If he ruled the world, the Harvard political philosopher Michael Sandel would rewrite economics textbooks so not to confuse market reasoning with moral reasoning. Here is a taste of his piece at Prospect:
If I ruled the world, I would rewrite the economics textbooks. This may seem a small ambition, unworthy of my sovereign office. But it would actually be a big step toward a better civic life. Today, we often confuse market reasoning for moral reasoning. We fall into thinking that economic efficiency—getting goods to those with the greatest willingness and ability to pay for them—defines the common good. But this is a mistake.
Consider the case for a free market in human organs—kidneys, for example. Textbook economic reasoning makes such proposals hard to resist. If a buyer and a seller can agree on a price for a kidney, the deal presumably makes both parties better off. The buyer gets a life-sustaining organ, and the seller gets enough money to make the sacrifice worthwhile. The deal is economically efficient in the sense that the kidney goes to the person who values it most highly.
But this logic is flawed, for two reasons. First, what looks like a free exchange might not be truly voluntary. In practice, the sellers of kidneys would likely consist of impoverished people desperate for money to feed their families or educate their children. Their choice to sell would not really be free, but coerced, in effect, by their desperate condition.
So before we can say whether any particular market exchange is desirable, we have to decide what counts as a free choice rather than a coerced one. And this is a normative question, a matter of political philosophy.
The second limitation to market reasoning is about how to value the good things in life. A deal is economically efficient if both parties consider themselves better off as a result. But this overlooks the possibility that one (or both) of the parties may value the things they exchange in the wrong way. For example, one might object to the buying and selling of kidneys—even absent crushing poverty—on the grounds that we should not treat our bodies as instruments of profit, or as collections of spare parts. Similar arguments arise in debates about the moral status of prostitution. Some say that selling sex is degrading, even in cases where the choice to do so is not clouded by coercion.
For more stuff like this check out Sandel’s What Money Can’t Buy: The Moral Limits of Markets.