The study of history of economic thought is an investigation into the origin, evolution and progress of ideas and schools of thought in Economics. Tracing these ideas will help us understand not only the economy, but also the social as well as the political environment of the times. This also forms the basis of studying several modern theories and economic models as we can trace elements of historical economic thought in them. Thus the history of economic thought forms the theoretical underpinning for the study of Economics in general and the study of economic ideas in particular.
The Greeks formed one of the most ancient civilizations that was significantly advanced in the fields of science, ethics, morality, law, social order etc. as compared to many of its contemporaries. The Greeks’ contributions weren’t just confined to one single stream of knowledge, but covered almost every subject related to human beings and society—Economics was not an exception. Greek philosophy, the predecessor of modern Western thought, contributed several ideas related to the economy as well as the nature of money and finance. However, the subject of economics was never treated as an independent subject in ancient Greece. It is in this context that Alexander Gray (1962) aptly says, in Greek philosophy, economic thought was in the form of “incidental observations thrown off in pursuit of a more worthy end”. This was predominantly because in ancient Greece, economics was always considered a branch of ethics without any independent existence and the freedom of engaging in economic activities of personal choice was almost absent due to the existence of slavery and forced labour. Among several Greek philosophers, it was Aristotle’s teacher, Plato, who scrutinized the role of economics in the social structure of a State for the first time. This tradition was later carried on by his pupil, Aristotle.
Aristotle is credited with his desire for arguments based on facts and scientific precision. The majority of the Aristotelian economic thoughts proposed by this great Greek philosopher can trace their origin back to his most celebrated work, Politics. Though this book primarily deals with political philosophy, Aristotle also touches economic aspects of the society. Though he doesn’t directly interrogate any economic phenomena, he attempts to explain those issues from the perspective of a human mind that seeks correlation between economics and social life. In his classic work ‘Politics’, Aristotle dedicates the first and second books to discuss the matters related to the State, property and value of money. Similarly, the fifth book of his work Nicomachean Ethics also deals with various thoughts and ideas in Economics. For Aristotle, the State is a union of collections of people who can’t otherwise exist is solitude and without interdependence. He was of the opinion that though the State is not to be explained in terms economic factors, it was actually an outcome of the nature of human beings who places themselves above all other creatures due to their characteristic feature of being a social animal. This association between human beings emerged due to the fact that he has to fulfill his everyday needs. However for Aristotle, the origin of the State wasn’t just for the purpose of fulfilling the economic wants of human beings, but also because of the process of natural growth and evolution. This makes us to look at how he contradicted his principle regarding the formation of the State with that of his master Plato, who attributed the origin of the State to just the economic considerations of people and nothing else.
Being a philosopher with independent style and originality of ideas, Aristotle was bold enough to question certain elements of his predecessor and intellectual guide Plato, particularly in terms of notions about communal behaviour in areas of property and family. Plato was of the opinion that everything ranging from property to wives and children must be owned collectively and he was against the private possession of such ‘commodities’. This was on the lines of the idea that communal ownership or communism will bring harmony and peace among people. Aristotelian thought was against this ideal form of society and he strongly believed that it is the incentive or the returns from the property that motivates the people to be efficient. In other words, the property won’t be looked after well if it is owned by the community as a whole. Rather, the property will be efficiently utilized if it is owned by the individual privately. In Politics, he aptly says— “….again, how immeasurably greater is the pleasure, when a man feels a thing to be his own. And further, there is the greatest pleasure in doing a kindness or service…..which can only be rendered when a man has private property.”
Aristotle attempts to develop a theory of economics while he deliberates the essentials of household management. He postulates that the art of household management had two aspects or two elements, oeconomicus or economics (oikonomik) and chrematistics (chrematistik). While the former is all about the processes meant for or the art of consuming wealth for the purpose of satisfying the human wants and necessities, chrematistics is the art of procuring the wealth by the process of money making or exchange. In a similar manner, he differentiates between agriculture and industry as means of livelihood. For him, agricultural and allied activities were ‘natural arts’ whereas activities related to industry, trade, commerce etc. were ‘unnatural arts’.
Aristotle also made an attempt to propose a theory of value of a commodity. According to him, the value of any commodity can be determined by the intensity of the usefulness derived from the consumption of that particular commodity: higher the intensity, greater the value. Aristotelian views on money, its value and the concept of interest rates occupies a unique position in the history of economic thought and contradict with the economic order of our days.
In every modern economy, the banking system plays a crucial role in determining the path of economic progress to a large extent. The banking system is built on the foundation of interest rates that they derive from the transactions undertaken. Aristotle argues that money is an object which serves the purpose of a medium to satisfy the requirements of exchange. Accordingly, he argues that money in itself is not productive and can’t be used for generating income in the form of interests calling it unfair and unjust. This idea can be juxtaposed with the ban on interest rates in the Islamic banking system where the Fiqh and Sharia laws prohibits the derivation of any form of interest from a loan.
Greek philosophy in general and Aristotelian thoughts in particular were against the inequalities arising from the massive poverty among people. Aristotle staunchly believed that poverty was the fuel which could ignite revolutions and crimes. However, it is quite interesting to note that although Aristotle opposed extreme poverty, he wasn’t ready to denounce accumulation of wealth among people. Though he was critical of money-making, he never endorsed putting any limits on people regarding the accumulation of wealth. Instead, he considered the scope of education that can help people themselves to curb the unbridled passion for accumulation of wealth. Like many of his predecessors and contemporary Greek philosophers, Aristotle also challenged the idea of money-lending and ‘huge’ accumulation of wealth. He desired for a more static society and was against the economic growth, as evident from his firm opposition against interest rates. However, he was unique in his style and thoughts due to his deviation from the propositions of Plato, who endorsed communism. Aristotelian thought of private ownership of property based on the incentive principle exists even in this century of modernity and transformation.
Due to the above mentioned distinctive features and because of these idiosyncratic characteristics of his socio-economic philosophy, Aristotle occupies a unique position in the history of economic thought and still continues to inspire several luminaries in the field of economic thought and philosophy.
– Contributed by Jiss Palelil
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