Tomas de Mercado and The Schoolmen of Salamanca:
The First Business Ethicists (as well as ‘Real’ Economists and
Business Theorists) and Their Vital Relevance for Our Economic
Future
October 22,2011
Stephen O. Morrell, Ph.D.
Professor of Economics and Finance
Andreas School of Business
Barry University
Miami Shores, Florida USA 33071
smorrell@mail.barry.edu
Outline of Presentation
I. Summary of Salient Points.
II. The Setting.
III. The Places and The Epistemological Approach.
IV. The Schoolmen of Salamanca.
V. Tomas de Mercado and the Schoolmen on
Business Ethics.
VI. Their Original Contributions to Business and
Economic Concepts, Principles and Theories.
VII.Summary and Future Directions.
VIII. Acknowledgements and References.
I.
Summary
1.
A number of core, foundational concepts,
theories and principles of business practices,
economics, and international law originated with
a group of Dominican and Jesuit theologians and
philosophers known as the “Schoolmen of
Salamanca” in 16th century Spain.
2.
The over-arching objective of the Schoolmen’s
research was to promote the common good via
deriving normative rules, based on natural law,
for virtuous and moral (ethical) human conduct
in the pursuit and practice of commerce, and in
relations between business and government.
I.
3.
4.
3.
Summary
Study and objective research lead to the
conclusions that commerce, trade, business and
markets emerge from man’s ‘natural inclinations
to innovate’ and thereby should contribute to the
common good. This objective research formed
the basis for derived ethical practices in business
– the sufficient condition for commerce to
contribute to the common good.
500 years later the wisdom of these intellectual
entrepreneurs can help guide a renewed sense of
business ethics, business practices, and socially
just economic policies and business ethics.
Tomas de Mercado has a rightful claim as one of
the first business ethicists.
II. The Setting:
Spain in the 16th Century
What the Schoolmen Observed
“Monarchy, Mercantilism, Monopoly, Medievalism vs.
Modernity, Merchant Fairs and New World Money
Monarchy: Charles V and Phillip II - Fiscal Debt and Cash Strapped.
Mercantilism: Wealth of nation measured in FX, gold and silver reserves.
Subsidize exports, restrict imports.
Monopoly: Economic rents in return for taxes
Medievalism vs. Markets: Licitness of commerce, usury, just price, just wage,
just profit versus flourishing commerce, trade and development in Lisbon,
Seville, Burgos, Barcelona as well as Flanders, Florence, Milan, Antwerp,
and the Indies.
Merchant Fairs: Villalon (May-June); Medina del Campo (July-August);
Rioseco (September-November)
MONEY : Next Slide
Gold and Silver from the New World to Spain:
1503 – 1660
$30 billion in 2011 USD
Money Wages and Prices in Spain, 1501 -1650
Cumulative Inflation Rates: 1500-1570 = 400%; 1570 – 1650 =100%; 1500=1650 = 500%
Money and Inflation in Spain, 1500 – 1650
Spanish Fiscal Revenues 1555- 1600
III. The Places and Epistemological
Approaches
• “The 16th century was the Golden Age of Spain. Spanish
Universities were at the height of their glory and [the University
of] Salamanca was the queen among them.”
III. Epistemological Approach:
Scholasticism and Natural Law
Scholasticism
 Aquinas as starting point. “The participation of
intellectual creatures in eternal law.”
 Purpose was to “formulate a unified corpus of
scientific thought applicable to all areas of life.”
•
III. Epistemological Approach:
Natural Law
• Natural Law Theory: Normative Natural
Law:
 Derivation of rules for moral human conduct. That is,
what is naturally just and serves the common good.
 Scientific/intellectual inquiry in the limit leads to the
determination of the reasonableness/truth of human actions.
Human actions derived from ‘correct’ inquiry are good and
virtuous as they are in accord with reason and truth. Those
outside the order of reason are not virtuous and just.
 Inquiry, e.g. how businesses operate that discerns the nature
of what is (non-normative), the true natural order of things,
then forms the basis of ethics – what ought to be.
 Human actions can violate natural law, but only with
consequences.
IV. The Schoolmen of Salamanca
Who Were They?
• Dominican and Jesuit Theologians, Philosophers, “Moral
Philosophers” centered but not exclusive to the University of
Salamanca. Prominent from approximately 1524 – 1600.
• While centered at Universities they traveled widely, observed
astutely and keenly, participated openly in issues of
commerce, government, law and church affairs.
• Inquiring into the nature (reason & truth) of business and
economics to derive principles for moral and ethical human
action that promote the common good.
IV.
The “Schoolmen:” A Partial Listing
Francisco de Vitoria, O.P. (1493 -1546)
Founder of School of Salamanca.
De Justitia.
Doctrina Sobre los Indios.
Freedom of Exchange, Just Price, Just Wage, Just Profit.
Domingo de Soto, O.P. (1495 – 1560)
De Iustitia.
Purchasing Power Parity Theory of Foreign Exchange Rates.
Just Prices, Just Taxes and Just Economic Policies.
Martin de Azpilcuetta , O.P. (1493 – 1586) “Doctor Navarrus”
Comentario Resolutorio de Usuras
Comentario Resolutorio de Cambios
Quantity Theory of Money.
Validity of Merchants and Business
IV.
The Schoolmen, Continued
Domingo de Banez, O.P. (1528 – 1604)
De Iustitia et Iure Decisiones.
Expectations theory of prices.
Just Economic Policies
Luis de Molina, S.J. (1535 – 1600)
De Iustitia et Jure
Concordia
Just Prices, Sanctity of Individual Freedom
Juan de Mariana, S.J. (1536 – 1624)
De Monetae Muttione
Inflation and Currency Debasement
IV.
The Schoolmen, Continued
Tomas de Mercado, O.P. (c.1530 – 1575/1585)
Tratos y Contratos de Mercaderes
Suma de Tratados y Contratos.
Ethical Business Practices, Foreign Exchange Rates.
“My intention is not to write laws to sentence the judges,
but rules that keep the Christians in the issuing and
holding these contracts, which are so continuous and
common among all people.”
V. The Schoolmen and de Mercado on
Business Ethics
Normative Principles Derived from
Objective Research.
 Commerce/business is necessary for the
common good.
 Ethical Business Practices: Just Prices and
Wages.
 Ethical Business Practices: Just Profits.
 Ethical Business Practices in Relation to the
State/Monarchy.
 Usury restrictions.
Ethical Business Practices:
A Summary
Do: Engage in mutually beneficially trade,
voluntary exchange, charge just prices, pay
just wages, earn just profits, pay just taxes,
obey just laws, abide by terms of contracts.
Do Not: Seek monopoly, engage in fraud,
coercions, misrepresentations, deceptions,
charge unjust prices, pay unjust wages, earn
unjust profits, pay unjust taxes, obey unjust
laws, abdicate contracts, and charge interest
on certain transactions.
On the Importance and
Necessity of Business,
Commerce and Just
Exchange
Private Property Rights and
voluntary exchange are
necessary cornerstones of
effective business.
“ Mankind progresses from imperfection to
“We know that the
fields are not going to
be efficiently tilled in
common ownership
and that there will not
be peace in the
republic, so it is
convenient to
undertake the division
of goods.” (de Banez)
“ …commerce is necessary for the republic.
Not all the provinces have the goods
they need in abundance. On the
contrary… some have in abundance the
fruits and labors which are scarce in
others.” (de Soto)
“any exchange is for the mutual benefit of
both parties with the result that they are
better-off than previously.” (de Molina)
perfection. For this reason, in the beginning,
barter was sufficient… But afterward, with
the development of a more educated,
civilized and distinguished life the need to
create new forms of trade arose. Among
them, commerce is the most respectable,
despite the fact that human avarice can
pervert anything.” (de Soto)
Just Prices and
Wages.
Just prices and wages
require :
1. Voluntary exchange ;
2. Absence of violence, fraud,
force, misrepresentation
ignorance and monopoly;
3. Contractual fulfillment;
4. Payments in non-debased
currency;
5. Set by the
community/market.
6. When monopoly, fraud,
etc. exist the just price
(price range) should be
legally set.
“To summarize, the just price of
goods depends principally on the
common estimation of men of each
region. When a good is sold at a
certain price (without fraud or
monopoly or any foul play), that
price should be held as the just price
as long as the circumstances which
might cause the price to change
remain stable.” (de Vitoria)
“After considering the service that an
individual undertakes and the large
or small number of people who, at
the same time, are found in similar
service, if the wage set for him is at
least the lowest wage set in that
region the wage is considered just.”
(de Soto)
Just Profits
1. Merchants do not have
an inherent right to
Just
Profits
profit.tbe
born by the
merchant
2. Just profits obtained by
buying and selling at
just prices. Profits (and
losses) justifiable if
prices for inputs and
outputs are just. Profits
not an increment to cost
of Profits not the
ultimate end of
business:
a) Provide for household;
b) Compensation for work
& risks.
c) Improve the product.
d) Help the poor;
e) Ensure essential
supplies.
“To deal in shoes for a profit is not
the chief use for which they were
invented, which was to protect
our feet; but that does not mean
that to trade shoes is against
nature.” (de Azpilcueta)
“Those who by their own will go into
business must expose themselves
to profit and loss. And, when they
suffer a loss, cling to the
magistrate ….and attempt to
alleviate their loss at the cost of
the buyer or republic are the most
pernicious of men. (Mercado)
Ethical Business
Practices in Relation
to the State
Government has a vital
role in protecting people
and property for attaining
peace, harmony, order and
development.
Taxes, an appropriation of
a portion of property, are
just as a means to finance
government.
Privileges from the king
(monopolies) justified only
in cases of grave public
need
“There is a law that says the profit obtained from
metals and ironmongers belong to the king.
Another says nobody without a privilege
from the king is allowed to extract metals.”
(de Soto)
“If the expenditures of the Crown grow larger
than taxes evil will be inevitable. It will be
necessary to impose new taxes every day.
The citizens will become exasperated and not
listen to the king’s mandates. (de Soto)
“…because so long as they make someone sell
his property by force justice does not consist
of this.” (Vitoria)
Mercado on Ethical Business
Practices
Mercado’s practical knowledge of business practices was so wide
and deep he encouraged the clergy, in order to provide recourse
and advice on ethics to business people, that it was preferable
“…to have a mediocre knowledge of letters and great
acquaintance of practice.”
de Mercado:
“In the drawing up of all contracts, sales, purchases, exchanges and loans, what
is demanded of the Christian merchant is hardly more than what the Turk or
the Arab ought to abide by. For justice and truth, which must be found in
them emerge from and belonging to the natural law, to which everyone of
any condition and profession is subject.”22
“ For the law of these contracts is encompassed within very few rules, but they
are so universal and so ample a material that they are applied in a thousand
ways. It is therefore of the highest importance to understand the praxis of
business.”23
“… earn a living without losing one’s soul.”
Mercado on Money and Profit
“Among the things necessary for good government
and peace in the kingdom, one is that the value
and tale of the money, and even its seal and
design, must be durable and as invariable as
possible.”
“Those who by their own will go into business
must expose themselves to profit and loss. And,
when they suffer a loss, cling to the magistrate
….and attempt to alleviate their loss at the cost of
the buyer or republic are the most pernicious of
men.”
Mercado and
Business Ethics
His Sum of Deals
and Contracts is a
vivid description of
the business world
of his time.
Mercado discussed
the ethics of three
main classes of
businessmen.
1. Merchants: “Imposing
figures, having the greatest
trade in Christendom.”
2. Money Changers:“traveling
from fair to fair…with his
table and boxes and books.”
Evolved into fairbankers/clearing houses.
3. Bankers: “The Seville
bankers are in substance
the treasurers and
depositaries of the
merchants.”
Mercado on Business
Ethics: Three Primary
Types of Business
Contracts
“Sale is a contract to buy which can do
what he pleases. It has the power to
give or keep it or lose it and to use it an
all that is right reason and good law.”
Mercado wrote extensively
on the ethics of three
primary types of business
transactions and contracts.
“And I want to write on
business matters…Three
contracts, among others, use
a lot of people.”
“One is to sell and to
buy.”
Mercado had the least to
say about such contracts
implying he viewed direct
purchases and sales as
the standard basis for
business.
“It is the cash flowing and used
publicly this week and this time, as
they say in the square, having no force
or deceit in it, though it is more
variable as experience shows than the
wind.”
“
But there is little if, as who we are, that
is, as theologians, we treat only what is
natural and divine law, do what is
lawful. We can say that all they have
done in this contract can be done and
is lawful.”
Mercado on Business
Ethics: The Second Type of
Contract
“The second is to lease
under which involves
taking olive groves,
pastures and fields,
crops, cattle, ranches to
rent. One can
understand also rent
house, road horses,
weapons, clothing,
jewelry and others to this
tone.”
Mercado makes a significant
distinction between ‘rent’ on
leased property and interest.
He also argues that nonperishable items and money
should not be leased, owing
to the possibility of interest
being charged and paid.
“But wine, oil and wheat have the same
substance,…but that alone is worth a thousand
ducats and the use of ducats worth the same
thousand.”
Mercado wrote at length on risk sharing
arrangements among lessors and leasees.
‘Acts of God’ which impaired, reduced,
destroyed asset values were risks borne by
lessors/owners. Such acts that impaired yields ,
returns, uses of rented assets were borne by the
renters.
Risks due to negligence were the responsibility
of the negligent party.
In the event of damages the lease contract
should be re-written per customs, history and
law.
Higher than expected yields and returns
accruing from investments and improvements
should accrue to the party making them.
Mercado on Business
Ethics: The Third Type of
Contract
Mercado’s views did not prohibit,
though they strongly discouraged,
borrowing and lending.
“The third pay.”
Borrowing and Lending
Mercado’s views did not
prohibit though they
strongly discouraged
borrowing and lending.
Potential for social discontent over
what and how much to return if
items lost, damaged, etc.
 “If I borrowed a clothes…and we came to
the point that not all could be saved is
not understood at the expense of my
own finances and stock.”
 Lost items can not be loaned to others.
“forced to postpone charity for my
neighbor.”
 Borrower may become the master of the
lender. “And, when providing a home
not lend them to become lord of them.”
Mercado on Business Ethics:
The Third Type of Contract Extended to Usury
“There is no crime more
infamous, nefarious
outside, among the nations
than is usury.”
“Usury is a vice not only
detrimental to the soul, but
infamous to the person.”
“Call this (usury) sin
against nature, and the
abominable sin.”
“Man was not born for
profit and only profit, …but
speaking in short for good.”
“Simply return the sum and value
in good currency and used.
Money is not commonly loaned
but to spend, if I give to expend
how can you but return?”
Mercado’s views on usury were
rooted in Church teachings and
Canon Law, Scriptures, and
studies of prior philosophers and
fellow Schoolmen who viewed
money as a ‘sterile’ and therefore
not worthy of any renumeration.
“All the sages (Schoolmen) say that
nothing is more sterile than
money, that bears no fruit either,”
Mercado - Continued on
Usury
Mercado enumerated a
wide range of transactions
on which interest was
prohibited. These included
trade credit, purchases on
credit (installment sales),
advances (pay-day loans)
and inheritances which
included an interest
component.
Borrowers could appeal to
Canon Law to prevent
paying interest.
Restitution and penance
required of usurers.
Two exceptions to charging
interest:
1. Delay in borrower repayment.
“ Item if the deadline does not
get paid, you can take your
usury. In all these cases, the
merchant may be paid without
question the harm that came to
him and he lost interest.”
2. Adjust principal amount for
changes in purchasing power.
“To return the loan in the same
amount that was received …it
was worth back as when I
loaned it.”
VI. Their Original Ideas
Business and Economics





Subjective Value and Utility Theory.
Price Determination.
Operation of Markets.
Causes of Inflation.
Foreign Exchange Rate Determination.
•
“The value of an article does not depend on its
essential nature but on the estimation of men,
even if that estimation be foolish.” ( Vitoria)
•
“In the second place we should observe that the
just price depends on the relative appreciation
which each man has for the use of the good. This
explains why the price of a pearl is higher than the
price of grain, wine, meat and horses.”8 ( Vitoria)
•
“Consider the example of a book. For one, it is of
great value and price; for another it is of low value
and for others, its value is nil. And the same thing
happens with all products.” (Molina)
•
“But this one standard which truly measures all
things is demand. This includes all commutable
things inasmuch as everything has a reference to
human need. Articles are not valued according to
the dignity of their nature, otherwise a mouse, an
animal endowed with sense, should be of greater
value than a pearl, a thing without life. But they
are priced according as man stands in need of
them for his own use.” (Aquinas)
Utility Theory and
Subjective Value
Human needs and
wants are subjective
and personal.
Utility (value) placed
on human actions is
also subjective.
Powerful defense of
(a) Indians dominion
over their persons
and resources; and
(b) formulation of
rights to natural
partnership and
communication
including commerce
and free dealings with
all people.
II. Prices and
Markets
Just Prices do not equal
cost of production plus
some ‘markup.’ They
emerge from subjective
value; relative scarcity and
cost of production,
“In the first place, it should
be observed that a price is
considered just or unjust
…due to their ability to
serve human utility. In the
second place, it depends on
the relative appreciation
which each man has for the
use of the good.” (de
Molina)
“It follows that whenever there is a
marketable good for which there are
many buyers and sellers, neither the
nature of the good nor the price for
which it was bought, that is to say how
expensive it was, nor the toil and trouble
it was to get it should be taken into
account.” (de Vitoria)
“ Mankind progresses from imperfection
to perfection. For this reason, in the
beginning, barter was sufficient… But
afterward, with the development of a
more educated, civilized and
distinguished life the need to create new
forms of trade arose. Among them,
commerce is the most respectable,
despite the fact that human avarice can
pervert anything.” (de Soto)
III.
Inflation
Inflation has a
monetary basis.
“We likewise see that
money is far less
valuable in the New
World (especially in
Peru, where it is more
plentiful) than it is in
Spain.. But in places
where it is scarcer
than in Spain, it will
be more valuable.”
(de Molina)
“…other things being equal, in
countries where there is a great
scarcity of money all other
saleable goods, and even the
hands of labor and men, are given
for less money than where it is
abundant.” (de Azpilcueta)
“The first is the plentifulness of this
money, which causes a reduction
in its value and increases the
quantities of goods that must be
traded for it. The second is that
this money is so debased that
everyone will try to avoid having
it in their homes.” (Mariana)
IV. Foreign
Exchange Rates
Foreign exchange rates are
determined by the relative
supplies for and demands for
monies in different nations.
Changes in foreign exchange
rates reflect actual and
expected inflation
differentials between
countries. Exchange rates
will depreciate (appreciate)
in countries with relatively
higher (lower) actual and
expected exchange rates.
“The more plentiful money is in Medina,
the more unfavorable are the terms of
exchange, and the higher the price that
must be paid by whoever wishes to send
money from Spain to Flanders, since the
demand for money is less in Spain than
in Flanders.” (de Soto)
“After the Indies the place where money
is less esteemed is Seville…, and after
Seville the other parts of Spain. Money is
highly esteemed in Flanders, Rome,
Germany and England.” (de Mercado)
V. Usury
Struggle to reconcile
scripture, Papal writings,
and reason.
“Sterility” of money key
logical flaw.
Resources have an
opportunity cost.
Humans have positive –
though different- rates of
time preference
“that if a merchant deposits cash with a
bank, the bank will guarantee to
repay a larger sum….because it is
very profitable for a banker to have
cash available. There is no evil in
this.” (de Soto)
“Nor is it true that to use money,
changing it at a profit, is against
nature.” (Azpilcueta)
“The usury doctrine was the Achilles
heel of Scholastic economics. It
involved the Schoolmen and their
16th and 17th century successors in
insuperable difficulties that
contributed greatly to bringing their
whole doctrine into dispute.”
(Schumpeter)
VII. A Summing Up
1.
We are all called to act with virtue and morality in our
business dealings.
2. Reason and truth that emerge from objective inquiry of
economics and business are critical in working towards this
aim.
3.
Business initiatives, cemented in ethical practices, have been
and can be a powerful and effective force in alleviating
economic injustices.
4.
The mission of the Andreas School of Business of Barry
University is driven by these principles.
VIII. Acknowledgements
• Special thanks are owed to Mr. Phil O’Neil, Senior
Reference Librarian, Barry University for his untiring
support in locating and providing reference materials; in
engaging discussions on this research; and for assistance
with Spanish translations.
References:
Books
1. Alves, Andre Azevedo, and Jose Manuel Moreia. The
Salamanca School. New York, Continuum International
Publishing Group, 2010.
2. Aquinas, Saint Thomas. Summa Theologica. London:
Blackfriars Press English translation, 1975.
3. Chaufen, Alejandro A. Faith and Liberty : The
Economic Thought of the Late Scholastics. New York,
Lexington Books 2003.
4. de Azpilcueta, Martin. Comentario Resolutorio de
Usuras. Salamanca, 1556.
References
5. de Mercado, Tomas. Suma de Tratados y Contratos.
Salamanca, 1571.
6. de Soto, Domingo. De Iustitia. Madrid: IEP Publishing,
1968.
7. de Vitoria, Francisco. De Justitia. Madrid:
Publicaciones de la Associacion Francisco de Vitoria,
1934-1936. Book 2.
8. Grice - Hutchison, Marjorie. The School of Salamanca.
Glasgow, Oxford University Press 1952.
References
9. Hamilton, Earl J. American Treasure And The Price
Revolution in Spain, 1501 – 1650. Harvard Economic
Studies, Volume XLIII. Cambridge: Harvard University
Press, 1924.
10. Popper, Karl. Epistemological Problems in Economics.
Princeton: Princeton University Press, 1950.
11. Rothbard, Murray N.. Economic Thought Before Adam
Smith, Volume I. London: Edward Elgar Publishing
Ltd., 1995.
12. Schumpeter, Joseph A. History of Economic Analysis.
New York: Oxford University Press, 1954.
References: Journals
Mele, Domenec. “ Early Business Ethics in Spain: The
Salamanca School (1526-1614).” Journal of Business
Ethics. Volume 22, 1999. pp. 175-189.
Mau, Vladimir. “Lessons of the Spanish Empire.” Russia in
Global Affairs. Volume 3, July, 2005. pp 22-35.
Roover, Raymond. “Scholastic Economics: Survival and
Lasting Influence from the Sixteenth Century to Adam
Smith.” The Quarterly Journal of Economics. Volume
69, 1955. pp. 161-190.
References: Web Sites
Preachers from Abroad
http://www.dom.edu/export/sites/dominican/mcgreal/vol
umeone/DaHCHAP01.pdf Accessed September 4, 2011
Sitio Escolastico.
http://escolasticos.ufm.edu/index.php/Tom%C3%Als_d
e_mercado Accessed September 11, 2011.
.