What Makes an Economy Just?

Start Here: The Open Question

Every society has more wants than goods. Something has to decide who gets the apartment, the donated kidney, the seat at a top college, and the paycheck. In markets, prices decide. Elsewhere, lines, lotteries, rules, or officials decide. No society escapes the question: what makes the result fair?

Two Questions About Fairness

• Procedural justice: were the rules fair? Did the game run without force, fraud, or rigged rules? A fair race has the same starting line and the same rules for everyone.
• Distributive justice: is the outcome fair? Whatever the rules, is the resulting pattern acceptable? A fair race can still leave some runners far behind.

A third kind, corrective justice, asks how to repair past wrongs such as theft or fraud. The five thinkers below disagree about which question comes first.

An older question sits behind all five: are people’s differences in rank and pay natural, or made? Adam Smith thought mostly made. The difference between “a philosopher and a common street porter,” he wrote in 1776, “seems to arise not so much from nature, as from habit, custom, and education.” As small children, “they were, perhaps, very much alike.” Economists Sandra Peart and David Levy call this starting point analytical egalitarianism: treat people as equally capable, and explain their differences by institutions, incentives, and luck. If differences are mostly made, the rules that make them are fair game for questions of justice. The five thinkers below disagree about what those rules should be.

Five Thinkers, Five Answers

1 John Rawls: Choose behind a veil

In A Theory of Justice (1971), philosopher John Rawls asked you to pick the rules for society without knowing who you will be: your race, sex, family, talents, or even your generation. Behind this “veil of ignorance,” he argued, people would choose equal basic liberties for all, jobs and offices open to all under fair equality of opportunity, and inequalities only when they work to the greatest benefit of the least advantaged. That last rule is the difference principle. Rawls did not ask for equal incomes. He allowed large rewards if they make the worst-off better off. But he held that no one deserves the talents or family they were born with, so those alone don’t entitle anyone to a bigger share.

The challenge. Nozick replied that Rawls treats the economy as a pie to be sliced, overlooking who made it. Keeping any pattern in place, he argued, means repeatedly overriding what people earn and freely trade. Others ask how much room the view leaves for personal responsibility, if even the drive to work hard is partly luck.

2 Robert Nozick: How did it happen?

In Anarchy, State, and Utopia (1974), written partly in reply to Rawls, philosopher Robert Nozick argued that justice depends on history, not on the pattern of who has what. Holdings are just if they were acquired fairly, transferred voluntarily, or set right after a past wrong. His famous example: start with whatever distribution you think is fair. A million fans each freely pay 25 cents to watch basketball star Wilt Chamberlain play, and he ends the season $250,000 richer. If the start was just and every payment was voluntary, where is the injustice? To keep any pattern, Nozick concluded, a society must keep interfering with free choices. In his words, liberty upsets patterns.

The challenge. Real holdings have messy histories that include conquest, slavery, and fraud. Nozick acknowledged this and said past wrongs must be corrected, but he never worked out how, and the records of who was wronged fade over time. Rawlsians reply that taxes known in advance are part of the rules everyone plays by, not surprise interference.

3 Israel Kirzner: Who discovered it?

Economist Israel Kirzner argued in Discovery, Capitalism, and Distributive Justice (1989) that both sides share a mistake: they treat wealth as a pie that already exists, waiting to be divided. Much wealth exists only because someone noticed an opportunity others missed. Trucking entrepreneur Malcom McLean saw a new way to link land and sea shipping with containers, something no one else had acted on. Kirzner proposed a “finders-keepers” rule: an unowned thing justly belongs to the first person who discovers its value and takes possession of it. Entrepreneurial profit is that kind of discovery, so it belongs to the discoverer. The question is not only how to slice the pie, but who created it.

The challenge. Even a sympathetic reviewer, philosopher David Gordon, doubted that finders-keepers settles much. If you find a wallet holding $10,000, most people don’t think it becomes yours. And the first person to think of television doesn’t own every TV set. Discoverers also rely on things they didn’t create, such as laws, roads, and trained workers.

4 Amartya Sen: What can people actually do?

Nobel economist Amartya Sen argued that justice should look at capabilities: the real freedoms people have to be well nourished, healthy, educated, and part of their communities. Equal incomes can hide unequal freedoms. A person who uses a wheelchair may need more resources to get around than someone who doesn’t. Sen’s studies of famine found that famines have struck even when food supplies were not much lower than in normal years. In Bangladesh in 1974, floods pushed up food prices while farm work dried up, and landless workers could no longer buy enough to eat. In The Idea of Justice (2009), Sen argued we don’t need to agree on a perfectly just society to agree on removing clear injustices and comparing the real choices in front of us.

The challenge. Which capabilities count, and who decides? Sen refused to fix a list, warning that experts choosing for everyone risk paternalism, and left it to public discussion. Critics say that leaves the theory vague. Capabilities are also harder to measure than income.

5 Elizabeth Anderson: Do people stand as equals?

In “What Is the Point of Equality?” (1999), philosopher Elizabeth Anderson argued that equality is not about compensating people for bad luck. “The proper negative aim of egalitarian justice,” she wrote, “is not to eliminate the impact of brute luck from human affairs, but to end oppression.” A just society is one where no one can dominate, exploit, or demean others, and where people relate to one another as equal citizens. She criticized theories that would make officials judge whether a poor person’s hardship came from bad luck or bad choices, which she saw as intrusive and demeaning. Her view, which she called democratic equality, entitles everyone to the capabilities needed to function as an equal citizen.

The challenge. Critics say the view is clearer about what it opposes than what it wants. Bringing relationships at work and in private life under the heading of justice may also stretch the reach of government too far. Market defenders add that competition among employers and the freedom to quit protect workers from bad bosses.

One Case, Five Lenses

After a hurricane knocks out power, a seller drives in a truckload of generators from another state and charges twice the usual price. How might each lens see it?

Notice the split. Some questions are empirical: do higher prices bring more generators, faster? Evidence can answer those. Others are about values: is it wrong to profit from someone’s distress? Only judgment can settle those.

What Economics Adds

LISTEN Colonialism, Slavery, and Foreign Aid (with William Easterly) on EconTalk, hosted by Russ Roberts, with a transcript

Key Terms in Plain Words

Procedural justice

Fairness of the rules and process, such as no force, fraud, or rigged rules.

Distributive justice

Fairness of the outcome: who ends up with what.

Veil of ignorance

Rawls’s test: choose rules without knowing who you will be in society.

Difference principle

Rawls’s rule that inequalities are just only if they most benefit the least advantaged.

Entitlement theory

Nozick’s view that holdings are just if fairly acquired, voluntarily transferred, or corrected.

Finders-keepers

Kirzner’s rule that what someone discovers and claims first is justly theirs.

Capabilities

Sen’s term for what people are really free to do and be.

Democratic equality

Anderson’s view that justice means people relate as equals, free of oppression.

Rationing

Any method of deciding who gets a scarce good: price, line, lottery, or rule.

Leaky bucket

Okun’s image for the output lost when income is moved from rich to poor.