From Ayodhya To Adam Smith: The Roots Of Free Market Economy In Ancient India

The past two centuries of human history have been embroiled in the tumults of incomprehensible wars, technological advancements, and transformations in societies and cultures. Much of this storm has been tossed up by the raging battle between two ideologies: Capitalism and Communism.

Capitalism, the free-market economics of British philosophers and economists that fuelled the furnaces and fumes of the Industrial Revolution, advocated for minimal involvement of the state in the running of businesses. The most prominent among its proponents was Adam Smith, who, in his acclaimed book, The Wealth of Nations, shunned government involvement in the economy, using the metaphor of an “Invisible Hand” to show how markets did just fine on their own. This thinking soon became known as Laissez-Faire economics.

On the opposite end of the spectrum were the Communists, spearheaded by Marx and Engels, who decried the dangers of Capitalism and championed maximum government involvement, and complete eradication of the concept of private ownership. The government would own the
means of production and all decisions and planning would be centralised.

Nations have risen and fallen, and millions of lives have been shaped by the ideas of these men. To most of us, they seem to have been pioneers, the first to ponder the relationship between the economy and the state. In all our discussions on economics, in the textbooks we study in school and college, we quote and take inspiration from these Western thinkers, with their ideas completely shaping the way we think about economics and the world.

When newly independent India embarked on its tryst with its economic destiny, its policies were similarly framed in terms of these ideologies. We began with a socialist economy with strong state control, gradually giving way in the early 1990s to a more capitalist one.

Does our thinking on how to run our economy truly have no roots other than the work of Western philosophers and economists of the recent past?

This would be fine if India had, throughout its history, been the impoverished mess that colonial rule reduced us to. However, for millennia, India had been just the opposite. We were the biggest economy in the world by the 5th century AD, having 35 per cent of the global GDP. Surely, we didn’t achieve that through serendipity. As highlighted in previous articles in Vedanomics, the people of the Indus Valley were producing quality brands valued in faraway lands and demonstrating a spirit of enterprise. What sort of economic system and ideology fired those who came after them and led our economy to glorious heights?

The answer lies in a text we rarely relate to “modern” concepts like economics: The Ramayana.

For many Indians, the Ramayana is part of our soul. I would hear stories from it as a young kid and read it myself when I was older. It called to me because it represented a distant, magical past when India was in Rama-Rajya- an idyllic period when truth and justice prevailed. We can learn a lot from Lord Rama: about being a good son, doing one’s duty, and staying the course in the face of grim odds. But now I find myself seeing the Ramayana through a new lens: as a student of economics and history. What did Ram-Rajya mean for the economy?

It was a thriving, pulsing ecosystem of trade and commerce. To quote from the Ramayana, the realm of Rama “Was filled with different kinds of merchandise, and traders from every country came there.” Moreover, the king did not run businesses; there were burgeoning marketplaces, where goods could be bought by the public. Ayodhya was “Filled with vehicles and well-stocked markets, enchanting beyond imagining.”

“Take with thee a quantity of gold and set out, having furnished thyself with supplies of weapons, food and conveyances”, a character was told. commerce here was like in the modern economy, where there was a free market of supply and demand, far removed from the commerce of the Mesopotamian and Egyptian economies where the ruling class and royalty controlled much of the economy. The primary role of the ruler and the state in the Rama-Rajya was to provide security and justice, not to run the economy. In ancient India, even coinage was initially independent of the state, with guilds minting coins and certifying their quality.

Perhaps most strikingly, Shri Ram’s army seems to have bought weapons from private manufacturers! “Let merchants follow in his train, together with rich traders who can set up stores necessary for the army of Shri Rama.”

Privatisation in the defence sector is no small thing; it speaks volumes of the attitude towards free enterprise during the Ram-Rajya. It shows us the position of the ancients in a debate that continues to rage today about the state’s role and the nationalisation of industries. India only opened the defence industry to private companies in 2001 and was reluctant for a long time to show the same confidence in the free market as our leaders did during the time of the Ramayana. For many years, our government has continued the inexorable process of separating the state from business, a far cry from post-independent India when it was believed that the state should run all businesses, from hotels and airlines to cars.

Many commentators point to India’s rapid economic growth of late, and how it owes a lot to policies that are opening up our economy, creating an environment where the entrepreneurial spirit of Indians can be unleashed, with products wearing ‘Make in India’ as a badge of pride. A World Bank report comments, “India has undertaken major economic reforms that have contributed to unleashing productivity and growth.” A headline in the Economic Times in 2018 proclaimed, “India has cracked the code of capitalism better than many others.”

This optimism, this realisation that the glory days of the Indian economy are not just in our distant past, but in the near future, owes a lot to the policies and business climate being created that incentivises free enterprise and creates an environment conducive to business. The state plays a role in enabling this environment but does not unduly interfere. As Prime Minister Modi said in a recent interview, “Government has no business to do business.”

The modern commentator or economist may hear the echoes of Adam Smith in his proclamation, but we should take confidence and inspiration from the fact that we are not following any alien Western dogma in our path to progress. Instead, we are following a path that, millennia ago, once led us to the golden age of our economy.

A path that has its roots in ancient Ayodhya, not Adam Smith.

Aaditya Sengupta Dhar

Guest Author