PRESENTED BY: Laurence F. O’Connell New School for Social Research
Price and worth are two different items but closely related. "What this worth to you?" is a question I ask Microeconomics students and it expresses how much we are willing to pay, not a value judgment. When we ask, "What price life?" it isn't normally in the context of a negotiation. The confusion stems from our conviction that price should reflect worth. When this isn't the case, we feel a sense of injustice.
Aristotle devoted The Ethics to the justum pretium -- the relationship between price and worth. The Ethics was reintroduced sixteen centuries later by Saint Albert the Great and his student Saint Thomas Aquinas. Albert and Thomas in turn refined Aristotle's argument and concluded, “Of moral necessity, price must reflect worth.”
Yet, how could the just price be determined? The early Church said the very act of trading was unavoidably wrought with sin, as Mercantile activity was fraught with greed in the Church’s eyes.
Faced with such complicated questions, “How do we relate price to worth? In Albert the Great's words, that solution was, "a price is just, if it reflects the estimation of the market place at that time
This may be entirely appropriate for a craft goods society, whereby, three hats are traded for one pair of boot. If we synthesize the concept of the just price into “labor theory of value”, we visualize this exchange taking place.
However, “What about intangible products or services?”, such as financial instruments: stocks and bonds – how can they be traded or bought and sold given a “just price”? This paper examines this question by use of a survey.
To answer the question, “Does a just price exist for financial instruments?”, I created a survey of approximately 120 items. The survey included basis items (milk, bread, a candy bar, a handbag), items with greater detail (brand name products) and financial service products / services.
I surveyed students (approximately 120) and found an interesting pattern. There was general consensus (in terms of the mean and standard deviation) on the price of products where information (albeit little) such as a brand name was provided. The variance for basic products (quart of milk, dozen eggs), is larger than when defined by a brand name. The variance for financial items” is the greatest.
What does this suggest? My hypothesis is that some information is known to consumers about very basic products but even less is known about financial instruments but consumers have a good idea of the “just price / value’ of branded products. Because of decreased information in the arena of finance, there is a greater variance in the “just or correct price” for these items.
I would like to thank Professor Edward Nell, of, The New School for Social Research, for directing me into this line of inquiry.