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january · april 2011 · esic market

Markets and taxation: moderntaxation principles and the schoolof Salamanca1Perdices de Blas, L. (2011). “Markets and taxation: modern taxation principles and theschool of Salamanca”, EsicMarket, Vol. 138, pp. 91-116.Revuelta López, J. (2011). “Markets and taxation: modern taxation principles and the schoolof Salamanca”, EsicMarket, Vol. 138, pp. 91-116.

AbstractTax systems influence the decisions of private agents. Because of that theirevolution and the principles that govern them determine to some extenteconomic development. Modern tax systems existing in the developedcountries follow broadly the principles enunciated by the German econo-mist Fritz Neumark. In this article we will analyze how the evolution ofthese principles can be traced back to the School of Salamanca, in theXVIth century. To do this we carried out a comparative analysis with theaim of determining what modern taxation principles were developed bytheologians-jurists of the School of Salamanca. The results show that atleast half of Neumark’s eighteen principles were already known by thescholastics of the School of Salamanca.

Key words: School of Salamanca, history of economic thought, Neumark,tax principles.

JEL codes: B11, H20, N43.

Luis Perdices de BlasUniversity Complutense of Madrid

Julio Revuelta LópezUniversity of Cantabria

1. IntroductionThis article stems from the convergence of two notable issues that haveoccupied historians and economists independently: on the one hand, theguiding principles of modern systems of taxation, and on the other, theSchool of Salamanca. Regarding the first question, no economist canignore the importance, past and present, that tax systems have for agents,both private and public, their decisions and the effects they produce in themarket. Throughout history, all Treasuries have needed revenues to meettheir needs. The way to extract these resources from private agents hasbeen a key factor in the development of an economy that can favour thedevelopment of a country or, on the contrary, its decline, thereby affectingthe decisions of companies and of households. Hence any historical reflec-tion on this matter will help to correct deficiencies in current systems2.

As for the School of Salamanca, there is an extensive historiographywhich has not always been taken into account by economists. They maynot be aware of the contributions made by the members of the School ofSalamanca, but instead, they become familiar with some of their ideas,which ended up becoming an integral part of the knowledge base of vari-ous schools of thought to the present day. Although since the nineteen-fifties many studies have acknowledged the contributions to economics ofFrancisco de Vitoria, Domingo de Soto, Martín de Azpilcueta and Juan deMariana, among others, there are historians who maintain that the Schoolof Salamanca did not exist or, having done so, that its work can never beconsidered to be within the field of economics. Precisely, one of the pur-poses of this study will be to contribute another grain of sand towards therecognition of the role of the School of Salamanca in the creation of eco-nomics, and in the analysis of markets, which developed more fully fromthe eighteenth century. In addition, we will do this looking at their fiscaldoctrine, which is one of the least studied areas of the School.

Therefore, if we pool both issues we will be able to answer the questionthat motivates this research: was a significant contribution made by theSchool of Salamanca, in its time and to the present day, in the field of tax-ation and its relationship with the market? We hope that after reading thispaper this can be answered affirmatively, as the following pages will pres-


markets and taxation: modern taxation principles and the schoolof salamanca

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ent the fiscal doctrine of these late scholastics, remembering the historicaland institutional context in which they lived, very different from today,and seeking to make comparisons with taxation principles that supportcurrent tax systems.

This paper has two main sections, in addition to this introduction andthe conclusions. In the second section we provide an overview of theSchool of Salamanca and in the third we undertake a comparative analy-sis between modern taxation principles and doctrine of the School of Sala-manca. Finally, in the conclusions, seeking to respond to the question thatmotivates this article, we present the main contributions of the School.

We would not want to end this introduction without recognizing thepioneering work in the study of ideas on taxation of the School of Sala-manca, and their impact on the economic decisions of agents, carried outby Gonzalo Higuera in 1963, and in more depth, by Javier Gorosquieta in1971. Their research has helped us to see a little further like dwarfs astridethe shoulders of a giant.

2. A general overview of the School of Salamanca

2.1. The roots of the School of SalamancaThe late Spanish scholastics grouped around University of Salamanca andtheir central figure Francisco de Vitoria were inspired by various sources3:the ancient Greek philosophers, Roman law and canon law, and finally thethree major monotheistic religions, in particular Christianity.

The Greek philosophers who influenced the thinking of the School ofSalamanca include Xenophon, Plato and, above all, Aristotle. The reflec-tions of these great Greek philosopher reached Vitoria through Islam4, tobe picked up by Thomas Aquinas5. The main contribution of Plato to latescholastic thought was the definition of fair price. However Aristotle wasmore influential, conveying the distinction between the concepts of econo-my and chrematistic6, defining the legal price and natural price7, consider-ing need as the result of the exchange (making a subjective approach tovalue8), as well as the ownership of the goods separating their domain andtenure, and finally defining the origin and functions of money.

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With regards to the Law, canonic or Roman, it is likely to have influ-enced the thinking of the School of Salamanca, since its members, or thosewho came under its influence, had devoted themselves to the study of the-ology and law. This line of thought is also found in St. Thomas, undoubt-edly the main influence on Vitoria, and his followers. But it would beunfair to forget other scholastics, such as Raimundo de Peñafort, who con-tributed to increase the influence of law in the minds of the SalamancaDoctors.

As already noted, the three main monotheistic religions played a vitalrole in the development of economic ideas of the late Spanish scholastics.They were theologians. The Bible, the Talmud and the Koran (this lastbook may have had less influence) acted as guides to thought, reinforcedby the writings of the philosophical and ecclesiastical authorities.

It is easy to see that all the sources so far mentioned are interrelated.We cannot understand the School of Salamanca by isolating them and try-ing to identify the weight to attribute to each. The evolution of ideas overtime was an amalgamation of all that came before through the scholastictradition inherited by Spanish theologians. At this point, it is necessary topoint out that the scholastics did not present a unified point of view. Onthe contrary, while on many ideas they agree, which is perfectly logical,since they use the same sources and have the same goal, in many other cas-es they present opposing views, as we will go on to see.

Before Thomas Aquinas other scholastics had taken up these sources ofthought (this is the case of Peter Lombard, Raimundo de Peñafort, Alber-tus Magnus and Henry of Ghent9, among others), but it was the SummaTheologica, the foundation of Thomism10, the synthesis that made themost of these sources and exerted the most influence on medieval scholas-ticism and the Modern Age and, therefore, also on the School of Salaman-ca. Through this work, St. Thomas established the distinction between useand exchange value in goods, that is to say, subjective value, the conceptof fair price, and the condemnation of usury11. After him, many otherscholastic thinkers left their mark on the School of Salamanca; Jean Buri-dan, Bernardino of Siena, Juan Fenario, Peter Crockaert, Juan de Celayaand Tomás de Vío all deserve special mention.

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2.2. The Salamanca School of EconomicsThe scholastic approach was focused on “should be”, not on “be”12. Thisis logical if one takes into account that it was implemented by theologianswhose main role was to advise confessors. Therefore, they were not econ-omists but moralists13 interested in whether the actions of individuals werepermissible or not. Although the goal was common to all, we cannotexpect a uniform doctrine; on the contrary, over time they added newpoints of view creating different streams of thought that struggled forsupremacy. An example of this struggle is to be found in the confrontationbetween Thomism and Nominalism. In the sixteenth century in Spain theformer dominated in the University of Salamanca, as we will see later,while the latter held sway in Alcalá de Henares. Precisely in that century,at the height of late scholasticism, Spain became the centre of the scholas-tic thought14. There are other streams of thought, as we have seen, that donot belong to Salamanca; therefore, we should not make the mistake ofcompletely identifying Spanish late scholastics with the School of Sala-manca15, because the latter is only part of the former.

Focusing on the School of Salamanca, Marjorie Grice-Hutchinsonnotes that its modern discoverer is Wilhelm Endemann. However, shestresses that was Jose Larraz who made it known to a wider audience16.For his part, Pedro Schwartz states that Alberto Ullastres anticipated Lar-raz17. In any case, more important than who rediscovered the School forthe modern world, is the controversy over the School. There seem to betwo doubts with respect to this. Did it really exist as such? And can we saythat it was a school of economics? With the first, there seems to be con-sensus on a positive response, despite opinions such as those of Blaug, whopractically denied its existence18. But this view is a minority one, and todayit is considered that the beginning of the school can be traced to whenFrancisco de Vitoria became established in Salamanca. The more contro-versial point is the answer to the second question. Schwartz, LucianoPereña, and Francisco Gómez Camacho deny that it is a school of eco-nomics. The first is more moderate in his statements, despite believing thatwe should speak of a school of law, not economics, concludes in favour ofcalling it Salamanca School of Economics19. For his part, Pereña denies

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that the different disciplinary components of the School must be separat-ed20. The views of Gómez Camacho run along the same critical lines. Forhim, to ignore the philosophical environment in which they developedtheir economic ideas is a mistake21. As a counterweight, the main defend-er of the School of Salamanca is Grice-Hutchinson. In our opinion, also, itis possible to think of it as a real school of economics. However, that asser-tion must be qualified. The economic ideas of the scholastics of the Schoolof Salamanca should be analyzed by themselves, keeping in mind in whatcontext these ideas appeared, because if we ignored this we would committhe error indicated by Pereña and Gómez Camacho. We can state that,although there are some issues on which different members of the Schoolhold opposing views, there is a common substratum which acts as a cohe-sive element. Therefore, to consider the School of Salamanca as a schoolof economics, we must abandon a totally purist stance and adopt a lessrigid approach.

One important question to address, when we speak of a school22, is theidentification of its members. The School of Salamanca, as indicated byGrice-Hutchinson23, has not yet been studied sufficiently to establish itslimits24. In the following lines we present a brief outline25 of the parts ofthe School. To do this we will divide it into the following components: thecentral figure, inner, middle and outer circles.

Regarding the central figure, studies agree that it was Francisco de Vito-ria who, replacing the teaching of Peter Lombard by St. Thomas during hisprofessorship in Salamanca, founded the School26. The inner circle isdefined by the relationship forged between the central figure and his disci-ples in the classroom. The first generation, which learned directly from thecentral figure, is composed of Domingo de Soto, Martín de Azpilcueta,Diego de Covarrubias, Melchor Cano, Juan Gil de la Nava, Diego deChaves, Vicente Barrón, Mancio de Corpus Christi and Martín de Ledes-ma. This group did not keep to themselves what they learned but ratherthey transferred it directly to, among others, Juan de Matienzo, Manuel deAcosta, Arias Pinelo, Juan de Orozco, Antonio de Padilla, FranciscoSarmiento de Mendoza, Diego Pérez de Salamanca, Bartolomé de Albor-noz, Domingo Báñez, Pedro de Pravia, Tomás de Mercado, Bartolomé de

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Medina, Juan de Ribera, Luis de León, Pedro de Sotomayor, Juan de laPeña, Francisco Suárez, Leonard Lessius and Gregorio de Valencia. If westudy the names carefully, we can see that the influence of the Schoolreached Valencia and also America27 and the founding of the Jesuits has itsorigin in this inner circle. Bartolomé de Albornoz was able to serve as alink between Salamanca and Valencia. The same role was played by Juande Matienzo, Pedro de Pravia, Tomás de Mercado and, again, Bartoloméde Albornoz in the American case. For their part, Francisco Suárez andLeonard Lessius were Jesuits who were trained directly in Salamanca.

The members of the middle circle are related to Salamanca, they stud-ied or they were professors there, but did not receive instruction directlyfrom the central figure or the members of the inner circle. This is the caseof Fernando Vázquez de Menchaca, Cristóbal de Villalón, Luis de Molina,Juan de Lugo, Pedro de Aragón, Juan de Salas, Pedro de Valencia, Alonsode Veracruz, Fernán Pérez de Oliva and Francisco Cervantes de Salazar.

Finally, the outer circle is composed of those who were influenced, atleast partially, by the ideas developed by the School, although they did notreceive their education from the central figure or his disciples and they didnot have a direct link with the University of Salamanca. In this category,we can identify Juan de Medina, Bartolomé Carranza, Bartolomé de lasCasas, Luis de Alcalá, Luis Sarabia de la Calle, Pedro de Fonseca, Juan deMariana, Miguel Salón, Juan Blas Navarro, Cristóbal de Fonseca, Gabrieldel Toro, Francisco García, Pedro de Oñate, Domingo Muriel, Pedro deOrtigosa, José de Herrera, Pedro de Arguto, Luis López, Domingo de San-to Tomás, Esteban de Ávila, Juan Pérez Menacho, Miguel de Agia, Anto-nio de Hervias, Sebastián de Santa María, Juan de Lorenzana, JuanRamírez, Juan Contreras, Domingo de Salazar and Andrés de Tordehu-mos.

The previous classification should be understood, like the concept of aSchool of Salamanca of Economics, abandoning the purist view and adopt-ing a less rigid approach. With the outline of the components of the Schoolalready established, the next step is to briefly note the main economic ideasof the same. First we must point out that this description corresponds tocore economic principles, which does not exclude the possibility that some

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members may disagree with the others. First, they consider the value ofgoods to be subjective28, given by the utility29 they provide. They also devel-oped a primitive quantitative theory of money30, stating that an increase inthe amount of money will lead to general increase in prices31. They definedthe functions of money, and related exchange rates to inflation in variouscountries, outlining a theory of purchasing power parity. They seem to haveforeseen the theory of portfolio choice32. In addition, they distinguishedbetween legal price and natural price, in addition to establishing what wasthe fair price33 (applicable to the two previous cases), and they establishedlegal cases for what was fair interest to be charged on loans and when theexchange was acceptable, condemning all other cases34. They declaredthemselves in favour of private property, if this did not contradict naturallaw. Finally, they left interesting reflections on the tax system, but we willdeal with these in more detail later. However, as Schwartz shows, we canattribute a certain anti-capitalist spirit to the School of Salamanca on issuessuch as usury or property and public intervention35.

These ideas which were taken to other parts of the Iberian Peninsulaand America, and also spread to Italy, because of the influence of theJesuits in Rome, and Portugal, particularly through the University ofCoimbra. Later they reached the Protestant thinkers and, through them,the Physiocrats and the Scottish liberals36, even reaching Adam Smith.Moreover, his ideas passed, through Italy, to Menger, the influence of theSchool of Salamanca on the Austrian School being recognized today37.

3. Comparative analysis of fiscal doctrine of the Schoolof Salamanca

In this section we hope to achieve two objectives. First, we put forward themain ideas concerning taxes expressed by some prominent members of theSchool of Salamanca. To do this, the authors we are going to analyze areFrancisco de Vitoria (1483-1546), Bartolomé de las Casas (1484-1566),Martín de Azpilcueta (1492-1586), Domingo de Soto (1494-1570), Fer-nando Vázquez de Menchaca (1512-1569), Diego de Covarrubias (1512-1577), Juan Blas Navarro (1526-1595), Luis de Molina (1535-1600), Juande Mariana (1536-1624), Pedro de Aragón (1546-1592), Francisco Suárez

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(1548-1617), Pedro de Valencia (1555-1620) and Juan de Lugo (1583-1669). None of these thirteen authors made a specific study of the tax sys-tem. As we shall see they had other objectives in dealing with taxes. How-ever each of them made their contribution and together they left a coherentand cohesive outline of a tax system38. The second, and more important,of our goals is the comparison between the ideas on taxation of thesescholastics and modern taxation principles, taking care not to be anachro-nistic. It is important to emphasize this aspect in order to avoid an unhis-torical analysis. We must remember that the scholastics of the School ofSalamanca lived in the sixteenth and seventeenth centuries in a society withvery different institutions from today. One example is the contrast betweenan absolutist, stratified and feudal society and a modern one governed bydemocratic, parliamentarian and capitalist principles.

Before discussing the vision held by the scholastics on taxes, we willmake a brief statement of the comparative framework. Classical econom-ic thought, whose main figure is Adam Smith39, established, throughout itshistory, several requirements in order to qualify tax systems as “good”.These were to enable sufficient collection, provide equity in the distribu-tion of the burden, minimize the effect on market efficiency, promote sta-bility and growth of the system, to be a fair and understandable system,and present cost efficiency in tax administration40. The German contribu-tion to the analysis of these principles, in the second half of the nineteenthcentury, increased their number. Specifically, Adolph Wagner set out nineprinciples: sufficiency, flexibility, choice of sources on which the tax isapplied, choice of kind of tax, generality, fairness, certainty, comfort andcost efficiency41. Incorporating and expanding all previous contributions,Fritz Neumark published his Grundsätze gerechter und ökonomischrationale Steuerpolitik in 1970. In this work, based on the most developedcountries in the nineteen-seventies, namely, the United States and much ofWestern Europe, sets out which guidelines should govern a tax system. Hebases his principles on five basic criteria: justice, allocative efficiency, sta-bility, economic development and the efficiency of tax collecting tech-niques. To achieve these objectives a tax system should be developed fromthe eighteen principles proposed by Neumark:

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1. Budgetary and fiscal principles: Sufficiency; Adaptability.2. Socio-political and ethical principles: Generality; Horizontal equity;

Ability to pay; Redistribution.3. Political and economic principles: Avoidance of fiscal intervention-

ism; Minimum impact on the decisions of agents; Minimum impacton market efficiency; Active flexibility, Passive flexibility; Promo-tion of economic growth.

4. Legal and technical principles: Congruence and systematization;Transparency; Feasibility; Continuity; Cost efficiency; Comfort.

The comparative framework we use for the tax ideas of the School ofSalamanca is that set out by Neumark, because since his work the litera-ture has focused on discussion of the relative importance of the differentprinciples, but no alternative scheme has been proposed.

The members of the School of Salamanca did not have as a goal fortheir observations the study of economics, or the Treasury in this particu-lar case. But even with the purpose of giving advice to the faithful and con-fessors on their behaviour, they made valuable contributions to the field inquestion. As a prelude to the comparison between the taxation principlesof Neumark and the reflections of the School, we consider three basic andinterrelated ideas which will enable us to properly understand their taxdoctrine.

The first is the obligation in conscience to pay taxes. The general opin-ion is that the individual is obliged in conscience to pay a tax if it is fair.Vitoria said that not to satisfy the obligation is a mortal sin42. Blas Navar-ro43 and Covarrubias44 are of the same opinion. The notion of obligationin conscience, also shared by Soto, Azpilcueta, Molina, Valencia, Suárez45

and Lugo, is based on natural law as stated by Molina46 and Suárez47. Thefact that it is a moral obligation does not prevent the possibility of a sanc-tion in the case of not fulfilling the obligation. This was noted by Covar-rubias48 and Suárez49, who clarified that the penalty does not mean exemp-tion from the obligation of payment. Knowing this, he who defrauds isobliged to pay the defrauded50. However, if the tax were to be unfair, onewould not be obliged to pay it, as indicated by Azpilcueta51, Covarrubias52

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and Suárez53. In this situation, payment should be returned54. The last pos-sible case is that of doubt about the fairness of the tax. In this case no oneis obliged to pay, if the doubt is well founded, except in the case of doubtsconcerning an increase in a former tax, in which case one would have topay what was usual, obviating the increase.

The second idea is the chain of reasoning that deals with life in society,public power and property. On this point, there is less cohesion betweenthe components of the School, but there is no doubt that they start fromthe same base. They believe that man is a social being, who shows a natu-ral inclination to live in a community55. Also, they agree when they statethat every society needs a government to govern it56, with the objective ofthe common good57. This power is given by the people58. However, on thisissue there are some differences of interpretation with Vitoria, Aragón,Covarrubias and Suárez stating that the civil power comes from naturallaw59, while Vázquez de Menchaca denies this60. Moreover, although allrecognize that society transfers the power61, but not the domain, there areauthors such as Mariana62, Vázquez de Menchaca63 or Aragón64 who con-template the cessation of government by the people if it becomes a tyran-ny. We also find different positions concerning the capacity of the civilpower to expropriate private property. They agree that the natural rightsof the individual mark the frontiers of the intervention of public power,while again it is Mariana who most limits the authority of the monarch65.However, most of them consider that the common good is a justificationfor expropriation66.

The third and final idea focuses on the conditions that a tax must befair. There are four cases: that the tax is set by the authority with power todo it (efficient cause), that its purpose is the common good (final or faircause), that it is general and proportional (formal cause), and that itrespects the exemptions of the nobility and clergy, when they are legiti-mate, and of the poor, in any case. These four principles are universallyrecognized by the School of Salamanca. However, some authors, a minor-ity, also consider necessary the consent of the people67 and that peopleshould not be taxed indirectly on common staple goods and those for agri-cultural use68. It seems to be agreed that the authority with power to estab-

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lish taxes is the highest in the nation. This would depend on the type ofpolitical regime operating in each territory. It is accepted that emperors,kings, princes, popes, councils, free cities or ancient customs have thisauthority69. In relation to the common good, this must be based ondefence, justice and the search for prosperity70. Finally, they recognize thegenerality and proportionality71 of taxes to be fair. However, if the exemp-tion of the clergy and nobility is fair, what should be added is that theexemption of the poor, which is always fair, is not proportional if they areforced to pay. But their exemption should never force others to pay more72.

Bearing in mind these three ideas, we can undertake the comparativeanalysis between the tax ideas of the School of Salamanca and Neumark’smodern taxation principles, avoiding an anachronistic approach. To dothis, we consider the principles that coincide with Neumark, wholly orpartially, in the same order that he listed them.

The first principle of the German economist, sufficiency, was alreadyrecognized by members of the School of Salamanca as necessary for thesupport of government73 and for society. For his part, Mariana74 comple-mented and stated it, when he proposed a balanced budget, reducing gov-ernment spending to a minimum for the fulfilment of public functions, andimposing minimum taxes to cover these expenditures75.

With respect to the generality of the tax system, in principle they seemto say that all must contribute to support the burden. Specifically, this istrue of Molina76, Valencia77 and Casas78. But we must not forget that theythen qualify this universality with several exemptions. The first affects thepoor, blind and elderly79. The second affects the clergy80, though this estateis not completely freed from paying taxes as they were forced to payextraordinary taxes and for undertaking any commercial act81. The thirdexemption was for the nobility82, who also had to pay for doing business.It should be remembered that both the nobility and clergy were exempt ifthey fulfilled their duties, that is to say, if they contributed to the defenceof the kingdom and to spiritual salvation, respectively. So, taking intoaccount all these exemptions, what at first was presented as a universalcontribution loses this characteristic, and thus cannot be considered to ful-fil the principle of generality expressed by Neumark

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The principle of ability to pay is described in the same sense as Neu-mark by Blas Navarro83, Soto84, Molina and Suárez85. In general, all themembers of the School of Salamanca agree on this point, understandingthat distributive justice is lacking if the poor pay more than the rich, orindeed the same as them. In line with this, they argue that indirect tax onstaples does not maintain proportionality, because it hurts the poor morethan the rich86, so they recommend that funds are not collected in this way.

The School’s position concerning the redistribution in the tax system isclearly reflected in the writings of Aragón, Mariana and Valencia. The firstbases this principle on the idea that natural law forces the distribution ofwealth87. It was the Jesuit, Mariana who most developed the redistributivepower of the tax system. Specifically, he asked for lower taxes to becharged on staples and, instead, for an increase of the fiscal burden on lux-ury goods88. However, Neumark does not make reference to redistributionthrough indirect taxation, virtually impossible to achieve, but ratherthrough rather direct taxes. So in this case the School of Salamanca doesnot concord with the current sense of the principle. Finally, Valencia,expounding on taxes on agricultural products, pointed out that it was nota good idea to tax these, as this too hurts the poor most89.

The same Valencia, analyzing certain taxes, such as the previous one,on wine and oil, or on flour90, seems to precede Neumark in seeking thatthe taxes change production as little as possible, as they distort costs anddiscourage supply. In practical terms, he is defending minimum interfer-ence in those prices that make up the incentive structure, the basis of eco-nomic relations in every human society. So we may consider the principlesof minimal impact on market efficiency and on the decision of agents to belinked to each other.

The members of the School of Salamanca also coincide with the Ger-man economist in believing that the tax system must promote economicgrowth or, in his words, temporal prosperity. So, despite not using Keyne-sian fiscal policy, they saw the complementarity between a fair tax systemand a certain degree of growth91.

Regarding the continuity as the system principle, theologians and juristsof the School of Salamanca were in favour, if the circumstances that make

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fair taxes do not change, the system should remain, stable. However, at themoment that the cause that gives rise to a decrease or increase in taxationarises, the system should respond in the same direction92. However, thecause must be known93 and the reasons must be sufficient to maintain jus-tice. Therefore, this guideline is quite similar to the principle of continuity,but also relates to the adaptability and active flexibility principles.

Finally, in relation to cost efficiency94, collection was the subject ofmuch attention from the followers of Vitoria. They focused on the peopleresponsible for collection of taxes. This time, Mariana95 is the strictest. Hedemands that we watch out for he who takes public revenues for his pri-vate use and that the right to collect taxes should not be sold off to the rich(because they will abuse their position even more), with the aim of notincreasing the burden on taxpayers.

It would be inappropriate to finish our analysis of the contributions ofthe School of Salamanca to fiscal doctrine without showing that there areother issues, of great importance, on which it left its mark and that for rea-sons of space will be the focus of another paper. In particular, we shouldemphasize the detailed analysis of certain taxes such as alcabalas96, mil-lones or tithes, to mention some of the most relevant. They also studiedtariffs, a subject in which Mariana again stands out. This author, alongwith Valencia and Covarrubias, defined and studied inflation as a tax notvoted on in the Parliament (Las Cortes) within the economic situation thatSpain was then living through at the beginning of the seventeenth century.

4. ConclusionsThis article has studied the fiscal doctrine of the members of the School ofSalamanca comparing it with the modern fiscal principles proposed byNeumark. The main contribution made is to identify and to explain thesimilarities and differences between the two views, keeping in mind the dif-ference of four centuries between them, in order to avoid anachronisticmistakes.

The importance that tax systems have on the market and private agentsthat operate in them, conditioning decisions such as investment or con-sumption, makes this comparative historical study interesting, from both a

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business and economic perspective. To shed light on the determining of fis-cal doctrine and its evolution may assist in understanding the evolutionand development of markets and companies.

After the analysis shown in the previous section, we can state that atleast nine of the eighteen principles that a modern tax system must fulfil,as set out by Neumark, were put forward during the sixteenth and earlyseventeenth centuries by the theologians and jurists of the School of Sala-manca. These principles are sufficiency, adaptability, ability to pay, mini-mum impact on the decisions of agents, minimal impact on market effi-ciency, active flexibility, promotion of economic growth, continuity andcost efficiency. Those of generality and redistribution were mentioned butwhen looked at in detail they seem to differ from the meaning of the termused by the German economist. These scholastics were not concerned or,either held a different view with respect to the other principles: horizontalequity, avoidance of fiscal interventionism, passive flexibility, congruenceand systematization, transparency, feasibility and comfort. It is easy to seethat of the four groups of taxation principles proposed by Neumark, theSchool of Salamanca paid attention to all but less so to the legal and tech-nical principles. These are arguably those most related to more modernsocieties, so it is reasonable to suppose that they would be the least con-sidered four centuries ago.

These conclusions may lead us to a reflection on the validity of theteachings of the scholastics. Their words are perhaps not as distant as wemight think if we go by the dates; maybe ideas on these issues have notprogressed much, although practice has done so, and today we are not asadvanced as we think. In any case, we have shown that many of the mainingredients of modern tax systems, which determine the decisions taken byindividuals and companies in the markets, were already in the minds ofcertain men in the sixteenth and seventeenth centuries, but not in the prac-tice of the Treasuries of the time. The fiscal doctrine developed by theSchool of Salamanca would have modernized the Treasury and possiblyencouraged the development of markets, if it had been implemented, butthe lack of political will meant that these ideas were never put into prac-tice. We find here a good example of the difficulty of implementing tax

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principles, a problem that has been encountered throughout history, caus-ing the history of Treasuries to move at a stately pace. However, to try todwell further on how their implementation might have affected the Span-ish economy in the sixteenth century is closer to fiction than to the workof economists, which does not stop us recognizing that, at least, one of theseeds from which our current tax system has grown was sown in its timeby the School of Salamanca which, moreover, was a school of economicsin the full sense.

ReferencesABELLÁN, J.L. (1979). Historia crítica del pensamiento español. Espasa-

Calpe, Madrid.AZPILCUETA, M. de (1554). Manual de confesores y penitentes. Juan

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Notes

(1) We are grateful to Francisco Comín Comín, Daniel Díaz Fuentes, Valentín Edo, Francisco Gómez Camacho, LeónGómez Rivas, Juan Hernández Andreu, José Jurado, María del Carmen Moreno Moreno, Victoriano Martín Martín,Tomás Martínez Vara, José Luis Ramos Gorostiza, John Reeder, Nieves San Emeterio, Juan Zafra and participants inXVI Encuentro de Economía Pública, where the paper “La cuestión fiscal en el pensamiento de la Escuela de Salamanca”was presented, for having read and commented on earlier drafts of this paper. Responsibility for any error or weaknessin the text belongs, of course, to the authors.(2) Always keeping in mind, to avoid being anachronistic, that in the sixteenth century one cannot speak of states, treasuriesand tax systems as in the twentieth century. This does not alter the fact that elements of both are comparable. The worksof Bilbao (1990), Carande (1987), Domínguez Ortiz (1983 and 1999), García Sanz (1991 and 1999), Garzón (1984),Pulido (1996), Sureda (1999), Ulloa (1986) and Yun (2004) are especially useful for a better understanding of the historicalcontext that accompanied the School of Salamanca.(3) Grice-Hutchinson (1982) and Sierra Bravo (1975), pp. 47-56.(4) Also thanks to the Toledo School of Translators.(5) Grice-Hutchinson (2005), p. 105. See also Orozco (2008).(6) Gómez Camacho (1998), p. 155.(7) Gómez Camacho (1998), p. 143.(8) Grice-Hutchinson (2005), p. 107.(9) Larraz (1943), p. 110.(10) This presents marked differences with respect to nominalism (in this line of thought we can include Duns Scotusand William of Ockham). In particular, in economics, Thomism is much more restrictive than nominalism.(11) Grice-Hutchinson (2005), pp. 105-106.(12) This does not mean that they forgot the “be“: we should clarify that they analyzed real phenomena around them,to pronounce their moral view of the various issues discussed.(13) Barrientos (1998), p. 94.(14) Rothbard (1999), p. 132.(15) We should not believe that all reflections on economics that were made in Spain at that time were work of thescholastics. The arbitristas sought to solve the economic problems affecting the country, among which we can emphasizefiscal problems. The arbitristas differed from the scholastics in the form of focus on issues rather than on the issues.Some of the most prominent among them are Lope de Deza, Pedro Fernández de Navarrete, Martín de González deCellorigo, Francisco Martínez de Mata, Sancho de Moncada, Luis Ortiz, Gaspar and Luis Valle de la Cerda. Interestingreferences on these and other arbitristas can be found in Larraz (1943), Eheberg (1944), Iparraguirre (1963), Vilar(1976), Beltrán and Calle (1978), Abellán (1979), Grice-Hutchinson (1982), Garzón, M. (1984), Baeck, L. (1988), Beltrán,L. (1993), Perdices de Blas, L. (1996), Perdices de Blas and Reeder (1998), Fuentes Quintana (1999), Perdices deBlas and Reeder (2003) and Perdices de Blas and Sánchez Molledo (2007).(16) Grice-Hutchinson (1995), pp. 15-16, and Gómez Rivas (2001), p. 26.(17) Schwartz (2003), p. 24.(18) Blaug (1985), pp. 57-59, and Estapé (1996), p. 451.


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(19) Schwartz (2003), p. 67.(20) Pereña (1998), p. 62.(21) Gómez Camacho (1998), p. 11.(22) Schumpeter (1971), p. 529, when he defines a school of thought emphasizes the following features: “(it) had acentral figure, a doctrine and personal coherence, had a nucleus and areas of influence, and other marginals“. He alsoconsiders several authors of the School of Salamanca as Azpilcueta, Lugo, Medina, Mercado, Molina and Soto, Schumpeter(1971), pp. 133-145.(23) Grice-Hutchinson (1995), pp. 21-22.(24) Belda Plans (2000), pp. 162-182, performed an extensive explanation about the members of the School of Salamanca,but his work does not focus on the economics of it, that’s what we try to explain in this article, but is focused fromtheology.(25) Schwartz (2003), Perdices de Blas and Reeder (2003), Larraz (1943), Grice-Hutchinson (2005), Grice-Hutchinson (1995), Grice-Hutchinson (1982), Gómez Camacho (1998), VVAA (1998), Pereña (1954), Popescu (1997),Popescu (1992), Vigo (1997) and Abellán (1979).(26) Barrientos (1985), pp. 24-28.(27) Popescu (1992) and (1997).(28) Nowadays there is an unresolved controversy on this issue. The authors closer to the Austrian School state thatmembers of the School of Salamanca adopted the subjective theory of value, while other economists argue the opposite.The difficulty of solving this debate lies in the fact that members of the School of Salamanca did not hold the sameideas in all respects. So, correspondingly, we can find authors who defend several different points of view.(29) In no case is explicit reference made to marginal utility.(30) Previous to Jean Bodin, Baeck (1988), p. 383.(31) The arrival of large quantities of precious metals from America and its effect on prices in Spain was the key behindthis vision.(32) Gómez Camacho (1998), p. 254.(33) Roover (1955), pp. 168-169.(34) Pribram (1986), p. 30.(35) Schwartz (2003), pp. 34-42.(36) Gómez Rivas (2004).(37) This is the position taken by Huerta de Soto (2000), pp. 52-60, among others. However, it is possible that thelink between the two schools is not as clear as proposed by this author.(38) Coherent with the absolutist monarchical regime and the stratified society in which they lived and cohesive amongmembers of the School of Salamanca.(39) The four canons of taxation according to Smith are cost efficiency, certainty, comfort and fairness, Smith (2005),pp. 746-748.(40) Musgrave and Musgrave (1994), pp. 261-262, and Buchanan (1968), pp. 207-219.(41) Valle (2001), p. 46.(42) Higuera (1963), p. 12, in Vitoria’s words: “the contribution of taxes that are necessary to defend the republic andother public functions... if anyone does not pay that tribute they would be committing a mortal sin”.(43) Peset (1984), p. 141.

(44) Covarrubias (1957), p. 5.(45) Suárez (1967), pp. 525-526.(46) Higuera (1963), p. 28.(47) Suárez (1967), p. 544, “tax is an obligation of justice, an obligation not based on a new and generous donationbut in natural law, by which those who work are obliged to give and those who govern receive their pay to help bearthe burdens of their position”.(48) Covarrubias (1957), pp. 10-11, “human law, although it is civil law, may oblige the offender under mortal sin whilecondemning him to a penalty, so that the offender be subject both to guilt and punishment, because the penalty doesnot counter the guilt and there is no antagonism between the two”.(49) Suárez (1967), p. 527.(50) Azpilcueta (1554), p. 182, and Covarrubias (1957), p. 17.(51) Azpilcueta (1554), p. 182 and 390.(52) Covarrubias (1957), pp. 22-23, “if taxes are unfair, or their imposition comes from someone who is not entitledto, or they are imposed by the prince beyond what is necessary for the demands of government, there is no obligationin conscience of pay them and it will be possible not to pay without guilt”.(53) Suárez (1967), p. 548.(54) Suárez (1967), p. 548, “Princes, that issue such laws and receive such tributes, and government employees, thatcharge them aware of the injustice, commit a grave sin and are obliged to repay them.”(55) According to Martín (2002), pp. 88-89 and 112-114, this was the position of Vitoria and Vázquez de Menchaca.Mariana (1981) devotes the first chapter to developing this idea. Also Suarez (1967), p. 198, support it stating that“man is a social animal in a natural and straight way and tends to live in community.”(56) Covarrubias (1957), p. 251, argues that “in every civil society a governor is necessary to take care of it and keepall citizens fulfilling their duties”.(57) Casas (1984), p. 37, Suárez (1967), pp. 39-40, and Vázquez de Menchaca (1931), p I: 69 and 71.(58) Martín (2002), pp. 91 and 116-117, Barrientos (1978), pp. 266-268, Soto (1967), p. 13 and Covarrubias (1957),p. 251.(59) Martín (2002), p. 115, Fernández (1986), p. 123, Barrientos (1978), pp. 266-268, and Covarrubias (1957), p. 273.Suárez (1967), p. 197, believes that “the civil magistracy endowed with temporal power to rule over men is just andin conformity with human nature”.(60) Vázquez de Menchaca (1931), p. I: 71, “the monarchy is acknowledged as origin the law of nations, in order toavoid injustice, theft, violence, assaults, deaths, sedition and battles, fruits of the disastrous wars”.(61) Martín (2002), p. 118 and Suárez (1967), p. 202.(62) Mariana (1981).(63) San Emeterio (2005), p. 104.(64) Barrientos (1978), p. 270.(65) Limits found in Mariana (1987), p. 31, 36 and 40, “the king is not owner of the goods of each” “if the king is notthe owner of particular goods, he cannot take all or part of them but by the will of their owners” and “the prince is notowner, but manager of the particular goods”. Mariana (1981), p. 77, argues that “ new taxes can only be establishedand laws enacted with the will of the people”.(66) Barrientos (1978), p. 270. Meanwhile, Vázquez de Menchaca (1931), p. I: 166, add the payment of compensationto the common good, to approve the expropriation.



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(67) Mariana (1987), p. 36, “according to law and justice this should be done, namely to receive the approval of thepeople to impose new taxes in the kingdom”. Contrary to the view of Mariana, Suárez (1967), p. 543, believes that“the consent of the kingdom is not necessary for the taxes”.(68) Blas Navarro in Peset (1984), p. 140.(69) Higuera (1963), pp. 38-39, and Peset (1984), p. 140. The School of Salamanca says nothing about the Courtswhich played a key role in tax issues, Fortea (1990a and 1990b).(70) This statement is similar to that made by Smith in The Wealth of Nations, when he determines that public sectorfunctions are to ensure defence and justice and important public building works which are not assumed by private initiative.But it is not surprising that the School of Salamanca and the Scottish economist agree on this and other matters. Inthe doctoral thesis of Gómez Rivas (2004) and Gómez Rivas (2005) we find details of the ways by which the ideas ofthe School of Salamanca reached Smith.(71) Understood in a double sense. First, there must be proportion between income and public spending. Second,proportionality in the burden on the population.(72) Barrientos (1998), p. 119.(73) Vázquez de Menchaca (1931), p. III: 22, “if the prince was not sufficiently equipped with proportionate income,it certainly would be lawful to demand from citizens what lacks for his adequate support, for the high expenditure ofwars, for the fortification of cities, for the leaders’ wages and payments of the soldiers and for other such things”.(74) Mariana (1981), pp. 332-333, “our main care should be, as we mentioned, what the levels of revenue and expenditureare”.(75) Mariana (1981), p. 64, “tries that taxes are only those necessary to preserve peace and support the war”.(76) Gorosquieta (1972), p. 141.(77) Valencia (1994), p. 132, “that the public burdens are distributed generally”.(78) Casas (1984), p. 81.(79) According to Lugo, Soto and Suárez (1967), p. 554.(80) Suárez (1967), p. 543.(81) Peset (1984), p. 143, and Gorosquieta (1972), pp. 142-143.(82) Mariana (1981), pp. 337-338, and Soto (1967), pp. 275-277. There were two positions on inheritance of the exemptionof nobility within the School of Salamanca. On the one hand, Molina and Mariana defended its hereditary nature. Theothers considered it a personal privilege which ended with the death of the carrier.(83) Peset (1984), p. 140.(84) Soto (1967), p. 276, “taxes must be imposed on wealth, possessions and businesses, not on people, that is: everyonemust pay more if they are richer and produce more earnings and not when they are in more need”.(85) Suárez (1967), p. 539.(86) Gorosquieta (1972), p. 147.(87) Barrientos (1978), p. 240, “the authority or the judges, as custodians and administrators of justice, have the obligationto compel the distribution of such goods, against the will of the rich who, by natural law, are obliged to distribute”.(88) Mariana (1987), p. 94, and Mariana (1981), p. 336, “may impose reasonable taxes on staples such as wine,wheat, meat, wool and linen clothes, when they are ordinary and not a luxury, and to replace the poor return ofthese taxes, should be taxing articles of pure pleasure and luxury”. In Fernandez (2006) we find an overview ofthis topic.

(89) Valencia (1994), p. 20. On the issue of taxation on agricultural products it could be asked whether scholasticsdid not act as an interested party, given that they belonged to the clergy, a land owning group particularly affected bythis type of taxation.(90) Valencia (1994), pp. 134-135.(91) In Lessius’ words (1621), p. 41, collected by Gómez Camacho (1998), p. 300, and Gorosquieta (1972), p. 143,“it is the right and duty of the prince to govern the people, give justice, distance enemies, and finally seek with all hisforces the peace and temporal prosperity”. Therefore, as the same Gorosquieta (1972) shows, p. 144 members of theSchool of Salamanca “consider advisable government intervention through fiscal policy to maintain a healthy economyand achieve economic prosperity”.(92) Suárez (1967), p. 537, “the cause is necessary so the tax is fair, as said; then stopping it, justice stops, and consequentlythe tribute must stop”.(93) Suárez (1967), p. 535, “the second necessary condition for the tax being fair is the final reason or cause” as itsays in the Decretals. These also indicate that it is necessary that the cause is known”.(94) The School of Salamanca maybe not study this principle in as much depth as Neumark, however the concern aboutthe cost in the collection of taxes was not unthought-of by them.(95) Mariana (1981), pp. 64 and 332-334.(96) Apart from the School of Salamanca, this was a tax studied by other Spanish economists. For example Uztáriz,as quoted by it in The Wealth of Nations, Smith (2005), p. 776, “hence Uztáriz imputes to alcabala the ruin of the Spanishindustry”.



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