I left off the previous edition (part II) (and here’s part I) of the five part series this way:

What does voluntary mean? Is it sufficient that consent not be extorted at gunpoint? Many believe that an absence of coercion by direct human agency does not suffice.  People also must not be coerced by the absence of alternatives.  A choice can’t be voluntary if it is not a choice.

Michael Sandel (1998:  78) formulates the objection in this way

The… objection [to the claim that an exchange is truly voluntary] is an argument from coercion. It points to the injustice that can arise when people buy and sell things under conditions of severe inequality or dire economic necessity. According to this objection, market exchanges are not necessarily as voluntary as market enthusiasts suggest. A peasant may agree to sell his kidney or cornea in order to feed his starving family, but his agreement is not truly voluntary. He is coerced, in effect, by the necessities of his situation.

To eliminate the ambiguity in the meaning of voluntariness, I proposed the formal notion of euvoluntariness, or “true voluntariness.” For a market exchange to be euvoluntarysix conditions must be met:

1. The parties own the objects or services being exchanged, according to the conventional interpretation of ownership.
2. The parties have both the legal and practical capacity to transfer these objects or services.
3. There is no fraud, and no psychological compulsions such as addiction or neuropathy.
4. The exchange does not produce large-scale uncompensated non-pecuniary externalities, and does not impose costs on third parties without their express voluntary consent.
5. Neither party is coerced in the sense of being forced to exchange by threat of violence or other form of active aggression.
6. Neither party is coerced into exchange by dire necessity, and neither party has enough bargaining power to impose an unconscionable price.

Conditions 1–6 are standard requirements for a valid contract in the common law. Conditions 5 and 6 could be summarized as “no duress.” A market exchange is voluntary if conditions 1–5 are satisfied, but it is not be euvoluntary unless condition 6 is satisfied as well.  Condition 6 requires that no one is “coerced by circumstance.”

(MORE AFTER THE JUMP
A number of people asked in comments why this would ever be a concern.  Why would there be a necessity that both / all parties to the exchange have good alternatives?  There are many cases where contracts are invalidated because they are “unconscionable.”  The most interesting for present purposes is likely “Post v. Jones,” 1856.  The précis is simple:  No contract is valid if there is no market, no competition, and one party has absolute bargaining power.  (If you haven’t read the case, it’s worth studying, from the decision itself and from this summary). But here’s the short version:

A whaling ship, with a substantial load of valuable whale oil, is stranded (aground on dangerous rocks) and will almost certainly be wrecked, with total loss of the cargo.  The “rescuer” ships in effect negotiated a deal where all the oil became the property of the rescuer.  The rescuers then auctioned off the oil, receiving an amount much greater than the salvage fee would have been.  The owners of the wrecked ship argued that the “contract” was “negotiated” (sorry for the quotes, but they matter) under conditions of extreme duress, and that there was no market and that there was no competitive setting for the negotiation.   Therefore the implicit contract was not enforceable, because it was unconscionable.  This notion of unconscionable contract is common in law (that is, in common law of torts), and condition #6 is simply designed to capture that intuition.

Coerced by Circumstance?

Sandel’s claim is that people might be “coerced by circumstance” and that this makes markets bad.  He’s wrong.  What’s wrong is the circumstance, not the market.  Prohibiting the exchange does nothing to improve the circumstance.

To Sandel’s credit he lists two circumstances when what I have called condition #6 might be true:  “severe inequality or dire economic necessity.”  That is, either the bargaining strengths of the two exchangers are just too different, their power in the market too disparate, to justify the proposed exchange, or else the reversion point, or “no-bargain” solution of one (or more!) of the exchangers is too abject. Severe inequality implies that the disparity in alternatives to the exchange is too large to be fair.  Dire necessity implies that the alternative to exchange for one party is unconscionable.   If at least one of these conditions applies the transaction is not euvoluntary and therefore appears to be unjust.

The problem is that the set of conditions in the “euvoluntary” list are sufficient conditions for an exchange or exchange situation to be just.  What conditions are necessary?  It would be premature, at least, to conclude that it is obvious that because the transaction is unfair it should be prohibited.  In general, the unfairness is a condition of the pre-existing distribution of wealth and power across the potential participants in the transaction.

Suppose we grant the following (we might not, but suppose we do).  The peasant is desperate to sell his kidney to avoid an outcome we all agree is unconscionable:  family starves.  Our intuition is something like this:  no one should be forced to sell his kidney, or corneas, to feed his family.  Fair enough.  But prohibiting the transaction maroon the peasant at just that outcome, making him even worse off than if the transaction had been allowed.   It would appear that denying the desperate peasant the chance to sell his kidney is a different kind of injustice, where moral acceptability is purchase only at a price of substantial, and avoidable, harm to his family.  Thus “peasant should not be allowed to sell kidney” does not follow from “peasant should not be obliged by circumstances to sell kidney.”  The prohibition on the sale does nothing, nothing at all, to mitigate the desperate circumstance.  If any, our moral smugness in outlawing the makes the peasant even worse off, marooning him at a position that, by granted premise, is unacceptable.  What fresh hell is this?

I want to raise the possibility here that there is at least an ambiguity in the claim that it is wrong to buy from, or sell to, someone in a desperate position, if by refusing to do that a mutually beneficial exchange is ruled out.  What I mean is something like this:  I think sweatshops are wrong, so I refuse to buy from sweatshops. But that means that the people employed in the sweatshops lose their jobs.  I get to satisfy my own moral intuition that sweatshops are wrong, but at the price of material harm to the very people my moral intuition is supposed to protect.

More generally, suppose that, in order for the stronger party to act morally, the weaker party must actually be harmed in some material sense.  This possibility is accounted for by the “non-worseness” principle, described by Zwolinski (2008) interpreting Wertheimer (1996).

Zwolinski describes non-worseness this way: “In cases where A has a right not to transact with B, and where transacting with B is not worse for B than not transacting with B at all, then it cannot be seriously wrong for A to engage in this transaction, even if its terms are judged to be unfair by some external standard.”  (p. 357).

If Sandel actually refuses to buy the kidney, he is “buying” his own moral smugness (clearly valuable to him, as to each of us) at the cost of significant material harm to the peasant, who after all is supposed to be the subject of our altruistic urge.  The desperate situation pre-existed the consideration of the use of non-euvoluntary exchange, and if we rule the exchange because it is unfair we are imposing an even greater cost on the peasant.

Finally, in the case of the whaling ship, the Richmond:  suppose the captains of the rescuing ships know that no contract for more than salvage fees will be enforceable.  But the situation close to the rocks is very dangerous, and they (prudently) decide not to attempt the rescue.  The captain of the Richmond offers more than the salvage fee, because that is what is required to induce an increase in “supply” of rescue services.  But since that offer is not enforceable, and will in fact be reversed by a court once the rescue is effected, the rescue does not take place.  The captain of the Richmond would have been better off being rescued at the higher price, but he cannot offer a higher price, even if he wants to.

It’s perfectly true that the captain of the Richmond is “coerced by circumstance.”  After all, he’s on the rocks, the ship is breaking up, and it is likely that he and the crew will all die if they are not rescued.  If we prohibit (or, what amounts to the same thing, refuse to enforce after the fact) a contract that allows the captain to escape this desperate circumstance, we are violating non-worseness.  If our intuition is that we should help the desperate, this is a very odd outcome.

In short, all euvoluntary exchange should be allowed, without state interference.  But many non-euvoluntary exchanges should be allowed, too.  In particular, if the objection is that the distribution of wealth and power is unjust, that can’t be an objection to exchange, especially when outlawing the exchange maroons the weaker party at the outcome that, by premise, is unacceptable. What would be the standard?

(My thanks to Ricardo Guzman for suggesting the Post v. Jones case, and the Charles Fried book Contract as Promise )