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Economic Thought in Ancient Greece

The intellectual odyssey that laid the foundations for Western civilization began in classical Greece. Unfortunately, Greek thinkers failed in their attempt to grasp the essential principles of the spontaneous market order and of the dynamic process of social cooperation which surrounded them. While we must acknowledge the important Greek contributions in the areas of epistemology, logic, ethics, and even the conception of natural law, the Greeks failed miserably to see the need for the development of a discipline, economic science, devoted to the study of the spontaneous processes of social cooperation that comprise the market.

What is even worse is that when the first intellectuals emerged, so did the symbiosis and complicity between thinkers and rulers. From the beginning, the great majority of intellectuals embraced statism and systematically undervalued and even criticized and denigrated the society of trade, commerce, and crafts that flourished around them.

It may be too much to ask that, from the very dawn of philosophical and scientific knowledge, the Greeks would comprehend even the basics of political economy, a discipline that is still among the youngest of all the sciences and seeks to study a reality as abstract and difficult to understand as the spontaneous market order. However, it is worth noting that the Greek philosophers, like today’s intellectuals, could not avoid the scientistic conceit of believing themselves qualified to impose their own points of view on their fellow citizens via systematic government coercion. History repeats itself over and over, and even today we have progressed very little in this sense.

The Political-Historical Context

A parallelism exists not only concerning thinkers’ statist sympathies, but also the rivalry between two radically opposed notions of government and individual freedom. In fact, throughout much of the 20th century, the world and society in general were divided: on one hand, there was the classical-liberal view, based on limited government, respect for civil society, and individual freedom and responsibility (represented, at least in relative terms, by American society); and on the other hand, there was the prevailing socialism, based on reliance on the state to impose the most varied utopias on civil society by force (represented during much of the 20th century by the former Soviet Union). In classical Greece we can also identify two such complete opposites.

There was the relatively more liberal and democratic city of Athens, which was able to accommodate a thriving sphere of business and craft endeavors within a spontaneous order of social cooperation based on respect for and equality before the law. In contrast, there was the city of Sparta, which was profoundly militarist, and in which individual freedom was practically nonexistent, due to the belief that all resources must be subordinate to the state.

It is remarkable that the most eminent and distinguished Athenian thinkers and philosophers invariably lambasted and undervalued the commercial order that surrounded and supported them while they took every opportunity to extol the statist totalitarianism Sparta represented. It is as if the intellectuals of that era, like those of today, could not bear the fact that, though considered wise, they were unable to reap in economic terms the fruits of what they saw as their own worth. Likewise, they were unable to resist the temptation to impose their own views of what was good and evil on their fellow citizens, and they continuously aspired to do so via the coercive power of the state.

The recognition of this truth must not lead us to the mistaken belief that the relatively freer poleis were not also often victims of statism. For example, many politicians did not hesitate to justify imperialist Athenian policies, and even, as Pericles did in the 5th century BC, to misappropriate public funds in order to undertake mammoth works.1  Many politicians were also guilty of trying to convince citizens that what was important was to subject oneself to the will of the state, to ask at all times not what Athens could do for you, but what you could do for Athens.

“The principal characteristic shared by Socrates, Plato, and Aristotle — the three greatest philosophers of ancient Greece — was their inability to grasp the nature of the flourishing mercantile and commercial process.”

Moreover, the relatively freer poleis were still subject to a political cycle which, as odd and paradoxical as it may seem, continues to affect our present-day societies. Indeed, periods of greater civil liberty based on compliance with substantive laws were invariably followed by crises: cities fell victim to demagogy and the unrest stirred up by small groups with the intention of exploiting certain social groups in favor of other, supposedly larger and less privileged ones. Considerable social, economic, and political tension resulted and eventually led to severe civil disorder and conflict which, in turn, was used to justify increasing the power of the state, embodied in each set of historical circumstances by unscrupulous populist leaders who inevitably insisted upon being referred to as “saviors of the homeland.”

Some Embryonic Attempts at Economic Analysis

It is very difficult to know the precise thoughts of the first Greek philosophers, because the remaining documents are very few and fragmented. Nevertheless, there is evidence of some encouraging beginnings, which, had they been continued, might have cleared the way for an incipient formulation of the theory of the spontaneous market order.

For example, as early as the 8th century BC, Hesiod indicates in his poems that scarcity is always present in human actions and is the reason we must allocate available resources efficiently. Furthermore, he mentions the sort of competition that emulation sparks, and which he calls “good conflict,” and he regards it as a vital entrepreneurial force that often permits the surmounting of the big problems the shortage of resources poses. Moreover, Hesiod felt competition was only possible where there was respect for justice and the law, which foster order and harmony in society. In this sense, Hesiod — and Democritus to a certain extent — was much closer to the correct notion of the spontaneous market order than Socrates, Plato, and even Aristotle himself would later be.

After Hesiod, we should give some thought to the Sophist philosophers. Despite the bad press they have received up to the present day, they were certainly much more libertarian, at least in relative terms, than the great philosophers who came later. In fact, the Sophists sympathized with trade, the profit motive, and the entrepreneurial spirit, and they distrusted the centralized, absolute power of the governments of the city-states. Even though we must admit they occasionally lapsed into a relativism similar to the one today’s postmodernists subscribe to, they far exceeded the later Socratic thinkers regarding the defense of individual freedom against the government. Finally, we must note the manner in which the scientistic conceit typically shown up to today in support of statism by most intellectuals has led to the systematic discrediting of the Sophists. Always considered politically “incorrect,” they are branded as illogical, dishonest thinkers.

Subsequently, other more modern thinkers, like Protagoras in Pericles’s time, theorized about the need for social cooperation and insisted that “man is the measure of all things.” Taken to its logical conclusion, philosophically speaking, this notion might have given rise to the natural emergence of subjectivism and methodological individualism, which are essential starting points in any economic analysis of social processes. Also, the master historian Thucydides appears to have a more accurate conception of the spontaneous, evolutionary nature of the social order than do many of his contemporaries, and in his outline of the funeral oration given by Pericles, he emphasized better than anyone the relatively more classical-liberal2  quality of Athenian society.

Finally, we should mention Demosthenes, the Greek world’s great champion of freedom against the despotism of the tyrant, Philip. It is no coincidence that Demosthenes understood the customary, evolutionary essence of law, and that hence he was able to overcome the reductionist dichotomy the Greeks had established between the physical (natural) world and the supposedly artificial world of laws and conventions. Indeed, in general the Greeks failed to comprehend that the natural cosmos must include the spontaneous market order and the social relationships which are the object of study in economics, for the Greeks believed that anything related to society was always artificially and deliberately caused by its organizers (whom they hoped would be dictator-philosophers like those imagined by Plato).

The subjectivist viewpoint, around which all modern economic science revolves, can be found, for example, in the definition of wealth that Xenophon offers in his Oeconomicus, when he defines property as “those things which the possessor should find advantageous for the purposes of his life.” Moreover, Xenophon could be considered the first scholar to introduce the concept of dynamic efficiency, namely the increasing of one’s estate by using it to do business (together with the concept of static efficiency, which is based on avoiding waste and which Xenophon believes can be achieved by keeping the family estate in perfect order).

At any rate, despite these promising beginnings, and despite great contributions in other areas of philosophical and scientific thought (and maybe precisely because of these contributions), Greek philosophers in general lapsed into the fatal conceit of the scientistic intellectual. Thus they were blinded completely when it came to recognizing the market and the evolutionary social order, and they fell into the arms of statism; it became “politically correct” to scorn the commercial and mercantile activity of their contemporaries and to mercilessly criticize relatively more classical-liberal thinkers (be they Sophists or not).

The Particularly Alarming Examples of Socrates, Plato, and Even Aristotle

From the standpoint of our topic, the principal characteristic shared by Socrates, Plato, and Aristotle — the three greatest philosophers of ancient Greece — was their inability to grasp the nature of the flourishing mercantile and commercial process taking place between the different Greek cities or poleis (both in Greece itself and in Asia Minor and the rest of the Mediterranean). When they spoke of the economy, these philosophers relied on their instincts rather than on observation and reason. They scorned the work of craftsmen and merchants and underestimated the importance of their disciplined, daily efforts.

Hence, it was through these philosophers that the traditional opposition of intellectuals to anything involving trade, industry, or entrepreneurial profit began. This “anticapitalistic mentality“ would become a constant theme among “enlightened” thinkers all through the intellectual history of mankind from that point until our time.

The philosopher Socrates serves as a paradigmatic illustration of this intellectual opposition to anything involving entrepreneurial profit, industry, or the market. We must note the arrogant tone and false modesty shown by Socrates in his defense speech before the jury which tried him, a speech Plato records. There is no doubt that Socrates exerted a negative influence on the youth of the city of Athens, whom he attracted by ridiculing the life’s work of their parents, who selflessly devoted themselves to their honest, daily efforts in the fields of trade, craftsmanship, and the market.

Socrates felt that life’s ideal goal lay in the search for “virtue,” understood as disdain for material wealth, and specifically, entrepreneurial profit. Socrates seized every opportunity to boast of his poverty and to idealize the supposed virtues of the totalitarian state of Sparta, which at that time represented ideals opposed to those of Athens. In fact, in his defense speech, he outrages the jury by proclaiming that his services to the state of Athens were so many that instead of being tried, he should receive a life pension paid for by everyone (in the form of food financed by the city for the duration of his life!).

What is even worse is that Socrates’s statolatry was so obsessive that it led him to confuse the positive law derived from the city-state with natural law. He believed people should obey all the positive laws derived from the state, even if they are contra naturam, and thus he laid the philosophical foundations for the legal positivism on which every tyranny to emerge after him in history would rest.

In short, from the standpoint of the scientific theory of market processes, the influence of Socrates is definitely disastrous. He started and promoted the anticapitalist intellectual tradition. He showed a total lack of understanding about the spontaneous market order, itself precisely the source of the Athenian prosperity that permitted Socrates and the rest of the philosophers of his school the luxury of not working and of devoting themselves to thinking instead. And in payment for this environment of relative freedom and prosperity, Athens receives from Socrates only contempt and misunderstanding.

Finally, we should mention this philosopher’s more-than-egotistic self-immolation. He himself recognized that at his age and with his ailments, there is little he could have done in the few years he would have had left had he accepted the exile his judges and executioners offered him on a platter. Thus, he decided to go down in history by making himself the victim of a supposedly oppressive system, when his death was actually a timely and self-seeking suicide conceived by an arrogant, privileged mind. Indeed, he also sought to use this death to give legitimacy to the worship of oppressive statism while discrediting classical-liberal individualism.

With a teacher like Socrates, it is unsurprising that Plato compounded his teacher’s errors. Plato provides the highly dangerous philosophical justification for the most inhuman statism, which has been directly or indirectly imbibed by every tyrant to oppress humanity up to the present day. Plato was the purest embodiment of the gravest intellectual sin a scientist can commit: to have the “fatal conceit“ of believing himself wiser than his fellow human beings and thus authorized to impose his own views upon them by force.

Typical of Plato are attacks on private property; praise for common ownership; contempt for the institution of the traditional family; a corrupt concept of justice; a statist and nominalist theory of money; and, in short, the extolling of the ideals of the totalitarian state of Sparta. These are all typical characteristics of the intellectual who believes himself wiser than and superior to everyone else and who, nevertheless, is ignorant of even the most essential principles of the spontaneous market order, which makes civilization possible.

Furthermore, Plato champions the interest of the state against that of individuals, and he even goes to the extreme of attempting to put his utopian ideals of state tyranny into practice. Inevitably, he and his disciples failed in all of their attempts in Syracuse and in the rest of Greece.

Finally, even in the field of epistemology, Plato’s contributions were lethal in the long term. His supposed essentialism brought in, through the back door, the crudest positivist historicism: in the social sphere, he tried to derive the conceptual essences from the study of history, thus laying the foundations for the historical-positivist philosophy that has done so much harm by encumbering the development of social science even up to now.

In short, with Plato, the intellectual ideal of the arrogant scientist who aims to become a “social engineer” to mold society at his whim gained currency. This approach was even further reinforced with the school of the mathematician Pythagoras, who believed virtue was found in the “equality” and “equilibrium” he continually observed in his mathematical formulas and principles, which he felt should be extrapolated to society.

Though Aristotle did not go to the socialist extremes Plato did, he also failed — and dismally — to comprehend in scientific terms the spontaneous market order. A philosopher in the service of the worst dictator of his time (Philip of Macedonia, who put an end to the subtle network of independent city-states that comprised the ancient Greek world), Aristotle was the private teacher of the tyrannical, reckless despot, Alexander the Great. It comes as no surprise that Aristotle failed to escape the sin of intellectual conceit, which Socrates, and especially Plato, had committed: Aristotle also felt nostalgia for the statism of Sparta and for everything the totalitarianism of that city-state represented.

It is true that he did not go to Plato’s extremes, that he defended private property, and even that he intuited the subjective theory of value in his distinction between the “use value” and the “exchange value” or price of things. However, he condemned usury and never understood the critical importance of interest as a market price that coordinates the behavior of consumers, savers, and investors. His theory of justice is extremely confusing, since it distinguishes between two forms, “distributive” and “commutative” justice, which have little or nothing to do with adapting human behavior to general legal and moral principles and which, as they rest on supposed equivalences, have confused human thought on such an important topic practically to the present day.

Moreover, an almost perfect illustration of his failure to grasp the evolutionary, spontaneous market order lies in his conviction that a polis of over 100,000 inhabitants could never survive, because its government would be unable to organize it. Aristotle understood the polis solely as a self-sufficient body organized from above (autarkia), and not as a historic manifestation of the spontaneous process of social cooperation led by flesh-and-blood human beings endowed with an innate entrepreneurial capacity. Finally, Aristotle followed the Socratic tradition of undervaluing work and entrepreneurial profit, which, in an anonymous and decentralized manner, supported the advanced stage of civilization that is precisely what allowed him and the rest of the philosophers to survive.

Aristotle also failed to explain the reasons for exchanges. He mistakenly concluded that when they occur, there must be “proportional reciprocity” (an erroneous idea Marx would ultimately use to form the basis of the false theory of labor value and its corollary, the Marxist theory of exploitation). Aristotle distrusted wealth (ploutos); he expressly criticized entrepreneurial profit3  and undervalued and utterly dismissed traders.4  He also condemned interest (tokos), which he considered an unjustified generation of money from money.

Furthermore, his incapacity to comprehend the spontaneous emergence of institutions led him to state that money was a deliberate human invention (and not, as it in fact is, the result of an evolutionary process), and he also failed to see why the demand for money is never unlimited. Particularly when we take into account Aristotle’s intellectual brilliance, all of these errors he made contrast sharply with his great contributions to the other sciences, and especially to the field of epistemology.

It is true that Aristotle shared the errors of Socrates and Plato, since he did not understand customary law, nor the market, nor the rest of the social institutions as spontaneous orders, nor was he able to distinguish between civil society and the state (a distinction the Roman Stoics would grasp perfectly two centuries later). Still, in the field of epistemology, his contributions were momentous. His distinction between potentiality and actuality would even be applied centuries later to explain the evolution of human nature. His conception of formal essences and their specific material realization would serve as a basis for the epistemological distinction between theory and history and would permit their appropriate incorporation.

Closer to the field of economics, we must recognize the Aristotelian approach to the subjective concept of value, and specifically the distinction between the concept of use value (subjective) and that of exchange value (the market price in monetary units). This, to an extent, provides the foundation for the connection between the subjective, inside world of valuations and the objective, outside world of numerical calculations, which makes economic calculation possible. Finally, in contrast with the socialist statism of Socrates, and particularly of Plato, Aristotle built a rational defense of private property, a defense which, though lukewarm and incomplete, for many centuries would constitute the best-known philosophical basis for private property.

A Brief Note on Taoism.

Lastly, it is very interesting to note that, during the same era when classical Greek thought was being forged (from the 6th to the 4th century BC), ancient China saw the beginnings of three great currents of thought: that of the so-called “Legalists” (who supported the centralized state), that of the Confucianists (who tolerated it), and that of the Taoists, of a much more liberal bent and extremely interesting for historians of economic thought. Chuang Tzu (369–286 BC) goes as far as to say that “good order results spontaneously when things are let alone.” In his criticism of the interventionism of rulers, he describes them as “robbers.” Also, according to Rothbard, Chuang Tzu was the first anarchist thinker in history. In fact, Chuang Tzu wrote that the world “does simply not need governing; in fact it should not be governed at all.”

Chuang Tzu adhered to the individualistic, liberal views of Lao Tzu, the father of Taoism, and took them to their most logical conclusions. In Confucius’s day (from the 6th to the 5th century BC), Lao Tzu concluded that government oppressed the individual and was always “more to be feared than fierce tigers.” Therefore, he believed the best policy for governments was “inaction,” because only then could the individual flourish and achieve happiness.

Two centuries later, the historian Ssu-ma Ch’ien (145–90 BC) theorized on the entrepreneurship typical of the market, which he felt consisted of keeping “a sharp eye out for the opportunities of the times.” As well as being an advocate of laissez-faire, he correctly identified the effects of government debasement of the coinage, which causes a decrease in its purchasing power (that is, a rise in prices).

Taoism continued its development for centuries, and in the current era, we find Pao Ching-yen (early 4th century AD), for whom the history of the state is a history of violence and oppression of the weak. The state institutionalizes coercion and worsens and intensifies isolated instances of violence, expanding them on a scale unimaginable in the absence of the state. Pao Ching-yen concludes that the common notion that a strong government is necessary to fight disorder reflects the fallacy of mistaking the cause for the effect. It is the state that generates violence and corrupts the individual behavior of the human beings subjected to it; and all the while it stimulates theft and banditry among them.

In stark contrast with the views of the Greek philosophers and with those of the rest of western intellectuals to the present day, Chinese Taoist thought always defended individual liberty and laissez-faire while attacking the systematic and coercive use of violence typical of government.

  • 1These include the Parthenon, which was built using resources that had been accumulated at great effort by different poleis for other, defensive, ends.
  • 2Here, “classical-liberal” means the philosophy of freedom as the classical liberals would understand it.
  • 3Politics, Book 7.
  • 4Politics, Books 3 and 4.
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