Stock ledgers from the 1800’s sit on a shelf. (Photographer: Christinne Muschi/Bloomberg)

Tales Of Trade: How ‘Dharma’ Anchors Business And Markets

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This is a series based on The Stories of Indian Business Series: 10 Extraordinary Tales of Trade, published by Penguin Random House and edited by Gurcharan Das.

The Dharma of Business: Commercial Law in Medieval India

- By Donald R Davis, Jr.

At the heart of the market system is the idea of exchange between ordinary, self-interested human beings, who seek to advance their interests peacefully in the marketplace. What makes dharma suitable for understanding commercial exchanges is that dharma does not seek moral perfection, unlike popular and religious notions of morality in the West, which have been derived from the Judeo-Christian tradition. Dharma is pragmatic; it views men and women as sociable but imperfect. Thus, dharma’s world of moral ambiguity and uncertainty is far closer to our experience as ordinary human beings, and it lends itself to market regulators and utility maximizing policymakers. Because it is not given by God in the form of commandments, dharma does not claim a monopoly on truth, the pursuit of which leads inevitably to theocracy or dictatorship and to narrow and rigid positions that seem to have defined debate in these fundamentalist times.

This book makes us aware that the market system depends ultimately not on laws but on the self-restraint of individuals and trust between them. Dharma provides that restraint by offering the underlying norms of a society, creating obligations for citizens and rulers, thereby bringing a degree of trust and coherence to our everyday life. Dharma places limits on buyers and sellers in the marketplace and this allows strangers to trust and transact with each other. Because of a shared notion of dharma, I readily accept a check from you. In the same way, a taxi driver takes me in as a passenger because he knows that the curbs of dharma will ensure he will get paid at the end of the journey. Thus, millions of transactions are conducted daily based on the same belief in the self-control of human beings in the global economy without written contracts or judges and policemen to enforce them. Dharma acts like invisible glue between transacting persons in the marketplace, allowing them to trust each other. The same glue also holds society together, bringing predictability to the uncertain lives of human beings.

If more people understood that markets are sustained by moral notions (such as dharma), capitalism and the business world would not have such a poor image in the public mind.

It is a mistake to think that the market is based solely on greed and profit-maximizing behaviour. In fact, Adam Smith, the profoundest thinker about the market, was clear about this. The dharma texts constantly remind us that there is a right and wrong way to conduct business dealings.

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The dharma texts, with their concern for fairness, are clear that profits should not be made through dishonest dealing: Merchants buy and sell all sorts of commodities in order to make a profit, but their profit goes up and down according to the negotiated price. Therefore, a merchant should fix his prices according to the time and place and he should never deal dishonestly, for this is ideal path for merchants. (Laws of Narada [8.11–12]) By dishonest dealing, the dharma texts mean charging excessively high interest rate on loans, or paying excessively low wages to an employee, or not keeping a promise, or not fulfilling a contract. For example, ‘a merchant who is unaware of the decreased or increased value of commodities may not cancel a purchase after it is completed. If he does, he should pay a penalty.’ In other words, people who buy and sell commodities have to be aware that prices fluctuate and factor this into their business plans.

There is an assumption in the dharma texts that merchants ought to generally fix their own prices and not the state (although on occasion they are tempted to be intrusive in this regard like the Arthashastra). They are aware that prices can go up and down, depending on supply and demand, and businessmen in a competitive market are at the mercy of a market price. The Mahabharata illustrates this point with the story of Tuladhara, a respected trader of spices and juices in Varanasi, who surprisingly instructs an arrogant, high Brahmin, Jajali, about dharma and on how to live. Speaking modestly, he compares his life as a merchant to a ‘twig borne along in a stream that randomly joins up with some other pieces of wood, and from here and there, with straw, wood and refuse, from time to time’ (XII.253.35 ff). There is irony here—a petty shopkeeper is teaching a high-caste Brahmin how to live. The worldly merchant, who presumably ought to covet wealth, is being held up as a model of behaviour for a forest-dwelling ascetic. Tuladhara is happy to go with the flow like a twig, suggesting, perhaps, that an honest person who is distrustful of worldly achievement is less likely to step on others’ toes and be less violent.

‘The vocabulary of business law in Dharmashastra promotes the cultivation of many virtues,’ says Professor Davis. As already noted, the dharma texts make a distinction between labh, ‘profit’ and lobh, ‘greed’ and some examples of lobh that they offer are selling prohibited goods, mortgaging the same property more than once, and bilking a debtor by not letting him pay off his loan because ‘he is greedy for the interest’. In calling the laws applicable to business as ‘dharma of the Vaishya’, the dharma texts are in effect saying that commerce is a religious duty of merchants and businessmen.

The purpose of business is not only to make a profit but to do it with righteousness.

By giving business dealings religious significance, a businessman who follows the rules of dharma for making loans, for paying employees and for securing partnerships gains religious merit, good karma. The idea of gaining religious merit will remind some of the German sociologist Max Weber’s use of the same idea in explaining the rise of capitalism in northern Europe in his classic, The Protestant Ethic and the Spirit of Capitalism. The big picture that emerges from this examination of dharma texts is that there is purpose to economic activity.

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Hence, artha, ‘material well-being’, was elevated by the ancients to one of the goals of life. The pursuit of money is proper because it creates the material conditions for the pursuit of other goals. The good life also has other goals as well, in particular, dharma, ‘moral well-being’, which is invariably placed higher than artha. When there is a conflict between the two goals, dharma is always expected to prevail. While artha’s purpose is to make the world a better place, there is clearly a right and a wrong way to pursue wealth.

- Edited excerpt from Gurcharan Das’ introduction to the book.

Watch Donald Davis, in conversation with Gurcharan Das, on the dharma of business.

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