Money, markets and morals: on Michael Sandel’s twisting of terms

–  Excuse me, Sir. Do you know the way to Holborn Station?

–  I do.

– Would you mind explaining it to me?

– Not at all, if you are prepared to pay a fee of £1 in exchange for this information.

– Beg your pardon?

– Yes, that would be 30p now and 70p upon fulfilment. Alternatively, I could tell you the way to Charing Cross Station, which would cost you only 80p because it’s closer. Or both, if you want to, because it’s buy-one-get-one-half-price today.

Does the above dialogue sound absurd and constructed? It should not, if market exchange worked in the way Michael Sandel, the author of ‘How markets crowd out morals’, would have us believe. Dialogues like this would then be commonplace, because the above behaviour is neither illegal nor actively discouraged by any government policies.

But let’s start from the beginning. Sandel’s starting point is entirely uncontroversial: there are circumstances in which it is perfectly reasonable to exchange goods and services for money, and there are circumstances in which, for various reasons, it is not. Sandel then moves on onto much thinner ice when suggesting that ‘we’ need to decide collectively, in a cognisant and deliberate way, where ‘we’ are going to ‘let the market in’ and where ‘we’ want to keep it out. The ice begins to creak when he moves on to insinuate that market provision and non-market provision cannot coexist, because the former would always drive out the latter.

There are good reasons to take issue with Sandel’s assertions; Philip Booth has already explained some of them here. But I also have a problem with Sandel’s use of the terms ‘markets’ and ‘financial incentives’, which he treats as synonyms. He refers to a number of examples where the introduction of a financial incentive has had counterproductive results, because it changed the nature of an exchange. In one case, a nursery school introduced a financial penalty for parents who arrived late to pick up their children. Consequently, late arrivals increased. Before the introduction of the payment, parents had felt guilty about arriving late, and at least tried to keep it within limits. The payment, however, removed the sense of guilt. Arriving late ceased to be a behaviour that people felt ashamed for, and became an extra service they felt entitled to because they had paid for it.

To clarify the meaning of the terms ‘market’ and ‘financial incentives’, let’s suppose another nursery school in the neighbourhood had tried to address the same problem through non-financial means. For example, they could have explicitly appealed to parent’s feelings of guilt, by putting up lots of posters reminding them of the official closing time. In Sandel’s framework, the former nursery school would have chosen to ‘let the market in’, while the latter had chosen to ‘keep the market out’. The latter nursery school represents ‘morals’, the former represents ‘the market’.

This is a strange understanding of the term. Here’s an alternative interpretation: the possibility to experiment with different types of incentives, to find out what works in which settings – that itself is ‘the market’. If it turns out that in some situations, non-pecuniary mechanisms are superior to pecuniary ones, and thus prevail over them, then that is the market outcome. A non-market solution would be if all nursery schools had to agree collectively on how to handle the problem of late arrivals, and if deviating from that collective agreement was illegal.

Sandel seems to believe that just because it is legally possible to charge money for X, X will always and everywhere be exchanged for money, and all other forms of providing X will disappear. Why should this be the case, if the monetary exchange is clearly inferior to other solutions, or if it simply feels wrong to most people?

Dr Kristian Niemietz is the IEA's Head of Political Economy. Kristian studied Economics at the Humboldt Universität zu Berlin and the Universidad de Salamanca, graduating in 2007 as Diplom-Volkswirt (≈MSc in Economics). During his studies, he interned at the Central Bank of Bolivia (2004), the National Statistics Office of Paraguay (2005), and at the IEA (2006). He also studied Political Economy at King's College London, graduating in 2013 with a PhD. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and taught Economics at King's College London. He is the author of the books "Socialism: The Failed Idea That Never Dies" (2019), "Universal Healthcare Without The NHS" (2016), "Redefining The Poverty Debate" (2012) and "A New Understanding of Poverty" (2011).

1 thought on “Money, markets and morals: on Michael Sandel’s twisting of terms”

  1. Posted 10/06/2012 at 12:02 | Permalink

    Does the above dialogue sound absurd and constructed?

    There’s a fun series of humour/fantasy stories (Circus World?) where that actually is the economic model.

    Works well enough in the book…….

    But your major point, yes, of course: there’s a market in forms of organisation and structure just as there is in goods or services. Or in incentives….

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