“St. Thomas Aquinas haunts us still”

Here’s Livio Di Matteo discussing the medieval notion of the “Just Price” of a good or service:

The call for regulation of gasoline prices strikes me with overtones of the debates over the “just price” which concerned much of the work of St. Thomas Acquinas and medieval economic thought, which in turn was derived from Greek and Biblical thinking as well as Roman Law. […]

According to St. Thomas, the ‘just price’ was the true worth or value of a good.  When the sale price differed from this just price, then either the buyer or the seller was owed restitution with this just price determined by the estimate of a fair minded person.  […]  Medieval thinkers thus seemed to feel that goods had two prices – a selling price and a price based on value which seems to be rooted in prevailing notions of fairness.  When these two deviated, there was an injustice.

The occasional cries for credit card companies to lower their interest rates call back to the Roman Catholic church’s prohibitions on usury as when it came to loans it was a sin to demand more than what was given. St. Thomas Acquinas, in a manner similar to the Greeks before, distinguished between loans of consumptible and non-consumptible goods.  Non-consumptible goods – loaned to provide a service or productive use (like tools or a winepress)- could be charged interest because they yielded a use and therefore you were charging for the use of the good. Consumptible goods, such as wine or bread, should not be charged interest because once consumed, they were gone and therefore you were charging something for nothing, which was unjust. There was no concept of opportunity cost or deferred consumption in medieval economic thinking.

There was apparently no concept of subjective value, either, which rather startles me.  (I suppose my surprise might be a consequence of my modern first-world western premises, in which I value my income more than my labour and my employer values my labour more than my income.  Mutually beneficial exchange: it works, bitches.)

Dr. Di Matteo concludes:

High gasoline prices are seen as unfair because gasoline is deemed so essential to daily life as well as the fact that the pump prices do not always seem to reflect the movements in the barrel price.  Hence, the price is “unjust” and generates calls for price caps or regulation.  High credit card rates can be termed “usurious” especially when they are used to levy interest charges on consumer goods such as food and fuel which once consumed are gone and hence you are charging “something for nothing”.  This type of thinking has probably also marked public attitudes towards the government taxation of essential goods such as gasoline and heating oil, which are seen as essential for daily life and therefore should be treated differently.

I have a few quibbles.

  1. High gasoline prices are seen as unfair […] — I imagine that part of the outrage over gas prices comes from the notion that gas is entangled in most peoples’ lives, and they feel as though they’re being forced to pay monopoly rents.  Why don’t people feel the same outrage over artificially-inflated pork prices?  The food market is heavily regulated, in large part in order to keep prices artificially high for the benefit of agricorps farmers, and people need food more desperately than they need gas.  My guess is that energy companies are far less sympathetic than agricorps farmers, so people are more likely to tell a villain story about gas prices than they are about pork prices.
  2. High credit card rates can be termed “usurious” […] — Again, I suspect that people approach credit card rates with a villain story in mind.  Furthermore, credit card rates are often set in what’s seen to be an opaque manner, in which the insiders at the bank have every opportunity to screw over the outsider cardholder.  My intuition for how people feel about credit card rates doesn’t put much weight on Aquinian philosophies of value, but then again I’m the sort of person who thinks that price discrimination is pretty cool, so you probably shouldn’t put much weight on my intuition for how people feel about economics stuff.
  3. […] government taxation of essential goods such as gasoline and heating oil […] — This is a curious argument, because I can think of three reasons to tax something.  The first is simply to raise revenue, as with a GST; in this case you want to distort the marketplace as little as possible* and probably want to keep the tax progressive or at least not regressive.  Here, the Aquinian concept of a Just Price for an essential good or service is more or less irrelevant.  The second is to internalize external costs, as with a Pigovian tax like B.C.’s carbon tax on, yes, gasoline.  In this case, the Just Price of whatever you’re taxing is actually higher than the market price, so a Pigovian tax sure looks like it’s explicitly in line with Aquinas.  The third reason is punitive: you want to punish people for making bad choices (like buying cigarettes) by making those choices more expensive.  I have a feeling that medieval philosophers had more direct ideas about punishing bad choices.

So there we go, that’s your economics post for the weekend.


* Well, assuming you’re a responsible tax-creating legislator, which is taking a lot for granted.


5 Responses to ““St. Thomas Aquinas haunts us still””

  1. October 2, 2011 at 23:35

    As far as pork vs. gas prices are concerned, wouldn’t a simpler explanation be that there are lots of substitutes for pork, but not for gas? Hence, with pork, you would have a hard time feeling that you’re being forced to pay monopoly rents.

    • October 2, 2011 at 23:49

      Sure, but the substitutes for pork are also (usually) subject to price controls that introduce artificial scarcity. Your point stands that if I decide to buy beef instead of pork, I’m less likely to notice that I’m still paying a Canadian Ag Policy surcharge. At the same time, even though gas prices are elastic enough that they tend to be comparable from station to station, I think it’s better to say that (for example) Shell 92-octane gasoline is a substitute for Citgo 87-octane gasoline in the same way that beef is a substitute for pork. I’m amused by the way people focus on “the oil corporations” as villains in their stories, but tend to treat different companies’ products as transparently perfect substitutes until something like Exxon Valdez or Deepwater Horizon happens.

      I guess my point is that (I think) people tend to overestimate the influence of collusion in the energy industry and underestimate the influence of collusion in agriculture.

      • 3 perlhaqr
        October 3, 2011 at 05:09

        Another possible factor: I very rarely buy $125 worth of bacon at one time. (Filling the 35 gallon tank on my diesel Suburban, on the other hand, takes a lot of fuel.)

      • 4 perlhaqr
        October 3, 2011 at 05:11

        Also: The price of bacon isn’t often posted on tall signs on every other street corner.

  2. October 8, 2011 at 18:08

    As a paranthetical note, Aquinas’ argument was ignored, totally. Not being a theocracy, medieval Europe happily went off and practiced usury, insurance (and insurance fraud) and a whole raft of other things. Unlike Islamic banking, which did develop under theocratic governments…but even they have figured out interest, it just was a bit complicated.

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