Ancient economic thought
Encyclopedia
In the history of economic thought
, ancient economic thought refers to the ideas from people before the Middle Ages.
was driven by the need to efficiently grow crop
s in river basins. The Euphrates and Nile valleys were homes to earliest examples of codified measurement
s written in base 60 and Egyptian fractions.
Egyptian keepers of royal granaries, and absentee Egyptian landowners reported in the Heqanakht papyri
. Historians of this period note that the major tool of accounting for agrarian societies, the scales used to measure grain
inventory
, reflected dual religious and ethical symbolic meanings. The Erlenmeyer tablets give a picture of Sumerian production in the Euphrates Valley around 2200-2100 BC, and show an understanding of the relationship between grain and labor inputs (valued in "female labor days") and outputs and an emphasis on efficiency. Egyptians measured work output in man-days. The development of sophisticated economic administration continued in the Euphrates and Nile valleys during the Babylonian Empire and Egyptian Empires when trading units spread through the Near East within monetary systems. Egyptian fraction and base 60 monetary units were extended in use and diversity to Greek, early Islamic culture
, and medieval cultures. By 1202 AD, Fibonacci
's use of zero and Vedic-Islamic numerals, motivated Europeans to apply zero as an exponent, birthing modern decimals 350 years later.
The city-state
s of Sumer
developed a trade and market economy
based originally on the commodity money
of the Shekel
which was a certain weight measure of barley
, while the Babylonians and their city-state neighbors later developed the earliest system of economics
using a metric
of various commodities, that was fixed in a legal code. The early law codes from Sumer could be considered the first (written) economic formula, and had many attributes still in use in the current price system
today: codified amounts of money
for business deals (interest rates), fines in money for 'wrong doing', inheritance rules, laws concerning how private property is to be taxed or divided, etc. For a summary of the laws, see Babylonian law
.
Earlier collections of (written) laws, just prior to Hammurabi, that could also be considered rules and regulations as to economic law for their cities include the codex of Ur-Nammu
, king of Ur
(ca. 2050 BC), the Codex of Eshnunna (ca. 1930 BC) and the codex of Lipit-Ishtar
of Isin
(ca. 1870 BC).
and Xenophon
. Many other Greek writings show understanding of sophisticated economic concepts. For instance, a form of Gresham’s Law is presented in Aristophanes
’ Frogs, and beyond Plato
's application of sophisticated mathematical advances influenced by the Pythagoreans
is his appreciation of fiat money
in his Laws
(742a–b) and in the pseudo-Platonic dialogue, Eryxias. Bryson of Heraclea
was a neo-platonic who is cited as having heavily influenced early Muslim economic scholarship.
The influence of Babylonia
n and Persian thought on Greek administrative economics is present in the work of Greek historian Xenophon. Discussion of economic principles are especially present in his Oeconomicus, his biography of Cyrus the Great
, Cyropaedia, Hiero
, and Ways and Means
. Hiero is a minor work which includes discussion of leaders stimulating private production and technology through various means including public recognition and prizes. Ways and Means is a short treatise on economic development, and showed an understanding of the importance of taking advantage of economies of scale and advocated laws promoting foreign merchants. The Oeconomicus discusses the administration of agricultural land. In the work, subjective personal value of goods is analyzed and compared with exchange value
. Xenophon uses the example of a horse, which may be of no use to a person who does not know how to handle it, but still has exchange value. Although this broadens the idea of value based in individual use to a more general social concept of value that comes through exchange, scholars note that this is not a market theory of value. In Cyropaedia Xenophon presents what in hindsight can be seen as the foundation for a theory of fair exchange in the market. In one anecdote, the young Cyrus is to judge the fairness of an exchange made between a tall and a short boy. The tall boy forces the pair to exchange tunics, because the tall boy's tunic is too short, shorter than the short boys, which is too tall for him. Cyrus rules the exchange fair because it results in a better fit for both boys. Cyrus' mentors were not pleased with Cyrus' basing his decision on the values involved, as a just exchange must be voluntary. Later in the biography, Xenophon discusses the concept of division of labor, referencing specialized cooks and workers in a shoemaking shop. Scholars have noted that Adam Smith's early notes about this concept "read like a paraphrase of Xenophon's discussion of the role of the carpenter as a "jack of all trades" in small cities and as a specialist in large cities. Marx attributes to Cyropaedia the idea that the division of labor correlates to the size of a market. Xenophon also presents an example of mutual advantage from exchange in a story about Cyrus coordinating an exchange of surplus farmland from Armenians, who were herders, and surplus grazing land from Chaldeans, who were farmers.
Allocation of scarce resources was a moral issue to Aristotle, and in book I of his Politics, Aristotle expresses that consumption was the objective of production, and the surplus should be allocated to the rearing of children, and personal satiation ought to be the natural limit of consumption. (To Aristotle, the question was a moral one: in his era child mortality was high.) In transactions, Aristotle used the labels of "natural" and "unnatural". Natural transactions were related to the satisfaction of needs and yielded wealth that was limited in quantity by the purpose it served. 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 and some interpret this as capturing a concept of diminishing marginal utility, thought there has been marked disagreement about the development and rôle of marginal utility considerations in Aristotle's value theory. Certainly this book formulates an ordinal hierarchy of values, which later appeared in Maslow's contribution to motivation theory.
Aristotle's Nicomachean Ethics
, particularly book V.v, has been called the most economically provocative analytic writing in ancient Greece. Therein, Aristotle discusses justice in distribution and exchange. Still considering isolated exchanges rather than markets, Aristotle sought to discuss just exchange prices between individuals with different subjective values for their goods. Interestingly, Aristotle suggested three different proportions to analyze distributive, corrective, and reciprocal or exchange transactions: the arithmetic, the geometric, and the harmonic. The harmonic proportion is interesting, as it implies a strong commitment to the subjective values of the traders. Sixth century A.D. philosopher Boethius used the example of 16 as the harmonic mean
of 10 and 40. 16 is the same percentage larger than 10 as it is smaller than 40 (60 percent of 10 is 6, while 60 percent of 40 is 24). Thus if two bargainers have subjective prices for a good of 10 and 40, Aristotle points out that in exchange, it is most fair to price the good at 16, due to the equality proportional differences from their price to the new price. Another interesting nuance in this analysis of exchange is that Aristotle also saw a zone of consumer surplus or mutual advantage to both consumers that had to be divided.
recognizing that planning and commitments over time are necessary for efficient production and trade. The large body of law was unified as the Corpus Juris Civilis
in the 530s AD by Justinian. who was Emperor of the Eastern Roman Empire from 526-565 AD. In Institutiones, the principle of just trade is stated as "tantum bona valent, quantum vendi possunt" ("goods are worth as much as they can be sold for").
of Sri Lanka had debased the currency of Ancient Sri Lanka
in order to produce monies to support his large scale infrastructure projects. Parakramabahu I also pioneered free trade
during his reign; a war was fought with Burma to defend free trade.
(c. 350 BC
-275 BC
) considered economic issues. He was a professor of political science
at the Takshashila University of ancient India
, and later the Prime Minister
of the Mauryan
emperor Chandragupta Maurya
. He wrote the Arthashastra
("Science of Material Gain" or "'Science of political economy" in Sanskrit
), which can be considered a precursor to Machiavelli's The Prince
. Many of the topics discussed in the Arthashastra are still prevalent in modern economics, including its discussions on the management of an efficient and solid economy, and the ethics
of economics. Chanakya also focuses on issues of welfare (for instance, redistribution of wealth during a famine) and the collective ethics that hold a society together.
The Arthashastra argues for an autocracy
managing an efficient and solid economy. The qualities described is in effect that of a command economy. It discusses the ethics of economics and the duties and obligations of a king. The scope of Arthaśāstra is, however, far wider than statecraft, and it offers an outline of an entire civil and criminal code and bureaucratic
framework for administering a kingdom, with a wealth of descriptive cultural detail on topics such as mineralogy, mining and metals, agriculture, animal husbandry and medicine. The Arthaśāstra also focuses on issues of welfare
(for instance, redistribution of wealth during a famine) and the collective ethics that hold a society together.
Chanakya says that artha (sound economies) is the most important quality and discipline required for a Rajarshi
, and that dharma
& kama are both dependent on it.
According to Chanakya, a conducive atmosphere is necessary for the state's economy to thrive. This requires that a state's law and order be maintained. Arthashastra specifies fines and punishments to support strict enforcement of laws (the Dandaniti).
(later Tao Zhugong) Chinese businessman, politician and strategist, wrote on economic issues. He discussed seasonal effects on markets, and business strategy among other things.
to fund wars and expansionism against the Xiongnu
. Although Confucian laissez faire was largely dominant throughout China's history, legalist policies often gained prominence in times of war or with the patronage of rulers, such as under Qin Shi Huang
, Sang Hongyang
, Wang Mang
and Wang Anshi
, though they were abolished shortly thereafter.
Wang Anshi
(1021–1086), one of China's most prominent reformers, lived during the medieval Song Dynasty
(960-1279 AD). Espousing heated reaction by conservative ministers at court, Wang Anshi's political faction of the New Policies Group enacted a series of reforms that centered around military reform, bureaucratic reform, and economic reform. Economic reforms introduced included low-cost loans for farmers (whom he considered the backbone of the Chinese economy in terms of production of goods and greatest source of the land tax), replacing the corvee
labor service with a tax instead, enacting government monopolies on crucial industries producing tea, salt, and wine, introduction of a local militia
to ease the budget spending on the official standing army of 1 million troops, and the establishment of a Finance Planning Commission staffed largely by political loyals so that his reforms could pass quickly with less time for conservatives to oppose it in court. Reformers and conservatives would oust each other from power once they had the support of the emperor.
(such as opposition to riba, interest), and from sunnah
, the sayings and doings of Muhammad
.
(1058–1111) classified economics as one of the sciences connected with religion, along with metaphysics, ethics, and psychology. Authors have noted, however, that this connection has not caused early Muslim economic thought to remain static. Persian philosopher Nasir al-Din al-Tusi
(1201–1274) presents an early definition of economics (what he calls hekmat-e-madani, the science of city life) in discourse three of his Ethics:
Many scholars trace the history of economic thought through the Muslim world, which was in a Golden Age
from the 8th to 13th century and whose philosophy
continued the work of the Greek
and Hellenistic
thinkers and came to influence Aquinas when Europe "rediscovered" Greek philosophy through Arabic translation. A common theme among these scholars was the praise of economic activity and even self-interested accumulation of wealth.
Persian philosopher Ibn Miskawayh
(b. 1030) notes:
This view is in conflict with an idea Joseph Schumpeter
called the great gap. The great gap thesis comes out of Schumpeter's 1954 History of Economic Analysis which offers a break in economic thought during the five hundred year period between the decline of the Greco-Roman civilizations and the work of Thomas Aquinas (1225–1274). However in 1964, Joseph Spengler's "Economic Thought of Islam: Ibn Khaldun" appeared in the journal Comparative Studies in Society and History and took a large step in bringing early Muslim scholars to the contemporary West.
The influence of earlier Greek
and Hellenistic thought
on the Muslim world began largely with Abbasid
caliph
al-Ma'mun
, who sponsored the translation of Greek
texts into Arabic
in the 9th century by Syria
n Christian
s in Baghdad
. But already by that time numerous Muslim scholars had written on economic issues, and early Muslim leaders had shown sophisticated attempts to enforce fiscal and monetary financing, use deficit financing, use taxes to encourage production, the use of credit instruments for banking, including rudimentary savings and checking accounts, and contract law.
Among the earliest Muslim economic thinkers was Abu Yusuf
(731-798), a student of the founder of the Hanafi Sunni School of Islamic thought, Abu Hanifah. Abu Yusuf was chief jurist for Abbasid Caliph Harun al-Rashid
, for whom he wrote the Book of Taxation (Kitab al-Kharaj). This book outlined Abu Yusuf's ideas on taxation, public finance, and agricultural production. He discussed proportional tax on produce instead of fixed taxes on property as being superior as an incentive to bring more land into cultivation. He also advocated forgiving tax policies which favor the producer and a centralized tax administration to reduce corruption. Abu Yusuf favored the use of tax revenues for socioeconomic infrastructure, and included discussion of various types of taxes, including sales tax, death taxes, and import tariffs.
The power of supply and demand
was understood to some extent by various early Muslim scholars as well. Ibn Taymiyyah illustrates:
Other important Muslim scholars who wrote about economics include al-Mawardi
(1075–1158) and Ibn Taimiyah (1263–1328).
Perhaps the most well known Islamic scholar who wrote about economics was Ibn Khaldun of Tunisia
(1332–1406), considered a father of modern economics
, Ibn Khaldun wrote on economic and political theory in the introduction, or Muqaddimah
(Prolegomena), of his History of the World (Kitab al-Ibar). In the book, he discussed what he called asabiyyah
(social cohesion
), which he sourced as the cause of some civilizations becoming great and others not. Ibn Khaldun felt that many social forces are cyclic, although there can be sudden sharp turns that break the pattern. His idea about the benefits of the division of labor also relate to asabiyya, the greater the social cohesion, the more complex the successful division may be, the greater the economic growth. He noted that growth and development positively stimulate both supply and demand, and that the forces of supply and demand are what determine the prices of goods. He also noted macroeconomic forces of population growth, human capital
development, and technological developments effects on development. In fact, Ibn Khaldun thought that population growth was directly a function of wealth.
Although he understood that money served as a standard of value, a medium of exchange, and a preserver of value, he did not realize that the value of gold and silver changed based on the forces of supply and demand. He also introduced the concept known as the Khaldun-Laffer Curve (the relationship between tax rates and tax revenue increases as tax rates increase for a while, but then the increases in tax rates begin to cause a decrease in tax revenues as the taxes impose too great a cost to producers in the economy).
History of economic thought
The history of economic thought deals with different thinkers and theories in the subject that became political economy and economics from the ancient world to the present day...
, ancient economic thought refers to the ideas from people before the Middle Ages.
Ancient Near East
Economic organization in the earliest civilizations of the fertile crescentFertile Crescent
The Fertile Crescent, nicknamed "The Cradle of Civilization" for the fact the first civilizations started there, is a crescent-shaped region containing the comparatively moist and fertile land of otherwise arid and semi-arid Western Asia. The term was first used by University of Chicago...
was driven by the need to efficiently grow crop
Crop
Crop may refer to:* Crop, a plant grown and harvested for agricultural use* Crop , part of the alimentary tract of some animals* Crop , a modified whip used in horseback riding or disciplining humans...
s in river basins. The Euphrates and Nile valleys were homes to earliest examples of codified measurement
Measurement
Measurement is the process or the result of determining the ratio of a physical quantity, such as a length, time, temperature etc., to a unit of measurement, such as the metre, second or degree Celsius...
s written in base 60 and Egyptian fractions.
Egyptian keepers of royal granaries, and absentee Egyptian landowners reported in the Heqanakht papyri
Heqanakht papyri
The Heqanakht Papyri or Heqanakht Letters , written around 2,000 BCE, have been placed in historical context since 1954, per Cerny, Jareslav . "Prices and Wages in Egypt in the Ramesside Period." Journal of World History, 1, 903–21...
. Historians of this period note that the major tool of accounting for agrarian societies, the scales used to measure grain
GRAIN
GRAIN is a small international non-profit organisation that works to support small farmers and social movements in their struggles for community-controlled and biodiversity-based food systems. Our support takes the form of independent research and analysis, networking at local, regional and...
inventory
Inventory
Inventory means a list compiled for some formal purpose, such as the details of an estate going to probate, or the contents of a house let furnished. This remains the prime meaning in British English...
, reflected dual religious and ethical symbolic meanings. The Erlenmeyer tablets give a picture of Sumerian production in the Euphrates Valley around 2200-2100 BC, and show an understanding of the relationship between grain and labor inputs (valued in "female labor days") and outputs and an emphasis on efficiency. Egyptians measured work output in man-days. The development of sophisticated economic administration continued in the Euphrates and Nile valleys during the Babylonian Empire and Egyptian Empires when trading units spread through the Near East within monetary systems. Egyptian fraction and base 60 monetary units were extended in use and diversity to Greek, early Islamic culture
Islamic Golden Age
During the Islamic Golden Age philosophers, scientists and engineers of the Islamic world contributed enormously to technology and culture, both by preserving earlier traditions and by adding their own inventions and innovations...
, and medieval cultures. By 1202 AD, Fibonacci
Fibonacci
Leonardo Pisano Bigollo also known as Leonardo of Pisa, Leonardo Pisano, Leonardo Bonacci, Leonardo Fibonacci, or, most commonly, simply Fibonacci, was an Italian mathematician, considered by some "the most talented western mathematician of the Middle Ages."Fibonacci is best known to the modern...
's use of zero and Vedic-Islamic numerals, motivated Europeans to apply zero as an exponent, birthing modern decimals 350 years later.
The city-state
City-state
A city-state is an independent or autonomous entity whose territory consists of a city which is not administered as a part of another local government.-Historical city-states:...
s of Sumer
Sumer
Sumer was a civilization and historical region in southern Mesopotamia, modern Iraq during the Chalcolithic and Early Bronze Age....
developed a trade and market economy
Economy
An economy consists of the economic system of a country or other area; the labor, capital and land resources; and the manufacturing, trade, distribution, and consumption of goods and services of that area...
based originally on the commodity money
Commodity money
Commodity money is money whose value comes from a commodity out of which it is made. It is objects that have value in themselves as well as for use as money....
of the Shekel
Shekel
Shekel , is any of several ancient units of weight or of currency. The first usage is from Mesopotamia around 3000 BC. Initially, it may have referred to a weight of barley...
which was a certain weight measure of barley
Barley
Barley is a major cereal grain, a member of the grass family. It serves as a major animal fodder, as a base malt for beer and certain distilled beverages, and as a component of various health foods...
, while the Babylonians and their city-state neighbors later developed the earliest system of economics
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
using a metric
Metric (mathematics)
In mathematics, a metric or distance function is a function which defines a distance between elements of a set. A set with a metric is called a metric space. A metric induces a topology on a set but not all topologies can be generated by a metric...
of various commodities, that was fixed in a legal code. The early law codes from Sumer could be considered the first (written) economic formula, and had many attributes still in use in the current price system
Price system
In economics, a price system is any economic system that affects its distribution of goods and services with prices and employing any form of money. Except for possible remote and primitive communities, all modern societies use price systems to allocate resources...
today: codified amounts of money
Money
Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past,...
for business deals (interest rates), fines in money for 'wrong doing', inheritance rules, laws concerning how private property is to be taxed or divided, etc. For a summary of the laws, see Babylonian law
Babylonian law
Archaeological material for the study of Babylonian law is singularly extensive. So-called "contracts" exist in the thousands, including a great variety of deeds, conveyances, bonds, receipts, accounts, and most important of all, actual legal decisions given by the judges in the law courts...
.
Earlier collections of (written) laws, just prior to Hammurabi, that could also be considered rules and regulations as to economic law for their cities include the codex of Ur-Nammu
Code of Ur-Nammu
The Code of Ur-Nammu is the oldest known tablet containing a law code surviving today. It was written in the Sumerian language circa 2100 BC-2050 BC...
, king of Ur
Ur
Ur was an important city-state in ancient Sumer located at the site of modern Tell el-Muqayyar in Iraq's Dhi Qar Governorate...
(ca. 2050 BC), the Codex of Eshnunna (ca. 1930 BC) and the codex of Lipit-Ishtar
Lipit-Ishtar
Lipit-Ishtar , was the fifth ruler of the first dynasty of Isin, and ruled from around 1934 BCE to 1924 BCE. Some documents and royal inscriptions from his time have survived, but he is mostly known because Sumerian language hymns written in his honor, as well as a legal code written in his name ,...
of Isin
Isin
Isin was an ancient city-state of lower Mesopotamia about 20 miles south of Nippur at the site of modern Ishan al-Bahriyat in Iraq's Al-Qādisiyyah Governorate.-History:...
(ca. 1870 BC).
Ancient Greco-Roman World
Some prominent classical scholars assert that relevant economic thought did not arise until the enlightenment, as early economic thought was based on metaphysical principles which are incommensurate with contemporary dominant economic theories such as neo-classical economics. However, several ancient Greek and Roman thinkers made various economic observations, especially AristotleAristotle
Aristotle was a Greek philosopher and polymath, a student of Plato and teacher of Alexander the Great. His writings cover many subjects, including physics, metaphysics, poetry, theater, music, logic, rhetoric, linguistics, politics, government, ethics, biology, and zoology...
and Xenophon
Xenophon
Xenophon , son of Gryllus, of the deme Erchia of Athens, also known as Xenophon of Athens, was a Greek historian, soldier, mercenary, philosopher and a contemporary and admirer of Socrates...
. Many other Greek writings show understanding of sophisticated economic concepts. For instance, a form of Gresham’s Law is presented in Aristophanes
Aristophanes
Aristophanes , son of Philippus, of the deme Cydathenaus, was a comic playwright of ancient Athens. Eleven of his forty plays survive virtually complete...
’ Frogs, and beyond Plato
Plato
Plato , was a Classical Greek philosopher, mathematician, student of Socrates, writer of philosophical dialogues, and founder of the Academy in Athens, the first institution of higher learning in the Western world. Along with his mentor, Socrates, and his student, Aristotle, Plato helped to lay the...
's application of sophisticated mathematical advances influenced by the Pythagoreans
Pythagoreanism
Pythagoreanism was the system of esoteric and metaphysical beliefs held by Pythagoras and his followers, the Pythagoreans, who were considerably influenced by mathematics. Pythagoreanism originated in the 5th century BCE and greatly influenced Platonism...
is his appreciation of fiat money
Fiat money
Fiat money is money that has value only because of government regulation or law. The term derives from the Latin fiat, meaning "let it be done", as such money is established by government decree. Where fiat money is used as currency, the term fiat currency is used.Fiat money originated in 11th...
in his Laws
Laws (dialogue)
The Laws is Plato's last and longest dialogue. The question asked at the beginning is not "What is law?" as one would expect. That is the question of the Minos...
(742a–b) and in the pseudo-Platonic dialogue, Eryxias. Bryson of Heraclea
Bryson of Heraclea
Bryson of Heraclea was an ancient Greek mathematician and sophist who contributed to solving the problem of squaring the circle and calculating pi.-Life and work:...
was a neo-platonic who is cited as having heavily influenced early Muslim economic scholarship.
Xenophon
Babylonia
Babylonia was an ancient cultural region in central-southern Mesopotamia , with Babylon as its capital. Babylonia emerged as a major power when Hammurabi Babylonia was an ancient cultural region in central-southern Mesopotamia (present-day Iraq), with Babylon as its capital. Babylonia emerged as...
n and Persian thought on Greek administrative economics is present in the work of Greek historian Xenophon. Discussion of economic principles are especially present in his Oeconomicus, his biography of Cyrus the Great
Cyrus the Great
Cyrus II of Persia , commonly known as Cyrus the Great, also known as Cyrus the Elder, was the founder of the Achaemenid Empire. Under his rule, the empire embraced all the previous civilized states of the ancient Near East, expanded vastly and eventually conquered most of Southwest Asia and much...
, Cyropaedia, Hiero
Hiero (Xenophon)
Hiero is a minor work by Xenophon, set as a dialogue between Hiero, tyrant of Syracuse, and the lyric poet Simonides about 474 BCE. In it Xenophon argues that a tyrant does not have any more access to happiness than a private person.The dialogue—like many of Xenophon's works—does not...
, and Ways and Means
Ways and Means
Ways and Means may refer to:* Committee of Ways and Means of the UK parliament* United States House Committee on Ways and Means* "Ways and Means" , an episode of the television series The West Wing...
. Hiero is a minor work which includes discussion of leaders stimulating private production and technology through various means including public recognition and prizes. Ways and Means is a short treatise on economic development, and showed an understanding of the importance of taking advantage of economies of scale and advocated laws promoting foreign merchants. The Oeconomicus discusses the administration of agricultural land. In the work, subjective personal value of goods is analyzed and compared with exchange value
Exchange value
In political economy and especially Marxian economics, exchange value refers to one of four major attributes of a commodity, i.e., an item or service produced for, and sold on the market...
. Xenophon uses the example of a horse, which may be of no use to a person who does not know how to handle it, but still has exchange value. Although this broadens the idea of value based in individual use to a more general social concept of value that comes through exchange, scholars note that this is not a market theory of value. In Cyropaedia Xenophon presents what in hindsight can be seen as the foundation for a theory of fair exchange in the market. In one anecdote, the young Cyrus is to judge the fairness of an exchange made between a tall and a short boy. The tall boy forces the pair to exchange tunics, because the tall boy's tunic is too short, shorter than the short boys, which is too tall for him. Cyrus rules the exchange fair because it results in a better fit for both boys. Cyrus' mentors were not pleased with Cyrus' basing his decision on the values involved, as a just exchange must be voluntary. Later in the biography, Xenophon discusses the concept of division of labor, referencing specialized cooks and workers in a shoemaking shop. Scholars have noted that Adam Smith's early notes about this concept "read like a paraphrase of Xenophon's discussion of the role of the carpenter as a "jack of all trades" in small cities and as a specialist in large cities. Marx attributes to Cyropaedia the idea that the division of labor correlates to the size of a market. Xenophon also presents an example of mutual advantage from exchange in a story about Cyrus coordinating an exchange of surplus farmland from Armenians, who were herders, and surplus grazing land from Chaldeans, who were farmers.
Aristotle
Aristotle's Nicomachean Ethics
Nicomachean Ethics
The Nicomachean Ethics is the name normally given to Aristotle's best known work on ethics. The English version of the title derives from Greek Ἠθικὰ Νικομάχεια, transliterated Ethika Nikomacheia, which is sometimes also given in the genitive form as Ἠθικῶν Νικομαχείων, Ethikōn Nikomacheiōn...
, particularly book V.v, has been called the most economically provocative analytic writing in ancient Greece. Therein, Aristotle discusses justice in distribution and exchange. Still considering isolated exchanges rather than markets, Aristotle sought to discuss just exchange prices between individuals with different subjective values for their goods. Interestingly, Aristotle suggested three different proportions to analyze distributive, corrective, and reciprocal or exchange transactions: the arithmetic, the geometric, and the harmonic. The harmonic proportion is interesting, as it implies a strong commitment to the subjective values of the traders. Sixth century A.D. philosopher Boethius used the example of 16 as the harmonic mean
Harmonic mean
In mathematics, the harmonic mean is one of several kinds of average. Typically, it is appropriate for situations when the average of rates is desired....
of 10 and 40. 16 is the same percentage larger than 10 as it is smaller than 40 (60 percent of 10 is 6, while 60 percent of 40 is 24). Thus if two bargainers have subjective prices for a good of 10 and 40, Aristotle points out that in exchange, it is most fair to price the good at 16, due to the equality proportional differences from their price to the new price. Another interesting nuance in this analysis of exchange is that Aristotle also saw a zone of consumer surplus or mutual advantage to both consumers that had to be divided.
Roman law
Early Greek and Judaic law follow a voluntaristic principle of just exchange; a party was only held to an agreement after the point of sale. Roman law developed the contractContract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
recognizing that planning and commitments over time are necessary for efficient production and trade. The large body of law was unified as the Corpus Juris Civilis
Corpus Juris Civilis
The Corpus Juris Civilis is the modern name for a collection of fundamental works in jurisprudence, issued from 529 to 534 by order of Justinian I, Eastern Roman Emperor...
in the 530s AD by Justinian. who was Emperor of the Eastern Roman Empire from 526-565 AD. In Institutiones, the principle of just trade is stated as "tantum bona valent, quantum vendi possunt" ("goods are worth as much as they can be sold for").
Ancient India
Chulavamsa records that Parakramabahu IParâkramabâhu I
Parākramabāhu I was king of Sri Lanka from 1153 to 1186. During his reign from his capital Polonnaruwa, he unified the three sub kingdoms of the island, becoming one of the last monarchs in Sri Lankan history to do so...
of Sri Lanka had debased the currency of Ancient Sri Lanka
History of Sri Lanka
The History of Sri Lanka begins around 30,000 years ago when the island was first inhabited. Chronicles, including the Mahawansa, the Dipavamsa, the Culavamsa and the Rajaveliya, record events from the beginnings of the Sinhalese monarchy in the 6th century BC; through the arrival of European...
in order to produce monies to support his large scale infrastructure projects. Parakramabahu I also pioneered free trade
Free trade
Under a free trade policy, prices emerge from supply and demand, and are the sole determinant of resource allocation. 'Free' trade differs from other forms of trade policy where the allocation of goods and services among trading countries are determined by price strategies that may differ from...
during his reign; a war was fought with Burma to defend free trade.
Chanakya
ChanakyaChanakya
Chānakya was a teacher to the first Maurya Emperor Chandragupta , and the first Indian emperor generally considered to be the architect of his rise to power. Traditionally, Chanakya is also identified by the names Kautilya and VishnuGupta, who authored the ancient Indian political treatise...
(c. 350 BC
350 BC
Year 350 BC was a year of the pre-Julian Roman calendar. At the time it was known as the Year of the Consulship of Laenas and Scipio...
-275 BC
275 BC
Year 275 BC was a year of the pre-Julian Roman calendar. At the time it was known as the Year of the Consulship of Dentatus and Caudinus...
) considered economic issues. He was a professor of political science
Political science
Political Science is a social science discipline concerned with the study of the state, government and politics. Aristotle defined it as the study of the state. It deals extensively with the theory and practice of politics, and the analysis of political systems and political behavior...
at the Takshashila University of ancient India
History of India
The history of India begins with evidence of human activity of Homo sapiens as long as 75,000 years ago, or with earlier hominids including Homo erectus from about 500,000 years ago. The Indus Valley Civilization, which spread and flourished in the northwestern part of the Indian subcontinent from...
, and later the Prime Minister
Prime minister
A prime minister is the most senior minister of cabinet in the executive branch of government in a parliamentary system. In many systems, the prime minister selects and may dismiss other members of the cabinet, and allocates posts to members within the government. In most systems, the prime...
of the Mauryan
Maurya Empire
The Maurya Empire was a geographically extensive Iron Age historical power in ancient India, ruled by the Mauryan dynasty from 321 to 185 BC...
emperor Chandragupta Maurya
Chandragupta Maurya
Chandragupta Maurya , was the founder of the Maurya Empire. Chandragupta succeeded in conquering most of the Indian subcontinent. Chandragupta is considered the first unifier of India and its first genuine emperor...
. He wrote the Arthashastra
Arthashastra
The Arthashastra is an ancient Indian treatise on statecraft, economic policy and military strategy which identifies its author by the names Kautilya and , who are traditionally identified with The Arthashastra (IAST: Arthaśāstra) is an ancient Indian treatise on statecraft, economic policy and...
("Science of Material Gain" or "'Science of political economy" in Sanskrit
Sanskrit
Sanskrit , is a historical Indo-Aryan language and the primary liturgical language of Hinduism, Jainism and Buddhism.Buddhism: besides Pali, see Buddhist Hybrid Sanskrit Today, it is listed as one of the 22 scheduled languages of India and is an official language of the state of Uttarakhand...
), which can be considered a precursor to Machiavelli's The Prince
The Prince
The Prince is a political treatise by the Italian diplomat, historian and political theorist Niccolò Machiavelli. From correspondence a version appears to have been distributed in 1513, using a Latin title, De Principatibus . But the printed version was not published until 1532, five years after...
. Many of the topics discussed in the Arthashastra are still prevalent in modern economics, including its discussions on the management of an efficient and solid economy, and the ethics
Ethics
Ethics, also known as moral philosophy, is a branch of philosophy that addresses questions about morality—that is, concepts such as good and evil, right and wrong, virtue and vice, justice and crime, etc.Major branches of ethics include:...
of economics. Chanakya also focuses on issues of welfare (for instance, redistribution of wealth during a famine) and the collective ethics that hold a society together.
The Arthashastra argues for an autocracy
Autocracy
An autocracy is a form of government in which one person is the supreme power within the state. It is derived from the Greek : and , and may be translated as "one who rules by himself". It is distinct from oligarchy and democracy...
managing an efficient and solid economy. The qualities described is in effect that of a command economy. It discusses the ethics of economics and the duties and obligations of a king. The scope of Arthaśāstra is, however, far wider than statecraft, and it offers an outline of an entire civil and criminal code and bureaucratic
Bureaucracy
A bureaucracy is an organization of non-elected officials of a governmental or organization who implement the rules, laws, and functions of their institution, and are occasionally characterized by officialism and red tape.-Weberian bureaucracy:...
framework for administering a kingdom, with a wealth of descriptive cultural detail on topics such as mineralogy, mining and metals, agriculture, animal husbandry and medicine. The Arthaśāstra also focuses on issues of welfare
Welfare state
A welfare state is a "concept of government in which the state plays a key role in the protection and promotion of the economic and social well-being of its citizens. It is based on the principles of equality of opportunity, equitable distribution of wealth, and public responsibility for those...
(for instance, redistribution of wealth during a famine) and the collective ethics that hold a society together.
Chanakya says that artha (sound economies) is the most important quality and discipline required for a Rajarshi
Rajarshi
Rajarshi or Rajarishi is, in Hinduism and Hindu mythology, a royal saint and rishi.-Order:A Rajarshi is a king who turned into a royal sage, or Rajarshi...
, and that dharma
Dharma
Dharma means Law or Natural Law and is a concept of central importance in Indian philosophy and religion. In the context of Hinduism, it refers to one's personal obligations, calling and duties, and a Hindu's dharma is affected by the person's age, caste, class, occupation, and gender...
& kama are both dependent on it.
According to Chanakya, a conducive atmosphere is necessary for the state's economy to thrive. This requires that a state's law and order be maintained. Arthashastra specifies fines and punishments to support strict enforcement of laws (the Dandaniti).
Fan Li
Fan LiFan Li
Fan Li was an ancient Chinese advisor in the state of Yue in the Spring and Autumn Period. He had been to the state of Wu as hostage together with King Goujian of Yue. Three years later they came back and he helped Goujian to carry on a reform. At last Yue was able to defeat the state of Wu. After...
(later Tao Zhugong) Chinese businessman, politician and strategist, wrote on economic issues. He discussed seasonal effects on markets, and business strategy among other things.
Confucianism and legalism
In ancient China, Chinese scholar-officials would often debate about the role government should have in the economy, such as setting monopolies in lucrative industries and instating price controls. Confucian factions tended to oppose extensive government controls, while "Reform" or legalist factions favored intervention. The Confucians' rationale for opposing government intervention was that the government should not "compete for profit with the people", as it would tend to exploit the population whenever it was involved in mercantile activity. One such debate is recorded in the Discourses on salt and iron, a debate over Salt and iron monopolies imposed by Emperor Wu of HanEmperor Wu of Han
Emperor Wu of Han , , personal name Liu Che , was the seventh emperor of the Han Dynasty of China, ruling from 141 BC to 87 BC. Emperor Wu is best remembered for the vast territorial expansion that occurred under his reign, as well as the strong and centralized Confucian state he organized...
to fund wars and expansionism against the Xiongnu
Xiongnu
The Xiongnu were ancient nomadic-based people that formed a state or confederation north of the agriculture-based empire of the Han Dynasty. Most of the information on the Xiongnu comes from Chinese sources...
. Although Confucian laissez faire was largely dominant throughout China's history, legalist policies often gained prominence in times of war or with the patronage of rulers, such as under Qin Shi Huang
Qin Shi Huang
Qin Shi Huang , personal name Ying Zheng , was king of the Chinese State of Qin from 246 BC to 221 BC during the Warring States Period. He became the first emperor of a unified China in 221 BC...
, Sang Hongyang
Sang Hongyang
Sang Hongyang was a prominent official of the Former Han Dynasty, who served Emperor Wu of Han and his successor Emperor Zhao. He is most famed for his economic policies during the reign of Emperor Wu, the best known of which include the state monopolies over iron and salt - systems which would...
, Wang Mang
Wang Mang
Wang Mang , courtesy name Jujun , was a Han Dynasty official who seized the throne from the Liu family and founded the Xin Dynasty , ruling AD 9–23. The Han dynasty was restored after his overthrow and his rule marks the separation between the Western Han Dynasty and Eastern Han Dynasty...
and Wang Anshi
Wang Anshi
Wang Anshi was a Chinese economist, statesman, chancellor and poet of the Song Dynasty who attempted controversial, major socioeconomic reforms...
, though they were abolished shortly thereafter.
Wang Anshi
ChancellorChancellor of China
The Chancellor , variously translated as Prime Minister, Chancellor of State, Premier or Chief Councillor, was a generic name given to the highest-ranking official in the imperial government in ancient China...
Wang Anshi
Wang Anshi
Wang Anshi was a Chinese economist, statesman, chancellor and poet of the Song Dynasty who attempted controversial, major socioeconomic reforms...
(1021–1086), one of China's most prominent reformers, lived during the medieval Song Dynasty
Song Dynasty
The Song Dynasty was a ruling dynasty in China between 960 and 1279; it succeeded the Five Dynasties and Ten Kingdoms Period, and was followed by the Yuan Dynasty. It was the first government in world history to issue banknotes or paper money, and the first Chinese government to establish a...
(960-1279 AD). Espousing heated reaction by conservative ministers at court, Wang Anshi's political faction of the New Policies Group enacted a series of reforms that centered around military reform, bureaucratic reform, and economic reform. Economic reforms introduced included low-cost loans for farmers (whom he considered the backbone of the Chinese economy in terms of production of goods and greatest source of the land tax), replacing the corvee
Corvée
Corvée is unfree labour, often unpaid, that is required of people of lower social standing and imposed on them by the state or a superior . The corvée was the earliest and most widespread form of taxation, which can be traced back to the beginning of civilization...
labor service with a tax instead, enacting government monopolies on crucial industries producing tea, salt, and wine, introduction of a local militia
Militia
The term militia is commonly used today to refer to a military force composed of ordinary citizens to provide defense, emergency law enforcement, or paramilitary service, in times of emergency without being paid a regular salary or committed to a fixed term of service. It is a polyseme with...
to ease the budget spending on the official standing army of 1 million troops, and the establishment of a Finance Planning Commission staffed largely by political loyals so that his reforms could pass quickly with less time for conservatives to oppose it in court. Reformers and conservatives would oust each other from power once they had the support of the emperor.
Medieval Islamic world
To some degree, the early Muslims based their economic analyses on the Qur'anQur'an
The Quran , also transliterated Qur'an, Koran, Alcoran, Qur’ān, Coran, Kuran, and al-Qur’ān, is the central religious text of Islam, which Muslims consider the verbatim word of God . It is regarded widely as the finest piece of literature in the Arabic language...
(such as opposition to riba, interest), and from sunnah
Sunnah
The word literally means a clear, well trodden, busy and plain surfaced road. In the discussion of the sources of religion, Sunnah denotes the practice of Prophet Muhammad that he taught and practically instituted as a teacher of the sharī‘ah and the best exemplar...
, the sayings and doings of Muhammad
Muhammad
Muhammad |ligature]] at U+FDF4 ;Arabic pronunciation varies regionally; the first vowel ranges from ~~; the second and the last vowel: ~~~. There are dialects which have no stress. In Egypt, it is pronounced not in religious contexts...
.
Early Muslim thinkers
Al-GhazaliAl-Ghazali
Abu Hāmed Mohammad ibn Mohammad al-Ghazzālī , known as Algazel to the western medieval world, born and died in Tus, in the Khorasan province of Persia was a Persian Muslim theologian, jurist, philosopher, and mystic....
(1058–1111) classified economics as one of the sciences connected with religion, along with metaphysics, ethics, and psychology. Authors have noted, however, that this connection has not caused early Muslim economic thought to remain static. Persian philosopher Nasir al-Din al-Tusi
Nasir al-Din al-Tusi
Khawaja Muḥammad ibn Muḥammad ibn Ḥasan Ṭūsī , better known as Naṣīr al-Dīn al-Ṭūsī , was a Persian polymath and prolific writer: an astronomer, biologist, chemist, mathematician, philosopher, physician, physicist, scientist, theologian and Marja Taqleed...
(1201–1274) presents an early definition of economics (what he calls hekmat-e-madani, the science of city life) in discourse three of his Ethics:
Many scholars trace the history of economic thought through the Muslim world, which was in a Golden Age
Islamic Golden Age
During the Islamic Golden Age philosophers, scientists and engineers of the Islamic world contributed enormously to technology and culture, both by preserving earlier traditions and by adding their own inventions and innovations...
from the 8th to 13th century and whose philosophy
Early Islamic philosophy
Early Islamic philosophy or classical Islamic philosophy is a period of intense philosophical development beginning in the 2nd century AH of the Islamic calendar and lasting until the 6th century AH...
continued the work of the Greek
Ancient Greece
Ancient Greece is a civilization belonging to a period of Greek history that lasted from the Archaic period of the 8th to 6th centuries BC to the end of antiquity. Immediately following this period was the beginning of the Early Middle Ages and the Byzantine era. Included in Ancient Greece is the...
and Hellenistic
Hellenistic civilization
Hellenistic civilization represents the zenith of Greek influence in the ancient world from 323 BCE to about 146 BCE...
thinkers and came to influence Aquinas when Europe "rediscovered" Greek philosophy through Arabic translation. A common theme among these scholars was the praise of economic activity and even self-interested accumulation of wealth.
Persian philosopher Ibn Miskawayh
Ibn Miskawayh
Abu 'Ali Ahmad ibn Muhammad ibn Ya'qub Ibn Miskawayh, also known as Ibn Miskawayh or Ebn Meskavayh was a Persian chancery official of the Buwayhid era, and philosopher and historian from Rey, Iran...
(b. 1030) notes:
This view is in conflict with an idea Joseph Schumpeter
Joseph Schumpeter
Joseph Alois Schumpeter was an Austrian-Hungarian-American economist and political scientist. He popularized the term "creative destruction" in economics.-Life:...
called the great gap. The great gap thesis comes out of Schumpeter's 1954 History of Economic Analysis which offers a break in economic thought during the five hundred year period between the decline of the Greco-Roman civilizations and the work of Thomas Aquinas (1225–1274). However in 1964, Joseph Spengler's "Economic Thought of Islam: Ibn Khaldun" appeared in the journal Comparative Studies in Society and History and took a large step in bringing early Muslim scholars to the contemporary West.
The influence of earlier Greek
Greek philosophy
Ancient Greek philosophy arose in the 6th century BCE and continued through the Hellenistic period, at which point Ancient Greece was incorporated in the Roman Empire...
and Hellenistic thought
Hellenistic philosophy
Hellenistic philosophy is the period of Western philosophy that was developed in the Hellenistic civilization following Aristotle and ending with the beginning of Neoplatonism.-Pythagoreanism:...
on the Muslim world began largely with Abbasid
Abbasid
The Abbasid Caliphate or, more simply, the Abbasids , was the third of the Islamic caliphates. It was ruled by the Abbasid dynasty of caliphs, who built their capital in Baghdad after overthrowing the Umayyad caliphate from all but the al-Andalus region....
caliph
Caliph
The Caliph is the head of state in a Caliphate, and the title for the ruler of the Islamic Ummah, an Islamic community ruled by the Shari'ah. It is a transcribed version of the Arabic word which means "successor" or "representative"...
al-Ma'mun
Al-Ma'mun
Abū Jaʿfar Abdullāh al-Māʾmūn ibn Harūn was an Abbasid caliph who reigned from 813 until his death in 833...
, who sponsored the translation of Greek
Greek language
Greek is an independent branch of the Indo-European family of languages. Native to the southern Balkans, it has the longest documented history of any Indo-European language, spanning 34 centuries of written records. Its writing system has been the Greek alphabet for the majority of its history;...
texts into Arabic
Arabic language
Arabic is a name applied to the descendants of the Classical Arabic language of the 6th century AD, used most prominently in the Quran, the Islamic Holy Book...
in the 9th century by Syria
Syria
Syria , officially the Syrian Arab Republic , is a country in Western Asia, bordering Lebanon and the Mediterranean Sea to the West, Turkey to the north, Iraq to the east, Jordan to the south, and Israel to the southwest....
n Christian
Christian
A Christian is a person who adheres to Christianity, an Abrahamic, monotheistic religion based on the life and teachings of Jesus of Nazareth as recorded in the Canonical gospels and the letters of the New Testament...
s in Baghdad
Baghdad
Baghdad is the capital of Iraq, as well as the coterminous Baghdad Governorate. The population of Baghdad in 2011 is approximately 7,216,040...
. But already by that time numerous Muslim scholars had written on economic issues, and early Muslim leaders had shown sophisticated attempts to enforce fiscal and monetary financing, use deficit financing, use taxes to encourage production, the use of credit instruments for banking, including rudimentary savings and checking accounts, and contract law.
Among the earliest Muslim economic thinkers was Abu Yusuf
Abu Yusuf
Yaqub ibn Ibrahim al-Ansari, better known as Abu Yusuf was a student of legist Abu Hanifah who helped spread the influence of the Hanafi school of Islamic law through his writings and the government positions he held.-Biography:...
(731-798), a student of the founder of the Hanafi Sunni School of Islamic thought, Abu Hanifah. Abu Yusuf was chief jurist for Abbasid Caliph Harun al-Rashid
Harun al-Rashid
Hārūn al-Rashīd was the fifth Arab Abbasid Caliph in Iraq. He was born in Rey, Iran, close to modern Tehran. His birth date remains a point of discussion, though, as various sources give the dates from 763 to 766)....
, for whom he wrote the Book of Taxation (Kitab al-Kharaj). This book outlined Abu Yusuf's ideas on taxation, public finance, and agricultural production. He discussed proportional tax on produce instead of fixed taxes on property as being superior as an incentive to bring more land into cultivation. He also advocated forgiving tax policies which favor the producer and a centralized tax administration to reduce corruption. Abu Yusuf favored the use of tax revenues for socioeconomic infrastructure, and included discussion of various types of taxes, including sales tax, death taxes, and import tariffs.
The power of supply and demand
Supply and demand
Supply and demand is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers will equal the quantity supplied by producers , resulting in an...
was understood to some extent by various early Muslim scholars as well. Ibn Taymiyyah illustrates:
Other important Muslim scholars who wrote about economics include al-Mawardi
Al-Mawardi
Abu al-Hasan Ali Ibn Muhammad Ibn Habib al-Mawardi , known in Latin as Alboacen , was an Arab Muslim jurist of the Shafi'i school most remembered for his works on religion, government, the caliphate, and public and constitutional law during a time of political turmoil...
(1075–1158) and Ibn Taimiyah (1263–1328).
Ibn Khaldun
| When civilization [population] increases, the available labor again increases. In turn, luxury again increases in correspondence with the increasing profit, and the customs and needs of luxury increase. Crafts are created to obtain luxury products. The value realized from them increases, and, as a result, profits are again multiplied in the town. Production there is thriving even more than before. And so it goes with the second and third increase. All the additional labor serves luxury and wealth, in contrast to the original labor that served the necessity of life. |
| Ibn Khaldun on economic growth Economic growth In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand... |
Perhaps the most well known Islamic scholar who wrote about economics was Ibn Khaldun of Tunisia
Tunisia
Tunisia , officially the Tunisian RepublicThe long name of Tunisia in other languages used in the country is: , is the northernmost country in Africa. It is a Maghreb country and is bordered by Algeria to the west, Libya to the southeast, and the Mediterranean Sea to the north and east. Its area...
(1332–1406), considered a father of modern economics
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
, Ibn Khaldun wrote on economic and political theory in the introduction, or Muqaddimah
Muqaddimah
The Muqaddimah , also known as the Muqaddimah of Ibn Khaldun or the Prolegomena , is a book written by the Maghrebian Muslim historian Ibn Khaldun in 1377 which records an early view of universal history...
(Prolegomena), of his History of the World (Kitab al-Ibar). In the book, he discussed what he called asabiyyah
Asabiyyah
`Asabiyya or asabiyah refers to social solidarity with an emphasis on unity, group consciousness, and social cohesion, originally in a context of "tribalism" and "clanism", but sometimes used for modern nationalism as well, resembling also communitarism...
(social cohesion
Structural cohesion
Structural cohesion is the sociological conception of cohesion in social groups. It is defined as the minimal number of actors in a social network that need to be removed to disconnect at least two actors in the remaining group. It is thus identical to the question of the node connectivity of a...
), which he sourced as the cause of some civilizations becoming great and others not. Ibn Khaldun felt that many social forces are cyclic, although there can be sudden sharp turns that break the pattern. His idea about the benefits of the division of labor also relate to asabiyya, the greater the social cohesion, the more complex the successful division may be, the greater the economic growth. He noted that growth and development positively stimulate both supply and demand, and that the forces of supply and demand are what determine the prices of goods. He also noted macroeconomic forces of population growth, human capital
Human capital
Human capitalis the stock of competencies, knowledge and personality attributes embodied in the ability to perform labor so as to produce economic value. It is the attributes gained by a worker through education and experience...
development, and technological developments effects on development. In fact, Ibn Khaldun thought that population growth was directly a function of wealth.
Although he understood that money served as a standard of value, a medium of exchange, and a preserver of value, he did not realize that the value of gold and silver changed based on the forces of supply and demand. He also introduced the concept known as the Khaldun-Laffer Curve (the relationship between tax rates and tax revenue increases as tax rates increase for a while, but then the increases in tax rates begin to cause a decrease in tax revenues as the taxes impose too great a cost to producers in the economy).