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(A) Ancient economic sophisticated economic administration

thought continued in the Euphrates and Nile valleys

during the Babylonian Empire and Egyptian
In the history of economic thought, ancient Empires when trading units spread through
economic thought refers to the ideas from the Near East within monetary systems.
people before the middle Ages. Egyptian fraction and base 60 monetary
units were extended in use and diversity to
1 Ancient Near East Greek, early Islamic culture, and medieval
2 Ancient Greco-Roman World cultures. By 1202 AD, Fibonacci's use of
2.1 Xenophon zero and Vedic-Islamic numerals, motivated
2.2 Aristotle Europeans to apply zero as an exponent,
2.3 Roman law birthing modern decimals 350 years later.
3 Ancient India
3.1 Chanakya The city-states of Sumer developed a trade
4 Ancient China and market economy based originally on the
4.1 Fan Li commodity money of the Shekel which was
4.2 Confucianism and legalism a certain weight measure of barley, while the
4.3 Wang Anshi Babylonians and their city-state neighbors
5 Medieval Islamic world later developed the earliest system of
5.1 Early Muslim thinkers economics using a metric of various
5.2 Ibn Khaldun commodities, that was fixed in a legal code.
The early law codes from Sumer could be
A.1. Ancient Near East considered the first (written) economic
formula, and had many attributes still in use
Economic organization in the earliest in the current price system today: codified
civilizations of the fertile crescent was amounts of money for business deals
driven by the need to efficiently grow crops (interest rates), fines in money for 'wrong
in river basins. The Euphrates and Nile doing', inheritance rules, laws concerning
valleys were homes to earliest examples of how private property is to be taxed or
codified measurements written in base 60 divided, etc.[3] For a summary of the laws,
and Egyptian fractions. Egyptian keepers of see Babylonian law.
royal granaries, and absentee Egyptian
landowners reported in the Heqanakht Earlier collections of (written) laws, just
papyri. Historians of this period note that the prior to Hammurabi, that could also be
major tool of accounting for agrarian considered rules and regulations as to
societies, the scales used to measure grain economic law for their cities include the
inventory, reflected dual religious and codex of Ur-Nammu, king of Ur (ca. 2050
ethical symbolic meanings.[1] The BC), the Codex of Eshnunna (ca. 1930 BC)
Erlenmeyer tablets give a picture of and the codex of Lipit-Ishtar of Isin (ca.
Sumerian production in the Euphrates 1870 BC).
Valley around 2200-2100 BC, and show an
understanding of the relationship between A. 2. Ancient Greco-Roman World
grain and labor inputs (valued in "female
labor days") and outputs and an emphasis on Some prominent classical scholars assert
efficiency. Egyptians measured work output that relevant economic thought did not arise

in man-days. The development of until the enlightenment, as early economic

thought was based on metaphysical broadens the idea of value based in
principles which are incommensurate with individual use to a more general social
contemporary dominant economic theories concept of value that comes through
such as neo-classical economics.[4] However, exchange, scholars note that this is not a
several ancient Greek and Roman thinkers market theory of value. In Cyropaedia
made various economic observations, Xenophon presents what in hindsight can be
especially Aristotle and Xenophon. Many seen as the foundation for a theory of fair
other Greek writings show understanding of exchange in the market. In one anecdote, the
sophisticated economic concepts. For young Cyrus is to judge the fairness of an
instance, a form of Gresham’s Law is exchange made between a tall and a short
presented in Aristophanes’ Frogs, and boy. The tall boy forces the pair to exchange
beyond Plato's application of sophisticated tunics, because the tall boy's tunic is too
mathematical advances influenced by the short, shorter than the short boys, which is
Pythagoreans is his appreciation of fiat too tall for him. Cyrus rules the exchange
money in his Laws (742a–b) and in the fair because it results in a better fit for both
pseudo-Platonic dialogue, Eryxias.[5] Bryson boys. Cyrus' mentors were not pleased with
of Heraclea was a neo-platonic who is cited Cyrus' basing his decision on the values
as having heavily influenced early Muslim involved, as a just exchange must be
economic scholarship.[6] voluntary. Later in the biography, Xenophon
discusses the concept of division of labor,
2.1. Xenophon referencing specialized cooks and workers
in a shoemaking shop. Scholars have noted
The influence of Babylonian and Persian that Adam Smith's early notes about this
thought on Greek administrative economics concept "read like a paraphrase of
is present in the work of Greek historian Xenophon's discussion of the role of the
Xenophon. Discussion of economic carpenter as a "jack of all trades" in small
principles are especially present in his cities and as a specialist in large cities. Marx
Oeconomicus, his biography of Cyrus the attributes to Cyropaedia the idea that the
Great, Cyropaedia, Hiero, and Ways and division of labor correlates to the size of a
Means. Hiero is a minor work which market. Xenophon also presents an example
includes discussion of leaders stimulating of mutual advantage from exchange in a
private production and technology through story about Cyrus coordinating an exchange
various means including public recognition of surplus farmland from Armenians, who
and prizes. Ways and Means is a short were herders, and surplus grazing land from
treatise on economic development, and Chaldeans, who were farmers.
showed an understanding of the importance
of taking advantage of economies of scale Aristotle
and advocated laws promoting foreign
merchants. The Oeconomicus discusses the Allocation of scarce resources was a moral
administration of agricultural land. In the issue to Aristotle, and in book I of his
work, subjective personal value of goods is Politics, Aristotle expresses that
analyzed and compared with exchange consumption was the objective of
value. Xenophon uses the example of a production, and the surplus should be
horse, which may be of no use to a person allocated to the rearing of children, and
who does not know how to handle it, but personal satiation ought to be the natural

still has exchange value. Although this limit of consumption. (To Aristotle, the
question was a moral one: in his era child traders. Sixth century A.D. philosopher
mortality was high.) In transactions, Boethius used the example of 16 as the
Aristotle used the labels of "natural" and harmonic mean of 10 and 40. 16 is the same
"unnatural". Natural transactions were percentage larger than 10 as it is smaller
related to the satisfaction of needs and than 40 (60 percent of 10 is 6, while 60
yielded wealth that was limited in quantity percent of 40 is 24). Thus if two bargainers
by the purpose it served. Un-natural have subjective prices for a good of 10 and
transactions aimed at monetary gain and the 40, Aristotle points out that in exchange, it is
wealth they yielded was potentially without most fair to price the good at 16, due to the
limits. He explained the un-natural wealth equality proportional differences from their
had no limits because it became an end in price to the new price. Another interesting
itself rather than a means to another end— nuance in this analysis of exchange is that
satisfaction of needs. This distinction is the Aristotle also saw a zone of consumer
basis for Aristotle's moral rejection of usury. surplus or mutual advantage to both
Later, in book VII Chapter 1 of Politics, consumers that had to be divided.
Aristotle asserts external goods have a limit,
like any other instrument, and all things Roman law
useful are of such a nature that where there
is too much of them they must either do Early Greek and Judaic law follow a
harm, or at any rate be of no use, to their voluntaristic principle of just exchange; a
possessors and some interpret this as party was only held to an agreement after
capturing a concept of diminishing marginal the point of sale. Roman law developed the
utility, thought there has been marked contract recognizing that planning and
disagreement about the development and commitments over time are necessary for
rôle of marginal utility considerations in efficient production and trade. The large
Aristotle's value theory.[16][17][18][19][20] body of law was unified as the Corpus Juris
Certainly this book formulates an ordinal Civilis in the 530s AD by Justinian. who
hierarchy of values, which later appeared in was Emperor of the Eastern Roman Empire
Maslow's contribution to motivation theory. from 526-565 AD. In Institutiones, the
principle of just trade is stated as "tantum
Aristotle's Nicomachean Ethics, particularly bona valent, quantum vendi possunt"
book V.v, has been called the most ("goods are worth as much as they can be
economically provocative analytic writing in sold for").
ancient Greece. Therein, Aristotle discusses
justice in distribution and exchange. Still Ancient India
considering isolated exchanges rather than
markets, Aristotle sought to discuss just Chulavamsa records that Parakramabahu I
exchange prices between individuals with of Sri Lanka had debased the currency of
different subjective values for their goods. Ancient Sri Lanka in order to produce
Interestingly, Aristotle suggested three monies to support his large scale
different proportions to analyze distributive, infrastructure projects.[23] Parakramabahu I
corrective, and reciprocal or exchange also pioneered free trade during his reign; a
transactions: the arithmetic, the geometric, war was fought with Burma to defend free
and the harmonic. The harmonic proportion trade.
is interesting, as it implies a strong

commitment to the subjective values of the Chanakya

Chanakya (c. 350 BC-275 BC) considered (brings) material distress. In the absence of
economic issues. He was a professor of (fruitful economic) activity, both current
political science at the Takshashila prosperity and future growth will be
University of ancient India, and later the destroyed. A king can achieve the desired
Prime Minister of the Mauryan emperor objectives & abundance of riches by
Chandragupta Maurya. He wrote the undertaking (productive) economic activity
Arthashastra ("Science of Material Gain" or
"''Science of political economy" in Sanskrit), According to Chanakya, a conducive
which can be considered a precursor to atmosphere is necessary for the state's
Machiavelli's The Prince. Many of the topics economy to thrive. This requires that a
discussed in the Arthashastra are still state's law and order be maintained.
prevalent in modern economics, including Arthashastra specifies fines and punishments
its discussions on the management of an to support strict enforcement of laws (the
efficient and solid economy, and the ethics Dandaniti).
of economics. Chanakya also focuses on
issues of welfare (for instance, redistribution Ancient China
of wealth during a famine) and the collective
ethics that hold a society together. Fan Li

The Arthashastra argues for an autocracy Chinese Economist, Politician and Strategist
managing an efficient and solid economy. Tao Zhugong/Fan Li was probably the
The qualities described is in effect that of a earliest economist in human history. He
command economy. It discusses the ethics believed that one who understood money
of economics and the duties and obligations would be willing to abandon it if it became a
of a king. The scope of Arthaśāstra is, burden. It is only a means to an end and
however, far wider than statecraft, and it should not be taken too seriously.
offers an outline of an entire civil and Nonetheless, it must be handled and
criminal code and bureaucratic framework acquired according to principles. Fan Li also
for administering a kingdom, with a wealth urged a somewhat loose construction of
of descriptive cultural detail on topics such these principles, encouraging broad and
as mineralogy, mining and metals, flexible utilization in various situations. He
agriculture, animal husbandry and medicine. discover seasonality's effect on the market
The Arthaśāstra also focuses on issues of demand and supply and their implications on
welfare (for instance, redistribution of prices, this motivated him to stock up during
wealth during a famine) and the collective times of low demand supplies at a heavy
ethics that hold a society together. discount and sell at times of high demand at
a premium. His strategy of arbitraging
Chanakya says that artha (sound economies) between the seasonality difference in
is the most important quality and discipline demand and supply, not result in his
required for a Rajarshi, and that dharma & prosperity, but also it balances the stock
kama are both dependent on it. Chanakya level across season reducing the social cost
writes on the economic duties of a king: of drought and famine.

"Hence the king shall be ever active in the Confucianism and legalism
management of the economy. The root of

wealth is (economic) activity and lack of it

In ancient China, Chinese scholar-officials industries producing tea, salt, and wine,
would often debate about the interference introduction of a local militia to ease the
the government should have in the economy, budget spending on the official standing
such as setting monopolies in lucrative army of 1 million troops, and the
industries and instating price controls. Such establishment of a Finance Planning
debates were often heated with Confucian Commission staffed largely by political
factions tending to oppose extensive loyals so that his reforms could pass quickly
government controls and "Reform" or with less time for conservatives to oppose it
legalist factions favoring such moves. The in court. Reformers and conservatives would
Confucians' rationale for opposing oust each other from power once they had
government intervention was that the the support of the emperor.
government should not "compete for profit
with the people", as it would tend to exploit Medieval Islamic world
the population whenever it was involved in
mercantile activity. One such debate is To some degree, the early Muslims based
recorded in the Discourses on salt and iron, their economic analyses on the Qur'an (such
a debate over Salt and iron monopolies as opposition to riba, interest), and from
imposed by Emperor Wu of Han to fund sunnah, the sayings and doings of
wars and expansionism against the Xiongnu. Muhammad.
Although Confucian laissez faire was
largely dominant throughout China's history, Early Muslim thinkers
legalist policies often gained prominence in
times of war or with the patronage of rulers, Al-Ghazali (1058–1111) classified
such as under Qin Shi Huang, Sang economics as one of the sciences connected
Hongyang, Wang Mang and Wang Anshi, with religion, along with metaphysics,
though they were abolished shortly ethics, and psychology. Authors have noted,
thereafter. however, that this connection has not caused
early Muslim economic thought to remain
Wang Anshi static. Persian philosopher Nasir al-Din al-
Tusi (1201–1274) presents an early
Chancellor Wang Anshi (1021–1086), one definition of economics (what he calls
of China's most prominent reformers, lived hekmat-e-madani, the science of city life) in
during the medieval Song Dynasty (960- discourse three of his Ethics:
1279 AD). Espousing heated reaction by
conservative ministers at court, Wang "the study of universal laws governing the
Anshi's political faction of the New Policies public interest (welfare?) in so far as they
Group enacted a series of reforms that are directed, through cooperation, toward
centered around military reform, the optimal (perfection)."
bureaucratic reform, and economic reform.
Economic reforms introduced included low- Many scholars trace the history of economic
cost loans for farmers (whom he considered thought through the Muslim world, which
the backbone of the Chinese economy in was in a Golden Age from the 8th to 13th
terms of production of goods and greatest century and whose philosophy continued the
source of the land tax), replacing the corvee work of the Greek and Hellenistic thinkers
labor service with a tax instead, enacting and came to influence Aquinas when Europe

government monopolies on crucial "rediscovered" Greek philosophy through

Arabic translation. A common theme among School of Islamic thought, Abu Hanifah.
these scholars was the praise of economic Abu Yusuf was chief jurist for Abbasid
activity and even self-interested Caliph Harun al-Rashid, for whom he wrote
accumulation of wealth. Persian philosopher the Book of Taxation (Kitab al-Kharaj). This
Ibn Miskawayh (b. 1030) notes: book outlined Abu Yusuf's ideas on
taxation, public finance, and agricultural
"The creditor desires the well-being of the production. He discussed proportional tax on
debtor in order to get his money back rather produce instead of fixed taxes on property as
than because of his love for him. The debtor, being superior as an incentive to bring more
on the other hand, does not take great land into cultivation. He also advocated
interest in the creditor." forgiving tax policies which favor the
producer and a centralized tax
This view is in conflict with an idea Joseph administration to reduce corruption. Abu
Schumpeter called the great gap. The great Yusuf favored the use of tax revenues for
gap thesis comes out of Schumpeter's 1954 socioeconomic infrastructure, and included
History of Economic Analysis which offers discussion of various types of taxes,
a break in economic thought during the five including sales tax, death taxes, and import
hundred year period between the decline of tariffs.
the Greco-Roman civilizations and the work
of Thomas Aquinas (1225–1274). However Early discussion of the benefits of division
in 1964, Joseph Spengler's "Economic of labor are included in the writings of al-
Thought of Islam: Ibn Khaldun" appeared in Farabi (873–950), Qabus, Ibn Sina
the journal Comparative Studies in Society (Avicenna) (980–1037), Ibn Miskawayh, al-
and History and took a large step in bringing Ghazali, Nasir al-Din al-Tusi (1201–74), Ibn
early Muslim scholars to the contemporary Khaldun (1332–1406), and Asaad Davani
West. (b. 1444). Among them, the discussions
included division of labor within
The influence of earlier Greek and households, societies, factories, and among
Hellenistic thought on the Muslim world nations. Farabi notes that each society lacks
began largely with Abbasid caliph al- at least some necessary resources, and thus
Ma'mun, who sponsored the translation of an optimal society can only be achieved
Greek texts into Arabic in the 9th century by where domestic, regional, and international
Syrian Christians in Baghdad. But already trade occur, and that such trade can be
by that time numerous Muslim scholars had beneficial to all parties involved. Ghazali
written on economic issues, and early was also noted for his subtle understanding
Muslim leaders had shown sophisticated of monetary theory and formulation of
attempts to enforce fiscal and monetary another version of Gresham's Law.
financing, use deficit financing, use taxes to
encourage production, the use of credit The power of supply and demand was
instruments for banking, including understood to some extent by various early
rudimentary savings and checking accounts, Muslim scholars as well. Ibn Taymiyyah
and contract law. illustrates:

Among the earliest Muslim economic "If desire for goods increases while its
thinkers was Abu Yusuf (731-798), a availability decreases, its price rises. On the

student of the founder of the Hanafi Sunni 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
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
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

supply and demand are what determine the

prices of goods. He also noted