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NOTE 21. What Are Just Prices?

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CHAPTER XXI.

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WHAT ARE JUST PRICES?

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JUNE 6, 2008.

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THE KINGDOM OF HEAVEN IS LIKE A TREASURE HIDDEN IN THE FIELD, WHICH A MAN FOUND AND HIT AGAIN,

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AND FROM JOY OVER IT, HE GOES AND SELLS ALL THAT HE HAS AND BUYS THAT FIELD.

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Matthew 13, 44.

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We all have strange and contradictory wishes concerning what prices should be.

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We are outraged at what is happening to the price of gas and food.

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We don't think they should go up.

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In real terms, we want them to fall, and they have fallen in the last decade and a half.

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That's a good thing, right?

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That's how the world should work.

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But housing?

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Now, that's a different matter.

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When the prices fall, people freak out. It's like the end of the world. How is it possible

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that my own home would fall in price? That's not the way the world should work. Everyone

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knows that house prices are supposed to go up, up, up, all the time, without fail, until

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the end of time. Same with stocks. We want to open the web page that lists our portfolios

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The Theory of Money and Credit

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and the movements of stars.

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Prices are nothing but exchange ratios, points of agreement between buyer and seller.

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They reflect many factors, none of them fixed parts of the universe.

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So why do we expect some to rise and some to fall?

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It all depends on whether you are in a position of a producer or a consumer.

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As homeowners, we are in fact producers of our homes, that is to say,

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We're holding them with the expectation of someday offering them for sale.

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The same is true of our stocks.

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We already own them, so of course we want the price to go up.

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Then we can sell them at a profit.

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On the other hand, on things we intend to buy, things like gas and grain, we want the

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price to be as low as possible.

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We want their prices to fall.

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That way we save resources.

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So what's at work here is self-interest.

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Think of the same situation from the point of view of someone who is a first-time home

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buyer.

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Does this person want high prices or low prices?

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Of course, the answer is obvious.

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This person wants the lowest price possible, so for this person, this housing bust is not

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a bust at all.

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It is a boon.

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But once this person becomes a homeowner, matters change.

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Now think of the gas station owner. If it didn't affect how much he sold, would this person want prices to rise or fall? Of course, he wants the highest price possible. I recall once dickering with one of those insufferable car salesmen. I had my eye on some car and I said I couldn't afford it. He asked me how much I wanted to pay for this car. I said, zero dollars. He wanted to know how much I wanted to pay for this car.

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He looked at me like I was crazy, but I was only telling the truth. I added that I know

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how much he wanted me to pay—a trillion dollars. And he reluctantly agreed. So how

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do the person who wants to pay zero dollars and the person who wants to get a trillion

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come to agreement? You find some meeting point in between—the point at which the car is

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worth more to me than the money I will give for it, and the money I will give for the

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The car is worth more to him than the car.

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The resulting terms are called the price.

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It's the same with all markets.

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We can see that it is perfectly absurd to attempt to fashion national policy around

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the interests of only one party to an exchange.

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To try to keep house prices high and rising cheats the first-time buyer.

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To keep them low cheats the current owner.

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To keep grain prices high helps grain producers but hurts grain consumers.

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Some gas companies might like high gas prices but consumers hate them.

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On the other hand, gas prices forced lower by dictate might thrill consumers but producers

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might end up hurting so much that they shut down.

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That helps no one.

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The only real answer here is to let the free market rule, which is another way of saying

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The Theory of Money and Credit

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In industries like oil, the difference between revenue and expenses can be surprisingly thin.

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Even small regulatory and tax changes can drive companies of all sizes to bankruptcy.

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Prices are crucial to the wise apportioning of resources in a world with unlimited once

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and limited resources.

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Prices affect the way in which we use things, whether conserving them or throwing them away.

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You will note that higher gas prices change the way you make judgments about going places

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and doing things.

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This is a good thing.

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Higher prices signal the need to conserve, and without unworkable mandates from the government.

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And from the producer's point of view, prevailing prices provide crucial information concerning

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the forecasting of future profits and hence today's investment decisions.

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Now, we must address the matter of justice.

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We think we know what a just price is, but do we really, and what actually constitutes

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justice in prices?

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What comes first to my own mind is the parable of the treasure in the field.

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An unknowing landowner is just living day to day with no knowledge that there is a treasure

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in the back yard.

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Some other guy, however, has knowledge of the treasure.

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So he sells everything he has, knocks on the owner's door and nonchalantly says, you know,

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I would be glad to buy your property. The owner sells.

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But let's be clear here. The owner did not know that there was a treasure back there,

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nor did the buyer say a word about it, lest the price he had to pay go sky-high. Today

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people might say that the owner got ripped off. But Jesus doesn't say this. He holds

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up the buyer as wise and moral. Interesting, isn't it?

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Is there justice in this exchange?

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Most certainly.

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And why?

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Because they agreed voluntarily.

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That's all there is to it.

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There is no way to observe an existing price and declare it just or unjust.

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As St. Bernardino, a shrewd observer of economic affairs, said, water is usually cheap where

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it is abundant, but it can happen that on a mountain or in another place water is scarce,

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It may well happen that water is more highly esteemed than gold, because gold is more abundant in this place than water.

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The late scholastics, followers of St. Thomas Aquinas, all agreed that the just price had no fixed position.

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It all depends on the common estimation of traders.

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For more on the views of the schoolmen on prices, see

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For more on the views of the school men on prices, see Faith and Liberty, The Economic

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Like Thought of the Late Scholastics by Alejandro Trefuen

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Now there are ways for a price to become a matter of injustice.

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It can mask fraud.

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The prices can result from or be influenced by some act of force, such as price controls

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or taxation or restrictions on supply and demand.

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Behind each of these we find coercion, a body of people who are mandating or restricting

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We can conclude, then, that to the extent we complain about unjust gasoline prices, we need to look at the restrictions on refineries or exploration or drilling, or examine the role that high gas taxes have in pushing up prices beyond what they would be under conditions of free exchange.

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All that high gas taxes have in pushing up prices beyond what they would be under conditions

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of free exchange.

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And as for those who believe that all prices should move in ways that benefit their own

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particular economic interests at the expense of everyone else, don't confuse your agenda

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with a matter of justice.

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Prevailing prices in a business-based economy are a reflection of cooperative arrangements

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Involving People with Free Will.