Just Price: An Old Question

What is the “just price” for a good or service? That question has perplexed people ranging from poor farmers to Doctors of the Church, has led to riots and protests, and rose again with the rising prices of goods needed or desired in Texas and Florida. What is fair to charge for a necessity? And what is a necessity?


The last chapter of Of Merchant and Magic revisited the question. It has come up before, in the second chapter, when there was a dispute over the price of bread. What is bread for living (leb-bread) as compared to luxury breads (fruit and spice stuffed loaves)? “Bread’s bread,” the farmer complained, but as it turned out, the market separated plain bread-for-living from fancy treats. That scene, and the one in the last chapter, are based on actual debates from Hanseatic and English history, and other places as well.


What is a fair price? In the simplest of economies, the buyer and seller meet, discuss the goods to be exchanged, and come to an agreement. “Four bundles of carrots and two strings of onions for two baskets.” Both parties include labor and transportation in their mental calculations, although if you would have asked them, they would have looked at you a little askance. Fancy baskets, or extra-large baskets, cost more because of the materials and time it took to make them, provided other people wanted fancier or larger baskets. Everyone knew that. However, once longer-distance transportation and more complicated markets developed, then the question of “How much is fair?” arose.


This is not strictly a Christian question, because there are records from Babylonia referring to the priest-kings and others setting certain maximum prices for some goods. And people always acknowledged that some things were luxuries, not needed for daily life, and they were priced to the demands of the market (in this case the king and other very powerful and rich people). To charge more for basic necessities seemed wrong, because you were profiting from someone else’s weakness.


When we get to the ancient Greeks, Aristotle mused that “money begetting money” without apparent labor and materials was wrong. There should be some work done, some evidence of effort. It is in part from Aristotle, in part from Biblical references to “just measures” and “Just weights” and not overcharging on taxes that Christian theologians developed the idea of a “just price,” most precisely defined—almost—by St. Thomas Aquinas. http://www.newadvent.org/summa/3077.htm#article1


Is it ever fair to charge interest? Is it ever right to charge more for a good than it is worth? How is worth defined? Pretty much everyone has an internal sense that some prices are good, some are a bit excessive, and some are grossly unfair, although how “fair” is defined varies all over the place. In traditional English understandings, the community could set a price cap on grain, bread, and other necessities. If someone attempted to “overcharge”, especially in times of relative dearth, then the people could and would take the goods and pay the “just price” even though it might have been lower than the cost to the merchant. Bread riots over the just price of staples continued well into the 19th century in Europe. France was especially well-known for bread riots, in part because the lack of a good transportation network meant that neighboring districts might have grain, but the cost of moving it to where it was needed was too high for the price the hungry were willing to (or could) pay. If someone did try to move grain through a hungry area, they might be stopped, the grain confiscated and they’d be given “the just price.” If they were compensated at all. This is not a good way to encourage trade and the moving of goods to places where the market demands them.


Just price could be folded into usury. Charging interest on loans was a sin because no labor was done to earn the extra money, and in Genesis the Lord commanded Adam and Eve to work for their food. Getting food (money) without working for it was suspect and even a violation of this command. Excessive profits came under “earning money without working for it,” and as you can imagine, how one calculated labor, risk, credit, market value, and other things led to a lot of ink and argument, especially among the professional merchants.


The Myth of the Just Price

As an aside, I was intrigued when I went through the European Hanse Museum in Lübeck because although it is a fantastic museum with a lot of excellent information and exhibits, it leans away from free markets. The Hanse traded, yes, but trade isn’t entirely a good thing, especially unregulated trade. The German-language text played that up more than did the English text, so I’m not certain if it was unconscious bias at play or if that view was taken because of the EU support of the museum. I’ve also read a few popular books (published in German since 2000) about the Hanse that play up the anti-feudal aspect of the merchants but still tisk-tisk about trade and buying and selling.

Within the Holy Roman Empire, the question was batted around until 1530, when the member princes, electors, and other lords agreed to usury was tolerable so long as interest rates were no more than five percent. That many of these lords had borrowed monies from various and sundry places and institutions might have had something to do with this development. The fact that this allowed them to levy fines on people who charged more than five percent, which everyone knew had been going on already, also influenced their decision. However, that did not change peoples’ ideas about what was a just price and what was unfair or, as we say today, gouging.

Although the US has a ostensibly free market, there are still limits on what people can charge for certain things, although they are concealed a bit by market language. However, as soon as the price for necessities, even temporary necessities, goes up along with demand, cries of “price gouging!” arise from the people in line and in the media. “How dare you charge extra for something I need right now! You are taking advantage of my hardship!” Which is unfair, right? Er, maybe.

If price is one way to increase supply, why shouldn’t prices rise as demand increases and supply declines? This encourages sellers to move more of the desired goods into the market, until supply matches demand and the price drops.

For example, If the price of diamonds were to go up because, oh, De Beers suddenly closed its mines due to massive flooding and the Canadian mines had to shut temporarily, no one would bat an eye. Or look at what used to be called “industrial diamonds” that are now sold under various brand names. You could buy them by the pound, almost, to use in drill-bits and other applications, but no one made jewelry out of them. Then some genius found a way to market brown and other colored stones, and demand increased. Prices went up until supply increased to match demand*. No one squalled on the nightly news about this.

“But plywood/water/gasoline are different!” Yes and no, because they still have to be manufactured, then transported to where the demand is, and they still have to be put on shelves. Granted, we consumers expect certain industries to anticipate need and to stockpile goods at the old price rate so they are available when demand surges, as the demand for plywood often does during hurricane season. But when demand exceeds supply and more must be brought in on short notice, often from farther away, why not increase the price to compensate for the additional cost to the seller? Higher prices can also serve to even out demand, by discouraging those who have say, water, from grabbing extra that they don’t need and thus leaving more for people who do need it.

In Defense of Price Gouging

Notice that the above article is from several years ago.

How much is too much? How much is “obscene profits” versus “lack of supply in the face of rising demand?” That’s where the problem lies. Everyone has a sense of what’s fair. That sense doesn’t always match another person’s sense. And the cry of “that’s not fair pricing. That’s not just!” goes back a very, very long way.

*I’m using diamonds because unless you are in industry, diamonds are a premier luxury good. In reality, diamond prices are not regulated by the market because De Beers and other corporations limit supply to keep prices up. Although that has been changing in the past decade.


Dino Manalis Added Sep 12, 2017 - 9:38am
Price is a combination of factors, including demand and competition in producing the good or service.  Markets tend to create monopolies and the government should step in to stimulate competition and lower prices for consumers and government itself.
John G Added Sep 12, 2017 - 5:23pm
That BI article made me think of Keynes' (reputed) quip:
‘the astonishing belief that the nastiest motives of the nastiest men somehow or other work for the best results in the best of all possible worlds’.
Saint George Added Sep 12, 2017 - 8:07pm
Markets tend to create monopolies
Indeed? Cite one example in which a company was able to charge a monopolistic price to consumers by virtue of the free market.
Saint George Added Sep 12, 2017 - 8:11pm
the astonishing belief that . . .
And did the very nasty Mr. Keynes (who propagandized for eugenics and the coerced limiting of working class people to be in charge of their own reproduction) explain why that would be "astonishing"? I doubt it.
Saint George Added Sep 12, 2017 - 8:12pm
nastiest motives
Self-interest is "nasty"? Why?
wsucram15 Added Sep 12, 2017 - 10:38pm
Saint George...really?
How about DeBeers (who hid diamonds just to drive the pricing up), US Steel, (priced itself right out of the market), Monsanto(our favorite brand of gmo and poison), not only dictates price but holds trademarks on 80% of the corn and seeds it grows, Luxottica (eyewear -80% of production in all brands),  Microsoft (is like butter and everything else thats sold in comparison must be margarine-its a crime to be imitation butter). LOL.
Think outside the box..SG.
Saint George Added Sep 12, 2017 - 11:03pm
1) DeBeers. Sorry, but in economics, it always takes two to tango. The price of diamonds wouldn't have gone up if consumers weren't willing to pay the higher price. Don't believe me? Try hiding typewriter ribbons in order to drive up their price and see how much they'll fetch.
The price of diamonds increased because of the vanity of consumers, not the self-interest of producers.
2) US Steel. Your statement is self-defeating. How can pricing oneself out of the market be an example of "self-interest"? Suicide is an example of "self-interest"? I don't think so. The meaning of "X priced itself out of the market" is, "Y, who was even more self-interested than X, wisely charged a lower price for its product, thus driving X out of business." Market discipline punished US Steel for not following its self-interest.
3) Monsanto. Thanks, Monsanto, for helping to greatly increase the supply of food by widening consumer choices, thus lowering the cost-burden of food to many poor and lower-middle-class families. In the U.S., the cost of food as a percentage of per capita income has done nothing but steadily decline, even with constant eroding of the dollar's value because of inflation.
4. Luxottica. Has the cost of eyewear declined as a % of per capita income? I don't know. I do know that there are far more choices (lens materials, styles, specialized coatings, etc.) than ever before.
5. Microsoft. Thanks, Bill Gates, for contributing so much to the information age and digital revolution that have created millions of new jobs worldwide. No one on WriterBeat would be here posting rubbish were it not for your contributions. You created many trillions of dollars worth of value and in return took out for yourself 100 billion? Sounds like a fair deal to me.
The way capitalism drives incremental economic progress is by means of "positive externalities"; i.e., unintended positive consequences for the majority of people, even as individual producers of a particular good or service do nothing but pursue their own self-interest.
You can profitably (pardon the pun) compare that to the millions of people starved, shot, and imprisoned in the various socialist People's Republics around the world, as "Humanitarians With Guillotines" commit massive atrocities — on people and on the environment — in the name of selflessness.
Jeffry Gilbert Added Sep 12, 2017 - 11:22pm
Then so-called just prices include $90 cases of water and $3000 hurricane evacuation tickets? 
Saint George Added Sep 12, 2017 - 11:45pm
I suppose a just price of $0.00 for water and tickets would be better so that you run out and have nothing left after the first few takers who managed to get in line before anyone else.
Jeffry Gilbert Added Sep 13, 2017 - 12:39am
The very same price before the hurricane seems right. A profit was made at those prices. 
John G Added Sep 13, 2017 - 12:59am
 Thanks, Monsanto, for helping to greatly increase the supply of food 
Oh good lord.
John G Added Sep 13, 2017 - 2:05am
JG. Exactly.
Saint George Added Sep 13, 2017 - 2:37am
The very same price before the hurricane seems right.
Seems "right" to whom? To you? Why are you the judge and arbiter of the "just price"? You appointed yourself? Cool.
The "price before the hurricane" was not determined by you or some other "just price arbiter", but by the specific conditions of supply and demand at that time.
Why can't prices of things change when conditions of supply or demand change?
A profit was made at those prices.
Because the supply was enough to satisfy the demand on a regular basis without causing a shortage. A sudden increase in demand has a similar effect as a sudden decrease in supply: if there's no mechanism to adjust supply and demand to each other, you will have a shortage of the good in question. Why would you intentionally cause a shortage? You must hate consumers or something. 
John G Added Sep 13, 2017 - 3:00am
'Libertarians' proclaim themselves arbiters and judges of every fucking thing.
Pompous, condescending intellectual pygmies.
John G Added Sep 13, 2017 - 3:02am
A sudden increase in demand has a similar effect as a sudden decrease in supply
And there we have the absurd libertoonian version of supply and demand.
Saint George Added Sep 13, 2017 - 3:08am
'Libertarians' proclaim themselves arbiters and judges of every fucking thing.
For example?
Jeffry Gilbert Added Sep 13, 2017 - 3:18am
Why are you the judge and arbiter of the "just price"?
I'm not. I'm just some guy responding to your comment without malice. The word "seems" might have indicated that. 
You must hate consumers or something
Far from the truth. Diametrically. 
Again, it "seems" to me with no more bottled water coming in and mandatory evacuation in place - therefore no one left to buy it - it's better, if your concern for consumers in this example is real, that it's consumed rather than be tainted by storm surge rendering it unsellable, undrinkable and, must I point out, a loss. 
Jeffry Gilbert Added Sep 13, 2017 - 3:29am
The "price before the hurricane" was not determined by you or some other "just price arbiter", but by the specific conditions of supply and demand at that time.
Actually no. It was determined by careful study of how badly people would allow themselves be gouged before they stopped buying. 
Coca-Cola is a brand you'll recognize. In DUHmerica a Coke brought to your table by a waitress will cost you $2.00 or more. Everyone between you and the first sip makes a profit. Here in Thailand a Coke brought to my table in a real green coke bottle by a waitress costs me $0.28. Everyone between makes a profit. 
Price clearly is no longer a function of supply and demand. The abiter is the one setting the price throughout the chain.
Jeffry Gilbert Added Sep 13, 2017 - 3:47am
Another example. 
Not long ago a lovely fit woman of 25 could be rented for B1000 for a "short time" that is until the renter "finished". 
Now with foreign arrivals of westerners way down the same product costs B3000. 
She still has the same family up country who expect her to send the same amount of money as before the GFC and who except no excuses why she can't. 
To do so she must insist on a higher rate. 
Again, supply and demand doesn't apply. 
Jeffry Gilbert Added Sep 13, 2017 - 3:50am
And, she has even more competition from the girls who no longer have a job at the factory supplying goods to westerners who no longer have jobs. 
John G Added Sep 13, 2017 - 4:05am
Libertarian "law of supply and demand' defies logic. Like everything they remove context and make it a binary logical fallacy.
Under their version if I sold one coke today at a $ and sold 2 cokes tomorrow the price would go up to $2.
The fact that I have a warehouse with a million bottles of the stuff is irrelevant to them. It's just too complicated for them so they ignore it.
John G Added Sep 13, 2017 - 4:27am
And of course if the rich oligarch can buy up all the water at whatever price and the poor die of dehydration, that's market efficiency folks and ultimately good for society.
Oh wait, we won't have a society.
Saint George Added Sep 13, 2017 - 4:37am
It was determined by careful study of how badly people would allow themselves be gouged before they stopped buying. 
Actually, no, you were the one who thought the pre-hurricane price was "Just" "right" "true" "good" and a bunch of other words that in economics actually have no meaning when it comes to a completely neutral outcome like a "price." 
So answer the question, dimwit:
How are you going to prevent a shortage of gasoline during the hurricane when a lot more people are highly motivated to buy it at the much lower pre-hurricane price? Stop ducking the question, coward.
Jeffry Gilbert Added Sep 13, 2017 - 4:52am
Listen saint, I will not be abused by you. I'm neither a dimwit nor a coward. I owe you nothing. Understand that. 
John G Added Sep 13, 2017 - 4:55am
I'll translate Corey's libertoonian.
Hey Man, you need to prove that your view is valid to me based on my own criteria and working within an arbitrary frame that I set up a priori rules out your viewpoint.
Hahaha can't do it? Well it looks like I win again.
John G Added Sep 13, 2017 - 4:55am
Saint George Added Sep 13, 2017 - 4:55am
if I sold one coke today at a $ and sold 2 cokes tomorrow the price would go up to $2.
Huh? Man, you really one fucking stupid pro-terrorist towel-headed bag of flatulence.
If you sell one coke on Monday for a dollar, you've made one dollar.
If you sell two cokes on Tuesday for a dollar each, you've made two dollars.
You experience cognitive dissonance with that, I see.
More relevant hypothetical:
If you have a supply of 10 bottles of Coke in your fridge, and only one person out of a local population of 100 wants to buy a bottle of Coke from you for one dollar, you've made one dollar. If you take your head of a Mr. Wooly's arse for a moment, even an ignorant prick like you should be able to see that.
If there's a sudden and unpredicted drought — no water, no beer,  nothing to drink EXCEPT those 10 bottles of Coke in your fridge — and those 100 thirsty people want to buy them, obviously shit-for-brains, ONLY the first ten people who got to your store first will be able to buy it at your original pre-drought price of one dollar per bottle. Once you sell it to them, you're out of stock. No more Coke. Nothing for anyone to drink. Hey, fascist fuck-all, what about the remaining 90 people in the local population — some of whom are poor — who might not have been able to get to your store early enough? How will you get them their Coke? What will they drink? Their own piss?
I already know your answer: "Who cares? Fuck'em."
Good going. You're a classic "Humanitarian with a guillotine."
John G Added Sep 13, 2017 - 6:42am
Hilarious. This is libertarian "economics".
Autumn, you sure know how to run a web site.
Bill Kamps Added Sep 13, 2017 - 7:41am
SG, the price of diamonds is high because DeBeers has done a very good job of marketing ( creating demand ), and implying there is scarcity.  They have kept a very large number of diamonds off the market, to create scarcity.  In addition when they sell the diamonds to intermediaries, you take the packet they offer you in full, at the price they offer you, or you dont get to buy next time.  Because they control a large percentage of the gem quality diamonds, they can control the price more effectively than other commodities. 
Still, if there was no demand, if people didnt like diamonds, price controls would not work.
Yes, it is a fair question, how much should one charge for plywood just before a hurricane ?  Does it make sense to charge more, so there is incentive to bring more to the city?  Does it make sense to charge more for hotel rooms so the rooms dont get used up by people who have other choices?  Is it profiteering when the supplier costs are going up to maintain supply?  I guess we just expect the supplier to bare the extra cost of move supplies when transportation is difficult.
In times of disaster the negotiated price mechanisms break down a bit because people panic, causing a run on plywood and water, and without controls driving up the price.  Because they are in panic mode, and dont have time, they are unable to shop around, and so they feel they must pay up for the plywood.  Even the stock market has circuit breakers to keep prices from going crazy when some external event causes a company's stock to do crazy things. 
Some amount of price control seems appropriate, however, making so no price increase can happen, will stymie supply.
Jeffry Gilbert Added Sep 13, 2017 - 11:40am
Bill, take it one step further. Plywood. Certain grades of it are suitable for boat building even though they aren't "marine" plywood. However, many suppliers who stock the suitable grades will charge significantly more for them in areas where there are lots of boats. Nothing to do with supply and demand just some scumbags ripping someone off. Same goes for anything "boat" or "airplane". Beware the dealer who spends more time qualifying you than getting what you want. A business license is a license to steal that cops will actually defend the license holder doing. 
Saint George Added Sep 13, 2017 - 6:16pm
SG, the price of diamonds is high because DeBeers has done a very good job of marketing ( creating demand ), and implying there is scarcity
The price of diamonds is "high" (i.e., higher than something else, such as, e.g., water) because consumers LIKE diamonds and WANT them. If women didn't insist on diamond engagement rings from their fiancés, and guys didn't want to buy them, the price wouldn't be high regardless of how scarce DeBeers made them.
Diamonds fetch a high price because of the intensity of the demand in relation to the scarcity of supply. Both have to come into play in order for that relation to be expressed as a price.
Saint George Added Sep 13, 2017 - 7:48pm
how much should one charge for plywood just before a hurricane ?  Does it make sense to charge more, so there is incentive to bring more to the city?
This is the main economic function of "speculation."
E.g., There's generally a fairly high and predictable demand for oranges, and there's generally reliable supply (Florida, California, Mexico, etc.), so the price of oranges is generally fairly stable.
Suppose, however, that weather experts alert citrus growers that there's going to be an early, severe frost, probably destroying much of the orange crop. When speculators get this news (as they surely will), they begin buying oranges and stockpiling them off the market, thus reducing the supply of oranges, and thus slowly driving up the price of oranges to consumers. When the frost finally hits, the price of oranges will, of course, be higher than it was, not just before the frost but more to the point, higher than it was before the information about an impending frost became available.
After the frost, speculators holding onto supplies of oranges will, of course, no longer want to incur the cost of stockpiling them, so they will bring them to market as fast as they can, and the price will begin to decrease because of the increase in supply.
If you were to graph the rise in the price of oranges as a function of time (Y-axis = price; X axis = time) starting at the time the information about an impending frost became known to speculators, you'd generate a gently sloping curve upwards (i.e., speculators starting to buy increasingly more oranges as the expected time of the frost approaches), reaching its high point at the time of the frost; then gently sloping downwards over time, as speculators release their stockpiles of oranges to market, and the price returns to what it was originally (assuming, of course, no change in people's desire to buy oranges).
Compare that to a graph of Price-vs.-Time if there are no speculators gradually stockpiling oranges in expectation of a severe shortage of supply: the frost would hit suddenly, with consumers generally not expecting it to come at all (since most consumers are busy with their own lives and personal matters, so they're generally not going to be knowledgeable – or even interested – in weather events like "early severe frosts" that might affect their eating habits and purchasing patterns in the future). Such a graph would appear like a sudden, sharp "spike" in the Y-axis, i.e., a sudden and (to consumers) unexpected increase in the price of oranges for which they might be unprepared (i.e., in terms of rearranging their food budget, or searching for alternatives like grapefruits, limes, lemons, etc.).
So the economic function of speculation — assuming some adequate foreknowledge of impending future events — is to "smooth out" sudden price changes by making them gradual over time.
If there were technology available that could predict hurricanes, tsunamis, earthquakes, and other sudden natural catastrophic events with some degree of reliability far enough in advance, ordinary speculation would have the same effect on staples like water, gasoline, heating and lighting fuel, etc., as the example above shows about oranges: there would be a smooth, slow, upward curve in the price of those items, giving consumers adequate "lead time" to adjust their personal budgets, find room to store stockpiles, etc. As it is now, however, these catastrophic events occur either suddenly, or with only a day or two of lead time.
Therefore, the question still remains:
Unless you favor outright government rationing of necessities (which requires a coercive compliance mechanism to make it work), you either need something to bring down the sudden spike in demand to parity with the available supply, or you need something to bring up the supply to parity with the sudden increase in demand; or you need to accept the certain appearance of shortages, in which the necessity in question (food, water, gasoline, meds, etc.) cannot be obtained by needy consumers at any price whatsoever.
Bill Kamps Added Sep 14, 2017 - 9:48am
Diamonds fetch a high price because of the intensity of the demand in relation to the scarcity of supply.
SG, I believe I agreed with that.  I merely said that DeBeers has had a hand in both creating scarcity, and marketing the diamonds.  "A diamond is forever" is a marketing line created by DeBeers.  
Now having said that, if people didnt like diamonds, none of that would have worked.  A 150 years ago, it was not common to give a diamond ring for engagement, so this is something that has evolved over time.
Dave Volek Added Sep 19, 2017 - 2:03pm
I rather enjoyed this article and its comments. I know I am coming into this discussion a little late, but I would like to offer this tidbit.
If there are no natural disasters, the supply chain for various products is a smoothly running market mechanism. When it is running smoothly, the costs to getting a product from the factory to the wholesaler to the retailing is designed for efficiencies of cost.
When a natural disaster looms or passes by, any enterprising retailer for a needed product (like plywood to board up windows) must disrupt this well running machine. By ordering more plywood, the retailer not only has to pay a higher price to convince the market magic to send more plywood, the transportation costs also increase. For example, it probably costs more to move a truck into Florida these days.
In other words, if a retailer charges double for the plywood, it can be justified by the increased cost to get the plywood to that area.
If doubling the price is deemed as price gouging, then the retailer need only wait for the usual market delivery systems to move plywood into the store. But this may take longer than consumers want. But they won't be gouged, right?
I see this whole price-gouging excuse as people who do not understand much about business.