Economics of Kautiliya Shukra and Brihaspati.pmd

Introduction
CHAPTER FIVE
PRICING POLICY
Price as theory is central part of modern economics. The
supplementary part is the price policy. Theory of price is the main
subject matter of microeconomics. Although theory of price is not the
direct subject matter of macroeconomics but it is implicit in its income
theory. Since the level of national income is determined by the total
value of output and total value is caculated on the basis of the market
price of the commodity, therefore the price is the foundation of income
theory. In short the core subject of economics is theory of price. In
this chapter we shall compare briefly the theory of pricing developed
by Kautilya and Shukra with the classical and neo-classical theories.
Foundations of Theory of Value
The primary foundations of the theory of value are as follows-
1. Well defined weights and measures of commodity
2. Well defined wage rate of labor
3. Transaction of capital on the basis of interest rate
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If these foundations are not clearly defined then price of a
commodity can not be determined in the society. Plato's economic
ideas reveal that he was unable to distinguish between value and price.
Aristotle was of the view that the price of a commodity was
determined by the cost of labour used in the production. Adam Smith
followed this concept. Cantillian put the modern foundation of price
by saying that the commodity which is scarce prices high.Karl Menger
and Austrian economists developed utility theory of pricing on this
foundation.
Therefore, there were two opinions for the theory of price.
one was known as cost of production theory and other was known as
utility theory. Prof. Marshall conbined these oppsite views and presented
the demand and supply theory of price determination. Friedman explains
this contribution as follows, ' A very old puzzle in economics is the
relation between price, value to the consumer and cost of production.
It is tempting to say that the price of a good is determined by its value
to the user. Why, after all would anyone buy a good for more or sell it
for less? But if this is so why are diamonds, which are relatively
unimportant (most of us could told get along quite well if they did not
exist), worth so much more per pound than water, which is essential
for life? If the answer is that diamonds are rare and that it is rarity
rather than usefulness that determines price, I reply that signatures of
mine written in yellow ink are even rarer than original autographs of
Abraham Lincoln but bring a (much) lower price'.
'Perhaps it is cost of production that determines price. When
I was very young I used to amuse myself by shooting stalks of grass
with a BB gun. That is a costly way of mowing the lawn, even
considering that the cost per hour of a nine year-old’s time is not very
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