Kautilya propounded the concept of justified and appropriate prices in the sphere of price determination. He included an article’s production cost and a reasonable profit in justifiable price of a commodity. A justified price does not reduce producer’s motivation as in a socialist economy, nor does it overburden the consumer’s pocket as in a capitalist economy. If the price remains below production cost, the producer will stop producing that product, and unemployment will increase. On the other hand, consumer demand will decrease if prices are too high. In both situations, production will drop and unemployment will increase.
According to Kautilya, determination of prices of commodities should be done by officials appointed by the king, called ‘Panyadhyaksha’ and ‘Sansthadhyaksha.’ Kautilya suggests to the ‘Panyadhyaksha’ (head of commerce) regarding determination of price that he should ascertain whether a commodity has a demand in the market or not. He says that the fluctuation in prices are linked to demand and supply. Prices of commodities rise with increasing demand, while prices decrease with increasing supply. In this way Kautilya factors in the principle of demand and supply in price determination while advocating state control in price determination.
According to Kautilya, many elements affect the prices of commodities. Prices should be decided after calculating the salaries, transportation cost, rent, state of society, etc. According to him, the chief of markets should consider the benefit of society along with other elements. He suggested that readily perishable goods like milk, vegetables, etc. should be sold off at the earliest at any place and at any price since these things spoil very quickly. Kautilya says that if prices increase at the behest of traders and workers, then it is against the principles of justice. Therefore, determination of prices of things should be done in accordance with the country and the time.
