Scholastic Just Price and Current Scholastic Just Price and Current Market Price: is it merely a Market Price: is it merely a

matter of labelling?.matter of labelling?.

UNIVERSITY OF CASTILLA-LA MANCHADepartament of Economic AnalysisDepartament of Economic Analysis

Fabio MonsalveFabio Monsalve

IV. The role of the market: just and market price controversy

III. The source of value: cost and need controversy

II. Just price: Origins, development and role in scholastic tradition

I. Introduction

V. Conclusions

Scholastics doctors Christian “vision” of Good’s City founded in the virtue of justice and brotherhood but…

… economic daily practices overshadows this vision Scholastics try to harmonize economic reality with their ideal vision of society by giving moral counsels.

Just price Controversial ambiguity

Which are the true source of value: cost or need?

Is the just price the same as the liberal market price?

Thesis: The just price is not merely the market price because of the fundamental moral dimension of economic agents.

I. Introduction

Scholastic Sources

I. Introduction

Saint Thomas Aquinas (1225-1274); The general framework

Juan de Lugo (1583-1660); The last great representative of Scholastics

Origins A Legal formula in Roman Law relying on

Laesio enormis, restitution in case the price paid differed more than 50% of the true value (Code 4:44:2)

The value of things is based, not on the disposition or utility of single persons, but commonly (Digest, 35:2:63).

A thing is worth as much as it can be sold (Digest, 36:1:16)

Development.- Scholastics reinterpreted them in order to harmonize with patristic tradition and Aristotles legacy Just price concept evolved (13th-17th) but preserving the true essence: justice in exchange

Role.- to guarantee “the equality of thing and thing”

As a moral imperative: Cardinal virtue of justice.

As a logical requirement: Social dimension of men

II. Just price: Origins, development and role

Two theories of value in scholastic tradition

Cost of production.-

Subjective Value.-

Conflicting theories only from a modern perspective. Scholastics reflected about “what a fair price should be” Complementary from an ethically point of view.

Cost and labor criterion.- As a way of ensuring a proper reward to merchant in order to guarantee the supply of goods

Need and demand criterion.- As a way of avoiding economic compulsion; Human need as source of value (nor the intrinsic perfection, nor the individual circumstances)

Predominance of subjective theory among late scholastics (cost already included in just price)

III. The source of value: cost and need controversy

IV. The role of the market: just and market price controversy

An ideal standard of measure to validate the justice in exchange. It is the amount of money which a thing is worth.

How can we know? Which elements are involved in setting the just price? What it really mean “just price”?

Just price in scholastic tradition is two-fold:

Legal.- It was settled by authorities. Not a major concern.

Natural.- It was based upon “the common estimation” considering the opinion of prudent and fair-minded ¡just price is the current market price obtained in the market!

Is the just price the same as the competitive market price?

4.1. What is a just price

IV. The role of the market: just and market price controversy

Persons are morally-ruled beings in both scholastics and neoclassical schemes… but with a different meaning of morality.

The differences could be traced in

The constraints of the price-fixing mechanism process by common estimation,

The social dimension of private property,

The vanishing of moral responsibility of humans as price takers, not makers.

4.2. The ethical perspective

IV. The role of the market: just and market price controversy

“Natural price is based upon common estimation”. Three considerations to grasp the deeper meaning:

First: The reinterpretation of Roman Law

“Everyone is the moderator and arbiter of his own thing” and “The willing man receives no injury” crystallized in “a Thing is worth what it can be sold for” A vision of a free-exchange economy and the just price as merely as the competitive market price.

Scholastic reinterpretation to harmonize with ethics and patristic: “a thing is worth as much as it can (ought) be sold for in the absence of force, fraud, and deceit, by which the will is removed from the buyer” A vision of fair economy.

4.2. The ethical perspective

a) Common estimation and its role against economic compulsion (I)

IV. The role of the market: just and market price controversy

Second.- Communal (not individual) dimension of the bargaining process to avoid the imposition of particular circumstances by powerful parts.

Third.- Ruled by the opinion of prudent and fair-minded men with a local dimension.

Conclusions:

Common estimation is a communal and prudent process where the moral responsibility (“ought” instead of “can”) and the free and voluntary consent plays an outstanding role in preventing economic compulsion.

Economic agents (buyers and sellers) are price makers with a moral duty (agents of Creation); not merely price takers.

4.2. The ethical perspective

a) Common estimation and its role against economic compulsion (II)

IV. The role of the market: just and market price controversy

Private property instituted by reason of social-order and economic-efficiency but..

People were relieved of helping the truly need.

There is an unremovable right to earth’s goods (Creation) in case of urgent necessities (lawful to steal!)

Mutual interdependence of humans and communal dimension of Creation Social bearings of private property which compels to behave fairly.

4.2. The ethical perspective

b) The social bearings of private ownership

IV. The role of the market: just and market price controversy

Self-interest was already present in scholastic vision, nevertheless…

… looking for wealth beyond a proper supporting is contra natura.

Teleological vision of wealth allows the economic incentive but not the disorderly pursuing of them.

4.2. The ethical perspective

c) Maximization versus moderation

IV. The role of the market: just and market price controversy

The moral framework of scholastic was quite different from the modern economic one.

The scholastic organic vision of society (work for the common good) versus the enlightened mechanic one (nature and society as autonomous harmonic systems).

Homo iustus (ruled by moral and the self-control of passions in an organic society context) was superseded by Homo economicus (ruled by individualism and utilitarianism in a mechanical social context).

4.2. The ethical perspective

d) Conclusion: The vanishing of moral responsibility

IV. The role of the market: just and market price controversy

Scholastics probabilism means the impossibility of certainty of human knowledge latitude of indetermination of just price.

4.3. Equality versus equilibrium

a) Latitude versus accuracy

105

100

95

Margins of Just Price

p

q5

Market Price

IV. The role of the market: just and market price controversy

Possibility of a fair exchange without respecting the just price in a singular transaction.

Factors which change the just price:

higher utility and estimation, shortage of goods, greater number of buyers, abundance of money, the manner of their sales (retail or offered insistently…).

Circumstances to exchange “out the just price”

Lucrum cessans, damnum emergens, risks, the way of selling…

4.3. Equality versus equilibrium

b) Equality “out the just price”

IV. The role of the market: just and market price controversy

Every Inequality should be corrected from a justice point of view.

Roman Law (Laesio enormis).- Restitution only if 50% of higher deviation form just price.

Scholastics.- Restitution in every case.

4.3. Equality versus equilibrium

c) The return to equality

V. Conclusions

Just price is the current-market-price, but it means the same in scholatics and liberal tradition? In my opinion the answer is negative considering:

The vision of the role of just price which converts the dichotomy cost-versus-need criterions of value into an harmonic vision where both criterions are ethically relevant.

The ethical perspective which lies in the scholastic concept of justice (equivalence) and human nature (social dimension and agents of Creation) which compels human beings to act for the common good.

The differences which arise between just price and liberal market price when we focus on the equivalence dimension (not equilibrium) of the just price (latitude, fair transactions “out the just price” and restitution).

It is possible to speak of a cooperative market price as something different from a competitive market price.