Do we not convict all those who enjoy things they have acquired legitimately and who do not know how to use them, of possessing the property of another? For that certainly is not the property of another which is possessed rightly, but that which is possessed rightly is possessed justly, but that is possessed justly which is possessed well. Therefore, all that which is badly possessed is the property of another, but he possesses badly who uses badly.
Aquinas carried the utilitarian approach to property of Augustine into the thirteenth century, asserting that property comes from practical law, not natural, or God’s law. In other words, property is good or bad depending on its use. Proper use involves the pursuit of higher, spiritual, ends. It logically follows that if a wealthy person does not use his wealth properly as defined by the theologians, that is, by giving most of it to the poor or the Church, his improper use nullifies his ownership. Excess wealth retained by the owner became the equivalent of stealing from the poor, as Etienne Gilson wrote in another quote provided by Lifshitz:
[W]e must not forget that by natural law the use of all things is at the disposal of everyone. This fundamental fact cannot be removed by the progressive establishment of private ownership. That each should possess as his own what is necessary for his own use is quite sound a safeguard against want and neglect. But it is a very different matter when some accumulate more goods than they can use under the title of private property. To assume ownership of what we do not need is to make fundamentally common good our own. The use of such goods should remain common...the rich man who does not distribute his superfluous wealth is robbing the needy of the goods whose use is theirs by right.
Aquinas had an opponent in John Duns Scotus (1265-1308), professor of theology at Oxford and later at Paris. Scotus held that property was not natural, but a consequence of mankind’s sinfulness. In a state of innocence people would own everything in common and no property would exist. The Franciscans championed Scotus’ ideas and prompted Pope John XXII to issue his famous bull Quia vir reprobus (1329) in which he stated that mankind’s God-given dominion over the earth gave him the right to property. With the bull, property rights advanced beyond the utilitarian justification and became rooted in divine law. For the first time, Church doctrine on property approximated that of ancient Israel in the Bible.
In their defense, the Church fathers worried about the poor, and rightly so, for much of the population lived on the edge of starvation. Until long after the advent of capitalism, the only way to help the poor was through charity. Church scholars had no idea that investment in better tools could improve worker productivity, raise wages and rescue most of the poor from their starvation. Even today few theologians understand it and too many economists refuse to acknowledge it. Another two centuries would pass before Adam Smith discovered how the dynamics of his “system of natural freedom” could lift an entire nation to levels of wealth not imagined by the nobility in the late Middle Ages.
Theologians failed the common church members by applying different principles to the nobility and king. While the Church insisted that wealthy merchants should give their excess wealth to the poor, they often justified the conspicuous consumption of the nobility and kings as necessary because of their status in society. They insisted on the sanctity of property between common people, but ignored the theft by the nobility and kings of property owned by commoners. And while preaching the importance of free markets and condemning monopolies, they allowed the state virtually unlimited power over the market. Finally, by allowing just price to be the price set by the state as well as the market price, the states often overruled the market and determined prices by dictate, especially those for food and other necessities. State determined prices were usually set low in order to please consumers and prevent food riots, but were too low to encourage production. Essentially, theologians justified the status quo, whatever it was, instead of preaching against the abuses of power as the great Old Testament prophets had done.
The University of Salamanca
The merchant, despised since ancient Greece, attracted his first great defender in the theologian San Bernardino of Sienna (1380-1444). Bernardino wrote the book On Contracts and Usury (1433) that analyzed private property, trade and usury. Other theologians had peppered their writings with economics. Bernardino dedicated his book to the subject. He justified property on the old utilitarian grounds and the sections on usury remained as tangled as the thoughts of earlier theologians, but his treatment of the entrepreneur broke new ground. Bernardino argued that all vocations, even that of a bishop provide opportunities for sin. The participant in any occupation can practice it honestly or not, even merchants.
Bernardino wrote that merchants perform many useful functions. They transport goods from areas of where they are abundant to those where they are scarce. They store and preserve goods until consumers want to buy them. Craftsmen transform raw materials, which no one else can use, into goods which consumers demand. Wholesalers buy goods in bulk which they break down into smaller lots for retailers who sell them in smaller amounts to consumers. Merchants earned profits as compensation for their labor, expenses and risk.
Managerial talent, Bernardino wrote, combined competence and efficiency, the rareness of which justified higher returns. Efficiency meant knowing the prices, costs, and qualities of products, and being astute in assessing risks and opportunities. Managers had to be responsible and keep good accounts. Few businessmen were capable at either. The work involved trouble, toil, hardships and risk and for these the businessman earned compensation in successful ventures.
Bernardino applied just price theory, that the just price is the market price, to wages and insisted that the just wage is the market, or commonly estimated, wage. Wages diverged because of differences in skill, ability, intelligence and scarcity. For example, architects earned more than ditch-diggers because the architect’s job required more of those qualities and few men possessed them.
In the sixteenth century, the Reformation erupted and the Counter-Reformation responded. Spain subjugated the Americas, enslaved the native population and stole their gold and silver by the shipload. Spain, Portugal and Italy emerged as European centers of commerce and exploration. Aquinas’ natural law theory faded. Most nations had fallen under the spell of absolutism in politics which asserted that the state enjoyed unlimited power and authority, especially over the property of its citizens. Fitting for its leadership role at the time, Spain possessed a university at Salamanca that would challenge the status quo, defy the state and launch modern economic theory. Its scholars inspired the greatest theological support for private property, free markets and limited government since the demise of ancient Israel, though in academia only, at first.
It began with the revival of Aquinas’ natural law theory under Francisco de Vitoria (1485–1546), a moral theologian at the University of Salamanca, the queen of Spanish Universities. Salamanca boasted of seventy academic chairs filled by Spain’s best scholars teaching the traditional medieval curriculum as well as the new sciences of navigation and the Chaldean language. In reviving natural law, Vitoria reminded students that a law above that of the king existed and could be used to judge the king and his laws. He initiated a long tradition at the school of denouncing the enslavement of the natives of the New World and argued that government interference with trade violated the Golden Rule.
Vitoria produced students in the sixteenth and early seventeenth centuries that advanced economic theory to levels that would not be matched again until the late nineteenth century with the birth of the Austrian school of economics under Karl Menger. Those students included Domingo de Soto (1494–1560), architect of the purchasing power parity of exchange theory; Martin de Azpilcueta Navarrus (1493–1586), famous for opposing state price fixing; Diego de Covarrubias y Leiva (1512–1577), who provided the clearest explanation of subjective value; and Luis de Molina (1535–1601), who wrote that the king was subject to the same law as everyone else. Other great scholars included J
uan de Mariana (1536 – 1624), Tomás de Mercado (1525–1575), Juan de Lugo y de Quiroga (1583–1660), and Leonardo Lessius (1554-1623). Lessius is most important for his role in transmitting the economics of Salamanca to the Dutch Republic.
The scholars of Salamanca argued for private property on several grounds. The Bible commanded, “Thou shalt not steal,” which assumed the existence of something to steal. In a positive form the commandment might read, “Respect the property of others.” Much of the Torah law is concerned with property. And the bull of Pope John XXII anchored property to God having given dominion of the earth to mankind according to Alejandro Chafuen in Faith and Liberty: The Economic Thought of the Late Scholastics:
Whenever man has perfect domain [ownership] over a good, he can use this good as he pleases, even to the extent of destroying it...De Soto specified that the purpose of domain is the use of the thing. Indeed, the Late Scholastics argued that things are better used when they are held in private ownership than when they are held in common. When the Schoolmen said that things were better when used, they were speaking of social, political, economical and, above all, moral use.
And they furthered the utilitarian arguments of Aquinas. They wrote that the institution of private property performs these functions:
Private Property helps ensure justice because evil men would take more and produce less in a system of common property.
It preserves peace and harmony.
Men are more productive with their own goods. Scarcity, especially of food, concerned theologians.
It helps maintain order. Under common property people refuse to perform the less pleasant tasks.
People are attached to their things because of original sin.
It gave mankind an opportunity to demonstrate morality through charity.
Through most of its existence the Church saw private property as ethically neutral although a necessary force to counter the baser nature of humanity, but in the fourteenth century, the Church began to defend private property as an inalienable right according to Pipes.
On the issue of pricing, the scholars considered the scarcity of a product, the popular demand for it, its cost of production, the supply of money, and other factors. They carried forward the ancient concept of a just price established by Augustine in which the common estimation (or the market) determines it. For example, Chafuen quoted San Bernardino who wrote:
Water is usually cheap where it is abundant. But it can happen that, on a mountain or in another place, water is scarce, not abundant. It may well happen that water is more highly esteemed than gold, because gold is more abundant in this place than water.
The scholars encouraged government officials to fix prices, especially those of food and clothing, but only after having consulted the community for the commonly estimated price because some areas may have too few people for market prices to work. The goal of price fixing by the state was to protect poor people from price gouging during periods of shortages. But they also understood that the just price was too complicated for any one person to calculate and encouraged officials to rely on the commonly estimated, or market, price where they could discover it.
The scholars rejected the idea that goods had an intrinsic price based on their nobility or any other characteristic, or on the labor involved to produce them. The doctors anticipated the subjective-marginalist revolution in economics by three centuries. For example, Chafuen quoted Vitoria who wrote:
It follows from this principle that wherever there is a marketable good for which there are many buyers and sellers, neither the nature of the good nor the price for which is was bought, that is to say, how expensive it was, nor the toil and trouble it was to get it should be taken into account. When Peter sells wheat, the buyer need not consider the money Peter spent nor his work but, rather, the common estimation of how much wheat is worth...once the price is established in this way, it should be respected.
Juan de Lugo rejected Aristotle’s justification of prices according to the “nobility” of the article and wrote that it is not the job of theologians or government officials to protect the uneducated from their ignorance:
Price fluctuates not because of the intrinsic and substantial perfection of the articles – since mice are more perfect than corn, and yet worth less – but on the 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 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, old objects made of iron and pottery, which are worth nothing to us, fetch a high price because of their antiquity. Communal estimation, even when foolish, raises the natural price of goods, since price is derived from estimation. The natural price is raised by the abundance of buyers and money, and lowered by the contrary factors.
Following Bernardino, the theologians at Salamanca preached greater respect for merchants, a vital component of economic development as Deirdre McCloskey has proven. For example, Chafuen quoted de Soto who wrote,
Mankind progresses from imperfection to perfection. For this reason, in the beginning, barter was sufficient as man was rude and ignorant and had few necessities. But afterward, with the development of a more educated, civilized, and distinguished life, the need to create new forms of trade arose. Among them, the most respectable is commerce, despite the fact that human avarice can pervert anything.
Doctor Molina went so far as to defend what people call price “gouging” during shortages caused by natural disasters:
And it must not be said that this action is correct because it is convenient for the common good that the wheat be sold at the same price in times of scarcity and in time of abundance; and that acting in this way the poor will not be burdened and they will find it easy to buy wheat...I insist that this is not reasonable...They [the poor] must be helped with alms rather than with sales [meaning maximum prices]...It would be unjust to place the burden upon the owners of the wheat only.
The scholars held that the just price theory that had developed over centuries applied to wages for labor as much as to commodities. They focused their greatest concern on helping the poor, and for that reason they rejected the modern idea of a “living” wage for poor workers. Doctor Molina wrote that a just wage reflects the salary usually paid for similar jobs in similar circumstances:
After considering the service that an individual undertakes and the large or small number of people who, at the same time, are found in similar service, if the wage that is set for him is at least the lowest wage that is customarily set in that region at that time for people in such service, the wage is to be considered just...
This is true even though the servant may barely support himself and live a miserable life with this salary, because the owner is only obliged to pay him the just wage for his services considering all the attendant circumstances, not what is sufficient for his sustenance and much less for the maintenance of his children and family...and when many are found who willingly undertake this service for the given wage, the wage is not to be considered an unjust payment for that service or task because it is paid to an individual for whom it does not afford a living because he lacks other resources or employment, or because he has many children, or because he wishes to live at a higher standard, or with a large household than he would otherwise live.
Socialists have attacked the theologians of Salamanca for what they perceive as their lack of concern for poor workers, but that accusation merely advertises the ignorance of the socialists, as Chafuen explained:
The Schoolmen's attitude toward low-paid workers was not prompted by a lack of social consciousness. The consumer's and the laborer's welfare was a recurring topic in late-scholastic economic discourse. Their condemnation of monopolies, frauds, force, and high taxes are a
ll directed toward the protections and benefit of the working people. Nevertheless, they never proposed the determination of a minimum wage sufficient to maintain the laborer and his family. In the belief that fixing a wage above the common estimation level would only cause unemployment, they recommended other means...
The protection of private property, the promotion of trade, the encouragement of commerce, the reduction of superfluous government spending and taxes, and a policy of sound money were all destined to improve the condition of the workers. They recommended private charity as a way to alleviate the sufferings of those who could not work.
The Church, through the Scholastic scholars, never accepted the charging of interest on loans, except for international finance between wealthy merchants, or between the Vatican and those merchants. The Church often borrowed large sums from wealthy merchants and paid interest on the loans, but it sought to protect peasants and small craftsmen from unscrupulous moneylenders. It allowed penance for a variety of sins related to greed and avarice, but for usury, it permitted none, unless the offender made restitution. Usury included not only charging interest on loans, “but the raising of prices by a monopolist, the beating down of prices by a keen bargainer, the rack-renting of land by a landlord, the sub-letting of land by a tenant at a rent higher than he himself paid, the cutting of wages and the paying of wages in truck, the refusal of discount to a tardy debtor, the insistence of unreasonably good security for a loan and the excessive profits of a middleman,” according to Tawney.
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