Transcript ECON-220 HISTORY OF ECONOMIC THOUGHT

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, today’s 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 man’s 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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Xenofon’s 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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Plato’s 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 person’s 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.
 Aristotle’s 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 life’s needs.
 There is a limit to the amount of property.
 Aristotle teaches that eudaimonia involves the total
spectrum of moral and intellectual excellences.
 Aristotle’s 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:
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Private property is more productive and leads to progress.
Conflict is inherent in communal property management.
Private property is intrinsic to man’s 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: Chanakya’s 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 Machiavelli’s “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 seasonality’s 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 Yusufs’s ideas on taxation, public finance and
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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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