Chapter 2
EARLY ECONOMIC THOUGHT
2nd Semester, S.Y 2014 – 2015
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Chapter Outline
A. Early Economic Thought
 Ancient Economic Thought
 Medieval Economic Thought
B. Ancient Economic Thought
 Xenophon and his Economic Ideas
 Plato and his Economic Ideas
 Aristotle and his Economic Ideas
 Chanakya and his Economic Ideas
 Fan Li and his Economic Ideas
C. Medieval Economic Thought (Scholastic and Islamic)
 Thomas Aquinas and his Economic Ideas
 Duns Scotus and his Economic Ideas
 Abu Yusuf and his Economic Ideas
 Al-Ghazali and his Economic Ideas
 Ibn Khaldun and his Economic Ideas
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Early Economic Thought
In the history of economic thought, early economic
thought pertains to the thoughts, philosophies and
economic ideas from thinkers during the ancient and
Middle Ages.
Well known economic thinkers of early economic
thought include Xenophon, Plato, Aristotle, Thomas
Aquinas, Abu Yusuf, Ibn Khaldun, etc.
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Ancient Economic Thought
Ancient Economic Thought. This refers to economic
thought and ideas from people during the ancient
times. These people comprise the Greek, Chinese
and Indian thinkers.
Greek Thinkers (Xenophon, Aristotle, Plato)
Indian Thinker (Chanakya)
Chinese Thinkers (Fan Li, Wang Anshi, Qin Shi Huang)
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Medieval Economic Thought
This refers to
economic thought and ideas from people during the
Middle Ages. These people comprise Scholastic
and Islamic thinkers.
Medieval
Economic
Thought.
Scholastic Thinkers (Thomas Aquinas, Albertus
Magnus, Duns Scotus)
Islamic Thinkers (Abu Yusuf, Al-Ghazali, Ibn Khaldun)
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Contributions of the Ancient Greeks
 What the ancient Greeks contributed to economics was
a rational approach to social science in general.
 Greek thinkers were interested primarily in economic
and organizational efficiency and their view of the world
was anthropocentric, not mechanistic. In other words,
man was the center of all things. The ancient Greeks
placed great stock in the self-regulating capacities of
individuals who sought to maximize human happiness
by making rational decisions, but they did not discover
the self-regulating marketplace, which is the essence of
modern economics.
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Contributions of the Ancient Greeks
Because the Greeks concentrated on elements of human
control, they developed the art of administration rather than the
sCienceof economics. Their economy, after all, was basic and
simple. It consisted of primary agriculture and limited palace
trade. The production of goods was supervised on large,
landed estates and in the halls of military chieftains. As the
focal point of religious and military activities, the state had few
nonmilitary expenditures. Nevertheless, in the course of
elaborating the nature of administration, the ancient Greeks
developed analytic structures which have significance for
economic theory. In particular, the following components of
modern economics originated in Greek thought: efficiency,
resource allocation, the notion of subjective value, the hedonic
calculus, and the concept of diminishing marginal utility.
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Contributions of the Ancient Greeks
In particular, the following components of modern
economics originated in Greek thought: efficiency,
resource allocation, private property, the notion of
subjective value, the hedonic calculus, and the concept
of diminishing marginal utility. The major writers of this
period who contributed to economic analysis were
Xenophon, Plato, and Aristotle.
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Ancient Greek Thinkers
 Xenophon
 Plato
 Aristotle
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Xenophon
FAST FACTS
Career
Greek historian,
philosopher
Born/Died
430 – 354 BC
School of economic
thought
Ancient Greek
Notable Economic
Thought
Magnum Opus
Oeconomicus,
Anabasis
Influenced by
Socrates
Influences
Plato, Aristotle
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Economic Thought of Xenophon
 Xenophon’s Oeconomicus explores the proper
organization and administration of private and
public affairs, whereas his Ways and Means
prescribes the course of economic revitalization of
Athens in the middle of the fourth century BC. For
this Greek philosopher who regarded the material
environment as fixed, the chief element of good
administration was human capacity, honed into
good leadership.
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Economic Thought of Xenophon
 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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Plato
FAST FACTS
Career
Greek philosopher and
mathematician
Born/Died
428–427 BC
School of economic
thought
Ancient Greek
Notable Economic
Thought
Platonic realism
Magnum Opus
The Republic
Influenced by
Socrates, Hesiod
Influences
Aristotle, Hobbes, etc.
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Economic Thought of Plato
Plato's definition of economics, as suggested by one of the
most recent historians of economic thought. “Economics is
the science which deals with the satisfaction of human
wants through exchange, seeking so to regulate the
industries of the state as to make its citizens good and
happy, and so to promote the highest well-being of the
whole.”
Plato's dialogue The Republic (ca. 380–360 BCE) described
the ideal city-state, run by philosopher-kings, and contained
references to specialization of labor and production.
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Economic Thought of Plato
 In the Republic, Plato gives the theory of an ideal state. As far
as a state is concerned, Plato gives ideas about how to build
an Ideal commonwealth, who should be the rulers of the Ideal
state and how to achieve justice in the Ideal state. Plato finds
the state as the more suitable to discuss about the morality
than an individual, because everything is easier to see in the
large than in the small.
 For Plato the optimum state is a rigid, static, ideal construct
from which any deviation whatsoever is considered to be
regressive.
 Every state has three parts: Producer class, Military class and
Ruling class.
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Economic Thought of Plato
Plato argued that cities owe their origin to specialization and
division of labor. He wrote:
A city-or a state-is a response to human needs. No human
being is self-sufficient, and all of us have many wants ....
Since each person has many wants, many partners and
purveyors will be required to furnish them. One person will
turn to another to supply a particular want and for a different
need he will seek out still another. Owing to this interchange
of services, a multitude of persons will gather and dwell
together in what we have come to call the city or the state....
And so one man trades with another, each assuming he
benefits therefrom. (Republic, II.369b-c)
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Economic Thought of Plato
 Plato's first principle in his discourse on justice is that
specialization and division of labor establish efficiency
and productivity. How then, are the fruits of efficiency and
productivity to be distributed? Plato answered that goods
and services are distributed through a marketplace, with
money as a token' of exchange. But in typically Greek
fashion, he did not consider the marketplace capable of
self-regulation. The marketplace, like the state, requires
administrative control.
 Plato was the first to advocate the Credit Theory of
Money, that money originated as a unit of account for
debt.
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Aristotle
FAST FACTS
Career
Greek philosopher,
polymath
Born/Died
384 BC – 322 BC
School of economic
thought
Ancient Greek
Notable Economic
Thought
Logic, syllogism, private
property
Magnum Opus
Politics
Influenced by
Socrates, Plato
Influences
Adam Smith, Hobbes,
William Petty, Francois
Quesnay
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The nearest approach made by Greek philosophy to
developing a distinct theory of economics came in discussing
the elements of household management. Here a distinction
was drawn between economics (oikonomik)
and
chrematistics (chrematistik); the former embraces chiefly
wealth consumption in the satisfaction of wants, and the
provision of such necessary and useful commodities as can
be stored to meet those wants; the latter deals with wealthgetting, including money-making and exchange. Concerning
the latter, Aristotle says, “And there is another element of a
household, the so called art of money-making (or finance)
which, according to some, is identical with household
management, according to others, a principal part of it.”
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Economic Thought of Aristotle
 Aristotle provides a primary meaning of economics. 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
 He based economics on needs, analyzed their nature
and proceeded to isolate the economic goods by which
economic needs are satisfied;
 Aristotle expresses that consumption was the objective of
production, and the surplus should be allocated to the
rearing of children, and personal satiation ought to be the
natural limit of consumption.
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Economic Ideas in Aristotle’s Politics
 In Politics Book I, Aristotle discusses the general nature of
households and market exchanges. For him there is a certain
"art of acquisition" or "wealth-getting", but because it is the
same many people are obsessed with its accumulation, and
"wealth-getting" for one's household is "necessary and
honorable“.
 He also points out that natural pressures of diminishing utility
for goods direct remaining human energy toward selfimprovement.
 His objective wis 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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Economic Ideas in Aristotle’s 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.
 According to him, exchange value is derived from use as
communicated through market demand. He created the
concept of value in use.
 Aristotle discards Plato's credit theory of money
for Metallism, the theory that money derives its value from
the purchasing power of the commodity upon which it is
based, and is only an "instrument", its sole purpose being a
medium of exchange, which means on its own "it is worthless
as a means to any of the necessities of life".
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Aristotle and Private Property
 Aristotle’s greatest contribution is his recognition of the
vital importance of private property. He argued that
“property should be private”.
 Though Aristotle certainly advocated there be many
things held in common, he argued that not everything
could be, simply because of the "wickedness of human
nature". "It is clearly better that property should be
private", wrote Aristotle, "but the use of it common; and
the special business of the legislator is to create in men
this benevolent disposition."
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Aristotle and Private Property
Aristotle outlined the common characteristics of private
property that solidified his support:
1. Private property is more productive and leads to
progress.
2. Conflict is inherent in communal property management.
3. Private property is intrinsic to man’s nature. The love of
self, money, and property is tied to natural love of
exclusive ownership.
4. Private property has existed always and everywhere.
5. Only private property allows for opportunity for moral
action; to practice virtues of benevolence and
philanthropy.
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Chanakya
FAST
FACTS
FAST
FACTS
Career
Career
Indian teacher and
Indian teacher and
engineer
architect
370–283 BCE
370–283 BCE
Born/Died
Born/Died
Major
School
of economic Ancient India
Accomplishment
thought
Economic Thought
Notable
Magnum Economic
Opus
Arthashastra and
Thought
Neetishastra
Famous
MagnumQuotation
Opus
Influenced
Influenced by
Influences
Arthashastra and
Neetishastra
Socrphilosophers
Indian
and
writers
Indian
philosophers and
writers
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Chanakya
 Authored the ancient Indian political treatise called
Arthashastra (Science of Material Gain or Science of
Political Economy), an ancient Indian treatise on statecraft,
economic policy and military strategy.
 He argues for an autocracy managing an efficient and
solid economy. The qualities described is in effect that of a
command economy.
 He focuses on issues of welfare (the redistribution of
wealth during a famine) and the collective ethics that hold
society together.
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Fan Li
FAST FACTS
Career
Chinese advisor and
businessman
Born/Died
School of economic
thought
Ancient China
Notable Economic
Thought
Magnum Opus
Twelve Golden Rules
Influenced by
Influences
Chinese philosophers
and writers
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Fan Li
 He was probably the earliest economist
strategist) in human history.
(politician and
 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 is ascribed with writing a book known in English as
"Golden Rules of Business Success"
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The Twelve Business Golden Rules of
Fan Li
1. Ability to know people's character. You must perceive
evidence of characteristics from experience.
2. Ability to handle people. Never prejudge a prospect.
3. Ability to stay focused on the business. Have a definite focus
in life and business and avoid jumping around.
4. Ability to be organized. A disorganized presentation is
unappealing.
5. Ability to be adaptable. Make sure you are organized enough
to respond quickly.
6. Ability to control credit. Do not allow nonpayment. Make sure
you collect what is owed.
7. Ability to use and deploy people. Use employees in ways
which bring out their potential(s).
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The Twelve Business Golden Rules of
Fan Li
8. Ability to articulate and market. You must be able to
educate customers on the value of goods.
9. Ability to excel in purchasing. Use your best judgment in
acquiring stock.
10. Ability to analyze market opportunities and threats. Know
what is selling according to areas and trends.
11. Ability to lead by example. Have definite rules and
standards. Make sure they are followed to ensure good
relations.
12. Ability to have business foresight. Know market trends
and cycles.
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Scholasticism
Scholasticism (The Schoolmen )refers to the school of
economic thought that developed in Europe during the
medieval period (500-1500). Scholastic thinkers are
known for their moral and philosophical approach to the
study of exchange, value, and ownership within period..
Until the arrival of Mercantilism in the 14th century the
Scholastics (or Schoolmen as they are commonly
referred to today) were at the forefront of the foundations
of establishing economic theory within the framework of
philosophy. Probably the most influential economic
thinker of the Scholastic period was a Sicilian-born
Roman Catholic by the name of Thomas Aquinas.
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Thomas Aquinas
FAST FACTS
Career
Italian priest, theologian
and philosopher
Born/Died
1225 – 7 March 1274
School of economic
thought
Scholastic School
Medieval Period
Notable Economic
Thought
Just price and usury
Magnum Opus
Summa Theologica
Influenced by
Socrates, Plato
Influences
John Locke and virtually
all of western
philosophy
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Thomas Aquinas and Just Price
In the treatise Summa Theologica Aquinas dealt with the
concept of a just price, which he considered necessary for
the reproduction of the social order.
Thomas Aquinas argued that it was a moral obligation of
businesses to sell goods at a just price. He argued it was
immoral for sellers to raise their prices simply because
buyers were in pressing need for a product.
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Thomas Aquinas
Aquinas' formal contribution to Aristotelian value
theory was a two-pronged one in which one element
conditioned the other. First, he reaffirmed the double
measure of goods (value in use versus value in
exchange) that Aristotle had established; second, he
introduced wants into the price formula. This last
contribution is especially important because it marked
the earliest root of an analytical demand theory of
value. Aquinas argued that price varies with wants.
Thus, indigentia became a regulator of value. This
contribution, however, was strictly formal.
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Thomas Aquinas
Aquinas viewed market forces as antagonistic to justice. It is
difficult to reconcile the medieval notion of "just price" with
the modern notion of "market price," since the former is
generally defended on normative grounds whereas the latter
is held to be an objective result of impersonal forces.
Certainly Aquinas's language was open-ended on many
points, furthering the popular notion that his analysis was
wrongheaded.
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Duns Scotus
FAST FACTS
Career
Scottish theologian and
philosopher
Born/Died
1265 – November 8,
1308
School of economic
thought
Scholastic School
Medieval Period
Notable Economic
Thought
Magnum Opus
Sententiae
Influenced by
Thomas Aquinas,
Aristotle
Influences
Martin Luther, René
Descartes, Leibniz
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Economic Thought of Duns Scotus
In his work Sententiae (1295), he thought it possible to be
more precise than Aquinas in calculating a just price,
emphasizing the costs of labor and expenses, although he
recognized that the latter might be inflated by exaggeration
because buyer and seller usually have different ideas of what
a just price comprises. If people did not benefit from a
transaction, in Scotus' view, they would not trade. Scotus
defended merchants as performing a necessary and useful
social role, transporting goods and making them available to
the public.
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Other Scholastic Thinkers




Albertus Magnus (c. 1206-1280)
Henry of Friemar (c. 1245-1340)
Jean Buridan (c. 1295-1358),
Gerald Adonis (c. 1290-1349)
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Medieval Islamic Thinkers
 Abu Yusuf (1206-1280)
 Al-Ghazali (1058–1111)
 Ibn Khaldun (1332 - 1406)
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Abu Yusuf
FAST FACTS
Career
Muslim jurist, writer
Born/Died
731 – 798
School of economic
thought
Islamic Golden Age
Notable Economic
Thought
Evolution of Islamic
Jurisprudence
Magnum Opus
Kitab al-Kharaj
Influenced by
Abu Hanifa
Influences
Other subsequent
medieval economic
thinkers
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Abu Yusuf (731 – 798)
 Kitab al-Kharaj, Abu Yusufs’s most famous work, is a treatise on
taxation and fiscal problems of the state prepared for the caliph.
His book outlined his 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.
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Al-Ghazali
FAST FACTS
Career
Muslim priest,
theologian and
philosopher
Born/Died
1058 – Dec 19, 1111
School of economic
thought
Islamic Golden Age
Notable Economic
Thought
Evolution of Islamic
Jurisprudence
Magnum Opus
Revival of Religious
Sciences,
Influenced by
Al-Juwayni
Influence
Fakhruddin Razi,
Maimonides, Thomas
Aquinas
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Economic Thought of Al-Ghazali
 Al-Ghazali classified economics as one of the sciences
connected with religion, along with metaphysics, ethics, and
psychology
 He developed what might be called a social welfare function
based on consideration of utilities (masa/ih) and disutilities
(mafasid).
 He recognized three sources of wealth: individual earnings;
profit from exchange, and acquisition by bequest or discovery.
 Ghazali made specific contributions to four major areas of
economic thought: (1) voluntary exchange and markets; (2)
the nature of production; (3) money and interest; and (4) public
finance
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Ibn Khaldun
FAST FACTS
Career
Arab Tunisian historian
and economist
Born/Died
May 27, 1332 A –
March 19, 1406
School of economic
thought
Medieval Golden Age
Notable Economic
Thought
Magnum Opus
Prolegomenon
Influenced by
Muhammad ibn
Zakarīya Rāzi
Influences
Ibn al-Azraq, Al-Maqrizi
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Economic Thought of Ibn Khaldun
 Ibn Khaldun is the first person who has systematically
analyzed the functioning of an economy, the importance
of technology, specialization and foreign trade in
economic surplus and the role of government and its
stabilization policies to increase output and employment
 Specialization meant the coordination of different
functions of factors of production where, “ what is
obtained through the cooperation of a group, of human
beings satisfies the need of a number many times greater
(than themselves)”.
 Businesses owned by responsible and organized
merchants shall eventually surpass those owned by
wealthy rulers.
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Econ 126 – HISTORY OF ECONOMIC THOUGHT
Ibn Khaldun on Economic Growth
When civilization [population] increases, the available labor
again increases. In turn, luxury again increases in
correspondence with the increasing profit, and the customs
and needs of luxury increase. Crafts are created to obtain
luxury products. The value realized from them increases, and,
as a result, profits are again multiplied in the town. Production
there is thriving even more than before. And so it goes with
the second and third increase. All the additional labor serves
luxury and wealth, in contrast to the original labor that served
the necessity of life.
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
Econ 126 – HISTORY OF ECONOMIC THOUGHT
Ibn Khaldun on Supply and Demand
On supply and demand: Ibn Khaldun, again centuries
ahead of his time, postulated that prices of goods and
services are determined by supply and demand. When a
good is scarce and in demand, its price is high. The
merchant will buy the goods “where they are cheap” and
plentiful and “selling them at a high price” where they are
scarce and in demand. Naturally, when a good is plentiful,
its price is low: “the inhabitants of a city have more food
than they need. Consequently, the price of food is low, as
a rule, except when misfortunes occur due to celestial
conditions that may affect (the supply of) food”
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
Econ 126 – HISTORY OF ECONOMIC THOUGHT
Ibn Khaldun on Fixed Prices
On fixed prices: Ibn Khaldun was not only against state
involvement in commercial and agricultural activities, he
was also against government’s involvement in fixing the
prices of goods and services. When the government
employs force “by buying things up at a cheapest possible
price”, the ruler “will be able to force the seller to lower his
price” and “forces the merchants or farmers who deal in
these particular products to buy from him”. The rulers
“undertake to buy agricultural products and goods from
their owners who come to them, at prices fixed by them as
they see fit. Then, they resell these things to the subjects
under their control, at the proper times, at prices fixed by
them.
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
Econ 126 – HISTORY OF ECONOMIC THOUGHT
Economic Prescriptions of a Civilized
Society
Ibn Khaldun’ Economic Prescriptions for A Civilized Society as
given in his Moqaddimah or Introduction to History: The Rise and
Fall of Nations (1350). Given political stability and solidarity for the
rise of the nations, there must be:
1. A firm of establishment of private property rights and freedom
of enterprise
2. Rule of law and the reliability of judicial system for the
establishment of justice
3. The security of peace and the security of trade routes
4. Lower and less taxation in order to increase employment,
production and revenues
5. Less bureaucracy and much smaller efficient army
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
Econ 126 – HISTORY OF ECONOMIC THOUGHT
Economic Prescriptions of a Civilized
Society
6. No government involvement in trade, production and
commercial affairs
7. No fixation of prices by the government
8. A rule that does not give monopoly power to anyone in the
market
9. Stable monetary policy and independent monetary authority
that does not play with the value of money
10. A larger population and a larger market for greater
specialization
11. A creative education system for independent thinking and
behavior
12. The collective responsibility and internal feeling for the setting
up of a just system to encourage good deeds and prevent vice.
Pangasinan State University
Social Science Department – PSU Lingayen
BACHELOR OF ARTS IN ECONOMICS
Econ 126 – HISTORY OF ECONOMIC THOUGHT