Aristotle's Nicomachean Ethics or How to Not Be a Jerk

Programming Note

If you’re reading this expecting tips on tax-efficient charitable giving strategies, I have bad news. Nicomachean Ethics is not about the tax code. It’s about how to live a good life, which, depending on your perspective, might be either more or less complicated than the tax code.

The Basic Trade

Look, here’s the fundamental problem Aristotle was trying to solve. Everyone wants to be happy, right? But nobody can agree on what happiness is. Some people think happiness is money. These people work at investment banks.¹ Other people think happiness is pleasure. These people also work at investment banks, but in different departments. Still others think happiness is honor, which, I mean, good luck with that in 2024.

Aristotle’s insight and this is why people still read this stuff 2,300 years later, is that happiness (eudaimonia if you want to impress people at parties²) isn’t a feeling or a thing you get. It’s an activity. Specifically, it’s the activity of living excellently according to virtue.

This is like saying the point of basketball isn’t to feel good about basketball or to own basketballs; it’s to play basketball well. Except instead of basketball, it’s your entire life. No pressure.

Virtue Capital

So what’s virtue? Aristotle divides it into two buckets, like a philosophical asset allocation:

Intellectual virtues are things like wisdom, understanding, and prudence. You get these by learning and experience. Think of these as your human capital: they take time to develop, they’re hard to transfer, and they depreciate if you spend too much time on Twitter.

Moral virtues are things like courage, temperance, and justice. You get these by practice and habit. These are more like muscle memory, or how a trader develops an instinct for when a deal smells funny. You can’t learn courage from a book any more than you can learn to ride a bike from a PowerPoint presentation.

The clever bit (and this is peak Aristotle) is that moral virtues are all about finding the mean between extremes. Not “mean” like average, but mean like the sweet spot . It’s portfolio optimization for your character.

Take courage. Too little and you’re a coward. Too much and you’re reckless, probably running a crypto exchange. The virtue is in the middle: being appropriately afraid of actually scary things (bankruptcy, death, regulators) while not being afraid of things that aren’t actually scary (public speaking, commitment, switching to dark mode).

The Doctrine of the Mean (Not That Kind of Mean)

This “doctrine of the mean” sounds simple but gets complicated fast. The right amount of anger, for instance, depends on:

• Who you’re angry at
• What you’re angry about
• How angry you are
• How long you stay angry
• What you do about it

Being virtuous means getting all of these right, which is harder than pricing options. At least with options you have Black-Scholes.³

Also, the mean is relative to the person. The right amount of food for me is not the right amount of food for LeBron James. The right amount of risk for a 25-year-old software engineer is not the right amount of risk for a retired schoolteacher. Unless the schoolteacher is running a leveraged vol strategy in her IRA, which, honestly, happens more than you’d think.

Choice Architecture

Here’s where Aristotle gets really interesting. Not every action counts as virtuous or vicious. For Aristotle, moral responsibility requires:

1. Voluntariness: You have to actually choose to do the thing
2. Knowledge: You have to know what you’re doing
3. Intent: You have to do it because it’s virtuous, not by accident

This is basically the mens rea requirement for virtue.⁴ If you donate to charity because you misclicked on a website, that doesn’t make you generous. If you avoid stealing only because you think the security cameras are on, you’re not really just.

This creates some weird edge cases. Like, what if you’re drunk? Aristotle says you’re still responsible because you chose to get drunk. But what if someone spiked your drink? Then you’re off the hook. What if you grew up in a society that taught you wrong things about virtue? Aristotle kind of hand-waves this, which, fair enough, they didn’t have behavioral economics yet.

Friendship as a Three-Way Merger

The back half of the Nicomachean Ethics is largely about friendship, which seems random until you realize that for Aristotle, you literally cannot be happy without friends. This isn’t “aw, friendship is nice” stuff. This is “friendship is a necessary condition for human flourishing” stuff.

Aristotle identifies three types of friendship:

1. Utility friendships: You’re friends because you’re useful to each other. This is basically every professional relationship you have.
2. Pleasure friendships: You’re friends because you enjoy hanging out. This is your group chat.
3. Virtue friendships: You’re friends because you recognize and appreciate each other’s good character. This is… rare.

The first two types are unstable. Once the utility disappears or the pleasure fades, so does the friendship. It’s like a SPAC: looks like a real company, but once you examine the fundamentals, there’s not much there.⁵

Real friendship—virtue friendship—requires that both people are actually virtuous, which is already a high bar, and that they spend time together, which in our remote-work world is an even higher bar. Aristotle thought you could only have a few real friends, which anticipated Dunbar’s number by two millennia.

The Practical Wisdom Arbitrage

The linchpin of the whole system is phronesis , or practical wisdom. This is the intellectual virtue that lets you figure out what the virtuous action is in any particular situation. It’s like judgment, but for your entire life instead of just for bond trading.

The problem is you can’t develop practical wisdom without already being virtuous, but you can’t reliably be virtuous without practical wisdom. This is Aristotle’s version of “you need experience to get a job, but you need a job to get experience.” His solution is that you start by imitating virtuous people and following good rules, and eventually you develop the judgment to know when to break the rules.

This is actually how a lot of professional development works. Junior bankers start by following templates and checklists. Eventually they develop the judgment to know when the template doesn’t apply. Then they become MDs and forget everything they learned, but that’s a different problem.

The Happiness Portfolio

At the end of the day, Aristotle’s vision of the good life looks something like this:

• You have developed both intellectual and moral virtues through education and practice
• You exercise these virtues in activity, not just in theory
• You have good friends who are also virtuous
• You have enough external goods (money, health, not being ugly⁶) to not be constantly distracted by their absence
• You live in a reasonably just society that allows you to flourish
• You keep this up for your entire life, not just for a quarter or two

The payoff is eudaimonia: human flourishing, the good life, true happiness. Not the fleeting pleasure of a good trade or the temporary high of a promotion, but the deep satisfaction of living well.

Is this realistic? I mean, probably not. Aristotle was teaching the sons of aristocrats who had slaves to handle the boring stuff. His ideal person spends a lot of time contemplating eternal truths, which is hard to do when you have Slack notifications.

But the core insight holds up: happiness isn’t something that happens to you, it’s something you do. And you do it by developing good habits, making good choices, and building good relationships. It’s simple, but not easy. Like index investing, everyone knows what they should do, but somehow we all end up checking Robinhood at 3 AM anyway.

Conclusion

The Nicomachean Ethics is basically Aristotle’s attempt to create a systematic framework for not being a terrible person. Does it work? Kind of! It’s coherent, it’s comprehensive, and it’s influenced basically all of Western philosophy since.

But it’s also the product of a very different world. Aristotle thought some people were natural slaves, that women were inferior to men, and that the best life was sitting around thinking about philosophy. (Okay, that last one might be right.)

Still, the basic framework, that virtue is about finding the right balance, that happiness comes from activity not passivity, that you need friends to flourish remains surprisingly relevant. It’s like double-entry bookkeeping: invented ages ago, seems primitive, but actually still the foundation of everything.

Plus, unlike most ancient philosophy, it’s genuinely practical. Aristotle isn’t trying to prove that motion is impossible or that everything is made of water. He’s just trying to figure out how to live well. Which, let’s be honest, most of us could use some help with.