Though Aristotle defines money as representative wealth, like Plato, he fails to apprehend its meaning as representative, and therefore productive capital.[[697]] In his eyes, such a use of money is unjust and contrary to nature. He counts usury (τοκισμός) to be a large part of that false finance, which turns money from its true function to be made an object of traffic.[[698]] Those who lend small sums at a high rate of interest are contemptible,[[699]] and petty usury (ἡ ὀβολοστατική) is the most unnatural and violent form of chrematistik, since it makes money reproduce money.[[700]] It is to be observed, however, that his criticism is directed chiefly against petty interest, and that he does not appear to be thinking of “heavy loans on the security of a whole cargo, but of petty lendings to the necessitous poor, at heavy interest.”[[701]] Though his entire account of false finance exhibits an animus against the precious metals, as its basal cause, and as the source of individual and national degeneration,[[702]] yet he clearly appreciates their necessary function in the state, and his hostility is actually directed against the spirit of commercialism. Money, the means, has usurped the place of the end, until domestic and public economy alike have come to mean only the vulgar art of acquisition.[[703]]
The usual explanation of the fact that the Greek theorists failed to grasp the fact of the productive power of money is that loans were almost entirely for consumption, and hence seemed like an oppression of the poor.[[704]] This explanation, however, does not accord with the facts of Athenian life, at least for Aristotle’s day. It is clear from the Private Orations of Demosthenes that there did exist an extensive banking and credit system for productive purposes in the Athens of his time.[[705]] Moreover, the hostility to interest and credit was not the rule, but the exception, for Demosthenes and not the philosophers should be accepted as voicing public opinion on this point. He considered credit to be of as much importance as money itself in the business world,[[706]] and declared one who ignored this elementary fact to be a mere know-nothing.[[707]] Indeed, the money-lenders were, to him, the very foundation of the prosperity of the state.[[708]] The prejudice of Plato and Aristotle represent merely the exceptional attitude of the pure moralist, who because of the questionable tactics of money-lenders, and the injustice and greed in some phases of contemporary business life, became critics of all money-making operations.[[709]]
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.