AccountinHg istorianJs ournal Vol. 31, No. 2 December2 004 Balbir S. Sihag UNIVERSITY OF MASSACHUSETTSL OWELL KAUTILYA ON THE SCOPE AND METHODOLOGY OF ACCOUNTING, ORGANIZATIONAL DESIGN AND THE ROLE OF ETHICS IN ANCIENT INDIA AbstractK: autilya,a 4th centuryB .C.E. economist,r ecognizedt he importanceo f accountingm ethodsi n economice nterprisesH. e real- ized thata properm easuremenotf economicp erformancwe as abso- lutelye ssentialf ore fficienatl locationo fr esourcesw, hichw as consid- ered an importants ource of economic development.H e viewed philosophya nd politicals cience as separate disciplinesb ut consid- ered accountinga n integralp art of economics.H e specifieda very broad scope fora ccountinga nd considerede xplanationa nd predic- tiona s its propero bjectivesK. autilyad evelopedb ookkeepingr ulest o recorda nd classifye conomic data, emphasizedt he criticalr ole of independentp eriodica udits and proposedt he establishmenotf two importanbt ut separateo ffices- the Treasurera nd Comptroller-Audi- tor,t o increasea ccountabilitys,p ecializationa, nd above all to reduce the scope forc onflictso f interestH. e also linkedt he successfule n- forcemenotf rules and regulationst o theirc larityc, onsistencya nd completenessK. autilyab elievedt hat such measuresw ere necessary but not sufficientto eliminatef raudulenatc countingH. e also empha- sized the role of ethics,c onsideringe thicalv alues as the glue which bindss ocietya nd promotese conomicd evelopment. INTRODUCTION The virtuouso ne despisesp rosperitayt tainedt hroughig - nominy.T he bounds of good conduct should neverb e AcknowledgmentsI: am gratefutl o BhoopendraP . Sinha fore ncouraging me to exploret his topic. I am equally indebtedt o Linda Kistlera nd Richard Mattessichf ort heirm anyi nvaluables uggestionsw, hichw ereh elpfuiln improv- ingc ontenta nd clarityI. am also gratefutlo ther efereeasn d StephenW alkerf or theirp enetratincgo mmentsa nd suggestionfs ori mprovingth ep resentationan d sharpeningth ea nalysis.O nlyI deservep rosecutionf ora nyr emaininge rrors. SubmittedM ay 2002 RevisedO ctober2 002 RevisedA pril2 003 RevisedO ctober2 003 AcceptedN ovember2 003 126 AccountinHg istorianJs ournalD, ecember2 004 crossed.T rutha nd charitya re ther ootso f righteousness. Righteousnesiss the ornamento f all [Kautilya'sS utra, Subramanian,p p. 39, 47, 62]. It is possiblet o knowe vent hep ath of birdsf lyingin the sky but not the ways of governmenste rvantsw ho hide their (dishonest) income [Kautilya's Arthashastrap, . 283]. Vishnugupta Chanakya Kautilya (popularly known as Chanakya)h as been addresseda s an Acharyao r guru( professor or teacher) and a statesman.N ehru [1998, p. 123] describes Kautilya as follows: "He sat with the reins of empire in his hands and looked upon the emperorm ore as a loved pupil than as master.S imple and austere in his life,u ninterestedin the pomp and pageantryo f highp osition." Kautilyai s creditedw ithd estroyingth e Nanda (tyrantr) ule and installingC handraguptaM aurya (321-297 B.C.E.) on the throne.N o one really knows the dates of his birtho r of his death. It is almost certaint hat he and ChandraguptaM aurya were adults in 321 B.C.E. when theys ucceeded in topplingt he Nanda DynastyI.t is reasonablet o assume thath e was oldera nd undoubtedlyw isert hanC handraguptain ordert o commandt he respect necessary for success in destroyingt he Nanda rule. Kautilyaw as probablyb orn around 360 B.C.E., was veryi nflu- ential duringC handragupta'sr ule (321-297 B.C.E.), and might have lived beyond the latterd ate. This implies that he was a junior contemporaryo f Aristotle( 384-322 B.C.E.). However, therei s no evidencet hatK autilyaw as aware ofA ristotle'isd eas. Kautilyaw roteT he Arthashastrat,h e science of wealtha nd welfare,d uringt he latterh alf of the 4th centuryB .C.E.. The Arthashastrcao ntains1 50 chaptersw, hicha re classifiedb y topic in 15 books. It consistso f threer easonablyw ell developedp arts: (i) nationals ecurityis sues includinga foreignp olicy,( ii) admin- istrationo f justice includingc rimea nd punishmentis sues, and (iii) policies related to economic developmentt, axation,l abor managementa nd financialm anagement.T he latteri ncludes a discussiono n the criticalr ole of accounting.T heA rthashastrias a theoreticatl reatised esignedt o instructk ingse verywheraen d for all time. Kautilya also completed two other works: Chanakya-Sutra(sR ules of Science) and Chanakya-Rajanitisastra (Science of GovernmenPto licies). Kautilya's contributionst o accounting may be classified under four headings: (i) the developmento f principleso f ac- counting,(i i) the specificationo f the scope and methodologyo f Sihag:A ccountingO, rganizationaDl esigna nd Ethicsi n AncientIn dia 127 accounting,( iii) the codificationo f financialr ules and regula- tions and the creationo f an organizationals tructuret o reduce the potentialf orc onflictso f interesta, nd (iv) the role of ethics in the restrainto f fraudulentac counting( oftens pawned by ex- cessiveg reed),i n them aintenanceo f law and order,t he efficient allocationo f resources,a nd thep ursuito f happiness. Mattessich[ 1998] sheds light on Kautilya's contributions undert he firsth eading.H e identifiese lementso f modernp rin- ciples of accountingi n Kautilya'sA rthashastraan d shows thati t contains more accounting theory than Pacioli's Summa. Mattessich deserves much credit for his interpretationso f Kautilya'si mplicita nalysis.H e makes insightfualn d bold obser- vations,n otingt hat many studies in accountingh istoryh ave focused too narrowlyo n the search for the origin of double- entryb ookkeeping.H e places Kautilya'sA rthashastroan a par withP acioli'sS umma. In thisp aper,I concentrateo n Kautilya'sc ontributionus n- der the remainingt hreeh eadings.A modesta ttempti s made to offerg limpsesi nto Kautilya'sg rand vision and his impeccable logic. The second sectiono f thep aper containsK autilya'si deas on the scope and methodologyo f accounting.T wo typeso f argu- mentsa re presentedt o show thatK autilyac onsiderede xplana- tion and predictiona s the objectiveso f analyticali nquiriesr e- lated to accounting. First, it is argued that he did not recommends eparatinga ccounting from economics. He pro- posed testableh ypothesesa nd thusi mpliedt hata ccountingh ad an equal claim to the use of the scientificm ethod.S econd, ac- cordingt o Kautilya,e veni fa ccountingi s considereda discipline separate frome conomics,i ts methodologyis still scientificI. t appears on closere xaminationt hatK autilyau nderstoodt he im- portance of the accurate measuremento f economic perfor- mance to economic growth.H e linkedd ecisions on production and tradep atternst o profitabilitayn d implicitlyc onsideredi n- novationi n accountingm ethodsa s a general-purposet echnol- ogy (GPT), which improved the efficiency of the whole economy.K autilya'si deas on the importanceo f the financial health of the Treasuryt o achieve the various objectiveso f the statea re also includedi n thiss ection. Accordingt o Kautilya,t he major underlyingf actorf or re- sortingt o aggressivea nd creativea ccounting( which he calls 'false accounting')i s excessiveg reed,a nd he attemptedt o con- tain it throughm oral persuasion and legal means. He con- sidered the conditions for ensuring honesty and systemic 128 AccountinHg istorianJs ournalD, ecember2 004 efficiencyTh. e thirds ectiono f the paper lays out Kautilya's ideas on then ecessaryco nditionfso ri ncreasinegf ficiencayn d complianceH. e proposeda t leastt hreec onditionsF.i rsth, e be- lievedt hatc itizens(i ncludingg overnmenotf ficialsh) avet o be informeodf t hel aws.W itht hati n mindh, e modifiede,x tended, and abovea ll, codifiedt hee xistingr ulesa nd regulationsS.e c- ond,h e proposeda n organizationastl ructurteh atr educest he scope forc onflictosf interestT.h irdh, e suggestedco mprehen- sives chemeso f rewardsa nd punishmenttso increasec ompli- ance. He suggestedw ays to handlep roblemst hatm ay arise whenevear principa(lo wner,s hareholdero,r evena king)e n- trustfs inanciaolp erationtso hisa gents(m anagersT). hiss ection oft hep apera lso recognizeKs autilya'cso ntributionons system- atic recordk eepingp, eriodica ccountingb,u dgetinga,n d inde- pendenatu diting. Kautilyaw as aware thate thicalv alues encompassm uch moret hant hes ocialv aluesc odifiedin rulesa nd regulationHs.e believedt hate vent hem ostc omprehensisveet o fr ulesa ndr egu- lationsw as insufficiefnotr c heckingg reeda nd eliminatintgh e potentiafl orf raudulenptr acticesT. he fourthse ctiono ft hep a- per containsh is ideas on the criticarl ole of ethicalv aluesi n maintaininlgaw and ordera nd thec reationo f wealthH. e em- phasizedt he role of virtuee thicsi n buildingg ood character. Recognizintgh att hec oncepto f virtuee thicsw as alreadyw ell developedin theV edas,t heH indur eligioussc riptureasn d phi- losophyh, e focusedp rimariloyn thea ction-orientperdi nciples of ethicss, ucha s theg oldenr ule,f airnessa,n d 'servanlte ader- ship'a nd undertakinvga riousm easurest o improvteh ee thical climateB. eforee xplorintgh esed imensionosf K autilya'ws orka briefi ntroductiotno TheA rthashastirsa providedin the next section. A BRIEF INTRODUCTIONT O KAUTILYA AND THE ARTHASHASTRA Mattessic[h1 998]n otedt hatK autilyda evelopedso mer udi- mentarpyr incipleosf m oderna ccountinagn d stated": Onem ay evenr aiset heq uestiono fw hyt heA rthashastcroan cernist self, at leastt o somee xtentw, itha ccountingis sues,w hilet hee ven morec omprehensivwer itingosf Aristotl(ed espiter evealingan awarenesso f economici ssues) are silenta bout accounting theoryK."a utilyha ad a grandv isionf orb uildingan empireo,n e thatw as prosperouss,e cure,s table,a nd based on fairnessH. e realizedt hatt he attainmenotf prosperitrye quiredn ot only Sihag:A ccountingO, rganizationaDl esigna nd Ethicsi n AncientIn dia 129 humane fforbtu t also the accumulationof capital,w hichw as notp ossiblew ithoutth ed evelopmenotf a ccountinmg ethods. Kautilysa Vision:K autilya[ pp. 120-121]s tatedh is vision thus: Thek ingdomsh allb e protectebdy f ortifyitnhge c apital andt het ownsa t thef rontierTsh. el ands houldn oto nly be capable of sustainingt he [native]p opulationb ut also outsiders[w hent heyc ome intot he kingdomi]n timeso f calamitiesI.t shouldb e easy to defendf rom [attacksb y] enemiesa nd stronge nought o control neighborinkgi ngdomsIt. shouldh avep roductivlea nd (freef roms wamps,r ockyg rounds, alinel and,u neven . terrainan d desertsa s wella s wilda nd [unrulyg] roups of people).I t shouldb e beautifubl,e inge ndowedw ith arablel and,m inest, imberf orestse,l ephanft orestsa,n d goodp asturers ichi n cattleI.t shouldn otd epend[ only on] rainf orw ater.I t shouldh aveg ood roadsa nd wa- terwaysI.t shouldh ave a productiveec onomyw, itha widev arietyof c ommoditieasn d thec apacityt o sustain a highl evelo f taxationa s well as a [large]a rmyT. he people shall be predominantalygr iculturis[tasr tisans and craftsmand]e, votedt o workh, onestl,o yala ndw ith intelligenmta sterasn d servant[s6 .1.8]. Kautilyar ealizedt hatt herew as a largeg ap betweenh is ideal economya nd thatp revailingin 4th centuryB .C.E.. His geniusl ies in anticipatintgh ep ossiblep roblemtsh atm aya rise in eliminatinsgu cha gap and devisingp oliciest o resolvet hem. Accordintgo Kautilyai,t w as them orald uty( as wella s enlight- eneds elf-intereostf)a kingt o increasep rosperitjyu,d icialf air- nessa nd nationasl ecuritya;n d he constructead c ompletec on- ceptualf rameworakn d suggestepdr acticaml easurest o achieve theseo bjectivesT.h el evelo fa bstracrt easoningac hievedin The Arthashastwraa s uniquef ori tst ime. Kautilya'As rthashastwraa s writteinn SanskritN. ow,f ortu- natelym, anyE nglisht ranslationasr e available.I t hardlym at- tersw hicht ranslatioins used,b ecausea ll are accurateK. angle's [1972,P artI I] translatioonf TheA rthashastirsa c onsideredth e most authenticb ut is somewhatp edantic,a nd in adhering strictltyo theS anskrilta nguagel,a cksc larityin somei nstances. Rangarajan[1 992]i mprovetsh et extuacll arity. Two examplesi llustratteh e differencebse tweent he two translationFs.i rst,o riginalr eferenc[e1 .19.34]t o the Sanskrit Shloka( stanza)i n KautilyaA's rthashastrKaa.n gle[ PartI I, p. 47] translatetsh isa s: "In theh appinesso ft hes ubjectsli es theh ap- pinesso f thek inga nd in whati s beneficiatlo thes ubjectsh is 130 AccountinHg istonansJ ournalD, ecember2 004 ownb enefitW. hati s deart o himselifs notb eneficiatlo t hek ing, butw hati s deart o thes ubjectsis beneficia(lt o him)."I ts trans- lationb y Rangarajan[p . 149] is: "In theh appinesso f his sub- jectsl iesh ish appinessi;n theirw elfarhe isw elfareH. e shalln ot considera s goodo nlyt hatw hichp leasesh imb utt reata s ben- eficiatl o himw hateveprl easesh is subjects.S" econd, theo rigi- nal referenc[e2 .1.16]i n Kautilya'As rthashastrItas. translation by Kangle[ PartI I, p. 56]: "For,a kingw itha smallt reasury swallowsu p the citizensa nd the countryp eoplet hemselves." Rangarajan[ p. 253] translatetsh us:" A King witha depleted Treasuryea tsi ntot hev eryv italitoyf t hec itizensa nd thec oun- try.O" ccasionallyin thisp aper,K angle;st ranslatioins used;b ut to a largee xtentm yo bservationasn d interpretatioanrse based on thev ersione ditedr, earrangedtr, anslatedan, d introducebdy RangarajanT. he page referenceasr e fromt hist ranslatiobnu t referencetso the originaol nes are also provided(t o illustrate, [1.15]m eansC hapterF ifteenof B ookO neo fT heA rthashastra). Datea ndA uthorshoipf T heA rthashastrMau: chc ontroverssyur - roundst hed atea nd authorshiopf T heA rthashastrMaa. nyW est- ernw riterhsa vea dvancedt heh ypothesetsh ati tw as notw ritten duringt he4 thc enturyB. C.E. and thatm anys cholarsa uthored it. Most of these hypotheseasr e advancedo n the basis of 'stylometrainc'a lysis- thef requencoyf u se ofc ertainw ordsl ike ca (and) and va (or) whichv arya mongd ifferenpta rtso f The Arthashast-r aan d thef actt hati t is writteinn thet hirdp erson. RecentlyM, ital[ 2000]d evotesh is entireb ookt o rigorouslayn d meticulousleyx aminingth e statisticaml ethodsa nd evidence used,p articularblyy T rautmannto, tests uchh ypotheseHs.e [p. 90] finds" Thisa lso showst hatt hed ifferencine theu se of ca andv a is basedo n subject-mattaenrd noto n authorshipM." ital concludest hatt hem ethodus sed by Trautmannar e botha rbi- traryan d oftenc ontradictoarnyd t hereforien,a dequatet o prove hisc laims. Otherc riticsa,n alyzingth ew ritingst yleq, uestionw hether Kautilyaw as the sole authoro f TheA rthashastrTah. e writing style,a t least in ancientI ndia,w as quite differenftr omt hat prevailintgo day.M ital[ pp. 22-23]n otes," On theb asis of the opinionso f Kautilyae xpressedin thet hirdp erson,t hev iewi s put forwarbdy Hillebrandtth ati t is nott hew orko f Kautilya but of a school,a nd this is also the opiniono f Keith and WinternitBzu. tK ane says:" Ino rdert o avoidl ookingt ooe gotis- ticala ncientw ritergs enerallypu tt heirv iewsi n thet hirdp er- son." Sihag:A ccountingO, rganizationaDl esigna nd Ethicsi n AncientIn dia 131 Today,t heree xistsn o directe videncea gainstK autilyab e- ingt hes ole authoro fT heA rthashastrnao,r e videncet hati tw as notw rittednu ringth e4 thc enturBy. C.E..T hei ndirecetv idence, such as the writingst yleo f variouss egmentos f The Arthas- hastrai,s insufficietnot c hallengee ithert hed ate of its writing orK autilyaas thes olea uthor. PossibleR easons fort he Neglecto f The ArthashastraK: autilya's textw as veryw idelyr eferretdo and reveredb y scholarsf or moret hana thousandy earsa fterit sw ritingR. ay[ 1999,p . 119] observe"sA parft romt hem anya uthorsli keA svaghosaK, alidas, Bana, VisakhadattaD,a ndina nd othersw ho were conversant withi t,w e have referencetso it and quotationsf romi t right downt o thed ayso fM illnathaan d Charitravardhainna t he1 4th and 15thc enturieAs .D. It mayh ave lost mucho f its validity witht he establishmenotf the MogulE mpirea nd particularly witht hea dvento ft heB ritishr ule." It is remarkablteh atT heA rthashastsruar vivetdh ea ctivities ofs omeo ft her ulerso fI ndia.T he factt hatt het extw as written in Sanskridt id notf acilitatiet sd isseminationT.h e workr esur- faced in 1904 when a manuscriptw as handed to Mr. Shamasastryth, eL ibrarianat theM ysoreG overnmenOtr iental Library. KAUTILYAO N THE SCOPE AND METHODOLOGYO F ACCOUNTING Theu se ofs ciencei s thes ighto ft ruth[K autilya'Ssu tra, Subramanianp,. 83]. Cushing[1 989]o bserved":C ontemporaarcya demica ccoun- tantsh aven otd esertedsc ienceb, utt heyh avei n a fundamental sense deserteda ccountingT. he majorityo f the researchi n today'sl eadinga cademica ccountingjo urnalsa pplies the re- searchp aradigmosf e conomicasn d psychologwyi thinth ei nsti- tutionals ettingo f accounting.H" e called this a crisisi n ac- countingan d suggestedth ato ne of thew ayst o resolvei t is to simplyr edefinteh e scope of accountingH. e concluded," Ac- countinmg ayb e redefineidn scientifitce rmsa s thes ciencet hat attempttso explaina nd predictt he economicp erformancoef individualosr groupsr esponsiblfeo rt heu tilizatioonf e conomic resources.B" y contrasta,c cordingto Kautilyae,x planationan d predictioanr et hek eyg oalsf ora nyo bjectivien quiryin account- ing. This means that by applyings cientificm ethods,c on- temporarayc countantdso nota bandona ccountingr;a thert hey 13 2 AccountinHg istonansJ ournalD, ecember2 004 restoreit s originals tatusa nd are preparedt o realizei ts full potential. Book 15 ofT heA rthashastcroan tainjsu sto ne chapter'T, he Methodo f Science'b ut surprisingliyt deals exclusivelyw ith methodologayn d interestingilsy p, laceda t thee nd rathert han theb eginninogf t hew orkI.t containss omes tylistircu leso ft he kindt hato ne mightf indi n 'Universitoyf ChicagoM anualo f Styleo' r the styleg uideo f AccountinHgi storianJs ournalB. ut otherr ulesa rem ores ubstantivseu, cha s, statinga hypothesias , verbal( non-technicarle) asoningto provei t,a conclusionan d a recommendatioInt i. s notc laimedh, owevert,h ati t has thes o- phisticationd escribedb y Backhouse [1997, Chapters3 -7], Godfrey-Sm[i2th00 3]o r Mattessic[h2 000,C hapter1 ]. The contenot f Kautilya'ws orki ndicatest hatt hep rerequi- sitesf ort he establishmenotf the disciplineo f accountingal - readye xistedin Indiad uring4 thc enturyB .C.E.. Kautilyau sed fractionsp,e rcentagessu, mmationan d subtractioonp erations, and evenp ermutationans d combinationqsu itee xtensiveldyi,s - playinga deepk nowledgoef arithmetiHc.e developedn oto nly bookkeepinrgu lesb ut also the procedurefs orp reparingp eri- odic incomes tatementasn d budgetsa nd performiningd epen- denta uditsI. frah'[s2 000]f indingasl so supporttsh ee xistencoef ther equiredca pabilitieisn arithmettico supporat separated is- ciplineo f accountingin the periodu nders tudy.H e [p. 434] writes",B eforet heb eginninogf thef ifthce nturyB .C.E.,t hen, all the necessary"i ngredientfs"o rt he creationo f the written place-valusey stemh ad beena massedb yt heI ndianM athemati- cians." Kautilyad id not see the need fors eparatingac counting frome conomicsa nd believedt hat any demarcationo f the boundaryb etweent hemw ouldb e arbitraryH.e consideredac - countingan integrapl arto f economicsB. y contrasth,e explic- itlyt reatedP oliticalS ciencea nd Philosophyas separated isci- plines.T his view is supportedb y the factt hat the role of accountinwg as consideretdo be embeddedin economicp olicy. Kautilyap erceived'e xplanatioann d predictionas' thet rueo b- jectiveso f a scientifiicn quiryan d appliedt heset o analyzet he impacto fv ariousp olicieso n thec reationo fw ealthH. e applied theseo bjectivesb,o the xplicitlayn d implicitltyo, inquiriers elat- ingt o accountingT.h isl eadst o thec onclusionb yK autilyat hat explanationan d predictionla y withint he rightfudlo maino f accounting. Kautilyao n the Importancoef WealthK: autilyam ethodically Sihag:A ccountingO, rganizationaDl esigna nd Ethicsi n AncientIn dia 133 approachede conomic issues by firste xplainingt he importance of wealth and then suggestingp olicies for its creation.H e [p. 637] observed" Man,w ithoutw ealth,d oes not get it even aftera hundred attempts.J ust as elephants are needed to catch el- ephants,s o does wealth capture more wealth.W ealth will slip away fromt hatc hildishm an who constantlyc onsultst he stars. The only[ guiding]s tar of wealthi s itself;w hat can the starso f the skyd o [9.4.26-27]?"A ccordingt o Kautilya,w ealth comple- mentedh umane ffor(tb y enhancingl abor productivityin) creat- ingp rosperityw, hichi n turnc reatesm orew ealth. Kautilya [p. 149] added, "In the absence of fruitfuel co- nomica ctivityb, oth currentp rosperityan d futureg rowtha re in dangero f destructionA. kingc an achieve the desiredo bjectives and abundance of riches by undertakingp roductivee conomic activity[1 .19.35-36]."H e advanced the hypothesist hatt he pur- suit of productivea ctivitiesw as the key to stabilizationo f the currentin comea nd its rapidg rowthin the future. Incentivest o EncourageC reationo f Wealthi n theP rivateS ector: Kautilyae xploreda ll possible means of creatingw ealth.H e sug- gestedm anyp olicies to encouragec apital formationin the pri- vate sector.F or example,h e [p. 231] recommended(i ) Tax Holi- days: "Anyo ne who bringsn ew land under cultivations hall be grantede xemptionf romp aymento f agriculturatl axes fora pe- riod of two years.F or buildingo r improvingir rigationf acilities exemptionf romw ater rates shall be granted[ 3.9.33]." (ii) Full Protectiono f PrivateP ropertyR ights:K autilya [p. 121] wrote "The wealtho f the states hall be one acquired lawfullye itherb y inheritanceo r by the king'se ffort[s6 .1.10]." He [p. 231] added, "Waterw orkss uch as reservoirse, mbankmentsa nd tanks can be privatelyo wned and the owner shall be freet o sell or mort- gage them [3.9.34]." (iii) ConcessionaryL oans: He [p. 179] rec- ommended, "[On new settlements]t he cultivators shall be grantedg rains,c attlea nd moneyw hich theyc an repaya t their convenience[ 2.1]." (iv) DutyF reeI mportsK: autilya[ p. 238] sug- gested" Anyi temst hat,a t his discretiont, he ChiefC ontrollero f Customs,m ay consider to be highlyb eneficialt o the country (such as rares eeds) [2.21] are to be exemptf romi mportd uties." Kautilyao n theF actorsR elevantt o CreatingW ealth:K autilya[ p. 255] stated: The followinga re the means of increasingt hew ealtho f the State: ensuringt he prosperityo f state activities; continuingw ell triedp olicies;e liminatingth eftk; eeping 13 4 AccountinHg istonansJ ournalD, ecember2 004 strictc ontrolo verg overnmenetm ployeesi,n creasing agriculturapl roductionp; romotingt rade; avoiding troublesa nd calamitiesr; educinge xemptionasn d re- missionasn di ncreasincga shi ncome[ 2.8.3]. Obstructionm, isuseo f governmenptr opertyan d falsea ccountingb y governmensetr vantlse ad to a re- ductiono fw ealth[2 .8.4]. Withn o distractionth, ep eoplew illb e fullyin volved in thew orki n thef ieldsa ndt herew illb e an increasein thes upplyo fl abor,m oneyc,o mmoditiegs,r aina nd liq- uidst o thet reasur[y2 .1.33-35]. He added," Calamitietso thet reasurcya n be anyi nternaolr externaalc tionw hichh as the effecot f reducingt he revenue. Financiahl ealthc an be affectebdy m isappropriatibony c hiefs, remissiono f taxes,s catteredc ollectionf, alsea ccountinga nd lootingb y enemiesa nd tribesb eforet he revenuer eachest he Treasury[8 .4.49]/' Two observationasr e in orderF. irsta, ccordingto Kautilya 'falsea ccountingc'o uld be a serioust hreatt o the creationo f wealthS. econd,t hisw arningw as centratl o coree conomicp oli- cies relatingto economicg rowthf,i scalm anagemenatn d labor managementH. e discussede ach of these means of creating wealtha nd the need to prevenlto ss by developingac counting methods. FiscalP olicyK. autilyar ecommendead m ixede conomya nd ar- guedf ora verya ctiver oleb yt heg overnmenHte. exploredet hi- callyp ossiblea venuest o maximizet he levelo f wealthi n the publics ectorH. e was awareo ft hel imitsp lacedo n governments to raiser evenuet hroughta xationS. pengler[1 971,p . 72] sum- marizesK autilya'fsi scapl olicya s follows: Kautilya'ds iscussiono f taxationa nd expendituraep, - parentlyin keepingw itht raditionadlo ctrineg,a ve ex- pressiont o threeI ndianp rinciplest:a xationp oweri s limitedt;a xationsh ouldn otb e feltt o be heavyo r exces- sive;a nd taxi ncreasess houldb e graduatedO. ne ofh is mainc oncernss eemst o haveb een the collectionan d expendituroef r evenuein suchw aysa s to buildu p the permanenrte venue-yieldicnagp acityo f the economy. Whileh e manifesteldit tlek nowledgoef t axs hiftinagn d incidence,h e emphasizedt he long run, cautioned againstt oo heavyt axationin thes hortr un,a nd noted thata rulerc ouldn ott axa t hisp leasurep, articularilny frontierre gionsw hered isgruntletda xpayercso uldf lee to neighborincgou ntries.