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It all began, as usual, with the Greeks

February 11, 2006

Tags History of the Austrian School of Economics

Introduction

It all began, as usual, with the Greeks. The ancient Greeks were the first civilized people to use their reason to think systematically about the world around them. The Greeks were the first philosophers (philosophia — lovers of wisdom), the first people to think deeply and to figure out how to attain and verify knowledge about the world. Other tribes and peoples had tended to attribute natural events to arbitrary whims of the gods. A violent thunderstorm, for example, might be ascribed to something that had irritated the god of thunder. The way to bring on rain, then, or to curb violent thunderstorms, would be to find out what acts of man would please the god of rain or appease the thunder god. Such people would have considered it foolish to try to figure out the natural causes of rain or of thunder. Instead, the thing to do was to find out what the relevant gods wanted and then try to supply their needs.

The Greeks, in contrast, were eager to use their reason — their sense observations and their command of logic — to investigate and learn about their world. In so doing, they gradually stopped worrying about the whims of the gods and to investigate actual entities around them. Led in particular by the great Athenian philosopher Aristotle (384-322 B.C.), a magnificent and creative systematizer known to later ages as The Philosopher, the Greeks evolved a theory and a method of reasoning and of science which later came to be called the natural law.

1.1 The Natural Law

Natural law rests on the crucial insight that to be necessarily means to be something, that is, some particular thing or entity. There is no Being in the abstract. Everything that is, is some particular thing, whether it be a stone, a cat, or a tree. By empirical fact there is more than one kind of thing in the universe; in fact there are thousands, if not millions of kinds of things. Each thing has its own particular set of properties or attributes, its own nature, which distinguishes it from other kinds of things. A stone, a cat, an elm tree; each has its own particular nature, which man can discover, study and identify.

Man studies the world, then, by examining entities, identifying similar kinds of things, and classifying them into categories each with its own properties and nature. If we see a cat walking down the street, we can immediately include it into a set of things, or animals, called "cats" whose nature we have already discovered and analyzed.

If we can discover and learn about the natures of entities X and Y, then we can discover what happens when these two entities interact. Suppose, for example, that when a certain amount of X interacts with a given amount of Y we get a certain quantity of another thing, Z. We can then say that the effect, Z, has been caused by the interaction of X and Y. Thus, chemists may discover that when two molecules of hydrogen interact with one molecule of oxygen, the result is one molecule of a new entity, water. All these entities — hydrogen, oxygen, and water — have specific discoverable properties or natures which can be identified.

We see, then, that the concepts of cause and effect are part and parcel of natural law analysis. Events in the world can be traced back to the interactions of specific entities. Since natures are given and identifiable, the interactions of the various entities will be replicable under the same conditions. The same causes will always yield the same effects.

For the Aristotelian philosophers, logic was not a separate and isolated discipline, but an integral part of the natural law. Thus, the basic process of identifying entities led, in "classical" or Aristotelian logic, to the Law of Identity: a thing is, and cannot be anything other than, what it is: A is A.

It follows, then, that an entity cannot be the negation of itself. Or, put another way, we have the Law of Non-Contradiction: a thing cannot be both A and non-A, A is not and cannot be non-A.

Finally, in our world of numerous kinds of entities, anything must be either A or it won't be; in short, it will either be A or non-A. Nothing can be both. This gives us the third well-known law of classical logic: the Law of the Excluded Middle: everything in the universe is either A or non-A.

But if every entity in the universe — if hydrogen, oxygen, stone, or cats — can be identified, classified, and its nature examined, then so too can man. Human beings must also have a specific nature with specific properties that can be studied, and from which we can obtain knowledge. Human beings are unique in the universe because they can and do study themselves, as well as the world around them, and try to figure out what goals they should pursue and what means they can employ to achieve them.

The concept of "good" (and therefore of "bad") is only relevant to living entities. Since stones or molecules have no goals or purposes, any idea of what might be "good" for a molecule or stone would properly be considered bizarre. But what might be "good" for an elm tree or a dog makes a great deal of sense: specifically, "the good" is whatever conduces to the life and the flourishing of the living entity. The "bad" is whatever injures such an entity's life or prosperity. Thus, it is possible to develop an "elm tree ethics" by discovering the best conditions: soil, sunshine, climate, etc., for the growth and sustenance of elm trees; and by trying to avoid conditions deemed "bad" for elm trees: elm blight, excessive drought, etc. A similar set of ethical properties can be worked out for various breeds of animals.

Thus, natural law sees ethics as living-entity- (or species-) relative. What is good for cabbages will differ from what is good for rabbits, which in turn will differ from what is good or bad for man. The ethic for each species will differ according to their respective natures.

Man is the only species which can — and indeed must — carve out an ethic for himself. Plants lack consciousness, and therefore cannot choose or act.

The consciousness of animals is narrowly perceptual and lacks the conceptual: the ability to frame concepts and to act upon them. Man, in the famous Aristotelian phrase, is uniquely the rational animal — the species that uses reason to adopt values and ethical principles, and that acts to attain these ends. Man acts; that is, he adopts values and purposes, and chooses the ways to achieve them.

Man, therefore, in seeking goals and ways to attain them, must discover and work within the framework of the natural law: the properties of himself and of other entities and the ways in which they may interact.

Western civilization is in many ways Greek; and the two great philosophic traditions of ancient Greece which have been shaping the Western mind ever since have been those of Aristotle and his great teacher and antagonist Plato (428 — 347 BC). It has been said that every man, deep down, is either a Platonist or an Aristotelian, and the divisions run throughout their thought. Plato pioneered the natural law approach which Aristotle developed and systematized; but the basic thrust was quite different. For Aristotle and his followers, man's existence, like that of all other creatures, is "contingent," i.e. it is not necessary and eternal. Only God's existence is necessary and transcends time. The contingency of man's existence is simply an unalterable part of the natural order, and must be accepted as such.

To the Platonists, however, especially as elaborated by Plato's follower, the Egyptian Plotinus (204 — 270 AD), these inevitable limitations of man's natural state were intolerable and must be transcended. To the Platonists, the actual, concrete, temporal factual existence of man was too limited. Instead, this existence (which is all that any of us has ever seen) is a fall from grace, a fall from the original non-existent, ideal, perfect, eternal being of man, a godlike being perfect and therefore without limits. In a bizarre twist of language, this perfect and never-existent being was held up by the Platonists as the truly existent, the true essence of man, from which we have all been alienated or cut off. The nature of man (and of all other entities) in the world is to be some thing and to exist in time; but in the semantic twist of the Platonists, the truly existent man is to be eternal, to live outside of time, and to have no limits. Man's condition on earth is therefore supposed to be a state of degradation and alienation, and his purpose is supposed to be to work his way back to the "true" limitless and perfect self alleged to be his original state. Alleged, of course, on the basis of no evidence whatever — indeed, evidence itself identifies, limits, and therefore, to the Platonic mind, corrupts.

Plato's and Plotinus's views of man's allegedly alienated state were highly influential, as we shall see, in the writings of Karl Marx and his followers. Another Greek philosopher, emphatically different from the Aristotelian tradition, who prefigured Hegel and Marx was the early pre-Socratic philosopher Heraclitus of Ephesus (c.535 — 475 BC). He was pre-Socratic in the sense of predating Plato's great teacher Socrates (470 — 399 BC), who wrote nothing but has come down to us as interpreted by Plato and by several other followers. Heraclitus, who was aptly given the title "The Obscure" by the Greeks, taught that sometimes opposites, a and non-a, can be identical, or, in other words, that a can be non-a. This defiance of elemental logic can perhaps be excused in someone like Heraclitus, who wrote before Aristotle developed classical logic, but it is hard to be so forbearing to his later followers.

1.2 The Politics of the Polis

When man turns the use of his reason from the inanimate world to man himself and to social organization, it becomes difficult for pure reason to avoid giving way to the biases and prejudices of the political framework of the age. This was all too true of the Greeks, including the Socratics, Plato and Aristotle. Greek life was organized in small city-states (the polis) some of which were able to carve out overseas empires. The largest city-state, Athens, covered an area of only about one thousand square miles, or half the size of modern Delaware. The key facet of Greek political life was that the city-state was run by a tight oligarchy of privileged citizens, most of whom were large landowners. Most of the population of the city-state were slaves or resident foreigners, who generally performed the manual labor and commercial enterprise respectively. The privilege of citizenship was reserved to descendants of citizens. While Greek city-states fluctuated between outright tyrannies and democracies, at its most "democratic" Athens, for example, reserved the privileges of democratic rule to 7% of the population, the rest of whom were either slaves or resident aliens. (Thus, in Athens of the fifth century BC, there were approximately 30,000 citizens out of a total population of 400,000.)

As privileged landowners living off taxes and the product of slaves, Athenian citizens had the leisure for voting, discussion, the arts and — in the case of the particularly intelligent — philosophizing. Although the philosopher Socrates was himself the son of a stonemason, his political views were ultra-elitist. In the year 404 BC, the despotic state of Sparta conquered Athens and established a reign of terror known as the Rule of the Thirty Tyrants. When the Athenians overthrew this short-lived rule a year later, the restored democracy executed the aged Socrates, largely on suspicion of sympathy with the Spartan cause. This experience confirmed Socrates's brilliant young disciple, Plato, the scion of a noble Athenian family, in what would now be called an "ultra-right" devotion to aristocratic and despotic rule.

A decade later, Plato set up his Academy on the outskirts of Athens as a thinktank not only of abstract philosophic teaching and research, but also as a fountainhead of policy programs for social despotism. He himself tried three times unsuccessfully to set up despotic regimes in the city state of Syracuse, while no less than nine of Plato's students succeeded in establishing themselves as tyrants over Greek city-states.

While Aristotle was politically more moderate than Plato, his aristocratic devotion to the polis was fully as evident. Aristotle was born of an aristocratic family in the Macedonian coastal town of Stagira, and entered Plato's Academy as a student at the age of 17, in 367 BC. There he remained until Plato's death 20 years later, after which he left Athens and eventually returned to Macedonia, where he joined the court of King Philip and tutored the young future world conqueror, Alexander the Great. After Alexander ascended the throne, Aristotle returned to Athens in 335 BC and established his own school of philosophy at the Lyceum, from which his great works have come down to us as lecture notes written by himself or transcribed by his students. When Alexander died in 323 BC, the Athenians felt free to vent their anger at Macedonians and their sympathizers, and Aristotle was ousted from the city, dying shortly thereafter.

Their aristocratic bent and their lives within the matrix of an oligarchic polis had a greater impact on the thought of the Socratics than Plato's various excursions into theoretical right-wing collectivist utopias or in his students' practical attempts at establishing tyranny. For the social status and political bent of the Socratics colored their ethical and political philosophies and their economic views. Thus, for both Plato and Aristotle, "the good" for man was not something to be pursued by the individual, and neither was the individual a person with rights that were not to be abridged or invaded by his fellows. For Plato and Aristotle, "the good" was naturally not to be pursued by the individual but by the polis. Virtue and the good life were polis- rather than individual-oriented. All this means that Plato's and Aristotle's thought was statist and elitist to the core, a statism which unfortunately permeated "classical" (Greek and Roman) philosophy as well as heavily influencing Christian and medieval thought. Classical "natural law" philosophy therefore never arrived at the later elaboration, first in the Middle Ages and then in the seventeenth and eighteenth centuries, of the "natural rights" of the individual which may not be invaded by man or by government.

In the more strictly economic realm, the statism of the Greeks means the usual aristocratic exaltation of the alleged virtues of the military arts and of agriculture, as well as a pervasive contempt for labor and for trade, and consequently of moneymaking and the seeking and earning of profit. Thus Socrates, openly despising labor as unhealthy and vulgar, quotes the king of Persia to the effect that by far the noblest arts are agriculture and war. And Aristotle wrote that no good citizens "should be permitted to exercise any low mechanical employment or traffic, as being ignoble and destructive to virtue."

Furthermore, the Greek elevation of the polis over the individual led to their taking a dim view of economic innovation and entrepreneurship. The entrepreneur, the dynamic innovator, is after all the locus of individual ego and creativity, and is therefore the harbinger of often disturbing social change, as well as economic growth. But the Greek and Socratic ethical ideal for the individual was not an unfolding and flowering of inner possibilities, but rather a public/political creature molded to conform to the demands of the polis. That kind of social ideal was designed to promote a frozen society of politically determined status, and certainly not a society of creative and dynamic individuals and innovators.

1.3 The First "Economist": Hesiod and the Problem of Scarcity

No one should be misled into thinking that the ancient Greeks were "economists" in the modern sense. In the course of pioneering in philosophy, their philosophizing on man and his world yielded fragments of politico-economic or even strictly economic thoughts and insights. But there were no modern-style treatises on economics per se. It is true that the term "economics" is Greek, stemming from the Greek oikonomia, but oikonomia means not economics in our sense but "household management," and treatises on "economics" would discuss what might be called the technology of household management — useful perhaps, but certainly not what we would regard today as economics. There is furthermore a danger, unfortunately not avoided by many able historians of economic thought, of eagerly reading into fragments of ancient sages the knowledge gained by modern economics. While we surely should not overlook any giants of the past, we must also avoid any "presentist" seizing upon a few obscure sentences to hail alleged but nonexistent forerunners of sophisticated modern concepts.

The honor of being the first Greek economic thinker goes to the poet Hesiod, a Boeotian who lived in the very early ancient Greece of the middle of the eighth century BC. Hesiod lived in the small, self-sufficient agricultural community of Ascra, which he himself refers to as a "sorry place … bad in winter, hard in summer, never good." He was therefore naturally attuned to the eternal problem of scarcity, of the niggardliness of resources as contrasted to the sweep of man's goals and desires. Hesiod's great poem, Works and Days, consisted of hundreds of verses designed for solo recitation with musical accompaniment. But Hesiod was a didactic poet rather than a mere entertainer, and he often broke out of his story line to educate his public in traditional wisdom or in explicit rules for human conduct. Of the 828 verses in the poem, the first 383 centered on the fundamental economic problem of scarce resources for the pursuit of numerous and abundant human ends and desires.

Hesiod adopts the common religious or tribal myth of the "Golden Age," of man's alleged initial state on earth as an Eden, a Paradise of limitless abundance. In this original Eden, of course, there was no economic problem, no problem of scarcity, because all of man's wants were instantaneously fulfilled. But now, all is different, and "men never rest from labor and sorrow by day and from perishing by night." The reason for this low state is an all-encompassing scarcity, the result of man's ejection from Paradise. Because of scarcity, notes Hesiod, labor, materials and time have to be allocated efficiently. Scarcity, moreover, can only be partially overcome by an energetic application of labor and of capital. In particular, labor work — is crucial, and Hesiod analyzes the vital factors which may induce man to abandon the god-like state of leisure. The first of these forces is of course basic material need. But happily, need is reinforced by a social disapproval of sloth, and by the desire to emulate the consumption standards of one's fellows. To Hesiod, emulation leads to the healthy development of a spirit of competition, which he calls "good conflict," a vital force in relieving the basic problem of scarcity.

To keep competition just and harmonious, Hesiod vigorously excludes such unjust methods of acquiring wealth as robbery, and advocates a rule of law and a respect for justice to establish order and harmony within society, and to allow competition to develop- within a matrix of harmony and justice. It should already be clear that Hesiod had a far more sanguine view of economic growth, of labor and of vigorous competition, than did the far more philosophically sophisticated Plato and Aristotle three and a half centuries later.

1.4 The Pre-Socratics

Man is prone to error and even folly, and therefore a history of economic thought cannot confine itself to the growth and development of economic truths. It must also treat influential error, that is, error that unfortunately influenced later developments in the discipline. One such thinker is the Greek philosopher Pythagoras of Samos (c.582—c.507 BC) who, two centuries after Hesiod, developed a school of thought which held that the only significant reality is number. The world not only is number, but each number even embodies moral qualities and other abstractions. Thus justice, to Pythagoras and his followers, is the number four, and other numbers consisted of various moral qualities. While Pythagoras undoubtedly contributed to the development of Greek mathematics, his number-mysticism could well have been characterized by the twentieth century Harvard sociologist Pitirim A. Sorokin as a seminal example of "quantophrenia" and "metromania." It is scarce1y an exaggeration to see in Pythagoras the embryo of the burgeoning and overweeningly arrogant mathematical economics and econometrics of the present day.

Pythagoras thus contributed a sterile dead end to philosophy and economic thought, one that later influenced Aristotle's pawky and fallacious attempts to develop a mathematics of justice and of economic exchange. The next important positive development was contributed by the pre-Socratic (actually contemporary of Socrates) Democritus (c.460-c.370 BC).

This influential scholar from Abdera was the founder of "atomism" in cosmology, that is, the view that the underlying structure of reality consists of interacting atoms. Democritus contributed two important strands of thought to the development of economics. First, he was the founder of subjective value theory. Moral values, ethics, were absolute, Democritus taught, but economic values were necessarily subjective. "The same thing," Democritus writes, may be "good and true for all men, but the pleasant differs from one and another." Not only was valuation subjective, but Democritus also saw that the usefulness of a good will fall to nothing and become negative if its supply becomes superabundant.

Democritus also pointed out that if people restrained their demands and curbed their desires, what they now possess would make them seem relatively wealthy rather than impoverished. Here again, the relative nature of the subjective utility of wealth is recognized. In addition, Democritus was the first to arrive at a rudimentary notion of time preference: the Austrian insight that people prefer a good at present to the prospect of the good arriving in the future. As Democritus explains, "it is not sure whether the young man will ever attain old age; hence, the good on hand is superior to the one still to come."

In addition to the adumbration of subjective utility theory, Democritus's other major contribution to economics was his pioneering defense of a system of private property. In contrast to Oriental despotisms, in which all property was owned or controlled by the emperor and his subordinate bureaucracy, Greece rested on a society and economy of private property. Democritus, having seen the contrast between the private property economy of Athens and the oligarchic collectivism of Sparta, concluded that private property is a superior form of economic organization. In contrast to communally owned property, private property provides an incentive for toil and diligence, since "income from communally held property gives less pleasure, and the expenditure less pain." "Toil," the philosopher concluded, "is sweeter than idleness when men gain what they toil for or know that they will use it."

1.5 Plato's Right-wing Collectivist Utopia

Plato's search for a hierarchical, collectivist utopia found its classic expression in his most famous and influential work, The Republic. There, and later in The Laws, Plato sets forth the outline of his ideal city-state: one in which right oligarchic rule is maintained by philosopher—kings and their philosophic colleagues, thus supposedly ensuring rule by the best and wisest in the community. Underneath the philosophers in the coercive hierarchy are the"guardians" — the soldiers, whose role is to aggress against other cities and lands and to defend their polis from external aggression. Underneath them are to be the body of the people, the despised producers: laborers, peasants, and merchants who produce the material goods on which the lordly philosophers and guardians are to live. These three broad classes are supposed to reflect a shaky and pernicious leap if there ever was one — the proper rule over the soul in each human being. To Plato, each human being is divided into three parts: "one that craves, one that fights, and one that thinks," and the proper hierarchy of rule within each soul is supposed to be reason first, fighting next, and finally, and the lowest, grubby desire.

The two ruling classes — the thinkers and the guardians — that really count are, in Plato's ideal state, to be forced to live under pure communism. There is to be no private property whatsoever among the elite; all things are to be owned communally, including women and children. The elite are to be forced to live together and share common meals. Since money and private possessions, according to the aristocrat Plato, only corrupt virtue, they are to be denied to the upper classes. Marriage partners among the elite are to be selected strictly by the state, which is supposed to proceed according to the scientific breeding already known in animal husbandry. If any of the philosophers or guardians find themselves unhappy about this arrangement, they will have to learn that their personal happiness means nothing compared to the happiness of the polis as a whole — a rather murky concept at best. In fact, those who are not seduced by Plato's theory of the essential reality of ideas will not believe that there is such a real living entity as a polis. Instead, the city-state or community consists only of living, choosing individuals.

To keep the elite and the subject masses in line, Plato instructs the philosopher—rulers to spread the "noble" lie that they themselves are descended from the gods whereas the other classes are of inferior heritage. Freedom of speech or of inquiry was, as one might expect, anathema to Plato. The arts are frowned on, and the life of the citizens was to be policed to suppress any dangerous thoughts or ideas that might come to the surface.

Remarkably, in the very course of setting forth his classic apologia for totalitarianism, Plato contributed to genuine economic science by being the first to expound and analyze the importance of the division of labor in society. Since his social philosophy was founded on a necessary separation between classes, Plato went on to demonstrate that such specialization is grounded in basic human nature, in particular its diversity and inequality. Plato has Socrates say in The Republic that specialization arises because "we are not all alike; there are many diversities of natures among us which are adapted to different occupations."

Since men produce different things, the goods are naturally traded for each other, so that specialization necessarily gives rise to exchange. Plato also points out that this division of labor increases the production of all the goods. Plato saw no problem, however, in morally ranking the various occupations, with philosophy of course ranking highest and labor or trade being sordid and ignoble.

The use of gold and silver as money greatly accelerated with the invention of coinage in Lydia in the early seventh century BC and coined money quickly spread to Greece. In keeping with his distaste for moneymaking, trade, and private property, Plato was perhaps the first theorist to denounce the use of gold and silver as money. He also disliked gold and silver precisely because they served as international currencies accepted by all peoples. Since these precious metals are universally accepted and exist apart from the imprimatur of government, gold and silver constitute a potential threat to economic and moral regulation of the polis by the rulers. Plato called for a government fiat currency, heavy fines on the importation of gold from outside the city-state, and the exclusion from citizenship of all traders and workers who deal with money.

One of the hallmarks of an ordered utopia sought by Plato is that, to remain ordered and controlled, it must be kept relatively static. And that means little or no change, innovation or economic growth. Plato anticipated some present-day intellectuals in frowning on economic growth, and for similar reasons: notably, fear of collapse of the domination of the state by the ruling elite. Particularly difficult in trying to freeze a static society is the problem of population growth. Quite consistently, therefore, Plato called for freezing the size of the population of the city-state, keeping the number of its citizens limited to 5,000 agricultural landlord families.

1.6 Xenophon on Household Management

A disciple and contemporary of Plato was the Athenian landed aristocrat and army general, Xenophon (430 — 354 BC). Xenophon's economic writings were scattered throughout such works as an account of the education of a Persian prince, a treatise on how to increase government revenue, and a book on "economics" in the sense of thoughts on the technology of household and farm management. Most of Xenophon's adumbrations were the usual Hellenic scorn for labor and trade, and admiration for agriculture and the military arts, coupled with a call for a massive increase in government operations and interventions in the economy. These included improving the port of Athens, building markets and inns, establishing a governmental merchant fleet and greatly expanding the number of government-owned slaves.

Interspersed in this roll of commonplace bromides, however, were some interesting insights into economic matters. In the course of his treatise on household management, Xenophon pointed out that "wealth" should be defined as a resource that a person can use and knows how to use. In this way,something that an owner has neither the ability nor the knowledge to use cannot really constitute part of his wealth.

Another insight was Xenophon's anticipation of Adam Smith's famous dictum that the extent of the division of labor in society is necessarily limited by the extent of the market for the products. Thus, in an important addition to Plato's insights on the division of labor, written 20 years after The Republic, Xenophon says that "In small towns the same workman makes chairs and doors and plows and tables, and often the same artisan builds houses…" whereas in the large cities "many people have demands to make upon each branch of industry," and therefore "one trade alone, and very often even less than a whole trade, is enough to support a man." In large cities, "we find one man making men's boots only; and another, women's only … one man lives by cuffing out garments, another by fitting together the pieces."

Elsewhere, Xenophon outlines the important concept of general equilibrium as a dynamic tendency of the market economy. Thus, he states that when there are too many coppersmiths, copper becomes cheap and the smiths go bankrupt and turn to other activities, as would happen in agriculture or any other industry. He also sees clearly that an increase in the supply of a commodity causes a fall in its price.

1.7 Aristotle: Private Property and Money

The views of the great philosopher Aristotle are particularly important because the entire structure of his thought had an enormous and even dominant influence on the economic and social thought of the high and late Middle Ages, which considered itself Aristotelian.

Although Aristotle, in the Greek tradition, scorned moneymaking and was scarcely a partisan of laissez-faire, he set forth a trenchant argument in favor of private property. Perhaps influenced by the private-property arguments of Democritus, Aristotle delivered a cogent attack on the communism of the ruling class called for by Plato. He denounced Plato's goal of the perfect unity of the state through communism by pointing out that such extreme unity runs against the diversity of mankind, and against the reciprocal advantage that everyone reaps through market exchange. Aristotle then delivered a point-by-point contrast of private as against communal property. First, private property is more highly productive and will therefore lead to progress. Goods owned in common by a large number of people will receive little attention, since people will mainly consult their own self-interest and will neglect all duty they can fob off on to others. In contrast, people will devote the greatest interest and care to their own property.

Second, one of Plato's arguments for communal property is that it is conducive to social peace, since no one will be envious of, or try to grab the property of, another. Aristotle retorted that communal property would lead to continuing and intense conflict, since each will complain that he has worked harder and obtained less than others who have done little and taken more from the common store. Furthermore, not all crimes or revolutions, declared Aristotle, are powered by economic motives. As Aristotle trenchantly put it, "men do not become tyrants in order that they may not suffer cold."

Third, private property is clearly implanted in man's nature: His love of self, of money, and of property, are tied together in a natural love of exclusive ownership. Fourth, Aristotle, a great observer of past and present, pointed out that private property had existed always and everywhere. To impose communal property on society would be to disregard the record of human experience, and to leap into the new and untried. Abolishing private property would probably create more problems than it would solve.

Finally, Aristotle wove together his economic and moral theories by providing the brilliant insight that only private property furnishes people with the opportunity to act morally, e.g., to practice the virtues of benevolence and philanthropy. The compulsion of communal property would destroy that opportunity.

While Aristotle was critical of moneymaking, he still opposed any limitation — such as Plato had advocated — on an individual's accumulation of private property. Instead, education should teach people voluntarily to curb their rampant desires and thus lead them to limit their own accumulations of wealth.

Despite his cogent defense of private property and opposition to coerced limits on wealth, the aristocrat Aristotle was fully as scornful of labor and trade as his predecessors. Unfortunately, Aristotle stored up trouble for later centuries by coining a fallacious, proto-Galbraithian distinction between "natural" needs, which should be satisfied, and "unnatural" wants, which are limitless and should be abandoned. There is no plausible argument to show why, as Aristotle believes, the desires filled by subsistence labour or barter are "natural," whereas those satisfied by far more productive money exchanges are artificial, "unnatural" and therefore reprehensible. Exchanges for monetary gain are simply denounced as immoral and "unnatural," specifically such activities as retail trade, commerce, transportation and the hiring of labour. Aristotle had a particular animus toward retail trade, which of course directly serves the consumer, and which he would have liked to eliminate completely.

Aristotle is scarcely consistent in his economic lucubrations. For although monetary exchange is condemned as immoral and unnatural, he also praises such a network of exchanges as holding the city together through mutual and reciprocal give-and-take.

The confusion in Aristotle's thought between the analytic and the "moral" is also shown in his discussion of money. On the one hand, he sees that the growth of money greatly facilitated production and exchange. He sees also that money, the medium of exchange, represents general demand, and "holds all goods together." Also money eliminates the grave problem of "double coincidence of wants," where each trader will have to desire the other man's goods directly. Now each person can sell goods for money. Furthermore, money serves as a store of values to be used for purchases in the future.

Aristotle, however, created great trouble for the future by morally condemning the lending of money at interest as "unnatural." Since money cannot be used directly, and is employed only to facilitate exchanges, it is "barren" and cannot itself increase wealth. Therefore the charging of interest, which Aristotle incorrectly thought to imply a direct productivity of money, was strongly condemned as contrary to nature.

Aristotle would have done better to avoid such hasty moral condemnation and to try to figure out why interest is, in fact, universally paid. Might there not be something "natural," after all, about a rate of interest? And if he had discovered the economic reason for the charging — and the paying — of interest, perhaps Aristotle would have understood why such charges are moral and not unnatural.

Aristotle, like Plato, was hostile to economic growth and favored a static society, all of which fits with his opposition to moneymaking and the accumulation of wealth. The insight of old Hesiod into the economic problem as the allocation of scarce means for the satisfying of alternative wants was virtually ignored by both Plato and Aristotle, who instead counseled the virtue of scaling down one's desires to fit whatever means were available.

1.8 Aristotle: Exchange and Value

Aristotle's difficult but influential discussion of exchange suffered grievously from his persistent tendency to confuse analysis with instant moral judgment. As in the case of charging interest, Aristotle did not remain content to complete a study of why exchanges take place in real life before leaping in with moral pronouncements. In analyzing exchanges, Aristotle declares that these mutually beneficial transactions imply a "proportional reciprocity," but it is characteristically ambivalent in Aristotle whether all exchanges are by nature marked by reciprocity, or whether only proportionately reciprocal exchanges are truly "just." And of course Aristotle was never one to raise the question: why do people voluntarily engage in "unjust" exchanges? In the same way, why should people voluntarily pay interest charges if they are really "unjust"?

To muddle matters further, Aristotle, under the influence of the Pythagorean number-mystics, introduced obscure and obfuscating mathematical terms into what could have been a straightforward analysis. The only dubious benefit of this contribution was to give many happy hours to historians of economic thought attempting to read sophisticated modern analysis into Aristotle. This problem has been aggravated by an unfortunate tendency among historians of thought to regard great thinkers of the past as necessarily consistent and coherent. That of course is a grievous historiographic error; however great they may have been, any thinkers can slip into error and inconsistency, and even write gibberish on occasion. Many historians of thought do not seem able to recognize that simple fact.

Aristotle's famous discussion of reciprocity in exchange in Book V of his Nicomachean Ethics is a prime example of descent into gibberish. Aristotle talks of a builder exchanging a house for the shoes produced by a shoemaker. He then writes: "The number of shoes exchanged for a house must therefore correspond to the ratio of builder to shoemaker. For if this be not so, there will be no exchange and no intercourse." Eh? How can there possibly be a ratio of "builder" to "shoemaker"? Much less an equating of that ratio to shoes/houses? In what units can men like builders and shoemakers be expressed?

The correct answer is that there is no meaning, and that this particular exercise should be dismissed as an unfortunate example of Pythagorean quantophrenia. And yet various distinguished historians have read tortured constructions of this passage to make Aristotle appear to be a forerunner of the labor theory of value, of W. Stanley Jevons, or of Alfred Marshall. The labor theory is read into the unsupportable assumption that Aristotle "must have meant" labor hours put in by the builder or shoemaker, while Josef Soudek somehow sees here the respective skills of these producers, skills which are then measured by their products. Soudek eventually emerges with Aristotle as an ancestor of Jevons. In the face of all this elaborate wild goose chase, it is a pleasure to see the verdict of gibberish supported by the economic historian of ancient Greece, Moses I. Finley, and by the distinguished Aristotelian scholar H.H. Joachim, who has the courage to write, "How exactly the values of the producers are to be determined, and what the ratio between them can mean is, I must confess, in the end unintelligible to me."[1]

Another grave fallacy in the same paragraph in the Ethics did incalculable damage to future centuries of economic thought. There Aristotle says that in order for an exchange (any exchange? a just exchange?) to take place, the diverse goods and services "must be equated," a phrase Aristotle emphasizes several times. It is this necessary "equation" that led Aristotle to bring in the mathematics and the equal signs. His reasoning was that for A and B to exchange two products, the value of both products must be equal, otherwise an exchange would not take place. The diverse goods being exchanged for one another must be made equal because only things of equal value will be traded.

The Aristotelian concept of equal value in exchange is just plain wrong, as the Austrian School was to point out in the late nineteenth century. If A trades shoes for sacks of wheat owned by B, A does so because he prefers the wheat to the shoes, while B's preferences are precisely the opposite. If an exchange takes place, this implies not an equality of values, but rather a reverse inequality of values in the two parties making the exchange. If I buy a newspaper for 30¢ I do so because I prefer the acquisition of the newspaper to keeping the 30 cents, whereas the newsagent prefers getting the money to keeping the newspaper. This double inequality of subjective valuations sets the necessary precondition for any exchange.

If the equation of ratio of builder to laborer is best forgotten, other parts of Aristotle's analysis have been seen by some historians as predating parts of the economics of the Austrian School. Aristotle clearly states that money represents human need or demand, which provides the motivation for exchange, and "which holds all things together." Demand is governed by the use-value or desirability of a good. Aristotle follows Democritus in pointing out that after the quantity of a good reaches a certain limit, after there is "too much," the use value will plummet and become worthless. But Aristotle goes beyond Democritus in pointing out the other side of the coin: that when a good becomes scarcer, it will become subjectively more useful or valuable. He states in the Rhetoric that "what is rare is a greater good than what is plentiful. Thus gold is a better thing than iron, though less useful." These statements provide an intimation of the correct influence of different levels of supply on the value of a good, and at least a hint of the later fully formed Austrian marginal utility theory of value, and its solution of the "paradox" of value.

These are interesting allusions and suggestions; but a few fragmentary sentences scattered throughout different books hardly constitute a fully fledged precursor of the Austrian School. But a more interesting harbinger of Austrianism has only come to the attention of historians in recent years: the groundwork for the Austrian theory of marginal productivity — the process by which the value of final products is imputed to the means, or factors, of production.

In his little-known work, the Topics, as well as in his later Rhetoric, Aristotle engaged in a philosophical analysis of the relationship between human ends and the means by which people pursue them. These means, or "instruments of production," necessarily derive their value from the final products useful to man, "the instruments of action." The greater the desirability, or subjective value, of a good, the greater the desirability, or value of the means to arrive at that product. More important, Aristotle introduces the marginal element into this imputation by arguing that if the acquisition or addition of a good A to an already desirable good C creates a more desirable result than the addition of good B, then A is more highly valued than B. Or, as Aristotle put it: "judge by means of an addition, and see if the addition of A to the same thing as B makes the whole more desirable than the addition of B." Aristotle also introduces an even more specifically pre-Austrian, or pre-Böhm-Bawerkian, concept by stressing the differential value of the loss, rather than the addition of a good. Good A will be more valuable than B, if the loss of A is considered to be worse than the loss of B. As Aristotle clearly phrased it: "That is the greater good whose contrary is the greater evil, and whose loss affects us more."

Aristotle also took note of the importance of the complementarity of economic factors of production in imputing their value. A saw, he pointed out, is more valuable than a sickle in the art of carpentry, but it is not more valuable everywhere and in all pursuits. He also pointed out that a good with many potential uses will be more desirable, or valuable, than a good with only one use.

Critics of the economic importance of Aristotle's analysis charge that, with the exception of the saw-and-sickle passage, Aristotle made no economic application of his broad philosophical treatment of imputation. But this charge misses the crucial Austrian point — made with particular force and elaboration by the twentieth century Austrian economist Ludwig von Mises — that economic theory is but a part, a subset, of a broader, "praxeological" analysis of human action. By analyzing the logical implications of the employment of means to the pursuit of ends in all human action, Aristotle brilliantly began to lay the groundwork for the Austrian theory of imputation and marginal productivity over two millennia later.

1.9 The Collapse After Aristotle

It is remarkable that the great burst of economic thinking in the ancient world covered only two centuries — the fifth and the fourth BC — and only in one country, Greece. The rest of the ancient world, and even Greece before and after these centuries, was essentially a desert of economic thought. Nothing of substance came out of the great ancient civilizations in Mesopotamia and India, and very little except political thought in the many centuries-long civilization of China. Remarkably, little or no economic thought emerged out of those civilizations, even though the economic institutions: trade, credit, mining, crafts, etc. were often far advanced, and even more so than in Greece. Here is an important indication that, contrary to Marxists and other economic determinists, economic thought and ideas do not simply emerge as a reflex of the development of economic institutions.

There is no way that historians of thought can ever completely penetrate the mysteries of creativity in the human soul, and thus completely explain this relatively brief flowering of human thought. But it is surely no accident that it was the Greek philosophers who provided us with the first fragments of systematic economic theory. For philosophy, too, was virtually non-existent in the rest of the ancient world or before this era in Greece. The essence of philosophic thought is that it penetrates the ad hoc vagaries of day-to-day life in order to arrive at truths that transcend the daily accidents of time and place. Philosophy arrives at truths about the world and about human life that are absolute, universal and eternal — at least while the world and humanity last. It arrives, in short, at a system of natural laws. But economic analysis is a subset of such investigation, because genuine economic theory can only advance beyond shifting day-to-day events by penetrating truths about human action which are absolute, unchanging and eternal, which are unaffected by changes of time and place. Economic thought, at least correct economic thought, is itself a subset of natural laws in its own branch of investigation.

If we remember the snatches of economic thought contributed by the Greeks: Hesiod on scarcity, Democritus on subjective value and utility, the influence of supply and demand on value, and on time-preference, Plato and Xenophon on the division of labor, Plato on the functions of money, Aristotle on supply and demand, money, exchange, and the imputation of value from ends to means, we see that all of these men were focusing on the logical implications of a few broadly empirical axioms of human life: the existence of human action, the eternal pursuit of goals by employing scarce means, the diversity and inequality among men. These axioms are certainly empirical, but they are so broad and pervasive that they apply to all of human life, at any time and place. Once articulated and set forth, they impel assent to their truth by a shock of recognition: once articulated, they become evident to the human mind. Since these axioms are then established as certain and apodictic, the processes of logic — themselves universal and apodictic and transcending time and place — can be used to arrive at absolutely true conclusions.

While this method of reasoning — of philosophy and of economics — is both empirical, being derived from the world, and true, it runs against the grain of modem philosophies of science. In modern positivism, or neopositivism, for example, "evidence" is much narrower, fleeting and open to change. In much of modem economics, using the positivist method, "empirical evidence" is a congeries of isolated and narrow economic events, each of which is conceived as homogeneous bits of information, supposedly used to "test," to confirm or refute, economic hypotheses. These bits, like laboratory experiments, are supposed to result in "evidence" to test a theory. Modern positivism is unequipped to understand or handle a system of analysis — whether classical Greek philosophy or economic theory — grounded on deductions from fundamental axioms so broadly empirical as to be virtually self-evident — evident to the self — once they are articulated. Positivism fails to understand that the results of laboratory experiments are only "evidence" because they too make evident to the scientists (or to others who follow the experiments), that is, make evident to the self facts or truths not evident before. The deductive processes of logic and mathematics do the same thing: they compel assent by making things evident to people which were not evident before. Correct economic theory, which we have named as "praxeological" theory, is another way by which truths are made evident to the human mind.

Even politics, which some scoff at as not purely or strictly economics, impinges heavily on economic thought. Politics is of course an aspect of human action, and much of it has a crucial impact on economic life. Eternal natural law truths about economic aspects of politics may be and have been arrived at, and cannot be neglected in a study of the development of economic thought. When Democritus and Aristotle defended a regime of private property and Aristotle demolished Plato's portrayal of an ideal communism, they were engaging in important economic analysis of the nature and consequences of alternative systems of control and ownership of property.

Aristotle was the culmination of ancient economic thought as he was of classical philosophy. Economic theorizing collapsed after the death of Aristotle, and later Hellenistic and Roman epochs were virtually devoid of economic thought. Again, it is impossible to explain fully the disappearance of economic thought, but surely one reason must have been the disintegration of the once proud Greek polis after the time of Aristotle. The Greek city-states were subjected to conquest and disintegration beginning with the empire of Alexander the Great during the life of his former mentor Aristotle. Eventually Greece, much diminished in wealth and economic prosperity, became absorbed by the Roman Empire.

Small wonder, then, that the only references to economic affairs should be counsels of despair, with various Greek philosophers futilely urging their followers to solve the problem of aggravated scarcity by drastically curbing their wants and desires. In short, if you"re miserable and poverty-stricken, accept your lot as man's inevitable fate and try to want no more than you have. This counsel of hopelessness and despair was preached by Diogenes (4 12 — 323 BC) the founder of the school of Cynics, and by Epicurus (343 — 270 BC), the founder of the Epicureans. Diogenes and the Cynics pursued this culture of poverty to such length as to adopt the name and the life of dogs; Diogenes himself made his home in a barrel. Consistent with his outlook, Diogenes denounced the hero Prometheus, who in Greek myth stole the gift of fire from the gods and thus made possible innovation, the growth of human knowledge, and the progress of mankind. Prometheus, wrote Diogenes, was properly punished by the gods for this fateful deed.

As Bertrand Russell summed up:

Aristotle is the last Greek philosopher who faces the world cheerfully; after him, all have, in one form or another, a philosophy of retreat. The world is bad; let us learn to be independent of it. External goods are precarious; they are the gift of fortune, not the reward of our own efforts.

The most interesting and influential school of Greek philosophers after Aristotle was the Stoics, founded by Zeno of Citium (c.336 — 264 BC), who appeared about the year 300 BC in Athens to teach at a painted porch (stoa poikile) after which he and his followers were called Stoics. While the Stoics began as an offshoot of Cynicism, preaching the quenching of desire for worldly goods, it took on a new and more optimistic note with Stoicism's second great founder, Chrysippus (28 1 — 208 BC). Whereas Diogenes had preached that the love of money was the root of all evil, Chrysippus countered with the quip that the "wise man will turn three somersaults for an adequate fee." Chrysippus was also sound on the inherent inequality and diversity of man: "Nothing," he pointed out, "can prevent some seats in the theatre from being better than others."

But the most important contribution of Stoic thought was in ethical, political and legal philosophy, for it was the Stoics who first developed and systematized, especially in the legal sphere, the concept and the philosophy of natural law. It was precisely because Plato and Aristotle were circumscribed politically by the Greek polis that their moral and legal philosophy became closely intertwined with the Greek city-state. For the Socratics, the city-state, not the individual, was the locus of human virtue. But the destruction or subjugation of the Greek polis after Aristotle freed the thought of the Stoics from its admixture with politics. The Stoics were therefore free to use their reason to set forth a doctrine of natural law focusing not on the polis but on each individual, and not on each state but on all states everywhere. In short, in the hands of the Stoics, natural law became absolute and universal, transcending political barriers or fleeting limitations of time and place. Law and ethics, the principles of justice, became transcultural and transnational, applying to all human beings everywhere. And since every man possesses the faculty of reason, he can employ right reason to understand the truths of the natural law. The important implication for politics is that the natural law, the just and proper moral law discovered by man's right reason, can and should be used to engage in a moral critique of the positive man-made laws of any state or polis. For the first time, positive law became continually subject to a transcendent critique based on the universal and eternal nature of man.

The Stoics were undoubtedly aided in arriving at their cosmopolitan disregard for the narrow interests of the polis by the fact that most of them were Easterners who had come from outside the Greek mainland. Zeno, the founder, described as "tall, gaunt, and swarthy," came from Citium on the island of Cyprus. Many, including Chrysippus, came from Tarsus, in Cilicia, on the Asia Minor mainland near Syria. Later Greek Stoics were centered in Rhodes, an island off Asia Minor.

Stoicism lasted 500 years, and its most important influence was transmitted from Greece to Rome. The later Stoics, during the first two centuries after the birth of Christ, were Roman rather than Greek. The great transmitter of Stoic ideas from Greece to Rome was the famous Roman statesman, jurist, and orator Marcus Tullius Cicero (106 — 43 BC). Following Cicero, Stoic natural law doctrines heavily influenced the Roman jurists of the second and third centuries AD, and thus helped shape the great structures of Roman law which became pervasive in Western civilization. Cicero's influence was assured by his lucid and sparkling style, and by the fact that he was the first Stoic to write in Latin, the language of Roman law and of all thinkers and writers in the West down to the end of the seventeenth century. Moreover, Cicero's and other Latin writings have been far better preserved than the fragmentary remains we have from the Greeks.

Cicero's writings were heavily influenced by the Greek Stoic leader, the aristocratic Panaetius of Rhodes (c.185 — 110 BC) and as a young man he traveled there to study with his follower, Posidonius of Rhodes (135 — 51 BC), the greatest Stoic of his age. There is no better way to sum up Cicero's Stoic natural law philosophy than by quoting what one of his followers called his "almost divine words." Paraphrasing and developing the definition and insight of Chrysippus, Cicero wrote:

There is a true law, right reason, agreeable to nature, known to all men, constant and eternal, which calls to duty by its precepts, deters from evil by its prohibition … This law cannot be departed from without guilt … Nor is there one law at Rome and another at Athens, one thing now and another afterward; but the same law, unchanging and eternal, binds all races of man and all times; and there is one common, as it were, master and ruler — God, the author, promulgator and mover of this law. Whoever does not obey it departs from [his true] self, contemns the nature of man and inflicts upon himself the greatest penalties …

Cicero also contributed to Western thought a great anti-statist parable which resounded through the centuries, a parable that revealed the nature of rulers of state as nothing more than pirates writ large. Cicero told the story of a pirate who was dragged into the court of Alexander the Great. When Alexander denounced him for piracy and brigandage and asked the pirate what impulse had led him to make the sea unsafe with his one little ship, the pirate trenchantly replied, "the same impulse which has led you [Alexander] to make the whole world unsafe."

But despite their important contributions to moral and legal philosophy, neither the Stoics nor other Romans contributed anything else of significance to economic thought. Roman law, however, heavily influenced and pervaded later legal developments in the West. Roman private law elaborated, for the first time in the West, the idea of property rights as absolute, with each owner having the right to use his property as he saw fit. From this stemmed the right to make contracts freely, with contracts interpreted as transfers of titles to property. Some Roman jurists declared that property rights were required by the natural law. The Romans also founded the law merchant, and Roman law strongly influenced the common law of the English-speaking countries and the civil law of the continent of Europe.

1.10 Taoism in Ancient China

The only other body of ancient thought worth mentioning is the schools of political philosophy in ancient China. Though remarkable for its insights, ancient Chinese thought had virtually no impact outside the isolated Chinese Empire in later centuries, and so will be dealt with only briefly.

The three main schools of political thought: the Legalists, the Taoists, and the Confucians, were established from the sixth to the fourth centuries BC. Roughly, the Legalists, the latest of the three broad schools, simply believed in maximal power to the state, and advised rulers how to increase that power. The Taoists were the world's first libertarians, who believed in virtually no interference by the state in economy or society, and the Confucians were middle-of-the-roaders on this critical issue. The towering figure of Confucius (551 — 479 BC), whose name was actually Ch'iu Chung-ni, was an erudite man from an impoverished but aristocratic family of the fallen Yin dynasty, who became Grand Marshal of the state of Sung. In practice, though far more idealistic, Confucian thought differed little from the Legalists, since Confucianism was largely dedicated to installing an educated philosophically minded bureaucracy to rule in China.

By far the most interesting of the Chinese political philosophers were the Taoists, founded by the immensely important but shadowy figure of Lao Tzu. Little is known about Lao Tzu's life, but he was apparently a contemporary and personal acquaintance of Confucius. Like the latter he came originally from the state of Sung and was a descendant of lower aristocracy of the Yin dynasty. Both men lived in a time of turmoil, wars and statism, but each reacted very differently. For Lao Tzu worked out the view that the individual and his happiness was the key unit of society. If social institutions hampered the individual's flowering and his happiness, then those institutions should be reduced or abolished altogether. To the individualist Lao Tzu, government, with its "laws and regulations more numerous than the hairs of an ox," was a vicious oppressor of the individual, and "more to be feared than fierce tigers." Government, in sum, must be limited to the smallest possible minimum; "inaction" became the watchword for Lao Tzu, since only inaction of government can permit the individual to flourish and achieve happiness. Any intervention by government, he declared, would be counterproductive, and would lead to confusion and turmoil. The first political economist to discern the systemic effects of government intervention, Lao Tzu, after referring to the common experience of mankind, came to his penetrating conclusion: "The more artificial taboos and restrictions there are in the world, the more the people are impoverished … The more that laws and regulations are given prominence, the more thieves and robbers there will be."

The worst of government interventions, according to Lao Tzu, was heavy taxation and war. "The people hunger because theft superiors consume an excess in taxation" and, "where armies have been stationed, thorns and brambles grow. After a great war, harsh years of famine are sure to follow."

The wisest course is to keep the government simple and inactive, for then the world "stabilizes itself."

As Lao Tzu put it: "Therefore, the Sage says: I take no action yet the people transform themselves, I favor quiescence and the people right themselves, I take no action and the people enrich themselves…"

Deeply pessimistic, and seeing no hope for a mass movement to correct oppressive government, Lao Tzu counseled the now familiar Taoist path of withdrawal, retreat, and limitation of one's desires.

Two centuries later, Lao Tzu's great follower Chuang Tzu (369—c.286 BC) built on the master's ideas of laissez-faire to push them to their logical conclusion: individualist anarchism. The influential Chuang Tzu, a great stylist who wrote in allegorical parables, was therefore the first anarchist in the history of human thought. The highly learned Chuang Tzu was a native of the state of Meng (now probably in Honan province), and also descended from the old aristocracy. A minor official in his native state, Chuang Tzu's fame spread far and wide throughout China, so much so that King Wei of the Ch'u kingdom sent an emissary to Chuang Tzu bearing great gifts and urging him to become the king's chief minister of state. Chuang Tzu's scornful rejection of the king's offer is one of the great declarations in history on the evils underlying the trappings of state power and the contrasting virtues of the private life:

A thousand ounces of gold is indeed a great reward, and the office of chief minister is truly an elevated position. But have you, sir, not seen the sacrificial ox awaiting the sacrifices at the royal shrine of state? It is well cared for and fed for a few years, caparisoned with rich brocades, so that it will be ready to be led into the Great Temple. At that moment, even though it would gladly change places with any solitary pig, can it do so? So, quick and be off with you! Don't sully me. I would rather roam and idle about in a muddy ditch, at my awn amusement, than to be put under the restraints that the ruler would impose. I will never take any official service, and thereby I will [be free] to satisfy my own purposes.

Chuang Tzu reiterated and embellished Lao Tzu's devotion to laissez-faire and opposition to state rule: "There has been such a thing as letting mankind alone; there has never been such a thing as governing mankind [with success]." Chuang Tzu was also the first to work out the idea of "spontaneous order," independently discovered by Proudhon in the nineteenth century, and developed by F.A. von Hayek of the Austrian School in the twentieth. Thus, Chuang Tzu: "Good order results spontaneously when things are let alone."

But while people in their "natural freedom" can run their lives very well by themselves, government rules and edicts distort that nature into an artificial Procrustean bed. As Chuang Tzu wrote, "The common people have a constant nature; they spin and are clothed, till and are fed … it is what may be called their 'natural freedom.'" These people of natural freedom were born and died themselves, suffered from no restrictions or restraints, and were neither quarrelsome nor disorderly. If rulers were to establish rites and laws to govern the people, "it would indeed be no different from stretching the short legs of the duck and trimming off the long legs of the heron" or "haltering a horse." Such rules would not only be of no benefit, but would work great harm. In short, Chuang Tzu concluded, the world "does simply not need governing; in fact it should not be governed."

Chuang Tzu, moreover, was perhaps the first theorist to see the state as a brigand writ large: "A petty thief is put in jail. A great brigand becomes a ruler of a State." Thus, the only difference between state rulers and out-and-out robber chieftains is the size of their depredations. This theme of ruler-as-robber was to be repeated, as we have seen, by Cicero, and later by Christian thinkers in the Middle Ages, though of course these were arrived at independently.

Taoist thought flourished for several centuries, culminating in the most determinedly anarchistic thinker, Pao Ching-yen, who lived in the early fourth century AD, and about whose life nothing is known. Elaborating on Chuang-Tzu, Pao contrasted the idyllic ways of ancient times that had had no rulers and no government with the misery inflicted by the rulers of the current age. In the earliest days, wrote Pao, "there were no rulers and no officials. [People] dug wells and drank, tilled fields and ate. When the sun rose, they went to work; and when it set, they rested. Placidly going their ways with no encumbrances, they grandly achieved their own fulfillment." In the stateless age, there was no warfare and no disorder:

Where knights and hosts could not be assembled there was no warfare afield … Ideas of using power for advantage had not yet burgeoned. Disaster and disorder did not occur. Shields and spears were not used; city walls and moats were not built … People munched their food and disported themselves; they were carefree and contented.

Into this idyll of peace and contentment, wrote Pao Ching-yen, there came the violence and deceit instituted by the state. The history of government is the history of violence, of the strong plundering the weak. Wicked tyrants engage in orgies of violence; being rulers they "could give free rein to all desires." Furthermore, the government's institutionalization of violence meant that the petty disorders of daily life would be greatly intensified and expanded on a much larger scale. As Pao put it:

Disputes among the ordinary people are merely trivial matters, for what scope of consequences can a contest of strength between ordinary fellows generate? They have no spreading lands to arouse avarice … they wield no authority through which they can advance their struggle. Their power is not such that they can assemble mass followings, and they command no awe that might quell [such gatherings] by their opponents. How can they compare with a display of the royal anger, which can deploy armies and move battalions, making people who hold no enmities attack states that have done no wrong?

To the common charge that he has overlooked good and benevolent rulers, Pao replied that the government itself is a violent exploitation of the weak by the strong. The system itself is the problem, and the object of government is not to benefit the people, but to control and plunder them. There is no ruler who can compare in virtue with a condition of non-rule.

Pao Ching-yen also engaged in a masterful study in political psychology by pointing out that the very existence of institutionalized violence by the state generates imitative violence among the people. In a happy and stateless world, declared Pao, the people would naturally turn to thoughts of good order and not be interested in plundering their neighbors. But rulers oppress and loot the people and "make them toil without rest and wrest away things from them endlessly." In that way, theft and banditry are stimulated among the unhappy people, and arms and armor, intended to pacify the public, are stolen by bandits to intensify their plunder. "All these things are brought about because there are rulers." The common idea, concluded Pao, that strong government is needed to combat disorders among the people, commits the serious error of confusing cause and effect.

The only Chinese with notable views in the more strictly economic realm was the distinguished second century B.C. historian, Ssu-ma Ch'ien (145-c.90 BC). Ch'ien was an advocate of laissez-faire, and pointed out that minimal government made for abundance of food and clothing, as did the abstinence of government from competing with private enterprise. This was similar to the Taoist view, but Ch'ien, a worldly and sophisticated man, dismissed the idea that people could solve the economic problem by reducing desires to a minimum. People, Ch'ien maintained, preferred the best and most attainable goods and services, as well as ease and comfort. Men are therefore habitual seekers after wealth.

Since Ch'ien thought very little of the idea of limiting one's desires, he was impelled, far more than the Taoists, to investigate and analyze free market activities. He therefore saw that specialization and the division of labor on the market produced goods and services in an orderly fashion:

Each man has only to be left to utilize his own abilities and exert his strength to obtain what he wishes … When each person works away at his own occupation and delights in his own business, then like water flowing downward, goods will naturally flow ceaselessly day and night without being summoned, and the people will produce commodities without having been asked.

To Ch'ien, this was the natural outcome of the free market. "Does this not ally with reason? Is it not a natural result?" Furthermore, prices are regulated on the market, since excessively cheap or dear prices tend to correct themselves and reach a proper level.

But if the free market is self-regulating, asked Ch'ien perceptively, "what need is there for government directives, mobilizations of labor, or periodic assemblies?" What need indeed?

Ssu-ma Ch'ien also set forth the function of entrepreneurship on the market. The entrepreneur accumulates wealth and functions by anticipating conditions (i.e., forecasting) and acting accordingly. In short, he keeps "a sharp eye out for the opportunities of the times."

Finally, Ch'ien was one of the world's first monetary theorists. He pointed out that increased quantity and a debased quality of coinage by government depreciates the value of money and makes prices rise. And he saw too that government inherently tended to engage in this sort of inflation and debasement.

This is the first chapter of An Austrian Perspective on the History of Economic Thought, available exclusively through the Mises Store.

Notes

[1] H.H. Joachim, Aristotle: The Nichomachean Ethics (Oxford: The Clarendon Press, 1951), p. 50. Also see Moses I. Finley, "Aristotle and Economic Analysis," in Studies in Ancient Society (London: Routledge and Kegan Paul, 1974), pp. 32–40.

Bibliography

The only book covering all ancient economic thought in countries including Mesopotamia, India and China is Joseph J. Spengler, Origins of Economic Thought and Justice (Carbondale, Ill., Southern Illinois University Press, 1980). Although Professor Spengler probably would not have agreed with this assessment, his book demonstrates that virtually nothing of interest emerged out of the economic thought of these ancient civilizations. The exception is Chinese political philosophy (particularly Taoism), on which the definitive work is the illuminating Kung-chuan Hsiao, A History of Chinese Political Thought, Vol. One: From the Beginnings to the Sixth Century A.D. (Princeton, NJ: Princeton University Press, 1979). On a Chinese advocate of laissez-faire, see Joseph J. Spengler, "Ssu-ma Ch'ien, Unsuccessful Exponent of Laissez Faire," Southern Economic Journal (Jan. 1964), pp. 223 — 43.

The only histories of economic thought that do justice to the Greek contribution are Spiegel, The Growth of Economic Thought and Barry Gordon, Economic Analysis Before Adam Smith (New York: Barnes & Noble, 1975). Spiegel is particularly good on Democritus, and Gordon is good on Hesiod and deals extensively with Greek economic thought. Gordon is also unique in dealing fully with Jewish economic thought. His title is misleading, however, since the book stops with the late scholastics, considerably before the time of Adam Smith.

S. Todd Lowry, "Recent Literature on Ancient Greek Economic Thought," Journal of Economic Literature, 17 (March 1979), pp. 65–86, provides a comprehensive annotated bibliographical review of Greek economic thought. Also see Lowry, The Archaeology of Economic Ideas: The Classical Greek Tradition (Durham, NC: Duke University Press, 1987). The Oxford W.D. Ross edition of the works of Aristotle is the standard one. On the fascinating controversy on the meaning of Aristotle's equation of exchange, Josef Soudek's lengthy, scholarly, but totally wrongheaded reading of Jevons into Aristotle is in Josef Soudek, "Aristotle's Theory of Exchange: An Inquiry into the Origin of Economic Analysis," Proceedings of the American Philosophical Society 96 (Feb. 1952), pp. 45–75, while Barry Gordon plumps for Aristotle as a proto-Marshallian: "Aristotle and the Development of Value Theory," Quarterly Journal of Economics, 78 (Feb. 1964), pp. 115–28. Far better are two scholars who had the courage to see the equation of exchange as nonsense: the great interpreter of Aristotle, H.H. Joachim, in his Aristotle: The Nichomachean Ethics (Oxford: The Clarendon Press, 1951), especially 148–51, and the ancient historian Moses I. Finley, in his "Aristotle and Economic Analysis," Past and Present (May 1970), pp. 3–25, reprinted in Finley (ed), Studies in Ancient Society (London: Routledge & Kegan Paul, 1974), pp. 26–52.

A detailed critique of the various Latin translations of Aristotle's discussion of economic value is in Odd Langholm, Price and Value in the Aristotelian Tradition (Bergen: Universitetsforlaget, 1979).

Joseph J. Spengler, in his excellent "Aristotle on Economic Imputation and Related Matters," Southern Economic Journal, 21 (April 1955), pp. 371–89, shows that Aristotle's imputation theory was a forerunner of praxeological and Austrian imputation theory of the nineteenth and twentieth centuries. Spengler himself, however, undervalued the results of his own inquiry, since he didn't realize that Aristotle's imputation theory was an important contribution to action analysis and praxeology even if it did not deal with strictly economic matters.

Also on Aristotle as a pre-Austrian, see Emil Kauder, "Genesis of the Marginal Utility Theory: From Aristotle to the end of the Eighteenth Century," Economic Journal, 43 (Sept. 1953), pp. 638–50.

On Plato as totalitarian, see the hard-hitting and highly influential work by a leading modern philosopher, Karl R. Popper, The Open Society and Its Enemies (3rd rev. ed., 2 vols, Princeton, NJ: Princeton University Press, 1957). Unfortunately, Popper confuses the political totalitarianism of Plato with the spurious tyranny allegedly implied by the fact that Plato believed in absolute truth and in rational ethics. To a modern, wishy-washy ad hoc metaphysician like Popper, any firm belief in truth, in black and white, smacks of "dogmatism" and "despotism." Setting the philosophic record straight in defense of Plato, in reply were John Wild, Plato's Modern Enemies and the Theory of Natural Law (Chicago: University of Chicago Press, 1953), and Ronald B. Levinson, In Defense of Plato (Cambridge: Harvard University Press, 1953). For an attack on Plato's totalitarianism and an exposition of the sophists, the opponents of Socratic philosophy, as classical liberals in politics, see Eric A. Havelock, The Liberal Temper in Greek Politics (New Haven: Yale University Press, 1957). On the other hand, for a more recent article confirming the view that the Greek polis was inherently statist, had no conception of classical liberalism or individual freedom, and was grounded on the labor of slaves, see Paul A. Rahe, "The Primacy of Politics in Classical Greece," American Historical Review (April 1984), pp. 265–93. On Plato and the division of labor, see Williamson M. Evers, "Specialization and the Division of Labor in the Social Thought of Plato and Rousseau," The Journal of Libertarian Studies, 4 (Winter, 1980), pp. 45–64; Vernard Foley, "The Division of Labor in Plato and Smith," History of Political Economy, 6 (Summer 1974), pp. 220–42: Paul J. McNulty, "A Note on the Division of Labor in Plato and Smith," History of Political Economy, 7 (Autumn 1975), pp. 372–8; and Foley, "Smith and the Greeks: A Reply to Professor McNulty's Comments," ibid., pp. 379–89.

On the influence of Plotinus and man's alleged inherent alienation to overcome through history, see the illuminating discussion in Leszek Kolakowksi, Main Currents of Marxism, I: The Founders (New York: Oxford University Press, 1981), pp. 11–23.

Cicero's eloquent quotation on the definition of the natural law may be found, among other places, in Michael Bertram Crowe, The Changing Profile of the Natural Law (The Hague: Martinus Nijhoff, 1977), pp. 37–8, Crowe including natural law theorists among the Greeks and Romans; and his parable of Alexander and the pirate in Cicero's On the Commonwealth (Columbus: Ohio State University Press, 1929), Book III, SIV, p. 210.


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