The anti-market sentiment has a long history and can be traced at least to Aristotle (384-322 B.C.); see ‘an anticommercial theme originating in Aristotle’ (McCloskey 2006, p.2). Let’s explore this further…
With the passage of more than two thousand and three hundred years and the tremendous increase in per-capita incomes due largely to the widespread and intensive use of markets, the anti-market sentiment has not decreased but likely has become more widespread and intense. Some recent examples of this anti-market sentiment include:
The recent concern by the Pope on the use of market exchange in quotas of greenhouse gas emission (Monast et al. 2017).
A most prominent anti-commodification advocate Professor Michael Sandel of Harvard University, has highly influential publications (Sandel 2012a, 2012b, 2013). He strongly deplores the expansion of the market, finding it ‘degrading’, crowding out non-market values, and threatening to turn the market economy into a market society.
Another very influential book about a decade ago was published by the renowned French economist Thomas Piketty (2014; French edition Le capital au 21e siècle, 2013). Though not apparently anti-market, his incorrect (as I pointed out in Ng 2015) argument of the inevitability of an increasing share (in total incomes) of capital was also likely caused by the general anti-market, anti-capital sentiment.
Falk and Szech (2013) published a paper in Science, a top-ranked scholarly journal, claiming to show that ‘markets erode moral values’. The argument is very obviously incorrect, showing the blinding influence of the anti-market sentiment (Ng 2019, pp.14-5).
Professor ZHENG Yongnian (郑永年), with a PhD in political science from Princeton University, who has held many important positions and published many articles in the popular press in China (including Hong Kong) and Singapore, expressed a clearly incorrect anti-capital argument in an article in the leading Chinese newspaper, Lianhe Zaobao (联合早报) on 25 Dec. 2018, as criticised in 黄有光(2019).
In this present eBook, I will discuss why many people have the anti-market/capital sentiment, why it is incorrect, and how the recognition of this mistake may make us more acceptable of the beneficial expansion of the market, including using more fines instead of imprisonment, allowing kidney sales and legalizing prostitution under appropriate regulations.
Why Is the Anti-Market Sentiment Prevalent but Wrong?
The following reasons making the anti-market/capital sentiment prevalent may be identified:
- From both nature and nurture, most of us have a preference for equality. We thus hate or at least dislike the inequality outcomes partly fostered by the market, while the contributions of market to efficiency and growth are less emphasised.
- Incentives for monetary gains are large and lead to both positive and negative effects; people pay more attention to the negative ones.
- From media headlines, most people believe that markets foster crime. In fact, markets cut crime.
- Insufficient distinction between economic and financial markets.
- Feeling of repugnance; similar to honour killing.
- Crowding out of intrinsic motivation and moral values.
These factors are discussed below.
Preference for equality
From both nature and nurture, most of us have a preference for equality. (This is related to its contribution to better cooperation.) We thus dislike the inequality outcomes partly fostered by the market. Reinforcing this dislike is the fact that the manifestation of inequality, especially in the forms of extreme richness and poverty, are very conspicuous and often widely reported. On the other hand, the market’s contributions to efficiency and growth are less conspicuous or are taken for granted, and are at least much less reported by the mass media.
A main argument of the communitarians is that commodification allows the rich to exploit the vulnerable position of the poor, e.g. the latter would be the main suppliers of kidneys or sexual services for the benefits of the former. This exploitation/inequality/fairness point is mentioned by almost all anti-commodification advocates and also given the most emphasis by many, if not most of them. However, this most emphasised case against commodification is also the least valid, if not outright mistaken.
Professor Michael Sandel of Harvard University calls the exploitation/inequality case the ‘fairness objection’ and explains it as such:
‘The fairness objection points to the injustice that can arise when people buy and sell things under conditions of inequality or dire economic necessity. According to this objection, market exchanges are not always as voluntary as market enthusiasts suggest. A peasant may agree to sell his kidney or cornea to feed his starving family, but his agreement may not really be voluntary. He may be unfairly coerced, in effect, by the necessities of his situation’ (Sandel, 2012a, p.11).
Obviously, if real coercion is involved including by force or by some undue influence, the exchange involved may be condemned. An example of undue influence may be exercised by persons in authority (employers, teachers, officials) against their subordinates. However, the correct objection here is not against the market exchange as such but rather, the coercion. A similarly valid case against certain exchanges is where the relevant parties may be misinformed, especially when the relevant information is held back on purpose. However, again, the objection should not be against the exchange as such, but rather against misinformation. If the degree of ignorance and/or mis-information is high enough, the banning of certain exchanges may be desirable, such as the banning of hard addictive drugs. However, the case should be based on coercion, misinformation, and/or serious ignorance or even irrationality. However, these grounds are not widely used against the expansion of markets. Rather, the point here is regarding exploitation/inequality.
The anti-commodification theorists, including Sandel, define coercion here so widely as to include virtually all cases of selling under poverty or the presence of a high degree of inequality. In the absence of real coercion, serious ignorance and/or irrationality a poor person’s choice to sell his kidney cannot be regarded as being coerced or involuntary; ‘coerced by the necessities of his situation’ is at best only a figure of speech, not real coercion.
True, if a poor person has to sell her kidney just to feed her children, this may not be a desirable outcome, especially in a relatively rich society. A case may be argued that society should help her to avoid this dire circumstance, especially if her poverty is not due to her own fault. Few, if any pro-market economists are completely against governmental help to reduce poverty, if done with some degree of efficiency. However, as argued in Ng (2023), to promote equality efficiently, instead of suppressing market exchange, we should follow efficiency supremacy in specific measures, and equality should be promoted through general policies including tax/subsidy; ‘general’ here means aiming at the total purchasing power, rather than on specific items (unless justified on some efficiency grounds).
More emphasis on the negative effects
The incentives for monetary gains are large and may lead to both huge positive achievements that also benefit others and terrible negative activities including tax evasion, corruption, robberies, kidnappings, murders, wars, etc. Again, people tend to focus more on the conspicuous, and widely reported negative effects and largely ignore the positive effects. This one-sided focus leads people to have a negative view on money and markets, and in fact all things material.
Misperception that markets foster crime
From media headlines, most people believe that markets foster crime. In fact, markets cut crime: ‘Historians combing the archives of medieval European towns estimate an annual homicide rate of about 50 per 100,000 residents. … and by the time of the great market takeover it was below 10 per 100,000. By around 1880, the annual homicide rate in London was less than 2 per 100,000 and headed lower. … Markets also broaden social webs, strengthen bonds, and foster moral behavior. So the market takeover transforms the moral system’ (Friedman & McNeill 2013, p.160-1). One important channel through which markets reduce crimes is by increasing per-capita incomes (the section on “Efficiency of Market Exchange” on p.6), making people having less need to commit crimes and face higher costs of doing so. In addition, see the old doux- commerce thesis on the civilizing effects (making people gentle, honest and peaceful) of market relations which increase morality and reduce crimes (e.g. Hirschman 1982, 2013). Berggren & Nilsson (2013) and Prasad (2012) also argue that economic freedom, trade openness and the removal of controls in particular, fosters tolerance and reduce violent crime. Zak (2011) argues that, not only is moral behavior necessary for the proper functioning of markets, but markets also strengthen moral values.
Insufficient distinction between economic markets and financial markets
Another relevant consideration is the insufficient distinction between economic markets and financial markets. The former refer to the exchanges of goods and services; the latter to the exchanges of financial instruments only, including cash, deposits, loans, shares, and derivatives. Finance serves an important function in a modern economy, especially in channelling savings into investments. However, the financial sector also involves much speculation and manipulation. Though speculation may also be productive or useful (as discussed in Ch. 14 of Ng 2019), the existence of some unproductive elements and even fluctuation-creating ones cannot be denied, although this is usually associated with some imperfect information and irrationality (i.e. may not be the inherent results of financial markets as such). The issue of the acceptability of commodification or the expansion of markets usually involves economic markets of goods and services, though ones that are normally less traded or usually not using money. For example, blood donation, organ sales, prostitution, line sitting/standing, etc. involve some real goods (defined widely enough to include human organs) and/or services. The insufficient distinction between economic and financial markets makes people extend their hatred for financial markets to economic markets.
A few days before presenting a keynote speech at a conference on environmental economics in August 2017, I mentioned this to a colleague in the Humanities School (which is housed in the same building as the Social Sciences School at Nanyang Technological University where I was visiting then). She remarked, ‘Environmental economics! That sounds like a contradiction [oxymoron]!’ I asked why. She explained that economics is concerned with GDP and money making which are bad for the environment. I explained to her that she probably confused economics with finance or business studies. The latter focuses much on money making especially at the levels of firms and individuals, but economics is mainly concerned with efficiency and social welfare at the level of the whole economy/society, and takes much account of issues of equality and environmental disruption.
Feeling of repugnance against certain market exchanges
Some people feel repugnant against the buying and selling of certain things, e.g. human organs and sexual services. My welfarism framework requires paying attention to this, especially in the short-run practical or political level. However, in the long run, it may be best to disregard repugnance as a relevant factor for serious consideration. This is so as using repugnance as the main ground for say, banning organ sales and prostitution is really similar to ‘honour’ killing in being very illiberal, though this is perhaps of different degrees. The so-called honour killing is the killing of close relatives, usually sisters or first cousins, for being freely in love with men outside marriage, or even after having been kidnapped and raped; see Friedman & McNeill 2013, p.22. Just in 2015, more than one thousand girls/women were killed in Pakistan on this ground alone. In most other countries, people have learned enough liberalism to be free from committing such horrifying honour killings. However, we should also learn that the feeling of repugnance against the exchange of some items like kidneys and sexual services is at least partly caused by inadequate liberalism. If other people wish to exchange certain things for mutual benefits without important negative effects like serious pollution, a liberal person should not feel repugnant about it.
Moreover, In the words of Radcliffe-Richards et al. (1998), ‘The weakness of the familiar arguments [against kidney sales] suggests that they are attempts to justify the deep feelings of repugnance which are the real driving force of prohibition, and feelings of repugnance among the rich and healthy, no matter how strongly felt, cannot justify removing the only hope of the destitute and dying.’
Crowding out of intrinsic motivation and moral values
Crowding out or crowding in may refer either to the intrinsic motivation, altruism, or morals (in the subjective sense), or to the actual behavior like the amount of blood or organs donated (in the objective sense). In my view, the former, i.e. crowding out in the subjective sense is more important, if it exists in significant scale. For example, it is quite likely for a person to be willing to use one of her kidneys to save the life of a loved one, if purchasing a kidney legally is not an option. However, in the presence of this option, she may decide to buy a kidney instead. The number of uncompensated donated kidneys is reduced (crowded out) by the legalization of kidney sales. However, this does not mean that her degree of concern/altruism towards her loved one is correspondingly reduced. This degree may likely remain intact, but the availability of a lower cost option allows her to opt out of the higher cost way of saving her loved one. If the seller of that kidney makes the decision under full knowledge and rationality, no one is made worse off. The exchange is clearly desirable. Thus, the existence of crowding out in the objective sense does not constitute a valid ground against legalization.1 On the other hand, though crowding out in the subjective sense may also exist, it is much less likely and less substantial. Moreover, the existence of crowding out in the subjective sense is also not a sufficient condition to justify banning free exchange, as the benefits of free market must also be taken into account. However, it is a factor that should be taken into consideration.
In some cases, it is possible that financial incentives and market prices may ‘backfire’ by crowding out nonmarket norms. Sometimes, offering payment for a certain behaviour gets you less of it, not more (Sandel 2012a, p. 114). However, backfiring need not be bad. For example, in 1998 some daycare centres in Haifa (in Israel) started charging parents a relatively moderate sum of money (about US$5 in today’s price) for being late by more than 10 minutes in picking up their children. Unexpectedly, as a result, more parents turned up late, willing to pay the lateness fee. If the fees compensated enough for the additional costs of the daycare centres (as they should if fixed at the right levels), both sides would be better off, and less people might get run down by hasty parents driving fast. More importantly, people would feel less guilty and could concentrate on being punctual on really important occasions. A likely all-round gain, as practiced in Singapore, and reported in Ng (2019, Ch. 2). However, are there serious crowding-out effects leading to a much worse outcome in other cases?
One particular case that I am largely on the side of communitarians is paying children to read. If monetary payment crowds out their intrinsic motivation, the payment may well be counterproductive. Moreover, children are still in their early stage of learning to form the right values and may be more vulnerable to the influence (I hesitate to say ‘corruption’) of monetary payment. However, perhaps further research may give us more insight.
Efficiency of Market Exchange
At the micro level, we may easily see that, in the absence of coercion, misinformation, serious ignorance, mutually agreeable exchange typically leads to gains on both sides. At the macro level, we may also see the efficiency of free market exchange from facts and simple reasoning.
If each individual or family could not rely on the market but has to produce all goods by themselves, their productivities would be very low. Most would probably perish. Even for those who could survive, they would not have much, if any, time for leisure, thinking, and invention. The use of market exchange facilitates the division of labour which in turn helps to promote scientific and technological advances. These have resulted in huge increases in productivity and have increased the per-capita real income of the world by well over 10 times since 1800, to a population of well over 6 times, or an increase in total GDP by over 60 times in real terms, not counting price increases. Though the increases have been uneven, even the poorest in Africa have more than tripled in real per-capita income (McCloskey 2006, p.16).
‘Over the long run, markets drive the prices of most goods we want to consume way down. This means that all of us are in a real sense spending less time in getting those goods, more of us are getting them, and we are getting more of them. It is basic economics to say that our standard of living is higher now because the costs of pretty much everything in terms of time and labor are much lower now. For instance, between 1835 and 1850, the price of light in Britain in terms of average labor hours was cut in half. Between 1850 and 1890, it was further cut by about 97%. Quite literally, we can now buy more light with 10 seconds of labor than a caveperson could have bought with 60 hours of labor’ (Brennan & Jaworski, 2016, p.166). This is 21,600 times!2 Why using the example of light? Light is me; Kwang (Guang in pinyin) means light; Yew (You in pinyin) means having.
The contributions of market exchange to efficiency and growth should thus be obvious and recognized to be enormous. Nevertheless, most people do not attribute the enormous increase in incomes per head to the use of market exchange, but to other factors like scientific and technological advances. Though these are also very important, they are also made possible by the use of market exchange in the first place.
On the other hand, the increase in incomes per head has been associated with much noticed inequality, including the conspicuous consumption of the rich and the extreme poverty of the poor. The higher incomes per head allow for more scope for inequality to prevail, with some very rich to contrast with many poor ones. When incomes per head were very low, those who got much less than the average could not survive and die. Thus, for the living population, these people did not register to highlight the serious inequality. Thus, market exchange that promotes growth is very good in reducing the number of people perishing from starvation. I would rather be the modern living poor than the ancient dead (dying after starvation).
Avoiding the Anti-Market Sentiment May Lead to Important Improvements
Recognising that our anti-market sentiment is largely based on one-sided and/or incorrect reasoning, we should be less against the expansion of market exchange. The desirability of allowing kidney sales and legalizing prostitution has already been touched on above (see Ng 2019, Chs. 9 and 12 for more detailed arguments), others include the reduction in the under- pricing of electricity and water, and substituting more costly imprisonment by higher fines. To save space, I will only briefly elaborate on this last point.
We see quite often that the maximum fine and imprisonment for any particular offence are typically along the lines of: ‘Five thousand dollars in fine and/or five months of sentence’. The costs of one-month imprisonment even to a person at average to below average income levels are well over one thousand dollars, even if we look only at the forgone incomes, not counting the big additional disutility of imprisonment. Such penalties could be improved by increasing the fine component by many times and reducing the imprisonment component to a small fraction, with roughly the same deterrent effects but at a small fraction of the total costs to society. Professors A.M. Polinsky and S. Shavell of Stanford University believe that fines should be used until the wealth of the convicted have been exhausted before imprisonment may be considered (Polinsky & Shavell 1984). While the resources released by the payment of fines by those convicted can be used by the society for useful purposes, the forgone earnings and dis-utilities of imprisonment cannot be so converted to benefit the society. On the contrary, the society has to pay for the very high costs of housing, feeding, and policing the imprisonment, not to mention the associated administrative costs.
In practice, the serious under-utilization of fines is widespread, if not universal. The case reported world-wide on 3 August 2017, including by Washington Post, typifies the point. A Cambodian court sentenced an Australian woman to 18 months in prison and a US$1000 fine for providing commercial surrogacy services in the country. Not only is the banning
(done in Cambodia in 2016) of commercial surrogacy questionable, given the ban, the cash fine of US$1000 is disproportionately too small in comparison to the imprisonment of 18 months, even to a local Cambodian. (Cambodia has a per capita GDP of well over US$1,600 a year.)
Similarly, when Hasmiza Othman (nick name Dato Seri Vida) was convicted of failing to pay GST (Goods and Services Tax) of RM$4.2m. late in 2016, she was only fined RM$80k. (without any other penalty) which is less than 2% of the evaded amount. (See report in Lianhe Zaobao, the major Chinese daily in Singapore, on 20 September 2017, p.12.) The maximum fine for such a conviction of ‘RM50,000, three years jail, or both’ is also biased in the leniency in the fine amount, while relatively severe in the imprisonment term.
Another report on 21 August 2017 in Lianhe Zaobao mentions the maximum penalties for a certain crime (taking photos of girls under their skirts) being S$10,000 or 5 years imprisonment or both. Again, the fine is much less severe in comparison to the imprisonment. As Singapore has a per capita GDP of over S$72,000 per year, the amount of S$10,000 is less than 3% of the per capita GDP for 5 years. Also, in Singapore, the maximum punishment for the crime of operating brothels is also S$10k and/or 5 years imprisonment (Source: LianheZaobao 30 Sep. 2017, p.14). The degree of underutilization of fines versus imprisonment is phenomenal. This is despite the fact that Singapore’s government has been very proficient in emphasizing economic efficiency, such as in using the efficient Vickrey second-price auction in its distribution of Certificates of Entitlement in car ownership. The under-utilization of fines at least partly caused by the anti-market sentiment has conquered even Singapore, a stronghold of economic efficiency.
Just in this month (Oct. 2023, time of writing the current piece), Victoria (a state in Australia) has announced the banning of the Nazi salute. The proposed maximum penalty: $23,000 and/or 12 months jail; see: https://www.theguardian.com/australia-news/2023/oct/ 18/victoria-to-ban-public-display-of-nazi-salute-by-end- of-the-week.
The maximum fine is only roughly half the yearly minimum wages. The Australian minimum hourly wage is currently $23.23 per hour, or $882.80 per (38 hours) week, or $45,905.60 per year. This is about twice the maximum fine of $23,000. The average annual wage is 4 times this fine. Better increase the fine amount and reduce the jail terms to maintain the same deterrence effect at lower costs.
Many believe that even a very high fine is insufficient to deter the rich. However, we only have to impose sufficiently high fines taking account of the harm of the prohibited activities on the society and the probability of conviction. The lower this probability, the higher should be the fine, to make the expected fine commensurate with the harm. Such an efficient fine should be imposed for all offenders, rich or poor, just like any person has to pay the same price for the same good, as it costs the society the same to produce. We should pursue efficiency supremacy in specific measures, leaving equality to be promoted by the general policies including tax/transfer, as argued in Ng (2023).