School Of Salamanca Azpilcueta Medina

The School of Salamanca: Azpilcueta and Medina, School In Salamanca

Fortunately, de Soto's reactionary and statist influence was at least partially offset by another of Vitoria's distinguished students, Martin de Azpilcueta Navarrus (1493-1586). Renowned for his saintly life and vast learning, the gaunt, hook-nosed Dominican Azpilcueta was regarded as the most eminent canon lawyer of his day. After teaching canon law in Cahors and Toulouse in France, Azpilcueta returned to take up a chair at Salamanca, where his overflowing lectures featured a new method of teaching civil law by combin­ing it with canon law. In 1538, Azpilcueta was sent by Emperor Charles V to be rector of the new University of Coimbra, in western Portugal. There he developed the principles of international law originally set forth by his mas­ter, Vitoria. Azpilcueta spent his last years in Rome, a trusted adviser to three popes, dying at the advanced age of 93.

Azpilcueta used his great influence to advance economic liberalism farther than it had ever gone before, among the scholastics or anywhere else. In sharp contrast to de Soto's admiration for comprehensive price control, Azpilcueta was the first economic thinker to state clearly and boldly that government price-fixing was imprudent and unwise. When goods are abun­dant, he sensibly pointed out, there is no need for maximum price control, and when goods are scarce, controls would do the community more harm than good.

But Azpilcueta's outstanding contribution to economics was his theory of money, published in his Comentario resolutoio de usuras (1556) as an appen­dix to a manual on moral theology. The manual and the commentaries in the appendix were translated into Latin and Italian, and proved to be influential for Catholic writers for many years. Azpilcueta built on the analysis of Cardinal Cajetan to present the first clear and unambiguous presentation of the 'quantity theory of money'. Or rather, he breaks firmly with the tradition that money can in any sense be a fixed measure of value of other goods. In contrast to older emphasis on foreign exchange, or money in terms of other monies, Azpilcueta clearly identified the value of money as its purchasing power in terms of goods. Once Azpilcueta grasped these two points firmly, then the 'quantity theory' followed directly. For then, like other goods, the value of money varied inversely with its supply, or quantity available. As Azpilcueta put it: 'all merchandise becomes dearer when it is in great de­mand and short supply, and that money, in so far as it may be sold, bartered, or exchanged by some other form of contract, is merchandise, and therefore also becomes dearer when it is in great demand and short supply'.

It should be noted that this splendid and concise analysis of the determi­nants of the purchasing power of money does not make the mistake of later 'quantity theorists' in stressing the quantity or supply of money while ignor­ing the demand. On the contrary, demand and supply analysis was applied correctly to the monetary sphere.

Gold and silver flooded into Spain and then the rest of Europe in the sixteenth century, driving up prices first in Spain and then in the other countries. Prices doubled by the middle of the century. Historians of eco­nomic thought have held the first quantity theorist, the first thinker to at­tribute the price rise to the influx of specie, to be the French absolutist political theorist Jean Bodin. But Bodin's famous Reply to the Paradoxes of M. Malestroit (1568) was anticipated by 12 years by Azpilcueta's work, and since the erudite Bodin probably had read the Spanish Dominican, his an­nounced claim to originality seems in unusually bad taste. And since Spain was the first recipient of the flow of specie from the New World, it is certainly not surprising that a Spaniard should be the first person to decipher the new phenomenon. Thus, Azpilcueta wrote:
...other things being equal, in countries where there is a great scarcity of money all other saleable 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, saleable 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.

Martin de Azpilcueta, in this case influenced by his colleague de Soto, also developed the latter's purchasing-power parity theory of exchange rates, at the same time that he worked out the 'quantity theory', supply and demand analysis of the value of money. The two of course, go hand in hand.

One of Azpilcueta's most important contributions was to revive the vital concept of time-preference, perhaps under the influence of the works of its discoverer, San Bernardino of Siena. Azpilcueta pointed out, more clearly than Bernardino, that a present good, such as money, will naturally be worth more on the market than future goods, that is, goods that are now claims to money in the future. As Azpilcueta put it: 'a claim on something is worth less than the thing itself, and ... it is plain that that which is not usable for a year is less valuable than something of the same quality which is usable at once'.

But if a future good is naturally less valuable than a present good on the market, then this insight should automatically justify 'usury' as the charg­ing of interest not on 'time' but on the exchange of present goods (money) for a future claim on that money (an IOU). And yet, this seemingly simple deduction (simple to us who come after) was not made by Azpilcueta Navarrus.
On the foreign exchange market, Azpilcueta struck a blow for economic liberalism by reviving the Cajetan line, and repudiating the statist fulminations of his colleague de Soto, who had called for the prohibition of all foreign exchange transactions as usurious. In addition to repeating Cajetanian argu­ments, the Spanish Dominican and trusted advisor to three popes injected practical considerations. Azpilcueta pointed out that 'an infinite number of decent Christian' merchants, aristocrats, widows, and even churchmen com­monly invest in foreign exchange. Azpilcueta insisted that he refuses to 'damn the whole world' by imposing overly rigorous standards. Furthermore, he warned, to abolish foreign exchange markets 'would be to plunge the realm into poverty', a step he was clearly not willing to take.

On most other aspects of the usury question, however, Azpilcueta Navarrus was surprisingly conservative, and a big step backward from the advanced freemarket position of Conrad Summenhart. On the census, or annuity con­tract, Azpilcueta Navarrus was far harsher than de Soto, who was liberal on this particular aspect of 'usury'. Instead, Azpilcueta was the main influence on Pope Pius V's issue in 1569 of the bull Cum onus, in which all census is declared illegal except on a 'fruitful, immobile good', for which status money, of course, cannot qualify. The pope had been goaded into issuing the bull by Cardinal San Carlo Borromeo, who as newly appointed archbishop of Milan, professed to find usury everywhere in that sinful city. Borromeo was one of the leaders of the Catholic Counter-Reformation, and his prodding led to Cum onus.
But it was too late; the census contract was too ingrained in European practice, and too many theologians had adopted the liberal approach. The majority of Catholic theologians rejected this new attempt and simply stated that the pope's arguments were matters of positive rather than natural law, and therefore that the papal bull had to be accepted by the government or be the common practice of a particular country for it to carry the force of law in that country. Interestingly enough, not a single country in Europe accepted Cum onus: not Spain, not France, nor Germany, not southern Italy, nor even Rome itself!

The contempt with which Cum onus was received throughout Europe is strikingly revealed in its treatment by the recently founded Jesuit Order. The Society of Jesus was founded in 1537 by an invalided Spanish ex-army officer, Ignatius Loyola, born in the Basque country. The rapidly expanding society was installed on rigorous discipline along consciously military lines (Loyola's original title for the society was 'the Company of Jesus'). Under vow of absolute obedience to the pope and to the general of the order, the Jesuits became the 'shock troops' of the Catholic Counter-Reformation. De­spite their vow to the pope, the Jesuit general congregation of 1573, only four years after Cum onus, validated the mutually redeemable census contract. And in 1581, the Jesuit congregation went the whole way and validated every type of census contract. When some German Jesuits became restive at this liberality, the general of the Jesuit Order, Claude Aquaviva, in 1589 ordered that the validity of the census contract be upheld by German Jesuits with no further dissent. So much for the pope's census prohibition.

In the following century, the census loophole was widely used to camou­flage interest on loan contracts, particularly in Germany. As Noonan points out, it is certainly significant that the German word for interest on a loan is zins, derived from the Latin census.

The Summenhart-Cajetan doctrine of implicit intention - that if someone did not intend a contract to be a loan, then it was licit - was carried even further by the remarkable Jesuit congregation of 1581. The congregation justified virtually every contract. As Noonan concludes: 'In practice, it meant that only loans to aged or infirm persons without property or loans bearing a rate of interest beyond that obtainable in "a guaranteed investment contract or census" were to be regarded as true usurious loans'.

If Azpilcueta Navarrus was conservative on most aspects of usury, he did however became the first writer to justify interest charged on lucrum cessans (investment profit foregone) for all loans, not just ad hoc loans made out of charity (previous writers) or even only for loans to business (Cajetan). Now any profit foregone could be charged as interest, even by professional money­lenders. The only restriction remaining - a feeble one in practice - is that the lender would actually have used his money to make the foregone investment.

Of this first generation of late Spanish scholastics - approximately those who were born in the 1480s and 1490s - the final noteworthy writer was Juan de Medina (1490-1546). Medina, a Franciscan, did not, however, teach the­ology at Salamanca but at the Collegium at Alcala. Medina's distinction comes from being the first writer in history to advance the view clearly that charging interest on a loan is legitimate if in compensation to the lender for risk of non-payment. Medina's reasoning was impeccable: exposing one's property 'to the risk of being lost, is sellable, and purchasable at a price, nor is it among those things which are to be done gratuitously'. Furthermore, Medina pointed out, theologians now admit that someone who guarantees a debtor's loan can licitly charge for that service; but in that case, if the borrower cannot find a guarantor, why cannot the lender charge the borrower for assuming the risk of non-repayment? Isn't his charge similar to the charge of the guarantor?

The argument was sound, but the shock to the scholastics was severe, no less so because Medina weakened his risk justification by banning interest on riskless loans and restricting the charge to cases where the borrower could not find a guarantor. Domingo de Soto, in horror, correctly pointed out that to admit a charge for risk of non-payment would destroy the entire usury prohi­bition, since a charge could be made for a loan above the principal. The usually more liberal Azpilcueta gave Medina even shorter shrift, objecting correctly if insufficiently, that every theologian, canon lawyer, and natural lawyer disagreed with Medina's innovation. And that was supposed to be the end of the matter.

Medina's discussion of value theory, however, was not nearly so cogent. In discussing the just market price, Medina throws in higgledy-piggledy a host of factors: costs, labour, industry, and risk for suppliers; need or utility for buyers; and scarcity or abundance of the good. Clearly, there was much less of a coherent analysis of supply than in the hands of San Bernardino of Siena. On the other hand, whereas the scholastic tradition held that the legal price would have to take precedence over the market price, Medina cited two cases where the market price should be followed: where the market price is lower, and where the authorities were too slow in adjusting the legal edict to a higher market price.