The fact that standards are displaced by market forces, has significant impact on the economy.
It makes the deployment of market mechanisms and free market theory in many areas of the social life doubtful.
What should we think for example of financial incentives to encourage teachers to perform better in education, nurses in health care and other workplaces,
or to volunteers in social life, in family life and other places where is important that people are intrinsically or morally motivated?
"The" displacement effect " is perhaps one of the most important anomalies within the economy according to economists, because it seems to be at odds the most fundamental economic "law",
namely that increasing financial stimulation increases supply . If the displacement effect exists, financial incentives even decreases the supply, for instance the willingness to help others, in stead that they increase the supply.
What economists slowly begin to understand is that there is a difference between intrinsic and extrinsic motivation.
Oh sure, they know what it means: altruism is an inner (intrinsic) motivation to help your neighbor. The extrinsic motivation would be, when your neighbor asks you for help and offers you money.
Look, the later, THAT is economics, goods and services changing hand. Altruism is even a threat to the growth in economy.
For Ayn Rand altruism was almost a sign of mental disorder, a sign of weakness. In her opinion and in the opinion of many economists our social behavior is dominated by our preferences.
These preferences are very basic. They are material preferences. We are selfish, self-interested and that is why we act as we act.
All these other aspects of behavior which we call ethics, nice, really, but they have no meaning in an economic theory.
Like I said last Tuesday: Economic theory focuses on explaining how competitive markets work: how they curb the SELFISH INTERESTS of market participants
by balancing them one against another in a way that results in the production of goods and services according to consumers' preferences and an efficient allocation of resources to their production.
Economists believe that the commercialization of an activity does not change its character: money can never corrupt and non-market forces can never supplant non-commercial standards.
People who want to buy or sell a commodity find it to their advantage, while people who find that the value of such a commodity can not be expressed in money just don't need to participate in such trade. What is wrong with that?
Who cares? If you want to donate blood voluntarily, because you see it as a social obligation to help you sick neighbor, please do so. Very noble.
Two weeks later you run into you fully recovered neighbor, who tells you with lots of delight, that he just got US$ 200 for selling blood to the Blood Bank.
Then you run into that second neighbor who also survived thanks to your donated blood. He doesn't look in too good shape
and he tells you that he fortunately could make US$ 200 by selling blood to the Blood Bank. Means food for a week or so again.
And then there is that bill on your doormat: US $ 200. How stupid can a man be…………. ? Pretty stupid the economist says.
So you tell me….. who are we as human beings and by what standards do you like to organize our society? At least one observation: believe in the free market didn't work.
If you want to educate yourself, all inspiration for this project came from the book of Michael J. Sandel, "What Money can't by: The Moral Limits of Markets" (2012)