HISTORY OF

ECONOMIC THOUGHT

DR. PETROS KOSMAS

LECTURER, CASA COLLEGE
ACADEMIC YEAR 2010 - 2011
LECTURE 1

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Why Study the History of Economic Thought?

The History of Economic Thought deals with different

thinkers and the theories in the subject that became

Political Economy.
It encompasses many different disparate Schools of

Economic Thought.
The great Greek philosopher Aristotle questioned whether

property is best left in private or public hands.

The art of wealth acquisition.
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Why Study the History of Economic Thought?

Aids in the understanding of economics.
Provides an introduction to part of intellectual history.

Helps:
Illustrate how ideas develop and change within

academic disciplines.
Helps create more critical attitudes and abilities .
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Why Study the History of Economic Thought?

In post-modern economics, it is normally assumed that people

are entirely selfish and must either be coerced or bribed into

performing tasks (Bewley, 1995).
Because it creates a common moral value judgments which

may largely shape policies.

For example Kantian economics, show that structuring

incentives to appeal to individual morality can motivate

improvements in public good funding contexts.

Three General Beliefs

Theory and historical processes are reciprocally

interconnected.
Social and economic change are continuous.
Schools of thoughts in economic area are (and always

have been), vitally concerned with social, political,

historical, practical, and moral issues.

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1.Theory and historical processes

are reciprocally interconnected because:
Social theories are based upon, grow out of, reflect, and

attempt to explain ongoing events and circumstances.

They are the products of the social and economic

circumstances in which they are conceived. Also social and

economic circumstances are the products of social
theories.
But it is equally true that human being act, create, shape,

and change their social and economic circumstances on the

basis of ideas and social theories.
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2. Social and economic change are continuous

because:

In numerous respects, todays Capitalism is

substantially different from Capitalism of the late

18th century
In this course there in been a try to illuminate the

nature of contemporary controversies in economic

theory by examining their historical antecedents.

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3. Schools of thoughts are vitally concerned with social,

political, historical, practical, and moral issues.
Their thoughts have both a cognitive, scientific element and emotive, moral, or

ideological element.
There is, in academic circles, a widely held view that science and value

judgments are antithetical.

History of economic thought as value free: theorists of this persuasion whom

they dislike, particularly Marx, are presented as having values in their writings
and these values are held to partially vitiate the scientific value of the writings.
All theorists have values that significantly interpenetrate all cognitive

endeavors. The discussion of the values and ideological aspects of the various
theorists writings, there is no intention of conveying the notion that the
having of values, per se, is a basis for criticizing a thinker.
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Main Periods in the History of Economics?

Pre-Classical (up to 1776).
Classical (1776-1870s).
The Marxist conception of Socialism as a precursor to communism (1848-to

date).
Marginal Revolution (1870s-1890s).
Neoclassical Economics (1890s-to date).
Keynesian revolution (1936-1960s).
Formalist Economics (1945 to date).

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The Economic Thought back to Ancient Times

The earliest discussions of economics date back to ancient times.
Economics was not a separate discipline, but part of philosophy.
In Ancient Athens, a slave based society but also one developing an

embryonic model of democracy.

The Economic thought back to Ancient Greece, Ancient India, to

Ancient China.

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Ancient Greece: Hesiod (8

th

cent. B.C.)

The 1st economist lived in the small agricultural community of Ascra-Boetia.

Works and Days (Poem): men never rest from labor and sorrow by day and from

perishing by night.
The fundamental economic problem of the scarcity of
resources for the pursuit of all human needs and desires.
Time, labor, and production goods must be efficiently allocated.
He analyzes the importance of labor and capital that puts an end to mans state of

leisure.
He was in favor of the rule of law and the dispensation of justice to provide stability

and order within society.

He spoke out against corrupt methods of wealth acquisition and denounced robbery.

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Ancient Greece: Xenofon

He developed a utility theory of value

property is that
which is useful for supplying a livelihood, and useful things
turned out to be all those things that one knows how to use.

He also discussed wealth as a resource for man to use

Wealth is that from which a man can derive profit.

He anticipates Adam Smith in realizing that the extent of the

division of labor is impacted by the scale of the market for

product.
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Xenofons Oeconomicus
Additionally, Xenophon explained the influence of supply and demand on

value. He observed that an increase in the supply of commodity causes a fall

in prices.
He proposed a tendency toward equilibrium in the economy where supply

and demand shift and react accordingly.

He discussed the fact that when there are too many coppersmiths, copper

becomes cheap and the smiths go out of business and turn to other activities.

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Ancient Greece: Plato

The Republic Is one of a seiries of dialogues Plato

transcribed, hiw students (including Plato himself).

A ruling class of philosopher-kings but he also recognized

the importance of the division of labor.

Plato has Socrates remark in The Republic that specialization

occurs because we are not all alike; there are many

diversities of natures among us which are adapted to
different occupations

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Platos Republic (380 B.C.) and the Division of Labor

The economic principles in action.
Plato addresses the essence of human nature an the role of

knowledge throw education.

He encourages us to generalize our thinking about the division of

labor.
A complete characterization of the human endeavor requires a more

general theory.

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Ancient Greece: Aristotle (384-322 B.C.)

In the Topics:
He provides his philosophical analysis of human ends and means.
The more useful or desirable a good is, the higher the value of the

means of production is.

The purpose of economic action is to use things that are necessary for

life (i.e., survival) and for the good life (i.e., flourishing). The Good
Life is the moral life of virtue through which human beings attain
happiness.
The primary meaning of economics.

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Aristotle (384-322 B.C.)

In the Politics:
Aristotle views labor as a commodity that has value but does not give value,
rejecting labor as the source of wealth.
He did not formulate the labor theory of value but instead held a theory of
the value of labor.
The basic requirement of value utility regarding a persons desires. Value is
the ability to satisfy wants.
According to him, exchange value is derived from use as communicated
through market demand. He created the concept of value in use.
In the Book I of the Politics he points out that natural pressures of
diminishing utility for goods direct remaining human energy toward selfimprovement.
His objective was to answer the question: How can goods of different quality
which are exchanged because of these qualitative differences be compared
with each other and be equalized?
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Aristotle (384-322 B.C.)

Wealth getting is necessary and honourable. The art of

acquisition or wealth getting

Economic dealings are subject to the rules of particular justice.
Aristotles economic criticism are directed at wealth-getting in the sense

of money-making.
He disregards the fact that men were able to search for unlimited wealth

even before money came into existence.

For him true wealth is the available stock of useful things.

.
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Aristotle (384-322 B.C.)

Aristotle emphasizes the importance of natural limits in a

system of natural relationships. production is the natural

process of obtaining things for lifes needs.
There is a limit to the amount of property.
Aristotle teaches that eudaimonia involves the total

spectrum of moral and intellectual excellences.

Aristotles economic writings continue to attract the interest

of contemporary thinkers.
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Aristotle (384-322 B.C.)

Whether property is best left in private or public hands?
Aristotle denounced the communism of the ruling elite

advocated by Plato because he support:

Private property is more productive and leads to progress.

Conflict is inherent in communal property management.
Private property is intrinsic to mans nature. The love of self, money, and
property is tied to natural love of exclusive ownership.
Private property has existed always and everywhere.
Only private property allows for opportunity for moral action; to practice
virtues of benevolence and philanthropy.

BUT, he says that the right to property is limited to what is

sufficient to sustain the house hold and the polis life of the city.
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Ancient India: Chanakyas Arthashastra

(c. 350B.C.-275 B.C.)
Arthashastra Science of Material Gain or Science of Political Economy.
Discussions on the management of an efficient and solid economy. many

of the topics are still prevalent in modern economics.

He focuses on issues of welfare (the redistribution of wealth during a

famine) and the collective ethics that hold society together.

He argues for an autocracy managing an efficient and solid economy. The

qualities described is in effect that of a command economy.

It discusses the ethics of economics and the duties and obligations of a king,

which can be considered a precursor to Machiavellis The Prince.

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Ancient China: Fan Li

He was probably the earliest economist (politician and strategist)

in human history.
He believed that one who understood money and wealth would be

willing to abandon it if it became a burden.

He discover seasonalitys effect on the market demand and supply

and their implications on prices. This motivated him to stock up

during times of low demand supplies at heavy discount on prices
and sell at times of high demand at a premium.
He reduced the social cost of drought and famine.
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Medieval Islamic world: Abu Yusuf (731-798)

He wrote the Book of Taxation (Kitab al-Kharaj)
His book outlined Abu Yusufss ideas on taxation, public finance and

agricultural production.
He discussed proportional tax on produce instead of fixed taxes on
property as being superior as incentive to bring more land into
cultivation.
He also advocated forgiving tax policies which favor the producer
and a centralized tax administration to reduce corruption.
Abu Yusuf favored the use of tax revenues for socioeconomic
infrastructure
He included discussion of various types of taxes, including sales tax
and import tariffs.

Medieval Islamic world: Al-Ghazali (1058-1111)

Classified economics as one of the sciences connected with

religion, along with metaphysics, ethics, and psychology.

The praise of economic activity and even self-interested

accumulation of wealth.
The creditor desires the well-being of the debtor in order to

get his money back rather that because of his love for him.
The debtor, on the other hand, does not take great interest in
the creditor
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