Just price
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 loan
s.
. 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:
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 fraud
in Aquinas's view.
Aquinas believed all gains made in trade must relate to the labour exerted by the merchant, not to the need of the buyer. Hence, he condoned moderate gain as payment even for unnecessary trade, provided the price were regulated and kept within certain bounds:
...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...
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 rate
s.
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).
Brazilian journalist and philosopher Olavo de Carvalho
joined the just price of St. Thomas Aquinas with the economic theories of Böhm-Bawerk. Explaining that the medieval usurer differed to modern capitalist by the fact that in medieval society wealth was fixed (land), while in industrial society the function of money had changed completely: “At the new framework, none could accumulate money under the bed for stroke him between dawn swoon of fetishistic perversion, but I had to bet it quickly on overall growth of the economy before inflation turned it into dust. If he committed the blunder of investing it in the impoverishment of anyone else, would be investing in his own bankruptcy.”
Ethics
Ethics, also known as moral philosophy, is a branch of philosophy that addresses questions about morality—that is, concepts such as good and evil, right and wrong, virtue and vice, justice and crime, etc.Major branches of ethics include:...
in economics
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
that attempts to set standards of fairness in transactions. With intellectual roots in ancient Greek
Ancient Greece
Ancient Greece is a civilization belonging to a period of Greek history that lasted from the Archaic period of the 8th to 6th centuries BC to the end of antiquity. Immediately following this period was the beginning of the Early Middle Ages and the Byzantine era. Included in Ancient Greece is the...
philosophy
Philosophy
Philosophy is the study of general and fundamental problems, such as those connected with existence, knowledge, values, reason, mind, and language. Philosophy is distinguished from other ways of addressing such problems by its critical, generally systematic approach and its reliance on rational...
, it was advanced by Thomas Aquinas
Thomas Aquinas
Thomas Aquinas, O.P. , also Thomas of Aquin or Aquino, was an Italian Dominican priest of the Catholic Church, and an immensely influential philosopher and theologian in the tradition of scholasticism, known as Doctor Angelicus, Doctor Communis, or Doctor Universalis...
based on an argument against usury
Usury
Usury Originally, when the charging of interest was still banned by Christian churches, usury simply meant the charging of interest at any rate . In countries where the charging of interest became acceptable, the term came to be used for interest above the rate allowed by law...
, which in his time referred to the making of any rate of interest
Interest
Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds....
on loan
Loan
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....
s.
Unjust price: a kind of fraud
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 RuleEthic of reciprocity
The Golden Rule or ethic of reciprocity is a maxim, ethical code, or moralitythat essentially states either of the following:* : One should treat others as one would like others to treat oneself....
. 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:
- 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 TheologiaeSumma TheologicaThe Summa Theologiæ is the best-known work of Thomas Aquinas , and although unfinished, "one of the classics of the history of philosophy and one of the most influential works of Western literature." It is intended as a manual for beginners in theology and a compendium of all of the main...
, 2-2, q. 77, art. 1
- — Summa Theologiae
Aquinas would therefore condemn practices such as raising the price of building supplies in the wake of a natural disaster
Natural disaster
A natural disaster is the effect of a natural hazard . It leads to financial, environmental or human losses...
. 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 fraud
Fraud
In criminal law, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation...
in Aquinas's view.
Aquinas believed all gains made in trade must relate to the labour exerted by the merchant, not to the need of the buyer. Hence, he condoned moderate gain as payment even for unnecessary trade, provided the price were regulated and kept within certain bounds:
...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...
Later reinterpretations of the doctrine
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 SalamancaSchool of Salamanca
The School of Salamanca is the renaissance of thought in diverse intellectual areas by Spanish and Portuguese theologians, rooted in the intellectual and pedagogical work of Francisco de Vitoria...
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
Capitalism
Capitalism is an economic system that became dominant in the Western world following the demise of feudalism. There is no consensus on the precise definition nor on how the term should be used as a historical category...
, 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 rate
Interest rate
An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for...
s.
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
E. P. Thompson
Edward Palmer Thompson was a British historian, writer, socialist and peace campaigner. He is probably best known today for his historical work on the British radical movements in the late 18th and early 19th centuries, in particular The Making of the English Working Class...
emphasized the continuing force of this tradition in his pioneering article on the "Moral Economy
Moral economy
Moral economy is a phrase used in a number of contexts to describe the interplay between moral or cultural beliefs and economic activities.-A just 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
James C. Scott
James C. Scott is Sterling Professor of Political Science, formerly Eugene Meyer Professor of Political Science and Anthropology at Yale University. He is also the director of the Program in Agrarian Studies. By training, he is a southeast Asianist.- Research topics :James Scott's work focuses...
, 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).
Brazilian journalist and philosopher Olavo de Carvalho
Olavo de Carvalho
Olavo Luiz Pimentel de Carvalho is a Brazilian journalist, and essayist on several issues like the history of astrology and mysticism; the history of revolutionary mentality; and Philosophical Anthropology...
joined the just price of St. Thomas Aquinas with the economic theories of Böhm-Bawerk. Explaining that the medieval usurer differed to modern capitalist by the fact that in medieval society wealth was fixed (land), while in industrial society the function of money had changed completely: “At the new framework, none could accumulate money under the bed for stroke him between dawn swoon of fetishistic perversion, but I had to bet it quickly on overall growth of the economy before inflation turned it into dust. If he committed the blunder of investing it in the impoverishment of anyone else, would be investing in his own bankruptcy.”
See also
- Labor theory of valueLabor theory of valueThe labor theories of value are heterodox economic theories of value which argue that the value of a commodity is related to the labor needed to produce or obtain that commodity. The concept is most often associated with Marxian economics...
- PricePrice-Definition:In ordinary usage, price is the quantity of payment or compensation given by one party to another in return for goods or services.In modern economies, prices are generally expressed in units of some form of currency...
- PricingPricingPricing is the process of determining what a company will receive in exchange for its products. Pricing factors are manufacturing cost, market place, competition, market condition, and quality of product. Pricing is also a key variable in microeconomic price allocation theory. Pricing is a...
- Supply and demandSupply and demandSupply and demand is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers will equal the quantity supplied by producers , resulting in an...
- History of economic thoughtHistory of economic thoughtThe history of economic thought deals with different thinkers and theories in the subject that became political economy and economics from the ancient world to the present day...
- Catholic social teachingCatholic social teachingCatholic social teaching is a body of doctrine developed by the Catholic Church on matters of poverty and wealth, economics, social organization and the role of the state...
External links
- St Thomas Aquinas's Summa Theologiae, 2-2, q. 77 on lawful and unlawful gains in trade (Latin)
- An article discusses the Salamanca school and just price
- Another article traces the development of Just Price doctrine through the Salamanca school
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