DEPARTMENT OF ECONOMICS AND DEVELOPMENT STUDIES,
FEDERAL UNIVERSITY, KASHERE, P.M.B. 0182, GOMBE STATE
COURSE CODE: ECD 3215 COURSE TITLE: HISTORY OFECONOMIC
THOUGHT I
COURSE OUTLINE
· Definition and Meaning of the History of Economic Thought
· Significance of History of Economic Thought
· Early period: economic thought of Plato and Aristotle
· Islamic and Christian ideas on economic activities
· Pre-classical school of economic thought
· Classical period: Adam Smith, neo-classical school of thought
· Welfare school of economic thought
Lecture I
Definition and Meaning of the History of Economic Thought
History of Economic thought deals with the origin and development of economic ideas and their interrelations (Jhingan et al, 2003). The authors argued that it is a historical account of economic doctrines. Prof. Schumpeter holds that “economic thought is the sum total of all the opinions and desires concerning economic subjects especially concerning with public policies of different times and places.” Schumpeter further says
that the history of economic thought traces the historical change of attitudes. It also speaks about the economic problems and the approaches to those problems. Bhatia (1978:1) argues that, “Ordinarily economic thought would be taken to cover the set of theories, doctrines, laws and generalizations, and analyses applied to the study and solution of economic phenomena and problems.” He further argues that the specific
contents of economic thought have normally commanded an uneven prominence- some attracting more attention than the others; and the overall composition of economic thought is also subject to a continuous variation. In the words of Haney (1949:4), the study of economic thought “may be defined as a critical account of the development of economic ideas, searching into the origins, interrelations, and manifestations.”
Knowledge of alternative explanations of economic processes provides a basis for evaluating the performance of industrial economies. It also provides a basis for critically evaluating economic theories and models that purport to describe modern industrial economies. Economic thought deals with different thinkers and theories relating to economics and political economy from ancient times to present day.
Reynolds (1998) defines the history of economic thought as a study of alternative perspectives and explanations of how the economic processes function. He believes that an important aspect of the study of economic thought is to identify the factors that encourage different perspectives of the economy. It is also important to trace the evolution of the tools used for analysis and understand how the different perspectives and conditions encourage the use of different tools. Mark Blaug writes:
“The task of the historian of economic thought is to show how
definite preconceptions lead to definite kinds of analysis and then
to ask whether the analysis stands up when it is freed from its
ideological foundation. It is doubtful whether Ricardo would have
developed his theory of international trade without a strong
animus against the landed classes; but this theory survives the
removal of his prejudices’’. (Blaug, 1985:5-6).
An understanding of the different approaches to economics, the causes for those differences and how they have evolved over time provides a historical and philosophical context that encourages a more critical analysis of current economic tools and their applications. This critical approach has three advantages. First, it provides a more complete understanding of the current state of economic analysis and second, it may suggest alternative perspectives that will extend, improve or alter the tools and analysis.
Third, through an increased awareness of our own perspective of the economic process, it encourages a degree of humility and respect for others. Most importantly, the study of the history of economics thought can reveal many things about us.
You should note that the History of Economic Thought is different from Economic History and History of Economics. This is because while History of Economic Thought deals with the development of economic ideas, Economic History is a study of economic development of a country. On the other hand, History of Economics deals with the science of economics.
You should also note that even though Economic History and History of Economic Thought constitute separate branches of study, they are closely related. This is because economic ideas are directly and indirectly motivated by the economic conditions and environment of the country. You should also note that ideas and environment are equally important and hence close relationship between History of Economic Thought and Economic History.
The Significance of History of Economic Thought
Jhingan stated that there are two views with regard to the importance of the study of History of Economic Thought. One group of economists believed that there is no need to study the History of Economic Thought because it is a history of errors. On the other hand, another group believed that one cannot possess knowledge of any economic doctrine until one knows something of its history. As a result, a study of History of Economic Thought is important for the following reasons:
1. The study of History of Economic Thought clearly shows that there is certain unity in economic thought and this unity connects us with ancient times;
2. The study of Economic Thought will help us to understand the origin of economics;
3. Economic ideas have been instrumental in shaping the economic and political policies of different countries;
4. Economic ideas are conditioned by time, place and circumstances;
5. A study of History of Economic Thought provides a broad basis for comparison of different ideas. It will enable a person to have a different a well-balanced and reasonable judgment;
6. Through the study of Economic Thought the student will realize that economics is different from economists;
7. The study of the subject helps us to avoid the mistakes committed by earlier economic thinkers.
8. The study of History of Economic Thought will enable us to know the person responsible for the formulation of certain important principles.
In short, the significance of the study of History of Economic Thought can hardly be overemphasized. It is an important tool of knowledge.
LECTURE II
Early Period: Economic Thought of Plato
Plato (427-347)
Plato, a Greek philosopher, was born in Athens in an aristocratic family. He was a student of Socrates. Plato taught mathematics and philosophy in the first great school of philosophers- the Academy, founded by him. His famous writings, The Republic and The Laws are the most important sources of his economic thought. We give credit to Plato for paying attention to economic aspects of social organizations. Roll (1956) says of Plato that “he attempted to offer a systematic exposition of the principles of society and of the origin of the city state, as well as a plan for the ideal social structure”. Plato regarded
economics as a branch of ethics and politics.
Plato’s Idea on Origin of State
Plato traced the origin of the State to economic considerations. According to Jhingan (2003:17), Plato said “a State arises out of the needs of mankind. No one is self sufficient. All of us have many wants.” The State in order to supply the necessary commodities to satisfy human wants gathered together. The partners and helpers of this gathering are called as the State. In Plato’s ideal State there were two classes, the rulers and the ruled. The rulers were the King and warriors and the ruled were artisans and unskilled workers. He advocated that the members of the ruling class must be set apart from early childhood and they should be educated in philosophy and the arts of war because they will have to protect the State against foreign attack. At the age of thirty they will have to pass an examination. This examination selects the future philosopher king and those who cannot pass are concerned with general administrative duties. Jhingan further added that Plato distinguished five types of government as follows:
1. Aristocracy- rule by the best;
2. Timocracy- rule by the soldiers;
3. Oligarchy- rule by a few;
4. The rule of the wealthy; and
5. Democracy.
Plato’s Idea on Division of Labour
Many authors argue that Plato’s main contribution to economic thought was in his account of division of labour. By division of labour he simply meant the division of employment as an aid to social organization. He based the origin of the State on division of labour. According to Plato the essential needs of mankind are food, clothing and shelter. Therefore a city State must include a builder, a weaver, a farmer and a shoemaker or a representative of some other similar occupation. Plato contended that every
individual should do the work that is suitable for him. As a consequence, all commodities are produced more plentifully, easily and of a better quality. The division of labour into various trades was thus recognized as a necessary condition to economic welfare even though division of each trade into various tasks was not conceived by him. Moreover, he did not consider the necessity of a wider market for the application of the principles.
Thus, Plato’s idea of division of labour is different from that of Adam Smith. This is because Smith’s division of labour is determined by the market, but Plato’s division of labour determines the market. Secondly, to Adam Smith the advantages of division of labour go to only the employers, but to Plato it is beneficial to the entire society. Thirdly, the cost of division of labour according to Plato is the difference in skill and talent. But according to Adam Smith division of labour leads to differences in skill and talent.
Plato’s Idea on Size of Population
The problem of population was also analyzed by Plato. The size of population in his State was assumed on the basis of the best results of division of labour. He provided a careful regulation of population to maintain stability in the economy. The right number of population suggested by Plato for a State was 5,040. Only such a number provided opportunity for everyone to be familiar with all the other persons and help the economy to achieve self-sufficiency. It also helps to reap maximum productive efficiency. If the number showed a decreasing tendency, the State should offer prizes to encourage the growth of population. But if the number exceeds 5,040 new colonies must be established.
Plato’s Idea on Money
Plato recognized the value of money as medium of exchange. He did not favour the idea of allowing gold and silver to be used by the common man. Instead, he suggested the use of domestic coins for payment of wages and other transactions. He wanted the State to have a common Hellenic currency for the use of ambassadors, travellers, visitors, etc.
Aristotle
Many writers agreed on the fact that Aristotle was the first analytical economist who laid the foundation of the science of economics. He was the student of Plato and tutor Alexander, the great. He did not produce any economic treatise. Nevertheless, it was from him the writers of middle Ages got their main ideas. Though there is no continual analysis, his scattered ideas especially on private property, usury, and the just price had a greater influence on subsequent economic thought. Even though Aristotle was a student of Plato, he differed from him on important issues like the origin of the State, private property, communism, etc. Plato was a deductive thinker; Aristotle followed the inductive method and therefore a more practical one. While Plato was a radical thinker, Aristotle was conservative one. The reasoning of Aristotle is less imaginative and more logical and scientific than that of Plato. The main ideas of Aristotle were found in his publication titled Politics and Ethics, which attempted a more systematic definition of economics where he maintained that it was a science of household management. In it, Aristotle exposed how household organize production and consumption, exchange and the evolution of a medium of exchange in a society called money.
Aristotle’s Idea of the State
Aristotle believed that the State originates out of the needs of mankind. He explained the origin of the State in terms of household. To him the household is an association formed to satisfy the wants of family members. He added that the village grows out of a number of households and finally the State comes into existence. Man is by nature a social animal, so the State is possible because all men live together in a society. The aim of the State is promotion of good life. Thus, Aristotle attributes the origin of the State to economic and political causes. In Aristotle’s ideal State, there would two classes- the ruler and the ruled. The former was classified as military class, statesmen, magistrates and the priest. The ruled were farmers, craftsmen, and labourers. The members of the ruling class would perform their duties according to their respective age. For example, they were soldiers when they were young and strong, statesmen in the middle age and priests in the old age.
Aristotle’s Idea on Private Property
While Plato advocated public property, Aristotle supported the institution of private property. Aristotle argued that public property would not be looked after as carefully as private property. To him private property was superior to public property on five grounds- progress, peace, practice, pleasure and philanthropy. Private property is more productive than public property. The principle “what is everybody’s business is nobody’s business” can be applied here. Hence, Aristotle said that property should be private. When there is private property they will make much progress because everyone will be attending to his own business.