Two Arguments for Inequality

Two Arguments for Inequality

Matt McManus
Matt McManus
9 min read

Social inequality is amongst the most contentious and prominent social issues in the twenty-first century. After declining significantly in the mid-twentieth century, inequality has now reached stark levels. A recent Credit Suisse report indicated that the globe’s richest 1 percent are on track to own half of the world’s wealth. In November 2017, Forbes reported that the three wealthiest Americans now own more wealth than the bottom 160 million. The disparity between those who have a great deal, and those with much less, has grown so stark that in his bestselling book Capital in the Twenty-First Century economist Thomas Piketty warned that we might be entering a new “Gilded Age.” It would be driven by a global class of individuals who enjoy vast inherited wealth, demonstrate little allegiance to the nation state and its tax laws, and commit themselves to further entrenching their social power.

These prompts raise the question of what can possibly justify such stark inequities; especially in a global context where the World Bank estimates that in 2013 roughly 767 million individuals lived on less than $1.90 a day. Some argue that income inequalities emerge because individuals are fundamentally unequal by nature. Those with robust natural talents and valuable skill sets—the Bill Gateses and Mark Zuckerbergs of the world—will inevitably tend to get ahead of those without such abilities. But as I highlighted in a recent Quillette article, these arguments are vulnerable to the Rawlsian critique that allowing wealth inequalities to emerge because of differences in natural talents is highly unfair. Individuals did nothing to merit their natural talents. It therefore seems highly arbitrary from a moral point of view to allow natural talents to dictate the distribution of wealth in society when this has nothing to do with merit and it is entirely possible to use social institutions to rectify unfairness. Moreover, as I highlighted in the same article, the argument that income inequalities emerge largely because of natural talents doesn’t mesh with the statistical evidence that many individuals get ahead because they enjoy unearned social advantages. Indeed, one of the thrusts of Piketty’s arguments in Capital in the Twenty-First Century is that the wealthiest individuals on the planet are increasingly those who inherited their fortunes; the Koch brothers, the Walton family, and so on.

Given these factors, it is very difficult to argue that people get ahead for what have traditionally been called meritocratic reasons. Individuals with natural talents enjoy them because they won a genetic lottery. Many of those who get ahead in society came from privileged backgrounds that gave them a substantial head start, while others have to struggle from the bottom. So if inequality cannot be justified along meritocratic lines, can it be justified at all?

In this brief essay I will argue that there are two sets of justifications for income inequality. The first is the consequentialist justification given by, amongst others, Adam Smith and later by Friedrich Hayek. It maintains that inequalities can be justified since in the long run because they are necessary for economic growth that will be to the benefit of all. The second justification is more straightforwardly moral: the libertarian justification. It is best formulated in the work of Robert Nozick. The libertarian justification holds that inequalities may indeed emerge for reasons that have little to do with merit. But so long as these inequalities result from uncoerced exchanges between individuals, they are justifiable because no one was forced to do anything against their will. More importantly, efforts to ameliorate the inequalities which emerge from uncoerced free exchanges between individuals will inevitably and unjustifiably compromise liberty.

The Consequentialist Justification for Inequality

The consequentialist justification for inequality comes in many different forms but in substance it is largely the same. It may well be morally unappealing to allow individuals to acquire great wealth for unmerited reasons. Moreover, we may rightly find the selfishness and avarice which drives some individuals to be unappealing characteristics. However, we should tolerate these morally unappealing realities because the pursuit of wealth and the social inequities which result have beneficial consequences for society in the long run.

In 1705, Bernard Mandeville published his famous Fable of the Bees, often seen as a rebuttal to Christian arguments about the evils of selfishness and the pursuit of wealth. Mandeville’s apparently childish fable concerns bees living in a beehive. Initially selfish and prosperous, the bees eventually become virtuous altruists living in an increasingly impoverished hive. The lesson to be drawn is quite clear. Mandeville’s fable has long been taken as a warning against constraining the tendency of individuals to pursue their selfish ends. It is from looking after one’s own selfish needs that general prosperity emerges, as each bee produces more and works harder to better its position. Private vice becomes public virtue.

Mandeville’s ideas were systematically developed in the work of Adam Smith. In his early Theory of Moral Sentiments, Smith criticized the selfishness of human beings. In a famous allegory, he describes a man confronted with two distinct and evil possibilities:

Let us suppose that the great empire of China, with all its myriads of inhabitants, was suddenly swallowed up by an earthquake, and let us consider how a man of humanity in Europe, who had no sort of connection with that part of the world, would be affected upon receiving intelligence of this dreadful calamity. He would, I imagine, first of all, express very strongly his sorrow for the misfortune of that unhappy people, he would make many melancholy reflections upon the precariousness of human life, and the vanity of all the labours of man, which could thus be annihilated in a moment. He would too, perhaps, if he was a man of speculation, enter into many reasonings concerning the effects which this disaster might produce upon the commerce of Europe, and the trade and business of the world in general. And when all this fine philosophy was over, when all these humane sentiments had been once fairly expressed, he would pursue his business or his pleasure, take his repose or his diversion, with the same ease and tranquillity, as if no such accident had happened. The most frivolous disaster which could befall himself would occasion a more real disturbance. If he was to lose his little finger to-morrow, he would not sleep to-night; but, provided he never saw them, he will snore with the most profound security over the ruin of a hundred millions of his brethren, and the destruction of that immense multitude seems plainly an object less interesting to him, than this paltry misfortune of his own.

In the Theory of Moral Sentiments, Smith decries the propensity of selfish human beings to put their private needs ahead of the benefits of others. But, of course, he shifted course in the later The Wealth of Nations. In this work, Smith observed that we cannot expect individuals to inculcate in themselves the altruistic virtues required to make everyone better off. We must therefore channel the propensity of individuals to look after their own self-interest so that the consequences of their selfish acts are to the benefit of all. They will be guided as though by an “invisible hand” to promote the general lot of all. The way to do this, of course, is through the market system. While pursuing wealth, individual entrepreneurs and capitalists produce goods and services in competition with one another. Over time this can keep prices low and the quality of goods and services high. Moreover, while competing with one another for profit, entrepreneurs and capitalists will hire employees and establish new ventures. This ensures that even those who do not have the wealth to become capitalists can put food on their table and gradually benefit from the consequences of competitive market processes.

Smith’s argument is that the selfish pursuit of wealth, and the inequities that follow, can be justified so long as the consequence is an increase in the general prosperity of all. This line of thought has been taken up by later consequentialist thinkers like Friedrich Hayek. Hayek characterized himself as a Kantian-Consequentialist. He believed that the market operated as a system to exchange information about the value individuals attributed to given goods or services. When left alone it did a relatively good job of relaying this information, enabling the economy to grow and prosperity to gradually trickle down to all.

Hayek accepted that the entrepreneurs and capitalists who got rich in the market system were not necessarily more meritorious than others. They had simply done a better job of interpreting the value individuals would attribute to a given set of goods and services, and had provided these in an efficient manner. Other entrepreneurs and capitalists, let alone the workers, might well fall behind because they were simply unfortunate or not particularly skilled. Moreover, Hayek accepted that on occasion, when information wasn’t relayed successfully, the economy might well struggle and unemployment might increase. In such contexts, individuals who are unemployed should be cared for; both for humanitarian reasons and to retain support for market systems. But Hayek did not think that wealth should be redistributed beyond this minimal social safety net. Social planners may want to provide for the poor, but the result of their fumbling actions would be to disrupt well-functioning market systems and reduce incentives. This would ultimately lead to negative consequences for all.

The consequentialist argument has a powerful appeal in no small part because it is uninterested in moralizing judgements. Authors like Mandeville, Smith, and Hayek were not concerned to judge the poor or venerate the rich. Indeed, Smith himself wrote at length about the noxious social impact of lionizing the wealthy—an insight lost on some Republicans with a propensity to name towers after themselves. But they reasoned that the pursuit of wealth and the inequities which emerged could be justified so long as they worked to the aggregate benefit of all in the long run. This did not necessarily mean that some wealth should not be redistributed to help the very poor. Smith and even Hayek accepted the need for a minimal safety net. But we should in no way seek to produce a general equality of outcome for all. The result of such measures would be declining prosperity negatively impacting all in the long run.

The Libertarian Justification for Inequality

The second, libertarian justification for inequality is a straightforwardly moral one. It accepts that inequality may well emerge for morally arbitrary reasons. But so long as inequities are produced through non-coercive measures, we should not try to rectify the situation. To do so would require establishing a very powerful state which would invariably interfere with the liberty of all its subjects.

The most powerful articulation of this justification was given by Robert Nozick. A friend and colleague of his great rival John Rawls, Nozick was an eclectic and brilliant thinker who also wrote on the philosophy of science, the meaning of life, and even cosmology. But he is most famous for his critique of Rawls in his classic work Anarchy, State and Utopia. In this work, Nozick largely accepts the Rawlsian claim that inequalities emerge for morally arbitrary reasons. Many people who are not especially virtuous get ahead. Many who may be deserving languish in poverty. But he asks whether the fact of moral arbitrariness in the distribution of wealth can actually justify a heavily interventionist state. Nozick argues that it should not.

For Nozick, freedom is a very great value since our central goal in life is to attain a kind of authenticity. Against the Utilitarian tradition, he argues we are not concerned primarily with happiness. Instead, we want the freedom to realize our self. Drawing on Locke and Kant, Nozick argues that we should therefore possess a very significant number of rights to protect us from being used as “means to another’s ends” as if we were simply an object in the universe. This would include substantial rights to engage in free exchanges with one another to try and better our situation. This may well result in inequalities, but is that necessarily wrong?

Nozick argues that there are three criteria to establish whether an exchange is justifiable. Firstly, were the goods and wealth exchanged acquired without violence? Secondly, was the exchange coerced in any way? And thirdly, can anyone else claim possession of the goods or wealth involved in the exchange as compensation for past injustices? Nozick argues that if these three criteria are passed, then the exchange that is taking place is justifiable since individuals are freely engaging in it. No one is being forced to do anything, or owes compensation to someone else.

In a society oriented by these free exchanges, those who produce goods and services that others like will likely get rich. His famous example is basketball star Wilt Chamberlain. Such individuals may not merit their wealth in some strong sense. But they are entitled to it because they acquired it freely and without coercion. Forcing them to give up such wealth, according to Nozick, would be a very great wrong. It would necessitate establishing a very powerful state with the coercive power to force individuals to redistribute wealth according to a “patterned theory of justice” that they themselves may not agree with. According to Nozick, such a state cannot be justified since it fundamentally interferes with liberty—which disrupts all patterned theories of justice—and treats individuals as means to another’s ends.

To my mind, the consequentialist and libertarian justifications for inequality are the strongest available. As discussed in my earlier article, I do not think ‘classical liberal’ arguments for meritocracy can survive the force of Rawlsian critiques which indicate that what many take as signs of merit are actually the result of luck and arbitrariness.

There are problems with both justifications of course, which I cannot elaborate on at length. With regard to the consequentialist justification, one could follow Amartya Sen in critiquing the empirical accuracy of more hardline anti-egalitarians such as Hayek. There may be strong evidence that markets only produce generally good consequences when allied to significant capability-enhancing welfare programs. One could point to the Scandinavian countries as models in this respect. And many have contended that Nozick is overly monological in his emphasis on liberty. While liberty is indeed an important moral principle, the immense weight he grants it may be disproportionate. And indeed, Nozick himself seems to have come to that conclusion. In a later essay, published in The Examined Life, he retracted his support for the libertarian position. But taken together, I believe these two justifications offer the substantial challenge to those who would seek a more egalitarian distribution of wealth (including myself).

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Matt McManus

Matt McManus is currently Visiting Professor of Politics and International Relations at Tec de Monterrey.