Seminar: Just Price

Readings:

Raymond De Roover, “The Concept of the Just Price: Theory and Economic Policy,” Journal of Economic History 18, December 1958

David D. Friedman, “In Defense of Thomas Aquinas and the Just Price,” History of Political Economy 12, Summer 1980

The Seminar

Q What definitions of the just price did you find in your readings?

A De Roover believes it is more or less equivalent to the competitive market price. Wilson argues that the traditional understanding, held before De Roover wrote, is closer to the truth: The just price is based largely on cost of production and is the price that tends to preserve the producer’s social position. Worland argues that it really is the market price, with social position taken care of in other ways. Friedman suggests that the competitive market price was, in fact, “just” in most cases.

Q Who originated the concept of just price?

A Aristotle.

Q Through whose writings did Aristotle’s ideas come to influence medieval thought?

A Thomas Aquinas integrated Aristotelian philosophy with Christian natural law teachings.

Q What is the essence of the Thomist system? [De Roover]

A Society is an integrated system in which God, nature, and man has its due place. It is a hierarchical system, with mutual exchanges between classes.

Q What principle governs the system?

A Justice.

Q The traditional view, held before de Roover wrote, was that the just price was tied to cost of production, thus supporting people in their respective stations in life. What was the supposed practical example of this?

A The guild system, which regulated prices of products and wages of labor.

Q We’ve already seen that de Roover rejects this in favor of the view that the competitive market price was, in most cases, taken as the just price. What led de Roover to this position?

A De Roover argues that most scholastic writers accepted current market price as just, and that canon law, issued by Karloman (Charlemagne) in 884, marked the origin of church doctrine on the subject. The canon states that parish priests should see that their parishioners do not overcharge travelers, but that the wayfarers be able to purchase at the same price as the locals.

Q So how did the idea spread that the just price was based on cost of production and social status?

A Some scholastics did teach this. The most important of these was John Duns Scotus, who, with his followers, taught that the just price equaled the cost of production plus the normal profit, plus a risk premium if appropriate.

Let’s consider a bit further the possibility that de Roover got it wrong, that in fact the just price was tied to cost of production and social status. Wilson supports this position.

Let’s turn to Friedman’s paper, which deals with a distinct but related issue. Neoclassical economists argue that forcing price to different from its competitively determined market level reduces economic efficiency, thereby reducing wealth and harming economic agents. Thus, the just price, if it differed from the competitive market price, presumably harmed the medieval economy.

Q On what basis does Friedman defend the efficiency of the just price?

A Friedman notes that many, if not most, economic exchanges in the medieval world would have occurred in imperfect markets. Few buyers and even fewer sellers would have characterized the majority of local markets. “The purpose of the doctrine of the just price was to determine the price in such non-competitive situations” (236). In an imperfect market, buyers and sellers bargain with each other. In cases in which one has more bargaining power, the other may be able to acquire goods at an unfairly low price or sell them at an unfairly high price. When the bargaining power is more equal, the potential traders may refuse to make better offers, so that no trade is effected. Even if a trade results, it could be delayed and costly to negotiate. Friedman argues that the just price, based on the competitive market price and recognizing the right of a seller to value his goods more highly than the competitive market price, might have served as an effective arbitrated price to bring both parties to a speedy resolution.

Q Wouldn’t sellers have the upper hand in such a system? They can always say they value their goods more highly than they really do.

A This is where moral sanction comes in. All the traders involved were Roman Catholics who were required by law to confess their sins before a priest at least once each year, on penalty of damnation. If they knew they would have to confess, they were more likely to behave honestly.