The other day, I stopped at a yard sale with a friend. He had spotted a blender as we drove by and wanted to take a look at it. He picked it up, pulled out the glass jar and examined all the blender’s parts. After determining it would serve as a suitable replacement for his worn-out blender at home, he asked the homeowner how much she wanted for it.
She pondered for a moment and then threw out an offer, “How about $3?” Her manner indicated that she was likely new to the yard sale business and had little knowledge of what her blender might be worth. I thought for sure my friend would accept the offer. He replied, “OK, I’ll think about it.”
After perusing other items available and deliberating the blender offer, my friend informed the woman he wanted only the blender. When she said, “Great, that’ll be $3,” my friend replied, “I’ll give you $5. I think that’s a fairer price.”
After we left, I asked my friend why he paid $5 when he could have gotten the blender for $3. Here was his response: “I know, but I would have felt bad giving her $3 when it’s definitely worth at least a little more than that.”
To many people, and especially to economists, my friend’s reasoning may sound absurd. Who in their right mind would offer to pay more than the seller offered? Where did he learn to negotiate? If anything, should he not have taken advantage of her apparent ignorance and negotiated for an even lower price? Wouldn’t such a deal be a natural outcome of the free market – you know, supply and demand?
This experience reminded me of an important fact: Economics are not everything; they are not the summum bonum of life.
The market economy is not everything
Without a doubt, we all need to make economic transactions with others to survive and prosper and, ideally, our transactions and the economy as a whole will be as efficient as possible. But we must remember that other things often matter more – economics, efficiency and prosperity are only means to other ends.
My friend’s concerns about fairness, integrity and the well-being of the seller superseded his desire to make the most economically efficient transaction available. He chose not to take advantage of the woman’s ignorance but instead chose to pay what he believed a blender of that quality and condition was worth.
This experience also reminds me of another story. It is said that one day the economist Röpke was walking along with a more libertarian-minded friend while observing garden plots planted by the locals. His friend asserted, “A very inefficient way of producing foodstuffs.” Röpke replied, “But perhaps a very efficient way of producing human happiness.”
Sometimes in our earnest quest as human beings to provide for ourselves and maximize our economic well-being, we elevate economic efficiency over other equally (if not more) important elements of life. And this error often creeps into law and public policy, especially during times of economic decline and uncertainty.
As vital as the market economy is to our survival and happiness, we must remember that it is not everything.