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HomeEconomyPrice Ceilings of $0 | AIER

Price Ceilings of $0 | AIER


In my previous two columns I reviewed the basic economics of price ceilings and price floors. In this column, the third in this series, I’ll look at a relatively rare set of goods and services that are best analyzed economically as goods and services that are exchanged in markets in which government sets a price ceiling of $0.

In market economies, most goods and services can be legally bought and sold at whatever prices sellers and buyers mutually agree upon. Most goods and services can also legally be given away and accepted free of charge. A handful of goods and services, in contrast, can neither legally be sold at any price, nor given away, at least not by private parties. An example is the service of an assassin. You can legally neither accept money from me as payment for you to kill a third person, nor volunteer to perform for me your grisly service as an assassin.

But a third, tiny group of goods and services occupies a strange legal province. These goods and services can legally be given away and accepted as gifts, but – in most jurisdictions – they cannot be sold for, or paid for, with money. Examples include parental rights in infant children, consensual sex among adults, and transplantable body organs.

If I’m suffering renal failure and want to undergo a kidney transplant, I’m free to ask you to donate your kidney to me, and you’re free to give it to me. But I’m not free to offer to you for your kidney what Anglo-American contract lawyers call “consideration.” The practical upshot of this prohibition is that it’s unlawful for me to offer to you, and for you to accept, some amount of money in exchange for your kidney. Ditto if I want to adopt your young child, or if I want you to have sex with me. You can volunteer to transfer to me your parental rights or to provide me with your intimate companionship, but I may not lawfully pay you for these services and you may not solicit payment for them.

Especially in the cases of transfers of parental rights and of kidney donations, this legal situation is bewildering. Not only are you free to give to me your parental rights or your kidney, if and when you do so society generally applauds you for your mature good sense (in the case of adoption) or for your unusual generosity (in the case of a donated body organ). Yet if you dare get paid as much as a few nickels as consideration in either of these exchanges, you’re regarded as having participated in an act that scandalously offends both law and human decency.

Why? Why do we applaud kidney donors but threaten to jail kidney sellers? After all, sellers no less than donors transfer kidneys from persons willing to part with them to persons eager to have them. Are there horrible consequences that don’t exist with uncompensated donations but that arise the moment donors receive some money in exchange for their valuable agreement to sell a kidney?

Most people, upon encountering the question asked immediately above, will respond “Of course there are!” But when pressed to identify specific ill-consequences that allegedly would haunt society if the government allowed prices of the likes of transplantable body organs, parental rights in infants, and sex with adults to rise above $0, the answers are quite weak.

In bold italics below are two of the most commonplace answers.

Allowing the sale of kidneys would exploit poor people!”

This response is bizarre. How can someone go from being non-exploited when that person is free to receive nothing more than nothing in exchange for one of his or her kidneys to being exploited when he or she is free to bargain for a positive price for the kidney?

The retort to my response invariably is that, by allowing people to be paid to donate kidneys, poor people will be so desperate to earn cash that they’ll feel compelled to do what is not in their long-run best interest.

Apart from the arrogance of such a retort, those who resort to it implicitly presume that the market price of kidneys will be too low to make any such decision to sell ‘really’ worthwhile. But because even poor Americans today live well above subsistence, the market price of kidneys would not reflect any desperate need on the part of suppliers to survive the immediate future. The market price would be high enough to enable a considered judgment about the costs and benefits of selling a kidney.

By the way, if poor Americans truly did live on the edge of survival, then denying to them the opportunity to improve their or their families’ prospects by selling kidneys would be even more cruel than it is in reality. Better to be alive and walking with one kidney – which, remember, is really all that most persons will need for the entirety of their lives – than to be dead and buried with two.

It’s unseemly to commodify things such as transplantable body organs and sexual services!

The answer to this objection to allowing positive prices for the likes of body organs and sexual services is that a government-imposed price ceiling of $0 does nothing to transform a good or service desired for its utilitarian function into a sacred, ‘non-economic’ object or experience. All that such a price ceiling does is to create a shortage of the good or service, with all of the attendant downsides of price ceilings.

Why, for example, should a person with kidney failure, and thus facing death or the agony of having to undergo regular dialysis, have to depend upon finding someone with two healthy kidneys and for whom donation would be a transcendent act of fellow-feeling? Who is harmed by allowing a mutually advantageous commercial exchange of a kidney for a sum of money? No one who I can see.

I submit that those who answer “It’s just unseemly to have such exchanges going on!” should be ignored. When some individuals’ lives are literally at stake, and would be massively improved by merely removing the price ceiling on kidneys, the ‘feelings’ of third parties about the unseemliness of such exchanges should carry absolutely no weight.

As for sexual services, all that needs pointing out here is that untold numbers of such consensual encounters occur daily without either party being motivated by anything more elevated than ordinary human self-interest.

Other objections exist to removing the price ceiling of $0 on goods such as transplantable body organs, and on services such as consensual sex. (There also exist compelling answers to these objections. See, for example, Jason Brennan’s and Peter Jaworski’s Markets without Limits.) But whatever particular objections might be raised to legalization of the likes of prostitution or the selling of transplantable body organs, clarity of thought is enhanced by recognizing that the prohibitions in question are really price ceilings of $0.

Donald J. Boudreaux

Donald J. Boudreaux

Donald J. Boudreaux is a senior fellow with American Institute for Economic Research and with the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at George Mason University; a Mercatus Center Board Member; and a professor of economics and former economics-department chair at George Mason University. He is the author of the books The Essential Hayek, Globalization, Hypocrites and Half-Wits, and his articles appear in such publications as the Wall Street Journal, New York Times, US News & World Report as well as numerous scholarly journals. He writes a blog called Cafe Hayek and a regular column on economics for the Pittsburgh Tribune-Review. Boudreaux earned a PhD in economics from Auburn University and a law degree from the University of Virginia.

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