History Of Economic Thoughts PDF

# History Of Economic Thoughts ## Plato **Time Period:** Plato lived during the classical greek period around 427 to 347 B.C.E. **This era was marked by the rise & the fall of Athens as a powerful city state.** **The Peloponessan war between Athens & spartan and the eventual decline of Athenian...

# History Of Economic Thoughts ## Plato **Time Period:** Plato lived during the classical greek period around 427 to 347 B.C.E. **This era was marked by the rise & the fall of Athens as a powerful city state.** **The Peloponessan war between Athens & spartan and the eventual decline of Athenian Empire** ### Socio - Political & Economic Conditions. Athens experienced significant political & social turmoil during Plato's life including the trial & excution of hps mentor. **The Economy of Athens was based upon agriculture & slavery** **Trade, wealth disparity & political corruption were common issues**. **Plato's thoughts on governance & economics likely influenced these issues.** ### Philosophical Foundation **Plato's philosophy is categorized by his theory of forms & ideas which posits that the material world is a shadow of a higher more real world of abstract forms & ideas.** **His work emphasis the importance of reasons and philosopher king as an ideal ruler.** - **Joint stock companies [Collective ownership]** - **War & Peace** - According to Xenophon One should avoid war. - **Population** - Contain amount of productive population - Certain amount of efficient management. - **Division of Labour** - Specialized workers for specialized work with skilled people. ## Xenophon Ancient greek philosopher Historian Soldier & student of Socrates He made significant contribution to economic thought particularly on household management and agriculture. ### Views on wealth Xenophon's concept of wealth was broader than mere accumalation of money or goods. In his work _DECONOMICS_ he defined wealth as the position of resources that are useful & self sufficiency of an individual household. ### Views on Agriculture He is considered one of the earliest thinkers to emphasize the importance of agriculture in economic prosperity. Xenophon believed that agriculture was foundation of wealth & it contributed to both the personal & state prosperity. ### Views on factors of production - **Land**, **labour** and **capital**. Need land for produce & we need labour to produce and capital for production. ### Views on law of returns First one to focus on the returns. Ie the ratos returns will be diminishing. ## Scope & Definition of Economics [ARISTOTLE] ### Concept of OIKONOMIKE - This concept focuses on household management emphasizing self-sufficiency & ethical resource use. ### Chrematistics [study of wealth] - He meant the "Art of aquiring wealth" critique when it solely pursues money making beyond necessity. ### Subordination to Ethics - Economics should serve political & ethical growth ultimately aiming for good life. ## Value & Exchange - Usefulness - Exchange value - Value of a good for trade determined by demand & supply. - Fair Exchange - This emphasized proportionate equality in exchange ensuring mutual benefit & avoiding exploitation. ## The State Naturally Evolves From Basic Human Associations Like Family and Village - The state naturally evolves from basic human associations like family & village. **Purpose of the state** According to him state exists for a good life which he described as EUDAIMONIA & embodies justice & virtue beyond mere survival. **Human Nature** Humans are political animals. The state exists for achieving highest human good. ### Criticism Of Plato's Communism **Private Property** - Aris criticised Plato's communism arguing that it undermines motivation & family affection. **Efficiency** - Believed common ownership leads to neglect & conflict while private property encourages effective resource management. **Balanced Approach** - Advocated for private ownership with communal use for public benefit. **Inheritance & Population** - One should not fully regulate the inheritance. ### Industry & Agriculture - According to Plato industry of agriculture should go hand in hand. ### Richer & Poverty - There should be just state. ### Criticism & Failures - **Eutopian Idealism:** Only possible in utopian - **Lack of individual freedom** - **Rigid class system** - **Over emphasis on guardian class** ## Aristotle Student of Plato. Aristotles ideas were formed during the classical greek period characterized by the rise of greek states which are known as [POLIS] like Ectbbanas Athens Ancient Greek economists during Aristotle were based on agriculture, slavery & trade emphasizing self-sufficient sufficiency and communal living. ### Views on Origin Of State - Natural Emergence. ### Inheritance & Population - Plato's approach to inheritance and population is aimed at maintaining stable & just society. - No private inheritance for guardians to avoid the accumulation of wealth & its associated with social division. - Guardians donot inherit their private property. ### Population control - Plato suggested regulating the population to maintain optimal size that can be sustained by the states resources. ### Value money & interest - Plato's economic thought places less emphasis on money & interest. - Instead focusing on the value of good & services and their contribution to common good. ### Intrinsic value - Goods have value and based on their utility & contribution to the well-being of the community rather than the monetary price. ### Suspician of Money - Plato was wary of money & interest viewing them as potential sources of greed and social division. ## Core Economic Ideas Of Plato ### Division of Labour - Plato argues for a division of labour in his book _The Republic_ where individuals specialize in tasks suited to their abilities. - The specialization leads to efficiency and productivity. - Plato divided the society into three classes: 1. **Producers:** Farmers & Artisans 2. **Auxiliaries:** Warrior class 3. **Guardians:** Rarest rulers [most imp] - Each with distinct roles & responsibilities. ### Communism - Plato introduced a form of communism for the guardian class advocating for communal living and shared property. - Guardians should have no private property & wealth to ensure their focus remains on the common good. ### Shared resources - The resources & wealth should be distributed based on needs rather than ownership to maintain social harmony & justice. ### Inheritance & Population - Plato's approach to inheritance & population. ## Indian Economic Thought ## Kautilya - Kautilya's _Arthashastra_ is the chief source of economic thought. - Kautilya's original name was Vishnugupta, manager as Chanakya. - He was also known as a minister of Chandragupta Maurya and former professor of Takshshila university. ### His Views on state & Economic Role - He viewed state as a central to economic development. ### Agriculture - Agriculture is the basic source of new wealth. - It was regarded as the highest occupation in society. - In those days the state & the community were responsible for the development of agriculture for which waste land were to be cultivated. - The land were which were neglected by absentee landlords, were to be taken away and given to those who could goare cultivate them with greater advantage. ### Labour Depending On Capital Surplus - With respect to taxes on agriculture, avoid extreme or either complete absence of taxes or exorbitant taxation. ### Trade & Commerce - Kautilya promoted legal trade. - He advocated state trading in certain commodity through departmental agencies. - The state had framed trade regulations which shows that commerce in ancient India had reached an advanced stage. ### Welfare & Social Responsibility - The state was to promote the economic welfare of people & fully regulate its economic life. - The state has to give subsidies for trade, agriculture, irrigation, mining, cattle welfare etc. - Kautilya suggested that the state should undertake those industries which help directly in making the nation self-sufficient & self-reliant. - According to Kautilya, a state should be welfare oriented. ## Mahatma Gandhi/Gandhian Economy - The three features of _Gandhian Economy_ are: - **Self sufficiency** - **Decentralization** - **Ethical Living** - Gandhi believed in simple living and high thinking. - He opposed _capitalism_ as it is based on the exploitation of human labour. ### Self-Sufficiency & Sarvodaya - Gandhi believed that real India was to be found in villages. - He suggested that development of self-sufficient and self-dependent villages. - Gandhi worked and advocated for the _Sarvodaya_ or the welfare of all. ### On Machinery - Gandhi opposed machines as he described machinery as a great sin. - Gandhi was not against machinery in general. He was against labour saving machinery. - Gandhi emphasized that he was against large scale production only of those things, the village can produce without any difficulty. - In short, Gandhi was aware of the danger of technological unemployment. ## Mercantilism - It was economic theory and practice that dominated European economic thought. - Mercantilists believed that a nation's wealth and power are determined by its accumulation of metals, particularly gold & silver. - Mercantilists thought revolves around promoting exports, limiting imports, promoting domestic industry and achieving a favourable balance of trade. - During the mercantilist period, military conflict between nations were frequent & more extensive than both more. ### Factors responsible for the rise of mercantilism are: **Economic Factor**: The important economic change was the decline of Feudalism and its gradual replacement by commercial capital. - The market economy was slowly emerging replacing the self-sufficient local economy. - Agriculture was being replaced by trade and commerce. **Political Factor**: Major political change was the transition to nationalism. - Rivalry between nations. **Religious factor**: The _Reformation movement_ resulted against the supremacy of Roman Catholic. ## Decentralization Gandhi advocated a decentralised economy. His decentralization includes production at a large number of places on a smaller scale. Gandhi wanted production by masses and not mass production. Advocated the use of labour intensive technology for India. ## Non-Violent Economy - There should be decline in exploitation. - No violence, no exploitation. - Nature produced enough for everyone, so no one should take anything more than sufficient to him. ## Trusteeship - According to Gandhigo, capitalist who had accumulated a large sum of money was a theif. - If a person has wealth more than he requires, it should be spent on welfare for all. - He wanted capitalists to be trustees. Thus coined the doctrine of Trusteeship. ## Church and the authority of the pope - There religious changes helped a lot in developing property rights and contract rights. ## Bullponpam - A central tenet of mercantilism was the belief in importance of precious metals like gold & silver. ## Mercantilism - Is known as **Colbertism** in France and **Cameralism** in Germany & Austria. ## Navigation Act - European mercantilist policies often included navigation acts that mandated the use of home county ships for trade with colonies, thereby securing monopoly over colonial trade. ## Different theories of mercantilism - **Balance of trade** - Policies were designed which encouraged exports and limited imports by various means to maintain a positive balance of trade. - **Accumulation of treasure [Bulllions]** - **Nationalism and Economic power** - **Industrial and commercial regulations** - It focused on the state’s monopoly. ## Dadabhai Naoroji - Known as the Grand Old Man of India. - He was the first one to formally put the thought of _National Income_ in India. ### Economic ideas of Naoroji **Poverty** - The economic ideas of Naoroji are found in his book _Poverty & Un British Rule in India_. - He considered poverty as the major problems of India and attributed the mass poverty of India to the British rule, ### The _Drain Theory_ - It was developed to explain the conditions of poverty in India. - It emphasized that the management and mechanism of British rule were prone to a _mechanism of economic drain_. - India was the costliest British Administration in the world under British rule. ### Drain of wealth took place in several ways - Large remittances were made by European officials out of their saving in India. ## Key Thinkers of Mercantilism - **Thomasmun:** Thomasmun was an English thinker. He was responsible for shaping the trade policies of England during his time. He gave the idea of positive balance of trade. - **Jean Baptiste Colbert:** French thinker. He gave idea of industrial regulations. - **Philip Wilhelm:** German thinker. He gave his ideas on mercantilists. ### Mercantilist's idea on value & production - Value: Value was regarded as a market phenomenon, which depends upon big exchange. - Production. According to mercantilists, production was a process of application of human labour to resources and hence an increase of labour and resources. - Mercantilist regarded agriculture as insignificant. ### Views on taxation & population - **Taxation** - Mercantilist favoured a multiple tax system based on the principle of each should pay according to the benefit received from the state. - **Large remittances were made in form of salaries and pensions.** - **India had to pay for Govt expenditure in England also.** - **Non - official Europeans made remittances from business off profits in India.** - **Two types of drain - Internal and external** ### Internal drain: Transfer of purchasing power from poor to rich by taxation & interest payments or profits. ### External drain: Export of wealth & raw materials. ### Population - Mercantilist favoured increasing population for maintaining military strength. It was also advocated to increase productive capacity of the economy. They believed that cheap and abundant labour would help in keeping the cost of production at lower levels. ### Views on Interest - No uniformity of opinion regarding interest. - According to them, money lending provided the necessary capital to the commerce. ### Criticism of Mercantilism - **Mercantilism exaggerated the importance of gold and silver to the extent of overlooking and neglecting the importance of other commodities.** - **They focused more on trade & commerce but undermined the importance of agriculture.** - **They believed that gain one nation was necessarily the loss of another.** - **They believed that favourable balance of trade is the only source of prosperity of economy.** - **They lacked broadmindedness.** ## Physiocrat - The Physpocrats were a group of economists who believed that the wealth of a nation was derived _solely_ from agriculture. ### Physiocrats were advocate of - _laissez faire_ and _natural order_ of economic growth. - **The central concept of _Physiocracy_ was the idea of economic surplus.** ### Factors responsible for the rise of _Physiocracy_ - **Economic factor:** Agricultural dominance & industrial development was taking place in France at the cost of agriculture. Agriculture suffered due to lack of capital & initiative. - **Reaction to Mercantilism:** The policies were severely criticized. People were looking for an alternative system. Industrial development was taking place in France at the cost of agriculture. Agriculture suffered due to lack of capital and initiative. - **Political factor:** Criticism of Absolution; France was experiencing criticism of Absolution & France was experiencing an absolute monarchy. - Agriculture. Physocrats believed that only agricultural activities are productive, and that they can generate a surplus which could support other sectors of economy. - According to Physpocrats, manufacturing and commerce were viewed as unproductive. ### Single Tax One of the distinctive feature of _Physiocracy_ was the proposal of single tax on land, known as the ""Import unique" tax. Land was seen as source of all wealth, therefore state should derive its revenue from a single tax on value of the land. ### Circular flow of income - Physiocrats gave the circular flow model of economy emphasizing the interdependence of different economic sectors. - They argued that the wealth circulated through the economy in a circular manner with agricultural sector is at its centre. ### Influence on classical economics - Ideas of physiocrats such as natural order and laissez faire were adopted by classical economists Adam Smith. ### Function of the state - The physiocrats were not anarchist. They advocated a state with minimum of legislators and maximum of authority. - The functions of the physpocratic coverelyin were: 1. Preserve natural order 2. Protect property rights 3. To spread universal education 4. Provide public goods. ### Key Thinkers or Physiocracy - **François Quesnay:** He is known as father of Physiocracy. He gave idea of circular flow of income. - **Anne Robert Jacques Turgot**: He was French thinker. He implemented Francois Quesnay's idea. - **Marquis de Mirabeau:** French thinker. He was student of Francois Quesnay. - **Pierre Samuel Dupont de Nemours:** He started the physiocracy in other countries. ### Criticism of Physiocracy - Focused too much on agricultural productivity & neglected commerce and industry. - Physpocrats suggested complete freedom of trade and industry which is not advisable. - Physpocrat regarded land as the only source of wealth. - Laissez faire and its political feasibility. - Simplicity of circular flow model. It does not take into account real world complexities.