History of Political Economy
History of Political Economy 20:3
0 1988 by Duke University Press
CCC 0018-2702/88/$1.50
Spanish economic thought: the school of
Salamanca and the arbitristas
Louis Baeck
I. Introduction
In the sixteenth century Spain spread its hegemonial wings. The still fragile confederation of kingships and principalities with Castile as center was
united with Burgundy. In association with the German states this confederation grew to an imperium. In the wake of this imperial consolidation
followed the conquista of South America, the so-called Zndias. In the
intellectual and in the cultural field, Spain experienced a golden age, a
siglo de oro. Furthermore, its contribution in the domain of economic
theory was considerable. Two traditions may be distinguished in this intellectual production:
-the monetarism of the university of Salamanca;
-the ideas on development formulated by the arbitristas.
As far as monetary theory is concerned, the writings of Azpilcueta and
Tomiis de Mercado represent a real breakthrough. Ever since Plat0 and
Aristotle, theories on the function of money were formulated. After the
disintegration of the western part of the Roman Empire, precious metals
and money became scarce in a completely ruralized Europe. The monetized sector was reduced to a marginal oil slick in the vast ocean of the
subsistence economy. In the feudal societies that followed, money became
a matter of royal prestige, order, and power. In this situation the doctrines
on money belonged more to the cultural and the political world than to the
economic sphere. The sovereign considered “seignoriage” as a natural result of his power. Medieval Scholasticism regarded the value of money in
terms of valor irnpositus. In this feudal view the prince or the political
authority determined the value of money.2
In the new views formulated by the scholars of Salamanca, specifically
Correspondence may be addressed to the author, Centrum voor Ontwikkelingsplanning,
Katholieke Universiteit Leuven, E. Van Evenstraat 2A, B-300 Leuven BELGIUM.
1 . For an historical descriptionof this process, see G. Duby, Guerriers erpaysans, W e XZZe si2cle (Paris, 1973).
2. See J. Van Roey, ‘La monnaie d’apr5s St. Thomas d’Aquin: sa nature, ses fonctions,
sa productivite dans les contrats qui s’y rapportent,’ Revue Nkoscolastique 12 (1905): 2754, 207-238.
381
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the quantity theory, money was removed from the political sphere. On the
basis of the quantity theory, the aforementioned moralists and theologians
of Salamanca placed the value of money in the economic sphere itself.
From this new viewpoint, money was perceived as mercaderia. The Salmantinos regarded money as merchandise, with a fluctuating market value.
This thesis, as well as their theory on the rate of exchange based on international parity of purchasing power, is a milestone in monetary thought.
Finally, it may be mentioned that they introduced a subtle portfolio analysis of exchange rates that is very modern in outlook.
I view the arbitristas as forerunners of what today could be called development economists. Through their often incisive pamphlets, mostly in
the guise of a memorial al rey or an open letter to the king, they tried to
correct what they regarded as the overambitious development policy of the
Habsburgs. In their eyes the centrum Castile shouldered the heaviest burdens to the advantage of the economically more developed periphery of
the Empire. They called Castile Zas Indias de Flandes, or the economic
colony of Flanders. In this a forerunner of the centrum-periphery idea is
notable, which experienced a renaissance in the literature on economic
development of the 1960s.
11. Expansion of an Imperial Economy
The influx of precious metals
Fifty years after the conquista of the New World, the Spanish caravels
brought in a diluvio of precious metals via Seville. The crown reserved a
quarter of this colonial yield for itself. The rest flowed via private channels
(the exploiters of the mines and the suppliers of consumer goods and
equipment for the colony) to Castile in a first phase. Thereafter these liquid
assets were recycled to the other countries of Europe to pay for wars and
for imports.
To a certain extent this inflowing mass of precious metals from las Indias
was injected into the Spanish national economy: in the form of profit for
the exploiters of the mines and for the colonials, and as payment for equipment which was exported to the colony from Castile. Another part was
transferred to foreign countries to finance wars and to buy foreign goods
to supplement shortages at home and to supply the colony. The result of
this injection of liquidity was a general inflation of prices. This manifested
itself in consecutive phases:
1.
-the inflation of prices in the area closest to the mines, i.e. , in the Indias
themselves;
-the inflation of prices in Spain as a result of the supply of bullion via
Sevilla;
-the inflation recycled to the rest of Europe.
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2. The dawning of the quantity theory
Until recently this inflation was mainly exposed by economic historia n ~In. ~textbooks on the history of economic thought, the Spanish inflation is hardly mentioned. Most textbooks jump from the late medieval
authors, like J. Buridanus and N. Oresmus, to the French and English
mercantilists. In this conventional picture Jean Bodin takes pride of place.
His Rkponse au paradoxe de monsieur malestroit, of 1568, is regarded as
the first formulation of the quantity theory of money. In this incomplete
presentation the substantial contribution of the Spanish monetarists of the
time is neglected. Recently this skewed image has been corrected through
research on the Spanish authors of the sixteenth ~ e n t u r y . ~
Economic theories are not formulated in a vacuum. There must be an
intellectual capacity and a willingness to put these ideas to paper. In sixteenth century Spain this intellectual capacity was present, through the reemergence of Scholasticism stimulated by the contra-Reformation. This
second wave of Scholasticism paid more than usual attention to the new
socio-economic facts and problems that surfaced in the wake of the imperium.
In Spain the formation of the empire gave rise to two different traditions
of economic thought:
a. That of the theologians and canonists of the University of Salamanca,
on the basis of a Thomistic renaissance: the so-called segunda escolastica; and
b. That of the arbitristas who designed an original Spanish mercantilism.
In the period 1550-1650 economic thought reached a pinnacle in Spain.
For the first time its theologians and canonists brought forth a clear economic formulation of the value of money and of the rate of exchange in
opposition to the political formulations of the Middle Ages. The monetarism of the schoolmen of Salamanca paved the way for modem monetarism.
The complete quantity relation, drawn up by J. Fisher, is presented in its
static form by the formula MV = P Q and in its dynamic form as
h + f = fi
4. In this last formula the dots above the symbols represent
percentages. The doctores of Salamanca focused their attention on the
relation fi = Jlh),with only a vague reference to f, or to the velocity.
The arbitristas on the other hand, may be considered as pioneering
development economists, with their critical analysis of the economic de-
+
3. Of the many historians who have written on the great inflation of the sixteenth century,
the most prominent are: B. Bennassar, J. Braudel, J. Elliot, A. Kamen, J. Le Flem, P.
Leon, J. van Klaveren, A . Ortiz, P. Vilar, J. Vilar Berrogain, E. Rich, C. Wilson, J. Mauro,
J. Vicens Vives.
4. In the English speaking world, the work of Marjorie Grice-Hutchinson has been an
opener to a more complete and correct covering.
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velopment policy of Spain. The arbitristas were in fact pamphleteers. In
their pamphlets or their open letters to the king, they tried to make the
public aware of the maldevelopment of their country. Seen from the political angle, one could also call them the party of the national bourgeoisie
of Castile, or the opposition to the imperial party. As development economists the arbitristas concentrated not on the factor of the volume of
money (A4or on its growth &) but on the inelasticity of the national product
Q or on its small growth coefficient 4.
In the other European nations the mercantilist mainstream regarded the
influx of bullion as a blessing, even as a goal of national economic policy.
In Spain, however, the abundance and the waste of the precious metals
brought the arbitristas to another insight. Where the growth capacity of Q
is too slow, or where 4 stays close to zero, the excessive growth of the
volume of money has an inflationary effect. Inflation is reduced if the
productive capacity is elastic or when the national product grows pari
passu with the money volume.
In the perception of the arbitristas, the accent was placed not on the
growth of the volume of money, but rather on the stagnating productive
capacity of Castile. In the debate on Latin American development of the
fifties and sixties of our age, the opposition between a monetarist and a
structuralist perception would reappear.
111. The School of Salamanca: Composition of
Groups and Economic Accents
The Dominican Francisco de Vitoria ( 1492-1 544) is generally regarded
as the pacemaker of the Salamanca school, i.e., as the “restaurador de la
theologia de su tiempo.”6 He is a pioneer of the Law of Nations. In the
field of economics he is without a doubt a trendsetter for the subjective
theory of value. This is a short-term view on market trends which reflects
the perception of the commercial and the financial world. This view pays
less attention to the aspect of production costs as a determinant of value.
As such, it became popular more particularly in the milieu of the traders,
of the bankers, and of the money changers.
According to de Vitoria, the price of goods and of money is determined
by demand and supply in a free market. The market price is seen as the
normal price, because this expresses the utility and the scarcity, as experienced by society (aestimatio cornmunis). The Austrians of today ac5. The debate in the fifties between the IMF and ECLA (Economic Commission for
Latin America, directed by R. Prebisch) had many similarities to the dispute between the
monetarists and the arbitristas in Spain.
6. C. Pozo, Fuentes para la historia del mttodo teologico en la escuela de Salamanca
(Koln, 1967). J. Maravel, Estudios de historia delpensumiento Espaiiol (Madrid, 1967). J.
Abellan, Historia critica del pensamiento espaiiol, vol. 2 (Madrid, 1979).
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knowledge the subjective theory of value expressed in the segundu
escoldsticu of the sixteenth century as source and inspiration. The economist M. Rothbard praises the schoolmen of Salamanca for pointing out the
right way with their subjective theory of value.7 According to him, later
authors such as A. Smith and D. Ricardo caused the theory of value to run
off the tracks with their theory of production costs. The pioneering Salmantino de Vitoria was also averse to the regulation of prices by the administrative authorities or by the guilds. He had no sympathy for the
oligopolies and monopolies of his time.* A follower of his, Luis de Molina, expanded this idea of economic liberalism.
The doctores of Salamanca raised the following objections to the regulation of prices by the authorities:
a. Regulation of prices by the authorities or by guilds sooner or later
produces incorrect prices and a distorted market. Because the prices of
goods are internally related, it serves no purpose to regulate the prices
of the end-products only. This thesis is illustrated by means of an example. If the authorities wish to regulate the prices of bread and shoes,
the prices of wheat and leather must also be kept under control. If not,
then distorted growth takes place in the production line or between this
and the distribution line.
b. Official regulation of prices encourages the corruption of the officialdom.
c. Regulation of prices elicits fraud and evasion of the law, with the
effect that the respect for the law is eroded in the long run.
By emphasizing the economic mechanisms that influence the determination of value and the formation of prices, the schoolmen of Salamanca
finally put the Franciscan nominalism of the late Middle Ages to rest. On
the basis of their philosophic realism they maintained that it was not sufficient to apply an official label (nomen)to merchandise, or to money. The
reality of the market is stronger than that of the label, no matter how official
it may be.9
The school of Salamanca had influential Dominicans in its ranks. Their
leader, Doming0 de Soto (1495-1560), is considered to be on the conservative side; Martin Azpilcueta ( 1492-1 586), better known as doctor Navurrus, and also Tomhs de Mercado (1530-1576) come to grips with the
problems of their time with an eye open to change.
The then-young Society of Jesus produced the aforementioned Luis de
7. M. Rothbard, ‘New light on the prehistory of the Austrian school,’ in the Foundations
of modern Austrian economics, E. Dolan, ed. (Kansas City, 1976).
8. J. Hoffner, Wirtschaftsethik und Monopole im 15n und 16n Jahrhundert (Jena, 1941).
9. A good discussion of Molinism (of philosophic realism and of liberalism) may be
found in M. Weber, Wirtschuftsethik am Vorabend des Liberalismus (Munster, 1959)
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Molina (1535-1601), who brought the tradition of thought of the segunda
escoktstica to the universities of Coimbra and Evora in Portugal. The
Jesuit Leonardus Lessius (1554-1623) introduced their way of thinking to
the University of Louvain in Flanders.
The analysis of the national and especially the international mechanisms
(commercial, financial and monetary) forms an important part of their
writings. The moral restrictions on the speculation in goods and money,
on interest, and on profit on the rate of exchange were seen by them from
a double standpoint:
a. The pastoral concern: as priests they bore in mind the cura animorum, i.e., the shaping of the conscience. They wrote for believing merchants with qualms of conscience and for confessors in need of
guidelines.
b. As Scholastics they feared that an uncontrolled expansion of the
speculative spirit would cause moral disintegration resulting in the disruption of society. This is an idea inherited from Aristotle.lO
In the realm of monetary analysis the doctores of Salamanca revealed
themselves as founders of a tradition of thought that is applied to this day.
The quantity relationship and the theory of purchasing power parity
formed the two crown pieces in their system. The Salmantinos perceived
the real purchasing power of money in the same terms as the merchant
class. This is in terms of utility and scarcity and not in terms of the nominal
value imposed by the prince (the idea of valor impositus). Tomis de Mercad0 (Suma, lib. 11, cap. 17) formulated these ideas quite clearly and
succinctly: “Mas la moneda solamente la hace valor nuestra voluntad.”
Money has always been one of the most complex parts of economic
thought and theory. It has an officially determined currency value, sanctioned by the image of the prince. But money also has the power to purchase goods and the capacity to pay for services. And this purchasing
power determines its real value in time and space. Furthermore, in determining the value of money and the rate of exchange, the element of psychological valuation also plays a role. Not only the market prices of goods
and services, but also the market price of the medium of exchange itself
(i.e., money) are psychological, and thus subjectively tinted. The Latin
terms that express this subjectivity such as valor, valere, and aestimatio
(estima in Spanish) are key concepts in the economic analysis of the doctores of Salamanca.
10. L. Baeck, ‘Aristotle as Mediterranean economist,’ Diogenes no. 138 (Summer
1987): 81-104.
1 1. The value of money is determined mainly by our own will (evaluation).
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The theoretical awareness and formulation of the monetary market
mechanisms did not come suddenly. A century before the Salmantinos,
authors such as J. Buridanus, P. Olivi, N. Oresmus, and Copernicus had
already indicated the way ahead.12 The princes and kings were always
short of money to pay for their wars and started to practice debasement as
a fiscal subterfuge. The Franciscans Buridanus, Olivi, and Oresmus wrote
in favour of clean money. They expressed the call for clean money for the
rising commercial classes. l 3 But the theoretical breakthrough to monetarism, as I see it, was the work of the schoolmen of Salamanca.
The following concepts and terminology concerning the value of money
figured in their conceptual structure:
a. Valor: legalis, impositus, extrinsecus, i.e., the official rate of currency.
b. Valor: intrinsecus, naturalis, i.e., the value of the metal or raw material, in the case of coins.
c. Valor: accidentalis (on the basis of aestimatio or estima), i.e., the
real purchasing power of money. According to this viewpoint money is
a market variable. As such its value is regarded as changeable.
In their texts a term often used for the purchasing power of money is
varietas valoris monetae. Hence the changeable nature of the value of
money is already apparent in the Latin word for purchasing power. The
combination of the concepts of utility, scarcity, and aestimatio in one term,
namely the subjectively determined value of money, forms the core of the
economic theory of the segunda escoldstica. The official view sees money
as token money. It has the value that the prince gives it: an official rate.
But money (including paper money) is also merchandise. Its price is also
dependent on shortage or on abundance, on utility, and on other market
variables. Thus, a theoretical ambivalence was introduced into the analysis
of money that is known to this day:
-Money as official token money: the value is legitimised by the nomen,
the stamp of the price. This expresses the nominal value.
-Money as merchandise: the purchasing power is dependent on the aestimatio of the society, which is conditioned by supply and demand and
utility.
However, money is not merchandise like other goods, because it also
functions as an exchange medium and because it is a measure (mensura)
12. For the sources of the late medieval monetary theories, see 0. Langholm, Wealth
and money in the Aristotelian tradition (Bergen, 1983).
13. H. Estrup, ‘Oresme and monetary theory,’ The Scandinavian Economic History Review no. 14 (1966): OOO-00.
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and stock of value. Up to the sixteenth century the various traditions of
thought (Plato, Aristotle, Averroes, Thomas of Aquino) placed money
outside market fluctuations, i.e. , as a stable factor:
a. Aristotle considered the value of money to rest upon convention. But
he was vague as to whether this norm was determined by the authorities
or by society. In the latter case, the value of money can be variable,
since this is the case with any social convention.
b. Because of metaphysical considerations, Averroes places money outside the market sphere. The measure of the value of all other goods and
services cannot be changeable, because if its value is variable, it loses
the quality of being a stable measure. This would result in a situation of
complete relativism.
c. The idea that the value of money is determined by the prince on the
basis of his imperium or authority was supported by the Roman jurists,
the canonists, and also by Thomas of Aquino.
Since the Middle Ages we live with different traditions: money seen as a
stable measure of value (averroism), money seen as an official numkraire
whose value is fixed by the prince, and money as a market variable or
monetarism.l 4
IV. The Quantity Theory
In the second half of the sixteenth century the caravels returned from
the Zndias with ever greater shipments of precious metals, especially silver.
This set prices adrift, first in Castile, then in the whole of Spain, and finally
in the rest of Europe. But the scale of the Habsburgs’ belligerence still
resulted in these sovereigns experiencing a debt crisis, in spite of the diluvio. To meet their enormous need of funds they let the prominent bankers
make short-term drafts on the next shipment of silver from America. This
resulted in the imperial credit transactions experiencing an enormous expansion. The large financial centres (Lyon, Florence, Antwerp, Augsburg,
etc.) saw to it that the Spanish sovereigns could finance their military
campaigns in Italy, the Netherlands, Germany, etc. with drafts on the announced shipments of silver in Seville. This influx of silver (la plata)
caused the silver-gold parity to shift from 1/10 to %.
Because of Spain’s underdeveloped economy, Castile was incapable of
supplying the colonies with sufficient consumer goods and equipment.
This forced the merchants of Spain to purchase most of the necessary
14. The Bretton-Woods tradition (1945-73) to a certain extent maintains the idea of
valor impositus: the member states of the IMF were responsible for “fixed’ rates of exchange. Since 1973, however, a switch has been made to the monetarist tradition, in which
money and foreign exchange are seen as merchandise causing them to fluctuate in value
(float) on the basis of supply and demand.
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finished products in the trading centres of Flanders, Holland, England,
and North Italy. Because of their capacity to deliver consumer goods and
equipment to Spain and the South American colonies, money poured into
Flanders, Italy, France, Holland, etc. as well, which led to an imported
inflation.
Military and economic factors thus resulted in the silver of the Zndias
being recycled over the whole of Europe. This set prices adrift everywhere
and resulted in devaluation of the money value. The intensity of the inflation was not the same everywhere. In the Zndias money was the most
abundant, the prices climbed the highest and the value of money (purchasing power) fell to the lowest level. Thereupon followed the financial centre
of Seville.lS Finally, the prices also started rising in the rest of Europe,
albeit slower and with some delay.
The change in the internal value of money brought in its wake a variation
in the external value of money or in the exchange rate. With the same bank
draft (bank paper) one could buy more goods in Antwerp than in Seville,
because the purchasing power of money differed due to a differential in the
money supply between the different places. Could the bankers pocket the
profit from the exchange rates with a clean conscience, or was that considered usury? Seeking a moral answer to these questions, the doctores formulated, as a theoretical by-product, the theory of purchasing power
parity.
In the middle of the sixteenth century an awareness among the Salmantinos of the quantity relation began to manifest itself authors such as de
Vitoria, de Soto, and Saravia de la Calle mention the volume of money as
determinant of its value. Around 1550 people in well-informed circles
began to realise that the value of money varies “segun la falta o abundancia
de moneda que hay en la plaza.” l 6 But it was especially Martin de Azpilcueta and Tomiis de Mercado who published a coherent formulation of the
quantity theory.
Azpilcueta was a descendant of the minor landed nobility of Navarra.
He entered the order of the Dominicans and rose to become a canonist
with great authority. He lectured at the universities of Cahors, Toulouse,
Salamanca and Coimbra in succession. In 1556 he wrote a bestseller as an
aid to confessors called the Comentario resolutorio de cambios. It is a
work written in old age and in full intellectual maturity. It is a work on
usury (usura) that offers interesting insights in the rapidly developing international money and credit markets of the time. The book was a success
and there followed several editions during the lifetime of the author. (In
15. The size of the population also shot up steeply. In one generation the number of
inhabitants of the city grew from 25,000 to 150,000.
16. Depending on whether there is a shortage or surplus of money on the market.
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1965 the Comentario got a new edition with an introductory comment by
the Madrilenian economist A. Ulastres.)
After a historical introduction in which most of the Scholastic authorities
are commented on, Azpilcueta arrives at the core of his argument on the
function and ambivalence of money:
a. Money is regarded in the Scholastic tradition as numkraire in the
official sense. In the words of Azpilcueta (lib. 111, art. 11): “El dinero
es medida publica de las cosas vendibles.” l7
b. But in lib. XII, art. 52, it is clearly stated that money is also merchandise because it can be bought, sold, lent, and exchanged for foreign
currency: “El dinero en quanto es cosa vendible, trocable o commutable
por otro es mercaderia.” l 8
From the angle of this ambivalence (numkraire or measure but also merchandise) Azpilcueta develops his analysis further.
a. Internally money is the official measure and expresses the value of
goods and services. Thus, money indicates the price of goods: “El dinero es precio.”19 This is the nominal sphere: metron according to Aristotle, mensura according to Aquino.
b. But money is also merchandise and as such it also enters the economic field. Moreover, in the international economy of the sixteenth
century, there is not only a demand for and supply of money internally.
It is also used in the foreign financial markets. In this international field
the valor impositus loses its meaning, because the authority of the
prince has no effect in foreign countries. In the international field money
becomes a market variable.
c. The demand for and supply of money are not determined only by the
users of coins. Demand and supply are also influenced by the speed or,
on the contrary, by the reluctance by which credit (paper money) is
created by the bankers, the money changers, and the financial speculators. Hence the demand for money as well as the supply are activated
by the credit policy of the financial establishment: “Mas vale in tanto de
dinero en manos del tratante aparejado tratar con el, que otro tanto en
mano de otro.”20It is not the passive demand and supply but the effective demand and supply that are the determinants of value in the money
and credit market.
d. Finally, he formulates the quantity relation (lib. 11, 51): In countries
17. Money is a public (official) measure of vendable items (merchandise).
18. As money can be sold, bartered, or exchanged (for goods and services), it is merchandise.
19. Money indicates price or is numeric.
20. Money pays better in the hands of merchants and money changers who invest it
“actively,” than in other hands in which it may end up being hoarded.
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where money is scarce not only the prices of goods but also the wages,
“las manos y trabajos de 10s hombres,” will be higher than in areas
where there is a surplus of money. The buying power of money, “la
capacidad de compra,” is therefore determined by the volume of money
and credit, if other factors remain constant; for example, in the case of
zero elasticity of the productive capacity. If the general level of prices
determines the purchasing power of money (with rising prices purchasing power diminishes and vice versa), then it can be formulated that:
P = M / Q , or in dynamic form, i.e. expressed in percentages:
fi=&-&
In the quantity relation with monetarist overtones the attention is focused
upon the impulses going from h to j. Since money is regarded as neutral
in the production sphere over the long term, the variable 6 is omitted. The
monetarist formula is then reduced to fi = A&),with the velocity G in the
background.
In the general scheme of Azpilcueta various factors are therefore involved:
-the volume of money
-the volume of credit: the creation of international credit was very active in his time
-the speculation in international currency
The inflation set off by the diluvio of precious metals was therefore a
specific field of application as viewed from the general quantity relation.
The second important monetarist, namely Tomiis de Mercado, went to
Mexico in his youth and at his return became lecturer in Salamanca. After
that he was appointed in Seville where he closely followed the international
money and credit market, as well as the trade between Spain, Western
Europe, and Zas Zndias. In 1569 he wrote his now famous Suma de tratos
y contratos. (In 1975 a new edition was published with an introductory
comment by R. Bravo.)
Tomiis de Mercado was not only a theoretician. He knew the commercial
and financial matters on which he commented intimately as a result of his
many contacts with the merchants and bankers. His sympathy for businessmen, who according to de Mercado took huge risks and worked hard,
was rather unusual for a moral philosopher. But as a monk he noted drily
that though one could earn decently through trade and banking during
one’s earthly life, by doing so too avidly one could lose the eternal life.
Mercado was one of the first schoolmen to positively appreciate the
trading and money business not only for its social value, that is to say as
a necessary element for the prosperity of the society. He furthermore enthused somewhat lyrically over these “hombres universalis ,” who in their
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contacts with other countries, customs, and political mores grew to become cosmopolitan citizens of the world. Thus he broke with the aristocratic prejudices of Aristotle and with the moral a priori of the medieval
church fathers against traders and bankers.
The quantity relation of Azpilcueta is developed further in a lucid way.
Tomis de Mercado analysed the “de-doubling” between the official rate
(precio)of money and the purchasing power (estima).Although one ducat
in Spain bore the same official sign as in Flanders and in las Zndias, its
purchasing power in Spain was higher than in las Zndias (where there was
a surplus of money) and lower than in Flanders (where money was scarcer). In all this the effective demand of money is important: “Vemos que
en Indias hay mucho que comprar.”21Hence, purchasing power is also
determined by the scarcity of goods; for example, in the underdeveloped
colony where industrial goods are scarce, and not only by the supply of
money. The term estima indicates that Mercado’s theory lies wholly in the
realm of the subjective theory of value. Tomis de Mercado also developed
his theory of external purchasing power to fit into the sphere of the international trade in currency. The comparative value of currency is determined by the differences in the purchasing power of money.
V. Purchasing Power Parity
The reference of Tomis de Mercado to international purchasing power
parity preceded the analyses of Irving Fisher and Gustav Cassel by three
ages. Mercado is fully aware of his own originality (Suma, lib. IV, cap.
3): “Cierto nunca la he visto enteramente explicada en ninguna obra.”22
The international exchange value of bank paper is not the same in all
financial centres. Unequal fluctuations in demand and supply of goods and
money in the national markets result in exchange rates evolving unequally.
In Castile money is abundant, the prices of goods high, and the exchange
rate unfavourable. It is more profitable to recycle the currency (via drafts)
to Flanders where more goods and services can be bought for the same
amount. There the purchasing power of money is higher. The differences
in exchange rates that are the result of fluctuations in the market and the
profits that flow from these differences, are morally justifiable. It is not
usury, but cambium iustum in the market as it is.
With regard to the analysis of the international money and credit market,
the Flemish Jesuit Leonardus Lessius ( 1554-1 623) deserves special mention here. At a stage when the school of Salamanca had already passed its
zenith, he produced a fine analysis at the University of Louvain on value
and international trade, inspired as he was by the Salmantinos. His study
21. We see that still much (e.g., equipment) needs to be bought for the Zndias.
22. I assure you that I have never read this (theory) in other works.
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De iustitia et iure was published in 1605, in Antwerp, Louvain, Lyon,
Paris and Venice and went through several editions. Lessius, who had a
very thorough knowledge of trade and banking transactions, was often
consulted by traders and bankers from A n t ~ e r p . ~ ~
Lessius’ theory of interest has a modem ring to it: the creditor may be
rewarded, because he temporarily forgoes valuable liquid assets (carentia
pecuniae). Money in hand is worth more than a bank bill. This is an early
formulation of the preference for liquid assets. With this Lessius takes up
an old problem, namely: how must time and expectations be integrated
into the economic calculus? He notices that bankers and speculators keep
cash at hand, i.e., temporarily they do not convert their liquid assets into
bank drafts or lending contracts, in expectation of higher proceeds (interest) at a later stage. But if potential creditors keep too much liquid resources from circulation, and thereby cause a shortage of credit (followed
by a rise in the rate of interest), it may be interpreted that the creditor has
attained a higher interest on a later loan by foregoing a (lower) interest on
an earlier loan. Morally this is not incorrect.
The school of Salamanca tries to reconcile the Church teaching on order
and justice with a post-medieval commercial world. That this legitimising
of monetary and exchange transactions came from theologians and specialists in canon law gave their doctrines an authority of the highest order,
namely moral authority.
VI.
The Political Economists or Arbitristas
The ideology of the arbitristas
The discovery and conquista of the New World opened large foreign
markets for the Spanish economy. It gave a stimulus to export-orientated
agriculture. For the financial establishment this opening meant financial
opportunities for the expanding maritime trade. But the infant industries
and their small-town workers in Toledo, Segovia, Avila, and Valencia
looked disapprovingly at the imperial projects of the export industry. They
were in favour of transforming their raw materials themselves in the local
manufacturing shops. They quickly received the label of communeros, or
inner-oriented provincials. And when the emperor Charles revealed his
imperial plans (sustained by the export establishment and the imperial
party), the communeros in the above mentioned cities rebelled against the
sovereign.
1.
23. In his book, Economic analysis before Adam Smith (1975) B . Gordon has much
praise for the first Flemish economist. He calls Lessius “a master of scholastic economic
analysis, who used the conclusions of his Spanish predecessors as points of departure for
further extensions of work and for new directions of his own.” For further information on
Lessius the reader may also consult the work of R. de Roover.
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The emperor suppressed the uprising with a bloodbath and a purge of
the lobby of the local interests in the Cortes. The interests of the imperial
party, and the socio-economic class supporting it (large rural landowners,
export bourgeoisie, international bankers, etc .) began to count more and
more in policy options. The “Castile first” party, with its plans for the
development of the national manufacturing industry and its ideology of
creating added value through the work of local artisans, was pushed into
the background. The first cycle of inflation from 1530 to 1580 gave the
financial circles, the speculating bourgeoisie, the latifundistas, and the
maritime trading classes of Seville (in short, the supporters of the imperial
party) a false impression of wealth. The financial volume of all transactions rose considerably.
However, the monetarists of Salamanca had presented a more sobering
view on the new phenomenon. More bullion increases wealth only marginally, they said, if the purchasing power of the money is weakened. They
also had a moral message: inflation creates windfall profits and weakens
the real spirit of enterprise and the work ethic. Inflation benefits the speculating classes who in the long run shun productive effort.
The ideas on social and economic development of the arbitristas got a
true lift after the publication on the national interest by the Venetian Jesuit
Giovanni B ~ t e r oContrary
.~~
to the doctores of Salamanca, with their ethical point of view, Botero expressed secularised ideas on the running of a
modern nation and the development of its productive capacity. In Botero’s
view the following policy lines, among others, are of importance:
-the striving towards balance (he speaks of solidarity) between all national sectors: agriculture, trade, and especially industry;
-the importance of the manufacturing industry for creating wealth and
employment;
-the need for a wealthy nation to have sufficient labour (population) at
its disposal; and
-the development of the middle classes: artisans, industrialists, rural
residents, etc.
It was the Italian Botero who formulated the first coherent socio-economic
ideology for the upcoming modern state. In his strategy he stressed the
following options:
-upgrading of productive labour;
-revaluation of the provincial bourgeoisie and their national trades and
industries; and
-moral rearmament of the communeros against the cosmopolitan party
and its associates.
24. G . Botero, Della Ragion di Stat0 (Venice, 1589).
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The work of Botero became the blueprint of the provincial and regional
forces in Europe in favour of a balanced development policy. In Spain,
where the cosmopolitan policy in trade and industry was undermining the
national middle classes by favouring a transit economy, Botero’s ideas
were well received. Luis Ortiz was the first to pick up the line. During the
following century the arbitristas would hammer out Botero’s development
philosophy. They adapted its guidelines to Spanish circumstances and proclaimed them over and over again in the Cortes (States General) of Castile.
In their complaints to the king, the spoils of foreign bankers and tradesmen
(i.e. , the “explotacih grave y humiliante de 10s hombres de negocios
extranjeros”) became an oft-returning refrain. 25 And with a lyrical “exalt a c h del hombre de empresa,” or praise of the creative businessman, their
development hymn was sung in Schumpeterian notes.
The king was requested to temper his messianic obsession and his ambitious plans (among them the extermination of the Protestant heresy) because the military expeditions were causing disarray in state finances by
piling up debts. The dependence of the prince on the credit of bankers is
unhealthy. The growing indebtedness goes against the political logic of a
modern nation. A healthy nation bases its development on a rational and
balanced productive effort. The continuous wars of the Habsburg dynasty,
against the Protestants, against the Turks, against the Indians, etc., were
frowned upon by the communeros as a waste of resources.
2 . The pioneer: Luis Ortiz
The sixteenth century was the high tide of nation-building. The transnational system of the Res Publica Christiana was in shambles, and a new
constellation of interests and of social classes was in the make: the rural
nobles, the civilian middle class ,the military establishment that waged the
wars of the sovereigns. It was still a feudal-rural society, but its towns
began to function on a capitalistic basis. The empire-building of the Habsburgs went against these national tides which manifested themselves in the
religious wars. The diluvio of bullion streaming into the Spanish Empire
supplied the sovereigns with ample means to support their military undertakings. But these military excesses, and by implication the money they
cost as well as the inflation they caused, did not meet the functional requisites of national (capitalist , mercantilist) development that was the new
wave of modern times. These military excesses were not only a cause of
debt, they also clashed with the socio-economic interests of the civilian
middle classes in trade and in agriculture which were bent on development.
Halfway through the sixteenth century political economists began to
write in a purely technocratic way about the economy. The moral tone of
25. The serious and humiliating exploitation at the hand of foreign tradesmen.
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the theologians was gone. The situation in Spain was extraordinary because of the fact that it was the core of the imperium, yet economically
relatively underdeveloped. Under the impulse of Philip 11, Spain began to
play a hegemonial role. His imperium was graced with a periphery rich in
precious metals (America) and with an economic centre (a developed manufacturing industry) in the Netherlands. The Habsburgs (Charles V, Philip
11, and his successors) applied a policy that was, according to the arbitristas, contrary to the interest of Castile. Their arguments ran as follows:
-Spain was not able to maintain the colonial monopoly, whereby Castile
could deliver consumer goods and equipment for las Zndias via the
warehouses of Seville only. Castile was forced to import more and more
goods from Flanders, Holland, and England: for its own use and for
transit and export to America.
-The diluvio of bullion generated a galloping inflation in Spain; and the
high prices rendered the national industry uncompetitive and caused
stagnation.
-The drain of bullion outside Spain set off by inflation, was intensified
by expensive military expeditions and religious strife.
The political economists were critical of the policy of the Habsburgs in a
populist fashion. They looked at development from a Spanish-nationalist
standpoint. They were of the opinion that the development of Spain was
sacrificed in favour of the imperial policy of the Habsburgs.
The first and best known pamphleteer is Luiz Ortiz, who in 1558 (i.e.,
when the Spanish Empire was still at its zenith) published his critical memorial al Rey. Contrary to the bullionist doctrine of the time, he formulated
an economic policy that was based on development of national industry.
Not the import of bullion had to increase, but national productivity. To
achieve this target, the nation had to invest more. According to Ortiz, the
Spanish economy relied too much on the export of raw materials and on
the import of refined products. By the fact that the former are cheap and
the latter are dear, this is an onerous operation.
Spain had to pay the added value created by the transformation of raw
materials to foreign countries. This helped the drain of precious metals
along. His solution was the stricter application of the late medieval ban on
export of raw materials and to protect the country against the imported
refined products: “El remedio para esto es vedar, que salgan del reino
mercaderia por labrar, ni entren en el labradas.’’26Upon this thesis on trade
and import substitution, Ortiz expands in detail on the following policy of
industrialization:
26. The solution is contained in prohibiting unrefined goods (raw materials) leaving the
kingdom and refined products entering.
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a. First the infra-structure had to be developed: Spain had to dig more
channels and build more sluices.
b. To increase the production of energy he advised the installation of
more water mills.
c. Forests had to be exploited for more fuel.
d. A fiscal reform had to provide for the necessary investment impulses.
e. To propagate industry in Spain, the authorities had to organize a
number of expositions at which new machines could be displayed.
Ortiz was strongly opposed to the hidalgo mentality. This is a feudalaristocratic attitude of looking down upon economic and industrial development as business for the lower classes. Between the noblemen and sovereigns who thought continually of war, and the speculators and bankers
who thanks to the diluvio wanted to become wealthy without much effort
(rentier economy) , the productive class of industrialists and peasants had
to fight for their place. Ortiz was particularly astute, but in his time, he
was like a voice calling in the wilderness. Spain was then at the zenith of
its imperial power and the king as well as the leading party had no interest
in what the pamphleteers called national development.
3.
The crisis syndrome of the arbitristas
The end of the reign of Philip I1 (1598) brought a turning point for
Spain. The triumphant, imperial mentality of the golden age contrasted
more and more with the fundamentals, i.e. , with the productive capacity
of the country. The imperial effort had exhausted Castile and crippled
finances. A wave of introspection swept over the nation. As a refrain the
same question was heard: what has gone wrong? Among the arbitristas
were pamphleteers who posed as Castilean chauvinists and as naive and
extravagant reformers. Cervantes and other writers poked fun at them.27
Others rose to the status of respected figures, who were able to point out
the ills and the maldevelopment of the country with clear insight and great
authority. The best among them were what one would today call development economists. After the golden sixteenth century, with its imperial extension in scale and its inflationary expansion, the symptoms of the crisis
became visible.
Unlike the scholars of Salamanca, the arbitristas did not form a united
group. They were individuals from a great variety of backgrounds: the
public service, the declining centres of national trade and industry, the
advocates of agriculture-first ,the populist party. At times they represented
regional interests. Thus, for example, de Moncada stood up for the res27. The French historian, J. Vilar Berrogain, wrote a humourous book on the satirical
profiles of the economists of the seventeenth century: Literatura y econornia (Madrid,
1973).
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tauracibn of the declining industry of Toledo. De Mata on the other hand
was well acquainted with the problems of Andalucia and argued for solutions there. What they had in common was their belonging to the partido
nacional, which put the interests of Castile first and was opposed to the
partido imperial that wasted all its efforts on a transnational imperium. Of
the more or less 150 arbitristas from the seventeenth century, ten or so
were important and published valuable texts.
The first is Miguel Caxa de Leruele who represents a group that gave
priority to the rural areas. His publication of 1630, under the title ‘Restauraci6n de la abundancia de Espaiia’, was ideologically opposed to the
monetary obsessions (obsessiones monetarias) of his contemporaries. He
perceived the economic problem from the supply side. The consecutive
wars in Europe and the colonization of America did, after all, rob the rural
areas of people and thus also of manpower. In comparison to the past
agricultural production had dropped. This resulted in an increase in prices
and in the import of foodstuffs. Due to the rural exodus, the land was not
farmed to the same extent as in the past and the breeding of livestock
slackened as well. Between the lines de Leruele formulated the law of
diminishing returns in agriculture. The leitmotiv of his book is the shortage
of livestock; especially of small stock, i.e., goats and sheep. The financial
speculators from the cities bought up the land. For the small peasant this
resulted in a shortage of communal grazing grounds for sheep. In de Leruele’s words “falta de pastes communes.” He was a fervent advocate for a
redistribution of land, or for a reforma agraria.
In the work of Christobal Pererez de Herrera (Amparo de pobres, 1598),
the social concern of the arbitristas came to the fore. The author had read
Botero and strongly emphasized the effect of the application of an active
industrialization policy. His primary thesis is that the national economy
does not benefit from a mass of unskilled unemployed. Therefore he advocates the establishment of workshops in the poverty-stricken cities, in
which the unskilled unemployed could be offered vocational training. For
de Herrera the handing out of alms was, looked at from the productive
angle, a fruitless activity. It serves a greater purpose to teach the poor
unemployed a skill. This was to the benefit of the poor, but also of the
nation.
Francisco Martines de Mata (Memorialesy discursos, 1626) is a figure
that belongs with Sancho de Moncada to the group of industry centrists.
On the pure theoretical level his formulation of the consumption multiplier
is of interest. This idea (“necesidad de gastar lo adquirido”) forms a
seventeenth-century precursor to the Keynesian idea of a consumption
driven economy.
However, the most outspoken advocate for import substitution by means
of industrial development was Sancho de Moncado, with his writing Res-
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tauraci6n politica de Espafia of 1620. In the first part of his work he
recapitulated the economic plagues that racked Spain: the expansion of the
imperium, the sterility of the soil, the rentier mentality and the spirit of
hidalgo, the over-bureaucratization, the incoming stream of bullion, etc.
These problems he perceived as secondary though. Not the diluvio of bullion caused the crisis, but the bad use to which it was put: “El origin de la
crisis no estuvo solo en la abundancia de 10s metales preciosos, sino en el
ma1 us0 que de ellos se hizo, el abandonar la produccion de bienes.”28The
production mentality was paralized and a rentier economy developed.
De Moncado took up the thesis of Ortiz on import substitution by industrialization, stimulated by protection. He radicalized this strategy by
singling it out as the only solution: “Todo el remedio de Espaiia esta en
labrar sus mercaderias.”29 But this industrialization could not succeed
without a simultaneous reform of education and modernization of the administration. Moncado advocated the use of the vernacular instead of Latin
for teaching at universities. He furthermore regretted that the educational
system did not analyse social and economic problems. According to him,
education had to be relevant to reality and functionally oriented to the
socio-economic and cultural development problems of the nation. As long
ago as that!
But the text seems even more modern (technocratic) when de Moncado
voices his plea for the inclusion of management sciences (ciencias de gobierno) in the school curriculum. The administration of a modern nation
should be run on methods of professional management. This can only be
had by adequate schooling, for certainly the Spaniards are not lacking in
insight (lucimiento)compared to other nations. In modern terminology one
could say that Moncado saw the crisis as the result of the misallocation of
material and human resources. The situation could be rectified by a policy
of industrialization guided by professional politicos (bureaucrats). This is,
to my knowledge, the first blueprint for professional management written
by a theologian.30
We conclude the list of authors with the counter-current coming from
Albert0 Struzzi. He viewed the economy of the Spanish Empire from an
imperial perspective in his Dialog0 sobre el commercio of 1626. The fore28. The origin of the crisis lay not only in the abundance of precious metals, but also in
the inadequate use (wrong goal) towards which it served, namely the disregard for the
(national) production.
29. The only solution for Spain was for the country to transform its own raw materials.
30. Moncado was a professor of theology at Toledo at one stage. With Segovia, this city
belonged in his time to the most industrialized area of Castile. Here he must have heard the
complaints of the industrial establishment against the process of deindustrialization. This
was caused by the loss of competitive capacity of the national industry as a result of the
rising prices (inflation) in Spain. In response to these complaints he formulated his development strategy, which he wished to see implemented by professional managers.
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going authors emphasized the disfunctional policy of the monarchy from
the perspective of the national interest of Castile. Struzzi, who was a
banker of Italian descent living in Flanders, but who also operated as a
lobbyist for the imperial policy, came up in favour of free trade. If international trade between Castile and the rest of the empire (e.g., Flanders
as well as Holland and England) was to be paralized by protectionist measures, then there was a danger that the following disruption could materialize:
a. In the first place, the volume of the trade of Castile with lus Indius
would be reduced by a half, because Castile does not have the industrial
goods (i.e., equipment goods) that the colonies need. This would imply
that the influx of bullion from there would be reduced by the same
measure.
b. In the second place, fraudulent trade would develop. The suppliers
of equipment goods to America, such as Randers, Holland, and England would break the imperial preference regulations and step into the
market. They would open a direct trade route to las Indias and would
not go via the legally compulsory staple place Seville.
In contrast to the arbitristas, Struzzi advocated a policy of free trade.
According to him this would result in complementafy benefits for various
parts of the empire: for the developed part like Flanders and Holland, but
also for the less-developed Castile. Reading the Dialog0 one gets the impression that it is the view of an imperial banker belonging to the Flemish
party (partidojarnenco) that was then still influential at the court in Madrid. It is clear that open trade borders offer a natural advantage to the
most developed party: in this case, industrial Flanders.
The Castilean authors were not ignorant of the fact that the interests of
Flemish industry lobbied under the cover of Struzzi’s ideal of free trade.
The issue of free trade versus import substitution with protection became
an acute controversy. But no official attention was paid to the grievances
uttered by the arbitristas “de ser las Indias del extranjero” or to be the
colony of the rest of the world. The Habsburgs remained blind to socioeconomic aspects of development and exhausted themselves in imperial
and messianic dreams. The winds of change, the aspiration to religious
freedom (protestantism) and of economic nationalism did not reach or
move them.
During the second half of the seventeenth century the Spanish Empire
went d~wnhill.~’
The writings of the arbitristas and their associates failed
3 1 . Some economic historians have called the seventeenth-century decline of Spain a
historical myth. For the two opposing theses, see H. Kamen, ‘The decline of Spain: a
historical myth?’ Past and Present no. 81 (1978): 24-50; and I. Israel, ‘The decline of
Spain: a historical myth,’ Past and Present no. 91 (1981): 170-85. The historian Kamen
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to make any headway against the established interests of the Sevillean
banking world, or against those sectors profiteering from inflation and
deindustrialization, or against the Spanish kings and nobles. Seldom in
history has such loudly proclaimed advice been disregarded by the responsible policy executives with such damaging consequences. But even the
caustic criticisms contained in the literature could not stem the tide. The
crusader mentality of Philip I1 and of some noblemen was stigmatized as
Don Quixotism in this literature. In the Empire “where the sun never sets”
the economy would go to pieces in the second half of the seventeenth
century and with it Spanish hegemony.32
VII.
Review and Evaluation
1 . Review
The period 1550-1 650 inaugurated an accelerated internationalization
of the economy, first in the Mediterranean area, then in the whole of westem Europe. We witness the birth of a world economy that transcended the
medieval agro-pastoral economy with its urban centres of crafts and
trades.33 The sudden expansion of the tconomie-monde, driven by the
spatial extension of the markets (demand) and lubricated by abundant liquidity and credit markets, caused an intense wave of economic growth.
This put the production capacity (supply capacity) of the agro-pastoral
basis and of urban industry under pressure. It was most visible in Spain,
the political center of this Cconomie-monde.
In fact the country was still a federation of more or less autonomous
principalities (Castile, Aragon, and other autonomous cities) when by dynastic accident it grew in one generation to become an imperium. The
House of Austria was driven by an intense hegemonial urge, which drove
them to battle in Southern Europe against the Turks, in Northern Europe
against the Protestants, as well as against the rival nations France and
England. The messianic dreams of the Habsburgs, and of the Spanish
noblemen that were associated with them, have been immortalized in literature by the figure of Don Quixote and his helper.
Originally, things went well for Spain: materially, spiritually, and culturally. The silver and gold from America streamed in, and the noblemen
formulates the Latin American center-pheriphery thesis in vogue in the development literature of the sixties, in reverse: the political center, Spain, being economically underdeveloped, has been exploited by its colony (lus Zndias), as well as by the industrial suppliers
(Flanders, Holland, England). Its problem was not decline but dependence.
32. The English historian Parker called the exhausting religious war of Philip 11 in Flanders and Holland his Vietnam. See his book, The Dutch revolt (London, 1977).
3 3 . The classic work on the origins of this tcunomie-monde is F. Braudel, La mtditerrun& et te monde mtditerrunten (Paris, 1979).
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and educated civilians were appointed to well-paid jobs in the vast imperium. Intellectual life took lofty flight in S a l a m a n ~ aArchitecture,
.~~
painting, and literature flourished. Spain experienced its golden age, its sigZo
de oro.
But the effort was too exhaustive. After Philip I1 the tide turned and the
golden age lost its spell, materially and spiritually. The Spanish nation that
was used to triunfos, or to success, met with all sorts of problems: such as
the revolt in the Netherlands, pressure from the Turks, inflation on the
home front, the deficit of the balance of payments, the indebtedness of the
court and the public sector in general, etc. Spain became a transit country.
A vicious circle developed:
a. “La plata de las Indias,” or the silver, arrived in Seville and streamed
to the rest of Europe to finance the imperial policy (war) and to buy
goods on the markets of Flanders, France, and Holland that Castile
could not produce itself.
b. The inflation caused by the instreaming bullion was put into a still
higher gear by the international credit system. The Royal House of
Spain, but others too, lived on top of this credit pyramid. The Genoese
and German bankers prospered.
c. The colonization attracted the most active and productive Spaniards
to Zas Zndias but also to Flanders and Holland. In Spain the economy of
the rural areas was neglected and in the cities more and more French
migrant workers established themselves. Castile could not manage the
economic role of a “centre.” The slow exhaustion led to a financial crisis
towards the end of the sixteenth century. The crisis could only be
averted by a royal moratorium on debts. In the seventeenth century the
first crisis literature came to full bloom. But the advice it formulated
was not heeded by official circles.
As Castile’s hegemony eroded, the western world was ready for one of
those epoch-making geopolitical changes of world history. The civilization
of the Mediterranean had spent its energy and lost the central role in history that it played since antiquity. New nations such as England, France,
and Holland took over the torch of development. The center of the European world was displaced from the Mediterranean and moved to the Atlantic. In economic and political terms, this Atlantic world took over the
hegemony and would keep it for a long time. For two centuries mercantilism was to be the economic development strategy of the secularized nations of the
34. A much used metaphor of the time was “Salamanca docet” or the schoolmen of
Salamanca have an answer to all problems and teach the rest of the world.
35. For the rise of this new development strategy and for the controversy it aroused, see
J. Appleby, Economic thought and ideology in seventeenth-centuiy England (Princeton,
1978).
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2 . The intellectual contribution of Salamanca
In the field of the development of economic thought the segunda escoldstica represents a milestone:
a. The subjective value theory, with more attention to the demand factor
than the supply factor, was a forerunner of the value paradigm after
1870: the subjective theory of value, i.e., of the Austrian School.
b. The integration of money and goods in one and the same parametric
field, controlled by market factors, brought a clear separation between
the nominal and the real spheres.
c. In the analysis of inflation the accent was placed on the demand
factor. In the formula MV = PQ or 6I + $ = j + Q the Salmantinos
neglected production elasticity; the factor Q is regarded as equal to zero.
For the agro-pastoral economy of Spain this was a working hypothesis
conforming to reality. This reduced the quantity relations of Azpilcueta
and of de Mercado to 6I + $ = i;. Not only the abundance of bullion
but also the creation of credit intensify the velocity of circulation of
money. Tomiis de Mercado split the term describing volume of money
into m,(coins), m2(national and international credits), and $ (the acceleration of money by bank transactions). An age later John Locke took
over the idea of velocity and still later Richard Cantillon would expand
on this idea.
d. With their theory of international parity of purchasing power they
offered as penetrating an analysis of the balance of payments as the
mercantilists of the Atlantic nations.
e. In their theories on interest and profit the Salmantinos anticipated
modem times without losing track of their own moral principles:
-Viewed as sole medium of exchange, money is sterile; this is the
age-old idea of Aristotle reformulated by Albertus Magnus under the
metaphor “pecunia non parit ,” or money cannot bear children.
-The factor time too is on its own not a formative element in the
determination of value; time was considered to be a positive element
only three ages later, in the agio theory of Bohm-Bawerk.
-Money earns a profit (interesse) only if it “works,” this means if it
can be invested productively.
Looked at from the history of economic ideas the doctores of Salamanca
were the first to perceive the autonomous mechanisms of the market (the
shaping of prices, the national value of money, and the exchange rate of
international currency) as stronger than interventions by the state (monopolies, oligopolies) and princely decrees. Since the schoolmen produced a
theoretical analysis of these mechanisms in the national and international
markets of goods, money, and credit, they may be considered modem
economists.
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3. The arbitristas
The arbitristas came two generations after the scholars of Salamanca.
Their contribution to economics was different. Their views were not enveloped in moral concepts as were those of the doctures; they were pamphleteers with a national development message. Their strategy reads as
follows:
a. The socio-economic system of Spain is on the wrong track (desviacibn), and it exhausts itself through political mistakes and financial
waste ( e . g . ,the war in Flanders), through the exodus of the rural population to the cities and las Indias, through the collapse of traditional
values, and through financial speculation that kills the work ethic, etc .
b. The surrounding nations (France, England, Italy, Flanders, and Holland) profit from Castile; the international bankers especially are at
fault. They suck the bullion out of Spain: “el saqueo de 10s banqueros
extranjeros .” But French migrant workers and Flemish industry also
took home a large portion of the spoils. Thus, according to the arbitristas, Spain exploited by foreign countries “la probreza procede del commercio abusado de 10s extranjeros” is an oft-repeated refrain. The
perception of Spain (the political center) being dependent on the industrial imports of other nations, is the dependency theory of the 1960s in
reverse. A restoration programme (restauracibn)had to be put into action quickly.
c. The arbitristas represented various groups such as state functionaries, the productive sectors of the national economy, the populist leaders.
These groups considered it of primary importance that production be
increased, productivity be improved, and that all concerned put in a
mighty effort, guided and inspired by an adequate economic policy.
d. The nation had to produce more raw material (livestock for meat,
wool, leather; also grain) and manufacture the raw materials in local
industries. The development policy of the most prominent arbitristas
was all for import substitution through industrialization.
But the flood of publications was to no avail: the rulers of the land turned
a deaf ear. And Castile suffered first an erosion of its hegemony and afterward the bailing out of its wealth.
Contemporary historiography
It is difficult to keep up with the stream of studies on the history of
inflation, growth and stagnation in Spain and in Europe during the period
1550-1650. For those who want to delve deeper into the “Sitz im Leben”
of the schoolmen and the arbitristas, the following studies have much to
offer:
4.
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B. Bennasar, Un si2cle d’or espagnol (Paris, 1982).
F. Braudel, La mtditerrante et le monde mtditerranten ci l’tpoque de
Philippe ZZ (Paris, 1966; 2nd ed., 1979).
J. Elliott, Poder y sociedad en la Espaiia de 10s Austrias (Barcelona,
1982).
H. Kamen, Spain 1469-1 714: a society of conJEict(London, 1983).
J. Le Flem, e.a., La frustracidn de un imperio (Barcelona, 1982).
P. Leon, Les htsitations de la croissance, 1580-1 740 (Paris, 1978).
J. Van Klaveren, Europaische Wirtschaftsgeschichte Spaniens im 16.
und 17. Jahrhundert (Stuttgart, 1960).
A. D. Ortiz, Los reyes catdicos y 10s Austrias (Madrid, 1976).
In the periodicals Past and Present (England) and Annales (France) one
may also at times find contributions to the debate on Spain.
To the student of the history of economic thought, it is a familiar notion
that theoretical perceptions come and go in a historical rhythm of birth
followed by requiem and renaissance followed by phasing out again, and
so on. The debate between monetarists and structuralists that was rampant
in the development debate in the 1960s bears a resemblance to the different
perceptions of inflation under study: the monetarists from Salamanca and
the arbitristas.
The debate between the economic historians of our time on the inflation
of the sixteenth century points to the fact that the quantitative multiplication of bullion did indeed feed the inflation; but it also takes into account
the supply side. The idea that Europe (even Spain) at that time suffered
from a chronic shortage of liquid assets may sound incredible. This can
only be explained by the sudden maritime expansion. The latter resulted
in enormous foreign demand of the colonies, exceeding the supply of the
underdeveloped agro-pastoral economy and the only slightly more resilient
urban industry for a long time. This structural stickiness of the supply side
has not been analysed as a cause of inflation in the monetarist writings of
Salamanca. It was stressed by the arbitristas.
The monetarists of the sixteenth century (like those of today) accentuated monetary factors: the increase in the supply of bullion and the creation of credit. The structuralists of the first half of the seventeenth century
(arbitristas) placed the emphasis, like the structuralists of the developing
countries of today, on the inelasticity of the agro-pastoral economy and on
the inflexibility of urban industry.
But almost all authors agree that Spain overextended itself in the sixteenth century, more so than the surrounding nations.
a. Notwithstanding the enormous monetary resources at the disposal of
Spain, it could not master the double task: development of the colony
and waging war in Europe. The Habsburgs had no interest in the econ-
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omy. Charles V and Philip I1 were permanently in the bankers’ books.
Spain had bitten off more than it could chew and exhausted itself. The
“Invincible Armada” lost to England. And the war in the Netherlands
became a Vietnam for Philip 11. Spain’s relatively underdeveloped economy could not supply material equipment for the immense colonies
(Peru, Mexico, Central America); and the Dutch, English, and French
traders gave Spain, who could not make the supply monopoly solid,
more and more competition. These deliveries of equipment to the Indias
resulted in large amounts of precious metal flowing from Spain to its
rivals.
b. Spanish industry, that was still an infant industry at the end of the
fifteenth century, could not come to full bloom due to the rise of an
artificial rentier economy. Salaries at home were lifted by inflation and
a process of deindustrialization set in.
The historians of today have placed the Spanish crisis in a broader framework of the European demographic and economic depression of 1620 to
1660. The loss of financial and industrial hegemony of Northern Italy and
Flanders resulted in Holland and England taking over the economic and
commercial lead in the second half of the seventeenth century. And also
for Spain the word “crisis” needs to be relativized. The country experienced an intellectual, cultural, and artistic summit; with its segunda escolistica, with its literary excellence, and with its visual arts. It was, after
all, Spain’s siglo de oro, its golden age.
VIII. Bibliography
The works of the authors of the sixteenth and seventeenth centuries are
naturally the first, and essential, sources. New editions of the works of the
most important authors have been published, in most cases provided with
excellent introductions.
M. Caxa de Leruela, Restauracibn de la abundancia de Espaiia intro.
U. P. Le Flem (Madrid, 1975).
M. de Azpilcueta, Comentario resolutorio de cambios intro. A. U1lastres, J. Peres Prendes, L. Perena (Madrid, 1965).
Christobal P. de Herrera, Amparo de pobres intro. M. Cavillac (1975).
F. M. de Mata, Memoriales y discursos intro. Gonzales Anes (Madrid,
1971).
T. de Mercado, Suma de tratos y contratos intro. R . Bravo (Madrid,
1975).
S. de Moncada, Restauracibn politica de Espaiia intro. Jean Vilar Berrogain (Madrid, 1974).
L. Ortiz, Memorial del contador Luis Ortiz a Felipe 11 intro. J. Larraz
(Madrid, 1 970).
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At the end of the nineteenth century the arbitristas were rediscovered by
Colmeiro. As defender of free trade he was quite critical of these nationalists and protectionists. The doctores of Salamanca are absent in his
works.
M. Colmeiro, Historia de la economia politica de Esparia (Madrid,
1 863).
M. Colmeiro, Biblioteca de 10s economistas esparioles de 10s siglos
XVI, XVII y XVIII (Madrid, 1879, since then published anew).
A publication of the American historian E. Hamilton (American treasure
and the price revolution in Spain, Cambridge, Mass., 1934) with its somewhat sloppy analysis of the Spanish economic thought from the time,
caused considerable excitement in specialist circles.
The economic doctrines of the doctores were rediscovered and partly
analysed by an American Jesuit, namely B. Dempsey (‘The historical
emergency of quantity theory,’ Quarterly Journal of Economics, vol. 50,
November 1935). This gave rise to a war of words between the young
Jesuit and the aforementioned analyst of the inflation of the sixteenth century, J. Hamilton. In the controversy that followed, the Jesuit was victorious. He wrote a doctoral thesis on the forgotten economic texts of the
segunda escoldstica, under the guidance of Schumpeter. In his publication
the Jesuits received more attention than the Dominicans. For more details
see Dempsey, Interest and usury (London, 1948). In Germany interest in
the doctrines of Salamanca was aroused by J. Hoffner, Wirtschaftsethik
und Monopole im 15. und 16. Jahrhundert (Jena, 1941).
In Spain itself Larraz rekindled interest in the forgotten arbitristas of
the sixteenth and seventeenth centuries: J. Larraz, La epoca del mercantillismo en Castilla (1500-1 700)(Madrid, 1943). Following this, analyses
of the economic thought in that period appeared sporadically in the Anales
de Economia (Madrid). For this line of analysis consult the book of D.
Iparaguirre, on Francisco de Vitoria, at the university of Bilbao.
A reader with English texts of the doctores, translated and compiled by
M. Grice-Hutchinson, launched the label “School of Salamanca” in the
Anglo-American world (M. Grice-Hutchinson, The school of Salamanca,
Oxford, 1952).
A valuable theoretic analysis of the economic doctrines of the segunda
escolhstica may be found in the works of Weber:
W. Weber, Wirtschaftsethik am Vorabend des Liberalismus (Miinster,
1959).
M. Weber, Geld und Zins in der Spanischen Spatscholastik (Miinster,
1961).
The following works give a good general view:
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D. Iparaguirre, ‘Las fuentes del pensamiento economico en Espaiia en
10s siglos XI11 a1 XVI,’ Estudios Deusto no. 3 (1954).
D. Iparaguirre , ‘Historiografia del pensamiento economico espafiol,’
Anales de Economia (January 1975)R. Bravo, El pensamiento social y economico de la escolcistica (Madrid, 1975).
Of the French contributions the following are important:
P. War, ‘Les primitifs espagnols de la penske kconomique,’ Bulletin
Hispanique Paris, ( 1962).
J. Vilar Berrogain, ‘Docteurs et marchands: l’ecole de Tolkde,’ Fifth
International Congress for Economic History (Leningrad, 1970).
M. and B. Gazier, Or et monnaie chez Martin de Azpilcueta (Paris,
1978).
For a general view of the late middle ages and modem times, see the
excellent overview by:
M. Grice-Hutchinson, Early economic thought in Spain (London,
1978).
For the situation of the arbitristas in the intellectual and cultural trends of
Spain, see:
J. L. Abellan, ‘El arbitrismo: consciencia de la decadencia economica’
in Historia critica del pensamiento Espaiiol (Madrid, 1981).
B. Schmidt, Spanien im Urteil Spanischer Autoren (Berlin, 1975).
E. Geisler, Geld bei Quevedo (Frankfort, 1981).
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