THE HISPANIC WORLD AND THE CHRISTIAN ECONOMIC ORDER (Part III)

The New Digest is delighted to offer a guest essay by Professor Arturo Salazar Santander. Professor Santander is on the faculty of the Law School, Universidad Bernardo O’Higgins y Centro de Estudios Históricos y Humanidades Universidad Bernardo O’Higgins. The essay is the third and final part of his continuing series on the Christian economic order of Hispanidad. The first two parts are linked just below.

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In past articles, here The Hispanic world and the Christian Economic Order and The Hispanic World And The Christian Economic Order (Part II), we have studied some insights about the Hispanic-Catholic conception of the economic order. Now we must go into the details such as just price and usury, to finish our panoramic and reflections of a Christian economic order.

The just price is not so much an economic institution as a moral concept; when it is violated, profit becomes a turpe lucrum. Tawney notes that the essence of Catholic economic ethics is its insistence on the equality of commutative justice between the parties, the aequalitas rei ad rem, as the objective measure of justice in all exchanges, received from Aristotle’s Nicomachean Ethics (Tawney, R.H., Religion and the rise of Capitalism, 1998),152).Saint Thomas developed the doctrine of the just price from common estimation, made in the foro, which stands opposed to a price imposed unilaterally out of greed by one of the parties, taking advantage of another’s need. For Saint Thomas, an exorbitant price gives rise to a presumption of coercion, which, together with fraud, constitutes by definition an unjust price. By contrast, the just price takes account of human need, indigentia, and other factors such as labor and expenses, without reducing it to labor value as Duns Scotus does, but rather treating it as one parameter among others. (Aquinas, Summa Theologiae, q.77, art.1). The just price is the price of the foro, understood as common estimation and not as market price in the modern sense. The thesis according to which, already from Saint Thomas onward, the just price is the current market price is completely false because, first, the market is a typically modern abstract concept, foreign to the medieval mentality and conception. Indeed, theologians and jurists focused on particular cases in which the concrete act of exchange was studied at the ethical and juridical level. Exchange was especially analyzed in light of natural law and the requirements of commutative justice. For medieval thinkers, the “market” is rather the forum, the fairs and concrete markets such as shops and squares where exchanges take place, and not an impersonal and mechanical abstraction (Segovia, Juan Fernando, “La economía católica antes de la doctrina social de la Iglesia”, in Derecho natural y economía, Miguel Ayuso, (ed.), 2021, pp.89-90).

Odd Langholm, studying scholastic juridical-economic doctrine, expressed the foregoing as follows: “the modern mechanistic conception of the market, as a suprapersonal force that establishes the terms to which one party in the exchange must submit, was foreign to the medieval masters. Their frame of reference was a moral universe that obliged every buyer or seller to act according to the common good and consequently to accept the conditions of the exchange independently of the advantage that market forces gave him. This means that the common estimation of the just price could not refer indiscriminately to any price that might be obtained under existing market conditions.” (Langholm, “Odd, Scholastic economics”, in Pre-classical economic thought. From the Greeks to the Scottish Enlightenment, Lowry, Todd (ed.) (Kluwer Academic Publishers, 1987), p. 85). In other words, the market as an entity subject to private utility and abstracted from any moral act is not only foreign but contrary to the medieval ethos, communal and centered on the primacy of the common good as the end of the political community, in which the economy participates. It is a forum, just as there is the forum of conscience and the civil or external forum, where persons relate to one another in a Civitas, giving primacy to the political aspect in the Aristotelian sense, as autarky or, in Carl Schmitt’s words, the concrete order, a nomos. Communis aestimatio here does not mean usual but “joint,” shared, generally accepted, like a consuetudo, a custom recognized in the particular forum, in that concrete market. Bartolus called it common because it occurs in a public place, among many people, and over several days (Segovia, La economía católica…,p.90). Therefore, value is a synthesis of objective elements such as need or labor and production cost, and subjective elements such as the utility things provide, but always referred to a commutative measure of value and exchange, the aequalitas rei ad rem, which is not economic but moral and juridical.

The jurists of medieval ius commune, such as Bartolus and Baldus, developed these doctrines in order to extend them at least to all onerous contracts, not only to sale as in post-classical Roman law, broadening the Justinianic remedy of laesio enormis, which allowed rescission of a sale made for less than half the just price, to contracts in general through the idea of aequitas and bona fides. In this they showed that primacy belonged not to the private interest of the contracting parties and their private utility, understood as subjective value, but that the expansive force of the just price was articulated as a moralizing element of contracts and exchanges under an objective measure of commutative justice (Chamie, José Félix, “El principio general de reductio ad aequitatem por desequilibrio contractual”, Revista de Derecho Privado, 22 (2012), 224-228).

Among the Spanish scholastics, in principle this remained as it was, but with greater sophistication in the analysis, distinguishing types of market—for example, necessities and luxury or superfluous goods in Vitoria and Domingo de Soto. In particular, they distinguished between the legal price fixed by authority, from which no one may depart under mortal sin; the natural price, which is the price of common estimation; and the conventional price, reached by the parties whenever there is no legal price and especially intended for luxury goods. They especially developed the remedy of enormous lesion, with an exquisite juridical analysis of the just price, but one adapted to the new conditions of the sixteenth and seventeenth centuries in an increasingly dynamic and complex economy. In particular, they distinguished between the forum of conscience and the external forum: every deviation from the just price remained under an obligation to restore the excess or compensate the deficiency; even when there was no civil action, it generated a moral obligation in conscience that bound under mortal sin. This evidently prevented a capitalist mentality, under the strong weight of religion in Indian society, where these principles were applied. And in cases of grave injuries to commutative justice, civil law provided the remedy of enormous lesion (Ferrara, Christopher y Marín, Daniel, La Iglesia y el liberalismo, 2017), 534; Decock, Wim, Theologians and Contract Law, 2013, 553-565).

One criterion used to determine the just price was right reason, and the bonum viri arbitrium. The second, by which a recognized and just man was entrusted with prudently determining a just price, is characteristic of the premodern economy, in which guilds and corporations played a major role, demonstrating the practical, human, and prudential nature of the economic act, as opposed to modern techno-scientific economics. By contrast, the first indicated practical reason directed toward good action according to prudence, independent of passions or greed. Right reason makes it possible to attain the natural price of things, which, although they recognized it is usually given by competition, is not always so, and the prices of the forum could be unjust for a variety of reasons. Whereas the legally fixed price is indivisible and invariable and binds in conscience under sin, the natural price is fluctuating and varies within the margins proper to the nature of things and concrete circumstances, which may be unknown because of human imperfection. In this way, the scholastics distinguished between the rigorous, middle, and pious natural price, prudential limits within which prices may fluctuate without falling into injustice (Ferrara y Marin, La Iglesia y el liberalismo, 536; Brown, Leonardo, La casa de contratación…,334-335).

For this reason Luis de Molina taught that the Roman maxim, a thing is worth as much as can be obtained by its sale, must be understood within the just margin. In the same sense, Tomás de Mercado indicated that by this was meant “for as much as it may justly be sold, not for as much as the seller may be able to extract.” A maxim of Vitoria—“merely because another needs a thing, we do not have the right to sell it to him at a higher price”—shows the impossibility of understanding the neo-scholastic doctrine of the just price as synonymous with liberal doctrine. In other words, the need of one of the parties cannot increase the price, but common need can (necessitas communis auget pretium rei, necessitas unius hominis non auget pretium rei). And Molina goes so far as to say that there is injustice and an obligation to restore when a person forced by necessity is compelled to buy at a price higher than what would correspond. Thus, for example, if medicine were sold to someone who needs it to save his life at a price higher than what it is worth, there would be an obligation to restore the difference.” Compare this theological-moral way of understanding the market with laissez faire. There is no point of contact, despite what authors such as Hayek, Huerta de Soto, Rothbard, Novak, Sirico, Neuhaus, Woods, Chafuén, and many others may say about the Spanish scholastics. It is not possible to take advantage of another’s need in order to increase the price of goods, which for Saint Thomas is to sell what belongs to another. Domingo de Soto even determined that the just price must look to the common good, for, against every idea of an invisible hand, prices “must not be set by judging according to the outcome and utility of each person, but according to the common good. That is, not according to the judgment of private individuals, but according to common prudence. (Tomás de Mercado, Suma de tratos y contratos, Lib. III, Cap. III; Vitoria, Francisco, Sentencias morales, 1941),181; Luis de Molina, La teoría del justo precio, 2011, 403, Aquinas, Summa Theologiae, II-IIae, q.77, art.1; Domingo de Soto, Tratado de la Justicia y el Derecho, Libro VI, q.2, art.3, 1968, p.548)

In sum, the very foundations of modern capitalist and scientific economics are denied in the scholastic authors. Whatever occasional coincidences there may be with modern scientific economics are only partial coincidences that do not touch the foundations and principles, but only the accidental and not the substantial level; for the type of civilization these authors have in mind is none other than the Res publica Christiana, to which everything is ordered, and in no case do the anthropology and metaphysics of these authors coincide with the fundamental lines developed by liberalism. It is not denied that there may be some influence from the Renaissance period, as compared with older scholasticism, but in no case is it so decisive as to break with the paradigm of Christendom—in our case, Hispanic and Baroque.

Finally, regarding usury, we shall offer a few notes which, at the risk of being incomplete in the face of so complex a problem, we believe make it possible to grasp fundamental historical-juridical profiles in the scholastics and the Indian world. It is well known that traditional scholasticism rejected usury understood not as excessive interest, but as the charging of any interest over and above money given in a loan for consumption, unless there is a just title extrinsic to the loan itself that protects and justifies it. That is, interest is not simply usury, because there are just titles such as actual loss and, much discussed and in fact rejected by Saint Thomas, loss of profit, delay, and periculum, among the principal ones. Until the Protestant Reformation, it was rejected almost unanimously, beginning with the earliest Fathers of the Church, with theologians such as Saint John Chrysostom, for whom the usurer was worse than a murderer, and in general it was a form of robbery with violence or plunder and a very grave injustice. This criterion was received by canon law, but scholastic theologians developed the extrinsic titles with greater sophistication than earlier analysis. The Spanish scholastics received this tradition and perfected it with the highest technical rigor. Vitoria summarizes the Thomistic arguments based on the Aristotelian sterility of money: money does not bear fruit and no additional profit may be charged for the mere lending of money. In addition, the Roman-law argument maintained that the debtor becomes owner of the fungible things that must be restored and may alienate and consume them at will. The novelty was a greater refinement in the analysis of just titles, and the gradual acceptance not only of actual loss but also of loss of profit, which in any case was understood in a much more restrictive way than in modern liberal economics, since they distinguished between proximate and remote, certain and doubtful potential gain, excluding remote and doubtful cases and restricting it only to the proximate and certain. With respect to other titles used by those who try to find the root of liberalism in the Spanish scholastics and thus justify the charging of interest—such as capital risk, time preference, and even the passage of time—it has been soundly refuted that they can be found in the Spanish scholastics, including the disputed Martín de Azpilcueta. The foregoing is based on their own writings and on the decrees and censures of the Magisterium of the Church in the Tridentine period. All these theories refer to subjective and uncertain states and preferences, foreign to the certainty required for future profits and gains demanded by the scholastics (Segovia, La economía católica…, pp.86-88; Ferrara y Marin, La Iglesia y el liberalismo..., pp.546-552)

This does not mean that some scholastic authors did not discuss and even accept mitigated forms of usury through certain contracts and practices, the best known being the triple contract and also the pact of resale. Certainly Castilian legislation, headed by the Siete Partidas, followed by the Nueva Recopilación and even the Novísima Recopilación of 1804, sharply prohibited usury in the terms defined by the theologian-jurists, which did not prevent merchants from finding disguised forms of usury. The same was true of canon legislation and ecclesiastical decrees of Indian law, which strove to eradicate usury and associated practices through contracts and disguised forms, not always successfully, but with a mentality very foreign to the capitalist spirit already on the rise in Europe. It should be borne in mind that in the Indian world there was no financial and banking system as we know it today; rather, the Church and institutions such as confraternities, mutual-aid funds, and corporations in different localities were responsible for granting consumption loans, at low interest understood as a stipend and not as profit. (Brown, Leonardo, La casa de contratación… p.265)

From what has been studied in this article, we may conclude the absence of capitalism in particular and of scientific, Cartesian, rationalist, and technical economics in general in the Indian world. The emphasis was on the moral act of exchanges and not on their consideration under a scientific reduction to private utility or individual egoism, as modern science does. They were even analyzed from the perspective of the common good. Many realities of the Indian world certainly did not correspond to the Catholic ideal, but the Indian experience was a gigantic putting into practice of this doctrine, received by Hispanic theologians and jurists under new conditions—perhaps the most ambitious and extensive historical application of this conception of medieval origin.

For this reason we prefer to call this economy, in its Aristotelian language, oikonomía, that is, the administration of the Household, and not the cold calculation of profits and losses proper to Cartesian-Smithian economics and its derivative schools. The primary end was religious, and the doctrine of the forum of conscience prevented any mentality of unlimited accumulation, since it was considered a grave sin, especially usury, or likewise selling above the just price to those in need. Oikonomía is related to the Household, which we understand as an organic and natural community, with metaphysical and religious, historical and cultural bonds, the Casa grande, as the economy proper to the Ancien Régime and especially to the Hispanic world. This oikonomía, domestic at the level of each Oikos, could also be predicated of the Kingdom as a whole as the Great House, as the Household under the Pater, the Catholic Monarch, who did not rule over a heap of individuals but over a set of associations, corporations, leagues, confraternities, and communities. The foregoing is opposed to chrematistics in the Aristotelian sense, which is the almost defining form of modern economics: if oikonomía postulates living well according to virtue and reason, chrematistic economics postulates living according to appetites and instincts. There is a metaphysical, theological, and anthropological abyss between these two conceptions. This prevents any attempt to redirect Hispanic scholasticism into this modern and liberal doctrinal corpus.

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