The modern monetary system, centred on fiat currency, international exchange rates, and speculative markets, presents a stark contrast to the ethical and philosophical insights offered by Aristotle in his Nicomachean Ethics. Aristotle’s understanding of money is deeply rooted in his broader concept of justice, proportionality, and the fulfilment of human needs. This critique will examine the principles underpinning Aristotle’s views on money and exchange, contrasting them with the realities of the contemporary monetary system. It will explore how modern money departs from Aristotle’s vision, the implications of this divergence, and potential pathways toward a more ethically grounded economic framework.
Aristotle’s views on money and exchange
Aristotle’s philosophy of money emerges from his exploration of justice in exchange. He emphasises three key principles that underpin a fair and functional monetary system:
- Money as a measure of proportional value: Aristotle considers money to be a tool that facilitates equitable exchange between goods of unequal value. For instance, a builder and a shoemaker can exchange services or goods if their contributions are made commensurable through the medium of money. This commensurability ensures proportionality in trade, creating a fair balance that fosters mutual benefit.
- The role of need in exchange: Aristotle argues that the ultimate purpose of exchange is to meet human needs. Money exists not as an end in itself but as a means to facilitate the fulfilment of natural and societal requirements. He notes that without need, exchange would not occur, and money would lack purpose.
- Money as a product of convention: Money, Aristotle explains, exists “not by nature but by law” (nomos). It is a social construct, a representation of value agreed upon by a community. While not inherently valuable, money derives its worth from its ability to enable fair and reciprocal exchanges.
These principles underpin Aristotle’s belief that money should promote justice, proportionality, and human flourishing. However, he also warns against the misuse of money, particularly the pursuit of wealth for its own sake; a distortion he saw as contrary to the ultimate purpose of exchange.
Modern money and a departure from Aristotelian principles
In the contemporary world, money is predominantly fiat currency, created and regulated by governments and central banks. Unlike Aristotle’s conception, modern money systems prioritise growth, speculation, and financial innovation, often at the expense of proportionality and justice. Several aspects of modern money illustrate this divergence.
1. Fiat currency and the detachment from intrinsic value
Fiat money is not backed by any tangible assets, such as gold or silver, and exists purely by government decree. While Aristotle acknowledged that money exists by convention, he implicitly tied its legitimacy to its ability to measure and represent the value of natural goods and labour. Modern fiat systems lack such a connection, creating an abstraction that allows for significant distortions.
- Inflation and instability: Fiat money is prone to fluctuations in value, driven by inflation, deflation, and monetary policy. This volatility undermines its role as a stable measure of value, challenging the Aristotelian ideal of proportionality in exchange.
- Speculation vs. need: In modern financial systems, money often functions as a commodity for speculation rather than a medium to meet human needs. The detachment of money from tangible goods fosters a culture where wealth accumulation becomes an end in itself, contrary to Aristotle’s ethical vision.
2. Exchange Rates and Global Inequities
Aristotle’s notion of justice in exchange relies on the idea of proportionality, where the value of goods is equated fairly through money. Modern exchange rates, however, create significant disparities between currencies, reflecting not natural value but economic and political power.
- Unequal purchasing power: A US dollar, for instance, holds far greater purchasing power than the currency of a developing nation, leading to inequitable trade relationships. Workers in weaker economies often produce goods or labour worth far less in global markets than their counterparts in stronger economies, violating Aristotle’s principle of proportional justice.
- Economic dependence: Nations with weaker currencies often rely on stronger ones for trade and international loans, creating relationships of dependence rather than reciprocity. This undermines the Aristotelian ideal of equitable association (koinonia) among individuals and communities.
3. Money as an end in itself
Aristotle cautions against the pursuit of wealth for its own sake, which he saw as a corruption of the natural purpose of exchange. Modern economies, driven by profit maximisation and speculative investments, often prioritise financial growth over human welfare.
- Financialization of the economy: The modern financial system has transformed money into a commodity for investment and speculation. Activities such as high-frequency trading and derivative markets generate vast wealth without producing goods or services tied to natural needs, deviating from Aristotle’s ethical framework.
- Inequities in wealth distribution: The accumulation of wealth by a small elite, facilitated by the speculative nature of modern finance, perpetuates inequality. This disparity starkly contrasts Aristotle’s vision of money as a means to create equitable exchanges that benefit society as a whole.
The implications of these divergences
The modern monetary system’s departure from Aristotelian principles has weighty ethical, social, and economic consequences:
- Erosion of economic justice: The disconnection of money from intrinsic value and natural needs exacerbates inequalities, both within and between nations. Exchange rates and speculative practices prioritise power and profit over fairness, undermining the reciprocity Aristotle deemed essential for justice.
- Instability and uncertainty: The volatility of fiat money and global exchange rates introduces economic instability, making it difficult for individuals and nations to plan for the future. This instability conflicts with Aristotle’s idea of money as a steady and reliable measure of value.
- Alienation from purpose: By prioritising wealth accumulation and speculative growth, the modern system alienates money from its ethical purpose as a tool to meet human needs and promote flourishing (eudaimonia). This shift reflects a broader societal trend of putting material gain over communal well-being.
Toward an Aristotelian approach to money
To address these challenges, modern monetary systems could benefit from a reorientation toward Aristotelian principles of justice, proportionality, and human flourishing. Several potential reforms align with this vision:
- Anchoring money to real value: While returning to a gold standard may be impractical, tying money to tangible resources, such as energy or ecological health, could restore its connection to natural value. This approach would ground money in the fulfilment of human and environmental needs.
- Fair exchange rates: Establishing a system of exchange rates based on labour value or resource equity, rather than speculative markets, could promote proportionality and justice in global trade.
- Regulation of speculation: Policies to limit speculative financial practices could reduce the distortion of money’s purpose, redirecting wealth toward productive activities that serve human needs.
- Redistribution mechanisms: Ensuring that wealth generated through trade and finance is equitably redistributed could address the inequalities perpetuated by the current system, fostering Aristotle’s ideal of reciprocal association.
- Reframing economic goals: Shifting the focus of economic systems from growth and profit to well-being and sustainability would align more closely with Aristotle’s ethical vision.
Concluding thoughts
Aristotle’s philosophy of money, grounded in justice, proportionality, and the fulfilment of human needs, offers a valuable critique of the modern monetary system. While contemporary economies have achieved extraordinary growth and innovation, they often do so at the expense of fairness and stability. By re-examining the ethical foundations of money and exchange, and by aligning financial practices with Aristotelian principles, society can work toward a more equitable and sustainable economic order; one that honours the true purpose of money as a tool for human flourishing.
Source: Aristotle. (350 B.C.E). The Nicomachean ethics. Translated by David Ross and Edited by Lesley Brown (2009). Oxford ; New York, Oxford University Press. pp. 88-90.