MODULE 2

DEVELOPMENT ECONOMICS

Session Topic: History of Economic thoughts

1. Economic thinkers
2. Mixed economies principles
3. Economic development as it progress through the years
Learning Objectives
1. Introduce the notable key figures in the history of economic thoughts
2. Differentiate various principles of notable philosophers
3. Overview of Economic Development
Key Points
History of Philosophers Political Market Market
economic economy structure
thoughts

Core Content

Introduction

The history of economic thought deals with different thinkers and theories in the subject that
became political economy and economics, from the ancient world to the present day in the 21st Century. This
field encompasses many disparate schools of economic thought. Ancient Greek writers such as the
philosopher Aristotle examined ideas about the art of wealth acquisition, and questioned whether property is
best left in private or public hands. In the Middle Ages, scholasticisms such as Thomas Aquinas argued that it
was a moral obligation of businesses to sell goods at a just price.

In-text Activities

Political economy is the study of production and trade and their relations

with law, custom and government; and with the distribution of national income and wealth. As a discipline, political
economy originated in moral philosophy, in the 18th century, to explore the administration of states' wealth, with
"political" signifying the Greek word polity and "economy" signifying the Greek word οἰκονομία (household
management). The earliest works of political economy are usually attributed to the British scholars Adam
Smith, Thomas Malthus, and David Ricardo, although they were preceded by the work of the French physiocrats,
such as François Quesnay (1694–1774) and Anne-Robert-Jacques Turgot (1727–1781).

Originally, political economy meant the study of the conditions under which production or consumption within
limited parameters was organized in nation-states. In that way, political economy expanded the emphasis of
economics, which comes from the Greek oikos (meaning "home") and nomos (meaning "law" or "order"). Political
economy was thus meant to express the laws of production of wealth at the state level, quite like economics
concerns putting home to order. The phrase économie politique (translated in English to "political economy") first
appeared in France in 1615 with the well-known book by Antoine de Montchrétien, Traité de l’economie politique.
Other contemporary scholars attribute the roots of this study to the 13th Century Tunisian
Arab Historian and Sociologist, Ibn Khaldun, for his work on making the distinction between "profit" and
"sustenance", in modern political economy terms, surplus and that required for the reproduction of classes
respectively. He also calls for the creation of a science to explain society and goes on to outline these ideas in his
major work, the Muqaddimah. In Al-Muqaddimah Khaldun states, “Civilization and its well-being, as well as business
prosperity, depend on productivity and people’s efforts in all directions in their own interest and profit” – seen as a
modern precursor to Classical Economic thought.

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 Leading on from this, the French physiocrats were the first major exponents of political economy, although
the intellectual responses of Adam Smith, John Stuart Mill, David Ricardo, Henry George and Karl Marx to the
physiocrats generally receives much greater attention. The world's first professorship in political economy was
established in 1754 at the University of Naples Federico II in southern Italy. The Neapolitan philosopher Antonio
Genovesi was the first tenured professor. In 1763, Joseph von Sonnenfels was appointed a Political Economy chair
at the University of Vienna, Austria. Thomas Malthus, in 1805, became England's first professor of political
economy, at the East India Company College, Haileybury, Hertfordshire. At present, political economy refers to
different yet related approaches to studying economic and related behaviours, ranging from the combination of
economics with other fields to the use of different, fundamental assumptions challenging earlier economic
assumptions.

Political economy most commonly refers to interdisciplinary studies drawing

upon economics, sociology and political science in explaining how political institutions, the political environment, and
the economic system—capitalist, socialist, communist, or mixed—influence each other. The Journal of Economic
Literature classification codes associate political economy with three sub-areas: (1) the role of government and/or
class and power relationships in resource allocation for each type of economic system; (2) international political
economy, which studies the economic impacts of international relations; and (3) economic models of political or
exploitative class processes. Much of the political economy approach is derived from public choice theory on the
one hand and radical political economics on the other hand, both dating from the 1960s.
Public choice theory is a microfoundations theory closely intertwined with political economy. Both
approaches model voters, politicians and bureaucrats as behaving in mainly self-interested ways, in contrast to a
view, ascribed to earlier mainstream economists, of government officials trying to maximize individual  utilities from
some kind of social welfare function. As such, economists and political scientists often associate political economy
with approaches using rational-choice assumptions, especially in game theory and in examining phenomena beyond
economics' standard remit, such as government failure and complex decision making in which context the term
"positive political economy" is common. Other "traditional" topics include analysis of such public policy issues
as economic regulation, monopoly, rent-seeking, market protection, institutional corruption and distributional politics.
Empirical analysis includes the influence of elections on the choice of economic policy, determinants
and forecasting models of electoral outcomes, the political business cycles, central-bank independence and the
politics of excessive deficits.

Related Discipline

Because political economy is not a unified discipline, there are studies using the term that overlap in subject matter,
but have radically different perspectives:
 Politics studies power relations and their relationship to achieving desired ends.
 Philosophy rigorously assesses and studies a set of beliefs and their applicability to reality.
 Economics studies the distribution of resources so that the material wants of a society are satisfied;
enhance societal well-being.
 Sociology studies the effects of persons' involvement in society as members of groups and how that
changes their ability to function. Many sociologists start from a perspective of production-determining
relation from Karl Marx. Marx's theories on the subject of political economy are contained in his book Das
Kapital.
 Anthropology studies political economy by investigating regimes of political and economic value that
condition tacit aspects of sociocultural practices (e.g. the pejorative use of pseudo-Spanish expressions in
the U.S. entertainment media) by means of broader historical, political and sociological processes. Analyses
of structural features of transnational processes focus on the interactions between the world capitalist
system and local cultures.
 Archaeology attempts to reconstruct past political economies by examining the material evidence for
administrative strategies to control and mobilize resources. This evidence may include architecture, animal
remains, evidence for craft workshops, evidence for feasting and ritual, evidence for the import or export of
prestige goods, or evidence for food storage.

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  Psychology is the fulcrum on which political economy exerts its force in studying decision making (not only
in prices), but as the field of study whose assumptions model political economy.
 History documents change, often using it to argue political economy; some historical works take political
economy as the narrative's frame.
 Ecology deals with political economy because human activity has the greatest effect upon the environment,
its central concern being the environment's suitability for human activity. The ecological effects of economic
activity spur research upon changing market economy incentives. Additionally and more recently, ecological
theory has been used to examine economic systems as similar systems of interacting species (e.g., firms).
 Cultural studies examines social class, production, labour, race, gender and sex.
 Communications examines the institutional aspects of media and telecommunication systems. As the area
of study focusing on aspects of human communication, it pays particular attention to the relationships
between owners, labour, consumers, advertisers, structures of production and the state and the power
relationships embedded in these relationships.

Ancient economic thought (before 500 AD)

Ancient Greece
Hesiod active 750 to 650 BC, a Boeotian who wrote the earliest known work concerning the basic origins of
economic thought, contemporary with Homer.
China
Fan Li (also known as Tao Zhu Gong) (born 517 BC), an adviser to King Goujian of Yue, wrote on economic
issues and developed a set of "golden" business rules.
India
Chanakya (born 350 BC) of the Mauryan Empire, authored the Arthashastra along with several Indian sages,
a treatise on statecraft, economic policy and military strategy.
The Arthashastra posits the theory that there are four necessary fields of knowledge: the Vedas,
the Anvikshaki (philosophy of Samkhya, Yoga and Lokayata), the science of government, and the science of
economics (Varta of agriculture, cattle, and trade). It is from these four that all other knowledge, wealth, and
human prosperity is derived.

Greco-Roman world

Ctto
Plato and his pupil Aristotle had an enduring effect on Western philosophy.

Ancient Athens, an advanced city-state civilisation and progressive society, developed an embryonic model of
democracy.
Xenophon's (c. 430–354 BC) Oeconomicus (c. 360 BC) is a dialogue principally about household
management and agriculture.

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Plato's dialogue The Republic (c. 380–360 BC) describing an ideal city-state run by philosopher-kings
contained references to specialization of labour and to production. According to Joseph Schumpeter, Plato was
the first known advocate of a credit theory of money that is, money as a unit of account for debt.
Aristotle's Politics (c. 350 BC) analysed different forms of the state (monarchy, aristocracy, constitutional
government, tyranny, oligarchy, and democracy) as a critique of Plato's model of a philosopher-kings. Of particular
interest for economists, Plato provided a blueprint of a society based on common ownership of resources. Aristotle
viewed this model as an oligarchical anathema. Though Aristotle did certainly advocate holding many things 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." 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 honourable", while exchange on the retail trade for simple accumulation is "justly
censured, for it is dishonourable". Writing of the people, Aristotle stated that they as a whole thought acquisition of
wealth (chrematistike) as being either the same as, or a principle of oikonomia ("household management"
– oikonomos), with oikos meaning "house" and with (themis meaning "custom") nomos meaning "law". Aristotle
himself highly disapproved of usury and cast scorn on making money through a monopoly.
Aristotle discarded 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... not useful as a means to any of the necessities of
life".
Economic thought in the middle Ages (500–1500 AD)
Thomas Aquinas
Thomas Aquinas (1225–1274) was an Italian theologian and economic writer. He taught in both Cologne
and Paris, and was part of a group of Catholic scholars known as the Schoolmen, who moved their enquiries
beyond theology to philosophical and scientific debates. 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. Similar in many ways
to the modern concept of long run equilibrium, a just price was just sufficient to cover the costs of production,
including the maintenance of a worker and his family. Aquinas argued it was immoral for sellers to raise their prices
simply because buyers had a pressing need for a product.
Aquinas discusses a number of topics in the format of questions and replies, substantial tracts dealing with
Aristotle's theory. Questions 77 and 78 concern economic issues, primarily what a just price might be, and the
fairness of a seller dispensing faulty goods. Aquinas argued against any form of cheating and recommended always
paying compensation in lieu of good service. Whilst human laws might not impose sanctions for unfair dealing,
divine law did, in his opinion.
Duns Scotus
One of Aquinas' main critics was Duns Scotus (1265–1308), originally from Duns Scotland, who taught in
Oxford, Cologne, and Paris. In his work Sententiae (1295), he thought it possible to be more precise than Aquinas in
calculating a just price, emphasizing the costs of labour and expenses, although he recognized that the latter might
be inflated by exaggeration because buyer and seller usually have different ideas of a just price. If people did not
benefit from a transaction, in Scotus' view, they would not trade. Scotus said merchants perform a necessary and
useful social role by transporting goods and making them available to the public.
Jean Buridan
Jean Buridan (French: [byʁidɑ̃]; Latin Johannes Buridanus; c. 1300 – after 1358) was a French priest.
Buridanus looked at money from two angles: its metal value and its purchasing power, which he acknowledged can
vary. He argued that aggregated, not individual, demand and supply determine market prices. Hence, for him a just
price was what the society collectively and not just one individual is willing to pay.
Ibn Khaldun

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 Until Joseph J. Spengler's 1964 work "Economic Thought of Islam: Ibn Khaldun", Adam Smith (1723–1790)
was considered the "Father of Economics". Now there is a second candidate, Arab Muslim scholar Ibn Khaldun
(1332–1406) of Tunisia, although what influence Khaldun had in the West is unclear. Arnold Toynbee called Ibn
Khaldun a "genius" who "appears to have been inspired by no predecessors and to have found no kindred souls
among his contemporaries...and yet, in the Prolegomena (Muqaddimat) to his Universal History he has conceived
and formulated a philosophy of history which is undoubtedly the greatest work of its kind that has ever yet been
created by any mind in any time or place." Ibn Khaldoun expressed a theory of the lifecycle of civilizations, the
specialization of labor, and the value of money as a means of exchange rather than as a store of inherent value. His
ideas on taxes bore a striking resemblance to supply-side economics' Laffer curve, which posits that beyond a
certain point higher taxes discourage production and actually cause revenues to fall.
Nicolas d'Oresme
French philosopher and priest Nicolas d'Oresme (1320–1382) wrote De origine, natura, jure et mutationibus
monetarum, about the origin, nature, law, and alterations of money. It is one of the earliest manuscripts on the
concept of money. His treatise argues how money or currency belongs to the public, and that the government or
sovereign of the economy has no right to control the value of the currency just so that they can profit from it.
Antonin of Florence
Saint Antoninus of Florence (1389–1459), O.P., was an Italian Dominican friar, who became Archbishop of
Florence. Antoninus' writings address social and economic development, and argued that the state has a duty to
intervene in mercantile affairs for the common good, and an obligation to help the poor and needy. In his primary
work, "summa theologica" he was mainly concerned about price, justice and capital theory. Like Duns Scotus, he
distinguishes between the natural value of a good and its practical value. The latter is determined by its suitability to
satisfy needs (virtuositas), its rarity (raritas) and its subjective value (complacibilitas). Due to this subjective
component there can not only be one just price, but a bandwidth of more or less just prices.
Mercantilism and international trade (16th to 18th century)
Mercantilism dominated Europe from the 16th to the 18th century. Despite the localism of the Middle Ages,
the waning of feudalism saw new national economic frameworks begin to strengthen. After the 15th century voyages
of Christopher Columbus and other explorers opened up new opportunities for trade with the New World and Asia,
newly-powerful monarchies wanted a more powerful military state to boost their status. Mercantilism was a political
movement and an economic theory that advocated the use of the state's military power to ensure that local markets
and supply sources were protected, spawning protectionism.
Mercantile theorists held that international trade could not benefit all countries at the same time. Money and
precious metals were the only source of riches in their view, and limited resources must be allocated between
countries, therefore tariffs should be used to encourage exports, which bring money into the country, and
discourage imports which send it abroad. In other words, a positive balance of trade ought to be maintained through
a surplus of exports, often backed by military might. Despite the prevalence of the model, the term mercantilism was
not coined until 1763, by Victor de Riqueti, marquis de Mirabeau (1715–1789), and popularized by Adam Smith in
1776, who vigorously opposed it.
School of Salamanca
In the 16th century the Jesuit School of Salamanca in Spain developed economic theory to a high level, only
to have their contributions forgotten until the 20th century.
Sir Thomas More
In 1516 English humanist Sir Thomas More (1478–1535) published Utopia, which describes an ideal society
where land is owned in common and there is universal education and religious tolerance, inspiring the English Poor
Laws (1587) and the communism-socialism movement.
Nicolaus Copernicus
In 1517 astronomer Nicolaus Copernicus (1473–1543) published the first known argument for the quantity
theory of money. In 1519 he also published the first known form of Gresham's Law: "Bad money drives out good".

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Jean Bodin
In 1568 Jean Bodin (1530–1596) of France published Reply to Malestroit, containing the first known analysis
of inflation, which he claimed was caused by importation of gold and silver from South America, backing the quantity
theory of money.
Barthélemy de Laffemas
In 1598 French mercantilist economist Barthélemy de Laffemas (1545–1612) published Les Trésors et
richesses pour mettre l'Estat en splendeur, which blasted those who frowned on French silks because the industry
created employment for the poor, the first known mention of under consumption theory, which was later refined by
John Maynard Keynes.
Leonardus Lessius
In 1605 Flemish Jesuit theologian Leonardus Lessius (1554–1623) published On Justice and Law, the
deepest moral-theological study of economics since Aquinas, who’s just price approach he claimed was no longer
workable. After comparing money's growth via avarice to the propagation of hares, he made the first statement of
the price of insurance as being based on risk.
Edward Misselden and Gerard Malynes
In 1622 English merchants Edward Misselden and Gerard Malynes began a dispute over free trade and the
desirability of government regulation of companies, with Malynes arguing against foreign exchange as under the
control of bankers, and Misselden arguing that international money exchange and fluctuations in the exchange rate
depend upon international trade and not bankers, and that the state should regulate trade to insure export
surpluses.
Thomas Mun
English economist Thomas Mun (1571–1641) describes early mercantilist policy in his book England's
Treasure by Foreign Trade, which was not published until 1664, although it was widely circulated in manuscript form
during his lifetime. A member of the East India Company, he wrote about his experiences in A Discourse of Trade
from England unto the East Indies (1621).
Sir William Petty
In 1662 English economist Sir William Petty (1623–1687) began publishing short works applying the rational
scientific tradition of Francis Bacon to economics, requiring that it only use measurable phenomena and seeks
quantitative precision, coining the term "political arithmetic", introducing statistical mathematics, and becoming the
first scientific economist.
Philipp von Hörnigk
Philipp von Hörnigk (1640–1712,) was born in Frankfurt and became an Austrian civil servant writing in a
time when his country was constantly threatened by Ottoman invasion. In Österreich Über Alles, Wann es Nur Will
(1684, Austria over All, If She Only Will) he laid out one of the clearest statements of mercantile policy, listing nine
principal rules of national economy:
"To inspect the country's soil with the greatest care and not to leave the agricultural possibilities of a single corner or
clod of earth unconsidered... All commodities found in a country, which cannot be used in their natural state, should
be worked up within the country... Attention should be given to the population, that it may be as large as the country
can support... gold and silver once in the country are under no circumstances to be taken out for any purpose... The
inhabitants should make every effort to get along with their domestic products... should be obtained not for gold or
silver, but in exchange for other domestic wares... and should be imported in unfinished form, and worked up within
the country... Opportunities should be sought night and day for selling the country's superfluous goods to these
foreigners in manufactured form... No importation should be allowed under any circumstances of which there is a
sufficient supply of suitable quality at home."
Jean-Baptiste Colbert and Pierre Le Pesant, Sieur de Boisguilbert

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 In 1665–1683 Jean-Baptiste Colbert (1619–1683) was minister of finance under King Louis XIV of France,
and set up national guilds to regulate major industries. Silk, linen, tapestry, furniture manufacture and wine were
examples of the crafts in which France specialized, all of which came to require membership in a guild to operate in
until the French Revolution. According to Colbert, "It is simply and solely the abundance of money within a state
makes the difference in its grandeur and power."
Pierre Le Pesant, sieur de Boisguilbert (1646–1714)
In 1695 French economist Pierre Le Pesant, sieur de Boisguilbert (1646–1714) wrote a plea to Louis XIV to
end Colbert's mercantilist program, containing the first notion of an economical market, becoming the first economist
to question mercantile economic policy and value the wealth of a country by its production and exchange of goods
instead its assets.
Charles Davenant
In 1696 British mercantilist Tory Member of parliament Charles Davenant (1656–1714) published Essay on
the East India Trade, displaying the first understanding of consumer demand and perfect competition.
Sir James Steuart
In 1767 Scottish mercantilist economist Sir James Steuart (1713–1780) published An Inquiry into the
Principles of Political Economy, the first book in English with the term "political economy" in the title, and the first
complete economics treatise.

Summary

Economics is the science that concerns itself with economies; that is, it studies how societies produce
goods and services as well as how they consume them. It has influenced global finance at many important
junctions throughout history and is a vital part of our everyday lives. However, the assumptions that guide the
study of economics have changed dramatically throughout history. Here we take just a brief look at the history
of modern economic thought. What we present is just a narrow snapshot, which focuses primarily on Western
European and American strands of thought.

LEARNING ASSESSMENT: Development Economics

Assignment 1

List down notable personalities as follows: History of Economic thoughts

1. Pre-Classical (17th and 18th century)
2. Classical (18th and 19th century)
3. Alternative schools (19th century)
4. Keynesianism (20th century)

References
Refer to the references listed in the syllabus of the subject

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