Seminar 3: Why Limit markets? (26 January)

This session picks up where Sandel left us last week. Sandel makes a forceful case for limiting markets which undermine communitarian values – yet his position is just one among many one can take. Anderson offers an argument on how only non-market norms can help societies to properly value certain goods. Debra Satz offers a more nuanced egalitarian classification that labels some markets as “noxious” and also introduces us to the debate between distributive and relational egalitarians in political philosophy today. Munger provides a libertarian counter-argument to some of these themes by providing a type of exchange which he argues is “always just” (“euvoluntary”).

This seminar will be led by Robert Lepenies, max Weber Fellow.

Reading

Debra Satz, Why Some Things Should not be For Sale (Oxford, 2010) ch. 1, 3 and 4 and 9 (this book is available on-line via the EUI library catalogue) {NB FOR CLASS PLEASE FOCUS ON CHS 3 AND 4, AND SKIM 1 AND 9).

Elizabeth Anderson, “Ethical Limitations of the Market,” Economics and Philosophy 6(2) 1990: 179-205

Further Reading

Munger ‘Voluntary or not, exchange is just’ (2011) 28(2) Social Philosophy and Policy 206–235 (focusing on contract law)

12 comments on “Seminar 3: Why Limit markets? (26 January)

  1. I note that the Anderson piece is not available through the EUI website, but a version is available here: https://www.academia.edu/811696/The_ethical_limitations_of_the_market

  2. Christopher Johnson says:

    I felt uncomfortable with Statz’s argument that markets should be prohibited or regulated when they lead to situations where individuals in society are unable to interact as equals.

    Statz’s argument appears to be so broadly constructed that it allows the author to justify her instinctive sense of unease with any market she chooses. For example, it does not appear to perturb the author that in some cases the supposed inequality occurs prior to the transaction, for example, the situation where individuals bargain for space in a limited number of lifeboats, and in other cases, the supposed inequality occurs only after the transaction, such as when an individual sells their right to education. Nor does the author appear concerned that in some situations the inequality is significant, such as the life or death difference between having a place on a lifeboat and not, whereas in other situations, the inequality is minimal (and open to debate), such as the supposed entrenchment of negative stereotypes of women that would result from markets in their reproductive or sexual capacities.

    In my view, Statz is doing no more than attempting to justify her intuitive disquiet with markets in certain areas. I do not find the argument particularly convincing.

  3. Robert Lepenies says:

    @Liam Thanks, this reprint should be fine
    @ All: if anyone has trouble finding the readings, please email me.

    Looking forward to the session!

  4. Florian says:

    Briefly regarding Statz – from what I have read so far, she tries to give a general theory of the limitations of markets. This is obviously easy to criticise as evidenced by Christopher, but I think the general point still stands and the does a good job of describing markets in the egalitarian framework, especially with the point about general vs. specific egalitarian markets and the chapter about noxious markets.
    Anderson on the other hand in a different way describes the separate character of markets/market transactions vs. ‘different markets’/non-market transactions, such as sharing, giving for gratitude or mutual union through compassion and so on. She adequately describes the view(s) of many in today’s society, and describes shared and gift values that are unsuitable to a normal market concept. However, this is still hard to generalize I think, as on a basic level even gifts or shared values could be (indirectly) seen as market transaction and her description(s) presupposes a certain value/moral concept on her view, as persons with different ways of life could have vastly different experiences and make different judgements.

  5. Jotte says:

    Satz project is to develop and employ a set of criteria to decide which goods and activities ought to be bought and sold, in her words, which markets are ‘noxious’ and which are not. She starts her study by pinpointing some clearly defined concepts, beginning with markets as: ‘institutions in which exchanges take place between parties who voluntarily undertake them’ with the additional requirement of a possibility of ‘coordination on future exchanges’. Its is clear that the project of Satz is concerned with a critique on the functioning of markets in society but she starts by pointing towards what she considers to be the virtues of the market, through the promotion of efficiency and freedom.

    Satz provides a very condensed and insightful overview of the ways in which markets can support the freedom and equality in society. Satz soon turns to a more critical stand by demonstrating the limitations of efficiency, since efficiency does not provide anything regarding a (normative) ethical point of view on the distribution of resources in a fair way. On freedom Satz notes that despite its many virtues it has some important setbacks, some of the more obvious (choosing between 12 different toothpaste brands is not meaningful freedom) than others. The more subtle critiques on the virtues of markets concern for example the fact of the central role that markets play in shaping individual preferences; ‘if markets themselves importantly shape a persons’ preferences, if our preferences are ‘endogenous’ to markets, -that is, originating from within markets, then it is circular to appeal to a markets’ ability to satisfy those preferences as its central justification. Market outcomes cannot be ranked unambiguously by preference rankings if the preference rankings themselves depend on markets’. This insight is, however, slightly problematic also for Satz own proposal for a framework within it would become possible to decide on the moral limits of markets – as I will discuss below.

    The set-up of the project of Satz is very promising but on the basis of the readings I feel she fails to deliver on some important points. Satz takes a position similar to that of what she sees as the classical economists (Smith, Marx and Ricardo) by positing that all markets depend for their operation on background property rules and a complex web of social, cultural and legal institutions. She argues very insightfully how the classical economists focus is much broader, critical and deeper as compared to the current neoclassical focus with its blind sighted focus on the ‘optimisation of markets’ and the main organisation principle behind contemporary economics of market failure that posits that every undesirable market effect is merely a sign that marketization is incomplete. Instead she argues that the classical economist depth of analysis and specifically its more subtle morality should return to the forefront in the critical analysis of markets. Satz tries herself to achieve this through the introduction of a set of criteria to establish a finding on noxious markets: (1) extreme harmful outcomes for individuals, (2) extreme harmful outcomes for society, (3) weak agency, and (4) vulnerability. However, the application of these criteria, especially in the context that she positions her project, appears a bit arbitrary on the basis of a few blind spots in her assessment.

    First, it seems that almost all markets – certainly the ones with a global feature to them – will have some “weak agency, exploit underlying vulnerabilities…or have extremely harmful consequences for individuals or their societies”. That is to say that production in low wage countries is arguably an example a kind of global exploitation and weak agency but these features of global trade and markets are not discussed by Satz, nor considered. It is unclear to what extent Satz protests against these markets and hence against almost all markets. This is closely connected to another blind spot in Satz analysis, which is power. How are noxious markets caused or influenced by the expanding of a global economic order and how are the institutions that would have to implement Satz framework limited by this sphere of power?

    Then, second, the criteria that are developed by Satz seem to be based on the notion of “our capacity to interact as equals”. It seems to me that this capacity, in turn, is influenced by ‘a persons’ preferences’ and that ‘ if our preferences are ‘endogenous’ to markets, -that is, originating from within markets’ or the social institutions we grow up in then we should also question the formation of these preferences in a critical way, including our ideas of how we relate to each other equally. Then, what seems to be required as a starting point for the just application of Satz criteria, separate from pre-set institutionalised preferences, is a kind of Foucauldian emancipation of the self. However, the kind of individual enlightenment that appears necessary for the application of the criteria of Satz remains vague. Eventually, the way many markets operate, and in particular their perverse consequences, are the result of individual (and perhaps weak) agency. Should we not turn, in particular, to this level and see why people decide to act in a certain way and what could be required from our social institutions to nurture a more reflective and emancipated consumer (much like in the direction that Nussbaum takes in ‘Not for profit’ and her emphasis on the humanities in education) ?

    Finally, the set of criteria by Satz seem to have a ‘human bias’ and it is unclear how they would allow the development of an opinion on markets in environmental or animal goods that harbour important moral considerations (bio-industry, over fishing, attitudes towards the destruction of the earth).

  6. stavros says:

    The question addressed in “Euvoluntary or not, exchanges are just” is how can redistributive coercive policies be justified as long as differences in wealth result from voluntary and beneficial for the parties exchanges (p. 193). Munger’s thesis is that such policies could never be justified. Exchanges, euvoluntary or not, are always just, thus, no redistributive policy could be justified by criticizing the nature, the characteristics or the consequences of the exchange. It follows that as long as exchanges are voluntary should always be allowed, even if they are not euvoluntary, since by prohibiting them the weakest party is always harmed (p. 205).

    In order to develop his argument Munger, initially, distinguishes between two lines of objections: according to the first, social justice is unrelated to individual exchanges, and, thus, a redistribution of wealth may take place regardless of the moral value of exchanges; pursuant to the second, redistributive policies are justified, for certain exchanges are not “euvoluntary”. He devotes only one paragraph and a footnote to address the social justice objection and then he turns on the second line of objections; his aim is to rebut the thesis that the state should redistribute wealth, because the current distribution of wealth derives from unjust exchanges.

    Nonetheless, the social-justice objection comprises a rather plausible justification for redistributive policies. In particular, social or distributive justice refers to how a society or a group should allocate its scarce resources among individuals with competing needs or claims. Distributive justice in its modern sense calls on an institution to guarantee that property is distributed throughout society so that everyone is supplied with a certain level of material means, independent of merit considerations (For an intriguing analysis of the issue see Fleischacker, A Short History of Distributive Justice). If everyone is entitled to certain basic goods, it may be the market that can ensure such a distribution. But, if the market fails to meet the concerns of distributive justice, then we may employ different mechanism (e.g. the state), so as to instantiate this moral principle. In this regard, meeting the demands of distributive justice is always necessary in order to legitimize the basic structure, namely the arrangement of the major political and social institutions of a society that treats everyone as free and equal (Rawls, A Theory of Justice). As long as the basic structure is justified, property rights, which are necessary for any exchange to take place, and derive from the basic structure, are equally legitimized. Otherwise, the institutional framework within which exchanges take place is deprived of legitimization, for it does not treat each individual as free and equal. Hence, property rights could be legitimized only provided that a minimum of distributive justice is met. Consequently, Munger’s analysis deliberately avoids dealing with this line of argumentation and significantly underplays it in pp. 205-210.

    Let me now turn on his main argument. Provocatively, Munger argues that “all objections to the morality and justice of the uses of voluntary market exchange are mistaken.” Euvoluntary exchanges are always justified, but even not euvoluntary exchanges are beneficial and just, for they increase the welfare of those who are least well off. Allowing exchanges always reduces the social injustices since the exchange creates value. Moreover, unjust distributions do not result form unjust exchanges but from unjust conditions preceding the exchange. Consequently, the state must not intervene to redistribute wealth no matter what is the initial distribution or the character of the subsequent exchanges, and it should not outlaw even the non-euvoluntary exchanges.

    A first problem with Munger’s argument starts with his definition of “euvoluntary exchange”. Munger argues that a euvoluntary exchange, namely a truly voluntary exchange, must satisfy five requirements: 1. Conventional ownership; 2. Conventional capacity to transfer; 3. Absence of post-exchange regret; 4. Absence of coercion; 5. Absence of economic coercion (p. 195). Then he proceeds by discussing instances of non-euvoluntary exchanges, which do not satisfy requirement 5. But, his definition of euvoluntary exchange includes three different sets of criteria: a) validity requirements (1-2), b) conditions which, if occur, entail that a contract may be declared null and void (3-4), and c) substantive criteria, which if fulfilled lead to a just exchange (5). In this respect, his main thesis that even non-euvoluntary exchanges are just, could be interpreted as implying that even an exchange which does not satisfy requirements 1 to 4 is just. Apparently, this cannot hold: an exchange between a thief (absence of ownership) and a child (absence of capacity to transfer) is a non-euvoluntary, but not a just exchange. Thus, Munger should have phrased his thesis in a more cautious manner by distinguishing, for instance, between three categories of exchange: naked exchanges, valid exchanges and euvoluntary exchanges. Nevertheless, let us interpret his argument in the best sense: euvoluntary and “non-euvoluntary but valid” exchanges are always just, since they are beneficial for both parties and increase the welfare of those who are least well off.

    In pages 197-205 Munger rightly submits that the exchange creates value and that in many occasions the state may not successfully perform the functions of the market (p. 203). These arguments, despite their merit, are misguided, in that they merely demonstrate the value-creating property of exchange and the complementarity between the market and the state. They do not contribute in his main thesis. Moreover, his threefold distinction (p. 202) between consumers’ direct, middlemen or state intervention, aims to highlight the intermediary role of exchange. Nevertheless, no one denies the efficient intermediary role of exchange. So, Munger oversimplifies the problem: instead of asking under which conditions should an exchange occur in order to be just; or, what are the limitations of the exchange-mechanism; he merely asks a question which can be easily answered affirmatively: should we be in favor or against exchange in general? But, the response to this question does not imply that every exchange is just.

    It should be also noted that Nozick’s “Wilt Chamberlain argument” (p. 199) aims to highlight the inherent error of any ideal of a socialist society: even if the initial distribution is as the socialist society wants, the subsequent exchanges will create disparities of wealth and then the socialist society is deemed to redistribute and by doing so it will violate individuals’ autonomy. However, under this setting coercive redistribution may be justified on different grounds similar to the ones presented in the third paragraph of this post. Moreover, individual’s autonomy, being a societal value, could be constrained in order to pursue other societal values and as long as its core is not violated. Consequently, Nozick argument does not settle the issue.

    In the last part of his piece, Munger argues against anti-gouging laws. Anti-gouging laws prohibit non-euvoluntary exchanges, namely exchanges, which involve an element of economic coercion: harm is incurred to the weak party due to its failure to exchange. Anti-gouging laws imprison people in desperate positions, where an exchange could make them better off, and are based on the idea that the BATNA for the weakest part is unacceptably low (p. 205). Therefore, the argument goes, these kinds of laws include an implicit evaluation and substitute individual’s evaluation and do not respect individual’s autonomy. Nonetheless, this substitution of “reasons to act” is inherent to the authority of law (Raz, Morality of Freedom). Consequently, maintaining that, in principle, no such substitution shall take place, eliminates conceptually the possibility of justifying the authority of law. In addition, the “imprisonment in a desperate situation” could be ameliorated by prescribing legal duties or by state intervention: in the desert example the merchant should have a duty to assist someone in dire need and in North Carolina disaster state and NGO’s intervention can address more efficiently the problem.

    Additionally, the shortcomings of Munger’s approach become evident if we pose a simple question: why do we have competition law? Many antitrust violations require the consent of the infringer’s customer. For example, if infringers enter into a cartel or an anticompetitive merger, buyers could only in theory defeat it by refusing to pay. The cartel works only because buyers consent to buy the products in the anticompetitive prices. In the absence of consent the anticompetitive effect would not have occurred. The same consent element is present to abuses of dominant power such as predatory pricing, margin squeeze, tying etc. Thus, if we adopt Munger’s perspective it will be implied that all antitrust violations must benefit the buyers who agree to them. The flaw in his logic lies in the fact that it ignores the respective collective action problem: if buyers acted together they would have refused to consent to these kinds of anticompetitive conduct. But acting individually, each buyer has incentives to agree, because she knows that in a market with many buyers, no individual buyer’s refusal to consent will affect the market. In this respect the rationale of antitrust laws is to provide a solution to a collective action problem (See Elhauge, Defining Better Monopolization Standards). Collective action problems, asymmetry of information problems, and asymmetry of bargaining powers problems explain why we have collective labor law, and consumer protection legislation etc. Nevertheless, these laws prohibit voluntary and mutually beneficial exchanges. In this respect Munger does not grasp that certain voluntary and mutually beneficial exchanges may be unjust because the harm a common good (e.g. competition). He also ignores that the rationale behind many anti-gouging law is not necessarily redistributive justice, but other values. Apart from that if the law follows Munger’s argument that will lead to a race to the bottom deregulation enterprise, which will trigger and justify the gravest inequalities.

    Lastly, under Munger’s approach exchanges such as the one between the Cannibal of Rottenburg and his victim should not be outlawed (See Sandel, Justice, What’s the Right Thing to do). Munger’s approach could create these implications because it also ignores that there are well-founded moral considerations, which can legitimately limit the sphere of exchangeable goods. Thus, there are numerous reasons to prohibit or impose certain conditions on various euvoluntary and non-euvoluntary exchanges.

  7. Ola Innset says:

    On page 190 in her article, Elizabeth Anderson, notes how it is a common sales technique “to take advantage of people’s desire to be polite, by manipulating them into a position in which it seems that they can back out of a deal only by risking offense or awkwardness”, and that “the salesman’s advantage consists in the fact that he participates in the negotioation strictly in accordance with market norms of pursuing maximum personal advantage, while the customer is manipulated into conceding his bargaining edge because he views some of their verbal exchanges as merely polite ones”. I’m sure this sounds familiar to a lot of us.

    This brings our attention to the question of what sorts of norms and morals we are meant to employ in “the marketplace”, and takes me back to my comment on last week’s readings, were I made reference to Andrew Gamble’s analysis of Hayek’s austrian free market philosophy as based on a particular conception of modernity. In Hayek’s view, the modern, intertwined world could only be governed through the impersonal and anonymous market system, in which all individuals egoistic acts were mediated by the market into a spontaneous, functioning order. It was therefor crucial that people in the modern world understood the importance of acting selfishly in the market. Trying to employ traditional morals that had worked well in primitive societies on large scale modern societies, would threaten the market order – which could only work if people acted according to their perceived self-interest. Altruism and solidarity was only for personal life, the family and those close to you, not to be transposed to society as a whole.

    It isn’t that easy of course, especially when markets are everywhere. Altruism, solidarity or just politeness is an essential part of being a human being, and so several of the readings for the last two weeks have tried to find ways to balance the idea that markets work best if everyone acts selfishly, with the acknowledgement that people will want to not act selfishly in all kinds of situations – and that both efficient markets, and people being unselfish are good things. The economists seem to not be of much use to us, since as Sandel pointed out, they have tried to conceptualise altruism as a scarce resource. After having read this week’s readings, I wonder if the political philosophers aren’t much use either. I still think we are a long way from understanding what a market really is, and so it feels difficult to relate to the question of how they might best be limited….

  8. Elias says:

    I found the chapters of Debra Satz’s Book „Why Some Things Should Not Be For Sale“ interesting, but not totally convincing. From my point of view, Satz does not precisely define some of her key concepts such as „equality“ and „fairness“. Nor does she explain how to operationalize the values and concepts which should determine the moral limits of markets (She also admits this shortcoming on page 111). On the one hand, Satz’s idea to problematize market outcomes in particular with regard to their potential detrimental consequences on democracy and citizenship is quite interesting and appealing. On the other, she omits to clearly conceptualize her criterion / benchmark which is supposed to clarifiy under which circumstances markets can undermine „the social framework needed for people to interact as equals, as individuals with equal standing.“ (p.95). Her understanding of „equality“ goes apparently beyond the liberal principle of “equality before the law” and seems to include some features of more “substantive equality“ – whatever we might understand under this term.

    Due to this lack of clarity her interpretation of the Titanic example is not very compelling. She argues (in the same way as Schelling) that the real problem in this case roots in the inequality aboard the ship, rather than in the insufficient level of security. In the same vein, she also points out that the idea of a market in positions on ticket lines at movie theatres is generally rejected since it negatively affects our relationship as equal citizens. However, in this case we must also oppose every kind of price discrimination based on willingness to pay – for instance different prices for places of different sound quality / view in the Opera – since this might also go against our understanding of equal relationship between citizens. In the end, provided that we assume that every human being is different in its preferences, capabilities and skills, every market outcome entails a certain degree of inequality which potentially undermines the equal relationship between citizens. Satz‘s approach does not really provide any guidance on where to draw the line between democratically sustainable and unsustainable inequalities. Instead of providing a clear concept in order to decide on the moral limits of markets, she rather relies on the importance and moral weight of „intuitive reactions“ (112).

  9. Haukur says:

    Satz’s tries to explain the reason why people intuitively are opposed to certain transactions, which arguably involve moral considerations. She coins the term noxious markets that can be defined with reference to either their source in inequality of bargaining power, or in their harmful consequences.

    This analysis is somewhat plausible, although I am not sure about its novelty. The inclusion of moral considerations may as well be expressed in different terms and then the framework takes a familiar form. As I see it, the four criteria can be fitted within the fairness and efficiency paradigm. Weak agency, vulnerability, and extreme harms for individuals, can all be said to lead to, or be the result of an unfair transaction. Extreme harms for society is an efficiency consideration.

    The policy implication of the analysis is not that some transactions should not be allowed, its rather that the State should intervene in markets that lead to unfair, or inefficient transactions. This can be achieved by manipulating the bargaining power of different actors to enable bargaining on equal terms. Child labour is not perceived as a problem if the kid is starring in a Hollywood movie, and a kidney transplant is not a problem if the donor is extending the life of his loved ones. Intuitively we should sense that the subject of transaction is usually not immoral per see, the moral alarm however quickly goes off if we sense that the transaction leads to an distributionally unfair result.

  10. 1. The thing that I have found most valuable in the readings that we have done to date is Harcourt’s explanation of Foucault: “…start by doing away with the central explanatory concept, as a way to reexainine the work that the concept accomplished.”

    Or here’s the Foucault he drawing on: “suppose that the universals do not exist, and then I ask the question to history and historians: how can you write the history if you do not admit a priori that something like the state, society, the sovereign, subjects exist?”

    Harcourt’s point is that the thing itself does not shape the world or act in the world, because the thing itself has no existence save from the practices of people ordered according to the concept of the thing. There is no such thing as the market, or even a market; there is only a great noisy, complex, imbricated and often contradictory mass of rules and rulesets, activities, interactions and psychological states that have come to be labelled as having something to do with the market.

    2. Thus, while I found Anderson’s approach promising, it didn’t quite connect for me. She searches for market ideals to define economic goods, but she is, for example, careless about the meaning of the word “good,” uprooting its deployment in the text from the word’s historical network of meanings. Sen makes a good point here: the “goods” (in the historical, philosophical sense of the term) of commodities lie not in the moment of exchange, but in their use. “Goods” are not distributed.

    But she is also inchoate to the point of frustration in the conceptual or practical sources of the market for which she attempts to develop an “ideal”; The attempt to think about the ideals inherent in particular forms of practice is fine as it goes. But what practices is she referring to? The example of the used car salesman shows just how false the ideal is. Perhaps she is referring to the ideals inherent in a certain concept of the market. Again, fine: but is this Arrow and Debreu’s market as a single universal auction at the beginning of time? Hayek’s market as an information machine? Or his other version, as process of discovery through competition of forms? Is it any institution that provides sufficient incentive to invest, as in North?

    3. Still, I thought that Anderson’s approach was much more fruitful than the two chapters we read from Satz. Anderson’s case studies (sexuality and intimacy, democratic participation, her wink at Jane Jacob’s work on public space) provide a useful set of reference points for thinking about the broad diversity of activities that human beings engage in that are oriented toward and supported by values, ideals and goods that are not so much incompatible with the “satisfaction of individual material desire” ideal, as existing parallel to or apart from those ideals. While I found her investigation of the interaction between those practices and ideals unsatisfying, the framework and starting point are excellent. Satz, on the other hand, by limiting herself to market “harms” ends up trapping herself within the impersonal, individualistic framework that Anderson attaches to the market itself. In other words, Satz is limited to thinking of the ethical limitations of market practices solely in terms of an economic language that imagines that all relations are reducible to individual consumption, exchange or (via externalities) violation of another person’s property rights.

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