THE ORIGINS OF MARKET ECONOMICS

Alejandro A. Chafuen

(does not include the original footnotes)
The Philadelphia Society Annual Meeting (April 26, 1997)

Diogenes told a story about a casual encounter of Socrates and Xenophon (430- 354 BC) in the streets of Athens.  Xenophon bumps into Socrates who asks him "what is the road to the market?"  Xenophon diligently gave him directions.  Unkown to him, Socrates had little intention to go to the market.  He asked a second question:  "Tell me, what is the road to virtue?"  Xenophon responded with a blank stare.  And Socrates answered with the later famous remark "Come follow me, and I will teach you."

Markets and virtue in the same story. . .   That is how the issue was addressed from the time of the Greek philosophers until approximately the late sixteenth century.  Even Adam Smith was a moral philosopher and achieved fame and notoriety as such.

In my remarks I will place "economic problems within the broad frame of a general theory of human action.  Carl Menger, in the first chapter of his Principles of Economics entitled "The General Theory of The Good," writes about issues, such as his distinction between true and imaginary goods, usually addressed by philosophers:

 The quantities of consumption goods at human disposal are limited only by the extent of human knowledge of the causal connections between things, and by the extent of human control over these things.

He frequently used the expression "within the limits set by natural law."  Addressing property rights he wrote:

 Property, therefore, like human economy, is not an arbitrary invention but rather the only practically possible solution of the problem that is, in the nature of things, imposed upon us by the disparity between requirements for, and available quantities of, all economic goods.

The questions asked by Ludwig von Mises in his famous treatise on economics are different from those asked by many other economists.  The first chapters have the following titles and subtitles: "what is human action?" "On Happiness," "On instincts and impulses," "Rationality and Irrationality," "Causality and Human Reason," and other similar topics.

Even the moral philosophers who disagree with him can easily understand Mises position.  Many times, however, I encountered economists who had trouble following the first chapters of Human Action.  It is understandable, for economists who start their economic analysis with the same questions to side with Murray Rothbard when he stated that "it all started with the Greeks."

It also started with the Greeks for me.  At the senior year of my university studies at the Argentine Catholic University we all had to take an yearly course on the history of economic thought, taught by Dr. Oreste Popescu, a Romanian economist, trained in Austria.  It was almost twenty years ago then.  I "knew" much more at that time.  I knew that economics started with Adam Smith, and that the only books worthy to read were all those in the entire catalogue of the venerable Foundation for Economic Education.  You can imagine my frustration when Dr. Popescu announced in his distinguished but unmistakable Transylvanian accent "that he very much doubted that during the year we were going to have time to reach Adam Smith's writings."

Our first assignement in class was to read Works and The Days by Hesiod.  You can imagine my frustration.  I chuckled.  Professor Popescu caught me and asked me the reason for my reaction.  I complained that during our five years of studies we barely had time to study the great economists and that now we were going to lose time on the works of a Greek poet who had passed away 24 centuries ago!  Popescu commanded me "Chafuen, for the next class, prepare a report on Hesiod."  That was a turning point in my intellectual life.  Since then I began to feel a little more ignorant each day.  The reason?  I found several theoretical jewels in Hesiod work.  No, I did not find correlations, bar charts, or differential equations, I found explanations about how human beings value, choose, and produce.  I also soon learned, that unlike what happens today, the classics were read by almost all intellectuals of the time, increasing the impact of each contribution by the early Greek philosophers.

As Murray Rothbard correctly stated, Hesiod devoted more than a third of the verses of his Works and The Days to the problem of scarcity.  We should recall that Wilhelm Röpke, the late great economist and one of the past presidents of the Mont Pelerin Society defined that "the whole purpose of a rational human economy is to lessen scarcity."
 
Murray Rothbard also stated that "To Hesiod, emulation leads to the healthy development of a spirit of competition, which he calls 'good conflict', a vital force in relieving the basic problem of scarcity."  Apart from attacking the prophets of scarcity Röpke also criticized those who are trying "to discredit competition as something egotistic and inimical to an integrated society."

"It all began, as usual, with the Greeks."  And it began with the study of human action.  Traditional Thomistic thinking, also adopted by Murray Rothbard and other "Austrian" economists, speaks of human acts, and human action.  What distinguishes humans from other beings is human action: free, voluntary and purposeful behavior.  All human action is subject to moral judgement, all human action is moral action.

Man's reflections on his actions, the process by which he chooses.  His effort to understand the dealings in the market, the fair or town-square.  Man trying to understand wealth.  Thinking about economics began in that manner.  Most of these questions, at least in writing, were addressed within an ethical context/  What is a good action? what is an evil choice.  Can we be involved in trade and still be good people?

The Market Economy

 Et c'est pourquoi l'expression "économie de marché" est dangereuse.  Elle ne se réferè pas à l'activité humaine et elle est donc dénuée de toute référence éthique.  Pascal Salin, 1992, past President of the Mont Pelerin Society.

Studies about the "market economy" started with moral philosophers.  Although in today's world, where positivism rules, there are many who still do not understand the limits of their analysis, most of the leading free-market economists of the Mont Pelerin Society, which I see as a family relative of the Philadelphia Society, understand that economics has its limits:  without the human person there is no market.  I quoted Salin but I could have quoted his predecessor, Professor Max Hartwell, or his successor as president of the Mont Pelerin, Dr. Edwin Feulner.  All of them have stressed the importance of the moral aspects of economic life.  I can also quote from most of the great liberal economists, Hayek, for example wrote:
"When we defend the free enterprise system we must always remember that it deals only with means.  What we make of our freedom is up to us.  We must not confuse efficiency in providing means with the purposes which they serve.   A society which has no other standard than efficiency will indeed waste that efficiency."
As Hayek concluded in the same piece "the ends exist apart" from the market system.  (The Moral Element in Free Enterprise, p. 73, in The Morality of Capitalism, FEE,  1992.)  Another great economist G. Warren Nutter stated that "Economics can escape moralizing, but it cannot escape morals." and continued:
 It is, of course, ethically neutral to count broken crockery or empty pyramids produced in one economy as equivalent to food and housing consumed in another.  But such ethical neutrality removes all meaning from the question of how the two economies compare.  The simple fact is that all such questions have implicit ethical content.  We are asking whether one state of affairs is better than another, and the judgement of better or worse has to be made with reference to some normative standard." p. 47 (Political Economy and Freedom,  Liberty Fund,  Indianapolis, 1983)

Ben Rogge was also aware that positive economics was not all encompassing "Normative economics is positive economic plus a value system." p. 112 (Can Capitalism Survive, Liberty Press, Indianapolis, 1979). Jacques Rueff stated that "No one is more convinced than me about the need to make our economic institutions subject to the demans of morals and justice."  Jacques Rueff, in L'Age de L'Inflation, Payot, Paris: 1963. (From Chapter 5 "the unity of Europe needs to be based on the unity of its currency.")  We could also quote a number of "positivist" economists, such as Milton Friedman, stating that the free society needs an environment where people agree on a "set of common values."

Ends, morals, justice, common values, normative standards, economists know of their importance.  They are not necessarily, however, experts on how to define, bring about, or discover, such concepts and ideals.

If we are able to agree that we have to look into the writings of the great moral philosophers to find the origins of market economics, there is no better period to focus our attention than the so-called Late-Scholastic period.

The road by which ideas influence later thoughts and actions is not always straight and well marked.  When an author makes specific quotations and acknowledgements of another writer, we may clearly recognize his influence.  On the other hand, people often adopt the reasonings of authors unknown to them.  Where there are great similarities between two different writers, we may conclude that one might have influenced the other.  It is easy to see the road leading from some Late Medieval thought to Austrian principles of political economy.  In other areas the road is concealed.

There are interesting similarities and, in some cases, contradictions, between Late-Scholastic thought and ideas of important members of the Austrian school.  Since the writings of Protestant authors such as Grotius and Pufendorf sometimes served as the conduit between Catholic Late- Scholastic thought and later writers, they must figure in any analysis of the influence of Scholastic thought.
The French economists, the Classical Liberal authors and the "Austrian economists" form the core of Western free-market tradition.  From this core, other traditions of economic analysis, such as the Chicago and Virginia Schools, have contributed to a better understanding of economic principles.  While acknowledging the considerable distance between the laissez-faire of the French economists and the Austrians' theory, it is not inappropriate to classify these three schools of thought as embracing the same ideal--the ideal of human freedom.

The following pages represent a summary of the search for the uncertain origin of many modern ideas in the extensive field that the Late-Scholastic authors embraced.  Several of the issues analyzed in the following paragraphs have been the central topic of extensive modern studies.

On the importance of private property

Almost all "Austrians" have argued in favor of private property. As well as the late-scholastics they repeated some of the arguments first presented by Aristotle and then further developed by Thomistic and Late-medieval authors.  Private property facilitates orderly production and division of labor, helps mitigate scarcity by encouraging a better use of the resources and as Mises stated "it is in the defence of property that Law reveals most clearly its character of peacemaker."  This peace is one of the major causes of the higher productivity of free societies.

A private property order allows the emergence of markets and prices.  The Austrian economists, had a clear understanding that this was one of the main reasons why private property encourages a better use of resources.  I was not able to find in the Schoolmen's writings explicit explanations on the direct relation between private property and market prices.

As well as the Austrians, the scholastics never felt prey to the "angelical vision of the state."  All men are capable of evil and their trip to a bureaucracy does not change this fact.  It is precisely because of this human trait that the tragedy of the commons appears.  If all goods are held collectively, "evil men will take more and add less to the common barn," as foreseen by Vitoria, even thieves and misers, would achieve the highest positions in those societies.

The medieval schoolmen favored private ownership because it allows property to be used in a more beneficial manner.  They believed that a private property system will be more peaceful, more productive and, over all, more moral.

According to the Schoolmen, everything God created was to benefit mankind and not just a few.  They saw private property as a means to encourage people to use the goods in ways that would benefit all.  Like the Schoolmen, Mises regarded ownership as the power to use economic goods.  Stating that "an owner is he who disposes of an economic good," he also recognized that, from a legal point of view, one can own a good even when it is not physically in his position.

Mises found that in any act of productions involving division of labor the "having is always two-fold: there is a physical having (direct), and a social having (indirect)."  Mises made the point that he who holds the commodity and uses it productively exercises direct ownership, while the "social having belongs to him who, unable to dispose physically or legally of the commodity, may yet dispose indirectly of the effects of its use."  His conclusion is that "natural ownership in a society which divides labour is shared between the producer and those for whose wants he produces."  Recognizing that in such society "no one is exclusive owner of the means of production," Mises concludes that ownership is a social function..
 
When protected by privileges ownership loses its social function.  Late-Scholastic reasonings in favor of private property paved the way for the great nineteenth-century reformations. In the recent decades there has been a tendency to interpret the social function of ownership differently.  While retaining the term private property, many modern thinkers would preserve the institution in the formal sense only.  According to them, "society" should determine how goods are to be used.

When this happens, private responsibility is greatly weakened.  When "society" directs the owner of a factory to invest in a certain field, to hire a certain number of workers at a prescribed salary and to sell his goods at a price fixed by authority, he cannot be held responsible if things go wrong.  This theory dictates that "society" must assume the loss.  It provides that the owner is still entitled  to a "just profit."  Profits and property thus lose their ties with consumer satisfaction.  The paradoxical result is that, by attempting to use force to encourage the social function of ownership, government renders it impossible.  In such a society, people struggle to accrue the favors of law rather than to satisfy the consumer.  The struggle for power and the conflicts and clashes of interest groups thus supplant peaceful cooperation in the marketplace.  Only in a free society is "ownership of the means of production not a privilege, but a social liability."

Trade

By the time of the Schoolmen, commerce had long been held in low esteem by moralists of different countries, ages and backgrounds.  Although most of the Late Scholastics found commercial activities to be morally indifferent, they outlined the advantages of commerce, turning their attention first to the critical arguments of the Church fathers and the Canonists.  St. Thomas Aquinas's justification of mercantile profits offered many examples of the benefits that commerce may bring to a society.  He explicitly mentioned the usefulness of (a) the conservation and storing of goods, (b) the importation of useful goods that are necessary for the republic, and (c) the transportation of goods from places where they are abundant to places where they are scarce.
 As is proper in Scholastic tradition, Domingo de Soto studied both sides of the issue.  He first presented the negative arguments: "Barter is simpler than commerce, direct exchange is simpler than indirect exchange, and it causes fewer problems.  For many centuries humanity was happier living without money."  Proceeding to point out the benefits of commerce, Soto defined contracts as obligations and acknowledged that both parties profit from the arrangements: "I give you this amount of goods and you give me this amount of money, and this is not an identity."  Furthermore, he asserted that "buying and selling are very necessary contracts for the republic."  Basing his arguments on Aristotelian reasonings, Soto explained that it was natural for direct exchange to be gradually replaced by indirect exchange:
 Mankind progresses from imperfection to perfection.  For this reason, in the beginning barter was sufficient as man was rude and ignorant and had few necessities.  But afterward, with the development of a more educated, civilized and distinguished life, the need to create new forms of trade arose.  Among them the most respectable is commerce, despite the fact that human avarice can pervert anything.
Conceding St. Augustine's point that business "is like eating, a morally indifferent act, which can be good or bad depending the ends and the circumstances, Soto reiterated his conclusion that
 commerce is necessary for the republic.  Not all the provinces have the goods they need in abundance.  On the contrary, due to climates some have in abundance the fruits and labors which are scarce in others and vice versa.
 
 Soto emphasized that to survive, the republic needs to have people who transport goods from the places where they are abundant to the places where they are scarce.

 As trade is so important for society, would it not be "more prudent," Soto asked, to charge public servants with this responsibility?  He answered in the negative due to the wide spectrum of necessary goods required for civilized life.

 The Jesuit Juan de Mariana carried this point further, suggesting that commerce favors the common good and thus God gave man his nature of social dependency and his limited ability and capacity so that man would feel the need for commerce. This encourages man to live in society and to enjoy the benefits of social cooperation (i.e., division of labor).
" For God, the Parent and Creator of the human race, saw that nothing would be more valuable to man than mutual charity and friendship, and that it would not be possible for mutual affection to be cherished and fostered among men unless they were gathered into a body in one place and subject to the same law. . .He created men to desire this and move toward it with true necessity, lacking many things and subject to many dangers and evils . . .Thus He, who gave food and covering to the other animals and armed them against external force by giving some of them horns or teeth or claws, and others swift feet to fly from danger, cast as if he had lost his all in a shipwreck . . .The rest of life is like its beginning, and proves to lack many things which neither an individual nor a small group could obtain for themselves.  How much work and industry is involved in combing, spinning and weaving linen, wool, and silk. . .The life of no single man is long enough to obtain all these things, however long he lives, unless the wonder and observation of many men, and collective experience, should come to the rescue."
International Trade

 The Doctors dealt with international trade in a similar manner to domestic trade.  One of the principal contributions of the Late Scholastics regarding commerce consists of the recognition of international free trade as subject to human laws, as Vitoria established in his De Indis et de Iure Belli Relectiones.  Vitoria's views led Teofilo Urdanoz to state "that no one has realized, at least up to now, that Vitoria's vision of the right to free communication and unrestricted foreign relations represents an explicit advance of the principles of economic neoliberalism and worldwide free market."  Describing the advantages of commerce between the Indians and the Spaniards, Vitoria claimed that "the native princes cannot prevent their subjects from trading with the Spaniards."  He admonished the Spanish King with similar words.  Eternal, natural and positive human law (ius gentium) favors international trade.  To abjure it would violate the Golden Rule.  Vitoria denominated the laws restricting foreign trade, with the objective of excluding a foreign country from sharing in the benefit "iniquitous and against charity."  Quoting Ovid, he added that "man is not a wolf for othermen," and that nature has established a certain bond between men."

Stressing the importance of commerce and noting that human society benefits from the exchange of goods, the followers of the Late Scholastics continued to offer elaborate proofs of the need for domestic and international trade.  They discerned it as a need rooted in human limitations and geographical differences.

Public Finance

To believe in private property means to believe in limited government.

The Late-Scholastic rejection of inflation as a method of overcoming financial difficulties paved the way for their balanced-budget proposals.  In the opinion of those who address the topic, the monarch should endeavor to balance the budget by cutting spending, reducing subsidies and dismissing courtiers.

One of the Schoolmen's primary concerns was the high level of taxation.  They rejected the financing of budget deficits through public debt.  In their experience, not only did excessive borrowing by the state fail to reduce the burden of excessive spending, it also jeopardized the future of the kingdom.

For the Scholastics, the purpose of taxation was to raise the necessary revenue for just government.  They declared that taxes should be moderate and proportional, making no reference whatsoever to taxation as a tool for equalizing wealth.  In his claim for moderate taxes, Navarrete realized that excessive taxation could reduce the king's income (as few will be able to pay such high rates),
 The origin of poverty is high taxes.  In continual fear of tax collectors, [the farmers] prefer to abandon their land, so they can avoid their vexations.  As king Teodorico said, the only agreeable country is one where no man is afraid of tax collectors.

Furthermore, he who imposes high taxes receives from very few, "A paucis accipit, qui nimium quarent."  Mises was not far from this idea when he remarked that "every specific tax, as well as a nation's whole tax system, becomes self-defeating above a certain height of the rates."  In the field of economic ethics, the Late Scholastics were careful to point out that certain tax laws could oblige legally but not morally.  They based this conclusion on their belief that an unjust positive law is not a true law, even though the government may have the power to enforce it.

Money

According to the Late-Scholastics, the value of money should be determined in the same manner as the value of any other commodity.  They saw its utility and scarcity as the main factors influencing its value.  Believing that the usefulness of money bore close relationship to its quantity, the Schoolmen noted that when money undergoes continuous debasements, people try to reduce their real cash holdings.  A reduction in the legal value of money will therefore cause a price increase of similar proportions.  They also remarked that the value of money is greatest where it is more urgently needed for transactions (e.g., e.g. at fairs).

The Late Scholastics in general--and Juan de Matienzo (1520-1579) and Martín de Azpilcueta in particular--have been credited as the first formulators of the quantity theory of money.  Their contributions reached a peak with Juan de Mariana, author of one of the best texts on money ever written.  Mariana's Tratado sobre la Moneda de Vellón, originally published in 1598, anticipated many of the anti-inflationary arguments of Austrian economists.  In general, the Late-Scholastics avowed that currency debasement caused a revolution in fortunes, undermined political stability and violated property rights.  It also created confusion in commerce (internal and foreign ), leading to stagnation and poverty.  Currency debasement, at least for Mariana, represented an instrument of tyrannical plunder.  From a theoretical point of view, perhaps one of the most important insights of Mariana was his analogy of the effects of drugs, which in the short run might make someone think that things are going fine, but which in the long run produce calamitous effects.  Mariana was obviously speaking about the short term benefits that might arise in the commercial arena, and of the increased amount of resources that the bureaucracy feels that it has to spend.

Another important aspect of Mariana's work, is that it is possible to trace his influence on Samuel von Pufendorf and through the latter on Adam Smith.
 

VALUE AND PRICE

The Late-Scholastic theory of value and price shaped subsequent economic thought.  Grotius, Pufendorf, the Physiocrats, the Scottish school and the Austrian economists all bear the influence of their writings.  Pufendorf recognized the influence of virtuositas "A large diamond, everything else being equal, is more valuable than a small one, although it is not always true in regard to the value of things of a different kind of goodness.  Thus, a large dog is not always more valuable than a smaller dog."  He also recognized the importance of utility:
"The foundation of price in itself is the aptitude of a thing or action, by which it can either mediately or immediately contribute something to the necessity of human life, or to making it more advantageous and pleasant.  This is the reason why in ordinary speech things of no use are said to be of no value . . .So in the fable the cock regarded the pearl, which he had found, of no value, because it was of no use to him [Phaedrus, III. xii}."   Pufendorf rejected Grotius's Aristotelian analysis that "the most natural measure of the value of each thing is the need of it."  If this were the case, he argued, things that serve idle pleasure should not have a price, yet "mankind often bestows a price upon such."
It has been argued that the scholastics did not contribute much to the theory of value because "these scholastic doctors never truly departed from elements of "objective" value or holistic reasoning."  By including Virtuositas in their analysis, however, the late-scholastics were just including their common sense observations of those factors influencing value in exchange.  Cæteris paribus, in an exchange, a good horse (faster, healthier, stronger) will be valued more than a worse horse.  These "intrinsic" qualities cannot be separated from the intended use of the good, and this use is determined by an outside "extrinsic" agent.  The horse in question might be needed as a dead weight, or for meat consumption, and with those needs in mind the qualities of the good will be assessed differently.  But that is why the scholastics, especially since St. Augustine, never spoke as if virtuositas alone could determine value in exchange.  For those reasons they incorporated "raritas" and "common estimation."
Quality is a more common word for virtuositas and this idea was not at all alien to the Austrian theory of value.  In his chapter on the theory of value, Carl Menger had an entire section devoted to "the influence of differences in the quality of goods on their value."  Menger's view that differences in virtuositas whether of type or of kind "cannot affect the value of the different units of a given supply if the satisfaction of human needs is in no way affected by these differences," is entirely compatible with the late scholastic theory of value.  When St.Bernardine wrote about the value of precious stones dropping way below the value of water for an isolated man in the top of a mountain, he was reasoning in a similar way to Menger.  St. Bernardine explained:
"Water is usually cheap where it is abundant.  But it can happen that, on a mountain or in another place, water is scarce, not abundant.  It may well happen that water is more highly esteemed than gold, because gold is more abundant in this place than water."

In trying to answer the question what makes a thing turn into an economic good, Carl Menger uses many Aristotelian and Scholastic concepts.  These prerequisites "must be simultaneously present,":
a human need (in Late Scholasticism "necessitas"); such properties as render the thing capable of being brought into a causal connection with the satisfaction of this need ("virtuositas"); Human knowledge of this casual connection (this argument has been used in the earliest post-socratic writings e.g. Xenophon, and Plato); Command of the thing sufficient to direct it to the satisfaction of the need ("dominium").   Menger argues that all four of these elements need to be present for a thing to acquire goods- quality (güterqualität).
Like Aristotle, Menger speaks about the existence of goods which are only so in the opinions of people, as they are only demanded due to mistaken views regarding the nature and or the capability of things for satisfying human needs.  These goods, Menger says, may appropriately be called imaginary goods.

Also as Aristotle, Menger speaks about need and that when the ability of a good to satisfy needs disappear, "the goods-character of the thing is immediately lost unless new needs for it arise."

Menger in particular, and the Austrians in general, perfected the theory of value.   It is possible to conclude "against" the Late Scholstics with the same criticism brought up by Menger regarding A.E.F. Schäffle's theories on the importance of intensity of desire (deseabilitas) and difficulty of procurement (raritas).  The question of how scarcity, utility, and intensity of desire, influence each other, "and how in consequence of this mutual influence each good attains a definite magnitude of importance for economizing men," remained unsolved until Menger's contributions.

Another topic in which the Scholastics were good but not as thorough as the Austrians, is the issue of voluntariness and justice.  A totally voluntary exchange would always be just, volenti non fit injura said Aristotle, and so did the Scholastics.  It was implicit in the Scholastic explanation that ignorance on the part of the buyer or seller could, in certain cases, render the transactions involuntary.  Although the Late Scholastics permitted the realization of profit due to better knowledge of the market, they morally condemned those who took advantage of an ignorant consumer.

More than four centuries later Kirzner repeated similar arguments without perhaps being aware that his arguments had a long and strong tradition.  He argues that "There does not seem to be a clear moral imperative based on considerations of justice, to divulge what one knows to others, even if this information may be useful to those others, and even if the information can be costlessly provided."  He then comes to the same conclusion as St. Thomas seven centuries earlier:
 Failing to divulge information to others (without engaging in misrepresentation) may not be very noble; it may even, under certain circumstances, be deemed to be downright disgusting; but it constitutes neither robbery nor fraud.
The Late Scholastics also cited Genesis 41, where an informed Joseph advised the pharaoh to "stock up" in preparation for bad times.  The pharaoh then grew rich buying at a low price and selling at a higher price.  When one acquires special knowledge, and the public remains unenlightened, the knowledgeable seller may employ his information to make a profit.  Lessio acutely reasoned that if justice does not permit knowledgeable sellers to command the current price,
 buyers, following the same reasoning, should not be allowed to buy at the current price if they know that prices in the future will go up, and this is also false.

The value of goods of higher order.

The Late Scholastics analyzed wages not in their chapters on buying and selling but on the sections on "hiring and renting."  Menger regarded labor services as falling into a special category of goods called "useful human actions" which should be distinguished from material goods.  This did not prevent the Schoolmen or Menger, to understand that those services should be actually bought and sold in the market and that its price follows some of the same rules than the market for other goods.

 
Distributive Justice

The idea of discovery as a just basis for acquiring property has been recently thoroughly addressed by Israel Kirzner but was not alien to scholastic thought.  The passages in the Gospels speaking about the person who found a treasure in another's property and who then sold everything to buy that property and reap the profit, or of the other who perceived the huge value of a special pearl, were widely used by the Late-scholastics to prove that a "finders-keepers rule" can be consistent with a reign of justice.  The major economic topic addressed by them on this context was, apart from treasures, the just property of underground discoveries, especially gold, and entrepreneurial trading opportunities.

Pedro de Ledesma, following St. Antonino's reasoning, remarked that those things that never had an owner "belong to the one who finds them, and the one who finds them does not commit theft by keeping them." According to Ledesma, and most late medieval schoolmen, the finder has a natural right to appropriate such goods.  Treasures, and other things that at one time had a proprietor, in certain circumstances may also belong to the one who found them.
 
It is even more interesting to point out that chance, and luck, and not industry and labor, gave in many cases, a stronger justification for acquiring ownership on found goods.  When one found a treasure in no-man's- land one had the natural right to keep it.  The Late Scholastics argued that if by chance one found a treasure in another man's land, one could keep half of it.  If it was found by industry, then one was not entitled to the treasure as it was presumed that one had prior knowledge of the existence of wealth on our neighbors land and that wealth should belong to the owner."

Professor Kirzner also wrote that "The problem, for an entitlement defense of capitalist justice, is that such errors might be held substantially to rob market transactions of meaningful voluntariness--if a voluntary transaction is taken to mean one entered into willingly with full knowledge of all relevant facts." "No one, in all of these errors, may necessarily be liable to be accused of deliberately defrauding or deceiving anyone else." "one of the parties may feel that, in a real sense, the transaction was not entirely voluntary."  As "error" is such an essential part of the market economy, and this can invalidate entitlement claims, the finders-keepers rule acquires increased relevance.

Unlike Kirzner, the Late Scholastics did not have a clear view about how inventionis could come to the rescue of those transactions where due to error one could argue that the transaction was involuntary and therefore unjust.  They rather argued that contracts gave one base for entitlements, and Inventionis gave another.  They did not argue however that for an act to be voluntary one needed "perfect" knowledge.

But they would have agreed with the Kirznerian conclusion that a "finders- keepers ethic makes it possible for us to see things differently.  When I find an unowned natural object and, considering its annexation worthwhile, proceed to take physical possession of it, I have discovered it --or, at any rate, I have discovered the worthwhileness of taking possession of it."

Most Austrian economists, Hayek perhaps being the most outspoken, have rejected the notion of "distributive justice" as not pertaining to a just rule of law.  The Scholastic approach, which never included wages, profits, rents, or interest as issues of distributive justice, is in most aspects, consistent with the insights of the Austrian school.  Issues like taxation, discrimination in the use and allocation of goods owned in common, the draft, privatization, cannot be dealt as easily and justly as issues regarding exchange of goods and services between consenting adults.

Conclusion

 The market economy is the social system of the division of labor under private ownership of the means of production. . . The market process is the adjustment of the individual actions of the various members of the market society to the requirements of mutual cooperation.

Late Scholastic analysis of the pitfalls of common ownership can still be useful in contemporary debates whenever collective ownership or management is recommended as a solution for today's ills.  Their warnings about the damaging effects of high taxes could still be used to salvage depressed economies.  Scholastic arguments in defence of free trade can be used today in favor of the passage of GATT, their recommendations against price controls can still be used to combat the futile effort of setting prices which do not conform to the reality of the market.

Too much of the policy debate neglects the ethical aspects of the issues.  We need a new round of "scholastics" to incorporate sound ethical reasoning into the many policy debates of the day.  Is it ethical to tax non-inflation adjusted capital gains?  Is it morally permissible to exclude foreigners from entering our country?  What are the ethical implications of deficit spending?  How are welfare laws affecting work ethic?  What is the effect of government granted privileges?

It would be beneficial to have scholars with a similar focus of the scholastics.  It would be even better if they would approach their areas of study with same personalistic methodology.  Economic analysis today is still dominated by positivist dogmas and aggregate thinking where too little, if any, attention is paid to the freely acting human being.  If you want to analyze the ethical and economic aspects of NAFTA, for example, we should not look only at what will happen to aggregates (i.e. "imports", "exports", GNP, "employment") but at what it means not to allow Mr. Rodriguez in Monterrey, Mexico to freely exchange his products or talents with Mr. Jones in MacAllen, Texas.  Why is it different from allowing someone from Fairfax, Virginia, to exchange his talents whith someone in Hartford, Connecticut?

Scholastics did not share an angelical vision of man, but neither of government.  Their cautious analysis was useful then and can still help provide solutions for today.