Economic Ideas: Plato, Aristotle, and the Ancient Greeks

by Richard Ebeling

The ancient Greeks left a wealth of knowledge through their surviving writings on a wide variety of themes, including science, logic, philosophy, literature, and the arts.

In addition, the city-state of Athens is considered the birthplace of intellectual freedom and democracy – lasting legacies that helped to mold the ideas that have influenced the development of Western Civilization.

But, in comparison, their discussions on economics were often few and almost always relatively unsystematic.  A primary reason for this is due to the fact that for the ancient Greeks questions concerning “economics” were considered subservient to other themes considered far more crucial to human life and society.

For the Greek philosophers and social thinkers, the central themes were questions of “justice,” “virtue,” “the good,” and “the beautiful.” What today we call “economic” questions and problems were relegated to a narrow corner of evaluating how economic institutions and organization could be designed or modified to serve these “higher” ends or goals.

The Greek view of the society over the individual

An extension of this is an appreciation of the general view that the ancient Greeks had concerning the individual in society. Their conception was that the individual was dependent upon the society in which he was born for all that he could or did become as a person. That is, the community nurtured and molded the individual into a “civilized” human being.

The society took precedence, or priority, over the individual. The individual was born, lived, and died. The society and the State, however, they believed, lived on.

The more modern conception of man as free, autonomous agent who chooses his own ends, selects his own means to attain his desired ends, and in general lives for himself was an alien notion to the mind of the ancient Greeks.

One of the leading defenders of individual liberty in the early nineteenth-century Europe was the French social philosopher Benjamin Constant (1767-1830). In 1819, he delivered a famous lecture in Paris entitled, “The Liberty of the Ancients Compared with that of the Moderns.”

He said that among the ancient Greeks, such as in the city-state of Athens, “freedom” was understood to mean the right of the free citizen to participate in the political deliberations of city affairs, including speaking, debating, and voting. But once the deliberations were over and a vote was taken, the individual was a “slave” to the majority decisions of his fellow citizens. Explained Constant:

The aim of the ancients was the sharing of [political] power among the citizens of the fatherland: this is what they called liberty. [But] the citizen, almost always sovereign in public affairs, was a slave in all his private relations.

As a citizen, he decided peace and war, as a private individual, he was constrained, watched and repressed in all his movements; as a member of the collective body, he interrogated, dismissed, condemned, beggared, exiled, or sentenced to death his magistrates and superiors; as a subject of the collective body he could be deprived of his status, stripped of his privileges, banished, put to death, by the discretionary will of the whole to which he belonged….

The ancients, as Condorcet says, had no notion of individual rights. Men were, so to speak, merely machines, whose gears and cog-wheels were regulated by the law…. The individual was in some way lost in the nation, the citizen in the city.

Constant compared this conception of freedom among the ancients with the “moderns” – that is, the conception and ideal of liberty at his own time in the early decades of the nineteenth century.

Now, he said, the idea of freedom was the right of the individual to be left alone. The individual was at liberty to guide his own life, choose his own goals, and pursue any ambitions and career that he might want. He could form any interpersonal associations he chose, or could follow his own way by himself.

Political liberty was an important part of freedom, Benjamin Constant argued, but the essence of liberty for the “moderns” was the right of the individual to live his own life as he desired, with no interference or “dictate” by political minorities or majorities. Constant explained:

….what an Englishman, a Frenchman, and a citizen of the United States of America understand today by the word ‘liberty.’ For each of them it is the right to be subjected to the laws, and to be neither arrested, detained, put to death or maltreated in any way by the arbitrary will of one or more individuals. It is the right of everyone to express their opinion, choose a profession and practice it, to dispose of property, and even to abuse it; to come and go without permission, and without having to account for their motives or undertakings. It is everyone’s right to associate with other individuals, either to discuss their interests, or to profess the religion which they and their associates prefer, or even simply to occupy their days or hours in a way which is most compatible with their inclinations and whims.

Slavery demeaned honest labor and weakened incentives

It is also important to remember that Greek society and the ancient Greek economy was based on slave labor. This resulted in two outcomes:

First, anything involving manual labor, and the common working for a living, as well as the day-to-day dealing in money and the exchanging of goods and services was considered beneath a cultured and free citizen of a Greek city-state. It distracted the Greek citizen from his first and highest duty: participation and interest in the political, philosophical, and artistic affairs of his city-state. This did not make for an intellectual climate conducive to making questions of economic relationships and institutions a respectable field for serious reflection and thought.

Second, the use of slave labor diminished any motives or incentives on the part of the thinking, free citizen to concern himself with questions of how to economize and more efficiently use labor. Since once captured and sold into slavery, slave could not refuse to work or demand higher wages or better work conditions, or search out better employment opportunities, there was little motive for developing ways to more effectively employ labor through better social or market arrangements.

Plato on division of labor and size of the city-state

For Plato (428 B.C. – 348 B.C.), the origin of society is found in the inability of men to be self-sufficient; they lack the ability to serve all their own needs through their own labor.  Each man possesses certain inherent qualities that make him better at some things than at others. By and through specialization of tasks the members of a community can improve their material conditions by producing that commodity at which they are most skilled and trade quantities of it away for the other things that they need from others who are doing the same.

But Plato’s defense of a division of labor is not based only, or primarily, on its productive superiority. Instead, the rationale for such a social arrangement is ethical. Given the diversity of natures and skills among men, Plato argued that each should do what is “natural” for him, and when he does so he is fulfilling that which is “best” in his “nature.” And, thus, he fulfills “the good.”

Man’s primary wants, Plato said, was for food, shelter, and clothing. The city-state must have an internal division of labor large enough to contain a sufficient number of members with the diverse skills and abilities to assure that such basic wants could be satisfied.

But Plato is asked by one of his students, would this not be merely a “city of pigs”?

Plato admits that if the city-state is to satisfy both the necessities of men and the “higher” and more cultured aspects of their potential lives, the city had to expand to a size large enough to include the required population, land, and resources to fulfill their higher and more cultured wants as well.

Other city-states would be in the same situation. Conflicts between city-states would arise as each attempted to expand and take from other city-states what they possessed.  War was inevitable from this. To defend itself from competing city-states and to expand to have the requisite population, land, and resources for this “higher” cultured life, any city-state would need a class of men in the division of labor trained and skilled to protect and conquer territory, resources, and slaves to perform the work to be done.

Plato and the communism of the guardians

The city-state would require a class of “guardians” or “warriors.” But a problem, now, arises, Plato says: What would protect the citizens of the city-state from the guardians who have the capacity to use their warrior skill against those who lives and needs they are supposed to protect? What guards the people against the guardians?

This led Plato to his critique of private property. Where men can own property, Plato declares, there exists the lust for possessiveness and ownership.  Not the “common good” of the city, but the self-interested desires of the individual are motivated when men may acquire and own private property.

For Plato, there exists a hierarchy of values: “The soul,” “the body,” and “wealth” – in that order. A guardian class with the right to own property would be tempted, therefore, to pursue the “lowest” rather than the “highest” of the ends of man – the pursuit of material wealth rather than the quest for “truth” and “virtue.”

Thus, in Plato’s ideal Republic, the guardians would renounce material ownership. The guardians would live together in a common barracks; they would share meals together; their clothes would be modest and similar. Women would be shared in common, and female guardians would have their children taken away shortly after birth to prevent a self-interested bonding with the child. 

Plato’s assumption is that the social environment – the political and economic institutions in which men live and work – determines their behavioral characteristics. Change the social and economic institutions – in this case, from private property to communal ownership and sharing – and you can change people from self-interested beings into other-oriented beings.

Plato’s presumption is that if you deny people the ability and the right to acquire and possession private property and wealth, they will stop being concerned with their own personal interests and desires. Instead, they will only concern themselves and have as their goal the betterment of “all” who share in a common or communal property, and community.

In Plato’s mind, therefore, there is no invariant, or never-changing, or constant “human nature.” Change the social institutions and you can change character and quality of the man. 

Plato’s ideal republic as the command society

In Plato’s ideal State there are the ruled and the rulers. One of the responsibilities of the guardians would be to assist in selecting the rank and position that each member of society was to hold.

Indeed, every aspect of every individual’s life was to be controlled and directed by the State. At one point, Plato says:

The main principle is that: that nobody, male or female, should be left without control, nor should anyone, whether at work or in play, grow habituated in mind to acting alone and on their own initiative, but he should live always, both in war and peace, with his eyes fixed constantly on his commander and following his lead.

The domestic economy was to be rigidly determined and regulated by the rulers. In Plato’s words:

The law-givers must meet in consultation with experts in every branch of retail trade, and at their meetings they must consider what standard of profits and expenses produces a moderate gain for the trader, and the standards of profits and expenses thus arrived at, they must be prescribed in writing; and this they must insist on – the market stewards, the city stewards, and the rural stewards, each in his own sphere.

All trade, commerce, and manufacturing, both within the city-state and with other city-states would be controlled and regulated by the rulers of the State. There would be no free movement of people from city-state to city-state. Such interaction, Plato said, would threaten a mixing of cultures that could seriously undermine “the good polity under right laws.”

Any people sent abroad to inspect the doings of other peoples and to learn what things might be useful to learn for improving one’s own city-state would only be those over 50 years of age and approved to do so by the State authorities. They must be men of “great merit” and “incorruptible” in terms of being detrimentally influenced by what they saw and heard on their foreign travels. Said Plato:

But if, on the other hand, such an inspector appears to be corrupted on his return, in spite of his pretensions of wisdom, he shall be forbidden to associate with anyone, young or old; wherein, if he obeys the magistrates, he shall live as a private person, but if not, he shall be put to death.

Nothing is outside the control of the State. Not one aspect of personal life is to remain a matter of privacy. This included the duty of the rulers to maintain strict population control to assure a “proper” size of the ideal city-state. This would be a population of 5,040 people – large enough to provide the required division of labor for tasks to be perform, yet small enough for everyone to know each other.

In addition, there would be selective breeding to assure a “strong” citizenry. Any over-population would be sent abroad to form colonies, or the newborn would be put to death.

Plato as the father of the totalitarian state

It is for these reasons that Plato has sometimes been called the intellectual father of political and economic collectivism, and the totalitarian State. In Plato can be found the blueprint for the absolute and comprehensive command and planned economy:

Wage and prices are set by the State; the guardians determine the allocation of the population in the system of division of labor by distributing each person to a particular occupation or task for life from an early age; all domestic and international trade and commerce is controlled and regulated by the State, as determined by the “proper needs” of the city-state; and what people may learn and share about other societies is strictly regulated by the State.

The individual is reduced to being a cog in the wheel of Plato’s ideal State.

The famous philosopher of science, Sir Karl Popper, concluded in The Open Society and Its Enemies (1945):

Never was a man more in earnest in his hostility towards the individual . . . [Plato] hated the individual and his freedom…. In the field of politics, the individual is to Plato the Evil One himself…. He is concerned solely with the collective whole as such, and justice, to him, is nothing but the health, unity, and stability of the collective body.

Plato’s vision and “ideal” ended up serving as an inspiration and standard for much of the twentieth century under the name of the Total State in both its communist and fascist forms.

When we turn to the other most famous ancient Greek philosopher, Aristotle (384 B.C. – 322 B.C.), we find little of the political regimentation that characterizes his teacher, Plato. For Aristotle, the appropriate behavior is the “golden mean,” that is, the avoidance of “extreme” or unrealistic goals or conduct in the affairs of men.

While he hopes that wise policies may help to improve the conditions and actions of men, Aristotle recognizes that man possesses a human nature that cannot be molded or bent or transformed to conform to some ideal of a perfect State populated by transformed people in the way that Plato believed was in principle desirable and possible.

Aristotle and the Importance of Private Property

This comes out most clearly in Aristotle’s discussion of private property, and his rejection of Plato’s call for a communist social order in which material things are held in common.  Aristotle argued that if all land was held owned communally with work performed jointly, there existed the potential for animosity and anger among the participants.

Why? Because it was now that men would feel that they had not received what was rightly theirs, when work and reward was not strictly and tightly connected, as it is under a system of private property.

Aristotle saw property rights as an incentive mechanism. When individuals believe and feel certain that they will be permitted to keep the fruits of their own labor they will have an inclination to apply themselves in various productive ways, which would not be the case with common or collective ownership. Said Aristotle:

When they till the ground together the question of ownership will give a world of trouble. If they do not share equally in enjoyments and toils, those who labor much and get little will necessarily complain of those who labor little and receive or consumer much . . .

Property should be . . . as a general rule, private; for when everyone has a distinct interest, men will not complain of one another and they will make progress, because everyone will be attending to his own business . . .

Break this connection between work and reward and you weaken the productive impulse and plant, instead, the seeds of envy and anger among men concerning the distribution of what they have been made to produce in common.

The Private Property and Human Benevolence

There was another reason that Aristotle defended the right to private property against the claims of Plato. He believed that a right to property often led to a spirit of benevolence and liberality toward others. Aristotle explained:

How immeasurably greater is the pleasure, when a man feels a thing to be his own . . . And further, there is the greatest pleasure in doing a kindness or service to friend and guests or companions, which can only be rendered when a man has private property. The advantage is lost by the excessive unification of the State.

Aristotle seemed to think that there was a healthy balance on the issue of property in society when property was private, so as to reap the benefits from the greater productivity and work that would be forthcoming under such a system; and, at the same time, he believed that the fruits of property should be generously shared with others by a spirit of benevolence on the part of the those who had prospered from the ownership and use of property, in the form of hospitality and charity

Aristotle on the Character of Man within Society

While Aristotle defended private ownership of property, he did not place the individual at the center of social concerns.  Aristotle referred to man as a “political animal.” In his view, there was no life for man outside the city-state into which he was born, neither a physical nor a moral existence independent of the community and the State. Man is born into and lives his life as a citizen of the State; and as such he was subject to being regulated in the various aspects of his life by the laws and customs of the city-state into which he is an inseparable part.

Like his teacher, Plato, Aristotle was concerned with asking: What is “the good” and what life is best and proper for man? The highest ideal, in Aristotle’s view, is the life of the philosopher; the next best life is that of perfect moral virtue, as manifested in the interests and conduct of the individual as a participant in the life of the city-state. Neither the philosopher nor the good citizen can fulfill this potential without leisure. And leisure requires wealth so as to have the time to pursue and live a life of truth and virtue.

In this context of the two highest “callings” for man to follow, wealth and its acquisition could never be an end in itself. Rather the acquisition and use of wealth is a means to pursuing and attaining those two “higher” ends. The free man must have a sufficient access to wealth so that he may separate himself from the concern of earning a living that would, otherwise, distract him from the pursuit of these higher goals.

Aristotle’s defense of slavery under the presumption that some people may be born “naturally” for servitude since they lacked the potential for these “higher” callings and pursued ends helped reinforce an institution that freed up the enlightened few of ancient Greek society to supposedly devote their lives to the non-material purposes of life, while others under coerced compulsion provided the goods and services permitting them their lives of leisure.

Aristotle also distinguished between “art” and “action.” In the creation of a work of art, we do not require that the artist be “good” in any ethical sense, only that the finished work of his artistic efforts express and capture “beauty” and “perfection.”

But the chief aim of man, Aristotle argued, is not the production of products or even works of art, but rather the “actions” themselves. Man’s conduct in “action” was an end in itself, not the specific, concrete result of the action. What Aristotle is arguing may be captured in the phrase: It is not whether you win or lose, but how you played the game.

That is, has the individual acted with honesty, integrity, courage, modesty, and loyalty to his values? Here the individual is being judged and evaluated in terms of the standards he has set for himself to follow, and whether these standards guiding action were “virtuous” ones; and did he act according to them, regardless of the outcome?

Virtuous Economics vs. Unnatural Wealth-Getting

Wealth, therefore, in Aristotle’s view, is a legitimate subject for study as an essential means to the proper ends of man. Thus, we find in Aristotle a subject matter called oikonomik, or “household management.”  The concern is with the wise stewardship of the landowner’s or property owner’s material wealth so as to not squander it or misuse it in the pursuit of man’s “higher” human ends.

Household management in this context meant more than an economical use of land, tools and other means of production. It also carried the meaning of a wise management of the property owner’s family – his wife, children, and slaves.

This was in contrast to another category of behavior towards wealth, which the Greeks called chrematistik. Chrematistics was concerned with wealth getting, including moneymaking and exchange. Aristotle condemns many merchants and traders in Greek society as corrupted followers of wealth for the wealth, itself.

Aristotle classified “Economics,” or “household-management,” as a “natural” pursuit in that it is conduct proper and essential to human existence and the fulfillment of man’s nature in developing his inherent potential for “good” as a human being. It incorporates both the production and consumption of wealth in attaining those “higher” ends. Chrematistics, on the other hand, has the potential to be either “natural” or “artificial.”

By “natural,” Aristotle meant wealth-getting activity that is clearly and consciously pursued as a means to the ends of “truth” and “virtue.” The problem with wealth getting, according to Aristotle, is that it can become an end in itself, that is, wealth acquisition becoming the goal rather than something subservient to a higher purpose.

Barter exchange is considered “natural” by him because it is a means by which individuals obtain those material goods essential to life, man’s “natural wants,” as Aristotle calls them. “Natural” chrematistics, including money exchange, is proper if it is a means to acquiring the things needed for the goal of the “higher” ends. But chrematistics becomes “artificial” or “unnatural” when money-acquisition and money-exchange, and its pursuit are the end goals that drive the actions of a person.

Aristotle and the Elusive Meaning of the “Just Price”

One of the themes in Aristotle’s writings on economics was the idea of a “just price.” Aristotle talked about appropriate “reciprocity” in any exchange for it to involve an “equality” of values traded, and, therefore, to reflect “justice” in trade. But what does “equality” of values mean? Aristotle spoke of equal values traded when they are exchanged in the proper proportions. What are the “proper” proportions?

Said Aristotle: “As a builder then is to a cobbler, so may the shoes be to a house,” If a builder is “A,” and a shoemaker is “B,” and if “C” is a house and a pair of shoes is “D,” and if the two individuals wish to exchange to acquire what the other can provide, then proportionate returns will be secured by reciprocal actions, and when goods are traded in the correct proportions

A:B =C:xD

What is the meaning of the left side of the equation? That is, what is the “proper” or “correct” relationship between a builder and a shoemaker, and by what standard could this be determined? The answer to this has eluded philosophers for hundreds of years.

And what is the proper, or “just,” ratio of so many pairs of shoes traded for one house? Aristotle stated: “In the truest and most real sense this standard [i.e., the basis of the value of commodities one for the other] lies in wants, which is the basis of all association of men.”

This suggests the importance of the usefulness or “utility” of goods as guiding the determination of the relative values of goods.  But Aristotle gives no answer about how a ratio of the value of wants might be calculated. Thus, he offers us no logically convincing or practically applicable conception of the value of goods or the “just” ratio at which they should trade.

The Usefulness of Money in Exchange

Since Aristotle admitted and argued for the “natural” usefulness of exchange as an appropriate part of “economics” – household management – he also saw that money was a useful and desirable invention to overcome the difficulties that inhabit trade under conditions of barter. Aristotle said:

As the benefits of commerce were more widely extended, the use of a currency was an indispensable device. As the necessaries of nature were not all easily portable, people agreed for purposes of barter mutually to give and receive some article, which, while it was itself a commodity, was practically easy to handle in the business of life, some such article as iron and silver, which was at first defined simply by size and weight; although finally they went further and set a stamp upon every coin to relieve from the trouble of weighing it . . .

Money, in Aristotle’s view, was to serve as a medium of exchange. In, itself, money is not “productive,” but was merely a device for the transfer of commodities, and therefore, of values. The problem was, Aristotle argued, was that the use of money was open to “unnatural” or chrematistic moneymaking – the accumulation of money for its own sake.  Always looking for the “happy medium,” in Aristotle’s mind, this was one of those excessively “extreme” types of action to be condemned on moral grounds.

Natural Profits vs. Unnatural Middlemen and Interest Income

Aristotle stated that the earning of money profits from the growing of trees or the rearing of animals caused no damage to one’s neighbors; plus, there were risks and expenses connected with providing the food and clothing needed by others in the community.  Thus, a profit earned on money invested, could be “natural” and proper when it did not involve any injustice in the exchange.

However, shop-keeping and commerce, in general, in which the individual specialized in the occupation of permanent middleman or merchant in the market – and, therefore, produced “nothing” but merely transferring goods from one person to another – was, in Aristotle’s view, nothing more than an avenue for cheating and “unnatural” conduct.

As an extension of this, Aristotle condemned the earning on interest on money that was lent to others.  Since money is only a medium of exchange, the facilitation of trading one commodity for another, all that a lender of money could “justly” ask for was a return of the sum – the “principle” – that had been lent.

In itself money was not productive, and as such, it should not be allowed to “breed” (obtain an amount in excess of the original amount lent), because, in his mind, this would be getting something for nothing. That which was  “barren” (money) could not bare “offspring” (interest on a loan).

Aristotle’s Insights and Limitations on Economics

In Aristotle, we find a more subtle and sophisticated understanding of some economic themes than in Plato. Aristotle adds a “behavioral” dimension to the analysis of property that asks what are the alternative incentives and responses by human agents when they live under different institutional arrangements within which they have the opportunity to act? That is, how will men act, respond and choose, in both their production and consumption decisions, if they are or are not permitted to own and dispose of private property?

We also find the rudiments of a discussion of the meaning and nature of exchange:  What is the source of value, or the basis of the relative prices among goods? What is an appropriate “balance” in the relationships of exchange?

While Aristotle’s answers were incomplete and often misdirected, as well as incorrect, he at least was among the first to ask the types of questions that centuries later became part of the heart of economic analysis and understanding.

His fundamental weaknesses were: A failure to explain the actual basis of value in exchange; a misunderstanding of the nature of money transactions in the market place through the intermediation of the professional merchant or “middleman”; and a confused analysis of the role and logic of lending, borrowing, and the paying of interest.