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Market Reasoning as Moral Reasoning: Why Economists Should Re-engage with
Political Philosophy 

 

There are some things money can’t buy—friendship, for example. If I want
more friends than I have, it clearly wouldn’t work to buy some. A hired
friend is not the same as the real thing. Somehow, the money that would
buy the friendship dissolves the good I seek to acquire.

 


But most goods are not of this kind. Buying them does not ruin them. Consider
kidneys. Some people favor a market in human organs; others are opposed. But
those who oppose the buying and selling of kidneys cannot argue that a market in
kidneys would destroy the good being sought. A bought kidney will work, assuming
a good match. So if a market in human organs is objectionable, it must be for some
other reason. Money can buy kidneys (as the black market attests); the question is
whether it should be allowed to do so.

 


In my book What Money Can’t Buy: The Moral Limits of Markets, I try to show that
market values and market reasoning increasingly reach into spheres of life previously
governed by nonmarket norms (Sandel 2012). In procreation and childrearing,
health and education, sports and recreation, criminal justice, env ironmental protection,
military service, political campaigns, public spaces, and civic life, money and
markets play a growing role. I argue that this tendency is troubling; putting a price
on every human activity erodes certain moral and civic goods worth caring about.
We therefore need a public debate about where markets serve the public good and
where they don’t belong.

 


In this article, I would like to develop a related theme: When it comes to
deciding whether this or that good should be allocated by the market or by
nonmarket principles, economics is a poor guide. On the face of it, this may seem
puzzling. Explaining how markets work is a central subject of economics. So why has
economics failed to provide a convincing basis for deciding what should, and what
should not, be up for sale?

 


The reason lies in the conception of economics as a value-neutral science of
human behavior and social choice. As I will try to show, deciding which social practices
should be governed by market mechanisms requires a form of economic reasoning
that is bound up with moral reasoning. But mainstream economic thinking asserts its
independence from the contested terrain of moral and political philosophy. Economics
textbooks emphasize the distinction between “positive” questions and normative
ones, between explaining and prescribing. The popular book Freakonomics states the
distinction plainly: “Morality represents the way we would like the world to work and
economics represents how it actually does work.” Economics “simply doesn’t traffc in
morality” (Levitt and Dubner 2006, pp. 11, 46, 190; see also Robbins 1932).


Moral Entanglements

 


Economists have not always understood their subject in this way. The classical
economists, going back to Adam Smith, conceived of economics as a branch of
moral and political philosophy. But the version of economics commonly taught
today presents itself as an autonomous discipline, one that does not pass judgment
on how income should be distributed or how this or that good should be valued.
The notion that economics is a value-free science has always been questionable. But
the more markets extend their reach into noneconomic aspects of life, the more
entangled they become with moral questions.

 


To be clear, I am not writing here about the standard textbook limitations
on markets. A considerable body of economic analysis is devoted to identifying
“market failures,” or situations in which unaided market forces are unlikely to
produce an efficient result, such as imperfectly competitive markets, negative and
positive externalities, public goods, imperfect information, and the like. Another
body of economic literature addresses questions of inequality. But this literature
tends to analyze the causes and consequences of inequality while claiming to be
agnostic on normative questions of fairness and distributive justice. Outsourcing
judgments about equity and fairness to philosophers seems to uphold the distinction
between positive and normative inquiry.

 


But this intellectual division of labor is misleading, for two reasons. First, as
Atkinson (2009) has recently observed, “economics is a moral science,” despite
protestations to the contrary. Efficiency only matters insofar as it makes society
better off. But what counts as better off? The answer depends on some conception
of the general welfare or the public good. Although “welfare economics has
largely disappeared” from mainstream economics in recent decades, Atkinson
writes, “economists have not ceased to make welfare statements.” Articles in journals
of economics “are replete with welfare statements” and reach “clear normative
conclusions,” he states, even though the principles underlying those conclusions go
largely unexamined. Mostly, the conclusions rest on utilitarian assumptions. But as
John Rawls and other philosophers have pointed out, utilitarianism seeks to maximize
welfare without regard for its distribution. Atkinson calls for a revival of welfare
economics that acknowledges the defects of utilitarianism and considers a broader
range of distributive principles.

 


A second reason to doubt that economics can be a value-free science of social
choice points beyond debates about distributive justice to debates about commodifi -
cation: Should sex be up for sale? What about surrogate motherhood, or pregnancy
for pay? Is there anything wrong with mercenary armies, and if so, how should military
service be allocated? Should universities sell some seats in the freshman class in
order to raise money for worthy purposes, such as a new library, or scholarships for
well-qualififi ed students from poor families? Should the United States sell the right
to immigrate? What about allowing existing US citizens to sell their citizenship to
foreigners and swap places with them? Should we allow a free market in babies up
for adoption? Should people be allowed to sell their votes?

 


Some of these controversial uses of markets would improve efficiency by
enabling mutually advantageous exchanges. In some cases, negative externalities
might outweigh the benefits to buyers and sellers. Even absent externalities,
however, some market transactions are objectionable on moral grounds.
One such ground is that severe inequality can undermine the voluntary character
of an exchange. If a desperately poor peasant sells a kidney, or a child, the
choice to sell might be coerced, in effect, by the necessities of his or her situation. So
one familiar argument in favor of markets—that the parties freely agree to the terms
of the deal—is called into question by unequal bargaining conditions. In order to
know whether a market choice is a free choice, we have to ask what inequalities in the
background conditions of society undermine meaningful consent. This is a normative
question that different theories of distributive justice answer in different ways.

 


A second moral objection is not about fairness and tainted consent, but about
the tendency of market practices to corrupt or crowd out nonmarket values worth
caring about. For example, we might hesitate to create a market in children on the
grounds that putting them up for sale would price less-afflfl uent parents out of
the market or leave them with the cheapest, least desirable children (the fairness
argument). But we might also oppose such a market on the grounds that putting a
price tag on children would objectify them, fail to respect their dignity, and erode
the norm of unconditional parental love (the corruption argument).

 

Even where markets improve efficiency, they may be undesirable if they corrupt
or crowd out nonmarket norms of moral importance. So before we can decide
whether to create a market in children, for example, we have to figure out what
values and norms should govern the social practices of child-rearing and parenting.
In this sense, market reasoning presupposes moral reasoning.

 


For those who assume that all values are merely subjective preferences not
open to reasoned argument, it may seem odd to suggest that some ways of valuing
goods are more appropriate, or fitting, or morally defensible than others. But such
judgments are unavoidable, and we make them—sometimes implicitly, sometimes
explicitly—whenever we decide whether this or that good should be up for sale.

 

Economists are not unaware of the moral objection to monetizing all relationships.
For example, Waldfogel (1993; 2009), like many economists, questions the
rationality of gift giving. Analyzing what he calls the “deadweight loss of Christmas,”
he calculates the utility loss that results from people giving gifts rather than the
cash equivalent. He attributes the practice of in-kind gift giving to “the stigma of cash
giving.” But he does not ask whether this stigma might be justified. He simply assumes
it is an irrational obstacle to utility that should ideally be overcome. He does not
consider the possibility that the stigma against monetary gifts, at least among lovers,
spouses, and other intimates, may reflect norms worth honoring and encouraging,
such as attentiveness and thoughtfulness.

 


Alvin Roth (2007) also recognizes moral objections to the commodification of
certain social practices, when he writes of “repugnance as a constraint on markets.”
To contend with such repugnance, he designs in-kind kidney exchanges and other
mechanisms that avoid outright buying and selling. Unlike Waldfogel, he does not
treat repugnance as an irrational, utility-destroying taboo; he simply accepts it as a
social fact and devises work-arounds. Roth does not morally assess the repugnant
transactions he discusses. He does not ask which instances of repugnance reflfl ect
unthinking prejudice that should be challenged and which reflect morally weighty
considerations that should be honored. This reluctance to pass judgment on repugnance
may reflect the economist’s hesitation to venture onto normative terrain.

 


But the project of devising in-kind exchanges presupposes some moral judgment
about which instances of repugnance are justified and which ones are not.
Consider human organs. Everyone recognizes that lives could be saved by increasing
the supply of organs for transplantation. But some object to the buying and selling
of kidneys on the grounds that removing an organ from one person and transferring
it to another violates the sanctity and integrity of the human body.

Others object on the grounds that buying and selling kidneys objectififi es the human person
by encouraging us to view our bodies as property, as collections of spare parts to be
used for proffit. Still others favor a market in kidneys on the grounds that we own
ourselves and should be free to profifi t from our bodies in whatever way we choose.
Whether an outright market in kidneys or an in-kind exchange is morally defensible
depends, at least in part, on which of these stances toward the body and human
personhood is correct. If the first view is right, then all forms of organ transplantation,
paid or gifted, are objectionable, notwithstanding the lives that could be saved.

If the second view is right, then gifted but not paid kidney transfers are morally defensible.
Insofar as kidney exchanges preserve the gift ethic and avoid promoting a mercenary,
objectifying attitude toward the human body, they address the moral concern underlying
the second view. If the third view is right, we should not limit kidney transfers to
in-kind exchanges, but should allow people to buy and sell kidneys for cash.
Some of the most corrosive effects of markets on moral and civic practices are
neither failures of effifi ciency in the economist’s sense, nor matters of inequality.
Instead, they involve the degradation that can occur when we turn all human
relationships into transactions and treat all good things in life as if they were
commodities.

 

The economic literature that acknowledges stigma and repugnance
makes implicit judgments about these questions; otherwise, it would be unable
to propose either market solutions or quasi-market alternatives. But it does not
articulate and defend the basis of these judgments. Doing so would carry economic
reasoning beyond the textbook distinction between positive and normative inquiry
and call into question the conception of economics as a value-neutral science of
social choice. I will try to show how this is so by considering arguments for and
against the use of market mechanisms in some contested contexts.-1

 

The Line-Standing Business


When Congressional committees hold hearings, they reserve some seats for the
press and make others available to the general public on a fifi rst-come, fifi rst-served
basis. Corporate lobbyists are keen to attend these hearings, but are loath to spend
hours in line to assure themselves a seat. Their solution: Pay thousands of dollars
to professional line-standing companies that hire homeless people and others to
queue up for them (Montopoli 2004; Copeland 2005; Lerer 2007; Palmeri 2009).


A company called LineStanding.com describes itself as “a leader in the Congressional
line standing business.” It charges $50 dollars an hour for line-standing services,
of which a portion is paid to the people who stand and wait. The business has recently
expanded from Congress to the US Supreme Court. When the Court hears oral arguments
in big constitutional cases, the demand for seats far exceeds the supply. But if
you are willing to pay, LineStanding.com will get you a ringside seat in the highest
court in the land.

Business was brisk for the Obama healthcare case in July 2012, when
the line began forming three days in advance. For the same-sex marriage cases in June
2013, some people queued up five days in advance, making the price of a seat in the
courtroom about $6,000 (for reports of this practice in the popular press, see Cain
2011; Smith 2013; Associated Press 2013; Liptak 2013).

 


On efficiency grounds, it is hard to fifi nd fault with the line-standing business.
The homeless people who spend hours queuing up receive a payment that makes
the waiting worth their while. Those who employ their services gain access to a
Congressional hearing or a Supreme Court argument that they are eager to attend
and willing to pay for. And the company that arranges the deal makes money too.
All of the parties are better off, and no one is worse off.

 


1 A number of the sections of this paper draw upon Sandel (2012), especially from pp. 21–133. For
those interested in following up specifi c discussions, here are the relevant page references to the 2012 book: “Ticket Scalpers and Line Standers,” pp. 21–23; “Markets and Corruption,” pp. 33–35; “Refugee
Quotas,” pp. 63 – 65; “Fines vs. Fees,” pp. 65–70; “Tradeable Procreation Permits,” pp. 70–72; “Paying to Shoot a Walrus,” pp. 82– 84; “Incentives and Moral Entanglements,” pp. 88–91; “The Case against Gifts,” pp. 98–103; “Crowding out Non-market Norms,” pp. 113 –120; “The Commercialization Effect,” pp. 120–22; “Blood for Sale,” pp. 122–125; “Two Tenets of Market Faith,” pp. 125–127; and “Economizing Love,” pp. 127–133.

 

And yet some people object. Senator Claire McCaskill, a Missouri Democrat,
has tried to ban paid Congressional line standing, without success. “The notion
that special interest groups can buy seats at congressional hearings like they would
buy tickets to a concert or football game is offensive to me,” she said (as quoted in
O’Connor 2009; see also Hananel 2007).

 


But what exactly is objectionable about it? One objection is about fairness: It
is unfair that wealthy lobbyists can corner the market on Congressional hearings,
depriving ordinary citizens of the opportunity to attend. But unequal access is not
the only troubling aspect of this practice. Suppose lobbyists were taxed when they
hired line-standing companies, and the proceeds were used to make line-standing
services affordable for ordinary citizens. The subsidies might take the form, say,
of vouchers redeemable for discounted rates at line-standing companies. Such a
scheme might ease the unfairness of the present system. But a further objection
would remain: turning access to Congress into a product for sale demeans and
degrades it.

 


We can see this more clearly if we ask why Congress “underprices” admission
to its deliberations in the first place. Suppose, striving mightily to reduce
the national debt, it decided to charge admission to its hearings—say, $1,000 for
a front row seat at the House Appropriations Committee. Many people would
object, not only on the grounds that the admission fee is unfair to those unable
to afford it, but also on the grounds that charging the public to attend a Congressional
hearing is a kind of corruption.

 


We often associate corruption with ill-gotten gains. But corruption refers to more
than bribes and illicit payments. To corrupt a good or a social practice is to degrade
it, to treat it according to a lower mode of valuation than is appropriate to it (on
higher and lower modes of valuation, see Anderson 1993). Charging admission to
Congressional hearings is a form of corruption in this sense. It treats Congress as if it
were a business rather than an institution of representative government accessible to
all citizens.

 


Cynics might reply that Congress is already a business, in that it routinely sells
inflfl uence and favors to special interests. So why not acknowledge this openly and
charge admission? The answer is that the inflfl uence peddling and self-dealing that
already afflict Congress are also instances of corruption. They represent the degradation
of government in the public interest. Implicit in any charge of corruption is a
conception of the purposes and ends an institution (in this case, Congress) properly
pursues. The line-standing industry on Capitol Hill is corrupt in this sense. It is not
illegal, and the payments are made openly. But it degrades Congress by treating
access to public deliberations as a source of private gain rather than an expression
of equal citizenship.

 


This does not necessarily mean that queuing is the best way to allocate access
to Congressional hearings or Supreme Court arguments. Another alternative,
arguably more consistent with the ideal of equal citizenship than either queuing
or paying, would be to distribute tickets by an online lottery, with the provision that
they be nontransferable.



How Markets Leave Their Mark

 


Before we can decide whether a good should be allocated by market, queue,
lottery, need, merit, or in some other way, we have to decide what kind of good it
is and how it should be valued. This requires a moral judgment that economists, at
least in their role as social scientists, hesitate to make.

 


Part of the appeal of market reasoning is that it seems to offer a nonjudgmental
way of allocating goods. Each party to a deal decides what value to place
on the goods being exchanged. If someone is willing to pay for sex or a kidney,
and a consenting adult is willing to sell, the economist does not ask whether the
parties have valued the goods appropriately. Asking such questions would entangle
economics in controversies about virtue and the common good and thus violate
the strictures of a purportedly value-neutral science. And yet it is difficult to decide
where markets are appropriate without addressing these normative questions.

 


The textbook approach evades this quandary by assuming—usually implicitly—
that putting a price on a good does not alter its meaning. It assumes, without
argument, that the activity of buying and selling does not diminish the value of the
things being bought and sold. This assumption may be plausible in the case of material
goods. Whether you sell me a flfl at screen television, or give me one as a gift, the
television will work just as well. But the same may not be true when market practices
extend their reach into human relationships and civic practices—sex, child rearing,
teaching and learning, voting, and so on. When market reasoning travels abroad,
beyond the domain of televisions and toasters, market values may transform social
practices, and not always for the better.

 


Refugee Quotas and Childcare Pickups


Consider, for example, a proposal for a global market in refugee quotas. Each
year, more refugees seek asylum than the nations of the world are willing to take in.
A law professor, inspired by the idea of tradable pollution permits, suggested a solution:
Let an international body assign each country a yearly refugee quota, based
on national wealth. Then, let nations buy and sell these obligations among themselves.
So, for example, if Japan is allocated 10,000 refugees per year but doesn’t
want to take them, it could pay Russia, or Uganda, to take them instead. According
to standard market logic, everyone benefifi ts. Russia or Uganda gains a new source
of national income, Japan meets its refugee obligations by outsourcing them, and
more refugees are rescued than would otherwise fifi nd asylum (Schuck 1994, 1997).

 

The argument in favor of the scheme is that countries would likely accept
higher refugee quotas if they have the freedom to buy their way out. Yet there is
something distasteful about a market in refugees, even if it’s for their own good. But
what exactly is objectionable about it? It has something to do with the tendency of a
market in refugees to change our view of who refugees are and how they should be
treated. It encourages the participants—the buyers, the sellers, and also those whose
asylum is being haggled over— to think of refugees as burdens to be unloaded or as
revenue sources, rather than as human beings in peril.

 


One might acknowledge the degrading effect of a market in refugees and still
conclude that the scheme does more good than harm. But the example illustrates
that markets are not mere mechanisms. They embody certain norms. They presuppose—
and promote— certain ways of valuing the goods being exchanged.
Economists often assume that markets are inert, that they do not touch or
taint the goods they regulate. But this is untrue. Markets leave their mark on social
norms. Market incentives can even erode or crowd out nonmarket motivations.

 

A well-known study of some childcare centers in Israel shows how this can
happen (Gneezy and Rustichini 2000a). The centers faced a familiar problem:
parents sometimes came late to pick up their children. A teacher had to stay with the
children until the tardy parents arrived. To solve this problem, the centers imposed
a fifi ne for late pickups. If you assume that people respond to financial incentives,
you would expect the fine to reduce, not increase, the incidence of late pickups.
Instead, late pickups increased.

 


What explains the result? Introducing the monetary payment changed the
norms. Before, parents who came late felt guilty; they were imposing an inconvenience
on the teachers. Now, parents considered a late pickup as a service for
which they were willing to pay. They treated the fine as if it were a fee. Rather than
imposing on the teacher, they were simply paying him or her to work longer. If the
goal of the payment for late pickups was to cover the additional costs of lateness,
they were arguably a success; but if the goal of the payments was to discourage lateness
by penalizing it, they were a failure.


Fines versus Fees


It is worth considering the difference between a fine and a fee. Fines register
moral disapproval, whereas fees are simply prices that imply no moral judgment.
When the government imposes a fifi ne for littering, it makes a statement that littering
is wrong. Tossing a beer can into the Grand Canyon not only imposes cleanup costs.

 


It reflects a bad attitude that we want to discourage. Suppose the fifi ne is $100, and a
wealthy hiker decides it is worth the convenience. He treats the fifi ne as a fee and
tosses his beer can into the Grand Canyon. Even if he pays up, we consider that he’s
done something wrong. By treating the Grand Canyon as an expensive dumpster, he
has failed to appreciate it in an appropriate way.

 


Or consider the case of parking spaces reserved for use by the physically
disabled. Suppose a busy but able-bodied contractor wants to park near his building
site. For the convenience of parking his car in a place reserved for the disabled,
this contractor is willing to pay the rather large fifi ne. He considers it a cost of doing
business. Even if he pays the fifi ne, wouldn’t we consider that he is doing something
wrong? He treats the fifi ne as if it were simply an expensive parking lot fee. But in
treating the fifi ne as a fee, he fails to respect the needs of the physically disabled
Why Economists Should Re-engage with Political Philosophy 129
and the effort of the community to accommodate them by setting aside certain
parking spaces.

 


In practice, the distinction between a fine and a fee can be unstable. In China,
the fine for violating the government’s one-child policy is increasingly regarded
by the affluent as a price for an extra child. The policy, put in place over three
decades ago to reduce China’s population growth, limits most couples in urban
areas to one child. (Rural families are allowed a second child if the first one is
a girl.) The fine varies from region to region, but reaches 200,000 yuan (about
$31,000) in major cities —a staggering fifi gure for the average worker, but easily
affordable for wealthy entrepreneurs, sports stars, and celebrities (Moore 2009;
Bristow 2007; Coonan 2011; Ming’ai 2007).

 


China’s family planning offifi cials have sought to reassert the punitive aspect of
the sanction by increasing fines for affluent offenders, denouncing celebrities who
violate the policy and banning them from appearing on television, and preventing
business executives with extra kids from receiving government contracts. “The fine
is a piece of cake for the rich,” explained Zhai Zhenwu, a Renmin University sociology
professor (Moore 2009). “The government had to hit them harder where it
really hurt, at their fame, reputation, and standing in society” (for discussion, see
also Xinhua News Agency 2008; Liu 2008).

 


The Chinese authorities regard the fifi ne as a penalty and want to preserve
the stigma associated with it. They don’t want it to devolve into a fee. This is not
mainly because they’re worried about afflfl uent parents having too many children;
the number of wealthy offenders is relatively small. What is at stake is the norm
underlying the policy. If the fine were merely a price, the state would find itself
in the awkward business of selling a right to have extra children to those able and
willing to pay for them.

 


Tradable Procreation Permits


Some Western economists have called for a market-based approach to population
control strikingly similar to the one the Chinese seem determined to avoid: that
is, they have urged countries that seek to limit their population to issue tradable
procreation permits. For example, Kenneth Boulding (1964) proposed a system
of marketable procreation licenses as a solution to overpopulation. Each woman
would be issued a certififi cate (or two, depending on the policy) entitling her to have
a child. She would be free to use the certififi cate or sell it at the going rate. Boulding
(pp. 135 –36) imagined a market in which people eager to have children would
purchase certififi cates from (as he indelicately put it) “the poor, the nuns, the maiden
aunts, and so on.”

 


The plan would be less coercive than a system of fifi xed quotas, as in a one-child
policy. It would also be economically more effifi cient, since it would get the goods
(in this case, children) to the consumers most willing to pay for them. Recently,
two Belgian economists revived Boulding’s proposal. They pointed out that, since
the rich would likely buy procreation licenses from the poor, the scheme would
have the further advantage of reducing inequality by giving the poor a new source
of income (de la Croix and Gosseries 2006).
Some people oppose restrictions on procreation, whether mandatory or marketbased.

 

Others believe that reproductive rights can legitimately be restricted to avoid
overpopulation. Set aside for the moment that disagreement of principle and
imagine a society that was determined to implement mandatory population control.
Which policy would be less objectionable: a fixed quota that limits each couple to
one child and fines those who exceed the limit, or a market-based system that issues
each couple a tradable procreation voucher entitling the bearer to have one child?

 


From the standpoint of economic reasoning, the second policy is clearly preferable.
The freedom to choose whether to use the voucher or sell it makes some
people better off and no one worse off. Those who buy or sell vouchers gain (by
making mutually advantageous trades), and those who don’t enter the market are
no worse off than they would be under the fixed quota system; they can still have
one child.

 


And yet, there is something troubling about a system in which people buy and
sell the right to have kids. Part of what is troubling is the unfairness of such a system
under conditions of inequality. We hesitate to make children a luxury good, affordable
by the rich but not the poor. Beyond the fairness objection is the potentially
corrosive effect on parental attitudes and norms. At the heart of the market transaction
is a morally disquieting activity: parents who want an extra child must induce or
entice other prospective parents to sell off their right to have a child.

 


Some might argue that a market in procreation permits has the virtue of
effifi ciency; it allocates children to those who value them most highly, as measured
by the ability to pay. But traffiking in the right to procreate may promote a
mercenary attitude toward children and corrupt the norm of unconditional love
of parents for their children. For consider: Wouldn’t the experience of loving
your children be tainted if you acquired some of them by bribing other couples
to remain childless? Might you be tempted, at least, to hide this fact from your
children? If so, there is reason to conclude that, whatever its advantages, a market
in procreation permits would corrupt parenthood in ways that a fifi xed quota,
however odious, would not.

 


In deciding whether to commodify a good, we must consider more than
effifi ciency and fairness. We must also ask whether market norms will crowd out
nonmarket norms, and if so, whether this represents a loss worth caring about.

 


Paying to Shoot a Walrus

 


Consider another kind of tradable quota—the right to shoot a walrus. Although
the Atlantic walrus was once abundant in the Arctic region of Canada, the massive,
defenseless marine mammal was easy prey for hunters, and by the late nineteenth
century the population had been decimated. In 1928, Canada banned walrus
hunting, with a small exception for aboriginal subsistence hunters whose way of life
had revolved around the walrus hunt for 4,500 years.

 


In the 1990s, Inuit leaders approached the Canadian government with a
proposal. Why not allow the Inuit to sell the right to kill some of their walrus quota
to big-game hunters? The number of walruses killed would remain the same. The
Inuit would collect the hunting fees, serve as guides to the trophy hunters, supervise
the kill, and keep the meat and skins as they had always done. The scheme
would improve the economic wellbeing of a poor community, without exceeding
the existing quota. The Canadian government agreed.

 


Today, rich trophy hunters from around the world make their way to the
Arctic for the chance to shoot a walrus. They pay $6,000 to $6,500 for the privilege.
They do not come for the thrill of the chase or the challenge of stalking an elusive
prey. Walruses are unthreatening creatures that move slowly and are no match for
hunters with guns. In a compelling account in the New York Times Magazine, Chivers
(2002) compares walrus hunting under Inuit supervision to “a long boat ride to
shoot a very large beanbag chair.” The guides maneuver the boat to within 15 yards
of the walrus and tell the hunter when to shoot. Chivers describes the scene as a
game hunter from Texas shot his prey: “[The] bullet smacked the bull on the neck,
jerking its head and knocking the animal to its side. Blood spouted from the entry
point. The bull lay motionless. [The hunter] put down his riflfl e and picked up his
video camera.” The Inuit crew then pull the dead walrus onto an ice flfl oe and carve
up the carcass.

 


The appeal of the hunt is diffifi cult to fathom. It involves no challenge, making it
less a sport than a kind of lethal tourism. The hunter cannot even display the remains
of his prey on his trophy wall back home. Walruses are protected in the United States,
and it is illegal to bring their body parts into the country.
So why shoot a walrus? Apparently, the main reason is to fulfifi ll the goal of
killing one specimen of every creature on lists provided by hunting clubs —for
example, the African “Big Five” (leopard, lion, elephant, rhino, and cape buffalo),
or the Arctic “Grand Slam (caribou, musk ox, polar bear, and walrus).

 


It hardly seems an admirable goal; many find it repugnant. But from the
standpoint of market reasoning, there is much to be said for allowing the Inuit to
sell their right to shoot a certain number of walruses. The Inuit gain a new source
of income, and the “list hunters” gain the chance to complete their roster of
creatures killed—all without exceeding the existing quota. In this respect, selling
the right to kill a walrus is like selling the right to procreate, or to pollute. Once
you have a quota, market logic dictates that allowing tradable permits improves
the general welfare. It makes some people better off without making anyone
worse off.

 


And yet there is something morally disagreeable about the market in walrus
killing. Let’s assume, for the sake of argument, that it is reasonable to permit the Inuit
to carry on with subsistence walrus hunting as they’ve done for centuries. Allowing
them to sell the right to kill “their” walruses is nonetheless open to two moral objections.
First, it can be argued that this bizarre market caters to a perverse desire
that should carry no weight in any calculus of social utility.

Whatever one thinks of other forms of big-game hunting, the desire to kill a helpless mammal at close
range, without any challenge or chase, simply to complete a list, is not worthy of
being fulfilled. To the contrary, it should be discouraged. Second, for the Inuit to
sell outsiders the right to kill their allotted walruses arguably corrupts the meaning
and purpose of the exemption accorded their community in the first place. It is one
thing is to honor the Inuit way of life and to respect its long-standing reliance on
subsistence walrus hunting. It is quite another to convert that privilege into a cash
concession in killing on the side.\

 


Of course, the moral judgments underlying these objections are contestable.
Some might defend the system of tradable walrus-hunting quotas on the grounds
that the desire to shoot a walrus is not perverse but morally legitimate, worthy of
consideration in determining the general welfare. It might also be argued that the
Inuit themselves, not outside observers, should determine what counts as respecting
their cultural traditions. My point is simply this: deciding whether or not to permit
the Inuit to sell their right to shoot walruses requires debating and resolving these
competing moral judgments.


Crowding out Nonmarket Norms

 


Markets in refugee quotas, procreation permits, and the right to shoot a walrus,
however efficient in economic terms, are questionable policy to the extent that they
erode the attitudes and norms that should govern the treatment of refugees, children,
and endangered species. The problem I am emphasizing here is not that such
markets are unfair to those who can’t afford the goods being sold (although this
may well be true), but that selling such things can be corrupting.

\


Standard economic reasoning assumes that commodifying a good—putting
it up for sale— does not alter its character; market exchanges increase economic
effifi ciency without changing the goods themselves. But this assumption is open to
doubt. As markets reach into spheres of life traditionally governed by nonmarket
norms, the notion that markets never touch or taint the goods they exchange
becomes increasingly implausible. A growing body of research confifi rms what
common sense suggests: fifi nancial incentives and other market mechanisms can
backfifi re by crowding out nonmarket norms.

 


The day care study offers one example. Introducing a monetary payment for
late arrivals increased rather than reduced the number of parents arriving late. It is
no doubt true that, if the fifi ne were high enough (say, $1,000 an hour), the standard
price effect would win out. But all that matters for my argument is that introducing a
monetary incentive or disincentive can sometimes corrupt or crowd out nonmarket
attitudes and norms. When and to what extent the “crowding out” effect may trump
the price effect is an empirical question. But even the existence of a “crowding out”
effect shows that markets are not neutral; introducing a market mechanism may
change the character and meaning of a social practice. If this is true, deciding to
use a cash incentive or a tradable quota requires that we evaluate, in each case, the
nonmarket values and norms such mechanisms may displace or transform.
Several other studies also demonstrate the crowding out effect:


Nuclear Waste Siting

 

When residents of a Swiss town were asked whether they would be willing to
approve a nuclear waste site in their community if the Parliament decided to build it
there, 51 percent said yes. Then the respondents were offered a sweetener: Suppose
the Parliament proposed building the nuclear waste facility in your community
and offered to compensate each resident with an annual monetary payment.
(Frey, Oberholzer-Gee, Eichenberger 1996; Frey and Oberholzer-Gee 1997; see
also Frey 1997, pp. 67–78). Adding the fifi nancial inducement did not increase
the rate of acceptance. In fact, it cut it in half —from 51 percent to 25 percent.
Similar reactions to monetary offers have been found in other places where local
communities have resisted radioactive waste repositories (Frey, Oberholzer- Gee,
and Eichenberger 1996, pp. 1300, 1307; Frey and Oberholzer-Gee 1997, p. 750;
Kunreuther and Easterling 1996, pp. 606–608).

 


Why would more people accept nuclear waste for free than for pay? For many, the
willingness to accept the waste site apparently reflfl ected public spirit—a recognition
that the country as a whole depended on nuclear energy, and that the waste had to
be stored somewhere. If their community was found to be the safest site, they were
willing to sacrififi ce for the sake of the common good. But they were not willing to sell
out their safety and put their families at risk for money. In fact, 83 percent of those who
rejected the monetary proposal explained their opposition by saying they could not be
bribed (Frey, Oberholzer-Gee, and Eichenberger 1996, p. 1306). The offer of a private
payoff had transformed a civic question into a pecuniary one. The introduction of
market norms crowded out their sense of civic duty (Kunreuther and Easterling 1996,
pp. 615–19; Frey, Oberholzer-Gee, and Eichenberger 1996, p. 1301; for an argument
in favor of cash compensation, see O’Hare 1977).

 


Donation Day


Each year, on a designated day, Israeli high school students go door-to-door to
solicit donations for worthy causes—cancer research, aid to disabled children, and
so on. Gneezy and Rustichini (2000b) did an experiment to determine the effect
of fifi nancial incentives on the students’ motivations. They divided the students into
three groups.

One group of students was given a brief motivational speech about
the importance of the cause, and sent on its way. The second and third groups were
given the same speech, but also offered a monetary reward based on the amount
they collected—1 percent and 10 percent respectively. The rewards would not be
deducted from the charitable donations, but would come from a separate source.
Not surprisingly, the students who were offered 10 percent collected more in
donations than those who were offered 1 percent. But the unpaid students collected
more than either of the paid groups, including those who received the high commission.

 

Gneezy and Rustichini (2000b, 802– 807) conclude that, if you’re going to use
financial incentives to motivate people, you should either “pay enough or don’t pay
at all.” While it may be true that paying enough will get what you want, there is also
a lesson here about how money crowds out norms.

 


Why did both paid groups lag behind those doing it for free? Most likely, it was
because paying students to do a good deed changed the character of the activity.
Going door-to-door collecting funds for charity was now less about performing a
civic duty and more about earning a commission. The financial incentive transformed
a public-spirited activity into a job for pay. As with the Swiss villagers, so
with the Israeli students: the introduction of market norms displaced, or at least
dampened, their moral and civic commitment.

 


Why worry about the tendency of markets to crowd out moral and civic ideals?
For two reasons —one fifi scal, the other ethical. From an economic point of view,
social norms such as civic virtue and public spiritedness are great bargains. They
motivate socially useful behavior that would otherwise cost a lot to buy. If you had to
rely on fifi nancial incentives to get communities to accept nuclear waste, you would
have to pay a lot more than if you could rely instead on the residents’ sense of civic
obligation. If you had to hire school children to collect charitable donations, you
would have to pay more than a 10 percent commission to get the same result that
public spirit produces for free.

 


But to view moral and civic norms simply as cost-effective ways of motivating
people ignores the intrinsic value of the norms. Relying solely on cash payments
to induce residents to accept a nuclear waste facility is not only expensive; it is
corrupting. The reason it is corrupting is that it bypasses persuasion and the kind
of consent that arises from deliberating about the risks the facility poses and the
larger community’s need for it. In a similar way, paying students to collect charitable
contributions on donation day not only adds to the cost of fundraising; it dishonors
their public spirit and disfifi gures their moral and civic education.

 


The Commercialization Effect

 


Many economists now recognize that markets change the character of the goods
and social practices they govern. In recent years, one of the fifi rst to emphasize the
corrosive effect of markets on nonmarket norms was Fred Hirsch, a British economist
who served as a senior advisor to the International Monetary Fund. In a book
published the same year that Gary Becker’s (1976) inflfl uential work An Economic
Approach to Human Behavior appeared, Hirsch (1976) challenged the assumption
that the value of a good is the same whether provided through the market or in
some other way. Hirsch (pp. 87, 93, 92) argued that mainstream economics had overlooked
what he called the “commercialization effect.” By this he meant “the effect
on the characteristics of a product or activity of supplying it exclusively or predominantly
on commercial terms rather than on some other basis— such as informal
exchange, mutual obligation, altruism or love, or feelings of service or obligation.”

 

The “common assumption, almost always hidden, is that the commercialization
process does not affect the product.” Hirsch observed that this mistaken assumption
loomed large in the rising “economic imperialism” of the time, including attempts,
by Becker and others, to extend economic analysis into neighboring realms of social
and political life. The empirical cases we’ve just considered support Hirsch’s (1976)
insight—that the introduction of market incentives and mechanisms can change
people’s attitudes and crowd out nonmarket values.

 


A growing body of work in social psychology offers a possible explanation
for this commercialization effect. These studies highlight the difference between
intrinsic motivations (such as moral conviction or interest in the task at hand) and
external ones (such as money or other tangible rewards). When people are engaged
in an activity they consider intrinsically worthwhile, offering them money may
weaken their motivation by depreciating or “crowding out” their intrinsic interest or
commitment. (For an overview and analysis of 128 studies on the effects of extrinsic
rewards on intrinsic motivations, see Deci, Koestner, and Ryan 1999).

 


Standard economic theory assumes that all motivations, whatever their character
or source, are additive. But this misses the corrosive effect of money. The
“crowding out” phenomenon has far-reaching implications for economics. It calls
into question the use of market mechanisms and market reasoning in many aspects
of social life, including the use of fifi nancial incentives to motivate performance in
education, health care, the workplace, voluntary associations, civic life, and other
settings in which intrinsic motivations or moral commitments matter ( Janssen and
Mendys -Kamphorst 2004).

 


Blood for Sale

 


Perhaps the best-known illustration of markets crowding out nonmarket norms
is a classic study of blood donation by the British sociologist Richard Titmuss. In
his book The Gift Relationship, Titmuss (1971) compared the system of blood collection
used in the United Kingdom, where all blood for transfusion was given by
unpaid, voluntary donors, and the system in the United States, where some blood
was donated and some bought by commercial blood banks from people, typically
the poor, who were willing to sell their blood as a way of making money. Titmuss
presented a wealth of data showing that, in economic and practical terms alone,
the UK blood collection system worked better than the American one. Despite the
supposed effifi ciency of markets, he argued, the American system led to chronic
shortages, wasted blood, higher costs, and a greater risk of blood contaminated by
hepatitis (pp. 231–32).

 


But Titmuss (1971) also leveled an ethical argument against the buying and
selling of blood. He argued that turning blood into a market commodity eroded
people’s sense of obligation to donate blood, diminished the spirit of altruism, and
undermined the “gift relationship” as an active feature of social life. “Commercialization
and profifi t in blood has been driving out the voluntary donor,” he wrote.
Once people begin to view blood as a commodity that is routinely bought and sold,
Titmuss (pp. 223–24, 177) suggested, they are less likely to feel a moral responsibility
to donate it.



Titmuss’s book prompted much debate. Among his critics was Kenneth Arrow
(1972). In taking issue with Titmuss, Arrow invoked two assumptions about human
nature and moral life that economists often assert but rarely defend (for an insightful
contemporary reply to Arrow, see Singer 1973). The fifi rst is the assumption I have
examined above, that commercializing an activity doesn’t change it. According to
this assumption, if a previously untraded good is made tradable, those who wish
to buy and sell it can do so, thereby increasing their utility, while those who regard
the good as priceless are free to desist from traffifi cking in it. This line of reasoning
leans heavily on the notion that creating a market in blood does not erode the value
or meaning of donating blood out of altruism. Titmuss attaches independent moral
value to the generosity that motivates the gift. But Arrow (1972, p. 351) doubts
that such generosity could be diminished or impaired by the introduction of a
market: “Why should it be that the creation of a market for blood would decrease
the altruism embodied in giving blood?”

 


The answer is that commercializing blood changes the meaning of donating
it. In a world where blood is routinely bought and sold, giving it away for free may
come to seem a kind of folly. Moreover, those who would donate a pint of blood at
their local Red Cross might wonder if doing so is an act of generosity or an unfair
labor practice that deprives a needy person of gainful employment selling his blood.
If you want to support a blood drive, would it be better to donate blood yourself, or
to donate $50 that can be used to buy an extra pint of blood from a homeless person
who needs the income?

 


The second assumption that figures in Arrow’s (1972) critique is that ethical
behavior is a commodity that needs to be economized. The idea is this: We should
not rely too heavily on altruism, generosity, solidarity, or civic duty, because these
moral sentiments are scarce resources that are depleted with use. Markets, which rely
on self-interest, spare us from using up the limited supply of virtue.

So, for example, if we rely on the generosity of the public for the supply of blood, there will be less
generosity left over for other social or charitable purposes. “Like many economists,”
Arrow (1972, pp. 354–55) writes, “I do not want to rely too heavily on substituting
ethics for self-interest. I think it best on the whole that the requirement of ethical
behavior be confifi ned to those circumstances where the price system breaks down
. . . We do not wish to use up recklessly the scarce resources of altruistic motivation.”
It is easy to see how this economistic conception of virtue, if true, provides yet
further grounds for extending markets into every sphere of life. If the supply of
altruism, generosity, and civic virtue is fifi xed, as if by nature, like the supply of fossil
fuels, then we should try to conserve it. The more we use, the less we have. On this
assumption, relying more on markets and less on morals is a way of preserving a
scarce resource.


Economizing Love


The classic statement of this idea was offered by Sir Dennis H. Robertson (1954),
a Cambridge University economist and former student of John Maynard Keynes,
in an address at the bicentennial of Columbia University. The title of Robertson’s
lecture was a question: “What does the economist economize?” He sought to show
that, despite catering to what he called (p. 148) “the aggressive and acquisitive
instincts” of human beings, economists nonetheless serve a moral mission.
Robertson (1954) claimed that by promoting policies that rely, whenever
possible, on self-interest rather than altruism or moral considerations, the economist
saves society from squandering its scarce supply of virtue. “If we economists do
[our] business well,” Robertson (p. 154) concluded, “we can, I believe, contribute
mightily to the economizing . . . of that scarce resource Love,” the “most precious
thing in the world.”

 


To those not steeped in economics, this way of thinking about the generous
virtues is strange, even far-fetched. It ignores the possibility that our capacity for
love and benevolence is not depleted with use but enlarged with practice. Think
of a loving couple. If, over a lifetime, they asked little of one another, in hopes of
hoarding their love, how well would they fare? Wouldn’t their love deepen rather than
diminish the more they called upon it? Would they do better to treat one another in
more calculating fashion, to conserve their love for the times they really needed it?
Similar questions can be asked about social solidarity and civic virtue. Should
we try to conserve civic virtue by telling citizens to go shopping until their country
really needs them? Or do civic virtue and public spirit atrophy with disuse? Many
moralists have taken the second view. Aristotle (Nicomachean Ethics, Book II, chap. 1,
pp. 1103a–1103b) taught that virtue is something we cultivate with practice: “We
become just by doing just acts, temperate by doing temperate acts, brave by doing
brave acts.”

 


Rousseau (1762 [1973] Book III, chap. 15, pp. 239 – 40) held a similar view.
The more a country asks of its citizens, the greater their devotion to it. “In a wellordered
city every man flfl ies to the assemblies.” Under a bad government, no one
participates in public life “because no one is interested in what happens there”
and “domestic cares are all-absorbing.” Civic virtue is built up, not spent down, by
strenuous citizenship. Use it or lose it, Rousseau says, in effect. “As soon as public
service ceases to be the chief business of the citizens, and they would rather serve
with their money than with their person, the state is not far from its fall.”

 

The notion that love and generosity are scarce resources that are depleted with
use continues to exert a powerful hold on the moral imagination of economists,
even if they don’t argue for it explicitly. It is not an offifi cial textbook principle, like
the law of supply and demand. No one has proven it empirically. It is more like an
adage, a piece of folk wisdom, to which many economists nonetheless subscribe.
Almost half a century after Robertson’s lecture, Lawrence Summers, then the
president of Harvard University, was invited to offer the Morning Prayers address in
Harvard’s Memorial Church. He chose as his theme what “economics can contribute
to thinking about moral questions.”

 

Economics, Summers (2003) stated, “is too rarely
appreciated for its moral as well as practical significance.” Summers observed that economists
place “great emphasis on respect for individuals—and the needs, tastes, choices,
and judgments they make for themselves.” He illustrated the moral implications of
economic thinking by challenging students who had advocated a boycott of goods
produced by sweatshop labor: “We all deplore the conditions in which so many on this
planet work and the paltry compensation they receive. And yet there is surely some
moral force to the concern that as long as the workers are voluntarily employed, they
have chosen to work because they are working to their best alternative. Is narrowing an
individual’s set of choices an act of respect, of charity, even of concern?”

 


Summers (2003) concluded with a reply to those who criticize markets for
relying on selfishness and greed: “We all have only so much altruism in us. Economists
like me think of altruism as a valuable and rare good that needs conserving. Far
better to conserve it by designing a system in which people’s wants will be satisfifi ed
by individuals being selfifi sh, and saving that altruism for our families, our friends,
and the many social problems in this world that markets cannot solve.”

 


Here was Robertson’s (1954) adage reasserted. This economistic view of virtue
fuels the faith in markets and propels their reach into places they don’t belong. But
the metaphor is questionable. Are altruism, generosity, solidarity, and civic spirit
like commodities that are depleted with use? Or are they more like muscles that
develop and grow stronger with exercise?


Market Reasoning as Moral Reasoning

 


To answer this question is to take sides in a long-standing debate in moral and
political philosophy. We have now seen two ways in which economic reasoning rests
on contestable normative assumptions. One is the assumption that subjecting a
good to market exchange does not alter its meaning; the other is the claim that
virtue is a commodity that is depleted with use.

 


The extension of market thinking into almost every aspect of social life complicates
the distinction between market reasoning and moral reasoning, between
explaining the world and improving it. Where markets erode nonmarket norms, we
need to ask whether this represents a loss worth caring about.

 

Do the efficiency gains of tradable refugee quotas outweigh the degrading effect they may inflict on refugees?
Are the economic benefits of commercialized walrus hunts worth the coarsened attitudes
toward endangered species they may engender and promote?

Should we worry if cash compensation for civic sacrifice turns patriotic sentiments to pecuniary ones?


Questions such as these carry us beyond predicting whether a market mechanism
will “work” in a narrow sense. They require that we make a moral assessment:
What is the moral importance of the attitudes and norms that money may crowd
out? Would their loss change the character of the activity in ways we would regret?
If so, should we avoid introducing financial incentives into the activity, even though
they might offer certain benefits?


To decide when to use cash incentives, or tradable permits, or other market
mechanisms, economists must go beyond identifying the norms that inform social
practices; they must also evaluate those norms. The more economic thinking extends
its reach into social and civic life, the more market reasoning becomes inseparable
from moral reasoning. If economics is to help us decide where markets serve the
public good and where they don’t belong, it should relinquish the claim to be a valueneutral
science and reconnect with its origins in moral and political philosophy.


I am grateful to the editors of this journal, David Autor, Timothy Taylor, and Ulrike
Malmendier, for their challenging comments and criticisms. Timothy Besley’s recently
published essay (Besley 2013) on my book What Money Can’t Buy helped me sharpen the
arguments of this paper, as did a valuable conversation with Peter Ganong. I would also
like to thank Robert Frank and the participants in New York University’s Paduano seminar,
and my colleagues in Harvard Law School’s summer faculty workshop, for instructive and
penetrating discussions of an earlier version of this paper.


References - are here: http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.27.4.121

 

 

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