History of Economic Thought 

Oikonomia.  (oiks – household; tu oikonomika – science of household management. 

In Roman law the household, under the father of the family, was the basic pattern of social organization and the basic unit, and larger units were conceived and spoken of as analogies of the household.  


1. Man’s gain in selling his produce enough to live in accordance with his estate.

2. Value in use vs. value in exchange.

3. Money (sterile) - medium of exchange, not an end in itself as in the business of buying and selling.

4. Medium of exchange in lending money.

5. Speaks more characteristically of chrematistike (the acquisitive system) as basically unsound and unjust since it requires return of more than what is necessary to support seller in his estate [holds in Communist and still holds and constitutes half of the essential  dilemma in Christian theology: capital formation with justice (or price at cost)—the peculiar fascination of Christian theology is that it seems to explain the dilemma.]

6. Justice (Hutchins: negative golden rule etc.). Property not evil as an institution but the way men administer it is. Price equilibrates all things in some sense or other. (F: ?) F:”Exchange value” – What is its significance? 

B. Roman slave – capitalism: (753 B.C. Romulus and Remus – Etruscans). (Macaulay’s Logo of Ancient Rome: Struggle with Etruscans)

     1. Early Roman economy: [Gauls, under Bremus, sacked Rome in 390 (?)B.C.].

         (First Punic War 264 B.C.) (451-450 the Twelve Tables – note effect of new laws).

         (Comillus …?...  326 B.C.)

         By 2nd century every writer complained of the ignorance (Occult learning – fowl’s                                                              

         entrails, etc.) of common citizens, but no one wanted to do anything about it.

C. Christian ethics (by 325 at Nicaea) became a formal church with rituals etc. but new    

     elements – no God-image in the temple – omnipresent God, non-anthropomorphic.

     (Michelangelo painted God on Sistine Chapel.) 

Justice – equals amongst “We-uns” but not otherwise, etc. (as with Greeks). Toward real in social theory, etc. 

Roman: Pliny – Columella – Cato. Extended Greek theoretical development. (No new basic concepts.)

    Private property upheld almost without limit. Evolved by Roman jurists.

  1. Freedom of contract.                                             “         “       “          “

And ius gentium (law common to all people).

First Punic War 264-41 B.C.; second 218-01 B.C. Scipio (African); third 149-46 B.C.; … est Carthage.

Latins – Romans (Kings until 509 B.C. Republic. Octavian (Augustus Caesar) Dictator 27 B.C. – champion of the people (emperor, dictator ?). 

I. Hebrew:

   Early tribal organization

  1. Patriarchal organization (anthropomorphism): Concerned (?) with physical welfare; Communalistic property and strict interpretation of responsibilities to social group.
  2. Gave way to private property (even came to include land, with restrictions) and commerce and therewith to a class society—and it was against this ( ? , kings, and slaves) that the prophets protested – unsuccessfully!

II. Greek: Tribal to capitalistic – aristocratic – slave economy.

     338 B.C. Macedonian conquest (why?). Philip and Alex divided by history – great       

     man theory of historu, etc.

     Socrates – Plato- Aristotle: Plato (427-347 B.C.: City arises because of division of 

     labor (natural skills and diversity of wants) but specialization requires commerce.

     Protecting against debasing of old values at height of cultural conflict (commoners vs.


     Aristotle (394-322 B.C.): Soldier – statesman – priest according to age – (all rulers).        

     City-state based on slaves (slaves, however, non-Hellenic).

     1). Scale of economy.

     2) Exchange (two uses of object - ? and ?).

     3) Theory of money (medium of exchange) 


  1. Rome: Patrician class rise under the Etruscans kings 8th century to 510 B.C. when       

    Torquin the Proud was deposed. The Patricians’ Revolution in 509 BC gave them control and they proceeded to develop a system of Agrarian spoliation—the system in the progressive dispossession of the plebeians frequently broke out in violence. Frequent efforts to stop the development (Hortensian law of 287 BC gave the plebeians equal rights with the patricians but ways of circumventing this were inherent in the economic system.) After the First Punic War (264 BC) Rome (shipbuilding) rapidly became dominant in the Mediterranean World. Development: Colonate Leftenlin. …?... progressive local authority after Pax Romana and progressive scarcity of claims.

  1. Parental antecedents of manorial system: Vinogradoff, Schevill, and Sombart –

    G..?..entic origins Dopsch, Louis Paul, Neilson, and Carl Stephenson (Eric Roll), Romans, etc.

       3.  We have seen last time that all entered into the new system.

             Frederick Piebahm. Both German and Roman systems existed side by side for        


             Alphans Dopsch: Germans filtered peacefully into Roman world and even tok    

           over its administration. When Alaric marched on Rome, his opponent was       St

             Stilicho, a P…anian vandal, and Emperan Theodosius (ruled before invasion)   

             Was Spaniard supported by Gothic auxiliaries. (Wheat averaged 8 bu per acre.)

Canonists (cont)

     Throughout the Middle Ages a commercial economy existed in the towns (Henri       

    Pirenne). Lowest ebb of activity during Muslim (?) power in Europe, particularly in the 8th and 10th centuries. And it was the activities centered here that the Canoinists felt obliged to rationalize. Why not the manorial system?

    The Canonists—really the transition from feudalism to commercial capitalism—from commercial, self-supporing industry to profit-making business. Aristotle in Latin, 12th century—commercial capitalism clearly beginning in 11th century.

    Scholasticism: the Church, Christianity , Aristotle, Roman Law, German custom.

  1. Value: inherent in goods: “just price”, really “customary.”
    1. Aquiman in 13th century allowed deviation for “risk,” “labor,” or service rendered.
    2. Antonino (15th  C) and Scotus (late 15th C) on a “productivity” basis.
  2. Money. Usury. Note Aquinas’ idea of mutual advantage in exchange.
    1. Roman law has allowed interest on loans for investment (Romans made the distinction).
    2. Aquinas forbade it but his “risk” element for profit used here too.
    3. Scotus and Antonino: “risk,” “delay” “lost profit.”
    4. Oresme (about 1360) - first to state Gresham’s Law; Copernicus too.
  3. Property.  Strict Feudalism denies the concept altogether.
    1. Ownership vs. use (Aquinas) and industry.
    2. Assumed by later thinkers.
    3. Not the institution, but its manner of “working out,” its “use” or effects.
  4. Trade

    1. Aquinas: Aristotelian, but mutual advantage concept.

    2. Later:acceptance as common sense.

       E. State and Property 

What generalizations regarding institutional adjustments and their rationale, political and economic thought, can be drawn from this? 


(Card #12) 

  C. Non-conformist thought throughout this period (Conformity except on attainability)

       1. Etienne de Bourbon and the Vanclois – Communism – “Communistic.”

       2. Franciscans--1226--sent against them but (Michael of Cesena) adopted many of   

           their doctrines. (St. Francis of Assisi resigned leadership and order sent against V.

           and …? at stake, Marseille 1318. 

Conclusion of Mercantilism

(F: Division of labor in early mercantilism less than on the manors.)

I. Have discussed the characteristics common to all mercantilist thought:

    1. Emphasis on selling.

    2. Fear of goods.

    3. Accumulation of treasure.

    4. Opposition to usury.

  And we have seen the parental antecedents of these ideas.

II. We discussed the change from the “bullionist accumulation fallacy” to the more     

     sophisticated error of the export surplus. And we have seen that there have been two  

     stages in the development of the export-surplus idea: 1) accumulate money; 2) 

     accumulate ownership in foreign enterprise. Both of these latter are like early

     mercantilist thought in that they are still seeking “accumulation of treasure”—and we    

    hope seeing that differences result from changes in the character of  “treasure,”  

    which in turn is a reflection of changes in the character of  “money.”

III. Positive statement of the ideas of the mature mercantilist doctrine Thomas Munn

     (1571-1641): A Discourse of Trade from England into the East Indies (1621)—

     defense of Ease India Company ...? etc., England’s Treasure by Foreign Trade  (1630)

    -definitive work.

    England’s Treasure by Foreign Trade: Shifts emphasis from accumulation of money to circulation of money and shows (or purports to) that if foreign traders make a profit the balance of trade must be favorable in the sense that the “wealth of the realm” must be increased thereby. It is by trade that the wealth of the nation is increased: therefore, those who trade, i.e., the merchants, should decide the policies of the state since their interests are identical with those of the general welfare, namely the / of the wealth of the nation (realm).

    Roll, p. 80.  Roll does not confuse money and capital, but, in the very next sentence “stock” “generally” takes the form of money, is / used to yield a surplus.

  1. “Stock”:  money or goods used to return a “surplus” (capital and profits)—gotten

    by trule (?) which was later replaced by the classical labor theory of value. The very confusion with which Roll credits him as avoiding. But forerunner of classical “capital.”

  1. The impass of the continued “favorable balance.” Did not solve but brought the

    Discussion to where his successor (A. Smith) could solve it by relating prices.

  1. Quantity-of-money theory of price (later Fisher: P=mv + m’v


  1. Appreciation of the relation between state of domestic production and favorable

          balance of trade (which still was only way to accumulate)

  1. Relation between particular and general balances.

The Jews were ousted from:        Back     Expelled    Return    Expelled

      England   1290

      France     1306                       1315       1322         1359        1374

      Austria    1421

      Bavaria    1452

       Spain       1492

       Portugal   1496 

Founders of Political Economy 

(H.J. Lueki Rise of European Liberalism for philosophical contribution)

I. Political Philosophers

     Machiavelli: The Prince Italy, 16th century

1.Distinction, really divorcement, between “normative” and “positive.”

    1. “Necessity,” not “virtue,” had to be the guide.
    2. Social development the work of great men.

  Bodin, Philipe – 16th century

  1. Divine law and natural law.
  2. Rights of private property.

  Bacon, Francis –English, 16th century

  1. Science experimental – and carried it over to rights of man. But still

    monarchy a natural institution and obedience to it a natural duty. –

    Will Durant in ….? same old stuff – history non-scientific..

  Hobbes, Thomas – 17th century – abandoned divine or natural right of kings, substituted

    agreed reformulation of common consent for someone (king)—power derived from the  

   character of the office, not from God (?) – to speak the common will – social contract

  (Rorty) and sovereignty of the state….(?) Machiavelli, individual motivated by self-

   interest, the place to start analysis. Some beginnings of Utilitarianism in that the State        

   (Leviathan) contracts for common good.

   Locke – Philosopher; Administration of Colonial Renaissance (?) . Also important  

    economist.. Next step in development of  Utilitarianism.

    Synthesized and furthered the elements of past thought which made up philosophical

    basis of capitalistic state.

    1. “Social contract” – Plato, build city state. (All natural orders based on human   

    nature. Hobbes, submit to “Leviathan”; Bacon, rule of monarch; Bodin, set the limits of central authority; Lock transferred it to basis of natural instincts of the individual and thus govt became founded in the consent of the governed.

  1. Realization of self-interest as the motive of individual but not church doctrine

    --Aquinas--or divine right of kings—Bacon--or the state (Leviathan)--Hobbes. 

    It was rather the voluntary association of individuals in trading bodies that constituted the natural state of affairs.

      .3. Property was the basis of freedom, and freedom should be restricted only in the   

           interest of preserving it.

4..Therefore the social contract would be realized most properly in a constitutional      

    monarchy whereby the restrictions of the state power would guarantee the exercise of pursuit of individual self interest founded in property which was the limiting institution.

II. The Growth of Industrial Capitalism

     p. 96. “In an age of commercial privilege vested interests were strong enough to

          oppose the introduction of new processes which threatened their monopoly.”

          (Use pp. 94-100 as example in critical reading. What assumptions underlie it?

          What is the author’s theory of history? As evidenced by the dynamic in the causal 

           continuance identified? Etc.

III. Petty (1623-87)

      With the change from commercial capitalism to industrial capitalism, attention

       diverted from trade to production—from the relation of merchant and financier to the

       relation between capital and labor. “It was no longer possible to insist that wealth,                   

       in a social sense, was created by exchange, that value (i.e., exchange value, which is

       the attribute of social wealth) and the profit by which wealth arose in exchange.”

      [F.: We shall see that the change was not so great at the core (where value arises) as   

       Roll seems to think, but economic theory did take on a different formulation.]

      Political Arithmetick – ((written in 1662, published in 1690 – post written.)

      A Treatise of Taxes and Contributions – (1662)

      Sir William Petty’s Quantulumcumque Concerning Money  (1692 – published 1695)

         Stood with Hobbes on absolute state.

            The state existed to protect individual’s property and individual owed contri-

             bution in proportion. Thus “no man suffers the loss of any Riches from it.”

             (F: “riches” then what you have and your right….?)

         Given fame as a founder of a science of statistics. He proposed to carry on    

          explanation of the economy in terms of “Number, Weight, and Measure.…

          and to consider only such causes as have visible foundation in Nature.”

           Contrasts with Mercantilists but still…. Etc.

           Shift from income to property as the basis of status and taxation and control.

              Differed from Hobbes only in the emphasis on reproducible property.

              Later came to be identified by perceiving property in terms of income.

          By sifting out the pieces and putting them together, a body of general theory can be

          found in Petty’s writings.   

        His economic theory:

           1. Value: more emphasis than theretofore on labor as the origin of value.

                Comes to it in discussing natural “rent” of land (savings during some time

                above cost of production of commodities used in producing the money

                commodity (ex. wheat and silver). Distinguishes between “political price” and

                “natural price.” Labor is the true source and measure of value.

            2. (Natural wages equals subsistence because if more given, less work, etc.

                Anticipated Marx and Value [G: Veblen?]

             3. Rent: Understood differential rent theory of Ricardo. Petty was quite clear that                

                 Rent was determined by price and not vice versa. States value of land=cap. of

                 rent natural …?. (This reduces land value to labor and abandons his dichotomy      

                 of land and labor.) [Value of land = 3 times (61 years?) return therefrom.]

             4. Interest: derived from rent theory (does not derive rate of capitalization of land

                 return from theory of interest as usually ….(?) but vice versa. Interest = return

                 from land the money would buy plus insurance for repayment—varies (time a

                 place) and therefore can’t be fixed by law.

             5. International exchange: price determined by cost of shipping specie (against

                 prohibition of exporting bullion).

             6. Money: (thought a country could have too much as well as too little). concept

                 of velocity of circulation and of banks “double the effect of our coined


IV. Other Founders (Locke, North, Law, Hume, Cantillon, Stewart) and Their Ideas:

      1. World economic unit (and therefore free trade – North), private good equals public                              


      2. Interest from rent theory (Locke) – tenant for money not used by oneself. Accumu-

          lation of money unlimited since it does not deteriorate. North – stock levels in

          same category. Low interest sign of flourishing country (Hume) but opposed

          regulation of it.

     3. Value and Price: Locke et al - value equals “usefulness but price equals supply

          and money demand.

          Led to Mercantilist dilemma: Locke held that the quantity of money of little

          significance in a country but of great significance internationally. If little money,

          forced to sell cheap and buy dear, but if much money, couldn’t sell. Value of

          money like anything else – labor and land both measured in either as common unit

          of measure; but Hume value of money (after Law, paper money, etc.) is fictitious –

          represents goods.

     4. Interest: (Locke, North, Hume, Law) a consequence, not a cause, of the amount of

         money seeking investment. The “tenant” idea for money at interest.

     5. Rent: Although land still the only source of surplus, the conclusions were still

         unfavorable to landlords by undermining their specie status.

     6. Changes in quantity of money the important generic item in economic affairs.

         Hume. Important in that it changes the habits of people. Later used in people’s

         “propensity to consume” and “liquidity preference.” 

     7. Competition (especially Hume) increasingly emphasized because it decreased

         profits on stock and therefore interest and therefore stimulated trade and production.

         Still mercantilistic – one horn of the classical dilemma when theory of capital

         formation became a problem.

      8. …itable balance of trade (Cantillon) interaction of all the parts in terms of wages,

          value, money, rent, profits, population, etc.

      9. “Intrinsic value” and market price (Cantillon – Intrinsic values ….? alter but

          market values …..? about them (Stewart – through competition); common

          consent gives money its value but its value commensurate (gold and silver) with

          labor and land involved.

    10. Surplus value: from land (but still - Stewart – could arise - mercantilists – in


V. The Physiocrats (Quesnay – Tableau Oeconomique 1758, Turgot, Mirabeau.)

     1. Brief summary:

          1). Productive and unproductive labor (productive labor is that which produces in

               excess of wealth, which it consumes.

          2). Holdings from preceding period of production (agriculture) content of each

               class’s trading value (Agri. labor is productive labor; landlord’s is nothing;

               sterule class – merchants, artisans, etc. – stock from preceding period.

               (Side note: Sacrifice pain of saving not as potent here.)

          3). The holdings were the product of agriculture alone. (Surplus could arise only in


          4). The idea that money was merely the great wheel of circulation elaborated here.

          5). Price (except in agriculture) equals cost of production.

          6). Wage theory anticipates Malthus –subsistence – labor cost of labor (?); and rent

                theory of Ricardo (especially Turgot).

          How do these ideas fit in system of analysis?

           1). Start: $5,000 annual gross product - $2,000 held by farmers in kind to produce

                next crop. $3,000 net product, of which $2,000 is food, say, and $1,000 raw

                product in manufacturing. The farmers also hold the money supply, say $2,000

                (show presently how they come to have it - cost price in manufacturing ….(?)

                Landlords hold nothing but have right to collect $2,000 rent from farmers.

           2). Farmers pay the $2,000 rent to landlords – wage theory (subsistence) explains.

           3). Landlords buy $1,000 food, etc., from farmers (who now have money back).

           4). Landlords buy $1,000 mfg. goods (sterile class now has the other half).

           5). Sterile class buys $1,000 food from farmers (who now have all this back).

           6) Farmers buy $1,000 mfg. goods from sterile class who return the money for raw

                materials, thus completing the cycle.

                Farmers have received  $1,000 mfg. goods and its own support ($2,000);

                Landlords $1,000 of each; and Sterile class $1,000 raw materials, $1,000 food

                which combine to produce the $2,000 mfg.

     2. All accumulation comes out of surplus value which can, because of wage theory,

         arise only in rent. Natural order (what would occur if no state interference) –

         laissez faire. Therefore state policy should not try to increase wealth through 

         measures in trying to regulate trade where it could not arise. Such measures

         (Colbert’s efforts, e.g.) useless, and harmful in that they encumbered the natural

         process which maximized the general welfare. The only logical tax was the single

         tax (Henry George) on land. Labor theory of valuation and creation; land source of

         all value. Surplus, which is source of all advancement--theory ov value—

         comes from land’s productivity (what Ricardo later called “the original and

         indestructible powers of the soil.”

    With Locke the social contract founded in the “natural instincts”  of man, and it

     became dependent upon the measure of consent of those who were governed (his

     economic theory will determine who shall “consent” etc.). (The basis of freedom was  

     property – and freedom must be restricted only in the interest of preserving it). The

     State, then, became founded in “utility,” which was worked out through the

     institution of property acquired by industry and reason.

     In Locke, the State began to lose authority as the basis of estimation which was to be

     replaced with utilitarianism.

     “Free traders” or “interlopers” were breaking down monopoly rights of trading

     companies and the factory system was breaking down the apprentice system and

     therewith the local cartels of craftsmen.

     Thus, state interference was breaking down (18th century) as a phase of the struggle

      against monopoly. (Times have changed with the development of democracy and now

      the situation is reversed through development of democratic institutions.)

   Cournot (1801-77) had shown that diminishing unit costs tend to make pure  

     competition impossible, and he therefore assumed monopoly as the starting norm and   

     the long-run tendency.

   Then Sraffa (1926) (Italian – student of Marshall) set forth in “The Laws of Return

      Under Competitive Conditions” and at the same time and independently in The

      Theory of Monopolistic Competition by Joan Robinson and by a whole list of books

      Americans in studies of corporate enterprise, etc. (A.R. Burns: The Decline of

      Competition, Berle and Means: The Modern Corporation and Private Property, etc.)

      the analysis was set forth starting with the individual firm as the basic datum and the

      object of analysis—and thus got into common terms all categories of enterprise but

      breaks down the assumption of competition, but continuing the general-equilibrium

      possibility set forth by Walras in 1874. And thus apparent integration of all cases both

      micro and macro through the use of the one set of  intellectual tools which still are in

      terms of supply and demand (with a doubt on this score in the American case—except


      The general conclusion final outcome is the identification of equilibrium in

      sufficiently general terms that they (those terms) can be applied to competition,

      monopoly, or oligopoly, and to the aggregate and thus “integration,”  and in terms not

      requiring conclusion of (1) optimum of resource distribution, (2) natural order,

      (3) consumer sovereignty, etc.

      (F: The duopoly determinate equilibrium of Cournot is debated still, etc. But perhaps

      the whole thing is beside the point now—Joan Robinson thinks so—and I think that

      most, but not all, of it is without significance.)

      (Edgeworth had objected: Walras had used the concept of “alternative opportunity”

      costs and therefore no profit or loss.)

  Breaking down the assumption of perfect competition.

      Sraffa (extending the “Austrian” analysis by Menger and Walras and Jevons) had

      shown (a) that where a large number of sellers is involved the reaction may be either

      (1) price reduction or (2) increased sales and (b) that where differentiation in the

      product can be established, irrespective of the number of sellers, the single market

      becomes in part broken up into many monopoly markets superimposed on the

      competitive “base.” (Here Robinson differed from Chamberlin who had it a different

      kind of thing, not an imposition, super or otherwise.) Joan Robinson “Rising Supply

      Price,” Economica, 1941.

   Marshall: Marginal analysis – margin a function of the average as specified by the

      principle of diminishing utility and increasing costs. (Keynes contrary.)

      Time periods

      Consumers surplus

      Decreasing-cost enterprise.

  Jevons’ law of markets:

     Ratio of exchange equals reciprocal of degrees of marginal utility after the exchange.

     How solve the problem of price in market where individuals have different

     diminishing utility schedules?

     Concepts used by Jevons to answer the question:

         Law of indifference:

            1. Only one price in the market (indifference to sellers).

                (H.: Merely definition of competition is not answer.)

            2. H:Concept of  “trading body”: buyers and sellers in complete communication—

                each knows all other’s offers, etc.—example of two men exchanging two


  Eco. 191:

    Mitchell: “The Theory of Economic Guidance”

       Three concurrent and parallel processes in the economic system:

          1. Business: process of making money.             

          2. Industry: process of making and transporting goods.

          3. Commerce: process of collecting and distributing. 

      In the economy, industry and commerce are subordinated to business.

      The business cycle greatly complicates business management of industry and

          commerce. Otherwise the operation of the whole economy would be clear and

          fairly simple.

          (F: Note the difference here between Mitchell and Commons since Commons

           thought of the problematic character of futurity as what served as the dynamic.)

      The theory of guidance is contrasted with the classical concept in terms of deliberate

          decisions to control production (character and quality)—monopoly vs competition

          etc. (corporation etc.) in the modern economy as compared to the lack ….