The Significance of History of Economic Theory in Light of œconomia

Conclusively, the heart of economics is the drive to gain wealth—the contested part of this statement is the intention in one’s drive for wealth (Heilbroner, 12). Long ago in ancient society, Aristotle divided market activity into two categories: the first he named “œconomia”; the second, chrematistiké (Heilbroner 15). The former is where contemporary scholars coin the term for “economics,” yet more than once has the proposition to rename our subject into “chemastistics” been brought up (Heilbroner, 15). From the very linguistic root of economics there is the perpetual controversy in money making. Do we truly aim for œconomia, a well-run state, or has humanity devoted itself to chrematistiké, the amassing of money for its own sake? 

The maintenance of the state, or “housekeeping,” is a necessary and honorable endeavor. As ancient economists delineate, money was made to be a medium of exchange, not a fertile land to breed wealth. The foundation of pre-antiquity economies was farming and husbandry, or efforts to support others. Money-making industries, conversely, included all forms of commerce, marketing, and personal services. There were also intermediate occupations like lumbering and mining, which sat in the gray areas between contributing for the greater good and that of the contrary. Despite all his condemnation towards usury, however, Aristotle was the first philosopher to acknowledge an analytical and moral aspect in moral affairs (Heilbroner, 16). This laid the groundwork for future economic theory advancements. 

The Middle Ages’ theories were heavily influenced by religion, centering around justice and morality in pecuniary activities. This period saw the doctrine of the “just price” and a heavily-Catholic redefinition of usury (Buchholz, 13). The Old Testament went as far as to forbidding money interest practices, which contributed to the further alienation of the Jewish community when large portions of this religious minority were forced into “usury.” Higher-educated theologians faced the dilemma of treading the thin line of flourishing commerce and aligning with Biblical teachings. On one hand, mercantilists’ eminence in bringing about higher life standards were indisputable; conversely, the Church’s ultimate aspiration was not to guide their flock to prosperity, but to Heaven (Buchholz, 13). While the Europeans struggled with religious affiliations, pre-antiquity China commanded an intensely authoritarian view on economics well into the Late Qing Dynasty. Guanzi’s views and the dominant economic theories of this time were studies of political economics rather than pure commerce. To maintain power, the emperor must maintain equality, competency, and most importantly, control. Inequality marked by the very existence of rich merchants was a calamitous presence to an emperor’s reign (Gushiwen.com, 2022). Chinese theologists determined that while a degree of free market trade was desirable, an empire must ultimately control its economy and population to maintain its legacy. The Chinese held contradictory views to that of their Western counterparts, believing that free trade only essentially benefits the minority and oppresses the vast majority. This was a view particularly understandable in light of China’s circumstances, with a small portion of educated and privileged as opposed to the predominantly illiterate farmers. 

Adam Smith is well-known as the father of modern economics. While wealth was historically measured in terms of coins and precious metals, Smith assessed real wealth as the standard living qualities of households (Buchholz, 14). This era saw a new appraisal in private ownership, as Smith recognized that the desirability of “motivation, invention, and innovation inspire an economy to greater prosperity” (Buchholz, 14). The emergence of mercantilist politics bore the fruits of monopoly, protection, and the birth of modern Capitalism. 

Thus, in retrospect, Capitalism was born for œconomia. It was conceptualized no longer for shepherding the general public to Elysium, but rather for leading persons to increasingly better lives for their mortal physique. The original aspiration of our economic theory should not be overlooked, for we retain the obligation to avoid chrematistiké. Unfortunately, complications with individual self-interest relegate such ideals to theory alone. 

Take the notion of “just prices” as an example. To discuss this we need first to define how "prices are just." Prices can be just for a variety of reasons for different populations depending on perspective. For the prices of labor to be just, workers should be compensated in line with their individual marginal product, which may vary greatly due to the nature of their work and their respective amounts of effort. From the firm’s perspective, they should pay only the price that they value for its inputs. The very foundation of this debate relies on the assumption that a universally agreed price can theoretically exist. In other words, it assumes a "fairness" in distribution of wealth, as richer and poorer households would most certainly not have one price in mind. Definitions based on equity versus fairness are famous paradoxical examples.  

For prices to truly be just in the definition where the entire population concurs, it would require the region to have the same set of values, culture, and traditions that induces them to be willing to pay the same price for the same products. In addition, producers must be able to supply this demand, and any hindrance in their ability to do so would detract from the perceived fairness. Then the question would be, in pre-antiquity villages or smaller-scale gatherings—more "close-knit communities' '—would achieving just prices be easier? In theory it seems that it would be facilitated, yet even then the paradoxical nature of humans being both "herd animals'' and maintaining strong individuality with unique interests simultaneously would always impede our potential to reach "just prices."

Unfortunately, in the balance between value maximization and self-interest, decision makers often cross the line to chrematistiké. A history of economic theory, debates, and discussions has failed to provide a resolution; however, the examination of past premises remains crucial to developing a more holistic interpretation of economics. In our search for the better good, it is certainly ignorant to dismiss our past. Robert Lucas’s criticism on general macroeconomic analysis in 1996 fails to realize that the quantity theory of money that he interprets differs from "Hume or anyone else in this golden age before the rational expectations revolution of the 1970s" (Blaug, 2001). In re-examining previous works, we aim not to criticize but to understand the context that these thinkers were exposed to. We want to inquire with historical reconstructions to explain the fruitful endeavors that would increase the breadth and multi-dimensional depth of our economic knowledge.  

 Edited by Jackson Pentz

Work Cited

Buchholz, T., 2007. New Ideas from Dead Economists. New York, USA: Plume.

Folbre, N., 2009. Greed, lust & gender. Oxford: Oxford University Press.

Gushiwen.com. 2022. 《管子》-国蓄-古诗文网. [online] Available at: <https://www.gushiwen.com/dianjiv/76619.html> [Accessed 31 January 2022].

Heilbroner, R., 2012. Teachings from the worldly philosophy. Vancouver, B.C.: Langara College.