Arnold Kling  

Munger on Voluntary Exchange

PRINT
Dynamic Free Markets... The Ideological Turing Test...

Mike Munger and Russ Roberts discuss what makes an exchange truly voluntary. Munger suggests that if my best alternative to doing business with you is a really lousy alternative, then many people would deny that my decision to do the deal is voluntary. That explains why people are revolted by sweatshops. The economist says that working in a sweatshop beats the alternative of working in another grueling job for less money, but the non-economist is not satisfied with that analysis. The non-economist is troubled by the fact that the worker faces such a lousy alternative to taking the job in the sweatshop.

When people rant that health care is a right, not a commodity, they play on this intuition. If you don't get health care, you'll die! So make sure that nobody has to sacrifice a lot to get health care!

The thing is, though, the vast majority of medical procedures do not make a life-or-death difference. Maybe that colonoscopy screening reduces my risk of dying if colon cancer by a small amount. But I would not pound my fist on the table and insist that I have a right to that colonoscopy.

Anyway, I think Munger is onto something. It is worth understanding when we are up against the intuition that an exchange is wrong because one side has only dire alternatives.


Comments and Sharing


CATEGORIES: Economic Philosophy



COMMENTS (29 to date)
NZ writes:

Perhaps it is an irreconcilable problem: because of the nature of the universe, these types of decisions will always be faced, but trying to stamp them out with legislation will only make matters worse. You cannot restructure the universe.

No economic rationalization is necessary: we can accept that markets occasionally force people to make decisions they are not happy about, but recognize that by allowing markets to occasionally do that, we both maximize current opportunities for "real" decisions and grow new ones. It is the optimal trade-off.

Mark M writes:

This is similar to the revulsion to those that increase prices significantly during natural disasters for staples and emergency goods. While the action of increasing prices can actually increase critical supplies in areas with natural disasters, public outcry to the "lousy alternative" increases public pressure on public official to outlaw "gouging", which could/does put downward pressure on supply.

Peter T writes:

How can I break this gently? People live in things called societies. Which are heavily structured. And some people can influence these structures to their advantage, by giving other people restricted choices, say between working in sweatshops or starving. And they do this by influencing norms, expectations, implicit and explicit rules and other things. All of which has been noted and extensively studied for some millenia.

Mark M writes:

No need to be gentle, Peter. Just say it. It is an adult blog. And just because something has been noted and studied for a millenium doesn't mean it is off limits for continued discussion. "Earth as center of the universe."

Lori writes:

We non-ec types are dissatisfied with economic arguments, with all their axioms and derivations based on optimization theory, whose implication is that we are living in the best of all possible worlds.

While most medical procedures, most of the time, are not 'life or death' matters, access to a program of preventative care may well contribute to life expectancy. Perhaps you are skeptical of the ability of medicine to accomplish even that. I don't remember which of you Masonomists it was who thinks medicine makes little to no difference. At any rate, I find it hard to imagine a tenured prof or think tank hired gun or whatever you are not having access to colonoscopies and other recommended screenings, so the fact that you 'would not' pound your fist on the table demanding access to such procedures is purely hypothetical. To us non-economists it sounds like a mixture of 'I got mine' and 'let them eat cake.' And you right wingers call us elitists!

Yancey Ward writes:

This is the old positive vs negative rights rearing it's head again. The assertion of any positive right means the violation of a negative right for someone else. This conflict is unavoidable.

Phil writes:

That's an awesome debating trick.

The liberals are saying, "the worse the alternative, the less voluntary the exchange." What that means is exactly the same as, "the bigger the benefit of the deal, the less voluntary the exchange."

You have an infection. You can get an antibiotic for $4, or die. So paying $4 for the antibiotic isn't really voluntary!

Libertarians say, "look at the huge benefits of voluntary trade." Liberals say, "if there are huge benefits, the trade isn't really voluntary."

The liberals are dismissing the libertarian argument by Catch-22!

Keith writes:

^^

Speak for yourself. I'm a non-econ type who has no health insurance and doesn't feel as though I have any right to it whatsoever. And it doesn't seem at all like professor King is saying 'I got mine' or 'let them eat cake' (The class-war reference is noted, though, and oh so typical. You're aware that we already have a welfare program for those that can't afford healthcare, aren't you?). His point is entirely valid. Many healthcare procedures are not at all life or death, they're just maintenance which at best may extend your dotary by a couple years, but have little effect on real quality of life.

I do, OTOH, see a large chunk of society looking toward the state for yet another opportunity to avoid taking responsibility for the outcome of their lives by redirecting that responsibility to the nameless, faceless collective, where, for the narrow minded, scarcity doesn't exist because it's harder to see (until the weight of the moral hazard brings the entire system to the brink, that is).

Randy writes:

I get the idea that voluntary isn't completely voluntary - i.e., I may "volunteer" to work at a job for the better part of my life, but only because the alternatives aren't good. The problem I have with the idea that this changes anything is that the application of the idea doesn't help the people it is proclaimed to help. That is, the benefits of the idea that voluntary isn't really voluntary don't flow to the less powerful from the more powerful, but rather, the benefits flow to the political from the productive - to the creators of the idea from the intended targets of the idea. The result seems a bit too convenient, doesn't it.

Grant Gould writes:

I think part of this may stem from a reasonable default assumption that the party with more power in a situation may have had something to do with arranging that situation in the first place.

That's what Marx's remark about the "reserve army of the unemployed" that Don uses to good effect in the podcast is really about: the capitalists (in Marx' view, at least) can both arrange for unemployment (via collusion, blacklisting, buying government action, etc.) and profit from it; they're stacking the deck ahead of time so that "voluntary" will always mean what benefits them most. If one party to an exchange has much less at stake than the other, it is reasonable to suspect -- even pre-rationally and without evidence -- that they may be up to something; we intuitively resist it because we know that this is not a decision in isolation but a single round in a repeated game.

As a sidenote, I think the same intuition is behind many people's suspicion of adjustable-rate mortgages: They look and say, "wait, I'm on the hook for interest rate shifts, but the bank has more say in interest rate decisions than I do. That can't be right."

Grant Gould writes:

Whoops, my last comment named the wrong EconTalk regular. It was of course Mike Munger, not Don Boudreaux.

Serves me right for commenting before coffee o'clock in the morning.

Floccina writes:

Interestingly nobody that I know no matter how strong a democrat runs their own transactions that way. Nobody I know said in 2007 this poor young family needs to buy a home and the prices are crazy high and I bought this house just a few years ago at half the going price so I will sell it to him what I paid for plus 3 percent a year appreciation. No they got the going rate even in a crisis situation for young first time home buyers.

Also note the biggest rip offs on the market of homes and cars seem to me to be for sale by owner.

People want loyalty from GM and Ford but to their employees but few show loyalty to GM and Ford.

Tracy W writes:

Peter T: And some people can influence these structures to their advantage, by giving other people restricted choices, say between working in sweatshops or starving.

The puzzling thing is that a lot of people argue we should respond to this miserable situation by taking away the option of working in sweatshops.

And they do this by influencing norms, expectations, implicit and explicit rules and other things. All of which has been noted and extensively studied for some millenia.

Hmm, I'm not so sure. I can't think of anyone who extensively studied this before Adam Smith. (Which may be a reflection of my ignorance). However, Adam Smith spent a lot of time pointing out how guilds and other organisations of companies combined to pass explicit laws limiting the level of competition from outsiders.

However, this sort of analysis of producer interests is sadly ignored, or just dismissed, by so many people, with some catchphrase as "dismal economists" or "neoliberalism". Those of us in favour of getting rid of these norms, expectations, implicit and explicit rules, run into opposition from those who think that the best response to people facing the difficult choice between working in sweatshops and starving is to take away yet more options from the poor.

Costard writes:

If a decision is involuntary for one party, then it is also involuntary for another. If a man must have health care, then another man must be obliged to give it to him. The evolution of socialist states shows this clearly. First the government makes a thing cheap; then the government forces a thing to be sold; and finally the government forces people to make the thing.

But it's generally true that those who demand the state sacrifice justice and liberty, in exchange for equality -- are those who have more to gain from equality.

Lori - Many medical treatments did not exist a century ago. And most of these were not willed into being by God or government, or demanded into existence by self-entitled citizens. They were created voluntarily; and since progress is an ongoing enterprise, easily damaged, you should perhaps consider that it has further to go before you dismantle it for personal gain. You should also consider that inequality, and high prices, are often the side-effect of policy, and that we have many, many policies at work in our healthcare.

Tracy W writes:

Grant Gould, that one party has arranged to take power away from another party is a fairly common analysis from the libertarian/free-market/neoliberal view too. Smith was saying that sort of thing long before Marx.

The puzzling thing is that so many people's intuition, in that situation, is to say that more choices should be taken away from the powerless.

Peter Gordon writes:

We all have different choice sets. Bringing people up from poverty really means somehow expanding their choice set. Policy makers have not done a very good job. Economic growth does the job for many. Getting various policies off the books would be a decent complement.

Jonathan Goff writes:

Having lived in a third-world country (the Philippines) for a few years when I was younger, and having seen what the alternatives really are like (including doing some volunteer work in a rice paddy a few times), I think part of the problem is that people don't have any clue how lousy the alternatives really are. I'm not a fan of sweatshops by any stretch of the imagination, but having actually been through some of the alternatives, I have to side with the economists. My hope was to see a day when the economy there became sufficiently un-screwed-up that people had more choice in jobs, and therefore market-forces would make sweatshops have to compete more for their labor. Right now, they really are giving people a sufficiently better deal (especially if you're uneducated or educated in something unmarketable) that they can pick and chose who they get. That's only an artefact of the fact that their economy is so screwed up...

....

Ok, not sure if that added anything.

~Jon

Georgian writes:

http://works.bepress.com/widerquist/12/

Karl Widerquist also uses this idea that the alternatives need to be more or less fair in order for the transaction to be voluntary. He goes on further to say that the best way of making sure that all transactions are truly voluntary is to ensure a minimum income.

Roger writes:

Munger's "euvoluntary" concept doesn't add anything to the discussion nor does his "no regret" concept. Indeed I think they will backfire.

Any voluntary exchange is a win/win. Granted, it is possible to have vast disparities of need (the water in the desert example is a good one) and thus have a situation which seems intrinsically unfair. The solution to the dilemma is to encourage alternatives (i.e. constructive competition). If there are multiple alternatives for water in the desert then the non colluding water owners will bid each other down to the most efficient win/win price.

Competing alternatives are what keeps transactions fair. Regulations on "euvoluntariness" and "no regrets" will just throw sand in the system. They will make things worse, not better.

As for Karl Widerquist I fully support his right to fund minimal living standards to anyone else on earth he and his accomplices want to help. Indeed, I solute him. I do not support his forcing anyone else on earth to go along with his grandiosity.

Sorry Karl, but the hard fact of life is that entropy gets us. If humans don't constantly solve problems such as getting food, water, shelter and clothes, then our lives are short and nasty. The question becomes how do we produce -- how do we go about solving the problems of life.

When I turned 18 I did the horrid act of going to a "propertied" person and I got a job. I entered the free enterprise system and exchanged my time, effort and intelligence to serving other people (consumers ultimately, not employers). I then had property. It took about two weeks as I recall (to get my first paycheck).

I guess I could have wandered the beach and hunted and gathered like humans did for most of the last million years or so, it just didn't seem like a good idea. Alternatively I could have exploited someone else by demanding that someone like Karl feed and clothe me. Now there is an idea!

Georgian writes:

@Roger

Don't write Karl off so quickly. He's a rather intelligent fellow.

Here sink your teeth into this:

http://works.bepress.com/widerquist/6/

Let me know what you think.

Tracy W writes:

Georgian - how does Karl plan to ensure a basic minimum income for all, using only voluntary transactions?

I also find the claim that "That is, they are effectively denied any legal means to survive without providing services to someone who controls property. ... Therefore, they are forced to provide services for property owners to obtain money to buy resources." as a reason to think someone is not entering into voluntary trade is odd, in the context of his analysis.
After all, food does not fall like mana from the sky. Now that *someone* doesn't have to be everyone in society. Indeed it can't be. Small babies are fundamentally hopeless as farm labourers, not even the most terrible of slave owners tried to put them to work, and yet humanity doesn't survive if small babies aren't fed until they can grow up. And noticeably, our society lets a lot of other people not work, eg older children, students, retirees. BUt someone must be working. They might be farming their own land, but they must be working.

Karl rejects the proposition that someone is free to engage in voluntary trade if they must work to survive but have many employers, because they are still forced to participate in the system. But, if someone has the option of either being employed, or working on their own land, (or fishing for themselves from the shore, or whatever) by his logic they are still forced to participate in the system - according to him, adding more choices doesn't make a decision to enter into trade voluntary. To quote him: "Individuals’ acceptance of one out of the set of available offers does not imply the consent necessary to say that the set of offers is legitimate." (page 5). So by Karl's logic, acceptance of one of the set of offers where the set includes both working for one of a number of employees, and working using your own property, does not imply the consent necessary to say that the set of offers is legitimate.

Possibly realising this, though I can't see any point where he notes this explicitly, Karl argues for a regular cash transfer, rather than being supplied with land, or fishing rights, or whatever. However, this cash transfer is only meaningful if it leads to a claim on real resources - resources that someone has produced using labour (remember, that's the nature of reality). So effectively someone must still be obliged to work in this society. As Karl himself says "it does not imply that people have any right to be free from the need to work in the sense of applying effort to turn raw resources into consumption". (page 29). So we still have people, somewhere, that are obliged to work, that don't have a choice not to work. Karl doesn't explore this at all. His analysis focuses only on the recipients of this resource transfer, with the exception of that one statement on page 29, the providers of the resources are not mentioned. I don't see how his proposal increases voluntariness at the whole economy at all, by his analysis.

I find this to be a fundamental problem with most calls for a basic income, they so seldom analyse where the resources are to come from. (The people who do analyse this tend to wind up being against a basic income, for example at one point I was working in the tax revenue forecasting team for the NZ government, we were discussing a basic income, and decided to run the numbers. Replacing all benefits by a $10,000 a year basic income (about 30% less than the government was paying at the time to single retirees), while leaving other government spending the same, implied an average tax rate of 50%. That's not a marginal tax rate, that's an average, from the first dollar earned. Given that this would still imply a large cut in benefits for many people, we decided that it wasn't politically feasible.)

Josh writes:

If government bestows this claimed right on the citizens, my belief is that the quality will decrease. By government intervention in artificially altering the demand, this will erode competitive forces and commit havoc on supply chains. I hear from my family who live in Sweden how stressed the healthcare system is over there through excessively high demand on the system. They, as well as I, attribute it to a system which has created demand through providing healthcare for everyone at a low price set and funded by the government, (free in a lot of cases) and having a single channel for receiving this service. My understanding is that in most every initial contact with the medical system for service, the patient goes into a que awaiting medical care. The choices of medical providers are stripped away because their is a single source that has high demands on it with very little incentive for the public not to seek medical care, whether necessary or not. The incentives to improve on the quality of medical services provided or operate in a more efficient manner are weakened because of the increased demand perpetuated by the socialized medical system. Consequently, the time it takes to be seen by a medical provider are extended which obviously increases medical risk to a patient.

A better system is the one we have HAD in this country where a patient can make informed choices of medical care providers and where he or she is vested in making decisions through some economic sacrifice. By leaving the buying decision in the hands of the patient, this induces the provider to provide more efficient services at a higher rate of quality; competitive forces at work.

For those who fall within the lower economic classes of society, provide them with PARTIAL monetary assistance through a credit or rebate system but leave it in their full control when it comes to making healthcare decisions in the private healthcare sector.

Roger writes:

Georgian,

Great article. Thanks for the link. I agree that if liberty and property rights lead to total monopoly that it would be a very, very bad thing. Indeed, theory would need to be adjusted to avoid justifying this outcome.

I am not sure that it is likely though. It seems to me that it violates the law of supply and demand. As the queen bought up or married into more property, as property unowned by her became scarcer, it would go up in price. Others would need and value it more and would outbid her for property.

Karl's hypothetical seems to be "what would happen if someone cornered the market on everything?" I don't believe it is that easy to corner a market -- on anything -- and I think trying to do so seeds its own destruction. I could be wrong though -- after all it has been years since I partook in a serious watching of "Trading Places." LOL

Anyone else have thoughts on this article?

Thanks again Georgian

Roger

Georgian writes:

Tracy-Thanks for sharing your thoughts!

First off I agree with you. I also believe it is difficult to balance where and how the money to do X comes from without disregarding voluntary premises.

The reason why I think Karl is interesting is because he gets around this by invoking an unusual argument. He uses the same strong inviolable property rights (virtually all) libertarians relay upon. He simply says that if we as libertarians must respect legitimate property rights no matter who the proprietor then, we must respect the governments legitimate use of their property. This is true unless it can be shown that there was injustice in acquisition/holdings/transfer.

Since going through history is difficult most libertarians subscribe to a statue of limitations. That is, we believe that as Rothbard put it “where the victims are lost in antiquity, the land property belongs to any non-criminals who are in current possession."

Thus, you can think of private property as really just leasing or renting from the government, unless your property can be properly documented to show that it never belonged to the government.

Essentially, Karl argues far better than I have reproduced here (in my second link) that the government when it sells us private property it sells us the bundle of rights which allows us to control/use/benefit from etc our property but, withholds the right to tax.

That is how the government can establish a minimum income. In any case I'll comment more soon, but I've got to run now.

Martin writes:

This reminds me of something Hayek said:

That people should wish to be relieved of the bitter choice which hard facts often impose upon them is not surprising. But few want to be relieved through having the choice made for them by others. People just wish that the choice should not be necessary at all. And they are only too ready to believe that the choice is not really necessary, that it is imposed upon them merely by the particular economic system under which we live. What they resent is, in truth, that there is an economic problem.

F. A. Hayek. The Road to Serfdom

Tracy W writes:

Georgian,

Thinking of private property as really just leasing or renting from the government, well, sure you can think of it this way. But why should you? Why not just think of it as property you own freehold? Furthermore, adopting this redefinition means that you need to come up with a new term for when people actually do lease or rent from the government (as the words "lease" and "rent" are used in dictionaries), to distinguish that from private property.

As for this being "how the government can establish a minimum income", I don't know in what sense you mean this. De juro, this is a way. But the right to rent property does not mean a right to force people to work on it, or the ability to do so. The government of the day could indeed charge high land taxes, or more general property taxes, to fund a minimum income, as well as income taxes, but if the taxes are so high that a significant number of people prefer to sit back and receive their annual basic income, or move to another country, then at some point there is an inability to pay for the basic income. Just because the government can require something to be funded on paper, doesn't mean it can actually achieve its goals in reality.

However I guess this does explain why Karl thinks that a basic minimum income could fit with a voluntary standard. If people have the choice to not work, and instead receive the basic minimum income then apparently by his definition it's voluntary (I don't know if I've properly understood Karl's definition of voluntary). The problem is what happens if a lot of people chose not to work. The government may have on paper the right to tax us, but that's different from saying that it has the right to force us to work.

(Also, I note I'm not a pure property-rights libertarian. Basically I think of the history of societies as that of having two conflicing aims:
1. To have sufficient military power not to be invaded and occupied, and probably slaughtered, by the other guys. [Obviously in many cases many societies have gone beyond pure defensive capabilities to maintaining enough power to invade their neighbours, and often actually doing so.]
2. To refrain that military power from being able to wreck the lives of everyone non-military. This became more important once technological developments meant that the most military power was attainable by having a bunch of specialised soldiers and a bunch of civilians supplying them. The problem was made easier by that too much extraction by the military could suppress the civilians so much that in the long-term military effectiveness fell too.)

Georgian writes:

You pose good questions and I really recommend you read http://works.bepress.com/widerquist/6/ his essay "A Dilemma for Libertarianism". Unfortunately it's long.

The reason we should think about it this way according to Karl is because currently governments own or have owned just about everything. When we make a purchase we enter into an agreement or contract with whomever we are buying from. If we don't like the contract we are free to buy from someone else. This applies to home owner associations, properties with easements you may be responsible for maintaining etc. Hence, Karl argues that if we buy land directly from the government, or buy land that the someone else has bought from the government it will always be on mutually agreeable terms. If we don't agree with the government's terms we are free to buy private land or not buy land at all. The governments terms in a nutshell are: you can use/benefit from/ enjoy land or whatever you're buying but the government can tax it and if you break the law it can seize your property. The whole idea rests on the premise that we can sell rights namely the right to tax. If it can be proven that the government sold you it's right to tax then you are exempt since you've "bought out the government" so to speak.

The reason it's not property you own freehold is because you bought it with strings attached. There was an agreement. The previous owner can only sell you the rights she actually owns. If the government was once an owner and decided to withhold the right to taxation from the market then, by contract you never bought that right so you never owned it thus, you don't and can't own it freehold with out renegotiating your contract with the government.

My answer was through taxation, but you're correct the government can't force people to work, but it can be tyrannical and despotic to the point of ridiculous taxation on those who do not comply. Furthermore, if the government owns enough property it can make it impossible for people with out property to effectively live, or leave. How can you leave if the government owns the roads and requires you to pay an exorbitant toll or tax etc. Albeit these are unlikely scenarios the point is that if we believe private individuals can do with their property what they want so long as they do not interfere with the rights of others then so can the government. I'll be honest my response to this was a bit weak.

There will always be some people who will uphold the government. So, if a large majority stops working then, they must work with property that the government does not own. Good luck with that. Maybe in America people can find land or property the government never got it's hands on, but Europe and the rest of the world is essentially screwed.

Also note that I don't actually believe all of Karl's reasoning. I'm still apprehensive about it. But, I think I passed the ideological turing test (; In any case I'm new to econ here. I don't much like the comment presentation. Are you a subscriber to reddit? I think our conversation would be better over there.

Tracy W writes:

Georgian I read the essay. I still think it's confusing to redefine the word "freehold" to mean rented or leased, at least in reference to government land, and I have no intention of doing so.

you're correct the government can't force people to work, but it can be tyrannical and despotic to the point of ridiculous taxation on those who do not comply.

Indeed, and what I'm curious about, with the calls for a universal basic income, is how tyrannical the government should be to pay for this universal basic income. Karl said, in the first essay you referred to: "it [universal basic income] does not imply that people have any right to be free from the need to work in the sense of applying effort to turn raw resources into consumption". But he didn't explore what this means. I don't see any gain in freedom in freeing people from the need to offer their labour services in a competitive market, only to oblige them to labour in some other way.

What's reddit?

Georgian writes:

[Comment removed for irrelevance.--Econlib Ed.]

Comments for this entry have been closed
Return to top