Do markets reward the deserving? John Rawls's intellectual debt to Frank Knight and Friedrich Hayek

What is it about?

Economists Frank Knight, Friedrich Hayek, and Milton Friedman defended a competitive economic system based on private property and free markets on the grounds that it protects liberty and promotes prosperity. Yet they rejected the claim that markets reward the deserving. They accepted that wages generally track marginal productivity, but denied that marginal product constituted an ethical criterion. One of their reasons for doing so was that prices based on supply and demand reward scarce innate ability, and that inheritance of talent is no stronger a basis for a claim on the social product than is inheritance of property. John Rawls had a very different vision of the just social order, but he took to heart the idea that there was an inconsistency in objecting to the inheritance of wealth but not to unequal reward based on unequal productive capacity. He concluded that we should reject both kinds of inequality, except to the extent they benefitted the worst off. The second lesson Rawls learned from Knight was that marginal productivity depends on supply and demand, which depend in turn on institutional decisions, such as levels of investment in higher education. These institutional decisions could not themselves be made on the basis of the principle of rewarding marginal productivity. Rawls concluded that desert had no fundamental role to play, in the design of basic social institutions. This article claims that Rawls was wrong to draw this conclusion. We can accept that mere scarcity of talent is not a basis for deserving a greater share of the products of our collective labour without rejecting desert altogether. In fact, if we think social justice as realizing a kind of reciprocity, as Rawls did, then reciprocity can be a basis of desert. The paper argues that proposals for an unconditional basic income may have a strike against them, as far as a reciprocity is concerned. If we follow Knight’s analysis of the competitive system, however, so too does the alternative of leaving determination of income entirely up to the market.

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Why is it important?

The paper sheds light on Rawls's relationship with these important classically liberal economists. It shows that some of his controversial ideas about desert and talent, seen by critics as abandoning liberal meritocracy in favour of socialism, have their origins in mainstream defences of the competitive economic system. It also tries to show that reciprocity can ground desert claims in Rawls's theory, despite his official rejection of desert as fundamental criterion of justice.