LECTURE 1

Early
Preclassical Economic
Thought
 1. Introduction of The history of economic
thought
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.

BENEFITS TO BE GAINED FROM THE STUDY OF THE HISTORY OF

ECONOMIC THOUGHT:
1. A primary reason for studying the history of economic thought
is to become a better economist.
2. The history of economic theory can also teach us humility.
3. Another reason for studying old ideas is to foster new ones.
2. Early Preclassical Economic Thought
• Although economic activity has been a characteristic of
human culture since the dawn of civilization, there was little
formal analysis of that activity until merchant capitalism
developed in Western Europe during the fifteenth century.
• The economic studies of this time were not systematic:
economic theory evolved piecemeal from individual
intellectual responses to contemporary problems.
• An important reason for examining the preclassical and
premercantile ideas of the Chinese, the Greeks, Arab-Islamic
writers, and the medieval schoolmen is to gain insight into
some of the more philosophical-ethical issues of relative
scarcity.
• We divide the prior period into two parts: an early
preclassical period from about 800 BC to 1500, and a
preclassical era from 1500 to 1776.
We divide the early preclassical period into four
subperiods:
• (1) early Eastern economic thought, represented by the
writings of the seventh century BC figure Guan Zhong (725-645
BC);
• (2) Greek thought, in which we focus on the work of Xenophon
(c. 430-355 BC), and Aristotle (384-322 BC);
• (3) Arab-Islamic thought, in which we focus on the Ibn Khaldun
(1332-1406);
• (4) economic thought of the scholastics, in which we focus on
the writings of St. Thomas Aquinas.
 The early preclassical thinkers reflected on aspects of their
economic lives but gave greatest attention to nonmarket-
allocating mechanisms.

• Two important themes emerge from early preclassical doctrine.

One concerns the level of inquiry appropriate for analyzing
society. These writers believed that it was inappropriate to
separate any particular activity—economic, for example—from
all other activities.
• A second theme is the focus on broad philosophical issues,
giving particular attention to questions of fairness, justice, and
equity. The preclassical writers examined exchange and price
with the purpose of evaluating their fairness, justice, and equity.
Chinese writer Guan Zhong.
• Probably the most important of ideas is his “light/heavy”
theory, an anticipation of supply/demand theory. Others
include his anticipation of the quantity theory, his
discussion of countercyclical fiscal policy, and his
appreciation for the workings of the market. Let’s
consider each briefly.
• Guan Zhong argued that when a good was abundant, it
became light, and its price would fall. When it was
“locked away,” it became heavy, and its price would rise.
• Thus the light/heavy theory is a statement of the law of
supply and demand. Guan Zhong also used this
light/heavy theory to develop a quantity theory of
money, asserting that when money was heavy, its price
should rise (prices of goods would fall), and when money
was light, its price would fall (prices of goods would rise).
 GREEK THOUGHT
Xenophon
The word economics, derived from Greek, was used
by Xenophon as the title of his book Oeconomicus.
As used by the Greeks, however, the term refers to
efficient management at the level of the producer
and/or the household. Xenophon and other early
writers were pursuing a set of problems relating to
efficiency at the level of the producer and the
household that had to be tackled before the much
more difficult and less obvious issues of efficiency
for an entire economy could be dealt with.
Xenophon, took the concepts of efficient and
applied them at the level of the household, the
producer, the military, and the public administrator.
This brought him insights into how efficiency can be
improved by practicing a division of labor. Attention
to the division of labor was continued by other
Greek writers, including Aristotle, and, later, by the
scholastics.
 Aristotle
Aristotle’s main contributions to economic thinking
concerned the exchange of commodities and the use
of money in this exchange. People’s needs, he said,
are moderate, but people’s desires are limitless.
Hence the production of commodities to satisfy
needs was right and natural, whereas the
production of goods in an attempt to satisfy
unlimited desires was unnatural. Aristotle conceded
that when goods are produced to be sold in a
market, it can be difficult to determine if this activity
is satisfying needs or inordinate desires; but he
assumed that if a market exchange is in the form of
barter, it is made to satisfy natural needs and no
economic gain is intended. Using the medium of
money, however, suggests that the objective of the
exchange is monetary gain, which Aristotle
condemned.
 ARAB-ISLAMIC THOUGHT
Historians of economic thought have for a number of years been
pondering one of the great mysteries of early preclassical economic
thought: why are there apparently no important contributions to
preclassical thought between the Greeks, particularly Aristotle, and the
scholastics, particularly St. Thomas Aquinas? Recent scholarship has
indicated this is part of a larger problem, the failure of Western
thinkers to fully recognize that the Arab-Islamic scholars were much
more than mere translators of Greek thought.
•Progress in understanding the economy occurred only when scholars
determined to examine not the ideal Muslim world, with its many
constraints on economic activity, but the actual Muslim world of their
time. One of the early focal points of these attempts to study economic
activity was taxation.
•It has been estimated that some thirty Arab-Islamic writers wrote
extensively on economic activity during the medieval period. Since
research into the contributions of these writers is relatively new in the
Western world, beginning only about fifty years ago, our understanding
of the nature and significance of their contributions is incomplete.
Ibn Khaldun
We do know, however, that among
the more significant Arab-Islamic
writers addressing economic issues
were Abu Hamid al-Ghazali and Ibn
Khaldun.
It has been said that Ibn Khaldun
represents the beginning of Islamic
economics—although some would
argue that this distinction belongs to
al-Ghazali— though this does not
denote the start of significant analysis
of market economies.
Ibn Khaldun was not interested in purely economic questions.
His examination of economic topics was always tangential and
in the context of broader concerns. Possibly his most
interesting insight into economic issues arises in his broad,
sweeping examination of how his society appeared to have
what we would today call a developmental cycle, moving from
rural desert-life society with low income, low craft skills, and
small economic surplus to a nonnomadic society in which
agriculture predominated, with higher labor productivity and
incomes, economic surpluses, and population growth. From
today’s vantage point, one can see many “economic” topics
being examined by Ibn Khaldun: population, profits, supply,
demand, price, luxury, aggregate surpluses, and capital
formation.
 SCHOLASTICISM
• Scholastic economic doctrine extends from before the fall of
the Roman Empire to the beginnings of mercantilism in
Western Europe.
• The scholastic writers were educated monks who tried to
provide religious guidelines to be applied to secular
activities. Their aim was not so much to analyze what little
economic activity was taking place as to prescribe rules of
economic conduct compatible with religious dogma. The
most important of the scholastic writers was St. Thomas
Aquinas.
In attempting to reconcile religious doctrine with the institution of
private property and with economic activity, Aquinas had to reckon
with numerous biblical statements condemning private property,
wealth, and the pursuit of economic gain. Based upon the New
Testament, early Christian thought held that communal property
accorded with natural law and that privately held property fell short of
this ideal. Thus, early Christian society, modeled on the lives of Jesus
Christ and his apostles, was communal. But the early scholastic writers
had long struggled to establish that some ownership of private property
by laymen was not incompatible with religious teaching. In the
thirteenth century, after Aristotle’s writings had been reintroduced into
Western Europe, Thomas Aquinas, adapting Aristotelian thought to his
own writing, was able to argue convincingly that private property is not
contrary to natural law. Although he conceded that under natural law
all property is communal, he maintained that the growth of private
property was an addition, not a contradiction, to natural law. Aquinas
argued that to be naked was in accordance with natural law and that
clothing was an addition to natural law and devised for the benefit of
man. The same reasoning applied to private property.
•Again following Aristotle, Aquinas approved the regulation of private
property by the state and accepted an unequal distribution of private
property. However, in the spirit of Plato, he still advocated poverty and
communal living as the ideal for those of deep religious commitment,
because the communal life enabled them to devote the greatest part of
their energies to religious activities.
•Aquinas and other scholastics were also concerned with another aspect
of greater economic activity, the price of goods. Unlike modern
economists, they were not trying to analyze the formation of prices in an
economy or to understand the role that prices play in the allocation of
scarce resources. They focused on the ethical aspect of prices, raising
issues of equity and justice. Did religious doctrine forbid merchants to sell
goods for more than they paid for them? Were making profits and taking
interest sinful acts? In discussing these issues, Aquinas combined religious
thinking with Aristotle’s views.
•A corollary to the concept of just price was the scholastic notion of usury.
The scholastic view gradually moderated from a fairly strict prohibition of
interest early in the period to its acceptance—at least for business
purposes—later.
 Key Terms
• communal property
• desires
• efficiency
• feudal economy
• just price
• needs
• preclassical period
• private property
• scholasticism
• usury
Questions for Review and Discussion
• 1. Why might studying Guan Zhong be more relevant than
studying Adam Smith for a modern Chinese economist?
• 2. Explain the difference between the use of tradition,
authority, and a market system as allocators of scarce
resources.
• 3. Do you think it is appropriate to isolate the economic,
political, sociological, and psychological facets of society from
the total society?
• 4. What aspects of efficiency concerned some of the Greek
thinkers?
• 5. What were Aristotle’s views on the appropriateness of
economic activity?
• 6. Use Aristotle’s distinction between needs and wants to
evaluate your own consumption patterns.
Thank you for your
attention!