The Ancient World - History of Economic Thought - Lecture Slides, Slides of Economics

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The Ancient World

The ancient world

• Homer and Hesiod
• Xenophon
• Plato
• Aristotle
  • Economic justice
  • Acquisition of wealth
• Rome

Homer

• Describes the Mycenaean (Bronze Age) world of Troy around 1400–1100 BC
• This society was not based not on market transactions
• Wealth was acquired through gifts, theft, prizes for winning competitions, plunder received in war, and tribute paid by defeated cities to their conquerors.
• Compared to agriculture and war, trade was viewed by Homer as an inferior way of acquiring wealth.

Homer

• Most economic activity took place in the

household , understood as the landowner,

his family, and all his slaves

• Prosperity came from efficient

management of the household

Hesiod

• There is in Hesiod an intuitive understanding of the need to be inventive, and that
• Choices have to be made between work (which leads to wealth) and leisure.
• Hesiod even suggests that competition can stimulate production, for it will cause craftsmen to emulate each other.
• But these ideas are not explicitly stated; one has to infer them
• In Hesiod, the virtues that lead to prosperity are hard work, honesty and peace.
• This is far from the aristocratic disparagement of work and support for martial virtues in Homer

Xenophon (c. 430 – 354 BC)

• Oikonomikos , the title of Xenophon’s work, is the origin of the words ‘economist’ and ‘economics’. - Taken literally it means Household Management - The book is in fact about the management of an agricultural estate.
• Efficient management required effective leadership (of slaves).
• Effective leadership required knowledge of the production technology and an understanding of the importance of order and organization
• Xenophon extended these notions to the administration of a state
• The emphasis was on top-down administration, and not on decentralized markets

Xenophon: division of labor

• But in Xenophon’s writings, trade and

markets are peripheral.

• He does not connect division of labor to

the market mechanism

• He takes the extent of the market as

given, and not as something that can be

expanded through the expansion of trade

Plato (c. 429 – 347 BC)

• Republic , blueprint for an ideal state
• In a democracy, leaders would do only what was popular, not what was just
• In a tyranny, the tyrant would do only what was good for himself
• Plato proposed a middle ground.
  • Some people would appoint themselves to the role of guardians or philosopher kings.
  • They would be trained by the state for their roles.
  • They would be forbidden to own property.
  • The state would pay them a wage to cover their needs.
  • Therefore, they would put the state above their own interests

Plato

• Though he saw a role for trade, the role for

markets in his ideal state was very limited.

• Consumer goods might be bought and sold, but not property, which was to be allocated by the state (on mathematical principles)
• There would be no profits or payment of interest.

Aristotle (384 – 322 BC)

• His writings dominated Western thought in

most areas for nearly 2,000 years.

• His thoughts on economic issues are

found in

• Book V of the Nichomachean Ethics , which was on justice, and in
• Book I of the Politics , which was about the household, the state, and wealth acquisition.

Aristotle: Economic justice

• Aristotle considered three concepts of

justice

• Distributive justice: how should the spoils of war be shared
• Rectificatory justice: how should one be compensated for past injustice
• Reciprocal justice: when is an economic exchange between a buyer and a seller just

Aristotle: Distributive justice

• How should, say, the spoils of war be shared?
• Aristotle felt that when concrete cases of such disputes are considered, the just share for each person usually becomes obvious.
• The sharing must be done according to each person’s ‘merit’
• In concrete cases, the ‘merits’ of the people involved in the joint acquisition of wealth are clear and the wealth should then be shared in proportion to ‘merit’

Aristotle: reciprocal justice

• If two people exchange goods, how do we assess whether the transaction is just?
• One idea, commonly understood in ancient Greece, is that if an exchange is voluntary it must be just. - Xenophon cited the example of two boys – one tall and with a short tunic, the other short and with a long tunic – who exchanged tunics. The conventional view was that this was a just exchange, for both boys gained from it.
• Aristotle recognized, however, that voluntary exchange does not determine a unique price, but merely a range of possible prices in between the lowest price the seller is prepared to accept and the highest price the buyer is prepared to pay.
• Within this range, what is the just price?
• Aristotle’s answer was the harmonic mean of the two extreme prices.

Aristotle: harmonic mean

• Suppose
  • the lowest price the seller would accept is $5.00, and
  • The highest price the buyer would pay is $8.
• According to Aristotle, the just price for this exchange is the harmonic mean of 5 and 8.
• This is 2/((1/5)+(1/8)) = $6.
• This price is 23.08% higher than $5.00 and 23.08% lower than $8.
• This general property of the harmonic mean makes it the just solution, according to Aristotle