In the current Ontario election campaign, both the Ontario Conservatives and the NDP have put in their platforms pledges to remove the HST from home hydro bills and home heating. It is argued that these items are not luxuries and that the HST has made life less affordable for families. The NDP goes a step further arguing that it will take the HST off of daily essentials including a reduction on gasoline at the pumps. Furthermore, if elected they plan to put in a weekly gasoline price ceiling. This view of certain consumer goods as essentials that should be treated differently from other less essential consumer goods when it comes to either taxation or price regulation in general struck a bell for me this week as I finished delivering my set of lectures on ancient and medieval economic thought.
From time to time we see political debates and initiatives that call for things like capping gasoline prices, reducing the high interest rates on credit card bills or lowering tax rates on essential consumer items. I think the reason the fundamental arguments driving these discussions sometimes seem contrary to how economic theory would approach these issues is because they are rooted in views that predate modern economic thought. Indeed, they stretch back to medieval and even ancient economic thought and probably reflect deep attitudes of fairness in the human species.
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. The Roman legal concept of laesis enormis (excessive violation) was expanded so that it became possible in medieval courts to question the validity of any transaction where the buyer had been charged substantially more than the 'just price' or where the seller had accepted less than the just price. The burning question, of course, is what was the 'just price'.
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. The concept of the 'just price' came from the 'Golden Rule' of the New Testament Book of Matthew, which basically stated that you should treat others as you wish to be treated yourself. Since no one wants to buy something for a price in excess of its value or worth, conversely, no one should sell a good for more than it was worth. 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.
Coming back to the present. 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.
Economists may want to throw up their arms in exasperation when policy debates urge rent and price controls and other types of market tampering. However, modern economic thought and the workings of the impersonal market are relatively new and have yet to seep into the public consciousness in the same manner that centuries of ancient and medieval thought have. I realized this week that St. Thomas Acquinas haunts us still.