Philosophy of Economics

Stages of the Formation of Philosophical-Economic Knowledge

Ancient World (Ancient India, Ancient China, Ancient Greece, and Rome)

At the level of everyday consciousness, people in ancient times reflected upon the skills and rules governing economic activities, pondering issues of property, ownership, wealth, justice, and the distribution of goods. The earliest theoretical generalizations concerning the economic sphere emerged within the frameworks of ancient religious and philosophical doctrines about the state. For example, ancient Eastern treatises such as the "Code of Hammurabi" (7th century BCE), "Arthashastra" (4th-1st centuries BCE), and the teachings of Confucius (6th-5th centuries BCE) provide analyses of centuries of economic practice and offer recommendations for regulating the economy and maintaining stability within both the state and society.

In the ancient world, foundational figures of Greek philosophy demonstrated a keen interest in philosophical questions related to economic activity. Xenophon (430-354 BCE), for instance, regarded economic endeavors as processes for creating useful goods, or consumer values. He was the first among ancient thinkers to acknowledge the positive significance of labor division between mental and physical work. It was Xenophon who first introduced the term "economy" into scholarly discourse, particularly in his work "Oeconomicus," where he expressed favorable views on natural economy as a process of creating "useful things."

The works of ancient Greek philosopher-universalists Plato (427-347 BCE) and Aristotle (384-322 BCE) provide a more comprehensive understanding of ancient economic-philosophical thought. In his dialogue "The Republic," Plato asserts that the economic foundation of the state rests on a natural economy based on slave exploitation. He considers agriculture the primary sector of the economy and appreciates craftsmanship as well. While Plato permits minor trade to address surpluses, he generally holds a negative view of commerce, deeming it a shameful pursuit for Greeks. According to Plato, the economic well-being of society depends on stratified equality. He proposes the equitable distribution of land and housing, the prohibition of land sales, and the restriction of ownership of gold and silver. Notably, Plato considers the absence of both wealth and poverty as a condition for the state's prosperity.

Thus, it is reasonable to conclude that Plato was the first in the history of philosophical-economic thought to emphasize the necessity for the formation and successful development of the so-called "middle class" in society as a foundation for its economic and political stability.

A significant contribution to the further development of economic knowledge was made by the ancient philosopher Aristotle (384-322 BCE). In his works "Politics" and "Economics," he examines social phenomena such as commodity economy, exchange, money, the two types of value, and distribution. Aristotle advocated for the idea of self-sufficiency (naturalness) in the economy, but only within the integrated system of households and city-states. In Aristotle's teaching, the individual city-state emerges not only as a primary economic factor but also as a means of ensuring the moral enhancement and self-realization of its citizens. He referred to this economy as natural. Simultaneously, Aristotle notes the phenomenon of production for exchange (market), which he deems unnatural, as market forms are oriented not towards self-sufficiency and the fulfillment of natural needs but towards exchange value and the accumulation of money. This, in turn, ignites unhealthy desires and passions in people, leading to the erosion of the fundamental principle of life—moderation and measure.

The thinker regarded human inequality as insurmountable; however, he believed that the state must develop mechanisms to prevent the excessive dominance of the wealthy over the poor. Thus, Aristotle distinguishes between two types of economic organization: economy (oikonomia), aimed at meeting natural needs through the resources of one’s own household (natural, non-commodity), and chrematistics—the production of goods for exchange (market), which he considers unnatural since it focuses on wealth accumulation, representing the art of earning money.

In Aristotle's doctrine, all types of economic activity are likewise divided into two spheres: the natural and just, directed towards the acquisition of goods beneficial for life through agriculture and craftsmanship (economy), and the unnatural and dishonest, aimed at enrichment through speculative trade and usury (chrematistics). Through the comparison of "natural" and "unnatural" methods of economic organization, Aristotle was the first to establish a distinction between money as a means of storage and money that has become capital, noting that economics inevitably gravitates towards chrematistics, indicating that production inevitably leans towards trade profit.

Medieval Era

With the spread of Christianity in European culture, a new understanding of labor, property, and wealth emerged. During this time, a distinctive perspective on the value of labor developed. Medieval theologians interpreted labor as an essential human activity since it promotes a righteous way of life. Labor was esteemed as a form of penance for sin and a path to mortifying the flesh; however, it was not to be accompanied by thoughts of accumulation or enrichment. Humanity was obliged to work, with the purpose of satisfying basic needs, preventing idleness, and engaging in charity.

In traditional societies, particularly in the medieval context, the moral and educational function of labor is esteemed above its practical utility, especially concerning religious salvation. Christianity promotes the rehabilitation of labor’s value in medieval Europe, elevating it to the status of virtue and thus enhancing its worth in comparison to the ancient world, where subservient manual labor was regarded as socially inferior. Subsequently, in the Reformation era, labor takes on the character of systematic asceticism, serving the accumulation of virtues and the salvation of the soul.

The medieval theologian Thomas Aquinas (1225-1275) offers a theological explanation of the essence and genesis of property. He asserts that private ownership arises from human selfishness, with the ultimate cause being humanity's fall from grace. Possession of property, capital, and real estate constitutes a false wealth. The true owner of all that exists is God, and genuine wealth lies in love for the Almighty.

Thus, wealth ceases to be regarded as an indicator of human virtues. Instead, it begins to be seen as the source of numerous sins and vices, which pose significant obstacles on the path to salvation. In this context, poverty and humility become the ideals of medieval society.

A form of moral justification for wealth, as the antithesis of poverty, emerges in the guise of charity, manifested through the giving of alms to the poor and even through a demonstrative expression of respect for destitution. Of course, this situation does not imply that traditional societies were devoid of greed for wealth, accumulation, and entrepreneurship. These impulses have always existed, do exist, and will continue to exist as entirely natural attributes of economic activity. However, in pre-industrial societies, they were rather strictly constrained and regulated by tradition.

The aim of economic activity in traditional societies is not only to secure necessary products but also to achieve moral self-improvement, with the objective of distribution being the preservation of a stable social (divine) order. Exchange and consumption, which largely possess a status-based character, serve this purpose. It is hardly surprising that entrepreneurship and economic activity are not regarded as values in such a culture, as they “subvert” the order established by God, violating the principles of order and justice.

Consequently, the primary moral criterion in evaluating economic practice within such a traditional society, as exemplified by the medieval context, is the righteousness of human intentions rather than its economic expediency and productivity; economic activity is not perceived as an existential value.

The modern era and the Age of Enlightenment. The 17th and 18th centuries in Western Europe are known for the emergence and development of bourgeois socio-economic relations.

In contemplating these processes, English materialist thinkers such as Thomas Hobbes (1588-1679), John Locke (1632-1704), and David Hume (1711-1776) were among the first to provide a rationale for the factors shaping social and economic life. These philosophers assert the leading role of the state in society, for it possesses the prerogative to establish citizens' property rights and their protection, as well as to regulate property relations among citizens.

Grounded in the principles of moderation and opposing the concentration of excessive wealth in a few hands, these thinkers, nonetheless, defended the institution of private property as the foundational basis of individual freedom and the root cause of the emergence of the state. Man is born free and endowed from birth with the right to protect his life, liberty, and property.

Thus, in contrast to ancient and medieval thinkers who dissolved individual persons with their personal demands into the collective social mass, the thinkers of the modern era, nurtured by the ideas of the Reformation and the principles of individualism and rationalism, place the individual at the forefront—endowed from birth with inalienable rights to life, liberty, and private property.

The French Enlightenment thinker Jean-Jacques Rousseau (1712-1778), in his works "Discourse on the Origin and Basis of Inequality Among Men" and "The Social Contract," first addresses the issue of alienation. He believed that the foundation of the alienation of man from man is private property, which exists within society. This reveals a clear divergence from the views of the French philosopher Voltaire (1694-1778), who considered property inequality among people a condition for the normal development of society.

A unifying idea among the Enlightenment thinkers was a belief in the power of knowledge and education to order economic relations and social life overall based on equality, justice, and brotherhood.

If, generally, pre-capitalist society was characterized by the idea of restraint and moderation concerning material development, the capitalist mode of production establishes a new type of economic thinking that operates with the categories of money, capital, and financial growth. The first scientific form of economic knowledge emerges—political economy (the term “political economy” was introduced into scientific discourse by the French scholar A.M. de Vauban (1575-1621)).

Political economy is the doctrine of the regularities of the production, distribution, and exchange of material goods in society at various stages of its historical development.

The founders of political economy—British scholars Adam Smith (1723-1790) and David Ricardo (1771-1823)—attribute particular importance to labor, which, in their view, is the most crucial factor in societal development; they consider the products of labor to be the greatest wealth, more valuable than money or gold.

One of the key ideas of Adam Smith is the notion of minimal state intervention in the economy, with market self-regulation based on free prices determined by supply and demand. He referred to these economic regulators as the "invisible hand" of the market. Smith also laid the groundwork for the labor theory of value, emphasizing the significance of productive labor as the creator of value, while highlighting the role of labor distribution as a condition for enhancing productivity. He developed a theory of income, formulated principles of taxation, and so forth. In his teachings, Smith introduced an abstract model of humanity—homo oeconomicus—representing the economic man as an independent, self-interested, informed, and rationally thinking subject who seeks to maximize his own benefit.

In the early decades of the 19th century, during the consolidation of bourgeois institutions (capitalist private ownership, entrepreneurial freedom, competition, etc.), thinkers emerged in Western Europe who subjected these institutions to severe criticism and proposed visions of a society free from what they perceived as exploitation and oppression. These included the views of utopian socialists such as Claude Henri de Rouvroy, Comte de Saint-Simon (1760-1825), Charles Fourier (1772-1837), and Robert Owen (1771-1858).

Utopian socialism envisioned a future society characterized by abundance, ensuring the satisfaction of human needs and the flourishing of the individual. Utopians saw the primary task of social progress in the realization of collective ownership, advocating for a planned type of production organized around the principle of "from each according to his abilities, to each according to his needs." Competition would be replaced by collective competition among groups and entities.

A significant milestone in the development of economic philosophy is the theory of Karl Marx (1818-1883). Marx established a materialist concept of society, grounded in social production. According to Marx's teachings, the core mechanism of development in capitalist economies is the class struggle between the proletariat and the bourgeoisie, founded on the opposition of class interests within the realm of ownership relations regarding the means of production, and consequently, political power.

Marxism's contribution to the development of economic philosophy lies in its idea of the interconnection between the material-productive sphere and the social structure of society. In the economic sphere, the individual is portrayed as the main productive force of social production, while in the social sphere, the individual appears in the fullness of social relations with others.

In contrast to Marx, another German sociologist and philosopher, Max Weber (1864-1920), emphasized the significance of non-economic factors—political, ethical, and religious institutions. According to Weber, the principal characteristic of the capitalist mentality is the principle of rationality, which allows for economic efficiency and optimal behavior in the economic realm. He paid particular attention to the relationship between the ethical code of Protestant faiths and the spirit of capitalist enterprise and lifestyle. Weber articulated these reflections in his work "The Protestant Ethic and the Spirit of Capitalism" (1905), where he argues that Protestantism, by interpreting economic success as a divine command, stimulated the progress of capitalist enterprise.

Weber developed his own original concept of social stratification, asserting that the distribution of power and authority in the modern world is linked not to ownership relations (as posited by Marxist theory) but to the prestige of education and the cultural level of individuals.

In the 20th century, philosophical and economic thought significantly expanded and deepened its subject matter. The American philosopher Thorstein Veblen (1857-1929) examined the phenomenon of "conspicuous consumption" as a particular type of economic behavior characterized by the principle of ostentatious extravagance in support of a "high" lifestyle. This type is contrasted by Veblen with the "productive" behavior typical of the lower strata of society.

The English economist John Maynard Keynes (1883-1946) introduced a new approach to the study of the economic sphere, which later came to be known as macroeconomics. Unlike the previous political economy that analyzed the national economy as an interaction of individual companies, Keynes attempted to view the national economy as a whole, employing categories such as the economic cycle, monetary circulation, balance of payments, investments, employment, unemployment, consumption, and savings. The use of such aggregate measures enabled the examination of levels and rates of growth of national income, as well as the description of external economic issues.

In the first half of the 20th century, the discipline of economics—predominantly the North American methodology—flourished, emerging as an analytical doctrine concerning the effective utilization of production resources (labor, capital, land, money, entrepreneurial skills, knowledge) and their management for the production of goods and services, aiming to maximize the satisfaction of growing material needs.

Economics departs from the evaluative methodology characteristic of traditional political economy, which often categorized outcomes as "good" or "bad," thus rejecting the moral dimension. Instead, it adopts a unique mathematical approach aimed at optimizing productive outcomes under conditions of limited resources. Focused on accounting for the ever-growing needs of the population, economics aligns itself with the rationalization of daily managerial and self-management actions by consumers, producers, and other agents making economic decisions. Thus, in contrast to political economy, which emphasizes "labor" and "capital," economics represents a new economic reality—a subject making economic decisions.

Despite criticisms regarding its perceived superficiality and inability to encompass deeper socio-economic processes, the mathematical approach of economics has allowed its theorists to refine the analytical tools used to study the behavior of economic subjects, which has proven exceptionally relevant.

Thus, over the course of two centuries of existence, economic science has distinguished several leading directions, such as:

• Classical economic liberalism (Adam Smith, David Ricardo, and others);
• The economic doctrine of Karl Marx;
• The doctrine of John Maynard Keynes (Keynesianism);
• Economics.

The transformation of economic knowledge from a doctrine of the self-sufficiency of united households (city-states) to a theory of the rational behavior of economic subjects is directly linked to changes in the dominant types of economic activity at various stages of social development.