Scholastic Economic Analysis: Foundation of Modern Economics

Scholastic Economic Analysis developed as a school of economic thought in the 13th and 14th century by Roman Catholic clergy. As Ekelund and Hébert (1997) described, the scholastics were first clergy and secondly economic philosophers, so naturally justice and salvation were the areas of their greatest concern, rather than the analysis of economic exchange alone. The five pillars of Scholasticism, Albertus Magnus, Thomas Aquinas, Henry of Friemar, Jean Buridan, and Gerald Odonis, devoted their efforts to extending and applying Aristotle’s theory of value and exchange to the individual. Aristotle’s ideas formed a foundation for economic thought in medieval times, but they lacked much, especially a notion of cost-based value.

Slowly the Scholastics reasoned beyond Aristotle’s profound but limited concepts of value theory. Albertus Magnus developed the idea that the cost of production is a determining element of the value of exchange. Furthermore, he argued that the market price must cover the costs of production or the production will cease. Thomas Aquinas took the analysis beyond costs of production to extend the labor theory by factoring in human wants (indigentia). Henry of Friemar sought to aggregate individual wants into a common value measurement that included features of both supply and demand - that is, the common need of something scarce. Buridan distinguished between individual need and aggregate need, the valuations placed on a good (i.e., product) by the market in general. Odonis examined scarcity and concluded that there were different scarcity levels for labor and hence, different valuations of the contribution of the labor of individuals.

It was in the Doctrine of Usury that we see the largest disconnect from reality in Scholastic Economic Analysis, even in the Scholastics’ own era. A literal interpretation of Deuteronomy 23:20 would support the implementation of the Usury Doctrine and not the self serving reason of the Roman Catholic Church keeping its own cost of funds low, as Ekelund and Hébert suggested. (They were referring to verse 23:20 which allows the charging a foreigner interest, but not a brother Israelite. Consider that Christians believe they are not bound by civil and ceremonial laws of Judaism: only the moral code is in force.) The Scholastics may not have understood that the lending of money for interest could stimulate economic growth and help the very poor about which they were concerned. Hence, there was a time value of money, and this, too, the Scholastics did not reason about with great clarity, perhaps because of their loyalty to Roman Catholic Church doctrine.

Throughout the nearly two thousand years of economic activity and thought from Aristotle to the Scholastics, the basic economic structure of western civilization was dependent upon the extremely low cost of labor provided by either slavery or serfdom. The economic analysis of political economy in the 18th century arose from this background to modern economic history.

Reference

Ekelund, R. B., Jr., & Hébert, R. F. (1997). A history of economic theory and method (4th ed.). New York: McGraw Hill.