Economic Thought Before Economics: From Greek Philosophers to Mercantilism

Before economics became a recognized discipline, profound thinkers across centuries grappled with questions about wealth, value, trade, and fairness. From the philosophical academies of ancient Greece to the bustling trading houses of 17th-century Europe, the seeds of modern economic thought were gradually planted. This journey through pre-economic thinking reveals how philosophers, theologians, and merchants shaped ideas that would later become the foundation of economic science.

Greek philosophers and early economic ideas
Plato’s vision of the ideal state
Aristotle’s practical approach
The Middle Ages and the just price
St. Thomas Aquinas and ethical commerce
The rise of mercantilism
Gerard de Malynes and exchange controls
Edward Misselden and inflationary policies
Thomas Mun: the mercantilist bible
Sir William Petty and quantitative foundations
The interest rate debate
Josiah Child’s case for lower rates
John Locke’s opposition
From anticipations to economics

Greek philosophers and early economic ideas

The ancient Greeks did not study economics as a separate field. For them, economic questions were part of ethics and politics, subordinate to higher concerns like justice, virtue, and the good life. The very word “economics” comes from the Greek oikonomia, meaning household management, and it retained this meaning until the 18th century.

Plato’s vision of the ideal state

Plato (428-348 BCE) explored economic relations within his concept of an ideal state. In his work Republic, he introduced an early understanding of the division of labour, arguing that different individuals possess different innate talents and should specialize in what they do best. This specialization, Plato believed, would ensure a well-functioning society.

Plato also believed that social institutions could fundamentally change human behaviour. He advocated for communal ownership of property among the ruling class, thinking this would eliminate self-interest and create harmony. His ideas about state control over economic life were extensive, with the state regulating domestic economy and individual activities.

Aristotle’s practical approach

Aristotle (384-322 BCE) took a more analytical approach than his teacher. He focused significantly on household management and developed important observations about money and exchange. Aristotle identified money’s functions as a medium of exchange, a measure of value, and a store of value for future transactions.

Unlike Plato, Aristotle defended private property, arguing that when individuals own their possessions, they have greater incentive to work productively. He warned that communal ownership would lead to conflict because people would feel they hadn’t received what they deserved. Aristotle also raised ethical questions about exchange and value that would influence thinkers for centuries.

However, Aristotle’s economic thinking had limitations. He frowned upon wealth accumulation through trade and considered charging interest unnatural. He also controversially justified slavery based on his belief that some people were naturally suited to be masters while others were meant to serve.

The Middle Ages and the just price

After the Greek era, significant economic thought re-emerged during the medieval period, particularly through the work of scholastic theologians who sought to reconcile Christian ethics with commercial activity.

St. Thomas Aquinas and ethical commerce

St. Thomas Aquinas (1225-1274) addressed numerous economic questions in his masterwork Summa Theologica, including property rights, trade, usury, and the labour theory of value. His great contribution lay in applying rational analysis to economic affairs while maintaining ethical standards.

Central to Aquinas’s economic thinking was the concept of the just price. This theory attempted to set standards of fairness in transactions, holding that buyers and sellers should exchange goods at prices reflecting their true value. Selling above or below this just price was considered sinful if done knowingly to defraud another party.

Aquinas strongly opposed usury, which in his time meant charging any interest on loans. He argued that demanding interest was immoral because the lender was receiving income for nothing since the money itself was merely exchanged. The just price doctrine also extended to condemning practices like raising prices of building supplies after a natural disaster, as increased demand alone did not justify higher charges.

Aquinas believed that all gains from trade must relate to the merchant’s labour, not to the buyer’s desperation. While he permitted moderate profit to support one’s household or help the needy, exploitative pricing was forbidden. This ethical framework laid groundwork for what would later develop into the labour theory of value.

The rise of mercantilism

With the emergence of powerful nation-states and expanding international trade in the 16th and 17th centuries, a new economic philosophy emerged: mercantilism. This school of thought flourished as European nations competed for global dominance.

Mercantilists believed that national wealth was measured primarily by holdings of gold and silver. They advocated for government policies that would produce trade surpluses, ensuring that more precious metals flowed into the country than left it. This zero-sum view of trade led to policies including high tariffs, trade monopolies, and restrictions on exporting gold and silver.

Gerard de Malynes and exchange controls

Gerard de Malynes (active 1585-1641) was among the early English mercantilists concerned with monetary matters. He advocated for exchange controls to prevent speculative fluctuations in currency values. Malynes believed that manipulation of exchange rates was draining England of its precious metals and harming its economy.

Edward Misselden and inflationary policies

Edward Misselden, a contemporary of Malynes, took a different approach. He argued for policies that would effectively increase the money supply to boost exports. Misselden is credited with coining the phrase “balance of trade”, which became central to mercantilist thinking. His debates with Malynes helped shape England’s early trade policy discussions.

Thomas Mun: the mercantilist bible

Thomas Mun (1571-1641) is often considered the most prominent English mercantilist. As a director of the East India Company, he defended the Company against accusations that its trade was draining England of silver. His response came in two major works that shaped economic thinking for generations.

Mun’s most influential work, England’s Treasure by Foreign Trade, was written around 1630 but published posthumously in 1664. Adam Smith later described its title as becoming a fundamental maxim of political economy across commercial nations. In this work, Mun articulated the core mercantilist principle that a nation must sell more to foreigners yearly than it consumes of their goods in value.

Mun emphasized the importance of favourable terms of trade and outlined practical methods to enrich a kingdom through trade surpluses. His work became something of a mercantilist handbook, influencing policy discussions well into the 18th century and drawing both praise and criticism from later economists including Adam Smith.

Sir William Petty and quantitative foundations

Sir William Petty (1623-1687) marks a crucial transition point in economic thinking. Unlike the merchant-pamphleteers before him, Petty brought scientific methodology to economic analysis.

Influenced by Francis Bacon’s empiricism and his work as secretary to Thomas Hobbes, Petty pioneered what he called political arithmetic. He defined this as the art of reasoning by figures upon matters relating to government. Rather than relying on comparative words and theoretical arguments, Petty insisted on expressing himself in terms of number, weight, and measure.

His major work Treatise of Taxes and Contributions (1662) examined the role of the state in the economy and touched upon the labour theory of value. Petty attempted to estimate how much money was needed for full-employment trade and made practical recommendations for taxation policy.

Petty’s quantitative approach was groundbreaking. He introduced the concept of national income in his work Verbum Sapienti and made early attempts at demographic and economic statistics. He also recognized the importance of economies of scale and the benefits of the division of labour. These contributions helped establish foundations for economics as an empirical discipline.

The interest rate debate

The late 17th century witnessed a significant debate about whether government should control interest rates. This controversy brought together different strands of economic thinking and featured two prominent figures with opposing views.

Josiah Child’s case for lower rates

Josiah Child, a powerful governor of the East India Company, observed that interest rates were lower in the prosperous Netherlands than in England. He concluded that low interest rates caused Dutch economic success and therefore England should legislate lower rates to achieve similar prosperity.

Child introduced a bill to Parliament proposing to limit interest rates to 4 percent. His influential work A New Discourse of Trade (1693) elaborated these arguments and shaped discussions about trade policy, wage levels, and colonial matters. Child used his considerable political influence to advance the East India Company’s interests alongside his broader economic proposals.

John Locke’s opposition

The philosopher John Locke strongly opposed Child’s proposals. Working initially as secretary to Lord Shaftesbury, Locke wrote his first economic work criticizing Child’s arguments in 1668.

Locke argued that interest rates, like other prices, were determined by supply and demand, which Parliament was powerless to control effectively. In his pamphlet Some Considerations of the Consequences of the Lowering of Interest, he warned that artificially lowering rates would create unintended consequences, restricting credit flow and harming those who depended on interest income, including widows and small investors.

Locke’s position represented an early articulation of free-market principles against government intervention. He demonstrated that where borrowers gained from lower rates, lenders would lose, and such redistribution fell outside the proper role of the state. His economic writings spelled out early versions of supply and demand theory and the quantity theory of money.

From anticipations to economics

The thinkers examined here represent what historians call the period of “anticipations” before economics emerged as a distinct science. From Plato’s division of labour to Petty’s political arithmetic, from Aquinas’s just price to the mercantilist focus on trade balances, these ideas formed the intellectual raw material that later economists would refine and systematize.

Each era addressed the economic concerns of its time: the Greeks pondered how to organize a just society; medieval theologians sought to reconcile commerce with Christian ethics; mercantilists advised ambitious nation-states on accumulating power; and early quantifiers like Petty tried to bring scientific rigour to policy questions.

What do you think? Do the ethical concerns raised by Aristotle and Aquinas about fair prices and the morality of interest still have relevance in today’s global economy? And how might the mercantilist focus on trade balances compare to contemporary debates about trade deficits and protectionism?

References

PDF 📄

Economic Thought Before Economics: From Greek Philosophers to Mercantilism

Table of Contents

Greek philosophers and early economic ideas 🔗

Plato’s vision of the ideal state 🔗

Aristotle’s practical approach 🔗

The Middle Ages and the just price 🔗

St. Thomas Aquinas and ethical commerce 🔗

The rise of mercantilism 🔗

Gerard de Malynes and exchange controls 🔗

Edward Misselden and inflationary policies 🔗

Thomas Mun: the mercantilist bible 🔗

Sir William Petty and quantitative foundations 🔗

The interest rate debate 🔗

Josiah Child’s case for lower rates 🔗

John Locke’s opposition 🔗

From anticipations to economics 🔗