(A) Ancient economic
thought continued in the Euphrates and Nile valleys
In the history of economic thought, ancient
economic thought refers to the ideas from
people before the middle Ages.
1 Ancient Near East
2 Ancient Greco-Roman World
2.1 Xenophon
2.2 Aristotle
2.3 Roman law
3 Ancient India
3.1 Chanakya
4 Ancient China
4.1 Fan Li
4.2 Confucianism and legalism
4.3 Wang Anshi
5 Medieval Islamic world
5.1 Early Muslim thinkers
5.2 Ibn Khaldun
A.1. Ancient Near East
Economic organization in the earliest
civilizations of the fertile crescent was
driven by the need to efficiently grow crops
in river basins. The Euphrates and Nile
valleys were homes to earliest examples of
codified measurements written in base 60
and Egyptian fractions. Egyptian keepers of
royal granaries, and absentee Egyptian
landowners reported in the Heqanakht
papyri. Historians of this period note that the
major tool of accounting for agrarian
societies, the scales used to measure grain
inventory, reflected dual religious and
ethical symbolic meanings.[1] The
Erlenmeyer tablets give a picture of
Sumerian production in the Euphrates
Valley around 2200-2100 BC, and show an
understanding of the relationship between
grain and labor inputs (valued in "female
labor days") and outputs and an emphasis on
efficiency. Egyptians measured work output
in man-days. The development of
sophisticated economic administration
during the Babylonian Empire and Egyptian
Empires when trading units spread through
the Near East within monetary systems.
Egyptian fraction and base 60 monetary
units were extended in use and diversity to
Greek, early Islamic culture, and medieval
cultures. By 1202 AD, Fibonacci's use of
zero and Vedic-Islamic numerals, motivated
Europeans to apply zero as an exponent,
birthing modern decimals 350 years later.
The city-states of Sumer developed a trade
and market economy based originally on the
commodity money of the Shekel which was
a certain weight measure of barley, while the
Babylonians and their city-state neighbors
later developed the earliest system of
economics using a metric of various
commodities, that was fixed in a legal code.
[2]
The early law codes from Sumer could be
considered the first (written) economic
formula, and had many attributes still in use
in the current price system today: codified
amounts of money for business deals
(interest rates), fines in money for 'wrong
doing', inheritance rules, laws concerning
how private property is to be taxed or
divided, etc.[3] For a summary of the laws,
see Babylonian law.
Earlier collections of (written) laws, just
prior to Hammurabi, that could also be
considered rules and regulations as to
economic law for their cities include the
codex of Ur-Nammu, king of Ur (ca. 2050
BC), the Codex of Eshnunna (ca. 1930 BC)
and the codex of Lipit-Ishtar of Isin (ca.
1870 BC).
A. 2. Ancient Greco-Roman World
Some prominent classical scholars assert
that relevant economic thought did not arise
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until the enlightenment, as early economic
thought was based on metaphysical
principles which are incommensurate with
contemporary dominant economic theories
such as neo-classical economics.[4] However,
several ancient Greek and Roman thinkers
made various economic observations,
especially Aristotle and Xenophon. Many
other Greek writings show understanding of
sophisticated economic concepts. For
instance, a form of Gresham’s Law is
presented in Aristophanes’ Frogs, and
beyond Plato's application of sophisticated
mathematical advances influenced by the
Pythagoreans is his appreciation of fiat
money in his Laws (742a–b) and in the
pseudo-Platonic dialogue, Eryxias.[5] Bryson
of Heraclea was a neo-platonic who is cited
as having heavily influenced early Muslim
economic scholarship.[6]
2.1. Xenophon
The influence of Babylonian and Persian
thought on Greek administrative economics
is present in the work of Greek historian
Xenophon. Discussion of economic
principles are especially present in his
Oeconomicus, his biography of Cyrus the
Great, Cyropaedia, Hiero, and Ways and
Means. Hiero is a minor work which
includes discussion of leaders stimulating
private production and technology through
various means including public recognition
and prizes. Ways and Means is a short
treatise on economic development, and
showed an understanding of the importance
of taking advantage of economies of scale
and advocated laws promoting foreign
merchants. The Oeconomicus discusses the
administration of agricultural land. In the
work, subjective personal value of goods is
analyzed and compared with exchange
value. Xenophon uses the example of a
horse, which may be of no use to a person
who does not know how to handle it, but
still has exchange value. Although this
broadens the idea of value based in
individual use to a more general social
concept of value that comes through
exchange, scholars note that this is not a
market theory of value. In Cyropaedia
Xenophon presents what in hindsight can be
seen as the foundation for a theory of fair
exchange in the market. In one anecdote, the
young Cyrus is to judge the fairness of an
exchange made between a tall and a short
boy. The tall boy forces the pair to exchange
tunics, because the tall boy's tunic is too
short, shorter than the short boys, which is
too tall for him. Cyrus rules the exchange
fair because it results in a better fit for both
boys. Cyrus' mentors were not pleased with
Cyrus' basing his decision on the values
involved, as a just exchange must be
voluntary. Later in the biography, Xenophon
discusses the concept of division of labor,
referencing specialized cooks and workers
in a shoemaking shop. Scholars have noted
that Adam Smith's early notes about this
concept "read like a paraphrase of
Xenophon's discussion of the role of the
carpenter as a "jack of all trades" in small
cities and as a specialist in large cities. Marx
attributes to Cyropaedia the idea that the
division of labor correlates to the size of a
market. Xenophon also presents an example
of mutual advantage from exchange in a
story about Cyrus coordinating an exchange
of surplus farmland from Armenians, who
were herders, and surplus grazing land from
Chaldeans, who were farmers.
Aristotle
Allocation of scarce resources was a moral
issue to Aristotle, and in book I of his
Politics, Aristotle expresses that
consumption was the objective of
production, and the surplus should be
allocated to the rearing of children, and
personal satiation ought to be the natural
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limit of consumption. (To Aristotle, the
question was a moral one: in his era child
mortality was high.) In transactions,
Aristotle used the labels of "natural" and
"unnatural". Natural transactions were
related to the satisfaction of needs and
yielded wealth that was limited in quantity
by the purpose it served. Un-natural
transactions aimed at monetary gain and the
wealth they yielded was potentially without
limits. He explained the un-natural wealth
had no limits because it became an end in
itself rather than a means to another end—
satisfaction of needs. This distinction is the
basis for Aristotle's moral rejection of usury.
Later, in book VII Chapter 1 of Politics,
Aristotle asserts external goods have a limit,
like any other instrument, and all things
useful are of such a nature that where there
is too much of them they must either do
harm, or at any rate be of no use, to their
possessors and some interpret this as
capturing a concept of diminishing marginal
utility, thought there has been marked
disagreement about the development and
rôle of marginal utility considerations in
Aristotle's value theory.[16][17][18][19][20]
Certainly this book formulates an ordinal
hierarchy of values, which later appeared in
Maslow's contribution to motivation theory.
Aristotle's Nicomachean Ethics, particularly
book V.v, has been called the most
economically provocative analytic writing in
ancient Greece. Therein, Aristotle discusses
justice in distribution and exchange. Still
considering isolated exchanges rather than
markets, Aristotle sought to discuss just
exchange prices between individuals with
different subjective values for their goods.
Interestingly, Aristotle suggested three
different proportions to analyze distributive,
corrective, and reciprocal or exchange
transactions: the arithmetic, the geometric,
and the harmonic. The harmonic proportion
is interesting, as it implies a strong
commitment to the subjective values of the
traders. Sixth century A.D. philosopher
Boethius used the example of 16 as the
harmonic mean of 10 and 40. 16 is the same
percentage larger than 10 as it is smaller
than 40 (60 percent of 10 is 6, while 60
percent of 40 is 24). Thus if two bargainers
have subjective prices for a good of 10 and
40, Aristotle points out that in exchange, it is
most fair to price the good at 16, due to the
equality proportional differences from their
price to the new price. Another interesting
nuance in this analysis of exchange is that
Aristotle also saw a zone of consumer
surplus or mutual advantage to both
consumers that had to be divided.
Roman law
Early Greek and Judaic law follow a
voluntaristic principle of just exchange; a
party was only held to an agreement after
the point of sale. Roman law developed the
contract recognizing that planning and
commitments over time are necessary for
efficient production and trade. The large
body of law was unified as the Corpus Juris
Civilis in the 530s AD by Justinian. who
was Emperor of the Eastern Roman Empire
from 526-565 AD. In Institutiones, the
principle of just trade is stated as "tantum
bona valent, quantum vendi possunt"
("goods are worth as much as they can be
sold for").
Ancient India
Chulavamsa records that Parakramabahu I
of Sri Lanka had debased the currency of
Ancient Sri Lanka in order to produce
monies to support his large scale
infrastructure projects.[23] Parakramabahu I
also pioneered free trade during his reign; a
war was fought with Burma to defend free
trade.
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Chanakya
Chanakya (c. 350 BC-275 BC) considered
economic issues. He was a professor of
political science at the Takshashila
University of ancient India, and later the
Prime Minister of the Mauryan emperor
Chandragupta Maurya. He wrote the
Arthashastra ("Science of Material Gain" or
"''Science of political economy" in Sanskrit),
which can be considered a precursor to
Machiavelli's The Prince. Many of the topics
discussed in the Arthashastra are still
prevalent in modern economics, including
its discussions on the management of an
efficient and solid economy, and the ethics
of economics. Chanakya also focuses on
issues of welfare (for instance, redistribution
of wealth during a famine) and the collective
ethics that hold a society together.
The Arthashastra argues for an autocracy
managing an efficient and solid economy.
The qualities described is in effect that of a
command economy. It discusses the ethics
of economics and the duties and obligations
of a king. The scope of Arthaśāstra is,
however, far wider than statecraft, and it
offers an outline of an entire civil and
criminal code and bureaucratic framework
for administering a kingdom, with a wealth
of descriptive cultural detail on topics such
as mineralogy, mining and metals,
agriculture, animal husbandry and medicine.
The Arthaśāstra also focuses on issues of
welfare (for instance, redistribution of
wealth during a famine) and the collective
ethics that hold a society together.
Chanakya says that artha (sound economies)
is the most important quality and discipline
required for a Rajarshi, and that dharma &
kama are both dependent on it. Chanakya
writes on the economic duties of a king:
"Hence the king shall be ever active in the
management of the economy. The root of
wealth is (economic) activity and lack of it
(brings) material distress. In the absence of
(fruitful economic) activity, both current
prosperity and future growth will be
destroyed. A king can achieve the desired
objectives & abundance of riches by
undertaking (productive) economic activity
According to Chanakya, a conducive
atmosphere is necessary for the state's
economy to thrive. This requires that a
state's law and order be maintained.
Arthashastra specifies fines and punishments
to support strict enforcement of laws (the
Dandaniti).
Ancient China
Fan Li
Chinese Economist, Politician and Strategist
Tao Zhugong/Fan Li was probably the
earliest economist in human history. He
believed that one who understood money
would be willing to abandon it if it became a
burden. It is only a means to an end and
should not be taken too seriously.
Nonetheless, it must be handled and
acquired according to principles. Fan Li also
urged a somewhat loose construction of
these principles, encouraging broad and
flexible utilization in various situations. He
discover seasonality's effect on the market
demand and supply and their implications on
prices, this motivated him to stock up during
times of low demand supplies at a heavy
discount and sell at times of high demand at
a premium. His strategy of arbitraging
between the seasonality difference in
demand and supply, not result in his
prosperity, but also it balances the stock
level across season reducing the social cost
of drought and famine.
Confucianism and legalism
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In ancient China, Chinese scholar-officials
would often debate about the interference
the government should have in the economy,
such as setting monopolies in lucrative
industries and instating price controls. Such
debates were often heated with Confucian
factions tending to oppose extensive
government controls and "Reform" or
legalist factions favoring such moves. The
Confucians' rationale for opposing
government intervention was that the
government should not "compete for profit
with the people", as it would tend to exploit
the population whenever it was involved in
mercantile activity. One such debate is
recorded in the Discourses on salt and iron,
a debate over Salt and iron monopolies
imposed by Emperor Wu of Han to fund
wars and expansionism against the Xiongnu.
Although Confucian laissez faire was
largely dominant throughout China's history,
legalist policies often gained prominence in
times of war or with the patronage of rulers,
such as under Qin Shi Huang, Sang
Hongyang, Wang Mang and Wang Anshi,
though they were abolished shortly
thereafter.
Wang Anshi
Chancellor Wang Anshi (1021–1086), one
of China's most prominent reformers, lived
during the medieval Song Dynasty (960-
1279 AD). Espousing heated reaction by
conservative ministers at court, Wang
Anshi's political faction of the New Policies
Group enacted a series of reforms that
centered around military reform,
bureaucratic reform, and economic reform.
Economic reforms introduced included low-
cost loans for farmers (whom he considered
the backbone of the Chinese economy in
terms of production of goods and greatest
source of the land tax), replacing the corvee
labor service with a tax instead, enacting
government monopolies on crucial
industries producing tea, salt, and wine,
introduction of a local militia to ease the
budget spending on the official standing
army of 1 million troops, and the
establishment of a Finance Planning
Commission staffed largely by political
loyals so that his reforms could pass quickly
with less time for conservatives to oppose it
in court. Reformers and conservatives would
oust each other from power once they had
the support of the emperor.
Medieval Islamic world
To some degree, the early Muslims based
their economic analyses on the Qur'an (such
as opposition to riba, interest), and from
sunnah, the sayings and doings of
Muhammad.
Early Muslim thinkers
Al-Ghazali (1058–1111) classified
economics as one of the sciences connected
with religion, along with metaphysics,
ethics, and psychology. Authors have noted,
however, that this connection has not caused
early Muslim economic thought to remain
static. Persian philosopher Nasir al-Din al-
Tusi (1201–1274) presents an early
definition of economics (what he calls
hekmat-e-madani, the science of city life) in
discourse three of his Ethics:
"the study of universal laws governing the
public interest (welfare?) in so far as they
are directed, through cooperation, toward
the optimal (perfection)."
Many scholars trace the history of economic
thought through the Muslim world, which
was in a Golden Age from the 8th to 13th
century and whose philosophy continued the
work of the Greek and Hellenistic thinkers
and came to influence Aquinas when Europe
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"rediscovered" Greek philosophy through
Arabic translation. A common theme among
these scholars was the praise of economic
activity and even self-interested
accumulation of wealth. Persian philosopher
Ibn Miskawayh (b. 1030) notes:
"The creditor desires the well-being of the
debtor in order to get his money back rather
than because of his love for him. The debtor,
on the other hand, does not take great
interest in the creditor."
This view is in conflict with an idea Joseph
Schumpeter called the great gap. The great
gap thesis comes out of Schumpeter's 1954
History of Economic Analysis which offers
a break in economic thought during the five
hundred year period between the decline of
the Greco-Roman civilizations and the work
of Thomas Aquinas (1225–1274). However
in 1964, Joseph Spengler's "Economic
Thought of Islam: Ibn Khaldun" appeared in
the journal Comparative Studies in Society
and History and took a large step in bringing
early Muslim scholars to the contemporary
West.
The influence of earlier Greek and
Hellenistic thought on the Muslim world
began largely with Abbasid caliph al-
Ma'mun, who sponsored the translation of
Greek texts into Arabic in the 9th century by
Syrian Christians in Baghdad. But already
by that time numerous Muslim scholars had
written on economic issues, and early
Muslim leaders had shown sophisticated
attempts to enforce fiscal and monetary
financing, use deficit financing, use taxes to
encourage production, the use of credit
instruments for banking, including
rudimentary savings and checking accounts,
and contract law.
Among the earliest Muslim economic
thinkers was Abu Yusuf (731-798), a
student of the founder of the Hanafi Sunni
School of Islamic thought, Abu Hanifah.
Abu Yusuf was chief jurist for Abbasid
Caliph Harun al-Rashid, for whom he wrote
the Book of Taxation (Kitab al-Kharaj). This
book outlined Abu Yusuf's ideas on
taxation, public finance, and agricultural
production. He discussed proportional tax on
produce instead of fixed taxes on property as
being superior as an incentive to bring more
land into cultivation. He also advocated
forgiving tax policies which favor the
producer and a centralized tax
administration to reduce corruption. Abu
Yusuf favored the use of tax revenues for
socioeconomic infrastructure, and included
discussion of various types of taxes,
including sales tax, death taxes, and import
tariffs.
Early discussion of the benefits of division
of labor are included in the writings of al-
Farabi (873–950), Qabus, Ibn Sina
(Avicenna) (980–1037), Ibn Miskawayh, al-
Ghazali, Nasir al-Din al-Tusi (1201–74), Ibn
Khaldun (1332–1406), and Asaad Davani
(b. 1444). Among them, the discussions
included division of labor within
households, societies, factories, and among
nations. Farabi notes that each society lacks
at least some necessary resources, and thus
an optimal society can only be achieved
where domestic, regional, and international
trade occur, and that such trade can be
beneficial to all parties involved. Ghazali
was also noted for his subtle understanding
of monetary theory and formulation of
another version of Gresham's Law.
The power of supply and demand was
understood to some extent by various early
Muslim scholars as well. Ibn Taymiyyah
illustrates:
"If desire for goods increases while its
availability decreases, its price rises. On the
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other hand, if availability of the good
increases and the desire for it decreases, the macroeconomic forces of population
price comes down." Ghazali suggests an growth, human capital development, and
early version of price inelasticity of demand technological developments effects on
for certain goods, and he and Ibn development. In fact, Ibn Khaldun thought
Miskawayh discuss equilibrium prices." that population growth was directly a
function of wealth.
Other important Muslim scholars who wrote
about economics include al-Mawardi (1075– Although he understood that money served
1158), Ibn Taimiyah (1263–1328), and al- as a standard of value, a medium of
Maqrizi. exchange, and a preserver of value, he did
not realize that the value of gold and silver
Ibn Khaldun
changed based on the forces of supply and
When civilization [population] increases, the demand. availableHelabor
also introduced
again the concept
known as the Khaldun-Laffer
increases. In turn, luxury again increases in correspondence with the Curve (the
relationship
increasing profit, and the customs and needs of luxury increase.between tax rates and tax
Crafts are
created to obtain luxury products. The value realized from them
revenue increases,
increases as tax rates increase for a
and, as a result, profits are again multiplied in thewhile,
town. but
Production
then the there
increases in tax rates
is thriving even more than before. And so it goes with the second and in tax revenues as
begin to cause a decrease
third increase. All the additional labor serves luxury and wealth, in
the taxes impose too great a cost to
contrast to the original labor that served the necessity of life
Ibn Khaldun on economic growth producers in the economy)

Source: Wikipedia
Perhaps the most well known Islamic
scholar who wrote about economics was Ibn
Khaldun of Tunisia (1332–1406),
considered a father of modern economics,
Ibn Khaldun wrote on economic and
political theory in the introduction, or
Muqaddimah (Prolegomena), of his History
of the World (Kitab al-Ibar). In the book, he
discussed what he called asabiyyah (social
cohesion), which he sourced as the cause of
some civilizations becoming great and
others not. Ibn Khaldun felt that many social
forces are cyclic, although there can be
sudden sharp turns that break the pattern.
His idea about the benefits of the division of
labor also relate to asabiyya, the greater the
social cohesion, the more complex the
successful division may be, the greater the
economic growth. He noted that growth and
development positively stimulate both
supply and demand, and that the forces of
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supply and demand are what determine the

prices of goods. He also noted