Josiah Warren - Ethics of Pricing

Ethics of Pricing

Josiah Warren termed the phrase "Cost the limit of price," with "cost" here referring not to monetary price paid but the labor one exerted to produce an item. This understanding of cost is congruent with that of the classical economist Adam Smith who said "The real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it," though Warren reached different conclusions. He believed that goods and services should trade according to how much labor was exerted to produce them and bring them to market, instead of according to how individuals believed them to be subjectively worth. Therefore, "e proposed a system to pay people with certificates indicating how many hours of work they did. They could exchange the notes at local time stores for goods that took the same amount of time to produce." To charge more labor for something that entailed less labor was "cannibalism," according to him. Moreover, he believed that trading according to "cost the limit of price" would promote increasing efficiency in an economy, as he explains in Equitable Commerce:

If cost is made the limit of price, every one becomes interested in reducing COST, by bringing in all the economies, all the facilities to their aid. But, on the contrary, if cost does not govern the price, but every thing is priced at what it will bring, there are no such co-operating interests. If I am to have my supply of flour at cost, then, any facility I can afford to the wheat grower, reduces the cost to me, and it does the same for all who have any portion of the wheat, I am promoting all their interests while pursuing my own…Now if the wheat were NOT TO BE SOLD TO us AT COST, but at "whatever it would bring" according to our necessities, then none of us would have any interest in affording facilities, repairing breaches, nor in any other way co-operating with the producer of it. The same, motive would act in the production, preservation, and use of every thing."

He put his theories to the test by establishing an experimental "labor for labor store" called the Cincinnati Time Store at the corner of 5th and Elm Streets in what is now downtown Cincinnati, where trade was facilitated by notes backed by a promise to perform labor. "All the goods offered for sale in Warren's store were offered at the same price the merchant himself had paid for them, plus a small surcharge, in the neighborhood of 4 to 7 percent, to cover store overhead." The store proved successful and operated for three years after which it was closed so that Warren could pursue establishing colonies based on mutualism. These included "Utopia" and "Modern Times." Warren said that Stephen Pearl Andrews' The Science of Society, published in 1852, was the most lucid and complete exposition of Warren's own theories.