In approaching Aristotle’s economics, one must keep in mind at all times that for Aristotle man achieves his chief end, happiness, by living in accordance with nature. In Aristotelian ethics, the nature of a thing provides the key for its proper use. In Book I, Aristotle discusses the nature of wealth and its development in its complexity, paralleling his description of the development of the family into the village and from the village into the state, the arena in which man is most capable of living a good life. From his explanation of wealth and its proper use, it is clear that his conception of good economics contains several points at variance with modern economics and the disposing of wealth in our times.
Things, Aristotle explains, have two uses: what we will call the manufacted use, and a usefulness for exchange. The manufacted use of thing is that use for which the thing was specifically made and which the thing, owing to its particular qualities, can accomplish well. For example, a shoe has been made to fit my foot, to secure my comfort, and to protect my foot from harm. These are the proper uses of a shoe. However, a shoe has a second use, that of exchange. Exchange arises naturally, Aristotle points out, as a means by which men may secure the things which they lack. I, having in my possession two pairs of shoes and no coat can use one of those pairs to exchange with my neighbor for an extra coat. One should note that this exchange, and all other natural arising exchanges, uses the shoes to secure what is ultimately a manufacted use: that of the coat. The natural form of all exchange then is that kind of exchange whose ends are the fulfillment of the material purposes of the final goods secured by the exchange.
Economics comes from the Greek word oikonomía, meaning “management of a household”. Economics naturally begins for man at the level of his household – the day-to-day securing of his goods and disposing them to meet his needs and the needs of his family. Within the household, then, the natural form of what Aristotle terms “wealth-getting” arises. That wealth is natural and good which comes from a skilled and prudent oikonomía, and its end is the material comfort of the household. A well-run household will prosper and multiply a man’s material possessions, and by this natural means he increases his wealth. In order to facilitate this oikonomía, exchange came about when different households traded the material things they had in surplus for those of which they had a dearth. As towns and cities developed, men made use of metals as a means to better facilitate this exchange, giving rise to money. However, money’s object remained the same as bartered goods before: to secure some other object otherwise impossible or impractical to produce in the household/town/city. Where I once exchanged extra shoes for a coat that I might fulfill the material need satisfied by the coat, I now exchange coins for a coat, but still that I might fulfill the material need satisfied by the coat.
The prevalence of money introduced what Aristotle considers to be the second kind of wealth-getting: exchange. This is an unnatural form of acquiring wealth, as the object becomes not the needs and comforts of a man’s physical state but rather becomes money itself. The unnaturalness and indeed the vice of this type of wealth-getting lies in the fact that what was once a means to other ends becomes an end in and of itself, and an artificial and therefore unnatural end. Were I to acquire all the shoes and coats which I could, and did so not to wear them but rather just to possess them, this would clearly be an unvirtuous and absurd act. I do not own coats to have them; I own them to use them for their created purpose. If I acquire as many little pieces of metal, not so I can secure my needs or exercise the virtue of liberality, but rather that I may have lots of little pieces of metal, I have lost sight of the object and have acted outside of nature. Aristotle recognizes a class of people arising from the merchanting exchange of cities who make the second sort of wealth-getting their profession and chief end.
The final aspect of Aristotle’s economics which I would like to examine is that of charging interest. Aristotle views the charging of interest as a vice and as an unnatural act. In the act of lending, money whose natural object was exchange for the sake of other good things has been directed towards the end of gaining more money. If I lend my friend ten coins, it follows naturally that he could exchange those ten coins for something he needs. It does not follow naturally that those ten coins could multiply into fifteen or twenty, especially when the “agent” of that multiplication is mere time. Were I to lend a cow and a bull to my neighbor and a year later he returned to me a cow, a bull, and a calf, this multiplication of goods lent has clearly risen from something natural, but my ten coins are not copulating, and as such I cannot expect to have multiplied over time by any natural process. Indeed, Aristotle calls interest the birth of money by money, that is to say, the breading of money. Alas, were it that easy.
Such are Aristotle’s economics. Now, it would be interesting to place Aristotle in a room with a modern economist and hear how the former would respond to the idea that interest is not so much a multiplication or breeding of money as it is charging someone for the use of money, a rent, if you will, in exchange for the immediate benefit foregone by the lender. I cannot imagine that Aristotle would have been unaware of this argument or that someone in his day and age would not have tried to make that argument, but I do not see in his writings any indication that he had considered that possible definition of interest. Perhaps my fellow bloggers can enlighten me in those regards. I am inclined to disagree with Aristotle on the point of interest, as it seems perfectly natural to me to ask my neighbor to pay me for the use of my possessions. Likewise, his position of the unnaturalness inherent in interest seems logically to lead to the unnaturalness of any kind of rent, and I think that the “interest as the payment to the lender for giving up immediate benefit” argument to be a sufficient defense of the lending practice. Of course, one must also always keep in mind that our modern view of currency as fiat may cloud our judgment of Aristotle: we create money based on promise and goodwill, so of course we can create money by lending.