Why study History of Economic Thought?
GREEK ECONOMIC THOUGHT
Plato (427-347 BC)
Aristotle(384-322)
MEDIEVAL ECONOMIC THOUGHT
St. Thomas Aquinas ()
MERCANTILISM
The Ideas of Mercantilists
THE PHYSIOCRATS
Factors Responsible for the Rise of Physiocracy
Ideas of Physiocrats
Leading P...
There are two main opinions on the importance of the study of the economic thought. One group of
economists say that there is no need to study the history of economic thought. According to them the
economic ideas of the past are nothing more than ‘wrong opinions of dead men’ and there is also a
danger of repeating errors of the past writers by studying them.
Another group of economists the study of history of economic thought is very important. According
to Schumpeter there are mainly three gains one gets out of the study of the history of any science.
i. Pedagogical advantage: any recent scientific discussion which does not co9ntain historical
background of the subject concerned lacks direction and meaning.
ii. New Ideas: We can derive new inspiration and thus widen our intellectual horizons from
the study of the history of science. Besides, we also learn many useful lessons from the
history of science.
iii. Insight into the ways of the Human Mind: the study of history of science tells the ways in
which human mind works. The study of the history of economic thought, for example,
provides an insight into how men were able to analyse the economic problems over time.
Lewis H Haney presents the following arguments for the study of the history of economic thought.
i. Continuity in Economic thought: the study of the history of economic thought reveals
that there exists continuity in the economic thinking of men from the ancient times to this
day. Economic ideas of a particular age are not the product of that very age but their roots
are found in the literature of earlier times.
ii. Understanding the Nature and Origin of Economics: the study of the history of economics
helps us to understand the origin of economics, its nature and scope and its relation with
other sciences. In the beginning, economics was not studied as a separate science. It was
merely a hand maid of politics and ethics.
iii. The relativist attitude: the study of the history of economics brings about a change in the
attitude of man. One does not judge economic ideas with dogmatic absolutism and
declare them good or bad. On the contrary, he adopts a realistic attitude that economic
ideas are to be examined in the light of the times and conditions in which they originate.
iv. Broad Basis for comparison
v. Objective Point of view: by studying the history of economic thought, a man also develops
and objective view. He begins to realise that economics and economists are two
altogether different things. He realises that economics, as a science, is the result of the
efforts of so many economists living in different periods and conditions.
, GREEK ECONOMIC THOUGHT
I. Plato (427-347 BC)
He was born in Athens. He was a disciple of Socrates. He founded the first great school of philosophers-
‘the Academy’. His views are expressed in the form of dialogues. The Republic and Laws are the main
sources of his economic thought.
1. Economic Basis of the Origin of the State
Plato traced the origin of the state to economic considerations. He based his theory on the simple
logic that man has wants and he cannot satisfy all his wants by himself and therefore he produces one
thing and exchanges it for another.
2. Division of Labour
The concept of division of labour was first introduced by Plato. By division of labour he simply meant
the division of employments or professions as an aid to social organisation.
3. Communism
In his ideal state, not only property was to be collectively owned but also wives and children. The main
objective underlying his communism was to create conditions in which citizens of the ideal state would
be bound by common interests. The main aim was to eliminate some of the evils of the caste system
4. The Ideal State
Plato’s ideal state is a city state. There will be 5040 citizens in an ideal state. In his ideal state there
are two classes: the rulers and the ruled. The artisans who are engaged in the menial occupations of
the production and exchange belong to the category of the ruled. The members of the ruling class will
be set apart from early childhood. They are the guardians or real rulers of the state. Plato believed in
rule by elite. It was for this elite group Plato suggested communistic way of life. The upper classes
from whom leaders are trained must lead a Spartan life. The upper classes will not have any private
property and family.
5. Inheritance and Population
Each citizen was to be given an inalienable plot of land with the right to choose a single heir-either by
birth or by adoption. As regards population, Plato was very much concerned about its careful
regulation. If the number is less than 5040, then prizes must be offered to encourage procreation and
if they were more, separate colonies were to be set up to take care of the surplus numbers.
, 6. Money and Interest
Plato recognised the value of money as a medium of exchange. Instead of using gold and silver he
suggested the use of domestic coins for payment of wages and other transactions. As regards interest,
he thought that neither interest should be given nor the principal or a loan repaid.
II. Aristotle(384-322)
It was he who laid foundations of the science of economics. Aristotle was a student of Plato. Aristotle
differed from Plato on many important issues like the origin of the state, communal versus private
property. The main economic ideas are found in the Politics and the Ethics.
ECONOMIC IDEAS OF ARISTOTLE
1. Origin of the State
The origin of the state is to be explained not in terms of economic needs and their satisfaction. On
the contrary, it is an outcome of the natural instinct of man to associate with his fellow beings.
Man is a social animal and the state is a creation of nature. Three stages in the development of
the state are:
i. People organised themselves in a household
ii. Then came the village
iii. Finally the state was formed
2. Plato’s Communism Criticized
While Plato advocated the community of property, Aristotle pleaded strongly in favour of the
institution of private property. His attack on the community of property is based mainly on the
‘Incentive Argument’. He argues that communal property will not be looked after as carefully as
private property.
According to Aristotle, private property is superior to communal property on five grounds:
i. Progress: Private property is more productive than communal property and hence
promotes progress. The principle ‘what is everybody’s business is nobody’s business’
will be applied here.
ii. Peace: Quarrels are bound to develop when the principle of ‘equal wages for equal
work’ is not followed.
, iii. Pleasure: private property will give pleasure to the owner. So each man must possess
some property which he can call his own.
iv. Practice: The practical experience of ages proves that private property is a good thing.
v. Philanthropy: If a man has property, he can use a part of it for himself and he can
share a part with his friends.
3. Inheritance and Population
Aristotle’s ideas regarding division of labour, inheritance and population were more or less the same
as those of Plato. Like Plato he believed in class distinctions. He accepted ‘slavery’ as a natural
institution.
4. Value and Exchange
According to Plato, value was an inherent quality of the commodity. He also held that the value of
commodity depended upon its usefulness. Values in commodities can be compared through the
intensity of wants. The greater the intensity of wants, the more will be paid for it.
5. Interest
He condemned interest. “the worst for of money making is that which uses money itself as the source
of accumulation.”
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