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Very much so. There's a hurricane warning (or an ice storm, or a Y2K panic, or whatever). Supply and demand says the price of plywood should increase temporarily as demand increases (assuming imperfectly elastic short-run supply). But any seller that raised the price would be accused of "gouging", while sellers' running out of plywood creating an excess demand at the old price is seen as morally acceptable.

But, I think there might be something to the "just price" concept nevertheless. If sellers exploited temporary ex post local monopoly power when met with a desperate buyer, it could be ex ante inefficient. You could say there's an implicit contract not to do that. Ditto for buyers, vice versa.

Livio - thanks for this. I've sometimes wondered to myself if the notion of the 'just price' is what's behind these sorts of proposals, so it's nice to see that it made sense to you as well.

the just price is whatever buyer and seller, and not some kommisar, agree on, unless forced under massive distress.
all this communist nonsense about "just price, wage" "natural rate of interest" which never could be observed.

in germany i can predict the gas station price http://benzinpreis.de/statistik.phtml within 1% since 8 years,
just with brent, euro exchange rate and taxes + 10 % distribution inflation adjusted, simple linear formula.
but people and especially politicians endlessly bitch and moan and cry "cartel" in order to establish price controls.

I think you're overlooking something very important. Namely, it's not just a matter of some long-outdated, silly, unscientific (or whatever) medieval view still clinging to the outer fringes of our consciousness.

The Catholic Church, at least, has always taught (you can find it, though not under that name, articulated in the Fathers of the Church, all the way through St. Thomas and beyond), and still teaches (see Pope John Paul II's encyclical, Laborem exercens, for example, though it's set out in virtually all the modern social justice documents) the primacy of the common good, which entails, in particular, the universal destination of goods. The Church has and does defend ownership and private property as particularly important means to achieve the common good, but the right to prviate property is always and everywhere subordinate to the universal destination of goods.

So, while as an economist you may want to focus on medieval "just price" theory because that seems like it's more within your ken ("Hey, the medievals talked about price! I'm an economist! I talk about price sometimes, too!"), the story is much more complicated. In particular, it has a deeper philosophical and theological basis than you appear to recognize. That's important because it's highly misleading to treat just price theory as some relic of the past, when it was really more or less the concrete historical manifestation of underlying doctrines that are still held as central to Catholic social teaching today.

Just price does have a rationale, that of determining what sort of behaviors should be encouraged and what discouraged and how exposed we want to be to the market. One has to make the trade off of allowing increased prices to ration supply and increase it, and that of increased prices to limit supply and decrease it, profiting from hoarding and price spikes. Economists see the former but are frequently blind to the latter. Short term inefficiencies can result in long term efficiencies. There are often bad applications of it, but the choice of how much market volatility to accept is a choice. I often see farm subsidies as a result of this sort of choice, we choose to pay more in ordinary times to reduce the likelihood of paying much much more in extraordinary times, an insurance policy. People prefer calm and orderly because it makes planning easier.

Oh please. The idea that goods and services are subject to identical taxation is simply false, as the author well knows. Food, booze, cigarettes, gasoline, drugs, residential rent, etc., etc., etc. Indeed, such taxes are an essential feature of that thoroughly modern institution, the state. There is nothing particularly medieval about the PC and NDP policy proposals.

"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."

And non-economists 'throw up their arms in exasperation' when economists talk about 'impersonal markets' or describe 'heating oil' as a commodity not essential to life in a country where you can freeze to death without it.

Over the years we've seen the results of both extreme government control and extreme capitalism; the majority of people suffer under both systems regardless of either the times or people's thinking: medieval or modern. The problem is how to establish a 'just society' not a 'just price'.

@Anonsters, I do not think that Livio was treating just price theory as a relic of the past or demeaning it because it originates from the middle ages. After all, the post was motivated by the fact that the theory is very well alive in today's politics, and he remarked that St. Thomas was a proponent of the theory. I think recognizing the latter is recognizing that it must have deep theological roots.
However deep the theological roots of the concept of a just price, the problem remains complete of how to determine that price. The marginalist theory of value adresses the problem indirectly by asking what determines the value of a good (and then assuming that the just price is equal to the value). The answer is of course the famous marshalian distinction between the short and long run. In the short run demand determines values, while in the long run supply (costs) determine value. This distinction solves the famous paradox of the relative value of diamonds an a glass of water in a desert and in a city.

Thank you Youcef.

Frank Dean and Livio are great examples of the corollary of the "just price"; the "sin" view of taxation. It's a muddle between the idea that taxes should be in some way voluntary (you chose to engage in the "sin" and so paid the "price", a virtuous person would have simply abstained) and proportional to ability to pay.

In an agricultural economy property taxes are roughly parallel to the agricultural value of the land so property taxes are roughly income taxes though few thought that way at the time. It's also why we like import duties and taxes on things like alcohol, they are luxuries and if you are a teetotaller who only buys domestic goods you won't pay.

On the other hand poll taxes, a simple levy per person are seen as deeply unfair. The First Poll Tax in England in 1395 led to the First Poll Tax Riots in 1377. The Second Poll Tax, the Community Charge, levied in 1989 was also a charge per person for simply living, er, the cost of community services divided by the number of inhabitants. The result was the same as seven centuries earlier, the Second Poll Tax Riots in Trafalgar Square in 1990. Thanks the glories of mass elementary education and in a nod to history there were two feeder marches along the routes the mobs travelled 700 years earlier.

More importantly the default rate was 30%, the courts were clogged and enforcement mechanisms useless.

This was a taxation failure on a scale unseen in centuries.

Then there is the limit of the "sin tax" view. These taxes have a narrow base and higher rates encourage substitution. In a market economy with money this is highly problematic. The limit was reached in 1797. Britain was at war with France. The UK had to pay for an 800 ship Navy, keep a standing army of 250,000 and most importantly pay continuous subsidies to allies like Spain, Austria and smaller states to keep them in the fight against France. This continued until 1815. William Pitt, the Prime Minister, tried to raise duties and famously levied a tax on white hair powder, a fashion necessity. Powdered hair promptly fell out of fashion.

As a result William Pitt resorted to the First Income Tax which was levied on income and was paid in money, from money (the threshold was 60 pounds so the poor didn't pay, most of the middle class didn't either). Combined with deductions at source, added in 1803, it provided a steady and reliable stream of revenue and it allowed the UK to be the most dogged enemy of France and Napoleon. Pitt finally realized that in a monetary economy it is money, on income or consumption, that has to be taxed.

Lastly the consumption taxes on basic goods are so unpopular because nobody explains the role of tax credits to people. I have friends who were totally ignorant of them and that in Ontario we would get HST credits worth double the GST credit and didn't realize that nobody got a low-income credit for PST.

I put it down to economics being a child of the Enlightenment. If economists had paid attention to history, particularly medieval history they would have made a far better attempt to explain the role of tax credits to people and how this would take care of low-income earners on everything they purchase instead of exempting food or gasoline for people both rich and poor. More history would have meant better advertising.

I confess once more some amount of surprise, though not quite as much astonishment as on the other thread. The idea that a just society required limits on what producers could charge in order to be called just to me quite obviously stemmed from broader and fairly ancient notions of morality. Especially so when the producers are in monopolistic or oligopolistic positions. Then especially in modern democratic societies it's necessary to keep them from too much control over the levers of society in a manner that tax credits will never be sufficient to accomplish.

I mean, why stop at medieval times---it goes all the way back into prehistory. As David Graeber mentioned in a recent interview, the very emergence of money was intrinsically related to the setting of just prices.

That is not an accident. It's not a matter of only compensating the poor. Unjust prices are a larger sign of corrupted social relations. Like I said, I'm not feigning surprise. I had always assumed that everyone accepted that prices can be just or unjust. Or more precisely, I knew that there are people who reject the notion of a just price, but not people who were unaware of the centrality and duration of the notion.

By the way, the instigating event for the Arab Spring was directly related to public outrage at (and real consequences of) unjust prices. Without a visible restraint on the pricing power of suppliers, and a well-developed notion of economic justice, revolution comes next. As it just did.

The just price obviously refers to the long-run cost. It assumes that rents and economic profit are competed away and that the injustice of someone lucking in the supply of plywood even though his house is less vulnerable only because he has momentarily more buying power ( got to the ATM before the electricity went out) doen't make sense.
One reason some of our econmist's argument doesn't resonate with the public is not that they are stupid or misinformed. It is because the argument makes no sense.
Polls show that Europeans are overwhelmingly in favor of Europe when it means common defense and internal european peace,enlarged trade, free movement of people, better collaboration between police forces, cultural exchanges and so on and so forth. They are dead set against the Euro because obviously it's even worse than not working...

It reminds me of Yes, Prime Minister:

[Hacker, the PM, has just had a stormy cabinet meeting over a sudden financial crisis.]

Hacker: Bernard, Humphrey should have seen this coming and warned me.
Bernard: I don't think Sir Humphrey understands economics, Prime Minister; he did read Classics, you know.
Hacker: What about Sir Frank? He's head of the Treasury!
Bernard: Well I'm afraid he's at an even greater disadvantage in understanding economics: he's an economist.

These proposals always strike me as a silly way to help the poor, since removing taxes from goods lowers their price for everyone, rich and poor alike. More often than not, the rich benefit more than the poor. If you want to help the poor afford essentials, just give them more money directly. Politicians tend to flinch from that, though.

Youcef:

I wasn't very clear my first time around. First of all, let me just say, Livio and everyone else is perfectly free to demean, or whatever, just price theory, St. Thomas Aquinas, Catholic social teaching, and everything else they want to. That wasn't my beef (although I do read the post as more or less regretful that something in the neighborhood of just price theory still lingers in the modern world; after all, why else say that "St. Thomas Acquinas [sic] haunts us still"?).

My issue is actually reflected in your response. You respond as though it's a purely economic issue: the question of determining price mechanisms. My point is that just price theory simply reflected a core social ethical doctrine of the Church: the universal destination of goods. That underlying ethical doctrine remains intact today. Simply to see just price theory as an economic idea is to miss the point entirely. You talk about the difficulty of determining what the just price is and then resort to economic mechanisms, like equilibria. The point is that, for something like just price theory, and for Thomistic ethics more generally, there is no universal mechanism. What the just price of X is in circumstances C (time T, place P, etc.) will very likely differ from what the just price of X is in circumstances C', simply because what the just price is is an ethical question, not an economic question. And ethical questions have to take into account situations and circumstances.

In other words, if you take just price theory seriously as an ethical concern, it's unlikely that you're going to be able to describe an impersonal mechanism that always and everywhere establishes price. And to see just price theory as just another theory of prices (even if one of the earliest ones) is to miss the point of just price theory.

Addendum to my Oct. 2 at 11:48:

Just to be clear, I don't take just price theory seriously as an ethical concern. On the other hand, I do take seriously the underlying principle--the universal destination of goods. So my goal is not to defend just price theory substantively, so much as to encourage an appreciation of its wider context.

Following up on Anonster's interesting comment: suppose one asked an economist: "What price *ought* I charge for this good I'm selling?". To my mind, that question makes sense, and has sensible answer(s). The theory of shadow prices in CB analysis, for example, is one answer. You could interpret the First (or is it the Second?) Theorem of Welfare economics as providing *an* answer to that question. It's an answer that may differ from St T A.'s, of course.

Maybe I'm reading this wrong, but it seems that you're putting usury and other things that genuinely help the middle class and poor to be negative. Maybe because you're calling it medieval, or maybe because you used the word haunt - both of these descriptive words have pretty clear negative connotations.

No, it's the mistake of making moral judgments about prices instead of about allocations (who gets what). Prices are just an instrument for the market mechanism.

The late Medieval period just prior to the Black Death was a relative high point in terms of living standards and even in technological achievement and art - particularly cathedral building. Unfortunately, when people hear the term "medieval" they generally think of the period in negative terms because they confuse it with the "Dark Ages" that went before ( which probably were not that dark either). The point of the post is that public policy today is still affected by ideas from the medieval period and even the Greeks and concepts such as the just price are still relevant.I am after all teaching a course in history of economic thought and trying to make it relevant to the modern undergraduate. The problem of "value" in economics has a long history (as noted in the concept of a just price) and the modern economics profession did not have the first word on the subject nor shall they have the last. The concept of value will haunt us always.Boo!

No, it's the mistake of making moral judgments about prices instead of about allocations (who gets what). Prices are just an instrument for the market mechanism.

But the market mechanism is the means by which we're supposed to be making allocations...

In any case, money (and prices denominated in money) did not come about as a substitute for barter (see my link to Graeber). Prices were set as an allocation mechanism. A moral judgement about allocations is a moral judgement about prices, eventually.

Again, that confuses the allocation with the mechanism for bringing it about. It makes sense to have moral opinions about the former, but not the latter.

If it makes you feel better, the same goes for Randians who assert that free markets are good in themselves.

With due respect to St. Thomas Aquinas, his views aren't those of THE Church. Shortly after along came the Reformation. John Calvin was the leading reformer at Geneva and he was the most formidable biblical scholar of all the Reformation Fathers. He reinterpreted usuary as "unjust" interest instead of interest at all. The nations which embraced Calvinism, Geneva, the Netherlands and Scotland all had a remarkably merchantile emphasis and this new thought went along nicely and encouraged the development of banking. It was a symmetry rather than cause-and-effect.

Hence you get staid and steady Scots banking or Dutch trade finance.

Though on the other hand and in the other hand you get the Reformed emphasis on individual education. Scotland had a series of Education Acts in 1616, 1633, 1646 and 1696 which all mandated the provision of low-cost to free schools in every parish supervised by the parish Kirk Session. Establishment of those schools was enforceable by the Presbytery.

Just to give a different view on usuary.

"Again, that confuses the allocation with the mechanism for bringing it about. It makes sense to have moral opinions about the former, but not the latter."

Disagree. Maybe I just have a morbid imagination. But really, you can't think of any mechanisms that brings about a given allocation that aren't, in and of themselves, immoral or unjust? And I'm not just talking about stuff out of a Kafka novel either.


I guess. But really, not any that are relevant to the discussion at hand.

Anonsters wrote : "Simply to see just price theory as an economic idea is to miss the point entirely."
Maybe I am missing the point. But it also seems to me that you are not appreciating how hard applying the principle is. The just price IS highly dependent on context, and that is the hole point! You can't just go around and casually single out prices saying this is too high. You would need millions of very qualified ethicists to do the job. Prices are aggregators of information that hopefully take into account most of the specific context (when the market works anyway, and almost always they do better than some politician).

Livio, I agree with you. The term medieval is unfairly associated with negative connotations.

The late Medieval period just prior to the Black Death was a relative high point in terms of living standards ... The Black Death killed people (particularly the young and the old) but not land, machines, buildings, tools, etc and without causing serious social breakdown. It therefore raised living standards. The surge in population in the C13th led to the "Great Famine" of the early C14th.

While I grant that the medieval period was one of technological advancement (see Jean Gimpel's The Medieval Machine), the increase in wages the Black Death caused also led to increased capital substitution. so likely fostered further technological development.


cf Youcef - you do not need an army of ethicists - just the ordinary moral perceptions of ordinary people, plus the usual social ways of signalling those perceptions. Actual prices reflect these things just as much as they reflect supply and demand - there are studies that show this.

cf Stephen Gordon - can you think of any functioning society where allocations and mechanisms are not inextricably fused? I cannot. How you get your bread, who it comes from, and how much bread you get all come in one package in every human society I have ever looked at.

cf Stephen Gordon - can you think of any functioning society where allocations and mechanisms are not inextricably fused? I cannot. How you get your bread, who it comes from, and how much bread you get all come in one package in every human society I have ever looked at.

Yes, precisely. What's more: the mechanism for allocation has a strong effect on its sustainability, and it's not moral to choose a mechanism for allocation that is not socially/politically/environmentally sustainable. I think it's pretty central to this question of whether we can/should treat just prices as moral objects.

(I mean, I don't ultimately care about the Randroids, and I don't know why Stephen brought it up. They're dangerous in certain contexts, but they've been enabled by more mainstream thought.)

I mean, the allocation vs. mechanism argument is just a another way of stating a standard motif: let some mechanism work and then compensate the losers post hoc. That is essentially what Livio in the OP is proposing, and it came up in another context in a previous thread. All roads lead to Rome again. There are reasons bigger than mere outdated thinking or vote-buying that the political opposition opposes mechanisms that depend on post hoc compensation.

Right, because it isn't fair and dignified. The part of the reason income-based HST credits aren't as popular as they should be is that they mark you as poor if you receive them. Nobody likes to be called poor by their government or anybody else. Who wants to be a charity case?

Work customer service for a while: attitude and presentation matter.

Homo Econonomicus could be more informed as a model if he was cross-bred with his cousin Homo Retail.

Speaking of just prices, this is why most people don't like Walrasian auctions because most people intuitively recognize the possibility of adverse equilibria.

The part of the reason income-based HST credits aren't as popular as they should be is that they mark you as poor if you receive them.

How can anyone tell if you're receiving it?

Stephen: You know.
As a character in the movie "La grande séduction" ("Seducing Dr.Lewis" in english)
http://www.imdb.com/title/tt0366532/plotsummary
said :"They give you money for two weeks and shame for the whole month..."

Pride has it's own price and HST Credits aren't nearly high enough to pay that price.

Determinant, I believe you will find Bill Mitchell's latest post interesting.

It is titled "Redistribution of national income to wages is essential"

http://bilbo.economicoutlook.net/blog/?p=16325

I agree with all of it. I have worked at companies that have

a) deliberately repressed wages, rolled back benefits and have a nickle-and-dime attitude to pay increases.
b) Orchestrated the mass casualization of their workforce,
c) broken and decertified their unions.

I know exactly what the things that article describes looks like.

The reason I support unions, especially radical unions like the Industrial Workers of the World is that they are willing to organize ANYBODY, especially marginal workers and recognize what exactly business management can do to its workers.

Go to their website (iww.org) and tell me that's not exactly what your average call-centre employee needs.

Notwithstanding General Motors there are far more workers that could benefit form increased union activity. Our economy would benefit as well.

Determinant, I'm more of the opinion that more retirement is needed to tighten up the labor market. If the labor market is oversupplied, then wages per hour won't be high enough union or no union.

Sure, but how are you going to bring about increased retirement? The article you cited noted the divergence between productivity and wages. Economists like to think of compensation as being set to the marginal product of labour. The trouble is that is a highly optimistic case and the forces that make wages converge to that are weak.

Wage-bargaining is a recursive process with the marginal product of labour as the optimal limit. At present the weak power of labour means that the convergence of wage-bargaining is very slow. Unions make the wage-bargaining function converge to the marginal product of labour much faster.

Historically many retirement provisions are attributable to union activity.

How are you going to pay for that increased retirement, Too Much Fed?

"How are you going to pay for that increased retirement, Too Much Fed?"

I'll try to expand on that one later. It involves correcting medium of exchange mistakes in the past (aggregate demand shock vs. aggregate supply shock).

Right, because it isn't fair and dignified.

Not just because it isn't fair and dignified to the individual receiving it, but for larger and more important reasons. For example---and this is only one example---transfers to the poor are the most vulnerable to the sorts of cultural-economic politics that pushed, e.g., the Harris Tories into power. Or let's have another example: the fact that the losers from free trade/globalization are almost never compensated as economists so gallantly suggest is the correct response. That situation is intrinsic to the political conditions under which trade liberalization can even happen under the prevailing political conditions of the late 20th/early 21st century. It defeats the purpose (as our captains of industry and finance see it) of trade/investment liberalization to compensate the losers from it.

Under these conditions, the only solution is to advocate for positions that include a prior restraint on inequality, not post hoc compensation!

This is one of those cases where it actually kind of does make sense to pay some attention to ancient prescientific experience as well as, Heaven forbid, actual recorded history. Everything from religious literature to the history of the decline of the Roman empire (see deLong's recent reposting of an old article on Justinian) tells us that all those massively unequal societies put some thought into some bounds and prior limits on the wealthy elite, and when they didn't, decline and rot set in. Just price schemes, etc, served a function. Modern, mainstream economics has taken on the function of justifying to a short-sighted but very powerful section of the elite that they just need to let the mechanism work, and then tell them comforting stories about fixing market failures after the fact. You can always mow the lawn later.

Why is e.g. Krugman surprised that his loud voice is completely ignored when it comes time to implement part B of the program?

It's just not sustainable.

More retirement isn't going to help. Labour mostly consumes what it produces. Barring massive increases in productivity, if you both gut the labour force and increase the number of people consuming nothing more than the crossword in the paper and reruns of Coronation Street the outcome is likely to be that we're all much poorer.

Seems to me the real problem is how to convince Granny to work 'till she drops and gamble all her savings on the TSX Venture exchange instead of US Treasuries. Figure that out, and you're on to something.

That's not an accurate view of retirement, Patrick. I know you're around my age, so I'm surprised at your view. My own observations of retirees both in my family and in social settings like churches is that given adequate retirement arrangements (there's that distribution mechanism, the big if here) retirees who retire at 60 or 65 will enjoy 10-15 years of active life. They will travel, engage in projects at home and otherwise be involved and active citizens and purchasers of goods and services.

It's around their late 70's that people start to show signs of slowing down. By their mid 80's many people are face constrained mobility and other barriers to daily activity. This is when they turn into homebodies.

In your 90's it's good that you can still walk by yourself. By your hundredth birthday you're lucky to be alive. I had an aunt to lived to be 104 and she lived on her own until she was 98.

I must say singing "Happy One Hundredth Birthday" is great fun. So is seeing your 100 year old aunt (actually my great-grandfather's older sister) having a motorcycle ride around the parking lot on a huge cruising motorcycle.

Patrick said: "Labour mostly consumes what it produces."

Not without debt according to this post:

Redistribution of national income to wages is essential

http://bilbo.economicoutlook.net/blog/?p=16325

And, "Barring massive increases in productivity, if you both gut the labour force and increase the number of people consuming nothing more than the crossword in the paper and reruns of Coronation Street the outcome is likely to be that we're all much poorer."

I don't believe it will take massive increases in productivity. If real GDP grows by 1% to 1.5% per year (about population growth), productivity grows 2% or more, and there is enough aggregate supply then employment falls allowing for more retirees.

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