Amartya Sen rewrites the legacy of Adam Smith

Nobel Prize winner Amartya Sen distrusts free markets, wants more regulations, and calls for a global redistribution of wealth. In doing that, Sen claims that he follows Adam Smith’s lessons, which others have misunderstood. But has everyone been wrong about Adam Smith?

So that you can judge for yourself, below I have embedded two videos showing lectures by Professor Sen, those in which he deals with Adam Smith’s legacy. 
            In 2011, together with 19 other Nobel Prize winners (three of them also economists), Sen signed the Stockholm memorandum in which they announced that recurring economic crisis won’t be prevented by minor reforms and that governments will have to “reset economic incentives so that innovation is driven by wider societal interests”. In his articles and lectures Professor Sen has used the sub-prime crisis of 2008 as an example of the severe limitations of a capitalism that is not strictly controlled by regulations issued by governments. Moreover, Amartya Sen writes that world leaders should pursue a more egalitarian distribution of the benefits of economic development around the globe. In short, Professor Sen subscribes the whole agenda of interventionism, regulation, and redistribution on a global scale.

But Sen has also tried to show that his agenda was actually supported, or at least hinted, by Adam Smith, the economist that most people place among the earlier and most revered defenders of free markets. Sen has severely criticized the traditional interpretation of Adam Smith’s legacy. He sneers at those who assume that Smith’s essential message was that free markets, not restrictions, are the best path to the wealth of nations. Sen makes his audiences laugh at those simpletons who never go further than the famous lines in which Smith declared that it is not from the kindness from the butcher that we get our meat.

Professor Sen uses the authority of Adam Smith to chastise the defenders of deregulation and blames them, together with “prodigals and projectors”, for the sub-prime mortgage crisis. In his view, that came from “an implicit faith in the wisdom of the market” an idea which must not be attributed to Smith –Sen tells us–, but to those who misunderstand and misuse him. He tells us that Adam Smith was actually a promoter of public spending; for instance in education –which Sen classifies as a public good as a matter of course. From there Sen deduces that nothing in Adam Smith's thought denies that "state action must supplement the operations of the market by creating jobs and incomes (e.g., through work programs)". Sen declares that Adam Smith has for a long time been  misused and misrepresented as an unequivocal defender of free markets. He wants to put an end to it (Capitalism beyond the Crisis, New York Times Review of Books, 3/26/2009 p. 4)

I disagree. I think that, at best, Sen points out some caveats that have never been denied by his much reviled “traditional” interpretation of Adam Smith’s work. At worst, Sen distorts his legacy, and not in its details, but in its fundamentals.

                 There is a lengthy introduction, Professor Sen's lecture starts at 6.28

Misuses of The Theory of Moral Sentiments

One of the main strategies that Amartya Sen uses in rewriting Adam Smith is to interpret The Wealth of Nations in the light provided by another –earlier– book by Smith: The Theory of Moral Sentiments.[1]

Now, it should be plain, right from the very titles of the books, that they deal with different subjects. In fact Adam Smith wrote about many and very different issues: from economy to literature and jurisprudence, including a bit of the history of astronomy. Passing lightly over the differences of such issues, Sen surprises his academic audiences with citations from The Theory of Moral Sentiments that prove that Smith assigned a great weight to the sentiment of benevolence towards other human beings. Doesn’t it prove then, by words from the master himself, that the usual interpretation of The Wealth of Nations is wrong? –and to think that simpletons keep talking about self-interest and the invisible hand! Sen points out that –in analysing sentiments– Smith wrote that people are usually very concerned about the trust and good opinion that others may develop about them. Smith devotes a whole chapter to the sentiment of approbation. Surely, reading Smith’s earlier book we should have understood that trust in the economy and banks must be fostered by regulation!

Again using The Theory of Moral Sentiments in order to shed light on The Wealth of Nations, Professor Sen finds support for his idea that governments should pay attention, not merely to the point of view and interests of their citizens, but also to the opinions of people living in distant countries. Leaders should hear distant voices in order to enrich their perspective. Along the same line, Sen has often criticised John Rawls for restricting the relevant opinions to the citizens of each country. Sen finds that too limited. After all, we may ask, why should only Americans have a saying about the proper regulation of the American economy? Why not a Congolese or a Venezuelan? Why should Swedish legislators consider only the perspectives of the Swedish people?

According to Sen, all these lessons come from Adam Smith if one looks in the proper places. Certainly, in the Theory of Moral Sentiments, Smith made occasional use of the imaginary device of the impartial spectator. In evaluating our own actions and moral commitments one can consider what an impartial spectator would think of them. But we shouldn’t exaggerate the importance of the device: the spectator doesn’t really exist –no more than the Rawlsian assembly of people behind the veil of ignorance. Moreover, while an imaginary device has a central role in Rawls system, it has only a minor place in Smith’s –which is to the great advantage of the latter.

Nevertheless, Smith’s mention of the impartial spectator is used by Amartya Sen to claim that such revered thinker has hinted some support for his own suggestion about “distant voices”. Would Smith have approved the suggestion that the British government should take into account the opinions of spectators from outside its dominions? I doubt it, unless it was on the issue of foreign policy.

But Professor Sen thinks that governments should consult distant voices even when deciding domestic matters. Moreover, Sen writes that Smith’s occasional use of the impartial spectator in The Theory of the Moral Sentiments sheds light into another contemporary issue, namely: should judges take into account the views prevailing in other countries when deciding a case? Should American judges weigh the opinions of French or German courts about the death penalty when deciding a case involving the murder of an American by an American in America? Why not? If one follows Sen’s train of deductions, one will conclude that Adam Smith gave support to that too.

It baffles me to hear Sen delivering such lessons to academic audiences and to see that nobody points out to him that it is one thing to enrich one’s perspective, and another one to judge a fellow citizen according to the law of the land. There is a difference between judges and philosopher-kings. Nevertheless, in his book The Idea of Justice, Sen criticizes the US Supreme Court for refusing to take into account the opinions of judges and people living in different countries and different cultures. Why are they so close-minded? Sen writes that common Americans don’t share that limited view because they pay attention to the ideas of foreigners like Jesus, Gandhi, and Mandela. And Sen argues: “It is quite a specialized thesis to assert that while it was OK for Jefferson to be influenced by the arguments of foreigners, the ears should now be closed to arguments presented outside the United States”.[2]

Maybe Smith’s notion of the division of labor –or rather of power– could have helped Professor Sen to understand that puzzling distinction. Some people write laws, some others apply them. Leaving aside Professor Ronald Dworkin’s theories, most Americans agree with their judges that these are different tasks. Moreover, the question is misleadingly stated in terms of nationality. That isn’t the point; if a German professor writes a persuasive article about the meaning of the US Constitution, his arguments might be considered as such. Conversely, if an American born academic comes up with some good idea that he believes the Court should impose to the rest of the nation, he won’t be considered.

I wouldn’t think it necessary to assert such plain truths if it weren’t for the fact that I see that they are so easily forgotten.

Smith’s lesson restated: distrust the wisdom of the market

In almost every writer it is possible to find, along with the main ideas, peculiar opinions on special subjects, exceptions to the principles, and caveats to his recommendations. That is especially so with an author like Smith, for two reasons. First, he wrote about absolutely disparate issues: morals, fashion, jurisprudence, literature, economy, astronomy, and a host of other issues. Secondly, Smith opened the way in some of these areas. He was among the first to tread on uncultivated land. It must be expected that some of his notions are not yet fully developed and that some of the old prejudices still remain in his body of work. For instance, Smith’s theory of value was defective, and such fundamental issue would remain in that state for a century. Certainly, none of that should be used to reject the great lessons taught by Smith. There is no mechanism to separate the wheat from the chaff other than balanced judgement, but I am afraid that Sen fails in that respect.

              An introduction, then a lecture by Sen's wife Emma Rothschild. Sen starts at 37.30

The traditional understanding of Smith’s contribution –the understanding that Sen tries to debunk- is that he gave a very good answer, one that others later perfected and refined, to the question that he posed in the very title of his book, which was an inquiry into the nature and causes of the wealth of nations. Smith’s answer was that wealth doesn’t come from restrictions of trade or from laws that promote the accumulation of gold within the territory of the nation. Those were the usual answers in Smith’s time. Those were the policies of Spain, of France, and even of Britain to a large extent. In contrast, Smith pointed out in the direction of the division of labor, of markets, and of exchange –all of which required freedom. Of course governments were there enforcing contracts, punishing criminals, providing defense, and many other things besides. But, again, that is not the point. With the exception of a few modern anacho-capitalists, almost nobody denies that governments are necessary, in Smith’s time or in our time.

Besides, interventionists and promoters of redistribution aren’t criticising a future stateless world. They are trying to change this one, were there is a State, and not a small one. A market without laws, courts and the rest is a straw man that interventionists like very much to imagine and attack. But in doing so they evade the real question, which isn’t today –and never was– whether governments are needed at all, but whether governments should erect custom barriers, prevent people from opening shops and starting enterprises, tell banks what rate they should charge to customers for whom politicians feel sympathy, direct or misdirect investment, and a thousand other brilliant ideas for the use of other people’s money.

Adam Smith gave a good answer to that question –to the real question. And his answer was that restrictions of trade, regulations, and intervention caused poverty, not wealth. Which is precisely the answer that Amartya Sen rejects.

Professor Sen could enlist Smith as a supporter of his ideas only by making deductions in leaps that would astonish Olympic champions in long jump. From Adam Smith’s use of an impartial spectator (which by the way, Smith placed in each man’s heart, not in distant lands) Sen deduces that the US Supreme Court should ponder about the opinions of foreign citizens and academics in deciding a legal case. From the fact that governments “were there” performing some limited functions in Smith’s time, Sen extracts support for intervention, regulation, and redistribution at a global scale. That is the proper use of Adam Smith’s legacy in his view.

All the while, Sen laughs at those who know nothing about Smith other than the words about the interest of the butcher. But that is not the only lesson that he must dismiss. There are many others. For instance, simpletons like F.A. Hayek have also found great insight in Smith’s words:

“The stateman, who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it”.

And there is much more in the same line. For instance:

“It is the highest impertinence and presumption, therefore, in kings and ministers, to pretend to watch over the oeconomy of private people, and to restrain their expence either by sumptuary laws, or by prohibiting the importation of foreign luxuries. They are themselves always, and without any exception, the greatest spendthrifts in the society. Let them look well after their own expence, and they may safely trust private people with theirs. If their own extravagance does not ruin the state, that of their subjects never will.”

But then, apart from referring to a book that Smith wrote about a different subject, what has Sen found to support his idea that people have misunderstood Smith’s legacy? Sen cites again and again three examples he has managed to find in the whole Wealth of Nations. Nevertheless, I think that it is easy to see that two of them –when read in full context– don’t support Sen’s interpretation. The third one does: it actually shows Smith supporting intervention. But this third example is also an instance of a rare fault of judgement on Smith’s part, a kind of intervention that no modern economist would approve –perhaps not even Sen, which is a lot to say. It is impossible to reject the main body of the book on these three isolated examples.

Did Adam Smith support free education?

In his speeches and articles Sen stresses the point that Smith actually supported education at the public’s expense. But let’s follow Sen’s own advice and look at the context. In The Wealth of Nations, Smith says that division of labor, so beneficial in general, doesn’t come without some drawbacks. People forget to take responsibility for the defense of their own country. So people should learn how to use weapons as every man does in less developed societies. And there are deficiencies in basic education as well. Although the higher ranks can take care of it by themselves, it is different with poor people. Let’s see Smith’s whole argument so that we cannot be blamed of neglecting context:

“It is otherwise with the common people. They have little time to spare for education. Their parents can scarce afford to maintain them even in infancy. As soon as they are able to work, they must apply to some trade by which they can earn their subsistence. That trade too is generally so simple and uniform as to give little exercise to the understanding; while, at the same time, their labour is both so constant and so severe, that it leaves them little leisure and less inclination to apply to, or even to think of any thing else.

But though the common people cannot, in any civilized society, be so well instructed as people of some rank and fortune, the most essential parts of education, however, to read, write, and account, can be acquired at so early a period of life, that the greater part even of those who are to be bred to the lowest occupations, have time to acquire them before they can be employed in those occupations. For a very small expence the publick can facilitate, can encourage, and can even impose upon almost the whole body of the people, the necessity of acquiring those most essential parts of education. The publick can facilitate this acquisition by establishing in every parish or district a little school, where children may be taught for a reward so moderate, that even a common labourer may afford it; the master being partly, but not wholly paid by the publick; because if he was wholly, or even principally paid by it, he would soon learn to neglect his business.” p. 175 [3]

That is, in full, the passage that Sen uses in order to claim that Smith supported education at the public expense. Certainly Smith never meant that the public should pay for the education of all, including the rich. He wouldn't recommend the system that has been in use in Argentina for decades, where rich youngsters spend many years in public universities maintained by the whole nation. Nevertheless, sometimes Sen likes to quietly drop the limitation and speaks of education in general as a public service.[4]

In contrast, Smith meant basic education for the poor people who, in his time, had to send their children to work at a very early age. In our time the situation has changed greatly. But what is much more significant, even for those in such appalling conditions, Smith recommended that the costs should not be “wholly, or even principally paid” by the public. His reason is that if people have to pay for education, they will be more careful about its quality. Now, to extract from that the lesson that Adam Smith supported free education as a public service, to further build upon that example an argument for State intervention, and think it fair to scoff at the unenlightened people who miss the context in Smith’s work, is well beyond what I am prepared to accept, even from a renowned academic like Amartya Sen.

Let’s see a second example. In his article in The New Statesman, Sen writes that Smith

“was deeply concerned about the inequality and poverty that might remain in an otherwise successful market economy. Even in dealing with regulations that restrain the markets. Smith additionally acknowledged the importance of interventions on behalf of the poor and the underdogs of society. At one stage, he gives a formula of disarming simplicity: "When the regulation, therefore, is in favour of the workmen, it is always just and equitable; but it is sometimes otherwise when in favour of the masters."

Such formula would delight more than one union leader. Was Smith really recommending intervention based on that formula? Let’s see the full context. Smith writes:

“Particular acts of parliament, however, still attempt sometimes to regulate wages in particular trades and in particular places. Thus the 8th of George III. prohibits under heavy penalties all master taylors in London, and five miles round it, from giving, and their workmen from accepting, more than two shillings and seven–pence halfpenny a day, except in the case of a general mourning. Whenever the legislature attempts to regulate the differences between masters and their workmen, its counsellors are always the masters. When the regulation, therefore, is in favour of the workmen, it is always just and equitable; but it is sometimes otherwise when in favour of the masters. Thus the law which obliges the masters in several different trades to pay their workmen in money and not in goods, is quite just and equitable. It imposes no real hardship upon the masters. It only obliges them to pay that value in money, which they pretended to pay, but did not always really pay, in goods” (p. 163)

What Smith says is that, as masters were in his time the advisers of legislators, they managed to get laws imposing maximum salaries. But today we don’t have maximum salaries, we have minimum salaries. Today, employers are seldom if ever the advisers of legislators in such matters. So if we speak of Adam Smith’s legacy, we have to realize that his real message is that intervention works unfairly in favour of those who can influence legislators. It is hardly a recommendation for intervention in favour of some group or other.

A real example

Professor Sen provides a third example, this time a real one. In The Wealth of Nations Smith deals with the interest paid for loans. Certainly Smith doesn’t build a system for intervention in this area. There is no general discussion of the principles that would justify intervention in the money market. But writing about the legal ceiling for rates that was almost universal in his time (in places were interest was allowed at all), Smith recommends fixing the ceiling “but a very little above the lowest market rate”. His motive? He says that if the ceiling fixed by law –above which interest was illegal and in some countries even a crime– is rather low, very little above the lowest paid in the market, then creditors won’t be tempted to risk their money in dubious enterprises in order to get a higher interest. A low ceiling would have the effect of directing credit to “sober people”, in Smith’s words. If a higher rate is permitted, then credit would be directed to –again in Smith’s words– “prodigals and proyectors”.

Amartya Sen triumphally cites this passage of The Wealth of Nations as a proof that Smith’s legacy has been misunderstood, that he recommended regulation. Sen even draws lessons for our own time, and blames the sub-prime mortage crisis on “proyectors”.

So Sen has shown, though with a single example fished out from the whole book– that the lesson of The Wealth of Nations is that we must distrust the wisdom of free markets, and that Adam Smith actually supported government’s intervention in the economy. Thesis demonstrated: Adam Smith’s legacy has been misunderstood.

Has it? What the example of the low ceiling for interest rates shows is that Smith wasn’t free of human error. Nevertheless, The Wealth of Nations is full of examples in which Smith shows that governments’ intervention in the economy is both unfair and damaging. That applies to many areas: in page after page Smith shows how intervention fails, in foreign trade, monetary policy, salaries, the price of goods, and everything else. That, with the exception of this example which occupies less than a page, and in which Smith made a clear mistake. So the legacy of the great economist, the lesson that we have to learn from his work, must be built around this error of judgement which nobody –with the possible exception of Sen– would approve today?

To fix by law a ceiling for all interest rates is already objectionable; but to fix it very close to the lowest market rate is madness. Smith made this single mistake when treading in new territory, but we cannot be mistaken about it today. We cannot present it as an example of Smith’s wisdom and –worse– pretend to base our understanding of his legacy on it.

Let’s compare: Johannes Kepler legacy doesn’t rest on his attempt to find some geometrical relation in the distances between planets. Kepler was another genius exploring new territory. But we know that his conviction about geometrical relations was wrong. Moreover, the comparison is unfair to Smith, because Kepler’s error has a much more important role in his work than the recommendation about low rates has in Smith’s.

Should Bentham’s letter to Smith be laugh at?

Professor Sen finds it amusing that Jeremy Bentham tried to convince Smith that he was wrong in recommending a very low ceiling for rates. Figure that! Bentham, a philosopher with a modest knowledge of economy –says Sen– trying to teach economics to Smith, who was perhaps the greatest economist of all ages. How ridiculous.

In his letter Bentham defended the “proyectors” who Smith had snubbed. Bentham said that a low maximum rate won’t distinguish between good and bad among the new projects. He added that all well established enterprises have been at the beginning uncertain endeavours. Bentham even cited Smith’s arguments in order to convince him; for instance, he said that Smith’s had rightly asserted that people often exaggerate the importance of bankruptcies: After all our complaints of the frequency of bankruptcies, the unhappy men who fall into this misfortune make but a very small part of the whole number engaged in trade, and all other sorts of business; not much more perhaps than one in a thousand. And Bentham argued further that even if it were true that all untried projects and new machines must fail, they would have opened the path to others who will succeed. He concluded saying that if all new and uncertain projects had ever been abandoned in favour of the well known ways, men would still be shivering in caves.

Can Bentham’s arguments be dismissed simply by scoffing at the attempts of an amateur?

Rewriting the past

In the classic film La belle de Moscou an American man says to a Russian apparatchik: we don’t change the past, only the future (I am citing from memory, I love that line).

But why is that some try to debunk the usual understanding about one of the earliest defenders of free markets? Why does it matter today whether Adam Smith really supported public financed education, whether he provided a simple policy maxim in favour of labor and against employers, or whether his legacy can be better assessed by recalling his advice about a very low ceiling for interest?

Friedrich Hayek explained why. He wrote in The Road to Serfdom that the doctrines of intervention and redistribution can be made more palatable if we get convinced that they are simply our own traditional ideas about liberty and progress, only that we have failed to grasp them correctly.

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[1] The Economic Manifesto, article by Amartya Sen in New Statesman. Sen writes: “since the ideas presented in The Wealth of Nations have been interpreted largely without reference to the framework already developed in Moral Sentiments (on which Smith draws substantially in the later book), the typical understanding of The Wealth of Nations has been constrained, to the detriment of economics as a subject.” Constrained? Yes, and rightly so. Constrained to what is relevant to the issue of economics.

[2] Amartya Sen: The idea of Justice. Belknap Harvard 2009, p. 406.

[3] The Wealth of Nations. Link to book vol. II. The complete works of Adam Smith can be read or downloaded for free from the same site. I cite the pages according to the pagination in the pdf document.

[4] Amartya Sen: Capitalism beyond the crisis. New York Review ofBooks, March 26 2009. 

Are Rawls and Hayek compatible?

No way. That would be the answer to such question at first glance –and as you will see, that will be my final answer too. Nevertheless, Jinzhou Ye, a kind reader of my blog, has written to me and rightly pointed out that Hayek seems to have thought that his ideas weren’t so radically different from Rawls’s.

In the preface to the second volume of Law, Legislation and Liberty Hayek wrote that his differences with Rawls

 “seemed more verbal than substantial. Though the first impression of readers may be different, Rawls’s statement which I quote later in this volume (p. 100) seems to me to show that we agree on what is to me the essential point. Indeed, as I indicate in a note to that passage, it appears to me that Rawls has been widely misunderstood on this central issue”

Then in p. 100 Hayek writes that the problem of justice is relevant not only as the basis of the rules that judges apply but also for the “deliberate design of political institutions, the problem to which Professor John 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’. But I have no basic quarrel with an author who, before he proceeds to that problem, acknowledges that the task of selecting specific systems or distributions of desired things as just must be ‘ abandoned as mistaken in principle, and it is, in any case, not capable of a definite answer. Rather, the principles of justice define the crucial constraints which institutions and joint activities must satisfy if persons engaging in them are to have no complaints against them. If these constraints are satisfied, the resulting distribution, whatever it is, may be accepted as just (or at least not unjust)’. This is more or less what I have been trying to argue in this chapter.”[1]

Though I admire him greatly, I think that here Hayek deluded himself. He wanted to hear a faint echo of his own ideas in Rawls’ book, and he overlooked the crucial differences.

An apparent agreement

Hayek wrote that the notion of social justice was a mirage, and a dangerous one. A few paragraphs before that quoted above, he wrote that it tends to destroy genuine moral feelings. It comes “into constant conflict with some of the basic principles on which any community of free men must rest”. Hayek defended the classic system in which rules have no other purpose than to allow each one to follow his own road without colliding with others. Such rules are –Hayek said– like road signs that tell people how to reach their own destination but without commanding any collective destiny. I have described that system in more detail in a previous article.

Of course, laws that comply with that requirement don’t establish who owns what. Distribution comes from the play of the market, that is, from the judicious, injudicious, lucky, or unlucky decisions of millions of people. The price mechanism makes it possible for them to collaborate without a general agreement about collective purposes. The men who make bolts do not have to agree –or have any idea– about the usefulness of the simple door, or of the complex machine in which bolts might be used. They agree with the maker of the door and the machine about the price. Nothing more is needed, and to require agreements about further and general goals is not only inefficient, but immoral. A system requiring more agreement than is possible, moral, and efficient can only attempt to work under the command of a bigger, more powerful, and ultimately uncontrollable government.

Rawls’s system might look similar at first glance. So it is when one reads the paragraph quoted by Hayek. Rawls too relies on general principles and says that whatever distribution of goods that results from a system that complies with those principles must be considered just. The difference, the enormous difference, is that Rawls’s system includes equalization by redistribution as a fundamental “principle”. In other words, Rawls made a goal into a principle. After that, one might think that his system relies only on general rules, not on collective goals. Wrong: what happens is that a collective goal about the distribution of goods has been adopted as if it were a rule like any other. But it is one of Hayek’s fundamental insights that rules and goals are different. And if one uses the name of “rule” for collective goals, that difference does not disappear. It is blurred only.

Oceans of discretion

One must remember that Rawls does not include property among the fundamental rights protected by the first principle of his community. Property is regulated by the difference principle which states that differences in wealth are allowed only if they improve the situation of the least fortunate members of the community (least favoured by nature, luck, or anything else). For instance, medical researchers might be allowed  (mind the passive voice) to buy and own expensive equipment, and perhaps be permitted to retain a considerable part of the profits that comes from their discoveries, if it is considered that such level of inequality works for the benefit of the least fortunate. The passive voice should alert us that some government official or authority is implied. The passive voice allows one to overlook the agent that performs the action, therefore its frequent use in bad political philosophy.

The difference principle is made both more stringent and more uncertain by two further requirements. First, the improvement of the least fortunate must be the maximum possible. That means that it is not enough to say of an inequality of distribution that it improves the situation of the least fortunate in some degree, if another distribution would make it even better.[2] Secondly, Rawls tells us that what must be improved are the “expectations” of the least fortunate, which some personal traits may make different from actual improvement of their wealth or situation. Government must care about classes or categories, not about individuals.

Now the two systems –Hayek’s and Rawls’s– look absolutely different –as indeed they really are. We must also be aware that Rawls’s system requires momentous decisions “on the merits”, a kind of decision that proper rules (in Hayek’s sense) must not put in the hands of governments. For instance, on what basis do authorities select the least favoured group? There are none, as Rawls openly admits “it seems impossible to avoid a certain arbitrariness in actually identifying the least favoured group”[3]. As to the reasons that would justify the taxes that will be used to nip off the inequalities that are not justified (in the view of the rulers) Rawls tells us with commendable frankness that “naturally, where this limit lies is a mater of political judgement guided by theory, good sense, and plain hunch, at least within a wide range”.[4] As another tool for equalization Rawls mentions “redefinition of property rights”.

Same conclusions reached from different paths?

Rawls said that his system was compatible both with socialism and with free markets –free markets with a considerable degree of intervention. In contrast, one would say that Hayek’s ideas aren’t compatible with socialism, and that they run against strong intervention.

Moreover, while Rawls rejected that property were to be considered a fundamental right, one would say that Hayek adhered to Edmund Burke’s definition: we all have equal rights, but not to the same things. And among such rights Burke (and Hayek) surely included property. Rights can be equal only if they are unrelated to the condition of the person or the amount of wealth. Rawls’s system pursues a redistribution of property: that is why property cannot be a fundamental right in it.

All that said about the differences, there is an element in Rawls’s system that makes its implications very vague (even more vague than they already are without it). And because of the haziness that this element adds, because of the fog that it suspends on the oceans of vagueness already opened by Rawls, one might say that his system could well provide a justification for capitalism. The trouble is that it could well justify almost anything else. Let’s see how Rawls introduces this new element.

Rawls tells us that there must be justice between generations too. Some amount of saving, for instance, is necessary for the well being of people not yet born. This new element must also be balanced (again mind the passive voice). Rawls uses it to show that perhaps considerable differences of wealth might be admitted as fair.[5] For, while they might not seem justified according to Rawlsian principles when applied to people living today, it might be argued that such inequalities are necessary for the well being of people in some future generation.

Rawls says that his difference principle cannot be applied between generations because economic benefits go only in one direction, that is, to the future.[6] Just for the record I would say that debts for loans taken today are often passed to future generations, and that will affect distribution in the future. But, leaving that aside, now Rawls has a new element that may justify the wide differences of wealth that are to be found in any place where the means of production are possessed by individuals or private companies. In this way, one could say that Rawls’s notion of justice may be presented as a justification for capitalism and free markets.

Nevertheless, it would be difficult to find a shakier basis. With its exclusion of property as a fundamental right, with equalization as a goal-principle, with its need of a myriad of momentous collective decisions for which it recommends a good “hunch”, it is the worst defence of freedom one may devise.

Hayek described and defended clear principles that build a stronghold for liberty. It is solid because it is rooted in history. In The Road to Serfdom he dealt with, among others, the British and German experiences. Rawls built a castle in the air with no reference to history. Anyone who plans to use that castle for the defence of liberty must be aware that it offers all its gates open for an easy access of attackers. Its basis could be used for as well as against freedom and personal independence. The question about the needs of future generations as against those of the present one will be argued, the selection of the least fortunate group and the proper transfer of wealth will give rise to many different hunches. The redefinition of property rights will provide room for ingenious but controversial schemes. But don’t you worry, in the end, some authority will settle everything down.

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[1] Law, legislation and liberty, The University of Chicago Press.

[2] “In other words, however much a scheme improves the expectations of the less fortunate relative to full equality, it cannot be just if a more egalitarian scheme could sustainably do better for the less fortunate” Philippe van Parijs: Difference Principles, in The Cambridge Companion to Rawls. Cambridge University Press 2002.

[3] A Theory of Justice. Belknap Harvard University Press, Revised Edition p. 84

[4] A Theory of Justice p. 246.

[5] A Theory of Justice p. 252.

[6] A Theory of Justice p. 254.