Ancient economic thought

In the history of economic thought, ancient economic thought refers to the ideas from people before the Middle Ages.

Economics in the classical age is defined in the modern analysis as a factor of ethics and politics, only becoming an object of study
as a separate discipline during the 18th century.[1][2][3][4]

Ancient Near East

Code of Ur-Nammu, 2100-

2050 BC.

The upper part of the stele

of Hammurabi's code of
laws.

Economic organization in the earliest civilizations of the fertile crescent was driven by the need to efficiently grow crops in river
basins. The Euphrates and Nile valleys were homes to earliest examples of codified measurements written in base 60 and Egyptian
fractions.

Egyptian keepers of royal granaries, and absentee Egyptian landowners are reported in the Heqanakht papyri. Historians of this
period note that the major tool of accounting for agrarian societies, the scales used to measure grain inventory, reflected dual
religious and ethical symbolic meanings.[5]

The Erlenmeyer tablets give a picture of Sumerian production in the Euphrates Valley around 2200-2100 BC, and show an
understanding of the relationship between grain and labor inputs (valued in "female labor days") and outputs and an emphasis on
efficiency. Egyptians measured work output in man-days. The development of sophisticated economic administration continued in
the Euphrates and Nile valleys during the Babylonian Empire and Egyptian Empires when trading units spread through the Near East
within monetary systems. Egyptian fraction and base 60 monetary units were extended in use and diversity to Greek, early Islamic
culture, and medieval cultures. By 1202, Fibonacci's use of zero and Vedic-Islamic numerals, motivated Europeans to apply zero as
an exponent, birthing modern decimals 350 years later.

The city-states of Sumer developed a trade and market economy based originally on the commodity money of the Shekel which was
a certain weight measure of barley, while the Babylonians and their city-state neighbors later developed the earliest system of
economics using a metric of various commodities, that was fixed in a legal code.[6] The early law codes from Sumer could be
considered the first (written) economic formula, and had many attributes still in use in the current price system today: codified
amounts of money for business deals (interest rates), fines in money for 'wrongdoing', inheritance rules, laws concerning how private
property is to be taxed or divided, etc.[7] For a summary of the laws, see Babylonian law.

Earlier collections of (written) laws, just prior to Hammurabi, that could also be considered rules and regulations as to economic law
for their cities include the codex of Ur-Nammu, king of Ur (c. 2050 BC), the laws of Eshnunna (c. 1930 BC) [8] and the codex of Lipit-
Ishtar of Isin (c. 1870 BC).
Ancient Greco-Roman World
Some scholars assert economic thought similar to the modern understanding occurred during the 18th century or the Enlightenment,
as early economic thought was based on metaphysical principles which are incommensurate with contemporary dominant economic
theories such as neo-classical economics.[1][9]

Several ancient Greek and Roman thinkers made various economic observations, especially Aristotle and Xenophon. Many other
Greek writings show understanding of sophisticated economic concepts. For instance, a form of Gresham’s Law is presented in
Aristophanes’ Frogs, and beyond Plato's application of sophisticated mathematical advances influenced by the Pythagoreans is his
appreciation of fiat money in his Laws (742a–b) and in the pseudo-Platonic dialogue, Eryxias.[10] Bryson of Heraclea was a neo-
platonic who is cited as having heavily influenced early Muslim economic scholarship.[11]

Hesiod

... Through work men grow rich in flocks and substance ...

— Hesiod[12]

In the opinion of the Austrian School of economics the first economist is thought to be Hesiod, by the fact of his having written on the
fundamental subject of the scarcity of resources, in Works and Days.[13][14][15] His contribution to economic thought is at least in his
relevancy to the practice of economical activity in the depositing and lending of grain, as his writings are "... the chief resource for
details as to Grecian agriculture ..." and that according to Loudon (1825) he provided " ... directions for the whole business of family
economy in the country".[16]

Xenophon

Xenophon, Greek historian

The influence of Babylonian and Persian thought on Greek administrative economics is present in the work of Greek historian
Xenophon. Discussion of economic principles are especially present in his Oeconomicus, Cyropaedia, Hiero, and Ways and Means.[17]
Hiero is a minor work which includes discussion of leaders stimulating private production and technology through various means
including public recognition and prizes. Ways and Means is a short treatise on economic development, and showed an understanding
of the importance of taking advantage of economies of scale and advocated laws promoting foreign merchants. The Oeconomicus
discusses the administration of agricultural land. In the work, subjective personal value of goods is analyzed and compared with
exchange value. Xenophon uses the example of a horse, which may be of no use to a person who does not know how to handle it,
but still has exchange value.[18]

Although this broadens the idea of value based in individual use to a more general social concept of value that comes through
exchange, scholars note that this is not a market theory of value.[19] In Cyropaedia Xenophon presents what in hindsight can be seen
as the foundation for a theory of fair exchange in the market. In one anecdote, the young Cyrus is to judge the fairness of an
exchange made between a tall and a short boy. The tall boy forces the pair to exchange tunics, because the tall boy's tunic is too
short, shorter than the short boys, which is too tall for him. Cyrus rules the exchange fair because it results in a better fit for both
boys. Cyrus' mentors were not pleased with Cyrus' basing his decision on the values involved, as a just exchange must be
voluntary.[20]

Later in the biography, Xenophon discusses the concept of division of labor, referencing specialized cooks and workers in a
shoemaking shop.[21] Scholars have noted that Adam Smith's early notes about this concept "read like a paraphrase of Xenophon's
discussion of the role of the carpenter as a "jack of all trades" in small cities and as a specialist in large cities.[22] Marx attributes to
Cyropaedia the idea that the division of labor correlates to the size of a market.[23] Xenophon also presents an example of mutual
advantage from exchange in a story about Cyrus coordinating an exchange of surplus farmland from Armenians, who were herders,
and surplus grazing land from Chaldeans, who were farmers.[24]

Plato

Of Plato's works those considered the most important to study of economics are Nomoi, Politeia and Politikos (Backhaus).[25] In his
work Laws Plato writes on the three things as important to a person of these mind he stated as the most important, then body and
lastly estate (Χρήματα). In Phaedo, Plato makes the first distinction between things which are thought necessary and those thought
a luxury (Bonar).[1][26][27][28][29]

Plato promoted the exercise of temperance in respect to the pursuit of material wealth such that by strengthening moderation a
person there-by preserves the order of their psyche. In The Republic he gives an account of the manner by which a state is to be
formed with the skills (techne) of individuals supporting economic sustainability.[30][31] With respect to the identification of skill
Plato's writing in the Republic also deals with the specialization of skills as the concept of division of labour.[32][33]

Aristotle

Plato (left) and Aristotle

(right), a detail of The School
of Athens, a fresco by
Raphael. Aristotle is holding
a copy of his Nicomachean
Ethics.

Aristotle's Politics (ca. 350 BCE) was mainly concerned to analyze different forms of a state (monarchy, aristocracy, constitutional
government, tyranny, oligarchy, democracy) as a critique of Plato's advocacy of a ruling class of philosopher-kings. In particular for
economists, Plato had drawn a blueprint of society on the basis of common ownership of resources. Aristotle viewed this model as
an oligarchical anathema. In Politics, Book II, Part V, he argued that:

"Property should be in a certain sense common, but, as a general rule, private; for, when everyone has a
distinct interest, men will not complain of one another, and they will make more progress, because every one
will be attending to his own business... And further, there is the greatest pleasure in doing a kindness or
service to friends or guests or companions, which can only be rendered when a man has private property.
These advantages are lost by excessive unification of the state."[34]

Allocation of scarce resources was a moral issue to Aristotle. He also wrote in Politics (book I), 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. (To Aristotle, the question was a moral one: in his era child mortality was high). In transactions, Aristotle used the
labels of "natural" and "unnatural". Natural transactions were related to the satisfaction of needs and yielded wealth that was limited
in quantity by the purpose it served.[35] 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.[35]

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

and some interpret this as capturing a concept of diminishing marginal utility, though there has been marked disagreement about the
development and role of marginal utility considerations in Aristotle's value theory.[36][37][38][39][40] Certainly this book formulates an
ordinal hierarchy of values, which later appeared in Maslow's contribution to motivation theory.

Aristotle's Nicomachean Ethics, particularly book V.v, has been called the most economically provocative analytic writing in ancient
Greece.[41] Therein, Aristotle discusses justice in distribution and exchange. Still considering isolated exchanges rather than markets,
Aristotle sought to discuss just exchange prices between individuals with different subjective values for their goods. Aristotle
suggested three different proportions to analyze distributive, corrective, and reciprocal or exchange transactions: the arithmetic, the
geometric, and the harmonic. The harmonic proportion implies a strong commitment to the subjective values of the traders.[41]

Sixth century AD philosopher Boethius used the example of 16 as the harmonic mean of 10 and 40. 16 is the same percentage larger
than 10 as it is smaller than 40 (60 percent of 10 is 6, while 60 percent of 40 is 24). Thus if two bargainers have subjective prices for
a good of 10 and 40, Aristotle points out that in exchange, it is most fair to price the good at 16, due to the equality proportional
differences from their price to the new price. Another nuance in this analysis of exchange is that Aristotle also saw a zone of
consumer surplus or mutual advantage to both consumers that had to be divided.[41]

Roman law

Early Greek and Judaic law follow a voluntaristic principle of just exchange; a party was only held to an agreement after the point of
sale. Roman law developed the contract recognizing that planning and commitments over time are necessary for efficient production
and trade. The large body of law was unified as the Corpus Juris Civilis in the 530s by Justinian who was Emperor of the Eastern
Roman Empire from 526-565.

Ancient India

Chanakya

Chanakya (c. 350 BC-275 BC) considered economic issues. He was a professor of Tax collection and ripe fruits
political science at the Takshashila University of ancient India, and later the prime
As one plucks one ripe fruit after another from a
minister of the Mauryan emperor Chandragupta Maurya. He wrote the
garden, so should the king from his kingdom. Out of
Arthashastra ("Science of Material Gain" or "''Science of political economy" in
fear for his own destruction, he should avoid unripe
Sanskrit). Many of the topics discussed in the Arthashastra are still prevalent in
ones, which give rise to revolts.
modern economics, including its discussions on the management of an efficient
and solid economy, and the ethics of economics. Chanakya also focuses on —Stocking the Treasury, Arthashastra 5.2.70[42][43]

issues of welfare (for instance, redistribution of wealth during a famine) and the
collective ethics that hold a society together.

The Arthashastra discusses a mixed economy, where private enterprise and state enterprise frequently competed side by side, in
agriculture, animal husbandry, forest produce, mining, manufacturing and trade.[44] However, royal statutes and officials regulated
private economic activities, some economic activity was the monopoly of the state, and a superintendent oversaw that both private
and state owned enterprises followed the same regulations.[44] The private enterprises were taxed.[44] Mines were state owned, but
leased to private parties for operations, according to chapter 2.12 of the text.[45] The Arthashastra states that protecting the
consumer must be an important priority for the officials of the kingdom.[46]

The scope of Arthaśāstra is, however, far wider than statecraft, and it offers
an outline of an entire civil and criminal code and bureaucratic framework
for administering a kingdom, with a wealth of descriptive cultural detail on
topics such as mineralogy, mining and metals, agriculture, animal husbandry
and medicine. The Arthaśāstra also focuses on issues of welfare (for
instance, redistribution of wealth during a famine) and the collective ethics
that hold a society together. It discusses the ethics of economics and the
duties and obligations of a king.
Chanakya says that artha (sound economies) is the most important quality
and discipline required for a Rajarshi, and that dharma & kama are both
The need for law, economics and government
सुखस्य मूलं धर्मः । धर्मस्य मूलं अर्थः । अर्थस्य मूलं राज्यं । राज्यस्य मूलं
इन्द्रिय जयः । इन्द्रियाजयस्य मूलं विनयः । विनयस्य मूलं वृद्धोपसेवा॥
The root of happiness is Dharma (ethics, righteousness), the
root of Dharma is Artha (economy, polity), the root of Artha
is right governance, the root of right governance is victorious
inner-restraint, the root of victorious inner-restraint is humility,
the root of humility is serving the aged.
— Kautilya, Chanakya Sutra 1-6[47]

dependent on it.

According to Chanakya, a conducive atmosphere is necessary for the state's economy to thrive. This requires that a state's law and
order be maintained. Arthashastra specifies fines and punishments to support strict enforcement of laws (the Dandaniti).
Roger Boesche has called the Arthashastra "a great political book of the ancient world".[48] He interprets the 1st millennium BCE text
as describing a system similar to the Soviet Union and China, where the state envisions itself as driven by the common good, but also
operates an extensive spy network and system of surveillance.[49] This view has been challenged by Thomas Trautmann, who asserts
that a free market and individual rights, albeit a regulated system, are proposed by Arthashastra.[50] Boesche is not summarily critical
and adds:

Kautilya's Arthashastra depicts a bureaucratic welfare state, in fact some kind of socialized monarchy, in
which the central government administers the details of the economy for the common good...In addition,
Kautilya offers a work of genius in matters of foreign policy and welfare, including key principles of
international relations from a realist perspective and a discussion of when an army must use cruel violence
and when it is more advantageous to be humane.[51]

Chanakya discusses economic laws, and suggests having a court system to oversee and resolve economic, contracts and market-
related disputes.[52] The text also provides a system of appeal where three dharmastha (judges) consider contractual disputes
between two parties, and considers profiteering and false claims to dupe customers a crime.[52] The text, states Trautmann, thus
anticipates market exchange and provides a framework for its functioning.[52]

Mahavira

Economics in Jainism is influenced by the Mahavira and his principles and philosophies. His philosophies have been used to explain
the economics behind it. He was the last of the 24 Tirthankars, who spread Jainism. In the Economics context he explains the
importance of the concept of 'anekanta' (non-absolutism).[53]

There are two core political-economic system of the society recognized by the Mahavira. One is Communism and the other,
Capitalism. The former is meant to be more socialistic and the latter capitalistic. However the Mahavira found no difference in both
these systems because both were driven by materialism.

Ancient China

Fan Li

Fan Li (later Tao Zhu Gong) (517 BC - )[54] Chinese businessman, politician and strategist, wrote on economic issues. He developed
'golden' rules for doing business. Additionally, he discussed seasonal effects on markets, and business strategy among other things.

Confucianism and legalism

In ancient China, Chinese scholar-officials would often debate about the role government should have in the economy, such as setting
monopolies in lucrative industries and instating price controls. Confucian factions tended to oppose extensive government controls,
while "Reform" or legalist factions favored intervention. The Confucians' rationale for opposing government intervention was that the
government should not "compete for profit with the people" as it would tend to exploit the population whenever it was involved in
mercantile activity.

One such debate is recorded in the Discourses on Salt and Iron, a debate over Salt and iron monopolies imposed by Emperor Wu of
Han to fund wars and expansionism against the Xiongnu.

Qin Shi Huang, the first

emperor, who followed
legalist policies.

Although Confucian laissez faire was largely dominant throughout China's history, legalist policies often gained prominence in times
of war or with the patronage of rulers, such as under Qin Shi Huang, Sang Hongyang, Wang Mang and Wang Anshi, though they were
abolished shortly thereafter.
Wang Anshi

Chancellor Wang Anshi (1021–1086), one of China's most prominent reformers, lived during the medieval Song Dynasty (960-1279).
Espousing heated reaction by conservative ministers at court, Wang Anshi's political faction of the New Policies Group enacted a
series of reforms that centered around military reform, bureaucratic reform, and economic reform. Economic reforms introduced
included low-cost loans for farmers (whom he considered the backbone of the Chinese economy in terms of production of goods
and greatest source of the land tax), replacing the corvee labor service with a tax instead, enacting government monopolies on
crucial industries producing tea, salt, and wine, introduction of a local militia to ease the budget spending on the official standing
army of 1 million troops, and the establishment of a Finance Planning Commission staffed largely by political loyals so that his
reforms could pass quickly with less time for conservatives to oppose it in court.[55] Reformers and conservatives would oust each
other from power once they had the support of the emperor.

Medieval Islamic world

To some degree, the early Muslims based their economic analyses on the Qur'an (such as opposition to riba, interest), and from
sunnah, the sayings and doings of Muhammad.

Early Muslim thinkers

Al-Ghazali (1058–1111) classified economics as one of the sciences connected with religion, along with metaphysics, ethics, and
psychology. Authors have noted, however, that this connection has not caused early Muslim economic thought to remain static.[56]
Persian philosopher Nasir al-Din al-Tusi (1201–1274) presents an early definition of economics (what he calls hekmat-e-madani, the
science of city life) in discourse three of his Ethics:

"the study of universal laws governing the public interest (welfare?) in so far as they are directed, through
cooperation, toward the optimal (perfection)."[57]

Many scholars trace the history of economic thought through the Muslim world, which was in a Golden Age from the 8th to 13th
century and whose philosophy continued the work of the Greek and Hellenistic thinkers and came to influence Aquinas when Europe
"rediscovered" Greek philosophy through Arabic translation.[58] A common theme among these scholars was the praise of economic
activity and even self-interested accumulation of wealth.[59] Persian philosopher Ibn Miskawayh (born 1030) notes:

"The creditor desires the well-being of the debtor in order to get his money back rather than because of his
love for him. The debtor, on the other hand, does not take great interest in the creditor."[59]

This view is in conflict with an idea Joseph Schumpeter called the Great (Schumpeterian) Gap, which comes from his 1954 book
History of Economic Analysis, claiming a break in economic thought during the 500-year period between the decline of the Greco-
Roman civilization in the eighth century and the thirteenth century work of Thomas Aquinas (1225–1274).[60] However, in 1964
Joseph J. Spengler's "Economic Thought of Islam: Ibn Khaldun" appeared in the journal Comparative Studies in Society and History
and took a large step in bringing knowledge of medieval Muslim economic scholars to the contemporary West.[61]

The influence of earlier Greek and Hellenistic thought on the Muslim world began largely with Abbasid caliph al-Ma'mun, who
sponsored the translation of Greek texts into Arabic in the 9th century by Syrian Christians in Baghdad. But already by that time
numerous Muslim scholars had written on economic issues, and early Muslim leaders had shown sophisticated attempts to enforce
fiscal and monetary financing, use deficit financing, use taxes to encourage production, the use of credit instruments for banking,
including rudimentary savings and checking accounts, and contract law.[62]

Among the earliest Muslim economic thinkers was Abu Yusuf (731-798), a student of the founder of the Hanafi Sunni School of
Islamic thought, Abu Hanifah. Abu Yusuf was chief jurist for Abbasid Caliph Harun al-Rashid, for whom he wrote the Book of Taxation
(Kitab al-Kharaj). This book outlined Abu Yusuf'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 an 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, and included discussion of various types of taxes, including
sales tax, death taxes, and import tariffs.[63]
The power of supply and demand was understood to some extent by various early Muslim scholars as well. Ibn Taymiyyah
illustrates:

"If desire for goods increases while its availability decreases, its price rises. On the other hand, if availability
of the good increases and the desire for it decreases, the price comes down."[64] Ghazali suggests an early
version of price inelasticity of demand for certain goods, and he and Ibn Miskawayh discuss equilibrium
prices."

Other important Muslim scholars who wrote about economics include al-Mawardi (1075–1158) and Ibn Taimiyah (1263–1328).

Ibn Khaldun

Statue of Ibn Khaldoun in

Tunis

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.[65]
Ibn Khaldun on economic growth

Perhaps the most well known Islamic scholar who wrote about economics was Ibn Khaldun of Tunisia (1332–1406),[66] considered a
father of modern economics,[67][68] Ibn Khaldun wrote on economic and political theory in the introduction, or Muqaddimah
(Prolegomena), of his History of the World (Kitab al-Ibar). In the book, he discussed what he called asabiyyah (social cohesion), which
he sourced as the cause of some civilizations becoming great and others not. Ibn Khaldun felt that many social forces are cyclic,
although there can be sudden sharp turns that break the pattern.[69]

His idea about the benefits of the division of labor also relate to asabiyya, the greater the social cohesion, the more complex the
successful division may be, the greater the economic growth. He noted that growth and development positively stimulate both supply
and demand, and that the forces of supply and demand are what determine the prices of goods.[70] He also noted macroeconomic
forces of population growth, human capital development, and technological developments effects on development.[71] In fact, Ibn
Khaldun thought that population growth was directly a function of wealth.[72]

Although he understood that money served as a standard of value, a medium of exchange, and a preserver of value, he did not
realize that the value of gold and silver changed based on the forces of supply and demand.[73] He also introduced the concept
known as the Khaldun-Laffer Curve (the relationship between tax rates and tax revenue increases as tax rates increase for a while,
but then the increases in tax rates begin to cause a decrease in tax revenues as the taxes impose too great a cost to producers in the
economy).

See also
History of economic thought
History of money
Schools of economics