Spanish Economic Thought and History

Spanish Economic Thought, Spanish Economic History

Interest in pre-Smithian Spanish economic thought has increased in the last fifty years, largely because of the scholarship of Marjorie Grice-Hutchinson, who has written extensively on Spanish economic thought in the six hundred years preceding Smith's Wealth of Nations.

If the development of economic thought is explicable as an intellectual reaction to problems of the times, certainly Spain's economic history has provided fertile ground for the growth of economic ideas. Following Columbus's discovery of the New World in 1492, Spain became an important economic player in Europe as a result of its emphasis on the acquisition of gold and silver, by whatever means, largely from what is now Mexico and from Central and South America. This inflow of gold into Spain soon precipitated increases in price levels throughout the nation. Not unexpectedly, Spanish intellectuals began to assess the ramifications of these rapidly unfolding economic phenomena.

During what might be called the period of Spanish scholasticism, scholars nearly always examined economic activity and its consequences within a religious framework focused on reconciling economic activity with spiritual values. Issues of justice and equity predominated in their works, but they could not measure the conformity of various parts of the growing economy to these ideals without studying the operation of the economy. It was in this endeavor to understand particular aspects of markets that they achieved insight into the nature of markets.

Some of the Spanish writers during this period taught at the university at Salamanca, one of the earliest colleges in Spain (it was established in about 1227, and by the middle of the sixteenth century it enrolled about eight thousand students). We will examine the contributions of three Spanish writers: Martin de Azpilcueta, Louis de Molina, and Pedro Rodriquez (Count Campomanes).

In 1556, thirteen years before Jean Bodin, Azpilcueta demonstrated a reason­ably deep understanding of what we today call the quantity theory of money. This theory explains that the key factor causing changes in the general level of prices is the quantity of money in circulation. Mark Blaug has suggested that the quantity theory of money is the oldest surviving economic theory. In this book we will trace its statement and restatement from Azpilcueta and Bodin, to Hume, to Marshall, and finally to Milton Friedman. The quantity theory states that the value of money, its purchasing power, is determined by the quantity of money in circulation.

Azpilcueta's statement of this principle is remarkably good:

Other things being equal, in countries where there is a great scarcity of money, all other salable 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, salable 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.

While this statement of the quantity theory predates Bodin, for unknown reasons it did not have a notable influence on the subsequent development of economic thought. Azpilcueta's accomplishment is certainly profound in that he was able to observe the rising general level of prices in Spain and to abstract from the many possible causes of this inflation to find the relationship between bullion inflows and rising prices.

The work of Louis de Molina (1535-1600) on justice and law, like other scholastic works, concerned itself with moral aspects of the growing economy. He held that before ethical judgments could be rendered about any particular market, it was necessary to understand how, in fact, particular markets func­tioned. Like other economists, after mastering the factual details of how particu­lar markets functioned, Molina was able to present a more abstract analysis of the market mechanism. Here is his nicely stated sixteenth-century view of what we would today call the laws of demand and supply and the quantity theory of money:

Many are the circumstances that cause the price of things to move upward or downward. Thus, for example, a shortage of goods caused by a bad harvest or similar factors provokes a rise in the just price. Plenty, on the other hand, brings it down. The number of buyers who come to the market is greater at some times than at others, and their keener desire to buy also causes a rise in prices. Likewise, the greater need that people feel for some special thing at a certain moment, assuming that the quality of the thing is unchanged, causes an increase in its price, as happens in the case of horses, which are worth more when war is imminent than in times of peace. Similarly, lack of money in a place causes the price of other things to fall, and the abundance of money makes it rise. The less money that circulates in a place, the more it is worth, and therefore, caeteris paribus, with the same amount of money we can buy more things.

The end of Spanish mercantilism, like that of British and French mercantilism, found writers less inclined to support the strict governmental regulation of foreign trade and more inclined toward liberal economic thought. Count Pedro Rodriquez de Campomanes (1723-1802), a fairly prolific writer, tackled a variety of economic topics. He accepted the analysis first laid down by Azpilcueta that the inflow of bullion from the Americas had raised the price level in Spain and concluded that this had had dire consequences for the Spanish economy. Since it had become cheaper for Spaniards to buy goods in France and England, the productive capacity of Spain had failed to develop as fully as that of the rest of Europe, which ultimately led to an outflow of the bullion from Spain into England, France, and the Low Countries. Campomanes advocated greater freedom for foreign trade and other measures, which made him an important late mercantilist as well as an early liberal.