Morality and the Free Market

Why do arguments in favor of free markets and limited government so often fall on deaf ears?

Duke University Professor Michael Munger may have part of the answer, and it's a point worth considering. Free markets may lead to personally distasteful outcomes. But they should still be tolerated.

Munger is pro-market. And yet, he understands that many market exchanges are "voluntary" ONLY in the sense that they are not coerced. Neither the other party nor the government is pointing a gun to your head to make the exchanges. All the same, such exchanges might not be done willingly. Even when you're not formally coerced, you might feel compelled to make the exchange for the sake of your own well-being or that of your family. Here are some examples...

  • Someone takes a low-wage job in lousy conditions to keep from starving
  • Entrepreneurs sell bags of ice at extraordinarily high prices in an area that has lost power due to a hurricane
  • A rich man offers a poor man money to donate his kidney to save the life of the rich man's son
  • A politician pays hush money (blackmail) to a former mistress

Statists intuitively feel empathy for people caught in such circumstances. Supporters of liberty may feel empathy as well. However, they haven't sufficiently articulated why the Statists are still wrong in favoring State control over market forces.

That's why Munger's work is so valuable. He developed a concept he called "euvoluntarism." You can read his paper on it and hear him discuss it with Russ Roberts on EconTalk.

Euvoluntary exchange is "truly" voluntary exchange, where both parties are willing to make it without any feeling of compulsion.

Munger perceives that people perceive the injustice of these circumstances based on the disparities to each person's Best Alternative to a Negotiated Agreement (BATNA).

  • The alternative to the job would be that the poor employee would starve without the job, but the employer could always hire somebody else
  • The alternative to no sale of ice is that the entrepreneurs keep their ice, whereas the alternative for customers is that their food spoils
  • The alternative to no kidney donation is that the poor man's condition doesn't change; he's still poor, while the rich man loses his son
  • The alternative to no hush money being paid is that the mistress sells her story instead to a tabloid, wrecking the politician's career

When there's a wide disparity in BATNA -- if one party doesn't suffer or hardly suffers in the absence of an exchange while the other suffers greatly -- then people are inclined to want to see the practice outlawed.

People tend to support laws prohibiting low wages and "price gouging" because their sympathies lie with the injured workers and consumers, respectively, who seem to be getting an unfair deal.

But even when the poorer or less powerful person would benefit most from the exchange, such as the organ-selling and the hush money to the ex-mistress, people tend to want even these exchanges outlawed. To them, money exchanging hands to save a life seems to "cheapen" life, and money to change hands even after the fact in an adulterous relationship seems to "cheapen" sex. The gifts of life and lovemaking should be "priceless." Apparently...

Some things are just too sacred to involve money.

I think Munger has helped me understand some of the objections to the free market. No matter how close to a "real" free market we achieve (instead of the corporatist, over-regulated, welfare-warfare Statist "market" we have now), there will always be inequalities in leverage between two potential participants in an exchange.

Like Munger, let's admit the point. We should empathize with these concerns.

But even when exchanges are NOT euvoluntary, should they be banned?

Munger argues that, in general, they should NOT be banned. I agree.

  • It is better to have a low-wage, bad condition job than to starve
  • It is better to pay a high price for ice (or other necessities) in emergency conditions than to not have them at all
  • It is better to allow the sale of organs than have people die
  • If blackmail was legal, perhaps politicians, preachers, and others with influence and power would have a stronger incentive to behave themselves

Prohibition doesn't work. That's not merely a historical judgment about alcohol prohibition, or an indictment about the current War on Drugs. Even when we view exchanges as not "truly" or fully voluntary, even when we view some transactions as "exploitive" or "immoral," we are better off tolerating them, legally speaking.

Legal tolerance means fewer people would suffer. Those that do, won't suffer as much as they would under prohibition. And there will be savings from costs of policing, the justice systems, and prisons. On balance, we come out ahead.

Tolerating distasteful acts is an example of the axiom, "Utopia is not one of the options." But on the whole, society would be more propserous, more just, more fair, and more free.