The Economics Book

18

A

s civilizations evolved in

the ancient world, so too

did systems for providing

goods and services to populations.

These early economic systems

emerged naturally as various trades

and crafts produced goods that

could be exchanged. People began

to trade, first by bartering and later

with coins of precious metal, and

trade became a central part of life.

The business of buying and selling

goods operated for centuries before

it occurred to anyone to examine

how the system worked.

The ancient Greek philosophers

were among the first to write about

the topics that came to be known

collectively as “economics.” In

The Republic, Plato described the

political and social makeup of an

ideal state, which he said would

function economically, with

specialty producers providing

products for the common good.

However, his pupil Aristotle

defended the concept of private

property, which could be traded in

the market. These are arguments

that have continued to the present

day. As philosophers Plato and

Aristotle thought of economics as a

matter of moral philosophy: rather

than analyzing how an economic

system worked, they came up with

ideas for how it should work. This

kind of approach is said to be

“normative”—it is subjective and

looks at “what ought to be” the case.

The normative approach to

economics continued into the

Christian era, as medieval

philosophers such as Thomas

Aquinas (p.23) attempted to define

the ethics of private property and

trading in the marketplace.

Aquinas considered the morality of

prices, arguing for the importance

of “just” prices, where no excessive

profit was made by the merchant.

The ancients lived in societies

where labor was composed largely

of slaves, and medieval Europe ran

on a feudal system—where

peasants were protected by local

lords in exchange for labor or

military service. So the moral

arguments of these philosophers

were somewhat academic.

Rise of the city-states

A major change occurred in the

15th century, as city-states developed

in Europe and became wealthy

through international trade. A new,

prosperous class of merchants

replaced the feudal landowners

as the important players in the

economy, and they worked hand-in-

INTRODUCTION

C. 380 BCE

C. 350 BCE

C. 1400

1492

1265 –74 CE

1397

1599

C.16 30

Bills of exchange

become a standard

method of payment

in European trade,

redeemable by

merchant banks.

Aristotle argues in

favor of private

property but against

accumulating money

for its own sake.

Thomas Aquinas

argues that the price of

a product is “just” only

if profit is not excessive

and there is no deception

involved in the sale.

Thomas Mun

advocates a

mercantilist policy,

using foreign exports

as a way of increasing

a nation’s wealth.

The Medici Bank is

founded in Florence,

Italy—one of the first

of the financial

institutions built on

international trade.

Plato describes his
ideal state, where
property is owned by
all and labor is
specialized.

The British East

India Company, an

international trading

company and the world’s

first global brand,

is established.

Christopher

Columbus arrives in

the Americas; soon

gold is flowing into

Europe, increasing

the money supply.