Ethical economy: Of morals and markets
“Where all good things are bought and sold,” says Michael Sandel, “having money makes all the difference in the world”. And judging by the success of the book he has written based on the premise, the assertion is seductive.
In “What Money Can’t Buy: the Moral Limits of Markets”, the Harvard philosophy professor rails against “market reasoning” and its impact on modern societies. He says that justice suffers because money has become the predominant measure of social as well as economic value. He provides examples such as corporate life insurance policies on employees, advertising in bathrooms and payments for children’s academic success.
Sandel’s reading of contemporary society is wrong, and the examples he deploys are atypical. Overall, morals have been displacing markets, not the other way around. Considerations such as justice and the common good increasingly shape economic arrangements. Even where market reasoning does flourish, for example in the production of cars or food, the standards of social responsibility have steadily risen. Whether or not they are profitable, companies are expected to be good employers and good corporate citizens.
Consider the evolution of marriage. A century ago in most Western countries, spouses were chosen at least as much on economic grounds – dowries and future income – as on romantic ones. Love now rules, to the point that couples often choose impoverishment in divorce over wealth in a loveless marriage.
Marriage is not the only domain where Sandel’s “market reasoning” – the best way to allocate anything is by selling it to the highest bidder – is in retreat. In rich countries, most healthcare is made available at no or low costs to almost everyone, and is allocated on the basis of need, not income. The United States is, admittedly, a partial exception and the high ideals are rarely perfected in practice, but the market’s reasons are never considered the last word.
Education is similar. Students do not have to pay for primary and secondary school, while admission to the best establishments is determined, in theory at least, on the basis of academic merit – not the ability to pay.
According to market reasoning, everything should have a price. If that reasoning were in the ascendant in modern society, then surely everything about the internet, arguably the most impressive technological development in many generations, would be for sale. In fact, while the internet is a big business, the most important applications – search engines, social networks, email and Wikipedia – are made available at no direct cost.
A third claim of market reasoning is that prices are best set at the point where supply is perfectly balanced with demand. That principle is not followed in large parts of what might be the most important market of all, the job market. Supply and demand have only an indirect influence on the pay and career paths of most workers. Seniority and skills matter much more.
Given the evidence, it is puzzling that Sandel’s book, recently reviewed by my Breakingviews colleague Martin Langfield, has made such an impact. Sandel’s judgements about the triumph of crude materialist calculations over higher values should have at least been received more sceptically.
I blame the influence of Karl Marx, not as the founder of communism but as the great prophet of economic alienation. He warned that society would be torn apart by capitalism’s “cash nexus”, which used money to express values, and its “commodity fetish”, which treats all things as being up for sale as long as a price can be agreed.
Marxist claims still resonate, in part for good reasons. The expression of any human relationship in monetary terms is potentially dehumanising. Money really cannot buy love, should not buy sex and may damage the creative efforts of artists. Market reasoning adds selfishness to the picture – in the world of supply and demand it is each man for himself.
However, money and markets also have a good side, which Marx grudgingly admitted and Sandel blithely ignores. Buying, selling and the assignment of prices are effective and reasonably just tools for tying together the economic activity of strangers. The monetary system does not always create the best bond – unpaid voluntary efforts and compulsory arrangements can sometimes be better – but the global economy could not work without it.
The retreat of market reasoning shows that Marx underestimated the popular ability and desire to resist the commodity fetish. Marx also underestimated the future accomplishments of the industrial prosperity which the cash nexus helps create. These gains – modern societies feed the hungry, house the poor, spread knowledge and provide much interesting labour – far outweigh any losses from monetary alienation.
Sandel and other social critics may be right to think that society is damaged, even “broken”, as British politicians sometimes say. But markets and money are not to blame.