What Money Can’t Buy

Markets are powerful institutions. They allow people to interact with one another and achieve things they could not achieve acting on their own. They allocate resources in ways that no single individual or government bureaucrat could even begin to duplicate. They lower the social costs of meeting human wants and needs far better than any other institution known to man. Market outcomes may on occasion be improved by judicious government regulation. But it is almost never worthwhile to suppress the market entirely in almost any field of human endeavor.

I find that most people who are disdainful of commerce and who think that exchange in the marketplace somehow diminishes and sullies the human spirit are people who invariably do not understand basic economics.

What brings this to mind are posts by Gary Becker and Richard Posner on the number of things we cannot buy and sell, including adopted children and human organs. Their posts are in response to a number of recent commentaries in favor of outlawing markets in large parts of social interaction, including Michael Sandel in What Money Can’t Buy: The Moral Limits of Markets. (See the Cato review in Regulation.)

As it turns out, health care is one of the fields in which some people would like to outlaw the market altogether. Education is another. Staffing military personnel is a third area.

Money can’t buy it.

Let’s take adopted children. It’s my understanding that we have a de facto market here, even though no one wants to call it that. We pretend that children are not actually being purchased by labeling payments to the natural mother “reimbursement” for medical care and other expenses. It just so happens that those reimbursements tend to be uniform — reflecting what is in reality a market clearing price: currently about $20,000.

The advantages of a market for adopted children are pretty much the same as the advantages of the market for any other good or service. Children will be adopted by those who are willing to make the biggest sacrifice to get them, at least as measured in terms of money. And the mothers who give their children up for adoption will receive the highest reward society is willing to offer.

Do people feel better going through the pretense that this is not really a market? What would be so wrong with not only acknowledging that a market actually exists but encouraging it to be more transparent and efficient?

Once children get a bit older, the transaction goes in the other direction: government actually pays parents to adopt — including a refundable federal tax credit of $13,360 (in 2011). In California, there are also monthly assistance payments as high as $1,500 or more a month plus Medicaid coverage. This too seems to me to be a worthwhile transaction. The costs of a government run orphanage would be much higher.

No such market exists for organs, however. At least not in the United States. And that’s too bad. As Becker writes:

[A]bout 4,000 individuals die each year while in the queue to get a kidney. Kidney exchanges, introduced in 2005, and other efforts to greatly reduce the waiting time have produced little overall benefit. In fact, the average waiting time rose from 4 years in 2005 to the 6 years wait at present.

Allowing kidneys to be purchased for transplant use would reduce the typical wait for a kidney to no more than a few months, and would eliminate all the deaths because of the time consuming queue to get a kidney. Since in the U.S. and many other countries, governments largely finance transplants, access to transplants under a system when they can be purchased would not greatly depend on a person’s income. In light of these considerations, I do not understand how anyone who is knowledgeable of the great cost imposed by the present system on the many individuals who need kidneys could oppose allowing kidneys to be purchased and sold, even after taking full account of “repugnance” and the other alleged costs of allowing a market in kidneys…

Elsewhere, Becker has estimated that the market clearing price (the price that would eliminate shortages) is about $15,000 for kidneys and about $32,000 for livers.

Some people on the left have an aversion to money, as reflected a lengthy list of goods and services they don’t think should be exchanged for money. Some people on the right have an aversion to unconventional sex and recreational drugs.

You might think that these two groups of people are very different. Certainly there is a difference in the activities that they abhor. Beyond that, they have something in common: a visceral desire to outlaw activities that disgust them.

I would only note that the term “moral” is often a thinly disguised attempt to erect a cloak of ethical justification around what people really want to do: outlaw behavior they don’t like.

Comments (27)

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  1. Sarah says:

    So are we going to start seeing kidneys on ebay?

  2. Cindy says:

    It’s an interesting rhetorical move to call something “not a market” if it is, in fact, a market. One wonders what’s precisely at stake — is it just a bunch of slippery-slope fallacies?

    As in, if we can buy children to adopt in a well-regulated market, there’s no reason to believe there’s a slippery slope between that and selling children to the highest bidder. There are still social safety nets to ensure children are well cared-for.

  3. Buster says:

    I’ve never studied the history of markets. Yet, markets I’m secure in my belief that markets are something that sprang up naturally. Trading services or resources is common and had to begin from the earliest days. Trade is even common among certain species of primates. If government regulators try to suppress a market, in reality they merely increase the transactions cost of the banned trade. With respect to the adoption of unborn babies, paying the mother’s expenses is a way to compensate her for her efforts. The state quietly allows these fees to exceed true costs to encourage adoption. But states don’t want to allow it to become so lucrative that women begin to conceive merely to sell the gestating fetus to the highest bidder. There are instances where the state should regulate a market. There are even instances where the state should suppress a market (e.g. in the case of allowing women to conceive to sell babies). However, efforts to suppress markets should never be used sparingly.

  4. Jordan says:

    I think that the difference between ethics and morals should be much more than a note.

  5. Ralph F. Weber, AEP, CLU, REBC says:

    Any product or commodity which can be defined can be traded in an open market. the term “Healthcare” is undefined.

  6. Paul H. says:

    Right on.

  7. Uwe Reinhardt says:

    John,

    Are you talking about a market in which living persons can sell their kidney to the highest bidder, or merely a call option on a kidney, contingent on the option seller’s death (from causes other than designs to move the option “in the kidney,”so to speak (like “in the money”). Even options might get risky in the presence of markets in which someone else’s premature demise can be bought.)

    Also, John, please do us a piece on “purchased affection,” that is, prostitution. Surely you and your faithful disciples on this blog must making this market legal. This market works very well in Holland and in Germany, although governments still interfe by requiring prostitutes to have regular death check ups and – certificates.

    Then do us drugs, especially marijuana and cocaine.

    Uwe

  8. Jimmy says:

    “It’s my understanding that we have a de facto market here, even though no one wants to call it that. We pretend that children are not actually being purchased by labeling payments to the natural mother “reimbursement” for medical care and other expenses.”

    -I guess, sometimes it’s easier to believe that there is not a market even if there actually is.

  9. Earl Grinols says:

    A tough post because it points out the inherent tension between free interaction which leads to markets and legal limitations. I think a case can be made that morality is primarily a term for codified norms of behavior, including prohibitions, generally of longstanding duration and often contained in an ancient religious book that contains God’s words such as the Bible that identifies what “works” and what does not work.

    If markets are prohibited in products where the market’s existence leads to more economic costs/harm than benefits I would suspect that there would be a great deal of overlap between what is prohibited and what we would deem to be immoral in the immediate and unintended consequences. I.e. euthanasia may have merits, but not sufficient merits to counterbalance the effective termination of the old by their inheritance-grubbing children, etc.

  10. Uwe Reinhardt says:

    My iPad played tricks on me again. I meant “favor making (prostitution) legal.

    I also meant to write “health check ups”, not “death checkups.”

    My apologies.

  11. seyyed says:

    a good compromise may start with permitting a market for goods and products that may be controversional but regulating it to ensure that the human spirit is not “diminished or sullied.”

  12. Ralph F. Weber, AEP, CLU, REBC says:

    It’s sad that some people are so afraid of allowing 2 consenting adults negotiate for legal services that they feel the need to build a HUGE government bureaucracy to buy from the supplier and sell to the buyer.
    Anyone with an IQ of over 17 knows that overhead increases costs.

  13. Perhaps if the price of the kidney went to the estate of the deceased, more people would choose to be organ donors, Thus leading to fewer sick people not being able to get a replacement kidney.

  14. Robert says:

    This has spawned some very interesting conversation!

  15. John Goodman says:

    Uwe, I wasn’t misled by your typos.

    Glad you approve of legalizing any transaction that’s peaceful between consenting capitalists.

  16. Alex says:

    Blood, for one, would certainly be more plentiful if people could be paid to donate.

  17. Paul says:

    There are few problems a free market can’t solve.

  18. Ashley says:

    Right! I would extend this idea to things like equal legal rights to gay couples.

  19. Dr Bob Kramer says:

    John,

    As a house officer during my residency days, earning $25 to $50 per month forced many of us to enter the reimbursement field as blood donors, bone marrow donors, and sperm donors just to have some extras beer or meal money. We felt absolutely no guilt for providing these services, and even less so when we were able to make $1/per blood donor when open heart surgery in it’s infancy requires 30-40 units of fresh whole blood the morning of a cardiac procedure. I suspect that the problem of solid organ donation implies a less than honorable procurement program with priority going to the highest bidder, or with the scurrilous market several years ago when orthodox rabbis in New Jersey were involved in a scheme where peasants in Brazil sold kidneys which went to South Africa and then to Israel for transplant. Somehow the ethical implications for this activity seems onerous. If solid organ sales were allowed to happen, the regulatory implications would be difficult; direct donor to recipient process vs a centralized program to provide an organ on the critical need of a patient/recipient. It would be necessary to eliminate those institutions who would transplant a patient because of the publicity a high profile recipient would provide for the institution; a point in fact of a world renowned athlete receiving an organ when the guidelines for such a procedure were ignored because of the PR value to the hospital. Such problems as these must be addressed and adhered to if open market availability were to be allowed.

    Dr Bob Kramer

  20. Charlotte Spencer says:

    Becker made an excellent point by stating “…since in the U.S. and many other countries, governments largely finance transplants, access to transplants under a system when they can be purchased would not greatly depend on a person’s income. In light of these considerations, I do not understand how anyone who is knowledgeable of the great cost imposed by the present system on the many individuals who need kidneys could oppose allowing kidneys to be purchased and sold…”
    However, the “aversion” and “antipathy” to the process of selling and buying organs like that may make several people (who agree with Becker’s statement) simply not even consider it.

  21. jmitch says:

    Is it possible for a market in health care to exist in the absence of prices? That is, could hospitals & other providers compete only on the basis of quality, convenience, reputation, creature comforts, etc. ?

  22. frank timmins says:

    Mr. Reinhardt, prostitution and drugs are certainly already a “market”. The fact that they are illegal enterprises does not negate that fact, it only forces the prices higher and limits availability. The same is true for organs available for transplant.

    However, the similarities end there as the moral and societal implications are far different. There are logical reasons (whether the best reasons or not) that some enterprise should be illegal. Organ transplant for purposes of saving lives does fit not into that category (unless of course one follows the ACA theory that people should be put out to pasture at a certain age).

  23. Uwe Reinhardt says:

    To Frank Timmins:

    Will all due respect, I find your argument unconvincing. Bob Kramer explains nicely what you are missing.

    Besides, Holland and Germany are highly civilized nations with solid moral values, and yet both legalize prostitution. So does Singapore, by the way.

  24. Linda Gorman says:

    I think that I agree with Professor Reinhardt. These arguments, and the many variants that I have read over the years, remain unconvincing.

    Saying that adoption is the same as buying and selling children is a stretch. As for organ sales, I’ve always wondered how any system will ensure that they are in fact voluntary. No thought experiment necessary, just look at the reports from China and those cited by Dr. Kramer.

  25. Uwe Reinhardt says:

    John:

    You answered smartly on Oct 31 (before Sandy visited our shores) and cleverly sidestepped the blunt question I had asked you:

    Do you favor legalizing the market for (a) prostitution, be it with males or female vendors, and (b) habit-forming drugs.

    I need to know this to understand your philosophy better.

    Looking forward to a straight answer on this blog.

    Best,

    Uwe

  26. Uwe Reinhardt says:

    John’s bashful and perfectly understandable silence on my comment reminds me of Alexis de Tocqueville’s remark in Ch. 15 of his DEMOCRACY IN AMERICA:

    “I know no country in which, generally speaking, there is less independence of mind and true freedom of discussion than in America.”

  27. Charlie Bond says:

    Hi John,

    In this post you have crossed the line that demarks intellectual ingenuity and sophistry. Fourteen years and two months ago, my wife and I flew to China to adopt our daughter. To suggest that our voyage then and the subsequent joy it has brought us was a market-driven activity belies even the slightest insight into the complex motivations underlying such activities. The adoption was a humanitarian act toward our daughter, but it has been a far greater human fulfillment for our family. We have received benefits beyond any price, and would never in a million years consider comparing the building of our family to be a commercial activity any more than a couple deciding to bear children of their own.

    Having stepped on that nerve, your post demonstrates that health care is not just about markets and money. While there is no stronger believer in the free market economy than I, health care is far, far from a free market. As we have repeatedly pointed out, there is no cost-based pricing in health care and the entire financing system for health care is devoid of the normal rules of competition. Financing for health care is provided either through the gov’t or through health plans that are exempt from anti-trust laws (The purpose of those laws is to assure the fair working of the free market). So we are not dealing with a “free market”.

    More importantly, whenever we talk about health care there are lives and people’s suffering at stake. These human interests–that necessary element of compassion–blunt the Friedmanesque pure market dogma, and require a more nuanced balancing of purely financial and economic concerns with the values that, in the end, make us human. If health care were a mere commodity, none of us who do health policy analysis would care that passionately about it. In the end, the human consequences of providing care are what drive us all in this field to try to “get it right.”

    To address Uwe’s point, perhaps the reason there is no response to the analogy to prostitution is that such a relationship is deliberately uncaring. Hopefully, in health care we are striving to assure our system maintains exactly the opposite motivation.

    Regards to all,
    Charlie Bond