Monthly articles (in English and French) on the theme "Querying economic orthodoxy"

No. 49 - January 2010

Is economics concerned with justice?


Important though justice is, most economists deny that it has any bearing on economic transactions.
Michael R Griffiths and J R Lucas,1 Ethical Economics (Macmillan, 1997), chap. 2 
It is true that the pursuit of justice must be a fundamental norm of the State and that the aim of a just social order is to guarantee to each person ...his share of the community's goods.
Pope Benedict XVI, Deus Caritas est (2006), part I, sect. 27
'Liberty' takes precedence over equity

Economists against justice

If Griffiths and Lucas are right, they bring a heavy charge against most economists. Are the devotees of the 'dismal science' really guilty of such an offence? Don't ask me, ask the economists. Some of them are very convincing witnesses against themselves. Let us hear their evidence.

'Economic justice' is an imprecise concept, but it is generally understood to mean a certain equity (which need not mean equality) in the distribution of economic goods. In other words, we think that economic justice condemns exorbitant differences between individual incomes or holdings of capital, the total deprivation of the very poor, and the excessive concentration of wealth in the hands of the very rich. In brief, economic justice entails 'fair shares' for all. 

But this ideal does not appeal at all to libertarian economists. For example, the late Milton Friedman and his wife Rose wrote that there is a fundamental conflict between the ideal of 'fair shares', or of its predecessor, 'to each according to his needs', and the ideal of personal liberty.2 Liberty, as understood by the Friedmans, is undermined by any effort to moderate the inequalities that arise in a free-market economy. We know very well where the Friedmans' preference lay. For them, 'liberty' took absolute precedence over equity.

Friedman's view is close to that of the American libertarian philosopher Robert Nozick (1938 - 2002), who argued that every individual has an absolute right to whatever possessions he can acquire without breaking the law. Therefore, if the state tries to reduce inequalities by imposing heavy taxes on those who have lawfully earned great fortunes, the state infringes those persons' fundamental rights.  The holdings of a person are just if he is entitled to them by the principles of justice in acquisition and transfer...Taxation of earnings from labour is on a par with forced labour.3   

Unlimited rights to personal property?

One may however ask why it should be lawful for an individual to acquire unlimited wealth. After all, in a democracy the law imposes limits on the political powers of individuals. Elected politicians have to stand for re-election at prescribed intervals. One cannot be three times president of the United States. Such rules are reasonable, because the accumulation of too much political power in the hands of any individual is unhealthy, even dangerous. Well, personal wealth is a kind of power; so why not limit it?

The distinguished Indian economist Amartya Sen complains of the curiously "non-ethical" character4 of modern economics and objects to the almost single-minded concern of modern welfare economics with Pareto optimality.5 What does this strange jargon of the economics profession mean? Bear with me a little while I explain; it is not difficult. Vilfredo Pareto (1848 - 1923) was a famous Italian economist of the neoclassical school (the group which includes Léon Walras, Milton Friedman and many others). He argued that the best, or optimal, economic situation is that where no practicable change would benefit some people without harming others. That is, where all feasible win-win changes - those which produce winners but no losers - have already been made.

According to Pareto's criterion, it is useless to seek to modify the economic situation unless the change is positive for some people without being negative for anybody. For example, if one can achieve more efficient matching-up between those seeking jobs and those seeking employees, then the rate of unemployment may be reduced; this is a benefit that should harm no-one.

However, consider the question of the distribution of incomes, a classic locus of complaints about economic injustice. Clearly, Pareto's criterion rules out redistibution, because that makes the rich pay to help the poor. It is not a win-win strategy. As Sen observes, if the lot of the poor cannot be made any better without cutting into the affluence of the rich, the situation would be Pareto optimal despite the disparity between rich and poor. He adds that the concept of Pareto optimality was evolved precisely to cut out the need for distributional judgements.6

As we have noted, according to Sen modern economists have concerned themselves almost exclusively with finding optimal solutions as defined by Pareto. In order, it would seem, to avoid having to face up to the problem of economic justice.

Mises' bizarre conception of justice 

The Viennese economist Ludwig von Mises had a very peculiar notion of justice. He wrote the following:

De lege ferenda [concerning the creation of law] there is no such a thing as justice. The notion of justice can logically only be resorted to de lege lata [concerning existing law]. It makes sense only when approving or disapproving concrete conduct from the point of view of the valid laws of the country.7

In other words, conduct is just if accords with the existing law; it makes no sense to ask whether or not the law itself is just. Mises continues: in rewriting or repealing existing laws and writing new laws, the issue is not justice, but social expediency and social welfare, which means, in economic terms, maximising the overall wealth of society.

In practice, what Mises calls for is the establishment of a body of law that facilitates an economy of untrammelled free markets, since that is what generates maximum overall wealth. Within this framework, every action in conformity with the law is necessarily just. Mises showed no interest in the justice, or injustice, of the distribution of wealth that this system throws up. 

Hayek's contempt for social justice

As for Friedrich von Hayek, a student and follower of Mises, his indifference to economic justice is legendary. For him, the market resembles a game in which there is no point in calling the result just or unjust.8 Moreover, 'social justice' is an empty phrase with no determinable meaning.9 He dismissed the subject of inequalities of income among workers and entrepreneurs: the results of the individual's efforts are necessarily unpredictable, and the question of whether the resulting distribution of incomes is just or unjust has no meaning.10 

The English economist Lionel Robbins, a leading free-marketeer of the 1930s who installed Hayek as professor at the London School of Economics, wrote that it does not seem possible to associate the two studies [economics and ethics] in any form but mere juxtaposition.11 He saw them as two distinct subjects with little connection between them. Economics, as seen by Robbins and many of his peers, is concerned solely with 'how to achieve economic results' and in no way with 'what results we ought to seek to achieve'. 

There you have it. According to their own writings, leading free-market economists - that is to say, the economists who have been dominant for the last thirty to forty years - show precious little interest in economic justice; some even disparage the whole conception thereof. Is it surprising that more and more of us feel that the economic situation has become less just?

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1   John R Lucas is a philosopher and fellow of Merton College, Oxford; Michael R Griffiths is a partner in Towers Perrin Tillinghast (business consultants). Their book Ethical Economics is accessible free (in preliminary draft form) at http://users.ox.ac.uk/~jrlucas/ethecon/   

2   Milton and Rose Friedman, Free to Choose (Harcourt Bruce Jovanovitch, San Diego, 1980)

3   Robert Nozick, Anarchy, State and Utopia (Blackwell, Oxford, 1974), chap. 7

4   Amartya Sen, Inequality Reexamined (Harvard !university Press, 1992), introduction. Sen, born in India in 1933, is professor of economics and philosophy at Harvard, former Master of Trinity College, Cambridge, and winner of the Nobel economics prize in 1998. 

5   Sen, On Economic Inequality (Clarendon Press, Oxford, 1973), chap. 1

6   Ibid.

7   Ludwig von Mises, Human Action (Hodge, London, 1949), chap. 7, sect. 3

8    Friedrich von Hayek, The Mirage of Social Justice (vol. II of Law, Legislation and Liberty) (Routledge & Kegan Paul, London, 1976), chap. 10

9    Ibid., chap. 11

10    Hayek, The Constitution of Liberty (Routledge & Kegan Paul, London, 1960), chap. 6

11    Lionel Robbins, An Essay on the Nature and Significance of Economic Science (Macmillan, London, 1932), chap. 6