The subject of the free market crops up here regularly, often in the context of worrying about whether it's a synonym for abject materialism, or the tendency to put a crude dollars-and-cents price on everything. I prefer this statement of the purpose of studying economics, which applies as well to the operation of a free market:
We shall find that the economic relations constitute a machinery by which men devote their energies to the immediate accomplishment of each other’s purposes in order to secure the ultimate accomplishment of their own, irrespective of what those purposes of their own may be, and therefore irrespective of the egoistic or altruistic nature of the motives which dictate them and which stimulate efforts to accomplish them.
In other words, economics is about choices in a world where you can't have everything at once. As Thomas Sowell says, it's the study of the allocation of scarce resources with alternative uses. They aren't all material resources; sometimes they're measured in the time or effort available in our lives, always a finite quantity.

In this sense of a "market," people make choices and trade-offs. The point is not to reduce every trade-off to a monetary one, but to let the choices be made by each person rather than by a distant, crowned bureaucrat.

H/t Maggie's Farm.


Grim said...

The point is the one thing, yes, but the danger is the other. Take the "private room" for prisoners example: there's no economic interest at work here, but rather a general civilizational interest in maintaining lawful order. Yet we find that, even here, things have become for sale. The rich thus end up enjoying an easier standard of "justice," at best; at worst, if you take the Aristotelian notion that justice means treating relevantly similar cases similarly, we have dispensed with justice entirely. In favor of what?

Texan99 said...

Individual choices still involve ethics. The issue isn't whether a choice will be made between one scarce resource and another, the issue is who will make the choice. If an individual makes it, he has to deal with the ethical problems that all choices entail. If a central committee makes it, we'd better be sure we've adequately arranged for it to make ethical choices. So far, the evidence shows that the central committee normally can't be counted on even to make the best choices from a purely materialistic point of view, let alone the ethical one.

Grim said...

Rather than argue the point, I'm going to ask you to apply it. The example in front of us is the justice system, where we have a general notion that bad individual decisions can be 'made right' (at least to some degree) by common action. So, we have a jury, laws we agreed upon in something like a collective body, and application by a magistrate we elected (at least, in Georgia we elect them).

How do you apply the concept to this system? If the answer is "You shouldn't," which strikes me as a plausible answer, then what does that say about the place of the market in society?

Texan99 said...

You know, I spaced out when I was replying above, somehow going into a reverie about game theories applied to prisoners in a room.

Addressing myself to the topic you actually raised, which was whether it was a good idea to let rich prisoners pay extra for a nicer jail cell:

Yes, I agree with you that there are situations in which people should have their options taken away from them. The default position is that every citizen is a free agent who should get to make his own decisions about how to trade his resources for other resources. That default position changes when we catch someone doing something so loathsome that we're willing to lock him up to punish him. For that matter, we may force him to forfeit all his property, and he's certainly prevented from using his time and energy in the ways that seem best to him, or at least mostly (assuming he doesn't want to use his time in prison to write a blockbuster). He's been kicked out of the free market, basically, for being a jerk.

Even libertarian champions of the free market often get comfortable with the idea of using societal force to prevent or punish violence or fraud. So yes, I agree that there are areas of life in which the free market is not the right model. As I often say, for instance, I don't apply it at all under my own roof, except in the sense that I freely make all my own choices of how to behave under my own roof, without reference to what the Undersecretary for Domestic Improvement in Washington, D.C., thinks about it. But I don't bill my husband when I wash his socks.

The existence of criminal penalties is one of the ways we introduce costs into our system, thus affecting the overall "price" of some kinds of behavior. That's a classic example of letting some resource allocations be influenced strongly at a central level instead of only an individual one. We do it when we have good reasons to believe it's worth the added cost of the interference. Given my libertarian leanings, I'd prefer we limited that kind of central interference to areas that involve violence or fraud, and (even then) staying within the limits of our cultural tradition of due process.

Once a crime gets watered down from violence or fraud and moves into the area of "not such a great idea; could possibly lead to unpleasant consequences for others who aren't paying attention," I'm more inclined to let the individuals work it out amongst themselves via their freedom of transaction -- meaning, "Don't do business with that guy, he's a jerk. There are other people in town who offer that product or service." That goes double when the problem is that something very important to us "costs too much." For me, the answer is, "Then prioritize it higher and give up something less important so you can afford it."

Grim said...

I was with you until you got here:

The existence of criminal penalties is one of the ways we introduce costs into our system, thus affecting the overall "price" of some kinds of behavior.

That's a market model. So are we in the market, or are we not? If we are not, what would justify a market analogy? If we are, why shouldn't the rich man be able to use his resources here even if it means disposing of ideas like "justice"?

What I'm aiming at is the idea that there are things that are genuinely outside the market; that is, that the market has limits. When you phrase even this in market terms, I'm thinking we're in danger of the kind of slippage that concerns me.

Put another way, there are things with no price: honor is one of these things. A few days ago I said that we must not allow even willing slaves, because our desire to value human dignity requires us to lay down a floor beyond which we will not allow it to fall. That is, in market terms, a price control -- and market theory holds that those are bad.

If everything is in the market, then everything has a price. Is that right, or is it not?

Texan99 said...

Making bad acts "costly" by criminalizing them is a market model in the sense that we look at life's decisions as trade-offs. It's not a free-market model, because a central power is putting its thumb on the scale. It's also not a monetary market model, because the thumb on the scale doesn't translate into money. But it's a market model in the sense that we don't really prevent many crimes directly; instead we normally create incentives against them, raising their "price" in that sense. For every bank robber who's shot in the act, many more would-be robbers are prevented by fear of prison. (Many others are prevented by an internal sense of honor, but we don't need laws for them; unfortunately they're not prevalent enough in the population for us to abolish the laws, either.)

"Everything has a price" is somewhat true if you don't limit yourself to a price expressed in money. Everything we choose has a price in terms of a lost opportunity to do something else, at the very least. Normally there are other costs as well, monetary and otherwise.

The important thing for me is not exactly what price everything has, and certainly not whether it's a price in dollars, but who gets to decide what the trade-off is when choices are available. Unless there's an awfully good reason to let a central authority define the trade-off, I want the individual to do it. Of course the individual should include the value he places on human dignity in his decisions about which goals to pursue and which to let fall by the wayside. I want him to perform that function for himself, with society stepping in only if he's proven himself incompetent at the task, by making himself an unreasonable danger to others.

So in a perfect world I'd rather see no criminal justice system, but instead let every individual stew in the consequences of his own wrongdoing. In practice, I'm willing to compromise and say that some people prove themselves so incompetent at regulating their behavior that we have to adopt society-wide, centralized punishments (i.e. costs) that overwhelm the individual's own foolish choices. I just want a due process limitation on that government power, and I want it used as sparingly as is humanly possible, rather than applied every time some well-meaning official decides he (or a majority of voters) knows best.

Grim said...

I'm still not sure we're on the same page. So, let's look at the Saga of Burnt Njal, a beautiful book, a true story, and an example of a market-based justice system. Njal is really good at helping people make trade-offs in the Icelandic legal system. His friends profit from his wisdom, so that the trade-offs they make are to their advantage (whether or not justice-as-such is well served by these advantages to his friends).

Toward the end of the book, some of the people who have been ill-served by these alliances he made get together and burn him alive in his house.

Good? Bad? Sideways?

Texan99 said...

The trades I support in what I call a free-market system are voluntary trades between consenting individuals. If a deal is compelled, there's an unhappy participant who may want revenge. The idea is not to compel them. People speak loosely about being forced to pay the going price, but they're not forced to do the deal at all, only to pay that price if they want that deal. Otherwise, they've got to go elsewhere or do without.

In your Saga, I take it people were forced, say, to accept a given compensation for a crime, but didn't agree it was fair? So they're unhappy in the sense they might be under our system, when a criminal gets a sentence they believe is too lenient. I'd say that was more analogous to a statutory price-fixing system than a free-market one.

When there's a criminal violation involved, you're probably not going to have two willing bargainers striking a mutually acceptable deal. I suppose you could; someone might be willing to let bygones be bygones if the criminal paid some penalty or other (which would not have to be monetary). But the crux of the matter is that it would have to be the injured party who agreed to the penalty in order to forgo revenge, or it wouldn't be analogous to a free-market system.

Grim said...

There was no real force behind Icelandic law, except the honor of the man's name and the violence that might follow if a settlement were violated.

Actually, we did this book as part of the Grim's Hall Book Club. Unfortunately the comments, which were the interesting part, were lost in the collapse of Haloscan/Echo, but you can read the original posts here.

douglas said...

"Everything has a price" is somewhat true if you don't limit yourself to a price expressed in money. Everything we choose has a price in terms of a lost opportunity to do something else, at the very least. Normally there are other costs as well, monetary and otherwise.

I may be off, but I think this is the crux of what Grim's after here. On the one hand we have a 'pure' market scenario- a libertarians dream world where everything is measured in time/money (money is after all just a mans time in labor). In this world, if you can buy it, it's o.k. so long as both sides agree to a price. On another hand we have the American system of Judeo-Christian founded Liberty, that allows for a free market but is rooted in the expectation that there is an accompanying ethical system to which we all ascribe (in some measure or another) that monitors and mediates our market actions. Or there is the system in Burnt Njal, where there is a market and trade, but honor is the primary currency and takes precedent.

Is that making a reasonable outline of it?

Texan99 said...

A free market needn't mean that everything must be reduced to its equivalent in time or man-hours. It should mean that each person, in deciding what to do with his own resources (including material goods, hours, skill, attention, or anything else) will decide for himself what he might or might not be willing to trade for them, and will enter into a transaction to relinquish them only when he's happy with the terms and can find someone else who's happy with the terms.

So we hope, for instance, that there will never be a price that anyone can offer him for some things, but we leave it to him to decide, and (almost) never presume to set the price for either him or his counterparty in a transaction.

If we then decide that society won't acknowledge or enforce his contract to sell his kidney, at least we have to admit that we're stepping in for him as we might for an incompetent person, acknowledging that he's over his head and needs protection. I'd rather we didn't do the same for, say, gasoline or food.

We may also make exceptions when we find someone treating his own child, for instance, as his property, which he is ostensibly free to trade for some other valuable thing. There, we may deplore his bad judgment in fixing the price, but what we really object to is that his child is not his possession to dispose of. We would instead have a hearing over whether his legal parental rights and duties should be terminated in the best interest of the child.