"Aquinas believed that it was specifically immoral to raise prices because a particular buyer had an urgent need for what was being sold [...] Aquinas would therefore condemn practices such as raising the price of building supplies in the wake of a natural disaster. Increased demand caused by the destruction of existing buildings does not add to a seller's costs, so to take advantage of buyers' increased willingness to pay constituted a species of fraud in Aquinas's view."
"Aquinas believed all gains made in trade must relate to the labour exerted by the merchant, not to the need of the buyer. Hence, he condoned moderate gain as payment even for unnecessary trade, provided the price were regulated and kept within certain bounds"
So if this is true (and I'm sure certain tacit assumptions are not mentioned in this Wiki page), then it seems that crazy market price fluctuations have to do with the divorce of market value from labor which was "replaced by the microeconomic concept of supply and demand from Locke, Steuart, Ricardo, Ibn Taymiyyah, and especially Adam Smith".
The purpose of increased prices is to incentivize more supply to come into the market. If prices do not rise with demand (and static supply), then you’re left with a market where certain buyers are lucky (or connected) and some don’t get anything.
ERCOT's dismal failure the past several months has once again shown the fallacy of this thinking.
Raising prices to infinity cannot induce supply of a good or service for which there is simply no capacity to provision. Nor does discrimination by price for life's essentials result in fair or equitable distribution when there is a tremendous inequality in purchasing power among the population, much if that itself the result of random chance, inheritence, or nonproductive gains.
There's another market mechanism for addressing probabalistic risks, which is to prepare in advance, to assess penalties for failure to provision, to maintain stockpiles and emergency response plans, and to move stochastic future costs to present expense through mechanisms such as risk premiums. These create present incentives for managing such risks, and are based on data and modeling which ground those costs in the likely long-run and widespread average experience. Moving expenses to the present also creates opportunity and incentive to manage, mitigate, and avoid risks.
> There's another market mechanism for addressing probabalistic risks, which is to prepare in advance
And that means that someone has to pay the costs of doing that. In a free market economy, the people who do the preparing in advance are called "speculators", and they are rewarded or penalized by standard market mechanisms according to how well they prepare. Those standard market mechanisms include being able to charge a higher price during periods of scarcity according to the natural laws of supply and demand.
The alternative is to have some central planning organization that sets requirements and doles out rewards and penalties. And that alternative has all of the same flaws as every other central planning solution--as the very example you give, ERCOT, shows.
Risk assessment (actuarial, engineering, policy, financial) is another. The insurance industry generally is a vehicle for manifesting dispersed or time-variant risks in a predictable fashion, enabling both proper accounting and (as discussed in my earlier comment) management.
Speculation alone cannot do that, though it is also a component of the risk sector.
(My somewhat unorthodox view is that the FIRE sectore, finance, insurance, and real estate, are all fundamentally about risk, in ways other economic activity is not.)
>Raising prices to infinity cannot induce supply of a good or service for which there is simply no capacity to provision.
If I understand the situation correctly, Texas regulators opted for lower electricity prices by not connecting to the national grid. In a sense, they opted to forgo paying for insurance for an event like what happened this year. Is this correct?
Also, there is no fallacy, because higher prices do not mean supply will increase. But rising prices are a signal that there is demand if more supply were to come in. Sometimes, it's not practical for that to happen, but it is, over a sufficiently large timeframe, a good signal that alerts others that it might be worth it to jump in participate in that market.
Portions of Texas were without power for weeks. Because of predictable cold well within historical experience.
The market as designed per "prices will induce supply" failed. And no price incentive will create gigawatts of generating capacity in minutes to hours.
Just as nine women cannot make a baby in one month.
Some processes require time and/or advanced planning.
I think they are claiming that instantaneously and drastically increasing prices during an emergency effectively does nothing to incentivize supplies, because there are no additional supplies to be had, and that the right way to handle that is to heavily penalize failure to provide those supplies, and manage the risk proactively and in advance. So their solution would be more like raising the long term electricity supplies slightly, with incentives in place to make sure that failures like that don't occur in the first place.
> The purpose of increased prices is to incentivize more supply to come into the market.
It is true, though, that this only helps if more supply can come into the market quickly enough to help. If "more supply" means "more electrical power generation plants that will take five years to build", that's not something that increased prices in the short term can fix.
Another way of dealing with cases like that, however, is innovation: finding an alternative way to meet the same need that doesn't have the same supply problem. For example, if people know that their state's power grid is unreliable, they have more of an incentive to find ways to decrease their reliance on the grid--solar panels, individual homes with their own generators, etc. But that requires transparency--people have to know, well in advance of a problem happening, that their state's power grid is unreliable, so they can take action. Which means the government has to be honest in telling them what the state of the grid is. That, I think, is where the actual root problem often lies.
Which sounds arguably (although I’ not sure I agree) more “equitable” in the sense that access to goods is a big social lottery rather than a true market.
> Aquinas believed all gains made in trade must relate to the labour exerted by the merchant, not to the need of the buyer.
So if I need my house painted, I should pay you a lot more if you do it with a toothbrush instead of normal painting equipment?
> the divorce of market value from labor
Which is simply a fact of life--often an unpleasant one, but a fact nevertheless. Market value--what someone else will trade for something you have--has nothing to do with how much labor you put in to whatever it is you have.
"Aquinas believed that it was specifically immoral to raise prices because a particular buyer had an urgent need for what was being sold [...] Aquinas would therefore condemn practices such as raising the price of building supplies in the wake of a natural disaster. Increased demand caused by the destruction of existing buildings does not add to a seller's costs, so to take advantage of buyers' increased willingness to pay constituted a species of fraud in Aquinas's view."
"Aquinas believed all gains made in trade must relate to the labour exerted by the merchant, not to the need of the buyer. Hence, he condoned moderate gain as payment even for unnecessary trade, provided the price were regulated and kept within certain bounds"
So if this is true (and I'm sure certain tacit assumptions are not mentioned in this Wiki page), then it seems that crazy market price fluctuations have to do with the divorce of market value from labor which was "replaced by the microeconomic concept of supply and demand from Locke, Steuart, Ricardo, Ibn Taymiyyah, and especially Adam Smith".
[0] https://en.wikipedia.org/wiki/Just_price