Aristotelian Microeconomics

Creating the Good Life :Applying Aristotle's Wisdom to Find Meaning and Happiness
by James O'Toole

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Aristotle is an astute economist who understands markets and monopolies and whose writings about the division of labor anticipated the work of Adam Smith by over 2,000 years. In describing a proper and just division of labor, he links his observations about the hierarchy of human abilities to the broader social structure of society, arguing that people atop the natural hierarchy should be engaged in tasks where they can make the maximum contribution.

For example, it would do the people of Athens no good if those who possessed the greatest aptitude to design and build large structures, like the Parthenon, weren't doing so because they were denied the opportunity to develop their engineering capabilities. Justice would be lacking in a society where a person (say the brilliant mathematician Pythagoras) who had great technical potential ended up stuck for life in a cobbler's shop retreading soles on sandals. Indeed, Aristotle argues that the reason Athens is such a highly developed society in 400 B.C., and why most other places in the world are mired in the stage of subsistence agriculture, is exactly because the Athenians freed their most-talented individuals from the tyranny of toil and gave them the leisure to develop science, medicine, engineering, and the arts. Aristotle believes if Pythagoras had been born "barbarian" (non-Greek), he probably would have spent his life pushing a plow. No wonder barbarians didn't create acropolises: They treated everyone as equals.

To an Aristotelian, the great mathematician Euclid, another student of Plato, is not equal either to a person whose maximum capacity to contribute to society is pushing a plow, or to a high-capacity person who is satisfied with mere plow pushing. To deny one with Euclid's potential the opportunity to develop his skills in the name of equality is, in Aristotle's view, unjust. Worse, how can justice be served if those with limited capabilities are made leaders of society, or the bosses of enterprises, while those who have the greatest natural capacities are held down at the bottom carrying out orders ?

Aristotle observes such injustice in the monarchies of his era, where princes impose their wills on people who are smarter, more productive, and more virtuous than they are. He thinks such systems are as unjust as ones in which less-capable people rule in the name of equality. Such was the case in Mao's China, where uneducated Communist cadres could veto managerial decisions made by engineers and other professionals. Equality may be served in such societies, but the collective good of the community is compromised. The Ancient concludes that meritocracy is the most just form of governance because everyone benefits from the rule of the most competent.

Paradoxically, for a philosopher concerned with personal happiness, Aristotle's ultimate point of reference is the overall good of the community and not the welfare of the individual. Although it may seem odd today, Aristotle believes that the natural hierarchy of humans should not serve as an excuse to reward those at the top for having been born with good genes, or to make the burden of life easier for those so privileged. He believes the opposite: People at the top of a social or organizational hierarchy are responsible for making it possible for those lower down to lead good lives. When they do, everyone benefits from inequalities based on real capabilities and economic contribution. Using a modern example, the reason Bill Gates and Steve Ballmer should make executive decisions at Microsoft is not because authority is their right, their due, their reward, or what satisfies their egos; instead, having the most qualified minds at the top of the company is in the best interest of all members of the organization, including those lower down. Who would want to work at Microsoft if equality were its main goal and the company's executive team had an average IQ of 100, while Gates, Ballmer, and the rest of the brain trust were assigned work as security guards ?

To Aristotle, individuals capable of making greater contributions should be treated differently than those capable of only smaller ones. But differently in some respects only. In particular, those with the greatest capabilities should be freed from lower-level work so they can concentrate on activities making maximum use of their potential and social contribution. The question then becomes, How large a share of the bounty produced by an organization are those at the top entitled to reap? In a later chapter, we examine several Aristotelian tests of fairness of the distribution of rewards, but it is sufficient here to say corporate leaders like Gates and Ballmer are rewarded justly for their contributions if they have worked hard, if they have increased the wealth of society, and if they have made it possible for everyone in their organization to develop their full potential. It will require a greater understanding of Aristotle before we can see how to reckon who deserves how much.

© 2005 by James O'Toole. All rights reserved. No Part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any other information storage and retrieval system, without the written permission of the publisher.

About the Author

James O'Toole, is research professor in the Center for Effective Organizations at the University of Southern California and Mortimer J. Adler Senior Fellow of the Aspen Institute. He has written 14 books, the most recent being Leadership A-Z.