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Did Aristotle Get the Point of this Story?


Aristotle, in his book on POLITICS, tells the following story about Thales, the Ionian philosopher portrayed above and best known for the theory that water is the essence of all matter.

"Thales, so the story goes, because of his poverty was taunted with the uselessness of philosophy; but from his knowledge of astronomy he had observed while it was still winter that there was going to be a large crop of olives, so he raised a small sum of money and paid round deposits for the whole of the olive-presses in Miletus and Chios, which he hired at a low rent as nobody was running him up; and when the season arrived, there was a sudden demand for a number of presses at the same time, and by letting them out on what terms he liked he realised a large sum of money, so proving that it is easy for philosophers to be rich if they choose, but this is not what they care about."

Fascinating story. Someone who apparently had the reputation of being what we would call today an 'absent minded professor' proved that he wasn't so absent minded at all, that his mind was sufficiently present to make a killing in olives. He simply chose to use most of his mental energy on other pursuits.

Skeptical 21st century (AD) types might ask: what does astronomy have to do with the size of the next season's crop of olives? In our own day at least we draw a sharp distinction between astronomy and meteorology, and forecasting several months' out in meteorology is a tricky business even now, it must have been pure guesswork in ancient Ionia! 

My own suspicion is that "astronomy" had nothing to do with what Thales was pulling off here, and Aristotle was simply confused.

Notice that Thales didn't buy a lot of olive presses. He paid a "small sum" to put "deposits" on the olive presses. That is, he bought an option on the presses, rather than buying them outright.

Thales figured out the value of leverage in investment. It sounds like he discovered that he could spend a sum of money sufficiently small that he could afford to lose it. If the olive harvest had been BAD that year, if there had been a low demand for presses, he could have walked away from his options. But ... he was on the winning side of his bet. The harvest was rich, there was a big demand for presses, so he exercised the option created by that earlier small deposit, thereafter owned the presses, and charged a high rate for their use.

Thereafter he may have put out the story that he had come to this plan via his study of astronomy, a cover story that continues to echo through the millennia due to Aristotle's reference.

It seems likely, a priori, that in subsequent seasons other bright entrepreneurs followed his lead. Imitation of his success would have inspired greater demand for olive press options ("deposit"), driving up the price, making this sort of thing riskier over time. But when Thales did it, nobody else had yet thought of this use of leverage, so "no one was running him up:" as Aristotle says.

Now: did Aristotle get the point? He seems to have regarded it as a story about the benefits of astronomy (which he saw as a branch of philosophy) in making money. But we ought to be thankful he preserved the details as well as he did, because they indicate its really a story about playing the odds and leveraging small sums of money.

Aristotle was far enough away from Thales in chronology that there must have been other links in the chain of transmission. Maybe some of them understood the point.

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