What is wrong with markets?

In some of my recent blogs I have argued that market economies cannot obviously be wrong in themselves at least under the most obvious understanding of the purpose of the economic system. I of course believe that the most egalitarian market economy is the correct one and that fairness is a major problem for market economies that requires constant rectification.

I fully accept that market economies tend towards inequality and monopoly and that it is necessary to have strong mechanisms in place to counteract these. Robust regulation is required to guard against monopoly and other potential market failures Redistributive mechanisms are necessary to counteract the inequalities that markets generate, and my CLIPH-rate tax system is my proposal to achieve this.

This still leaves it open to argue that there is something (or many things) wrong with markets even if there isn’t a better economic system available. Some political philosophers have made some arguments along these lines in recent years and it is worth considering these.

Michael Sandel is one of the most widely known political philosophers and has been a strong critic of markets. He has argued, for example in his book What Money Can't Buy: The Moral Limits of Markets, that markets impose their own valuations which corrupt and crowd out other values. He has a few good examples in which introducing market solutions can be counter-effective because other values get crowded out.

He goes to great lengths to show that the issue is not just the unfairness engendered by allowing markets into more areas of life in unequal societies, but that rather other important values can be lost as a result. His proposed solution, unsurprisingly to those who know his other work, is that markets should be subordinated to the common will, as determined by democratic discussion.

I was not particularly impressed or convinced by Sandel’s book, despite its being as clearly written as you would expect. Although I would be keen to encourage deliberative democracy I felt the book didn’t add up to much more than a few examples which did not all seem to particularly indicate the need for his vague solution of discussing together whether markets should be disallowed in some cases.

A more philosophically satisfying book from the same year with a similar title was Deborah Satz’s Why Some Things Should Not Be for Sale: The Moral Limits of Markets. Satz proposes a method by which to judge when markets are inappropriate among four categories of harm. This allows her to consider whether markets in various goods (such as sex or kidneys) might be noxious. Those items with markets deemed noxious should either be regulated and restricted or even banned.

Satz makes a clear case for regulating or restricting markets on the basis of arguments that are quite reasonable and which do not depend upon controversial philosophical or political positions. I therefore found Satz’s approach much more useful than Sandel’s to judge whether certain types of goods should not be sold.

So while I am happy to accept that there can be a case for restricting the application of markets in some cases the case for allowing markets remains a strong default position in most cases. Does this mean there is nothing more to be said? Can markets really crowd out other goods as Sandel suggests in some cases he has found?

I am sceptical of the idea that very many people value things according to their market price rather than how the items helps them to in some way live their life better. The most obvious type of counter-example is where someone clearly wishes to show off that they have something which cost a lot of money. This is the familiar idea of a status symbol or conspicuous consumption. The expense of the item might indicate that the person values high quality or wants to show that they have good taste but it could equally be a sign that the person has a high disposable income such that they can afford to waste their resources on something of little or no obvious use value to them.

This perhaps fits in with Sandel’s concern about markets (or money) corrupting other values. Indeed, this goes back to socialists/communists, who talked about the reification of money (i.e. turning money into something that has value in itself).

Now, clearly those who think that the money value of an item has any bearing on the item itself and how we should judge it are clearly making some kind of mistake. In some areas of life, of course, people may view things in entirely money terms, like making abstract investments.* However, if someone does it in their personal life I would think that they are displaying a poor character trait.

Where people have this view it is a tragedy, firstly for them personally as they are probably victims of a misunderstanding about what matters in life. It is also a tragedy in the way it is likely to affect others. Status symbols are positional or hierarchical goods. These are a zero-sum game in that their aim is to create a hierarchy in which others will feel worse about their position. As Fred Hirsch pointed out, positional goods are inherently wasteful and inefficient.

Furthermore, using resources in this manner is going to leave fewer resources in society for people to use on their own lives. A society in which people are primarily concerned with showing off their position will be a tragic one in which everyone is actively trying to put others in a relatively worse position rather than in making the most of their own lives. Of course, if someone really wants to live their life in this way it is up to them—people are perfectly entitled to use their resources in ways that make others worse off. However, I fail to see why anyone would consciously choose a way of life that makes others—and almost certainly themselves—worse off. I would think it is more likely to be an unreflective choice.

Dedicating one’s life to ostentatiously wasting as much as possible is one approach to the good life, but it is a strange one to hold. It isn’t likely to bring about much happiness either since you have to alienate others while doing so rather than nurturing relationships with them. I doubt anyone really has such an approach to life, though sometimes people might fall foul of attempting to show off as if this was a good thing to do.

How should we respond to this concern that people are going to value items of property according to their money value rather than their usefulness? I think the answer is in education and regulation of certain markets. As part of their education children should learn that there are lots of approaches to life and that they have to choose one of these. They should also be given the philosophical tools to consider these.

Markets should only be regulated or restricted if there is a very good reason. The typical argument for regulation is to avoid harm to citizens through market failures and monopolistic behaviours. However, there may be some markets that should be regulated for paternalistic reasons to ensure that children and adults in vulnerable positions are not harmed. We may also want to design the education system and wider society to ensure that people have a good chance of making an active choice over the life they live rather than a passive one. This may, for example, require regulation of advertising.

My overall conclusion is that while I think some philosophers, such as Sandel, go too far in arguing against markets that this does not mean that regulation is a solely technical issue to be determined by economists. Satz provides a basis for determining markets that require further regulation and another basis is the liberal requirement of providing people with the conditions to make authentic choices.

*This may be deemed important by radicals who believe financial markets represent alienation and obscures class relations and exploitation. I will ignore arguments from this perspective because I am unconvinced by the labour value theory of economics and therefore do not see take alienation to be a specific economic issue. Perhaps a further advantage of these kinds of view, however, is that they challenge the type of mistake I characterise in this paragraph.