St Thomas Aquinas (1225–74) was the towering intellect of the High Middle Ages, the man who built on the philosophical system of Aristotle, on the concept of natural law, and on Christian theology to forge ‘Thomism’, a mighty synthesis of philosophy, theology and the sciences of man. This young Italian was born an aristocrat, son of Landulph, count of Aquino at Rocco Secca in the kingdom of Naples. Thomas studied at an early age with the Benedictines, and later at the University of Naples. At the age of 15 he tried to enter the new Dominican Order, a place for Church intellectuals and scholars, but was physically prevented from doing so by his parents, who kept him confined for two years. Finally, St Thomas escaped, joined the Dominicans, and then studied at Cologne and finally at Paris under his revered teacher, Albert the Great. Aquinas took his doctorate at the University of Paris, and taught there as well as at other university centres in Europe. Aquinas was so immensely corpulent that it was said that a large section had to be carved out of the round dinner table so that he could sit at it. Aquinas wrote numerous works, beginning with his Commentary on Peter Lombard's Sentences in the 1250s, and ending with his masterful and enormously influential three-part Summa Theologica, written between 1265 and 1273. It was the Summa, more than any other work, that was to establish Thomism as the mainstream of Catholic scholastic theology in centuries to come.
Until recently, historical studies of the just price typically began with St Thomas, as if the entire discussion had suddenly leapt into being in the ample person of Aquinas in the thirteenth century. We have seen, however, that Aquinas worked in a long and rich canonist, Romanist and theological tradition. It is not surprising that Aquinas followed his revered teacher, St Albert, and the other theologians of the previous century in insisting on the just price for all exchanges and, not being content with the more liberal legist creed of free bargaining up to the alleged point of laesio enormis, in asserting that divine law, which must take precedence over human law, demands complete virtue, or the precise just price.
Unfortunately, in discussing the just price, St Thomas stored up great trouble for the future by being vague about what precisely the just price is supposed to be. As a founder of a system built on the great Aristotle, Aquinas, following St Albert before him, felt obliged to incorporate the Aristotelian analysis of exchange into his theory, with all the ambiguities and obscurities that that entailed. St Thomas was clearly an Aristotelian in adopting the latter's trenchant view that the determinant of exchange value was the need, or utility, of consumers, as expressed in their demand for products. And so, this proto-Austrian aspect of value based on demand and utility was reinstated in economic thought. On the other hand, Aristotle's erroneous view of exchange as ‘equating’ values was rediscovered, along with the indecipherable shoemaker–builder ratio. Unfortunately, in the course of the Commentary to the (Nichomachean) Ethics, Thomas followed St Albert in seeming to add to utility, as a determinant of exchange value, labour plus expenses. This gave hostage to the later idea that St Thomas had either added to Aristotle's utility theory of value a cost of production theory (labour plus expenses), or even replaced utility by a cost theory. Some commentators have even declared that Aquinas had adopted a labour theory of value, capped by the notorious and triumphant sentence by the twentieth century Anglican socialist historian Richard Henry Tawney: ‘The true descendant of the doctrines of Aquinas is the labour theory of value. The last of the Schoolmen is Karl Marx.’2
It has taken historians several decades to recover from Tawney's disastrous misinterpretation. Indeed, the scholastics were sophisticated thinkers and social economists who favoured trade and capitalism, and advocated the common market price as the just price, with the exception of the problem of usury. Even in value theory, the labour plus expenses discussion in Aquinas is an anomaly. For labour plus expenses (never just labour) appears only in Aquinas's Commentary and not in the Summa, his magnum opus.3 Moreover, we have seen that labour plus expenses was a formula generally used in Aquinas's times to justify the profits of merchants rather than as a means of determining economic value. It is therefore likely that Aquinas was using the concept in this sense, making the sensible point that a merchant who failed in the long run to cover his costs and not to make profits would go out of business.
In addition, there are many indications that Aquinas adhered to the common view of the Churchmen of his and previous times that the just price was the common market price. If so, then he could scarcely also hold that the just price equalled cost of production, since the two can and do differ. Thus his conclusion in the Summa was that ‘the value of economic goods is that which comes into human use and is measured by a monetary price, for which purpose money was invented.’ Particularly revealing was a reply Aquinas made as early as 1262 in a letter to Jacopo da Viterbo (d. 1308), a lector of the Dominican monastery in Florence and later archbishop of Naples. In his letter, Aquinas referred to the common market price as the normative and just price with which to compare other contracts. Moreover, in the Summa, Aquinas notes the influence of supply and demand on prices. A more abundant supply in one place will tend to lower price in that place, and vice versa. Furthermore, St Thomas described without at all condemning the activities of merchants in making profits by buying goods where they were abundant and cheap, and then transporting and selling them in places where they are dear. None of this looks like a cost-of-production view of the just price.
Finally, and most charmingly and crucially, Aquinas, in his great Summa, raised a question that had been discussed by Cicero. A merchant is carrying grain to a famine-stricken area. He knows that soon other merchants are following him with many more supplies of grain. Is the merchant obliged to tell the starving citizenry of the supplies coming soon and thereby suffer a lower price, or is it all right for him to keep silent and reap the rewards of a high price? To Cicero, the merchant was duty-bound to disclose his information and sell at a lower price. But St Thomas argued differently. Since the arrival of the later merchants was a future event and therefore uncertain, Aquinas declared justice did not require him to tell his customers about the impending arrival of his competitors. He could sell his own grain at the prevailing market price for that area, even though it was extremely high. Of course, Aquinas went on amiably, if the merchant wished to tell his customers anyway, that would be especially virtuous, but justice did not require him to do so. There is no starker example of Aquinas's opting for the just price as the current price, determined by demand and supply, rather than the cost of production (which of course did not change much from the area of abundance to the famine area).
A piece of indirect evidence is that Giles of Lessines (d. c.1304), a student of Albert and Aquinas and a Dominican professor of theology at Paris, analysed the just price similarly, and flatly declared that it was the common market price. Giles stressed, furthermore, that a good is properly worth as much as it can be sold for without coercion or fraud.
It should come as no surprise that Aquinas, in contrast to Aristotle, was highly favourable towards the activities of the merchant. Mercantile profit, he declared, was a stipend for the merchant's labour, and a reward for shouldering the risks of transportation. In a commentary to Aristotle's Politics (1272), Aquinas noted shrewdly that greater risks in sea transportation resulted in greater profits for merchants. In his Commentary to the Sentences of Peter Lombard, written in the 1250s, Thomas followed preceding theologians in arguing that merchants could ply their trade without committing sin. But in his later work, he was far more positive, pointing out that merchants perform the important function of bringing goods from where they are abundant to where they are scarce.
Particularly important was Aquinas's brief outline of the mutual benefit each person derives from exchange. As he put it in the Summa: ‘buying and selling seems to have been instituted for the mutual advantage of both parties, since one needs something that belongs to the other, and conversely’.
Building on Aristotle's theory of money, Aquinas pointed out its indispensability as a medium of exchange, a ‘measure’ of expression of values, and a unit of account. In contrast to Aristotle, Aquinas was not frightened at the idea of the value of money fluctuating on the market. On the contrary, Aquinas recognized that the purchasing power of money was bound to fluctuate, and was content if it fluctuated, as it usually did, more stably than did particular prices.
It was the peculiar fate of the usury prohibition in the Middle Ages that every time it seemed to be weakening in the face of reality, theorists would strengthen the ban. At a time when the highly sophisticated and knowledgeable Cardinal Hostiensis was seeking to soften the prohibition, St Thomas Aquinas unfortunately tightened it once more. Like his teacher St Albert, Aquinas added the Aristotelian objection to the medieval ban on usury, except that Aquinas also inserted something new. In the medieval tradition of starting with the conclusion – the crushing of usury – and seizing any odd argument to hand which might lead to it, Aquinas added a new twist to Aristotelian doctrine. Instead of stressing the barrenness of money as a major argument against usury, Aquinas seized on the term ‘measure’ and stressed that since money, in terms of money, of course, has a fixed legal face value, this means that the formal nature of money must be to remain fixed. The purchasing power of money can fluctuate due to changes in the supply of goods; that is legitimate and natural. But when the holder of money sets out to produce variations in its value by charging interest, he violates the nature of money and is therefore sinful and mindless of the natural law.
That such arrant nonsense should swiftly assume a central place in all later scholastic prohibitions of usury is testimony to the way that irrationality can seize the thought of even so great a champion of reason as Aquinas (and his followers). Why the fixed legal face value of a coin should mean that its value in exchange – at least from the side of money – should not change; or why the charging of interest should be confused with a change in the purchasing power of money, simply testifies to the human propensity for fallacy, especially when prohibiting usury had already become the overriding goal.
But Aquinas's argument against usury involved another invention of his own. Money, to him, is totally ‘consumed’; it ‘disappears’ in exchange. Therefore money's use is equivalent to its ownership. Hence, when one charges interest on a loan, one is charging twice, for the money itself and for its use, although they are one and the same. Highlighting this odd thesis was Aquinas's discussion of why it was legitimate for an owner of money to charge rent for someone to display a coin. In that case, there is a bailment, a charge for keeping one's money in trust. But the reason why this charge is licit, for Aquinas, is that the display of money is only a ‘secondary’ use, a use separate from its ownership, since money is not ‘consumed’ or does not disappear in the process. The primary use of money is to disappear in the purchase of goods.
There are several grave problems with this new weapon invented by Aquinas with which to beat usury. First, what is wrong with charging ‘twice’, for ownership and use? Second, even if somehow wrong, this act scarcely bears the weight of sin and excommunication that the Catholic Church had loaded for centuries upon the hapless usurer. And third, if Aquinas had looked beyond the legal formalism of money, and at the goods which the borrower purchased with his loan, he might have seen that these purchased goods were in an important sense ‘fruitful’, so that while the money ‘disappeared’ in purchases, in an economic sense the goods-equivalent of money was retained by the borrower.
St Thomas's stress on consumption of money led to a curious shift on the usury question. In contrast to all theorists since Gratian, the sin now became not charging interest on a loan per se, but only on a good – money – that disappears. Therefore, for Aquinas, charging interest on a loan of goods in kind would not be condemned as ‘usury’.
But if the usury prohibition on money was tightened with new arguments, Aquinas continued and strengthened the previous tradition of justifying investments in a partnership (societas). A societas was licit because each partner retained ownership of his money, and ran the risk of loss; hence profit on such risky investments was legitimate. In the late eleventh century, Ivo of Chartres had already briefly distinguished a societas from a usurious loan, and the distinction was elaborated in the early thirteenth century by the theologian Robert of Courçon (c. 1204), and in John Teutonicus’ Gloss on Gratian (1215). Courçon had made it clear that even an inactive partner risked his capital in an enterprise. This of course meant that types of inactive partnerships, such as sea loans for specific voyages, slid over into actual loans, and the lines were often fuzzy. Besides, and this was a problem that no one at the time would face, wasn't any lender necessarily risking his capital, since a borrower could always turn out to be unable to repay even the principal of a loan?
Aquinas now lent his enormous authority to the view that the societas was perfectly licit and not usurious. He succintly declared that the investor of money does not transfer ownership to a working partner; that ownership is retained by the investor; so that he risks his money and can legitimately earn a profit on the investment. The trouble with this, however, is that Aquinas here abandons his own thesis that the ownership of money is the same thing as its use. For the use of the money was transferred to the working partner, and therefore on St Thomas's own grounds he should have condemned all partnerships, as well as the societas, as illicit and usurious. Confronting a thirteenth century world in which the societas flourished and was crucial to commercial and economic life, it was unthinkable to Aquinas that he should throw the economy into chaos by condemning this well-established instrument of trade and finance.
Instead of ownership going with the use of a consumable item, then, Aquinas now advanced the idea of ownership going with incidence of risk. The investor risks his capital; therefore, he retains ownership of his investment. A seemingly sensible way out, but flimsy; not only did Aquinas thereby contradict his own bizarre ownership theory, he also failed to realize that, after all, not all ownership need be particularly risky. Another problem is that the risk-taker is making a profit on the investment of money, which is supposed to be sterile. Instead of stating that all profit should go to the working partner, St Thomas explicitly says that the capitalist rightly receives the ‘gain coming thence’, i.e. from the use of his money, ‘as from his own property.’ It looks very much as if St Thomas is here treating money as fertile and productive, providing an independent reward to the capitalist.
Yet, despite the inner contradictions rife in St Thomas's treatment of usury and the societas, his entire doctrine continued to be dominant for 200 years.
Finally, Aquinas was a firm believer in the superiority of private to communal property and resource ownership. Private ownership becomes a necessary feature of man's earthly state. It is the best guarantee of a peaceful and orderly society, and it provides maximum incentive for the care and efficient use of property. Thus, in the Summa, St Thomas keenly writes: ‘every man is more careful to procure what is for himself alone that that which is common to many or to all since each one would shirk the labour and leave to another that which concerns the community, as happens where there are a great number of servants’.
Furthermore, developing the Roman law theory of acquisition, Aquinas, anticipating the famous theory of John Locke, grounded the right of original acquisition of property on two basic factors: labour and occupation. The initial right of each person is to ownership over his own self, in Aquinas's view in a ‘proprietary right over himself’. Such individual self-ownership is based on the capacity of man as a rational being.
Next, cultivation and use of previously unused land establishes a just property title in the land in one man rather than in others. St Thomas's theory of acquisition was further clarified and developed by his close student and disciple, John of Paris (Jean Quidort, c.1250–1306), a member of the same Dominican community of St Jacques in Paris as Aquinas. Championing the absolute right of private property, Quidort declared that lay property
is acquired by individual people through their own skill, labour and diligence, and individuals, as individuals, have right and power over it and valid lordship; each person may order his own and dispose, administer, hold or alienate it as he wishes, so long as he causes no injury to anyone else; since he is lord.
This ‘homesteading’ theory of property has been held by many historians to be the ancestor of the Marxian labour theory of value. But this charge confuses two very different things: determination of the economic value or price of a good, and a decision on how unused resources are to go over into private hands. The Aquinas–John of Paris–Locke view is the ‘labour theory’ (defining ‘labour’ as the expenditure of human energy rather than working for a wage) of the origin of property, not a labour theory of value.
In contrast to his forerunner Aristotle, labour for Aquinas was scarcely to be despised. On the contrary, labour is a dictate of positive, natural and divine law. Aquinas is very much aware that God in the Bible gave the dominion over all the earth to man for his use. Man's function is to take the materials provided by nature and, by discerning natural law, to mould that reality to achieve his purposes. While Aquinas scarcely has any conception of economic growth or capital accumulation, he clearly posits man as active moulder of his life. Gone is the passive Greek ideal of conforming to given conditions or to the requirements of the polis.
Perhaps St Thomas's most important contribution concerned the underpinning or framework of economics rather than strictly economic matters. For in reviving and building on Aristotle, St Thomas introduced and established in the Christian world a philosophy of natural law, a philosophy in which human reason is able to master the basic truths of the universe. In the hands of Aquinas as in Aristotle, philosophy, with reason as its instrument of knowledge, became once again the queen of the sciences. Human reason demonstrated the reality of the universe, and of the natural law of discoverable classes of entities. Human reason could know about the nature of the world, and it could therefore know the proper ethics for mankind. Ethics, then, became decipherable by reason. This rationalist tradition cut against the ‘fideism’ of the earlier Christian Church, the debilitating idea that only faith and supernatural revelation can provide an ethics for mankind. Debilitating because if the faith is lost, then ethics is lost as well. Thomism, in contrast, demonstrated that the laws of nature, including the nature of mankind, provided the means for man's reason to discover a rational ethics. To be sure, God created the natural laws of the universe, but the apprehension of these natural laws was possible whether or not one believed in God as creator. In this way, a rational ethic for man was provided on a truly scientific rather than on a supernatural foundation.
In the subset of natural law theory that deals with rights, St Thomas led a swing back from the twelfth century concept of a right as a claim on others rather than as an inviolable area of property right, of the dominion of an individual, to be defended from all others. In a brilliant work, Professor Richard Tuck4 points out that early Roman law was marked by an ‘active’ property right/dominion view of rights, while the later twelfth century Romanists at Bologna converted the concept of ‘right’ to the passive listing of claims on other men. This ‘passive’ as opposed to ‘active’ concept of rights reflected the network of interwoven, customary and status claims that marked the Middle Ages. This is, in an important sense, the ancestor of the modern assertion of such ‘claim-rights’ as ‘the right to a job’, the ‘right to three square meals a day’, etc., all of which can only be fulfilled by coercing others to obtain them.
At thirteenth century Bologna, however, Accursius began a swing back to an active property rights theory, with the property of each individual a dominion which must be defended against all others. Aquinas adopted the idea of a natural dominion without, however, going all the way to a genuine natural rights theory, which asserts that private property is natural and not a convention created by society or government. Aquinas was moved to adopt the dominion theory because of the mighty late thirteenth century ideological battles between the Dominican and Franciscan Orders. The Franciscans, committed to total poverty, claimed that their subsistence use of resources was not really private property; this pleasant fiction enabled the Franciscans to claim that, in their state of voluntary poverty, they had risen above the ownership or possession of property. They maintained oddly that purely consumption use of resources, such as they engaged in, did not imply the possession of property. Supposedly, the sale or giving away of a resource was necessary to qualify it as property. Self-sufficiency or isolation did not, according to the Franciscan view, allow property to exist. The rival Dominicans, including Aquinas, understandably upset by this claim, began to insist that all use necessarily implied dominion, the possession and control of resources, and therefore property.