Medieval economic thought

The medieval economic thought that emerged in Western European Latin Christianity that developed feudalism and scholastic philosophy, focused on ethical issues such as poverty and charity, the just price, the conceptual relationship between profit, interest and usury; and in certain speculations about the theory of value, which in some cases could be assimilated to the later theories that identify it with work, and in others with the market price.

Temporary survival beyond the late medieval crisis, it spread during the Old Regime, in which new schools of economic thought appeared, such as mercantilism, which nevertheless, in some cases, maintained a certain continuity with medieval thought (such as This is the case of Spanish arbitrism, heavily influenced by the neo-scholastic School of Salamanca).

Contemporarily, in other geographical, social, economic and cultural contexts, such as medieval Islam, other forms of economic thought were developed, with notable authors (Ibn Khaldun).

Socio-economic structure

Personal relationships are based on two typical figures:

1. Feudo-vasallatic relationships between individuals. Among the nobles is a monsieur-vasallo relationship, of mutual political, legal and economic obligations, in which the vassal has in turn vassals. At the base of the system is the Lord-Servant relationship, in which the first is a noble (lay or ecclesiastical), with obligation to protect the second, a peasant subject to servitude, with economic obligations. In the countryside, which is the full practice of the economic system, subsistence farming predominates. The product was obtained on a small scale, using relatively primitive agricultural techniques. The purpose of the fiefdom was self-sufficiency.
2. The union relations. In the cities, islands in the feudal ocean (Henri Pirenne), the guilds (a group of artisans) enhance the local economy and prevent competition and expansion of production and market: trade activities between regions or countries were severely limited, technological development was scarce (maintenance of industrial secrets, unstimulated innovations), capital shortages and difficulties in the mobility of individuals.

The economic and social framework of the fief was analogous in some respects to that of the Greek polis or city-state. The organizing principle in both was the rank and not the contract, and in both cases it was a situation of pre-market economy, in a very rudimentary technological stage.

Nevertheless, the differences were substantial: while in the slave mode of production the interest in production was in the owner, the sole holder of rights; in the feudal mode of production the interest in production is in the serf, who is also in charge of the reproduction of the system. There is no clear concept of ownership, and both share rights to the land. The role of the lord is to achieve the extraction of the surplus through extra-economic coercion (feudal rent). Neither serf nor lord accumulate capital, the first due to incapacity, the second because productive investments are ideologically prohibited, leaving only military spending, luxury spending or hoarding.

To take the step towards a market economy it was necessary the appearance of impersonal relationships, competition, free mobility, economic expansion, private property; the set of institutions necessary for the development of what is known as capitalism or capitalist mode of production.

Society, very hierarchical, was organized in a stratified way (nobility, clergy, and common people) on the community, not on the individual (individuals are only equal before God), according to a divine plan, explained in providential form. On the basis of these principles, social inequality in capacity, wealth and freedom is understood. Society is structured into rigid social strata (like a pyramid) within a framework of inequality, conceiving the community in an organic way, as a body with several parts, each one with its function and condition, which generally passed from parent to parent. to children, with little possibility of change, but which had to function as a single body, as a single organism (each of the parts of which it is composed had to fulfill its function but in a single unit).

Ethical approach

The scholastic principle is based on the absolute predominance of the intellectual Authority, ultimately coming from divine revelation, to the detriment of both human reason and the experience of the senses. The Church collected part of the classical knowledge personalized in Aristotle, reinterpreted and reconciled with Christian theology and morality.

Ideological bases of economic activity

• The idea of justice must preside over all economic activity:
  • in exchange processes: commutative justice (exchange of equivalents), and
  • in distribution: distributive justice (distribution of income according to merit, which justifies the predominance of the privileged through feudal income).
• The doctrine of fair price, which is interpreted in diverse ways, but always in the sense of preventing profits defined as profit or usury, considered sins. The market price can be one of the definitions by which that fair price is understood, but more commonly it is a concept that implies a honest gain for the producer that allows you survival, and a price accessible to the consumer that is also allowed. Speculation is doomed (though the nobles and the Church itself benefit from that which in form natural obtains when receiving surpluses of agricultural production (tenths and rents) at the time of harvest, and have the opportunity to cover them until the shortage raises the prices to the maximum at the end of the agricultural year. Traders and resellers instead have to justify their trade margin through the argument of suffering dermas or deterioration of their products.
• The dignification of work. Faced with the contempt of work, assimilated to the condition of the slave in the Greco-Roman culture, the Christian approach, especially from the rule of Saint Benedict (ora et laborapray and work) dignifies or rather sanctify the work, although it is clear that punishment for all humankind by original sin, as reflected in the account of Genesis (You win the bread with the sweat of your forehead). It is not considered as the main source of wealth, since providentialism only sees God, through nature, as the source of all good and the first cause of any fact in history. Manual work is made incompatible with stamental dignity (nobleness and clergy), and activities are divided into vile and mechanical trades and liberal professions. The bourgeois mentality, in which work justifies income and property, is born and begins its development in European cities with the increase of artisanal and commercial activities from the lower Middle Ages, but it is a confusing concept in rural-based feudalism, in which both lord and servant have some kind of right on earth.

Theories of interest and usury

All of this leads, in the study of economic thought, to seek the fair price (of goods) -the fair price doctrine- within this ethics. This is clearly observed when studying the theory of interest and usury. For medieval thought, usury meant the collection, when making a loan, of any type of interest, which caused its rejection, considering it ethically reprehensible because interest does not change the nature of things (money is sterile: it does not create anything) and It doesn't come from work.

For this ethic, interest is equal to benefit. The benefit finds its justification in the commercial activity as a result of the work of transporting or storing the goods. The benefit is only legitimate if it comes from work, not from capital.

This thought evolved little by little until it reached the following reasoning: interest is only justified by the following reasons:

• As a penalty for delay
• Punishment for damage
• As compensation for loss of profit (cost of opportunity): the owner does not have the good in a certain time. This justification of interest as compensation was first rejected, but finally ended up being accepted.

Labor Theory of Value

You could conceptually define the theory of value arguing that it is the determination of the relative price of a good (how much is one thing worth compared to another, explain the relative price, the value of things).

To determine the value of a good, it must be taken into account that the value of things depends on two variables:

• The usefulness of the good (more scarcity) determines the demand
• Cost (Offer)

Goods that cost a lot are due to scarcity and goods that cost little are because there is a lot of supply. Historically, the utility and the cost were separated: some said that it was only the cost that determined the value and others said that it was only its utility. With Marshall, the conclusion will be reached that it is the sum of the two that influences the price of things.

The Labor Theory of Value, oriented towards the supply side, explains the price (value) of goods based on the amount of labor used in their production.

The position of medieval thinkers

Examples of the two streams:

1. Coste (S. Alberto Magno) if the market price does not cover the production costs this time will cease
2. Demand (Sto. Thomas Aquinas) introduces the need in the price formula: the price varied with the need.

• They don't use work as a measure of value.
• Work is the instrument for legitimizing economic activity and income, including benefits and interests.
• There's no salary theory:

- There is not a sufficiently large group of employees.

- They don't ask how the salary is formed, but what it should be to be fair.

Poverty and charity

Poverty during the Middle Ages was an ethical problem that had to be corrected, starting with charity. The doctrinal approach from the economic point of view was that charity is detrimental because any type of charity measure prevents individuals from assuming their responsibilities and causes idleness, with which, finally, what happens is that the need is accentuated and increased. poverty:

Poverty was essentially a moral problem. If the objective was to alleviate poverty, what had to be done is to eliminate this problem through charity, which is morally positive.

• It did not generate great social pressure: feudal relations guaranteed the livelihood of vassals and servants, the bonds to the land or to the guilds generate subsistence income, so
• was not conceived as a result of an unemployment problem, but as a result of personal misfortunes (age, orphanhood, disease) rather than economic causes, which the individual does not control and cause involuntary unemployment.

When the feudal mode of production is broken (enclosure of farms, displacement of labor to the city, etc.) the classical criticism of the charity of gold, which was the main source of wealth in the middle Ages.