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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.
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.
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.