суббота, 30 июня 2012 г.

THE SCHOOL OF SALAMANCA AND THE BANKING BUSINESS

These financial and banking phenomena did not go unnoticed by the illustrious minds of members of the School of Salamanca who, according to the most reliable research, paved the way for the modern subjectivist theory of value,
developed by the Austrian school of economics.
Chronologically speaking, the first work to consider, and perhaps the most relevant to our thesis, is Instrucción de mercaderes (Instruction to merchants), written by Doctor Luis Saravia de la Calle and published in Medina del Campo in
1544. Saravia de la Calle criticizes bankers harshly, calling them “voracious gluttons who swallow everything, destroy everything, confuse everything, steal and soil everything, like the harpies of Phineus.” He says bankers “go out into the street and square with their table and chair and cash-box and book, like harlots to the brothel with their chair,” and having obtained the necessary license and guarantee required by the laws of the kingdom, they set about acquiring deposits from clients, to whom they offer bookkeeping and cashier services, making payments from clients’ accounts as ordered and even
paying interest on such deposits.
With sound legal reasoning, Saravia de la Calle indicates that interest is incompatible with the nature of the monetary deposit, and that in any case, the banker should receive a fee for the custody and safekeeping of the money. He even severely rebukes customers who enter into such deals with bankers, and states:
And if you say, merchant, that you do not lend the money, but that you deposit it, that is a greater mockery; for who ever saw the depositary pay? He is usually paid for the trouble of safeguarding the deposit. Furthermore, if you now
entrust your money to the profiteer as a loan or deposit, just as you receive a part of the profit , you also earn a portion of guilt, even a greater portion.
Saravia de la Calle makes a neat distinction between the two radically different operations bankers carry out: demand deposits and time “deposits.” In the first case, customers entrust their money interest-free to bankers so the money will be safer, and more accessible for making payments, and to avoid the hassle and trouble of counting and guarding it, and also because, in gratitude for this good
deed they do the moneylender in giving him their money, if it so happens they have no money left under his charge, he will also accept some overdrafts without interest.

The second operation, the time “deposit,” is very different from the first and is in fact a true loan or mutuum which is granted the banker for a fixed term and yields interest. Saravia de la Calle, in compliance with the traditional canonical doctrine on usury, condemns these transactions. Furthermore, he clearly states that in the case of the demand-deposit contract, customers should pay the banker for if they deposit money, they should pay for the safekeeping and should not derive as much profit as the laws permit when depositing money or property that requires safeguarding.
Saravia de la Calle goes on to censure those clients who selfishly try to capitalize on the illicit activity of bankers, making deposits and expecting bankers to pay interest. As he vividly puts it, He who deposits his money with someone he knows will not guard it, but will spend it, is not free from sin, at least venial sin. He acts as one who turns over a virgin to a lecher or a delicacy to a glutton.
Moreover, the depositor cannot ease his conscience by thinking the banker will loan or use other people’s money but not his own.
He believes the banker will probably guard the money he deposits and not do business with it, when this cannot be expected of any of these profiteers. On the contrary, the banker will soon invest the deposit for profit and try to earn money with it. How could bankers who pay 7 and 10 percent interest to those who provide them with money to do business with possibly refrain from using deposits? Even if it had been clearly demonstrated that you do not sin (which
is not the case, quite the opposite), the moneylender very certainly sins when he does business with your money and he definitely uses your money to steal the property of your neighbors.
Saravia de la Calle’s doctrine is very coherent, inasmuch as the self-interested use (via the granting of loans) of money placed on demand deposit with bankers is illegitimate and implies a grave sin. This doctrine coincides with the one originally established by the classical authors of Roman law, a doctrine which derives naturally from the very essence, purpose, and legal nature of the monetary irregular-deposit contract.
Saravia de la Calle also vividly describes the disproportionate profits bankers obtain through their illegitimate practice of appropriating deposits instead of being satisfied with the more modest earnings they would receive for the simple
custody or safekeeping of deposits. His explanation is quite descriptive:
If you receive a wage, it should be moderate and adequate for your support, not the excessive loot with which you build superb houses, buy lavish estates, pay servants and provide extravagant luxuries for your families, and you give great feasts and dress so splendidly, especially when you were poor before you began your dealings, and you left humble trades.
In addition, Saravia de la Calle explains that bankers are quite prone to bankruptcy, and he even carries out a cursory theoretical analysis which demonstrates that the expansionary phase brought on by the artificial expansion of credit granted by these “profiteers” is inevitably followed by a period of
recession, during which the non-payment of debts produces a chain of bank failures. He adds that the merchant does not pay the profiteer, he causes him to go bankrupt, and he suspends payments and all is lost. As is common knowledge, these moneylenders are the beginning, occasion and even the cause of all this, because if they did not exist, each person would use his money to the extent he could and no more, and things would cost what they are worth and more than a fair cash price would not be charged. Therefore it would be very worthwhile for princes to stop tolerating these profiteers in Spain, since no other nation in the world tolerates them, and to banish this pestilence from their court and kingdom.
As we know, it is not true that the authorities of other nations had controlled the activity of bankers more successfully than Spanish authorities. Instead, the same thing happened more or less everywhere, and rulers eventually granted bankers privileges to allow them to make self-interested use of their depositors’ money, in exchange for the ability to capitalize on a banking system which provided much faster and easier financing than taxes.
To conclude his analysis, Saravia de la Calle affirms that a Christian should under no circumstances give his money to these profiteers, because if he sins in doing so, as is always the case, he should refrain from it to avoid sinning; and if he does not sin, he should refrain to avoid causing the moneylender to sin.
Furthermore, he adds that if bankers’ services are not used, the following additional advantage will result: the depositors will not be shocked if the moneylender suspends payments; if he goes bankrupt, as we see so often and Our Lord God permits, let him and his masters be lost like dishonest gains.
As we see, Saravia de la Calle’s analysis, along with his cleverness and humor, is impeccable and free from contradictions. However, in his criticism of bankers, he perhaps places too much emphasis on the fact that they charged and paid
interest in violation of the canonical prohibition of usury, instead of emphasizing that they misappropriated demand deposits.
Another writer who examines the monetary irregulardeposit contract is Martín de Azpilcueta, better known as “Doctor Navarro.” In his book, Comentario resolutorio de cambios (Resolutory commentary on exchanges), first published in Salamanca at the end of 1556, Martín de Azpilcueta expressly refers to “banking for safekeeping,” which consists of the bank contract of monetary demand-deposit. For Martín de Azpilcueta, banking for safekeeping, or the irregular deposit contract, is fully just and means that the banker is guardian, depositary and guarantor of the money given him or exchanged for whatever purpose by those who give or send him money, and that he is obliged to make payments to merchants or persons to whom depositors want payments made in such and such a way, [for which] he may legitimately charge a fair fee to the republic or the depositors, as this trade and responsibility are useful to the
republic and free from iniquity; for it is fair for a worker to earn his wages. And it is the moneychanger’s job to receive, safeguard and keep the money of so many merchants ready, and to write and keep their accounts, with great difficulty and at times risk of error in their records and in other things. This arrangement could be formalized in a contract by which a person commits himself to hold other people’s money in deposit, make payments and keep
records as arranged by them, etc., since this is an agreement to hire a person for a job, which is a well-known, just and blessed contract.

As we see, Martín de Azpilcueta regards the monetary irregular-deposit contract as a completely legitimate contract by which people entrust the custody of their money to a professional (the banker), who must safeguard it like a good parent and keep it constantly available to the depositors, providing whatever cashier services they ask of him; and he has a right to charge the depositors a fee for his services. As a matter of fact, Martín de Azpilcueta feels it is the depositors who
must pay the depositary or banker and never the reverse, so depositors “pay in compensation for the trouble and worries the moneychanger has in receiving and safeguarding their money,” and bankers must conduct their business honestly and be satisfied with a fair wage, receiving it from those who owe it to them and whose money they safeguard and whose accounts they keep, and
not from those who are not indebted to them.
Moreover, in an effort to clarify matters and avoid confusion, Martín de Azpilcueta (using the same reasoning as Doctor Saravia de la Calle) expressly condemns clients who wish to pay nothing for the custody of their deposits and try to even earn interest on them. Doctor Navarro concludes that in this sort of exchange, not only the moneychangers sin, but also . . . those who entrust their money to them for safekeeping as above. They later refuse to pay a fee, claiming the profits earned with their money and received from those they pay in cash is enough of a wage. And if the moneychangers request a fee, the customers leave them and take their business elsewhere. So, to keep these clients, the bankers renounce their fee and instead take money from those who owe them nothing.

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