Economic Thought of Aristotle and Plato

By Ahmad Qazi

ARISTOTLE

• Allocation of scarce resources was a moral issue to Aristotle

• in book I of his Politics, Aristotle expresses that consumption was the objective of production

• surplus should be allocated to the rearing of children

• personal satiation ought to be the natural limit of consumption

• Child mortality was high• Aristotle used the labels of "natural" and

"unnatural"

Natural

• Natural transactions were related to the satisfaction of needs and yielded wealth that was limited in quantity by the purpose it served

Un Natural

• Un-natural transactions aimed at monetary gain and the wealth they yielded was potentially without limits. He explained the un-natural wealth had no limits because it became an end in itself rather than a means to another end—satisfaction of needs

• This distinction is the basis for Aristotle's moral rejection of usury

• Later, in book VII Chapter 1 of Politics, Aristotle asserts

“external goods have a limit, like any other instrument, and all things useful are of such a nature that where there is too much of them they must either do harm, or at any rate be of no use, to their possessors”

• some interpret this as capturing a concept of diminishing marginal utility

• However a general mass also refuses of the concept

• Aristotle's Nicomachean Ethics, particularly book V.V, has been called the most economically challenging analytic writing in ancient Greece

• Aristotle talks of justice, exchange and equality of distribution

• He discussed isolated exchanges rather than markets

• Aristotle laid stress on just distribution of prices among individuals of different interests

• Aristotle suggested three different proportions to analyze distributive, corrective, and reciprocal or exchange transactions: the arithmetic, the geometric, and the harmonic.

Arithmetic

• Simply calculating the demand price level on basis of demand and need of a good in a society or by an individual

Geometric

• It is for corrective measures• Here the point of both satisfaction is met

geometrically

Harmonic

• The harmonic proportion is interesting, as it implies a strong commitment to the subjective values of the traders.

• Here the harmonic mean of the two suggested prices is taken and then the price thus obtained is the just price

PLATO

• Theory of division of labor• First observed in a copy of

the Republic(Politeia), written more than 2,400 years ago by none other than Plato

• The book purports to deal with the nature and conditions of a just republic, as well as with the perversions of justice in man and society

• Plato is the godfather of all western philosophers, good and bad. Libertarians heartily despise him as the arch-champion of totalitarian political schemes and the mentor of no less than nine Greek tyrants. Yet the fact is that he did pioneer the theory of the division of labor, and it is instructive to see precisely where he went wrong.

Theory of Labor

• cooperation among any number of persons is more productive than the individual efforts of the same persons in isolation from one another.

• A must even though hatreds upon other factors in order to effectively produce

• The economic incentives springing from the division of labor explain the origin and nature of human societies

• Plato starts off by identifying the better satisfaction of human needs as the root cause of association.

• In book II of the Republic, Plato follows a macro approach to the analysis of justice.

• He deals with social organization because he expects to see here a larger image of the very same problems of justice that also exist on the micro level of individuals.

Three reasons for division of labor

1. there are natural productive differences between the individuals, which make one person a better tailor, while another one might be a better farmer, and so on;

2. the daily exercise resulting from specialization improves the workmanship;

3. many jobs need to be done at the right moment in time and therefore require permanent availability of some person charged with this task.

• The overall result of the division of labor is therefore to increase the physical productivity of individual human effort, to facilitate this effort, and to make it more beautiful.

• Plato argues that the citizens need to cooperate not only among themselves, but also with people from other cities. This is because of the natural imperfections of the place where the city is built.

• In order to get merchandise from strangers, one needs to pay them with merchandise that is in short supply in their place. Therefore it is necessary for our citizens to produce in excess of their own needs.

• Exchange a driving force of consumption

Opulent Cities

• To move towards luxury• To move towards expansion• When a limit is reached, then a need to go on

other land arrises and thus wages war• For war making men are chosen very carefully• Having a dog nature ( they not attacking own

people but strangers)• Thus conversion into opulent forces war

Government Role

• Only limited to have a check on the exchanges and maintaining property rights

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