Theology, in the Middle Ages, was the queen of the ‘sciences’: i.e. the intellectual disciplines offering truth and wisdom. But theology had fallen on bad times during the Dark Ages, and the Roman and canon lawyers were left to apply ethical systems to law and human affairs. Theology began to flourish again in the early twelfth century at the University of Paris, under the famous Peter Abelard. From then on, Paris was the equivalent centre for theology during the High Middle Ages that Bologna was for Roman and canon law. But during the remainder of the twelfth century, the theologians were content to ponder and work out metaphysical and ontological questions and to leave social ethics to the jurists. It was typical of twelfth century theologians when Peter of Poitiers, later to become the dominant Regent of theology at the cathedral school of Notre Dame in Paris, declared that such doubtful questions as usury should be left to the canon lawyers.
After the turn of the thirteenth century, however, when canon and Roman law theories were already far advanced, the new university-trained philosopher–theologians turned to problems of social ethics with a will. Even before the turn of the thirteenth century, such influential theologians at the University of Paris as Radulphus Ardens and the Englishman – later Cardinal – Stephen Langton, began to write on problems of justice. Unfortunately, in dealing with the concept of ‘just price’, the theologians did not follow the Romanists and canonists in the sensible view that the free bargaining or market price is legitimate so long as it stays within a broad zone of the ‘just price’. To the Paris theologians, it was immoral, sinful and illicit for the market price to be anything other than the just price. This of course meant that the just price became a weapon of compulsion instead of a broadly held standard. Ardens included a just price as a crucial criterion of a ‘just sale’. More emphatically, his colleague and author of the first constitution of the University of Paris, the Englishman and later Cardinal Robert of Courçon (d. 1219), writing about 1204, termed selling goods above the just price an illicit practice, and the eminent Stephen Langton sternly called any seller who accepts more than the just price guilty of a mortal sin.
The theologians were well aware of their profound disagreement with the jurists, but clung to their new and extreme views. Thus, William of Auxerre (1160–1229), professor of theology at Paris, in 1220 wrote that divine law, which commanded that no sale be higher than the just price, must supersede human law, which followed laesio enormis. And his colleague, the Englishman Thomas Chabham, also writing about 1220, fanatically insisted that divine law demanded restitution from the seller even if the seller were only mistaken, and the mistake was only a penny.
If the theologians insisted that the just price must be strictly obeyed, then what in the world was it? While few of the theologians addressed this critical matter directly, it is clear that what they had in mind was the same just price as the canonists and Romanists, namely the current price at the particular place, either the common market or the government-fixed price, if such a regulation existed. The late twelfth century Paris theologian Peter Cantor (d. 1197), in treating the function of royal assessors, asserted that the just value of goods is their current price. More succinctly, the great Franciscan theologian at Paris in the first half of the thirteenth century, the Englishman Alexander of Hales (1168–1245) declared concisely that a ‘just estimation of the goods’ is ‘as it is sold commonly in that city or place in which the sale occurs’. Even more clearly, the renowned thirteenth century German Dominican professor at Paris, Saint Albert the Great (1193–1280) put it thus: ‘A price is just which can equal the value of the goods sold according to the estimation of the market place at that time’.
While the theologians, in wishing to enforce the current common price, were more restrictive than the canon or Roman jurists, they did constructive work in rehabilitating the image of the merchants from the low level to which they had sunk in the writings of the Church Fathers.
As late as Peter Lombard (d. 1160), Italian professor of theology at Paris and later bishop of Paris, the theologians had held the older view that a merchant could not perform his duties without sinning. The beginning of the full rehabilitation of the merchant came in the form of commentaries on the Sentences of Peter Lombard (strictly, the Sententiarum quator libri, 1150– 51). The commentators, particularly after the turn of the thirteenth century, engaged in a systematic justification of the merchant and of mercantile profit-making. In the first place, the leading Sentence commentators, including the Dominican professors at Paris, St Albert the Great (Commentary, 1244–49), Peter of Tarentaise (later Pope Innocent V, d. 1276) (Commentary, 1253–57), as well as the Italian theologian at Paris, St Bonaventure (1221–74) a student of Alexander of Hales, general of the Franciscan Order and later cardinal (Commentary, 1250–51), all declared that merchants were essential to society. This conception was strengthened by the rediscovery of the works of Aristotle by the early thirteenth century, and the incorporation of Aristotelian philosophy into theology – first by Albert the Great and most especially by his great student Thomas Aquinas. To these new Aristotelians, and also to the English Franciscan Alexander of Hales, the division of labour was necessary to society as was the concomitant mutual exchange of goods and services. This was the path of the natural law in society.
More specifically, Thomas Chabham, despite his insistence on every penny of the just price, observed correctly that merchants performed the function of taking goods from areas of abundance and distributing them to areas of deficiency. Albert the Great repeated this insight later in the thirteenth century.
If trading is a useful and even necessary activity, it follows that profits for maintaining such activity are justifiable. Hence the theologians reiterated the twelfth century doctrine of the merchant being allowed to gain profits for the support of himself and his family. To the needs justification, the twelfth century theologians added the lawful nature of making profits in order to give to charity. The Franciscan Alexander of Hales was perhaps the first to call it a just and pious motive for trading to perform works of charity and mercy. It was unworthy, however – echoing the Huguccian doctrine – to gain profits for the sake of avarice or endless and insatiable cupidity.
If the labourer in the Christian tradition was ‘worthy of his hire’ (Luke 10:7), then profits from the useful activities of the merchant could be justified as covering his ‘labour’, or rather his labour and expenses as the jurists had already declared. Aquinas considered the earnings of the merchant a stipend for labour. For the theologians, ‘labour’ consisted of several types: transporting goods; storage and care; and – as had come in with the thirteenth century canonists – the assumption of risk. Thus mercantile profits were a payment or reward for the merchant's labour of transportation and storage, and his assumption of risk. The risk factor was stressed particularly by Alexander of Hales and St Thomas Aquinas. It should be noted, in contrast to many later historians, that the purpose of the jurists’ and theologians’ discussions of labour, cost, and risk was not to use these factors in determining the just price (which was simply the current common price) but to justify the profits obtained by the merchant.
Robert of Courçon was the first thirteenth century theologian to add a natural law angle to the traditional though flimsily grounded theological denunciations of usury. Courçon simply appropriated the canonist Huguccio's sophistical moral distinction between a lease and a loan, with the former being licit and the latter illicit because ownership of the money had temporarily been shifted to the borrower. More influential was fellow Parisian theologian William of Auxerre, who added a string of new fallacies to the mounting intensity of the Church's assault upon usury. William ranted that usury was intrinsically evil and monstrous, without really explaining why; he also did one better on the standard likening of usury to theft by actually comparing usury to murder, to the detriment of the former. Killing, he said can sometimes be licit, since only certain forms of killing are sinful, but usury is sinful everywhere and can never be licit. Since usury, according to William of Auxerre, is sinful by its very nature, this made it a violation of the natural law in addition to its other alleged iniquities.
On why usury was a sin against the natural law William was unclear; one of his innovative arguments in the anti-usury parade was that a man who charges interest on a loan is trying to ‘sell time’, which is properly the common property of all creatures. Since time is supposed to be common and free, William of Auxerre and later theologians could therefore use this argument to condemn as ‘usury’ not merely a loan but also charging a higher price for credit than for cash sales. In adding the ‘free time’ argument, William unwittingly touched on the later Austrian solution to the problem of pure interest on a riskless loan: the sale not of ‘time’, to be sure, but of ‘time-preference’, where the creditor is selling the debtor money, a present good (a good useful now), in exchange for an IOU for the future which is a ‘future good’ (a good only available at some point in the future). But since everyone prefers a present good to an equivalent future good (the universal fact of time-preference), the lender will charge, and the borrower will be willing to pay, interest on a loan. Interest is, then, the price of time-preference. The failure of the scholastics to understand or arrive at the concept of time preference was to do more than anything else to discredit scholastic economics, because of its implacable hostility to and condemnation of the universal practice of ‘usury’.
William of Auxerre also tried to grapple with the voluntarist argument: how could the usury charge be evil and unjust if paid voluntarily by the borrower? In surely one of the silliest arguments in the history of economic thought, William of Auxerre conceded that the borrower's payment of interest was voluntary, but added that the borrower would have preferred a free loan still more, so that in an ‘absolute’ rather than a ‘conditional’ sense, the interest charge was not voluntary. William somehow failed to see that the same could be said of the buyer of any product; since any buyer would prefer a free good to the charge of any price, we could then conclude that all free exchanges are involuntary and sinful in an ‘absolute’ sense.
Despite the manifest absurdity of this argument, the ‘conditional’ voluntary as well as the other new arguments of William of Auxerre were highly influential and immediately incorporated into the standard theological arguments against usury.
The German Dominican St Albert the Great performed the enormous service to philosophy of bringing Aristotle and Aristotelianism back to Western thought. Born in Bavaria to an aristocratic family, Albert was for a time German provincial of the Dominican Order and bishop of Regensburg, but for most of his long life he taught at the Universities of Paris and Cologne.
Unfortunately, Albert was not nearly as good an economist as he was a philosopher, and in many ways he took scholastic economics down the wrong road. It is true that he performed the service of teaching his great pupil, St Thomas Aquinas, that the just price is the common market price, and that the merchant is performing a legitimate social role. On the other hand, Albert unfortunately added the Aristotelian attack on usury as an unnatural breeding of a ‘barren metal’ to the accumulated hodge-podge of all the other arguments against interest. St Albert did not realise that Aristotle's attack on usury was only part and parcel of the latter's denunciation of all retail trade, since the Latin translation of Aristotle available to Albert rendered the Greek term for retail trade as a Latin word meaning ‘money-changing’. Hence, Albert adopted this argument by mistake, since he would certainly not have gone along with the Aristotelian idea that all retail trade was unnatural and sinful.
Albert also did great damage to future thought in another of his misinterpretations of Aristotle's Nichomachean Ethics. Somehow he interpreted the Aristotelian determinant of value not as consumer needs or utility, but as ‘labour and expenses’, thus at least partially prefiguring the later labour theory of value.