The School of Salamanca: The First Generation, Salamanca Schools

If the newly burgeoning liberal Thomism began with Cardinal Cajetan in Italy, the torch was soon passed to a set of sixteenth century theologians who revived Thomism and scholasticism and kept them alive for over a century: the School of Salamanca in Spain.

It is no more than fitting that Spain should be the centre of scholastic learning in the sixteenth century. That century was pre-eminently the century of Spain. Spain, the leader in the explorations and conquests in the New World; Spain, the nation that brought the treasures of gold and silver across the Atlantic to Europe; Spain, along with Italy and Portugal, the nation in Europe that remained resoundingly Catholic and proved immune to the spread of Protestantism.

The acknowledged founder of the School of Salamanca was the great legal theorist and pioneer in the discipline of international law, Francisco de Vitoria (c.1485-1546). A Basque raised in Burgos in northern Spain and born into a prosperous family, Vitoria became a Dominican and went to study and then teach in Paris. There, in one of the ironies of the history of thought, he became a disciple of a Fleming who had been a pupil of one of the last of the Ockhamites, John Major. This man, Pierre Crockaert (c. 1450-1514), had become a student and then teacher of theology late in life. Turning away from his teacher Major, Crockaert abandoned nominalism and moved to Thomism, entering the Dominican Order and coming to teach at the Dominican College of Saint-Jacques in Paris. After spending over 17 years imbibing and then teaching Thomism in Paris, Vitoria returned to Spain to lecture in theology at Valladolid, finally coming to Salamanca - then the queen of Spanish univer­sities - as prime professor of theology in 1526.

A brilliant and highly influential teacher and lecturer, Vitoria set the frame­work for the Salamanca School for the rest of the century. Even though he did not publish any writings, his lectures have come down to us as tran­scribed by his students - much as in the case of Aristotle. Much of the glory of the University of Salamanca was the result of reforms instituted by Vitoria himself. Consequently, the university soon had no less than 70 professorial chairs filled by the best scholars of the day, providing instruction not only in the traditional medieval curriculum, but also in such new-fangled disciplines as navigational science and the Chaldean language.

Vitoria's lectures were largely commentaries on Aquinas's moral theory. In the course of the lectures, Vitoria founded the great Spanish scholastic tradi­tion of denouncing the conquest and particularly the enslavement by the Spanish of the Indians in the New World. In an age when thinkers in France and Italy were preaching secular absolutism and the power of the state, Vitoria and his followers revived the idea that natural law is morally superior to the mere might of the state.

Vitoria did not expound much on economic topics, but he was interested in commercial morality, and his views followed the mainstream scholastic tradi­tion: the just price was the common market price, even though if there were a legally fixed price it would also be considered just. In short, legal price edicts are to be obeyed. However, for those goods without a common market - say with only one or two sellers - Vitoria advanced beyond his forbears. Instead of having cost of production determinate, Vitoria, while stating that cost could well be considered, returned to the old, nearly forgotten laissez-faire Roman law tradition of free individual bargaining as providing the just price. For in this situation, Vitoria maintained, the price had to be settled by the exchanging parties themselves. Vitoria, however, then added a curious dis­tinction between luxury and non-luxury goods. Luxuries could be sold for a 'fancy price', since the buyer pays the high price voluntarily and out of his free will. Why this 'free will' should disappear with non-luxury items Vitoria unfortunately does not explain.

Vitoria's most eminent student and fellow theologian at Salamanca was the Dominican Domingo de Soto (1494-1560). Born in Segovia of comfortable but not wealthy parents, de Soto studied at the University of Alcala near Madrid and then went to Paris, where he studied under Vitoria, and later became a professor. Returning to Spain, de Soto became professor of meta­physics at Alcala, and then entered the Dominican Order, joining his mentor as a theology professor at Salamanca in 1532. Though a shy personality, de Soto was repeatedly involved in university administration, and was several times prior of the college of Estaban in the University. De Soto's work in physics is also considered outstanding.

In 1545 the Emperor Charles V honoured de Soto by naming him as his representative at the great council of Trent, the mighty council of the Catho­lic Counter-Reformation. Soon de Soto became confessor to the emperor, but gave it up in a few years to return to his professorship at Salamanca. De Soto's fame rested on his treatise De justitia et jure, published in 1553 and based on lectures given originally at Salamanca in 1540-41. De Justitia et jure was reprinted no less than 27 times before the end of the century, and was read and quoted by jurists and moralists until the mid-eighteenth century.

Unfortunately, on economics de Soto was a reactionary thinker, and set back some of the liberal gains of the previous scholastics. Thus, while de Soto conceded that 'the price of goods is not determined by their nature but by the measure in which they serve the needs of mankind', this utility analysis was weakened by vague concessions to the 'labour, trouble, and risk' involved in a sale. Worse than that, de Soto was not content to concede the propriety of government fixing the price of goods and letting it go at that. Instead, he declared flatly that a fixed price is always superior to the market price, and that ideally all prices should be fixed by the state. And even lacking such control, prices, for de Soto, should be set 'by the opinion of prudent and fair-minded men' (whoever they might be!) who have nothing to do with any transactions. They should not be determined by the free bargaining of the buyers and sellers involved. Thus de Soto, more than any other scholastic thinker, called for statism rather than market determination of price.

On foreign exchange, de Soto's influence was confusing, cutting both for and against that market. In its favour, he contributed perhaps the first cogent explanation of the movements of currencies and exchange rates on the for­eign exchange market - what would later be called the 'purchasing-power parity theory' of exchange rates.

The economy of the sixteenth century was marked by an inflation which first hit Spain, in response to gold and silver discoveries in the New World and the consequent importation of specie into Spain. Inflation first struck in Spain, and then spread to the rest of Europe, as the Spaniards spent the increased supply of money. The result was the first large-scale secular infla­tion in history, price in Europe doubling over the first half of the sixteenth century.

De Soto was concerned to explain the curious fact that more abundant specie in Spain caused it to have an unfavourable balance of payment, with money flowing out of Spain and into the rest of Europe. As he put it:

the more plentiful money is in Medina the more unfavourable are the terms of exchange, and the higher the price that must be paid by whoever wishes to send money from Spain to Flanders, since the demand for money is smaller in Spain than in Flanders. And the scarcer money is in Medina the less he need pay there, because more people want money in Medina than are sending it to Flanders.

In short, more abundant money in one place causes money to flow out, and lowers the exchange rate relation to other currencies. A more abundant money supply means that money is 'less wanted' there - a primitive way of pointing to the supply increasing along a given falling demand curve for money, so that each unit or coin is less valued. Here is also a rudimentary purchasing-power parity analysis of exchange rates.

But despite this subtle advance in analysing the workings of the market, de Soto backslid on usury to such an extent that he advocated banning the foreign exchange market as usurious. In fact, de Soto managed to influence the court in 1552 to outlaw all internal currency exchange at anything other than the legal par.

As can be seen, de Soto exercised a reactionary influence on the usury ban, and managed to block any general acceptance of the revolutionary contribu­tions of Summenhart and Cajetan on the usury issue. Attempting to turn back the tide, de Soto went so far as to declare the standard guaranteed or insured investment contract as sinful and usurious, on the old discredited medieval ground that risk and ownership must never be separated. He tried to roll back lucrum cessans, and in general was more rigorously anti-usury than almost any of the medieval scholastics, insisting anachronistically that money is sterile and bears no fruit, and therefore cannot lawfully command interest.

Ironically, however, while anxious to reverse the tide of liberalization of usury, de Soto himself contributed to the long-run demise of the usury ban. We remember that Pope Urban III, in his decretal Consuluit in the late twelfth century, had suddenly pulled a forgotten quotation from Luke (6:35) out of the hat: 'lend freely, hoping nothing thereby', and used this vague counsel to charity as a stick with which to prohibit all interest on loans. More remark­ably, all later scholastics had followed this dubious divine ban on interest-taking; even the radical Summenhart had conceded the divine injunction against interest and simply narrowed it down to virtually nothing. It para­doxically now fell to the conservative de Soto to cast the first stone. The Luke statement, he declared contemptuously, has no relevance to lending at interest, and Christ most definitely did not declare usury to be sinful. There­fore, he concluded, if usury is not against the natural law, it is perfectly licit. Theologically, there is no problem with usury.