The economics of Aristotle, money and prices and some lessons for today

Economics actually comes from a Greek word oikos, meaning home or home economics. Political economy thinking started as an extension of home economics on a larger scale. The Ancient Greeks loved to use metaphors of people’s concrete lives and extrapolate it to the state, government society, think of Plato’s philosopher king.

I love this idea. Think about your own life. How you have to balance your budget and develop a home economy like a nation. In a sense this microcosm, macrocosm theories from the Ancient Greeks are metaphors which clarify ideas. If only government was as responsible as you are with your money.

Value of Aristotle – The great value behind Aristotle’s economic thinking was it got people thinking abstractly about economics. People always had of course but in a more formal way. I personally think Aristotle was a great thinker but not radical enough for the modern world. What amazes me is how many people still think along these lines on a subconscious level, even me. They hold themselves back economically with some for of Aristotelian economic thinking. Well intentioned mind you, but operating on faulty logic does not help oneself economically. Do you have any of these ideas in your thinking?

The idea behind Aristotle’s pricing theory

Communis aestimatio was the idea of just price. It literally means common evaluation. Aristotle wrote a lot about economic thinking, society, justice. His ideas of a natural price or just price was very Platonic in the sense there was some universal measure. This logic could also could be extended to a wage or price of labor as based on a reasonable standard of living for one’s occupation. Therefore, there was some abstract price, whether wages which was fitting to something based on a common evaluation. The value to the community determined the value of thins.

Honertus Quatestus was also a similar idea. That is an honorable quote or price for a profit. Profit was cost of labor plus a reasonable fair and just take for the owner of the process. The idea of bonitus intrinscia or intrinscic price is not only a central idea behind Aristotle’s economic philosophy but still in society today. The owner could have a fair profit as society would let him provide for his family for providing a service.

Although the idea of a natural or just price or wage is very noble, prices in reality are subjective. As a human I agree. I mean in the ideal world it would be nice if a fair days work for a fair days pay. Further a fair price based on, I do not know what, something fair and just. But the reality is different.

Lesson on prices from Aristotle’s mistake for today – Think about politicians which try to control wages prices and profits based on their view of that is fair and just.  I agree people make unrealistic amounts of money and some things are way over priced, but in the end the market controls often hurt more people then they help in aggregate. Think of rent controlled apartments. It leads to a greater unfairness in the long run when landlords let the units go downhill and abandon them and the quality decreases as non-price rationing kicks in.

Health care might be this type of mess. We do not know. But generally the idea of a just price is ideal, but the reality is economics is so dynamic in nature, you can not control prices on something that seems fair or right. The world and people are too complex. This is why Aristotle’s price theory was wrong.

Why Aristotle’s price theory was wrong – Prices and wages in the real world not the Platonic world are determined subjectively, by supply and demand. That is something in the market is worth exactly what someone will pay for it. This is why one year a vacation home in Florida is worth is $200,000 after construction, and a few years later a half a million bucks, then during a crisis less than initial cost or book value. People cry well I can’t sell this bellow cost. I say why not? I have lost money on assets before, supply and demand not cost determined price. I mean would it not be great if prices and wags have some sense of fairness or justice?

They do not. Aristotle’s ideas of just wage, price and profit have little baring to reality. But much of Midieval thinking which was based on Aristotle and then St. Thomas Aquinus and the Catholic church (which is a bluwark of neo-Platonic philosphy even today). Brilliant minds when it came to ethics but with economics a bit idealistic.

One idea I do like in Aristotle’s economica was the idea of the gentlemen farmer, simply as an ideal.

Aristotle’s theory of money

Money has a different value than other goods. Money’s value was imposterous. That is the value not determined by the communis ( like it should be) but by the King. I could make all kinds of metaphors about today’s Central bank, but the comparison is too obvious to discuss. When government controls the money instead of the people it is a form of artificial monopoly.

The take away here is Aristotle and Theophrastus his student, believing price or wages has some abstract natural value is very medieval thinking and will only hold you back like the serfs were held back. Free your mind and understand that price and wages have no relation to value.

Marx also had this fallacy of price and wages that they should be determined by the amount of labor put into an object. This thinking is so incorrect and when applied to real life like in communism the results are people suffer. The world is really a war of ideas and wrong thinking by economics philosophers make people pay a heavy price.

It is evident then that the getting of money is not the same thing as economy – Aristotle (Politics A Treatise on Government)

I disagree and I think Aristotle was wrong about economics. Do not let any academic professor lead you to believe otherwise.

If you want to read more about the Economics or political economy i recommend either read him directly or Frederick Charles Copleston, SJ is a perfect substitute. Reading Copleston is like reading philosophers themselves.