The Possible Problem with Voluntary Exchange

The thing is… everyone’s actions here are voluntary

Libertarians like myself [ed. — no longer accurate] like to defend contracts and other exchanges because they’re voluntary. When two capable adults reach an agreement to exchange their legally owned objects, labor or money, then presumably they both believe they’ll be better off once the exchange has been made. The problem with this argument, as a friend of mine recently pointed out, is that it could be extended to virtually every human action, even ones we have no interest in defending. For example, if I were held at gunpoint I would think myself better off giving up my wallet, and my assailant would think himself better off with the wallet and no blood on his hands. Both of us are taking the actions we deliberately and rationally believe will advance our interests, but there’s something clearly wrong going on.

Now, this case is extreme and we can intuitively see that there are differences between it and an ideal voluntary situation. But what are the distinctions? The first one is that I’m being threatened with violence. Let’s set that aside for now. The other distinction is more interesting. Mike Munger, an economist at Duke, tries to define the perfect voluntary exchange in order to distinguish it from other scenarios which are problematically voluntary. The main difference he finds is in scenarios where, while both parties consider themselves advantaged by the deal, the difference in alternatives in huge. So in my previous example, my alternative to giving up my wallet was death, while my assailant’s alternative was to go without $100.

Munger argues that this intuition, that a major difference in alternatives is unfair, undergirds much of our support for economic regulation. We oppose selling ice at super high prices to people in disaster zones because the higher prices hardly compare to the need for ice; we are shocked at the sale of kidneys because kidney failure is so dramatically worse than not receiving a couple thousand dollars in compensation. This intuition is behind what we call exploitation: sweatshops appear to take advantage of people because workers in third world countries have so few alternatives, while corporations could always pay more for workers at home.

But when we blame the exchanges taking place — the selling of a kidney, the setting up of a sweatshop — aren’t we, as Munger argues, reversing causality? The problem isn’t the exchange, which if anything helps improve the situation, but rather the underlying causes which lead to a disparity in alternatives. It’s not the kidney seller who made your kidney fail, nor the sweatshop owner which left your country in crushing poverty. Outlawing these exchanges would be like prohibiting me from handing over my wallet, while leaving criminals free to stick me up. We should be combatting the source of differences in alternatives, not the exchanges which can alleviate them.

Image: Civil War era cartoon from the Library of Congress

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