The Guardian had a ‘long read’ a couple weeks ago on “neoliberalism” by Stephen Metcalfe. I want to comment on the piece’s interpretation of Hayek. Although I don’t share Hayek’s politics, I think it important not to misrepresent what he said. (See also this earlier post on neoliberalism, and this post on the issue of the fairness of reward by contribution).
This past weekend I attended the inaugural conference of the PPE Society in New Orleans – an excellent event, with lots of interesting papers on related themes. My presentation was based on my paper ‘Markets, Desert, and Reciprocity,’ Politics, Philosophy & Economics, 16, (2017): 47-69. It was called The Free Market Critique of Desert, and its Relation with Justice as Fairness; the text of the talk (lightly revised) is available on my academia.edu site, via the link above. “Free-market critique of desert” is misleading; it should really be “the free-market critique of the desert-based justification of capitalism” but that’s too long. Another possible title for the talk would be “the neoliberal foundations of liberal egalitarianism,” but that would generate too much confusion.
A few years ago I wrote a paper on Hayek and Rawls (ungated early version here). This, plus teaching a course on libertarianism, led me to the early 20th century University of Chicago economist Frank Knight. One of the points of commonality between Hayek and Rawls is their scepticism about desert as the basis for social institutions. This scepticism owes much to Frank Knight. Rawls cited Knight’s 1923 essay “The Ethics of Competition” in the discussion of desert from A Theory of Justice, and in an earlier essay cited Hayek, who in turn cited Knight. Knight is remembered as one of the founders of Chicago economics, and thus indirectly one of the fathers of free market fundamentalism. He was indeed a teacher / colleague of both Friedrich Hayek and Milton Friedman. Yet Knight was a fierce critic of what he took to be bad, simplistic arguments for laissez-faire, chief among them the view that by distributing income according to marginal product the competitive system rewards the deserving. Knight didn’t deny that marginal productivity explained the distribution of income, he just denied that reward according to marginal product was ethically important, in itself. Hayek and Friedman had essentially the same view. The virtue of reward by marginal product is efficiency, not fairness. It’s surprising, then, to read that neoliberalism teaches that markets reward the deserving. I posted about this earlier, but now I have a paper on the topic forthcoming in PPE. It’s called “Markets, Desert, and Reciprocity,” but its subtitle could be “Knight, Hayek, Friedman, and Rawls (vs. Bell, Nozick, Sandel, etc.)” The final section includes some discussion of the reciprocity objection to proposals for an unconditional basic income.
In the second volume of his Law, Legislation and Liberty, which is entitled The Mirage of Social Justice, Hayek makes the following claim:
Though it might seem reasonable so to frame laws that they will tend more strongly to improve the opportunities of those whose chances are relatively small, this can rarely be achieved by generic rules. There are, no doubt, instances where the past development of law has introduced a bias in favour or to the disadvantage of particular groups; and such provisions ought clearly to be corrected. But on the whole it would seem that the fact which, contrary to a widely held belief, has contributed most during the last two hundred years to increase not only the absolute but also the relative position of those in the lowest income groups has been the general growth of wealth which has tended to raise the income of the lowest groups more than the relatively higher ones. (p.131, emphasis added)
In the footnote to this paragraph, Hayek adds:
The chance of all will be increased most if we act on principles which will result in raising the general level of incomes without paying attention to the consequent shifts of particular individuals or groups from one position on the scale to another… It is not easy to illustrate this by the available statistics of the changes of income distribution during periods of rapid economic progress. But in the one country for which fairly adequate information of this kind is available, the USA, it would seem that a person who in 1940 belonged to the group whose individual incomes were greater than those of 50 per cent of the population but smaller than those of 40 per cent of the population, even if he had by 1960 descended to the 30-40 per cent group, would still have enjoyed a larger absolute income than he did in 1940. (p.188, emphasis added).
I think Hayek is comparing the mid-point (average income) of the 50-60 decile with the mid-point of the 30-40 decile. I couldn’t find data for 1940 on deciles, but the data on quintiles for the U.S. are readily available back to 1947. The picture they present is very interesting.
Continue reading Hayek on Inequality