The Economic Implications of Aristotle’s Commutative Justice

Why did Aristotle seriously address the problem of exchange in the *Nicomachean Ethics*, a work devoted to discussing the ultimate good of human life? The reason is that, from Aristotle’s point of view, exchange is one of the means necessary for a good human life. Overall, Aristotle’s views on exchange as presented in the *Nicomachean Ethics* contain some ambiguities, partly because the amount of discussion itself is not extensive. Yet taken as a whole, they are not only consistent with his broader ethical outlook but also continue to carry implications that remain significantly relevant today.

Aristotle’s View of Exchange

Commutative justice concerns the question of how the exchange of goods can be carried out fairly. Aristotle says that the community fundamentally comes into being through exchange, and he regards the issue of exchange as so important that he considers commutative justice a basic precondition for maintaining and operating a community. (*Nicomachean Ethics*, Book V, Chapter 5, Section 10)

Aristotle says that fair exchange must fundamentally be equal. In other words, the two parties to an exchange, A and B, must exchange things of equal value. Otherwise, one party will end up with more while the other ends up with less, making the exchange unfair and therefore unjust. Moreover, because all goods differ in value, fair exchange must be proportional rather than simply identical. (Sections 6 and 12)

Aristotle explains this through the example of carpenter A, the house C that he built, shoemaker B, and the shoes D that he made. Suppose the two agree to exchange a house and shoes according to each other’s needs. For the exchange to be fair, they must proportionally exchange goods of equal value. A house is generally considered more valuable than a pair of shoes. In that case, the shoemaker must provide the carpenter with as many pairs of shoes as correspond in value to one house. (Section 8)

If so, then the objects exchanged in a fair transaction must be comparable with one another. If their values cannot be compared, fair exchange could never be established. A fairly concluded exchange makes it possible to balance what each person lacks and what each person has in excess among the things people need, thereby resolving unfairness and sustaining the community. For this reason, Aristotle sees fairly conducted exchange as something just.

Aristotle’s View of Money

Fair exchange is not an exchange of things that are numerically equal, but an exchange of things equal in value. The problem is that in barter it is very difficult to compare the values of different goods. How can one judge, using only shoes and a house, how many pairs of shoes correspond to one house? Without an objectively referable standard, people will assess the value of goods differently, and smooth exchange will be impossible. For this reason, Aristotle says money is necessary. (Section 10) As a medium of exchange, money provides a standard for comparing and assessing the values of different goods. Put differently, money makes the reduction of value possible.

Question 1: How Is Monetary Value Formed?

Aristotle’s discussion of commutative justice is relatively brief, and because it does not offer much detailed explanation of its claims, a number of different interpretations seem possible. For example, Aristotle says that since the outputs of the carpenter and the shoemaker are not equal in value, they must be calculated as equal for purposes of exchange. But how can we determine how many pairs of shoes are equal in value to one house? Aristotle says that money makes this possible. Yet the fundamental problem still remains unresolved. Why is money able to assign different values to one house and one pair of shoes?

How can it be calculated that five beds have the same price as one house? Why is one pair of shoes worth less than one house, so that several pairs must be sold to buy a single house? Aristotle’s claim itself—that exchange should occur by paying a monetarily justified value—is difficult to dispute, which leaves much room for interpretation. Some clarification may perhaps be found in his other works, but at least if we look only at the relevant passage in the *Nicomachean Ethics*, Aristotle does not discuss the logic by which money prices are formed.

The best provisional conclusion available to us now is that Aristotle understood the need for proportions among goods in exchange, but either (1) did not investigate, or (2) did not properly grasp, how such proportions should be converted. Since later theories of the value of goods—such as the labor theory of value, according to which value is determined by the quality of labor or the time input, or the subjective theory of value, according to which value is determined by individuals’ subjective evaluations—can all be seen as compatible with Aristotle’s claim, one should be cautious about drawing hasty inferences on this point.

Question 2: Is Fair Exchange Exchange According to Equality?

Aristotle says that fair exchange is exchange between equals, and he explains this with a simple mathematical equation. In this respect, one might even say that Aristotle was the world’s first mathematical economist. The key issue, however, is that Aristotle’s equation appears to conflict with actual exchange. Exchange can take place precisely because the parties involved subjectively evaluate the goods being exchanged differently.

If the goods in question were truly regarded as equal in value, the two parties would not exchange them. Voluntary exchange is possible only when both parties regard what the other has and what they themselves have as different in value. That is, A is willing to exchange because he thinks 100 pairs of shoes are more valuable than one house—in other words, because he does not think they are equal—and B wants to exchange with A because he thinks one house is more valuable than 100 pairs of shoes. The situation is not very different in indirect exchange mediated by money.

In this respect, even if Aristotle’s ideas on exchange and money can coexist with several interpretations, one may cautiously think that his view is more congenial to the labor theory of value. If one accepts the premise that the value of goods is purely subjective, then it becomes difficult to say that fair exchange is exchange between equals. At the very least, such a statement would need to be revised. By contrast, if one thinks that the value of goods is objectively determined to some degree by labor time or invested capital, then an objective labor value would inhere in things apart from their subjective use value, and fair exchange of equal values might be possible.

However, this interpretation ultimately goes beyond the text Aristotle has left us, so it cannot be asserted with confidence. One can only cautiously point out that this problem seems to arise because Aristotle’s account is ambiguous.

The Pioneering Character of Aristotle’s Views on Exchange and Money

Although some of Aristotle’s statements invite doubt, taken as a whole he can still be regarded as a great economic thinker who laid the foundations upon which later generations could establish economics as a distinct science.

The fact that Aristotle treated exchange in an ethical context shows that he understood the nature of exchange accurately. Aristotle’s ethics is a discussion of how to attain happiness, the highest good. If his ethics had dealt with deontological ethics or consequentialist ethics, then discussing exchange in a book on ethics would certainly have seemed quite strange.

But exchange exists for the sake of human happiness. The parties to an exchange engage in it voluntarily because they expect their condition to improve through exchange. The sole purpose of voluntary exchange is to relieve one’s unease and pursue happiness. If that were not the case—that is, if one did not expect one’s condition to improve through voluntary exchange—then one would not exchange in the first place. If so, Aristotle’s decision to treat exchange within ethics was entirely appropriate, especially considering that economics as a discipline did not yet exist in his time.

Cautiously speaking, the reason Aristotle’s thinking on exchange remains substantially valid even today may be said to lie in his approach. Human action that employs means to achieve an end is economic action, and economic phenomena arise when such actions interact. If the ultimate end human beings pursue is happiness, then human action aimed at pursuing happiness cannot but be related to economics to some extent. By tracing what human happiness is and what pursuing happiness logically implies, Aristotle was able to leave behind insights into economic questions as well.

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Original title: 아리스토텔레스의 교환적 정의가 가지는 경제학적 함의

Author: Kyeong-hun Kim

Date: 2021-01-19

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=free_opinion&pn=12&idx=23429