A History of Portuguese Economic Thought

Antonio Almodovar, Jose Luis Cardoso

• Publisher: Taylor & Francis
• Year: 2002
• Print ISBN: 9781138866225
• eBook ISBN: 9781134682676
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

A History of Portuguese Economic Thought offers the first account in English of the development of economic thought in Portugal. The authors adopt a comparative approach to analyse how economic doctrine, theories and policies have been disseminated and assimilated by Portuguese economists in different periods. They assess the influence on Portuguese economic thought of major economists such as Adam Smith, Keynes and Hayek.

1 The Golden Age and the mercantilist era (1500–1750)

10.4324/9780203003800-2

The Medieval Prelude

The foundation of the kingdom of Portugal as an independent nation-state, with the approximate frontiers it has today, took place in the late twelfth century. Its remoteness gave Portugal an important role to play in the reinforcement of medieval European Christianity, as well as in the shaping of the process of change that characterised early modern Europe and culminated in the Renaissance era.

When we delve into the origins and emergence of established and consistent economic ideas in Portugal, we surely have to take into account the writings of the knowledgeable, erudite élite of churchmen who lived in this founding period and contributed to a new, pioneering understanding of oeconomic problems, within the broader context of the Scholastic tradition that was already concerned with the study of social, political and ethical issues.

Largely through the spreading knowledge of the seminal work of St Thomas Aquinas, the renewal and upgrading of Aristotelian thought in late medieval Europe had its own impact in Portugal through the writings of Durando Pais (1267). This clergyman, who had studied at the University of Paris before being appointed Bishop of Évora, presented in his commentary on Aristotle a general framework for understanding the standard model of economic reasoning at the time, namely the concept of oeconomia as the right and proper government of the household, and the notion that agriculture would be the most natural means of obtaining wealth and bringing about neighbourliness and sociability. The importance that was given to land as the foremost object of human endeavour was accompanied by the condemnation of commercial and financial activities, especially those involving the earning of interest. Similar ideas were propounded by Alvaro Pais (1332), bishop of Silves in the Algarve, who discussed in particular the doctrine of usury according to the canons of the Scholastic tradition. One further point that is worthy of attention is his clear-cut defence of the institution of private civil property.

However, a century and a half later, a different analysis of these same issues – private property and usury – would be presented by another clergyman, João Sobrinho (1483). His book is a comprehensive treatise on different kinds of commercial practices that could be considered and outlawed as usurious. But he was also very careful to list the exceptions to the general rule, according to the assumptions of lucrum cessans et damnum emergens. Such was the case of insurance contracts and exchange operations, which began to be credited as normal, authorised activities and therefore not condemned as belonging to the various categories of usury.

As we shall see, Sobrinho's ideas were later followed and developed by other authors who were more closely involved in the tremendous changes affecting the world economy at the beginning of the sixteenth century. Even so, he was already living in an age which was particularly receptive to the rehabilitation of certain legal practices connected with commercial activities that gave Portugal a very important role to play at that time in the development of long-distance trade.

In fact, it was in the early fifteenth century that the small Portuguese kingdom began its maritime enterprise, with the conquest and occupation of important, strategic outposts along the North African coast, following the plans and vision of both Prince Pedro and Prince Henry the Navigator. Portugal's military victories were a prerequisite for the achievement of the religious and commercial goals of the Discoveries, which opened a new era in the development of economic and trade relations on a world-wide scale. As we shall try to demonstrate below, it was this very important period that provided the conditions for the emergence of a new economic literature that would later be labelled as mercantilism. ¹

Discovering New Economic Worlds and New Market Relationsa

It is not our purpose to go too deeply into the economic consequences of the Portuguese Discoveries in the late fifteenth century. This is a well-known issue, which has already been studied very carefully. ² In summarising the importance and meaning usually attributed to those consequences, special reference should be made to (1) the opening up of new routes to maritime commerce, which led to trading activities in products hitherto unknown or scarcely commercialised in the European markets; (2) the stimulus given to the development of the productive and financial activities of European nations; and (3) the transfer of the axis of Indo-European commerce from the Mediterranean to the Atlantic. As Braudel puts it:

Was it not the little Lusitanian nation that played the most important part in the enormous cosmic transformation of the geographic expansion of Europe at the end of the 15th century, and its explosion throughout the world? Portugal was the detonator of the explosion; it deserved its principal role.

(1979: 114)

The explosion to which Braudel refers involved a dramatic change in the roles to be played by the different agents involved in economic activities, revealing at the same time the enormity of the new problems and the new economic phenomena which would require analysis and direction. ³ It is precisely our aim here to highlight the new mental attitudes towards an emerging world-wide economy, namely those relating to the development of new markets and new market relations.

In studying the Discoveries as a factor in the development of a new economic discourse, one should beware of the possible mistake of identifying the expression economic discourse with the host of connotations we attribute to economics as a science. However, although the day when political economy would lay claim to its status as an autonomous science was still remote, we cannot forget nor erase the traces left behind by those who, while possessing no global, coherent system of analysis, tested hypotheses, introduced concepts and compared explanations, in short, helped to formulate a scientific discourse on the functioning of the economy.

And in sixteenth-century Portuguese society we certainly do find examples of a great concern for the establishment of precepts and principles to explain economic reality. In their analysis, Portuguese authors were perhaps more sensitive to the demands of doctrinal speculation than to the requirements of abstract scientific labour. But here they also showed signs of a certain pioneering spirit, extending the discoveries to the scantly explored areas of economic knowledge.

We shall be analysing some of the most significant signs of reflection on economic themes undertaken by sixteenth-century Portuguese authors. We shall present episodic features of the works of João de Barros, Pedro de Santarém and Fernão Rebelo, while deliberately excluding other authors who, in view of their modest or less important contributions, warrant no individual attention. ⁴

It was as a chronicler that João de Barros gained his reputation. However, his historical narrative is characterised by important reflections of an economic nature, which are immediately declared at the beginning of his major work, where he remarks that to talk about the ‘deeds that the Portuguese accomplished in their discovery and conquest of the seas and lands of the Orient’ implies dealing with ‘three things distinct from one another … the first is conquest, which treats of militia, the second navigation, which refers to geography, and the third commerce, which befits merchandise’. And we are not only referring to the description of products (natural or manufactured), prices, exchanges, routes and trade flows; in fact what is more important than the empirical recording of the events that illustrate the economic component of the Portuguese domination of the Orient is the actual reflection – at times indicative of a remarkable capacity for abstraction – upon the ultimate significance of mere everyday actions. For instance, see how João de Barros defines what we today might conceive of as the assumptions of transparency and perfect information in the market process, when he says:

Commerce requires two contracting wills in one thing; this given act presupposes peace and friendship. It is a use that derives from the necessities of men, and stands as a bond of friendship for men to communicate with one another: from it there results love, when it meets with reception, faith and truth.

(Barros 1552–1553: 87)

In addition to bringing individuals and peoples together – promoting cosmopolitanism and good fellowship in contrast to former prejudices about the harmfulness of exchange, truck and barter relations – commerce is, for João de Barros, the principal cause of the wealth of a nation in that it dynamically connects the different sectors of economic activity. This may be clearly seen from his words:

The foremost cause, which makes a kingdom rich and wise, is the act of commerce, whether it be through merchandise, that the land produces, or through the artifice of mechanics. Without it, even though it be powerful in extent of land, and number of people, it is poor in money, nor does it have such an abundance of merchandise as its neighbouring traders.

(1552–1553: 87)

But the most far-reaching analytical quality of these observations lies in the conclusion the author draws from the previous argument: ‘In the land that is not frequented by merchants, its own things are worth little, and those from outside a great deal’ (1552–1553: 87).

From this sentence we can perceive an implicit notion of value, which places on the market the ultimate responsibility for the clarification of the criterion by which things are exchanged for each other. In other words, exchangeable goods do not possess intrinsic characteristics (e.g., the quantity of labour required to produce them) that confer upon them a certain value; the value itself is the result of an appraisal, of an evaluation, made in accordance with the supply and demand for this commodity and the goods for which it may be exchanged.

Throughout his chronicle, João de Barros reports countless episodes of the actual working of markets, revealing a strong awareness of the reasons that cause prices to increase or decrease, with particular reference to competition between the agents of supply and demand. Another aspect that warrants critical attention concerns the monopolistic practices that led to an artificial imposition of the prices of certain goods (as these were not determined by the market), which also implied a certain limitation on the freedom of economic agents. Finally, he develops the notion that commercial activity involves the existence of risk and that this risk is spontaneously rewarded by the market process. It is unquestionably an advanced way of thinking that conveys a new ethical attitude towards the legitimacy of earnings arising from acts and contracts of purchase and sale.

Maritime Enterprise and the Systems of Insurance and Exchange

The legitimacy that João de Barros attributed to the remuneration of risk enables us to introduce a theme whose significance is very important in sixteenth-century Portuguese legal and economic literature: the problem of maritime insurance.

In fact it was the Portuguese Pedro de Santarém who was the first methodically to organise a whole host of reflections on the importance of insurance contracts, the purpose of which was to ensure that increasing maritime traffic could be practised with greater safety. ⁵ In the opening page of his treatise, he expressly states this objective and admits to having been ‘often urged by my merchant friends to draw up a pamphlet on the assurances and promises of merchants, which in common language are called wagers’ (Santarém 1552: 33).

The Treatise on Insurances by Pedro de Santarém, the first edition of which was published in Venice in 1552, is a clear example of how a regulatory and juridical work may provide an answer to the practical needs of a historical period. The renewal of mercantile activities, the increasing number of vessels in transit, the poor conditions in which they sometimes sailed (poorly stowed or excessive cargo), the increasing frequency of shipwrecks arising from human or natural causes, in short the uncertainty and unpredictability inherent in ocean crossings, fully justified the widespread, rationalised practice of an insurance activity.

Maritime insurance contracts were first developed in the mid-fourteenth century (in Genoa as well as in Portugal) and this was a subject for which there already existed minimum legal guidelines. But there was certainly an urgent need to draw up a treatise: the lot fell to Pedro de Santarém to set up this maritime insurance regulation, in other words, ‘the convention whereby, having agreed upon the price of a risk, one takes upon oneself the misfortune of another’ (1552: 33).

The author's main concern was to justify the legitimacy of an insurance contract, in the light of the canonical and civil clauses in force at the time, namely with regard to legal proof that the contract was not a type of usury.

As well as upholding the lawful nature of insurances, Pedro de Santarém also reflects upon the spirit of honesty that should prevail in such contracts and particularly insists on the feature that insurances are a form of precaution and not an instrument of profit. As for the way of drawing up contracts, clauses, exceptions, types of risk and premiums, actions to be taken in the event of disasters, deadlines and conditions determining validity, as well as other features related to the practice of maritime insurance, the close formal similarities to what is currently done today make any further comments unnecessary.

Pedro de Santarém's concern with demonstrating the legitimacy of the insurance contract also extends to other authors and further problems resulting from Portugal's maritime and commercial expansion. One such problem refers to exchange transactions and the remuneration of money-changers and bankers. We shall now deal with this issue by closely following the work of Fernão Rebelo.

The intensification of commercial exchanges between European countries and the trading market-places of Atlantic Africa, the Indian Ocean and the Orient, but above all between the European nations themselves, involved the use of different types of coinage and called for the setting up of rules for currency exchange transactions; this accounts for the increasing economic and financial importance of the persons and institutions that applied themselves to such tasks.

It may be recalled, as a mere example, that until the mid-sixteenth century, the pepper and spices that were purchased and transported by the Portuguese were registered in Lisbon at the Casa da Índia, and were then shipped to the Portuguese Factory of Flanders whose headquarters were in Antwerp, whence they were distributed to the European consumer markets.

The links between these successive trading operations in different marketplaces could not afford to be upset by technical obstacles arising from a misuse of exchange instruments – national currencies – or the inadequate use of swifter modes of payment – bills of exchange. However, those performing the work of trader, money-changer and banker resented the stigma inspired by legal norms and ethical standards that commonly associated such activities with the sin of usury.

Though there was no more than a formal interference which in no way prevented such exchange operations and contracts from multiplying, it is a fact that this anachronism between practice and doctrine aroused the attention of learned men and jurists who endeavoured to legitimate the non-usurious nature of exchange operations.

Irrespective of the fact that the presence of important trading houses in Portugal warranted a regulatory diligence of an ethical and legal nature, the undeniable fact remains that it is in this setting, characterised by a reinforcement of exchange and trading operations (which the Portuguese maritime expansion pioneered) that one may best understand the reasons for the drawing up of the Treatise on Exchange by Fernão Rebelo, printed in Lyon in 1608, though probably written in the closing decade of the sixteenth century.

The basic argument used by Fernão Rebelo to justify the idea that ‘if exchange is done, not only is it just, but may also be reciprocated’ (Rebelo 1608: disp. 6), is based on the juridical statement lucrum cessans et damnum emergen...

Table of contents

• Cover Page
• Half Title Page
• Title Page
• Copyright Page
• Table of Contents
• Introduction
• 1 The Golden Age and the mercantilist era (1500–1750)
• 2 The new path to the wealth of the Portuguese nation (1750–1808)
• 3 The difficult reception of classical political economy (1810–1850)
• 4 The avoidance of analytical economic thought (1850–1920)
• 5 From corporatism to Keynesian economics (1920–1960)
• Epilogue
• Notes
• References
• Name Index
• Subject Index