An Austrian Perspective on the History of Economic Thought

4 The late Spanish scholastics

4.1  The commercial expansion of the sixteenth century

4.2  Cardinal Cajetan: liberal Thomist

4.3  The School of Salamanca: the first generation

4.4  The School of Salamanca: Azpilcueta and Medina

4.5  The School of Salamanca: the middle years

4.6  The late Salamancans

4.7  The learned extremist: Juan de Mariana

4.8  The last Salamancans: Lessius and de Lugo

4.9  The decline of scholasticism

4.10 Parting shots: the storm over the Jesuits

4.11 Notes

4.1 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 centre in northern Europe during the sixteenth century. Commerce moved away from the restrictions and high taxation of Flemish Bruges, and shifted to and expanded in free market Antwerp, where 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 fifteenth 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 sixteenth 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, fuelled 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 sixteenth 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 seventeenth century. The victory was fuelled, as we shall see below, by the rise of Protestantism and a bit later of secularism, beginning in the sixteenth century.

4.2 Cardinal Cajetan: liberal Thomist

Late scholasticism was the product of the sixteenth century, the century that ushered in the Protestant Reformation and the Catholic Counter-Reformation. If the thirteenth century was well described as the golden age of scholastic philosophy, then the sixteenth 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 fourteenth and fifteenth 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 sixteenth century witnessed a renascent Thomism, spearheaded by one of the greatest churchmen of his age, Thomas De Vio, Cardinal Cajetan (1468–1534).

Cardinal Cajetan was not only the pre-eminent 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 favourite upholder of the faith in debates with the great founder of Protestantism, Martin Luther. In his Commentary on Aquinas’s Summa, Cajetan 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, Cajetan 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 Cambiis (1499), the great Cajetan set forth the fullest and most unqualified defence yet penned of the foreign exchange market. Sweeping aside the dithering indecisiveness of his fellow Dominican, Fra Santi Rucellai (1437–97), 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 that 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 defence of the exchange market in De Cambiis, 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. Expectations of wars and famines, and of future changes in the supply of money, will affect its current value. Thus, Cardinal Cajetan, a sixteenth century prince of the Church, can be considered the founder of expectations theory in 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 Summenhart in virtually eradicating the usury prohibition, he did join Summenhart on the doctrine of implicit intention, and was even more radical in the one area where Summenhart had hung back: lucrum cessans. Implicit intention meant that if someone really believed his contract not to be a loan, then it was not usurious, even though it might be a loan in practice. This of course paved the way for the practical elimination of the ban on usury. In addition, Cajetan 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-foregone 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 Conrad Summenhart, had justified interest charges on lucrum cessans only for ad hoc charitable loans; now the great Cajetan was justifying the business of money-lending at interest.

4.3 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 sixteenth century theologians who revived Thomism and scholasticism 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 centre of scholastic learning in the sixteenth century. That century was pre-eminently 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 pioneer in the discipline of international law, Francisco de Vitoria (c.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 Ockhamites, John Major. This man, Pierre Crockaert (c.1450–1514), had become a student and then teacher of theology late in life. Turning away from his teacher Major, Crockaert 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, Vitoria returned to Spain to lecture in theology at Valladolid, finally coming to Salamanca – then 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 new-fangled disciplines as navigational science and the Chaldean language.

Vitoria’s lectures were largely commentaries on Aquinas’s 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 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 forbears. Instead of having cost of production determinate, Vitoria, 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, Vitoria maintained, the price had to be settled by the exchanging parties themselves. Vitoria, 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 Vitoria unfortunately does not explain.

Vitoria’s 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 Alcalá near Madrid and then went to Paris, where he studied under Vitoria, and later became a professor. Returning 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 Estabán in the University. De Soto’s work in physics is also considered outstanding.

In 1545 the Emperor Charles V honoured 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. De Soto’s fame rested on his treatise De justitia et jure, published in 1553 and based on lectures given originally at Salamanca in 1540–41. 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-eighteenth 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 ‘labour, 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 favour, 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 sixteenth 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, price in Europe doubling over the first half of the sixteenth century.

De Soto was concerned to explain the curious fact that more abundant specie in Spain caused it to have an unfavourable 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 unfavourable 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 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 purchasing-power parity analysis of exchange rates.

But despite this subtle advance in analysing 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 Summenhart and Cajetan 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 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 twelfth century, had suddenly pulled a forgotten quotation from Luke (6:35) out of the hat: ‘lend freely, hoping nothing thereby’, and used 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 Summenhart 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.

4.4 The School of Salamanca: Azpilcueta and Medina

Fortunately, de Soto’s reactionary and statist influence was at least partially offset by another of Vitoria’s distinguished students, Martin de Azpilcueta Navarrus (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 adviser 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 Comentario 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. Azpilcueta built on the analysis of Cardinal Cajetan to present the first clear and unambiguous 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, Azpilcueta clearly identified the value of money as its purchasing power in terms of goods. Once Azpilcueta 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 Azpilcueta 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 sixteenth 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 absolutist political theorist Jean Bodin. But Bodin’s famous Reply to the Paradoxes of M. Malestroit (1568) was anticipated by 12 years by Azpilcueta’s work, and since the erudite Bodin 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, Azpilcueta 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 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 Azpilcueta 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’.

But 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 Navarrus.

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 usurious. 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. Azpilcueta 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, Azpilcueta Navarrus was surprisingly conservative, and a big step backward from the advanced freemarket position of Conrad Summenhart. On the census, or annuity contract, Azpilcueta Navarrus was far harsher than de Soto, who was liberal on this particular aspect of ‘usury’. Instead, Azpilcueta 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 that 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 zins, derived from the Latin census.

The Summenhart-Cajetan 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 Navarrus was conservative on most aspects of usury, he did however became the first writer to justify interest charged on lucrum cessans (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 and 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 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 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 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 Azpilcueta 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, labour, 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.

4.5 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 sixteenth century by three great Dominicans: Francisco de Vitoria, and his followers, Domingo de Soto and Martin de Azpilcueta Navarrus. The latter two theologians were the founders of the economic aspect of the systematic theology and philosophy of the Salamanca School.

The middle generation of Salamancans were those men born in the first decades of the sixteenth century, and writing near and after mid-century. The oldest of these second-generation members was the eminent Diego de Covarrubias y Leiva (1512–77) 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 ten 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 Nider in the fifteenth 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 not its original cost, nor its cost in labour, 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 Covarrubias, considered one of the greatest experts on Roman law in his day, exerted considerable influence on the great seventeenth 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 Galiani, in 1750.

Another important contribution to utility theory was made by a lesser contemporary of Covarrubias, Luís Saravia de la Calle Veroñese. 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 Instruction 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 Salamancan economist was the colourful Dominican Tomas de Mercado (d. 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 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:

... money is esteemed much less in the Indies [where it is mined] than in Spain... After the Indies, the place where money is least esteemed is Seville, the city that gathers unto herself all the good things from the New World, and, after Seville, the other parts of Spain. Money is highly esteemed in Flanders, Rome, Germany and England. This estimation 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 favour 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 Tratado 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 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 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 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 (i.e. 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 Azpilcueta-Covarrubias–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 each unit of currency less than when he was poor, or than another poor man. 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).

4.6 The late Salamancans

The School of Salamanca, begun by Francisco Vitoria in the 1520s, reached its final flowering at the end of the sixteenth century. One of the leading lights of that era was the Dominican Domingo de Bañez de Mondragon (1527–1604), professor of theology at the University of Salamanca, and friend and confessor of the famous mystic St Theresa of Avila. De Bañez was renowned for the great controversy with his eminent Jesuit colleague Luis de Molina, on the crucial question of determinism versus free will. De Bañez 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’.1

In a systematic discussion of money, its value, and foreign exchange, De Bañez (in De Justitia 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 Salamancan economic thinker was the great theologian Luís 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 sixteenth 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 Cuenca of a noble family, Molina went briefly to Salamanca, and then to the University of Alcala. Entering 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 Évora. In retirement back in Cuenca, the learned and worldly Molina published his massive six-volume magnum opus, De Justitia et Jure. The first three volumes were published in 1593, 1597 and 1600, and the other volumes followed posthumously.

Luís de Molina was a solid economic liberal, and he provided a comprehensive analysis, in the Salamancan 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 Salamancan analysis of the value of money, even explicitly endorsing the work of his theological opponent, Domingo de Bañez. 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.

Thus, on the causes of changes in price and particularly of the Spanish inflation of the sixteenth 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 eighty years ago. A thing that could be bought for two ducats at that time is nowadays worth five, six, or even more. Wages 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 inveighed 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 Conrad Summenhart 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 defence of charging payment for the lender’s assumption of risk. Indeed, he widened Medina’s permitted bounds of using the risk defence. Not only that: Molina greatly widened the scope of lucrum cessans, and solidly entrenched that permissible title to interest as a broad principle permeating 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.

Luís 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 sixteenth century. Humanists and Protestants, as we shall see below, had little use for the concept of natural rights, while Vitoria 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 centre of free will thought, along with the idea of absolute natural rights of person and property. The Louvain theologian Johannes Driedo 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 had converted to Calvinism during the sixteenth century. In the course of his championing free will against de Bañez and the Dominicans, Molina 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, Molina put the distinction very clearly:

When we say... that someone has a ius 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 ius 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. In the same way that a pauper has the ius to beg alms, a merchant has the ius to sell his wares, etc.

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 else’s property, but was, on the contrary a clear-cut right to use one’s own property without someone else’s claim being levied upon it.

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. Professor Tuck sums up this linkage with these stirring words: Molina’s ‘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’.2

The School of Salamanca had begun with the distinguished jurist, de Vitoria, and so it is fitting that the last major Salamancan 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. Entering 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 Évora. Ph.D-itis in the sixteenth century!3

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 freewill 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 a 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 forbears, 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.

4.7 The learned extremist: Juan de Mariana

One of the last Spanish scholastics was a Jesuit but not a Salamancan. He was the ‘extremist’ contemporary of Molina and Suarez, Juan de Mariana (1536–1624). Mariana was born near Toledo, of poor and humble parents. He entered the great University of Alcala in 1553, shone as a student, and a year later was received into the new Society of Jesus. After completing his studies at Alcala, Mariana went to the Jesuit College at Rome in 1561 to teach philosophy and theology, and after four years moved to Sicily to set up the theology programme at the Jesuit college there. In 1569, Mariana moved to teach theology at the great University of Paris, at the remarkably young age of 33. After four years, ill health forced him to retire to live in Toledo; ill health, however, often does not necessarily mean a short life, and Mariana lived to the then phenomenally ripe old age of 88.

Fortunately, Mariana’s ‘retirement’ was an active one, and his great learning and erudition drew numerous persons, from private citizens to state and ecclesiastical authorities, to ask for his advice and guidance. He was able to published two great and influential books. One was a history of Spain, written first in Latin and then in Spanish, which went into many volumes and many editions in both languages. The Latin version was eventually published in 11 volumes, and the Spanish in 30. The Spanish edition has long been considered one of the classics of Spanish style, and it went into many editions until the mid-nineteenth century.

The other notable work of Mariana, De Rege (On Kingship), was published in 1599, written at the suggestion of King Philip II of Spain and dedicated to his successor Philip III. But monarchy did not fare well at the hands of the hard-hitting Mariana. A fervent opponent of the rising tide of absolutism in Europe, and of the doctrine of such as King James I of England that kings rule absolutely by divine right, Mariana converted the scholastic doctrine of tyranny from an abstract concept into a weapon with which to smite real monarchs of the past. He denounced such ancient rulers as Cyrus the Great, Alexander the Great, and Julius Caesar as tyrants, who acquired their power by injustice and robbery. Previous scholastics, including Suarez, believed that the people could ratify such unjust usurpation by their consent after the fact, and thereby make their rule legitimate. But Mariana was not so quick to concede the consent of the people. In contrast to other scholastics, who placed the ‘ownership’ of power in the king, he stressed that the people have a right to reclaim their political power whenever the king should abuse it. Indeed Mariana held that, in transferring their original political power from a state of nature to the king, the people necessarily reserved important rights to themselves; in addition to the right to reclaim sovereignty, they retained such vital powers as taxation, the right to veto laws, and the right to determine succession if the king has no heir. It should already be clear that it was Mariana, rather than Suarez, who might be called the forebear of John Locke’s theory of popular consent and the continuing superiority of the people to the government. Furthermore, Mariana also anticipated Locke in holding that men leave the state of nature to form governments in order to preserve their rights of private property. Mariana also went far beyond Suarez in postulating a state of nature, a society, previous to the institution of government.

But the most fascinating feature of the ‘extremism’ of Mariana’s political theory was his creative innovation in the scholastic theory of tyrannicide. That a tyrant might be justly killed by the people had long been standard doctrine; but Mariana broadened it greatly in two significant ways. First, he expanded the definition of tyranny: a tyrant was any ruler who violated the laws of religion, who imposed taxes without the people’s consent, or who prevented a meeting of a democratic parliament. All the other scholastics, in contrast, had located the sole power to tax in the ruler. Even more spectacularly, to Mariana any individual citizen can justly assassinate a tyrant and may do so by any means necessary. Assassination did not require some sort of collective decision by the entire people. To be sure, Mariana did not think that an individual should engage in assassination lightly. First, he should try to assemble the people to make this crucial decision. But if that is impossible, he should at least consult some ‘erudite and grave men’, unless the cry of the people against the tyrant is so starkly manifest that consultation becomes unnecessary.

Furthermore, Mariana added – in phrases anticipating Locke’s and the Declaration of Independence’s justification of the right of rebellion – that we need not worry about the public order being greatly disrupted by too many people taking up the practice of tyrannicide. For this is a dangerous enterprise, Mariana sensibly pointed out, and very few are ever ready to risk their lives in that way. On the contrary, most tyrants have not died a violent death, and tyrannicides have almost always been greeted by the populace as heroes. In contrast to the common objections to tyrannicide, he concluded, it would be salutary for rulers to fear the people, and to realize that a lapse into tyranny might cause the people to call them to account for their crimes.

Mariana has given us an eloquent description of the typical tyrant at his deadly work:

He seizes the property of individuals and squanders it, impelled as he is by the unkingly vices of lust, avarice, cruelty, and fraud.... Tyrants, indeed, try to injure and ruin everybody, but they direct their attack especially against rich and upright men throughout the realm. They consider the good more suspect than the evil; and the virtue which they themselves lack is most formidable to them... They expel the better men from the commonwealth on the principle that whatever is exalted in the kingdom should be laid low... They exhaust all the rest so that they can not unite by demanding new tributes from them daily, by stirring up quarrels among the citizens, and by joining war to war. They build huge works at the expense and by the suffering of the citizens. Whence the pyramids of Egypt were born... The tyrant necessarily fears that those whom he terrorizes and holds as slaves will attempt to overthrow him.... Thus he forbids the citizens to congregate together, to meet in assemblies, and to discuss the commonwealth altogether, taking from them by secret-police methods the opportunity of free speaking and freely listening so that they are not even allowed to complain freely....

This ‘erudite and grave man’, Juan de Mariana, left no doubt what he thought of the most recent famous tyrannicide: that of the French King Henry III. In 1588, Henry III had been prepared to name as his successor Henry of Navarre, a Calvinist who would be ruling over a fiercely Catholic nation. Facing a rebellion by the Catholic nobles, headed by the duc de Guise, and backed by the devoted Catholic citizens of Paris, Henry III called the duke and his brother the cardinal to a peace parley into his camp, and then had the two assassinated. The following year, on the point of conquering the city of Paris, Henry III was assassinated in turn, by a young Dominican friar and member of the Catholic League, Jacques Clement. To Mariana, in this way ‘blood was expiated with blood’ and the duc de Guise was ‘avenged with royal blood’. ‘Thus perished Clement’, concluded Mariana, ‘an eternal ornament of France’. The assassination had similarly been hailed by Pope Sixtus V, and by the fiery Catholic preachers of Paris.

The French authorities were understandably edgy about Mariana’s theories and at his book De Rege. Finally, in 1610, Henry IV (formerly Henry of Navarre, who had converted from Calvinism to the Catholic faith in order to become king of France), was assassinated by the Catholic resister Ravaillac, who despised the religious centrism and the state absolutism imposed by the king. At that point, France erupted in an orgy of indignation against Mariana, and the parlement of Paris had De Rege burned publicly by the hangman. Before executing Ravaillac, the assassin was questioned closely as to whether reading Mariana had driven him to murder, but he denied ever having heard of him. While the king of Spain refused to heed French pleas to suppress this subversive work, the general of the Jesuit Order issued a decree to his society, forbidding them to teach that it is lawful to kill tyrants. This truckling, however, did not prevent a successful smear campaign in France against the Jesuit Order, as well as its loss of political and theological influence.

Juan de Mariana possessed one of the most fascinating personalities in the history of political and economic thought. Honest, gutsy and fearless, Mariana was in hot water almost all of his long life, even for his economic writings. Turning his attention to monetary theory and practice, Mariana, in his brief treatise De Monetae Mutatione (On the Alteration of Money, 1609) denounced his sovereign, Philip III, for robbing the people and crippling commerce through the debasement of copper coinage. He pointed out that this debasement also added to Spain’s chronic price inflation by increasing the quantity of money in the country. Philip had wiped out his public debt by debasing his copper coins by two-thirds, thereby tripling the supply of copper money.

Mariana noted that debasement and government tampering with the market value of money could only cause grave economic problems:

Only a fool would try to separate these values in such a way that the legal price should differ from the natural. Foolish, nay, wicked the ruler who orders that a thing the common people value, let us say, at five should be sold for ten. Men are guided in this matter by common estimation founded on considerations of the quality of things, and of their abundance or scarcity. It would be vain for a Prince to seek to undermine these principles of commerce. ‘Tis best to leave them intact instead of assailing them by force to the public detriment.

Mariana begins De Monetae with a charming and candid apologia for writing the book reminiscent of the great Swedish economist Knut Wicksell over two and a half centuries later: he knows that his criticism of the king courted great unpopularity, but everyone is now groaning under the hardships resulting from the debasement, and yet no one has had the courage to criticize the king’s action publicly. Hence, justice requires that at least one man -Mariana – should move in to express the common grievance publicly. When a combination of fear and bribery conspire to silence critics, there should be at least one man in the country who knows the truth and has the courage to point it out to one and all.

Mariana then proceeds to demonstrate that debasement is a very heavy hidden tax on the private property of his subjects, and that, pace his political theory, no king has the right to impose taxes without the consent of the people. Since political power originated with the people, the king has no rights over the private property of his subjects, nor can he appropriate their wealth by his whim and will. Mariana notes the papal bull Coena Domini, which had decreed the excommunication of any ruler who imposes new taxes. Mariana reasons that any king who practises debasement should incur the same punishment, as should any legal monopoly imposed by the state without the consent of the people. Under such monopolies, the state itself, or its grantee, can sell a product to the public at a price higher than its market worth, and this is surely nothing but a tax.4

Mariana also set forth a history of debasement and its unfortunate effects; and he pointed out that governments are supposed to maintain all standards of weight and measure, not only of money, and that their record in adulterating those standards is most disgraceful. Castile, for example, had changed its measures of oil and wine, in order to levy a hidden tax, and this led to great confusion and popular unrest.

Mariana’s book attacking the king’s debasement of the currency led the monarch to haul the aged (73-year-old) scholar into prison, charging him with the high crime of lèse-majesté. The judges convicted Mariana of this crime against the king, but the pope refused to punish him, and Mariana was finally released from prison after four months on the condition that he would cut out the offensive passages in his work, and that he would be more careful in the future.

King Philip and his minions, however, did not leave the fate of the book to an eventual change of heart on the part of Mariana. Instead, the king ordered his officials to buy up every published copy of De Monetae Mutatione they could get their hands on and to destroy them. Not only that; after Mariana’s death, the Spanish Inquisition expurgated the remaining copies, deleted many sentences and smeared entire pages with ink. All non-expurgated copies were put on the Spanish Index, and these in turn were expurgated during the seventeenth century. As a result of this savage campaign of censorship, the existence of the Latin text of this important booklet remained unknown for 250 years, and was only rediscovered because the Spanish text was incorporated into a nineteenth century collection of classical Spanish essays. Hence, few complete copies of the booklet survive, of which the only one in the United States is in the Boston Public Library.

The venerable Mariana was apparently not in enough trouble; after he was jailed by the king, the authorities seized his notes and papers, and found there a manuscript attacking the existing governing powers in the Society of Jesus. An individualist unafraid to think for himself, Mariana clearly took little stock in the Jesuit ideal of the society as a tightly disciplined military-like body. In this booklet, Discurso de las Enfermedades de la Compañia, Molina smote the Jesuit Order fore and aft, its administration and its training of novices, and he judged his superiors in the Jesuit Order unfit to rule. Above all, Mariana criticized the military-like hierarchy; the general, he concluded, has too much power, and the provincials and other Jesuits too little. Jesuits, he asserted, should at least have a voice in the selection of their immediate superiors.

When the Jesuit general, Claudius Aquaviva, found that copies of Mariana’s work were circulating in a kind of underground samizdat both inside and outside the order, he ordered Mariana to apologize for the scandal. The feisty and principled Mariana, however, refused to do so, and Aquaviva did not press the issue. As soon as Mariana died, the legion of enemies of the Jesuit Order published the Discurso simultaneously in French, Latin and Italian. As in the case of all bureaucratic organizations, the Jesuits then and since were more concerned about the scandal and not washing dirty linen in public than in fostering freedom of inquiry, self-criticism, or correcting any evils that Mariana might have uncovered.

The Jesuit Order never expelled their eminent member nor did he ever leave. Still he was all his life regarded as a feisty trouble-maker, and as unwilling to bow to orders or peer pressure. Father Antonio Astrain, in his history of the Jesuit Order, notes that ‘above all we must bear in mind that his [Mariana’s] character was very rough and unmortified’.5 Personally, in a manner similar to the Italian Franciscan saints San Bernardino and Sant’Antonino of the fifteenth century, Mariana was ascetic and austere. He never attended the theatre and he held that priests and monks should never degrade their sacred character by listening to actors. He also denounced the popular Spanish sport of bull-fighting, which was also not calculated to increase his popularity. Gloomily, Mariana would often stress that life was short, precarious, and full of vexation. Yet, despite his austerity, Father Juan de Mariana possessed a sparkling, almost Menckenesque, wit. Thus his one-liner on marriage: ‘Some one cleverly said that the first and the last day of marriage are desirable, but that the rest are terrible’.

But probably his wittiest remark concerned bull-fighting. His attack on that sport met with the objection that some theologians had defended the validity of bull-fighting. Denouncing theologians who palliated crimes by inventing explanations to please the masses, Mariana delivered a line closely anticipating a favourite remark by Ludwig von Mises on economists over three and a half centuries later: ‘there is nothing howsoever absurd which is not defended by some theologian’.

4.8 The last Salamancans: Lessius and de Lugo

One of the last great Salamancans was a Jesuit but not a Spaniard. Leonard Lessius (1554–1623) was a Fleming, born at Brecht near the great city of Antwerp. During the sixteenth century, Antwerp had become the outstanding commercial and financial centre of northern Europe, a focus of trade from the Mediterranean. Lessius’s parents had originally planned for him to become a merchant, but he entered the University of Louvain, and was received into the Jesuit Order in 1572. He taught philosophy for six years at the English college at Douai, in France, and then went to Rome for two years to study under Francisco Suarez. It was at Rome that Lessius became a Salamancan in spirit, and from then on struck up a friendship with Luis de Molina. Returning to Flanders, Lessius assumed a chair in philosophy and theology at the University of Louvain. In theology, Lessius took up the great Molinist cause of free will against a pro-determinist wing of theologians at Louvain. There he confronted the crypto-Calvinist Dr Michael de Bay, chancellor of the University of Louvain, who had adopted the concept of predestination and salvation of the elect. Lessius also advanced the Suarezian view that original political power was conferred by God on the people, and hence he attacked the growing adherence to the divine right of kings, especially as put forth by King James I of England.

Lessius’s most important work was De Justitia et Jure (1605), the same title as the works of Molina and de Bañez. The book was enormously influential, being published in nearly 40 separate editions in Antwerp, Louvain, Lyons, Paris and Venice. Not only was Lessius’s knowledge of his predecessors encyclopedic, but he was renowned for his knowledge and analysis of contemporary commercial practices and contracts and for his applications of moral principles to such practices. Lessius was consulted frequently on these matters by statesmen and church leaders.

On the theory of price, Lessius, like his scholastic forbears, held the just price to be that determined by the common estimate of the market. A legally fixed price could also be the just price, but in contrast to many of his fellow scholastics, for whom the legal price took precedence, Lessius pointed out several cases in which the market price would have to be chosen over the legal price. Following Juan de Medina, these were: first, when the market price is lower; and second, when, ‘in change of circumstances of increasing or diminishing supply and similar factors, the authorities were notably negligent in changing the legal price...’. Even more strongly, even a ‘private individual’ may request a price above the legal ceiling when the authorities are ‘ill informed about the commercial circumstances’, which is likely, of course, to happen a good deal of the time.

Attacking the cost of production theory of price, Lessius points to market demand as the determinant of price, regardless of a merchant’s expenses:

But if the merchant’s expenses have been greater, that is his hard luck, and the common price may not be increased for that reason, just as it need not be decreased even if he had no expenses at all. This is the merchant’s situation; just as he can make a profit if he has small expenses, so he can lose if his expenses are very large or extraordinary.

Leonard Lessius had an insight into how all economic markets are interrelated, and he analysed and defended in turn the workings of foreign exchange, speculation, and the value of money and prices. In particular, Lessius engaged in the most sophisticated analysis yet achieved of the workings of wages and the labour market. Like other scholastics, he saw that wages were governed by the same supply and demand principles, and therefore by the same canons of justice, as any price. In asking what is the ‘minimum justifiable wage’ for any given occupation, Lessius declared that the existence of other people willing to perform the work at any given wage shows that it is not too low. In short, if a supply exists for the labour at that wage, how can it be unjust?

Lessius also discovered and set forth the concept of psychic income as part of a money wage. A worker can be paid in psychic benefit as well as money: ‘if the work brings with it social status and emoluments, the pay can be low because status and associated advantages are, so to say, a part of the salary’. Lessius also advanced the view that workers are hired by the employer because of the benefits gained by the latter, and those benefits will be gauged by the worker’s productivity. Here are certainly the rudiments of the marginal productivity theory of the demand for labour and hence of wages, which was set forth by Austrians and other neoclassical economists at the end of the nineteenth century. Indeed, Lessius’s sophisticated analysis of wages and the labour market were lost to mainstream economics until they were independently rediscovered in the late nineteenth century.

Lessius also stressed the importance of entrepreneurship in determining income. This quality of entrepreneurial ‘industry’, of efficiently combining jobs, is rare, and therefore the able entrepreneur can acquire a much higher income than his fellows. Lessius also provides a sophisticated analysis of money, demonstrating that the value of money is dependent on its supply and demand. More abundant money will make it less valuable either for buying goods or foreign exchange, and a greater demand for money will cause the value of the currency to rise: ‘For example, if great princes are in urgent need of money for war or other public purposes, or if a large quantity of goods come on to the market; for whenever money is urgently needed for matters of great moment, so is it more highly esteemed in terms of goods.’

In his application of moral principle to trade practice, Lessius had a liberating effect on trade. This was particularly true of usury, where Lessius, while formally continuing the traditional prohibition, was actually a highly influential force in its ongoing destruction. Lessius provided the most sweeping defence so far of the guaranteed investment contract, and he treated benignly even high rates of return on capital. He also removed all the remaining restrictions on lucrum cessans. First, he widened the doctrine to apply, not only to specific loans that would otherwise have been invested, but to any funds, since they are liquid assets that always might have been invested. Thus the pool of funds can, as a whole, be considered opportunity cost foregone of investment, and therefore interest may be charged on a loan to that extent.

As Lessius puts it:

Although no particular loan, separately considered, be the cause, all, however, collectively considered, are the cause of the whole lucrum cessans: for in order to lend indiscriminately to those coming by, you abstain from business and you undergo the loss of the profit which would come from this. Therefore, since all collectively are the cause, the burden of compensation for this profit can be distributed to single loans, according to the proportion of each.

But this meant that Leonard Lessius justified not only businessmen or investors planning to invest their money, but also any people with liquid funds, including professional money-lenders. For the first time among scholastics, all loans by money-lenders were now justified. With Leonard Lessius, then, the last of the barriers to interest or usury were smashed, and only the hollow shell of the formal prohibition remained.

Lessius adds that the lender may charge interest, even though a reserve of money is kept out of fear, and even if that fear is irrational. Note that to Lessius the important point was the reality of the lender’s subjective fears, not whether the fears are objectively correct.

Furthermore, Lessius takes the Medina-Molina assumption of risk argument for interest, about which they had tended to hedge in practice, and widens it greatly. All loans, he points out, carry risks of non-payment: ‘a personal right is almost always joined with some difficulties and dangers’. In a careful analysis of lenders’ risk, Lessius pointed out that a greater risk, and a greater charge, would be incurred by lending to someone not known to the lender, or whose credit is doubtful.

But that is not all. For Leonard Lessius contributed his own, new and powerful, weapon against the usury ban: a new ‘title’ or justification for interest. The new justification – prefigured only by the neglected Summenhart – was carentia pecuniae: charging for lack of money. Lessius pointed out quite cogently that the lender suffers the lack of his money, the lack of his liquidity, during the term of the loan, and therefore he is entitled to charge interest for this economic loss. In short, Lessius saw perceptively that everyone derives utility from liquidity, from the possession of money, and that being deprived of this utility is a lack for which the lender may and will demand compensation. Lessius pointed out that unexpected situations can and do arise which could be met far more effectively if one’s money were in one’s possession and not absent for a period of time. Time, in short, can and should be charged for, for that reason, ‘for it can never be obtained that the merchants do not value a long-term concession higher than a short-term one’. And those who are deprived of their money ‘value more the lack of their money for five months than the lack of it for four, and the lack of it for four more than three, and this is partly because they lack the opportunity of gaining with that money, partly because their principle is longer in danger...’.

Furthermore, Lessius points out that bills of exchange, or rights to future money, are always at a discount compared to cash. This discount is, of course, the rate of interest. Lessius explains: ‘This is a matter of common experience in that money provides the means to a multitude of things which those rights do not provide. Therefore they may be bought at a lower price’. Lessius also notes that merchants and exchangers daily determine the ‘price of the lack of money’ on the Antwerp Bourse, averaging about 10 per cent; and foreign exchanges, of inestimable value to the economy, would perish if such prices could not be charged.

Thus, for Lessius, the price for a lack of money is established on organized loan markets. But to the extent that a loan market exists, there is no need to justify each merchant’s loan on the basis of his particular opportunity cost or deprivation of funds. That price, which becomes the just price, is set on the loan market. As Lessius puts it:

Moreover, any merchant seems able to demand this price... even though there is no gain of his that stops because of his loan. This is the just price for the privation of money among merchants; for the just price of an article or obligation in any community is that which is put upon it by that community in good faith for the sake of the common good in view of all the circumstances... Therefore, even if through the privation of money for a year there is no gain of mine that stops and no risk of capital, because such a price for just causes has been put upon this privation, I may demand it just as the rest do.

With carentia pecuniae, therefore, Leonard Lessius delivered the final blow to smash the usury prohibition, while unfortunately still retaining the prohibition in a formal sense. It is no wonder that Professor Noonan, the great scholar of the scholastics on usury, holds Lessius to be ‘the theologian whose views on usury most decidedly mark the arrival of a new era. More than any predecessor he would probably have felt completely at ease in the modern financial world.’6

The last Salamancan was the Jesuit Cardinal Juan de Lugo (1583–1660). De Lugo takes the Salamancans into the seventeenth century, the century of the decline of Spanish power in Europe. After studying law and theology at Salamanca, de Lugo went to Rome to teach at the great Jesuit College. After teaching theology in Rome for 22 years, de Lugo was made a cardinal and became a member of various influential Church commissions in Rome. A learned and comprehensive theoretician, de Lugo has been called the greatest moral theologian since Aquinas. Author of a book on psychology and another on physics, de Lugo’s masterwork in the area of law and economics was De Justitia et Jure, published in 1642. This work went through numerous editions during the seventeenth and eighteenth centuries, its last edition having appeared as late as 1893.

In his theory of value, this culminating work of the Salamancan School displayed a subtle and advanced subjective utility explanation. The prices of goods, de Lugo pointed out, fluctuate ‘on account of their utility in respect of human need, and then only on account of estimation; for jewels are much less useful than corn in the house, and yet their price is much higher’. Here de Lugo, once again, comes very close to the late nineteenth century marginal utility explanation of value, and to solving the value paradox. Corn is higher than jewellery in use value, but is cheaper in price. The answer to this paradox is that subjective estimates or valuations differ from objective use-value, and these in turn are affected by the relative scarcities of supply. Again, only the marginal concept is needed to complete the explanation.

Subjectivity, de Lugo goes on, means that the ‘estimation’ or valuation is going to be conducted by ‘imprudent’ as well as ‘prudent’ men (no ‘rationality’ or ‘economic man’ assumptions here!). In short, the just price is the market price determined by demand and consumer valuations; and, if the consumers are foolish or judge differently than we do, then so be it. The market price is a just price all the same.

In his discussion of merchants’ activities, de Lugo adds to the previous opportunity-cost concept of mercantile expenses. For a merchant will only continue to supply a product if the price covers his expenses and the rate of profit he could earn in other activities.

In his theory of money, Cardinal de Lugo follows his confreres: the value or purchasing power of money is determined by the quality of the metal content of coins, the supply of and the demand for money. De Lugo also set forth the idea that money moves from the area of its lower to that of its higher value.

On usury, de Lugo provided a mixed bag. On the one hand, he draws back from the clear implications of Lessius and others that the usury ban should become a hollow shell. For that reason, he refuses to accept Lessius’s willingness to have the lender charge for lack of money during the period of the loan. On the other hand, de Lugo widens still further the powerful ‘prousury’ weapons of risk and lucrum cessans. He broadens the concept of risk to include explicitly every loan; for, as he puts it with remarkable bluntness: ‘Where today is there to be found a debt so placed in safety that in security it equals ready cash?’ But that, of course, justifies the charging of interest on every loan. De Lugo also widens lucrum cessans still further, for he allows the lender to include not only probable profit foregone from a loan, but also the expectation of remote profit foregone. Also, the lender, in charging interest, may calculate the profit he would have made by re-investing the lost profit on a loan. In sum, de Lugo asserts sweepingly that lucrum cessans is ‘the general title for purging usury’.

4.9 The decline of scholasticism

Sixteenth century Spain has well been called the Indian Summer of scholasticism. After that, its decline, not only in Spain but throughout Europe, was rapid. Part of the reason was a stubborn clinging to the form of the prohibition of usury. A ban which had made little sense, either by natural or divine law, and which entered Christian thought quite late in the day, was clung to and strengthened in an almost perpetual, irrational frenzy. The systematic weakening of the usury ban by some of the finest minds in Christendom had the beneficial effect of sanctioning the charging of interest, but at the longrun cost of discrediting the scholastic method itself. By clinging to the outer husk of banning usury as a mortal sin, while at the same time finding increasingly sophisticated ways of allowing merchants and finally professional moneylenders to get around the ban, the scholastics opened themselves to unfair charges of evasion and hypocrisy.

The deadly assault on scholasticism came from two contrasting but allied camps. One was the rising groups of Protestants without, and crypto-Calvinists within, the Church who denounced it for its alleged decadence and moral laxity. Protestantism, after all, was in large part a drive to cast off the sophisticated trappings and the refined doctrine of the Church, and to go back to the alleged simplicity and moral purity of early Christianity. Made the very emblem of this hostility was the Jesuit Order, the devoted spearhead of the Counter-Reformation, that order which had taken up from the faltering Dominicans the torch of Thomism and scholasticism.

The second camp of enemies of scholasticism was the rising group of secularists and rationalists, men who might be Catholics or Protestants in their private lives but who mainly wanted to get rid of such alleged excrescences on modern life as the political application of religious principles or the prohibition of usury. Consequently, the crypto-Calvinists attacked the Jesuits for weakening the prohibition of usury, while the secularists attacked them for keeping it.

Neither wing of the opposition was impressed with the brilliance of the scholastic arguments to justify usury, nor with the entire scholastic and Jesuit enterprise of ‘casuistry’: that is, of applying moral principles, both natural and divine, to concrete problems of daily life. One might think that the task of casuistry should be deemed an important and even noble one; if general moral principles exist, why shouldn’t they be applied to daily life? But both sets of opponents rapidly succeeded in making the very word ‘casuistry’ a smear term: for the one, a method of weaselling out of strict moral precepts; for the other, a method of imposing outdated and reactionary dogmas upon the world.

Why, despite the great work of Summenhart and others, did the Catholic Church persist in keeping the formal ban on usury for two centuries thereafter? Probably for the same reason that the Church has always tended to maintain stoutly that it never changes its doctrines while it keeps doing so. Changing content within an unchanging formal shell has long been characteristic, not only of the Catholic Church, but of any long-lived bureaucratic institution, whether it be the Church or the constitutional interpretations of the Supreme Court of the United States.

The two-pronged alliance against scholasticism outside and within the Catholic Church cut far deeper than the quarrel over usury. At the root of Catholicism as a religion is that God can be approached or apprehended through all the faculties of man, not simply through faith but through reason and the senses. Protestantism, and especially Calvinism, sternly put God outside man’s faculties, considering, for example, sensate embodiments of man’s love for God in painting or sculpture as blasphemous idolatry to be destroyed in order to clear the path for the only proper communication with God: pure faith in revelation. The Thomist stress on reason as a means of apprehending God’s natural law and even aspects of divine law was reviled by a sole Protestant emphasis on faith in God’s arbitrary will. While some Protestants adopted natural law theories, the basic Protestant thrust was opposition to any natural law attempts to derive ethics or political philosophy from the use of man’s reason. For Protestants, man was too inherently sinful and corrupt for his reason or his senses to be anything but an embodiment of corruption; only pure faith in God’s arbitrary and revealed commands was permissible as a groundwork for human ethics. But this meant that for Protestants there was also very little natural law groundwork from which to criticize actions of the state. Calvinism and even Lutheranism provided little or no defences against the absolutist state which burgeoned throughout Europe during the sixteenth century and triumphed in the seventeenth century.

If Protestantism opened the way for the absolute state, the secularists of the sixteenth and seventeenth centuries embraced it. Shorn of natural law critiques of the state, new secularists such as the Frenchman Jean Bodin embraced the state’s positive law as the only possible criterion for politics. Just as the anti-scholastic Protestants extolled God’s arbitrary will as the foundation for ethics, so the new secularists raised the state’s arbitrary will to the status of unchallengeable and absolute ‘sovereign’.

On the deeper level of the question of how we know what we know, or ‘epistemology’, Thomism and scholasticism suffered from the contrasting but allied assaults by the champions of ‘reason’ and ‘empiricism’. In Thomist thought, reason and empiricism are not separated but allied and interwoven. Truth is built up by reason on a solid groundwork in empirically known reality. The rational and empirical were integrated into one coherent whole. But in the first part of the seventeenth century, two contrasting philosophers managed between them the fatal sundering of the rational and the empirical that continues to plague the scientific method until the present day. These were the Englishman Francis Bacon (1561–1626) and the Frenchman Rene Descartes (1596–1650). Descartes was the champion of a dessicated mathematical and absolutely certain ‘reason’ divorced from empirical reality, while Bacon was the advocate of sifting endlessly and almost mindlessly through the empirical data. Both the distinguished English lawyer who rose to become Lord Chancellor (Lord Verulam), Viscount of the Realm, and corrupt judge, and the shy and wandering French aristocrat, agreed on one crucial and destructive point: the severing of reason and thought from empirical data. Hence, from Bacon there stemmed the English ‘empiricist’ tradition, steeped mindlessly in incoherent data, and from Descartes the purely deductive and sometimes mathematical tradition of continental ‘rationalism’. All this was of course an assault on natural law, which had long integrated the rational and the empirical.

As a corollary to, and intermingled with, this basic and systematic change in European thought in the ‘early modern’ period (the sixteenth and especially seventeenth centuries) was a radical shift in the locus of intellectual activity away from the universities. The theologians and philosophers who wrote and thought on economics, law, and other disciplines of human action during the medieval and Renaissance periods were university professors. Paris, Bologna, Oxford, Salamanca, Rome, and many other universities were the milieu and arena for intellectual output and combat during these centuries. And even the Protestant universities in the early modern period continued to be centres of natural law teaching.

But the major theorists and writers of the seventeenth and then the eighteenth centuries were almost none of them professors. They were pamphleteers, businessmen, wandering aristocrats such as Descartes, minor public officials such as John Locke, churchmen such as Bishop George Berkeley. This shift of focus was greatly facilitated by the invention of printing, which made the publication of books and writings far less costly and created a much wider market for intellectual output. Printing was invented in the mid-fifteenth century, and by the early sixteenth century it became possible, for the first time, to make a living as an independent writer, selling one’s books to a commercial market.

This shift from university professors to private lay citizens meant, at least for that era, a move away from traditional modes of learning and thought towards a more diverse spectrum of idiosyncratic individual views. In a sense, this acceleration of diversity went hand in hand with one of the most important impacts of the Protestant Reformation on social and religious thought. For, in the long run, far more important than such theological disputes as over free will vs predestination and over the significance of communion was the shattering of the unity of Christendom. Luther and even Calvin had no intention of fragmenting Christendom; on the contrary, each set out to reform a unified Christian Church. But the consequences of their revolution was to open Pandora’s box. Whereas frictions and heresies had before been either stamped out or accommodated within the Church, now Christianity split apart in literally hundreds of different sects, some quite bizarre, each propounding different theologies, ethics, and prescriptions for social life.

While the variegated strains of social thought stemming from this break within Christianity included rationalists and individualist groups such as the Levellers as well as absolutists, the value of the resulting diversity must be offset by the unfortunate fading away of scholasticism and Thomism from Western thought.

The severing of the unity of European thought was intensified by the shift during these centuries of written literature from Latin to the vernacular in each country. During the Middle Ages, all intellectuals, jurists and theologians in Europe wrote in Latin, even though of course the spoken language in each country was the vernacular. This meant that for scholars and intellectuals there was only one language, and in a sense one country, so that Englishmen, Frenchmen, Germans, etc. could easily read and be influenced by each others’ books and articles. Europe was truly one intellectual community.

In the Middle Ages, only Italian authors wrote, from time to time, in Italian as well as Latin. But the Protestant Reformation gave tremendous impetus toward the abandonment of Latin, since Protestants felt it vital for the Christian masses to read and study the Bible in language they could understand. Martin Luther’s famous translation of the Bible into German, in the sixteenth century, inspired a rapid change towards writing in the national language. As a result, since the sixteenth and seventeenth centuries, economic, social, and religious thought began to be isolated in each national language. Later continuing influences of scholastic economic thought became confined to writers in Catholic countries.

4.10 Parting shots: the storm over the Jesuits

While the inspiration for creative and outstanding scholastics was played out, the seventeenth century saw the influence of scholasticism continue in Spain and spread to other countries. The great champion and disseminator of the Salamanca School was of course the Jesuit Order. In Spain and elsewhere the Jesuits produced a huge number of manuals on moral theology for the use of confessors, in which they discussed, among other matters, the application of theological and moral principles to the ethics of business. The most important instance was the pious Father Antonio de Escobar y Mendoza’s (1589–1669) Theologiae Moralis (1652). This extremely popular work was reprinted in 37 editions in a brief period of time, and was also translated and published in France, Belgium, Germany and Italy. Escobar’s work was basically a restatement of two dozen previous books on moral theology, mainly by such Spanish writers as Molina, Suarez and de Lugo. He repeated the Salamancan emphasis on common estimation, scarcity, and the supply of money as determinants of market price.

The Salamanca School was particularly influential in Italy. There the Genoese philosopher and jurist, Sigismundo Scaccia (c.1568–1618), published a Tractatus de Commerciis et Cambiis in 1618, which was reprinted often in Italy, France, and Germany down to the middle of the eighteenth century. Scaccia’s Tractatus repeated the price and foreign exchange theories of the Salamancans, including Covarrubias, Azpilcueta and Lessius.

Other prominent neo-Salamancans in Italy were the Jesuit Cardinal Giambattista de Luca (1613–83), who published his multi-volume Theatrum Veritatis et Justitiae in Rome in the 1670s; Martino Bonacina (c. 1585–1631); and Antonino Diana (1585–1663).

In France, however, the influential Escobar manual ran into a storm of abuse for its sophisticated permissive attitude towards usury. The abuse was led by an influential crypto-Calvinist group within the French Catholic Church that raised a furious row about the alleged moral laxity of the Jesuit Order.

The assault on the Jesuits and on their devotion to reason and the freedom of the will had begun in Belgium, and was accelerated towards the end of the sixteenth century by Dr Michael de Bay, chancellor of the great University of Louvain. Bay, and Baianism, launched a furious intramural warfare within Louvain against Leonard Lessius and the Jesuits on the faculty. Chancellor de Bay managed to convert most of the Louvain faculty to his creed, which adopted the Calvinist creed of predestination of an elect. In France, the absolutist pro-royalists began a bitter campaign against the Jesuit Order, which they linked with the Catholic Leaguers and the assassination of the centrist and pro-Calvinist Henrys. In particular, the attorney Antoine Arnauld, defending royal absolutism to the hilt, petitioned for the expulsion of the Jesuits from France, angrily declaiming that they were the worst enemies of ‘the sacred doctrine of the Divine Right of Kings’. Arnauld was originally employed to press the case against the Jesuits by the University of Paris, and its theological faculty of the Sorbonne, which had also been swept by the crypto-Calvinist tide.

In the early seventeenth century, two disciples of Michael de Bay, both former students of the Jesuits, took up the cudgels for his cause. Most important was Cornelius Jansen, founder of the neo-Calvinist Jansenist movement, which became extremely powerful in France. Jansen, like many openly Protestant theologians, demanded to go back to the moral purity of St Augustine and of the Christian doctrines of the fourth and fifth centuries. If Jansen was the theoretician of the movement, his friend the Abbé Saint-Cyran was the brilliant tactician and organizer. With the help of Mere Angelique, superior of the nuns of Port-Royal, Saint-Cyran gained control of these influential nuns. Mere Angelique was the daughter of Antoine Arnauld, and indeed a dozen of the Port-Royal nuns were members of the powerful Arnauld family.

One of the Port-Royal nuns was the sister of the brilliant young philosopher, mathematician, and French stylist Blaise Pascal, and young Pascal took up the Jansenist cause with a witty and blistering attack on the Jesuits, particularly Escobar, for his alleged moral failure in being soft on usury. Pascal even coined a popular new term, escobarderie, with which he denounced the important discipline of casuistry as being evasive quibbling. Another victim of Pascal’s poison pen was the austere French Jesuit Etienne Bauny. In his Somme des Pechez (1639), Bauny extended the weakening of the usury ban by going so far as to justify interest charges higher than the maximum rate permitted by royal decree for, after all ‘the debtors entered into them willingly’. Moreover, Bauny’s trenchant voluntaryism defended the usury contract on another incisive ground: since it is licit for a lender to hope for a borrower to give him a free gift, it should also be licit for the lender and the borrower to make such a definite pact beforehand. How can making a contract for something be evil if hoping for the result is permissible? Once permit such justifications by voluntary choice, and then of course all assaults on usury and other free market activities must go by the board.

Although the Jansenists were eventually condemned by the pope, Pascal’s scurrilous rampage against the Jesuits had considerable effect in helping to end the reign of scholastic thought, at least in France.

4.11 Notes

• 1  Frank Bartholomew Costello, S.J., The Political Philosophy of Luis de Molina, S.J. (Spokane: Gonzaga University Press, 1974), p. 231.
• 2  Richard Tuck, Natural Rights Theories (Cambridge: Cambridge University Press, 1979), p. 54.
• 3  The great Molina had also had difficulties in not having a theology doctorate, which was finally conferred upon him by the Jesuit Order with considerable reluctance.
• 4  The form of Philip’s debasement, as Mariana pointed out, was either to double the face value of recoined copper while keeping the same weight, so that the increased value went as profit to the royal treasury; or to keep the face value of silver/copper coins, take out the silver and reduce the copper weight, which gave the treasury a two-thirds profit.
• 5  Quoted by John Laures, S.J., The Political Economy of Juan de Mariana (New York: Fordham University Press, 1928), p. 18.
• 6  John T. Noonan, Jr, The Scholastic Analysis of Usury (Cambridge, Mass.: Harvard University Press, 1957), p. 222.