3. From Middle Ages to Renaissance

0:00Chapter 3. From Middle Ages to Renaissance 1. The Great Depression of the Fourteenth Century Most people, historians not accepted, are tempted to think of economic and cultural progress as being continuous. In every century, people are better off than in the one preceding. This comforting assumption had to be given up quite early when the Dark Ages ensued after the collapse of the Roman Empire. But it was generally held that after the Renaissance of the 11th century, progress in Western Europe was pretty well linear and continuous from that point to the present day.

0:46It took heroic efforts over many decades for economic historians like Professors Armando Saporri and Robert Sabatino Lopez to finally convince the historical profession that there was a grave secular decline in most of Western Europe from approximately 1300 to the middle of the 15th century, A period which might be called the late middle ages or the early renaissance. This secular decline, mistitled a depression, permeated most parts of Western Europe with the exception of a few Italian city-states. The economic decline was marked by a severe drop in population.

1:34Since the 11th century, economic growth and prosperity had pulled up population figures. Total population in Western Europe, estimated at 24 million in the year 1000 AD, had vaulted to 54 million by the year 1340. In little over a century, from 1340 to 1450, however, the Western European population fell from 54 million to 37 million, a 31% drop in only a century. The successful battle to establish the fact of the great decline has done little, however, to establish the cause or causes of this debacle.

2:21Focus on the devastation caused by outbreaks of the Black Death in the mid-14th century is partially correct, but superficial. For these outbreaks were themselves partly caused by an economic breakdown and fall in living standards which began earlier in the century. The causes of the Great Depression of Western Europe can be summed up in one stark phrase, the newly imposed domination of the state. During the medieval synthesis of the High Middle Ages, there was a balance between the The Power of Church and State, with the Church slightly more powerful. In the 14th century that balance was broken and the nation-state came to hold sway, breaking the power of the Church, taxing, regulating, controlling, and wreaking devastation through The First and Critically Most Important Step in the Rise in the Power of the State at the Expense of Crippling the Economy was the Destruction of the Fairs of Champagne.

3:39During the High Middle Ages, the Fairs of Champagne were the main mart for international trade and the hub of local and international commerce. These Fairs had been carefully nurtured by being made free zones, untaxed or unregulated by the French kings or nobles, while justice was swiftly and efficiently meted out by competing private and merchants courts. The Fairs of Champagne reached their peak during the 13th century and provided the center for land-based trade over the Alps from northern Italy, bearing goods from afar. Then, in the early 14th century, Philip IV, the fair, King of France, 1285-1314, moved to tax, plunder and effectively destroy the vitally important fairs of Champagne.

4:37To finance his perpetual dynastic wars, Philip levied a stiff sales tax on the Champagne fairs. He also destroyed domestic capital and finance by repeated confiscatory levies on groups or organizations with money. In 1308, he destroyed the wealthy Order of the Templars, confiscating their funds for the Royal Treasury. Philip then turned to impose a series of crippling levies and confiscations on Jews and Northern Italians, Lombards, prominent at the fairs, in 1306, 1311, 1315, 1320 and 1321.

5:24Furthermore, at war with the Flemings, Philip broke the long-time custom that all merchants were welcome at the fairs and decreed the exclusion of the Flemings. The result of these measures was a rapid and permanent decline of the fairs of Champagne and of the trading route over the Alps. Desperately, the Italian city-states began to reconstitute trade routes and sail around the Straits of Gibraltar to bruges, which began to flourish even though the rest of Flanders was in decay. It was particularly fateful that Philip the Fair inaugurated the system of regular taxation in France. Before then, there were no regular taxes.

6:12In the medieval era, while the king was supposed to be all-powerful in his own sphere, that sphere was restricted by the sanctity of private property. The king was supposed to be an armed enforcer and upholder of the law, and his revenues were supposed to derive from rents on royal lands, feudal dues and tolls. There was nothing that we would call regular taxation. In an emergency, such as an invasion or the launching of a crusade, the prince, in addition to invoking the feudal duty of fighting on his behalf, might ask his vassals for a subsidy, but that aid would be requested rather than ordered, and be limited in duration to the emergency period.

7:01The perpetual wars of the 14th and the first half of the 15th centuries began in the 1290s, when Philip the Fair, taking advantage of King Edward I of England's war with Scotland and Wales, seized the province of Gascony from England. This launched a continuing warfare between England and Flanders on the one side and France on the other, and led to a desperate need for funds by both the English and the French crowns. The merchants and capitalists at the fairs of Champagne might have money, but the largest and most tempting source for royal plunder was the Catholic Church.

7:46Both the English and French monarchs proceeded to tax the Church, which brought them into a collision course with the Pope. Pope Boniface VIII, 1294-1303, stoutly resisted this new form of pillage, and prohibited the monarchs from taxing the Church. King Edward reacted by denying justice in the royal courts to the Church, while Philip was more militant by prohibiting the transfer of Church revenue from France to Rome. Boniface was forced to retreat and to allow the tax, but his bull, Unum Sanctum 1302, insisted that temporal authority must be subordinate to the spiritual.

8:35That was enough for Philip, who boldly seized the Pope in Italy and prepared to try him for heresy, a trial only cut off by the death of the aged Boniface. At this point, Philip the Fair seized the papacy itself and brought the seat of the Roman Catholic Church from Rome to Avignon, where he proceeded to designate the Pope himself. For virtually the entire 14th century, the Pope, in his Babylonian captivity, was an abject tool of the French King. The Pope only returned to Italy in the early 15th century. In this way, the once mighty Catholic Church, dominant power and spiritual authority during the High Middle Ages, had been brought low and made a virtual vassal of the royal plunderer of France.

9:31The decline of Church authority, then, was matched by the rise in the power of the Absolute State. Not content with confiscating, plundering, taxing, crushing the fares of Champagne and bringing the Catholic Church under his heel, Philip the Fair also obtained revenue for his eternal wars by debasement of the coinage, and thereby generated a secular inflation. The wars of the 14th century did not cause a great deal of direct devastation. Armies were small, and hostilities were intermittent. The main devastation came from the heavy taxes and from the monetary inflation and borrowing to finance the eternal royal adventures.

10:20The enormous increase of taxation was the most crippling aspect of the wars. The expenses of war, recruitment of the modestly sized army, payments of its wages, supplies and fortifications, The New Taxes were everywhere. We have seen the grave effect of taxes on the church. On a large monastic farm, they often absorbed over 400,000 pounds of gold.

11:05A uniform poll tax of one shilling, levied by the English Crown in 1380, inflicted great hardship on peasants and craftsmen. The tax amounted to one month's wages for agricultural workers and one week's wages for urban laborers. Moreover, since many poor workers and peasants were paid in kind rather than money, amassing Paying the money to pay the tax was particularly difficult. Other new taxes levied were ad valorem on all transactions, taxes on wholesale and retail beverages and levies on salt and wool.

11:51To combat evasion of the tax, the governments established monopoly markets for the sale of salt in France and staple points for English wool. The taxes restricted supply and raised prices, crippling the critical English wool trade. Production and trade were hampered further by massive requisitions levied by the kings, thus causing a drastic fall of income and wealth as well as bankruptcies among the producers. In short, consumers suffered from artificially high prices and producers from low returns, with the king bleeding the economy of the differential. Government borrowing was scarcely more helpful, leading to repeated defaults by the kings and consequent heavy losses and bankruptcies among the private bankers unwise enough to lend to the government.

12:50Originating as a response to wartime emergency, the new taxes tended to become permanent, not only because the warfare lasted for over a century, but because the state, always on the lookout for an increase in its income and power, seized upon the golden opportunity to convert wartime taxes into a permanent part of the national heritage. From the middle to the end of the 14th century, Europe was struck with the devastating pandemic of the Black Death, the bubonic plague, which in the short span of 1348 to 1350 wiped out fully one-third of the population.

13:36The Black Death was largely the consequence of people's lowered living standards caused by the Great Depression and the resulting loss of resistance to disease. The plague continued to recur, though not in such virulent form, in every decade of the century. Such are the great recuperative powers of the human race that this enormous tragedy caused virtually no lasting catastrophic social or psychological effects among the European population. In a sense, the longest lasting ill effect from the Black Death was the response of the The English Crown in Imposing Permanent Maximum Wage Control and Compulsory Labor Rationing upon English Society.

14:26The sudden decline of population and consequent doubling of wage rates was met by the government's severe imposition of maximum wage control in the Ordinance of 1349 and the Statute of Laborers of 1351. Maximum wage control was established at the behest of the employing classes—large, middle and small landlords and master craftsmen, the former groups in particular alarmed at the rise of agricultural wage rates. The ordinance and the statute defied economic law by attempting to enforce maximum wage control at the old pre-plague levels.

15:12The inevitable result, however, was a grave shortage of labor, since, at the statutory maximum wage, the demand for labor was enormously greater than the newly scarce supply. Every government intervention creates new problems in the course of vain attempts to solve the old. The government is then confronted with the choice. File on new interventions to solve the inexplicable new problems, or repeal the original intervention. Government's instinct, of course, is to maximize its wealth and power by adding new interventions. So did the English Statute of Laborers, which imposed forced labor at the old wage rates for all men in England under the age of 60, restricted the mobility of labor, declaring saying that the lord of a particular territory had first claim on a man's labor, and made it a criminal offense for an employer to hire a worker who had left a former master.

16:20In that way the English government engaged in labor rationing to try to freeze laborers at their pre-plague occupations at pre-plague wages. This forced rationing of labor cut against the natural inclination of men to leave for more employment at better wages, and so the inevitable rise of black markets for labor made enforcement of the statutes difficult. The desperate English crown tried once again in the Cambridge Statute of 1388 to make the rationing more rigorous. Labor mobility of any sort was prohibited without written permission from local justices, and compulsory child labor was imposed in agriculture.

17:10But there was continual evasion of this compulsory buyer's cartel, especially by large employers who were particularly eager and able to pay higher wage rates. The cumbersome English judicial machinery was totally ineffective in enforcing the legislation, although the monopolistic urban guilds, monopolies enforced by government, were able to partially enforce wage control in the cities. 2. Absolutism and Nominalism, The Breakup of Thomism Starting with the rise of the absolute state, theories of absolutism arose, and began to throw natural law doctrines into the shade.

18:01The adoption of natural law theory, after all, meant that the state was bound to limit itself to the dictates of the natural or the divine law. But new political theorists arose, asserting the dominance of the temporal over the spiritual, of the State's Positive Law over the Natural or Divine Order. The first and most influential of such late medieval champions of absolutism was Marsiglio of Padua, circa 1275 to 1342, in his famous Defense of the Peace, 1324. The son of a Paduan lawyer, Marsiglio rose to become rector of the University of Paris.

18:49The State, opined Marsiglio, is supreme and must be obeyed in and for itself. This glorification of the State went hand in hand with a denial that human reason could come to know any natural law outside of positive edicts of the State. For Marsiglio, reason had to be separated from justice or human society. Justice has no rational foundation. It is purely mystical and solely a matter of faith. God's commands are purely arbitrary and mysterious and not to be understood in terms of rational or ethical content.

19:34As a corollary, positive law has nothing to do with right reason. It is promulgated to advance the life and health of the state. According to Marsiglio, the nation is an organism with the state functioning as its head. As Professor Rothkruge writes, subject to reason, because, like a plant, it develops in accord with inborn impulses. The practical conclusion Marsiglio derived from his political philosophy is that the State, whether Kingdom or Italian City Republic, must have absolute power within its domain, and must not be subject to any temporal check or jurisdiction by the Church.

20:22Thus, while religiously a Catholic, Marsiglio anticipated the politiques in France and elsewhere two centuries later, by insisting that the Church may have no temporal power as against of the State. Marsiglio thereby foreshadowed and helped to bring about the breakup of the medieval order in Europe. Also destructive of the achievements of the High Middle Ages was the ideological breakup of Thomism ushered in by the 14th century. This decline emerged out of Franciscan Fideism, begun by St. Thomas's great English rival It used to be thought that this destruction was brought to a logical conclusion by the 14th century Franciscan Oxford philosopher William of Ockham, circa 1290 to 1350.

21:21Ockhamite nominalism, it has been held, denied the power of human reason to arrive at the essential truths about man and the universe, and therefore negated the power of reason to arrive at a systematic ethic for man. Only God's will, discernible by faith in revelation, could yield truths, laws, or ethics. It should be clear that nominalism paved the way for modern skepticism and positivism, for if faith in divine will is abandoned, reason no longer No matter has the power to arrive at scientific or ethical truths. Politically, nominalism failed to provide a natural law standard to set against the state, and it therefore fitted with the growing state absolutism of the Renaissance.

22:15Recent scholarship, however, casts grave doubt on whether Ockham and his followers were really nominalists were rather essentialists and believers in natural law. Thus it turns out that the eminent Augustinian contemporary of Ockham, the Italian Gregory of Remini, died 1358, was not really a nominalist, but a staunch champion of essentialism, reason and natural law. In contrast to the usual view of Ockham and his followers, Wars, Gregory held that natural law comes not from God's will, but from the dictates of right reason. And he even went further towards an all-out rationalist position, generally thought to have been invented three centuries later by the Dutch Protestant philosopher and jurist Hugo Grotius.

23:12This position held that even if God did not exist, the system of natural law would be be given to us by the dictates of right reason, the violation of which would still be a sin. Thus, as Gregory put it, if per impossibile the divine reason or God himself did not exist, or that that reason were mistaken, still, if one were to act against right reason, angelic, Being a Franciscan and a student of William of Ockham did not prevent the great French philosopher-scientist Jean Buridan de Bétune, 1300-1358, born in Picardy, to become rector of the University of Paris from making the next important contribution to economic thought in the essentialist, Thomist tradition.

24:22In his Questiones, a thorough commentary on Aristotle's ethics, Bourdain continued the Aristotle-Thomas analysis of the exchange value of goods being determined by consumer need or utility. Bourdain also pressed on to point out that a house would never exchange for one garment, since the builder would have to forgo a year's worth of food for a much less valuable good. In short, Bourdain was groping towards an opportunity-cost concept of cost of production and influence on supply. More importantly, Bourdain advanced beyond the initiative of Richard of Middleton in analyzing the mutual benefit that each party necessarily derives from an exchange.

25:17In discussing exchange, Bourdain notes that both parties benefit and that trade is not, as many people believe, a type of warfare in which one party benefits at the expense of another. Furthermore, Bourdain proceeds to a sophisticated analysis in which he dramatically shows that two parties to a too good exchange can both benefit even if the exchange is itself immoral and is to be condemned on ethical or theological grounds. Thus Bourdain poses the rather provocative hypothetical. Because Socrates gave his wife willingly and with her consent to Plato to commit adultery in exchange for ten books, which one of them suffered a loss and which one gained? Both suffered injury as far as their soul was concerned, but, with regard to the external good, each gained since he has more than he needs.

26:23For Bourdain, as for most other scholastics, the just price was the market price. Bourdain also provided a sophisticated analysis of how common human need and utility resulted in market prices. The greater the need, and hence the greater the demand, the greater the value. Also, a reduction in the supply of a product will cause its price on the market to rise. Furthermore, a good is more expensive where it is not produced than where it is, since there is a greater demand for it in the former place. Again, the marginal concept is all that is needed to complete the analysis of demand, supply and price.

27:14There are also intimations in Bourdain of different valuations by market participants resulting in a single price, with varying consumer and producer psychic surpluses for each participant. But the main great leap forward in economics contributed by Jean Bourdain was his virtual creation of the modern theory of money. Aristotle had analyzed the advantages of money and its overcoming of the double-coincidence-of-once problem of barter, but his outlook was clouded by his fundamental hostility to trade and money-making. To Aristotle, therefore, money was not natural, but an artificial convention, and therefore basically a creature of the state or polis.

28:06Aquinas' theory of money was basically confined within the Aristotelian shackles. It was Jean Bourdain who broke free of those shackles and founded the metalist or commodity theory of money. That is, that money originates naturally as a useful commodity on the market, and that the market will pick the medium of exchange, almost always a metal if available, possessing Money then, for Buridan, is a market commodity, and the value of that money, just as in the case of other market commodities, must be measured by human need.

28:54Just as the values of exchangeable goods are proportionate to human need, so they will be proportionate to money, itself proportionate to human need. Thomas Bourdain remarkably set the agenda for determining the value or price of money on the same principles of utility that determine the market prices of goods, an agenda which would only be fulfilled six centuries later in 1912 by the Austrian Ludwig von Mises in his The Theory of Money and Credit. foreshadowing the Austrians Menger and von Mises, Bourdain insisted that an effectively functioning money must be composed of a material possessing a value independent of its role as money.

29:45That is, it must consist of a market commodity originally useful for non-monetary purposes. Bourdain then went on to catalogue those qualities that lead the market to choose a commodity as a medium of exchange, or money, such as portability, high value per unit weight, divisibility and durability, qualities possessed most strikingly by the precious metals gold and silver. In that way, Bourdain began the classification of monetary qualities of commodities which which was to constitute the first chapter of countless money and banking textbooks down to the end of the gold standard era in the 1930s.

30:35Thus not only did Jean Bouradon found the theory of money as a market phenomenon, he thereby took money out of the mystique of being solely a creation of the state and put started on a par with other goods as a product of the marketplace. A not very happy modern spin-off of Bourdain's theory of volition emerged in the 1930s as part of the indifference curve analysis. Bourdain postulated a perfectly rational ass who found himself equidistant between two equally attractive bundles of hay. Indifferent between the two What this example overlooked is that there is a third choice, which presumably the ass liked the least, starving to death, so that it was therefore perfectly rational not to to starve to death, but rather to choose one of the two bundles even at random, and then to proceed to the second bundle.

31:52Until recent years, conventional texts on the history of economic thought, if they dealt with anyone at all before the mercantilists or Adam Smith, briefly mentioned only two Two People, St. Thomas Aquinas and Nicole Orem, 1325-1382. Although Orem, a noted French mathematician, astronomer and physicist, was one of the most important European intellectuals of the 14th century, his contributions to economic thought scarcely deserve such exclusive attention. Orem was a pupil and follower of Jean Bourdain, a scholastic commenting on Aristotle and teaching in his turn at the University of Paris and going on to become Bishop of Les yeux.

32:44Orem was moved to write his well-known booklet, A Treatise on the Origin, Nature, Law and Alterations of Money, in the 1350s, applying the teachings of his hard-money mentor to to the rash of monetary debasements indulged in by the kings of France in the first half of the 14th century. In the centuries before paper money and central banking were founded in the late 17th century, the only way in which kings could gain revenue through monetary manipulation was by debasement, changing the definition of the money unit by lightening its weight in terms of the basic Money, Gold or Silver. If, for example, the money unit had been defined as ten ounces of silver, the government could use its monopoly of the coinage to redefine the money unit as nine silver ounces, and then pocket the difference in the course of recoinage. The extra ounces would be employed to mint new coins for the king to use in wars, for the The Building of Palaces and for Other Allegedly Worthy Causes

33:59The British currency unit, the pound sterling, got its name centuries ago by originally being defined as simply one pound of silver. The process of debasement in Britain has proceeded so far that the pound is now equal to less than one-fourth a silver ounce. For the advent of paper money and central banking, then, debasement was the only process by which the ruler could alter the currency to create a greater supply of money, in terms of the money unit, and thereby cause price inflation. The king was able to use his compulsory monopoly of the coinage to manipulate repeated debasements for his own gain, at the expense of the rest of the public.

34:51Orem's most important contribution to monetary theory was to enunciate clearly for the first time what came to be known as Gresham's Law, that is, the insight that if two or more monies are legally fixed in relative value by the government, then the money overvalued by the The government will drive the undervalued money out of circulation. Thus, if the government decrees that, say, one ounce of gold is legally worth ten ounces of silver, whereas on the free market it is worth fifteen, the people will stick their creditors and vendors with the legally overvalued money, silver the bad money, while they hoard the undervalued, gold, the good money, or exported out of the country where it can be sold at its market value.

35:46Gresham's law has often been boiled down in common parlance into bad money drives out good, but stated that way it is paradoxical and unsatisfying, for it implies that while In all other market products the good will out-compete the bad. There is some deep flaw in the free market that causes it to prefer bad money to good. But as Ludwig von Mises clarified in the early 20th century, Gresham's law is the product not of the free market, but of government monetary control. This fixing of relative money value is a special case of the general consequence of any price control, that is, shortage of a good in which maximum prices are imposed, and a surplus where a minimum price is enforced.

36:43In the case of money, in our example, gold suffers a maximum price control, and therefore a shortage, while the value of silver is kept up artificially and therefore goes into surplus relative to gold. The first formulation of Gresham's Law was that of the satiric ancient Greek playwright Aristophanes, who in The Frogs states characteristically, In our republic, bad citizens are preferred to Good, Just as Bad Money Circulates While Good Money Disappears. Orem, however, put the law in a cogent and correct manner, emphasizing that the monetary disruption is a function of government price fixing.

37:32If the fixed legal ratio of the coins differs from the market value of the metals, the coin The coin which is underrated entirely disappears from circulation, and the coin which is overrated alone remains current. In his treatise, Nicole Orem was moved to apply his mentor Bourdain's metalist monetary theory to attack the debasement policy of the French kings. Orem did not go so far as to denounce the king's coinage monopoly per se, but he did and accomplish the feat of taking the whole matter out of the king's carefully propounded mystique of sovereignty, converting the entire coinage question to a matter of practical convenience.

38:22Since the king was not entitled to cloak coinage in the mystique of royal prerogative and absolute royal will, he was duty-bound to govern according to the best interests of the community. He is therefore obliged to maintain the standards of weight and of coinage. Frequent alterations in such standards destroy respect and breed scandal and murmuring among the people and risk of disobedience. The definition of the currency unit should therefore be a fixed ordinance. Frequent alterations and debasements, Orem pointed out, will cause money and coins to to lose their character as measures of value, and internal and external trade will be crippled.

39:11Foreign merchants will be repelled since they will no longer have good safe money to work with, while domestic traders will no longer have any firm means of communication. Money could no longer be loaned out safely and there would be no way of correctly valuing money incomes. Furthermore, since debased money will have a lower value at home, gold or silver will be sent abroad, where they will now have a higher market value. Thus Orem was perhaps the first to point out that money will tend to flow to those areas and countries where its value is highest, and to leave those countries where its value is lowest.

39:58École Orem had no illusions about the reasons for the king's repeated debasements. As Orem put it, if the king should tell the tyrant's usual lie that he applies the profit from debasement to the public advantage, he must not be believed, because he might as well take my coat and say he needed it for the public service. Morem also adds to Bourdain's analysis of how commodities become money on the market. He stresses easy portability and that it should be of high value per unit weight. He also points out that after a period of gold or silver being weighed out in precise quantities for each transaction, people started to coin the precious metals with an inscription and a head on the coin to guarantee a certain quantity of gold or silver in each coin.

40:57Gold being a more valuable money will generally be used for larger transactions, while silver and even copper may be used for smaller purchases. 4. The Odd Man Out, Heinrich von Langenstein One nominalist and student of Bourdain, Heinrich von Langenstein the Elder, also known as Henry of Hesse, 1325-1397, while an uninfluential and minor scholastic philosopher in his own and later centuries, made great mischief for modern interpretations of the history of economic thought. Langenstein, who taught first at the University of Paris and then at Vienna, began in his treatise on contracts by analyzing the just price in the mainstream scholastic manner.

41:56Just price is the market price, which is a rough measure of the human needs of consumers. This price will be the outcome of individuals' calculations about their wants and values, These, in turn, will be affected by the relative lack or abundance of supply, as well as by the scarcity or abundance of buyers. Having said this, Langenstein proceeded to contradict himself completely. In a highly unfortunate contribution to the history of economic thought, Langenstein urged local government authorities to step in and fix prices. Price fixing would somehow be a better path to the just price than the interplay of the market.

42:43Other scholastics had not exactly opposed price fixing. For them, the market price was just whether it was set by the common estimate of the market or by the government. But it was at least implicit in their writings that the free market was a better, or at the and, at the very least, an equally good path to discovering the just price. Langenstein was unique in positively advocating government price fixing. Moreover, Langenstein added another economic heresy. He counseled the authorities to fix the price so that each seller, whether merchant or craftsman, could maintain his status or station in life in the society.

43:31The just price was the price which maintained everyone's position in the style to which he had become accustomed, no more and no less. If a seller tried to charge a price to advance beyond his station, he was guilty of the sin of avarice. Langenstein was the odd man out among the scholastics and late medieval thinkers. No one has been found to second the station-in-life concept of the just price. Indeed, St. Thomas Aquinas himself effectively demolished this view when he trenchantly declared, In a just exchange, the medium does not vary with the social position of the persons involved, but only with regard to the quantity of the goods.

44:20For instance, whoever buys a thing must pay what the thing is worth, whether he buys from a pauper or a rich man. In short, on the market, prices are the same to all, rich or poor, and furthermore, this is a just method of establishing prices. In the bizarre Langenstein view, of course, a wealthy seller of the same product would be obliged to sell it for a far higher price than a poor seller, in which case it is unlikely that the wealthy man would last long in the business. As far as can be determined, no Medieval or Renaissance thinker adopted the Station in Life theory, and only two followers adopted the price-fixing position.

45:08One was Matthew of Krakow, circa 1335 to 1410, professor of theology at Prague and later rector at the University of Heidelberg, and Archbishop of Worms, and particularly Jean de Garrison, 1363-1429, nominalist and French mystic who was Chancellor of the University of Paris. Garrison, however, ignored the station in life notion and reverted to the 13th century view of John Duns Scotus that the just price is the cost of production plus compensation for Labor and Risk Incurred by the Supplier. Garrison therefore urged that the government fix prices to force them to conform to the allegedly just price.

46:01Indeed, Garrison was a fanatic on price fixing, advocating that it be extended from its customary sphere in wheat, bread, meat, wine and beer to embrace all commodities whatsoever. Fortunately, Garrison's view also had little influence. von Langenstein was scarcely important in his own or at a later day. His great importance is solely that he was plucked out of well-deserved obscurity by late 19th century socialist and state corporatist historians, who used his station-in-life fatuity to conjure up a totally distorted vision of the Catholic Middle Ages.

46:47That era, so the myth ran, was solely governed by the view that each man can only charge the just price to maintain him in his presumably divinely appointed station in life. In that way, these historians glorified a non-existent society of status in which each Each person and group found himself in a harmonious hierarchical structure, undisturbed by market relations or capitalist greed. This nonsensical view of the Middle Ages and of scholastic doctrine was first propounded by German socialist and state corporatist historians Wilhelm Rocher and Werner Sombart in the late 19th century, and it was then seized upon by such influential writers as as the Anglican Socialist Richard Henry Taney and the Catholic Corporatist scholar and politician Amintore Fanfani.

47:47Finally, this view, based only on the doctrines of one obscure and heterodox scholastic, was enshrined in conventional histories of economic thought, where it was seconded by the free market but fanatically anti-Catholic economist Frank Knight and his followers in the now and now highly influential Chicago School. The much needed corrective to the older view has at last become dominant since World War II, led by the enormous prestige of Joseph Schumpeter and by the definitive research of Raymond de Rouvet. 5. Usury and Foreign Exchange in the 14th Century The charging of interest on a loan continued to be condemned totally as usury by the mainstream of scholastic writing.

48:43Only a minority followed Cardinal Hostiensis and Olivier in allowing Lucrem Cessens, return on investment foregone, and then only for a charitable loan and not for professional moneylenders. Foreign exchange transactions fared no better. The mainstream of scholastics, including St. Thomas, simply condemning them outright as userers and as trying to charge interest on barren money. By the 13th and 14th century, however, bills of exchange were coming into prominence as credit instruments, particularly in foreign exchange dealings. Sophisticated Foreign exchange transactions developed in which dealers could charge and pay interest on credit, but such transactions were formally disguised as purchases or sales of foreign currencies.

49:41Again, most scholastics continued to condemn exchange dealings, but a courageous minority arose during the 14th century to champion these now pervasive transactions in which which the Church itself had for a long time been engaged. It started weekly with Aquinas's chief personal disciple, Giles of Lecine, who, while confused about the foreign exchange market, did speak of risk as justifying these credit transactions, and also showed that the exchange dealer gives something of more utility to his customer than what the customer pays, entitling him to an extra charge.

50:28The main defense of the foreign exchange market was launched by the distinguished Franciscan Alexander Bonini, also known as Alexander of Alexandria or Alexander Lombard. Bonini had an academic career at the University of Paris, then lectured at the Papal Court in Theology and finally served as the Franciscan Provincial in his native Lombardy, the site of the most notorious usurers of the day. In his Treatise on Usury, a lecture given at Genoa in 1307, Alexander, while attacking usury in the usual way, presented a thoroughgoing defense of the foreign exchange transactions with which he was familiar. Attacking the by the Aristotelians, Alexander pointed out that money cannot have only one function of serving as a barren medium of exchange, since there are many coins and these coins must be exchanged.

51:31The value of the coins thus traded, furthermore, is properly determined not by law but by the weight and the content of the coins. Alexander also adopted Giles of Lessines' insight that the dealer provides more utility to his customer than he receives in the money transactions. As for credit transactions in foreign exchange, Alexander Lombard did not defend them all, but provided a lucrum cessans defense for the changes in the value of a money between the beginning and the end of the transaction. Indeed, Alexander was one of the first to point out that the demand for money can and does vary over time, giving rise to changes in the value of money.

52:23Lucrum Cessans provided the entering wedge for the scholastic justification of the main method by which the usury prohibition was evaded during and after the High Middle Ages. It is illuminating that Alexander had begun his defense with the practical point that the Church always condemns and pursues usurers, but it does not condemn and pursue the exchange dealers but rather fosters them, as is apparent in the Roman Church. Alexander Lombard's defense of the foreign exchange market was repeated verbatim by his His disciple and successor as Franciscan Provincial of Lombardy, Astasanis, died 1330.

53:12Astasanis, like his mentor, came from Lombardy, specifically from Asti, one of the principal locations of the leading international usurers. His main work was his Summa, 1317. Like his predecessor, Astesannes was impressed by the fact that the Roman Church fosters the exchange dealers. Furthermore, he adds to Alexander's reasoning a frank defense of Lucram Cessans, which he was one of the first theologians, as distinct from canonists, to embrace. Among the prominent 14th century writers we have already discussed, Heinrich von Langenstein, As we might expect, denounced all foreign exchange dealers as userers per se.

54:04Even Nicole Orem simply repeated the Aristotelian shibboleth that the trade of money for money is unnatural because money is barren. While not precisely declaring exchange transactions to be usurious per se, Orem, in a flight of of Hate denounced foreign exchange as vile, as an occupation that stains the soul, just as cleaning sewers stains the body. In contrast, however, Jean Bourdain, Orem's mentor, engaged in a defense of foreign exchange, distinguishing two kinds of exchange, one where the dealer gets only as much as he gives, are perfectly worthy according to the Aristotelian Thomas tradition, and another where the dealer takes more than he gives.

54:58But here, Bourdain makes another mighty leap in tearing down some of the irrational barriers that the scholastics had drawn up against monetary transactions. For even the latter kind of transaction, declared Bourdain, may be legitimate, even if there There is no equivalent in exchange, provided the exchange promotes the common good. While not used for ordinary usury, Bourdain's new concept sowed the seeds for total justification of the foreign exchange bankers. At the turn of the 15th century, a thoroughgoing defense of exchange contracts was set forth Written by the sophisticated Florentine lay-canon lawyer Lorenzo di Antonio Ridolfi, 1360-1442.

55:54Ridolfi was a lecturer at the Athenium in Florence, and was at one time Ambassador of the Florentine Republic. Just as Lombard was unwilling to condemn a practice encouraged by the Church, so Ridolfi Ridolfi declared his unwillingness to condemn an occupation pervasive in his native Florence. Developing the insight of Lombard, Ridolfi, in his 1403 treatise on usury, emphasized that the value of money can differ from one place to another as well as over time. These differences are the result of changes in the demand for money, fluctuations of the the demand relative to the supply and alterations in the metallic content of the coinage.

56:44These variations justify foreign exchange dealings as well as credit transactions within them. Thus, Ridolfi developed the theory which showed that the value of money, like any other commodity, is determined by the interactions of its demand and supply, and that it too can vary in value to over time and place.