Mike Munger on Exchange, Exploitation and Euvoluntary Transactions 06/20/2011
What this covers
Michael Munger of Duke University joins Russ Roberts to examine why transactions that appear to benefit both parties are often condemned as immoral or made illegal. The discussion centers on Munger's concept of euvoluntary exchange—transactions that are truly voluntary in a morally uncontroversial sense—and argues that objections to controversial trades (organ sales, price gouging, sweatshop labor) are not fundamentally about whether parties consented, but about inequality in their bargaining positions. Munger contends that when one party faces catastrophic alternatives while the other does not, the exchange fails to be euvoluntary even if both parties gain from it. The core tension: banning such transactions does not address the underlying desperation that created the unequal bargaining power in the first place, and often leaves the worse-off party with no options at all.
The conversation covers specific cases where the disparity becomes concrete. Kidney sales illustrate the paradox—donating is legal but selling is banned, which prevents mutually beneficial transactions and leaves both desperate buyer and seller worse off. Price gouging after disasters, blackmail, low-wage employment, and Walmart's labor practices all surface as instances where people object to monetizing a transaction they might accept for free. Munger identifies a pattern: such bans rest on the claim that these exchanges are not really voluntary, yet the underlying complaint seems less about voluntariness and more about refusing to inhabit a world where people profit from others' misfortune. Roberts and Munger also examine whether regulation based on preventing future regret assumes people cannot choose wisely, and whether objections persist even after acknowledging that bans harm the vulnerable. The discussion includes historical examples—ice sellers during shortages, child labor as an escape route, the political coalitions that engineer restrictions—to show how the framework applies beyond theory.
Munger argues that the moral objections to transactions like organ sales, price gouging, and sweatshop labor are not really about voluntariness but about an underlying disparity in bargaining desperation (BATNA), so banning such 'not-euvoluntary' exchanges fails to fix the underlying inequality and typically makes the worst-off person even worse off.
- Euvoluntary (truly voluntary) exchange is always just and uncontroversial; objections only arise when exchange is not euvoluntary
- The thing that makes a transaction not euvoluntary is a large disparity in BATNA (best alternative to a negotiated agreement) between the parties
- Outlawing not-euvoluntary transactions does not address the underlying distribution of wealth/power and removes the supply response that would help the desperate party
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Economists' standing assumption behind 'voluntary' is a background context of enforceable property rights; without them, even a wallet handed over at gunpoint could be called voluntary, so euvoluntary exchange must rule out the gun-and-wallet case.
“economists first of all start by there's some underlying things they're going to assume happen... one of those is property rights you can't just take something from me by threatening force”
Banning a not-euvoluntary transaction is a non sequitur: the only question actually posed is whether to allow this specific exchange, not whether to restructure society so no one is in such a desperate position; outlawing the choice removes the desperate person's only means of bettering their lot.
“The only thing that's being asked is is this transaction going to be allowed... not do we restructure the entire society so that no one's in that position in the first place... it's a non sequitur”
Paying far above the local market wage (e.g., a hundred times the going rate) would not solve the discomfort but would create a giant rent-seeking contest, as workers compete to capture the artificially high wage.
“where with the line form when the word got out that you were paying a hundred times... a hundred times the the going rate there'd be a giant rent-seeking content problem”
The 'no later regret' condition is effectively a rational-expectations requirement: an exchange is only euvoluntary if the actor is so fully informed that they will not regret it later, which is undermined by addiction, time-inconsistency, or the difficulty of predicting one's future preferences.
“it's a rational expectations condition so the it's voluntary in the sense that I'm really really informed not just sort of common law level of informed”
People objected to the Raleigh ice sellers and clapped at their arrest not out of confusion about getting ice, but because they did not want to live in a world where people can profit from exploiting others' misfortune.
“that's why the people clapped when the police arrested the ice sellers they weren't confused they knew they weren't going to get ice now they just don't want to live in a world where people can profit from exploiting other people”
Many transactions are legal to give away for free but illegal to sell, and the only purpose of such laws is to prevent the good from being exchanged for its market value (e.g., ice during a shortage, blackmail information, kidneys).
“I just can't exchange it for what it's worth the only reason we have that law is to make sure that we cannot exchange it for what it's worth I can give ice away that wouldn't have been a problem the problem was they were charging its market price”
Blackmail reveals that the law objects not to the exchange of information itself (which is legal and may even be admirable) but specifically to charging money for it; the act of monetizing the threat is what makes it repulsive and illegal.
“suppose you didn't say anything about the ten dollars all you did was call my wife I think mike has a drinking problem... no one would complain there's nothing wrong with the transaction the problem is charging for it”
Some bans framed as 'do-goodism' are actually bootleggers-and-Baptists arrangements where a self-interested party cloaks its agenda in kindness, as Munger suggests is true for opposition to Walmart.
“it's a bootleggers and Baptists argument it's somebody pushing their own self-interest cloaking it in in in kindness”
Unpleasant low-wage work (peddling on credit, immigrant menial jobs, child labor in 1910) was part of a dynamic set of incentives in a growing economy that allowed families to advance across generations; making such transactions illegal would have harmed the very people it intends to protect.
“it was part of a dynamic set of incentives that in a growing economy allow people in there and their kids... do we really want to make it hard for immigrants to come to America do menial things at very low wages that are unpleasant to make better lives for their children and grandchildren”
It is legal to donate a kidney but illegal to sell it; because the sale is banned, mutually beneficial transactions (e.g., a million-dollar payment from a desperate buyer to a financially desperate seller) do not occur, leaving both parties worse off.
“You are free to donate your kidney there's no problem with the transaction you just can't get paid for it... the fact that I can't charge for it makes something worse happen because the exchange is not consummated everyone's worse off”
Even if society agreed people shouldn't be forced into desperate choices, the economist's answer is that we don't know how to create the world where no one is in that position, so outlawing the activity makes things worse rather than solving the underlying problem.
“the economists answer is we don't know how to create that world in 1910 we didn't know and the economist would say... you make it worse by outlawing that activity”
Libertarian-paternalist 'nudging' is dangerous because the people empowered to nudge will respond not to what is best for the individual being nudged but to what is best for those holding the power, regardless of how smart the nudgers are.
“if you give people the power to nudge that way you they're not going to always respond to what's best... they're gonna respond with what's best for the person with the power”
The 'no later regret' condition implies that to justify regulation one must assume people consistently make choices they will regret, i.e., that they cannot make their own choices correctly—an assumption Roberts argues the state generally should not act on.
“the problem with regret is you're already saying that people can't make their own choices correctly because they're consistently going to make choices that they later regret”
Much of the popular belief that Walmart is exploitative is manufactured by self-interested propagandists (notably unions) who profit when Walmart is kept out, rather than arising from firsthand experience or genuine evidence.
“self-interested propagandists spread a hatred for Walmart... the main reason I think a lot of people accept that view that Walmart's exploitive is because they've been told that that's the case... by people who are actually self-interested who are profiting from the fact that Walmart isn't around”
People who object to not-euvoluntary transactions persist in their opposition even after being shown the ban makes the worst-off party worse off, because their real objection is preferring not to live in a world where such things are monetized—it functions as a preference, not a factual error.
“they prefer that and they continue to prefer it after I point out that it makes no economic sense... what they say instead is I don't want to live in that kind of world... I'm going to persist in this belief because I just find it uncomfortable to have transactions like that monetized”
In the snowy-ditch example, a helper who pushes out a stranded car voluntarily will often angrily refuse offered money regardless of the amount or either party's income, because the helper's deal was to do the right thing—not to be tipped—showing the monetary aspect itself is what's objected to.
“a lot of times I think the person who pushes the car out would be insulted and would reject the money... that's not the deal I got myself in for my deal was I'm gonna do this... it's not a tip I don't want a tip”
Refusing to hire someone for a low local wage out of moral discomfort can itself harm the worker: the social-work student who would not pay a Nepali washerwoman ten cents an hour 'exploited her by not exploiting her,' assigning her to a worse outcome, since the woman voluntarily sought the work.
“I thought you've exploited her by not exploiting her you've assigned her to something perhaps worse... The woman was taking it voluntarily... she was looking for work... maybe she had a hungry child”
Euvoluntary (truly voluntary) exchange is always just; therefore the state would never have an excuse to regulate it, which means all existing regulation and moral intuition about exchange must rest on the claim that those transactions are 'not really voluntary.'
“the thesis is you voluntary exchange is always just no one can ever object and the state would never have an excuse to regulate you voluntary exchange so it must be that all the regulations that we have in fact all the moral intuition we have about exchange is that well that's not really voluntary”
The decisive condition for euvoluntariness is that the disparity in BATNA (best alternative to a negotiated agreement) between the parties must not be too great; when one party's next-best alternative is catastrophic (e.g., death of thirst) while the other's is trivial, the transaction is not euvoluntary even though both parties may gain.
“transaction is not you voluntary if the disparity in badness is too great... it's my next best alternative”
Working at Walmart or in third-world sweatshops is judged not-euvoluntary by critics because the worker's BATNA is unemployment; economists' reply that the worker is better off is met with 'I don't care,' which really means the disparity in badness is too large—Marx's 'reserve army of the unemployed' lets the corporation take advantage.
“their best alternative to a negotiated exchange is unemployment... this large corporation is able to take advantage of what Marx called the reserve army of the unemployed”
The euvoluntary framework may be analyzing the contents of an empty box because there are essentially no perfectly euvoluntary exchanges, but the ideal type is still useful for understanding people's reactions and diagnosing which non-euvoluntary transactions should be allowed.
“aren't you my newly analyzing the contents of an empty box there are no you voluntary exchanges well maybe that's true but there's some things that are pretty close and thinking about it in those terms even a sort of an ideal type I think is still helpful”
For an exchange to be euvoluntary it must satisfy: common-law contract conditions (age, competence, full information/no fraud, conventions of ownership and transfer), no later regret (no time-inconsistency or compulsion), no externalities affecting non-consenting parties, and no duress or force.
“for exchange to be truly voluntary we need the common-law conditions for contract you have to be of age you have to be competent... second... there's no later regret... there are no externalities... fourth no duress or force”
Voltaire's Candide mocks the 'best of all possible worlds' framing where freely choosing to run a gauntlet rather than be executed is celebrated as glorious freedom, paralleling the economist's reduction of any chosen option to a welfare improvement.
“in Voltaire... in Candide where Candide talks about the best of all possible worlds... you're given a choice between... running a gauntlet... or having your head lopped off and you choose running the gauntlet and isn't that glorious because you were free to choose”
Economists treat voluntary exchange as necessarily mutually beneficial: if a party chose to enter a transaction, it must make each party better off by their own subjective valuation.
“we're really into what we call mutually beneficial exchange and usually that means if it's voluntary must be mutually beneficial... it must make each party better off... we have a subjective sense of what's right and wrong”
The man in China sold his kidney for about $3,000 to buy an iPad and a laptop, illustrating a real not-euvoluntary organ sale.
“young man in China decided that he wanted a new iPad... so he went down to hospital and sold his kidney he had $3,000 came home with a new iPad and a laptop”
American beer festival attendees in Germany sing cheesy American songs rather than German songs, which is a sign of cultural homogenization.
“That's a terrible sign by the way of right of cultural homogenization you'd think they'd be poking and and singing German beer”
Some of these beer cellars in Germany have operated continuously since the 14th century.
“some of these colors have been operating continuously since the 14th century”