Until recently, few of us had heard very much about price gouging, a practice whereby suppliers of essential goods and services begin to charge exorbitant prices, usually in the wake of some catastrophic event such as a hurricane that has destroyed homes, cut off power supplies or disrupted the delivery of food and other essentials. It is a well-known concept in the United States, where such weather events are not unusual, and where the price of motel rooms, for example, are known to have been vastly increased because of demand from people whose homes had been destroyed or rendered uninhabitable. There were reports of $7 being charged for a loaf of bread and $10 for a box of matches in the aftermath of Hurricane Sandy in 2012. Obviously, the Covid-19 pandemic has created an environment in which price gouging of this nature could flourish. Someone recently described it as “reverse looting.”
From an ethical perspective, price gouging reveals a deep tension between free market economics and the concept of a just price which we associate with medieval scholastic thought. In today’s market societies, prices are essentially set according to supply and demand. Those who believe in unfettered markets claim that artificial upper limits on prices can impede the efficient operation of the market, thereby damaging the overall economy and, ultimately, society. In a well-known article on the topic, Matt Zwolinski, a Professor of Political Philosophy at the University of San Diego, argued that even if price gouging is morally wrong, laws against it are morally unjustified. He concluded:
“Moreover, price gouging can serve morally admirable goals by promoting an efficient allocation of scarce and needed resources, and by creating economic signals which will lead to increases in the supply of needed goods available to desperate populations.”
(“The Ethics of Price Gouging” (2008) 18:3 Business Ethics Quarterly 347 at 369). He is by not alone in holding this view. In the aftermath of the aforementioned Hurricane Sandy, the Wall Street Journal carried a heading “Hug a Price Gouger: The public doesn’t want to hear it, but the public also doesn’t want empty shelves.” Another article appearing in Slate about the same time argued that allowing merchants to increase their prices creates an incentive for people to think about what they really need, and encourages sellers to manage their inventories well. Of course, the opposing argument is that price gouging will almost invariably occur in circumstances where people are particularly vulnerable. Further, the less well-off they are, the more vulnerable they are likely to be.
The concept of a just price has been described as the most lasting legacy of scholastic economics, although there has been much scholarly controversy about what some leading scholastics intended it to mean. However, Thomas Aquinas seemed to be quite clear on the matter in the Summa Theologica:
“If someone would be greatly helped by something belonging to someone else, and the seller not similarly harmed by losing it, the seller must not sell for a higher price because the usefulness that goes to the buyer comes not from the seller, but from the buyer’s needy condition: no one ought to sell something that does not belong to him.
Trithemius, a 15th-century German Benedictine, was even more explicit:
“Whoever buys up corn, meat and wine in order to drive up their prices and amass money at the cost of others is, according to the laws of the Church, no better than a common criminal. In a well governed community all arbitrary raising of prices in the case of articles of food and clothing is peremptorily stopped. In times of scarcity merchants who have supplies of such commodities can be compelled to sell them at fair prices; for in every community care should be taken that all members should be provided for, not only a small number be allowed to grow rich, and revel in luxury to the hurt and prejudice of the many.”
This was a clear rejection of profiteering. The scholastics’ attachment to just price seems to have stemmed ultimately from their opposition to usury. They rationalised it by drawing a sharp distinction between price and value. In a market society, the value of an item is subjective in the sense that it depends on what someone is prepared for pay for it. The scholastics saw value as being objective; it existed independently of the views of the contracting parties and could be objectively assessed.
Just price theory continues to attract some interest, if only at academic level. Modern scholars often acknowledge the contribution of George O’Brien who was a Professor of Economics at UCD from 1921 to 1961 and a Senator from 1948 to 1965. His book, An Essay on Medieval Economic Teaching, was published in 1920, but has twice been republished in recent years, once in the United States and again in Canada. One of the republished editions is freely available on the Internet. It has a detailed analysis of just price theory and it is to that I owe the quotation from Trithemius (of whom, as you might guess, I had not otherwise heard). O’Brien is the subject of a fine biography by James Meenan, George O’Brien: A Biographical Memoir (Gill and Macmillan, 1980).
How then does present-day law respond to price gouging and does it ever try to give effect to something like a just price doctrine? Many American states have laws dealing with price gouging. Typically, they apply only during a declared emergency and make it illegal to sell certain goods at exorbitant prices. California’s Penal Code (s. 396), for example, provides that upon a declaration of a state of emergency, it is unlawful for a person to sell certain goods or supply certain services for a price more than 10 per cent greater than the price charged by that person for those goods or services immediately before the emergency, unless the seller or supplier can justify an increase of more than 10 per cent because of additional costs imposed upon them. A violation of such an ordinance is a misdemeanour punishable with up to a year’s imprisonment, a $10,000 fine or both. Similar laws in other American states have been criticised for being too vague because, instead of specifying a percentage increase as in California, they refer to charging “unconscionable” or “exorbitant or excessive” prices. Within the past few weeks, the government of Ontario (Canada) has issued an order prohibiting retailers from charging unfair prices for necessary goods. Following a court conviction an individual may face up to a year’s imprisonment or a $100,000 fine. A Corporation could face a fine of up to $10 million.
Ireland does not appear to have any law directly targeting price gouging. It has been suggested that such behaviour might amount to abuse of a dominant position which is, of course, an offence under the Competition Act 2002. Under s. 5 of that Act, an undertaking can abuse a dominant position by, among other things, “directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions.” Very severe monetary penalties may be imposed following conviction on indictment for this offence. How applicable this law might be to retailers who do not occupy a dominant position within the relevant market must be uncertain (though, not being a competition lawyer, I am subject to correction on that). Identifying what amounts to an “unfair” price in the particular circumstances could also prove difficult. It would probably be a more straightforward matter if several suppliers of a commodity or service within a locality engaged in concerted action to fix selling prices. That would seem to fall squarely within s. 4 of the 2002 Act which prohibits such cartel activity (criminalised by s. 6).
Perhaps the most promising strategy would be to invoke ss. 61 to 63 of the Consumer Protection Act 2007 which allows the Government to fix the maximum prices at which certain products may be sold by a trader to a consumer. Section 61(1) provides:
“If the Government are of the opinion that abnormal circumstances prevail or are likely to prevail in relation to the supply of a product, the Government may by order (“emergency order”) declare that a state of emergency affecting the supply of that product exists.”
Such an order may not normally remain in force for more than six months, though it may be extended. The practical effect of an emergency order is that it permits the Government “by order to fix the maximum price at which that product may be supplied by a trader to customers” (s. 62). A trader who contravenes such an order while it is in force commits an offence (s. 63). The penalties are set out in s. 79 which provides that on summary conviction, the offender is liable to a maximum sentence of 6 months’ imprisonment, a fine of 3,000 Euro or both. For those convicted on indictment, the maximum prison sentence increases to 18 months and the fine to 60,000 Euro. There are enhanced maximum penalties for repeat offenders and the possibility of a fine being imposed in respect of each day on which there is a continuing contravention after the first conviction. A revised version of the Consumer Protection Act 2007, updated to 17 January 2020, is available on the Law Reform Commission website, http://www.lawreform.ie (under “Revised Acts”).
Whether the Government finds it necessary to invoke these provisions of the 2007 Act during the present crisis remains to be seen. A decision to do so would show that the idea of a just price is not entirely a medieval curiosity.