Monthly Archives: June 2010

Just an old sweet song…


Two weeks, fifteen days, 360 hours. That’s all that stands between Buenos Aires and me. The end of my “European adventure” is drawing near, and naturally, I’m in an introspective mood. I’ve been pondering over what this whole experience, since I first left Argentina to go to Switzerland, has left me… and all the things that it has left me without. The latter seems to be the crux of the matter for me these days, not in terms of evaluating the choices I’ve made, but in planning what I want to do from now on. As economists would say, I’m trying to figure out my opportunity costs, the chances foregone as the result of favouring one course of action over other available alternatives.

According to Murray Rothbard, the first to approach the concept of opportunity cost was Cardinal Hortensis, in the thirteenth century. Confronted with the dilemma on whether charging a rate of interest on loans was fair or not, he put forward the idea of lucrum cessans: the compensation every creditor deserved for the profit he could have won investing the money instead of lending it. In the centuries to follow, this notion was taken on by Alexander Bonini and Astesanus, and expanded by San Bernardino of Siena, who suggested that the legitimacy of lucrum cessans resided in the fact that money was not always sterile and that as capital, it should command a profit. However, this was limited to loans made out of charity, and professional money-lenders were out of the question. It was not until Leonard Lessius and his De Justitia et Jure (1605) that this charity limit was cast aside, making lucrum cessans applicable to any people with liquid funds lending to any people lacking them. The usury debate did not end with this, of course, but it certainly lost the relevance it had previously had.

However, opportunity costs are much more than what lucrum cessans stands for. So let’s move a little ahead in time, to eighteenth century France to be more precise, where we can find a more comprehensive approximation in the writings of Richard Cantillon and Anne Robert Jacques Turgot. In his Essai sur la nature du Commerce en Général, Cantillon shows impressive insights about entrepreneurs, and how their activity is based on the subjective evaluation of the costs and forecasted benefits of the different alternatives they face. He calls intrinsic value the gains that would have been obtained through the unchosen courses of action. That is to say, the value-measure of the activity to be pursued is the forfeited profit of the options left unexplored. In a very similar train of thought, Turgot talks of fundamental value as the things a person has to sacrifice in order to do what he chooses.

In the year 1889, Friedrich von Wieser published his famous Natural Value, and the Austrian concept of opportunity cost came out full-fledged. As Ernest C. Pasour puts it: “The opportunity cost of any decision represents the value of opportunities foregone as a result of the decision made. Cost involves the conscious sacrifice of an available opportunity by the decision-maker. (…) This cost as it influences choice is based on the decision-maker’s anticipations and cannot be discovered by any other person. Thus, as recognized and emphasized by the Austrians, the opportunity cost of any activity is inherently subjective.”

So there you have it. The thing that has been troubling me for days, the reason for my insomnia. Particularly, I’ve been asking myself whether I should keep moving around or settle down. And the problem is that I always reach the same conclusion: I want both. Getting to see different parts of the world, meeting people, growing professionally by acquiring experience in international hotels, learning new languages, these are but a few of the things that I love about a wandering life. It’s exciting, rewarding, motivating… and yet, there’s also the downside. Moving around means being away from the people you love. It means missing all those little seemingly unimportant details that make up their daily life, and the loss of intimacy that comes as a direct consequence. It means not being there for your friends and family when they need you, and not having them around when you are the one in need. It means longing for that particular person, dreaming of his presence, and waking to find him thousands of miles away. It means loss, because not all the people you left are there when you get back. It means evanescence, since the relationships you build with people and places are bound to be transitory. Of late I’ve been craving the delights of sedentary life. But then again, when thinking of the things I’d have to leave behind, I’m not so sure anymore. I’ve been trapped in quite a delicate conundrum.

And then Georgia came to my rescue. Sweet, beautiful, Georgia on my mind. My favourite song. Suddenly, my perspective changed, and I stopped analysing everything in terms of opportunity costs. Mainly, I refuse to accept that I have to give up on my dreams of a home just because I also dream of seeing the world. Settling down is my Georgia, and it comes to me “as sweet and clear as moonlight through the pines”. I might now be choosing something else, I might pursue other ambitions, still the ultimate goal of building a family and finding a place to call home remains. In time, I will get there. Meanwhile, I’ll just enjoy the ride.


Here’s a very short list of things that you might find interesting on the subject

Georgia on my mind, by Carmichael and Gorrell: The lyrics of this beautiful song.

Cost and Choice: Austrian vs. Conventional views, by E.C. Pasour, Jr: A very interesting paper contrasting the objective approach to cost measurement defended by the Classics, and the subjective one proposed by the Austrians. Pasour also shows how these differences can be translated into each school’s methodology and assessment of economic regulation and efficiency.

Richard Cantillon and the discovery of Opportunity Cost, by Mark Thornton: This paper highlights several contributions to economic theory of the neglected Cantillon, and that’s the main reason why I find it worth reading.

An Austrian perspective on the History of Economic thought Volume I: Economic thought before Adam Smith, by Murray N. Rothbard: I find that Rothbard has nothing original to contribute, but this is a fantastic bibliographical read and I found an incredible amount of interesting books among Rothbard’s quotations. Furthermore, you can expand on the genesis of the concept of costs of opportunity if you are interested (which I’m guessing you’re not, unless you’re as much of a nerd as I am).

The Godfather I, II and III, by Francis Ford Coppola: I have to stay in bed because of an injured foot, so I decided yesterday to see these movies and was blown away. I could not think of any clearer example of what costs of opportunity mean. Memorable quote: “It is the price we pay for the life we choose.”

My boyhood dreams, by Mark Twain: A delicious essay, in which Twain describes perfectly the subjective assessment of costs.




“It is cruel, you know, that music should be so beautiful. It has the beauty of loneliness and of pain: of strength and freedom. The beauty of disappointment and never-satisfied love. The cruel beauty of nature and everlasting beauty of monotony.”
Benjamin Britten

Dedicated to Sebastián, because with this song he made my insomnia worth it.

Being obnoxious


One of the most surreal experiences I’ve had the pleasure of going through was my first job interview. Not only because it took place in a bar, while the interviewer was having a double scotch on the rocks, or because as soon as I sat at his table he started singing “Laura is the face in the misty lights”, but in that it was the first time that I ever talked to this man one-on-one. “This man” being Dr Armando Ribas, an economist that I deeply admired (I still do!) and one of the main reasons why I decided to study Economics. So there I was, at the verge of becoming the co-author of his latest report on the state of the Argentinean economy. After a long talk that covered such disparate issues as Austrian business cycle theory, the problem of universals, and how pretty I looked, he told me that the job was mine if I was still interested. I think that my gigantic smile let him know that I was even before I could gather the words to say it to him. By now you must be wondering what the point in this story is. Well, that right before going our separate ways, he gave me a piece of advice that shaped the way I’ve conducted myself ever since: “You should never waste a chance of being obnoxious.”

Thinking for oneself and not apologizing for stating one’s own ideas, questioning the politically correct views, critically examining other people’s opinions and not shying away from a debate: all of these things are what makes one an obnoxious person according to Ribas. So, out of the esteem and respect that I feel for my first boss, I’ve decided to, ever so often, write a post about someone whom I find to be particularly obnoxious in the peculiar sense he gave to the word. Today, I will deal with Juan de Mariana.

Juan de Mariana was born in Talavera de la Reina, a Spanish town near Toledo, in the year 1536. In 1553 he entered the University of Alcalá, where he stood out as a student of Arts and Theology, and a year later he got into the Society of Jesus. In 1861, after completing his studies, he moved to Rome and lectured on Philosophy at the Jesuit College there. His teaching career took him from Rome to Sicily and finally to the University of Paris. However, due to his delicate health, he had to give up teaching, and retired to live in Toledo, where he spent the remaining 50 years of his life writing about politics, economics and religion. He died in 1624, at the age of 88.

And that’s about it for Mariana’s biographical data. Now let’s move on to the juicy stuff: his ideas. If there was ever a man who really put everything he had into being hated by his contemporaries, who left no stone unturned, no thorny subject untouched, that man was Juan de Mariana. I will try my best to prove this by putting forward some of his views on monarchy, wealth distribution, currency debasement and the internal organization of the Jesuit Order.

In 1599, by exhortation of King Philip II of Spain, Mariana published De Rege (On Kingship). The book starts by explaining that due to his weaknesses and the impossibility of procuring for himself all the necessaries of life, man is a social creature. As such, he needs to develop laws and a structure of government in order to organize collective life and administrate justice. Monarchy is to Mariana the best system because: it minimizes internal conflict; it’s less costly, since the greed of “only one” must necessarily be smaller than that of “many”; and it’s more efficient, in the sense that decisions are made faster if time is not wasted on debates. Nothing out of the ordinary up to this point, right? However, things get spiced up when he draws a line separating a king from a tyrant. Mariana states that originally, political power rested on the people, who delegated it to the king in order to govern. Nevertheless, this surrender of sovereignty is not total, and the people reserve for themselves certain rights: reclaim sovereignty, regulate taxation, veto laws and determine succession if the king has no heirs. Any ruler who infringes these rights is not a king but a tyrant, and therefore, his power is not legitimate. But the really interesting stuff is what he proposes as the solution for this political problem: tyrannicide! And the startling thing about this is that Mariana holds that the decision to assassinate the tyrant does not have to be imperatively reached by the collective, but that each individual citizen has the moral duty to perform such an action on his own accord. The only means of killing the tyrant that Mariana claims to be unacceptable is poisoning, because, as the ruler would be taking the poison by himself, it would be like forcing him to commit suicide, and that is against the laws of God. A pious man, no doubt. Impacts of this work in the real world? When in 1610 Ravaillac murdered Henry IV, King of France, the French “parlement” ordered the hangman to publicly burn De Rege, and the Jesuit Order was forced to issue a decree forbidding the members of the organization to teach that it’s morally correct to kill tyrants.

But being unpopular abroad was not all that Juan de Mariana aspired to, so he went one step further in 1609, with the publication of  De Monetae Mutatione (On the alteration of money). In it, Mariana states that, due to the fact that man is weak and greedy, private property is a necessary evil, and therefore the king should do his best to protect his subjects’ possessions. However, he also says that one individual’s gain translates into another one’s loss, and consequently, great fortunes mean great injustice. All the goods in the Earth would be enough for everybody if only they were rightly distributed. Mariana then proceeds to put forward three ways in which the gap between the rich and the poor could be minimized:

(1) Luxurious goods should be very highly taxed, whereas the necessaries of life should have a slight charge. (Just a thought: I was unable to find a demarcation criteria in his works, so I’m wondering how this policy could be put into practice. I mean, as time goes by, what were luxuries of the past become every day necessaries).
(2) Wealthy citizens working at the high levels of the State should not receive any financial remuneration for their services, but be content with the honour their positions hold.
(3) It should be made mandatory for officials collecting high salaries to spend part of it for civic improvements, public buildings and arming the military.

These ideas of redistribution were not well received by the Spanish aristocrats, who considered Mariana an agitator.

But what really got him into trouble were his ideas on debasement, also presented in De Monetae Mutatione. Mariana described Philip III of Spain’s policy of debasing copper coinage as a strategy to rob the people and cripple commerce. The inflationary process that plagued Spain was, according to the obnoxious Jesuit, a direct consequence of this increase in the quantity of money, and hence, debasement was a hidden tax on the private property of the subjects. Remembering that in De Rege, a tyrant is described as one who, among other things, taxes the people without their consent, it’s not too great of a logical jump to conclude that this accusation was some sort of a death threat. At least, that’s how the king took it. Mariana was sent to prison, convicted of the crime of lèse-majesté. It was only the Pope’s intervention that got him released four months later, on the condition that he would choose his words more carefully in the future. Of course, the king made sure that his officials bought and destroyed every copy of the book they could find, and even after Mariana’s death, the Spanish Inquisition put the book on the Index.

Finally, Mariana didn’t waste the chance of being obnoxious to his own Order, and wrote his Discurso de las enfermedades de la Compañía (Discourse on the ailments of the Company), in which he criticized the military style of the Jesuit organization. He claimed that too much power was concentrated in too few hands, and that a democratic reform was called for. Even though his superiors were not very happy about this input, they didn’t expell him from the Order. Nevertheless, he was regarded with suspicion ever since.

That is all I have to say about Juan de Mariana. You may not agree with him (I don’t, most of the times), but there’s one thing you can’t deny: he was a gutsy, obnoxious, opinionated fellow. And that’s what makes him an interesting subject to write about.