Truly Voluntary (“Euvoluntary”) Exchange

1. Michael Munger PPE Program Duke University Truly Voluntary (“Euvoluntary”) Exchange Fleeming Jenkin

2. You have GOT to be Kid(ney)ing

3. Michael Sandel 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 Shouldn’t Buy, http://www.iasc-culture.org/HHR_Archives/Commodification/5.2HSandel.pdf )

4. Many Important Questions • 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?

5. Questions of legality I tried to answer here… 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?

6. Context: Two Core Problems for Social Justice in an Exchange System • 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? • GIVEN the answer to #1, under what circumstances are the aggregate consequences of such exchanges a problem?

7. JS Mill: Exchange & DistributionAre Separate Realms of Justice “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).

8. The Mancgere: 11th Century Parable 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 Turner’s 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.

9. The Mancgere “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.”

10. The Itinerant Padre 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.”

11. The Mancgere, and the Itinerant Padre 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.”

12. My reductionist 2-part thesis • Euvoluntary exchange is always just • 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.

13. Euvoluntary Exchange: Organized Question-begging • conventional ownership by both parties • conventional capacity to transfer and assign this ownership to the other party • 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

14. Euvoluntary Exchange: Organized Question-begging 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.

15. Euvoluntary Exchange: Organized Question-begging

16. Power • 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. • Let’s 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).

17. Power 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.

18. Power So, formally, Jane has power over Bill, and Bill’s exchange decision is not euvoluntary, if either of two conditions are met: 1. Value (BATNAJANE) – Value (BATNABILL) ≥ (Threshold1) 2. Value (BATNABILL) < (Threshold2) BATNA: Best Alternative to a Negotiated Agreement Bantha

19. Sandel: Severe Inequality “It points to the injustice that can arise when people buy and sell things under conditions of severe inequality or dire economic necessity.”

20. Sandel: Terrible BATNA “It points to the injustice that can arise when people buy and sell things under conditions of severe inequality or dire economic necessity.”

21. Severe Inequality OR Dire Economic Necessity 1. Severe Inequality: Value (BATNAJANE) – Value (BATNABILL) ≥ (Threshold1) 2. Dire Necessity: Value (BATNABILL) < (Threshold2)

22. Euvoluntary? 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. I’ll buy water elsewhere, drink tap water, or many other alternatives. I’m almost indifferent between water at Kroger or Food Lion for market price of $0.90, or even Whole Foods for $3.00.

23. That’s Euvoluntary! So, even though water is a necessity (I’ll 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 won’t regret purchasing it, if I choose to do so. So the exchange is euvoluntary.

24. Euvoluntary Now, let’s suppose instead that I am far out in the desert, and am dying of thirst. I’m rich, and I happen to have quite a bit of cash on me, but I can’t 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” “¿qué te gustaría, gringo?”

25. Taco Truck in the Desert 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?

26. 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.

27. Euvoluntary: No Political OR Economic Power or Duress • 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.”

28. Problem: Marooned! 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!

29. An Example: They ClappedFran at Landfall: (11 pm 9-5-96)

30. Yahoos

31. Wahoos

32. They had the technology, they had the tools….

33. Dots: Location Choices by Yahoo-Entrepreneurs

34. Guess Who Showed Up? Why?

35. Anti-gouging law….. 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).

36. They clapped…. • 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?

37. Examples From John Locke Locke, John. 1661 / 2004. Venditio. Locke: Political Writings (ed. By David Wooton). Hackett Publishing. Venditio: "A sale." Questions: • What is the “just price?” • When is the market price just?

38. Examples From John Locke 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. 445–­6; emphasis added).

39. Two more things to do… • How to square Locke’s intuition about market price with our claim about euvoluntary exchange? • How to weigh the imperatives of EE against the constraint of “non-worseness”?

40. Substance 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.

41. Non-worseness 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).

42. Structure of the argument… • 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

43. Structure of the argument… • 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!)

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

45. Fictitious Bargain, Constrained by Non-Worseness 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)

46. Parametric (Like a Utility Function) The fictitious negotiation model is parametric. The free parameter is the observer’s 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 party’s outside option, but the particular shape of the function varies from observer to observer.

47. Parametric (Like a Utility Function) 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)

48. Disparity Function: 2 Arguments 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 party’s outside option, in absolute terms (argument 2), the lower the disparity threshold.

49. Fair Process=Just Outcome 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).

50. Unfair Process=Unjust, UNLESS Even More Unjust to Prohibit (NW) 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)