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Whatever Happened to “Just Prices?”


Robert Hockett (@rch371) is the Edward Cornell Professor of Law at Cornell Law School.

Are prices the sort of thing that can be fair or unfair? It seems to be common to assume so. Health care is said to cost too much, unhealthy foodstuffs to cost too little. Air and water, we say, should be free. Maybe college and health insurance should be as well?

Yet while we frequently hear and say such things in informal settings, many in more ‘serious’ company appear to concede that prices can no more be fair or unfair than the number seven can be yellow or green. There are only individual preferences – my wish to pay less, your willingness to pay more – and market prices that all of us ‘take’ and don’t ‘make.’ In this foundationally critical matter, so closely bound up with the way we meet needs in a market economy, it seems we are most (if not all) of us neoclassical economists now.

But do we really have to give up the idea of fair prices? In a forthcoming paper, Roy Kreitner and I say, Not so fast. We interrogate and rehabilitate the idea of fair prices in part through a critical look at its recent history, and in part through a look at the ways in which prices are actually determined in contemporary economies. We abjure, however, any attempt to link this inquiry with ‘just price’ theory of the sort that flourished, in a number of forms, before the so-called ‘marginalist revolution’ of the late 19th century – the revolution that purported to slay what we used to call ‘political economy’ and birthed ‘economics.’

In this post I aim to fill-in that gulf and trace some connecting lines. For it turns out that our attempt at a ‘just price’ revival has a venerable and unjustly forgotten pedigree in hardcore just price theory of the pre-marginalist variety.

Begin with a quick reminder: the proposition that goods or services might bear just prices, in comparison to which actually charged prices might be ethically evaluated, seems now to be widely regarded by self-styled economists as having been long since discredited. But why? When we ask those who make the claim to explain themselves, we typically receive either or both of two answers.

The first answer is that just price theory, which thrived during Europe’s so-called ‘Middle Ages,’ was in some sense grounded in the predominant metaphysical assumptions of that era. Since those assumptions themselves have been discredited, the reply effectively continues, so has just price theory.

If we leave to one side the logical fallacy on which this reply trades – viz., that when alpha entails beta, alpha’s failing to obtain entails beta’s failing to obtain – and ask either (a) what those metaphysical assumptions actually were and how they have been discredited, or (b) in what sense just price theory was grounded in such assumptions, we are likely to draw a blank stare. The ‘discredited metaphysics’ argument thereby reveals itself to be a sort of placeholder – a promise of a proper answer in future pending some further, metaphysical, consideration or elaboration.

The second reply we receive when we ask in what sense just price theory is discredited is somewhat more sophisticated – and, perhaps inadvertently, revealing – than the first. Here the claim is that just price theory was grounded in the medieval period’s disapproval of usury, while the latter in turn was rooted in fallacy. The fallacy, we are then told, resided in the medieval moralists’ overlooking the so-called ‘time value of money’ in claiming, as they did, that a lender receives ‘something for nothing’ when she receives not only the principal that she has lent over the term of a loan, but also whatever premium she’s charged for the use of her funds.

Looking more carefully at the storied overlooking of money’s ‘time value,’ intriguingly, brings to light something in the theory of just prices that seems itself to have gone overlooked – something more ethically compelling than metaphysics or time-preference. Let’s take a look.

At the core of the medieval case for just prices and against usury was the proposition that prices should reflect costs borne by sellers rather than exigent needs experienced by buyers. If a seller expended labor in collecting water from the river in bottles and carrying them to town, the moralist would argue, it was legitimate for her to ask compensation for her effort – effort she would have spared those who no longer had to walk to the river with empty bottles. By contrast, the moralist would continue, a seller who opportunistically jacked up the price of her bottled water in response to a drought, or to a fellow townsperson’s sudden life-threatening dehydration, would act wrongfully. For her labor-expense would be the same in the two cases, meaning in turn that her higher charge in the second case was the product not of her own necessity, but of her buyer’s necessity.

If you think about this for a moment, you can see pretty quickly why medieval moralists might have thought the idea of justice implicated by scenarios like that just envisaged – and why they would have found usury to be unjust.

Key to the water-shortage story, of course, is the water’s shortage. The water is in short supply to the buyers, but not to the seller. This means, of course, that the seller is able to extract rents from those in need of the water she has, a power she enjoys in virtue of a certain advantage she holds relative to her fellow townspeople. If that advantage – an instance of inequality, a distinction from her fellows, that operates in her favor – cannot in some manner be justified, then her exploitation of the advantage will not be justified either. And so any price she might charge that reflects this advantage will be, absent some intervening justification … an unjust price.

Now of course people often enjoy any number of advantages relative to others that can be justified. But that is for present purposes beside the point. The present point is that implicit in the ‘just price theory’ of the medieval moralists was a view that prices should reflect just background conditions. Unjustified advantages enjoyed by sellers over buyers were not to be exploited. Prices that reflected such exploitation would be unjust prices.

It’s easy to see how this thought could motivate strictures against usury. Just think of money as water.

If, for example, capital were scarce and I, thanks to my luck in the birth lottery, happened to hold lots of it, then my charging you rent for its use would amount to my exploiting an unjustified advantage that I hold over you. The rent would amount to a price that is per se unjust. My having the capital to lend, after all, has cost me nothing. It is a product of luck that separates me from you – that renders us unequal – without justification. If this form of inequality is unjust, then so, absent some intervening justification, is the price that reflects it. The price is in such case a straightforward reflection of unjust background conditions.

Now, the modern Europe that gradually supplanted medieval Europe came to be known as ‘capitalist.’ It was a Europe whose social, economic, and ultimately political arrangements were shaped in large measure by rentiers of a certain stripe – holders of then-scarce, spendable capital that could be lent out at a rental price, i.e., an ‘interest rate.’ It is accordingly not altogether surprising that medieval ‘just price theory’ came to be treated as quaint, obsolete, or ‘discredited’ in early modern, creditor-dominated, capitalist Europe.

What is more surprising at first blush is that the medieval moralists didn’t, apparently, appreciate the rents charged by landrentiers­ – the landlord class – as unjust prices in the same manner as the interest rates charged by then-nascent capitalists. Land rents, in fact, which were paid by most in the form either of massive crop shares (hence the later term ‘sharecropping’) or of literal bondage to the land as effectively landlord-owned ‘human resources,’ appear in most cases to have been more exorbitant even than capital rents.

The medieval moralists’ overlooking this point presumably had something to do with the fact that they were all clerics, whose ecclesial institutions were subsidized and protected by the era’s knightly land barons themselves. But we needn’t now fret over past moralists’ having overlooked ‘inconvenient truths.’ What is interesting for present purposes is that cousins of such truths appear indeed to have been appreciated – and to be ripe for recovery now.

In the paper I mentioned earlier, Roy and I draw on these truths in attempting to initiate development of a modern just price theory suitable to the present. Guiding our effort are several propositions that we take to be uncontroversial even if sometimes under-appreciated. The first is that, as Marx appears to have been one of the first modern figures to recognize, price relations among tradable goods and services mirror productive and correlative socio-legal relations among persons. A price schedule can in this sense be viewed as a sort of short-form social blueprint. However inchoately, the medieval moralists seem to have grasped this as well – as noted above, it is implicit in their brief against usury.

The second proposition is that, as certain ‘institutionalist’ economists and ‘realist’ legal thinkers of the early 20th century seem to have recognized more readily than many of today’s self-styled lawyer-economists, a price system is a complex feat of de facto social engineering, however self-conscious or otherwise the engineering’s execution. It is constituted by multiple overlapping legal regimes and institutions that we have ourselves promulgated, instituted, and contoured. This suggests that the vaunted ‘invisible hand’ that guides price-making market transactions is in fact our hand, which we can exercise deliberately with a view to the right and the good or permit to move zombie-like, uncontrolled, while we gape at it fearfully as if at a drunken all-powerful parent.

Our third guiding proposition can be viewed as a sort of joint entailment of the first and the second. It is that, first, just social relations tend both to manifest in and to be sustained by just prices, while unjust social relations tend both to manifest in and to be perpetuated by unjust prices; and second, we can accordingly rectify injustice from either side of the prices / social-relations divide. That is to say, we can either rectify unjust prices by changing the social relations that produce them, or rectify those social relations by changing the prices that tend to perpetuate them. Or, of course, we can do both.

Strategies of the first kind would involve the confiscation and redistribution of scarce resources whose distribution across our population is arbitrarily, not justifiably, skewed. Examples include both ‘agrarian reform’ in the distant and more recent past and estate taxation in the present. Strategies of the second kind would involve the provision of ‘public options’ that deliberately eliminate or introduce price-moving scarcities themselves. Examples include direct public lending or money-provision (Keynes’s ‘euthanasia of the rentier’), which can be used to drive money rental rates arbitrarily low; or direct public employment (per an ‘employer of last resort’ function) at a true ‘living wage,’ which could be used to keep labor-rental rates at a civilized threshold.

The aforementioned paper is both a brief catalogue of such strategies and a sustained meditation on the fuller implications of the inter-linkages among social relations and prices – hence on the viable content of the phrase ‘just prices.’ Once one begins thinking along such lines, it grows clearer how many policy measures already operate to render prices more just by rendering social relations more just, or to render social relations more just by rendering prices more just. This insight itself seems to us salutary. More interesting still, we believe, are the many further and still unconsidered options that such reflections can call to mind. We assay many in the paper, and hope many more will be brought to light by others who join us in rediscovering, revitalizing, and further developing just price theory.