THE ANCIENTS

HERE WE CAN START WAY BACK IN HISTORY

-- AND IF WE HAD MORE INFORMATION WE COULD GO

BACK EVEN FURTHER

• WE START WITH THE CHINESE --- 725 – 645 B.C.• THEN GO TO THE GREEKS• OF COURSE THE LATER CHRISTIANS WERE

REFERRING BACK TO JUDAH, THE ISRAELITE KINGS, ISAIAH, AND HIS THOUGHTS ABOUT PRICING AND BEHAVIOR

• THEN TO ROME AND ROMAN THOUGHT AND THE COLLAPSE OF ROME

• WE CAN GO TO ISLAMIC THOUGHT • THE SCHOLASTICS OF THE CHRISTIAN ERA• THE FEUDAL ERA• THESE ALL COME PRIOR TO THE FORERUNNERS,

THE CLASSICALS, AND THE NEOCLASSICALS

Guan ZhongGuan Zhongand the bookand the book

Guan ZiGuan Zi(725-645 BC)(725-645 BC)

The light/heavy theoryThe light/heavy theory

In Anticipation of the In Anticipation of the quantity theory of money quantity theory of money ( a la John Locke – a ( a la John Locke – a forerunner of the forerunner of the Classicals)Classicals)

Idea of the pervasive idea Idea of the pervasive idea of supply and demandof supply and demand

Guan Zhong argued that when a good was abundant, it became Guan Zhong argued that when a good was abundant, it became light, and its price would fall--- when the good was “locked light, and its price would fall--- when the good was “locked away”, it became heavy, and the good’s price would riseaway”, it became heavy, and the good’s price would rise

There are movements of goods into and out of markets based on There are movements of goods into and out of markets based on their lightness and heaviness, with a tendency toward one price– their lightness and heaviness, with a tendency toward one price– equilibrium --- hence a statement of the law of supply & demandequilibrium --- hence a statement of the law of supply & demand

** ADDITIONAL IDEA** --- NOT IN THE TEXT

Guan Zhong used the light/heavy idea to anticipate a quantity Guan Zhong used the light/heavy idea to anticipate a quantity theory ---- when money was heavy (less abundant), its price theory ---- when money was heavy (less abundant), its price would rise (prices of goods would fall), and when money was would rise (prices of goods would fall), and when money was light, it’s price would fall (goods prices would rise)light, it’s price would fall (goods prices would rise)

---The policy to modify this fluctuation: the state should buy ---The policy to modify this fluctuation: the state should buy goods when money was heavy (thereby holding the price level goods when money was heavy (thereby holding the price level up) and sell goods when it was light (thereby holding prices of up) and sell goods when it was light (thereby holding prices of goods down) ---- This policy stabilizes the price level, but makes goods down) ---- This policy stabilizes the price level, but makes money for the government {Early money for the government {Early Stabilization policy hereStabilization policy here}}

-- markets, market equilibrium, and equilibrium price ideas-- markets, market equilibrium, and equilibrium price ideas

--supply and demand are not strictly western economic ideas--supply and demand are not strictly western economic ideas

--economic ideas are universal--economic ideas are universal

--change the institution and one changes the policy--change the institution and one changes the policy

A TRANSELATED QUOTE Guan ZhongGuan Zhong

• “INDEED, IT IS THE NATURE OF MEN THAT WHENEVER THEY SEE PROFIT, THEY CANNOT HELP CHASING AFTER IT, AND WHENEVER THEY SEE HARM, THEY CANNOT HELP RUNNING AWAY. WHEN THE MERCHANT ENGAGES IN TRADE AND TRAVELS TWICE THE ORDINARY DISTANCE IN A DAY, USES THE NIGHT TO EXTEND THE DAY, AND COVERS A THOUSAND LI WITHOUT CONSIDERING IT TOO FAR, IT IS BECAUSE PROFIT LIES AHEAD. WHEN THE FISHERMAN PUTS OUT TO SEA, THE SEA MAY BE TEN THOUSAND-REN DEEP, AND WHEN HE HEADS INTO ITS WAVES AND STRUGGLES AGAINST ITS TIDES, RAISES HIS SMALL MAST AND SAILS OUT A HUNDRED LI, NEVER LEAVING THE WATER FROM MORNING TO NIGHT, IT IS BECAUSE PROFIT LIES IN THE WATER. THUS, WHEREVER PROFIT LIES, EVEN THOUGH IT BE ATOP A THOUSAND-REN PEAK, THERE IS NO PLACE PEOPLE WILL NOT CLIMB. EVEN THOUGH IT IS AT THE BOTTOM OF THE DEEPEST DEPTHS, THERE IS NO PLACE PEOPLE WILL NOT ENTER.

• INDEED, THOSE WHO ARE SKILLED IN GOVERNMENT CONTROL THE PRESENCE OF WEALTH SO THAT THE PEOPLE ARE NATURALLY CONTENT. WITHOUT PUSHING THEM, THEY GO; WITHOUT PULLING THEM, THEY COME. WITHOUT TROUBLE OR WORRY, THE PEOPLE ENRICH THEMSELVES. IT IS LIKE A BIRD SITTING ON ITS EGGS; THERE IS NEITHER SHAPE NOR SOUND, BUT THE YOUNG SUDDENLY APPEAR QUITE COMPLETE”

• GUAN ZHONG, GUAN ZI, VOL. II, TRANSELATED BY W. ALLYN RICKETT (PRINCETON, N.J.: PRINCETON UNIVERSITY PRESS, 1998), pp. 219-220.

• MAINSTAY OF ECONOMIC BEHAVIOR?? --- PROFIT MAXIMIZATION??

WHAT OF CHINA TODAY?

• Xi Jinping takes over as party leader– Warns party leaders of corruption in

higher echelons – threatens 6 decade hold over the nation

– China’s most serious problems are domestic issues

– Socialism with Chinese characteristics– No stopping of the opening up of China– Cooperate with non-CPC parties to bring

about health reform & non party commerce

WHAT OF CHINA TODAY?

• Hu Jintao – outgoing party leader– China’s growth will come back– Development of the west and northwest– China will work to bolster global economic

growth– Hu’s father died after being accused of being a

“capitalist” during the “cultural revolution”

• Deng Xiaoping --- the reformer– He abandoned many elements of the communist

elements and adopted many free enterprise practices – studied in France – spent time in the soviet Union --- then back to china to lead the cpc

Hesiod, the farmer and Hesiod, the farmer and Greek thought on Greek thought on efficiency found in his efficiency found in his Works and DaysWorks and Days

An accounting of the An accounting of the birth of the gods is inbirth of the gods is in TheogonyTheogony --- here Hesiod --- here Hesiod suggests that scarcity suggests that scarcity does not arise from a does not arise from a human condition related human condition related to limited resources and to limited resources and unlimited desires, rather unlimited desires, rather it is one of the evils it is one of the evils released from Pandora’s released from Pandora’s Box when opened!Box when opened!

Hesiod was Hesiod was interested in interested in maximum efficiency maximum efficiency of the individual, or of the individual, or of the householdof the household

Efficiency is later applied to Efficiency is later applied to public affairspublic affairs

SOME EARLY GREEK THOUGHT --- PRICES NOT DERIVED FROM SCARCITY --- MARKETS ARE WITHIN THE “GOD’S” TERRITORY

TEXT CH 1

The instructor tried to tell his mother this story upon stealing licorice

from his mother’s stash!!

The price? Not only the willow but

the pinch bar across the hindy!!

Xenophonthe word Economics derives

from the title of Xenophon’s bookOeconomicus

OROIKONOMIKOS

Xenophonthe word Economics derives

from the title of Xenophon’s bookOeconomicus

OROIKONOMIKOS

Oeconomicus refers to efficient management at the level of the producer and/or household

Xenophon extended efficiency to the level of the military and the public administrator

Xenophon suggests division of labor induces efficiency

Men interact with nature rather than with each other

STILL NON-MARKET LIKE THOUGHT – BUTLABOR VALUE LATERBECOMES A FUNCTIONOF LABOR EFFICIENCYOR LABOR PRODUCTIVITY – SEE THE LATERNEOCLASSICAL THOUGHT

Hesiod is in the 8Hesiod is in the 8thth Century BC Century BC

Xenophon writes some 400 years Xenophon writes some 400 years laterlater

Division of labor was continued by Division of labor was continued by other Greek writers, including other Greek writers, including Aristotle, and later by the scholastics Aristotle, and later by the scholastics at the break-out of the medieval at the break-out of the medieval periodperiod

Thence used by Adam Smith and Thence used by Adam Smith and othersothers

AristotleAristotlephilosophical thinkingphilosophical thinkingand economic thinkingand economic thinking

ST. Thomas ST. Thomas Aquinas and Aquinas and the Churchmen the Churchmen later use some later use some of these ideasof these ideas

DemocratisDemocratis(460 – 370 BC)(460 – 370 BC)

On division of laborOn division of labor

Communal Communal property vs. property vs. private property private property debatesdebates

ARISTOTLEIF EXCHANGE IS VOLUNTARY, THEN EXCHANGE IS JUST

DISTRIBUTIVE JUSTICE --- PROPORTIONALITY --- GEOMETRIC PROPORTION --- GEOMETRIC MEAN (MULTIPLY QUANTITIES AND THEN TAKE THEIR nTH ROOT)

AN INFLUENCE FROM THE PYTHAGOREANS

TEXTCH 1

TEXTCH 2

Plato Plato Was against allowing Was against allowing for private propertyfor private property

——Humans have more Humans have more lofty things to think lofty things to think

aboutabout

<<<< The Student of Plato

The Master Philosopher

Recall a2 + b2 = c2

THE SUM OF THE SQUARE OF THE SIDES = THE SQUARE OF THE HYPOTENUSE -- so how long is the hypotenuse?

The Pythagorean theorem: The sum of the areas of the two squares on the legs (a and b) equals the area of the square on the hypotenuse (c).

GEOMETRIC MEAN

2√2 × 8 = 4.

ANOTHER FORM OF AVERAGE, BUT IN SPACE, DEALING WITH SQUARES

Remember the Pythagorean theorem from high school mathematics?

The Greeks used the geometric mean to measure average efficiency and a crude measure of average GNP (gross national product)

2√c2

--Aristotle—--Aristotle—People’s needs are moderatePeople’s needs are moderatePeople’s desires are limitlessPeople’s desires are limitless

hence, the production of commodities to satisfy hence, the production of commodities to satisfy needs is quite natural,needs is quite natural,

whereas the production of goods in an attempt whereas the production of goods in an attempt to satisfy unlimited desires is unnaturalto satisfy unlimited desires is unnatural

He admits that it is hard to distinguish He admits that it is hard to distinguish goods sold for needs and goods sold goods sold for needs and goods sold

for unlimited desiresfor unlimited desires

What about the old definition of economics ???

The study of satisfying human wants against the scarcity of

resources (inputs)!!!The allocation of limited resource The allocation of limited resource

to unlimited wants??to unlimited wants??Where did that statement come Where did that statement come

from??from??

Aristotle’s teacher, Plato, had argued for the ruling class to not Aristotle’s teacher, Plato, had argued for the ruling class to not hold private property --- the soldiers and the philosophers – the hold private property --- the soldiers and the philosophers – the ruling class of society, should hold communal property to avoid ruling class of society, should hold communal property to avoid conflicts over property that might divert their attention from conflicts over property that might divert their attention from more important issues more important issues { so what kind of government graft is { so what kind of government graft is that!! – the soldiers conquer, and take over the land! For that!! – the soldiers conquer, and take over the land! For wealth? For power? Is this government monopoly??}wealth? For power? Is this government monopoly??}

Aristotle suggested that private property serves a useful Aristotle suggested that private property serves a useful function and that no regulation should limit private property in function and that no regulation should limit private property in the hands of private partiesthe hands of private parties

He condemns the pursuit of economic gain while endorsing the He condemns the pursuit of economic gain while endorsing the right to private propertyright to private property

Aristotle’s main contribution came through his understanding Aristotle’s main contribution came through his understanding of the exchange of commodities and the use of money in this of the exchange of commodities and the use of money in this exchangeexchange

--Aristotle—--Aristotle—Barter is a sign of exchange for needsBarter is a sign of exchange for needs

Use of money suggests the exchange is for Use of money suggests the exchange is for monetary gainmonetary gain

Economics should be viewed in the broader Economics should be viewed in the broader context context

The problem of scarcity can be modified The problem of scarcity can be modified by reducing consumption and by reducing consumption and

changing human attitudes– a conceptchanging human attitudes– a concepttaken up by the Utopians in later periodstaken up by the Utopians in later periods

So, what kind of “crap” is this philosophy??

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How does all this relate to demand? And

Demand Elasticity??