Just Prices in the Markets, Charles R. Geisst, Yale University Press, £25

Let’s say that you want to sell a car. And let’s say that – quite rightly – you want to do it entirely legally without any fraud or duplicity. A buyer contacts you and you give them full scope to examine the car. You even allow them to bring along a friend with expertise in car maintenance to check it over. Then the negotiation begins and you open your position by suggesting a very high price (fully expecting to be haggled down). To your surprise the purchaser accepts your first price without hesitation.

You shake hands and the money is transferred to your account. Meanwhile you complete the relevant paperwork and your purchaser drives off in the car. Transaction complete, everyone’s happy – or are they? A scrupulous vendor might feel qualms at this point, because they know deep down that the car was sold for much more than it is ‘worth’. You wonder whether you should feel bad about this. You didn’t expect your first offer to be accepted; have you acted immorally in some way? Then another more re-assuring thought comes to mind: you negotiated and agreed a price without any attempt at coercion or deception. If your purchaser could have negotiated a lower price, then that’s solely their concern; you’ve acted legally. The nagging thought remains however: have you acted ethically?

Just Price in the Markets explores the fascinating process of price-setting in Western Europe, America and the Islamic World across a vast span of time, from Aristotle to the present day. Crucially it takes a double-pronged approach to this question, showing how both ethics as well as economic forces have – historically – played a role in shaping attitudes and approaches to the whole business of establishing a ‘just price’.

Today, in the West and many parts of the world we are accustomed to the idea that the prices we pay for goods and services are shaped primarily by market forces: supply and demand. We do sometimes discuss overpriced goods in ethical terms, perhaps describing a shop or vendor as ‘greedy’, and we would still object to price-gouging (such as charging $500 for a loaf of bread at a time of scarcity), yet in the past ethical considerations played a much more substantial role than today.

A central theme to Geisst’s argument is that, for a very sizeable chunk of the past two millennia, Aristotle has played a remarkable role in shaping thinking concerning the concept of a just price. Aristotle’s rather briefly expressed views on this matter are straightforward – money exists to facilitate fair and equal exchange. In his Ethics Aristotle provided the example of a shoemaker and a builder who wish to make use of one another’s services. They find it difficult, however, to determine how they can make this exchange fair and equal given the differing requirements of their two vocations and so, consequently, the utilisation of money allows them to balance their exchange enabling them both to benefit to the same degree.

Aristotle’s notion of fairness proved highly influential, causing the concept of seeking profit via financial transactions – whether through price-setting, or money lending for interest – to become viewed with considerable scepticism because it implied an unequal or unjust exchange. These ideas then went on to play a key role shaping later thinking on such matters in both Western Christendom and the Islamic world.

Aristotle’s concept sounds very neat and equitable yet – as thinkers, bankers and traders discovered when putting it into practice – questions soon arose. How do you deal with currencies where the metal content is not consistent? How do you determine the precise value of money at any one moment, so as to assess its purchasing power? How do factors such as risk, depreciation, travel, storage, and labour impact the correct price of an item? How exactly do you determine if a transaction was inequitable? (and how much of a deviation from an approved price constitutes an inequitable exchange?) Implementing this kind of process was very difficult indeed. In many societies, transactions between people of differing social statuses created further problems.

Just Price in the Markets traces this phenomenon across the many centuries exploring the approaches adopted to this concept in: Roman society, Shari’ah Law, Medieval European society and in early modern and modern contexts. In all cases, we encounter thinkers attempting to intertwine the requirements of ethics and religion with economic forces and underlying human nature. To this end, Geisst discusses: the long-term role played by the Emperor Justinian’s Code; the views of St Augustine; the incredibly influential work of Ibn Rushd (Averroes); the impact of the number zero on western mathematics; the formation of money markets; tulip fever; and the formation of modern market economy.

In Western Europe the broad trend, taken overall, was to back slowly away from Aristotle’s model, giving far more space to the demands of market forces and far less space to ethical regulation. Over time, the obstacles involved in setting a true, correct, accurate price gave way to a range of acceptable prices, with upper and lower tolerances, although concerns remained in place for centuries about preventing either party suffering an enormous loss. By the modern era, ethical constraints withdrew substantially although, as my opening example indicates, they haven’t left us entirely!

As promised by the title, this book is about the establishment of a ‘just price’, but it doesn’t discuss this matter in isolation; rather it offers a very wide-ranging discussion on a whole spectrum of evolving economic processes, providing an impressive panorama. For other readers (like me) who are less concerned with pure economics, however, this book is equally valuable. The clear connection it forges between economics, culture, ethics, and social structures serves as an urgent reminder that all these processes are mutually dependent and interconnected. Culture shapes economics, just as economics shapes culture. Too often these matters are studied in glorious isolation, but Charles Geisst – rightly – reveals the extent of their interdependence.