2. A brief digression on the literature on the Ancient Greek economy

The multifaceted evidence accumulated in recent decades has supported various interpretations regarding the nature, functioning, and stage of development of the ancient Greek economy. On the one end of these interpretations there is the group of so-called ‘primitivists’ who find that the economy of ancient Greece was primitive. In particular, Polanyi (Reference Polanyi and Dalton1957), Finley (Reference Finley1973, Reference Finley1977), Humphreys (Reference Humphreys1978: ch. 2), Millet (Reference Millett1991: 95–98), and others, have argued that the economy did not exist at the time as an independent entity, but it was embedded in the prevailing social and political institutions. Instead of wealth accumulation, the tenet of production was self-sufficiency in the household and in the city-state. Exchanges of goods and services were carried out mostly through barter and other non-entrepreneurial arrangements. There were no advances of loans for investment purposes; and, in general, absent from the city-states of Greece were the values, the institutions, and the web of interconnected markets that are characteristic of contemporary capitalist economies.

On the other hand, there is the group of so-called ‘modernists’ who maintain that the ancient Greek economy, and particularly that of Athens, functioned much like the market economies of today. An example in this regard is Burke (Reference Burke1992) who identified city-state policies that aimed at raising the volume of maritime trade. These showed that by the second half of the fourth century the Athenian economy had developed activities that were distinct from the other social and political affairs. Another example is that of Cohen (Reference Cohen1992) and Shipton (Reference Shipton2000). The former found enough evidence to argue that ‘the Athenians functioned through a market process in which unrelated individuals . . . sought monetary profit through commercial exchange’ (p. 4), whereas the latter discovered evidence showing that by the fourth century the monetization of the Athenian economy had made great strides.Footnote ¹

The most widely accepted model of the ancient Greek economy is that of Finley (Reference Finley1973, Reference Finley, Shaw and Saller1977). But a third and growing group of researchers, comprising Thompson (Reference Thompson1982), Morris (Reference Morris1994), Engen (Reference Engen and Tandy2001, Reference Engen2005), and others, have raised doubts about the explanatory power and the internal consistency of Finley's model. They have done so on the grounds that: (a) it is too general to highlight the differences among the economies of the various city-states; (b) it is not adequately structured because it treats the various sectors of the economy as if they were all governed by the same values and institutions; and (c) it lacks the dynamic features that are necessary to explain the quantity and the quality of changes in these economies. In our view, the above criticisms hold significant merits and probably in the not too distant future this model will be superseded as one analytical framework to fit all possible cases.Footnote ²

However, two important clarifications are in order. The first has to do with the range of applicability of our model. Drawing on the evidence emphasized by the ‘primitivists/substantivists’, we accept that economic relations in ancient Athens were embedded to a significant extent in social and political institutions and that there was much production and distribution of goods and services that took place through non-market and non-entrepreneurial means (Schaps, Reference Schaps2004: 31–33). Yet from our reading of other evidence, and particularly the account presented recently by Amemiya (Reference Amemiya2007), we cannot help but conclude that: (a) there was also a great deal of transactions that were conducted by entrepreneurs through markets that functioned mostly free of administrative controls; and (b) that such entrepreneurship was fostered by values and institutions that coexisted with those that fostered non-entrepreneurial economic activities. Therefore, the model that we shall present should be construed to apply only to the market-oriented activities, which provided the essential dynamism for the growth in incomes and wealth in classical Athens.

The second clarification is methodological and concerns the following issue. Suppose we establish a high correlation between entrepreneurship and the values and the institutions that prevailed in ancient Athens. Would such a correlation be credible as evidence that these values and institutions encouraged entrepreneurship, or would we need to show that such values and institutions were deliberately designed for this purpose? We believe that the latter test would be far more informative, and hence far more convincing, about the influence of values and institutions on entrepreneurship. For this reason in Bitros and Karayiannis (Reference Bitros, Karayiannis, Cassis and Pepelasis-Minoglou2006a) we found that the city-state of Athens applied policies that encouraged metics and slaves to assimilate into the Athenian society through success in business. But in the present paper, aside from being harder to implement, this test would be accompanied by the risk that it might be inconclusive because, as we established in Bitros and Karayiannis (Reference Bitros and Karayiannis2006b), the moral norms and the institutions in ancient Athens emerged endogenously and were optimally adjusted to address the imbalance between the land and its productivity, on the one hand, and the need to feed the population, on the other.Footnote ³ Hence, what we shall strive for here is to construct a model that will be sufficiently robust to confirm or reject our hypothesis that the values and the institutions in ancient Athens encouraged entrepreneurship, either by design or by implication.

This less demanding test is supported also by the following analysis. Assume that private property was introduced to preserve individual freedoms and democracy, i.e. non-economic reasons. But in the economy private property is known to lead to at least three consequences. First, it gives rise to free and willful transactions. Second, it provides the impetus for the organization of production and distribution of goods and services according to the system of interconnected markets; and, third, it promotes the acquisitive and entrepreneurial impulses of people. Therefore, if we find that ancient Athens adopted private property, this finding alone would confirm that entrepreneurship was encouraged, irrespective of the true reasons for which private property had been established.Footnote ⁴

3. Economy and entrepreneurship in ancient Athens

The Athenians, despite some philosophical arguments against vulgar works and occupations,Footnote ⁵ mostly advanced after the Peloponnesian War, did not turn against work as a source of wealth. That they did so we know from Demosthenes (Against Eubulides 35) who says ‘do not scorn the needy (their poverty is misfortune enough), and scorn still less those who choose to engage in trade and get their living by honest means’. So, given that almost all who were elected in state functions were elected by lot and served only for a limited time, it seems reasonable to surmise that the majority of male adult citizens during peace times practiced income earning activities of some form or another. Their range and nature are described briefly below.

3.2. The nature of entrepreneurship

In ancient Athens, the superior characteristic of human behavior was virtue (e.g. Isocrates, To Demonicus 6–7). But at the same time they accepted: (a) that the accumulation of wealth together with pleasure and social reputation are among the main motives of any human undertaking (e.g. Isocrates, Antidosis 217); and (b) that entrepreneurial activities contributed positively to the economic development and the military strength of the city-state.Footnote ¹⁵ For these reasons they condoned such activities and condemned the idle rich who spent their wealth and enjoyed a luxurious life.Footnote ¹⁶ Moreover, even though many Athenians were ‘survival entrepreneurs’, meaning that they operated just to survive economically, others did invest in order to increase gradually the scale of their enterprises. To this effect, they reinvested part of their profits (see Thompson, Reference Thompson1982: 80–81) and in addition they borrowed funds from other individuals and banks. So from our point of view, it is interesting to identify the particular functions that were performed by entrepreneurs at the time.

Xenophon and some orators describe in considerable detail the roles assumed by an entrepreneur as owner and manager of a household enterprise. More specifically, Xenophon (Oeconomicus IV.5–11) argued that in order to establish an enterprise (mainly agricultural) the entrepreneur ought to furnish the necessary capital. What he meant was that the function of the entrepreneur as owner was quite distinct from the function of the entrepreneur as manager, because, after setting up the enterprise, the owner ought to supervise and coordinate all tasks so as to increase productivity through division of labor (ibid., IV.1, IX.11, XII.3). But the role of entrepreneur as manager was not exercised exclusively by the owner, since from available records it turns out that not too rarely owners of enterprises trained their slaves for this purpose (see e.g. Isocrates, Trapeziticus, 12; Demosthenes, Against Stephanus 1–2; For Phormio 30; Hyperides, Against Athenogenes IX.19).Footnote ¹⁷

Another role performed by entrepreneurs was that of market coordination. This was most visible in international trade activities. By seeking profits, an entrepreneur in this capacity (Lycurgus, Against Leocrates 26–27, 57) tried to gather information about disequilibrium situations between supply and demand of specific goods in order to exploit the differences in prices in different markets. Xenophon describes this entrepreneurial function as follows:

But the presence of entrepreneurs as market coordinators was not limited only to international markets. According to Xenophon the changes in prices that were caused by mismatches in the levels of supply and demand in various markets induced changes in the number of enterprises until equilibrium was established. In a representative statement Xenophon wrote:

From this passage we understand that prices functioned as signals of disequilibrium in the markets and that the entrepreneurs who were on the lookout for profit opportunities entered in or exited from them so as to bring about equilibrium. As emphasized by Bitros (Reference Bitros, Cassis and Pepelasis-Minoglou2005: 66), this is exactly the sequence of events that we would expect even today from the activity of entrepreneurs as coordinators.

Still another form of entrepreneurship observed at the time was the discovery of previously unforeseen opportunities for profit, i.e. the type of entrepreneurship associated with the contributions of Kirzner (Reference Kirzner1973). Two celebrated examples are the following: first, Xenophon argued that Ischomachus' father looked for ‘not well farmed land’ to buy, and who, by organizing and managing it more efficiently, increased its rate of return, thus enabling him to sell it at a much higher price (Oeconomicus XX.22–26). Second, Aristotle (Politics 1259a 5–30) described the cases of the philosopher Thales the Milesian and of a banker in Syracuse in which the former by his knowledge of astrology and the latter by his capital bought at a time of low demand and price in order to exploit its future increase.Footnote ¹⁸ By implication, what these traces of Kirsnerian entrepreneurship show is that the entrepreneurial economy in ancient Athens had reached significant levels of sophistication.

Finally, an additional entrepreneurial function was that of entrepreneur as venture capitalist mainly in maritime enterprises (see e.g. Demosthenes, Against Apaturius 4). The orator Lysias in his oration Against Diogeiton (23) suggested that capital must be employed or lent out to others to finance productive activities. Even more advanced was the view of Xenophon who proposed to his fellow citizens to form a fund, which would collect their surplus savings and invest them in some profitable activities and enterprises (Ways and Means II.9–14, IV.7–22, 30–1). From these hints, as well as the apparatus that was applied in financing expeditions in the export–import trade, it follows that the participation of capital holders in the risk of an investment project or a simple trading opportunity was quite frequent. That this was the case is corroborated further from the analyses offered by Xenophon, regarding mining activities, and some orators such as Demosthenes (Against Phormio 11) and Lysias (Against Diogeiton 25).

At this point it is quite natural to inquire whether there operated in classical Athens entrepreneurs of the Schumpeterian type;Footnote ¹⁹ that is, entrepreneurs who innovated by introducing new production techniques, new products, new management schemes, etc. Our search turned up few references to innovators and the particular innovations they introduced. But the leads we found suggest that the Athenians were inclined to such activities by their own nature and culture. One piece of evidence comes from Isocrates who emphasized the innovative activities of Athenians in developing and improving new arts and goods. In particular, in his (Panegyricus 40) he writes:

Moreover, Xenophon (Memorabilia III.X.9–10) mentions somebody named Pistias who produced armour that was better fitted for soldiers' bodies, and thus commanded higher prices.

To summarize, the economy in ancient Athens was based primarily on agriculture. But a good part of the national income derived also from mining, manufacturing, money and banking services, and import–export activities. Exchanges took place in a market place called agora. Prices, with the exception of foodstuffs for which there existed some administrative controls, were formed freely through the interplay of supply and demand, thus signaling mismatches and inducing adjustments to the quantities of goods supplied and demanded, as well as in the number of enterprises. An internationally accepted currency in the form of silver coins facilitated the settlement of transactions, whereas a developed sector for money and banking extended interest carrying loans and at times participated in risk bearing business ventures; and profit seeking entrepreneurs mobilized savings and directed them to their best uses. In turn, entrepreneurship was highly developed and performed more or less all the functions assumed by entrepreneurs today.

4. Entrepreneurial values

The structure of the economy in classical Athens evolved in the way we sketched above for many reasons. In Bitros and Karayiannis (Reference Bitros and Karayiannis2006b), for example, we offered evidence of a lack of sufficient arable land to produce the required quantities of grain to feed the population. But it is certain that external threats, as well as the quest to annex surrounding areas in order to alleviate grain scarcities, may have contributed significantly to the organizational arrangements that were adopted. In any case, for these arrangements to take hold, or because of them, the people in Athens had to embrace a compatible set of values through a specific system of agoge, scheduled mostly to mold ethos into their characters, so that their behavior in the rest of their life would conform to the imperatives set by the integrity and the efficient operation of Athenian institutions (Isocrates, Areopagiticus 37, 40–42; see also Bitros and Karayiannis, Reference Bitros and Karayiannis2006b). So what we intend to do below is to identify the most fundamental of these values and examine their stimulating influences on entrepreneurship.

One such value was the uncompromising priority that Athenians assigned to their individual freedoms as well as their readiness to defend them against domestic tyrants and foreign aggressors. To harness the threats that emanated from the power of the city-state itself, they invented the system of direct democracy, where decision-making was in the hands of many, whereas to reiterate their resolve to remain free from foreign occupation they participated at their own expense in the city's wars (Isocrates, Panathenaicus 140–142, 145–147). Thus, the Athenians were brought up to be self-reliant and take responsibility for the consequences of their actions. What this meant was that, while the city's government strived to balance the various conflicts that emerged naturally in the course of life, the citizens were free to pursue their objectives within the boundaries set by the laws and the ordinances that were adopted collectively.Footnote ²⁰

As we would expect, the institutions that were set up to preserve the political freedoms of citizens, in the domain of the economy translated into the all-important value of free and willful transactions. Economic exchanges were voluntary and emanated from the existence of different surpluses of goods among individuals.Footnote ²¹ Citizens had the flexibility to decide whether to work for other employers or become self-employed entrepreneurs. Freedom of exchange encouraged the setting up of partnerships as a means of increasing the scale of enterprises; it facilitated financial intermediation; it fostered import–export activities, etc. Thus, the principle of voluntary transactions became the cornerstone on which the Athenian economy was founded.

Another value that was highly cherished by Athenians was fairness in economic relations. Its enforcement in everyday life was motivated by appeal to several ethical norms. Business transactions and conduct were expected to be fair and in accord with the prevailing market ethics. Profits and wealth that resulted from economic activities that did not conform to these standards were considered illicit and people used the term aischrokerdia (profiteering) to describe them. Such was the scorn of Aristotle (Eudemian Ethics 1232a 10–15; Nicomachean Ethics 1122a 10–15) against profiteering that he exhorted his fellow citizens to treat those ‘pirates (who) now call themselves purveyors’ (Rhetoric 1405a 5–10) as social outcasts. But profiteering was not the only objectionable behavior. ‘Making profit out of what is petty or disgraceful, or out of the weak’ (ibid., 1383b 25–30) was chastised and the same was true with paying lower wages than were deserved. Moreover, the public objected strongly to the collusion of traders who behaved as monopsonists by purchasing grain at low prices and selling it at higher prices by acting as monopolists (Lysias, Against the Corn Dealers 5, 6–8).

Quite related to fairness was also the value of obedience to the laws of the city, not because of the threat of sanctions, but because doing so willfully constituted an indispensable obligation of citizenship (Thucydides II.37; Aristotle, Politics 1294a.6). How important it was for Athenians to uphold the laws in earnest was demonstrated amply by the paradigm of Socrates. Certainly, with the help of his friends he could have escaped from the prison, where he had been sentenced to die on erroneous accusations. Yet, to maintain the high moral ground of his teachings, that obedience to the laws was far more important than life, he chose to stay and drink the poison (Plato, Crito 50a–b). Had Socrates succumb to the frivolity of human nature and escaped from prison, Aristotle would not be able to claim later that: ‘the just man will be one who keeps the law and one who is fair’ (Nicomachean Ethics 1129a 30–35). By implication, keeping the law required people to abstain from such breaches as stealing, not paying what was agreed to in a contract (Hyperides, Against Athenogenes VI.13, VII.15), trespassing upon the land of others (Aristotle, Rhetoric 1374a 5–20), etc.

Still another value that characterized Athenians was their high degree of altruism. While its origin could be traced to their common ancestry, as Attica ‘was inhabited by the same people always’ (Thucydides, I.2), its practice was reflected in their disposition towards their city-state. They ‘freely sacrificed to her the fairest offering it was in their power to give’ (Ibid., II.43.1–2). To avoid extreme inequality, they adopted a taxation system that aimed at meaningful redistribution of wealth (Ober, Reference Ober1989: ch. V). As Isocrates (Panegyricus 38) proudly informs us, Athenians had established a city-state that was not indifferent towards the poverty of its citizens, but tried to guarantee a living for the poor. This trait, he thought, is something that has to be adopted as a basis by all those who aspire to constitute a state that operates normally to all the rest as well. Moreover, it was a common practice by rich citizens to offer loans without interest to the poor,Footnote ²² as well as undertake voluntarily expensive ‘liturgies’. The people applauded such demonstrations of altruism and in return the city-state of Athens encouraged voluntary giving by granting various honors and recognitions.

In essence altruism and compassion for one's fellow citizens reflected a genuine inclination by the people to minimize social and political inequality. As Thucydides (I.6) stressed, the wealthier Athenians ‘took up a style of living that brought them as far as possible into equality with the masses’. Given that they had established their city-state through economic and social struggles, they had come to believe that, by avoiding an extreme maldistribution of wealth, under certain democratic arrangements, there would result a fair and stable city without social disturbances (ibid., I.2.6; Aristotle, The Athenian Constitution II). To this effect, it should be mentioned that Athenians had asked Solon to lay down laws in order to reduce the inequality in the distribution of wealth and political power among citizens (Ibid., V; Plutarch, Solon 13). Through his reforms, a person was prohibited to offer his body or his family as security for debts (‘seisachtheia’, i.e. ‘the shaking-off of burdens’) and the devaluation of money reduced further the extreme inequality of wealth among citizens (Aristotle, The Athenian Constitution X.1–2; Plutarch, Solon 15). Peisistratus made another attempt towards the same objective by offering funds to poor citizens to start productive and/or trade enterprises and thus earn their living by their own powers (Aristotle, The Athenian Constitution XVI.2–4). Yet, while they were opposed to extreme inequality in the distribution of wealth, they refused to accept wealth as a means for social and political advancement. For as we learn from Thucydides (II.64), the way to social and political advancement entailed two main elements: to show ‘little distress of spirit and in action’ and to ‘make most rigorous resistance’.

Lastly, Athenians were characterized by a certain ethic according to which only work was the source of private property and accumulation of wealth. From Solon's time until – at least – the mid fourth century BC this ethic was socially applauded and esteemed. However, some philosophers such as Plato and Aristotle declared that citizens ought to preoccupy themselves with the affairs of the city-state rather than take up vulgar works and employments. Despite these philosophical objections, the majority of citizens and many influential persons did not distinguish between noble and menial income earning activities. For evidence, it suffices to mention that the Athenians were the first Greeks that worshiped the goddess ‘industrious Athena’ (‘Athena Ergani’) (Pausanias, Attica, 24.3). They regarded as a fruitful service even that of mercenaries (Thucydides, I.31, IV.52). In addition, other respectable persons such as the Sophists, as well as Isocrates (Areopagiticus 24, 44), stressed that the labor of free citizens must be regarded as an honorable activity. Pericles (Thucydides, II.40.1) in particular argued that the Athenians employed wealth ‘rather as an opportunity for action than as a subject of boasting; and with us it is not a shame for a man to acknowledge poverty, but the greater shame is for him not to do his best to avoid it’.

From the above it follows that Athenians had all the right values that characterize today the advanced entrepreneurial societies. They valued highly their individual freedoms, which implied that they were totally responsible for their material well-being. They were free to choose their occupation as well as the disposition of their incomes. They were risk takers but trusted that if they dared go into business and failed, the city-state would be there as guarantor of last resort for their survival. They were proud of their city-state and many successful in business contributed to its power and glory by undertaking expensive ‘liturgies’. In short, the values that Athenians treasured were highly conducive to entrepreneurship.

On the other hand, all who were inclined to become entrepreneurs found in Athens most helpful conditions. Its currency was acceptable everywhere in the Greek world. People short of capital could obtain loans to venture into business. At times the city offered financial incentives to establish small-scale self-employment handicrafts, and above all the institutions in place had been adjusted so as to facilitate economic progress in a cohesive social environment.

5. Institutions and entrepreneurship

Manville and Ober (Reference Manville and Ober2003: ch. II) attribute the success of Athens to the invention of participatory democracy. The Athenians by mobilizing the collective knowledge of a large and differentiated population, as well as maintaining a state of continuous learning, induced people to work hard in order to achieve set objectives. Participatory democracy was the driving force for the efficiency of Athens, the factor that brought it to unprecedented highs of power and material welfare and gave it the strength to recover again and again after suffering devastating blows (Galpin, Reference Galpin1983–4). But participatory democracy functioned effectively because institutions supported it. So what we intend to do here is to refer to these institutions and comment on the ways in which they contributed to entrepreneurship.

6. Restraints on extreme individualism

Profits seeking activities like those pursued by entrepreneurs were encouraged in ancient Athens on the grounds that: (a) they lead to the accumulation of wealth, which is a useful thing in life;Footnote ³⁰ (b) through the accumulation of wealth by citizens, the city becomes stronger as they contribute more to public expenditures;Footnote ³¹ (c) the development of various arts is made possible (Aristophanes, Plutus 160–162); and (d) due to the changes they bring about in the prices, the markets reach equilibrium in regard to the number of enterprises and the supply of goods (Xenophon, Cyrus Anabasis I.v.6; Ways and Means IV.36). However, pursuing profits was approved under three conditions. The first of them was that entrepreneurs would seek to realize ‘moderate’ profits. The second was that wealth would be spent according to certain ethical and social standards; and the third condition was that the distribution of wealth would not become ‘too unequal’ (Bitros and Karayiannis, Reference Bitros, Karayiannis, Cassis and Pepelasis-Minoglou2006a).Footnote ³²

In regard to the first of these conditions, the majority of ancient writers condemned illegal and unfair business practices that resulted in excessive profits. One well-known example in this respect is the hostile attitude that Athenians showed against grain dealers who exercised monopoly power and increased the price of grain by restricting artificially its supply (Lysias, Against the Corn Dealers 5–8, 12, 15–16). Another example is the view expressed by Demosthenes that only those entrepreneurs deserved social reputation that had accumulated their wealth through honest activities (Against Phormio 43–44). It should also be pointed out that Athenians attributed social esteem to those entrepreneurs who had not inherited but earned their wealth (Karayiannis, Reference Karayiannis1992: 71–72).

Turning next to the restraints regarding the proper use of wealth, ancient Athenians emphasized the following social and ethical standards: (a) consumption was considered acceptable if it consisted of the necessary goods for a noble and non-luxurious life; (b) wealth was well spent if it financed various public expenses (‘liturgies’); and (c) wealth was well spent if it were used to offer loans without interest to friends and to the fellow citizens (see e.g. Isocrates, To Demonicus 27–28). At the same time, Athenians were very critical of those rich citizens and metics who did not undertake with willingness public expenses commensurate with the amount of their wealth and showed no respect to rich and idle people who spent their wealth and property in luxury consumption (Demosthenes, Against Aphobus II, 22; Against Stephanus I, 66). On the contrary, they esteemed rich citizens who employed their resources for productive and trade activities and then ‘shared’ their wealth with the rest of citizens through the voluntary undertaking of public expenses.Footnote ³³

Finally, with respect to the third condition, the case may have been that the city-state through progressive taxation and other egalitarian programs had gone too far towards an equal distribution of wealth. For, otherwise, Aristophanes would not have claimed in his comedy Plutus (505, 525–530) that an equal distribution of wealth would give rise to very serious negative effects. On these grounds, we may infer that the citizens in ancient Athens believed that profit and/or wealth-seeking activities were beneficial to the city, and that a moderately unequal distribution of wealth would promote the work effort of individuals. These two generally accepted principles in conjunction with the maximization by individuals of their ‘individuality’ and ‘happiness’, as taught by Sophists, provided the conditions for the emergence and development of entrepreneurship.