Just price

From Wikipedia, the free encyclopedia

The just price is a theory of ethics in economics that attempts to set standards of fairness in transactions. With intellectual roots in ancient Greek philosophy, it was advanced by Thomas Aquinas based on an argument against usury, which in his time referred to the making of any rate of interest on loans.

St Thomas Aquinas taught that raising prices in response to high demand was a type of theft.

The argument against usury was that the lender was receiving income for nothing, since nothing was actually traded. Aquinas later expanded his argument to oppose any unfair earnings made in trade, basing the argument on the Golden Rule. He held that it was immoral to gain financially without actually creating something. The Christian should "do unto others as you would have them do unto you", meaning he should trade value for value. Aquinas believed that it was specifically immoral to raise prices because a particular buyer had an urgent need for what was being sold and could be persuaded to pay a higher price because of local conditions:

Si vero aliquis multum iuvetur ex re alterius quam accepit, ille vero qui vendidit non damnificatur carendo re illa, non debet eam supervendere. Quia utilitas quae alteri accrescit non est ex vendente, sed ex conditione ementis, nullus autem debet vendere alteri quod non est suum. . .

If someone would be greatly helped by something belonging to someone else, and the seller not similarly harmed by losing it, the seller must not sell for a higher price: because the usefulness that goes to the buyer comes not from the seller, but from the buyer's needy condition: no one ought to sell something that doesn't belong to him.

— Summa Theologiae, 2-2, q. 77, art. 1

Aquinas would therefore condemn practices such as raising the price of building supplies in the wake of a natural disaster. Increased demand caused by the destruction of existing buildings does not add to a seller's costs, so to take advantage of buyers' increased willingness to pay constituted a species of theft in Aquinas's view.

Although Aquinas believed all gains made in trade were wrong, he was willing to accept them as a necessary evil, provided the gains were regulated and kept within certain bounds, and provided they were directed toward a public good:

...there is no reason why gain [from trading] may not be directed to some necessary or even honourable end; and so trading will be rendered lawful; as when a man uses moderate gains acquired in trade for the support of his household, or even to help the needy...

In Aquinas' time, most products were sold by the immediate producers (i.e. farmers and craftspeople), and wage-labor and banking were still in their infancy. The role of merchants and money-lenders was limited. The later School of Salamanca argued that the just price is determined by common estimation which can be identical with the market price -depending on various circumstances such as relative bargaining power of sellers and buyers- or can be set by public authorities. With the rise of Capitalism, the use of just price theory faded. In modern economics, interest is seen as payment for a valuable service, which is the use of the money, though most banking systems still forbid excessive interest rates.

Likewise, during the rapid expansion of capitalism over the past several centuries the theory of the just price was used to justify popular action against merchants who raised their prices in years of dearth. The Marxist historian E. P. Thompson emphasized the continuing force of this tradition in his pioneering article on the "Moral Economy of the English Crowd in the Eighteenth Century." Other historians and sociologists have uncovered the same phenomenon in variety of other situations including peasants riots in continental Europe during the nineteenth century and in many developing countries in the twentieth. The political scientist James C. Scott, for example, showed how this ideology could be used as a method of resisting authority in "The Moral Economy of the Peasant: Subsistence and Rebellion in Southeast Asia" (1976).