How valuable is the market mechanism for practical morality? What is its moral standing? We can scarcely doubt that as individuals we do value tremendously the opportunity of using markets. Indeed, without access to markets most of us would perish, since we don't typically produce the things that we need to survive. If we could somehow survive without using markets at all, our quality of life would be rather abysmal. It is natural to feel that an institution that is so crucial to our well-being must be valuable. And since moral evaluation can hardly be indifferent to our interests and their fulfillment, it might appear that there is nothing much to discuss here. The market's moral standing “has to be” high.

Is there anything morally special about free exchange? In asking this, I am asking not only about extreme, so-called “libertarian” views, on which free exchange is sacrosanct, but about more widespread, moderate views, on which there is at least something morally special about free exchange. On these more compromising views, other moral considerations may override the moral importance of free exchange, but even when rights of free exchange are restricted for good reason, something morally important is lost. For some, free exchange may preserve liberty, in some morally significant sense, or realize some such moral value as “to each his own.” Alternatively, a system of free exchange may have a special moral status by virtue of the kinds of pragmatic arguments that economists give, arguments that free exchange produces good social results. Whether free exchange has any such virtues as these is the broad question I address in this paper. I offer what I have to say somewhat in the spirit of an overview. Philosophical scrutiny and economic analysis combine, it seems to me, to delineate fairly clearly what is, and what is not, morally special about free exchange.

My concern in this paper is with the illumination that the theory of rational bargaining sheds on the formulation of principles of justice. I shall first set out the bargaining problem, as treated in the theory of games, and the Nash solution, or solution F. I shall then argue against the axiom, labeled “independence of irrelevant alternatives,” which distinguished solution F, and also against the Zeuthen model of the bargaining process which F formalizes.

De gustibus non est disputandum. This maxim reflects a fundamental problem both for the study of markets and for the concern with morals. The problem is the intractability of tastes coupled with their indispensability for both positive and normative economics. Tastes are indispensable in positive microeconomic theory because, under the label ‘preferences,’ they, together with expectations, determine choice and behavior. Tastes are equally indispensable to welfare economics' conception of morally permissible arrangements, because these arrangements must reflect compromises between competing and conflicting preferences.

This essay is part of a larger project exploring the extent to which the market paradigm might be usefully employed to explain and in some instances justify nonmarket institutions. The focus of the market paradigm in this essay is the relationship between the idea of a perfectly competitive market and aspects of both the rationality of political association and the theory of collective choice. In particular, this essay seeks to identify what connections, if any, exist between one kind of market account of the rationality of political association and one kind of market-based social choice rule. The market theory of political association I intend to discuss I call “market contractarianism,” and the collective choice rule whose relation to it I intend to explore is the unanimity rule. What, if anything, is the relationship between market contractarianism and the unanimity rule?

Utilitarianism and the Concept of Social Utility

In this paper I propose to discuss the concepts of equality and justice from a rule utilitarian point of view, after some comments on the rule utilitarian point of view itself.

Let me start with the standard definitions. Act utilitarianism is the theory that a morally right action is one that in the existing situation will produce the highest expected social utility. (I am using the adjective “expected” in the sense of mathematical expectation.) In contrast, rule utilitarianism is the theory that a morally right action is simply an action conforming to the correct moral rule applicable to the existing situation. The correct moral rule itself is that particular behavioral rule that would yield the highest expected social utility if it were followed by all morally motivated people in all similar situations.

The Problem

Economic efficiency is naturally thought to be a virtue of social policies and decisions, and cost-benefit (CB) analysis is commonly regarded as a technique for measuring economic efficiency. It is not surprising, then, that CB analysis is so widely used in social policy analysis. However, there is a great deal of controversy about CB analysis, including controversy about its underlying philosophical rationale. The rationales that have been proposed fall into three basic, though not mutually exclusive categories. There are moralist views to the effect that an acceptable CB analysis would provide, or contribute to, an ethical appraisal of proposed policies or projects. There are rationalist views to the effect that an acceptable CB analysis would contribute to the selection of social policies and projects that are “socially rational.” Finally, there are so-called management science views to the effect that the purpose of CB analysis is to promote the achievement of objectives held by the policy maker, whatever they may be. Different positions are available within each of these categories. But there is also the possibility that CB analysis lacks any viable rationale. I will examine some of the major rationales for CB analysis in this paper, and I will suggest that the last view is close to the truth.

As Sir Thomas Browne solemnly observed in his Religio Medici, “Heresies perish not with their authors but, like the river Arethusa, though they have lost their currents in one place, they rise up in another.” So too with the economist's valuation of life, the heresy being that–without seriously challenging the current concept of subjective valuation of changes in risk–economists have regressed to the once-persistent belief that it bears some quantitative relation, if not to expected earnings, at least to the utility of expected earnings or capital or consumption. This old-tyme recipe for estimating the value of a human life – notwithstanding the ornate convolutions and occasional intellectual effronteries to be found in the more recent versions–is much like that for calculating the value of a two-week honeymoon for a loving couple by reference to their anticipated outlays (including foregone earnings) plus perhaps an allowance for the probability of non-consummation owing to frigidity in either.

The Ministry of Transport is planning for the construction of new roads in its territory. Many projects are being considered, and the Ministry needs to identify the worthwhile projects for which the benefits exceed the costs. Among costs and benefits are the expense of constructing the road, the time saved by motorists using the new road rather than some other road, the time saved through the reduction of congestion on other roads, and the expected increase or decrease in the number of deaths due to traffic accidents. I am concerned in this paper with the last item on the list. It is, of course, difficult to estimate fatalities accurately, but this difficulty is neither unique nor central to our problem. The problem is how best to place a monetary value on fatalities, so that the expected number of fatalities can be compared with other costs and benefits in deciding whether to build a road. However chosen, the monetary value of fatalities for use in this context is what the economist means by “the value of life.” The term is almost a joke, a bit of gallows humor to exorcise the ghoulishness that inevitably clings to analysis of life and death in monetary terms.