EXCHANGE
Aristotle, in both the Politics and the Ethics, deals at considerable length with the subject of exchange.[[710]] He states that it arose out of the natural situation (κατὰ φύσιν) and defines this as “the fact that men had more of some commodities and less of others than they needed.”[[711]] At first, all exchange was by barter (ἀλλαγή) and there was no trading except for specific need.[[712]] The development of an international commerce of import and export was made possible by the invention of money. It is this significant fact that furnishes the line of division between the old natural economy and the era of commerce and finance, when exchange and money have become the tools for unlimited individual enrichment.[[713]]
His theory of exchange and just price grows out of his application to exchange of his definition of corrective justice, as a mean between two extremes of injustice.[[714]] Trade is just when each party to it has the exact equivalent (ἴσον) in value with which he began. Exchange is a mean between profit and loss, which themselves have no proper relation to its true purpose.[[715]] This does not mean that the traders must receive the same in return (τὸ ἀντιπεπονθὸς κατ᾽ ἰσότητα), but an equivalent, or proportional requital (τὸ ἀντιπεπονθὸς κατ᾽ ἀναλογίαν).[[716]] It is this fact of proportional requital that makes exchange, and indeed human society, possible.[[717]] The meaning is illustrated by a proportion in which the producers bear the same relation to each other as their products.[[718]] By joining means and extremes, the exchangers are brought to a basis of proportional equality (τὸ κατὰ τὴν ἀναλογίαν ἴσον).[[719]] Thus is determined how many shoes, the shoemaker’s product, must be given for a house, the builder’s product, and the prices of the two commodities are justly settled, with relation to each other.[[720]] It is very necessary for just exchange, that such proportional equality be effected before the requital or actual transfer takes place. Otherwise one will gain both superiorities (ἀμφοτέρας τὰς ὑπεροχάς), and equality becomes impossible,[[721]] since the cost of production of things is very diverse.[[722]] Indeed, the arts themselves could not exist, unless the advantage to the consumer were similar in quantity and quality to the cost to the producer.[[723]]
The common element in diverse products that makes them commensurable is need, or demand (ἡ χρεία), for reciprocal services.[[724]] But on the basis of the need of the moment, or under the régime of barter, just exchange would be practically impossible, since the concrete needs of A and B, at any given moment, are not likely to correspond. In such a case, exchange would be a gross disregard of the cost of production. This has been avoided by the introduction of money as a substitute for demand,[[725]] a symbol of general, rather than specific need. Thus just exchange becomes possible, for money, as the representative of general need, is always equally in demand by all, and, as the common denominator of value, it alone renders it possible for proportional amounts of each product to be exchanged.[[726]]
Aristotle’s basal premise in this theory of fair exchange, that unless an equal quantum of value is received by each party, one must lose what the other gains, has been severely criticized by Menger.[[727]] He objects that the determining consideration in exchange is not the equal value of exchanged goods. On the contrary, men trade only when they expect to better their economic condition. “Um ihres economischen Vortheils willen, nicht um gleiches gegen gleiches hinzugeben; sondern um ihre Bedürfnisse so vollständig als unter den gegebenen Verhältnissen dies zulässig ist zu befriedigen.” Each gives the other only so much of his own goods as is necessary to secure this end, and it is this competition in open market that fixes prices. Barker[[728]] also criticizes Aristotle on the ground that he takes no account of demand in his theory of just price. He states that if the cost of production were the only element to be considered, the doctrine might be correct, but with the entrance of demand, one may buy at a low price and sell at an advance without injustice.
Of course, the bald theory that, in exchange, one necessarily loses what the other gains, is untenable. Yet there is still something to be said for Aristotle. He recognized, as well as Menger, that exchange, as pursued by the retailers, did not square with his idea of just price. This is the very reason why he objects to retail trade. He is presenting exchange, not as it is, but as he believes it should be pursued. His doctrine, in a nutshell, is that the primary purpose of exchange is profit, defined as economic satisfaction of mutual needs, not profit in dollars and cents. The equality that he seeks, too, is not so much an equality of value in obols and drachmas, but that each shall receive an equal quantum of economic satisfaction. This is the true standpoint at bottom, and when, as is common, the mere purpose of money-making dominates in the pursuit of exchange, the profit is too often at the expense of the other party. Such exchange certainly does not mean economic advance or general prosperity. It merely makes possible an increase in the inequalities of wealth and poverty. There is much of fallacy in the prevalent idea that business necessarily increases the wealth of a state. Ruskin, though like Aristotle extreme and one-sided in his view, struck at the root of this error. He also declared that the result of exchange should be advantage, not profit, and repudiated the idea that the mere fact that goods change hands necessarily means general enrichment.[[729]] The central truth in their protest needed to be spoken, though both erred in not sufficiently recognizing that the labor involved in exchange creates an added time and place value, and therefore has a right to be called productive. They also failed to observe the fact of the necessary risk involved in the business of exchange, which should be repaid with a fair additional profit. For the cornering of markets and the manipulation of prices, for the sake of individual enrichment, modern economists and statesmen, with Aristotle and Ruskin, are fast coming to have only words of protest.
Moreover, contrary to Barker’s assertion, demand, as an element of price, is prominent throughout this discussion of Aristotle. He objects, however, to allowing the effect of demand to overcome unduly the cost of production, thus causing inequality and injustice. According to his idea, each receives the equivalent in value of what he gives, in the sense that it is a resultant of the proportionate influence of both cost and need.[[730]] We may, nevertheless, observe an excellent example of inconsistency in the fact that, despite his insistence upon just exchange, he appears to treat monopoly as a legitimate principle of finance for both men and states,[[731]] though his intention in the passage may have been to discuss actual conditions, rather than to idealize.
Naturally, the philosopher shows no concern for a tax on imports as a means of building up the industry and commerce of his state, since he is especially desirous of limiting both. However, he is not blind to the advantages of export and import trade for a nation,[[732]] but would regulate them with an ethical, rather than an economic purpose.[[733]] His doctrine of exchange as a form of production has been discussed above,[[734]] and will be touched upon further in the following pages. His general criticism of what he terms “false finance” or “chrematistik” (χρηματιστική) remains for more extended treatment.
We have seen that he recognizes the necessity of a limited form of exchange, free from the purpose of gain, and considers such trading to be natural and in accord with that interdependence which nature demands.[[735]] He calls it the very bond of the social organization,[[736]] and even considers international commerce to be necessary for the prosperity of a state.[[737]] We have also seen that he goes so far as to advise the rich in a democracy to give the poor a start in business,[[738]] but that exchange, in its prevalent form, is to him a method of cheatery, in which one gains what the other loses.[[739]]
On the basis of this prejudice, he builds his argument for domestic economy (οἰκονομική) as opposed to false finance.[[740]] We will therefore consider his entire theory of this relation at this point, for the term “chrematistik,” though more inclusive than exchange (μεταβλητική), has trade in either goods or money (καπηλική) as its predominating element, and the two terms are often used by him as synonyms. He employs the word χρηματιστική in several significations—usually of unnatural finance, or the art of money-making by exchange of goods or money; sometimes as synonymous with κτητική, the general term for the entire business of acquisition, including both natural and unnatural finance;[[741]] again, of the natural finance, which is a part of domestic economy. His confusion results partly from his futile attempt to separate landed property from general industry and commerce.
His main contention is that there is a vital distinction between domestic economy, whether of householder (οἰκονόμος) or statesman, and the art of acquisition or finance, as usually pursued. The primary function of the art of finance is to provide, while that of domestic economy is to use what is provided.[[742]] There are, however, many methods of acquisition (κτητική; χρηματιστική), some of which truly belong to the sphere of domestic economy.[[743]] The provision of all that is furnished by nature herself, as necessary to human existence, then, if not already at hand (ὑπάρχειν), belongs properly to domestic economy.[[744]] It both uses and provides genuine wealth, such as is limited in amount (οὐκ ἄπειρος) yet sufficient for independence (αὐτάρκεια) and the good life.[[745]] But the use of such wealth is its chief business.[[746]] The other kind of acquisition, which is unlimited, or chrematistik, is contrary to nature, and is not in the province of domestic economy.[[747]] This unnatural finance, since it deals chiefly in the exchange of money and other commodities, may be termed retail trade (καπηλική).[[748]] Though itself false, it is a logical outgrowth (κατὰ λόγον) of the true form of exchange that is limited to actual needs[[749]] as a result of the invention of money.[[750]] But the real reason for its pursuit is to satisfy an evil and unlimited desire for material things.[[751]] It produces money merely through the exchange of money (δι1α χρημάτων μεταβολῆς),[##] and its beginning and end is unlimited currency.[[752]]
This false form of acquisition is often confused with necessary exchange, because both deal with money.[[753]] Their aims, however, are quite diverse. The latter treats the accumulation of money (αὔξησις) as a means, while the former treats it as the supreme end of life.[[754]] In fine, then, Aristotle teaches that necessary chrematistik has to do with the supply and use of life’s necessities, is natural (κατὰ φύσιν or οἰκειοτάτη) and limited,[[755]] its prime function being the proper disposal of products.[[756]] It is an honorable pursuit,[[757]] dependent chiefly upon fruits and animals,[[758]] and involves a practical knowledge of stock (κτηνή), farming, bee-culture, trees, fish, and fowl.[[759]] The false finance, on the other hand, is unnatural, dishonorable, and enriches at the expense of another.[[760]] Its chief business is commerce (ἐμπορία), including sea-trade (ναυκληρία), inland trade (φορτηγία), and shop-trade, (παράστασις).[[761]] It also comprises usury (τοκισμός) and hired labor, both skilled and unskilled (μισθαρνία ἡ μὲν τῶν βαναύσων τέχνων ἡ δὲ ἀτεχνῶν).[[762]]
Aristotle also distinguishes a third type of finance (χρηματιστική) which shares in the nature of both those above described. It deals with natural resources and their products, but with things which, though useful, are not fruits (ἀκάρπιμα), such as wood-cutting (ὑλοτομία) and mining in all its branches (μεταλλευτική).[[763]] The meaning may be best apprehended if, with Ashley,[[764]] we observe that οἰκονομική is characterized, not only by direct acquisition of nature’s products, but also by a personal use of the same, while the unnatural finance has neither of these qualities. The medium kind, then, is like the former, in that it involves direct acquisition of natural resources, but like the latter, in that it does not acquire for directly personal use, but for exchange. It consists, therefore, not so much in the arts themselves, as in the exchange that is based on them.
In the discussion of the so-called false finance, Aristotle thus reveals a markedly hostile attitude to any extensive development of exchange. The middleman is considered to be a parasite and necessarily degenerate by the very fact of his business.[[765]] As seen above, his criticism was doubtless directed chiefly against the mean and dishonest spirit in the actual retail trade and money-loaning of his day.[[766]] Yet here also, just as in the Ethics passage above discussed, his prejudice blinds him to the fact that exchangers may be real producers, and that, after all, even the alleged false finance is not unlimited, but that it is distinctly bounded by economic demand.[[767]] Still worse, he includes hired labor of every kind under unlimited acquisition, merely because it has some of the other qualities of that type of economy, though it certainly does not tend to unlimited enrichment even as much as agriculture.[[768]] However, he should be given credit of being a forerunner of the modern humanitarian economy, which insists that the final goal of all economics should be proper consumption, and that acquisition must be relegated to its true place as a means, the supreme end being human welfare.[[769]]