1) Economy in Plato:
Greek philosopher Plato (429-347 B.C.E) was born into an aristocratic family in Athens. He was one of Socrates’ students. He built the Academy, the first significant school of thinkers, where he taught mathematics and philosophy. The Republic and The Laws, two of his most well-known works, are the principal foundations of his economic philosophy.
Plato attributed the emergence of the state to economic factors. “A state arises out of the needs of mankind”, declared Plato. Nobody is independent. We all have a lot of wants. The state banded together in order to provide the goods required to satiate human needs. The state is the collective name for the partners and aids of this meeting. There were two classes in Plato’s ideal society: the rulers and the ruled. The monarch and the soldiers were the rulers, and the artisans and unskilled labourers were the ruled.
Plato connects the emergence of a State to the division of labour. The Wealth of Nations by Adam Smith (1723–1790) was based on a fundamental idea that Plato’s division of labour represented. Private property is another idea with which Plato was concerned. In essence, Plato was against having private property.
The contributions of Plato clearly advanced the state of economic thought at the time. He acknowledged the division of labour, which was then used to facilitate easier and better production. He did not, however, acknowledge the benefits of learned skill, waste reduction, etc., as did later economists. He was one of the original thirteen who turned economics into an ally of ethics. Plato could only be thought of as a social reformer at most, not as an economist.
2) Economy in Aristotle:
The science of economics was founded by the first analytic economist, Aristotle (384-322 B.C.E). He was Alexander the Great’s teacher and a student of Plato’s, and even though Aristotle was a pupil of Plato, he disagreed with him on crucial matters like the origin of the state, the value of private property, communism, etc. Plato was a deductive thinker, whereas Aristotle used the inductive approach, which was more realistic.
The necessities of humans, in Aristotle’s view, are the origin of the state. He uses the example of a household to describe how the state came to be. An organisation called the household was created to meet the needs of the family members. A group of houses form the village, which eventually gives rise to the state. There would be two classes in Aristotle’s ideal state: the rulers and the ruled. The former was divided into four categories: priest, statesmen, magistrates, and military class. Farmers, artisans, and labourers were among the ruled. According to their individual ages, the members of the ruling class would undertake their duties. They served as soldiers when they were young and physically capable, statesmen when they were middle-aged, and priests when they were elderly.
Aristotle favoured the concept of private property whereas Plato backed public property. Public property, according to Aristotle, wouldn’t receive the same level of care as private property. For him, there were five reasons why private property was preferable to public property: progress, peace, practice, pleasure, and philanthropy.
While analyzing the aspects of household management, Aristotle established the theory of economics. Economics and chrematistics were two of the components in this. The former dealt with the art of using wealth to satisfy demands, while the latter dealt with the art of getting riches either through earning money or through trade.
Aristotle created the theoretical framework for economics. He may be dubbed “the first analytical economist” with justification. To explain the beginnings and expansion of the city state, he used the inductive technique. Even now, his principles of private property hold true. He also established the distinction between value-in-use and value-in-exchange in the domain of exchange.
Additionally, his approach to money is the strongest aspect of his economic philosophy. Overall, Aristotle made a stronger contribution to the growth of economic philosophy, and the ideas he articulated in his “Ethics” had a bigger impact on the writers of the Middle Ages.
3) Economy in Farabi:
Al-Farabi’s (c. 870 – c. 950) idealist philosophy is holistic, harmonic, systematic, and normative in approach. As a result, it is feasible to gain from the philosophical outlook of this great thinker who imagined “The Ideal State” within the framework of economic philosophy.
The essential components of an ideal economic system in the modern world might be characterised as “monotheistic”, having “collective awareness” and one that includes an “ideal person” or has the “ideal society”, when taking into account Al-Farabi’s philosophy. Accordingly, research in the subject of economics should be conducted using multidisciplinary methods and by utilising significant findings of the thinker, especially with regards to humans. The concerns raised by Al-Farabi, who envisioned “the ideal state”, are identical to the philosophical components required for an ideal community or economic structure.
4) Economy in Vico:
Giambattista Vico (1688-1744), who served as a point of reference for the Neapolitean intellectual milieu of the 18th century, responded to the social repercussions of Bayle’s atheism. Vico was extremely familiar with Pierre Bayle’s work, and he was aware that failing to respond to Bayle’s inquiry would have meant failing to refute his argument. As a result, the first line of the first edition of The New Science (Vico) was “the natural law of nations was certainly born with the common customs of nations; nor was there ever a nation of atheists in the world, because all nations began with some religion”.
He had to demonstrate how the occurrence of moral evils in society is explained by God’s providence. He did this by using two arguing strategies. He activated the heterogenesis of ends mechanism on the first level. Vico’s perspective on the heterogenesis of goals described in The New Science is well recognised among economists today thanks to the research of Hirschman (1977), who first identified Vico as one of the inventors of the invisible hand theory.
According to Vico, civil dynamics mechanisms that transform ferocity into the army and strength, avarice into trade and richness, and ambition into politics and the skill of good administration are features of the world’s design by providence.
5) Economy in Ricardo:
One of the key figures in the creation of economic theory was the outstanding British economist, David Ricardo (1772-1823). The “Classical” system of political economy was developed and precisely formulated by him. Throughout the 19th Century, Ricardo’s influence dominated economic thought.
The theory of comparative advantage, which asserts that countries could profit from international trade by specialising in the production of goods for which they have a relatively lower opportunity cost in production even if they do not have an absolute advantage in the production of any specific good, was one of the notable concepts that Ricardo introduced.
The labour theory of value is one of Ricardo’s other most well-known contributions to economics. According to the labour theory of value, the amount of labour required to manufacture a good can be used to determine its value. According to the principle, the price should be determined by the overall cost of manufacturing rather than the amount paid for labour.
The concept of rents—benefits that asset owners receive merely as a result of their ownership rather than as a result of their participation in any genuine productive activity—was first introduced by economist David Ricardo. The theory of rentals demonstrates that in its original application of agricultural economics, the advantages of an increase in grain prices will typically flow to the owners of agricultural lands in the form of rents paid by tenant farmers.
In public finance, Ricardo argued that the outcomes for the economy would be the same whether a government chose to finance its expenditures through immediate taxation or by borrowing and deficit spending. If taxpayers are rational, they will set aside money equal to current deficit spending to offset any anticipated rise in future taxes needed to pay for ongoing deficits, resulting in a net decrease in overall spending of zero. Therefore, if a government uses deficit spending to stimulate the economy, private spending will simply decline by a similar amount as people increase their savings, and the overall effect on the economy will be neutral.
6) Economy in Marx:
The classical economics developed by economists like Adam Smith is rejected by Marxian economics. Smith and his contemporaries held the view that the free market, a supply and demand-driven economic system with little to no government intervention and a focus on maximising profit, naturally promotes society. Marx (1818-1883) disagreed, claiming that capitalism consistently favours a small number of people. According to this economic theory, the ruling class enriches itself by gaining value from the cheap labour the working class provides.
Marx encouraged government intervention in economic theory, in contrast to more traditional approaches. He asserted that the state should carefully oversee economic decisions rather than leaving them to producers and consumers to ensure that everyone wins. As more people are reduced to worker status, he predicted that capitalism will ultimately fail, sparking a revolution and handing over control of production to the government.
Traditional Marxian economics is based on the labour theory of value, which is well demonstrated in Marx’s masterpiece, Capital (1867). The theory’s fundamental premise is straightforward: the quantity of work typically needed to produce a good or service may be used to determine that good or service’s worth. Despite being manifestly erroneous, the labour theory of value was widely accepted by classical economists up until the middle of the nineteenth century.
Marx attempted to undermine capitalism by pushing the labour theory of value to its breaking point, but in doing so, he unwittingly exposed the flaws in the logic and underlying premises of the theory. Marx’s assertion that classical economics had failed to effectively explain capitalist profits was accurate. Marx, however, also failed. The labour theory of value was disregarded by the economics profession by the late nineteenth century. Modern mainstream economics think that abusing labour is no longer how business owners make money.
7) Economy in Keynes:
John Maynard Keynes (1883-1946), a British economist, was the driving force behind an economic paradigm shift that challenged the then-dominant belief that full employment would be produced by free markets if workers were willing to be flexible in their wage expectations.
The central tenet of Keynes’s theory, which bears his name, is the claim that the most significant economic factor is aggregate demand, which is determined by adding together consumer, business, and government expenditure. Keynes argued further that there are no self-balancing processes in open markets that produce full employment. Keynesian economists use public policies that seek to attain full employment and price stability to defend government intervention.
Keynes contended that lengthy periods of high unemployment could result from a lack of overall demand. Consumption, investment, government purchases, and net exports are the aggregate of four factors that determine an economy’s output of goods and services. One of these four factors must be the source of any growth in demand. However, during a recession, powerful forces frequently suppress demand as spending decreases. As an example, during economic downturns uncertainty frequently undermines consumer confidence, leading people to cut on spending, particularly on luxuries like a home or a car. Businesses may spend less on investments as a result of customers spending less because there is less of a need for their products. As a result, the government is now responsible for raising output. Keynesian economics holds that government intervention is required to control the business cycle, or the ups and downs in economic activity.
The Keynesian explanation of how the economy functions is based on three main principles: First, numerous economic decisions, both public and private, have an impact on aggregate demand. Second, Prices and salaries, in particular, are sluggish to adjust to changes in supply and demand, which causes cyclical shortages and surpluses, particularly in labour and lastly, the main short-run effects of changes in aggregate demand, whether predicted or not, are on actual output and employment, not on prices.
The relationship between the demands for saving, investment, and liquidity forms the foundation of Keynes’ economic theory (i.e. money). Although saving and investing are equivalent by necessity, decisions about them are influenced by several factors. According to Keynes’ theory, the urge to save is largely a function of income: the wealthier a person is, the more money they will try to save. The relationship between the return on capital available and the interest rate, on the other hand, determines the profitability of an investment. The economy needs to reach a balance where no more money is being saved than will be invested. This can be done by reducing income and, as a result, the level of employment.
In the traditional model, income is not adjusted to maintain saving-investment equilibrium; rather, the interest rate is. However, Keynes argues that because the interest rate already equalises the demand and supply of money in the economy, it is unable to adapt to maintain two independent equilibria. According to him, the financial function comes out on top. Because of how the monetary economy of interest and liquidity interacts with the real economy of production, investment, and consumption, Keynes’ theory is a theory of money as much as it is a theory of employment.
8) Economy in Thaler:
The 2017 Nobel Prize in Economic Science went to Richard H. Thaler for “his contributions to behavioural economics”. The concept of rational humans used by traditional economists is one that Thaler has largely contested in his work. He demonstrated several systematic ways in which people deviate from reason as well as some of the choices that follow. He has suggested solutions to assist people save for retirement using these realisations. Additionally, Thaler is a proponent of “libertarian paternalism”. The fundamental concept is to have paternalist laws set by the government as defaults, but to allow people to easily opt out.
In “Toward a Positive Theory of Consumer Choice” (1980), Thaler explains the theory underlying the endowment effect. This cognitive bias causes us to value our belongings more than we would if we did not own them, which has a considerable negative impact on our decision-making. One instance of how Thaler’s work undermines the prevailing economic ideas is the endowment effect. Thaler believes that it is unrealistic to assume that people always make rational judgments. However, this assumption was and still is made frequently.
Thaler gave us a better knowledge of decision-making by questioning the presumptions that economic theory was founded on. Humans frequently and predictably make decisions that are unreasonable and irrational. A crucial hypothesis for accurately portraying sales is the endowment effect. Understanding this bias and the theory underlying it is crucial whether you’re a salesperson trying to maximise your sales or an academic researching sales.