 Thank you very much for this warm welcome. Thank you very much, Hans, and thank you very much, Gülçin, for this invitation. I enjoy very much being part of this conference every time I'm here. And today, I'm addressing, again, a monetary subject. The title of my lecture is The Ethics of Capital Incomes. When I got married, I want my wife. And I said, look, I'm interested in monetary economics. I will talk a lot about money. It doesn't mean that we will ever have much. I will proceed in six steps. First, I will spend one minute or so on definitions. Then I'll explain why we should be interested in the ethics of capital incomes. Then I'll present the arguments that Aristotle has presented on the other subject. In the fourth step, I will briefly revise Thomas Aquinas, the doctrine. In the fifth step, I will present a critique of these arguments and I will conclude in a sixth point. So let's start with a few definitions. Capital is that part of our wealth that we use to earn income. There is a future money stream. A house that we rent to other people is part of our capital. A house that we use ourselves is part of our wealth, but not part of our capital. Work that is money that we spend on people working for our household is part of our wealth, that we spend on those assistance. People that we employ in our firm, which allows us to help earn future revenues, that money spent is part of our capital. The ethics is that theory that helps us to distinguish or is the ensemble of distinctions that allow us to distinguish between good and bad, a good practice and right practice, which leads me immediately to the second point. So why should we care about the ethics of capital incomes? Well, every rational person should do this. Every rational person should be interested in distinguishing between what is right and what is wrong because that's the only way to lead a happy life. So this is already very Aristotelian. And probably also we find similar thoughts, analogous thoughts in Chinese philosophy and other philosophies, right? So the ultimate objective of human life is to lead a happy life, a happy and fulfilled life. And happy and fulfilled life doesn't mean, of course, a life in which we yield to every sudden urge. We would just let go and so on. This is not a happy life. A happy life is one in which we rationally deliberate between what is both in the short-term and the long-run propitious for our well-being. So it's an interest that we should find as rational beings. It's something, as far as capital incomes are concerned, it's a very long subject because it has been felt from antiquity, at least onward, that at least some incomes cannot be rationally justified. So therefore illegitimate. And so we have then the task of distinguishing legitimate capital incomes, morally valid capital incomes and morally illicit capital incomes. Now, as you might imagine, this is a very vast subject and I have 25 minutes left. So I will focus on some of the most widespread or most important arguments that have played a role in history for a very long time. The Catholic Church has condemned all sorts of capital incomes, this was the canonical, it's known as the canonical interdiction of usury, right? Now we'll explain the etymological origin of the word usury a little later on. So the idea is that capital incomes per se are illegitimate and can be justified only for secondary considerations, which have been called its extrinsic considerations, right? For intrinsic considerations, so essentially capital incomes are unjust, but for extrinsic reasons that is, that do not belong to the nature of capital income, they might be justified under certain circumstances. So this doctrine you find expressed in the Codex Joris Canoneci until the 1917 edition in the 20th century, there were two editions, the one of 1917 and the other one then of 1983. In the 1983 edition, this century old disposition had disappeared without commentary, okay, so it's very interesting. Now one of my points will be that indeed in order to distinguish legitimate from illegitimate capital incomes, we cannot trust only our intuition. If we do this, we almost invariably end up with wrong conclusions. And one of the problems of the traditional doctrine is indeed that it has some elements of truth but is founded in incorrect economic theory as I will demonstrate concerning two examples most notably. So in order to come up with a pertinent ethics of capital income, we need most of all, and especially and fundamentally to have a sound economic theory which allows us to distinguish between what is good and what is not good. So let's talk then about Aristotle and Aquinas. So what are the reasons that we find an Aristotle against capital incomes? Because Aristotle indeed condemned capital incomes in all of their forms. Aristotle gives us four arguments and I will first present them and extend this by presenting very briefly Aquinas doctrine and then proceed to critique. The first argument that Aristotle gives us is that money is not wealth in the sense that it cannot be consumed. It does not contribute to our well being. We cannot eat money, we cannot sleep in money, we cannot cloth ourselves with money. Therefore, because it's not real wealth, it does not deserve to be remunerated. The second argument is that money is an arbitrary institution. I'll let me mention here right away something that is very important and will be important for the further development of my argument, namely that the Greeks, contrary to what many people today imagine, already had fiat money. The Greeks of course did not have paper fiat money. They didn't have dollar bills, they didn't have Euro bills and so on. So these were invented first by the Chinese, well not the dollar bills but paper bills. But the Greeks had fiat money and probably the previous civilizations of which we know much less than we know about the Greeks, probably they had fiat money as well. It's just something that is too convenient for governments as most of these people of you know. There's something, fiat money is immaterial, it's a dematerialized form of money that can be produced at very low cost relative to its exchange value. And which therefore would not normally be used or naturally be used by market participants but needs to be imposed on the market participants so that they accept and use it. So what kind of fiat money did the Greeks have? Well, they had fiat money coins. They had token coins that they imposed at the place of gold and silver coins. The most important example is the fiat coin circulation created within the Athenian, the Attic League, which was created by the city of Athens and imposed on its satellite island states. So our Aristotle tells us that since money is completely arbitrary, we can, if we can impose fiat money as you do from personal experience, we can replace it from one day to another with a different one. So if this is completely arbitrary, then well, I mean something that just springs from all mere say so cannot possibly have any intrinsic value, therefore does not deserve remuneration. Can be taken away from one day to another, doesn't have any value, therefore, remuneration of money in the form of a usury is not legitimate. The third argument, now it gets interesting, I think that philosophically this argument is very much more important than the two previous ones as the following. According to Aristotle, money incomes or capital incomes are not limited. They're intrinsically unlimited. So in modern economic jargon, we would say that capital incomes are always embedded in a disequilibrium framework. We never tend to a final equilibrium somewhere that is never a stopping point somewhere. They tend just to heap on one the other. So it's an unlimited, cumulative process that makes people ever richer until the richest finally concentrate all the wealth in the country in their own pockets and everybody else is starved. So therefore it's an intrinsically disruptive form of socially disruptive form of income should not be tolerated. This is a very interesting argument. And the fourth argument is that usually if we just look at exchange per se as a form of exchange is unjust because we give more than what we have received. The person who receives a loan, I get a $100 loan and we have to pay back $105. He gives back more than what he has received. And so he, therefore he pays back not only the principal sum that he has obtained and which he, money is a fungible good. So the only way to use it is to spend it. It's very much like a consumer good. Somebody loans you a bread. So what you do is to eat the bread and the next day then you restitute another bread. So with money it's the same thing. The way to use it is to spend it. So you forego it. So what you do in the exchange is to restitute the same value. If you pay any extra on this, you sort of say pay extra for using it but it's implied in the loan because it's a fungible good that can only be used in such a way. Maybe by spending it. So it's already implied in the loan. By paying an interest on it you pay twice. You restitute the value that you have received plus you pay for the use of it which would be double counting according to Aristotle. Therefore the origin of the word usury and it's the payment that is received for using the good. And this payment would be legitimate because we already restitute the good at the end of the loan. Now Aristotle embedded this last argument in theory of just exchange. So Aristotle starts from the notion that any human flourishing is possible only within the community. This resonates very much even with economists today because we know of the benefits of the division of labor. Aristotle knew these benefits as well because he had read Plato. Plato is the father of the theory of the division of labor. He explains why people associate because they derive personal benefits from working together and specializing in different trades. So people need to flourish individually. They need to associate. But association is not possible without justice. It's very powerful and pertinent observation I think. So then he asked the question, so what's the, what is just? What's the nature of justice? And Aristotle answers, well the nature of being just means to be inequality with something. So the nature of a just exchange is that the two objects that are being exchanged have are equal. But what does it mean that if I sell a remote control, let's say for $20, what does it mean that the remote control is equal to the dollar bill? That doesn't make sense. Physically it makes no sense. So in Aristotle says, well actually the remote control is not exchanged because the dollar bill is exchanged, let's say it's the glass or something like this. So the two objects are different, but well he says they are incommensurate, right? They cannot be reduced to the same denominator. We cannot say whether this is more than this, makes no sense. But it's monetary exchange that makes them comparable. Then of course he will have received the objection while that money itself is also good. So money itself does not have the same value all of this time it fluctuates in value. And he somewhat coyly remarks, well, but money preserves its value better than all other goods. So that's his argument. This theory of just exchange then has been generalized by St. Thomas Aquinas in the 13th century. So Aristotle, 5th, 4th century before Christ, Thomas Aquinas 13th century after Christ. And Aquinas builds the theory of just exchange into a systematic framework to deal with all actions related to market exchange. And just as Aristotle condemns usury, having in mind probably just the loan contract, Aquinas condemns usury in all of its forms. Most notably profits earned by companies are usurious because a company, well, buys factors of production then sells the product. If it sells the product at higher prices, then the value that is based for the factors of production, well, it's actually robbing the customers. Similarly fraud, what we do in fraud is to give something in exchange for a higher value is the thing that we give does not have the high value. We sell a jaw perfume, we went through Istanbul, my wife said, oh, this is all fake, this is fake, this is fake, otherwise these prices would not be possible. I said, no, I mean, the Turks are great entrepreneurs. They find ways of selling you a jaw handbag for 10 euros or so, so I was like, ah. So she knew better, of course. I'm too naive in these things, I say. So it's fraud, right? They present a product as being something that is not, right? So Aquinas writes that the problem here is that the value of the two objects exchange is not the same. That's the definition of fraud. And of course, it holds also two for the loan contract with the same argument as Aquinas, as Aristotle, right? The two payments that are made do not have the same value. And Aquinas then also delivers the theory or the distinction between intrinsic reasons and extrinsic reasons, right? For intrinsic reasons, usually it's always to be condemned, but for extrinsic reasons, it can be allowed. For example, if we loan money off and entrepreneur invests by paying salaries, by buying factors of production, he sells the product at higher prices, it can be legitimate because the entrepreneur incurs risk, right? So the profit then can be interpreted as a risk premium. So that would be legitimate, right? Also, if you lend money and the money that you lend to a friend or to some other person, you could have used it yourself, you could have invested in your own firms, so there's an opportunity cost going with this. This also is an extrinsic justification for the capital income that you derive from the loan. So far, so good. Now let's proceed to a critique of these four arguments. The first one is, of course, very easy, right? The argument that money cannot be consumed, you cannot cloth yourself with money, you cannot eat money and so on. Well, okay, that's correct, but of course that would imply that all other goods that are not consumer goods also have no value, right? Factory buildings would have no, machines of any sort would have no value, right? Remote controls would have no value because I cannot eat the remote control, I cannot sleep with it and so on, right? So this is a very weak argument, right? It's clear that all sorts of factors of production do have value and deserve to be remunerated. The second argument is similarly weak, money is an arbitrary institution. The first point that of course we should make as Austrians is that not all monies are arbitrary institutions, right? They're such a thing as natural monies that emerge spontaneously on the market and they're not instituted by the arbitrary will of any single person. They are selected because people recognize in them objective physical qualities that make them particularly suitable as medium of exchange, right? Like they're divisible, they're malleable, they're homogenous, they're easily recognizable, they're scarce, they have a high purchasing power per unit of wealth, per unit of volume, per unit of weight, right? All these things. So these goods that exist and they're not arbitrary, so what you remunerate is the package, right? Of those objective physical qualities that make for a good medium of exchange. There's nothing arbitrary there. The other two arguments deserve a little bit more attention and they are, as I said, they are more interesting philosophically. Let's take maybe the fourth argument first, right? The fourth argument is, so revolves around the notion of a just exchange. The error in Aristotle's argument starts as soon as he defines the nature of justice in equality. The argument until then is entirely correct, right? Human flourishing is the objective of any rational human being. That's correct. Human flourishing is greatly promoted by inclusion in a social context, the family context, friendship, the division of labor, commercial activity and so on. That's also correct. And all these social relations need justice. If they are unjust, people do not have an incentive to remain within the social context, but have an incentive to leave the social context, become pirates, right, or robbers, or whatever, just help themselves at the expense of others. So we need justice as a foundation of any social relationship. The error starts as soon as Aristotle defines the just exchange as being an exchange of equal values, right? So here we have a problem because indeed, this is something that we learn by elementary economic theory. It's certainly the one that comes down from Carl Manger. But also, right, we find the same idea already in text of the Middle Ages and then Kondiak in the 18th century also stressed the same point, that in an exchange, we never exchange objects of the same value. We always exchange economic goods that have different subjective or personal values for the people who are concerned, okay? So if I go to the bakery and buy my bread for a dollar, then the dollar has a higher value for the baker than his bread. Therefore, it gives me the bread in exchange for the dollar. And the bread has a higher value for me than the dollar, therefore I give the dollar very happily in exchange for the bread. Now, and that, of course, and also implies that we should not conceive of the benefits, the gain of an exchange in purely materialistic terms. And we cannot say, well, I get this wonderful bread, and it smells good, and it nourishes me, and I just give this shabby piece of paper in exchange or something like this. I rub the baker or something like this. This is ridiculous, right? And the same thing also holds true if we say, well, I lend 100 units of money, $100 now, and we'll be paid 105 next year. And it's a reasoning. You say, well, I get paid back more than I gave. This is a reasoning in purely materialistic terms because I compare just physical units. But the basic point of this exchange is that I give 100 units of money now, whereas I will receive 105 in the future. The 105 in the future are different goods from the 100 now. So physically, the one is a higher quantity than the sum that I lend now, but in economic terms, it might very well be that 105 in the future are more important for this person who promised me to pay back 105 less important than the 100 now. So there is no injustice involved in an exchange of the sort which then creates capital incomes is not illegitimate, unjust, or whatever you want to call. It is perfectly legitimate. Part of exchange that increases welfare for all parties that are concerned. And so this is a basic error in interpretation of what's going on in an economic exchange. Now, as far as the third argument is concerned, this is very interesting. And so the argument that monetary revenues are inherently cumulative, right? So there's no stopping point involved. Once we allow them, we allow that one part of society and the increasingly small part of society rips off all others. Now this argument, you might address it on purely empirical grounds and this would draw us into discussions without any end, especially in our present context. So let me propose a theoretical distinction. We need fundamentally, and this is something that we learned from Mises in particular, but also from the classical economists, we need to distinguish between the operation of a free market society based on the respect of private property rights. On the one hand, and the operation of a market economy as it is hampered through monetary interventionism on the other hand. And in the case of a free market economy without government interventions, Aristotle's argument does not hold. It's simply not true in such a case that the capital incomes are unlimited and do not tend toward some equilibrium value. It's not true because as capital increases, capital becomes less scarce relative to the demand for capital. And as a consequence, the remuneration of capital tends to decline. So it becomes ever lower rather than bigger. And tends to decline to what some equilibrium value. And the highest the capital accumulation, the lower tends to be capital incomes. And as a consequence, then also not only capital incomes are limited, but they tend to discourage themselves because the more you accumulate capital, the lower is the remuneration. So the less incentive you have to use additional wealth to earn additional revenue. And you have an incentive then to use that wealth for non-commercial purposes, right? To fund a club, do caritative work and so on. Now things are very different in the context of an economy hampered by monetary interventionism. In particular, in the form that is very familiar to us today, namely fractional reserve banking and fiat money. As soon as you have fractional reserve banking, there is a source of revenue that is in principle unlimited, right? As long as the money users have confidence in the ability of the banker to redeem the bank money that he issues, whatever bank notes or accounting money and so on, the amount that he can issue is in principle unlimited. First point. Then if we take account of the fact that this money is usually issue that is brought into circulation by credit, right? Then the practice of fractional reserve banking allows to leverage investments. And leveraging investments means that the return on equity, that is the return on your own money is increased by using money that you receive at a lower interest rate from the banker. So in such an institutional setting then, the revenues on capital are in principle unlimited. It depends on various extrinsic factors where there might be a limitation. For example, banks might not fully cooperate. People might not have full confidence in the banks and so on. But the activity per se tends to what revenues that are in principle unlimited is no stopping point. And a similar mechanism you have as soon as fractional reserve banking entails a tendency because it inflates the money supply and takes a tendency for the price level to increase. And as the price level increases, another thing happens, namely that it becomes more interesting to store your wealth in durable goods, such as real estate, other cars and so on, rather than in the form of money. If you keep your wealth in cash, that is, if you hoard money, you are sure to lose in an economy in which the purchasing power of money declines because the price level increases. So you stop hoarding and you buy real estate not because you need more houses or you need additional prairies for your cars and so on, but just because it's a suitable way for you, you store wealth. And you do the same thing also with financial assets. So you buy shares and companies not because you need more capital income, but because simply this is suitable because shares and companies tend to increase with the price level whereas the purchasing power of money declines. So this creates a tendency for wealth goods, such as shares, such as real estate, to increase relative to incomes and thereby creates a redistribution process in favor of those who are already rich and to the detriment of those who are not yet rich. So in conclusion, then we might say that Aristotle's argument is not absurd. We have to ask ourselves the question, why, how did Aristotle come upon this idea that capital incomes are in principle unlimited and therefore unreasonable? Well, I guess it's because he observed it empirically himself. And indeed, if you look at monetary history and economic history, and that's what I've done, you find indeed that there was a flourishing banking industry in 5th century Athens. And these banks did not only provide consumer loans, they essentially specialized in financing businesses. So what Aristotle observed firsthand was the operation was the functioning of a feared money fractional reserve monetary system which led him to the assessment, to the moral assessment of what he observed. And the moral assessment is correct as far as an interventionist monetary system is concerned, but it's wrong to generalize it to the operation of a market economy as a whole. So in conclusion, then, we might again stress the necessity of an ethics of capital income and also the necessity of having a suitable foundation for such an ethics of capital income in a realistic economic theory. And a realistic economic theory leads us to the conclusion that capital incomes in a free market economy are beneficial and therefore not only morally justified as far as the individual persons are concerned that are contracting, but also as far from a larger point of view of society. Whereas government interventionism leads to the sort of problems that theologians, philosophers and also economists have discussed for centuries in appropriate terms, generalizing a case that only holds true for government interventionism for the economy as a whole. Thank you for your attention.