The Distributive Justice of the Market - Part II
Philosophers tried to specify a "bundle" or "package" of goods,
services, and intangibles (like information, or skills, or
knowledge). Justice - though not necessarily happiness - is when
everyone possesses an identical bundle. Happiness - though not
necessarily justice - is when each one of us possesses a
"bundle" which reflects his or her preferences, priorities, and
predilections. None of us will be too happy with a standardized
bundle, selected by a committee of philosophers - or
bureaucrats, as was the case under communism.
The market allows for the exchange of goods and services between
holders of identical bundles. If I seek books, but detest
oranges - I can swap them with someone in return for his books.
That way both of us are rendered better off than under the
strict egalitarian version.
Still, there is no guarantee that I will find my exact match - a
person who is interested in swapping his books for my oranges.
Illiquid, small, or imperfect markets thus inhibit the scope of
these exchanges. Additionally, exchange participants have to
agree on an index: how many books for how many oranges? This is
the price of oranges in terms of books.
Money - the obvious "index" - does not solve this problem,
merely simplifies it and facilitates exchanges. It does not
eliminate the necessity to negotiate an "exchange rate". It does
not prevent market failures. In other words: money is not an
index. It is merely a medium of exchange and a store of value.
The index - as expressed in terms of money - is the underlying
agreement regarding the values of resources in terms of other
resources (i.e., their relative values).
The market - and the price mechanism - increase happiness and
welfare by allowing people to alter the composition of their
bundles. The invisible hand is just and benevolent. But money is
imperfect. The aforementioned Rawles demonstrated (1971), that
we need to combine money with other measures in order to place a
value on intangibles.
The prevailing market theories postulate that everyone has the
same resources at some initial point (the "starting gate"). It
is up to them to deploy these endowments and, thus, to ravage or
increase their wealth. While the initial distribution is equal -
the end distribution depends on how wisely - or imprudently -
the initial distribution was used.
Egalitarian thinkers proposed to equate everyone's income in
each time frame (e.g., annually). But identical incomes do not
automatically yield the same accrued wealth. The latter depends
on how the income is used - saved, invested, or squandered.
Relative disparities of wealth are bound to emerge, regardless
of the nature of income distribution.
Some say that excess wealth should be confiscated and
redistributed. Progressive taxation and the welfare state aim to
secure this outcome. Redistributive mechanisms reset the "wealth
clock" periodically (at the end of every month, or fiscal year).
In many countries, the law dictates which portion of one's
income must be saved and, by implication, how much can be
consumed. This conflicts with basic rights like the freedom to
make economic choices.
The legalized expropriation of income (i.e., taxes) is morally
dubious. Anti-tax movements have sprung all over the world and
their philosophy permeates the ideology of political parties in
many countries, not least the USA. Taxes are punitive: they
penalize enterprise, success, entrepreneurship, foresight, and
risk assumption. Welfare, on the other hand, rewards dependence
and parasitism.
According to Rawles' Difference Principle, all tenets of justice
are either redistributive or retributive. This ignores
non-economic activities and human inherent variance. Moreover,
conflict and inequality are the engines of growth and innovation
- which mostly benefit the least advantaged in the long run.
Experience shows that unmitigated equality results in atrophy,
corruption and stagnation. Thermodynamics teaches us that life
and motion are engendered by an irregular distribution of
energy. Entropy - an even distribution of energy - equals death
and stasis.
What about the disadvantaged and challenged - the mentally
retarded, the mentally insane, the paralyzed, the chronically
ill? For that matter, what about the less talented, less
skilled, less daring? Dworkin (1981) proposed a compensation
scheme. He suggested a model of fair distribution in which every
person is given the same purchasing power and uses it to bid, in
a fair auction, for resources that best fit that person's life
plan, goals and preferences.
Having thus acquired these resources, we are then permitted to
use them as we see fit. Obviously, we end up with disparate
economic results. But we cannot complain - we were given the
same purchasing power and the freedom to bid for a bundle of our
choice.
Dworkin assumes that prior to the hypothetical auction, people
are unaware of their own natural endowments but are willing and
able to insure against being naturally disadvantaged. Their
payments create an insurance pool to compensate the less
fortunate for their misfortune.
This, of course, is highly unrealistic. We are usually very much
aware of natural endowments and liabilities - both ours and
others'. Therefore, the demand for such insurance is not
universal, nor uniform. Some of us badly need and want it -
others not at all. It is morally acceptable to let willing
buyers and sellers to trade in such coverage (e.g., by offering
charity or alms) - but may be immoral to make it compulsory.
Most of the modern welfare programs are involuntary Dworkin
schemes. Worse yet, they often measure differences in natural
endowments arbitrarily, compensate for lack of acquired skills,
and discriminate between types of endowments in accordance with
cultural biases and fads.
Libertarians limit themselves to ensuring a level playing field
of just exchanges, where just actions always result in just
outcomes. Justice is not dependent on a particular distribution
pattern, whether as a starting point, or as an outcome. Robert
Nozick "Entitlement Theory" proposed in 1974 is based on this
approach.
That the market is wiser than any of its participants is a
pillar of the philosophy of capitalism. In its pure form, the
theory claims that markets yield patterns of merited
distribution - i.e., reward and punish justly. Capitalism
generate just deserts. Market failures - for instance, in the
provision of public goods - should be tackled by governments.
But a just distribution of income and wealth does not constitute
a market failure and, therefore, should not be tampered with.