Thursday, October 30, 2014

Oikonomia, Revisited

My knowledge of ancient Greek is not significantly different from zero, but every student of economics at some point runs into oikonomia, the root word from which economy and economics were later derived. For example, in describing the etymology of "economy," the Oxford English Dictionary writes that it derives from "ancient Greek οἰκονομικός practised in the management of a household or family, thrifty, frugal, economical." 

To the modern ear, the idea of economics as having roots in "household management" makes some intuitive sense: after all, a number of modern economic models are built on the idea of a household that seeks to maximize its utility, subject to constraints of income and/or time. However, Dotan Leshem suggests that this easy parallel between what the Greeks meant by household management and modern microeconomics is rather misleading. He provides some additional context and insight for the term in "Oikonomia Redefined," which appeared in the Journal of the History of Economic Thought, March 2013 (35: 1, pp 43 - 61). The journal is not freely available on-line, but many readers will have access through a library subscription. Leshem describes a work written by Xenophon, roughly dated to about 360 BC:

The first to propose a definition of oikonomia—the management and dispensation of a household—was Xenophon. He did so in the concluding chapter of the theoretical dialogue of the Oikonomikos (the Oikonomikos is composed of two dialogues: the first is theoretical, while the second focuses on the art of oikonomia. ... Xenophon’s definition is composed of four building blocks, or sub-definitions: i) oikonomia as a branch of theoretical knowledge; ii) the oikos as the totality of one’s property; iii) property as that which is useful for life; and iv) oikonomia as the knowledge by which men increase that which is useful for life. Clarifying the meanings of the sub-definitions by a close reading of ancient Greek texts will allow me to argue that the ancient Greek philosophers understood oikonomia as encompassing any activity in which man, when faced with nature’s abundance or excess, acquires a prudent disposition that is translated into practical and theoretical knowledge, in order to comply with his needs and generate surplus. The surplus generated allows man to practice extra economic activities such as politics and philosophy. Excess in the definition proposed is an attribute of nature, which is assumed to be able to meet everyone’s needs and beyond, if economized prudently. Surplus, on the other hand, is the product of people’s prudent economizing of nature’s excess that is not used for securing existence.
To get a grip on this earlier notion, it's useful to remember that the idea of a "household" was an expansive one in the times of ancient Greece: indeed, it included all property of the well-to-do in a way that also encompassed what we would now think of as production and firms. This broad idea of the household was called the oikos, which was then viewed as a part of the polis, or public sphere.

The fundamental economic challenge, according to the ancient Greeks, was to strike a balance. On one side, too little emphasis on economics meant an inability to provide the surplus that would enable some people to live the good life of politics and philosophy. On the other side, too great an emphasis on economics could lead to a pursuit of luxurious living, an outcome which also would interfere with pursuit of the good life. Here's how Leshem describes Xenophon on this subject:

In the same vein, Xenophon, who explored the nature of wealth in the first two chapters of the Oikonomikos, is also preoccupied with setting the right limits to engagement in economics without directing surplus either into luxury or back into the economy. He does so by presenting two obstacles to man’s accumulation of wealth. Both are the outcome of self-enslavement to excessive desires instead of need satisfaction. The first takes place when someone is immersed in non-economic activities that prevent him from ‘‘engaging in useful occupations,’’ meaning that he is wholly taken up with activities that prevent him from economizing his life. Such total avoidance of economizing, in its meaning of utilizing usable things, is presented as a sort of bondage. Put differently, evading a prudent disposition causes the loss of the conditions enabling a good and happy life. The second obstacle to wealth accumulation arises when one immerses in the economic sphere, having enslaved oneself to desires:
[Xenophon writes:] "And these too, are slaves, and they are ruled by extremely harsh masters. Some are ruled by gluttony, some by fornication, some by drunkenness, and some by foolish and expensive ambitions which rule cruelly over any men men they get into their power, as long as they see that they are in their prime and able to work . . . mistresses such as I have described perpetually attack the bodies and souls and households all the time that they dominate them."
This second kind of self-enslavement is not to be found in avoidance of economic
activities and the lack of prudent disposition when using things. Instead, it is to be
found in the failure to set boundaries to the economic sphere and, as a consequence, to fully immerse oneself in it. Such full immersion is presented as a lack of ability
to generate extra-economic surplus. It is here where the other side of oikonomia’s
definition as prudent conduct makes its appearance: besides utilizing the thing
acquired for the sake of existence, its prudent use generates extra-economic surplus.
This modern notion of economics is rooted in the idea that we all face scarcity of time, money, and energy, and thus need to make decisions involving tradeoffs. As Leshem points out, this ancient Greek notion is actually more rooted in an idea that we face an issue of abundance: how to bring that abundance to fruition, and how to prevent ourselves from giving into luxurious living. Because the purpose of economic life is to create this extra-economic surplus, the goal can be achieved either by increasing production, or by keeping the level of consumption low enough that a comfortable surplus will persist. Leshem writes;
 "As can be seen, the problem arising when supplying the needs of the oikos is not how to deal with scarce means. It is, rather, how to set a limit to engaging in economic matters altogether, since nature possess excessive means that can supply all of people’s natural needs, as well as their unnatural desires. On the other hand, if economized prudently, this excess can be used to generate surplus. It can supply the needs of all the inhabitants of one’s oikos or polis, and free some of its members from engaging in economic matters to experience the good life, which is extra-economic."

Pulling these various elements together, Leshem sums up Xenophon's definition in this way (Greek words and page numbers omitted):
Xenophon’s definition of the oikonomia, as ‘‘a branch of theoretical knowledge . . . by which men can increase household . . . which is useful for life . . .’’  can be reformulated into: oikonomia is the prudent management of the excess found in man and nature in order to allow the practice of a happy life with friends, in politics, and in philosophy. We can see that the two definitions are interchangeable; oikonomia is the management of the oikos. The oikos itself equals wealth, in turn to be defined as everything useful for life. ...  The definition of wealth is compatible with the definition of the oikonomia as the prudent management of needs satisfaction in order to generate surplus leisure time (which was perceived by Aristotle as a precondition for the attainment of happiness).
Up to this point, the notion of economics and the "good life" of politics or philosophy seem like a conception limited to the upper sliver of property owners. Indeed, there is an interpretation of Greek economic philosophy often associated with Aristotle, which still has echoes today, which holds that economic life is by definition without virtue, and true human virtue comes only from noneconomic areas of life like public life and philosophy. Taken to an extreme, this view would hold that those who put too much time and energy into work cannot be virtuous. An alternative modern view, often associated with John Locke, holds that economic work is a transformative interaction with the natural world through which humans create their own autonomy and virtue. (Here is an essay of my own thoughts on interactions between economics and virtue.) 

Leshem argues that while scholars of ancient Greek economic thought used to see a disjunction between economic life and a virtuous life, with the virtues of politics and philosophy largely limited to those in high positions, the more recent literature has take an broader view. He writes:
"In addition, contemporary literature persuasively presents the oikos as a diversified domain in which there exist all kinds of human relations besides despotic ones. They stress the friendship between husband and wife, it being for the sake of happiness and not just as a means to support the polis, the role of education of children within the household, the different kinds of slaves, the use of other means of communication beside violence, and the household’s existence in and for itself. In this depiction, not only the master, but many participants in the household, can demonstrate virtue, doing so within its bounds."
Overall, the concept of economic life among the ancient Greeks was not built on individuals and firms interacting in markets for goods, labor and capital. It is not built on a fundamental issue of facing scarcity and decisions that involve tradeoffs. Instead, the building block is the role of the household or oikos as a building block for society as a whole, and for enabling people to live a virtuous life outside the economic realm. Here is how Leshem sums up the difference between the economic theory of the ancient Greeks and modern economic theory:
[T]he differences and the resemblance between contemporary and ancient Greek economic theory are rather marked. Both define the economic sphere by the disposition people demonstrate (in the former—of prudence; in the latter—of rationality), which is translated into the theoretical and practical knowledge people demonstrate in economic activity. Moreover, both say that everything that people utilize in order to satisfy their needs/desires and to generate surplus is part of the economic domain, and not (just) material wealth. But, while in ancient economic theory, acquiring this disposition was seen as the expression of an ethical choice, in contemporary theory, the individual’s doing so is taken as a given, so that people’s rational disposition can be inferred from their revealed preferences. 
The two economic theories embody distinct ontologies: while ancient economic theory held that humans face abundance and excessive means in the economic domain, contemporary economists hold that it is only scarce means that are available there. As for the designation of the surplus generated, in the ancient theory it is a surplus of leisure time that allows the master/citizen to participate in politics and engage in philosophy, while in the contemporary theory ... it is to be turned back to the economic domain, as a source for growth, or, as pointed out by critics of contemporary consumerism, into luxurious consumption.