Just price
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The just price was a medieval theory of ethics in economics which attempted to set standards of fairness in financial transactions. Although its roots lie in ancient Greek philosophy, it was advanced by Thomas Aquinas as an argument against usury, which in his time referred to the making of any rate of interest on loans. The theory was based on the belief that the lender was receiving income for nothing, since nothing was actually traded.
He later expanded his argument to oppose any unfair earnings made in trade, basing the argument on the Golden Rule. He held that it was immoral to gain financially without actually creating something. The Christian should "do under others as you would have them do unto you", meaning he should trade value for value. Aquinas believed that it was specifically immoral to raise prices because a particular buyer had an urgent need for what was being sold and could be persuaded to pay a higher price because of local conditions:
- If someone would be greatly helped by something belonging to someone else, and the seller not similarly harmed by losing it, the seller must not sell for a higher price: because the usefulness that goes to the buyer comes not from the seller, but from the buyer's needy condition: no one ought to sell something that doesn't belong to him.
- — Theologia Moralis 2-2, q. 77, art. 1
Aquinas would therefore condemn practices such as raising the price of building supplies in the wake of a natural disaster. Increased demand caused by the destruction of existing buildings does not add to a seller's costs, so to take advantage of buyers' increased willingness to pay constituted a species of theft in Aquinas's view.
Although Aquinas believed all gains made in trade were wrong, he was willing to accept them as a necessary evil, provided the gains were regulated and kept within certain bounds, and provided they were directed toward a public good:
- ...there is no reason why gain [from trading] may not be directed to some necessary or even honourable end; and so trading will be rendered lawful; as when a man uses moderate gains acquired in trade for the support of his household, or even to help the needy...
In Aquinas' time, banking was still in its infancy. The later School of Salamanca argued that the just price is identical to the market price. With the rise of banking and Capitalism, the just price theory began to be seen as discredited. In modern economics, interest is seen as payment for a valuable service, which is the use of the money.
Most banking systems still forbid excessive interest rates.
See also
External link
- An article (http://cepa.newschool.edu/het/schools/salamanca.htm) discusses the Salamanca school and just price
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