Their theory of property, continued to treat temporal institutions as utilitarian devices that were to be explained—or ‘justified’—by considerations of social expedience centering in the concept of the Public Good. And this social expedience might, according to historical circumstances, sometimes tell in favor, and sometimes tell against, private property. They no doubt believed that in civilized societies, that is, in societies that were past the early or natural state in which all possessions were common to all (omnia omnibus sunt communia), these considerations told in favor of private property (divisio rerum); but there was neither a theoretical nor a moral principle to prevent them from arriving at the opposite result whenever new facts should suggest it. (Schumpeter 1954: 96)
The scholastics were not primarily concerned with the problems of the national states and their power politics. This is precisely one of the most important links between them and the ‘liberals’ of the eighteenth and even the nineteenth centuries. But some of the phenomena that accompanied the rise of these states were, nevertheless, bound to attract their critical attention, and among them was fiscal policy. I mention this here, and not in connection with their economics, because they hardly went at all into the specifically economic problems of public finance, such as incidence of taxation, economic effects of government expenditure, and the like: even when they did discuss government borrowing (which, following the lead of St. Thomas, they mostly condemned) or the question of the relative merits of taxes on wealth and taxes on consumption (Molina, Lessius, and de Lugo, among others, touched upon this question), they produced nothing that qualifies as economic analysis. What they were most interested in was the ‘justice’ of taxation in the widest acceptance of the term—such questions as whether and when taxes might be rightfully imposed, by whom and on whom, for what purposes, and to what extent. And below their normative propositions there was some sociological analysis of the nature of taxation and of the relation between state and citizen. Both these norms and this analysis, along with the rest of their political and economic sociology, went into the work of their laical successors though the later science of public finance grew mainly from other roots. (Schumpeter 1954: 96-97)
On the Public Good
In what may be described as the applied economics of the scholastic doctors, the pivotal concept was the same Public Good that also dominated their economic sociology. This Public Good was conceived, in a distinctly utilitarian spirit, with reference to the satisfaction of the economic wants of individuals as discerned by the observer’s reason or ratio recta —and is therefore, barring technique, exactly the same thing as the welfare concept of modern Welfare Economics, Professor Pigou’s for instance. The most important link between the latter and scholastic welfare economics is the welfare economics of the Italian economists of the eighteenth century. So far as appraisal of economic policy and business practice is concerned, the scholastics’ idea of what is ‘unjust’ was associated—though never identified—with their idea of what is contrary to public welfare in that sense. To give at least one example: Molina declared that monopoly was in general (regulariter) unjust and harmful to the public welfare (tract. II, disp. 345); though he did not identify the two, their juxtaposition is nevertheless significant. (Schumpeter 1954: 97)
As regards money, it will suffice to record the four following points. First, reasoning on Aristotelian lines, the doctors presented, practically to a man, a strictly metallist theory of money which, in fundamentals, did not differ from that of A.Smith; we find the same genetic or pseudo-historical deduction from the necessity of avoiding the inconveniences of direct barter, the same conception of money as the most saleable commodity, and so on. Second, they were not only theoretical but also practical metallists, disapproving, with varying degrees of severity, of debasement and of any gain that accrued from it to princes. As mentioned before, the outstanding authority on this matter, Oresmius, only formulated the doctors’ common opinion, which in this case was evidently shared by most people. The modern student of monetary theory, who may possibly sympathize with those princes and feel inclined to regard them as worthy predecessors of the governments of his own day, should observe that the doctors went but a very short way into the economic effects of devaluation. They saw the effect on prices and felt that creditors and holders of money were being defrauded but that was about all. Even in these matters their analysis did not go beyond the obvious, and the idea that devaluation—and other methods of increasing the amount of circulating monetary units—might stimulate trade and employment was quite foreign to them; it first occurred to those businessmen who wrote on monetary policy in the seventeenth century. Since this idea was almost entirely lost on the English ‘classics’ of the nineteenth century, we have here another of those curious doctrinal affinities that exist between J.S.Mill and Father Molina. Third, we note for future reference that some of the doctors, among whom Mercado is the most important instance, adumbrated more or less clearly what came to be called the quantity theory of money, at least in the sense in which Bodin can be said to have held it. And, fourth, they dealt with a number of problems in coinage, foreign exchange, international gold and silver movements, bimetallism, and credit in a manner that would merit more attention and that compares favorably in some points with much later performance. (Schumpeter 1954: 99-101)
Usury, then, was sinful. But what is usury? On the one hand, it does not necessarily involve the exploitation of the needy: this element is morally relevant in other respects but was not a constituent of the scholastic concept of usury. On the other hand, usury is not always present when more than repayment of the sum lent is stipulated: simple exegesis of St. Thomas’ teaching sufficed to justify compensation for the lender’s risk or trouble—particularly evident in the purchase below par of notes—or compensation in cases where the lender was deprived of his money against his will, as in cases of forced loans, or of the debtor’s failure to repay at the stipulated time (more debitoris). Thomistic teaching even suggested Molina’s proposition that, since the lender of any commodity is in any case entitled to receive back its full value at the time of lending, more units might have to be repaid than were given (esto plus in quantitate sit accipiendum), though no application was made of this, so far as I know, to money loans. From all those cases emerged the principle that a charge was to be considered as normal or unobjectionable whenever the lender incurred any loss (damnum emergens). Some doctors argued that the lender in temporarily giving away his money always and inevitably suffers such loss. But most of them refused to accept this view. Nor did the majority admit that the gain the lender foregoes by lending (lucrum cessans) is in itself a justification for making a charge. They did admit, however, that, as we may put it, gain foregone turns into actual loss when the opportunity for such gain is part of a man’s normal environment. This meant two things. First, merchants themselves who hold money for business purposes, evaluating this money with reference to expected gains, were considered justified in charging interest both on outright loans and in cases of deferred payment for commodities. Second, if the opportunity of gain contingent on the possession of money is quite general or, in other words, if there is a money market, then everyone, even if not in business himself, may accept the interest determined by the market mechanism. This proposition had to be handled with care, for it evidently opened the door to all sorts of evasions. But it is no more than a special case of the principle that everyone may, in justice, pay and ask the current price for everything, and was not invented ad hoc: if it is not in evidence in the thirteenth century and much in evidence in the sixteenth, this is merely due to the fact that money markets had been uncommon in the former century and became quite common in the latter. Observe that whenever alternative opportunities of gain are normally available to everyone, the argument from gain foregone will coincide with the argument from ‘privation’: foregoing gain is in this case precisely what the privation consists in. Observe further that in all the cases mentioned justification rests on circumstances that, however frequently or even generally they may prevail in a given environment, are logically accidental to the pure loan contract (mutuum), which in itself was never held to justify interest. And observe finally that justification was never, or hardly ever, based upon the advantages that the borrower might reap from the loan; it was exclusively based on the disadvantages that lending brought to the lender. (Schumpeter 1954: 103-104)
1. Schumpeter, Joseph A. History of Economic Analysis. New York: Oxford UP, 1954. Print. 96-104.