IV. And Some Successors

IV AND SOME SUCCESSORS

THE work of the Spanish School in the second half of the sixteenth century marked the St. Martin’s summer of scholasticism. Henceforth the medieval conception of learning as a small group of arts and sciences with theology at their head was to be discarded for ever. Knowledge branched out into innumerable disciplines which came to be more and more clearly separated and defined. The process was a slow one, and for a long time there was confusion and overlapping. From the beginning of the seventeenth century onwards we have to hunt down our monetary theory through many different branches of literature—in books on theology, law, and political and moral philosophy, as well as in the mass of books and pamphlets on practical questions that express the spirit of mercantilism. Economic thought thus came to be more widely dispersed than at any period since classical times. Not until far into the eighteenth century would these scattered fragments again unite to provide a foundation for the science of economics as we know it today. Yet, though the discussion of economic problems was diffused over so wide a field, there was never any fundamental breach in the continuity of economic theory. Where commercial morality was concerned, even the religious schism hardly troubled the general unity of doctrine. As Professor Tawney remarks, ‘differences of social theory did not coincide with differences of religious opinion, and the mark of nearly all this body of teaching, alike in Germany and in England, is its conservatism. Where questions of social morality were involved, men whose names are a symbol of religious revolution stood, with hardly an exception, on the ancient ways, appealed to medieval authorities, and reproduced in popular language the doctrines of the Schoolmen.’1 This continuity was preserved not only in Germany and England, but also in France, Spain, and Italy. It is most clearly apparent in the various branches of learned literature, since each generation of professional men was especially well grounded in the teaching of its predecessors. But the ideas of jurists, theologians, and philosophers are reflected also in the practical literature of mercantilism, which was written largely by state officials and by business men.

Our discussion of Spanish monetary theory was confined to four branches of doctrine: ideas about the origin and functions of money, the quantity theory, theory of value applied to both goods and money, and the purchasing-power parity theory of exchange. We now have to consider to what extent this body of doctrine was preserved and developed in the seventeenth and eighteenth centuries.

To begin with the group of ideas about the origin and functions of money, it has already been shown that the classic ‘historical’ account of the transition of society from a barter to a monetary economy, together with the concept of money as a medium of exchange, and as a measure and store of value, were derived from Aristotle and were universally accepted throughout the Middle Ages and Renaissance. The School of Salamanca merely helped to hand on these ideas, which may be found reproduced with little modification in many monetary treatises of the seventeenth, eighteenth, nineteenth, and indeed twentieth centuries. We need not labour the antiquity of these doctrines but only draw attention in passing to their persistent defiance of the passage of time.

Of greater historical importance is the Spanish contribution to the quantity theory of money. So far as is known, Azpilcueta Navarro was the first writer to note the effect on prices of the influx of treasure from America and thus to give a practical interpretation to a doctrine that had been glimpsed by earlier authors. The relevant passage in Azpilcueta’s manual continued to be read and cited for many years after its original publication. But Azpilcueta did not long remain the sole exponent of the quantity theory. The French scholar, Jean Bodin, re-stated the theory independently twelve years after his Spanish predecessor, and his work inspired a number of important economists. In any case the basic principles of the theory spread so quickly that by the beginning of the seventeenth century they were a commonplace of economic literature in many countries.2 As the quantity theory so soon ceased to be characteristic of Spanish writers alone, and as its later history has frequently been studied, we need not here attempt to trace its development further.

We now come to a more interesting and difficult problem. Is there any historical connexion between the modern emphasis on utility and rarity as the principal determinants of value and the subjective approach of our Spanish writers? Again, was the old Spanish purchasing-power parity theory handed on continuously until the early nineteenth century, when it reappears in the Bullion Report of 1810, or was it re-stated independently by the English authors of the Report, and yet again towards the end of the First World War by the late Professor Cassel?

Perhaps the most convenient way to deal with these questions will be to work backwards from modern times towards the sixteenth century. Until fairly recently it has been customary to regard the fundamental cleavage in the evolution of nineteenth-century economic thought as having taken place in the 1870s. The English classical economists, it was said, stressed production, supply, and cost: modern theory is mainly concerned with consumption, demand, and utility. But it is now coming to be recognized that a subjectivist theory of value was developed by a number of authors before the concept of marginal utility was formulated by Jevons, Walras, and Menger. While in England the labour theory of value was predominant in the earlier decades of the nineteenth century, on the Continent there was already a tendency to emphasize utility.3 The leading exponent of this subjective or utility theory of value was the French economist, J. B. Say, but some analysis of wants and desires is to be found in the majority of Continental treatises of the period. The subjectivist tradition may be traced back a step farther to the writings of Condillac,4 Turgot,5 and Galiani,6 of whom the latter seems to have been the first eighteenth-century writer to formulate a really consistent and well-developed utility theory.

Condillac and Turgot agree in minimizing the effects of cost-of-production on price, and hold that value is determined primarily by the need felt for the article in question, and by its utility and rarity. The medieval concept of ‘common estimation’ is echoed in Turgot’s doctrine that price is the expression of ‘valeur appréciative’, which is the ‘Valeur estimative moyenne’ arrived at by comparing the subjective value of the article in the minds of the various individuals that make up the market. Both goods and money are treated from the same subjective standpoint, the foreign exchanges being held to reflect the relative utility of money in the different countries. All this is strongly reminiscent of the teaching of the School of Salamanca.

Condillac and Turgot, like Jevons a century later, seem to have regarded their own emphasis on utility as a novelty. The only predecessor they acknowledge is Galiani, whose brilliant analysis of utility seems at first sight to have sprung fully mature into life: at any rate, Galiani himself gives us no clue to any earlier source. Value, according to Galiani, depends on two factors: utility and rarity. ‘It is evident’, he says, ‘that air and water, which are the elements most useful to human life, have no value because they are not rare. On the other hand, a bag of sand from the shores of Japan might well be rare but would be of no value, since it would have no particular utility.’ The whole of Galiani’s general theory of value, as it is developed in the second chapter of his great treatise, is simply a witty and elegant elaboration of this fundamental statement.

Now, the overwhelming importance which these eighteenth-century economists attributed to utility and rarity in the determination of value may perhaps have been something of a novelty in their day. But we have seen that the concepts of utility and rarity were placed high in the traditional list of factors determining value which accompanied scholastic discussions of the ‘just price’. And we have also seen that our Spanish writers regarded utility and rarity as the primary, though not the sole, determinants of value. We shall have little difficulty in closing the gap of about a hundred and fifty years which separates the last members of the School of Salamanca, Bañez and Molina, from Galiani. It appears, in fact, that both the labour theory of value adopted by the English classical economists and the utility theory that prevailed at the same period on the Continent stemmed from the conventional scholastic list of factors that go to determine price.

The economic theory of the School of Salamanca was developed in treatises on ethics and on jurisprudence, and in manuals of practical theology for the use of confessors. It is in this type of literature, not in monetary treatises as the term is understood today, that the legacy of the Spanish School was most carefully preserved.

The Spanish treatises de justitia et jure were closely followed by both Protestant and Catholic writers. We will first deal with the Protestant line of descent. Our Spanish writers had included a chapter on commercial contracts in their writings on the Law of Nations because of the universal character of international trade, which was held to transcend the jurisdiction of particular princes.7 Many of their Protestant successors followed the same practice and included some discussion of value in their treatises on international law.

A section on contracts was included by Grotius in his most important work on the Law of Nations,8 which owes much to the writings of the Spanish jurists. In dealing with the problems of commercial justice Grotius continually refers to Azpilcueta Navarro, Covarrubias, Vasquez, and the Belgian theologian Lessius, who, as we shall see, was one of the principal continuators of the Spanish School. Grotius follows Aristotle in holding that want is the natural measure of value. Like many of his Spanish predecessors, Grotius refers to St. Augustine’s famous comparison of the ‘natural’ scale of values with the price-scale,9 the latter depending on utility. But utility, adds Grotius, is not the only measure of value, since the most necessary things are often the cheapest because of their abundance. The common estimation in which an article is held, the labour and expenses of merchants, and the abundance or scarcity of buyers, all affect prices. The value of money similarly varies according to its abundance or scarcity.10

This doctrine was taken over and presented in a much more elaborate form by the Lutheran jurist, Samuel Pufendorf (1632–94), whose writings were translated into the principal European languages soon after their publication and remained the standard text-books on natural law until the end of the eighteenth century. Pufendorf’s thought closely follows that of Grotius. Pufendorf shows some knowledge of Spanish literature and often draws his illustrations of the conditions of natural law from the writings of the Spanish historians of the Indies. He occasionally mentions Suarez but does not specifically refer to the other Spanish jurists. A precursor of the Enlightenment, Pufendorf was hostile to the spirit of scholasticism. But in considering his aloof attitude towards his Catholic predecessors, we should remember that his work was published in Sweden, a strongly Lutheran country with a strict censorship. Pufendorf was a man of vast learning. It is unlikely that in taking over Grotius’s teaching he failed to consult the Spanish authorities to whom Grotius repeatedly refers.

Pufendorf quotes Grotius to the effect that want is the natural measure of value.11 Things are valuable in so far as they help to preserve human life or to render it more pleasurable, but a thing cannot possess value unless it is rare as well as useful. This is why jewels are dearer than the things that are indispensable to human life, of which nature pours forth a bountiful supply. A thing is commonly estimated at whatever price it will fetch, and this price may justifiably fluctuate within reasonable limits, unless it is fixed by law. In determining the ‘common’ or uncontrolled price of a thing, we should also consider the labour and expenditure of the merchant, the cost of transport, the mode of sale (whether wholesale, retail, by auction, &c.), and the abundance or scarcity of purchasers, money, and goods. The value of money is derived both from its metal content and from its tale, but ‘that increase or decrease which other things undergo because of scarcity or abundance, money itself does not entirely escape, as a coin made of the same material and with the same weight is worth now more and now less, although that variation is not as sudden or as frequent as the variations of value among other things’. All this is very familiar to students of the earlier Spanish treatises.

The work of Grotius and Pufendorf was continued in England by Francis Hutcheson, whose Introduction to Moral Philosophy (1747) preserves to a surprisingly large extent the contents and arrangement of the old treatises de justitia et jure. In the customary chapter on value, Hutcheson says that ‘the ground of all price must be some fitness in the things to yield some use or pleasure in life; without this, they can be of no value. But this being presupposed, the prices of things will be in a compound proportion of the demand for them, and the difficulty in acquiring them’. This ‘difficulty’, according to Hutcheson, may be occasioned in many ways: if the things are rare, if much labour is required in their production, ‘or a more elegant genius in the artist’, or if those employed in their manufacture are ‘men in high account’, accustomed to live ‘in a more splendid manner, for the expense of this must be defrayed by the higher profits of their labours’. Some things of the highest utility, such as air and light, yet have no price, or a very small one. This is because nature has provided them in plenty, and we may have them almost without labour.12

Hutcheson thus agrees with our Spanish writers, and with Grotius and Pufendorf, in regarding utility as the basis of value, but he lays more emphasis than his predecessors had done on the importance of cost-of-production. In doing so he gave a novel twist to the traditional doctrine of value. Adam Smith follows his teacher Hutcheson in this respect. Indeed, in some parts of his work he seems to regard labour as the sole source of value. Yet in his famous distinction between ‘value-in-use’ and ‘value-in-exchange’ he also took account of utility, and stated a paradox that was to provide a starting-point for the discussions of later economists. To many historians, Smith’s theory of value appears inexplicably wavering and confused. But if we consider his ideas against the background of the theory of value taught in the earlier literature of natural law, a body of doctrine with which he was thoroughly familiar13 and whence I believe he drew many of his ideas on value, we shall understand why he saw nothing illogical in holding that both subjective and objective factors play their part in the determination of value. In this he was simply following an established tradition which dated back to medieval times.

If the thought of the School of Salamanca was reflected in the writings of the Protestant jurists, and perhaps in the Wealth of Nations itself, its influence on Catholic writers was even deeper and more enduring. Here, the subjective theory of value was preserved side by side with the Spanish purchasing-power parity theory of exchange.

Leonardus Lessius (1554–1623), professor of theology at Louvain, was a Flemish Jesuit who had studied under Suarez and was a friend of Molina and Vasquez. He was the author of a treatise de justitia et jure (1605) which ran through nearly forty editions published in Antwerp, Louvain, Lyons, Paris, and Venice. Lessius was especially celebrated for his expert knowledge of commercial practice, and he was often consulted by the merchants of Antwerp on problems of business morality, just as their forefathers had appealed to Vitoria and the doctors of Paris some eighty years earlier.14 Throughout his treatise Lessius continually refers to our Spanish writers and adheres closely to their teaching. On the foreign exchanges he follows Medina, Navarro, and Soto, and applies their doctrine to conditions in Belgium. Money, according to Lessius, has a dual value: the legal or ‘intrinsic’ value, depending on the metal content and on the tale, which is fixed by law or custom in terms of the other moneys that are current in the same area of circulation, and the fortuitous or ‘extrinsic’ value, which fluctuates both in terms of goods and in terms of foreign currency. The extrinsic value of money is derived from four things. Firstly, from its abundance or scarcity. Wherever money is more abundant, there will it be less useful for the purpose of buying goods or foreign currency. Secondly, from the demand that exists for bills of exchange. ‘Just as many buyers cause the price of goods to rise, so does a heavy demand for bills of exchange raise the price of money in the hands of the brokers, whether the money be present or absent.’ Thirdly, from the supply of bills of exchange. Where they are in short supply, their price will tend to rise. Fourthly, from the need that is felt for money. ‘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.’15

Similar views are propounded by Juan de Salas, professor of theology at Salamanca, whose treatise on contracts appeared in 1617.16 In his general discussion of value, Salas remarks that the natural or uncontrolled price of goods depends, as Augustine said, on their utility. The natural price will vary according to the abundance or scarcity of both goods and money, the newness or antiquity of the goods, ‘the common utility of the article and the need felt for it’, and the manner of sale (whether wholesale, retail, in bulk, by auction, &c.). Salas adds that ‘goods sold in the warehouse are cheap, because this mode of sale indicates abundance of goods and scarcity of buyers and money, and suggests that the articles possess only slight utility for the vendor’. Turning to the value of money and the problems of the exchanges, Salas repeats the doctrine of Lessius and his Spanish predecessors more or less word for word.

A very celebrated treatise de justitia et jure was that of the Spanish Jesuit, Juan de Lugo, who, after studying law and theology at Salamanca, was called to Rome to teach at the Jesuit College there, and was later created Cardinal.17 The author of a work on psychology and another on physics, as well as of many theological treatises, Lugo was regarded by St. Alphonsus of Liguori as ‘easily the leader after St. Thomas’, and has been called by a modern Jesuit scholar18 ‘probably the greatest and most representative of [Jesuit] theologians’. Lugo’s fame chiefly rests on his treatise de justitia et jure, the fruit of his studies at Salamanca and a work of astonishing complexity, which was published in 1642 and reprinted several times during the seventeenth and eighteenth centuries. The last edition appeared as recently as 1893.

In his general remarks on value, Lugo says that earlier authorities, such as Scotus and Major, regarded the just price as derived from labour, expenses, and risk, but that the more recent writers, such as Soto, Medina, Covarrubias, Conrad, and Molina, disagree with this view and hold that price fluctuates not because of the intrinsic and substantial perfection of the articles—since mice are more perfect than corn, and yet are worth less—but 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. And we must take into account not only the estimation of prudent men, but also that of the imprudent, if they are sufficiently numerous in a place. This is why our glass trinkets are in Ethiopia justly exchanged for gold, because they are commonly more esteemed there. And among the Japanese, objects made of old tiles and ironwork, which are worth nothing to us, are sold at a high price because of their antiquity. Communal estimation, even if foolish, raises the natural price of goods, since the latter is derived from estimation. The natural price is raised by abundance of buyers and money, and lowered by the contrary factors.19

Discussing the value of money, Lugo repeats the venerable doctrine that money has a legal and a natural value. The natural price of money (called by Lessius the ‘extrinsic price’) is derived from ‘the excellence of the metal content,20 the antiquity of the coins, their degree of utility for commercial purposes, and the readiness of foreigners to accept them’. The old purchasing-power parity theory of exchange appears very clearly in Juan de Lugo’s work.21

Another influential follower of the Spanish School was the Genoese philosopher and jurisconsult, Sigismundo Scaccia, whose Tractatus de Commerciis et Cambiis was published in 1618 and frequently reprinted in Italy, France, and Germany, up to about the middle of the eighteenth century. Scaccia’s teaching is based largely on that of the School of Salamanca and on Lessius, although he also often refers to the medieval schoolmen. On the value of goods he quotes Covarrubias and Azpilcueta to the effect that things are worth less when they are abundant and more when they are scarce, an article being ‘abundant’ when many people offer it for sale, and ‘scarce’ when more buyers than sellers come forward. In his chapter on the foreign exchanges, Scaccia refers his readers to the explanation given by Soto of the premium charged on bills of exchange drawn in Antwerp on Spain, and he applies Soto’s doctrine in a very lucid manner to the exchanges between France and Italy.22

Thus it is clear that the monetary theory of the School of Salamanca spread through many countries during the earlier decades of the seventeenth century, and that it continued to be developed and freshly applied in a number of the leading treatises on theology and jurisprudence. Although most of the original members of the School were Dominicans, it will be noticed that among the seventeenth-century writers who continued its teaching there were many Jesuits. As practical moralists, the Jesuits were very much to the fore at this time, since a great part of their work lay in the confessional. They produced a vast number of manuals for the use of confessors, in which they often discuss knotty problems of commercial ethics on the lines laid down by the School of Salamanca.23 It may be assumed that their doctrines filtered through to the laity. I do not suggest that these tedious works constituted the favourite reading of the average honnête homme, but we have only to turn to Pascal’s Provincial Letters to realize how great an influence the Jesuit theologians exerted on ordinary life and thought in France at this period. Pascal employs all his accustomed verve and irony in attacking many of the writers whose work we have been considering (he devotes the Eighth Letter to impugning their doctrine of usury), and it is evident that, writing in 1656, he looked upon our Spanish writers and all their works as a force both living and dangerous.

It would seem, then, that a markedly subjectivist theory of value, emphasizing the effect on price of utility, rarity, and the forces of supply and demand, was widely current among theologians and jurists throughout the seventeenth century, and that this theory was largely built up on the work of the School of Salamanca. In Protestant countries this subjective theory was expounded in the literature of natural law, and in Catholic countries in that of theology as well as of jurisprudence. We have here a possible explanation of the isolated references to utility and rarity which are scattered through the practical handbooks of the mercantilists.24 Such utterances are sometimes hailed as isolated flashes of genius, brilliant anticipations of the truths of modern economics. In fact, they are only reflections of a well-established body of doctrine. If in a sense they ‘anticipate’ modern theory, this is because modern theory has been built up on earlier work of the kind we are here considering.

The most serious objection to the version of events just put forward is the fact that Condillac, Turgot, and Galiani all asserted that their own emphasis on utility and rarity was a novelty. All three writers were noted for their learning, especially in theology and jurisprudence. It is hard to believe that they had not read any of the books referred to above. As eighteenth-century philosophes they might perhaps have felt reluctant to acknowledge their debt to the casuists. But any such reluctance could not have extended to Grotius, Pufendorf, or Hutcheson. I can only suppose that Galiani came across the essential elements of his theory of value in the work of some earlier author, and that the wit and grace with which he expressed these old truths made them seem like innovations to his contemporaries. However this may be, the existence of a subjective theory of value in the work of our Spanish writers and their successors may well have paved the way for the favourable reception that was at once accorded to Galiani’s great masterpiece.

As regards the later history of the purchasing-power parity theory, we have seen that it was understood and newly applied until about the middle of the seventeenth century. The last traces of the medieval objection to exchange transactions (though not, of course, the dislike of usury itself) seem to have died away towards the end of the seventeenth century. In France, for example, the rule that ‘the place where a bill is drawn must be so far distant from the place where it is payable that there may be a possible rate of exchange between the two’—in other words, that a bill must represent a genuine commercial transaction and not merely a loan—began to disappear at about this time.25 And with the disappearance of this rule, the old purchasing-power parity theory, which had been framed to show that the premium on a bill of exchange was not necessarily a disguised form of interest on a loan, lost its raison d’être and presumably died a natural death after performing a useful function for close on 150 years. Another century was to elapse before the theory was re-stated quite independently by the English classical economists, who probably arrived at it through the interesting series of discussions on the mechanics of international trade initiated by Malynes and Mun. Cassel, whose version of the theory is still current, had probably never heard of either of the two earlier forms of purchasing-power parity theory.

It was, then, in their analysis of value that our Spanish writers appear to have made their most enduring contribution to economic theory. But their pioneer work on the quantity theory and the purchasing-power parity theory of exchange is also of great interest. These achievements should surely entitle our writers to an honourable place in the history of economic science.

Are there any general conclusions to be drawn from our study of the monetary theory of the School of Salamanca? Only, perhaps, that some of the leading ideas of modern theory have a longer history than is often supposed. And I think that no student who has spent a little time in turning over these old treatises can fail to be impressed by the large measure of agreement on the fundamental problems of economic theory that has united men of all countries and periods, living under the most varied religious, social, and economic systems. If we began our study with a quotation from Cervantes, we may well end with one from Marshall. ‘The new doctrines’, he says, ‘have supplemented the old, have extended, developed, and sometimes corrected them, and have often given them a different tone by a new distribution of emphasis, but very seldom have subverted them.’

____________

26 Religion and the Rise of Capitalism, 1926, p. 82.

27 E. F. Heckscher, op. cit., vol. ii, pp. 224–31, and J. Viner, op. cit., p. 41, give numerous quotations from writers of the earlier seventeenth century which present some form of quantity theory.

28 For a study of the nineteenth-century forerunners of the modern subjective school see M. Bowley, Nassau Senior and Classical Economics, London, 1937. Also E. Roll, op. cit., pp. 320–44. The subjective theory of value in the seventeenth and eighteenth centuries is discussed by R. Zuckerkandl, Zur Theorie des Preises, 1899, and by E. Morand, Theorie psychologique de la valeur jusqu’en 1776, Bordeaux, 1912.

29 Commerce et gouvernement, 1776, pp. 9–30.

30 Valeurs et monnaies, in Œeuvres, 1808, vol. iii, pp. 256–93.

31 Della Moneta, 1750, reprinted in Scrittori classici italiani di economia politica, 1803, vols. iii and iv.

32 As Malynes puts it, ‘the Law Merchant is a customary law approved by the authoritie of all Kingdomes and Commonweales, and not a Law established by the Soveraigntie of any Prince, either in the first formation or by continuance of time’.

33 De jure belli et pacis, 1625 (English translation, Oxford, 1925). Grotius’s debt to the Spanish jurists is discussed in the Introduction to the English translation, pp. xiii–xiv.

34 De jure belli et pacis, Bk. 2, ch. XII, par. xiv.

35 Ibid., Bk. 2, ch. XII, par. xvii.

36 Pufendorf’s most brilliant and comprehensive analysis of value is included in his De jure naturae et gentium, 1672 (English translation, Oxford, 1934), Bk. 5, ch. I. But interesting discussions are also to be found in his Elementorum jurisprudentiae universalis libri 2,1660 (English translation, Oxford, 1931 ), Bk. 2, Def. X, and De officio hominis et civis juxta legem naturalem, 1673 (English translation, Oxford, 1927), ch. XIV.

37 Introduction to Moral Philosophy, 1747, pp. 209–10.

38 Smith’s debt to the seventeenth-century writers on natural law is discussed by W. Hasbach, Untersuchungen über Adam Smith, Leipzig, 1891, and by G. Morrow, The Ethical and Economic Theories of Adam Smith, New York, 1923.

39 See article ‘Lessius’ in the Catholic Encyclopaedia.

40 De justitia et Jure, Louvain, 1605, Lib. 2, ch. 23, Dub. 4.

41 Comentarii in Secundam Secundae D. Thomae de contractibus, Lyons, 1617, see especially pp. 9, 11, 32–34, 357, 573–8.

42 See article ‘Lugo’ in the Catholic Encyclopaedia.

43 J. Brodrick, The Economic Morals of the Jesuits, London, 1934, p. 89.

44 De Justitia et Jure, Lyons, 1642, Disp. XXVI, sec. iv, par. 41–44.

45 Sic. This factor is included by mistake among those that determine the natural or extrinsic price of money. See the Note that follows.

46 ‘It is to be noted with Lessius, Molina, and Salas, that the excess of this unequal value which money has in different places is not derived only from the higher intrinsic value of money, proceeding from its superior metal content or higher legal tale, but may also be caused by a diversity in its extrinsic value. Thus, in the place to which the money is sent there may be a general scarcity of money, or more people may require it, or there may be better opportunities for doing business with it and making a profit. And, since money will there be more useful for satisfying human needs, more goods will be bought than elsewhere with the same sum of money, and therefore money will rightly be regarded as more valuable in that place.’ Op. cit., Disp. XXVIII, sect, vi, par. 40.

47 ‘The fact that, by reason of the greater scarcity or abundance of money in different places, a larger or smaller sum may be given or accepted appears in the transactions commonly effected between Italy and France. For when money is scarce in France on account of the civil wars there, and plentiful in Italy, whoever delivers money in France for repayment in Italy will receive more than he gave. On the other hand, a merchant who delivers money in Italy for repayment in France will receive less. Yet this is no usury, for one sum is equal to the other, on account of the relative abundance and scarcity of money.’ Tractatus de Commerciis et Cambiis, 1618, Bk. 1, Quaest. 7, par. 1, 48.

48 A typical and popular example was the Theologiae Moralis of Antonio de Escobar. This manual, which was published in 1652, was a compendium of twenty-four earlier works on moral theology, mostly by Spanish authors such as Molina, Suarez, and Lugo. Escobar says that the natural price of an article depends on the estimation of men, taking into account the scarcity or plenty of goods, buyers, sellers, and money, the manner of sale, the utility of the article in question, and the labour and expenses of merchants. Escobar was attacked with particular virulence by Pascal, and his name now figures in French dictionaries as the very symbol of prevarication.

49 Examples are given in most histories of economic theory. The sort of statement I have in mind is the following by John Law: ‘Goods have a value from the Uses they are apply’d to; and their Value is Greater or Lesser, not so much from their more or less valuable, or necessary Uses; as from the greater or lesser Quantity of them in proportion to the Demand for them. Example. Water is of great use, yet of little Value; because the Quantity of Water is much greater than the Demand for it. Diamonds are of little use, yet of great Value, because the Demand for Diamonds is much greater than the Quantity of them.’ Money and Trade consider’d, 1705, ch. I.

50 Holdsworth, op. cit., vol. viii, p. 169.

1Earl J. Hamilton, American Treasure and the Price Revolution in Spain (Harvard Economic Studies), Cambridge, 1934, pp. 11-45.
2Ramon Carande, Carlos V y sus banqueros, vol. i, La vida económica en España en una fase de su hegemonia, Madrid, 1943, p. 155.
3Cristobal de Villalón, Provechoso tratado de cambios y contrataciones de mercaderes y reprovación de usuras, Valladolid, 1542. Luis de Alcalá, Tratado de los préstamos que passan entre mercaderes y tractantes, Toledo, 1543. Luis Saravia de la Calle, Instructión de mercaderes muy provechosa, Medina del Campo, 1544. Tomás de Mercado, Tratos y contratos de mercaderes, Salamanca, 1569 (of which a revised edition entitled Summa de tratos y contratos was published at Seville in 1571 and an Italian translation at Brescia in 1590).
4Saravia de la Calle, op. cit, p. xciv (verso).
5Complaints of a ‘scarcity of money’ are common in the mercantilist literature of all countries. For a discussion as to what was meant by the phrase see E. Heckscher, Mercantilism, London, 1935 (English translation of Merkantilismen, Stockholm, 1931), vol. ii, pp. 221-4, and J. Viner, Studies in the Theory of International Trade, London, 1937, pp. 87-90.
6Saravia de la Calle, op. cit., pp. xcv (verso)-xcvi.
7As follows:
8Saravia de la Calle, op. cit, p. xciv (verso).
9Ibid., p. xcv (verso).
10Usher, Early History of Deposit Banking in Mediterranean Europe (Harvard Economic Studies), Cambridge, 1943, p. 128.
11Op. cit., p. 89 (verso).
12The fairs and Bourse of Antwerp are described by R. Ehrenberg, Zeitalter der Fugger, Jena, 1896 (English translation under the title of Capital and Finance in the Age of the Renaissance, London, 1928). An account of the life of the Spanish merchants in Antwerp is given by J. A. Goris, Études sur les colonies marchandes méridionales à Anvers de 1488 à 1567, Louvain, 1925.
13Mercado, op. cit., pp. 88-89.
14De justitia et jure, Salamanca, 1553, p. 595.
15Ibid.
16I know of no comprehensive modern study of the rates of exchange for money sent to and from Spain at this period. See, however, A. Sayous, ‘Les Changes de l’Espagne sur l’Amérique au XVIe siécle’, in Revue d’économie politique, 1927, pp. 1417 et seq., and the same author’s ‘Observations d’écrivains du XVIe siécle sur les changes’, in Revue économique internationale (Nov. 1928).
17Mercado, op. cit., p. 89.
18Carande, op. cit., pp. 196-204.
19Mercado, op. cit., p. 88.
20A specimen document of this type is included by Diaz de Valdepeñas in his Summa de notas copiosas, Valladolid, 1553, a collection of model contracts for the guidance of public scriveners.
21‘On Seville (except from the Indies) a profit is always made, and, on the other hand, from Seville to any place abroad money is sent at a loss. For Seville exceeds all other cities in money and riches.’ Mercado, op. cit., p. 88.
22A Defence of Usury, 1787, pp. 73-77.
23For an exceptionally lucid contemporary account of the exchange and rechange see Appendix i.
24Mercado, op. cit., p. 87.
25Schreiber, op. cit., p. 134.
26The monetary theory of the period is based on the assumption that money was more ‘abundant’ in Spain than elsewhere. But when we come to analyse this ‘abundance’ we encounter certain difficulties. The most reliable estimate of the quantity of gold and silver imported into Spain is based on the remittances registered at the House of Trade in Seville. Naturally, no account could be taken in this estimate of the contraband and therefore unregistered remittances of bullion that entered Spain, but there is reason to think that they were considerable. And even if we knew the exact amount of bullion imported we still could not be certain as to what proportion of it was actually coined and put into circulation. Some part of the treasure, no doubt, was melted down for plate and ornaments. Immense sums, too, were sent to Flanders, Germany, and Italy, some through the fair of Medina but others directly, in payment of the loans advanced to Charles V by foreign bankers. In the present state of our knowledge, therefore, no exact correlation between treasure imports and prices is possible.
27The monetary theory of the period is based on the assumption that money was more ‘abundant’ in Spain than elsewhere. But when we come to analyse this ‘abundance’ we encounter certain difficulties. The most reliable estimate of the quantity of gold and silver imported into Spain is based on the remittances registered at the House of Trade in Seville. Naturally, no account could be taken in this estimate of the contraband and therefore unregistered remittances of bullion that entered Spain, but there is reason to think that they were considerable. And even if we knew the exact amount of bullion imported we still could not be certain as to what proportion of it was actually coined and put into circulation. Some part of the treasure, no doubt, was melted down for plate and ornaments. Immense sums, too, were sent to Flanders, Germany, and Italy, some through the fair of Medina but others directly, in payment of the loans advanced to Charles V by foreign bankers. In the present state of our knowledge, therefore, no exact correlation between treasure imports and prices is possible.
28From about 1540 onwards there appeared a whole crop of handbooks, written mostly by learned friars, which paint a vivid picture of the business life of the times. Their authors vie with one another in offering the merchant the perfect guide for the salvation of his soul, though one writer’s injunction to his readers that they were ‘not to twist a rule of iron into one of lead’ suggests that their teaching was often followed in the letter rather than the spirit. These little books reflect, in a simplified form comprehensible to the layman, the more elaborate body of doctrine that was in process of evolution at the universities.
29Close upon the merchant’s heels followed the moneychanger ‘travelling from fair to fair and from place to place with his table and boxes and books’. In theory he was a public official whose business it was to deal in cambium minutum or the changing of gold coins into silver or other money in return for a small fee. A series of royal pragmatics issued in 1550, 1551, and 1552 prescribe the proper table of equivalences for cambium minutum and provide that any money-changer who failed to give the legal rate should be fined for a first offence, flogged for a second, and banished for a third. The broker who arranged the deal was to suffer the same punishment. Money-changers were to keep proper books ‘and not leave blank sheets between the pages already used’, and only persons appointed by the cities, villas, and lugares might act as brokers.
30To the ordinary citizen money seemed anything but ‘abundant’. On the contrary, there was an acute shortage of specie which provoked bitter complaints from merchants and economists alike. The May fair of Medina del Campo had to be postponed on this account in 1543, 1553, and 1554. Thomas Gresham, who visited Spain in 1554 with the object of cashing bills of exchange to the value of 320,000 ducats drawn in Antwerp and payable at the Spanish fairs, was unable to bring away more than 200,000 ducats, and expresses astonishment at the shortage of specie in Spain.
31Sharing the common fate of laws in Spain, these drastic measures were effective only on paper. In practice, many money-changers no longer stooped to deal in cambium minutum at all. ‘Go up to their tables if you dare’, writes one observer, ‘and ask them to give you small change for a real or a ducat. You will soon see how angry they get and with what a peevish, grave face they complain that you are affronting them, for they do not deal in such low trade.’ Nor did the more enterprising money-changers deal in genuine bills of exchange, though this was another important part of their official activities. They had, in fact, ceased to be money-changers at all in the traditional sense of the term and were simply fair-bankers. As soon as they got to the fair they made their way to a part of the Rua or high street that was marked off for their accommodation by means of heavy chains thrown across the road. There they proceeded to set up their tables and rake into their coffers all the loose cash the newly arrived merchants would deposit with them, paying their customers 6 maravedís for every 1,000 deposited. The whole business of the fair was then conducted through the fair-bankers, and cash transactions were reduced to a minimum by the cancelling-out of book entries. If a merchant wanted to be paid in cash for his goods before the official settling-day he was required to pay a commission to the fair-banker. The rate was in theory the same as the rate paid by the bankers to the merchants, namely, six to the thousand, but in practice it was much higher. In 1542 it is said to have reached 25 and 30 per thousand at the fairs of Rioseco and Medina del Campo. Mercado complains that ‘the money-changers sweep all the money into their own houses, and when a month later the merchants are short of cash they give them back their own money at an exorbitant rate’. In this and other ways the money-changers made big profits, and it is for them that the severest strictures of the theologians are reserved.
32Close upon the merchant’s heels followed the moneychanger ‘travelling from fair to fair and from place to place with his table and boxes and books’. In theory he was a public official whose business it was to deal in cambium minutum or the changing of gold coins into silver or other money in return for a small fee. A series of royal pragmatics issued in 1550, 1551, and 1552 prescribe the proper table of equivalences for cambium minutum and provide that any money-changer who failed to give the legal rate should be fined for a first offence, flogged for a second, and banished for a third. The broker who arranged the deal was to suffer the same punishment. Money-changers were to keep proper books ‘and not leave blank sheets between the pages already used’, and only persons appointed by the cities, villas, and lugares might act as brokers.
33Sharing the common fate of laws in Spain, these drastic measures were effective only on paper. In practice, many money-changers no longer stooped to deal in cambium minutum at all. ‘Go up to their tables if you dare’, writes one observer, ‘and ask them to give you small change for a real or a ducat. You will soon see how angry they get and with what a peevish, grave face they complain that you are affronting them, for they do not deal in such low trade.’ Nor did the more enterprising money-changers deal in genuine bills of exchange, though this was another important part of their official activities. They had, in fact, ceased to be money-changers at all in the traditional sense of the term and were simply fair-bankers. As soon as they got to the fair they made their way to a part of the Rua or high street that was marked off for their accommodation by means of heavy chains thrown across the road. There they proceeded to set up their tables and rake into their coffers all the loose cash the newly arrived merchants would deposit with them, paying their customers 6 maravedís for every 1,000 deposited. The whole business of the fair was then conducted through the fair-bankers, and cash transactions were reduced to a minimum by the cancelling-out of book entries. If a merchant wanted to be paid in cash for his goods before the official settling-day he was required to pay a commission to the fair-banker. The rate was in theory the same as the rate paid by the bankers to the merchants, namely, six to the thousand, but in practice it was much higher. In 1542 it is said to have reached 25 and 30 per thousand at the fairs of Rioseco and Medina del Campo. Mercado complains that ‘the money-changers sweep all the money into their own houses, and when a month later the merchants are short of cash they give them back their own money at an exorbitant rate’. In this and other ways the money-changers made big profits, and it is for them that the severest strictures of the theologians are reserved.
34Sharing the common fate of laws in Spain, these drastic measures were effective only on paper. In practice, many money-changers no longer stooped to deal in cambium minutum at all. ‘Go up to their tables if you dare’, writes one observer, ‘and ask them to give you small change for a real or a ducat. You will soon see how angry they get and with what a peevish, grave face they complain that you are affronting them, for they do not deal in such low trade.’ Nor did the more enterprising money-changers deal in genuine bills of exchange, though this was another important part of their official activities. They had, in fact, ceased to be money-changers at all in the traditional sense of the term and were simply fair-bankers. As soon as they got to the fair they made their way to a part of the Rua or high street that was marked off for their accommodation by means of heavy chains thrown across the road. There they proceeded to set up their tables and rake into their coffers all the loose cash the newly arrived merchants would deposit with them, paying their customers 6 maravedís for every 1,000 deposited. The whole business of the fair was then conducted through the fair-bankers, and cash transactions were reduced to a minimum by the cancelling-out of book entries. If a merchant wanted to be paid in cash for his goods before the official settling-day he was required to pay a commission to the fair-banker. The rate was in theory the same as the rate paid by the bankers to the merchants, namely, six to the thousand, but in practice it was much higher. In 1542 it is said to have reached 25 and 30 per thousand at the fairs of Rioseco and Medina del Campo. Mercado complains that ‘the money-changers sweep all the money into their own houses, and when a month later the merchants are short of cash they give them back their own money at an exorbitant rate’. In this and other ways the money-changers made big profits, and it is for them that the severest strictures of the theologians are reserved.
35Sharing the common fate of laws in Spain, these drastic measures were effective only on paper. In practice, many money-changers no longer stooped to deal in cambium minutum at all. ‘Go up to their tables if you dare’, writes one observer, ‘and ask them to give you small change for a real or a ducat. You will soon see how angry they get and with what a peevish, grave face they complain that you are affronting them, for they do not deal in such low trade.’ Nor did the more enterprising money-changers deal in genuine bills of exchange, though this was another important part of their official activities. They had, in fact, ceased to be money-changers at all in the traditional sense of the term and were simply fair-bankers. As soon as they got to the fair they made their way to a part of the Rua or high street that was marked off for their accommodation by means of heavy chains thrown across the road. There they proceeded to set up their tables and rake into their coffers all the loose cash the newly arrived merchants would deposit with them, paying their customers 6 maravedís for every 1,000 deposited. The whole business of the fair was then conducted through the fair-bankers, and cash transactions were reduced to a minimum by the cancelling-out of book entries. If a merchant wanted to be paid in cash for his goods before the official settling-day he was required to pay a commission to the fair-banker. The rate was in theory the same as the rate paid by the bankers to the merchants, namely, six to the thousand, but in practice it was much higher. In 1542 it is said to have reached 25 and 30 per thousand at the fairs of Rioseco and Medina del Campo. Mercado complains that ‘the money-changers sweep all the money into their own houses, and when a month later the merchants are short of cash they give them back their own money at an exorbitant rate’. In this and other ways the money-changers made big profits, and it is for them that the severest strictures of the theologians are reserved.
36The banker proper was a much more dignified personage. ‘The Seville bankers’, writes Mercado, ‘are in substance the treasurers and depositaries of the merchants. When the fleet comes in, every merchant puts into the bank all the treasure that is brought to him from the Indies, the bankers having first given a pledge to the city authorities that they will render good account to the owners.’ The bankers served their depositors free of charge and used the money deposited with them to finance their own operations. Most of the gold and silver brought in by the fleet passed in this way through the hands of the bankers and served as a basis for the creation of credit. ‘In Spain’, concludes Mercado, ‘a banker bestrides a whole world and embraces more than the Ocean, though sometimes he does not hold tight enough and all comes crashing to the ground.’ We know the names of some at least of the Seville bankers who were operating in the second half of the sixteenth century: Alonso and Pedro de Espinosa, Juan Iñiguez in partnership with Octaviano de Negrón, Domingo de Lizarrazas, and Pedro de Morga.
37THE FAIRS AND THE FOREIGN EXCHANGES
38In the great melting-pot of the fairs the activities of merchants, money-changers, and bankers were fused into one. Gone was the old medieval principle of every Jack to his trade. Merchants were less than ever content to serve the community by supplying it with goods in return for a modest living, and were tending to engage more and more in purely financial business, thereby (in the eyes of theologians) impoverishing their fellow men and imperilling their own souls. As early as 1526 the Venetian ambassador had observed that although goods were abundant at the fair of Medina del Campo the most important business was done in exchange transactions. All the evidence points to an accentuation of this tendency during the succeeding decades. The fairs lost the last traces of their old local character and became great national, and indeed international, clearing centres, ‘the beginning and end of all payments ’.They were by this time ‘mainly places for settling accounts, not for true buying and selling’, though of such there was still ‘a good share’.
39In the sixteenth century, the Spanish and Flemish fairs were held in conjunction with one another and together formed one of the main arteries through which American treasure flowed from Seville across the Pyrenees. A good description of the methods of payment in force at the end of the reign of Charles V is given by the latter’s confessor and representative at the Council of Trent, the theologian Domingo de Soto. After observing that ‘an author who seeks to reprehend the customs of the exchanges must note the practice of merchants with his own eyes’, Soto tells us that four fairs were held every year in Spain and the same number in Flanders. The first was the May fair of Medina del Campo, for which payment opened on the 15th of July and closed on the 10th of August. This fair corresponded to the September fair in Flanders, for which payment opened on the 10th of November and closed at the end of that month. The second fair was at Rioseco, for which payment opened on the 15th of September and closed on the 10th of October, corresponding to the Christmas fair in Flanders. The third was held at Medina del Campo, corresponding to the Easter fair in Flanders, and the fourth at Villalón, corresponding to the June fair in Flanders. As had been the practice since medieval times, accounts between merchants were settled by order of transfer in bank while the fairs were in progress. During the period allotted for payment, any balances outstanding were remitted by bill of exchange, which was customarily drawn on the fair that immediately followed.
40The banker proper was a much more dignified personage. ‘The Seville bankers’, writes Mercado, ‘are in substance the treasurers and depositaries of the merchants. When the fleet comes in, every merchant puts into the bank all the treasure that is brought to him from the Indies, the bankers having first given a pledge to the city authorities that they will render good account to the owners.’ The bankers served their depositors free of charge and used the money deposited with them to finance their own operations. Most of the gold and silver brought in by the fleet passed in this way through the hands of the bankers and served as a basis for the creation of credit. ‘In Spain’, concludes Mercado, ‘a banker bestrides a whole world and embraces more than the Ocean, though sometimes he does not hold tight enough and all comes crashing to the ground.’ We know the names of some at least of the Seville bankers who were operating in the second half of the sixteenth century: Alonso and Pedro de Espinosa, Juan Iñiguez in partnership with Octaviano de Negrón, Domingo de Lizarrazas, and Pedro de Morga.
41If we may accept the widely divergent figures given in books published within a year or so of one another, the rates at which money could be sent by bill of exchange between Spain and other countries fluctuated violently. Such fluctuations are to be expected in the relatively narrow and inflexible money-market of the period. The figures show that the exchanges turned consistently against Spain, and, within Spain itself, against Seville, the home port of the treasure fleet. Soto has already given us the rate at which money could be sent from Medina to Antwerp and back again from Antwerp to Medina in 1553. In 1569 money could be sent from Medina to Lisbon at par or at 1 per cent, premium and from Lisbon to Medina at a premium of 5, 6, or 7 per cent., from Seville to Flanders at a discount of 5 or 6 per cent, and from Flanders to Seville at a premium of 8 or 9 per cent., from Seville to Rome at a discount of 8 or 10 per cent., and from Rome to Seville at a premium of as much as 15 or 20 per cent.
42To the Spanish fairs came ‘men of all nations, from Seville, Lisbon, Burgos, Barcelona, Flanders, and Florence’. Many of them were rich and powerful—great noblemen, ecclesiastical dignitaries, and officers of the Crown. Needs felt in Milan, Antwerp, or the Indies were met at Medina, Villalón, and Rioseco, and every commodity was dealt in, from humble articles of daily use to supplies for the armies and navies of princes.
43The banker proper was a much more dignified personage. ‘The Seville bankers’, writes Mercado, ‘are in substance the treasurers and depositaries of the merchants. When the fleet comes in, every merchant puts into the bank all the treasure that is brought to him from the Indies, the bankers having first given a pledge to the city authorities that they will render good account to the owners.’ The bankers served their depositors free of charge and used the money deposited with them to finance their own operations. Most of the gold and silver brought in by the fleet passed in this way through the hands of the bankers and served as a basis for the creation of credit. ‘In Spain’, concludes Mercado, ‘a banker bestrides a whole world and embraces more than the Ocean, though sometimes he does not hold tight enough and all comes crashing to the ground.’ We know the names of some at least of the Seville bankers who were operating in the second half of the sixteenth century: Alonso and Pedro de Espinosa, Juan Iñiguez in partnership with Octaviano de Negrón, Domingo de Lizarrazas, and Pedro de Morga.
44If we may accept the widely divergent figures given in books published within a year or so of one another, the rates at which money could be sent by bill of exchange between Spain and other countries fluctuated violently. Such fluctuations are to be expected in the relatively narrow and inflexible money-market of the period. The figures show that the exchanges turned consistently against Spain, and, within Spain itself, against Seville, the home port of the treasure fleet. Soto has already given us the rate at which money could be sent from Medina to Antwerp and back again from Antwerp to Medina in 1553. In 1569 money could be sent from Medina to Lisbon at par or at 1 per cent, premium and from Lisbon to Medina at a premium of 5, 6, or 7 per cent., from Seville to Flanders at a discount of 5 or 6 per cent, and from Flanders to Seville at a premium of 8 or 9 per cent., from Seville to Rome at a discount of 8 or 10 per cent., and from Rome to Seville at a premium of as much as 15 or 20 per cent.
45The double transaction of the exchange and rechange was frowned upon by the Church. A purely financial operation, it was condemned as a device of the Devil to ensnare men in their own unbridled lust for gain. And it came perilously near to ‘dry exchange’, a term loosely applied to any unlawful form of exchange operation. Used in a narrower sense, the term ‘dry exchange’ referred to a fictitious operation devised to evade the usury laws, which we first meet in Florence in the later Middle Ages. Dry exchange in this narrower sense was redefined and condemned by a Papal Bull of 1566 and again by a Spanish pragmatic of 1598, and was stigmatized as a ‘manifest cankered usury’ by our own Thomas Wilson in 1572. It was, in fact, nothing but a loan camouflaged as an exchange deal. The borrower drew a bill of exchange in favour of the lender on some man of straw nominated by the latter, and this nominee protested the bill on its arrival. The borrower was then legally obliged to compensate the lender for the pretended loss sustained on both the exchange and the rechange. In legitimate exchange business it was usual for a merchant who drew a bill on some person in another city to give a guarantee against the bill’s being protested by binding himself in such case to refund the principal, interest, and costs of the double transaction. He might also deposit jewels or other valuables as a pledge. No doubt the same practice was followed in dry exchange, but in this case the ‘pledge’ was intended to be forfeited. Merchants in all countries long continued to resort to this way of raising money by fictitious exchange transactions. Even in the late eighteenth century we find somewhat similar practices described by Jeremy Bentham and Adam Smith under the name of ‘drawing and re-drawing’.
46If we may accept the widely divergent figures given in books published within a year or so of one another, the rates at which money could be sent by bill of exchange between Spain and other countries fluctuated violently. Such fluctuations are to be expected in the relatively narrow and inflexible money-market of the period. The figures show that the exchanges turned consistently against Spain, and, within Spain itself, against Seville, the home port of the treasure fleet. Soto has already given us the rate at which money could be sent from Medina to Antwerp and back again from Antwerp to Medina in 1553. In 1569 money could be sent from Medina to Lisbon at par or at 1 per cent, premium and from Lisbon to Medina at a premium of 5, 6, or 7 per cent., from Seville to Flanders at a discount of 5 or 6 per cent, and from Flanders to Seville at a premium of 8 or 9 per cent., from Seville to Rome at a discount of 8 or 10 per cent., and from Rome to Seville at a premium of as much as 15 or 20 per cent.
47The double transaction of the exchange and rechange was frowned upon by the Church. A purely financial operation, it was condemned as a device of the Devil to ensnare men in their own unbridled lust for gain. And it came perilously near to ‘dry exchange’, a term loosely applied to any unlawful form of exchange operation. Used in a narrower sense, the term ‘dry exchange’ referred to a fictitious operation devised to evade the usury laws, which we first meet in Florence in the later Middle Ages. Dry exchange in this narrower sense was redefined and condemned by a Papal Bull of 1566 and again by a Spanish pragmatic of 1598, and was stigmatized as a ‘manifest cankered usury’ by our own Thomas Wilson in 1572. It was, in fact, nothing but a loan camouflaged as an exchange deal. The borrower drew a bill of exchange in favour of the lender on some man of straw nominated by the latter, and this nominee protested the bill on its arrival. The borrower was then legally obliged to compensate the lender for the pretended loss sustained on both the exchange and the rechange. In legitimate exchange business it was usual for a merchant who drew a bill on some person in another city to give a guarantee against the bill’s being protested by binding himself in such case to refund the principal, interest, and costs of the double transaction. He might also deposit jewels or other valuables as a pledge. No doubt the same practice was followed in dry exchange, but in this case the ‘pledge’ was intended to be forfeited. Merchants in all countries long continued to resort to this way of raising money by fictitious exchange transactions. Even in the late eighteenth century we find somewhat similar practices described by Jeremy Bentham and Adam Smith under the name of ‘drawing and re-drawing’.
48The double transaction (for example, Medina-Antwerp-Medina) constituted the classic operation of the ‘exchange and rechange’, which dated back to medieval times. A profit was often made on both the exchange and the rechange, as, for example, in 1583, when the rate was 360 maravedís in Medina to 410 in Antwerp and 360 in Antwerp to 435 in Medina. Sometimes a profit was made on either the exchange or the rechange which more than compensated for any loss incurred on the other half of the deal. Rarely was the whole operation effected at a loss.
49We are now in a position to survey the whole network of the fairs, and we can visualize the money flying back and forth between them by the shuttle-system of the exchange and rechange. A merchant who laid out part of his capital in exchange business could, according to one critic expect to make about 12 per cent, per annum on his money. Not such a very exorbitant return by modern standards, though it filled the writer in question with horror and dismay. Yet it was enough to tempt many merchants away from their usual pursuits and into that dim borderland of finance that the Church could neither approve nor altogether condemn. Fortunes were made overnight and bankruptcies were frequent. Speculators borrowed all they could in markets where money was plentiful and sent it post-haste to places where it was scarce. ‘Then, when the time of the fair comes, not a farthing being visible on earth, the rates soar up to the skies. And opening the exchanges they lend at 20% and 25% for Seville and Lisbon.’ The unhappy merchants ‘bounced from fair to fair like balls’. In a desperate attempt to stave off their creditors they took to ‘straddling the fairs’. Instead of making their bills payable ‘at the next fair’, which was the usual and lawful practice, they borrowed for a period of several fairs ahead at a high rate of interest. As the high premium was clearly meant to compensate the lender for the exceptionally long period that would elapse before the bill fell due, this practice of straddling the fairs provoked fresh fulminations from both Church and Crown.
50Henry of Ghent says that money must be exchanged for other money ‘according to equality of price’. He gives an ingenious explanation of the rate of exchange, based on the idea already current that money was more valuable within its own area of circulation. A coin may be bought outside this area at the market-value of its metal content, and the purchaser may then bring it into its own area of circulation and ‘put it into use’ at a higher value, the resulting profit being a reward for his labour.