Chapter 1 The First Philosopher-Economists, The Greeks
It all began, as usual, with the Greeks.
The ancient Greeks were the first civilized people to use their reason to think systematically
about the world around them.
The Greeks were the first philosophers, philo-sophia, lovers of wisdom, the first people to think
deeply and to figure out how to attain and verify knowledge about the world.
Other tribes and peoples had tended to attribute natural events to arbitrary whims of the gods.
A violent thunderstorm, for example, might be ascribed to something that had irritated
the god of thunder.
The way to bring on rain, then, or to curb violent thunderstorms, would be to find out
The Greeks, in contrast, were eager to use their reason, their sense observations and
and their command of logic, to investigate and learn about their world.
In so doing, they gradually stopped worrying about the whims of the gods and to investigate
actual entities around them.
Led in particular by the great Athenian philosopher Aristotle, 384 to 322 BC, a magnificent and
Creative Systematizer known to later ages as the Philosopher, the Greeks evolved a theory
and a method of reasoning and of science which later came to be called the Natural Law.
1.
THE NATURAL LAW
Natural law rests on the crucial insight that to be necessarily means to be something, that
That is, some particular thing or entity.
There is no being in the abstract.
Everything that is, is some particular thing, whether it be a stone, a cat, or a tree.
By empirical fact, there is more than one kind of thing in the universe.
In fact, there are thousands, if not millions, of kinds of things.
Each thing has its own particular set of properties or attributes, its own nature, which distinguishes
it from other kinds of things—a stone, a cat, an elm tree.
Each has its own particular nature, which man can discover, study, and identify.
Man studies the world, then, by examining entities, identifying similar kinds of things,
and classifying them into categories, each with its own properties and nature.
If we see a cat walking down the street, we can immediately include it into a set of things,
or animals, called cats, whose nature we have already discovered and analyzed.
If we can discover and learn about the natures of entities X and Y, then we can discover
What happens when these two entities interact? Suppose, for example, that when a certain
amount of X interacts with a given amount of Y, we get a certain quantity of another
thing, Z. We can then say that the effect, Z, has been caused by the interaction of X
and Y. Thus chemists may discover that when two molecules of hydrogen interact with one
The result is one molecule of a new entity, water. All these entities, hydrogen, oxygen and water, have specific discoverable properties, or natures, which can be identified.
We see, then, that the concepts of cause and effect are part and parcel of natural law analysis.
Events in the world can be traced back to the interactions of specific entities.
Since natures are given and identifiable, the interactions of the various entities will be replicable under the same conditions.
The same causes will always yield the same effects.
For the Aristotelian philosophers, logic was not a separate and isolated discipline, but an integral part of the natural law.
Thus, the basic process of identifying entities, led in classical or Aristotelian logic, to the law of identity.
A thing is, and cannot be, anything other than what it is. A is A.
It follows, then, that an entity cannot be the negation of itself.
Or, put another way, we have the law of non-contradiction.
A thing cannot be both A and non-A. A is not and cannot be non-A.
Finally, in our world of numerous kinds of entities, anything must be either A or it won't be.
In short, it will either be A or non-A. Nothing can be both.
This gives us the third well-known law of classical logic, the law of the excluded middle.
Everything in the universe is either A or non-A.
But if every entity in the universe, if hydrogen, oxygen, stone or cats,
can be identified, classified, and its nature examined, then so too can man.
Human beings must also have a specific nature with specific properties that can be studied,
and from which we can obtain knowledge.
Human beings are unique in the universe because they can and do study themselves, as well
as well as the world around them, and try to figure out what goals they should pursue
and what means they can employ to achieve them.
The concept of good, and therefore of bad, is only relevant to living entities.
Since stones or molecules have no goals or purposes, any idea of what might be good for
or a molecule or stone would properly be considered bizarre.
But what might be good for an elm tree or a dog makes a great deal of sense.
Specifically, the good is whatever conduces to the life and the flourishing of the living
entity.
The bad is whatever injures such an entity's life or prosperity.
Thus, it is possible to develop an elm-tree ethics by discovering the best conditions
— soil, sunshine, climate, etc. — for the growth and sustenance of elm-trees, and
by trying to avoid conditions deemed bad for elm-trees — elm blight, excessive drought,
etc.
A similar set of ethical properties can be worked out for various breeds of animals.
Thus natural law sees ethics as living entity or species relative.
What is good for cabbages will differ from what is good for rabbits,
which in turn will differ from what is good or bad for man.
The ethic for each species will differ according to their respective natures.
Man is the only species which can, and indeed must, carve out an ethic for himself.
Plants lack consciousness and therefore cannot choose or act.
The consciousness of animals is narrowly perceptual and lacks the conceptual, the ability to frame
concepts and to act upon them.
Man, in the famous Aristotelian phrase, is uniquely the rational animal, the species
that uses reason to adopt values and ethical principles, and that acts to attain these
ends.
Man acts, that is, he adopts values and purposes, and chooses the ways to achieve them.
Man therefore, in seeking goals and ways to attain them, must discover and work within
the framework of the natural law, the properties of himself and of other entities, and the
ways in which they may interact.
Western civilization is in many ways Greek, and the two great philosophic traditions of
ancient Greece which have been shaping the Western mind ever since have been those of
Aristotle and his great teacher and antagonist, Plato, 428 to 347 B.C.
It has been said that every man deep down is either a Platonist or an Aristotelian,
and the divisions run throughout their thought.
Plato pioneered the natural law approach, which Aristotle developed and systematized.
But the basic thrust was quite different.
For Aristotle and his followers, man's existence, like that of all other creatures, is contingent,
that is, it is not necessary and eternal.
Only God's existence is necessary and transcends time.
The contingency of man's existence is simply an unalterable part of the natural order,
and must be accepted as such.
To the Platonists, however, especially as elaborated by Plato's follower, the Egyptian
Plotinus, 204-270 AD, these inevitable limitations of man's natural state were intolerable and
must be transcended.
To the Platonists, the actual, concrete, temporal, factual existence of man was too limited.
Instead, this existence, which is all that any of us has ever seen, is a fall from grace,
a fall from the original, non-existent, ideal, perfect, eternal being of man, a godlike being,
perfect and therefore without limits.
In a bizarre twist of language, this perfect and never-existent being was held up by the
The Platonists as the truly existent, the true essence of man, from which we have all
been alienated or cut off.
The nature of man, and of all other entities in the world, is to be some thing, and to
exist in time.
But in the semantic twist of the Platonists, the truly existent man is to be eternal, to
to Live Outside of Time and to Have No Limits.
Man's condition on earth is therefore supposed to be a state of degradation and alienation,
and his purpose is supposed to be to work his way back to the true, limitless and perfect
self, alleged to be his original state, alleged, of course, on the basis of no evidence whatever.
Indeed, evidence itself identifies, limits, and, therefore to the Platonic mind, corrupts.
Plato's and Plotinus's views of man's allegedly alienated state were highly influential, as
we shall see, in the writings of Karl Marx and his followers.
Another Greek philosopher, emphatically different from the Aristotelian tradition, who prefigured
Richard Hegel and Marx was the early pre-Socratic philosopher Heraclitus of Ephesus, circa 535-475 B.C.
He was pre-Socratic in the sense of predating Plato's great teacher Socrates, 470-399 B.C.,
who wrote nothing but has come down to us as interpreted by Plato and by several other
followers. Heraclitus, who was aptly given the title The Obscure by the Greeks, taught
that sometimes opposites, A and non-A, can be identical, or, in other words, that A can
and B, Non-A. This defiance of elemental logic can perhaps be excused in someone like Heraclitus,
who wrote before Aristotle developed classical logic, but it is hard to be so forbearing
to his later followers.
2. The Politics of the Polis
When man turns the use of his reason from the inanimate world to man himself and to
social organization, it becomes difficult for pure reason to avoid giving way to the
biases and prejudices of the political framework of the age.
This was all too true of the Greeks, including the Socratic, Plato and Aristotle.
Greek life was organized in small city-states, the polis, some of which were able to carve
out overseas empires.
The largest city-state, Athens, covered an area of only about 1,000 square miles, or
half the size of modern Delaware.
The key facet of Greek political life was that the city-state was run by a tight oligarchy
of Privileged Citizens, most of whom were large landowners.
Most of the population of the city-state were slaves or resident foreigners who generally
performed the manual labor and commercial enterprise respectively.
The privilege of citizenship was reserved to descendants of citizens.
While Greek city-states fluctuated between outright tyrannies and democracies, at its
As most democratic, Athens, for example, reserved the privileges of democratic rule to 7% of the population, the rest of whom were either slaves or resident aliens.
Thus, in Athens of the 5th century BC, there were approximately 30,000 citizens out of a total population of 400,000.
As privileged landowners living off taxes and the product of slaves, Athenian citizens had the leisure for voting, discussion, the arts, and, in the case of the particularly intelligent, philosophizing.
Although the philosopher Socrates was himself the son of a stonemason, his political views were ultra-elitist.
In the year 404 BC, the despotic state of Sparta conquered Athens and established a reign of terror known as the Rule of the Thirty Tyrants.
When the Athenians overthrew this short-lived rule a year later, the restored democracy executed the aged Socrates, largely on suspicion of sympathy with the Spartan cause.
This experience confirmed Socrates' brilliant young disciple, Plato, the scion of a noble Athenian family, in what would now be called an ultra-right devotion to aristocratic and despotic rule.
A decade later, Plato set up his Academy on the outskirts of Athens as a think tank, not only of abstract philosophic teaching and research, but also as a fountainhead of policy programs for social despotism.
System. He himself tried three times unsuccessfully to set up despotic regimes in the city-state
of Syracuse, while no less than nine of Plato's students succeeded in establishing themselves
as tyrants over Greek city-states. While Aristotle was politically more moderate than Plato,
his aristocratic devotion to the polis was fully as evident. Aristotle was born of an
He had an aristocratic family in the Macedonian coastal town of Stegira and entered Plato's
Academy as a student at the age of 17 in 367 BC.
There he remained until Plato's death twenty years later, after which he left Athens and
eventually returned to Macedonia, where he joined the court of King Philip and tutored
The Young Future World Conqueror, Alexander the Great
After Alexander ascended the throne, Aristotle returned to Athens in 335 BC and established
his own school of philosophy at the Lyceum, from which his great works have come down
to us as lecture notes written by himself or transcribed by his students.
When Alexander died in 323 BC, the Athenians felt free to vent their anger at Macedonians
and their sympathizers, and Aristotle was ousted from the city, dying shortly thereafter.
Their aristocratic bent and their lives within the matrix of an oligarchic polis had a greater
impact on the thought of the Socratic than Plato's various excursions into theoretical
Social Right-Wing Collectivist Utopias, or in his students, Practical Attempts at Establishing
Tyranny, for the social status and political bent of the Socratic's colored their ethical
and political philosophies and their economic views.
Thus, for both Plato and Aristotle, the good for man was not something to be pursued by
by the individual, and neither was the individual a person with rights that were not to be abridged
or invaded by his fellows.
For Plato and Aristotle, the good was naturally not to be pursued by the individual but by
the polis.
Virtue and the good life were polis rather than individual oriented.
All this means that Plato's and Aristotle's thought was statist and elitist to the core,
a statism which unfortunately permeated classical, Greek and Roman, philosophy, as well as heavily
influencing Christian and medieval thought.
Classical natural law philosophy therefore never arrived at the later elaboration, first
in the Middle Ages and then in the 17th and 18th centuries of the natural rights of the
individual which may not be invaded by man or by government.
In the more strictly economic realm, the statism of the Greeks means the usual aristocratic
exaltation of the alleged virtues of the military arts and of agriculture, as well as a pervasive
Contempt for Labor and for Trade, and Consequently of Money-Making and the Seeking and Earning
of Profit.
Thus Socrates, openly despising Labor as unhealthy and vulgar, quotes the King of Persia to the
effect that by far the noblest arts are agriculture and war.
And Aristotle wrote that no good citizens should be permitted to exercise any low mechanical
Social Change as well as Economic Growth.
But the Greek and Socratic ethical ideal for the individual was not an unfolding and flowering
of inner possibilities, but rather a public political creature molded to conform to the
demands of the polis.
That kind of social ideal was designed to promote a frozen society of politically determined
and Status, and certainly not a society of creative and dynamic individuals and innovators.
3.
The First Economist, Hesiod and the Problem of Scarcity
No one should be misled into thinking that the ancient Greeks were economists in the
modern sense.
In the course of pioneering in philosophy, their philosophizing on man and his world
yielded fragments of politico-economic or even strictly economic thoughts and insights.
But there were no modern-style treatises on economics per se.
It is true that the term economics is Greek, stemming from the Greek economia.
But economia means not economics in our sense, but household management, and treatises on
economics would discuss what might be called the technology of household management.
Useful perhaps, but certainly not what we would regard today as economics.
There is furthermore a danger, unfortunately not avoided by many able historians of economic
Thought of eagerly reading into fragments of ancient sages the knowledge gained by modern
economics.
While we surely should not overlook any giants of the past, we must also avoid any presentist
seizing upon a few obscure sentences to hail alleged but non-existent forerunners of sophisticated
modern concepts.
The honor of being the first Greek economic thinker goes to the poet Hesiod, a Boeotian
who lived in the very early ancient Greece of the middle of the 8th century BC.
Hesiod lived in the small self-sufficient agricultural community of Ascra, which he
himself refers to as a sorry place, bad in winter, hard in summer, never good.
He was therefore naturally attuned to the eternal problem of scarcity, of the niggardliness
of resources as contrasted to the sweep of man's goals and desires.
Hesiod's great poem, Works and Days, consisted of hundreds of verses designed for solo recitation
with musical accompaniment.
But Hesiod was a didactic poet rather than a mere entertainer, and he often broke out
of His Storyline to Educate His Public in Traditional Wisdom or in Explicit Rules for
Human Conduct.
Of the 828 verses in the poem, the first 383 centered on the fundamental economic problem
of scarce resources for the pursuit of numerous and abundant human ends and desires.
Mises adopts the common religious or tribal myth of the Golden Age, of man's alleged
initial state on earth as an Eden, a paradise of limitless abundance.
In this original Eden, of course, there was no economic problem, no problem of scarcity,
because all of man's wants were instantaneously fulfilled.
But now, all is different, and men never rest from labor and sorrow by day and from perishing
by night.
The reason for this low state is in all-encompassing scarcity, the result of man's ejection from
paradise.
Because of scarcity, notes Hesiod, labor, materials and time have to be allocated efficiently.
The theory, moreover, can only be partially overcome by an energetic application of labor
and of capital.
In particular, labor, work, is crucial, and Hesiod analyzes the vital factors which may
induce man to abandon the godlike state of leisure.
The first of these forces is, of course, basic material need.
But happily, need is reinforced by a social disapproval of sloth, and by the desire to
emulate the consumption standards of one's fellows.
To Hesiod, emulation leads to the healthy development of a spirit of competition, which
he calls good conflict, a vital force in relieving the basic problem of scarcity.
To keep competition just and harmonious, Hesiod vigorously excludes such unjust methods of
acquiring wealth as robbery, and advocates a rule of law and a respect for justice to
establish order and harmony within society, and to allow competition to develop within
a matrix of harmony and justice.
It should already be clear that Hesiod had a far more sanguine view of economic growth,
of labor, and of vigorous competition than did the far more philosophically sophisticated
Plato and Aristotle three and a half centuries later.
4.
The Presocratics
Man is prone to error and even folly, and therefore a history of economic thought cannot
confine itself to the growth and development of economic truths.
It must also treat influential error, that is, error that unfortunately influenced later
developments in the discipline.
One such thinker is the Greek philosopher Pythagoras of Samos, circa 582 to circa 507
BC, who, two centuries after Hesiod, developed a school of thought which held that the only
A significant reality is number. The world not only is number, but each number even embodies
moral qualities and other abstractions. Thus justice to Pythagoras and his followers is
the number four, and other numbers consisted of various moral qualities. While Pythagoras
undoubtedly contributed to the development of Greek mathematics, his number mysticism
could well have been characterized by the 20th century Harvard sociologist Peter Riem
A. Sorokin as a seminal example of quantophrenia and metromania. It is scarcely an exaggeration
to see in Pythagoras the embryo of the burgeoning and overweeningly arrogant mathematical economics
and econometrics of the present day. Pythagoras thus contributed a sterile dead
End to Philosophy and Economic Thought, one that later influenced Aristotle's pocky and
fallacious attempts to develop a mathematics of justice and of economic exchange.
The next important positive development was contributed by the pre-Socratic, actually
contemporary of Socrates, Democritus, circa 460 to circa 370 B.C.
This influential scholar from Abdera was the founder of atomism in cosmology, that is,
the view that the underlying structure of reality consists of interacting atoms.
Democritus contributed two important strands of thought to the development of economics.
First, he was the founder of subjective value theory.
Political values, ethics, were absolute, Democritus taught.
But economic values were necessarily subjective.
The same thing, Democritus writes, may be good and true for all men, but the pleasant
differs from one and another.
Not only was valuation subjective, but Democritus also saw that the usefulness of a good will
Democritus also pointed out that if people restrained their demands and curbed their
desires, what they now possess would make them seem relatively wealthy rather than impoverished.
Here again, the relative nature of the subjective utility of wealth is recognized.
In addition, Democritus was the first to arrive at a rudimentary notion of time preference,
the Austrian insight that people prefer a good at present to the prospect of the good
arriving in the future.
As Democritus explains, it is not sure whether the young man will ever attain old age, hence
the good on hand is superior to the one still to come.
In addition to the adumbration of subjective utility theory, Democritus's other major
contribution to economics was his pioneering defense of a system of private property.
In contrast to Oriental despotisms, in which all property was owned or controlled by the
emperor and his subordinate bureaucracy, Greece rested on a society and economy of private
Property.
Democritus, having seen the contrast between the private property economy of Athens and
the oligarchic collectivism of Sparta, concluded that private property is a superior form of
economic organization.
In contrast to communally owned property, private property provides an incentive for
Toil and Diligence, since income from communally held property gives less pleasure and the
expenditure less pain.
Toil, the philosopher concluded, is sweeter than idleness when men gain what they toil
for or know that they will use it.