How Should Things Be Priced?

A bottle of water costs ten times more at an airport than in a shop down the road. The water is the same. So is the work of bottling it. What changed is that you have nowhere else to buy it.

Many prices are set this way: by what people will pay, which depends heavily on how scarce something is, or seems. Price can tell us a great deal about scarcity and much less about value. This post asks what a price should actually reflect, and draws on Madhyasth Darshan, which has an unusually clear answer.

This may sound like price controls imposed by some authority. It isn’t. Madhyasth Darshan describes value being assessed openly, by people who understand the work, starting in the village. During any transition, ordinary market prices remain the reference point.

What a price measures today

In Avartanshil Arthashastra (आवर्तनशील अर्थशास्त्र), Shri A. Nagraj traces how we came to measure things. Useful goods were measured in metal, mainly gold. Then metal was represented by paper. Gold itself is of almost no use to a human being, yet it became the yardstick for everything that is useful. And a pile of paper money, however large, can’t feed one hungry person or quench one person’s thirst. The symbol drifted away from the thing it was meant to stand for.

The darshan defines profit (लाभ) bluntly, as taking more while giving less. It points out that both main schools of economics, free and controlled, have treated profit as the goal. And it names one of the standard ways of making it: artificial scarcity. Announce a shortage of fuel or sugar, and more people rush to buy, and the price climbs, whether or not the shortage is real.

So a price today can rise because something is scarce, because someone made it look scarce, or because the buyer has no choice. None of these says anything about how much work, skill or care went into the thing.

Where value actually comes from

Madhyasth Darshan starts from a different place. Nature’s wealth, soil, water, minerals and forests, is the raw material. Human beings apply their labour to it, and in doing so they give it two kinds of value: usefulness (उपयोगिता मूल्य) and beauty, or art value (कला मूल्य). That is what production is.

Two things follow. First, value is not separate from the thing. The book gives the example of a vehicle: you can’t separate its usefulness and beauty from the vehicle itself. Value sits in the object, not in a symbol of it. Second, what can be assessed is the labour that put it there, not the symbol. As the book puts it, evaluation can only be of labour, not of tokens.

And what does labour consist of? The book lists it: skill, care and know-how, thought, will, time, dexterity, and the right tools. Those are the things a fair price would weigh.

“Price can tell us a great deal about scarcity and much less about value.”

Five principles for a fair price

Drawing on this, here are five principles. They are our reading of the darshan, not a quotation from it.

1. Price the labour, not the scarcity. A thing is worth the skill, time and care that went into making it useful, not what a buyer can be made to pay when they have no choice. A shortage is a reason to produce more, or share better, not to charge more.

This is a proposal for how prices could be set, not a description of how markets work. Prices also carry information: a rising price tells people to use less and producers to make more, and a fair price has to cover more than labour, including overheads, risk, replacing equipment, losses and a reserve. Where supply can’t grow quickly, a fair price alone doesn’t decide who gets what is short; that has to be shared some other way, openly.

2. Let usefulness and quality count. A thing made well, that lasts and can be repaired, carries more labour and more value than one made to be replaced. That is a fair reason for a higher price. A brand name, by itself, is not.

3. Pay for the care of nature, not for owning it. Madhyasth Darshan treats nature’s wealth as beyond price, and the idea that anyone can own it outright as a confusion. So a fair price doesn’t charge for the forest or the mineral itself. It does include the labour of caring for it: replanting, feeding the soil, returning what was taken, so that nature can keep producing.

4. Exchange without profit or loss. The darshan describes exchange (विनिमय) as the giving and receiving of labour value, free of profit and loss. In a fair exchange, neither side has to lose for the other to gain. Where a gain happens anyway, as in the village exchange fund the book describes, it goes to facilities everyone shares.

5. Set prices in the open, starting where people know each other. In the darshan’s plan, value is assessed by people who understand the work, beginning in each village and connecting outward. During the transition, the village fund simply uses the nearby market price, minus the cost of transport. That is a practical place to start. We describe the fund in How to Organise a Village So Every Family Has Enough.

What this looks like in practice

If you sell something, try building your price from the ground up instead of from what the market will bear. The materials. The hours of work, valued for the skill they take. The care of whatever you took from nature. A modest reserve, with a number on it. Then look at the gap between that figure and the price you charge. Whatever the gap is, you should be able to say what it pays for.

If you run a business, the same test applies to every product. It sits naturally beside the five measures in How Should a Business Measure Success? A business that refuses to raise prices when customers have no choice, and says so, earns a kind of trust that is hard to buy.

If you are buying, ask of any price: whose labour did this pay for, and what else did it pay for? Often the most useful purchases turn out to be the ones closest to their labour: food from a farmer you know, a repair from someone local, things made nearby.

And the planet?

Pricing by scarcity has a hidden effect on the earth. As minerals, forests and fuels run down, they become scarcer, and so more valuable. The book observes that this rewards holding them back, and rewards using them up: the scarcer a thing becomes, the more there is to gain from it. A pricing system built that way pays people to run the planet down.

Pricing by labour and by the care of nature removes that reward. If what is paid for is the work of making things useful, and the work of helping nature renew, then taking more than can return no longer earns more. It is one of the clearest places where an economic rule and the health of the planet turn out to be the same question. We set out the wider argument in One question, not two, and why nature isn’t ours to own in How to Live in a Relationship with Nature.

And our happiness?

Every exchange is also a small relationship. When prices are set by what the other person can be made to pay, buying and selling breed suspicion: was I cheated? An exchange where neither side loses leaves both people satisfied, and that is the kind of relationship a happy life is built from.

A protocol to try

Pick one thing you regularly buy or sell. Try to split its price into four parts: materials, labour, the care of nature, and everything else.

You won’t get exact numbers. But look at the last part, everything else, and ask what it pays for. That one question will show you more about how prices work than any textbook.

Limitations

• Madhyasth Darshan names the basis of value, labour giving usefulness and beauty to things, but we have not found a precise formula for measuring it. The five principles here are our reading, not a quotation.
• Comparing different kinds of labour is genuinely hard. An hour of surgery and an hour of digging both deserve respect, but they are not the same, and we don’t settle how to weigh them.
• Market prices carry a great deal of information quickly. Prices set by assessment may be slower to respond when conditions change.
• We describe how one family or business might act. Changing how a whole economy prices things is a much larger question than this post answers.

References

1. Shri A. Nagraj, Avartanshil Arthashastra (आवर्तनशील अर्थशास्त्र), pp. 5–6 (metal and paper money, profit, artificial scarcity), p. 112 (value inseparable from the thing), pp. 113–114 (assessing labour; what production is made of), p. 116 (definition of production), p. 137 (transition pricing in the exchange fund)
2. Shri A. Nagraj, Samadhanatmak Bhautikvad (समाधानात्मक भौतिकवाद), p. 130 (scarcity, hoarding and rising prices)
3. Shri A. Nagraj, Manav Vyavahar Darshan (मानव व्यवहार दर्शन), p. 150 (exchange policy: free of profit and loss, based on labour value)
4. Madhyasth Darshan Paribhasha Sanhita, लाभ (profit), p. 163; विनिमय (exchange), p. 172; आशित विनिमय, p. 42; उत्पादन (production), p. 46