Hayek on Social Justice versus the True Function of Market Remuneration

Like Nozick, Hayek sets to reject all distributionist doctrines. “Our objection is against all attempts to impress upon society a deliberately chosen pattern of distribution, whether it be an order of equality or of inequality” (1960: 87). Distributionist doctrines all presume that the experts in institutional and policy design can accurately inform us about what arrays of concrete results will be generated by alternative packages of institutions and policies. The experts are presumed to be able to predict that policy package Pj will yield something pretty close to distribution D1; package P2 will yield something pretty close to D2, and so on. This (presumed) knowledge enables those in authority to employ their favored distributional formula to identify which of the available distributions ranks highest and ipso facto which of the available policy packages ought to be selected.

As we have seen, however, Hayek holds that no social science expert will have sufficient factual information about individuals, their dispositions, skills, interests, preferences, or choices in order to predict what will be the arrays of particular results for those diverse individuals of instituting those various packages of institutions and policies.

Nor can the choice of the appropriate set of rules be guided by balancing for each alternative set of rules considered the particular predictable favourable effects against the particular unfavourable effects, and then selecting the set of rules for which the positive net result is greatest [or most in accord with a favored distributionist formula]; for most of the effects on particular persons adopting one set of rules rather than another are not predictable. (1976: 3)

The relevant authorities will not know what distributions will result from which packages of institutions and policies and, therefore, they will not know what the available distributions are. In addition, Hayek maintains that, even if we knew what sets of concrete outcomes were available to us through the adoption of different bundles of institutions and policies, we would lack knowledge of a standard of value that would allow us to rank those sets of concrete outcomes against one another.

An appreciation of our factual ignorance about particular outcomes and our moral ignorance of a formula for ranking sets of particular outcomes combine with our understanding of how general compliance with the rules of just conduct is likely to serve all of our diverse interests — albeit, not in concretely predictable ways — to provide a strong rationale for compliance with and even enforcement— of those rules. They combine to yield an understanding of why it is vitally important to treat such rules as principles of justice «whose application to particular instances requires no justification” (1973: 61, emphasis added).— The key way in which general abidance with the rules of justice conduct assists individuals in their pursuit of their respective aims is that it enables each individual to make use of her own detailed local knowledge and the information available to her in the form of market prices and to benefit from others’ use of their detailed local knowledge and the information that is available to them in the form of market prices.

These Humean-Hayekian rules are constraining norms. They require agents not to dispossess others of their legitimate initial acquisitions or their legitimate acquisitions through voluntary transfers and not to welch on validly formed contracts. Rules that are protective of property — indeed, property in the broad sense of life, liberty, and estate — are an essential means by which individuals can attain their respective ends because property is essential to individuals having incentives to develop, refine, and act upon their local knowledge about their own potentialities, the resources available to them, and their own and their prospective trading partners’ desires.

Men can use their own knowledge in the pursuit of their own ends without colliding with each other only if clear boundaries are drawn between their respective domains of free action. … Property, in the wide sense in which it is used to include not only material things, but (as John Locke defined it) the “life, liberty and estates” of every individual, is the only solution men have yet discovered to the problem of reconciling individual freedom with the absence of conflict.-3 (1973: 107)

Hayek recognizes that, for property to arise, further rules are needed that specify the procedures through which things become owned by this or that agent. “[R]ules are required which make it possible at each moment to ascertain the boundary of the protected domain of each and thus to distinguish between the meum and the tuum” (1973: 107). These rules — like Nozick’s complicated truths concerning just acquisition — specify “the manner in which such domains are acquired, transferred, lost, and delimited” (1976: 35). Nevertheless, Hayek shies away from labeling these modes of legitimate acquisition and transfer as rules of just conduct (1976: 35). According to Hayek, acquisition through the specified procedures establishes ownership; but ownership merits protection only because of the Humean rules of just conduct that bestow protection on people’s established domains.

Such states of ‘ownership’ [i.e., being acquired by legitimate, ownership­engendering procedures] have no significance except through the rules of just conduct which refer to them; leave out those rules of just conduct which refer to ownership, and nothing remains of it. (1976: 35, emphasis added)

Shortly we will see why Hayek declines to include the specification of the procedures through which individuals establish ownership among the principles of just conduct.^

In MSJ, Hayek offers a medley of arguments against distributive or social justice. I will survey five of these arguments: the Meaninglessness Argument, the Desert is Unknown Argument, the Signal Argument, the No Authority Argument, and the Political Dynamic Argument. I also consider a more positive proposal from CL, the Desert as Contribution Proposal.

The Meaninglessness Argument

This is Hayek’s favorite argument against distributionism. According to this argument, it is meaningless to ascribe injustice to the distribution of income that arises within an economic order that is at least substantially based upon private property and free market interactions. 1 min left in chapter         5 9 % “[I]n a society of free men (as distinct from any compulsory organization) the concept of social justice is strictly empty and meaningless” (1976: 68). Assertions of the injustice of the distribution of incomes within such an economic order do not even rise to the level of meaningful falsehoods. According to Hayek, there is a category mistake involved in saying that the distributional upshot of the operation of a (more or less) market order is unjust; for injustice is not a characteristic that is applicable to such an order. To ascribe injustice to the array of incomes that arise within a market order is like ascribing greenness to a quadratic equation. Hayek recognizes that there is a parallel argument for the conclusion that it is meaningless to assert the justice of any distribution of incomes that arises within a market order. He is willing to bear the intellectual cost of being excluded from meaningfully asserting the justice of market outcomes in order to gain the intellectual reward of excluding distributionists from meaningfully asserting the injustice of market outcomes.

Hayek expresses the crucial premise of the Meaninglessness Argument in two distinct ways. The first expression is that no outcome can be unjust unless some agent is blameworthy for that outcome.

Strictly speaking, only human conduct [or, say, the conduct of God] can be called just or unjust. If we apply the terms to a state of affairs, they have meaning only in so far as we hold someone responsible for bringing it about or allowing it to come about…. To apply the term ‘just’ [or ‘unjust’] to circumstances other than human actions or the rules governing them is a category mistake. (1976: 31)

Only if we mean to blame a personal creator does it make sense to describe it as unjust that somebody has been born with a physical defect, or has been stricken with a disease, or has suffered the loss of a loved one. Nature can be neither just nor unjust. (1976: 31-2)

When we see that there is no agent who is to blame for that defect or disease or loss, we withdraw our judgment that this defect or disease or loss is unjust. Similarly, when we overcome our habit of thinking “animistically or anthropomorphically” (1976: 32) about the array of incomes that arise within a market order, we withdraw any judgment that this array is unjust. We already see here the second premise of the Meaninglessness Argument, viz.,

In a spontaneous order the position of each individual is the result of the actions of many other individuals, and nobody has the responsibility or the power to assure that these separate actions of many will produce a particular result for a certain person. (1976: 33)

The first expression of crucial premise combines with the second premise to yield the conclusion that the distribution of incomes that arises within a market economy can never intelligibly be described as unjust (or as just).

Why not, however, adopt the view we have seen in Nozick? According to that view, particular holdings that arise through legitimate means of acquisition are themselves just; and particular holdings that arise through other means are themselves not just; and a distribution of holdings is just insofar and only insofar as the particular holdings within it are just. Hayek takes this proposal to be ‘‘tempting.” But he rejects it on the grounds that the overall array of holdings that arises within a spontaneous order will not be “the intended aim of the individual actions” (1976: 33). We saw above that Hayek declines to include the rules of legitimate acquisition among the rules of just conduct. I surmise that he does so because, had he classified these rules of acquisition as principles of justice, it would have been harder yet for him to resist the tempting conclusion that particular holdings that arise in accordance with those rules of acquisition are themselves just (and holdings that arise through other procedures are not just.)

The second expression of the key first premise of the Meaninglessness Argument is, “[I]f it is not the intended or foreseen result of somebody’s action that A should have much and B little, this cannot be called just or unjust” (1976: 33). I take this to be a second expression of the same key premise because Hayek seems to hold that one is not responsible for an outcome of one’s action if and only if that outcome is neither intended nor foreseen. We can also restate the second premise as the claim that no array of holdings that arises in a market economy is the intended or foreseen result of any agent’s actions. And if we conjoin this expression of the key premise and this restatement of the second premise, we again arrive at the conclusion that the distribution of income that emerges within a market economy cannot be described as just or unjust.

Unfortunately for the Meaninglessness Argument, neither expression of the first key premise is correct. Consider the case of a rolling pin that has been legitimately acquired by Jerry but which quite accidentally gets dislodged from its place in Jerry’s kitchen and rolls downhill into Bob’s kitchen. It rolls right into the spot where Bob’s identical rolling pin normally lies; so Bob takes it to be his own rolling pin. In this case, no one is to blame for Bob’s possession of Jerry’s rolling pin. Yet Bob’s possession of it is unjust even though Bob does not realize this. When the facts of the matter become known, it is clear that justice requires that Bob return the pin to Jerry. Also, Bob’s possession of the pin is not the intended or foreseen result of Bob leaving his kitchen door open; but it is nevertheless unjust. Consider now a slightly more complex example. Imagine a society of five individuals who, over the course of many years, acquire holdings of the extent indicated by Dg in the matrix below and do so entirely on the basis of rules of acquisition that Hayek would deem to be legitimate (albeit, not just). But then individuals K and L retire from their honest economic endeavors and each, with no knowledge of the other, takes up his retirement plan of being a successful (undetected) pickpocket. Each proceeds in this vocation for a while and the upshot is d9.

 HIJKL
Distribution Dg1827131614
Distribution D91519112219

No one agent or set of coordinated agents is blameworthy for D9 (although K and L are blameworthy for certain of the losses suffered by H, I, and J). And no one agent or set of coordinated agents brings about D9 intentionally or even with foresight. Yet it seems entirely reasonable to say that, compared to Dg, D9 is a thoroughly, if not absolutely, unjust distribution. It seems entirely reasonable to say that through the actions of K and L considerable injustice has entered into this five-person society. When I, H, and J figure out what has been going on, they demand (at the very least) that K and L return the unjust components of their holdings. Thus, each of these examples shows that the key premise of the Meaninglessness Argument is mistaken.

If the Meaninglessness Argument has a saving grace, it is that it warns us about the tendency of doctrines of social justice to personify society as “a personal distributing agent whose will or choice determines the relative position of different persons or groups” (1976: 72) and whose will or choice will be just only if it is effectively directed toward the deliberate creation of some putatively best available distribution. Still, given its deep flaws, Hayek would lose little by jettisoning the Meaninglessness Argument. And he would gain a lot. For he could then embrace the historical entitlement view that just holdings can arise from individuals acquiring objects in accordance with just procedures even if the array or distribution of those holdings is not intended by anyone. He could hold, as Nozick does, that justice in holdings is among the welcome states of affairs that can arise without being intended.

The Desert is Unknown Argument

In CL Hayek takes the complaint of the supporter of social justice to be ‘‘that differences in reward do not correspond to any recognizable differences in the merits of those who receive them” (1960: 93). And this identification of “social justice” with the demand that income correspond with moral merit continues throughout MSJ. In this context, Hayek takes merit to be a matter of painful effort directed toward some beneficial result. However, Hayek’s selection of distribution according to merit as the paradigm social justice view is odd. For, the demand that remuneration accord with individual merit is usually offered in opposition to social justice demands for the downward redistribution of income. At least by the time that MSJ was published, advocacy of downward redistribution was typically based on end-state principles such as Rawls’ difference principle and not on pattern principles such as distribution according to merit.15 So why does Hayek select distribution according to personal desert — and, more specifically, according to painful effort — as his primary target?

In MSJ Hayek maintains that old- fashioned socialists advocated central economic planning because they thought that this was the necessary route to their ultimate goal, viz., “a ‘just’ distribution of wealth.” But new-fashioned socialists have “discovered that this redistribution could in great measure, and against less resistance [than central planning would face], be brought about by taxation”— (1976: 65). My suspicion is that Hayek assumes that the more direct attainment of distributive justice favored by the new- fashioned socialist must involve a plan for the allocation of income that requires the same degree of detailed information as a plan for the productive allocation of economic resources must involve. The distributionist view that fits Hayek’s presumption that advocacy of distributive justice requires such a detailed, information-intensive plan is the view that just distribution is allocation in proportion to personal desert. Moreover, Hayek must have been heartened by the conclusion that the distributionist seeks allocation according to personal merit. For, this is the distributionist program that is most subject to Hayek’s favorite general critique, viz., the program requires unattainable knowledge of particular matters of fact.

According to Hayek, the determination of any given individual’s degree of merit — understood as the extent of painful effort directed toward beneficial results — is extraordinarily difficult. It is much more difficult than determining the degree of an individual’s success in her endeavors.

… merit is not a matter of the objective outcome but of subjective effort. The attempt to achieve a valuable result may be highly meritorious but a complete failure, and full success may be entirely the result of accident and thus without merit. (1960: 95)

Judgment of another’s merit (or demerit) requires information about the desires,

intentions, efforts, beliefs, and costs of that person’s conduct that we rarely, if ever, possess and that the employees at the Department of Merit Assessment will certainly never possess. Moreover, the extraction of much of this information would involve highly intrusive investigations into the particular details of the lives of the citizenry. Furthermore, even if some agency possessed all the information that reasonably might be thought to be indicative of one or another sort of merit (or demerit), that agency is extremely unlikely to have access to a generally acknowledged way of weighing these different sorts of merit (or demerit) to arrive at a broadly accepted merit score for diverse individuals. Thus, it is exceedingly unlikely that dispersals on the basis of the merit points assigned to individuals will be seen to accord with general and impartial norms of desert and the equal treatment of all under the law. Rather, such dispersals will be seen as a matter of officials passing out differential benefits to particular individuals on the basis of their ill-informed predilections about what constitutes personal desert. The Desert is Unknown Argument makes a strong epistemic case against the proposal that some agency equipped with coercive powers should seek to apportion income (or holdings) among the members of society in accordance with their degree of personal desert. The argument is quite general because it does not depend upon desert being understood as painful effort aimed at some beneficial result. Unfortunately, it has the defect of not being an argument against the dominant, end-state type of distributionist principles.

The Desert as Contribution Proposal

In CL Hayek suggests a more positive stance concerning justice in holdings than any offered in MSJ. This more positive stance turns on “the distinction between value and merit” (1960: 94). «[T]he value which a person’s capacities or services have for us and for which he is recompensed has little relation to anything that we can call moral merit or deserts” (1960: 94). In contrast to merit, the value of an economic agent’s conduct is a matter of what others are prepared to pay for that conduct or for the goods produced by that conduct. Perhaps justice in income or holdings is a matter of individuals receiving market payment for the goods or services they provide for others. Two premises underlie this proposal. The first is that justice is a matter of receiving remuneration for goods or services in proportion to their contribution to the recipients of those goods and services. The second is that the measure of the contribution of goods or services to their recipients is the payments that those recipients freely agree to make in exchange for those goods or services. In sum, free market payments for the goods or services one provides are just because they are proportionate to the contribution one makes to the recipients of those goods or services.

It is of the essence of a free society that a man’s value and remuneration depend not on a capacity in the abstract but on success in turning it into concrete service which is useful to others who can reciprocate. … In a free society we are remunerated not for our skill but for using it rightly. (1960: 80-1, 82)

This view can be construed as a type of desert doctrine, that is, desert as contribution. Although an agent may not deserve her talents or even her willingness to engage in painful effort, when she engages those talents or painful (or painless) efforts in a way that contributes to others as measured by their willingness to pay for those contributions, she deserves those payments. In fact, Nozick thinks that, in endorsing this view in CL, Hayek is unintentionally endorsing a pattern doctrine, viz., «distribution in accordance with the perceived benefits given to others” (1974: 158). Nevertheless, it is at most a very atypical pattern view. For there is no central distributor who remunerates individuals in proportion to the extent that they have provided (in Nozick’s words) «perceived benefits given to others.” As Hayek says in MSJ, «The remunerations which the individuals and groups receive in the market are thus determined by what these services are worth to those who receive them … and not by some fictitious ‘value to society’” (1976: 76). This is no societal measure of the value of the contributions of diverse individuals that tells us what contributors should receive instead of the actual market remunerations that they garner.

The Signal Argument

In both CL and MSJ, Hayek contrasts the ill- effects of attempting to reward individuals for their pain and effort with the benefits of market remuneration for valued economic activities. The basic ill-effect of attempting to reward individuals for their pain and effort is to encourage painful effort without regard to the value of the goods or services that these efforts yield. Do we really want a system that provides incentives for engaging in costly attempts to provide valued goods or services and penalizes people for finding easier and less painful ways of providing them? However, if the rationale for market remuneration is not to reward pain and penalize avoidance of pain, what then is its rationale?

One view of the rationale for market remuneration is provided by the Desert as Contribution Proposal. Another is that market remuneration functions to encourage the creation of high-valued goods and services and to discourage the allocation of resources to low-valued goods and services. This is the incentive rationale for affirming market returns. However, it is not surprising that Hayek is especially attracted to an informational rationale. The function of market remuneration is to signal market participants that they are likely to benefit from shifting to certain economic activities (and away from others). When people respond to such signals, human and material resources are reallocated from less valued toward more highly valued uses.

[T]he functioning of the market order of particular prices or wages, and therefore of the incomes of the different groups and individuals, is not due chiefly to the effects of the prices on all those who receive them, but to the effects of the prices on those for whom they act as signals to change the direction of their efforts. Their function is not so much to reward people for what they have done as to tell them what in their own as well as in the general interest they ought to do.— (1976: 71-2)

Still, economic agents will be alert to such signals and motivated voluntarily to shift their efforts toward activities that promise better market returns only if “doing what in fact most benefits others … will secure the best reward” for those agents — which is to say, only if people are rewarded in accordance with perceived contribution. A regime that, instead, arranges for people to receive in accord with “their individual merits or needs,” will have to find some other way to get people to engage in the activities that the regime deems to be most economically beneficial (1976: 72). Note also that within a system that remunerates individuals in accordance with the value that others place on their contributions, and within which remuneration provides individuals with information about what economic activities they should switch to or abandon, the resulting array of income will reflect all sorts of contingencies and will not conform to any end-state or pattern distributionist principle.

The No Authority Argument

Hayek holds that the institution of social justice requires that “the members of society should organize themselves in a manner which makes it possible to assign particular shares of the product of society to the different individuals or groups.” As Hayek sees it, this raises the awkward question of “whether there exists a moral duty to submit to a power which can co-ordinate the efforts of the members of society with the aim of achieving a particular pattern or distribution regarded as just” (1976: 64). His suggestion, of course, is that there is no such power with a right to our submission. Unfortunately, Hayek seems here to rely again on his presumption that to advocate social justice is to advocate distribution in proportion to individual (subjective) desert. For, it seems that it is only such a patterned goal that would require a regime with the power to engage in detailed investigation and monitoring and administration of individuals. On the surface at least, a regime that imposes a general tax-and-transfer scheme to fulfill some end-state formula would not need to subject individuals to such investigation, monitoring, and detailed administration.

Two better bases for Hayek’s concern about advocacy of social justice undermining spontaneous free society do not depend on his mistaken assumption that advocacy of social justice means advocacy of distribution according to individual merit. The first of these was mentioned within the discussion of the Signal Argument. A really serious commitment to distribution according to merit or needs or (fairly strict) equality would likely involve levels of taxation that would seriously reduce people’s incentives to devote themselves (and their economic resources) to high­valued economic activities and, therefore, would likely require at least some shift to a command economy in which individuals are ordered to devote themselves (and their economic resources) to activities deemed socially valuable by those occupying the commanding heights.

Once … rewards correspond not to the value which their services have for their fellows, but to the moral merit or desert the persons are deemed to have earned [or even to some egalitarian-leaning end­state principle], they lose the guiding function they have in the market order and would have to be replaced by the commands of the directing authority. (1976:82)

If brain surgeons are unwilling to bear the stress of a third decade of practice for only three times the average net annual income, they may have to be conscripted into the National Surgical Corps. Unanticipated negative consequences of such interferences — e.g., less people training to be brain surgeons — will typically be interpreted as revealing the necessity of further coercive interventions, for example, requiring people to train as brain surgeons. The second better basis for concern about advocacy of social justice is the way in which such advocacy politicizes society. I label this the Political Dynamic Argument.

The Political Dynamic Argument

According to Hayek, a core feature of the market order — including remuneration on the basis of the value that others place on the goods or services one provides to them — is that it is «a wealth-creating game (and not what game theory calls a zero­sum game) that is, one that leads to an increase of the stream of goods and the prospects of all participants to satisfy their needs” (1976: 115). The institution of the rules of just conduct and the rules by which people make things their own provides the framework for this mutually advantageous order. In contrast, distributionist principles are essentially zero-sum in the sense that their institution requires the ongoing imposition of losses on some individuals (who have never acted contrary to the rules of just conduct) in order to provide gains for other individuals. Quite aside from whether a theoretic case can be made for some determinate distributionist principle, actual advocates of social justice will always disagree among themselves about what the correct principle of social justice is and, consequently, about who should receive assistance in the name of social injustice and who should pay for it.

Once credence is given to the social justice impulse, political life becomes more and more an ever-mutating zero-sum game in which new, self-appointed representatives of newly discovered victims of social injustice are continually contending for inclusion within a coalition that has decent prospects of gaining political power and imposing the costs of that coalition’s social justice programs on other members of society.— The power of such coalitions is fueled by the degree to which claims about social injustice motivate its members to join one another against their perceived victimizers. For Hayek, this dynamic involves a reversion to tribalism — a focus on group identity within which group members are taught to think of certain other identity groups as their friends and others as their enemies. For Hayek, the rise of campaigns for social justice is a sign of, and a further cause of, a tribalist revolt against liberal individualist cosmopolitanism (1976: 133-52).

A key effect of the politics of social justice is an increase in government powers which are thought — Hayek believes mistakenly — to serve the real interests of the victims of established power. To maintain or expand their power, those in office have to at least pretend to cater to the special interests of those who put them in power. They have to validate the worldviews of their supporters — especially the view that the only hope for people encountering difficulties in their lives is an increase in state power that is wielded by political entrepreneurs who really care about them.

It was in the belief that something like “social justice” could thereby be achieved, that people have placed in the hands of government powers which it can now not refuse to employ in order to satisfy the claims of the ever increasing number of special interests who have learnt to employ the open sesame of “social justice”. (1976: 67)

The result, according to Hayek, is that,

This greatest triumph of personal freedom the seduction of “social justice” threatens again to take from us. And it will not be long before the holders of the power to enforce “social justice” will entrench themselves in their position by awarding the benefits of “social justice” as the remuneration for the conferment of that power and in order to secure to themselves the support of a praetorian guard which will make it certain that their view of what is «social justice” will prevail. (1976: 99-100)

Possessors of power who are not highly skilled at holding together an electoral praetorian guard will give way to contenders who are better yet at assembling a coalition of the aggrieved.

  1. I          want to conclude this chapter by mentioning a few more of Hayek’s many noteworthy contentions. One of the ways that a zero-sum perspective on the world is built into common patterns of speech is the presumed linkage between one person being «advantaged” and others being “disadvantaged.” If, all of a sudden, A becomes more intelligent, alert, or physically vigorous than B through Z, it is said that A has become advantaged and that correlatively B through Z have become disadvantaged. Such an inference from A’s advantage to B through Z’s disadvantage would make sense if these twenty-six individuals were competing for a single prize — that is, if they are engaged in a zero-sum game. But the inference is totally inappropriate if A through Z are participants in a multi-dimensional market economy.

[T]he acquisition by any member of the community of additional capacities to do

things which may be valuable must be regarded as a gain for that community. It is true that particular people may be worse off because of the superior ability of some new competitor in their field; but any such additional ability in the community is likely to benefit the majority. (1960: 88)

If, say all of a sudden, five of this group of twenty-six individuals become more intelligent, alert, or physically energetic, it is extremely likely that all the other individuals will be net gainers.

It is striking, though, that immediately after making this point about enhanced abilities or opportunities for some not being disadvantageous for others, Hayek anticipates a Nozick-like Lockean proviso. The fact that all are at least likely to gain when some have increased abilities and opportunities,

implies that the desirability of increasing the abilities and opportunities of any individual does not depend on whether the same can also be done for the others — provided, of course, that others are not thereby deprived of the opportunity of acquiring the same or other abilities which might have been accessible to them had they not been secured by that individual. (1960: 88)

Indeed, Hayek goes well beyond such a proviso by endorsing a tax-funded safety net. Thus, in CL he says, “There are good reasons why we should endeavor to use whatever political organizations we have at our disposal to make provision for the weak or infirm or for the victims of unforeseeable disaster” (1960: 101). And in MS/he asserts that “There is no reason why in a free society government should not assure to all protection against severe deprivation in the form of an assured minimum income, or a floor below which nobody need to descend” (1976: 87). It is, though, fair to say that Hayek does not make clear what the good reasons for an assured minimum are.