History of economic thought

Economics is the social science that studies the production, distribution, and consumption of goods and services. The word 'economics' is from the Greek for οἶκος (oikos: house) and νόμος (nomos: custom or law), hence "rules of the house(hold)."

Origin of Economics takes its roots in the natural propensity of human beings to barter, to exchange or trade goods. Whilst there are no records of dogs ever having bartered bones, men has been bartering all sorts of goods since pre-history.

Economics as an independent science, and as we understand the word today, begins with the work of Adam Smith, The Wealth of the Nations. .

Before Smith, Economics was a chapter in political science, the art of managing a State. The list of acceptable definitions for Economics is enourmous. Economics is the study of those activities which, with or without money, involve exchange transactions among people. Economics is also the study of wealth. Several other definitions are acceptable

Paul Samuelson, in his famous book Economics - An Introductory Analysis, defines Economics as:"the study of how men and society 'choose', with or without the use of money, to employ 'scarce' productive resources to produce various commodities over time and distribute them for consumption, now an in the future, among various people and groups in society"

Introduction

In antiquity various philosophers have studied Economics, the most famous of which being Aristotle, who created some important economic concepts in his books Politics and Nicomachean Ethics , both written around 350 B.C.

Aristotle analysed the economic processes around him and was able to define the place of economy within a society that included commercial buying and selling. His economic thought (especially his value theory) is inspiring but sometimes contradictory and inconsistent.

In Book I of the Politics, Aristotle distinguishes between use value and exchange value, defines value as the ability to satisfy wants and demand as being governed by the desirability of a good (i.e., its use value). According to Aristotle, exchange value is derived from use value as communicated through market demand.

Xenophon (420?-355? BC) wrote a book called Economics in which he analyses Socrates' positions on the subject.

Ibn Khaldun (1332- 1406) was a famous historiographer and historian born in present-day Tunisia and is viewed as one of the forerunners of modern historiography, sociology and economics. His best known book is Muqaddimah "Prolegomenon" Khaldun was the first to understand the important interaction of forces between Sociology and Economics. Some researchers have compared Ibn Khaldun to Marx, based on economic theories in section 1, chapter V of the Muqaddimah about "The real meaning and explanation of sustenance and profit or profit is the value realized from human labour".

In the middle ages the economic thought was dominated by the teachings of Roman Catholic Church, with the Scholastics, divided in two main and fiercily opposing schools, the Dominicans (St. Thomas Aquinas (1225-1274) and the School of Salamanca - which was initiated by Francisco de Vitoria around 1536 and counted Navarrus and de Soto as its most prominent theoreticians; its influence lasted until circa 1624), and the Franciscans (aproximately 1295-1495).

After the Scholastics era, we had, in that order, The First Economists, Sir William Petty, the Mercantilists, Richard Cantillon, Jacques Turgot and Enlightenment Economics, François Quesnay and the Physiocrats, David Hume and the Scottish Enlightenment, Ferdinando Galiani and the Italian Tradition and the Social Philosophers and Commentators

The period that runs from early antiquity until past the Physiocrats and ends before Adam Smith is called the "Pre-Classical" period of economic thought.

History

Pre-Classical Period

The Ancients and the Scholastics

Aristotle

In the Topics Aristotle made a philosophical analysis of human ends and means. He explains that the value of means or instruments of production are a function of the end products utility to people.

For Aristotle, the economic dimension is the individual human action of using wealth.

According to Aristotle, human nature has a dual material and spiritual character. For him economics is an expression of that dual character and the economic sphere is the intersection between the corporeal and mental aspects of men.

Aristotle classifies economics as a practical science, as opposed to speculative sciences, such as mathematics and metaphysics.

For Aristotle economics is concerned with both the household and the polis relating to the use of things required for the good (or "virtuous") life. Economics is aimed at the good and is fundamentally moral. For him Economics was embedded in politics, so it can be said that the study of political economy began with Aristotle.

Theory of Value

In the Politics, Aristotle views labor as a "commodity" that has value but does not give value. He did not see labor as a source of wealth. Aristotle formulated a "theory of the value of labor". Observing that labor skill is not a determinant of exchange value, he maintains that, in the end, the basic requirement of value is utility, which is related to a person's desires. Value is the ability to satisfy wants. Demand is governed by the desirability of a good (i.e., its use value). According to Aristotle, exchange value is derived from use value as communicated through market demand.

In Book I of the Politics, Aristotle distinguishes between "use value" and "exchange value". It was Aristotle who created the concept of value in use. In addition, Aristotle distinguished between final goods and factors of production.

Aristotle antecipated the role of diminishing marginal utility in price formation. According to Aristotle, the quantity of a good reaches its saturation point when the use value plunges and becomes immaterial.

The Problem of Commensurability

Aristotle discovered, formulated, and analyzed the problem of commensurability. He wondered how ratios for the exchange of heterogeneous things could be set. Aristotle says that money, as a common measure of everything, makes things commensurable and makes it possible to equalize them. For Aristotle, money is a medium of exchange that makes exchange easier by translating subjective qualitative phenomena into objective quantitative phenomena.

The lending of money at interest is condemned as the most unnatural mode of acquisition. Aristotle insisted that money was barren.

Bibliography

• HANEY, Lewis H., Ph.D. History of economic thought: a critical account of the origin and development of the economic theories of the leading thinkers in the leading nations. New York: The Macmillan Company, 1920.