Is the "Just Price" an Antiquated Notion?

Livio Di Matteo has a nice discussion of the history of supply-and-demand analysis here. Along the way, the idea of a "just price" arises, and is regarded, both by Di Matteo and commenter Bob Murphy (probably no relation to the Murphy we know and love) as an antiquated idea, incompatible with modern price theory.

But perhaps just price theories are not incompatible with supply-and-demand analysis. My reading of Aristotle (from whom Aquinas would have drawn his basic notions) suggests to me that what he was looking at (without having the terms, of course!) was producer and consumer surplus, and the "equality" that had to hold was between these surpluses, so that if I would buy at any price under $2, and Murphy would sell at any price above $1, the just price should be around $1.50. "Unjust" prices would come about when one of us has far greater bargaining power, and "forces" the price to $1.01 or $1.99.

To consider this in more concrete terms, the idea would be that while it is OK to profit from market contingencies (as Aquinas seems to indicate in Di Matteo's extensive quote), it is not OK to force every last penny out of someone in dire straights. Imagine I happen to have a stockpile of bottled water when a natural disaster hits my area, and I would normally have been willing to let bottles go at $3 each. With the disaster at hand, my neighbors are now willing to pay $9 per bottle. Re-interpreting Aristotle's idea that trades ought to take place at points of "equality" to mean not that I should value the good I trade exactly as much as the good I receive, a notion Carl Menger showed was nonsensical, but that both my neighbors and I should gain equally from our trades, I sell them water at $6 per bottle.

There is a general principle at work here: if you think Aristotle was saying something nonsensical, search for a different interpretation of what he meant. This is, after all, the principle that led Thomas Kuhn to write The Structure of Scientific Revolutions, so it has borne fruit in the past!

And finally, if we interpret the notion of a just price in this fashion, we can make perfect sense of this column from Paul Krugman: there is a bargaining range in which Walmart can profitably employ its workers, and the company has (justly) decided to share more of its consumer (of labor) surplus with the producers (its workers).


  1. What is this, comment profiling?! "Bob Murphy" is a very common name.

  2. Fair enough, Gene, and when I teach just price theory in a History of Economic Thought course, I am careful not to ridicule it. (Sort of like discussing the Catholic Church and Galileo.)

    I don't suppose you'd find it funny if I linked to this post as, "Gene Callahan classifies Paul Krugman's price theory as medieval" ?