Reflecting on Plato, Aristotle, Midas and Wealth

Written by Derryl Hermanutz

As the present monetary system collapse lurches toward its fourth year of can kicking, extend and pretend, recurring banking system bailouts, and various other half-buttocked ploys to ignore the root problem and forestall the inevitable, the idea of “monetary system reform” once again wedges its way into the political consciousness as it did during the 1930s iteration of monetary system failure.

Much of the discussion takes place between wanna be gourmets who cannot define the differences between monetary offal and prime beef.  What money is and how it functions are a mystery to many.

A menu of proposals is wending its way to the policy discussion table, ranging from ideologically delicious but economically poisonous fare like “a return to the gold standard” (“a simple and elegant but catastrophically inedible dish; gastronomically delightful to the cultivated palate when swished and spat out, but the cause of Great Depressions and World Wars when ingested by nations”) to logically, arithmetically and economically necessary but morally suspect dishes like “clean slates” (“you can’t just give people money and forgive debts because everybody knows ‘there’s no free lunch’, even though we have a vast surplus of food and a vast hoard of people who are hungry and a big free lunch could actually solve our current problems”).

What is “wealth”?

Devotees of a gold standard and “sound money” believe wealth is accumulated by hoarding up money.  One “should” be able to save his wealth today in the form of “money”, and preserve that wealth into the future.  Generalized price inflation erodes the purchasing power of saved money, so this view sees CPI inflation as an evil.

Jesus warned us not to put our faith in wealth that “moth and rust destroy, and thieves break in and steal”, but rather to put our trust in “the true gold of the spirit”.  For physical sustenance we are advised to continuously strive for our “daily bread”.

But, Christian though they may attest to be, the sound money guys don’t want it to be the case that worldly wealth deteriorates over time and has to be continuously reproduced by ongoing economic activity, and that they have to pay guards to prevent thieves from stealing their gold, so they demand a form of money that can carry the present value of their wealth thru time without cost.

Asset price inflation is seen as a money-making opportunity (capital gains)….

This they believe, even if the task is impossible, which it is.  Hey, people are free to “want” whatever they want.  “Impossible” is no barrier to “wanting” and “demanding”.  Every parent of children knows this.

Asset price inflation, on the other hand, is seen as a money-making opportunity to capture capital gains.  “Buy low, sell high”.  One “becomes” wealthy via asset price inflation, but once one “is” wealthy then it’s time to stabilize and preferably reduce prices to preserve and enhance the purchasing power of one’s not-so-hard-earned money and thus increase one’s “wealth”.

….Once gains are acquired price deflation is preferred to “preserve” wealth.

Ok, self-interest drives ideology, which feels no shame in contradicting itself in order to profit from both sides of the alternating circumstances it finds itself in.  “Prices should be high when I have stuff and want money; prices should be low when I have money and want stuff.  A sound money system prevents price fluctuations and promotes price stability so I want sound money.”  Self-interest and ideology are not slaves to rational consistency and logical coherency.  These kinds of human urges and thoughts enjoy the blissful freedoms of the “pre-rational”.

Enlightened Self Interest

So liberals and reformers, abandon your assumption that the modern Western mind is a child of the Enlightenment, that Western humanity has evolved to a motivational structure that is guided by “enlightened self-interest”.  Read, or reread, Donald Wood’s 1996, “Post-Intellectualism and the Decline of Democracy: The Failure of Reason and Responsibility in the Twentieth Century”.  Wood concludes that although we have little if any reason to hope for success at reviving enlightened reason, we should try anyway.

A few humans have intellectually or ‘spiritually’ evolved.  The rest have not.  The humans who seek power certainly have not evolved beyond the animal social order whose motivational structure is driven by “appetite and competition”.

In a comment on Randall Wray’s review of Jamie Galbraith’s 2008 book, “The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too”, Noni Mausa said,

“I have been writing about this topic in my own amateur way since at least 1992. I found it weird that when the idea was accepted at all, it was as a metaphor.

One thing to remember about predators is this: they are animals. By that, I mean they are driven by appetite and competition, and foresight is not part of their repertoire. Perhaps what I mean is that if one is driven by appetite and competition, without foresight, this defines one as an animal despite whatever human potential may be present.

Expecting foresight from predators is to convert them into farmers or feedlot operators, efficient predators who look ahead in the management of their livestock. We really DON’T want to go there.

Narrow Self Interest

I suppose “rational” animal egos would become feedlot operators, shoveling their corporate ‘foods’ into “the consumer”; food that is chemical laced and made for healthy manager bonuses, not for healthy nutrition.  Or they simply abandon the pretense of ‘democracy’ and ‘markets’ and become feudal kings and lords who overtly rather than covertly own and operate the world and rule their herds of humans to suit themselves.  The non-rationality, the amorality of wealth and power is not news.  Honor, glory, status, power; what Thomas Hobbes summarized as “esteem”: these “social goods” are the fruits sought after by the unreconstructed animal ego, and it is this ego that is served by “narrow self-interest”.

Driven by Urges

The animal ego does not “consider” its motives.  It is “driven by” its urges.  It “pursues” its motives, vigorously.  You can fruitfully appeal to the “reason” of such a creature only if your reasons happen to coincide with the critter’s current perception of its personal interests.

If you carefully explain to the beast why he should kill and eat you, he will find you to be an enlightened intellectual, morally upstanding, a rational and intelligent truth-teller – and delicious.  If you equally carefully explain to him why he should divert his appetites toward less sentient fare, he will find you to be woefully uninformed, intellectually and morally perverse, given to lying to serve your selfish purposes – and he will eat you anyway.

The animal ego does not “consider” its motives.  It is “driven by” its urges.

His behavior is not motivated by ‘enlightened reason’.   His behavior and his reasoning are slaves to his appetites.  He takes his appetites to be “facts”, and the rest of the world must be made to revolve around these core facts of his personal version of reality.

Speak Logic to Power?

So reality, and the perception and rationality of reality, must be subsumed to self interest, in the minds of the creatures that pursue and attain power within our largely unevolved societies.  This is why simple arithmetic logic fails to impact the policy making mind and inform enlightened proposals for monetary system reforms.  Instead we get proposals that serve powerful interests, like a return to the gold standard.

Midas, in his lust for wealth, destroyed everything he touched that could produce wealth or sustain life – he turned it into gold.

Power will “reward” policy makers who serve it, and will ignore or punish policy makers whose dangerously illuminating ideas would threaten to expose and destroy the rotten roots of existing power structures.  Monetary reformer Dennis Kucinich was railroaded out of Congress.  Gold advocate Ron Paul remains a political force.

The Curse of Avarice

Midas, in his lust for wealth, destroyed everything he touched that could produce wealth or sustain life – he turned it into gold.  His desire to possess this lucrative power is only “irrational” if one assumes that Midas “values” the production of wealth and the sustenance of life MORE than he values being fabulously rich in gold.  There is nothing “irrational” about taking measures to acquire what you desire, even if what you desire is self-destructive, or evil, or illegal.

Enlightened humanity changes what it “desires”, by changing its “mind”.

From David Hume, a friend and mentor to Adam Smith, in his 1739 treatise “Treatise of Human Nature“

“Reason is, and ought only to be the slave of the passions, and can never pretend to any other office than to serve and obey them.”

Aristotle recognized this, and designed his eudaimonic ethics to “educate the emotions” so that educated people would “feel” the correct urges in the correct proportions to motivate behaviors that globally rather than narrowly optimize their lives.  In 1980 Ronald de Souza published, “The Rationality of Emotions”, reiterating Aristotle’s 2300 year old understanding that the interaction of our ideas and beliefs and values CAUSES our “emotions”.  Enlightened humanity changes what it “desires”, by changing its “mind”.

Choose Wisely or Foolishly

Predators, power and wealth seeking animals, creatures driven by appetite and competition, do not do this.  They do not “change their mind”.  They take themselves as they are and they act on their unreconstructed animal urges.  At the very end of “The Republic”, Plato recounts the Myth of Er, set in an intermediate realm where souls choose their next lives, either “wisely” or “foolishly”.  The unwise soul chooses impulsively,

“…the one who came up first chose the greatest tyranny.  In his folly and greed he chose it without examination and didn’t notice that, among other evils, he was fated to eat his own children as a part of it.  When he examined at leisure the life he had chosen, however, he beat his breast and bemoaned his choice.  And, ignoring the warning of the Speaker, he blamed chance, daimons, or guardian spirits, and everything else for these evils but himself.”

Humans who are smitten by the Midas metal cannot but believe that their beloved is “good” and that no evil consequences could possibly arise from using gold as money.

The pursuit of sound money, under a gold standard money system, is a CAUSE of Great Depressions.

When evil consequences do arise, depressions and world wars, they blame everything else EXCEPT their religious adherence to the ‘discipline’ of gold.  They claim that it is because governments ‘violated’ their fidelity to gold that their nations suffer these torments.

Sound Money

Arithmetic reasoning, the most fundamental form of logic, tells a very different story about the effects of fidelity to the discipline of gold on our worldly economies.  Indeed, in “Did France Cause the Great Depression?” Doug Irwin’s arithmetic strongly suggests that national hoarding of gold to preserve the exchange value of one’s national currency is the CAUSE of long lasting money supply contractions and the resulting economic devastations that accompany “great” depressions.

The pursuit of sound money, under a gold standard money system, is a CAUSE of Great Depressions.  And the only way out of a Great Depression is World War – or monetary system reform.  But historically humanity’s rulers have chosen devastation over reform.

Did we REALLY lend all those trillions to all those deadbeats who will never pay us back?!  What were we thinking?

In, “Inequality, Leverage and Crises”, IMF economists Michael Kumhof and Romaine Ranciere lay out the arithmetic sequence of wealth concentration-cum-financial collapse: when the 5% of a nation’s population who make their money by owning (“investors”) are taking too large a share of the national income as capital gains and profits, circumstances eventually lead to money lending to the 95% of the population who make their money by working in a functioning economy (“workers”) so that even with insufficient incomes the masses can remain “consumers” and can keep buying stuff and thus keep profits up among sellers/investors.

Enrichment by Extraction

It is arithmetically impossible for a worker to continuously spend more than his income, UNLESS some lender is willing to keep ‘lending’ him more money even after it becomes obvious that the borrower can NEVER repay the ‘loans’.  But once this obvious fact becomes finally obvious to lenders, we get financial “crisis”.

As in, “Did we REALLY lend all those trillions to all those deadbeats who will never pay us back?!  What were we thinking?”  Actually they weren’t “thinking”.  They were lusting after the short term salaries and bonuses they were paying themselves, covered by an illusion of profitability.  But what they really accomplished was a skimming process, an extraction.

After all the salaries and bonuses have been safely tucked away in non tax treaty havens, all those non-repayable loans are still sitting on the asset side of banking system balance sheets.  But if the assets are marked to reality, if the fact the loans will never be repaid is acknowledged, then the insolvency of the banking system will also be apparent even if it is still not openly “acknowledged”.  This is where we are today.

Riches Prove Merit

But where the Kumhof and Ranciere paper implies that a better “distribution” of existing incomes might relieve the consequences and forestall crises, the sound money crowd believes, on the basis of ideological preference, that income and wealth inequality merely reflects personal moral and/or economic “worthiness” of individuals.

I have used the term ideological because there is zero empirical “evidence” supporting their belief.  In fact, the evidence supports a contradictory conclusion.

Please note: Kumhof’s recent co-authorship of “The Chicago Plan” demonstrates that he knows redistribution is not enough, and that debt reduction or monetary addition of some kind is necessary to address the current excessive debt problems, even if 100% money can prevent similar problems from recurring in the future.

The Higher Immorality

In the same year I was born C. Wright Mills published, “The Power Elite” (1956), describing “the higher immorality”.  Mills observed that the criteria for elevation into the power and wealth elite is not some natural meritocratic fact of socioeconomic reality, as the ‘free market’ school of wealth distribution deludes itself, but is simply the choice of the already powerful.

Midas striving for ever increasing wealth collaterally creates distributed poverty.

And, despite Jesus’ admonition, our culture still values material wealth over spiritual wealth.  In our world that values money over knowledge, where it is culturally assumed that rich people “must be smart”, and where slogans without substance (like “if you’re so smart, why aren’t you rich?” and “everybody knows there’s no free lunch”) pass for “reasoning”, the only functional criterion for entry into the elite is your willingness to do whatever it takes to get rich and stay rich and keep all the rest of the elite rich as well.  Which is why a career spent ‘earning’ $100s of millions by strip mining and offshoring American businesses makes somebody a prime candidate for the highest elite title in the land: President of the United States of America.

But as Kumhof and Ranciere demonstrate with irrefutable arithmetic logic, Midas striving for ever increasing wealth collaterally creates distributed poverty.  So the rich and the powerful and the sound money crowd howl and wail and blame everyone but themselves, even as they continue to concentrate evermore of their nation’s and the world’s wealth into their own personal possession, and demand that the value of that wealth be preserved whole against “inflation” by blocking monetary expansion, and thereby CAUSE the very problems that they bemoan.

But predators don’t give a rat’s patootie about what you and Aristotle call “rational”.

Plato and Aristotle would argue that it is “irrational”, because it is ultimately self-damaging, to seek personal wealth to the destruction of the economy that continuously produces that wealth.  But predators don’t give a rat’s patootie about what you and Aristotle call “rational”.  They see the opportunity for personal gain, and they go for it, hard.   Pretty much every person on Earth will do the same thing, if the money price is high enough, though most humans never get the offer.  Maybe in retrospect the elites will join Er’s tyrant in bemoaning their fate.  But that doesn’t stop them from choosing it in the first place, and imposing all its consequences on themselves and everybody else.

Propaganda vs. Reason

So this is the political-economic context in which any discussion of monetary system reform will take place.  On the one side are the powers who created and who benefit from the status quo, and all of their well-oiled lackeys in politics and apologists in academia and the professions and the media.  “Truth” to them is whatever sustains and enhances their current privileges and benefits.  And they rule the minds of the uninformed sheep-like masses by their practiced mastery of that most effective tool of the propagandist: slogans.

On the other side is “enlightened reason”, represented by the handful of heterodox economists and thinkers who actually believe in the Enlightenment project of “improving” humanity, and who design their monetary system reforms toward the end of maximizing global well being rather than serving the narrow self-interest of powers.    Via their access to a still-free internet they can reach the minds of the more “awakened” among the masses and this could add up to the critical mass that is necessary to engender an intellectual-cum-political paradigm shift out of mindless slogan flinging and into actual informed reasoned discussion.

Ok, I’m fantasizing.  But if we’re going to “try” we have to permit ourselves to at least “hope” for success, right?

Related Articles

Inequality, Leverage and Crises by Michael Kumhof and Romain Ranciere

Did France Cause the Great Depression? by Douglas Irwin

The End of Credit as You Know It by Bradley G. Lewis

Articles by Derryl Hermanutz

About the Author

Derryl Hermanutz is a frequent contributor to Global Economic Intersection (Opinion and Analysis) on topics related to theory of money and relationships between current events and economic history and philosophy.  He has a degree in Philosophy and Political Economy from the University of Alberta (1997).