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GUEST POST: Anton Howes – Of Markets and Morals

June 12th, 2009 Posted in Uncategorized by

You may have stumbled across the fascinating Reith Lectures by Michael Sandel. In his first lecture on Markets and Morals, he pointed out that the act of commoditisation of certain goods and services could cause unintended effects on supply and demand.

Although recognising that “the whole purpose of markets is to turn this vice [greed] into an instrument of the public good”, he explained that markets might not be as inert as we have often assumed.

As economic liberals, many readers may find this synonymous to heresy, but judging by the examples used, he may have a point. Sandel described the way that introducing a fine for late pick-ups of children from a school actually increased the number of late pick-ups instead of diminishing it as expected. The fine essentially placed a monetary value on late pick-ups, replacing the pre-existing moral disincentives.

In effect, the existence of a market crowded out other non-market and possibly moral incentives. The same ‘crowding out’ principle could even apply to carbon-trading and littering fines, “changing the norms” from which the market works.

Other notable examples included the commoditisation of blood transfusions, which actually caused them to decrease in both number and quality, or even paying children for every book that they read. In a nutshell, the lesson for economic liberals is that we should be careful when using markets to achieve certain outcomes, recognising that a moral incentive may be at work, even if we don’t subscribe to that particular moral. Sandel’s work suggests that perhaps cultures, values and attitudes may actually have a very real effect on markets, and that effective market-using systems in one country may not work in another.

There’s possibly a very similar parallel in medieval history – the Church used to sell pardons, essentially commoditising entry into Heaven, and to a certain extent sinning in general. Whilst lucrative for the Church, could it have ‘crowded out’ the moral disincentive to sin and the fear of divine retribution, actually increasing the number of sins committed? Sandel describes what he sees as the over-use or misuse of markets in various walks of life, creating a market society instead of just a market economy. Perhaps we as economic liberals should take heed and question what money can, but shouldn’t buy?

Anton Howes is leader of the Social Liberalist Party.

6 Responses to “GUEST POST: Anton Howes – Of Markets and Morals”

  1. John Scott Says:

    Hardly a new point, although perhaps this is one of the first time it has been popularised (if the Reith lectures are popularising!).

    The greater difficulty now is that communities are less strong. The medieval parallel doesn’t work because even if one obtained an indulgence for the sin, one only avoided the divine penalty, not any other consequences (whether legal or social). The corollary was royal pardons – whilst those protected someone from punishment in the temporal courts, criminals still had to seek absolution from the church for the sin involved. However, in both cases any social stigma attached to the wrong remained in place and may have affected social relations. That was probably a very meaningful deterrent for many people.

    In a much larger society, that social stigma doesn’t work anywhere near so effectively. Furthermore, if one is conscious of this fact, the realisation dawns that social stigma from people with whom one has few dealings have no meaningful effect. As such, unless there are market based incentives, one has no pressure at all to behave. In effect, one calls society’s bluff.

    For such individuals one has to use market incentives as one of the few means of influencing their behaviour.

  2. Joe Otten Says:

    Agree with John.

    I notice that most evironmentalism seems to be about moral condemnation rather than market incentives, which works for some people and not for others. Perhaps we can expect society to become more stratified into those who integrate environmentalism into their personal morality and those who don’t. Each stratum, interacting mostly with itself would reinforce its values reasonably well. But relations between the strata are bound to be difficult, with evil freeloaders on one side and smug pious gits on the other.

    I think this implies that the market incentive approach is needed, even if it does undermine the morality of the environmentalist. But the incentives will have to be pretty severe to influence us creatures of habit.

  3. Anton Howes Says:

    Yes, I see what you mean about the medieval parallel – although perhaps the crowding out effect may have been more prevalent higher up the feudal food chain? E.g. for those who wouldn’t suffer the full force of legal or social penalties?

    Interesting theory about the correlation between the size of a society and the effect of the moral incentives. Perhaps this suggests that globalisation in and of itself has a ‘crowding out’ effect just like markets do? Or does it also suggest that in a larger or more globalised society there’s less to fear in terms of using markets that may crowd out pre-existing social effects.

    Perhaps we’re already seeing this? With the carbon-trading example, I’d suggest that many of the bigger polluters will be those more impervious to moral condemnation, and so we’re unlikely to see much crowding out. Sandel himself admitted that his views on Carbon-trading had changed and that he saw the benefits of the market.

    I also suspect that morals associated with protecting the environment aren’t as deep or widespread as many others, so there’s less of that moral disincentive to crowd out through the use of a market in the first place. It could also be that “green” moral disincentives won’t be as fast-acting as market ones, so if you were to look for a fast-acting green policy, your best bet is the use of a market as opposed to waiting for everyone to find their own anti-environmental activities totally unacceptable.

  4. Tristan Says:

    “the whole purpose of markets is to turn this vice [greed] into an instrument of the public good”

    This misunderstands something fundamental – markets have no purpose, they just are. Markets are a natural outcome of human interaction.

    Now, you can try to twist markets to give them this purpose, and that is what is happening here.
    Paying people to give blood does not create a market, it changes an existing market. Previously people gave their time and blood for ‘free’, they received nothing of tangible value in return, but they did gain. Each individual gained in different ways, for some it might be the feeling of doing good, another might cynically like the time off work. Others may be in it for the cookies, to look good in the eyes of others or for other bizarre (to me) reasons.

    It is still an exchange, just not a monetary exchange.

    Unfortunately, it cannot be quantified, so people ignore it and don’t call it a market.

    The economic liberal in me rejects the managerialist attempts to monetise already existing markets. The social liberal in me reacts similarly. No wonder economic liberals get a bad name if some claim the title and then seek to monetise everything and simply become technocrats who think that monetising something makes it efficient.

  5. Anton Howes Says:

    Yes, you’re right about markets. I assumed you’d understand what I meant about ‘markets’ in terms of monetisation however – which of course you did. I should have used ‘monetised’ in the article however. My apologies.

    I think monetisation of some markets may well be a good thing in certain circumstances, perhaps especially in cases where a previously monetised market has been replaced by a government-imposed one. But the article was about being wary of over-monetisation or ignoring other factors that may affect it.

  6. Julian H Says:

    Strong comments; and predictably I agree with Tristan. All interventions have unintended consequences, so Sandel (who I think is flattered by the entirely more reasonable Anton Howes) isn’t introducing anything remotely new here. The littering example reminded me of the “denormalising” attempts by various interventionists to deter teenagers from drinking, smoking and other activities they disapprove of (via stigmatisation) – there’s evidence that such attempts simply reinforce teenagers’ desire for freedom, and lead to an increase in those supposed vices.