Is the Wealth of the Rich Legitimate? Part 3

In previous posts (here and here) I've examined two stories that the rich tell to explain why their wealth is legitimate. Or, more precisely, I've considered and rejected two arguments meant to show that the wealth of capitalists is legitimate. The first was that capitalists deserve their wealth because their incomes are exactly proportional to their productive contributions to society. The second was that the wealth of capitalists is their reward for taking risks. We saw that neither argument succeeded in showing that wealth of the rich is legitimate. But another important argument, which we have yet to consider, still looms large. That argument is that wealth of capitalists is legitimate because it flows into their hands by way of voluntary market transactions between individuals.

Before we look at that argument more closely, let me situate it within the overall context of attempts to justify capitalism. As I see it, there are three main strategies: consequentialist, rights-based and desert-based. We've already seen two desert-based attempts at justification. Desert-based arguments claim that the wealth of capitalists is legitimate because they can be said to deserve it (e.g. because it matches their productive contributions or because proportionally rewards some risky activity that yields a productive contribution). I examined two desert-based arguments already and argued that they were untenable.

Consequentialist arguments, on the other hand, claim that capitalist wealth is justified because it is a means to desirable consequences (e.g. overall economic growth, socially useful innovation, etc.). Most consequentialist arguments for capitalism focus on incentives (not on what we can be said to deserve or have a right to). We have seen at least one consequentialist argument already within the post on risk-taking, namely, that some capitalists need big shares of wealth in order to incentivize or motivate them to take risks to innovate. That particular argument is consequentialist because it says that big cash rewards (for capitalists) are a necessary means to good overall consequences (i.e. generating socially useful innovations). I'll examine consequentialist arguments in more detail in part 4, which will be the final installment of this series on the wealth of the rich. The main focus of this post, however, will be to refute rights-based justifications of capitalism. Rights-based arguments claim that capitalist wealth is legitimate because they acquired it through a series of legitimate, voluntary individual market transactions.

The typical rights-based argument for capitalism goes something like this: Provided that there is "no force or fraud", everything a capitalist can get from the market is legitimately theirs. Or, put another way, because the market is nothing more than a space for free individual exchange, everything that results from it is legitimate. Why should voluntary exchanges between individuals yield legitimate holdings? Because voluntary market exchange, it is argued, tends to exemplify individual freedom. On this view, people are free if they enjoy certain rights of non-interference. But because the market is (allegedly) no more than an aggregation of free, voluntary individual exchanges, it follows that any third party interference with market activity would curtail freedom (and violate the rights) of market participants.

The most famous statement of this argument was given by right-wing philosopher Robert Nozick in his 1974 book Anarchy, State and Utopia. In that book, he puts forward a thought experiment involving Wilt Chamberlain that purports to show that capitalist market distributions are just (and that any interference with them is illegitimate). The gist of it is this. Suppose that lots of people want to see Wilt Chamberlain play basketball. Suppose that they are each more than willing to part with $5 to see him. So, Chamberlain collects a $5 admission fee from each person who wants to come see him play. Each person, let us suppose, is freely and voluntarily making the choice to pay $5 for a ticket to see him play. At the end of the day, Chamberlain has amassed quite a fortune from ticket sales. But it looks as if he's done so in a way that is 100% unobjectionable. After all, hasn't he done no more than transacted with hundreds of individual persons, all of whom were very pleased to pay $5 to see him play?

Nozick's point is two-fold. First, it appears as though any interference with this process would be wrong. After all, would a third-party be justified in paternalistically judging that the fans shouldn't spend $5 on a ticket? Would it be fair if someone prevented Chamberlain from individually interacting with any of the fans who purchase the tickets? Nozick's point is that any interference with this process would be tantamount to "prohibiting capitalist acts between consenting adults." Put more plainly, it would interfere with the freedom (and the right to non-interference) of those involved. Second, it looks as if any redistribution of Chamberlain's earnings would unjustly tinker with his legitimate holdings. After all, if he acquired all of his earnings fair and square, and if each individual transaction freely gave them to him through a market exchange, what gives some third party the right to interfere? Wouldn't any redistribution, or social system that prevented such free exchanges, curtail the freedom of people like Chamberlain and his fans to come together for mutual gain?

Before I show why Nozick's argument doesn't work, let's get even clearer about what it attempts to show. Notice that Nozick is not saying that Wilt Chamberlain deserves the money he receives. Neither is he saying that the fans deserve to see him play. Desert doesn't enter into it. Nozick's own view--and other hard-Right defenders of capitalism are with him on this--is that it would require a lot of third party interference to actually have a society in which we could be sure that everyone got what they "deserved". In other words, he thought there would have to be some agency charged with monitoring whether someone was industrious, thrifty, lazy, etc. in order to see that they got what they deserved. So, unlike many a defender of capitalism, Nozick isn't naive enough to think that capitalism simply gives each what they deserve. What he does think, however, is that capitalism is the only system in which freedom from external interference reigns supreme. The Chamberlain example is supposed to show us that allowing voluntary market exchanges typically produces inequalities of wealth that are fully justified. Any other kind of social system--or any redistribution of Chamberlain's wealth--would, for Nozick, require that we sideline individual freedom for the sake of something else.

There are number of well-known problems with the argument. I make no claims to being original here--a good number of the most convincing criticisms are made by G.A. Cohen in Self-Ownership, Freedom and Equality.

One problem is that it is far from clear that a "voluntary" market exchange is therefore one that is freely entered into. This problem is simply not addressed by the WC parable. Take the case of price-gouging during natural disasters. Now, if I sell you a bottle of water for $100 in the aftermath of hurricane Katrina, and you're really thirsty, there's a sense in which I'm not coercing you to buy the bottle. You could walk away and try to find water somewhere else. So if you buy my $100 bottle of Aquafina, there's a sense in which it is voluntary. But are you free in such a case? Hardly. You are disempowered, desperate and vulnerable to exploitative treatment from people like me. Moreover, I'm in a dominant position with respect to you because I have some crucial thing you need to survive, and I am under no duress to give it to you whereas you are under a lot of pressure to get it. Lots of market exchanges, while not quite as vivid or extreme as this, are very similar. Market transactions between buyer (capitalist) and seller (worker) of labor-power are lopsided. And, of course, the worker is forced (and thereby made unfree) to sell her labor-power to a capitalist on the market because she has no other means to earn a living. Prenuptial agreements are often lopsided in favor of men because they have more bargaining power (maybe because of sexist social norms, maybe because they are the "bread winner", etc.). There are any number of examples here. The point is that market exchanges--from the perspective of freedom alone--look a lot less innocent than the WC example lets on once we examine the real world. Nozick isn't for the greatest overall amount of individual freedom in society. He's simply against certain restrictions on the property rights of owners of property. Accordingly, he rejects redistributing wealth from the 1% to the 99% in order to increase the aggregate amount of freedom in society. As I've noted elsewhere, this is one reason that the epithet "libertarian" simply cannot reasonably apply to those who defend capitalism.

Another problem is the following. The fans in the example are imagined to want nothing more than to see Chamberlain play. But there will surely be a gap between what they think they're getting and what will actually result from their aggregated transactions. The fact that they want to see WC play doesn't mean that they want him to individually amass a huge fortune. Neither does the fact that they're willing to pay $5 to see him play mean that they voluntarily consent to the power over others that a large mass of wealth might grant WC. Holdings in capitalist societies are, after all, not simply means of consumption, but sources of power. Suppose everything is put up for sale on the market, and that someone uses his wealth to purchase what were previously public streets in a particular city (I borrow this example from Elizabeth Anderson's paper "The ethical limitations of the market"). This quite obviously leaves open the door for a great deal of tyranny. When roads are publicly owned, I need not ask anyone for their permission to use them. I am free to move about where I please and I need not bow or scrape before some particular owner. But when the roads are the private property of another person, Nozick thinks the guns of the State must be used to protect whatever arbitrary decisions the owner makes regarding their property. So if, for example, the owner forced everyone to get his explicit permission to use the roads, that would be protected by the coercive power of law. Or, if he only allowed roads to be used on Tuesdays, that would fly as well. Or, he could charge an exorbitant fee. The point is that all the non-owners of the road would be subject to arbitrary restraints on their freedom of movement and association by owners. They would be forced to subject themselves to whatever crazy terms the owners demand. Nozick could have no complaint about any of this. Stronger still, Nozick would staunchly oppose any democratic decision-making process that aimed to regulate or reclaim ownership of the roads. Thus, we see what side he's really on: property owners come first, even if the vast majority is made less free as a result of their actions.

But Nozick wants us to think that the resulting consequences of the market transactions in the WC example are legitimate because each person voluntarily willed them into being. But, in fact, they didn't. All each fan did--from their individual perspective--was consent to pay a small sum to see WC play. They didn't consent to all of the macro-level economic consequences that might follow from allowing one person to amass large sums of wealth. Nor have the explicitly given WC their blessing to buy up public roads (or whatever else WC might do with his holdings).

All of this is concealed in Nozick's thought experiment. He asks us to blindly jump from the micro-level ("what could be wrong with parting with $5 to see WC play?") to the macro-level without asking how it is that the decisions within the former should justify consequences in the latter. More often than not, the large-scale consequences of market transactions are opaque to individual actors. And, what's more, often the choices of some market actors curtail the choices of others by impacting supply, demand, employment, investment, etc. So it would be absurd to say that the narrow perspective of the individual consumer lends legitimacy to the macro-consequences of the aggregation of millions of uncoordinated individual actions. When I purchase a can of soup, I may be said to have made some voluntary exchange with the owners of the grocery store. But I haven't freely consented to all of the consequences of that transaction, since I may not even know what they will be (or what they are likely to be). Yet Nozick wants to confer legitimacy on the large-scale outcomes of market transactions by appealing to our free consent in small-scale individual transactions. There's a massive gap in the argument here. Everyone knows that capitalism is arranged in such a way that individually "rational" actions produce collectively irrational outcomes that no particular individual endorses. Why should the individual attractiveness of buying a ticket to see WC for $5 grant legitimacy to those macro-level outcomes, particularly when it's hard to see them from the perspective of an individual consumer? It's almost as if Nozick is simply blotting out any critical analysis of the social system itself, preferring instead to keep us focused on small-scale transactions. The ideological effect of keeping us on the micro-level is profound.

Another problem is the following. Just because I'm willing to pay $5 to see Wilt Chamberlain play doesn't entail that I'm willing to pay Wilt Chamberlain that money. I might be willing to part with $5 to see him play, but I might not want him to acquire a disproportionate share of resources (because that would give him unjustifiable power over others, say). Maybe I'm willing to throw into a public pot to see WC, but I'm unwilling to allow one person to amass all of the earnings. Nozick simply glosses over the difference between these two--which clearly adds to the rhetorical power of his example.

There are deeper problems with the WC parable, however. Nozick wants to generalize the WC example to all of society. But once the market rules all spheres of public (and private) life, there's no space left for democracy at all. This doesn't bother Nozick himself, or many so-called "libertarians", because they aren't fans of democratic self-rule.

But suppose that Nozick had swallowed his disdain for democracy and argued instead that markets are democratic since, as in the WC example, people can "vote with their dollars." Notwithstanding the obvious undemocratic fact that "voting with dollars" means that those with more money get more votes, there are still other more fundamental reasons why markets are not democratic. The trading floor of a stock exchange is not like a public forum for deliberation and debate among equals. The market, as André Gorz describes it, "is a place where huge production and sales oligopolies...encounter a fragmented multiplicity of buyers who, because of their dispersed state, are totally powerless... [the consumer] is only able to choose between a variety of products, but he has no power to bring about the production of other articles, more suited to his needs, in place of those offered to him." The problem here is that markets respond to unreflective individualized wants--consumer preferences--expressed by buying or not buying something. Genuine democracy, however, is not fundamentally about unreflective individual wants. Democracy is about the exchange of public reasons between free and equal citizens about matters of collective concern. We could rephrase this in terms of exit vs. voice, consumer vs. citizen. Markets give the consumer (or the seller) freedom of exit. The buyer can simply walk away without buying, just as the seller can say "take it or leave it". But the consumer has no freedom of voice. That is, consumers have no power to shape the background conditions that structure the choices before them in the marketplace. Moreover, they have no say or voice in decisions about what gets produced, how it gets produced, etc. All they have is the freedom to buy or not buy--as consumers they lack any other means of having a voice in the basic structure of the economy. Notice that workers--if they are not organized--also lack freedom of voice and only have the power to quit their job (but no genuine say in their work conditions, what gets produced, etc.).

Freedom of voice, however, is central to any plausible notion of democracy. Democracy means that we collectively base our decisions on collective reasoned argument, not on unreflective individual consumer preferences. For example, if I'm in a convenience store looking to buy a candy bar, it would be absurd for the store owner to come and criticize, question and debate me about my taste in candy. I would be perfectly justified in saying, "look, I don't have to justify myself to you, I just want the goddamn snickers." But the same is not true of relations between citizens in a self-governing society. Democracy requires that we give public justifications--that others could in principle accept--when we advocate for doing this or that. When we democratically decide what to do, it must be based upon free discussion among equal citizens where nothing but the force of the better argument prevails (e.g. not power, not domination, not threats, etc.). Moreover, democratic processes require that citizens be able to hold one another to account. It wouldn't make sense to say that I "prefer" or merely "want" to cut the Pentagon budget in the same way that I prefer or merely want a snickers bar. Similarly, if you were working in a small group on some project, it would be ridiculous if you said "look, I just want to do X" and then followed all questions from your fellows with "look I just do, OK?". What this makes clear is that there is a profound difference between being a consumer and being a citizen in a self-governing society. Defenders of capitalism often generalize the model of the individual consumer to all spheres of life, thereby eliding more important roles such as that of the citizen.

Let me raise one further objection to the rights-based "entitlement" defense of capitalism. In order to transfer ownership titles through voluntary market exchanges, there have to be things--commodities--that can be bought or sold. But the market cannot create commodities--it is only a mechanism for transfer and exchange. Thus, the rights-based defense of capitalism is incomplete without a story about "just acquisition", that is, a story about how previously unowned things can legitimately become commodities (buyable and sellable on markets). I note, in passing, that any consistent advocate of the rights-based argument for capitalism would have to concede that massive redistributions of wealth and reparations would be necessary to correct for the enslavement, expropriation, violence, colonial domination and oppression that was a central part of how the riches of contemporary capitalism were created. Let us set that inconvenient fact aside, however, and ask a different question: how could unowned things in the world come to be legitimately owned by someone? Rousseau had an answer to this question: "the first man who, having enclosed a piece of land, took it into his head to say, "this is mine", and found people simple enough to believe him, was the true founder of civil society. The human race would have been spared endless crimes, wars, murders and horrors if someone had pulled up the stakes or filled in the ditch and cried out with his fellow men, "Do not listen to this impostor! You are lost if you forget the fruits of the earth belong to everyone, and the earth to no one!". In other words, why wasn't the "original acquisition" of previously unowned parts of the earth not a theft of what should be rightfully held in common? And there are further problems here: aren't some things distorted or degraded if they they are turned into commodities? Take friendship. Friendship, properly understood, may not be bought or sold and still remain friendship. Love is the same way. It also seems wrong to allow (as Nozick does) human beings to be bought and sold as property. Moreover, isn't there something wrong with allowing rights to free speech to be bought and sold on markets? And isn't it wrong to allow people to purchase and sell political influence, justice in the courts, political offices, fire protection, honors (e.g. the Pulitzer Prize), etc.? If this is true--and I think it's obvious that it is--we see quite clearly that generalizing the model of "voluntary market exchange" to all spheres of life makes no sense. It generates irrationalities, unfreedom, lack of democratic voice, and oppression.

So where does this leave us in terms of the rights-based defense of capitalism? What we've seen is that entitlement on the basis of voluntary exchange cannot be generalized to all spheres of life without giving up on the ideals of freedom, equality and democracy. But does that mean that a socialist society would forbid all voluntary exchanges? Of course not. The defining feature of socialism, after all, isn't located within the sphere of exchange or distribution but within production. Socialism has to do with who owns and controls society's means of production. Socialists argue that the people should democratically own and control them; capitalists argue that a small class should own them and all others should be excluded. So, socialists need not deny that there is a role for voluntary exchanges (whether they be in the form of gifts or in the form of market exchanges). What socialists do have to say, however, is that certain goods should not ever be treated like commodities. Political power, access to education, the means of production, human beings, etc. should never be bought and sold through market transactions. Let candy bars be bought and sold, but leave the important features of our shared life together under the jurisdiction of democracy from below.