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1. Economic Thought, Lecture 2
The Late Spanish Scholastics

2. Why the Spanish Scholastics?
• Rothbard has a counter-narrative to the picture of
economics that begins with Adam Smith.
• Rothbard’s account stresses the subjective nature
of value, as opposed to cost of production theories
• The Spanish scholastics of the 16th
and early 17th
centuries, centered at the University of Salamanca
in Spain, are extremely important in Rothbard’s
account because they prefigured basic insights of
Austrian economics.

3. Scholasticism
• All of the persons in this chapter are
scholastics. Scholastic philosophy usually
proceeds by commenting on other texts,
rather than by “out of the blue” arguments.
• Even in a text that isn’t a commentary, there
will be a summary of what previous writers
have said.

4. Cardinal Cajetan
• Before he gets to the School of Salamanca,
Rothbard discusses the Italian Dominican Thomas
de Vio, Cardinal Cajetan (1468-1534)
• He became the General of the Dominican Order
and was famous for debates with Martin Luther.
• He is most famous in philosophy for his views on
analogical predication. This was in a commentary
on Thomas Aquinas’s Summa Theologica,

5. Cajetan on Money
• Cajetan had a favorable attitude to business.
He didn’t think that people had to stay in
their assigned place in society. They could
be ambitious and try to improve their
economic position.
• Foreign exchange, trading one money for
another kind of money, is all right.

6. Cajetan on Money Continued
• The price of a good is determined by supply
and demand.
• Cajetan realized that this applies to money
too. Money is a commodity.
• The value of money in part depends on
what people think the demand and supply
will be in the future. Cajetan was a pioneer
in the theory of expectations.

7. Justifying Interest
• As commercial society was developing,
there was a tendency to be more liberal
about allowing interest.
• Scholastics wouldn’t say, “Here’s a new
argument showing that there is nothing
wrong with interest.” They would try to
modify older views. (There is a parallel
with Jewish approaches here.)

8. Cajetan on Interest
• Cajetan falls into this pattern. He modifies some of
the older arguments.
• One of the standard justifications for interest was
called lucrum cessans. This meant that someone
could lend at interest if the money that he lent
would otherwise have earned a profit. The lender
was being paid for the profit he was giving up.
Cajetan extended this to all business loans but not
to consumer loans.

9. The Early School of Salamanca
• Spain was the greatest European power in the 16th
century. The University of Salamanca was the
world center for the study of economics.
• Francisco de Vitoria (c.1485-1546) was the
founder of the School.
• He was an advocate of natural law and denounced
the conquest and enslavement of the Indians in
Spanish America.

10. A Dissenting View
• There is a dissenting view by the legal
theorist Carl Schmitt in The Nomos of the
Earth that although Vitoria generally
opposed wars of conquest, he thought the
Spanish were making a justified response to
attacks on them.

11. Just Price
• The usual view in the Middle Ages was that the
just price was the prevailing market price.
• What happens if there isn’t a prevailing market
price?
• Vitoria said that whatever the traders agreed on
was just. This seems like an obvious next step,
given the view about the just price, but these are
often difficult to see.
• Vitoria limited this principle to luxury goods.

12. Azpilcueta
• One of Vitoria’s students, Martin de
Azpilcueta Navarrus (1493-1586) went
further than anyone before in his defense of
the free market.
• He opposed all government price fixing. If
goods were abundant, price controls don’t
do anything. If goods are scarce, controls
cause harm.

13. More Azpilcueta
• Azpilcueta’s most important contributions
to economics are in the theory of money.
• Like Cajetan, he realized that money is a
commodity. Its value is determined in the
same way as other commodities.

14. The Quantity Theory
• If a good’s supply increases, its price falls,
This is the basis of the quantity theory of
money. A fall in the price of money is
equivalent to a rise in the price of
everything else. Unlike some later quantity
theorists, he realized the importance of
demand in determining the value of money.

15. The Quantity Theory
• Azpilcueta used the quantity theory to explain the
rapid increases in prices in Spain in the 16th
century. This rise was caused by shipments of
gold and silver into the country.
• Jean Bodin probably read Azpilcueta.
• He had the notion of time preference. Having a
good now is worth more than having it in the
future. He didn’t take the next step of using time
preference to justify interest.

16. Medina
• Juan de Medina (1490-1546) was the first writer
to give risk of non-payment of a loan as a reason
to charge interest.
• Putting your money at risk is something that can
be purchased.
• Although Median thought this argument didn’t
apply to riskless loans, his opponents saw that it
would undermine the prohibition of usury.

17. Middle Years of the Salamanca
School
• The middle years of the School of Salamanca
included Covarrubias, Saravia, and Mercado.
• This group opposed cost of production theories of
value and claimed that the value of goods is
determined by utility and scarcity.
• They also applied this analysis to money. The
value of money depends on how scarce it is and on
how much people demand it.

18. Molina
• Luís de Molina (1535-1601) was one of the most
important of the last generation of the school of
Salamanca. (He attended Salamanca only briefly)
• He strongly favored free will. He taught the
doctrine of scientia media, or “middle
knowledge.”. God knows not only the actions we
choose, but what we would freely choose under
various conditions. God’s takes account of these
things in deciding which world to create.

19. Molina Continued
• Molina had an important dispute with the
Dominican Domingo de Bañez.
• Rothbard doesn’t cover the dispute in detail,
but Bañez claimed that God causes us to do
things freely. In other words, we have free
will, but God brings it about that we act as
we do.

20. Molina’s Contributions
• In economics, Molina continued the Salamancan
analysis of money. He was the first to introduce
ceteris paribus clauses.
• He strongly favored freedom of monetary
exchange.
• He supported an active conception of rights. If you
have a right, you have a power to do something.
E.g., if you have a property right, you have a right
to use the property.

21. Mariana
• Another important Scholastic was Juan de
Mariana (1536-1624). He opposed
debasement of copper coinage by King
Philip III.
• Debasement increases the supply of money:
the same amount of copper now goes into
more coins. Inflation is a hidden tax.

22. Mariana
• Mariana argued that the king has no right to
impose a new tax without consent of the
people.
• He also opposed state-granted monopolies,
if they charged a higher price than the
market would have.
• Mariana defended tyrannicide.

23. Lessius
• The last important Scholastic we’ll discuss is
Leonard Lessius. He was Flemish, but Rothbard
considers him a Salamancan in spirit. The name
“Lessius” means “from Liège”.
• Lessius applied the scholastic view of just prices
to wages. Just wages are market wages. The fact
that people willing to work at a wage shows that
the wage isn’t too low.
• He also has the notion of psychic income, i.e.,
non-monetary compensation,as part of wages.