History of pre-classical 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's 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.

Xenophon

Xenophon, was a soldier, philosopher and mercenary from ancient Greece who lived between 425 and 355 BC. He wrote a book called Economics, in which the cynic Kritoboulos and the sympathetic Isomachos engage in a philosophical exchange mediated by the figure of Socrates. The title is badly translated and misrepresents the book's subject. In Greek, the work "oikonomikon" signifies "household management". Xenophon's Economics verses instead about the management of agricultural endeavours focusing on the manner in which a good citizen ensures his own subsistence, along with a surplus for the state.

Xenophon, using Socrates's speaches, emphasizes the moral virtues of citizens and their freedom.

Ibn Khaldun

In his Prolegomena (The Muqaddimah), 'Abd al-Rahman Ibn Muhammad Ibn Khaldun al-Hadrami (A.D. 1332-1406), commonly known as Ibn Khaldun, a fourteenth century Muslim thinker, laid down the foundations of different fields of knowledge, in particular the science of civilization (al-'umran).

His contributions to economics place him in the history of economic thought as a forerunner, if not the "father", of economics. Ibn Khaldun planted the germinating seeds of classical economics analysing production, supply, or cost and pioneered in consumption, demand, and utility, the cornerstones of modern economic theory.

Ibn Khaldun was the first to systematically analyze the functioning of an economy, the importance of technology, specialization and foreign trade in economic surplus and the role of government and its stabilization policies to increase output and employment.

Ibn Khaldun, moreover, dealt with the problem of optimum taxation, minimum government services, incentives, institutional framework, law and order, expectations, production, and the theory of value.

For Ibn Khaldun, the role of the State is to establish law and order conducive for economic activities. The enforcement of property rights, the protection of trade routes and the security of peace are necessary for a civilized society to engage in trade and production.

For him "over-taxation" would occur when the demands bureaucracy and mercenary armies would expand beyond "normal" economic surplus.

For Ibn Khaldun, it is clear that "the profit human beings make is the value realized from their labor," but this value, the price of labor, is determined by the law of supply and demand, a point later missed by Karl Marx.

Khaldun recognized the advantages of specialization. For him, specialization meant the coordination of different functions of factors of production where, "what is obtained through the cooperation of a group, of human beings satisfies the need of a number many times greater (than themselves)."

There is a striking similarity in the economic thought of Ibn Khaldun and those of Adam Smith , writting four centuries apart. This leaves the question to ascertain direct or indirect links between these two great thinkers open to the economic historian. In thesis Adam Smith could have been exposed to Ibn Khaldun's contributions, even without having been aware of the author's name, during his six years research at Oxford University's library. However Khaldun's work has only been "discovered" by the West in the XIX century, when it was translated to western laguages.

The early Scholastics

The "Scholastics" refer to the group of 13th and 14th Century theologians, notably the Dominican St. Thomas Aquinas , that set down the dogma of the Catholic Church in light of the resurrection of the Greek philosophy. In economics there were four themes the Scholastics were particularly concerned with: property, justice in economic exchange, money, and usury.

Private property and Christian teachings have been always at odds. In the 5th Century, the early Church fathers (the "Patricians", e.g. St. Augustine) had struck down "communistic" Christian movements and the Church itself went on to accumulate enormous amounts of property. In the 12th Century, St. Francis of Assisi began a movement (the "Franciscans"), which insisted on vows of poverty, "brotherhood" and deplored the accumulative tendencies of the Church.

Against the Franciscans were arrayed St. Thomas and the Dominicans, who dug out of Aristotle and the Bible the necessary arguments to put down their challenge. The Thomists took a practical stance.

Another question that arose was that of entrepreneurship. Should a merchant be allowed to profit from differentials in prices? The Scholastics replied with a qualified yes, provided the merchant is not motivated by pure gain and profit be only just enough to cover the "sacrifices" of the merchant. They argued that the trader is performing a valuable service and increasing general welfare by meeting different needs.

The charging of interest on money lent (usury), came quickly under scrutiny. There is no clear basis for a ban on usury in Christian scriptures. To early Church fathers, like St. Jerome, the Christian notion that "all men are brothers" necessarily implied that usury must be banned outright. Another patrician, St. Ambrose, decided that lending with interest to enemies in the course of a just war was permissible.

Clerics had been prohibited from lending at interest at least since the 4th Century.This ban was extended to laymen much later. In 1139, the Second Lateran Council denied all sacraments to unrepentant usurers and, in an 1142 decree, condemned any payment greater than the capital that was lent. Jews and Moors ("strangers" in Christian lands) were initially exempt, but the Fourth Lateran Council (1215) issued an admonition prohibiting non-Christians from charging "excessive usury" . In 1311, Pope Clement V at the Council of Vienna prohibited usury outright and condemned as "heretical" any secular legislation that tolerated it.

The issue of "justice in exchange" was a more complicated issue. Even if we hang the intrinsic value of a good on its "usefulness", how does one estimate what the "just price" (justum pretium) should be?. Following the Golden Rule ("Do unto others as you would have them do unto you"), the Scholastics decided that a person should not charge more for a good than what he would be willing to pay for it himself.