Trying the Free Market. Part I. Presumed Guilty

Anyone challenged to justify his conduct has very nearly lost the battle if he starts to demonstrate his rectitude. “When did you stop beating your wife?” is the schoolbook example of the question best met with silence by both the innocent and the guilty.

The arguments about the justice of the free market, like other adversarial arguments, have a definite logical order. Initially, the free market enjoys the benefit of the doubt. It is presumed innocent of violating justice. The burden of proof that it does violate it lies with the accuser. Until at least some solid evidence is brought, the defence has no case to answer. “Evidence” in a trial of morality cannot, however, very well come in the form of ascertainable fact. If it comes at all, it does so in the form of support built on a strong moral theory.

Related to the presumption of innocence, though resting on somewhat different grounds, is the presumption for the status quo. It is up to those who think it should be changed to marshal sufficient reasons why the change would be a change for the better. The market, in a debate about the just or the good society, figures as the status quo or at least closer to it than the proposed reform. It is for the reformers to press home the charge that it ought to be changed.

Neither the case that the free market is unjust (though perhaps still worth preserving—a claim that is independent of whether it is just), nor the case that it should be transformed or abolished altogether, has ever been successfully established. The last significant attempt to establish the charge of injustice, that of Rawls, was at best inconclusive and has since subsided. The second, drawing mostly on socialist inspiration, did get actual occasions to change or abolish the market, and these occasions have, if anything, vindicated the status quo. So far there is still no case of either kind to answer.

The apparent failure by foes, but even more so by friends, of the free market to grasp the role of the burden of proof, and what it takes to shift it from the challenger to the defender, is one of the puzzles in recent intellectual history. There is a widely shared commonsense perception that the free market generates inequalities of income and wealth. Since the market is not an agent and does not generate anything, it would be more illuminating to say that the world being what it is, and people’s luck, resources, talents and characters being distributed the way they are, the effects of exchanges among people will be reflected in their wealth and incomes being unequal. It is the facts of life that cause the inequality, not the market. Either way, however, the very word “inequality” suffices to set off a knee-jerk reaction in the defenders, making them feel that a substantial case against the market has therewith been made. It is now presumed guilty and defences need to be deployed.

The reaction, however, is gratuitous. Creating inequality is not a charge that needs any answer unless inequality is a wrong of some kind—such as injustice. If the market, or, more narrowly, its morality is really to need defending, it must at the very least made plausible that inequality is unjust.

Instead of waiting for this to be shown, the defenders of the free market have rushed to argue that, regardless of inequalities, it was indeed just. Like most social theorists who would rather write about what other social theorists have said of a thing than about the thing itself, Miss Olsaretti seems more concerned with the coherence of these defences than with the thing they defend. She divides them into desert-based and rights-based ones. Much of her critique is worth serious consideration, despite her firm habit of making her points by what George Stigler called the surest method of academic persuasion, namely relentless repetition. Her positive contribution, as distinct from her analysis of the mistakes of others, is slim and brief by comparison.

Of the two main lines of defence, she seems more combative when tackling the rights-based one. In fact, there is not a great deal to discuss in the desert-based one because (though Olsaretti does not make this point) the relevant arguments are so thoroughly subjective that at the end of a short chain of just a few links, the reasoning rapidly reaches the dead end where it is “my say-so against your say-so” and debate is a waste of time. Miss Olsaretti confines the desert argument to personal labour and effort, leaving the reward accruing to capital out of consideration. Even so, she reaches the obvious conclusion that rewards cannot all be imputed to compensation for pains or contribution to product, for “brute” luck enters into rewards and must be “neutralised”. Someone (“we”) must tell what adjustments will achieve neutrality, i.e. purge the system of rewards of the influence of luck. However, the sole means of separately identifying the parts due to pure compensation, to contribution, and to brute luck is subjective judgment, leaving us with your say-so against my say-so. If it were the case that luck makes market outcomes unjust—a proposition that would be important if it were compelling, rather than an unsupported assertion that can be countered by other similarly unsupported assertions—then we might still be unable to say by what adjustments we could make them just. In other words, even if the desert theory of market justice appealed to one moral intuition (among others), it would still be little more than a useless form of words.

The “rights-based” defence of the free market has a startling element in its very foundation which most academic opinion, including Miss Olsaretti’s sharply critical one, seems never to question, let alone reproach. In its starkest form, it appears in the famous first sentence of the Preface of Robert Nozick’s much-quoted vindication2 of libertarian ideals: “Individuals have rights, and (etc)”. Alternatives might have read “Individuals ought to have rights, and…” or perhaps “If individuals had rights, and…”and would have been unobjectionable, though they might not have conveyed the same message. As it is, this starting point devalues much that follows it and makes Nozick’s defence of the free market wide open to a flank attack. The fault is important because Nozick is probably the most influential libertarian defender of feasible freedom, and Miss Olsaretti takes his book as the representative text her critique targets above all others.

We do not in fact know that “individuals have rights” and nothing entitles us to pretend that we do. Characteristically, authors now frequently refer to rights “we have assigned”, from which one could infer that rights are created by somebody somewhere and are then conferred upon individuals (while the correlative obligations are imposed in some unspecified distribution). Nozick tells us that the rights he asserts individuals to have are boundaries that segregate their person, property and contracts. Once again, we wonder how he knows. However, if these particular rights have somehow been “assigned” to them, what is to stop an anti-Nozick, moved by moral concern for the wellbeing of individuals and for what is due to them in respect of their dignity and autonomy, from assigning additional rights to them—rights that are rights-of-way, easements cutting through the Nozickian boundaries? Is this not the rights-based model of “social market economy” or some other hybrid?

Non-libertarian believers in rightsism, notably Rawls and Scanlon, are less bold than Nozick and seek to find consent-based explanations of why they believe that individuals have certain rights rather than simply alleging that they do. Either way, however, the introduction of putative rights, not arising from contracts individuals conclude with one another, offers great facility for sculpting the just, i.e. rights-respecting, order in the desired form.

Defending the “unbridled” market by asserting Nozickian rights repeats the same strategic mistake as defending it as if it were presumed guilty. This defence relies on the outlandish Lockean fantasy of self-ownership to derive the proposition that people are entitled to the wages of their labour and the product of their endeavours. Though it is perhaps a side-issue, it is worth pointing out that self-ownership is a category mistake: ownership is a relation between owner and thing owned such that the owner is free to dispose of what he owns. It is nonsense to talk of a relation between you and yourself. Nor can you dispose of your own self, exchanging it for another’s as you could exchange a thing you owned for another thing. In any event, reliance on this misfit idea is not necessary. The whole “entitlements” theory of justice is going about it the wrong way round. The point to prove is not that each individual is entitled to the fruits of his efforts (or to what he has exchanged them for), but that somebody else is entitled to take such fruits away from him. This and the implicit presumption of good title unless it is proved to be vitiated, is the proper logical order for conducting a trial of the market.