On the limits of markets

Summary of JOIE article (First View, 04 August 2020) by Geoffrey M. Hodgson, Institute for International Management, Loughborough University London. The complete article is available on the JOIE website.

This is a summary of a review essay of Markets without Limits by Jason Brennan and Peter M. Jaworski and of The Invisible Hand? by Bas van Bavel. In very different ways, both books focus on the limits to markets. 

Jason Brennan’s and Peter Jaworski’s Markets without Limits

Critics of commodification such as Elizabeth Anderson (1993), Margaret Radin (1996), Debra Satz (2010) and Michael Sandel (2012) have argued that some particular kinds of commercial exchange may be immoral – such as prostitution and the sale of human organs. Brennan and Jaworski argue that many of the ethical objections to markets are misconceived.

Brennan and Jaworski’s (2016: 10-11) central claim is simple but powerful: ‘If you may do it for free, then you may do it for money.’ In other words, if it is morally permissible to have something, then it is morally permissible to sell it. To identify commodification as the problem, the critics need to show that it is morally permissible to own something but not to trade it for money (Brennan and Jaworski, 2016: 220). Generally, the critics of commodification fail to do this. 

Brennan and Jaworski (2016: 35-39, 115) wrote: ‘When anti-commodification theorists argue that something or other is incompatible with markets, they ignore the fact that there are many different ways of designing a market.’ Markets differ, depending on the number and nature of participants, the currency of exchange, the rules of negotiation and exchange, the motives involved, and much else. They then argued that ‘many of the objections to money and markets raised by anti-commodification theorists can be conceived of as complaints about particular markets, rather than about markets as such.’ 

The variation of market rules over a number of dimensions makes a huge number of institutional options and settings possible. This ‘adjustable settings’ argument boils down to this: if the giving of a good or service for free can be moral, then we might be able to twiddle the dials in market parameter hyperspace, so that all ethical objections to selling the same good or service are avoided. 

For example, in dealing with concerns about markets for body organs, such as kidneys, Brennan and Jaworski (2016: 8, 149-9, 206-8) noted that kidney donation is permitted under stringent conditions of supervision and care. They claimed that the same strict conditions could be applied if a market were to operate. They suggested that the market could even be morally superior, as it would respond more effectively to the chronic shortage of kidneys needed for transplants to save lives. Other authors have circumvented the problem of post-operative care by proposing the contracting of body organs by a living person, to be removed only after their death (Cohen, 1989; Hansmann, 1989). Any healthy person can thus gain some income, without any risk to their health. Lives are saved and others can be better off. Some of the moral objections to the selling of human organs can be surgically removed.

But elsewhere, Brennan and Jaworski are on weaker ground. Their claim that if it is moral to give something, then it is moral to sell it, depends on the assumption that the transition from gift to contractual exchange does not create moral wrongness where there was none before. This is contestable. The difference between contractual exchange and a gift is vital (Elder-Vass, 2020). 

A brilliant PhD student gets an article accepted in a prestigious academic journal. As a mark of gratitude and respect, she asks her PhD supervisor if he is willing to be named as a co-author of the paper. This gift is a recognition of the inspiration and guidance received from the supervisor, without which she could not have written this article. Nothing much seems wrong with that. But now consider if the student had proposed a deal: ‘give me a thousand dollars and I’ll put you down as co-author.’ The moral scales tip dramatically. It is no longer a gift. It is authorship and scientific reputation, bought and sold. It is science depraved by money. The termination of the gift relationship is crucial. Here immorality begins when the gift ends. 

Brennan and Jaworski (2016: 11-12) admitted that money payments, such as for contracted murder, ‘might amplify the wrongness, under certain conditions’ of a transaction. But if such payments can create a degree of additional wrongness, then why cannot they sometimes create wrongness where there was none before? In some cases, contracts could create immorality. 

Declaring that ‘the ethics of vote selling just is the ethics of voting’, Brennan and Jaworski (2016: 183-4) argued that if a vote is ethical then the selling of that vote is also moral. They continued: ‘Vote selling cannot transform otherwise morally acceptable actions into wrongful actions. If it’s morally permissible for you to vote a certain way for free, then it’s permissible to vote that way for payment.’ According to their Principle of Ethical Voting: ‘People who choose to vote must vote for candidates or policies they justifiably expect to best promote justice; otherwise, they must abstain.’ They concluded that it is permissible to buy and sell such ethical votes.

This argument would not allow for the selling of any vote, but morally permissible votes only. An ethical vote is one that is ‘justifiably’ expected to promote justice. But they gave us little guide to what justice means, or what kind of confirmation is entailed. There are different claims concerning what is just. 

Consider the logical options. If it were claimed that the principle can be easily implemented, and the policies that promote justice or injustice can be readily identified, then the candidates who promote unjust policies can be targeted, and perhaps disallowed from seeking office. If unjust policies are obvious, then why go to all the unethical trouble of allowing people to vote for them? If, on the other hand, the nature of justice is complex or elusive, then it is difficult to apply in practice the Principle of Ethical Voting

The selling of votes undermines claims of a legitimate popular mandate. Vote-selling would confer authority through the capacity to buy. Votes are not like other assets. They are component parts of larger institutions, with functions and relations that go beyond individuals, and may help to sustain political structures. They are entitlements to participate in a process that invokes a popular mandate to establish the legitimacy of government. Selling a vote undermines this process of legitimation. 

Entitlements to vote are part of a set of rules in a political system. Generally, selling a vote violates those rules. Selling transforms the vote into something else: as soon as it is sold, it is no longer a legitimate vote. 

The analytical problem in Markets without Limits is the assumption that any transition from gift to commodity exchange does not create new moral problems. But the great merit of this book is that it forces us to think carefully about the moral limits to property and markets. There are still moral limits, but the reasoning for them has to considerably refined in the light of their book. 

In a follow-up article in the Journal of Institutional Economics, Brennan and Jaworski (2021) replied to part of my argument. Citing my example of a PhD student, as noted above, Brennan and Jaworski (2021, p. 172) stated that it was morally wrong for the student to offer to make her advisor a co-author for $1,000: ‘contrary to Hodgson, we think it would also be morally wrong to make the same offer as a gift, as a way of expressing gratitude. Whatever other conditions or criteria might be relevant to making someone a co-author, substantive contribution to the paper is a necessary condition. So, if someone did not make a substantive contribution, they ought not to be made a co-author.’ 

In response, if the main criterion is whether the adviser made a substantive contribution or not, then by this logic, the request for payment of $1,000 could be moral if a substantive contribution had been made. Assuming that the advisor had made a sufficient contribution, then he already has the right to be a co-author. If the advisor already has that right, then making cited co-authorship conditional on payment is unethical. The student’s demand for $1,000 is then immoral because it is extortion. In this case, co-authorship should be a gift from the student – that is the only moral option. A further question is how is the right to co-authorship established? As we are in a sphere where trust and mutual respect must fill a void, because of the impossibility of adequately specified formal contracts governing complex and unpredictable research, then the determination of the right to co-authorship is in part a matter of the student’s discretion. Hence it still could be a meaningful gift or favour, partly in return for help and guidance. 

Overall, I do not think that Brennan and Jaworski have successfully demonstrated that a transition from gift to commodity exchange can never create new moral problems. I suggest on the contrary that moral questions can be affected by the nature of the transaction, and moral issues can arise de novo if the nature of the transaction changes. 

Bas van Bavel’s The Invisible Hand?

Van Bavel’s book is a major work of economic history. Using historical case studies of Iraq in (500-1000 AD), Central-North Italy (1000-1500), the Low Countries (1100-1800), and England, the United States and Western Europe from 1500 to 2000, he argues that the growth of factor markets in land, labour and capital has led to repeated cycles of growth, destabilization and economic decline. 

Van Bavel made a fundamental distinction between factor markets (‘land, labour, capital’) and output markets (for produced commodities). He saw the dominance of ‘factor markets’ as central in eventually promoting inequality and decline.

Van Bavel identified a process in which the accumulated wealth is translated into political leverage, which is then used to adapt the institutional organization of markets. While van Bavel acknowledged the positive role of markets, he saw the growth of ‘factor markets’ as eventually leading to severe crises. 

While van Bavel’s analysis is rich and instructive, it rests on some conceptual confusions. The biggest problem with van Bavel’s theoretical argument appears in the first sentence on the first page: ‘Everything that is necessary for human life is made by combining the three factors of production: land, labour, and capital’ (van Bavel, 2016: 1). The intended meaning of capital is crucial here. Does it refer to capital goods, such as tools, horses, oxen, machines, mills, factories, and so forth? Or does it refer to finance and money? 

A footnote on the second page makes this clearer: ‘when factor markets are discussed … this concerns the land market … the labour market (the hiring of labour for a specific period), and the credit market (the borrowing of capital for a specific period)’ (van Bavel, 2016: 2 n.). The mention of capital throughout the book is generally related to money and finance, and not to capital goods. There is little discussion of capital goods or the markets for them. 

But neither money nor finance are factors of production. Markets for them are not factor markets. In the physical process of production of material wealth, money does nothing. It is inert. So is finance. They grow no crops. They produce no goods. Both are indeed very useful to purchase means of production and other items. But they are not means of production themselves. Humankind managed for hundreds of thousands of years without money. They hunted and produced using land, labour, materials, weapons and tools. They obtained all these without money or finance. 

Today, for most businesspeople and their accountants, capital means money or the money value of tradeable assets. The measures of capital appear in the firm’s balance sheet in its accounts. The conceptual rot set in when Adam Smith (1776), inspired by the success of Newtonian physics, conceived of the economy largely in terms of matter and forces. In economics the term capital acquired the different, but often mutually confused, meanings of (a) money and (b) goods used in the production process.

To avoid the confusion of capital goods with money capital, factors of production should be clarified as land, labour and capital goods. But genuine factor inputs are also produced outputs. There is a ‘production of commodities by means of commodities’, as Piero Sraffa (1960) famously put it. Virgin land has to be drained, cleared, tilled or ploughed. As the Dutch know well, much land can be claimed from the sea or protected from floods. Land is an output as well as an input. Labour power is produced in households with care, food and shelter among the inputs. Capital goods are often produced by machines and raw materials. These inputs are also outputs. Once the confusion over meanings of capital is resolved, the false dichotomy between output markets and factor markets breaks down. 

As early as 1888, Carl Menger had reached the conclusion that economists should revert to the everyday business and accounting definition of capital (Braun, 2017, 2020). Among other prominent authors, Frank Fetter (1930: 190) argued that capital is both a monetary and a historically specific phenomenon. Joseph Schumpeter (1954: 322-3) insisted that the term capital should be applied to financial assets alone: ‘What a mass of confused, futile, and downright silly controversies it would have saved us, if economists had had the sense to stick to those monetary and accounting meanings of the term’. 

These repeated warnings have been widely ignored (Hodgson, 2014, 2015; Braun, 2017). As an important exception, Thomas Piketty (2014: 46) redefined capital ‘as the sum total of nonhuman assets that can be owned and exchanged on some market.’ 

This confusion over the meaning of capital pervades much of economic history. We read repeatedly of ‘capital’, without it being clear whether it means capital goods or finance. This enduring ambiguity subverts analysis of the causes of economic growth and of the institutional preconditions of economic development.

Once the conceptual mess created by the ambiguity of the word capital is cleared up, important parts of van Bavel’s argument survive. Instead of the false dichotomy between ‘factor markets’ and ‘output markets’, the crucial issue in his narrative becomes the role of financial markets. In each of his case studies, the growth of financial markets plays a crucial role in the destabilization and eventual decline of the system. 

Contrary to van Bavel, true factor markets – for land, labour and capital goods – are neither intrinsically nor necessarily a primary problem. Markets for neither capital goods nor land are intrinsically deleterious, unless ownership of them becomes so concentrated that adverse economic or political outcomes emerge. The development of financial markets may add to these problems. Land markets may facilitate finance when land can be used as capital. Capital goods such as factories and machines can also be mortgaged. By using their assets as collateral, the wealthy not only have more wealth, they have the greater means to create still more wealth. In a capitalist system, inequality of alienable wealth can begat still more inequality. The foremost problems are financial markets and concentrated alienable wealth, not factor markets. 

Thus transformed, the argument is no longer one of cyclical growth and decline, lasting several centuries. It is more a story of the development of institutions that permit an inadequately regulated expansion of financial markets. Appeal could be made to the works of John Maynard Keynes (1936), Hyman Minsky (1982, 1986) and others, who explained how unregulated financial markets can lead to destructive instability. This alternative theory would fit van Bavel’s facts. 

Van Bavel’s case against ‘factor markets’ rests on a fundamental confusion between finance and capital goods. This underpins a failure to identify unequal access to collateralizable property as a major generator of further inequality. Contrary to van Bavel, it is the potential instability of the financial system in a highly unequal society – and not ‘factor markets’ – that are the key problem. 

In his response to my critique, van Bavel (2021) made a number of useful points. But he did not contest the flaws I identified in his treatment of capital and factor markets. 


Anderson, Elizabeth (1993) Value in Ethics and Economics (Cambridge, MA: Harvard University Press).

Braun, Eduard (2017) ‘The Theory of Capital as a Theory of Capitalism’, Journal of Institutional Economics, 13(2), June, pp. 305-325. 

Braun, Eduard (2020) ‘Carl Menger (1840-1921): Contribution to the Theory of Capital (1888), Section V’, Journal of Institutional Economics, 16(4), August, pp. 557-568.

Brennan, Jason and Jaworski, Peter M. (2016) Markets without Limits: Moral Virtues and Commercial Interests(London and New York: Routledge). 

Cohen, Lloyd R. (1989) ‘Increasing the Supply of Transplant Organs: The Virtues of a Futures Market’, George Washington Law Review, 58(1), November, pp. 1-51.

Elder-Vass, David (2020) ‘Defining the Gift’, Journal of Institutional Economics, 16(5), October, pp. 675-85. 

Fetter, Frank A. (1930) ‘Capital’, in Edwin R. A. Seligman and Alvin Johnson (eds) Encyclopaedia of the Social Sciences (New York: Macmillan), Vol. 3, pp. 187-90. Reprinted in the Journal of Institutional Economics, 4(1), April 2008, pp.127-137. 

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Minsky, Hyman P. (1982) ‘Can ‘It’ Happen Again?: Essays in Instability and Finance (Armonk, NY: M.E. Sharpe.)

Minsky, Hyman P. (1986) Stabilizing an Unstable Economy (New Haven: Yale University Press).

Piketty, Thomas (2014) Capital in the Twenty-First Century (Cambridge, MA: Belknap Press).

Radin, Margaret Jane (1996) Contested Commodities: Trouble with Trade in Sex, Children, Body Parts and Other Things (Cambridge, MA: Harvard University Press). 

Sandel, Michael J. (2012) What Money Can’t Buy: The Moral Limits of Markets (London: Allen Lane). 

Satz, Debra (2010) Why Some Things Should not be for Sale: The Moral Limits of Markets (Oxford and New York: Oxford University Press). 

Schumpeter, Joseph A. (1954) History of Economic Analysis (Oxford and New York: Oxford University Press). 

Smith, Adam (1776) An Inquiry into the Nature and Causes of the Wealth of Nations, 2 vols, (London: Strahan and Cadell).

Sraffa, Piero (1960) Production of Commodities by Means of Commodities: Prelude to a Critique of Economic Theory (Cambridge: Cambridge University Press).

van Bavel, Bas (2016) The Invisible Hand? How Market Economies Have Emerged and Declined Since AD 500 (Oxford and New York: Oxford University Press). 

van Bavel, Bas (2021) ‘Market dominance and endogenous decline: the contribution of historical analysis’, Journal of Institutional Economics, 17(1), February, pp. 177-83. 

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