Does a Market Economy Encourage Altruism?

Are markets inherently altruistic?

I thought of that question after attending a recent conference, co-sponsored by the American Enterprise Institute (AEI) and the Duke University and University of Virginia law schools. The conferees gathered to discuss how “altruism, community, and self-interest are (and could be) harnessed to create and distribute goods and services.” The goal, the announcement suggested, was to find ways “to overcome deficits in altruism that limit the supply of bone marrow, blood products, and transplantable organs.”

AEI’s Sally Satel, who hosted the event, focused on restrictions on markets for kidney transplants. Under current law, kidneys can be donated in various ways but may not be bought and sold. Much of the discussion focused on the fact that the current non-compensated donation fails to meet the demand for kidneys. Thousands die as a result. A compensated organ transfer system would reduce that deficit.

That utilitarian argument is powerful, but it is really only half the picture, because markets themselves enable altruistic behavior. Markets enhance the moral cooperative aspects of society. Yes, they have quantifiable benefits, but they also increase links between people, making the world a more cooperative place. Markets encourage altruistic behavior by bringing strangers together, breaking down tribal barriers, and fostering cooperation between groups.

That altruistic aspect of markets is not well understood, even though it was the second element of Adam Smith’s argument. In The Wealth of Nations, he made the utilitarian, economic case for markets—how markets are compatible with the evolved trait of self-interest.

But in his Theory of Moral Sentiments, he made the cooperative, altruistic case—how markets encourage, indeed require, that people come to understand and value each other. Smith understood that humanity was both self-interested, which is critical for survival, but also other-regarding and altruistic. Humans, Smith recognized, are social animals.

Markets for organ sales are opposed for various reasons. Harvard philosopher Michael Sandel, author of What Money Can’t Buy, argues that in a world of income inequality, markets are often coercive. He also argues that allowing items to enter the marketplace changes their inherent value. In effect, Sandel argues that the poor aren’t really “free” to choose, and that certain goods and activities are degraded when they are moved into the market.

Still, he does concede that neither argument necessitates a prohibition against marketing the item. His coercion argument merely leads to the conclusion that markets must be restricted until such a time as wealth and knowledge are more adequately distributed. Yet that misses the key point—that markets create wealth and thus move the whole world toward that egalitarian outcome.

Are donations “more” altruistic than compensated transfers? Depending on the purpose to which the donor places the compensation, they may be more altruistic—such as for example, when used to save an ailing but impoverished friend.

But more fundamentally, market transfers are inherently moral because they’re voluntary and mutual. The donor is free to decide within his or her range of welfare-enhancing options. The arranger of the donation must get a good read on the potential donor’s values—what would it take for them to agree? Markets involve interactions between buyers and sellers, requiring each to “read each other” better; they bring parties together into a mutual win/win outcome.

Bringing an item—including kidneys—into the market increases altruistic ends by forcing a disparate array of individuals and institutions to cooperate toward mutually agreeable goals. It enhances the self-interest of donors as well as recipients, as it requires negotiations that necessitate other-regarding empathy. It requires asking, “What do they value, how can I provide that, and what can they offer— money or recognition or something else?”

Absent a market, we push demand underground, into black markets where consumers and producers lack legal protection and unscrupulous actors often operate with impunity. Witness the underground market in cultural antiquities.

Markets expanding into areas where transfers were once considered impossible can alleviate shortages, including of something as sensitive as kidneys. To gain a greater understanding of that reality, advocates of this reform should craft a series of narratives about the beneficiaries of such exchanges and the more healthful life they can enjoy.

Originally posted to Forbes Online.