Michael Munger PPE Program Duke University Fleeming Jenkin.

Michael Munger PPE Program Duke University Fleeming Jenkin

The first objection [to the claim that exchange is voluntary] is an argument from coercion. It points to the injustice that can arise when people buy and sell things under conditions of severe inequality or dire economic necessity. According to this objection, market exchanges are not necessarily as voluntary as market enthusiasts suggest. A peasant may agree to sell his kidney or cornea in order to feed his starving family, but his agreement is not truly voluntary. He is coerced, in effect, by the necessities of his situation. (What Money Shouldnt Buy, http://www.iasc- culture.org/HHR_Archives/Commodification/5.2HSandel.pdf )http://www.iasc- culture.org/HHR_Archives/Commodification/5.2HSandel.pdf

Why are some transactions okay (water), some are not (meth), and in some cases the problem is payment, not the exchange itself is the problem (prostitution, organ sales)? What transactions should the state allow, regulate, or prohibit? What is legal? What should a moral person do? When is the market price a guide for moral action?

EUVOLUNTARY OR NOT, EXCHANGE IS JUST. Social Philosophy and Policy, 28 (2011): 192-211 Today, what is moral? What are the obligations of the individual?

1. Can selfish actions be moral? What are the conditions under which self-interested exchange is allowed? Relatedly, what individual mutually beneficial exchanges should be outlawed? 2. GIVEN the answer to #1, under what circumstances are the aggregate consequences of such exchanges a problem?

The laws and conditions of the production of wealth, partake of the character of physical truths. There is nothing optional, or arbitrary in them... this is not so with the distribution of wealth. That is a matter of human institution solely. The things once there, mankind, individually or collectively, can do with them as they like. (Mill, Collected Works, 1965, emphasis mine).

The roots of the English word monger, a common merchant or seller of items are quite old. In Saxon writings of the 11th century, described in Sharon Turners magisterial three-volume History of the Anglo-Saxons (1836), we find a very striking passage where a merchant (mancgere) defends the market price on moral grounds.

I say that I am useful to the king, and to ealdormen, and to the rich, and to all people. I ascend my ship with my merchandise, and sail over the sea-like places, and sell my things, and buy dear things which are not produced in this land, and I bring them to you here with great danger over the sea; and sometimes I suffer shipwreck, with the loss of all my things, scarcely escaping myself. What things do you bring to us? Skins, silks, costly gems, and gold; various garments, pigment, wine, oil, ivory, and orichalcus, copper, and tin, silver, glass, & suchlike. Will you sell your things here as you brought them here? I will not, because what would my labour benenfit me? I will sell them dearer here than I bought them there, that I may get some profit, to feed me, my wife, and children.

Itinerant Padre: Radford (Economica, 1945), "Economics of a POW Camp" Very soon after capture people realized that it was both undesirable and unnecessary, in view of the limited size and the equality of supplies, to give away or to accept gifts.... Goodwill developed into trading as a more equitable means of maximizing individual satisfaction.

Itinerant Padre: Radford (Economica, 1945), "Economics of a POW Camp" Stories circulated of a padre who started off round the camp with a tin of cheese and five cigarettes and returned to his bed with a complete [Red Cross] parcel in addition to his original cheese and cigarettes.

1. Euvoluntary exchange is always just 2. Exchange that is not euvoluntary is nonetheless often welfare-enhancing. Objections to exchange are generally misplaced objections to disparities in the pre-existing underlying distribution of wealth and power, which exchange actually mitigates.

(1) conventional ownership by both parties (2) conventional capacity to transfer and assign this ownership to the other party (3) the absence of post-exchange regret, for both parties, in the sense that both receive value at least as great as was anticipated at the time of the agreement to exchange

4. Absence of uncompensated externalities 5. neither party is coerced, in the sense of being forced to exchange by threat 6. neither party is coerced in the alternative sense of being harmed by failing to exchange.

In the economic world, power in an exchange relationship is measured by the disparity in outcomes if no exchange is agreed upon. More simply, economic power is the disparity in welfare at the reversion points, or the best alternative to a negotiated agreement. Lets call this the BATNA for short. This concept of the Best Alternative to a Negotiated Agreement, or BATNA, comes from Roger Fisher and William L. Ury. Getting to Yes: Negotiating Agreement Without Giving In (Boston, MA: Penguin Books, 1981).

One might think of the value of the BATNA as the level of welfare of the person without access to exchange. Imagine Jane and Bill are considering an exchange of a product for a sum of money. Jane has power over Bill if Bill suffers more from a failure to exchange than Jane does. In some sense, each has a voluntary choice to make: Jane can sell or not sell, and Bill can buy or not buy. But if the BATNAs (the consequences of failing to consummate the transaction) are wildly different, then the exchange is not euvoluntary.

So, formally, Jane has power over Bill, and Bills exchange decision is not euvoluntary, if either of two conditions are met: 1. Value (BATNA JANE ) Value (BATNA BILL ) (Threshold 1 ) 2. Value (BATNA BILL ) < (Threshold 2 ) BATNA: Best Alternative to a Negotiated Agreement Bantha

It points to the injustice that can arise when people buy and sell things under conditions of severe inequality or dire economic necessity.

1. Severe Inequality: Value (BATNA JANE ) Value (BATNA BILL ) (Threshold 1 ) 2. Dire Necessity: Value (BATNA BILL ) < (Threshold 2 )

Suppose I go to a grocery store to buy water, and the price is $1,000 per bottle I laugh and push my cart along. Ill buy water elsewhere, drink tap water, or many other alternatives. Im almost indifferent between water at Kroger or Food Lion for market price of $0.90, or even Whole Foods for $3.00.

So, even though water is a necessity (Ill die without it!) I have choices. And, I have money, and we all agree that I own that money and can transfer it, and we all agree that each store owns the water, and can transfer it. Finally, the water is not poisonous, and tastes good, so I wont regret purchasing it, if I choose to do so. So the exchange is euvoluntary.

Now, lets suppose instead that I am far out in the desert, and am dying of thirst. Im rich, and I happen to have quite a bit of cash on me, but I cant drink that. A four wheel drive taco truck rolls over the hill, and pulls up to me. I see that the sign advertises a special: 3 tacos for $5! Drinks: $1,000. 3 drinks for only $2,500 qu te gustara, gringo?

I argue with the driver. Have a heart, buddy! I am dying of thirst! He asks if I have enough money to pay his price, and I admit that I do. The driver shrugs, and says, Up to you! Have a nice day! and starts to drive off. I stop him, and buy 3 bottles of water for the special price of $2,500. Was the exchange euvoluntary?

It was not. The exchange violates part 6 of the definition, relative equality of BATNAs. My BATNA was death, from thirst. The driver was little affected by whether a deal was consummated (though he got a bit richer), while I was enormously affected. Even though in most important senses the exchange was voluntary (I could have said no), it was not euvoluntary. The precise definitional line between almost equal BATNAs (and therefore euvoluntary exchange) and unequal BATNAs (and therefore not euvoluntary exchange) may be hard to draw, but I hope the distinction is clear enough for analytic purposes.

Many examples that seem like power are not coercive in the usual sense of political power. I have a gun, and you have a wallet. Now, I have a wallet AND a gun. Euvoluntary? No, by criterion 5, No coercion. But a sweatshop is different. The reserve army of the unemployed is different. The source of power there is not coercion, but a disparity in BATNAs. Still, not euvoluntary, by criterion 6, Coerced by circumstance.

Suppose we say that, to protect the weaker party from being exploited, we will outlaw the exchange. How does this help the weaker party? Does NOTHING to address the BATNA that we found unacceptable. In fact, all it does is maroon the weaker party at the BATNA that, by assumption, we found unacceptably inferior. No escape!

North Carolina's Anti-Gouging Law in 1996 (General Statutes 75-36) (a) It shall be a violation of G.S. 75-1.1 for any person to sell or rent or offer to sell or rent at retail during a state of disaster, in the area for which the state of disaster has been declared, any merchandise or services which are consumed or used as a direct result of an emergency or which are consumed or used to preserve, protect, or sustain life, health, safety, or comfort of persons or their property with the knowledge and intent to charge a price that is unreasonably excessive under the circumstances. (Later amended to be even more restrictive, outlawing price changes reflecting cost increases up the supply chain, August 2006, SL2006-245, GS 75-38).

They clapped. Appeared to be happy. What is the objection? Why do so many states have these laws? If I wanted to offer ice for sale for $12 per bag today, could I do it?

Locke, John. 1661 / 2004. Venditio. Locke: Political Writings (ed. By David Wooton). Hackett Publishing. Venditio: "A sale." Questions: 1. What is the just price? 2. When is the market price just?

A ship at sea that has an anchor to spare meets another which has lost all her anchors. What here shall be the just price that she shall sell her anchor to the distressed ship? To this I answer the same price that she would sell the same anchor to a ship that was not in that distress. For that still is the market rate for which one would part with anything to anybody who was not in distress and absolute want of it. And in this case the master of the vessel must make his estimate by the length of his voyage, the season and seas he sails in, and so what risk he shall run himself by parting with his [extra] anchor, which all put together he would not part with it at any rate, but if he would, he must then take no more for it from a ship in distress than he would from any other. (Locke, 1661/2005, Venditio, pp. 4456; emphasis added).

How to square Lockes intuition about market price with our claim about euvoluntary exchange? How to weigh the imperatives of EE against the constraint of non-worseness?

Any plausible theory of just market exchange must balance two conflicting moral considerations: euvoluntariness (true voluntariness) and Pareto efficiency. Voluntariness requires that neither party is coerced into exchange by threat of violence or other form of direct harm. Euvoluntariness imposes the additional requirement that neither party is coerced by the lack of a decent alternative to a negotiated agreement. Pareto efficiency, on the other hand, requires that voluntary, mutually beneficial exchanges should always be allowed, even if they are not euvoluntary. P.O. takes the status quo BATNAs as given, and exogenous.

Suppose that, in order for the stronger party to act morally, the weaker party must actually be harmed in some material sense. This possibility is accounted for by the non- worseness principle, described by Zwolinski (2008) interpreting Wertheimer (1996). Zwolinski describes non- worseness this way: In cases where A has a right not to transact with B, and where transacting with B is not worse for B than not transacting with B at all, then it cannot be seriously wrong for A to engage in this transaction, even if its terms are judged to be unfair by some external standard. (p. 357).

Euvoluntary exchange is both fair and just, and should not be interfered with by either the state or moral considerations. Bargaining is unrestricted. Non-euvoluntary (violations of either condition 5 [force] or condition 6 [disparity and / or direness]) exchange is always unfair, and violates a central moral intuition about exploitation

If the person making a moral choice, and the person paying the material consequences are identical, then punishing non-euvoluntary exchange might be justified (ice-buyers were denied ice, but saw evil-doers punished. They clapped!)

But if the person who is concerned about his morality is different from the person bearing the material consequences, there is a problem.

The theory is operationalized through a fictitious negotiation, using a formal model of bargaining. The model assumes that two parties have values for the exchange, and outside options (BATNAs)

The fictitious negotiation model is parametric. The free parameter is the observers revulsion toward the imbalance in bargaining power, which is captured by the disparity threshold. Rather than being a constant, the disparity threshold is a decreasing function of the direness of the weaker partys outside option, but the particular shape of the function varies from observer to observer.

Briefly, the fictitious negotiation model is as follows: 1. Neither party is morally obliged to suffer harm by an act of market exchange. (Voluntary, non- supererogatory exchange) (Charity is allowed, but is outside the logic of the exchange model, a la Radford)

2. The negotiation will be fair and exchange will be euvoluntary if and only if the disparity between the parties outside options does not exceed a certain threshold (eqn #12, p. 11). The magnitude of the disparity threshold depends on the relative abjectness of the weaker party (argument 1). Further, the direr the weaker partys outside option, in absolute terms (argument 2), the lower the disparity threshold.

3. If the negotiation is fair, all non-supererogatory outcomes are just. A non-supererogatory outcome is either a mutually beneficial agreement or the disagreement outcome, in which the parties get their respective outside options (BATNA).

4. If the negotiation is unfair, the stronger party must devise a fictitious negotiation, in which the weaker party has an improved BATNA. The BATNA must be improved until 1 of 2 things happens: (a) The disparity in BATNAs is reduced until it is no longer unfair. This does not require a zero disparity; only that it equals the disparity threshold. (b) The surplus of the fictitious negotiation is reduced to O. This can happen because the surplus of any negotiation decreases as the parties outside options improve. (Non-worseness)

5. The just agreements of the actual negotiation correspond to the non-supererogatory outcomes of the fictitious negotiation that are implementable in practice. This seems complicated. Consider Lockes most interesting example.

What if the maximum price you (weaker ship) would pay for a SECOND anchor is less than I (stronger ship) would reasonably accept? Then no bargain, because surplus is negative. But then your material misery is purchased at the cost of my moral smugness. There is a surplus, because you would pay more for a FIRST anchor than I would require to sell a SECOND anchor.

So, trapped in a paradox. I am not required to give away the anchor, but can charge the value of a second anchor far out at sea (still quite valuable). Could sell, because value of buying first anchor to you exceeds cost of selling second anchor from me. But MY moral qualms require that I create a fictitious bargain where you have a better position: suppose you have an anchor, and are considering buying a second anchor.

Locke did not recognize non-worseness. In his analysis, my moral obligations rule out a transaction that would have benefitted you. Yet I am also not obliged to give you the anchor. Consequently, the concern that bargaining be fair rules out a very valuable exchange. This is a greater injustice than the unfair exchange would have been.

Locke needed to add NW clause. Stronger ship is obliged to sell at indifference price, assigning ALL the surplus to the weaker ship.

Clusters of similar disparity threshold functions constitute a culture. A threshold function that captures the essential features of a culture constitutes an ideology.

1. A man sells wheat. Last year the market price was 5 shillings. This year there is a shortage, and the market price is more than 10 shillings. Is this extortion? After all, there is increased need, because of the shortage. But shouldnt he sell at different prices to (a) a poor man, (b) a rich man, and (c) a jobber or wholesaler? Problem: if he sells to a poor man at 5 shillings, the buyer becomes a seller, reselling at 10 s and pocketing the difference. Unless obliged to give money to the poor, just because I have wheat, this is an absurdity. (Locke, 1661/2005, Venditio, pp. 4456; emphasis added).

[L]et us suppose a merchant of Danzig sends two ships laden with corn, where one puts into Dunkirk, where there is almost a famine for want of corn, and there he sells his wheat for 20s a bushel, whilst the other sells his at Ostend just by for 5s. Here it will be demanded whether it be not injustice to make such an advantage of their necessity at Dunkirk as to sell them the same commodity at 20s per bushel which he sells for a quarter the price but twenty miles off? (Locke, 1661/2005, Venditio, p. 444)

Michael Munger PPE Program Duke University Fleeming Jenkin.

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