A common theme in the push for financial reform has been an attack on financial practices where people “make money without actually producing anything.” Obama has made this remark any number of times, and Christopher Dodd just made the remark on Meet the Press.
Reminds me of Aristotle and the widespread medieval view that usury (interest) is immoral. (I posted this years ago, but it seemed worth repeating as we consider financial reform). Aristotle writes,
“There are two sorts of wealth-getting, as I have said; one is a part of household management, the other is retail trade: the former necessary and honorable, while that which consists in exchange is justly censured; for it is unnatural, and a mode by which men gain from one another. The most hated sort, and with the greatest reason, is usury, which makes a gain out of money itself, and not from the natural object of it. For money was intended to be used in exchange, but not to increase at interest. And this term interest, which means the birth of money from money, is applied to the breeding of money because the offspring resembles the parent. Wherefore of all modes of getting wealth this is the most unnatural.” Politics X
Here is Aquinas’ argument:
“I answer that, To take usury for money lent is unjust in itself, because this is to sell what does not exist, and this evidently leads to inequality which is contrary to justice. Onorder to make this evident, we must observe that there are certain things the use of which consists in their consumption: thus we consume wine when we use it for drink and we consume wheat when we use it for food. Wherefore in such like things the use of the thing must not be reckoned apart from the thing itself, and whoever is granted the use of the thing, is granted the thing itself and for this reason, to lend things of this kin is to transfer the ownership. Accordingly if a man wanted to sell wine separately from the use of the wine, he would be selling the same thing twice, or he would be selling what does not exist, wherefore he would evidently commit a sin of injustice. On like manner he commits an injustice who lends wine or wheat, and asks for double payment, viz. one, the return of the thing in equal measure, the other, the price of the use, which is called usury.
On the other hand, there are things the use of which does not consist in their consumption: thus to use a house is to dwell in it, not to destroy it. Wherefore in such things both may be granted: for instance, one man may hand over to another the ownership of his house while reserving to himself the use of it for a time, or vice versa, he may grant the use of the house, while retaining the ownership. For this reason a man may lawfully make a charge for the use of his house, and, besides this, revendicate the house from the person to whom he has granted its use, as happens in renting and letting a house.
Now money, according to the Philosopher [Aristotle] (Ethic. v, 5; Polit. i, 3) was invented chiefly for the purpose of exchange: and consequently the proper and principal use of money is its consumption or alienation whereby it is sunk in exchange. Hence it is by its very nature unlawful to take payment for the use of money lent, which payment is known as usury: and just as a man is bound to restore other ill-gotten goods, so is he bound to restore the money which he has taken in usury.” (Summa, II-II, 78.1)
What Aristotle and Aquinas after him are doing is distinguishing between what is natural and what is unnatural (good and bad), and here they make a distinction between natural and unnatural commerce. Here is the basic argument:
A distinction is drawn between two types of goods, fungible and non-fungible (those are actually Aquinas’ terms for them). Fungible goods are goods that are destroyed (consumed) when they are used. Food (wine) is the best example here. Food is destroyed when it is used, it cannot be returned and does not naturally make more of itself when used (from bread one does not get more bread, in fact, when you ‘use’ bread you have less and less of it).
Fields and flocks are examples of non-fungible goods (in the passage above Aquinas mentions houses). They are not destroyed when they are used. Quite to the contrary, they are naturally reproductive (they naturally produce surplus value in their use, as in the case of a flock producing wool or more sheep, a field yeilding a crop year in and year out). For this reason they can be rented.
Aristotle thinks that money is a fungible good because it does not naturally create more value. It is unnatural (immoral) to expect money to create surplus value out of itself. For that reason, money is good solely as a means of exchange. With money (as with wine and wheat), there is no distinction between the thing itself and its use, and so one ought not add an additional usury fee. In other words, lending money at interest is wrong.
Of course at issue in the current debate is not interest per se, but wild speculative financial practices that make money by not doing anything but playing casino games with Wall Street money (shorting and derivatives come to mind). The Democrats’ focus on “making money by actually producing things” is not only good populist rhetoric, it is good Aristotelian social philosophy.