Book 1, Chapter 3:
After the discussion on the importance of self-knowledge and Vedic knowledge and rules, Chanakya moves on to the real meat of his theory: importance of economic knowledge and an understanding of "statecraft."
This is where things get interesting as Chanakya reveals himself the ultimate pragmatist.
According to Chanakya, economic knowledge extends to agricultre, animal husbandry, metalcraft, mining and trade (nice summary of ancient economic activity there!) This knowledge employs these economic activities to create wealth, and to create and enhance status by virtue of possessions, servants, etc through that wealth. For a king, this knowledge is the means of improving treasure, and through that treasure, improving military might. That military might is the only practical way a king may control his/her subjects and ensure supremacy over the enemy!
WHOA! This is the Chanakya I have grown up with: practical beyond belief. Strange how he emphasises the necessity of wealth creation as necessary foundation for a kingdom's supremacy, maintenance and expansion.
However, the next verse gets a bit complicated. Chanakya points out that self-knowledge, Vedic knowledge and economic know-how are really reliant on a thorough understanding of statecraft. It is the fear of force/punishment (Chanakya uses the term "dand-niti") that ensure that friends and foes behave appropriately and the populace follows the correct path! I love this strangely authoritarian streak he seems to hold at his theoretical core!
However - WAIT! He then quotes earlier scholars who believed that statecraft or dand-niti alone would ensure that the populace abided by the law and that the enemies are kept under control. In fact, apparently earlier scholars give primacy to this policy of force.
Chanakya however is quite liberal for his times, pointing out that a king who is too strict and eager to mete out punishment is eventually hated by the subjects. On the other hand, a king who is too lax incites contempt from the populace. This is why the king must use force with a great deal of care.
He further warns that a king must not use punishment while influenced by lust or greed, anger or a desire for vengeance. In such cases, even the weak, the ascetics and those renouncing citizen privileges are angered, and the hatred and anger of the citizenry (those of the grahastya ashram) swells beyond control. A discontent populace is dangerous for a king's power.
On the other hand, a lax ruler creates a society without law and order, where only the strong prevail, and the weak are left unsafe and vulnerable. These are moments of anarchy and bode ill for a king's rule.
But a king who practises the policy of force carefully and wisely ensures that even the weak of the realm feel protected, invulnerable and content.
As such, Chanakya explains that when a king practises a policy of force applied wisely is when the realm can be safe and stable. In such cases, force is applied through knowlege and with impartiality. This practise ensures that the populace stays within the boundaries of the law, encourages people to follow the laws, and thus ensures security and stability within the realm.
Hmmmm....slightly authoritarian but I can see an early articulation of the allure of a benign dictatorship.