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August     Last updated: August 12  5:00 p.m.

Professor J.K. Galbraith published the book Economics in Perspective, wherein he has made the following observation: “Without wages and interest in ancient world there could not be a theory of prices in any modern sense. Prices derive in one way or another from production costs and production costs were not a visible function in slave owning household.” (p. 13) In this observation he had included ancient India where the science of economics did not exist. I wrote a letter to him informing him that there are many references in the Vedic books wherein the cost of production, wages, interest, profit, etc, are recorded. This letter awakened him. His reply was as under. “There was indeed in ancient times a very sophisticated discussion of economics. Your comments on this matter are well taken; were I writing the book again, I would certainly have them in mind. I am very grateful to you for writing,” (Letter, dt. 7th May 1992).

Price as theory is central part of modern economics. The supplementary part is the price policy. Shukra Niti has a stanza explaining theory. He says : Price is determined by the expenditure incurred to produce the article. This is the cost of production theory of prices. The price depends upon the abundance or scarcity of the articles in the economy. This is the supply side of price theory in economics. Further, he says, price is determined by the intensity of desire to have the commodity. This is the demand side of the theory of price. This guidance of the sear, Shukracharya in ancient India B.C. has been defined by Adam Smith in 1776 in his famous book, Wealth of Nations. Since then the price theory has been discussed by Ricardo, and Marx.

Both elaborated the labour theory of value. John Stuart Mill (1806-1873) again realised that the cost of production is the real basis of price, as against the disputable labour theory of value. The modern theory of price is known as the marginal productivity theory, which is based on cost of production. This brief reference is the evidence of the knowledge of price theory in economics in ancient India. Its universaliness is beyond doubt. It is unfortunate that this reference is not included in the text-books in the universities to be read by the scholars. It is also not properly incorporated in the text-books in India. Some inferences are worth while noting. Cost of production can be estimated with the help of expenditures and quantity of the goods produced.

This is how accountancy is converted into the cost accounting. Modern techniques of cost accounting have progressed. However, it can be asserted that rudiments of accountancy and the conversions of accounting entires into unit cost was known to the merchants as well as the seers in ancient India. Price theory is the anchor of economics. We have now developed equilibrium price as the concept, when the supply and demand are equal. Shukracharya says : The market prices move upward only because of the wicked policies of the king. In other words, the natural trend of equilibrium price is its downward movement. Though he has not analytically stated the cause, we know that productivity which reduces unit cost of production results in the falling level of equilibrium prices. This has been unreservedly concluded by Marx, D.H. Robertson, Abba Lerner, Joan Robinson and others in modern economic theory.

(The author is former Vice-Chancellor, Nagpur University.)