But the branch [of the art of wealthgetting, tékhnê khrêmatistiké] connected with exchange [metablêtiké] is justly discredited [psegoménê, "blamed," "censured"] (for it is not in accordance with nature [ou katà phýsin], but involves men's taking things from one another). As this is so, usury [obolostatiké, "obol weighing"] is most reasonably hated, because its gain comes from money [nómisma] itself and not from that for the sake of which money was invented. For money was brought into existence for the purpose of exchange, but interest [tókos] increases the amount of the money itself (and this is the actual origin of the Greek word: offspring resembles parent, and interest is money born of money); consequently this form of the business of getting wealth [khrêmatismós] is of all forms the most contrary to nature.
Aristotle, Politics, Book I, Chapter 3 (H. Rackham, Loeb Classical Library, 1950, 1998, p.51)
Since only actions aimed at perceived benefit to others were, to Aristotle's mind, morally approved, actions solely for personal gain must be bad. That commercial considerations may not have affected the daily activities of most people does not mean however that over any prolonged period their very lives did not depend on the functioning of a trade that enabled them to buy essentials. That production for gain which Aristotle denounced as unnatural had -- long before his time -- already become the foundation of an extended order far transcending the known needs of other persons.
F.A. Hayek (1899-1992), The Fatal Conceit, The Errors of Socialism (University of Chicago Press, 1988, 1991, p.46)
If craftsmen and blacksmiths were feared for transforming material substance, if traders were feared for transforming such intangible qualities as value, how much more will the banker be feared for the transformations he effects with the most abstract and immaterial of all economic institutions? Thus we reach the climax of the progressive replacement of the perceivable and concrete by abstract concepts shaping rules guiding activity: money and its institutions seem to be beyond the boundary of laudable and understandable physical efforts of creation, in a realm where the comprehension of the concrete ceases and incomprehensible abstractions rule.
Thus the subject at once bewilders specialists and offends moralists...
F.A. Hayek (ibid., p.102)
No man is an Iland, intire of it selfe; every man is a peece of the Continent, a part of the maine; if a clod bee washed away by the Sea, Europe is the lesse, as well as if a Promontorie were... Any mans death diminishes me because I am involved in Mankinde. And therefore never send to know for whom the bells tolls; it tolls for thee.
John Donne (1572-1631)
The long quote from Aristotle above nicely combines moral condemnations of trade and of moneylending with interest, with reasons against each. This provides an excellent starting point for a consideration of the manner in which worthy economic acitivites and institutions would be morally condemned over history.
Aristotle's judgment of "not according to nature" (ou katà phýsin) is applied to both trade and moneylending. This could involve the view that these activites simply occur by custom or art, and not naturally, which would not mean there was anything really wrong with them, or that there is something adverse to human nature in them, which would be bad. It sounds like the latter judgment is more like it. Why exchange in trade is against nature is explained with the characterization that it "involves men's taking things from one another" [ap' allélôn]. This seems insufficient, since it makes trading sound like theft, where men take things from each other against their will and without a real exchange of value. We are thus missing an essential distinction. Its absence, however, may reveal something. Ancient condemnations of trade, as in St. Augustine, expect that the temptation to fraud and cheating in such business is overwhelming. Thus, whether trade otherwise has beneficial results or not, the conscientious person will avoid it.
Not everyone, or even Aristotle, condemned trade and exchange completely. They tended to understand that there were benefits from it. Items not available in one location could be conveyed there by merchants. These might even be essentials for various worthy purposes. Few could argue with the movement of food or iron, and merchants could hardly be expected to accomplish this without compensation. However, the movement and acquisition of foreign goods was regarded as a mixed blessing. First of all, it brought foreigners, whom many Greeks regarded as a bad influence. Most importantly, it made possible the acquisition of many things that Greek philosophers thought were "unnecessary" and therefore corrupting. Plato regarded unlimited desire as the root of all evil. The development of desires and needs unrelated to worthy purposes was for him the worst possible thing that could happen to an individual or a city. Trade and its temptations therefore would be the most dangerous source of "unnecessary desires," posing a grave and seductive threat to virtue and polity.
While Plato's caution is heavy with the paternalism of his political philosophy, moral distaste for "unnecessary desires" persists in recent times, visited upon commercial culture in general and on advertising in particular. Complaints about "consumerism" usually mean accusations that people buy a lot of things that they don't need, and advertising is frequently blamed (by John Kenneth Galbraith, for instance) for engendering (and engineering) desires that people would not have had otherwise. Since "Who cares?" might be the natural reaction to such complaints, behind them are usually other layers of objections, that unnecessary desires are not benign and trivial because (1) they stress the environment, causing an "unsustainable" use of resources and generating excessive pollution, (2) they mean resources are used by rich countries for luxuries and so are denied to poor countries for necessities, perpetuating poverty and starvation, and (3) they mystify and distract consumers from more worthy purposes, like fighting racism, sexism, classism, etc.
Behind these objections are an equal number of misconceptions.
At the bottom of the Greek and other ancient objections to trade was the idea that traders don't really add any value to the items they deal in. They take from the maker and convey to the buyer, but they have not made anything themselves. This makes them parasites. Although philosophers like Plato did recognize that moving the goods itself adds value to them, it was very hard to shake the overall impression that traders didn't do anything essential or necessary.
Curiously, Islâm, from whose moralism we might expect similar attitudes about trade, instead has only positive things to say. Thus, the Qur'ân asserts, "It is no sin for you to seek the bounty of our Lord by trading" [2:198]. The annual pilgrimage to Mecca always doubled as a trade fair, with people bringing goods from all over the Islamic world, in part to finance the pilgrimage itself. We can imagine that this benign attitude towards business was a function, perhaps in great measure, of the Prophet Muh.ammad himself having engaged in trade.
If the feeling among moralists was that traders didn't do anything essential or necessary with trade, how much more so with moneylending (where Islâm did find a problem). As Aristotle says, charging interest ("usury," obolostatiké, "obol weighing"), is "reasonably hated." If traders are parasites on goods, the moneylenders are parasites on money, which itself is parasitic on trade -- since "money was brought into existence for the purpose of exchange." If exchange itself is contrary to nature, moneylending is "of all forms the most contrary to nature." There were few to disagree with this during the Middle Ages. Islâmic Law prohibited (and prohibits) charging interest, the Catholic Church and most Christian states prohibited the charging of interest by Christians, and even Judaism prohibited Jews from charging interest against other Jews. Since Jews then could loan money with interest to Christians and Muslims, they acquired a reputation as the moneylenders in Europe and the Middle East. This haunted Jews long after most Christians had given up the idea that there was anything wrong with lending money and charging interest -- except, of course, among those, not always Christians, who continued to think that either interest or money or both were wrongful or unnecessary.
Finance is still widely misunderstood and disliked, even by people who otherwise have no complaint about capitalism. A good example of that was Henry Ford, who revolutionized mass production and created an automobile that could be sold to a mass market ($300 for a Model T Ford in 1920 -- perhaps only $3000 in 1999 dollars). Ford didn't like bankers and finance, and thought of all of them as largely devices of an international Jewish conspiracy. One fan of Ford's writings about this was no less than Adolf Hitler. (Ford went quiet with his charges before that mortifying tribute, either because he thought better of it or just to avoid lawsuits.) Without any moral objections to exchange, Ford retained the ancient condemnation of moneylending and associated it with its Mediaeval exemplars. For the man who said "History is bunk," this is a good example of how much trouble one can get into by combining confused history with confused economics and morality.
As a recommendation of prudence, Benjamin Franklin said, "Never a borrower nor a lender be." However, not much very serious would ever get done economically without borrowing and lending. Even if one accumulates capital slowly until a large investment can be made without borrowing, success then means a larger accumulation of capital which will need to be disposed of in some way. People imagine that they would just put it in the bank. The bank, however, then has to worry what to do with it, especially if people expect to be paid interest on their money! So they loan it. Either way, the problem is what to do with money if one is not simply going to buy commodities for one's own use (or give it away, a favorite alternative for the very rich). It is to be invested, with the purpose of acquiring income. This can be done by buying land or buying a business, which directly provides one with rents or profits, but also requires some considerable supervision, if not substantial business skills to use property or run a business. Most people who already have money would like something simpler -- and buying one business after another with profits would result in a commercial conglomerate that one person could not supervise.
Making loans means becoming a banker, which also requires considerable business skills. Buying stocks and bonds also requires knowledge and supervision, but much less than with the other things. This means that investment need not be a full time job, which is just the idea for someone who has aleady made their money. The market for stocks and bonds, however, is a level of finance that is already a further step removed from simple loans/moneylending. We can imagine Aristotle becoming even more indignant about such things. Indeed, we find Thomas Jefferson frequently complaining about "stock jobbers" (i.e. stock brokers), and fury over "speculators" became the principal public and political response to the Great Depression. Franklin Roosevelt, like most subsequent "liberal" opinion, clearly blamed financial markets for the stock market Crash of 1929 and the subsequent Depression. Neither understood or trusted what such people were doing.
We see something similar in the movie Pretty Woman , where Richard Gere plays a businessman who buys up companies and then breaks them up and sells off the parts for a profit. This kind of economic activity is called "arbitrage." This is presented in the movie, as such things are in the press generally, as a useless, evil thing, that destroys jobs and wrecks business -- the "greed" of the 80's. In the movie, Julia Roberts even compares it to stealing cars and selling the parts. In fact, it is a useful thing, which easily creates jobs and increases production. A company can be broken up and sold for a profit only if it is worth less than what the sum of what its parts are worth individually. But if a company is worth less than the sum of its parts, then breaking up the company frees capital that can be used for other investment purposes, including creating jobs in other companies or industries. Otherwise the capital is locked up and useless. Julia Roberts' analogy to stealing a car and selling the parts is false since nothing is being stolen when you buy a company: If you buy a car and sell the parts for a profit, that would be a good, and honest, business, and is often done. Richard Gere's character also wanted (initially) to demolish a shipyard and sell the land for others purposes. If such a move would be profitable, then clearly the land was worth more for the other purposes than for the shipyard, capital was again being uselessly tied up, and the shipyard would be economically more valuable located somewhere else. The movie Pretty Woman thus presents an ideological view that is hostile to capital and ignorant of its purpose -- all too common in Hollywood movies.
Here, Julia Robert's comparison to car theft recalls Aristotle's failure to distinguish between exchange and theft. While most people in the West and Far East now take loans and interest for granted, more sophisticated financial instruments and activities, like commodity futures or arbitrage, may still be viewed with suspicion and disapproval. This suspicion had grave financial consequences when financier Michael Milkin, the "king of junk bonds," was prosecuted for technical trading violations but was widely regarded as guilty of fraud for trading in junk bonds at all. However, there was nothing wrong with junk bonds, except that they were, and are, riskier than rated bonds. Because of the widespread idea that junk bonds were themselves fraudulent and worthless, Congress required that Savings and Loan institutions sell off their junk bond investments. Such forced sales, of course, drove down prices and meant that most Savings and Loans took nothing but losses, often serious losses, on their investments. Savings and Loans were already in financial trouble because the inflation of the 1970's had rendered their traditonal low interest loans worthless. The result was the collapse of the entire Savings and Loan industry, requiring billions of dollars from the government in payoffs for the federally insured (up to $100,000) accounts at the Savings and Loans. In evident public and political discourse, the blame for this has never properly been laid at the feet of the government. Just more "greed" of the 80's.
Condemnation of trade, charging interest, and modern financial instruments, however, has done nowhere near as much damage, in poverty and in lives, as the condemnation of capital itself. Marx called capitalism "capitalism" just because it was based on the existence of capital -- Adam Smith had called it the "natural system of liberty." Since Marx did not believe that capital needed to exist, he could reject the value of owners of capital, managers of capital (both "capitalists"), and even of money, which assigns a numerical value to capital -- as well as serving as the medium of exchange and interest -- where Marx, as we might expect, follows Aristotle in condemning them. When Lenin tried abolishing private business and money altogether, however, the Russian economy simply collapsed. Even allowing money and some private enterprise, however, the Soviet Union never allowed capital markets, private investment, or private employment. The idea was that, as capital was a fiction, concerns about capital and profit could be ignored. The result of this was simply a country that ground down through capital depreciation -- i.e. things wore out, nothing new was ever done, every business needed a subsidy, and so, like a starving person metabolizing protein, the country consumed its own capital rather than generating any new wealth. Those who now deny that the Soviet Union was "real" Marxism cannot admit that the Soviet Union always operated on such undeniable Marxist principles -- or that a purer "real" Marxism, without money and prices, tried by Lenin, had already failed disastrously in 1920 [note].
Like many people who don't know what to do with capital, and who don't know what is done with capital, Marx simply supposed that there was nothing to do with capital except what was aleady being done. Thus, if the English built railroads, the only way new capital could be invested would be to build railroads elsewhere. That, indeed, is what the English often did; but, once enough railroads were built everywhere, then, presumably, the English wouldn't know what else to do. Financial panic and the fall of capitalism would result. This is a simplied but not unfair summary of Marxism. What Marx and recent critics of capitalism haven't comprehended is that imagination is the source of new investment and new wealth. The British stumbled as the "workshop of the world" just because British investors had difficulty moving in their minds beyond steam and rail. Henry Ford was American, and, as we can imagine seeing in the reverse of the 1914 Federal Reserve $20 Note, the car and airplane are preparing to surge past the steam locomotive. Diesel engines eventually would replace steam in trains and ships also. From imagination come the new products that tend to distinguish the decades, like radio in the 1920's, VCR's in the 1980's, or personal computers in the 1990's, and also new ways of producing products, so that less labor is necessary for greater production. Imagination, also, tends to be found in the more eager, yearning, and (sometimes literally) hungry, which is why about half of all new American millionaires are foreign born. Natives always tend to become comfortable and complacent and expect that their earnings and welfare are by right and custom. Eager immigrants, like Jews, Chinese, Koreans, (East) Indians, etc., are pushy and offensive, throwing their betters (i.e. natives) out of work. A society open to immigrants, and into which they can blend with relative ease, thus perpetually renews itself -- as the United States has done for most of its history.
Just what imagination can do for innovation and productivity is something that can only really be understood by those who do it, and the successful entrepreneur or venture capitalist needs to have some clue. The critic who thinks that capitalists will run out of uses for capital doesn't. But if, to the likes of Marx, capital is a superfluous interposition between labor and consumption, what is it actually? It is, after, the value of objects, particularly the value of productive assets (capital assets), in the estimation of individuals who value them. Marx is often said to have a "labor theory of value," something that seems to go back to John Locke. Most people easily understand that labor, however, does not necessarily bestow any value on objects. Crackpots can devote years of effort to projects that are completely worthless to others. Even Marx, however, understood this, and his formula is actually that value derives from "socially necessary labor." "Socially necessary" can easily eliminate the value of the crackpot creations and discount the contribution of wasteful overwork. It also echoes Plato's "unnecessary desires" rhetoric: it is not really labor that makes for value, but what is "socially necessary." How what is "socially necessary" is then determined is the problem. What people buy as a matter of fact in the market cannot be allowed, since they can be deceived by marketing or by their own inappropriate desires. What is to be allowed might be voted on, which sounds like the right approach in a thoroughly political society, but this could only be allowed when a majority can be counted on to have the right political consciousness. "False consciousness" can only be avoided if we only allow the wise and the good to decide what is "socially necessary." This is what political elites always want, and it simply turns Marxism to the truly Mediaeval political moralism and paternalism -- the obvious preference of leftist activists.
From Aristotle to Marx to their living brethren, what we see are people who don't like most of what other people want and who particularly don't like the people who produce and provide it for them -- the traders, the moneylenders (bankers/financiers/brokers), and the capitalists (entrepreneurs/industrialists). In a Cargo Cult economics, goods just appear, or are easily created by the simple and pure (i.e. simple farmers or proletarian workers), and properly rain down on all without insidious and unfair distinctions between the productive and the non-productive. Of course, what we see when attempts have been made to impose these ideas in real societies is that political elites, and wise and the good who make the disinterested judgments for the good of others, cannot be expected to live like, well, hoi polloi, since this would be beneath the dignity of government, might expose them to violence from reactionaries, or would waste their time as the people's business calls. So they really need special privileges and elevated, isolated living arrangements. Unfortunately, although these pretentions are most justly to be discredited, blamed, censured, and hated, we still see the likes of Oliver Stone and even Steven Spielberg fawning over Fidel Castro, and in 2003 the occasional anti-war activist even had kind things to say about Saddam Hussein (after all, the status of women was better in Iraq than in Afghanistan or Saudi Arabia -- at least the women who had not been beaten, raped, or murdered). The danger of these people is now as great as it has ever been, even as the rhetoric against capital, finance, and corporations (not to mention Jews) is as heated as it has been since the Fall of Communism.
Nevertheless, the disadvantages of anti-commercial ideology are heavy. When those who hated capital and consumption (and Jews) in the 20th century murdered some hundred million people, and the poster children for the struggle against international capitalism and America are now fanatical Islamic terrorists, this puts recent enthusiasts in an awkward position. Most of them are too dense and shameless to appreciate it, and far too many Americans are taken in by moralistic and paternalistic rhetoric, but it is, at least, easily exposed, by those with the wit and profile to enunciate the issues publicly. Unfortunately, there are actually damn few of them. So the struggle continues.
Say's Law and Supply Side Economics
Capitalism, the Free Market, and the Duties of Property and Contract
The Origin of Philosophy: Why the Greeks?
Rather as Newton discovered the invisible forces known as the laws of gravity, and Freud laid bare the workings of an invisible phenomenon known as the unconscious, so Marx unmasked our everyday life to reveal an imperceptible entity known as the capitalist mode of production.
Terry Eagleton, Distinguished Professor of English Literature, Lancaster University, Why Marx was Right [Yale University Press, 2012]
English Department Marxists see political economy as a morality tale. Capitalists are wicked. This is not Marxism. The form of economic activity in Marx is determined by the material conditions of production, regardless of the will, intentions, or goodness of the economic participants. Only when those conditions change can the mode of production change. What Marx overlooked was that those material conditions of production must be ranked according to a system of value, and that value is capital, including human capital. Marx's denial of the existence and necessity of capital means that his own theory does not contain a variable to explain improved modes of production and increased productivity. Hegelian dialectic alone is not sufficient.
The original Cargo Cult developed in New Guinea after World War II. During the war, the Melanesian locals, who lived at a mesolithic or neolithic level of culture, saw airplanes arrive and disgorge vast quantities of "cargo." They did not understand that these things had to be manufactured and that the airplanes themselves were artifacts. They believed that the planes and the cargo were gifts from the gods, brought down to earth by ritual invocations. There were incidents where the crew members of aircraft were murdered because the locals thought they were no more than supernumeraries to the divine operation. When the modern armies left and the cargo stopped arriving, the "Cargo Cult" was a religious attempt to reproduce the invocations and effect the continued blessing of the gods. Not surprisingly, it didn't work.
People who like (some of) the products of a modern economy but don't like the entrepreneuers, industrialists, and financiers who make it all possible end up with something rather like the beliefs of the Cargo Cultists -- usually with the fundamental principle that "natural resources" are themselves wealth (for which Third World countries are never paid enough, except, I suppose, Saudi Arabia) and that any function beyond the bare labor necessary to produce or distribute goods is superfluous. Thus, we see former Vice President Al Gore saying that one of the problems of the international order is "the ongoing redistribution of wealth globally from the poor to the wealthy" [An Inconvenient Truth, The Planetary Emergency of Global Warming and What We Can Do about It, Al Gore & Melcher Media, Rodale Press, 2006, p.13]. So what is the "wealth" that is being moved from poor countries to wealthy ones? They are certainly not being looted of ipods or refrigerators. So there must be piles of goods there, "resources," that already count as wealth and that somehow are being improperly moved. Perhaps if the resources stayed where they are, they would miraculously transform into ipods and refrigerators. But if the complaint is that the poor countries are not being paid enough for their resources, we still have the problem that many countries that are wealthy from oil still don't produce anything else. The total non-petroleum exports of the entire Arab world are less than those of Finland. What the Saudis do with their money does not seem to involve any investment in native industries that make any contribution to the international economy. And they spend money on religious education and propaganda in their own radical Wahhabî sect that has helped promote terrorism. Or, Al Gore may be thinking that foreign business exploits third world countries by hiring people at low wages to make products that are sold elsewhere. Perhaps this is what "redistributes" wealth in the way he describes. However, if the third world workers otherwise wouldn't have jobs, and if they are well paid by local standards, then the net effect is an improvement in their lot, and their wealth increases. So it is hard not to see Al Gore's view as involving a Cargo Cult understanding of "found" wealth.
Listening to common political discourse, everyone should understand what it means when someone speaks of the "working class," i.e. that anyone else, managers or professionals, don't really work. They are parasites. This is only slightly more sophisticated than the original Cargo Cult, with faith invested, not in the gods, but in the technological acumen of the ordinary blue collar worker. The ordinary worker, however, who rises above this merely mythic attribute to do something genuinely creative will become a hated entrepreneur -- the way that successful farmers under Stalin were instantly branded as Kulak class enemies and eliminated. It is only to Marxism that capitalists do not belong to the "working class." In the British aristocratic tradition, a "gentleman" is only the person without any regular trade or profession.
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The diehards who also say that the totalitarian police state of the Soviet Union was not "real" Marxism also cannot admit that one simple feature of Marxism makes totalitarianism necessary: the rejection of civil society. This goes back to Rousseau -- helping to explain the Terror of the French Revolution. Since civil society is the sphere of private activity, its abolition and replacement by political society means that nothing private remains. That is already the essence of totalitarianism; and the moralistic practice of the trendy Left, which regards everything as political and sometimes incautiously reveals its hostility to free speech, does nothing to contradict this implication.
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