Table of Contents

Handbook on the History of Economic Analysis Volume III

Handbook on the History of Economic Analysis Volume III

Developments in Major Fields of Economics

Edited by Gilbert Faccarello and Heinz D. Kurz

Volume III contains entries on the development of major fields in economics from the inception of systematic analysis until modern times. The reader is provided with succinct summary accounts of the main problems, the methods used to address them and the results obtained across time. The emphasis is on both the continuity and the major changes that have occurred in the economic analysis of problematic issues such as economic growth, income distribution, employment, inflation, business cycles and financial instability. Each Handbook can be read individually and acts as a self-contained volume in its own right. It can be purchased separately or as part of a three-volume set.

Chapter 29: Money and banking

Jérôme de Boyer des Roches and Sylvie Diatkine

Subjects: economics and finance, history of economic thought

Extract

Money and banks did not go well together in philosophical and religious thought from Antiquity to the Renaissance. In his Nicomachean Ethics and Politics, Aristotle (384–322 BC) defines money as a measure of value, hence a medium of “justice in transactions” and of exchange, and as a store of value. On the other hand, he argues that reason condemns the lending of money for interest, because money in this case is no longer a means of economic activity, but its final end: “The most hated sort, and with the greatest reason, is usury, which makes a gain out of money itself, and not from the natural object of it. For money was intended to be used in exchange, but not to increase at interest” (Aristotle Politics, 1885: 19). Indeed, chrematistics properly speaking is what causes the unlimited desire of wealth that corrupts politics, according to Plato (425–347 BC). In addition, the Bible states God’s prohibition of usury. Either through reasoning or revelation, the source of bank profit is condemned. However, God’s order was the main cause of the hostility to banking activities prevailing in the Judeo-Christian world. In AD 325, the Council of Nicaea prohibited priests from loaning money for interest; then Charlemagne extended the prohibition to lay people in 789, threatening those who exercised banking activities with excommunication. Five centuries later, in his Summa Theologica (1266–73), Thomas Aquinas drew his inspiration from Aristotle in order to reconcile faith with reason and argue in favour of God’s prohibition. On the one hand, he condemned money if taken as an end in itself in exchanges, instead of as a means of exchange. On the other hand, he referred to Roman law and classified money not as a non-consumable good but as a consumable. It is important to recall that consumable goods, such as wheat or wine, unlike non-consumable goods, such as houses or land, cannot be lent for interest, because their use cannot be separated from their ownership.

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