Aristotle and Plato Theory on Money

Aristotle and Plato Theory on Money and Interest

Money and Interest. — As regards that particular form of wealth known as money, the teaching of the Greeks has been of signal importance in the history of economic thought. In general, they saw and explained the necessity of money, and recognized a part of its economic function, namely as a medium of exchange. Aristotle is especially explicit. He remarks that "as the benefits of commerce were more widely extended the use of a currency was an indispensable device. As the neces-sanes of nature were not all easily portable, people agreed for purposes o barter mutually to give and receive some article, which, while it was itself a commodity, was practically easy to handle in the business of life, some such article as iron or silver, which was at first defined simply by size and weight; althought finally they went further and set a stamp upon every coin to relieve them from the trouble of weighing it…” and he goes on to distinguish between money and wealth, referring to the fable of King Midas. Aristotle elsewhere clearly shows an understanding of money’s functions as a measure of value and a standard of deferred payments.

Xenophon is equally clear in distinguishing between Money and wealth.

Plato, in keeping with his more communistic ideals, would have had no gold nor silver for the private man, but only domestic coins to be used in payment of hirelings and the like, but he thought that the state should have a common hellenic currency for the use of embassies, expeditions, and journeys.

With all this, however, the thought of these men was tainted with error. They virtually regarded Money as nothing but a medium of Exchange, and as such they denied the productivity of loans of it. A piece of Money cannot beget another piece, was the doctrine of Aristotle, and no economic idea of his had more lasting effects. The obvious conclusion was that interest is unjust. Plato, too, seems to have thought that neither should interest be given nor even the principal of a debt be repaid.

It must not be supposed, however, that this view of interest which seems so strange to us owed its existence entirely to the inferior insight of the ancients. It is to be explained largely by economic conditions. In Athens the circulation of capital was inconsiderable, and money was not lent for productive purposes so often as for the purpose of relieving distress. If today loans were chiefly made to embarrassed friends or neighbors to be used in alleviating distress in matters of consumption, we too would undoubtedly regard interest in a different light. The modern theory of interest is based upon loans for productive investment.

Another erroneous monetary idea, which was held by Xeno-phon at least, was that the value of silver is absolutely fixed regardless of supply. Aristotle, however, recognized that the value of money is subject to the same law as other things and that it is liable to change, although it tends to be more constant.