 Hi, I'm Peter Adamson and you're listening to the History of Philosophy Podcast brought to you with the support of the Philosophy Department at King's College London and the LMU in Munich – online at www.historyoffilosophy.net. Today's episode, On the Money – Medieval Economic Theory. Suppose you are a medieval merchant travelling with a wagon load of grain to a town where grain is in short supply. Given the circumstances, you know that you'll be able to sell your goods for a high price, perhaps double or triple the usual going rate. You also happen to know that only one day's travel behind you, another much larger shipment of grain, is headed towards the same city. Do you have the obligation to reveal this to your customers, forgoing your advantage and selling at the normal price? Your answer might depend on whether you had read Thomas Aquinas. In his Summa Theologiae, he asks what a merchant in this situation ought to do. His answer is that the bounds of justice do not require divulging information that would reduce the price, even though it would be particularly admirable were the merchant honest enough to do so. A similar example is considered by Henry of Ghent, who allows someone to buy a horse and then sell it in the same city at a higher price only one hour later if, in the intervening time, all other horses on the market have been taken away from the city on ships. Such cases raise problems that were central in medieval thinking about economics. It's not a subject we have discussed very much here on the podcast, even though a not dissimilar example came up in the very first episode where we heard of the pre-Socratic philosopher Thales buying up all the olive oil presses to reap a windfall from a bumper crop of olives he had predicted. We know that story because we are told it in Aristotle's Politics in the midst of a discussion of money-making to illustrate the concept of a monopoly. It's a text that left the medieval with complicated feelings on the subject of money and money-making. While Aristotle recognizes what he calls a natural art of dealing with money, which needs to be practiced by householders and politicians, he is disdainful of unnatural pursuit of boundless wealth and of those who see money as an end in itself. Rather, as Aristotle had already explained in The Ethics, money is really an instrument of exchange, which allows us to trade very different goods – Aristotle's example is shoes and houses – by introducing a common measure of value. The exchange between buyer and seller will be just, Aristotle says, when that exchange is equal, both sides getting something equivalent in value to what they give up. This may seem like no more than common sense. If I persuade you to sell me your house in exchange for a single shoe, then surely I have behaved unjustly if not illegally. Come to think of it, maybe the old woman who lived in a shoe was the victim of this very scam. But the cases described by Aquinas and Henry Ghent show that things must be more complicated. It seems strange that a horse could be equal in value to one gold coin at noon and to five gold coins an hour later only because the other horses have departed on ships. Or consider the following scenario. You have a horse, and a farmer needs a horse to bring in his harvest. So in exchange for one gold coin, you let the farmer use the horse for a week. At the end of the bargain, you have a gold coin and the horse you started with, whereas the farmer has none of your property. That doesn't look like an equal exchange, yet the farmer doesn't feel cheated in any way. Or imagine that you are a money changer who greets people as they come over the border from Germany into France. Let's say that you're changing German currency into French coins of equivalent value because the German coins are not legal tender in France. It seems a valuable service, and your customers are perfectly willing to take part even though you take a small profit on each trade, receiving 100 gold German coins and paying out only 99 French coins. The exchange is evidently not equal because you hand over less money than you took, but does that mean an injustice was committed? Or finally, take the case of what the medieval's called usury. You need to pay your rent, so you borrow some money from your friend, the farmer. The farmer agrees to lend you 10 gold coins for a month, at the end of which you should pay him 11 gold coins. In this case, the farmer gives you 10 coins and after a month's wait gets 11 back. It's a clear case of injustice by Aristotle's definition. And in his politics, he does not hesitate to condemn it, saying that it is like breeding offspring from something that is in fact barren, and then adding that usury is the most unnatural of all ways to make money. The Scholastics gave careful thought to these matters and not only because they were in the business of commenting on Aristotle. The medieval university was itself a business, with the relation between teacher and student involving monetary exchange. Certain positions at the university could bring with them further financial obligations. For instance, Nicole Oresme, who I was going to feature towards the end of this episode, was made grandmaster of his college at the University of Paris in the 1350s, a role which would have involved dealing with the college's expenditures. As you may recall, Oresme was one of the thinkers who pioneered the use of mathematics to analyze motion, quality, and other physical phenomena. It's been speculated that daily involvement in finance could even have been a spur to such breakthroughs. After all, once you are used to using the abstract numerical measure of money to express the value of horses and ships, houses and shoes, it might seem all but obvious to apply numerical measures to motions and qualities. You might be skeptical of this on the grounds that money had been there all along. As we just saw, Aristotle already discussed it in some detail. Fair enough, but in the days of the Scholastics, there was a lot more money than there had been in the past. This is true in a quite literal sense. In England, there was 30 times as much currency in circulation in 1300 as there had been in the late 11th century. The monetization of medieval culture went hand in hand with the rise of market towns and growth of cities, which unfolded through the later middle ages. The universities emerged at the same time, part of that same story of urbanization. The Scholastics duly brought to their reading of Aristotle a considerable awareness of the realities of economic life. This is evident in their handling of the problem we started with, what determines the value of the goods in an economic exchange. Aristotle had argued in his Ethics that justice is achieved when buyer and seller both get equal value out of the deal and that money is used to facilitate such equal exchanges. This is compatible with the idea that everything you can buy or sell has an absolute intrinsic value. A horse might be worth 100 shoes, for instance. Aristotle seems to teach that if the ship has sailed with all the other horses and you demand the value of 300 shoes for the horse, you might be able to extract this exorbitant amount from a customer but you would be doing them an injustice. Yet the medieval's could find a rather different idea in the Digest of Justinian, one of the main sources for their legal thinking. There, we read that the correct price of something is simply whatever the market will bear. This suggests that Aristotle was wrong. Things have no determinate value and if you can get someone to trade you a house for a single shoe, then on that occasion the house and the shoe had the same value. Roman law complicated matters further here though by allowing a buyer to seek legal redress if he were sold something for less than half of the true value. That brings us back to the idea that commodities do have a true value independent of what they fetch on any given occasion. The problem was solved, or at least mitigated, by medieval legal commentators like Acursius. When he came to the Digest's remark that a thing is worth what it can be sold for, he added the phrase skiliket communitär, meaning that is, commonly. So here we are getting to the fundamental insight that correct price is determined by the market in general and not by intrinsic equality or mere agreement in a one-off trade between two individuals. We might still wonder though, what leads the market to converge on a thing's price? If a horse costs 100 times as much as a shoe in medieval France, does that mean that the medieval French thought that horses are 100 times better than shoes? Not quite, as Aquinas points out by using an example taken from Augustine. In the true order of things, a mouse is worth much more than a pearl because a mouse is a living creature whereas a pearl is inanimate. Yet no one would accept a mouse in exchange for a pearl unless they were a cat. So market price clearly does not reflect the genuine intrinsic value of things. Rather, Aquinas suggests, it reflects people's need for the thing being sold. He makes this point in his commentary on Aristotle's Ethics, which already mentions that money is somehow a measure of need or demand for a certain thing. Already Aquinas' teacher Albert had connected this to the behaviour of society as a whole, rather than a given individual's need for something on a given occasion. He says that money is the measure of the usefulness of something, insofar as it is useful to the community. Another 13th century thinker, Peter Olivey, makes the observation that price fluctuates in response to supply as well as demand. This is why air is free despite our constant need for it and why grain prices shoot up during times of shortage and fall after a plentiful harvest. Hence the cases I mentioned at the start of this episode, like the high price of grain in a starving city. Such cases show that the just price of something may vary considerably depending on circumstance, so that something's usefulness to the community is not just a timeless abstraction. A more fine grained attitude towards demand is also found in John Burredin, who astutely notices that a person's need for something can be relative to that person's economic situation. A nobleman who cannot afford a fine new warhorse is hardly suffering from deprivation, but is still in a sense poor relative to his perceptions of his own needs. The leading historian of medieval economic theory, Aud Langholme, pointed out that with this observation, Burredin was getting close to the modern-day notion of effective demand. There is yet another factor that determines the price of things. In addition to supply and demand, of the whole market or only a part of it, there is the added value involved in bringing the goods to market in the first place. Grain needs to be harvested, prepared, and transported to a market town. When luxury goods reached Latin Christendom from the Islamic or Byzantine worlds, the costs of transport were much higher. These costs had to be factored into the price and the scholastics noticed this too. Duns Scotus defends the idea that merchants do earn the profits they take on trading because of the risk in labor they have invested. Thus, medieval analysis of justice in economic life led to a gradual softening of attitudes towards the life of money-making. It had long been a commonplace to say that the very existence of private property was a result of humanity's fall from grace. Were it not for original sin, things would be shared peacefully in common. Aquinas spells out the consequences with a remark about human nature that should have been taken more seriously by communists 700 years later. Were all things held in common, everyone would avoid doing any work and leave to others that which concerns the community. Given the connection between economics and human frailty, it's hardly surprising to find Christian texts from late antiquity onwards warning that the life of the merchant is unusually liable to sin. It is much like the life of the soldier, except that the merchant's sins have to do with greed and dishonesty rather than violence. Here, for once, there seemed to be a perfect fit between church teaching and Aristotle, since as we saw, he invades against the unnaturalness of building up wealth, and especially against any practice that tries to make a profit off of money itself. From a modern day point of view, this seems completely wrong-headed. We understand that banks need to charge interest on loans and that it will cost us a bit of money to exchange currencies. Again, the medieval's were not totally blind to this fact. A remarkable discussion of profit on loans is found in Dorandus of Saint-Pausan. He realizes that money lending is actually quite useful, yet still feels it is a rather squalid business. So he suggests that the state could appoint an official money lender to play this role for the whole community, something Langholm calls, a bit of wishful thinking which for a moment shatters the boundaries of medieval thought about money and credit. The reason that medieval's were so reluctant to concede the right to make money from loans is that it constitutes usury. Considered an abomination by both Aristotle and Christian doctrine, the religious injunction traces back to biblical passages like Luke 6.35, lend hoping for nothing again. So it was uncontroversial that usury was wicked. The question was, why? Aquinas defines usury as a case in which someone sells somebody else something that does not exist. What he means is that money is a so-called fungible commodity, which is used up when it is spent just as food is used up when it is eaten. Normally, if you lend someone a fungible good, then the lender has to return it or an equivalent. If you borrow a loaf of bread from me, you owe me a loaf of bread later, not a loaf of bread plus a blueberry muffin. Though, if it is on offer, I would happily accept an almond croissant. Analogously it is unjust to lend someone money and expect back the same money plus a fee. Taking their cue from Aristotle, Aquinas and other scholastics complain that the usurer is trying to breed something that is barren, namely money, as if it could bear offspring. Another argument had it that the usurer is actually selling something, namely time. The point here is that if you borrow 10 coins for a year after which you owe 11 coins, then you have paid one coin for the year during which you had the money. But if time belongs to anyone, it is God and certainly not the usurer. There is an obvious problem here, namely that usury is incredibly useful and even essential to a well-run economy. As you probably know, Jews were grudgingly allowed to step into the gap since they were under no religious injunction to avoid lending on interest, at least to non-Jews. But given the careful attention the scholastics were paying to the function of money and markets, it was all but inevitable that they would at least begin to qualify their own injunction against money lending. Here, a major advance was made by Gerald Odonus, who became head of the Franciscan order in 1329. He realized that someone who lends money is actually giving up more than just the sum that has been borrowed. For one thing, he's taking a risk that it will not be returned. For another, there is the profit the lender could have made off the money by putting it to work during the time it was lent out. The key insight here is that the usurer is not selling time, but the use of the money during the time of the loan. Thus, the so-called usurer is justified in charging interest to cover his risk and the profit he has foregone. This leaves Odonus in the awkward position of having to explain why usury is forbidden at all. Of course, we can still say that it is wrong to charge interest in excess of the hidden costs of lending. But also, Odonus says, the exchange involved in usury is not really a case of mutual consent. The borrower does enter into the contract voluntarily, but would much rather have been able to use the money without the added fee. So in this sense, there is still some compulsion involved. Despite Odonus's nuanced discussion, it remained the case that just about the worst thing you could say about an economic transaction was to compare it to usury. A good illustration can be found in what may be the most extraordinary medieval text on economics, the first treatise on the nature of money itself, Nicolas Hormes diatribe against the debasement of currency. This was a depressingly common feature of medieval life in general and 14th century France in particular. The king would repeatedly call in the old currency and replace it with new coins which would contain a smaller proportion of gold and silver. This would allow the state to profit by keeping the extra precious metal for itself. For Ohem, currency debasement is indeed like usury, because it tries to generate something from what is itself barren. Actually, it is even worse, because at least the usurer gets his victim to agree to a contract, whereas the king debases the currency without the consent of the community. It violates the very nature of money, which is an instrument of trade, owned in general by the whole community and in particular by the person who earned a given quantity of money. It is not the king's to do with as he will. Ohem's defense of the integrity of money is remarkable in at least two ways. First, there is his extremely positive attitude towards money itself. While it can be put to perverted uses by the greedy, it is vital to the maintenance of society. He even ascribes to divine providence the existence of gold and silver, which are so perfect for turning into coins. Precious metal is durable and portable, and rare enough to retain its value, something insured by nature herself when she thwarts the attempts of alchemists to make gold. Second, there is Ohem's penetrating analysis of the drawbacks of debasement. He sees that currency itself can become a sort of commodity whose value is sensitive to market forces. At one point, he even anticipates the law that bad money drives out good, called Gresham's law after an advisor to Queen Elizabeth I who hit upon a similar realization. The version of the problem noticed by Ohem is that when currency is debased, older coins are hoarded or taken abroad because they have more gold and silver in them than the new coins despite their identical face value. The observation is remarkable in part because Ohem does not complain about the citizens who engage in hoarding and speculation. Rather, he blames the king who should anticipate such consequences and avoid creating conditions where such speculation is bound to ensue. This treatise would by itself justify Nicole Ohem's claim to be among the more interesting thinkers of the mid-14th century. He showed that theoretical discussions of money could play a role in guiding government policy. A sound currency depends on a sound understanding of currency. But, like a currency exchanger with favorable rates, Ohem has still more to offer. We've already seen that he contributed to the scientific advances of the period and he was also a key figure in another important development of the 14th century. This was the emergence of vernacular languages as a context for philosophy. Ohem translated his own treatise on money into French and also rendered Aristotle's ethics and politics into this language for the French King Charles V. We've met vernacular authors in previous installments like Marguerite Poet and Dante. But in the coming episodes, non-Latin literature is going to be a major theme as we look at the vernacular writings of German Dominicans, the English mysticism of the Cloud of Unknowing and Julian of Norwich, and even that greatest figure of medieval English literature, Geoffrey Chaucer. So, lend me your ears and invest some of your time with me as I turn to the great German philosopher and mystic, Meister Eckhart, next time here on the History of Philosophy Without Any Gaps.