What is a just price?

After Ian’s posts on Pilot’s pricing and the recent news about Pelikan’s US price increases, I’ve spent this week reflecting on some ideas about what constitutes a fair or just price. This is an old debate, one which predates economics by millennia and reaches back at least to the ancient Greek philosophers. Today, I thought we could reflect on some of these ideas and what they can tell us about the marketplace, and about ourselves. 

There are two main ideas that we’ll explore. The first comes to us from Aristotle, after some adjustment and refinement by Thomas Aquinas. Both thinkers were primarily concerned with justice, much of which we might call ‘social justice’ today. It takes the view that there’s absolutely a just price for things. The other view comes to us from the great British thinkers who laid the foundations of modern economics, including Adam Smith and David Ricardo. They took the view that it is not sensible to talk of a just price for a product, and that therefore it wasn’t possible to talk about it being unjust or unfair. Both of these views continue to influence policy even today, and we’ll explore their impact. 

I also wrote up a third perspective, drawing on Marxian thought. Contrary to what you may have heard or assumed, Marx offered some brilliantly insightful critiques of the capitalist system (note there’s a difference between capitalist and free market, particularly in this context). Of course, his alternative turned out to be totally unworkable but he nonetheless has some insights which are worth considering. I found it quite difficult to explain the ideas in a clear, concise way but if you’re interested in this topic, it’s definitely worth a look. 

Before we jump into the two perspectives, I should note that I’m speaking strictly about trade which is free and voluntary, and where both parties are behaving honestly. Obviously, if someone lies about the product they are selling then it is not just or fair. But deception or fraud is a different topic to what we’re discussing today. 

Aquinas and Justice

We don’t have a whole lot of information about Aristotle’s views on just prices, but most of his philosophy centred around the topic of justice and we know this informed his views on prices. Justice in this context is more aligned with fairness than its other meanings, and he saw proportionality as being fundamental to both concepts. He believed in a society which was equal, but an equality tempered by merit and effort: the hard-working and industrious deserved more than the lazy, but not disproportionately so. 

When it came to economic exchange, the same principle applied: he felt people should receive something approximately equal in value to what they had sold. Where a transaction was disproportionate, Aristotle believed it was just for the state to intervene and put things right. Implicit in his thinking was an assumption that products have some abstract, objective price or value, something which others could recognise and therefore determine if a price or a transaction had been unjust. 

Fifteen centuries later, the great Catholic thinker St Thomas Aquinas sought to further develop Aristotle’s ideas. He shared the ideals of justice and proportionality, but saw trade and commerce in a more virtuous light than his predecessor. He modified Aristotle’s assumption, accepting the existence of an objective, knowable value but tempered it with the recognition that value varied with time and place. Some goods are less valuable when they are in abundance than in scarcity. The value also differs with the benefits they bring to the owner. 

Under Aristotle’s view, a product — let’s say a farm animal, like an ox — had the same essential value in all times and places. Aquinas’ view accepted that oxen were worth less in communities which had a plentiful supply of farm animals and labourers than in communities with very few of either. He also recognised an ox was worth a lot less to a farmer who couldn’t make much use of it than to a farmer who would reap a much larger harvest. Both believed it was possible for people to recognise an unjust price, and that some redistribution was appropriate, but only Aquinas recognised that the context of the transaction mattered for determining whether a price was just. 

For Aquinas, the context mattered but the principle of proportionality still held, and he believed it was unjust for anyone to sell a product a price greater than the seller’s personal valuation. This led him to condemn the practice of usury (moneylending). If a usurer could afford to be without a sum of money for a year while it was loaned out, then that money must not be terribly valuable to him. To earn a large amount of interest for allowing someone to borrow something of little value was disproportionate, and was therefore unjust. (Obviously the Catholic rules about this did not apply to the Jews, who are still stereotyped today by some for providing a necessary service when others could not legally do so). 

If we consider a situation of price gouging — a massive price increase, particularly at a time of heightened need, such as selling bottled water in a community after a natural disaster — it is obvious that Aquinas would have disapproved of such behaviour. If you could sell a product a low price one day and then a high price the next, you are getting more but offering nothing more in return. That is neither proportionate nor just. 

Smith and Efficiency

The alternative perspective grew out of the work of the famed Scottish philosopher Adam Smith, as did the roots of modern economics. At its foundation is a simple difference in the assumption shared by Aristotle and Aquinas: Smith simply did not accept that products possessed an objective value. Without that, it is not possible to measure the price against anything other than each individual’s opinion or expectation — and therefore no basis upon which to make conclusions about justice or fairness. 

This was complemented by the work of political philosophers like John Locke, who essentially argued that we should respect the rationality of others in their decision-making. If two parties can voluntarily enter into an agreement which is mutually acceptable, whatever price they agree to is ‘fair’, regardless of whether it fits with the opinions of others who are not party to the transaction. There is no basis for others to claim it is unfair, nor for the state to step in and cancel or amend the exchange. (It is interesting that Locke sees the primary role of government as the protection of property rights while Aquinas believes its primary role is justice, including redistributive justice. This suggests that the possibility of a just price is closely linked to one’s political philosophy.)

These ideas were further developed by the ‘marginal revolutionaries’, particularly Alfred Marshall, who formalised (mathematised) theories and enabled the calculation of equilibrium, market prices using supply and demand. One interesting insight from this work was that almost all sellers need to be paid a price greater than their personal valuation — something Aquinas identified as innately unjust — otherwise they would not be willing to sell. Similarly, buyers are only willing to pay equal to or lower than their personal valuation. The principle of proportionality is simply unworkable in this context.

To return to the example of price gouging, the laissez-faire (free market) thinkers are accepting of the practices that Aquinas would have found unjust. If buyers are freely willing to pay a higher price for a product, there is nothing inherently unfair in sellers choosing to sell at those higher prices. Indeed, higher prices are the natural consequence of increased demand and decreased supply. Most economists would see higher prices as necessary to incentivise more sellers to bring the desired product into the community, increasing supply and lowering prices once again.

While some see economics or the free market system as essentially amoral or descriptivist, especially when compared to Aquinas, there is a strong normative streak at its very core, stretching back at least as far as Smith and continuing to inform theoretical work today (including my own). Unlike Aquinas, that normative impulse is not to do justice but recognising societies have limited resources with which to satisfy the many, varied desires of those who live in society. By using resources more efficiently — by channeling them into products which are more desirable, manufacturing product with fewer scarce resources, etc. — society is in a position by which the same level of resources can be used to satisfy a greater number of desires. Beyond all the abstract concepts and measurements like GDP, this is what really constitutes economic growth and improves the lives of those in a community. The term efficiency is overused and poorly understood but it is an important and worthwhile pursuit. 

Influence on Policy

In my opinion, it’s interesting that we have two well-developed schools of thought about whether it’s sensible to think of prices as just or not. These views essentially hinge on whether one accepts the assumption that it is possible to have an objective idea of what price (or price range) is truly fair, and that may further hinge on your own personal philosophy about the primary role of government. One of the things I have always enjoyed about philosophy and political economy is seeing how interconnected ideas are with each other. 

It is also interesting to see how these ideas influential the policy choices which are made by our representatives, something achieved by both the justice and efficiency perspectives. When governments pass laws about prices — whether they set minimum wages, abolish fees for banking services, or cap interest rates that payday lenders can charge — they are drawing on the intellectual tradition of Aquinas, and sharing in the assumption that some objective, knowable value exists for these things. In the last decade or so, some US jurisdictions have begun moving against ‘excessively broad’ non-compete clauses: contract rules that prevent workers from doing similar work with a firm’s competitors for a period (often years) after their employment has ended. This is informed by the idea that such clauses are disproportionate: they often bring very little benefit to a firm but can greatly harm an individual. 

The efficiency perspective influences policy choices around anti-competitive conduct (also called anti-trust). When there are only a few sellers of a product, they are able to increase the price through the exercise of market power. This increases the revenue and economic profits of the sellers in a way which harms buyers and undermines the efficiency of the marketplace. Most developed countries therefore have a framework for ensuring that markets remain competitive: an agency which reviews and approves acquisitions and mergers between companies in the same industry, as well as regulations against collusion and price-setting agreements. (It is worth noting that this view is the dominant one within the field but a significant school, Austrian economics, believes a regulatory framework is unnecessary and the presence of economic profits will attract competitors and return the market to a competitive equilibrium). 


Fair or just prices might seem like an isolated topic, but it’s interesting to see how one assumption leads to completely different conclusions and policy outcomes. Ultimately, I’m not in a position to tell you that either justice or efficiency is the more important value. I obviously have a particular view of my own — and you can probably guess which it is — but what I think shouldn’t really matter. What’s more important is understanding the different points of view, where they come from, and how they influence (or are influenced) by other ideas. Many of us have inconsistent views because we’ve never bothered to think through our beliefs, even on the things which are quite important to us. Instead, we consider particular topics on a case-by-case basis, making choices which feel instinctively true but never bothering to think about how these emotional impulses conflict with each other.

In a year where many of us (not just those readers from the United States) will be asked to vote for our leaders and governments, it’s worth contemplating our values and philosophy, and the implications for our civil choices. whether we will be voting in an informed way for the philosophies we accept to be true, or whether we will be swayed into voting for the candidates who best match our emotional impulses on polling day. At least in my opinion, the more people who do put time into developing a consistent personal philosophy are more likely to vote for candidates who have a clear sense of their own philosophy, and are less likely to govern on the basis of whim or short-term political expediency. And I think that can only make our democracies better and stronger.