“Neoclassical Liberalism,” Property Rights, and Capitalism

Matt Zwolinski and John Tomasi have a thought-provoking piece entitled, “A Bleeding Heart History of Libertarianism,” in the latest Cato Unbound. They criticize postwar libertarians (specifically mentioning Mises, Rand, and Rothbard) for seeing property rights as absolute and, in their view, regarding the welfare of the working poor as irrelevant to moral justifications for capitalism:

In the remainder of this essay, we will discuss one particular way that neoclassical liberalism has a better grounding in the libertarian intellectual tradition than the libertarianism of Mises, Rand, and Rothbard. It is not the only contrast, but one of the clearest and most important differences between these two schools of libertarian thought has to do with the proper nature of concern for, and obligation to, the working poor. On this issue, the neoclassical liberal position is that the fate of the class who labor at the lowest end of the pay scale under capitalism is an essential element in the moral justification of that system. And this position, we will argue, has a far more solid grounding in the libertarian intellectual tradition than the justificatory indifference to which the postwar libertarians are committed.

They go on to cite John Locke, Adam Smith, and Herbert Spencer (yes, Spencer!) as classical liberals who would be more sympathetic to the neoclassical-liberal project of justifying markets partly on the basis of their consequences for the welfare of the least well off. However, they also argue, plausibly, that Rand and Rothbard in particular were not indifferent to the fate of the poor, simply that they viewed the coincidence of respect for individual property rights and a better life for all as a happy fortuity. (Mises was more of a consequentialist and perhaps after all a comfortable fit within neoclassical liberalism.)

I would stress that libertarianism and capitalism are two separate concepts. One may endorse libertarianism without endorsing capitalism and vice versa. Or one might hold, as I do, that the moral justification of libertarianism is largely independent of welfarist considerations, but that the moral justification of capitalism is largely dependent on welfarist considerations. Zwolinski and Tomasi never draw that distinction, but I think it is an important one for reasons discussed further below.

Zwolinski and Tomasi sum up some of the virtues they see in the older, more flexible, more “bleeding heart” approach to justifying markets:

The classical liberal tradition of Locke, Smith, and Spencer, for example, gave great weight to property rights in a way that checked governmental power. But none of the early liberal thinkers treated property rights as moral absolutes, and thus none of them was forced by axiom to deny that concern for the poor was a legitimate consideration in institutional design. We believe that classical liberalism, not axiomatic libertarianism, is the true heir of the liberal tradition.

Our impatience with axiomatic deductions does not require a rejection of principled argument, of course. It does not require that we discard the ideas of rights and duties and desert in favor of an anemic consequentialism.

We have had a debate here on Pileus about whether property rights are “absolute.” I myself made the claim that they are not, but I meant that in a specific sense: that some rights to external things may change as external circumstances change. In another sense, rights are by definition absolute (see Mark LeBar’s comment). Presumably Zwolinski and Tomasi mean what I meant by property rights’ not being absolute, but in that case, it is noteworthy who is missing from their list of postwar libertarians: Robert Nozick. Nozick clearly didn’t spring for “absolute” property rights in the sense that external circumstances could not change legitimate entitlements (he endorsed a form of Locke’s Proviso), but his theory laid down in Anarchy, State, and Utopia is equally clearly “libertarian” and does not use welfarist considerations to justify libertarianism.

Zwolinski and Tomasi go on to explain how neoclassical liberalism is in fact consistent with John Rawls’ Difference Principle:

[S]ocial justice is not a property of the particular distributions that emerge in a society but of social and economic institutions viewed as integrated wholes. Thus a commitment to social justice in no way commits one to advocating liberty-limiting “corrections” of emergent distributions on an ongoing basis.

We believe that Robert Nozick’s critique of “patterned” conceptions of justice obscured this point. But this is the feature of social justice that led Hayek, in our view correctly, to state that his differences with Rawls about social justice were “more verbal than substantive.”

It is certainly true that whether the Difference Principle justifies ongoing income redistribution is a matter of contingent fact. Nevertheless, it’s pretty implausible that a pure free market, even with abundant private charity and mutual aid, could satisfy the Difference Principle. Remember that Rawls’ theory holds that just institutions must maximize the position of the representative least advantaged person. That is, when analyzing institutions comparatively and normatively, we must select that order that best guarantees the welfare of the worst-off.

Compare a pure free market with abundant mutual aid and private charity to that same society with a 1% income tax on annual personal income above $5 million, combined with an earned income tax credit of, say, $500 per year (those numbers seem roughly right for balanced budgets). Which society best secures the welfare of the worst-off: the first or the second? The deadweight loss from the tax-and-transfer system of the second society would be minuscule, and it is wholly implausible that this loss would outweigh, even in the long run, the $500 benefit that the poorest would receive.

This is the reason I believe the distinction between libertarianism and capitalism is important. If the libertarianism, understood as a particular view of the fundamental structure of rights, depends on welfarist/social-justice considerations such as Rawls’, then it is likely false. After all, tinkering with the structure of rights in a non-libertarian fashion is very likely to be necessary to satisfy Rawls’ criterion (or a Benthamite utilitarian criterion or any other welfarist criterion). If the fundamental structure of rights is justified by non-welfarist considerations, but social institutions are justified by welfarist considerations, then we can still uphold libertarian property rights as valid side constraints while advocating social institutions that promote welfare (for the least well-off). Those social institutions could even be governments (that respect libertarian property rights as side constraints). Homeowners’ associations provide a real-world example of governments that (in theory at least) respect libertarian side constraints while being internally non-capitalist. We libertarians can care about social welfare and the condition of the poor, even to the point of supporting the establishment of contractual, coercive governments to promote them, without compromising our support for property rights.

10 thoughts on ““Neoclassical Liberalism,” Property Rights, and Capitalism

  1. Jason, I agree with most of this, but (of course) have a quibble. Homeowners’ associations aren’t, as I see them, coercive institutions. They are voluntary and contractual ones, where the force of contract is supported by the institutions we have for contract enforcement, which are of course government. But that doesn’t make them coercive any more than any contract arrangement (marriage, for instance) is. In a society in which contract enforcement is not provided by government, homeowners’ associations could still exist, but with different enforcement mechanisms, just as other contractual arrangements could.

    1. Yes, I didn’t mean to imply that homeowners’ associations were coercive; as you point out, government enforces the covenants. But I do think they are internally non-capitalist: they use hierarchical means of fulfilling their functions, rather than market means. They exist within a market, but are not themselves markets (in that way, they are like firms, actually).

      1. Exactly so. I don’t see what capitalism should be other than neutral on the structure and forms of organization people voluntarily undertake in their cooperative ventures. While there can be markets within markets, I’d think most elements of markets wouldn’t themselves be markets (individuals, contractual relations, and the like).

  2. Which theory is correct? I cannot say with certainty. But…

    I think you might be leaving some things out here. The motivation of the high income earner to, at least possibly, spend much of his income on leisure and luxury goods while not being quite so motivated to work as hard as the poorer person. While the poorer person has a high motivation to reach income equality by saving, with the possibility of one day having enough to open his own business. And since the poorer person probably remains highly motivated, that person has a good probability at making his business flourish and prosper well enough to catch the, likely, less motivated wealthy person. Perhaps Steve Jobs would be a good example of this. It is possible that in a real, actual, free market system, you might be surprised at the speed at which this income equality could occur. You might also be surprised at the at the wages that capitalists might be required to pay their workers in order to obtain and retain them in a real actual free market system. Henry Ford might be a good example of this. This would allow the poor to gain wealth at a fairly substantial rate if they are wise and they so choose. Remember, it used to only take one income earner per household to run a household.

    However, this does not work in a system that is not using free market money, but instead has a system of usury and crony capitalism that redistributes wealth from the poor to the already wealthy(state issued fiat paper money, with interest rates lower than, what I consider a pretty decent rate of inflation). A System designed to make the rich get richer off the backs of the poor, while making them even poorer. And a Government that tries to hide from this truth, and tries to keep it hidden from those that it governs. In my opinion, it is this system of usury that must always be kept in the very forefront of of thought in the minds of Libertarians, until such time that it is abolished. Libertarians must not allow for, one set of laws(economic and/or social) for the wealthy, and a different set for the poor.

    I say this as a person that is really quite poor. I wondered for most all of my adult life why I could not gain ground on the wealthy, knowing, or at the very least, feeling, that something was not right. But one day I finally found out what money really is and how it is supposed to work. Now I buy Gold, Silver, and Copper.

    In my opinion, absolute property rights and a system of Liberty and Justice for All are the keys to prosperity. I will not be absolutely certain about my opinion until such time that we, Abolish The Fed, the Income Tax, and Property Taxes, and have a Tax System something like the following… http://www.thetransactiontax.org/ …and have such a system for some length of time.

    Money is power. But the poor have no power because they have been denied access to real money and have instead have had a system of usury foisted upon them. The Government and The Fed simply drown out their votes(access and usage of real money) by printing state issued fiat paper money. And we now have a currency that is worse than paper backed by nothing, it is now backed by debt, which murders the middle class and the poor.

    1. I agree the state does much to keep the poor in their place. I just wonder whether a pure free-market economy with zero redistribution would be the best of all possible worlds for the poor. There are always going to be some non-hard-working, non-intelligent poor, some of whom will be physically disabled, who could benefit from redistribution. (To be clear, I’m not arguing in favor of redistribution as a moral imperative here, but our theory of justice really does have policy bite.)

  3. You write: “Compare a pure free market with abundant mutual aid and private charity to that same society with a 1% income tax on annual personal income above $5 million, combined with an earned income tax credit of, say, $500 per year”

    The problem with this way of putting the argument is that it implicilty assumes that both alternatives are actually possible. If that point isn’t clear, consider a third alternative–your first one, plus abundant manna from heaven falling upon the poor.

    It’s at least arguable that your second alternative would prove unstable, with political pressure constantly expanding the scale of redistribution, perhaps through the efforts of those through whom the state’s bounty is funneled.

    1. Fair point. But what’s your discount factor? Every system breaks down eventually. (Rawls doesn’t discuss discount factors, of course.) And the egalitarian has this riposte at his disposal: Imagine a pure free-market with zero redistribution. The political pressure to “do something” to help those falling through private safety nets then makes some degree of redistribution inevitable (or: install a libertarian dictator, who will have to face massive dissent and unrest).

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