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A 'fair' price?

by Simon Longstaff

Is there such a thing as a 'fair' price? For example, some hold that any price freely agreed by parties to a transaction is ‘fair’. The fact that somebody might agree to pay five or ten times as much as a person buying the same item (at around the same time) means nothing – in terms of fairness. In a properly functioning market, the prices of goods and services are constantly floating in order to match the 'value' placed by buyers and sellers. That is, nothing has inherent value.

On the other hand, critics of the market baulk at the idea that nothing has any value in itself. What of people, or the natural world? Another response is based on the argument (following Marx), that manufactured goods have at least as much value as the amount of labour invested in their creation. Defenders of the market might concede the first point (or at least accept that persons, however defined, are inherently valuable) without giving in on the second. Indeed, the point about the inherent value of persons seems to be required by defenders of the market. This follows from their claim that all value is conferred by people entering into free exchanges. If all value is derived from the judgements of people, then people must be above such relative valuation – or so the argument would have to go.

Even if we conclude (perhaps for very different reasons) that persons are valuable in themselves, we are still left to ponder whether there is any objective standard for determining a 'fair' price for other things. Underlying much of the debate seems to be a concern about situations such as the following: let us suppose that a poor family suddenly discovers that one of their children needs access to expensive drugs not covered by Medicare. They own few assets, except for a reasonably good motor vehicle which the mother recently inherited from a deceased parent. So they decide to sell the car and use the cash to pay for the child's urgent treatment. Let us suppose that they bring the vehicle to a used car lot and seek to trade it for cash. The salesman knows that the 'going rate' for such a car is about $15,000. However, having listened to the family's story, he also knows that they are desperate to sell and that they need $10,000.

As such the salesman could offer $10,000, satisfy the immediate need of the family and make a windfall profit for his employer. But would this represent a 'fair' price for the car? Even if the family could try another yard (and get a better price) how should we assess the salesman's behaviour?

At an intuitive level this sort of thing does strike me as being unfair. This is because of an apparent lack of equality in power and information between the parties. Yet imagine if we removed all emotional references to ailing children. Imagine simple business transactions between buyers and sellers (some of whom may be desperate to sell). Forced to sell in disadvantageous circumstances, would our sympathies still be engaged? Furthermore, what are the alternatives to allowing prices to float from trade to trade?

I raise this issue – not as a precursor to a fully developed answer, but as a matter that I am still continuing to debate in my own mind. The cases seem to be different – but why?

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