Economic Thought of Aristotle
and Plato
By Ahmad Qazi
ARISTOTLE
• Allocation of scarce resources was a moral
issue to Aristotle
• in book I of his Politics, Aristotle expresses
that consumption was the objective of
production
• surplus should be allocated to the rearing of
children
• personal satiation ought to be the natural
limit of consumption
• Child mortality was high
• Aristotle used the labels of "natural" and
"unnatural"
Natural
• Natural transactions were related to the
satisfaction of needs and yielded wealth that
was limited in quantity by the purpose it
served
Un Natural
• Un-natural transactions aimed at monetary
gain and the wealth they yielded was
potentially without limits. He explained the
un-natural wealth had no limits because it
became an end in itself rather than a means
to another end—satisfaction of needs
• This distinction is the basis for Aristotle's
moral rejection of usury
• Later, in book VII Chapter 1 of Politics,
Aristotle asserts
“external goods have a limit, like any other
instrument, and all things useful are of such a
nature that where there is too much of them
they must either do harm, or at any rate be of
no use, to their possessors”
• some interpret this as capturing a concept
of diminishing marginal utility
• However a general mass also refuses of the
concept
• Aristotle's Nicomachean Ethics, particularly
book V.V, has been called the most
economically challenging analytic writing in
ancient Greece
• Aristotle talks of justice, exchange and
equality of distribution
• He discussed isolated exchanges rather than
markets
• Aristotle laid stress on just distribution of
prices among individuals of different interests
• Aristotle suggested three different
proportions to analyze distributive, corrective,
and reciprocal or exchange transactions: the
arithmetic, the geometric, and the harmonic.
Arithmetic
• Simply calculating the demand price level on
basis of demand and need of a good in a
society or by an individual
Geometric
• It is for corrective measures
• Here the point of both satisfaction is met
geometrically
Harmonic
• The harmonic proportion is interesting, as it
implies a strong commitment to the subjective
values of the traders.
• Here the harmonic mean of the two suggested
prices is taken and then the price thus
obtained is the just price
PLATO
• Theory of division of labor
• First observed in a copy of
the Republic(Politeia), written more than
2,400 years ago by none other than Plato
• The book purports to deal with the nature and
conditions of a just republic, as well as with
the perversions of justice in man and society
• Plato is the godfather of all western
philosophers, good and bad. Libertarians
heartily despise him as the arch-champion of
totalitarian political schemes and the mentor
of no less than nine Greek tyrants. Yet the fact
is that he did pioneer the theory of the
division of labor, and it is instructive to see
precisely where he went wrong.
Theory of Labor
• cooperation among any number of persons is
more productive than the individual efforts of
the same persons in isolation from one
another.
• A must even though hatreds upon other
factors in order to effectively produce
• The economic incentives springing from the
division of labor explain the origin and nature
of human societies
• Plato starts off by identifying the better
satisfaction of human needs as the root cause
of association.
• In book II of the Republic, Plato follows a
macro approach to the analysis of justice.
• He deals with social organization because he
expects to see here a larger image of the very
same problems of justice that also exist on the
micro level of individuals.
Three reasons for division of labor
1. there are natural productive differences
between the individuals, which make one
person a better tailor, while another one might
be a better farmer, and so on;
2. the daily exercise resulting from specialization
improves the workmanship;
3. many jobs need to be done at the right moment
in time and therefore require permanent
availability of some person charged with this
task.
• The overall result of the division of labor is
therefore to increase the physical productivity
of individual human effort, to facilitate this
effort, and to make it more beautiful.
• Plato argues that the citizens need to
cooperate not only among themselves, but
also with people from other cities. This is
because of the natural imperfections of the
place where the city is built.
• In order to get merchandise from strangers,
one needs to pay them with merchandise that
is in short supply in their place. Therefore it is
necessary for our citizens to produce in excess
of their own needs.
• Exchange a driving force of consumption
Opulent Cities
• To move towards luxury
• To move towards expansion
• When a limit is reached, then a need to go on
other land arrises and thus wages war
• For war making men are chosen very carefully
• Having a dog nature ( they not attacking own
people but strangers)
• Thus conversion into opulent forces war
Government Role
• Only limited to have a check on the exchanges
and maintaining property rights
THANK YOU