BA ECONOMICS HISTORY OF ECONOMIC THOUGHT (V SEMESTER) CORE COURSE (2011 ADMISSION ONWARDS) UNIVERSITY OF CALICUT SCHOOL OF DISTANCE EDUCATION Calicut University, P.O. Malappuram, Kerala, India-673 635 269 School of Distance Education UNIVERSITY OF CALICUT SCHOOL OF DISTANCE EDUCATION B.A. ECONOMICS (2011 ADMISSION ONWARDS) V SEMESTER CORE COURSE: HISTORY OF ECONOMIC THOUGHT Prepared by: Module I II & III Dr. P. Chacko Jose Associate professor, Sacred Heart College Chalakkudy Thrissur District. Module IV & V Dr. K. Rajan Associate Professor, M.D. College, Pazhanji. Thrissur District. Scrutinized by Dr. C. Krishnan, Associate Professor, Government College Kodanchery Kozhikode District. Layout & Settings: Computer Section, SDE © Reserved History of Economic Thought 2 School of Distance Education CONTENTS PAGES MODULE - I 5- 42 MODULE - II 43 - 113 MODULE - III 114 - 161 MODULE - IV 162- 174 MODULE - V 175 - 199 History of Economic Thought 3 School of Distance Education History of Economic Thought 4 School of Distance Education Module I Introduction and Early Economic Thought 1.1 History of Economic Thought The subject, the History of Economic Thought, may be defined as a critical account of the development of economic ideas, searching into their origins, interrelations, and, in some cases, their results. The history of economic thought concerns thinkers and theories in the field of political economy and economics from the ancient world right up to the present day. Economics was not considered a separate discipline until the nineteenth century. For example, Aristotle, the ancient Greek philosopher, in his works on politics and ethics have thought of ‘art of wealth acquisition’. He also considered the question whether property is best left in private or public hands. In medieval times, scholars like Thomas Aquinas argued that it was a moral obligation of businesses to sell goods at a just price. Economic thought evolved through feudalism in the Middle Ages to mercantilist theory during the Renaissance (when people were concerned to orient trade policy to further the national interest). The modern political economy of Adam Smith appeared during the industrial revolution, when technological advancement, global exploration, and material opulence that had previously been unimaginable was becoming a reality. All these and further developments are subject matter of history of economic thought.Changes in economic thought have always accompanied changes in the economy, just as changes in economic thought can propel change in economic policy. Economic thought has at times focused on the aspects of human nature such as greed and selfishness that generally work against the good of all; at other times, economic behaviour has been seen as self-regulating and working toward a common purpose. As contemporary economic thought deals with the issues of globalization and the emergence of a global economy, economists have turned to the multitude of other disciplines which, like economics, developed independently. Building on their discoveries, and united with them in pursuit of the common goal of benefiting human society, economic thought may be on the road to achieving a new level of understanding. There are several ways to present the history of economic thought. (i) to analyse the changing nature of economic theory in conjunction with the social and economic development of society (ii) to emphasize economic thinking as part of the main currents of philosophical and political ideas (iii) to emphasize the internal dynamics of the science where new insights and results emerge as a consequence of economists’ awareness of the shortcomings of the present state of the subject. 1.2 Economic History Economic history is different from history of economic thought. Economic history is the study of the economic aspects of societies in the past; the history of the economic use of resources land, labour and capital; or the examination of the past performance of economies. It is concerned with how people lived most of their lives, how many were born and died, how they earned and spent, worked and played. Such variants, however, reveal little more than the definition which once said simply that it was the sort of history which required a knowledge of economics; though they are an advance on that which defined an economic historian as one who wrote as little history as possible for as much money as possible. History of Economic Thought 5 School of Distance Education Economic history asks economic questions – be they about the demand and supply of goods and services, about costs of production, levels of income, the distribution of wealth, the volume and direction of investment, or the structure of overseas trade – it inevitably deals with large numbers, with aggregates. A study of economic history is important because the historical economic phenomena to be examined in any given period have no existence independent of the social, political, cultural, religious and physical environment in which they occurred. 1.3 Why study History of Economic Thought The economic process that evolves in any society is a complex matrix of individuals, organizations, rules, and relationships. This matrix is the product of perceptions, values, beliefs, knowledge and technology. The economic process is embedded in society and is related to all aspects of the culture. An understanding of the economic system and economic theory requires an awareness of the social, historical and philosophical context in which they are developed. It is possible to train individual economists to apply economic tools, such as benefit/cost analysis without an understanding the historical and philosophical context of the tools. It is also possible to train an individual to fire and clean a firearm without considering the context of its alternative uses. This is the difference between training and education, between knowledge and wisdom. Both are needed. The history of economic thought is a study of alternative perspectives and explanations of how the economic processes function. An important aspect of the study of economic thought is to identify the factors that encourage different perspectives of the economy. It is also important to trace the evolution of the tools used for analysis and understand how the different perspectives and conditions encourage the use of different tools. Mark Blaug writes: “The task of the historian of economic thought is to show how definite preconceptions lead to definite kinds of analysis and then to ask whether the analysis stands up when it is freed from its ideological foundation. It is doubtful whether Ricardo would have developed his theory of international trade without a strong animus against the landed classes; but this theory survives the removal of his prejudices.” An understanding of the different approaches to economics, the causes for those differences and how they have evolved over time provides a historical and philosophical context that encourages a more critical analysis of current economic tools and their applications. This critical approach has three advantages. In many countries, the study of the history of economic ideas was previously considered to be an indispensable part of the training of an economist. However this point of view has been losing ground for a number of years. Many contemporary economists take no interest in the history of their subject, and some are decidedly doubtful about the value of acquiring historical knowledge. There may be several explanations for this, but a main reason is probably that modern economists more than their predecessors regard economics as a cumulative science in which new research and new insights are based on existing knowledge that is constantly being extended and improved. In a cumulative science, therefore, new insights will always tend to make the views of earlier scientists dated and erroneous. Some economists even argue that the history of thought was only about “the wrong opinions of dead men.” History of Economic Thought 6 School of Distance Education However the study of history of economic thought is still relevant because when you study a subject you should certainly have knowledge of how the subject evolved to its present form. A study of history of economic thought helps better understanding of the internal dynamics of the subject. The concepts and theories that today’s students encounter in the syllabus are the results of the work of earlier generations of economists. The understanding that economics has developed as a continuous process which continues today is in itself an inspiration for those who wish to attempt to gain a better knowledge of the subject and perhaps even contribute to its further development. In addition, it could even be the case that the study of the older literature may encourage new research by the discovery and reconsideration of problems and fruitful insights that have been neglected in contemporary work. Following are some reasons why it might reasonable to use some time and effort getting to know the history of economic thought. 1. It is exciting to explore the past. Anyone with some familiarity with modern economics should find it interesting to read about the thinkers and theories of the past. The opinions of dead men may be fascinating to study even if one believes them to be wrong. For example, Einstein’s discoveries did not turn Newton into an irrelevant character in history; in a similar manner, Paul Samuelson and other twentieth-century economists did not make the life and work of Adam Smith a subject of no relevance and interest. 2. There is great value in understanding the origin of a science, especially one like economics, whose scope and nature have been under dispute. It gives a better concept of the relationship among sciences. This will help the thinker looking toward the proper application of economic principles. 3. A study of the History of Economic Thought help to gain a clear understanding of the position of economics as a distinct member of a group of social sciences: ethics, jurisprudence, philosophy, sociology, etc.