Pre-modern Economic Thought

1. Introduction: what is pre-modern economic thought?

The course so far has treated “pre-modern” as everything before the early modern period. This lecture asks the framing questions first: why bundle antiquity and the medieval period together at all, and why do we call them both “pre-modern”? The lecture contrasts the pre-modern and the modern along four axes:

Still, antiquity and the medieval period are different from each other. The lecture warns against lumping them into one “Dark ages” and asks what the Renaissance changed. Both questions stay open in the slides; for the exam, the safe statement is that the modern world emerged gradually, and the boundary between pre-modern and modern is a transition, not a cliff.

2. The context of the pre-modern world

Ancient history in one breath: the first civilizations appeared roughly 10,000 years ago, once humans moved from agriculture to settlement to civilization. One of the first civilizations we know much about is Ancient Greece, a complex civilization of city-states (polis) with a very hierarchical social structure. Then Alexander the Great unifies the Greek city-states and raids eastward, opening the Hellenistic Period. Greece before Alexander is called Classical Greece.

Then Rome. The Roman Empire conquers Greece in 146 BC. The Western Roman Empire collapses (the slide prints 476 BC; the standard date is 476 AD) and Byzantium, the Eastern Roman Empire, persists until 1453.

Then religion. Organized monotheistic religions rise in sequence — first Judaism, then Christianity, finally Islam (the slide notes that the first world religion was Buddhism, which is not monotheistic). This matters economically because organized religions created a political, judicial and economic corpus written by early jurists with a primarily religious motivation. Religion was a major factor in medieval politics, economy and society — but, the slide insists, not the only force.

Then feudalism. In medieval times feudalism is the dominant social system, again hierarchical. The lecture points to a live debate: was feudalism a social contract, or simply a system of exploitation? The historical punchline: with the breakdown of feudalism, social and economic systems changed — and so did economic ideas.

3. Why pre-modern economic thought matters

Most histories of economic thought and most courses skip everything before Adam Smith’s Wealth of Nations (1776). The lecture’s answer: Smith did not start from scratch. Most of his ideas were not new; he either improved or revised earlier ideas, using better analytical tools, and — the slide adds, tellingly — still with a touch of morality.

So the theme is continuity, not sudden creation. The second reason pre-modern thought matters is topical: the non-ethical assumptions of mainstream economics are again on the table — modern economists are again debating whether ethics belongs inside economic analysis, exactly the question this lecture opened with.

4. Economic thought in Ancient Greece

Main traits and main figures

The Greek contribution is marked by a search for the ideal or “utopia”, the good life, effective household management and effective state management. The focus is on ethics and politics, with a strong ethical component; the style is unsystematic and prescriptive — close to what we now call normative economics.

Oikonomia: economics as household management

Oikonomia — from oikos (house) + nomos (law) — means household management. It was coined by Xenophon, whose book (Oikonomicus in the slide’s spelling) was about effective wealth management. Two slide claims define Xenophon’s view:

• Resources are constant; human capital is the primary determinant of good management.
• Wealth accumulation is unnatural and thus should not be a purpose of administrators.

Politics and social stratification

Oikonomia is closely related to political science; the state is meant to be a city-state (polis). One feature of Plato’s ideal state is a strict hierarchy in which everyone must assume his own appropriate place:

1. At the top: philosophers and philosopher-kings
2. Followed by: guardians of the state (soldiers)
3. Below them: artisans, merchants, and non-native citizens without rights

Aristotle supports a similar stratification and gives more detail about slavery: slaves are inferior human beings, and the good life is only for full citizens. Any profession requiring physical labor is not for free citizens, because such professions lack dignity and thus value.

Division of labor

• Xenophon: let everyone become skillful at something instead of everyone doing the same things independently. The slide calls this a very similar discussion to that of Adam Smith.
• Plato: if everyone does what he is best at, then everything done will be done well.

But there is a crucial difference from Smith: the Greeks do not talk about the productivity-enhancing impact of labor division. They mean the best allocation of human force — a matter of order and fit, not of output per worker.

Value and prices

Aristotle distinguishes use value and exchange value:

• Use value: a commodity’s objective usefulness in satisfying certain needs.
• Exchange value: the money (or other goods) one receives in exchange for it.

The Greeks produced no detailed thoughts about price formation and therefore not about the incomes of producers and merchants. Instead they talk about the just price — defined on the slide as a price in case nobody is deceived and exerted coercion against anybody else, and if the situation was normal in other respects.

Exchange, money and interest

Aristotle’s position:

• The compulsory exchange of a commodity for another — to meet the household’s needs — is natural.
• The natural ways of making money: agriculture and animal husbandry.
• The unnatural (and unproductive) ways: trade and usury, because they lead to excessive wealth accumulation.
• Wealth accumulation through interest and hoarding is called chrematistikos — unnatural, and to be avoided. Chremata means money; chrematistikos means money-making businesses oriented towards the unlimited accumulation of wealth.

Plato’s position: money is a means of payment and nothing else. It should not be used to store value and hoard, and any exchange involving money is unnatural (against nature).

The slide then draws the long arc: this negative view on interest and usury persisted for a long time in Christian thought and still exists in Islamic thought.

Property

Two different views on property ownership, side by side on the slides:

• Plato: property should be redistributed, and there has to be collective ownership, which is good for the common good.
• Aristotle: property should be private — otherwise no one takes responsibility for maintaining and improving it.

In both Plato and Aristotle, slavery is legal: slaves can be bought and sold like a commodity, because slaves are inferior human beings. The slide’s closing warning is a typical exam point: these thoughts reflected the dominant ideology of their times rather than being based on analytical reasoning.

The legacy of Greek thought

Greek philosophy was translated first into Arabic and then into Latin. It left a significant imprint on the theological and juridical traditions of both Christianity and Islam. One asymmetry to remember: Aristotle (“the philosopher”) was better known in the medieval world than Plato — and this remained true until the Renaissance.

5. European medieval economic thought

The scholastics and the just price

The scholastics were mostly preachers and teachers at medieval universities, with an ethical approach. Their central question was the determination of “just price” — probably because, in medieval times, there were no well-organized markets, and individual buyers and sellers were in relative isolation. That isolation allowed the exploitation of one party by another via a stronger bargaining position and better information. Their motivation, the slide notes with a sharp phrase, was avoiding hell in the afterlife, not having a good life.

The just price is not simple to determine because the buyer wants the lowest price and the seller wants the highest. The scholastics were unsatisfied with an answer solely based on moral and theological principles. Using empirical knowledge about how markets and transactions actually work, they argued that the “just price” was the natural price. And the slide defines the natural price as:

the price that would emerge under free and effective competition — thus without monopoly, unnecessary resource waste, and deceitful behavior.

In their writings one also finds the view that price is a function of not only production costs but also consumers’ perception of the utility of a good — and the slide flags that these two roles, costs and utility in price determination, became central themes in later economic research.

Interest: from “death of the soul” to a defensible cost

Interest was seen as the strong (creditor) exploiting the weak (debtor) — the slide’s phrase is that interest on money is the death of the soul. Later, they justified interest-taking on the view that interest reflects actual costs, such as:

• the risk taken by the creditor in lending money, and
• the creditor’s cost of being unable to undertake investments on his own account.

Thomas Aquinas

Thomas Aquinas (1225-1274) — the most prominent figure — was an Italian priest who incorporated Aristotle’s thoughts on economy into Christianity. His main work, Summa Theologiae (1265-1273), remained a central reference of Catholic economic doctrine for a long while. The slides describe his project as a fusion of Aristotle and Christian theology.

On interest, Aquinas held that relative, modest interest is acceptable based on damage to the lender — later reformulated as 10%. The slide draws the big-picture arrow: this relaxation happened as capitalism was newly emerging; the slow shift from feudalism toward capitalism took place through gradual relaxations of rules like this.

Following the Roman Law doctrine and certain Church fathers, Aquinas identified the just price as the price prevailing in the markets in the absence of fraud or monopolistic practices — generally a price that allows producers to maintain a standard of living befitting their social position.

Natural law

Natural law is defined on the slides as a system of moral principles found in the order of things and in the nature of man, independent of any legislative body. For Aquinas it is that part of the eternal law of God which is knowable by humans through their powers of reason.

The Greek philosophers treated natural law differently, the slide notes: they attempted to draw dividing lines between divine design and human intervention. Finally, the bridge to modern economics: the idea of natural law (or natural order) was adopted by even Adam Smith and other classical economists.

The scholastics’ key contribution — and the Salamanca School

The slide states the scholastics’ most important contribution plainly: economic life obeys certain laws that can be studied by scientific methods — precisely their difference from their teacher, Aristotle. They were characterized by systematic reference to philosophers of Antiquity, combining that ancient tradition with theological principles and some degree of reasoning.

The Salamanca School is considered within the scholastic context; its most important member was Francisco de Vitoria (1483-1546). The slides list its proto-modern features:

• Some signs of “positive economics”, which laid the ground for later political economy (though not a complete doctrine).
• Natural order: freedom of circulation of people, goods, and ideas, allowing people to know one another and develop brotherhood — so, as the slide concludes, commerce is good.
• Property should be private (except in times of great necessity).
• Value theory: a move from the cost of production as primary determinant of value to the idea of scarcity.
• Interest is the payment for when the loaning individual is deprived of the money.

6. Islamic medieval economic thought

The neglected legacy

Islamic medieval economics has been neglected for centuries — the slide cites Schumpeter’s remark that it is “a blank” in the history of economics. That is the claim the rest of the section refutes. The broad features on the slides:

• Price: the just price approach, with the requirement that complete information in markets be maintained.
• Division of labor is advocated by Al-Ghazali.
• Money is a medium of exchange; interest is prohibited — and this prohibition has been very persistent in the Islamic world.
• But commerce is good: merchants were under protection. The slide’s memorable evidence: the prophet was a merchant after all.

Ibn Khaldun

Ibn Khaldun (1332-1406) — a Tunisian philosopher, plausibly the founder of the modern philosophy of history and sociology — wrote the Muqaddimah, his most important work.

The circle of justice (coined by Khaldun) is a theory of ruling, and it is a chain — each link needs the next and the chain loops back to the start:

necessity of state → policy can be imposed with force → use of force needs tax → tax needs legal protection of subjects → legal protection needs a state.

On value: for Ibn Khaldun, the value of a commodity is the value of the labor required for its production — a labor theory of value centuries before classical economics.

The theory of history

With Ibn Khaldun we get a theory of history — and of crisis, and of social change from a rural-primitive economy to a capitalistic society:

1. Two forms of society: urban and nomadic. Before the urban civilization of human society, there was nomadic life.
2. As they settled, they needed basic and growing needs for housing, protection and subsistence.
3. The result: a society of division of labor, which paved the way for more productive and efficient production — and so towns and markets appeared.
4. In the beginning, societies have a social bond called asabiyyah.
5. Over time, state authority and asabiyyah weaken, market gains decrease, and the political, economic, cultural and fiscal crises break out. The slide gives the lifetime: 120 years.

Price formation, taxation, and the Laffer curve

Ibn Khaldun also analyzed price formation and taxation, according to the supply and demand mechanism. Crucially, imbalances in the price-output composition also affect the amount of tax collected. His dynamic pattern:

• In the beginning, the state imposes less tax.
• In the later stages, even if the tax rate is higher, state revenue decreases.

Why? The lecture’s answer: people stop working due to excessive taxes, and high tax also means high imposition of force. The slide notes this idea was popularized by the American economist Arthur Laffer (1940-) and formulated as a curve (the Laffer curve). Finally, the slide makes the methodological contrast: Khaldun’s analysis is sociological — it pays attention to social values, organizations and changes — unlike neoclassical economics, which is more static.

7. Conclusion and the big picture

The lecture closes with three statements about the whole period:

• Mostly normative interpretations: pre-modern economics is prescriptive, ethical, ideal-seeking.
• Morality and ethics shaped economic thinking — this is the shared assumption from Plato to Aquinas to Ibn Khaldun.
• Still, there are signs of positive analysis — the natural price, cost-and-utility views of price, labor value, tax-revenue dynamics — which became the source of inspiration for subsequent scholars.

Next week: Early modern economic thought — mainly but not exclusively Mercantilism and Physiocracy.

Exam practice

Summary and review

• Pre-modern vs modern: morality/faith to reason; duty/sacrifice to pursuit of happiness; hierarchy to liberty and equality; plus urbanization. The lecture notes antiquity and the medieval period still differ from each other, and asks what the Renaissance changed.
• Context: agriculture → settlement → civilizations (~10,000 years ago); Greek polis; Alexander’s Hellenistic period; Rome conquers Greece 146 BC; Western Roman Empire falls 476 AD; Byzantium lasts until 1453; Judaism → Christianity → Islam (Buddhism was the first world religion, and it is not monotheistic); feudalism as dominant medieval system (social contract or exploitation?); its breakdown changed economic ideas.
• Why it matters: Smith did not start from scratch; his ideas were mostly improvements/revisions of earlier ones, with a touch of morality. Continuity is the theme, and ethics in economics is topical again.
• Greece: oikonomia (oikos + nomos, coined by Xenophon; resources constant, human capital decisive; accumulation unnatural); Plato’s strict hierarchy (philosopher-kings, guardians, artisans/merchants/non-natives); Aristotle on slavery (inferior beings; good life for full citizens; physical labor lacks dignity); division of labor (Xenophon, Plato — allocation of human force, NOT Smith’s productivity gain); Aristotle’s use vs exchange value; just price (no deception, no coercion); chrematistikos (unnatural money-making: trade, usury); Plato: money as payment only; property (Plato collective vs Aristotle private); legacy via Arabic then Latin, Aristotle dominant until the Renaissance.
• European medieval: scholastics (university preachers/teachers, avoiding hell, ethical approach); just price because of isolated, non-organized markets enabling exploitation; natural price = price under free effective competition (no monopoly, no waste, no deceit); price as costs + consumers’ utility (later core themes); interest from “death of the soul” to risk/opportunity-cost justifications; Aquinas (1225-1274, Summa Theologiae 1265-1273, fusion of Aristotle and Christianity, modest interest later reformulated as 10%); debate until Bentham 1787; usury laws abolished in England only in 1854; just price as market price without fraud/monopoly and befitting one’s social position; natural law (order of things, independent of legislators; for Aquinas knowable part of God’s eternal law; adopted by Smith too); scholastics’ key contribution: economic life obeys laws studiable scientifically (difference from Aristotle); Salamanca (Vitoria 1483-1546): positive economics signs, freedom of circulation, private property, scarcity in value, interest as deprivation payment.
• Islamic medieval: neglected legacy (Schumpeter: “a blank”); just price with complete information; Al-Ghazali on division of labor; money as medium of exchange, interest prohibited (persistent); commerce good, merchants protected, the prophet a merchant; Ibn Khaldun (1332-1406, Tunisian, Muqaddimah): circle of justice (state → force → tax → legal protection → state), labor theory of value, urban/nomadic stages, asabiyyah bond weakening, 120-year cycle, supply-demand price formation, tax-revenue dynamics (lower early revenue, higher later rates with falling revenue), sociological vs static neoclassical analysis; Laffer’s curve as the popularized version; Marx parallel on collapse from internal contradictions.
• Conclusion: mostly normative; morality and ethics shaped economic thinking; but real signs of positive analysis that inspired later scholars. Next: Mercantilism and Physiocracy.

Step-by-step examples

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