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Dialectical Anthropology, 1999, Vol. 23, No3, 247-280

Aristotle's theory of price revisited

            Aristotle proposed a theory of price formation in terms of a proportion reflecting the relative status of buyer and seller. This little understood theory is first exposed within its mathematical framework. Its plausibility is then examined both in commerce and in finance. It is first shown that current « rating » as performed by « rating agencies » on the financial markets expresses relative status of institutional debt issuers in terms of the credit risk they represent. It is then shown that the equation of status with credit risk can be extended from institutions to persons. The overall and contemporary validity of Aristotle's model becomes apparent. Since a person's credit risk is determined by

    1. The risk of having to interrupt one's activity due to death or incapacity,
    2. The unreliability of one's earnings,
    3. The competitive pressure between practitioners of the same professional activity,

Aristotle's model of price formation provides simultaneously a theoretical framework for the economic and for the social order. It applies to all types of societies having an economy proper, i.e. all societies where goods circulate and are exchanged against currency in quantities called prices.


Part I: Aristotle's theory of price


1. A theory revisited


            In his History of Economic Analysis written in the nineteen-forties, the distinguished economist, Joseph Schumpeter devotes a few disparaging remarks to the comments made by Aristotle about price formation: « ... decorous, pedestrian, slightly mediocre » (1954: 57), he writes. In fact, Schumpeter produces first a flawed translation from a passage in the NicomacheanEthics, then writes that the passage does not make sense to him - which does not come as a surprise to the reader since his quotation from Aristotle is utterly garbled . A couple of years later (1957), the Hungarian historian Karl Polanyi, then at Columbia University, published a contribution to a collective volume (Karl Polanyi, Conrad M. Arensberg, Harry W. Pearson [eds.] Trade and Market in the Early Empires) entitled « Aristotle discovers the economy ». I personally read the article in the late sixties when as a student I was developing an interest in economic anthropology and my reminiscences of the text remained dormant for many years. In the mid-eighties I wrote a report on price formation in the fisheries for the French government and I turned once again to Aristotle's succinct comments to see whether or not they were enlightening about the case at hand. They were, and dramatically so. I was commissioned by Alain Cailléof La Revue du MAUSS to excerpt from my report the parts specifically devoted to the « social determinants of price formation ». The outcome was an article published in 1990 which includes a full-bodied illustration of Aristotle's schema from field material I had gathered among Breton fishermen over a period of fifteen years.


            As a later fallout I was asked in 1991 to give a lecture at the Economics Faculty of La Sorbonne, this time specifically on Aristotle's views on price formation. There was still part of Aristotle's theory which remained obscure to me and in particular a diagram supposed to have accompanied the original text. Rackham's reconstruction in the standardEnglish translation was illuminating but still somewhat short of a complete explanation. It is not until I read Szabo's (1969) and Fowler's (1990) accounts of Greek mathematics that things fell entirely into place: Aristotle's demonstration was in actuality purely mathematical within the framework provided by the then current theory of proportion .I wrote for the occasion a lecture entitled « Price as a proportion for Aristotle » which was subsequently published as a paper in 1992.


            In my recollection of « Aristotle discovers the economy », Polanyihad rebuked Schumpeter on the issue of the ineptitude of Aristotle and vindicated his theory of price formation, showing by the way of examples why and how he was right. Thus I had conceived Polanyi as opening a line of argument to which my latest paper constituted but a recent contribution. When I turned back to the article a few months ago, the writing of the present paper in mind, I was startled to discover that Polanyi presents Aristotle's views on price formation as a well-meaning model of what people ought to do to fix price but not at all as an accurate model of people's actual behaviour(« ... providing a formula by which the price was to be set »;Polanyi 1968 [1957]: 108). Polanyifurther emphasises that markets did not exist yet in Aristotle's time anyway and that therefore he was in no position to discuss price formation (« This should dispose of the notion that Aristotle was offering in his Ethics a theory of prices »; ibid. 106). He adds that we do know however a few facts about price formation in the days of Aristotle, that for example in the Greek city-states' colonies, price was established at what we would call nowadays, diplomatic level: « Treaty prices were matters of negotiation, with much diplomatic higgling-haggling to precede them. Once a treaty was established, bargaining was at an end. For treaty meant a set price at which trading took its course » (ibid. 105).


            In my journey, I had actually moved away from Polanyi's thesis on Aristotle and price formation. As I see it today, the Greek philosopher had produced with a couple of sentences a full-blown theory of how prices are actually formed. Usury practices - which he condemns - could have led Aristotle on the trail of an interesting variation thereof: the concept of present value of cash flows, but this excepted, whatever he could set his eyes upon as evidence of price formation converged towards the theory he reports: price as a proportion of the social status of buyer and seller.


            The principle of Aristotle's approach is straightforward: written within a social set-up is a power balance between groups. If these groups are led to interact at the occasion of a particular commercial transaction the price demanded for the transfer of property, by the current owner from the purchaser, is determined by two types of factors: the effort made by the owner to get hold of the object in the first place (how much he had to pay himself for the raw materials, how much of his own work he had to encapsulate in the finished product, etc.), and the relative status of owner and purchaser. The lower the social rank of the seller relative to the buyer the less the latter will have to pay to acquire the commodity. Conversely, the higher the social rank of the seller relative to the buyer the more the latter will have to pay to acquire the commodity.


            Modern authors have consistently betrayed their embarrassment when dealing with Aristotle's model of price formation. As was mentioned earlier, Schumpeter confesses not understanding a word of Aristotle's demonstration while Polanyiwho was instrumental in reviving the current interest in the theory claims that Aristotle's explanation does not provide a model of price formation but recommendations on how price ought to be calculated - if ethics were given their due.


2. Price as « proportion » in Aristotle


            The reason why Aristotle's model of price has largely remained opaque to the contemporary reader is that we have lost familiarity with the mathematical context within which the explanation unfolds: the ancient Greek theory of proportion (analogia) and its mode of calculation through antanairesis(anti-ana-hairesis, i.e. reciprocal re-traction) or anthuphairesis (anti-hypo-hairesis: i.e. reciprocal sub-traction) (cf. Fowler 1990: 31-32), a theory which at the time not only pervaded mathematics but provided a much more general template for any type of significant connection, be it in mathematics, in music, as well as in the theory of reasoning (which to us today equates with Logic but that the Greeks were still distinguishing under the terms of analytics, the coherence of which is formal [algorithmic] and dialectics the coherence of which is properly discursive) under the guise of the syllogism .


            To understand what is the spirit of arithmetic in Aristotle's time it is important to see that its roots lie in geometry which in those days was seen as a kind of intuitive physics dealing with lengths, areas and volumes in their elementary form (in the eyes of Plato there was nothing wrong with suggesting that a mountain is an approximate materialisation of the idea of a cone; a contemporary mathematician like Benoît Mandelbrot, of « fractals »' fame, on the contrary wonders how such a notion could ever have occurred to anybody). Arithmetic was seen as dealing with things as far as they can be abstracted as numbers. Arithmetic is akin to the discrete, the discontinuous, while geometry is akin to the continuous, as in lines, areas and volumes. Approximation allows however to assign numbers obtained on geometric objects through measurement. But, differing in this respect from the Babylonians, the Greeks would not, for instance, mix numbers belonging to distinctive geometric spaces, like lengths and areas (cf. van derWaerden 1983: 72). To the contemporaries of Plato and Aristotle (Euclid is one of them), it would have been, for example, anathema to equate the « 9 » which results from having added « 1 » unit at the end of an « 8 » length, with the « 9 » which is the bidimensional square of «  3 », the surface of a square with sides of length « 3 ».


            Aristotle devoted to price hardly more than a footnote in the NichomacheanEthics: a short aside on the fact that price gets formed in a way different than distributive and correctivejustice areenforced. Price is shown indeed as being formed in a « diagonal » proportion as opposed to distributive justice which displays a « parallel » pattern. You need to know beforehand however that corrective justice is the type of justice that presides to private transactions, when one party has been wronged, while distributive justice corresponds to our penal justice when the state judiciary makes a move on its own account. In corrective justice, Aristotle says,


            « ... the unjust being (...) the unequal, the judge endeavours to equalise it... » (V, iv, 4)


            « ... Justice in Rectification will be the mean between loss and gain. » (V, iv, 6)


            Practically, the judge proceeds in the following manner: he examines how the two parties currently stand as far the litigious good is concerned. The plaintiff has been wronged and he has got little of it left. The culprit on the other hand has got more than he equitably deserves. Therefore the judge calculates the difference between the two, cuts that difference in half, leaves one of the halves to the culprit and has the other half forcibly returned to the plaintiff.


            Here an example of this illustrated with figures. Say the plaintiff has got three sheep left and the accused has got now eleven. The difference between the two in terms of sheep is eleven minus three, i.e. eight. Eight divided by two is four. Four of the eight sheep are thus left to the culprit and four are forcibly returned to the plaintiff. The culprit has lost four of the eleven he had, and seven remain to him. The plaintiff had three and receives another four, he now too has seven. Corrective justice has struck.


            Aristotle states this very clearly in his own words, I have simply added short comments in the form of the illustrative figures I used above about sheep:


« Now the judge restores equality (PJ: in the following manner): if we represent the matter by a line divided into two unequal parts (PJ: say a line of length 14 divided in two parts, one of length 3 and the other of length 11), he takes away from the greater segment (PJ: the one with length 11) that portion by which it exceeds one-half of the whole line (PJ: one-half the line is 7, and the greater segment exceeds it by a length of 4), and adds it to the lesser segment (PJ: the length of which is now 3 + 4 = 7, i.e. half the initial line). When the whole has been divided into two halves, people then say that they "have their own" having got what is equal. » (V, iv, 8)


            In Plato's Academy, Eudoxos is said to have invented the method of exhaustion (antanairesis or anthuphairesis) or at least to have conceptualised it to such an extent that it was easy for Euclid to report the theory as Book V of his Elements. The main merit of the method was to make it possible to pretend that the first major defeat of mathematics in accounting for the everyday world was not as devastating as first feared. Indeed it had become clear at the time that it was impossible to find an exact measure for the diagonal of a square in terms of its side: the side and the diagonal of the square are « incommensurable », they cannot be measured using the same unit  . So for instance if you define the side as being of length « 1 » then the diagonal (as a consequence of Pythagoras' theorem) is of length square root of « 2 », i.e. 1.414213... which has a set of decimals of infinite length; if on the contrary you define the diagonal as being of length « 1 » then the side is of length square root of « 1/2 », i.e. 0.707106... which has similarly a set of decimals of infinite length and turns out to be half the value of square root of « 2 » .


This question of incommensurability between « obvious » lengths such as the side and the diagonal of the square led to the necessity for defining a new sort of numbers, the irrationals. The second defeat for mathematics after the proportion of the diagonal to the side is also famous and of a similar nature : what is the proportion between the circumference and the diameter of a circle ' theanswer is another « irrational » number : p , the value of which is as everybody knows 3.141592... p is also the ratio of the area of the circle to the square of half the diameter. Irrational numbers have been distinguished as « algebraic irrationals » who are « the root of an algebraic equation with a finite number of terms, and rational coefficients » (Legendre quoted in Remmert1991 : 151), and « transcendental irrationals » as « omnemrationemtranscendunt » (ibid.). In the fourth century BC Eudoxos found a way to turn the difficulty by designing the method of exhaustion where the two numbers which are incommensurable are subtracted from each other until the remnant has become negligible (van derWaerden 1983 : 89-91 ; Szabo[1969] 1977 : second part ; Fowler 1990 : second chapter).


            This would be of no immediate interest to us here if the « method of exhaustion » had not relied upon a theory of proportion which was very much the equivalent in Athens in the fourth century BC of what, e.g. fractals is for us in the late nineteen nineties: something intriguing which has pervaded culture beyond the boundaries of the learned world. It was used as I said not only in mathematics but also in music as a theory for the harmonics, in logic to account for the syllogism, the building block of reasoning, which can easily be shown to be a continuous proportion, also as an explanation of the working of justice in Aristotle as we have just seen.


            A proportion (analogia in Greek) is something of the form A is to B like C is to D. A proportion is made out of two ratios (logosin Greek), A is to B is one ratio, Cis to D is the other. For instance, an example from finance, « the yearly interest payment will be to the loan like 7 is to 100 (7 per 100 = 7 percent = 7%) ». Thus if the loan is $10,000, the annual interest flow will be like 7 is to 100, i.e. as many times 7 as $100 goes into $10,000, which is a hundred times, hence a yearly interest payment of 100 times $7, i.e. $700.


            A proportion can be continuousor discrete - the latter meaning discontinuous. It is discrete if the four terms are different from each other, say fourteen divided by two is like twenty-one divided by three:


            14 / 2 = 21 / 3,


the value of both sides of the equation is seven. In the terms of the theory of proportion, the most distant of the four terms are called the extremes, here 14 and 3, the middle ones, here 2 and 21 are aptly called the « middle terms »: the means.


            A proportion is continuousif the two middle terms hold the same value, or, what is the same, if there is a single mean. For instance,


            32 / 8 = 8 / 2,


the reduced value of both sides of the equation is here 4 and the proportion is geometric as the operator in the proportion is division. The single middle term is called the geometric mean.


            Here is another continuous proportion, this time the operator of the proportion is subtraction, and the middle term is called the arithmetic mean or average:


            11 - 7 = 7 - 3 [= 4].


            Aristotle states explicitly what is the mathematical theory he is resorting to in his explanation of justice, and of price:


« That a discrete proportion has four terms is plain, but so also has a continuous proportion, since it treats one term as two, and repeats it: for example, as the line representing term one (PJ: say of length 32), is to the line representing term two (PJ: say of length 8), so is the line representing term two (PJ: of length 8, as was just said) to the line representing term three (PJ: say of length 2); here the line representing term two is mentioned twice, so that if it be counted twice, there will be four proportionals [analoga], (PJ: 32 / 8 = 8 / 2, 8 being the geometric mean of 32 and 2) ». (V, iii, 8-9)


            Here lies of course the shortcut that Eudoxos provided for the judge in corrective justice: don't bother with calculating the difference, dividing it by two, leaving one half to one and returning one half to the other, etc. Instead make sure that each ends up with the arithmetic mean of what each had at the beginning of the case, i.e. seven. How do you calculate the arithmetic meanmore commonly called average ' Add up the two figures (3 for the accuser and 11 for the accused = 14) then divide the total by two (14 / 2 = 7).


            Here is the end of the paragraph I started quoting above:


« When the whole has been divided into two halves, people then say that they "have their own" having got what is equal. This is indeed the origin of the word dikaion(just): it means dicha (in half), as if one were to pronounce it dichaion; and a dikast (judge) is a dichast(halver). The equal is a mean [meson] by way of arithmetical proportion between the greater and the less. » (V, iv, 9-10)


            « Corrective justice » is the arithmetic mean. Actually Aristotle regarded the reader as more familiar with the other type of justice, i.e. « distributive justice ». Distributive justice is a consequence of the fact that Athens, although it has nowadays the reputation of being the cradle of democracy was actually what we would call an oligarchy, i.e. an inequalitarian city-state system where people got treated according to their status acquired by birth. In corrective justice, remember, the judge aims at equality whatever the status of the parties involved:


« ... the law looks only at the nature of the damage, treating the parties as equal, and merely asking whether one has done and the other suffered injustice, whether one inflicted and the other has sustained damage » (V, iv, 3)


            In distributive justiceinstead, the judge redresses tort according to the status of the parties involved. The cynic may claim of course that what Aristotle calls corrective justice is the theory of justice and distributive justice the way justice actually operates. I kept this case to be discussed eventually because the corrective justice example is more immediately acceptable to the modern reader and therefore intuitively understood. Also because « distributive justice » is the pathway that leads to price theory.


            Distributive justiceworks on a different principle than corrective justice does. But let us first return to the issue of justice as a general one:


« ... justiceinvolves at least four terms, namely, two persons for whom it is just and two shares which are just. And there will be the same equality between the shares as between the persons, since the ratio between the shares will be equal to the ratio between the persons; for if the persons are not equal (PJ: if they are not of equal status), they will not have equal shares; it is when equals possess or are allotted unequal shares, or persons not equal equal shares, that quarrels and complaints arise  » (V, iii, 5-6).


            One is thus dealing with two parties who, by definition, are of unequal status, say an officer and a commoner, as such is the example Aristotle proposes:


« ... if an officer strikes a (PJ: common) man, it is wrong for the man to strike him back; and if a man strikes an officer, it is not enough for the officer to strike him, but he ought to be punished as well » (V, v, 4).


            Thus in distributive justice as opposed to corrective justice, the principle is clearly inequalitarian. The higher the status, the higher the reparation, the lower the status, the lower the reparation.Distributive justice takes the shape of a proportion:


            theofficer / the commoner = the officer's due / the commoner's due


            The first ratio is that of the officer to the commoner, it expresses their relative status with that of the commoner used as a unit, the second is that of their due to each other.


« Justice is therefore a sort of proportion (analogia); for proportion is not a property of numerical quantity only, but of quantity in general, proportion being equality of ratios (logon), and involving four terms at least. » (V, iii, 8)


The proportion states that the two ratios are equal.


« Thus the just also involves four terms at least, and the ratio between the first pair of terms is the same as that between the second pair. » (V, iii, 10)


            As later on Aristotle defines price formation as « diagonal conjunction » it is worth noting that here, in distributive justice, we are dealing with « parallel conjunction ». What this means is that « all that's officer's » shows up as numerator in both ratios making up the proportion, and « all that's commoner's » as denominator. « Diagonal conjunction », one is allowed to guess, will imply crossing of the categories.


            Now one final remark,


« ... Distributive justice is not a continuous proportion, for its second and third terms, a recipient (PJ: the commoner) and a share (PJ: the officer's due), do not constitute a single term ». (V, iii, 14)


before Aristotle proceeds to « corrective justice » - which I introduced by earlier.


« The remaining kind (PJ: of justice) is Corrective Justice, which operates in private transactions, both voluntary and involuntary. (...) But the just in private transactions, although it is the equal in a sense (and the unjust the unequal), is not the equal according to geometricalbut according to arithmetical proportion. (...) Hence the unjust being here the unequal (...) the judge endeavours to make them equal by the penalty or loss he imposes, taking away the (PJ: unjust) gain. » (V, iv, 1, 3, 4)


            We now know what to understand by this.


            Aristotle now moves on to the topic of reciprocity which constitutes the link between justice and price:


« Reciprocity however does not coincide either with Distributive or with Corrective justice. (...) For in many cases Reciprocity is at variance with Justice: for example, if an officer strikes a (common) man, it is wrong for the man to strike him back; and if a man strikes an officer, it is not enough for the officer to strike him, but he ought to be punished as well (...) But in the interchange of services Justice in the form of Reciprocity (PJ: as such) is the bond that maintains the association: reciprocity, that is, on the basis of proportion, not on the basis of equality (PJ: strictly speaking). » (V, v, 2-6)


« Now proportionate requital is effected by diagonal conjunction. For example, let A be a builder, B a shoemaker, C a house, and D a shoe. It is required that the builder shall receive from the shoemaker a portion of the product of his labour, and give him a portion of the product of his own. Now if proportionate equality between the products be first established, and then reciprocation takes place, the requirement indicated will have been achieved; but if this is not done, the bargain is not equal, and intercourse does not continue. For it may happen that the product of one of the parties is (PJ: intrinsically) worth more than that of the other, and in that case therefore they have to be equalised. » (V, v, 8)


            As it would not be reasonable to suppose that making one shoe - or even a pair of shoes - would be the equivalent of building one house (unless it takes the same time to make one as to make the other), one must consider that it is the making of a number of nshoes which will equate the construction of one house. But while as far as distributive justice goes each's due to the other expresses exactly their relative status, here when dealing with exchange, the relationship is reversed: the more the relative status of the involved parties is unequal the larger the quantity of his produce the inferior will have to give the superior in exchange for what the latter has to offer.


            Let us work this out on an example. Let us suppose first that in ancient Greece, the status of the builder and of the shoemaker are equivalent. Hence


            builder/ shoemaker = n shoes / one house = 1


            Let us suppose now that the builder's status is higher than that of the shoemaker. Say a builder is worth pshoemakers. So


            builder/ shoemaker = p                                   (with p larger than 1)


            In a barter transaction therefore, it is not anymore n shoes that a shoemaker needs to make for a builder to obtain that he builds a house but p x n shoes. Indeed,


            builder/ shoemaker = p x n shoes / one house = p


            It should have become clear now why and how the state of affairs is this time the converse of distributive justice. If we were dealing here with the latter what would hold would be,


            builder/ shoemaker = builder share / shoemaker share = p.


            The builder along with his due would appear as numerators in the proportion, and the shoemaker and his due as denominators, while in the current case, when exchange is concerned, the builder shows as a numerator along with a certain number of shoes, and the shoemaker as a denominator along with a house. Here lies the metamorphosis of the « parallel conjunction » in distributive justice into the « diagonal conjunction » in exchange.


« As therefore », Aristotle pursues, « a builder is to a shoemaker, so must such and such a number of shoes be to a house (...); for without this reciprocal proportion, there can be no exchange and no association; and it cannot be secured unless the commodities in question be equal in a sense. » (V, v, 10).


« There will therefore be reciprocal proportion when the products have been equated, so    that as that as builder is to shoemaker, so may (PJ: a definite quantity of) the shoemaker's product be to the builder's product. » (V, v, 12)


            (PJ: In this paragraph, Aristotle [or alternatively an absent-minded copyist] has all of a sudden replaced the builder with a farmer, it is intentionally that I have kept the builder, for the sake of consistency).


Part II :Extending the model, The rich pay cheap, the poor pay dear


3. The applicability of Aristotle's model


            Upstream from the ancient World environment familiar to Aristotle, on the more traditional part of the Pacific rim for instance, there is no economyproper as there is no price for goods . The circulation of goods is based here on the « gift » which it would be naive to equate with a disinterested and generous present. The gift means nothing more in this instance than the lack of simultaneity of exchange in a transaction: gift follow each other in one direction then in the other. Most often « gift » is characterised by a competitive escalation the purpose of which being to humiliate the creditor. It would be mistaken to confuse such escalation with we know as accrual of « interest ». As Chris Gregory aptly observed: a type of social system relying on gifts is in actuality a social system founded on debt (Gregory 1982: 19).


            Within these cultures of the Pacific rim, the political order is stable but not hierarchical: each male generation establishes from scratch a new pecking order and only aggressive entrepreneurship allows any one man to grow progressively into a culturally defined « big man ». Inasmuch as there is no given hierarchy among men, it is the objects which circulate as « gifts » which are ranked as to their prestige (this was Armstrong's major discovery in RosselIsland [Armstrong 1928]). When dealing with Aristotle's model however one is faced plainly with a universe of priceas is currently understood: people are here embedded within a hierarchical order while objects can be traded for each other - that is, as long as the proportion between them that their price expresses in terms of a currency is taken into account. And this is why it is no longer goodswhich are given away as presents but commodities which are being traded.


4. Price as relative status


            We have seen how preciously little is actually said by Aristotle on price formation as such. In order to extend his line of argument onto more contemporary issues, consequences need therefore to be derived deductively from his schematic model. The father of Dialectics is implicitly aware that the time spent in manufacturing a particular type of commodity is relevant to the issue of price as he does not assume that a builder is prepared to trade the construction of a house with a shoemaker for the making of a single pair of shoes for himself: the building of a house - if it needs to trade against pairs of shoes - trades necessarily for severalshoe pairs. As we saw earlier, Aristotle specifies « For it may happen that the product of one of the parties is worth more than that of the other, and in that case therefore they have to be equalised. »(V, v, 8). If a builder were of the same status as a shoemaker then the building of a shoemaker's house would trade for the making of n shoe pairs. But as a builder is in actuality equal to mshoemakers (m being higher than 1 if the trade of a mason is more prestigious than that of a shoemaker and lower than 1 if it happens that the trade of a shoemaker is the more prestigious of the two), that is, a builder is to a shoemaker what m is to 1, then building a house will trade for ntimes m pair of shoes. It is the proportion which Aristotle calls as we saw « diagonal », the higher the shoemaker stands within the social order, the fewer pairs of shoes he will have to trade in exchange for having a house built. The value of the m factor expresses the reciprocal status of builders and shoemakers, it is social, the factor n, as for it, is objective, it is, if one may say so, in the nature of things « human ».


            How you compute the value of this n factor, Aristotle does not say. There is however a principle underlying his price theory which allows to calculate it. The n pair of shoes are those that the shoemaker has the opportunity to make during the time it takes the builder to build a house. Let us say that nis determined by the number of pairs of shoes that a shoemaker can make during one time unit, which is defined here as the time it takes a builder to build a house. An additional determining factor is the one linked to status, implying that in their dealing with each other, the working time of the builder and of the shoemaker do not exchange on a one to one basis. The corrective factor is the factor m determined by relative status: one hour of a builder's working time exchanges with a shoemaker for m hours of a shoemaker's work, or, expressed conversely, a shoemaker's one hour of time trades for 1/mtimes a builder's one hour of working time. Another way of putting this is to say that « the value of one hour of a builder's working time is worth m hours of a shoemaker's working time » with the same qualification as before, i.e. « with m larger than 1 if the profession of builder is more prestigious than that of shoemaker, and msmaller than 1 if the profession of shoemaker is the more prestigious of the two ».


            A corollary of Aristotle's model of price in terms of relative status is that the price the potential buyer would be inclined himself to pay in order to have a house built or a pair of shoes made is foreign to the process of price formation. It is in fact only by identifying himself with a particular category of buyers purchasing from him and gauging how much these would be prepared to spend on having the job performed according to what kind of person they are and he is himself (within the existing social order), that the potential seller is able to guess how much he can possibly make out of the deal.


            But why is it, after all, that the quality of the commodity itself is irrelevant to the issue of its price ' It is because the universe within which Aristotle's model of price formation unfolds is a given universe. In the teacher of Alexander's expositions there is no need to worry whether or not goods will ultimately find a buyer and will turn therefore into commodities: the world he describes is no hypothetical world but ours already, where sellers sell commodities which buyers are prepared to purchase, that is, a world where the issue of the social utility of commodities has been solved pragmatically « once upon a time » when it got established that there was an actual demand for them. The only remaining relevant issue is the actual price at which the commodity will be put for sale, and as far as this is concerned, it is determined by the quality of the partiesinvolved as buyer and seller.


5. The price of goods as price of persons


            Aristotle's view of relative status determining price hardly had any following at all. Even in the days of Scholasticism which were otherwise overwhelmingly « Aristotelian » on about every subject, it is only to be found with the quite idiosyncratic Henry of Langenstein(1325-1397), expressed in a laconic statement according to which « ... if the authorities fail to fix a price, the producer may set it himself, but he should not charge more for his labour and expenses than would enable him to maintain his status (... per quantoressuasvendendostatumsuumcontinuarepossit) » (De Roover1958: 419).


            An immediate objection to Aristotle's line of argument is that it is implausible - even in ancient Greece - that the very same commodity would sell for different prices to different customers (I quoted earlier on Polanyiclaiming that there is not even a proper market structure in ancient Greece: Polanyi 1968 [1957]: 106). The answer to this is that in this respect ancient Greece is likely to have been in every way similar to the modern Western world in so far as, although toothpaste or soap sell for an identical price in the shop - whomever the buyer might be - the fact remains that in actuality people belonging to different strands of the population buy different types of toothpaste or soap. Similarly, Aristotle's judge and shoemaker are unlikely to have ordered from the builder the same type of house or the builder and the judge are unlikely to have ordered from the shoemaker the exact same type of shoes. The judge will have wanted to have an expensivehouse built so that it is easily distinguished from a shoemaker's house - which will be cheap - although it will be as expensive as the shoemaker can afford in order to establish to the world that he is able to house himself better than, say a fisherman can, and so on.


            How would the mechanism sketched operate in everyday circumstances ' As I said, different amounts of cash will not be paid by different people for the same goods. The reverse would show too conspicuously, people would protest. In most cases indeed, different amounts of cash are being paid by different people for different goods: the rich buy expensive goods and the poor buy cheap goods. I have carefully avoided however in the few preceding sentences to mention « cash » instead of « money », indeed a good illustration of the Aristotelian mechanism at work is easily provided when the rich and the poor happen to purchase the same expensive item and the poor cannot, precisely, afford to pay « cash ». In our society, if it strikes its fancy, nothing prevents a poorer person to purchase an object more commonly bought by rich people, say a luxury car (a proper pauperof course will not manage !). The rich typically, will pay cash because he owns the liquidity, while the poorer person, for lack of cash, will pay by instalments. As everyone knows who has at least once borrowed money, the poorer will end up repaying over the years a much larger amount of money for the same item than the rich who paid cash . The instalments paid comprise not only the (cash) price of the luxury car, but also the costs of borrowing money over the period, and in addition, the payment of a premium gauging the credit risk (risk of defaulting in repayment) that the poorer person represents to the car seller (more on this below). Thus as Aristotle would have it: the poor pay dear and the rich pay cheap or, stated somewhat differently: expensive goods are relatively cheap to the rich while cheap goods are relatively expensive to the poor.


            The 1963 book, The Poor Pay More. Consumer Practices of Low-income Families, by Caplovitzwas concentrating on this very issue of how the cost of credit renders the same items dearer to the poor. Caplovitz' point was that « the middle class has adopted the pattern of consumer credit from the poor and made it part of the American way of life » (1963: 1) and « for many low-income families the road to "better living" through instalment credit is an extremely hazardous one » (ibid. 2). Ten or more years later two British books with very similar titles: Do the Poor Pay More ' (Plachaud 1974) and Why the Poor Pay More (Williams 1977) returned to the theme in the English surroundings where consumer credit was still much less common than in the United States. Williams listed an interesting number of additional ways in which the poor pay more: « First, people with low incomes cannot ordinarily buy in large quantities ' because they cannot pay out large sums of money at any one time and because they may lack the necessary storage facilities. Meat and coal are two obvious examples: bulk purchase of meat and hence lower prices per lb. is possible only for people who can lay out £100 for a hind-quarter of beef and have a freezer in which to store it. People without coal bunkers cannot take advantage of lower solid fuel prices in summer, even if they could afford the lump sum cost of a winter's supply . Poor people may be more likely to buy in small quantities, which often work out more expensive. Secondly, people with low incomes are less likely to have cars and so cannot easily travel to cheap shops some distance away or carry home heavy weights of goods. They may have to rely on more expensive small shops. Thirdly, since poorer people are normally paid weekly they tend to budget accordingly and plan their spending over short time spans. This may both discourage the kind of capital spending which can save money in the long run, and get families into difficulties if large sums are suddenly required, like the quarterly electricity bill. Finally, many poorer people may be unaware of the opportunities for securing good value for money for the goods and services they buy. This may reflect their generally poorer educational opportunities » (Williams 1977: 2).


            I have no doubt pushed Aristotle's model somewhat beyond what its author intended. Although the reader may feel that such an extension has a ring of truth, the onus remains on me to show that it has more to support itself than sheer plausibility. Furthermore, the scheme remains entirely unconvincing in the absence of an explanation of how things have come about to be the way they now are. What I am aiming at doing in the third part of the paper is therefore bringing together the elements of the equation which account for why it is indeed the case that even in the circumstances of the contemporary economy - which at times keep the identity of buyer and seller strictly anonymous - it remains that it is their relative status which determines price .


Part III :Justifying the claim, The logic of risk and scarcity of people


6. Rent, profit and wages


            A convenient way of looking at the way wealth is distributed between the various strands of society remains the distinction established by the economists of the classical period between rent,profit and wages. These categories emerge unproblematicallyfrom our earlier discussion.


            Thus in Aristotle's prime example we were led to suppose that the builder provides the shoemaker with some leather to have a pair of shoes made, and that the shoemaker who wants a house built takes it on himself to provide the mason with bricks, tiles, etc. i.e. anything that is required in the process of building a house. This left out of course the question of how much needs to be paid for the initial supplies. One can imagine of course that the shoemaker will pay the brick-maker in the same way as he does the mason, that is through barter,and that the price he is charged for the bricks is not determined in any other manner than the price he will pay for having a house built by the mason, etc. There needs to be an end however to what threatens otherwise to be an infinite regress: there will be cases where, say, the brick-maker will not be the owner of a clay pit and some price will be charged for the unprocessed raw material such as clay.


            Seventeenth century economists were much concerned with such ultimate components of price which have no intrinsic obvious value and the term « rente » was used for this amount of riches which is not self-evidently deserved as, as opposed to wages, it is not earned in exchange of some definite quantity of time spent working, but derives simply from a claim opposable in court. Social systems have always remained uncomfortable with the fact that it is possible to earn rent while resting at night while not so with wages (there are admittedly some borderline cases !). A number of revolutions have had no other rationale than to provide existing rent situations with some justification. Assigning the State, i.e. a collective body as the collector of rent has often seemed the lesser of two evils until it has been realised that however abstract an entity a State might seem its governing apparatus is necessarily made out of individuals and a class of apparatchiks is in every case quick to step in to replace the evicted « rentiers » of the departed ancienrégime.


            Thus, even if one were prepared to treat the entire issue of price in so simple terms as Aristotle seems to suggest, there is necessarily a time when one has to deal with an amount of money ending up in one party's hands for reasons unrelated to working time spent in manufacturing but attributable ultimately to ownership of some raw material involved in the manufacturing process; such is the nature of rent.Profit obtains from reselling a good for a price higher than that of its initial purchase (there is usually some additional processing and transport involved); trade in its entirety rests on this basis. Wages are obtained from those who hire them by those who lend their work capacity and time; to this extent wage earners' only rent derives from charging for their work.


            It was Adam Smith who first suggested that the average wage would equate with a subsistence wage, allowing in the terms used later on by Marx, the reproduction of the wage earner's family's work force and nothing more. It is however David Ricardo who associated his name with this equation of average wagewith subsistence wage. Ricardo wrote in 1817 that « The natural price of labour is that price which is necessary to enable the labourers, one another, to subsist and to perpetuate their race, without either increase or diminution » (1951 [1817]: 93). Marx assigned this equation to exploitation, i.e. to a conspiracy between capitalists (« rentiers ») and profiteers (entrepreneurs and traders) aiming at keeping wages as low as can be, and using as their instrument the laws governing private property. Smith himself had previously hinted at such a plot, underlining that if there were laws prohibiting to conspire to raise wages, there were none to prohibit conspiring at lowering them, and that in any case, it is easier for « masters » than for wage earners - as there are fewer of them - to conspire to any collective aim .


            Without discarding plots and conspiracies as possible motors of History, the concept of exploitationremains a theoretical embarrassment. Would it not be possible therefore to dispense with exploitation altogether as a means of explanation and still come up with a mechanism which would account for the observed unequal distribution of surplus ' The way towards the answer does indeed exist and requires only that two classical factors of economic analysis, « scarcity » and « risk », are put to good theoretical purpose.


7. Financial risk


            What could explain the logic of rent, profit and wages and their role in social differentiation, if not the mechanism of exploitation' The answer is this: the automatic operation of a logic of « risk ». Because the poor is poor it is risky to deal with him in commercial dealings, and conversely, because the rich is rich, it makes him a reliable person and there is no risk involved in doing business with him or her. The price paid by the poor includes, as we have already seen in a glimpse with the example of the luxury car, a premium he is forced to pay to compensate for the fact that he is a bad risk. And having to pay more for the same goods (or rather for similar goods) his chances of becoming richer are further reduced by so much. The notion that the poor pays dear because he or she is a bad risk may seem at first sight far-fetched. Until that is one realises that it embodies one of the driving principles of finance: the fact that « credit risk » or « counterparty risk » has a price tag attached to it.


            Financial operations take place either on organised markets the smoothness of which is guaranteed by clearing houses, or on a private basis between two or more parties, in what is called « over the counter » operations. The clearing houses of « organised markets » make sure for their own protection and on behalf of the soundness of the market that every participant is solvent at the end of the day. Market operations may develop at too quick a pace for any extensive checking to be realistically performed, thus safety lies in the initial deposits and in the margins which are called systematically from the participants, usually at the end of the trading day, sometimes during market interruptions if prices start moving too hectically and the clearing house gets nervous about the solvency of parties involved (positions are « marked-to-market » at market closure according to whether their equity is positive or negative, i.e. accounts are settled according to whether they lie in the black or in the red). Thus on organisedmarkets participants need not worry about the solvency of other actors as clearing houses make sure that everyone is protected against some others' potential default.


            The reverse applies to over-the-counterfinancial operations since they are private between the two or more parties involved. Here, risk of default from the counterparty is inherent to the one to one relationship founding the transaction. In over-the-countermarkets, actors are exposed to the risk accompanying any debt incurred by the counterparty. Consequently, financial organisationssuch as governments or corporations are rated by professional rating agencies which provide in this way some measurement, some quantitative appraisal, of their financial health. Investors take such ratings into consideration when these bodies issue further debt under the form of government or corporate bonds.


            Standard & Poor's Corporation and Moody's Investors' Service are among the main firms acting in such a capacity of a rating agency. By grading financial institutions they determine how much these are to be penalisedwhen gaining access to the markets. With these grades, which typically start at the top with AAA for the most trustworthy governments issuing bonds, rating agencies assess how much risky it is to deal with every financial actor and what amount of added premium allows to compensate for the risk of default it presents (very much in the same way as an insurance premium gauges a risk of loss). Therefore, so-called « junk bonds » are nothing more than bonds issued by corporations with low rating; being « high risk », they need to be also « high return » to find buyers, i.e. lenders. Providing that the rating agencies' assessments are accurate, financial institutions are able to trade on the markets under conditions which reflect accurately their financial status: a low rating means indeed hefty penalties, a high rating means highly favourable conditions for accessing the markets.


8. Risk as the basis of status


            Here, in the financial world, it thus looks as if status reflects in an exact manner risk of default. It is tempting therefore to consider status in this perspective: status reflects the risk, i.e. the unpredictable possibility of loss, that each represents for each other, should they decide to deal commercially. The question which then arises is whether or not risk contributes in any similar way to defining the status of persons.


            In the typical example Aristotle proposes of the mason and the shoemaker it is implied that the question of the price paid for leather and bricks hasbeen settled separately. What is not spelled out but presupposed is that what gets paid is the labour involved in building a house or making a pair of shoes. The type of circumstances assumed to prevail are those which I have come across in West Africa, that it goes without saying that the customer provides the craftsman or craftswoman with the raw materials implied in the job. If you want a shirt made, for instance, you first go and buy the fabric needed and pass your order to the tailor at the same time as you hand him out the raw materials he needs and which has been purchased by you elsewhere. The tailor is not the supplier of the fabric,this is not part of his job definition (we still proceed in the same way of course in Europe or in the United States at the top end of the range in fashion wear).


            So the way things work out is that the shoemaker orders a house from the builder and provides him, in order that he is able to start construction, with, say two ton of bricks and eight hundred pound of roof tiles; the judge provides the builder with twenty five ton of bricks, two ton of roof tiles and fifteen ton of marble. Let us suppose for the sake of the argument that it takes the builder the same time to build the judge's house and the shoemaker's, the judge's will nonetheless be automatically more expensive as it contains within its walls fifteen ton worth of marble. In reality of course the judge's house will be much longer in building than the shoemaker's. The question to be raised is then the following: all accounts being settled once both houses are built, will the builder have charged the shoemaker and the judge the same amount per hour of his working time ' The answer which Aristotle provides (it is implicit in the argument presented in the first part of my paper but still perfectly clear) is that the shoemaker will be charged a higher fee per hour than the judge: in terms of builder fees, it will be relatively cheaper to have an expensive house built than a cheap one because the judge is an important person to the bricklayer while the shoemaker is not.


            A paradox is however threatening which I cautiously refrained from mentioning so far. The way Aristotle presents price formation, it may look as if it would be advantageous for a mason to build houses for shoemakers only (or for people of a similarly low status); as such building is more profitable (on an hourly basis) than, say constructing judges' houses. Taking for granted that Aristotle's model is correct, why wouldn't the builder specialise in being a « shoemakers' builder » ' The answer might be that there is some prestige to be gained from being a « judges' builder ». But there are also two obvious additional benefits for him: the first one is linked to rolling over his orders, the « rollover risk », the second is analogous to the credit risk or counterparty risk mentioned earlier about financial institutions.


9. Reinvestment risk 


            What I have just called « rollover risk » is akin to what financiers label as « reinvestment risk ». Should you lend some money you own in excess of your immediate needs for a short period or for a long period of time ' Usually long-term rates are higher than short-term. But if you lend for short periods you allow yourself to take advantage of favourable opportunities as they arise; conversely you may be faced with having to reinvest at a less favourablerate. From the point of view of the builder it takes much more time to build a judge's house, and although in relative terms the shoemaker will pay more, the need to find a new client arises less often with judges.


            Let us suppose that it takes a mason one week to build a house for a shoemaker and six weeks for a judge's house. If the mason has specialised in shoemakers' houses, he is faced at the end of each week with having to rolloverhis orders for the following week. Is he in a position to chain assignments in such a manner that he will never be left without work 'If instead he has specialised in judges' houses, the issue of rolling over orders gets only raised every six weeks, a period which is likely to be long enough to ensure that he will not suffer excessively from defaulting prospects.


            This « rollover risk » is thus similar to the « reinvestment risk » mentioned earlier. Instead of lending over ten years an investor may choose to lend for three-month tranches at a time. In normal circumstances an annualised three-month interest rate is lower than a yearly rate for a ten-year loan, but the three-month investor keeps more room for manoeuvring as he is free to reallocate his capital four times a year. Should the three-month rate appreciate, so much the better for him, but if it depreciates,there will be a threshold on the way downwards below which he would have been wiser to lend over a longer period of time. The parallel that can then be drawn between a person and a financial institution is thus the following: it might be that the builder earns more on an hourly basis when building houses for shoemakers, but if he fails in chaining his assignments without intermissions, there will be a point when it would have been more advantageous for him to build judges' houses. « Rollover risk » is therefore the exact equivalent for individuals of « reinvestment risk » for institutions.


10. Individual credit risk


            There is a second implicit benefit for the mason who only builds houses for judges, still more obvious: the aforementioned « credit risk ». If, at the end of the six weeks the mason has been working on behalf of the judge the latter turns out to be insolvent, the mason will have worked to no benefit over the whole of six weeks, while had he worked for shoemakers over the same period he would have lost at most a remuneration covering a single week. The fact remains that the rate of default of the commissioner is much higher with a shoemaker than with a judge. And in truth the same logic applied already to rollover: construction of judges' houses only needed to chain at the end of six-week periods, versus at the end of one-week periods for shoemakers' houses, and, in the same way that it is more unlikely that the judge will turn out to be insolvent once the house is built, similarly it is less likely that the judge will have to cancel his order before construction has even begun.


            Therefore, while it may have seemed at first sight that a logical consequence of Aristotle's model was that a builder would specialise in building houses for the poor - due to the better hourly rate he obtains - the notions of rolloverand credit risk lead us now to believe that he would rather specialise in building houses for wealthy people. Indeed, if the unit value of his work time is lower, he is much better assured of being paid at the end of the day, in such a manner that, globally speaking, his revenues will probably be higher. However - and this takes us back to the very logic that presides to rating - if construction happened to be governed by the same efficiency which characterises current financial markets, it is possible that the price paid for work would reflect the risk incurred in an absolutely accurate manner. To such an extent that it would be indifferent whether or not a mason lays bricks for this or that social category of persons as, statistically, his income would be strictly identical: he would get less when rollover and credit risksare lower and more when they are higher. If this were the case, arbitragewould have taken its toll. What arbitrage ensures is that, should there be more than one possible price for the same item or same service - because there is more than one strategy allowing to buy it or to sell it - financial actors will not fail to notice this and, through their astute buying and selling, will force the two discrepant prices to close their gap, until they coincide.


            Of course, personal credit risk reflects more than the capital immediately available to an individual, it concerns also the credit risk a person represents through all facets of his being an actor in the overall social world. Life expectancy is one dimension of this. For instance, if a shoemaker and a judge want to have a house built, they may both die before the building has even emerged from the ground or during construction. If it is the shoemaker who dies he is essentially leaving the mason to incur the implied risk. If it is the judge whodies his children are likely to pay the mason on the proceeds of the estate and that will be it.


            A question I had asked myself repeatedly during fieldwork with fishermen both in Europe and in West Africa was why is it that the social status of the fisherman is so low ' Why is it that when the work activity implies putting one's own life at risk, one ends up anyway at the bottom of the social ladder ' The answer lies precisely in what I have said so far. If you might easily be dead tomorrow as a consequence of your occupation you represent automatically a bad financial risk: few people are prepared to lend you money - and they cannot be blamed for this. This explains why the one whose input is indeed the higher in production is at the end of the day the least rewarded .


            A personal strategy - if any such is open to you - should be accordingly to minimiserisk for yourself, as by minimising risk you incur personally, you automatically reduce the default risk you represent to people involved in commercial dealings with you. Minimising your own risk, you minimise the risk you represent to others which raises your status automatically; risk and statusturn out thus to be the two faces of one and the same thing. In the thought experiment I introduced above about shoemakers, builders and judges, statushas emerged as highly correlated with default or credit risk: whoever's life is risky communicates this risk automatically to whomever has him or her as a counterparty in a commercial deal. GenevièveDelbos and I had emphasised in La transmission des savoirs that there are no « rich » traditional salt-makers in the Guérande region of Brittany. Indeed, should a traditional salt-maker manage to make some substantial savings, he will use those right away to acquire a plot of land. In other words, he will invest this money into ceasing to be a traditional salt producer and, should he one day become rich, it will be have been quite a while that he hasn't raked salt from his salt ponds (Delbos & Jorion 1984: 62-73).


            Similarly, in an article devoted to maritime fishermen in West Africa, I underlined the ambiguity of some development projects in which I had been a participant. It was impossible indeed to help a « fair » lagoon fisherman to become an « excellent » one, the reason being of a similar nature than in the case of the salt-maker: as soon as a lagoon fisherman has become good enough at his job, he manages to make sufficient savings to acquire enough land that he is able to move into agriculture (horticulture actually) and leave fishing altogether (Jorion 1988: 132-135). Why such a strategy 'becausemaritime fishing, just as traditional salt making, is an activity the profitability of which is much more hazardous than horticulture or agriculture. The income is much more hazardous foremost for climatic reasons: in the case of the salt producer, rain may drown the salt ponds early in the season; in the case of the West African fisherman, the upwelling of cold water through the warmer surface water, indispensable to generate a plankton bloom on which fish shoals will feed, moves along the coast unpredictably.


            The income is more hazardous too because of the perilous nature of the activity as such. Fishing, as well as mining, is among the most dangerous trades with incidents resulting in death more often than not. In traditional salt production in Brittany in the past, just as in maritime fishing in the Gulf of Guinea nowadays, the hazards inherent to the activity are such that the household economy remains permanently at stake or, more forcefully stated, such that the risk of famine remains. In horticulture or agriculture, in Africa just as in Europe, the risk of starvation has always been smaller.


            There is an equation here: by earning a dangerous living one directly forfeits one's income, on the one hand because the hazards of the job threaten its regularity, on the other hand because in risking one's life, it is the very source of the income which is exposed to dry out should death occur. A risky life raises one's credit riskin the eyes of the rest of the world.


11. Scarcity of people


            That status may reflect competition within a social category can then easily be explained: more acute internal competition automatically renders an individual's fate more risky. Social division of labour only allows security for so many actors within any one professional category. In the same way as the more hazardous the economic activity the worse the « credit risk » one represents, similarly, the tougher the competition within the trade one practises, the higher the risk of financial failure. Indeed, anybody who belongs to a group of service providers which is too large to ensure that « rollover risk » is properly dealt with, sees his economic circumstances weakened, and pays growing premiums in his transactions with counterparties to compensate for the increased credit risk that he or she now represent in their eyes.


            As scarcity or wealth of members of a social category contributes at determining the « rollover risk » in their business, it is the scarcity or wealth of people within their social category that allows them to sell dear or forces them to sell cheap what they produce, rent or distribute. It is in this perspective that Hegel suggested that corporations should make sure to regulate the number of their members « in quantities determined by the general conjuncture » (Hegel 1989 [1821] § 252: 255), as too large or too small a number would unbalance the standing of the corporation within the overall social order.


            Thus, the level of relative scarcity or wealth of representatives within a social category determines its current relative status in the social fabric: one changesin line with the other. It is therefore justified to extrapolate to relative status what has been described above as the relationship between credit risk and status in the financial world. The reciprocal status of social categories rests on the acuteness of the competition current between its members, which automatically materialises as default risk in contractual commercial dealings: the reciprocal status of social categories expresses therefore aptly the default risk of its individual members.


            The price that the brick-layer charges the shoemaker for an hour of his working time is dearas to the « basic » price (which a risk-free counterparty would be charged, typically in the financial literature: « the government of the United States »), he adds a first component of premium that the shoemaker pays to cover a possible cancellation of the order before work has begun, and a second component of premium to cover the credit riskuntil the bill has been honoured . It all happens indeed as if parties involved in a commercial transaction take it for granted that price encapsulates the equivalent of a(n) (insurance) premium covering the « default risk » that each represents to the other because of their particular standing in the existing social order. As a matter of course, the notion of an « integrated premium » seems at first sight less relevant with cases of sales in which parties will never meet again, still it emphasisesthe responsibility of the seller extending beyond the sale, as for maintenance, exchange in case of defect, recourse against fraud, etc., also that commercial relationships tend to reproduce themselves between identical parties as their mutual risk of default gets objectively reduced through the multiplication of their dealings.


            Thus it has shown possible to connect a set of relationships as being all part of the same equation. Price is the expression of a power balance between seller and buyer. What this power balance reflects is the relative status of buyer and seller. Relative status is in turn the outcome of the competitive pressure existing within the socio-professional categories to which buyer and seller belong. Competitive pressure results from a wealth or scarcity of members within a category which accurately expresses how much credit risk each member represents for any of his potential commercial counterparties in the economic world at large. At the end of the equation, the price of a commodity reflects how much buyer and seller are likely to loose for having established a commercial relationship between the two of them in particular, just as if each had included as a transaction cost a premium covering the default risk of the opposite party and had conceded the deduction of another premium to account for the credit risk he represents himself. 




            If the social order is stable in the ancient Greeceof the fourth century BC, it does not constitute however anything equivalent to a caste system. The structure is sufficiently supple to evolve. It did so indeed within the global context of the Mediterranean basin, in such a way as to develop into the militaro-commercial and pseudo-democratic setting of the Roman empire. What sustains the stability of such a social order is the permanence of the power balance existing between the social classes of which it can be said that in the city-states of Aristotle's time it is of a legislative nature.


            In societies like our own contemporary one, the composition of social categories is in a constant state of flux and the reciprocal status of social categories gets constantly modified. While it would have been possible to characterisethe feudal system of the Middle Ages as strictly hierarchical, one would have to speak of an entangled hierarchy to account for the relationships between social categories in the current Western world. If one wished to transpose the question of price in the terms which Aristotle initially used, one would have switched from his time to ours from the simple problem of the relationship between two classes within a strictly ordered system (of which the equivalent in physics would be the influence of two bodies upon each other, a question solved three centuries ago by Kepler and Newton), to the complex problem of the relationship between classes within a social structure only partially ordered (which in physics would correspond to the problem of the influence of three or more bodies upon each other; a question which as one now knows results in stable states only in some rare cases and results otherwise only in « quasi-stable » states currently referred to as strange attractors). The only simplifying factor to be ever present as it is inherent to the price formation phenomenon is the fact that two parties at most are confronting each other with every transaction, the seller(s) on the one hand and the buyer(s) on the other .


            I have tried to show that the relative status of people entails that the same items will be dearer in absolute terms (not simply relatively to their actual wealth) to the poor and cheaper to the rich. Should this be the case, then Aristotle's theory of price provides not only a theory of the economy but a theory as well of the social order. Indeed if it happens that the poor pay more in absolute terms and the rich pay less in absolute terms for similar items, the principle has been established for the self-reinforcement of a stratified social structure: each transaction by costing more to the poor than to the rich contributes in its own right to further entrenching the poor within his current poverty and the rich within his current affluence. The sources of the original inequalities may have been diverse or even arbitrary, but once the dynamics has been initiated it exerts its inexorable logic of self-reinforcement.




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