Thomas Aquinas on the analysis of price

Thomas Aquinas’s writings on price are not numerous. To his commentaries on Aristotle’s Ethics and Politics should be added the questions on justice from the Summa Theologica (II^a-II^ae, especially question 77), as well as passages from more specific works, such as that on forward transactions, De Emptione et Venditione ad Tempus.

Private property and natural law Although scholastic views on property had moved away from those of the Church Fathers, such as Ambrose or John Chrysostom, who argued in favour of collective property, private property never obtained the status of a full natural right. Thomas Aquinas’s views typify this persistent gap between private property (to which he devoted the whole article 2 of question 66 from II^a-II^ae of the Summa) and natural law. He justified the principle of ownership (whatever its type) of external things as a consequence of the place of men in the plan of the Creation (Summa Theologica, II^a-II^ae, q.66, a.1, ad 1): as reasonable beings, men are not only created by God, they are also agents of the Creation, contributing to its accomplishment. The “power to manage and to distribute” (potestas procurandi et dispensandi) should there­fore be understood not as the expression of an exclusive and transferable property right, but as a faculty required in order to fulfil the divine plan. Such a position legitimates human property as a way to reach the goals of human community as a whole, according to its place in the hierarchy of natures.

As a result, the introduction of private property should not be understood as a way to take into account a hitherto neglected individual and subjective dimension: it is only a way to reach the common goal more efficiently: Thomas reminds us of the greater “care” (cura) that we give to what we possess privately (Summa Theologica, II^a-II^ae, q.66, a.2, resp). Thus, the individual dimension appears only as a moral and religious one, through the responsibility of each human being to share or to reject this common goal. Similarly, although private property evidently has something to do with natural law, this is not immediate, as an unquestionable part of it, but only indirect. As for Augustine, and according to a distinction already present in Roman law, private property rights are con­sidered something added by human reason as a more convenient way of contributing to the common good, pertaining to what will be known as the “human right” - jus gentium.

The theory of the just price Thomas’s conception of the just price is the core of question 77 from the Summa Theologica (II^a-II^ae). As such, it is a part of a reflection on the injus­tice committed in a context of voluntary exchange. This emphasis on justice or injustice in exchange shows that the just price is assumed to be “just” according to what Aristotle named “particular justice”, which could be either commutative or distributive (Summa Theologica, II^a-II^ae, q.61, a.3, resp.). Rigorously speaking, Aristotle distinguished three (and not two) kinds of particular justice: distributive, reciprocal, and corrective. The confusion between the two last kinds of justice in the category of “commutative” justice seems to have been an effect of the Latin translations which were used throughout the Middle Ages, particularly in the works of Albert and Thomas (see, for instance, Summa Theologica, II^a-II^ae, q.61, a.1, sed contra).

In commutative justice, whose primary concern is “selling and buying”, Thomas Aquinas said that “it is necessary to equalize thing with thing”, whereas distributive justice deals with the distribution of “common goods” among individuals “according to proportion between things and persons”, that is, according to the respective “position[s] in the community” in that it reflects individual contributions to the realization of the goals of the society (Summa Theologica, II^a-II^ae, q.61, a.2, resp).

The part played by commutative justice is obvious, since it explicitly deals with commutatio, that is, with exchange. The equality of thing to thing which characterizes it draws its importance from what it excludes: in one way, this equality depends on conditions of place, time and risk; but in another way, it depends neither on the social hierarchy between the persons involved in the transaction nor on any natural hier­archy between the things exchanged. This gives a determining part to what Thomas called indigentia, often translated as “need” or “utility”, and explains why, in contrast with the hierarchy of natures and according to a well-known example from Augustine (Of the City of God, XI), a horse might be more expensive than a slave (see Aquinas’s Summa Theologica, II^a-II^ae, q.77, a.2, ad 3 and Ethicorum ad Nichomachum - hereafter Ethicorum - V, 9).

Among some commentators (see, for instance, De Roover 1971: 49-50), such reference to “need” constituted an argument in support of the idea that the scholastic theory of the just price constituted the first stone of a theory of price based on subjective utility. However, although it is obvious that exchange was viewed as a mutual advantage (Ethicorum, V, 9; Summa Theologica, II^a-II^ae, q. 77, a.1, resp.), it is difficult to allow that phrases such as indigentia anticipate the subjective content of individual preferences in the modern sense (see Lapidus 1986: 20-21, 1992: 34, and the lexical discussion in Langholm 1987: 122-5). On the contrary, indigentia seems to refer to a socially acknowl­edged norm which associates things and human needs in the same way as a tool is associ­ated to its use.

This is why commutative justice is tightly connected with distributive justice. Now, dis­tributive justice primarily deals with the distribution, among individuals, of a common good, ruled by their respective positions within the society. As Thomas Aquinas explains, “in distributive justice a person receives all the more of the common goods, according as he holds a more prominent position in the community” (Summa Theologica, II^a-II^ae, q. 61, a. 2, resp.). The “common good” dimension of distributive justice should not mislead us. In the same question of the Summa, after having explained the differences between commutative and distributive justice, Thomas Aquinas stresses their similarity, using a most interesting analytical argument which states that externalities might be internalised in the same way as internalities might be externalised: “things can be taken out of the community in order to be distributed among individuals as much as exchanged between them” (Summa Theologica, II^a-II^ae, q. 61, a. 3, resp.). This should be taken seriously. It means that selling private goods can be viewed as an equivalent to distributing a public good, through the income distribution to which it gives rise - what was to be called the “labour and expenses” of the merchants. It is obvious that this might give birth to two kinds of retrospective biases.

The first retrospective bias comes from the way we interpret the social hierarchy which is reflected by the hierarchy of incomes generated by the price of a good. Since this social hierarchy constitutes an expression of the relative merits of the members of a society, it seems rather easy to consider such merit as an expression of individual contributions, which would foreshadow marginal productivity (for a criticism of the marginal produc­tivity interpretation of the incomes generated by distributive justice, see Wilson 1975: 63 ff.).

This should be kept in mind in order to avoid the second retrospective bias, which would lead us to question the consistency of the just price with both needs (according to commutative justice) and income distribution (according to distributive justice). When taken into account, such possible inconsistency has led commentators to support the idea of a coexistence of two alternative theories of the just price in Thomas’s works (see Hollander 1965), or of a quasi-Smithian gravitation theory involving two prices (De Roover 1958: 421 ff.), or, finally, of a kind of prefiguration of the distinction between short-term and long-term market price (Barath 1960). However, the prerequisite for such interpretations - that is, the mere possibility that a price might be just in two dif­ferent ways, generating two different magnitudes - would be meaningless at least within Albert’s and Thomas’s legacy, where a teleological and organicist conception of society results in the consistency between common end and social hierarchy (see Lapidus 1986, 1992).

Price and moral behaviour: the determination of actual prices The just price constitutes a norm of acceptability of price, which is rooted in a moral point of view of what is “just”. As such, it is a part of a broader device which takes into account the exchangers’ moral­ity in order to explain why such an actual price would depart from or, to the contrary, match the norm of the just price. Three types of situation give rise to a possible devia­tion from the just price: (1) lack of information; (2) manipulation of information; and (3) exchange by accident.

In the two first types of situation, the part played by the morality of the seller and of the buyer is linked to the role of information not about the just price itself (which is assumed to be known, or easily knowable, by everyone), but about the goods and on the conditions of the transaction.

[I]f the one man derive a great advantage by becoming possessed of the other man’s property and the seller be not at a loss through being without that thing, the latter ought not to raise the price, because the advantage accruing to the buyer, is not due to the seller, but to a circumstance affecting the buyer. (Summa Theologica, II^a-II^ae, q. 77, a. 1, resp.)

Such a representation of the way a transaction is concluded did not lead to any con­demnation of the trade which gives birth to profit in itself, and Thomas’s position might be viewed as a continuation of Augustine’s, which he quotes as follows: “The greedy tradesman blasphemes over his losses; he lies and perjures himself over the price of his wares. But these are vices of the man, not of the craft, which can be exercised without these vices.” The conclusion is straightforward: “Therefore trading is not in itself unlaw­ful” (Summa Theologica, II^a-II^ae, q. 77, a. 4, sed contra). Consequently, the regulation process, which aims at excluding vicious behaviour, does not concern profitable trade in itself, but the existence of opportunities of fraud. Both information-providing and information-seeking are clearly encouraged: such is the case of the virtuous buyer of a book, who is expected to inform his seller of its high value (Summa Theologica, II^a-II^ae, q. 77, a. 1, ad 2); or of the brass that the seller mistakes for gold (Summa Theologica, II^a II^ae, q. 77, a. 2, resp.). But Thomas’s solution can be more indirect, in particular when vicious behaviour not only arises from the possibility to manipulate the informa­tion, but also from the dominating position of one of the parties in the negotiation. In such a situation, a virtuous seller is allowed to protect himself from the potential vicious behaviour of a powerful buyer by keeping for himself some easily available information. A significant example is given in Summa Theologica, II^a II^ae, q. 77, a. 3, resp., with the case of the “one-eyed horse”. Thomas Aquinas comes to such a conclusion at the end of a comparative analysis of hidden and evident vices that may affect a commodity:

But when the defect is evident, as for a one-eyed horse;... if, as a result of this defect, he [the seller] decides on his own to lower the price, he is not bound to reveal the defect of the thing. For it is possible that as a result of this defect a buyer might want to reduce the price to lower than it should be. In this case, the seller can licitly wish to protect himself against any loss by not disclosing the fact that the thing is defective. (Summa Theologica, II^a-II^ae, q. 77, a. 3, resp.)