Neo-Classical Interpretation of Aristotle´s economic thought


Extract from the book: Meikle, Scott. 1995. Aristotle’s Economic Thought. Oxford: Oxford University Press.

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“Adam Smith makes three references to Aristotle in The Wealth of Nations, none of which concerns the economic writings, Nicomachean Ethics, 5. 5 and Politics, 1. The references deal with political or historical points, and they seem to have been drawn from Smith’s reading of Pufendorf and Montesquieu rather than from a study of Aristotle himself. Ricardo, in the Principles, makes no reference to Aristotle at all. The first examination of Aristotle’s inquiries subsequent to the rise of economics was Marx’s, offered originally in the Contribution and then eight years later in Capital itself Marx did not claim that Aristotle was an economist, or that he was the father of any school of economics, even Marx’s own, but understandably his endorsement of most of Aristotle’s conclusions was construed as a claim of Aristotelian paternity on behalf of his own theory.  Marx had inaugurated a contest, and in time subsequent orthodoxies in economics sought to establish Aristotelian paternity too.

The arrival of neo-classical theory gave rise to many such suits, the best-argued of which were those of Barker, Van Johnson, Soudek, and Schumpeter. These authors were keenly aware that Aristotle incautiously laid himself open to -doubtless unintended — socialist interpretation, and Van Johnson explicitly set out to overturn Marx’s conclusion that Aristotle.

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The object of neo-classical theory, Schumpeter wrote, was to show ‘what A. Smith, Ricardo, and Marx had believed to be impossible, namely, that exchange value can be explained in terms of use value. Jevons, Menger, and Walras would all of them have approved of this statement.’  Schumpeter knew perfectly well that no such view could be attributed to Aristotle, any more than to Smith, Ricardo, and Marx, though at best he grasped only intuitively that in Aristotle’s case the most basic reason for this was the irreducible category-distinction Aristotle draws between use value and exchange value.

Schumpeter recognizes that Aristotle held exchange value and use value to depend on intrinsic properties possessed by products, rather than on extrinsic ones, or on relations. Since he does not share that view himself, he rejects Aristotle’s theory and others like it. His reasons for rejecting Aristotle’s view may be good or bad, and that will be considered later, but at  least the view he attributes to Aristotle is the view that Aristotle held. The same cannot be said of Barker’s interpretation.

Schumpeter regards Aristotle’s view as perverse and ungrounded. He has little grasp of Aristotle’s substanceattribute metaphysics, or of his theory of categories, and for that reason he is unable to appreciate the logic of Aristotle’s argument, which consists in applying that metaphysics to the analysis of use value, and to the relation of exchange values ‘5 beds = 1 house’. He probably would not have been very impressed if he had known more about it because, although he is fairly unimpressed by philosophy generally, he is particularly unimpressed by Aristotelian philosophy. In spite of his philosophical disclaimers, it is obvious from his work that he shared sufficiently the Humean and anti-Aristotelian beliefs and prejudices of the positivist movement of the first half of the twentieth century. Schumpeter writes as if it were a sufficient rebuttal of Aristotle’s view that value is intrinsic, simply to counterpose to it the current orthodoxy that value is extrinsic, relational, and accidental. He uses the neo-classical view as if it were a yardstick against which Aristotle’s view may be judged to be a failure. But it is unconvincing, and ought to be unconvincing even to adherents of neo-classical theory, to represent the neo-classical theory of value as itself beyond any need of metaphysical clarification and justification. Some of Aristotle’s beliefs have been superseded by more accurate observation or better theory. Observation has led us to ignore his belief that the bison defends itself from hunters by discharging its burning excrement over a distance of eight yards and scorching the hairs off the hounds (HA 630b8-11). Better observation and theoretical advances in mechanics have caused Aristotle’s beliefs about the trajectory of missiles to be superseded by the theory of parabolic motion. But the neo-classical theory of value is not the sort of thing that could be vindicated by observation, and it cannot be claimed on its behalf that it has the standing of an established scientific theory which can fairly be regarded as putting other theories out of contention, as mechanics or the theory of evolution have.

Schumpeter’s case rests on an insensitivity in metaphysics. Aristotle derives his theory of value from his metaphysics, and refuting it would require identifying some flaw in the metaphysics, or else some flaw in the reasoning by which it is derived from that metaphysics. Schumpeter, not appreciating this, is unable to produce a serious attempt at argument because he fails to see the need for one. Metaphysical insensitivity has had an important role in the discussion of Aristotle’s attempt to analyse economic value, as it has in the discussion of value generally, and a lot of it has centred on the notion of a capacity.

Aristotle’s inquiry into exchange value is aimed at explaining a capacity: the capacity products come to have for exchanging in proportions as quantities. According to his theory of capacities, a capacity has to be distinguished from the exercise of that capacity. This accords with our ordinary way of talking about capacities or powers; someone who can speak French is normally said to have that capacity even when he or she is asleep, speaking English, or just keeping quiet. Having the capacity is one thing, but using it in actually speaking French is another. ‘Value’, as the term is used in economics, is the name of whatever it is by virtue of which products can behave in exchange in the way that they do, that is, exchange in proportions as quantities. (This holds independently of theories about what the substance of value consists in. It holds for the utility theory of value just as it does for the labour theory of value.) What a thing can do, it has a capacity to do, so the exchangeability of products is a capacity, and it has to be explained as a capacity is explained. It is in order to explain

this that Aristotle is looking for an explanation of the commensurability of products. The view that value is intrinsic is unavoidable on Aristotelian metaphysics. If a thing has a capacity, its possessing that capacity implies actual properties in the thing. In Aristotle, and in the Aristotelian tradition, things are identified as things of a kind, and that identification can involve capacities as well as qualities. What a thing is can be partly a matter of what it can do. The litmus test for acids, for example, decides whether something is an acid by determining whether or not it has the capacity to turn red litmuspaper blue.  Since attributing value to products is attributing a capacity to them, value must be intrinsic to them. (The same conclusion follows from Aristotle’s analysis of the commensurability which is implied by the fact that a relation of equality is involved in exchange.)

The Humean position is different at every point, and the fact is significant because the metaphysical sensibilities of modern economics are overwhelmingly Humean. According to Humean metaphysics, there is no distinction to be drawn between a capacity and its exercise. Hume’s position in the Treatise is that ‘The distinction, which we often make betwixt power and the exercise of it, is . . . without foundation.’  To say that something can do something — that is, that it has a capacity to do it — is just to say that it does do it. If there is held to be no distinction between a capacity and its exercise, then the fact that products do exchange in non-arbitrary proportions is all there is to saying that they can. From this it has been inferred that it is not necessary or even possible to seek an explanation of the capacity, of how things that are exchanged are capable of being equated in proportions, that is, of how they can be commensurable.

This is broadly the position drawn upon by Bailey who,

writing in 1825, just as economics is beginning to replace classical political economy, insists that ‘value is the exchange relation of commodities and consequently is not anything different from this relation . . . Value denotes nothing positive and intrinsic, but merely the relation in which two objects stand to each other as exchangeable commodities. This view has passed into the neo-classical canon.

Bailey seems to be saying that exchange value cannot be a property because it is a relation, namely, the relation of exchange. Such a position could not be Aristotle’s, because on his metaphysics things that are in a relation cannot also be the relation they are in. Thus, exchange values, being the things related in the exchange relation ‘x of A = y of B’, cannot be the relation relating them, that is, the relation of equality. The suggestion is incomprehensible.

Bailey might also have it somewhere in mind to argue, not that exchange value is not a property at all, but that it is a property which cannot exist outside the exchange relation. This is an intelligible suggestion, unlike the first, and it has been echoed by later writers. Schumpeter, for instance, writes that Marx ‘was under the same delusion as Aristotle, viz., that value [is] . . . something that is different from, and exists independently of, relative prices or exchange relations.’ The argument would be that exchange value is a property like that of ‘being married’, which property depends on the relation ‘being married to . . .’ in the sense that one cannot have the property unless one has the relation to someone. The case would be that unless some product or good stands in the exchange relation to some other, then it can’t be an exchange value; just as a person cannot be married unless he or she stands in the relation of being married to someone. This is a better argument, but the problem now is to see how it might be an objection to the view it is intended to damage. The analogy with a property like

‘being married’, even if correct, is clearly not the whole story, because ‘being married’ is not a quantity and does not enter into relations of equality. Schumpeter and others, in any case, want to combine the objection with the view that the basis of exchange value is utility, which itself is not a property that exists only in the exchange relation. Aristotle explains in the Categories that ‘All relatives, then, are spoken of in relation to correlatives that reciprocate, provided they are properly given . . . For example, if a slave is given as of — not a master, but — a man or a biped or anything else like that, then there is not reciprocation; for it has not been given properly’ (7a22-30). If goods are to be related by equality, as they are in ‘5 beds = 1 house’, they must be given as quantities; not quantities of goods, e.g. 5 beds, but quantities of whatever it is that 5 beds has in equal amount with 1 house, that is, exchange value.

Schumpeter says of Marx, in the passage just cited:

He was under the same delusion as Aristotle, viz., that value, though a factor in the determination of relative prices, is yet something that is different from, and exists independently of, relative prices or exchange relations. The proposition that the value of a commodity is the amount of labour embodied in it can hardly mean anything else. If so, then there is a difference between Ricardo and Marx, since Ricardo’s values are simply exchange values or relative prices. It is worth while to mention this because, if we could accept this view of value [sc. as a common property intrinsic to commodities], much of his theory that seems to us untenable or even meaningless would cease to be so. Of course we cannot.

The mention of labour is immaterial to the argument, which is about whether or not value is intrinsic. If Schumpeter is to be taken at his word, then it would seem that all that prevented him from agreeing in essentials with Aristotle and Marx was his adoption of the Humean rather than the Aristotelian analysis of capacities. 

The same metaphysical predilections seem to underlie Joan Robinson’s view that ‘one of the great metaphysical ideas in

economics is expressed by the word “value” . . . like all metaphysical ideas, when you try to pin it down, it turns out to be just a word’. She is using the term ‘metaphysics’ here in the special opprobrious sense which was part of the fashion of the time for the Humean metaphysics of Logical Positivism, and not in its usual philosophical sense. Pareto is less restrained in his Humean sarcasm:

In a recently published book, it is said that ‘price is the concrete manifestation of value’. We have had incarnation of Buddha, here we have incarnation of value. What indeed can this mysterious entity be? It is, it appears, ‘the capacity which a good has to be exchanged with other goods.’ This is to define one unknown thing by another still less known; for what indeed can this ‘capacity’ be? And, what is still more important, how is it measured? Of this ‘capacity’ or its homonym ‘value’ we know only the ‘concrete manifestation’ which is the price; truly then it is useless to entangle ourselves with these metaphysical entities, and we can stick to the prices.

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Where the first line of utilitarian interpretation recognizes that Aristotle held value to be intrinsic, the second line attributes to him the neo-classical view that value is extrinsic, and that exchange value can be explained in terms of use value. This line has been much commoner, and few commentators, not even Finley, have managed to stay clear of it altogether. Joseph put it succinctly: ‘ Aristotle, Nicomachean Ethics, V. v. ii, 1133a25-31, finds in demand or need the real source of exchange value.

Barker sees that Aristotle’s definition of wealth involves the antithesis of nature and convention. He also observes how different Aristotle is, in defining wealth as use value to the

exclusion of exchange value, from moderns like Mill who define it in ways that involve exchange value. Mill’s Principles of Political Economy was the standard university textbook until it was replaced by Marshall Principles of Economics, and Mill is the authority Barker cites. Mill defines wealth as ‘all useful or agreeable things, which possess exchangeable value’. But Barker misunderstands and rejects Aristotle’s view of wealth, and thinks it is justified simply to insist that Aristotle should have collapsed the nomos-phusis distinction here, and should have held instead that ‘Nature and art are really one’. Aristotle has metaphysical reasons for not doing this, but Barker overlooks them; he shows insensitivity to the metaphysics of Aristotle’s discussion, here and elsewhere, as many anglophone Aristotelian scholars were apt to do at that time. Finding no better basis for it, Barker attributes Aristotle’s view to the fact that he ‘deprecated exchange’ because of his ‘reactionary archaism’ and his snobbish prejudice against money-makers. The elements of Barker’s position need to be separated.

Barker does not overlook, as Schumpeter did, the arguments about value in which Aristotle establishes the philosophical basis of his economic thought, he misunderstands them, and the mistranslation of chreia as ‘demand’ is at the centre of the misunderstanding. He says, directly contrary to what Aristotle says at NE 5, 1133b18-20, that ‘To Aristotle “demand”, or need (χρεíα) . . . makes couches commensurable with houses, producing the equation 5 couches = 1 house. Except for demand, there is no commensurability and therefore no possibility of equation.’ He goes on to connect demand with money: money forms ‘the concrete and objective form of the subjective standard formed by demand. It makes objects commensurable.’ The notion of demand is logically connected with the notion of exchange value, and Barker is justified in connecting them as he does. But by substituting ‘demand’ for need’ (chreia) in the first place, Barker is moving very far from

Aristotle’s own position in two ways. First, since ‘demand’ is an aggregation of wants or revealed preferences, he is implying an identity between needs and wants which is conceptually mistaken and contrary to Aristotle. Secondly, insinuating ‘demand’ introduces a bridging device between use value and exchange value. These points will be taken in turn.

The notion of need is not usually liked by economists, particularly those of liberal temper. The mention of it is, Wiggins observes, apt to produce a standardized professional response: ‘What do you mean by a need? Is a need just something you want, but aren’t prepared to pay for?’ Needs, however, are logically distinguishable from wants. ‘Need’ is not an intentional verb but ‘want’ is. What I need does not depend on what I believe, as what I want does. Need is, in a specifiable sense, an objective state, not a subjective one, and in some of its uses ‘need’ denotes an absolute or categorical state, not an instrumental one conditional upon entertaining some particular purpose.

Aristotle does not confuse needs with wants by thinking of them as rationalized strong desires. His view of them is made

clearer by what he says in Met. Δ about the Greek word for necessary’ (anagkaion).

We call necessary (a) that without which, as a joint cause, it is not possible to live, as for instance breathing and nourishing are necessary for an animal, because it is incapable of existing without them: and (b) anything without which it is not possible for good to exist or come to be, or for bad to be discarded or got rid of, as for instance drinking medicine is necessary so as not to be ill, and sailing to Aegina so as to get money. (1015a2O ff., trans. Kirwan) 

The word has never been translated here as ‘needed’, as Wiggins remarks, and for good reason, because the chapter is seen as Aristotle’s only entry for several senses of the word for ‘necessary’. But it could have been translated in that way, and it would have been beneficial in one way if it had been: ‘In the presence of an Aristotelian elucidation’, Wiggins suggests, ‘the reductive, rationalised strong desires conception of need might not have passed so long without serious challenge.’

What is necessary or needed is thus connected with Aristotle’s idea of flourishing as a thing of a kind. Anscombe brings out the connection: ‘To say that an organism needs that environment is not to say, e.g. that you want it to have that environment, but that it won’t flourish unless it has it. Certainly, it all depends whether you want it to flourish! as Hume would say. But what “all depends” on whether you want it to flourish is whether the fact that it needs that environment, or won’t flourish without it, has the slightest influence on your actions.’ ‘Demand’ does not have this connection with flourishing, and it cannot be used to represent the Aristotelian idea of need without destroying a tissue of connections that are vital to Aristotle’s philosophy.

The modern economic notion of ‘demand for x’ ranges indiscriminately over things that are wanted and things that are needed. But not all needs for x, or even all wants for x, constitute parts of the demand for x. ‘Demand’ means ‘effective demand’, that is, demand which registers in the market

because it is backed by money. Needs and wants come apart from demand because needs and wants that are not backed by money do not count as demand. When Aristotle speaks of chreia he means needs not wants, though a case could be made that he means needs and some wants, but it is certain that he does not mean that subset of needs and wants that are satisfiable because their possessors have money.  Even if Aristotle had had the notion of demand, which he did not, he could not have given it the place in his theory that he gives to chreia. Chreia exists by nature (phusis), but ‘demand’ exists by convention (nomos) because it presupposes those very conventions of exchange value which need not exist, and which, in the case of M-C-M’, he is explicitly opposed to. By introducing demand, Barker bridges the nomos-phusis gap which Aristotle establishes between use value and exchange value, contrary to the letter and spirit of his economic theory (if it can be called ‘economic’), and of his metaphysics.

Barker is attributing a neo-classical view of value to Aristotle in which use value and exchange value are inherently linked, and for that reason Aristotle’s views of wealth, exchange, and so forth, since they are based on use value to the exclusion of exchange value, appear to be inconsistent with it. They also appear to be without any intellectual foundation, since the foundation Aristotle gave them has been removed by misinterpretation, and so Barker finds another foundation for them in moral and political prejudice. Aristotle’s views of wealth, his use of the nature-convention distinction, his analysis of exchange and trade, and his views on the proper use of the arts and faculties, then come to appear not only as inconsistencies on Aristotle’s part, but as poorly motivated as well.

Barker censures Aristotle for being ‘as reactionary in economics as was Plato’, whose views he characterizes by the motto ‘Back to the simple and primitive’, and for believing in an ideal economic society which comes ‘perilously near the  “golden” age — “When wild in woods the noble savage ran” ‘. The constructions Barker puts on Aristotle here are likely to appear exaggerated to readers today. Their desperate quality connects with a striking feature of Barker’s discussion in his chapter IX, entitled ‘ Aristotle’s Principles of Economics’. The greater part of that chapter is a barely disguised effort to justify modern, or bourgeois, conceptions of wealth, value, exchange, money, and profit, in the face of Aristotle’s theory, which Barker seems to fear might be thought to imply criticism of them.  He shows the same sensitivity in drawing likenesses between Aristotle and the Physiocrats, who held that exchange is not ‘productive’: ‘It may be remarked that the Physiocrats, with these views, were not socialists; nor need we therefore make Aristotle, with the same views, into a socialist.’ Such sensitivity is common, particularly in the anglophone literature. Ross, for instance, defends what he calls ‘the commercial class’ on the ground, which is beside the point of Aristotle’s principal criticism, that it ‘renders a useful public service and makes its profits only because it does so’. It was not generally appreciated at the time Ross was writing either that there was no ‘productive lending’ in the ancient world (that is, there was no credit for establishing productive enterprises as opposed to lending for consumption), or that money in general did not function as capital.  So Ross saw no obstacle to extending the defence of the commercial interest to encompass also the protection of commercial banking from Aristotle’s criticism of usury”. [1]

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[1] Meikle, Scott. 1995. Aristotle’s Economic Thought. Oxford: Oxford University Press.

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