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The just price is a theory of ethics in economics that attempts to set
standards of fairness in transactions. With intellectual roots in ancient Greek
philosophy, it was advanced by Thomas Aquinas based on an argument against
usury, which in his time referred to the making of any rate of interest on
loans. It gave rise to the contractual principle of laesio enormis.
Unjust price:
a kind of fraud The argument against usury was that the lender was receiving
income for nothing, since nothing was actually lent, rather the money was
exchanged. And, a dollar can only be fairly exchanged for a dollar, so asking
for more is unfair. Aquinas later expanded his argument to oppose any unfair
earnings made in trade, basing the argument on the Golden Rule. The Christian
should "do unto 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.[1] Summa Theologiae, 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 fraud in Aquinas's view.[2] Aquinas believed all gains made in
trade must relate to the labour exerted by the merchant, not to the need of the
buyer. Hence, he condoned moderate gain as payment even for unnecessary trade,
provided the price were regulated and kept within certain bounds: ...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... Later reinterpretations of the doctrine In Aquinas' time,
most products were sold by the immediate producers (i.e. farmers and
craftspeople), and wage-labor and banking were still in their infancy. The role
of merchants and money-lenders was limited. The later School of Salamanca
argued that the just price is determined by common estimation which can be
identical with the market price -depending on various circumstances such as
relative bargaining power of sellers and buyers- or can be set by public
authorities[citation needed]. With the rise of Capitalism, the use of just
price theory faded, largely replaced by the microeconomic concept of supply and
demand from Locke, Steuart, Ricardo, Ibn Taymiyyah, and especially Adam Smith.
In modern economics regarding returns to the means of production, interest is
seen as payment for a valuable service, which is the use of the money, though
most banking systems still forbid excessive interest rates. Likewise, during
the rapid expansion of capitalism over the past several centuries the theory of
the just price was used to justify popular action against merchants who raised
their prices in years of dearth. The Marxist historian E. P. Thompson
emphasized the continuing force of this tradition in his article on the
"Moral Economy of the English Crowd in the Eighteenth Century."[3]
Other historians and sociologists have uncovered the same phenomenon in variety
of other situations including peasants riots in continental Europe during the
nineteenth century and in many developing countries in the twentieth. The
political scientist James C. Scott, for example, showed how this ideology could
be used as a method of resisting authority in The Moral Economy of the Peasant:
Subsistence and Rebellion in Southeast Asia.[4] Laesio enormis Main articles:
Laesio enormis and Inequality of bargaining power Although the Imperial Roman
Code, the Corpus Juris Civilis had stated that the parties to an exchange were
entitled to try to outwit one another,[5] the view developed that a contract
could be unwound if it was significantly detrimental to one party: if there
were abnormal harm (laesio enormis). This meant that if an agreement was
significantly imbalanced to the detriment of one party, the courts would
decline to enforce it, and have jurisdiction to reverse unjust enrichment.
Through the 19th century, the codifications in France and Germany declined to
adopt the principle while common law jurisdictions attempted to generalise the
doctrine of freedom of contract. However, in practice, and increasingly over
the 20th century and early 21st century, the law of consumer protection,
tenancy contracts, and labour law was regulated by statute to require fairness
in exchange. Certain terms would be compulsory, others would be regarded as
unfair, and courts could substitute their judgment for what would be just in
all the circumstances. Modern law Bundesgerichtshof Entscheidung (24 January
1979), the billiards equipment, NJW 1979, 758 Bundesgerichtshof Entscheidung
(12 March 1981), the disproportionate loan, BGHZ 80, 153 Bürgerliches
Gesetzbuch §138, transactions contrary to public policy; usury Austrian
Civil Code §934 French Civil Code articles 1674-5 Vernon v Bethell (1762)
28 ER 838 Consumer Credit Act 1974 ss 140A-B National Minimum Wage Act 1998
Louisiana Civil Code article 2589
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