The Egalitarian Tilt of Classical Liberalism

Abstract

The liberal tradition has come a long way since it regarded the poor as a mere inconvenience for the rich, such that practices of poor relief were set to avoid a certain discomfort for the well-off rather than to help the worst-off. One exception remains, or so it is commonly believed, namely the classical liberal tradition. This tradition, for example defended by Friedrich Hayek or Milton Friedman, is generally thought to be hostile to social justice. The introduction to this book undoes this incorrect yet far too common reading of classical liberalism. There is an egalitarian tilt to classical liberalism that is unfortunately too often ignored or misunderstood. Inasmuch as one is a classical liberal, one should also be an egalitarian of a certain kind.

Verse

Verse But in the gross and scope of my opinion This bodes some strange eruption to our state.  William Shakespeare, Hamlet, 1.1

1 Finding a Place for Social Justice in the Liberty Tradition

“A due care for the relief of the poor,” said Sir Matthew Hale, the Lord Chief Justice of the King’s Bench, “is an act of great civil prudence and political wisdom,” for “where there are many very poor, the rich cannot long or safely continue such.”¹ This position may have been praiseworthy in the late seventeenth century, but today it rings hollow. The liberal tradition has come a long way since it regarded the poor as a mere inconvenience for the rich, such that practices of poor relief were set to avoid a certain discomfort for the well-off rather than to help the worst-off. One exception remains, or so it is commonly believed, namely the classical liberal tradition. This tradition, for example defended by Friedrich Hayek or Milton Friedman, is generally thought to be hostile to social justice—except for private acts of charity. My objective in this book is to undo this incorrect yet far too common reading of classical liberalism. There is an egalitarian tilt to the classical liberal tradition that is unfortunately too often ignored or misunderstood. Inasmuch as one is a classical liberal, I argue, one should also be an egalitarian of a certain kind.

Not only is classical liberalism compatible with social justice, but it can also further our understanding of it. That is, a classical liberal theory can not only justify some egalitarian endeavors, and therefore be used to counter many arguments put forward by the detractors of the welfare state, but it can, moreover, make us understand why some egalitarian endeavors might very well be an essential feature of a market society. This is what I propose to explain through an approach that I term “rule egalitarianism .” If a necessary link exists between classical liberalism and the moral and institutional dimensions of the rule of law, then classical liberalism is bound to uphold a substantial form of social justice.

Coherence requires that classical liberals adopt an authentic program of social justice, by which I mean, to be precise, that they should ameliorate poverty and limit inequality not merely out of prudence or collective self-interest, but for the natural justice of ongoing social cooperation as well as for the impartiality of market institutions. This definition of social justice , focusing on questions of poverty and inequality, is not exhaustive. Social justice includes a broader concern for the distribution of benefits and burdens of social cooperation, and, as such, it also covers questions of exploitation, bargaining power, and contractual fairness.

Classical liberalism has wrongly been identified with right-wing politics, that is, broadly, as a go-to ideology for anyone inclined to criticize the welfare state. Although many classical liberals have indeed opposed the welfare state, or some aspects of it, it does not mean that the core precepts of classical liberalism themselves are irreconcilable with social justice. Quite the contrary, this book maintains. There is a need to provide a principled grounding for egalitarian policies within the classical liberal tradition, while at the same time showing how only some such policies are compatible with the main tenets of that tradition. This grounding has two dimensions—showing what is compatible and showing what is required. The rule egalitarian program will show that social justice is both compatible and required to some extent by the main classical liberal premises.

Historically, classical liberalism has been shaped by its opposition to tyranny. It is true, as James Buchanan noted, that this tradition, from its beginning onward, did not think it was the duty of the state to promote the well-being of individuals.² In fact, such a thought was foreign to many of the early major figures of classical liberalism who were then much more preoccupied with preventing the state from tyrannizing over its people. Adam Smith and David Hume, for example, were concerned with individual freedom, not especially with social justice as we understand it today.

After hereditary tyrants had successfully been overthrown in most of Europe, and the rule of law came to be a fundamental feature of the modern state, twentieth-century classical liberals renewed the fight against tyranny, this time in the form of socialism . This fight was also won. Market capitalism had already defeated mercantilism , and central planning proved no match for the free enterprise system.

Having already overthrown tyrants, mercantilists, and communists, what was to be the next prey of the liberty tradition? This time, unfortunately, some classical liberals picked a fight they could not win. They opposed social justice, which was a mistake. The main ideas with which they defeated the enemies of the liberty tradition should have led classical liberals to embrace a program of social justice. That is, the next step for the classical liberal tradition should have been to reconcile its defense of market capitalism with a certain understanding of social justice.

Before I go on to explain why such a merger of market institutions and social justice was the natural thing to do for classical liberals after the defeat of socialism , it may be useful to get a better sense of this so-called liberty tradition, as it was called by Eric Mack and Gerald Gaus.³ Such a tradition first emerged in the pioneer writings of John Locke, and it was later developed during the Scottish Enlightenment by Smith and Hume, as well as political theorist James Mill and early sociologist Adam Ferguson. Classical economists like David Ricardo, Thomas Malthus, and Jean-Baptiste Say also shaped the economic views of such a tradition,⁴ and they were followed, for example, by Carl Menger, Henry Sidgwick, and Alfred Marshall. Many philosophers and political theorists, such as Jeremy Bentham, Alexander von Humboldt, Alexis de Tocqueville, and Bernard Mandeville, were likewise among the founding fathers of such a tradition.

In the twentieth century, Hayek and Friedman championed the classical liberal tradition, for instance with books such as The Constitution of Liberty or Capitalism and Freedom. James Buchanan and the Virginia school, Frank Knight and the Chicago school, as well as Ludwig von Mises and the Austrian school were likewise among the champions of that tradition. More recently, Richard Epstein gave us an enlightening look at classical liberalism in the United States with his book The Classical Liberal Constitution. The Chicago School of economics has been particularly important for the modern development of classical liberalism with, say, Jacob Viner, Henry Simons, Aaron Director, George Stigler, Gary Becker, and Ronald Coase. The Bloomington school of political economy and Elinor Ostrom were also instrumental in dissipating some common myths about planning and rational economic orders. Although each of these thinkers may not strictly endorse every tenet of classical liberalism, they are nonetheless all part of such a longstanding tradition.

What are the beliefs and commitments that unite people in this tradition? And what is the relationship between classical liberalism and the libertarianism of, say, Robert Nozick, Murray Rothbard, and Jan Narveson? Although these two liberal traditions often hold similar opinions and are regularly bundled together, they are distinct. Hayek even found the concept of libertarianism “singularly unattractive,” as he preferred to call himself a “classical liberal” or an “Old Whig.”⁵ There are different ways in which we can explain the distinction. One such way refers to the justificatory strategy these traditions adopt. Whereas libertarianism would be moved by a Lockean justificatory theory, classical liberalism would rather be Humean. Broadly speaking, libertarians would be committed to property rights as natural rights , whereas classical liberals would rather justify such rights by their aggregate consequences for well-being. I do not endorse such a story, especially since many classical liberals like Epstein adopt Lockean premises.⁶

Where classical liberals and libertarians disagree has less to do with abstract approaches to ethics, and more with substantive moral views. The distinction, I think, is about the role forced transfers play in these theories. “Taxation of earnings from labor is on a par with forced labor,”⁷ said Nozick, while Rothbard argued that “all relief and welfare payments should be voluntary, by private agencies, rather than by the coercive levy of government.”⁸ In other words, unlike classical liberals, no more than the minimal state is permissible for most libertarians. Yet, as Narveson noted, it might very well be that, in the end, libertarians justify less, that is, maybe they should favor anarchism.⁹ For myself, I am sympathetic to such an argument, but this book considers a different option, namely a classical liberal welfare state for which some forced transfers can be justified.

“Our property is nothing but those goods,” Hume wrote, “whose constant possession is establish’d by the laws of society; that is, by the laws of justice.”¹⁰ I will later further such a point by looking at the nature of economic rights, but, from a classical liberal standpoint, it is clear that the practice of forced transfers is a necessary feature of the state. “It is only when some individuals are forced to surrender their individual rights in exchange for the protection the state provides,” Epstein wrote, “that the emergence of the state becomes possible.”¹¹ For classical liberals, then, the state can legitimately initiate forced transfers , such that taxation is not on a par with forced labor.¹²

More generally, the state may initiate forced transfers , say in its use of eminent domain, condemnation, or regulatory takings.¹³ These are often acceptable for classical liberals inasmuch as due compensation is paid, although such payments may not always be necessary. For this reason, unlike most libertarians, classical liberals may back policies that ameliorate poverty and limit inequality through forced transfers , and not just charity. The goal of this book is to make this idea plausible, to explain why their other normative commitments require classical liberals to endorse social justice, and why they should take several steps beyond the libertarian minimal state, all while remaining true to the core classical liberal premises.

2 A Marked Preference for Market Institutions… and Social Justice

The main lesson of classical liberalism is that, economically, market capitalism makes people better-off, politically, it prevents the state from tyrannizing over its people, and, ethically, it gives us more scope for intellectual and moral excellence. I will not question these claims, which are also generally accepted by libertarians. “The defense of the market,” Narveson explained, “is clearly prominent on the libertarian agenda. In a sense, it is the only thing on that agenda.”¹⁴ It is not, however, the only thing on the classical liberal agenda, nor should it be.

The basic principles of classical liberalism remain unchanged—individual freedom, market capitalism, limited government, and the rule of law (Table 1). These four pillars are necessary components of a classical liberal theory, such that they cannot be sacrificed in the pursuit of social justice. My argument, then, is that while accepting these pillars, we can indeed build a case for social justice within a classical liberal state. More precisely, I draw on two premises, liberty and the rule of law, to justify an original conclusion, social justice, while taking for granted the other classical liberal premises. The moral and institutional dimensions of the rule of law lead us to a theory of social justice.

Table 1 Four pillars of classical liberalism

One could be inclined to disagree with some of the four premises above. For instance, when classical liberals say that markets make everyone better-off, one could retort that it is not necessarily the case.¹⁵ Markets may increase everyone’s income and wealth, but they also may undermine some people’s political rights or the social bases of self-respect.¹⁶ One could then think that my approach is misguided inasmuch as some of the classical liberal premises may be mistaken, or at least wobbly.

It may be so, but this book adopts the following approach—let us engage sincerely and sympathetically with the classical liberal tradition to see if we can justify social justice using the premises favored by that tradition. We could call such an approach “coherentist” inasmuch as if the set of beliefs classical liberals favor is justified, it follows that we should also embrace social justice. It is a process of analytical consequence. The rule egalitarian program brings forward such a justification. It explains how two of the main pillars of the classical liberal tradition, liberty and the rule of law , require us to embrace a far-reaching understanding of social justice in market societies.

Overall, this book argues that not only is social justice compatible with the classical liberal intuitions, it is also a necessary consequence of such intuitions. I will present some egalitarian measures as a necessary consequence of that which liberals embrace, namely a market capitalist society under the rule of law. The neoclassical liberal tradition, represented by scholars like Jason Brennan and John Tomasi, has recently argued that social justice requires market capitalism. My argument, conversely, is more ambitious—market capitalism requires social justice. To be more precise, classical liberals cannot argue for market capitalism without also arguing for social justice, because of their prior commitments to liberty and the rule of law . Inasmuch as market rules are framed inside the rule of law tradition, I argue, we need a genuine egalitarian program.

Having briefly presented the classical liberal tradition, I now turn specifically to its views on market capitalism and social justice . I cannot hope to cover the whole scope of such arguments, and I will accordingly mostly focus on the positions defended by Hayek and Friedman who I take to be the main figures of contemporary classical liberalism.

From a classical liberal viewpoint, Epstein proposed the following three-step approach to political philosophy .¹⁷ First, we should favor voluntary exchanges that increase the general level of welfare in a society. Second, we should find ways to increase the velocity of such transactions by, say, lowering transaction costs through some property and contract rules. Third, we should carefully move on to redistributive policies. The two first steps create potential Pareto improvements, that is, they produce net gains, while the third step makes some people worse-off, namely the rich. The classical liberal tradition, then, is generally interpreted to favor the first and second points in Epstein’s taxonomy over the third one.

As mechanisms for communicating information, markets move resources to higher valued uses, and therefore, incidentally, make people better-off in the long run. As Hayek once noted, free markets “secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know.”¹⁸ By removing impediments to voluntary business transactions, and thus increasing the velocity of such transactions, we also increase the general level of welfare in a society, which is something we should all welcome.¹⁹ People have different talents as well as different tastes, and accordingly the main purpose of economic activity is to take advantage of these differences , leading to across-the-board improvements. Such a philosophy relies heavily on efficiency considerations—the objective, following Marshall, being to produce net gains.

Yet classical liberalism also rests on the core premises of “life, liberty, and estate,” as defended by John Locke. Freedom comes first, we should remember, and efficiency considerations normally come after. That is, freedom is overall more important for classical liberals than efficiency. To note that liberals care about liberty may seem a bit redundant. However, as we will see, the classical liberal tradition has systematically been understood by some of its critics and allies as being moved by considerations of efficiency, and not by a concern for individual freedom. This is a regrettable portrait of classical liberalism, which this book will attempt to rectify.

The classical liberal defense of market capitalism is justified by both consequentialist and deontological arguments. On the one hand, following Adam Smith, that prices are regulated by negative feedback permits the mutual adjustment of individual plans, which is generally preferable to economic planning. Such a view is now uncontroversial. Even socialists like Gerald Cohen acknowledged that Mises and Hayek were right concerning the efficiency of markets.²⁰ On the other hand, this defense of market capitalism also relies on the classical liberal understanding of individual freedom . As Friedman explained, “The preservation of freedom requires the elimination of such concentration of power to the fullest possible extent and the dispersal and distribution of whatever power cannot be eliminated – a system of checks and balances.”²¹ Markets remove the organization of economic activity from the control of the state, Friedman notes, and thus they leave people free to act as they will economically, but also to some extent politically.

The four main premises of the classical liberal tradition are self-reinforcing. Individual freedom, limited government, the rule of law , and market capitalism strengthen one another to give classical liberals a sturdy theoretical standpoint. One could be inclined to flesh out these premises. Eric Mack and Gerald Gaus, for example, formulated the twelve doctrinal elements that unify classical liberalism as follows:

(1) Normative individualism,

(2) Enforceable moral claims held by all individuals against interferences that diminish their lives, well-being, or preference satisfaction,

(3) Individual liberty as the core legal norm,

(4) Secure private property,

(5) Social order as an association of individuals pursuing their own ends without sharing a common goal,

(6) Institutions that reflect decentralized decision-making,

(7) The licit use of coercion is limited to blocking or nullifying infringements upon the rightful claims of individuals,

(8) A limited government,

(9) The same morality applies to people and institutions,

(10) The harm principle,

(11) The rejection of any distinction between personal and economic liberties, and

(12) The belief that people must always be jealous of the power of the state.²²

Now, I do not accept points (7), (9), and (11), as I think that they are not classical liberal beliefs. I will later explain my disagreement with these beliefs—I will discuss point (7) in Chapter 4 and point (11) in Chapter 5. More generally, concerning point (9), we should remember that classical liberalism is not a moral theory. I think most classical liberals would have been profoundly disturbed by any attempt to apply some understanding of interpersonal morality to the very logic of the state.²³ Justice is the ethical standard regulating the actions of the state for classical liberals, not morality. The state must assume responsibilities that individuals do not have to accept. For instance, a due care for the relief of the poor would be one such responsibility that is mandatory for the state, but not for individuals.

The classical liberal approach is in no way laissez-faire , it is also important to note. Such a point has already been explained, say, by Lionel Robbins, Joseph Schumpeter, or Frank Knight.²⁴ “Laissez faire,” said Aaron Director, “has never been more than a slogan in defense of the proposition that every extension of state activity should be examined under a presumption of error. The main tradition of economic liberalism has always assumed a well-established system of law and order designed to harness self-interest to serve the welfare of all.”²⁵ Therefore, in a classical liberal society, the limited obligations of the people are counterweighed by the much more extensive duty of justice the state must shoulder. Even the classical liberalism of Smith was never about “Smithian inaction.” “Greed is good,” said Gordon Gekko, but, we could add, it is only so, as Mandeville said, if “it is by justice lopt and bound.”²⁶ In other words, the liberties of the people must be bound by a certain understanding of justice.

One could retort that classical liberals may agree that we need a theory of justice, but not in the form of a theory of social justice. They will rather favor a theory of commutative justice, following Aristotle, or catallactic justice , after Mises , or justice in transfer , after Nozick .²⁷ In fact, one could add, it is generally understood that classical liberalism is hostile to social justice altogether.²⁸

This widespread hostility will no doubt raise doubts about my attempt to reconcile classical liberalism with social justice . A few examples of this hostility toward the social understanding of justice might be useful to fully grasp the contrarian ambition of this book. In a way, we propose to turn classical liberalism upside down. Indeed, Hayek is often remembered for his characterization of social justice as, say, a “hollow incantation” or a “wil-o-the-wisp.”²⁹ Likewise, Mises is best known for some rather harsh comments in which he compared interventionism to a dictatorial tendency—interventionism being a straight road toward all-out socialism.³⁰ Friedman is similarly known for criticizing the American social security program, saying it is a “large scale invasion into the personal lives of a large fraction of the nation without, so far as I can see, any justification that is at all persuasive.”³¹

These comments normally lead most commentators of the classical liberal tradition to the conclusion that such a tradition is, at the very least, unsympathetic toward social justice.³² However, such comments are of little value for one who wants to understand what is entailed by classical liberalism and they are deceptive if wrongly understood. For instance, as we will see, Hayek dismissed only a narrow conception of social justice , namely distribution according to individual merit or desert . As Andrew Lister noted, this is the only understanding of “social justice ” Hayek explicitly condemned.³³ He did so, moreover, on the basis of what are in effect rival principles of social justice moved by liberty under the law, and prosperity. Classical liberal social justice is accordingly not a self-contradiction. For instance, Milton Friedman wrote the following:

there is a clear justification for social action […] to affect the distribution of income. Much of the actual inequality derives from imperfections of the market. Many of these have themselves been created by government action or could be removed by government action. There is every reason to adjust the rules of the game so as to eliminate these sources of inequality.³⁴

In a market society, we need a system of property and contract law, which, in turn, will create some inequality. For example, in this book, we will see how contract law creates some inequality of bargaining power and how inheritance rules often encourage inequality of opportunity. Rather than criticizing the shortcomings of market institutions to propose an alternative system, like Rawlsian property-owning democracy, we should systematically improve our understanding of markets to also possibly improve the functioning of such markets. The rules of markets can indeed be made to further some substantive egalitarian objectives. In fact, many egalitarian public policies, often described by their advocates as “social justice policies,” are justifiable on classical liberal grounds—not because social justice is the ultimate end, but because limits on poverty and inequality are necessary to what is essential for classical liberals, namely, freedom, the rule of law , and market capitalism.

This book, therefore, can also be understood as an invitation for high liberals to give a greater role to markets in their theories of social justice. One might reply that neoclassical liberals have already extended such an invitation to high liberals. But the rule egalitarian program differs radically from its neoclassical liberal counterparts. It is even, in a way, a direct critique of those programs. At this point, in order to avoid any misunderstanding, it might be useful to briefly distinguish the rule egalitarian program from high and neoclassical liberalism, and then to say a few words on the concept of “neoliberalism .”

First , following Rawls, Samuel Freeman established a distinction between “high” and “classical” liberalism,³⁵ which evokes the concepts of “high” and “low” culture. The high culture was that of, say, magnificent symphonies and grandiose architecture, while the low culture was associated with the ordinary lives of the people, with its coarseness and lack of refinement. Unfortunately, the classical liberal tradition is often taken as a “lower” form of liberalism today, such that it is thought to lack the moral refinement of high liberalism.

This leads to a regrettable portrait of the relationship between these two liberal traditions. That is, the high liberal tradition, represented by, say, John Rawls or Ronald Dworkin, is putatively concerned with both social justice and individual freedom, while classical liberalism is often said to reject both of these concerns. Classical liberals are indeed often incorrectly characterized as utilitarians,³⁶ such that for many scholars, freedom is not the first concern of classical liberalism anymore. This is a bizarre portrayal of classical liberal scholars who, after all, have consistently been exalting the virtues of liberty.

Classical liberalism, it is also assumed, rejects social justice. This rejection is one of its essential features, or so we are told. Even neoclassical liberals, as we will see, often do not question this characterization of classical liberalism. The main purpose of the distinction between classical and high liberalism is then to set apart liberals who endorse or reject social justice. Yet that way of understanding the distinction is unfounded. It is a false dichotomy that has impoverished our understanding of both social justice and the liberal tradition. The difference is rather that whereas the importance of social justice is assumed by high liberals, it is a consequence of other commitments, say liberty and the rule of law , for classical liberals. High liberals, therefore, do not have a monopoly on social justice.

Second, also known as “bleeding-heart libertarianism,” neoclassical liberalism now combines the ideals of both the classical and high liberal traditions. That is, it adopts the high liberal assumption that the social order must be justifiable to everyone, including the worst-off, and says that market institutions can be so justified. Neoclassical liberals claim that classical liberal conclusions about policy can be derived from the high liberal understanding of social justice. Unlike my approach, therefore, the neoclassical liberal justificatory strategy is a high liberal one, accepting Rawls’s principles of justice.³⁷

In other words, neoclassical liberals have a twin attraction to market capitalism and egalitarian liberalism, which is undeniably common today—and which I share. There are, however, two ways in which these two concerns can be incorporated in any given theory. One can develop either a hybrid or a pure theory. Neoclassical liberals have developed a hybrid theory , relying heavily on high liberalism. For example, in his book Free Market Fairness, Tomasi proposed an original liberal research program, which he called “market democracy ,” combining the four following thoughts:

(1) capitalistic economic freedoms as vital aspects of liberty, (2) society as a spontaneous order, (3) just and legitimate political institutions as acceptable to all who make their lives among them, (4) social justice as the ultimate standard of political evaluation.

The first two points are distinctively classical liberal, while the others are high liberal. Tomasi summarized these four ideas by saying that “market democracy affirms capitalistic economic liberties as first-order requirements of social justice.”³⁸ He accepts Rawls’s principles, but adds a wider range of economic liberties to the first principle. Not only personal property, but also productive property, and not just freedom of occupation, but also freedom to set or negotiate one’s own hours and wages are now part of that principle, along with, say, the right to decide how much to save for retirement. Tomasi also accepts the argument advanced by Brennan that capitalism maximizes the position of the worst-off over the long run, and he interprets fair equality of opportunity in terms of maximizing minimum opportunity. He therefore decidedly made his theory a hybrid one.

Conversely, I view the rule egalitarian theory as a “pure” classical liberal one. That is, although I will certainly pay tribute to the concept of social justice, I do not think of it as the ultimate standard of institutional evaluation. I agree with Tomasi and Brennan to say that social justice requires market capitalism, if only for reasons of efficiency, as we will see in Chapter 3. But my claim is rather that market capitalism requires social justice. Unlike neoclassical, then, I take a classical liberal path to justify social justice.

Inasmuch as social justice can be shown to be a valid concern for classical liberals, it is more interesting to do so in classical liberal terms. Therefore, I offer a different theory of justice than Tomasi’s. I do not assert that social institutions should be arranged to benefit all members of society, including the poor. Rather, I contend that social institutions should be arranged to be compatible with individual freedom and the rule of law , which, in turn, will require some egalitarianism , as an intermediate goal if you will. Classical liberals should accept such a line of thought independently of their views about Rawls’s theory. This argument can also appeal to high and neoclassical liberals. By making it slightly harder to justify social justice in market societies, we also potentially make the idea sturdier and more fruitful.

Third, and finally, classical liberalism is not neoliberalism . To be clear, neoliberalism is not one of the main liberal traditions, nor was it ever a tradition per se. This term has rather been consistently used as a slur to denounce liberals with whom one may disagree. At the beginning of the twentieth century, for instance, it was used by some classical liberals against liberal egalitarians. Milton Friedman criticized Henry Simons that way.³⁹ Now the tables have turned. Today, classical liberals are often branded as neoliberals, but the term remains as inappropriate as it ever was.

“Neoliberalism ” is an unfortunate concept that has recently taken a life of its own. According to Anthony Giddens,⁴⁰ neoliberals advocate for unfettered market forces. They are “market fundamentalists”⁴¹ to use Joseph Stiglitz’s words. Yet no classical liberal really defends such a position. Neoliberalism is probably one of the most common straw man arguments today, and I do not think it has its place in any serious discussion about capitalism. It makes a mess of neoclassical economics. It is used to criticize complex phenomena, such as economic globalization or fiscal austerity, without ever engaging seriously with these phenomena.⁴² It is also a poor caricature of market anarchism. The classical liberal tradition, in any case, is clearly not neoliberal. Once we reject so-called neoliberalism , we can then see that there is indeed a sturdy classical liberal case to be made about social justice, which is where the rule egalitarian program comes in.

3 A Classical Liberal Can Be an Egalitarian, but Not a Socialist

“Poverty and misfortune are evils but are not injustices,” once said Harry Acton, “and the moral demand they make is for help on the ground of humanity.”⁴³ Not so—poverty and socioeconomic inequalities are often injustices. If we are to address properly the common problems of poverty and inequality we face in market societies, I argue, we need to look at the complex system of governance and rules, in which market mechanisms are embedded.

Such a thought has been hinted at by many classical liberals, including, surprisingly as it may seem, Simons, Hayek, and Friedman. If we want to go further back, even Smith and Bentham saw greater equality of income as a vital feature of human happiness, and therefore as an essential component of their respective theory of justice.⁴⁴ Though we may all agree to encourage private charity, relying on the goodwill of the people is not enough to satisfy the egalitarian inclinations classical liberals have had. That classical liberals care about equality is not a new idea, but it is unfortunately a fading idea now.

In his study of the Chicago School of economics, for example, Lanny Ebenstein noticed this “moderate egalitarian” trend of classical liberalism. “To the extent that a society practices or experiences extreme inequality, however, it is ipso facto not a classical liberal one.”⁴⁵ What is the theoretical basis for such egalitarianism , we could then ask? Ebenstein says it is utilitarian . “The goal of free market economists from Smith to the present is to maximize everyone’s happiness, with everyone’s capacity to experience happiness being considered to be equal.”⁴⁶ I disagree with this reading of the classical liberal tradition. It is not clear that classical liberals really were utilitarian. In fact, I do not think they were.⁴⁷ For real utilitarians, whether a theory ends up supporting egalitarian policies is entirely contingent on the facts of what maximizes aggregate utility. Yet, as we will see, classical liberals have indeed endorsed egalitarian policies even when they did not maximize utility. There are different ways to justify such egalitarianism . For example, in his old age, Friedman expressed the following sentiment:

The greatest problem facing our country is the breaking down into two classes, those who have and those who have not. The growing differences between the incomes of the skilled and the less skilled, the educated and the uneducated, pose a very real danger. If that widening rift continues, we’re going to be in terrible trouble. The idea of having a class of people who never communicate with their neighbors—those very neighbors who assume the responsibility for providing their basic needs—is extremely unpleasant and discouraging. And it cannot last. We’ll have a civil war. We really cannot remain a democratic, open society that is divided into two classes. In the long run, that’s the greatest single danger.⁴⁸

Classical liberalism does not encourage civil war, it supports democracy , and therefore, we could think, such a line of thought can provide us a principled grounding for egalitarian policies. Maybe so, but this explanation would not be attractive for most classical liberals, who, after all, do not fear the breaking up of the United States. I should note, moreover, that though classical liberals support democracy , their defense has never been particularly enthusiastic.⁴⁹ In any case, egalitarianism has already been justified by democratic values, or by the idea of public reason, and classical liberals have never jumped on board such a train—though some neoclassical liberals did.⁵⁰ What I propose is more radical. Notwithstanding what they may think about democracy or utility, classical liberals must accept rule egalitarianism, without which they simply cannot be liberals.

Some additional clarifications may be useful. Rule egalitarianism defends a mild egalitarian theory—in fact, a much milder one than any determined socialist would want to accept. Its goal is to ameliorate poverty and limit extreme inequality, and therefore, one could say, it may not be egalitarian after all. Though one might think that it may in itself be bad if some people are worse-off than some others are, other things being equal, such inequality is essential to the functioning of markets, and thus not necessarily a problem. For that reason, classical liberals cannot defend all-out egalitarianism.

Then again, rule egalitarianism is not sufficientarian or prioritarian either. That is, on the one hand, it does not accept the “priority view” Derek Parfit proposed, according to which “benefiting people matters more the worse off these people are.”⁵¹ On the other hand, even though I agree with Harry Frankfurt to say that it is important that “each should have enough,”⁵² my program will also address some problems of inequality. I will defend a safety net principle, following Hayek and Friedman, as people should be assured some modest welfare. But I will also go much further to make some egalitarianism a consequence of a commitment to freedom and the rule of law .

In the end, I therefore opted for my own idiosyncratic terminology—rule egalitarianism . This theory aims to ameliorate poverty and limit inequality within the bounds of the moral and institutional dimensions of the rule of law. It calls for some redistribution to help those who would otherwise live destitute lives. That it advocates for some redistribution may be cause for misunderstanding. If it referred to the punctual reallocation of holdings at the whim of some rulers, unconstrained by law, it would evidently be antithetical to the classical liberal tradition.⁵³ I am using the term in a larger sense to refer to long-term policies that ameliorate poverty and reduce inequalities in the distribution of wealth, or, more precisely, as I will explain, to general and abstract rules. Discretionary reallocation of holdings is just one form redistribution can take, and clearly not the preferred form for the rule egalitarian program.

As I intend to stay within the bounds of the classical liberal tradition, I will not justify an all-out socialist state, nor will I argue for any kind of market socialism for which the means of production are socially owned. Any liberal scheme is inimical to Soviet-style socialism , but, as Hayek said, “it would be tilting at windmills to direct one’s argument against it.”⁵⁴ Although one can dismiss socialism using any of the four classical liberal premises detailed above, one must not extend this critical attitude to all redistributive endeavors, nor to the very concept of social justice .

One cannot deny that many classical liberals are not well disposed toward the welfare state . However, I do deny that classical liberalism in itself is inimical to social justice. In defending social justice from a classical liberal point of view, I will then disagree with some classical liberals who opposed redistribution altogether. Ludwig von Mises, for example, was quite adamant that redistribution is incompatible with the ideals of a liberal society. “Either capitalism or socialism: there exists no middle way.”⁵⁵ Such a stance, I think, cannot be justified by the beliefs of the classical liberal tradition. One can certainly oppose many things by appealing to classical liberal views, but redistribution in itself is not one of them. If one is to remain consistent with such a tradition, one may reject some redistributive policies, perhaps most of them, but certainly not all of them.

“There are many blatantly inappropriate statutes” said Epstein, “that cry out for a quick and easy kill.”⁵⁶ I thoroughly agree. But I also think there are many egalitarian rules that cry out for a quick enactment. The rule egalitarian program, hopefully, can lead to a renewal of classical liberalism that is often discarded out of hand for its stubbornness concerning social justice . For example, Friedman accepted that liberals could indeed approve minimal state action toward ameliorating poverty, but only under strict limits:

The egalitarian will go this far, too. But he will want to go further. He will defend taking from some to give to others, not as a more effective means whereby the ‘some’ can achieve an objective they want to achieve, but on grounds of ‘justice’. At this point, equality comes sharply into conflict with freedom; one must choose. One cannot be both an egalitarian, in this sense, and a liberal.⁵⁷

Not so—classical liberals can also go further, and, what is more, they should on grounds of justice. Not only is it possible to reconcile classical liberalism with social justice , but it seems that such a reconciliation has been a long time coming. We may remember that Hayek argued for an assured minimum income, that is, a non-market safety net, or “a floor below which nobody need to descend.”⁵⁸ Similarly, Friedman advocated for a negative income tax , and he even recognized that market distribution cannot be regarded as fair in a salient way.⁵⁹ Simons has also proposed an ambitious egalitarian program, even though he misleadingly called it a “program for laissez faire.” This is the side of classical liberalism we should now develop.

4 In Defense of Rule Rationalism in the Classical Liberal Tradition

It may be helpful to say a few more words on the justification of the rule egalitarian program and how it differs from other similar programs. This is potentially a polemical point for classical liberals, especially Hayekian ones. Mack and Gaus⁶⁰ identified three main ways in which different liberals have justified redistribution :

(1) Kantian tradition—i.e., there is a duty to assist and respect individuals who would not be able to sustain their personhood or agency otherwise.

(2) Contractarian tradition—i.e., there is a duty to assist because the expected costs associated with the duty will be less than the expected benefits for reasonable agents bargaining about the institutions that will govern their interactions.

(3) Consequentialist tradition—i.e., the gains in social welfare generated by a certain duty to assist will exceed the losses thereby generated.

I have already explained why the consequentialist view is not a solid basis for the rule egalitarian program, and, although there is a lot to be said about the Kantian view, I generally favor the contractarian view. I follow classical liberals like Buchanan⁶¹ and Epstein, as well as libertarians like Narveson in that I understand society “as an association for mutual advantage, whose rules, therefore, are only such as are necessary for that end.”⁶²

For contractarians, there must be some conscious social purpose behind the rules of our societies. As Gerald Cohen explained, “there is conscious social purpose in a social development if that development was planned, decided by society as such, whatever the character of the society may be, democratic, dictatorial, or something else.”⁶³ It might be objected that this contractarian stance clashes with Hayek who, it is often thought, rejected the value of conscious social purpose. Not so. Contractarianism is compatible with the Hayekian argument about the use of knowledge in society and with the distinctive classical liberal preference for spontaneous rather than planned orders.⁶⁴

The economic problem of society, Hayek explained, is “a problem of the utilization of knowledge not given to anyone in its totality.” Such a thought leads to one conclusion—we cannot rely on central planning because a single source of authority will never be able to integrate all decentralized knowledge, which, I should add, is not to say that we cannot “plan.” I take these classical liberal precepts for granted, and yet there is still an argument to be made for contractarianism , even from a Hayekian viewpoint.

My goal in this book is not to undo any mistaken reading of contractarianism,⁶⁵ but rather to show how we can reasonably back social justice from a classical liberal viewpoint. The rule egalitarian program, however, clearly disagrees with advocates of so-called Hayekian liberalism like Gaus who defend the twin ideas of self-organization and social evolution.⁶⁶ We can indeed engineer rules to pursue specific objectives. As Buchanan explains, “Hayek’s fear of constructivism may have caused him to neglect prospects for institutional adjustment that enhance the efficacy of the liberal moral order – adjustment that may be suggested in an exercise of rational reconstruction.”⁶⁷ Though we may agree with Hayek to reject “grandiose schemes that depend on behavioral adherence to rules and norms based on reason divorced from history,” as Buchanan did, it does not follow that we should equally reject what Hayek called “constructivism” or “rule rationalism ,” or what is now also variously referred to as “rationalist constructivism” or “contractarianism .” I prefer the term “rule rationalism ” to the other terms, especially contractarianism which can be confusing.⁶⁸

If by rule rationalism we mean that “since man has himself created the institutions of society and civilisation, he must also be able to alter them at will so as to satisfy his desires or wishes,”⁶⁹ then one must indeed agree with Hayek—this is a dangerous approach. However, the Hayekian critique also extends to a milder form of constructivism, as it is commonly used to criticize “any effort to modify man’s behavioral attributes.”⁷⁰ Rule egalitarianism disagrees with the rejection of such constructivism as well as with the rejection of certain kinds of deliberate rules, following Hayek’s terminology of rules :

(1) Spontaneous rules—i.e., “rules that are merely observed in fact but have never been stated in words; if we speak of the ‘sense of justice’ or ‘the feeling of language’ we refer to such rules which we are able to apply, but do not know explicitly.”

(2) Reflective rules—i.e., “rules that, though they have been stated in words, still merely express approximately what has long before been generally observed in action.”

(3) Deliberate rules—i.e., “rules that have been deliberately introduced and therefore necessarily exist as words set out in sentences.”⁷¹

What Hayek called “rule rationalism ” is thought to favor the introduction of deliberate rules. “But those of us who are what Hayek classifies as rule rationalists (along with John Locke),” said Buchanan, “find our raison d’être, as political economists-cum-social philosophers, in the conviction that humankind can, indeed, construct, maintain, and improve the procedural framework within which the spontaneous order of the market can be allowed to emerge.”⁷² I agree with Buchanan. Yet, if I may add, it would be incorrect to say that Hayek consistently rejected rationalist constructivism. He condemned “naïve rationalism,” following Karl Popper, though he remained a “critical rationalist” himself.⁷³ It can accordingly be misleading to call the neoclassical liberal anti-constructivist trend “Hayekian liberalism,” as one can often hear.

My study is Hayekian and yet it does not reject conscious social purpose. What Hayek argued is that we need a market capitalist society, as, since we do not possess all the relevant information, it is hazardous to try to “create the future of mankind” through a process of purposive rational construction. But if we accept such an argument, it does not follow that we have to reject rule rationalism . In other words, if we argue for society as a “spontaneous order ,” we do not need to also embrace “anti-constructivism” as, say, Tomasi did.⁷⁴ In fact, Hayek himself did not. His “positive proposals for government action in the ‘welfare’ field,” as Jacob Viner noted, are “a substantial enough program to destroy any claims Hayek may have to the laissez faire label”⁷⁵—although, I should add, Hayek never had any claim to that label.

We should also keep in mind, following Simons, that, “One must plan for free market controls just as carefully as (indeed, more so than) for socialization.”⁷⁶ Hayek concurred, as he argued that even a spontaneous order could entirely be the result of deliberate design.⁷⁷ A spontaneous order does not have to arise spontaneously. Such a fact is unfortunately often forgotten. Classical liberals, then, are portrayed as opponents of government activity, especially in the field of social justice. That such a portrait is mistaken is clear, and it will be made clearer in this book. For now, we can simply remember that Hayek wrote the following:

The functioning of competition not only requires adequate organization of certain institutions like money, markets, and channels of information – some of which can never be adequately provided by private enterprise – but it depends, above all, on the existence of an appropriate legal system, a legal system designed both to preserve competition and to make it operate as beneficially as possible.⁷⁸

The rule egalitarian program, therefore, falls within the rule rationalist tradition of, say, Locke and Buchanan, but it is nonetheless compatible with the main Hayekian intuitions. Though it is a given that we need rules defining the framework of market capitalism, such as property rules and contract law, we should also recognize that we could very well have different rules, and perhaps we should.⁷⁹ That is, if one is a classical liberal, one should endorse a market capitalist scheme that depends on behavioral adherence to rules well-matched to the ones we now have in, say, most common law jurisdictions. Yet one may evidently improve those rules so that they fulfill some egalitarian objectives as well, and we can do that without in any way questioning the core mechanisms of our markets.

“The nineteenth-century liberal was a radical,” said Friedman, “both in the etymological sense of going to the root of the matter, and in the political sense of favoring major changes in social institutions. So too must be his modern heir.”⁸⁰

Accordingly, one of the purposes of this book will be to offer a radical restatement of the classical liberal tradition—one for which rule rationalism is compatible with a strong defense of market institutions, and one, I might add, which rejects the common identification of classical liberalism with utilitarianism or with the night-watchman state.

I should also mention that such a radical restatement of classical liberalism was called for by Hayek himself in a 1949 paper “The Intellectuals and Socialism.” About socialists, Hayek said that, “It is because theirs has become the only explicit general philosophy of social policy held by a large group, the only system or theory which raises new problems and opens new horizons, that they have succeeded in inspiring the imagination of the intellectuals.”⁸¹ It seems to me that the classical liberal tradition has manifestly failed to inspire intellectuals for quite some time now. There must be a revolution. Enter rule egalitarianism. This program attempts to raise new problems and open new horizons for classical liberalism. In my opinion, the 1948 tract championed by Henry Simons, “Economic Policy for a Free Society,” was the last distinctively classical liberal attempt to advance such a grand program of social justice .

“Turning now to questions of justice, of equitable distribution,” Simons wrote, “we may suggest that equitable distribution is at least as important with respect to power as with reference to economic goods or income; also, that the cause of justice, perhaps in both directions, would be better served if well-intentioned reformers would reflect seriously on what their schemes imply with respect to the distribution of power. Surely there is something unlovely, to modern as against medieval minds, about marked inequality of either kind.”⁸²

The rule egalitarian program furthers Simons’ approach. The goodness of markets is a work in progress. Therefore, when unjust rules of market capitalism emerge as the result of a process of evolution, through a spontaneous order , we cannot accept these rules without failing the intuitions of the liberal tradition. Of course, I do not propose that we do as Voltaire thought we should do—“if you want good laws, burn those you have and make yourselves new ones.”⁸³ The classical liberal tradition cannot endorse all-out Cartesian rationalism, as Hayek argued, and yet, on the other hand, it cannot have a medieval mind, as Simons would put it.

The rule egalitarian program, then, finds a balance, or rather it operates within these two extremes to further social justice within the scope of a market society. As Cass Sunstein noted, “markets should be understood as a legal construct, to be evaluated on the basis of whether they promote human interests, rather than as a part of nature and the natural order, or as a simple way of promoting voluntary interactions.”⁸⁴ Such a thought is central to rule egalitarianism. That is, if market capitalism cannot accommodate some social justice, it is most probably unjust, as it would conflict with individual freedom under the rule of law . Fortunately, the rules of market societies can indeed further social justice—and, what is more, they should, rule egalitarianism argues.

5 The Rule Egalitarian Research Program Detailed

To defend the rule egalitarian program, this book is divided into four main parts, each with two chapters, respectively examining questions of justice, freedom, taxation, and exchanges.

Chapter 2 “Four Concepts of Rules: A Theory of Rule Egalitarianism” explains how the seemingly contradictory merger of classical liberalism and social justice is conceivable. A concern for the rule of law must be etched in the very core of our understanding of social justice, in which case some egalitarian rules will be necessary from a classical liberal viewpoint. More precisely, rules in a liberal polity should be general and abstract. This leads us to establish a distinction between four concepts of rules, namely between laws, regulations, directives, and decrees. Rule egalitarianism argues that having general and abstract rules of market capitalism imposes some constraints on any institutional framework such that social justice becomes necessary to correct the errors of imperfect generalizations, inevitably leaving some people behind.

Chapter 3 “Is There More to Social Justice than Efficiency?” criticizes the primacy Pareto superiority has often enjoyed in the classical liberal tradition. It is important that we see how efficiency can complement other classical liberal objectives, such that there is no one form of market capitalism. There are rather many ways of designing, say, the rules of property and contract. We can design market capitalism with broadly egalitarian goals in mind, like, for example, ameliorating poverty or limiting inequality. This chapter counters a possible objection to the rule egalitarian program, namely that it would simply make everyone worse-off, and therefore that we should not entertain such a leveling-down position. Arguing against Jason Brennan, it shows that the case for Pareto superiority has its limits.

Chapter 4 “No Malibu Surfer Left Behind: A Proposal for a Basic Income” examines the question of private coercion in market societies. It explains why classical liberals need a strategy to deal with certain problems of private coercion so that markets can be just. The evils of private coercion removed by a social safety net are greater than those that accompany the mild governmental interference necessary to carry out such a net, and therefore, the chapter argues, we must have a basic income guarantee in a liberal polity. This guarantee, moreover, must be unconditional, such that it even covers Malibu surfers who lead a life of self-indulgence.

It is common to assume that the main disagreement between classical and high liberals is about how to harmonize economic rights with a theory of justice. Chapter 5 “The Fictitious Liberal Divide on Economic Rights,” conversely, argues that both classical and high liberals understand economic rights as prima facie rights, and not as basic rights. If there is any disagreement on such a matter it comes from neoclassical liberals who are most probably misrepresenting their own understanding of economic rights by calling such rights basic. There is no real disagreement in the liberal tradition concerning the nature and the justification of economic rights. Both classical and high liberals agree that economic rights may be limited to pursue some aspects of social justice.

Any liberal theory that would take seriously the question of equality before the law is bound to engage with discrimination-related matters, and so long as one is a liberal one should oppose all discrimination coming from the state. This, however, may be a double-edged sword since many classical liberals have quite readily opposed progressive taxation by invoking its discriminatory nature. Some liberals conclude that one cannot establish different tax brackets, lest taxation be illiberal. Chapter 6 “No Progressive Taxation Without Discrimination?” refutes this assumption. Progression is compatible with the classical liberal concern for the rule of law, provided legislative discretion on tax-related matters is duly limited by the principle of generality and by a certain standard of reasonable lawmaking.

Historically, it is safe to say that very few laws did as much to stoke inequality as laws touching descents and hereditary transmissions. Chapter 7 “An Inheritance Tax Dead on Arrival” attempts to see if the classical liberal tradition can endorse inheritance taxation to further fair equality of opportunity and to lessen inequality of underserved wealth. It argues that fair equality of opportunity is a necessary feature of market societies to make sure that they remain competitive. Therefore, along with other measures, inheritance taxation is most likely necessary from a classical liberal standpoint as an instrument of social mobility to counter notable problems of social immobility, say hereditary vocational stratification, which a system of private property rights predictably creates.

Chapter 8 “Toward a Model of Default Fairness” argues for fair default rules of contract law, supplying terms that are subject to contractual override. Contract law can and should be reformed to be more fair, that is, to counter some problems of inequality of bargaining power, without enacting any mandatory rule. Classical liberals are correct to reject mandatory rules aimed at achieving substantively fair agreements, like price ceilings and wage floors. But they are incorrect to reject default standards of substantive fairness that can be applied to voluntary, mutually beneficial exchanges, and they are equally incorrect to reject the claim that contract law could and should be modified in order to better serve the ideal of social justice.

Contracting parties are the best judges of their own interests. So goes the usual story found in the classical liberal literature. Within a classical liberal framework, we are told, prices are not determined by any particular individual, but are rather the result of the many market interactions of autonomous agents. To impose a just price is then thought to be illiberal. Chapter 9 “Can We Meaningfully Talk About Just Prices?” questions such a position. It demonstrates that some transactions could not happen in a market society without a certain theory of just prices, and that such transactions then feed into our understanding of markets, therefore making just prices a de facto reality. Classical liberals should accordingly reassess their view of just prices, such a notion being indispensable to workable market societies.

I refrain from furthering this plan any longer. The most desirable effect of this study would be to kindle a classical liberal discussion of social justice. Even if classical liberals were to remain skeptical about the rule egalitarian program, this book will be valuable if it permits us to question the excessively polarized debate on social justice, or if it can dispel some misunderstandings surrounding the classical liberal attitude toward social justice.