WEBVTT NOTE 3. From Middle Ages to Renaissance 1 00:00:00.000 --> 00:00:06.000 Chapter 3. From Middle Ages to Renaissance 2 00:00:06.000 --> 00:00:12.000 1. The Great Depression of the Fourteenth Century 3 00:00:12.000 --> 00:00:21.000 Most people, historians not accepted, are tempted to think of economic and cultural progress as being continuous. 4 00:00:21.000 --> 00:00:26.000 In every century, people are better off than in the one preceding. 5 00:00:26.000 --> 00:00:34.500 This comforting assumption had to be given up quite early when the Dark Ages ensued after the collapse of the Roman Empire. 6 00:00:34.500 --> 00:00:46.500 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. 7 00:00:46.500 --> 00:01:10.500 It 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, 8 00:01:10.500 --> 00:01:17.740 A period which might be called the late middle ages or the early renaissance. 9 00:01:17.740 --> 00:01:24.660 This secular decline, mistitled a depression, permeated most parts of Western Europe with 10 00:01:24.660 --> 00:01:28.940 the exception of a few Italian city-states. 11 00:01:28.940 --> 00:01:34.580 The economic decline was marked by a severe drop in population. 12 00:01:34.580 --> 00:01:41.180 Since the 11th century, economic growth and prosperity had pulled up population figures. 13 00:01:41.180 --> 00:01:48.700 Total population in Western Europe, estimated at 24 million in the year 1000 AD, had vaulted 14 00:01:48.700 --> 00:01:52.900 to 54 million by the year 1340. 15 00:01:52.900 --> 00:02:01.260 In little over a century, from 1340 to 1450, however, the Western European population fell 16 00:02:01.260 --> 00:02:10.100 from 54 million to 37 million, a 31% drop in only a century. 17 00:02:10.100 --> 00:02:16.220 The successful battle to establish the fact of the great decline has done little, however, 18 00:02:16.220 --> 00:02:21.380 to establish the cause or causes of this debacle. 19 00:02:21.380 --> 00:02:27.040 Focus on the devastation caused by outbreaks of the Black Death in the mid-14th century 20 00:02:27.040 --> 00:02:30.880 is partially correct, but superficial. 21 00:02:30.880 --> 00:02:36.880 For these outbreaks were themselves partly caused by an economic breakdown and fall in 22 00:02:36.880 --> 00:02:41.360 living standards which began earlier in the century. 23 00:02:41.360 --> 00:02:48.080 The causes of the Great Depression of Western Europe can be summed up in one stark phrase, 24 00:02:48.080 --> 00:02:52.920 the newly imposed domination of the state. 25 00:02:52.920 --> 00:02:57.560 During the medieval synthesis of the High Middle Ages, there was a balance between the 26 00:02:57.560 --> 00:03:03.360 The Power of Church and State, with the Church slightly more powerful. 27 00:03:03.360 --> 00:03:10.000 In the 14th century that balance was broken and the nation-state came to hold sway, breaking 28 00:03:10.000 --> 00:03:16.960 the power of the Church, taxing, regulating, controlling, and wreaking devastation through 29 00:03:16.960 --> 00:03:39.960 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. 30 00:03:39.960 --> 00:03:49.960 During the High Middle Ages, the Fairs of Champagne were the main mart for international trade and the hub of local and international commerce. 31 00:03:49.960 --> 00:03:59.960 These Fairs had been carefully nurtured by being made free zones, untaxed or unregulated by the French kings or nobles, 32 00:03:59.960 --> 00:04:07.960 while justice was swiftly and efficiently meted out by competing private and merchants courts. 33 00:04:07.960 --> 00:04:20.960 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. 34 00:04:20.960 --> 00:04:37.960 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. 35 00:04:37.960 --> 00:04:45.960 To finance his perpetual dynastic wars, Philip levied a stiff sales tax on the Champagne fairs. 36 00:04:45.960 --> 00:04:55.960 He also destroyed domestic capital and finance by repeated confiscatory levies on groups or organizations with money. 37 00:04:55.960 --> 00:05:04.960 In 1308, he destroyed the wealthy Order of the Templars, confiscating their funds for the Royal Treasury. 38 00:05:04.960 --> 00:05:24.960 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. 39 00:05:24.960 --> 00:05:36.960 Furthermore, 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. 40 00:05:36.960 --> 00:05:46.960 The result of these measures was a rapid and permanent decline of the fairs of Champagne and of the trading route over the Alps. 41 00:05:46.960 --> 00:06:01.960 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. 42 00:06:01.960 --> 00:06:12.960 It was particularly fateful that Philip the Fair inaugurated the system of regular taxation in France. Before then, there were no regular taxes. 43 00:06:12.960 --> 00:06:23.960 In 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. 44 00:06:23.960 --> 00:06:35.960 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. 45 00:06:35.960 --> 00:06:39.960 There was nothing that we would call regular taxation. 46 00:06:39.960 --> 00:07:01.960 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. 47 00:07:01.960 --> 00:07:20.960 The 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. 48 00:07:20.960 --> 00:07:34.960 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. 49 00:07:34.960 --> 00:07:46.960 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. 50 00:07:46.960 --> 00:07:55.560 Both the English and French monarchs proceeded to tax the Church, which brought them into a collision course with the Pope. 51 00:07:55.560 --> 00:08:07.760 Pope Boniface VIII, 1294-1303, stoutly resisted this new form of pillage, and prohibited the monarchs from taxing the Church. 52 00:08:07.760 --> 00:08:20.760 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. 53 00:08:20.760 --> 00:08:35.760 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. 54 00:08:35.760 --> 00:08:47.760 That 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. 55 00:08:48.760 --> 00:09:01.760 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. 56 00:09:01.760 --> 00:09:11.760 For virtually the entire 14th century, the Pope, in his Babylonian captivity, was an abject tool of the French King. 57 00:09:11.760 --> 00:09:16.760 The Pope only returned to Italy in the early 15th century. 58 00:09:16.760 --> 00:09:25.760 In this way, the once mighty Catholic Church, dominant power and spiritual authority during the High Middle Ages, 59 00:09:25.760 --> 00:09:31.760 had been brought low and made a virtual vassal of the royal plunderer of France. 60 00:09:31.760 --> 00:09:39.760 The decline of Church authority, then, was matched by the rise in the power of the Absolute State. 61 00:09:39.760 --> 00:09:46.760 Not content with confiscating, plundering, taxing, crushing the fares of Champagne 62 00:09:46.760 --> 00:09:49.760 and bringing the Catholic Church under his heel, 63 00:09:49.760 --> 00:09:59.760 Philip the Fair also obtained revenue for his eternal wars by debasement of the coinage, and thereby generated a secular inflation. 64 00:09:59.760 --> 00:10:10.760 The wars of the 14th century did not cause a great deal of direct devastation. Armies were small, and hostilities were intermittent. 65 00:10:10.760 --> 00:10:20.760 The main devastation came from the heavy taxes and from the monetary inflation and borrowing to finance the eternal royal adventures. 66 00:10:20.760 --> 00:10:26.760 The enormous increase of taxation was the most crippling aspect of the wars. 67 00:10:26.760 --> 00:10:35.760 The expenses of war, recruitment of the modestly sized army, payments of its wages, supplies and fortifications, 68 00:10:35.760 --> 00:10:42.760 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. 69 00:11:05.760 --> 00:11:16.920 A uniform poll tax of one shilling, levied by the English Crown in 1380, inflicted great 70 00:11:16.920 --> 00:11:20.040 hardship on peasants and craftsmen. 71 00:11:20.040 --> 00:11:25.800 The tax amounted to one month's wages for agricultural workers and one week's wages 72 00:11:25.800 --> 00:11:27.800 for urban laborers. 73 00:11:27.800 --> 00:11:34.780 Moreover, since many poor workers and peasants were paid in kind rather than money, amassing 74 00:11:34.780 --> 00:11:39.920 Paying the money to pay the tax was particularly difficult. 75 00:11:39.920 --> 00:11:46.660 Other new taxes levied were ad valorem on all transactions, taxes on wholesale and retail 76 00:11:46.660 --> 00:11:51.100 beverages and levies on salt and wool. 77 00:11:51.100 --> 00:11:56.580 To combat evasion of the tax, the governments established monopoly markets for the sale 78 00:11:56.580 --> 00:12:02.260 of salt in France and staple points for English wool. 79 00:12:02.260 --> 00:12:10.460 The taxes restricted supply and raised prices, crippling the critical English wool trade. 80 00:12:10.460 --> 00:12:16.140 Production and trade were hampered further by massive requisitions levied by the kings, 81 00:12:16.140 --> 00:12:23.820 thus causing a drastic fall of income and wealth as well as bankruptcies among the producers. 82 00:12:23.820 --> 00:12:30.980 In short, consumers suffered from artificially high prices and producers from low returns, 83 00:12:30.980 --> 00:12:35.820 with the king bleeding the economy of the differential. 84 00:12:35.820 --> 00:12:41.400 Government borrowing was scarcely more helpful, leading to repeated defaults by the kings 85 00:12:41.400 --> 00:12:47.280 and consequent heavy losses and bankruptcies among the private bankers unwise enough to 86 00:12:47.280 --> 00:12:50.860 lend to the government. 87 00:12:50.860 --> 00:12:57.760 Originating as a response to wartime emergency, the new taxes tended to become permanent, 88 00:12:57.760 --> 00:13:04.120 not only because the warfare lasted for over a century, but because the state, always on 89 00:13:04.120 --> 00:13:10.560 the lookout for an increase in its income and power, seized upon the golden opportunity 90 00:13:10.560 --> 00:13:17.200 to convert wartime taxes into a permanent part of the national heritage. 91 00:13:17.200 --> 00:13:23.200 From the middle to the end of the 14th century, Europe was struck with the devastating pandemic 92 00:13:23.200 --> 00:13:31.960 of the Black Death, the bubonic plague, which in the short span of 1348 to 1350 wiped out 93 00:13:31.960 --> 00:13:36.280 fully one-third of the population. 94 00:13:36.280 --> 00:13:41.800 The Black Death was largely the consequence of people's lowered living standards caused 95 00:13:41.800 --> 00:13:47.560 by the Great Depression and the resulting loss of resistance to disease. 96 00:13:47.560 --> 00:13:53.880 The plague continued to recur, though not in such virulent form, in every decade of the 97 00:13:53.880 --> 00:13:56.260 century. 98 00:13:56.260 --> 00:14:01.480 Such are the great recuperative powers of the human race that this enormous tragedy 99 00:14:01.480 --> 00:14:08.560 caused virtually no lasting catastrophic social or psychological effects among the European 100 00:14:08.560 --> 00:14:10.440 population. 101 00:14:10.440 --> 00:14:16.240 In a sense, the longest lasting ill effect from the Black Death was the response of the 102 00:14:16.240 --> 00:14:23.480 The English Crown in Imposing Permanent Maximum Wage Control and Compulsory Labor Rationing 103 00:14:23.480 --> 00:14:26.280 upon English Society. 104 00:14:26.280 --> 00:14:32.720 The sudden decline of population and consequent doubling of wage rates was met by the government's 105 00:14:32.720 --> 00:14:40.840 severe imposition of maximum wage control in the Ordinance of 1349 and the Statute of 106 00:14:40.840 --> 00:14:45.300 Laborers of 1351. 107 00:14:45.300 --> 00:14:51.620 Maximum wage control was established at the behest of the employing classes—large, middle 108 00:14:51.620 --> 00:14:58.140 and small landlords and master craftsmen, the former groups in particular alarmed at 109 00:14:58.140 --> 00:15:01.720 the rise of agricultural wage rates. 110 00:15:01.720 --> 00:15:08.400 The ordinance and the statute defied economic law by attempting to enforce maximum wage 111 00:15:08.400 --> 00:15:12.540 control at the old pre-plague levels. 112 00:15:12.540 --> 00:15:18.660 The inevitable result, however, was a grave shortage of labor, since, at the statutory 113 00:15:18.660 --> 00:15:26.900 maximum wage, the demand for labor was enormously greater than the newly scarce supply. 114 00:15:26.900 --> 00:15:32.060 Every government intervention creates new problems in the course of vain attempts to 115 00:15:32.060 --> 00:15:34.220 solve the old. 116 00:15:34.220 --> 00:15:37.900 The government is then confronted with the choice. 117 00:15:37.900 --> 00:15:47.060 File on new interventions to solve the inexplicable new problems, or repeal the original intervention. 118 00:15:47.060 --> 00:15:54.120 Government's instinct, of course, is to maximize its wealth and power by adding new interventions. 119 00:15:54.120 --> 00:16:00.340 So did the English Statute of Laborers, which imposed forced labor at the old wage rates 120 00:16:00.340 --> 00:16:07.280 for all men in England under the age of 60, restricted the mobility of labor, declaring 121 00:16:07.280 --> 00:16:13.440 saying that the lord of a particular territory had first claim on a man's labor, and made 122 00:16:13.440 --> 00:16:20.460 it a criminal offense for an employer to hire a worker who had left a former master. 123 00:16:20.460 --> 00:16:26.440 In that way the English government engaged in labor rationing to try to freeze laborers 124 00:16:26.440 --> 00:16:32.520 at their pre-plague occupations at pre-plague wages. 125 00:16:32.520 --> 00:16:38.180 This forced rationing of labor cut against the natural inclination of men to leave for 126 00:16:38.180 --> 00:16:45.080 more employment at better wages, and so the inevitable rise of black markets for labor 127 00:16:45.080 --> 00:16:48.920 made enforcement of the statutes difficult. 128 00:16:48.920 --> 00:16:55.640 The desperate English crown tried once again in the Cambridge Statute of 1388 to make the 129 00:16:55.640 --> 00:16:58.460 rationing more rigorous. 130 00:16:58.460 --> 00:17:05.300 Labor mobility of any sort was prohibited without written permission from local justices, and 131 00:17:05.300 --> 00:17:10.100 compulsory child labor was imposed in agriculture. 132 00:17:10.100 --> 00:17:17.660 But there was continual evasion of this compulsory buyer's cartel, especially by large employers 133 00:17:17.660 --> 00:17:23.220 who were particularly eager and able to pay higher wage rates. 134 00:17:23.220 --> 00:17:29.900 The cumbersome English judicial machinery was totally ineffective in enforcing the legislation, 135 00:17:29.900 --> 00:17:36.740 although the monopolistic urban guilds, monopolies enforced by government, were able to partially 136 00:17:36.740 --> 00:17:41.540 enforce wage control in the cities. 137 00:17:41.540 --> 00:17:44.660 2. 138 00:17:44.660 --> 00:17:51.140 Absolutism and Nominalism, The Breakup of Thomism 139 00:17:51.140 --> 00:17:57.020 Starting with the rise of the absolute state, theories of absolutism arose, and began to 140 00:17:57.020 --> 00:18:01.140 throw natural law doctrines into the shade. 141 00:18:01.140 --> 00:18:06.720 The adoption of natural law theory, after all, meant that the state was bound to limit 142 00:18:06.720 --> 00:18:11.980 itself to the dictates of the natural or the divine law. 143 00:18:11.980 --> 00:18:18.660 But new political theorists arose, asserting the dominance of the temporal over the spiritual, 144 00:18:18.660 --> 00:18:24.420 of the State's Positive Law over the Natural or Divine Order. 145 00:18:24.420 --> 00:18:30.940 The first and most influential of such late medieval champions of absolutism was Marsiglio 146 00:18:30.940 --> 00:18:41.920 of Padua, circa 1275 to 1342, in his famous Defense of the Peace, 1324. 147 00:18:41.920 --> 00:18:49.160 The son of a Paduan lawyer, Marsiglio rose to become rector of the University of Paris. 148 00:18:49.160 --> 00:18:57.400 The State, opined Marsiglio, is supreme and must be obeyed in and for itself. 149 00:18:57.400 --> 00:19:03.040 This glorification of the State went hand in hand with a denial that human reason could 150 00:19:03.040 --> 00:19:10.480 come to know any natural law outside of positive edicts of the State. 151 00:19:10.480 --> 00:19:17.520 For Marsiglio, reason had to be separated from justice or human society. 152 00:19:17.520 --> 00:19:20.160 Justice has no rational foundation. 153 00:19:20.160 --> 00:19:24.880 It is purely mystical and solely a matter of faith. 154 00:19:24.880 --> 00:19:31.400 God's commands are purely arbitrary and mysterious and not to be understood in terms of rational 155 00:19:31.400 --> 00:19:34.480 or ethical content. 156 00:19:34.480 --> 00:19:39.740 As a corollary, positive law has nothing to do with right reason. 157 00:19:39.740 --> 00:19:45.060 It is promulgated to advance the life and health of the state. 158 00:19:45.060 --> 00:19:52.100 According to Marsiglio, the nation is an organism with the state functioning as its head. 159 00:19:52.100 --> 00:19:58.700 As Professor Rothkruge writes, subject to reason, because, like a plant, it develops 160 00:19:58.700 --> 00:20:02.660 in accord with inborn impulses. 161 00:20:02.660 --> 00:20:08.780 The practical conclusion Marsiglio derived from his political philosophy is that the 162 00:20:08.780 --> 00:20:16.700 State, whether Kingdom or Italian City Republic, must have absolute power within its domain, 163 00:20:16.700 --> 00:20:22.780 and must not be subject to any temporal check or jurisdiction by the Church. 164 00:20:22.780 --> 00:20:30.820 Thus, while religiously a Catholic, Marsiglio anticipated the politiques in France and elsewhere 165 00:20:30.820 --> 00:20:37.340 two centuries later, by insisting that the Church may have no temporal power as against 166 00:20:37.340 --> 00:20:39.300 of the State. 167 00:20:39.300 --> 00:20:45.140 Marsiglio thereby foreshadowed and helped to bring about the breakup of the medieval 168 00:20:45.140 --> 00:20:48.180 order in Europe. 169 00:20:48.180 --> 00:20:53.380 Also destructive of the achievements of the High Middle Ages was the ideological breakup 170 00:20:53.380 --> 00:20:57.920 of Thomism ushered in by the 14th century. 171 00:20:57.920 --> 00:21:05.040 This decline emerged out of Franciscan Fideism, begun by St. Thomas's great English rival 172 00:21:05.040 --> 00:21:12.780 It used to be thought that this destruction was brought to a logical conclusion by the 173 00:21:12.780 --> 00:21:21.740 14th century Franciscan Oxford philosopher William of Ockham, circa 1290 to 1350. 174 00:21:21.740 --> 00:21:27.860 Ockhamite nominalism, it has been held, denied the power of human reason to arrive at the 175 00:21:27.860 --> 00:21:34.220 essential truths about man and the universe, and therefore negated the power of reason 176 00:21:34.220 --> 00:21:42.700 to arrive at a systematic ethic for man. Only God's will, discernible by faith in revelation, 177 00:21:42.700 --> 00:21:50.060 could yield truths, laws, or ethics. It should be clear that nominalism paved the way for 178 00:21:50.060 --> 00:21:57.320 modern skepticism and positivism, for if faith in divine will is abandoned, reason no longer 179 00:21:57.320 --> 00:22:02.320 No matter has the power to arrive at scientific or ethical truths. 180 00:22:02.320 --> 00:22:09.320 Politically, nominalism failed to provide a natural law standard to set against the state, 181 00:22:09.320 --> 00:22:15.320 and it therefore fitted with the growing state absolutism of the Renaissance. 182 00:22:15.320 --> 00:22:23.320 Recent scholarship, however, casts grave doubt on whether Ockham and his followers were really nominalists 183 00:22:23.320 --> 00:22:28.320 were rather essentialists and believers in natural law. 184 00:22:28.320 --> 00:22:33.320 Thus it turns out that the eminent Augustinian contemporary of Ockham, 185 00:22:33.320 --> 00:22:40.320 the Italian Gregory of Remini, died 1358, was not really a nominalist, 186 00:22:40.320 --> 00:22:46.320 but a staunch champion of essentialism, reason and natural law. 187 00:22:46.320 --> 00:22:50.320 In contrast to the usual view of Ockham and his followers, 188 00:22:50.320 --> 00:22:56.820 Wars, Gregory held that natural law comes not from God's will, but from the dictates 189 00:22:56.820 --> 00:22:58.700 of right reason. 190 00:22:58.700 --> 00:23:04.140 And he even went further towards an all-out rationalist position, generally thought to 191 00:23:04.140 --> 00:23:10.000 have been invented three centuries later by the Dutch Protestant philosopher and jurist 192 00:23:10.000 --> 00:23:12.600 Hugo Grotius. 193 00:23:12.600 --> 00:23:18.820 This position held that even if God did not exist, the system of natural law would be 194 00:23:18.820 --> 00:23:25.940 be given to us by the dictates of right reason, the violation of which would still be a sin. 195 00:23:25.940 --> 00:23:35.260 Thus, as Gregory put it, if per impossibile the divine reason or God himself did not exist, 196 00:23:35.260 --> 00:23:42.940 or that that reason were mistaken, still, if one were to act against right reason, angelic, 197 00:23:42.940 --> 00:24:02.620 Being a Franciscan and a student of William of Ockham did not prevent the great French 198 00:24:02.620 --> 00:24:12.480 philosopher-scientist Jean Buridan de Bétune, 1300-1358, born in Picardy, to become rector 199 00:24:12.480 --> 00:24:19.080 of the University of Paris from making the next important contribution to economic thought 200 00:24:19.080 --> 00:24:22.600 in the essentialist, Thomist tradition. 201 00:24:22.600 --> 00:24:29.760 In his Questiones, a thorough commentary on Aristotle's ethics, Bourdain continued the 202 00:24:29.760 --> 00:24:36.460 Aristotle-Thomas analysis of the exchange value of goods being determined by consumer 203 00:24:36.460 --> 00:24:39.680 need or utility. 204 00:24:39.680 --> 00:24:46.840 Bourdain also pressed on to point out that a house would never exchange for one garment, 205 00:24:46.840 --> 00:24:54.240 since the builder would have to forgo a year's worth of food for a much less valuable good. 206 00:24:54.240 --> 00:25:01.360 In short, Bourdain was groping towards an opportunity-cost concept of cost of production 207 00:25:01.360 --> 00:25:04.940 and influence on supply. 208 00:25:04.940 --> 00:25:11.460 More importantly, Bourdain advanced beyond the initiative of Richard of Middleton in analyzing 209 00:25:11.460 --> 00:25:17.740 the mutual benefit that each party necessarily derives from an exchange. 210 00:25:17.740 --> 00:25:24.540 In discussing exchange, Bourdain notes that both parties benefit and that trade is not, 211 00:25:24.540 --> 00:25:30.580 as many people believe, a type of warfare in which one party benefits at the expense 212 00:25:30.580 --> 00:25:31.940 of another. 213 00:25:31.940 --> 00:25:51.940 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. 214 00:25:51.940 --> 00:25:56.940 Thus Bourdain poses the rather provocative hypothetical. 215 00:25:56.940 --> 00:26:23.940 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. 216 00:26:23.940 --> 00:26:31.940 For Bourdain, as for most other scholastics, the just price was the market price. 217 00:26:31.940 --> 00:26:40.940 Bourdain also provided a sophisticated analysis of how common human need and utility resulted in market prices. 218 00:26:40.940 --> 00:26:46.940 The greater the need, and hence the greater the demand, the greater the value. 219 00:26:46.940 --> 00:26:54.940 Also, a reduction in the supply of a product will cause its price on the market to rise. 220 00:26:54.940 --> 00:27:05.940 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. 221 00:27:05.940 --> 00:27:14.940 Again, the marginal concept is all that is needed to complete the analysis of demand, supply and price. 222 00:27:14.940 --> 00:27:30.940 There 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. 223 00:27:30.940 --> 00:27:40.940 But the main great leap forward in economics contributed by Jean Bourdain was his virtual creation of the modern theory of money. 224 00:27:40.940 --> 00:27:56.940 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. 225 00:27:56.940 --> 00:28:06.940 To Aristotle, therefore, money was not natural, but an artificial convention, and therefore basically a creature of the state or polis. 226 00:28:06.940 --> 00:28:14.560 Aquinas' theory of money was basically confined within the Aristotelian shackles. 227 00:28:14.560 --> 00:28:21.460 It was Jean Bourdain who broke free of those shackles and founded the metalist or commodity 228 00:28:21.460 --> 00:28:23.420 theory of money. 229 00:28:23.420 --> 00:28:29.740 That is, that money originates naturally as a useful commodity on the market, and that 230 00:28:29.740 --> 00:28:36.540 the market will pick the medium of exchange, almost always a metal if available, possessing 231 00:28:36.540 --> 00:28:47.940 Money then, for Buridan, is a market commodity, and the value of that money, just as in the 232 00:28:47.940 --> 00:28:54.100 case of other market commodities, must be measured by human need. 233 00:28:54.100 --> 00:28:59.540 Just as the values of exchangeable goods are proportionate to human need, so they will 234 00:28:59.540 --> 00:29:05.740 be proportionate to money, itself proportionate to human need. 235 00:29:05.740 --> 00:29:12.260 Thomas Bourdain remarkably set the agenda for determining the value or price of money 236 00:29:12.260 --> 00:29:18.700 on the same principles of utility that determine the market prices of goods, an agenda which 237 00:29:18.700 --> 00:29:26.260 would only be fulfilled six centuries later in 1912 by the Austrian Ludwig von Mises in 238 00:29:26.260 --> 00:29:30.500 his The Theory of Money and Credit. 239 00:29:30.500 --> 00:29:36.520 foreshadowing the Austrians Menger and von Mises, Bourdain insisted that an effectively 240 00:29:36.520 --> 00:29:43.940 functioning money must be composed of a material possessing a value independent of its role 241 00:29:43.940 --> 00:29:45.460 as money. 242 00:29:45.460 --> 00:29:53.820 That is, it must consist of a market commodity originally useful for non-monetary purposes. 243 00:29:53.820 --> 00:30:00.340 Bourdain then went on to catalogue those qualities that lead the market to choose a commodity 244 00:30:00.340 --> 00:30:09.580 as a medium of exchange, or money, such as portability, high value per unit weight, divisibility 245 00:30:09.580 --> 00:30:18.060 and durability, qualities possessed most strikingly by the precious metals gold and silver. 246 00:30:18.060 --> 00:30:24.520 In that way, Bourdain began the classification of monetary qualities of commodities which 247 00:30:24.520 --> 00:30:30.600 which was to constitute the first chapter of countless money and banking textbooks down 248 00:30:30.600 --> 00:30:35.960 to the end of the gold standard era in the 1930s. 249 00:30:35.960 --> 00:30:42.320 Thus not only did Jean Bouradon found the theory of money as a market phenomenon, he 250 00:30:42.320 --> 00:30:49.000 thereby took money out of the mystique of being solely a creation of the state and put 251 00:30:49.000 --> 00:30:54.840 started on a par with other goods as a product of the marketplace. 252 00:30:54.840 --> 00:31:02.120 A not very happy modern spin-off of Bourdain's theory of volition emerged in the 1930s as 253 00:31:02.120 --> 00:31:10.960 part of the indifference curve analysis. Bourdain postulated a perfectly rational ass who found 254 00:31:10.960 --> 00:31:18.660 himself equidistant between two equally attractive bundles of hay. Indifferent between the two 255 00:31:18.660 --> 00:31:34.820 What this example overlooked is that there is a third choice, which presumably the ass 256 00:31:34.820 --> 00:31:42.020 liked the least, starving to death, so that it was therefore perfectly rational not to 257 00:31:42.020 --> 00:31:48.340 to starve to death, but rather to choose one of the two bundles even at random, and then 258 00:31:48.340 --> 00:31:52.000 to proceed to the second bundle. 259 00:31:52.000 --> 00:31:57.620 Until recent years, conventional texts on the history of economic thought, if they dealt 260 00:31:57.620 --> 00:32:03.760 with anyone at all before the mercantilists or Adam Smith, briefly mentioned only two 261 00:32:03.760 --> 00:32:13.000 Two People, St. Thomas Aquinas and Nicole Orem, 1325-1382. 262 00:32:13.000 --> 00:32:19.240 Although Orem, a noted French mathematician, astronomer and physicist, was one of the most 263 00:32:19.240 --> 00:32:25.720 important European intellectuals of the 14th century, his contributions to economic thought 264 00:32:25.720 --> 00:32:30.080 scarcely deserve such exclusive attention. 265 00:32:30.080 --> 00:32:37.040 Orem was a pupil and follower of Jean Bourdain, a scholastic commenting on Aristotle and teaching 266 00:32:37.040 --> 00:32:44.120 in his turn at the University of Paris and going on to become Bishop of Les yeux. 267 00:32:44.120 --> 00:32:50.180 Orem was moved to write his well-known booklet, A Treatise on the Origin, Nature, Law and 268 00:32:50.180 --> 00:32:57.080 Alterations of Money, in the 1350s, applying the teachings of his hard-money mentor to 269 00:32:57.080 --> 00:33:03.020 to the rash of monetary debasements indulged in by the kings of France in the first half 270 00:33:03.020 --> 00:33:05.780 of the 14th century. 271 00:33:05.780 --> 00:33:12.340 In the centuries before paper money and central banking were founded in the late 17th century, 272 00:33:12.340 --> 00:33:20.280 the only way in which kings could gain revenue through monetary manipulation was by debasement, 273 00:33:20.280 --> 00:33:25.880 changing the definition of the money unit by lightening its weight in terms of the basic 274 00:33:25.880 --> 00:33:32.960 Money, Gold or Silver. If, for example, the money unit had been defined as ten ounces 275 00:33:32.960 --> 00:33:39.600 of silver, the government could use its monopoly of the coinage to redefine the money unit 276 00:33:39.600 --> 00:33:46.960 as nine silver ounces, and then pocket the difference in the course of recoinage. The 277 00:33:46.960 --> 00:33:53.600 extra ounces would be employed to mint new coins for the king to use in wars, for the 278 00:33:53.600 --> 00:33:59.640 The Building of Palaces and for Other Allegedly Worthy Causes 279 00:33:59.640 --> 00:34:06.240 The British currency unit, the pound sterling, got its name centuries ago by originally being 280 00:34:06.240 --> 00:34:10.440 defined as simply one pound of silver. 281 00:34:10.440 --> 00:34:17.020 The process of debasement in Britain has proceeded so far that the pound is now equal to less 282 00:34:17.020 --> 00:34:21.640 than one-fourth a silver ounce. 283 00:34:21.640 --> 00:34:27.540 For the advent of paper money and central banking, then, debasement was the only process 284 00:34:27.540 --> 00:34:34.180 by which the ruler could alter the currency to create a greater supply of money, in terms 285 00:34:34.180 --> 00:34:39.300 of the money unit, and thereby cause price inflation. 286 00:34:39.300 --> 00:34:46.280 The king was able to use his compulsory monopoly of the coinage to manipulate repeated debasements 287 00:34:46.280 --> 00:34:51.720 for his own gain, at the expense of the rest of the public. 288 00:34:51.720 --> 00:34:58.080 Orem's most important contribution to monetary theory was to enunciate clearly for the first 289 00:34:58.080 --> 00:35:05.720 time what came to be known as Gresham's Law, that is, the insight that if two or more monies 290 00:35:05.720 --> 00:35:12.280 are legally fixed in relative value by the government, then the money overvalued by the 291 00:35:12.280 --> 00:35:17.240 The government will drive the undervalued money out of circulation. 292 00:35:17.240 --> 00:35:23.760 Thus, if the government decrees that, say, one ounce of gold is legally worth ten ounces 293 00:35:23.760 --> 00:35:30.200 of silver, whereas on the free market it is worth fifteen, the people will stick their 294 00:35:30.200 --> 00:35:37.880 creditors and vendors with the legally overvalued money, silver the bad money, while they hoard 295 00:35:37.880 --> 00:35:44.160 the undervalued, gold, the good money, or exported out of the country where it can be 296 00:35:44.160 --> 00:35:46.680 sold at its market value. 297 00:35:46.680 --> 00:35:53.800 Gresham's law has often been boiled down in common parlance into bad money drives out 298 00:35:53.800 --> 00:36:01.480 good, but stated that way it is paradoxical and unsatisfying, for it implies that while 299 00:36:01.480 --> 00:36:06.660 In all other market products the good will out-compete the bad. 300 00:36:06.660 --> 00:36:14.480 There is some deep flaw in the free market that causes it to prefer bad money to good. 301 00:36:14.480 --> 00:36:20.840 But as Ludwig von Mises clarified in the early 20th century, Gresham's law is the product 302 00:36:20.840 --> 00:36:26.080 not of the free market, but of government monetary control. 303 00:36:26.080 --> 00:36:32.520 This fixing of relative money value is a special case of the general consequence of any price 304 00:36:32.520 --> 00:36:40.480 control, that is, shortage of a good in which maximum prices are imposed, and a surplus 305 00:36:40.480 --> 00:36:43.800 where a minimum price is enforced. 306 00:36:43.800 --> 00:36:50.800 In the case of money, in our example, gold suffers a maximum price control, and therefore 307 00:36:50.800 --> 00:36:58.000 a shortage, while the value of silver is kept up artificially and therefore goes into surplus 308 00:36:58.000 --> 00:37:00.500 relative to gold. 309 00:37:00.500 --> 00:37:06.200 The first formulation of Gresham's Law was that of the satiric ancient Greek playwright 310 00:37:06.200 --> 00:37:15.000 Aristophanes, who in The Frogs states characteristically, In our republic, bad citizens are preferred 311 00:37:15.000 --> 00:37:20.080 to Good, Just as Bad Money Circulates While Good Money Disappears. 312 00:37:20.080 --> 00:37:27.760 Orem, however, put the law in a cogent and correct manner, emphasizing that the monetary 313 00:37:27.760 --> 00:37:32.160 disruption is a function of government price fixing. 314 00:37:32.160 --> 00:37:38.640 If the fixed legal ratio of the coins differs from the market value of the metals, the coin 315 00:37:38.640 --> 00:37:45.560 The coin which is underrated entirely disappears from circulation, and the coin which is overrated 316 00:37:45.560 --> 00:37:48.400 alone remains current. 317 00:37:48.400 --> 00:37:55.600 In his treatise, Nicole Orem was moved to apply his mentor Bourdain's metalist monetary 318 00:37:55.600 --> 00:38:00.400 theory to attack the debasement policy of the French kings. 319 00:38:00.400 --> 00:38:07.800 Orem did not go so far as to denounce the king's coinage monopoly per se, but he did 320 00:38:07.800 --> 00:38:13.520 and accomplish the feat of taking the whole matter out of the king's carefully propounded 321 00:38:13.520 --> 00:38:20.520 mystique of sovereignty, converting the entire coinage question to a matter of practical 322 00:38:20.520 --> 00:38:22.440 convenience. 323 00:38:22.440 --> 00:38:29.160 Since the king was not entitled to cloak coinage in the mystique of royal prerogative and absolute 324 00:38:29.160 --> 00:38:36.020 royal will, he was duty-bound to govern according to the best interests of the community. 325 00:38:36.020 --> 00:38:41.960 He is therefore obliged to maintain the standards of weight and of coinage. 326 00:38:41.960 --> 00:38:48.400 Frequent alterations in such standards destroy respect and breed scandal and murmuring among 327 00:38:48.400 --> 00:38:52.060 the people and risk of disobedience. 328 00:38:52.060 --> 00:38:57.860 The definition of the currency unit should therefore be a fixed ordinance. 329 00:38:57.860 --> 00:39:03.300 Frequent alterations and debasements, Orem pointed out, will cause money and coins to 330 00:39:03.300 --> 00:39:11.260 to lose their character as measures of value, and internal and external trade will be crippled. 331 00:39:11.260 --> 00:39:16.580 Foreign merchants will be repelled since they will no longer have good safe money to work 332 00:39:16.580 --> 00:39:23.580 with, while domestic traders will no longer have any firm means of communication. 333 00:39:23.580 --> 00:39:29.420 Money could no longer be loaned out safely and there would be no way of correctly valuing 334 00:39:29.420 --> 00:39:31.460 money incomes. 335 00:39:31.460 --> 00:39:38.180 Furthermore, since debased money will have a lower value at home, gold or silver will 336 00:39:38.180 --> 00:39:42.820 be sent abroad, where they will now have a higher market value. 337 00:39:42.820 --> 00:39:49.820 Thus Orem was perhaps the first to point out that money will tend to flow to those areas 338 00:39:49.820 --> 00:39:55.960 and countries where its value is highest, and to leave those countries where its value 339 00:39:55.960 --> 00:39:58.460 is lowest. 340 00:39:58.460 --> 00:40:04.900 École Orem had no illusions about the reasons for the king's repeated debasements. 341 00:40:04.900 --> 00:40:11.200 As Orem put it, if the king should tell the tyrant's usual lie that he applies the profit 342 00:40:11.200 --> 00:40:16.940 from debasement to the public advantage, he must not be believed, because he might as 343 00:40:16.940 --> 00:40:22.300 well take my coat and say he needed it for the public service. 344 00:40:22.300 --> 00:40:29.720 Morem also adds to Bourdain's analysis of how commodities become money on the market. 345 00:40:29.720 --> 00:40:36.800 He stresses easy portability and that it should be of high value per unit weight. 346 00:40:36.800 --> 00:40:42.640 He also points out that after a period of gold or silver being weighed out in precise 347 00:40:42.640 --> 00:40:49.760 quantities for each transaction, people started to coin the precious metals with an inscription 348 00:40:49.760 --> 00:40:56.760 and a head on the coin to guarantee a certain quantity of gold or silver in each coin. 349 00:40:57.640 --> 00:41:04.020 Gold being a more valuable money will generally be used for larger transactions, while silver 350 00:41:04.020 --> 00:41:09.020 and even copper may be used for smaller purchases. 351 00:41:09.020 --> 00:41:16.020 4. The Odd Man Out, Heinrich von Langenstein 352 00:41:16.020 --> 00:41:29.020 One nominalist and student of Bourdain, Heinrich von Langenstein the Elder, also known as Henry of Hesse, 1325-1397, 353 00:41:29.020 --> 00:41:35.020 while an uninfluential and minor scholastic philosopher in his own and later centuries, 354 00:41:35.020 --> 00:41:41.020 made great mischief for modern interpretations of the history of economic thought. 355 00:41:41.020 --> 00:41:48.340 Langenstein, who taught first at the University of Paris and then at Vienna, began in his 356 00:41:48.340 --> 00:41:56.080 treatise on contracts by analyzing the just price in the mainstream scholastic manner. 357 00:41:56.080 --> 00:42:03.140 Just price is the market price, which is a rough measure of the human needs of consumers. 358 00:42:03.140 --> 00:42:09.340 This price will be the outcome of individuals' calculations about their wants and values, 359 00:42:09.340 --> 00:42:15.420 These, in turn, will be affected by the relative lack or abundance of supply, as well as by 360 00:42:15.420 --> 00:42:19.300 the scarcity or abundance of buyers. 361 00:42:19.300 --> 00:42:24.940 Having said this, Langenstein proceeded to contradict himself completely. 362 00:42:24.940 --> 00:42:30.940 In a highly unfortunate contribution to the history of economic thought, Langenstein urged 363 00:42:30.940 --> 00:42:36.140 local government authorities to step in and fix prices. 364 00:42:36.140 --> 00:42:41.900 Price fixing would somehow be a better path to the just price than the interplay of the 365 00:42:41.900 --> 00:42:43.660 market. 366 00:42:43.660 --> 00:42:47.980 Other scholastics had not exactly opposed price fixing. 367 00:42:47.980 --> 00:42:53.860 For them, the market price was just whether it was set by the common estimate of the market 368 00:42:53.860 --> 00:42:55.940 or by the government. 369 00:42:55.940 --> 00:43:02.300 But it was at least implicit in their writings that the free market was a better, or at the 370 00:43:02.300 --> 00:43:08.300 and, at the very least, an equally good path to discovering the just price. 371 00:43:08.300 --> 00:43:14.300 Langenstein was unique in positively advocating government price fixing. 372 00:43:14.300 --> 00:43:19.300 Moreover, Langenstein added another economic heresy. 373 00:43:19.300 --> 00:43:23.300 He counseled the authorities to fix the price so that each seller, 374 00:43:23.300 --> 00:43:31.300 whether merchant or craftsman, could maintain his status or station in life in the society. 375 00:43:31.300 --> 00:43:41.300 The just price was the price which maintained everyone's position in the style to which he had become accustomed, no more and no less. 376 00:43:41.300 --> 00:43:49.300 If a seller tried to charge a price to advance beyond his station, he was guilty of the sin of avarice. 377 00:43:49.300 --> 00:43:56.300 Langenstein was the odd man out among the scholastics and late medieval thinkers. 378 00:43:56.300 --> 00:44:01.820 No one has been found to second the station-in-life concept of the just price. 379 00:44:01.820 --> 00:44:09.260 Indeed, St. Thomas Aquinas himself effectively demolished this view when he trenchantly declared, 380 00:44:09.260 --> 00:44:20.260 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. 381 00:44:20.260 --> 00:44:29.260 For instance, whoever buys a thing must pay what the thing is worth, whether he buys from a pauper or a rich man. 382 00:44:29.260 --> 00:44:40.260 In short, on the market, prices are the same to all, rich or poor, and furthermore, this is a just method of establishing prices. 383 00:44:40.260 --> 00:44:56.260 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. 384 00:44:56.260 --> 00:45:08.260 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. 385 00:45:08.260 --> 00:45:20.260 One was Matthew of Krakow, circa 1335 to 1410, professor of theology at Prague and later rector at the University of Heidelberg, 386 00:45:20.260 --> 00:45:30.860 and Archbishop of Worms, and particularly Jean de Garrison, 1363-1429, nominalist and 387 00:45:30.860 --> 00:45:34.860 French mystic who was Chancellor of the University of Paris. 388 00:45:34.860 --> 00:45:41.640 Garrison, however, ignored the station in life notion and reverted to the 13th century 389 00:45:41.640 --> 00:45:48.700 view of John Duns Scotus that the just price is the cost of production plus compensation 390 00:45:48.700 --> 00:45:53.180 for Labor and Risk Incurred by the Supplier. 391 00:45:53.180 --> 00:45:58.940 Garrison therefore urged that the government fix prices to force them to conform to the 392 00:45:58.940 --> 00:46:01.540 allegedly just price. 393 00:46:01.540 --> 00:46:08.580 Indeed, Garrison was a fanatic on price fixing, advocating that it be extended from its customary 394 00:46:08.580 --> 00:46:16.620 sphere in wheat, bread, meat, wine and beer to embrace all commodities whatsoever. 395 00:46:16.620 --> 00:46:22.460 Fortunately, Garrison's view also had little influence. 396 00:46:22.460 --> 00:46:28.340 von Langenstein was scarcely important in his own or at a later day. 397 00:46:28.340 --> 00:46:34.020 His great importance is solely that he was plucked out of well-deserved obscurity by 398 00:46:34.020 --> 00:46:41.860 late 19th century socialist and state corporatist historians, who used his station-in-life fatuity 399 00:46:41.860 --> 00:46:47.940 to conjure up a totally distorted vision of the Catholic Middle Ages. 400 00:46:47.940 --> 00:46:54.420 That era, so the myth ran, was solely governed by the view that each man can only charge 401 00:46:54.420 --> 00:47:02.540 the just price to maintain him in his presumably divinely appointed station in life. 402 00:47:02.540 --> 00:47:09.320 In that way, these historians glorified a non-existent society of status in which each 403 00:47:09.320 --> 00:47:16.600 Each person and group found himself in a harmonious hierarchical structure, undisturbed by market 404 00:47:16.600 --> 00:47:20.180 relations or capitalist greed. 405 00:47:20.180 --> 00:47:25.920 This nonsensical view of the Middle Ages and of scholastic doctrine was first propounded 406 00:47:25.920 --> 00:47:32.760 by German socialist and state corporatist historians Wilhelm Rocher and Werner Sombart 407 00:47:32.760 --> 00:47:38.920 in the late 19th century, and it was then seized upon by such influential writers as 408 00:47:38.920 --> 00:47:45.660 as the Anglican Socialist Richard Henry Taney and the Catholic Corporatist scholar and politician 409 00:47:45.660 --> 00:47:47.980 Amintore Fanfani. 410 00:47:47.980 --> 00:47:55.840 Finally, this view, based only on the doctrines of one obscure and heterodox scholastic, was 411 00:47:55.840 --> 00:48:01.540 enshrined in conventional histories of economic thought, where it was seconded by the free 412 00:48:01.540 --> 00:48:08.360 market but fanatically anti-Catholic economist Frank Knight and his followers in the now 413 00:48:08.360 --> 00:48:12.640 and now highly influential Chicago School. 414 00:48:12.640 --> 00:48:18.200 The much needed corrective to the older view has at last become dominant since World War 415 00:48:18.200 --> 00:48:24.400 II, led by the enormous prestige of Joseph Schumpeter and by the definitive research 416 00:48:24.400 --> 00:48:27.880 of Raymond de Rouvet. 417 00:48:27.880 --> 00:48:30.080 5. 418 00:48:30.080 --> 00:48:34.560 Usury and Foreign Exchange in the 14th Century 419 00:48:34.560 --> 00:48:41.200 The charging of interest on a loan continued to be condemned totally as usury by the mainstream 420 00:48:41.200 --> 00:48:43.680 of scholastic writing. 421 00:48:43.680 --> 00:48:51.040 Only a minority followed Cardinal Hostiensis and Olivier in allowing Lucrem Cessens, return 422 00:48:51.040 --> 00:48:57.960 on investment foregone, and then only for a charitable loan and not for professional 423 00:48:57.960 --> 00:49:00.180 moneylenders. 424 00:49:00.180 --> 00:49:06.500 Foreign exchange transactions fared no better. The mainstream of scholastics, including St. 425 00:49:06.500 --> 00:49:12.460 Thomas, simply condemning them outright as userers and as trying to charge interest on 426 00:49:12.460 --> 00:49:19.900 barren money. By the 13th and 14th century, however, bills of exchange were coming into 427 00:49:19.900 --> 00:49:26.540 prominence as credit instruments, particularly in foreign exchange dealings. Sophisticated 428 00:49:26.540 --> 00:49:33.180 Foreign exchange transactions developed in which dealers could charge and pay interest 429 00:49:33.180 --> 00:49:40.100 on credit, but such transactions were formally disguised as purchases or sales of foreign 430 00:49:40.100 --> 00:49:41.500 currencies. 431 00:49:41.500 --> 00:49:49.120 Again, most scholastics continued to condemn exchange dealings, but a courageous minority 432 00:49:49.120 --> 00:49:55.860 arose during the 14th century to champion these now pervasive transactions in which 433 00:49:55.860 --> 00:50:01.100 which the Church itself had for a long time been engaged. 434 00:50:01.100 --> 00:50:08.900 It started weekly with Aquinas's chief personal disciple, Giles of Lecine, who, while confused 435 00:50:08.900 --> 00:50:16.220 about the foreign exchange market, did speak of risk as justifying these credit transactions, 436 00:50:16.220 --> 00:50:22.460 and also showed that the exchange dealer gives something of more utility to his customer 437 00:50:22.460 --> 00:50:28.700 than what the customer pays, entitling him to an extra charge. 438 00:50:28.700 --> 00:50:34.100 The main defense of the foreign exchange market was launched by the distinguished Franciscan 439 00:50:34.100 --> 00:50:42.020 Alexander Bonini, also known as Alexander of Alexandria or Alexander Lombard. 440 00:50:42.020 --> 00:50:48.020 Bonini had an academic career at the University of Paris, then lectured at the Papal Court 441 00:50:48.020 --> 00:50:55.000 in Theology and finally served as the Franciscan Provincial in his native Lombardy, the site 442 00:50:55.000 --> 00:51:02.160 of the most notorious usurers of the day. In his Treatise on Usury, a lecture given 443 00:51:02.160 --> 00:51:10.480 at Genoa in 1307, Alexander, while attacking usury in the usual way, presented a thoroughgoing 444 00:51:10.480 --> 00:51:16.720 defense of the foreign exchange transactions with which he was familiar. Attacking the 445 00:51:16.720 --> 00:51:23.320 by the Aristotelians, Alexander pointed out that money cannot have only one function of 446 00:51:23.320 --> 00:51:29.780 serving as a barren medium of exchange, since there are many coins and these coins must 447 00:51:29.780 --> 00:51:31.940 be exchanged. 448 00:51:31.940 --> 00:51:38.640 The value of the coins thus traded, furthermore, is properly determined not by law but by the 449 00:51:38.640 --> 00:51:42.980 weight and the content of the coins. 450 00:51:42.980 --> 00:51:49.260 Alexander also adopted Giles of Lessines' insight that the dealer provides more utility 451 00:51:49.260 --> 00:51:54.460 to his customer than he receives in the money transactions. 452 00:51:54.460 --> 00:52:01.220 As for credit transactions in foreign exchange, Alexander Lombard did not defend them all, 453 00:52:01.220 --> 00:52:07.140 but provided a lucrum cessans defense for the changes in the value of a money between 454 00:52:07.140 --> 00:52:10.700 the beginning and the end of the transaction. 455 00:52:10.700 --> 00:52:16.660 Indeed, Alexander was one of the first to point out that the demand for money can and 456 00:52:16.660 --> 00:52:23.260 does vary over time, giving rise to changes in the value of money. 457 00:52:23.260 --> 00:52:29.900 Lucrum Cessans provided the entering wedge for the scholastic justification of the main 458 00:52:29.900 --> 00:52:37.860 method by which the usury prohibition was evaded during and after the High Middle Ages. 459 00:52:37.860 --> 00:52:43.280 It is illuminating that Alexander had begun his defense with the practical point that 460 00:52:43.280 --> 00:52:50.760 the Church always condemns and pursues usurers, but it does not condemn and pursue the exchange 461 00:52:50.760 --> 00:52:58.280 dealers but rather fosters them, as is apparent in the Roman Church. 462 00:52:58.280 --> 00:53:03.320 Alexander Lombard's defense of the foreign exchange market was repeated verbatim by his 463 00:53:03.320 --> 00:53:12.240 His disciple and successor as Franciscan Provincial of Lombardy, Astasanis, died 1330. 464 00:53:12.240 --> 00:53:19.520 Astasanis, like his mentor, came from Lombardy, specifically from Asti, one of the principal 465 00:53:19.520 --> 00:53:23.840 locations of the leading international usurers. 466 00:53:23.840 --> 00:53:28.560 His main work was his Summa, 1317. 467 00:53:28.560 --> 00:53:34.540 Like his predecessor, Astesannes was impressed by the fact that the Roman Church fosters 468 00:53:34.540 --> 00:53:41.520 the exchange dealers. Furthermore, he adds to Alexander's reasoning a frank defense of 469 00:53:41.520 --> 00:53:48.120 Lucram Cessans, which he was one of the first theologians, as distinct from canonists, to 470 00:53:48.120 --> 00:53:50.680 embrace. 471 00:53:50.680 --> 00:53:56.940 Among the prominent 14th century writers we have already discussed, Heinrich von Langenstein, 472 00:53:56.940 --> 00:54:04.260 As we might expect, denounced all foreign exchange dealers as userers per se. 473 00:54:04.260 --> 00:54:10.660 Even Nicole Orem simply repeated the Aristotelian shibboleth that the trade of money for money 474 00:54:10.660 --> 00:54:15.260 is unnatural because money is barren. 475 00:54:15.260 --> 00:54:22.980 While not precisely declaring exchange transactions to be usurious per se, Orem, in a flight of 476 00:54:22.980 --> 00:54:30.260 of Hate denounced foreign exchange as vile, as an occupation that stains the soul, just 477 00:54:30.260 --> 00:54:34.860 as cleaning sewers stains the body. 478 00:54:34.860 --> 00:54:42.660 In contrast, however, Jean Bourdain, Orem's mentor, engaged in a defense of foreign exchange, 479 00:54:42.660 --> 00:54:49.700 distinguishing two kinds of exchange, one where the dealer gets only as much as he gives, 480 00:54:49.700 --> 00:54:56.120 are perfectly worthy according to the Aristotelian Thomas tradition, and another where the dealer 481 00:54:56.120 --> 00:54:58.720 takes more than he gives. 482 00:54:58.720 --> 00:55:05.400 But here, Bourdain makes another mighty leap in tearing down some of the irrational barriers 483 00:55:05.400 --> 00:55:10.540 that the scholastics had drawn up against monetary transactions. 484 00:55:10.540 --> 00:55:17.520 For even the latter kind of transaction, declared Bourdain, may be legitimate, even if there 485 00:55:17.520 --> 00:55:25.620 There is no equivalent in exchange, provided the exchange promotes the common good. 486 00:55:25.620 --> 00:55:32.960 While not used for ordinary usury, Bourdain's new concept sowed the seeds for total justification 487 00:55:32.960 --> 00:55:36.440 of the foreign exchange bankers. 488 00:55:36.440 --> 00:55:42.680 At the turn of the 15th century, a thoroughgoing defense of exchange contracts was set forth 489 00:55:42.680 --> 00:55:54.200 Written by the sophisticated Florentine lay-canon lawyer Lorenzo di Antonio Ridolfi, 1360-1442. 490 00:55:54.200 --> 00:55:59.880 Ridolfi was a lecturer at the Athenium in Florence, and was at one time Ambassador of 491 00:55:59.880 --> 00:56:02.600 the Florentine Republic. 492 00:56:02.600 --> 00:56:08.960 Just as Lombard was unwilling to condemn a practice encouraged by the Church, so Ridolfi 493 00:56:08.960 --> 00:56:16.620 Ridolfi declared his unwillingness to condemn an occupation pervasive in his native Florence. 494 00:56:16.620 --> 00:56:23.720 Developing the insight of Lombard, Ridolfi, in his 1403 treatise on usury, emphasized 495 00:56:23.720 --> 00:56:31.000 that the value of money can differ from one place to another as well as over time. 496 00:56:31.000 --> 00:56:36.680 These differences are the result of changes in the demand for money, fluctuations of the 497 00:56:36.680 --> 00:56:44.040 the demand relative to the supply and alterations in the metallic content of the coinage. 498 00:56:44.040 --> 00:56:50.400 These variations justify foreign exchange dealings as well as credit transactions within 499 00:56:50.400 --> 00:56:51.400 them. 500 00:56:51.400 --> 00:56:58.480 Thus, Ridolfi developed the theory which showed that the value of money, like any other commodity, 501 00:56:58.480 --> 00:57:06.320 is determined by the interactions of its demand and supply, and that it too can vary in value 502 00:57:06.320 --> 00:57:08.560 to over time and place.