Chafuen – The Origins of Market Economics
THE ORIGINS OF MARKET ECONOMICS
Alejandro A. Chafuen
(does not include the original footnotes)
The Philadelphia Society Annual Meeting (April 26, 1997)
Diogenes told a story about a casual encounter of Socrates and Xenophon (430- 354 BC) in the
streets of Athens. Xenophon bumps into Socrates who asks him "what is the road to the market?"
Xenophon diligently gave him directions. Unkown to him, Socrates had little intention to go to the
market. He asked a second question: "Tell me, what is the road to virtue?" Xenophon responded
with a blank stare. And Socrates answered with the later famous remark "Come follow me, and I
will teach you."
Markets and virtue in the same story. . . That is how the issue was addressed from the time of the
Greek philosophers until approximately the late sixteenth century. Even Adam Smith was a moral
philosopher and achieved fame and notoriety as such.
In my remarks I will place "economic problems within the broad frame of a general theory of
human action. Carl Menger, in the first chapter of his Principles of Economics entitled "The
General Theory of The Good," writes about issues, such as his distinction between true and
imaginary goods, usually addressed by philosophers:
The quantities of consumption goods at human disposal are limited only by the extent of human
knowledge of the causal connections between things, and by the extent of human control over these
things.
He frequently used the expression "within the limits set by natural law." Addressing property rights
he wrote:
Property, therefore, like human economy, is not an arbitrary invention but rather the only
practically possible solution of the problem that is, in the nature of things, imposed upon us by the
disparity between requirements for, and available quantities of, all economic goods.
The questions asked by Ludwig von Mises in his famous treatise on economics are different from
those asked by many other economists. The first chapters have the following titles and subtitles:
"what is human action?" "On Happiness," "On instincts and impulses," "Rationality and Irrationality,"
"Causality and Human Reason," and other similar topics.
Even the moral philosophers who disagree with him can easily understand Mises position. Many
times, however, I encountered economists who had trouble following the first chapters of Human
Action. It is understandable, for economists who start their economic analysis with the same
questions to side with Murray Rothbard when he stated that "it all started with the Greeks."
It also started with the Greeks for me. At the senior year of my university studies at the Argentine
Catholic University we all had to take an yearly course on the history of economic thought, taught
by Dr. Oreste Popescu, a Romanian economist, trained in Austria. It was almost twenty years ago
then. I "knew" much more at that time. I knew that economics started with Adam Smith, and that
the only books worthy to read were all those in the entire catalogue of the venerable Foundation for
Economic Education. You can imagine my frustration when Dr. Popescu announced in his
distinguished but unmistakable Transylvanian accent "that he very much doubted that during the
year we were going to have time to reach Adam Smith’s writings."
Our first assignement in class was to read Works and The Days by Hesiod. You can imagine my
frustration. I chuckled. Professor Popescu caught me and asked me the reason for my reaction. I
complained that during our five years of studies we barely had time to study the great economists
and that now we were going to lose time on the works of a Greek poet who had passed away 24
centuries ago! Popescu commanded me "Chafuen, for the next class, prepare a report on
Hesiod." That was a turning point in my intellectual life. Since then I began to feel a little more
ignorant each day. The reason? I found several theoretical jewels in Hesiod work. No, I did not
find correlations, bar charts, or differential equations, I found explanations about how human beings
value, choose, and produce. I also soon learned, that unlike what happens today, the classics were
read by almost all intellectuals of the time, increasing the impact of each contribution by the early
Greek philosophers.
As Murray Rothbard correctly stated, Hesiod devoted more than a third of the verses of his Works
and The Days to the problem of scarcity. We should recall that Wilhelm Röpke, the late great
economist and one of the past presidents of the Mont Pelerin Society defined that "the whole
purpose of a rational human economy is to lessen scarcity."
Murray Rothbard also stated that "To Hesiod, emulation leads to the healthy development of a
spirit of competition, which he calls ‘good conflict’, a vital force in relieving the basic problem of
scarcity." Apart from attacking the prophets of scarcity Röpke also criticized those who are trying
"to discredit competition as something egotistic and inimical to an integrated society."
"It all began, as usual, with the Greeks." And it began with the study of human action. Traditional
Thomistic thinking, also adopted by Murray Rothbard and other "Austrian" economists, speaks of
human acts, and human action. What distinguishes humans from other beings is human action: free,
voluntary and purposeful behavior. All human action is subject to moral judgement, all human
action is moral action.
Man’s reflections on his actions, the process by which he chooses. His effort to understand the
dealings in the market, the fair or town-square. Man trying to understand wealth. Thinking about
economics began in that manner. Most of these questions, at least in writing, were addressed
within an ethical context/ What is a good action? what is an evil choice. Can we be involved in
trade and still be good people?
The Market Economy
Et c’est pourquoi l’expression "économie de marché" est dangereuse. Elle ne se réferè pas à
l’activité humaine et elle est donc dénuée de toute référence éthique. Pascal Salin, 1992, past
President of the Mont Pelerin Society.
Studies about the "market economy" started with moral philosophers. Although in today’s world,
where positivism rules, there are many who still do not understand the limits of their analysis, most
of the leading free-market economists of the Mont Pelerin Society, which I see as a family relative
of the Philadelphia Society, understand that economics has its limits: without the human person
there is no market. I quoted Salin but I could have quoted his predecessor, Professor Max
Hartwell, or his successor as president of the Mont Pelerin, Dr. Edwin Feulner. All of them have
stressed the importance of the moral aspects of economic life. I can also quote from most of the
great liberal economists, Hayek, for example wrote:
"When we defend the free enterprise system we must always remember that it deals only with
means. What we make of our freedom is up to us. We must not confuse efficiency in providing
means with the purposes which they serve. A society which has no other standard than efficiency
will indeed waste that efficiency."
As Hayek concluded in the same piece "the ends exist apart" from the market system. (The Moral
Element in Free Enterprise, p. 73, in The Morality of Capitalism, FEE, 1992.) Another great
economist G. Warren Nutter stated that "Economics can escape moralizing, but it cannot escape
morals." and continued:
It is, of course, ethically neutral to count broken crockery or empty pyramids produced in one
economy as equivalent to food and housing consumed in another. But such ethical neutrality
removes all meaning from the question of how the two economies compare. The simple fact is that
all such questions have implicit ethical content. We are asking whether one state of affairs is better
than another, and the judgement of better or worse has to be made with reference to some
normative standard." p. 47 (Political Economy and Freedom, Liberty Fund, Indianapolis, 1983)
Ben Rogge was also aware that positive economics was not all encompassing "Normative
economics is positive economic plus a value system." p. 112 (Can Capitalism Survive, Liberty
Press, Indianapolis, 1979). Jacques Rueff stated that "No one is more convinced than me about the
need to make our economic institutions subject to the demans of morals and justice." Jacques
Rueff, in L’Age de L’Inflation, Payot, Paris: 1963. (From Chapter 5 "the unity of Europe needs to
be based on the unity of its currency.") We could also quote a number of "positivist" economists,
such as Milton Friedman, stating that the free society needs an environment where people agree on
a "set of common values."
Ends, morals, justice, common values, normative standards, economists know of their importance.
They are not necessarily, however, experts on how to define, bring about, or discover, such
concepts and ideals.
If we are able to agree that we have to look into the writings of the great moral philosophers to find
the origins of market economics, there is no better period to focus our attention than the so-called
Late-Scholastic period.
The road by which ideas influence later thoughts and actions is not always straight and well
marked. When an author makes specific quotations and acknowledgements of another writer, we
may clearly recognize his influence. On the other hand, people often adopt the reasonings of
authors unknown to them. Where there are great similarities between two different writers, we may
conclude that one might have influenced the other. It is easy to see the road leading from some
Late Medieval thought to Austrian principles of political economy. In other areas the road is
concealed.
There are interesting similarities and, in some cases, contradictions, between Late-Scholastic
thought and ideas of important members of the Austrian school. Since the writings of Protestant
authors such as Grotius and Pufendorf sometimes served as the conduit between Catholic Late-
Scholastic thought and later writers, they must figure in any analysis of the influence of Scholastic
thought.
The French economists, the Classical Liberal authors and the "Austrian economists" form the core
of Western free-market tradition. From this core, other traditions of economic analysis, such as the
Chicago and Virginia Schools, have contributed to a better understanding of economic principles.
While acknowledging the considerable distance between the laissez-faire of the French economists
and the Austrians’ theory, it is not inappropriate to classify these three schools of thought as
embracing the same ideal–the ideal of human freedom.
The following pages represent a summary of the search for the uncertain origin of many modern
ideas in the extensive field that the Late-Scholastic authors embraced. Several of the issues
analyzed in the following paragraphs have been the central topic of extensive modern studies.
On the importance of private property
Almost all "Austrians" have argued in favor of private property. As well as the late-scholastics they
repeated some of the arguments first presented by Aristotle and then further developed by
Thomistic and Late-medieval authors. Private property facilitates orderly production and division
of labor, helps mitigate scarcity by encouraging a better use of the resources and as Mises stated "it
is in the defence of property that Law reveals most clearly its character of peacemaker." This
peace is one of the major causes of the higher productivity of free societies.
A private property order allows the emergence of markets and prices. The Austrian economists,
had a clear understanding that this was one of the main reasons why private property encourages a
better use of resources. I was not able to find in the Schoolmen’s writings explicit explanations on
the direct relation between private property and market prices.
As well as the Austrians, the scholastics never felt prey to the "angelical vision of the state." All
men are capable of evil and their trip to a bureaucracy does not change this fact. It is precisely
because of this human trait that the tragedy of the commons appears. If all goods are held
collectively, "evil men will take more and add less to the common barn," as foreseen by Vitoria,
even thieves and misers, would achieve the highest positions in those societies.
The medieval schoolmen favored private ownership because it allows property to be used in a
more beneficial manner. They believed that a private property system will be more peaceful, more
productive and, over all, more moral.
According to the Schoolmen, everything God created was to benefit mankind and not just a few.
They saw private property as a means to encourage people to use the goods in ways that would
benefit all. Like the Schoolmen, Mises regarded ownership as the power to use economic goods.
Stating that "an owner is he who disposes of an economic good," he also recognized that, from a
legal point of view, one can own a good even when it is not physically in his position.
Mises found that in any act of productions involving division of labor the "having is always two-fold:
there is a physical having (direct), and a social having (indirect)." Mises made the point that he who
holds the commodity and uses it productively exercises direct ownership, while the "social having
belongs to him who, unable to dispose physically or legally of the commodity, may yet dispose
indirectly of the effects of its use." His conclusion is that "natural ownership in a society which
divides labour is shared between the producer and those for whose wants he produces."
Recognizing that in such society "no one is exclusive owner of the means of production," Mises
concludes that ownership is a social function..
When protected by privileges ownership loses its social function. Late-Scholastic reasonings in
favor of private property paved the way for the great nineteenth-century reformations. In the recent
decades there has been a tendency to interpret the social function of ownership differently. While
retaining the term private property, many modern thinkers would preserve the institution in the
formal sense only. According to them, "society" should determine how goods are to be used.
When this happens, private responsibility is greatly weakened. When "society" directs the owner of
a factory to invest in a certain field, to hire a certain number of workers at a prescribed salary and
to sell his goods at a price fixed by authority, he cannot be held responsible if things go wrong.
This theory dictates that "society" must assume the loss. It provides that the owner is still entitled
to a "just profit." Profits and property thus lose their ties with consumer satisfaction. The
paradoxical result is that, by attempting to use force to encourage the social function of ownership,
government renders it impossible. In such a society, people struggle to accrue the favors of law
rather than to satisfy the consumer. The struggle for power and the conflicts and clashes of interest
groups thus supplant peaceful cooperation in the marketplace. Only in a free society is "ownership
of the means of production not a privilege, but a social liability."
Trade
By the time of the Schoolmen, commerce had long been held in low esteem by moralists of different
countries, ages and backgrounds. Although most of the Late Scholastics found commercial
activities to be morally indifferent, they outlined the advantages of commerce, turning their attention
first to the critical arguments of the Church fathers and the Canonists. St. Thomas Aquinas’s
justification of mercantile profits offered many examples of the benefits that commerce may bring to
a society. He explicitly mentioned the usefulness of (a) the conservation and storing of goods, (b)
the importation of useful goods that are necessary for the republic, and (c) the transportation of
goods from places where they are abundant to places where they are scarce.
As is proper in Scholastic tradition, Domingo de Soto studied both sides of the issue. He first
presented the negative arguments: "Barter is simpler than commerce, direct exchange is simpler than
indirect exchange, and it causes fewer problems. For many centuries humanity was happier living
without money." Proceeding to point out the benefits of commerce, Soto defined contracts as
obligations and acknowledged that both parties profit from the arrangements: "I give you this
amount of goods and you give me this amount of money, and this is not an identity." Furthermore,
he asserted that "buying and selling are very necessary contracts for the republic." Basing his
arguments on Aristotelian reasonings, Soto explained that it was natural for direct exchange to be
gradually replaced by indirect exchange:
Mankind progresses from imperfection to perfection. For this reason, in the beginning barter was
sufficient as man was rude and ignorant and had few necessities. But afterward, with the
development of a more educated, civilized and distinguished life, the need to create new forms of
trade arose. Among them the most respectable is commerce, despite the fact that human avarice
can pervert anything.
Conceding St. Augustine’s point that business "is like eating, a morally indifferent act, which can be
good or bad depending the ends and the circumstances, Soto reiterated his conclusion that
commerce is necessary for the republic. Not all the provinces have the goods they need in
abundance. On the contrary, due to climates some have in abundance the fruits and labors which
are scarce in others and vice versa.
Soto emphasized that to survive, the republic needs to have people who transport goods from the
places where they are abundant to the places where they are scarce.
As trade is so important for society, would it not be "more prudent," Soto asked, to charge public
servants with this responsibility? He answered in the negative due to the wide spectrum of
necessary goods required for civilized life.
The Jesuit Juan de Mariana carried this point further, suggesting that commerce favors the common
good and thus God gave man his nature of social dependency and his limited ability and capacity so
that man would feel the need for commerce. This encourages man to live in society and to enjoy the
benefits of social cooperation (i.e., division of labor).
" For God, the Parent and Creator of the human race, saw that nothing would be more valuable to
man than mutual charity and friendship, and that it would not be possible for mutual affection to be
cherished and fostered among men unless they were gathered into a body in one place and subject
to the same law. . .He created men to desire this and move toward it with true necessity, lacking
many things and subject to many dangers and evils . . .Thus He, who gave food and covering to the
other animals and armed them against external force by giving some of them horns or teeth or
claws, and others swift feet to fly from danger, cast as if he had lost his all in a shipwreck . . .The
rest of life is like its beginning, and proves to lack many things which neither an individual nor a
small group could obtain for themselves. How much work and industry is involved in combing,
spinning and weaving linen, wool, and silk. . .The life of no single man is long enough to obtain all
these things, however long he lives, unless the wonder and observation of many men, and collective
experience, should come to the rescue."
International Trade
The Doctors dealt with international trade in a similar manner to domestic trade. One of the
principal contributions of the Late Scholastics regarding commerce consists of the recognition of
international free trade as subject to human laws, as Vitoria established in his De Indis et de Iure
Belli Relectiones. Vitoria’s views led Teofilo Urdanoz to state "that no one has realized, at least up
to now, that Vitoria’s vision of the right to free communication and unrestricted foreign relations
represents an explicit advance of the principles of economic neoliberalism and worldwide free
market." Describing the advantages of commerce between the Indians and the Spaniards, Vitoria
claimed that "the native princes cannot prevent their subjects from trading with the Spaniards." He
admonished the Spanish King with similar words. Eternal, natural and positive human law (ius
gentium) favors international trade. To abjure it would violate the Golden Rule. Vitoria
denominated the laws restricting foreign trade, with the objective of excluding a foreign country
from sharing in the benefit "iniquitous and against charity." Quoting Ovid, he added that "man is not
a wolf for othermen," and that nature has established a certain bond between men."
Stressing the importance of commerce and noting that human society benefits from the exchange of
goods, the followers of the Late Scholastics continued to offer elaborate proofs of the need for
domestic and international trade. They discerned it as a need rooted in human limitations and
geographical differences.
Public Finance
To believe in private property means to believe in limited government.
The Late-Scholastic rejection of inflation as a method of overcoming financial difficulties paved the
way for their balanced-budget proposals. In the opinion of those who address the topic, the
monarch should endeavor to balance the budget by cutting spending, reducing subsidies and
dismissing courtiers.
One of the Schoolmen’s primary concerns was the high level of taxation. They rejected the
financing of budget deficits through public debt. In their experience, not only did excessive
borrowing by the state fail to reduce the burden of excessive spending, it also jeopardized the
future of the kingdom.
For the Scholastics, the purpose of taxation was to raise the necessary revenue for just
government. They declared that taxes should be moderate and proportional, making no reference
whatsoever to taxation as a tool for equalizing wealth. In his claim for moderate taxes, Navarrete
realized that excessive taxation could reduce the king’s income (as few will be able to pay such high
rates),
The origin of poverty is high taxes. In continual fear of tax collectors, [the farmers] prefer to
abandon their land, so they can avoid their vexations. As king Teodorico said, the only agreeable
country is one where no man is afraid of tax collectors.
Furthermore, he who imposes high taxes receives from very few, "A paucis accipit, qui nimium
quarent." Mises was not far from this idea when he remarked that "every specific tax, as well as a
nation’s whole tax system, becomes self-defeating above a certain height of the rates." In the field
of economic ethics, the Late Scholastics were careful to point out that certain tax laws could oblige
legally but not morally. They based this conclusion on their belief that an unjust positive law is not a
true law, even though the government may have the power to enforce it.
Money
According to the Late-Scholastics, the value of money should be determined in the same manner as
the value of any other commodity. They saw its utility and scarcity as the main factors influencing
its value. Believing that the usefulness of money bore close relationship to its quantity, the
Schoolmen noted that when money undergoes continuous debasements, people try to reduce their
real cash holdings. A reduction in the legal value of money will therefore cause a price increase of
similar proportions. They also remarked that the value of money is greatest where it is more
urgently needed for transactions (e.g., e.g. at fairs).
The Late Scholastics in general–and Juan de Matienzo (1520-1579) and Martín de Azpilcueta in
particular–have been credited as the first formulators of the quantity theory of money. Their
contributions reached a peak with Juan de Mariana, author of one of the best texts on money ever
written. Mariana’s Tratado sobre la Moneda de Vellón, originally published in 1598, anticipated
many of the anti-inflationary arguments of Austrian economists. In general, the Late-Scholastics
avowed that currency debasement caused a revolution in fortunes, undermined political stability and
violated property rights. It also created confusion in commerce (internal and foreign ), leading to
stagnation and poverty. Currency debasement, at least for Mariana, represented an instrument of
tyrannical plunder. From a theoretical point of view, perhaps one of the most important insights of
Mariana was his analogy of the effects of drugs, which in the short run might make someone think
that things are going fine, but which in the long run produce calamitous effects. Mariana was
obviously speaking about the short term benefits that might arise in the commercial arena, and of
the increased amount of resources that the bureaucracy feels that it has to spend.
Another important aspect of Mariana’s work, is that it is possible to trace his influence on Samuel
von Pufendorf and through the latter on Adam Smith.
VALUE AND PRICE
The Late-Scholastic theory of value and price shaped subsequent economic thought. Grotius,
Pufendorf, the Physiocrats, the Scottish school and the Austrian economists all bear the influence of
their writings. Pufendorf recognized the influence of virtuositas "A large diamond, everything else
being equal, is more valuable than a small one, although it is not always true in regard to the value of
things of a different kind of goodness. Thus, a large dog is not always more valuable than a smaller
dog." He also recognized the importance of utility:
"The foundation of price in itself is the aptitude of a thing or action, by which it can either mediately
or immediately contribute something to the necessity of human life, or to making it more
advantageous and pleasant. This is the reason why in ordinary speech things of no use are said to
be of no value . . .So in the fable the cock regarded the pearl, which he had found, of no value,
because it was of no use to him [Phaedrus, III. xii}." Pufendorf rejected Grotius’s Aristotelian
analysis that "the most natural measure of the value of each thing is the need of it." If this were the
case, he argued, things that serve idle pleasure should not have a price, yet "mankind often bestows
a price upon such."
It has been argued that the scholastics did not contribute much to the theory of value because
"these scholastic doctors never truly departed from elements of "objective" value or holistic
reasoning." By including Virtuositas in their analysis, however, the late-scholastics were just
including their common sense observations of those factors influencing value in exchange. Cæteris
paribus, in an exchange, a good horse (faster, healthier, stronger) will be valued more than a worse
horse. These "intrinsic" qualities cannot be separated from the intended use of the good, and this
use is determined by an outside "extrinsic" agent. The horse in question might be needed as a dead
weight, or for meat consumption, and with those needs in mind the qualities of the good will be
assessed differently. But that is why the scholastics, especially since St. Augustine, never spoke as
if virtuositas alone could determine value in exchange. For those reasons they incorporated
"raritas" and "common estimation."
Quality is a more common word for virtuositas and this idea was not at all alien to the Austrian
theory of value. In his chapter on the theory of value, Carl Menger had an entire section devoted
to "the influence of differences in the quality of goods on their value." Menger’s view that
differences in virtuositas whether of type or of kind "cannot affect the value of the different units of a
given supply if the satisfaction of human needs is in no way affected by these differences," is entirely
compatible with the late scholastic theory of value. When St.Bernardine wrote about the value of
precious stones dropping way below the value of water for an isolated man in the top of a
mountain, he was reasoning in a similar way to Menger. St. Bernardine explained:
"Water is usually cheap where it is abundant. But it can happen that, on a mountain or in another
place, water is scarce, not abundant. It may well happen that water is more highly esteemed than
gold, because gold is more abundant in this place than water."
In trying to answer the question what makes a thing turn into an economic good, Carl Menger uses
many Aristotelian and Scholastic concepts. These prerequisites "must be simultaneously present,":
a human need (in Late Scholasticism "necessitas"); such properties as render the thing capable of
being brought into a causal connection with the satisfaction of this need ("virtuositas"); Human
knowledge of this casual connection (this argument has been used in the earliest post-socratic
writings e.g. Xenophon, and Plato); Command of the thing sufficient to direct it to the satisfaction of
the need ("dominium"). Menger argues that all four of these elements need to be present for a
thing to acquire goods- quality (güterqualität).
Like Aristotle, Menger speaks about the existence of goods which are only so in the opinions of
people, as they are only demanded due to mistaken views regarding the nature and or the capability
of things for satisfying human needs. These goods, Menger says, may appropriately be called
imaginary goods.
Also as Aristotle, Menger speaks about need and that when the ability of a good to satisfy needs
disappear, "the goods-character of the thing is immediately lost unless new needs for it arise."
Menger in particular, and the Austrians in general, perfected the theory of value. It is possible to
conclude "against" the Late Scholstics with the same criticism brought up by Menger regarding
A.E.F. Schäffle’s theories on the importance of intensity of desire (deseabilitas) and difficulty of
procurement (raritas). The question of how scarcity, utility, and intensity of desire, influence each
other, "and how in consequence of this mutual influence each good attains a definite magnitude of
importance for economizing men," remained unsolved until Menger’s contributions.
Another topic in which the Scholastics were good but not as thorough as the Austrians, is the issue
of voluntariness and justice. A totally voluntary exchange would always be just, volenti non fit
injura said Aristotle, and so did the Scholastics. It was implicit in the Scholastic explanation that
ignorance on the part of the buyer or seller could, in certain cases, render the transactions
involuntary. Although the Late Scholastics permitted the realization of profit due to better
knowledge of the market, they morally condemned those who took advantage of an ignorant
consumer.
More than four centuries later Kirzner repeated similar arguments without perhaps being aware that
his arguments had a long and strong tradition. He argues that "There does not seem to be a clear
moral imperative based on considerations of justice, to divulge what one knows to others, even if
this information may be useful to those others, and even if the information can be costlessly
provided." He then comes to the same conclusion as St. Thomas seven centuries earlier:
Failing to divulge information to others (without engaging in misrepresentation) may not be very
noble; it may even, under certain circumstances, be deemed to be downright disgusting; but it
constitutes neither robbery nor fraud.
The Late Scholastics also cited Genesis 41, where an informed Joseph advised the pharaoh to
"stock up" in preparation for bad times. The pharaoh then grew rich buying at a low price and
selling at a higher price. When one acquires special knowledge, and the public remains
unenlightened, the knowledgeable seller may employ his information to make a profit. Lessio
acutely reasoned that if justice does not permit knowledgeable sellers to command the current
price,
buyers, following the same reasoning, should not be allowed to buy at the current price if they
know that prices in the future will go up, and this is also false.
The value of goods of higher order.
The Late Scholastics analyzed wages not in their chapters on buying and selling but on the sections
on "hiring and renting." Menger regarded labor services as falling into a special category of goods
called "useful human actions" which should be distinguished from material goods. This did not
prevent the Schoolmen or Menger, to understand that those services should be actually bought and
sold in the market and that its price follows some of the same rules than the market for other goods.
Distributive Justice
The idea of discovery as a just basis for acquiring property has been recently thoroughly addressed
by Israel Kirzner but was not alien to scholastic thought. The passages in the Gospels speaking
about the person who found a treasure in another’s property and who then sold everything to buy
that property and reap the profit, or of the other who perceived the huge value of a special pearl,
were widely used by the Late-scholastics to prove that a "finders-keepers rule" can be consistent
with a reign of justice. The major economic topic addressed by them on this context was, apart
from treasures, the just property of underground discoveries, especially gold, and entrepreneurial
trading opportunities.
Pedro de Ledesma, following St. Antonino’s reasoning, remarked that those things that never had
an owner "belong to the one who finds them, and the one who finds them does not commit theft by
keeping them." According to Ledesma, and most late medieval schoolmen, the finder has a natural
right to appropriate such goods. Treasures, and other things that at one time had a proprietor, in
certain circumstances may also belong to the one who found them.
It is even more interesting to point out that chance, and luck, and not industry and labor, gave in
many cases, a stronger justification for acquiring ownership on found goods. When one found a
treasure in no-man’s- land one had the natural right to keep it. The Late Scholastics argued that if
by chance one found a treasure in another man’s land, one could keep half of it. If it was found by
industry, then one was not entitled to the treasure as it was presumed that one had prior knowledge
of the existence of wealth on our neighbors land and that wealth should belong to the owner."
Professor Kirzner also wrote that "The problem, for an entitlement defense of capitalist justice, is
that such errors might be held substantially to rob market transactions of meaningful
voluntariness–if a voluntary transaction is taken to mean one entered into willingly with full
knowledge of all relevant facts." "No one, in all of these errors, may necessarily be liable to be
accused of deliberately defrauding or deceiving anyone else." "one of the parties may feel that, in a
real sense, the transaction was not entirely voluntary." As "error" is such an essential part of the
market economy, and this can invalidate entitlement claims, the finders-keepers rule acquires
increased relevance.
Unlike Kirzner, the Late Scholastics did not have a clear view about how inventionis could come to
the rescue of those transactions where due to error one could argue that the transaction was
involuntary and therefore unjust. They rather argued that contracts gave one base for entitlements,
and Inventionis gave another. They did not argue however that for an act to be voluntary one
needed "perfect" knowledge.
But they would have agreed with the Kirznerian conclusion that a "finders- keepers ethic makes it
possible for us to see things differently. When I find an unowned natural object and, considering its
annexation worthwhile, proceed to take physical possession of it, I have discovered it –or, at any
rate, I have discovered the worthwhileness of taking possession of it."
Most Austrian economists, Hayek perhaps being the most outspoken, have rejected the notion of
"distributive justice" as not pertaining to a just rule of law. The Scholastic approach, which never
included wages, profits, rents, or interest as issues of distributive justice, is in most aspects,
consistent with the insights of the Austrian school. Issues like taxation, discrimination in the use and
allocation of goods owned in common, the draft, privatization, cannot be dealt as easily and justly
as issues regarding exchange of goods and services between consenting adults.
Conclusion
The market economy is the social system of the division of labor under private ownership of the
means of production. . . The market process is the adjustment of the individual actions of the
various members of the market society to the requirements of mutual cooperation.
Late Scholastic analysis of the pitfalls of common ownership can still be useful in contemporary
debates whenever collective ownership or management is recommended as a solution for today’s
ills. Their warnings about the damaging effects of high taxes could still be used to salvage
depressed economies. Scholastic arguments in defence of free trade can be used today in favor of
the passage of GATT, their recommendations against price controls can still be used to combat the
futile effort of setting prices which do not conform to the reality of the market.
Too much of the policy debate neglects the ethical aspects of the issues. We need a new round of
"scholastics" to incorporate sound ethical reasoning into the many policy debates of the day. Is it
ethical to tax non-inflation adjusted capital gains? Is it morally permissible to exclude foreigners
from entering our country? What are the ethical implications of deficit spending? How are welfare
laws affecting work ethic? What is the effect of government granted privileges?
It would be beneficial to have scholars with a similar focus of the scholastics. It would be even
better if they would approach their areas of study with same personalistic methodology. Economic
analysis today is still dominated by positivist dogmas and aggregate thinking where too little, if any,
attention is paid to the freely acting human being. If you want to analyze the ethical and economic
aspects of NAFTA, for example, we should not look only at what will happen to aggregates (i.e.
"imports", "exports", GNP, "employment") but at what it means not to allow Mr. Rodriguez in
Monterrey, Mexico to freely exchange his products or talents with Mr. Jones in MacAllen, Texas.
Why is it different from allowing someone from Fairfax, Virginia, to exchange his talents whith
someone in Hartford, Connecticut?
Scholastics did not share an angelical vision of man, but neither of government. Their cautious
analysis was useful then and can still help provide solutions for today.