1. DR. PETROS KOSMAS LECTURER, CASA COLLEGE ACADEMIC YEAR 2010 - 2011 LECTURE 1 H ISTORY O F E CONOMIC T HOUGHT ECON-220

2. 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. ECON-220

3. 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. ECON-220

4. 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. Why Study the History of Economic Thought?

5. 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. Three General Beliefs ECON-220

6. 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. ECON-220

7. 2. Social and economic change are continuous because: In numerous respects, today’s Capitalism is substantially different from Capitalism of the late 18 th century In this course there in been a try to illuminate the nature of contemporary controversies in economic theory by examining their historical antecedents. ECON-220

8. 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. ECON-220

9. 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). ECON-220

10. 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. ECON-220

11. Ancient Greece: Hesiod (8 th cent. B.C.) The 1 st 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. ECON-220

12. 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. ECON-220

13. 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. ECON-220

14. 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 ECON-220

15. 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. ECON-220

16. 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. ECON-220

17. 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 self- improvement. 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? ECON-220

18. 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.. ECON-220

19. 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. Aristotle (384-322 B.C.) ECON-220

20. 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 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. Aristotle (384-322 B.C.) ECON-220

21. 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”. ECON-220

22. 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. ECON-220

23. 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 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.

24. 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…” ECON-220