The Economics Book

22

M

any people know what it

is like to be exploited or

“ripped off” by a vendor,

such as when buying overpriced

ice-creams at a tourist venue. Yet

according to prevailing economic

theory, there is no such thing as a

rip-off. The price of anything is

simply the market price—the price

people are prepared to pay. For

market economists there is no

moral dimension to price at all—

pricing is simply an automatic

function of supply and demand.

Merchants who appear to be

overcharging are simply pushing

the price to its limits. If they push

their price further than people are

IN CONTEXT

FOCUS

Society and the economy

KEY THINKER

Thomas Aquinas (1225 –74)

BEFORE

C. 350 BCE In Politics, Aristotle

says that all goods must be

measured in value by one

thing—“need.”

529–534 CE Roman courts

protect landowners from being

forced to sell land below the

just price, at “great loss.”

AFTER

1544 The Spanish economist

Luis Saravia de la Calle argues

that price must be set by

“common estimation” founded

on quality and abundance.

1890 Alfred Marshall proposes

that prices are automatically

set by supply and demand.

1920 Ludwig von Mises

argues that socialism cannot

work because prices are the

only way to establish need.

WHAT IS A

JUST PRICE?

MARKETS AND MORALITY

The market needs goods.

What is a just price?

Traders will only supply

goods if there is a

reward (a profit).

But there is a moral

dimension too. To avoid prices

being “unjust”...

... profit should

not be excessive,

because avarice

is a sin.

... no deception

can be involved in

setting the value

of the goods.

... the buyer must

freely accept

the price.