Next, having dealt with transportation, Socrates finally turns to address other great challenges to citywide and intercity systems of exchange. He reminds Adeimantus that the entire purpose of the original partnership that holds the city together is the exchange of products, and asks him how this will occur (371b). Adeimantus says the inhabitants will clearly do so “by buying and selling” (371b8). In addition to the transportation of material products, then, other aspects of exchange also need to be improved, other transaction costs reduced: “a marketplace, then, and a currency as a token for the sake of exchange will come into being for us” (371b9-10). Lowry (1987, 21) collects evidence that Aristotle’s monetary theory already identifies “the four functions of money which modern economists recognize: as a medium of exchange, as a measure of value, . . . as a store of value . . . [, and] as a standard of deferred payment.” Socrates identifies at least the first two of these. Given the context of interstate trade just discussed, it seems likely that Socrates also appreciates how portable it is (see Aristotle 1999, 1:9.1257a30-41).

Remarkably, given the historical dominance of commodity theories of money, Socrates here prescribes fiat money (Gordon 1961, 611-12; Weinstein 2009, 439, 454n30). With regard to his portrayal of money, Schumpeter (1959, 56) says that “such an occasional saying means very little and does not justify the attribution to Plato of any definite view on the nature of money.”36 Yet as Aristotle observes (1984, 5:5.1133a30-31), nomisma (the word for “currency”) stems from nomos (law, convention). Socrates, in contrast to Adeimantus shortly afterward (371d1, d2), does not use either of the more common words for “money” (chremata and argyrion, which literally means “piece of silver”). More importantly, he identifies the currency only as a “token” (symbolon) of value useful for exchange. Moreover, the existence of fiat money in the ancient world was known to Greek writers, including Plato,37 and Gordon (1961) has convincingly argued (against the claims of A. E. Monroe 2001, 8-9 and Schumpeter 1959, 63) that Aristotle, Plato’s student, had a fiat understanding of money.

Socrates does not explicitly analyze why—he only states that—a marketplace is necessary, but perhaps he is thinking that having a single place in which one can both deliver one’s own products all at once and acquire a wide variety of needed products saves considerable time and effort by reducing travel and transportation among numerous exchange partners. What he does go on to analyze is why there will be a need for “dealers” (kapeloi, 371d4) in the marketplace: so as to reduce the time that a craftsman (such as a farmer) has to spend waiting around for others who need what he has to exchange, which prevents him from doing his own work (371c). A purpose of these

“agents” (see 371c6, d6) is thus to save everyone else time, to reduce the opportunity costs (due to transaction costs) of everyone else’s exchanges.

It is at this point that Adeimantus displays a little of his own character by adding an explanation of his own: “[T]hose who in seeing this [need] set themselves up for this service are, in correctly managed cities, pretty much the weakest with respect to their bodies and useless for doing any other work” (371c5-8). He scorns the dealers, assuming that strong bodies are required to do more important work, that being a dealer in the market requires little skill beyond the ability to wait around, and that, as he implies (371c-d), it is shameful to have a job whose sole aim is the acquisition of money. These thoughts constitute the only substantive contribution Adeimantus makes to the construction of the early city.

Some scholars attribute these views to Plato (McNulty 1975, 375; Hayek 1992, 90; Cohen 2002, 101).38 What they have not noticed is that Socrates completely ignores what Adeimantus says about the dealers’ qualifications and skills, and he affirms only Adeimantus’s claim that “there is a need” (dei, 371c8) for the dealers to stay in the market in order to exchange with “as many as need” (hosoi. . . deontai, 371d3) to buy or sell. Socrates simply thinks the city needs specialists in market exchanges to address the needs citizens have for easy buying and selling.

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