Misconceptions of Early Economic Thought

economic thought
University of Salamanca

Adam Smith’s work is widely regarded as the beginning of modern, pro-capitalist economic thought, with Smith gaining such titles as the “Father of Economics,” and the “Father of Capitalism.” Prior to Smith, a majority of economic thought is typically considered to be rather hostile to what we would refer to today as free market economics.

However, within the last century, there has been a rediscovery of economic commentary by late scholastic thinkers in Spain, centered around the School of Salamanca in the 16th and 17th centuries. Economic historians Raymond de Roover and Marjorie Grice-Hutchinson pointed out that these thinkers, building upon the contributions of St. Thomas Aquinas and Aristotle, developed numerous advances to economic thought that were far ahead of their time.

The name given to this set of thinkers varies. They are primarily referred to as the “School of Salamanca” after the primary location of the development of their thought, in the same way the Chicago School or the Austrian School of economics are named. Others apply a more broad geographical name, referring to them as “late-Iberian scholastics,” or “Spanish scholastics.” Murray Rothbard refers to them as “proto-Austrians” due to their ideological similarity to the modern Austrian school.

Quantity Theory of Money

These thinkers made incredible advancements to economics (among other fields), especially in value theory.

The first to put forth a quantity theory of money was Nicolaus Copernicus, declaring in 1526 that “prices increase and decrease according to the condition of the money.” This was further developed in 1556 by the Spanish scholastic Martín de Azpilcueta Navarro. As prices rose in Spain, Azpilcueta attributed this to the import of gold from the Americas, devaluing the currency. He wrote in Comentario Resolutorio de Usuras that the values of two currencies may diverge for any eight reasons, one being a change in the scarcity or need (aka supply and demand) of a currency.

Subjective Theory of Value

Throughout scholastic theory there is the concept of the “just price” as the correct and true price of an item. Grice-Hutchinson states that, until the Spanish scholastics, the objective and subjective theories of value were “running side by side.”

Socialist historian R.H. Tawney wrote that “the true descendant of the doctrines of Aquinas is the labor theory of value.” Rothbard attributes this confusion among historians to Aquinas being too vague about exactly how to determine this “just price.” Aquinas agrees with Aristotle that value is ultimately determined by “need” and utility, though at other times appears to treat value as something more easily calculated.

But many scholastics consistently refer to the just price as a result of “common estimation” of the market, rather than something that can be calculated with labor and/or expenses.

The late-scholastics shifted more clearly towards a subjective theory of value, put forth most insistently by Luis Saravia de la Calle in 1544. In his Instruccion de Mercaderes, he declared:

“the just price of a thing is the price which it commonly fetches at the time and place of the deal, in cash, and bearing in mind the particular circumstances and manner of the sale, the abundance of goods and money, the number of buyers and sellers, the difficulty of procuring the goods, and the benefit to be enjoyed by their use, according to the judgement of an honest man… Those who measure the just price by the labour, costs, and risk incurred by the person who deals in the merchandise or produces it, or by the cost of transport or the expense of travelling to and from the fair, or by what he has to pay the factors for their industry, risk, and labour, are greatly in error, and still more so are those who allow a certain profit of a fifth or a tenth. For the just price arises from the abundance or scarcity of goods, merchants, and money, as has been said, and not from costs, labour, and risk.”

Not only did Saravia de la Calle declare that the true value is determined by the market, he explicitly condemned those who try to measure value by labor, cost, and/or risk.

Dual Values

Understanding the scholastic view of value is difficult, partly because the scholastics believed that every item actually has two values. One Spanish scholastic, Francisco Garcia, defines these as the natural/absolute and accidental/estimation values. The former is judged by moral philosophers, while the latter is judged by politicians. The former has to do with the nature of the thing in question, while the latter refers to its economic/trade value.

St. Augustine states that “according to the order of nature” animate things are superior to inanimate things, and then intelligent above unintelligent creatures. But he also states that man values things different from this first scale, and man’s value is based on utility.

While it would be inaccurate to describe the Spanish late-scholastics as dedicated defenders of the free market, their insights were incredibly advanced for their time, and we would do well to acknowledge the scholastic contributions to economic theory.

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Nathan A. Kreider is author of the Misconceptions column for Being Libertarian, and has written for the Austrian Economics Center, the Foundation for Economic Education, and the Liberalists. He also occasionally publishes a blog and video content, including short book reviews, which can be found on his website, nkreider.com. He can be contacted by email via [email protected]

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