciation;  K + R = I can be read as the results of what is renounced through karma yoga is what you would get from work in western economics. Does the Gītā sanction this interpretation? The message of the Gītā according to Sri Ramakrishna is known by repeating the syllables of the word Gītā rapidly, then it becomes “Tagi Tagi”, give up, give up. To be clear, one has to add that  Sri Ramakrishna would define “incentive” in our equation as referring lust and goal (kamini Kanchan).

B.    Law of Production.

Underlying this law is the notion of Karma. From the Vedas through the Upanishads, the law moved from pure Prayer-Karma to Prayer-Karma-Jnana. (Vidyabhusana, 1971, p.2).

In the west, production is defined as the transformation of factors of production into output.  Such production presupposes a mixture of capital and labor. More capital and with same labor; same capital with more labor would be sufficient to call the law of diminishing returns into play.

In the Hindu view of economics, one cannot leave out the input of sacrifice as a factor of production.  The model posits output condition on a social division of labor and sacrifices.

The Gītā address the nature of sacrifice in Hindu economics. (Verses III.10-13) The Lord has created men and the necessaries for sacrifices. No good can come without some reciprocal relations between gods and man fostering each other. One will be steeling if one does not enter into that reciprocal relationship. When one honors that cosmic law of reciprocity, then one gets their desired enjoyment.

C.    Law of Accumulation

“That Pūṣan (the Diety) may promote the increase of our wealth, our keeper and our guard infallible for our good.” (Rig I. 89. 5)“A man should think on wealth and strive to win it by adoration on the path of Order, Counsel himself with his own mental insight, and grasp still nobler vigor with his spirit.” (Ṛig X. 31. 2).

The law of accumulation under Hindu economics forbids activities that are not conducive to it. “Play not with dice: no, cultivate thy corn-land. Enjoy the gain, and deem that wealth sufficient.” (Rig, X. 34. 13) In early western economic models of Adam Smith and David Ricardo, corn was recognized as the basic input that regulated all activities, and as late as 1960 a somewhat post-Keynesian revolution was staged on the corn-model by Pierro Sraffa. The fundamental teaching of that Rig verse cannot be underestimated.

But Hindu economics had other latent forces behind accumulation “…As virtue is the basis of wealth and as enjoyment is the end of wealth, success in achieving that kind of wealth which promotes virtue, wealth and enjoyment is termed success in all. Thus, varieties of success.” (Radhakrishnan and Moore, 1957, p. 222) This virtue is somewhat in the western system where greed is made the foundation of accumulation. “Greed, activity,  the undertaking of actions, unrest and craving—these spring up…when rajas increases.”  On the other hand, “Unillumination, inactivity, negligence and mere delusion—these arise…when dullness increases.” (Gītā, 14. 12-13)

Accumulation varies with the dominance of each of the guṇas. “The fruit of good action is said to be of the nature of “goodness” and pure; while the fruit of passion is pain, the fruit of dullness is ignorance.” (Gītā, 14. 16) “Those who are established in goodness rise upwards; the passionate remain in the middle (regions); the dull steeped in the lower occurrences of the modes sink downwards.” (Gītā, 14.18) “The faith of ever individual…is in accordance with his nature. Man is of the nature of his faith: what his faith is, that, verily, he is.” (Gītā, 17. 3)

The Model

To attempt a unification of the assumptions with the laws detailed above will bring some closure to the comparison of western and the Hindu economic model. The sketch we provide is only a first step, and would perhaps require many stumbles before it can stand on its own. But I still believe that the economic model of Hinduism is a complete thought, only it was not written down. Figure I below illustrates a glimpse of the operational mechanism of the model. The fourth quadrant represents production, deciles income distribution, consumption, and utility maximization.

1.    Consumption

A static picture of Hindus consumption pattern was expressed by Alfred Marshall as follows: “…we find people who do indeed abstain from immediate enjoyment and save up considerable sums with great self-sacrifice, but spend all their savings in lavish festivities at funerals and marriages. They make intermittent provision for the near future, but scarcely any permanent provision for the distant future: the great engineering works by which their productive resources have been so much increased, have been made chiefly with the capital of the much less self-denying race of Englishmen.” (Marshall, 1982, 187).

Quadrant III indicates pattern of consumption. Absolute and relative income hypotheses can be captured by the long run, line through the origin, and short run consumption function. Because of the nature of consumption assessed by Marshall above, the short-run function would be moving frequently to reconcile with the long-run curve, as the accumulation or de-accumulation of wealth in each interval occurs. Before the marginal revolution had happened, the Hindus spoke about changes by months, season, and days. (Rig, VI. 24. 7).

Marshall seems to be saying that the Hindus consume all their income. In this case the Marginal Propensity to consume (MPC) line should approximately coincide with the Average propensity to consume (APC) line.  To generalize Marshall’s idea then, any external technological shock to the system such as the Aryan Invasion if it happened, the Mogul Invasion, to name the two famous ones, will cause the MPC line to drift upwards, reconciling the MPC with the APC.

2.    Utility (Bliss) Maximization.

Consumption is done moderately. Overeating is not allowed from the point of view of Yoga. One can almost claim that eating is done to reproduce the body and certainly not as a tamasic activity as identified above. This is the ideal goal, but one finds the desire for abundant food and wealth throughout the scripture. Most Vedic sacrifices have food and wealth as the aim.  Following the Law of Sacrifice for food and wealth, we can then infer that some sort of maximization of utility is implied.

A utility maximization model should fit the eternal law of Dharma (Sanatan Dharma). One implication of this is that it must have a long run perspective.  The most general form for such a specification is a Ramsey type model  that does not consider “…differences between different kinds of goods and different kinds of labor, and suppose them to be expressed in term of fixed standards, so that we can speak simple of quantities of capital, consumption and labor without discussing particular forms.” (Ramsey 1928, p. 644) Such a model however, had been known to generate dynamic frontiers, which is indicated in the IV quadrant of Fig 1.

3.    Production

Production in the light of Marshall’s thought would be starving for want of capital. Its most likely form with fixed (varying) capital and varying (fixed) occupational division of labor is a diminishing return curve in the I quadrant. What is demonstrated is production with only one sector.

Production is also dependent on governance. As is recently demonstrated, good governance that liberated the Indian economy has allowed culture to survive with technology side-by-side. It has even given prominence to the idea of third world Multi-National Enterprise. India for instance had outflow of FDI in the late 1980s to N. America in engineering, consulting, software services.

Figure 1 show two representations of production functions in the first quadrant. The curved one indicates production with diminishing returns, and the straight line indicates output if proportional to capital, Y = ak, which when augmented with other inputs will display increasing returns.  With Marshall’s view that people save only to spend lavishly on customs, we cannot be sure that the saving rate is constant, and therefore, that saving is a drive of capital and output growth. (Dornbusch, et. al., 2004, p. 79).

The production function can drift upward with the advent of new Technology, and as we have said grace in Hindu economics. There have been waves of technological progress in from the early and mythical stage of Hinduism, through merchant capitalism, industrial capitalism, managerial capitalism, Fordism, Toyotaism that represent different productive efficiency. Since there is not measure for grace, it is comingled with the technology the culture has allowed. Modern western economics do not recognize grace, limiting their analysis mainly to technology and human capital as the major cause of drifts in the function.

4.    Deciles Distribution

Quadrant II indicates that the income generated from output can be put into a distribution interval–quartiles, deciles etc.  The curve represents unequal distribution in each interval, as prescribed by the unequal distribution assumption. Its slope would be flattened to a straight line as heads of states polices redistributes wealth to achieve better equality. It is explicitly stated in the Brahma Sūtras that God acts a creator and dispenser regarding the merit and demerit of the individual soul. (Brahma Sūtras II, 1.35)

The distribution curve also indicates a group concept. Member of all the cast can be found in a particular interval. In this sense, no hierarchical order over the castes is postulated. Each individual has mental disposition: Bhakti Yoga—love and devotion, Jñāna Yoga—knowledge of reality, Raja—path of mysticism, Vibhuti Yoga—path of splendor, and Karma yoga—action. (Bose 1970, Ch. I-V) The individuals can adopt a mixture of the yogic paths.

Quadrant Linkages

One is hard put to find a beginning to enter into Figure I. Karma is Anādi or beginning less. (Brahma Sūtras II, 1.36) So, an entry point is arbitrary. Quadrant IV shows a possible link for the consumption-input plane. People use their resources to attain bliss, ānanda. Many relationships can be posited for this plane, of which only a Swan-shape possibility is represented in quadrant IV. Thinking in terms of momentary changes, a balance must be struck between what a person devotes to savings and therefore capital formation, and the tradeoff drawdown from current consumption. A model of saving of this form was first developed by Ramsey (Ramsey, 1928). The prescription is to sacrifice more consumption if one is below the bliss point, and vice versa.

How time is regarded in Quadrant IV might be controversial. “What we mean by a ‘period’ in this case is not the time interval (t, t + 1) but, (t, t + dt). U(C(t))dt is then the utility associated with an instantaneous rate of consumption at t.” (Chakravarty1962, p. 340) Yet our consumption axis measure intervals with a mixture of people of various castes. Similarly, we are inferring consumption vs. interest frontier, while the positive x-axis measure inputs. We can if we like, assume that consumption and inputs are relabeled, not shown in the diagram, to allow the discussion of a consumption-interest rate frontier. The Swan-shape is interpreted with this understanding.

Conclusion

The model we presented combs the literature for the basic elements Hindu economics, making comparisons with the capitalist system.  We gave natural, psychological, and eight institutional assumptions which are essential pillars to build an economic system such as Adam Smith system, showing that the Hindu system has differentiated aspects in each assumption. Mostly, the difference is that the western system does not account for grace and liberation efforts toward work.

The rudimentary model we provided shows how grace along with technology lead to growth. Room for more equitable distribution that is absent in western economics is explicitly included in the Hindu model. Consumption is govern by yogic practices, and in addition to the traditional MPC and APC schedule, characterized by a Swan like feature in quadrant IV. The mode has no pretences of completeness, but makes no apologies either for the author things that the Hindus have a complete system to be written down.

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Dr. Ramrattan has been teaching economics at the University of Berkeley, Extension since the mid 1990s. He has a PhD in that subject from the New School University in New York. Besides economics, he was brought up as an Indian priest. Now he writes on Hinduism and Economics. He has published a paper on Hinduism and the Current Economics Crises in the American Economists (Vol. 53, No. 1, Spring 2009, pp 34-37). He has published over 75 refereed articles in professional journals. He co-authored 8 book, 6 of which were forwarded by Nobel laureates in economics. Two books are published by Cambridge Press, One by Oxford Press, and one by Plagrave, MacMillian.

He is now a collaborating editor for Handbooks on Economics for Oxford Press. So far 10 were published, and 60 are in planning stages.