Just price: a price conforming to the doctrine developed in antiquity and elaborated in the medieval period that price should in general correspond to the cost of production
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.
Unjust price: a kind of fraud
The argument against usury was that the lender was receiving income for nothing, since nothing was actually lent, rather the money was exchanged. And, a dollar can only be fairly exchanged for a dollar, so asking for more is unfair. 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:
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.[1]
— 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 fraud in Aquinas's view.[2]
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 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[citation needed]. With the rise of Capitalism, the use of just price theory faded[citation needed]. 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[citation needed].
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).
See also
John Cotton on the Just Price, 1639.
[Rev. John Cotton of Boston was the leading Puritan minister in the early decades of the Massachusetts Bay Colony. In the document below, Gov. John Winthrop recorded in his Journal what Cotton's conclusions were in a sermon about economic behavior.]
At a general court holden at Boston, great complaint was made of the oppression used in the country in sale of foreign commodities; and Mr. Robert Keaine, who kept a shop in Boston, was notoriously above others observed and complained of, and, being convented, he was charged with many particulars; in some, for taking above six-pence in the shilling profit; in some above eight-pence; and, in some small things, above two for one; and being hereof convict, (as appears by the records,) he was fined £200, which came thus to pass: The deputies considered, apart, of his fine, and set it at £200; the magistrates agreed but to £100. So, the court being divided, at length it was agreed, that his fine should be £200, but he should pay but £100, and the other should be respited to the further consideration of the next general court. By this means the magistrates and deputies were, brought to an accord, which otherwise had not been likely, and so much trouble might have grown, and the offender escaped censure. For the cry of the country was so great against oppression, and some of the elders and magistrates had declared such detestation of the corrupt practice of this man (which was the more observable, because he was wealthy and sold dearer than most other tradesmen, and for that he was of ill report for the like covetous practice in England, that incensed the deputies very much against him). And sure the course was very evil, especial circumstances considered: 1. He being an ancient professor of the gospel: 2. A man of eminent parts: 3. Wealthy, and having but one child: 4. Having come over for conscience' sake, and for the advancement of the gospel here: 5. Having been formerly dealt with and admonished, both by private friends and also by some of the magistrates and elders, and having promised reformation; being a member of a church and commonwealth now in their infancy, and under the curious observation of all churches and civil states in the world. These added much aggravation to his sin in the judgment of all men of understanding. Yet most of the magistrates (though they discerned of the offence clothed with all these circumstances) would have been more moderate in their censure: 1. Because there was no law in force to limit or direct men in point of profit in their trade. 2. Because it is the common practice, in all countries, for men to make use of advantages for raising the prices of their commodities. 3. Because (though he were chiefly aimed at, yet) he was not alone in this fault. 4. Because all men through the country, in sale of cattle, corn, labor, etc., were guilty of the like excess in prices. 5. Because a certain rule could not be found out for an equal rate between buyer and seller, though much labor had been bestowed in it, and divers laws had been made, which, upon experience, were repealed, as being neither safe nor equal. Lastly, and especially, because the law of God appoints no other punishment but double restitution; and, in some cases, as where the offender freely confesseth, and brings his offering, onlv half added to the principal. After the court had censured him, the church of Boston called him also in question, where (as before he had done in the court) he did, with tears, acknowledge and bewail his covetous and corrupt heart, yet making some excuse for many of the particulars, which were charged upon him, as partly by pretence of ignorance of the true price of some wares, and chiefly by being misled by some false principles, as 1. That, if a man lost in one commodity, he might help himself in the price of another. 2. That if, through want of skill or other occasion, his commodity cost him more than the price of the market in England, he might then sell it for more than the price of the market in New England, etc. These things gave occasion to Mr. Cotton, in his public exercise the next lecture day, to lay open the error of such false principles, and to give some rules of direction in the case."
Some false principles were these: --
1. That a man might sell as dear as he can, and buv as cheap as he can.
2. If a man lose by casualty of sea, etc., in some of his commodities, he may raise the price of the rest.
3. That he may sell as he bought, though he paid too dear, etc., and though the commodity be fallen, etc.
4. That, as a man may take the advantage of his own skill or ability, so he may of another's ignorance or necessity.
5. Where one gives time for payment, he is to take like recompense of one as of another.
The rules for trading-, were these:
1. A man may not sell above the current price, i.e., such a price as is usual in the time and place, and as another (who knows the worth of the commodity) would give for it, if he had occasion to use it: as that is called current money, which every man will take, etc.
2. When a man loseth in his commodity for want of skill, etc., he must look at it as his own fault or cross, and therefore must not lay it upon another.
3. Where a man loseth by casualty of sea, or, etc., it is a loss cast upon himself by providence, and he may not ease himself of it by casting it upon another; for so a man should seem to provide against all providences, etc., that he should never lose; but where there is a scarcity of the commodity, there men may raise their price; for now it is a hand of God upon the commodity, and not the person.
4. A man may not ask any more for his commodity than his selling price, as Ephron to Abraham, the land is worth thus much. 14
