I have heard that on one occasion the Blessed One was staying near Sāvatthī at the Eastern Monastery, the palace of Migāra's mother. And on that occasion the Blessed One, having emerged from his seclusion in the late afternoon, was sitting outside the doorway of the porch. Then King Pasenadi Kosala went to the Blessed One and, on arrival, having bowed down to him, sat to one side.

Now on that occasion seven coiled-hair ascetics, seven Jain ascetics, seven cloth-less ascetics, seven one-cloth ascetics, & seven wanderers — their nails, armpit-hair, & body-hair grown long, carrying containers on poles [over their shoulders] — walked past, not far from the Blessed One. King Pasenadi Kosala saw the seven coiled-hair ascetics, seven Jain ascetics, seven cloth-less ascetics, seven one-cloth ascetics, & seven wanderers — their nails, armpit-hair, & body-hair grown long, carrying containers on poles [over their shoulders] — walking past, not far from the Blessed One. On seeing them, he got up from his seat, arranged his upper robe over one shoulder, knelt down with his right knee on the ground, paid homage to the seven coiled-hair ascetics, seven Jain ascetics, seven cloth-less ascetics, seven one-cloth ascetics, & seven wanderers with his hands palm-to-palm in front his heart, and announced his name three times: "I am the king, venerable sirs, Pasenadi Kosala. I am the king, venerable sirs, Pasenadi Kosala. I am the king, venerable sirs, Pasenadi Kosala."

Then not long after the seven coiled-hair ascetics, seven Jain ascetics, seven cloth-less ascetics, seven one-cloth ascetics, & seven wanderers had passed, King Pasenadi Kosala went to the Blessed One and, on arrival, having bowed down to him, sat to one side. As he was sitting there he said to the Blessed One, "Of those in the world who are arahants or on the path to arahantship, are these among them?" [1]

"Great king, as a layman enjoying sensual pleasures; living confined with children; using Kāsī fabrics & sandalwood; wearing garlands, scents, & creams; handling gold & silver, it's hard for you to know whether these are arahants or on the path to arahantship.

"It's through living together that a person's virtue may be known, and then only after a long period, not a short period; by one who is attentive, not by one who is inattentive; by one who is discerning, not by one who is not discerning.

"It's through trading with a person that his purity may be known, and then only after a long period, not a short period; by one who is attentive, not by one who is inattentive; by one who is discerning, not by one who is not discerning.

"It's through adversity that a person's endurance may be known, and then only after a long period, not a short period; by one who is attentive, not by one who is inattentive; by one who is discerning, not by one who is not discerning.

"It's through discussion that a person's discernment may be known, and then only after a long period, not a short period; by one who is attentive, not by one who is inattentive; by one who is discerning, not by one who is not discerning."

"Amazing, lord! Astounding! — how well that was put by the Blessed One! 'Great king, as a layman enjoying sensual pleasures; living confined with children; using Kāsī fabrics & sandalwood; wearing garlands, scents, & creams; handling gold & silver, it's hard for you to know whether these are arahants or on the path to arahantship.

"'It's through living together that a person's virtue may be known, and then only after a long period, not a short period; by one who is attentive, not by one who is inattentive; by one who is discerning, not by one who is not discerning.

"'It's through trading with a person that his purity may be known, and then only after a long period, not a short period; by one who is attentive, not by one who is inattentive; by one who is discerning, not by one who is not discerning.

"'It's through adversity that a person's endurance may be known, and then only after a long period, not a short period; by one who is attentive, not by one who is inattentive; by one who is discerning, not by one who is not discerning.

"'It's through discussion that a person's discernment may be known, and then only after a long period, not a short period; by one who is attentive, not by one who is inattentive; by one who is discerning, not by one who is not discerning.'

"These men, lord, are my spies, my scouts, returning after going out through the countryside. They go out first, and then I go. Now, when they have scrubbed off the dirt & mud, are well-bathed & well-perfumed, have trimmed their hair and beards, and have put on white clothes, they will go about endowed and provided with the five strings of sensuality."

Then, on realizing the significance of that, the Blessed One on that occasion exclaimed:

One should not make an effort everywhere, should not be another's hireling, should not live dependent on another, should not go about as a trader in the Dhamma. [2]

Note

1 .: In the parallel passage at SN 3.11, King Pasenadi states this, not as a questions, but as a fact: "Of those in the world who are arahants or on the path to arahantship, these are among them." The version presented here, however, seems psychologically more probable: The king, rather than trying to lie to the Buddha, wants to test the latter's ability to see through the disguise of his spies.
2 .: In SN 3.11, this verse is replaced with the following:
Not by appearance is a man rightly known, nor should trust be based on a quick glance, — for, disguised as well-restrained, the unrestrained go through this world. A counterfeit earring made of clay, a bronze half-dollar coated in gold: They go about in this world hidden all around: impure inside, beautiful out.

The verse in SN 3.11 may seem more immediately relevant to the situation than the verse given here, but the verse given here is a more interesting and original response to what is happening.