What is meant by the concept of a “just price” is subject to much discussion and debate. What can be agreed on is that the “just price” is the standard for fairness in transactions. Beyond that, there are many disagreements.
The origin of this concept dates back to the ancient Babylonians, but it is often associated with St. Thomas Aquinas. It was assumed in recent history that Aquinas and his successors defined the “just price” as an objective value separate from the market price, the latter being defined as the price determined by exchanges in the market.
It is this misconception of the “just price” that has led to its condemnation. As soon as the market price doesn’t line up with what is seen as the “just price,” government officials declare this a market failure and use it to justify intervention through price controls and regulation.
In this sense, the “just price” rightfully deserves criticism. However, this is only true under the assumption that this definition is what was always meant, which does not appear to be the case.
Kishore Jayabalan of the Acton Institute clarifies much of the confusion around Aquinas and the “just price.” He states that Aquinas was arguing against fraud, and that the “just price” can be the market price when the exchange is honest. If the seller is deceptive and leaves out important information about the quality of the product, the market price is not the “just price,” because deception was involved. Jayabalan says, “For Thomas, then, the market price is the ‘just price’ if the buyer and seller are honest and not trying to take advantage of each other.”
“For a long time, it was assumed that the so-called just price was a price distinct from the price reached on the free market, and reflected either the cost of production or the good’s alleged intrinsic value. In fact, the just price was the market price, the price established by the ‘common estimation’ of buyers and sellers.”
He does add that the scholastics viewed emergencies like natural disasters to be an exception to this rule; however, their research into the implications of this was limited.
Rothbard’s analysis in the first volume of his Austrian Perspective on The History of Economic Thought is similar, though critical of Aquinas’s lack of clarification on exactly what the “just price” is supposed to be or how to go about measuring it.
At times, Aquinas appears to view value as subjective, similar to the Austrian school. Other times, he appears to imply an intrinsic objectivity. Laurence Vance points out a number of principles regarding price, including that price is influenced by supply and demand, location, time, and individual utility. These imply the subjective theory of value.
One last principle, unique from the others, is the insistence that to sell a thing for more than its worth is unjust. Of course, this leaves out exactly how to determine worth, though it could be that Aquinas here is referencing fraud.
Regardless of what Aquinas meant, we can refer to later Scholastics, who many Austrian school economists have referred to as proto-Austrian.
Joseph Schumpeter claimed that the value theories of the scholastics lacked only the concept of marginal utility (which later arrived during the marginal revolution). Besides this, they well understood the subjective nature of value.
In this sense, the idea of the “just price” should not refer to some abstract intrinsic value enforceable by government price controls. All government can do to enforce the “just price” is to punish fraud and deception.
Beyond that, the market will do the rest.