A Moral Basis for Markets: A Response to James Stoner

On Tuesday, James Stoner published a reflection on the morality of free-market economics, to which I respond today. Professor Stoner is no opponent of markets; in fact, he argues for a presumption in favor of markets as a system for allocating resources and organizing production. What divides us is whether and where “spaces” of social and private action should be protected from the scolding, corrosive winds of commodification.

My disagreements with Stoner take two forms. The first is that he suspends his claim that “men are not angels,” which he (rightly) imposes on market activities, when consumers enter the voting booth. For some reason, he seems to believe that consumers become better people as voters, and that they want to account for the social consequences of their choices. I don’t doubt that Stoner can imagine citizen-voters who fulfill his requirements for social virtue. I can imagine unicorns, but I am not going to design a system of unicorn-drawn public transit.

The second objection is that Stoner equates commodification and commercialization with—at best—amorality. To be fair, this is in keeping with a long tradition running from Xenophon through Aristotle to Aquinas which held that the household “oeconomics” was acceptable because it allowed people to acquire the things they needed. But it is when “obtaining things” metastasizes into “obtaining wealth” that morality and virtue are casualties.

The Citizen and the Consumer

Professor Stoner fails to note that James Madison was describing government when he observed that “Men are not angels.” If men are not angels in the supermarket, a fact that Stoner concedes, they are likely even less so in the voting booth.

Worse, voters will not be angels even if they want to think about public purposes. Recent work by Public Choice scholars such as Geoffrey Brennan, Jason Brennan, Bryan Caplan, and Loren Lomasky has shown that voters recognize that their individual impact on electoral or social outcomes is small, and so citizens know little of issues. They are motivated by duty, however, just as Stoner wants them to be. They troop—dutifully—to the polls and vote for the candidate who makes the most grandiose promises, or inspires in them a vision of better things. They have no way of knowing if the promises are plausible, of course, because this social conception of virtue as performance art—you get an “I Voted!” sticker—is superficial. The failure to deliver on these impossible promises, far from being a drawback or moral failing, appears to Stoner to be a virtue, because voters are imagining a better society.

It’s unicorns all the way down.

Markets and Morals

I would not concede Stoner’s assumption that markets are spaces bereft of moral content. On the contrary, I want to mount a defense of the morality of markets that is all too rarely heard in debates such as these.

Morality travels along with consumers when they visit the grocery store. Voters are not entirely public-spirited, and sometimes they act like consumers. But consumers are not entirely selfish, and sometimes they act like citizens.

The liberty of individuals to engage in voluntary actions rests on two intimately connected rights:

1. Freedom of contract: the right to enter voluntarily into binding agreements, the violation of which leads to punishment for the violator or compensation for the victim.
2. Property rights: the right to control the use of, benefit from, transfer or sell, and exclude others from one’s property.

What if there were no state to restrict the form of contracts? How would people act? Would morals continue to operate, limiting the kinds of contracts we would impose on the desperate? I have used the word “contract” here, and have been careful not to use the words “exchange” or “markets.” My side always gets hung up on the idea of markets, when what we mean is the kinds of voluntary cooperation that come before markets. I think this is what Stoner is talking about, and he’s right. But, then, we Public Choice folks agree. As James Buchanan put it:

basic “political exchange,” the conceptual contract under which the constitutional order is itself established, must precede any meaningful economic interaction. Orderly trade in private goods and services can take place only within a defined legal structure that establishes individuals’ rights of ownership and control of resources, that enforces private contracts, and that places limits on the exercise of governmental powers … Even within a well-defined and functioning legal order, “political exchange” necessarily involves all members of the relevant community rather than the two trading partners that characterize economic exchange.

Buchanan had a “state of nature” theory about politics. His metaphor is Robinson Crusoe, on Thursday (that is, the day before Friday). Crusoe faces standard economic problems, in terms of optimizing his use of resources and looking for efficient solutions. But there is no exchange, no social interaction, in the Thursday system.

And then Friday shows up. The first thing that happens is not exchange. It’s something else, and virtue and morality are a big part of this first step. There has to be an agreement, perhaps an implicit agreement, that the two men not kill each other, at least not today, not now. A lot of norms, morals, and conceptions of the group have to be in place before markets are even possible. The first exchange is not private goods, or money. The exchange is cooperation, with the result being the capture of the mutual benefits from solving collective-action problems.

That’s an important distinction, and we often lose sight of it. To solve collective-action problems we need politics, agreement, and cooperation. In debates, my side tries to do too much when, eager to un-justify the state, we also rule out voluntary collective actions. Public goods—including the civitas—cannot be provided by bilateral, impersonal, one-off market exchanges. But that does not imply that state provision is therefore necessary. There are a variety of private, voluntary, collective contracting forms that could occupy this terrain.

What does voluntary mean? Is it sufficient that consent not be extorted at gunpoint? Many believe that an absence of coercion by direct human agency does not suffice. People also must not be coerced by the absence of alternatives. A choice can’t be voluntary if it is not a choice.

Michael Sandel formulates the objection in this way

The . . . objection [to the claim that an exchange is truly voluntary] is an argument from coercion. It points to the injustice that can arise when people buy and sell things under conditions of severe inequality or dire economic necessity. According to this objection, market exchanges are not necessarily as voluntary as market enthusiasts suggest. A peasant may agree to sell his kidney or cornea in order to feed his starving family, but his agreement is not truly voluntary. He is coerced, in effect, by the necessities of his situation.

To eliminate the ambiguity in the meaning of voluntariness, I have proposed the formal notion of euvoluntariness, or “true voluntariness.” The primary additional condition, added to what economists think of as voluntary exchange (no external coercion) is something like freedom of choice (no coercion by circumstance). This additional condition is controversial, at least on my side of the debate, but I think that it connects with what Sandel means.

Contracts are invalidated if they are “unconscionable,” imposing a general moral restriction on the terms that can be negotiated. An example can be found in the 1856 Post v. Jones decision. The précis is simple: No contract is valid if there is no market, no competition, and one party has absolute bargaining power. If you haven’t read the case, it’s worth studying both the decision itself and this summary. Here’s the short version:

A whaling ship, the Richmond, with a substantial load of valuable whale oil, runs aground on dangerous rocks and will almost certainly be wrecked. All its cargo will be lost. The ships that “rescue” the stranded ship negotiate a deal wherein all the oil becomes the property of the rescuers. The rescuers then auction off the oil, receiving an amount much greater than the salvage fee would have been.

The owners of the wrecked ship argued that the “contract” was “negotiated” (sorry for the quotes, but they matter) under duress. There was no market and no competitive setting for the negotiation. Therefore, the implicit contract was not enforceable, because it was unconscionable.

In my terms, the contract was not euvoluntary. Still, wait. Suppose the captains of the rescuing ships know that no contract for more than salvage fees will be enforceable. But the situation close to the rocks is very dangerous, and they (prudently) decide not to attempt the rescue. The captain of the Richmond offers more than the salvage fee, because that is what is required to induce an increase in “supply” of rescue services. But since that offer is not enforceable, and will in fact be reversed by a court once the rescue is effected, the rescue does not take place. The captain of the Richmond would have been better off being rescued at the higher price, but he cannot offer a higher price, even if he wants to.

Conclusion 

The basic claim I want to make is as follows: Groups of humans require society. In fact, it’s hard to stop humans from constructing voluntary societies to achieve shared goals. In a society, collective or group decisions must be made, because the scope of some activities—externalities and public goods, even just local public goods such as trash pickup or police protection—goes beyond the individual. Either my actions affect others, or the cooperation of many is required to provide the good. We have to solve collective-action problems.

The way groups of people solve collective-action problems is called politics. It is not market exchange. The key insight of Public Choice, especially from James Buchanan, is that “politics as voluntary exchange” allows us to understand society and how contracts might work to solve collective-action problems. The argument for politics as voluntary exchange relies on people being able to enter binding contracts, contracts that allow, even require, the use of force or coercion if the terms of the contract are violated.

That is what freedom requires: I have to be able to enter into voluntary contracts that imply I will be coerced, because I gave my consent to be coerced, voluntarily.

It’s perfectly true that the captain of the Richmond is “coerced by circumstance.” After all, he’s on the rocks, the ship is breaking up, and it is likely that he and the crew will all die if they are not rescued. It would be paradoxical to prohibit (or, what amounts to the same thing, refuse to enforce after the fact) a contract that allows the captain to escape this desperate circumstance. After all, our moral intuition is that we should help the desperate. But if we outlaw the contract for the rescue in the name of our virtue, we harm the very party we pretend to care about.

In short, all euvoluntary exchange should be allowed, without state interference. But many non-euvoluntary exchanges should be allowed, too. Restricting the ability of market processes to create a space where right action is rewarded, and immoral actions are punished, is immoral.

The ideas developed in this article were first presented in a debate with James R. Stoner sponsored by the Intercollegiate Studies Institute and the Institute for Humane Studies at Jacksonville State University.