Book 5 / Chapter 5
Paragraph 2 - Proportionate Reciprocity and the Role of Money in Exchange
Explanation - Part By Part
"Now proportionate return is secured by cross-conjunction. Let A be a builder, B a shoemaker, C a house, D a shoe. The builder, then, must get from the shoemaker the latter's work, and must himself give him in return his own. If, then, first there is proportionate equality of goods, and then reciprocal action takes place, the result we mention will be effected. If not, the bargain is not equal, and does not hold; for there is nothing to prevent the work of the one being better than that of the other; they must therefore be equated. (And this is true of the other arts also; for they would have been destroyed if what the patient suffered had not been just what the agent did, and of the same amount and kind.)"
Aristotle is talking about how fairness in exchanges works and why it depends on proportional equality. He uses the example of a builder (A), a shoemaker (B), a house (C), and a shoe (D) to explain the principle. For an exchange to be fair, the builder and the shoemaker must trade their goods or services in such a way that the value of what they give and receive is proportionate. For instance, the builder constructs a house, and the shoemaker makes shoes—which are clearly not directly equal in value. Therefore, their trade must acknowledge this difference by ensuring the exchange reflects their relative worth, or the "proportionality" between the two goods or services.
If this proportional equality isn't established first, the deal doesn't hold up as fair. Why? Because one product or service might be inherently more valuable or of better quality than the other. Simply swapping goods or services without recognizing this difference would result in one party winning and the other losing, which would create inequality.
Aristotle then generalizes this idea to the rest of society and its various professions or "arts." He points out that this principle of proportional exchange is essential for the continuity of interaction and cooperation, whether in trade or in any other field. If there weren't fairness in the exchange—if what someone received didn't truly balance what they gave—it would destabilize relationships and systems of value within the community.
"For it is not two doctors that associate for exchange, but a doctor and a farmer, or in general people who are different and unequal; but these must be equated. This is why all things that are exchanged must be somehow comparable. It is for this end that money has been introduced, and it becomes in a sense an intermediate; for it measures all things, and therefore the excess and the defect-how many shoes are equal to a house or to a given amount of food."
Aristotle is explaining how people with different skills or professions (like a doctor and a farmer) engage in exchange. These individuals contribute different types of work or goods, and their contributions are not inherently equal. For instance, a doctor doesn't produce food, and a farmer doesn't provide medical care. Since their work and goods are fundamentally different, there needs to be a way to make them comparable so they can exchange fairly.
This is where money comes into the picture. Money acts as a universal standard or measuring tool that can compare the value of one thing to another. It creates a bridge, helping determine how many of one item (like shoes) are equivalent in value to another item (like a house or food). By introducing this standard, money ensures that exchanges between different individuals with unequal goods or services are balanced and fair.
"The number of shoes exchanged for a house (or for a given amount of food) must therefore correspond to the ratio of builder to shoemaker. For if this be not so, there will be no exchange and no intercourse. And this proportion will not be effected unless the goods are somehow equal. All goods must therefore be measured by some one thing, as we said before. Now this unit is in truth demand, which holds all things together (for if men did not need one another's goods at all, or did not need them equally, there would be either no exchange or not the same exchange); but money has become by convention a sort of representative of demand; and this is why it has the name 'money' (nomisma)-because it exists not by nature but by law (nomos) and it is in our power to change it and make it useless."
In this section, Aristotle is explaining how fair exchange between people depends on proportional equality. For example, if a shoemaker wants a house built by a builder, the number of shoes exchanged must somehow represent the equivalent value of the house. Otherwise, there’s no fair exchange, and cooperation becomes impossible.
However, Aristotle notes that goods (e.g., shoes and houses) are not inherently equal in value. To solve this, society needs a way to compare and measure their worth. This "unit of measure" is essentially demand—the need or desire people have for certain goods. Demand acts as the glue that holds transactions together: if people didn’t need each other's products, or didn’t value them equally, trade wouldn’t exist—or at least not in the same way.
Money, Aristotle explains, was invented as a representation of demand. It serves as a common measure to compare and equate diverse goods (like shoes and houses) that would otherwise be difficult to trade directly. Importantly, he emphasizes that money isn’t something natural; it’s a human invention, created by societal agreement (nomos means "law" or "convention" in Greek). Because of this, money can theoretically lose its value or even be eliminated if society decides to stop using it—it’s entirely under human control.
In short, Aristotle emphasizes how money simplifies trade by acting as an agreed-upon intermediary, making diverse goods comparable and ensuring smooth cooperation and exchange in a community. However, its value depends on collective human agreement and can change if society chooses differently.
"There will, then, be reciprocity when the terms have been equated so that as farmer is to shoemaker, the amount of the shoemaker's work is to that of the farmer's work for which it exchanges. But we must not bring them into a figure of proportion when they have already exchanged (otherwise one extreme will have both excesses), but when they still have their own goods. Thus they are equals and associates just because this equality can be effected in their case. Let A be a farmer, C food, B a shoemaker, D his product equated to C. If it had not been possible for reciprocity to be thus effected, there would have been no association of the parties."
Aristotle is discussing how fairness in exchanges between people is achieved through reciprocity, which relies on proportional equality. To explain this:
He starts by saying that true reciprocity in exchange happens when the value of what two parties provide to each other is made equitable. For example, if a farmer trades with a shoemaker, the farmer's work (producing food) must be equated in value to the shoemaker's work (making shoes). Only when both believe the exchange is fair in terms of effort or value can their relationship be stable and cooperative.
Importantly, Aristotle notes that this proportional balance must be determined before they exchange their goods. If the exchange has already occurred without ensuring this balance, then one party may end up with a greater advantage (or one "extreme" will have all the benefits), which disrupts fairness.
He uses a simple example to clarify. Let "A" represent a farmer and "C" their food, while "B" represents a shoemaker and "D" their shoes. For a fair exchange, the value of "A and C" (the farmer and the food) must be proportionally equal to "B and D" (the shoemaker and the shoes). If this equivalence wasn’t possible to establish, the two could not have formed a working exchange or relationship.
In modern terms, this insight reflects a fundamental rule of economy and cooperation: trade and association between people rely on the perceived fairness or proportional value of what is exchanged, ensuring both sides benefit in a way they see as reasonable. Without this balance, partnerships or trades fall apart.
"That demand holds things together as a single unit is shown by the fact that when men do not need one another, i.e. when neither needs the other or one does not need the other, they do not exchange, as we do when some one wants what one has oneself, e.g. when people permit the exportation of corn in exchange for wine. This equation therefore must be established."
Aristotle is explaining here that the foundation of any exchange or trade relies on mutual need or demand. If two parties don’t require anything from each other, there would be no reason for them to engage in an exchange. Trade, in its essence, arises from the fact that one person has something another person needs or desires, and vice versa.
For example, he mentions the situation of one party exporting corn in exchange for wine. This type of trade only happens because the first party values the wine enough to give up their corn, while the second party values the corn enough to part with their wine. Both parties must recognize this reciprocal demand for trade to occur.
In short, Aristotle emphasizes that demand serves as the unifying force that makes exchanges possible. Without it, there would be no motivation to interact, share resources, or collaborate economically. It’s this recognition of mutual need that creates the “equation,” or balance, necessary for trade to function.
"And for the future exchange-that if we do not need a thing now we shall have it if ever we do need it-money is as it were our surety; for it must be possible for us to get what we want by bringing the money. Now the same thing happens to money itself as to goods-it is not always worth the same; yet it tends to be steadier. This is why all goods must have a price set on them; for then there will always be exchange, and if so, association of man with man."
Aristotle is explaining the crucial role of money in facilitating trade and maintaining human relationships through exchange. Here's what he means:
Money acts as a guarantee for future needs. Imagine you have something to trade but don’t immediately need anything in return. Instead of directly swapping goods or services (like exchanging 5 loaves of bread for a coat), money allows you to hold onto "value" that can be used later when you actually need something. This flexibility creates a system where people can interact economically without being limited by having to match their needs in the moment.
However, Aristotle notes that money, like the goods it represents, doesn’t always hold a constant value—it fluctuates. Still, it is generally more stable than the goods themselves, making it a practical intermediary in trade. Because of this stability, all goods must have a price assigned to them. Prices allow people to compare and exchange goods easily, which ensures the smooth functioning of exchange systems and the continued connection between people in society.
In short, money creates a structure that keeps trade—and therefore human relationships—organized and sustainable, even when needs are not immediate or directly matched.
"Money, then, acting as a measure, makes goods commensurate and equates them; for neither would there have been association if there were not exchange, nor exchange if there were not equality, nor equality if there were not commensurability. Now in truth it is impossible that things differing so much should become commensurate, but with reference to demand they may become so sufficiently. There must, then, be a unit, and that fixed by agreement (for which reason it is called money); for it is this that makes all things commensurate, since all things are measured by money."
Aristotle is explaining the essential role money plays in facilitating exchanges between people. Let's unpack this:
To conduct trade or exchange, there must be some way to compare the value of different goods or services—this is what Aristotle means by "commensurability." For instance, how can we determine how many loaves of bread are worth a sack of grain or a pair of shoes? Without a common measure, exchanging such diverse goods would be chaotic or impossible.
Money serves as the tool or "measure" that creates this comparability. It allows us to assign a value to goods and services, even if they're wildly different in nature, by giving them a price. This price equates them within the context of exchange, enabling trade to happen smoothly. Even though Aristotle acknowledges it’s technically impossible to make things with such inherent differences (like a house and food) truly “commensurate” in nature, money simplifies this problem by acting as an agreed-upon standard, based on the concept of demand.
The last point is crucial: money exists not because of nature but because of human agreement or "convention." Its value depends on the shared belief of the community in its worth, which is what allows it to function as a unifying system for valuing and exchanging goods.
In short, money is the tool that makes trade and societal cooperation possible by providing a shared framework for comparing and exchanging the value of what we produce and need.
"Let A be a house, B ten minae, C a bed. A is half of B, if the house is worth five minae or equal to them; the bed, C, is a tenth of B; it is plain, then, how many beds are equal to a house, viz. five. That exchange took place thus before there was money is plain; for it makes no difference whether it is five beds that exchange for a house, or the money value of five beds."
In this part, Aristotle is discussing how value and exchange work in societies, particularly before the invention of money. Here's the core idea: when people exchange goods (like houses or beds), they are essentially trying to establish a fair equivalence between them based on their value.
For example, if a house (A) is worth "ten minae" (B), and a bed (C) is worth "one-tenth of B" (i.e., one mina), then the math works out like this: one house equals five beds. This equivalence allows people to trade goods in a reasonable, proportional way.
Aristotle points out that this process of proportional exchange existed even before money was invented. Whether people traded five beds directly for one house or used money as an intermediary (representing the value of the five beds), the principle remains the same: the exchange is based on their relative worth.
By highlighting this, Aristotle shows that money doesn't change the fundamental logic of trade; instead, it simplifies the process. Money acts as a common standard or unit of measurement that makes it easier to compare the value of different goods.