Neoliberal Social Justice: Rawls Unveiled 1800374534, 9781800374539

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Neoliberal Social Justice

NEW THINKING IN POLITICAL ECONOMY Series Editor: Peter J. Boettke, George Mason University, USA New Thinking in Political Economy aims to encourage scholarship in the intersection of the disciplines of politics, philosophy and economics. It has the ambitious purpose of reinvigorating political economy as a progressive force for understanding social and economic change. The series is an important forum for the publication of new work analysing the social world from a multidisciplinary perspective. With increased specialization (and professionalization) within universities, interdisciplinary work has become increasingly uncommon. Indeed, during the 20th century, the process of disciplinary specialization reduced the intersection between economics, philosophy and politics and impoverished our understanding of society. Modern economics in particular has become increasingly mathematical and largely ignores the role of institutions and the contribution of moral philosophy and politics. New Thinking in Political Economy will stimulate new work that combines technical knowledge provided by the ‘dismal science’ and the wisdom gleaned from the serious study of the ‘worldly philosophy’. The series will reinvigorate our understanding of the social world by encouraging a multidisciplinary approach to the challenges confronting society in the new century. Titles in the series include: Public Debt An Illusion of Democratic Political Economy Giuseppe Eusepi and Richard E. Wagner Religion and Comparative Development The Genesis of Democracy and Dictatorship Theocharis Grigoriadis Debt Default and Democracy Edited by Giuseppe Eusepi and Richard E. Wagner The Political Economy of Non-Territorial Exit Cryptosecession Trent J. MacDonald Tax Tyranny Pascal Salin The Rule of Law, Economic Development, and Corporate Governance Nadia E. Nedzel Neoliberal Social Justice Rawls Unveiled Nick Cowen

Neoliberal Social Justice Rawls Unveiled

Nick Cowen School of Social and Political Sciences, University of Lincoln, UK

NEW THINKING IN POLITICAL ECONOMY

Cheltenham, UK • Northampton, MA, USA

© Nick Cowen 2021

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited The Lypiatts 15 Lansdown Road Cheltenham Glos GL50 2JA UK Edward Elgar Publishing, Inc. William Pratt House 9 Dewey Court Northampton Massachusetts 01060 USA A catalogue record for this book is available from the British Library Library of Congress Control Number: 2021932426 This book is available electronically in the Political Science and Public Policy subject collection http://dx.doi.org/10.4337/9781800374546

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ISBN 978 1 80037 453 9 (cased) ISBN 978 1 80037 454 6 (eBook)

Dedicated to my loving mother and father, Stephanie and Philip

Contents Acknowledgementsix List of abbreviationsxi 1

Introduction to Neoliberal Social Justice1

PART I

WHY INSTITUTIONS MATTER IN IDEAL THEORY

2

Ideal theory and the basic structure

21

3

Knowledge, not incentives

36

PART II

DISTRIBUTIVE JUSTICE AND THE KNOWLEDGE PROBLEM

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Rawls’ neoclassical economics

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5

The burdens of knowledge

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6

Why capitalism

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Why not market socialism

78

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Why not economic democracy

86

PART III DISTRIBUTIVE JUSTICE AND THE INCENTIVE PROBLEM 9

Fairness failure

94

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The constitutional point of view

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The robust case for behavioural symmetry

123

PART IV DISTRIBUTIVE JUSTICE AND ECONOMIC LIBERTY 12

Basic economic liberties and the moral powers

vii

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Neoliberal social justice

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The subjective and objective conditions of the circumstances of justice

144

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Developing moral capacities

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PART V

ROBUST PROPERTY-OWNING DEMOCRACY

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Defining property-owning democracy

172

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The robustness critique of property-owning democracy

186

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The case for a robust property-owning democracy

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Conclusion to Neoliberal Social Justice216

Index229

Acknowledgements I am thankful to many supportive individuals and institutions for helping me produce this work. I apologise in advance for anyone unfairly overlooked and will hopefully be able to give due thanks in other places. I am grateful to Mark Pennington, John Meadowcroft, Andrew Gamble and Martin O’Neill for their detailed advice on this project. I thank all members of the Department of Political Economy at King’s College London, including Adam Martin, Catrin Ball, Adrian Blau, Robin Douglass, Carmen Pavel, Aris Trantidis, Emily Skarbek, Adam Tebble, Esteban Gonzalez, Matias Petersen, Anton Howes, Douglas Voigt and Elena Ziliotti for support, comments and feedback throughout my research. I thank all participants in the Cheesy Philosophy group and the Goldfish Bowl group. I thank all participants in the MANCEPT workshop on Epistemic Perspectives on Democracy and the Market, especially the organisers Jonathan Benson and Michael Bennett, and all members of the Colloquium on Market Institutions and Economic Processes at New York University. I am thankful to the Mercatus Center, all members of the Adam Smith Fellowship colloquia, and Pete Boettke, Virgil Storr, Chris Coyne, Stefanie Haeffele and Peter Lipsey, as well as all members of the Political Theory Project at Brown University (especially Daniel Layman). I am grateful to Brian Kogelmann for providing critical encouragement and comments on early drafts of the thesis, as well as Sarah Wilford, Kaveh Pourvand, Jose Bolanos, Billy Christmas, Charles Delmotte and Jonny Anomaly for valuable help with reviewing later drafts. I thank David Conway, Raymond Duch, Alexander Hamilton, Marianna Koli, Alex Dymock, Siddhartha Bandyopadhyay, Nancy Cartwright, Nigel Ashford, Stephen Davies, Phil Magness, Mike Munger, Jeff Friedman, Simon Kaye, David Schmidtz, John Tomasi, David Skarbek, Daniel D’Amico, Shruti Rajagopalan, Mario Rizzo, Richard Epstein and Eric Schliesser for their academic mentorship and encouragement. I am also thankful to Melanie and Ray Rich, Glenn Cripe, Andy Eyschen, Christian Michel, Nico Metten and Brian Micklethwait for moral support and providing important forums in which to develop and test my research.

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Some of the arguments made in this work also appear in the following publications: ‘Basic Economic Liberties: Adam Smith and John Rawls Reconciled’, The Independent Review, 2021. ‘Hayek: Postatomic Liberal’ in Critics of Enlightenment Rationalism, 2020, edited by Gene Callahan and Kenneth McIntyre, Palgrave Macmillan, 179–92. ‘Hayek’s Appreciative Theory and Social Justice’, Cosmos + Taxis, 2020, Vol. 7, No. 5–6, 10–19. ‘Introduction: Symposium on Robust Political Economy’, Critical Review, 2016, Vol. 28, No. 3–4, 420–39. ‘Mill’s Radical End of Laissez-faire’, Review of Austrian Economics, 2018, Vol. 31, No. 3, 373–86. ‘The Mirage of Mark-to-market: Distributive Justice and Alternatives to Capital Taxation’, Critical Review of International Social and Political Philosophy, forthcoming (with Charles Delmotte). ‘Robust Against Whom?’, Advances in Austrian Economics, 2018, Vol. 23, 91–111. ‘Why Be Robust?’ in Interdisciplinary Studies of the Market Order: New Applications of Market Process Theory, 2017, edited by Peter Boettke, Christopher J. Coyne and Virgil Storr, Rowman and Littlefield, 63–85.

Abbreviations POD RPE UWS WSC

Property-owning democracy Robust Political Economy Universal welfare state Welfare-state capitalism

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1. Introduction to Neoliberal Social Justice What policies are most aligned with John Rawls’ (1999 [1971]) theory of distributive justice? More broadly, what political institutions can ameliorate the arbitrary socio-economic inequalities that are pervasive in contemporary societies (Novak, 2018)? These questions have grown in urgency in recent years amongst both scholars and policymakers. This is due, in part, to increases in income and wealth inequality within nations throughout the developed world (Saez, 2012; Hills et al., 2013; Piketty, 2014). A range of scholars have addressed this question of what Rawlsian public policies and political institutions should look like. Rawls is typically associated with support for social democratic (Barry, 1973), sometimes more radical egalitarian economic institutions (Chambers, 2012; Edmundson, 2017). Martin O’Neill and Thad Williamson (2012) take inspiration from Rawls’ endorsement of James Meade’s (2012 [1964]) notion of a property-owning democracy (POD). This POD comprises three key features: 1. state ownership of substantial capital assets, 2. direct state provision of public goods, and 3. a private-property economy where private capital is systematically taxed to prevent ownership from becoming concentrated. Some classical liberal scholars argue that Rawls’ framework, though not Rawls’ stated views, points towards a more limited state and a wider role for individual economic liberty (Shapiro, 1991; Buchanan, 2000 [1975]; Gaus, 2010). John Tomasi (2012) grounds his case for economic liberty in the Rawlsian attitude that institutions should foster responsible self-authorship and allow for the formation and pursuit of an individual conception of the good. He argues that democratic citizens would endorse ‘thick’ economic liberties and a regime along the lines of ‘market democracy’ rather than a socialist regime or POD. A thread in this debate is the question of whether ‘capitalism’ produces wider gaps in income and wealth or whether such a tendency is due to contingent factors. Does ‘capitalism’ produce wider wealth gaps by definition (Krouse and McPherson, 1988), constitution (Piketty, 2014), or general tendencies in technological development (Meade, 2012 [1964])? Or do contingent 1

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factors such as the inclusivity of institutions (Acemoglu and Robinson, 2015) and the amount of rent-seeking (Baker, 2015), and cronyism (Zingales, 2012) within a particular set of institutions account for this gap? If the explanation relates to inevitable features of capitalism, then Rawls’ principles of justice point towards radical alternatives to capitalism or substantial, pro-active state intervention in economic activity to compensate for these innate tendencies of capitalism. If the explanation is more contingent, then it may be possible to establish a range of economic liberties within a framework of capitalist institutions that, taken as a whole, help meet the requirements of justice as fairness according to Rawls’ framework.

POLITICAL REALISM Part of this debate hinges on philosophical questions about what is necessary for moral autonomy. Other elements, however, relate to the plausibility that a regime would lead to desirable outcomes. For example, some of Tomasi’s critics argue that even though economic liberty could be morally valuable in some respects, it cannot be specified in a way that will not impact negatively on more fundamental liberties. Economic liberty that is protected from state intervention will lead to wealth inequality. Wealth inequality will translate into political inequality where the rich have disproportionate influence on formal democratic decisions. A key criticism is that it is unrealistic to expect the institutions of individual economic liberty to satisfy the requirements of justice as fairness. This issue of ‘realism’ has grown in importance in political theory (Schmidtz, 2016). This has happened in parallel with the debate about the policy and institutional implications of Rawls’ approach. ‘Realism’ is a diverse movement, with inspirations drawn from a range of sources including Thucydides, Machiavelli, Hobbes, Marx, Weber, Nietzsche and Williams. A common, if not essential, aspect of the method rejects the notion that political theory is a subset of applied ethics, and instead represents its own domain, where more minimal concerns of maintaining social order and reducing conflict override other social goods. Through this lens, theorists such as Geuss (2008) criticise the Rawlsian approach for failing to appreciate fully the coercive nature of politics and the implausibility of shared agreement on fundamental ethical principles. For some realists, Rawls’ conception of the problem of political philosophy as being one of reconciling reasonable pluralism in a community is not a real political problem (if only it were!). The real political problem, and one that conflict hinges on, is the ability for a society to coordinate and cooperate despite a great deal of deep disagreement on basic values and interests (Cowen, 2017; Sleat, 2016; Sabl, 2017). This criticism is itself subject to reasonable

Introduction

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contestation. Thomas (2015) points out that realists often fail to acknowledge Rawls’ concerns with realism and his related discussion of institutions. Parijs (2011) makes an explicit attempt to combine some realistic concerns about political behaviour with Rawlsian aspirations. Parijs acknowledges that democratic decision-making, in the real world of vote-hungry parties trying to gain power, cannot be expected to track the demands of justice as fairness. He focuses, as an example, on the ‘grey vote’, the disproportionate influence of elderly electors on public policy, especially pension provision, that risks committing a significant injustice between the generations. Parijs suggests tweaking the democratic process, even suggesting altering the rules of the vote franchise, to correct for these biases. His point is that, given the influence of self-interest in real-world politics, we cannot design constitutions purely on principles, for example, that seem the most democratic (cf. Brennan, 2016). They must be established partly with an eye on the realistic economic and social consequences of the resulting competition for votes and policies within those rules. The problem of realism has a bite for both market and democratic processes. This revived interest in the realistic consequences of institutions opens up a dimension in the debate between classical liberal and high liberal approaches to Rawlsian public policy (Freeman, 2001). A theoretical realism, on my account, is important, not to undercut idealistic theorising but because it is a pre-requisite for linking normative theory with real politics and empirical social science. Without realistic assumptions, normative judgements regarding policies within existing political regimes and their resulting social outcomes may be skewed and unhelpful. This context prompts my central question: • What are the policy implications of Rawls’ theory of justice as fairness if we introduce realistic assumptions about human behaviour and social theory? My answer is that the policies of a classical liberal or neoliberal democracy, including the constitutional protection of commercial activity, are commendable. We have strong reasons to believe that radical alternatives so far proposed, including liberal socialism and POD, will perform worse at achieving justice in realistic circumstances. Accepting this does not mean losing critical features of the Rawlsian framework. Rather the case for liberal democracy and capitalism follows from appropriately extrapolating Rawls’ principles with an updated account of political economy that reflects recent historical experience. The case can be made in line with Rawls’ notion of public reason. Acknowledging the advantages of existing liberal democracies does not mean we cannot do better. The best performing liberal democracies have sophisticated policies

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aimed at helping the disadvantaged. Further reforms that take the challenge of sociability seriously have the potential to dramatically expand the scope of human cooperation and sympathy. There are ideas from POD that can be integrated into constitutional liberal democracy.

BASIC LIBERTIES, PERSONAL AND ECONOMIC What is at stake between classical liberalism and the high liberal (or liberal egalitarian) Rawlsian approach? It is not so much a disagreement about a state’s size or role in providing public goods, or a given distribution of income and wealth. Nor is it about a precise scheme or extent of taxation. Liberal egalitarians and classical liberals certainly approach these questions differently and are likely to come up with different answers. However, plenty of liberal egalitarians endorse market provision of a wide variety of goods and services (Freeman, 2001, p.117). Meanwhile, few classical liberals rule out state provision for certain goods nor kinds of taxation. Buchanan, for example, is a strident classical liberal who, nevertheless, endorses tax policies specifically aimed at reducing wealth concentration (Buchanan, 1976; Buchanan and Congleton, 2003 [1998]; Berggren, 2013). What is at stake, rather, is whether a set of individual economic liberties should be a part of the basic structure of a liberal political community (Zwolinski, 2008). These liberties amount to the right to engage in a wide range of voluntary contracts as well as acquire and possess productive assets, in addition to personal property. Rawls distinguishes a right to personal property and productive property. Most individual economic liberties are not part of his conception of the basic structure. This does not rule out the inclusion of markets or market-like mechanisms in an economic system, but means that the resulting principles of justice are ambivalent between private-property and socialist economic regimes (Rawls, 1999, p.240). As a result, economic liberties do not receive similar constitutional protections as civil liberties, such as rights to freedom of speech, association, political participation and the practice of religion. It is this conclusion to which many scholars hailing from a classical liberal tradition object. Tomasi (2012) argues that democratic citizens in the original position would select principles which offer constitutional protections to individual choice in market interactions.

RAWLSIAN NEOCLASSICAL ECONOMIC THOUGHT AND THE CATALLACTIC ALTERNATIVE My own approach is prompted by this distinction between civil and economic liberty, as well as Rawls’ ambivalence between private-property and socialist regimes. This ambivalence is grounded in an unrealistic conceptualisation of

Introduction

5

an economy as a complete ‘system’ and the economic problem as the allocation of scarce resources between alternative ends (Rawls, 1999, p.234). As Buchanan (1964) points out, this ‘allocative’ model treats the economic system as a single unit, traditionally a metaphorical Robinson Crusoe figure (Evans, 2010, p.5). The economic problem is essentially one of calculation: the political community, as a social agent, works out how to allocate given resources to a given range of ends in the most efficient way possible. The model of perfect competition is what explains the allocative efficiency of markets on this account. In a market where there are enough buyers and sellers, and everyone has perfect information, competitive prices will reflect their marginal products. Gauthier (1986, p.89) explains that in a perfectly competitive market, an individual could act as if she were purely self-interested with absolute confidence that her behaviour would nevertheless produce socially efficient outcomes; though this is not necessarily, as Rawls (1999, p.62) notes, a just outcome. But perfect competition is unrealistic. It is rarely instantiated even for many private goods where information asymmetries are pervasive. On this account, perfect competition models are irrelevant when faced with externalities, where the social costs of producing a good are not reflected in the price, and public goods, where the benefits of production cannot be excluded from free riders. In these cases, state allocation can produce efficient outcomes because it can account for the full social costs of production and compel everyone to contribute fairly. Because available resources and their productive ends are already given on this perfect competition account, the calculative task of the market economy is also relatively mundane. A variety of institutional regimes can produce efficient allocations. While entrepreneurs carry out the task of allocating resources under a private-property regime, the role could equally be carried out by managers of state-owned or worker-owned firms (Meade, 1945). The main attraction of private-property markets is their convenient way of dividing up this enormous calculative task. In addition, the prices do not only represent information but are also an incentive for a self-interested actor to pursue the most efficient allocation. However, this turns out to be relatively faint praise. On the perfect competition account, there is a wide range of economic activities that private-property markets simply cannot do, and nothing, in principle, that socialist alternatives could not do so long as incentives are handled in some way that simulates private markets. The result is that Rawls’ description of economic activity can read strangely lacking in agency: [C]ompetitive prices select the goods to be produced and allocate resources to their production in such a manner that there is no way to improve upon either the choice

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of productive methods by firms, or the distribution of goods that arises from the purchases of households. (Rawls, 1999, p.240)

By using this allocative conception of political economy, Rawls subtly rules out the likelihood of conceiving economic liberty as a site of moral development (Cowen, 2021). Rawls uses this economic theory when developing the institutional implications of justice as fairness. But it could have been otherwise. An alternative conception of an economy is as exchange activity between individuals, or catallaxy (Mises, 1998 [1949], p.233). On this account, knowledge of available resources and possible uses never exists prior to trade, and thus perfect competition is an unrealistic baseline against which to assess market conditions. The primary economic problem is that the knowledge necessary for beneficial cooperative production is dispersed across a whole community (Hayek, 1945, 2014 [1968]; Lavoie, 1986). The puzzle is how individuals in some institutional circumstances, despite their manifest ignorance, manage to coordinate to produce socially desirable outcomes. All this in the absence of an omniscient intelligence that would be necessary to produce a perfectly efficient allocation of resources. On this alternative account, pricing information is not an input into a calculation but is discovered through trial and error learning, with feedback provided by the realisation of profit and loss. In a private-property market system, economic actors who decide to take on an entrepreneurial role generate this information. They become alert to ‘unexploited opportunities’ (Kirzner, 2013 [1973], p.33), including resources that are currently under-valued, as well as unmet needs in the community. Rather than accepting all prices as given, entrepreneurs use their personal knowledge that is often local (specific to time and place) and tacit (not easy to communicate through speech or text) to discover otherwise scarce resources and convey them to valuable use (Hayek, 1945, 2014 [1968]). The resulting price differential generates a profit for the entrepreneur. It also reveals an opportunity (or, as it can now be conceived through a neoclassical lens, an ‘inefficiency’) for other economic actors to exploit. By discovering and conveying resources and assets to more valuable uses, entrepreneurs bid up the prices of goods used in their chosen production processes, thus closing the gap between their actual prices and their theoretical equilibrium price. However, there are also continuous sources of disequilibrium, including changes in relative scarcities of resources, and the disruption of new goods, technologies and production processes being introduced by other economic actors. On this account, perfect competition and competitive equilibrium are only ever explanatory ideals that we should not expect to

Introduction

7

observe in practice. Competition is never perfect but tends to push prices in the direction of equilibrium. Competitive markets, on this account, are an example of a spontaneous order (Menger, 1985 [1883], p.146; D’Amico, 2015), where autonomous actors carry out their own plans within a framework of established rules with the aggregate result of producing socially desirable, though not assuredly just, outcomes. Hence, the use of perfect competition as an explanatory ideal type, and even as a simplified model of dynamic contestable markets in the real world, is often justified. However, this model relies on an assumption that an institutional framework already exists that permits the discovery of the necessary knowledge for economic calculation. It is fruitful to consider Rawls’ theory alongside this alternative catallactic understanding of economic activity as part of the basic facts of social theory (Rawls, 1999, p.109). The catallactic approach aligns more closely with the Rawlsian understanding of a political community composed of individual free and equal citizens engaging in an exchange of rights and duties in the form of a social contract. Thus, it is more in keeping with Rawlsian methodological and moral individualism (Kukathas and Pettit, 1990, pp.11–12). For it to be valuable to respect the ‘separateness of persons’ (which makes the Rawlsian approach distinct from utilitarianism), it must be the case that persons are ontologically separate entities in some relevant sense in the real world. Hence, the facts of social theory should reflect this assumption. This does not rule out significant collective endeavours and appropriate state intervention, but it does suggest that such activity needs to be aligned, in the final analysis, with the knowledge and activity of individuals. Social aggregates, whether states, firms, households or markets, are necessarily composed of individuals and their interactions with each other. They are both the morally relevant beneficiaries of, and actual participants in, socially cooperative production. Without this adjustment to the facts of social theory, as Schmidtz (2005, p.170) points out, Rawls is left conceiving of the separateness of persons not as producers of goods, but only as consumers of goods.

A RAWLSIAN FRAMEWORK THROUGH THE LENS OF ROBUST POLITICAL ECONOMY This book develops the implications of Rawlsian public policy through the lens of Robust Political Economy (RPE). An RPE approach contends that institutions aiming at human welfare should be capable of functioning in the presence of realistic challenges that are significant features of human political and social life, namely imperfect knowledge, bounded rationality and opportunistic behaviour (Pennington, 2011). When considered as a purely scholarly enterprise, some useful concepts and intuitions can be adumbrated without these

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robustness considerations. However, when informing effective public policy, these features of social life become much weightier considerations. This means that institutions commendable in certain important respects are, nevertheless, likely to fail in their aims when applied to the real world. Pennington argues that the classical liberal minimal state is likely to be the most successful at meeting the test of robustness but the RPE approach is an open-ended research agenda, so is open to alternative answers (Cowen, 2016). The RPE perspective shares substantial overlap with both the Rawlsian approach and political realism (Cowen, 2017). It focuses on how institutions cope with two key problems: imperfect, dispersed knowledge and self-interested motivation (Pennington, 2011, p.18). The research programmes of two related theorists in ‘catallactic’ political economy, F.A. Hayek and James Buchanan, are what inspire these two questions. Of these two theorists, Buchanan has the most immediate parallels with Rawls. Both participated in reviving the social contract tradition in political theory (Meadowcroft, 2014). They focus on the importance of constitutional design and have a normative commitment to the principle of unanimous agreement as legitimising political institutions: In their different ways, Rawls, Buchanan, and their followers have sought to combine insights derived from modern social science with some core moral precepts in order to discern the requirements of a just constitution and to build this into various schemes for constitutional design. (Pennington, 2015, p.464)

At the same time, Buchanan presents a political realist position. His inspiration overlaps with realists in political theory, referencing in particular Machiavelli and Hobbes (Buchanan and Tullock, 1999 [1962]; Buchanan, 2000 [1975], 2001, p.46). In rejecting the allocative conception of the economic problem, Buchanan also contributes to a more realistic account of economic and political activity: one that traces back to individual behaviour and interaction (Buchanan, 1999 [1969]). Hayek is the key exponent of the challenge of dispersed knowledge and its resulting constraints on the efficacy of political intervention (Trantidis and Cowen, 2020; Cowen, 2020a). Unlike Buchanan and Rawls, Hayek (2011 [1960], p.118) is not a social contract theorist, and was a famous critic of even the notion of ‘social justice’ (Lister, 2013). He nevertheless acknowledged that justice is an important criterion for legitimising formal political institutions. His criticisms of social justice do not apply directly to the Rawlsian framework because Rawls distinguishes between a basic structure where justice applies and the rest of civil society: there unquestionably also exists a genuine problem of justice in connection with the deliberate design of political institutions, the problem to which Professor John

Introduction

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Rawls has recently devoted an important book. The fact which I regret and regard as confusing is merely that in this connection he employs the term ‘social justice’. (Hayek, 1976, p.100)

Hayek quotes Rawls’ explanation of justice applying not to ‘specific systems or distributions of desired things’ (1976, p.100) but as applying to constraints on a basic structure. Of course, Hayek and Rawls disagree dramatically on the contours of that basic structure and the actual rules and institutions of a basic structure, but this need not necessarily reflect a fundamental conceptual, or even normative, difference (Cowen, 2020b, p.15). Hayek and Rawls share some common ground on the key problems that political theory faces. Rawls tries to deal with what we could classify as a ‘knowledge problem’: the challenge of moral disagreement arising out of imperfect judgements even amongst reasonable people. Rawls’ hope is to establish the ‘fair terms of social cooperation between citizens regarded as free and equal’ for a society ‘marked by a diversity of opposing and irreconcilable religious, philosophical, and moral doctrines’ some of which are ‘perfectly reasonable’ (Rawls, 2005 [1993], pp.3–4). In other words, while there may be a ‘true’ comprehensive doctrine, human beings lack the capacity to agree on it. Politics must reckon with that lack of agreement given how deeply held these differing beliefs are. Hayek and the RPE framework take this problem of agreement on justice to be but one facet of a much broader knowledge problem (Pennington, 2011, p.6), one that includes abstract principles but also disagreement about more mundane questions about the effectiveness and morality of public policies, cultural practices and even personal conduct. Institutions must be able to deal with ‘the inevitable ignorance of all of us concerning a great many of the factors on which the achievement of our ends and welfare depend’ (Hayek, 2011, p.80). Both Rawlsian and RPE approaches make use of comparative analysis. For Rawls, his procedure for identifying principles of justice and engaging in reflective equilibrium involves representative agents reasoning back and forth between various alternative conceptions, in order to see which are most plausibly compatible with our intuitions and concrete problems (Daniels, 1979; Kukathas and Pettit, 1990, p.8). The principles of justice are not deduced from axioms but argued to be the ones that would be selected from a menu of plausible options. RPE, in contrast to economic theory that concentrates on developing insights with mathematical tractability, is concerned with the comparative performance of institutions given imperfect, human actors (Pennington, 2011, p.2; Garnett, 2014, p.44). Both projects aim at a form of realism and both use comparative approaches to get there. Despite these links, Pennington’s approach rejects rapprochement between Rawlsian approaches to legitimising a social order and his approach to RPE.

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For Pennington, the knowledge problem undercuts the epistemic position from which agents could successfully come to agreement in the original position, or a constitutional choice situation: [T]he Rawlsian method of trying to establish an impartial evaluation of social rules and institutions assumes away the very conditions that require the need for social rules and institutions in the first place. Fully idealized rationality of the sort exhibited by actors behind the veil of ignorance implies that people can see through costlessly and instantaneously all the consequences of their beliefs. The model also assumes that everyone is equally rational, similarly situated, and convinced by the same arguments … (Pennington, 2015, p.483)

Pennington does not offer an explicit alternative normative standpoint to justice as fairness. He sets out the conditions under which institutional performance should be judged. He does not offer specific criteria for what best ‘performance’ entails. Implicitly, the overarching aims of these institutions appear to be the reduction of conflict, social order and a ‘weak utilitarianism’ (Pennington, 2015, p.484). Other proponents of classical liberal institutions take a more explicitly utilitarian standpoint (Epstein, 1995). A problem with Pennington’s approach is that it takes a ‘thin’ goal of social coordination to be a presumed shared goal. Without an explicit normative standpoint, there is little to say in response to critics who prefer institutions that foster conflict. They could be rendered ‘well-performing’ on those perverse grounds (Cowen, 2018). Furthermore, even if we accept the reduction of social conflict as a shared goal, it is not clear that a minimal state is necessarily the most robust form of governance for maintaining a sustainable social order or even protecting individual liberty (Taylor and Crampton, 2009). It could be unstable compared with various alternatives, such as social democracy (Alves and Meadowcroft, 2013). There is a potential alignment between Rawls’ concerns for the disadvantaged and Pennington’s focus on institutional robustness. In both cases, there is a deliberate disproportionate focus on worst-case scenarios at the expense of how humans may thrive in best-case scenarios or in more ideal conditions. Why is that? Some conditions of robustness, despite being pessimistic, are also realistic. The suffering caused by institutional failings, such as death, fear and privation weigh more heavily than the parallel possibilities of greater satisfaction of human desires and higher goals. There is an epistemic element: it is easier for us to agree what bad outcomes look like, and so finding practical agreement on improving the positions of the relatively disadvantaged might be easier than some other criterion such as average utility (Rawls, 1974, p.143). It also reflects a conception of justice that is ameliorative: working out the minimum of what we can guarantee to each other. Buchanan and Faith (1980) argue that bargaining agents, even with knowledge of their personal positions,

Introduction

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could converge on distributive principles of maximin that are remarkably similar to the Difference Principle. Hayek also engaged in worst-case scenario theorising when considering the relative merits of different political regimes (Farrant and Crampton, 2008). Rawls’ Consequentialist Egalitarianism Rawls’ own justifications for a focus on the least advantaged emphasise the practical and are arguably concerned with something like robustness. An intrinsic pursuit of welfare equality is absent from Rawls’ reasons for being concerned with equality, although there is a ‘deontic’ aspect of Rawls’ egalitarianism grounded in the notion of fair procedures (O’Neill, 2008, pp.122–3). Rawls’ egalitarian commitment is grounded on substantially empirical concerns about the way societies work and the relationship between inequality and more widely accepted bad outcomes. His first reason is an aversion to poverty: ‘it seems wrong that some or much of society should be amply provided for, while many ... suffer hardship, not to mention hunger and treatable illness’ (Rawls, 2001, p.130). His second and fourth reasons both address essentially political economic concerns: that economic and social inequalities can allow ‘a few ... to enact a system of law and property that ensures their dominant position in the economy as a whole’ (Rawls, 2001, p.131); and that competitive markets and elections can be unduly influenced by wealthy individuals. Crucially, these are highlighted as harmful effects of economic and social inequality (‘experienced as a bad thing’), making them instrumental reasons for avoiding inequality. Rawls’ third point comes closest to addressing economic inequality as intrinsically problematic: ‘the widespread attitudes of deference and servility’ imposed on the less well-off and ‘a will to dominate and arrogance’ encouraged in the better off. He sees this as inevitably engendered by some levels of economic inequality. These outcomes too are a threat to a society of formally free and equal people. Note the reasonable, but empirical, presumption that people will not respect each other as equal citizens in the presence of substantial material inequality. Rawls does not assume away the character defects of envy and contempt for those in substantially different circumstances. He wants to address them. Equal citizenship is a demand of justice. Material equality is important as a necessary condition for guaranteeing equal citizenship. In this sense, Rawls’ egalitarianism draws much of its strength from the widely accepted need to disperse power to maintain a liberal order. Similar to Montesquieu’s doctrine of the separation of powers to limit arbitrary government, Rawls’ theory is a separation of wealth to prevent political and social power being centralised

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and used for the interest of the few rather than for the common good (cf. Reiman, 2014, p.22). Rawls’ support for substantive equality is grounded not in an abstract moral commitment but in the practical concerns of political economy. For him, the status of free citizens lacks stability in the absence of the wide dispersion of wealth. This egalitarian commitment informs Rawls’ two principles of justice. Arguably, it is the Liberty Principle that presents equality with greater stringency. It requires that an equal set of basic rights and liberties be available to all. The second principle, on the other hand, explains conditions under which limited socio-economic inequalities might be permitted: that they are attached to positions and offices available under fair equality of opportunity to all, and that these inequalities are to the advantage of the least well-off in society.

EXPLORING COMMON GROUND This common ground represents the possibility of combining a Rawlsian normative standpoint with an RPE approach to evaluating institutions. This approach has several advantages. First, it re-articulates the value of constitutional theorising, emphasising the epistemic properties of widely accepted rules of the game and how they permit widespread social cooperation. Second, it defends Rawls’ sometimes criticised division between institutions that make up the basic structure of society and individuals acting within civil society. Third, it takes contractarian theorising beyond the original position, and shows how everyday politics of exchange can produce beneficial and just outcomes given a sound institutional framework. Fourth, it reconciles a Rawlsian account of political regimes with the polycentric institutions that arguably help to sustain real liberal democratic regimes. Finally, the combination of RPE and Rawlsian concerns with inequality readily suggests a new regime type, a ‘robust property-owning democracy’, an adaption of Rawls’ preferred regime which is potentially more stable in some real-world conditions. This is a novel regime type that instantiates Rawlsian commitments through neoliberal social justice. From a different angle, this book contributes to ongoing attempts to reconcile Hayekian social theory with institutions aiming at social justice (Cowen, 2020b). Gamble (2006) argues that Hayek’s unique contribution to social theory is his theory of knowledge, describing it as ‘a thread which runs through almost all his work’. The problem is that ‘Hayek’s originality has never been properly appreciated beyond a relatively small circle, partly because Hayek continues to be read through ideological spectacles’ (2006, p.112). I make significant use of Hayek’s epistemic approach to economic theory. On the other hand, Hayek’s political theory informs, but does not constrain, my approach to analysing the public policy implications of the knowledge problem. This

Introduction

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means that I can suggest some configurations of welfare-state capitalism (WSC), and potentially more radically egalitarian forms of social democracy, that may turn out to be robust when facing knowledge and incentive problems.

SUMMARY The arc of this book is as follows. I begin by applying RPE to the problem of distributive justice in the heights of ideal theory. I then take a step down to a mid-point of constitutional theorising and the implications of social morality outside the circumstances of justice. Finally, I descend to the depths of public policy and steps towards better political settlements. At each stage, I discuss the implications of distinguishing the realistic social conditions of imperfect knowledge and self-interested behaviour for the Rawlsian framework. In Part I, I argue that institutions matter even in ideal theory. I defend a Rawlsian emphasis on the basic structure as a site of justice, rather than the demands of other philosophical perspectives that the site be grounded in personal conduct and behaviour in wider civil society. Some argue that a Rawlsian focus on institutions as the site of justice is too narrow and assumes that individuals themselves cannot be morally motivated to behave in a socially cooperative way. This means that Rawlsian incentive justifications for the Difference Principle are illegitimate compromises for an ideal theory of justice. I show that there are scenarios where people of extraordinary goodwill are capable of producing bad social outcomes by discussing the problem of ‘the Gift of Magi’ as a mirror image of the prisoners’ dilemma. In some such cases, stronger forms of altruism could cause worse welfare outcomes than weaker forms of altruism in a way that parallels coordination problems when assuming self-interest. Goodwill is not enough to generate attractive social outcomes, if the institutions are not present to translate goodwill into effective social cooperation. Imperfect knowledge and bounded rationality are natural features of human beings linked to the same biological limitations that prevent us from sprouting wings and flying like angels. Dispersed knowledge is a problem that needs to be solved even if we idealise away morally blameworthy features of human behaviour. In Part II, I turn to the character of the institutions that have epistemic characteristics to support widespread social cooperation. I consider Rawls’ claim that his theory is compatible with both private-property and socialist institutions. For reasons that parallel Rawls’ justification for civic liberalism in the political sphere (the burdens of judgement), some private-property market institutions are necessary in the economic sphere. These ‘burdens of knowledge’ are problems of calculation, discovery and subjectivity. Theories of non-market alternative economic institutions assume that there is a given range

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of potential goods to be produced with a given pool of resources. They also rely on individuals having objective observable capacities and desires as well as tolerances for certain kinds of work. In fact, many resources and production processes must be discovered. Since many demands on resources are rivalrous, including between consumption and production, people require a mechanism through which they can choose to forego some forms of consumption in order to save them for alternative uses of necessarily uncertain value. No conceivable market socialist regime, which retains a rigid distinction between the allocation and distribution function of markets, can supply such a mechanism. Any feasible regime will contain some private-property markets. In Part III, I begin to introduce incentive and compliance problems alongside the knowledge problem at the level of constitutional theorising. I discuss how economic institutions should fit into a wider political framework to argue for some constitutional protections of economic liberty. I discuss the role of market failure in Rawls’ justification of extensive government control over the economy. Market failures are when economic actors do not converge on Pareto-efficient outcomes. In principle, such outcomes could be improved by government intervention. The classic market failure models that Rawls uses to illustrate his case assume that economic actors are narrowly self-interested. However, the actors in Rawls’ political sphere are assumed to act with a sense of justice. A more symmetrical approach that rejects such a strict normative distinction between market and political behaviour is the more realistic but leaves the challenge of figuring out where the principles of justice could be agreed and pursued. To resolve this impasse, I propose a new perspective, the constitutional point of view, which is the way that a judicious spectator evaluates the performance of rules that partial actors are required to follow. Alongside the more familiar moral point of view, adopting such a view allows agents engaged in public reason to establish what rules and constraints within both economic and political spheres would be commendable, given the overriding aim of achieving justice as fairness. Some constitutional constraints on both bureaucratic and democratic interventions into economic activity are commendable from this perspective. In Part IV, I explore whether some economic liberties should be part of the basic liberties that Rawls gives priority in public decision-making because they contribute to the development of citizens’ essential moral powers. Rawls explains that his theory applies to the circumstances of justice, defined as a position of moderate scarcity and reasonable pluralism of values. The circumstances of justice could only obtain in a community with some institutions capable of coordinating cooperative economic activity. These likely have the form of market institutions because more hierarchically ordered schemes of cooperation could not produce people capable of conceiving of each other as

Introduction

15

free and equal citizens. Some economic liberties are plausibly pre-conditions for the circumstances of justice. I show that economic liberties should subsequently be included in a scheme of basic liberties because economic activity is an important site for the development of Rawls’ proposed two moral powers, a sense of justice and a capacity for a conception of the good. This leaves political communities with the power to regulate basic economic liberties to ensure that their fair value is guaranteed to all citizens, but not to abolish or deliberately constrain them. In Part V, I outline the implications of RPE for attempts to establish a POD. I look at whether POD can be said to constitute an alternative to WSC. Definitions distinguishing the two ideas hinge on a broadly Marxian conceptualisation of capitalism, as necessarily a class-divided society. If we define capitalism more straightforwardly as a society with substantial individual liberties to own productive assets, engage in trade, and work for wages, the two concepts are not as easily distinguished, to the point that it would be hard to recognise when a society was a POD rather than a WSC. Given this context, I evaluate the high liberal approach to POD which proposes a systematic distribution of capital assets which can allegedly take place at little or no loss in terms of investment or wealth accumulation. I argue that productive property does not put itself to use. It must be configured to yield a profit that is subject to risk and radical uncertainty. Entrepreneurial earnings require organisation, planning, effort, time and talent just as other forms of work. This mechanism is inhibited by substantial taxation in a similar fashion to income taxation. While some capital taxation is feasible, it is rightly considered to come at significant costs to investment. With these limitations, I propose a different regime, a robust POD, which uses alternative mechanisms to increase the dispersion of wealth, including some that were proposed by Meade himself: tax efficient savings schemes that provide easy access to equity and bond markets, and support for home ownership. Concluding, I explain how many of the assumptions of my critique are already well-established in liberal political theory and in the Rawlsian framework itself. This has the advantage of engaging with shared problems within liberal political theory. It allows me to extend, rather than critique, the policy implications of Rawls’ theory of justice. I explain that there is still more theory to do, especially on questions of global justice and ensuring compliance. Overall, however, I show that my novel proposals aiming at neoliberal social justice are both an attractive and realistic instantiation of Rawls’ conception of justice as fairness.

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PART I

Why institutions matter in ideal theory

2. Ideal theory and the basic structure Even the kingdom of heaven needs institutions. I have introduced the case for taking the fact of dispersed knowledge to be a key problem impeding widespread social cooperation. In this part, I consider the implications of foregrounding knowledge for a Rawlsian approach to institutions. This has methodological implications for political theorising. First, contra Pennington, there is a distinct and useful role for ideal theory within the Robust Political Economy (RPE) framework. Second, contra G.A. Cohen, there is a role for affirming a strong distinction between justice in institutions and justice in personal conduct, and that the abstract notion of justice that Cohen defends is irrelevant for evaluating political communities. My argument, in summary, is this. It is not only conflicts between interests that generate problems of distributive justice. Problems of justice can arise out of a variety of disagreements, including mundane issues of private and public good provision. Since a great many of these disagreements arise amongst reasonable people under reasonably ideal conditions, there is a role for institutions that reconcile such disagreements in ideal theory. While including the burdens of personal interests may also be justifiable, there is no need to have recourse to them to seek out problems that must be solved. Justice in institutions is often seen as a support structure, resolving the moral deficiencies of personal conduct. On my account, their fundamental role is supporting the epistemic, not moral, deficiencies of personal decision-making. In this chapter, I outline the role of the basic structure and the ideal/non-ideal theory distinction in Rawls’ theory of justice. I summarise some key criticisms of this aspect of the Rawlsian approach. Then, with the help of a model called the ‘Gift of the Magi’, I analytically differentiate problems of conflicting interests from problems of knowledge. In Chapter 3, I discuss specific issues of scale that illustrate why these problems are bound to emerge in any political situation regardless of the motivation of actors. I then reframe this case in the fact-insensitive terms proposed by Cohen to show that my case stands even in the greatest heights of ideal theory.

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INSTITUTIONS, THE BASIC STRUCTURE AND IDEAL THEORY A defining feature of Rawls’ theory is an attempt to delimit the concept of justice in political philosophy as a virtue of social institutions. Rawls distinguishes justice in institutional rules (or ‘practices’) from justice in human actions and relations more generally, as well as justice itself from other normative values: ‘Justice is not to be confused with an all inclusive vision of a good society’ (Rawls, 2001b [1958], p.165). Rawls gives this ‘site’ of justice its distinctive term, the basic structure, in his essay ‘Constitutional Liberty and the Concept of Justice’ (Rawls, 2001a [1963], p.86). In A Theory of Justice, Rawls (1999 [1971], p.28) aligns this basic structure with his notion of the priority of the right over the good. The implications of this distinction find a more thorough description in Political Liberalism. Rawls introduces the notion of ‘an institutional division of labor between the basic structure and the rules applying directly to individuals and associations and to be followed by them in particular transactions’ (Rawls, 2005 [1993], pp. 268–9): The basic structure comprises first the institutions that define the social background and includes as well those operations that continually adjust and compensate for the inevitable tendencies away from background fairness ... This structure also enforces through the legal system another set of rules that govern the transactions and agreements between individuals and associations (the law of contract, and so on) … They are framed to leave individuals and associations free to act effectively in pursuit of their ends and without excessive constraints. (Rawls, 2005, p.268)

This approach distinguishes Rawls’ theory from other key political philosophies. It rejects the primacy of aggregate social welfare found in utilitarian theories by marking out a framework of institutions, and rights, that are protected and prior to narrow efficiency criteria. Efficiency is often a legitimate object of personal decision-making and day-to-day public policy but it cannot trump the demands of justice protected within the basic structure (Rawls, 2001a, p.86). It rejects a libertarian claim that state institutions are a voluntary civil association that are rendered legitimate only through individual consent. On a Rawlsian account, it is the basic structure that establishes individual liberties and regulates contracts, not the other way around. These are not pre-political rights. This approach also rejects a communitarian ideal of a political community standing on a thick shared conception of the good. Instead, Rawlsian liberalism presumes a plurality of reasonable comprehensive doctrines. The basic structure is a point of compromise that protects the shared interests of all rational and reasonable people who have significantly different moral commitments.

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Why is the basic structure necessary? While the division between institutions and personal conduct is consistent throughout Rawls’ work, the justification is reformulated in different iterations of the theory. In ‘Justice as Fairness’, justice in institutions is an ameliorative virtue, explicitly designed to deal with people’s moral weaknesses: ‘Amongst an association of saints, if such a community could really exist, the disputes about justice could hardly occur’ (Rawls, 1958, p.175). Rawls suggests that the demands of justice arise out of circumstances where ‘persons are mutually self-interested in certain situations and for certain purposes’ (Rawls, 1958, p.175). This terse description of political community, which has much in common with Buchanan and Tullock’s (1999 [1962]) formulation, is softened in A Theory of Justice, where the terminology is reformulated to ‘mutual disinterestedness’. Rawls’ account has no commitment to a theory of human motivation. It is possible for parties in a political community to ‘have ties of sentiment and affection, and want to advance the interests of others’ (Rawls, 1999, p.111) but a ‘conception of justice should not presuppose … extensive ties of natural sentiment’ (Rawls, 1999, p.112). Latterly, Rawls’ focus shifts from issues of motivation to other problems of feasibility and practicality. When justifying treating the basic structure as the primary subject of justice, rather than requiring individual agents to aim at justice as fairness itself, he explains: There are no feasible rules that it is practicable to impose on economic agents that can prevent these undesirable consequences [deviations from distributive justice]. These consequences are often so far in the future, or so indirect, that the attempt to forestall them by restrictive rules that apply to individuals would be an excessive if not impossible burden. (Rawls, 1977, p.160)

Note briefly two possible meanings of ‘excessive or impossible burden’. It could once again reference rules that people could follow but only if they were motivated by deep ties to others and their interests, and were not narrow ‘economic agents’. Or it could simply be that it is literally impossible, due to more basic human constraints, for individuals to coordinate to produce overall thoroughly stable and just social outcomes in the absence of a basic structure. This is an ambiguity that Estlund has subsequently explored (2014). More in line with this latter interpretation, in Political Liberalism, Rawls suggests that a situation could depart from justice unintentionally and from activities that are morally blameless: ‘the tendency is … for background justice to be eroded even when individuals act fairly: the overall result of separate and independent transactions is away from and not toward background justice’ (Rawls, 2005, p.267).

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A way to understand this statement is that injustice could be an emergent outcome of individually just decisions. The basic structure frames individual activities so that justice is protected, in aggregate, and not just in specific interactions and transfers. Thus, as Rawls developed his account, the justification for the basic structure has become less reliant on specific human motivations or moral weaknesses. Citizens can respect each other as free and equal and have remarkable goodwill towards each other. Yet, even then, there is a role for the basic structure to assure each other’s rights because they lack the individual capacity to ensure a just collective outcome. Closely linked to the basic structure is Rawls’ distinction between ideal and non-ideal theory. Ideal theory is aligned closely with a distinction between full and partial compliance (Rawls, 1999, p.8). In Restatement, the notion of full compliance is reiterated but contextualised alongside the notion that ideal theory is what a perfect or nearly just constitutional regime would look like ‘under realistic, though reasonably favourable, conditions’ (Rawls, 2001b, p.13). Prima facie, this appears to be a relatively thin ideal, once again similar to the idealising assumptions that Buchanan and Tullock employ when discussing constitutional choice situations. They take a model of self-interested agents constrained by given rules to be a useful stage in constitutional theorising. This must then be supplemented with an understanding of the costs of enforcement and punishment for more realistic agents who must be deterred from breaking rules of the social order (Buchanan, 2000 [1975]). This parallel is not quite as straightforward as it first seems, however, as in A Theory of Justice, individuals are assumed to act in accordance to given rules and with a more substantive ‘sense of justice, the desire to act in accordance with the principles that would be chosen in the original position’ (Rawls, 1999, p.275). This agent-level commitment to justice is unpacked in Political Liberalism where Rawls asks how moral disagreement is possible ‘between persons who have realized their two moral powers to a degree sufficient to be free and equal citizens in a constitutional regime, and who have an enduring desire to honor fair terms of cooperation and to be fully cooperating members of society’ (2005, p.55). His answer is that even those persons will disagree due to difficulties such as lack of complete evidence on complex issues, the challenge of weighing up different values, linguistic ambiguity and vagueness, varied life experiences and trade-offs between competing goods (2005, pp.56–7). These ‘burdens of judgement’ mean that we can assume fully compliant agents with a shared commitment to justice who still face a steep challenge of coming to a consensus on fundamental democratic principles. Ideal theory is an accompaniment to non-ideal theory, on Rawls’ account, because it shows what the overall aim of a democratic society should be (2005, p.285) and also what is

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possible given realistically favourable conditions. Rawls also hopes that it will point out how to address real-world injustices (2001b, p.13). The Ideal Theory Debate: From Compliance to Feasibility Rawls’ definition of ideal theory is simply theory that assumes full compliance but the resulting debate has extended along multiple dimensions. This is perhaps inevitable because Rawls’ ideal/non-ideal distinction presupposes justice operating at the site of the basic structure. His question is about the content of the institutions that reasonable and rational people would agree to in order to govern themselves and each other. This is what Sen (2010) critically describes as Rawls’ ‘transcendental institutionalism’. Discussion about ideal theory has extended to cover several related issues, including debates between realism and utopianism and questions of transitional arrangements versus non-transitional ideals that try to grapple with questions of historic injustice (Valentini, 2012). The reason for this widening of the issue is that assuming the need for a basic structure at the outset seems to imply feasibility constraints about justice that alternative conceptions of ideal theory might wish to challenge. Criticisms of the Rawlsian approach can roughly be summarised as follows. The first set claims that ideal theory is a fruitless application of political theory because politics is essentially about conflict and ways of reconciling conflicts (Geuss, 2002; Sleat, 2013). Levy (2016) suggests that applying ideal assumptions to political situations is rather like attempting to develop a theory of aerodynamics for situations that assume a vacuum. Similarly, Pennington (2014) claims that assuming sufficiently ideal agents, almost any political institutions could be expected to produce just outcomes, so the conclusion of ideal theorising about institutions is trivially ‘anything goes’. If this criticism hits the mark, then it is unclear why a basic structure establishing individual rights and protections is necessary. From whom or what do we need the protection of rights as part of a basic structure? It could be that a scheme protecting rights is practical but only given non-ideal problems; that is, when coping with individuals who do not really share a sense of justice and so may be tempted to override the interests of others in their behaviour. A second criticism is that ideal theory furnishes irrelevant insights for making the real world more just. The weak form of this argument is that because the assumptions of ideal theory will never obtain, or even closely obtain, in reality, we will never be faced with the sort of problems, questions and constraints that concern ideal theory. Moreover, such theorising does not tell us how to produce a more just world from our existing circumstances. A stronger form of this argument suggests that it is no coincidence that philosophical inquiry has pushed in this direction as it plays a legitimising function

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for unjust institutions in real politics (Mills, 2005; Pateman and Mills, 2007). On this account, ideal theory excuses existing political institutions for their relative dysfunction while justifying them in principle (Wolff, 1977, p.195). A third most thorough critique of Rawls’ conception of ideal theory comes from Cohen (2008). Rather than suggesting that Rawls is too abstract and impractical, Cohen argues that Rawls gives too much ground to feasibility and practicality, distorting a real philosophical notion of justice with mere regulative concerns. Crucially, Cohen denies a principled distinction between justice operating at the level of a basic structure and any other human activity that can impact on the distribution of advantage in some way: My own fundamental concern is neither the basic structure of society, in any sense, nor people’s individual choices, but the pattern of benefits and burdens in society: that is neither a structure in which choice occurs nor a set of choices, but the upshot of structure and choices alike. My concern is distributive justice, by which I uneccentrically mean justice (and its lack) in the distribution of benefits and burdens to individuals. My root belief is that there is injustice in distribution when inequality of goods reflects not such things as differences in the arduousness of different people’s labors, or people’s different preferences and choices with respect to income and leisure, but myriad forms of lucky and unlucky circumstance. Such differences of advantage are a function of the structure and of people’s choices. (Cohen, 2008, p.126)

On the face of it, this seems to be a more ideal, even utopian, understanding of justice than Rawls. Cohen undercuts this understanding by saying that, in fact, his conception is more realistic in the sense that, without the demand of practicality, his theory does not have to assume that his conception of justice is feasibly realisable. In fact, Rawls is more utopian in setting a goal of political philosophy of not just specifying justice, but proposing institutions that might be expected, in some real if favourable circumstances, to bring it about: The Rawlsians, who believe that the constraints of human nature and human practice affect the content of justice, are inclined to regard me as unrealistic and/ or utopian in that I believe that justice is unaffected by those mundanities. But it is worth pointing out that they are in one way more Utopian than I. For in believing that justice must be so crafted as to be bottom-line feasible, they believe that it is possible to achieve justice, and I am not so sanguine. It follows from my position that justice is an unachievable (although a nevertheless governing) ideal. (Cohen, 2008, p.254)

Cohen’s conception of justice is thus undistorted. A part of this position reflects Cohen’s intuitionistic, even Platonic, approach to conceptual analysis, in contrast to Rawls’ proceduralism and constructivism. At points, Cohen

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seems to suggest that his discussion of justice has essentially no relevance to practical institutional design: The doctrine that feasibility constrains the normative ultimate is a misapplication of a nearly exceptionless truth about directives addressed to individuals severally, or as such, as in what I shall call rules of regulation, to the very different topic of the nature of ultimate norms. (Cohen, 2008, p.253)

If this was Cohen’s only criticism, then it really would come down to a simple terminological disagreement. At its most extensive, it would be a debate about what the domain of political philosophy is as a discipline. However, there are at least two ways in which Cohen challenges the Rawlsian framework in a more substantive way. First, Cohen does not think his alternative conception of justice is entirely limited to philosophical conceptual analysis. In Why Not Socialism? (2009), Cohen sets out a vision of a liberal egalitarian community where people engage in unselfish cooperation. This community is based on a conception of justice termed ‘socialist equality of opportunity for welfare’. He uses the example of unselfish behaviour in a small-scale camping trip scenario to illustrate what this conception of justice means. Crucially, this normative ideal remains relevant for judging outcomes of political communities in the real world: ‘I do not think that the cooperation and unselfishness that the trip displays are appropriate only among friends, or within a small community’ (2009, p.50). In other words, no matter how much a real-world political community manages to establish a scheme of justice as fairness, it would still fall short of Cohen’s ideal. That underlying ideal is worth pursuing, within political institutions and comprehensively within society. Part of Cohen’s justification for this approach is his case that fundamental normative principles are ‘fact-insensitive’ (Cohen, 2003). Any principles, such as Rawls’ principles of justice, that utilise facts as part of their argument are drawing their normative component from a more fundamental ideal. If a Cohenite comprehensive conception of justice is unfeasible, that does not make a more restrained conception of justice intrinsically attractive. In fact, that narrower conception of justice is attractive due to the homage it pays to the more comprehensive conception of justice, the fact-insensitive elements. Second, Cohen’s criticism has an additional sting insofar as it highlights an internal inconsistency in Rawls’ approach. For Rawls, the principles of justice do not merely regulate the institutions that make up the basic structure of society, they are publicly recognised and affirmed. This is what makes the long-term stability necessary for a well-ordered society possible. The principles cannot require some sort of mass institutional delusion or hidden esoteric knowledge in order to work. They must nourish their own conditions for sta-

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bility. The problem, on Cohen’s account, is that harnessing the use of private interest to create incentive structures runs counter to the public justification for the institutions. Even if they generate benefits to the least advantaged, and even if they are publicly affirmed for that reason only, the private attitudes and behaviour they nourish and sustain could, in the long run, undermine the bases of Rawls’ well-ordered society (Thomas, 2012, p.109). This argument has a powerful and compelling pedigree. It echoes Marx’s famous critique of bourgeois liberalism from ‘On The Jewish Question’. On this account, the state formally affirms the equal rights of all citizens, only to retreat from defending when it comes to inequality and predatory behaviour in the world in which people interact, civil society: Where the political state has attained its full degree of development man leads a double life, a life in heaven and a life on earth, not only in his mind, in his consciousness, but in reality. He lives in the political community, where he regards himself as a communal being, and in civil society, where he is active as a private individual, regards other men as means, debases himself to a means and becomes a plaything of alien powers. The relationship of the political state to civil society is just as spiritual as the relationship of heaven to earth. (Marx, 1992, p.220)

This Marxian approach represents a dual critique of liberal institutions. The first is that liberal rights presuppose a political community riven with conflict. This means that, at their best, liberal institutions can only be ameliorative, potentially justified compared to relevant alternatives but never truly embodying community. The second is that in affirming values publicly that are different from the behaviours that these rights protect, they contain internal contradictions. In the long run, these institutions could fail even in their ameliorative role and turn out not to be feasible after all. Although this is not Cohen’s central concern, it is one that must concern Rawlsians. Cohen’s response to Rawls has led to a recent focus on how feasibility may legitimately constrain a theory of justice. Estlund, in particular, has made several important interventions that help map the conceptual territory between Rawls and Cohen (Estlund, 1998, 2011, 2014). More or less defending Cohen, Estlund suggests that a theory is not proven wrong by being unrealistic or utopian: moral-political concepts are not shown to have any defect in virtue of the fact … that the alleged requirements or preconditions of these things are not likely ever to be met. (2014, p.114)

An underlying rationale is that there is no clear cut-off when a theory ceases to be realistic. If it turns out there is such a cut-off, then we certainly do not know it yet. This renders apparently unrealistic theories of justice still useful if

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only to suggest the heights that more practical theorists may try to ascend. The most realistic political theory would advise precisely the institutions that exist right now. By contrast, as soon as a theory begins to tarry with the status quo, suggesting improvements, it is immediately exposed to ‘feasibility’ problems because there are clearly real-world barriers to positive change. Having rejected simplistic appeals to realism, Estlund tries to establish more concretely what barriers legitimately rule out a theory of justice. He grants, for the sake of his argument, that sheer inability to do something is such a barrier. He endorses the Kantian assumption that ‘ought implies can’ (2014, p.119). For example, a theory of justice could not require humans to fly even if doing so would help resolve a key issue of justice. By contrast, he rejects any constraint based on motivational problems or lack of will. Having narrowed, but perhaps strengthened, Cohen’s critique, Estlund also shows that there may be ways a Rawlsian can respond. He points out that there are individual motivations that may not be directly inspired by justice, but nevertheless consistent with a society that publicly affirms justice. Acts arising out of affection, rather than egoism, are one example he offers (Estlund, 1998). Since Cohen himself wants to leave significant room for liberty, the pursuit of legitimate interests that are not shared by the whole community, a notion he calls prerogatives, there must be a space for such personal motivation (cf. Hankins and Thrasher, 2015). Estlund reiterates that a Rawlsian is not committed to respect any personal conduct that does not technically breach the rules established by the basic structure. Individuals, under a Rawlsian framework, face demanding personal duties of justice that augment the work of a basic structure.

THE GIFT OF THE MAGI Social institutions have two overlapping roles in a Rawlsian framework. The first one is reconciling conflicts between different interests. The second is informational, ensuring that social resources are directed to where they are most needed. In some upper reaches of ideal theory, this first problem of interests can be set aside. Indeed, if we are to take Estlund’s distinction fully on-board, they must be. Cohen and Estlund’s key point is that there is no consistent, reasonable point at which an individual interest or desire can be said to ‘trump’ a demand of justice, even if it is wholly impractical for political institutions to enforce that demand. The second problem, however, does not rely on the moral weakness of human beings, but on their cognitive and epistemic limitations. There is no conflict of interests, merely a deep problem of ignorance. I illustrate my case for bringing knowledge and coordination into the heart of ideal theory with a brief formalisation of O. Henry’s story, the Gift of the

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Table 2.1

Gift of the Magi James

Della

Keep watch

Buy combs

Keep hair

2,2

0,3

Buy watch chain

3,0

1,1

Note: Numbers represent the agents’ ordinal preferences for each outcome, not a utility value.

Magi (Brams, 1994).1 In this tale, an impoverished loving couple struggle to afford Christmas gifts for each other. They have no money to spend on each other’s presents. The husband, James, has a treasured watch that he could sell to buy some combs for his wife, Della, who has beautiful hair. Della wants to buy a beautiful chain to go with James’ watch but would have to sell her hair to a wigmaker to afford it. If both Della and James follow the dictum that it is ‘better to give than to receive’, especially because they love each other so deeply, then, given the choice, each one would actually prefer to sacrifice their treasured possession (the hair or the watch) in order to give to their spouse (the watch chain or the combs). Of course, if they both give gifts simultaneously, then James has a useless watch chain and Della has combs for hair she no longer has. They end up worse off, certainly in terms of material welfare, than if they had not engaged in any Christmas gift giving at all. The first thing we can draw from this model is that there is not a straightforward relationship between egoistic behaviour leading to relatively bad material outcomes, and altruistic behaviour leading to better material outcomes. If we take the classical definition of altruism as the pursuit of other people’s welfare unconstrained by one’s own interests (Hampton, 1993), then the Gift of the Magi situation becomes a kind of mirror image of the prisoners’ dilemma. In the absence of the ability to coordinate their actions, each agent is better off, by her own lights, giving than not giving. Receiving a gift without having any gift to return will leave the person you care more about than yourself with nothing rather than something (even if that something is meagre). On the other hand, if she does not give, then you can really improve the material situation of the other agent with your gift.2 Extrapolating from this, we see that just like prisoners’ dilemmas amongst egoists, Gift of the Magi situations could be destructive to social welfare when agents behave with altruistic motivations. Agents, on this account, try to improve the position of everyone else by using their own resources, including time and effort, to support others. In so doing, they end up conveying resources that are more valuable than they are to others who find them less valuable until everyone is impoverished and exhausted.

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An objection is that individuals, especially in bilateral exchanges or other small-scale arrangements, can communicate their needs and intentions such that genuine altruists will coordinate to produce beneficial outcomes. That is true but, of course, it is equally true that self-interested agents in a prisoners’ dilemma might be able to coordinate if we similarly relax their assumed inability to communicate. They could pre-commit to cooperate. However, it is also possible that both the altruists and self-interested prisoners will be unable to coordinate even with communication. Recall that for the committed altruist, it is in an important sense better for her to give and not to receive, hence she may still give even after attempting to persuade (successfully or otherwise) her partner not to do so. This is the mirror image of the prisoners who cannot adequately commit to cooperate even if they would both benefit from doing so. The altruist does not merely harm herself but may also produce bad outcomes for those other altruists who are unlucky enough to interact with her. Although the account here is highly stylised, in the real world, pathological altruism generates personal and social problems that parallel that produced by opportunistic selfish conduct (Oakley et al., 2012). One could conceptualise the combination of altruistic agents with (secretly) opportunistic leaders to be the source of a great deal of social harms insofar as they form the basis of cult-like communities and other bad institutions and practices. Note, as with egoists in the prisoners’ dilemma, that the ability to engage in voluntary exchange ameliorates this problem. If people can veto the acceptance of a gift before the resource to create it is sacrificed, then altruists must negotiate terms that are mutually beneficial. The difference between this case and egoists negotiating is that each agent has the maximisation of the other’s interests at heart, and only accepts benefits to herself because she must to gain acceptance of the other party. Altruists would agree strategically to this kind of institution because they would see how much easier it would be to benefit people once such a rule was established, even though it might stop them from giving to people in some specific situations. In making that agreement, they start along the path of constitutional bargaining and theorising that leads to notions such as a basic structure. This is a path that runs parallel to egoists attempting to establish institutions amongst themselves that protect their interests. This shows that institutions can handle more kinds of behaviour than egoism. Institutions of voluntary exchange do not necessarily embody self-interested motivations or any other ethos. Instead, such institutions act as a filter on a range of behaviour, imposing a structure on the resulting outcomes. While Cohen (2009, p.79) suggests that we should be concerned with the fact that market institutions, for example, rely on ‘private vices’ to produce ‘public benefits’, it is more that voluntary exchange is robust towards a range of behaviours in a variety of situations. It improves the outcomes that altruists

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produce through interaction just as it improves the outcomes of those engaged in self-interested behaviour. The ideal agents that Cohen, and liberal egalitarians in general, propose are not altruists in this classical sense. Egalitarian agents are cooperative and unselfish. They have a good sense of what everyone deserves and what they are owed as a matter of justice. In comparison to egalitarian agents, classical altruists have what we might consider to be a diminished sense of self-respect. It might appear that egalitarian agents are immune to this problem. However, such agents are still capable of epistemic error. They do not know with any precision how to weigh the benefits and burdens between them. Cohen discusses this epistemic problem in terms of precision. However, he assumes that it is institutions, with their necessarily rough rules of thumb, that are imprecise. Further, he assumes that the ultimate source of imprecision is usually self-seeking behaviour, both flagrant and unflagrant, and therefore only a problem of feasibility given people’s real-world motivations. By contrast, Cohen takes knowing, on a personal level, what one’s benefits and burdens are relative to others to be unproblematic. Quoting an essay by Will Alter, Cohen (2008, p.355) assumes that it would be relatively easy for an individual to tell if she is feigning a special burden. In fact, that is far from clear. In a situation where everyone appears to affirm an unselfish ethos, it may be hard for an unselfish person to tell if she has a special burden or not. How much pain and suffering are others feeling when they engage in their work? In a literal sense, this kind of knowledge is impossible to obtain because you cannot have direct experience of what others are experiencing. If you are suffering but no one else is complaining, it could be because you have a special burden, or because no one wants to impose the cost of the knowledge of their pain on other unselfish cooperators. Perhaps they are in even more pain than you. By even allowing your pain to distract you, maybe you are being more selfish than your more stoical colleagues. They feel the burden but have decided to brush it off for the sake of the community. In the real world, the opposite problem of people complaining about light burdens is probably the more common. Nevertheless, there remain individuals who appear to suffer from cognitive distortions that contain a bias against their own needs and interests. In its debilitating forms, this is a symptom of depression. A cognitive defect, and source of anxiety amongst scholars, is so-called ‘imposter syndrome’, where researchers, seeing bright and knowledgeable people in closely related fields, assume that they themselves are less accomplished and not really entitled to their prestigious status. This concern is usually unfounded. People who are genuinely incompetent relative to their status are famously less likely to realise it compared to those who are competent but fear they may not be (Kruger and Dunning, 1999). Psychological studies suggest

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that most people overrate their own abilities in order to maintain self-esteem (Cummins and Nistico, 2002). But imagine how troublesome unselfish cooperation could be if no one, or far fewer people, had this natural high self-regard, which presumably acts as a form of defence mechanism against excessive anxiety about relative desert compared to others. In this hypothetical circumstance, many would be in a state of paralysing tension, worrying about whether they truly felt the right measure of benefits and burdens. Just as people in reality worry about whether someone has exploited or ‘got one over on them’ in some way, they could have a parallel deep concern over whether they had done true justice to everyone with whom they were cooperating. The way to resolve this tension is to endorse and publicly affirm a basic structure that establishes not so much the requirements of justice (not so necessary for these kind of agents), but, more importantly, its limits. This is in order to prevent epistemic errors, fostered by a strong egalitarian ethos, that could easily make people sacrifice their own interests in ways that are, in fact, unjust and socially harmful. As a result, it is only in situations of perfect information that these egalitarian agents would not suffer either from prisoners’ dilemmas or Gift of the Magi situations. Perfect information is not a given, not in reality and not even in ideal circumstances. Leaving aside the more familiar problem of disagreement about justice itself, what will practically produce a just outcome that is agreed by all parties is subject to disagreement amongst reasonable and rational people. This is due both to limits to relevant information and the human capacity to process that information consistently and effectively. In this case, Gift of the Magi situations can emerge given any pre-institutional attempts at cooperation in which any degree of knowledge or foresight is lacking.

NOTES 1. I was introduced to this scenario and model during a presentation on altruism by Onkar Ghate, chaired by Michael Munger, at the Public Choice Society Annual Meetings in 2015. 2. It is true that generosity in gift giving is not necessarily a sign of true altruism. Mandeville (1970 [1714]) claimed, using somewhat circular logic, that all motivation for action was intrinsically selfish. He associated even apparently generous behaviour to status seeking and self-love. Bourdieu (2010 [1972]) discusses cases of gift giving that can take on a remarkably aggressive form, and help cement debt relations. However, this coordination problem emerges even if the gifts are genuinely meant to improve the outcomes of others.

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REFERENCES Bourdieu, P. (2010) [1972] Outline of a Theory of Practice. Cambridge studies in social and cultural anthropology 16. 25. printing. Cambridge: Cambridge University Press. Brams, S.J. (1994) ‘Game Theory and Literature’. Games and Economic Behavior. 6 (1), 32–54. Buchanan, J.M. (2000) [1975] The Limits of Liberty: Between Anarchy and Leviathan. Collected works of James M. Buchanan v. 7. Indianapolis, IN: Liberty Fund. Buchanan, J.M. and Tullock, G. (1999) [1962] The Calculus of Consent: Logical Foundations of Constitutional Democracy. Collected works of James M. Buchanan v. 3. Indianapolis, IN: Liberty Fund. Cohen, G.A. (2003) ‘Facts and Principles’. Philosophy & Public Affairs. 31 (3), 211–45. Cohen, G.A. (2008) Rescuing Justice and Equality. Cambridge, MA: Harvard University Press. Cohen, G.A. (2009) Why Not Socialism? Princeton, NJ: Princeton University Press. Cummins, R.A. and Nistico, H. (2002) ‘Maintaining Life Satisfaction: The Role of Positive Cognitive Bias’. Journal of Happiness Studies. 3 (1), 37–69. Estlund, D. (1998) ‘Debate: Liberalism, Equality, and Fraternity in Cohen’s Critique of Rawls’. Journal of Political Philosophy. 6 (1), 99–112. Estlund, D. (2011) ‘Human Nature and the Limits (If Any) of Political Philosophy’. Philosophy & Public Affairs. 39 (3), 207–37. Estlund, D. (2014) ‘Utopophobia’. Philosophy & Public Affairs. 42 (2), 113–34. Geuss, R. (2002) ‘Liberalism and Its Discontents’. Political Theory. 30 (3), 320–38. Hampton, J. (1993) ‘Selflessness and the Loss of Self’. Social Philosophy and Policy. 10 (01), 135–65. Hankins, K. and Thrasher, J. (2015) ‘When Justice Demands Inequality’. Journal of Moral Philosophy. 12 (2), 172–94. Kruger, J. and Dunning, D. (1999) ‘Unskilled and Unaware of It: How Difficulties in Recognizing One’s Own Incompetence Lead to Inflated Self-assessments’. Journal of Personality and Social Psychology. 77 (6), 1121–34. Levy, J.T. (2016) ‘There Is No Such Thing as Ideal Theory’. Social Philosophy and Policy. 33 (1–2), 312–33. Mandeville, B. (1970) [1714] The Fable of the Bees. Harmondsworth, Middlesex: Penguin Books. Marx, K. (1992) ‘On the Jewish Question [1844]’, in Early Writings. Penguin classics. London: Penguin Books. pp. 211–41. Mills, C.W. (2005) ‘“Ideal Theory” as Ideology’. Hypatia. 20 (3), 165–83. Oakley, B.A., Knafo, A., Madhavan, G. and Wilson, D.S. (eds) (2012) Pathological Altruism. Oxford; New York: Oxford University Press. Pateman, C. and Mills, C.W. (2007) Contract and Domination. Cambridge: Polity Press. Pennington, M. (2014) ‘Realistic Idealism and Classical Liberalism: Evaluating Free Market Fairness’. Critical Review. 26 (3–4), 375–407. Rawls, J. (1958) ‘Justice as Fairness’, The Philosophical Review. 67 (2), 164–94. Rawls, J. (1977) ‘The Basic Structure as Subject’. American Philosophical Quarterly. 14 (2), 159–65. Rawls, J. (1999) [1971] A Theory of Justice. Cambridge, MA: Belknap Press of Harvard University Press.

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Rawls, J. (2001a) [1963] ‘Constitutional Liberty and the Concept of Justice’, in Collected Papers. Cambridge, MA: Harvard University Press. pp. 73–95. Rawls, J. (2001b) [1958] Justice as Fairness: A Restatement. Cambridge, MA: Harvard University Press. Rawls, J. (2005) [1993] Political Liberalism. Columbia classics in philosophy. Expanded edn. New York: Columbia University Press. Sen, A. (2010) The Idea of Justice. London: Penguin Books. Sleat, M. (2013) ‘Coercing Non-Liberal Persons: Considerations on a More Realistic Liberalism’. European Journal of Political Theory. 12 (4), 347–67. Thomas, A. (2012) ‘Property-owning Democracy, Liberal Republicanism, and the Idea of an Egalitarian Ethos’, in Martin O’Neill and Thad Williamson (eds), Property-owning Democracy: Rawls and Beyond. Malden, MA: Wiley-Blackwell. pp. 101–28. Valentini, L. (2012) ‘Ideal vs. Non-ideal Theory: A Conceptual Map’. Philosophy Compass. 7 (9), 654–64. Wolff, R.P. (1977) Understanding Rawls: A Reconstruction and Critique of a Theory of Justice. Princeton, NJ: Princeton University Press.

3. Knowledge, not incentives Coordination problems emerge from even the most unselfish cooperative agents. To make my new understanding of ideal theory stick in the distinctive terms that Estlund proposes, I need to demonstrate that these are not merely problems of feasibility but of capability. I need to show that absent all motivational constraints, there remain factors stopping members of a political community cooperating without formal institutions. This must be a qualitatively different problem to one involving the contingencies of motivation and personal incentives. On a small-scale venture such as Cohen’s scenario of a camping trip, where information can easily be communicated by willing cooperators, critical lack of information may well be rare occurrences that can usually be corrected relatively easily. Indeed, as Cohen (2008, p.352) notes, in small-scale scenarios, it is actually attractive not to have precise methods of distribution. To insist on precisely metered equality may go against the spirit of the egalitarian ethos. However, it is still possible to harm, even kill, through utterly benign intent and reasonable actions. To utilise Cohen’s scenario, suppose that some people are preparing a meal for a group of campers. Unfortunately, one of the campers has a severe nut allergy. If she is served nuts, she will become extremely ill and may die. The intent of those preparing the meal is to satisfy everyone’s hunger and provide nourishment but the outcome, should they include nuts in the ingredients, could be to cause someone’s death. These medical conditions are sufficiently common that they might reasonably be anticipated in a camping trip scenario. A small group of people can become sufficiently familiar with everyone else’s specific needs that accidentally poisoning someone is unlikely. However, it is possible that the severity of some specific conditions could render it difficult for a small group without specialised knowledge or equipment to meet their needs. For example, some people require food to be prepared in hygienic environments in order to isolate potential allergens. This sort of thing might simply be impossible on a camping trip and in some less developed communities without the right technology, such people may die prematurely. This points to the first key reason why coordination problems are bound to emerge as communities of unselfish cooperators get larger.

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37

POPULATION SCALE PROBLEMS Estlund (2011) offers a good example of a situation where, for practical purposes, we might indulge a particular moral failing while nevertheless considering it to be a morally blameworthy feature of someone’s personality: a man who, for reasons of cultural upbringing, is rendered apparently ‘incapable’ of interacting normally with a woman in a business meeting. This culturally disposed incapacity may be unavoidable in some sense, but it is not really justified. We might understand, in the sense of having a good causal explanation, why someone cannot ‘cope’ with dealing with a woman practically as a fellow worker in the appropriate context. We may even acknowledge some need to make some sort of allowance in the real world, even if only to ease transition for some people towards workplace behaviour that was not based on such reactionary dispositions. For example, we might practically not require a devoutly religious man to shake hands with a woman as he would with a man even though it represents a grim discourtesy. But there is nothing physically stopping that individual from dealing with women appropriately and fairly. It is possible to blur this distinction on some level. For example, it might be possible to re-describe the symptom of being unable to handle some kinds of individuals as a form of social anxiety, suffered not as a cultural disposition but as a mental disorder. However, even taking these ambiguities into account, I think we can agree that there are a great many cases where people are simply uncomfortable. They do not want to do something that they are morally obliged to do. It is not something that their mental, or physical, constitution prevents them from doing. Estlund uses this case to show that many apparently extreme, burdensome demands of justice may be the result of relatively contingent factors that are, in principle, alterable. For example, there is nothing preventing a highly talented, highly sought after, worker, such as a surgeon, from accepting the basic salary of a nurse who faces the same burdens when working as part of a surgical team (this could include some appropriate adjustment for the extra years of education required and the added strains of performing the physical surgical acts). In a cultural environment where large inequalities of wealth and income are accepted, a talented individual demanding more money seems perfectly natural. But in another cultural environment, it might be considered ridiculous and capricious, like refusing to shake hands with a businesswoman. In doing so, Estlund makes a sharper distinction than Rawls between duties of justice that are merely burdensome in some way, and those that are impossible. Let us consider a parallel example that will show how simple cognitive limits become constraints. We all know it’s a courtesy to remember people’s names. Yet, as all teachers know, remembering the names of students in a large

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class can be surprisingly difficult. There is a normal range of this mental capacity of matching names to faces. Some people are much better at this than others. For some individuals, a class of 20 students can be committed to memory within a couple of meetings. For others, there may still be gaps after five meetings. Others, unfortunately, are unable to recall the names of, say, six people that they have met up with frequently. It might be considered rude, or it could be a minor form of prosopagnosia. Some cultures might place a greater premium on remembering names than others. In such cases, we might find it natural to take some extra time and effort to learn names, while those who fail to make the additional effort might be considered rude. Many of us could, and perhaps should, do better within the trade-offs we face. But before long, we would all come up against a genuine cognitive limit. With the exception of the occasional savant, people will never have the capacity to learn a hundred new names and faces in a day. This may seem like a problem with minor issues of courtesy. However, given people’s specific welfare needs, the ability to keep track of identities is essential. If you cannot remember identities, then you cannot remember and deal with people’s specific welfare needs. This means that for handling specific practices in a domain of welfare provision, whether it be supplying food, medicine or education, we need some system of registration, accounting and triage. Insofar as these welfare needs are a demand of justice, we need formal institutions, a basic structure, to secure their provision. No amount of goodwill will substitute for that kind of structure.

TEMPORAL SCALE PROBLEMS These epistemic constraints do not only emerge when we start to handle people’s interests at a larger scale. They also emerge at almost any scale over any long-term time horizon. Estlund (2011) touches on this problem when illustrating the difference, as he sees it, between ideal and non-ideal considerations, in order to set motivation apart from other constraints. Professor Procrastinate tends to take on work and then predictably fails to meet deadlines. The work he is asked to do is valuable if he completes it, especially compared to the other activities he will end up doing instead. But obviously, if he does not complete it, then that is worse than if he had not taken the work on in the first place. The professor certainly has the capacity to complete these tasks but manages to get sidetracked. He lacks some of the motivation necessary to complete these tasks. Estlund uses this example to show how feasibility constraints may justify different regulative principles without altering underlying moral obligations. Professor Procrastinate should accept the work and complete it. Being aware that he will not be sufficiently motivated complete the task, a second-best

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option is refusing the task so that someone else can take it on. That does not remove that original obligation ideally to accept the task. Estlund’s motivational account is only scratching the surface of what is primarily an epistemic problem. In other words, Estlund’s demands point not just to motivationally burdensome duties but cognitively burdensome duties, burdens that outstrip ordinary human capabilities. We can suspect this is the case because people, in fact, face an epistemic challenge to consider even their own interests over the long term. For example, a compelling empirical finding is that people in poverty engage in short-term, yet also self-defeating, behaviour such as taking out loans at excessive rates of interest (Shah et al., 2012; cf. Carvalho et al., 2016). This is not, in any straightforward way, a problem of motivation. People have purely prudential reasons to think carefully about the long-term consequences of their actions on themselves. Yet, quite often, they fail to do so. There is a conservative tendency to hold people morally responsible for these sorts of decisions. Such accounts usually betray a lack of understanding as to what sort of cognitive constraints those in poverty are facing. A slightly more sophisticated version of this account claims that certain personality types dispose people to engage in short-term thinking, rather than behave in their more considered longer-term self-interest (Dunn, 2014; Perkins, 2016). However, the more straightforward account reflects the fact that our cognitive capacities are always limited (Kahneman, 2011). As embodied human beings, even our normal cognitive faculties require sleep and nutrition in order to function. Deficits in these resources are apt to generate errors and gaps in our reasoning. Even when functioning normally, the decisions we have to make have such complex implications that we are only able to consider rationally a small subset of them without exhausting our epistemic capacities, relying on instinct and intuition for the remainder. Empirical social science is limited to the range of observable human capacities. As a result, it tends to identify those in poverty, or facing other particular social or psychological circumstances, as deviating from an assumed norm or average of relatively long-term rationality. Nevertheless, everyone faces epistemic constraints at some margin no matter their social position. There is no case, even in principle, where there is a limitless opportunity to gather and consider all the necessary information for long-term planning. People can never have a truly synoptic grasp of the impact of their activities, even solely on their own interests. It is for this reason that Buchanan (2000 [1975], p.118) proposes some conduct rules imposed on oneself as a simple model of constitutional rulemaking for a community. In this account, the first ‘constitutional’ scheme could be an alarm clock, a mechanism set by an agent in a previous time period in the expectation that it will wake her at a certain time the next morning as part

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of a wider plan of action. It is an institution of sorts but one that is applied to a single individual albeit in different time periods. The institution is not being used to constrain or pursue self-interest between rivalrous interests but to structure an individual’s decision-making so that it satisfies her self-interest more successfully by coordinating conduct with a broader plan of action. An alarm clock can play a motivational role. It helps to correct for temporally inconsistent incentives. I may want to stay in bed while I am in bed, but I really want to be getting ready for work. An alarm makes staying in bed less comfortable. However, it primarily plays an epistemic role, telling me what time I need to get up while I am asleep, and thus unconscious of time passing. There is no will or motivation that could predictably assure that I would wake up at the right time without external direction. The alarm clock is centrally a solution to an epistemic problem. If people can easily miscalculate their own interests, then it is a mistake to suggest that people’s failure to anticipate what their obligations entail to a political community is fundamentally a motivational problem. At its extreme, such logic would have parallels with an attitude amongst Soviet managers that associated all errors in production with counter-revolutionary sabotage. What a basic structure can do is establish duties that represent straightforward directions for personal conduct. This epistemic problem practically envelopes motivation problems because even when people have strong self-interested reasons to do something, they frequently fail.

WHERE THE ACTION ISN’T What do these epistemic challenges mean for people independently choosing within or without a basic structure? On the standard Rawlsian account, problems of isolation and assurance imply that sufficiently motivated and mutually trusting agents would know, in principle, how to cooperate to produce just outcomes even if doing so were practically too burdensome in the absence of coercive rules. By contrast, my coordination account shows that individuals lack the capacity to know how their personal choices will impact on justice regardless of their personal motivation. When background institutions are sufficiently well-established (as they ideally are), the point of view of justice is indifferent to isolated choices so long as they comply with relevant formal rules and general norms. Indeed, because these activities are uncoordinated, their isolated application will have the aggregate impact of producing arbitrary outcomes from the point of view of justice. Idealised background institutions will, however, stabilise outcomes to compensate for this predictable level of distributional ‘noise’. For example, when making choices within permissible market institutions and public norms, individuals, as both consumers and producers, can be confi-

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dent that pursuing their own interests will contribute to justice (Gauthier, 1986, p.89; Anomaly, 2017). Within bureaucratic organisations, individuals contribute to justice by following the regulations and directives associated with their designated stations (Rawls, 1999 [1971], p.208). Citizens in civil society contribute to justice through following the norms and practices of established associations that fit into a wider social union (Rawls, 2005 [1993], pp.321–2). These rules leave discretion to individuals and civic associations because there is no way of coordinating this conduct more closely. While personal choices may incidentally help or hinder justice, agents lack the epistemic capacity to judge, in principle, which choices they are. The critical exception to this, of course, is the role individuals take as democratic citizens in establishing and maintaining the institutions of the basic structure (Rawls, 2005, pp.214–16). While complying with presumptively legitimate rules in civil society, citizens consider and revise institutions on the basis of public reason (Gaus, 1991; Rawls, 2005, p.98). This certainly involves amending laws and policies in formal political processes (Rawls’ usual emphasis). On my extensive account of institutions, it could conceivably include disseminating generalisable norms through informal associations so long as they have an orientation towards public reason. Even when engaged in civil disobedience in less than ideal circumstances, citizens challenge primarily social practices rather than singling out individuals and their choices (Rawls, 1999, p.319). An objection to this account is that there are plenty of cases of blatant distributive injustices, readily addressable by individuals without waiting for institutional reform. A sceptic might claim, for example, that a rich individual can contribute to distributive justice by unilaterally giving their excess wealth to a group of poor individuals, thus moving the social world infinite a direction where benefits and burdens are more equally shared. In response, I acknowledge that this is plausible in some circumstances (it is still uncertain in any given case that unstructured giving will produce its intended effects) but not in ideal circumstances. Ideally, individuals are committed to distributive justice in their role as democratic citizens and fully comply with legitimate rules. In the realistic scenario in which we generally find ourselves, public institutions are not designed to achieve distributive justice, individuals are partial to pursuing their private interests through public means, and individuals also frequently fail to comply with given rules producing all kinds of dilemmas with respect to enforcement and punishment. Obvious distributive injustices are very apparent in these circumstances. As we get closer to ideal circumstances, however, the capacity of individual actors to discern cases of injustice, which will be harder to observe, drops substantially until they are ultimately reliant on the knowledge produced and dispersed by

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institutions. But even in these ideal conditions, institutions are still required to allow people to cooperate successfully when aiming at distributive justice. In a non-ideal world, it is possible for people in their personal actions to make fallible but epistemically warranted attempts to address obvious cases of distributive injustice. But that is a departure from ideal theory. In this sense, my argument inverts the Rawlsian account of the relationship between institutions and personal conduct. Rather than being an imperfect substitute for human motivation to act well without coercion, establishing and following just institutions is ultimately the best instantiation of people’s capacity to treat each other as free and equal. To sum up, while relevant activity may take place throughout civil society, the only informed standpoint that can effectively influence distributive justice is that of citizens addressing the basic structure. Contra Cohen (2009, p.50), an egalitarian ethos, appropriate for small-scale interactions, is irrelevant to achieving distributive justice within a political community.

REFRAMING THE ARGUMENT IN FACT-INSENSITIVE TERMS An epistemic justification for basic institutions works within ideal theory as Estlund conceives it. An epistemic problem is a legitimate block on personal obligations because people are incapable of discharging duties of justice that they do not know how to discharge. The main contribution I have made is to show that the epistemic problem is more extensive than sometimes assumed. Now my case reaches another hurdle. Can basic institutions be justified as a matter of principle, specifically fact-insensitive principles as conceived in Cohen’s critique of a Rawlsian framework? Cohen’s notion of feasibility does not make the same distinction between motivational problems and capability problems. Cohen does not restrict his notion of justice to possibility. He is content with the likelihood that justice may ultimately be unobtainable. I am going to suggest a way in which the affirmation of a set of basic institutions aiming at justice, rather than a more general egalitarian ethos, may nevertheless be a fundamental political principle. Cohen’s argument, in brief, is that any fact-sensitive moral principle must stand on some antecedent principle. For example, a practical principle that one should keep one’s promises is justified by the notion that one should respect other people’s ability to make plans, and as a matter of fact, you cannot do that without keeping promises to them. Why should you respect other people’s ability to make plans? That in turn will relate to some principles and facts about what people’s interests are and why they merit respect. Eventually by deliberating about these principles, we will reach a fact-insensitive principle that motivates the entire sequence of principles.

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For the sake of argument, let us assume we need a fact-insensitive principle to motivate all the others. Here, I am using the term ‘respect’ as a stand-in for whatever fact-insensitive Grundnorm philosophers may arrive at in the course of their deliberations. It might be the case that another notion, such as welfare, is more fundamental. However, respect and the expanded notion of ‘equal concern and respect’ (Dworkin, 2013, p.219) are both compelling norms. Cohen gives an example of one fact-insensitive principle that seems to stand above a great many more practically relevant principles of justice: one ought to respect beings, human or otherwise, who have the relevant [respect meriting] characteristics. (Cohen, 2008, p.235)

That may seem to include facts in the premise but not according to Cohen. The principle makes no existential claim with regards to the beings, human or otherwise, with respect to meriting characteristics. They may or may not exist, but the principle stands. Thus, I can present my positions in fact-insensitive terms: one ought to support institutions required to respect beings, human or otherwise, who have relevant respect-meriting characteristics and lack the epistemic capacities to show respect to each other in the absence of such institutions. My statement makes no claims as to the existence of beings that merit respect, or lack the capacity to show respect to each other without political institutions. All it says is that if such beings exist, then it is morally incumbent on us to support and affirm institutions that allow them to show respect to each other. If there exist beings, human or otherwise, with characteristics that morally demand equal respect but with cognitive limits that prevent them understanding each other’s needs in the absence of some institutional mechanism for coordination, then justice demands that these beings establish institutions that allow equal respect to be shown to those beings. A sceptical reader might reasonably push back on this framing. I can think of two ways that they can. First, my cumbersome rewording of a fact-insensitive principle may refer to a more fundamental requirement that one ought to respect beings with the relevant characteristics. The institutions are merely instruments to that end. In response, I contend that that it may turn out, depending on our fundamental ethical commitments, that a principle to support basic institutions is prior because it is the first commitment that we can address to moral agents, collectively or severally. Recall that Cohen’s (2003, p.211) definition of a normative principle is ‘a general directive that tells agents what (they ought, or ought not) to do’. It is possible that there are moral concerns which cannot be addressed to agents in this way. If our fundamental concern is that individuals respect other human beings, and any other morally relevant beings, then it trivially follows that the basic

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fact-insensitive principle is a Cohenite one. The principle to establish institutions that aid such beings to achieve this can only be a highly abstract, but secondary, fact-sensitive principle. On the other hand, if our fundamental concern is that morally relevant beings are respected, and human beings lack the capacity to respect each other except through institutions, then the first moral principle that can be addressed to individual agents is my proposed one. The commitment to an institutional order that facilitates the respecting of human beings is, on this account, prior to the principle of respecting human beings themselves. A second concern is that I might be smuggling in a feasibility problem under the mere guise of a definition. The restriction to respect beings with morally relevant characteristics might be justifiably built into a Cohenite principle, because it is what makes these beings merit our respect. The fact that they suffer from epistemic error is irrelevant to what makes them merit respect. In response, I suggest that part of what makes beings merit our respect is this very epistemic problem that humans face. Suppose, if instead of experiencing the world through individual subjective experience, we were ‘networked’ in such a way that we could constantly experience each other’s consciousness. We would have complete knowledge of each other’s welfare, thus fulfilling what Hayek (2014 [1968], p.311) identified as the cybernetic challenge of social coordination in a very literal way, but we would also experience each other’s feelings, our memories, our joy, our suffering, even each other’s births and deaths. In such circumstances, it is far from clear that embodied individuals would have the same morally relevant characteristics.1 There would certainly be morally salient entities of some kind, but it would not necessarily be the same notion of individuals. A traditional rendition of individual moral status, attributed to Hillel the Elder, that ‘whosoever destroys a soul, it is considered as if he destroyed an entire world; and whosoever that saves a life, it is considered as if he saved an entire world’ might no longer hold. The suffering or death of a human body might be a practical cause for concern with some moral relevance, but more like the way that conducting major brain surgery is a cause for concern, not the death of a whole individual as now. Our inability to experience each other’s welfare on each other’s behalf is both what makes individuals merit our respect and generates a problem of coordinating agents with subjective experience. Absent that domain restriction, we do not have a fundamental moral principle relevant to human beings.

CONCLUSION In this first part, I have clarified a case for endorsing a Rawlsian division between justice in personal conduct and in the institutions of a basic structure.

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Rather than accepting some forms of selfish behaviour as legitimate or at least too bound up with human nature to oppose, I have assumed that incentive problems are contingent, and within an individual’s capacity to overcome, even if it is unfeasible to assume such a standard of behaviour in reality. Instead, I have shown that setting aside that problem of feasibility, there remains a strong case for a basic structure in order to handle epistemic challenges. Controversially, I argue that this support for the institutions of a basic structure can be described even within the Cohenite compatible form of fact-insensitive principles. Affirming some institutions making up a basic structure is justified on truly ideal theoretic grounds. In the next part, I discuss the content of the institutions capable of overcoming the epistemic challenges that political communities face.

NOTE 1. For more on the contingency of human personal identity and some normative implications, see Zuboff (1977, 1990).

REFERENCES Anomaly, J. (2017) ‘Trust, Trade, and Moral Progress: How Market Exchange Promotes Trustworthiness’. Social Philosophy and Policy. 34 (2), 89–107. Buchanan, J.M. (2000) [1975] The Limits of Liberty: Between Anarchy and Leviathan. Collected works of James M. Buchanan v. 7. Indianapolis, IN: Liberty Fund. Carvalho, L.S., Meier, S. and Wang, S. (2016) ‘Poverty and Economic Decision-making: Evidence from Changes in Financial Resources at Payday’. American Economic Review. 106 (2), 260–84. Cohen, G.A. (2003) ‘Facts and Principles’. Philosophy & Public Affairs. 31 (3), 211–45. Cohen, G.A. (2008) Rescuing Justice and Equality. Cambridge, MA: Harvard University Press. Cohen, G.A. (2009) Why Not Socialism? Princeton, NJ: Princeton University Press. Dunn, A. (2014) Rethinking Unemployment and the Work Ethic: Beyond the ‘Quasi-Titmuss’ Paradigm. London: Palgrave Macmillan. Available from: http://​ www​.palgraveconnect​.com/​doifinder/​10​.1057/​9781137032119 (accessed 27 February 2016). Dworkin, R. (2013) Taking Rights Seriously. Bloomsbury revelations series. London: Bloomsbury. Estlund, D. (2011) ‘Human Nature and the Limits (If Any) of Political Philosophy’. Philosophy & Public Affairs. 39 (3), 207–37. Gaus, G.F. (1991) ‘Public Justification and Democratic Adjudication’. Constitutional Political Economy. 2 (3), 251–81. Gauthier, D.P. (1986) Morals by Agreement. Oxford: Clarendon Press. Hayek, F.A. von (2014) [1968] ‘Competition as a Discovery Procedure’, in Bruce Caldwell (ed.), The Market and Other Orders. Chicago, IL: University of Chicago Press. pp. 304–13.

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Kahneman, D. (2011) Thinking, Fast and Slow. London: Penguin Books. Perkins, A. (2016) The Welfare Trait: How State Benefits Affect Personality. London: Palgrave. Rawls, J. (1999) [1971] A Theory of Justice. Cambridge, MA: Belknap Press of Harvard University Press. Rawls, J. (2005) [1993] Political Liberalism. Columbia classics in philosophy. Expanded edn. New York: Columbia University Press. Shah, A.K., Mullainathan, S. and Shafir, E. (2012) ‘Some Consequences of Having Too Little’. Science. 338 (6107), 682–5. Zuboff, A. (1977) ‘Moment Universals and Personal Identity’. Proceedings of the Aristotelian Society. 78 (1), 141–56. Zuboff, A. (1990) ‘One Self: The Logic of Experience’. Inquiry. 33 (1), 39–68.

PART II

Distributive justice and the knowledge problem

4. Rawls’ neoclassical economics The following four chapters show that socialist alternatives to private property and market exchange fail to facilitate social cooperation even in ideal circumstances. The previous part shows that there is a place for affirming an institutional basic structure that facilitates social cooperation in ideal theory. This part establishes what some of the characteristics of those institutions must be. I use a modified form of ideal theory. Rawls defined ideal theory as assuming agents’ full compliance to the principles of justice but proposed that the design of the basic structure should give some weight to individual interests and motivations. For the sake of clarity, I exclude such considerations until Part III. For now, I consider purely the epistemic character of institutions in order to argue for the necessity of private-property market institutions. My argument, in summary, is as follows. Rawls argues that his theory is neutral between institutions of private property and public ownership while rejecting capitalism as unjust. This position reflects a specific kind of neoclassical economic theory that attempts to explain economic behaviour without reference to institutions. On a market process account, this approach misses the significance of the epistemic properties of voluntary exchange within an institutional framework of private property. Once recognised, it is much harder to conceive of socialist alternatives that could provide for this epistemic function. Neoclassical economic theory supports Rawls’ concern that capital assets in an ideal-type scenario produce a given, predictable profit that left in private hands leads naturally to increasing concentrations of wealth. On a market process account, capital assets possess no given value beyond their effective application to a production process. Profit arises from actors correctly anticipating demand for goods and services. Profits from capital assets last only if this process is successful. This means that capitalism in ideal circumstances does not lead to ever-increasing wealth concentration since entrepreneurial errors, technical change and capital depreciation keep the field open for competitors with less or no capital of their own to generate profits. Social mobility and a classless society is a part of capitalism in ideal circumstances. Having shown that an ideal capitalist society is not as socially stratified as assumed in both neoclassical and Marxian models, and thus more compatible with distributive justice than frequently assumed, I consider various alternative regime proposals to capitalism. First, I turn to market socialism, and in particular Carens’ (1981) egalitarian system, a well-worked out ideal epistemic 48

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replacement to capitalism. I show that this scheme fails to bring the subjective knowledge of opportunity costs into the pricing mechanism. As a result, market socialism does not have the same capacity to disperse knowledge across society in the way that private-property markets can achieve. I then consider economic democracy, in particular Schweickart (1978, 2012) and Malleson’s (2014) cases for requiring democratic control of capital assets in the place of private firms and investors. I show that by requiring firms to steward capital assets, but never reduce their value, economic democracy is asking the impossible since the value of capital assets changes as part of the process of trial and error. Requiring firms not to err is to assume away the basic economic problem that imperfect human actors face. Finally, it would be undesirable to replace private capital investment entirely because it would deprive political communities of the knowledge of the opportunity costs inherent in public investment decisions.

RAWLS’ NEUTRALITY ON ECONOMIC SYSTEMS While Rawls was insistent on the importance of the institutions of a basic structure, his theory did not specify in much detail how these institutions might be constituted. As Wolff (1977, p.202) explains: ‘When one reflects that A Theory of Justice is … an argument for substantial redistributions of income and wealth, it is astonishing that Rawls pays so little attention to the institutional arrangements by means of which the redistribution is to be carried out.’ Some of Rawls’ account has proved puzzling. One of his provocative claims is that the principles of justice do not determine whether economic institutions should be based on private or public ownership. He suggests that whether a political community adopts socialism as a form of economic organisation should depend ‘on the tradition and circumstances of the society in question’ (Rawls, 2005 [1993], p.8). On the other hand, he takes the principles of justice to rule out some regimes. In his Restatement Rawls (2001a, p.136) compares five possible regime types: laissez-faire capitalism,1 welfare-state capitalism, state socialism, liberal socialism and a property-owning democracy (POD). He rejects the first three as incompatible with the principles of justice, in part because they cannot plausibly aim at justice as fairness. Rawls’ explicit rejection of welfare-state capitalism (WSC) alongside laissez-faire capitalism has also proved confusing due to his apparent philosophical affiliation with American progressive liberalism and European social democracy. Geuss (2008), one radical critic, argues that Rawls is really offering an argument for something similar to the status quo. Weale (2013) suggests that Rawls was simply mistaken to reject WSC on his own terms. There have also been some cases of almost blank misreading, for example, interpretations that suggest Rawls believed ‘a just society would likely be an idealized form

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of the political economy of contemporary liberal welfare states’ (Rodewald, 1985, p.233). Part of the explanation for this confusion might be that Rawls associates WSC with what he sees as the relatively meagre offering of the welfare state in the United States. It also reflects Meade’s influence, whose definition of the welfare state is simply, but somewhat eccentrically, ‘the taxation of the incomes of the rich to subsidize directly or indirectly the incomes of the poor’ (Meade, 2012 [1964], p.38). This definition does not encompass many real-world welfare-state policies. Rawls’ own branches of government call for extensive redistribution and provision of public services but such policies are constitutive of many welfare-state policies. As a result, O’Neill (2009) suggests that Rawls’ rejection of WSC should not be interpreted as a rejection of welfare-state institutions as such but as a concern with the capitalist elements of WSC. The Marxist Influence Another element of this puzzle can be found in Rawls’ ambiguous relationship with Marxist thought. Wolff (1977, p.210) complains that Rawls uncritically accepts ‘the socio-political presuppositions and associated modes of analysis of classical and neoclassical liberal political economy’. Yet, as Freeman explains, Rawls was also influenced by the Marxist account of capitalism: [A private-property market system] suggests a market economy that allows for private ownership of means of production. So called ‘capitalism’ is but one kind of private property market system. Ironically, the term ‘capitalism’ was invented by the nineteenth-century socialists and put into general usage by Marx. Rawls uses the term ‘capitalism’ much as Marx did. In capitalism, regarded as an abstract model which systems more or less approximate, real and liquid assets is largely owned and controlled by the class of capitalists, who are largely distinct from the class of workers, the majority of whom own little or no capital but rather labor for a market wage. (Freeman, 2010 [2007], p.219)

Some explanation for his mixed reception amongst Marxists is that Rawls was attracted both to Marxist and Millian thought (Rawls, 2001b [1982], p.360; Little, 2014, p.513; Riley, 2014, p.397). This synthesis is evident when Rawls (1975) expands on his account of primary social goods. He is motivated by criticism that the design of the original position, and the resulting focus on primary goods, is biased towards individualistic conceptions of the good and thus fails to be neutral between different reasonable life plans. In response, he tries to show that his conception of primary goods includes publicly owned goods. He includes wealth as part of the index of primary goods because it is an ‘exchangeable means for satisfying human needs and interests’ (Rawls, 1975,

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p.540). However, his notion of wealth is widely drawn. It includes personally owned private property and access rights: Items that we own, such as food and land, buildings and machines, are wealth; so too are rights to use or to receive or in any way to derive benefit from such items – for example, shares in private or public companies, or rights of access to libraries, museums, and other public facilities, rights to various kinds of personal services, and so on. (Rawls, 1975, p.540)

In addition, wealth includes communally owned resources: [P]eople have control over wealth not only as individuals but also as members of associations and groups. The stockholders of a corporation have joint control over its capital and means of production; one’s share of control is proportional (in theory) to the fractional size of one’s stock. Similarly, in an associational socialist economy, the workers in the firm control its capital and means of production … and so on, for many other possible cases, including citizens’ control over social resources used as public goods in a democratic state. (Rawls, 1975, p.541)

He suggests: ‘Marx stressed the control of the means of production, the sources of income and wealth, whereas Mill emphasized the importance of liberties and opportunities’ (Rawls, 1975, p.546). One way to interpret the significance of Rawls’ alternative regime, POD, is as both an answer to the Marxian critique of liberalism and an attempt to offer a regime that best protects the progressive interests of humanity as Mill’s liberalism conceived it. On this account, WSC offers a mere ‘constrained utilitarianism’ (Freeman, 2013), a modification of laissez-faire to ensure everyone receives material benefits from a regime. POD goes further by establishing institutions that protect higher order human interests in justice and autonomy. Rawls does not only see a fairer distribution of productive property as characteristic of POD. POD implies a reconfiguration of workplaces and the experience of work. Rawls endorses Mill’s hope and prediction that, under POD, worker cooperatives will out-compete and replace hierarchical, traditional capitalist ownership structure (cf. Persky, 2016). The Neoclassical Influence These economic positions, a rejection of capitalism and ambivalence with respect to private ownership, reflect Rawls’ philosophical commitments. Marx was more influential for Rawls’ philosophy than his economics. In addition, they reflect his engagement with neoclassical economic theory. The textual evidence for this in Rawls’ own work is relatively scarce. However, we know from Little’s (2014) biographical work that Rawls dedicated significant time to studying economics in the early 1950s and was especially informed by

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Samuelson (1947) and Hicks (2001 [1939]) who were totemic figures in the development of the neoclassical synthesis. Evidence for this influence in Rawls’ (1999 [1971], p.270) work is found in his endorsement of perfect competition as the model of the way markets ideally function and the notion that similar equilibria can be found in economic regimes without private ownership of productive property. For both methodological and strategic reasons, Samuelson and Hicks avoided a commitment to either private property or socialist regimes (Skousen, 1997, p.139). They claimed that their work was equally applicable to both kinds of regimes, and that the phenomenon of private enterprise could be analysed without reference to institutions (Hicks, 2001, p.7). This methodological approach reflects in some ways an admirable attempt to delimit economics as a technical, logical scientific enterprise rather than social criticism, a discipline that can inform policymaking without concerning itself directly with problems of political power and control (Boettke, 1997, p.20). Strategically, this was helpful for distancing the subject of economics from a fraught political debate and conflict between the communist Eastern bloc and the capitalist West. It is, however, significant that Rawls uses an economic theory that has comparatively little to say about institutional design. Working from an economic theory disentangled from institutional questions liberates political philosophy from some problems of feasibility and possibility that would otherwise be inherent in the question that Rawls asks. If, however, contemporary approaches to economic theory have important new insights, and institutions are central not only to justice but to the performance, stability and welfare of political communities, then the implication is that Rawls’ (1999, p.119) ‘basic facts of social theory’, including knowledge of ‘political affairs and the principles of economic theory’, should be updated to reflect these concerns and constraints.

UPDATING ECONOMIC PRINCIPLES The field of economics has developed from an institutionally neutral analysis of the properties of perfectly competitive equilibrium models to a more empirically informed interest in the role of institutions (Williamson, 1985; Boettke et al., 2013). This reflects, in part, the increased availability of relevant data and changes in methodological fashion. It also reflects the historical experience of socialism subsequent to the economic theory developed in the 1930s and 1940s that informed Rawls’ thinking (Shleifer, 1998; Schmidtz, 2005, p.156; Taylor, 2014). The canon of classical political economy has been revised and re-interpreted. For example, Samuelson’s (1978) approach to the canon emphasised how theorists such as Smith, Ricardo and Mill were grasping primitively towards intuitions that could later be codified in mathematical models. By contrast, Boettke’s (2012, p.183) account of ‘mainline economics’

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suggests that classical political economy placed great importance on the institutional context within which economic actors act, a central problem that early formalisation in economics neglected. Despite this shift in economic theory and the burden of 20th century history, the relevance of these developments for Rawls’ idealised theory of just social institutions remains open to question. Theorists in the new institutional economics tradition tend to emphasise the function of private ownership as a way of reconciling individual incentives with socially beneficial behaviour and outcomes (Olson, 1982; Weingast, 1995; Acemoglu, 2003; Acemoglu and Johnson, 2005). For example, North (1990, 1991) discusses how secure property rights and market institutions help to stave off predatory, opportunistic behaviour. Shleifer (1998) discusses how variation in ownership structures between regimes alters incentives to invest in innovation or introduce efficient cost controls. However, for Rawls, institutions in ideal theory are suited, in principle, to socially cooperative agents with a shared sense of justice. Empirical analysis, or theoretical analysis based on modelling narrowly self-interested agents, may suggest that institutions like comprehensive public ownership of the means of production fail in various non-ideal circumstances without disproving their possibility in suitably ideal scenarios. In order to make the case against socialism in ideal theory, it is important not just to show that alternatives to capitalism failed but also why they failed and why that is relevant at least in reasonably ideal circumstances.

THE CATALLACTIC PARADIGM This is where the contribution of Robust Political Economy (RPE) to this ideal institutional question emerges (Cowen, 2017). Looking at the question through the dual lens of knowledge and incentives means that we can abstract the problem of incentives as a feasibility problem of contested relevance at this stage. Instead, we can focus on the epistemic properties of institutions. If liberal market institutions are required even in the idealised setting of full compliance and goodwill amongst actors because of the cognitive limits of human beings, then the case for capitalism is much stronger than relying on empirical observations and incentive arguments alone. My case owes a great deal to the socialist calculation critiques of Mises (1998 [1949]), Hayek (2007 [1944]), Lavoie (1985) and Kirzner (2012 [1996]). Steele (1992) offers perhaps the most systematic exposition of the various waves of socialism and their failure, in general, to match the epistemic properties of private-property markets. However, these arguments against various attempts to replace capitalist markets have not been systematically related to the regime implications of Rawls’ theory of justice. By contrast, I suggest that there is a parallel between the Rawlsian challenge of reconciling

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moral disagreement between reasonable people with the reconciling of practical disagreement about the best way to engage in cooperative economic activity. Hence, even at the level of idealisation at which Rawlsian political theory operates, socialism is unlikely to succeed and a capitalist alternative is more commendable. This account is stronger because it relates to Rawls’ notion of the burdens of judgement as a justification for political liberalism. What makes a market process approach to economic theory different from the neoclassical synthesis that Rawls takes to be the foundation of the basic facts of social theory? They reflect two substantially different paradigms for conceptualising an economy, one as a system for allocating scarce resources to their most valuable uses, the second as a system of exchange amongst independent actors that generates and disperses the knowledge necessary for individuals to cooperate in serving each other’s needs (Buchanan, 1964; Fuller, 1978 [1964]). The neoclassical synthesis conceptualises an economy as a general equilibrium; that is, a simultaneous systematic reconciliation of all individual plans for production, buying, selling and consumption in a set of overlapping fully competitive markets (Samuelson, 1947, p.8; Hicks, 2001, p.60). Markets are perfectly competitive because they are populated by rationally optimising self-interested actors with complete shared information. Temporary deviations from general equilibrium are expected but are produced by exogenous shifts (or shocks) in supply and demand. The function of the economic system is to allocate resources to their most valuable use, thus satisfying subjective consumer preferences in the most efficient way possible. When inefficiencies are observed in practice, that is a sign of a market failure. This is the result of a power or information asymmetry between agents, or external costs or benefits that are inadequately priced by individual economic actors. A market process account instead conceptualises an economy as a spontaneous order. This is a process by which independent actors pursuing their own ends within a framework of rules unintentionally produce aggregate socially beneficial outcomes (Menger, 1985 [1883]; D’Amico, 2015). Rather than being perfectly rational and possessing complete information, market actors have bounded rationality and are significantly ignorant of any economic conditions beyond their immediate circumstances and area of personal focus. Actors cannot coordinate based on given data alone. They must generate the information necessary for widespread economic cooperation through trial and error learning (Boudreaux, 1994; Pennington, 2011, p.22; Delmotte and Cowen, 2019). The results of previous attempts at coordination are reflected in summary in the form of prices through which relevant action-guiding information is dispersed throughout society. This account does not deny the usefulness of equilibrium as an explanatory ideal type (Pennington, 2011, p.18). What a market process account suggests

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is that such equilibrium theorising is limited when discussing institutional design because the assumption of competitive equilibrium is not a given but is only approached (and never obtained) in certain specific institutional settings (Boettke, 2014, p.237). As Buchanan suggests: A market is not competitive by assumption or by construction. A market becomes competitive, and competitive rules come to be established as institutions emerge to place limits on individual behavior patterns. (Buchanan, 1964, p.219)

This account is robust in the sense that it relies less on strong assumptions of either the rationality or knowledge of individual participants in the economy (Levy, 2002; Boettke and Leeson, 2004). Instead, it relies on the knowledge generated as a result of imperfect actors engaged in trial and error processes that, within an institutional framework of private property and voluntary exchange, rewards and publicly disseminates the results of successful coordination. Bounded rational actors with limited knowledge can nevertheless produce ecologically rational outcomes: a systemic pattern of broadly socially beneficial arrangements (Smith, 2003).

NOTE 1. Known as the system of natural liberty in previous statements of the theory (Freeman, 2013).

REFERENCES Acemoglu, D. (2003) ‘Root Causes’. Finance & Development. 40 (2), 27–43. Acemoglu, D. and Johnson, S. (2005) ‘Unbundling Institutions’. Journal of Political Economy. 113 (5), 949–95. Boettke, P.J. (1997) ‘Where Did Economics Go Wrong? Modern Economics as Flight from Reality’. Critical Review. 11 (1), 11–64. Boettke, P.J. (2012) Living Economics: Yesterday, Today, and Tomorrow. Oakland, CA: Independent Institute. Boettke, P.J. (2014) ‘Entrepreneurship, and the Entrepreneurial Market Process: Israel M. Kirzner and the Two Levels of Analysis in Spontaneous Order Studies’. The Review of Austrian Economics. 27 (3), 233–47. Boettke, P.J. and Leeson, P.T. (2004) ‘Liberalism, Socialism, and Robust Political Economy’. Journal of Markets and Morality. 7 (1), 99–111. Boettke, P.J., Coyne, C.J. and Leeson, P.T. (2013) ‘Comparative Historical Political Economy’. Journal of Institutional Economics. 9 (03), 285–301. Boudreaux, D. (1994) ‘Schumpeter and Kirzner on Competition and Equilibrium’, in Peter J. Boettke and David L. Prychitko (eds), The Market Process: Essays in Contemporary Austrian Economics. Aldershot, UK and Brookfield, VT, USA: Edward Elgar Publishing. pp. 52–61. Buchanan, J.M. (1964) ‘What Should Economists Do?’ Southern Economic Journal. 30 (3), 213.

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Carens, J.H. (1981) Equality, Moral Incentives, and the Market: An Essay in Utopian Politico-economic Theory. Chicago, IL: University of Chicago Press. Cowen, N. (2017) ‘Why Be Robust? The Contribution of Market Process Theory to the Robust Political Economy Research Program’, in Peter J. Boettke, C.J. Coyne and V.H. Storr (eds), Interdisciplinary Studies of the Market Order: New Applications of Market Process Theory. London: Rowman and Littlefield International. pp. 63–85. D’Amico, D. (2015) ‘Spontaneous Order’, in Christopher J. Coyne and Peter J. Boettke (eds), The Oxford Handbook of Austrian Economics. Oxford: Oxford University Press. Available from: http://​www​.oxfordhandbooks​.com/​view/​10​.1093/​oxfordhb/​ 9780199811762​.001​.0001/​oxfordhb​-9780199811762​-e​-6 (accessed 22 March 2016). Delmotte, C. and Cowen, N. (2019) ‘The Mirage of Mark-to-Market: Distributive Justice and Alternatives to Capital Taxation’. Critical Review of International Social and Political Philosophy. 1–24. doi: https://​doi​.org/​10​.1080/​13698230​.2019​ .1644585. Freeman, S. (2010) [2007] Rawls. Routledge philosophers. London: Routledge. Freeman, S. (2013) ‘Property-owning Democracy and the Difference Principle’. Analyse & Kritik. 35 (01), 9–36. Fuller, L.L. (1978) [1964] The Morality of Law. A Yale paperbound 152. Rev. edn, 15. print. New Haven, CT: Yale University Press. Geuss, R. (2008) Philosophy and Real Politics. Princeton, NJ: Princeton University Press. Hayek, F.A. von (2007) [1944] The Road to Serfdom: Text and Documents. The collected works of F.A. Hayek v. 2. Definitive edn. Chicago, IL: University of Chicago Press. Hicks, J.R. (2001) [1939] Value and Capital: An Inquiry into Some Fundamental Principles of Economic Theory. Clarendon Paperbacks. 2nd edn. Oxford: Clarendon Press. Kirzner, I.M. (2012) [1996] Essays on Capital and Interest: An Austrian Perspective. Collected works of Israel M. Kirzner. Peter J. Boettke and Frédéric E. Sautet (eds). Indianapolis, IN: Liberty Fund. Lavoie, D. (1985) Rivalry and Central Planning: The Socialist Calculation Debate Reconsidered. Historical perspectives on modern economics. Cambridge; New York: Cambridge University Press. Levy, D.M. (2002) ‘Robust Institutions’. The Review of Austrian Economics. 15 (2–3), 131–42. Little, D. (2014) ‘Rawls and Economics’, in Jon Mandle and David A. Reidy (eds), A Companion to Rawls. Malden, MA: Wiley-Blackwell. pp. 504–25. Malleson, T. (2014) ‘Rawls, Property-owning Democracy, and Democratic Socialism’. Journal of Social Philosophy. 45 (2), 228–51. Meade, J.E. (2012) [1964] Efficiency, Equality and the Ownership of Property. Abingdon, Oxon; New York: Routledge. Menger, C. (1985) [1883] Investigations into the Method of the Social Sciences, with Special Reference to Economics. The Institute for Humane Studies series in economic theory. Louis Schneider (ed.). New York: New York University Press. Mises, L. von (1998) [1949] Human Action: A Treatise on Economics. Scholar’s edn. Auburn, AL: Ludwig Von Mises Institute. North, D.C. (1990) Institutions, Institutional Change, and Economic Performance. The Political economy of institutions and decisions. Cambridge; New York: Cambridge University Press.

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North, D.C. (1991) ‘Institutions’. The Journal of Economic Perspectives. 5 (1), 97–112. O’Neill, M. (2009) ‘Liberty, Equality and Property-owning Democracy’. Journal of Social Philosophy. 40 (3), 379–96. Olson, M. (1982) The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities. New Haven, CT: Yale University Press. Pennington, M. (2011) Robust Political Economy: Classical Liberalism and the Future of Public Policy. New thinking in political economy. Cheltenham, UK and Northampton, MA, USA: Edward Elgar Publishing. Persky, J. (2016) The Political Economy of Progress: John Stuart Mill and Modern Radicalism. Oxford studies in history of economics. New York: Oxford University Press. Rawls, J. (1975) ‘Fairness to Goodness’. The Philosophical Review. 84 (4), 536. Rawls, J. (1999) [1971] A Theory of Justice. Cambridge, MA: Belknap Press of Harvard University Press. Rawls, J. (2001a) Justice as Fairness: A Restatement. Cambridge, MA: Harvard University Press. Rawls, J. (2001b) [1982] ‘Social Unity and the Primary Goods’, in Collected Papers. Cambridge, MA: Harvard University Press. pp. 359–87. Rawls, J. (2005) [1993] Political Liberalism. Columbia classics in philosophy. Expanded edn. New York: Columbia University Press. Riley, J. (2014) ‘Rawls, Mill and Utilitarianism’, in Jon Mandle and David A. Reidy (eds), A Companion to Rawls. Malden, MA: Wiley-Blackwell. pp. 397–412. Rodewald, R.A. (1985) ‘Does Liberalism Rest on a Mistake?’ Canadian Journal of Philosophy. 15 (2), 231–51. Samuelson, P.A. (1947) Economic Foundations of Economic Analysis. Cambridge, MA: Harvard University Press. Samuelson, P.A. (1978) ‘The Canonical Classical Model of Political Economy’. Journal of Economic Literature. 16 (4), 1415–34. Schmidtz, D. (2005) ‘History and Pattern’. Social Philosophy and Policy. 22 (01), 148–77. Schweickart, D.E. (1978) ‘Should Rawls Be a Socialist? A Comparison of His Ideal Capitalism with Worker-controlled Socialism’. Social Theory and Practice. 5 (1), 1–27. Schweickart, D.E. (2012) ‘Property-owning Democracy or Economic Democracy?’, in Martin O’Neill and Thad Williamson (eds), Property-owning Democracy: Rawls and Beyond. Malden, MA: Wiley-Blackwell. pp. 201–22. Shleifer, A. (1998) ‘State versus Private Ownership’. Journal of Economic Perspectives. 12 (4), 133–50. Skousen, M. (1997) ‘The Perseverance of Paul Samuelson’s Economics’. The Journal of Economic Perspectives. 11 (2), 137–52. Smith, V.L. (2003) ‘Constructivist and Ecological Rationality in Economics’. American Economic Review. 93 (3), 465–508. Steele, D.R. (1992) From Marx to Mises: Post-capitalist Society and the Challenge of Economic Calculation. La Salle, IL: Open Court. Taylor, R.S. (2014) ‘Illiberal Socialism’. Social Theory and Practice. 40 (3), 433–60. Weale, A. (2013) ‘The Property-owning Democracy versus the Welfare State’. Analyse & Kritik. 35 (1), 137–54. Weingast, B.R. (1995) ‘The Economic Role of Political Institutions: Market-preserving Federalism and Economic Development’. Journal of Law, Economics, & Organization. 11 (1), 1–31.

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Williamson, O.E. (1985) ‘Reflections on the New Institutional Economics’. Zeitschrift für die gesamte Staatswissenschaft/Journal of Institutional and Theoretical Economics. 141 (1), 187–95. Wolff, R.P. (1977) Understanding Rawls: A Reconstruction and Critique of a Theory of Justice. Princeton, NJ: Princeton University Press.

5. The burdens of knowledge Why should we include the epistemic challenges that economic actors face in ideal theory? My contention is that they represent an equivalent problem to the burdens of judgement that the same actors face in a political community (Rawls, 2005 [1993], pp.56–7). Rawls applies the burdens of judgement to problems of moral disagreement. Even in ideal circumstances, reasonable people cannot necessarily reach a consensus on important matters of value through reflection and discussion (Rawls, 1999 [1971], p.5). This is a key part of the justification for political liberalism and a basic structure that allows people to pursue their own conceptions of the good. Rawls did not extend the burdens of judgement to more mundane questions such as how goods and services should be provided. This aligns with the neoclassical foundations of his social theory, which takes the core economic problem to be a technical question of ‘the allocation of scarce resources among competing ends or uses’ (Buchanan, 1964, p.216). This suggests the need for technical solutions that will be ‘one of applied maximization of a relatively simple computational sort’. In other words, while the ends and welfare needs of a community are subject to disagreement, the means of pursuing those ends is a technical matter. On a Robust Political Economy (RPE) account this represents: failure to take seriously such factors as the use of (and imperfections in) economic knowledge, the presence of ignorance and uncertainty, the passage of time, and changes in economic conditions. (Boettke, 1997, p.17)

As a parallel to the burdens of judgement in Rawls’ theory, I propose the following as a non-exclusive list of burdens of knowledge. These are epistemic concerns facing reasonable people even in ideal circumstances when confronting the economic problem of a political community: 1. Citizens cannot know which configuration of given productive resources will best meet the given consumer needs for a political community (the calculation problem). 2. Citizens cannot know what productive resources are available for use and what potential uses for them exist in a political community (the discovery problem). 59

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3. Citizens cannot know the subjective costs and benefits of a decision as others experience them (the subjectivity problem). Finally, because of these burdens, we cannot ever have all the relevant information for judging with certainty a decision prior to it being taken, and not even necessarily in hindsight. There will always be space for reasonable disagreement about the success or failure of a venture. These burdens motivate a case for affirming a set of social institutions that permits a modus vivendi in the midst of this ignorance and disagreement about the likely success and failure of different cooperative endeavours. Just as political liberalism provides for individual autonomy and freedom for civil associations, so does this case for market liberalism support individual economic choice as well as voluntarily constituted firms. This is not a case for ‘maximal’ economic freedom as such (if such a thing were even conceivable); it merely suggests that significant autonomy of economic associations from formal political institutions is necessary in order to cope with the problem of knowledge. I now unpack this problem in more detail.

THE CALCULATION PROBLEM A community is composed of a vast range of economic needs as well as potential resources for satisfying them. How should these various needs be prioritised and how should a society select amongst the infinite possible configurations of production to satisfy them? This is the essence of the calculation problem. This notion emerged out of the famous socialist calculation debate which is perhaps the first major scholarly controversy surrounding the epistemic role of markets and economic organisation. The core socialist critique of capitalism was its supposed use of anarchic production, allowing private enterprise to engage in socially irrational and wasteful activities that may be narrowly profitable for the businesses involved but fail to meet real human needs in an efficient or fair way. The alternative, collective control of the means of production, would allow for rational planning of society’s resources. It was this contention that provoked the Austrian school critique of socialism. Mises (1998 [1949]) argued that under socialism, no central administrator could ever collect and reconcile all relevant economic data to allow for rational planning. The advantage of a commercial society is a ‘division of knowledge’ (Hayek, 1937, p.49), the parcelling up of the burdens of rational planning into economic units that could specialise in the use of a smaller range of resources and anticipating particular consumer needs. The profit and loss system may have the appearance of arbitrarily punishing and rewarding people but has the systematic effect of guiding economic actors into delivering desirable goods and services to consumers.

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The Austrian critique of a socialism based on central planning prevailed (Cowen, 2016). Support for central planning itself ceased to be dominant amongst many socialists. Indeed, the general equilibrium framework of neoclassical economics is one account of how independent rational actors can coordinate within markets to produce efficient outcomes (Hicks, 2001 [1939], p.135). Meade (1948, p.7), a key exponent of the neoclassical synthesis, uses the example of an apparently simple question, ‘whether one should plan to substitute steel for timber for a certain purpose in a building’, to explain how bureaucratic allocation is likely ‘to be clumsy, inefficient and wasteful as compared with a properly functioning market system’. He explains that this task requires technical knowledge, known only to experts within the building trade, as well as knowledge of the relative scarcity, and potential opportunity costs, of steel and timber. Understanding these costs involves comparing counter-factual uses of resources. This is where he sees the role for market prices: the miracle of a properly working pricing system [is] that it will answer all these questions simultaneously, taking into account all the relevant considerations, without a centralized bureaucracy attempting to solve, without the necessary knowledge, the myriads of simultaneous equations involved. (Meade, 1948, p.9)

This conceptualises the market economy as a calculator, crunching economic data and guiding resources to their most socially valued uses. While the theoretical desire to replace this market system with a politically accountable administrator did not disappear amongst utopian socialists, those working in the neoclassical tradition acknowledged this benign role for markets under normal economic conditions. Their concerns with capitalism became more focused on the inequitable distribution of resources, market failures and external diseconomies, as well as the chaos and harm caused by periodic business cycles of boom and bust. Critically, while socialists recognised the case for market mechanisms, they did not acknowledge the linked Misesian case for private property (Gamble, 1986, p.364; Schweickart, 1992, pp.10–11). In principle, any actors sufficiently motivated to follow market prices could do so regardless of the institutional setting. However, this calculation problem is only a part of the knowledge problem.

THE DISCOVERY PROBLEM The calculation problem recognises the complexity of combining a given set of resources to produce a given set of ends. It points out that no single economic actor could process all the relevant information to produce an optimal plan of

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action for a community. The essence of the discovery problem is that neither the means nor the ends of cooperative ventures are given. It is not even the case that the economic actors in the whole political community separately possess all the information that is relevant for an economic decision but in uncoordinated fashion. Much of that information, at any given point, does not yet exist. Significant aspects of relevant information are local, tacit or otherwise inarticulate (Hayek, 1945, 2014; Lavoie, 1986). This includes information that actors come to know only in the specific circumstances of time and place in which they happen to be. This could include knowledge of a specific resource shortage or supply glut. This knowledge could come from anticipating a forthcoming bumper harvest for a crop in a local district or discovering a new source of a precious mineral on a piece of land previously considered empty of resources. This also includes valuable know-how, skills or expertise that cannot be turned into routine instructions but can only be cultivated through observation, and trial and error. In addition, economic conditions, including the scarcity of resources, and the preferences and tastes of consumers, are subject to constant change. There are new innovations, ways of combining existing resources in previously unknown ways to produce new products, that will alter demand for both resources and the preferences of consumers. As a result, the information disseminated by the price mechanism is, at any time, provisional, and subject to revision. Economic actors are constantly facing new challenges and trying out new ways of meeting them. How does market exchange solve this discovery problem? In the first instance, it summarises some of the relevant characteristics of inarticulate knowledge in a way that can usefully guide other actors. An economic actor may need widgets as part of their business plan but lack the knowledge or skill to create them. Market prices can inform the actor about the going rate for widgets, which is a sufficient guide so far as their particular business plan is concerned. Within a general equilibrium framework, this is, in fact, the only role of market prices as all economic actors are price takers and treat all prices as given budgetary constraints that feed into their calculations. On a market process account, they have a second additional role. They act as a signal to price makers, or entrepreneurs, showing them where demand for resources is currently outstripping supply (Cowen, 2017). It represents a signal of unmet needs that someone with relevant knowledge or expertise can use as a guide to where their efforts could be employed. These entrepreneurs are alert to how given price data may fail to reflect other observations or knowledge that they have based on their unique circumstances. Market prices thus have a dual function. They act as a guide to price takers, consumers and purchasers of intermediate goods, showing them the relative scarcity of each resource so that they can plan effectively, while presenting

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a challenge to price makers who can find ways of closing a gap between a given price for a particular good and the underlying cost, as they see it, of providing it. Entrepreneurs act against, in disagreement with, the published market price of a good. How do price makers know that they have beaten the market price and that their use of resources is more successful? They can know this only through the realisation of profits as a result of their venture: the price system is not ‘automatic’; it functions only as the expression of human actions. In particular the price system is an expression of entrepreneurial decisions consciously planned and executed. Entrepreneurial decisions are made with the purpose of winning profits. (Kirzner, 2011 [2007], p.44)

This is where the need for private ownership emerges. In a world of perfect competition and optimal pricing, economic units of almost any kind can be instructed to buy and sell at the given rate to produce the goods that consumers demand. In a world where prices are not given, the only way of telling whether the output of an economic unit is socially beneficial and worth imitating is the fact that it is winning against competitors within this process of trial and error (Delmotte and Cowen, 2019). Market exchange is an open-ended process that never reaches the stasis of equilibrium. It is like a game where the aim is to anticipate and meet the needs of others, with realised profits representing a way of keeping score. Unlike zero-sum competitive games, however, the overall purpose is not to discover the winners and the losers to be rewarded or penalised, but to discover and disseminate the best ways of meeting those needs. It is like a sport where the objective of the individual players is to win but the purpose of the game itself is the social objective of keeping everyone fit or entertaining an audience. Loss in individual ventures is as inevitable as human error itself. But in a stable or growing economy, all individuals can benefit from this process of competition by having their needs better served and having the opportunity to participate in ever more successful modes of cooperation.

THE SUBJECTIVITY PROBLEM The final aspect of the knowledge problem emerges from the temporal dimension of production. This means that the opportunity costs driving decision-making are necessarily subjective judgements rather than based on objective economic data (Hayek, 1937, p.43; Gamble, 2006, p.113). As Buchanan (1999 [1969], p.38) explains: The orthodox neoclassical model of market process is one in which the acting units behave economically. To the extent that the model approximates reality, the objectively observed cost and revenue streams accurately represent the dimensionally

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different and subjectively evaluated alternatives among which choices are actually made by individuals.

There is an element of the notion of subjectivity included within the neoclassical framework, integrated into the subjective notion of the sovereignty of consumer preferences (Stigler and Becker, 1977). Subjective values are constituted by mental states that cannot be shared directly between people. Subjective valuations include essentially sensuous experiences, such as preferences about food, clothing or one’s immediate environment. For example, an identical item of clothing may feel soft and comfortable to one person’s skin, but coarse and itchy to someone else. There is no further relevant fact of the matter beyond that different experience. This makes it difficult to choose someone else’s clothes for them (and essentially impossible to make such choices systematically for a whole community). Moreover, such valuation is also a part of any ‘higher order’ abstract goods, including tastes in literature, art and music and this will likely include aspects of any worked-out personal conception of the good. Goods and services also have subjective costs associated with their creation alongside objective factors such as physical resources that must be expended as part of the process of production. These subjective costs are personal sacrifices. They include extra-economic costs related to production such as the discomfort and unease associated with work, as well as things like the experience of travel to and from work. It includes the opportunity costs of foregoing alternative courses of action such as employment in some other form, leisure or domestic production. This problem may seem unobjectionable, even trivial. Few would claim that an administrative scheme, even perhaps one with strong democratic credentials, could choose as effectively on some matters of pure personal experience as the free choice of the individual. It does not make sense to force someone to purchase food they find distasteful or wear clothes that make them uncomfortable. This is why liberal socialists acknowledge the need to maintain a free choice of occupation (rather than coercion under a command economy) and to allow significant choice in personal consumption. However, when it comes to all factors of production besides labour, there is no ‘subjective’ experience involved, just the objective deployment of resources. Ownership is, at least in principle, irrelevant since investment decisions could be determined by objective data. This is not, however, the case on a thoroughly subjectivist account. Any objective costs can only be realised after a productive process has been undertaken. At that point, with the resources already committed to an activity, the precise opportunity costs behind the decision have ceased to exist.1 The objective costs of a decision, by contrast, exist only after the decision has

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been taken. All the costs associated with the decision to engage in a venture are subjective because they are hypothetical: the imagined estimated value of paths that were conceivable but not taken. This applies as much to capital goods as employment decisions or decisions to purchase one consumer good over another. Subjective valuation drives all decisions that configure objective productive processes. The need to include capital, on some level, in subjective valuation, is even more emphatic when we consider that many of the relevant opportunity costs traverse the distinction between capital investment and consumption. In simplified neoclassical models, capital goods, as factors of production are separate from consumer goods. In real market exchanges, resources are not pre-established as capital or consumption goods but must be conceived as such by the actors themselves.2 For example, a batch of oranges could constitute a finished good ready for transport and sale. Or they could be an intermediate factor in the production of a tropical fruit juice. It is only the subjective decisions of an entrepreneurial actor that determine whether a resource is more valuable as a consumer good or a capital input. Prices generated by the forward-thinking subjective valuation of market participants are essential for effectively understanding the opportunity costs of capital goods as much as labour and consumer goods. There is never a given set of capital goods in existence available for systematic allocation even in principle. Whether an objectively existing item or resource in the world counts as available capital is itself an economic decision that can only be taken by people with knowledge of the existence of the item and the relevant ways it could be used. In this sense, there cannot be a systematic differentiation between personal and productive property.

A CONTRAST WITH NON-MARKET DECISIONS What makes the market process unique is the relatively tight relationship between the subjective costs apprehended by the decision-maker and the objective costs then realised. In order to unpack this intuition, I propose we consider three stylised scenarios: one is as a more or less self-employed student in what is essentially an open-ended market situation, one is as a juror on a criminal trial, and one is as a participant in a public consultation. In the first scenario, I am a graduate student motivated to improve my financial security and to enhance my career prospects.3 Like other human beings, I have various family and personal commitments that I want to fulfil, albeit I may at points have an inchoate notion of what that may entail. My motivations are made up of a complex interaction of economic and non-economic concerns. When, for example, an opportunity to teach a course in the next term arises, I reflect on the benefits in terms of payment and experience against the

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costs of time and effort that could be dedicated to other aspects of my life and career. As Shackle (1970, p.100) describes, my decisions do not realistically involve consulting a formal ‘preference set’ in which I trade income off against various other goods, but involve some deliberation of the best and worst case scenarios involved in committing to particular courses of action, and reflecting on what a central ‘likely’ scenario will be. Critically, decisions that I take are tightly related to objective features of my life in the future. They determine whether I will be standing in front of a class teaching a lesson (and the topic I will be teaching) or sitting at my desk finishing a manuscript. I am not merely a passive actor in this process. There is a creative, entrepreneurial element to my juggling of different personal needs. For example, combining readings that are required both for teaching and research allows me to receive compensation for work I had planned to do anyway. Alternatively, a class that is taught in one part of town may be combined with a regular visit to an elderly relative, thus helping to satisfy a personal commitment while being paid to make the journey anyway. In making these decisions, I am bound to err and make sub-optimal choices not only from failure to anticipate all the costs and benefits of my given options but also because I lack information about all the possible options available. I may accept some work only to be offered a preferable but conflicting alternative later but too late for that to be decisive in agreeing my schedule. The temporal dimension is key since explicitly cancelling an agreed task is a different decision from merely not accepting an offer. Personal costs, benefits and opportunities are constantly shifting in time. The subjective valuations prior to a decision never align perfectly with the realised costs and benefits. Nevertheless, I can act in relative confidence that whatever voluntary exchanges I engage in help to satisfy the needs of other actors engaged in the process (for me, typically, education providers, like colleges, and their students) and thus I can reflect on what best serves my short- and long-term needs. In the second scenario, I am a juror on a criminal trial for a defendant accused of a serious offence. I am part of an influential collective decision body, a paradigmatic democratic institution. My vote could be decisive for determining the subsequent life course of the defendant. In this juror scenario, there is no way to link my decision to the eventual objective costs. There are subjective costs associated with the decision itself. There is the feeling of anxiety induced by the possibility of convicting an innocent person or failing to convict someone who, on balance, is probably guilty. But I cannot experience the costs in terms of years of life lost to prison for the alleged offender, or alternatively the psychological pain of the victim being denied justice if a ‘not guilty’ verdict is rendered. These are costs felt by the relevant individuals alone. My decision also has no connection to the objective costs, in terms of

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public expenditure, of maintaining a prison cell for the individual if convicted or the objective (but possibly unknowable) benefits in terms of future crimes prevented by a successful conviction. In the third scenario, I receive a consultation form from the local council on the question of whether to build a cycle rack outside my flat. In this case, my relationship with the objective costs and benefits is somewhat stronger. The cycle rack is an objective, physical addition to the environment that I share with my neighbours. It could be a useful local utility that will make it easier for me to store a bicycle. Or it could turn out to be an additional encumbering piece of street furniture. Building the cycle rack also involves the expenditure of objective resources that could be used on other projects. As a local resident, I am not privy to the cost of installing the rack (it is not mentioned in the consultation document). Even if I was aware, I am ignorant to which relevant alternative activities or public goods the local council could channel the resources. The council officials consulting the local district face a parallel challenge to my role as a juror in the second scenario. They (ideally) deliberate and reflect on the possible alternative courses of action for channelling the council’s resources. What they can never do is experience the value of their decision. Only my neighbours and I, who are not key decision-makers, will have that experience. The formal consultation can help the council officials get some idea of the potential popularity of the cycle rack but it cannot link the subjective costs of providing it (the relevant alternatives) to the subjective value that people can mention but not truly articulate. The ability to compare opportunity costs either prior to the decision or to evaluate the decision subsequently is inhibited if not completely absent. There are good reasons not to use market exchange to decide whether to build a cycle rack on a public street, and there are even better reasons not to use market exchanges to decide whether to convict a criminal defendant. The open-ended nature of the market process also involves significant transaction costs, which is why individual actors often agree to join or form firms in order to coordinate without constant reference to shifts in market prices and options (Coase, 1937). Nevertheless, these three scenarios illustrate something specific about the free agent in the first scenario, the open-ended market case. It is the only scenario that unites the decision-maker, the subjective evaluation prior to the decision taken, and the objective realisation of value as a result of the decision. In terms of permitting feedback, essential for any trial and error learning process, it is unmatched. To sum up, voluntary market exchange is unique in allowing people, both as consumers and producers, to choose a course of action through reflecting on their opportunity costs as constituted by their subjective evaluation of relevant conceivable alternatives and the offers people make to them. The market process allows interpersonal comparisons of the subjective benefits of a good

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with the subjective costs of providing it, then disperses that knowledge in summary form to the entire community engaged in social cooperation.

NOTES 1. This is not to suggest that you cannot change a production plan after its implementation has started, only that changing an unfinished plan has a different set of subjective costs than choosing a different plan. 2. Whether something as simple as coffee is a consumer luxury or a capital input into a productive process will depend very much on the context. This distinction only becomes more blurred in a contemporary economy where a great deal of personal consumer goods (especially computers and smart phones) also function effectively as means of production. 3. Helpfully for this example, the famous ‘precarity’ of the entry-level academic job market situation means that actors face a stream of marginal job offers and tasks which they can freely accept or decline rather than a ‘bundle’ of costs and benefits tied up in a long-term employment contract. This has substantial compensatory benefits in return for foregoing the freedom and vagaries of self-employment.

REFERENCES Boettke, P.J. (1997) ‘Where Did Economics Go Wrong? Modern Economics as Flight from Reality’. Critical Review. 11 (1), 11–64. Buchanan, J.M. (1964) ‘What Should Economists Do?’ Southern Economic Journal. 30 (3), 213. Buchanan, J.M. (1999) [1969] Cost and Choice: An Inquiry in Economic Theory. Collected works of James M. Buchanan v. 6. Indianapolis, IN: Liberty Fund. Coase, R.H. (1937) ‘The Nature of the Firm’. Economica. 4 (16), 386–405. Cowen, N. (2016) ‘Introduction: Symposium on Robust Political Economy’. Critical Review. 28 (3–4), 420–39. Cowen, N. (2017) ‘Why Be Robust? The Contribution of Market Process Theory to the Robust Political Economy Research Program’, in Peter J. Boettke, C.J. Coyne and V.H. Storr (eds), Interdisciplinary Studies of the Market Order: New Applications of Market Process Theory. London: Rowman and Littlefield International. pp. 63–85. Delmotte, C. and Cowen, N. (2019) ‘The Mirage of Mark-to-Market: Distributive Justice and Alternatives to Capital Taxation’. Critical Review of International Social and Political Philosophy. 1–24. doi: https://​doi​.org/​10​.1080/​13698230​.2019​ .1644585. Gamble, A. (1986) ‘Capitalism or Barbarism: The Austrian Critique of Socialism’. Socialist Register. 22 (22). Available from: http://​socialistregister​.com/​index​.php/​ srv/​article/​viewArticle/​5531 (accessed 2 November 2016). Gamble, A. (2006) ‘Hayek on Knowledge, Economics, and Society’, in Edward Feser (ed.), The Cambridge Companion to Hayek. Cambridge companions. Cambridge; New York: Cambridge University Press. pp. 110–31. Hayek, F.A. von (1937) ‘Economics and Knowledge’. Economica. 4 (13), 33–54. Hayek, F.A. von (1945) ‘The Use of Knowledge in Society’. American Economic Review. 35 (4), 519–30.

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Hayek, F.A. von (2014) ‘Competition as a Discovery Procedure’, in Bruce Caldwell (ed.), The Market and Other Orders. Chicago, IL: University of Chicago Press. pp. 304–13. Hicks, J.R. (2001) [1939] Value and Capital: An Inquiry into Some Fundamental Principles of Economic Theory. Clarendon Paperbacks. 2nd edn. Oxford: Clarendon Press. Kirzner, I.M. (2011) [2007] Market Theory and the Price System. Collected works of Israel M. Kirzner. Peter J. Boettke and Frédéric E. Sautet (eds). Indianapolis, IN: Liberty Fund. Lavoie, D. (1986) ‘The Market as a Procedure for Discovery and Conveyance of Inarticulate Knowledge’. Comparative Economic Studies. 28 (1), 1–19. Meade, J.E. (1948) Planning and the Price Mechanism. London: George Allen & Unwin. Mises, L. von (1998) [1949] Human Action: A Treatise on Economics. Scholar’s edn. Auburn, AL: Ludwig Von Mises Institute. Rawls, J. (1999) [1971] A Theory of Justice. Cambridge, MA: Belknap Press of Harvard University Press. Rawls, J. (2005) [1993] Political Liberalism. Columbia classics in philosophy. Expanded edn. New York: Columbia University Press. Schweickart, D.E. (1992) ‘Economic Democracy: A Worthy Socialism That Would Really Work’. Science & Society. 56 (1), 9–38. Shackle, G.L.S. (1970) Expectation, Enterprise and Profit: The Theory of the Firm. Studies in economics 1. London: Allen & Unwin. Stigler, G.J. and Becker, G.S. (1977) ‘De gustibus non est disputandum’. American Economic Review. 67 (2), 76–90.

6. Why capitalism I have described the knowledge problem that economic institutions must solve in order to permit social cooperation under conditions of ignorance and uncertainty. Now the question is what kind of institutions could fulfil this role. I propose it is a regime that permits the market pricing of labour, capital and consumer goods and services. It must be an economic system that allows individuals, jointly or severally, to own, develop and exchange productive property, alongside the ability to purchase final consumption goods and services. Furthermore, individuals must have the capacity to join, form, merge or close firms. Within these firms, the owners and controllers do not themselves have to be workers. Contractual hierarchies in the workplace are permitted, though may well be subject to general rules established as part of a basic structure. Is this system capitalism? It is insofar as it excludes comprehensive alternative economic regimes proposed under workplace democracy, democratic socialism, liberal socialism or market socialism. However, it does not exclude a property-owning democracy and is compatible with an economy that uses a mix of private and public provision, potentially substantial public provision. In defending ‘capitalism’ of this kind, I am not at risk either of criticising non-existent opponents nor ruling out substantially state-led regimes such as contemporary social democracies (Bergh, 2020). On the other hand, the system is not capitalism if we accept the Rawlsian definition: a society structurally divided into classes of workers and capital owners. We should note that the Rawlsian definition of capitalism does rather a lot of the work of rejecting it as a fair system of cooperation. Stipulated in Marxian terms, all liberals (including classical liberals) are probably committed to anti-capitalism. Insofar as capitalism is defined in class terms, it constitutes a compelling normative critique against the liberal credentials of capitalism. A preferable phrase for defenders of contemporary advanced economies might be the notion of a commercial society (McCloskey, 1998, p.301, 2007). However, I am going to continue to use the word ‘capitalism’ because I think it does denote a genuine point of disagreement. Part of this disagreement hinges on what is an adequate, if abstract, model of capitalist societies.

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RAWLSIAN OBJECTIONS TO CAPITALISM While I have suggested we should avoid condemning capitalism on definitional grounds alone, there is a set of substantive concerns that Rawlsians have with capitalism. The first problem is the supposed unequal and unstable distribution of wealth and other social primary goods that capital ownership, in the absence of continual state intervention, permits. For example: Private ownership and control of means of production are largely concentrated in the hands of a privileged minority. Consequently there are large inequalities, not only in the distribution of income, wealth and economic powers and positions of responsibility, but also in the exercise of effective political powers and social prerogatives, and in access to social and economic opportunities. (Freeman, 2013, p.11; cf. Schweickart, 2012, p.203; Lukes, 2015, p.436)

The second is that this unequal division of primary goods has a necessarily deleterious impact on democratic equality, thus violating the Liberty Principle. Speaking of all regimes that permit private ownership, Malleson suggests that each retain[s] a powerful class of investors – the managers of large banks, insurance companies, institutional funds, and directors of corporations – whose control over the investment process threatens popular sovereignty and undermines the ideal of equal citizenship, that is, the ‘fair value of the political liberties.’ (Malleson, 2014, p.233)

Similarly, commenting on Tomasi’s conception of market democracy, Stilz (2014, p.434) suggests: Suppose the wealthy systematically have different views on non-economic issues … than the poor do. Wouldn’t their greater economic power enable them to exercise more influence over these matters? By contributing large amounts to political campaigns, buying airtime, starting foundations and advocacy groups, isn’t it more likely that the political views of the wealthy will prevail?

A third concern is that these differences are arbitrary from a moral point of view: In bourgeois society, ownership of market-scarce productive factors or commodities yields rewards, and ownership need not be accompanied by productive service on the part of the owners. Bourgeois theorists, such as Hayek and Friedman, argue explicitly, as most neoclassicist theorists imply, that ‘luck’ determines largely who gets (and should get) what in capitalist market society, so that if one is fortunate enough to be born into a wealthy family, or to have oil discovered on one’s land, or to be born with certain characteristics that fetch high market prices, or to make

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profitable investments, then one qualifies for disproportionate rewards. (DiQuattro, 1983, pp.57–8)

Why is it implausible to imagine that people of goodwill, sharing a strong sense of justice, including a notion of the fair value of equality of opportunity will treat people fairly under capitalism? The reason for widespread scepticism of this statement is that on the Rawlsian model of capitalism, there are compelling structural factors that mean that capital will naturally accumulate to a few individuals and family lines. Under such rules, inequalities of wealth and power will accrue even if everyone is individually acting with a sense of justice. These wealth inequalities represent a source of political inequality and instability. It is this assumption, that behind capitalism lies continual wealth accumulation, that links the neoclassical with the Marxian conception of private property. In classical Marxist political economy, all value derives from labour, including capital assets. Surplus value (the market value of consumer goods over and above the socially necessary wages for workers) is extracted as profits to supplement the capitalists’ personal consumption and contribute to more capital accumulation. In this way, capital is ‘dead labour’ (embedded labour power from previous production processes) that produces a profit that capitalists reap just as a landowner reaps rent from farmers that need land to till. Rawlsians are in no way committed to the Marxian labour theory of value (Reiman, 2014, p.53). However, Rawlsians do not have to propose any particular structural relationship between labour and capital to show that capitalism will be class-divided. All they suggest is that capital assets have a given value in a persistent equilibrium and a resulting positive steady rate of return. That way, they can be analysed in the same way as rent. This account is precisely what the neoclassical equilibrium paradigm supplies. In general equilibrium, all factors of production fetch their marginal product with the result that scarce resources that yield goods and services which are in particular demand produce a profit for their owners (Hicks, 2001 [1939], p.215). They produce a steady income without commensurate effort from the capital owner compared to someone who merely owns their own labour. On a market process account, this concern is based on an unjustified blurring of profit with rent. Knight (1921) suggests that the labour theory of value and the related rent theory of profit is based on a narrow and misleading reading of classical political economy: the so-called ‘scientific’ socialists … take the English classical treatment of profit in a narrowly literal way … [to] derive a simple classification of income in which all that is not wages is profit which represents the exploitation of the working classes.

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Capital is equivalent to property which is to be regarded as mere power over the economic activities of others due to the strategic position of ownership over the implements of labor. (Knight, 1921, pp.27–8)

By contrast, in the catallactic paradigm, profit is not simply another form of rent, the given result of a natural scarcity of a particular resource, or an institutional advantage held arbitrarily by a market actor (Samuelson, 1947, p.270). Instead, profit accrues to market actors who correctly anticipate the needs of others and convey the relevant resources to where their greater value can be realised. While profit seeking is realistically motivated by self-interest, the pursuit of profit (and the realisation of loss) performs a critical epistemic function, generating information about unmet needs and demands in the community. On this account, profits in their pure form are not rent because the role of capital assets is not given and known prior to attempting a productive venture but can only be realised afterwards in situations of risk and uncertainty (O’Driscoll and Rizzo, 2015 [1996]; Cowen, 2018). As a result, capital itself differs in two key respects from how it is conceptualised in a neoclassical paradigm. The first is that even in physical form, capital tends to be depleted through its use in production (Hayek, 2009 [1941]; Kirzner, 2012 [1996], p.55). Indeed, some capital assets can spoil if unused, making their use time-dependent. The second is the best use of a capital asset is not known and whether assets can be put to profitable use is subject to a large degree of uncertainty (Delmotte and Cowen, 2019). This means that agglomerations of wealth are not a given part of an idealised capitalist system. A combination of skill, effort and luck is required to maintain the value of any capital assets. Some capital assets may go through phases where they produce outsized profits, but there is no reason to expect them to stay high and unassailable permanently. These facts of uncertainty and capital depletion mean that any class divisions that do exist are much more permeable than a Marxian model assumes. In a competitive economy, capital alone does not guarantee success. Big capital, poorly directed, can very easily lose to small-scale ventures that have the know-how to generate profits as market conditions change (Rogge, 1979). An objection to this account is that it has been disconfirmed by recent work by Piketty (2014). On this account, capital does, in fact, behave like rent and, without direct state intervention, leads to wealth concentration. My response is that, as it turns out, this alleged empirical observation does not explain historical variations in wealth concentration particularly well (Acemoglu and Robinson, 2015). We are discussing an idealised capitalist scenario whereas historical cases will be influenced by actors operating in the absence of a shared sense of justice and commitment to fair institutions. Real-world capitalist regimes include a great deal of opportunistic rent-seeking activity.

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In ideal capitalism, citizens only seek to profit in a way that reflects socially beneficial activity.

ECONOMIC POWER The second problem of capitalists exercising control over workers and wider society is more limited than typically assumed. Capital owners are more like trustees of the existing capital structure than rentiers.1 They have the capacity to make capricious use of their position but at the cost of expending their capital. Consumers play a more decisive role in deciding how capital assets are used and how they are valued. Capitalists can ignore the market signals produced by consumer demand if they wish but they are apt to lose their capital remarkably quickly if they do so. As Mises argues: The direction of all economic affairs is in the market society a task of the entrepreneurs … A superficial observer would believe that they are supreme. But they are not. They are bound to obey unconditionally the captain’s orders. The captain is the consumer. Neither the entrepreneurs … nor the capitalists determine what has to be produced. The consumers do that. If a businessman does not strictly obey the orders of the public as they are conveyed to him by the structure of market prices, he suffers losses, he goes bankrupt, and is thus removed from his eminent position at the helm. Other men who did better in satisfying the demand of the consumers replace him … The slightest deviation, whether willfully brought about or caused by error, bad judgment, or inefficiency, restricts their profits or makes them disappear. A more serious deviation results in losses and thus impairs or entirely absorbs their wealth. Capitalists, entrepreneurs, and landowners can only preserve and increase their wealth by filling best the orders of the consumers. They are not free to spend money which the consumers are not prepared to refund to them in paying more for the products. (Mises, 1998 [1949], pp.270–1)

This argument does not suggest that capital owners possess no advantages at all over those without capital. Instead, in an ideal scenario, capital owners are in a sufficiently precarious position that it would be a mistake to describe them as members of a permanent class. Moreover, capital owners possess a direct trade-off between using their capital to pursue their own ends (perhaps supporting their own comprehensive doctrine) and trying to maintain the advantaged position that they currently hold. Those who maintain that position consistently will do so because they are following market signals that reflect consumer demands, rather than their own designs on the community. In this sense, idealised capitalist institutions have a built-in check that protects the fair value of political liberties.

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MORALLY ARBITRARY ADVANTAGE The final concern is that inequalities of wealth violate the Difference Principle. Regardless of the stability or structural characteristics of capital, those who hold it do so for reasons that are arbitrary from a moral point of view (Reiman, 2014, p.198). The same applies to those who earn and save capital since the resulting values reflect good fortune and unearned talent. The process of trial and error, and competition, within market exchange is not a fair process at the micro-level. It is not like a lottery where people can choose to take on risk or choose a safe option instead. Under capitalism, there are no entirely safe options. Any resource, or any occupational skill, accrued through hard work and investment can lose market value. The market does not effectively differentiate between brute and option luck. This is true but, on a Rawlsian account, all inequalities are arbitrary, yet some are acceptable. They are acceptable insofar as they are necessary for generating social cooperation in a way that benefits the least advantaged. Inequalities are justified not directly from a moral point of view, but from the point of view of facilitating a cooperative venture. There is nothing in the Difference Principle that implies that the advantaged individuals or families deserve or merit their position as the advantaged. The individual position they happen to be in is contingent. Instead, the existence of differences between the advantaged and disadvantaged is justified by a property of the overall regime, namely that it benefits whoever happens to be in the least advantaged group. In this case, those advantaged enough to be endowed with capital assets are in a similar position to those who use their natural talents and marketable skills to flourish within the framework of the basic structure. They deserve the benefits of wealth and talents not because of the worthiness of their character but because they have developed legitimate expectations as part of a just cooperative scheme. As Rawls explains: given a just system of cooperation as a scheme of public rules and the expectations set up by it, those who with the prospect of improving their condition have done what the system announces that it will reward are entitled to their advantages. In this sense the more fortunate deserve their better situation; their claims are legitimate expectations established by social institutions, and the community is obligated to meet them. (Rawls, 2001 [1968], p.170)

In some ways this epistemic argument for permitting different wealth endowments is stronger than the Rawlsian incentive case for income inequality, since the incentive case assumes some level of self-interest amongst the advantaged. The epistemic case instead suggests that communities must permit some inequalities in order to discover the value of assets (including personal

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talents) and disseminate knowledge of that value across society. This epistemic account does not justify a natural right to one’s assets. Insofar as the position of the least advantaged can be improved through redistribution without compromising the epistemic properties of this process, the Difference Principle requires it. So far, I have set out the epistemic case for a capitalist system and shown that some concerns with capitalism, while representing realistic problems, are assailable especially in ideal circumstances. I now turn to two Rawlsian inspired alternatives to capitalism and show why they fail to meet the epistemic conditions required for successful economic cooperation.

NOTE 1. The Marxian description of the lived experience of capitalism may more accurately describe some non-profit organisations, especially endowed universities and asset-rich charities. In those environments, the lack of a direct profit motive means that anyone in a position of power may have more opportunities to use it arbitrarily and capriciously with relatively little way for those finally responsible for the capital assets to detect (if indeed, there is anyone finally responsible).

REFERENCES Acemoglu, D. and Robinson, J. (2015) ‘The Rise and Decline of General Laws of Capitalism’. Journal of Economic Perspectives. 29 (1), 3–28. Bergh, A. (2020) ‘Hayekian Welfare States: Explaining the Coexistence of Economic Freedom and Big Government’. Journal of Institutional Economics. 16 (1), 1–12. Cowen, N. (2018) ‘Mill’s Radical End of Laissez-faire: A Review Essay of the Political Economy of Progress: John Stuart Mill and Modern Radicalism’. The Review of Austrian Economics. 31 (3), 373–86. Delmotte, C. and Cowen, N. (2019) ‘The Mirage of Mark-to-Market: Distributive Justice and Alternatives to Capital Taxation’. Critical Review of International Social and Political Philosophy. 1–24. doi: https://​doi​.org/​10​.1080/​13698230​.2019​ .1644585. DiQuattro, A. (1983) ‘Rawls and Left Criticism’. Political Theory. 11 (1), 53–78. Freeman, S. (2013) ‘Property-owning Democracy and the Difference Principle’. Analyse & Kritik. 35 (01), 9–36. Hayek, F.A. von (2009) [1941] The Pure Theory of Capital. Auburn, AL: Ludwig von Mises Institute. Hicks, J.R. (2001) [1939] Value and Capital: An Inquiry into Some Fundamental Principles of Economic Theory. Clarendon Paperbacks. 2nd edn. Oxford: Clarendon Press. Kirzner, I.M. (2012) [1996] Essays on Capital and Interest: An Austrian Perspective. Collected works of Israel M. Kirzner. Peter J. Boettke and Frédéric E. Sautet (eds). Indianapolis, IN: Liberty Fund. Knight, F.H. (1921) Risk, Uncertainty, and Profit. Boston and New York: Houghton Mifflin Company.

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Lukes, S. (2015) ‘Social Democracy and Economic Liberty’. Res Publica. 21 (4), 429–41. Malleson, T. (2014) ‘Rawls, Property-owning Democracy, and Democratic Socialism’. Journal of Social Philosophy. 45 (2), 228–51. McCloskey, D.N. (1998) ‘Bourgeois Virtue and the History of P and S’. The Journal of Economic History. 58 (02), 297–317. McCloskey, D.N. (2007) The Bourgeois Virtues: Ethics for an Age of Commerce. Chicago, IL: University of Chicago Press. Mises, L. von (1998) [1949] Human Action: A Treatise on Economics. Scholar’s edn. Auburn, AL: Ludwig Von Mises Institute. O’Driscoll, G.P. and Rizzo, M. (2015) [1996] Austrian Economics Re-examined: The Economics of Time and Ignorance. Routledge foundations of the market economy 33. Expanded edn. New York: Routledge. Piketty, T. (2014) Capital in the Twenty-first Century. Cambridge, MA: The Belknap Press of Harvard University Press. Rawls, J. (2001) [1968] ‘Distributive Justice: Some Addenda’, in Collected Papers. Cambridge, MA: Harvard University Press. pp. 154–75. Reiman, J.H. (2014) As Free and as Just as Possible: The Theory of Marxian Liberalism. Chichester: Wiley-Blackwell. Rogge, B.A. (1979) Can Capitalism Survive? Principles of Freedom series, Principles of Freedom Committee 9. Indianapolis, IN: Liberty Press. Samuelson, P.A. (1947) Economic Foundations of Economic Analysis. Cambridge, MA: Harvard University Press. Schweickart, D.E. (2012) ‘Property-owning Democracy or Economic Democracy?’, in Martin O’Neill and Thad Williamson (eds), Property-owning Democracy: Rawls and Beyond. Malden, MA: Wiley-Blackwell. pp. 201–22. Stilz, A. (2014) ‘Is The Free Market Fair?’ Critical Review. 26 (3–4), 423–38.

7. Why not market socialism Rawls suggests a consistency between ‘market arrangements’ and ‘socialist institutions’ so long as one distinguishes ‘the allocative and distributive functions of prices. The former is connected with their use to achieve economic efficiency, the latter with their determining the income to be received by individuals in return for what they contribute’ (Rawls, 1999 [1971], p.241). This suggests that Rawls sees markets without private ownership as an alternative to a system of private property. Rawls did not set out his own preferred scheme for markets without private ownership but there are many proposed market socialist schemes. Some scholars have linked their proposed schemes with Rawls’ principles of justice. I focus this response on Carens’ (1981, p.11) market socialist regime that he calls the egalitarian system. The egalitarian system is essentially a private-property production economy where all income for consumption is equalised after tax. Carens (1981, p.208) believes that Rawls’ theory may justify the regime that he proposes and it is through this system that he sees a possible reconciliation between Cohen and Rawls (Carens, 2015). Carens’ model is useful here because of its explicit division between knowledge and incentive problems. Schweickart (1978), for example, accepts that a market socialist scheme may have to offer some sort of equivalent incentive structure to a private market system and thus leaves open the possibility of some variation in salaries for final consumption. Carens subtracts this problem by assuming that self-interested incentives could be replaced with ‘moral incentives’, the desire to contribute as much as reasonably possible to common welfare and a willingness to engage in market coordinated productive activity for the common good. This makes Carens’ regime a theoretically precise way to test the notion that the distributive and allocative roles of the market economy can be separated so long as we set aside incentive problems. How does Carens’ system come close to simulating a fully private-property market system? The only difference between Carens’ regime and a private-property regime is that income for consumption is equalised through taxation. Market actors are playing for points rather than pounds. Apart from that, all other institutions remain in place. Unlike some market socialist systems, the egalitarian system is not based on altering the ownership or management structure of private firms. It permits personal saving, as well as ownership and reselling of durable goods such as houses (though not in order 78

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to realise a profit) (Carens, 1981, p.215). People are free to form firms and work under any conditions of their choosing. In addition, Carens leaves space for financial and capital investment markets. Successful market actors do not have to surrender all their additional income to tax authorities just because they cannot consume it. Instead, they can invest in capital and start businesses of their own. The investor cannot subsequently consume the resulting profits. All profits will eventually go back into general public consumption. The reward of working and investing in a successful enterprise is nominal but potentially visible. We could imagine investment decisions and entrepreneurial ventures looking like a game of bridge in this scenario, with both a bidding stage (where people essentially estimate and bet on how many hands they can win with the cards in front of them) and a play stage where both luck and skilful use of the resources (the cards) are used. The idea that pursuit of success in investment and occupational decisions of a market economy could be simulated in a game form is attractive. People are often greatly motivated to excel in games and sports. Indeed, there is a curious parallel between this account and Hayek’s description of the market process as being like a positive-sum game. The egalitarian system maintains as much as possible the epistemic features of the capitalist system while deliberately ignoring the incentive features. If Carens’ scheme fails in the ideal circumstances proposed, then other schemes that are similar but deviate more from private-property market systems are likely to fail too.

COGS WITHOUT TEETH What is missing from Carens’ system? Carens has proposed an ingenious machine designed to simulate a real price mechanism. The only problem is that many of the cogs in this machine do not have teeth. They will not mesh together and move each other. You can spin one cog and those beside it will stay motionless. The teeth that mesh the cogs in a real price mechanism are the subjective valuations of the opportunity costs of choices not taken relative to the pattern of decisions taken. Why should human beings who cannot experience objective costs until after the decision nevertheless take decisions that tend to reflect objective costs? In private-property markets, there is generally a strong link between the subjective and objective opportunity costs of an individual choice.1 Looked at this way, the central problem with the egalitarian system is a parallel to the problem of the Gift of the Magi discussed in Part I. There the problem was altruists, or unselfish cooperators, giving inadequate weight to their own interests. The problem with the egalitarian system is that it deprives unselfish actors of the ability to weigh their interests and share them with

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others. They cannot compare the relative value of their own interests in having a good, service or practice against the costs to others of providing it. This may not seem like a critical problem when considered for isolated individual conduct. However, when considered in aggregate, this means that no one knows what anyone else’s opportunity costs are. The system is deprived of knowledge of opportunity costs.2 In order to understand whether an investment, in terms of time, effort or resources, is worthwhile, we need to know what the relevant alternative uses of the inputs are. In the case of labour, we need to know whether the time lost to work is worthwhile compared to the possible enjoyment of leisure or some other employment. For any effort, we need to know whether the good produced for the collective is worth the associated pain, discomfort and depletion of mental and physical energy. When considering physical resources, we need to know whether they are more valuably consumed or enjoyed directly, or whether they are more valuable contributing to a productive process. It is these calculations that the egalitarian system cannot make.

THE FRIDGE-MAKER To give an example, consider this scenario. A great deal of enduring welfare improvement is associated with labour-saving devices, especially those used in households such as fridges, washing machines and vacuum cleaners. Preparing and preserving food, washing clothes and cleaning floors is all painful, burdensome work, often imposed on women and subordinated dependents throughout much of human history. Inventing, building and disseminating these devices involves use of a great deal of labour and capital but the results have easily compensated for those costs in terms of improvement in general wellbeing. The problem is that for each marginal improvement realised, whether it is going to work is unknown until it is tried. In addition, many of these benefits are not directly comparable in monetary terms since the benefits arise from household durable goods replacing often unpaid (but consistently burdensome and economically relevant) labour. Let us suppose an entrepreneur has a new idea for an energy-efficient fridge that could save an enormous amount of energy, prevent an awful lot of food from going to waste and substitute for a lot of household labour as well. Until that new fridge has been produced, it is impossible to know with certainty whether it will succeed or fail. There is risk, and because of uncertainty, not objectively estimable risk, that the whole project will be a waste of time and resources. Moreover, the project involves using some scarce metals (that could be valuably employed in other sectors) and requires some workers to work in an uncomfortable, potentially hazardous environment, handling toxic chemicals.

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In a private-property market economy, the entrepreneur either invests her own money (if she has it) or persuades investors to put money into the project in order to pay for these expensive factors of production and to compensate for the specialised, dangerous work involved. The investors bear the overall risk of the venture. They put the money up-front and hope to see a profit but have no legitimate expectation of seeing any of it. They have sacrificed their spending power that could have gone to other investments or their personal consumption. In so doing, they transfer some of the subjective opportunity costs of working from the workers to themselves. They compensate the workers engaged in this uncomfortable work through higher wages, who now have more spending power than they otherwise would have. Insofar as the workers are fully compensated for the period that they have agreed to work, the risk associated with the venture failing has also been transferred from them to the investors. Their compensation is the same regardless of whether the venture succeeds or fails. In Carens’ scheme this cannot happen. The investors do not have additional money that they can spend for themselves. They have the equivalent of points accrued through the simulated market in past periods where they have earned an income above the equal consumption bundle that everyone gets. These points cannot compensate the individuals for the sacrifice of the extra work by transferring a potential expenditure bundle from one person to another because everyone’s actual bundle is equal aside from the points on the earnings scoreboard. The investors cannot compensate the workers they employ, or the other enterprises for the greater scarcity of other factors of production spent on this venture. We can adjust the scheme slightly and suggest that people working in particularly harsh environments might be able to keep a bit more of their earnings as part of their consumption bundle. This improves the situation in the sense that those directly involved in difficult work receive some compensation. The problem is that this only represents one side of the subjective valuation. The investors have not sacrificed any potential consumption opportunities of their own when giving a higher wage to their workers. Instead, the higher wage will translate into higher demand for consumer goods, raising prices relatively for everyone who is not a higher wage earner. These people did not decide to allow more spending opportunities to go to these workers. The investors have no way of knowing if that sacrifice carried by the community will turn out to be worthwhile. This may seem like a motivational problem rather than an epistemic one. All Carens asks is that people make the same sort of employment and investment decisions that they would make if the money represented their real consumption income. A successful investment, after all, represents more income shared amongst everyone. The problem is that it is only in a private-property market economy that publicly spirited agents can make investments with their own

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funds in the knowledge that they have personally absorbed the risk and uncertainty associated with that particular decision.3 Under the egalitarian scheme, because the capital assets are really a common pool of labour and resources (albeit one that is bid on competitively) they have imposed that risk and uncertainty associated with that venture on everyone else. They cannot simulate the behaviour of private market action through this scheme because they are taking an objectively different decision, one that reduces other people’s consumption options without any guarantee or likelihood of compensation. In Carens’ scheme, the benefits of a successful venture are fully socialised, but equally the costs of an unsuccessful venture are also socialised. Investors cannot put their own ‘skin in the game’ even if they want to do so. Since their decisions, and especially their inevitable errors, will have a direct impact on the consumption opportunities of the general population, they will, as good citizens, be concerned about whether their personal attitude to risk for a particular venture reflects a publicly shared attitude to risk (and attitudes to the particularities of that venture). Investors are betting everyone else’s resources on their behalf. They are taking an objectively different kind of decision from that of the investor in a private-property economy, one that is more like a council official deciding whether to build the cycle rack than someone choosing to risk their own funds or time in pursuit of an uncertain profit. Publicly spirited individuals would be more concerned about risking someone else’s resources on an uncertain venture than their own resources. There is no way of simulating the capacity to absorb a loss without allowing some variation in actual income and consumption opportunities. Individuals must be permitted to absorb risks that they, and only they, can be sure that they voluntarily accept. The only way this can be done is if people personally hold capital that is theirs to invest and, indeed, to lose.

MUST INVESTORS BE RICH? A sceptic might be concerned at this point that bringing in a justification for the market process also implies precisely the class-divided capitalist society that I differentiate from an ideal capitalist society. After all, Hayek and Schumpeter occasionally praise the role of the rich for their capacity to experiment, both socially in creating new tastes and manners, and economically through the dissemination of new inventions. They can do this because they have deep pockets that can absorb the costs of lots of failed experiments and expensive trinkets. The rich, by acting as an adventurous voluntary testbed for new products and technologies, can bring about some marginal benefits for the general public, but not necessarily anything that is easily justified on balance of the alternatives.

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Critically, my account does not rely on the existence of a class of rich people to function as entrepreneurs. For Kirzner (2009), the ‘pure’ entrepreneur has no resources of their own but is alert to possible profit opportunities. Their role is simply to connect undervalued resources to hitherto unseen uses. In practice, they could rely on credit markets to move resources into place. So long as entrepreneurial activity of this kind is permissible, a market regime will work whether you have a small number of investors or a vast number of small asset holders who have access to investment markets. Apart from that, this regime (at various levels of effectiveness) will function in both low and high tax environments and regardless of whether some sectors of the economy have significant public ownership or provision. What this regime requires is a substantial amount of privately held exchangeable wealth, regardless of the initial and ongoing distribution of that wealth. The reason for this is that only private wealth holdings permit the comparison of possible marginal consumption options to marginal investment opportunities, thus generating the subjective knowledge of the trade-off between the value of an investment and the sacrifice in terms of lost spending. Such a regime must also allow for some variation in wealth holdings. People cannot be perfectly compensated for losses, or taxed for winnings, without losing the epistemic properties of the process. Rather than society selecting a ‘social savings rate’ and consuming all other resources in a time period, the composition of resources devoted to capital accumulation and replenishment is a spontaneous outcome of a vast number of small decisions. By participating in investment and savings, individual citizens contribute their own knowledge and best estimates of the value of conserving and cultivating resources for the future compared to consuming them now (cf. Cowen and Delmotte, 2020). This does not rule out a role for public policy in these decisions as well. Indeed, the presence of information developed by the market process makes it possible for public officials to comprehend the subjective costs and benefits associated with a policy.

MUST THE POOR SUFFER? My subjectivist justification for labour and capital markets also represents a critique of some conservative attitudes and policy proposals relating to a different side of capitalist society. A central element of my argument is that you cannot ever comprehensively understand a trade-off between consumption or investment, employment or leisure, if the costs and benefits are experienced by another individual. Many fiscal conservatives, however, believe that it should be possible for policymakers, public officials or aid workers to divide welfare claimants into the deserving and undeserving poor based on their outward moral conduct. Shapiro (2007), for example, suggests that charitable aid will

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be more successful at identifying and supporting the genuinely needy than a rule-bound welfare state. He uses this as an argument for replacing general welfare rights with more contingent support offered through private charity. On my account, there is no reliable way of establishing who is and who is not capable of working. It is impossible to tell exactly what psychological costs you impose on someone when you attempt to force them, through economic coercion, to work. For the same reason that we should allow people to invest their own resources more or less as they see fit, and allow workers to accept whatever offers of employment they wish to voluntarily, we should also not penalise individuals for choosing to stay out of work (although, I still endorse individuals realising the relative benefits of work). Such an approach pre-empts the welfare claimants’ knowledge about their own circumstances of time and place. Hence, rather than necessarily endorsing laissez-faire, this account points to some possible boundary conditions, at least for the specific epistemic justification for capitalism in ideal circumstances. For choices to reflect sensible subjective valuations, they should represent comparable opportunity costs. There should be a range of reasonable alternative courses of action available to actors when making personal economic decisions. If the relevant alternatives are death, imprisonment or privation, then the value of the alternative path chosen may be unreasonably low. This implies potentially mutually supportive epistemic justifications for both market institutions and welfare state or even pre-distributive institutions (Brettschneider, 2012; Gamble, 2013, p.360).

NOTES 1. This account can also explain some of the weaknesses of the market process and why it is prone to errors in some contexts. Market systems are more prone to volatility in long-term asset markets than in consumer product markets. One reason for this is that the subjective costs of those assets are much more remote from the objective costs, and are based more around guessing how other people will subjectively value the asset for some period in the future. 2. There is a parallel between this and Mill’s famous defence of freedom of thought and discussion (Mill, 1977; Waldron, 1987; Riley, 2005; Gaus, 2010). Free expression is often characterised as ultimately an individual right claimed against the rest of the community. It is a valuable one, to be sure, but one primarily reflected as a matter of personal conscience and individual autonomy, something that a community should tolerate without necessarily expecting a benefit. On Mill’s account, it is in fact listeners, that is, the wider community, who benefit from being exposed to new ideas and having their present opinions challenged. In the same way, prices may appear to reflect alien interests, or worse the offensive valuations of the products of others. In fact, for unselfish actors who take other people’s interests as they themselves understand them seriously, prices are essential guides to respecting and satisfying those interests.

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3. There is an interesting parallel here between Carens’ egalitarian system and the real-world system of finance that was partly responsible for the economic crisis starting in 2008. Due to a combination of poor regulation and rent seeking, banks and their senior staff have been able to put themselves in a situation where they could reap profits while shifting risk onto other actors. This turned what would be individual firm risk into systemic risk.

REFERENCES Brettschneider, C. (2012) ‘Public Justification and the Right to Private Property: Welfare Rights as Compensation for Exclusion’, in Martin O’Neill and Thad Williamson (eds), Property-owning Democracy: Rawls and Beyond. Malden, MA: Wiley-Blackwell. pp. 53–74. Carens, J.H. (1981) Equality, Moral Incentives, and the Market: An Essay in Utopian Politico-economic Theory. Chicago, IL: University of Chicago Press. Carens, J.H. (2015) ‘The Egalitarian Ethos as a Social Mechanism’, in Alexander Kaufman (ed.), Distributive Justice and Access to Advantage: G. A. Cohen’s Egalitarianism. Cambridge: Cambridge University Press. pp. 50–78. Cowen, N. and Delmotte, C. (2020) ‘Ostrom, Floods and Mismatched Property Rights’. International Journal of the Commons. 14 (1), 583–96. doi: http://​doi​.org/​10​.5334/​ ijc​.983. Gamble, A. (2013) ‘Hayek and Liberty’. Critical Review. 25 (3–4), 342–63. Gaus, G.F. (2010) ‘State Neutrality and Controversial Values in On Liberty’, in C.L Ten (ed.), Mill’s On Liberty: A Critical Guide. Cambridge; New York: Cambridge University Press. pp. 83–104. Kirzner, I.M. (2009) ‘The Alert and Creative Entrepreneur: A Clarification’. Small Business Economics. 32 (2), 145–52. Mill, J.S. (1977) Essays on Politics and Society. Collected works of John Stuart Mill v. 18–19. Toronto; Buffalo: University of Toronto Press. Rawls, J. (1999) [1971] A Theory of Justice. Cambridge, MA: Belknap Press of Harvard University Press. Riley, J. (2005) ‘J. S. Mill’s Doctrine of Freedom of Expression’. Utilitas. 17 (2), 147–79. Schweickart, D.E. (1978) ‘Should Rawls Be a Socialist? A Comparison of His Ideal Capitalism with Worker-controlled Socialism’. Social Theory and Practice. 5 (1), 1–27. Shapiro, D. (2007) Is the Welfare State Justified? New York: Cambridge University Press. Waldron, J. (1987) ‘Mill and the Value of Moral Distress’. Political Studies. 35 (3), 410–23.

8. Why not economic democracy Economic democracy is another radical alternative to capitalism aligned with Rawlsian principles (Schweickart, 1978, 2012; Malleson, 2014). It is a manifestation of Rawls’ endorsement of worker cooperatives rather than capitalist-owned firms and emphasis of strong democratic accountability for economic investment decisions that impact on a political community. Like market socialism, it introduces socialist principles to economic institutions without endorsing state control of the entire economy. Economic democracy and market socialism are not necessarily exclusive categories; scholars have supported both (Schweickart, 1992). Nevertheless, there are differences in the details of the institutions and their intended consequences. Market socialist ideas focus on how non-private-property institutions could be designed to simulate some of the informational characteristics of markets under capitalism without allowing markets to decide the distribution of rewards in terms of income and wealth. For economic democrats, the critique of capitalism is not limited to its unfair distributive outcomes but also includes the process through which these outcomes are achieved. This process is antagonistic and inefficient because it fails to align the incentives of individual workers and managers with the interests of firms. Moreover, because of this antagonism, the resulting workplace environment is an arena of conflict and discipline that is alienating for workers who are treated as mere instruments of the interests of others. Hence, economic democracy supports both democratic participation in specific workplaces and democratic control of investment over the wider economy.

THE POSSIBILITY OF ECONOMIC DEMOCRACY How is Schweickart’s system different from Carens’ egalitarian system? Under the egalitarian system, firms and individuals control capital but they cannot convert it into consumption. Money has a nominal purpose of evaluating the success of ventures at turning some capital and labour inputs into valuable outputs. However, firms can develop, expend, destroy or waste capital (so long as they do not use it for personal consumption). If capital is wasted, it will turn up as a loss on the scoreboard and sufficiently morally incentivised citizens will try and avoid that outcome. 86

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Under Schweickart’s (2012, p.207) economic democracy, income has real spending implications for workers: ‘a worker’s income is a specified share of the company’s net profits. These shares need not be equal … [and] may vary depending on seniority, skill level, or level of responsibility.’ Instead of income, it is the capital structure that is socialised: Although owned by society as a whole, a socialized enterprise is legally controlled by those who work there, not by the state … workers are obliged to keep the value of their enterprise intact … they must maintain a depreciation fund. They are not permitted to sell off equipment and pocket the proceeds, or let the capital stock entrusted to them deteriorate in value … the enterprise must pay a leasing fee to the state proportional to the capital assets under its control. That is to say, it must pay a flat-rate capital assets tax.

On my account, this scheme requires the impossible of economic actors. Developing, depleting and destroying capital in unpredictable ways is an unavoidable outcome of all economic production and entrepreneurial endeavour. Economic democracy relies on the strong Marxian and neoclassical assumption that capital has a given value, one that can be predictably built up or expended. In fact, capital assets derive their value from their successful application to production in conditions of uncertainty and change. Information about these values can only be determined through a process of trial and error. Errors in production mean that the predicted value of capital investments can easily go unrealised or even be destroyed. But without firms making those inevitable errors, there is no way of discovering and realising the productive potential of society’s resources. Economic democracy insists that firms should never err when it is the very experience of error that is essential for economic coordination in conditions of risk and uncertainty.

THE JUICE PRODUCERS To give an example, consider a batch of oranges growing in some orange groves.1 A worker-controlled farm must decide between selling the oranges as they are or combining them with other products into a fruit juice. Suppose that they go with the fruit juice plan but discover later that the oranges themselves were much more valuable alone even without the additional labour and factors in the juice, and that consumers have no interest in fruit juice this season. They cannot at that point unmake the juice. The orange grove is a capital asset leased from the state. If the ‘given’ value of the asset is priced in terms of the value of the oranges then the workers could find themselves servicing a debt for the lease of a capital asset that is higher than what they managed to obtain for the fruit juice.

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Consider a more long-term scenario. The workers notice that consumer demand for olive oil is much higher than orange juice and decide to spend a great deal of their allocated capital on replacing several of the orange groves with olive groves, and installing an olive press. Unfortunately, just as the olive press gets to work, the price of olive oil drops below the equivalent price of oranges or orange juice (another cooperative firm already in the olive trade has managed to expand production). Despite the expense spent on building the olive press, its realised value is simply the scrap metal and stoneware that can be derived from its components. The farm has destroyed socially owned capital through entrepreneurial error that is typical of private economic decisions in capitalist economies. So besides asking the impossible of socialised firms, the proposed scheme could have an impoverishing impact on the cooperative workers of socialised enterprises. In the absence of private capital investment, the workers will have to absorb the risk of capital investment decisions themselves. Furthermore, because private ownership of capital, or shares in other enterprises, is prohibited, workers are unable to diversify their income sources. Their income is based on shares taken from dividends in the enterprise at which they are also employees. As a result, their income is exposed to the shifts in fortune that are an unavoidable result of the trial and error process of entrepreneurial investment. Thus, there is a troubling element to Schweickart’s claim that enterprises should be ‘communities’ rather than ‘commodities’. The advantage of firms that are autonomous and dis-embedded from a community is that they can be allowed to fail without imposing significant social costs on those involved. Under capitalism, workers and investors in a failed enterprise walk away while whatever remaining assets are recovered at a discount by a differently configured enterprise. There is no shame, or penalty, for waste and error beyond the lost rewards of alternative profitable decisions that were conceivable but not taken. Under the socialised regime where capital assets are not owned, but merely leased from the state, the ‘destruction’ or waste of capital is not just an error; it is a harm imposed on the community. The workers have not only lost their income but are now communally in debt to the state to pay for capital they have already lost in a venture that proved to be fruitless. An economic democracy may simply agree to write-off such debts and allow the community enterprise to lease another set of capital goods. The obvious problem is that such a scheme has no built-in restraint on allowing loss-making ventures to absorb more capital investment indefinitely. Meanwhile, the prohibition on private ownership of capital means that there is no corresponding signal to register enterprises that are developing valuable aspects of the community’s capital structure. They can neither sell the enterprise itself, nor the capital they have developed within it, with the result that

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the capital contained within enterprises cannot be re-allocated to what others think are more valuable uses.

THE DESIRABILITY OF ECONOMIC DEMOCRACY Economic democrats misconceive the problem that firms must solve as a part of the market process. That is, coordination under conditions of uncertainty. Requiring firms to maintain the value of their capital assets is to ask the impossible given such uncertainty. Let us suppose that this problem could be overcome at this micro-level. We can still ask whether the absence of private input into investment decisions would be desirable. Malleson (2014) objects to the power of private investment because it supplies a ‘veto’ to capital over democratic economic decision-making. Investors withdrawing their capital can stymie democratically selected economic policies. As Schweichart (2012, p.211) explains, ‘those with money to invest make the decisions as to where to invest and in what, based on profit expectation … public investment in infrastructure and other public goods must pass through the democratic process … But the bulk on investment decisions remain in private hands.’ One response is that investors do not have a veto power unless they are extremely homogeneous in their preferences and decision processes. In a model of perfectly competitive markets, it is possible that all investors act in the same way because economic data are ‘given’ and rational investors simply move their assets to precisely where they are most valued. By contrast, in a market process, where such information is discovered as part of the trial and error of investment decisions, there will be significant variation in the kinds of investments people are interested in making. It may be the case that if no one, amongst a set of heterogeneous capital holders, is willing to invest in a sector or area following the introduction of a policy, that may suggest a flawed, socially costly policy that the market process is highlighting, rather than the outsized political power of capricious capital. Another response is that it is far from clear that a liberal democratic community should be engaged in comprehensive national economic policymaking that is unencumbered by private interests. Regardless of the democratic credentials of a political process, only one set of polices can emerge from it, out of a possibly infinite range of alternative policies. Because of this sheer range, it is impossible that such a policy would be the result of a simple majority of citizens favouring it over all others. The democratic decision will inevitably be the result of relatively arbitrary factors relating to the order in which various policies were considered and the exclusion of various options from the agenda altogether (Boettke and Leeson, 2002). The preferences of the majority will necessarily be discounted. By contrast, an economic ‘policy’ established

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as a result of an interplay of less comprehensive marginal public decisions (perhaps at local rather than national levels) and market decision-makers may offer much more opportunities for input from ordinary citizens who have specific information about local circumstances. Besides this general concern, Malleson and Schweickart have a specific concern with geographical unfairness, that is, the way that capital seems to ignore or disinvest from some regions, leaving them poor compared to other areas. A response to this objection is that there may be good, indeed publicly justifiable, reasons why market actors decide to disinvest. For example, urban living may be more environmentally friendly than country living. This may be reflected in the lower factor costs of supplying goods and services to urban inhabitants. This could drive agglomeration and investment in new living and work opportunities in some areas and relative neglect of other areas. In this sense, the market is more successful at pricing in some environmental externalities (e.g. owning a sport utility vehicle (SUV) and living in a detached house in the countryside) than the political process, which may not possess the necessary fine-grained information to make these marginal judgements (Cowen and Delmotte, 2020). What appears geographically unfair may reflect fairness more broadly conceived: that individuals should bear the cost, rather than be compensated, for their more socially costly preferences. Capital investors are supplying information to citizens that the political process may not place on the agenda even in ideal circumstances. We should also note that the decisions of investors are not necessarily pre-empting a democratic decision. They generate information about what the opportunity costs of providing state economic support to a given geographic area might be. That might make such support less popular because it will reflect the true extent of the public expense but potentially legitimately so. Without observing private investment, the demos will lack information about the respective opportunity costs of particular policies. Another response to Malleson’s critique is that there are other forms of individual voluntary activity that could readily lead collectively to geographic unfairness. For example, suppose a region, for purely arbitrary reasons, has more interesting and fulfilling jobs than other regions, perhaps because of the climate or available natural resources. Or suppose that one region has a population made up primarily of strong religious associations that are not attractive, or welcoming, to individuals who contribute the most to the local economy. Those contributors may decide to move to a different region in order to pursue their own conception of a good life plan independently of the job opportunities. Understood this way, basic liberal rights such as freedom of occupation, freedom of movement and freedom of association (Rawls, 2001 [1982], p.362) would have the same, perhaps more dramatic, effect as capital movements. The aggregate result could be ‘geographic unfairness’, but it would neverthe-

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less be wrong to address this unfairness by altering the basic framework of liberal rights and forcing people to associate with people in what is essentially an unattractive cultural setting that fails to meet their needs as persons. The existence of regional variation alone is insufficient warrant to negate the choice of private agents.

CONCLUSION In this part, I have explored Rawls’ thinking about economic theory in order to explain the grounds for his rejection of capitalism. I have argued that capitalist institutions have important epistemic properties that have parallels to the basic structure of liberal political institutions. I have shown that in an idealised version of capitalism, there are compensating processes that reduce and disrupt the value of existing capital structures, inhibiting wealth concentration. I have shown that alternatives to capitalism, especially some proposed regimes of market socialism and economic democracy are unable to cope with the uncertainty and subjectivity that are part of the economic problem that institutions must solve. This concludes my analysis of the role and character of institutions in ideal theory. Next, I peel back some of the assumptions of ideal theory to ask what sort of institutions we should endorse to cope with more realistic scenarios.

NOTE 1. This example is thematically inspired by Kirzner (1978, p.18) as also deployed in Delmotte and Cowen (2019).

REFERENCES Boettke, P.J. and Leeson, P.T. (2002) ‘Hayek, Arrow, and the Problems of Democratic Decision-making’. Journal of Public Finance and Public Choice. 20 (1), 10–20. Cowen, N. and Delmotte, C. (2020) ‘Ostrom, Floods and Mismatched Property Rights’. International Journal of the Commons. 14 (1), 583–96. doi: http://​doi​.org/​10​.5334/​ ijc​.983. Delmotte, C. and Cowen, N. (2019) ‘The Mirage of Mark-to-Market: Distributive Justice and Alternatives to Capital Taxation’. Critical Review of International Social and Political Philosophy. 1–24. doi: https://​doi​.org/​10​.1080/​13698230​.2019​ .1644585. Kirzner, I.M. (1978) ‘Entrepreneurship, Entitlement, and Economic Justice’. Eastern Economic Journal. 4 (1), 9–25. Malleson, T. (2014) ‘Rawls, Property-owning Democracy, and Democratic Socialism’. Journal of Social Philosophy. 45 (2), 228–51. Rawls, J. (2001) [1982] ‘Social Unity and the Primary Goods’, in Collected Papers. Cambridge, MA: Harvard University Press. pp. 359–87.

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Schweickart, D.E. (1978) ‘Should Rawls Be a Socialist? A Comparison of His Ideal Capitalism with Worker-controlled Socialism’. Social Theory and Practice. 5 (1), 1–27. Schweickart, D.E. (1992) ‘Economic Democracy: A Worthy Socialism That Would Really Work’. Science & Society. 9–38. Schweickart, D.E. (2012) ‘Property-owning Democracy or Economic Democracy?’, in Martin O’Neill and Thad Williamson (eds), Property-owning Democracy: Rawls and Beyond. Malden, MA: Wiley-Blackwell. pp. 201–22.

PART III

Distributive justice and the incentive problem

9. Fairness failure We must make peace with our appetites without surrendering to them. Are some economic liberties essential to a liberal community? How far should constraints on government power in the civil arena also apply to economic activity? Parts I and II make a case for affirming some market institutions even in the absence of incentive problems, that is, the problem of self-interested opportunistic behaviour running counter to the requirements of justice. At least some private-property market institutions are necessary for widespread social cooperation on epistemic grounds alone. In this part, I argue that some constitutional constraints on state economic intervention are necessary to prevent citizens engaged in market activity from being subject to unfair predation through the political process. To make this case, I now relax the assumption of no opportunistic behaviour and begin to include the incentive problem, the second realistic feature of human society with which institutions must cope to be robust. In doing so, I step away from ideal theory. As we introduce realistic assumptions while still trying to hold faithful to the normative commitment of justice, we face an important question raised by Estlund (2014): how exactly do we avoid legitimising or accepting a contemporary status quo as we introduce more factors that can explain real-world outcomes. My answer is that we can do so by adopting a constitutional point of view, as distinct from the moral point of view (Rawls, 1999 [1971], p.104; cf. McMahon, 2002, pp.112–13). This perspective is implicit in both Rawlsian and Buchananite contractarian theories but not explicated in either. The moral point of view is essentially that of the impartial spectator considering the appropriateness of individual agent behaviour or conduct from the neutral standpoint of the good of the public (Rawls, 1999, p.161). The constitutional point of view is the way an impartial spectator reflects on and evaluates the rules that guide partial agents while aiming at the good of the public, such as justice as fairness. This perspective can help integrate a realistic account of private agent motivation into the deliberations and reflections that democratic citizens engage in when evaluating laws and policies. They can include the problem of self-interest in these deliberations without compromising their overriding normative commitment to treating each other fairly. A key conclusion that I draw from this perspective is that what is principally at stake between the Rawlsian and Buchananite conceptions of constitutional 94

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liberalism is not so much a contest between majoritarian political processes and market processes. Rawls sees a limited role for majoritarian procedures for deciding the details of economic policy while Buchanan affirms an underlying normative commitment to liberal equality and democracy. Instead, the contest is between a regime that grants legislatures and bureaucracies independence and discretion to intervene in market processes on the assumption that they will act in the public interest (public finance theory), and one that insists such actors be constitutionally constrained by general rules and other mechanisms of accountability (public choice theory). These concerns with accountability in political institutions are reasonable, standing on the same grounds as the case for establishing political institutions in the first place, that is, to resolve collective action problems and facilitate distributive justice. A public choice approach to institutional evaluation is a part of public reason. I begin by outlining the approach to non-ideal theory I am adopting, whereby we evaluate what makes institutions just in circumstances of imperfect human conduct. I discuss how Rawls relates the principles of justice to a constitutional framework, democratic politics and economic policy in order to justify a substantial degree of state economic intervention. I then introduce Buchanan’s public choice critique of economic intervention through the political process and discuss Rawlsian objection to this critique. I discuss an asymmetry in Rawls’ approach, whereby agents in market settings are presumed incapable of solving assurance problems between themselves, whereas the agents in political settings facing similar collective action problems are presumed to be capable of avoiding such problems. Buchanan, by contrast, proposes the symmetrical application of homo economicus to political settings as in market settings. I highlight a parallel problem in Buchanan’s framework that permits another behavioural asymmetry between the constitutional and legislative stages to emerge. I then introduce my solution, the constitutional point of view, and show how, from this standpoint, it does make sense to evaluate critically market processes and political processes in a parallel fashion.

FROM KNOWLEDGE TO INCENTIVES There are two more or less distinct questions in non-ideal theory. One is what duties individual people have in an unjust world and, in particular, how they should engage with institutions that fail to affirm an appropriate conception of justice (Cohen, 2002; Swift, 2003). This seems to be a central question of political philosophy in the applied ethics tradition. The second is to stretch Rousseau’s (1923) dictum that we should take people as they are but laws as they might be and ask how institutions, rather than individuals, should adjust to non-ideal conditions.

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An underlying assumption of some discussion between ideal and non-ideal theory is that the readership in deliberation are moral people. The reader is taken to be an enlightened agent wondering what to do in a fallen world in which she finds herself. The explanation for the failure of the world to converge on distributive justice is either a coordination, specifically an assurance, problem or, more controversially, the existence of poorly educated or unreasonable agents in the real world who have failed to develop an appropriate conception of justice. There is a weakness in this approach that tacitly rules out another explanation of the failure of human communities to converge on a comprehensive fulfilment of justice: widespread limited sympathy. That is, a certain degree of self-centredness that applies to most people in their everyday interactions, including those who are otherwise deeply theoretically concerned with problems of social morality. When I consult my own motivations and behaviour, I become far from convinced that all that is stopping me from fulfilling my duties of justice is a simple lack of assurance that anyone else is taking their duties sufficiently seriously. For example, I break some rules when it is convenient, in my immediate interest, and do not impact too heavily on my self-perception as an otherwise ‘good’ person. In some cases, I do this even when I can see a clear rationale for the rule’s existence and implementation. This personal experience is similar to the kind that inspired Becker (1968) to apply an economic analysis to crime and punishment, that of being compelled to decide whether it was worth risking a car parking fine to avoid being late for a meeting. This self-centredness that I and others experience in the fray of everyday interaction does not merely apply to issues that contingently bear on legal or criminal matters. When I sit down and consider the range of human suffering, I cannot help but recognise the arbitrary advantages I may have over relative strangers, many even in my vicinity, and the enormous differences in welfare between me and the rest of the world. Yet such considerations melt away and do not stop me from putting enormous weight, and dedicating most of my energies, to things that are fundamentally important to me and those in my social world that I care about – my career, my health and the wellbeing of my family and friends. Moreover, I cannot help but notice that this conduct appears to prevail amongst people regardless of the ethical positions that they take in political or philosophical debate. If this account of humanity is more realistic, then problems of justice are not purely about assurance amongst reasonable people or identifying anti-social persons. Instead, we must consider the anti-social person within ourselves: the appetitive, biased, narrow-minded, prejudicial self that drives a great deal of our everyday thoughts and interactions (Cowen, 2018). If we are to make our realistic selves work with each other to produce a just outcome, then we should affirm institutions that allow these beings, not just the wholesome

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beings of our comfortable self-perception, to cooperate. We have to be alive to the fact that we are dealing with agents who are apt to affirm a scheme as fair and just at one point (and even sincerely mean it), then forgetfully, carelessly, negligently or deliberately break the terms of that scheme at another point if they have an opportunity and reason enough to do so. Addressing ourselves as citizens in this morally imperfect state, as opposed to benighted people outside a charmed circle of reasonableness, is helpful. It means we can now include such considerations within public reason. The constraints of rules emerging from a constitutional stage may chafe at other stages of civil interaction. Nevertheless, they may be fully publicly justified. There are two ways in which institutions should be evaluated given this issue of self-centredness. First is their ability to reveal and frame information to individuals such that the costs and benefits of their decisions and conduct are knowable to them. Indeed, for reasonably pro-social agents, this is the main task of institutions. The second is how well they deal with the problems of enforcing rules, and especially how they weigh the costs and consequences of enforcement (Buchanan, 2000 [1975]). If rules can be self-enforcing, by aligning individuals following them with their own immediately visible interests, then they are likely to be more stable and commendable (Ostrom, 1990; Weingast, 1995, p.2). A division between full compliance and partial compliance theory might be unhelpful for this evaluation because different rules will produce different levels of compliance (Gaus, 2012, p.523). There is a sense in which these two tasks overlap (Cowen, 2016, 2017). As argued in Part I, there are some pure ‘knowledge problems’ where it is not possible, even in principle, for an individual to become aware of some social costs of their conduct without a facilitating institutional framework. There are other activities that are knowable in principle but might be quite costly to discover and institutions can helpfully frame choices in such a way that these costs are visible to relevant agents. The use of micro-beads in shampoo and toothpaste, and their apparently deleterious impact on sea-life could be an example of such a cost. There are other costs that really should be obvious on a little reflection, such as littering in the street, so one starts to attribute blame to such behaviour and consider how it could be deterred or the costs internalised. Finally, there are other forms of conduct, such as theft, fraud or vandalism, that are more or less pure ‘incentive problems’ where the issue is that some agents are so self-interested that the only way the costs of their behaviour are ‘revealed’ to them is by imposing on them a direct personal cost in the form of a penalty. Rawls furnishes us with some helpful deliberative mechanisms for considering these problems. My position is that we should acknowledge that problems of self-interest emerge in both market settings and political settings because the circumstances are typically relevantly similar.

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RAWLSIAN POLITICAL ECONOMY Rawls suggests that the institutions of either a liberal socialism or a property-owning democracy would appropriately reflect the principles of justice that agents would agree to in the Original Position. This openness suggests that a relatively wide range of institutional forms could meet the conditions of justice as fairness. His policy prescriptions are a relatively tentative sketch rather than a fully-fledged manifesto. As O’Neill and Williamson (2012a, p.4) suggest: Rawls takes seriously economic rationality, and is not interested in describing an unworkable utopia ... Yet [he] never followed through on the institutional prospectus by providing a more detailed specification of the architecture of a fully functioning property-owning democracy, or any explanation of how modern capitalist economies might be converted into property-owing democracies.

Nevertheless, Rawls does offer a framework through which the principles of justice can be applied to institutional design. The aim, and one that Rawls admits of which we are bound to fall short, is ‘perfect procedural justice’. That is, to establish a decision process that reliably arranges society in such a way that justice as fairness, the given public objective, is achieved. This framework is a four-stage sequence, composed of: 1. The original position, where agents develop a moral point of view behind a veil of ignorance in order to select the fundamental principles against which institutional outcomes are ultimately to be judged. 2. A constitutional convention where bargaining agents remain deprived of their personal circumstances and personal conception of the good but are now aware of the general social facts of the specific society for which they are establishing rules. The principles of justice are the substantive moral outcome; the convention stage’s purpose is to agree the sort of rules that will make that outcome attainable, including the enshrinement of basic rights in a constitution that guides and limits subsequent legislative activity. 3. A legislative stage that is more familiar to ordinary political activity in a democracy where existing laws and policies are subject to contestation, debate and reform by government representatives and ‘loyal opposition’ (Rawls, 1999, p.195), where there is a presumption, but one that can be overridden, in favour of majority rule (Rawls, 1999, p.175). 4. An administrative stage where judicial and bureaucratic decisions implement rules established by the legislature but for individual cases. These decisions remain subject to the constraints of justice established at earlier stages. Although administrators are generally expected to comply with

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valid law, they can be challenged by citizens through conscientious objection and civil disobedience insofar as the rules, or their implementation, fail to meet the requirements of justice as fairness. The four-stage sequence does not take the form of a one-way cascade from moral principles through to constitutional formation, democratic debate and implementation in a public administration. Instead, in line with Rawls’ method of reflective equilibrium, intuitions and principles articulated at earlier stages in the sequence are tested against conceivable outcomes and judgements in the latter stages of the sequence, allowing these intuitions to be challenged, and the principles themselves to be adjusted. Rawls emphasises that the four-stage sequence itself is not a model of actual political institutions. It is a part of his moral theory, a mechanism (and far from an exclusive one) for thinking through the implications of justice as fairness. Rawls suggests an approximate institutional division of labour between the constitutional features of a political community and the majoritarian democratic features. The basic equal rights of the Liberty Principle are constitutionally enshrined and upheld by a supreme judiciary (Rawls, 1999, p.174). By contrast, questions of the division and management of social resources specified under the Difference Principle are generally decided by majoritarian democratic procedures. Even then, democratic decisions regarding the distribution of social resources are subject to some form of judicial review insofar as they impact on basic liberties. The sort of deliberation that this arrangement is meant to generate is given further explanation when Rawls introduces a new concept: ‘public reason’. Rawls describes public reason as the reason of citizens as such, it is the reason of the public; its subject is the good of the public and matters of fundamental justice; and its nature and content is public, being given by the ideals and principles expressed by society’s conception of political justice, and conducted open to view on that basis. (Rawls, 2005 [1993], p.213)

It represents a guiding regulative ideal, to be distinguished from non-public reason which is only legitimately used for advancing the internal interests of private associations in civil society, such as churches and colleges. The moral demand to use public reason applies to citizens when they engage in political advocacy in the public forum, and thus for members of political parties and for candidates in their campaigns and for other groups who support them. It holds equally for how citizens are to vote in elections when constitutional essentials and matters of basic justice are at stake. (Rawls, 2005, p.215)

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However, despite this wide application, and precisely because public reason represents an ideal of public discourse, it does not describe typical democratic politics as such. Rawls acknowledges that public reason could be constituted through institutions of parliamentary democracy with certain legislative conventions that supposedly constrain pure majority rule (as in the United Kingdom) but could also be affirmed through substantially more constrained institutions such as the constitutional framework of the United States and Germany’s Basic Law. Habermas (1995) criticises this emphasis on anti-majoritarian constitutional constraints on the grounds that it forecloses democratic possibilities in favour of the protection of individual rights that have not necessarily withstood public justification. Rawls’ (1995) response to this is that at least some anti-majoritarian constraints may constitute substantive democratic practice rather than restricting it. The Public Finance Approach When it comes to the management of the economy, constitutional constraints, democratic procedures and public reason itself take back-seat positions. As Rawls (2005, p.214) explains: Many if not most political questions do not concern those fundamental matters, for example, much tax legislation and many laws regulating property; statutes protecting the environment and controlling pollution …

Rather than endorsing direct democratic control over the economy that more radical socialists suggest, Rawls turns to a body of economic knowledge, public finance theory, to propose technical guidelines that officials would be expected to follow. While the ends of political economy are selected democratically, within constitutional constraints, the means of attaining those ends are determined by established economic theory that is knowable to experts. Endorsing a typology of government interventions developed by Musgrave (1956), Rawls suggests dividing government economic activities into four branches: • • • •

the allocation branch; the stabilization branch; the transfer branch; and the distribution branch.

The allocation branch deals with market failures and externalities, by altering property rights and subsidies, to reduce market power for large firms, to discourage monopolies, and to support activities that are not supplied efficiently by unregulated markets. The stabilization branch is tasked with ensuring ‘rea-

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sonably full employment’ and ‘strong effective demand’ (Rawls, 1999, p.244). These activities, in contemporary developed regimes, are usually shared between government treasury departments and central banks. The transfer branch is used to guarantee a socially acceptable minimum income for all. The distribution branch has two roles: the first is to change property rights and tax regimes to maintain a rough equality between distributive shares in wealth. The second is to finance essential public goods. Rawls suggests that a proportional expenditure tax might be the best way of financing public goods while progressive taxes (including on inheritance) should be used only to establish ‘equal liberties’ and their fair value. He rejects, at this level of abstraction, assessing tax liabilities for essential public goods based on who benefits more or ability to pay. This is because these public goods are part of the basic structure of a just society and are not justified on a utilitarian basis that they enhance individual welfare. The overall goal of these branches is to ‘establish a democratic regime in which land and capital are widely though not presumably equally held’ (Rawls, 1999, p.247). The Market Failure Justification In justifying these institutions, Rawls follows the tradition of neoclassical economic theory. He recognises that markets offer a perfect procedure with regards to efficiency in cases of perfect competition. Resources are allocated to those that value them most, producing Pareto-optimal outcomes in which no individual can be made better off without making someone else worse off. However, Rawls also claims that perfect competition is rarely instantiated in practice and that market failures are often large and systematic. Here, government intervention can improve people’s welfare by intervening to generate a Pareto-optimal outcome. Markets fail typically due to a lack of information, or asymmetric information, and the problem of externalities or diseconomies. These include negative externalities (such as pollution) where costs are imposed on individuals by private action, and positive externalities that are under-provided because insufficient gains from providing them are not captured by the producer. Under-provision of public goods is a paradigm of this kind of market failure. Government provision is justified centrally in order to remove ‘temptation’ to free ride (Rawls, 1999, p.236). Rawls is not only concerned with efficiency in the economic sphere. He recognises that in many circumstances, efficiency is a worthy aim, but his central concern is fairness, that is, the distributive role of institutions rather than the allocative. Highly unequal distributions of resources may sometimes be the result of an efficient allocation, but they are often unjust because they reflect factors that are arbitrary from a moral point of view. So there are two tests that an unguided market process must pass in order to be permitted without inter-

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vention: the outcomes must be efficient in allocation and fair in distribution. Failure on either count justifies intervention. Meade, Rawls’ prime inspiration for his proposed economic institutions, takes a similar approach. He acknowledges the value of markets in producing allocative efficiency in cases of perfect competition, before listing a catechism of failures (Meade, 2012 [1964], p.12). The key concern of both Rawls and Meade is that resources be distributed fairly. It is not one about market failure as such. What exactly is the role of Rawls’ description of market failure? Why does Meade’s account of market failure appear at the beginning of his argument about distributive fairness as well? The role, it seems, is to establish a baseline from which market institutions should be judged, and to remind the reader that neoclassical economic theory endorses comprehensive government intervention before questions of distributive justice have been engaged. This is a compelling statement. If government intervention is presumed to be able to make rules and allocate resources efficiently to deal with negative externalities, information asymmetries and public good provision, then it is much less of a leap to presume it has the capacity to intervene on distributive grounds. This problem of market failure is invoked in defence of the ‘high liberal’ case for state intervention and to show that alternative formulations are unrealistic (Freeman, 2001, p.118). For example, in challenging Tomasi’s (2012) ‘market democratic’ interpretation of justice as fairness, Koppelmann states: ‘there is a standard response, having to do with familiar forms of market failure from which no amount of individual initiative can protect us’ (Koppleman, 2012). Similarly, O’Neill and Williamson (2012b) claim: Tomasi seems transfixed by an attractive but unrealistic picture of self-realizing producers exercising their economic liberties to carve out a place for themselves in the world. This is rarely what we get when we have deregulated markets.

THE PUBLIC CHOICE CRITIQUE The problem with the market failure case for relatively unconstrained state control over the economy is that markets are not the only institutions to feature collective action problems and diseconomies leading to Pareto-inferior outcomes. Buchanan suggests that it is typical of political institutions that they allow some people to impose costly externalities on others. For example, in a regime governed by simple majority voting and few constitutional limits on economic legislation, 51 per cent of the public can vote to impose a tax on the remaining 49 per cent and for the proceeds to be distributed to them. It is relatively common for local public goods, club goods, and even some private goods for politically powerful agents, to be supplied using funds gathered

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through general taxation. On the public choice account, giving a branch of the state power to engage in systematic distributions of wealth will predictably lead to exploitative distributions and confiscation rather than distributive fairness (Delmotte, 2020). A key purpose of empowering political institutions over and above market process institutions for Rawls is to address market failures, correcting for existing externalities and diseconomies. However, there are several possible outcomes from government intervention. The best-case scenario is that government addresses market failures efficiently and fairly, thus improving overall welfare. But they might also fail to address those problems, or they might add directly to them, perhaps reflecting the existing asymmetries and power differentials in the market but this time through the political process. Or they might introduce a whole new set of externalities reflecting the interests of powerful political actors without addressing the specific externalities present in the marketplace. Critically, what Buchanan shows is that, on relatively parsimonious assumptions, whenever a public good is to be provided (or public bad to be ameliorated) on the basis of rules governed by unrestrained majority rule, there exists a stable outcome that allows a majority coalition of self-interested voters to use the opportunity to exploit a minority (Buchanan and Congleton, 2003 [1998], p.24). That outcome strategically dominates an egalitarian distribution of benefits and burdens. The Assumption of Self-interest What is Buchanan’s justification for assuming self-interest rather than a more pro-social form of conduct? The justification has some similarities to the reasonable limits to human behaviour that Rawls invokes precisely to explain market failure problems. The first is that the effort involved in deviating from private interest to fulfil social obligations is a scarce resource. The economic way of thinking about politics, according to Buchanan and Tullock, is not to rely any more than is strictly necessary on such a resource: [T]he individual human being must undergo some effort in restraining his ‘passions’ [in order to] act in accordance with ethical or moral principles whenever social institutions and mores dictate some departure from the pursuit of private interests. Such effort, as with all effort, is scarce: that is to say, it is economic. (Buchanan and Tullock, 1999 [1962], p.27)

A condition of this argument is that we can reasonably apply the behavioural assumptions of homo economicus in a political setting in a symmetrical fashion as it is employed in market setting. Buchanan does not build a desire

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to follow rules of justice that track against immediate, narrow self-interest into the uninhibited preferences of the acting agent. She must be restrained from acting self-interestedly through some internal effort or external enforcement structures. A second argument is that agents have reason to behave as if they are risk averse (even when not, in fact, risk averse) when deliberating about rules that they will be subject to: The harm inflicted on his fellows by a person who behaves ‘worse’ than the average person in the community is greater than the benefits provided by another person who behaves ‘better’ than the average person. Accordingly, the average-person model understates the average harm done. In imagining scenarios that might emerge under various sets of rules (a process that is essential before a choice is made), citizens will act as if they were risk-averse. There will be a rational ‘bias’ toward avoidance of the worst-case prospects. (Brennan and Buchanan, 1999 [1985], p.63)

VICIOUS NEIGHBOURHOOD A thought experiment illustrates how collective action problems emerge in a democratic arrangement based on these behavioural assumptions.1 Vicious neighbourhood is essentially a pleasant place to live. For the sake of simplicity, it is a cul-de-sac composed of three family households, the Addams, the Browns and the Cartwrights. All members of the community are rational, reasonable, have a sense of justice and their own conceptions of the good. Confident in each other’s reasonableness, they have agreed to govern the neighbourhood on majoritarian democratic principles. Despite their friendliness, the neighbours have a few minor issues with each other’s behaviour. The Addams like to smoke marijuana on their patio. The annoying smell is often carried throughout the neighbourhood. The Browns are swingers who periodically invite couples over to engage in group sex. The parked cars of these couples take up a great deal of communal space for the duration of the events and congestion at the end of the party. The Cartwrights like to listen to heavy metal music with satanic themes which can disturb the rest of the neighbourhood. The neighbours do not like each other’s vices. They find them morally objectionable. More importantly, there is a reasonable public rationale for some sort of intervention in each case as they have externalities associated with them.2 All families see their preferred activities, the smoking, the group sex, the listening to loud music, as part of their reasonable conception of the good, though not necessarily basic to their identity. They disagree in that they do not see each other’s conduct as equivalent. They see their own vice as having a negligible impact on the neighbourhood, while they see the vices of the other two families as having a noticeable impact.

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Government Failure and Fairness Failure The neighbours would each prefer that their own vice be tolerated and those of the other two were prohibited. However, if presented with the option of banning all vices, or tolerating all activities, they would prefer to tolerate all activities as the value of engaging in their own vice outweighs the cost of tolerating the vices of the others. Hence, equal toleration is Pareto-efficient compared to equal prohibition. The neighbourhood is governed by unrestrained majority rule, so it is possible for each of these activities to be regulated. For any vote on the agenda, the majority will prefer to prohibit rather than tolerate. As a result, all three activities will end up prohibited through a sequence of votes, or through independent but simultaneous voting, should these three issues come up on the agenda. Hence, uncoordinated, sincere, non-strategic voting leads to a Pareto-inferior outcome of prohibition for all vices. Each family would have been better off had this range of behaviour not been subject to a vote at all. Table 9.1

Vicious neighbourhood votes sincerely

Family/Issue

Marijuana

Swinging

Metal Music

Addams

Permit

Ban

Ban

Browns

Ban

Permit

Ban

Cartwrights

Ban

Ban

Permit

Result (all ban)

Ban

Ban

Ban

The neighbours could anticipate this and arrange not to vote to prohibit each other’s vices. Without a formal mechanism to constrain voting outcomes, they might face an assurance problem. If they are voting in a secret ballot, then the decision becomes a form of the prisoners’ dilemma. Each family has an interest in voting to prohibit the two other vices, and vote against banning their own, knowing that once they are in the ballot box, their choice cannot influence the other voters in any case. If they are voting in sequence, then the families that cooperate by withholding their vote to prohibit are at a disadvantage, because they have no response should the other families latterly vote to prohibit their vice. Imagine that the noise pollution item aimed at the Cartwrights is due to come up last on the agenda. If the Cartwrights cooperate by holding back on their sincere preferences to prohibit the marijuana and the group sex parties, then they have lost any bargaining power should the Browns and Addams vote to prohibit at the final point on the agenda.

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Table 9.2

Vicious neighbourhood votes fairly

Family/Issue

Marijuana

Swinging

Metal Music

Addams

Permit

Permit

Permit

Browns

Permit

Permit

Permit

Cartwrights

Permit

Permit

Permit

Result (tolerate)

Permit

Permit

Permit

Suppose that the neighbours find a way of overcoming this assurance problem. They find a mechanism of signalling their voting intentions. This would allow the families to avoid the Pareto-inferior outcome of voting to prohibit all the vices. They could credibly commit to tolerate each other. The problem is that the same mechanism could be used by two of the families to gain a further advantage against the third. For example, the Addams and the Browns could agree to set aside their differences with respect to the marijuana and the group sex, and agree to tolerate each other, while also agreeing to ban the Cartwrights’ music. This may seem to these otherwise fair-minded agents to be a nasty move. However, they face the assurance problem once again. If they do not make use of this opportunity to make a deal, the other two families may do without them, because they can both benefit from cooperating against the third. The assurance problem re-emerges. Table 9.3 Family/Issue

Vicious neighbourhood votes strategically Marijuana

Swinging

Metal Music

Addams

Permit

Permit

Ban

Browns

Permit

Permit

Ban

Cartwrights

Ban

Ban

Permit

Result (minority

Permit

Permit

Ban

exploitation)

This result of forming a coalition is not Pareto-sub-optimal. The strategic vote at least places the outcome on the Pareto frontier. It would be impossible to alter the outcome without making at least one of the families worse off. The problem is that this efficient outcome is unfair and arbitrary from a moral point of view. The Cartwrights must put up with the Addams’ marijuana and the Brown’s swinging and do not have the consolation of their heavy metal music. The worst possible outcome for them has been selected and it was certainly worse for them than if these vices were excluded from the democratic agenda altogether. They have been exploited through the democratic process.

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Compared to Property Rights and Coasean Bargains Some sort of constitutional constraint is commendable to avoid both the Pareto-inferior outcome and the unfair outcome which involves ganging up arbitrarily on the minority. That could be a super-majority rule (this would mean unanimity amongst three voters), a generality rule, a rule requiring that some issues be considered as a bundle on an agenda. Or it could involve taking some externality issues below a threshold of harm away from the democratic process. In fact, unanimity rules are functionally the same as taking the relevant activities beyond the political sphere. It turns it instead into a property right since there are no circumstances in which someone will be required to stop that activity without voluntarily agreeing to cede that capacity. A sceptic at this point may point out that a constitutional limit on prohibiting a range of personal activities happens to produce better outcomes than an unconstrained democracy in the given case. But that is hardly always the case. What if it were the case that some vices produce costly externalities that doubtlessly require a mechanism of redress. A super-majority, or unanimity rule, would protect a minority against a genuine majority interest. My suggestion for a constitutional limit will prevent the democratic process from regulating appropriately as often as it prevents predation. Costly externalities, including nasty forms of predation, will go unchallenged. On this account, my endorsement of personal rights has no principle behind it, just a preference for property rights over democratic procedures. A response is that schemes of property rights open up their own solutions to externality problems (Coase, 1960). Property rights are alienable and thus can be exchanged. In the absence of the insecurity of a democratic process, binding contracts and side-payments can be made between parties that might ameliorate or resolve the externality. For example, the Addams could agree to install a ventilation system around their patio which filters out the marijuana smell so long as the Cartwrights agree to install some noise insulation in their home, thus removing both externalities. The three families might agree to pay together to expand their shared road in order to cope with the additional congestion associated with the Brown’s parties. These solutions are inevitably imperfect from the standpoint of each family, but they are potentially more fine-tuned than the democratic approach since the parties have an incentive to find the least-cost approach to removing the externality rather than simply demanding through the political process that they be removed. The public choice perspective does not suggest that for any collective action problem there is a rights-based solution that is superior to a democratic scheme. Sometimes the transaction costs involved in making a contract to which everyone consents are too high. For example, the 2020 coronavirus pandemic illustrates how some harms, such as infectious diseases, cannot be

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appropriately dealt with through private-property solutions in isolation. The point is that there are reasons to suspect a majoritarian democratic regime will display systematic imperfections, and that they should be evaluated symmetrically against super-majoritarian and unanimity (exchange-based) alternatives.

NOTES 1.

For a more comprehensive analysis of majoritarian voting in three-person interactions, see Buchanan and Congleton (2003, pp.39–44). 2. I have sketched out this example in terms of what are essentially personal liberties because they are more fun. However, it is perfectly plausible to re-describe these problems, and the policy solution, as economic externalities. For example, smoking marijuana itself might remain legal, but selling it to members of the neighbourhood could be restricted or prohibited on the grounds that consumers are myopic and do not recognise the long-term health implications of smoking it. Group sex might be prohibited in private households on the grounds that it is a danger to public health (in terms of spreading sexually transmitted disease) and that it creates a site of potential exploitation by creating circumstances where it is possible that some people are paid to engage in sex acts. As a result, it might too be prohibited outright or restricted to dedicated venues. Similarly, sale of audio equipment for playing heavy metal music could be restricted. These consumer regulations would have the same practical impact as direct prohibition on a personal freedom, but the power to introduce economic regulation is more likely to fall within the ambit of a political process in the absence of constitutional restrictions on economic regulation.

REFERENCES Becker, G. (1968) ‘Crime and Punishment: An Economic Approach’. Journal of Political Economy. 76 (2), 169–217. Brennan, G. and Buchanan, J.M. (1999) [1985] The Reason of Rules: Constitutional Political Economy. Collected works of James M. Buchanan v. 10. Indianapolis, IN: Liberty Fund. Buchanan, J.M. (2000) [1975] The Limits of Liberty: Between Anarchy and Leviathan. Collected works of James M. Buchanan v. 7. Indianapolis, IN: Liberty Fund. Buchanan, J.M. and Congleton, R.D. (2003) [1998] Politics by Principle, Not Interest: Toward Nondiscriminatory Democracy. Indianapolis, IN: Liberty Fund. Buchanan, J.M. and Tullock, G. (1999) [1962] The Calculus of Consent: Logical Foundations of Constitutional Democracy. Collected works of James M. Buchanan v. 3. Indianapolis, IN: Liberty Fund. Coase, R.H. (1960) ‘The Problem of Social Cost’. The Journal of Law and Economics. 31–44. Cohen, G.A. (2002) If You’re an Egalitarian, How Come You’re So Rich? Cambridge, MA: Harvard University Press. Cowen, N. (2016) ‘Introduction: Symposium on Robust Political Economy’. Critical Review. 28 (3–4), 420–39. Cowen, N. (2017) ‘Why Be Robust? The Contribution of Market Process Theory to the Robust Political Economy Research Program’, in Peter J. Boettke, C.J. Coyne and

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V.H. Storr (eds), Interdisciplinary Studies of the Market Order: New Applications of Market Process Theory. London: Rowman and Littlefield International. pp. 63–85. Cowen, N. (2018) ‘Robust Against Whom?’, in Steven Horwitz (ed.), Austrian Economics: The Next Generation. Advances in Austrian Economics. Bingley, UK: Emerald Publishing. pp. 91–111. Available from: https://​ doi​ .org/​ 10​ .1108/​ S1529​ -213420180000023008 (accessed 14 April 2020). Delmotte, C. (2020) ‘Tax Uniformity as a Requirement of Justice’. Canadian Journal of Law & Jurisprudence. 33 (1), 59–83. Estlund, D. (2014) ‘Utopophobia’. Philosophy & Public Affairs. 42 (2), 113–34. Freeman, S. (2001) ‘Illiberal Libertarians: Why Libertarianism Is Not a Liberal View’. Philosophy & Public Affairs. 30 (2), 105–51. Gaus, G.F. (2012) The Order of Public Reason: A Theory of Freedom and Morality in a Diverse and Bounded World. Cambridge: Cambridge University Press. Habermas, J. (1995) ‘Reconciliation through the Public Use of Reason: Remarks on John Rawls’s Political Liberalism’. The Journal of Philosophy. 92 (3), 109–31. Koppleman, A. (2012) ‘Review: Free Market Fairness’. Notre Dame Philosophical Reviews. Available from: https://​ndpr​.nd​.edu/​news/​free​-market​-fairness/​ (accessed 28 January 2021). McMahon, C. (2002) ‘Why There Is No Issue between Habermas and Rawls’. The Journal of Philosophy. 99 (3), 111. Meade, J.E. (2012) [1964] Efficiency, Equality and the Ownership of Property. Abingdon, Oxon; New York: Routledge. Musgrave, R.A. (1956) ‘A Multiple Theory of Budget Determination’. FinanzArchiv/ Public Finance Analysis. (H. 3), 333–43. O’Neill, M. and Williamson, T. (eds) (2012a) ‘Introduction’, in Property-owning Democracy: Rawls and Beyond. Malden, MA: Wiley-Blackwell. pp. 1–14. O’Neill, M. and Williamson, T. (2012b) ‘To Be Fair (John Tomasi, Free Market Fairness)’. Boston Review. Available from: http://​www​.bostonreview​.net/​BR37​.6/​ martin​_oneill​_thad​_williamson​_john​_tomasi​_free​_market​_fairness​_libertarianism​ .php (accessed 16 April 2013). Ostrom, E. (1990) Governing the Commons: The Evolution of Institutions for Collective Action. The political economy of institutions and decisions. Cambridge; New York: Cambridge University Press. Rawls, J. (1995) ‘Political Liberalism: Reply to Habermas’. The Journal of Philosophy. 92 (3), 132. Rawls, J. (1999) [1971] A Theory of Justice. Cambridge, MA: Belknap Press of Harvard University Press. Rawls, J. (2005) [1993] Political Liberalism. Columbia classics in philosophy. Expanded edn. New York: Columbia University Press. Rousseau, J.-J. (1923) The Social Contract and Discourses. London and Toronto: J.M. Dent and Sons. Available from: http://​oll​.libertyfund​.org/​titles/​638​#Rousseau​_0132​ _375 (accessed 28 January 2015). Swift, A. (2003) How Not to Be a Hypocrite: School Choice for the Morally Perplexed. London; New York: Routledge. Tomasi, J. (2012) Free Market Fairness. Princeton, NJ: Princeton University Press. Weingast, B.R. (1995) ‘The Economic Role of Political Institutions: Market-preserving Federalism and Economic Development’. Journal of Law, Economics, & Organization. 11 (1), 1–31.

10. The constitutional point of view What are the implications of the public choice critique for Rawlsian political economy? The critique applies centrally to the legislative and administrative stages of Rawls’ four-stage sequence. The prediction is that legislators are more likely to win and maintain their office if they cultivate a ‘base’, a supportive coalition on which they can concentrate benefits rather than distributing them according to principles of fairness. Moreover, legislators that follow public reason and only suggest policies with genuinely widespread benefits will be out-competed by opponents who are less scrupulous and focus on policies that generate a loyal coalition of voters and supporters. Hence, the rules of the political game, in a way familiar to market failure problems, can drive people away from potentially productive forms of cooperation and facilitate predation. Administrators, unelected public officials, do not face the same problems of majoritarian democratic politics. However, like all citizens, they have personal interests as well as public objectives. These interests might include maximisation of their own income, the budget under their control, the size of their staff and general career and status advancement. Critically, officials that are more focused on maintaining and advancing their status are likely to out-compete those that have a more public-spirited agenda for positions of authority. Hence, the familiar pattern of socially destructive behaviour driving out good behaviour which is the substance of many collective action problems can re-emerge at this level of political activity as well. Moreover, unlike legislators, much of this competition for resources can take place within the relatively private, anonymous setting of a government office or state-owned firm. This is often out of sight of the public and the public’s representatives, those ultimately responsible for the collective provision of public goods to which the officials have been entrusted. On this account which is sceptical of the moral conduct of people in public as well as private roles, an unanimously agreed social contract is not just an opportunity to agree to moral principles of justice. In fact, consensus on moral principles may not be necessary or possible. Instead, it provides a unique opportunity to establish protective and productive institutions that ameliorate these common sources of government failure because the decision procedure, like Rawls’ original position, has been designed so that self-interest conveniently coincides with the shared considered interests of all participants. 110

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IMPLICATIONS FOR SOCIAL JUSTICE Just as the market failure argument forms an important part of the Rawlsian case for state intervention, so the public choice critique is one commonly deployed by classical liberals to defend constraints on democratic practice and in defence of market society. For example, Tomasi (2012), in defending regimes that produce wealth inequalities while materially benefitting the least well-off, has to contend with Rawls’ claim that wealth inequality undermines fair political participation: [All citizens] should have a fair chance to add alternative proposals to the agenda for political discussion. The liberties protected by the principle of participation lose much of their value whenever those who have greater private means are permitted to use their advantages to control the course of public debate ... In due time they are likely to acquire a preponderant weight in settling social questions, at least … in regard to those things that support their favored circumstances. (Rawls, 1999 [1971], p.225)

Rawls suggests that selfish behaviour is not at home in political institutions but rather rises ominously from the fray of an unequal civil society. So inequality must be properly controlled and contained. This is achieved by insulating the political process from the effects of inequality in the economic realm as well as restricting the scope of those inequalities so that they do not exert a long-term deleterious effect on the political process and public culture. It is almost unthinkable, on this conceptualisation, for the political process to compromise the market process in order to increase inequality which public choice identifies as a plausible problem. Moreover, it ignores cases where commercial norms and institutions could influence the political process in a more socially egalitarian direction (Berggren, 1999; Storr and Choi, 2019; Cowen, 2021). Tomasi’s response is that Rawlsians misidentify the causes of poor representation because it is in the nature of democratic politics that some interests are better represented while other are excluded in ways that do not track distributive justice: People on the left sometimes suggest that the problems of government inefficiency and corruption stem mainly from the fact that citizens hold unequal shares of wealth. If wealth could be made more equal, they suggest, many of these problems would be diminished or resolved. However, public choice economists suggest that the real problem is not so much unequal shares of wealth or power but rather a more intractable fact: so long as a wide range of economic questions are allowed onto the legislative agenda, the importance of those questions will differ to parties in ways that do not track inequalities in wealth or power. It is not the fact of differential wealth but the fact of differential interests that generates these problems of ‘government failure’. (Tomasi, 2012, pp.199–200)

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Similarly, Gaus argues that typical democratic practice, which public choice analysis identifies as rent seeking, undermines a regime’s claim to affirming the requirements of distributive justice as well as to following the regulative principle of public reason: Logrolling and omnibus legislation, inducing bargains and trade-offs appealing to the mere self-interest of the parties, are almost the norm in some democracies … Strikingly, some friends of democracy endorse such bargains as giving everyone a share of the legislative pie … But there is no public justification for a political authority as a tool for employing coercion to advance the interests of some at the expense of others. (Gaus, 2012, p.497)

RAWLSIAN OBJECTIONS TO PUBLIC CHOICE Objections to the public choice critique tend to hinge on rejecting the assumption of symmetry, that of applying homo economicus to political settings. Rawls rejects the public choice approach in the following terms: [T]he so-called economic theory of democracy, the view that extends the basic ideas and methods of price theory to the political process, must for all its merits be regarded with caution … a correct theory of politics in a just constitutional regime presupposes a theory of justice which explains how moral sentiments influence the conduct of public affairs. (Rawls, 1999, pp.431–2)

There are two key differences in the way that agents behave in the political domain on this account compared with their behaviour in market institutions. The first is in terms of preference or motivation. Rawls assumes that actors in the political realm are constrained by a sense of justice (Rawls, 1999, p.236). They take the interests of others as a serious burden, if not quite as heavy as their own private commitments. This contrasts with markets, where actors behave in an instrumentally rational way to maximise their own pay-off. The second key difference is in terms of information. Political actors communicate and deliberate over competing and conflicting demands on resources. Arguments are addressed in terms of public reason. This seems to be what allows political institutions to overcome the asymmetries of information and externalities associated with market failures where agents do not communicate in a parallel way. In contrast to Rawls, Meade’s reasoning for political actors’ capability to optimally address problems of efficiency and distribution is under-theorised. Meade treats the state as a person itself with an infinite time horizon. He claims that ‘individuals, unlike the State, are mortal’ (Meade, 2012 [1964], p.23) without recognising that decision-makers within the state apparatus are

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as mortal as private citizens. In other places, decision-makers are assumed to pursue efficient production even in the absence of personal incentives: [I]n order to set today’s prices in a pattern which will act as a guide to an efficient use of today’s resources, one must know future technical production possibilities and the pattern of future prices. This requirement can … never be perfectly fulfilled, though systematic co-operation (for example, in the National Economic Development Council) in comparing, coordinating and assessing individual plans for future development may help to achieve more accurate expectations. (Meade, 2012, p.21)

In responding to the public choice critique, Meade acknowledges that he assumes different agent behaviour in the political setting and the market setting. He suggests that such an asymmetry is a realistic requirement of a political community although one that may require cultivation: [Economists including myself have often] assumed that individuals in the market place behave with the unadulterated selfishness of ‘economic man,’ while there exists in the Government an omniscient and benevolent philosopher king who intervenes to promote the general good of society. But in a democratic polity the citizens promote certain economic policies with their votes just as in the market place they promote certain economic activities with their purses. Are we to believe that they have such split personalities as to vote altruistically solely for the general good and to spend selfishly solely in their own personal interest? There probably is some element of this split in many citizens’ minds; and the present reviewer would be prepared to make a case for the view that such a split should be encouraged in the interests of society. (Meade, 1972, pp.1423–4)

Nevertheless, Meade acknowledges that ‘it behoves economists to consider the implications of alternative assumptions’ (1972, p.1424). Musgrave, as part of an extensive debate with Buchanan, rejects the ‘worst-case scenario’ test: I do not join Hume’s proposition that in viewing government ‘everyone ought to be considered a knave’ ... I would rather draw on people’s capacity to serve as responsible members of the community, so that government may do its important tasks and do them well. (Buchanan and Musgrave, 1999, p.82)

Koppleman (2012) suggests that the public choice critique is empirically refuted and that bureaucratic discretion, insulated from both democratic and market processes, has produced beneficial outcomes. Hence, the public choice solution of constitutionally limiting government from interference in the market process is unsound. Instead of focusing on the rules of the game, the

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solution is to encourage better behaviour from the players on a case-by-case basis: [The public choice] critique is manifestly contradicted by the facts, notably the fact that the air you’re breathing and the water you’re drinking are both cleaner than they were when the Environmental Protection Agency was created in 1970. In fact, the administrative process insulates regulators from political pressure in numerous ways, and beneficial regulations have been enacted over the protests of both the President and Congress … Of course, capture does sometimes happen, and it needs to be fought. Left and right should unite to get rid of farm subsidies! But as long as government has legitimate responsibilities, the task of cleaning out such rot must be done at retail, one law at a time, not by wholesale attacks on government. You don’t treat a pimply face by amputating the patient’s head.

THE ASYMMETRY CRITIQUE OF PUBLIC CHOICE Kogelmann (2015) extends this debate by challenging the internal consistency of Buchanan’s approach. As with Rawls’, Meade’s and Musgrave’s objections, Kogelmann suggests that the arguments in favour of applying homo economicus to political settings is weak. His critique stings because it highlights a potential asymmetry in Buchanan’s framework, precisely the same critique that motivates the public choice research programme. This asymmetry is the application of a thick and thin version of the behaviour of homo economicus depending on where Buchanan is in his argument. The thick version suggests that something akin to wealth maximising behaviour is a realistic motivation in political settings for both legislators and public servants. Buchanan supposes that this applies to behaviour within the rules of a political game and that institutions should be designed with opportunistic behaviour in mind. The thin version, applied at the constitutional stage, suggests a formalistic non-tuism implying only that people have independent interests and values of a generic, but potentially expansive, kind. This includes a desire for self-government and to engage in a shared democratic enterprise. Buchanan needs an agent such as this to motivate his underlying commitment to constitutional democracy. However, it is unclear, having helped himself to the thinner model that allows for a richer, non-economic agent in a constitutional choice situation, why such agents cannot be imputed to other stages of collective decision-making. A comparison between Rawls’ four-stage process and Buchanan’s framework of constitutional democracy illustrates this problem. Rawls’ theory is explicitly normative. The question he asks is how free and equal citizens committed to justice can establish institutions that affirm their shared aims. The original position and the four-stage process are mechanisms that helps

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deliberators answer that question. As a result, Rawls at least has a case for positing more reflective, morally engaged agents at other stages of the process, including people in legislative and administrative roles. By contrast, Buchanan’s question is how self-interested agents with typically divergent preferences, including moral beliefs, and pre-existing claims on resources could nevertheless agree to establish common institutions. Like the original position, the constitutional choice situation is essentially hypothetical. Whether rational, reasonable citizens are morally bound by the dictates of a hypothetical social contract remains a contested issue even within Rawlsian theory, but there is, at least, a plausible answer that can be found in their posited shared commitment to freedom and equality. But the question of why Buchanan’s purely self-interested agents should feel bound by a hypothetical contract in the absence of such normative claims seems much less answerable. These agents did not agree to accept the initial inputs into the process, the pre-existing property rights and the preferences of others, nor the process of agreement itself. They will necessarily judge whether to accept the outcome for themselves based on their self-interest. The process itself holds no normative bearing for them.

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The Unanimity Solution and Its Failure Meadowcroft (2014) offers a promising solution. He turns the observation that unanimous agreement to any change should be expected to produce Pareto-improvements into a normative commitment to unanimity and consent, that is, for a ‘consensual politics’ (2014, p.96) unlike all other ‘non-consensual’ alternatives: The conceptualization of politics and markets as processes of exchange derives much of its normative power from the assumption that such exchanges can take place only with the consent of all parties and this ensures that such exchanges produce Pareto-improvements and are therefore welfare-enhancing. (2014, p.89)

Unlike Rawls and other consent-based theories, voluntary agreement can transform an illegitimate status quo into a legitimate situation: unanimity is the only legitimate basis for political agreement even from an unjust starting point. (Meadowcroft, 2014, p.95)

This normative commitment to the overarching consent of the governed can be contrasted with the ‘constitutional anarchy’ that Buchanan fears describes most existing regimes. Constitutional anarchy is a situation where no individual rights are secured from the general fray of the political process. In that scenario, the everyday political process can undermine the conditions of its own legitimacy and capacity.1 The result is that citizens and civil society actors are forced to spend resources not just to engage in productive policymaking, but to protect their existing insecure rights, just as individuals have to dedicate their own time and resources to protecting their possessions in a state of nature. Buchanan’s and Meadowcroft’s hope is that individuals who are advantaged under a constitutionally anarchic status quo would be willing to do a grand bargain, trading their existing insecure rights and resources in return for fewer resources that were better secured, with a dividend distributed to the less advantaged, thus producing an outcome that is consensual and satisfies the presently disadvantaged. This solution is compelling but has its own critical weaknesses. The notion of unanimity as a foundation for political institutions is both attractive and the sort of arrangement that could theoretically motivate a diverse range of self-interested individuals to agree to an institutional framework. To use an example that is applicable to real political experience, most people acknowledge that there is some minimal value in a group of nation-states agreeing and keeping a peace treaty in which the rights of those states are protected. That applies almost regardless of the content of the treaty no matter how unfair or apparently one-sided, if the alternative is no rights or security whatsoever.

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The problem is that the baseline of unanimity amongst individual agents, as opposed to states, is completely unrealistic. Indeed, it is more unrealistic than Rawls’ notion of an overlapping consensus based on reasonable pluralism. Realism is not such a critical problem for Rawls who is aiming at perfect procedural justice and so already has a substantive outcome in mind that a hypothetical procedure is supporting. It is, however, a problem for the Buchananite project based on pure procedural justice, where there is no external judgement of the outcome of the agreement. Agreement itself constitutes the justice (or, at least, legitimacy) of the arrangement. If there is no actual path to establishing the agreement in practice, such a theoretical procedure does not offer insight into what a just arrangement would be. The consent-based outcome is realistically unobtainable, and, by construction, does not elicit substantive information about what a consensual outcome would look like if, hypothetically, it obtained. If it were a map designed to guide us to legitimate institutions, it would be too abstract to be helpful. It is utopian. The outcome of consensual processes may not even be that attractive in any case. As we saw in the example of the vicious neighbourhood, it is possible both for a situation to be Pareto-efficient and yet unequal and the result of an unfair process. If that is the starting point, the ‘illegitimate’ status quo before unanimous agreement is sought to legitimise an arrangement, then it is conceivable that it could proceed by individually legitimate (unanimously agreed) steps in ways that existing inequalities are reproduced or even augmented. This is not an outcome that one would necessarily expect, but it is possible and as this is a purely procedural account, there is no way to place an external parameter on the possible outcome of the bargain. The laudable aspect of this approach is that whatever rights and resources one did have, even under an unequal arrangement, would be protected from further exploitation. This would be valuable for agents that are particularly concerned with security and the avoidance of conflict both within a political setting or in a state of nature, but it would not necessarily satisfy all agents. At some margin, the disadvantaged under a status quo may even prefer to try their luck with a bit of ‘anarchy’ and the vicissitudes of an exploitative political game in the hope that they may benefit. Hence, agreement, even in principle, may not be possible. As compelling as unanimity is as a motivating normative principle, it is unfeasible, uninformative and potentially unattractive in terms of the outcomes it could produce.

APPLYING THE CONSTITUTIONAL POINT OF VIEW The debate described has settled into opposing camps. There are broadly classical liberals who find the economic analysis of political behaviour compelling. They suggest that collective action problems emerge in political

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settings in a parallel fashion to market situations when we apply the same realistic motivations to political actors. High liberals point to the failures of a thick conception of homo economicus to explain real-world political behaviour (Quiggin, 1987). Moreover, they can reasonably suggest that a consistent application of homo economicus implies a complete rejection of political institutions as a site where people can act from a moral point of view at all rather than narrow self-interest. This renders the discoveries of public choice unrealistically cynical while at the same time undermining the quasi-normative project of constitutional political economy. There is a way of unpicking this opposition. A common mutual assumption between both camps is that public choice represents an exclusive alternative conceptualisation of the democratic process to public reason and deliberative democratic procedures in general (Dryzek and List, 2003; Pennington, 2003, 2010). However, a closer look at the role of public reason in Rawls’ theory of justice suggests that public choice and public reason may not be as competitive as typically assumed. Public choice is chiefly addressed not to idealised agents deliberating about democratic principles but to analysis of mundane political processes and everyday public administration. By contrast, Rawlsian public reason has comparatively little to say about the regulation of everyday legislative politics and public administration itself. There are two reasons for this. First, Rawls suggests the substantive content of public reason is limited and of a general nature: The limits imposed by public reason do not apply to all political questions but only to those involving what we may call ‘constitutional essentials’ and questions of basic justice … This means that political values alone are to settle such fundamental questions as: who has the right to vote, or what religions are to be tolerated, or who is to be assured fair equality of opportunity, or to hold property. These and similar questions are the special subject of public reason. (Rawls, 1997, p.94)

Second, Rawls is careful not to associate public reason itself with any operation of democratic processes. Indeed, public reason can justify checks on formal democratic procedures. Rawls suggests, as an example, that the activities of a supreme court blocking certain kinds of legislation could be ‘archetypical’ of public reason: By applying public reason the [supreme] court is to prevent ... law from being eroded by the legislation of transient majorities, or more likely, by organized and well-situated narrow interests skilled at getting their way. If the court assumes this role and effectively carries it out, it is incorrect to say that it is straightforwardly antidemocratic. It is indeed antimajoritarian with respect to ordinary law, for a court with judicial review can hold such law unconstitutional. Nevertheless, the higher authority of the people supports that. The court is not antimajoritarian with respect to higher law when its decisions reasonably accord with the constitution itself and

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with its amendments and politically mandated interpretations. (Rawls, 2005, [1993] pp.233–4)

Rawls (1999, p.313) endorses constitutional limits against the claims of substantive political liberty when necessary. Strikingly, Rawls goes so far as to invoke Locke’s (2016 [1689]) distinction between the constituent power of the people and the ordinary powers of public officials, a paradigmatic model of limited government, in order to justify, in democratic terms, the operation of a supreme court (Rawls, 2005, p.231). Coming from the other side, there are two ways that Buchanan’s (2000 [1975], p.11) project affirms democratic principles despite his more sceptical attitude to the behaviour of public officials. First, Buchanan (1954b, pp.118–19) recognises that even under self-interested assumptions, competitive democracy can facilitate a fairer distribution of social resources because they allow for shifts in electoral coalitions over the course of each generation (1954b, pp.118–19). This means that interest groups or classes of people that lose an election are likely to win in subsequent electoral cycles. If there are regular elections where power is exchanged, every citizen has the chance to benefit from being a favoured recipient at some point over the course of their lives. Moreover, the pattern of distribution, as an outcome of an unpredictable ongoing competitive process, is not determined by any single agent (a dictator), thus avoiding the arbitrary rule of one person over another. Second, Buchanan (1954a) acknowledges that his favoured institutions, which include the protection of private property and voluntary exchange, must ultimately stand on some sort of democratic consensus or claim to the common good. In fact, to deny this would be to place the enterprise of public choice, as a body of scholarship and discourse, in the strange position of being almost a ‘performative contradiction’ (cf. Habermas and Levin, 1982, p.22). It would be an attempt to advance in a discursive academic setting social knowledge that effectively denies the relevance of discourse to social coordination. It would imply that most political discussion, including that of public choice’s own proponents, was the result of selfish actors pursuing their own ends within given rules of the game. Hence, a non-contradictory public choice critique does not challenge the idea of public reason itself, nor the value of democracy. Instead, the public choice perspective asks how the complex sphere of mundane political activity, often secluded from direct public view, can nevertheless be held publicly accountable and used to facilitate the shared ends of a community. Given the overlapping nature of the two projects, where can public choice and public reason meet? It is in a shared commitment to justifying rules from an impartial standpoint, a standpoint that reasonable agents would take to be just in Rawls’ terminology, or legitimate in Buchanan’s framing because they secure some of everyone’s considered interests. Impartiality is a definitive

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characteristic of the moral point of view. The original position is an attempt to develop a moral point of view for establishing the principles of justice for a democratic community. It is this moral point of view which justifies placing some constraints on the outcomes of the ordinary democratic process, namely those that infringe basic rights. What public choice demonstrates is that unrestrained democratic authority over economic activity predictably leads to outcomes that are unfair and tend to undermine processes that are essential to facilitating widespread social cooperation. Moreover, this risk is, in part, endogenous to the process of majoritarian democracy itself. It is a parallel to the risk that Rawls sees of temporary majorities infringing basic rights unless constrained by the parameters of a moral point of view. The constitutional point of view is an extension of the notion of impartiality to the rules that are supposed to facilitate social cooperation. It looks at the conduct that the rules facilitate rather than the inherent value or attractiveness of the rules themselves. The moral point of view rejects some outcomes even if they are the result of an otherwise legitimate democratic process. The constitutional point of view commends some constraints on democratic processes themselves, those that predictably lead to unjust outcomes. One way of conceptualising the constitutional point of view is as a sort of firewall between the moral point of view of the original position and the practical questions of institutional design. Having used the original position to develop a moral point of view, the constitutional point of view (applied chiefly at the second stage of the four-stage sequence within Rawls’ particular scheme) asks how institutions could be arranged such that morally imperfect agents have their behaviour framed in order to conform with a pattern that approximately follows the requirements of justice. Although it can be included in the four-stage sequence, the adoption of the constitutional point of view itself is essentially a free-standing deliberative practice. It is not linked to any particular social contract or constitutional choice situation, whether real or hypothetical. It could certainly be adopted as part of a formal process of deliberation and debate about policymaking. It could be part of the content of informal discussion in civil society about how institutions perform. It could also be a useful mechanism for groups attempting to engage in social or political reconciliation because it attempts to de-personalise the source of injustice and establish where the existing rules or institutions, rather than individuals or communities, have failed. This constitutional point of view suggests another dimension to the notion of public reason. Public reason involves mutual recognition of citizens’ separate conceptions of the good and the fact that they all face the same burdens of judgement when considering complex issues of justice and morality. The constitutional point of view adds a mutual recognition that citizens face a burden

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in complying with rules even after they have agreed that they are just in principle. Recognising this weakness in ourselves and others means that we also recognise that others may reasonably ask for assurance mechanisms to ensure that we comply with agreed rules, procedures or purposes. Correlatively, it is unreasonable to require citizens to accept rules that empower specific actors or institutions on the mere assumption that they will act according to given purposes but without obvious sources of accountability. Instead, mechanisms designed to aid coordination that have built-in checks and balances will appear substantially more reasonable from this perspective. This reciprocal recognition of the necessity of accountability would seem to follow from the notion of democratic equality itself.

NOTE 1. An example of this in the United Kingdom can be found on the government’s increasing reliance on delegating powers traditionally held by Parliament to government ministers, non-ministerial government agencies and even non-governmental organisations. One government bill involved giving ministers quasi-legislative powers to amend parliamentary legislation (including the enabling bill itself) as well as the power to delegate this same power to legislate to any other agent (Cowen, 2008).

REFERENCES Berggren, N. (1999) ‘Economic Freedom and Equality: Friends or Foes?’ Public Choice. 100 (3/4), 203–23. Buchanan, J.M. (1954a) ‘Individual Choice in Voting and the Market’. Journal of Political Economy. 64 (4), 334–43. Buchanan, J.M. (1954b) ‘Social Choice, Democracy, and Free Markets’. The Journal of Political Economy. 114–23. Buchanan, J.M. (2000) [1975]. The Limits of Liberty: Between Anarchy and Leviathan. Collected works of James M. Buchanan v. 7. Indianapolis, IN: Liberty Fund. Buchanan, J.M. and Musgrave, R.A. (1999) Public Finance and Public Choice: Two Contrasting Visions of the State. Cambridge, MA: MIT Press. Cowen, N. (2008) Total Recall: How Direct Democracy Can Improve Britain. London: Civitas. Cowen, N. (2021) ‘Basic Economic Liberties: John Rawls and Adam Smith Reconciled’. The Independent Review. Available from: https://​papers​.ssrn​.com/​sol3/​papers​.cfm​ ?abstract​_id​=​3596764 (accessed 28 January 2021). Dryzek, J.S. and List, C. (2003) ‘Social Choice Theory and Deliberative Democracy: A Reconciliation’. British Journal of Political Science. 33 (01), 1–28. Gaus, G.F. (2012) The Order of Public Reason: A Theory of Freedom and Morality in a Diverse and Bounded World. Cambridge: Cambridge University Press. Habermas, J. and Levin, T.Y. (1982) ‘The Entwinement of Myth and Enlightenment: Re-reading Dialectic of Enlightenment’. New German Critique. 26, 13. Kogelmann, B. (2015) ‘Modeling the Individual for Constitutional Choice’. Constitutional Political Economy. 26 (4), 455–74.

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Koppleman, A. (2012) ‘Review: Free Market Fairness’. Notre Dame Philosophical Reviews. Available from: https://​ndpr​.nd​.edu/​news/​free​-market​-fairness/​ (accessed 4 December 2020). Locke, J. (2016) [1689]. Second Treatise of Government and a Letter Concerning Toleration. Mark Goldie (ed.). Oxford: Oxford University Press. Meade, J.E. (1972) ‘Theory of Public Choice: Political Applications of Economics’. The Economic Journal. 82 (328), 1423–5. Meade, J.E. (2012) [1964] Efficiency, Equality and the Ownership of Property. Abingdon, Oxon; New York: Routledge. Meadowcroft, J. (2014) ‘Exchange, Unanimity and Consent: A Defence of the Public Choice Account of Power’. Public Choice. 158 (1–2), 85–100. Pennington, M. (2003) ‘Hayekian Political Economy and the Limits of Deliberative Democracy’. Political Studies. 51 (4), 722–39. Pennington, M. (2010) ‘Democracy and the Deliberative Conceit’. Critical Review. 22 (2–3), 159–84. Quiggin, J. (1987) ‘Egoistic Rationality and Public Choice: A Critical Review of Theory and Evidence’. Economic Record. 63 (1), 10–21. Rawls, J. (1997) ‘The Idea of Public Reason’, in J. Bohman and W. Rehg (eds), Deliberative Democracy: Essays on Reason and Politics. Cambridge, MA: MIT Press. pp. 93–141. Rawls, J. (1999) [1971] A Theory of Justice. Cambridge, MA: Belknap Press of Harvard University Press. Rawls, J. (2005) [1993] Political Liberalism. Columbia classics in philosophy. Expanded edn. New York: Columbia University Press. Storr, V.H. and Choi, G.S. (2019) Do Markets Corrupt Our Morals? Cham: Palgrave Macmillan. Tomasi, J. (2012) Free Market Fairness. Princeton, NJ: Princeton University Press.

11. The robust case for behavioural symmetry I have argued that public choice can be integrated into a public reason framework. If this is the case, then where is the remaining substantive disagreement between Buchanan’s and Rawls’ approach? I believe that what remains is the contest between public choice and public finance theory. Public finance assumes that agents in the market process engage in relatively narrow self-interested calculation, while similar agents in a public policy setting can follow the public interest so long as the means to achieve that public interest are appropriately specified in economic theory. This assumption is essentially detachable from the rest of Rawls’ theory. As discussed in Part II, it partly reflects Rawls’ contextual engagement with a neoclassical synthesis that focuses on the technical task of allocating scarce resources and avoids questions of institutional performance. Nevertheless, Rawls does offer a positive defence of something like the asymmetry assumption implicit in public finance theory: [a] theory of a constitutional regime cannot take the rules as given, nor simply assume that they will be followed ... Even if everything is done in accordance with constitutional procedures, we need to explain why these are accepted. Nothing analogous to the constraints of a competitive market holds for this case; and there are no legal sanctions in the ordinary sense for many sorts of unconstitutional ... The leading political actors are guided therefore in part by what they regard as morally permissible; and since no system of constitutional checks and balances succeeds in setting up an invisible hand that can be relied upon to guide the process to a just outcome, a public sense of justice is to some degree necessary. (Rawls, 1999 [1971], pp.431–2)

We can summarise this case for rejecting asymmetry in the following terms: 1. An acceptability paradox: why would self-interested, potentially opportunistic actors, follow rules, whether they agreed to or not, if it went against their personal interests to do so. Homo economicus cannot affirm and then follow moral or political rules without some extra-economic commitments.

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2. There are no ultimate legal sanctions for political actors who fail to uphold principles of justice, therefore some non-economic commitments, that is, moral sentiments, must guide political actors. 3. By contrast, when the situation of a perfectly competitive market holds, an invisible hand ensures that narrowly self-interested actors cooperate in a way that produces an economically efficient outcome. With the constitutional point of view in mind, I can offer a more tentative and focused defence of behavioural symmetry. Against the ‘economic imperialism’ (Lazear, 2000) of some scholars, my position does not involve assuming that homo economicus dominates human conduct in all spheres of activity, nor that it explains any but a portion of conduct in market settings (Cowen, 2018). Instead, I propose that relevantly similar characteristics of market and political activity mean that homo economicus can function as a relevant explanatory ideal type (Cowen, 2016). It cannot explain the entire range of conduct either in market or political settings, but it points to important tendencies, arguably present in most large-scale, complex attempts at cooperation. In brief, my defence of symmetry is that agents in market and political settings are influenced by both formal and informal norms; are known to affirm positively self-interested motivations for some purposes; and affirm symbolic non-economic motivations in other respects. Most critically of all, both take place in settings at quite a large scale but typically with limited opportunities to exit.

TAKE PLACE WITHIN FORMAL INSTITUTIONAL FRAMEWORKS Rawls differentiates market activity from political activity by describing political activity as necessarily involving the establishment and revision of rules and legislation. By contrast, on his account, economic behaviour takes place in the absence of such activity and behaviour. There is no corresponding institutional structure for markets. In making this argument, Rawls seem to blur two distinctions. The first is between constitutional political economy and the more mundane questions of ‘who gets what, when and how’ that drive everyday political activities and compromises. The second is between market activity and uncoordinated individual activity in the complete absence of institutions. In a similar vein, Musgrave claims: [I]t is not only the state whose actions need be restrained. In order to emerge from the Hobbesian jungle, social coexistence also requires restraints on what individuals are free to do. To impose such restraints, collective action by the democratic state is needed. It is thus the proper mix of restraints, imposed on collective and individual

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actions, respectively, that matters; and it is that mix that should be written into our scale, and not restraint on state action only. (Musgrave, 1999, p.129)

From a Robust Political Economy (RPE) perspective, all human activity is ultimately constituted by individual conduct (Cowen, 2017; cf. Meadowcroft, 2016, p.225). A notion of ‘state action’ is a helpful shorthand for the aggregate outcome of individuals acting within a political setting to produce a collective decision or outcome, but it is a conceptual confusion to contrast it against individual activity itself. ‘State action’ is, in fact, the activity of individuals constrained within a set of political institutions and rules. This means that the relevant comparison is not between the unconstrained individual activity of the Hobbesian jungle and the collective activity of a democratic state, but constrained individual activity within a framework of property rights, and constrained activity within a legislative or bureaucratic setting. A framework of property rights and voluntary exchange also produces collective outcomes through placing constraints and guides on individual activity, just as rules and guides within a bureaucratic organisation does. Economic cooperation does not emerge from a vacuum or a jungle. A pre-requisite for economic coordination between individuals is a common framework of rules.

INFLUENCED BY INFORMAL NORMS It is not only formal legal rules that determine market behaviour. Ethical norms also constrain businesses and consumers. Milton Friedman (1970), in one frequently misquoted claim, explains: In a free-enterprise, private-property sys­tem, a corporate executive is an employee of the owners of the business. He has direct re­sponsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while con­forming to the basic rules of the society, both those embodied in law and those embodied in ethical custom. (Italics added)

Friedman adds that a private firm need not even have profit as a primary aim, giving the example of supporting a school or a church as a corporate purpose. It could be, for one reason or another, that businesspeople are less likely to abide by prevailing moral sentiments than those working in the public sector but to believe that norms have no influence is an extreme assumption to apply to real-world businesspeople. It would be an interesting, but counter-intuitive discovery to demonstrate that markets can function successfully absent shared norms beyond explicit property rights and contracts. A simplified economic model of market exchange necessarily assumes some prevailing moral sentiments, at least sufficient to allow buyers and sellers to trust each other when

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bargaining (Arrow, 1972). Similarly, most accounts of market exchange do not explicitly model the assumption that buyers and sellers speak the same language (or can make themselves understood to each other). Instead, this baseline is taken as given unless this capability is being modelled to highlight a specific situation or problem. In addition, consumers themselves do not express their preferences only through purchasing decisions but through personal recommendations, reviews and customer complaints, increasingly through social media. Companies and brands do not always focus on their products. They try to persuade customers that they represent and share their values. Companies even support causes that are valued by their customers and the wider public. The result is that the market process can operate as a site in which norms and sentiments are supported, challenged and disseminated. In parallel, an assumption that public officials conform to moral sentiments, not because of institutional constraints, but because of a non-binding will to respect justice is somewhat over-optimistic. The classic illustration for this scenario is the contrast between King Leopold II’s civilised treatment of Belgian subjects (within a constitutional regime) and his treatment of his subjects in the Belgian Congo (without any institutional restraints) whom he frequently allowed to be massacred in order to better exploit the natural resources to which he claimed personal ownership. A more contemporary example is Bashar al-Assad, who before becoming president of Syria, was pursuing a career in medicine, including a residency in London, with no sign of the murderous intent that became such a prevalent feature of his career in office. Personal morality, and prevailing moral sentiments, are an important input to behaviour in the political sphere but it might well be that a more dominant influence are the institutional constraints and incentives that actors face. We should ask, sceptically, if there are strong reasons to believe that premiers in democratic regimes, such as Tony Blair or Margaret Thatcher (known for personal ruthlessness in their everyday interactions), are intrinsically better moral persons than President Assad. These people’s relatively benign political behaviour is possible to a great extent because of the constraints of advanced constitutional regimes that lower the personal costs of losing power. Doubtless some ethical norms and moral motivation exists beyond institutional restraints. However, an account of such norms would have to acknowledge the impact of the social and political context on people’s practical adherence to such norms.

AFFIRM SELF-INTERESTED MOTIVATION IN SOME CONTEXTS One of the discoveries of empirical public choice is that the average voter tends to be relatively ill-informed about general public policy issues, but has

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a keener understanding of issues that directly affect them, especially materially (Tullock, 2004b, p.18). This sort of self-interest, especially if it is couched in terms of solidarity with a presumptively deserving group, is often admired. It bears little resemblance to the ideal deliberative process that considers only the public good and reasonable claims on public resources. Yet debates between loud competing interest groups are how many political decisions are taken over matters of explicit resource allocation. In real-world politics, it is not often considered bad practice to form coalitions to make special claims on resources. Whether it is pensioners pressing for easier access to public services, farmers claiming tractor fuel subsidies, or students demanding lower tuition fees, it’s considered honest politics to stand up for your own interests. It is reasonable for such causes to be represented and demanded by people who directly benefit from a policy. In addition, the strategic behaviour, such as logrolling (or vote trading), required of representatives to get their constituency interests supported in legislation, may be considered cunning, even if somewhat less than ideal, reflecting how this behaviour is a necessary product of the democratic process (Tullock, 2004a, p.58). It is no surprise then that politics can look rather like commerce, and commerce can look rather like politics (Wagner, 2016). Political parties and governing institutions can often be observed to behave in ways more typical of market exchange. Parties compete for votes using mechanisms such as brand recognition, advertising and public relations. Government institutions have their own communications departments in order to show the value of their work and provide support for higher budgets. People may offer their support in terms of membership and votes to political parties, or threaten to withdraw them, based on how successful their representative are at fighting, in part, for their economic interests.

INVOLVE EXPRESSIVE AND SYMBOLIC BEHAVIOUR Kogelmann (2015) points out that within the democratic process, the predictions of homo economicus are very often not borne out. For example, no narrowly economic agent would vote unless she thought she could influence an electoral outcome. Voter turn-out is much higher than an economic model would predict. It is true that one cannot account for individual voter behaviour purely through the lens of narrow self-interest. However, it is worth noting that the costs of voting are still quite small with no risk of being held personally accountable for your choice, at least in a liberal democracy, making it quite a cheap form of personal self-expression. Moreover, there are analogous behaviours that are commonly observed in market settings. For example, tipping for service, especially in places where people will likely remain anonymous or will not engage in repeat interactions,

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would not seem to be predicted by a model of homo economicus. Yet this is not typically taken to be a refutation of the primacy of personal self-interest of consumers engaged in the market process. Why do people tip? On a basic level, they want to feel good about themselves or they feel it is the right thing to do, an intrinsic motivation. There could conceivably be some perceived public or club good element: one might want people to think that people who are like you, or from your hometown or region, are generous people who will reciprocate when treated well. But it would be hard to trace this behaviour in the marketplace back to wealth maximisation as such. Any such benefits, should they exist, are extremely open to free riding so there must be extra-economic motivations in operation. It is also common to see market actors behave according to a variety of motivations beyond wealth maximisation. For example, an entrepreneur may explore a sector not because it is particularly profitable, but because the products have personal significance to her. It is also common to observe voluntary organisations that provide substantial public goods outside of the political arena (a recent example of this is the Wikipedia phenomenon). Many market-oriented societies can also have large charity and other non-profit sectors that are funded entirely voluntarily. One would struggle to account for the motivations for setting up these organisations and providing public goods, or providing goods for which positive benefits cannot be properly internalised, while relying on a narrow account of motivation of market and voluntary actors.

INVOLVE COORDINATION AT A RELATIVELY LARGE SCALE There are several other environments where the conduct of homo economicus does not seem to prevail. This includes organisations such as families and churches where narrowly selfish behaviour is (hopefully) an infrequent nasty exception rather than the rule. Many civil institutions are run on a much more informal basis, without rules designed to constrain selfish behaviour. We might add further evidence of laboratory experiments that deliberately simulate collective action problems. They frequently find that the worst-case scenario is not born out at this small scale and people often cooperate spontaneously against their self-interest. An interesting outcome from one study is that convicted criminals cooperate in the prisoners’ dilemma more successfully than predicted and more so than the typical student study participant does (Khadjavi and Lange, 2013). If the prisoners’ dilemma does not even apply to actual prisoners, why should we suggest that collective action problems apply to typical public officials?

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A response to this is that there are several ways in which political situations are similar to market situations, and relevantly different from civil associations. The key ones are exit and scale. The most important is that individuals have a strong power to exit a great many civil institutions, especially organisations like churches. Sometimes at great personal cost, one is entitled to disassociate from one’s family. Indeed, in times and places where this is not allowed, we see some of the more selfish worst-case scenario behaviour from more powerful family members that a model of homo economicus might well predict (Mill, 1984 [1869]). While individuals usually have the power to disassociate from buyers and sellers, it is much more difficult to exit a market situation, that is, the presence of competitive forces themselves, altogether. Related to exit powers, scale is important. Families and churches are relatively small organisations where we might expect that norms other than self-interest could be inculcated and observed. This means that intrinsic incentives to behave according to group norms that go against immediate self-interest can be seen and rewarded rather than diminished (though not necessarily ignored), as they tend to be at the scale of a market situation. So how similar is the market situation to the political situation? The political situation is hard to exit, and impossible to exit by construction in Rawls’ model. The scale may vary from town hall meetings, to direct democratic assemblies envisaged by Rousseau and still occasionally employed in Swiss cantons, although even then the scale is already much bigger than a family. Buchanan states that his approach is focused on the problems of governing nation-states though not always quite as explicit, Rawls sees his branches of government as applying to a central government of a large nation-state rather than a local government. In addition, there is significantly more opportunity for exchange behaviour within large-scale political institutions outside the reach of the voter. Representative assemblies commonly pass huge volumes of legislation. It can be extraordinarily hard for representatives to know exactly what they are voting on and even harder for ordinary, or even informed, members of the public to understand the process or its outcomes and their long-term effects on them. In addition, modern states are typified by large bureaucracies producing new policies and reports that direct government action and enforcement, often independently of the nominally responsible senior staff reporting directly to elected officials (Tullock, 2004b, p.22). This environment seems to resemble more the sort of complex, large-scale, situation like those found in markets where knowledge of the whole arrangement is dispersed across a large group of people acting independently. Norms that might prevail within a family, or a church, are more likely to flounder in these situations. It is in these circumstances where accountability and widespread knowledge is relatively limited and where the pressure of incentives

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could be most felt, and indeed can be observed, not least because these agents face obvious monetary and other personal costs to many of their most important decisions: who gets promoted, who loses their job, who gets re-elected and who gets more power. There is no parallel cost for an ordinary voter which allows them to take a decision (including the decision to vote or not vote) much more lightly.

INSTITUTIONAL IMPLICATIONS OF BEHAVIOURAL SYMMETRY What sort of political rules and institutions would reasonable agents in a social contract develop having acknowledged these similarities in market and political settings? Several mechanisms familiar to the practice of real political compromises are available: 1. Taking some issues and interventions outside the legislative agenda, for example, by enshrining certain individual economic rights within the constitution in a way that parallels civil rights such as free speech and association (Barnett, 2012). 2. Developing unanimity and super-majority rules that can make it more difficult to identify and separate out a minority coalition to exploit (Buchanan and Tullock, 1999 [1962]). 3. Introducing a generality principle, the extension of a law-like approach to politics (Buchanan and Congleton, 2003 [1998], p.9), with respect to economic legislation such that specific costs and benefits cannot be imposed on particular citizens or firms. 4. Establishing federal, regional and localist institutions that permit more discriminating legislation as well as more executive discretion but in geographically limited jurisdictions (Buchanan and Congleton, 2003, pp.187–95). Local legislators, and public service providers, are disciplined not only by the votes of citizens, but also by citizens exercising powers of exit, the ability to change their residency (Weingast, 1995). In this way, a marginal citizen, and not just members of a majority coalition, can exert pressure on public officials.

CONCLUSION This part defends some constitutional protections for individual economic activity in order to discourage predation through the political process. In making that case, I have tried to establish the terms by which the realistic problem of self-interest can be integrated into our evaluation of political institutions aiming at justice as fairness. I have introduced the concept of the

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constitutional point of view in order to describe an appropriate form of deliberation in a constitutional setting. This site of deliberation evaluates how rules and institutions deal with the well-known imperfections of agents. From this perspective, I have made a more focused defence of an assumption of behavioural symmetry between typical market settings and political settings. I differ from a Buchananite approach by acknowledging the limits of a homo economicus description of human conduct in general. Instead, I suggest that the salience of the model of homo economicus depends on the epistemic, as well as the incentive, properties of institutions. However, I differ from Rawls when I suggest that self-interested, opportunistic behaviour could be expected to be as common in political settings as market settings. As a result, the organisation and performance of political institutions should be evaluated substantially on how well they avoid unjust consequences of the exercise of political power. In Part IV, I turn to the related question of whether some economic liberties should be considered basic.

REFERENCES Arrow, K. (1972) ‘Gifts and Exchanges’. Philosophy & Public Affairs. 1 (4), 343–62. Barnett, R.E. (2012) Does the Constitution Protect Economic Liberty? Available from: http://​papers​.ssrn​.com/​sol3/​papers​.cfm​?abstract​_id​=​2021306 (accessed 20 July 2016). Buchanan, J.M. and Congleton, R.D. (2003) [1998] Politics by Principle, Not Interest: Toward Nondiscriminatory Democracy. Indianapolis, IN: Liberty Fund. Buchanan, J.M. and Tullock, G. (1999) [1962] The Calculus of Consent: Logical Foundations of Constitutional Democracy. Collected works of James M. Buchanan v. 3. Indianapolis, IN: Liberty Fund. Cowen, N. (2016) ‘Introduction: Symposium on Robust Political Economy’. Critical Review. 28 (3–4), 420–39. Cowen, N. (2017) ‘Why Be Robust? The Contribution of Market Process Theory to the Robust Political Economy Research Program’, in Peter J. Boettke, C.J. Coyne and V.H. Storr (eds), Interdisciplinary Studies of the Market Order: New Applications of Market Process Theory. London: Rowman and Littlefield International. pp. 63–85. Cowen, N. (2018) ‘Robust Against Whom?’, in Steven Horwitz (ed.), Austrian Economics: The Next Generation. Advances in Austrian Economics. Bingley, UK: doi​ .org/​ 10​ .1108/​ S1529​ Emerald Publishing. pp. 91–111. Available from: https://​ -213420180000023008 (accessed 14 April 2020). Friedman, M. (1970) ‘The Social Responsibility of Business Is to Increase Its Profits’. New York Times. 13 September. Available from: http://​umich​.edu/​~thecore/​doc/​ Friedman​.pdf (accessed 4 December 2020). Khadjavi, M. and Lange, A. (2013) ‘Prisoners and Their Dilemma’. Journal of Economic Behavior & Organization. 92163–175. Kogelmann, B. (2015) ‘Modeling the Individual for Constitutional Choice’. Constitutional Political Economy. 26 (4), 455–74.

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Lazear, E.P. (2000) ‘Economic Imperialism’. The Quarterly Journal of Economics. 115 (1), 99–146. Meadowcroft, J. (2016) ‘Commons, Anticommons and Public Choice: James Buchanan on Liberal Democracy’. Economic Affairs. 36 (2), 224–8. Mill, J.S. (1984) [1869] Essays on Equality, Law, and Education. Collected works of John Stuart Mill v. 21. Toronto; Buffalo: London: University of Toronto Press; Routledge & Kegan Paul. Musgrave, R.A. (1999) ‘Constraints on Political Action: Response’, in Public Finance and Public Choice: Two Contrasting Visions of the State. Cambridge, MA: MIT Press. pp. 129–38. Rawls, J. (1999) [1971] A Theory of Justice. Cambridge, MA: Belknap Press of Harvard University Press. Tullock, G. (2004a) [1987] ‘Problems of Majority Voting’, in Charles Kershaw Rowley (ed.), Virginia Political Economy. The selected works of Gordon Tullock. Indianapolis, IN: Liberty Fund. pp. 51–61. Tullock, G. (2004b) ‘Public Choice’, in Charles Kershaw Rowley (ed.), Virginia Political Economy. The selected works of Gordon Tullock. Indianapolis, IN: Liberty Fund. pp. 16–26. Wagner, R.E. (2016) Politics as a Peculiar Business: Insights from a Theory of Entangled Political Economy. New thinking in political economy. Cheltenham, UK and Northampton, MA, USA: Edward Elgar Publishing. Weingast, B.R. (1995) ‘The Economic Role of Political Institutions: Market-preserving Federalism and Economic Development’. Journal of Law, Economics, & Organization. 11 (1), 1–31.

PART IV

Distributive justice and economic liberty

12. Basic economic liberties and the moral powers In Parts II and III, I establish the necessity of some private-property markets to facilitate cooperation across a political community, and some constitutional protections for economic activity to prevent opportunistic predation through the political system. Now I explore whether some economic liberties should be considered basic, alongside civil and political liberties that are more widely accepted as basic. My argument previously was that for prudential reasons, economic liberty should have some constitutional protection. The argument here is that to ensure the stable social conditions necessary for distributive justice, and especially the acceptance of constitutional protections of economic liberty, we should affirm economic liberty as a basic part of our social morality. This is an important point of debate between neoclassical liberals, such as Tomasi (2012), Shapiro (1991) and Zwolinski (2008), and high liberals such as Freeman (2001) and Arnold (2014). I offer three inter-related arguments for considering economic liberties to be basic. The first is with regards to background conditions. Rawls restricts the applicability of justice as fairness to a social situation he calls the circumstances of justice (Rawls, 2005 [1993], p.66). These are circumstances where forming a political community as a cooperative venture for mutual advantage is possible. These circumstances include the objective condition of moderate resource scarcity and the subjective condition of reasonable pluralism of beliefs and practices amongst members of the political community. I argue that these conditions are interlinked. Whether a situation at a given level of scarcity is compatible with a cooperative venture for mutual advantage depends critically on the character of the subjective beliefs and internal practices of the existing community. Only a situation of substantial pre-existing participation in institutions of private property and voluntary exchange are capable of overcoming material scarcity sufficiently to make a well-ordered society conceivable for those engaged in the process of establishing a just political community. Some economic liberties are a necessary pre-condition for the circumstances of justice to obtain. The second argument relates to the role that economic activity has in cultivating moral capacities. Rawls (2005, p.19) extends an absolute priority to liberties that are necessary for developing the two moral powers, a capacity 134

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for a sense of justice and for a conception of the good. On this account, civil freedoms such as those of speech, conscience, association and political participation are necessary for developing those powers. Some ‘thin’ economic liberties are included but limited to rights to personal consumption, to personal possessions and to choose one’s occupation. ‘Thicker’ economic liberties of contract, and the capacity to own and exchange productive property, are not basic. Rawls associates the case for ‘thick’ economic liberty with expedient concerns with efficiency. I argue that this scheme relies on the neoclassical economic paradigm of economic activity as a narrowly technical task of optimally allocating given resource to given ends. A more enriched account of the market process suggests that engaging in entrepreneurial economic activity induces creative thinking and critical reflection in a way that helps cultivate the relevant moral capacities. The third argument is that given the necessity of some economic liberties for any regime based on social cooperation amid pluralism, those liberties should be extended equally to all. Those excluded from access to the full range of economic liberties can be deprived of the fair value of their other liberties. Moreover, a regime that fails to include economic liberty in the basic structure leaves open a channel through which people can be deprived of their civil liberties without due process. While not everyone makes extensive use of economic liberty as part of a reasonable individual life plan, the ongoing opportunity to do so is important for protecting their equal moral status with those that do exercise their economic liberties. This has parallels with other basic liberties such as freedom of expression and rights to a family life which are differentially exercised but nevertheless important to extend to all. The structure of this part is as follows. I begin with a review of Rawls’ notion of basic liberties and the debate surrounding the question of economic liberties. I then discuss the role of the notion of the circumstances of justice in Rawls’ theory, noting in particular the dual role of the concept, as both a pre-condition and outcome of just institutions producing a well-ordered society. I then outline my three arguments for making economic liberties basic. I conclude by discussing the implications and limitations to accepting economic liberties as basic.

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BASIC LIBERTIES, MOST EXTENSIVE AND FULLY ADEQUATE The priority of a set of basic liberties has, with modifications, been a consistent and distinguishing feature of Rawls’ theory of justice. The priority of liberty is key to Rawls distinguishing his theory from utilitarian alternatives: Justice denies that the loss of freedom for some is made right by a greater good shared by others. The reasoning which balances the gains and losses of different persons as if they were one person is excluded. Therefore in a just society the basic liberties are taken for granted and the rights secured by justice are not subject to political bargaining or to the calculus of social interests. (Rawls, 1999 [1971], p.28)

In earlier versions of the theory, including A Theory of Justice, Rawls takes a maximalist stance with respect to liberty: ‘Each person has an equal right to the most extensive scheme of equal basic liberties compatible with a similar scheme of liberties for all.’ This maximisation, however, is restricted to a set of liberties and not liberty as an overriding value: [T]he basic liberties are given by a list of such liberties. Important among these are political liberty (the right to vote and to hold public office) and freedom of speech and assembly; liberty of conscience and freedom of thought; freedom of the person, which includes freedom from psychological oppression and physical assault and dismemberment (integrity of the person); the right to hold personal property and freedom from arbitrary arrest and seizure as defined by the concept of the rule of law. (Rawls, 1999, p.53, cf. 2005, p.294)

This listing approach led Hart to identify a potential gap, namely personal liberties that do not seem to come under freedom of conscience or personal integrity but nevertheless appear important enough to be considered basic: [T]here are important forms of liberty – sexual freedom and the liberty to use alcohol or drugs among them – which apparently do not fall within any of the roughly described basic liberties; yet it would be very surprising if principles of justice were silent about their restriction. (Hart, 1973, p.541)

Rawls addresses some of Hart’s concerns not by confirming these personal liberties but by trimming back on the initially expansive claims of the Liberty Principle. Rather than seeking the ‘most extensive’ scheme of liberties as before, Rawls proposes a scheme ‘fully adequate’ for their role as primary goods. The justification for the basic liberties is more explicitly linked to the

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overriding objective of developing citizens’ two moral powers, a sense of justice and a conception of the good: the equal political liberties cannot be denied to certain social groups on the grounds that their having these liberties may enable them to block policies needed for economic efficiency and growth ... Since the various basic liberties are bound to conflict with one another, the institutional rules which define these liberties must be adjusted so that they fit into a coherent scheme of liberties. The priority of liberty implies in practice that a basic liberty can be limited or denied solely for the sake of one or more other basic liberties, and never … for reasons of public good or of perfectionist values. This restriction holds even when those who benefit from the greater efficiency, or together share the greater sum of advantages, are the same persons whose liberties are limited or denied. Since the basic liberties may be limited when they clash with one another, none of these liberties is absolute; nor is it a requirement that, in the finally adjusted scheme, all the basic liberties are to be equally provided for (whatever that might mean). Rather, however these liberties are adjusted to give one coherent scheme, this scheme is secured equally for all citizens. (Rawls, 2005, pp.294–5)

Basic liberties have priority and are absolute with respect to other public policy objectives. However, they do not delineate any rights as guaranteed. Some basic liberties may be restrained if a regime faces an unavoidable trade-off with other basic liberties (Cowen, 2021). How does this address Hart’s concerns that personal freedoms, especially of sexuality, may be compromised? There are two lines of defence that Rawls seems to leave open for including personal conduct that is not otherwise enumerated. First, arguably sexual orientation, representing as it does a moral or spiritual expression of love, might be considered a part of the formation of one’s conception of the good in a way that parallels freedom of conscience and religious liberty. The second is a constraint on the mode of justification for regulating basic liberties: they cannot be based on perfectionist values that make judgements based on a moral evaluation of lifestyles. Nickel (1993, p.770) suggests that personal liberties do not necessarily have to be enumerated in order to be ‘structurally’ protected, by due process rights and security rights. This would seem to go some way to defending the personal liberties of sexual minorities and a range of alternative lifestyles. Nevertheless, the restrained notion of ‘fully adequate’ liberties leaves open the possibility of regulating personal behaviour in ways that are not associated with traditional liberal perspectives, such as Mill’s (1977 [1859]) famous harm principle. Freeman (2010 [2007], p.72) suggests that a fully adequate liberty of speech may mean that some lesser forms of expression may be legitimately regulated, for example, pornography (Cowen, 2016). This intuition might be extended to the notion that any personal behaviour not plausibly associated with the development of the two moral powers falls outside the protection of

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the basic liberties. Activities, including casual sex and recreational drug use, might be subject to legitimate regulation if they do not plausibly contribute to the two moral powers.1 This framework claims neutrality between different, conflicting well-worked out conceptions of the good, but is not neutral between moral pursuits in general and what we might conceive as amoral pursuits and activities, or those driven by motivations lacking moral reflection. This raises the question of whether what really counts as a moral pursuit is itself a moral question on which a political community should remain neutral, or whether that is a question that is necessarily answered collectively.

THE BASIC ECONOMIC LIBERTIES DEBATE If some personal liberties have a tentative protection within the Rawlsian framework of basic liberties, then economic liberties are explicitly excluded from having such priority: [L]iberties not on the list, for example, the right to own certain kinds of property (e.g., means of production) and freedom of contract as understood by the doctrine of laissez-faire are not basic; and so they are not protected by the priority of the first principle. (Rawls, 1999, p.54)

This division between economic liberty and civil liberty, first established by Mill (1977), marks a key distinction between classical liberals and high liberals (Freeman, 2001). For Rawls, this rejection of economic liberties as basic follows relatively straightforwardly from rejecting utilitarianism as an adequate theory of justice. Mill is an intriguing intermediate thinker in this respect because he both recognises the efficiency arguments for economic freedom and holds to the label of utilitarianism. However, his version of utilitarianism affirms qualitative differences in various forms of human goods. In some social circumstances, Mill endorses an absolute priority of rights over other goods (although rights are still a kind of good), including security of the person and liberty of thought and discussion (Riley, 2003). As a result, for both Mill and Rawls, economic liberties rest on a contingent relationship between their empirical outcomes and more fundamental interests, the primary goods for Rawls and man’s interest as a progressive being in Mill’s case. Defences of economic liberty that rely on utility, or indeed any consequentialist justification miss the mark on this account because they would allow trade-offs or compromises between these lower-level interests and fundamental interests. Some contributions to this debate have attempted to integrate the case for economic liberty into a high liberal framework. Shapiro (2007) argues that economic liberty is the best way of following luck-egalitarian commitments

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because, unlike welfare-state or social democratic institutions, it allows individuals to select their own preferred levels of risk. Nickel (2000, p.157) introduces a ‘linkage argument’. On this account, some entrepreneurial economic liberties are conditions for other basic liberties and, therefore, require a similar level of priority. Tomasi (2012, p.81) makes the moral case by endorsing a set of thick economic liberties as ‘among the basic rights of liberal citizens’. The main justification that Tomasi (2012, p.95) offers is that decisions such as starting a business, entering a voluntary labour contract or saving for retirement can make up important parts of an individual’s life plan. This makes economic liberties a basis for ‘responsible self-authorship’ and individual autonomy, and thus constitutes a similar justification that high liberalism espouses for personal liberties. Arneson (2015, p.229) sums this ‘neo-classical liberal’ case as follows: The basic liberty proposal takes on board the Rawlsian idea that the principle that protects certain basic liberties of persons takes strict liberty over all other components of social justice and over any other social values that might require restriction of liberty for their advancement. Accepting this framework for social justice principles, the basic liberty proposal is to add entrepreneurial or free market liberty to the list of specially protected freedoms. The basic hunch underlying this proposal is that the freedom to control the production of a good or service with resources one legitimately owns and the help of others who voluntarily agree to be helpers is for some people an important liberty. One wants freedom to invent an idea and put it into practice without diluting or compromising it.

Tomasi’s critics have tended to acknowledge at least the potential for self-authorship in business practice, but only in a relatively narrow set of cases. They suggest that the economic autonomy that Tomasi defends can already be contained within a high liberal framework that acknowledges a limited set of personal economic liberties, such as rights over personal possessions and choice of occupation. Two key points of contention are whether economic liberties are sufficiently important for people’s life plans, and whether they can be made compatible with the other basic liberties that Tomasi wishes to affirm along with liberal egalitarians. Freeman (2001), for example, claims that liberties should only be considered basic if they are important for everyone’s life plan. Arnold (2014, cf. 2013) suggests that a thick set of economic liberties must be rejected because such a scheme contradicts Rawls’ requirement that institutions provide for the fair value of equality of opportunity. Stilz (2014, p.429) claims: there are core freedoms and then there are less essential freedoms. And it is hard to see why the liberty to discriminate, to work for less than the minimum wage, or to enjoy all the untaxed capital gains made by one’s stock portfolio, implicate interests that are essential to the individual’s ability to frame and revise a valuable life-plan,

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or how these proposed rights could be reconciled with the other claims we already protect as a matter of basic liberty.

One response to this is that a basic right inter alia to hold a stock portfolio might not extend to the right to hold an untaxed stock portfolio. Another response is that even basic liberties supported by liberal egalitarians allow citizens to do things that may not look especially worthwhile to an outside observer. A liberal might not have all that much to say against someone who spent her leisure time going bowling, reading trashy literature or watching television. These activities are protected as part of the core liberties that liberal egalitarians affirm. Does it matter that they are not particularly important all things considered? Are they any worse than someone that wishes to spend some of their free time cultivating a stock portfolio? Tomasi points out that a great many liberties that are basic according to ‘high liberals’ seem to presume a set of life plans. The ability to worship freely is only useful for the religious. In addition, many people do not make full use of their rights to political participation or free expression to the extent that their liberty to do so is protected as basic. There is an interesting parallel between the personal and economic liberty debates. Both hinge on the extent to which proposed basic liberties should facilitate moral behaviour or, alternatively, protect what is considered unseemly behaviour. Commerce has historically been regarded as lower, if not profane, compared with most other human activities in a great deal of literary, religious and moral discourse. It was a synonym for intercourse, often part of a contrast between bodily pleasures and the soul. Sex is equally problematised and considered morally compromising in a wide range of philosophical thought (Langton, 2009). McCloskey (2007, p.83) discusses some of these bodily associations of commerce as having ‘the image of soiling by contact with the world. The moral ambiguity of compromise in the market is seen as dirty, touching a hundred hands.’ These moral intuitions against commerce are worth exploring to see if they lead to valid rational arguments for giving it a lesser priority but aversion alone is insufficient (Brennan and Jaworski, 2016). Part of the process of reflective equilibrium is challenging intuitions to see if they stack up. This is especially justified within a Rawlsian framework that is justifying institutions on political, not metaphysical, grounds and is not supposed to be reliant on theological or other perfectionist ideals. They are themselves meant to be the result of a compromise, or bargain, between reasonable people, itself modelled on something like a market exchange. Some explanation, beyond apparent personal aversion to commercial activities, is required on this point.

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Arneson argues that insisting on basic economic liberties is unjustifiably sectarian. Such insistence rules out socialist alternatives to capitalism that might plausibly contribute to the ‘real freedom’ individuals experience: the best measure of a person’s liberty is her real freedom: the extent to which she can choose among diverse and varied valuable options and actually gain or achieve the option if she chooses and pursues it. If justice above all requires a fair distribution of liberty, the standard for measuring each person’s liberty is real freedom. If bringing about and sustaining a fair distribution of real freedom should happen to require curtailing or eliminating the freedom to own one’s own business and become a capitalist entrepreneur, then so be it – a fair distribution of real liberty trumps upholding the basic liberty to become a capitalist (if one can, in a market economy setting). It could be that either curtailing people’s freedom to try to become capitalists results in greater real freedom for those very people or such curtailing lessens their real freedom but their loss is outweighed morally by gains in real freedom for others thereby achieved. If either of these possibilities obtains, the freedom of the would-be entrepreneur should give way, so the liberty to seek to be a capitalist is not a basic liberty, so the fact that a socialist arrangement of society would not protect this basic liberty is not a black mark against socialism, much less a decisive objection against it. (2015, p.230)

A challenge to this argument is that it implies that the mere conceptual possibility that a freedom may turn out not to contribute to ‘real freedom’ is enough to rule it out as basic. Yet it might similarly be conceivable that a right to join and form organised religious associations could systematically curtail peoples’ ‘real freedom’ by exposing them too intimately to private hierarchies and psychologically coercive messaging. If that is even possible, on this account, then a right to religious freedom necessarily drops out of the protection of the basic liberty framework (even if it is later rescued as a less than basic liberty for more contingent reasons). Nevertheless, Arneson’s point demonstrates what is at stake in this debate, since it follows from accepting economic liberties as basic not only that socialism is not commendable compared to private-property market institutions but that it is ineligible as a possible regime. It would suggest that socialist commitments are unreasonable in a way that parallels Rawls’ case for rejecting libertarianism. Gourevitch (2014) offers an innovative response from a socialist perspective. He accepts Tomasi’s case that the sphere of economic activity is significant for moral development and is a plausible candidate for requiring basic liberties on Rawlsian grounds. However, he suggests that the laissez-faire principles that Tomasi espouses are peculiarly ill-suited to allowing individuals to exercise their moral capacities. On this account, what basic economic liberties require is democratic worker control over firms and collective ownership of property, and not freedom of contract and individual ownership of productive assets.

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Platz (2014) assesses the debate between high liberalism and neoclassical liberalism. He finds that Tomasi’s notion of self-authorship differs from the Rawlsian notion of autonomy. Tomasi links self-authorship to the extent that one’s personal decisions determine the resulting outcomes for oneself and one’s family. This has the counter-intuitive and unattractive implication that the possibility of social disaster brought about through irresponsible behaviour enhances autonomy in a way that the social protections of a welfare state may undermine. Especially insofar as parents’ decisions impact on the opportunities of children, this seems to endorse inequalities that are arbitrary from a moral point of view, contradicting Rawlsian commitments. Tomasi also has a more expansive notion of agency than the moral powers that ground basic liberties in the Rawlsian framework (cf. Patten, 2014). As a result, Tomasi’s case may be somewhat easier to make for the ‘most extensive’ equal liberties but fails in Rawls’ more mature account which only requires a ‘fully adequate’ scheme of basic liberties. The neoclassical liberal case for basic economic freedoms falls short of the exact requirements of a Rawlsian justification for basic liberties. However, high liberal reasons for rejecting basic economic liberties are weak insofar as they can apply to a range of civil liberties that are usually taken to be basic (Flanigan, 2018; Brennan, 2019). Thus, there is a space for my contribution that links basic economic liberties more closely to the moral capacities that Rawls uses to ground basic liberties generally.

NOTE 1. One could imagine that drugs used in religious rituals, such as wine, marijuana or peyote, would come under a basic liberty criterion but the result could look suspiciously like a rule and exemption scheme that ends up privileging certain identity-based lifestyle commitments against others in a way that parallels some forms of perfectionism, communitarianism or multiculturalism.

REFERENCES Arneson, R.J. (2015) ‘Why Not Capitalism’, in Alexander Kaufman (ed.), Distributive Justice and Access to Advantage: G. A. Cohen’s Egalitarianism. Cambridge: Cambridge University Press. pp. 207–34. Arnold, S. (2013) ‘Right-wing Rawlsianism: A Critique’. Journal of Political Philosophy. 21 (4), 382–404. Arnold, S. (2014) ‘Market Democracy: Land of Opportunity?’ Critical Review. 26 (3–4), 239–58. Brennan, J. (2019) ‘Against the Moral Powers Test of Basic Liberty’. European Journal of Philosophy. ejop.12497. Brennan, J. and Jaworski, P. (eds) (2016) Markets Without Limits: Moral Virtues and Commercial Interests. New York; London: Routledge, Taylor & Francis Group.

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Cowen, N. (2016) ‘Millian Liberalism and Extreme Pornography’. American Journal of Political Science. 60 (2), 509–20. Cowen, N. (2021) ‘Basic Economic Liberties: John Rawls and Adam Smith Reconciled’. The Independent Review. Available from: https://​papers​.ssrn​.com/​sol3/​papers​.cfm​ ?abstract​_id​=​3596764 (accessed 28 January 2021). Flanigan, J. (2018) ‘All Liberty Is Basic’. Res Publica. 24 (4), 455–75. Freeman, S. (2001) ‘Illiberal Libertarians: Why Libertarianism Is Not a Liberal View’. Philosophy & Public Affairs. 30 (2), 105–51. Freeman, S. (2010) [2007] Rawls. Routledge philosophers. London: Routledge. Gourevitch, A. (2014) ‘Welcome to the Dark Side: A Classical-liberal Argument for Economic Democracy’. Critical Review. 26 (3–4), 290–305. Hart, H.L.A. (1973) ‘Rawls on Liberty and Its Priority’. The University of Chicago Law Review. 40 (3), 534. Langton, R. (2009) ‘Speech Acts and Unspeakable Acts’, in Sexual Solipsism. Oxford: Oxford University Press. pp. 25–63. McCloskey, D.N. (2007) The Bourgeois Virtues: Ethics for an Age of Commerce. Chicago, IL: University of Chicago Press. Mill, J.S. (1977) [1859] Essays on Politics and Society. Collected works of John Stuart Mill. v. 18. Toronto; Buffalo: University of Toronto Press. Nickel, J.W. (1993) ‘Rethinking Rawls’s Theory of Liberty and Rights’. Chicago-Kent Law Review. 69763. Nickel, J.W. (2000) ‘Economic Liberties’, in Victoria Davion and Clark Wolf (eds), The Idea of a Political Liberalism: Essays on Rawls. Studies in social, political, and legal philosophy. Lanham, MD: Rowman & Littlefield Publishers. pp. 155–75. Patten, A. (2014) ‘Are the Economic Liberties Basic?’ Critical Review. 26 (3–4), 362–74. Platz, J.V. (2014) ‘Are Economic Liberties Basic Rights?’ Politics, Philosophy & Economics. 13 (1), 23–44. Rawls, J. (1999) [1971] A Theory of Justice. Cambridge, MA: Belknap Press of Harvard University Press. Rawls, J. (2005) [1993] Political Liberalism. Columbia classics in philosophy. Expanded edn. New York: Columbia University Press. Riley, J. (2003) ‘Interpreting Mill’s Qualitative Hedonism’. The Philosophical Quarterly. 53 (212), 410–18. Shapiro, D. (1991) ‘Free Speech, Free Exchange, and Rawlsian Liberalism’. Social Theory and Practice. (17) 1, 47–68. Shapiro, D. (2007) Is the Welfare State Justified? New York: Cambridge University Press. Stilz, A. (2014) ‘Is the Free Market Fair?’ Critical Review. 26 (3–4), 423–38. Tomasi, J. (2012) Free Market Fairness. Princeton, NJ: Princeton University Press. Zwolinski, M. (2008) ‘The Separateness of Persons and Liberal Theory’. The Journal of Value Inquiry. 42 (2), 147–65.

13. The subjective and objective conditions of the circumstances of justice Rawls’ framework of justice as fairness has a restricted domain of applicability that Rawls identifies as the circumstances of justice. In A Theory of Justice, these conditions have a Humean tenor (Rawls, 1999 [1971], p.109). They include what amounts to an analytical egalitarian assumption and an assumption that individuals have independent interests, as well as the existence of conditions of moderate scarcity: [M]any individuals coexist together at the same time on a definite geographical territory. These individuals are roughly similar in physical and mental powers ... They are vulnerable to attack, and all are subject to having their plans blocked by the united force of others. Finally, there is the condition of moderate scarcity understood to cover a wide range of situations. Natural and other resources are not so abundant that schemes of cooperation become superfluous, nor are conditions so harsh that fruitful ventures must inevitably break down. While mutually advantageous arrangements are feasible, the benefits they yield fall short of the demands men put forward. (1999, pp.109–10)

Rawls adds some subjective conditions, moral psychological features of members of the community. These individuals possess a well-worked conception of the good (not just appetites), a desire for that good to be recognised by the community, as well as a willingness to recognise the good of others for the sake of achieving mutual advantage: The subjective circumstances are the relevant aspects of the subjects of cooperation, that is, of the persons working together. Thus while the parties have roughly similar needs and interests, or needs and interests in various ways complementary, so that mutually advantageous cooperation among them is possible, they nevertheless have their own plans of life. These plans, or conceptions of the good, lead them to have different ends and purposes, and to make conflicting claims on the natural and social resources available. Moreover, although the interests advanced by these plans are not assumed to be interests in the self, they are the interests of a self that regards its conception of the good as worthy of recognition and that advances claims in its behalf as deserving satisfaction. (Rawls, 1999, p.110)

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In Political Liberalism, Rawls places greater emphasis on the subjective circumstances and links them to a notion of pluralism: These circumstances are of two kinds: first, there are the objective circumstances of moderate scarcity, and second, the subjective circumstances of justice. These latter circumstances are, in general, the fact of pluralism as such; although in a well-ordered society of justice as fairness, they include the fact of reasonable pluralism. This last fact and its possibility we must try to understand. (Rawls, 2005 [1993], p.66)

Rawls further distinguishes pluralism from reasonable pluralism. Pluralism is the bare condition of people having different interests and conceptions of the good they wish to pursue. This is the circumstance of justice that makes the establishment of liberal institutions commendable. Reasonable pluralism is a condition, or perhaps even an ongoing outcome, of a well-ordered society, where individuals have a shared and assured respect for each other’s different conceptions of the good: The crucial fact is not the fact of pluralism as such, but of reasonable pluralism. This diversity political liberalism sees … as the long-run result of the powers of human reason within an enduring background of free institutions. The fact of reasonable pluralism is not an unfortunate condition of human life, as we might say of pluralism as such, allowing for doctrines that are not only irrational but mad and aggressive. In framing a political conception of justice so it can gain an overlapping consensus, we are not bending it to existing unreason, but to the fact of reasonable pluralism, itself the outcome of the free exercise of free human reason under conditions of liberty. (Rawls, 2005, p.144)

There is a potential weakness in Rawls’ description. A well-ordered society is in a sort of equilibrium in which a community based on reasonable pluralism reproduces itself through liberal political institutions for indefinite future generations. Less clear is how liberal institutions might hew a reasonable pluralism out of the fact of pluralism. Do politically liberal institutions or reasonable pluralism come first (Rawls, 2005, p.161)? Are they expected to emerge incrementally together over many generations or shortly after the establishment of a just regime? Could institutions fall short of the exacting requirements of justice but, nevertheless, be legitimate because of their tendency to develop the conditions necessary for constitutional liberalism?

WHERE LEXICAL PRIORITY APPLIES Rawls restricts the application of the principles of justice in another sense. He insists that the Liberty Principle has lexical priority over the Difference Principle, and that parties to the original position ‘will not exchange a lesser

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liberty for an improvement in economic well-being’ (1999, p.152). However, he recognises that this requires that ‘the parties assume that their basic liberties can be effectively exercised’ (Rawls, 1999, pp.151–2, cf. 2001, p.47). By contrast, deviations from lexical priority are permitted at different stages of development when the full exercise of basic liberties is not feasible: It is only when social conditions do not allow the effective establishment of these rights that one can concede their limitation; and these restrictions can be granted only to the extent that they are necessary to prepare the way for a free society. (Rawls, 1999, p.132)

Barry (1973) helps to illustrate this relationship in Rawls’ thinking by offering a variation on the classic ‘guns and butter’ trade-off used to illustrate the production possibility frontier in economic theory. At low levels of development where both liberty and wealth are limited, a number of trade-offs are possible between the two ‘goods’ (Figure 13.1). The curve represents a society developing along an optimal path. Once societies approach a level of wealth P, the trade-off between liberty and wealth becomes sharper with greater improvements in wealth being necessary to offset potential losses in liberty. Along line P, no increase in wealth can justify a decrease in liberty, where the blade of this ‘scythe’ curve begins. When equal liberty has been maximised (or made fully adequate in Rawls’ later descriptions), then increases in wealth become permissible, though not necessarily commendable, so long as they are distributed according to the Difference Principle. For Rawls, the reference point (P) represents circumstances where wealth is sufficient to deliver primary goods such that equal liberty and the fair value of equality of opportunity can be sustained, and every member of the political community can pursue their own conception of the good. Quantifying that level of wealth is somewhat allusive. Barry is sceptical that there are any normal conditions where non-priority might apply but suggests: presumably the idea is that basic liberty cannot be ‘enjoyed’ ... unless people reach some necessary level of wealth … Perhaps … Rawls has in mind that material conditions should make it possible for children to be given some form of education (including at least literacy) and that adults should have enough leisure to read and talk, and so on. (Barry, 1973, p.77)

This means that there are plausible conditions of resource scarcity where almost no conceivable institutional framework could deliver mutually advantageous outcomes for a community. Those situations lie outside the circumstances of justice. There are also conditions of moderate scarcity where the problems of distributive justice are present but can be ameliorated in a way that is compatible with reasonable pluralism. However, between these points, there

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Figure 13.1

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The liberty–wealth ‘scythe’ curve

is also an intermediate range where some material conditions do not allow all the requirements of justice to be met, but there are nevertheless gains to be made from social cooperation (to the left of point P). In such cases, institutions that bring society closer to a point at which the full circumstances of justice apply are commendable. As with the case of moving from pluralism to reasonable pluralism, this raises the question: what institutions are likely to bring a society closer to the material circumstances that allow justice to be pursued?

THE MARKET PROCESS AND THE CIRCUMSTANCES OF JUSTICE Rawls suggests that basic liberties gain lexical priority, that is, absolute priority over other social goods, in circumstances of a certain level of material wealth. What determines those material circumstances? Economic history suggests that these circumstances will be relevant in a small range of prior institutional situations. This is where the problems of material scarcity have been ameliorated such that it could reasonably be labelled ‘moderate’ rather than severe. This amelioration must happen in such a way that there is a widespread mutual respect for different conceptions of the good, or reasonable pluralism. Basic facts of social theory indicate that such institutional conditions include centrally the protection of property rights over productive assets and some

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facility to contract and exchange these assets (Acemoglu and Johnson, 2005; Shleifer, 2009). This premise linking the protection of commercial arrangements with prosperity can be summed up as the institutions hypothesis. This is a major part of the explanation for significantly different levels of material prosperity observed throughout the modern world. The institutions necessary for a reasonable level of material prosperity can be summarised as follows: [The] enforcement of property rights for a broad cross section of society, so that a variety of individuals have incentives to invest and take part in economic life; constraints on the actions of elites, politicians, and other powerful groups, so that these people cannot expropriate the incomes and investments of others or create a highly uneven playing field; and some degree of equal opportunity for broad segments of society, so that individuals can make investments, especially in human capital, and participate in productive economic activities. (Acemoglu, 2003, p.27)

New institutionalism emphasises the role of the market process in terms of incentive alignment. As I have argued in Chapter 3, Robust Political Economy (RPE) adds a distinctive focus on the epistemic and coordinating role of markets in a complex social world (Hayek, 1945). This role of market institutions can be understood by recognising the existence of the ‘knowledge problem’, the fact that much of the information necessary to coordinate resources to produce essential goods outside of a small, primitive community is dispersed, and impossible for a single individual or agency to comprehend. Much of this knowledge is tacit, hard or impossible to convey using formal means of communication (Polanyi, 1962). The market process conveys information about relative scarcities of goods and services through the prices people are willing to pay. This allows individuals and small groups to utilise their knowledge of local circumstances to serve the demands of others in the extended community: A private enterprise system communicates indirectly the elements of this ‘division of knowledge’ through the medium of price. Individuals and organisations bid for resources on the basis of knowledge concerning personal preferences, the availability of substitutes and entrepreneurial innovations known only to themselves, but in doing so contribute incrementally to the formation of prices, transmitting their ‘bit’ of information to those with whom they exchange. (Pennington, 2011, p.21)

This account extends the description of market processes in Rawls’ description of the general facts of social theory. For Rawls, markets are a perfect procedure for allocating resources efficiently, but this only applies to perfectly competitive markets where all knowledge relevant to a decision is already given. This situation is rarely, if ever, instantiated in practice. An epistemic account proposes a much broader value for the market process. Rather than allocating resources efficiently with given knowledge, markets are required to generate

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the necessary knowledge for actors to make more effective decisions. As a result, markets never offer ‘perfect’ information and are never in complete equilibrium. Instead, individuals and organisations test their subjective knowledge against other people’s willingness to buy and sell in the market, with the resulting profits or losses signalling the relative value of particular productive activities and processes (Pennington, 2011, p.22). Whereas incentive problems can, in principle, be addressed by institutional design, through the use of strategies like pseudo-market mechanisms, such mechanisms are unavailable for solving the knowledge problem because the designers, absent the ever-changing subjective knowledge of real buyers and sellers, are deprived of the knowledge necessary to make the mechanism effective. Furthermore, the character of many forms of knowledge, especially tacit knowledge, means that the market process cannot be replaced to any significant extent through the processes of public deliberation, communication and administration available to formal political institutions (Pennington, 2003, 2011, p.64). With no plausible replacement, market institutions will be features of any minimal political community that is a pre-requisite for applying institutions based on justice as fairness. Societies that do not have these institutions are almost inevitably impoverished, sometimes to the extent that they are ‘burdened societies’ in Rawls’ terminology, and thus subject to obligations other than those salient in the circumstances of justice. Conditions of Pluralism Aside from the link between commerce and material wellbeing, this epistemic account of the market process bears on the subjective circumstances of justice. The circumstances of justice obtain when individuals with divergent interests can engage in cooperation for mutual advantage. The problem is that possible modes of mutual cooperation are not known or given in advance of them being discovered. People can reasonably refuse to engage in a cooperative venture if they have no knowledge of how such a venture might work and no assurance that they will benefit through participation. Thus, there is a subjective element to the objective character of the circumstances of justice: whether cooperation at any given level of material scarcity is conceivable. The advantage of the market process is that it generates the knowledge necessary for cooperation by visibly rewarding those who are alert to possible gains from trade and exchange. By continually expanding possible forms of cooperation, the market process, in turn, has an impact on the subjective beliefs and practices of agents participating in it. They can recognise that mutual gains are possible in more and more circumstances and even in the presence of pluralism (Cowen, 2021).

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How does the market process reconcile the need for social cooperation with reasonable pluralism? Prior to the development of widespread commerce, the notion of treating people both as free and equal, and able to form and pursue their own conception of the good, is not only impractical but virtually inconceivable. The practical alternative to commerce that allows for some degree of widespread social cooperation, albeit usually much less effectively, are constrained social structures often based on privileges of birth, household membership, social status, religious affiliation and, in urban contexts, guilds. These institutions are deeply embedded in people’s economic lives in non-commercial societies. Welfare services are often provided by local religious organisations while economic security, when available at all, might be based on family and kin relationships, or status within a feudal or other social hierarchy. These institutions all exert substantial pressures on the formation of people’s identities that push against individual autonomy. By contrast, the emergence of widespread commerce permits relative strangers to cooperate in such a way that people’s private and intellectual lives can begin to separate from the needs of everyday economic survival. This makes social mobility at least a conceptual possibility, though still a practically difficult proposition for most people. Early enlightenment thinkers noticed this connection between commerce and the emergence of a plurality of lifestyles and conceptions of the good within a single community (Muller, 2003). Voltaire (1980, p.41) famously marvelled at the spontaneous sociability of people of different creeds fostered by trade: Go into the London Stock Exchange – a more respectable place than many a court – and you will see representatives from all nations gathered together for the utility of men. Here Jew, Mohammedan and Christian deal with each other as though they were all of the same faith, and only apply the word infidel to people who go bankrupt. Here the Presbyterian trusts the Anabaptist and the Anglican accepts a promise from the Quaker. On leaving these peaceful and free assemblies some go to the Synagogue and others for a drink … and everybody is happy.

Durkheim (2014 [1893]) describes the resulting social developments of modern economies within liberal societies. He contrasts the mechanical solidarity and culturally homogeneous nature of agrarian economies with the heterogeneous organic solidarity of urban industrial communities facilitated by the complementarity of different skills and occupations. Personal autonomy (and its darker side, anomie) emerge as ‘social facts’ of these more complex commercial societies. Non-commercial economic relations are based on establishing relatively fixed roles to persons and families, the majority being unskilled and semi-skilled labourers. Autonomous, individual pursuit of the good life does not make much sense in such circumstances where differences of opinion are

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discouraged, if not violently repressed, and education the preserve of an elite. Commercial relations, by contrast, allow, even require, individuals to pursue and specialise in a wide variety of occupations. While fostering a wider choice of occupations and pursuits, commercial societies begin to generate enough wealth for segments of society to disaggregate aspects of their lives from meeting basic needs of security, food and shelter. Their economic needs no longer dominate quite as much of their active lives. This provides some opportunity for personal intimacy, friendship, private pursuits as well as participation in public discussion and politics, activities otherwise only available to a wealthy aristocracy (Silver, 1989, 1990). Empirical Objections This account of the institutions of economic exchange and specialisation, and their significance for creating sufficient resources to end severe poverty, informs a part of the current consensus in economic history (North, 1990; Acemoglu et al., 2005), but this account is not held universally. An alternative hypothesis considers market behaviour to be neither part of a natural human tendency to trade nor a result of voluntary interaction, but as the coercive imposition of a political programme. This hypothesis suggests that economic liberty is not a condition of the emergence of a complex system of social cooperation but a result of such a scheme being established. Rather than permitting market processes that arise between private actors to facilitate their cooperation, market rules must be designed and established by a central agency with the specific intention of achieving economic growth (Polanyi, 2001 [1944]; cf. Blyth, 2002). Historical research on this question remains contested. However, other accounts suggest that institutions of voluntary exchange have emerged in a variety of circumstances in the absence of central direction (McCloskey, 2011). It is this, in combination with institutions allowing for innovation that leads to the long-run economic growth necessary to ameliorate severe scarcity. A policy of ‘laissez-faire’ often amounts to a government observing a pattern of voluntary cooperation that has emerged endogenously in a sector or region and permitting it to continue because it has general benefits for the whole community. McCloskey argues that government intervention is more often required to suppress market practices rather than to foster them. Other scholars have argued that whatever the provenance of market relations during the modern era, they explain little of the wealth of contemporary developed societies. Marxist economists locate wealth generation and capital accumulation in the exploitation of the working class (Sweezy, 1968). Other theorists inspired by this tradition assert a close link between the institutions of imperialism, colonialism and slavery and the enrichment of the West (Hobson,

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1902; Wallerstein, 1974; Baptist, 2014). A challenge to such accounts is that imperialism, slavery, and other extractive, predatory institutions, are features not only of the modern world (and in fact, are less prevalent in the modern world than in previous eras), but are widespread phenomena throughout history. Hence, colonialism and labour coercion alone cannot explain the distinctive emergence of modern economic growth, which renders it an insufficient explanation (Nunn, 2008; Hilt, 2017; Olmstead and Rhode, 2018). An open question, which the historical record alone may not be able to determine, is whether imperial exploitation is a necessary condition of some kind. Others in heterodox economic traditions argue that the role of markets and private property are more limited than either Hayekian or new institutionalist accounts suggest. They argue that the modern factory system, economies of scale, and state-fostered industrialisation and innovation have been more significant for economic growth (Chang, 2002). State capacity, and especially economic coercion and management of workers, on this account, are decisive factors for sustained economic growth. One could point to Russia’s successful industrialisation and economic growth under a Stalinist regime as a counterpoint to the liberal market wealth hypothesis. In response to this argument, one can suggest empirically that economic growth in command economies, though up to a point substantial especially if rising from an impoverished baseline, has tended systematically to disappoint when compared with the history of liberal market economies (Levy and Peart, 2011). New institutionalists argue that ‘extractive’ institutions, economic institutions based on labour coercion and resource expropriation rather than secure property rights, are capable of producing growth when far away from a production possibility frontier, but lack the innovative potential to extend that frontier, as liberal market economies have been capable of (Acemoglu et al., 2002). This might suggest that state-led industrialisation is insufficient alone for sustained growth, and perhaps not necessary. This question hinges on whether one interprets state capacity as an essential element of 19th and early 20th century capitalism and thus to the success of commercial societies, or alternatively as marginal features that did not contribute to growth compared with private actors. Command economies tend to be undemocratic. They lack personal liberties and struggle to accommodate pluralism, whether reasonable or unreasonable, to a much greater extent than commercial societies. These features seem far from the circumstances of justice that Rawls envisages. Hence, the emergence of a liberal market economy offers the more plausible situation in which a political community could approach a position where there is relatively widespread affirmation of the values of freedom and equality amid reasonable pluralism.

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A further objection is that while there is strong evidence for the role of markets in ameliorating poverty, the mere existence of alternative hypotheses in economics and social science means that we are not justified in treating them as facts of social theory. Perhaps only facts that are part of a solid consensus can really be considered for establishing basic liberties. This may be true, but this does not point in the direction of rejecting economic liberties as insignificant to moral theory. Instead it suggests that agents engaged in moral deliberation lack the information for the task they have been given. They cannot tell from an abstracted standpoint with sufficient granularity what liberties are necessary for the circumstances of justice to obtain. Another response is to accept markets as significant historically but unnecessary for achieving justice as fairness beyond the point of reaching the level of wealth required for the circumstances of justice. For Rawls (1975), it is wrong for a society to rely on endless growth to maintain material pre-conditions where justice is relevant. Economic institutions, beyond a certain point, should aim at a steady state where economic liberties could be dispensed with or curtailed (Cowen, 2018). However, market processes are likely not only required for continued economic growth but also to maintain current levels of wealth and income. The replacement of market relations will probably not constitute a steady state but rather a decline. The reason for this is that knowledge is not only initially dispersed but also subject to change and uncertainty once collected. Existing resources are depleted and new ones discovered. Removing markets and relying on given or assumed prices or other mechanisms to allocate resources would produce scarcities as the availability of real resources became divorced from prices and public information. New resources, and even new technologies, would go undiscovered or underdeveloped. In an ever-changing world that is too complex to be comprehended by a single agent, a decentralised process of market exchange is required to solve problems of coordination as they emerge. This applies even when improvement in material welfare is not a common goal: ‘Adaptation and innovation in the face of constantly shifting resource scarcities are essential even when growth itself is not a priority’ (Pennington, 2014, p.398).

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Polanyi, M. (1962) Personal Knowledge: Towards a Post-critical Philosophy. Available from: http://​alltitles​.ebrary​.com/​Doc​?id​=​10991175 (accessed 6 April 2015). Polanyi, K. (2001) [1944] The Great Transformation: The Political and Economic Origins of Our Time. 2nd Beacon Paperback edn. Boston, MA: Beacon Press. Rawls, J. (1975) ‘Fairness to Goodness’. The Philosophical Review. 84 (4), 536. Rawls, J. (1999) [1971] A Theory of Justice. Cambridge, MA: Belknap Press of Harvard University Press. Rawls, J. (2001) Justice as Fairness: A Restatement. Cambridge, MA: Harvard University Press. Rawls, J. (2005) [1993] Political Liberalism. Columbia classics in philosophy. Expanded edn. New York: Columbia University Press. Shleifer, A. (2009) ‘The Age of Milton Friedman’. Journal of Economic Literature. 47 (1), 123–35. Silver, A. (1989) ‘Friendship and Trust as Moral Ideals: An Historical Approach. European Journal of Sociology. 30 (02), 274–97. Silver, A. (1990) ‘Friendship in Commercial Society: Eighteenth-century Social Theory and Modern Sociology’. American Journal of Sociology. 95 (6), 1474–504. Sweezy, P.M. (1968) The Theory of Capitalist Development: Principles of Marxian Political Economy. New York: Modern Reader Paperbacks. Voltaire (1980) Letters on England. Penguin classics. Harmondsworth, UK; New York: Penguin Books. Wallerstein, I. (1974) ‘The Rise and Future Demise of the World Capitalist System: Concepts for Comparative Analysis’. Comparative Studies in Society and History. 16 (4), 387–415.

14. Developing moral capacities Some economic liberty is a pre-condition for a society approaching the circumstances of justice in the sense of a political community being in such a condition that justice is an achievable evaluative criterion for its institutions. A possible challenge to this argument is that although some degree of economic liberty may, contingently, be a pre-condition for justice, that does not show it to be a part of the basic liberties. The question is why members of a political community within the circumstances of justice would subsequently affirm economic liberties as basic. My answer is that participation in productive and entrepreneurial activities helps to cultivate the two moral powers: a capacity to form a conception of the good and to develop a sense of justice. It specifically contributes to developing reasonable persons who are capable of appropriately weighting the claims and interests of others against their own. This argument differs from some related attempts to justify economic liberties within a Rawlsian framework. Under the ‘neo-classical liberal’ framework that Tomasi affirms, the two key justifications for ‘thick’ economic liberties are efficiency and responsibility. The efficiency case is that economic liberty encourages more economic growth and does so (or at least can plausibly be arranged to do so) in such a way that it materially benefits the least advantaged. Material welfare corresponds in a relevant sense to more opportunities to pursue a conception of the good. The responsibility case is that economic liberty makes individuals responsible for their own destiny. In a similar way, Shapiro (2007) suggests that affirming people’s economic decisions, especially personal and financial risks that people willingly take on, is important for respecting their moral autonomy within a luck-egalitarian framework. The link between responsible behaviour and personal success on which Tomasi relies is too tenuous for grounding this kind of moral autonomy. As Hayek describes, participating in market activity is like playing a game that mixes skill and chance to produce, in aggregate, socially beneficial outcomes. An emphasis here must be placed on the social benefit of the market process, rather than a market’s supposed capacity to evaluate and reward individual conduct appropriately and fairly. The value of a skill or talent does not track any moral merit. Moreover, chance includes both risk and uncertainty (Knight, 1921). Unlike decisions to gamble, as in a lottery, or insure based on actuarial data, where risks and pay-offs are specified in advance of a choice, people engaged in market activity act in the absence of complete information. 156

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There is no entirely ‘risk-free’ option that systematically rewards responsible, hard-working agents (although consumer demand for such options is what drives the development of insurance and assurance markets). Furthermore, the application of one’s talents to activities that are practically valuable depends on arbitrary, serendipitous factors such as noticing a niche or gap in the supply of a good or service and realising one is personally well-situated to fulfil demand for it. While permitting people to exploit market opportunities is important, their arbitrariness means they cannot bear directly on one’s capacity for self-authorship in a deep sense. Another weakness is that under neoclassical economic assumptions, economic behaviour is a narrow technical task of calculating an optimal decision from given resources and given needs. Economic judgement, in this case, corresponds to prudence and sound book-keeping (McCloskey, 2011). Although practising these sort of judgements could plausibly contribute to people’s capacity to engage in rational calculation and to defer gratification (cf. Weber, 2001 [1905]), which are probably necessary for many coherent life plans, it does not contribute directly to the moral powers as such. It does not appear to be an especially promising site for the development of responsible self-authorship in the sense of people morally meriting a life outcome. What does a person need in order to cultivate their moral powers? For Rawls, agents need to be rational and reasonable. They must be rational in the sense of being able to weigh up conflicting values to produce a conception of the good and develop a coherent life plan. They must be reasonable in the sense of recognising their own fallibility and the fact that other people will necessarily come to different conclusions about their own conception of the good. This is what allows a political community to govern through the use of public reason and reach an overlapping consensus based on reasonable pluralism. In Part III, I suggest an additional dimension to this process of reflection, namely a capacity to adopt a constitutional point of view. This allows individuals to recognise the burdens that they, and others, have when following shared social obligations that compromise their immediate self-interest, and affirm rules that contribute to compliance with the spirit of those obligations. I propose that the underlying psychological capacity is to put oneself in another’s place, and to reflect on public issues in a way that recognises and evaluates different perspectives all while being aware of one’s own interests. If everyone can do that, then a well-ordered society, that adequately reflects everyone’s interests as persons, can be sustained in conditions of moral disagreement and pluralism.

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THE CONTRIBUTION OF MARKET PARTICIPATION How can participation in economic activity contribute to this essential moral capacity? In the absence of full information or agreement about the ultimate value of each resource, a great deal of economic activity amounts to imaginative speculation about possible uses of resources, bargaining, negotiation, management and establishing schemes of roles and responsibilities. The speculative element offers some significant role for self-authorship in the sense that people face an open-ended world of possible modes of cooperation. People can select how best they can contribute to a sphere of social cooperation in a way that reflects their unique capacities and interests. Successful bargaining requires an ability to reflect on personal and business priorities and articulate them in the light of the various offers that people make. Negotiation and voluntary management require anticipation of the needs and interests of others, and creative reflection and deliberation on how they can best be achieved. The drawing up of contracts and agreement on policies within and between firms is itself an exercise in small-scale governance. To be successful in a voluntary market setting, such schemes must be acceptable to all parties involved. Experience with achieving consensus in this setting can help people understand the nature of reasonable disagreement and consent when it comes to political bargaining and compromise (Cowen, 2021). Moreover, market activity in a civil society generates contact outside one’s immediate family and social circle. People are confronted with situations where they are rewarded for satisfying the interests of people from a diverse range of backgrounds (Meadowcroft, 2005, p.153). This corresponds to the notion of bridging social capital (Meadowcroft and Pennington, 2007). Social capital of this kind is constituted by the loose ties that permit people of different backgrounds and commitments to trust each other sufficiently to engage in commercial relations despite distance in terms of cultural values and lifestyles (Anomaly, 2017). A functional market process produces a continual stream of beneficial interactions between relative strangers. In turn, it draws in and rewards individuals who offer beneficial interactions to others, while excluding people whose practices harm or disadvantage would-be cooperators (Storr and Choi, 2019). In this way, trust between acquaintances and strangers is cultivated and social assurance problems are ameliorated (Berggren and Jordahl, 2006; Al-Ubaydli et al., 2013). This creates an environment where people can more readily contribute to social insurance schemes, as well as public and common good provision (Cai et al., 2019). Some evidence for this plausible but still contested causal link between social trust and commercial institutions can be found in some experiments that compare former East German and West German citizens, finding that the plausibly exogenous impo-

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sition of non-market institutions in the East led to less social trust that relates to people’s willingness to contribute to public goods (Ockenfels and Weimann, 1999; Brosig-Koch et al., 2011). Exposure to a variety of alternative conceptions of the good can help people become more tolerant of different lifestyles and to reflect better on their own life courses (Berggren and Nilsson, 2013). To better anticipate the needs of their fellow citizen, individuals engaged in commercial interactions learn about their different cultures, beliefs and practices and how they conform to a coherent life plan. While initially prompted by self-interest, this experience can help transform people’s own interests and values as they see attractive aspects to other people’s life courses. They will comprehend their own life plan more fully by seeing the variety and reasonableness of alternatives in a setting where mutual gains from interaction are prevalent. Third, experience of market activity contributes to capacities for equanimity and stoicism. The market process is primarily how a community ameliorates problems of deep uncertainty through trial and error processes (Cowen, 2020). The personal experience of error is intrinsic to this discovery process. Under market rules, it is possible to do everything correctly and yet still get a poor outcome because certain relevant facts or conditions, impossible to know ex ante, have turned out to be important ex post. This attitude is important for participants in a political process which maintains ongoing cooperation between people with diverse interests and values. An inevitable part of a functional political process is that each individual experiences being on the losing side of some issues. Yet everyone benefits from the fact that social conflicts are reconciled peacefully and on reasonably fair terms. For this to work, people must be able to distinguish fair processes, fair outcomes and personally preferred outcomes. They must be capable of campaigning passionately for an outcome, but willingly accept the outcome of the political process when it goes against them. It is equally important for winners on given issues to recognise the contingency involved and how disagreement with a democratically selected outcome does not reflect morally on the losers. Experience of gain and loss that is beyond one’s immediate control, as happens in market activity, can help acculturate people to the inevitable compromise and uncertainty of liberal political life.

EQUAL ECONOMIC LIBERTY A community cannot reach and maintain the circumstances of justice without permitting substantial commercial activity. Participation in the market process can help cultivate people’s moral capacities. A possible response to this is that although economic liberties contribute to moral capacities, it is less plausible that they are necessary for this task. The presence of other non-market sites of

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moral cultivation, within families, colleges, churches and the political sphere itself may be fully adequate (if not necessarily maximally extensive) for the development of the moral powers. My response is that given the necessity of some market institutions for material wellbeing, justice requires that these institutions be made accessible to all and protected as basic. This means that all citizens are entitled to an extensive set of economic liberties, compatible with equal liberty for all, and that constraints and interventions on economic freedom are subject to constitutional protection. State actors are required to embed and protect economic liberty and are not permitted simply to restrict it on the mere presumption of a public good. Just because an institution produces widespread social benefits, enough to make it a pre-condition for justice, does not mean it meets the more exacting requirements of justice as fairness. The benefits of an emergent laissez-faire may be concentrated in a way that is arbitrary from a moral point of view. The patterns of governance that emerge without moral clarification in a commercial society disadvantage some people in a way that is incompatible with the principles of justice. Historically, the spread of market institutions is uneven, marked by elites holding onto privileges and restricting freedoms for classes of people while taking a great deal of the advantages of commercial freedoms for themselves. Typically, these restrictions have applied to various classes of slaves, servants, wage-labourers and especially to women of every social class who, alongside denial of political liberties, were usually excluded from participation in the key institution of property ownership (Lemke, 2016). Why does justice require the extension of these economic liberties to all and not, for example, the licensing of business activity to specific actors? A part of this justification is based on Tomasi’s case that commercial activity provides an important opportunity for self-authorship. Economic activity allows people to utilise their distinctive rationality and moral powers to engage in purposive pursuit of their own good. Denying rights to this activity to others, who under traditional class or status distinctions would not have had access to this sector of autonomous pursuits, is morally arbitrary and an incursion on equal liberty. It may be possible to have a regime that is successful, even relatively humane, on some measures, perhaps even one that has legitimacy in Rawls’ more minimal sense as applied to non-liberal regimes, without extending economic rights to all and making them basic liberties. However, it would be unfair, and unjust, not to do so in a liberal community. Another reason for supporting economic liberty is that it aligns with the fair value of other liberties. People who lack economic liberty are more easily subject to manipulation and coercion in civil society. The radical history of economic liberalisation can illustrate this. Mill’s most strident defence of economic liberty lies not in his famous text On Liberty (1977 [1859]), where

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freedom to trade is explicitly separated from the personal rights he wishes to defend, but in the Subjection of Women (1984 [1869]), where women’s personal rights to their own bodies and private life are defended alongside equal economic liberty between men and women. Mill saw women’s lack of personal economic rights as constituting women’s utter dependence, even actual slavery, to men. Slavery itself is another case where radical liberals and classical economists pressed for the extension of bourgeois economic rights in an intellectual environment that was otherwise keen to keep class and status distinctions. Many 19th century intellectuals opposed the emancipation of slaves (Levy, 2001). Although motivated by bigotry, racism and self-interest, their arguments against emancipation were frequently made on the grounds of the interests of slaves, and society in general, rather than slaveholders alone. The argument was that slavery offered a certain security and status within a hierarchy that was fitted to their natural capacities (Buchanan, 1999 [1979]). By contrast, classical economists tended to assume approximate equality between persons and that any observed differences between people were due to different social circumstances and institutional constraints rather than natural characteristics (Peart and Levy, 2008). As rights for women were progressively, if unevenly extended, and slavery receded, the urge to exclude people from participating in commercial society continued whether allegedly for the social good or for the good of those subject to restriction. Besides reactionary attempts to keep women out of the mainstream labour market, several political programmes, sometimes perversely associated with ‘progressive’ economic reforms were exclusionary in both intent and outcome. Economic interventions such as minimum wage laws were introduced not to help the most disadvantaged, but to support one class of workers (often but not exclusively along racial lines) against others deemed less deserving: Reform-minded economists of the Progressive Era defended exclusionary labor and immigration legislation on grounds that the labor force should be rid of unfit workers, whom they labeled ‘parasites,’ ‘the unemployable,’ ‘low-wage races’ and the ‘industrial residuum.’ Removing the unfit, went the argument, would uplift superior, deserving workers. (Leonard, 2005, pp.207–8)

Contemporary Economic Restrictions and Social Regulation Minimum wage laws are not typically advanced on similar grounds in contemporary political debate. Rawls, however, expresses opposition to minimum wages on the grounds of dis-employment effects. The problem of economic regulation excluding and disadvantaging specific groups, usually with

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a superficially plausible public justification attached to it, remains a common outcome of contemporary public policy. Drug licensing and prohibition, although widely considered to be a form of social regulation, are more easily conceptualised as economic regulation. They involve restrictions principally on rights to consume, buy, sell, transport and store a range of commodities. Because ‘thick’ economic liberties are absent in this area, public officials are empowered to ban the sale of any commodity on an arbitrary basis, to alter those regulations using wide executive discretion and to enforce these prohibitions selectively. This system of regulation has been extraordinarily disadvantageous for marginalised groups. It has contributed to mass incarceration in the United States and elevated rates of incarceration in the United Kingdom and elsewhere, as well as generating insecurity in civil society for groups that are targeted by the police (Roberts, 2004; Boldt, 2010). Some scholars have argued it is part of an effective replacement of Jim Crow laws, used to discriminate against black and other minority citizens (Alexander, 2010). The provision of abortions in the United States is another example in which regulation in the economic sphere can be used to eliminate the fair value of a civil liberty. Following the Supreme Court decision, Roe vs Wade, women have a constitutional right to terminate a pregnancy in the United States. That right is supposedly irrevocable using ordinary democratic processes, whether at the national or state level. As a result, the formal personal right to an abortion is significantly stronger on paper than, for example, in the United Kingdom where the right is typically time limited and has to be exercised with the consent of a medical professional. However, this formal right has not translated into effective capacity to exercise that right in many US states and districts. Local legislators in US states have switched from prohibitions focused on pregnant women, to laws that regulate who can provide abortion services and how they can be provided (Medoff, 2009). The result can be that whole regions lack abortion providers despite demand for their services. The provision of abortion services inevitably engages economic activity because it involves specialised, skilled work and capital equipment. Abortion is also a medical procedure with some minor risks associated with it, and the healthcare sector is an area where both US states and the US federal government claim an expansive right to regulate on a broad basis on grounds amounting to consumer protection. An individual woman may have a formal right to bodily integrity, and this is interpreted to include rights to an abortion. However, their rights as a consumer of a medical procedure, and the correlative right of medical practitioners to provide medical procedures, are significantly curtailed and licensed. The value of that formal right is also restricted through legislative power to regulate economic activity on a broad basis and without the same judicial oversight that applies to civil liberties such as freedom of religion.

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Problems like these suggest that there are sound reasons for considering a set of thick economic liberties to contribute to the fair value of liberties, including personal integrity and rights to due process. Full Use of Liberties Does it matter that a substantial number of people do not always, or even typically, make full or substantial use of their economic liberties? There is a case for the importance of liberties, even if they are left unexercised or are not exercised in the best ways imaginable. The right to vote could be an important basic liberty, not because it must be exercised individually in a well-informed way at every election. Instead, it is the equal right of everyone to vote that influences the selection of candidates. This point mirrors an intuition behind Pettit’s (1997, p.57) non-domination conception of liberty. Pettit is concerned that an individual granted widespread effective freedom of action by a political authority is nevertheless unfree if that authority could withdraw that freedom, even when that authority has no intention of doing so. Liberty from domination, on this account, involves political institutions that secure individuals from the possibility or threat of arbitrary intervention, not just effective freedom from intervention. However, if it is the capacity to exercise a freedom, secure from arbitrary intervention, that is, the key characteristic of having a liberty, then it might be the case that one can have it secured without exercising it.1 Similarly, an employee working in a firm may not be exercising all their thick economic liberties. Nevertheless, she can do so should she choose. She can leave and seek employment elsewhere, become self-employed or start her own business. These options, though only occasionally exercised, are still part of her choice situation as an employee, something that the employer will have to consider when dealing with her (Taylor, 2017). The Egalitarian Objection A critical response to my case is that I have shown conditions where basic economic liberties could contribute to the fair value of equal liberty, but that there are more decisive cases where economic liberties undermine the fair value of equal liberty. If economic liberties generate other inequalities in political participation or social status, then they should be rejected as basic even if they have the potential to contribute to equal liberty in other respects. I can answer this objection best by comparing the place of markets in civil society with that of the family. Both markets and families are, to some extent, spontaneous orders; these structures precede the modern state and codification in formal law. Both emerge in a wide range of social settings, and exist in part to cope with economic problems (Horwitz, 2005). Families allow for the

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pooling of resources and a division of labour within a home and can provide for some informal social insurance across a few related households, while markets allow for a division of labour and knowledge coordination in a wider civil society amongst strangers (Horwitz, 2015). Despite its similarly practical origins, the right to form a family, and to a family life, is more generally acknowledged as a basic human right than economic participation. However, families, like markets and perhaps even more so, are also an important source of social inequality and disadvantage. The quality of family life has a huge impact on an individual’s prospects for pursuing a good life plan. Recognising family structures as spontaneous orders does not consecrate them, or its resulting outcomes, as just. Nevertheless, they are social facts in any pre-existing political community that need to be acknowledged. Families are protected in Rawls’ scheme because they provide certain primary goods that no conceivable alternative, designed institution could replace, including providing for personal intimacy, as well as the upbringing, care and basic education of children. Family life is acknowledged as essential features of a range of reasonable life plans (Munoz-Darde, 1998). Just as some radical spheres reject economic liberties, especially private property in productive assets, others suggest abolishing the family. Rawls (2001, p.163) rejects this impulse. Attempts to abolish the family are more likely to be dismissed as utopian, essentially of the unrealistic variety, as they are prone to failure, leaving communities and individuals worse off than when family relationships are permitted. On the other hand, state intervention has reconfigured formal family structures. Sometimes this is for the worse, for example, when anti-miscegenation laws were used to enforce racial hierarchies, or to seize children from marginalised groups so they could be brought up institutionally or by members of more favoured groups. But intervention has also been towards justice, such as recent decisions to extend marriage rights to same-sex couples. Family institutions also interact and adapt in response to changes in other social institutions. For example, care of the elderly in some societies, especially the less developed, is taken to be a core aspect of family life, but a much more contingent one in other societies where the elderly rely more on commercial institutions: savings, pension entitlements, and paid help for their care. Consider the position granted to family life when measured against the claim that Rawls’ scheme ‘requires that the influence of social class (and perhaps other social contingencies, like the quality of one’s family life) on life prospects be completely neutralized or eliminated’ (Arnold, 2014, p.244). Like Tomasi’s claim that economic freedom is compatible with a thick, egalitarian, conception of social justice (Tomasi, 2012, p.230; Arnold, 2014, p.240), this sets up a hostage to fortune. It is more than possible that some disadvantageous social contingencies resulting from family upbringing cannot be ameliorated

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in any other way than broad intervention into that sphere in a way that risks denying families the basic protection that Rawls wishes to afford them. One response to this dilemma is that intervention is justified but must be carefully administered to protect family life. Another response suggests that Rawls’ scheme privileges some family rights in an unjustified way that can be better specified in terms of individual rights (Okin, 1989; Munoz-Darde, 1998; Brighouse and Swift, 2014). However, it would be an extreme approach, tracking against Rawls’ attempts at developing realistic institutions, to deny basic rights to a private family life altogether. Carens (2014, p.284) acknowledges the trade-off here: We all recognize that some inequalities are inevitable, or at least that trying to eliminate them would be highly undesirable from a moral perspective. For example, people differ in their genetic inheritances and we don’t want to equalize those. Even apart from genetic differences, family relationships can create a wide range of advantages and disadvantages for children as they grow up, but, apart from cases of extreme abuse, we have good reason not to interfere directly with those dynamics.

Yet this is the position taken with respect to economic liberties. If market institutions facilitate the moral faculties that support widespread social cooperation across a whole political community, then a thick set of basic economic liberties is justified on similar grounds, even if, like family rights, this presents challenges for ensuring equality (Layman, 2015). Having argued for the critical importance of being engaged in the market process, we should note that this may also have some egalitarian distributive implications. It is possible that people who have inherited enough wealth such that they have no need at all to engage in serious economic reflection may typically lack many of the faculties of judgement necessary to engage productively in public life. Their capacity to formulate a conception of justice risks being stunted by the fact that they have not had to engage in weighing up competing values and putting themselves in the place of others in a way that successful market behaviour requires. They are in a potentially similar position, for example, to lifetime economic dependents who are legally, or effectively, denied access to economic decision-making.

FREE SPEECH JURISPRUDENCE AS A PARADIGM An analogy with free speech illustrates the implications of treating an activity as part of the basic liberties and what that means for legitimate regulation. Rawls and a great many liberal egalitarians take free speech to be a paradigmatic basic liberty. It can be justified on all manner of grounds since it is central for fostering a sense of justice and forming and pursuing a conception of the good. However, the principle of free speech, on many occasions, permits

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forms of expression that would otherwise be inexpedient to allow, even harmful to the public good or to the disadvantaged. For example, it permits the views of racists and homophobes, and allows exploitative religious cults to recruit members. Some have argued that high liberals are inconsistent, supporting widespread intervention to resolve market failures, but not failures in the ‘market of ideas’ (Dyzenhaus, 1992). It could be that some speech, presumptively captured within a thick conception of free expression, could even threaten the fair value of liberties of others (MacKinnon, 1993; Waldron, 2008; Langton, 2009). How can civil liberals cope with these potential problems with speech? On the one hand, they hope that free speech itself can furnish part of the solution: bad speech or even hate speech might best be combated with superior arguments that are also protected by free speech (Waldron, 1987; Zivi, 2014). While it might not be immediately expedient to allow some forms of opinions to be heard, in the long run it might still be to everyone’s advantage if the principle of free speech is followed. However, even a basic right to free speech as part of a scheme of equal liberties requires regulation (Riley, 2005, 2010). Speech can never be a complete free-for-all, as speech rights conceptualised in that sense inevitably conflict with one another. Does a speaker trying to make an argument have priority over a protestor trying to shout them down, or vice versa? As Rawls (2005 [1993], p.296) acknowledges, there is a need for rules of order, guiding individuals to meaningful expression in appropriate contexts. Instead of ‘thick’ basic liberties to speech implying that no state intervention is ever allowed or that speech regulation is set in aspic, the fact that they are basic restricts the character of state regulations. In speech, this means regulation facilitates the equal opportunity for citizens to express themselves, and not regulate for any other purpose. These regulations must be general in character, setting up legitimate expectations that can be understood and followed by all citizens, neutral between the ideas being expressed, but instead regulate only the time, place and way these ideas are expressed. This restraint on the kind of regulations, not the fact of regulation, is reflected in United States’ First Amendment speech jurisprudence which while allowing restrictions on many forms of expression on various grounds, has developed a norm of non-content discrimination (Weinstein, 2009). Nickel (2000, p.171) offers a similar analogy, using the example of freedom of religion not requiring the protection of every religious practice in all places at all times, but instead protecting religious pursuits from discrimination. What this approach rejects is a radical notion that freedom of speech, as a historically contingent bourgeois right, might be surpassed by a more authentic right to express only what is socially valued in the future. So long as social cooperation amid reasonable pluralism is the goal, free speech is a basic liberty.

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This has important parallels with Hayek’s conception of liberty in the economic sphere. Hayek acknowledges a significant role for the state in regulating the economy to the extent that some have argued he contradicted his own concerns with state intervention (Tebble, 2009; Lister, 2013). He goes so far as to endorse ‘the very necessary planning to make competition as effective and beneficial as possible’ (Hayek, 2007 [1944], p.90) so long as it aimed at supporting rather than replacing the market process. There are, however, restraints on the kinds of regulation permitted. Crucially regulations should not represent arbitrary commands capable of manipulating an individual’s situation in such a way that she is compelled to follow the will of another agent (Hayek, 2011 [1960]; Trantidis and Cowen, 2020). This analogy shows how a political community should approach the regulation of economic liberties. They can acknowledge economic rights to be morally valuable, indeed as valuable, in a sense, as free speech and freedom of religion. They are optimistic about reconciling the fair value of economic liberties just as liberal egalitarians remain optimistic about reconciling the fair value of freedom of speech with other basic liberties. However, they need not be blind to the challenges of doing so. No one must assume it will emerge naturally from principles of laissez-faire. Instead, they endorse a range of possible regulations and measures for redistribution to promote both the protection of economic liberty and the other basic liberties. The main restriction is that these interventions 1. are made based on general rules applicable to all, and 2. leave significant scope for citizens to make and carry out their plans in economic life, including the possession and development of property in means of production and voluntary contracting.

CONCLUSION In this part, I have argued for extending basic liberties to include a ‘thick’ set of economic liberties. I show that some formal and substantive protections of private commercial activity are a pre-requisite for a society meeting, simultaneously, the objective and subjective conditions of the circumstances of justice. Economic activity is an important site for the cultivation of the moral powers. The nature of economic liberty means that its unequal protection would be unjust. Finally, I discuss the implications of affirming economic liberty as basic, in order to show that it does not imply adherence to a doctrinal laissez-faire. As with freedom of speech, the fact that a liberty is basic does not imply no regulation but rather restricts the character of regulation to be general in character and aiming at facilitating its exercise on an equal basis for all.

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In the next part, I use the conclusions about economic institutions that I have developed in this and previous chapters to evaluate the proposed Rawlsian regime of a property-owning democracy. I argue that, with some modifications, a property-owning democracy can successfully institutionalise economic liberty in such a way that the epistemic and incentive challenges facing a political community can be substantially ameliorated.

NOTE 1. Constantly, or even consistently, exercising the full range of one’s basic liberties could be rather exhausting, and requiring it might well be incompatible with a number of reasonable life plans.

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PART V

Robust property-owning democracy

15. Defining property-owning democracy The purpose of this part is to critique some key contemporary policy proposals inspired by Rawls’ theory of justice and to introduce an alternative set of proposals that are likely to support Rawls’ conception of distributive justice in more realistic settings. The previous parts introduce the problems of knowledge and incentives, two challenges that political institutions must overcome in order to be robust, to the debate about the institutional implications of Rawls’ theory of justice. In those chapters, I defend the institutions of a basic structure as being the relevant site for distributive justice. For epistemic reasons, fully-fledged socialist institutions, including market socialist institutions, are apt to fail under realistic conditions, and at least some private-property market institutions are commendable. Moreover, some constitutional constraints on economic intervention are needed to discourage opportunistic predation and rent seeking in the political sphere. To ensure the stability of these arrangements, a set of basic economic liberties should have priority alongside civil and political liberties. Now I consider the consequences of introducing the realistic challenges of knowledge and incentives for the evaluation of contemporary policy proposals associated with Rawls’ theory of justice. I focus on the debate between proponents of property-owning democracy (POD) and welfare-state capitalism (WSC). Meade (2012 [1964]) developed the notion of POD as an alternative, or supplement, to liberal socialist institutions. Although Rawlsian approaches have been associated with justifications for WSC (Barry, 1973; Weale, 2013), Rawls (1999 [1971], 2001, p.139) himself explicitly rejected WSC and endorsed POD. Interest in POD has recently been revived amongst high liberals (O’Neill and Williamson, 2012). Proponents of POD argue that a capitalist distribution of property is intrinsically unjust because it generates vast economic, social and political inequalities. POD is distinguished from WSC by focusing on the distribution of productive assets rather than income and consumption alone. My position is that POD in the high liberal tradition lacks robustness. It is apt to fail in the face of realistic epistemic and incentive challenges. A modified version, a robust POD, can maintain some of the attractive distributive features of a high liberal POD while being less likely to fail in real-world settings. My argument is as follows. The notion that POD is an alternative to capitalism relies substantially on a Marxian definition of capitalism, as necessarily 172

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structured by class. This can be contrasted with more straightforward descriptive definitions as a regime that legalises the market process and permits private ownership of capital. It is the Marxian definition that commends a radically redistributive POD. Yet requiring the state to engage in a systematic distribution of wealth assumes that capital assets have a given value independent of their ownership. On a market process account, the value of capital assets can only be discovered ex post through their application to a productive process. Changing the ownership of a capital asset can also alter its applicability to a productive process. This problem may be surmountable for some forms of capital, especially real estate, equities and bonds, for which there is already a liquid market with constantly updated prices. It is much less applicable to other forms of property such as human capital, organisational capital and physical capital such as machinery. This means that the systematic distribution of productive assets to achieve a preferred distributive outcome is impossible. In addition, the systematic distribution of wealth in order to achieve a socially just outcome involves investing the state with extraordinary arbitrary powers. In the best-case scenario, these powers will be used prudently and faithfully to distribute resources from the relatively advantaged to the disadvantaged. In the worst-case scenario, these revenue powers can be captured and channelled by special interests, or a majority coalition, that do not effectively represent the least advantaged. The same powers that could help ameliorate social inequality also have the capacity to augment it. The nature of competition within the political process means that the best-case scenario is an unlikely outcome and that the sort of constraints on taxation and regulation that one sees in well-performing WSCs are relatively prudent ways to avoid exploitation and predation. Having shown that there are compelling reasons to doubt the robustness of the high liberal approach to POD, I turn to an alternative case for POD that can be made with the need for robustness in mind. I note that the case for POD emerges out of a concern that income inequality may increase, and returns to capital may outpace income, in such a way as to make existing institutions of WSC unstable. A welfare state that is in debt and reliant on progressive taxation can end up preserving the wealth of the relatively advantaged while reducing incentives to work. In addition to these incentive problems, my perspective adds that debt-prone WSCs face epistemic weaknesses within the political process, such as fiscal illusion. Understood this way, a differently configured POD might contribute to institutional robustness by allowing individuals to benefit from a number of alternative sources of material welfare, besides income from employment and claims on the welfare state. In this sense, a wider distribution of capital can represent a polycentric alternative to the state redistribution or determination of income.

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The structure of this chapter is as follows. I discuss Meade’s notion of a POD and its revival as a set of ‘high liberal’ policy proposals, as well as some high liberal and classical liberal critiques of this approach. I then discuss whether POD is really an alternative to capitalism and the way this frames the discussion of POD-like mechanisms in existing advanced economies. I describe the epistemic and incentive problems that a high liberal POD faces. Following this critique, I introduce the notion of a robust POD that attempts to allow for widespread wealth ownership not through direct state intervention, but through altering the rules of the game that determine the long-run returns to capital.

THE PROPERTY-OWNING DEMOCRACY DEBATE POD draws from various historical traditions, including radical theories of egalitarian democracy, and more moderate alternatives to socialism such as ‘distributism’ found in Catholic social thought. In contemporary political debate, the label ‘property-owning democracy’ is closely associated with Conservative economic policies, notably under Margaret Thatcher (Francis, 2012). It is commonly considered right-wing, supportive of large personal wealth disparities and antithetical to social democracy. Within academic political theory, by contrast, the phrase has become associated with a radically distributive alternative to existing WSCs, in which wealth is much more widely dispersed than is presently the case in Britain or the United States. Meade’s Regime Meade’s version influenced Rawls’ institutional proposals and inspires a great deal of subsequent discussion about the policy implications of Rawlsian theory. Meade is an economist in the neoclassical tradition who extended some of the insights of Keynes’ General Theory to problems of international trade (Meade, 1937). He is perhaps most famous amongst economists for formalising the problem of externalities (Meade, 1952). The core of Meade’s approach is an attempt to reconcile a practical and normative commitment to social justice with a belief in the efficiency properties of market price mechanisms: competition tends to increase economic welfare through increasing the efficiency with which resources are used by attracting resources to activities in which the value of marginal costs are highest. But there is always the possibility of clash between economic efficiency and a desirable distribution of income. (2013 [1979], p.136)

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Meade’s concerns with trends in social justice emerged from his belief that as civilisation advances, technology becomes more developed and more capital accumulates. Total returns to capital ownership are bound to increase. Meanwhile, demand for unskilled labour will inevitably diminish, while some specialised skilled labour will see gains in income. Meade’s concerns align closely with 21st century concerns about the impact of automation and artificial intelligence on the labour market. They can be seen be seen as reflecting some of Keynes’ (1931) concerns with how future societies, as he predicted, will cope with significantly less demand for human labour. Meade suggests that the institutions of WSC are ill-suited to facing these challenges. Greater returns to capital means that the tax base of a WSC is reduced and skewed towards a few high-income earners, which requires increasingly progressive income taxes in order to satisfy distributive justice. High progressive income taxes introduce disincentives to work for high earners, discouraging them from making the most of their potential contribution to the economy. Importantly, the redistribution of income from rich to poor puts those reliant on the state welfare in a precarious social position. They are only ever marginally participating in economic production and exposed to the whims of a political system that might turn against them. Meade (2012, pp.75–6) offers a number of alternative proposals for achieving these distributive ends which he thought constitutive of POD: • Taxes on wealth, especially inherited wealth and gifts inter vivos, in order to distribute ownership of productive assets across the whole population. • Generating a government budget surplus, through widespread public ownership, though not necessarily control, over key industries and companies. • Government subsidies to support home buyers and mortgages so that more families own their own homes, as well as the removal of penalties and barriers for small private landlords. • Public investment in education in order to increase returns to wages and salaries, and allow individuals from poor households to access skilled work (cf. Meade, 1948, p.46). • A programme of voluntary eugenics to discourage poor families from having many children, to decrease competition for unskilled work, and encourage rich families to have more children in order to split inheritances into smaller portions. These proposals are wide-ranging, having influenced policies across the political spectrum. High inheritance taxes and public ownership of industry was a part of Britain’s post-war social democracy. Supporting home ownership, by contrast, was associated with neoliberal Conservative governments in the United Kingdom, and continues to be popular amongst major parties

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in the United States. Educational investment, framed by ‘post-neoclassical endogenous’ theories of economic growth, became synonymous with some of New Labour’s policies (Crafts, 1996), and education reform aimed at achieving higher employment and distributive fairness, as well as higher economic productivity. Explicit eugenics policies, by contrast, have dropped out of acceptable public discourse. However, some Conservative-led policies arguably have the effect of penalising families with many children on the basis of disadvantaged social characteristics (MacLeavy, 2011; Wiggan, 2012; Slater, 2014). In this sense, Meade seems to have predicted, and helped influence, a great deal of mainstream 20th and 21st century policymaking, particularly in the United Kingdom. Despite the range of Meade’s programme, there is a unified economic logic that makes his proposals part of a coherent scheme. It is a presumption that the prices of all factors of production in an economy are determined relatively straightforwardly by supply and demand, and that capital inputs fetch a marginal product as profit. This allows assets to accumulate, whether in public or private ownership, and this is what explains increases in economic productivity. The distribution of capital assets is a distribution of future income streams. An investment in education, conceived as human capital, similarly translates into a higher future income for both the individual skilled worker and the society that benefits from her increased productivity. Meanwhile, reducing the supply of unskilled and semi-skilled workers (both through demographic interventions and educational investment) will raise the equilibrium wage of the unskilled workers that are left competing in the market. This theoretical framework accounts for Meade’s rejection of trade unionism as a compelling method for raising wages. Meade (2012, p.37) was concerned about the equity, and especially efficiency, of trade union-led power and legislation. He argued that even if unions are successful at raising some real wage rates, it tends to be at the expense of other workers in different sectors. If they manage to raise real wage rates in general across all employment sectors, they reduce demand for employment relative to technological substitutes, increasing the natural rate of unemployment. The inequity of this could be ameliorated in principle by sharing employment (or sharing unemployment) between workers through reduced working hours and age restrictions but at a cost of substantially reduced economic output. It was for this reason that Meade suggested POD as an alternative to trade unionism. While Meade (1975, p.16) saw state investment in infrastructure and human capital as critical, he saw restrictive work practices as a barrier to employment and prosperity: An important element in any long-run policy designed to combine full employment with price stability should consist of policies to deal with structural unemployment: to bring new industries to depressed areas, to re-train unemployed workers,

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to enable unemployed workers to find and rent houses in regions of expanding demand, and to break down restrictive practices in the labour market which prevent workers in contracting occupations and industries from being admitted to work in more prosperous trades.

There are a few ways in which Meade’s practical and moral commitments differ from Rawls. Rawls (1999, p.92) does not endorse eugenics policies in the same way as Meade, focusing on the more minimal obligation to prevent the passing down of ‘serious defects’. Meade advocated international free trade and supported European economic integration (though not monetary union). Besides the associated material benefits, Meade sees free trade as an important mechanism for achieving world peace. His main concern with Britain joining the European Economic Community was that it could stymie other forms of free trade, especially with the British commonwealth. By contrast, Rawls opposed European-wide governance and trends towards globalisation, believing them to be driven primarily by the interests of a small class of bankers and to erode national identity in a way that undermined social bases of self-respect (Rawls and Van Parijs, 2003). Rawls and the Rawlsians Rawls found Meade’s distinction between WSC and POD compelling. Only POD could put people in a position to pursue their own good with a degree of independence in civil society rather than be the passive recipient of some material benefits: [WSC and POD] ideas are quite different, but since they both allow private property in productive assets, we may be misled into thinking them essentially the same ... [T]he background institutions of property-owning democracy, with its system of (workably) competitive markets, tries to disperse the ownership of wealth and capital, and thus to prevent a small part of society from controlling the economy and indirectly political life itself. Property-owning democracy avoids this … by ensuring the widespread ownership of productive assets and human capital (educated abilities and trained skills) at the beginning of each period ... The idea is not simply to assist those who lose out through accident or misfortune (although this must be done), but instead to put all citizens in a position to manage their own affairs and to take part in social cooperation on a footing of mutual respect under appropriately equal conditions. (1999, pp.xiv–xv)

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The principle institutional mechanism that Rawls proposes is a distribution branch, a complement to the WSC branches of allocation, stabilisation and transfer: The taxation of inheritance and income at progressive rates (when necessary), and the legal definition of property rights, are to secure the institutions of equal liberty in a property-owning democracy and the fair value of the rights they establish. (1999, p.247)

Thus, Rawls combines Musgrave’s public finance conception of the state with Meade’s more radical distributive proposals. However, Rawls’ approach did not take on all the proposed channels for controlling the distribution of property that Meade suggested. Following Rawls, contemporary proponents of POD tend similarly to emphasise the mechanism of direct taxation of capital assets. Krouse and McPherson (1988, p.87) explain that ‘it is precisely this widespread dispersion in the ownership of property and wealth that most sharply differentiates property-owning democracy from welfare-state capitalism’. Williamson and O’Neill (2009, p.5) describe the wide dispersal of capital as the ‘sine qua non’ of POD, as well as preventing intergenerational transfers of advantage and the insulation of politics from economic interests through lobbying and corruption. Williamson (2012, p.227) puts some flesh on the bones of Rawls’ proposals, by suggesting three general strategies of asset appropriation through the tax system: One would be … to pursue a one-time, large-scale redistribution, with the intent of altering the distribution of assets as rapidly as possible. The second would be to institute a more moderate package of taxes on wealth and high incomes that would operate slowly to level out inequalities over time ... The third approach would focus less on redistributing existing wealth, and instead focus on making sure new wealth is produced and distributed in a far more equitable manner.

Williamson (2012, p.230) proposes that the dispersion of capital assets could initially take the form of $50,000 granted to each citizen at birth and held, by default, in an interest-bearing account: $10,000 for housing acquisition; $20,000 in cash assets ($15,000 in an unrestricted fund, $5000 in a restricted emergency fund); and $20,000 in ownership of productive capital ($10,000 in unrestricted investment capital, and $10,000 consisting of non-tradable stock ‘coupons’).

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The Critics Although a popular approach amongst high liberals, there is dissension. Weale (2013) suggests that rejecting WSC in favour of POD is unjustified on the basis of Rawls’ own approach to evaluating institutions. Schemmel (2015, p.397) criticises the Rawlsian case for POD on the basis that it seems to exclude the practical possibility of a universal welfare state (UWS). A UWS avoids many problems that Meade and Rawls identified in WSC because it extends benefits equally to all in a way that ameliorates class division rather than entrenching them. Williamson (2015) responds to this claim by suggesting that for all the practical benefits of UWS, it does not address inequality of capital assets as such and these may turn out to be important as a permanent stable base of self-respect and mediator of one’s capacity for political participation. Williamson suggests that the choice between POD and a well-functioning UWS will rarely be offered as a clear-cut alternative in practice. While UWS may be the most practical instantiation of a just society in the small, culturally homogeneous countries found in Scandinavia, POD is a far more likely road to reform in American-style regimes. Classical liberals tend to approach POD with scepticism. Gaus (2012, p.412) holds that POD, along with liberal socialism, is more coercive than a WSC in that it will require greater use of enforcement mechanisms, such as the criminal law, in order to achieve compliance amongst existing capital holders. Bou-Habib (2015) responds that enforcing less equal wealth holdings under WSC could easily turn out to be more coercive. Tomasi’s (2012) concerns are chiefly with the incentive properties of interventions such as inheritance taxes. On his account, radical redistribution of capital assets will encourage individuals to divert more of their income into consumption, with the result that the economy will be less productive, disadvantaging the worst-off. Vallier (2015) offers perhaps the most extensive critique from a classical liberal perspective. His central claim is that POD proponents have not subjected their theory to serious economic analysis: [P]roperty-owning democrats have failed to engage many basic economic concerns about their view. While Rawls appealed to a variety of economic models in his writings, he never consulted models that would demonstrate any significant flaws for the economic effectiveness of property-owning democracy. Contemporary property-owning democrats have unfortunately followed him in this, even though economics has advanced tremendously since A Theory of Justice was published. (2015, p.303)

Vallier applies his critique both to ideal and non-ideal levels. In ideal theory, Vallier suggests that POD falls foul of similar personal incentive problems that supposedly make WSC inefficient and unstable, because it discourages the

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accumulation of capital. In non-ideal circumstances, these expanded, arbitrary state powers will encourage corruption and regulatory capture. The state of the debate is that POD is considered more radical and interventionist than WSC. This makes POD attractive to some high liberals because it gives the state a freer hand to achieve its distributive aims. Correspondingly, it seems less attractive than WSC to classical liberals because it seems to involve more coercive economic intervention. An interesting feature of the debate is that POD seems to put scholars who might otherwise be sceptical of WSC into the position of defending it.

IS PROPERTY-OWNING DEMOCRACY AN ALTERNATIVE TO CAPITALISM? While presented as a radical doctrine, the policy proposals that Meade lists under POD are quite mainstream. This raises the question, to what extent does POD already exist? POD proponents might find this to be trivially mistaken since POD is an alternative to capitalism and all existing liberal democratic regimes are capitalist. I propose that POD’s claims to radicalism weigh significantly on defining capitalism as a system of classes, constituted by a working class that derives income from labour and a capitalist class that derives earnings from owning other factors of production. When this assumption is relaxed, the strict distinction between WSC and POD becomes less obvious. In presenting the radical POD account, Krouse and McPherson (1988, p.80) claim: If one follows Smith, Marx, and Weber in identifying capitalism as a social formation that divides society into propertied and propertyless classes (rather than defining all private property systems as capitalist), then Rawls’s ideal regime should not be called capitalism at all.

This conceptual gloss is contestable. Associating Smith with any definition of capitalism is problematic because Smith’s work precedes the employment of the term. Smith (1904 [1776], p.24) used the notion of a ‘commercial society’ but the economic measures he associated with greater welfare, the system of natural liberty, voluntary exchange and the division of labour, do not involve sustaining class distinctions. Smith observed empirical class differences, the differences of income and wealth between different people, but saw the amelioration of poverty as a key feature of commerce rather than a scheme of locking people into a permanent material condition. In contrast to Smith, Weber (2001 [1905]) uses the concept of capitalism. However, Weber’s use relates much more to a rational, bureaucratic form of organisation, not to the structure of ownership. Weber employs notions of class and status but they are distinct from people’s relationship with the means of

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production. People’s social roles, on the Weberian account, are defined by professional status or level of authority within a firm, not one’s level of material wealth or relation of ownership to a business. This leaves Marx (1981 [1867]) whose definition of capitalism fits the usage here. It is an influential definition, but subject to reasonable contestation. Conceptualising POD strictly as an alternative to capitalism, rather than a kind of capitalist regime, seems to hinge on a Marxian typology. What does accepting this typology mean for the theory underlying a high liberal POD? Unlike classical Marxism, this approach does not assume a labour theory of value. It does, however, assume that all factors of production other than labour automatically fetch their marginal products (Kirzner, 1996, p.211). This implies that owners of capital assets are extracting rent from production processes even when not explicitly exploiting labour. If the yield is predictably positive, then a property owner can keep (or expand) their holdings indefinitely, increasing wealth inequality in a way that is inevitably incompatible with a just, well-ordered society. On this account, generating profit is a trivial task as economic actors are assumed to have perfect information, including given prices that represent the marginal cost of each good. Their role is simply to allocate ‘given means’ to ‘given ends’ (Kirzner, 2013 [1973], p.27). From Meade’s (1972) standpoint, managers of state-owned firms can replace entrepreneurs, so long as they are willing (or are sufficiently incentivised) to follow the given prices of each good. If nothing in principle prevents public employees from using the price mechanism to maximise the profits of state-owned enterprises, then it is equally possible for the state to distribute capital assets, whether based on equality or some other fairness criterion, to private individuals and households. This notion of profit as a return on the marginal product of all factors of production other than labour assumes an economy that is in a perfect competitive equilibrium, the basis for Meade’s (1945, 1972) approach to economic analysis. My position is that the assumptions required for this equilibrium, including perfectly rational actors with perfect information, is unrealistic, and that the prevalence of imperfect knowledge and human error is an economic problem that needs to be solved rather than assumed away (Cowen, 2016, 2017; Delmotte and Cowen, 2019). The existence of error is not surprising. It is the relative ease with which humans are nevertheless able to coordinate their plans to produce substantially welfare-enhancing goods and services that requires explanation (cf. Boettke et al., 2013; Boettke, 2018). Once the neoclassical conception of capital as self-accumulating is interrogated, it is possible to conceive instead of a classless (or perhaps ‘bourgeois’) capitalist society where most individuals are both property owners and workers, either simultaneously or during different stages of their lives. In this ideal type, variance in earnings is the result of luck, talent, local knowledge,

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risk propensities, attitudes to saving and lifestyle choices. Individuals interact in a cooperative positive-sum game that is partly of skill, partly of chance (Hayek, 1998 [1973]). If this is the ideal type of a capitalist society, then a WSC is not as easily differentiated from a POD as its proponents suggest. Because capital assets do not deliver a predictably steady stream of profits, there is no longer a necessary conceptual connection between private property rights, unsustainable capital accumulation and a class-divided society. Ideal Types A high liberal objection to this deflation of WSC and POD could be that it has a purely terminological relevance. We can observe real WSCs and the vast inequalities of wealth that they permit. However, this response involves moving silently between WSC as an ideal type and as a real-world regime. Of course, no ideal WSC, let alone an ideal laissez-faire capitalist regime, has ever existed and it would be inappropriate to compare real WSCs with an ideal-type POD. If we acknowledge the non-ideal nature of existing WSCs, we can recognise that observable wealth inequalities may not be a result of intrinsic features of capitalist regimes. Instead, they could be the result of regime features that run counter to the ideal-type template. These non-capitalist features of existing regimes could include the endurance of aristocratic and patrimonial privileges of wealth and political power, the toxic legacies of colonialism, as well as historically racist and sexist institutions. These features also include contemporary forms of protectionism and rent seeking that increase the power and wealth of special interests at the expense of ordinary citizens. On a classless capitalism account, these non-capitalist behaviours and institutions distort the market process in such a way that the advantaged can avoid some of the downside costs and risks of the competitive process, while continuing to reap many of the benefits. If this opportunistic, anti-competitive behaviour is also the actual source of many economic and social inequalities, then institutions that reduce this behaviour would bring existing capitalism more in line with its ideal type while also reducing inequality (Lindsey and Teles, 2017). Remaining inequalities would be a byproduct of a spontaneous order with welfare outcomes that are beneficial to all, including the least advantaged in society. If we drop the assumption of profits as a predictable yield in a static equilibrium framework and endorse a market process explanation of profit, then the description of the outcomes of an ideal WSC converge to look remarkably like POD (Pennington, 2015, p.474). Observe that inheritance taxes, capital gains taxes, mortgage subsides, right-to-buy social housing, public investment in education, as well as share ownership schemes are all commonly discussed amongst policymakers and sometimes implemented. Moreover, there is a virtual consensus amongst

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policymakers of the importance of social mobility and the challenge of income and wealth inequality. The question is not so much why the mechanisms of a POD are unavailable but rather why they are not typically implemented to produce an outcome that satisfies the requirements of distributive justice as high liberals perceive it. My answer is that policymakers face knowledge and incentive problems that make these policy mechanisms apt to fail at achieving a distributive pattern. Proponents of POD base their predicted outcomes of implementing their policies on a best-case scenario rather than a range of possible scenarios.

REFERENCES Barry, B. (1973) The Liberal Theory of Justice: A Critical Examination of the Principal Doctrines in A Theory of Justice by John Rawls. Oxford: Clarendon Press. Boettke, P.J. (2018) F. A. Hayek: Economics, Political Economy and Social Philosophy. Great thinkers in economics. London: Palgrave Macmillan. Boettke, P.J., Caceres, W.Z. and Martin, A. (2013) ‘Error Is Obvious, Coordination Is the Puzzle’, in R. Frantz and R. Leeson (eds), Hayek and Behavioral Economics. Basingstoke: Palgrave Macmillan, pp. 90–110. Bou-Habib, P. (2015) ‘Gaus on Coercion and Welfare-state Capitalism: A Critique: Welfare-state Capitalism and Coercion’. Political Studies. 64 (3), 651–65. doi: 10.1111/1467-9248.12228. Cowen, N. (2016) ‘Introduction: Symposium on Robust Political Economy’. Critical Review. 28 (3–4), 420–39. Cowen, N. (2017) ‘Why Be Robust? The Contribution of Market Process Theory to the Robust Political Economy Research Program’, in Peter J. Boettke, C.J. Coyne and V.H. Storr (eds), Interdisciplinary Studies of the Market Order: New Applications of Market Process Theory. London: Rowman and Littlefield International. pp. 63–85. Crafts, N. (1996) ‘“Post-neoclassical Endogenous Growth Theory”: What Are Its Policy Implications?’ Oxford Review of Economic Policy. 12 (2), 30–47. Delmotte, C. and Cowen, N. (2019) ‘The Mirage of Mark-to-Market: Distributive Justice and Alternatives to Capital Taxation’. Critical Review of International Social and Political Philosophy. 1–24. doi: https://​doi​.org/​10​.1080/​13698230​.2019​ .1644585. Francis, M. (2012) ‘“A Crusade to Enfranchise the Many”: Thatcherism and the “Property-Owning Democracy”’. Twentieth Century British History. 23 (2), 275–97. Gaus, G.F. (2012) The Order of Public Reason: A Theory of Freedom and Morality in a Diverse and Bounded World. Cambridge: Cambridge University Press. Hayek, F.A. von (1998) [1973] Law, Legislation and Liberty: A New Statement of the Liberal Principles of Justice and Political Economy. London: Routledge. Keynes, J.M. (1931) ‘Economic Possibilities for Our Grandchildren’, in Essays in Persuasion. New York: Harcourt Brace, pp. 358–73. Kirzner, I.M. (1996) The Meaning of Market Process: Essays in the Development of Modern Austrian Economics. Foundations of the market economy series. London: Routledge. Kirzner, I.M. (2013) [1973]. Competition and Entrepreneurship. Collected works of Israel M. Kirzner. Peter J. Boettke and Frédéric E. Sautet (eds). Indianapolis, IN: Liberty Fund.

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Krouse, R. and McPherson, M.S. (1988) ‘Capitalism, “Property-owning democracy,” and the Welfare State’, in Amy Gutmann (ed.), Democracy and the Welfare State. Studies from the Project on the Federal Social Role. Princeton, NJ: Princeton University Press. pp. 79–106. Lindsey, B. and Teles, S.M. (2017) The Captured Economy: How the Powerful Enrich Themselves, Slow Down Growth, and Increase Inequality. New York: Oxford University Press. MacLeavy, J. (2011) ‘A “New Politics” of Austerity, Workfare and Gender? The UK Coalition Government’s Welfare Reform Proposals’. Cambridge Journal of Regions, Economy and Society. 4 (3), 355–67. Marx, K. (1981) [1867] Capital: A Critique of Political Economy. v. 1. Penguin classics. David Fernbach (ed.). London; New York: Penguin Books in association with New Left Review. Meade, J.E. (1937) ‘A Simplified Model of Mr. Keynes’ System’. The Review of Economic Studies. 4 (2), 98. Meade, J.E. (1945) ‘Mr. Lerner on “The Economics of Control”’. The Economic Journal. 55 (217), 47. Meade, J.E. (1948) Planning and the Price Mechanism. London: George Allen & Unwin. Meade, J.E. (1952) ‘External Economies and Diseconomies in a Competitive Situation’. The Economic Journal. 62 (245), 54. Meade, J.E. (1972) ‘The Theory of Labour-managed Firms and of Profit Sharing’. The Economic Journal. 82 (325), 402. Meade, J.E. (1975) The Intelligent Radical’s Guide to Economic Policy: The Mixed Economy. London: Allen & Unwin. Meade, J.E. (2012) [1964] Efficiency, Equality and the Ownership of Property. Abingdon, Oxon; New York: Routledge. Meade, J.E. (2013) [1979] The Just Economy. Principles of political economy v. iv. Abingdon, Oxon: Routledge. O’Neill, M. and Williamson, T. (eds) (2012) Property-owning Democracy: Rawls and Beyond. Malden, MA: Wiley-Blackwell. Pennington, M. (2015) ‘Constitutional Political Economy and Austrian Economics’, in Peter J. Boettke and Christopher J. Coyne (eds), The Oxford Handbook of Austrian Economics. Oxford ; New York: Oxford University Press. pp. 464–90. Rawls, J. (1999) [1971] A Theory of Justice. Cambridge, MA: Belknap Press of Harvard University Press. Rawls, J. (2001) Justice as Fairness: A Restatement. Cambridge, MA: Harvard University Press. Rawls, J. and Van Parijs, P. (2003) ‘Three Letters on The Law of Peoples and the European Union’. Revue de philosophie economique. 7, 7–20. Schemmel, C. (2015) ‘How (Not) to Criticise the Welfare State’. Journal of Applied Philosophy. 32 (4), 393–409. Slater, T. (2014) ‘The Myth of “Broken Britain”: Welfare Reform and the Production of Ignorance’. Antipode. 46 (4), 948–69. Smith, A. (1904) [1776] An Inquiry into the Nature and Causes of the Wealth of Nations. Cannan. Vol. 1. London: Methuen. Available from: http://​oll​.libertyfund​ .org/​titles/​237 (accessed 4 December 2020). Tomasi, J. (2012) Free Market Fairness. Princeton. NJ: Princeton University Press.

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Vallier, K. (2015) ‘A Moral and Economic Critique of the New Property-owning Democrats: On Behalf of a Rawlsian Welfare State’. Philosophical Studies. 172 (2), 283–304. Weale, A. (2013) ‘The Property-owning Democracy versus the Welfare State’. Analyse & Kritik. 35 (1), 137–54. Weber, M. (2001) [1905] The Protestant Ethic and the Spirit of Capitalism. London; New York: Routledge. Wiggan, J. (2012) ‘Telling Stories of 21st Century Welfare: The UK Coalition Government and the Neo-liberal Discourse of Worklessness and Dependency’. Critical Social Policy. 32 (3), 383–405. Williamson, T. (2012) ‘Realizing Property-owning Democracy: A 20-year Strategy to Create an Egalitarian Distribution of Assets in the United States’, in Martin O’Neill and Thad Williamson (eds), Property-owning Democracy: Rawls and Beyond. Malden, MA: Wiley-Blackwell. pp. 225–48. Williamson, T. (2015) ‘How (Not) to Criticise Property-owning Democracy: A Response to Schemmel’. Journal of Applied Philosophy. 32 (4), 410–16. Williamson, T. and O’Neill, M. (2009) ‘Property-owning Democracy and the Demands of Justice’. Living Reviews in Democracy. 1. Available from: https://​www​.lrd​.ethz​ .ch/​index​.php/​lrd/​article/​viewArticle/​lrd​-2009​-5 (accessed 19 August 2016).

16. The robustness critique of property-owning democracy POD proponents acknowledge an important role for market prices in terms of efficiency but do not recognise fully the knowledge generating function of markets. Both Williamson (2012, p.234) and Meade (2013 [1979], p.51) invoke the ‘magic of compound interest’ to explain why capital holdings naturally increase if left unconsumed. However, it is not magic that generates interest on savings. It is the activity of entrepreneurs acting to connect under-utilised resources with unmet needs. The problem is that attempts to radically alter capital ownership would undermine this process that allows capital to grow through its ongoing utilisation. Pricing information does not exist in the absence of an appropriate institutional environment. It requires a framework of private property, freedom of contract and voluntary exchange under the rule of law. Without that framework, economic coordination and cooperation across society is not feasible or realistic. POD proponents are relatively comfortable with voluntary exchange itself, and clearly affirm the rule of law. They differ somewhat on freedom of contract (Meade was an advocate of relatively free labour markets). Their main point of intervention, and contention against a market order, is the distribution of private property. However, that prices are not given has challenging implications for the fair distribution of capital assets that a POD entails. As POD proponents note, governments under WSC typically finance themselves through progressive income taxation, as well as taxes on other forms of transfers (sales tax, value added tax, corporate profits and stamp duty for real estate transfers). One reason for convergence on taxation at these points is that they reflect the voluntarily agreed subjective value of the good, service or labour secured. These taxes introduce inefficiencies: they discourage some beneficial transfers that would otherwise take place. However, they do not impede market calculation altogether. They only prevent some offers of employment and beneficial transfers at the margin. The taxes are calculated and levied transparently based on the subjective values of market participants. In contrast, many capital assets are illiquid. Their owners may subjectively value holding them. However, they have no objective way of discovering their market value (a process which itself is costly, even when possible in principle). 186

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The value of the capital assets may be realised ex post through their application to a productive process (Delmotte and Cowen, 2019). However, that capital asset will be altered or even consumed in the process. There is no voluntary, public mechanism for valuing an asset before it has been utilised. In this sense, a POD, in parallel to Dworkin’s (2002) island auction thought experiment, assumes the existence of perfectly competitive markets that can produce complete pricing information. A POD unrealistically requires that all assets in an economy are always up for the equivalent of a population-wide auction. Moreover, capital assets gain and retain their value only in relation to a complex structure of production (Hayek, 2009 [1941]). This includes a specific configuration of factors as well as human inputs such as management, professional expertise and tacit knowledge. On a market process account, expropriation does not merely reduce incentives to accumulate and develop capital for future businesses (a trade-off that Meade and other POD proponents do acknowledge). It can often disrupt and destroy existing capital, making it unusable. To illustrate this point, suppose you inherit an attic full of ‘junk’ from a recently deceased relative. Looking over the bequest, you see dusty old books on esoteric subjects, a selection of comic books, some vintage clothing and assorted widgets. What is the value of these items? Are they worthless trinkets of no value other than to the person who has just died? Are some of them priceless antiques? Perhaps the widgets can be combined in some way to produce valuable equipment. Or perhaps the vintage clothes could fetch thousands of pounds for a film studio that needs them for a production. In death, unique subjective information about the uses of these items has been lost. It could take a lifetime of research to generate suitable information again. This is a common enough situation that entire television series can be dedicated to experts sorting junk from enormously valuable antique goods. But imagine if a capital levy was applied, systematically, to all productive property and this was not just an occasional problem for valuing personal effects. The result would be a churn of assets from those who subjectively valued them (in the right configuration in combination with their expertise) highly to those who have much less knowledge about what valuable uses the assets could have. This means that the state’s distribution runs against the voluntary transfer and configuration of assets in pursuit of entrepreneurial profits that is required for the market process to operate. Capital asset distribution on a scale required for POD could disrupt the spontaneous coordination of the market process, resulting in a substantial reduction in the supply of many goods and services. Mirrlees et al. (2011, p.347) sum up this problem as follows: Levying a tax on the stock of wealth is not appealing. To limit avoidance and distortions to the way that wealth is held, as well as for reasons of fairness, the base for

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such a tax would have to be as comprehensive a measure of wealth as possible. But many forms of wealth are difficult or impractical to value, from personal effects and durable goods to future pension rights – not to mention ‘human capital’. These are very serious practical difficulties.

For similar reasons Mirrlees et al. (2011, p.348) suggest that systematic taxes on gifts between generations are generally unfeasible: In practice, taxing inter vivos transfers is difficult partly because it requires those concerned to report the taxable event. There are also many ways in which money can effectively be spent for the benefit of others without involving any direct transfer of money.

APPLIED TO HUMAN CAPITAL My account discusses the knowledge problem primarily with regards to intermediate goods in potential production processes. These include things like commodities and equipment that, when combined with labour as part of a business plan, produce consumer goods and services. These kinds of capital assets are impossible to value because they are part of an ongoing production process with uncertain outcomes. They cannot be appropriated and distributed without disrupting production processes and this means that some forms of capital must be protected from appropriation if the market process is to work spontaneously to combine different plans of action into a complex scheme of social coordination. The fair distribution of the means of production, as traditionally conceptualised, remains an element of many radical policy proposals. However, contemporary egalitarians often emphasise the role of less tangible goods, especially human capital, as transmitters of advantages and contributors to inequality. On this account, it is not just material assets that distinguish the advantaged and disadvantaged but also access to empowering goods, such as education and healthcare. This is a core insight of the capabilities approach to welfare and has also been integrated into contemporary discussions around POD (Williamson, 2013, p.240). On this account, problems of distributive justice can be ameliorated through enhancing the educational opportunities of the disadvantaged. In recent years, this has taken the form of increased investment in primary and secondary education and subsidising higher education. Offering free or nearly free tertiary education to all is commonly invoked as a necessary mechanism for addressing inequality. There is evidence that mass education, at the primary and secondary level, has substantially ameliorated inequalities of political participation (Lindgren et al., 2017). However, there are reasons to be sceptical that ever increased investment in education produces straightforward improvements in distribu-

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tive outcomes. Investment in education faces a knowledge problem parallel to other forms of investment. Education is not a homogeneous commodity that can be mechanically applied to a human being (Cowen, 2019). There are different kinds and qualities of education. Differences include the range of formal curricular, the pedagogical approach of the institutions and teachers, as well as the conditions of schooling under circumstances of time and place. Offering formally the same level of educational opportunities to different people in different circumstances will produce different outcomes (Cowen et al., 2017). The value of the resulting human capital cannot be known until it is tested when the educated individuals enter the labour market. Policymakers, the people allocating resources to education on this model, cannot easily predict what kind of education will benefit an individual. A further complication is that at least part of the value of education in labour markets derives from its role as a signalling mechanism (Altonji and Pierret, 1998; Caplan, 2018). Many of the gains from having a bachelor’s degree is not so much the skills or expertise taught on the associated course. Instead, people who complete a bachelor’s degree credibly demonstrate a generic capacity, which they possessed before entering university, to work hard on long-term projects, to defer gratification, and to thrive independently in certain institutional and social environments (that is, amongst other students at a university). It signals a capacity that was already within the student which is helpful for being a credible job candidate. However, once many people have a bachelor’s degree, its signalling role is diminished. This means that in order to possess a more unique signal, students may have to go further and acquire a master’s degree, even though that will not necessarily enhance their expertise relevant for employment any further. Signalling, though different from human capital, is important for coordinating economic activity. However, the public policy problem with education’s role as a signalling mechanism is that it is rivalrous as opposed to its role in human capital development. Rather than becoming more skilled and increasing the range and capacity an individual could make to an economy, signalling is primarily a mechanism for competing for existing jobs. Public policy aimed at increasing ‘human capital’ could unintentionally contribute, beyond a certain margin, to an arms-race to produce what are, principally, private positional goods rather than public goods (Adnett and Davies, 2002). Insofar as education functions more as signalling than human capital investment, then increased private or public investment in education does not predictably produce, in aggregate, socially beneficial outcomes. Instead it produces individual-level benefits in a way that is not that likely to produce more egalitarian outcomes in the future labour market. It could plausibly be the case that increased investment in some kinds of education will produce

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less egalitarian outcomes rather than more, because people could gain very different levels of advantage from receiving more formal education.

THE INCENTIVE PROBLEM AND PROPERTY-OWNING DEMOCRACY We have already seen that one of Meade’s rationales for preferring POD to WSC was the ability to sidestep incentive problems associated with high taxes on income. By contrast, taxes on capital assets are supposed not to have the same disincentive effects. Vallier (2015, p.289) points out that, given some of the epistemic challenges discussed above, higher capital taxes would lead people to have less incentive to accumulate valuable kinds of capital. As a result, it will also be harder for market actors to observe when there is an excess demand for specific capital assets. More striking, however, is the likely impact on individual incentives within the political process. Perhaps the core challenge of political economy is specifying a regime with the capacity to deliver desirable social outcomes but sufficiently limited to prevent those with political power engaging in predation and oppression (Buchanan, 2000 [1975]). Meade himself is aware that institutions influence levels of predation. When discussing bureaucratic allocation of scarce goods rather than market rationing, he warns: [A] system of direct quantitative controls is the breeding ground for spivery and corruption. It is the father of black markets and carries with it an insidious threat to public morality … To give central and local officials the daily task of handing out … pieces of paper called permits or licences of great value to the fortunate but limited number of recipients is to expose our fine and honourable public service to a strain which may in the end prove unbearable. (Meade, 1948, p.7, cf. 1975, p.30)

This description acknowledges that distributive institutions can make otherwise good people tempted to exploit a position of authority or power. Thus, Meade endorses general rules over bureaucratic discretion: [W]here direct regulations are unavoidable they should be based on principles and criteria which are as precise, as general and as impersonal as possible, rather than being left to the discretion and good judgement of the bureaucrat. The former give much greater security and equality of opportunity than the latter. (Meade, 2013, p.19)

By contrast, Meade (2013, p.29) assumes that policymakers play an exogenous but benign role in a political community. They will dutifully implement the policies that fall in line with their moral values (the role for the economist on this account is to use their expertise to inform policymakers what economic

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policies will implement these values). As discussed in Chapter 10, Rawls similarly suggests that prevailing ethical norms are decisive constraints on opportunism in political environments. My approach advises instead a presumption of behavioural symmetry. We should not assume, at least without evidence, that policymakers operating at the heights of government are intrinsically better behaved than actors at lower levels of governance, such as local bureaucrats or private actors. They are as exposed, perhaps more so due to greater opportunities, to the temptations of predation (Wagner, 2016). Power can corrupt great statesman, just as much as it can corrupt bureaucrats (Vallier, 2015, p.294). Having acknowledged the importance of rule design for reducing petty corruption, it is necessary to consider the framework within which rule-makers make the rules. We need to think about the constitutional framework of the regime, and not just the explicit, avowed beliefs and objectives of those in power. When Williamson (2013, p.239) turns to reforming the constitutional framework, it is chiefly in order to empower political actors to achieve distributive ends: In the American context, realizing property-owning democracy in a stable form will require five constitutional guarantees: 1. A right to an equal public education. 2. A right to a minimum income and/or the means for supporting one’s self at a minimal level of social acceptability. 3. Explicit limitations on corporate political activity and provision of a public system of campaign financing. 4. An individual right to a share of society’s productive capital and/or wealth. 5. A community right to sufficient productive capital to sustain a viable local democratic community.

The problem with this approach, specified in terms of desirable outcomes, is the lack of a worked-out mechanism through which individuals might hold political actors to account should they fail to implement these constitutional guarantees. This contrasts with institutions that protect basic liberties and property rights. These rights can be more easily set out as general rules that guide individual conduct and can be protected with specific injunctions against individuals that break those rules. It is true that existing WSCs, which often have hard to implement schemes of entitlements, are also vulnerable to opportunism and predation. Regulations might be designed to benefit powerful special interests rather than protect public welfare. Taxation can be applied partially, allowing political allies to be protected and opponents to be singled out for scrutiny and penalties (Delmotte, 2019). Nevertheless, in advanced economies, some institutions, centrally the

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rule of law supported by an independent judiciary, have helped to curb predation to an extent unparalleled in history (North, 1990; North et al., 2009). The problem for POD, as a radical alternative, is that it proposes to grant state officials more powers to alter property rights than existing WSCs. In sanctioning taxation of capital assets, POD would require more executive or bureaucratic discretion in assessing taxes because it involves valuing illiquid assets. This creates more opportunity to appropriate assets in ways that will permit discrimination against opponents and political outsiders, and reward allies and political insiders (Trantidis and Cowen, 2020). Campaign Finance and Corruption of the Political Process POD proponents have their own way of dealing with corruption. They propose that political corruption is a major problem but its origins are found in the influence of commercial interests on the political process. For Rawls (1999 [1971], p.225), the source of failure to seek the common good in the political process is almost inevitably associated with inequalities of social and economic power in civil society from outside the political process. However, it can certainly contaminate the political process. Hence, the high liberal solution is to insulate the political process from commercial interests (Williamson and O’Neill, 2009, p.5). Substantive policy proposals include abolishing or reducing private fundraising of political campaigns and introducing schemes of public funding. The intuition is that the economically disadvantaged are deprived of a voice in the political process by the disproportionate influence that private commercial interests gain through donations and access to politicians. A weakness with this approach is that the intuitive belief that public funding will produce attractive electoral outcomes for the disadvantaged is not born out straightforwardly by experience. Formal models of electoral competition suggest that restraints on private fundraising could generate an incumbency advantage (Pastine and Pastine, 2012), making sitting representatives potentially less responsive to ordinary citizens. Empirical evidence from state-level elections in the United States suggests that campaign spending restrictions have little discernible impact on electoral outcomes (La Raja and Schaffner, 2014) and that switching to public funding of candidates has little impact on voting behaviour (Harden and Kirkland, 2016). International evidence suggests that restrictions on corporate funding and the introduction of public funding can induce polarisation of political platforms (Köppl-Turyna, 2014). Campaign spending in general plays a comparatively limited role in determining electoral outcomes (Fink, 2012; Ben-Bassat et al., 2015). Substantive evidence that public financing of elections improves the outcomes of the disadvantaged is presently lacking.

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A possible response for high liberal POD proponents is that existing campaign reforms are too tentative to make an impact in the far from ideal world in which they have been introduced. Nevertheless, if campaign spending seems to have a limited, unpredictable impact on the political process, then it could be worth exploring other explanations for policy outcomes that fail to track the public good or the interests of the disadvantaged. An alternative explanation is that there are features endogenous to the political process itself that predictably lead to sub-optimal outcomes and facilitate corruption. For example, any concentrated special interest may be able to exploit the political process to generate rents rather than support the public good (Tullock, 1959). It is certainly possible that special interests with economic clout outside the political process, such as financiers or pharmaceutical companies, may be in a strong position to influence the political process, but such problems also apply to less economically powerful groups such as taxi cab firms and farmers, as can be observed in real-world politics. On this account, it is to a great extent the political process that cultivates and protects interest-group politics, rather than special interests that contaminate an otherwise unsullied political process. To sum up, direct systematic attempts to distribute wealth are apt to fail in the face of realistic knowledge and incentive problems. State officials are likely to lack the knowledge to predict what sort of distributive pattern would arise from their interventions. Even if they possess sufficient knowledge, attempts to distribute fairly may be thwarted by the political process. Such mechanisms can easily be used to single out individuals, groups, classes or businesses to be penalised by the state, and for other groups to be rewarded. Besides producing unfair outcomes, this may cause individuals to perceive the political process as working against their interests rather than for a common interest, thus re-introducing an assurance and compliance problem that state institutions are supposed to ameliorate.

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Pastine, I. and Pastine, T. (2012) ‘Incumbency Advantage and Political Campaign Spending Limits’. Journal of Public Economics. 96 (1–2), 20–32. Rawls, J. (1999) [1971] A Theory of Justice. Cambridge, MA: Belknap Press of Harvard University Press. Trantidis, A. and Cowen, N. (2020) ‘Hayek versus Trump: The Radical Right’s Road to Serfdom’. Polity. 52 (2), 159–88. Tullock, G. (1959) ‘Problems of Majority Voting’. Journal of Political Economy. 67 (6), 571–9. Vallier, K. (2015) ‘A Moral and Economic Critique of the New Property-owning Democrats: On Behalf of a Rawlsian Welfare State’. Philosophical Studies. 172 (2), 283–304. Wagner, R.E. (2016) Politics as a Peculiar Business: Insights from a Theory of Entangled Political Economy. New thinking in political economy. Cheltenham, UK and Northampton, MA, USA: Edward Elgar Publishing. Williamson, T. (2012) ‘Realizing Property-owning Democracy: A 20-year Strategy to Create an Egalitarian Distribution of Assets in the United States’, in Martin O’Neill and Thad Williamson (eds), Property-owning Democracy: Rawls and Beyond. Malden, MA: Wiley-Blackwell. pp. 225–48. Williamson, T. (2013) ‘Constitutionalizing Property-owning Democracy’. Analyse & Kritik. 35 (1). Available from: http://​www​.degruyter​.com/​view/​j/​auk​.2013​.35​.issue​ -1/​auk​-2013​-0118/​auk​-2013​-0118​.xml (accessed 24 August 2016). Williamson, T. and O’Neill, M. (2009) ‘Property-owning Democracy and the Demands of Justice’. Living Reviews in Democracy. 1. Available from: https://​ethz​.ch/​content/​ dam/​ethz/​special​-interest/​gess/​cis/​cis​-dam/​CIS​_DAM​_2015/​WorkingPapers/​Living​ _Reviews​_Democracy/​Williamson​%20O'Neill​.pdf (accessed 18 Februrary 2021).

17. The case for a robust property-owning democracy So far, I have shown POD proposals do not necessarily represent the qualitative shift, as an alternative to capitalism, that its proponents impute to it. In addition, a radically distributive POD would be more apt to fail in its objectives compared to many real-world WSCs. Now, I turn the case around and explain how a different conceptualisation of POD could be robust, at least compared with some existing regimes. There are two key hurdles to combining the protections of economic liberty, that I have argued to be criteria for robust institutions, with POD in the way that I propose. The first is a suspicion, shared perhaps between many high liberals and classical liberals, that the economic liberties that I have defended on robustness grounds are incompatible with restricting levels of economic inequality within parameters that justice as fairness implies. The concern is that economic liberty could represent a sort of Faustian pact (Okun, 1975). It unleashes a wave of productive innovation that probably can materially benefit everyone. But the differential returns are large and unmanageable with the result that the difference between income groups increases. Those who are advantaged exploit their resources and privileged status to undermine the conditions of economic liberty that permitted this productivity in the first place: Higher rewards generate productivity that enhances societal prosperity, but the newly created wealth is inevitably distributed unevenly across the different income classes, with more talented and motivated individuals doing better. More importantly, however, some of the winners of the economic race might use their newly acquired wealth to obtain a head start through unproductive activities such as rent-seeking, which can reduce economic freedom and create even greater inequalities by reducing opportunities for economic mobility. (Bennett and Nikolaev, 2017, p.739)

In response to this suspicion, there is evidence that there does not appear to be a strong connection between most common measures of economic freedom and material inequality (Acemoglu et al., 2013; Ng, 2015; cf. Kenworthy, 1995). This suggests that somewhere within the range of institutions that constitute a free economy, there are instantiations that are reasonably egalitarian (Bergh, 2020). Indeed, some evidence suggests that a feature of economic 196

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liberty that I emphasise, the rule of law, is generally associated with greater distributive equality (Bennett and Nikolaev, 2017). The growth of commercial society is associated with greater equality in terms of consumption (Geloso, 2018; Geloso and Lindert, 2020). Economic liberty, as defended here, prevents a regime from attempting to impose a pattern of wealth ownership on a political community. On the other hand, a rigorously patterned distribution is not required for Rawlsian justice to obtain either. Instead, for the distribution to be just, the arrangement must provide a fully adequate range of primary goods to all citizens, and be the result of a process to which everyone would reasonably and rationally agree. This does not specify a distributive outcome and it is conceivable that quite a wide range of distributive outcomes could be consistent with these conditions. If the necessity of economic liberty for social cooperation is acknowledged, the parameters of acceptable inequality may, nevertheless, be commendable and compatible with this conception of distributive justice. The second hurdle, leaving aside the conceptual or empirical consistency between economic liberty and POD, is that the necessary constraints on political intervention that I have imputed to robustness render policymakers unable to alter the distribution of property even if it is unjust. On this account, a political community cannot provide an assurance that wealth will not become concentrated, thus undermining the prospect of stability needed for a well-ordered society. A response to this concern is that robust institutions do not rule out all forms of asset taxation. My argument against high liberal POD proposals is that it is not within the power of the state to determine systematically the distribution of wealth in society. This is because some forms of wealth are impossible to value, which means no single agent could have a synoptic grasp of wealth in a political community. When visible and recoverable assets are subject to expropriation, asset holders will switch into less visible forms of capital, or capital that cannot effectively be taxed. This could include anything from additional university degrees to personal jewellery. Hence, the dynamic response of capital owners to a high liberal POD regime will lead to a new distribution that is skewed towards hidden assets but not necessarily towards equality. Indeed, the illiquid and clandestine nature of the resulting assets could, in some ways, produce greater inequalities of wealth and social power (though perhaps subtler and more hidden from public view than the typical extravagant displays of wealth that one associates with substantial inequality). Nevertheless, many kinds of capital assets are visible and have publicly agreed prices based on relatively liquid markets. This includes items such as real estate and some natural resources. They are amenable to taxation in the same way as income and consumption. A tax on the imputed rent of home

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ownership, one of Meade’s (1984, cf. Meade and Institute for Fiscal Studies, 1978) key reform proposals, would represent a relatively minor administrative adjustment to the British tax system but could be progressively distributive if it replaced the present form of council tax (Callan, 1992; Delmotte and Cowen, 2019). Hence, the constraints of generality leave policymakers with powers to influence the distribution and value of property holdings. How does my robust approach differ from other attempts to establish POD? Chiefly, the focus of reform is the rules of the game as applied at a more general level rather than distributive mechanisms that directly tax one agent in order to aid another. These indirect approaches can involve lowering barriers to market entry, especially anti-competitive licensing privileges granted to favoured corporations and professional associations (cf. Meade, 1975, pp.64–5). The advantage of focusing on the patterns resulting from alternative rules of the game is that they can be used to change the distributive outcomes of the market process without disrupting the process itself. In addition, constraining legislators and administrators to enacting general reforms means that powerful actors are less able to lobby for special privileges which, in the long run, risk reproducing the same inequalities of power and wealth that democratic oversight is meant to prevent. I now give a few specific examples of POD policy approaches that would be more robust to knowledge and incentive problems while also aiming to achieve a greater equality of wealth. I discuss five issues where WSC lacks robustness and where POD (and a robust POD, in particular) could represent an improvement: public debt, public service entitlements, pensions, intellectual property and housing provision.

PUBLIC DEBT Meade observes that WSCs can neglect their long-term fiscal position. The creditworthiness of states means that they can spend for the benefit of current citizens while imposing costs on future citizens. Government debt is serviced eventually through taxation. Some argue that government debt held internally within a country is simply ‘owed to ourselves’. Interest payments are no more problematic than an individual transferring cash from one pocket to another, or possessing an IOU signed by oneself. A rich country (because of government spending in previous periods) will easily shoulder the burden of the resulting debt. Both Meade (1945) and Buchanan (1999 [1962]) argue that this defence misunderstands the distributive implications of public debt. Government debt is held by the relatively wealthy with the result that interest payments on bonds represent an income transfer to an advantaged group. The burden of the debt, by contrast, is felt by taxpayers, principally those with a potentially high

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income. Obliging workers to pay for a public debt that corresponds to past benefits means that high income, high productivity, employment, is discouraged at the margin. Buchanan and Wagner (2000 [1977]) add an epistemic component to their critique, the problem of ‘fiscal illusion’. Public debt represents a paradigmatic case of exploiting dispersed costs that are hard to observe in order to produce concentrated benefits that are more visible. The result is that people are alert to the benefits of public spending without being aware of the real opportunity costs. Where Meade and Buchanan differ is on solutions. Meade (1948, p.63) proposes the nationalisation of major industries, especially those that operate on such a scale as to be efficient monopolies, including coal, steel and railways. This way, the state would be a net creditor, having access to a constant stream of dividends from a set of public monopolies, an alternative to raising taxes to service debts. The historical experience of nationalised industries in Britain and elsewhere suggests that one cannot maintain the same capital structure developed through the market process once an industry is placed under public ownership (Shleifer, 1998). Once nationalised, firms are deprived of the necessary price signals that could guide rational management of a company. Firm management typically becomes politicised and exposed to lobbying and industrial action (Shleifer and Vishny, 1994). The result is a deterioration of the nationalised capital assets and eventual collapse in productivity. The stream of profits for the state turns into liabilities to support failing industries. In contrast, Buchanan suggests curbing government debt at the point of expenditure. To bring this about in practice, he suggests introducing a principle that only public expenditure which produces economic benefits for future taxpayers (such as long-term infrastructure) should be purchased by issuing debt. All other state expenditure should be covered by taxation over the same period as the expenditure. He proposes constitutional limits on state spending in the form of balanced budget rules and fiscal federalism to prevent costs from being dispersed far from where the benefits are felt in public expenditure. These kinds of proposals, like Meade’s, also fail or produce unintended consequences. The uncertainty of future payoffs on investments means government officials claim almost any public expenditure that is not a pure transfer to be ‘capital investment’. Strict balanced budget requirements imposed by international treaties on European Union member states were intended to prevent states going into debt. Instead, they became partly responsible for the prolonged recession in the Eurozone (Rohac and Christensen, 2017). This is because a source of aggregate demand, counter-cyclical government spending, was systematically constrained. Leaving individual member states responsible for domestic public spending inside an international currency union, essentially a fiscal federalism by default, has crippled some national economies.

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Hence, the problem of public debt remains a challenge even for relatively well-performing WSCs. There are reasons to suspect that POD would represent an improvement. First, more dispersed wealth would mean that the creditors are more likely to be amongst the taxpayers. That would mean at least that the same households or families would bear both the benefit and burden of debt-financed public expenditure. The notion that public debt is simply ‘owed to ourselves’ would not be exactly true but more approximately true. Second, widespread asset ownership would make people less exposed to political cycles of expenditure and austerity under WSC. They would be less damaging because ordinary private households would have alternative sources of income.

PUBLIC SERVICE ENTITLEMENTS In a WSC, citizens are subject to a progressive income tax and, in return, become eligible for various universal and needs-assessed benefits and public services. The problem is that while one’s income tax liabilities are set, the de facto supply of particular public services depends to a much greater extent on the performance and discretion of public officials (cf. Brodkin, 1997). Because welfare claims are free at the point of use, they must be rationed and assessed through bureaucratic mechanisms. These mechanisms impose a simplified model against which to judge individual claims, abstracting away specific details of circumstances, to rule on their eligibility. The result is that the process will inevitably fail to allocate services fairly on some occasions. It makes successful compliance with bureaucratic procedures a condition for access, which itself represents a prohibitive barrier especially for people with no resources of their own. The example of educational provision can show how this problem emerges. Free primary and secondary education are almost universally accepted public services in advanced WSCs. However, there are naturally disagreements over whether the education on offer is adequate or appropriate. Is a state school that requires students to wear a uniform practising a form of economic or cultural exclusion? Is one with a religious ethos, or lacking any religious ethos, an appropriate offer to a family? Is the pedagogy or curriculum on offer suited to the needs of a child? Can a mainstream school provide adequate support for a child with special educational needs? Suppose a child has a right to a publicly affirmed acceptable standard of education. Nevertheless, should the relevant bureaucracy practically fail to supply that standard, the capacity for parents to obtain redress is quite limited. It is only in relatively extreme cases that a judicial appeal process will intervene directly to pre-empt the decisions of a public educational provider and simply demand that some alternative course of action be taken. When judicial

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processes intervene to force a bureaucracy to act in a certain way in a particular case, it can force education providers into financial distress, which will lead to rationing in other aspects of its service or potentially the collapse of the system. For this reason, judges are necessarily quite deferential to the perspective of administrators. This means that a welfare ‘right’ that enjoins the state to provide a service cannot practically have the same legal force as a property right addressed to actors in a civil society (Epstein, 1985). By contrast, a POD may have fewer WSC-style ‘rights’ of this kind. Instead, it may establish alternative sources of spending for households with young children that can function more like secure property rights. Education, rather than taking the form of a ‘take it or leave it’ offer of a school or college place, may take the form of a tax credit, cash grant or voucher that can be spent on a state-owned school, a private school, resources for a parental cooperative, or even private tutoring and textbooks to supplement home schooling (Cowen, 2008; DeAngelis and Erickson, 2018). Indeed, Rawls (1999 [1971], p.243) considers this approach to be one way of the state discharging a collective obligation to educate children: Government tries to insure equal chances of education and culture for persons similarly endowed and motivated either by subsidising private schools or by establishing a public school system.

Because such a right is a quantifiable claim on public revenue, there is less possibility of disagreement over whether the right has been discharged by a public authority. The public authority must write the cheque but does not have to produce a complex, personalised service of uncertain value for the recipient. Members of the public, legislators and administrators can more easily understand the revenue implications of a scheme of rights. An advantage of this approach is that it shifts discretion away from public officials who may fail to supply public services that match the criteria of the promised welfare entitlement. The disadvantage, of course, is that it shifts that discretion onto other actors. For education, this includes parents and independent education providers. They may also fail to follow the best considered interests of the recipients of the resources (Brighouse and Schmidtz, 2019). Practically, we would inevitably expect a mix of WSC-style administered public services and POD-like income or asset transfers to avoid the worst versions of each. Nevertheless, there are benefits in terms of the autonomy of the recipients and the accountability of officials to using asset grants or general income guarantees to support many welfare needs rather than in-kind provision.

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PENSIONS AND INTERGENERATIONAL JUSTICE The example of government-run pension schemes under a WSC can help illustrate both these problems because pensions are simultaneously welfare rights and sources of intergenerational debt liability for states. WSCs classically use unfunded, pay as you go, pension schemes. Current taxpayers support the pension income of current retirees and, in return, become eligible to receive a pension when they retire, to be paid by future taxpayers. There are attractive features to this sort of arrangement, including the symbolic forms of intergenerational solidarity. However, problems of efficiency and fairness can emerge. Due to a combination of demographic and dynamic incentive effects (Kotlikoff, 1979), real-world pay as you go pension schemes can take the form of a transitional gains trap (Tullock, 1975). Shapiro (2007) traces the typical history of pension schemes under WSCs as follows. A government introduces a generous pension scheme at a time when most of the population are of working age or younger, and typical workers have a short life expectancy at retirement. They begin supporting a relatively small number of retirees and offer extensive benefits to older workers. This is mostly a transfer since the beneficiaries either contribute nothing to the system or receive benefits in excess of their contributions during their working life. Although the scheme might be publicly associated with a specific fee such as ‘social security’ or ‘national insurance’, the government does not set aside investments associated with the pension. The money goes to the treasury and into general expenditure. Without correlative investments, taxes must rise as more people retire and life expectancy increases. This means that the new generation of workers face higher tax rates than the previous generation, resulting in reduced incentives to seek work, to work full time or find the most productive work (De Nardi et al., 1999). This may, in turn, reduce people’s propensity to have children as their household resources are lower than they otherwise would be. Some workers may migrate. The tax base decreases in comparison to the pensionable population. Eventually, cuts to pension entitlements become necessary through allowing the value of the payments to reduce through inflation or raising the retirement age in line with life expectancy. Taxpayers at this stage face the prospect of paying for other people’s entitlements and eventually receiving back less than they add to the system themselves. What is left is a regime that is Pareto-sub-optimal for participants going indefinitely into the future compared to an alternative scenario where the scheme never existed. This is because tax contributions to pay for current pension claimants reduce incentives to work with the result that the economy is smaller than it otherwise would have been. Yet because of the way the scheme has been set up, and because those in retirement or about to retire have legit-

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imate entitlements tied to the scheme, there is no easy path to reform. Under almost any reform, either people will lose an entitlement to which they had a legitimate expectation or current taxpayers will be forced to pay for a scheme that they themselves will not benefit from. The only true beneficiaries were living at the beginning of the process and have since died. In this sense, government pension schemes can be used to hide a lack of social investment intended to maintain living standards between the generations (Parijs, 1998). A POD-like alternative might be able to avoid this kind of scenario. Rather than the state acting as mediator between people’s savings for retirement and investment, an alternative policy facilitates workers saving by allowing them to cultivate their own private assets in the form of bonds, shares and real estate. In this sense, citizens develop a dual identity as workers in an enterprise and as property owners in the productive economy. Policies to generate this can take the form of tax credits or subsidies for workers as they save. One way of achieving such a regime would be to replace income taxes with consumption taxes. As workers retire, they consume their savings through a combination of living off the interest, drawing down assets and purchasing annuities or other forms of insurance against living long into retirement. The key advantage of this arrangement over a WSC pension scheme is that the value of the resulting pensions is linked much more directly to the overall health of the economy. This natural scalability means that the pay-outs depend much less on the relative political clout of specific demographic groups. If the economy has grown well, then current pensioners’ spending power is proportionately larger. If the economy has done worse than expected, the pensioners receive a smaller amount. The state can avoid one key source of public debt liability which, in a worst-case scenario, can lead to public defaults and fiscal instability. A scheme that specifies pension entitlements in terms of property rights in a range of diverse assets can produce a fairer distribution of benefits and burdens between generations than the more arbitrary discretion inherent in an unconstrained political process. The distributive mechanism is more robust in the face of uncertainties about future economic growth.

INTELLECTUAL PROPERTY The case of intellectual property can help illustrate the basic intuition that distribution can be addressed through changing the underlying rules of the game. Intellectual property is now a key determinate of firm profitability, especially in the technology and media sectors (Dourado and Tabarrok, 2015, p.134). The strength of intellectual property contributes to the vast earnings of celebrities and sportspeople who make up a portion of the super-rich. Hence, reform of intellectual property has the potential to reduce inequalities at the level of the now famous ‘1%’.

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Interestingly, rather than focusing on these outsized earnings as a possible site for egalitarian reform, policymakers, perhaps dazzled by the success of commercial innovations, seem motivated to augment and champion the position of these enterprises (Delmotte, 2021). While working briefly at a central government department, I encountered a policy team tasked with developing policies to help universities protect their discoveries as intellectual property. They also wanted to encourage collaboration with British companies to commercialise them. Their rationale was that collaborations between universities and the technology sector in the United States were ahead of Britain, shown by vast profits and company valuations. By contrast, British universities were making discoveries that were either going unused, or worse, being used by everyone, including foreign companies, in new products and services. The value of those products was going uncaptured. The problem with policies of strengthening patent protection is that they give little weight to the consumers of these patentable goods and ignore the distributive consequences of raising commercial returns to patents (which function in economic theory as temporary monopolies or rents). Standard economic theory may endorse some intellectual property rights, not in the interest of increasing profits, but to provide incentives for first-mover innovation and private research and development (Greenhalgh and Rogers, 2007). The profits required to spur innovation are, in fact, a social cost, not a direct benefit, of a patent system (Tabarrok, 2002). As a result, economic analysis acknowledges a trade-off between encouraging current innovation and constraining the use of those innovations, including the dissemination of new technologies at lower costs to the consumer (Aghion et al., 2005; Hall, 2007). While the policy team I encountered treated the United States as an example of best practice, academic economic research suggests that the United States is plausibly, in many sectors, far beyond the point where patent protection is useful and is now actively damaging to innovation (Heller, 2008). This issue goes unnoticed if one focuses on the profits of existing firms and not on the wider effects on consumers and the level of competition in a market. The policymakers I encountered, despite knowing some of the terminology of economics, appeared to be using a kind of ersatz Whitehall theory (cf. Henderson, 1986, p.11), rather than economics that one could readily identify from any of the major schools of thought, whether neoclassical, Austrian or heterodox. The assumed policy objective was straightforwardly to increase the profits of British firms and funding for British universities. Patented products, protected temporarily from cheaper substitutes, are a great source of profit. Under WSC, there is a public rationale for this approach. States cannot tax a consumer surplus easily. If a device, such as a desirable electronic tablet, drops from costing £600 to £50 through the entry of competitive models, that benefits consumers, but could produce, at least, a short-term loss for the

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treasury in terms of lower revenues on sales and corporation taxes. Taxation requires a high volume of spending and income receipts. It is not enough merely that products be conveyed to a valuable use. They must be conveyed in such a way that they raise measurable transactions. There is thus a temporary alignment between the state’s revenue objectives and increasing measurable economic activity that can be assessed for tax purposes. This applies even if it comes at a long-term cost to consumers and produces unequal distributive outcomes that result when monopoly profits are deliberately augmented and protected. Unnecessarily expensive products are bad for consumers but good for the specific producers and might be temporarily good for the treasury. In typical policy environments, the specific interests of businesses, universities and the treasury may be well-represented. However, the interests of the consumer and ordinary citizens are excluded, not necessarily deliberately, but through inattention to systematic economic theory and to wider principles of the public good. Moreover, if the policy is applied repeatedly to as many goods and services as feasible, then even the benefits that accrue to the producers and the treasury will eventually be negated by the higher costs that even they will have to absorb as consumers of other goods. The policy does not pass a test of generalisability (cf. Vanberg, 2001, p.6). The classic WSC approach to intellectual property seems to be to accept the rules as given, or of no distributive relevance, and simply to tax the income that accrues to businesses and individuals who possess intellectual property. The high liberal POD approach presumably involves trying to assess the value of the intellectual property asset, as part of a systematic measure of everyone’s capital, and taxing the holder, whether an individual or firm, in order to distribute the resulting profit more widely. The robust POD approach, by contrast, would focus on reforming the general framework of intellectual property rights to reduce the associated outsized profits. This could involve removing intellectual property in some sectors where the public good justification for those rights in terms of spurring product innovation is comparatively weak (Kealey and Ricketts, 2014). It could involve time-limiting patents, or limiting their range of applicability, in other cases. Insofar as it is successful, it would reduce the high incomes associated with intellectual property ownership, as well as returns to that kind of capital compared with labour.

HOUSING AND HOME OWNERSHIP Possession of safe, secure shelter and housing is a basic interest of all members of a political community, and an essential pre-condition for participation in civic life and the pursuit of one’s conception of the good. So unsurprisingly,

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housing provision is a key element of welfare provision in advanced economies. Under a paradigmatic WSC, the state supplies housing to those who are unable to afford their own housing needs. This can be achieved either through an income transfer that allows households to rent properties from private landlords, or through the provision of public housing that can offer subsidised rents to those unable to afford market rents. In real-world WSCs, inevitably a combination of these mechanisms is employed. For high liberal POD proponents, this approach is inadequate because it sustains a permanent structural division between home owners and renters. Income supplements or access to public housing may sustain the minimal housing needs of the disadvantaged, but it will never give them the economic and social independence enjoyed by home owners nor the opportunity to become home owners themselves. Moreover, WSC does nothing to address the spiralling inequality of wealth generated by property owners accumulating rents from their additional houses. Indeed, by subsidising the private rental market, WSC could even augment this trend. Instead, a truly liberal egalitarian approach gives the disadvantaged an effective path to home ownership while preventing the advantaged from accumulating more wealth from control over housing. Housing policy is one area in the United Kingdom where a small aspect of POD has been explicitly put into practice: a ‘right-to-buy’ for tenants in public housing, initiated under Margaret Thatcher’s Conservative government. Partly as a result of this policy, and other tax and regulatory policies that favour home ownership, the United Kingdom now has significantly more dispersed wealth holdings than either the United States and most advanced European welfare states: the relatively faster percentage growth in middle wealth – resulting primarily from the change in housing wealth – compared with the richest meant that relative wealth inequality was substantially less in 2005 than it had been in 1995. (Hills and Bastagli, 2013, p.34)

What distinguishes the United Kingdom is the fact that property ownership is not as closely correlated with income as in other regimes: The UK has more ‘asset rich, income poor’ households as lower and middle income UK households tend to hold higher median net worth than US households but higher income US households hold much greater values of median wealth than their UK counterparts. (Rowlingson, 2012, p.38)

In this sense, unlike in the United States, household wealth in the United Kingdom is somewhat more likely to compensate, rather than simply reflect, the fortunes of household members in the labour market. It allows some indi-

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viduals to engage in consumption smoothing over the course of their lives. Hence, as a result of these home ownership policies, wealth is nominally significantly more dispersed over different income groups than in otherwise similar countries. There are, however, two major problems with these outcomes that prevent them from being commendable in Rawlsian terms or even on more minimal efficiency or equity grounds. The first is that most of the observed dispersion of wealth has happened because of an unprecedented increase in house prices. This means that the wealth of many middle class households is tied up in a relatively illiquid, yet potentially volatile, asset with little opportunity for diversification. In this context, home ownership can represent a barrier to independence rather than a contributor, anchoring individuals to a local area where employment opportunities may be worse than elsewhere (Blanchflower and Oswald, 2013), sometimes in a way that parallels constraints on those tied to specific public housing (Battu et al., 2008). If this housing wealth is built on the sand of artificially inflated property values, then the supposed gains for middle income households could melt away during an economic downturn. As Hills and Bastagli (2013, p.74) explain: the fall in wealth inequality … appears almost entirely to be the result of the house price boom. Essentially what happened over the period was that the rise in house prices boosted ‘middle wealth’ – overwhelmingly made up of housing – relative to ‘top wealth’, a much larger part of which is made up of financial assets. (Italics in the original)

The second problem is that the benefits of home ownership have not been extended to all productive contributors to the British economy but home ownership has instead become a badge, an increasingly precarious one, of membership of an exclusive middle class (Williamson, 2012, p.235). Offer (2008, p.556; cf. Sodha, 2012, p.262; Gregory, 2016) argues that rising housing wealth is, in fact, exclusionary rather than inclusive: Inflated house values did not increase real wealth: while prices were rising, the houses did not provide any better shelter, and when they were sold, for every seller who enjoyed a windfall, there was a buyer who had to pay higher prices.

This problem is made worse by the fact that construction of new social housing has been reduced at the same time as ‘right to buy’ was introduced. As property has been sold off to existing tenants, new housing stock has not been built to replace it. The overall result cannot be said to benefit the disadvantaged who are excluded from home ownership and suffer from diminished access to public housing than in previous generations.

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The high liberal POD approach to this policy experience has been to acknowledge the empowering potential of ‘right to buy’ (O’Neill, 2012, p.95) but insist it is only valuable to the disadvantaged when situated within a framework that radically redistributes wealth. Hence, a key purpose of Williamson’s (2012) proposed asset grant is to allow individuals from all backgrounds to gain some level of property ownership. From the perspective of robust POD reform, the more fundamental problem with existing housing provision is an institutional framework which significantly constrains the supply of new residential developments in a way that particularly disadvantages people who do not already own property. Housing, unlike other basic goods such as food and clothing, has many associated externalities. Externalities include the inevitable removal of some public or common space, transport congestion and pressure on public utilities, as well as the more commonly voiced concerns with noise, pollution and disruption to views of the local landscape (Niemietz, 2012). Meade (1948, p.3) himself criticised ‘the meaness of sprawling ribbon development and of the unplanned growth of suburbia’. Based on these rationales, building permissions were effectively nationalised in the United Kingdom in 1947 under the Town and Country Planning Act (Pennington, 1997). While most construction is conducted by the private sector, it is permitted or commissioned only following detailed consultation with local planning authorities. While the United Kingdom’s regime is towards the extreme end of this spectrum of regulation, housing construction tends to be regulated to a greater or lesser extent in most advanced economies (Cheshire, 2009). In the United Kingdom, the unintended consequence of regulation has been to prevent housing supply from adjusting to increases and changes in demand, with the result that house prices vary enormously from one region to another. More importantly, house prices have risen in areas of relative economic prosperity significantly beyond the reach of many people, especially the disadvantaged. Supporters of national planning regulations observed the externalities associated with relatively laissez-faire housing provision and recognised that a planning system could, in principle, ameliorate them. However, they assumed a best-case scenario where enlightened, public-spirited planners would simply correct market failures. They did not anticipate a worst-case scenario where planners fail to weigh properly the general interest of the population having widespread, affordable access to housing against the specific interests of existing home owners and their much more concentrated local preferences against development. Moreover, they failed to anticipate how planners themselves could become an interest group with a preference for restrictive policies that generate more work for themselves (Pennington, 2000).

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Experts remain divided on the causal contribution of planning restrictions to higher house prices with some sceptical that planning is important (Dorling, 2015). Nevertheless, international comparisons and comparing housing construction and pricing in Britain before significant regulation are compelling. They suggest the impact is substantial, one of the most economically destructive, and unfair, policy arrangements in the United Kingdom (Cheshire and Sheppard, 2002, 2005; Cheshire, 2009). Crafts (2013) offers a useful contrast between the boom in new housing construction that followed sterling’s devaluation in the wake of the Great Depression, and the boom in house prices generated by the quantitative easing that ended the Great Recession. A significant boost in aggregate demand, when a national planning regime had yet to be introduced, produced dramatic growth in affordable housing. By contrast, under the more restrictive regime, a boost in aggregate demand led primarily to higher asset prices without encouraging the construction of more affordable housing. Some international evidence suggests that constraints on housing supply may be the single most important explanation for the rise in general wealth inequality (Bonnet et al., 2014; La Cava, 2016; Rognlie, 2016). If planning restrictions are a major explanation, then the sheer inequity and inefficiency of the existing regulated housing market in the United Kingdom could render the high liberal POD mechanism ineffective at achieving greater distributive equality. The high liberal proposal amounts to taxing existing wealth holdings in order to give a use-specific grant to non-home owners with the aim that they gain a foothold in the property market. The problem is that with existing supply constraints on construction and development in place, channelling more resources towards housing may have the aggregate impact of bidding up house prices. Property owners will be taxed on the one hand, but have their assets increased in value with the other through increased demand for those same assets. The overall result may be a churn of resources that ultimately leaves the same individuals in control of the same scarce housing assets. Insofar as the supply of housing is fixed or inelastic to demand, inevitably many disadvantaged individuals will be left without access to appropriate housing. The current planning system is a real-word example of the ‘vicious neighbourhood’ model from Chapter 9 where an attempt to correct an externality produces, through the political process, a worse externality, and an unfair outcome as well. There are some beneficiaries of the planning regime, though many of them lose out eventually through second-order impacts on the economy, but the result is unfair, excluding some people permanently from home ownership. How would a robust POD address this issue? The long-term aim would be to re-introduce market pricing and signalling into the provision of housing. This would involve replacing the current regime of political bargaining and bureau-

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cratic evaluation of projects with Coasean bargaining based around property rights (which was the practical alternative before planning became the subject of national regulation). Specific planning permissions would be replaced with a general right to build on one’s own property that could only be challenged on specific, practical nuisance or harm grounds in judicial proceedings, not on generic objections to newcomers or ‘unwanted’ development. If individuals, or local communities, wish to prevent tracts of land from being developed, they would be free to purchase that land for themselves with their own private resources (Christmas, 2017). They would not be able to use the political process to block new developments. The expensive taste of keeping pristine landscapes adjacent to already developed housing would be more properly reflected in land prices. Given the passionate opposition to development amongst many property owners, it may be impractical to introduce such a wide-ranging reform on such a thorny issue at the national level. Nevertheless, there are ways to make marginal improvements that would slowly improve the accessibility of housing. Introducing some measure of fiscal decentralisation, essentially allowing local authorities, and devolved governments, to raise and spend a greater proportion of their own taxes could help by encouraging local governments to cultivate their own tax base. Local governments would benefit from welcoming newcomers. If this were combined with reforms that delegated planning laws to local areas, one could see incremental moves towards more permissive planning. The long-run result of successful reforms would be two-fold. First, outsized asset values in real estate would be lower, reducing wealth inequality between home owners and non-home owners. In addition, it would make home ownership accessible to individuals at all income levels. More importantly, it would reduce rental costs such that people could be assured of more attractive, secured tenancies while spending less of their incomes on housing. In practice, this could mean that home ownership is unnecessary for many, since alternative modes of saving might be more attractive and open to diversification. The class and status advantages associated with home ownership would have been substantially removed. A robust POD approach could achieve more realistically the kind of ‘classless capitalism’ that a commercial regime with contestable markets under the rule of law can achieve in ideal theory.

CONCLUSION This final part brings considerations of robustness into the evaluation of policies aiming at distributive justice. To be robust, institutions do not necessarily have to be minimal state in character, especially combined with a normative commitment to social justice. An alternative is introducing general constraints

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on how power is exercised through political institutions. This preserves a space in which stable rules of private property and voluntary exchange prevail. These institutions remain essential for allowing individuals, operating in civil society and private markets, to engage in cooperative ventures amid dispersed knowledge. They also prevent opportunistic and predatory behaviour from becoming prevalent within the political sphere. This is an essential feature of a political community, independent of the size of the state or the public sector more broadly understood. Following these constraints rules out a high liberal approach to POD. Such an approach involves investing state officials with arbitrary powers in the economic sphere. This interferes with the capacity of market institutions to facilitate social cooperation. This capacity, unique to capitalist societies, is a pre-condition for the sort of social environment where more deliberate policymaking, guided by public reason and legitimate democratic procedures, is possible. Nevertheless, the aims of POD can be distinguished from individual policies supposed to bring it about. Reform of general rules governing economic activity do not require vesting government officials with arbitrary powers and can allow for substantial amelioration of distributive injustice. Like the system of natural liberty, or laissez-faire, or the classical liberal minimal state, a robust POD, that is, a systematic attempt to reduce wealth inequality through adjusting the general rules of the market and political process, protects the institution of private property and voluntary exchange. In what sense is a ‘robust POD’ robust? A robust POD commends a principled, rule-bound approach to economic reform, and substantive constitutional protections of a range of economic liberties. If these constraints are adhered to, then the likelihood of essential mechanisms for social cooperation failing as a result of public policy are significantly reduced. The best-case scenario for a robust POD is a substantial amelioration of distributive inequality. The worst-case scenario is failure to achieve those distributive ends while introducing some costly distortions, inefficiencies and rents into the market process, but not the kind that will inhibit the market process altogether. By contrast, the best-case scenario for a high liberal POD is the effective abolition of distributive inequality and the radical upending of property ownership and class in a commercial society. However, the worst-case scenario is a breakdown in the market process, thus preventing minimal social cooperation from obtaining, while permitting opportunistic political actors to manipulate economic policy for their own ends and in order to maintain their power, which may undermine the democratic process (Trantidis and Cowen, 2020). Hence, a robust POD is the risk averse option. In what sense is a ‘robust POD’ constitutive of Rawls’ theory of justice? Unlike laissez-faire, a robust POD does not stand on utilitarian grounds alone.

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It is not silent on the issue of distributive justice (Novak, 2018). Instead, general schemes of taxation and rules governing property ownership and transfer may be used legitimately to support a more equal society. Insofar as a more materially egalitarian political community is also likely to be the more stable and respectful of the basic civil liberties of all its citizens, such an approach is more just and commendable than a laissez-faire capitalism or WSC regime.

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18. Conclusion to Neoliberal Social Justice My aim has been to establish the realistic public policy implications of Rawlsian commitments to justice. I am motivated to explore this issue because Rawls’ conception of distributive justice is commonly invoked in policy discussions to evaluate social inequalities and to propose alternative policy approaches. But a danger in attempting to evaluate real-world regimes on this basis is that Rawls’ theory has an explicitly restricted domain of application. This domain is an idealised political community, a nation-state with established borders in conditions of moderate scarcity and reasonable pluralism, where people comply fully with rules aiming at distributive justice. The failure of a real-world regime to establish distributive justice could be because it needs reform or because more realistic conditions render the expected distributive outcomes unfeasible, thus commending different policies. These policies may have different expected outcomes but are less likely to fail. Without reflecting on the range of causes for the failure of the real world to take on the form of what Rawls calls a well-ordered society, the introduction of institutions designed for an idealised world into a non-ideal world could produce worse outcomes than are currently produced. To understand what the likely outcomes of reforms might be, we need a more rigorous comparative analysis of different institutions while keeping the background conditions constant. I use the Robust Political Economy (RPE) framework for this task (Levy, 2002; Pennington, 2011). RPE does not have a strong normative component of its own, although, by default, comparative institutional analysis such as RPE tends to be associated with a ‘weak utilitarianism’. Instead, it is a framework for evaluating the likelihood of institutional mechanisms achieving a preferred outcome given certain realistic challenges of human social life. Hence, it is possible to compare the capacity of institutions to achieve or approach the more substantive commitments of justice as fairness through an RPE lens. The RPE framework proposes two realistic social problems with which institutions must cope in order to be commendable: limited, dispersed knowledge and opportunistic self-interested behaviour. Why make these two problems the focus of comparing institutions? Because these realistic challenges emerge out of ontological assumptions that are inherent to liberal political theory, including Rawls’ theory of justice. This is 216

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the notion that it is individual human beings, and their interests, that matter, famously found in Rawls’ idea of the ‘separateness of persons’. People who have different ends and interests are inevitably motivated to pursue them, potentially against the interests of others, unless constrained to do otherwise or assured that their interests are appropriately weighted in collective decision-making. People also have separate mental lives tied to limited cognitive capacities and bodily senses, with the result that they have limited knowledge of all but their immediate circumstances and areas of personal interest (Cowen, 2020a, 2020b). People in their natural condition lack the common knowledge necessary for widespread social cooperation (Cowen, 2017). They also inevitably develop different beliefs about almost everything from appropriate moral conduct to mundane issues of public policy or effective techniques for achieving any given end. Robust institutions allow for the discovery and communication of knowledge necessary for social cooperation in environments where shared knowledge is scarce, while at the same time permitting people to cooperate in the absence of agreement or perfectly shared interests (Cowen, 2016). These problems are already a part of Rawls’ discussion of institutions. They are found in Rawls’ notion of plural conceptions of the good, the separate pursuit of which much be protected in the political sphere; and collective action problems in the economic sphere, which need to be addressed through political institutions with enforcement mechanisms. What my approach does is apply these realistic conditions symmetrically to these key spheres of social activity. I consider the emergence of collective action problems in the political sphere as well as the economic sphere, while Rawls considers collective action problems only in the economic sphere. In addition, I consider the problem of reasonable disagreement and pluralism of values in the economic sphere, whereas Rawls considers them only in the political sphere. By choosing an approach to realism that aligns with Rawls’ pre-existing liberal commitments and assumptions (but applied more systematically), I strengthen rather than merely critique the Rawlsian approach. Part I offered a new defence of the relevance of Rawlsian ideal theory, as a mode of analysis, from realist rejections of ideal theory altogether and moral philosophical objections to the centrality of the basic structure in Rawls’ version of ideal theory. I showed that the case for considering a basic structure, as distinct from personal conduct, is strong even in idealised scenarios. The chief contribution of RPE in this respect is formally distinguishing knowledge and incentive problems which have tended to be run together in Rawls’ own argument for the need for institutions. The essential epistemic qualities of stable rules of the game, which inter alia is what a basic structure of institutions aims to provide, justify an overriding emphasis on durable rules in a political community. This is opposed to an informal ethos which may function appro-

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priately to ensure people’s fair treatment in smaller associations of people of goodwill but is likely to fail at any larger scale. Part II applied this focus on the epistemic character of institutions to the question of the content of essential economic institutions. The critical contribution here is to apply the epistemic problem of inevitable disagreement amongst reasonable people, which Rawls recognised in the political sphere and in civil society, to the economic sphere. I proposed extending Rawls’ notion of the burdens of judgement to include what I call ‘burdens of knowledge’, problems of calculation, discovery and subjectivity in the economic sphere. In the political sphere, people disagree about the content of justice, the appropriateness and effectiveness of public polices and about personal moral conduct. In the economic sphere, by contrast, the areas of disagreement are principally about more mundane issues of what resources are available and how they are best combined to meet the needs of the community. The price system established through several property and voluntary exchanges helps to reconcile this disagreement by allowing people to buy and sell intermediate goods for production and then sell the resulting consumer goods at prices agreed by those attempting to satisfy their own reasonable ends. Enterprises that discover and make effective use of these resources are rewarded with profits, which communicates where resources are more valuably applied. I describe how various market socialist proposals fail to fulfil this epistemic role. This is chiefly because they elide the subjective opportunity costs that drive forward-thinking investment decisions with the objective opportunity costs that can only be observed after the results of a production process have been observed. My key conclusion is to show that for precisely the epistemic reasons that a range of personal rights in civil society are essential, so are some individual property rights in the economic sphere. In Part III, I included the problem of self-interested, opportunistic behaviour in my institutional analysis and argued for its relevance in the political sphere. The combined result of Parts II and III is to consider both knowledge and incentive problems symmetrically in both political and economic spheres. I defended my case for adopting this assumption of behavioural symmetry when comparing these two spheres of activity from some sceptical perspectives. Rawls himself rejects a public choice approach to political behaviour because he believes that the economic sphere is intrinsically about rational actors pursuing their own interests in an unreflective manner without constraints, while politics necessarily engages a sense of justice. I challenge this conceptualisation by showing that both politics and markets involve placing formal and informal institutional constraints on individual behaviour in order to channel such activity into socially beneficial outcomes. I addressed a concern that this public choice position deprives the political sphere of morally engaged agents altogether, replacing it with cynical agents

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who merely seek their own self-interest within given rules. I proposed that agents can reflect on the viability of institutional constraints by adopting a constitutional point of view, the application of the role of the judicious and impartial spectator, a figure common both to Rawlsian and classical liberal moral theory, to the rules that govern individual conduct rather than individual conduct itself. This offers a conceptual space, as part of public reason, in which both political and market processes can be evaluated. The key conclusion is that some constitutional constraints on the democratic process that Rawls sees as essential for protecting civil liberties from transient majority decisions turn out to be commendable for constraining political intervention in economic matters as well. In Part IV, I drew out the combined institutional implications of Parts II and III in order to describe the characteristics of a liberal political regime that is robust to knowledge and incentive problems. A critical contribution was my distinguishing a neoclassical liberal case for economic liberty from the robustness case. The neoclassical case suggests that economic liberty respects autonomy and fosters self-authorship through making agents responsible for their own material wellbeing, as well as their loved ones (Shapiro, 2007; Tomasi, 2012). To some extent, this is reliant on economic outcomes tracking personal conduct and decision-making such that responsible behaviour is generally rewarded. While prudence, honesty and hard work are frequently rewarded in the market process, this link is not strong enough to ground a justification for economic liberty. The process of trial and error inherent in market decisions is too uncertain, precarious and exposed to fortune to judge its outcomes as deserved in anything other than the sense that it furnishes legitimate expectations within the rules of the game that are independently justified. A great many individuals lack valuable moral qualities and still succeed, and many people who have fine moral qualities still fail in their ventures. Profit and loss do not track comprehensive moral characteristics. Nevertheless, engaging in the market process helps develop people’s moral capacities by exposing individuals to the needs and beliefs of a wide range of people and visibly demonstrating how productive cooperation is possible amid reasonable pluralism. My key conclusion was that a range of economic liberties, associated with ownership of productive property and entrepreneurial activity, should be considered basic in the same way that a range of civil liberties are considered basic by Rawls. I noted that affirming liberties as basic does not imply a complete absence of regulation by the political process, but instead places limits on the character of regulation. In Part V, I explored the policy implications of the regime features that I establish as necessary for a robust liberal political regime. I propose a set of policy reforms under the label of ‘robust POD’. A robust POD enacts reforms to property rights and introduces distributive policies at a general level, adjust-

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ing the rules of the game, rather than empowering political actors to engage in the discretionary appropriation of wealth. These reforms, if attempted, would significantly ameliorate inequalities in the best-case scenario. In the worst-case scenario, they may fail at that substantive task. That may be because they will be poorly implemented, or because they do not produce the impact on distribution that I have predicted. Any prediction regarding the specific outcomes of a policy is bound to be empirically defeasible. However, even in this worst-case scenario, a robust POD offers some protection to the basic institutions necessary for social cooperation and to avoid economic collapse. There is a broader point to my approach to institutional reform. We should be sceptical of an imputed qualitative distinction between supposedly capitalist welfare-state regimes and hypothetical anti-capitalist PODs. This distinction hinges on a definition of capitalist institutions as necessarily protecting unsustainable wealth inequality, a conception which is heavily contestable (Acemoglu and Robinson, 2015; Ng, 2015). By contrast, POD has characteristically wide dispersion of wealth. The issue with this is many of the mechanisms associated with POD, including taxes on wealth, support for home-ownership, constraints on lobbying and public funding of political parties, are already present in real-world WSC regimes. In defining POD as primarily an outcome, rather than a proposed set of mechanisms, POD proponents blur what ought to be an important distinction: a POD that has failed in some of its aims due to realistic problems of political economy, and a regime that is not a POD at all. Rather like Cartesian proofs of the existence of God by definition of perfection, POD’s distributive properties are defined rather than defended as feasible or likely. A Marxian typology, which POD draws its distinctiveness from, is not just a neutral description of commercial societies. It distorts our descriptions of regime types such that it identifies distinctions that are not necessarily present, and blurs other regime types that should be considered distinct (the famous identification of the Soviet Union as ‘state capitalism’ may be an example of that). Freeing ourselves from these imputed regime types allows us to focus on some of the details of capitalist societies and their degree of openness and inclusiveness to the relatively disadvantaged. My reforms are labelled a robust POD. It is the policies of a high liberal POD that are left once we apply a robustness filter. This is not to suggest that my framework commends robust POD as a single solution to distributive justice in the face of incentive and knowledge problems. Instead, a range of regimes, from the social democratic to the relatively small-state market liberal, have some of the properties of robustness and can all be defended as contributing to distributive justice. The main advantage of a robust POD is that it utilises some of the existing policies and regime features present in the United Kingdom. It is a path where incremental improvements can be effectively sought.

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Although RPE as a framework has previously been used to defend more explicitly classical liberal institutions (Pennington, 2011), my concern is to defend something more general: any regime configuration that allows for a substantial degree of economic freedom within a protected framework of the rule of law. This includes relatively large-state social democratic regimes (Bergh, 2020). I show that within the range of institutions that are adequately robust, a modified version of the policy platform associated with POD can be implemented with the reasonable expectation they will systematically reduce income and wealth inequality.

PROBLEMS OF EXTENSION There are several issues that would benefit from further interrogation. The first is my focus on realistic problems of cooperation between individuals within a political community. My approach has the advantage that it invokes assumptions that are internal to Rawls and liberal political theory. It has the disadvantage that it does little to address criticisms external to the liberal tradition. There are plenty of alternative approaches to ‘realism’ in political theory and public policy. Marxists can claim that their focus on the exploitation of labour and the self-serving ideology of bourgeois political economy is a realistic approach to problems faced by the working class in the face of global capitalism (Wolff, 1977; Fisk, 1985). Radical feminists and others in the critical theory tradition may claim that any political theory that does not begin with a realistic appraisal of historical injustice and contemporary power relations structured by sex, gender, race and ethnicity is hopelessly irrelevant (Fraser and Honneth, 2003; Pateman and Mills, 2007). Scholars grappling with conservative or communitarian motivations within society might reasonably claim that their approach to political theorising includes the realistic challenges of cultural heterogeneity and the natural human need for collective moral guidance and belonging (Taylor and Gutmann, 1994; Sandel, 1998). Ecologically minded scholars may propose that demography, resource use and environmental degradation are the real issues facing political communities and that any approach that does not reckon with a fixed sum of material resources fails that test of realism. All these different approaches may plausibly claim that my liberal focus on reconciling individuals’ differential interests (which justifies my assumptions of methodological individualism, subjectivism and analytical egalitarianism) is itself an unrealistic demand to make of a political community. The notion that every individual counts equally and separately in the face of wider structural problems could be deemed ultimately unrealistic. My commitment to liberal individualism is partly an imaginative leap, but I can point to the relative success of the political recognition of individual rights and interests as

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a pragmatic mechanism for avoiding or, at least, ameliorating some of the more extreme forms of human suffering (cf. Zivi, 2012). Collectivist approaches to political theory seem more predisposed to accepting human suffering but without establishing significant gains in human progress on other dimensions. Obtaining a minimal level of assent to a regime may be an important way of forming a stable political order. This seems to be a pre-condition for almost any kind of social progress. Global Justice and International Political Economy My approach throughout has followed Rawls (1999 [1971], p.401) in assuming that distributive justice applies primarily within the political community of a nation-state. Rawls has both an analytic and a normative component to his focus on the nation-state. The analytic feature is as a simplifying assumption. He takes individuals in the original position to be deliberating about institutions that they will live within for all their lives. However, when Rawls (2002 [1993]; Rawls and Van Parijs, 2003) turns explicitly to global justice, it is evident that this is not merely a convenience of the model. Rawls affirms rigidly territorially defined states. These states have important rights as part of the international community. However, Rawlsian commitments to distributive justice between individuals end at national borders. Various theorists engaged with the Rawlsian tradition point out that excluding people from the benefits and obligations of a just society based on the place of one’s birth seems almost paradigmatically arbitrary from a moral point of view. They propose extending political commitments to distributive justice to the whole of humanity (Pogge, 1994; Beitz, 1999). Why does Rawls reject this logical extension of his approach? I indicated in Chapter 2 that scale was a critical factor for establishing whether a set of institutions are likely to function effectively. Rawls agrees that scale is relevant, although he believes a different set of institutions are feasible at the scale of nation-states. He believes that some forms of socialism are feasible, whereas I argue in Chapter 3 that socialist schemes are unable to maintain the value of capital assets within a political community. Rawls suggests that this is precisely the reason why exclusive claims on resources must be established, but at the international level rather than the small-group or individual level. He uses a traditional justification for property rights for the institution of strong territorial rights even if those rights, as specified, seem to introduce morally arbitrary inequalities between peoples: [T]he point of the institution of property is that, unless a definite agent is given responsibility for maintaining an asset and bears the loss for not doing so, that asset tends to deteriorate. In this case the asset is the people’s territory and its capacity

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to support them in perpetuity; and the agent is the people themselves as politically organized. (Rawls, 2002, p.39)

The focus on distributive justice within nation-states means that Rawls, alongside some other high liberal proponents, has a pessimistic gloss on trends in public policy over the last 50 years. He sees recent changes in policy regimes as responsible for increases in wealth and income inequality within countries. However, it is likely that policy movements towards integrated global trade are a significant contributor to this trend in within-country inequality (Bergh and Nilsson, 2010), and probably more than any domestic tax and expenditure policies. Moreover, globalisation, especially the opening up of previously closed economies such as China and India to Western consumer markets, are evidently responsible for dramatic reductions in absolute poverty. They have also reduced global income and wealth inequality (Milanović, 2016; Connors et al., 2020). From a Rawlsian domestic standpoint, these beneficial trends do not count for much. Insofar as they are responsible for within-country economic inequality in developed economies, they are bad outcomes. However, this perspective, when measured against any expanded cosmopolitan sympathies with people of other nationalities, looks unwholesomely parochial. Rawls’ anti-globalism is a theory of political morality that seems to discount one of the great contemporary stories of human civilisation, the moment when absolute poverty became something experienced by a minority rather than most of the world’s human population through unprecedented global economic cooperation. At least, the domestic focus means that it is hard to evaluate the trade-off between within-country inequality and world equality from a Rawlsian standpoint. This is one area where a more universal utilitarian theory of justice may track moral intuitions more effectively than a communally bounded conception of justice as fairness. Neglect of the circumstances of international political economy also presents a practical problem for evaluating policies and their outcomes even at the purely domestic level. For example, high liberals sometimes look to Scandinavia as evidence of the feasibility of establishing distributive justice through larger welfare states (Schemmel, 2015; cf. Kangas, 2000). There is a great deal for policymakers to learn from these well-performing regimes (Sumner, 2015). However, in evaluating the contributions of policies to these beneficial outcomes, policymakers must recognise the conditions of these states. This includes their character as culturally homogeneous regimes with small populations that, due to contingencies of geography and the existence of international institutions, are capable of trading with many other rich economies. They are able to fulfil a set of niches in the international trading system that is predicated on the existence of much larger trading partners with differ-

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ent policies and advantages (Acemoglu et al., 2012). Economic policies that work in those domestic conditions are not necessarily generalisable or scalable to other political communities. A weakness in Rawlsian political economy is that it tends to ignore the impact of international trade and how it alters the framework within which policy operates. As Rawls acknowledges with his conception of POD, my conception of a robust POD could not necessarily be scaled. My regime assumes that all individuals are subject to the same basic institutional framework over the course of their lives. The answer to the question ‘what would robust global institutions look like if we are aiming at cosmopolitan distributive justice’ might end up departing from the policy proposals outlined here. My focus on the institutions of the nation-state is partly analytic. I show how a full consideration of incentive and knowledge problems changes the policy implications of Rawls’ theory of justice even without altering the scale of the question. It is also practical in the sense that the legal institutions of a nation-state have been, and will likely continue to be, critical for the facilitation of widespread social cooperation, as well as important determinants of the distribution of benefits of that cooperation. This is not a normative commitment to the nation-state, merely an observation about the status quo of international politics. There may, however, be reasons to suggest that a robust POD, with some modifications, could allow for more incremental forms of global justice than some WSC frameworks. In more comprehensive WSC and UWS regimes, migrants might be more likely to be resented for drawing directly on collective welfare resources. They may also struggle to become employed in regimes where wages are set higher than the market price and hiring is governed by union rules and regulations. By contrast, in a robust POD, welfare benefits might be comparatively low because existing inhabitants are generally able to draw on alternative sources of income besides employment. More extensive economic liberty may allow new arrivals to integrate into the mainstream labour market more rapidly than would otherwise be the case. Lower barriers to entry to employment as well as the acquisition of capital, through more competitive markets in housing and restrictions on monopoly privileges such as intellectual property, would allow migrants from a poor starting position to save and become property owners themselves within their working lifetimes. Under a WSC, schemes of taxation and state distribution can occlude the generally beneficial impact of migrants for society and the economy as a whole (Dustmann et al., 2005). This problem could be even worse under a high liberal POD. Accepting migration of the relatively disadvantaged within a high liberal POD may require, as a matter of fairness, significant support in the form of a capital asset distribution in order to maintain the correct pattern of wealth in society. By contrast, under a robust POD, with more emphasis on voluntary exchange as the mechanism for improving people’s material wellbeing, people

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will mainly interact with migrants in mutually beneficial situations. This might not be sufficient to make radical cosmopolitan policies, such as open borders, feasible. However, it could permit more openness to mutually beneficial international trade and migration at the margin. It would offer a feasible and stable compromise between maintaining equality between existing inhabitants and allowing newcomers to integrate in a way that improves distributive fairness beyond a state’s borders (cf. Lomasky and Tesón, 2015). Enforcement and Compliance Another area that I have neglected is the problem of ensuring people comply with given rules. This is critical for evaluating the expected costs and feasibility of a set of institutions. I introduce the RPE framework as establishing a kind of stress test against which institutions should be evaluated. One of the more obvious stresses placed on a political community is non-compliance with established rules. This includes rebels against the peace, criminals, scofflaws and other habitual transgressors of civil law. At the beginning of Part III, in addressing the problem of opportunism and temptation, I used Becker’s and Buchanan’s economic analyses of crime to suggest that rules must have some deterrent ‘bite’ to be effective. However, after making that point, my analysis focused primarily on poor conduct and unfair outcomes within given rules of the game. My ‘vicious neighbourhood’ example discussed collective action problems that emerge in the absence of criminal conduct (the marijuana smoking aside). I have focused on people’s inability to live up to the spirit of the principles of justice as fairness. I have not worried so much about their capacity or propensity to break the letter of given laws or regulations. I acknowledge that vulnerability to criminal activity is an important source of social injustice, especially for disadvantaged groups in high crime areas and for vulnerable people suffering from coercion and violence within households. However, it is not a major cause of economic injustice in most advanced economies. Instead, more institutionalised forms of corruption, both in private and public sector organisations, are the more substantial threats to a fair society and especially to distributive justice. This is predation within the rules of the game, the channelling of public resources to private ends and the distortion of legitimate processes to achieve unfair outcomes. My focus reflects an assumption, shared with Rawls, that existing institutions of criminal law are effective at deterring the more transparent forms of opportunism. This is the case even in the non-ideal real world that existing WSCs find themselves. My reforms would not place additional stresses on enforcement mechanisms compared to the status quo, but they do presume a degree of state capacity. In Part IV, I indicated that a significant problem in advanced societies, especially the United States, is the misapplication of

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criminal legal regulation to activities that should not be subject to criminal penalties at all (the case of drug prohibition). A more comprehensive comparative analysis of institutions, which intends to have wider applicability, will have to include, and compare, private and state enforcement capacity and deterrence as part of its evaluation. Criminal justice systems themselves now represent important sites of injustice because they permit people to engage in authorised acts of violence and deprivation of liberty with insufficient constraints (Cowen, 2018; D’Amico and Williamson, 2018; Surprenant and Brennan, 2020). *** Having covered those promising avenues for extending this argument further, the core conclusions of this book stand. What sort of society allows us to treat each other as free and equal citizens in the face of realistic challenges to social cooperation? Liberal socialism and a property-owning democracy, as proposed by Rawls, are apt to fail when implemented in realistic circumstances. The answer is a liberal democracy and a commercial society aiming at neoliberal social justice.

REFERENCES Acemoglu, D. and Robinson, J. (2015) ‘The Rise and Decline of General Laws of Capitalism’. Journal of Economic Perspectives. 29 (1), 3–28. Acemoglu, D., Robinson, J.A. and Verdier, T. (2012) Can’t We All Be More Like Scandinavians? Asymmetric Growth and Institutions in an Interdependent World. Available from: http://​www​.nber​.org/​papers/​w18441 (accessed 21 August 2013). Beitz, C.R. (1999) ‘International Liberalism and Distributive Justice: A Survey of Recent Thought’. World Politics. 51 (02), 269–96. Bergh, A. (2020) ‘Hayekian Welfare States: Explaining the Coexistence of Economic Freedom and Big Government’. Journal of Institutional Economics. 16 (1), 1–12. Bergh, A. and Nilsson, T. (2010) ‘Do Liberalization and Globalization Increase Income Inequality?’ European Journal of Political Economy. 26 (4), 488–505. Connors, J., Gwartney, J. and Montesinos-Yufa, H. (2020) ‘The Rise and Fall of Worldwide Income Inequality, 1820–2035’. Southern Economic Journal. Available from: https://​onlinelibrary​.wiley​.com/​doi/​abs/​10​.1002/​soej​.12435 (accessed 26 May 2020). Cowen, N. (2016) ‘Introduction: Symposium on Robust Political Economy’. Critical Review. 28 (3–4), 420–39. Cowen, N. (2017) ‘Why Be Robust? The Contribution of Market Process Theory to the Robust Political Economy Research Program’, in Peter J. Boettke, C.J. Coyne and V.H. Storr (eds), Interdisciplinary Studies of the Market Order: New Applications of Market Process Theory. London: Rowman and Littlefield International. pp. 63–85. Cowen, N. (2018) ‘Robust Against Whom?’, in Steven Horwitz (ed.), Austrian Economics: The Next Generation. Advances in Austrian economics. Bingley, UK: Emerald Publishing. pp. 91–111. Available from: https://​ doi​ .org/​ 10​ .1108/​ S1529​ -213420180000023008 (accessed 14 April 2020).

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Cowen, N. (2020a) ‘Hayek: Postatomic Liberal’, in Gene Callahan and Kenneth B. McIntyre (eds), Critics of Enlightenment Rationalism. Cham: Springer International Publishing. pp.  179–92. Available from: http://​link​.springer​.com/​10​.1007/​978​-3​-030​ -42599​-9​_12 (accessed 1 June 2020). Cowen, N. (2020b) ‘Hayek’s Appreciative Theory and Social Justice’. Cosmos + Taxis. 7 (5–6), 10–19. D’Amico, D.J. and Williamson, C. (2018) ‘The Punitive Consequences of Organizational Structures in England, France and the United States’. Journal of Institutional Economics. 1–24. Dustmann, C., Fabbri, F. and Preston, I. (2005) ‘The Impact of Immigration on the British Labour Market’. The Economic Journal. 115 (507), F324–F341. doi: 10.1111/j.1468-0297.2005.01038.x. Fisk, M. (1985) ‘The State and the Market in Rawls’. Studies in Soviet Thought. 30 (4), 347–64. Fraser, N. and Honneth, A. (2003) Redistribution or Recognition?: A Political-Philosophical Exchange. London; New York: Verso. Kangas, O. (2000) ‘Distributive Justice and Social Policy: Some Reflections on Rawls and Income Distribution’. Social Policy and Administration. 34 (5), 510–28. Levy, D.M. (2002) ‘Robust Institutions’. The Review of Austrian Economics. 15 (2–3), 131–42. Lomasky, L.E. and Tesón, F.R. (2015) Justice at a Distance: Extending Freedom Globally. New York: Cambridge University Press. Milanović, B. (2016) Global Inequality: A New Approach for the Age of Globalization. Cambridge, MA: The Belknap Press of Harvard University Press. Ng, Y.-K. (2015) ‘Is an Increasing Capital Share under Capitalism Inevitable?’ European Journal of Political Economy. 3882–6. Pateman, C. and Mills, C.W. (2007) Contract and Domination. Cambridge: Polity Press. Pennington, M. (2011) Robust Political Economy: Classical Liberalism and the Future of Public Policy. New thinking in political economy. Cheltenham, UK and Northampton, MA, USA: Edward Elgar Publishing. Pogge, T.W. (1994) ‘An Egalitarian Law of Peoples’. Philosophy & Public Affairs. 23 (3), 195–224. Rawls, J. (1999) [1971] A Theory of Justice. Cambridge, MA: Belknap Press of Harvard University Press. Rawls, J. (2002) [1993] The Law of Peoples. Cambridge, MA: Harvard University Press. Rawls, J. and Van Parijs, P. (2003) ‘Three Letters on the Law of Peoples and the European Union’. Revue de philosophie economique. 7, 7–20. Sandel, M.J. (1998) Liberalism and the Limits of Justice. 2nd edn. Cambridge; New York: Cambridge University Press. Schemmel, C. (2015) ‘How (Not) to Criticise the Welfare State’. Journal of Applied Philosophy. 32 (4), 393–409. Shapiro, D. (2007) Is the Welfare State Justified? New York: Cambridge University Press. Sumner, S. (2015) ‘Ideological Differences in Economics: Why Is the Left-Right Divide Widening?’ Econ Journal Watch. 12 (1), 58–67. Surprenant, C.W. and Brennan, J. (2020) Injustice for All: How Financial Incentives Corrupted and Can Fix the US Criminal Justice System. Available from: https://​ www​.taylorfrancis​.com/​books/​9780367855444 (accessed 1 March 2020).

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Taylor, C. and Gutmann, A. (1994) Multiculturalism: Examining the Politics of Recognition. Princeton, NJ: Princeton University Press. Tomasi, J. (2012) Free Market Fairness. Princeton, NJ: Princeton University Press. Wolff, R.P. (1977) Understanding Rawls: A Reconstruction and Critique of a Theory of Justice. Princeton, NJ: Princeton University Press. Zivi, K. (2012) Making Rights Claims: A Practice of Democratic Citizenship. Oxford; New York: Oxford University Press.

Index Austrian economics  60–61 basic liberties  4, 99, 135–42, 146–7, 153, 156, 160, 166–7 Becker, Gary  96 Boettke  52, 59 Buchanan  8, 24, 39, 55, 63, 95, 102–3, 114–16, 119, 198–9 capital  1, 49, 51, 70, 73–4, 82–3, 87–9, 173, 179, 181, 186 accumulation  72, 176 bridging social capital  158 distribution of  178–9, 181, 187 goods 65 human  176, 188, 189 loss  74, 86 markets 79 subjectively valued  65 unearned 75 capitalism  1, 2, 15, 49, 50–51, 60, 70, 71–2, 76, 88, 172, 178, 180 definition 180 Carens  78, 79, 81, 82, 165 catallaxy  6, 7, 53, 73 class  15, 50, 74, 119, 160, 164, 177, 193, 196, 210–11, 221 capitalist class  180 classless society  48, 182, 210 divisions  70, 73, 82, 179, 180, 182 essential to capitalism  173 middle class  207 social status  160, 180 working class  151, 180 classical liberalism  4, 8, 10 Cohen  21, 26, 27, 28, 31, 32, 36, 42–3 competitive equilibrium  6, 52, 55, 181 compliance  25, 53, 157, 179, 193, 225 full and partial  24, 97 constitutional anarchy 116

choice situation  10, 24, 31, 98, 114–15 point of view  94, 117, 120 protections  4, 14, 99, 100, 102, 106 rules  39, 94, 95, 113, 119 coordination  29, 36, 43, 44, 87, 96, 119, 121, 125, 128, 186–8 corruption  111, 178, 180, 190–93, 225 debt  87, 88, 173, 198–200 democracy  1, 70 disadvantaged  10, 75, 116–17, 161, 166, 188, 192, 206–7, 220 discovery process  7, 13, 59, 61–2, 159, 217–18 discrimination  161, 162, 166, 192 distributive justice  1, 26, 48, 95–6, 102, 111, 134, 172, 183, 188, 216 economic calculation  5, 6, 7, 13, 59–60, 186 economic freedom see economic liberty economic liberty  4, 134–5, 138, 156, 160, 167, 196–7 equal  159, 160 thick 135 education 200–201 entrepreneur  63, 80, 81, 83, 88, 139, 141, 181 epistemic challenge  10, 21, 29, 32, 39, 45, 59 error 33 role of institutions  13, 40, 42, 48, 53 Estlund  28–9, 37–9, 94 eugenics  161, 176 exploitation  117, 173 colonial 152 of labour  72, 151, 221 of women  80, 160

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externalities  5, 90, 101–4, 107, 112, 174, 208 in politics  102 fairness  3, 22, 90, 98, 101, 103, 110, 153, 176, 181, 187, 202, 224–5 failure 105 geographic unfairness  90 feasibility  25–9, 32, 38, 44, 52, 223, 225 feminism  161, 221 finance department see treasury Freeman, Samuel  50, 137, 139 Friedman, Milton  125 Gamble 12 Gaus  112, 179 Geuss  2, 49 global justice  222, 224 Habermas 100 Hart 136–7 Hayek  8, 12, 156, 167 compared to Rawls  9 Hicks  52, 54, 61, 72 housing  182, 205–10 public housing  206 right-to-buy 206 supply-side 208–9 wealth 207 ideal theory  22, 24–6, 29, 36, 42, 48, 53, 59, 94, 179 immigration  161, 224 institutions  1, 8 intellectual property  203 international trade  174, 177, 224–5 judicial review see supreme court Kirzner  83, 181 Kogelmann  114, 127 market process  48, 54, 63, 65, 67, 72, 89, 95, 113, 147–9, 156, 173, 182, 187, 198–9, 211, 219 McCloskey  140, 151 Meade  1, 61, 102, 112–14, 174–8, 208 Meadowcroft 116

methodological individualism  7, 125, 221 Mill 51 harm principle  137 Mises  6, 60–61, 74 moral point of view  14, 71, 75, 94, 98, 101, 106, 118, 120, 142, 160 Musgrave  100, 113–14, 124, 125 neoclassical economics  4, 48, 51–2, 54, 61, 63, 65, 72, 101–2, 174 post-neoclassical endogenous growth theory  176 new institutional economics  53, 152 O’Neill, Martin  1, 50, 98, 102, 178 omniscience  6, 113 opportunity costs  49, 61, 63–5, 67, 79–81, 90, 199, 218 original position  4, 114–15, 120, 145, 222 party politics  3, 99, 112, 127 public funding of  220 Pennington  8, 9, 10, 21 perfect competition  5, 6, 7, 52, 63, 101–2 Piketty  1, 73 Political Liberalism  22–4, 145 preference  105, 115, 126 private property  48, 51, 55, 119, 134, 182, 186, 211 alternatives to  86 in productive assets  164 public goods  67, 101–2, 110, 128, 159 public reason  97, 99–100, 110, 112, 118–19, 123, 157, 211 racism  151, 161, 221 realism  2–4, 7–8, 10, 24, 26, 28, 94, 113, 117–18, 165, 172, 186, 210, 216–17, 221 reasonable  9, 21, 25, 33, 59, 95–7, 103–4, 115, 119, 121, 130, 157 comprehensive doctrines  22 disagreement  54, 158 life plans  50, 135, 159, 164 reasonable pluralism  14, 117, 134, 145–7, 150, 152, 157, 216

Index

unreasonable agents  96 rent-seeking  2, 73, 112, 172 robustness  8, 10, 11, 172, 173, 210, 220 Robust Political Economy  7, 21, 53, 125, 148, 216 rule of law  136, 186, 192, 197, 210, 221 Samuelson 52 scarcity  6, 54, 62, 72, 103, 123, 144, 146, 149, 151 moderate  14, 134, 146–7, 216 Schmidtz 7 school choice  201 sexuality 136–7 Shackle 66 Shapiro, Daniel  83, 138, 202 slavery  152, 161 Smith, Adam  52, 180 social cooperation  21, 48, 70, 75, 94, 120, 150, 151, 158, 165, 197, 211, 217, 226 socialism  27, 49, 60–61, 70 market  78, 86 status quo  29, 49, 94, 116–17, 224

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Stilz  71, 139 subjective preference  54, 62, 64 supreme court  99, 118, 119, 162 supreme judiciary see supreme court tax  4, 15, 78–9, 83, 101–2, 173, 175, 178, 182, 186–7, 190–91, 197–200, 202, 203, 205–6, 209–10 Theory of Justice, A  22, 24, 136 Tomasi  1, 4, 102, 139, 140 market democracy  4, 71 transitional gains trap  202 treasury  101, 202, 205 Vallier  179, 190 veil of ignorance  10, 98 vicious neighbourhood  104, 117, 209, 225 Weber  157, 180