From Ancient till Classical
From Ancient till Adam Smith
Adam Smith is considered the father of Economics. In ancient times, Chinese and Greeks were the first ones to deal with economics. Van Lee was a king's adviser and wrote on economic matters in 6th century BC. One of his works was "The golden rules of business". Xenophon's Oeconomicus is a Socratic dialogue about household and agricultural management. He described agriculture as the basis of every good civilization, many centuries before the Physiocrats who greatly influenced Adam Smith. Plato referred to the specialization of labor long before Adam Smith.
Thomas Aquinas claimed that the fair price was equal to the cost of production and thought it necessary for social order. Some consider Ibn Khaldun the father of economics, an Arab scholar who lived four centuries before Adam Smith. He referred to the life cycle of civilization, the specialization of labor and the importance of money as mean of trading rather than storing wealth. He approached the supply side economics that was the dominant doctrine of Reagan's economic policy and argued that tax reliefs have a positive effect on the economy and ultimately tax revenues increase.
Saint Thomas Moore published Utopia describing an ideal society with land common ownership, religious tolerance and high educational level. Astrophysicist Copernicus looked into the quantitative theory of money. There were others as well like Duns Scotus and St. Antoninus of Florence who dealt with economics. Mercantilism dominated many European countries between the 16th and 18th centuries. From 1500 to 1750 most European economists were Mercantilists. There was relative heterogeneity in their writings.
According to this doctirne, national wealth depends on the amount of gold and silver available in a country. They were trying to have a trade surplus by imposing tariffs and having low labor costs. They aimed to increase the amount of gold and silver available to a country. They considered international trade to be a "zero sum game", where countries' surpluses and deficits added to zero. They focused on production and were indifferent to consumption. They believed that workers and farmers should have low wages. Mercantilism was criticized by Adam Smith, David Hume, and John Locke.
Physiocracy is an economic theory developed by French enlightenment economists in the 18th century. They thought that the wealth of a state depended on agriculture and land development. Key figures were François Quesnay and Anne-Robert-Jacques Turgot. They considered the countryside and simple rural life better than the complexities of city life and the farmer better than the worker. They believed in the natural order and not the social contract. The idea of the natural order came from China.
François Quesnay was a Confucianist and used the term "laissez faire" in his writing for China as a translation of the Chinese "wu wei". The expression means "let it happen", that is, "let people act on their own, without interference". It is up to each person to decide what goods they want in life and how they must work to obtain them. They believed in individuality, ownership and rent for land use. The term Laissez-faire was spread by Vincent de Gournay.
They considered every other work except agricultural to be non-productive. Of course, at the time when their theories were developed, most of the economic activity was in the agricultural sector. The rest of the goods and services simply served the agricultural surplus. Farmers needed capital to start the production process. Profits of each year should be used to increase productivity the following year. Capital was also needed to sustain the farmers as they produced the product. There is the opportunity cost* of using capital which is different than land ownership. Interest or return on investment plays a major role in the economy.
In particular, Anne-Robert-Jacques Turgot believed in self-interest as an incentive for economic production. They were the first to understand the law of diminishing returns, that is, the successive applications of the variable input will cause the product to grow at a later rate until it reaches a maximum. Adam Smith, David Ricardo, John Stuart Mill and Henry George were influenced by their ideas.
Opportunity cost; The gain, profit or benefit someone misses when choosing one alternative over another.