School Of Salamanca The Middle Years

The School of Salamanca: The Middle Years

The institution and the structure of thought of the School of Salamanca was established, then, in the first half of the sixteenth century by three great Dominicans: Francisco de Vitoria, and his followers, Domingo de Soto and Martin de Azpilcueta Navarrus. The latter two theologians were the founders of the economic aspect of the systematic theology and philosophy of the Salamanca School.

The middle generation of Salamancans were those men born in the first decades of the sixteenth century, and writing near and after mid-century. The oldest of these second-generation members was the eminent Diego de Covarrubias y Leiva (1512-77) whose handsome and distinguished features grace a stunning portrait by the great Spanish painter El Greco, now hanging in the Greco Museum in Toledo. Acknowledged as the greatest jurist since Vitoria, Covarrubias was the most prominent student of Azpilcueta. After ten years as professor of canon law at the University of Salamanca, Covarrubias was made auditor of the chancellor of Castile by the emperor, after which he became bishop of Ciudad Rodrigo and bishop of Segovia. In 1572, Covarrubias became president of the council of Castile. As did so many other scholastics of the time, Covarrubias' writings ranged over theology, history, numismat­ics, and other disciplines of human action as well as the law.

The theory of value had lain in the doldrums ever since San Bernardino and Johannes Nider in the fifteenth century, and now, a century later, it was revived by Covarrubias. In his Variorum (1554), Covarrubias gets value theory back on the right track: the value of goods on the market is determined by utility, and by the scarcity of the product. The value of goods, then, depends not on matters intrinsic to the good or to its production, but on the estimations of consumers. Thus Covarrubias: 'The value of an article does not depend on its essential nature but on the estimation of men, even if that estimation is foolish. Thus, in the Indies wheat is dearer than in Spain because men esteem it more highly, though the nature of the wheat is the same in both places'. In considering the just price of a good, Covarrubias added, we must consider not its original cost, nor its cost in labour, but only its common market value. Prices fall when buyers are few and goods are abundant, and vice versa.
It should be noted, as will be mentioned further below, that Covarrubias, considered one of the greatest experts on Roman law in his day, exerted considerable influence on the great seventeenth century Dutch Protestant jurist Hugo Grotius. Covarrubias' economic writings were particularly influ­ential in Italy, where they continued to be cited down through the work of the eminent Abbe Ferdinando Galiani, in 1750.

Another important contribution to utility theory was made by a lesser contemporary of Covarrubias, Luis Saravia de la Calle Veronese. Saravia was one of several influential writers of handbooks on moral theology, which took the teachings of the great theologians and boiled them down for confessors and their penitents. In his Instruccidn de mercades (Medina del Campo, 1554), Saravia lashed out at all manner of cost-of-production theories of value, insisting that utility and market demand alone, interacting with scar­city of supply, determine the common market price and hence the just price. Saravia's attack on cost of production notions was trenchant and hard-hitting:

the just price arises from the abundance or scarcity of goods, merchants, and money, as has been said, and not from costs, labor and risk. If we had to consider labor and risk in order to assess the just price, no merchant would ever suffer loss, nor would abundance or scarcity of goods and money enter into the question.

Saravia's work, in addition to being cited many times by later Spanish writers, was also influential in Italy, where it was translated in 1561. The Italian A.M. Venusti became a disciple of Saravia and published a similar treatise.

The next important Salamancan economist was the colourful Dominican Tomas de Mercado (d. 1585). Mercado's was the next important handbook on moral theology after Saravia: Tratos y contratos de mercaderes (Salamanca, 1569). Born in Seville, Mercado was raised in Mexico, where he entered the Dominican Order, from which he returned to Salamanca and Seville. Mercado's handbook drew on his extensive knowledge of business practice picked up on his travels, and it was written in a concise and even sardonic style.

Mercado was a perceptive, if sometimes confused, monetary theorist. Applying utility analysis to money, Mercado went right up to the edge of marginal analysis by pointing out that the purchasing power is the highest where money is most scarce and therefore highly 'esteemed.' In short, Mercado dimly realized that the demand for money is a schedule, falling as the supply of money increases, and that the value, or purchasing power, of money is determined by the interaction of its supply and demand. Thus Mercado:

...money is esteemed much less in the Indies [where it is mined] than in Spain...After the Indies, the place where money is least esteemed is Seville, the city that gathers unto herself all the good things from the New World, and, after Seville, the other parts of Spain. Money is highly esteemed in Flanders, Rome, Germany and England. This estimation and appreciation are brought about, in the first place, by the abundance or scarcity of these metals; since they are found and mined in America, they are there held in little esteem.

It is not surprising that Mercado, in contrast to de Soto, opposed the outlawing of internal currency exchange in Spain. On the other hand, he was confused enough, in contrast to his keen analysis of the value of money, to favour the outlawing of the export of metals. But wouldn't the 'esteem' for the remaining metals be higher, and wouldn't this check and offset the out­ward flow of metals?

During the 1570s, a satellite group of theologian-economists arose at Valencia, grounding themselves on their studies at Salamanca. The most important was Francisco Garcia who, in his Tratado utilismo (Valencia, 1583) expanded and developed the subjective utility theory of value. In a notable advance in discussions of utility, Garcia pointed out that the utility or value of a thing may vary because: one good may have many uses and serve more purposes than another, may serve a more important service than another, and/ or may perform a given service more efficiently than another.
In addition to utility determining value and price, Garcia noted also its relative abundance or scarcity. And here, Garcia too, came just to the edge -although not over - of discovering the final, missing marginal element in utility theory:

For example, we have said that bread is more valuable than meat because it is more necessary for the preservation of human life. But there may come a time when bread is so abundant and meat so scarce that bread is cheaper than meat.
Garcia went on to detail other determinants of value including the number of buyers and sellers; and the eagerness to buy and sell (i.e. intensity of demand in buying or holding on to a product): 'whether vendors are eager to sell their goods, and buyers much sought after and importuned'. He then went on to integrate monetary into value theory, another determinant of prices being 'whether money is scarce or plentiful'.

In monetary theory, Garcia continued and developed the Azpilcueta-Covarrubias-Mercado line. In the Indies, where gold and silver are plentiful, specie is 'not as highly esteemed' as in Spain, where there is less gold and silver. He similarly pointed out in his comprehensive discussion, that when money is abundant in any given country, its esteem or value will be low, whereas when money is scarce it is far more highly valued. In other words, as Garcia pointed out, these differences in degrees of esteem, or demand, may occur either over place or over time.

This comparative analysis of changes in the value of money over time or place was an important advance in monetary theory. But not only that; Garcia, for the first time, rested his 'macro' analysis on a 'micro' insight: that a very rich man, a man with an abundant personal supply of money, will tend to evaluate each unit of currency less than when he was poor, or than another poor man. Here Garcia actually grasped, though sketchily, the concept of the diminishing marginal utility of money. Marginalism, in this area at least, was actually reached rather than simply approached.

Finally, Garcia arrived at the most integrated utility theory of the value of money to date: the value of money on the market is determined by the supply of money available, the intensity of the demand for money, and the safety of the money itself (called by later economists the 'quality' of the money in the minds of people in the market).