Are Market Processes Moral?

This blog post by Timothy Terrell originally appeared on May 6, 2011 on the now-discontinued Market Process Blog, published by the Initiative for Public Choice and Market Process at the College of Charleston.


A religion professor at my college recently gave a talk to economics seniors on the limitations of economics and the necessity of considering religious principles in determining what we should do. Economics, he said, has difficulty reconciling with the harsh criticism of market activity found in the Bible. There were, of course, other religions he could have considered, but Christianity was most common among these students.

One of his key points–that the economic way of thinking is not sufficient to understand the world around us–is valuable. An interdisciplinary approach to learning is indeed vital. However, I believe there are some problems with assertions that free markets and Christianity are incompatible.

The idea of free markets is about minimal intervention of the civil government into the marketplace. It is not about creating morality through markets. Neither is it an argument that people operating in a free market environment do not do bad things. It is true that markets sometimes produce things that should not be produced. For example, pornography, prostitution, and contract murder are provided in markets (and not always illegally). And people who produce good things sometimes do so while cheating, lying, and stealing. But no market-oriented economists I know would argue that markets are expected to stamp out all unsavory and destructive behavior. A market structure allows people to accomplish their goals, but is neutral about what those goals should be.

I think it’s common for non-economists to create a bit of a caricature of capitalism–an image of a relentless search for financial gain, whatever the consequences for customers or bystanders. Yet free markets allow for the pursuit of multiple goals, not simply increasing the size of one’s bank account or even the size of corporate profits. Mother Teresa’s inclinations to help the lepers of Calcutta are no less consistent with the free market than a “greed is good” Gordon Gekko. Free markets are just that—free. A person in a free market has broad (not limitless) freedom to pursue their goals, goals which may be laudable or reprehensible.

Furthermore, it is a non sequitur to argue that all immoral acts must also be illegal acts. It may be wrong for a child to lie to his parents, but few would argue that the local sheriff should have jurisdiction in such matters. There are other social institutions besides the state, which can exercise influence to encourage moral behavior. The family and the church are two of these. I do not know of anyone who would argue that families and churches are incompatible with free markets. The existence of some immoral participants in the market, who produce evil things, does not imply that the state should intervene to deal with every form of immorality.

Neither markets nor governments do what we would like for them to do. Neither perform perfectly. Market institutions and coercive institutions (such as government) both are populated by imperfect human beings. One of the important questions, then, is whether markets or governments are least likely to produce the undesirable results we see. It seems that the recent financial crisis has been erroneously understood as the consequence of insufficient regulation. I recommend Tom Woods’ book Meltdown, Thomas Sowell’s The Housing Boom and Bust, and Peter Schweizer’s Architects of Ruin as readings on how government intervention contributed to the crisis. These tend to show that, far from being an example of “unfettered markets,” the financial crisis is an example of what regulation and monetary manipulation can do to an economy. While market processes suffer from greed, larceny, and deception, governments do as well. And the tendency is for greed, larceny, and deception to be worse where paired with coercive power. Markets can only entice cooperation, while the distinctive characteristic of government is its power to use force to accomplish its purposes.

Brooklyn Land Seized for Basketball Arena

This blog post by Timothy Terrell originally appeared on November 24, 2009 on the now-discontinued Market Process Blog, published by the Initiative for Public Choice and Market Process at the College of Charleston.


A New York court has decided that the state may seize privately owned land in Brooklyn under the eminent domain power for the purpose of building a development to include apartments, office buildings, and an arena for the New Jersey Nets. “The New York justices, writing in Daniel Goldstein v. New York State Urban Development Corp., ruled that it was lawful under the state’s constitution for the state entity to seize the downtown Brooklyn land to improve blighted conditions,” writes the Wall Street Journal today.

The court may be right about what the state constitution allows. However, an expanded definition of “blight” should be a matter of concern even to those who might approve of the idea of eminent domain. Any low-income neighborhood could be subject to seizure. Indeed, concern over an expansive interpretation of the eminent domain power prompted many states to amend their constitutions after the infamous Kelo decision took private residences for a Pfizer development project in 2005. Yet the eminent domain power remains a dangerous source of uncertainty over property rights. As the role of government expands, the range of projects that might be deemed a “public purpose” could extend further.

From an economist’s perspective, if the value of the land as a development is truly greater than its opportunity cost (in its current use, at least), the developers would be able to compensate the current owners. This is not the only 22-acre tract in the New York City area suitable for an arena, and therefore a holdout problem seems unlikely here, even if holdout problems alone were enough to justify eminent domain.

Can “Experts” Determine the Correct Health Insurance Premium?

This blog post by Timothy Terrell originally appeared on February 23, 2010 on the now-discontinued Market Process Blog, published by the Initiative for Public Choice and Market Process at the College of Charleston.


President Obama’s health insurance reform outlined Monday would, among many other things, create a Health Insurance Rate Authority, which “would provide an annual report to recommend to states whether certain rate increases should be approved, although the secretary could overrule state insurance regulators.”

Now, apart from the issue of federal regulators intervening in state affairs, there is the question of how the experts on this Rate Authority board would know what rates are best. How would they know when a proposed rate increase is too great? Remember that the Soviet economy was run by “experts.” They had far more economists in the USSR than the US had. And we all know where that kind of planning got them. Incidentally, they also had the world’s first universal health care plan: see “What Soviet Medicine Teaches Us,” by Yuri Maltsev.

Capping ATM Fees–A Good Idea?

This blog post by Timothy Terrell originally appeared on May 15, 2010 on the now-discontinued Market Process Blog, published by the Initiative for Public Choice and Market Process at the College of Charleston.


Three Democratic senators are considering capping ATM fees at 50 cents. The writer notes that a likely result would be a smaller number of ATMs, which is entirely likely.

The proposal is not new–similar efforts have been made in the past. Gene Callahan shredded one proposal of about ten years ago. The current proposal “estimates that it only costs banks somewhere in the neighborhood of 36 cents to carry out an ATM transaction – far less than what consumers typically pay.” This 36 cents may be the marginal cost. But banks also incur other, fixed costs of operating an ATM location–such as installation, insurance, maintenance of the machine, and periodic upgrades. Banks won’t be willing to install new ATMs if they find that they can only use marginal cost pricing.

In any case, efforts to find a price by looking at cost alone is neglecting the other half of the supply-demand framework. Demand reflects the value to the buyer. What value do people place on ATM access? Suppose my alternative to the ATM is expending my time, gas, and irritation driving around looking for another source of cash, which we’ll sum up as a $7 cost. A bank that charges me only $3.00 is doing me a $4 favor.

One of the most amazing statements in the article was this one, by a Ms. Jean Ann Fox of the Consumer Federation of America: “Banks shouldn’t be able to turn accessing your own money into a profit center.” But people use banks in order to keep their money safe until such time as they decide to use it–and in order to take advantage of easy payment methods such as debit cards or checks. At one time, banks offered very inconvenient access–a depositor either wrote a check, or made an in-person visit to one of a small number of physical locations in order to get cash out at a teller window. As banks found that they could profit by providing customers with more convenient access, they found innovative ways to do just that. In addition, ATMs increased competition among banks, discouraging the exclusive territories that once characterized banking. In a way, an anti-ATM law is like the anti-bank branching laws that encouraged bank monopolization.

Are consumers really better served by driving around longer, searching for an ATM–an ATM that is more likely to have a queue behind it? Are they better served by stopping into a store to buy something trivial in order to get “cash back” at the register? Banks apparently think that people will be willing to pay a little extra for convenience. If people aren’t allowed to pay more for the convenience, banks won’t provide it.

Is Chinese Steel Hurting the US Economy?

This blog post by Timothy Terrell originally appeared on December 30, 2009 on the now-discontinued Market Process Blog, published by the Initiative for Public Choice and Market Process at the College of Charleston.


Today the United States International Trade Commission imposed tariffs on Chinese steel pipe, largely used in the oil and gas industry. Urged on by the US steel industry and an associated labor union, the tariff follows an earlier duty imposed on Chinese tires.

Clearly, the US steel industry and its workers will enjoy a short-term benefit from this policy. Long-term, it could make the industry less competitive. This would not be the first time. In the early 1800s, British iron producers used an advanced manufacturing process that made British iron superior to American-made iron. Rather than improve their techniques to compete, American iron producers reacted by appealing to Congress for protective tariffs against British iron producers. In 1842, Congress did as they asked, but British iron continued to be imported. In fact, as economic historian Larry Schweikart noted in his book, The Entrepreneurial Adventure, “When tariffs ended and protection was greatly reduced, iron production in America increased. …[B]y 1860 American mills had become fully competitive with the British, in part because the end of protection eliminated the old charcoal smelters and obsolete mills, leaving the newer anthracite smelters in a position to meet the demand for the newer nonrail products.”

It’s also clear that the consumers of steel pipe will suffer from this policy, including the oil and gas industry and all those who use their products (i.e. every consumer in the US). Each job saved in the steel industry could cost far more than the employee earned. However, in the well-rehearsed story of protectionism, even if the total losses to the victims greatly exceed the total gains to the winners–which is likely–the diffuse nature of those losses means that the victims are politically weak. The concentrated gains to a few provide the political impetus for tariffs.

By itself, this tariff won’t spell the end of the US economy. But it is another small injury which, when matched by similar efforts by other protectionists, regulators, and interventionists of various stripes, can produce “a death by a thousand pricks.”