Marcel Mauss notes in the conclusion to his classic of economic anthropology, The Gift, that even though his examples come from ethnographic accounts of pre-industrial peoples, his arguments speak to modern westerners. In one sense, understanding the centrality of gifts to most of human history provides a contrast to the exceptionalism of market-based societies, but in another sense we still see the atavistic logic of generosity and reciprocity bleed through at the margins of markets. Notably, Mauss describes rational calculation as aspirational, since “homo oeconomicus is not behind us, but lies ahead, as does the man of morality and duty, the man of science and reason.”^[1] And so we modern people take for granted that we both produce and consume through markets. The idea that we might acquire groceries because the butcher, the baker, and the brewer owe us favors rather than because we hand them cash or a Visa card seems primitive.

Nonetheless, there are circumstances where we modern westerners consider prestations more appropriate than purchases. This preference extends well beyond obvious matters of intimacy like sex and Christmas presents and even reaches into business interactions. I developed an interest in this problem through the research for my book on radio.^[2] The radio industry has long featured consultants (usually called “independent radio promoters” or “indies”) who help record labels get airplay for their music and often do so by channeling material resources to radio stations. In the 1980s indies simply paid radio staff in cash.^[3] By the 1990s a new generation of indies cultivated radio stations through in-kind gifts (e.g., concert tickets) for the stations’ promotional campaigns. Radio staff who participate in the new system convince themselves that they had not been corrupted, since reciprocity is tacit, not explicit.^[4] Something about treating airplay explicitly as a commodity to be bought makes it feel more clearly immoral, even though the statutory definition of payola includes both the money that changed hands in the 1980s and the in-kind “valuable considerations” that have been given ever since.^[5] That the new system for record labels influencing radio stations is considered more professional and palatable than the old is not despite, but because, of its being less explicitly economically rational.

 

In my research I have identified four different forms of obfuscation that people use to disguise the fact that they are purchasing something normally excluded from markets.^[6] Gift exchange is when a contested commodity is not explicitly sold but is instead given with the expectation of reciprocity. Bundling otherwise legitimate exchanges can effectively synthesize an exchange in a disreputable commodity through cross-subsidization. Brokerage allows the primary to an exchange to delegate moral responsibility to an intermediary. Pawning lets someone treat as collateral something they would be loath to sell outright. These structures do not entirely cleanse an exchange, but they do transport a clear moral transgression to an area of mere suspicion where it can be met with plausible deniability.

 

All of these structures are exemplified in how Lyndon Johnson used the Austin radio station KTBC to become wealthy while in the House of Representatives.^[7]

 

• Gift exchange: LBJ acquired the option to purchase the station because a businessman owed him a favor for letting his son into the Naval Academy. He got regulatory approval to buy the station and move to a much better broadcasting frequency because the FCC was under severe threat of hostile legislation and desperately needed supporters in Congress.
• Bundling: Businesses that needed such favors as military contracts or exemptions from wartime rationing would buy advertising on KTBC, even if they had no customers for their products in Austin. “Although they were ostensibly buying airtime, what they were really buying was political influence. They were buying—and Lyndon Johnson was selling.”^[8]
• Brokerage: Since broadcasting was a highly regulated industry, owning a radio station presented a conflict of interest over which LBJ placed the fig leaf of Ladybird being the nominal owner and day-to-day manager. Moreover, rather than directly demand the purchase of airtime, LBJ relied on political fixers like Ed Clark to inform supplicants that this was a good way to solicit favors from the Congressman.
• Pawning: LBJ expected fanatical loyalty from employees, which he secured by offering large open-ended loans, but not the salary to pay them off. This effectively put employees in a position of debt slavery.

 

These practices are common in political and commercial bribery, going well beyond LBJ or payola. Brokerage was key to the Abramoff scandal and a majority of prosecutions under the Foreign Corrupt Practices Act.^[9] Likewise Duke Cunningham served the longest ever prison term for a Congressman after engaging in bundling by selling his house at a hefty markup to a defense contractor. Nor are these practices limited to bribery. The distinction between a prostitute and a sugar baby (what scholars call “commercial sex work” versus “transactional sex”) is largely one of cash payment versus gift exchange. Likewise, in discussing Simony, Thomas Aquinas argues that seeming examples of legitimately buying spiritual services are gift exchange, not quid pro quo, and thus do not contradict the general ban on Simony.^[10] A long tradition in Sharia law debates whether gift exchange, bundling, and brokerage really distinguish such Islamic financial institutions as bai’ al-‘inah, murabaha, tawarruq, and takaful from otherwise similar but clearly forbidden practices of interest-bearing loans and insurance.^[11] Nor should these examples imply that obfuscation only occurs for violations of secular or religious law. Offering models as arm candy to wealthy customers at nightclubs would be legal even if it were done on a cash basis, but it nonetheless involves bundling (of bottle service with companionship), brokerage (with promoters mediating between customers and models), and gift exchange (promoters do not pay models a wage, but woo them with gifts).^[12]

Obfuscation also characterizes actions of the state itself and in this respect overlaps with the “submerged state” or “kludgeocracy” thesis. The nonprofit sector relies on state munificence, and nonprofits in human services are often state contractors in practice, but civil society is understood as an alternative to the state since state support occurs through tax exemptions and grants rather than direct provision. When a state transfer is particularly suspect, it can be obfuscated further. For instance, the Elementary and Secondary Education Act of 1965 mitigated concerns about establishment clause violations in federal support for parochial schools by relying on local public school districts to broker this support.^[13] Rent-seeking is usually obfuscated as well. Although public choice models treat rent-seeking as petitioners seeking rents, the state rarely gives direct payouts to rent-seekers, as this would make rents too obvious and illegitimate. Rather, a rent will be bundled together with a prima facie legitimate procurement contract to build a highway or naval vessel. Unraveling obfuscation can make state actions suspect, which is why it was so embarrassing to the Obama administration when opponents circulated video of PPACA’s chief policy entrepreneur explaining that the law passed thanks to a “lack of transparency” accomplished by a “tortured” design to hide from the “stupidity of the American voter” that the law was effectively a transfer program.^[14]

Regardless of sphere, obfuscation is never total. To take a disreputable exchange is to make it plausibly acceptable, but the action remains vulnerable to denunciation. If the Malaysian prime minister claims that a $681 million transfer from Saudi Arabia to his personal bank account was not a bribe, but a gift, he is giving people who hear this the option to choose to believe him, but obviously nobody who is skeptical of Mr. Razak is compelled to accept such an absurdly minimal obfuscation. In other cases obfuscation can make a disreputable transaction less conspicuous, but a dedicated accuser can reveal and draw attention to the exchange. For instance, political corruption scandals usually involve the FBI, the US Attorney, or a Congressional committee revealing heretofore unknown transfers.

 

That obfuscated exchanges, or even interactions that could be understood as such, are vulnerable to denunciation suggests that the process involves not only the parties to the exchange, but those of us who observe it. And this makes the role of obfuscation political. All of us sympathize with some exchanges and some participants to transactions, and not with others. If we support an unpopular exchange, we are more likely to accomplish it if we make it less obviously an exchange. For instance, consider the proposal to pay patients who voluntarily choose cheaper options among medical care.^[15] This may very well be a good idea, but it is extraordinarily vulnerable to denunciation by stakeholders in medicine. In this respect even if non-earmarked cash transfers would be the most economically efficient practice, it might be more politically astute to find other ways to reduce spending on expensive treatments, such as allowing burial expenses to be bundled together with hospice care, but not with traditional heroic interventions.

 

When writing for a forum like Cato Unbound, it is worth noting that libertarians tend to be more tolerant of such voluntary exchanges as prostitution, low-wage work, or even baby-selling than others, but most libertarians would still balk at many exchanges, from political bribery to debt slavery. Moreover, in a world where libertarian tolerance for voluntary exchange is a minority position generally, in making their case they need to be aware of the need to assuage or evade the concerns of the rest of us. Whether from the perspective of tolerating exchanges they sympathize with (e.g., prostitution) or suppressing those they object to (e.g., political bribery), libertarians should be aware that obfuscation provides both opportunities and threats.

 

Conversely, from the perspective of a moralist opposed to a set of exchanges (or a partisan seeking to opportunistically denounce an opponent), recognizing an obfuscation provides the opportunity to denounce it as essentially equivalent to a disreputable exchange. For instance, proponents of campaign finance restrictions see contributions to candidates as a form of gift exchange to acquire favors from them and the use of Super PACs as a form of brokerage to obfuscate large-dollar contributions to candidates. Opponents of such restrictions need to be cognizant not only of their own principles, which hold that it is wrong to restrict political speech, but also to rebut the accusation that political contributions are obfuscated bribery by showing, for instance, that contested contributions are ideological and not transactional.

 

Understanding that obfuscation, so long as it remains intact, can shape the moral reputation of exchange provides a set of options to people who favor or oppose the exchange. Someone who favors the exchange can ratchet up the acceptability by obfuscating that it is an exchange. And conversely, someone who opposes an interaction can denounce it as essentially venal and basically equivalent to a quid pro quo.

Regardless of whether one wants to enforce or relax limits on exchange, one confronts the issue of direct challenge of norms versus evasion of them. In this respect it is worth considering the historic example of taboos on usury. In the middle ages, both Christians and Muslims had taboos on charging interest on debt. As mentioned above, Muslims developed various financial institutions for circumventing the taboo. In contrast, many Christians tackled the taboo head on. Double-entry bookkeeping has its origins as an apologetic device for rebutting Thomistic concerns about usury.^[16] Later, apologetics relied on the Parable of Talents in Luke and Matthew and a loophole in Deuteronomy to argue the taboo out of existence.^[17]

The result is that at present Christians are hardly aware that Christianity ever objected to interest-bearing debt. In contrast, the long-standing Muslim practice of acknowledging but circumventing a taboo on interest allowed for twentieth century Muslim fundamentalists to vociferously denounce interest, including obfuscated versions, and Islam now has a resurgence of equity-based and other interest-free finance. I am not suggesting this to argue for a taboo on usury, and indeed I myself have no qualms about having both a credit card and an interest-bearing savings account. Rather, my point is that if one wishes to relax a moral or legal limit on exchange, such as that which both Christians and Muslims once had on interest, that there may be a trade-off between short-term evasion and long-run liberalization.

 

 

A famous example of exchange is found in a passage from Cicero, in On Duties III.15.

Quintus Scaevola, the son of Publius, when he asked to have the price of an estate that he was buying named once for all, and the seller had complied with his request, said that he thought it worth more, and added a hundred thousand sesterces. There is no one who would say that this was not the act of a good man; but men in general would not regard it as the act of a wise man, any more than if he had sold an estate for less than it would bring. This, then, is the mischievous doctrine, — regarding some men as good, others as wise…

In an everyday commercial setting, Scaevola was perfectly justified in paying a price less, even much less, than he valued the estate. That difference in valuation is what makes exchange, and commerce, possible. The story is only remarkable because Scaevola is giving something away, as if the setting were more about charity than commerce.

What Rossman has done is to identify some circumstances and transactions where the identification as an “everyday commercial setting” is problematic. My general response is that there is a misunderstanding here. Not by Rossman, who has written quite a useful essay. Rather, the misunderstanding is on the part of “the public.” Most of the time, general objections to market exchange, for any commodity whatsoever, are misplaced objections to the pre-existing (possibly unjust, and in any case unequal) bargaining power of the participants in the exchange. Markets make this bad situation better, not worse.

 

Voluntary Means Consent

Most theories of markets rest on the claim that voluntary exchanges make both parties better off, because both have an effective right not to exchange. If they are willing, they must prefer the exchange to their current situation. The policy implication is clear: the state should focus on reducing the transaction costs of exchange, and extending the market, making exchange widely available so that the benefits of exchange are distributed as broadly as possible.

Opponents claim real exchanges are often neither fair nor voluntary. If one party is desperate, or in a weak bargaining position, most or even all of the surplus created by an exchange accrues to the stronger party. Consequently, real exchanges often benefit only the powerful, and may even harm the weak or frantic. And that in turn means that the state is not only justified in regulating, but may well be obliged to mitigate the harms of involuntary or coerced exchange. The simplest and most effective way to accomplish this object is to prohibit the exchange outright, as is the case with (in Rossman’s terms) “prostitution, low-wage work, or even baby-selling.”

Rossman makes some interesting observations about ways in which the force of these regulations and prohibitions can be softened or circumvented entirely. There are four key mechanisms: (1) Gift exchange; (2) Bundling; (3) Brokering; and (4) Pawning. The interesting thing about these techniques is that they “obfuscate” (Rossman’s term) what is really going on, while also increasing the transaction costs of the exchange.

Such “second best” alternatives to straightforward exchange, especially when the alternatives have essentially the same destination but must take an inefficiently circuitous route, seem cynical and misguided. George Stigler famously noted that beneficial subsidies given to industries are rarely provided in the form of cash transfers, but instead are (Rossman might say) bundled or brokered. In Stigler’s (1971) words:

[W]hy does an industry solicit the coercive powers of the state rather than its cash? … The most obvious contribution that a group may seek of the government is a direct subsidy of money…. [But] unless the list of beneficiaries can be limited by an acceptable device, whatever amount of subsidies the industry can obtain will be dissipated among a growing number of rivals….[Therefore,] political boons are not obtained by the industry in a pure profit-maximizing form. The political process erects certain limitations upon the exercise of cartel policies by an industry…(pp. 4-6)

Thus government regulatory policy designed to benefit industry will also generally be obfuscatory. This is true in the case of regulating “bad” transactions, as Rossman discusses, and in the case of favorable industry regulation, as Stigler discusses. This may seem to be just simple cynicism, covering one’s tracks while using less efficient means of allowing the powerful to do what they wanted all along.

But there are consequences to fostering higher transactions cost for undesirable activities. Consider the best-known example: The Australian or anonymous ballot. Traditionally in the United States citizens voted at separate booths, or asked for the ballot of the candidate or party of their choice. These ballots were brightly colored in ways that made it easy to distinguish the voter’s choice, even from a distance.

This made vote-buying easy, because it was possible to monitor the compliance of the voter. The “buying” of course might take the form of payment, or extortion based on threats of violence or retaliation by being fired from one’s job. Given the relative uselessness of a single vote to a voter, but the value of many votes to a corrupt politician, it is easy to imagine that the transaction “I’ll pay you $5 and a turkey for your vote!” might have made both parties better off, moral qualms about vote buying set aside.

The Australian ballot process, where all the names are listed on one ballot and the ballot itself is marked and filed in privacy, raises the transaction costs of carrying out promises or making threats. The attempt at “brokering” by partisans or (and?) thugs is thus blocked.

 

A Problem, Unresolved

There is a difficulty with the regulation of mutually beneficial transactions. The refusal of the state to enforce “unconscionable” contracts may make worse off the very people we pretend to care about. As I noted above, the problem with unfair exchanges is that one person is desperate. It is tempting to say that we can help by relieving the person of the burden of exchanging in such dire circumstances. But restricting access to a transaction that was the person’s only hope to get out of the desperate situation seems an odd “solution,” except to the extent that it eases the conscience of the (now) morally superior onlooker.

This is exactly the form of the objection to “voluntary” exchange made by Michael Sandel (2003).

The… objection [to the claim that an exchange is 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.

Does this objection, if we grant its validity, imply that the state should disallow the contract? Imagine that we find out that the “peasant” intends to sell his cornea tomorrow, to save his family. We roll up (no doubt in an air-conditioned SUV), roll down the window, and inform the peasant that this will not be allowed. Then we sit back and wait for the waves of his gratitude to wash over his.

But he is not grateful, not at all. We have taken the one means he had of improving his situation, and outlawed it, in effect marooning him at a situation that by our own premise was unacceptable. The problem is not, and was not, voluntary exchange. The problem is the desperate need of the peasant for the resources to feed his family. Access to market exchange, far from being a problem, is his only possible salvation.

Of course, we might well say, and be right: “The peasant should not have to sell his cornea to feed his family.” Fair enough. But from that true statement it does not follow that “Therefore, the peasant should not be allowed to sell his kidney.” To the contrary, unless we are going to help in some other way we are harming the very person we claim needs our help most desperately.

To close the circle, then, allowing transactions of a “second best” sort, through gifts, bundling, brokering, or pawning, may be the best we can realistically hope for. The benefits of the exchange can still be obtained, but the moral sensibilities and legal conventions of the society can be preserved. It is a separate question, one I will address in the conversation phase, whether these sensibilities or conventions are worth preserving.

 

Works Referenced

Cicero, Marcus Tullius. (1913). De Officiis (Of Duties).  Constitution Society. http://www.constitution.org/rom/de_officiis.htm

Sandel, Michael (1998). “What Money Can’t Buy: The Moral Limits of Markets,” The Tanner Lectures on Human Values, University of Utah. http://tannerlectures.utah.edu/_documents/a-to-z/s/sandel00.pdf

Stigler, George J. (1971). “The Theory of Economic Regulation.” Bell Journal of Economics and Management Science. 2(1):3-21.  http://www.rasmusen.org/zg604/readings/Stigler.1971.pdf

 

My good friend and close colleague Gabriel Rossman elegantly analyzes an important phenomenon: exchanges that the parties represent as structured in one way, although the exchange could readily be understand as “really” structured in another way. He focuses on transactions that appear to be innocent but that participants, observers, jurists, critics, enemies, or social scientists may construe as “actually” market exchanges that are (ideally, explicitly) illegitimate in the culture in which they occur. His analyses are perceptive, and I find them both accurate and illuminating. In my response, first I want to characterize the four fundamental structures of social relations that people are employing when they obfuscate – and the rest of the time, too, when they act straightforwardly. Then I want to argue that the kinds of obfuscation that Gabriel discusses are special cases of a more general pattern: people often pretend that they are interacting according to one relational structure when in fact their action is organized according to another type of relationship. For example, in the converse of what Gabriel describes, people may purport to engage in market exchange when they actually intend or perceive the relationship to be something else. Third, I want to argue that what Gabriel says about material exchange is true of all sorts of social relationships, including, for example, decisionmaking, social influence, the organization of work, relational interpretations of misfortune, and so on. Fourth and finally, I want to suggest that the obfuscations Gabriel illuminates are cases of a very broad pattern of intentional ambiguity, including practices in which no one intends to mislead anyone, but instead one or more parties want to preserve the advantages and options available in two different forms of relationships simultaneously.

 

The Four Fundamental Forms of Social Relations

First, the cases that Gabriel illuminates are instances where one party aims to conduct a transaction based on the value of one commodity computed as a ratio of the value of another commodity. This is market pricing, one of the four fundamental relational models for social coordination: interactions structured according to a ratio, rate, or proportion (whether monetary or not – consider punishment proportional to the crime, or the ratio-scale measurement required by utilitarian morality).[i] When cultural rules proscribe using market pricing in a given domain, people may get around this by using one or a combination of the other three fundamental relational models – depending on which are legitimate. For example, people often obfuscate by using communal sharing, in which participants treat each other as equivalent for the purpose of the interaction. Thus with regard to material possessions, what’s mine is yours, so I give you gifts or we simply take what we need or want (think of a loving family, a platoon of soldiers in combat, or simply people sharing a park). Another basic relational model is authority ranking, in which people put themselves in a linear order of prerogatives and responsibilities: subordinates owe respect and deference to those above, while superiors owe guidance and protection to those below (think of military systems, bureaucracies, or seniority systems). The fourth elementary relational model is equality matching, in which people keep track of the additive differences among them, with reference to even balance (think of taking turns, tit-for-tat, equal distribution, a fair lottery, or counting votes).

The relational model that people use in any given domain of interaction varies greatly across cultures. But people are very committed to using the culturally correct relational model for the circumstances, and often they get quite confused or angry when others use the wrong one – use of the wrong relational model makes social coordination impossible.[ii]

 

It Goes Every Which Way

Gabriel focuses on the fact that illegitimate market pricing relationships are often disguised as communal sharing, while pointing out that bundling sometimes involves substituting a legitimate market pricing interaction (at a biased price) for an illegitimate one. But that’s not all: when any of the four elementary types of relationship are illegitimate, they may be disguised as any of the other ones that are acceptable. For example, if nepotism – communal sharing – is illegitimate, people may disguise the transaction as a valid case of awarding the contract to the lowest bidder in the framework of market pricing. If market pricing is prescribed, people may pretend to perform it while actually using authority ranking (giving freebies or discounts to clients or superiors), or using communal sharing (not collecting tolls or tariffs from family and friends). A judge or inspector may pretend to enact her nominal authority ranking role, while actually reducing penal sentences or fines imposed on people with whom she has a communal sharing relationship.  

This brings me to my third major point, which is that disguising an interaction in one relational model as an interaction in another relational model is by no means limited to material transactions. A professor leading her lab or seminar may pretend that the participants are all operating according to communal sharing, with everyone contributing to the shared goal of discerning the truth – but she, and perhaps everyone, may consciously or unconsciously know that the discussion is ultimately governed by her prestige and expertise in an authority ranking framework. Likewise, what is nominally represented as an authority ranking and market pricing relationship between boss and employee may actually be an illegitimate communal sharing relationship between lovers.  

 

No Fooling

My final point is that people often nominally represent one of the four fundamental types of interaction as another, but without intending to mislead anyone, even themselves. Polite pretense greases the wheels of social interaction. A superior may make a ‘request’ to a subordinate that has the force of an order, but is phrased as if they were friends. People often buy coffee for friends, invite them for dinner, or do them a favor as if these were gifts in a communal sharing relationship; the donor might even protest if the recipient declared an obligation to reciprocate in kind. But the donor really does expect a matching counter gift to balance the equality matching relationship – and both of them fully understand that. Furthermore, people often use indirect speech to preserve the options or the benefits of two different types of relationships at the same time – for example, when offering a bribe in a deniable way. [iii]  In other cases, dissimulation may be simple politeness, graciously making everyone comfortable by allowing them all to perform their courteous parts in a game that everyone understands they are all playing. At the other extreme are the con and the scam.

Obfuscation of the type that Rossman analyzes depends on plausible deniability: on the absence of explicit common knowledge – though in practice everyone may know what is happening and believe that many others presumably do. But social life involves many different degrees and forms of pretense: aiming to fool no one but simply be polite, aiming to fool everyone, aiming to fool the public but not insiders, aiming to fool only a victim, or truly hiding what one is doing even from oneself.  And quite often, there’s no fooling, but simple unconsciousness. Without any intent to hide anything or mislead anyone, to a large degree people are simply unaware of how their own social minds work and don’t know what they are really doing. 

 

Notes

Human beings are the most cooperative species on the planet. Other species cooperate on a limited scale among genetically related individuals but only human beings cooperate extensively with strangers. Human cooperation has been driven primarily not by command and control to achieve a collective goal but by harnessing self-interest and the price system to achieve the diverse goals of individuals. In short, human beings cooperate by trading.

Human beings engage in a lot of trade on a global scale, but sometimes we obfuscate our trades. In some cases, the reasons are obvious—the trades are illegal and the law needs to be skirted—as, for example, with political corruption or murder for hire. I find these situations relatively uninteresting, at least as to causes. More interesting is that we sometimes obfuscate, disapprove of, or even make illegal some trades that would likely benefit society.

Sex is not illegal, nor donating blood or body parts, yet trading money for sex, blood, or body parts is often illegal or at least disapproved. Sex, blood, and the body—these are areas with deep evolutionary roots, more determined by our non-trading “lizard brain” than by our cerebral cortex. Trade can be made more palatable to our lizard brain, however, through obfuscation. Gabriel Rossman discusses four strategies to obfuscate trade: gift exchange, bundling, brokerage, and pawning.

The shortage of human organs for transplant is one well known case where trade bans kill (Tabarrok 2002, 2010, Becker and Elias 2007). Two of Rossman’s obfuscation strategies, gift exchange and brokerage, have been used in the market for organs to increase the gains from trade.

Although paying for organs is illegal and considered repugnant, a gift for the gift of life—that is, an offer to pay the funeral expenses of the donor—could be acceptable to a wide audience.  Israel, for example, offers funds for families of organ donors to “memorialize the dead,” and this appears to have increased donation rates (Linde 2014).

Most plans to increase the supply of organs also rely on brokerage. Organ buyers would not contract directly with sellers, but compensation would be offered to donors only through the government or a third entity. In Iran, for example, live organ donors are paid for organ donation, but they are not paid by organ recipients. Instead, a third-party, a non-profit charity, “brokers” the exchange.

Rossman’s strategies of obfuscation can be useful for understanding limits on trade and how they might be routed around, but the language of obfuscation can also be misleading. When a politician accepts a gift and later does the giver a favor it’s natural for an economist to think that the gift “obfuscated” a trade. But that point of view privileges trade—it suggests that whatever the participants may think, what is really going on, underneath the obfuscation, is market pricing, and that may not be correct.

Consider, an experiment by McGraw and Tetlock (2005) in which they asked students to consider the following scenario: You have recently moved into a new apartment with an acquaintance. You are still working out who will be responsible for particular chores. Your roommate tells you that he or she does not want to take out the garbage for personal reasons. Your roommate makes (one of) the following offer(s):

• If you take out the garbage, he or she will always take care of vacuuming the apartment. (Equality Matching.)
• If you take out the garbage, he or she will pay you $15.00 a month for your effort. (Market Pricing).
• If you take out the garbage, he or she will pay your share of the electric bill (which amounts to about $15.00 a month) for your effort. (Obfuscated Market Pricing).

The first response emphasizes the equality of the participants and the shared nature of communal living and falls under a category of social relationship that Fiske (1992) terms Equality Matching. In contrast, the Market Pricing response emphasizes hierarchy and explicit sale. The roommate, in effect, is being asked to also be a maid. In the experiment, the Market Pricing response elicited the fewest agreements and many thought that it was an inappropriate or odd request. The surprise, however, was  that Obfuscated Market Pricing, which to an economist is a mere re-description of Market Pricing, was the most accepted condition!

The obfuscated market pricing condition allowed mutually beneficial trade without upsetting prior notions of equality.

What is going on here? Obfuscated market pricing doesn’t simply disguise market pricing; it does in fact preserve equality matching. It’s not that either of the traders are being fooled by the obfuscation. It’s rather that there is a multi-dimensional space in which trade occurs and the two trades move the parties to different places in that space. By compressing all but the market dimension the trades look the same to an economist but in fact the trades are different. The difference between the trades will show up through differences in future trades and behaviors of the two parties. By preserving equality matching, for example, the two students will likely find it easier to cooperate on future tasks.

Recognizing that frames can change the nature of a trade also suggests other strategies for overcoming trade bans. For example, I would add a fifth strategy to Rossman’s list, trading sacred for sacred. Rossman says gift exchange is when “a contested commodity is not explicitly sold but is instead given with the expectation of reciprocity.” The emphasis is on avoiding an explicit sale. But explicit trade in contested commodities can occur if the traded commodities are of similar sacredness level or type. Kidneys can be traded for kidneys, for example.

Here’s how they work:  It sometimes happens that a living donor is willing to give a kidney to a loved one but the intended recipient is biologically incompatible. If another similarly situated couples can be found, however, the donors can each give to the other’s loved one and everyone be made better off. Kidney swaps have been common in recent years. See Roth (2016) for a discussion of the economics and history of kidney swaps.

 Kidney swaps are not gifts—everyone knows that the donors are giving quid pro quo—indeed, kidney swaps are typically arranged simultaneously to ensure that they don’t turn into gifts. Nevertheless, kidney-for-kidney swaps have been lauded even while kidney-for-money swaps remain repugnant. Moral transgression occurs only when the secular trades for the sacred, not when the sacred trades for the sacred (Tetlock 2003).

Trading sacred for sacred also indicates why “no-give, no-take” or priority rules may also be considered moral (Tabarrok 2002). In a no-give, no-take system people who sign their organ donor cards are given priority or allocation points should they one day need an organ. The virtue of giving priority to people who sign their organ donor cards is not that such a system is just, but that it creates an incentive to sign one’s organ donor card. Israel and Singapore have priority allocation system (Linde 2014).

Both memorial funds and priority allocation systems were introduced in Israel after the transplant shortage worsened because so-called organ tourism was made illegal for Israeli citizens in 2008. As the shortage grows worse elsewhere, we may see these ideas spread. More generally, when the costs of trade bans increase we can expect that more resources will be devoted to creating obfuscatory and other strategies that will hide trade from our lizard brain. Trade will bleed through at the margins.

 

 

References

Becker, G. S., & Elías, J. J. 2007. Introducing Incentives in the Market for Live and Cadaveric Organ Donations. The Journal of Economic Perspectives, 21(3): 3–24. Retrieved from http://www.jstor.org/stable/30033732

Fiske, Alan P. 1992. The Four Elementary Forms of Sociality: Framework For a Unified Theory of Social Relations. Psychological Review 99:689-723.

Linde, D. 2014. Israel Finds a Formula for Increasing Organ Donation. Tablet Magazine. Retrieved May 29, 2016, from http://www.tabletmag.com/jewish-news-and-politics/164976/israel-organ-d…

McGraw, A. P., & Tetlock, P. E. 2005. Taboo trade-offs, relational framing, and the acceptability of exchanges. Journal of Consumer Psychology, 15(1): 2–15. Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1553985

Roth, A. E. 2016. Who Gets What and Why: The New Economics of Matchmaking and Market Design. Boston: Eamon Dolan/Mariner Books.

Tabarrok, A. 2002. The Organ Shortage: A Tragedy of the Commons? In A. Tabarrok (Ed.), Entrepreneurial Economics. Oxford, UK: Oxford University Press. Retrieved from https://global.oup.com/academic/product/entrepreneurial-economics-97801…

Tabarrok, A. 2010, January 8. The Meat Market. Wall Street Journal. Retrieved from http://www.wsj.com/articles/SB10001424052748703481004574646233272990474

Tetlock, P. E. 2003. Thinking the unthinkable: sacred values and taboo cognitions. Trends in Cognitive Sciences, 7(7): 320–324.

 

I was very lucky to have three insightful responses to my essay from three colleagues who have thought deeply about the nature of exchange. These thoughts should prove helpful in shaping my continuing research agenda on exchange taboos and how people obfuscate them. Overall, the comments fall into three broad categories: What is the nature of a taboo on exchange?

What counts as an obfuscation of a taboo? And what are the impacts of obfuscation?

 

What Is an Exchange Taboo?

In Michael Munger’s response, he suggests that “most of the time, general objections to market exchange, for any commodity whatsoever, are misplaced objections to the pre-existing (possibly unjust, and in any case unequal) bargaining power of the participants in the exchange.”^[1] For instance, if Munger were lost in the desert and saw me off-road driving in my Sparklett’s water truck, I would seem like a jerk were I to demand he sell me his house in exchange for saving his life by providing him with a jug of water and a ride to the nearest bus station. In explicating the nature of exchange taboos (but not in his normative attitude towards them), Munger has a lot in common with many contemporary moral philosophers who have engaged the issue. This type of objection is what Michael Sandel calls the argument from “coercion,” by which he means coercion by desperate circumstances.^[2] The emphasis on fairness and equality underlying the moral intuition against coercive exchange is typical of liberal moral philosophy.

In contrast, Alex Tabarrok provides a radically different conception of moral conceptions of exchange grounded in visceral disgust (“the lizard brain”) at trading in sex or human tissues. This conception follows what Sandel calls the argument from “corruption,” by which he means corrupting something’s nature. Some things simply strike people as wrong to sell because they are sacred. Some moral philosophers, such as Debra Satz, working within what social scientists now call the Western Educated Industrialized Rich and Democratic moral framework, reluctantly acknowledge the existence of corruption as a matter of folk ethics but consider it a normative embarrassment and so either reject corruption norms or reconceptualize them as coercion norms.^[3] In the nomenclature of Jonathan Haidt’s moral foundations theory, Munger is framing exchange taboos in terms of care/harm or fairness/cheating and Tabarrok is framing them as sanctity/purity.^[4] Together they engage in several of Haidt’s moral foundations as well as both parts of Sandel’s coercion/corruption framework.

I am not arguing that coercion is important and corruption unimportant, or vice versa. Rather both are true for different perceptions, of different taboos, at different times. For instance, Americans who oppose payday loans think about them as a coercion issue: are desperate borrowers getting ripped off? However Thomist and Sharia contemplations of usury give much more emphasis to questions of whether interest is wrong by nature as a sort of alchemy that conjures profit for the lender without really doing anything for it. Likewise, one of the reasons Das Kapital is so hard to read is that we come to the text expecting Marx to be basically social scientific, but his writing about the M-C-M cycle, the labor theory of value, and especially his technical meaning of “exploitation” are every bit as Aristotelian as anything in Summa Theologica.^[5]

Tabarrok adds a further issue, which is to note that if exchange taboos are those involving the commensuration of sacred and profane, then sacred-sacred exchanges may be legitimate. Tabarrok gives the example of kidney swaps, which are so legitimate that Al Roth and Lloyd Shapley won a Nobel Prize for work facilitating these exchanges. Likewise, anthropologists frequently document special forms of money or prestige goods. David Graeber refers to these as “social currencies” since they often are only meant to be commensurable with such weighty issues as marriages and wrongful death torts, but not for more mundane exchanges involving daily necessities.^[6] Most famously, the Tiv people traditionally exchanged brass rods, tugudu cloth, cattle, and slaves for one another and exchanged food, garden tools, and kitchen ware for one another, but to exchange brass rods for yams would be shameful.^[7] Just as Tabarrok would expect, the Tiv can trade sacred for sacred and profane for profane, but not sacred for profane.

However, in our own culture we can see moral opprobrium at trading sacred for sacred. For instance, it was an obvious bit of mockery when a Missouri state legislator introduced a bill requiring that lobbyists legally disclose when they had sex with a lawmaker.^[8] Likewise, one of the few offenses severe enough to justify stripping tenure from judges and professors is if they trade sex for legal judgments or grades. Nor is it even necessarily acceptable to trade a sacred good for a sacred good in the same category, as left-wing activists discovered in 2000 when prosecutors thwarted their plans to swap votes between Nader supporters in swing states and Gore supporters in blue states. Ultimately, what makes an exchange morally disreputable defies simple explanation and is not reducible to a single heuristic like exploiting the vulnerable or commensuration of sacred with profane.

 

What Is an Obfuscation?

Alan Fiske’s remarks center on relational models theory, his influential typology of human relationships and the transfers that accompany them. He argues that exchange obfuscation in my sense often consists of framing exchanges that are essentially market pricing as if they were one of the three types of gift exchange, especially communal sharing or authority ranking. This is a particularly apt way to frame my model of gift exchange and draws our attention to the fact that there are different forms of gift exchange varying in terms of intimacy and equality.

More profoundly, Alan notes that we not only obfuscate disreputable market relations as if they were gifts but can obfuscate disreputable gifts as market relations (or other types of gifts). Although my research emphasizes cases where a society balks at commodification, Alan is right to note that there are other cases when we positively demand it. The sine ira et studio imperative of impartiality is often operationalized in our culture through demanding market pricing and/or excluding intimate relations. So some objects taken by the police or an insurance company but where a citizen is the residual claimant may be sold at auction to avoid any appearance of principal-agent problems that could be alleged through an in-house assessor. And if a company holds a promotional contest for its customers, it typically excludes those customers who are also employees (an authority ranking relationship) or their close relatives (a communal sharing relationship). More broadly, it is possible to view the overarching theme of modernity as legal-rationality, of which market pricing is the culmination, crowding out particularistic loyalties.^[9] We see examples of this in my extended case of Lyndon Johnson, who in principle purchased his radio station, but who in fact used political connections to clear out other bidders and otherwise facilitate his business.^[10] Of course we do not see a preference for markets only in ensuring impartiality. For instance, in many cultures rough trade (sexually dominant straight-identifying male prostitutes) insist on payment for sex rather than gift exchange in order to assert their heterosexuality.^[11]

Alan’s well-taken point is that there is a fine line between obfuscation and polite pretense. For instance, letters between Roman emperors and officials typically show the officials demonstrating sycophancy consistent with their authority ranking relationship, but with the emperor magnanimously addressing the official as if their relationship were communal sharing.^[12] We can view this conflation of authority ranking and communal sharing as mere etiquette. However, this undersells the importance of the pretense, which is revealed by the glee with which moralists, cynics, and comics shatter it, as in Juvenal’s Satire #5.

A related issue is how to demarcate obfuscation versus sincere reconceptualization. Tabarrok cites a vignette experiment by McGraw and Tetlock, which is also one of my favorites, showing that respondents preferred obfuscated exchange between roommates wherein one cleans and the other assumes responsibility for a utility bill.^[13] Tabarrok argues against an etic view of the arrangement as exchange (of money for domestic labor) and for taking seriously the emic view of this as roommate’s sharing responsibilities. In this respect Tabarrok closely echoes Zelizer, who argues that her “relational work” perspective provides a third way between “nothing but” economic reductionism and “hostile worlds” moralism.^[14] This might very well be the best way to describe roommates dividing up responsibilities, but it seems almost naive for describing the wink-nudge of LBJ making legislative supplicants buy ads reaching customers in the wrong market, or of websites like “Seeking Arrangements” that are explicitly designed to facilitate transactional sex.

Alan Fiske provides a useful operational definition for obfuscation as exchanges where there is not explicit common knowledge that an exchange is occurring. That is, we can say there is obfuscation if Smith gives Jones a sacred good, and Jones gives Smith a profane good, but Smith and Jones never tell each other that the sacred and profane goods are being exchanged for each other. Of course Tabarrok might argue that this is not necessarily obfuscation, but perhaps more like Zelizer’s relational work. And so we can add a further criteria that we can call it obfuscation if there is shared knowledge. That is, Smith knows he traded his sacred good for Jones’s profane good, and Jones knows he traded his profane good for Smith’s sacred good. This model of obfuscation as shared but not common knowledge that an exchange is occurring closely resembles Bourdieu’s argument that gifts simultaneously follow an explicit logic of generosity and an equally important sublimated logic of exchange.^[15] Of course to sublimate a logic is to render it less comprehensible, which has implications for the last issue raised by the responses.

 

What Are the Effects of Obfuscation?

Munger’s response notes that from the economic perspective, obfuscation is a transaction cost and this deadweight loss will further reduce the already meager producer surplus of the humble people driven by desperation to disreputable trade. I will take the issues of transaction costs and surplus separately. First, Munger is correct that from the perspective of economics, obfuscation creates transaction cost. Indeed this is an understatement since, as the term implies, obfuscation creates a fairly radical break from the assumption of perfect information. The entire point of obfuscation is to render exchange less rationally calculable, which by nature means it will be less efficient when conceptualized as a market. Even when we see market institutions spring up to facilitate obfuscated transactions, they will tend to downplay (implicit) prices. Seeking Arrangements may be explicit about the mercenary intent of its users, but its user interface still basically resembles that of OK Cupid and lacks a “sort by price (lowest -> highest)” option that one would find on almost any commercial website. Nor could it; Seeking Arrangements profiles do not have prices because it is a website for obfuscated exchange. (In contrast, RentBoy.com profiles had explicit prices, which is one of the reasons the federal government shut it down). One of the testable implications of this property is that obfuscated (real or experimental) markets should have greater market failure and price dispersion than otherwise similar unobfuscated (real or experimental) markets.

Munger’s argument that transaction costs reduce surplus is more debatable. Obviously Munger is correct as a matter of arithmetic if we assume that there would be gains from trade but gains are reduced or trades are foregone because of transaction costs. However, there are problems with this conceptualization. The most obvious is that there are externalities, as in Tabarrok’s argument that we ought to prohibit political corruption or murder for hire. One answer to this problem is the principle that “if you may do it for free, you may do it for money.”^[16] which solves the problem of hiring assassins since uncompensated murder is also illegal, but it seems to allow for political corruption, since voting for a candidate for free is legal, and once elected that candidate can pass my preferred legislation, also for free. One can argue that policy is a Tullock lottery anyway, so let’s just make it an open one, but suffice it to say that this would be an unpopular position.

Moreover, to prohibit open exchange can transform how the system operates. To use Munger’s example, if we raise the monitoring costs to vote-buying, we will have market failure in the vote-buying market (which is to say, honest elections). From one perspective, this forgoes the producer surplus of the political machine client who would like to sell his vote to the ward boss.^[17] From another perspective, though, this facilitates a transition from patronage politics to the kind of ideological politics characteristic of advanced democracies. And this isn’t even to get into such details as that in practice vote-buying income often doesn’t accrue to the people whose votes are sold, but to the caciques, tribunes, or bosses who sell them.^[18]

More radically, establishing a price ceiling of zero for things that simply cannot be paid for can benefit parties through Schelling’s power of constraint. In particular, under some circumstances this can benefit the more desperate party. For instance, I could benefit by paying my life savings to kidnappers, but I benefit even more if the state suppresses the ransom market and so I am not kidnapped in the first place. One of the problems with the Coase Theorem is that it assumes that externalities are exogenous rather than generated as a sort of extortion racket.^[19] Obviously this doesn’t apply to Munger’s examples of peasants who might like to sell corneas, or kidneys, or sex, but it could apply to debt slavery, which is a severe and persistent problem throughout history and across cultures for peasants.

Finally, I think Alan Fiske is right to emphasize that obfuscation is a special case of reframing relationships and to note that doing so preserves options available in the alternative type of relationship. However, I would note that it also forecloses opportunities. To obfuscate an exchange or otherwise reframe a relationship gives the set of transfers both the possibilities and constraints characteristic of the purported relationship form and reduces those of the sublimated form. Obfuscating a disreputable exchange may open up possibilities, such as (partial) moral legitimacy, but it can also foreclose possibilities, such as calculability and arms-length transactions. For instance, transactional sex (i.e., a sugar daddy / sugar baby relationship) can be understood as obfuscated prostitution, but only certain types of prostitution: a girlfriend experience, but not an hour or a sex act sold a la carte. And to bribe a politician or radio programmer through gift exchange inherently makes the interaction less calculable and certain than would be an explicit quid pro quo. So to obfuscate an exchange is not merely to accomplish a disreputable exchange with less moral stigma, but it is also to partially transform an exchange into another type of relationship, with all that implies.

 

Professor Rossman raises many issues. No doubt these will be discussed further. I want to carve off one point that he makes and address it more deeply. The question is not so much whether he is wrong or right, but when he is right, and when the context might require rethinking.

In particular, I want to raise the issues of transaction costs, the “size” of the surplus in the exchange, and the way society thinks of the exchange being “disreputable” in the first place.

First, let me echo the point made by Professor Tabarrok: our brains are evolved to react to personal interactions in settings where dire need requires help. The idea of using the market to ration things that “should” (in the Stone Age, where our mental modules evolved) be shared, or perhaps never exchanged at all, affects something deep inside us.

Remember, whales have hips. They don’t have legs; but they have hips. This is a biological atavism: the tendency to exhibit, or revert to, ancestral type. In biology, an atavism is an evolutionary throwback, such as traits that persist because the evolutionary cost of retaining them is not high enough to engender their disappearance. Whales are descended from land (or, at a minimum, shallow water) mammals that returned to the sea. Their legs produced so much drag that evolution selected for “no legs.” But hips? Meh; not really a problem.

We humans were once constrained, in the absence of market institutions, to limited division of labor. Transaction costs limited us to groups restricted to about Dunbar’s number, something on the order of 150 persons or so. “Dunbar’s number” is that size of a group of people that can self-govern by norms of cooperation and reciprocity, because we can keep track of favors and what is owed.

Our minds, at an evolved emotional level, are not well suited to accept impersonal exchanges. Our reason allows us to exchange with people we don’t know, but our atavistic emotional lizard brains are screaming inside. It’s like when you get cut off in traffic: it’s dumb to want to get into a fight to “teach that guy a lesson,” if only because you’ll never see him again. But in the world of clans, and Dunbar’s number, your emotional response caused you to (1) provide the public good of norm enforcement, and (2) provide the private good of defending your rights, because you would fight even if you were likely to lose. The credible commitment problem is solved, in small groups, by emotions.

But it is the very nature of emotions that they are not rational. They have to be involuntary, in fact, if they are to serve their purpose. I was in Munich, in Germany, in 2009. Being just some yokel from the country, when I came to a crowd at an intersection, waiting for the light, I just looked both ways—no cars coming—and crossed the street.

There was a commotion behind me, and then I felt a “whap!” on my arm. A tiny Bavarian grandmother had tottered into the street behind me, and was hitting me with her umbrella. She was hissing loudly, “Kindermörder!! Kindermörder!!”

In her mind, the fact that I was ignoring the law meant that children might see me and also cross. I was a child murderer! Her small frail body was suffused with a cocktail of chemicals that essentially forced her to attack an adult male 30 years younger and 100 pounds heavier.

Frankly, I probably could have taken her. Instead, I was mortified as my own evolved emotional reaction—shame—kicked in. I tried to apologize, but by this time people were yelling at me from both sides of the street. I just scampered away, red-faced and humiliated. And I did not cross against the light again the whole time I was in Munich.

So, here’s my question: given that our reaction to “disreputable exchange” is in part an emotional reaction, and that reaction is a (possibly atavistic) product of norms that are preserved from an entirely different context of human interaction… what should we think about obfuscated exchange?

One possibility is the one I gave in my first post: obfuscation is a second best, and raises transaction costs compared to the “real” solution, where the transaction could be openly consummated.

But isn’t it true instead that obfuscation is a means of allowing the transaction, and to avoid being bashed with some oma’s umbrella?

In other words, isn’t it true that obfuscation is the lubricant for social intercourse?

In my previous, somewhat whimsical post I asked if perhaps obfuscation is the lubricant for social intercourse.

That question is itself question-begging (and Prof. Rossman already raised this concern): It assumes that the transaction in question actually produces an economic surplus, but is blocked by moral considerations. Can we be sure that’s true? For whom? It seems I want to treat obfuscation as friction, as a tax, something that reduces the size of the surplus of the disreputable exchange. Professor Rossman rightly notes this may not be true.

One obvious problem would be the situation where the disreputable exchange does not create a (net) surplus. I’m thinking of externalities: The standard economic story is that “we” (whatever that means) should “account for” (whatever that means) the “social costs” (whatever that means) of an action, not just the private cost.

A common example is noise or pollution: If Art sells something to Betty, and Betty uses the item, is Carl somehow harmed? (Perhaps: once you’ve heard Betty, you’ll know what I’m talking about…. ) The reason I added all the scare quotes is that it is not clear how we can take account of social costs. We don’t know their value, in an exchange. The Coase Theorem is based on the important insight that the very idea of an “externality” is contingent, and perhaps not well defined. It may be a product of the (mis)specification of property rights.

When we consider disreputable exchanges, the kind where obfuscation matters, as “externalities” we enter some very deep waters. Suppose that it’s really true that the idea of two people of the same sex getting married offends me. Or, suppose that the idea of a woman taking money for a demeaning (in my mind) sex act offends me. I don’t mean a little; I mean it offends me to the point that I can’t sleep, and I want to go break something. Openly allowing these things, like gay marriage for the right or like prostitution for many leftist feminists, would cause an “externality” (sorry, I can’t help it about the quotes!).

The problem of judging which externalities to account for is a lot like the legal doctrine of standing, or the notion that I have to have been affected in a particular, legally recognized way to be able to “stand” in court and sue for injunction or damages. In politics, though, “standing” only requires that I’m registered to vote. The harm I perceive is made real simply by my perception of it.

And that means that people who are offended by prostitution or gay marriage can vote against it. They aren’t directly affected, but they feel a harm, an externality caused by having these contracts validated by the state officially. You often hear a (presumably intentional) misunderstanding of this problem: “Don’t approve of abortion? Don’t have one!” That’s not an answer, if there is a powerful negative externality for me from having Betty be able to pay Art to perform an abortion. It’s not an answer for prostitution, either: If I am very upset by the idea that Art can pay Betty for sex, there is an externality.

Now, in some cases (abortion and same sex marriage, for example) the courts can simply deny political standing for externalities: you don’t get to vote for what you want, even if you feel it very strongly. The result of this may be violence, because the open state endorsement of abortion rights and gay marriage rights imposes an externality on people who think these things are immoral.

But in other cases, as in prostitution and kidney exchange, we outlaw the state enforcement of voluntary bilateral contracts, for reasons of felt negative externalities by people not party to the proposed exchange.

So obfuscation is sometimes made necessary by the combination of externalities and democracy. The contracts can be consummated, and in some ways even enforced, as long as we don’t admit what’s going on. Thus there ere are escort services and “civil unions,” which both obfuscate the externality-causing contracts.

I wonder if all four of Rossman’s obfuscation mechanisms (gift exchange, bundling, brokerage, and pawning) can be thought of as ways of allowing people who strongly feel a negative externality from the open endorsement and enforcement of disreputable exchanges a way to pretend that it’s not happening.

If so, then obfuscation is not a tax or dissipation of the surplus at all. It is a way of increasing the size of the surplus by repackaging the framing of the exchange.