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I. From antiquity to XVIIth century 1. Greece and Rome: Philosophy and Law 2. Scholastic tradition: The visión of a Christian Economy Foreword The “economic problem” has been with humankind since its very first origins, as well as the reflections on it. To big topics of Economics: How the market Works? Value analysis, distribution problem, output, prices… Are there alternatives to the market? Streams Main or orthodoxy; focus on the working of market. Heterodox.- focus of the makerts failures and the eventual alternatives. The diversity enrich the debate and the general knowledge. 1. Greece and Rome: Philosophy and Law 1.1. The Greek thought Economy derives from the Jenofonte’s title book and Greek Word «oeconomicus” [oikos (house) and nomos (rule)] which deal about the efficient administration (private and public) and leadership. Context: rural economy, handcraft industry, nonsystematic markets, war economy and slavery, individual under de rule of the State (common good) but patriarchs of their own families and estates (private interest) Greek thinkers were more worried about the management (private and public) tan about the Economics as a discipline. 1. Greece and Rome: Philosophy and Law 1.1. The Greek thought Xenophon (427-355 a.c) The treatise «oeconomicus» focus on the efficiency of private and public management He envisaged that it is possible to increase the economic surplus trough organization (leadership), specialized skills and division of labor. Populated areas led to specialization. The economic process should be devoted to satisfy human needs and avoid the pain (hedonism); not to just accumulation (contra natura) Subjective utility is the true source of value of a single commodity, not the commodity itself. Moreover, utility is decreasing with the increase in consumption. 1. Greece and Rome: Philosophy and Law 1.1. The Greek thought Plato (427-347 a.c) Human beings are not self-sufficient life in common cities specialization and division of labor commodities to be exchange in the market. The government should be only of wise men (and soldiers) with no possession (common property) to avoid corruption. Money and trade are necessary evils. Market requires administrative control to ensure justice and an equitable distribution as well as control over profit and usury. [Historical experiences shows that this “authoritarian” scheme usually lead to despotism more than harmony.] 1. Greece and Rome: Philosophy and Law 1.1. The Greek thought Protagoras (480-411 a.c) «Man is the measure of all things» (Subjetivism) You can not know the ultimate truth of things, but knowing the utility is at hand. Society must decide on their true welfare and how to get it. (Hedonism) Leaders and politicias should advise how to manage the situation (means), but not rule about the ultimate ends. Administration as the informed choice of means to achieve given ends. 1. Greece and Rome: Philosophy and Law 1.1. The Greek thought Aristotle (I) (384 - 322 a.c) Philosophical and political system built from an ethical perspective central role of justice (equity) and virtue Justice Distributive.- People rewarded in society according to their merits. Commutative.- Equivalence in Exchange. Economic ethics Economic activity must satisfy (limited) needs, but not desires (unlimited). The accumulation of wealth per se is pernicious for the republic (enrichment of the minority at the expense of the mayority) and the individual (not virtuous) 1. Greece and Rome: Philosophy and Law 1.1. The Greek thought Aristotle (II) Make a distinction between acquisitive arts Economy.- Management of the home/community/city. It is a productive activity (grazing, agriculture, piracy, fishing and hunting) for satisfying needs. Not unlimited. Chrematistics.- Barter and sale. It is a non-productive art (Trade, usury and wage labor). It is not harmful when it is a complement to the previous “management”, but it is contra natura when looking for simple accumulation. Support of private property.- Social stability, economic efficiency, owner rewarding and allows liberality. 1. Greece and Rome: Philosophy and Law 1.1. The Greek thought Aristotle (III) Exchange and commerce.- Isolated vs market exchange Analysis of single and bilateral transactions (not systematized markets) and ruled by reciprocity which made both parties better off. Ethical and legal perspective (enforced justice and equivalence) rather than economic. Model.- How many shoes must deliver the shoemaker carpenter to build the house? Exchange value determined by the scarcity and distinct from use value. He alluded to the famous value paradox (water-diamond) 1. Greece and Rome: Philosophy and Law 1.1. The Greek thought Aristotle (IV) Money Acknowledges the “standard” functions of money: unit of account, medium of exchange and store of value. The natural use of money is spend (satisfying needs) and does not accumulate. It is a means not an end. Interest Condemns interest, because money (just a means of exchange) could not yield any fruit while using it. 1. Greece and Rome: Philosophy and Law 1.1. The Greek thought Summary and Legacy The framework of analysis was anthropocentric and administrative, paying special attention to ethics (virtues) Orderly pursuit of happiness (satisfaction of needs) and virtuous behavior (equivalence in exchange and not irrational behaviors to hoard wealth) There is a strict condemn of the use of money contra natura and the interest in moneylending. Rational approach to the social sciences. Trade allowed to exchange the surplus; given that there are different subjective utilities, it would be mutually beneficial. The conflicts should be resolved by authorities. Exchange value determined by subjective utility. Exchange and use value are different. 1. Greece and Rome: Philosophy and Law 1.2. Roman Law Rome No substantial advances in economic analysis Main contribution Roman Law Regulation of property and contracts, which shapes the Western legal system. The economic activity takes place under the Roman law. Clarify concepts such as price, purchase, loan types ... 2. Scholastics: Christian Economy 2.1. Timeline Prevailing paradigm since the early thirteenth century until the late seventeenth century. Influence of St. Thomas Aquinas Summa Theologica First Scholastic (XIII-XIV) Direct Influence St. Thomas. Synthesis Aristotelian between Ethics and Christian morality. Commercial activities and business are necessary but dangerous, when became an “end” in itself. Second scholasticism (XV-XVII) Spanish scholastics ("School of Salamanca"). More dynamic commercial and financial environment which leads to less rigorists approaches. 2. Scholastics: Christian Economy 2.2. “Ethics of fraternity” Market relations are personal and morally driven by the virtues of charity and justice Relevance of intention the moral agent can not elude themselves of responsibility by referring to the impersonal market forces Sense of duty of the merchants to other merchants and to the community as a whole. Economic thought driven by the “Anthropology based on charity" or the "ethics of fraternity" 2. Scholastics: Christian Economy 2.3. Epistemology Analysis lied not just on the authority or revelation, but in the reason It is moral what is rational Analysis of cases.- Natural Law * is not changing, but should be interpreted according to the historical circumstances. "Right reason" is devoted to apply the general principles to the nature of the case. It allowed the adaptation of the scholastic paradigm to changing historical circumstances and, subsequently, their survival for more than four centuries 2. Scholastics: Christian Economy 2.4. the scholastic “vision” of economic reality a) Private property.Scholastics hold the licitness of private property by reasons of economic efficiency and social stability (Not by Natural or Divine law), but … … it was not absolute, because the primary and fundamental purpose of everything in Creation is to satisfy human needs. Therefore… Social bearings of the private owners. It is licit to stole in case of urgent necessity.* b) Wealth.It is not evil in itself (necessary to provide); but it is pernicious when it becomes an end in itself. 2. Scholastics: Christian Economy 2.4. the scholastic “vision” of economic reality c) Economy and Justice.State whether the contracts met commutative justice. Economic reasoning is an analytical tool to rule on the validity and morality of economic dairy dealings. Reality challenges the ideal of Christian Life.- Scholastic Economics is a pragmatic ethical commitment (economic behaviour morally acceptable). Justice as a balance between personal incentive and moral responsibility (sin of greed and help the needy) Christian ideal of mutual benefit derived from free and fair trade 2. Scholastics: Christian Economy 2.4. the scholastic “vision” of economic reality d) Voluntariness.Roman Law.- “A thing is worth as much as it can be sold for”… … in the absence of force, fraud and deceit by which voluntariness is removed in the buyer. Necessity is a form of compulsion not to be exploited. e) Organicism.Man as an agent of creation with the mission of contributing to the common good and the perfection of Nature. 2. Scholastics: Christian Economy 2.5. Theory of value Labour-value theory.- The value depends on the cost of production (labour). Albertus Magnus; Aquinas? Value-utility theory (*) .- The value depends on the relative utility attributed to the relevant item. Aquinas?; It will be predominant in the second scholasticism (**). Not contradictory in the prescriptive ethical framework of commutative justice in which the market price should both prevent the disproportionate economic profit (abuse of power) and to ensure the livelihood of producers. the paradox of value (Why the diamond is worth more than water?) and the difference between use and exchange values. 2. Scholastics: Christian Economy 2.6. The Just Price Living in society requires the exchange and buyingand-selling dealings. Men are social animals (not self-sufficient) Just price has to respect the equality (*) in the transaction (commutative justice). Two classes: Legal.- Settled by the authority (special circumstances) Natural.- Fixed by common estimation (judgment of the wise men or not fixed in an irrational way) in a particular place and time; ie, the usual in a particular marketplace. 2. Scholastics: Christian Economy 2.6. The Just Price Are the market and the just price similar concepts? Just price is a market price but not competitive, if not cooperative. “Common estimation” highlights the "common" dimension over the "usual" Freedom and voluntariness are required in a fair exchange "Responsibility" of private owners. Social dimension of human beings (agents of Creation) that pushed them to "morally“ act for the common good. Maximization vs Moderation. Vanishing of moral "responsibility" in a free market economy. 2. Scholastics: Christian Economy 2.7. Coin and money Spanish scholastics were aware of the relationship between rising prices and an increasing amount of currency in circulation. (Quantitative theory of money) They firmly stood against the adulteration of the coin (copper coin) Altering the coin is comparable to illicitly take part of the value of goods of citizens without their consent It leads to prices increments and business downfalls. 2. Scholastics: Christian Economy 2.8. Interest and usury Money is a tool for Exchange but not itself productive it is illegal to charge something more above the principal in a money loan. Borrowed money can give returns if invested, but that benefits are the out coming fruits of borrower’s arts and industry; so the lender has no right to share those fruits. Extrinsic titles (lucrum cessans and damnum emergens) legitimize some sort of interest and were spreading through centuries as a way to keep the core of the “ethics of fraternity” legacy up to date with the evolving mercantile praxis In short, lawfulness lied on intention. Note.- Keynes assesses the scholastic intellectual effort to separate the marginal efficiency of capital interest rate. 2. Scholastics: Christian Economy 2.9. Main authors: First Scholastics Saint Albertus Magnus.Theory of value based on the cost of production (labor and expenses) Saint Thomas Aquinas.Economy at the service of justice. Equivalence in contracts and morality in behaviours Theory of value based on both the Cost of production and the utility moral framework where market price should prevent from outrageous benefits as well as did not lead to producer’s losses. 2. Scholastics: Christian Economy 2.9. Main authors: First Scholastics Pierre Jean Olivi.Value depends on utilitas (objective utility), raritas y complacibilitas (subjective utility). Jean Buridan.Prices depends on necessity satisfaction and effective demand. Gerald Odonis.Salary theory based on the workers’ scarcity and quality of dexterities and the costs of their acquisitions. Thomas de Vio. Cardinal Cajetan.Money could yield fruit as the businessman's tool Just price comes from the market forces. 2. Scholastics: Christian Economy 2.10. Main authors: Spanish Scholastics XVI-XVII Keep the core of the legacy of first scholastics (morality, justice, harmonious living in society, money as a mean and not an end), but less rigorist opinions about the financial and mercantile practices. Francisco de Vitoria Martín de Azpilcueta Domingo de Soto Tomás de Mercado Melchor de Soria Luis de Molina Juan de Lugo 2. Scholastics: Christian Economy 2.11. Conclusions Economic doctrines (just price and usury) as mechanisms of protection against economic compulsion. bilateral relations, handicraft production and local monopolies empower the merchant. common estimation and just prices are intended to protect the weaker party. People are governed by their moral dimension and are political and social beings who compete while cooperate. commercial and financial depersonalization of economic relations loss of moral responsibility just price is the unintentional outcome of competitive markets; which exclude the virtuous-behaviour requirement and the morality of agents. 2. Scholastics: Christian Economy 2.12. Questions for reflecting. “Objectivation” or “Depersonalization” when justice lied on the fulfilment of contracts more than its terms, or even motivation. (Langholm, 1998) It is a tragedy of moral history that the expansion of the area of the moral community has ordinarily been gained through the sacrifice of the intensity of the moral bond. (Nelson, 1969) Classic culture rejects the external wealth (in opposition to the true inner one) as a result of an stationary economy. It is surprising, that this anticonsumption ethics prevails today in an age of capitalist economic growth. (Perrotta, 2003)