Roger E.

Backhouse: The Ordinary

Business of Life
Chapter 2 The Middle Ages

Udayan Roy
Lecture Notes 2008
 The Middle Ages (476 – 1453)
• Judaism
• Early Christianity
• Islam
• From Charles Martel to the Black Death
• The Twelfth-Century Renaissance
• Nicole Oresme and the Theory of Money
• Conclusions

THE MIDDLE AGES 2

 Judaism
• Bible, Old Testament
– One should restrict one’s wants to cope with scarcity.
• The pessimists in ancient Rome had similar ideas
– Wealth was the reward for a hard worker
– But the pursuit of wealth was bad
• It leads people away from God
• It leads to dishonesty and exploitation
– Opposed to commerce and usury
– Slavery was okay, but each slave should be freed
after six years
– Debts would have to be cancelled after seven years
– Land would return to original owners after fifty years

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 Quotations: Old Testament
• Wealth gotten by vanity shall be
diminished: but he that gathereth by labor
shall increase.
– Proverbs 13:11

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 Early Christianity
• Bible, New Testament
• Jesus
– wanted his followers to give up their possessions and warned
that the rich may not receive salvation
– Reward for good work would be found in heaven, and not here
on earth
• St. Paul
– Believed in the second coming of Christ and the end of the
world. So, economic development was a non-issue
• St. Augustine
– Wealth, property, and commerce were not inherently good or
bad. What matters is how these things are used and for what
purpose

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 Quotations: New Testament
• The love of money is the root of all evil.
– Timothy 6:10
• It is easier for a camel to go through the
eye of a needle, than for a rich man to
enter into the kingdom of God.
– Matthew 19:24
– The Gospel of Mathews

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 Islam
• Koran
– Income and property should be taxed to help the poor
– Interest on loans prohibited
– Inherited wealth could not go to a single beneficiary, but had to
be shared
• Averroes (Ibn Rushd, 1126 – 98)
– Added liquidity to Aristotle’s list of the functions of money
– Wanted the value of money to be kept constant
• Ibn Khaldun (1332 – 1406)
– Outlined a dynamic theory of empire. Initially, expansion enables
greater division of labor and strengthens the empire. But the
greater wealth makes people soft and weak. This eventually
weakens the empire.

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 The Twelfth-Century Renaissance
• Increasing prosperity, demand for education,
and recovery of some European territory from
the Moors(Muslim people of North Africa and the Iberian
Peninsula-modern-day Spain and Portugal).
• The first universities were set up at Bologna,
Paris, and Oxford, and then elsewhere
• Scholastic School emerged
– Interests were still ethical,
– but economic analysis was often necessary

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 The Twelfth-Century Renaissance
• Thomas of Chobham (c. 1163 – 1235)
– Commerce could be beneficial.
• It could relieve acute scarcity in some regions.
• But merchants should not charge anything more than their
costs.
– There are reasons why usury is a sin.
• Loaned money becomes the borrower’s property; all gains
from the money should therefore go to the borrower
• Time belongs to God, not to the lender
• The lender does not share in the borrower’s costs and
losses; so why should he take part of the borrower’s profits?

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 The Twelfth-Century Renaissance
• William of Auxerre (c. 1140 – 1231)
– Based ethics on natural law, the set of self-
evident rational ideas
– Private property was okay, as long as those
who had it shared it with those who had none
– Interest could not be justified on the ground
that voluntary exchanges are necessarily just;
one is under duress when one asks for a loan

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 The Twelfth-Century Renaissance
• Albert the Great (Albertus Magnus, c. 1200 –
1280)
– The price of Good A relative to the price of Good B
depends on both people’s relative needs for the two
goods and the relative costs of producing the two
goods.
• This reflects an early theory of supply and demand
– The ethical issue of what price should be paid for a
good is related to the analytical idea about the
practical matter that unless production costs are paid
the good would not get made
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The Twelfth-Century Renaissance
• Thomas Aquinas (c. 1225 – 74)
– Competition between sellers, as occurs in
public markets, protects buyers from
exploitation
• The questions are about ethics; the answers use
economic analysis

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 Nicole Oresme and the Theory of
Money
• In the 14th century, rulers often debased the
currencies in use by reducing the metal content
• Oresme opposed debasement.
– Money is a standard of measurement and should be
kept constant so as to not create confusion
– The ruler manages money as a public trust.
Debasement may be done only if it is in the public
interest.

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 Conclusions
• The questions remained ethical
• But the Scholastics tried to find rational
arguments for their moral arguments
• To do this they had to develop and
analyze economic concepts such as
value, competition in markets, money,
profit and loss, opportunity cost, and
interest.
THE MIDDLE AGES 14