Winston Churchill, upon becoming prime minister in 1940, said that all he had to offer was blood, toil, sweat, and tears. Fine sentiment indeed, but giving over that first one might vex you if you are one of the millions of spirited Americans with a rare blood type living in our age of terrorism. For those of us with rare blood types, giving blood requires a careful calculus: Do you donate today and run the risk that your veins will be out of commission for the next terrorist attack? Or do you, keeping in mind the 42-day shelf life of blood, wait for a time of peak need?

Many Americans made just that calculation in the days immediately after the September 11 terrorist attacks. The goodwill of those who gave came at a price, according to Government Accountability Office Director of Public Health Janet Heinrich. In her 2002 testimony before a House subcommittee, Dr. Heinrich pointed out that “of the roughly 572,000 additional units collected in response to September 11 . . . approximately 208,000 units, or about one-third, expired and were discarded.” Had the United States been attacked again near that Christmastime, as was feared, all of the blood that people donated right after 9/11 would have been tapped out, leading to potential blood supply shortages.

In that same testimony, Heinrich noted that while 60 percent of the U.S. population is eligible to give blood in any given year, only about 5 percent do. A typical donor only gives 1.6 times per year, as opposed to the six possible times throughout the year (regulation requires donors to wait eight weeks between donations). In the developing world, where few blood banks are sterilized and the risks of getting HIV or hepatitis B are comparatively high, even fewer donate. To lower the risk of shortages, we need a rethinking of how blood is procured and allocated.

The Death of the Private-Sector Blood Bank and the Rush to Regulation

Contemporary blood donors might be surprised to learn that at one point in America, there existed a thriving commercial blood market where donors were paid for their blood. According to Dr. Ron Domen, today’s non-profit blood bank, regulated by the Food and Drug Administration (FDA), owes its origin to the hepatitis scares of the mid–20th century.

During World War II, patients with an increased risk of jaundice or hepatitis were feared to be contaminating the blood supply. To prevent against this contamination, a 1947 article in the Journal of the American Medical Association recommended that blood banks not use blood from those who had a history of hepatitis, had received blood products, or had been a hospital patient in the past year. (These guidelines might sound very familiar if you have ever donated blood, as they are still in effect.) But despite efforts to screen donors, hepatitis continued to contaminate the blood supply.

Contemporary blood donors might be surprised to learn that at one point in America, there existed a thriving commercial blood market, where donors were paid for their blood.

In the 1950s, several studies claimed to find a link between paid donations and increased risk of post-transfusion hepatitis. In 1959, Dr. J. Garrott Allen published a ten-year study that noted that the incidence of post-transfusion hepatitis was seven to ten times higher in blood from paid donors. Using his study as evidence of the benefits of a voluntary-only blood supply, Dr. Allen called for “an effective national blood program” and supported labeling all commercial blood “high risk” so that doctors would avoid it, a regulation that the FDA later seized upon. “The clientele of commercial banks,” Allen wrote, “are largely Skid Row residents and hippie addict donors, as well as prison donors.”

Unfortunately, Allen’s study had a sampling problem as a majority of the paid donors came from a prison population, with presumably higher rates of drug use and hence hepatitis. Critics rightly pointed to paid donor groups that had lower incidence of post-transfusion hepatitis infection than voluntary groups. Despite evidence that not all commercial blood banks were harbingers of diseased blood, public opinion coalesced around Allen’s recommendation of a “dependable national blood program” where a regulator would be “in charge.” Several states rushed to regulate the blood supply, with Illinois seeking to label all blood as either voluntary or purchased.

Washington soon took up the cause, with the FDA and the National Heart and Lung Institute calling for a single federal agency to oversee the nation’s blood supply. More than 40 bills were introduced by the 92nd Congress (1971 to 1973) to regulate the blood supply.

The Government Accountability Office (GAO) was not convinced that the problem would be solved through voluntary donations. In a 1975 report, it wrote that

evidence clearly indicates . . . that some blood banks which pay their donors supply blood of relatively high quality and of a higher quality than others which rely fully on voluntary donors . . . We believe that the part of the National Blood Policy which calls for moving toward an all-voluntary system should not arbitrarily call for eliminating paid blood from banks which can show a valid record of supplying high-quality blood.

The American Blood Commission, created by Congress in 1975 to improve the nation’s blood banking, responded to the GAO report in a 1975 memorandum by saying “the rapid establishment and success of an all-volunteer blood donor program would be badly damaged if any competition for donors would be permitted by payment for blood.” The report stated, however, that “it is also unquestioned that selected populations of paid donors can be safer as far as the transmission of hepatitis is concerned than high risk volunteer donors.”

Despite the commission’s memo and the GAO’s report, Congress effectively banned paid donations in 1978. Today, the FDA’s Code of Federal Regulation mandates that donors do not receive monetary payment for blood donations. For the purposes of the regulation, a payment is anything that is “readily convertible to cash.”

Bad Blood about a Blood Book

Much of the discussion about blood markets has been influenced by a classic 1971 book by British social scientist and Fabian socialist Richard Titmuss, The Gift Relationship: From Human Blood to Social Policy. Titmuss argued that compensations would crowd out voluntary efforts and lead to fewer donations, leading in turn to shortages.

His thesis, that altruism was more economically efficient than paid blood donations, fit with his general indictment of markets as a solution in healthcare. In the foreword to The Gift Relationship, Ann Oakley and John Ashton suggest that Titmuss strongly opposed providing any medical care through market means and that the book can be read as an attack on the Institute for Economic Affairs, the free-market oriented British think tank founded in 1955.

While 60 percent of the U.S. population is eligible to give blood in any given year, only about 5 percent do. A typical donor only gives 1.6 times per year, as opposed to the six possible times throughout the year.

Titmuss’s influential book was not without problems. According to Nobel laureate economist Gary Becker, Titmuss too narrowly focused on blood quality, and ignored that the American system of paid compensation yielded far more blood per capita than alternative systems. Becker notes that a sizable percentage of American blood came from individuals with diseases that could not be screened out at the time—but can now—and so British blood tended to be safer.

Another major factor in blood donation quality is that state liability laws shielded blood banks from tort claims following infected transfusions, giving them little incentive to screen for diseases such as HIV or hepatitis B. In the 1980s, infection rates were so high that Ross D. Eckert, an economist who later served on President Reagan’s commission on AIDS, wrote a letter to The Wall Street Journal on April 15, 1986, calling for reform of state liability laws:

The manufacturer of a poorly designed power lawnmower is far more vulnerable to liability even though a pint of infected blood can cost a consumer much more than a severed toe. Shielded from competition and liability, blood bankers have had weak incentives to raise product quality. Aside from the AIDS problem, this is why about 1,000 Americans each day still get post-transfusion hepatitis of one type or another. Recently a poll sponsored by the American Association of Blood Banks revealed that only 21 percent of respondents would trust information about AIDS from government officials or blood bankers. I'm not surprised.

Thanks to the work of such economists, the American blood supply is now safer due to stricter state liability laws. Alas, it was too late for Eckert, a hemophiliac, who received an HIV-tainted blood product and died shortly thereafter.

WHO and Voluntary Blood Donation

Titmuss’s conclusion that paid donations would crowd out voluntary efforts had little empirical evidence to back it up. A canvass of the literature finds just the opposite: evidence that paid compensation increases donation.

The first study to test Titmuss’s hypothesis found it lacking. In Switzerland, donors entered into a lottery were significantly more likely to donate, especially among those donors that had a weak preference to donate. And a study of Italian blood donation has found that a paid day off from work can result in one additional donation of blood per year and that donors, to maximize the leisure time, take more Fridays off, suggesting that material comfort and benefit can play a role in deciding whether or not to donate.

Despite this, the World Health Organization (WHO) remains opposed to paid donations. Its June 2008 fact sheet states that “sufficient supplies of safe blood can only be assured by regular donations from voluntary unpaid donors.” But they provide little empirical reason for why this might be the case. Tragically, on that same fact sheet, they suggest that if 1 percent to 3 percent of a country’s population donated blood, it would meet the country’s demand. But in “73 countries, donation rates are less than 1 percent of the population.”

A Futures Market for Blood Money?

Imagine, for a moment, what a world would look like were blood treated as a commodity. We trust the private sector in many other aspects of our health—from doctors performing open-heart surgery, to pharmaceutical companies developing drugs, to for-profit corporations running hospitals. Why would the allocation of blood be any different?

Congress banned paid donations despite the American Blood Commission’s memo and the GAO’s report.

A competitive blood market coupled with sufficient tort penalties would ensure punishment for those who did not safely police their blood supply. Firms that tried to operate a fly-by-night, blood-for-booze scheme would lack credibility and could not offload their blood products onto the market. To avoid serial donors who give with little concern for their health, companies could share data about donors in much the same way casinos share information about problem gamblers. Blood could have ratings based upon the manner and fashion with which it was procured. Hospitals could advertise which quality they offer their patients and help recipients or their families make choices on which blood would be best for their needs.

As in any market, prices should rise and fall based upon demand. Every morning would-be donors would sign into their accounts and see the day’s rate for a pint of their blood. A drop in price would signal too much supply; a rise in price would induce more people to consider donating. Prices could vary based upon blood type. Speculators could buy and sell blood many times per day, offering to smooth out the peaks and troughs of the blood supply. Money flowing into private blood banks would help develop better infrastructure that gets blood to people who need it, with minimal waste. Private investment could flow into the blood sector for the first time in decades, potentially leading to new, innovative blood products. Familiarity with buying and selling blood might even lead to a new way of discussing the organ donation debate.

In time, blood could freely cross borders to the areas of greatest need. After all, the victims of earthquakes in China or tsunamis in Indonesia still require safe blood, regardless of its origin. The image of Pakistani children kept alive by blood air-freighted from Boston might even bring us closer to a healthy world—a world that the World Health Organization could help bring forth.

Charles C. Johnson is a frequent blood donor with a rare blood type. He is a student majoring in economics, government, and computer science at Claremont McKenna College.

FURTHER READING: In "When Altruism Isn't Moral ,"Sally Satel recommends compensating organ donation. Satel also edited When Altruism Isn't Enough: The Case for Compensating Kidney Donors (AEI Press).

Image by Darren Wamboldt/Bergman Group.