A few months ago, I read What Money can’t Buy by Michael J Sandel. He is a good communicator and I have really enjoyed some of lectures on justice on TV. This book is worth reading, because it show western culture in a different light.
In this book, he argues that markets are valuable for organising productive activity, but his concerned that market are seeping into aspects of life, where they do not belong. He wants a debate about the role and reach of markets. He wants decisions about which goods should be bought and sold. The aim should be a market economy, not a market society.
The problem with this is that it is not clear who would make the decision about what can be bought and sold. I presume that he assumes that governments can do this, but this will not work. Decisions about what can be sold are made by the person who chooses to sell. Decisions about what will be bought are make the people doing the buying. Unless they are doing something immoral, it is hard to see how they can be prevented.
The examples that he give are interesting. I think they show how hollow western culture has become. The answer is not more laws, but better values and more virtue.
Sandel speaks about market values, and suggests that they corrupt some good things. He says that when some things are sold, their value is contaminated. The problem here is that he assumes a concept of objective value. He does not realise that values are subjective. This is a core principle of economics. Different people place different value on the same things. This is why trade is possible. A sale of a good takes place, because the person buying values it more than the person selling it.
The price at which a particular good is sold in a market does not tell us its value. It does not tell us how most people value it. It does not tell us what value the buyer and seller put on it. All we know is that the buyer valued it more than the price and the seller valued it less than the price. But we do not know by how much.
Human valuations are subjective. The only person who can express objective values is God, because he is the only one who is unchanging.
Monday, December 17, 2012
A few months ago, I read What Money can’t Buy by Michael J Sandel. He is a good communicator and I have really enjoyed some of lectures on justice on TV. This book is worth reading, because it show western culture in a different light.
Sunday, March 22, 2009
In a money-based economy, the gardener pays the hairdresser for a haircut. The butcher sells lamp chops to the motor mechanic and buys potatoes from the gardener. The farmer pays the mechanic to fix his tractor and sells the flour to the miller. The baker buys flour from the miller and sells bread to the hairdresser. In this system, the goods and services flow one way and the money flows back the other way.
Friday, October 03, 2008
The latest financial fuss has brought out the usual range of confused economic thinking.
Commentators are suggesting that there is a shortage of credit. This is really an economic fallacy.
A shortage can only occur in a market, if the authorities get involved in price setting and keep the price too low. This happened frequently in Communist Russia. The government kept the price of bread low to assist the poor, but this produced frequent shortages and people would queue all day to get a loaf of bread, because the shops could be empty for days on end. If the price of any good is set too low, consumers demand more and producers produce less and shortages follow. When governments stay out of markets, prices rise and fall until the market clears and shortages and surpluses disappear.
This is what is happening in the financial markets. The Fed is keeping interest rates low, at a time when a new perception about financial risk has emerged.
Financial experts are saying that banks are unwilling to lend to each other. This is misleading. Banks are unwilling to lend to banks that might be bad credit risk. That is not a problem, but just good credit management.
The real problem is not a shortage of credit, but that investment banks with shonky assets on their books are unable to obtain credit at the cheap rates they paid in the past. They can still obtain credit, but they were unwilling to pay an interest rate that included sufficient risk premium to cover their likelihood of default. Some of the worst banks might have to pay “loan shark rates”, but that it what happens to those on the bottom of the heap. I presume that is why they are screaming about credit crunch. They really mean that they cannot obtain credit at the price they are willing to pay.
This full series is here.
Friday, January 26, 2007
The market is the place where dreams and reality meet.
The managers of Ford dream about the success of their latest vehicle. They have spent millions of dollars on development of the new model and hope it will be the new Mustang. It hits the market, just after the release of an offering from Chrysler that is better and cheaper. The reality of the market turns the Ford dream into an Edsel.
A young man dreams about getting work at the local Ford plant. He will be set up for life, with a good lifestyle. When he is forty-five, the factory closes. Reality destroys his dream.
Another young man dreams about writing a novel. He is not very hopeful of success, but when the book hits the market it proves to be a bestseller, changing his life. Reality exceeded his dreams.
Thomas Edison dreams about using electricity to light up offices and homes. After many failures, he develops a light bulb that works effectively. Reality matches his dream and his dreams grow. The people of the world enjoy something that they had not dreamed was possible.
Every dream needs to be tested, but this is very risky, because sometimes dreams fail in the face of realty. The only way to avoid this risk is to leave your dreams as dreams.
A risk-free world is only possible for people who are willing to live in their dreams, but the world of dreams is actually a world of poverty.
Progress needs people who will dream big dreams. Even more, it needs people like Thomas Edison, who will test their dreams against reality by bringing them to the market again and again.
Some people would like to change the market so that dreams do not fail. This is like changing the football game so no one is injured. It could be done, but the game is no longer football. The only way to prevent dreams from being hurt by the market is to push reality out, but ignoring reality is dangerous.
Thursday, January 25, 2007
Blaming the market for people being in poverty does not help them much. There are several reasons why a person may have lost their employment and become poor.
- Their employer might have been hard hearted and enjoyed punishing people by destroying their work opportunities.
- The employee might have been sinful and cheated their employer.
- The people who brought their employers output may have found a better supplier, or changed their tastes. They may now be buying something different.
- A pirate may be preventing the employer from getting their products to the market.
In the first case the employer is responsible for the poverty. In the second case, the employee is responsible. In the third case, no one is morally responsible. In the final example, the pirate is morally responsible.
Finding the real cause for the person losing their employment is more useful than blaming the market. Blaming the market is like blaming the football game for a football injury. If someone has sinned or done evil, they should be exposed and encouraged to repent. Christians with the spirit of wisdom and a prophetic edge should be really effective at exposing these evils. However, if the person is suffering was the result of a risky choice that went wrong, looking for someone to blame will not help. It is more helpful to give them some assistance.
God understood that economic uncertainty would result in some people ending in poverty through no fault of their own. In both the Old and New Testaments, he put in place methods for caring for the poor. The New Testament gives this responsibility to the church. This is what we are called to do. The church is responsible for the poor. If people are suffering on the street, the church is not doing its job.
This full article can be found here.
Wednesday, January 24, 2007
Leaving school in 1967 and getting a job on the production line at the Ford factory involved some risk. The Ford worker could have stayed at home to grow their own food and make their own clothing. The money paid by Ford offered a far better lifestyle that was judged to outweigh the risk.
If the factory closes because people stop buying Ford pickups, no one is necessarily to blame. The Ford managers may have sinned, but it is more likely that they guessed wrong about the future. Big businesses have more resources to study the future, but they should not make as many mistakes and individual might, but they can still get it wrong.
The people who replace their Ford pickup with a Toyota car have not sinned either. So no one is really to blame. The person took a risk by working at Ford and got it wrong.
Tuesday, January 23, 2007
Participation in a market economy is risky, because no one knows the future. The safest way to live is in subsistence. If I grow all my food and and produce all my clothing, I have a high degree of security, because I am not dependent on anyone else. By putting in a water storage system, I could even eliminate my dependence on the weather. However, subsistence living is very inefficient, because producing food would take so much time that I would have very little time for making other things that I might want. The subsistence lifestyle provides security, but the cost is a very low standard of living.
Most people will prefer to specialise in something that they are good at. They will produce more than they need and sell it on the market (often their labour). The can buy the other things that they need with what they earn. This raises their standard of living, but it increases the risk, because they are now dependent on other, unpredictable people. If the other people lose interest in what I am producing, I may find that the price falls, or I am left with a surplus that I do not need and cannot sell. My standard of living will decline rapidly. I may even wish that I had stayed with subsistence living.
I may look for someone to blame, but no one has done evil to me. The people who stopped buying what I produced, because they could get something better elsewhere, did no wrong. I made a decision in the face of future uncertainty and got it wrong. I acted on the assumption that I would continue to be able to sell my surplus. Because my guess about the future proved to be wrong, I will suffer (just like the football player entering a collision).
I may want to blame someone, but no one is morally responsible for my plight. I cannot even say that I sinned. Making a mistake about the future is a human frailty, and not a sin. Only God knows the future. It may be that he warned me that my decision was a mistake and I ignored his warning, but I am not sure that he always does warn us in this way.
Participating in a market is always risky because the future is uncertain. I could avoid the risk by staying out of the market and producing all that I need for myself. But the returns to the risk of participating in a market economy are so great, that most people prefer to take the risk. It would be great if that risk could be eliminated, but the risk free life is a poor one.
Monday, January 22, 2007
If you can understand a football game, you can understand a market. It is just a group of people interacting in a different way. A football game is not a moral entity, but is an activity where people interact with each other. The decisions about what happens in the game are made by the people participating in it: players, owners, managers, referees. There are several people or groups of people that might be morally responsible for my (hypothetical) football injury: A bald statement that I was injured by the game makes no sense. The football game does not have moral responsibility, because it cannot make decisions. A football game does not think or decide. It cannot say, "I am going to injure the running back today." When a footballer player is injured, another player, a referee or an administrator might be responsible. However, an injury is usually the result of a series of action by several people leading to an outcome that know one foresaw. If these people had perfect knowledge of the future, they would have done something different. In this situation, no one is morally responsible except the person who chose to put themselves in a situation where an injury could occur. No one can be blamed except the injured player.
People get hurt playing football, but I cannot say that I was injured by a game of football. Rather I was hurt by colliding with someone or falling heavily to the ground. It may have been deliberate, or it may have been accidental.
There are several people or groups of people that might be morally responsible for my (hypothetical) football injury:
A bald statement that I was injured by the game makes no sense. The football game does not have moral responsibility, because it cannot make decisions. A football game does not think or decide. It cannot say, "I am going to injure the running back today."
When a footballer player is injured, another player, a referee or an administrator might be responsible. However, an injury is usually the result of a series of action by several people leading to an outcome that know one foresaw. If these people had perfect knowledge of the future, they would have done something different. In this situation, no one is morally responsible except the person who chose to put themselves in a situation where an injury could occur. No one can be blamed except the injured player.
Sunday, January 21, 2007
For many people, the free market is an idol of fear. Primitive people blamed bad harvests on failure to appease the weather Gods. They made an idol out of something that they feared. We know that the weather gods do not exist. Modern people like to blame the troubles of economic life on the free market. Some have built "the market" up into something evil with terrible powers to do harm. Oliver O'Donovan refers to the market as a personality and calls it Leviathan.
Markets do not regulate themselves. They adjust themselves, but like the brutish and short-sighted Leviathans they are, they trample people beneath their feet while the do so. (The Ways of Judgment, p.65.)Donovan and those who fear the market are raising up an idol that does not exist.
The reality is that the market does not close factories and lay people off. This is done by the managers and owners of businesses. They might say that they market forced them to close the factory, but that would not really be correct, either. It would be more correct to say that the people stopped being willing to buy what the factory produced at the price that was offered.
To be morally responsible, an entity must be able to make decisions and understand the consequences of their actions. Markets cannot think. Markets cannot make decisions. So markets are not moral entities. The moral decisions are made by people participating in the market. They are the ones with moral responsibility.
Contrary, to what most people think, markets do not set prices. In fact prices are never really set. In a market, you can see offers to sell for a price. You can see other people offering to buy at a price. You sometimes see a transaction occurring at a price, when the offers of a buyer and a seller coincide, but that does not set the price. A transaction may never occur at particular price again, if no other buyer or seller is willing to trade at that price. Buyers and seller decide prices, by agreeing to a transaction at a particular price. But they only set the price for their transaction. Their deal may influence the price for later transactions, but it does not set a price.
Those who speak as if the market can make decisions, be morally responsible and cause evil are idolising the market. Some people have built the market up into something mysterious and malignant with terrible powers to do harm. This gives them something to blame, but they have created an idol that does not exist. My approach is to demystify the market. A market is nothing more than communication and interaction between people.
Saturday, January 20, 2007
In a comment on a previous post, Ted Gossard suggested that a problem with the market is that people idolise it. He is also concerned that the market leaves some people unemployed and poor. These are good concerns. I will answer these concerns and show how the are related in the next couple of posts.
People cannot idolise many things. Some Christians idolise the Bible, but that does not make the Bible immoral. The correct response to God word is to worship and obey him, but that does not stop people from idolising the word. People can make an idol of the game of football, but that does not make it morally wrong. God gave us the ability to communicate in markets. We should thank him for that gift and operate by his standards when active in markets. People can idolise the market but that does not make it wrong or immoral.
The sin of idolatry is in the heart is in the heart of the person idolising the idol, not the object of idolatry. A block of wood is not evil, because someone could make it into an idol.
There are two types of idol:
- Objects that we love
- Objects that we fear
We sometimes make an idol of something we love, but we also have a tendency to make an idol of something that we fear.
Some people in the United States are so passionate about the free market that they have made it into an idol. They allow the market to shape their lives and their morality. If something will sell, then it must be good. This is misguided, because God is the one who determines good and evil. Many things that happen in a free market are morally wrong by his standards.
For many people, the free market is an idol of fear. Primitive people blamed bad harvests on failure to appease the weather Gods. They made an idol out of something that they feared.
My approach is to demystify the market. Other people seem to build it up into something mysterious and malignant with terrible powers to do harm. It gives them something to blame, but they have created an idol that does not exist.
Wednesday, January 17, 2007
The more common way for a market to be overcome by evil is for a seller or buyer to force someone into a transaction that they do not want to make. Someone may be forced to buy something they do not want by someone who threatens to beat them up. Someone may be threatened into selling something at a price less than they were wanted. A buyer might be forced to pay a price greater than they wanted to pay. Once someone is forced into a transaction against their will, the benefit of the market disappears because one party to the transaction is make worse off.
Forced transactions take place when bullying tactics enter the market. This can happen at various levels. An adult might intimidate a child. An armed man may force someone to buy something they do not want. A gang may threaten a seller with violence. A country might invade another to establish trading privileges. In these situations the market is not evil. The evil is the perpetrated by the person or organisation that is forcing people to buy or sell against their will.
However, we should get our words right. These situations no longer be fit the word market. A better word would be organised extortion. There is no doubt that organised extortion is evil.
The most common way for force to enter a market is when the government enters the process. It may start setting the price or place limitations on who can buy and sell. When this happens the market is partly destroyed as some of the participants in the market will be made worse off. Some will be forced to take pay price higher or lower than they wanted. Others may be forced to sell against their will or at a lower price than they wanted. However, the result is no different from the organised extortion described in the previous paragraphs.
Tuesday, January 16, 2007
The market system is made up of a great number of different markets, ranging from flea makers to shopping malls to futures markets. Each of these is an information system that allows people to buy and sell different types of good and services. Sales only occur when both the buyer and the seller are made better off. All market transactions make the people involved better off, and those not involved not any worse off. A market does much good and no harm.
A market can be overcome by evil. One way is for a market to start selling things that are evil. One example is the slave trade. Most people would agree that this was a terrible evil. However, a market for slaves did not develop, because markets are immoral. A slave market could only function if there were people willing to buy and others willing to sell humans and perhaps others willing to enslave humans. These people did the evil, not the market. They created a market in evil, which is the worst evil.
Monday, January 15, 2007
Markets benefit people.
A market must allow sellers to display what they want to sell and allow buyers to make offers. However, a market is only successful if a significant number of sales take place. Buyers and sellers attend a market because they know that there is high probability of concluding a transaction with other people.
A market is an information system that allows people to buy and sell goods and services. In the Sunday market this information is provided by displaying the goods for observation. On eBay people display photos of their goods and detailed descriptions, instead of carrying them to the market. This reduces the costs of selling.
Transactions in the market only occur if two things happen. First, the seller must want the money being offered more than they want the thing they are selling. Second, the buyer must want the thing being sold more than they want the money they are offering. Both the buyer and the seller are better off after the transaction is complete. The buyer has a good they wanted. The seller has the money they wanted. This is the great benefit of a market. It allows people who do not know each other to engage in transactions that make all parties to the transaction better off.
No one is made worse off by a market. The only people disappointed at the market are those unable to sell the items they hoped to sell. They were unable to find someone who valued the item higher than they did, but they still have what they came with, so they are not worse off. Some potential buyers may be disappointed if they did not find what they want, but they still have the money they came with, so they are not worse off. An arrangement that makes lots of people better off, and harms no one, cannot be called evil.
Saturday, January 13, 2007
Some Christians see the market system as an evil system. The problem with this view is that a market is an abstract concept and not a real physical thing. A market often cannot be seen. When I look at the market all that I see is:
The most visible market that I know is the Sunday market operated by a Rotary Club on a Racecourse in the city where I live. In Europe it would be called a Flea Market and the UK it might be called a Car Boot sale. Vendors rent a site and set up a stall at which to sell their goods. Some are quite sophisticated, offering a delivery service and accepting credit card transactions. Most just accept cash. Large numbers of people come through the market looking for bargains.
When I look at the market all that I see is:
Can evil occur at this market? Yes. Evil can take place in a variety of ways.
- A visitor might shoplift from a stall.
- A vendor might be selling goods that are faulty
- A vendor might be selling a land mine.
- A visitor might assault a vendor.
- A vendor might sneak off early without paying the fee.
- A vendor might lie about the quality of the goods they are selling.
- A vendor might threaten to “beat up” a person, if they do not purchase an article that they have picked up.
A variety of evils can occur at a market, but that does not make the market evil. A market cannot take actions or make decisions. A market cannot be good or evil.
The evils listed above are all perpetrated by people: visitors, purchasers, vendors. Not all visitors, purchasers, or vendors are evil, but only those who do something wrong. The market is not evil. The piece of land is not evil. The goods are not evil, except for the land mine. The Portaloos are not evil, provided they are kept clean.
The rotary club is not responsible for any evil that occurs at the market, nor is the racing club. To suggest that they are responsible for what happens at the market is absurd. On the other hand, it may be in their interest to engage a security guard to minimize evil. If things got out of hand, the market might decline and they would suffer.
People can do evil at a market, but the market is not itself evil.
The full series is here.