In this book, Charles Geisst outlines a history of thinking about prices in the Western world from Greco-Roman antiquity to the present day, with the clearly stated aim of showing how the law of one price “has become the viable offspring of the ancient just price theory” (12). According to the author—who endorses Cassel's (1903: 94) statement that “the market for the use of capital is, in spite of everything, the most perfect of all the markets”—this “universally recognized” law (233) has tended to govern international markets, including currency and securities markets. Cassel (1923: 76) gave this law a more general formulation, close to Jevons's ([1871] 1888: 91) law of indifference. The idea of uniqueness could also be read in the physiocratic notion of a “prix uniforme” on the international grain trade (Du Pont 1764: 31). The present history goes much further back in time, inaugurated by Aristotle and completed by the economists of the first half of the twentieth century. According to the author, the emergence of the law of one price is linked to the development of modern markets and the multiplication of financial practices. It follows the recognition in the late eighteenth century of the notion of arbitrage, illustrating the practice of buying and selling in different places in order to take advantage of differing prices. In tracing this history, the author intends to show that the notion of single price has its origins in the old notion of just price, at least for these two reasons: “its enduring emphasis on fairness and the belief that the markets are mechanisms that can actually produce a public good rather than simply profits for insiders and traders” (233). But it surpasses it in mathematical precision. The single price would be a “fair price” that could be quantified and measured, thereby free of the moral and religious precepts that cluttered up the old notion of just price. The author then proceeds to make a conventional distinction between two periods, one ancient, running from antiquity to the Enlightenment, and the other modern, characterizing the nineteenth and twentieth centuries.
Chapter 1 inventories the two sources of Western thinking on price. The Aristotelian source is well known; the second, Roman law, is less so, and it is to the author's credit to have emphasized its importance. He presents Aristotle as the “grandfather of price theory” (13). This phrase may be surprising, since in later chapters, Aristotelian thought is seen as an obstacle to the emergence of the notion of the law of one price, with the author criticizing the philosopher for thinking only about ethical prices, without taking account of “actual prices” (13), for lacking “depth in measurement” (23), for conceiving neither profit nor risk, and above all for having a “disdain for money” (17).
Translations of Aristotle's writings, however honorable, are sometimes misleading when the vocabulary employed does not have exactly the same meaning as the original vocabulary. The word price (from the Latin pretium) contains the idea of proportion, which largely overlaps with the expression κατα τὴν ἀναλογἰαν ἴσον, meaning an equality of proportion between two exchangers who are not equal. The use of the word profit is more delicate. While the modern notion of profit does not seem to be present in Aristotle, he does use the words κέρδος and ζηµία to express gain and loss in exchange, and he employs the expression χρήµατα συλλέξαντα (enrichment; 1944: 1259a) to designate the gain obtained by Thales by renting all the presses of his island at a low price in the offseason and subletting them at a higher price in the good season. Aristotle makes no moral judgment on this gain resulting from a difference in price over time. What we today call an interest-bearing loan is assumed to correspond to τοκισµός (from τόκος, action of begetting). The word usury used by the author seems more anachronistic, given that Aristotle was hardly interested in the borrower's use of the loaned funds. It was not until Roman law that a new vocabulary appeared: usura (price paid for the use of a loaned fund), interesse (indemnity paid to compensate for the time interval during which the lender has not disposed of his property), and lucrum (gain, surplus).
Roman law, notes the author, did not offer a vision as theoretical as Aristotle's, and it treated exchange in the more practical manner of jurists, based on several principles: exchange must be a free contract; the price must be determined on the market and seal an agreement between the parties; bargaining authorizes a certain deception; and so on (37). The author pertinently notes that second-century jurists did not qualify the price “just” (iustum), but “certain” (certum), and applied this epithet to other contracts such as leases and business partnerships. The notion of just price appeared later in Augustine's writings and in the Theodosian Code in the fifth century. Incorporated into Justinian's Code in the sixth century, it was associated with a new notion, laesio enormis, which did not define a precise price but a range (latitudo) of lawful prices.
Later thought (chaps. 2 and 3) perpetuated Roman law by integrating it into a religious corpus (Islam, Christianity) and gave a new meaning to usura, not simply the price for the use of a fund of which the user is not the owner but also an excessive and undue price. This is also the definition of Islamic riba. But the corollary of this tightening of the notion is the multiplication of merchant contracts presenting the surplus obtained as the result not of a loaned fund (which must be free, mutuum) but of a fund invested in a business (societas contract).
With the Schoolmen (chap. 3), just price, latitude, and usury as undue surplus became predominant notions. But for the author, without a clear definition and precise measurement, just price was a poorly operational notion (91, 99). The authorities are Thomas Aquinas and Bernardino of Siena. Surprisingly, the author makes no mention of Olivi, who, according to the scholars, was the first to write a treatise, De contractibus (1293–94), which would be at the basis of Bernardino's sermons two centuries later. In any case, Aquinas is presented as a follower of Aristotle, who adopted the latter's conception of justice but departed from his vision of trade: morally dubious, trade was nonetheless licit if the gain withdrawn was moderate and within a certain latitude, if it was ordered to morally acceptable ends, and if it was not usury. As for Bernardino, the author mainly points to the argument of time, namely, that in certain cases it was permissible to sell a commodity for more or to buy it for less than it was originally worth. However, in these Scholastic discussions arbitrage was still suspect, little room was left for individual utilities in the determination of price, and the notion of gain remained vague and unmeasured (110). The Schoolmen stuck to the Aristotelian proviso: the gain from exchange must not injure any contracting party.
The sixteenth-century Schoolmen, mainly Molina and Lessius (chap. 4), are portrayed as more expert and tolerant moralists, considering, for example, that a claim, that is, a right on money to come, is a commodity subject not to a loan contract but to a purchase-sale contract in which price is fixed by common estimation. However, their approach remained the same. In the same chapter, the author provides us with a few pages on the thoughts of Hobbes and Locke, which do not seem to shed any more light on the notion of just price. Hobbes, he writes, “had less to say about sales and price than some of his predecessors,” and when he made price dependent on the opinion or esteem of others, he was merely following the Schoolmen (140–41). As for Locke, the author's opinion is a little more balanced. Although “neo-Scholastic” (145), still attached to the “standard Roman concept of price” (150), he took a more modern line of reasoning here and there in terms of arbitrage, when he described the owners of money who chose to lend or invest in land according to the level of the interest rate, or the foreign merchants who placed their money in London where interest rates were higher rather than buying English goods, or who bought money cheaper abroad to sell it more expensively in England (147–48, 156).
For the author (chap. 5), “the nineteenth century helped to sweep the past aside” (157), awaiting Cassel's “breakthrough in the theory of price” (193). Described as “a blend of the old and the new” (161), Smith was not at the origin of this sweeping aside, as evidenced by his distinction between natural and market prices, which “could have been written 400 years earlier” (162), in which the natural price acts as a just price and current prices as possibly imperfect prices. At most, a vague idea of arbitrage can be discerned. Say is a little better off, thanks to his formulation of the “law of markets.” Subsequently, the author delivers a few rather brief remarks on the economists of the late eighteenth and first half of the nineteenth centuries, including Ricardo and Marx, in which he points out that the former abandoned the Aristotelian conception of money as a means of payment for that of money as a commodity (170, 183) and that the latter made a clear distinction between surplus from a loan contract and surplus from an investment contract. The most important economist, of course, is Cassel, who “undermines the idea of just price” (194) and rejects any theory of value in favor of a theory of prices, on the grounds that prices can be measured with money, provided there is a recognized standard. Interest is a price, the price of expectation, depending on the time the capital is used, while usury is the “surplus price which the lender is able to exact because of the defective organization of the market” (Cassel 1903: 180). The uniqueness of the price contributes to fairness under a regime of “efficient and clean markets” (12).
In the final chapter, the author reformulates his thesis: twentieth-century economics did not remove the notion of just price but turned it into a “more disciplined notion” (201), established on a scientific, measurable basis, “free of ideological concerns” (194), associated with a “neutral concept of arbitrage, suggesting that it was neither good nor bad” (201). Arbitrage, thus recognized, was able to constitute the process that, by leveling disparate price differences, tended to approach the law of one price. Thus, the twentieth century retained the notion of justice and abandoned that of morality and, in so doing, abandoned the ideality of the just price to turn it into a more operational “working concept,” thanks to the “modern technology” (233) of markets. We may wonder whether modern markets are capable of providing themselves with the instruments of justice and fairness without referring to a transcendent justice, given that the “ideal conditions of the market” (Cassel 1903: 8) have not (yet) been achieved. We might also ask what meaning the author gives to this history of the notion of just price. This history reflects a progressive vision of things, convinced of the superiority of the present over the past. Thus, with the necessary and positive growth of markets, economics would be progressively built up thanks to the gradual discovery of a series of laws: Gresham's law, the law of supply and demand, Say's law, the law of one price. These epistemological positions would deserve to be discussed.
