Chapter 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.
Commerce 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.
Slowly 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.
As 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.
2. 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.
The 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.
In 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.
In 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.
In 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.
The 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.
On 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.
In 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.
This 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.
3. 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.
Spain, 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.
There, 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.
and 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.
Vitoria'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.
The 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.
For 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.
Born 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.
In 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.
Unfortunately 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.
And 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.
The 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.
As 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.
But 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.
He 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.
More 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.
4. 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.
In 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.
When 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.
In 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.
It 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.
And 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
exchange 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.
As 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.
On 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.
Furthermore, 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.
The 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.
Interestingly 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.
Loyola'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.
So 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.
As 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.
Now, 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.
But 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.
The 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.
On 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.
The 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.
In 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.
The 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.
Prices 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.
Saravia'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.
The 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.
In 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
Attraction 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?
During 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.
In 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.
He 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.
In 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.
Finally, 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.
de 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.
A 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.
The 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.
Following 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.
Luis 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.
Molina'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.
The 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.
Wherever 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.
He 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.
The 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.
The 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.
Attacking 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.
For 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.
The 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.
Admitted 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.
In 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.
In 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.
Suarez'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.
If 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.