Rothbard and Aristotle on Money: Aristotle Reconsidered

0:00So this afternoon, I'd just like to talk about a passage in Rothbard's History of Economic Thought, where he discusses Aristotle. And of course, he has some very positive things to say about some things Aristotle says, namely in private property. But when it comes to a praxeological analysis of exchange and money, Rothbard has some criticism, most notably, he writes, Aristotle's famous discussion of reciprocity and exchange in book five of his Nicomachean Ethics is a prime example of descent into gibberish. Aristotle talks of a builder exchanging a house for the shoes produced by a shoemaker. He then writes, this is quoting Aristotle, the number of shoes exchanged for a house must therefore correspond to the ratio of builder to shoemaker, for if this be not so, there will be no exchange and no intercourse.

0:53A. How can there possibly be a ratio of builder to shoemaker, much less an equating of that ratio to shoes, houses? In what units can men, like builders and shoemakers, be expressed? This comes from Book 5, Chapter 5 of the Ethics, and Rothbard's picked probably the most difficult sentence to interpret and has kind of put it in isolation here. So what I'd like to So what I'd like to do is two things. First, I'd like to give a little bit more context to this statement both in the immediate writing around the passage and then also in book five of the Nicomachean Ethics which is actually a book on justice which is kind of interesting that Aristotle would talk about money in exchange in a book on justice which I'll getivid to and then second after I hope to defend Aristotle's descent into gibberish I'd like to make some observations about the features of Book 5, Chapter 5 of the Ethics and argue that there's really a lot of Proto-Austrianism

1:55in there that's been overlooked and in fact could be mined for insights and to kind of strengthen the way Austrians view history and the continuity of Austrian thought in the Western tradition. So first, I'd like to look at the passage in question. These are the paragraphs immediately preceding the sentence Rothbard cites. So Aristotle says now proportionate return is secured by cross-conjunction. Let A be a builder, B a shoemaker, C a house, D a shoe. And I should note he's probably drawing on a chalkboard, you know, for students. He's very interested in ratios at this point in the book. The builder then must get from the shoemaker the latter's work and must himself give him in return his own. If then there is proportionate quality of goods and then reciprocal action takes place, The result we mention will be affected, that is ill exchange.

2:46If not, the bargain is not equal, and does not hold, but there is nothing to prevent the work of the one being better than that of the other. They must therefore be equated. For it is not two doctors that associate for exchange, but a doctor and a farmer, or in general people who are different and unequal, but these must be equated. This is why all things that are exchanged must be somehow comparable. It is for this end that money has been introduced, and it becomes, in a sense, an intermediate, for it measures all things, and therefore the excess and defect, how many shoes are equal to a house or to a given amount of food. The number of shoes exchanged for a house must therefore correspond to the ratio of builder to shoemaker, for, if this not be so, there will be no exchange and no intercourse, and this proportion will not be affected unless the goods are somehow equal.

3:37So we can see just looking at the passage, it's not so much Aristotle is trying to talk about proportions in different men just for the sake of it, but he's really analyzing a complex set of phenomena. You've got different people who do different things, have different products, have different needs and wants, and they exchange. And so how is it that all these different things can really be brought together in a coherent sense? The larger context is that this book is actually a treatise on justice. For Aristotle, justice is one of the virtues. We like to think of justice as a characteristic of institutions or an abstract description dealing with relations. For Aristotle, justice is actually most properly embodied in an individual dealing with excess and deficiency and finding a mean between them.

4:37And so we can talk about just laws, just institutions, but most properly he's talking about individuals, really the virtuous person is just. And the just man is one who transcends his own desires for personal gain and see things from a more objective point of view when he's deciding and how to act. That is, he's not going to benefit himself or his friends. He's able to kind of look at things the way they are and make the kind of judgment that we'd all like to have made if someone else was deciding for us. So a just judge, for example, is going to hand out fair punishment and rewards. A just politician, now I doubt there's such a thing, but for Aristotle, if there is a just politician, then he is going to only We legislate fair laws that do not harm one person to help another, but it's not just in judgments and in legislating that justice comes into play. You can be just or unjust

5:32towards a friend, just or unjust towards yourself, just or unjust in the marketplace. So material exchanges require justice because, as I said, he's looking at complex phenomena. There's different people, products, skills, and just by the very nature that's going to imply excess and deficiency. If I'm thirsty, it's because I have a deficiency of water. If I'm a shoemaker and I've spent all day building, you know, putting together shoes and I have a big pile of shoes, well, that's an excess, you know, and I've only done it so that I can use the shoes for some other purpose, as he says in the politics, actually exchanging shoes for food. Now, why would people exchange? Well, demand is what he says. Demand underlies everything.

6:19A Greek word, kreia, or need, is the principle for what makes things excessive or equal or deficient. And it's not an arbitrary thing, but it arises from the nature of the people in question. So, the doctor, being a human being is going to get hungry, but the doctor being a doctor doesn't grow food. So, out of that natural activity of his, he's going to have an excess of services to offer as a doctor, he's going to have a deficiency of food, and those need to be brought into a kind of equality. Now, in the rest of Book 5, Chapter 5, if you overlook for a moment, or at least set to the side, the troubling sentence on equating shoemakers and house builders in some kind of proportion, There is actually a lot of Proto-Austrian thought, I think, and so I've sort of strung together the various sentences throughout that chapter into a short narrative here.

7:18It is by exchange that men hold together. Now proportionate return is secured by cross-conjunction. The builder must get from the shoemaker his work and must himself give the shoemaker his own work. This is why all things that are exchanged must somehow be comparable. And it is for this end that money has been introduced. And it becomes, in a sense, an intermediate, for it measures all things. A very Austrian-friendly phrase there. Money as price signals or as information. And therefore the excess and the defect. How many shoes are equal to a house or to a given amount of food. All goods, therefore, must be measured by some one thing. on one thing. Now this unit, the thing that's measuring everything, is in truth demand, which holds all things together. But money has become by convention a sort of representative of demand. Money then, acting as a measure, makes goods commensurate and equates them.

8:15Now in truth it is impossible that things differing so much should become commensurate, but with reference to demand, and therefore money, they may become so sufficiently, that is sufficiently for exchange. So if a house is worth five menai and a bed one, it is plain how many beds are equal to a house, five. And that exchange took place before there was money because it makes no difference whether it is five beds that exchange for a house or the money value of five beds. Now, if any of that sounds familiar, it might be because recently you've read a little known work called What Has the Government Done to Our Money? And in this work, Rothbard says, Exchanges are all made in terms of money prices. If a television exchanges for 3 gold ounces, we say that the price of the television set is 3 ounces, and at any one time, all goods in the economy will exchange at certain gold ratios or prices. But what of money itself?

9:10Does it have a price? Since the price is simply an exchange ratio, it clearly does. But in this case, the price of money is an array of the infinite number of exchange ratios Thus, suppose that a television set costs three gold ounces, an auto of sixty, a loaf of bread one one-hundredth, and an hour of Mr. Jones Legal Services one ounce. The price of money will then be an array of alternative exchanges. One ounce of gold will be worth either one-third of a television set, a sixtieth of an auto, a hundred loaves of bread, or an hour of Jones Legal Service, and so on down the line. This passage from Rothbard I would argue implies, and I think this is also clear from the early discussion in this book, that one-third of a television set is in fact, would in fact be the price of one-sixtieth of an auto or a hundred loaves of bread. The problem is that we can't chop TVs into thirds and walk around with them and exchange. And so what

10:08money does is it makes these disparate goods that really have nothing in common, it makes makes them commensurate and makes the exchange possible. Well I think that's a lot of what's going on in Aristotle. It's different, it's not so much that there's, that a shoemaker and a house builder have certain proportions by nature that have to be brought into a line. It's because he's a shoemaker, because he's a house maker, they're going to have certain demands. That's what's underlying everything. And so money is the thing that allows those demands to kind of meet each other, so to Which might be one reason why Rothbard has worth in scare quotes. So the question is, I mean, how Rothbardian is Aristotle? Or how much Austrianism is Aristotle? Are they commensurate?

10:54I would say yes and no. Yes. And I think that this is where Aristotle's been a little bit overlooked by Rothbard. The thrust of his discussion isn't to equate shoemakerness to house builderness. It's to show that exchanges across the board have to take place in accordance with some kind of equality. Again, that's all justice is, is a kind of equality. In other words, a common denominator. Now, while this common denominator is in fact demand, it can be represented by money. And I think that this is sort of implied in Rothbard's discussion of the same. However, while Aristotle seems to be on the right track, he doesn't get to a subjective theory of value. So I don't know that he gets deep enough to really get at the reason why all these exchanges are taking place. And he does maintain elsewhere, as Rothbard points out, that exchanges occur because the actors view the goods as equal in all respects. That is, he doesn't have the account that when I give money for a cheeseburger, I'm valuing the cheeseburger more than my

11:54money and vice versa for the other person. Now in reading Aristotle, in order to kind to get the most out of it. I think it's helpful to keep in mind that as he says in many places but in the ethics, his main goal is to take observations about commonly held beliefs, refute, pull out errors from them, refute objections to them and Aristotle thinks that if he does that, that's sufficient to show that these are not just opinions but really knowledge, things you can hold to be true. And he does so by making distinctions. And this is precisely how the scholastics, and especially St. Thomas Aquinas, took Aristotle. And in my view, it's certainly no coincidence that the moment Aristotle's works become available widely in the Latin West, the medieval men, all of a sudden there's a huge flowering of and the conversation about economic principles, the development of economic theory and it really all starts with commentaries on the ethics as well as the first book of the politics. So I think that by

13:01extending our understanding of the Proto-Austrian elements in Aristotle not only are we going to be able to read him a little bit better, but we're also going to see that there's a continuity in Austrian thought that is very deeply rooted in the Western tradition all the way to our for most ancient sources. Thank you.