Money, Love & Virtue

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• Publisher: Triarchy Press
• Year: 2015
• ISBN:
  9781909470613
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

In order to understand how our lives and our world are shaped and how this might be reflected in our economic and financial systems, the author turns to a number of leading thinkers from classical Greece to the present day. She finds that important ideas associated with thinkers and writers of the past have often been partially (mis)represented or else interpreted and highlighted so as to appear to endorse a particular approach or point of view.

PART I: THE MATERIAL: MONEY

CHAPTER 1

The Economy and Money: Original Purpose

“Economics is merely the study of mankind in the ordinary business of life.”

Alfred Marshall

“Economics… is not an exact science; it is in fact, or ought to be, something much greater; a branch of wisdom.”

E.F. Schumacher

“Another name for debt is credit, a word derived from the Latin ‘credere,’ to believe. When we borrow or lend money, it is an act both of trust and of confidence.”

Philip Coggan

The Economy: Managing Material Needs

The Market: a Place of Beneficial Exchange

Money: the Life-Blood of Society

Banking and Credit: Money Creation

Expanding Liberty and Prosperity

Investing in the Future

Restating the Human Purpose

Money facilitates market exchange and ensures the flow of goods and services; without money, the economy cannot function smoothly. Credit and investment permit economic flourishing and long-term wealth creation; investment builds the future. With the coming of Modernity, economic activity came to be seen as offering a chance for prosperity, enabling equality and ensuring liberty, as in the vision espoused by Adam Smith. This continues to be the key ideology underpinning free markets and competition, linking our economic aspirations with our political vision. However, the economic outcome depends on human action.

The Economy: Managing Material Needs

In his ‘Treatise on Government’, The Politics, Aristotle (384-322 BCE) begins with the declaration: “We see that every city is a society, and every society is established for some good purpose”. He continues: a “society of many families [is] instituted for their lasting, mutual advantage”.¹ Indeed, each household within society must organize its material requirements, those things that are indispensable for existence. The management of these needs is referred to as oikos-nomos, which denotes the ‘law of the home’ or ‘home governance’ in Greek. Thus, within each family unit, the ‘ideal’ economy was designed as a means of satisfying the family’s requirements, with every member playing a vital role. The economy continues to be of utmost importance in the management of material needs today.

In Aristotle’s time, the household comprised the master of the estate, his family and slaves. Some may think that Aristotle’s vision is not appropriate for discussion here, because of its autocratic organization and the fact that his polis or city state, with slaves and women in subjugation, was quite different from our free and expanded world economy today. However, I believe it worth examining in order to understand the key objectives underlying an economy and the means by which they were attained in Aristotle’s time, for this helps us to know its purpose, as well as the role of money and the impact of human behaviour.

Aristotle writes that it is part of human nature to require food, the most basic of needs. For him, the economy has a boundary, for it is to provide what we need. It is not limitless: “the acquisition of those possessions which are necessary for a happy life is not infinite”. Within the economy, the family must manage properly what it needs. As human organization expanded into villages and then cities, families could no longer remain self-sufficient, so barter or exchange came into being. Within Aristotle’s ‘ideal’ economy, production was the first step, for without production there were no goods. Excess goods, unnecessary for domestic use, were sold so as to acquire other goods that were either needed or preferred. Money was introduced in order to facilitate exchange, and the marketplace began to play a key role. In trade, a good or commodity is exchanged for money, which, in turn, is exchanged for another good or commodity.

For Aristotle, acquiring something by trade for use is legitimate; it has necessary value. Acquisition for pure monetary gain, or chrematistics, is not. Aristotle differentiates between needs and wants. For him needs are natural, and while an “economy requires the possession of wealth, [it is] not on its own account but with another view, to purchase things necessary therewith”. Hence, he sees “money-making” for the “breeding of money” as “censurable”, a dehumanizing activity. In our complex world, trade and gain are viewed through different prisms, and trade has helped advance human welfare. The accumulation of money or pure monetary gain is a fundamental characteristic of modern economics and finance, within the capitalist system. By studying Aristotle, however, we can perhaps see how money or property can be used well. After all, Aristotle also writes that “property is as an instrument to living”. It plays a fundamental role.

His primary goal for the polis is harmony, a precondition for happiness. Harmony is made possible by the smooth functioning of the economy, thereby ensuring the common good. Each family contributed to the economic ideal, as described in The Politics. Just as in a household, today in our economy each member can play their part to ensure its proper functioning. Our global stage is much larger and more populous than in classical times. We live in a world with billions of households and multiple states and cultures. Most people have more rights than in Aristotle’s hierarchical times, when women and serfs were not considered citizens. And the economic reality today is more complex and intricate. Nonetheless, we must understand the underlying objectives of the economy, if it is to work effectively, and each member of society must play his requisite part towards this end.

Our economic sophistication is advanced, but the underlying purpose for which the economy is organized remains the same: to meet the material needs of every member of society. It is designed firstly to respond to our most basic requirements, what we need in order to exist: food, shelter, clothing, health and other physical necessities. It ensures our safety and, in an affluent society, it provides leisure, art and luxuries, which give pleasure. Indeed, the economy is effectively the management of the provision of material things. With proper management, humans flourish. Equally, our wellbeing can be disturbed, either through denial of our material needs or through dissonance and discord caused by malfunctions of the economic system, such as extreme disparity in wealth and financial abuse.

Aristotle writes that humans are social and have “a perception of good and evil, of just and unjust, and it is a participation of these common sentiments which forms a family and a city”. For him, justice benefits all and implies proportionality, an appropriate sharing of resources, and he warns against the dangers arising from encroachment by the rich. Thus, for Aristotle the central requirement underpinning a well-functioning city is proportionality enabled by justice, which he describes as the virtue most necessary to society² and the one that renders possible all other virtues. Justice safeguards democracy and peace and holds in check vices like avarice, fraud and deceit.

This premise remains unchanged today. We prefer to use the term ‘responsibility’ or ‘ethics’, rather than ‘virtue’, but nonetheless, this represents the same idea and encapsulates key characteristics for a well-functioning society, such as trust and justice. If we analyse each of these traits, we realize that none of them is possible without other underlying values. For example, trust is made possible by honesty and transparency, and justice by sympathy, temperance and self-restraint. Law alone cannot guarantee the realization of justice. A regard for other people is vital, and this leads to responsible action. The Greeks referred to this holistic approach to wellbeing for the polis as simply ‘virtue’, and this is why I choose to use this term throughout the book. Virtue is a foundation for a well-functioning society and economy, because it governs beneficial human behaviour and makes possible a harmonious outcome.

The Market: A Place of Beneficial Exchange

The market is where the exchange of goods and services occurs. Aristotle believes fairness or proportionality of exchange to be vital in markets. In the Nichomachean Ethics he discusses the proper ratio for exchanging property, a ratio that is just and required for harmony, the ideal for the Greek polis. Such behaviour is governed by virtue: “that city is happiest which is the best and acts best, for no one can do well who acts not well”.³ A person possessing virtue knows what action is appropriate or just. Aristotle believes this condition stems from philia (friendship) and ensures eudaimonia (happiness or human flourishing). It remains true today that reciprocity, or mutual assistance founded on friendship and collaboration, helps ensure a beneficial market and proportional exchange that builds community.

Proportional exchange need not be fully equal, but it must be seen to be appropriate, to be just.⁴ Aristotle writes of “good morals and a system of equal laws”⁵ in this regard. Most of us have witnessed social conflict that arises when one party feels abused and believes that he is not getting his proper due. This can lead to anger and violence, causing conflict and jeopardizing harmony. In The Politics, Aristotle writes about the risk of revolution and sedition arising from injustice. Excessive encroachment, due to greed, goes against the principle of proportionality and is seen as an affront to justice. Aristotle and his teacher, Plato, presented greed as a social rather than an individual problem. Greed is a major problem in our society today. It can be motivated by a fear of shortage in the future, leading to hoarding. It can stem from avarice, the desire to consume more, or pride, the desire to appear better off than one really is. Thomas Aquinas, who reinterprets Aristotle within Christian thinking, likewise sees legitimacy in any exchange designed to meet a need, but condemns avarice: “the desire for gain, which knows no bounds but spreads always further”.⁶

The contemporary economists Luigino Bruni and Robert Sugden write that if the market is to be beneficial, it must maintain relations of mutual assistance (friendship) and distribution of gains must not deviate too far from standards of fairness (justice).⁷ In a beneficial market, each agent is free to determine what contract to enter into and each is symmetrically positioned with respect to a mutually useful relationship, in contrast to an asymmetric relationship of advantaged and disadvantaged.⁸ Thus, they argue that markets can support liberty (freedom to enter into a contract) and equality (symmetric relationships), as well as virtuous behaviour (fair and beneficial exchange). Markets function best when they are underpinned by trust in a fair exchange, where each transaction provides benefits to everyone who is a party to it. Although individuals act in their own interest, mutual benefit results.

Money: the Life-Blood of Society

In the marketplace, barter initially served as the method of exchange. Goods and services were traded for other goods and services. But due to unequal value in what was exchanged, barter was found to be inadequate and cumbersome. Money was then established as a unit of exchange to facilitate trade. The textbook definition of money is “a medium of exchange, means of unilateral payment or settlement, measure of value or unit of account and store of value”.⁹ A historian whose analysis of capitalism is highly regarded, Fernand Braudel, writes that “money is a very old invention… without exchange, there is no society”.¹⁰ Likewise, Geoffrey Ingham refers to it as “one of our essential social technologies… a foundation of the world’s first large-scale societies in the ancient Near East during the 3^rd millennium BCE”. In use for thousands of years, money has permitted trade to flourish and societies to develop, by facilitating the supply of necessary goods via exchange and thus allowing for improving standards of living.

Since money is able to store value as pure purchasing power, it allows for transactional flexibility. Ingham discusses how money allows transactions to be deferred, revised, reactivated or cancelled. Money has no time limit, no expiration date. In a market of exchange, the seller of a good need not accept another good in immediate return. With the money received, he can purchase another good in another market or at a later date. Money thus allows economic action to cover extensive territories and to be carried over from the past or projected into the future. John Kenneth Galbraith writes that most things are important only to those who have them, but money is important to all.¹¹ It is the unit through which the exchange of material things passes and it facilitates our welfare.

In medieval times, Franciscan monks were the first to compare money to blood in the body,¹² and in the 18^th century François Quesnay, the economist and physician to Louis XV, extended this analysis. The economist John Maynard Keynes himself describes money as the “life-blood of industry”.¹³ And we can see money as the life-blood of society, since it brings the ‘life force’ to different parts of the economy. Just as an orderly flow of blood through the body ensures health, so does the way money flows within society determine its welfare. Without the flow of blood, the body dies; likewise, the economy atrophies without the flow of money. And just as blood can bring nutrients, it can also bring toxins. Thus, the hea...

Table of contents

• Front Cover
• Copyright Page
• Dedication
• Contents
• ACKNOWLEDGEMENTS
• PREFACE
• INTRODUCTION
• PART I: THE MATERIAL: MONEY
• PART II: THE PERSON: LOVE AND VIRTUE