High Prices and Fairness

High prices are often associated with greed and a lack of compassion. Companies that charge high prices are considered to be taking advantage of their customers, and unfair to those who don't get the company's service. Yet most people don't think twice about charging a high price when it comes to looking for a job.

Your salary is the price a company must pay for your time and effort, so seeking the best salary is essentially charging the highest possible price for your work. Are you greedy and uncompassionate for doing this? Are you taking advantage of your new company? Not at all — you're just taking part in the fair and widely beneficial system of competitive pricing.

High prices are considered unfair for a couple reasons:

"People who pay high prices are being exploited."

If this were true, then people who receive high salaries would be exploiting their companies. On the contrary, companies choose to pay high salaries to valuable workers just like people choose to pay high prices for valuable services. In free market competition, the price system requires a mutual agreement between buyer and seller — it doesn't get any fairer than that.

"Some people can't afford pricey services."

A service's high price shows how highly valued it is among the population. There are many people who can afford a pricey service but do not value it highly enough to purchase it, which means that the scarce service is left for those who value it the most. Along these lines, your job search matches you with the company that values you the highest among all companies that could have afforded to pay your new salary.

But what about the people who legitimately cannot afford a needed service? For one, these people are greatly benefited by private charity.¹ In addition, the price system will help them in two ways. First, a service's high price signals other businesses to start providing that service in order to profit from its high price. The increased supply will drive down the price so that more people can afford the service. Second, the high price encourages hard work and saving, enough of which will allow anyone to eventually get the service.

With ample competition, the price system is fair because both sides have to agree, and helpful in sending resources where they are most valued.

1. The United States is the most charitable nation in the world.

Prices and Scarcity

I love this excerpt from Thomas Sowell's Basic Economics:

"Misconceptions about the role of prices are common. Many people see prices as simply obstacles to their getting the things they want. Those who would like to live in a beach-front home, for example, may abandon such plans when they discover how expensive beach-front property is. But high prices are not the reason we cannot all live on the beach front. On the contrary, the inherent reality is that there are not nearly enough beach-front homes to go around and prices simply convey that underlying reality. When many people bid for relatively few homes, those homes become very expensive because of supply and demand. But it is not the prices that cause the scarcity, which would exist under whatever other kind of economic system or social arrangements might be used instead of prices. There would be the same scarcity under feudalism or socialism or in a tribal society.

"If the government today were to come up with a 'plan' for 'universal access' to beach-front homes and put 'caps' on the prices that could be charged for such property, that would not change the underlying reality of the high ratio of people to beach-front land. With a given population and a given amount of beach-front property, rationing without prices would have to take place by bureaucratic fiat, political favoritism or random chance—but the rationing would still have to take place. Even if the government were to decree that beach-front homes were a 'basic right' of all members of society, that would still not change the underlying scarcity in the slightest."¹

1. Thomas Sowell. Basic Economics, pg. 13.