The Early Origins of

Economic Thought
Martin Kragh, PhD
Stockholm School of Economics
Martin.Kragh@hhs.se

A Definition of economics
Ancient Greek:
oikos, meaning household
nomos, meaning law
Thus, a study of the principles which govern the household

Definitions have varied throughout history

Adam Smith: a branch of the science of a statesman or
legislator
Alfred Marshall: a study of man in the ordinary business
of life
Lionel Robbins: a science which studies human behaviour
as a relationship between ends and scarce means which
have alternative uses

Some Basic Concepts Economists Use

The distinction between inductive and
deductive methodologies
The distinction between positive and
normative economics
Make sure you have a grasp of these concepts!

The Long Roots of Economic Thought

There exist questions which we have allways
theorized:

What are the driving forces of man?

What is the role of money?
Should interest be allowed?
How does trade or profit occur?

Note how the normative and positive aspects

have been intertwined:
Economics only recently a separate discipline
Philosophy, theology, law and/or ethics were allways
important

China
Guan Zhong (725-645 BC)

Guan Zi
Guan Zi (ca 700 BC) by Guan Zhong first
known treatise containing economic thought:
Supply and Demand: light and heavy
Price: inflation and deflation
Profit: Whenever there is profit, there is no place
man will not go
Wealth: To govern a country it is necessary to
increase the wealth of the people. When people
have plenty, they are easier to govern

Jinzi
Jinzi (ca 400-300 BC), written by a legal scholar
and administrator Ji Ran (presumably):
The importance of meritocracy
Wealth a result of wise governance, low corruption,
low taxation and support of strategic sectors (for
example, silk production and agriculture)
Wealth military might of the state
Business Cycle: Trade and prices fluctuate over the
year:
Jupiter in Yin: sell live stock, and buy food
Jupiter in Yang: sell food, and buy land, house and live stock

Ancient Greece and Rome

Greek philosophy fundamental for European
intellectual history
Xenophons (ca 430-354 BC) Oikonomikus
Household economy
Efficiency the outcome of sound leadership in
agriculture and (petty) trade
Specialization increases efficiency
Xenophons definition important for two millenia, until
the 1700s

Plato and Aristotle

Plato (ca 427-347 BC)

The Republic
Written during political turmoil in Greek city states
Neither democracies (risk for corruption) nor
tyrannies (risk for opportunistic behaviour) are
stable solutions
Solution: A republic governed by an elite group of
philosophers acting in the interest of society
Cf. Independent central banks

Aristotle (ca 384-322 BC)

Student of Plato
Emphasized the importance of empirical
observations for scientific discoveries
Stringent methodology with clear definitions
Most influential philosopher in European
history
Politics and The Nichomachean Ethics

Aristotles Vision of Society

Polis the sum of all the households
Household Hierarchy:
Free individuals, of which:
The head of the household (a man)
Women
Children

Slaves (property of the household)

Commercial Activity
Trade to satisfy human needs accepted, while profit
motive for trade was not
Money has two faces:
Money as a means (facilitates trade)
Money as a measure (makes the comparison between
different goods possible)
Goods have both use value and exhange value
Key concepts in Adam Smith, David Ricardo and Karl Marx

However, use of money not natural. Money an artifical

convention in order to faciliate trade
Trade for profit, chremastics, not accepted and usually
conducted by non-citizens (not members of polis)

Rome
A political and economical empire
Secular jurisprudence:
Lucretius (ca 99-55 BC) and De rerum natura
The world can be understood by rational thought
Tantum religio potuit suadere malorum

Natual Law (ius naturale)

Principles which exist independently of man

Civil Law:
Private property
The firm as a separate legal entity
Laws to govern trade and agreements

Roman jurisprudence tremendously important during the

Renaissance and the Enlightenment

Islam
Highly advanced levels of science during
European dark ages
Mathematics
Astronomy
Philosophy (including Greek philosophy)

Developed systems of trade

Suftajahs (global credit institutions in 9th century)
Profit accepted in Islam within certain limits
Interest (riba) controversial though existant
Cf Sharia Banking today

Ibn Khaldun (1332-1406)

Influential Muslim scholar from Tunisia
al-Muqaddima (1375-1378) covers law,
history, politics, sociology and economics
Break with theology:
Rational explanations of phenomena
The universe is governed by an exact system, in which
cause and effect apply.

Thus, the economy can also be understood on its

own principles

Khalduns Economics
Role of key principles:
Profit
Self-interest
Private Property

Umran, society, develops

through economic development
The wealth of society, depends on the efforts people
make in accordance with their self-interest. When this no
longer applies, civilization declines

Self-interest and wealth of society intertwined

Cf Adam Smith

Scholastic Thought
Christian theology evolved from the 4th century
through to the renaissance
Continous struggle to harmonize teachings from
theology and ancient philosophy with changes in
society
Scholastic thought explicitly normative:
How should trade be organized?
What is allowed? What is a sin?

Challenge: To identify economic behaviour which is

also congruent with teachings of religion
Thomas of Aquino (1225-1274), Summa theologiae

Interest or Usury?
Ancient dilemma: What role for money is accepted?
OT: Ezekiel (18:10-13):
he even eats at the mountain shrines, and defiles his neighbors
wife, oppresses the poor and needy, commits robbery he lends
money on interest and takes increase; will he live? He will not live!

NT: Luke (6:35):

But love your enemies, do good to them, and lend to them without
expecting to get anything back.

Changing definitions of usura and intereo over time was crucial for
economic development during the Renaissance
Usura (usury) means to use something (i.e. capital)
Usury not legitimate
Intereo (interest) means to lose
Interest legitimate as compensation for losses

Concluding Remarks
Continuity and Change through Time
Understanding of fundamental principles similar over
time, but normative conclusions change

Role of Philosophy, Theology and Jurisprudence

at the Core of Early Economic Thought
Basic Understanding of Economic Phenomena
Remain over Time:
Supply and Demand
Price (inflation, deflation)
Money and Interest