Chapter 6

DUTIES REGARDING THE EXCHANGE OF PROPERTY

SECTION 1.--THE SALE OF GOODS

§ 1. _The Just Price_.

We dealt in the last chapter with the duties which attached to property in respect of its acquisition and use, and we now pass to the duties which attached to it in respect of its exchange. As we indicated above, the right to exchange one's goods for the goods or the money of another person was, according to the scholastics, one of the necessary corollaries of the right of private property. In order that such exchange might be justifiable, it must be conducted on a. basis of commutative justice, which, as we have seen, consisted in the observance of equality according to the arithmetical mean. We further drew attention to the fact that exchanges might be divided into sales of goods and sales of the use of money. In the former case the regulating principle of the equality of justice was given effect to by the observance of the _just price_; in the latter by that of the _prohibition of usury_. We shall deal with the former in the present and with the latter in the following section.

The mediæval teaching on the just price, about which there has been so much discussion and disagreement among modern writers, was simply the application to the particular contract of sale of the principles which regulated contracts in general. Exchange originally took the form of barter; but, as it was found impossible accurately to measure the values of the objects exchanged without the intervention of some common measure of value, money was invented to serve as such a measure. We need not further refer to barter in this section, as the principles which applied to it were those that applied to sale. Indeed all sales when analysed are really barter through the medium of money. That Aquinas simply regarded his article on just price[1] as an explanation of the application of his general teaching on justice to the particular case of the contract of sale is quite clear from the article itself. 'Apart from fraud, we may speak of buying and selling in two ways. First, as considered in themselves; and from this point of view buying and selling seem to be established for the common advantage of both parties, one of whom requires that which belongs to the other, and _vice versa_. Now whatever is established for the common advantage should not be more of a burden to one part than to the other, and consequently all contracts between them should observe equality of thing and thing. Again, the quality of a thing that comes into human use is measured by the price given for it, for which purpose money was invented. Therefore, if either the price exceed the quantity of the thing's worth, or conversely the worth of the thing exceed the price, there is no longer the equality of justice; and consequently to sell a thing for more than its worth, or to buy it for less than its worth, is in itself unjust and unlawful.'[2] When two contracting parties make an exchange through the medium of money, the price is the expression of the exchange value in money. 'The just price expresses the equivalence, which is the foundation of contractual justice.'[3]

[Footnote 1: II. ii. 77, 1.]

[Footnote 2: This opinion was accepted by all the later writers, _e.g._ Gerson, _De Cont._, ii. 5; Biel, _op. cit._, IV. xv. 10: 'Si pretium excedit quantitatem valoris rei, vel e converso tolleretur equalitas, erit contractus iniquus.']

[Footnote 3: Desbuquois, 'La Justice dans l'Echange,' _Semaine Sociale de France_, 1911, p. 167. Gerson says: 'Contractus species est justitiae commutativae quae respicit aequalitatem rei quae venditur ad rem quae emitur, ut servetur aequalitas justi pretii; propter quam aequalitatem facilius observandum inventa est moneta, vel numisma, vel pecunia,' _De Cont._, ii. 5.]

The conception of the just price, though based on Aristotelian conceptions of justice, is essentially Christian. The Roman law had allowed the utmost freedom of contract in sales; apart from fraud, the two contracting parties were at complete liberty to fix a price at their own risk; and selfishness was assumed and allowed to be the animating motive of every contracting party. The one limitation to this sweeping rule was in favour of the seller. By a rescript of Diocletian and Maximian it was enacted that, if a thing were sold for less than half its value, the seller could recover the property, unless the buyer chose to make up the price to the full amount. Although this rescript was perfectly general in its terms, some authors contended that it applied only to sales of land, because the example given was the sale of a farm.[1] However, the rescript was quoted by the Fathers as showing that even the Roman law considered that contracts might be questioned on equitable grounds in certain cases.[2] The distinctively Christian notion of just price seems to have its origin in a passage of St. Augustine;[3] but the notion was not placed on a philosophical foundation until the thirteenth century. Even Aquinas, however, although he treats of the just price at some length, and expresses clear and categorical opinions upon many points connected with it, does not state the principles on which the just price itself should be arrived at. This omission is due, not to the fact that Aquinas was unfamiliar with these principles, but to the fact that he took them for granted as they were not disputed or doubted.[4] We have consequently to look for enlightenment upon this point in writings other than those of Aquinas. The subject can be most satisfactorily understood if we divide its treatment into two parts: first, a consideration of what constituted the just price in the sale of an article, the price of which was fixed by law; and second, a consideration of what constituted the just price of an article, the price of which was not so fixed.

[Footnote 1: Hunter, _Roman Law_, p. 492.]

[Footnote 2: Ashley, _op. cit._, p. 133.]

[Footnote 3: 'Scio ipse hominem quum venalis codex ei fuisset oblatus, pretiique ejus ignarum ideo quiddam exiguum poscentem cerneret venditorem, justum pretium, quod multo amplius erat nec opinanti dedisse' (_De Trin._, xiii. 3).]

[Footnote 4: Palgrave, _Dictionary of Political Economy_, tit. 'Justum Pretium.']

§ 2. _The Just Price when Price fixed by Law_.

Regarding the power of the State to fix prices, the theologians and jurists were in complete agreement. According to Gerson: 'The law may justly fix the price of things which are sold, both movable and immovable, in the nature of rents and not in the nature of rents, and feudal and non-feudal, below which price the seller must not give, or above which the buyer must not demand, however they may desire to do so. As therefore the price is a kind of measure of the equality to be observed in contracts, and as it is sometimes difficult to find that measure with exactitude, on account of the varied and corrupt desires of man, it becomes expedient that the medium should be fixed according to the judgment of some wise man.... In the civil state, however, nobody is to be decreed wiser than the lawgiving authority. Therefore it behoves the latter, whenever it is possible to do so, to fix the just price, which may not be exceeded by private consent, and which must be enforced.'...[1] Biel practically paraphrases this passage of Gerson, and contends that it is the duty of the prince to fix prices, mainly on account of the difficulty which private contractors find in doing so.[2]

[Footnote 1: _De Cont._, i. 19.]

[Footnote 2: _Op. cit._, IV. xv. 11.]

The rules which we find laid down for the guidance of the prince in fixing prices are very interesting, as they show that the mediæval writers had a clear idea of the constituent elements of value. Langenstein, whose famous work on contracts was considered of high authority by later writers, says that the prince should take account of the condition of the place for which the price was to be fixed, the circumstances of the time, the condition of the mass of the people. The different kinds of need which may be felt for goods must also be considered, _indigentice naturæ_, _status_, _voluptatis_, and _cupiditatis_; and a distinction drawn between extensive and intensive need--the former is greater 'quanto plures re aliqua indigent,' the latter 'quanto minus de illa re habetur.' The general rule is that the prince must seek to find a medium between a price so low as to render labourers, artisans, and merchants unable to maintain themselves suitably, and one so high as to disable the poor from obtaining the necessaries of life. When in doubt, Langenstein concludes, the price should err on the low rather than the high side.[1] Biel gives similar rules: The legislator must regard the needs of man, the abundance or scarcity of things, the difficulty, labour, and risks of production. When all these things are carefully considered the legislator is in a position to fix a just price.[2] According to Endemann, the labour of production, the cost and risk of transport, and the condition of the markets had all to be kept in mind when a fair price was being fixed.[3] We may mention in passing that the power of fixing the just price might be delegated; prices were frequently fixed by the town authorities, the guilds, and the Church.[4]

[Footnote 1: Roscher, _Geschichte_, p. 19.]

[Footnote 2: _Op. cit._, IV. xv. 10.]

[Footnote 3: _Studien_, vol. ii. p. 43.]

[Footnote 4: Endemann, _Studien_, vol. i. p. 40; Roscher, _Political Economy_, s. 114.]

The passage from Gerson which we quoted above shows that, when a just price had been fixed by the competent authority, the parties to a contract were bound to keep to it. In other words, the _pretium legitimum_ was _ipso facto_ the _justum pretium_. On this point there is complete agreement among the writers of the period. Caepolla says, 'When the price is fixed by law or statute, that is the just price, and nobody can receive anything, however small, in excess of it, because the law must be observed';[1] and Biel, 'When a price has been fixed, the contracting parties have sufficient certainty about the equality of value and the justice of the price.'[2] Cossa draws attention to the necessity of the fixed price corresponding with the real price in order that it should maintain its validity. 'The schoolmen talk of the legitimate and irreducible price of a thing which was fixed by authority, and was for obvious reasons of special importance in the case of the necessaries of life.... The legitimate price of a thing as fixed by authority had to be based upon the natural price, and therefore lost its validity and became a dead letter the moment any change of circumstances made it unfair.'[3]

[Footnote 1: _De Contractibus Simulatis_, 69.]

[Footnote 2: _Op. cit._, IV. xv. 10.]

[Footnote 3: _Op. cit._, p. 143.]

§ 3. _The Just Price when Price not fixed by Law_.

When the just price was not fixed by any outside authority, the buyer and seller had to arrive at it themselves. The problem before them was to equalise their respective burdens, so that there would be equality of burden between them, or, in other words, to reduce the value of the article sold to terms of money. In order that we may understand how this equality was arrived at, it is important to know the factors which were held to enter into the determination of value.

The first thing upon which the mediæval teachers insist is that value is not determined by the intrinsic excellence of the thing itself, because, if it were, a fly would be more valuable than a pearl, as being intrinsically more excellent.[1] Nor is the value to be measured by the mere utility of the object for satisfying the material needs of man, for in that case, corn should be worth more than precious stones.[2] The value of an object is to be measured by its capacity for satisfying men's wants. 'Valor rerum aestimatur secundum humanam indigentiam.... Dicendum est quod indigentia humana est mensura naturalis commutabilium; quod probatur sic: bonitas sive valor rei attenditur ex fine propter quem exhibetur: unde commentator secundo Metaphysicae _nihil est bonum nisi propter causas finales_; sed finis naturalis ad quem justitia commutativa ordinet exteriora commutabilia est supplementum indigentiae humanae...; igitur supplementum indigentiae humanae est vera mensura commutabilium. Sed supplementum videtur mensurari per indigentiam; majoris enim valoris est supplementum quod majorem supplet indigentiam.... Item hoc probatur signo, quia videmus quod illo tempore quo vina deficiunt quia magis indigeremus eis ipsa fiunt cariora....[3]

[Footnote 1: 'In justitia commutativa non estimatur pretium commutabilium secundum naturalem valorem ipsorum, sic enim musca plus valeret quam totus aurum mundi' (Buridan, _op. cit._, v. 14).]

[Footnote 2: Slater, 'Value in Theology and Political Economy,' _Irish Ecclesiastical Record_, Sept. 1901.]

[Footnote 3: Buridan, _op. cit._, v. 14 and 16. Antoninus of Florence says that value is determined by three factors, _virtuositas_, _raritas_, and _placibilitas_ (_Summa_, ii. 1, 16.)]

The capacity of an object for satisfying man's needs could not be measured by its capacity for satisfying the needs of this or that individual, but by its capacity for satisfying the needs of the average member of the community.[1] The Abbé Desbuquois, in the article from which we have already quoted, finds in this elevation of the common estimation an illustration of the general principle of the mediævals, which we have seen at work in their teaching on the use of property, that the individual benefit must always be subordinated to the general welfare. According to him, it is but one application of the duty of using one's goods for the common good. 'In the same way, in allowing the right of exchange--a right, let us remark in passing, which is but an application of the right of property--and in allowing it as a means of life necessary to everybody, nature does not lose sight of the universal destination of economic goods. One conceives then that the variations of exchange are not permitted to be left to the arbitrary judgment of a single man, nor to be affected by the whims and abuses of individuals; that value is defined in view of the general good. The exchange value, as it is in the general or social order, proceeds from the judgment of the social environment (_milieu social_).'[2]

[Footnote 1: 'Indigentia istius hominis vel illius non mensurat valorem commutabilium; sed indigentia communis eorum qui inter se commutare possunt,' Buridan, _op. cit._, v. 16. 'Prout communiter venditur in foro,' Henri de Gand, _Quod Lib._, xiv. 14; Nider, _De Cont. Merc._, ii. 1.]

[Footnote 2: 'La Justice dans l'Echange,' _Semaine Sociale de France_, 1911, p. 168.]

The writers of the Middle Ages show a very keen perception of the elements which invest an object with the value which is accorded to it by the general estimation. In Aquinas we find certain elements recognised--'diversitas loci vel temporis, labor, raritas'--but it is not until the authors of the fourteenth and fifteenth centuries that we find a systematic treatment of value.[1] First and foremost there is the cost of production of the article, especially the wages of all those who helped to produce it. Langenstein lays down that every one can determine for himself the just price of the wares he has to sell by reckoning what he needs to support himself in the status which he occupies.[2] According to the _Catholic Encyclopædia_,[3] the just price of an article included enough to pay fair wages to the worker--that is, enough to enable him to maintain the standard of living of his class. This, though not stated in so many words by Aquinas, was probably assumed by him as too obvious to need repetition.[4] 'The cost of production of manufactured products,' says Brants, 'is a legitimate constituent element of value; it is according to the cost that the producer can properly fix the value of his product and of his work.'[5]

[Footnote 1: Brants, _op. cit._, p. 69.]

[Footnote 2: _De Cont._, quoted by Roscher, _Geschichte_, p. 20.]

[Footnote 3: Tit. 'Political Economy.']

[Footnote 4: Palgrave, _Dictionary_, tit. 'Justum Pretium.']

[Footnote 5: Brants, _op. cit._, p. 202.]

The cost of the labour of production was, however, by no means the only factor which was admitted to enter into the determination of value. The passage from Gerson dealing with the circumstances to which the prince must have regard in fixing a price, which we quoted above, shows quite clearly that many other factors were recognised as no less important. This appears with special clearness in the treatise of Langenstein, whose authority on this subject was always ranked very high. Bernardine of Siena is careful to point out that the expense of production is only one of the factors which influence the value of an object.[1] Biel explains that, when no price has been fixed by law, the just price may be arrived at by a reference to the cost of the labour of production, and to the state of the market, and the other circumstances which we have seen above the prince was bound to have regard to in fixing a price. He also allows the price to be raised on account of any anxiety which the production of the goods occasioned him, or any danger he incurred.[2]

[Footnote 1: 'Res potest plus vel minus valere tribus modis; primo secundum suam virtutem; secondo modo secundum suam caritatem; tertio modo secundum suam placibilitatem et affectionem.... Primo observat quemdam naturalem ordinem utilium rerum, secundo observat quemdam communem cursum copiae et inopiae, tertio observat periculum et industriam rerum seu obsequiorum' (Funk, _Zins und Wucher_, p. 153).]

[Footnote 1: 'Sollicitudo et periculum,' _Op. cit._, IV. xv. 10.]

It will be apparent from the whole trend of the above that, whereas the remuneration of the labour of all those who were engaged in the production of an article, was one of the elements to be taken into account in reckoning its value, and consequently its just price, it was by no means the only element. Certain so-called Christian socialists have endeavoured to find in the writings of the scholastics support for the Marxian position that all value arises from labour.[1] This endeavour is, however, destined to failure; we shall see in a later chapter that many forms of unearned income were tolerated and approved by the scholastics; but all that is necessary here is to draw the attention of the reader to the passages on value to which we have referred. One of the most prominent exponents of the untenable view that the mediævals traced all value to labour is the Abbé Hohoff, whose argument that there was a divorce between value and just price in the scholastic writings, is ably controverted by Rambaud, who remarks that nobody would have been more surprised than Aquinas himself at the suggestion that he was the forerunner of Karl Marx.[2]

[Footnote 1: Even Ashley states that 'the doctrine had thus a close resemblance to that of modern Socialists; labour it regarded both as the sole (human) cause of wealth, and also as the only just claim to the possession of wealth' (_Op. cit._, vol. i. part ii. p. 393).]

[Footnote 2: _Op. cit._, p. 50.]

The idea that the scholastics traced all value to the labour expended on production is rejected by many of the most prominent writers on mediæval economic theory. Roscher draws particular attention to the fact that the canonist teaching assigned the correct proportions in production to land, capital, and labour, in contrast to all the later schools of economists, who have exaggerated the importance of one or the other of these factors.[1] Even Knies, who was the first modern writer to insist on the importance of the cost of production as an element of value, states that the Church sought to fix the price of goods in accordance with the cost of production (_Herstellungskosten_) _and_ the consumption value (_Gebrauchswerte_).[2] Brants takes the same view. 'The expenses of production are in practice the norm of the fixing of the sale price in the great majority of cases, above all in a very narrow market, where competition is limited; moreover, they can, for reasons of public order, form the basis of a fixing that will protect the producer and the consumer against the disastrous consequences of constant oscillations. The vendor can in principle be remunerated for his trouble. It is well that he should be so remunerated; it is socially useful, and is used as a basis for fixing price; but it cannot in any way be said that this forms the _objective measure of value_, but that the work and expense are a sufficient title of remuneration for the fixing of the just price of the sale of a thing. Some writers have tried to conclude from this that the authors of the Middle Ages saw in labour the measure of value. This conclusion is exaggerated. We may fully admit that this element enters into the sale price; but it is in no way the general measure of value.... The expenses of production constitute, then, _one_ of the legitimate elements of just price; they are not the _measure_ of value, but a factor often influencing its determination.'[3] 'Labour,' according to Dr. Cronin, 'is one of the most important of all the determinants of value, for labour is the chief element in cost of production, and cost of production is one of the chief elements in determining the level at which it is useful to buy or sell. But labour is not the only determinant of value; there is, _e.g._, the price of the raw materials, a price that is not wholly determined by the labour of producing those materials.'[4]

[Footnote 1: _Political Economy_, s. 48.]

[Footnote 2: _Politische Oekonomie vom Standpuncte der geschichtlichen Methode_, p. 116.]

[Footnote 3: _Op. cit._, p. 112.]

[Footnote 4: _Ethics_, vol. ii. p. 181.]

The just price, then, in the absence of a legal fixing, was held to be the price that was in accordance with the _communis estimatio_. Of course, this did not mean that a plebiscite had to be taken before every sale, but that any price that was in accordance with the general course of dealing at the time and place of the sale was considered substantially fair. 'A thing is worth what it can generally be sold for--at the time of the contract; this means what it can be sold for generally either on that day or the preceding or following day. One must look to the price at which similar things are generally sold in the open market.'[1] 'We must state precisely,' says the Abbé Desbuquois, 'the character of this common estimation; it did not mean the universal suffrage; although it expresses the universal interest, it proceeds in practice from the evaluation of competent men, taken in the social environment where the exchange value operates. If one supposes a sovereign tribunal of arbitration where all the rights of all the weak and all the strong economic factors are taken into account, the just price appears as the sentence or decision of this court.'[2] 'For the scholastics, the common estimation meant an ethical judgment of at least the most influential members of the community, anticipating the markets and fixing the rate of exchange.'[3]

[Footnote 1: Caepolla, _De Cont. Sim._, 72.]

[Footnote 2: _Op. cit._, pp. 169-70.]

[Footnote 3: Fr. Kelleher in the _Irish Theological Quarterly_, vol. xi. p. 133.]

It is quite incorrect to say, as has been sometimes said, that the mediæval just price was in no way different from the competition price of to-day which is arrived at by the higgling of the market. Dr. Cunningham is very explicit and clear on this point. 'Common estimation is thus the exponent of the natural or normal or just price according to either the mediæval or modern view; but, whereas we rely on the higgling of the market as the means of bringing out what is the common estimate of any object, mediæval economists believed that it was possible to bring common estimation into operation beforehand, and by the consultation of experts to calculate out what was the just price. If common estimation was thus organised, either by the town authorities or guilds or parliament, it was possible to determine beforehand what the price should be and to lay down a rule to this effect; in modern times we can only look back on the competition prices and say by reflection what the common estimation has been.'[1] 'The common estimation of which the Canonists spoke,' says Dr. Ryan, 'was conscious social judgment that fixed price beforehand, and was expressed chiefly in custom, while the social estimate of to-day is in reality an unconscious resultant of the higgling of the market, and finds its expression only in market price.'[2] The phrase 'res tanti valet quanti vendi potest,' which is so often used to prove that the mediæval doctors permitted full competitive prices in the modern sense, must be understood to mean that a thing could be sold at any figure which was within the limits of the minimum and maximum just price.[3]

[Footnote 1: _Growth of English Industry and Commerce_, vol. i. p. 353.]

[Footnote 2: _Living Wage_, p. 28.]

[Footnote 3: Lessius, _De Justitia et Jure_, xxi. 19.]

The last sentence suggests that the just price was not a fixed and unalterable standard, but was somewhat wide and elastic. On this all writers are agreed. 'The just price of things,' says Aquinas, 'is not fixed with mathematical precision, but depends on a kind of estimate, so that a slight addition or subtraction would not seem to destroy the equality of justice,'[1] Caepolla repeats this dictum, with the reservation that, when the just price is fixed by law, it must be rigorously observed.[2] 'Note,' says Gerson, 'that the equality of commutative justice is not exact or unchangeable, but has a good deal of latitude, within the bounds of which a greater or less price may be given without justice being infringed;'[3] and Biel insists on the same latitude, from which he draws the conclusion that the just price is constantly varying from day to day and from place to place.[4] Generally it was said that there was a maximum, medium, and minimum just price; and that any price between the maximum and minimum was valid, although the medium was to be aimed at as far as possible.

[Footnote 1: II. ii. 77, 1, ad. 1.]

[Footnote 2: _De Cont. Sim._, 58.]

[Footnote 3: _De Cont._, ii. 11.]

[Footnote 4: _Op. cit._, IV. xv. 10.]

The price fixed by common estimation was therefore the one to be observed in most cases, and it was at all times a safe guide to follow. If, however, the parties either knew or had good reason to believe that the common estimation had fixed the price wrongly, they were not bound to follow it, but should arrive at a just price themselves, having regard to the various considerations given above.[1]

[Footnote 1: Nider, _De Cont. Merc._ ii.: 'Si vero scit vel credit communitatem errare in estimatione pretii rei; tunc nullo modo debet eam sequi; quia etiam si reciperet verum et justum pretium, tamen faceret contra conscientiam.']

It did not make any difference whether the price was paid immediately or at some future date. To increase the price in return for the giving of credit was not allowed, as it was deemed usurious--as indeed it was. It was held that the seller, in not taking his money immediately, was simply making a loan of that amount to the buyer, and that to receive anything more than the sum lent would be usury. Aquinas is quite clear on this point. 'If a man wish to sell his goods at a higher price than that which is just, so that he may wait for the buyer to pay, it is manifestly a case of usury; because this waiting for the payment of the price has the character of a loan, so that whatever he demands beyond the just price in consideration of this delay, is like a price for a loan, which pertains to usury. In like manner, if a buyer wishes to buy goods at a lower price than what is just, for the reason that he pays for the goods before they can be delivered, it is likewise a sin of usury; because again this anticipated payment of money has the character of a loan, the price of which is the rebate on the just price of the goods sold. On the other hand, if a man wishes to allow a rebate on the just price in order that he may have his money sooner, he is not guilty of the sin of usury.'[1] If, however, the seller, by giving credit, suffered any damage, he was entitled to be recompensed; this, as we shall see, was an ordinary feature of usury law. It could not be said that the price was raised. The price remained the same; but the seller was entitled to something further than the price by way of damages.[2] It was by the application of this principle that a seller was justified in demanding more than the current price for an article which possessed some individual or sentimental value for him. 'In such a case the just price will depend not only on the thing sold, but on the loss which the sale brings on the seller.... No man should sell what is not his, though he may charge for the loss he suffers.'[3] On the other hand, it was strictly forbidden to raise the price on account of the individual need of the buyer.[4]

[Footnote 1: II. ii. 78, 2, ad. 7. See _Decret. Greg._, v. 19, _de usuris_, cc. 6 and 10.]

[Footnote 2: Endemann, _Studien_, vol. ii. pp. 49; Desbuquois, _op. cit._, p. 174.]

[Footnote 3: II. ii. 77, 1.]

[Footnote 4: _Ibid._]

§ 4. _The Just Price of Labour_.

Particular rules were laid down for determining the just price of certain classes of goods. These need not be treated in detail, as they were merely applications of the general principle to particular cases, and whatever interest they possess is in the domain of practice rather than of theory. In the sale of immovable property the rule was that the value should be arrived at by a consideration of the annual fruits of the property.[1] The only one of the particular contracts which need detain us here is that of a contract of service for wages (_locatio operarum_). Wages were considered as ruled by the laws relating to just price. 'That is called a wage (_merces_) which is paid to any one as a recompense for his work and labour. Therefore, as it is an act of justice to give a just price for a thing taken from another person, so also to pay the wages of work and labour is an act of justice.'[2] Again, 'Remuneration of service or work ... can be priced at a money value, as may be seen in the case of those who offer for hire the labour which they exercise by work or by tongue.'[3] Biel insists that the value of labour is subject to the same influences as the value of any other commodity which is offered for sale, and that therefore a just price must be observed in buying it.[4]

[Footnote 1: Caepolla, _de Cont. Sim._, 78; Carletus, _Summa Angelica_, lxv.]

[Footnote 2: Aquinas, _Summa_, II. ii. 114, 1.]

[Footnote 3: II. ii. 78, 2, ad. 3.]

[Footnote 4: _Op. cit._, IV. xv. 10. Modern Socialists caricature the correct principle 'that labour is a commodity' into 'the labourer is a commodity'--a great difference, which is not sufficiently understood by many present-day writers. (See Roscher, _Political Economy_, s. 160.)]

This, according to Brants,[1] is essentially a matter upon which more enlightenment will be found in histories of the working classes[2] than in books dealing with the enunciation of abstract theories; nevertheless, it is possible to state generally that it was regarded as the duty of employers to give such a wage as would support the worker in accordance with the requirements of his class. In the great majority of cases the rate of wages was fixed by some public--municipal or corporative--authority, but Langenstein enunciates a rule which seems to approach the statement of a general theory. According to him, when a man has something to sell, and has no indication of the just price from its being fixed by any outside authority, he must endeavour to get such a price as will _reasonably_ recompense him for any outlay he may have incurred, and will enable him to provide for his needs, spiritual and temporal.[3] It was not until the sixteenth century that the fixing of the just price of wages was submitted to scientific discussion;[4] in the fourteenth and fifteenth centuries there is little to be found bearing on this subject except the passage of Langenstein which we have quoted, and some strong exhortations by Antoninus of Florence to masters to pay good wages.[5] The reason for this paucity of authority upon a subject of so much importance is that in practice the machinery provided by the guilds had the effect of preserving a substantially just remuneration to the artisan. When a man is in perfect health he does not bother to read medical books. In the same way, the proper remuneration of labour was so universally recognised as a duty, and so satisfactorily enforced, that it seems to have been taken for granted, and therefore passed over, by the writers of the period. One may agree with Brants in concluding that, 'the principle of just price in sales was applied to wages; fluctuations in wages were not allowed; the just price, as in sales, rested on the approximate equality of the services rendered; and that this equality was estimated by common opinion.'[6] Of course, in the case of slave labour it could not be said that any wage was paid. The master was entitled to the services of the slave, and in return was bound to furnish him with the necessaries of life.[7]

[Footnote 1: _Op. cit._, p. 103.]

[Footnote 2: An excellent bibliography of books dealing with the history of the working classes in the Middle Ages is to be found in Brants, _op. cit._, p. 105. The need for examining concrete economic phenomena is insisted on in Ryan's _Living Wage_, p. 28.]

[Footnote 3: _De Cont._ We have here a recognition of the principle that the value of labour is not to be measured by anything extrinsic to itself, _e.g._ by the value of the product, but by its own natural function and end, and this function and end is the supplying of the requirements of human life. The wage must, therefore, be capable of supplying the same needs that the expenditure of a labourer's energy is meant to supply. (See Cronin, _Ethics_, vol. ii. p. 390.)]

[Footnote 4: Brants, _op. cit._, p. 118.]

[Footnote 5: The passages from the _Summa_ of Antoninus bearing on the subject are reprinted in Brants, _op. cit._, p. 120.]

[Footnote 6: _Op. cit._, p. 125.]

[Footnote 7: Brants, _op. cit._, p. 116, quoting _Le Lime du Trésor_ of Brunetto Latini.]

§ 5. _Value of the Conception of the Just Price_.

It is probably correct to say that the canonical teaching on just price was negative rather than positive; in other words, that it did not so much aim at positively fixing the price at which goods should be sold, as negatively at indicating the practices in buying and selling which were unjust. 'The doctrine of just price,' according to Dr. Ryan, 'may sometimes have been associated with incorrect views of industrial life, but all competent authorities agree that it was a fairly sound attempt to define the equities of mediæval exchanges, and that it was tolerably successful in practice.'[1] The condition of mediæval markets was frequently such that the competition was not really fair competition, and consequently the price arrived at by competition would be unfair either to buyer or seller. 'This,' according to Dr. Cunningham, 'was the very thing which mediæval regulation had been intended to prevent, as any attempt to make gain out of the necessities of others, or to reap profit from unlooked-for occurrences would have been condemned as extortion. It is by taking advantage of such fluctuations that money is most frequently made in modern times; but the whole scheme of commercial life in the Middle Ages was supposed to allow of a regular profit on each transaction.'[2] There might be some doubt as to the positive justice of this or that price; but there could be no doubt as to the injustice of a price which was enhanced by the necessities of the poor, or the engrossing of a vital commodity.[3] Merely to buy up the whole supply of a certain commodity, even if it were bought up by a 'ring' of merchants, provided that the commodity was resold within the limits of the just price, was not a sin against justice, though it might be a sin against charity.[4] If the authorities granted a monopoly, they must at the same time fix a just price.[5] A monopoly which was not privileged by the State, and which had for its aim the raising of the price of goods above the just price was regarded with universal reprobation.[6] 'Whoever buys up corn, meat, and wine,' says Trithemius, 'in order to drive up their price and to amass money at the cost of others is, according to the laws of the Church, no better than a common criminal. In a well-governed community all arbitrary raising of prices in the case of articles of food and clothing is peremptorily stopped; in times of scarcity merchants who have supplies of such commodities can be compelled to sell them at fair prices; for in every community care should be taken that all the members should be provided for, and not only a small number be allowed to grow rich, and revel in luxury to the hurt and prejudice of the many.[7] Thus the doctrine of the just price was a deadly weapon with which to fight the 'profiteer.' The engrosser was looked upon as the natural enemy of the poor; and the power of the trading class was justly reckoned so great, that in cases of doubt prices were always fixed low rather than high. In other words, the buyer--that is to say, the community--was the subject of protection rather than the seller.[8]

[Footnote 1: _The Living Wage_, p. 27.]

[Footnote 2: _Growth of English Industry and Commerce_, vol. i. p. 460.]

[Footnote 3: Endemann, _Studien_, vol. ii. p. 60.]

[Footnote 4: Lessius, _De Justitia et Jure_, II. xx. 1, 21.]

[Footnote 5: _Ibid._]

[Footnote 6: Langenstein, _De Cont._; Biel, _op. cit._, iv. xv. 11.]

[Footnote 7: Quoted in Janssen, _op. cit._, vol. ii. p. 102.]

[Footnote 8: Roscher, _Geschichte_, p. 12.]

It must at the same time be clearly kept in mind that the seller was also protected. All the authorities are unanimous that it was as sinful for the buyer to give too little as for the seller to demand too much, and it is this aspect of the just price which appears most favourable in comparison with the theory of price of the classical economists. In the former case prices were fixed having regard to the wages necessary for the producer; in the latter the wages of the producer are determined by the price at which he can sell his goods, exposed to the competition of machinery or foreign--possibly slave--labour.[1] According to the _Catholic Encyclopædia_: 'To the mediæval theologian the just price of an article included enough to pay fair wages to the worker--that is, enough to enable him to maintain the standard of living of his class.'[2] 'The difference,' says Dr. Cunningham, 'which emerges according as we start from one principle or the other comes out most distinctly with reference to wages. In the Middle Ages wages were taken as a first charge; in modern times the reward of the labourer cannot but fluctuate in connection with fluctuations in the utility and market price of the things. There must always be a connection between wages and prices, but in the olden times wages were the first charge, and prices on the whole depended on them, while in modern times wages are, on the other hand, directly affected by prices.'[3] Dr. Cunningham draws attention to the fact that the labouring classes rejected the idea of the fixing of a just price for their services when, from a variety of causes, a situation arose when they were able to earn by open competition a reward higher than what was necessary to support them according to their state in life.[4] Nowadays the reverse has taken place; unrestricted competition has in many cases resulted in the reduction of wages to a level below the margin of subsistence; and the general cry of the working classes is for the compulsory fixing of minimum rates of wages which will ensure that their subsistence will not be liable to be impaired by the fluctuations of the markets. What the workers of the present day look to as a desirable, but almost unattainable, ideal, was the universal practice in the ages when economic relations were controlled by Christian principles.

[Footnote 1: Ashley, _op. cit._, vol. i. pt. i. p. 129.]

[Footnote 2: Art. 'Political Economy.']

[Footnote 3: _Growth of English Industry and Commerce_, vol. i. p. 461.]

[Footnote 4: _Christianity and Economic Science_, p. 29.]

§ 6. _Was the Just Price Subjective or Objective_?

The question whether the just price was essentially subjective or objective has recently formed the subject matter of an interesting and ably conducted discussion, provoked by certain remarks in Dr. Cunningham's _Western Civilisation_.[1] Dr. Cunningham, although admiring the ethical spirit which animated the conception of the just price, thought at the same time that the economic ideas underlying the conception were so undeveloped and unsound that the theory could not be applied in practice at the present day. 'Their economic analysis was very defective, and the theory of price which they put forward was untenable; but the ethical standpoint which they took is well worth examination, and the practical measures which they recommended appear to have been highly beneficial in the circumstances in which they had to deal. Their actions were not unwise; their common-sense morality was sound; but the economic theories by which they tried to give an intellectual justification for their rules and their practice were quite erroneous.... The attempt to determine an ideal price implies that there can and ought to be stability in relative values and stability in the measure of values--which is absurd. The mediæval doctrine and its application rested upon another assumption which we have outlived. Value is not a quality which inheres in an object so that it can have the same worth for everybody; it arises from the personal preference and needs of different people, some of whom desire a thing more and some less, some of whom want to use it in one way and some in another. Value is not objective--intrinsic in the object--but subjective, varying with the desire and intentions of the possessors or would-be possessors; and, because it is thus subjective, there cannot be a definite ideal value which every article ought to possess, and still more a just price as the measure of that ideal value.' In these and similar observations to be found in the _Growth of English History and Commerce_, Dr. Cunningham showed that he profoundly misunderstood the doctrine of the just price; the objectivity which he attributed to it was not the objectivity ascribed to it by the scholastics. It was to correct this misunderstanding that Father Slater contributed an article to the _Irish Theological Quarterly_[2] pointing out that the just price was subjective rather than objective. This article, which was afterwards reprinted in _Some Aspects of Moral Theology_, and the conclusions of which were embodied in the same writer's work on Moral Theology, was controverted in a series of articles by Father Kelleher in the _Irish Theological Quarterly_.[3]

[Footnote 1: Pp. 77-9.]

[Footnote 2: Vol. iv. p. 146.]

[Footnote 1: 'Market Prices,' vol. ix. p. 398 and vol. x. p. 163; and 'Father Slater on Just Price and Value,' vol. xi. p. 159.]

Father Slater draws attention to the fact that Dr. Cunningham overlooked to some extent the importance of common estimation in arriving at the just price. He points out that, far from objects being invested with some immutable objective value, their value was in fact determined by the price which the community as a whole was willing to pay for them: 'As the value in exchange will be determined by what the members of the community at the time are prepared to give, ... it will be determined by the social estimation of its utility for the support of life and its scarcity. It will depend upon its capacity to satisfy the wants and desires of the people with whom commercial transactions are possible and practicable. Father Slater then goes on categorically to refute Dr. Cunningham's presentation of the objectivity of price: 'All that that doctrine asserts is that there should be, and that there is, an equivalent in social value between the commodity and its price at a certain time and in a certain place; it says nothing whatever about the stability or permanence of prices at different times and at different places. By maintaining that the just price did not depend upon the valuation of the individual buyer or seller the mediæval doctors did not dream of making it intrinsic to the object.' In the work on Moral Theology, to which we have referred, expressions occur which lead one to believe that Father Slater did not see any great difference between the mediæval just price arrived at by common estimation and the modern normal or market price arrived at by open competition. Thus, in endeavouring to correct Dr. Cunningham's misunderstanding, Father Slater seems to have gone too far in the other direction, and his position has been ably and, in our judgment, successfully, controverted by Father Kelleher.

The point at issue between the upholders of the two opposing views on just price is well stated by Father Kelleher in the first of his articles on the subject: 'We must try to find out whether the just and fair price determined the rate of exchange, or whether the rate of exchange, being determined without an objective standard and merely according to the play of human motives, determines what we call the just and fair price.'[1] We have already demonstrated that the common estimation referred to by the mediæval doctors was something quite apart from the modern higgling in the market; and that, far from being merely the result of unbridled competition on both sides, it was rather the considered judgment of the best-informed members of the community. As we have seen, even Dr. Cunningham admits that there was a fundamental difference between the common estimation of the scholastics and the modern competitive price. This is clearly demonstrated by Father Kelleher, who further establishes the proposition that the modern price is purely subjective, and that no subjective price can rest on an ethical basis. The question at issue therefore between what we may call the subjective and objective schools is not whether the sale price was determined by competition in the modern sense, but whether the common estimation of those best qualified to form an opinion on the subject in itself determined the just price, or whether it was merely the most reliable evidence of what the just price in fact was at a particular moment.

[Footnote 1: _Irish Theological Quarterly_, vol. ix. p. 41.]

Father Kelleher draws attention to the fact that Aquinas in his article on price did not specifically affirm that the just price was objective, but he explains this omission by saying that the objectivity of the price was so well and universally understood that it was unnecessary expressly to restate it. Indeed, as we saw above, the teaching of Aquinas on price left a great deal to be supplied by later writers, not because he was in any doubt about the subject, but because the theory was so well understood. 'Not even in St. Thomas can we find a formal discussion of the moral obligation of observing an objective equivalence in contracts of buying and selling. He simply took it for granted, as, indeed, was inevitable, seeing that, up to his time and for long after, all Catholic thought and legislation proceeded on that hypothesis. But that he actually did take it for granted, he has given many clear indications in his article on Justice which leave us no room for reasonable doubt.'[1] As Father Kelleher very cogently points out, the discussion in Aquinas's article on commerce, whether it was lawful to buy cheap and sell dear, very clearly indicates that the author maintained the objective theory, because if the just price were simply determined by what people were willing to give, this question could not have arisen.

[Footnote 1: _Irish Theological Quarterly_, vol. x. p. 165.]

Nor is the fact that the just price admitted of a certain elasticity an argument in favour of its being subjective. Father Kelleher fully admits that the common estimation was the general criterion of just price, and, of course, the common estimation could not, of its very nature, be rigid and immutable. Commodities should, indeed, exchange according to their objective value, but, even so, commodities could not carry their value stamped on their faces. Even if we assume that the standard of exchange was the cost of production, there would still remain room for a certain amount of difference of opinion as to what exactly their value would be in particular instances. Suppose that the commodity offered for sale was a suit of clothes, in estimating its value on the basis of the cost of production, opinions might differ as to the precise amount of time required for making it, or as to the cost of the cloth out of which it was made. Unless recourse was to be had to an almost interminable process of calculations, nobody could say authoritatively what precisely the value was, and in practice the determination of value had perforce to be left to the ordinary human estimate of what it was, which of its very nature was bound to admit a certain margin of fluctuation. Thus we can easily understand how, even with an objective standard of value, the just price might be admitted to vary within the limits of the maximum as it might be expected to be estimated by sellers and the minimum as it would appear just to buyers. The sort of estimation of which St. Thomas speaks is therefore nothing else than a judgment, which, being human, is liable to be slightly in excess or defect of the objective value about which it is formed.'[1] As Father Kelleher puts it on a later page, 'There is a sense certainly in which, with a solitary exception in the case of wages, it may be said with perfect truth that the common estimation determines the just price. That is, the common estimation is the proximate practical criterion.'[2]

[Footnote 1: _Irish Theological Quarterly_, vol. x. p. 166.]

[Footnote 2: P. 173.]

Father Kelleher uses in support of his contention a very ingenious argument drawn from the doctrine of usury. As we said in the first chapter, and as we shall prove in detail in the next section, the prohibition of usury was simply one of the applications of the theory of equivalence in contracts--in other words, it was the determination of the just price to be paid in an exchange of money for money. If, asks Father Kelleher, the common estimation was the final test of just price, why was not moderate usury allowed? That the general opinion of the community in the Middle Ages was undoubtedly in favour of allowing a reasonable percentage on loans is shown by the constant striving of the Church to prevent such a practice. Nevertheless the Church did not for a moment relax its teaching on usury in spite of the almost universal judgment of the people. Here, therefore, is a clear example of one contract in which the standard of value is clearly objective, and it is only reasonable to draw the conclusion that the same standard which applied in contracts of the exchange of money should apply in contracts of the sale of other articles.

Father Kelleher's contention seems to be completely supported by the passage from Nider which we have cited above, to the effect that the common estimation ceases to be the final test of the just price when the contracting parties know or believe that the common estimation has erred.[1] This seems to us clearly to show that the common estimation was but the most generally received test of what the just price in fact was, but that it was in no sense a final or irrefutable criterion.[2]

[Footnote 1: _De Cont. Merc._, ii. xv. Nider was regarded as a very weighty authority on the subject of contracts (Endemann, _Studien_, vol. ii. p. 8).]

[Footnote 2: The argument in favour of what we have called the 'objective' theory of the just price is strengthened by the consideration that goods do not satisfy mere subjective whims, but supply real wants. For example, food supplies a real need of the human being, as also does clothing; in the one case hunger is appeased, and in the other cold is warded off, just as drugs used in medical practice produce real objective effects on the person taking them.]

The theory that the just price was objective seems to be accepted by the majority of the best modern students of the subject. Sir William Ashley says: 'The fundamental difference between the mediæval and modern point of view is... that with us value is something entirely subjective; it is what each individual cares to give for a thing. With Aquinas it was entirely objective; something outside the will of the individual purchaser or seller; something attached to the thing itself, existing whether he liked it or not, and that he ought to recognise.'[1] Palgrave's _Dictionary of Political Economy_, following the authority of Knies, expresses the same opinion: 'Perhaps the contrast between mediæval and modern ideas of value is best expressed by saying that with us value is usually something subjective, consisting of the mental determination of buyer and seller, while to the schoolmen it was in a sense objective, something intrinsically bound up with the commodity itself.'[2] Dr. Ryan agrees with this view: 'The theologians of the sixteenth and seventeenth centuries assumed that the objective price would be fair, since it was determined by the social estimate. In their opinion the social estimate would embody the requirements of objective justice as fully as any device or institution that was practically available. For the condition of the Middle Ages and the centuries immediately following, this reasoning was undoubtedly correct. The agencies which created the social estimate and determined prices--namely the civil law, the guilds, and custom--succeeded fairly in establishing a price that was equitable to all concerned.'[3] Dr. Cleary says: 'True, the _pretium legale_ is regarded as being a just price, but in order that it may be just, it supposes some objective basis--in other words, it rather declares than constitutes the just price.'[4] Haney is also strongly of opinion that the just price was objective. 'Briefly stated, the doctrine was that every commodity had some one true value which was objective and absolute.'[5] The greater number of modern students therefore who have given most care and attention to the question are inclined to the opinion that the just price was not subjective, but objective, and we see no valid reason for disagreeing with this view, which seems to be fully warranted by the original authorities.

[Footnote 1: _Op. cit._, vol. i. pt. i. p. 140.]

[Footnote 2: Art. 'Justum Pretium.']

[Footnote 3: 'The Moral Aspect of Monopoly,' by J.A. Ryan, D.D., _Irish Theological Quarterly_, in. p. 275; and see _Distributive Justice_, pp. 332-4.]

[Footnote 4: _Op. cit._, p. 193.]

[Footnote 5: _History of Economic Thought_, p. 75.]

§7. _The Mediæval Attitude towards Commerce_.

Before passing from the question of price, we must discuss the legitimacy of the various occupations which were concerned with buying and selling. The principal matter which arises for consideration in this regard is the attitude of the mediæval theologians towards commerce. Aquinas discusses the legitimacy of commerce in the same question in which he discusses just price, and indeed the two subjects are closely allied, because the importance of the observance of justice in buying and selling grew urgent as commerce extended and advanced.

In order to understand the disapprobation with which commerce was on the whole regarded in the Middle Ages, it is necessary to appreciate the importance of the Christian teaching on the dignity of labour. The principle that, far from being a degrading or humiliating occupation, as it had been regarded in Greece and Rome, manual labour was, on the contrary, one of the most noble ways of serving God, effected a revolution in the economic sphere analogous to that which the Christian sanctification of marriage effected in the domestic sphere. The Christian teaching on labour was grounded on the Divine precepts contained in both the Old and New Testaments,[1] and upon the example of Christ, who was Himself a working man. The Gospel was preached amongst the poor, and St. Paul continued his humble labours during his apostolate.[2] A life of idleness was considered something to be avoided, instead of something to be desired, as it had been in the ancient civilisations. Gerson says it is against the nature of man to wish to live without labour as usurers do,[3] and Langenstein inveighs against usurers and all who live without work.[4] 'We read in Sebastian Brant that the idlers are the most foolish amongst fools, they are to every people like smoke to the eyes or vinegar to the teeth. Only by labour is God truly praised and honoured; and Trithemius says "Man is born to labour as the bird to fly, and hence it is contrary to the nature of man when he thinks to live without work."'[5] The example of the monasteries, where the performance of all sorts of manual labour was not thought inconsistent with the administration of the sacred offices and the pursuit of the highest intellectual exercises, acted as a powerful assertion to the laity of the dignity of labour in the scheme of things.[6] The value of the monastic example in this respect cannot be too highly estimated. 'When we consider the results of the founding of monasteries,' says Dr. Cunningham, 'we find influences at work that were plainly economic. These communities can be best understood when we think of them as Christian industrial colonies, and remember that they moulded society rather by example than by precept. We are so familiar with the attacks and satires on monastic life that were current at the Reformation period, that it may seem almost a paradox to say that the chief claim of the monks to our gratitude lies in this, that they helped to diffuse a better appreciation of the duty and dignity of labour.'[7]

[Footnote 1: Gen. iii. 19; Ps. cxxvii. 2; 2 Thess. iii. 10. The last-mentioned text is explained, in opposition to certain Socialist interpretations which have been put on it, by Dr. Hogan in the _Irish Ecclesiastical Record_, vol. xxv. p. 45.]

[Footnote 2: Wallon, _op. cit._, vol. iii. p. 401.]

[Footnote 3: _De Cont._, i. 13.]

[Footnote 4: _De Cont._]

[Footnote 5: Janssen, _op. cit._, vol. ii. pp. 93-4.]

[Footnote 6: Levasseur, _Histoire des Classes ouvrières en France_, vol. i. pp. 182 _et seq_.]

[Footnote 7: _Western Civilisation_, vol. ii. p. 35.]

The result of this teaching and example was that, in the Middle Ages, labour had been raised to a position of unquestioned dignity. The economic benefit of this attitude towards labour must be obvious. It made the working classes take a direct pride and interest in their work, which was represented to be a means of sanctification. 'Labour,' according to Dr. Cunningham, 'was said to be pregnant with a double advantage--the privilege of sharing with God in His work of carrying out His purpose, and the opportunity of self-discipline and the helping of one's fellow-men.'[1] 'Industrial work,' says Levasseur, 'in the times of antiquity had always had, in spite of the institutions of certain Emperors, a degrading character, because it had its roots in slavery; after the invasion, the grossness of the barbarians and the levelling of towns did not help to rehabilitate it. It was the Church which, in proclaiming that Christ was the son of a carpenter, and the Apostles were simple workmen, made known to the world that work is honourable as well as necessary. The monks proved this by their example, and thus helped to give to the working classes a certain consideration which ancient society had denied them. Manual labour became a source of sanctification.'[2] The high esteem in which labour was held appears from the whole artistic output of the Middle Ages. 'Many of the simple artists of the time represented the saints holding some instrument of work or engaged in some industrial pursuit; as, for instance, the Blessed Virgin spinning as she sat by the cradle of the divine Infant, and St. Joseph using a saw or carpenter's tools. "Since the Saints," says the _Christian Monitor_, "have laboured, so shall the Christian learn that by honourable labour he can glorify God, do good, and save his own soul."'[3] Work was, alongside of prayer and inseparable from it, the perfection of Christian life.[4]

[Footnote 1: _Christianity and Economic Science_, pp. 26-7.]

[Footnote 2: _Op. cit._, vol. i. p. 187.]

[Footnote 3: Janssen, _op. cit._, vol. ii. p. 9.]

[Footnote 4: Wallon, _op. cit._, vol. i. p. 410.]

It must not be supposed, however, that manual labour alone was thought worthy of praise. On the contrary, the necessity for mental and spiritual workers was fully appreciated, and all kinds of labour were thought equally worthy of honour. 'Heavy labourer's work is the inevitable yoke of punishment, which, according to God's righteous verdict, has been laid upon all the sons of Adam. But many of Adam's descendants seek in all sorts of cunning ways to escape from the yoke and to live in idleness without labour, and at the same time to have a superfluity of useful and necessary things; some by robbery and plunder, some by usurious dealings, others by lying, deceit, and all the countless, forms of dishonest and fraudulent gain, by which men are for ever seeking to get riches and abundance without toil. But while such men are striving to throw off the yoke righteously imposed on them by God, they are heaping on their shoulders a heavy burden of sin. Not so, however, do the reasonable sons of Adam proceed; but, recognising in sorrow that for the sins of their first father God has righteously ordained that only through the toil of labour shall they obtain what is necessary to life, they take the yoke patiently on them.... Some of them, like the peasants, the handicraftsmen, and the tradespeople, procure for themselves and others, in the sweat of their brows and by physical work, the necessary sustenance of life. Others, who labour in more honourable ways, earn the right to be maintained by the sweat of others' brows--for instance, those who stand at the head of the commonwealth; for by their laborious exertion the former are enabled to enjoy the peace, the security, without which they could not exist. The same holds good of those who have the charge of spiritual matters....'[1] 'Because,' says Aquinas, 'many things are necessary to human life, with which one man cannot provide himself, it is necessary that different things should be done by different people; therefore some are tillers of the soil, some are raisers of cattle, some are builders, and so on; and, because human life does not simply mean corporal things, but still more spiritual things, therefore it is necessary that some people should be released from the care of attending to temporal matters. This distribution of different offices amongst different people is in accordance with Divine providence.'[2]

[Footnote 1: Langenstein, quoted in Janssen, _op. cit._, p. 95.]

[Footnote 2: _Summa Cont. Gent_., iii. 134.]

All forms of labour being therefore admitted to be honourable and necessary, there was no difficulty felt about justifying their reward. It was always common ground that services of all kinds were entitled to be properly remunerated, and questions of difficulty only arose when a claim was made for payment in a transaction where the element of service was not apparent.[1] The different occupations in which men were engaged were therefore ranked in a well-recognised hierarchy of dignity according to the estimate to which they were held to be entitled. The Aristotelean division of industry into _artes possessivae_ and _artes pecuniativae_ was generally followed, the former being ranked higher than the latter. 'The industries called _possessivae_, which are immediately useful to the individual, to the family, and to society, producing natural wealth, are also the most natural as well as the most estimable. But all the others should not be despised. The natural arts are the true economic arts, but the arts which produce artificial riches are also estimable in so far as they serve the true national economy; the commutation of the exchanges and the _cambium_ being necessary to the general good, are good in so far as they are subordinate to the end of true economy. One may say the same thing about commerce. In order, then, to estimate the value of an industrial art, one must examine its relation to the general good.'[2] Even the _artes possessivae_ were not all considered equally worthy of praise, but were ranked in a curious order of professional hierarchy. Agriculture was considered the highest, next manufacture, and lastly commerce. Roscher says that, whereas all the scholastics were agreed on the excellence of agriculture as an occupation, the best they could say of manufacture was _Deo non displicet_, whereas of commerce they said _Deo placere non potest_; and draws attention to the interesting consequence of this, namely, that the various classes of goods that took part in the different occupations were also ranked in a certain order of sacredness. Immovables were thought more worthy of protection against execution and distress than movables, and movables than money.[3] Aquinas advises the rulers of States to encourage the _artes possessivae_, especially agriculture.[4] The fullest analysis of the order in which the different _artes possessivae_ should be ranked is to be found in Buridan's _Commentaries on Aristotle's Politics_. He places first agriculture, which comprises cattle-breeding, tillage, and hunting; secondly, manufacture, which helps to supply man's corporal needs, such as building and architecture; thirdly, administrative occupations; and lastly, commerce. The Christian Exhortation, quoted by Janssen,[5] says, 'The farmer must in all things be protected and encouraged, for all depend on his labour, from the monarch to the humblest of mankind, and his handiwork is in particular honourable and well pleasing to God.'

[Footnote 1: Aquinas, _Summa_, II. ii. 77, 4; Nider, _op. cit._, II. x.]

[Footnote 2: Brants, _op. cit._, p. 82.]

[Footnote 3: _Geschichte_, p. 7.]

[Footnote 4: _De Regimine Principum_, vol. ii. chaps, v. and vi.]

[Footnote 5: _Op. cit._, vol. i. p. 297.]

The division of occupations according to their dignity adopted by Nicholas Oresme is somewhat unusual. He divides professions into (1) honourable, or those which increase the actual quantity of goods in the community or help its development, such as ecclesiastical offices, the law, the soldiery, the peasantry, artisans, and merchants, and (2) degrading--such as _campsores, mercatores monetae sen billonatores.'_[1]

No occupation, therefore, which involved labour, whether manual or mental, gave any ground for difficulty with regard to its remuneration. The business of the trader or merchant, on the other hand, was one which called for some explanation. It is important to understand what commerce was taken to mean. The definition which Aquinas gives was accepted by all later writers: 'A tradesman is one whose business consists in the exchange of things. According to the philosopher, exchange of things is twofold; one natural, as it were, and necessary, whereby one commodity is exchanged for another, or money taken in exchange for a commodity in order to satisfy the needs of life. Such trading, properly speaking, does not belong to traders, but rather to housekeepers or civil servants, who have to provide the household or the State with the necessaries of life. The other kind of exchange is either that of money for money, or of any commodity for money, not on account of the necessities of life, but for profit; and this kind of trade, properly speaking, regards traders.' It is to be remarked in this definition, that it is essential, to constitute trade, that the exchange or sale should be for the sake of profit, and this point is further emphasised in a later passage of the same article: 'Not every one that sells at a higher price than he bought is a trader, but only he who buys that he may sell at a profit. If, on the contrary, he buys, not for sale, but for possession, and afterwards for some reason wishes to sell, it is not a trade transaction, even if he sell at a profit. For he may lawfully do this, either because he has bettered the thing, or because the value of the thing has changed with the change of place or time, or on account of the danger he incurs in transferring the thing from one place to another, or again in having it carried by hand. In this sense neither buying nor selling is unjust.'[2] The importance of this definition is that it rules out of the discussion all cases where the goods have been in any way improved or rendered more valuable by the services of the seller. Such improvement was always reckoned as the result of labour of one kind or another, and therefore entitled to remuneration. The essence of trade in the scholastic sense was selling the thing unchanged at a higher price than that at which it had been bought, for the sake of gain.[3]

[Footnote 1: _Tractatus de Origine, etc., Monetarum_.]

[Footnote 2: _Tractatus de Origine, etc., Monetarum_, ad. 2.]

[Footnote 3: 'Fit autem mercatio cum non ut emptor ea utatur sed ut earn carius vendat etiam non mutatam suo artificio; illa mercatio dicitur proprie negotiatio' (Biel, _op. cit._, IV. xv. 10.)]

The legitimacy of trade in this sense was only gradually admitted. The Fathers of the Church had with one voice condemned trade as being an occupation fraught with danger to the soul. Tertullian argued that there would be no need of trade if there were no desire for gain, and that there would be no desire for gain if man were not avaricious. Therefore avarice was the necessary basis of all trade.[1] St. Jerome thought that one man's gain in trading must always be another's loss; and that, in any event, trade was a dangerous occupation since it offered so many temptations to fraud to the merchant.[2] St. Augustine proclaimed all trade evil because it turns men's minds away from seeking true rest, which is only to be found in God, and this opinion was embodied in the _Corpus Juris Canonici_.[3] This early view that all trade was to be indiscriminately condemned could not in the nature of things survive experience, and a great step forward was taken when Leo the Great pronounced that trade was neither good nor bad in itself, but was rendered good or bad according as it was honestly or dishonestly carried on.[4]

[Footnote 1: _De Idol_., xi.]

[Footnote 2: Ashley, _op. cit._, vol. i. pt. i. p. 129.]

[Footnote 3: See _Corpus Juris Canonici_, Deer. I.D. 88 c. 12.]

[Footnote 4: _Epist. ad Rusticum_, c. ix.]

The scholastics, in addition to condemning commerce on the authority of the patristic texts, condemned it also on the Aristotelean ground that it was a chrematistic art, and this consideration, as we have seen above, enters into Aquinas's article on the subject.[1]

[Footnote 1: Rambaud, _op. cit._, p. 52.]

The extension of commercial life which took place about the beginning of the thirteenth century, raised acute controversies about the legitimacy of commerce. Probably nothing did more to broaden the teaching on this subject than the necessity of justifying trade which became more and more insistent after the Crusades.[1]

[Footnote 1: On the economic influence of the Crusades the following works may be consulted: Blanqui, _Histoire de l'Economie politique_; Heeren, _Essai sur l'Influence politique et sociale des Croisades_; Scherer, _Histoire du Commerce_; Prutz, _Culturgeschichte der Kreuzzüge_; Pigonneau, _Histoire du Commerce de la France_; List, _Die Lehren der Handelspolitischen Geschichte_.]

By the time of Aquinas the necessity of commerce had come to be fully realised, as appears from the passage in the _De Regimine Principum_: 'There are two ways in which it is possible to increase the affluence of any State. One, which is the more worthy way, is on account of the fertility of the country producing an abundance of all things which are necessary for human life, the other is through the employment of commerce, through which the necessaries of life are brought from different places. The former method can be clearly shown to be the more desirable.... It is more admirable that a State should possess an abundance of riches from its own soil than through commerce. For the State which needs a number of merchants to maintain its subsistence is liable to be injured in war through a shortage of food if communications are in any way impeded. Moreover, the influx of strangers corrupts the morals of many of the citizens... whereas, if the citizens themselves devote themselves to commerce, a door is opened to many vices. For when the desire of merchants is inclined greatly to gain, cupidity is aroused in the hearts of many citizens.... For the pursuit of a merchant is as contrary as possible to military exertion. For merchants abstain from labours, and while they enjoy the good things of life, they become soft in mind and their bodies are rendered weak and unsuitable for military exercises.... It therefore behoves the perfect State to make a moderate use of commerce.'[1]

[Footnote 1: ii. 3.]

Aquinas, who, as we have seen, recognised the necessity of commerce, did not condemn all trade indiscriminately, as the Fathers had done, but made the motive with which commerce was carried on the test of its legitimacy: 'Trade is justly deserving of blame, because, considered in itself, it satisfies the greed for gain, which knows no limit, and tends to infinity. Hence trading, considered in itself, has a certain debasement attaching thereto, in so far as, by its very nature, it does not imply a virtuous or necessary end. Nevertheless gain, which is the end of trading, though not implying, by its nature, anything virtuous or necessary, does not, in itself, connote anything sinful or contrary to virtue; wherefore nothing prevents gain from being directed to some necessary or even virtuous end, and thus trading becomes lawful. Thus, for instance, a man may intend the moderate gain which he seeks to acquire by trading for the upkeep of his household, or for the assistance of the needy; or again, a man may take to trade for some public advantage--for instance, lest his country lack the necessaries of life--and seek gain, not as an end, but as payment for his labour.'[1] This is important in connection with what we have said above as to property, as it shows that the trader was quite justified in seeking to obtain more profits, provided that they accrued for the benefit of the community. This justification of trade according to the end for which it was carried on, was not laid down for the first time by Aquinas, but may be found stated in an English treatise of the tenth century entitled _The Colloquy of Archbishop Alfric_, where, when a doctor asks a merchant if he wishes to sell his goods for the same price for which he has bought them, the merchant replies: 'I do not wish to do so, because if I do so, how would I be recompensed for my trouble? but I wish to sell them for more than I paid for them so that I might secure some gain wherewith to support myself, my wife, and family.'[2]

[Footnote 1: II. ii. 77, 4.]

[Footnote 2: Loria, _Analysi de la proprietà, capitalista_, ii. 168.]

In spite of the fact that the earlier theory that no commercial gain which did not represent payment for labour could be justified was still maintained by some writers--for instance, Raymond de Pennafort[1]--the teaching of St. Thomas Aquinas was generally accepted throughout the later Middle Ages. Canonists and theologians accepted without hesitation the justification of trade formulated by Aquinas.[2] Henri de Gand,[3] Duns Scotus,[4] and François de Mayronis [5] unhesitatingly accepted the view of Aquinas, and incorporated it in their works.[6] 'An honourable merchant,' says Trithemius, 'who does not only think of large profits, and who is guided in all his dealings by the laws of God and man, and who gladly gives to the needy of his wealth and earnings, deserves the same esteem as any other worker. But it is no easy matter to be always honourable in all mercantile dealings and not to become usurious. Without commerce no community can of course exist, but immoderate commerce is rather hurtful than beneficial, because it fosters greed of gain and gold, and enervates and emasculates the nation through love of pleasure and luxury.'[7] Nider says that to buy not for use but for sale at a higher price is called trade. Two special rules apply to this: first, that it should be useful to the State, and second, that the price should correspond to the diligence, prudence, and risk undertaken in the transaction.[8]

[Footnote 1: _Summa Theologica_, II. vii. 5.]

[Footnote 2: Ashley, _op. cit._, p. 55.]

[Footnote 3: _Quodlib_., i. 40.]

[Footnote 4: _Lib. Quat. Sent._, xv. 2.]

[Footnote 5: iv. 16, 4.]

[Footnote 6: See Jourdain, _op. cit._, p. 20 _et seq_.]

[Footnote 7: Quoted in Janssen, _op. cit._, vol. ii. p. 97.]

[Footnote 8: _Op. cit._, iv. 10.]

The later writers hi the fifteenth century seem to have regarded trade more liberally even than Aquinas, although they quote his dictum on the subject as the basis of their teaching. Instead of condemning all commerce as wrong unless it was justified by good motives, they were rather inclined to treat commerce as being in itself colourless, but capable of becoming evil by bad motives. Carletus says: 'Commerce in itself is neither bad nor illegal, but it may become bad on account of the circumstances and the motive with which it is undertaken, the persons who undertake it, or the manner in which it is conducted. For instance, commerce undertaken through avarice or a desire for sloth is bad; so also is commerce which is injurious to the republic, such as engrossing.'[1]

[Footnote 1: _Summa Angelica_, 169: 'Mercatio non est mala ex genere, sed bona, humano convictui necessaria dum fuerit justa. Mercatio simpliciter non est peccatum sed ejus abusus.' Biel, _op. cit._, iv. xv. 10.]

Endemann, having thoroughly studied all the fifteenth-century writers on the subject, says that commerce might be rendered unjustifiable either by subjective or objective reasons. Subjective illegality would arise from the person trading--for instance, the clergy--or the motive with which trade was undertaken; objective illegality on account of the object traded in, such as weapons in war-time, or the bodies of free men.[1] Speculative trading, and what we to-day call profiteering, were forbidden in all circumstances.[2]

[Footnote 1: _Studien_, vol. ii. p. 18.]

[Footnote 2: _The Ayenbite of Inwit_, a thirteenth-century confessor's manual, lays it down that speculation is a kind of usury. (Rambaud, _Histoire_, p. 56.)]

We need not dwell upon the prohibition of trading by the clergy, because it was simply a rule of discipline which has not any bearing upon general economic teaching, except in so far as it shows that commerce was considered an occupation dangerous to virtue. Aquinas puts it as follows: 'Clerics should abstain not only from things that are evil in themselves, but even from those that have an appearance of evil. This happens in trading, both because it is directed to worldly gain, which clerics should despise, and because trading is open to so many vices, since "a merchant is hardly free from sins of the lips." [1] There is also another reason, because trading engages the mind too much with worldly cares, and consequently withdraws it from spiritual cares; wherefore the Apostle says:[2] "No man being a soldier to God entangleth himself with secular business." Nevertheless it is lawful for clerics to engage in the first-mentioned kind of exchange, which is directed to supply the necessaries of life, either by buying or by selling.'[3] The rule of St. Benedict contains a strong admonition to those who may be entrusted with the sale of any of the products of the monastery, to avoid all fraud and avarice.[4]

[Footnote 1: Eccles. xxvi. 28.]

[Footnote 2: 2 Tim. ii. 4.]

[Footnote 3: _Summa_, II. ii. 77, 4, ad. 3.]

[Footnote 4: _Beg. St. Ben._, 57.]

On the whole, the attitude towards commerce seems to have grown more liberal in the course of the Middle Ages. At first all commerce was condemned as sinful; at a later period it was said to be justifiable provided it was influenced by good motives; while at a still later date the method of treatment was rather to regard it as a colourless act in itself which might be rendered harmful by the presence of bad motives. This gradual broadening of the justification of commerce is probably a reflection of the necessities of the age, which witnessed a very great expansion of commerce, especially of foreign trade. In the earlier centuries remuneration for undertaking risk was prohibited on the authority of a passage in the Gregorian Decretals, but the later writers refused to disallow it.[1] The following passage from Dr. Cunningham's _Growth of English Industry and Commerce_ correctly represents the attitude of the Church towards commerce at the end of the Middle Ages: 'The ecclesiastic who regarded the merchant as exposed to temptations in all his dealings would not condemn him as sinful unless it were clear that a transaction were entered on solely for greed, and hence it was the tendency for moralists to draw additional distinctions, and refuse to pronounce against business practices where common sense did not give the benefit of the doubt.'[2] We have seen that one motive which would justify the carrying on of trade was the desire to support one's self and one's family. Of course this motive was capable of bearing a very extended and elastic interpretation, and would justify increased commercial profits according as the standard of life improved. The other motive given by the theologians, namely, the benefit of the State, was also one which was capable of a very wide construction. One must remember that even the manual labourer was bound not to labour solely for avaricious gain, but also for the benefit of his fellow-men. 'It is not only to chastise our bodies,' says Basil, 'it is also by the love of our neighbour that the labourer's life is useful so that God may furnish through us our weaker brethren';[3] and a fifteenth-century book on morality says: 'Man should labour for the honour of God. He should labour in order to gain for himself and his family the necessaries of life and what will contribute to Christian joy, and moreover to assist the poor and the sick by his labours. He who acting otherwise seeks only the pecuniary recompense of his work does ill, and his labours are but usury. In the words of St. Augustine, "thou shalt not commit usury with the work of thy hands, for thus wilt thou lose thy soul,"'[4] The necessity for altruism and regard for the needs of one's neighbour as well as of one's self were therefore motives necessary to justify labour as well as commerce; and it would be wrong to conclude that the teaching of the scholastics on the necessity for a good motive to justify trade operated to damp individual enterprise, or to discourage those who were inclined to launch commercial undertakings, any more than the insistence on the need for a similar motive in labourers was productive of idleness. What the mediæval teaching on commerce really amounted to was that, while commerce was as legitimate as any other occupation, owing to the numerous temptations to avarice and dishonesty which it involved, it must be carefully scrutinised and kept within due bounds. It was more difficult to insure the observance of the just price in the case of a sale by a merchant than in one by an artificer; and the power which the merchant possessed of raising the price of the necessaries of life on the poor by engrossing and speculation rendered him a person whose operations should be carefully controlled.

[Footnote 1: Cunningham, _Growth of English Industry and Commerce_, vol. i. p. 255.]

[Footnote 2: P. 255.]

[Footnote 3: _Reg. Fus. Tract._, XXXVII. i.]

[Footnote 4: Quoted in Janssen, _op. cit._, vol. ii. p. 9.]

Finally, it must be clearly understood that the attempt of some modern writers to base the mediæval justification of commerce on an analysis of all commercial gains as the payment for labour rests on a profound misunderstanding. As we have already pointed out, Aquinas distinctly rules out of consideration in his treatment of commerce the case where the goods have been improved in value by the exertions of the merchant. When the element of labour entered into the transaction the matter was clearly beyond doubt, and the lengthy discussion devoted to the question of commerce by Aquinas and his followers shows that in justifying commercial gains they were justifying a gain resting not on the remuneration for the labour, but on an independent title.

§ 8. _Cambium_.

There was one department of commerce, namely, _cambium_, or money-changing, which, while it did not give any difficulty in theory, involved certain difficulties in practice, owing to the fact that it was liable to be used to disguise usurious transactions. Although _cambium_ was, strictly speaking, a special branch of commerce, it was nevertheless usually treated in the works on usury, the reason being that many apparent contracts of _cambium_ were in fact veiled loans, and that it was therefore a matter of importance in discussing usury to explain the tests by which genuine and usurious exchanges could be distinguished. Endemann treats this subject very fully and ably;[1] but for the purpose of the present essay it is not necessary to do more than to state the main conclusions at which he arrives.

[Footnote 1: _Studien_, vol. i. p. 75.]

Although the practice of exchange grew up slowly and gradually during the later Middle Ages, and, consequently, the amount of space devoted to the discussion of the theory of exchange became larger as time went on, nevertheless there is no serious difference of opinion between the writers of the thirteenth century, who treat the subject in a fragmentary way, and those of the fifteenth, who deal with it exhaustively and systematically. Aquinas does not mention _cambium_ in the _Summa_, but he recognises the necessity for some system of exchange in the _De Eegimine Principum_.[1] All the later writers who mention _cambium_ are agreed in regarding it as a species of commerce to which the ordinary rules regulating all commerce apply. Francis de Mayronis says that the art of _cambium_ is as natural as any other kind of commerce, because of the diversity of the currencies in different kingdoms, and approves of the campsor receiving some remuneration for his labour and trouble.[2] Nicholas de Ausmo, in his commentary on the _Summa Pisana_, written in the beginning of the fifteenth century, says that the campsor may receive a gain from his transactions, provided that they are not conducted with the sole object of making a profit, and that the gain he may receive must be limited by the common estimation of the place and time. This is practically saying that _cambium_ may be carried on under the same conditions as any other species of commerce. Biel says that _cambium_ is only legitimate if the campsor has the motive of keeping up a family or benefiting the State, and that the contract may become usurious if the gain is not fair and moderate.[3] The right of the campsor to some remuneration for risk was only gradually admitted, and forms the subject of much discussion amongst the jurists.[4] This hesitation in allowing remuneration for risk was not peculiar to _cambium_, but, as we have seen above, was common to all commerce. Endemann points out how the theologians and jurists unanimously insisted that _cambium_ could not be justified except when the just price was observed, and that, when the doctrine attained its full development, the element of labour was but one of the constituents in the estimation of that price.[5]

[Footnote 1: 'Cum enim extraneae monetae communicantur in permutationibus oportet recurrere ad artem campsoriam, cum talia numismata non tantum valeant in regionibus extraneis quantum in propriis (_De Reg. Prin._, ii. 13).]

[Footnote 2: In _Quot. Lib. Sent._, iv. 16, 4.]

[Footnote 3: _Op. oil_., IV. xv. 11.]

[Footnote 4: Endemann, _Studien_, vol. i. pp. 123-36.]

[Footnote 5: _Ibid._, p. 213.]

All the writers who treated of exchange divided it into three kinds; ordinary exchange of the moneys of different currencies (_cambium minutum_), exchange of moneys of different currencies between different places, the justification for which rested on remuneration for an imaginary transport (_cambium per litteras_), and usurious exchange of moneys of the same currency (_cambium siccum_). The former two species of cambium were justifiable, whereas the last was condemned.[1]

[Footnote 1: Laurentius de Rodulfis, _De Usuris_, pt. iii. Nos. 1 to 5.]

The most complete treatise on the subject of money exchange is that of Thomas da Vio, written in 1499. The author of this treatise divides money-changing into three kinds, just, unjust, and doubtful. There were three kinds of just change; _cambium minutum_, in which the campsor was entitled to a reasonable remuneration for his labour; _cambium per litteras_, in which the campsor was held entitled to a wage (_merces_) for an imaginary transportation; and thirdly, when the campsor carried money from one place to another, where it was of higher value. The unjust change was when the contract was a usurious transaction veiled in the guise of a genuine exchange. Under the doubtful changes, the author discusses various special points which need not detain us here.

Thomas da Vio then goes on to discuss whether the justifiable exchange can be said to be a species of loan, and concludes that it can not, because all that the campsor receives is an indemnity against loss and a remuneration for his labour, trouble, outlay, and risk, which is always justifiable. He then goes on to state the very important principle, that in _cambium_ money is not to be considered a measure of value, but a vendible commodity,[1] a distinction which Endemann thinks was productive of very important results in the later teaching on the subject.[2] The last question treated in the treatise is the measure of the campsor's profit, and here the contract of exchange is shown to be on all fours with every other contract, because the essential principle laid down for determining its justice is the observance of the equivalence between both parties.[1]

[Footnote 1: 'Numisma quamvis sit mensura et instrumentum in permutationibus; tamen per se aliquid esse potest.' It is this principle that justifies the treatment of _cambium_ in this section rather than the next.]

[Footnote 2: _Studien_, vol. ii. p. 212.]

SECTION 2.--THE SALE OF THE USE OF MONEY

§ 1. _Usury in Greece and Rome_.

The prohibition of usury has always occupied such a large place in histories of the Middle Ages, and particularly in discussions relating to the attitude of the Church towards economic questions, that it is important that its precise foundation and extent should be carefully studied. The usury prohibition has been the centre of so many bitter controversies, that it has almost become part of the stock-in-trade of the theological mob orators. The attitude of the Church towards usury only takes a slightly less prominent place than its attitude towards Galileo in the utterances of those who are anxious to convict it of error. We have referred to this current controversy, not in order that we might take a part in it, but that, on the contrary, we might avoid it. It is no part of our purpose in our treatment of this subject to discuss whether the usury prohibition was or was not suitable to the conditions of the Middle Ages; whether it did or did not impede industrial enterprise and commercial expansion; or whether it was or was not universally disregarded and evaded in real life. These are inquiries which, though full of interest, would not be in place in a discussion of theory. All we are concerned to do in the following pages is to indicate the grounds on which the prohibition of usury rested, the precise extent of its application, and the conceptions of economic theory which it indicated and involved.

[Footnote 1: Brants has a very luminous and interesting section on _Cambium, Op. cit._, p. 214 _et seq_.]

We must remark in the first place that the prohibition of usury was in no sense peculiar to the Catholic Church in the Middle Ages, but, on the contrary, was to be found in many other religious and legal systems--for instance, in the writings of the Greek and Roman philosophers, amongst the Jews, and the followers of Mohammed. We shall give a very brief account of the other prohibitions of usury before coming to deal with the scholastic teaching on the subject.

We can find no trace of any legal prohibition of usury in ancient Greece. Although Solon's laws contained many provisions for the relief of poor debtors, they did not forbid the taking of interest, nor did they limit the rate of interest that might be taken.[1] In Rome the Twelve Tables fixed a maximum rate of interest, which was probably ten or twelve per cent, per annum, but which cannot be determined with certainty owing to the doubtful signification of the expression '_unciarum foenus_.' The legal rate of interest was gradually reduced until the year 347 B.C., when five per cent, was fixed as a maximum. In 342 B.C. interest was forbidden altogether by the Genucian Law; but this law, though never repealed, was in practice quite inoperative owing to the facility with which it could be evaded; and consequently the oppression of borrowers was prevented by the enactment, or perhaps it would be more correct to say the general recognition, of a maximum rate of interest of twelve per cent. per annum. This maximum rate--the _Centesima_--remained in operation until the time of Justinian.[2] Justinian, who was under the influence of Christian teaching, and who might therefore be expected to have regarded usury with unfavourable eyes, fixed the following maximum rates of interest--maritime loans twelve per cent.; loans to ordinary persons, not in business, six per cent.; loans to high personages (_illustres_) and agriculturists, four per cent.[3]

[Footnote 1: Cleary, _The Church and Usury_, p. 21.]

[Footnote 2: Hunter, _Roman Law_, pp. 652-53; Cleary, _op. cit._, pp. 22-6; Roscher, _Political Economy_, s. 90.]

[Footnote 3: _Code_ 4, 32, 26, 1.]

While the taking of interest was thus approved or tolerated by Greek and Roman law, it was at the same time reprobated by the philosophers of both countries. Plato objects to usury because it tends to set one class, the poor or the borrowers, against another, the rich or the lenders; and goes so far as to make it wrong for the borrower to repay either the principal or interest of his debt. He further considers that the profession of the usurer is to be despised, as it is an illiberal and debasing way of making money.[1] While Plato therefore disapproves in no ambiguous words of usury, he does not develop the philosophical bases of his objection, but is content to condemn it rather for its probable ill effects than on account of its inherent injustice.

[Footnote 1: _Laws_, v. ch. 11-13.]

Aristotle condemns usury because it is the most extreme and dangerous form of chrematistic acquisition, or the art of making money for its own sake. As we have seen above, in discussing the legitimacy of commerce, buying cheap and selling dear was one form of chrematistic acquisition, which could only be justified by the presence of certain motives; and usury, according to the philosopher, was a still more striking example of the same kind of acquisition, because it consisted in making money from money, which was thus employed for a function different from that for which it had been originally invented. 'Usury is most reasonably detested, as the increase of our fortune arises from the money itself, and not by employing it for the purpose for which it was intended. For it was devised for the sake of exchange, but usury multiplies it. And hence usury has received the name of [Greek: tokos], or produce; for whatever is produced is itself like its parents; and usury is merely money born of money; so that of all means of money-making it is the most contrary to nature.'[1] We need not pause here to discuss the precise significance of Aristotle's conceptions on this subject, as they are to us not so much of importance in themselves, as because they suggested a basis for the treatment of usury to Aquinas and his followers.[2]

[Footnote 1: Aristotle, _Politics_, i. 10.]

[Footnote 2: Cleary, _op. cit._, p. 29.]

In Rome, as in Greece, the philosophers and moralists were unanimous in their condemnation of the practice of usury. Cicero condemns usury as being hateful to mankind, and makes Cato say that it is on the same level of moral obliquity as murder; and Seneca makes a point that became of some importance in the Middle Ages, namely, that usury is wrongful because it involves the selling of time.[1] Plutarch develops the argument that money is sterile, and condemns the practices of contemporary money-lenders as unjust.[2] The teaching of the philosophers as to the unlawfulness of usury was reflected in the popular feeling of the time.[3]

[Footnote 1: Cleary, _op. cit._, p. 29.]

[Footnote 2: _De Vitando Aere Alieno_.]

[Footnote 3: Espinas, _op. cit._, pp. 81-2; Roscher, _Political Economy_, s. 90.]

§ 2. _Usury in the Old Testament_.

The question of usury therefore attracted considerable attention in the teaching and practice of pagan antiquity. It occupied an equally important place in the Old Testament. In Exodus we find the first prohibition of usury: 'If thou lend money to any of my people being poor, thou shalt not be to him as a creditor, neither shall ye lay upon him usury.'[1] In Leviticus we read: 'And if thy brother be waxen poor, and his hand fail with thee; then, thou must uphold him; as a stranger and a sojourner shall he live with thee. Take thou no money of him or increase, but fear thy God that thy brother may live with thee. Thou shalt not give him thy money upon usury, nor give him victuals for increase.'[2] Deuteronomy lays down a wider prohibition: 'Thou shalt not lend upon usury to thy brother; usury of money, usury of victuals, usury of anything that is lent upon usury; unto a foreigner thou mayest lend upon usury, but unto thy brother thou mayest not lend upon usury.'[3] It will be noticed that the first and second of these texts do not forbid usury except in the case of loans to the poor, and, if we had them alone to consider, we could conclude that loans to the rich or to business men were allowed. The last text, however, extends the prohibition to all loans to one's brother--an expression which was of importance in Christian times, as Christian writers maintained the universal brotherhood of man.

[Footnote 1: Exod. xxii. 25.]

[Footnote 2: Lev. xxv. 35.]

[Footnote 3: Deut. xxiii. 19.]

It is unnecessary for us to discuss the underlying considerations which prompted these ordinances. Dr. Cleary, who has studied the matter with great care, concludes that: 'The legislator was urged mostly by economic considerations.... The permission to extract usury from strangers--a permission which later writers, such as Maimonides, regarded as a command--clearly favours the view that the legislator was guided by economic principles. It is more difficult to say whether he based his legislation on the principle that usury is intrinsically unjust--that is to say, unjust even when taken in moderation. There is really nothing in the texts quoted to enable us to decide. The universality of the prohibition when there is question solely of Jews goes to show that usury as such was regarded as unjust; whilst its permission as between Jew and Gentile favours the contradictory hypothesis.'[1] Modern Jewish thought is inclined to hold the view that these prohibitions were based upon the assumption that usury was intrinsically unjust, but that the taking of usury from the Gentiles was justified on the principle of compensation; in other words, that Jews might exact usury from those who might exact it from them.[2] It is at least certain that usury was regarded by the writers of the Old Testament as amongst the most terrible of sins.[3]

[Footnote 1: _Op. cit._, pp. 5-6.]

[Footnote 2: _Jewish Encyclopaedia_, art. 'Usury.']

[Footnote 3: Ezek. xviii. 13; Jer. xv. 10; Ps. xiv. 5, cix. 11, cxii. 5; Prov. xxviii. 8; Hes. xviii. 8; 2 Esd. v. I _et seq._]

The general attitude of the Jews towards usury cannot be better explained than by quoting Dr. Cleary's final conclusion on the subject: 'It appears therefore that in the Old Testament usury was universally prohibited between Israelite and Israelite, whilst it was permitted between Israelite and Gentile. Furthermore, it seems impossible to decide what was the nature of the obligations imposed--whether the prohibition supposed and ratified an already existing universal obligation, in charity or justice, or merely imposed a new obligation in obedience, binding the consciences of men for economic or political reasons. So, too, it seems impossible to decide absolutely whether the decrees were intended to possess eternal validity; the probabilities, however, seem to favour very strongly the view that they were intended as mere economic regulations suited to the circumstances of the time. This does not, of course, decide the other question, whether, apart from such positive regulations, there already existed an obligation arising from the natural law; nor would the passing of the positive law into desuetude affect the existence of the other obligation.'[1]

[Footnote 1: _Op. cit._, pp. 17-18.]

Before we pass from the consideration of the Old Testament to that of the New, we may mention that the taking of interest by Mohammedans is forbidden in the Koran.[2]

[Footnote 2: ii. 30. This prohibition is universally evaded. (Roscher, _Political Economy_, s. 90.)]

§ 3. _Usury in the First Twelve Centuries of Christianity_.

The only passage in the Gospels which bears directly on the question of usury is a verse of St. Luke, the correct reading of which is a matter of considerable difference of opinion.[1] The Revised Version reads: 'But love your enemies, and do them good, and lend, never despairing (_nihil desperantes_); and your reward shall be great.' If this be the true reading of the verse, it does not touch the question of usury at all, as it is simply an exhortation to lend without worrying whether the debtor fail or not.[2] The more generally received reading of this verse, however, is that adopted by the Vulgate, 'mutuum date, nihil inde sperantes'--'lend hoping for nothing thereby.' If this be the correct reading, the verse raises considerable difficulties of interpretation. It may simply mean, as Mastrofini interprets it, that all human actions should be performed, not in the hope of obtaining any material reward, but for the love of God and our neighbour; or it may contain an actual precept or counsel relating to the particular subject of loans. If the latter be the correct interpretation, the further question arises whether the recommendation is to renounce merely the interest of a loan or the principal as well. We need not here engage on the details of the controversy thus aroused; it is sufficient to say that it is the almost unanimous opinion of modern authorities that the verse recommends the renunciation of the principal as well as the interest; and that, if this interpretation is correct, the recommendation is not a precept, but a counsel.[3] Aquinas thought that the verse was a counsel as to the repayment of the principal, but a precept as to the payment of interest, and this opinion is probably correct.[4] With the exception of this verse, there is not a single passage in the Gospels which prohibits the taking of usury.

[Footnote 1: Luke vi. 35.]

[Footnote 2: Cleary, _op. cit._, p. 33, following Knabenbaur.]

[Footnote 3: Cleary, _op. cit._, p. 34.]

[Footnote 4: _Ibid._, p. 35.]

We must now give some account of the teaching on usury which was laid down by the Fathers and early councils of the Church; but at the same time we shall not attempt to treat this in an exhaustive way, because, although the early Christian teaching is of interest in itself, it exercised little or no influence upon the great philosophical treatment of the same subject by Aquinas and his followers, which is the principal subject to be discussed in these pages. The first thing we must remark is that the prohibition of usury was not included by the Council of Jerusalem amongst the 'necessary things' imposed upon converts from the Gentiles.[1] This would seem to show that the taking of usury was not regarded as unlawful by the Apostles, who were at pains expressly to forbid the commission of offences, the evil of which must have appeared plainly from the natural law--for instance, fornication. The _Didache_, which was used as a book of catechetical instruction for catechumens, does not specifically mention usury; the forcing of the repayment of loans from the poor who are unable to pay is strongly reprobated; but this is not so in the case of the rich.[2] Clement of Alexandria expressly limits his disapprobation of usury to the case of loans between brothers, whom he defines as 'participators in the same word,' _i.e._ fellow-Christians; and in any event it is clear that he regards it as sin against charity, but not against justice.[3]

[Footnote 1: Acts xv. 29.]

[Footnote 2: _Didache_, ch. i.; Cleary, _op. cit._, p. 39.]

[Footnote 3: _Stromata_, ii. 18.]

Tertullian is one of the first of the Fathers to lay down positively that the taking of usury is sinful. He regards it as obviously wrong for Christians to exact usury on their loans, and interprets the passage of St. Luke, to which we have referred, as a precept against looking for even the repayment of the principal.[1] On the other hand, Cyprian, writing in the same century, although he declaims eloquently and vigorously against the usurious practices of the clergy, does not specifically express the opinion that the taking of usury is wrong in itself.[2]

[Footnote 1: _Ad Marcion_, iv. 17.]

[Footnote 2: _Le Lapsis_, ch. 5-6; Cleary, _op. cit._, pp. 42-3.]

Thus, during the first three centuries of Christianity, there does not seem to have been, as far as we can now ascertain, any definite and general doctrine laid down on the subject of usury. In the year 305 or 306 a very important step forward was taken, when the Council of Elvira passed a decree against usury. This decree, as given by Ivo and Gratian, seems only to have applied to usury on the part of the clergy, but as given by Mansi it affected the clergy and laity alike. 'Should any cleric be found to have taken usury,' the latter version runs, 'let him be degraded and excommunicated. Moreover, if any layman shall be proved a usurer, and shall have promised, when corrected, to abstain from the practice, let him be pardoned. If, on the contrary, he perseveres in his evil-doing, he is to be excommunicated.'[1] Although the Council of Elvira was but a provincial Council, its decrees are important, as they provided a model for later legislation. Dr. Cleary thinks that Mansi's version of this decree is probably incorrect, and that, therefore, the Council only forbade usury on the part of the clergy. In any event, with this one possible and extremely doubtful exception, there was no conciliar legislation affecting the practice of usury on the part of the laity until the eighth century. Certain individual popes censured the taking of usury by laymen, and the Council of Nice expressed the opinion that such a practice was contrary to Christ's teaching, but there is nowhere to be found an imperative and definite prohibition of the taking of usury except by the clergy.[2]

[Footnote 1: Cleary, _op. cit._, p. 43.]

[Footnote 2: Cleary, _op. cit._, pp. 44-8.]

The inconclusive result of the Christian teaching up to the middle of the fourth century is well summarised by Dr. Cleary: 'Hitherto we have encountered mere prohibitions of usury with little or no attempt to assign a reason for them other than that of positive legislation. Most of the statements of these early patristic writers, as well as possibly all of the early Christian legislative enactments, deal solely with the practice of usury by the clergy; still, there is sufficient evidence to show that in those days it was reprobated even for the Christian laity, for the _Didache_ and Tertullian clearly teach or presuppose its prohibition, while the oecumenical Council of Nice certainly presupposed its illegality for the laity, though it failed to sustain its doctrinal presuppositions with corresponding ecclesiastical penalties. With the exception of some very vague statements by Cyprian and Clement of Alexandria, we find no attempt to state the nature of the resulting obligation--that is to say, we are not told whether there is an obligation of obedience, of justice, or of charity. The prohibition indeed seems to be regarded as universal; and it may very well be contended that for the cases the Fathers consider it was in fact universal--for the loans with which they are concerned, being necessitous, should be, in accordance with Christian charity, gratuitous--even if speculatively usurious loans in general were not unjust.'[1]

[Footnote 1: _Op. cit._, pp. 48-9.]

The middle of the fourth century marked the opening of a new period--'a period when oratorical denunciations are profuse, and when consequently philosophical speculation, though fairly active, is of too imaginative a character to be sufficiently definite.'[1] St. Basil's _Homilies on the Fourteenth Psalm_ contain a violent denunciation of usury, the reasoning of which was repeated by St. Gregory of Nyssa[2] and St. Ambrose.[3] These three Fathers draw a terrible picture of the state of the poor debtor, who, harassed by his creditors, falls deeper and deeper into despair, until he finally commits suicide, or has to sell his children into slavery. Usury was therefore condemned by these Fathers as a sin against charity; the passage from St. Luke was looked on merely as a counsel in so far as it related to the repayment of the principal, but as a precept so far as it related to usury; but the notion that usury was in its very essence a sin against justice does not appear to have arisen. The natural sterility of money is referred to, but not developed; and it is suggested, though not categorically stated, that usury may be taken from wealthy debtors.[4]

[Footnote 1: Cleary, _op. cit._, p. 49.]

[Footnote 2: _Contra Usurarios_.]

[Footnote 3: _De Tobia_.]

[Footnote 4: Cleary, _op. cit._, p. 52.]

The other Fathers of the later period do not throw very much light on the question of how usury was regarded by the early Church. St. Hilary[1] and Jerome[2] still base their objection on the ground of its being an offence against charity; and St. Augustine, though he would like to make restitution of usury a duty, treats the matter from the same point of view.[3] On the other hand, there are to be found patristic utterances in favour of the legality of usury, and episcopal approbations of civil codes which permitted it.[4] The civil law did not attempt to suppress usury, but simply to keep it within due bounds.[5] The result of the patristic teaching therefore was on the whole unsatisfactory and inconclusive. 'Whilst patristic opinion,' says Dr. Cleary, 'is very pronounced in condemning usury, the condemnation is launched against it more because of its oppressiveness than for its intrinsic injustice. As Dr. Funk has pointed out, one can scarcely cite a single patristic opinion which can be said clearly to hold that usury is against justice, whilst there are, on the contrary, certain undercurrents of thought in many writers, and certain explicit statements in others, which tend to show that the Fathers would not have been prepared to deal so harshly with usurers, did usurers not treat their debtors so cruelly.... Of keen philosophical analysis there is none.... On the whole, we find the teachings of the Fathers crude and undeveloped.'[6]

[Footnote 1: In Ps. xiv.]

[Footnote 2: _Ad Ezech._]

[Footnote 3: Cleary, _op. cit._, p. 56.]

[Footnote 4: _Ibid._ pp. 56-7.]

[Footnote 5: _Justinian Code_, iv. 32.]

[Footnote 6: _Op. cit._, pp. 57-9. On the patristic teaching on usury, see Espinas, _Op. cit._, pp. 82-4; Roscher, _Political Economy_, s. 90; Antoine, _Cours d'Economie sociale_, pp. 588 _et seq_.]

The practical teaching with regard to the taking of usury made an important advance in the eighth and ninth centuries, although the philosophical analysis of the subject did not develop any more fully. A capitulary canon made in 789 decreed 'that each and all are forbidden to give anything on usury'; and a capitulary of 813 states that 'not only should the Christian clergy not demand usury, laymen should not.' In 825 it was decreed that the counts were to assist the bishops in their suppression of usury; and in 850 the Synod of Ticinum bound usurers to restitution.[1] The underlying principles of these enactments is as obscure as their meaning is plain and definite. There is not a single trace of the keen analysis with which Aquinas was later to illuminate and adorn the subject.

[Footnote 1: These are but a few of the enactments of the period directed against usury (Cleary, _op. cit._, p. 61; Favre, _Le prêt à intérêt dans l'ancienne France_).]

§ 4. _The Mediæval Prohibition of Usury_.

The tenth and eleventh centuries saw no advance in the teaching on usury. The twelfth century, however, ushered in a new era. 'Before that century controversy had been mostly confined to theologians, and treated theologically, with reference to God and the Bible, and only rarely with regard to economic considerations. After the twelfth century the discussion was conducted on a gradually broadening economic basis--appeals to the Fathers, canonists, philosophers, the _jus divinum_, the _jus naturale_, the _jus humanum_, became the order of the day.'[1] Before we proceed to discuss the new philosophical or scholastic treatment of usury which was inaugurated for all practical purposes by Aquinas, we must briefly refer to the ecclesiastical legislation on the subject.

[Footnote 1: Böhm-Bawerk, _Capital and Interest_, p. 19.]

In 1139 the second Lateran Council issued a very strong declaration against usurers. 'We condemn that disgraceful and detestable rapacity, condemned alike by human and divine law, by the Old and the New Testaments, that insatiable rapacity of usurers, whom we hereby cut off from all ecclesiastical consolation; and we order that no archbishop, bishop, abbot, or cleric shall receive back usurers except with the very greatest caution, but that, on the contrary, usurers are to be regarded as infamous, and shall, if they do not repent, be deprived of Christian burial.'[1] It might be argued that this decree was aimed against immoderate or habitual usury, and not against usury in general, but all doubt as regards the attitude of the Church was set at rest by a decree of the Lateran Council of 1179. This decree runs: 'Since almost in every place the crime of usury has become so prevalent that many people give up all other business and become usurers, as if it were lawful, regarding not its prohibition in both Testaments, we ordain that manifest usurers shall not be admitted to communion, nor, if they die in their sins, be admitted to Christian burial, and that no priest shall accept their alms.'[2] Meanwhile, Alexander III., having given much attention to the subject of usury, had come to the conclusion that it was a sin against justice. This recognition of the essential injustice of usury marked a turning-point in the history of the treatment of the subject; and Alexander III. seems entitled to be designated the 'pioneer of its scientific study.'[3] Innocent III. followed Alexander in the opinion that usury was unjust in itself, and from his time forward there was but little further disagreement upon the matter amongst the theologians.[4]

[Footnote 1: Cleary, _op. cit._, p. 64.]

[Footnote 2: _Ibid._]

[Footnote 3: Cleary, _op. cit._, p. 65.]

[Footnote 4: _Ibid._, p. 68.]

In 1274 Gregory X., in the Council of Lyons, ordained that no community, corporation, or individual should permit foreign usurers to hire houses, but that they should expel them from their territory; and the disobedient, if prelates, were to have their lands put under interdict, and, if laymen, to be visited by their ordinary with ecclesiastical censures.[1] By a further canon he ordained that the wills of usurers who did not make restitution should be invalid.[2] This brought usury definitely within the jurisdiction of the ecclesiastical courts.[3] In 1311 the Council of Vienne declared all secular legislation in favour of usury null and void, and branded as heresy the belief that usury was not sinful.[4] The precise extent and interpretation of this decree have given rise to a considerable amount of discussion,[5] which need not detain us here, because by that time the whole question of usury had come under the treatment of the great scholastic writers, whose teaching is more particularly the subject matter of the present essay.

[Footnote 1: _Liber Sextus_, v. 5, 1.]

[Footnote 2: _Ibid._, c. 2.]

[Footnote 3: Ashley, _op. cit._, vol. i. pt. i. p. 150.]

[Footnote 4: _Clementinarum_, v. 5, 1.]

[Footnote 5: Cleary, _op. cit._, pp. 74-8.]

Even as late as the first half of the thirteenth century there was no serious discussion of usury by the theologians. William of Paris, Alexander of Hales, and Albertus Magnus simply pronounced it sinful on account of the texts in the Old and New Testaments, which we have quoted above.[1] It was Aquinas who really put the teaching on usury upon the new foundation, which was destined to support it for so many hundred years, and which even at the present day appeals to many sympathetic and impartial inquirers. Mr. Lecky apologises for the obscurity of his account of the argument of Aquinas, but adds that the confusion is chiefly the fault of the latter;[2] but the fact that Mr. Lecky failed to grasp the meaning of the argument should not lead one to conclude that the argument itself was either confused or illogical. The fact that it for centuries remained the basis of the Catholic teaching on the subject is a sufficient proof that its inherent absurdity did not appear apparent to many students at least as gifted as Mr. Lecky. We shall quote the article of Aquinas at some length, because it was universally accepted by all the theologians of the fourteenth and fifteenth centuries, with whose opinions we are concerned in this essay. To quote later writings is simply to repeat in different words the conclusions at which Aquinas arrived.[3]

[Footnote 1: Jourdain, _op. cit._, p. 15.]

[Footnote 2: _Rise and Influence, of Rationalism in Europe_, vol. ii. p. 261.]

[Footnote 3: Endemann, _Studien_, vol. i. p. 17.]

In answer to the question 'whether it is a sin to take usury for money lent,' Aquinas replies: 'To take usury for money lent is unjust in itself, because this is to sell what does not exist, and this evidently leads to inequality, which is contrary to justice.

'In order to make this evident, we must observe that there are certain things the use of which consists in their consumption; thus we consume wine when we use it for drink, and we consume wheat when we use it for food. Wherefore in such-like things the use of the thing must not be reckoned apart from the thing itself, and whoever is granted the use of the thing is granted the thing itself; and for this reason to lend things of this kind is to transfer the ownership. Accordingly, if a man wanted to sell wine separately from the use of the wine, he would be selling the same thing twice, or he would be selling what does not exist, wherefore he would evidently commit a sin of injustice. In like manner he commits an injustice who lends wine or wheat, and asks for double payment, viz. one, the return of the thing in equal measure, the other, the price of the use, which is called usury.

'On the other hand, there are other things the use of which does not consist in their consumption; thus to use a house is to dwell in it, not to destroy it. Wherefore in such things both may be granted; for instance, one man may hand over to another the ownership of his house, while reserving to himself the use of it for a time, or, _vice versa_, he may grant the use of a house while retaining the ownership. For this reason a man may lawfully make a charge for the use of his house, and, besides this, revendicate the house from the person to whom he has granted its use, as happens in renting and letting a house.

'But money, according to the philosopher,[1] was invented chiefly for the purpose of exchange; and consequently the proper and principal use of money is its consumption or alienation, whereby it is sunk in exchange. Hence it is by its very nature unlawful to take payment for the use of money lent, which payment is known as usury; and, just as a man is bound to restore other ill-gotten goods, so he is bound to restore the money which he has taken in usury.'[2]

[Footnote 1: _Eth._ v. _Pol_. 1.]

[Footnote 2: II. ii. 78, 1.]

The essential thing to notice in this explanation is that the contract of _mutuum_ is shown to be a sale. The distinction between things which are consumed in use (_res fungibiles_), and which are not consumed in use (_res non fungibiles_) was familiar to the civil lawyers; but what they had never perceived was precisely what Aquinas perceived, namely, that the loan of a fungible thing was in fact not a loan at all, but a sale, for the simple reason that the ownership in the thing passed. Once the transaction had been shown to be a sale, the principle of justice to be applied to it became obvious. As we have seen above, in treating of sales, the essential basis of justice in exchange was the observance of _aequalitas_ between buyer and seller--in other words, the fixing of a just price. The contract of _mutuum_, however, was nothing else than a sale of fungibles, and therefore the just price in such a contract was the return of fungibles of the same value as those lent. If the particular fungible sold happened to be money, the estimation of the just price was a simple matter--it was the return of an amount of money of equal value. As money happened to be the universal measure of value, this simply meant the return of the same amount of money. Those who maintained that something additional might be claimed for the use of the money lost sight of the fact that the money was incapable of being used apart from its being consumed.[1] To ask for payment for the sale of a thing which not only did not exist, but which was quite incapable of existence, was clearly to ask for something for nothing--which obviously offended against the first principles of commutative justice. 'He that is not bound to lend,' says Aquinas in another part of the same article, 'may accept repayment for what he has done, but he must not exact more. Now he is repaid according to equality of justice if he is repaid as much as he lent, wherefore, if he exacts more for the usufruct of a thing which has no other use but the consumption of its substance, he exacts a price of something non-existent, and so his exaction is unjust.'[2] And in the next article the principle that _mutuum_ is a sale appears equally clearly: 'Money cannot be sold for a greater sum than the amount lent, which has to be paid back.'[3]

[Footnote 1: Aquinas did not lose sight of the fact that money might, in certain cases, be used apart from being consumed--for instance, when it was not used as a means of exchange, but as an ornament. He gives the example of money being sewn up and sealed in a bag to prevent its being spent, and in this condition lent for any purpose. In this case, of course, the transaction would not be a _mutuum_, but a _locatio et conductio_, and therefore a price could be charged for the use of the money (_Quaestiones Disputatae de Malo_, Q. xiii. art. iv. ad. 15, quoted in Cronin's _Ethics_, vol. ii. p. 332).]

[Footnote 2: II. ii. 78, 1, ad. 5.]

[Footnote 3: II. ii. 78, 2, ad. 4. Biel distinguishes three kinds of exchange: of goods for goods, or barter; of goods for money, or sale; and of money for money; and adds, 'In his contractibus ... generaliter justitia in hoc consistit quod fiant sine fraude, et servetur aequalitas substantiae, qualitatis, quantitatis in commutatis (_Op. cit._, IV. xv. 1). Buridan says that usury is contrary to natural law 'ex conditione justitiae quae in aequalitate damni et lucri consistit; quoniam injustum est pro re semel commutata pluries pretium recipere' (In _Lib. Pol._, iv. 6).]

The difficulty which moderns find in understanding this teaching, is that it is said to be based on the sterility of money. A moment's thought, however, will convince us that money is in fact sterile until labour has been applied to it. In this sense money differs in its essence from a cow or a tree. A cow will produce calves, or a tree will produce fruit without the application of any exertion by its owner; but, whatever profit is derived from money, is derived from the use to which it is put by the person who owns it. This is all that the scholastics meant by the sterility of money. They never thought of denying that money, when properly used, was capable of bringing its employer a profit; but they emphatically asserted that the profit was due to the labour, and not to the money.

Antoninus of Florence clearly realised this: 'Money is not profitable of itself alone, nor can it multiply itself, but it may become profitable through its employment by merchants';[1] and Bernardine of Sienna says: 'Money has not simply the character of money, but it has beyond this a productive character, which we commonly call capital.'[2] 'What is money,' says Brants, 'if it is not a means of exchange, of which the employment and preservation will give a profit, if he who possesses it is prudent, active, and intelligent? If this money is well employed, it will become a capital, and one may derive a profit from it; but this profit arises from the activity of him who uses it, and consequently this profit belongs to him--it is the fruit, the remuneration of his labour.... Did they (the scholastics) say that it was impossible to draw a profit from a sum of money? No; they admitted fully that one might _de pecunia lucrari_; but this _lucrum_ does not come from the _pecunia_, but from the application of labour to the sum.'[3]

[Footnote 1: Quoted in Brants, _op. cit._, p. 134.]

[Footnote 2: _Ibid._]

[Footnote 3: Brants, _op. cit._, pp. 133-5; Nider, _De Cont. Merc._ iii. 15.]

Therefore, if the borrower did not derive any profit from the loan, the sum lent had in fact been sterile, and obviously the just price of the loan was the return of the amount lent; if, on the contrary, the borrower had made a profit from it, it was the reward of his labour, and not the fruit of the loan itself. To repay more than the sum lent would therefore be to make a payment to one person for the labour of another.[1] The exaction of usury was therefore the exploitation of another man's exertion.[2]

[Footnote 1: Gerson, _De Cont._, iv. 15.]

[Footnote 2: Neumann, when he says that 'it was sinful to recompense the use of capital belonging to another' (_Geschichte des Wuchers in Deutschland_, p. 25), seems to miss the whole point of the discussion. The teaching of the canonists on rents and partnership shows clearly that the owner of capital might draw a profit from another's labour, and the central point of the usury teaching was that money which has been lent, and employed so as to produce a profit by the borrower, belongs not 'to another,' but to the very man who employed it, namely, the borrower.]

It is interesting to notice how closely the rules applying in the case of sales were applied to usury. The raising of the price of a loan on account of some special benefit derived from it by the borrower is precisely analogous to raising the sale price of an object because it is of some special individual utility to the buyer. On the other hand, as we shall see further down, any special damage suffered by the lender was a sufficient reason for exacting something over and above the amount lent; this was precisely the rule that applied in the case of sales, when the seller suffered any special damage from parting with the object sold. Thus the analogy between sales and loans was complete at every point. In both, equality of sacrifice was the test of justice.

Nor could it be suggested that the delay in the repayment of the loan was a reason for increasing the amount to be repaid, because this really amounted to a sale of time, which, of its nature, could not be owned.[1]

[Footnote 1: Rambaud, _op. cit._, p. 63; Aquinas(?), _De Usuris_, i. 4.]

The scholastic teaching, then, on the subject was quite plain and unambiguous. Usury, or the payment of a price for the use of a sum lent in addition to the repayment of the sum itself, was in all cases prohibited. The fact that the payment demanded was moderate was irrelevant; there could be no question of the reasonableness of the amount of an essentially unjust payment.[1] Nor was the payment of usury rendered just because the loan was for a productive purpose--in other words, a commercial loan. Certain writers have maintained that in this case usury was tolerated;[2] but they can easily be refuted. As we have seen above, _mutuum_ was essentially a sale, and, therefore, no additional price could be charged because of some special individual advantage enjoyed by the buyer (or borrower). It was quite impossible to distinguish, according to the scholastic teaching, between taking an additional payment because the lender made a profit by using the loan wisely, and taking it because the borrower was in great distress, and therefore derived a greater advantage from the loan than a person in easier circumstances. The erroneous notion that loans for productive purposes were entitled to any special treatment was finally dispelled in 1745 by an encyclical of Benedict XIV.[3]

[Footnote 1: Jourdain, _op. cit._, p. 35.]

[Footnote 2: _E.g._ Périn, _Premiers Principes d'Économie politique_, p. 305; Claudio Jannet, _Capital Spéculation et Finance_, p. 83; De Metz-Noblat, _Lois économiques_, p. 293.]

[Footnote 3: Rambaud, _op. cit._, p. 69.]

§ 5. _Extrinsic Titles_.

Usury, therefore, was prohibited in all cases. Many people at the present day think that the prohibition of usury was the same thing as the prohibition of interest. There could not be a greater mistake. While usury was in all circumstances condemned, interest was in every case allowed. The justification of interest rested on precisely the same ground as the prohibition of usury, namely, the observance of the equality of commutative justice. It was unjust that a greater price should be paid for the loan of a sum of money than the amount lent; but it was no less unjust that the lender should find himself in a worse position because of his having made the loan. In other words, the consideration for the loan could not be increased because of any special benefit which it conferred on the borrower, but it could be increased on account of any special damage suffered by the lender--precisely the same rule as we have seen applied in the case of sales. The borrower must, in addition to the repayment of the loan, indemnify the lender for any damage he had suffered. The measure of the damage was the difference between the lender's condition before the loan was made and after it had been repaid--in other words, he was entitled to compensation for the difference in his condition occasioned by the transaction--_id quod interest_.

Before we discuss interest properly so called, we must say a word about another analogous but not identical title of compensation, namely, the _poena conventionalis_. It was a very general practice, about the legitimacy of which the scholastics do not seem to have had any doubt, to attach to the original contract of loan an agreement that a penalty should be paid in case of default in the repayment of the loan at the stipulated time.[1] The justice of the _poena conventionalis_ was recognised by Alexander of Hales,[2] and by Duns Scotus, who gives a typical form of the stipulation as follows: 'I have need of my money for commerce, but shall lend it to you till a certain day on the condition that, if you do not repay it on that day, you shall pay me afterwards a certain sum in addition, since I shall suffer much injury through your delay.'[3] The _poena conventionalis_ must not be confused with either of the titles _damnum emergens_ or _lucrum cessans_, which we are about to discuss; it was distinguished from the former by being based upon a presumed injury, whereas the injury in _damnum emergens_ must be proved; and for the latter because the damage must be presumed to have occurred after the expiration of the loan period, whereas in _lucrum cessans_ the damage was presumed to have occurred during the currency of the loan period. The important thing to remember is that these titles were really distinct.[4] The essentials of a _poena conventionalis_ were, stipulation from the first day of the loan, presumption of damage, and attachment to a loan which was itself gratuitous.[5] The _Summa Astesana_ clearly maintained the distinction between the two titles of compensation,[6] as also did the _Summa Angelica_.[7]

[Footnote 1: Ashley, _op. cit._, vol. i. pt. i. p. 399.]

[Footnote 2: Biel, _op. cit._, iv. 15, 11.]

[Footnote 3: Cleary, _op. cit._, p. 93.]

[Footnote 4: _Ibid._, p. 95.]

[Footnote 5: Cleary, _op. cit._, p. 94.]

[Footnote 6: Endemann, _Studien_, vol. i. p. 20.]

[Footnote 7: ccxl.]

The first thing to be noted on passing from the _poena conventionalis_ to interest proper is that the latter ground of compensation was generally divided into two kinds, _damnum emergens_ and _lucrum cessans_. The former included all cases where the lender had incurred an actual loss by reason of his having made the loan; whereas the latter included all cases where the lender, by parting with his money, had lost the opportunity of making a profit. This distinction was made at least as early as the middle of the thirteenth century, and was always adopted by later writers.[1]

[Footnote 1: Ashley, _op. cit._, vol. i. pt. ii. p. 399.]

The title _damnum emergens_ never presented any serious difficulty. It was recognised by Albertus Magnus,[1] and laid down so clearly by Aquinas that it was not afterwards questioned: 'A lender may without sin enter an agreement with the borrower for compensation for the loss he incurs of something he ought to have, for this is not to sell the use of money, but to avoid a loss. It may also happen that the borrower avoids a greater loss than the lender incurs, wherefore the borrower may repay the lender with what he has gained.'[2] The usual example given to illustrate how _damnum emergens_ might arise, was the case of the lender being obliged, on account of the failure of the borrower, to borrow money himself at usury.[3]

[Footnote 1: Roscher, _Geschichte_, p. 27.]

[Footnote 2: II. ii. 78, 2, ad. 1.]

[Footnote 3: Ashley, _op. cit._, vol. i. pt. i. p. 400.]

Closely allied to the title of _damnum emergens_ was that of _lucrum cessans_. According to some writers, the latter was the only true interest. Dr. Cleary quotes some thirteenth-century documents in which a clear distinction is made between _damnum_ and _interesse_;[1] and it seems to have been the common custom in Germany at a later date to distinguish between _interesse_ and _schaden_.[2] Although the division between these two titles was very indefinite, they did not meet recognition with equal readiness; the title _damnum emergens_ was universally admitted by all authorities; while that of _lucrum cessans_ was but gradually admitted, and hedged round with many limitations.[3]

[Footnote 1: _Op. cit._, p. 95.]

[Footnote 2: Ashley, _op. cit._, vol. i. pt. ii. p. 401.]

[Footnote 3: Cleary, _op. cit._, p. 98; Endemann, _Studien_, vol. ii. p. 279; Bartolus and Baldus said that _damnum emergens_ and _lucrum cessans_ were divided by a very narrow line, and that it was often difficult to distinguish between them. They suggested that the terms _interesse proximum_ and _interesse remotum_ would be more satisfactory, but they were not followed by other writers (Endemann, _Studien_, vol. ii, pp. 269-70).]

The first clear recognition of the title _lucrum cessans_ occurs in a letter from Alexander III., written in 1176, and addressed to the Archbishop of Genoa: 'You tell us that it often happens in your city that people buy pepper and cinnamon and other wares, at the time worth not more than five pounds, promising those from whom they received them six pounds at an appointed time. Though contracts of this kind and under such a form cannot strictly be called usurious, yet, nevertheless, the vendors incur guilt, unless they are really doubtful whether the wares might be worth more or less at the time of payment. Your citizens will do well for their own salvation to cease from such contracts.'[1] As Dr. Cleary points out, the trader is held by this decision to be entitled to a recompense on account of a probable loss of profit, and the decision consequently amounts to a recognition of the title _lucrum cessans_.[2] The title is also recognised by Scotus and Hostiensis.[3]

[Footnote 1: _Decr. Greg._ v. 5, 6.]

[Footnote 2: _Op. cit._, p. 67.]

[Footnote 3: _Ibid._, p. 99.]

The attitude of Aquinas to the admission of _lucrum cessans_ is obscure. In the article on usury he expressly states that 'the lender cannot enter an agreement for compensation through the fact that he makes no profit out of his money, because he must not sell that which he has not yet, and may be prevented in many ways from having.'[1] Two comments must be made on this passage; first, that it only refers to making a stipulation in advance for compensation for profit lost, and does not condemn the actual payment of compensation;[2] second, that the point is made that the probability of gaining a profit on money is so problematical as to make it unsaleable. As Ashley points out, the latter consideration was peculiarly important at the time when the _Summa_ was composed; and, when in the course of the following two centuries the opportunities for reasonably safe and profitable business investments increased, the great theologians conceived that they were following the real thought of Aquinas by giving to this explanation a pure _contemporanea expositio_. The argument in favour of this construction is strengthened by a reference to the article of the _Summa_ dealing with restitution,[3] where it is pointed out that a man may suffer in two ways--first, by being deprived of what he actually has, and, second, by being prevented from obtaining what he was on his way to obtain. In the former case an equivalent must always be restored, but in the latter it is not necessary to make good an equivalent, 'because to have a thing virtually is less than to have it actually, and to be on the way to obtain a thing is to have it merely virtually or potentially, and so, were he to be indemnified by receiving the thing actually, he would be paid, not the exact value taken from him, but more, and this is not necessary for salvation. However, he is bound to make some compensation according to the condition of persons and things.' Later in the same article we are told that 'he that has money has the profit not actually, but only virtually; and it may be hindered in many ways.'[4] It seems quite clear from these passages that Aquinas admitted the right to compensation for a profit which the lender was hindered from making on account of the loan; but that, in the circumstances of the time, the probability of making such a profit was so remote that it could not be made the basis of pecuniary compensation. The probability of there being a _lucrum cessans_ was thought small, but the justice of its reward, if it did in fact exist, was admitted.

[Footnote 1: II. ii. 78, 2, ad. 1.]

[Footnote 2: Rambaud, _op. cit._, p. 67.]

[Footnote 3: II. ii. 62, 4.]

[Footnote 4: _Ibid._, ad. 1 and 2.]

This interpretation steadily gained ground amongst succeeding writers; so that, in spite of some lingering opposition, the justice of the title _lucrum cessans_ was practically universally admitted by the theologians of the fifteenth century.[1]

[Footnote 1: Ashley, _op. cit._, p. 99. _Lucrum cessans_ was defined by Navarrus as 'amissio facta a creditore per pecuniam sibi non redditam' (Endemann, _Studien_, vol. ii. p. 279).]

Of course the burden of proving that an opportunity for profitable investment had been really lost was on the lender, but this onus was sufficiently discharged if the probability of such a loss were established. In the fifteenth century, with the expansion of commerce, it came to be generally recognised that such a probability could be presumed in the case of the merchant or trader.[1] The final condition of this development of the teaching on _lucrum cessans_ is thus stated by Ashley:[2] 'Any merchant, or indeed any person in a trading centre where there were opportunities of business investment (outside money-lending itself) could, with a perfectly clear conscience, and without any fear of molestation, contract to receive periodical interest from the person to whom he lent money; _provided only_ that he first lent it to him gratuitously, for a period that might be made very short, so that technically the payment would not be reward for the use, but compensation for the non-return of the money.' At a later period than that of which we are treating in the present essay the short gratuitous period could be dispensed with, but until the end of the fifteenth century it seems to have been considered essential.[3]

[Footnote 1: Ashley, _op. cit._, vol. i. pt. ii. p. 402.]

[Footnote 2: _Ibid._]

[Footnote 3: Ashley, _op. cit._ vol. i. pt. ii. p. 402; Endemann, _Studien_, vol. ii. pp. 253-4; Cleary, _op. cit._, p. 100.]

Of course the amount paid in respect of _lucrum cessans_ must be reasonable in regard to the loss of opportunity actually experienced; 'Lenders,' says Buridan, 'must not take by way of _lucrum cessans_ more than they would have actually made by commerce or in exchange';[1] and Ambrosius de Vignate explains that compensation must only be made for 'the time and just _interesse_ of the lost gain, which must be certain and proximate.'[2]

[Footnote 1: _Eth._, iv. 6.]

[Footnote 2: _De Usuris_, c. 10.]

There was another title on account of which more than the amount of the loan could be recovered, namely, _periculum sortis_. In one sense it was a contradiction in terms to speak of the element of risk in connection with usury, because from its very definition usury was gain without risk as opposed to profit from a trading partnership, which, as we shall see presently, consisted of gain coupled with the risk of loss. It could not be lost sight of, however, that in fact there might be a risk of the loan not being repaid through the insolvency of the borrower, or some other cause, and the question arose whether the lender could justly claim any compensation for the undertaking of this risk. 'Regarded as an extrinsic title, risk of losing the principal is connected with the contract of _mutuum_, and entitles the lender to some compensation for running the risk of losing his capital in order to oblige a possibly insolvent debtor. The greater the danger of insolvency, the greater naturally would be the charge. The contract was indifferent to the object of the loan; it mattered not whether it was intended for commerce or consumption; it was no less indifferent to profit on the part of the borrower; it took account simply of the latter's ability to pay, and made its charge accordingly. It resembled consequently the contracts made by insurance companies, wherein there is a readiness to risk the capital sum for a certain rate of payment; the only difference was that the probabilities charged for were not so much the likelihood of having to pay, as the likelihood of not receiving back.'[1]

[Footnote 1: Cleary, _op. cit._, p. 115.]

We have referred above, when dealing with the legitimacy of commercial profits, to the difficulty which was felt in admitting the justice of compensation for risk, on account of the Gregorian Decretal on the subject. The same decree gave rise to the same difficulty in connection with the justification of a recompense for _periculum sortis_. There was a serious dispute about the actual wording of the decree, and even those who agreed as to its wording differed as to its interpretation.[1] The justice of the title was, however, admitted by Scotus, who said that it was lawful to stipulate for recompense when both the principal and surplus were in danger of being lost[2]; by Carletus;[3] and by Nider.[4] The question, however, was still hotly disputed at the end of the fifteenth century, and was finally settled in favour of the admission of the title as late as 1645.[5]

[Footnote 1: _Ibid._]

[Footnote 2: Cleary, _op. cit._, p. 117.]

[Footnote 3: _Summa Angelica Usura_, i. 38.]

[Footnote 4: _De Cont. Merc._, iii. 15.]

[Footnote 5: Cleary, _op. cit._, p. 117.]

§ 6. _Other Cases in which more than the Loan could be repaid_.

We have now discussed the extrinsic titles--_poena conventionalis, damnum emergens, lucrum cessans_, and _periculum sortis_. There were other grounds also, which cannot be reduced to the classification of extrinsic titles, on which more than the amount of the loan might be justly returned to the lender. In the first place, the lender might justly receive anything that the borrower chose to pay over and above the loan, voluntarily as a token of gratitude. 'Repayment for a favour may be done in two ways,' says Aquinas. 'In one way, as a debt of justice; and to such a debt a man may be bound by a fixed contract; and its amount is measured according to the favour received. Wherefore the borrower of money, or any such thing the use of which is its consumption, is not bound to repay more than he received in loan; and consequently it is against justice if he is obliged to pay back more. In another way a man's obligation to repayment for favour received is based on a debt of friendship, and the nature of this debt depends more on the feeling with which the favour was conferred than on the question of the favour itself. This debt does not carry with it a civil obligation, involving a kind of necessity that would exclude the spontaneous nature of such a repayment.'[1]

[Footnote 1: II. ii. 78, 2, ad. 2.]

It was also clearly understood that it was not wrongful to borrow at usury under certain conditions. In such cases the lender might commit usury in receiving, but the borrower would not commit usury in paying an amount greater than the sum lent. It was necessary, however, in order that borrowing at usury might be justified, that the borrower should be animated by some good motive, such as the relief of his own or another's need. The whole question was settled once and for all by Aquinas: 'It is by no means lawful to induce a man to sin, yet it is lawful to make use of another's sin for a good end, since even God uses all sin for some good, since He draws some good from every evil.... Accordingly it is by no means lawful to induce a man to lend under a condition of usury; yet it is lawful to borrow for usury from a man who is ready to do so, and is a usurer by profession, provided that the borrower have a good end in view, such as the relief of his own or another's need.... He who borrows for usury does not consent to the usurer's sin, but makes use of it. Nor is it the usurer's acceptance of usury that pleases him, but his lending, which is good.'[1]

[Footnote 1: II. ii. 78, 4.]

We should mention here the _montes pietatis_, which occupied a prominent place among the credit-giving agencies of the later Middle Ages, although it is difficult to say whether their methods were examples of or exceptions to the doctrines forbidding usury. These institutions were formed on the model of the _montes profani_, the system of public debt resorted to by many Italian States. Starting in the middle of the twelfth century,[1] the Italian States had recourse to forced loans in order to raise reserves for extraordinary necessities, and, in order to prevent the growth of disaffection among the citizens, an annual percentage on such loans was paid. A fund raised by such means was generally called a _mons_ or heap. The propriety of the payment of this percentage was warmly contested during the fourteenth and fifteenth centuries--the Dominicans and Franciscans defending it, and the Augustinians attacking it. But its justification was not difficult. In the first place, the loans were generally, if not universally, forced, and therefore the payment of interest on them was purely voluntary. As we have seen, Aquinas was quite clear as to the lawfulness of such a voluntary payment. In the second place, the lenders were almost invariably members of the trading community, who were the very people in whose favour a recompense for _lucrum cessans_ would be allowed.[2] Laurentius de Rodulphis argued in favour of the justice of these State loans, and contended that the bondholders were entitled to sell their rights, but advised good Christians to abstain from the practice of a right about the justice of which theologians were in such disagreement[3]; and Antoninus of Florence, who was in general so strict on the subject of usury, took the same view.[4]

[Footnote 1: Endemann, _Studien_, vol. i. p. 433.]

[Footnote 2: Ashley, _op. cit._, vol. i. pt. i. p. 448.]

[Footnote 3: _De Usuris_.]

[Footnote 4: Ashley, _op. cit._, p. 449.]

It was probably the example of these State loans, or _montes profani_, that suggested to the Franciscans the possibility of creating an organisation to provide credit facilities for poor borrowers, which was in many ways analogous to the modern co-operative credit banks. Prior to the middle of the fifteenth century, when this experiment was initiated, there had been various attempts by the State to provide credit facilities for the poor, but these need not detain us here, as they did not come to anything.[1] The first of the _montes pietatis_ was founded at Orvieto by the Franciscans in 1462, and after that year they spread rapidly.[2] The _montes_, although their aim was exclusively philanthropic, found themselves obliged to make a small charge to defray their working expenses, and, although one would think that this could be amply justified by the title of _damnum emergens_, it provoked a violent attack by the Dominicans. The principal antagonist of the _montes pietatis_ was Thomas da Vio, who wrote a special treatise on the subject, in which he made the point that the _montes_ charged interest from the very beginning of the loan, which was a contradiction of all the previous teaching on interest.[3]

[Footnote 1: Cleary, _op. cit._, p. 108; Brants, _op. cit._, p. 159.]

[Footnote 2: Perugia, 1467; Viterbo, 1472; Sevona, 1472; Assisi, 1485; Mantua, 1486; Cesana and Parma, 1488; Interamna and Lucca, 1489; Verona, 1490; Padua, 1491, etc. (Endemann, _Studien_, vol. i. p. 463).]

[Footnote 3: _De Monte Pietatis_.]

The general feeling of the Church, however, was in favour of the _montes_. It was felt that, if the poor must borrow, it was better that they should borrow at a low rate of interest from philanthropic institutions than at an extortionate rate from usurers; several _montes_ were established under the direct protection of the Popes;[1] and finally, in 1515, the Lateran Council gave an authoritative judgment in favour of the _montes_. This decree contains an excellent definition of usury as it had come to be accepted at that date: 'Usury is when gain is sought to be acquired from the use of a thing, not fruitful in itself, without labour, expense, or risk on the part of the lender.'[2]

[Footnote 1: Cleary, _op. cit._, p. 111.]

[Footnote 2: Ashley, _op. cit._, vol. i. pt. ii. p. 451.]

It was generally admitted by the theologians that the taking of usury might be permitted by the civil authorities, although it was insisted that acting in accordance with this permission did not absolve the conscience of the usurer. Albertus Magnus conceded that 'although usury is contrary to the perfection of Christian laws, it is at least not contrary to civil interests';[1] and Aquinas also justified the toleration of usury by the State: 'Human laws leave certain things unpunished, on account of the condition of those who are imperfect, and who would be deprived of many advantages if all sins were strictly forbidden and punishments appointed for them. Wherefore human law has permitted usury, not that it looks upon usury as harmonising with justice, but lest the advantage of many should be hindered.'[2] Although this opinion was controverted by Ægidius Romanus,[3] it was generally accepted by later writers. Thus Gerson says that 'the civil law, when it tolerates usury in some cases, must not be said to be always contrary to the law of God or the Church. The civil legislator, acting in the manner of a wise doctor, tolerates lesser evils that greater ones may be avoided. It is obviously less of an evil that slight usury should be permitted for the relief of want, than that men should be driven by their want to rob or steal, or to sell their goods at an unfairly low price.'[4] Buridan explains that the attitude of the State towards usury must never be more than one of toleration; it must not actively approve of usury, but it may tacitly refuse to punish it.[5]

[Footnote 1: Rambaud, _op. cit._, p. 65; Espinas, _op. cit._, p. 103.]

[Footnote 2: II. ii. 78, 1, ad. 3.]

[Footnote 3: _De Reg. Prin._, ii. 3, 11.]

[Footnote 4: _De Cont._, ii. 17.]

[Footnote 5: _Quaest. super. Lib. Eth._, iv. 6.]

§ 7. _The Justice of Unearned Income_.

Many modern socialists--'Christian' and otherwise--have asserted that the teaching of the Church on usury was a pronouncement in favour of the unproductivity of capital.[1] Thus Rudolf Meyer, one of the most distinguished of 'Christian socialists,' has argued that if one recognises the productivity of land or stock, one must also recognise the productivity of money, and that therefore the Church, in denying the productivity of the latter, would be logically driven to deny the productivity of the former.[2] Anton Menger expresses the same opinion: 'There is not the least reason for attacking from the moral and religious standpoints loans at interest and usury more than any other form of unearned income. If one questions the legitimacy of loans at interest, one must equally condemn as inadmissible the other forms of profit from capital and lands, and particularly the feudal institutions of the Middle Ages.... It would have been but a logical consequence for the Church to have condemned all forms of unearned revenue.'[3]

[Footnote 1: Ashley, _op. cit._, vol. i. pt. ii. p. 427.]

[Footnote 2: _Der Kapitalismus fin de siècle_, p. 29.]

[Footnote 3: _Das Recht auf den Arbeiterstrag_. See the Abbé Hohoff in _Démocratie Chrétienne_, Sept. 1898, p. 284.]

No such conclusion, however, can be properly drawn from the mediæval teaching. The whole discussion on usury turned on the distinction which was drawn between things of which the use could be transferred without the ownership, and things of which the use could not be so transferred. In the former category were placed all things which could be used, either by way of enjoyment or employment for productive purposes, without being destroyed in the process; and in the latter all things of which the use or employment involved the destruction.

With regard to income derived from the former, no difficulty was ever felt; a farm or a house might be let at a rent without any question, the return received being universally regarded as one of the legitimate fruits of the ownership of the thing. With regard to the latter, however, a difficulty did arise, because it was felt that a so-called loan of such goods was, when analysed, in reality a sale, and that therefore any increase which the goods produced was in reality the property, not of the lender, but of the borrower. That money was in all cases sterile was never suggested; on the contrary, it was admitted that it might produce a profit if wisely and prudently employed in industry or commerce; but it was felt that such an increase, when it took place, was the rightful property of the owner of the money. But when money was lent, the owner of this money was the borrower, and therefore, when money which was lent was employed in such a way as to produce a profit, that profit belonged to the borrower, not the lender. In this way the schoolmen were strictly logical; they fully admitted that wealth could produce wealth; but they insisted that that additional wealth should accrue to the owner of the wealth that produced it.

The fact is, as Böhm-Bawerk has pointed out, that the question of the productivity of capital was never discussed by the mediæval schoolmen, for the simple reason that it was so obvious. The justice of receiving an income from an infungible thing which was temporarily lent by its owner, was discussed and supported; but the justice of the owner of such a thing receiving an income from the thing so long as it remained in his own possession was never discussed, because it was universally admitted.[1] It is perfectly correct to say that the problems which have perplexed modern writers as to the justice of receiving an unearned income from one's property never occurred to the scholastics; such problems can only arise when the institution of private property comes to be questioned; and private property was the keystone of the whole scholastic economic conception. In other words, the justice of a reward for capital was admitted because it was unquestioned.

[Footnote 1: _Capital and Interest_, p. 39.]

The question that caused difficulty was whether money could be considered a form of capital. At the present day, when the opportunities of industrial investment are wider than they ever were before, the principal use to which money is put is the financing of industrial enterprises; but in the Middle Ages this was not the case, precisely because the opportunities of profitable investment were so few. This is the reason why the mediæval writers did not find it necessary to discuss in detail the rights of the owner of money who used it for productive purposes. But of the justice of a profit being reaped when money was actually so employed there was no doubt at all. As we have seen, the borrower of a sum of money might reap a profit from its wise employment; there was no question about the justice of taking such a profit; and the only matter in dispute was whether that profit should belong to the borrower or the lender of the money. This dispute was decided in favour of the borrower on the ground that, according to the true nature of the contract of _mutuum_, the money was his property. It was, therefore, never doubted that even money might produce a profit for its owner. The only difference between infungible goods and money was that, in the case of the former, the use might be transferred apart from the property, whereas, in the case of the latter, it could not be so transferred.

The recognition of the title _lucrum cessans_ as a ground for remuneration clearly implies the recognition of the legitimacy of the owner of money deriving a profit from its use; and the slowness of the scholastics to admit this title was precisely because of the rarity of opportunities for so employing money in the earlier Middle Ages. The nature of capital was clearly understood; but the possibility of money constituting capital arose only with the extension of commerce and the growth of profitable investments. Those scholastics who strove to abolish or to limit the recognition of _lucrum cessans_ as a ground for remuneration did not deny the productivity of capital, but simply thought the money had not at that time acquired the characteristics of capital.[1]

[Footnote 1: See Ashley, _op. cit._, vol. i. pt. ii. pp. 434-9.]

If there were any doubt about the fact that the scholastics recognised the legitimacy of unearned income, it would be dispelled by an understanding of their teaching on rents and partnership, in the former of which they distinctly acknowledged the right to draw an unearned income from one's land, and in the latter of which they acknowledged the same right in regard to one's money.[1]

[Footnote 1: On this discussion see Ashley, _Economic History_, vol. i. pt. ii. pp. 427 _et seq._; Rambaud, _Histoire_, pp. 57 _et seq._; Funk, _Zins und Wucher_; Arnold, _Zur Geschichte des Eigenthums_, pp. 92 _et seq._; Böhm-Bawerk, _Capital and Interest_ (Eng. trans.), pp. 1-39.]

§ 8. _Rent Charges_.

There was never any difficulty about admitting the justice of receiving a rent from a tenant in occupation of one's lands, because land was understood to be essentially a thing of which the use could be sold apart from the ownership; and it was also recognised that the recipient of such a rent might sell his right to a third party, who could then demand the rent from the tenant. When this was admitted it was but a small step to admit the right of the owner of land to create a rent in favour of another person in consideration for some payment. The distinctions between a _census reservativus_, or a rent established when the possession of land was actually transferred to a tenant, and a _census constitutivus_, or a rent created upon property remaining in the possession of the payer, did not become the subject of discussion or difficulty until the sixteenth century.[1] The legitimacy of rent charges does not seem to have been questioned by the theologians; the best proof of this being the absence of controversy about them in a period when they were undoubtedly very common, especially in Germany.[2] Langenstein, whose opinion on the subject was followed by many later writers,[3] thought that the receipt of income from rent charges was perfectly justifiable, when the object was to secure a provision for old age, or to provide an income for persons engaged in the services of Church or State, but that it was unjustifiable if it was intended to enable nobles to live in luxurious idleness, or plebeians to desert honest toil. It is obvious that Langenstein did not regard rent charges as wrongful in themselves, but simply as being the possible occasions of wrong.[4]

[Footnote 1: Ashley, _op. cit._, vol. i. pt. ii. p. 409.]

[Footnote 2: Endemann, _Studien_, vol. ii. p. 104.]

[Footnote 3: Endemann, _Studien_, vol. ii. p. 109.]

[Footnote 4: Roscher, _Geschichte_, p. 20.]

In the fifteenth century definite pronouncements on rent charges were made by the Popes. A large part of the revenue of ecclesiastical bodies consisted of rent charges, and in 1425 several persons in the diocese of Breslau refused to pay the rents they owed to their clergy on the ground that they were usurious. The question was referred to Pope Martin V., whose bull deciding the matter was generally followed by all subsequent authorities. The bull decides in favour of the lawfulness of rent charges, provided certain conditions were observed. They must be charged on fixed property ('super bonis suis, dominiis, oppidis, terris, agris, praediis, domibus et hereditatibus') and determined beforehand; they must be moderate, not exceeding seven or ten per cent.; and they must be capable of being repurchased at any moment in whole or in part, by the repayment of the same sum for which they were originally created. On the other hand, the payer of the rent must never be forced to repay the purchase money, even if the goods on which the rent was charged had perished--in other words, the contract creating the rent charge was one of sale, and not of loan. The bull recites that such conditions had been observed in contracts of this nature from time immemorial.[1] A precisely similar decree was issued by Calixtus III. in 1455.[2]

[Footnote 1: _Extrav. Commun._, iii. 5, i.]

[Footnote 2: _Ibid._, c. 2.]

These decisions were universally followed in the fifteenth century.[1] It was always insisted that a rent could only be charged upon something of which the use could be separated from the ownership, as otherwise it would savour of usury.[2] In the sixteenth century interesting discussions arose about the possibility of creating a personal rent charge, not secured on any specific property, but such discussions did not trouble the writers of the period which we are treating. The only instance of such a contract being considered is found in a bull of Nicholas V. in 1452, permitting such personal rent charges in the kingdoms of Aragon and Sicily, but this permission was purely local, and, as the bull itself shows, was designed to meet the exigencies of a special situation.[3]

[Footnote 1: Ashley, _op. cit._, vol. i. pt. ii. p. 410.]

[Footnote 2: Biel, _op. cit._, Sent. IV. xv. 12.]

[Footnote 3: Cleary, _op. cit._, p. 124.]

§ 9. _Partnership_.

The teaching on partnership contains such a complete disproof of the contention that the mediæval teaching on usury was based on the unproductivity of capital, that certain writers have endeavoured to prove that the permission of partnership was but a subterfuge, consciously designed to justify evasions of the usury law. Further historical knowledge, however, has dispelled this misconception; and it is now certain that the contract of partnership was widely practised and tolerated long before the Church attempted to insist on the observance of its usury laws in everyday commercial life.[1] However interesting an investigation into the commercial and industrial partnerships of the Middle Ages might be, we must not attempt to pursue it here, as we have rigidly limited ourselves to a consideration of teaching. We must refer, however, to the _commenda_, which was the contract from which the later mediæval partnership (_societas_) is generally admitted to have developed, because the _commenda_ was extensively practised as early as the tenth century, and, as far as we know, never provoked any expression of disapproval from the Church. This silence amounts to a justification; and we may therefore say that, even before Aquinas devoted his attention to the subject, the Church fully approved of an institution which provided the owner of money with the means of procuring an unearned income.

[Footnote 1: Ashley, _op. cit._, vol. i. pt. ii. p. 411; Weber, _Handelsgesellschaften_, pp. 111-14.]

The _commenda_ was originally a contract by which merchants who wished to engage in foreign trade, but who did not wish to travel themselves, entrusted their wares to agents or representatives. The merchant was known as the _commendator_ or _socius stans_, and the agent as the _commendatarius_ or _tractator_. The most usual arrangement for the division of the profits of the adventure was that the _commendatarius_ should receive one-fourth and the _commendator_ three-fourths. At a slightly later date contracts came to be common in which the _commendatarius_ contributed a share of capital, in which case he would receive one-fourth of the whole profit as _commendatarius_, and a proportionate share of the remainder as capitalist. This contract came to be generally known as _collegantia_ or _societas_. Contracts of this kind, though originally chiefly employed in overseas enterprise, afterwards came to be utilised in internal trade and manufacturing industry.[1]

[Footnote 1: Ashley, _op. cit._, vol. i. pt. ii. pp. 412-14.]

The legitimacy of the profits of the _commendator_ never seems to have caused the slightest difficulty to the canonists. In 1206 Innocent III. advised the Archbishop of Genoa that a widow's dowry should be entrusted to some merchant so that an income might be obtained by means of honest gain.[1] Aquinas expressly distinguishes between profit made from entrusting one's money to a merchant to be employed by him in trade, and profit arising from a loan, on the ground that in the former case the ownership of the money does not pass, and that therefore the person who derives the profit also risks the loan. 'He who lends money transfers the ownership of the money to the borrower. Hence the borrower holds the money at his own risk, and is bound to pay it all back: wherefore the lender must not exact more. On the other hand, he that entrusts his money to a merchant or craftsman so as to form a kind of society does not transfer the ownership of the money to them, for it remains his, so that at his risk the merchant speculates with it, or the craftsman uses it for his craft, and consequently he may lawfully demand, as something belonging to him, part of the profits derived from his money.'[2] This dictum of Aquinas was the foundation of all the later teaching on partnership, and the importance of the element of risk was insisted on in strong terms by the later writers. According to Baldus, 'when there is no sharing of risk there is no partnership';[3] and Paul de Castro says, 'A partnership when the gain is shared, but not the loss, is not to be permitted.'[4] 'The legitimacy,' says Brants, 'of the contract of _commenda_ always rested upon the same principle; capital could not be productive except for him who worked it himself, or who caused it to be worked on his own responsibility. This latter condition was realised in _commenda_.'[5]

[Footnote 1: _Greg. Decr._, iv. 19, 7.]

[Footnote 2: II. ii. 78, 2, ad. 5.]

[Footnote 3: Brants, _op. cit._, p. 167.]

[Footnote 4: _Consilia_, ii. 55; also Ambrosius de Vignate, _De Usuris_, i. 62; Biel, _Op. cit._, IV. xv. 11.]

[Footnote 5: _Op. cit._, p. 172.]

Although the contract of partnership was fully recognised by the scholastics, it was not very scientifically treated, nor were the different species of the contract systematically classified. The only classification adopted was to divide contracts of partnership into two kinds--those where both parties contributed labour to a joint enterprise, and those where one party contributed labour and the other party money. The former gave no difficulty, because the justice of the remuneration of labour was admitted; but, while the latter was no less fully recognised, cases of it were subjected to careful scrutiny, because it was feared that usurious contracts might be concealed under the appearance of a partnership.[1] The question which occupied the greatest space in the treatises on the subject was the share in which the profits should be divided between the parties. The only rule which could be laid down, in the absence of an express contract, was that the parties should be remunerated in proportion to the services which they contributed--a rule the application of which must have been attended with enormous difficulties. Laurentius de Rodulphis insists that equality must be observed;[2] and Angelus de Periglis de Perusio, the first monographist on the subject, does not throw much more light on the question. The rule as stated by this last writer is that in the first place the person contributing money must be repaid a sum equal to what he put in, and the person contributing labour must be paid a sum equal to the value of his labour, and that whatever surplus remains must be divided between the two parties equally.[3] The question of the shares in which the profits should be distributed was not one, however, that frequently arose in practice, because it was the almost universal custom for the partners to make this a term of their original contract. Within fairly wide limits it was possible to arrange for the division of the profits in unequal shares--say two-thirds and one-third. The shares of gain and loss must, however, be the same; one party could not reap two-thirds of the profit and bear only one-third of the loss; but it might be contracted that, when the loss was deducted from the gain, one party might have two-thirds of the balance, and the other one-third.[4] In no case, of course, could the party contributing the money stipulate that his principal should in all cases be returned, because that was a _mutuum_. The party contributing the labour might validly contract that he should be paid for his labour in any case, but, if this was so, the contract ceased to be a _societas_ and became a _locatio operarum_, or ordinary contract of work for wages. In all cases, common participation in the gains and losses of the enterprise was an essential feature of the contract of partnership.[5]

[Footnote 1: _Summa Astesana_, iii. 12.]

[Footnote 2: _De Usuris_, i. 19.]

[Footnote 3: _De Societatibus_, i. 130.]

[Footnote 4: _De Societatibus_, i. 130.]

[Footnote 5: _Ibid._]

Before concluding the subject of partnership, we must make reference to the _trinus contractus_, which caused much discussion and great difficulty. As we have seen, a contract of partnership was good so long as the person contributing money did not contract that he should receive his original money back in all circumstances. A contract of insurance was equally justifiable. There was no doubt that A might enter into partnership with B; he could further insure himself with C against the loss of his capital, and with D against damage caused by fluctuations in the rate of profits. Why, then, should he not simultaneously enter into all three contracts with B? If he did so, he was still B's partner, but at the same time he was protected against the loss of his principal and a fair return upon it--in other words, he was a partner, protected against the risks of the enterprise. The legitimacy of such a contract--the _trinus contractus_, as it was called--was maintained by Carletus in the _Summa Angelica_, which was published about 1476, and by Biel.[1] Early in the sixteenth century Eck, a young professor at Ingolstadt, brought the question of the legitimacy of this contract before the University of Bologna, but no formal decision was pronounced, and, had it not been for the reaction following the Reformation, the _trinus contractus_ would probably have gained general acceptance. As it was, it was condemned by a provincial synod at Milan in 1565, and by Sixtus V. in 1585.[2]

[Footnote 1: _Op. cit._, IV. xv. 11. Lecky attributed the invention of the _trinus contractus_ to the Jesuits--who were only founded in 1534 (_History of Rationalism_, vol. ii. p. 267).]

[Footnote 2: Ashley, _op. cit._, vol. i. pt. ii. pp. 439 _et seqq._; Cleary, _op. cit._, pp. 126 _et seqq._]

We should also refer to the contract of bottomry, which consisted of a loan made to the owner--or in some cases the master--of a ship, on the security of the ship, to be repaid with interest upon the safe conclusion of a voyage. This contract could not be considered a partnership, inasmuch as the property in the money passed to the borrower; but it probably escaped condemnation as usurious on the ground that the lender shared in the risk of the enterprise. The payment of some additional sum over and above the money lent might thus be justified on the ground of _periculum sortis_. The contract, moreover, was really one of insurance for the shipowner, and contracts of insurance were clearly legitimate. In any event the legitimacy of loans on bottomry was not questioned before the sixteenth century.[1]

[Footnote 1: Ashley, _op. cit._, vol. i. pt. ii. pp. 421-3; Palgrave, _Dictionary of Political Economy_, art. 'Bottomry'; Cunningham, _Growth of English Industry and Commerce_, vol i. p. 257.]

§ 10. _Concluding Remarks on Usury_.

It is to be hoped that the above exposition of the mediæval doctrine on usury will dispel the idea that the doctrine was founded upon the injustice of unearned income. Far from the receipt of an unearned income from money or other capital being in all cases condemned, it was unanimously recognised, provided that the income accrued to the owner of the capital, and not to somebody else, and that the rate of remuneration was just. The teaching on partnership rested on the fundamental assumption that a man might trade with his money, either by using it himself, or by allowing other people to use it on his behalf. In the latter case, the person making use of the money might be either assured of being paid a fixed remuneration for his services, in which case the contract was one of _locatio operarum_, or he might be willing to let his remuneration depend upon the result of the enterprise, in which case the contract was one of _societas_. In either case the right of the owner of the money to reap a profit from the operation was unquestioned, provided only that he was willing to share the risks of loss. But if, instead of making use of his money for trading either by his own exertions or by those of his partner or agent, he chose to sell his money, he was not permitted to receive more for it than its just price--which was, in fact, the repayment of the same amount. This was what happened in the case of a _mutuum_. In that case the ownership of the money was transferred to the borrower, who was perfectly at liberty to trade with it, if he so desired, and to reap whatever gain that trade produced. The prohibition of usury, far from being proof of the injustice of an income from capital, is proof of quite the contrary, because it was designed to insure that the income from capital should belong to the owner of that capital and to no other person.[1] Although, therefore, no price could be paid for a loan, the lender must be prevented from suffering any damage from making the loan, and he might make good his loss by virtue of the implied collateral contract of indemnity, which we discussed above when treating of extrinsic titles. If the lender, through making the loan, had been prevented from making a profit in trade, he might be indemnified for that loss. All through the discussions on usury we find express recognition of the justice of the owner of money deriving an income from its employment; all that the teaching of usury was at pains to define was who the person was to whom money, which was the subject matter of a _mutuum_, belonged. It is quite impossible to comprehend how modern writers can see in the usury teaching of the scholastics a fatal discouragement to the enterprise of traders and capitalists; and it is equally impossible to understand how socialists can find in that doctrine any suggestion of support for the proposition that all unearned income is immoral and unjust.

[Footnote 1: See Rambaud, _op. cit._, p. 59.]

SECTION 3.--THE MACHINERY OF EXCHANGE

We have already drawn attention to the fact that there was no branch of economics about which such profound ignorance ruled in the earlier Middle Ages as that of money. As we stated above, even as late as the twelfth century, the theologians were quite content to quote the ill-founded and erroneous opinions of Isidore of Seville as final on the subject. It will be remembered that we also remarked that the question of money was the first economic question to receive systematic scientific treatment from the writers of the later Middle Ages. This remarkable development of opinion on this subject is practically the work of one man, Nicholas Oresme, Bishop of Lisieux, whose treatise, _De Origine, Natura, Jure et Mutationibus Monetarum_, is the earliest example of a pure economic monograph in the modern sense. 'The scholastics,' says Roscher, 'extended their inquiries from the economic point of view further than one is generally disposed to believe; although it is true that they often did so under a singular form.... We can, however, single out Oresme as the greatest scholastic economist for two reasons: on account of the exactitude and clarity of his ideas, and because he succeeded in freeing himself from the pseudo-theological systematisation of things in general, and from the pseudo-philosophical deduction in details.'[1]

[Footnote 1: Quoted in the Introduction to Wolowski's edition of Oresme's _Tractatus_ (Paris, 1864).]

Even in the thirteenth century natural economy had not been replaced to any large extent by money economy. The great majority of transactions between man and man were carried on without the intervention of money payments; and the amount of coin in circulation was consequently small.[1] The question of currency was not therefore one to engage the serious attention of the writers of the time. Aquinas does not deal with money in the _Summa_, except incidentally, and his references to the subject in the _De Regimine Principum_--which occur in the chapters of that work of which the authorship is disputed--simply go to the length of approving Aristotle's opinions on money, and advising the prince to exercise moderation in the exercise of his power of coining _sive in mutando sive in diminuendo pondus_.[2]

[Footnote 1: Brants, _op. cit._, p. 179; Rambaud, _op. cit._, p. 73.]

[Footnote 2: _De Reg. Prin._, ii. 13.]

As is often the case, the discussion of the rights and duties of the sovereign in connection with the currency only arose when it became necessary for the public to protest against abuses. Philip the Fair of France made it part of his policy to increase the revenue by tampering with the coinage, a policy which was continued by his successors, until it became an intolerable grievance to his subjects. In vain did the Pope thunder against Philip;[1] in vain did the greatest poet of the age denounce

'him that doth work With his adulterate money on the Seine.'[2]

[Footnote 1: Le Blant, _Traité historique des Monnaies de France_, p. 184.]

[Footnote 2: Dante, _Paradiso_, xix.]

Matters continued to grow steadily worse until the middle of the fourteenth century. During the year 1348 there were no less than eleven variations in the value of money in France; in 1349 there were nine, in 1351 eighteen, in 1353 thirteen, and in 1355 eighteen again. In the course of a single year the value of the silver mark sprang from four to seventeen livres, and fell back again to four.[1] The practice of fixing the price of many necessary commodities must have aggravated the natural evil consequences of such fluctuations.[2]

[Footnote 1: Wolowski's Introduction to Oresme's _Tractatus_, p. xxvii.]

[Footnote 2: See Endemann, _Studien_, vol. ii. p. 34.]

This grievance had the good result of fixing the attention of scholars on the money question. 'Under the stress of facts and of necessity,' says Brants, 'thinkers applied their minds to the details of the theory of money, which was the department of economics which, thanks to events, received the earliest illumination. Lawyers, bankers, money-changers, doctors of theology, and publicists of every kind, attached a thoroughly justifiable importance to the question of money. We are no doubt far from knowing all the treatises which saw the light in the fourteenth century upon this weighty question; but we know enough to affirm that the monetary doctrine was very developed and very far-seeing.'[1] Buridan analysed the different functions and utilities of money, and explained the different ways in which its value might be changed.[2] He did not, however, proceed to discuss the much more important question as to when the sovereign was entitled to make these alterations. This was reserved for Nicholas Oresme, who published his famous treatise about the year 1373. The merits of this work have excited the unanimous admiration of all who have studied it. Roscher says that it contains 'a theory of money, elaborated in the fourteenth century, which remains perfectly correct to-day, under the test of the principles applied in the nineteenth century, and that with a brevity, a precision, a clarity, and a simplicity of language which is a striking proof of the superior genius of its author.'[3] According to Brants, 'the treatise of Oresme is one of the first to be devoted _ex professo_ to an economic subject, and it expresses many ideas which are very just, more just than those which held the field for a long period after him, under the name of mercantilism, and more just than those which allowed of the reduction of money as if it were nothing more than a counter of exchange.'[4] 'Oresme's treatise on money,' says Macleod, 'may be justly said to stand at the head of modern economic literature. This treatise laid the foundations of monetary science, which are now accepted by all sound economists.'[5] 'Oresme's completely secular and naturalistic method of treating one of the most important problems of political economy,' says Espinas, 'is a signal of the approaching end of the Middle Ages and the dawn of the Renaissance.'[6] Dr. Cunningham adds his tribute of praise: 'The conceptions of national wealth and national power were ruling ideas in economic matters for several centuries, and Oresme appears to be the earliest of the economic writers by whom they were explicitly adopted as the very basis of his argument.... A large number of points of economic doctrine in regard to coinage are discussed with much judgment and clearness.'[7] Endemann alone is[8] inclined to quarrel with the pre-eminence of Oresme; but on this question, he is in a minority of one.[9]

[Footnote 1: _Op. cit._, p. 186.]

[Footnote 2: _Quaest. super Lib. Eth._, v. 17; _Quaest. super Lib. Pol._, i. 11.]

[Footnote 3: Quoted in Wolowski, _op. cit._, and see Roscher, _Geschichte_, p. 25.]

[Footnote 4: _Op. cit._, p. 190.]

[Footnote 5: _History of Economics_, p. 37.]

[Footnote 6: _Op. cit._, p. 110.]

[Footnote 7: _Growth of English Industry and Commerce_, vol. i. p. 359.]

[Footnote 8: _Grundsätze_, p. 75.]

[Footnote 9: See an interesting note in Brants, _op. cit._, p. 187.]

The principal question which Oresme sets out to answer, according to the first chapter of this treatise, is whether the sovereign has the right to alter the value of the money in circulation at his pleasure, and for his own benefit. He begins the discussion by going over the same ground as Aristotle in demonstrating the origin and utility of money, and then proceeds to discuss the most suitable materials which can be made to serve as money. He decides in favour of gold and silver, and shows himself an unquestioning bimetallist. He further admits the necessity of some token money of small denominations, to be composed of the baser metals. Having drawn attention to the transition from the circulation of money, the value of which is recognised solely by weight, to the circulation of that which is accepted for its imprint or superscription, the author insists that the production of such an imprinted coinage is essentially a matter for the sovereign authority in the State. Oresme now comes to the central point of his thesis. Although, he says, the prince has undoubtedly the power to manufacture and control the coinage, he is by no means the owner of it after it has passed into circulation, because money is a thing which in its essence was invented and introduced in the interests of society as a whole.

Oresme then proceeds to apply this central principle to the solution of the question which he sets himself to answer, and concludes that, as money is essentially a thing which exists for the public benefit, it must not be tampered with, nor varied in value, except in cases of absolute necessity, and in the presence of an uncontroverted general utility. He bases his opposition to unnecessary monetary variation on the perfectly sound ground that such variation is productive of loss either to those who are bound to make or bound to receive fixed sums in payment of obligations. The author then goes on to analyse the various kinds of variation, which he says are five--_figurae_, _proportionis_, _appellationis_, _ponderis_, and _materiae_. Changes of form (_figurae_) are only justified when it is found that the existing form is liable to increase the damage which the coins suffer from the wear and tear of usage, or when the existing currency has been degraded by widespread illegal coining; changes _proportionis_ are only allowable when the relative value of the different metals constituting the coinage have themselves changed; simple changes of name (_appellationis_), such as calling a mark a pound, are never allowed. Changes of the weight of the coins (_ponderis_) are pronounced by Oresme to be just as gross a fraud as the arbitrary alteration of the weights or measures by which corn or wine are sold; and changes of matter (_materiae_) are only to be tolerated when the supply of the old metal has become insufficient. The debasement of the coinage by the introduction of a cheaper alloy is condemned.

In conclusion, Oresme insists that no alteration of any of the above kinds can be justified at the mere injunction of the prince; it must be accomplished _per ipsam communitatem_. The prince exercises the functions of the community in the matter of coinage not as _principalis actor_, but as _ordinationis publicae executor_. It is pointed out that arbitrary changes in the value of money are really equivalent to a particularly noxious form of taxation; that they seriously disorganise commerce and impoverish many merchants; and that the bad coinage drives the good out of circulation. This last observation is of special interest in a fourteenth-century writer, as it shows that Gresham's Law, which is usually credited to a sixteenth-century English economist, was perfectly well understood in the Middle Ages.[1]

[Footnote 1: The best edition of Oresme's _Tractatus_ is that by Wolowski, published at Paris in 1864, which includes both the Latin and French texts.]

This brief account of the ground which Oresme covered, and the conclusions at which he arrived, will enable us to appreciate his importance. Although his clear elucidation of the principles which govern the questions of money was not powerful enough to check the financial abuses of the sovereigns of the later Middle Ages, they exercised a profound influence on the thought of the period, and were accepted by all the theologians of the fifteenth century.[2]

[Footnote 2: Biel, _op. cit._, IV. xv. 11; _De Monetarum Potestate et Utilitate_, referred to in Jourdain, _op. cit._, p. 34.]