Major economic theories from ancient times to the Renaissance

Copernicus built on European economic thought, mainly on the theory of money. Its origins can be traced back to ancient times and Aristotle (384/383-322 BC) who demonstrated his ideas on money in two works in particular: Politika (Politics) and Ethika Nikomachaeia (Nicomachaean Ethics). According to him money does not satisfy natural (primal) social needs; it originated from social convention in order to facilitate mutual exchange and only what can be measured by its means, or has a price, may be subject to such exchange. In other words, money was for Aristotle a common measure, a means of equating different things. Aristotle also defined the following characteristics of what might be used as a successful form of legal tender or money: intrinsic utility, easily transportable, and stamped with an emblem that guarantees its weight and value saving time on the measurement and calculation of its worth.

In the high Middle Ages, St Thomas Aquinas (1225-74) contrasted Aristotles concept of money with Christian social doctrine. Thus, partly modifying Aristotles ideas, Aquinas developed the then existing theory of the mutual relation between money and the state or its ruler, altering the definition of money by emphasizing its intrinsic, bullion, value. In his opinion money is indispensable and consequently has practically become a natural institution and, although he agreed with Aristotle that money is a measure and means of exchange and it might possess intrinsic value. For example, if a coin has been melted, the value of the metal it was made of, silver or gold, remains, therefore it does not necessarily have to serve as a medium of exchange. No matter how much money itself is generally needed as the property of every state, it is even more important for the monarchy and its subjects, because coinage is the pride and glory of all monarchs and their kingdoms; it assists and provides comfort to the ruler because it is the measure of the taxes and duties paid by the kings subjects and might also become a source of the rulers own income. The subjects might also find the coins issued by domestic royal mints much more convenient a measure of exchange than foreign ones. Moreover, while using them they avoid currency exchange which would result in a loss.

Copernicus economic writings also reflect ideas of another great medieval thinker and economist, namely, the French bishop, Nicole Oresme (ca 1320-82), the author of a treatise on coins Tractatus de origine, natura, iure et mutationibus monetarum. In his work Oresme presented a comprehensive study of coinage and the various ways it can be altered and debased. He criticized the practice of its alteration, delineating the destructive social effects of such a debasement. Contrary to common views held by other medieval economists, he argued that it belongs to the public (communitas), not to the ruler. He contended that the ruler is given the right to mint coins only by proxy while the cost of the process is borne by society. He was the first to observe that money of lower value drives money of higher value out of circulation which, as a result, hampers international trade. In his deliberations on ethics and religion Oresme condemned forgery as a sin.

In the 15th c. Gabriel Biel (ca 1410-95), a German philosopher and professor of theology at the University of Tbingen, in developing ideas found in the works of Aristotle, St. Thomas Aquinas and Nicole Oresme, argued that money was introduced to satisfy the need for exchange. Not unlike Bishop Oresme, he made coinage and its value conditional not on the ruler but on society. In the light of his definition money is a convenient measure of what is exchangeable because it is quantitatively small, is stamped with the rulers emblem, has a given weight, stands the test of time, is made of a precious metal, and is easy to separate into smaller units because of the need to buy many things at low prices.

In the transition from the Middle Ages to the Modern era two clearly defined doctrines of money prevailed: the nominalist and the metallist. The first stipulated that what is minted belongs to the ruler and only the issuers stamp determined its worth (the nominal value) rather than the amount of precious metal of which it is made (the commodity value). Consequently, more and more debased coinage was put into circulation which brought immediate profit to the monarchs who issued this poor quality money but was of no use in international transactions. Conversely, according to the metallist theory, the value of money is determined by the quantity of gold or silver of which coins are actually made. Therefore only those of a high percentage of precious metal could have an objective and stable value, and only such coinage may serve as acceptable currency in international transactions.

In the Renaissance period the English financier Thomas Gresham (1519-79) significantly furthered the advancement of economics with his law of bad money (Greshams Law), according to which bad money, or money made of debased metal and as such of lower commodity value, drives out good money made of higher quality metal and of higher commodity value. This statement was not generally accepted in academic circles as an economic law until the late 17th c. Neither was it known then that Copernicus, whose economic writings had remained unknown, had discovered this economic law independently and before Gresham published his. To give credit to both thinkers, some contemporary historians of economics refer to the theory of bad money as the Law of Copernicus-Gresham.