4. The Late Spanish Scholastics

0:00Chapter 4. The Late Spanish Scholastics 1. The Commercial Expansion of the Sixteenth Century The great secular depression of the fourteenth and first half of the fifteenth century began to give way to economic recovery in the second half of the fifteenth. The overland trade from the Mediterranean to Northern Europe, cut off by the French king's depredations against the Fairs of Champagne, was increasingly replaced by sea trade off the Atlantic coast. Vessels now went through the Straits of Gibraltar and up the coast, increasingly sailing to Antwerp and making that city the big trading center in Northern Europe during the 16th century.

0:53Commerce moved away from the restrictions and high taxation of Flemish Bruges and shifted to and expanded in free market Antwerp, whose business and trade could flourish free of hampering legislation, privileges and high taxes. In addition, Atlantic ships headed south and west, and the famous explorations and discoveries of the late 15th century changed the face of world history by making European countries world powers, and began to integrate Africa and the new world into the European economy. Spain and Portugal, the leading explorers of the new continents, became the dominant nation states and empires of the 16th century.

1:45Slowly but surely, the Italian city-states, which had been in the forefront of economic advance and the spearhead of Renaissance culture, began to be left behind in the advance of economic and political power. Along with commercial expansion came inflation, fueled by the immense increase of gold and silver brought to Europe by the Spaniards from the newly found mines of the Western Hemisphere. An approximate tripling of the stock of specie in Europe resulted in a century of inflation, with prices tripling during the 16th century. The new money flowed first into the main Spanish port of Seville, then into the rest of Spain, and finally into other countries of Europe, and the geography of price rises followed accordingly.

2:43As Atlantic powers, England and France grew in strength along with the other Atlantic nations of Western Europe. They were greatly aided by the end of the destructive Hundred Years War between the two nations in 1453. The doctrines of the Absolute State, previously limited largely to theorists and rulers of the Italian city-states, now spread to all the nation-states of Europe. Absolutism eventually triumphed throughout Europe by the early 17th century. The victory was fueled, as we shall see below, by the rise of Protestantism, and, a bit later, of secularism, beginning in the 16th century.

3:332. Cardinal Kajetan, Liberal Thomist Late scholasticism was the product of the 16th century, the century that ushered in the Protestant Reformation and the Catholic Counter-Reformation. If the 13th century was well described as the golden age of scholastic philosophy, then the 16th century was its Silver Age, the era of a shining renaissance of scholastic thought before the shades of night closed in for good. As we have seen, the 14th and 15th centuries saw the emergence of nominalism and at least the weakening of the idea of a rational, objective natural law, including a natural law ethics, discoverable by man's reason.

4:30The 16th century witnessed a renaissance Thomism spearheaded by one of the greatest churchmen of his age, Thomas de Vio, Cardinal Cajetan, 1468-1534. Cardinal Cajetan was not only the preeminent Thomist philosopher and theologian of his day, He was also an Italian Dominican, who became General of the Dominican Order in 1508. A Cardinal of the Church, he was the Pope's favorite upholder of the faith in debates with the great founder of Protestantism, Martin Luther. In his commentary on Aquinas Summa, Kajetan, of course, endorsed the standard scholastic view that the just price is the common market price, reflecting the estimation of the buyers, and held that that price will fluctuate upon changing conditions of demand and supply.

5:34In attempting to purge scholastic economics of any trace of Langensteinian station in life theory, however, Kajetan went further to criticize Aquinas for denouncing accumulation of Wealth Beyond One's Status as Suffering from the Sin of Avarice. On the contrary, declared Cajetan, it is legitimate for highly able persons to move up the social ladder in a way that matches their attainments. This candid endorsement of upward mobility in a free market was the broadest attempt Yet to Rid Scholasticism of All Traces of the Ancient Contempt for Trade and Economic Gain.

6:22In his comprehensive treatise on foreign exchange, De Cambias, 1499, the great Cajetan set forth the fullest and most unqualified defense yet penned of the foreign exchange market. Sweeping aside the dithering indecisiveness of his fellow-Dominican, Fra Santi Rucelai, 1437-1497, himself a former exchange banker and the son of a banker, the cardinal was firm and hard-hitting. Since the role of the merchant has long since been established as legitimate, then so should In the course of his defense of the Exchange Banker, who is simply engaging in a kind of commodity transaction. Besides, modern trade could not function without the foreign exchange market, and cities could not exist without trade. Hence, it is needful and right that the exchange market exist. As in other markets, the customary market price is the just price.

7:31In the course of his defense of the exchange market in Decambias, Cajetan proceeded to advance the state of the art in monetary theory. He showed trenchantly that money is a commodity, particularly when moving from one city to another, and is therefore subject to the demand and supply laws governing the prices of commodities. At this point, Cajetan made a great advance in monetary theory, indeed in economic theory generally. He pointed out that the value of money depends not only on existing demand and supply conditions, but also on present expectations of the future state of the market.

8:22The definition of wars and famines, and of future changes in the supply of money, will affect its current value. Thus Cardinal Cajetan, a 16th century prince of the church, can be considered the founder of expectations theory and economics. Furthermore, Cajetan distinguished between the two kinds of value of money, Its purchasing power in terms of goods, so that gold or silver are equated with goods being bought and sold, and the value of one coin or currency in terms of another on the foreign exchange market. Here each kind of coin tends to move to that region where its value is highest, and away from wherever its value is lowest.

9:18On the vexed usury question, though Cajetan was not as radical as his German contemporary Zumenhardt in virtually eradicating the usury prohibition, he did join Zumenhardt on the doctrine of implicit intention and was even more radical in the one area where Zumenhardt had hung back, lucrum cessans. That intention meant that if someone really believed his contract not to be alone, then it was not usurious, even though it might be alone in practice. This of course paved the way for the practical elimination of the ban on usury.

10:04In addition, Kajetan also joined his fellow liberals in endorsing the guaranteed investment contract. But Cardinal Cajetan's great breakthrough on the usury front was his vindication of lucrum cessans. Wielding the mighty authority of being the greatest Thomist since Aquinas himself, Cajetan offered a point-by-point critique of his master's rejection of this exception to the usury ban. He then vindicates, not indeed all of lucrum cessans, but any loan to businessmen. Thus, a lender may charge interest on any loan as payment for profit foregone on other investments, provided that loan be to a businessman.

10:58This untenable split between loans to businessmen and to consumers was made for the first time as a means of justifying all business loans. The rationale was that money retained its high profit-forgone value in the hands of business, but not of consumer borrowers. Thus, for the very first time in the Christian era, Cardinal Cajetan justified the business of Money Lending, provided they were loans to business. Before him, all writers, even the most liberal, even Konrad Zumenhart, had justified interest charges on lucrum cessans only for ad hoc charitable loans. Now, the great Kajetan was justifying the business of money lending at interest.

11:563. THE SCHOOL OF SALAMANCA, THE FIRST GENERATION If the newly burgeoning liberal Thomism began with Cardinal Cajetan in Italy, the torch was soon passed to a set of 16th century theologians who revived Thomism and scholasticism and and kept them alive for over a century. The School of Salamanca in Spain. It is no more than fitting that Spain should be the center of scholastic learning in the 16th century. That century was preeminently the century of Spain. Spain, the leader in the explorations and conquests in the New World.

12:44Spain, the nation that brought the treasures of gold and silver across the Atlantic to Europe. Spain, along with Italy and Portugal, the nation in Europe that remained resoundingly Catholic and proved immune to the spread of Protestantism. The acknowledged founder of the School of Salamanca was the great legal theorist and A pioneer in the discipline of international law, Francisco de Vitoria, circa 1485-1546. A Basque raised in Burgos in northern Spain and born into a prosperous family, Vitoria became a Dominican and went to study and then teach in Paris.

13:31There, in one of the ironies of the history of thought, he became a disciple of a Fleming who had been a pupil of one of the last of the Akhamites, John Major. This man, Pierre Croquer, circa 1450 to 1514, had become a student and then teacher of theology late in life. Turning away from his teacher Major, Croquer abandoned nominalism and moved to Thomism, Entering the Dominican Order and Coming to Teach at the Dominican College of Saint-Jacques in Paris. After spending over 17 years imbibing and then teaching Thomism in Paris, Vittoria returned to Spain to lecture in theology at Valladolid, finally coming to Salamanca.

14:26and the Queen of Spanish Universities as Prime Professor of Theology in 1526. A brilliant and highly influential teacher and lecturer, Vitoria set the framework for the Salamanca School for the rest of the century. Even though he did not publish any writings, his lectures have come down to us as transcribed by his students, much as in the case of Aristotle. Much of the glory of the University of Salamanca was the result of reforms instituted by Vitoria himself. Consequently, the University soon had no less than 70 professorial chairs filled by the best scholars of the day, providing instruction not only in the traditional medieval curriculum but also in such newfangled disciplines as navigational science and the Chaldean and Language.

15:26Vitoria's lectures were largely commentaries on Aquinas moral theory. In the course of the lectures, Vitoria founded the great Spanish scholastic tradition of denouncing the conquest, and particularly the enslavement by the Spanish, of the Indians in the New World. In an age when thinkers in France and Italy were preaching secular absolutism and the The Power of the State, Vitoria and his followers revived the idea that natural law is morally superior to the mere might of the state. Vitoria did not expound much on economic topics, but he was interested in commercial morality and his views followed the mainstream scholastic tradition.

16:17The just price was the common market price, even though if there were a legally fixed price it would also be considered just. In short, legal price edicts are to be obeyed. However, for those goods without a common market, say with only one or two sellers, Vitoria advanced beyond his forebears. Instead of having cost of production determinate, Vittoria, while stating that cost could well be considered, returned to the old, nearly forgotten laissez-faire Roman law tradition of free individual bargaining as providing the just price.

17:03For in this situation, Vittoria maintained, the price had to be settled by the exchanging parties themselves. Victoria, however, then added a curious distinction between luxury and non-luxury goods. Luxuries could be sold for a fancy price, since the buyer pays the high price voluntarily and out of his free will. Why this free will should disappear with non-luxury items, Victoria unfortunately does not explain. His most eminent student and fellow theologian at Salamanca was the Dominican Domingo de Soto, 1494-1560.

17:52Born in Segovia of comfortable but not wealthy parents, de Soto studied at the University of Alcala near Madrid, and then went to Paris where he studied under Vitoria and later became a professor. Turning to Spain, de Soto became professor of metaphysics at Alcala and then entered the Dominican order, joining his mentor as a theology professor at Salamanca in 1532. Though a shy personality, de Soto was repeatedly involved in university administration and was several times prior of the College of Esteban in the university. De Soto's work in physics is also considered outstanding.

18:42In 1545 the Emperor Charles V honored De Soto by naming him as his representative at the Great Council of Trent, the mighty council of the Catholic Counter-Reformation. Soon De Soto became confessor to the Emperor, but gave it up in a few years to return to his professorship at Salamanca. Mises' fame rested on his treatise De Justitia et Jure, published in 1553 and based on lectures given originally at Salamanca in 1540 and 1541. De Justitia et Jure was reprinted no less than 27 times before the end of the century and was read and quoted by jurists and moralists until the mid-18th century.

19:37Unfortunately on economics De Soto was a reactionary thinker and set back some of the liberal gains of the previous scholastics. Thus, while De Soto conceded that the price of goods is not determined by their nature but by the measure in which they serve the needs of mankind. This utility analysis was weakened by vague concessions to the labor, trouble and risk involved in a sale. Worse than that, De Soto was not content to concede the propriety of government fixing the price of goods and letting it go at that. Instead, he declared flatly that a fixed price is always superior to the market price, and that ideally all prices should be fixed by the state.

20:30And even lacking such control, prices for de Soto should be set by the opinion of prudent and fair-minded men, whoever they might be, who have nothing to do with any transactions. They should not be determined by the free bargaining of the buyers and sellers involved. Thus, De Soto, more than any other scholastic thinker, called for statism, rather than market determination of price. On foreign exchange, De Soto's influence was confusing, cutting both for and against that market. In its favor, he contributed perhaps the first cogent explanation of the movements of currencies and exchange rates on the foreign exchange market, what would later be called the purchasing power parity theory of exchange rates.

21:28The economy of the 16th century was marked by an inflation which first hit Spain in response to gold and silver discoveries in the New World, and the consequent importation of specie into Spain. Inflation first struck in Spain and then spread to the rest of Europe as the Spaniards spent the increased supply of money. The result was the first large-scale secular inflation in history, prices in Europe doubling over the first half of the 16th century. Plato was concerned to explain the curious fact that more abundant species in Spain caused it to have an unfavorable balance of payment, with money flowing out of Spain and into the rest of Europe.

22:20As he put it, the more plentiful money is in Medina, the more unfavorable are the terms of exchange, and the higher the price that must be paid by whoever wishes to send money from Spain to Flanders, since the demand for money is smaller in Spain than in Flanders. And the scarcer money is in Medina, the less he need pay there, because more people want money in Medina than are sending it to Flanders. In short, more abundant money in one place causes money to flow out and lowers the exchange Exchange Rate Relation to Other Currencies. A more abundant money supply means that money is less wanted there, a primitive way of pointing to the supply increasing along a given falling demand curve for money, so that each unit or coin is less valued. Here is also a rudimentary Re-Purchasing Power Parity Analysis of Exchange Rates.

23:29But despite this subtle advance in analyzing the workings of the market, De Soto backslid on usury to such an extent that he advocated banning the foreign exchange market as usurious. In fact, De Soto managed to influence the court in 1552 to outlaw all internal currency exchange at anything other than the legal par. As can be seen, De Soto exercised a reactionary influence on the usury ban, and managed to block any general acceptance of the revolutionary contributions of Zumanhart and Kajetan on the usury issue. Attempting to turn back the tide, De Soto went so far as to declare the standard guaranteed or insured investment contract as sinful and usurious, on the old discredited medieval ground that risk and ownership must never be separated.

24:34He tried to roll back lucrum cessans and, in general, was more rigorously anti-usury than almost any of the medieval scholastics, insisting anachronistically that money is is sterile and bears no fruit, and therefore cannot lawfully command interest. Ironically, however, while anxious to reverse the tide of liberalization of usury, De Soto himself contributed to the long-run demise of the usury ban. We remember that Pope Urban III in his Decretal Consuluit in the late 12th century had suddenly Finally pulled a forgotten quotation from Luke, chapter 6, verse 35, out of the hat, Lend freely, hoping nothing thereby, and use this vague counsel to charity as a stick with which to prohibit all interest on loans.

25:36More remarkably, all later scholastics had followed this dubious divine ban on interest-taking. Even the radical Zumenhardt had conceded the divine injunction against interest and simply narrowed it down to virtually nothing. It paradoxically now fell to the conservative De Soto to cast the first stone. The Luke statement, he declared contemptuously, has no relevance to lending at interest, and Christ most definitely did not declare usury to be sinful. Therefore, he concluded, if usury is not against the natural law, it is perfectly licit. Theologically, there is no problem with usury.

26:254. The School of Salamanca, Azpilcueta and Medina Fortunately, de Soto's reactionary and statist influence was at least partially offset by another of Victoria's distinguished students, Martin de Azpilcueta Navarres, 1493-1586. Renowned for his saintly life and vast learning, the gaunt, hook-nosed Dominican Azpilcueta was regarded as the most eminent canon lawyer of his day. After teaching canon law in Cahors and Toulouse in France, Azpilcueta returned to take up a chair at Salamanca, where his overflowing lectures featured a new method of teaching civil law by combining it with canon law.

27:21In 1538, Azpilcueta was sent by Emperor Charles V to be rector of the new University of Coimbra in western Portugal. There he developed the principles of international law originally set forth by his master, Vitoria. Azpilcueta spent his last years in Rome, a trusted advisor to three popes, dying at the advanced age of 93. Azpilcueta used his great influence to advance economic liberalism farther than it had ever gone before, among the scholastics or anywhere else. In sharp contrast to De Soto's admiration for comprehensive price control, Azpilcueta was the first economic thinker to state clearly and boldly that government price fixing was imprudent and unwise.

28:19When goods are abundant, he sensibly pointed out, there is no need for maximum price control, and when goods are scarce, controls would do the community more harm than good. But Azpilcueta's outstanding contribution to economics was his Theory of Money, published in his Commentario Resolutoio de Usuras, 1556, as an appendix to a manual on moral theology. The manual and the commentaries in the appendix were translated into Latin and Italian and proved to be influential for Catholic writers for many years. As Pilqueta built on the analysis of Cardinal Cajetan to present the first clear and unambiguous This presentation of the quantity theory of money, or, rather, he breaks firmly with the tradition that money can, in any sense, be a fixed measure of value of other goods.

29:25In contrast to older emphasis on foreign exchange, or money in terms of other monies, as Pilqueta Queta clearly identified the value of money as its purchasing power in terms of goods. Once Aspil Queta grasped these two points firmly, then the quantity theory followed directly. For then, like other goods, the value of money varied inversely with its supply, or quantity available. As Aspil Queta put it, all merchandise becomes dearer when it is in great demand and short supply, and that money, in so far as it may be sold, bartered or exchanged by some other form of contract, is merchandise, and therefore also becomes dearer when it is in great demand and short supply.

30:22It should be noted that this splendid and concise analysis of the determinants of the purchasing power of money does not make the mistake of later quantity theorists in stressing the quantity or supply of money while ignoring the demand. On the contrary, demand and supply analysis was applied correctly to the monetary sphere. Gold and silver flooded into Spain and then the rest of Europe in the 16th century, driving up prices first in Spain and then in the other countries. Prices doubled by the middle of the century. Historians of economic thought have held the first quantity theorist, the first thinker to attribute the price rise to the influx of specie, to be the French by the absolutist political theorist Jean Baudin. But Baudin's famous Reply to the Paradoxes of Monsieur Malastrois, 1568, was anticipated by 12 years by Azpilcueta's work. And since the erudite Baudin probably had read the Spanish Dominican, his announced claim to originality seems in unusually bad taste.

31:42And since Spain was the first recipient of the flow of specie from the new world, it is certainly not surprising that a Spaniard should be the first person to decipher the new phenomenon. Thus, as Pilqueta wrote, other things being equal, in countries where there is a great scarcity of money, all other saleable goods, and even the hands and labor of men, are given for Less Money than Where it is Abundant Thus we see by experience that in France, where money is scarcer than in Spain, bread, wine, cloth and labor are worth much less. And even in Spain, in times when money was scarcer, saleable goods and labor were given for very much less than after the discovery of the Indies, which flooded the country with with Gold and Silver. The reason for this is that money is worth more where and when it is scarce than where and when it is abundant. Martin de Azpilcueta, in this case influenced by his colleague de Soto, also developed the latter's purchasing power parity theory of

32:58exchange rates at the same time that he worked out the quantity theory, supply and demand Analysis of the Value of Money. The two, of course, go hand in hand. One of Azpilcueta's most important contributions was to revive the vital concept of time preference, perhaps under the influence of the works of its discoverer, San Bernardino of Siena. Azpilcueta pointed out, more clearly than Bernardino, that a present good, such as money, will naturally be worth more on the market than future goods, that is, goods that are now claims to money in the future.

33:43As Aspil Queta put it, a claim on something is worth less than the thing itself, and it is plain that that which is not usable for a year is less valuable than something of the same quality which is usable at once. And if a future good is naturally less valuable than a present good on the market, then this insight should automatically justify usury as the charging of interest not on time, but on the exchange of present goods, money, for a future claim on that money, an IOU. And yet, this seemingly simple deduction, simple to us who come after, was not made by Azpilcueta Navaras.

34:34On the foreign exchange market, Azpilcueta struck a blow for economic liberalism by reviving the Cajetan line and repudiating the statist fulminations of his colleague De Soto, who had called for the prohibition of all foreign exchange transactions as usurias. In addition to repeating Cajetanian arguments, the Spanish Dominican and trusted advisor to three popes injected practical considerations. Azpilcueta pointed out that an infinite number of decent Christian merchants, aristocrats, widows and even churchmen commonly invest in foreign exchange. Aspil Queta insisted that he refuses to damn the whole world by imposing overly rigorous standards.

35:25Furthermore, he warned, to abolish foreign exchange markets would be to plunge the realm into poverty, a step he was clearly not willing to take. On most other aspects of the usury question, however, Aspil Queta Navaras was surprisingly conservative and a big step backward from the advanced free market position of Konrad Zumenhardt. On the census or annuity contract, Aspil Queta Navaras was far harsher than De Soto, who was liberal on this particular aspect of usury. Instead, Aspil Queta was the main influence on Pope Pius V's issue in 1569 of the Bull Cum Onus, In which all census is declared illegal, except on a fruitful immobile good, for which status money, of course, cannot qualify.

36:24The Pope had been goaded into issuing the bull by Cardinal San Carlo Borromeo, who, as newly appointed Archbishop of Milan, professed to find usury everywhere in that sinful city. Borromeo was one of the leaders of the Catholic Counter-Reformation, and his prodding led to Cum Onus. But it was too late. The census contract was too ingrained in European practice, and too many theologians had adopted the liberal approach. The majority of Catholic theologians rejected this new attempt, and simply stated The Pope's arguments were matters of positive rather than natural law, and therefore that the papal bull had to be accepted by the government or be the common practice of a particular country for it to carry the force of law in that country.

37:21Interestingly enough, not a single country in Europe accepted Cum Onus. Not Spain, not France, nor Germany, not southern Italy, nor even Rome itself. The contempt with which Cum Onus was received throughout Europe is strikingly revealed in its treatment by the recently founded Jesuit order. The Society of Jesus was founded in 1537 by an invalided Spanish ex-army officer, Ignatius Loyola, born in the Basque country. The rapidly expanding society was installed on rigorous discipline along consciously military lines.

38:06Loyola's original title for the society was The Company of Jesus. Under vow of absolute obedience to the Pope and to the General of the Order, the Jesuits became the shock troops of the Catholic Counter-Reformation. Despite their vow to the Pope, the Jesuit General Congregation of 1573, only four years after Cum Onus, validated the mutually redeemable census contract. And in 1581, the Jesuit congregation went the whole way and validated every type of census contract. When some German Jesuits became restive at this liberality, the general of the Jesuit order, Claude Aquaviva, in 1589, ordered that the validity of the census contract be upheld by German Jesuits with no further dissent.

39:05So much for the Pope's census prohibition. In the following century, the census loophole was widely used to camouflage interest on loan contracts, particularly in Germany. As Noonan points out, it is certainly significant that the German word for interest on a loan is ziens, derived from the Latin, census. The Zumanhart-Kajetan doctrine of implicit intention that if someone did not intend a contract to be a loan, then it was licit, was carried even further by the remarkable Jesuit congregation of 1581. The congregation justified virtually every contract.

39:53As Noonan concludes, in practice it meant that only loans to aged or infirm persons without property or loans bearing a rate of interest beyond that obtainable in a guaranteed investment contract or census were to be regarded as true usurious loans. If Azpilcueta Navaras was conservative on most aspects of usury, he did, however, become the first writer to justify interest charged on Lucrum cessens, investment profit foregone, for all loans, not just ad hoc loans made out of charity, previous writers, or even only for loans to business, cajetan.

40:41Now, any profit foregone could be charged as interest, even by professional moneylenders. The only restriction remaining, a feeble one in practice, is that the lender would actually have used his money to make the foregone investment. Of this first generation of late Spanish scholastics, approximately those who were born in the 1480s 1490s. The final noteworthy writer was Juan de Medina, 1490-1546. Medina, a Franciscan, did not, however, teach theology at Salamanca, but at the collegium at Alcala. Medina's distinction comes from being the first writer in history to advance the view clearly that charging Exposing interest on a loan is legitimate if in compensation to the lender for risk of non-payment. Medina's reasoning was impeccable. Exposing one's property to the risk of being lost is sellable and purchasable at a price, nor is it among those things which are to be done gratuitously. Furthermore, Medina pointed out, theologians now admit that someone One who guarantees a debtor's loan can licitly charge for that service.

42:07But in that case, if the borrower cannot find a guarantor, why cannot the lender charge the borrower for assuming the risk of non-repayment? Isn't his charge similar to the charge of the guarantor? The argument was sound, but the shock to the scholastics was severe, no less so because Because Medina weakened his risk justification by banning interest on riskless loans and restricting the charge to cases where the borrower could not find a guarantor. Domingo de Soto, in horror, correctly pointed out that to admit a charge for risk of non-payment would destroy the entire usury prohibition, since a charge could be made for a loan above the principal.

42:59The usually more liberal Aspil Queta gave Medina even shorter shrift, objecting correctly if insufficiently that every theologian, canon lawyer and natural lawyer disagreed with Medina's innovation, and that was supposed to be the end of the matter. Medina's discussion of value theory, however, was not nearly so cogent. In discussing the just market price, Medina throws in, higgledy-piggledy, a host of factors – costs, labor, industry and risk for suppliers, need or utility for buyers, and scarcity or abundance of the good. Clearly there was much less of a coherent analysis of supply than in the hands of San Bernardino of Siena.

43:52On the other hand, whereas the scholastic tradition held that the legal price would have to take precedence over the market price, Medina cited two cases where the market price should be followed, where the market price is lower, and where the authorities were too slow in adjusting the legal edict to a higher market price. 5. THE SCHOOL OF SALAMANCA, THE MIDDLE YEARS The institution and the structure of thought of the School of Salamanca was established then in the first half of the 16th century by three great Dominicans, Francisco de Vitoria and his followers, Domingo de Soto and Martin de Azpilcueta Navaras. The latter two theologians Salamanians were the founders of the economic aspect of the systematic theology and philosophy of the Salamanca School.

44:53The middle generation of Salamanquans were those men born in the first decades of the 16th century and writing near and after mid-century. The oldest of these second generation members was the eminent Diego de Covarrubias y Leva 1512-1577, whose handsome and distinguished features grace a stunning portrait by the great Spanish painter El Greco, now hanging in the Greco Museum in Toledo. Acknowledged as the greatest jurist since Vitoria, Covarrubias was the most prominent student of Azpilcueta. After 10 years as Professor of Canon Law at the University of Salamanca, Covarrubias was made Auditor of the Chancellor of Castile by the Emperor, after which he became Bishop of Ciudad Rodrigo and Bishop of Segovia.

45:50In 1572 Covarrubias became President of the Council of Castile. As did so many other scholastics of the time, Covarrubias' writings ranged over theology, History, Numismatics and Other Disciplines of Human Action as well as the Law. The Theory of Value had lain in the doldrums ever since San Bernardino and Johannes Nieder in the 15th century, and now, a century later, it was revived by Covarrubias. In his Variarum, 1554, Covarrubias gets value theory back on the right track. The value of goods on the market is determined by utility and by the scarcity of the product.

46:39The value of goods, then, depends not on matters intrinsic to the good or to its production, but on the estimations of consumers. Thus, Covarrubias. The value of an article does not depend on its essential nature, but on the estimation of Men, even if that estimation is foolish. Thus, in the Indies, wheat is dearer than in Spain, because men esteem it more highly, though the nature of the wheat is the same in both places. In considering the just price of a good, Covarrubias added, we must consider Consider not its original cost, nor its cost in labor, but only its common market value.

47:28Prices fall when buyers are few and goods are abundant, and vice versa. It should be noted, as will be mentioned further below, that Covarrubius, considered one of the greatest experts on Roman law in his day, exerted considerable influence on the great 17th Century Dutch Protestant jurist Hugo Grotius. Covarrubias economic writings were particularly influential in Italy, where they continued to be cited down through the work of the eminent Abbé Ferdinando Galliani in 1750. Another important contribution to utility theory was made by a lesser contemporary of of Covarrubias, Luis Saravia de la Calle Veronese. Saravia was one of several influential writers of handbooks on moral theology, which took the teachings of the great theologians and boiled them down for confessors and their penitents. In his Instrucción de Mercades, Medina del Campo, 1554, Saravia lashed out at all manner of cost of production theories of value, insisting that utility and market demand alone interacting with scarcity of supply determine the common market price and hence the just price.

48:58Saravia's attack on cost of production notions was trenchant and hard-hitting. The just price arises from the abundance or scarcity of goods, merchants and money, as has been said, and not from costs, labor and risk. If we had to consider labor and risk in order to assess the just price, no merchant would ever suffer loss, nor would abundance or scarcity of goods and money enter into the question. Saravia's work, in addition to being cited many times by later Spanish writers, was also influential in Italy, where it was translated in 1561.

49:44The Italian A. M. Venusti became a disciple of Saravia and published a similar treatise. The next important Salamancon economist was the colorful Dominican Tomás de Maracado, died 1585. Mercado's was the next important handbook on moral theology after Saravia. Tratos y Contratos de Mercaderes, Salamanca 1569. Born in Seville, Mercado was raised in Mexico, where he entered the Dominican order, from which he returned to Salamanca and Seville. Mercado's handbook drew on his extensive knowledge of business practice picked up on his travels and it was written in a concise and even sardonic style. Mercado was a perceptive if sometimes confused monetary theorist. Applying utility analysis to money, Mercado went right up to the edge of marginal analysis by pointing out that the purchasing Purchasing power is the highest where money is most scarce, and therefore highly esteemed.

51:00In short, Mercado dimly realized that the demand for money is a schedule, falling as the supply of money increases, and that the value or purchasing power of money is determined by the interaction of its supply and demand. Thus Mercado

51:48Attraction and appreciation are brought about in the first place by the abundance or scarcity of these metals. Since they are found and mined in America, they are there held in little esteem. It is not surprising that Mercado, in contrast to De Soto, opposed the outlawing of internal currency exchange in Spain. On the other hand, he was confused enough, in contrast to his keen analysis of the value of money, to favor the outlawing of the export of metals. But wouldn't the esteem for the remaining metals be higher, and wouldn't this check and offset the outward flow of metals?

52:35During the 1570s, a satellite group of theologian economists arose at Valencia, grounding themselves on their Studies at Salamanca. The most important was Francisco Garcia, who in his Trattato Utilismo, Valencia 1583, expanded and developed the subjective utility theory of value. In a notable advance in discussions of utility, Garcia pointed out that the utility or value The value of a thing may vary because one good may have many uses and serve more purposes than another, may serve a more important service than another, and or may perform a given service more efficiently than another.

53:24In addition to utility determining value and price, Garcia noted also its relative abundance Preference or Scarcity, and here Garcia, too, came just to the edge, although not over, of discovering the final missing marginal element in utility theory. For example, we have said that bread is more valuable than meat because it is more necessary for the preservation of human life. But there may come a time when bread is so abundant and meat so scarce that bread is Is Cheaper Than Meat Garcia went on to detail other determinants of value, including the number of buyers and sellers and the eagerness to buy and sell, that is, intensity of demand in buying or holding on to a product, whether vendors are eager to sell their goods and buyers much sought after and importuned.

54:27He then went on to integrate monetary into value theory, another determinant of prices being whether money is scarce or plentiful. In monetary theory, Garcia continued and developed the Aspilcueta Covarrubius Mercado line. In the Indies, where gold and silver are plentiful, specie is not as highly esteemed as in Spain, where there is less gold and silver. He similarly pointed out in his comprehensive discussion that when money is abundant in any given country, its esteem or value will be low, whereas when money is scarce it is far more highly valued.

55:13In other words, as Garcia pointed out, these differences in degrees of esteem or demand may occur either over place or over time. This comparative analysis of changes in the value of money over time or place was an important advance in monetary theory. But not only that, Garcia for the first time rested his macro-analysis on a micro-insight, that a very rich man, a man with an abundant personal supply of money, will tend to evaluate Here, Garcia actually grasped, though sketchily, the concept of the diminishing marginal utility of money. Marginalism, in this area at least, was actually reached rather than simply approached.

56:16Finally, Garcia arrived at the most integrated utility theory of the value of money to date. The value of money on the market is determined by the supply of money available, the intensity of the demand for money, and the safety of the money itself, called by later economists the quality of the money in the minds of people in the market. 6. The Late Salamanquans The school of Salamanca, begun by Francisco Vitoria in the 1520s, reached its final flowering at the end of the 16th century. One of the leading lights of that era was the Dominican Domingo de Báñez de Mondragón, 1527-1604, professor of theology at the University of of Salamanca, and friend and confessor of the famous mystic St. Teresa of Avila.

57:19de Báñez was renowned for the great controversy with his eminent Jesuit colleague Luis de Molina on the crucial question of determinism versus free will. de Báñez took the Dominican position, which leaned toward the Calvinist-determinist stand that salvation is solely a product of God's grace, ordered from the beginning of time for God's own inscrutable reasons. Molina championed the Jesuit view, which upheld the freedom of will of each individual in achieving salvation. In the latter view, the free will choice of the individual is necessary to effectuate God's grace, which is there for him to accept.

58:07A historian sums up Molina's view of free will with these inspiring words. Liberty is ours, so indisputably ours, that with the help of God's gifts it lies in our power to avoid all mortal sin and to attain eternal life. Freedom belongs to the sons of God. In a systematic discussion of money, its value, and foreign exchange, de Báñez, in De Justicia et Jure, 1594, provided a cogent discussion of the purchasing power parity theory of exchanges, a theory which had formed the scholastic main line since de Soto and Azpilcueta.

58:58The last notable Salamancon economic thinker was the great theologian Luis de Molina, 1535-1601. The ascendancy of Molina in Spanish scholastic thought was a fitting embodiment of the passing of the theological and the natural law torch from the Dominicans to the aggressive new Jesuit order. By the late 16th century, the influence of the order permeated all of Spain. Though a Salamancan through and through, Molina only briefly studied and never actually taught at that university. Born in Cuença of a noble family, Molina went briefly to Salamanca and then to the University of Alcala.

59:47Following the new Jesuit order, Molina was sent to the University of Coimbra in Portugal, since the Jesuit order was not yet fully organized in Castile. Molina was to remain 29 years as a student and teacher in Portugal. After Coimbra, the habitually shabbily dressed Molina taught theology and civil law for 20 years at the University of Evora. In retirement back in Quensa, the learned and worldly Molina published his massive six-volume magnum opus, De Justicia et Jure. The first three volumes were published in 1593, 1597, and 1600, and the other volumes followed posthumously.

1:00:37Luis de Molina was a solid economic liberal, and he provided a comprehensive analysis in in the Salamancon vein of supply and demand and their determination of price. The just price is, of course, the common market price. One important addition that Molina made to his forerunners was to point out that goods supplied at retail in small quantities will sell at a higher unit price than at bulk sales before the goods get to the retailer. This argument also served as an added justification for the existence of the much abused retailer. But Molina in economics was primarily a monetary theorist. Here he endorsed and carried forward the purchasing power parity theory of exchange rates and the Salamakan analysis of the value of Money, even explicitly endorsing the work of his theological opponent, Domingo de Báñez.

1:01:44Molina's analysis of the determination of the value of money and its changes was the most subtle to date, using explicit, other things being equal, Ceteris Paribus clauses, and developing the analysis of the determinants of the demand for money. Based on the causes of changes in price, and particularly of the Spanish inflation of the 16th century, Molina wrote, Just as an abundance of goods causes prices to fall, the quantity of money and number of merchants being equal, so does an abundance of money cause them to rise, the quantity of goods and number of merchants being equal.

1:02:30The reason is that the money by itself becomes less valuable for the purpose of buying and comparing goods. Thus we see that in Spain the purchasing power of money is far lower on account of its abundance than it was 80 years ago. A thing that could be bought for two ducats at that time is nowadays worth five, six or even more. have risen in the same proportion, and so have dowries, the price of estates, the income from benefices, and other things. After going through the standard Spanish scholastic analysis of how abundance of money causes a fall in its value, first and foremost in the New World, then in Seville and Spain, Molina noted the importance of the demand for money.

1:03:26Wherever the demand for money is greatest, whether for buying or carrying goods, conducting other business, waging war, holding the royal court, or for any other reason, there will its value be highest. It is not surprising that the economic liberal Molina strongly attacked any government fixing of exchange rates. The value of one currency in terms of another is always changing in response to supply and demand forces, and therefore it is meet and just that exchange rates fluctuate accordingly. Molina then pointed out that fixed exchange rates would create a shortage of money.

1:04:11He did not, however, go into detail. Molina also invade against most governmental price controls, particularly the imposing of ceiling prices on farm commodities. On usury, Molina, while still not going as far as the radical acceptance of interest by Konrad Zumenhardt a century earlier, took important steps in widening the accepted bounds of the charging of interest. He put his immense prestige behind Juan de Medina's entirely new defense of charging payment for the lender's assumption of risk. Indeed, he widened Medina's permitted bounds of using the risk defense. Not only that, Molina greatly widened the scope of lucrum cessens and solidly entrenched that permissible title to interest as a broad principle permeating During the Market Economy, one of the few remaining restrictions is intention.

1:05:18The loan is not permissible if the lender had not intended to invest the loaned funds. Luis de Molina also played an important role in reviving active natural rights and private property rights theory, which had fallen into a decline since the early part of the 16th century. Theists and Protestants, as we shall see below, had little use for the concept of natural rights, while Victoria and the Dominicans slipped into a determinist, passive or attenuated view of rights. Only the University of Louvain, in Belgium, began to serve as a center of free will thought, along with the idea of absolute natural rights of person and property.

1:06:10The Louvain theologian Johannes Dridot stressed freedom of the will in De Concordia 1537 and active natural rights De Libertate Christiana 1548. By the 1580s, the New Jesuit Order began to launch its assault on the Dominicans, whom they suspected of crypto-Calvinism, a suspicion not allayed by the fact that many Dominicans Malina's had converted to Calvinism during the 16th century. In the course of his championing free will against de Bagnès and the Dominicans, Malina also returned to the active natural rights view which had for long only continued to be upheld at Louvain.

1:06:59Attacking the passive claim theory of rights, Malina put the distinction very clearly. When we say that someone has a use to something, we do not mean that anything is owed to him, but that he has a faculty to it, whose contravention would cause him injury. In this way we say that someone has a use to use his own things, such as consuming his own food. That is, if he is impeded, injury and injustice will be done to him. Note that the astute Molina did not say that the pauper had the right to be given alms.

1:07:53For Molina, as for all active property rights theorists, a right was not a claim to someone It was Molina's achievement to link this active natural rights theory with his libertarian commitment to freedom and the free will of each individual, both theologically and philosophically. Dr. Tuck sums up this linkage with these stirring words. Molinas was a theory which involved a picture of man as a free and independent being, making his own decisions and being held to them on matters to do with both his physical and his spiritual welfare.

1:08:49The school of Salamanca had begun with the distinguished jurist Davidoria, and so it It is fitting that the last major Salamancon should be another renowned jurist, and perhaps the most illustrious thinker in the history of the Jesuit order, Francisco Suarez, 1548-1617. The last of the great Thomists, this celebrated theologian was born in Granada into an ancient noble family. During the University of Salamanca, Suarez applied to the Jesuit order in 1564, and was the only applicant among 50 candidates that year to be rejected, as mentally and physically below standard.

1:09:39Admitted finally with an inferior rank, Suarez could hardly keep up with his studies, and was known, ironically like St. Thomas Aquinas before him, as the dumb ox. Soon, however, the humble and modest Suarez became the star pupil, and it was not long before his theology professors were asking him for advice. In 1571, Suarez became professor of philosophy at Segovia, then taught theology at Avila and Valladolid. Suarez soon attained to the famous Chair of Theology at the Jesuit College in Rome. From there, due to ill health, Suarez returned to Spain, teaching at Alcala, where he was virtually ignored, and then to Salamanca, where, as in Alcala, he lost academic disputes to Inferior Rivals.

1:10:38In 1593, the emperor insisted on Suarez's accepting the main chair of theology at Coimbra, where in 1612 he published his masterwork, De Legibus Ac De Deo Legislatore. Francisco Suarez never achieved his due in life. His quiet, plodding lecture style made him lose academic influence to flashier though inferior rivals. Perhaps the crowning indignity heaped upon him is that in 1597, at the age of 49, this brilliant and learned jurist and theologian, perhaps the greatest mind in the history of the Jesuit order, was forced to leave the University of Coimbra for a year to obtain a Doctorate in Theology at Evora, Ph.D. Itis in the 16th Century While Suarez contributed little on strictly economic matters, he added greatly to the weight of the Louvain-Molina rediscovery of the active natural rights view of private property, and he reinforced the great impact of Molinist free will theory.

1:11:56In addition, Suarez had a much more restricted view of the just power of the king than did Molina or his other predecessors. To Suarez, the power of the ruler is in no sense a divinely created institution, since political power, by natural and divine law, devolves solely on the people as a whole. The community as a whole confers political power on the king or other set of rulers, and while Suarez believed that natural law requires some form of state, the sovereign power of any particular state must necessarily be bestowed upon him by the consent of the community.

1:12:45Suarez's theory, of course, held radical implications indeed. For if the people or the community confer state power on a king or set of rulers, may they not then take it away? Here Suarez fumbled. He was certainly not prepared to go all the way to a truly radical or revolutionary position. No, he declared inconsistently, once the sovereign power is conferred by the people on a king, it is his forever. The people cannot take it back. But then Suarez shifts once more, adopting the traditional Thomist doctrine of the right of the people to resist tyrants.

1:13:31If a king lapses into tyranny, then the people may rise up and resist and even assassinate the King. But Suarez, like his forebears, hedged this powerful right of tyrannicide with a thicket of restrictions. In particular, tyranny must be manifest, and a private person cannot rise up himself and kill the king. The act must in some way be mandated by the people or community, acting as a whole.