Libertarian Society Singapore | Market Liberalism & Social Justice

Throughout history and especially in contemporary societies, some individuals possess more wealth and income than others. This phenomenon, understood as “economic inequality”, has come under increasing scrutiny in recent times and has become the target of correction by policy-makers. In Singapore itself, it has been reported that this gap between the well-off and the less so, has been increasing. This could explain the leftist turn in the past decade, even as the PAP government has shored up social spending to help the least-well off amongst us. Elsewhere, inequality is also the target of redistributive policies like progressive taxation and welfare spending for the poor. Inequality has also catalysed popular anti-capitalist movements like Occupy Wall Street.

While the economic and social effects of inequality has been discussed, it is different to more ethical question: is economic inequality an injustice? In the field of political philosophy, the literature on distributive justice, or social justice, has spawned different answers. The most famous position is by John Rawls, who argued that inequality is just only in so far as it benefits the least well-off, best exemplified by a society governed by his two principles of justice as fairness. More egalitarian thinkers like Ronald Dworkin and G.A. Cohen have put forth a range of positions , including more active government redistribution to full fledged socialist regimes.

This article seeks to explain the libertarian position on the matter, by referring to the contributions by Robert Nozick, and more significantly, Friedrich Hayek. Nozick put forth the position that economic inequality should not be considered unjust if they arose as a product of just acquisition and transfer. In contrast, the position taken by Friedrich Hayek is perhaps the most unique: economic inequality is neither just nor unjust, they just are.


Robert Nozick

Nozick, perhaps the most prominent libertarian philosopher in the 20th century, proposed what he called an "entitlement theory of justice". There are multiple parts to this:
  1. Principle of just acquisition: A person who acquires a holding in accordance with the principle of justice in acquisition is entitled to that holding.
  2. Principle of just transfer: A person who acquires a holding in accordance with the principle of justice in transfer, from someone else entitled to the holding, is entitled to the holding.
No one is entitled to a holding except by (repeated) applications of (a) and (b).

The above two principles simply mean that whatever income distribution that arises from mutual exchanges between individuals, are considered just so long as they do not violate the above two principles. Principle a says that an individual may justly acquire a previously unowned object or item as a property by mixing his labour with it, i.e. homesteading it as in John Locke. Principle b looks at property that is already owned, one may freely exchange it or give it to someone else voluntarily, without any force being used. Together, both these principles express the importance of voluntarism: as long as individuals acquire property, and transfer them to one another on a consensual, voluntary basis without the use of force, then whatever arises from this process cannot be considered unjust.

Thus, Nozick was concerned with giving what he called a historical theory, rather than an end-state one. This means, he was concerned about the process in which a given distribution came to be, and not a particular snapshot in time of how income was distributed. No matter how unequal the distribution is at the end, if the historical sequence that gave rise to it do not violate the two principles, then no claim of injustice can be made.

According to Nozick, most theories of distributive justice are not historical. Since they are outcome-oriented, or “end-state”, they require that the distribution confirm to a specific structure or principle (e.g. distribute income according to who has the most merit). For him, Nozick wanted a historical theory that did not confirm to any pattern: it has nothing to do with who works the hardest or is the most deserving. What matters is that people get what they have in a manner consistent with the three principles of justice in holdings, and this is fully compatible with some people having much more than others, unlucky hard workers having less than lazier but luckier ones, morally repulsive individuals having higher incomes than saints, and so forth.

Nozick showed that patterns and liberty conflict. In simple terms, if we want to maintain a certain pattern of distribution, we would have to infringe on the liberty of individuals to do so. Likewise, if we gave individuals the freedom to simply exchange and trade on the free market, no pattern can be sustained.

Nozick also had a third principle of just rectification. He acknowledged that historically, property holdings may reflect acts of theft, or wrongful acquisitions. Thus, this principle governs the proper way in which we can rectify these past injustices.

To sum up, the Nozickean libertarian will say: whether inequality is just or not, depends on how it came about. If there is inequality simply because people freely traded and exchanged goods on the market, without violating the entitlement theory, so be it.

Friedrich Hayek: Social Justice is a Mirage


The central tenet of Hayek’s position is that the distribution of income and wealth in a market economy is a result of impersonal market forces, and not the deliberate action of a single agent. Since this is the case, it is a category mistake to attach the term “injustice” to economic inequalities that result, however regrettable or undesirable some may perceive them to be.
Characterising inequality in a market as unjust would be a form of anthropomorphism, i.e. ascribing a degree of conscious planning where there was none to begin with. In short, social justice is a “mirage”, because “there can be no distributive justice where no one distributes”.

Crucial to this is an understanding that the modern society in which human beings live today – the “Great Society” – emerged and operates as a spontaneous order, a “product of human action but not of human design”. This social order operates on the basis of a complex market system that coordinates the plans of disparate individuals, allowing them to live peaceably and enjoy the fruits of social cooperation.

The danger for Hayek, is that calls for redistribution, if consistently pursued, would undermine the operation of this market order and lead to the impoverishment of society. This occurs because redistribution hampers the incentive to produce and the information-coordinating function of the price mechanism, both of which are responsible for creating the wealth to be redistributed in the first place.
Additionally, there will be a loss of freedom. Government action suffers from a “knowledge problem”, and this translates into an arbitrary mode of intervening into the economy. More and more intervention will be necessitated when redistributive aims are consistently pursued and the path-dependent nature of government intervention leads society on the “road to serfdom”.

This is a strong reason why the prescriptions of someone like G.A. Cohen should be reconsidered. Socialism, with its embrace of material equality, may seem like a desirable way of organising society. Micro-examples of socialist living, whether they are hypothetical (like Cohen’s camping trip) or actual (like the family), may tempt one to embrace similar principles across society. This is in Hayek’s terms, atavistic i.e. wrongly extrapolating from the morals of a micro-society to the Great Society. Also, when insights from political economy come into the analysis, one can see that the pursuit of socialist principles would require means that even socialists will disagree with. The unintended consequences of government action warn against pursuing egalitarianism, however alluring it seems. 


See in this clip a discussion that F.A Hayek had with another libertarian, James Buchanan, on the meaninglessness of the term "social justice".


The Market Economy and the Least Well-Off
Rawls argued that inequality, if it is to exist, should be to the benefit of the least-well off. On this note, we should understand that the very operation of the market system, is necessarily to the benefit of the least well-off! The arguments of the Austrian economists, Ludwig von Mises, and Hayek himself, illustrate this point.
Mises characterised market capitalism, as a system of "mass production for the masses". What is does is subjects firms to competition and disciplines them due to the profit-loss mechanism. They are in essence, forced to produce goods and services in the best way possible for the mass consumers. Consumers are on the market, sovereign, and are the true bosses in capitalism.
This process over time, causes goods and services to be available cheaply to the masses, even if they first arose as luxury goods that only a few can afford. Think of air tickets for example; today, air travel is no longer the luxury of the few, but something enjoyed by most.
Inequality, is an essential and inevitable feature of this abovementioned process, and thus, attempts to redistribute incomes and wealth necessarily frustrate the very mechanism that benefits the least well-off:
Inequality of wealth and incomes is an essential feature of the market economy. It is the implement that makes the consumers supreme in giving them the power to force all those engaged in production to comply with their orders. It forces all those engaged in production to the utmost exertion in the service of the consumers. It makes competition work. He who best serves the consumers profits most and accumulates riches.
Hayek also expanded on this line of thinking. According to him, new technological advancements, usually make a society-wide impact after first being available only to a small number of people. Additionally, the competitive market system – of which inequality is a necessary corollary – is central in transmitting favourable social values and practices in an evolutionary manner: “if the results of individual liberty did not demonstrate that some manners of living were more successful than others, much of the case for it would vanish”.