I EXPLORING AND EXTENDING THE THEORY OF THE MARKET PROCESS
Plato's Economic Genius
Based primarily on his reading of Plato’s Republic, Karl Popper (1947, 76) famously insisted that Plato’s “political demands are purely totalitarian and anti-humanitarian.” In this chapter I argue that Popper and many other prominent authors, from Plato scholars (e.g., Julia Annas 1991, 73-79, 172-81; Malcolm Schofield 1999, 77-80 and 2006, 205) to historians of economic thought (e.g., M. I. Finley 1970, 4; Joseph Schumpeter 1959, 55-56; Lionel Robbins 2000, 11-12, 14, 16) to political theorists (e.g., Sheldon Wolin 1960, 41-44, 47-50; Wendy Brown 1994, 176) to Austrian economists (e.g., Ludwig von Mises 2007, 583; Friedrich Hayek 1992, 32, 52, 109-10),1 have misidentified Plato as a proponent of extreme unity and control in politics because they have overlooked or misunderstood (i) the economic genius underlying the early stages of the city that Socrates and his young friend Adeimantus—Plato’s literary characters—design at Republic 369b-372d,2 along with (ii) the distinct roles that Plato has his different characters play in designing that city. Socrates’s brief account of how exchanges between individuals build a city, I propose, when carefully analyzed and placed in its proper context within the Republic, constitutes evidence that Plato was not, as is commonly thought, a communist, a totalitarian, or a fascist.3 Instead, Plato intends to contrast Socrates with his young friends Adeimantus and Glaucon—men who are enthusiastic supporters of thoroughgoing political unity and control and to whose education Socrates attempts to contribute—by making Socrates a consistent proponent of political and economic systems that as much as possible respect and respond to individuals’ needs and aptitudes. If Popper had understood Plato, he would have embraced him.4
By providing a close reading of the “early city” (the name I adopt for what is generally but mistakenly, if not disparagingly, called the “city of pigs”5 but which Socrates at 372e calls a “true” and “healthy” city) at Republic
369b-372d, I argue that Plato thought deeply and analytically about market exchanges and the division of labor, discovering principles that go far beyond both the socially embedded and socially constrained economic structures of Ancient Greece and the aristocratic values and theories of his contemporary writers. In fact, Plato articulated principles that have become foundational for modern market economies and modern economics. His economic genius, expressed through Socrates, consists in (i) adopting, for social and political analysis, the basic perspective of individual decision makers who weigh the costs and benefits of alternative actions, assess the relative desirability of different ends for their relative contributions to a “better” condition, and, where needed, seek to discover new and better means and ends; (ii) systematically developing a theory of why such individuals come to cooperate and exchange with one another, a theory which features three apparently exhaustive reasons for the division of labor; (iii) separating out the variability of supply from the variability of demand; (iv) incorporating a normative claim—that individuals should only do what is needed/necessary—as an essential part of a descriptive analysis of why individuals engage in exchange; (v) distinguishing among, and systematically linking, demand for consumption goods and demands for labor, tools, materials, transportation, and other factors of production; (vi) identifying the part of the principle of supply and demand concerned with the effect of aggregate demand on supply; (vii) understanding that the foregoing principles governing exchange extend beyond state boundaries; (viii) proposing a fiat (as opposed to a commodity)6 understanding of money, and (ix) articulating reasons for the employer-employee relationship that come remarkably close to a full theory of comparative advantage.
Plato is the first to write about any of these, to the best of my knowledge. What is more, Plato accomplishes what he does in the space of only three pages, as part of a much larger project in which he portrays Socrates trying to educate his companions, who are optimistic regarding their abilities to design a city, about what is just and unjust in both public and private life. That Plato could write something of this nature is all the more extraordinary given S. Todd Lowry’s otherwise true claim that ancient writings on economic matters were “framed in terms of personal and public administrative perspectives rather than in terms of commercial market analyses,” since after all, “capitalist markets did not exist in ancient Greece” (Lowry 1987, 14, 18).
I anticipate that the arguments I develop in this chapter will be of interest to four (overlapping) audiences. For historians of economic thought, I present evidence that Plato developed a surprisingly general and analytic theory of a market economy, contrary to the prevailing view. Intriguing for political philosophers, I imagine, will be the ways in which Socrates relies on the descriptive principle that all human communities are built out of individuals seeking to fulfill their needs and incorporates the normative principle that one should always do what is most needed/necessary into his economic analysis. For those scholars and lay readers with a general interest in either Plato or pedagogical literary devices, I intend my account of how he uses the dialogue form as a means of conveying his economic and political thought to yield provocative, interpretively consequential insights into Plato’s politics and pedagogical strategies in the Republic. Finally, those with an interest in the themes of this volume—the market process and the kinds of order that emerge from that process—will find that the analytical approach Socrates uses to construct his entire account of a system of market exchanges shares fundamental similarities with the versatile, powerful methods of Max Weber and Ludwig von Mises.
As Boettke and Storr (2002, 161-76) have highlighted, Weber’s method of “Verstehen” and Mises’s methodological individualism both seek to explain social phenomena by accounting for the experience of the individual decision maker.7 “[F]or the subjective interpretation of action in sociological work,” Weber (1978, 13) writes, “collectivities must be treated as solely the resultants and modes of organization of the particular acts of individual persons, since these alone can be treated as agents in a course of subjectively understandable action.” Mises’s method is similar:
If we scrutinize the meaning of the various actions performed by individuals we must necessarily learn everything about the actions of collective wholes. For a social collective has no existence and reality outside of the individual members’ actions. The life of a collective is lived in the actions of the individuals constituting its body. . . . Thus the way to a cognition of collective wholes is through an analysis of the individuals’ actions. (Mises 2007, 42)
An aim of this chapter is to show how Plato, more than two thousand years before Weber, portrays Socrates using a similar approach to construct a theory of how individuals cooperate and form communities and thereby constitute a city and an economic system. For although Plato did not use a modern economic or sociological vocabulary, the principles he discovered are in some cases similar to modern ones and may, with some care, be accurately represented in modern terms.8
In the first substantive section of this chapter, I identify what I see to be the main reasons why Plato’s economic thought has long been overlooked and misunderstood. In the next section, I begin to address these reasons by explaining Socrates’s investigative procedure, a grasp of which is essential for avoiding unfair criticisms of Plato. Over several subsequent sections I turn to an exegesis of the early city, analyzing the economic principles Socrates identifies and explains, and responding to previous scholarly views of the early city. In the final section, I respond to the objection that, for all
Plato’s economic insight, he nevertheless advocates extreme political control over economic activities.