Aristotle and His Influence
The philosopher Aristotle (384-322 BCE) was born in the small Greek city of Stagira, on the northern coast of the Aegean Sea. After the death of his father, he was sent at the age of 17 to Athens, then the intellectual centre of the Greek world, where he stayed for 20 years as a student of the philosopher Plata and then a teacher at Plato's school, the Academy. Aristotle left Athens soon after Plato's death.
Within a few years he had acquired a lucrative post in the royal court of the northern Greek kingdom of Macedonia, as personal tutor to a 13-year-old prince, the future Alexander the Great. Once Aristotle left this position, he was able to use the monetary proceeds to return to Athens and set up his own school, the Lyceum, as a rival to the Academy. He remained in Athens until just before his death, teaching at the Lyceum, conducting research and producing a voluminous body of writings. These spanned a remarkable range of disciplines, including philosophy, politics, literary theory, physics, and biology.
Compared with the scale of his contributions to other subjects, Aristotle's treatment of economic ideas is a mere footnote. But his fragmentary comments were destined to have a major influence in later ages, and it can be argued that he was the first to apply analytical methods, however imperfect, to the study of economic issues. His main concern was how to live a moderate and virtuous life in harmony with the interests of society. For Aristotle, as for other classical Greeks, this society was the traditional Greek city state, or polis. Ironically, this form of statehood was being swept away at the very time Aristotle was extolling its benefits, due to the military conquests of his most famous student.
Fairness in Exchange
Aristotle's focus on personal ethics led him to devise a notion of fairness that could be applied to exchange. The crucial element, he suggested, was equality of proportion. For example, suppose a farmer and a shoemaker trade wine and shoes. If 2 pairs of shoes are given for 1 jar of wine, then the proportion of exchange between pairs of shoes and jars of wine is 2 to 1. In Aristotle's view, fairness is attained if "the product of the shoemaker is to the product of the farmer as the farmer is to the shoemaker."1 Based on this reasoning, the exchange is fair only if the farmer and shoemaker possess some attribute in the same 2-to-1 ratio as the goods they trade. It seems Aristotle was referring to the skills required in the two occupations. The farmer's skill in wine-making must then be twice as valuable as the shoemaker's skill in shoe-making to meet Aristotle's notion of fairness.
But how are the skills of the farmer and shoemaker to be compared apart from the transactions they make? Aristotle offered no solution, so we are left with a conundrum: his notion of fairness must be guessed at based on actual exchanges rather than estimated using some logical standard. Only in the Middle Ages would a tentative solution to this conundrum be found, when Thomas Aquinas (see the article in Chapter 6 of the Online Learning Center) and the writers who followed him introduced the idea of a just price that took account of competitive market forces.It is these competitive forces that are now highlighted by economists when analyzing the concept of fairness in exchange
Monopoly
Aristotle suggested one possible cause of unfair exchange in a story he recounted concerning an early Greek philosopher named Thales from the city of Miletus.2 It seems that Thales wished to prove the intellectual worth of the subject of philosophy to counter the questioning of local skeptics. With the aid of his philosophical knowledge (Aristotle does not say exactly how), Thales predicted a heavy crop of olives in the region of Miletus. He then hired all the available presses needed to produce olive oil. His prediction proved correct, and the profits he earned by renting out these presses to local farmers made him a wealthy man. Whether or not this story is true, it is significant because it gives the first known reference to a monopoly. And though the tale has a light-hearted tone, it shows Aristotle's recognition of the potential injustices caused by monopoly power. For whatever reason, however, he did not incorporate this issue in his discussion of fair exchange, so the importance of market structure was left for later thinkers to explore.
Use Value and Exchange Value
From the perspective of modern economics, Aristotle's most important contribution was to initiate the study of economic value. He did so by distinguishing the ways in which products can be used:
All articles of property have two possible uses. Both of these uses belong to the article as such, but they do not belong to it in the same manner, or to the same extent. The one use is proper and peculiar [i.e., particular] to the article concerned; the other is not. We may take a shoe as an example. It can be used both for wearing and for exchange.3
Implicit in these uses, said Aristotle, are two types of value. Use value relates to a good's intrinsic characteristics, whereas exchange value relates to how much the good can fetch in return for other goods. For Aristotle, these two values are distinct, as shown by a puzzle that came to be known as the paradox of value. "What is rare is a greater good than what is plentiful," he stated. "Thus gold is a better thing than iron, though less useful."4 In other words, gold's exchange value is higher than that of iron because it is not as plentiful, even though its use value is lower. This paradox, and the theory on which it was based, would remain part of economics until the mid-1800s, as outlined in question 13 at the end of Chapter 6 (see p. 202 of your text).
Aristotle used his view of value to comment on the worth of various forms of economic activity. Our primary aim in acquiring goods, he said, should be to ensure that we have sufficient supply of items for a good life. But too often this aim turns into a single-minded obsession to make money. When this happens, the natural pursuit of use values becomes distorted into an artificial search for ever more exchange value. Aristotle associated trade with this interest in wealth-seeking, and he criticized professional traders because they were making a profit at the expense of others.5
Contemporary Relevance
Aristotle's economic ideas played an important role in history, but do they have any significance today? For most economists, they have lost any relevance they once had. The distinction between use value and exchange value disappeared from economics, except in the theories of Karl Marx, where it played an important role.
Aristotle's criticisms of money-making are also considered outmoded by most economists. Whatever one's ethical view of greed, the presence of individuals who are intent on gaining wealth can work to the advantage of society by increasing supplies of labour, capital and the other basic resources needed for economic growth. The money-making of these individuals can therefore add to the necessities available to others. From this contemporary perspective, Aristotle's oversight was to insist on standards of personal morality that work against society's long-term interests.
Modern-day followers of Aristotle think otherwise. After all, we live in an age when radically different use values are regularly transformed to exchange value. In the words of one such scholar, Scott Meikle:
If a market for orphans were to be permitted, it would produce the exchange value of an orphan. Where there is no market to beget an exchange value for something, special officers make one up. Insurers, actuaries, accountants, and economists have come to be expected to give the exchange value of a kidney, an education, or a life.6
Does this over-riding emphasis on exchange value diminish our ability to recognize real worth? If so, then it is mainstream economics that is suspect, in condoning a materialism that intensifies our focus on money and markets, and diminishes our capacity to live a life of moderation and virtue: principles which for Aristotle, as for most other thinkers of antiquity, were of a much higher order than a concern with economic prosperity.
Notes
1. Nicomachean Ethics (Indianapolis: Library of Liberal Arts, 1962), pp. 124-126.
2. 2. Politics (Oxford: Oxford University Press, 1946),1259a , p. 31.
3. 3. Ibid, 1257a, p. 23.
4. 4. Rhetoric 1364a; quoted in J. J. Spengler, "Aristotle on Economic Imputation and Other Matters," in Southern Economic Journal (1955), p. 376.
5. Politics, 1258a,b, p. 28.
6. Aristotle's Economic Thought (Oxford: Clarendon Press, 1995), pp. 196-197.
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