The just price and the gains from exchange

The paper explores a general framework for thinking about the idea of the just price. The approach is grounded in a basic aspect of the nature of exchange, namely, that the latter usually occurs when both parties believe they will be better off as a result. Put differently, an exchange is normally performed because both parties stand to gain something from it. The distributive question that arises from this observation is how one ought to divide such gains. The connection with the idea of the just price is not necessarily an obvious one, yet it is relatively straightforward. Assuming that an exchange involves money (or any unit of account), the price at which two agents transact will correspond to a specific division of the gains from the transaction. Conversely, any specification of a fair division of the gains from exchange individuates a specific price as the just or fair price. The paper analyzes the main features of this approach to the determination of the just price, explains one of its main virtues, defends it against an alleged weakness and criticizes as inadequate two of its traditional interpretations. The upshot of the discussion is that while the idea that the just price of a transaction depends on how the latter divides the gains from exchange does not suffer from general flaws and is in fact characterized by an important good making feature, the two principal ways in which it has been deployed are implausible.