HoP 453 - The Price is Right - Law and Economics in the Second Scholastic
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Hi, I'm Peter Adamson and you're listening to the History of Philosophy podcast, brought to you with the support of the Philosophy Department at King's College London and the LMU in Munich, online at historyofphilosophy.net. Today's episode, The Price is Right, Law and Economics in the Second Scholastic. Back when I was a college student, I got into a dispute with my father during dinner one night about marijuana.

Not that I'd been smoking pot or even had any intention of doing so. When I was growing up, Nancy Reagan told me to just say no, and who was I to defy Nancy Reagan? Instead, I was trying to make a point of principle, namely that it isn't wrong to break a law that you consider unjust. If it isn't morally wrong to use marijuana, and doing so doesn't hurt anyone else, then the government has no right to tell people not to do it.

Practically speaking, of course, it might still be a good idea to follow the law to avoid being arrested, but that has nothing to do with morality. It's just that it's in your interest to stay out of trouble. I seem to recall that I drew an analogy to running a red light late at night when you can see that there are definitely no cars coming. It's illegal to do so, but not wrong.

My father, who's a very law-abiding person, took the contrary view. He argued that if you believe in the legitimacy of your government, then you should also accept anything the government decides. If you strongly disagree with a law, you might work to change it through activism and the democratic process, but you are still obligated to follow the law as long as it remains on the books. Our discussion became heated. I found it absurd to claim that something morally acceptable could become wrong just because the government outlaws it.

So, you can imagine my chagrin upon discovering recently that my father has some of the best philosophers of the 16th century on his side. The thinkers of the second scholastic in Spain and Portugal explicitly said that a legitimate authority can make a morally indifferent action into a sin just by forbidding it, or into a virtuous action by requiring it. There are some limits here. Even a rightful government cannot make an intrinsically unjust action right, or an intrinsically just action wrong.

Thus, no government, however legitimate, can make it obligatory to commit murder or make it wrong to show charity. This presupposes a deeper distinction, which I was just hinting at when I said that some things are intrinsically right or wrong, while other things might become right or wrong at the discretion of the government. The scholastics would understand this in terms of a contrast between what they called "natural law" and what they called "human law."

This terminology goes back to their favorite medieval source, Thomas Aquinas, and Spanish schoolmen like Vitoria, Molina, and Suarez broadly follow Aquinas when they explain the basic idea. Precepts of the natural law are beyond the power of any human authority to change, because they are just written into the nature of things, in particular into human nature. To take an obvious example, murder is wrong because it deprives someone of a good that is natural to them, namely continued life.

We do not need any earthly power to confirm these precepts for us. Murder would still be wrong even in the absence of all political authority or under a government that has not passed a law against it. Nor do we need religious revelation to grasp that some things are right and wrong. Since murder is naturally wrong, we can know by natural reason that it is wrong. You might remember that reports of cannibalism and human sacrifice in the Americas convinced many European intellectuals that the Amerindians needed to be placed under European rule.

The thought here was that these peoples were violating the natural law, a law that they should have been able to grasp and follow if they were really in full possession of their rational faculties. What exactly is the relationship between the natural law and human reason? Well, for Vittoria, they are just the same. The precepts of natural law are simply the verdicts of our practical reasoning, which is why they are the same for everyone, all over the world.

Gabriel Vázquez took a similarly rationalist view: God does not decide that murder is wrong and charity good, but knows this because the wrongness and rightness are just built into the world he has made. Here we might think back to Molina and his distinction between God's natural, middle, and free knowledge. The rationalist view would say that something like the wrongness of murder belongs to God's natural knowledge, meaning that God knows murder will be wrong in any world he might choose to create.

With typical nuance, Suarez objected to this picture. He complained that on the rationalist view, the natural law would not really be a law. Both God and humans can know that it is bad to murder people, but this does not yet create an obligation to refrain from murder. Only a command from a rightful authority can create obligation. So a voluntary act of legislation on God's part is required to add obligatory force to the rational judgment.

On Suarez's view then, a murderer is infringing on two different kinds of rule at the same time. By destroying a natural good he's doing something bad, and in addition he's going against God's express command not to do bad things. We can call this position "voluntarist" because it adds a voluntarily issued divine command to the picture. This brings Suarez close to medieval voluntarists like Occam, who thought that a divine command is needed to impose obligations on humans.

A rationalist like Vasquez would instead say that the natural badness of murder is all there is to its being wrong. He puts the point like this: Leaving this somewhat technical debate aside though, all our Iberian scholastics think that human law builds on the natural law and presupposes it.

On the one hand, it is the natural law that sets limits to human law. It's because murder is against the natural law that no government can legalize it. On the other hand, the natural law leaves plenty of room for human law to place further obligations on us, as when it tells us we aren't allowed to smoke marijuana. Now, it might seem that human law is just going to be the legislation of a given state, as when the King of Spain hands down a law. But there's more to it, because we also have to consider what we now call international law,

The scholastics had a similar concept, which went under the name "ius gentium" . This terminology goes all the way back to the time of the Romans, who understood this law to regulate their relationships with non-Roman peoples. The 2nd century jurist Gaius defined it as "the set of rules constituted by natural reason for all and observed by all nations alike." Which makes it sound like the law of nations would just be the same as the natural law. But again, there's more to it.

Vittoria and the scholastics, writing in his wake, thought that the law of nations arose from a tacit agreement among all the peoples of the world to follow certain rules. The very fact that human societies are split into different communities and states is itself something that was laid down as part of the law of nations. Like any human law, the law of nations must be consistent with the natural law, to which it adds further specifications and obligations.

One idea which we find in the humanist Louis de Leon is that the law of nations was devised after the fall of humankind into sin. Its precepts would not have been necessary otherwise. The purpose of the law of nations is to allow the peoples of the world to coexist more or less peacefully even in a situation where all humans are driven by sinful motivations. A central example is property ownership.

If we were all without sin, we could just share everything peacefully, all of us being moved by charity and fellow feeling. But as things are, we are rapacious and greedy. So you and I need to know what belongs to me and what belongs to you, and we need some kind of legal framework to enforce these private property rights. Specifics here will be a matter for individual states to decide, but the basic idea that people can own things belongs to the law of nations. This includes owning other people.

Molina explicitly says that slavery was introduced by the just gentium, even though, by natural right, all are born free. Slavery was introduced because people can be taken into bondage as the result of a just war, and sometimes enslave themselves voluntarily as a last resort if it is the only way for them to survive. Again, these points are important for understanding the scholastic's attitude towards the peoples of the new world.

All humans, including the Amerindians, fall under the law of nations. So, they have property rights, just like everyone else. This was the legal basis for Vitoria's judgment that the Europeans could not just turn up in the New World and help themselves to all the Amerindians' goods and lands. Colonialism was going to need to do better than that if it was to be carried out under any legal framework. Similarly, the Europeans could not just enslave the Amerindians, at least not legally.

If they were not fighting a just war against the indigenous peoples, for example in self-defense from aggression, and if those peoples were not agreeing to enslave themselves, then there would be no basis in the law of nations for the Europeans to claim ownership over them. Unfortunately, these legal niceties only went so far. Even Vitoria allowed the Spanish wide latitude for the sake of converting the Amerindians to Christianity in what was effectively a concession to a higher morality that trumped mere legality.

So, as we saw in episode 441, the colonialists used the technicality that they were not really enslaving the Americans, only rounding them up and brutally exploiting them in the encomiendo system, on the flimsy excuse that this was necessary in order to spread the true faith. Like I said in that episode, all perfectly legal.

When it came to economic issues in their own society, the scholastics followed a similar path, trying to work out a rational theory that would justify common practices while curbing the most abusive behaviors. Again, it is human law that creates the possibility of private ownership. By nature, everything would be held in common by everyone.

to own something is, among other things, to have the right to sell it. But does that mean having the right to sell it at any price? Or would demanding too much money be sinful, even if the market would bear it? On this topic, as on others, the Iberian scholastics take up a long-running discussion, one that goes back to the Romans and Aristotle by way of their medieval predecessors.

A rule of thumb still found in the scholastics is taken from Roman law: a sale is legally invalid if the price paid is less than 50% of market rate or more than 150%. But just at the turn of the 16th century, the economist theorist Konrad Summenhout had brought considerable further nuance to the topic. Among other things, he identified all the factors that can affect price: the abundance and scarcity of a good, its usefulness, the poverty or wealth of the buyers in the region, and so on.

In light of this analysis, the scholastics realized it would be naive to say that there is only one correct price for a given commodity, for instance the value of the resources put into producing that commodity. As Vittoria put it, "When Peter sells wheat, the buyer need not consider the money Peter spent nor his work, but rather the common estimation of how much what is worth." Not sure why he thinks I'd be selling wheat, but it's nice of him to mention me.

One way to prevent price from fluctuating in response to such factors would be for the government to introduce price controls. This was popular amongst buyers, of course, but it could lead to dire results for producers, as when artificially low prices were fixed for grain, immiserating Spanish farmers. The Scholastics considered whether this policy was justified. Ironically, given the meaning of his name, Tomas de Mercado was against just letting the market set the price.

He reasoned that if prices are indeed set by humans and not by nature, there's no reason why the government should refrain from interfering. After all, the whole point of having human laws, as well as the natural law, is to foster the welfare of the community under imperfect circumstances. So why shouldn't the government step in and set a price that would be maximally beneficial for society? Similarly, Mercado thought that the government should exert control over international trade, for instance by excluding foreign merchants.

By contrast, Molina said that the legal price should just reflect the natural price where this means whatever the market will bear, given all the complex factors affecting economic decisions. If the government puts its finger on the scale, the community will do worse overall, in part because political decisions tend to show favoritism towards certain groups within the community. Price controls of grain, in particular, tend to favor more wealthy people over humble farmers, which amounts to the government forcing the poor to show charity to the rich.

All this gives us a nice example of how the distinction between natural and human law was applied in practice. And these tools were put to use again when the scholastics turned to another economic debate over the practice of usury. As you might remember from my discussion of this way back in episode 286 in the series on medieval philosophy, usury means sinfully demanding interest on borrowed money. The practice had long been condemned by theologians to limited effect.

Now, with the burgeoning capitalist economies of 16th century Europe, a blanket ban on charging interest would clearly be unrealistic. So as with colonialism, slavery, and price gouging, the scholastics tried to find a middle ground between being unduly restrictive and unduly liberal.

To forbid practices that were universally in use would undermine their own moral authority, since it would make the theologians look out of touch and impotent. But to give in and say that anything goes would mean not using their moral authority to prevent the worst excesses.

Of course, the schoolmen did not present their teachings in such a pragmatic way and would probably not appreciate my way of framing their project, but I think it helps to explain why their carefully reasoned positions tend to issue in a balanced verdict, giving approval to what seemed moderate economic behaviors and trying to rein in immoderate ones. In this case, there was a strong biblical argument for imposing an outright ban on interest. In the book of Luke, we read, "...lend, hoping for nothing in return."

Domingo de Soto, however, interpreted this as a council of perfection, not a statement of moral obligation. To lend without interest would be meritorious generosity, above and beyond the call of justice. This is because someone who lends out money is actually incurring costs, and for a couple of reasons. First, there's the risk of not getting the money back at all. Second, there's the missed opportunity to invest the money during the time it is lent out.

While similar points had been made by the Medievals, in this period we see an increased awareness that present money is worth more than absent money. But the interest payment should only make up that difference in value. The Scholastics would not want lenders to demand more than they need to cover their risk and missed opportunity costs. Historically, it had been assumed that lenders would be in the clear so long as they did not intend to profit from the interest they charged. The thinkers of the Second Scholastic, though, adopt a more objective criterion.

In theory, one could calculate the costs taken on when lending a certain amount of money in a certain situation for a certain amount of time. The correct amount of interest would be whatever balances out those costs and asking for this amount or less would not count as usury. Notice that this solution is very similar to, and in fact could be combined with, what we just saw with the issue of just price.

Much as the price of grain will fluctuate with things like crop yields and demand, so the interest rate will be determined by all the factors affecting the lender's decision whether to let someone borrow money. For example, if the borrower seems likely not to repay the loan, or if the lender has other excellent investment opportunities that could justify a higher rate. Still, there is a significant lingering worry here. The Scholastics insist that the lender should only break even, as it were, to be fairly compensated rather than to make a healthy profit.

In this sense, the scholastics were indeed lagging behind the actual situation, since bankers in Italy and the Low Countries were already making fortunes off complex financial transactions. But in another sense, our schoolmen were right up to date. They were realizing that money is capital, a resource that can bear fruit by being invested. Then too, we should remember that these were theologians, not, or at least not primarily, economic theorists.

Their project was fundamentally moral in character, as they offered advice to readers who wanted to know how to get rich while still getting into heaven. There's an intimate connection between everything we discuss in this episode and our next topic. As I mentioned in passing, one of the things that is established by human law is the political state, or rather the many individual states that operate within the framework of the natural law and international law.

I've saved this for the final episode on the Second Scholastic, since it is arguably in this area that the Iberian schoolmen achieve their most striking anticipations of 17th century philosophy. In particular, they develop sophisticated ideas about a contract theory of legitimate rule, leaving behind the appeals to divine right that we associate with pre-modern political thought. You can't get from Calvin to Hobbes without going through Suarez, as we'll see next time here on the History of Philosophy Without Any Gaps.