The Moral Limits of Markets

A review of Michael Sandel’s book ‘What Money Can’t Buy: The Moral Limits of Markets’

May 26, 2012

Michael Sandel’s new book What Money Can’t Buy: The Moral Limits of Markets is a well-timed critique not of capitalist economics, but of the spread of economic thinking well beyond the boundaries of traditional economic issues like trading, inflation, prices, wages, etc. I just started a microeconomics course in preparation for graduate school in the fall and the textbook simply defined economics as “the study of choice.”

Sandel’s thesis is relatively simple: “…we drifted from having a market economy to being a market society. The difference is this: A market economy is a tool - a valuable and effective tool - for organizing productive activity. A market society is a way of life in which market values seep into every aspect of human endeavor. It’s a place where social relations are made over in the image of the market.”

Sandel makes two key arguments for not extending economic thinking to other aspects of life. First, he argues applying prices to certain goods degrades the good itself. Second, he argues that pricing certain goods is unfair. He refers to these two objections as the corruption objection and the fairness objection. The fairness objection is relatively familiar, summed up well by Sandel, who writes “the willingness to pay for a good does not show who values it most highly. This is because market prices reflect the ability as well as the willingness to pay.” To illustrate his point Sandel talks about the growing market of paying people to stand in line for things as varied as congressional hearings and free theatre performances of Shakespeare in Central Park.

Sandel argues that there are both goods that cannot be bought and sold, such as friendships and honorifics (Oscars, Nobel Prize, etc.) and goods that are degraded when they are sold. Some of the more obvious examples include websites that allow you to buy wedding toasts and services that will send people to apologize for you. The rise of giving money as a gift is another example. As Miss Manners writes that money and gift cards have “taken the heart and soul out of the holiday. You’re basically paying somebody - paying them to go away.” Gift giving is economically inefficient, and yet attempts to increase its efficiency through gift cards and direct money transfers destroy both the meaning and the joy behind giving.

As Sandel writes, “when we decide that certain goods may be bought and sold, we decide, at least implicitly, that it is appropriate to treat them as commodities, as instruments of profit and use. But not all goods are properly valued in this way.” Sandel continues,“Economists often assume that markets do not touch or taint the goods they regulate. But this is untrue. Markets leave their mark on social norms. Often, market incentives crowd out or erode nonmarket incentives.”

One of the best documented cases of crowded out comes from a two-part survey in Switzerland, in which a small community was asked about storing nuclear waste in a nearby mountain. There were initially simply asked to store the waste out of civic duty, and then in round two they were asked and offered an annual payment. As a result, the acceptance rate went down, from 51 percent who would accept the nuclear waste simply out of civic duty, to a mere 25 percent who would accept when offered an annual monetary payment. Economists then increased the monetary offer, but even that did not help. Sandel sums up, “If the community was found to be the safest storage site they were willing to bear the burden. Against the background of this civic commitment, the offer of cash to residents felt like a bribe, an effort to buy their vote. In fact, 83 percent of those who rejected the monetary proposal explained their opposition by saying they could not be bribed.”

Child care centers that begin charging late fees have also found that the number of late parents actually increases, because instead of viewing it as an inconvenience to the child care providers, it is a paid service. (In a sense, they are even one of the providers best customers).

Sandel is at his very best in a short section entitled ‘Two Tenets of Market Faith’: The first assumption is that “commercializing an activity doesn’t change it,” an assumption already critiqued by his arguments about corruption and the subsequent crowding out of non-market incentives. The second tenet is “that ethical behavior is a commodity that needs to be economized.” He cites several economists, including Lawrence Summers, who replied to an objection that markets rely on selfishness and greed by arguing, “We all have only so much altruism in us. Economists like me think of altruism as a valuable and rare good that needs conserving.”

Sandel’s take-down is blunt and immediate, “Altruism, generosity, solidarity, and civic spirit are not like commodities that are depleted with use. They are more like muscles that develop and grow stronger with exercise. One of the defects of a market-driven society is that it lets these virtues languish. To renew our public life we need to exercise them more strenuously.”

Why Inequality Matters

Sandel’s key insight is his ability to insist that the market is simultaneously an invaluable tool for the distribution of commodities, and a terrible danger to society when goods that should never be treated as commodities are placed on the market to be bought and sold like the latest computer gadgets or fashions. With that in mind, Sandel offers a better argument for why inequality matters than any I have heard or read before:

If the only advantage of affluence were the ability to buy yachts, sports cars, and fancy vacations, inequalities of income and wealth would not matter very much. But as money comes to buy more and more - political influence, good medical care, a home in a safe neighborhood rather than a crime-ridden one, access to elite schools rather than failing ones - the distribution of income and wealth looms larger and larger. Where all good things are bought and sold, having money makes all the difference in the world.

My only quibble is that he left out clean drinking water and the non-destruction of lands that have been in families for generations. The impacts of mountaintop removal coal mining are horrifying, and simply would not be allowed to happen in rich areas of the country. For the price of a few high wage but incredibly dangerous and hard jobs, coal companies have been allowed to do almost anything they want to the residents of Appalachia.