Giving Economists Their Due
Michael Sandel makes two serious errors in his defense of morality over markets.
First, his critique of economic theory is incorrect. The idea that some valuable things should not be bought and sold on markets has been known for centuries, certainly since the anti-slavery movement in England. All mature economists understand this well. Just because some otherwise-obscure economist can gain ﬁfteen minutes of fame by advocating the suppression of non-monetary gift-giving doesn’t mean we should interpret his claims as an exercise of brilliant economic argument.
We do not have a complete theory of when the exchange of valuable entities is best left to the market and when it should be regulated by other mechanisms, such as social norms or laws. But the notion that economists have nothing important to say about this is absurd. For instance, most economists, based on the costs and beneﬁts of prohibiting the sale of recreational drugs, have favored regulation and decriminalization for a long time—a view that is just now becoming popular in the United States. Another example: economists Ernst Fehr and Klaus Schmidt have shown that basing a business relationship in part on trust rather than completely on contractual terms can increase both the efficiency and the fairness of the relationship. These are just two of many contributions by economists that belie Sandel’s crude depiction of economic theory.
At least since Richard Titmuss’s 1970 book, economists have also known that monetary incentives can, but need not, crowd out moral incentives. Economists Lorenz Goette and Alois Stutzer’s large 2008 ﬁeld experiment in Switzerland found that offering lottery tickets increased turnout at blood drives. Economists are often correct in saying that if voluntary contributions do not elicit enough participation, then monetary incentive may do so, even though they completely drive out moral incentives. By neglecting this point, Sandel suggests that wherever the supply of a social good or service is governed by altruistic motivations, it is a social evil to replace those motivations with ﬁnancial incentives. This is not the case, thus his critique of Kenneth Arrow and Lawrence Summers rests on faulty grounds.
Tolerance, equality, and democracy have flourished in market societies and nowhere else.
Sandel’s lack of economic sophistication also leads him to misrepresent a key issue in contemporary economic policy: the role of corruption in economic efficiency and growth. According to Sandel, corruption is a purely moral issue: “corruption . . . . points to the degrading effect of market valuation and exchange.” In fact, corruption is a major impediment to economic growth in both developing and developed economies, as stressed by economists Daron Acemoglu and James Robinson in their new book Why Nations Fail.
This second error is far more serious than the first. By focusing on the marketability of particular things, Sandel misses the larger effect of an economy regulated by markets on the evolution of social morality. Movements for religious and lifestyle tolerance, gender equality, and democracy have ﬂourished and triumphed in societies governed by market exchange, and nowhere else.
My colleagues and I found dramatic evidence of this positive relationship between markets and morality in our study of fairness in simple societies—hunter-gatherers, horticulturalists, nomadic herders, and small-scale sedentary farmers—in Africa, Latin America, and Asia. Twelve professional anthropologists and economists visited these societies and played standard ultimatum, public goods, and trust games with the locals. As in advanced industrial societies, members of all of these societies exhibited a considerable degree of moral motivation and a willingness to sacriﬁce monetary gain to achieve fairness and reciprocity, even in anonymous one-shot situations. More interesting for our purposes, we measured the degree of market exposure and cooperation in production for each society, and we found that the ones that regularly engage in market exchange with larger surrounding groups have more pronounced fairness motivations. The notion that the market economy makes people greedy, selﬁsh, and amoral is simply fallacious.