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The COVID-19 pandemic has roiled many markets. Oil prices are down. Retail meat prices are poised to soar. Many yearn for a world where prices are not determined by the brutal and impersonal forces of supply and demand. Wouldn’t we do better if we could somehow establish a “just price”?
Discussions of what constitutes a just price go all the way back to the ancient Greeks. It is perhaps most associated with the doctrines of the medieval Catholic Church and St. Thomas Aquinas. Scholars still debate exactly what Aquinas meant by just price, but we are especially fond of 16th century Italian Cardinal Cajetan’s definition that a just price is “the one which, at a given time, can be gotten from buyers assuming common knowledge, and in the absence of coercion and fraud.”
In this view, price is set by neither buyer nor seller, nor is it fixed over time, nor does it preclude sellers from incurring losses, nor ensure buyers are guaranteed a stable price. Rather, the just price is the prevailing market price, formed by the forces of supply and demand.
The alternative view is that what Aquinas meant by a just price is one that covers the seller’s costs of production plus a profit for the seller “befitting his rank in society.” If the seller charges more than this price, it is unjust, because the seller is guilty of the sin of avarice.
Yet this view is belied by Aquinas’ own example: A merchant brings wheat to a market where its price is high, but he knows more wheat-bearing merchants are on their way. Is the merchant obliged to reveal this knowledge? Aquinas notes—quite correctly—the market price and the merchant’s gain will both plunge if he does. Yet Aquinas concludes he is not required by justice to do so. The current high market price is just. The lone merchant can cash in without sin.
In the first view, merchants do have ethical obligations: They may not hire thugs to prevent new competitors from coming to market. They may not promise to deliver wheat and then defraud their customers by providing an inferior grain. Moreover, Thomist scholars generally argued it was immoral for merchants to conspire with one another to raise prices.
Price swings might be unfortunate—but they are not particularly unjust. Current price swings reflect the brutal and impersonal forces of nature: something the virus reminds us still matters.•
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Bohanon and Curott are professors of economics at Ball State University. Send comments to ibjedit@ibj.com.
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